<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR QUARTER ENDED SEPTEMBER 30, 1997 COMMISSION FILE NUMBER 1-13256
---------------------------
EVANS WITHYCOMBE RESIDENTIAL, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 86-0766008
(State or other jurisdiction (I.R.S. employer identification no.)
of incorporation or organization)
6991 EAST CAMELBACK ROAD, SUITE A200, SCOTTSDALE, ARIZONA 85251
(Address of principal executive offices)
Registrant's telephone number, including area code: (602) 840-1040
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 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 90 days.
YES X NO
----- -----
As of November 7, 1997 there were 20,477,006 shares of the registrant's
common stock, $0.01 par value outstanding.
Page 1 of 27
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Consolidated Balance Sheets as of
September 30, 1997 (Unaudited) and
December 31, 1996................................3
Consolidated Statements of Income for
the three and nine months ended September 30,
1997 and 1996 (Unaudited)........................4
Consolidated Statement of Stockholders'
Equity as of September 30, 1997 (Unaudited)......5
Consolidated Statements of Cash Flows for
the nine months ended September 30, 1997
and 1996 (Unaudited).............................6
Notes to Consolidated Financial Statements.......7
Item 2 Management's Discussion
and Analysis of Financial
Condition and Results of
Operations............................14
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K.....25
SIGNATURES ................................................25
Page 2 of 27
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except for number of shares)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ ------------------
<S> <C> <C>
ASSETS (Unaudited)
Real Estate:
Land............................................ $ 129,278 $ 121,915
Buildings and improvements...................... 606,882 543,839
Furniture and fixtures.......................... 34,780 29,567
Construction-in-progress........................ 35,568 66,229
------------------ ------------------
806,508 761,550
Less accumulated depreciation................... (54,409) (38,331)
------------------ ------------------
752,099 723,219
Cash and cash equivalents......................... 2,488 2,568
Restricted cash................................... 15,305 1,622
Accounts and notes receivable..................... 2,453 3,500
Mortgage notes receivable......................... 7,188 -
Deferred costs, net of accumulated amortization
of $1,851 and $1,265 at September 30, 1997 and
December 31, 1996, respectively................. 4,503 3,838
Other assets...................................... 3,135 1,587
------------------ ------------------
Total assets...................................... $ 787,171 $ 736,334
------------------ ------------------
------------------ ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage and notes payable........................ $ 442,156 $ 436,172
Accounts payable and other liabilities............ 8,962 7,833
Dividends payable................................. 7,765 -
Accrued interest.................................. 5,327 1,417
Accrued property taxes............................ 5,306 2,912
Resident security deposits........................ 2,617 1,818
Prepaid rent...................................... 838 585
Total liabilities................................. 472,971 450,737
------------------ ------------------
Minority interest................................. 53,351 56,592
Stockholders' Equity:
Preferred stock, $.01 par value, 10,000,000
shares authorized, issued and outstanding -
none.......................................... - -
Common stock, $.01 par value, 100,000,000 shares
authorized, 20,433,747 and 18,366,902 issued
and outstanding at September 30, 1997 and
December 31, 1996, respectively............... 204 184
Additional paid-in capital...................... 294,177 253,425
Unamortized employee restricted stock
compensation.................................. (1,691) (465)
Distributions in excess of net income........... (31,841) (24,139)
------------------ ------------------
Total stockholders' equity........................ 260,849 229,005
------------------ ------------------
Total liabilities and stockholders' equity........ $ 787,171 $ 736,334
------------------ ------------------
------------------ ------------------
See Notes to Consolidated Financial Statements
</TABLE>
Page 3 of 27
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except for number of shares and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
------------- ------------- ------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental.......................................... $ 28,417 $ 24,351 $ 83,282 $ 68,565
Third party management fees..................... 381 103 611 1,054
Interest income - investment in mortgage notes.. 194 - 201 -
Interest and other.............................. 2,255 1,502 5,777 4,622
------------- ------------- ------------- -------------
Total revenues.................................... 31,247 25,956 89,871 74,241
Expenses:
Property and maintenance........................ 7,709 7,367 22,143 18,759
Real estate taxes and insurance................. 2,552 1,847 7,287 5,574
Property management............................. 788 721 2,328 2,429
General and administrative...................... 444 406 1,311 1,366
Depreciation.................................... 6,701 5,437 19,338 15,077
Interest:
Expense incurred, net of amounts capitalized.. 7,587 6,077 22,534 16,693
Amortization of deferred financing costs...... 286 174 741 451
------------- ------------- ------------- -------------
Total expenses.................................... 26,067 22,029 75,682 60,349
------------- ------------- ------------- -------------
Income before minority interest, gain on sale of
real estate assets and extraordinary item....... 5,180 3,927 14,189 13,892
Gain on sale of real estate assets................ 2,278 - 7,531 -
Minority interest................................. (1,359) (812) (4,023) (3,051)
------------- ------------- ------------- -------------
Income before extraordinary item.................. 6,099 3,115 17,697 10,841
Extraordinary item-
loss on early extinguishment of debt
net of minority interest of $300................ - - (1,200) -
Net income........................................ $ 6,099 $ 3,115 $ 16,497 $ 10,841
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings per share before extraordinary item...... $ 0.30 $ 0.17 $ 0.88 $ 0.63
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings per share................................ $ 0.30 $ 0.17 $ 0.82 $ 0.63
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average shares outstanding............... 20,367,905 18,271,915 19,997,836 17,118,499
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
See Notes to Consolidated Financial Statements
</TABLE>
Page 4 of 27
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Amounts in thousands, except for number of shares and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
UNAMORTIZED
EMPLOYEE
ADDITIONAL RESTRICTED DISTRIBUTIONS
NUMBER OF COMMON PAID-IN STOCK IN EXCESS OF
SHARES STOCK CAPITAL COMPENSATION NET INCOME TOTAL
--------- --------- ---------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity, December 31, 1996... 18,366,902 $ 184 $ 253,425 $ (465) $ (24,139) $ 229,005
Net income................................ - - - - 16,497 16,497
Dividends on common stock
($1.19 per share)..................... - - - - (24,199) (24,199)
Proceeds of third offering, net of
underwriting discount and offering....... 1,800,000 18 35,397 - - 35,415
costs of $406
Conversion of units to common stock....... 164,076 2 3,233 - - 3,235
Exercise of stock options................. 36,500 - 731 - - 731
Issuance of restricted stock.............. 69,775 - 1,435 (1,435) - -
Forfeiture of restricted stock............ (3,506) - (44) - - (44)
Amortization of deferred compensation..... - - - 209 - 209
------------ --------- ---------- ------------ -------------- ----------
Stockholders' equity, September 30 1997... 20,433,747 $ 204 $ 294,177 $ (1,691) $ (31,841) $ 260,849
------------ --------- ---------- ------------ -------------- ----------
------------ --------- ---------- ------------ -------------- ----------
See Notes to Consolidated Financial Statements
</TABLE>
Page 5 of 27
<PAGE>
<TABLE>
<CAPTION>
EVANS WITHYCOMBE RESIDENTIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................... $ 16,497 $ 10,841
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 19,338 15,077
Amortization of deferred financing costs
and bond discount............................. 807 495
Amortization of deferred comp................... 255 360
Minority interest............................... 3,723 3,051
Net gain on sale of real estate assets.......... (7,531) -
Write-off of development and acquisition costs.. 402 107
Write-off of deferred loan costs................ 294 -
Decrease (increase) in assets:
Restricted cash................................. (13,683) (371)
Accounts and notes receivable................... 1,047 (1,203)
Other assets.................................... (1,548) (160)
(Decrease) increase in liabilities:
Accounts payable and other liabilities.......... 1,129 (425)
Accrued interest................................ 3,910 141
Accrued property taxes.......................... 2,394 2,201
Resident security deposits...................... 799 158
Prepaid rent.................................... 253 341
------------ ------------
Net cash provided by operating activities........... 28,086 30,613
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of real estate assets...................... (54,431) (103,443)
Sale of real estate assets.......................... 24,383 -
------------ ------------
Net cash used in investing activities............... (30,048) (103,443)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Third Public Offering, net
of expenses........................................ 35,415 -
Proceeds from Second Public Offering,
net of expenses.................................... - 40,891
Proceeds from exercise of options................... 731 234
Proceeds from mortgage notes and revolving
credit facility................................... 209,306 235,028
Principal payments on mortgage notes................ (221,706) (178,748)
Payment for loan costs.............................. (1,700) (1,758)
Dividends paid...................................... (16,434) (19,550)
Minority interest distributions..................... (3,730) (5,509)
------------ ------------
Net cash provided by financing activities........... 1,882 70,588
------------ ------------
Net decrease in cash and cash equivalents........... (80) (2,242)
Cash and cash equivalents, beginning of period...... 2,568 3,634
------------ ------------
Cash and cash equivalents, end of period............ $ 2,488 $ 1,392
------------ ------------
------------ ------------
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest............ $ 18,624 $ 16,500
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY
Assumption of debt related to the acquisition of
apartment communities............................. $ 18,318 $ 22,650
------------ ------------
------------ ------------
Origination of carryback mortgage notes arising
from sale of apartment communities................ $ 7,188 $ -
------------ ------------
------------ ------------
Issuance of stock under restricted stock
incentive plan.................................... $ 89 $ 66
------------ ------------
------------ ------------
Conversion of units to common stock................. $ 3,234 $ 888
------------ ------------
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements
Page 6 of 27
<PAGE>
EVANS WITHYCOMBE RESIDENTIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS, EXCEPT FOR APARTMENT DATA, NUMBER OF SHARES OR UNITS AND
PER SHARE AMOUNTS)
(UNAUDITED)
1.ORGANIZATION AND FORMATION OF THE COMPANY
Evans Withycombe Residential, Inc. (the "Company") is one of the largest
developers and managers of upscale apartment communities in Arizona and is
expanding its operations into selected sub-markets in Southern California.
The Company owns and manages 51 stabilized multifamily apartment communities
containing 14,747 units, of which 44 stabilized multifamily apartment
communities are located in Phoenix and Tucson, Arizona, containing a total of
12,349 units and seven stabilized multifamily apartment communities are
located in the Southern California market containing a total of 2,398 units.
The Company is also in the process of developing or expanding four
multifamily apartment communities comprising 953 units in its Phoenix market.
The Company is fully integrated with expertise in development, acquisitions,
construction and management of apartment communities. The Company had
approximately 600 employees at September 30, 1997.
The Company was incorporated on May 24, 1994 to develop, acquire, own and
manage upscale multifamily apartment communities. On August 17, 1994, the
Company completed an Initial Public Offering and engaged in various formation
transactions designed to transfer ownership of the communities and other
assets of the predecessor company to Evans Withycombe Residential, L. P. (the
"Operating Partnership") or Evans Withycombe Finance Partnership, L.P. (the
"Financing Partnership"). The Company is the sole general partner of and
owned a 81.9 percent and 79.3 percent interest in the Operating Partnership
at September 30, 1997 and 1996, respectively. The Company also holds a
noncontrolling interest in Evans Withycombe Management, Inc. (the "Management
Company").
In the second quarter of 1996, the Company completed the Second Public
Offering. The net proceeds of $40,891 from the sale of 2,088,889 shares of
common stock from the Second Public Offering were used to repay a portion of
the $150 million unsecured Revolving Credit Facility (Revolving Credit
Facility).
In the first quarter of 1997, the Company completed the Third Public
Offering. The net proceeds of $35,415 from the sale of 1,800,000 shares of
common stock from the Third Public Offering were used to repay a portion of
the Revolving Credit Facility.
The Company elected to be taxed as a real estate investment trust ("REIT")
for Federal income tax purposes. A corporate REIT is a legal entity which
holds real estate interests and, through payments of dividends to
stockholders, is permitted to reduce or avoid the payment of federal income
taxes at the corporate level.
2.BASIS OF PRESENTATION
The accompanying consolidated financial statements of Evans Withycombe
Residential, Inc. include the consolidated accounts of the Company, the
Operating Partnership, the Financing Partnership and the Management Company.
The accompanying unaudited consolidated financial statements have been
presented by the Company's management in accordance with generally accepted
accounting principles for interim financial information and the rules and
regulations of the Securities and Exchange Commission (SEC). Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
All significant intercompany accounts and transactions have been eliminated
in consolidation. In the opinion of management, all adjustments (consisting
of normally recurring accruals) considered necessary for a fair presentation
have been included. The results of operations for the nine month period
ended September 30, 1997 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1997.
Page 7 of 27
<PAGE>
2.BASIS OF PRESENTATION (CONTINUED)
These consolidated financial statements should be read in conjunction with
the Company's December 31, 1996 audited consolidated financial statements and
accompanying notes in the Evans Withycombe Residential, Inc. Annual Report on
Form 10-K/A.
RECLASSIFICATION
Certain amounts in the consolidated statements of income for 1996 have been
reclassified to conform to the 1997 presentation.
3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REAL ESTATE ASSETS AND DEPRECIATION
The Company records its real estate assets in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of".
SFAS No. 121 requires that long-lived assets such as real estate assets, be
reviewed whenever events or changes in circumstances indicate that the book
value of the asset may not be recoverable. If the sum of the estimated
future net cash flows (undiscounted and without interest charges) from an
asset to be held and used is less than the book value of the asset, an
impairment loss must be recognized in the amount of the difference between
book value and fair value as opposed to the difference between book value and
net realizable value under the previous accounting standard. For long-term
assets like apartment communities, the determination of whether there is an
impairment loss is dependent primarily on the Company's estimates on
occupancy, rent and expense increases, which involves numerous assumptions
and judgments as to future events over a period of many years. At September
30, 1997 the Company does not hold any assets that meet the impairment
criteria of SFAS No. 121.
Costs related directly to the acquisition and improvement of real estate are
capitalized. Interest costs incurred during construction of a new property
are capitalized until completion of construction on a building-by-building
basis. Interest capitalized was $509 and $1,479 and $608 and $2,072, for the
three and the nine months ended September 30, 1997 and 1996, respectively.
Ordinary repairs, maintenance and costs incurred in connection with resident
turnover such as unit cleaning, painting, and carpet cleaning are expensed as
incurred; major replacements and betterments are capitalized and depreciated
over their estimated useful lives. Depreciation is computed on a
straight-line basis over the expected useful lives of depreciable property,
which ranges from 10 to 40 years for buildings and improvements and five to
eight years for furnishings and equipment.
The Company reports developments and lease-up properties as
construction-in-progress until construction on the apartment community has
been completed and the apartment community has reached stabilized occupancy.
The Company also reports land relating to construction-in-progress as land on
its balance sheet. Land associated with construction-in-progress was $8,272
and $12,060 at September 30, 1997 and December 31, 1996, respectively.
REVENUE RECOGNITION
Rental income attributable to residential leases is recorded when due from
residents. Leases are for periods of up to one year, with rental payments due
monthly.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all cash and cash equivalent investments
with original maturities of three months or less, primarily consisting of
demand deposits in banks.
Page 8 of 27
<PAGE>
3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESTRICTED CASH
Restricted cash includes restricted deposits held by third party
intermediaries for the purpose of completing an IRS Section 1031 tax free
exchange, sinking fund accounts related to tax exempt bonds, property taxes
and escrow accounts.
DEFERRED COSTS
Costs incurred in obtaining long-term financing are deferred. These costs are
amortized on the effective interest method over the terms of the related debt
agreements.
INCOME TAXES
The Company has made an election to be taxed as a REIT and accordingly, no
federal or state income taxes have been provided in the accompanying
consolidated financial statements.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
EARNINGS PER SHARE
Earnings per share has been computed by dividing net income for the three and
the nine months ended September 30, 1997 and 1996, respectively, by the
weighted average number of shares outstanding during the period.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share" which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods
presented. Under the new requirements for calculating basic earnings per
share, the dilutive effect of stock options will be excluded. The impact of
SFAS No. 128 is not expected to be material.
4. MORTGAGE NOTES RECEIVABLE
The Company's mortgage notes receivable consists of a $7.2 million mortgage
note receivable at a fixed rate of 8.0 percent secured by a first mortgage
lien on The Pines Apartments, matures November 1, 1997. The mortgage note
receivable maturity date can be extended 30 days to December 1, 1997 at the
option of the borrower.
Page 9 of 27
<PAGE>
5. MORTGAGE AND NOTES PAYABLE
The Company's mortgage notes and notes payable consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Conventional Mortgage Loans:
Mortgage note payable at a fixed interest rate of 8.0 percent, monthly
principal and interest payments. The unpaid principal balance was repaid on
January 9, 1997. $ - $ 5,380
Mortgage note payable at a fixed interest rate of 8.0 percent, monthly
principal and interest payments. The unpaid principal balance was repaid on
January 9, 1997. - 4,340
Mortgage note payable at a fixed interest rate of 8.0 percent, monthly
principal and interest payments. The unpaid principal balance was repaid on
January 9, 1997. - 8,951
Mortgage note payable at a fixed interest rate of 8.28 percent, monthly
principal and interest payments. The unpaid principal balance was repaid on
January 31, 1997. - 6,225
Mortgage note payable at a fixed interest rate of 9.95 percent, monthly
principal and interest payments through September 15, 1997. The unpaid
principal balance was repaid on July 15, 1997. - 12,065
Mortgage note payable at a fixed interest rate of 9.3 percent, monthly
principal and interest payments through September 15, 1997. The unpaid
principal balance was repaid on July 15, 1997. - 3,182
Mortgage note payable at fixed interest rates ranging from 6.5 percent to 9.0
percent, monthly principal and interest payments through August 17, 2004,
remaining balance due August 17, 2004. Interest rate increases 0.25 percent
annually each September. Secured by a first mortgage lien on one apartment
community. The mortgage note can be repaid at any time at the Company's option
without prepayment penalty. 18,219 -
$50 million securitized debt at a fixed interest rate of 7.17 percent, 49,117 49,509
monthly principal and interest payments through January 1, 2006,
remaining balance due January 1, 2006. Secured by first mortgage liens on 5
communities. 67,336 89,652
MORTGAGE LOAN CERTIFICATES:
Securitized debt at a fixed stated interest rate of 7.98 percent, 130,586 130,520
with an effective interest rate of 8.05 percent, monthly interest payments
only through August 1, 2001. Secured by first mortgage liens on 21 communities.
The face amount of $131 million is due August 1, 2001. The balance is net of
unamortized discount of $414 and $480 at September 30, 1997 and December 31,
1996, respectively.
SENIOR UNSECURED NOTES:
$75 million senior unsecured notes with a fixed coupon rate of 74,610 -
7.50 percent. Semiannual interest only payments due April 15 and October 15
commencing October 15, 1997. Face amount of $75 million is due April 15, 2004.
The balance is net of an unamortized discount of $390 at September 30, 1997.
The effective interest rate inclusive of the benefit of a treasury lock
transaction is 7.18 percent.
$50 million senior unsecured notes with a fixed coupon rate of 49,624 -
7.625 percent. Semiannual interest only payments due April 15 and October 15
commencing October 15, 1997. Face amount of $50 million is due April 15, 2007.
The balance is net of an unamortized discount of $375 at September 30, 1997.
The effective interest rate inclusive of the benefit of a treasury lock
transaction is 7.36 percent.
---------- -----------
124,234 -
</TABLE>
Page 10 of 27
<PAGE>
5. MORTGAGE AND NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
TAX EXEMPT BONDS:
$17.3 million tax exempt bonds with a floating interest rate $ 17,300 $ 17,300
based on the tax exempt note rate set by the remarketing agent, or at the
option of the Company can convert to a fixed rate as determined by the
remarketing agent. Secured by a $17.5 million direct pay letter of credit,
interest payments only, matures December 1, 2007 (Effective interest rate of
5.61 percent at September 30, 1997).
$22.6 million tax exempt bonds with a floating interest rate 22,650 22,650
based on the tax exempt note rate set by the remarketing agent, interest
payments only. Secured by a $22.8 million direct pay letter of credit, matures
February 1, 2016. (Effective interest rate of 5.58 percent at September 30,
1997).
$24.05 million tax exempt bonds with a floating interest rate 24,050 24,050
based on the tax exempt note rate set by the remarketing agent, interest
payments only. Secured by a $24.4 million direct pay letter of credit, matures
August 1, 2005. (Effective interest rate of 5.29 percent at September 30,
1997).
---------- ----------
64,000 64,000
REVOLVING CREDIT FACILITY:
$150 million unsecured Revolving Credit Facility with floating 56,000 152,000
interest rate based on LIBOR plus 1.15 percent or at the option of the Company
at prime rate, interest payments only. Matures September 24, 1999 (Effective
interest rate of 6.92 percent atSeptember 30, 1997).
---------- ----------
$442,156 $436,172
---------- ----------
---------- ----------
</TABLE>
Scheduled principal payments on debt, assuming that the Company exercises its
options to extend the maturity date on the Revolving Credit Facility, are as
follows:
<TABLE>
<CAPTION>
MORTGAGE MORTGAGE SENIOR REVOLVING
NOTES LOAN UNSECURED TAX-EXEMPT CREDIT
PAYABLE CERTIFICATES NOTES BONDS FACILITY TOTAL
--------- ------------ --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1997 $ 154 $ - $ - $ - $ - $ 154
1998 784 - - - - 784
1999 831 - - - 56,000 56,831
2000 882 - - - - 882
2001 937 130,586 - - - 131,523
Thereafter 63,748 - 124,234 64,000 - 251,982
--------- ------------ --------- ---------- --------- ---------
Total $ 67,336 $ 130,586 $ 124,234 $ 64,000 $ 56,000 $ 442,156
--------- ------------ --------- ---------- --------- ---------
--------- ------------ --------- ---------- --------- ---------
</TABLE>
On June 13, 1997, the Company amended its existing $225 million Revolving
Credit Facility with a bank group to decrease the commitment amount from $225
million to $150 million and decrease the interest rate from LIBOR plus 1.50
percent to LIBOR plus 1.15 percent. The Revolving Credit Facility provides
funding for working capital, construction activities and acquisitions.
The Company has three direct pay letters of credit of $17,500, $22,800 and
$24,400 which serve as a credit enhancement for the tax exempt bonds. The
letters of credit are secured by a first mortgage lien on four apartment
communities.
In January 1997, the Company extinguished the debt on four mortgages with
unpaid principal balances of approximately $25,000 with proceeds from the
Revolving Credit Facility. As a result, the Company incurred a loss from the
early extinguishment of debt of approximately $1,200, net of minority
interest of $300.
Page 11 of 27
<PAGE>
6. DISTRIBUTIONS
On October 15, 1997, the Company paid a distribution of $0.38 per share
($7,765) to shareholders and $0.38 per unit ($1,715) to unitholders of record
as of September 30, 1997.
