EXHIBIT 99.1
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AGREEMENT AND PLAN OF MERGER
by and between
BAY APARTMENT COMMUNITIES, INC.
and
AVALON PROPERTIES, INC.
Dated as of March 9, 1998
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TABLE OF CONTENTS
Page
ARTICLE I CERTAIN DEFINITIONS.................................. 1
Section 1.1. Certain Definitions............................ 1
ARTICLE II THE MERGER; EFFECTS OF THE MERGER.................... 7
Section 2.1. The Merger..................................... 7
Section 2.2 Charter and By-Laws............................ 7
Section 2.3 Closing........................................ 7
Section 2.4. Effectiveness and Effects of the Merger........ 7
Section 2.5. Tax Consequences............................... 8
Section 2.6. Accounting Treatment........................... 8
Section 2.7. Boards, Committees and Officers................ 8
ARTICLE III MERGER CONSIDERATION; EXCHANGE PROCEDURES............ 8
Section 3.1. Merger Consideration........................... 8
Section 3.2. Rights as Stockholders; Stock Transfers........ 9
Section 3.3. Fractional Shares.............................. 9
Section 3.4. Exchange Procedures............................ 9
Section 3.5. Anti-Dilution Provisions....................... 10
Section 3.6. Treasury Shares................................ 11
Section 3.7. Options........................................ 11
ARTICLE IV ACTIONS PENDING MERGER............................... 11
Section 4.1. Ordinary Course................................ 12
Section 4.2. Stock.......................................... 12
Section 4.3. Dividends, Etc................................. 12
Section 4.4. Compensation; Employment Agreements;
Etc............................................ 13
Section 4.5. Benefit Plans.................................. 13
Section 4.6. Acquisitions, Dispositions and Capital
Expenditures................................... 13
Section 4.7. Amendments..................................... 14
Section 4.8. Accounting Methods............................. 14
Section 4.9. Adverse Actions................................ 14
Section 4.10. Agreements..................................... 14
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ARTICLE V REPRESENTATIONS AND WARRANTIES....................... 14
Section 5.1. Disclosure Schedules........................... 14
Section 5.2. Standard....................................... 15
Section 5.3. Representations and Warranties................. 15
ARTICLE VI COVENANTS............................................ 25
Section 6.1. Best Efforts................................... 25
Section 6.2. Stockholder Approvals.......................... 25
Section 6.3. Registration Statement......................... 25
Section 6.4. Press Releases................................. 26
Section 6.5. Access; Information............................ 27
Section 6.6. Acquisition Proposals.......................... 27
Section 6.7. Affiliate Agreements........................... 28
Section 6.8. Takeover Laws.................................. 28
Section 6.9. No Rights Triggered............................ 28
Section 6.10. Shares Listed.................................. 28
Section 6.11. Filings; Consents.............................. 28
Section 6.12. Indemnification; Directors' and
Officers' Insurance............................ 29
Section 6.13. Compensation and Benefit Plans................. 31
Section 6.14. Transfer and Gains Taxes....................... 31
Section 6.15. Headquarters................................... 31
Section 6.16. Notification of Certain Matters................ 31
Section 6.17. Interim Transactions Committee................. 32
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER............. 32
Section 7.1. Stockholder Vote............................... 32
Section 7.2. Governmental Approvals......................... 32
Section 7.3. Third Party Consents........................... 32
Section 7.4. No Injunction, Etc............................. 32
Section 7.5. Representations, Warranties and
Covenants of Avalon............................ 32
Section 7.6. Representations, Warranties and
Covenants of Bay............................... 33
Section 7.7. Effective Registration Statement............... 33
Section 7.8. Tax Opinion Relating to the Merger............. 33
Section 7.9. Tax Opinion Relating to REIT Status............ 34
Section 7.10. NYSE Listing................................... 34
Section 7.11. Rights Agreement............................... 34
Section 7.12. REIT Income.................................... 34
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ARTICLE VIII TERMINATION.......................................... 34
Section 8.1. Termination.................................... 34
Section 8.2. Effect of Termination and Abandonment.......... 35
Section 8.3. Break-Up Expenses.............................. 35
ARTICLE IX MISCELLANEOUS........................................ 36
Section 9.1. Survival....................................... 36
Section 9.2. Waiver; Amendment.............................. 36
Section 9.3. Counterparts................................... 36
Section 9.4. Governing Law.................................. 37
Section 9.5. Expenses....................................... 37
Section 9.6. Confidentiality................................ 37
Section 9.7. Notices........................................ 37
Section 9.8. Understanding; No Third Party
Beneficiaries.................................. 38
Section 9.9. Headings; Interpretation....................... 38
EXHIBIT A Board of Directors, Committees and Officers of the
Surviving Corporation
EXHIBIT B Form of Affiliate Letter Addressed to Bay
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AGREEMENT AND PLAN OF MERGER, dated as of March 9, 1998 (this
"Agreement"), by and between Bay Apartment Communities, Inc., a Maryland
corporation ("Bay"), and Avalon Properties, Inc., a Maryland corporation
("Avalon").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Bay and Avalon have determined
that it is in the best interests of their respective companies and their
stockholders to consummate the strategic business merger transaction provided
for herein, in which Avalon will, subject to the terms and conditions set forth
herein, merge (the "Merger") with and into Bay so that Bay is the surviving
corporation in the Merger;
WHEREAS, in connection with the execution of this Agreement, Bay and
Avalon are entering into a stock option agreement, with Bay as issuer and Avalon
as grantee (the "Bay Stock Option Agreement");
WHEREAS, in connection with the execution of this Agreement, Avalon
and Bay are entering into a stock option agreement, with Avalon as issuer and
Bay as grantee (the "Avalon Stock Option Agreement" and, together with Bay Stock
Option Agreement, the "Stock Option Agreements"); and
WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1. Certain Definitions. As used in this Agreement, the following
terms shall have the meanings set forth below:
"Affiliate" shall have the meaning set forth in Section 6.7(a).
