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EXHIBIT 10.5
April 15, 1999
Xx. Xxxxxxx X. Xxx Xxxx
[address]
Dear Xxxx:
This letter agreement (the "Agreement") confirms the terms of the
termination of your employment with AvalonBay Communities, Inc. (the "Company,"
a term which for purposes of this Agreement includes its related or affiliated
entities).
1. TERMINATION DATE. By mutual agreement, the effective date of the
termination of your employment and office(s) with the Company and any of its
related or affiliated entities was February 16, 1999 (the "Date of
Termination"). By entering into this Agreement, you also are acknowledging that
you resigned, as of the date of Termination, as a director of all entities that
are related or affiliated to the Company. For purposes of the Employment
Agreement, dated as of March 9, 1998 by and between you and Bay Apartment
Communities, Inc. (a predecessor to the Company) (the "Employment Agreement"),
the termination of your employment shall be deemed to be a termination without
Cause.
2. SEVERANCE PAY AND BENEFITS. The Company shall provide you with the
payments and benefits set forth in Sections 3(i) (forgiveness of outstanding
balance of a certain Company loan with a balance as of this day of $73,200),
7(c)(i) (payment of salary, compensation and benefits earned through Date of
Termination), 7(c)(v) (termination payments and benefits upon termination
without Cause) and 7(d) (Partial Gross-up Payment) of the Employment Agreement
subject to and in accordance with the terms and conditions of the Employment
Agreement and subject, in all events, to the provisions set forth below.
(a) For purposes of Sections 7(c)(v) of the Employment Agreement,
you and the Company agree that in satisfaction of the Company's
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obligation to pay you three times your Covered Average Compensation, the Company
shall pay you, promptly after the execution hereof, the sum of Two Million, Nine
Hundred Fifty-Seven Thousand, Eight Hundred Dollars ($2,957,800) (the "Lump Sum
Compromise Amount") (less applicable tax withholding). You and the Company agree
that the there has not been agreement as to the individual components that
constitute three times your Covered Average Compensation, but that there is
agreement that the Lump Sum Compromise Amount is being paid in full satisfaction
of any and all claims that you have to receive three times your Covered Average
Compensation. In addition to the Lump Sum Compromise Amount, pursuant to Section
7(d) the Company shall pay to you the Partial Gross-up Payment required under
the Employment Agreement. You and the Company have determined that the Partial
Gross-up Payment is Seven Hundred Twenty Nine Thousand Five Hundred Ten Dollars
($729,510) but that such amount may require modification, and you and the
Company each agree to cooperate in the final calculation of the Partial Gross-up
Payment. For clarity, you and we each agree that, since the Partial Gross-up
Payment is in respect of taxes owed by you, the full amount of the Partial
Gross-up Payment will be retained by the Company as tax withholding. You and the
Company agree that you have been paid all accrued but unpaid compensation to
which you are entitled under Section 7(c)(i) of the Employment Agreement and
that the Company owes you no other compensation under Section 7(c)(i) in respect
of your employment through the Date of Termination.
(b) In accordance with Section 7(c)(v)(A) of the Employment
Agreement, the Company will continue, without cost to you, benefits comparable
to the medical and disability benefits provided to you immediately prior to the
Date of Termination under Sections 3(c) and 3(d) of the Employment Agreement for
a period of 36 months following the Date of Termination or until such earlier
date as you may obtain comparable benefits through other employment. For
purposes of Section 7(c)(v)(A) of the Employment Agreement, if, within 36 months
of the Date of Termination, you obtain medical or disability benefits through
other employment (whether self-employment or otherwise) comparable to those
provided to you pursuant to Section 7(c)(v)(A), you will promptly notify the
Company.
(c) In accordance with Section 7(c)(v)(B) of the Employment
Agreement, the Company will continue to pay, or reimburse you, for so long as
such payments are due, all premiums then due and payable on the whole-life
portion of the split dollar life insurance policy obtained pursuant to Section
3(d) of the Employment Agreement.