7. MANAGEMENT FEES
The Company performs management services for certain unaffiliated
communities. Management fees received from managed communities were $380 and
$102 for the three months ended September 30, 1997 and 1996 and $610 and
$1,053 for the nine months ended September 30, 1997 and 1996, respectively.
The nine months ended September 30, 1997 and 1996 balance includes a one time
non-recurring $250 and $500 termination fee received from the sale of
management contracts, respectively.
8. STOCK INCENTIVE PLAN
STOCK OPTION PLAN
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under SFAS No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options.
Under APB 25, because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized. Proforma information regarding net
income and earnings per share is required by SFAS No. 123 and is provided by
the Company in its annual report.
Initially 1,830,000 shares of the Company's common stock were reserved for
issuance under the plan. Information with respect to stock options granted
during the nine months ended September 30, 1997 is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Price
Shares Per Share
--------- ----------
<S> <C> <C>
Options outstanding at December 31, 1996 908,850 $20.63
Exercised (36,500) 20.02
Granted 266,500 20.58
Forfeited (33,588) 20.81
--------- ----------
Options outstanding at September 30, 1997 1,105,262 $20.70
--------- ----------
--------- ----------
Options exercisable:
December 31, 1996 357,700 $19.98
September 30, 1997 601,664 $20.40
</TABLE>
Options to purchase 724,738 and 901,650 shares of common stock were available
for grant under the plan at September 30, 1997 and December 31, 1996,
respectively.
EXECUTIVE STOCK INCENTIVE PLAN
Prior to the Initial Public Offering, the Company's predecessor Evans
Withycombe, Inc. had in place an Executive Incentive Deferred Compensation
Plan (the "Executive Plan"). Pursuant to the Executive Plan, certain
executives of Evans Withycombe, Inc. (the "Participants") were granted an
aggregate of 98,500 shares of restricted stock from the Company one year
following the Initial Public Offering if they remained employees of the
Company during such period. One-third of the shares vest on each of the
second, third and fourth anniversaries of the Initial Public Offering based
on an offering price per share of $20. The expense is being amortized
ratably over the
Page 12 of 27
<PAGE>
periods in which the shares vest and an expense of $35 and $48 and $95 and
$360 for the three and nine months ended September 30, 1997 and 1996,
respectively, is included in general and administrative expense. Information
with respect to the executive restricted stock incentive plan is as follows:
Shares
---------
Restricted stock, net of forfeitures, at December 31, 1996 74,346
Forfeited (1,174)
---------
Restricted stock at September 30, 1997 73,172
---------
---------
Number of shares vested at September 30, 1997 53,325
RESTRICTED STOCK PROGRAM
The Company has awarded 45,220 shares, net of forfeitures, of restricted
stock to certain employees of the Company under its 1994 Stock Incentive
Plan. The restricted stock vests ratably over periods ranging from one to
seven years from the date of the award and are based on the price of the
stock at the award date which ranges from $19.13 to $22.25. The related
expense will be amortized ratably over the periods in which the shares vest
and an expense of $92 and $34 and $168 and $66, for the three and nine months
ended September 30, 1997 and 1996, respectively, is included in general and
administrative expense.
9. MINORITY INTEREST
Minority interest at September 30, 1997 is comprised of the following:
Number
of Units Dollars
----------- ----------
Balance at December 31, 1996 4,677,810 $56,592
Conversion of units to common stock (164,076) (3,234)
Allocation of net income - 4,023
Allocation of extraordinary item -
loss from early extinguishment of debt - (300)
Distributions paid - (3,730)
----------- ----------
Balance at September 30, 1997 4,513,734 $53,351
----------- ----------
----------- ----------
The Units can be redeemed for cash or shares of common stock of the Company
on a one-for-one basis at the Company's option. Minority interest of
unitholders in the Operating Partnership is calculated based on the weighted
average of shares of common stock and Units outstanding during the period.
10. MERGER AND RECENT DEVELOPMENTS
The Company has entered into an Agreement and Plan of Merger, dated as of
August 27, 1997 (the "Agreement"), with Equity Residential Properties Trust
("EQR"). The Agreement provides for the exchange of all of the outstanding
common shares of the Company for common shares of EQR, at an exchange ratio
of 0.50 common shares of EQR for each common share of the Company (the
"Merger").
The Merger is subject to the approval of the common shareholders of both EQR
and the Company.
Page 13 of 27
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Amounts in thousands, except apartment data and number of shares
and units)
The following discussion, which is based primarily on the consolidated
financial statements of Evans Withycombe Residential, Inc. should be read in
conjunction with the consolidated financial statements appearing elsewhere in
this report. The consolidated financial statements of the Company consist of
the Company, the Operating Partnership, the Financing Partnership, and the
Management Company.
OVERVIEW
When used in the following discussion, the words "believes," "anticipates,"
"expects," and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties
which could cause actual results to differ materially from those projected,
including, but not limited to, the actual timing of the Company's planned
acquisitions and developments, the strength of the local economies in the
sub-markets in which the Company operates, the Company's ability to
successfully manage its planned expansion into Southern California and the
culmination of its pending merger with EQR. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as
of the date hereof. The Company undertakes no obligation to publicly release
any revisions to these forward-looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
RESULTS OF OPERATIONS - CONSOLIDATED FINANCIAL STATEMENTS
The results of operations for the three and the nine months ended September
30, 1997 and 1996, respectively, were significantly affected by acquisitions,
developments and expansions.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 1997 TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- PERCENTAGE ------------------- PERCENTAGE
1997 1996 CHANGE 1997 1996 CHANGE
--------- --------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Rental income........................................ $ 28,417 $ 24,351 16.7% $ 83,282 $ 68,565 21.5%
Third party management fees.......................... 381 103 269.9 611 1,054 (42.0)
Interest income - investment in mortgage notes....... 194 - N/A 201 - N/A
Interest and other................................... 2,255 1,502 50.1 5,777 4,622 25.0
--------- --------- --------- ---------- -------- ----------
Total revenues.................................. 31,247 25,956 20.4 89,871 74,241 21.1
Property operating and maintenance (1)............... 10,261 9,214 11.4 29,430 24,333 20.9
Property management.................................. 788 721 9.3 2,328 2,429 (4.2)
General and administrative........................... 444 406 9.4 1,311 1,366 (4.0)
Interest............................................. 7,873 6,251 25.9 23,275 17,144 35.8
Depreciation and amortization........................ 6,701 5,437 23.2 19,338 15,077 28.3
--------- --------- --------- ---------- -------- ----------
Total expenses....................................... 26,067 22,029 18.3 75,682 60,349 25.4
--------- --------- --------- ---------- -------- ----------
Income before minority interest, gain on sale
of real estate assets and
extraordinary item.................................. $ 5,180 $ 3,927 31.9% $ 14,189 $ 13,892 2.1%
--------- --------- --------- ---------- -------- ----------
--------- --------- --------- ---------- -------- ----------
Weighted average monthly rental revenue per
unit, net of concessions........................... $ 697 $ 664 $ 682 $ 678
--------- --------- -------- ----------
--------- --------- -------- ----------
Weighted average number of apartments................ 14,927 13,325 14,989 12,519
--------- --------- -------- ----------
--------- --------- -------- ----------
Economic occupancy (2)............................... 92.2% 89.3% 89.1% 90.0%
--------- --------- -------- ----------
--------- --------- -------- ----------
</TABLE>
Page 14 of 27
<PAGE>
(1) The Company defines property operating and maintenance expense as
property and maintenance, real estate taxes and insurance.
(2) Stabilized properties only.
Rental revenues increased by $4,066 and $14,717 or 16.7 percent and 21.5
percent for the three and nine months ended September 30, 1997 as compared to
the similar period in 1996 as a result of increases in the weighted average
number of apartments, weighted average monthly revenue per occupied apartment
and a change in economic occupancy. The Company believes that the increase
in rental income was largely attributable to the acquisitions and
stabilization of properties developed by the Company in its rental markets.
Third party management fees increased $278 or 269.9 percent for the three
months ended September 30, 1997 as a result of a $250 gain on the sale of a
management contract and decreased $442 or 42.0 percent for the nine months
ended September 30, 1997 due to the sale of several properties in the
management portfolio in 1996 including a $500 one time termination fee for
the sale of management contracts received in the second quarter of 1996.
Interest and other income for the three and nine months ended September 30,
1997 increased $753 and $1,155 or 50.1 percent and 25.0 percent as compared
to the similar period in 1996 as a result of an increase in ancillary income
related to the weighted average number of units, additional interest income
from funds held by third party intermediaries, and cable revenue sharing.
Property operating and maintenance expense increased due to the increase in
the weighted average number of apartments for the three and the nine months
ended September 30, 1997 as compared to the same period in 1996, respectively.
Interest expense increased due to an increase in debt resulting from
acquisitions and the increase in weighted average number of units in the
portfolio. The Company capitalized $509 and $1,479 of interest for the three
and nine months ended September 30, 1997 compared to $608 and $2,072 for the
same periods in 1996 due to a decrease in construction activity. Interest
costs incurred during construction of a new property are capitalized until
completion of construction on a building-by-building basis.
"SAME STORE" PORTFOLIO
The Company defines same store portfolio as those communities that reached
stabilized occupancy prior to January 1, 1996. Same store portfolio
consists of 38 stabilized properties containing 10,319 apartment units that
were owned by the Company for the three months and nine months ended
September 30, 1997 and 1996. Same store portfolio was adjusted to reflect
the sale of Deer Creek Village, The Pines and Los Arboles apartment
communities.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- PERCENTAGE ------------------- PERCENTAGE
1997 1996 CHANGE 1997 1996 CHANGE
--------- --------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Rental income $ 19,038 $ 18,561 2.6% $ 55,763 $ 56,082 (0.6)%
Other income 1,110 1,044 6.3 3,203 2,973 7.7
--------- --------- --------- ---------- -------- ----------
20,148 19,605 2.8 58,966 59,055 (0.2)
Property operating and
maintenance 7,080 7,053 0.4 20,208 19,725 2.4
--------- --------- --------- ---------- -------- ----------
Property net operating
income $ 13,068 $ 12,552 4.1% $ 38,758 $ 39,330 (1.5)%
--------- --------- --------- ---------- -------- ----------
--------- --------- --------- ---------- -------- ----------
Weighted average
monthly rental
revenue per unit, net
of concessions $ 668 $ 667 $ 674 $ 670
--------- --------- -------- ----------
--------- --------- -------- ----------
Economic occupancy 92.2% 89.3% 89.1% 90.0%
--------- --------- -------- ----------
--------- --------- -------- ----------
</TABLE>
Page 15 of 27
<PAGE>
Rental income for the three months ended September 30, 1997 increased $477
and decreased $319 for the nine months ended September 30, 1997 as compared
to the same period in 1996 as a result of a change in the average economic
occupancy. Other income for the three and nine months ended September 30,
1997 increased as a result of higher ancillary income such as redecoration
and application fees, and lease termination fees.
COMMUNITIES STABILIZED LESS THAN TWO YEARS
Communities stabilized less than two years consist of the development of four
new apartment communities and the expansion of four existing apartment
communities by the Company, containing an aggregate of 1,444 new apartment
units that reached stabilized occupancy during the year ended December 31,
1996. Increases in the three and nine month periods ended September 30, 1997
as compared to the three and nine month periods ended September 30, 1996 are
the result of the increase in the weighted average number of apartments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1997 1996 1997 1996
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Rental income $ 3,020 $ 2,768 $ 9,017 $ 6,948
Other income 183 180 479 442
--------- --------- ---------- -------
3,203 2,948 9,496 7,390
Property operating and
maintenance 1,052 873 2,969 2,295
--------- --------- ---------- -------
Property net operating
income $ 2,151 $ 2,075 $ 6,527 $ 5,095
--------- --------- ---------- -------
--------- --------- ---------- -------
Weighted average number
of apartments 1,444 1,354 1,444 1,136
--------- --------- ---------- -------
--------- --------- ---------- -------
</TABLE>
DEVELOPMENT AND LEASE UP COMMUNITIES
Development and lease up communities consist of the development of six new
apartment communities and the expansion of two existing apartment communities
containing an aggregate of 2,031 apartment units that were in the
"construction," "development," or "lease up" stage during 1997 and therefore,
not considered to have achieved stabilized occupancy for all of the periods
presented. Increases in the three and the nine month periods ended September
30, 1997 as compared to the three and the nine month periods ended September
30, 1996 are the result of an increase in the weighted average number of
apartments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1997 1996 1997 1996
--------- --------- ---------- -------
<S> <C> <C> <C> <C>
Rental income $ 2,041 $ 410 $ 5,090 $ 513
Other income 150 79 404 104
--------- --------- ---------- -------
2,191 489 5,494 617
Property operating
and maintenance 649 295 1,696 420
--------- --------- ---------- -------
Property net operating
income $ 1,542 $ 194 $ 3,798 $ 197
--------- --------- ---------- -------
--------- --------- ---------- -------
Weighted average number
of apartments in
lease up 1,026 251 806 107
--------- --------- ---------- -------
--------- --------- ---------- -------
</TABLE>
Page 16 of 27
<PAGE>
ACQUISITIONS
Acquisitions consist of six properties containing 1,906 apartment units,
which have been acquired by the Company since January 1, 1996. The Company
acquired three apartment communities containing 912 apartment units during
the third quarter of 1996. There were no acquisitions of apartment
communities during the third quarter of 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1997 1996 1997 1996
--------- --------- ---------- -------
<S> <C> <C> <C> <C>
Rental income $ 3,908 $ 1,400 $ 10,647 $ 1,418
Other income 193 35 404 35
--------- --------- ---------- -------
4,101 1,435 11,051 1,453
Property operating and
maintenance 1,321 513 3,585 515
--------- --------- ---------- -------
Property net operating
income $ 2,780 $ 922 $ 7,466 $ 938
--------- --------- ---------- -------
--------- --------- ---------- -------
Weighted average number
of apartments 1,906 667 1,795 222
--------- --------- ---------- -------
--------- --------- ---------- -------
</TABLE>
DISPOSITIONS
Dispositions consist of three properties containing 734 apartment units,
which were sold by the Company in 1997. The Company sold one apartment
community, containing 232 units, in the third quarter of 1997 and two
apartment communities, containing 502 units, in the second quarter of 1997.
There were no dispositions of apartment communities during 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1997 1996 1997 1996
--------- --------- ---------- -------
<S> <C> <C> <C> <C>
Rental income $ 410 $ 1,212 $ 2,766 $ 3,604
Other income 14 57 127 155
--------- --------- ---------- -------
424 1,269 2,893 3,759
Property operating and
maintenance 159 480 973 1,378
--------- --------- ---------- -------
Property net operating
income $ 265 $ 789 $ 1,920 $ 2,381
--------- --------- ---------- -------
--------- --------- ---------- -------
Weighted average number
of apartments 232 734 567 734
--------- --------- ---------- -------
--------- --------- ---------- -------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
The Company's net cash provided by operating activities of $30.6 million for
the nine months ended September 30, 1996 decreased to $28.1 million for the
nine months ended September 30, 1997 as a result of cash related to the sale
of apartment communities being held by a third party intermediary in order to
complete a tax free exchange. Net cash used in investing activities
decreased from $103.4 million for the nine months ended September 30, 1996 to
$30.0 million for the nine months ended September 30, 1997. The decrease is
the result of a reduction in construction activity for the first nine months
of 1997 of $32.5 million as compared to $66 million for the first nine months
of 1996 and a decrease in cash used to fund the Company's acquisition
activity from $34.9 million to $17.5 million in the first nine months of 1996
as compared to the first nine months of 1997 and the proceeds received from
the sale of three apartment communities. Net cash provided by financing
activities decreased from $70.6 million for the nine months ended September
30, 1996 to $1.9 million for the nine months
Page 17 of 27
<PAGE>
ended September 30, 1997 due to less borrowings under the Revolving Credit
Facility as a result of the reduction in construction and acquisition
activity.
Page 18 of 27
<PAGE>
The Company elected to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended, commencing with its taxable
year ended December 31, 1994. REITs are subject to a number of
organizational and operational requirements, including a requirement that
they currently distribute 95 percent of their ordinary taxable income.
The Company expects to meet its short-term liquidity requirements, including
capital expenditures relating to maintaining Stabilized Communities,
generally through its net cash provided by operations and borrowings under
its credit arrangements and anticipates meeting long-term liquidity
requirements, such as scheduled debt maturities, financing of construction
and development activities and possible acquisitions through long-term
unsecured borrowings, issuance of additional equity securities of the Company
or debt securities of the Operating Partnership, or, possibly in connection
with acquisitions of land or existing properties, issuance of Units of the
Operating Partnership. The Company believes that its net cash provided by
operations will be adequate and anticipates that it will continue to be
adequate to meet both operating requirements and payment of dividends by the
Company in accordance with REIT requirements in both the short and the long
term.
The information in the immediately preceding paragraph is forward looking and
involves risks and uncertainties that could significantly impact the
Company's expected liquidity requirements in the short and long term. While
it is impossible to itemize the many factors and specific events that could
affect the Company's outlook for its liquidity requirements, such factors
would include the actual timing of the Company's planned development of new,
and expansion of existing, communities; acquisitions of existing apartment
communities; the actual costs associated with such developments and
acquisitions; the strength of the local economies in the sub-markets in which
the Company operates and the culmination of its pending merger with EQR. The
Company is further subject to risks relating to the limited geographic area
in which it operates and its ability to successfully manage its planned
expansion into Southern California, a market in which it did not have any
operating history prior to 1995. Higher than expected costs, delays in
development of communities, a downturn in the local economies and/or the lack
of growth of such economies could reduce the Company's revenues and increase
its expenses, resulting in a greater burden on the Company's liquidity than
that which the Company has described above.
CAPITAL RESOURCES
At September 30, 1997, the Company's total debt was approximately $442.2
million and the Company's debt to total market capitalization (Market Equity
plus Debt) was approximately 40.2 percent. The Company received an
investment grade security rating of "BBB-" from Standard & Poor's
Corporation, "Baa3" from Moody's Investors Service, Inc., and " BBB-" from
Fitch Investors Service, L.P. in December 1996 with respect to prospective
issuances of senior unsecured debt.
A security rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time by the assigning rating
organization, and each rating should be evaluated independently of any other
rating. A rating of (a) BBB- from Standard & Poor's Corporation indicates
that the obligations of the Company are in the lower range of those
obligations that exhibit adequate protection parameters, (b) Baa3 from
Moody's Investors Service, Inc. indicates that the obligations of the Company
are considered to be in the lower range of medium-grade obligations, which
are not considered to be highly protected or poorly secured and (c) BBB- from
Fitch Investors Service, L.P. indicates that the obligations of the Company
are considered to be in the lower range of obligations considered to be of
investment grade and of satisfactory credit quality and that its ability to
pay interest and to repay principal is considered to be adequate.
CONVENTIONAL MORTGAGE LOANS
Conventional mortgage loans are comprised of one fixed rate loan at September
30, 1997 which is collateralized by a first mortgage lien on an apartment
community included in real estate assets. The mortgage is payable in monthly
installments of principal and interest and matures on August 17, 2004. The
conventional mortgage loan aggregated $18.2 million at September 30, 1997
with an interest rate of 6.5 percent. In January 1997, the Company
extinguished the debt on four mortgages with unpaid principal balances of
approximately $25.0 million with proceeds from the Revolving Credit Facility.
As a result, the Company incurred a loss from the early extinguishment of
debt of approximately $1.2 million, net of minority interest of $300. On
July 15, 1997, the
Page 19 of 27
<PAGE>
Company repaid two additional mortgages with unpaid principal balances of
approximately $15.2 million with proceeds from the Revolving Credit Facility.
There were no prepayment penalties associated with the repayment of these
two mortgages.
In December 1995, the Company entered into a ten year $50 million fixed rate
loan from an insurance company that bears interest at 7.17 percent, with
principal and interest due monthly based on a 25-year amortization schedule
beginning January 1, 1996 through January 1, 2006, and the remaining unpaid
principal balance due January 1, 2006. The loan is secured by a first deed
of trust on five apartment communities. Proceeds from the loan were used to
pay down the outstanding balances on the Revolving Credit Facility. The
outstanding debt was $49.1 million at September 30, 1997. The loan is
convertible to unsecured upon the Company achieving an investment grade
rating of BBB or better.
MORTGAGE LOAN CERTIFICATES
The Company, through the Financing Partnership, borrowed $102.0 million under
a securitized loan in August 1994. During January 1995, the Company borrowed
the balance of $29.0 million (increasing the total to $131.0 million). The
loan is secured by the first mortgage liens on 21 Communities. The $102.0
million was issued at 99.97 percent of its face amount and the $29.0 million
was issued at 97.9375 percent of its face amount and will mature on August 1,
2001. Although both amounts bear interest at 7.98 percent, the $29.0 million
has an effective interest rate of 8.40 percent due to the discount. The
weighted average effective interest rate of the total $131 million loan is
8.05 percent. The bonds have been rated "AA" by Standard & Poor's.
In March 1997, the Company substituted two apartment communities, Sonoran and
The Heritage, as collateral for the securitized loan in exchange for
releasing the liens on three apartment communities, The Pines and Deer Creek
Village, which were sold in June 1997, and La Valencia.
SENIOR UNSECURED NOTES
On April 2, 1997, the Company through the Operating Partnership completed
the sale of $75 million senior unsecured notes priced at 99.44 percent of par
with a coupon rate of 7.50 percent due April 15, 2004 and $50 million senior
unsecured notes priced at 99.21 percent of par with a coupon rate of 7.625
percent due April 15, 2007. Proceeds to the Operating Partnership from the
sale of the notes, net of underwriter's discount and out-of-pocket costs, was
approximately $122.8 million. In anticipation of the Offering, the Operating
Partnership entered into two forward treasury lock agreements on February 25,
1997. The treasury lock agreements were settled concurrently with the
completion of the sale of the senior unsecured notes on April 2, 1997, and
the Operating Partnership received proceeds from the settlement of the
treasury lock agreements of approximately $3 million. The Operating
Partnership is amortizing the gain on the settlement of the treasury lock
transaction as a reduction in interest expense on the notes using the
effective interest rate method. The effective interest rates on the senior
unsecured notes inclusive of the benefit from the settlement of the treasury
lock transaction is 7.18 percent and 7.36 percent, respectively. The
Operating Partnership used the proceeds from the sale of the notes and
settlement of the treasury lock transaction to pay down its Revolving Credit
Facility.
TAX EXEMPT BONDS
Tax exempt bonds were comprised of three floating rate bonds based on the tax
exempt note rate set by the respective remarketing agents (or, at the option
of the Company at a fixed rate determined by the remarketing agents). The
bonds are secured by letters of credit which are secured by first mortgage
liens on four apartment communities. The tax exempt bonds have monthly
interest only payments and mature at various dates through 2016. The tax
exempt bonds aggregated $64.0 million at September 30, 1997 with interest
rates ranging from 5.29 percent to 5.61 percent.