"Agreement" shall have the meaning set forth in the preamble to
this Agreement.
"Articles of Merger" shall have the meaning set forth in Section
2.4.
"Avalon" shall have the meaning set forth in the preamble to this
Agreement.
"Avalon Common Stock" shall have the meaning set forth in Section
3.1(a).
"Avalon Compensation and Benefit Plans" shall mean the Compensation
and Benefit Plans of Avalon.
"Avalon Meeting" shall have the meaning set forth in Section 6.2.
"Avalon Partnership Agreement" shall mean, collectively, the
Agreement of Limited Partnership of Avalon Ballston II, L.P., dated as of
January 13, 1997 and the Second Amended and Restated Agreement of Limited
Partnership of Avalon DownREIT V, L.P., dated as of December 22, 1997.
"Avalon Preferred Stock" shall mean, collectively, Avalon Series A
Preferred Stock and Avalon Series B Preferred Stock.
"Avalon Right" shall have the meaning set forth in Section 3.1(a).
"Avalon Rights Agreement" shall have the meaning set forth in
Section 3.1(a).
"Avalon Series A Preferred Stock" shall have the meaning set forth
in Section 3.1(b).
"Avalon Series B Preferred Stock" shall have the meaning set forth
in Section 3.1(b).
"Avalon Stock" shall mean Avalon Common Stock and Avalon
Preferred Stock.
"Avalon Stock Option" shall have the meaning set forth in Section
3.7(a).
"Avalon Stock Option Agreement" shall have the meaning set forth in
the recitals to this Agreement.
"Avalon Stock Option Plans" shall have the meaning set forth in
Section 3.7(a).
"Bay" shall have the meaning set forth in the preamble to this
Agreement.
"Bay Common Stock" shall have the meaning set forth in Section
3.1(a).
"Bay Meeting" shall have the meaning set forth in Section 6.2.
"Bay Partnership Agreements" shall mean, collectively, the Agreement
of Limited Partnership of Bay Countrybrook, L.P., dated as of July 12, 1996 and
Agreement of Limited Partnership of Bay Pacific Northwest, L.P., dated as of
September 12, 1997.
"Bay Preferred Holder" shall have the meaning set forth in
Section 5.3(u).
"Bay Preferred Stock" shall mean, collectively, the Bay Series A
Preferred Stock, the Bay Series B Preferred Stock, the Bay Series C Preferred
Stock and the Bay Series D Preferred Stock.
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"Bay Right" shall have the meaning set forth in Section 3.1(a).
"Bay Rights Agreement" shall have the meaning set forth in
Section 3.1(a).
"Bay Series A Preferred Stock" shall have the meaning set forth in
Section 3.1(d).
"Bay Series B Preferred Stock" shall have the meaning set forth in
Section 3.1(d).
"Bay Series C Preferred Stock" shall have the meaning set forth in
Section 3.1(d).
"Bay Series D Preferred Stock" shall have the meaning set forth in
Section 3.1(d).
"Bay Stock" shall mean Bay Common Stock and Bay Preferred Stock.
"Bay Stock Option Agreement" shall have the meaning set forth in the
recitals to this Agreement.
"Break-Up Expenses" shall have the meaning set forth in Section
8.3.
"Break-Up Expenses Tax Opinion" shall have the meaning set forth
in Section 8.3.
"Claim" shall have the meaning set forth in Section 6.12(a).
"Closing" shall have the meaning set forth in Section 2.3.
"Closing Date" shall have the meaning set forth in Section 2.3.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Compensation and Benefit Plans" shall have the meaning set forth
in Section 5.3(l)(i).
"Confidentiality Agreement" shall mean the Confidentiality
Agreement, dated as of March 7, 1998, between Bay and Avalon.
"Disclosure Schedule" shall have the meaning set forth in Section
5.1.
"Effective Date" shall have the meaning set forth in Section 2.4.
"Effective Time" shall have the meaning set forth in Section 2.4.
"Encumbrances" shall have the meaning set forth in Section
5.3(o)(ii).
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall have the meaning set forth in Section
5.3(l)(iv).
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"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Exchange Agent" shall have the meaning set forth in Section
3.4(a).
"Exchange Fund" shall have the meaning set forth in Section
3.4(a).
"Exchange Ratio" shall have the meaning set forth in Section
3.1(a).
