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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") made as of the 9th day of March,
1998 by and between Xxxxx Xxxxx ("Executive") and Bay Apartment Communities,
Inc., a Maryland corporation (the "Company").
WHEREAS, Executive and Avalon Properties, Inc. ("Avalon") have previously
entered into an Employment Agreement, dated as of April 4, 1997 (the "Prior
Agreement"); and
WHEREAS, pursuant to the Agreement and Plan of Merger, by and between the
Company and Avalon, dated as of March 9, 1998 (the "Merger Agreement"), Avalon
will merge into the Company (the "Merger"); and
WHEREAS, Executive and the Company desire to enter into a new employment
agreement, effective as of the consummation of the merger contemplated by the
Merger Agreement (the "Effective Date"), to replace the Prior Agreement.
NOW, THEREFORE, the parties hereto do hereby agree as follows.
1. Term. Subject to the consummation of the merger contemplated by the Merger
Agreement, the Company hereby agrees to employ Executive, and Executive
hereby agrees to remain in the employ of the Company subject to the terms
and conditions of this Agreement for the period commencing on the Effective
Date and terminating on the third anniversary of the Effective Date (the
"Original Term"), unless earlier terminated as provided in Section 7. The
Original Term shall be extended automatically for additional 1 year periods
(each a "Renewal Term"), unless notice that this Agreement will not be
extended is given by either party to the other 6 months prior to the
expiration of the Original Term or any Renewal Term. Notwithstanding the
foregoing, upon a Change in Control, the Employment Period shall be
extended automatically to 3 years from the date of such Change in Control.
(The period of Executive's employment hereunder within the Original Term
and any Renewal Terms is herein referred to as the "Employment Period.")
2. Employment Duties.
a. During the Employment Period, Executive shall be employed in the
business of the Company and its affiliates. Executive shall serve as a
corporate officer of the Company with the title of Senior Vice
President - Development and Acquisitions. Executive's duties and
authority shall be commensurate with his title and position with the
Company, and shall not be materially diminished from, or materially
inconsistent with, his primary duties and authority with Avalon
immediately prior to the date of this Agreement.
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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 Braintree, MA, or otherwise in the greater Boston
metropolitan area.
c. Breach by either party of any of its respective obligations under this
Section 2 shall be deemed a material breach of that party's obligations
hereunder.
3. Compensation/Benefits. In consideration of Executive's services hereunder,
the Company shall provide Executive the following:
a. Base Salary. During the Employment Period, the Executive shall receive
an annual rate of base salary ("Base Salary") in an amount not less than
$300,000. Executive's Base Salary will be reviewed by the Company as of
the first anniversary of the Effective Date, and may be adjusted upward
(but not downward) at such time to reflect any inequities in
compensation. Commencing as of January 1, 2000, Executive's Base Salary
shall be reviewed no less frequently than annually by the Company and
may be adjusted upward (but not downward) by the Company. Upon such
annual review during the Renewal Term, if any, Executive's Base Salary
shall be increased to the greatest of (i) an amount equal to Base Salary
for the prior year plus 5%, (ii) a factor measured by the increase, if
any, in the Consumer Price Index for Wage Earners and Clerical Workers
(CPI-W) (City Average for Xxx Xxxx-Xxxxxxxx Xxx Xxxxxx-Xxxx
Xxxxxx-0000-00x000), 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
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frequently than monthly.
b. Bonuses. Commencing at the close of each fiscal year during the
Employment Period, the Company shall review the performance of the
Company and of Executive during the prior fiscal year, and the Company
may provide Executive with additional compensation as a bonus if the
Board, or any compensation committee hereof, in its discretion,
determines that Executive's contribution to the Company warrants such
additional payment and the Company's anticipated financial performance
of the present period permits such payment. The bonuses hereunder shall
be paid as a lump sum not later than 60 days after the end of the
Company's preceding fiscal year.
c. Medical Insurance/Physical. During the Employment Period, the Company
shall provide to Executive and Executive's immediate family a
comprehensive policy of health insurance. During the Employment Period,
Executive shall be entitled to a comprehensive annual physical
performed, at the expense of the Company by the physician or medical
group of Executive's choosing.