REVOLVING CREDIT FACILITY
On June 13, 1997, the Company amended its existing $225 million unsecured
Revolving Credit Facility with a bank group to decrease the commitment amount
from $225 million to $150 million and decrease the interest rate from a
floating rate of London Inter Bank Offered Rate (LIBOR) plus 150 basis points
(100 basis points equals one
Page 20 of 27
<PAGE>
percent) to 115 basis points (or, at the option of the Company, at the prime
rate announced by the banks). The Revolving Credit Facility has a term of
three years which expires in September 1999, with an option to extend for one
year and provides for monthly payments of interest only. It will be used to
finance acquisitions, to fund construction and development and renovation
costs, and for working capital purposes. At September 30, 1997, there was
$56.0 million outstanding on the Revolving Credit Facility, with an effective
interest rate of 6.92 percent. The Revolving Credit Facility contains
customary representations, covenants and events of default, including a
limitation which restricts dividends to 95 percent of Funds From Operations,
as defined. The Company does not expect that the covenants will affect its
ability to pay dividends in accordance with its current dividend policy or
its ability to maintain a REIT status.
The table below outlines the Company's debt structure as of September 30,
1997.
<TABLE>
<CAPTION>
OUTSTANDING WEIGHTED AVERAGE
BALANCE INTEREST RATE
------------ ----------------
<S> <C> <C>
FIXED RATE DEBT:
Mortgage Debt:
Conventional...................................... $ 67,336 6.98%
Mortgage Loan Certificates........................ 130,586 8.05
Unsecured:
$75 million senior notes.......................... 74,610 7.18
$50 million senior notes.......................... 49,624 7.36
------------ ------------
Total Fixed Rate Debt.......................... 322,156 7.51
VARIABLE RATE DEBT:
Tax Exempt Bonds................................... 64,000 5.38
Revolving Credit Facility.......................... 56,000 6.92
------------ ------------
Total Variable Rate Debt....................... 120,000 6.10
------------ ------------
Total Debt..................................... $ 442,156 7.12%
------------ ------------
------------ ------------
</TABLE>
The Company had 6,164 unencumbered apartment units related to the Stabilized
Communities and 953 unencumbered apartment units related to the Communities
Under Construction and in Lease-Up at September 30, 1997.
SUBSEQUENT OFFERINGS
On May 28, 1996, the Company completed the Second Public Offering of
4,500,000 shares of its Common Stock of which 2,000,000 shares were sold by
the Company and an aggregate of 2,500,000 were sold by two institutional
stockholders. On June 25, 1996, the underwriters exercised their
over-allotment option for 200,000 shares and the Company issued an additional
88,889 shares of its Common Stock and the institutional stockholders sold an
additional 111,111 shares pursuant to a partial exercise of the
over-allotment option granted to the underwriters. Net proceeds to the
Company from the Second Public Offering were approximately $40,891,000. The
Company used the proceeds from the sale of Common Stock to pay down its
Revolving Credit Facility.
In January 1997, the Company filed a shelf registration statement with the
SEC for up to $125 million of common stock, preferred stock and warrants
issuable by the Company and $200 million of debt securities issuable by the
Operating Partnership. The registration statement, which has been declared
effective by the SEC includes $125 million of available securities under the
September 1995 registration statement. These registration statements provide
the Company with the ability to issue and sell a portion of such securities
from time to time.
On February 14, 1997, the Company completed the Third Public Offering of
1,800,000 shares of its Common Stock. Net proceeds to the Company from the
February 1997 Offering were approximately $35,415,000. The Company used the
proceeds from the sale of Common Stock to pay down its Revolving Credit
Facility.
Page 21 of 27
<PAGE>
INFLATION
Most of the leases at the communities are for a term of one year or less,
which may enable the Company to seek increased rents upon renewal of existing
leases or commencement of new leases. The short-term nature of the leases
generally serves to reduce the risk to the Company of the adverse effects of
inflation.
FUNDS FROM OPERATIONS
The Company and industry analysts consider Funds from Operations ("FFO") to
be an appropriate measure of the performance of an equity REIT because it is
predicated on cash flow analyses. The Company computes FFO in accordance
with standards established by the National Association of Real Estate
Investment Trusts ("NAREIT"). FFO is defined as net income (loss) determined
in accordance with GAAP, excluding gains (or losses) from debt restructuring
and sales of property plus depreciation and amortization, excluding
depreciation on non-real estate assets and amortization of deferred financing
costs. Funds from Operations should not be considered as an alternative to
net income (determined in accordance with GAAP) as an indicator of the
Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's needs.
The Company believes that in order to facilitate a clear understanding of the
consolidated historical operating results of the Company, FFO should be
examined in conjunction with net income, as presented in the consolidated
financial statements and elsewhere in this document.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Income before minority interest,
gain on sale of real estate assets
and extraordinary item $ 5,180 $ 3,927 $ 14,189 $ 13,892
Depreciation and amortization, net of
corporate depreciation 6,603 5,390 19,101 14,951
Amortization of executive deferred
compensation expense 35 48 95 360
--------- --------- --------- ---------
Funds from Operations $ 11,818 $ 9,365 $ 33,385 $ 29,203
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
NUMBER OF COMMON SHARES AND UNITS
The Company had 24,915,866 and 24,583,939 weighted average number of shares
and units for the three and the nine months ended September 30, 1997 and
23,038,163 and 21,897,381 for the three and the nine months ended September
30, 1996, respectively.
CAPITALIZATION OF FIXED ASSETS AND COMMUNITY IMPROVEMENTS.
The Company has established a policy of capitalizing those expenditures
relating to acquiring new assets, materially enhancing the value of an
existing asset, or substantially extending the useful life of an existing
asset. All expenditures necessary to maintain a community in ordinary
operating condition are expensed as incurred.
Page 22 of 27
<PAGE>
Acquisition of assets and community expenditures are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
New community development $ 10,556 $ 20,143 $ 32,881 $ 66,314
Acquisitions - 44,193 34,800 57,211
Nonrecurring capital expenditures:
Vehicle access control gates 712 154 1,437 154
Computer upgrade 195 148 347 199
Recurring capital expenditures:
Community additions and
improvements 930 746 2,972 2,075
Corporate additions and improvements 13 21 59 21
--------- --------- --------- ---------
$ 12,406 $ 65,405 $ 72,496 $ 125,974
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
DEVELOPMENT AND CONSTRUCTION ACTIVITY
The apartment communities under construction and in lease-up are listed below:
<TABLE>
<CAPTION>
ACTUAL ACTUAL OR
AVERAGE ESTIMATED DATE OF ESTIMATED ESTIMATED
UNIT CONSTRUCTION CONSTRUCTION COMMENCE- DATE OF
TOTAL SIZE COST COMMENCE- MENT OF STABILIZED
NAME CITY UNITS (SQ.FT.) (MILLIONS) MENT LEASE-UP OCCUPANCY
- --------------------------------------------------------------------------------------------------------------------------------
QUARTER
----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PHOENIX
- --------
Montierra Scottsdale 249 1,052 $ 21 3:97 2:98 1:99
The Retreat Phase I Phoenix 240 973 14 1:97 3:97 2:98
The Retreat Phase II Phoenix 240 973 17 3:97 2:98 1:99
Vista Grove Mesa 224 911 14 1:97 3:97 2:98
-------- --------
TOTAL 953 $ 66
-------- --------
-------- --------
</TABLE>
The information set forth in the table above is based upon a number of
estimates and assumptions that are inherently subject to business, economic
and competitive uncertainties and contingencies, many of which are beyond the
Company's control. The actual development cost, completion date and
stabilization date of any project will be dependent upon a variety of factors
beyond the control of the Company including, for example, labor and other
personnel costs, material costs, weather conditions, government fees and
leasing rates.
DISPOSITION ACTIVITY
During the second quarter of 1997, the Company sold two properties, Deer
Creek Village and The Pines, containing 502 apartment units. The aggregate
sales price was approximately $22.4 million resulting in a gain from the sale
of approximately $5.2 million. The Company received cash of approximately
$7.3 million and two carryback mortgage notes of approximately $15.1 million.
The $7.9 million mortgage note on Deer Creek Village was paid off on July
23, 1997. The mortgage note is secured by a first deed of trust on The Pines
property and matures in November 1997. The buyer may repay the remaining
mortgage note at anytime without prepayment penalties. The mortgage note
receivable maturity date can be extended 30 days to December 1, 1997 at the
option of the borrower.
Page 23 of 27
<PAGE>
On September 30, 1997, the Company sold Los Arboles Apartments, a 232 unit
apartment community located in Chandler, Arizona. The aggregate proceeds
were approximately $12.5 million resulting in a gain from the sale of
approximately $2.3 million. In connection with the sale, the Company sold
the management contract on an adjoining apartment community, Los Arboles II
and received payment of the unpaid principal balance and accrued interest on
the mortgage note on that property.
APARTMENT COMMUNITIES
The following sets forth certain information regarding the current apartment
communities at September 30, 1997. All of the communities are owned 100
percent in fee by the Company.
<TABLE>
<CAPTION>
YEAR
DEVELOPED
NUMBER OF DEVELOPED/ OR
APARTMENT COMMUNITIES CITY APARTMENTS ACQUIRED ACQUIRED
--------------------- ---- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Same Store
ARIZONA
PHOENIX:
Acacia Creek Scottsdale 508 Acquired 1995
Bayside at the Islands Gilbert 272 Developed 1988
Country Brook Chandler 276 Acq/Dev 1991/1993
Gateway Villas Phoenix 180 Developed 1995
Greenwood Village Tempe 270 Acquired 1993
Heritage Point Mesa 148 Acquired 1994
La Mariposa Mesa 222 Acquired 1990
La Valencia Mesa 361 Acquired 1990
Little Cottonwoods Tempe 379 Acq/Acq/Dev 1989/89/90
Miramonte Scottsdale 151 Developed 1983
Morningside Scottsdale 160 Acquired 1992
Mountain Park Ranch Phoenix 240 Developed 1995
Park Meadow Gilbert 156 Acquired 1992
Preserve at Squaw Peak Phoenix 108 Acquired 1991
Promontory Pointe Phoenix 304 Acquired 1988
Rancho Murietta Tempe 292 Acquired 1995
Scottsdale Courtyards Scottsdale 274 Developed 1993
Scottsdale Meadows Scottsdale 168 Developed 1984
Shadow Brook Phoenix 224 Acquired 1993
Shores at Andersen Springs Chandler 299 Developed 1989/1993
Silver Creek Phoenix 174 Acquired 1991
Sonoran Phoenix 429 Developed 1995
Sun Creek Glendale 175 Acquired 1993
Superstition Vista Mesa 316 Acquired 1995
The Enclave Tempe 204 Developed 1995
The Heritage Phoenix 204 Developed 1995
The Meadows Mesa 306 Acquired 1987
The Palms Phoenix 132 Developed 1990
Towne Square Chandler 468 Acq/Dev 1992/1995
Villa Encanto Phoenix 382 Developed 1983
Village at Lakewood Phoenix 240 Developed 1988
----------
8,022
TUCSON:
Harrison Park Tucson 172 Acquired 1991
La Reserve Oro Valley 240 Developed 1988
Orange Grove Village Tucson 256 Acquired 1991
Suntree Village Oro Valley 424 Acquired 1992
The Arboretum Tucson 496 Acq/Dev 1992/1995
Village at Tanque Verde Tucson 217 Acq/Dev 1990/1994
----------
1,805
CALIFORNIA:
The Ashton Corona Hills 492 Acquired 1995
----------
492
----------
Total Same Store 10,319
----------
----------
</TABLE>
Page 24 of 27
<PAGE>
<TABLE>
<CAPTION>
YEAR
DEVELOPED
NUMBER OF DEVELOPED/ OR
APARTMENT COMMUNITIES CITY APARTMENTS ACQUIRED
--------------------- ---- ---------- ----------
<S> <C> <C> <C>
COMMUNITIES STABILIZED LESS THAN
TWO YEARS
ARIZONA
PHOENIX:
Country Brook Expansion Phase III Chandler 120 Developed 1995/96
Ingleside Phoenix 120 Developed 1995/96
Ladera Phoenix 248 Developed 1995/96
Mirador Phoenix 316 Developed 1995/96
Park Meadow Expansion Phase II Gilbert 68 Developed 1995/96
Towne Square Expansion Phase III Chandler 116 Developed 1995/96
----------
988
TUCSON:
The Legends Tucson 312 Developed 1995/96
Orange Grove Expansion Phase II Tucson 144 Developed 1995/96
----------
456
----------
Total Communities Stabilized Less than Two Years 1,444
----------
----------
DEVELOPMENTS AND LEASE-UP PROPERTIES
ARIZONA
PHOENIX:
The Hawthorne (1) Phoenix 276 Developed 1995/96
The Retreat Phase I (2) Phoenix 240 Developed 1996/97
The Retreat Phase II Phoenix 240 Developed 1997
Vista Grove (2) Mesa 224 Developed 1996/97
The Isle at Arrowhead Ranch (4) Glendale 256 Developed 1996
Promontory Pointe Expansion Phase II (1) Phoenix 120 Developed 1995/96
Montierra Scottsdale 249 Developed 1997
----------
1,605
TUCSON:
Bear Canyon (3) Tucson 238 Developed 1995/96
Harrison Park Expansion Phase II (3) Tucson 188 Developed 1995/96
----------
426
----------
Total Developments and Lease-Up Properties 2,031
----------
----------
ACQUISITIONS
CALIFORNIA
Canyon Crest Views Riverside 178 Acquired 1996
Canyon Ridge San Diego 162 Acquired 1997
Marquessa Corona Hills 336 Acquired 1997
Portofino Chino Hills 176 Acquired 1996
Parkview Terrace Club Redlands 558 Acquired 1996
Redlands Lawn & Tennis Club Redlands 496 Acquired 1996
----------
1,906
----------
Total 15,700
----------
----------
DISPOSITIONS
ARIZONA
Deer Creek Village Phoenix 308 Acquired 1991
The Pines Mesa 194 Acquired 1992
Los Arboles Chandler 232 Developed 1985
----------
734
----------
----------
</TABLE>
(1) Community reached stabilized occupancy in the first quarter 1997
(2) Community is in lease-up
(3) Community reached stabilized occupancy in the second quarter 1997
(4) Community reached stabilized occupancy in the third quarter 1997
Page 25 of 27
<PAGE>
PART II OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.26 Amendment No. 1 to Employment Agreement, dated as of July 1,
1997, by and among Stephen O. Evans, Evans Withycombe Residential,
Inc. and Evans Withycombe Management Inc.
10.27 Amendment No. 1 to Employment Agreement, dated as of July 1, 1997,
by and among Richard G. Berry, Evans Withycombe Residential, Inc.
and Evans Withycombe Management Inc.
10.28 Change in Control Agreement, dated as of June 18, 1997, by and
between Evans Withycombe Residential, Inc. and Stephen O. Evans
10.29 Change in Control Agreement, dated as of June 18, 1997, by and
between Evans Withycombe Residential, Inc. and Richard G. Berry
10.30 Change in Control Agreement, dated as of June 18, 1997, by and
between Evans Withycombe Residential, Inc. and Paul R. Fannin
10.31 Amendment No. 1 to Change in Control Agreement, dated August 27,
1997, by and between Evans Withycombe Residential, Inc. and
Paul R. Fannin
10.32 Change in Control Agreement, dated as of June 18, 1997, by and
between Evans Withycombe Residential, Inc. and G. E. O'Clair
10.33 Amendment No. 1 to Change in Control Agreement, dated August 27,
1997, by and between Evans Withycombe Residential, Inc. and Edward
O'Clair
27 Financial Data Schedule
(b) Two Form 8-K's were filed during the third quarter 1997.
- A Form 8-K was filed on August 25, 1997 reporting under Item 5 the
modification of the Company's existing Revolving Loan Agreement by and
between the banks named herein, Bank One Arizona, N.A., as
administrative agent, and Bank of America National Trust and Savings
Association and Wells Fargo Bank, National Association as co-agents
and Item 7 exhibits containing the modification agreement.
- A Form 8-K was filed on August 27, 1997 reporting under Item 5 the
pending merger between the Company and Equity Residential Property
Trust and Item 7 exhibits relating to the agreement and plan of merger.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EVANS WITHYCOMBE RESIDENTIAL, INC.
November 11, 1997 /s/ Stephen O. Evans
- -------------------------- ------------------------------
(Date) Stephen O. Evans,
Chairman of the Board and
Chief Executive Officer
Page 26 of 27
<PAGE>
November 11, 1997 /s/ Paul R. Fannin
- -------------------------- ------------------------------
(Date) Paul R. Fannin,
Senior Vice President and
Chief Financial Officer
Page 27 of 27
<PAGE>
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 (the "Amendment") to that certain Employment
Agreement, dated as of August 17, 1994 (the "Employment Agreement"), is made
and entered into effective as of the 1st day of July, 1997, by and among
Stephen O. Evans (the "Executive"), Evans Withycombe Residential, Inc., a
Maryland corporation (the "Company"), and Evans Withycombe Management Inc., an
Arizona corporation ("EWMI").
R E C I T A L S
WHEREAS, the Executive, the Company and EWMI have entered into the
Employment Agreement; and
WHEREAS, the Executive, the Company and EWMI wish to amend the Employment
Agreement as set forth herein.
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein and for other good and valuable consideration,
the adequacy and receipt of which are hereby acknowledged, the parties hereto
agree as follows:
A. Capitalized terms used herein and not defined herein shall have the
respective meanings assigned to such terms in the Employment Agreement.
B. Paragraph 5(a) of the Employment Agreement is hereby amended to
include the following paragraph at the end of such Section:
"Notwithstanding the foregoing, for the period from
January 1, 1997 through December 31, 1997, the Executive hereby
waives his right to receive his Annual Base Salary and Bonus
Compensation. Executive shall receive, however, on the
effective date of this Amendment or as soon thereafter as is
practicable, THIRTEEN THOUSAND ONE HUNDRED THIRTY-ONE (13,131)
restricted shares of Common Stock of the Company issued pursuant
to the Company's Stock Incentive Plan in lieu of his Annual Base
Salary. Executive shall further receive that number of
restricted shares of Common Stock equal to the amount of his
Bonus Compensation, multiplied by 1.155, divided by the closing
price of the Company's common stock on the February 27, 1998,
the day Bonus Compensation is declared. All such shares of
Common Stock shall have such vesting provisions and be subject
to such other terms and conditions as set forth in the operative
award agreements evidencing the foregoing award of restricted
shares of Common Stock."
<PAGE>
C. Except as expressly modified herein, the terms and provisions of the
Employment Agreement shall remain in full force and effect and such Employment
Agreement, as amended by this Amendment, is hereby ratified and confirmed in
all respects.
D. This Amendment shall be governed, construed, interpreted and enforced
in accordance with the substantive laws of the State of Arizona, without regard
to the conflict of laws principles thereof.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
date and year first above written.
EXECUTIVE
/s/ Stephen O. Evans
-------------------------------------
Stephen O. Evans
5035 Cottontail Run East
Paradise Valley, Arizona 85253
EVANS WITHYCOMBE RESIDENTIAL, INC., a
Maryland corporation
By: /s/ Paul R. Fannin
---------------------------------
EVANS WITHYCOMBE MANAGEMENT INC.,
an Arizona corporation
By: /s/ Paul R. Fannin
---------------------------------
2
<PAGE>
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 (the "Amendment") to that certain Employment
Agreement, dated as of August 17, 1994 (the "Employment Agreement"), is made
and entered into effective as of the 1st day of July, 1997, by and among
Richard G. Berry (the "Executive"), Evans Withycombe Residential, Inc., a
Maryland corporation (the "Company"), and Evans Withycombe Management Inc., an
Arizona corporation ("EWMI").
R E C I T A L S
WHEREAS, the Executive, the Company and EWMI have entered into the
Employment Agreement; and
WHEREAS, the Executive, the Company and EWMI wish to amend the Employment
Agreement as set forth herein.
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein and for other good and valuable consideration,
the adequacy and receipt of which are hereby acknowledged, the parties hereto
agree as follows:
A. Capitalized terms used herein and not defined herein shall have the
respective meanings assigned to such terms in the Employment Agreement.
B. Paragraph 5(a) of the Employment Agreement is hereby amended to
include the following paragraph at the end of such Section:
"Notwithstanding the foregoing, for the period from January 1,
1997 through December 31, 1997, the Executive hereby waives his
right to receive his Annual Base Salary and Bonus Compensation.
Executive shall receive, however, on the effective date of this
Amendment or as soon thereafter as is practicable, Twelve
Thousand Four Hundred Ninty Four (12,494) restricted shares of
Common Stock of the Company issued pursuant to the Company's
Stock Incentive Plan in lieu of his Annual Base Salary.
Executive shall further receive that number of restricted shares
of Common Stock equal to the amount of his Bonus Compensation,
multiplied by 1.155, divided by the closing price of the
Company's common stock on the February 27, 1998, the day Bonus
Compensation is declared. All such shares of Common Stock shall
have such vesting provisions and be subject to such other terms
and conditions as set forth in the operative award agreements
evidencing the foregoing award of restricted shares of Common
Stock."
<PAGE>
C. Except as expressly modified herein, the terms and provisions of the
Employment Agreement shall remain in full force and effect and such Employment
Agreement, as amended by this Amendment, is hereby ratified and confirmed in
all respects.
D. This Amendment shall be governed, construed, interpreted and enforced
in accordance with the substantive laws of the State of Arizona, without regard
to the conflict of laws principles thereof.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
date and year first above written.
EXECUTIVE
/s/ Richard G. Berry
-----------------------------------------
Richard G. Berry
6537 Exeter
Scottsdale, Arizona 85251
EVANS WITHYCOMBE RESIDENTIAL, INC., a
Maryland corporation
By: /s/ Stephan O. Evans
-------------------------------------
EVANS WITHYCOMBE MANAGEMENT INC.,
an Arizona corporation
By: Stephen O. Evans
-------------------------------------
2
<PAGE>
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT made as of June 18, 1997 by and between Evans Withycombe
Residential, Inc., a Maryland corporation (the "Company"), and Stephen O. Evans
(the "Executive").
WITNESSETH
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as hereinafter defined) exists and
that the threat or the occurrence of a Change in Control can result in
significant distractions of its key management personnel because of the
uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of the
Executive in the event of a threat or occurrence of a Change in Control and to
ensure his continued dedication and efforts in such event without undue concern
for his personal financial and employment security; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Company, particularly in the event of a threat or the occurrence of a Change in
Control, the Company desires to enter into this Agreement with the Executive to
provide the Executive with certain benefits in the event his employment is
terminated as a result of, or in connection with, a Change in Control and to
provide the Executive with certain other benefits whether or not the
Executive's employment is terminated.