"Final Company Dividend" shall have the meaning set forth in
Section 7.12.
"GAAP" shall have the meaning set forth in Section 7.12.
"Governmental Entity" shall mean any court, administrative agency,
commission or other governmental authority or instrumentality, whether local,
state, federal or foreign.
"Hazardous Materials" shall have the meaning set forth in Section
5.3(p).
"HSR Act" shall mean the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements
Act of 1976, as amended.
"Indemnified Parties" shall have the meaning set forth in Section
6.12(a).
"Joint Proxy Statement" shall have the meaning set forth in
Section 6.3(a).
"Liens" shall mean any charge, mortgage, pledge, security interest,
restriction, claim, lien, or encumbrance.
"Material Adverse Effect" shall mean with respect to Bay or Avalon,
respectively, any effect that (i) is material and adverse to the financial
position, results of operations, assets or business of Bay and its Subsidiaries
taken as a whole, or Avalon and its Subsidiaries taken as a whole, respectively,
or (ii) would materially impair the ability of Bay or Avalon, respectively, to
perform its obligations under this Agreement or otherwise materially threaten or
materially impede the consummation of the Merger and the other transactions
contemplated by this Agreement; provided, however, that Material Adverse Effect
shall not be deemed to include the impact of (a) changes in laws of general
applicability or interpretations thereof by courts or governmental authorities,
(b) changes in generally accepted accounting principles, (c) actions or
omissions of Bay or Avalon taken with the prior written consent of Bay or
Avalon, as applicable, in contemplation of the transactions contemplated hereby,
(d) circumstances affecting real estate investment trusts or real estate
companies generally, and (e) the effects of the Merger and compliance by either
party with the provisions of this Agreement on the financial position, results
of operations, assets or business of such party and its Subsidiaries, or the
other party and its Subsidiaries, as the case may be.
"Meeting" shall have the meaning set forth in Section 6.2.
"Merger" shall have the meaning set forth in the recitals to this
Agreement and in Section 2.1.
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"Merger Consideration" shall have the meaning set forth in
Section 2.1.
"MGCL" shall have the meaning set forth in Section 2.4.
"Multiemployer Plans" shall have the meaning set forth in Section
5.3(l)(iii).
"New Certificates" shall have the meaning set forth in Section
3.4(a).
"NYSE" shall mean The New York Stock Exchange, Inc.
"Old Certificates" shall have the meaning set forth in Section
3.4(a).
"Payor" shall have the meaning set forth in Section 8.3.
"PCX" shall mean the Pacific Exchange, Inc.
"Pension Plan" shall have the meaning set forth in Section
5.3(l)(iii).
"Person" or "person" shall mean any individual, bank, corporation,
partnership, limited liability company, association, joint-stock company,
business trust or unincorporated organization.
"Plans" shall have the meaning set forth in Section 5.3(l)(iii).
"Previously Disclosed" by a party shall mean information set
forth in its Disclosure Schedule.
"Properties" shall have the meaning set forth in Section
5.3(o)(i).
"Property Restrictions" shall have the meaning set forth in
Section 5.3(o)(ii).
"Qualifying Income" shall have the meaning set forth in Section
8.3.
"Recipient" shall have the meaning set forth in Section 8.3.
"Registration Statement" shall have the meaning set forth in
Section 6.3(a).
"REIT" shall mean a real estate investment trust within the meaning
of Section 856 of the Code.
"REIT Requirements" shall have the meaning set forth in Section
8.3.
"Rights" shall mean, with respect to any person, securities or
obligations convertible into or exchangeable for, or giving any person any right
to subscribe for or acquire, or any options, calls or commitments relating to,
shares of stock of such person.
"SDAT" shall have the meaning set forth in Section 2.4.
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"SEC" shall mean the Securities and Exchange Commission.
"SEC Documents" shall have the meaning set forth in Section
5.3(g).
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
A "Significant Subsidiary" of a person shall mean a Subsidiary,
including its Subsidiaries, in which such person's total investment or
proportionate share of total assets of such subsidiary exceeds 10% of the total
assets of such person and its subsidiaries consolidated as of the end of the
most recently completed fiscal year.
"Stock Option Agreements" shall have the meaning set forth in the
recitals to this Agreement.
A "Subsidiary" of a person shall mean a person in which at least 10%
of the voting power of the voting securities is held, directly or indirectly, by
such person.
"Surviving Corporation" shall have the meaning set forth in
Section 2.1.
"Surviving Corporation Series F Preferred Stock" shall have the
meaning set forth in Section 3.1(b).
"Surviving Corporation Series G Preferred Stock" shall have the
meaning set forth in Section 3.1(b).
"Takeover Laws" shall have the meaning set forth in Section
5.3(n)(i).
"Tax Returns" shall have the meaning set forth in Section 5.3(q).
"Taxes" shall mean (i) all taxes, charges, fees, levies or other
assessments, including all net income, gross income, gross receipts, sales, use,
ad valorem, goods and services, capital, transfer, franchise, profits, license,
withholding, payroll, employment, employer health, excise, estimated, severance,
stamp, occupation, property or other taxes, custom duties, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority; and (ii)
any liability for the payment of amounts with respect to payments of a type
described in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group, or as a result of any obligation under
any tax sharing arrangement or tax indemnity agreement.