d. Life Insurance/Disability Insurance. During the Employment Period, the
Company shall keep in force and pay the premiums on the split-dollar
life insurance policy referenced in the Split Dollar Insurance Agreement
between Avalon and Executive, subject to reimbursement by Executive as
provided in such Split Dollar Insurance Agreement. The Company shall
reimburse Executive for the cost of the comprehensive disability
insurance policy, which is in effect on January 1, 1997, and shall also
be responsible for any increases in premiums which become effective
during the Employment Period as may be necessary to maintain the same
level of insurance as in effect on January 1, 1997. Executive agrees to
submit to such medical examinations as may be required in order to
maintain such policies of insurance.
e. Vacations. Executive shall be entitled to reasonable paid vacations
during the Employment Period in accordance with the then regular
procedures of the Company governing executives, not to exceed 6 weeks
per annum, in the aggregate.
f. Office/Secretary, etc. During the Employment Period, Executive shall be
entitled to secretarial services and a private office commensurate with
his title and duties.
g. Avalon Stock Option. The Company acknowledges that, notwithstanding the
consummation of the Merger, Avalon granted to Executive on March 8,
1998, a non-qualified employee stock option to purchase 104,126 shares
of common stock of Avalon, par value $.01 per share (the "Avalon Stock
Option"). The Avalon
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Stock Option was granted at an exercise price equal to $28.8125. Upon
termination of Executive's employment, vesting and exercisability of the
Avalon Stock Option shall be governed by the terms of the stock option
agreement and this Agreement, as applicable. During the Employment
Period, Executive shall be eligible for future employee stock option
grants on the same basis as other senior management of the Company.
h. Automobile. The Company shall provide Executive with a monthly car
allowance during the Employment Period of not less than $750 per month
(adjusted annually for inflation by the CPI Adjustment); provided that,
at Executive's election, the Company may instead purchase or lease, and
maintain insurance for, an automobile of comparable value for use by
Executive, who shall be responsible for maintaining such automobile, at
his own expense, with the same standard of care Executive applies to his
own property and as may be required under any applicable lease
agreement.
i. Other Benefits. During the Employment Period, the Company shall provide
to Executive such other benefits, excluding severance benefits, but
including the right to participate in such retirement or pension plans,
as are made generally available to executives of the Company from time
to time and shall be given credit for purposes of eligibility and
vesting of employee benefits and benefit accrual for service with
Avalon, its affiliates and TCR prior to the Effective Date under each
benefit plan of the Company and its subsidiaries to the extent such
service had been credited under employee benefit plans of Avalon and its
subsidiaries, provided that no such crediting of service results in
duplication of benefits.
4. Expenses/Indemnification.
a. During the Employment Period, the Company shall reimburse Executive for
the reasonable business expenses incurred by Executive in the course of
performing his duties for the Company hereunder, upon submission of
invoices, vouchers or other appropriate documentation, as may be
required in accordance with the policies in effect from time to time for
executive employees of the Company.
b. To the fullest extent permitted by law, the Company shall indemnify
Executive with respect to any actions commenced against Executive in his
capacity as an officer or director or former officer or director of the
Company, or any affiliate thereof for which he may render service in
such capacity, whether by or on behalf of the Company, its shareholders
or third parties, and the Company shall advance
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to Executive on a timely basis an amount equal to the reasonable fees
and expenses incurred in defending such actions, after receipt of an
itemized request for such advance, and an undertaking from Executive to
repay the amount of such advance, with interest at a reasonable rate
from the date of the request, as determined by the Company, if it shall
ultimately be determined that he is not entitled to be indemnified
against such expenses. The Company agrees to use its best efforts to
secure and maintain officers and directors' liability insurance with
respect to Executive.
5. Employer's Authority/Policies.
a. General. Executive agrees to observe and comply with the rules and
regulations of the Company as adopted by its Board respecting the
performance of his duties and to carry out and perform orders,
directions and policies communicated to him from time to time by the
Board.
b. Ethics Policies. Executive agrees to comply with and be bound by the
Ethics Policies of the Company, as reflected in the attachment at Annex
A hereto and made a part hereof.