AGREEMENT
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, it is agreed as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of the date
hereof and shall continue in effect until December 31, 1998; PROVIDED, HOWEVER,
that on December 31, 1998 and on each anniversary thereof, the term of this
Agreement shall automatically be extended for one year unless either the
Company or the Executive shall have given written notice to the other prior
thereto that the term of this Agreement shall not be so extended; AND PROVIDED,
FURTHER, HOWEVER, that notwithstanding any such notice by the Company not to
extend, the term of this Agreement shall not expire prior to the expiration of
24 months after the occurrence of a Change in Control.
2. DEFINITIONS.
2.1. ACCRUED COMPENSATION. For purposes of this Agreement, "Accrued
Compensation" shall mean an amount which shall include all amounts earned or
accrued through the "Termination Date" (as hereinafter defined) but not paid as
of the Termination Date including
<PAGE>
(i) base salary, (ii) reimbursement for reasonable and necessary expenses
incurred by the Executive on behalf of the Company during the period ending
on the Termination Date, (iii) vacation and sick leave pay (to the extent
provided by Company policy or applicable law) and (iv) bonuses and incentive
compensation (other than the "Pro Rata Bonus" (as hereinafter defined)).
2.2. BASE AMOUNT. For purposes of this Agreement, "Base Amount"
shall mean the greater of (a) the Executive's annual base salary, plus any auto
allowance, at the rate in effect immediately prior to the Change in Control and
(b) the Executive's annual base salary, plus any auto allowance, at the rate in
effect on the Termination Date, and shall include all amounts of his base
salary that are deferred under any other agreement or arrangement with the
Company.
2.3. BONUS AMOUNT. For purposes of this Agreement, "Bonus Amount"
shall mean the Executive's annual bonus for the fiscal year prior to which a
Change in Control has occurred.
2.4. CAUSE.
(a) For purposes of this Agreement, except as set forth in Section
2.4(b) below, a termination of employment is for "Cause" if the Executive has
been convicted of a felony involving moral turpitude or the termination is
evidenced by a resolution adopted in good faith by two-thirds of the Board that
the Executive (i) intentionally and continually failed substantially to perform
his reasonably assigned duties with the Company (other than a failure resulting
from the Executive's incapacity due to physical or mental illness or from the
Executive's assignment of duties that would constitute "Good Reason" as
hereinafter defined) which failure continued for a period of at least thirty
(30) days after a written notice of demand for substantial performance has been
delivered to the Executive specifying the manner in which the Executive has
failed substantially to perform or (ii) intentionally engaged in conduct which
is demonstrably and materially injurious to the Company; PROVIDED, HOWEVER,
that no termination of the Executive's employment shall be for Cause as set
forth in clause (ii) above until (x) there shall have been delivered to the
Executive a copy of a written notice setting forth that the Executive was
guilty of the conduct set forth in clause (ii) and specifying the particulars
thereof in detail and (y) the Executive shall have been provided an opportunity
to be heard in person by the Board (with the assistance of the Executive's
counsel if the Executive so desires). Neither an act nor a failure to act, on
the Executive's part shall be considered "intentional" unless the Executive has
acted or failed to act with a lack of good faith and with a lack of reasonable
belief that the Executive's action or failure to act was in the best interest
of the Company. Notwithstanding anything contained in this Agreement to the
contrary, no failure to perform by the Executive after a Notice of Termination
is given by the Executive shall constitute Cause for purposes of this
Agreement.
(b) In the event an employment agreement is in place between the
Executive and the Company, the definition of "Cause" set forth in such
employment agreement shall apply for purposes of this Agreement.
2
<PAGE>
2.5. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall mean any of the following events:
(a) An acquisition (other than directly from the Company) of
any voting securities of the Company (the "Voting Securities") by any
"Person" (as the term person is used for purposes of Section 13(d) or
14(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act")), immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the
1934 Act) of twenty percent (20%) or more of the combined voting
power of the Company's then outstanding Voting Securities; PROVIDED,
HOWEVER, that in determining whether a Change in Control has
occurred, Voting Securities which are acquired in a "Non-Control
Acquisition" (as hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (ii) an employee benefit
plan (or a trust forming a part thereof) maintained by (x) the
Company or (y) any corporation or other Person of which a majority of
its voting power or its equity securities or equity interest is owned
directly or indirectly by the Company (a "Subsidiary"), (ii) the
Company or any Subsidiary or (iii) any Person in connection with a
"Non-Control Transaction" (as hereinafter defined).
(b) The individuals who, as of the date hereof, are members of
the Board (the "Incumbent Board"), cease for any reason to constitute
at least a majority of the Board; PROVIDED, HOWEVER, that if the
election, or nomination for election by the Company's stockholders,
of any new director was approved by a vote of at least two-thirds
(2/3) of the then Incumbent Board, such new director shall, for
purposes of this Agreement, be considered as a member of the
Incumbent Board; PROVIDED, FURTHER, HOWEVER, that no individual shall
be considered a member of the Incumbent Board if such individual
initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest or Proxy
Contest; or
(c) Approval by stockholders of the Company of:
(i) A merger, consolidation or reorganization involving
the Company, unless:
(A) the stockholders of the Company, immediately
before such merger, consolidation or reorganization, own,
directly or indirectly, immediately following such merger,
consolidation or reorganization, at least fifty percent
(50%) of the combined voting power of the outstanding
Voting Securities of the corporation
3
<PAGE>
resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership of
the Voting Securities immediately before such merger,
consolidation or reorganization;
(B) the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization
constitute at least a majority of the members of the board
of directors of the Surviving Corporation or a corporation
beneficially owning, directly or indirectly, a majority of
the Voting Securities of the Surviving Corporation;
(C) no Person (other than the Company, any
Subsidiary, any employee benefit plan (or any trust forming
a part thereof) maintained by the Company, the Surviving
Corporation or any Subsidiary, or any Person who,
immediately prior to such merger, consolidation or
reorganization had Beneficial Ownership of fifteen percent
(15%) or more of the then outstanding Voting Securities)
owns, directly or indirectly, fifteen percent (15%) or more
of the combined voting power of the Surviving Corporation's
then outstanding voting securities; and
(D) a transaction described in clauses (A) through
(C) shall herein be referred to as a "Non-Control
Transaction;"
(ii) A complete liquidation or dissolution of the Company;
or
(iii) An agreement for the sale or other disposition of
all or substantially all of the assets of the Company to any
Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the outstanding Voting
Securities as a result of the acquisition of Voting Securities by the Company
which, by reducing the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Person,
provided that if a Change in Control would occur (but for the operation of
this sentence) as a result of the acquisition of Voting Securities by the
Company, and after such share acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional Voting Securities which
increases the percentage of the then outstanding Voting Securities
Beneficially Owned by the Subject Person, then a Change in Control shall
occur.
(d) Notwithstanding anything contained in this Agreement to the
contrary, if the Executive's employment is terminated prior to a
Change in Control and the Executive reasonably demonstrates that such
termination (i) was at the
4
<PAGE>
request of a third party who has indicated an intention or taken steps
reasonably calculated to effect a Change in Control and who
effectuates a Change in Control (a "Third Party") or (ii) otherwise
occurred in connection with, or in anticipation of, a Change in
Control which actually occurs, then for all purposes of
this Agreement, the date of a Change in Control with respect to the
Executive shall mean the date immediately prior to the date of such
termination of the Executive's employment.
2.6. COMPANY. For purposes of this Agreement, the "Company" shall
include the Company's "Successors and Assigns" (as hereinafter defined).
2.7. DISABILITY.
(a) For purposes of this Agreement, except as set forth in Section
2.7(b) below, "Disability" shall mean a physical or mental infirmity which
impairs the Executive's ability to substantially perform his duties with the
Company for a period of one hundred eighty consecutive days and the Executive
has not returned to his full time employment prior to the Termination Date as
stated in the "Notice of Termination" (as hereinafter defined).
(b) In the event an employment agreement is in place between the
Executive and the Company, the definition of "Disability" set forth in such
employment agreement shall apply for purposes of this Agreement.
2.8. GOOD REASON.
(a) For purposes of this Agreement, "Good Reason" shall mean the
occurrence after a Change in Control of any of the events or conditions
described in subsections (i) through (viii) hereof:
(i) a change in the Executive's status, position or
responsibilities (including reporting responsibilities) which,
in the Executive's reasonable judgment, represents a substantial
adverse change from his status, position or responsibilities as
in effect at any time within ninety (90) days preceding the date
of a Change in Control or at any time thereafter; the assignment
to the Executive of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with his
status, title, position or responsibilities as in effect at any
time within ninety days preceding the date of a Change in
Control or at any time thereafter; or any removal of the
Executive from or failure to reappoint or reelect him to any of
such offices or positions held prior to the Change of Control,
except in connection with the termination of his employment for
Disability, Cause, as a result of his death or by the Executive
other than for Good Reason;
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(ii) a reduction in the Executive's base salary or any
failure to pay the Executive any compensation or benefits to
which he is entitled within five days of notice thereof;
(iii) the Company's requiring the Executive to be based
at any place outside a 30-mile radius from Scottsdale, Arizona,
except for reasonably required travel on the Company's business
which is not materially greater than such travel requirements
prior to the Change in Control;
(iv) the failure by the Company to provide the Executive
with compensation and benefits, in the aggregate, at least equal
(in terms of benefit levels and/or reward opportunities) to
those provided for under each other employee benefit plan,
program and practice in which the Executive was participating at
any time within ninety (90) days preceding the date of a Change
in Control or at any time thereafter;
(v) the insolvency or the filing (by any party,
including the Company) of a petition for bankruptcy of the
Company, which petition is not dismissed within sixty (60) days;
(vi) any material breach by the Company of any provision
of this Agreement;
(vii) any purported termination of the Executive's
employment for Cause by the Company which does not comply with
the terms of Section 2.4; or
(viii) the failure of the Company to obtain an
agreement, satisfactory to the Executive, from any Successors
and Assigns to assume and agree to perform this Agreement, as
contemplated in Section 7 hereof.
(b) Any event or condition described in Section 2.8(a)(i)
through (viii) which occurs prior to a Change in Control but
which the Executive reasonably demonstrates (i) was at the request
of a Third Party or (ii) otherwise arose in connection with, or in
anticipation of, a Change in Control which actually occurs, shall
constitute Good Reason for purposes of this Agreement
notwithstanding that it occurred prior to the Change in Control.
(c) The Executive's right to terminate his employment pursuant
to this Section 2.8 shall not be affected by his incapacity due to a
Disability.
2.9. NOTICE OF TERMINATION. For purposes of this Agreement,
following a Change in Control, "Notice of Termination" shall mean a written
notice of termination from the Company of the Executive's employment which
indicates the specific termination provision in this Agreement relied upon and
which sets forth in reasonable detail the facts and circumstances
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claimed to provide a basis for termination of the Executive's employment
under the provision so indicated.
2.10. PRO RATA BONUS. For purposes of this Agreement, "Pro Rata
Bonus" shall mean an amount equal to the Bonus Amount multiplied by a fraction,
the numerator of which is the number of days in the Company's fiscal year in
which the Executive's employment terminates through the Termination Date and
the denominator of which is 365.
2.11. SUCCESSORS AND ASSIGNS. For purposes of this Agreement,
"Successors and Assigns" shall mean a corporation or other entity acquiring all
or substantially all the assets and business of the Company whether by
operation of law or otherwise, and any affiliate of such Successors and
Assigns.
2.12. TERMINATION DATE. For purposes of this Agreement,
"Termination Date" shall mean (a) in the case of the Executive's death, his
date of death, (b) in the case of Good Reason, the last day of his employment
and (c) in all other cases, the date specified in the Notice of Termination;
PROVIDED, HOWEVER, that if the Executive's employment is terminated by the
Company due to Disability, the date specified in the Notice of Termination
shall be the 30th day after receipt of the Notice of Termination by the
Executive, provided that the Executive shall not have returned to the full-time
performance of his duties within 30 days after such receipt.
3. TERMINATION OF EMPLOYMENT. If, during the term of this Agreement,
the Executive's employment with the Company shall be terminated within twenty-
four months (24) following a Change in Control, the Executive shall be entitled
to the following compensation and benefits:
(a) If the Executive's employment with the Company shall be
terminated (i) by the Company for Cause or Disability, (ii) by reason of
the Executive's death or (iii) by the Executive other than for Good
Reason, the Company shall pay to the Executive the Accrued Compensation
and, if such termination is other than by the Company for Cause, the Pro
Rata Bonus; PROVIDED, HOWEVER, if an employment agreement is in existence
between the Company and/or any of its affiliates and the Executive on the
Termination Date, the Company and/or its affiliates, as the case may be,
shall pay to the Executive any amounts owed to the Executive pursuant to
such employment agreement.
(b) If the Executive's employment with the Company shall be
terminated for any reason other than as specified in Section 3(a), the
Executive shall be entitled to the following:
(i) the Company shall pay the Executive all Accrued
Compensation and a Pro-Rata Bonus;
(ii) the Company shall pay the Executive as severance pay and
in lieu of any further compensation for periods subsequent to the
Termination Date, in a
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single payment an amount in cash equal to zero times the sum of (A)
the Base Amount and (B) the Bonus Amount;
(iii) for a number of months equal to 24 (the "Continuation
Period"), the Company shall at its expense continue on behalf of the
Executive and his dependents and beneficiaries the medical, dental
and hospitalization benefits provided (A) to the Executive at any
time during the 90-day period prior to the Change in Control or at
any time thereafter or (B) to other similarly situated executives who
continue in the employ of the Company during the Continuation Period.
The coverage and benefits (including deductibles and costs) provided
in this Section 3(b)(iii) during the Continuation Period shall be no
less favorable to the Executive and his dependents and beneficiaries,
than the most favorable of such coverages and benefits during any of
the periods referred to in clauses (A) and (B) above. The Company's
obligation hereunder with respect to the foregoing benefits shall be
limited to the extent that the Executive obtains any such benefits
pursuant to a subsequent employer's benefit plans, in which case the
Company may reduce the coverage of any benefits it is required to
provide the Executive hereunder as long as the aggregate coverages
and benefits of the combined benefit plans is no less favorable to
the Executive than the coverages and benefits required to be provided
hereunder. This subsection (iii) shall not be interpreted so as to
limit any benefits to which the Executive, his dependents or
beneficiaries may be entitled under any of the Company's employee
benefit plans, programs or practices following the Executive's
termination of employment, including without limitation, retiree
medical and life insurance benefits;
(iv) all theretofore unvested stock options, restricted
options, restricted stock and other awards issued to the Executive
pursuant to the Company's Stock Incentive Plan shall immediately
vest; and
(v) all theretofore unvested employer contributions in the
Executive's account pursuant to the Company's 401(k) plan shall
immediately vest.
(c) The amounts provided for in Sections 3(a) and 3(b)(i) and (ii)
shall be paid in a single lump sum cash payment within five (5) days after
the Executive's Termination Date (or earlier, if required by applicable
law).
(d) The Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of
any compensation or benefits provided to the Executive in any subsequent
employment except as provided in Section 3(b)(iii).
(e) The severance pay and benefits provided for in this Section 3
shall be reduced by the amount of any other severance or termination pay
to which the Executive may be entitled under any agreement with the
Company or any of its affiliates.
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(f) The Executive's entitlement to any other compensation or
benefits or any indemnification shall be determined in accordance with the
Company's employee benefit plans and other applicable programs, policies
and practices or any indemnification agreement then in effect.
4. NOTICE OF TERMINATION. Following a Change in Control, any purported
termination of the Executive's employment by the Company shall be communicated
by Notice of Termination to the Executive. For purposes of this Agreement, no
such purported termination shall be effective without such Notice of
Termination.
5. EXCISE TAX GROSS-UP.
(a) Notwithstanding anything contained in this Agreement to the
contrary, in the event it is determined (pursuant to (b) below) or finally
determined (as defined in (c)(iii) below) that any payment, distribution,
transfer, benefit or other event with respect to the Company or its
predecessors, successors, direct or indirect subsidiaries or affiliates
(or any predecessor, successor of affiliate of any of them, and including
any benefit plan of any of them), to or for the benefit of Executive or
Executive's dependents, heirs or beneficiaries (whether such payment,
distribution, transfer, benefit or other event occurs pursuant to the
terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 5) (each a "Payment" and
collectively the "Payments") is or was subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended, and any
successor provision or any comparable provision of state or local income
tax law (collectively, "Section 4999"), or any interest, penalty or
addition to tax is or was incurred by Executive with respect to such
excise tax (such excise tax, together with any such interest, penalty or
addition to tax, hereinafter collectively referred to as the
"Excise Tax"), then, within 10 days after such determination or final
determination, as the case may be, the Company shall pay to Executive an
additional cash payment (hereinafter referred to as the "Gross-Up
Payment") in an amount such that after payment by Executive of all taxes,
interest, penalties and additions to tax imposed with respect to the Gross-
Up Payment (including, without limitation, any income and excise taxes
imposed upon the Gross-Up Payment), Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon such Payment or
Payments. This provision is intended to put Executive in the same
position as Executive would have been had no Excise Tax been imposed upon
or incurred as a result of any Payment.
(b) Except as provided in subsection (c) below, the determination
that a Payment is subject to an Excise Tax shall be made in writing by a
certified public accounting firm selected by Executive ("Executive's
Accountant"). Such determination shall include the amount of the Gross-Up
Payment and detailed computations thereof, including any assumptions used
in such computations (the written determination of the Executive's
Accountant, hereinafter, the "Executive's Determination"). The
Executive's Determination shall be reviewed on behalf of the Company by a
certified public accounting firm selected by the Company (the "Company's
Accountant"). The Company
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shall notify Executive within 10 business days after receipt of the
Executive's Determination of any disagreement or dispute therewith, and
failure to so notify within that period shall be considered an agreement
by the Company with the Executive's Determination, obligating the Company
to make payment as provided in subsection (a) above within 10 days from
the expiration of such 10 business-day period. In the event of an
objection by the Company to the Executive's Determination, any amount not
in dispute shall be paid within 10 days following the 10 business-day
period referred to herein, and with respect to the amount in dispute the
Executive's Accountant and the Company's Accountant shall jointly select
a third nationally recognized certified public accounting firm to resolve
the dispute and the decision of such third firm shall be final, binding
and conclusive upon the Executive and the Company. In such a case, the
third accounting firm's findings shall be deemed the binding determination
with respect to the amount in dispute, obligating the Company to make any
payment as a result thereof within 10 days following the receipt of such
third accounting firm's determination. All fees and expenses of each of
the accounting firms referred to in this Section 5 shall be borne solely
by the Company.
(c) (i) Executive shall notify the Company in writing of any claim
by the Internal Revenue Service (or any successor thereof) or any state or
local taxing authority (individually or collectively, the "Taxing
Authority") that, if successful, would require the payment by the Company
of a Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than 30 days after Executive receives written
notice 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; provided,
however, that failure by Executive to give such notice within such 30-day
period shall not result in a waiver or forfeiture of any of Executive's
rights under this Section 5 except to the extent of actual damages
suffered by the Company as a result of such failure. Executive shall not
pay such claim prior to the expiration of the 15-day period following the
date on which Executive gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes, interest, penalties
or additions to tax with respect to such claim is due). If the Company
notifies Executive in writing prior to the expiration of such 15-day
period that it desires to contest such claim (and demonstrates to the
reasonable satisfaction of Executive its ability to make the payments to
Executive which may ultimately be required under this section before
assuming responsibility for the 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 that is
reasonably acceptable to Executive;
(C) cooperate with the Company in good faith in order
effectively to contest such claim; and
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(D) permit the Company to participate in any proceedings
relating to such claim; provided, however, that the Company shall
bear and pay directly all attorneys fees, costs and expenses
(including additional interest, penalties and additions to tax)
incurred in connection with such contest and shall indemnify and hold
Executive harmless, on an after-tax basis, for all taxes (including,
without limitation, income and excise taxes), interest, penalties and
additions to tax imposed in relation to such claim and in relation to
the payment of such costs and expenses or indemnification. Without
limitation on the foregoing provisions of this Section 5, and to the
extent its actions do not unreasonably interfere with or prejudice
Executive's disputes with the Taxing Authority as to other issues,
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, interest or
penalties 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 an amount equal to such payment to Executive, on an
interest-free basis, and shall indemnify and hold Executive harmless,
on an after-tax basis, from all taxes (including, without limitation,
income and excise taxes), interest, penalties and additions to tax
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and, further, provided, that any
extension of the statute of limitations relating to payment of taxes,
interest, penalties or additions to tax 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; and, provided,
further, that any settlement of any claim shall be reasonably
acceptable to Executive and the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder, and Executive shall be entitled to settle
or contest, as the case may be, any other issue.
(ii) If, after receipt by Executive of an amount advanced by the
Company pursuant to Section 5(c)(i), Executive receives any refund with
respect to such claim, Executive shall (subject to the Company's complying
with the requirements of Section 5) promptly pay to the Company an amount
equal to such refund (together with any interest paid or credited thereon
after taxes applicable thereto), net of any taxes (including without
limitation any income or excise taxes), interest, penalties or additions
to tax and any other costs incurred by Executive in connection with such
advance, after giving effect to such repayment. If, after the receipt by
Executive of an amount advanced by the Company pursuant to Section
5(c)(i), it is finally determined that Executive is not entitled to any
refund with respect to such claim, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall be
treated as a Gross-
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Up Payment and shall offset, to the extent thereof, the
amount of any Gross-Up Payment otherwise required to be paid.
(iii) For purposes of this Section 5, whether the Excise Tax is
applicable to a Payment shall be deemed to be "finally determined" upon
the earliest of: (A) the expiration of the 15-day period referred to in
paragraph (c)(i) above if the Company has not notified Executive that it
intends to contest the underlying claim, (B) the expiration of any period
following which no right of appeal exists, (C) the date upon which a
closing agreement or similar agreement with respect to the claim is
executed by Executive and the Taxing Authority (which agreement may be
executed only in compliance with this Section 5), (D) the receipt by
Executive of notice from the Company that it no longer seeks to pursue a
contest (which notice shall be deemed received if the Company does not,
within 15 days following receipt of a written inquiry from Executive,
affirmatively indicate in writing to Executive that the Company intends to
continue to pursue such contest).
(d) As a result of uncertainty in the application of Section 4999
that may exist at the time of any determination that a Gross-Up Payment is
due, it may be possible that in making the calculations required to be
made hereunder, the parties or their accountants shall determine that a
Gross-Up Payment need not be made (or shall make no determination with
respect to a Gross-Up Payment) that properly should be made
("Underpayment"), or that a Gross-Up Payment not properly needed to be
made should be made ("Overpayment"). The determination of any
Underpayment shall be made using the procedures set forth in paragraph (b)
above and shall be paid to Executive as an additional Gross-Up Payment.
