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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") made as of the 9th day of March,
1998 by and between Xxxxxx X. Xxxxxx ("Executive") and Bay Apartment
Communities, Inc., a Maryland corporation (the "Company").
WHEREAS, Executive and Avalon Properties, Inc. ("Avalon") have previously
entered into an Employment Agreement, dated as of July 17, 1997 (the "Prior
Agreement"); and
WHEREAS, pursuant to the Agreement and Plan of Merger, by and between the
Company and Avalon, dated as of March 9, 1998 (the "Merger Agreement"), Avalon
will merge into the Company (the "Merger"); and
WHEREAS, Executive and the Company desire to enter into a new employment
agreement, effective as of the consummation of the merger contemplated by the
Merger Agreement (the "Effective Date"), to replace the Prior Agreement.
NOW, THEREFORE, the parties hereto do hereby agree as follows.
1. Term. Subject to the consummation of the merger contemplated by the Merger
Agreement, the Company hereby agrees to employ Executive, and Executive
hereby agrees to remain in the employ of the Company subject to the terms
and conditions of this Agreement for the period commencing on the
Effective Date and terminating on the third anniversary of the Effective
Date (the "Original Term"), unless earlier terminated as provided in
Section 7. The Original Term shall be extended automatically for
additional 1 year periods (each a "Renewal Term"), unless notice that this
Agreement will not be extended is given by either party to the other 6
months prior to the expiration of the Original Term or any Renewal Term.
Notwithstanding the foregoing, upon a Change in Control, the Employment
Period shall be extended automatically to 3 years from the date of such
Change in Control. (The period of Executive's employment hereunder within
the Original Term and any Renewal Terms is herein referred to as the
"Employment Period.")
2. Employment Duties.
a. During the Employment Period, Executive shall be employed in the
business of the Company and its affiliates. Executive shall serve as
a corporate officer of the Company with the title of Senior Vice
President-Property Operations. Executive's duties and authority
shall be commensurate with his title and position with the Company,
and shall not be materially diminished from, or materially
inconsistent with, his primary duties and authority with Avalon
immediately prior to the date of this Agreement.
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Executive agrees to his employment as described in this Section 2 and
agrees to devote substantially all of his working time and efforts to the
performance of his duties under this Agreement; provided that nothing herein
shall be interpreted to preclude Executive from (i) participating with the prior
written consent of the Board of Directors as an officer or director of, or
advisor to, any other entity or organization that is not a customer or material
service provider to the Company or a Competing Enterprise, as defined in Section
8, so long as such participation does not interfere with the performance of
Executive's duties hereunder, whether or not such entity or organization is
engaged in religious, charitable or other community or non-profit activities,
(ii) investing in any entity or organization which is not a customer or material
service provider to the Company or a Competing Enterprise, so long as such
investment does not interfere with the performance of Executive's duties
hereunder, or (iii) delivering lectures or fulfilling speaking engagements so
long as such lectures or engagements do not interfere with the performance of
Executive's duties hereunder. The Company consents to Executive's status as a
"former partner" with a current financial interest in certain Midwest projects
of Xxxxxxxx Xxxx Residential ("TCR"), and such activity shall not be treated as
a Competing Enterprise.
b. In performing his duties hereunder, Executive shall be available for
reasonable travel as the needs of the business require. Executive
shall be based in Alexandria, VA or otherwise in the greater
Washington, D.C. metropolitan area.
c. Breach by either party of any of its respective obligations under
this Section 2 shall be deemed a material breach of that party's
obligations hereunder.
3. Compensation/Benefits. In consideration of Executive's services hereunder,
the Company shall provide Executive the following:
a. Base Salary. During the Employment Period, the Executive shall
receive an annual rate of base salary ("Base Salary") in an amount
not less than $300,000. Executive's Base Salary will be reviewed by
the Company as of the first anniversary of the Effective Date, and
may be adjusted upward (but not downward) at such time to reflect
any inequities in compensation. Commencing as of January 1, 2000,
Executive's Base Salary shall be reviewed no less frequently than
annually by the Company and may be adjusted upward (but not
downward) by the Company. Upon such annual review during the Renewal
Term, if any, Executive's Base Salary shall be increased to the
greatest of (i) an amount equal to Base Salary for the prior year
plus 5%, (ii) a factor measured by the increase, if any, in the
Consumer Price Index for Wage Earners and Clerical Workers (CPI-W)
(City Average for Washington, D.C.-MD-VA 1982-84=100), as published
by the Bureau of Labor Statistics, for the prior calendar year (the
"CPI Adjustment") or (iii) such greater amount as may be agreed by
Executive and the Company. Base Salary shall be payable in
accordance with the Company's normal business practices, but in no
event less frequently than monthly.
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b. Bonuses. Commencing at the close of each fiscal year during the
Employment Period, the Company shall review the performance of the
Company and of Executive during the prior fiscal year, and the
Company may provide Executive with additional compensation as a
bonus if the Board, or any compensation committee hereof, in its
discretion, determines that Executive's contribution to the Company
warrants such additional payment and the Company's anticipated
financial performance of the present period permits such payment.