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(d) In accordance with Section 7(c)(v)(C) of the Employment
Agreement, all shares of the Company's stock that you were granted as Restricted
Shares vested as of the Date of Termination (i.e., you own as of the Date of
Termination a total of 16,030 shares of common stock of the Company that were
originally granted to you as Restricted Shares, as set forth on Exhibit A
hereto). To the extent the Company has not already done so, promptly following
your execution of this Agreement the Company shall deliver to you certificates
representing such shares with no restrictive legends, and such shares shall be
freely transferable by you subject to applicable securities laws. You
acknowledge that the Company has advised you to consult an attorney regarding
your continuing obligations under Section 16 of the Securities Exchange Act of
1934, as amended, as well as other federal and state securities (including
xxxxxxx xxxxxxx) laws.
(e) In accordance with Section 7(c)(v)(C) of the Employment
Agreement, all options to purchase shares of the Company's common stock that you
were granted vested as of the Date of Termination. Exhibit B hereto lists all of
such options and their respective exercise prices. You have until the expiration
of three (3) months following the Date of Termination in which to exercise the
options granted on June 19, 1996. The Board of Directors, or the Compensation
Committee of the Board of Directors, of the Company has taken such action as is
necessary so that, with respect to the other options listed in Exhibit B, you
will have until the expiration of four (4) months following the Date of
Termination in which to exercise such options. The Company will provide
reasonable and customary cooperation in your consummation of a "cashless
exercise" with a broker in which the proceeds of the sale of shares of the
Company common stock are used, directly or indirectly, to finance your
remittance of the exercise price on the options. The Company will not assert
that you are in possession of information regarding the Company such that there
is a basis for the Company to not provide such cooperation.
(f) The Company shall reimburse you for your reasonable legal
fees, in an amount not to exceed $20,000, in connection with review and
negotiation of this Agreement. This reimbursement is not required under the
Employment Agreement but the Company has agreed to pay such amount in connection
with its settlement with you as provided in this Agreement.
3. RELEASE OF CLAIMS. In accordance with Section 7(h) of the Employment
Agreement, the parties agreed that the payments to you under Section 7 of the
Employment Agreement (as described and/or modified in Section 2 of this
Agreement) are in full satisfaction of all claims you may have in respect of
your employment by the Company or its affiliates and are provided as the sole
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and exclusive benefits to be provided to you in respect of the termination of
your employment. To effectuate that agreement, you hereby covenant and agree as
follows:
(a) You, on behalf of yourself and your successors, heirs,
assigns, executors, administrators and/or estate, hereby irrevocably and
unconditionally release, acquit and forever discharge the Company, its
subsidiaries, divisions and related or affiliated entities, and each of their
respective predecessors, successors or assigns, and the officers, directors,
partners, shareholders, representatives, employees and agents of each of the
foregoing (the "Releasees"), from any and all charges, complaints, claims,
liabilities, obligations, promises, agreements, controversies, damages, actions,
causes of action, suits, rights, demands, costs, losses, debts and expenses
(including attorneys' fees and costs actually incurred), known or unknown, that
directly or indirectly arise out of, relate to or concern your employment or
termination of employment with the Company ("Claims"), which you have, own or
hold, or at any time heretofore had, owned or held against the Releasees up to
the date on which you execute this Agreement, including without limitation,
express or implied, all Claims for: breach of express or implied contract;
promissory estoppel; fraud, deceit or misrepresentation; intentional, reckless
or negligent infliction of emotional distress; breach of any express or implied
covenant of employment, including the covenant of good faith and fair dealing;
interference with contractual or advantageous relations; discrimination on any
basis under federal, state or local law, including without limitation, Title VII
of the Civil Rights Act of 1964, as amended, the Americans with Disabilities
Act, as amended, and the California Fair Employment and Housing Act, Cal. Gov't.
Code Sections 12940, et seq., as amended; and all claims for defamation or
damaged reputation.