The Company shall be entitled to use procedures similar to those available
to Executive in paragraph (b) to determine the amount of any Overpayment
(provided that the Company shall bear all costs of the accountants as
provided paragraph (b)) . In the event of a determination that an
Overpayment was made, any such Overpayment shall be treated for all
purposes as a loan to Executive with interest at the applicable Federal
rate provided for in Section 1274(d) of the Code; provided, however, that
the amount to be repaid by Executive to the Company shall be subject to
reduction to the extent necessary to put Executive in the same after-tax
position as if such Overpayment were never made.
6. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of the Company, its Successors and Assigns,
and the Company shall require any Successors and Assigns to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession or
assignment had taken place. Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by the Executive, his
beneficiaries or legal representatives, except by will or by the laws of
descent and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal personal representative.
7. FEES AND EXPENSES. The Company shall pay all legal fees and related
expenses (including the costs of experts, evidence and counsel) incurred by the
Executive as they become
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due as a result of (a) the Executive seeking to obtain or enforce any right
or benefit provided by this Agreement (including, but not limited to, any
such fees and expenses incurred in connection with the Dispute and (b) the
Executive's hearing before the Board as contemplated in Section 2.4 of this
Agreement; PROVIDED, HOWEVER, that the circumstances set forth in clause (a)
(other than as a result of the Executive's termination of employment under
circumstances described in Section 2.5(d)) occurred on or after a Change in
Control.
8. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, by overnight courier or by facsimile, addressed to the
respective addresses and facsimile numbers last given by each party to the
other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company. All
notices and communications shall be deemed to have been received on the date of
delivery thereof or on the third business day after the mailing thereof, except
that notice of change of address shall be effective only upon receipt.
9. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Company (except for
any severance or termination policies, plans, programs or practices) and for
which the Executive may qualify, nor shall anything herein limit or reduce such
rights as the Executive may have under any other agreements with the Company
(except for any severance or termination agreement). Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan
or program of the Company shall be payable in accordance with such plan or
program, except as explicitly modified by this Agreement.
10. NO GUARANTEED EMPLOYMENT. The Executive and the Company acknowledge
that, except as may otherwise be provided under any other written agreement
between the Executive and the Company, the employment of the Executive by the
Company is "at will" and may be terminated by either the Executive or the
Company at any time.
11. SETTLEMENT OF CLAIMS. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others.
12. MUTUAL NON-DISPARAGEMENT. The Company, its affiliates and
subsidiaries agree and the Company shall use its best efforts to cause their
respective executive officers and directors to agree, that they will not make
or publish any statement critical of the Executive, or in any way adversely
affecting or otherwise maligning the Executive's reputation. The Executive
agrees that he will not make or publish any statement critical of the Company,
its affiliates and their respective executive officers and directors, or in any
way adversely affecting or otherwise maligning the business or reputation of
any member of the Company, its affiliates and subsidiaries and their respective
officers, directors and employees.
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13. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreement or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement.
14. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Arizona without giving
effect to the conflict of laws principles thereof. Any action brought by any
party to this Agreement shall be brought and maintained in a court of competent
jurisdiction in Maricopa County in the State of Arizona.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and the Executive has executed this Agreement as
of the day and year first above written.
EVANS WITHYCOMBE RESIDENTIAL, INC.
By: /s/ Paul R. Fannin
--------------------------------
Name:
Title: Senior Vice President, CFO
By: /s/ Stephen O. Evans
--------------------------------
Executive
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CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT made as of June 18, 1997 by and between Evans Withycombe
Residential, Inc., a Maryland corporation (the "Company"), and Richard G.
Berry (the "Executive").
WITNESSETH
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as hereinafter defined) exists
and that the threat or the occurrence of a Change in Control can result in
significant distractions of its key management personnel because of the
uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of the
Executive in the event of a threat or occurrence of a Change in Control and
to ensure his continued dedication and efforts in such event without undue
concern for his personal financial and employment security; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Company, particularly in the event of a threat or the occurrence of a Change
in Control, the Company desires to enter into this Agreement with the
Executive to provide the Executive with certain benefits in the event his
employment is terminated as a result of, or in connection with, a Change in
Control and to provide the Executive with certain other benefits whether or
not the Executive's employment is terminated.
AGREEMENT
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, it is agreed as
follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of the date
hereof and shall continue in effect until December 31, 1998; PROVIDED,
HOWEVER, that on December 31, 1998 and on each anniversary thereof, the term
of this Agreement shall automatically be extended for one year unless either
the Company or the Executive shall have given written notice to the other
prior thereto that the term of this Agreement shall not be so extended; AND
PROVIDED, FURTHER, HOWEVER, that notwithstanding any such notice by the
Company not to extend, the term of this Agreement shall not expire prior to
the expiration of 24 months after the occurrence of a Change in Control.
2. DEFINITIONS.
2.1. ACCRUED COMPENSATION. For purposes of this Agreement,
"Accrued Compensation" shall mean an amount which shall include all amounts
earned or accrued through the "Termination Date" (as hereinafter defined) but
not paid as of the Termination Date including
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(i) base salary, (ii) reimbursement for reasonable and necessary expenses
incurred by the Executive on behalf of the Company during the period ending
on the Termination Date, (iii) vacation and sick leave pay (to the extent
provided by Company policy or applicable law) and (iv) bonuses and incentive
compensation (other than the "Pro Rata Bonus" (as hereinafter defined)).
2.2. BASE AMOUNT. For purposes of this Agreement, "Base Amount"
shall mean the greater of (a) the Executive's annual base salary, plus any
auto allowance, at the rate in effect immediately prior to the Change in
Control and (b) the Executive's annual base salary, plus any auto allowance,
at the rate in effect on the Termination Date, and shall include all amounts
of his base salary that are deferred under any other agreement or arrangement
with the Company.
2.3. BONUS AMOUNT. For purposes of this Agreement, "Bonus Amount"
shall mean the Executive's annual bonus for the fiscal year prior to which a
Change in Control has occurred.
2.4. CAUSE.
(a) For purposes of this Agreement, except as set forth in Section
2.4(b) below, a termination of employment is for "Cause" if the Executive has
been convicted of a felony involving moral turpitude or the termination is
evidenced by a resolution adopted in good faith by two-thirds of the Board
that the Executive (i) intentionally and continually failed substantially to
perform his reasonably assigned duties with the Company (other than a failure
resulting from the Executive's incapacity due to physical or mental illness
or from the Executive's assignment of duties that would constitute "Good
Reason" as hereinafter defined) which failure continued for a period of at
least thirty (30) days after a written notice of demand for substantial
performance has been delivered to the Executive specifying the manner in
which the Executive has failed substantially to perform or (ii) intentionally
engaged in conduct which is demonstrably and materially injurious to the
Company; PROVIDED, HOWEVER, that no termination of the Executive's employment
shall be for Cause as set forth in clause (ii) above until (x) there shall
have been delivered to the Executive a copy of a written notice setting forth
that the Executive was guilty of the conduct set forth in clause (ii) and
specifying the particulars thereof in detail and (y) the Executive shall have
been provided an opportunity to be heard in person by the Board (with the
assistance of the Executive's counsel if the Executive so desires). Neither
an act nor a failure to act, on the Executive's part shall be considered
"intentional" unless the Executive has acted or failed to act with a lack of
good faith and with a lack of reasonable belief that the Executive's action
or failure to act was in the best interest of the Company. Notwithstanding
anything contained in this Agreement to the contrary, no failure to perform
by the Executive after a Notice of Termination is given by the Executive
shall constitute Cause for purposes of this Agreement.
(b) In the event an employment agreement is in place between the
Executive and the Company, the definition of "Cause" set forth in such
employment agreement shall apply for purposes of this Agreement.
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2.5. CHANGE IN CONTROL. For purposes of this Agreement, a "Change
in Control" shall mean any of the following events:
(a) An acquisition (other than directly from the Company) of
any voting securities of the Company (the "Voting Securities") by
any "Person" (as the term person is used for purposes of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act")), immediately after which such Person has
"Beneficial Ownership" (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of twenty percent (20%) or more of
the combined voting power of the Company's then outstanding Voting
Securities; PROVIDED, HOWEVER, that in determining whether a Change
in Control has occurred, Voting Securities which are acquired in a
"Non-Control Acquisition" (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. A
"Non-Control Acquisition" shall mean an acquisition by (ii) an
employee benefit plan (or a trust forming a part thereof)
maintained by (x) the Company or (y) any corporation or other
Person of which a majority of its voting power or its equity
securities or equity interest is owned directly or indirectly by
the Company (a "Subsidiary"), (ii) the Company or any Subsidiary or
(iii) any Person in connection with a "Non-Control Transaction" (as
hereinafter defined).
(b) The individuals who, as of the date hereof, are members
of the Board (the "Incumbent Board"), cease for any reason to
constitute at least a majority of the Board; PROVIDED, HOWEVER,
that if the election, or nomination for election by the Company's
stockholders, of any new director was approved by a vote of at
least two-thirds (2/3) of the then Incumbent Board, such new
director shall, for purposes of this Agreement, be considered as a
member of the Incumbent Board; PROVIDED, FURTHER, HOWEVER, that no
individual shall be considered a member of the Incumbent Board if
such individual initially assumed office as a result of either an
actual or threatened "Election Contest" (as described in Rule
14a-11 promulgated under the 1934 Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board (a "Proxy Contest") including by reason
of any agreement intended to avoid or settle any Election Contest
or Proxy Contest; or
(c) Approval by stockholders of the Company of:
(i) A merger, consolidation or reorganization involving
the Company, unless:
(A) the stockholders of the Company, immediately
before such merger, consolidation or reorganization,
own, directly or indirectly, immediately following such
merger, consolidation or reorganization, at least fifty
percent (50%) of the combined voting power of the
outstanding Voting Securities of the corporation
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resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership of
the Voting Securities immediately before such merger,
consolidation or reorganization;
(B) the individuals who were members of the
Incumbent Board immediately prior to the execution of
the agreement providing for such merger, consolidation
or reorganization constitute at least a majority of the
members of the board of directors of the Surviving
Corporation or a corporation beneficially owning,
directly or indirectly, a majority of the Voting
Securities of the Surviving Corporation;
(C) no Person (other than the Company, any
Subsidiary, any employee benefit plan (or any trust
forming a part thereof) maintained by the Company, the
Surviving Corporation or any Subsidiary, or any Person
who, immediately prior to such merger, consolidation or
reorganization had Beneficial Ownership of fifteen
percent (15%) or more of the then outstanding Voting
Securities) owns, directly or indirectly, fifteen
percent (15%) or more of the combined voting power of
the Surviving Corporation's then outstanding voting
securities; and
(D) a transaction described in clauses (A) through
(C) shall herein be referred to as a "Non-Control
Transaction;"
(ii) A complete liquidation or dissolution of the
Company; or
(iii) An agreement for the sale or other disposition of
all or substantially all of the assets of the Company to any
Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the outstanding Voting
Securities as a result of the acquisition of Voting Securities by the Company
which, by reducing the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Person,
provided that if a Change in Control would occur (but for the operation of
this sentence) as a result of the acquisition of Voting Securities by the
Company, and after such share acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional Voting Securities which
increases the percentage of the then outstanding Voting Securities
Beneficially Owned by the Subject Person, then a Change in Control shall
occur.
(d) Notwithstanding anything contained in this Agreement to
the contrary, if the Executive's employment is terminated prior to
a Change in Control and the Executive reasonably demonstrates that
such termination (i) was at the
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request of a third party who has indicated an intention or taken
steps reasonably calculated to effect a Change in Control and who
effectuates a Change in Control (a "Third Party") or (ii) otherwise
occurred in connection with, or in anticipation of, a Change in
Control which actually occurs, then for all purposes of this
Agreement, the date of a Change in Control with respect to the
Executive shall mean the date immediately prior to the date of such
termination of the Executive's employment.
2.6. COMPANY. For purposes of this Agreement, the "Company" shall
include the Company's "Successors and Assigns" (as hereinafter defined).
2.7. DISABILITY.
(a) For purposes of this Agreement, except as set forth in Section
2.7(b) below, "Disability" shall mean a physical or mental infirmity which
impairs the Executive's ability to substantially perform his duties with the
Company for a period of one hundred eighty consecutive days and the Executive
has not returned to his full time employment prior to the Termination Date as
stated in the "Notice of Termination" (as hereinafter defined).
(b) In the event an employment agreement is in place between the
Executive and the Company, the definition of "Disability" set forth in such
employment agreement shall apply for purposes of this Agreement.
2.8. GOOD REASON.
(a) For purposes of this Agreement, "Good Reason" shall mean the
occurrence after a Change in Control of any of the events or conditions
described in subsections (i) through (viii) hereof:
(i) a change in the Executive's status, position or
responsibilities (including reporting responsibilities) which,
in the Executive's reasonable judgment, represents a substantial
adverse change from his status, position or responsibilities as
in effect at any time within ninety (90) days preceding the date
of a Change in Control or at any time thereafter; the assignment
to the Executive of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with his
status, title, position or responsibilities as in effect at any
time within ninety days preceding the date of a Change in
Control or at any time thereafter; or any removal of the
Executive from or failure to reappoint or reelect him to any of
such offices or positions held prior to the Change of Control,
except in connection with the termination of his employment for
Disability, Cause, as a result of his death or by the Executive
other than for Good Reason;
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(ii) a reduction in the Executive's base salary or any
failure to pay the Executive any compensation or benefits to
which he is entitled within five days of notice thereof;
(iii) the Company's requiring the Executive to be based
at any place outside a 30-mile radius from Scottsdale, Arizona,
except for reasonably required travel on the Company's business
which is not materially greater than such travel requirements
prior to the Change in Control;
(iv) the failure by the Company to provide the Executive
with compensation and benefits, in the aggregate, at least equal
(in terms of benefit levels and/or reward opportunities) to
those provided for under each other employee benefit plan,
program and practice in which the Executive was participating at
any time within ninety (90) days preceding the date of a Change
in Control or at any time thereafter;
(v) the insolvency or the filing (by any party, including
the Company) of a petition for bankruptcy of the Company, which
petition is not dismissed within sixty (60) days;
(vi) any material breach by the Company of any provision of
this Agreement;
(vii) any purported termination of the Executive's
employment for Cause by the Company which does not comply with
the terms of Section 2.4; or
(viii) the failure of the Company to obtain an
agreement, satisfactory to the Executive, from any Successors
and Assigns to assume and agree to perform this Agreement, as
contemplated in Section 7 hereof.
(b) Any event or condition described in Section 2.8(a)(i)
through (viii) which occurs prior to a Change in Control but which
the Executive reasonably demonstrates (i) was at the request of a
Third Party or (ii) otherwise arose in connection with, or in
anticipation of, a Change in Control which actually occurs, shall
constitute Good Reason for purposes of this Agreement notwithstanding
that it occurred prior to the Change in Control.
(c) The Executive's right to terminate his employment pursuant
to this Section 2.8 shall not be affected by his incapacity due to a
Disability.
2.9. NOTICE OF TERMINATION. For purposes of this Agreement,
following a Change in Control, "Notice of Termination" shall mean a written
notice of termination from the Company of the Executive's employment which
indicates the specific termination provision in this Agreement relied upon
and which sets forth in reasonable detail the facts and circumstances
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claimed to provide a basis for termination of the Executive's employment
under the provision so indicated.
2.10. PRO RATA BONUS. For purposes of this Agreement, "Pro
Rata Bonus" shall mean an amount equal to the Bonus Amount multiplied by a
fraction, the numerator of which is the number of days in the Company's
fiscal year in which the Executive's employment terminates through the
Termination Date and the denominator of which is 365.
2.11. SUCCESSORS AND ASSIGNS. For purposes of this Agreement,
"Successors and Assigns" shall mean a corporation or other entity acquiring
all or substantially all the assets and business of the Company whether by
operation of law or otherwise, and any affiliate of such Successors and
Assigns.
2.12. TERMINATION DATE. For purposes of this Agreement,
"Termination Date" shall mean (a) in the case of the Executive's death, his
date of death, (b) in the case of Good Reason, the last day of his employment
and (c) in all other cases, the date specified in the Notice of Termination;
PROVIDED, HOWEVER, that if the Executive's employment is terminated by the
Company due to Disability, the date specified in the Notice of Termination
shall be the 30th day after receipt of the Notice of Termination by the
Executive, provided that the Executive shall not have returned to the
full-time performance of his duties within 30 days after such receipt.
3. TERMINATION OF EMPLOYMENT. If, during the term of this Agreement,
the Executive's employment with the Company shall be terminated within
twenty-four months (24) following a Change in Control, the Executive shall be
entitled to the following compensation and benefits:
(a) If the Executive's employment with the Company shall be
terminated (i) by the Company for Cause or Disability, (ii) by reason of
the Executive's death or (iii) by the Executive other than for Good
Reason, the Company shall pay to the Executive the Accrued Compensation
and, if such termination is other than by the Company for Cause, the Pro
Rata Bonus; PROVIDED, HOWEVER, if an employment agreement is in existence
between the Company and/or any of its affiliates and the Executive on the
Termination Date, the Company and/or its affiliates, as the case may be,
shall pay to the Executive any amounts owed to the Executive pursuant to
such employment agreement.
(b) If the Executive's employment with the Company shall be
terminated for any reason other than as specified in Section 3(a), the
Executive shall be entitled to the following:
(i) the Company shall pay the Executive all Accrued
Compensation and a Pro-Rata Bonus;
(ii) the Company shall pay the Executive as severance pay and in
lieu of any further compensation for periods subsequent to the
Termination Date, in a
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single payment an amount in cash equal to three times the sum
of (A) the Base Amount and (B) the Bonus Amount;
(iii) for a number of months equal to 24 (the "Continuation
Period"), the Company shall at its expense continue on behalf of the
Executive and his dependents and beneficiaries the medical, dental
and hospitalization benefits provided (A) to the Executive at any
time during the 90-day period prior to the Change in Control or at
any time thereafter or (B) to other similarly situated executives who
continue in the employ of the Company during the Continuation Period.
The coverage and benefits (including deductibles and costs) provided
in this Section 3(b)(iii) during the Continuation Period shall be no
less favorable to the Executive and his dependents and beneficiaries,
than the most favorable of such coverages and benefits during any of
the periods referred to in clauses (A) and (B) above. The Company's
obligation hereunder with respect to the foregoing benefits shall be
limited to the extent that the Executive obtains any such benefits
pursuant to a subsequent employer's benefit plans, in which case the
Company may reduce the coverage of any benefits it is required to
provide the Executive hereunder as long as the aggregate coverages
and benefits of the combined benefit plans is no less favorable to
the Executive than the coverages and benefits required to be provided
hereunder. This subsection (iii) shall not be interpreted so as to
limit any benefits to which the Executive, his dependents or
beneficiaries may be entitled under any of the Company's employee
benefit plans, programs or practices following the Executive's
termination of employment, including without limitation, retiree
medical and life insurance benefits;
(iv) all theretofore unvested stock options, restricted options,
restricted stock and other awards issued to the Executive pursuant to
the Company's Stock Incentive Plan shall immediately vest; and
(v) all theretofore unvested employer contributions in the
Executive's account pursuant to the Company's 401(k) plan shall
immediately vest.
(c) The amounts provided for in Sections 3(a) and 3(b)(i) and (ii)
shall be paid in a single lump sum cash payment within five (5) days after
the Executive's Termination Date (or earlier, if required by applicable
law).
(d) The Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of
any compensation or benefits provided to the Executive in any subsequent
employment except as provided in Section 3(b)(iii).
(e) The severance pay and benefits provided for in this Section 3
shall be reduced by the amount of any other severance or termination pay
to which the Executive may be entitled under any agreement with the
Company or any of its affiliates.
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(f) The Executive's entitlement to any other compensation or
benefits or any indemnification shall be determined in accordance with the
Company's employee benefit plans and other applicable programs, policies
and practices or any indemnification agreement then in effect.
4. NOTICE OF TERMINATION. Following a Change in Control, any
purported termination of the Executive's employment by the Company shall be
communicated by Notice of Termination to the Executive. For purposes of this
Agreement, no such purported termination shall be effective without such
Notice of Termination.
5. EXCISE TAX GROSS-UP.
(a) Notwithstanding anything contained in this Agreement to the
contrary, in the event it is determined (pursuant to (b) below) or finally
determined (as defined in (c)(iii) below) that any payment, distribution,
transfer, benefit or other event with respect to the Company or its
predecessors, successors, direct or indirect subsidiaries or affiliates
(or any predecessor, successor of affiliate of any of them, and including
any benefit plan of any of them), to or for the benefit of Executive or
Executive's dependents, heirs or beneficiaries (whether such payment,
distribution, transfer, benefit or other event occurs pursuant to the
terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 5) (each a "Payment" and
collectively the "Payments") is or was subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended, and any
successor provision or any comparable provision of state or local income
tax law (collectively, "Section 4999"), or any interest, penalty or
addition to tax is or was incurred by Executive with respect to such
excise tax (such excise tax, together with any such interest, penalty or
addition to tax, hereinafter collectively referred to as the
"Excise Tax"), then, within 10 days after such determination or final
determination, as the case may be, the Company shall pay to Executive an
additional cash payment (hereinafter referred to as the "Gross-Up
Payment") in an amount such that after payment by Executive of all taxes,
interest, penalties and additions to tax imposed with respect to the Gross-
Up Payment (including, without limitation, any income and excise taxes
imposed upon the Gross-Up Payment), Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon such Payment or
Payments. This provision is intended to put Executive in the same
position as Executive would have been had no Excise Tax been imposed upon
or incurred as a result of any Payment.
(b) Except as provided in subsection (c) below, the determination
that a Payment is subject to an Excise Tax shall be made in writing by a
certified public accounting firm selected by Executive ("Executive's
Accountant"). Such determination shall include the amount of the Gross-Up
Payment and detailed computations thereof, including any assumptions used
in such computations (the written determination of the Executive's
Accountant, hereinafter, the "Executive's Determination"). The
Executive's Determination shall be reviewed on behalf of the Company by a
certified public accounting firm selected by the Company (the "Company's
Accountant"). The Company
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shall notify Executive within 10 business days after receipt of the
Executive's Determination of any disagreement or dispute therewith,
and failure to so notify within that period shall be considered an
agreement by the Company with the Executive's Determination, obligating
the Company to make payment as provided in subsection (a) above within
10 days from the expiration of such 10 business-day period. In the
event of an objection by the Company to the Executive's Determination, any
amount not in dispute shall be paid within 10 days following the 10
business-day period referred to herein, and with respect to the amount in
dispute the Executive's Accountant and the Company's Accountant shall
jointly select a third nationally recognized certified public accounting
firm to resolve the dispute and the decision of such third firm shall be
final, binding and conclusive upon the Executive and the Company. In such
a case, the third accounting firm's findings shall be deemed the binding
determination with respect to the amount in dispute, obligating the
Company to make any payment as a result thereof within 10 days following
the receipt of such third accounting firm's determination. All fees and
expenses of each of the accounting firms referred to in this Section 5
shall be borne solely by the Company.