The bonuses hereunder shall be paid as a lump sum not later than 60
days after the end of the Company's preceding fiscal year.
c. Medical Insurance/Physical. During the Employment Period, the
Company shall provide to Executive and Executive's immediate family
a comprehensive policy of health insurance. During the Employment
Period, Executive shall be entitled to a comprehensive annual
physical performed, at the expense of the Company by the physician
or medical group of Executive's choosing.
d. Life Insurance/Disability Insurance. During the Employment Period,
the Company shall keep in force and pay the premiums on the
split-dollar life insurance policy referenced in the Split Dollar
Insurance Agreement between Avalon and Executive, subject to
reimbursement by Executive as provided in such Split Dollar
Insurance Agreement. The Company shall reimburse Executive for the
cost of the comprehensive disability insurance policy, which is in
effect on January 1, 1997, and shall also be responsible for any
increases in premiums which become effective during the Employment
Period as may be necessary to maintain the same level of insurance
as in effect on January 1, 1997. Executive agrees to submit to such
medical examinations as may be required in order to maintain such
policies of insurance.
e. Vacations. Executive shall be entitled to reasonable paid vacations
during the Employment Period in accordance with the then regular
procedures of the Company governing executives, not to exceed 6
weeks per annum, in the aggregate.
f. Office/Secretary, etc. During the Employment Period, Executive shall
be entitled to secretarial services and a private office
commensurate with his title and duties.
g. Avalon Stock Option. The Company acknowledges that, notwithstanding
the consummation of the Merger, Avalon granted to Executive on March
8, 1998, a non-qualified employee stock option to purchase 104,126
shares of common stock of Avalon, par value $.01 per share (the
"Avalon Stock Option"). The Avalon Stock Option was granted at an
exercise price equal to $28.8125. Upon termination of Executive's
employment, vesting and exercisability of the Avalon
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Stock Option shall be governed by the terms of the stock option
agreement and this Agreement, as applicable. During the Employment
Period, Executive shall be eligible for future employee stock option
grants on the same basis as other senior management of the Company.
h. Automobile. The Company shall provide Executive with a monthly car
allowance during the Employment Period of not less than $750 per
month (adjusted annually for inflation by the CPI Adjustment);
provided that, at Executive's election, the Company may instead
purchase or lease, and maintain insurance for, an automobile of
comparable value for use by Executive, who shall be responsible for
maintaining such automobile, at his own expense, with the same
standard of care Executive applies to his own property and as may be
required under any applicable lease agreement.
i. Other Benefits. During the Employment Period, the Company shall
provide to Executive such other benefits, excluding severance
benefits, but including the right to participate in such retirement
or pension plans, as are made generally available to executives of
the Company from time to time, and shall be given credit for
purposes of eligibility and vesting of employee benefits and benefit
accrual for service with Avalon, its affiliates and TCR prior to the
Effective Date under each benefit plan of the Company and its
subsidiaries to the extent such service had been credited under
employee benefit plans of Avalon and its subsidiaries, provided that
no such crediting of service results in duplication of benefits.
4. Expenses/Indemnification.
a. During the Employment Period, the Company shall reimburse Executive
for the reasonable business expenses incurred by Executive in the
course of performing his duties for the Company hereunder, upon
submission of invoices, vouchers or other appropriate documentation,
as may be required in accordance with the policies in effect from
time to time for executive employees of the Company.
b. To the fullest extent permitted by law, the Company shall indemnify
Executive with respect to any actions commenced against Executive in
his capacity as an officer or director or former officer or director
of the Company, or any affiliate thereof for which he may render
service in such capacity, whether by or on behalf of the Company,
its shareholders or third parties, and the Company shall advance to
Executive on a timely basis an amount equal to the reasonable fees
and expenses incurred in defending such actions, after receipt of an
itemized request for such advance, and an undertaking from Executive
to repay the amount of such advance, with interest at a reasonable
rate from the date of the request, as
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determined by the Company, if it shall ultimately be determined that
he is not entitled to be indemnified against such expenses. The
Company agrees to use its best efforts to secure and maintain
officers and directors' liability insurance with respect to
Executive.
5. Employer's Authority/Policies.
a. General. Executive agrees to observe and comply with the rules and
regulations of the Company as adopted by its Board respecting the
performance of his duties and to carry out and perform orders,
directions and policies communicated to him from time to time by the
Board.
b. Ethics Policies. Executive agrees to comply with and be bound by the
Ethics Policies of the Company, as reflected in the attachment at
Annex A hereto and made a part hereof.
6. Records/Nondisclosure/Company Policies.
a. General. All records, financial statements and similar documents
obtained, reviewed or compiled by Executive in the course of the
performance by him of services for the Company, whether or not
confidential information or trade secrets, shall be the exclusive
property of the Company. Executive shall have no rights in such
documents upon any termination of this Agreement.
b. Nondisclosure Agreement. Without limitation of the Company's rights
under Section 6(a), Executive agrees to abide by and be bound by the
Nondisclosure Agreement of the Company executed by Executive and the
Company as reflected in the attachment at Annex B and made a part
hereof.
7. Termination; Severance and Related Matters.
a. At-Will Employment. Executive's employment hereunder is "at will"
and, therefore, may be terminated at any time, with or without
Cause, at the option of the Company, subject only to the severance
obligations under this Section 7. Upon any termination hereunder,
the Employment Period shall expire.
b. Definitions. For purposes of this Section 7, the following terms
shall have the indicated definitions:
i. Cause. "Cause" shall mean:
(1) Executive is convicted of or enters a plea of nolo
contendere to an
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act which is defined as a felony under any federal,
state or local law, not based upon a traffic violation,
which conviction or plea has or can be expected to have,
in the good faith opinion of the Board of Directors, a
material adverse impact on the business or reputation of
the Company;
(2) any one or more acts of theft, larceny, embezzlement,
fraud or material intentional misappropriation from or
with respect to the Company;
(3) a breach by Executive of his fiduciary duties under
Maryland law as an officer;
(4) Executive's commission of any one or more acts of gross
negligence or willful misconduct which in the good faith
opinion of the Board of Directors has resulted in
material harm to the business or reputation of the
Company; or
(5) default by Executive in the performance of his material
duties under this Agreement, without correction of such
action within 15 days of written notice thereof.