"Transfer and Gains Taxes" shall have the meaning set forth in
Section 6.14.
"Treasury Shares" shall have the meaning set forth in Section
3.1(a).
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ARTICLE II
THE MERGER; EFFECTS OF THE MERGER
2.1. The Merger. At the Effective Time, Avalon shall merge with
and into Bay (the "Merger"), the separate corporate existence of Avalon shall
cease and Bay shall survive and continue to exist as a Maryland corporation
(Bay, as the surviving corporation in the Merger, being sometimes referred to
herein as the "Surviving Corporation"). The parties hereto may by mutual
agreement at any time change the method of effecting the combination between
Bay and Avalon (including the provisions of this Article II) if and to the
extent the parties deem such change to be desirable, including to provide for
a merger of Avalon with an affiliate of Bay in a transaction in which Bay
causes the assets of Avalon to be directed to such affiliate; provided,
however, that no such change shall (A) alter or change the amount or kind of
consideration to be issued to holders of Avalon Stock as provided for in this
Agreement (the "Merger Consideration"), (B) adversely affect the tax treatment
of Avalon's stockholders as a result of receiving the Merger Consideration or
(C) materially impede or delay consummation of the transactions contemplated
by this Agreement.
2.2. Charter and By-Laws. Unless the same already shall have been
adopted, the Articles of Merger shall provide that, at the Effective Time, (i)
the charter of the Surviving Corporation shall be the charter of Bay, as such
charter may be amended as agreed to by Bay and Avalon and set forth in the
Articles of Merger or any articles of amendment filed prior to the Effective
Time and (ii) the corporate name of the Surviving Corporation shall be Avalon
Bay Communities, Inc. The by-laws of the Surviving Corporation shall be the
by-laws of Bay at the Effective Time, which by-laws shall be agreed upon by Bay
and Avalon prior to the Effective Time.
2.3. Closing. The closing of the Merger (the "Closing") will occur
at 10:00 a.m., New York time, on the date to be specified by the parties, which
(subject to the satisfaction or waiver of the conditions as set forth in Article
VII in accordance with this Agreement) shall be no later than the third business
day to occur after the last of the conditions set forth in Sections 7.1, 7.2,
7.3, 7.7 and 7.10 shall have been satisfied or waived in accordance with the
terms of this Agreement (the "Closing Date"), at the offices of ▇▇▇▇▇▇▇, Procter
& ▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, unless another date
or place is agreed to in writing by the parties.
2.4. Effectiveness and Effects of the Merger. On the Closing Date,
or at such time as may otherwise be agreed by the parties, Bay and Avalon shall
execute and file with the State Department of Assessments and Taxation of
Maryland (the "SDAT") articles of merger (the "Articles of Merger"). The Merger
shall become effective (the "Effective Time") when the Articles of Merger are
accepted for record by the SDAT or such other time, if any, as Bay and Avalon
shall specify in the Articles of Merger. The Merger shall have the effects
prescribed in Section 3-114 of the Maryland General Corporation Law ("MGCL").
The date on which the Effective Time occurs is referred to as the "Effective
Date."
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2.5. Tax Consequences. It is intended that the Merger shall
qualify as a reorganization under Section 368(a) of the Code, and that the
Agreement shall constitute a "plan of reorganization" for purposes of Section
368 of the Code.
2.6. Accounting Treatment. It is intended that the
Merger be accounted for as a purchase under generally accepted accounting
principles ("GAAP").
2.7. Boards, Committees and Officers. At the Effective Time, the
Board of Directors, committees of the Board of Directors, composition of such
committees (including chairmen thereof) and certain officers of the Surviving
Corporation (as indicated in Exhibit A) shall be as set forth on Exhibit A until
the earlier of the resignation or removal of any individual listed on or
designated in accordance with Exhibit A or until their respective successors are
duly appointed or elected and qualified, as the case may be. If any officer
listed on or appointed in accordance with Exhibit A ceases to be a full-time
employee of Bay or Avalon prior to the Effective Time, or if any director,
committee member or committee chairman listed or designated on Exhibit A is not
serving as a director at the Effective Time, the Board of Directors of Bay or
Avalon, as the case may be, after consultation with the other party, shall
designate another person to serve in such person's stead in accordance with
Exhibit A.
ARTICLE III
MERGER CONSIDERATION; EXCHANGE PROCEDURES
3.1. Merger Consideration. Subject to the provisions of this
Agreement, at the Effective Time, automatically by virtue of the Merger and
without any action on the part of any party or stockholder:
(a) Outstanding Avalon Common Stock. Each share (excluding (i)
shares held by Avalon or any of its Subsidiaries or by Bay or any of its
Subsidiaries, other than in a fiduciary capacity ("Treasury Shares")) of the
common stock, par value $.01 per share, of Avalon, including each attached right
(a "Avalon Right") issued pursuant to the Rights Agreement, dated as of March 9,
1998, as amended (the "Avalon Rights Agreement"), between Avalon and the Rights
Agent named therein (the "Avalon Common Stock"), issued and outstanding
immediately prior to the Effective Time shall be converted into and become the
right to receive 0.7683 shares (subject to adjustment as set forth herein, the
"Exchange Ratio") of common stock, par value $.01 per share, of Bay (the "Bay
Common Stock"). One preferred share purchase right (a "Bay Right") issued
pursuant to the Rights Agreement, dated as of March 9, 1998, as amended (the
"Bay Rights Agreement") shall be issued together with and shall attach to each
share of Bay Common Stock issued pursuant to the Merger, unless the Bay Rights
have been redeemed prior to the Effective Time.
