DIRECTOR DESIGNATION AGREEMENT
THIS DIRECTOR DESIGNATION AGREEMENT, dated as of August 17, 1994, is
entered into by and among Xxxxx Xxxxxxxxxx Residential, Inc., a Maryland
corporation (the "Company"), Xxxxx Xxxxxxxxxx Residential Properties, L.P., a
Delaware limited partnership (the "Operating Partnership"), AEW Partners, L.P.
("AEW"), CIIF Associates II Limited Partnership, a Delaware limited partnership
("Xxxxxx"), Xxxxxxx X. Xxxxx ("Xxxxx") and F. Xxxxx Xxxxxxxxxx ("Xxxxxxxxxx").
AEW, Xxxxxx, Xxxxx and Xxxxxxxxxx shall sometimes collectively be referred to
herein as the "Contributing Partners."
RECITALS
WHEREAS, the Contributing Partners, together with their Affiliates (as
defined below), own interests in certain apartment properties and/or development
projects that will be transferred to the Operating Partnership in connection
with the initial public offering of shares of the Company's common stock (the
"Common Stock");
WHEREAS, the Contributing Partners will receive some combination of
Common Stock, cash and units of limited partnership interest in the Operating
Partnership ("Units") in exchange for such property interests;
WHEREAS, at the option of the Contributing Partners, the Units are
exchangeable for cash or, at the option of the Company, shares of Common Stock;
WHEREAS, the bylaws of the Company (the "Bylaws") provide that a
majority of the Company's board of directors (the "Board of Directors") must be
Independent Directors (as defined below);
WHEREAS, the Company and the Contributing Partners desire and intend
that the Contributing Partners have the right to designate, for nomination for
election to, and/or to fill vacancies on, the Board of Directors, certain
designees in accordance with the terms of this Agreement; and
WHEREAS, the Contributing Partners are willing to enter into the
Partnership Agreement (as defined below), certain agreements whereby their
interests in certain apartment properties and/or development projects will be
transferred to the Operating Partnership and, in the case of Xxxxx and
Xxxxxxxxxx, the Executive Employment Agreements (and related non-competition
agreements) in consideration of receiving the right to designate, for nomination
for election to and/or to fill vacancies on the Board of Directors, designees in
accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
AGREEMENT
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ARTICLE I. - DEFINED TERMS
In addition to the definitions set forth above, the following
definitions shall be for all purposes, unless otherwise clearly indicated to the
contrary, applied to the terms used in this Agreement.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under common control with such Person. For the
purposes of this definition, "control" when used with respect to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agreement" means this Agreement, as it may be amended, supplemented or
restated from time to time.
"Applicable Ratio" shall have the meaning set forth in Section 1 of
Article II below.
"Exchangeable L.P. Units" means L.P. Units which may be exchangeable
for Common Stock pursuant to Section 8.6 of the Partnership Agreement (without
regard to any limitations on the exercise of such exchange right as a result of
the Ownership Limit Provisions).
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Immediate Family" of any individual means such individual's estate and
heirs, spouse, children (whether natural or adoptive or by marriage), and any
trust or estate, all the beneficiaries of which consist of such individual or
any of the foregoing.
"Incapacitated" shall have the meaning set forth in the Partnership
Agreement.
"Independent Director" shall have the meaning set forth in the Bylaws.
"Ownership Limit Provisions" mean the various provisions of the
Company's Articles of Amendment and Restatement set forth in ARTICLE FOURTH
thereof restricting the ownership of Common Stock by certain Persons to
specified percentages of the outstanding Common Stock.
"Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of the Operating Partnership dated as of August 17, 1994, as
the same may be amended, modified or restated from time to time.
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"Person" means an individual or a corporation, partnership, limited
liability company, association, trust, or any other entity or organization,
including a government or political subdivision or an agency or instrumentally
thereof.
"REIT Share Amount" means, with respect to an Exchangeable L.P. Unit,
that number of shares of Common Stock equal to one (1) multiplied by the Unit
Adjustment Factor.
"Securities Act" means the Securities Act of 1933, as amended from time
to time.
"Unit Adjustment Factor" shall have the meaning set forth in the
Partnership Agreement.