(c) (i) Executive shall notify the Company in writing of any claim
by the Internal Revenue Service (or any successor thereof) or any state or
local taxing authority (individually or collectively, the "Taxing
Authority") that, if successful, would require the payment by the Company
of a Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than 30 days after Executive receives written
notice 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; provided,
however, that failure by Executive to give such notice within such 30-day
period shall not result in a waiver or forfeiture of any of Executive's
rights under this Section 5 except to the extent of actual damages
suffered by the Company as a result of such failure. Executive shall not
pay such claim prior to the expiration of the 15-day period following the
date on which Executive gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes, interest, penalties
or additions to tax with respect to such claim is due). If the Company
notifies Executive in writing prior to the expiration of such 15-day
period that it desires to contest such claim (and demonstrates to the
reasonable satisfaction of Executive its ability to make the payments to
Executive which may ultimately be required under this section before
assuming responsibility for the 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 that is
reasonably acceptable to Executive;
(C) cooperate with the Company in good faith in order
effectively to contest such claim; and
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(D) permit the Company to participate in any proceedings
relating to such claim; provided, however, that the Company shall
bear and pay directly all attorneys fees, costs and expenses
(including additional interest, penalties and additions to tax)
incurred in connection with such contest and shall indemnify and hold
Executive harmless, on an after-tax basis, for all taxes (including,
without limitation, income and excise taxes), interest, penalties and
additions to tax imposed in relation to such claim and in relation to
the payment of such costs and expenses or indemnification. Without
limitation on the foregoing provisions of this Section 5, and to the
extent its actions do not unreasonably interfere with or prejudice
Executive's disputes with the Taxing Authority as to other issues,
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, interest or
penalties 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 an amount equal to such payment to Executive, on an
interest-free basis, and shall indemnify and hold Executive harmless,
on an after-tax basis, from all taxes (including, without limitation,
income and excise taxes), interest, penalties and additions to tax
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and, further, provided, that any
extension of the statute of limitations relating to payment of taxes,
interest, penalties or additions to tax 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; and, provided,
further, that any settlement of any claim shall be reasonably
acceptable to Executive and the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder, and Executive shall be entitled to settle
or contest, as the case may be, any other issue.
(ii) If, after receipt by Executive of an amount advanced by the
Company pursuant to Section 5(c)(i), Executive receives any refund with
respect to such claim, Executive shall (subject to the Company's complying
with the requirements of Section 5) promptly pay to the Company an amount
equal to such refund (together with any interest paid or credited thereon
after taxes applicable thereto), net of any taxes (including without
limitation any income or excise taxes), interest, penalties or additions
to tax and any other costs incurred by Executive in connection with such
advance, after giving effect to such repayment. If, after the receipt by
Executive of an amount advanced by the Company pursuant to Section
5(c)(i), it is finally determined that Executive is not entitled to any
refund with respect to such claim, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall be
treated as a Gross-
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Up Payment and shall offset, to the extent thereof, the amount of any
Gross-Up Payment otherwise required to be paid.
(iii) For purposes of this Section 5, whether the Excise Tax is
applicable to a Payment shall be deemed to be "finally determined" upon
the earliest of: (A) the expiration of the 15-day period referred to in
paragraph (c)(i) above if the Company has not notified Executive that it
intends to contest the underlying claim, (B) the expiration of any period
following which no right of appeal exists, (C) the date upon which a
closing agreement or similar agreement with respect to the claim is
executed by Executive and the Taxing Authority (which agreement may be
executed only in compliance with this Section 5), (D) the receipt by
Executive of notice from the Company that it no longer seeks to pursue a
contest (which notice shall be deemed received if the Company does not,
within 15 days following receipt of a written inquiry from Executive,
affirmatively indicate in writing to Executive that the Company intends to
continue to pursue such contest).
(d) As a result of uncertainty in the application of Section 4999
that may exist at the time of any determination that a Gross-Up Payment is
due, it may be possible that in making the calculations required to be
made hereunder, the parties or their accountants shall determine that a
Gross-Up Payment need not be made (or shall make no determination with
respect to a Gross-Up Payment) that properly should be made
("Underpayment"), or that a Gross-Up Payment not properly needed to be
made should be made ("Overpayment"). The determination of any
Underpayment shall be made using the procedures set forth in paragraph (b)
above and shall be paid to Executive as an additional Gross-Up Payment.
The Company shall be entitled to use procedures similar to those available
to Executive in paragraph (b) to determine the amount of any Overpayment
(provided that the Company shall bear all costs of the accountants as
provided paragraph (b)) . In the event of a determination that an
Overpayment was made, any such Overpayment shall be treated for all
purposes as a loan to Executive with interest at the applicable Federal
rate provided for in Section 1274(d) of the Code; provided, however, that
the amount to be repaid by Executive to the Company shall be subject to
reduction to the extent necessary to put Executive in the same after-tax
position as if such Overpayment were never made.
6. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be
binding upon and shall inure to the benefit of the Company, its Successors
and Assigns, and the Company shall require any Successors and Assigns to
expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Neither this Agreement nor
any right or interest hereunder shall be assignable or transferable by the
Executive, his beneficiaries or legal representatives, except by will or by
the laws of descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal personal
representative.
7. FEES AND EXPENSES. The Company shall pay all legal fees and related
expenses (including the costs of experts, evidence and counsel) incurred by the
Executive as they become
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due as a result of (a) the Executive seeking to obtain or enforce any right
or benefit provided by this Agreement (including, but not limited to, any
such fees and expenses incurred in connection with the Dispute and (b) the
Executive's hearing before the Board as contemplated in Section 2.4 of this
Agreement; PROVIDED, HOWEVER, that the circumstances set forth in clause (a)
(other than as a result of the Executive's termination of employment under
circumstances described in Section 2.5(d)) occurred on or after a Change in
Control.
8. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt
requested, postage prepaid, by overnight courier or by facsimile, addressed
to the respective addresses and facsimile numbers last given by each party to
the other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company. All
notices and communications shall be deemed to have been received on the date
of delivery thereof or on the third business day after the mailing thereof,
except that notice of change of address shall be effective only upon receipt.
9. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Company (except for
any severance or termination policies, plans, programs or practices) and for
which the Executive may qualify, nor shall anything herein limit or reduce
such rights as the Executive may have under any other agreements with the
Company (except for any severance or termination agreement). Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan or program of the Company shall be payable in accordance with
such plan or program, except as explicitly modified by this Agreement.
10. NO GUARANTEED EMPLOYMENT. The Executive and the Company
acknowledge that, except as may otherwise be provided under any other written
agreement between the Executive and the Company, the employment of the
Executive by the Company is "at will" and may be terminated by either the
Executive or the Company at any time.
11. SETTLEMENT OF CLAIMS. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company may have against the Executive or others.
12. MUTUAL NON-DISPARAGEMENT. The Company, its affiliates and
subsidiaries agree and the Company shall use its best efforts to cause their
respective executive officers and directors to agree, that they will not make
or publish any statement critical of the Executive, or in any way adversely
affecting or otherwise maligning the Executive's reputation. The Executive
agrees that he will not make or publish any statement critical of the
Company, its affiliates and their respective executive officers and
directors, or in any way adversely affecting or otherwise maligning the
business or reputation of any member of the Company, its affiliates and
subsidiaries and their respective officers, directors and employees.
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13. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
14. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Arizona without
giving effect to the conflict of laws principles thereof. Any action brought
by any party to this Agreement shall be brought and maintained in a court of
competent jurisdiction in Maricopa County in the State of Arizona.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and the Executive has executed this Agreement
as of the day and year first above written.
EVANS WITHYCOMBE RESIDENTIAL, INC.
By: Stephen O. Evans
-----------------------------------
Name:
Title:
By: Richard G. Berry
-----------------------------------
Executive
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CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT made as of June 18, 1997 by and between Evans Withycombe
Residential, Inc., a Maryland corporation (the "Company"), and Paul R. Fannin
(the "Executive").
WITNESSETH
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as hereinafter defined) exists and
that the threat or the occurrence of a Change in Control can result in
significant distractions of its key management personnel because of the
uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of the
Executive in the event of a threat or occurrence of a Change in Control and to
ensure his continued dedication and efforts in such event without undue concern
for his personal financial and employment security; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Company, particularly in the event of a threat or the occurrence of a Change in
Control, the Company desires to enter into this Agreement with the Executive to
provide the Executive with certain benefits in the event his employment is
terminated as a result of, or in connection with, a Change in Control and to
provide the Executive with certain other benefits whether or not the
Executive's employment is terminated.
AGREEMENT
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, it is agreed as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of the date
hereof and shall continue in effect until December 31, 1998; PROVIDED, HOWEVER
, that on December 31, 1998 and on each anniversary thereof, the term of this
Agreement shall automatically be extended for one year unless either the
Company or the Executive shall have given written notice to the other prior
thereto that the term of this Agreement shall not be so extended; AND PROVIDED,
FURTHER, HOWEVER, that notwithstanding any such notice by the Company not to
extend, the term of this Agreement shall not expire prior to the expiration of
24 months after the occurrence of a Change in Control.
2. DEFINITIONS.
2.1. ACCRUED COMPENSATION. For purposes of this Agreement, "Accrued
Compensation" shall mean an amount which shall include all amounts earned or
accrued through the "Termination Date" (as hereinafter defined) but not paid as
of the Termination Date including
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(i) base salary, (ii) reimbursement for reasonable and necessary expenses
incurred by the Executive on behalf of the Company during the period ending
on the Termination Date, (iii) vacation and sick leave pay (to the extent
provided by Company policy or applicable law) and (iv) bonuses and incentive
compensation (other than the "Pro Rata Bonus" (as hereinafter defined)).
2.2. BASE AMOUNT. For purposes of this Agreement, "Base Amount"
shall mean the greater of (a) the Executive's annual base salary, plus any auto
allowance, at the rate in effect immediately prior to the Change in Control and
(b) the Executive's annual base salary, plus any auto allowance, at the rate in
effect on the Termination Date, and shall include all amounts of his base
salary that are deferred under any other agreement or arrangement with the
Company.
2.3. BONUS AMOUNT. For purposes of this Agreement, "Bonus Amount"
shall mean the Executive's annual bonus for the fiscal year prior to which a
Change in Control has occurred.
2.4. CAUSE.
(a) For purposes of this Agreement, except as set forth in Section
2.4(b) below, a termination of employment is for "Cause" if the Executive has
been convicted of a felony involving moral turpitude or the termination is
evidenced by a resolution adopted in good faith by two-thirds of the Board that
the Executive (i) intentionally and continually failed substantially to perform
his reasonably assigned duties with the Company (other than a failure resulting
from the Executive's incapacity due to physical or mental illness or from the
Executive's assignment of duties that would constitute "Good Reason" as
hereinafter defined) which failure continued for a period of at least thirty
(30) days after a written notice of demand for substantial performance has been
delivered to the Executive specifying the manner in which the Executive has
failed substantially to perform or (ii) intentionally engaged in conduct which
is demons trably and materially injurious to the Company; PROVIDED, HOWEVER,
that no termination of the Executive's employment shall be for Cause as set
forth in clause (ii) above until (x) there shall have been delivered to the
Executive a copy of a written notice setting forth that the Executive was
guilty of the conduct set forth in clause (ii) and specifying the particulars
thereof in detail and (y) the Executive shall have been provided an opportunity
to be heard in person by the Board (with the assistance of the Executive's
counsel if the Executive so desires). Neither an act nor a failure to act, on
the Executive's part shall be considered "intentional" unless the Executive has
acted or failed to act with a lack of good faith and with a lack of reasonable
belief that the Executive's action or failure to act was in the best interest
of the Company. Notwithstanding anything contained in this Agreement to the
contrary, no failure to perform by the Executive after a Notice of Termination
is given by the Executive shall constitute Cause for purposes of this
Agreement.
(b) In the event an employment agreement is in place between the
Executive and the Company, the definition of "Cause" set forth in such
employment agreement shall apply for purposes of this Agreement.
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2.5. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall mean any of the following events:
(a) An acquisition (other than directly from the Company) of any
voting securities of the Company (the "Voting Securities") by any
"Person" (as the term person is used for purposes of Section 13(d) or
14(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act")), immediately after which such Person has "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated under the 1934 Act) of
twenty percent (20%) or more of the combined voting power of the
Company's then outstanding Voting Securities; PROVIDED, HOWEVER, that
in determining whether a Change in Control has occurred, Voting
Securities which are acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an acquisition which would
cause a Change in Control. A "Non-Control Acquisition" shall mean an
acquisition by (ii) an employee benefit plan (or a trust forming a
part thereof) maintained by (x) the Company or (y) any corporation or
other Person of which a majority of its voting power or its equity
securities or equity interest is owned directly or indirectly by the
Company (a "Subsidiary"), (ii) the Company or any Subsidiary or
(iii) any Person in connection with a "Non-Control Transaction" (as
hereinafter defined).
(b) The individuals who, as of the date hereof, are members of
the Board (the "Incumbent Board"), cease for any reason to constitute
at least a majority of the Board; PROVIDED, HOWEVER, that if the
election, or nomination for electio n by the Company's stockholders,
of any new director was approved by a vote of at least two-thirds
(2/3) of the then Incumbent Board, such new director shall, for
purposes of this Agreement, be considered as a member of the Incumbent
Board; PROVIDED, FURTHER, HOWEVER, that no individual shall be
considered a member of the Incumbent Board if such individual
initially assumed office as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11 promulgated under the
1934 Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board (a "Proxy
Contest") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest; or
(c) Approval by stockholders of the Company of:
(i) A merger, consolidation or reorganization involving the
Company, unless:
(A) the stockholders of the Company, immediately
before such merger, consolidation or reorganization, own,
directly or indirectly, immediately following such merger,
consolidation or reorganization, at least fifty percent
(50%) of the combined voting power of the outstanding
Voting Securities of the corporation
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resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership of the
Voting Securities immediately before such merger,
consolidation or reorganization;
(B) the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization
constitute at least a majority of the members of the board
of directors of the Surviving Corporation or a corporation
beneficially owning, directly or indirectly, a majority of
the Voting Securities of the Surviving Corporation;
(C) no Person (other than the Company, any Subsidiary,
any employee benefit plan (or any trust forming a part
thereof) maintained by the Company, the Surviving
Corporation or any Subsidiary, or any Person who,
immediately prior to such merger, consolidation or
reorganization had Beneficial Ownership of fifteen percent
(15%) or more of the then outstanding Voting Securities)
owns, directly or indirectly, fifteen percent (15%) or more
of the combined voting power of the Surviving Corporation's
then outstanding voting securities; and
(D) a transaction described in clauses (A) through (C)
shall herein be referred to as a "Non-Control Transaction;"
(ii) A complete liquidation or dissolution of the Company;
or
(iii) An agreement for the sale or other disposition of all
or substantially all of the assets of the Company to any Person
(other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person (the "Subject Person") acquired Beneficial Ownership
of more than the permitted amount of the outstanding Voting Securities as a
result of the acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Person,
provided that if a Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of Voting Securities by the Company,
and after such share acquisition by the Company, the Subject Person becomes the
Beneficial Owner of any additional Voting Securities which increases the
percentage of the then outstanding Voting Securities Beneficially Owned by the
Subject Person, then a Change in Control shall occur.
(d) Notwithstanding anything contained in this Agreement to the
contrary, if the Executive's employment is terminated prior to a
Change in Control and the Executive reasonably demonstrates that such
termination (i) was at the
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request of a third party who has indicated an intention or taken steps
reasonably calculated to effect a Change in Control and who
effectuates a Change in Control (a "Third Party") or (ii) otherwise
occurred in connection with, or in anticipation of, a Change in
Control which actually occurs, then for all purposes of this
Agreement, the date of a Change in Control with respect to the
Executive shall mean the date immediately prior to the date of such
termination of the Executive's employment.
2.6. COMPANY. For purposes of this Agreement, the "Company" shall
include the Company's "Successors and Assigns" (as hereinafter defined).
2.7. DISABILITY.
(a) For purposes of this Agreement, except as set forth in Section
2.7(b) below, "Disability" shall mean a physical or mental infirmity which
impairs the Executive's ability to substantially perform his duties with the
Company for a period of one hundred eighty consecutive days and the Executive
has not returned to his full time employment prior to the Termination Date as
stated in the "Notice of Termination" (as hereinafter defined).
(b) In the event an employment agreement is in place between the
Executive and the Company, the definition of "Disability" set forth in such
employment agreement shall apply for purposes of this Agreement.
2.8. GOOD REASON.
(a) For purposes of this Agreement, "Good Reason" shall mean the
occurrence after a Change in Control of any of the events or conditions
described in subsections (i) through (viii) hereof:
(i) a change in the Executive's status, position or
responsibilities (including reporting responsibilities) which,
in the Executive's reasonable judgment, represents a substantial
adverse change from his status, position or responsibilities as
in effect at any time within ninety (90) days preceding the date
of a Change in Control or at any time thereafter; the assignment
to the Executive of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with his
status, title, position or responsibilities as in effect at any
time within ninety days preceding the date of a Change in
Control or at any time thereafter; or any removal of the
Executive from or failure to reappoint or reelect him to any of
such offices or positions held prior to the Change of Control,
except in connection with the termination of his employment for
Disability, Cause, as a result of his death or by the Executive
other than for Good Reason;
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(ii) a reduction in the Executive's base salary or any
failure to pay the Executive any compensation or benefits to
which he is entitled within five days of notice thereof;
(iii) the Company's requiring the Executive to be based at
any place outside a 30-mile radius from Scottsdale, Arizona,
except for reasonably required travel on the Company's business
which is not materially greater than such travel requirements
prior to the Change in Control;
(iv) the failure by the Company to provide the Executive
with compensation and benefits, in the aggregate, at least equal
(in terms of benefit levels and/or reward opportunities) to those
provided for under each other employee benefit plan, program and
practice in which the Executive was participating at any time
within ninety (90) days preceding the date of a Change in
Control or at any time thereafter;
(v) the insolvency or the filing (by any party,
including the Company) of a petition for bankruptcy of the
Company, which petition is not dismissed within sixty (60) days;
(vi) any material breach by the Company of any provision
of this Agreement;
(vii) any purported termination of the Executive's
employment for Cause by the Company which does not comply with
the terms of Section 2.4; or
(viii) the failure of the Company to obtain an agreement,
satisfactory to the Executive, from any Successors and Assigns to
assume and agree to perform this Agreement, as contemplated in
Section 7 hereof.
(b) Any event or condition described in Section 2.8(a)(i)
through (viii) which occurs prior to a Change in Control but which the
Executive reasonably demonstrates (i) was at the request of a Third
Party or (ii) otherwise arose in connection with, or in anticipation
of, a Change in Control which actually occurs, shall constitute Good
Reason for purposes of this Agreement notwithstanding that it occurred
prior to the Change in Control.
(c) The Executive's right to terminate his employment pursuant
to this Section 2.8 shall not be affected by his incapacity due to a
Disability.
2.9. NOTICE OF TERMINATION. For purposes of this Agreement,
following a Change in Control, "Notice of Termination" shall mean a written
notice of termination from the Company of the Executive's employment which
indicates the specific termination provision in this Agreement relied upon and
which sets forth in reasonable detail the facts and circumstances
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claimed to provide a basis for termination of the Executive's employment
under the provision so indicated.
2.10. PRO RATA BONUS. For purposes of this Agreement, "Pro Rata
Bonus" shall mean an amount equal to the Bonus Amount multiplied by a fraction,
the numerator of which is the number of days in the Company's fiscal year in
which the Executive's employment terminates through the Termination Date and
the denominator of which is 365.
2.11. SUCCESSORS AND ASSIGNS. For purposes of this Agreement,
"Successors and Assigns" shall mean a corporation or other entity acquiring all
or substantially all the assets and business of the Company whether by
operation of law or otherwise, and any affiliate of such Successors and
Assigns.
2.12. TERMINATION DATE. For purposes of this Agreement,
"Termination Date" shall mean (a) in the case of the Executive's death, his
date of death, (b) in the case of Good Reason, the last day of his employment
and (c) in all other cases, the date specified in the Notice of Termination;
PROVIDED, HOWEVER, that if the Executive's employment is terminated by the
Company due to Disability, the date specified in the Notice of Termination
shall be the 30th day after receipt of the Notice of Termination by the
Executive, provided that the Executive shall not have returned to the full-time
performance of his duties within 30 days after such receipt.
3. TERMINATION OF EMPLOYMENT. If, during the term of this Agreement,
the Executive's employment with the Company shall be terminated within twenty-
four months (24) following a Change in Control, the Executive shall be entitled
to the following compensation and benefits:
(a) If the Executive's employment with the Company shall be
terminated (i) by the Company for Cause or Disability, (ii) by reason of
the Executive's death or (iii) by the Executive other than for Good Reason,
the Company shall pay to the Executive the Accrued Compensation and, if
such termination is other than by the Company for Cause, the Pro Rata
Bonus; PROVIDED, HOWEVER, if an employment agreement is in existence
between the Company and/or any of its affiliates and the Executive on the
Termination Date, the Company and/or its affiliates, as the case may be,
shall pay to the Executive any amounts owed to the Executive pursuant to
such employment agreement.
(b) If the Executive's employment with the Company shall be
terminated for any reason other than as specified in Section 3(a), the
Executive shall be entitled to the following:
(i) the Company shall pay the Executive all Accrued
Compensation and a Pro-Rata Bonus;
(ii) the Company shall pay the Executive as severance pay and
in lieu of any further compensation for periods subsequent to the
Termination Date, in a
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single payment an amount in cash equal to three
times the sum of (A) the Base Amount and (B) the Bonus Amount;
(iii) for a number of months equal to 24 (the "Continuation
Period"), the Company shall at its expense continue on behalf of the
Executive and his dependents and beneficiaries the medical, dental and
hospitalization benefits provided (A) to the Executive at any time
during the 90-day period prior to the Change in Control or at any
time thereafter or (B) to other similarly situated executives who
continue in the employ of the Company during the Continuation Period.