(b) You acknowledge that you are familiar with Section 1542 of
the California Civil Code, which reads as follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.
You acknowledge and agree that you are releasing unknown claims and waive all
rights that you may have under Civil Code Section 1542 or under any other
statute or common law principle of similar effect.
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(c) You represent and warrant that you have not filed any
complaints or charges asserting any Claims against the Releasees with any local,
state or federal agency or court. You further represent and warrant that you
have not assigned or transferred to any person or entity any Claims or any part
or portion thereof.
(d) You agree that you will not hereafter pursue any Claim
against any Releasee by filing a lawsuit in any local, state or federal court
for or on account of anything which has occurred up to the present time as a
result of your employment, and you shall not seek reinstatement with, or damages
of any nature, severance, incentive or retention pay, attorney's fees, or costs
from the Company or any of the other Releasees; provided, however, that nothing
in this Section 3 shall be deemed to release the Company from any claims that
you may have (i) under this Agreement, (ii) for indemnification pursuant to and
in accordance with applicable statutes, the by-laws of the Company and Section
4(b) of the Employment Agreement, (iii) vested pension or retirement benefits
under the terms of qualified employee pension benefit plans, or (iv) accrued but
unpaid wages.
4. RELEASE BY THE COMPANY.
(a) The Company, on behalf of itself, its subsidiaries, divisions
and related or affiliated entities and each of their respective predecessors,
successors or assigns hereby irrevocably and unconditionally releases, acquits
and forever discharges you, your successors, heirs, assigns, executors,
administrators and/or estate (the "Van Horn Releasees"), from any and all
charges, complaints, claims, liabilities, obligations, promises, agreements,
controversies, damages, actions, causes of action, suits, rights, demands,
costs, losses, debts and expenses (including attorney's fees and costs actually
incurred) known or unknown, that directly or indirectly arise out of, relate to
or concern acts or omissions reasonably taken or not taken by you in the course
of your employment with the Company in good faith (the "Company Claims").
(b) The Company represents and warrants that it has not filed any
complaints or charges asserting any Company Claims against the Van Horn
Releasees with any local, state or federal agency or court. The Company further
represents and warrants that it has not assigned or transferred to any person or
entity any Company Claims or any part or portion thereof.
(c) The Company agrees that it will not hereafter pursue any
Company Claim against any Van Horn Releasee by filing a lawsuit in any local,
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state or federal court for or on account of anything which has occurred up to
the present time as a result of your employment to the extent set forth in
Subparagraph 4(a) above; provided, however, that nothing in this Section 4 shall
be deemed to release you from any claims the Company may have (i) under this
Agreement or (ii) for claims not otherwise released by Section 4(a) above.
5. EMPLOYMENT AGREEMENT. Except as set forth in the next sentence or as
expressly provided elsewhere in this Agreement, this Agreement supersedes all
provisions of the Employment Agreement and all such provisions terminated upon
the Date of Termination. Nothing contained herein, however, shall be deemed to
terminate your obligations to the Company or the Company's obligations to you
under Sections 4 (b) (indemnification), 6 (Records/Nondisclosure/Company
Policies), 7(d) (Excise Tax Payment), 8(b)-(c) (Non-Solicitation and Specific
Enforcement), and 13 (Resolution of Disputes) of the Employment Agreement,
Annexes A (Code of Ethics) or B (Nondisclosure Agreement) thereto, or the
Company's Stock Option Plan or the stock option agreements entered into by you
from time to time.
6. RETURN OF PROPERTY. In accordance with Section 4 of the Nondisclosure
Agreement, dated as of March 9, 1998, by and between you and Bay Apartment
Communities, Inc. (a predecessor to the Company) and incorporated in the
Employment Agreement as Annex B ("Nondisclosure Agreement"), to the extent you
have not already done so, (i) you will return to the Company all records,
correspondence, notes, financial statements, computer printouts and other
documents and recorded material of every nature (including copies thereof) that
may be in your possession or control dealing with Confidential Information (as
defined in Section 8 of the Nondisclosure Agreement), and (ii) you will return
to the Company all other property. Reference is made to your memorandum of March
19, 1999 in which a Senior Vice President of the Company acknowledged your
return of the items referenced on such memorandum.