6. Records/Nondisclosure/Company Policies.
a. General. All records, financial statements and similar documents
obtained, reviewed or compiled by Executive in the course of the
performance by him of services for the Company, whether or not
confidential information or trade secrets, shall be the exclusive
property of the Company. Executive shall have no rights in such
documents upon any termination of this Agreement.
b. Nondisclosure Agreement. Without limitation of the Company's rights
under Section 6(a), Executive agrees to abide by and be bound by the
Nondisclosure Agreement of the Company executed by Executive and the
Company as reflected in the attachment at Annex B and made a part
hereof.
7. Termination; Severance and Related Matters.
a. At-Will Employment. Executive's employment hereunder is "at will" and,
therefore, may be terminated at any time, with or without Cause, at the
option of the Company, subject only to the severance obligations under
this Section 7. Upon any termination hereunder, the Employment Period
shall expire.
b. Definitions. For purposes of this Section 7, the following terms shall
have the indicated definitions:
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i. Cause. "Cause" shall mean:
(1) Executive is convicted of or enters a plea of nolo contendere
to an act which is defined as a felony under any federal, state
or local law, not based upon a traffic violation, which
conviction or plea has or can be expected to have, in the good
faith opinion of the Board of Directors, a material adverse
impact on the business or reputation of the Company;
(2) any one or more acts of theft, larceny, embezzlement, fraud or
material intentional misappropriation from or with respect to
the Company;
(3) a breach by Executive of his fiduciary duties under Maryland
law as an officer;
(4) Executive's commission of any one or more acts of gross
negligence or willful misconduct which in the good faith
opinion of the Board of Directors has resulted in material harm
to the business or reputation of the Company; or
(5) default by Executive in the performance of his material duties
under this Agreement, without correction of such action within
15 days of written notice thereof.
Notwithstanding the foregoing, no termination of Executive's employment by
the Company shall be treated as for Cause or be effective until and unless all
of the steps described in subparagraphs (i) through (iii) below have been
complied with:
i.Notice of intention to terminate for Cause has been given by the Company
within 120 days after the Board of Directors learns of the act, failure or
event (or latest in a series of acts, failures or events) constituting "Cause";
ii.The Board of Directors has voted (at a meeting of the Board of Directors
duly called and held as to which termination of Executive is an agenda item) to
terminate Executive for Cause after Executive has been given notice of the
particular acts or circumstances which are the basis for the termination for
Cause and has been afforded at least 20 days notice after the meeting and an
opportunity to present his position in writing; and
iii.The Board of Directors has given a Notice of Termination to Executive
within 20 days of such Board meeting.
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The Company may suspend Executive with pay at any time during the period
commencing with the giving of notice to Executive under clause (i) above until
final Notice of Termination is given under clause (iii) above. Upon the giving
of notice as provided in clause (iii) above, no further payments shall be due
Executive.
ii. Change in Control. A "Change in Control" shall mean the occurrence
of any one or more of the following events following the Effective
Date:
(1) Any individual, entity or group (a "Person") within the meaning
of Sections 13(d) and 14(d) of the Securities Exchange Act of
1934 (the "Act") (other than the Company, any corporation,
partnership, trust or other entity controlled by the Company (a
"Subsidiary"), or any trustee, fiduciary or other person or
entity holding securities under any employee benefit plan or
trust of the Company or any of its Subsidiaries), together with
all "affiliates" and "associates" (as such terms are defined in
Rule 12b-2 under the Act) of such Person, shall become the
"beneficial owner" (as such term is defined in Rule 13d-3 under
the Act) of securities of the Company representing 30% or more
of the combined voting power of the Company's then outstanding
securities having the right to vote generally in an election of
the Company's Board of Directors ("Voting Securities"), other
than as a result of (A) an acquisition of securities directly
from the Company or any Subsidiary or (B) an acquisition by any
corporation pursuant to a reorganization, consolidation or
merger if, following such reorganization, consolidation or
merger the conditions described in clauses (A), (B) and (C) of
subparagraph (iii) of this Section 7(b)(2) are satisfied; or
(2) Individuals who, as of the Effective Date, constitute the
Company's Board of Directors (the "Incumbent Directors") cease
for any reason to constitute at least a majority of the Board,
provided, however, that any individual becoming a director of
the Company subsequent to the date hereof (excluding, for this
purpose, (A) any such individual whose initial assumption of
office is in connection with an actual or threatened election
contest relating to the election of members of the Board of
Directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board of
Directors, including by reason of agreement intended to avoid
or settle any such actual or threatened contest or
solicitation, and (B) any individual whose initial assumption
of office is in connection with a reorganization,
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merger or consolidation, involving an unrelated entity and
occurring during the Employment Period), whose election or
nomination for election by the Company's shareholders was
approved by a vote of at least a majority of the persons then
comprising Incumbent Directors shall for purposes of this
Agreement be considered an Incumbent Director; or
(3) Consummation of a reorganization, merger or consolidation of
the Company, unless, following such reorganization, merger or