ARTICLE II. - BOARD OF DIRECTORS
1. AEW Right to Designate Director Nominee. For so long as AEW
beneficially owns in the aggregate either shares of Common Stock or Exchangeable
L.P. Units or a combination thereof, and the ratio (the "Applicable Ratio") of
(i) the sum of the number of such shares of Common Stock and the REIT Share
Amount applicable to such Exchangeable L.P. Units, over (ii) the sum of the
total number of shares of Common Stock outstanding and the REIT Share Amount for
all Exchangeable L.P. Units, equals or exceeds 7.5%, then AEW will have the
following rights:
(a) The right to designate one (1) individual (an "AEW
Designee") to be nominated for election (or reelection) to the Board of
Directors at each regular or special meeting of shareholders at which an
election of one or more directors is to take place provided that no AEW Designee
is then serving as a director or that the term of office of an AEW Designee who
is serving as a director is expiring and a successor director is to be elected
(or such AEW Designee is required to be reelected) at such meeting; and
(b) The right to designate an AEW Designee to be nominated for
election to the Board of Directors at each meeting of the Board of Directors at
which an election of one or more directors takes place to fill a vacancy on the
Board of Directors provided that no AEW Designee is then serving as a director.
If not sooner terminated by reason of the failure of AEW to maintain
beneficial ownership of shares of Common Stock and/or Exchangeable L.P. Units in
the Applicable Ratio of at least 7.5%, the rights set forth in this Section 1
of Article II shall lapse, and be of no further force nor effect, on the fifth
anniversary of the date of this Agreement.
2. Xxxxxx Right to Designate Director Nominee. For so long as Xxxxxx
beneficially owns in the aggregate either shares of Common Stock or Exchangeable
L.P. Units or a combination thereof, and the Applicable Ratio of (i) the sum of
the number of such shares of Common Stock and the REIT Share Amount applicable
to such Exchangeable L.P. Units, over (ii) the sum of the total number of shares
of Common Stock outstanding and the REIT Share
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Amount for all Exchangeable L.P. Units, equals or exceeds 7.5%, then Xxxxxx will
have the following rights:
(a) The right to designate one (1) individual (a "Xxxxxx
Designee") to be nominated for election (or reelection) to the Board of
Directors at each regular or special meeting of shareholders at which an
election of one or more directors takes place provided that no Xxxxxx Designee
is then serving as a director or that the term of office of any Xxxxxx Designee
who is serving as a director is expiring and a successor director is to be
elected (or such Xxxxxx Designee is required to be reelected) at such meeting;
and
(b) The right to designate a Xxxxxx Designee to be nominated
for election to the Board of Directors at each meeting of the Board of Directors
at which an election of one or more directors takes place to fill a vacancy on
the Board of Directors provided that no Xxxxxx Designee is then serving as
director.
If not sooner terminated by reason of the failure of Xxxxxx to maintain
beneficial ownership of shares of Common Stock and/or Exchangeable L.P. Units in
the Applicable Ratio of at least 7.5%, the rights set forth in this Section 2
of Article II shall lapse and be of no further force nor effect on the fifth
anniversary of the date of this Agreement.
3. Xxxxx and Xxxxxxxxxx Rights to Designate Director Nominees. For so
long as each of Xxxxx and Xxxxxxxxxx (a) beneficially owns (together with
members of his Immediate Family) in the aggregate either shares of Common Stock
or Exchangeable L.P. Units or a combination thereof, and the Applicable Ratio of
(i) the sum of the number of such shares of Common Stock and the REIT Share
Amount applicable to such Exchangeable L.P. Units, over (ii) the sum of the
total number of shares of Common Stock outstanding and the REIT Share Amount for
all Exchangeable L.P. Units, equals or exceeds 7.5% and (b) continues to serve
as an executive officer (as defined in Regulation C of the Securities Act) of
the Company, then Xxxxx and Xxxxxxxxxx, will have the following rights:
(aa) The right to designate up to three (3) individuals (each
an "Xxxxx Xxxxxxxxxx Designee") (which shall include Messrs. Xxxxx and
Xxxxxxxxxx and a third individual to be designated by Messrs. Xxxxx and
Xxxxxxxxxx who is an executive officer of the Company) to be nominated for
election (or reelection) to the Board of Directors at each regular or special
meeting of shareholders at which an election of one or more directors takes
place provided that less than three (3) Xxxxx Xxxxxxxxxx Designees are then
serving as directors or that the term of office of any Xxxxx Xxxxxxxxxx Designee
who is serving as a director is expiring and a successor director is to be
elected (or such Xxxxx Xxxxxxxxxx Designee is required to be reelected) at such
meeting. The number of Xxxxx Xxxxxxxxxx Designees designated for nomination for
election (or reelection) to the Board of Directors at any meeting of
shareholders shall be equal to the number which, when added to the number of
Xxxxx Xxxxxxxxxx Designees then serving as directors and whose term of office is
not then expiring, equals three (3); and
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(bb) The right to designate up to three (3) Xxxxx Xxxxxxxxxx
Designees to be nominated for election to the Board of Directors at each meeting
of the Board of Directors at which an election of one or more directors takes
place to fill vacancies on the Board of Directors provided that less than three
(3) Xxxxx Xxxxxxxxxx Designees are then serving as directors. The number of
Xxxxx Xxxxxxxxxx Designees to be designated for nomination for election to the
Board of Directors at any meeting of the Board of Directors shall be equal to
the number which, when added to the number of Xxxxx Xxxxxxxxxx Designees then
serving as directors, equals three (3).