7. LITIGATION COOPERATION. You agree to continue to serve the Company as a
litigation consultant and, in connection therewith, to cooperate reasonably with
the Company in (i) the defense or prosecution of any claims or actions which
already have been brought or which may be brought in the future against or on
behalf of the Company and (ii) responding to, cooperating with, or contesting
any governmental audit, inspection, inquiry, proceeding or investigation, which
relate to events or occurrences that transpired during your employment with the
Company. Your cooperation in connection with such claims or actions shall
include, without implication of limitation: promptly
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notifying the Company in writing of any subpoena, interview, investigation,
request for information, or other contact concerning events or occurrences that
transpired during your employment with any of the Company; being reasonably
available to meet with counsel for any of the Company to prepare for discovery
or trial; to testify truthfully as a witness when reasonably requested and at
reasonable times designated by the Company; and to meet with counsel or other
designated representatives of the Company at reasonable times and places; to
prepare responses to and to cooperate with any Company's processing of
governmental audits, inspections, inquiries, proceedings or investigations. The
Company agrees to reimburse you for any reasonable out-of-pocket expenses that
you incur in connection with such cooperation, subject to reasonable
documentation. The Company shall compensate you at an hourly rate derived from
your last applicable Base Salary for time that you reasonably spend complying
with your obligations as a litigation consultant under this Section, except that
the Company shall not, under any circumstances, compensate you for time spent
testifying under oath or responding to questions from governmental investigators
in a capacity as a fact witness. The Company will try, in good faith, to
exercise its rights under this Section so as not to unreasonably interfere with
your personal schedule or ability to engage in gainful employment. In the event
other commitments preclude you from being available to the Company when
requested, you may decline a Company request for cooperation so long as you
promptly provide to the Company reasonable alternative dates when you will be
available to provide such cooperation.
In furtherance of your obligations under this Agreement, you agree that you
shall not disclose, provide or reveal, directly or indirectly, any information
concerning the Company, including without implication of limitation, their
respective operations, plans, strategies or administration, to any other person
or entity unless compelled to do so pursuant to (a) a valid subpoena or (b) as
otherwise required by law, but in either case only after providing the Company,
to the attention of its Chief Executive Officer, with prior written notice and
opportunity to contest such subpoena or other requirement. Written notice shall
be provided to the Company as soon as practicable, but in no event less than
five (5) business days before any such disclosure is compelled, or, if later, at
least one business day after you receive notice compelling such disclosure.
8. NONDISPARAGEMENT AND NONDISCLOSURE. You agree not to take any action or
make any statement, written or oral, which disparages or criticizes the Company
or its officers, directors, agents, or management and business practices, or
which disrupts or impairs the Company's normal operations. The Company agrees to
instruct its directors and executive officers
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not to take any action or make any statement, written or oral, which disparages
or criticizes you or your management and business practices. The provisions of
this Section 8 shall not apply to any truthful statement required to be made by
you or any director or executive officer of the Company, as the case may be, in
any legal proceeding, governmental or regulatory investigation, in any public
filing or disclosure legally required to be filed or made, or in any
confidential discussion or consultation with professional advisors. You agree
not to disclose the terms of this Agreement except (a) to your professional
advisors, including accountants and attorneys (provided they agree to keep such
information confidential), (b) to the extent that, prior to your disclosure, the
Company has previously disclosed such information in its filings with the
Securities and Exchange Commission, and (c) (i) pursuant to a valid subpoena or
(ii) as otherwise required by law, but in either of the latter two cases only
after providing the Company, to the attention of its Chief Executive Officer,
with prior written notice and reasonable opportunity to contest such subpoena or
other requirement. In the case of the circumstances contemplated by Subsections
8(c)(i) or (ii), written notice shall be provided to the Company as soon as
practicable, but in no event less than five (5) business days before any such
disclosure is compelled, or, if later, at lease one (1) business day after you
receive notice compelling such disclosure.