(b) Outstanding Avalon Preferred Stock. Each share of Avalon 9%
Series A Cumulative Redeemable Preferred Stock, par value $.01 per share,
liquidation preference $25 per share (the "Avalon Series A Preferred Stock"),
excluding any Treasury Shares, issued and outstanding immediately prior to the
Effective Time shall become and be converted into the right to
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receive one share of a newly created series of preferred stock of the Surviving
Corporation (the "Surviving Corporation Series F Preferred Stock") having terms
(to be set forth in the charter of the Surviving Corporation) substantially
identical to those of the Avalon Series A Preferred Stock. Each share of Avalon
8.96% Series B Cumulative Redeemable Preferred Stock, par value $.01 per share,
liquidation preference $25 per share (the "Avalon Series B Preferred Stock,"
collectively with the Avalon Series B Preferred Stock, the "Avalon Preferred
Stock"), excluding any Treasury Shares, issued and outstanding immediately
prior to the Effective Time, shall become and be converted into the right to
receive one share of a newly created series of preferred stock of the Surviving
Corporation (the "Surviving Corporation Series G Preferred Stock") having terms
(to be set forth in the charter of the Surviving Corporation) substantially
identical to those of the Avalon Series B Preferred Stock.
(c) Outstanding Bay Common Stock. Each share of Bay Common Stock,
including each attached Bay Right (unless redeemed prior to the Effective Time),
issued and outstanding immediately prior to the Effective Time shall remain
outstanding following the Effective Time.
(d) Outstanding Bay Preferred Stock. Each share of Bay Series A
Preferred Stock (the "Bay Series A Preferred Stock"), Bay Series B Preferred
Stock (the "Bay Series B Preferred Stock"), Bay 8.50% Series C Preferred Stock
(the "Bay Series C Preferred Stock"), and Bay 8.00% Series D Preferred Stock
(the "Bay Series D Preferred Stock") issued and outstanding immediately prior to
the Effective Time shall remain outstanding following the Effective Time.
3.2. Rights as Stockholders; Stock Transfers. At the Effective
Time, holders of Avalon Stock shall cease to be, and shall have no rights as,
stockholders of Avalon, other than to receive any dividend or other distribution
with respect to such Avalon Stock with a record date occurring prior to the
Effective Time and to receive the consideration provided under this Article III.
After the Effective Time, there shall be no transfers on the stock transfer
books of Avalon of shares of Avalon Stock.
3.3. Fractional Shares. Notwithstanding any other provision
hereof, no fractional shares of Bay Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the Merger;
instead, Bay shall pay to each holder of Avalon Common Stock who would otherwise
be entitled to a fractional share of Bay Common Stock (after taking into account
all Old Certificates delivered by such holder) an amount in cash to be paid in
lieu of fractional shares (without interest) determined by multiplying such
fraction by the average of the last sale prices of Bay Common Stock, as reported
by the NYSE Composite Transactions reporting system (as reported in The Wall
Street Journal or, if not reported therein, in another authoritative source),
for the five NYSE trading days immediately preceding the Effective Date.
3.4. Exchange Procedures. (a) At or prior to the Effective Time,
Bay shall deposit, or shall cause to be deposited, with a bank or trust company
selected by Bay and reasonably acceptable to Avalon (the "Exchange Agent"), for
the benefit of the holders of certificates formerly representing shares of
Avalon Stock ("Old Certificates"), for exchange in accordance
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with this Article III, certificates representing the shares of Bay Stock ("New
Certificates") and an estimated amount of cash to be paid in lieu of fractional
shares (such cash and New Certificates, together with any dividends or
distributions with respect thereto (without any interest thereon), being
hereinafter referred to as the "Exchange Fund") to be paid pursuant to this
Article III in exchange for outstanding shares of Avalon Stock.
(b) As promptly as practicable after the Effective Date, Bay shall
send or cause to be sent to each former holder of record of shares (other than
Treasury Shares) of Avalon Stock immediately prior to the Effective Time
transmittal materials for use in exchanging such stockholder's Old Certificates
for the consideration set forth in this Article III. Bay shall cause the New
Certificates into which shares of a stockholder's Avalon Stock are converted on
the Effective Date and/or any check in respect of any fractional share interests
or dividends or distributions which such person shall be entitled to receive to
be delivered to such stockholder upon delivery to the Exchange Agent of Old
Certificates representing such shares of Avalon Stock (or indemnity reasonably
satisfactory to Bay and the Exchange Agent, if any of such certificates are
lost, stolen or destroyed) owned by such stockholder. No interest will be paid
on any such cash to be paid pursuant to this Article III upon such delivery.