In the event that Messrs. Xxxxx and Xxxxxxxxxx are unable to agree on
the third Xxxxx Xxxxxxxxxx Designee (other than Xx. Xxxxx and Xx. Xxxxxxxxxx),
then the rights of Messrs. Xxxxx and Xxxxxxxxxx to designate the third Xxxxx
Xxxxxxxxxx Designee shall be deemed waived and the Board of Directors shall be
free to nominate any individual or individuals, in lieu of the third Xxxxx
Xxxxxxxxxx Designee, for election to the Board of Directors. Notwithstanding
anything herein to the contrary, Messrs. Xxxxx and Xxxxxxxxxx shall lose their
right to designate the third Xxxxx Xxxxxxxxxx Designee (other than Xx. Xxxxx and
Xx. Xxxxxxxxxx) at such time as either AEW or Xxxxxx shall no longer have the
right to designate an AEW Designee or Xxxxxx Designee, respectively, pursuant to
this Agreement.
During any period in which the Applicable Ratio for either or both of
Messrs. Xxxxx and Xxxxxxxxxx (measured on an individual basis) is reduced to
less than 7.5% but the Applicable Ratio for both Messrs. Xxxxx and Xxxxxxxxxx
(measured on a combined basis) is greater than or equal to 12.5% and both of
Messrs. Xxxxx or Xxxxxxxxxx continue to serve as executive officers of the
Company, then each of Messrs. Xxxxx and Xxxxxxxxxx will have the following
rights:
(aaa) The right to designate himself to be nominated for
election (or reelection) to the Board of Directors at each regular or special
meeting of shareholders at which an election of one or more directors takes
place provided that he is not then serving as a director or that he is then
serving as a director but his term of office is expiring and a successor
director is to be elected (or he is required to be reelected) at such meeting;
and
(bbb) The right to designate himself to be nominated for
election to the Board of Directors at each meeting of the Board of Directors at
which an election of one or more directors takes place to fill vacancies on the
Board of Directors provided that he is not then serving as a director.
During any period in which the Applicable Ratio for both of Messrs.
Xxxxx and Xxxxxxxxxx (measured on a combined basis) is reduced to less than
12.5% but the Applicable Ratio for one of Messrs. Xxxxx or Xxxxxxxxxx equals or
exceeds 7.5% and the person whose Applicable Ratio equals or exceeds 7.5%
continues to serve as an executive officer of the Company, then such person
shall have the following rights:
(aaaa) The right to designate himself to be nominated for
election (or reelection) to the Board of Directors at each regular or special
meeting of shareholders at
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which an election of one or more directors takes place provided that he is not
then serving as a director or that he is then serving as a director but his term
of office is expiring and a successor director is to be elected (or he is
required to be reelected) at such meeting; and
(bbbb) The right to designate himself to be nominated for
election to the Board of Directors at each meeting of the Board of Directors at
which an election of one or more directors takes place to fill a vacancy on the
Board of Directors provided that he is not then serving as a director.
4. Nomination. The Company agrees to nominate for election to the Board
of Directors of the Company the individuals designated by the Contributing
Partners to be nominated for election as directors pursuant to this Agreement.