Notwithstanding the foregoing, no termination of Executive's employment by
the Company shall be treated as for Cause or be effective until and unless all
of the steps described in subparagraphs (i) through (iii) below have been
complied with:
i.Notice of intention to terminate for Cause has been given by the Company
within 120 days after the Board of Directors learns of the act, failure or event
(or latest in a series of acts, failures or events) constituting "Cause";
ii.The Board of Directors has voted (at a meeting of the Board of Directors duly
called and held as to which termination of Executive is an agenda item) to
terminate Executive for Cause after Executive has been given notice of the
particular acts or circumstances which are the basis for the termination for
Cause and has been afforded at least 20 days notice after the meeting and an
opportunity to present his position in writing; and
iii.The Board of Directors has given a Notice of Termination to Executive within
20 days of such Board meeting.
The Company may suspend Executive with pay at any time during the period
commencing with the giving of notice to Executive under clause (i) above until
final Notice of Termination is given under clause (iii) above. Upon the giving
of notice as provided in clause
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(iii) above, no further payments shall be due Executive.
ii. Change in Control. A "Change in Control" shall mean the
occurrence of any one or more of the following events
following the Effective Date:
(1) Any individual, entity or group (a "Person") within
the meaning of Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Act") (other than
the Company, any corporation, partnership, trust or
other entity controlled by the Company (a
"Subsidiary"), or any trustee, fiduciary or other
person or entity holding securities under any employee
benefit plan or trust of the Company or any of its
Subsidiaries), together with all "affiliates" and
"associates" (as such terms are defined in Rule 12b-2
under the Act) of such Person, shall become the
"beneficial owner" (as such term is defined in Rule
13d-3 under the Act) of securities of the Company
representing 30% or more of the combined voting power
of the Company's then outstanding securities having the
right to vote generally in an election of the Company's
Board of Directors ("Voting Securities"), other than as
a result of (A) an acquisition of securities directly
from the Company or any Subsidiary or (B) an
acquisition by any corporation pursuant to a
reorganization, consolidation or merger if, following
such reorganization, consolidation or merger the
conditions described in clauses (A), (B) and (C) of
subparagraph (iii) of this Section 7(b)(2) are
satisfied; or
(2) Individuals who, as of the Effective Date, constitute
the Company's Board of Directors (the "Incumbent
Directors") cease for any reason to constitute at least
a majority of the Board, provided, however, that any
individual becoming a director of the Company
subsequent to the date hereof (excluding, for this
purpose, (A) any such individual whose initial
assumption of office is in connection with an actual or
threatened election contest relating to the election of
members of the Board of Directors or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board of Directors,
including by reason of agreement intended to avoid or
settle any such actual or threatened contest or
solicitation, and (B) any individual whose initial
assumption of office is in connection with a
reorganization, merger or consolidation, involving an
unrelated entity and occurring during the Employment
Period), whose election or nomination for election by
the Company's shareholders was
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approved by a vote of at least a majority of the persons
then comprising Incumbent Directors shall for purposes
of this Agreement be considered an Incumbent Director;
or
(3) Consummation of a reorganization, merger or
consolidation of the Company, unless, following such
reorganization, merger or consolidation, (A) more than
50% of, respectively, the then outstanding shares of
common stock of the corporation resulting from such
reorganization, merger or consolidation and the
combined voting power of the then outstanding voting
securities of such corporation entitled to vote
generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who
were the beneficial owners, respectively, of the
outstanding Voting Securities immediately prior to such
reorganization, merger or consolidation, (B) no Person
(excluding the Company, any employee benefit plan (or
related trust) of the Company, a Subsidiary or the
corporation resulting from such reorganization, merger
or consolidation or any subsidiary thereof, and any
Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or
indirectly, 30% or more of the outstanding Voting
Securities), beneficially owns, directly or indirectly,
30% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting
from such reorganization, merger or consolidation or
the combined voting power of the then outstanding
voting securities of such corporation entitled to vote
generally in the election of directors, and (C) at
least a majority of the members of the board of
directors of the corporation resulting from such
reorganization, merger or consolidation were members of
the Incumbent Board at the time of the execution of the
initial agreement providing for such reorganization,
merger or consolidation;
(4) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company; or
(5) The sale, lease, exchange or other disposition of all
or substantially all of the assets of the Company,
other than to a corporation, with respect to which
following such sale, lease, exchange or other
disposition (A) more than 50% of, respectively, the
then outstanding shares of common stock of such
corporation and the combined voting power of the then
outstanding voting securities of
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such corporation entitled to vote generally in the
election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial
owners of the outstanding Voting Securities immediately
prior to such sale, lease, exchange or other
disposition, (B) no Person (excluding the Company and
any employee benefit plan (or related trust) of the
Company or a Subsidiary or such corporation or a
subsidiary thereof and any Person beneficially owning,
immediately prior to such sale, lease, exchange or
other disposition, directly or indirectly, 30% or more
of the outstanding Voting Securities), beneficially
owns, directly or indirectly, 30% or more of,
respectively, the then outstanding shares of common
stock of such corporation and the combined voting power
of the then outstanding voting securities of such
corporation entitled to vote generally in the election
of directors and (C) at least a majority of the members
of the board of directors of such corporation were
members of the Incumbent Board at the time of the
execution of the initial agreement or action of the
Board of Directors providing for such sale, lease,
exchange or other disposition of assets of the Company.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed
to have occurred for purposes of this Agreement solely as the result of an
acquisition of securities by the Company which, by reducing the number of shares
of Voting Securities outstanding, increases the proportionate voting power
represented by the Voting Securities beneficially owned by any Person to 30% or
more of the combined voting power of all then outstanding Voting Securities;
provided, however, that if any Person referred to in this sentence shall
thereafter become the beneficial owner of any additional shares of Stock or
other Voting Securities (other than pursuant to a stock split, stock dividend,
or similar transaction), then a "Change in Control" shall be deemed to have
occurred for purposes of this Agreement.