consolidation, (A) more than 50% of, respectively, the then
outstanding shares of common stock of the corporation resulting
from such reorganization, merger or consolidation and the
combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
outstanding Voting Securities immediately prior to such
reorganization, merger or consolidation, (B) no Person
(excluding the Company, any employee benefit plan (or related
trust) of the Company, a Subsidiary or the corporation
resulting from such reorganization, merger or consolidation or
any subsidiary thereof, and any Person beneficially owning,
immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 30% or more of the
outstanding Voting Securities), beneficially owns, directly or
indirectly, 30% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
reorganization, merger or consolidation or the combined voting
power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors, and (C) at least a majority of the members of the
board of directors of the corporation resulting from such
reorganization, merger or consolidation were members of the
Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or
consolidation;
(4) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company; or
(5) The sale, lease, exchange or other disposition of all or
substantially all of the assets of the Company, other than to a
corporation, with respect to which following such sale, lease,
exchange or other
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disposition (A) more than 50% of, respectively, the then
outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners of the outstanding
Voting Securities immediately prior to such sale, lease,
exchange or other disposition, (B) no Person (excluding the
Company and any employee benefit plan (or related trust) of the
Company or a Subsidiary or such corporation or a subsidiary
thereof and any Person beneficially owning, immediately prior
to such sale, lease, exchange or other disposition, directly or
indirectly, 30% or more of the outstanding Voting Securities),
beneficially owns, directly or indirectly, 30% or more of,
respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (C) at least a
majority of the members of the board of directors of such
corporation were members of the Incumbent Board at the time of
the execution of the initial agreement or action of the Board
of Directors providing for such sale, lease, exchange or other
disposition of assets of the Company.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
have occurred for purposes of this Agreement solely as the result of an
acquisition of securities by the Company which, by reducing the number of
shares of Voting Securities outstanding, increases the proportionate voting
power represented by the Voting Securities beneficially owned by any Person to
30% or more of the combined voting power of all then outstanding Voting
Securities; provided, however, that if any Person referred to in this sentence
shall thereafter become the beneficial owner of any additional shares of Stock
or other Voting Securities (other than pursuant to a stock split, stock
dividend, or similar transaction), then a "Change in Control" shall be deemed
to have occurred for purposes of this Agreement.
iii. Complete Change in Control. A "Complete Change in Control" shall
mean that a Change in Control has occurred, after modifying the
definition of "Change in Control" by deleting clause (i) from
Section 7(b)(2) of this Agreement.
iv. Constructive Termination Without Cause. "Constructive Termination
Without Cause" shall mean a termination of Executive's employment
initiated by Executive not later than 12 months following the
occurrence
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(not including any time during which an arbitration proceeding
referenced below is pending), without Executive's prior written
consent, of one or more of the following events (or the latest to
occur in a series of events), and effected after giving the Company
not less than 10 working days' written notice of the specific act
or acts relied upon and right to cure:
(1) a material adverse change in the functions, duties or
responsibilities of Executive's position which would reduce
the level, importance or scope of such position; or any
removal of Executive from or failure to reappoint or reelect
Executive to any position set forth in this Agreement, except
in connection with the termination of Executive's employment
for Disability, Cause, as a result of Executive's death or by
Executive other than for a Constructive Termination Without
Cause;
(2) any material breach by the Company of this Agreement;
(3) any purported termination of Executive's employment for Cause
by the Company which does not comply with the terms of Section
7(b)(1) of this Agreement;
(4) the failure of the Company to obtain an agreement,
satisfactory to the Executive, from any successor or assign of
the Company, to assume and agree to perform this Agreement, as
contemplated in Section 10 of this Agreement;
(5) the failure by the Company to continue in effect any
compensation plan in which Executive participates immediately
prior to a Change in Control which is material to Executive's
total compensation, unless comparable alternative arrangements
(embodied in ongoing substitute or alternative plans) have
been implemented with respect to such plans, or the failure by
the Company to continue Executive's participation therein (or
in such substitute or alternative plans) on a basis not
materially less favorable, in terms of the amount of benefits
provided and the level of Executive's participation relative
to other participants, as existed during the last completed
fiscal year of the Company prior to the Change in Control;
(6) the relocation of the Company's Braintree offices to a new
location more than fifty (50) miles from Braintree or the
failure to locate Executive's own office at the Braintree
office (or at the office to
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which such office is relocated which is within 50 miles of
Braintree); or
(7) any termination of employment by the Executive for any reason
during the 12-month period immediately following a Complete
Change in Control of the Company.