Nothing herein shall affect the rights of the Company or any shareholder or
director of the Company to nominate for election to the Board of Directors,
individuals, in addition to those designated by the Contributing Partners, to
solicit votes or proxies for or on behalf of such individuals and to otherwise
take such action in connection with the nomination and election of directors,
as, in the opinion of the Company or such shareholder or director may be in the
best interests of the Company.
5. Mechanics of Designation. The Company shall give the Contributing
Partners (or, if applicable, such other Person as shall be determined pursuant
to Section 6) at least 60 days prior written notice of the date of the proposed
mailing of proxy materials for any meeting of shareholders at which there will
be election of directors of the Company. The Contributing Partners (or, if
applicable, such other Person) shall within 10 business days of receipt of such
notice from the Company give written notice (an "Election Notice") to the
Company of the name of each individual which the Contributing Partners (or, if
applicable, such other Person) has the rights under this Agreement to designate
to be nominated for election or reelection to the Board of Directors at such
meeting and all information relating to each such person that is required to be
disclosed in solicitation of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Exchange Act
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected). If the Election Notice is
not provided to the Company on a timely basis as provided above, the
Contributing Partners (or, if applicable, such other Person) shall be deemed to
have renominated its or their existing nominee(s). At the request of the Board
of Directors, any person so nominated for election as a director shall furnish
to the Secretary of the Company that information required to be set forth in the
Election Notice.
6. Incapacity. In the event that any of the Contributing Partners is
incapacitated, such rights shall be exercised on behalf of such Contributing
Partner(s) by a single Person who shall represent that he, she or it is acting
as the duly appointed attorney-in-fact of such Contributing Partners
beneficially owning a majority of the total number of shares of Common Stock and
the REIT Share Amount required pursuant to this Article II.
7. Certain Voting Requirements. Each of the Contributing Partners agree
to vote, and will cause its Affiliates to vote, all shares of Common Stock as to
which it or they have
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voting rights, and to use its best efforts to cause all directors who are
Designees of such Contributing Partner to vote, for the election of a slate of
directors which shall (i) include the nominee(s) designated by the Contributing
Partners and (ii) consist of a majority of Independent Directors so long as the
Bylaws provide that a majority of the directors shall be Independent Directors.
Nothing herein shall affect, in any way, the obligation of any director who is a
designee of a Contributing Partner to take such action which such director, in
good faith and in the exercise of reasonable business judgment, believes to be
in the best interests of the Company, or to refrain from taking any action which
such director, in good faith and in the exercise of reasonable business
judgment, believes not to be in the best interests of the Company. Each of the
Contributing Partners acknowledges that the directors of the Company will be
elected by the affirmative vote of the holders of the issued and outstanding
shares of stock of the Company entitled to vote at elections of directors, and
that any designee of such Contributing Partner who is nominated for election to
the Board of Directors may fail to be elected by the shareholders of the
Company.
8. Size of Board of Directors. The Company agrees not to initiate any
action to change the size of the Board of Directors from seven (7) persons
without the written consent of (a) each of the AEW Designee, Xxxxxx Designee and
the Xxxxx Xxxxxxxxxx Designees and (b) the holders of a majority of the shares
of Common Stock or Exchangeable L.P. Units then owned, directly or indirectly,
by the Contributing Partners.
9. Filling Vacancies Created by Early Resignation. In the event that
either Xx. Xxxxxx Xxxxxx (the initial AEW Designee) or Mr. Xxxxxx X'Xxxxxx (the
initial Xxxxxx Designee) resigns prior to the termination of his initial term as
a director, AEW shall have the right to designate a director to fill the vacancy
created by Xx. Xxxxxx'x resignation if Xx. Xxxxxx resigns, and Xxxxxx shall have
the right to designate a director to fill the vacancy created by Xx. X'Xxxxxx'x
resignation, if Xx. X'Xxxxxx resigns. In either event, the director added to
fill such vacancy shall serve in the same class as Xx. Xxxxxx or Xx. X'Xxxxxx,
as applicable, and shall serve for the remainder of his unexpired term.
ARTICLE III. - MISCELLANEOUS
1. Remedies. In addition to being entitled to exercise all rights
provided herein and granted by law, including recovery of damages, the
Contributing Partners shall be entitled to specific performance of their rights
under this Agreement. The Company and each Contributing Partner agree that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it or any of them of the provisions of this Agreement and
hereby agree to waive the defense in any action for specific performance that a
remedy at law would be adequate.
2. Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given unless the Company has obtained the written consent of the Contributing
Partners or their representatives if any of the
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Contributing Partners becomes Incapacitated. No failure by any party to insist
upon the strict performance of any covenant, duty, agreement or condition of
this Agreement or to exercise any right or remedy consequent upon any breach
thereof shall constitute waiver of any such breach or any other covenant, duty,
agreement or condition.
3. Notices. All notices and other communications in connection with
this Agreement shall be made in writing by hand-delivery, registered first-class
mail, telex, telecopier, or air courier guaranteeing overnight delivery:
(a) If to the Company or the Operating Partnership, initially
at the address of the Company's principal executive offices.
(b) If to AEW, initially at c/x Xxxxxxx, Xxxxxxx and Waltch,
000 Xxxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000, Attn: Xx. Xxxxxx X. Xxxxx,
Xx.;
(c) If to Copley, initially at 000 Xxxxxxxx Xxxxxx, Xxxxxx,
Xxxxxxxxxxxxx 00000, Attn: Xx. Xxxxx X. Xxxxx;
(d) If to Xxxxx, initially at 0000 Xxxx Xxxxxxxxx Xxxx, Xxxxx
X000, Xxxxxxxxxx, Xxxxxxx 00000; and
(e) If to Xxxxxxxxxx, initially at 0000 Xxxx Xxxxxxxxx Xxxx,
Xxxxx X000, Xxxxxxxxxx, Xxxxxxx 0000.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when received if
deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt acknowledged, if telecopied; and on the next business day,
if timely delivered to an air courier guaranteeing overnight delivery.
4. Successors and Assigns. This Agreement shall not be assignable by
the Contributing Partners to any person.
5. Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Each party shall become
bound by this Agreement immediately upon affixing its signature hereto.
6. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Maryland without regard to the
choice of law provisions thereof.
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7. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
8. Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
9. Duties of Directors. The Contributing Partners acknowledge and agree
that any designee of any Contributing Partner who is elected as a director of
the Company will have certain legal obligations and duties to the Company
including, but not limited to, a duty of care and a duty of loyalty and in
connection with the exercise of such duties, each director of the Company is
required, at all times, to act in good faith and in a manner which he or she
reasonably believes to be in the best interest of the Company. Nothing contained
in this Director Designation Agreement is intended, or shall be construed, to
require or permit any designee of any Contributing Partner who is elected as a
director of the Company to fail to comply with his or her duties and obligations
as a director of the Company or to take any action which such director believes,
in good faith and in the exercise of reasonable business judgment, is not in the
best interest of the Company or to fail to take any action which, in good faith
and in the exercise of reasonable business judgment, such director believes to
be in the best interest of the Company, even if such action may not be in the
best interests of the Contributing Partner who designated such director for
nomination.
10. Validity of Elections of Directors. The validity of all elections
of directors of the Company shall be determined under the Charter and Bylaws of
the Company and the Maryland General Corporation Law ("MGCL") and any election
of directors which is valid under the Charter and Bylaws of the Company and the
MGCL shall not be deemed invalid solely by reason of the failure of the Company
to comply with the provisions of this Director Designation Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
XXXXX XXXXXXXXXX RESIDENTIAL, INC.
By: /s/ Xxxxxxx X. Xxxxx
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Xxxxxxx X. Xxxxx, Chairman and Chief
Executive Officer
XXXXX XXXXXXXXXX RESIDENTIAL
PROPERTIES, L.P.
By: Xxxxx Xxxxxxxxxx Residential, Inc., its
General Partner
By: /s/ F. Xxxxx Xxxxxxxxxx
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F. Xxxxx Xxxxxxxxxx, President
AEW PARTNERS, L.P.
By: AEW/L.P., General Partner
By: AEW, Inc.
By: /s/ Xxxxxx X. Xxxxxx
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CIIF ASSOCIATES II LIMITED PARTNERSHIP
By: Xxxxxx Advisors, Inc., its General Partner
By: /s/ Xxxxx X. Xxxxxxx
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Xxxxx X. Xxxxxxx, Managing Director
XXXXXXX X. XXXXX
/s/ Xxxxxxx X. Xxxxx
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F. XXXXX XXXXXXXXXX
/s/ F. Xxxxx Xxxxxxxxxx
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