(c) Notwithstanding the foregoing, neither the Exchange Agent nor
any party hereto or any affiliate thereof shall be liable to any former holder
of Avalon Stock for any amount properly delivered to a public official pursuant
to applicable abandoned property, escheat or similar laws.
(d) No dividends or other distributions with respect to Bay Stock
with a record date occurring after the Effective Time shall be paid to the
holder of any unsurrendered Old Certificate representing shares of Avalon Stock
converted in the Merger into shares of such Bay Stock until the holder thereof
shall surrender such Old Certificate in accordance with this Article III. After
the surrender of an Old Certificate in accordance with this Article III, the
record holder thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to shares of Bay Stock represented by such Old Certificate.
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Avalon for twelve months after the Effective Time shall be paid
to Bay. Any stockholders of Avalon who have not theretofore complied with this
Article III shall thereafter look only to Bay for payment of the shares of Bay
Stock, cash in lieu of any fractional shares and unpaid dividends and
distributions on the Bay Stock deliverable in respect of each share of Avalon
Stock such stockholder holds as determined pursuant to this Agreement, in each
case, without any interest thereon.
3.5. Anti-Dilution Provisions. In the event Bay or Avalon changes
(or establishes a record date for changing) the number of, or provides for the
exchange of, shares of Bay Common Stock or Avalon Common Stock issued and
outstanding prior to the Effective Date as a result of a stock split, stock
dividend, recapitalization, reclassification, reorganization or similar
transaction with respect to the outstanding Bay Common Stock or Avalon Common
Stock and
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the record date therefor shall be prior to the Effective Date, the Exchange
Ratio shall be proportionately and appropriately adjusted.
3.6. Treasury Shares. Each of the shares of Avalon Stock
constituting Treasury Shares immediately prior to the Effective Time shall be
canceled and retired at the Effective Time and no consideration shall be issued
in exchange therefor.
3.7. Options. (a) At the Effective Time, all employee and director
stock options to purchase shares of Avalon Common Stock (each, a "Avalon Stock
Option"), which are then outstanding and unexercised, shall cease to represent a
right to acquire shares of Avalon Stock and shall be converted automatically
into options to purchase shares of Bay Common Stock, and Bay shall assume each
such Avalon Stock Option subject to the terms of any of the stock option plans
listed under "Stock Plans" in Section 5.3(l)(i) of Avalon's Disclosure Schedule
(collectively, the "Avalon Stock Option Plans"), and the agreements evidencing
grants thereunder; provided, however, that from and after the Effective Time,
(i) the number of shares of Bay Common Stock purchasable upon exercise of such
Avalon Stock Option shall be equal to the number of shares of Avalon Common
Stock that were purchasable under such Avalon Stock Option immediately prior to
the Effective Time multiplied by the Exchange Ratio, rounding to the nearest
whole share, and (ii) the per share exercise price under each such Avalon Stock
Option shall be adjusted by dividing the per share exercise price of each such
Avalon Stock Option by the Exchange Ratio, rounding to the nearest cent. The
terms of each Avalon Stock Option shall, in accordance with its terms, be
subject to further adjustment as appropriate to reflect any stock split, stock
dividend, recapitalization or other similar transaction with respect to Bay
Common Stock on or subsequent to the Effective Date. Notwithstanding the
foregoing, the number of shares and the per share exercise price of each Avalon
Stock Option which is intended to be an "incentive stock option" (as defined in
Section 422 of the Code) shall be adjusted in accordance with the requirements
of Section 424 of the Code. Accordingly, with respect to any incentive stock
options, fractional shares shall be rounded down to the nearest whole number of
shares and where necessary the per share exercise price shall be rounded up to
the nearest cent.
(b) At or prior to the Effective Time, Bay shall reserve for
issuance the number of shares of Bay Common Stock necessary to satisfy Bay's
obligations under Section 3.7(a). At the Effective Time, Bay shall file with the
SEC a registration statement on an appropriate form under the Securities Act
with respect to the shares of Bay Common Stock subject to options to acquire Bay
Common Stock issued pursuant to Section 3.7(a) hereof, and shall use its best
efforts to maintain the current status of the prospectus contained therein, as
well as comply with any applicable state securities or "blue sky" laws, for so
long as such options remain outstanding.
ARTICLE IV
ACTIONS PENDING MERGER
From the date hereof until the Effective Time, except as set forth
in the Disclosure Schedule or expressly contemplated by this Agreement, without
the prior written consent of the
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Interim Transactions Committee, (i) Bay will not, and will cause each of its
Subsidiaries not to, and (ii) Avalon will not, and will cause each of its
Subsidiaries not to:
4.1. Ordinary Course. Conduct the business of it and its
Subsidiaries other than in the ordinary and usual course or, to the extent
consistent therewith, fail to use reasonable efforts to preserve intact their
business organizations and assets and maintain their rights, franchises and
existing relations with customers, suppliers, employees, tenants, landlords and
business associates, or take any action that would (i) adversely affect the
ability of any party to obtain any necessary approvals of any Governmental
Entities required for the transactions contemplated hereby or (ii) adversely
affect its ability to perform any of its material obligations under this
Agreement.