9. EXCLUSIVITY. This Agreement sets forth all the consideration to which
you are entitled by reason of the termination of your employment, and you agree
that you shall not be entitled to or eligible for any payments or benefits under
any other Company severance, bonus, retention or incentive policy, arrangement
or plan.
10. TAX MATTERS. All payments and other consideration provided to you
pursuant to this Agreement shall be subject to any deductions, withholding or
tax reporting that the Company reasonably determines to be required for tax
purposes.
11. NOTICES, ACKNOWLEDGMENTS AND OTHER TERMS
(a) You are advised to consult with an attorney and tax advisor
before signing this Agreement. You acknowledge that you have consulted with an
attorney of your choice. You acknowledge that you have been given a reasonable
period of time to consider this Agreement before executing it.
(b) By signing this Agreement, you acknowledge that you are doing
so voluntarily and knowingly, fully intending to be bound by this Agreement. You
also acknowledge that you are not relying on any
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representations by any representative of the Company concerning the meaning of
any aspect of this Agreement. You understand that this Agreement shall not in
any way be construed as an admission by the Company of any liability or any act
of wrongdoing whatsoever by the Company against you and that the Company
specifically disclaims any liability or wrongdoing whatsoever against you on the
part of itself and its officers, directors, shareholders, employees and agents.
You understand that if you do not enter into this Agreement and bring any claims
against the Company, the Company will dispute the merits of those claims and
contend that it acted lawfully and for good business reasons with respect to
you.
(c) In the event of any dispute, this Agreement will be construed
as a whole, will be interpreted in accordance with its fair meaning, and will
not be construed strictly for or against either you or the Company. Section
headings and parenthetical explanations of section references are for
convenience only and shall not be used to interpret the meaning of any provision
or term of this Agreement.
(d) The law of the State of Maryland will govern any dispute
about this Agreement, including any interpretation or enforcement of this
Agreement.
(e) In the event that any provision or portion of a provision of
this Agreement shall be determined to be illegal, invalid or unenforceable, the
remainder of this Agreement shall be enforced to the fullest extent possible and
the illegal, invalid or unenforceable provision or portion of a provision will
be amended by a court of competent jurisdiction, or otherwise thereafter shall
be interpreted, to reflect as nearly as possible without being illegal, invalid
or unenforceable the parties' intent if possible. If such amendment or
interpretation is not possible, the illegal, invalid or unenforceable provision
or portion of a provision will be severed from the remainder of this Agreement
and the remainder of this Agreement shall be enforced to the fullest extent
possible as if such illegal, invalid or unenforceable provision or portion of a
provision was not included.
(f) This Agreement may be modified only by a written agreement
signed by you and an authorized representative of the Company.
(g) This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and, except as expressly
provided herein, supersedes all prior agreements between the parties with
respect to any related subject matter.
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(h) This Agreement shall be binding upon each of the parties and
upon their respective heirs, administrators, representatives, executors,
successors and assigns, and shall inure to the benefit of each party and to
their heirs, administrators, representatives, executors, successors, and
assigns.
[End of Text]
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If you agree to these terms, please sign and date below and return this
Agreement to the Company's Chief Executive Officer by May 3, 1999. This
Agreement may be executed in counterparts, each of which shall be deemed to be
an original but all of which together shall constitute one and the same
instrument. The execution of this Agreement may be by actual or facsimile
signature.
Sincerely,
AVALONBAY COMMUNITIES, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
----------------------
Xxxxxxx X. Xxxxxxx
Chief Executive Officer and
President
Accepted and Agreed to:
/s/ Xxxxxxx X. Xxx Xxxx
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Xxxxxxx X. Xxx Xxxx
Dated: April 15, 1999