iii. Complete Change in Control. A "Complete Change in Control" shall
mean that a Change in Control has occurred, after modifying the
definition of "Change in Control" by deleting clause (i) from
Section 7(b)(2) of this Agreement.
iv. Constructive Termination Without Cause. "Constructive Termination
Without Cause" shall mean a termination of Executive's employment
initiated by Executive not later than 12 months following the
occurrence (not including any time during which an arbitration
proceeding referenced below is pending), without Executive's prior
written consent, of one or more of the following events (or the
latest to occur in a series of events),
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and effected after giving the Company not less than 10 working days'
written notice of the specific act or acts relied upon and right to
cure:
(1) a material adverse change in the functions, duties or
responsibilities of Executive's position which would reduce
the level, importance or scope of such position; or any
removal of Executive from or failure to reappoint or reelect
Executive to any position set forth in this Agreement, except
in connection with the termination of Executive's employment
for Disability, Cause, as a result of Executive's death or by
Executive other than for a Constructive Termination Without
Cause;
(2) any material breach by the Company of this Agreement;
(3) any purported termination of Executive's employment for Cause
by the Company which does not comply with the terms of
Section 7(b)(1) of this Agreement;
(4) the failure of the Company to obtain an agreement,
satisfactory to the Executive, from any successor or assign
of the Company, to assume and agree to perform this
Agreement, as contemplated in Section 10 of this Agreement;
(5) the failure by the Company to continue in effect any
compensation plan in which Executive participates immediately
prior to a Change in Control which is material to Executive's
total compensation, unless comparable alternative
arrangements (embodied in ongoing substitute or alternative
plans) have been implemented with respect to such plans, or
the failure by the Company to continue Executive's
participation therein (or in such substitute or alternative
plans) on a basis not materially less favorable, in terms of
the amount of benefits provided and the level of Executive's
participation relative to other participants, as existed
during the last completed fiscal year of the Company prior to
the Change in Control;
(6) the relocation of the Company's Alexandria offices to a new
location more than fifty (50) miles from Alexandria or the
failure to locate Executive's own office at the Alexandria
office (or at the office to which such office is relocated
which is within 50 miles of Alexandria) or, following a
Change in Control, the failure to locate Executive's office
at the Company's principal executive office or the
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relocation of the Company's principal executive office to a
location more than 50 miles from Alexandria; or
(7) any termination of employment by the Executive for any reason
during the 12-month period immediately following a Complete
Change in Control of the Company.
Notwithstanding the foregoing, a Constructive Termination Without Cause shall
not be treated as having occurred unless Executive has given a final Notice of
Termination delivered after expiration of the Company's cure period. Executive
or the Company may, at any time after the expiration of the Company's cure
period and either prior to or up until three months after giving a final Notice
of Termination, commence an arbitration proceeding to determine the question of
whether, taking into account the actions complained of and any efforts made by
the Company to cure such actions, a termination by Executive of his employment
should be treated as a Constructive Termination Without Cause for purposes of
this Agreement. If the Executive or the Company commences such a proceeding
prior to delivery by Executive of a final Notice of Termination, the
commencement of such a proceeding shall be without prejudice to either party and
Executive's and the Company's rights and obligations under this Agreement shall
continue unaffected unless and until the arbitrator has determined such question
in the affirmative, or, if earlier, the date on which Executive or the Company
has delivered a Notice of Termination in accordance with the provisions of this
Agreement.
v. Covered Average Compensation. "Covered Average Compensation" shall
mean the sum of Executive's Covered Compensation as calculated for
the calendar year in which the Date of Termination occurs and for
each of the two preceding calendar years, divided by three.
vi. Covered Compensation. "Covered Compensation," for any calendar year,
shall mean an amount equal to the sum of (i) Executive's Base Salary
for the calendar year (disregarding any decreases made effective
during the Employment Period), (ii) the cash bonus actually earned
by Executive with respect to such calendar year, and (iii) the value
of all stock and other equity-based compensation awards made to
Executive during such calendar year.
Covered Compensation shall be calculated according to the following rules:
(a) In valuing awards for purposes of clause (iii) above,
all such awards shall be treated as if fully vested when
granted, stock grants shall be valued by reference to
the fair market value on the date of grant of the
Company's common stock, par value $.01 per share (or of
the common stock of
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Avalon, as the case may be) and other equity-based
compensation awards shall be valued at the value
established by the Compensation Committee of the Board
of Directors on the date of grant.
(b) In determining the cash bonus actually paid with respect
to a calendar year, if no cash bonus has been paid with
respect to the calendar year in which the Date of
Termination occurs, the cash bonus paid with respect to
the immediately preceding calendar year shall be assumed
to have been paid in each of the current and immediately
preceding calendar years, and if no cash bonus has been
paid by the Date of Termination with respect to the
immediately preceding calendar year, the cash bonus paid
with respect to the second preceding calendar year shall
be assumed to have been paid in all three of the
calendar years taken into account in determining Covered
Average Compensation.
(c) If any cash bonus paid with respect to the current or
immediately preceding calendar year was paid within
three months of Executive's Date of Termination, and is
lower than the last cash bonus paid more than three
months from the Date of Termination, any such cash bonus
paid within three months of the Date of Termination
shall be disregarded and the last cash bonus paid more
than three months from the Date of Termination shall be
substituted for each cash bonus so disregarded.