Notwithstanding the foregoing, a Constructive Termination Without Cause shall
not be treated as having occurred unless Executive has given a final Notice of
Termination delivered after expiration of the Company's cure period. Executive
or the Company may, at any time after the expiration of the Company's cure
period and either prior to or up until three months after giving a final Notice
of Termination, commence an arbitration proceeding to determine the question of
whether, taking into account the actions complained of and any efforts made by
the Company to cure such actions, a termination by Executive of his employment
should be treated as a Constructive Termination Without Cause for purposes of
this Agreement. If the Executive or the Company commences such a proceeding
prior to delivery by Executive of a final Notice of Termination, the
commencement of such a proceeding shall be without prejudice to either party
and Executive's and the Company's rights and obligations under this Agreement
shall continue unaffected unless and until the arbitrator has determined such
question in the affirmative, or, if earlier, the date on which Executive or the
Company has delivered a Notice of Termination in accordance with the provisions
of this Agreement.
v. Covered Average Compensation. "Covered Average Compensation" shall
mean the sum of Executive's Covered Compensation as calculated for
the calendar year in which the Date of Termination occurs and for
each of the two preceding calendar years, divided by three.
vi. Covered Compensation. "Covered Compensation," for any calendar
year, shall mean an amount equal to the sum of (i) Executive's Base
Salary for the calendar year (disregarding any decreases made
effective during the Employment Period), (ii) the cash bonus
actually earned by Executive with respect to such calendar year,
and (iii) the value of all stock and other equity-based
compensation awards made to Executive during such calendar year.
Covered Compensation shall be calculated according to the following
rules:
(a) In valuing awards for purposes of clause (iii) above, all
such awards shall be treated as if fully vested when
granted, stock grants shall be valued by reference to the
fair market value on the date of grant of the Company's
common stock, par value $.01 per share (or of the common
stock of
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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
Massachusetts. Executive and the Company irrevocably and
unconditionally submit to the jurisdiction of such courts and agree to
take any and all future action necessary to submit to the jurisdiction
of such courts.
9. Notice. Any notice required or permitted hereunder shall be in writing and
shall be deemed sufficient when given by hand or by nationally recognized
overnight courier or by Express, registered or certified mail, postage
prepaid, return receipt requested, and addressed, if to the Company at 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 Massachusetts in
accordance with the National Rules of the American Arbitration
Association governing employment disputes (the "National Rules"). In
any proceeding relating to the amount owed to Executive in connection
with his termination of employment, it is the contemplation of the
parties that the only remedy that the arbitrator may award in such a
proceeding is an amount equal to the termination payments, if any,
required to be provided under the applicable provisions of Section 7(c)
and, if applicable, Section 7(d) hereof, to the extent not previously
paid, plus the costs of arbitration and Executive's reasonable
attorneys fees and expenses as provided below. Any award made by such
arbitrator shall be final, binding and conclusive on the parties for
all purposes, and judgment upon the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof.
b. Attorneys Fees.
(1) Reimbursement After Executive Prevails. Except as otherwise
provided in this paragraph, each party shall pay the cost of
his or its own legal fees and expenses incurred in
connection with an arbitration proceeding. Provided an
award is made in favor of Executive in such proceeding, all
of his reasonable attorneys fees and expenses incurred in
pursuing or defending such proceeding
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/ XXXXX XXXXX
Xxxxx Xxxxx