4.2. Stock. Other than (i) pursuant to Rights or other stock
options or stock-based awards Previously Disclosed in its Disclosure Schedule or
as otherwise set forth in the Disclosure Schedule, (ii) upon conversion of
shares of its preferred stock pursuant to the terms thereof, (iii) pursuant to
the Bay Option Agreement (in the case of Bay) or the Avalon Option Agreement (in
the case of Avalon), or (iv) pursuant to the Bay Rights Agreement (in the case
of Bay) or the Avalon Rights Agreement (in the case of Avalon), (w) issue, sell
or otherwise permit to become outstanding, or authorize the creation of, any
additional shares of stock, any securities (including units of beneficial
ownership interest in any partnership or limited liability company) convertible
into or exchangeable for any additional shares of stock, stock appreciation
rights or any Rights, any stock appreciation rights or any Rights or take any
action related to such issuance or sale, (x) enter into any agreement with
respect to the foregoing, (y) permit any additional shares of stock, any
securities (including units of beneficial ownership interest in any partnership
or limited liability company) convertible into or exchangeable for any
additional shares of stock, stock appreciation rights or any Rights, any stock
appreciation rights or any Rights to become subject to new grants of employee
stock options, stock appreciation rights, or similar stock-based employee
rights, or (z) change (or establish a record date for changing) the number of,
or provide for the exchange of, shares of its stock, any securities (including
units of beneficial ownership interest in any partnership or limited liability
company) convertible into or exchangeable for any additional shares of stock,
stock appreciation rights or any Rights, any stock appreciation rights or any
Rights issued and outstanding prior to the Effective Date as a result of a stock
split, stock dividend, recapitalization, reclassification, reorganization or
similar transaction with respect to its outstanding stock or any other such
securities.
4.3. Dividends, Etc. (1) Make, declare or pay any dividend other
than (i) in the case of Bay, (A) regular quarterly cash dividends on Bay Stock
in the ordinary course consistent with past practice (provided that it is
understood and agreed that Bay will, on the date of announcement of the
transactions contemplated hereby, also announce that Bay is increasing its
regular quarterly dividend by an amount equal to $0.09 per share of Bay Stock in
excess of Bay's current quarterly dividend, effective with respect to all
dividends payable from and after the Effective Time, and provided, further, that
should Bay so determine, Bay's current quarterly dividend may be so increased
prior to the Effective Time) and (B) dividends from greater than 95%-owned
Subsidiaries to Bay or another greater than 95%-owned Subsidiary of Bay, as
applicable, and (ii) in the case of Avalon, (A) regular quarterly cash dividends
on Avalon Stock in the ordi-
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nary course consistent with past practice and (B) dividends from greater than
95%-owned Subsidiaries to Avalon or another greater than 95%-owned Subsidiary
of Avalon, as applicable) on or in respect of, or declare or make any
distribution on any shares of its stock, or (2) other than (A) as Previously
Disclosed in its Disclosure Schedule or (B) in the ordinary course pursuant to
employee benefit plans, directly or indirectly combine, redeem, reclassify,
purchase or otherwise acquire, any shares of its stock. After the date hereof,
each of Bay and Avalon shall coordinate with the other the declaration of any
dividends in respect of Bay Common Stock and Avalon Common Stock and the record
dates and payment dates relating thereto, it being the intention of the parties
hereto that holders of Bay Common Stock or Avalon Common Stock shall not
receive two dividends for any single calendar quarter with respect to their
shares of Bay Common Stock and/or Avalon Common Stock and any shares of Bay
Common Stock any such holder receives in exchange therefor in the Merger. In
addition, notwithstanding the foregoing, Avalon shall be permitted to pay the
Final Company Dividend, and if Avalon shall declare the Final Company Dividend,
Bay shall be permitted to declare a dividend per share to holders of Bay Common
Stock, the record date for which shall be the close of business on the last
business day prior to the Effective Time, in an amount per share of Bay Common
Stock equal to the quotient obtained by dividing (x) the Final Company Dividend
per share of Avalon Common Stock paid by Avalon by (y) the Exchange Ratio.
4.4. Compensation; Employment Agreements; Etc. Except as set forth
on Section 6.13 of the Bay Disclosure Schedule or on Section 6.13 of the Avalon
Disclosure Schedule, enter into or amend any written employment, severance or
similar agreements or arrangements with any of its directors, officers or
employees, or grant any salary or wage increase or increase any employee benefit
(including incentive or bonus payments), except for (i) normal individual
increases in compensation to employees in the ordinary course of business
consistent with past practice or (ii) other changes as are provided for herein
or as may be required by law or to satisfy contractual obligations listed on the
Disclosure Schedule existing as of the date hereof or additional grants of
awards to newly hired employees consistent with past practice or such changes
that, either individually or in the aggregate, would not reasonably be expected
to result in a material liability to it or its Subsidiaries.