(d) In determining the amount of stock and other
equity-based compensation awards made during a calendar
year during the averaging period, rules similar to those
set forth in subparagraphs (B) and (C) of this Section
7(b)(6) shall be followed, except that all awards made
in connection with the Company's initial public offering
shall be disregarded.
vii. Disability. "Disability" shall mean Executive has been determined to
be disabled and to qualify for long-term disability benefits under
the long-term disability insurance policy obtained pursuant to
Section 3(d) of this Agreement.
c. Rights Upon Termination.
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(1) Payment of Benefits Earned Through Date of Termination. Upon
any termination of Executive's employment during the
Employment Period, Executive, or his estate, shall in all
events be paid all accrued but unpaid Base Salary and all
earned but unpaid cash incentive compensation earned through
his Date of Termination. Executive shall also retain all such
rights with respect to vested equity-based awards as are
provided under the circumstances under the applicable grant
or award agreement, and shall be entitled to all other
benefits which are provided under the circumstances in
accordance with the provisions of the Company's generally
applicable employee benefit plans, practices and policies,
other than severance plans.
(2) Death. In the event of Executive's death during the
Employment Period, the Company shall, in addition to paying
the amounts set forth in Section 7(c)(i), take whatever
action is necessary to cause all of Executive's unvested
equity-based awards to become fully vested as of the date of
death and, in the case of equity-based awards which have an
exercise schedule, to become fully exercisable and continue
to be exercisable for such period as is provided in the case
of vested and exercisable awards in the event of death under
the terms of the applicable award agreements.
(3) Disability. In the event the Company elects to terminate
Executive's employment during the Employment Period on
account of Disability, the Company shall, in addition to
paying the amounts set forth in Section 7(c)(i), pay to
Executive, in one lump sum, no later than 31 days following
the Date of Termination, an amount equal to two times Covered
Average Compensation. The Company shall also, commencing upon
the Date of Termination:
(a) Continue, without cost to Executive, benefits comparable
to the medical and disability benefits provided to
Executive immediately prior to the Date of Termination
under Section 3(c) and Section 3(d) for a period of 24
months following the Date of Termination or until such
earlier date as Executive obtains comparable benefits
through other employment;
(b) Continue to pay, or reimburse Executive, for all
premiums then due or thereafter payable on the
whole-life portion of the split-dollar insurance policy
referenced under Section
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3(d) for so long as such payments are due; and
(c) Take whatever action is necessary to cause Executive to
become vested as of the Date of Termination in all stock
options, restricted stock grants, and all other
equity-based awards and be entitled to exercise and
continue to exercise all stock options and all other
equity-based awards having an exercise schedule and to
retain such grants and awards to the same extent as if
they were vested upon termination of employment in
accordance with their terms.
(4) Non-Renewal. In the event the Company gives Executive a
notice of non-renewal pursuant to Section 1 above, the
Company shall, in addition to paying the amounts set forth in
Section 7(c)(i), commencing upon the Date of Termination:
(a) Pay to Executive, for 12 consecutive months, commencing
with the first day of the month immediately following
the Date of Termination, a monthly amount equal to the
result obtained by dividing Covered Average Compensation
by twelve;
(b) Continue, without cost to Executive, benefits comparable
to the medical and disability benefits provided to
Executive immediately prior to the Date of Termination
under Section 3(c) and Section 3(d) for a period of 24
months following the Date of Termination or until such
earlier date as Executive obtains comparable benefits
through other employment; and
(c) Take whatever action is necessary to cause Executive to
become vested as of the Date of Termination in all stock
options, restricted stock grants, and all other
equity-based awards and be entitled to exercise and
continue to exercise all stock options and all other
equity-based awards having an exercise schedule and to
retain such grants and awards to the same extent as if
they were vested upon termination of employment in
accordance with their terms; and
(d) Continue to pay, or reimburse Executive for, all
premiums then due or thereafter payable on the
whole-life portion of the split-dollar insurance policy
referenced under Section
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3(d) for so long as such payments are due.
(5) Termination Without Cause; Constructive Termination Without
Cause. In the event the Company or any successor to the
Company terminates Executive's employment without Cause, or
if Executive terminates his employment in a Constructive
Termination without Cause, the Company shall, in addition to
paying the amounts provided under Section 7(c)(i), pay to
Executive, in one lump sum no later than 31 days following
the Date of Termination, an amount equal to three times
Covered Average Compensation. The Company shall also,
commencing upon the Date of Termination:
(a) Continue, without cost to Executive, benefits comparable
to the medical and disability benefits provided to
Executive immediately prior to the Date of Termination
under Section 3(c) and Section 3(d) for a period of 36
months following the Date of Termination or until such
earlier date as Executive obtains comparable benefits
through other employment;
(b) Continue to pay, or reimburse Executive, for so long as
such payments are due, all premiums then due or payable
on the whole-life portion of the split-dollar insurance
policy referenced under Section 3(d); and
(c) Take whatever action is necessary to cause Executive to
become vested as of the Date of Termination in all stock
options, restricted stock grants, and all other
equity-based awards and be entitled to exercise and
continue to exercise all stock options and all other
equity-based awards having an exercise schedule and to
retain such grants and awards to the same extent as if
they were vested upon termination of employment in
accordance with their terms.
(6) Termination for Cause; Voluntary Resignation. In the event
Executive's employment terminates during the Employment
Period other than in connection with a termination meeting
the conditions of subparagraphs (ii), (iii), (iv), or (v) of
this Section 7(c), Executive shall receive the amounts set
forth in Section 7(c)(i) in full satisfaction of all of his
entitlements from the Company. All equity-based awards not
vested as of the Date of Termination shall terminate (unless
otherwise provided in the applicable award
16
agreement) and Executive shall have no further entitlements
with respect thereto.
d. Additional Benefits.