The coverage and benefits (including deductibles and costs) provided
in this Section 3(b)(iii) during the Continuation Period shall be no
less favorable to the Executive and his dependents and beneficiaries,
than the most favorable of such coverages and benefits during any of
the periods referred to in clauses (A) and (B) above. The Company's
obligation hereunder with respect to the foregoing benefits shall be
limited to the extent that the Executive obtains any such benefits
pursuant to a subsequent employer's benefit plans, in which case the
Company may reduce the coverage of any benefits it is required to
provide the Executive hereunder as long as the aggregate coverages
and benefits of the combined benefit plans is no less favorable to
the Executive than the coverages and benefits required to be provided
hereunder. This subsection (iii) shall not be interpreted so as to
limit any benefits to which the Executive, his dependents or
beneficiaries may be entitled under any of the Company's employee
benefit plans, programs or practices following the Executive's
termination of employment, including without limitation, retiree
medical and life insurance benefits;
(iv) all theretofore unvested stock options, restricted
options, restricted stock and other awards issued to the Executive
pursuant to the Company's Stock Incentive Plan shall immediately
vest; and
(v) all theretofore unvested employer contributions in the
Executive's account pursuant to the Company's 401(k) plan shall
immediately vest.
(c) The amounts provided for in Sections 3(a) and 3(b)(i) and (ii)
shall be paid in a single lump sum cash payment within five (5) days after
the Executive's Termination Date (or earlier, if required by applicable
law).
(d) The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of
any compensation or benefits provided to the Executive in any subsequent
employment except as provided in Section 3(b)(iii).
(e) The severance pay and benefits provided for in this Section 3
shall be reduced by the amount of any other severance or termination pay to
which the Executive may be entitled under any agreement with the Company
or any of its affiliates.
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(f) The Executive's entitlement to any other compensation or benefits
or any indemnification shall be determined in accordance with the Company's
employee benefit plans and other applicable programs, policies and
practices or any indemnification agreement then in effect.
4. NOTICE OF TERMINATION. Following a Change in Control, any purported
termination of the Executive's employment by the Company shall be communicated
by Notice of Termination to the Executive. For purposes of this Agreement, no
such purported termination shall be effective without such Notice of
Termination.
5. EXCISE TAX GROSS-UP.
(a) Notwithstanding anything contained in this Agreement to the
contrary, in the event it is determined (pursuant to (b) below) or finally
determined (as defined in (c)(iii) below) that any payment, distribution,
transfer, benefit or other event with respect to the Company or its
predecessors, successors, direct or indirect subsidiaries or affiliates
(or any predecessor, successor of affiliate of any of them, and including
any benefit plan of any of them), to or for the benefit of Executive or
Executive's dependents, heirs or beneficiaries (whether such payment,
distribution, transfer, benefit or other event occurs pursuant to the terms
of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 5) (each a "Payment" and
collectively the "Payments") is or was subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended, and any
successor provision or any comparable provision of state or local income
tax law (collectively, "Section 4999"), or any interest, penalty or
addition to tax is or was incurred by Executive with respect to such
excise tax (such excise tax, together with any such interest, penalty or
addition to tax, hereinafter collectively referred to as the "Excise Tax"),
then, within 10 days after such determination or final determination, as
the case may be, the Company shall pay to Executive an additional cash
payment (hereinafter referred to as the "Gross-Up Payment") in an amount
such that after payment by Executive of all taxes, interest, penalties and
additions to tax imposed with respect to the Gross-Up Payment (including,
without limitation, any income and excise taxes imposed upon the Gross-Up
Payment), Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon such Payment or Payments. This provision is
intended to put Executive in the same position as Executive would have been
had no Excise Tax been imposed upon or incurred as a result of any Payment.
(b) Except as provided in subsection (c) below, the determination
that a Payment is subject to an Excise Tax shall be made in writing by a
certified public accounting firm selected by Executive ("Executive's
Accountant"). Such determination shall include the amount of the Gross-Up
Payment and detailed computations thereof, including any assumptions used
in such computations (the written determination of the Executive's
Accountant, hereinafter, the "Executive's Determination"). The
Executive's Determinatio n shall be reviewed on behalf of the Company by a
certified public accounting firm selected by the Company (the "Company's
Accountant").
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The Company shall notify Executive within 10 business days
after receipt of the Executive's Determination of any disagreement or
dispute therewith, and failure to so notify within that period shall be
considered an agreement by the Company with the Executive's Determination,
obligating the Company to make payment as provided in subsection (a) above
within 10 days from the expiration of such 10 business-day period. In the
event of an objection by the Company to the Executive's Determination, any
amount not in dispute shall be paid within 10 days following the 10
business-day period referred to herein, and with respect to the amount in
dispute the Executive's Accountant and the Company's Accountant shall
jointly select a third nationally recognized certified public accounting
firm to resolve the dispute and the decision of such third firm shall be
final, binding and conclusive upon the Executive and the Company. In such
a case, the third accounting firm's findings shall be deemed the binding
determination with respect to the amount in dispute, obligating the Company
to make any payment as a result thereof within 10 days following the
receipt of such third accounting firm's determination. All fees and
expenses of each of the accounting firms referred to in this Section 5
shall be borne solely by the Company.
(c) (i) Executive shall notify the Company in writing of any claim
by the Internal Revenue Service (or any successor thereof) or any state or
local taxing authority (individually or collectively, the "Taxing
Authority") that, if successful, would require the payment by the Company
of a Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than 30 days after Executive receives written
notice 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; provided,
however, that failure by Executive to give such notice within such 30-day
period shall not result in a waiver or forfeiture of any of Executive's
rights under this Section 5 except to the extent of actual damages suffered
by the Company as a result of such failure. Executive shall not pay such
claim prior to the expiration of the 15-day period following the date on
which Executive gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes, interest, penalties or
additions to tax with respect to such claim is due). If the Company
notifies Executive in writing prior to the expiration of such 15-day
period that it desires to contest such claim (and demonstrates to the
reasonable satisfaction of Executive its ability to make the payments
to Executive which may ultimately be required under this section before
assuming responsibility for the 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 that is
reasonably acceptable to Executive;
(C) cooperate with the Company in good faith in order
effectively to contest such claim; and
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(D) permit the Company to participate in any proceedings
relating to such claim; provided, however, that the Company shall bear
and pay directly all attorneys fees, costs and expenses (including
additional interest, penalties and additions to tax) incurred in
connection with such contest and shall indemnify and hold Executive
harmless, on an after-tax basis, for all taxes (including, without
limitation, income and excise taxes), interest, penalties and
additions to tax imposed in relation to such claim and in relation to
the payment of such costs and expenses or indemnification. Without
limitation on the foregoing provisions of this Section 5, and to the
extent its actions do not unreasonably interfere with or prejudice
Executive's disputes with the Taxing Authority as to other issues, 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, interest or penalties 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 an amount equal
to such payment to Executive, on an interest-free basis, and shall
indemnify and hold Executive harmless, on an after-tax basis, from all
taxes (including, without limitation, income and excise taxes),
interest, penalties and additions to tax imposed with respect to such
advance or with respect to any imputed income with respect to such
advance; and, further, provided, that any extension of the statute of
limitations relating to payment of taxes, interest, penalties or
additions to tax 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; and, provided, further, that any settlement
of any claim shall be reasonably acceptable to Executive and the
Company's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder, and
Executive shall be entitled to settle or contest, as the case may be,
any other issue.
(ii) If, after receipt by Executive of an amount advanced by the
Company pursuant to Section 5(c)(i), Executive receives any refund with
respect to such claim, Executive shall (subject to the Company's complying
with the requirements of Section 5) promptly pay to the Company an amount
equal to such refund (together with any interest paid or credited thereon
after taxes applicable thereto), net of any taxes (including without
limitation any income or excise taxes), interest, penalties or additions to
tax and any other costs incurred by Executive in connection with such
advance, after giving effect to such repayment. If, after the receipt by
Executive of an amount advanced by the Company pursuant to Section
5(c)(i), it is finally determined that Executive is not entitled to any
refund with respect to such claim, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall be
treated as a Gross-
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Up Payment and shall offset, to the extent thereof, the amount of any
Gross-Up Payment otherwise required to be paid.
(iii) For purposes of this Section 5, whether the Excise Tax is
applicable to a Payment shall be deemed to be "finally determined" upon
the earliest of: (A) the expiration of the 15-day period referred to in
paragraph (c)(i) above if the Company has not notified Executive that it
intends to contest the underlying claim, (B) the expiration of any period
following which no right of appeal exists, (C) the date upon which a
closing agreement or similar agreement with respect to the claim is
executed by Executive and the Taxing Authority (which agreement may be
executed only in compliance with this Section 5), (D) the receipt by
Executive of notice from the Company that it no longer seeks to pursue a
contest (which notice shall be deemed received if the Company does
not, within 15 days following receipt of a written inquiry from Executive,
affirmatively indicate in writing to Executive that the Company intends to
continue to pursue such contest).
(d) As a result of uncertainty in the application of Section 4999
that may exist at the time of any determination that a Gross-Up Payment is
due, it may be possible that in making the calculations required to be
made hereunder, the parties or their accountants shall determine that a
Gross-Up Payment need not be made (or shall make no determination with
respect to a Gross-Up Payment) that properly should be made
("Underpayment"), or that a Gross-Up Payment not properly needed to be
made should be made ("Overpayment"). The determination of any
Underpayment shall be made using the procedures set forth in paragraph
(b) above and shall be paid to Executive as an additional Gross-Up
Payment. The Company shall be entitled to use procedures similar to
those available to Executive in paragraph (b) to determine the amount of
any Overpayment (provided that the Company shall bear all costs of the
accountants as provided paragraph (b)) . In the event of a determination
that an Overpayment was made, any such Overpayment shall be treated for
all purposes as a loan to Executive with interest at the applicable
Federal rate provided for in Section 1274(d) of the Code; provided,
however, that the amount to be repaid by Executive to the Company shall
be subject to reduction to the extent necessary to put Executive in the
same after-tax position as if such Overpayment were never made.
6. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of the Company, its Successors and Assigns,
and the Company shall require any Successors and Assigns to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession or
assignment had taken place. Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by the Executive, his
beneficiaries or legal representatives, except by will or by the laws of
descent and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal personal representative.
7. FEES AND EXPENSES. The Company shall pay all legal fees and related
expenses (including the costs of experts, evidence and counsel) incurred by the
Executive as they become
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due as a result of (a) the Executive seeking to obtain or enforce any right
or benefit provided by this Agreement (including, but not limited to, any
such fees and expenses incurred in connection with the Dispute and (b) the
Executive's hearing before the Board as contemplated in Section 2.4 of this
Agreement; PROVIDED, HOWEVER, that the circumstances set forth in clause (a)
(other than as a result of the Executive's termination of employment under
circumstances described in Section 2.5(d)) occurred on or after a Change in
Control.
8. NOTICE. For the purposes of this Agreement, notic es and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, by overnight courier or by facsimile, addressed to the
respective addresses and facsimile numbers last given by each party to the
other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company. All
notices and communications shall be deemed to have been received on the date of
delivery thereof or on the third business day after the mailing thereof, except
that notice of change of address shall be effective only upon receipt.
9. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Company (except for
any severance or termination policies, plans, programs or practices) and for
which the Executive may qualify, nor shall anything herein limit or reduce such
rights as the Executive may have under any other agreements with the Company
(except for any severance or termination agreement). Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan
or program of the Company shall be payable in accordance with such plan or
program, except as explicitly modified by this Agreement.
10. NO GUARANTEED EMPLOYMENT. The Executive and the Company acknowledge
that, except as may otherwise be provided under any other written agreement
between the Executive and the Company, the employment of the Executive by the
Company is "at will" and may be terminated by either the Executive or the
Company at any time.
11. SETTLEMENT OF CLAIMS. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others.
12. MUTUAL NON-DISPARAGEMENT. The Company, its affiliates and
subsidiaries agree and the Company shall use its best efforts to cause their
respective executive officers and directors to agree, that they will not make
or publish any statement critical of the Executive, or in any way adversely
affecting or otherwise maligning the Executive's reputation. The Executive
agrees that he will not make or publish any statement critical of the Company,
its affiliates and their respective executive officers and directors, or in any
way adversely affecting or otherwise maligning the business or reputation of
any member of the Company, its affiliates and subsidiaries and their respective
officers, directors and employees.
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13. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreement or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement.
14. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Arizona without giving
effect to the conflict of laws principles thereof. Any action brought by any
party to this Agreement shall be brought and maintained in a court of competent
jurisdiction in Maricopa County in the State of Arizona.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and the Executive has executed this Agreement as
of the day and year first above written.
EVANS WITHYCOMBE RESIDENTIAL, INC.
By: Stephen O. Evans
-------------------------------------
Name:
Title:
By: Paul R. Fannin
-------------------------------------
Executive
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AMENDMENT NO. 1 TO
CHANGE IN CONTROL AGREEMENT
---------------------------
THIS AMENDMENT NO. 1 TO CHANGE IN CONTROL AGREEMENT is dated August 27,
1997 and is by and between EVANS WITHYCOMBE RESIDENTIAL, INC., a Maryland
corporation (the "Company"), and PAUL FANNIN (the "Executive").
RECITALS
A. The Company and the Executive have previously entered into a Change
In Control Agreement dated as of June 18, 1997 (the "CIC Agreement").
B. The Company is entering into an Agreement and Plan of Merger of even
date herewith with the Equity Residential Property Trust ("EQR") pursuant to
which the Company will be merged with and into EQR (the "Merger").
C. In contemplation of the Merger and as a condition thereto, the
Company and the Executive desire to amend the Agreement as hereinafter set
forth.
AGREEMENTS
In consideration of the premises and the mutual covenants hereinafter set
forth, the parties agree as follows:
1. Section 3(b) of the CIC Agreement is hereby amended to delete clause
(v) thereof in its entirety and to substitute in lieu thereof the following:
"(V) the Company shall pay the Executive an amount which, after
payment by the Executive of all federal and state income taxes imposed
with respect to such payment, is equal to the employer contributions in
the Executive's account in the Company's 401(k) plan which were unvested
as of the date of such termination."
2. Section 3(c) of the CIC Agreement is hereby amended to read as
follows:
"(c) The amounts provided for in Sections 3(a) and 3(b)(i) and (ii)
shall be paid in a single lump sum cash payment within five (5) days
after the Executive's Termination Date (or earlier, if required by
applicable law) unless the Termination Date occurs during the last two
months of a calendar year, in which case such amounts shall be paid in a
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single lump sum cash payment on January 2 of the immediately following
year (or earlier, if required by applicable law)."
3. The first sentence of Section 6 of the CIC Agreement is hereby
amended to read as follows:
"This Agreement shall be binding upon and shall inure to the
benefit of the Company, its Successors and Assigns, except that the
definition of Change in Control set forth in this Agreement shall apply
only to the Company."
4. The Executive shall be entitled to all payments under Section 3(b)
of the CIC Agreement at the Effective Time notwithstanding the fact that the
Executive may continue in the employ of EQR after the Effective Time for a
limited period to assist in transition matters. The Executive shall not be
entitled to any bonus to employees of EQR or any of EQR's subsidiaries
payable during such transition period.
5. The CIC Agreement as amended hereby is hereby ratified, approved and
conformed in all respects.
6. If the Merger has not been consummated by February 15, 1998, this
Amendment No. 1 shall automatically be null and void AB INITIO.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 on the
day and year first above written.
EVANS WITHYCOMBE RESIDENTIAL,
INC.
By:/s/ Stephen O. Evans
--------------------------
Title: CEO
--------------------
/s/ Paul R. Fannin
--------------------------
Paul Fannin
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CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT made as of June 18, 1997 by and between Evans Withycombe
Residential, Inc., a Maryland corporation (the "Company"), and George E.
O'Clair (the "Executive").
WITNESSETH
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as hereinafter defined) exists
and that the threat or the occurrence of a Change in Control can result in
significant distractions of its key management personnel because of the
uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of the
Executive in the event of a threat or occurrence of a Change in Control and
to ensure his continued dedication and efforts in such event without undue
concern for his personal financial and employment security; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Company, particularly in the event of a threat or the occurrence of a Change
in Control, the Company desires to enter into this Agreement with the
Executive to provide the Executive with certain benefits in the event his
employment is terminated as a result of, or in connection with, a Change in
Control and to provide the Executive with certain other benefits whether or
not the Executive's employment is terminated.
AGREEMENT
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, it is agreed as
follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of the date
hereof and shall continue in effect until December 31, 1998; PROVIDED,
HOWEVER, that on December 31, 1998 and on each anniversary thereof, the term
of this Agreement shall automatically be extended for one year unless either
the Company or the Executive shall have given written notice to the other
prior thereto that the term of this Agreement shall not be so extended; AND
PROVIDED, FURTHER, HOWEVER, that notwithstanding any such notice by the
Company not to extend, the term of this Agreement shall not expire prior to
the expiration of 24 months after the occurrence of a Change in Control.
2. DEFINITIONS.
2.1. ACCRUED COMPENSATION. For purposes of this Agreement, "Accrued
Compensation" shall mean an amount which shall include all amounts earned or
accrued through the "Termination Date" (as hereinafter defined) but not paid as
of the Termination Date including
<PAGE>
(i) base salary, (ii) reimbursement for reasonable and necessary expenses
incurred by the Executive on behalf of the Company during the period ending
on the Termination Date, (iii) vacation and sick leave pay (to the extent
provided by Company policy or applicable law) and (iv) bonuses and incentive
compensation (other than the "Pro Rata Bonus" (as hereinafter defined)).
2.2. BASE AMOUNT. For purposes of this Agreement, "Base Amount"
shall mean the greater of (a) the Executive's annual base salary, plus any
auto allowance, at the rate in effect immediately prior to the Change in
Control and (b) the Executive's annual base salary, plus any auto allowance,
at the rate in effect on the Termination Date, and shall include all amounts
of his base salary that are deferred under any other agreement or arrangement
with the Company.
2.3. BONUS AMOUNT. For purposes of this Agreement, "Bonus Amount"
shall mean the Executive's annual bonus for the fiscal year prior to which a
Change in Control has occurred.
2.4. CAUSE.
(a) For purposes of this Agreement, except as set forth in Section
2.4(b) below, a termination of employment is for "Cause" if the Executive has
been convicted of a felony involving moral turpitude or the termination is
evidenced by a resolution adopted in good faith by two-thirds of the Board
that the Executive (i) intentionally and continually failed substantially to
perform his reasonably assigned duties with the Company (other than a failure
resulting from the Executive's incapacity due to physical or mental illness
or from the Executive's assignment of duties that would constitute "Good
Reason" as hereinafter defined) which failure continued for a period of at
least thirty (30) days after a written notice of demand for substantial
performance has been delivered to the Executive specifying the manner in
which the Executive has failed substantially to perform or (ii) intentionally
engaged in conduct which is demonstrably and materially injurious to the
Company; PROVIDED, HOWEVER, that no termination of the Executive's employment
shall be for Cause as set forth in clause (ii) above until (x) there shall
have been delivered to the Executive a copy of a written notice setting forth
that the Executive was guilty of the conduct set forth in clause (ii) and
specifying the particulars thereof in detail and (y) the Executive shall have
been provided an opportunity to be heard in person by the Board (with the
assistance of the Executive's counsel if the Executive so desires). Neither
an act nor a failure to act, on the Executive's part shall be considered
"intentional" unless the Executive has acted or failed to act with a lack of
good faith and with a lack of reasonable belief that the Executive's action
or failure to act was in the best interest of the Company. Notwithstanding
anything contained in this Agreement to the contrary, no failure to perform
by the Executive after a Notice of Termination is given by the Executive
shall constitute Cause for purposes of this Agreement.
(b) In the event an employment agreement is in place between the
Executive and the Company, the definition of "Cause" set forth in such
employment agreement shall apply for purposes of this Agreement.
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<PAGE>
2.5. CHANGE IN CONTROL. For purposes of this Agreement, a "Change
in Control" shall mean any of the following events:
(a) An acquisition (other than directly from the Company) of
any voting securities of the Company (the "Voting Securities") by any
"Person" (as the term person is used for purposes of Section 13(d) or
14(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act")), immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the
1934 Act) of twenty percent (20%) or more of the combined voting
power of the Company's then outstanding Voting Securities; PROVIDED,
HOWEVER, that in determining whether a Change in Control has
occurred, Voting Securities which are acquired in a "Non-Control
Acquisition" (as hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (ii) an employee benefit
plan (or a trust forming a part thereof) maintained by (x) the
Company or (y) any corporation or other Person of which a majority of
its voting power or its equity securities or equity interest is owned
directly or indirectly by the Company (a "Subsidiary"), (ii) the
Company or any Subsidiary or (iii) any Person in connection with a
"Non-Control Transaction" (as hereinafter defined).
(b) The individuals who, as of the date hereof, are members of
the Board (the "Incumbent Board"), cease for any reason to constitute
at least a majority of the Board; PROVIDED, HOWEVER, that if the
election, or nomination for election by the Company's stockholders,
of any new director was approved by a vote of at least two-thirds
(2/3) of the then Incumbent Board, such new director shall, for
purposes of this Agreement, be considered as a member of the
Incumbent Board; PROVIDED, FURTHER, HOWEVER, that no individual shall
be considered a member of the Incumbent Board if such individual
initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest or Proxy
Contest; or
(c) Approval by stockholders of the Company of:
(i) A merger, consolidation or reorganization involving
the Company, unless:
(A) the stockholders of the Company, immediately
before such merger, consolidation or reorganization, own,
directly or indirectly, immediately following such merger,
consolidation or reorganization, at least fifty percent
(50%) of the combined voting power of the outstanding
Voting Securities of the corporation
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<PAGE>
resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership of the
Voting Securities immediately before such merger,
consolidation or reorganization;
(B) the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization
constitute at least a majority of the members of the board
of directors of the Surviving Corporation or a corporation
beneficially owning, directly or indirectly, a majority of
the Voting Securities of the Surviving Corporation;
(C) no Person (other than the Company, any
Subsidiary, any employee benefit plan (or any trust forming
a part thereof) maintained by the Company, the Surviving
Corporation or any Subsidiary, or any Person who,
immediately prior to such merger, consolidation or
reorganization had Beneficial Ownership of fifteen percent
(15%) or more of the then outstanding Voting Securities)
owns, directly or indirectly, fifteen percent (15%) or more
of the combined voting power of the Surviving Corporation's
then outstanding voting securities; and
(D) a transaction described in clauses (A) through
(C) shall herein be referred to as a "Non-Control
Transaction;"
(ii) A complete liquidation or dissolution of the Company;
or
(iii) An agreement for the sale or other disposition of all
or substantially all of the assets of the Company to any Person
(other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the outstanding Voting
Securities as a result of the acquisition of Voting Securities by the Company
which, by reducing the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Person,
provided that if a Change in Control would occur (but for the operation of
this sentence) as a result of the acquisition of Voting Securities by the
Company, and after such share acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional Voting Securities which
increases the percentage of the then outstanding Voting Securities
Beneficially Owned by the Subject Person, then a Change in Control shall
occur.