(1) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or
distributable (1) pursuant to the terms of Section 7 of this
Agreement, (2) pursuant to or in connection with any
compensatory or employee benefit plan, agreement or
arrangement, including but not limited to any stock options,
restricted or unrestricted stock grants issued to or for the
benefit of Executive and forgiveness of any loans by the
Company to Executive or (3) otherwise (collectively,
"Severance Payments"), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), and any interest or penalties are
incurred by Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties,
are hereinafter collectively referred to as the "Excise
Tax"), then Executive shall be entitled to receive an
additional payment (a "Partial Gross-Up Payment"), such that
the net amount retained by Executive, before accrual or
payment of any Federal, state or local income tax or
employment tax, but after accrual or payment of the Excise
Tax attributable to the Partial Gross-Up Payment, is equal to
the Excise Tax on the Severance Payments.
(2) Subject to the provisions of Section 7(d)(iii), all
determinations required to be made under this Section 7,
including whether a Partial Gross-Up Payment is required and
the amount of such Partial Gross-Up Payment, shall be made by
Coopers & Xxxxxxx LLP or such other nationally recognized
accounting firm as may at that time be the Company's
independent public accountants immediately prior to the
Change in Control (the "Accounting Firm"), which shall
provide detailed supporting calculations both to the Company
and Executive within 15 business days of the Date of
Termination, if applicable, or at such earlier time as is
reasonably requested by the Company or Executive. The initial
Partial Gross-Up Payment, if any, as determined pursuant to
this Section 7(d)(ii), shall be paid to Executive within five
days of the receipt of the Accounting Firm's determination.
If the Accounting Firm determines that no Excise Tax is
payable by Executive, the
17
Company shall furnish Executive with an opinion of counsel
that failure to report the Excise Tax on Executive's
applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any
determination by the Accounting Firm shall be binding upon
the Company and Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder,
it is possible that Partial Gross-Up Payments which will not
have been made by the Company should have been made (an
"Underpayment"). In the event that the Company exhausts its
remedies pursuant to Section 7(d)(iii) and Executive
thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the
Underpayment that has occurred, consistent with the
calculations required to be made hereunder, and any such
Underpayment, and any interest and penalties imposed on the
Underpayment and required to be paid by Executive in
connection with the proceedings described in Section
7(d)(iii), and any related legal and accounting expenses,
shall be promptly paid by the Company to or for the benefit
of Executive.
(3) Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would
require the payment by the Company of the Partial Gross-Up
Payment. Such notification shall be given as soon as
practicable but no later than 10 business days after
Executive knows of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim
is requested to be paid. Executive shall not pay such claim
prior to the expiration of the 30-day period following the
date on which he gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies
Executive in writing prior to the expiration of such period
that it desires to contest such claim, Executive shall:
(a) give the Company any information reasonably requested by
the Company relating to such claim,
(b) take such action in connection with contesting such
claim as the Company shall reasonably request in writing
from time to time, including, without limitation,
accepting legal representation with respect to such
claim by an attorney
18
selected by the Company,
(c) cooperate with the Company in good faith in order
effectively to contest such claim, and
(d) permit the Company to participate in any proceedings
relating to such claim; provided, however that the
Company shall bear and pay directly all costs and
expenses attributable to the failure to pay the Excise
Tax (including related additional interest and
penalties) incurred in connection with such contest and
shall indemnify and hold Executive harmless, for any
Excise Tax up to an amount not exceeding the Partial
Gross-Up Payment, including interest and penalties with
respect thereto, imposed as a result of such
representation, and payment of related legal and
accounting costs and expenses (the "Indemnification
Limit"). Without limitation on the foregoing provisions
of this Section 7(d)(iii), the Company shall control all
proceedings taken in connection with such contest and,
at its sole option may pursue or forego any and all
administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such
claim and may, at its sole option, either direct
Executive to pay the tax claimed and xxx 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 xxx for a refund, the Company
shall advance so much of the amount of such payment as
does not exceed the Excise Tax, and related interest and
penalties, to Executive on an interest-free basis and
shall indemnify and hold Executive harmless, from any
related legal and accounting costs and expenses, and
from any Excise Tax, including related interest or
penalties imposed with respect to such advance or with
respect to any imputed income with respect to such
advance up to an amount not exceeding the
Indemnification Limit; and further provided that any
extension of the statute of limitations relating to
payment of taxes for the taxable year of Executive with
respect to which such contested amount
19
is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which
a Partial Gross-Up Payment would be payable hereunder
and Executive shall be entitled to settle or contest, as
the case may be, any other issues raised by the Internal
Revenue Service or any other taxing authority.
(4) If, after the receipt by Executive of an amount advanced by
the Company pursuant to Section 7(d)(iii), Executive becomes
entitled to receive any refund with respect to such claim,
Executive shall (subject to the Company's complying with the
requirements of Section 7(d)(iii)) promptly pay to the
Company so much of such refund (together with any interest
paid or credited thereon after taxes applicable thereto) (the
"Refund") as is equal to (A) if the Company advanced or paid
the entire amount required to be so advanced or paid pursuant
to Section 7(d)(iii) hereof (the "Required Section 7(d)
Advance"), the aggregate amount advanced or paid by the
Company pursuant to this Section 7(d) less the portion of
such amount advanced to Executive to reimburse him for
related legal and accounting costs, or (B) if the Company
advanced or paid less than the Required Section 7(d) Advance,
so much of the aggregate amount so advanced or paid by the
Company pursuant to this Section 7(d) as is equal to the
difference, if any, between (C) the amount refunded to
Executive with respect to such claim and (D) the sum of the
portion of the Required Section 7(d) Advance that was paid by
Executive and not paid or advanced by the Company plus
Executive's related legal and accounting fees, as applicable.
If, after the receipt by Executive of an amount advanced by
the Company pursuant to Section 7(d)(iii), a determination is
made that Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify
Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall
not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Partial
Gross-Up Payment required to be paid.
e. Notice of Termination. Notice of non-renewal of this Agreement
pursuant to Section 1 hereof or of any termination of Executive's
employment (other than by reason of death) shall be communicated by
written notice (a "Notice of
20
Termination") from one party hereto to the other party hereto in
accordance with this Section 7 and Section 9.
f. Date of Termination. "Date of Termination," with respect to any
termination of Executive's employment during the Employment Period,
shall mean (i) if Executive's employment is terminated for
Disability, 30 days after Notice of Termination is given (provided
that Executive shall not have returned to the full-time performance
of Executive's duties during such 30 day period), (ii) if
Executive's employment is terminated for Cause, the date on which a
Notice of Termination is given which complies with the requirements
of Section 7(b)(1) hereof, and (iii) if Executive's employment is
terminated for any other reason, the date specified in the Notice of
Termination. In the case of a termination by the Company other than
for Cause, the Date of Termination shall not be less than 30 days
after the Notice of Termination is given. In the case of a
termination by Executive, the Date of Termination shall not be less
than 15 days from the date such Notice of Termination is given.
Notwithstanding the foregoing, in the event that Executive gives a
Notice of Termination to the Company, the Company may unilaterally
accelerate the Date of Termination and such acceleration shall not
result in the termination being treated as a Termination without
Cause. Upon any termination of his employment, Executive will
concurrently resign his membership on the Board of Directors.
g. No Mitigation. The Company agrees that, if Executive's employment by
the Company is terminated during the term of this Agreement,
Executive is not required to seek other employment, or to attempt in
any way to reduce any amounts payable to Executive by the Company
pursuant to Section 7(d)(i) hereof. Further, the amount of any
payment provided for in this Agreement shall not be reduced by any
compensation earned by Executive as the result of employment by
another employer, by retirement benefits, or, except for amounts
then due and payable in accordance with the terms of any promissory
notes given by Executive in favor of the Company, by offset against
any amount claimed to be owed by Executive to the Company or
otherwise.
h. Nature of Payments. The amounts due under this Section 7 are in the
nature of severance payments considered to be reasonable by the
Company and are not in the nature of a penalty. Such amounts are in
full satisfaction of all claims Executive may have in respect of his
employment by the Company or its affiliates and are provided as the
sole and exclusive benefits to be provided to Executive, his estate,
or his beneficiaries in respect of his termination of employment
from the Company or its affiliates.
8. Non-Competition; Non-Solicitation; Specific Enforcement.
21
a. Non-Competition. Because Executive's services to the Company are
special and because Executive has access to the Company's
confidential information, Executive covenants and agrees that,
during the Employment Period and, for a period of one year following
the Date of Termination by the Company for Cause or a termination by
Executive (other than a Constructive Termination Without Cause)
prior to a Change in Control, Executive shall not, without the prior
written consent of the Board of Directors, become associated with,
or engage in any "Restricted Activities" with respect to any
"Competing Enterprise," as such terms are hereinafter defined,
whether as an officer, employee, principal, partner, agent,
consultant, independent contractor or shareholder. "Competing
Enterprise," for purposes of this Agreement, shall mean any person,
corporation, partnership, venture or other entity which (a) is a
publicly traded real estate investment trust, or (b) is engaged in
the business of managing, owning, leasing or joint venturing
residential real estate within 30 miles of residential real estate
owned or under management by the Company or its affiliates.
"Restricted Activities," for purposes of this Agreement, shall mean
executive, managerial, directorial, administrative, strategic,
business development or supervisory responsibilities and activities
relating to all aspects of residential real estate ownership,
management, residential real estate franchising, and residential
real estate joint-venturing.
b. Non-Solicitation. During the Employment Period, and for a period of
one year following the Date of Termination, Executive shall not,
without the prior written consent of the Company, except in the
course of carrying out his duties hereunder, solicit or attempt to
solicit for employment with or on behalf of any corporation,
partnership, venture or other business entity, any employee of the
Company or any of its affiliates or any person who was formerly
employed by the Company or any of its affiliates within the
preceding six months, unless such person's employment was terminated
by the Company or any of such affiliates.
c. Specific Enforcement. Executive and the Company agree that the
restrictions, prohibitions and other provisions of this Section 8
are reasonable, fair and equitable in scope, terms, and duration,
are necessary to protect the legitimate business interests of the
Company and are a material inducement to the Company to enter into
this Agreement. Should a decision be made by a court of competent
jurisdiction that the character, duration or geographical scope of
the provisions of this Section_8 is unreasonable, the parties intend
and agree that this Agreement shall be construed by the court in
such a manner as to impose all of those restrictions on Executive's
conduct that are reasonable in light of the circumstances and as are
necessary to assure to the Company the benefits of this Agreement.
The Company and Executive further agree that the services to be
rendered under this Agreement by Executive are special, unique and
of extraordinary character, and that in the event of the breach by
Executive of the
22
terms and conditions of this Agreement or if Executive, without the
prior consent of the Board of Directors, shall take any action in
violation of this Section 8, the Company will suffer irreparable
harm for which there is no adequate remedy at law. Accordingly,
Executive hereby consents to the entry of a temporary restraining
order or ex parte injunction, in addition to any other remedies
available at law or in equity, to enforce the provisions hereof. Any
proceeding or action seeking equitable relief for violation of this
Section 8 must be commenced in the federal or state courts, in
either case in Virginia. Executive and the Company irrevocably and
unconditionally submit to the jurisdiction of such courts and agree
to take any and all future action necessary to submit to the
jurisdiction of such courts.