(d) Notwithstanding anything contained in this Agreement to the
contrary, if the Executive's employment is terminated prior to a
Change in Control and the Executive reasonably demonstrates that such
termination (i) was at the
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<PAGE>
request of a third party who has indicated an intention or taken steps
reasonably calculated to effect a Change in Control and who
effectuates a Change in Control (a "Third Party") or (ii) otherwise
occurred in connection with, or in anticipation of, a Change in
Control which actually occurs, then for all purposes of this
Agreement, the date of a Change in Control with respect to the
Executive shall mean the date immediately prior to the date of such
termination of the Executive's employment.
2.6. COMPANY. For purposes of this Agreement, the "Company" shall
include the Company's "Successors and Assigns" (as hereinafter defined).
2.7. DISABILITY.
(a) For purposes of this Agreement, except as set forth in Section
2.7(b) below, "Disability" shall mean a physical or mental infirmity which
impairs the Executive's ability to substantially perform his duties with the
Company for a period of one hundred eighty consecutive days and the Executive
has not returned to his full time employment prior to the Termination Date as
stated in the "Notice of Termination" (as hereinafter defined).
(b) In the event an employment agreement is in place between the
Executive and the Company, the definition of "Disability" set forth in such
employment agreement shall apply for purposes of this Agreement.
2.8. GOOD REASON.
(a) For purposes of this Agreement, "Good Reason" shall mean the
occurrence after a Change in Control of any of the events or conditions
described in subsections (i) through (viii) hereof:
(i) a change in the Executive's status, position or
responsibilities (including reporting responsibilities) which,
in the Executive's reasonable judgment, represents a substantial
adverse change from his status, position or responsibilities as
in effect at any time within ninety (90) days preceding the date
of a Change in Control or at any time thereafter; the assignment
to the Executive of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with his
status, title, position or responsibilities as in effect at any
time within ninety days preceding the date of a Change in
Control or at any time thereafter; or any removal of the
Executive from or failure to reappoint or reelect him to any of
such offices or positions held prior to the Change of Control,
except in connection with the termination of his employment for
Disability, Cause, as a result of his death or by the Executive
other than for Good Reason;
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<PAGE>
(ii) a reduction in the Executive's base salary or any
failure to pay the Executive any compensation or benefits to
which he is entitled within five days of notice thereof;
(iii) the Company's requiring the Executive to be based at
any place outside a 30-mile radius from Scottsdale, Arizona,
except for reasonably required travel on the Company's business
which is not materially greater than such travel requirements
prior to the Change in Control;
(iv) the failure by the Company to provide the Executive
with compensation and benefits, in the aggregate, at least equal
(in terms of benefit levels and/or reward opportunities) to
those provided for under each other employee benefit plan,
program and practice in which the Executive was participating at
any time within ninety (90) days preceding the date of a Change
in Control or at any time thereafter;
(v) the insolvency or the filing (by any party, including
the Company) of a petition for bankruptcy of the Company, which
petition is not dismissed within sixty (60) days;
(vi) any material breach by the Company of any provision of
this Agreement;
(vii) any purported termination of the Executive's
employment for Cause by the Company which does not comply with
the terms of Section 2.4; or
(viii) the failure of the Company to obtain an agreement,
satisfactory to the Executive, from any Successors and Assigns to
assume and agree to perform this Agreement, as contemplated in
Section 7 hereof.
(b) Any event or condition described in Section 2.8(a)(i)
through (viii) which occurs prior to a Change in Control but which the
Executive reasonably demonstrates (i) was at the request of a Third
Party or (ii) otherwise arose in connection with, or in anticipation
of, a Change in Control which actually occurs, shall constitute Good
Reason for purposes of this Agreement notwithstanding that it occurred
prior to the Change in Control.
(c) The Executive's right to terminate his employment pursuant
to this Section 2.8 shall not be affected by his incapacity due to a
Disability.
2.9. NOTICE OF TERMINATION. For purposes of this Agreement,
following a Change in Control, "Notice of Termination" shall mean a written
notice of termination from the Company of the Executive's employment which
indicates the specific termination provision in this Agreement relied upon and
which sets forth in reasonable detail the facts and circumstances
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<PAGE>
claimed to provide a basis for termination of the Executive's employment
under the provision so indicated.
2.10. PRO RATA BONUS. For purposes of this Agreement, "Pro Rata
Bonus" shall mean an amount equal to the Bonus Amount multiplied by a
fraction, the numerator of which is the number of days in the Company's
fiscal year in which the Executive's employment terminates through the
Termination Date and the denominator of which is 365.
2.11. SUCCESSORS AND ASSIGNS. For purposes of this Agreement,
"Successors and Assigns" shall mean a corporation or other entity acquiring
all or substantially all the assets and business of the Company whether by
operation of law or otherwise, and any affiliate of such Successors and
Assigns.
2.12. TERMINATION DATE. For purposes of this Agreement,
"Termination Date" shall mean (a) in the case of the Executive's death, his
date of death, (b) in the case of Good Reason, the last day of his employment
and (c) in all other cases, the date specified in the Notice of Termination;
PROVIDED, HOWEVER, that if the Executive's employment is terminated by the
Company due to Disability, the date specified in the Notice of Termination
shall be the 30th day after receipt of the Notice of Termination by the
Executive, provided that the Executive shall not have returned to the
full-time performance of his duties within 30 days after such receipt.
3. TERMINATION OF EMPLOYMENT. If, during the term of this Agreement,
the Executive's employment with the Company shall be terminated within
twenty-four months (24) following a Change in Control, the Executive shall be
entitled to the following compensation and benefits:
(a) If the Executive's employment with the Company shall be
terminated (i) by the Company for Cause or Disability, (ii) by reason of
the Executive's death or (iii) by the Executive other than for Good
Reason, the Company shall pay to the Executive the Accrued Compensation
and, if such termination is other than by the Company for Cause, the Pro
Rata Bonus; PROVIDED, HOWEVER, if an employment agreement is in existence
between the Company and/or any of its affiliates and the Executive on the
Termination Date, the Company and/or its affiliates, as the case may be,
shall pay to the Executive any amounts owed to the Executive pursuant to
such employment agreement.
(b) If the Executive's employment with the Company shall be
terminated for any reason other than as specified in Section 3(a), the
Executive shall be entitled to the following:
(i) the Company shall pay the Executive all Accrued
Compensation and a Pro-Rata Bonus;
(ii) the Company shall pay the Executive as severance pay and in
lieu of any further compensation for periods subsequent to the
Termination Date, in a
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single payment an amount in cash equal to two times the sum of (A) the
Base Amount and (B) the Bonus Amount;
(iii) for a number of months equal to 24 (the "Continuation
Period"), the Company shall at its expense continue on behalf of the
Executive and his dependents and beneficiaries the medical, dental
and hospitalization benefits provided (A) to the Executive at any
time during the 90-day period prior to the Change in Control or at
any time thereafter or (B) to other similarly situated executives who
continue in the employ of the Company during the Continuation Period.
The coverage and benefits (including deductibles and costs) provided
in this Section 3(b)(iii) during the Continuation Period shall be no
less favorable to the Executive and his dependents and beneficiaries,
than the most favorable of such coverages and benefits during any of
the periods referred to in clauses (A) and (B) above. The Company's
obligation hereunder with respect to the foregoing benefits shall be
limited to the extent that the Executive obtains any such benefits
pursuant to a subsequent employer's benefit plans, in which case the
Company may reduce the coverage of any benefits it is required to
provide the Executive hereunder as long as the aggregate coverages
and benefits of the combined benefit plans is no less favorable to
the Executive than the coverages and benefits required to be provided
hereunder. This subsection (iii) shall not be interpreted so as to
limit any benefits to which the Executive, his dependents or
beneficiaries may be entitled under any of the Company's employee
benefit plans, programs or practices following the Executive's
termination of employment, including without limitation, retiree
medical and life insurance benefits;
(iv) all theretofore unvested stock options, restricted options,
restricted stock and other awards issued to the Executive pursuant to
the Company's Stock Incentive Plan shall immediately vest; and
(v) all theretofore unvested employer contributions in the
Executive's account pursuant to the Company's 401(k) plan shall
immediately vest.
(c) The amounts provided for in Sections 3(a) and 3(b)(i) and (ii)
shall be paid in a single lump sum cash payment within five (5) days after
the Executive's Termination Date (or earlier, if required by applicable
law).
(d) The Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of
any compensation or benefits provided to the Executive in any subsequent
employment except as provided in Section 3(b)(iii).
(e) The severance pay and benefits provided for in this Section 3
shall be reduced by the amount of any other severance or termination pay
to which the Executive may be entitled under any agreement with the
Company or any of its affiliates.
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(f) The Executive's entitlement to any other compensation or
benefits or any indemnification shall be determined in accordance with the
Company's employee benefit plans and other applicable programs, policies
and practices or any indemnification agreement then in effect.
4. NOTICE OF TERMINATION. Following a Change in Control, any
purported termination of the Executive's employment by the Company shall be
communicated by Notice of Termination to the Executive. For purposes of this
Agreement, no such purported termination shall be effective without such
Notice of Termination.
5. EXCISE TAX GROSS-UP.
(a) Notwithstanding anything contained in this Agreement to the
contrary, in the event it is determined (pursuant to (b) below) or finally
determined (as defined in (c)(iii) below) that any payment, distribution,
transfer, benefit or other event with respect to the Company or its
predecessors, successors, direct or indirect subsidiaries or affiliates
(or any predecessor, successor of affiliate of any of them, and including
any benefit plan of any of them), to or for the benefit of Executive or
Executive's dependents, heirs or beneficiaries (whether such payment,
distribution, transfer, benefit or other event occurs pursuant to the
terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 5) (each a "Payment" and
collectively the "Payments") is or was subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended, and any
successor provision or any comparable provision of state or local income
tax law (collectively, "Section 4999"), or any interest, penalty or
addition to tax is or was incurred by Executive with respect to such
excise tax (such excise tax, together with any such interest, penalty or
addition to tax, hereinafter collectively referred to as the
"Excise Tax"), then, within 10 days after such determination or final
determination, as the case may be, the Company shall pay to Executive an
additional cash payment (hereinafter referred to as the "Gross-Up
Payment") in an amount such that after payment by Executive of all taxes,
interest, penalties and additions to tax imposed with respect to the Gross-
Up Payment (including, without limitation, any income and excise taxes
imposed upon the Gross-Up Payment), Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon such Payment or
Payments. This provision is intended to put Executive in the same
position as Executive would have been had no Excise Tax been imposed upon
or incurred as a result of any Payment.
(b) Except as provided in subsection (c) below, the determination
that a Payment is subject to an Excise Tax shall be made in writing by a
certified public accounting firm selected by Executive ("Executive's
Accountant"). Such determination shall include the amount of the Gross-Up
Payment and detailed computations thereof, including any assumptions used
in such computations (the written determination of the Executive's
Accountant, hereinafter, the "Executive's Determination"). The
Executive's Determination shall be reviewed on behalf of the Company by a
certified public accounting firm selected by the Company (the "Company's
Accountant"). The Company
9
<PAGE>
shall notify Executive within 10 business days after receipt of the
Executive's Determination of any disagreement or dispute therewith, and
failure to so notify within that period shall be considered an agreement by
the Company with the Executive's Determination, obligating the Company to
make payment as provided in subsection (a) above within 10 days from the
expiration of such 10 business-day period. In the event of an objection by
the Company to the Executive's Determination, any amount not in dispute
shall be paid within 10 days following the 10 business-day period referred
to herein, and with respect to the amount in dispute the Executive's
Accountant and the Company's Accountant shall jointly select a third
nationally recognized certified public accounting firm to resolve the
dispute and the decision of such third firm shall be final, binding and
conclusive upon the Executive and the Company. In such a case, the third
accounting firm's findings shall be deemed the binding determination with
respect to the amount in dispute, obligating the Company to make any
payment as a result thereof within 10 days following the receipt of such
third accounting firm's determination. All fees and expenses of each of
the accounting firms referred to in this Section 5 shall be borne solely by
the Company.
(c) (i) Executive shall notify the Company in writing of any claim
by the Internal Revenue Service (or any successor thereof) or any state or
local taxing authority (individually or collectively, the "Taxing
Authority") that, if successful, would require the payment by the Company
of a Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than 30 days after Executive receives written
notice 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; provided,
however, that failure by Executive to give such notice within such 30-day
period shall not result in a waiver or forfeiture of any of Executive's
rights under this Section 5 except to the extent of actual damages
suffered by the Company as a result of such failure. Executive shall not
pay such claim prior to the expiration of the 15-day period following the
date on which Executive gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes, interest, penalties
or additions to tax with respect to such claim is due). If the Company
notifies Executive in writing prior to the expiration of such 15-day
period that it desires to contest such claim (and demonstrates to the
reasonable satisfaction of Executive its ability to make the payments to
Executive which may ultimately be required under this section before
assuming responsibility for the 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 that is
reasonably acceptable to Executive;
(C) cooperate with the Company in good faith in order
effectively to contest such claim; and
10
<PAGE>
(D) permit the Company to participate in any proceedings
relating to such claim; provided, however, that the Company shall
bear and pay directly all attorneys fees, costs and expenses
(including additional interest, penalties and additions to tax)
incurred in connection with such contest and shall indemnify and hold
Executive harmless, on an after-tax basis, for all taxes (including,
without limitation, income and excise taxes), interest, penalties and
additions to tax imposed in relation to such claim and in relation to
the payment of such costs and expenses or indemnification. Without
limitation on the foregoing provisions of this Section 5, and to the
extent its actions do not unreasonably interfere with or prejudice
Executive's disputes with the Taxing Authority as to other issues,
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, interest or
penalties 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 an amount equal to such payment to Executive, on an
interest-free basis, and shall indemnify and hold Executive harmless,
on an after-tax basis, from all taxes (including, without limitation,
income and excise taxes), interest, penalties and additions to tax
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and, further, provided, that any
extension of the statute of limitations relating to payment of taxes,
interest, penalties or additions to tax 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; and, provided,
further, that any settlement of any claim shall be reasonably
acceptable to Executive and the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder, and Executive shall be entitled to settle
or contest, as the case may be, any other issue.
(ii) If, after receipt by Executive of an amount advanced by the
Company pursuant to Section 5(c)(i), Executive receives any refund with
respect to such claim, Executive shall (subject to the Company's complying
with the requirements of Section 5) promptly pay to the Company an amount
equal to such refund (together with any interest paid or credited thereon
after taxes applicable thereto), net of any taxes (including without
limitation any income or excise taxes), interest, penalties or additions
to tax and any other costs incurred by Executive in connection with such
advance, after giving effect to such repayment. If, after the receipt by
Executive of an amount advanced by the Company pursuant to Section
5(c)(i), it is finally determined that Executive is not entitled to any
refund with respect to such claim, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall be
treated as a Gross-
11
<PAGE>
Up Payment and shall offset, to the extent thereof, the amount of any
Gross-Up Payment otherwise required to be paid.
(iii) For purposes of this Section 5, whether the Excise Tax is
applicable to a Payment shall be deemed to be "finally determined" upon
the earliest of: (A) the expiration of the 15-day period referred to in
paragraph (c)(i) above if the Company has not notified Executive that it
intends to contest the underlying claim, (B) the expiration of any period
following which no right of appeal exists, (C) the date upon which a
closing agreement or similar agreement with respect to the claim is
executed by Executive and the Taxing Authority (which agreement may be
executed only in compliance with this Section 5), (D) the receipt by
Executive of notice from the Company that it no longer seeks to pursue a
contest (which notice shall be deemed received if the Company does not,
within 15 days following receipt of a written inquiry from Executive,
affirmatively indicate in writing to Executive that the Company intends to
continue to pursue such contest).
(d) As a result of uncertainty in the application of Section 4999
that may exist at the time of any determination that a Gross-Up Payment is
due, it may be possible that in making the calculations required to be
made hereunder, the parties or their accountants shall determine that a
Gross-Up Payment need not be made (or shall make no determination with
respect to a Gross-Up Payment) that properly should be made
("Underpayment"), or that a Gross-Up Payment not properly needed to be
made should be made ("Overpayment"). The determination of any
Underpayment shall be made using the procedures set forth in paragraph (b)
above and shall be paid to Executive as an additional Gross-Up Payment.
The Company shall be entitled to use procedures similar to those available
to Executive in paragraph (b) to determine the amount of any Overpayment
(provided that the Company shall bear all costs of the accountants as
provided paragraph (b)) . In the event of a determination that an
Overpayment was made, any such Overpayment shall be treated for all
purposes as a loan to Executive with interest at the applicable Federal
rate provided for in Section 1274(d) of the Code; provided, however, that
the amount to be repaid by Executive to the Company shall be subject to
reduction to the extent necessary to put Executive in the same after-tax
position as if such Overpayment were never made.
6. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be
binding upon and shall inure to the benefit of the Company, its Successors
and Assigns, and the Company shall require any Successors and Assigns to
expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Neither this Agreement nor
any right or interest hereunder shall be assignable or transferable by the
Executive, his beneficiaries or legal representatives, except by will or by
the laws of descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal personal
representative.
7. FEES AND EXPENSES. The Company shall pay all legal fees and related
expenses (including the costs of experts, evidence and counsel) incurred by the
Executive as they become
12
<PAGE>
due as a result of (a) the Executive seeking to obtain or enforce any right
or benefit provided by this Agreement (including, but not limited to, any
such fees and expenses incurred in connection with the Dispute and (b) the
Executive's hearing before the Board as contemplated in Section 2.4 of this
Agreement; PROVIDED, HOWEVER, that the circumstances set forth in clause (a)
(other than as a result of the Executive's termination of employment under
circumstances described in Section 2.5(d)) occurred on or after a Change in
Control.
8. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt
requested, postage prepaid, by overnight courier or by facsimile, addressed
to the respective addresses and facsimile numbers last given by each party to
the other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company. All
notices and communications shall be deemed to have been received on the date
of delivery thereof or on the third business day after the mailing thereof,
except that notice of change of address shall be effective only upon receipt.
9. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Company (except for
any severance or termination policies, plans, programs or practices) and for
which the Executive may qualify, nor shall anything herein limit or reduce
such rights as the Executive may have under any other agreements with the
Company (except for any severance or termination agreement). Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan or program of the Company shall be payable in accordance with
such plan or program, except as explicitly modified by this Agreement.
10. NO GUARANTEED EMPLOYMENT. The Executive and the Company
acknowledge that, except as may otherwise be provided under any other written
agreement between the Executive and the Company, the employment of the
Executive by the Company is "at will" and may be terminated by either the
Executive or the Company at any time.
11. SETTLEMENT OF CLAIMS. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company may have against the Executive or others.
12. MUTUAL NON-DISPARAGEMENT. The Company, its affiliates and
subsidiaries agree and the Company shall use its best efforts to cause their
respective executive officers and directors to agree, that they will not make
or publish any statement critical of the Executive, or in any way adversely
affecting or otherwise maligning the Executive's reputation. The Executive
agrees that he will not make or publish any statement critical of the
Company, its affiliates and their respective executive officers and
directors, or in any way adversely affecting or otherwise maligning the
business or reputation of any member of the Company, its affiliates and
subsidiaries and their respective officers, directors and employees.
13
<PAGE>
13. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
14. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Arizona without
giving effect to the conflict of laws principles thereof. Any action brought
by any party to this Agreement shall be brought and maintained in a court of
competent jurisdiction in Maricopa County in the State of Arizona.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and the Executive has executed this Agreement
as of the day and year first above written.
EVANS WITHYCOMBE RESIDENTIAL, INC.
By:/s/ Stephen O. Evans
--------------------------------
Name: STEPHEN O. EVANS
Title: CHAIRMAN
By:/s/ S. Edward O'Clair
--------------------------------
Executive
14
<PAGE>
AMENDMENT NO. 1 TO
CHANGE IN CONTROL AGREEMENT
---------------------------
THIS AMENDMENT NO. 1 TO CHANGE IN CONTROL AGREEMENT is dated August 27,
1997 and is by and between EVANS WITHYCOMBE RESIDENTIAL, INC., a Maryland
corporation (the "Company"), and EDWARD O'CLAIR (the "Executive").
RECITALS
A. The Company and the Executive have previously entered into a Change
in Control Agreement dated as of June 18, 1997 (the "CIC Agreement").
B. The Company is entering into an Agreement and Plan of Merger of even
date herewith with Equity Residential Property Trust ("EQR") pursuant to
which the Company will be merged with and into EQR (the "Merger").
C. In contemplation of the Merger and as a condition thereto, the
Company and the Executive desire to amend the Agreement as hereinafter set
forth.
AGREEMENTS
In consideration of the premises and the mutual covenants hereinafter set
forth, the parties agree as follows:
1. Section 3(b) of the CIC Agreement is hereby amended to delete clause
(v) thereof in its entirety and to substitute in lieu thereof the following:
"(V) the Company shall pay the Executive an amount which, after
payment by the Executive of all federal and state income taxes imposed
with respect to such payment, is equal to the employer contributions in
the Executive's account in the Company's 401(k) plan which were unvested
as of the date of such termination."
2. Section 3(c) of the CIC Agreement is hereby amended to read as
follows:
"(c) The amounts provided for in Sections 3(a) and 3(b)(i) and (ii)
shall be paid in a single lump sum cash payment within five (5) days
after the Executive's Termination Date (or earlier, if required by
applicable law) unless the Termination Date occurs during the last two
months of a calendar year, in which case such amounts shall be paid in a
<PAGE>
single lump sum cash payment on January 2 of the immediately following
year (or earlier, if required by applicable law)."
3. The first sentence of Section 6 of the CIC Agreement is hereby
amended to read as follows:
"This Agreement shall be binding upon and shall inure to the benefit
of the Company, its Successors and Assigns, except that the definition of
Change in Control set forth in this Agreement shall apply only to the
Company."
4. The Executive shall be entitled to all payments under Section 3(b)
of the CIC Agreement at the Effective Time notwithstanding the fact that the
Executive may continue in the employ of EQR after the Effective Time for a
limited period to assist in transition matters. The Executive shall not be
entitled to any bonus to employees of EQR or any of EQR's subsidiaries
payable during such transition period.
5. The CIC Agreement as amended hereby is hereby ratified, approved and
confirmed in all respects.
6. If the Merger has not been consummated by February 15, 1998, this
Amendment No. 1 shall automatically be null and void AB INITIO.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 on the
day and year first above written.
EVANS WITHYCOMBE RESIDENTIAL,
INC.
By: /s/ Stephen O. Evans
--------------------------
Title: CEO
--------------------
/s/ Edward O'Clair
--------------------------
Edward O'Clair
2
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<PERIOD-START> JAN-01-1997
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0
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