9. Notice. Any notice required or permitted hereunder shall be in writing and
shall be deemed sufficient when given by hand or by nationally recognized
overnight courier or by Express, registered or certified mail, postage
prepaid, return receipt requested, and addressed, if to the Company at
0000 Xxxxxxxx Xxxxxx, Xxxxxxxxxx, XX 00000, and if to Executive at the
address set forth in the Company's records (or to such other address as
may be provided by notice).
10. Miscellaneous. This Agreement, together with Annex A and Annex B and the
Split Dollar Insurance Agreement, constitutes the entire agreement between
the parties concerning the subjects hereof and supersedes any and all
prior agreements or understandings, including, without limitation, any
plan or agreement providing benefits in the nature of severance, but
excluding benefits provided under other Company plans or agreements,
except to the extent this Agreement provides greater rights than are
provided under such other plans or agreements. As of the Effective Date,
this Agreement supersedes the Prior Agreement which will have no further
force or effect. Executive hereby waives, to the extent applicable, the
effect of the transactions contemplated by the Merger Agreement (or
shareholder approval of such transaction) on any change in control
provisions in any Avalon employee benefit plan or agreement. This
Agreement shall terminate upon termination of the Merger Agreement and
abandonment of the merger contemplated by the Merger Agreement. This
Agreement may not be assigned by Executive without the prior written
consent of the Company, and may be assigned by the Company and shall be
binding upon, and inure to the benefit of, the Company's successors and
assigns. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no
such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise. Headings herein are for
convenience of reference only
23
and shall not define, limit or interpret the contents hereof.
11. Amendment. This Agreement may be amended, modified or supplemented by the
mutual consent of the parties in writing, but no oral amendment,
modification or supplement shall be effective. No waiver by either party
of any breach by the other party of any condition or provision contained
in this Agreement to be performed by such other party shall be deemed a
waiver of a similar or dissimilar condition or provision at the same or
any prior or subsequent time. Any waiver must be in writing and signed by
Executive or an authorized officer of the Company, as the case may be.
12. Severability. The provisions of this Agreement are severable. The
invalidity of any provision shall not affect the validity of any other
provision, and each provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
13. Resolution of Disputes.
a. Procedures and Scope of Arbitration. Except for any controversy or
claim seeking equitable relief pursuant to Section 8 of this
Agreement, all controversies and claims arising under or in
connection with this Agreement or relating to the interpretation,
breach or enforcement thereof and all other disputes between the
parties, shall be resolved by expedited, binding arbitration, to be
held in Virginia in accordance with the National Rules of the
American Arbitration Association governing employment disputes (the
"National Rules"). In any proceeding relating to the amount owed to
Executive in connection with his termination of employment, it is
the contemplation of the parties that the only remedy that the
arbitrator may award in such a proceeding is an amount equal to the
termination payments, if any, required to be provided under the
applicable provisions of Section 7(c) and, if applicable, Section
7(d) hereof, to the extent not previously paid, plus the costs of
arbitration and Executive's reasonable attorneys fees and expenses
as provided below. Any award made by such arbitrator shall be final,
binding and conclusive on the parties for all purposes, and judgment
upon the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof.
b. Attorneys Fees.
(1) Reimbursement After Executive Prevails. Except as
otherwise provided in this paragraph, each party shall
pay the cost of his or its own legal fees and expenses
incurred in connection with an arbitration proceeding.
Provided an award is made in favor of Executive in such
proceeding, all of his reasonable attorneys fees and
expenses incurred in pursuing or defending such
proceeding
24
shall be promptly reimbursed to Executive by the Company
within five days of the entry of the award.
(2) Reimbursement in Actions to Stay, Enjoin or Collect. In
any case where the Company or any other person seeks to
stay or enjoin the commencement or continuation of an
arbitration proceeding, whether before or after an award
has been made, or where Executive seeks recovery of
amounts due after an award has been made, or where the
Company brings any proceeding challenging or contesting
the award, all of Executive's reasonable attorneys fees
and expenses incurred in connection therewith shall be
promptly reimbursed by the Company to Executive, within
five days of presentation of an itemized request for
reimbursement, regardless of whether Executive prevails,
regardless of the forum in which such proceeding is
brought, and regardless of whether a Change in Control
has occurred.
(3) Reimbursement After a Change in Control. Without
limitation on the foregoing, solely in a proceeding
commenced by the Company or by Executive after a Change
in Control has occurred, the Company shall advance to
Executive, within five days of presentation of an
itemized request for reimbursement, all of Executive's
legal fees and expenses incurred in connection
therewith, regardless of the forum in which such
proceeding was commenced, subject to delivery of an
undertaking by Executive to reimburse the Company for
such advance if he does not prevail in such proceeding
(unless such fees are to be reimbursed regardless of
whether Executive prevails as provided in clause (ii)
above).
14. Survivorship. The provisions of Sections 4(b), 6, 8 and 13 of this
Agreement shall survive Executive's termination of employment. Other
provisions of this Agreement shall survive any termination of Executive's
employment to the extent necessary to the intended preservation of each
party's respective rights and obligations.
15. Board Action. Where an action called for under this Agreement is required
to be taken by the Board of Directors, such action shall be taken by the
vote of not less than a majority of the members then in office and
authorized to vote on the matter.
16. Withholding. All amounts required to be paid by the Company shall be
subject to reduction in order to comply with applicable federal, state and
local tax withholding requirements.
25
17. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original but all of which together
shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
18. Governing Law. This Agreement shall be construed and regulated in all
respects under the laws of the State of Maryland.
26
IN WITNESS WHEREOF, this Agreement is entered into as of the date and year
first above written.
Bay Apartment Communities, Inc.
By: /S/ XXXXXXX X. XXXXX
Its: Chairman of the Board
/S/ XXXXXX X. XXXXXX
Xxxxxx X. Xxxxxx