4.5. Benefit Plans. Except as set forth on Section 6.13 of the Bay
Disclosure Schedule or on Section 6.13 of the Avalon Disclosure Schedule, enter
into or amend (except as may be required by applicable law, to satisfy
contractual obligations existing as of the date hereof or amendments which,
either individually or in the aggregate, would not reasonably be expected to
result in a material liability to it or its Subsidiaries) any pension,
retirement, stock option, stock purchase, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
related thereto, in respect of any of its directors, officers or other
employees, including taking any action that accelerates the vesting or exercise
of any benefits payable thereunder.
4.6. Acquisitions, Dispositions and Capital Expenditures. Except
as Previously Disclosed in its Disclosure Schedule, (i) dispose of or
discontinue any portion of its assets, business or properties which is material
to it and its Subsidiaries taken as a whole (other than sales of
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its or any of its Subsidiaries' "for sale" housing units and condominiums sold
or developed for sale in the ordinary course of business), or acquire all or
any portion of, the business or property of any other entity which is material
to it and its Subsidiaries taken as a whole, (ii) make any acquisition, or take
any other action, which would materially and adversely affect its ability to
consummate the transactions contemplated by this Agreement or (iii) make or
agree to make any development or capital expenditures, except (A) in accordance
with capital expenditure budgets previously delivered to and agreed to by the
other party, or (B) in connection with acquisition, development,
pre-development, investigation and due diligence activities related to future
development which future development has been previously discussed with and
approved in writing by the other party.
4.7. Amendments. Amend its charter or by-laws in a manner that
would adversely affect either party's ability to consummate the Merger or the
economic benefits of the Merger to either party or amend, redeem or waive any
rights under the Bay Rights Agreement or the Avalon Rights Agreement, as the
case may be.
4.8. Accounting Methods. Implement or adopt any change
in its accounting principles, practices or methods, other than as may be
required by generally accepted accounting principles.
4.9. Adverse Actions. (1) Knowingly take any action that would, or
would be reasonably likely to, prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code or render either
party ineligible for REIT status or constitute a prohibited transaction under
the REIT rules; or (2) knowingly take any action that is intended or is
reasonably likely to result in (x) any of its representations and warranties set
forth in this Agreement being or becoming untrue in any material respect at any
time prior to the Effective Time, (y) any of the conditions to the Merger set
forth in Article VII not being satisfied, or (z) a material violation of any
provision of this Agreement, except, in each case, as may be required by
applicable law.
4.10. Agreements. Agree or commit to do anything prohibited by
this Article IV.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Disclosure Schedules. On or prior to the date hereof, Bay
has delivered to Avalon and Avalon has delivered to Bay a schedule
(respectively, its "Disclosure Schedule") setting forth, among other things,
items the disclosure of which is necessary or appropriate in relation to any or
all of its representations and warranties; provided, however, that (i) no such
item is required to be set forth in a Disclosure Schedule as an exception to a
representation or warranty if its absence is not reasonably likely to result in
the related representation or warranty being deemed untrue or incorrect under
the standards established by Section 5.2, and (ii) the mere inclusion of an item
in a Disclosure Schedule shall not be deemed an admission by a party that
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such item represents a material exception or fact, event or circumstance or
that such item is reasonably likely to result in a Material Adverse Effect. To
the extent applicable, every disclosure and statement made in either party's
Disclosure Schedule under a particular section heading of such party's
Disclosure Schedule shall be deemed a disclosure and statement under all other
section headings of such party's Disclosure Schedule.
5.2. Standard. No representation or warranty of Bay or Avalon
contained in Section 5.3 shall be deemed untrue or incorrect, and no party
hereto shall be deemed to have breached a representation or warranty, as a
consequence of the existence of any fact, circumstance or event unless such
fact, circumstance or event, individually or taken together with all other
facts, circumstances or events inconsistent with any paragraph of Section 5.3,
has had or is reasonably expected to have a Material Adverse Effect; provided,
however, that the foregoing standard shall not apply to representations and
warranties contained in subsections (b), (e), and (u) of Section 5.3, which
shall be deemed untrue, incorrect and breached if they are not true and correct
in all material respects.
5.3. Representations and Warranties. Subject to Sections 5.1 and
5.2 and except as Previously Disclosed in its Disclosure Schedule, Bay hereby
represents and warrants to Avalon, to the extent applicable, and Avalon hereby
represents and warrants to Bay, to the extent applicable, in each case with
respect to itself and its Subsidiaries, as follows:
(a) Organization, Standing and Authority. Such party is a
corporation duly organized, validly existing and in good standing under the laws
of Maryland. Such party is duly qualified to do business and is in good standing
in the states of the United States and foreign jurisdictions where its ownership
or leasing of property or the conduct of its business requires it to be so
qualified. It has in effect all federal, state, local, and foreign governmental
authorizations necessary for it to own or lease its properties and assets and to
carry on its business as it is now being conducted.
(b) Capitalization. (i) As of the date hereof, the authorized stock
of Bay consists solely of 40,000,000 shares of Bay Common Stock, of which, as of
the date hereof, 26,195,515 shares were outstanding, and 25,000,000 shares of
preferred stock, of which, as of the date hereof, (A) 2,308,800 shares
designated as Bay Series A Preferred Stock were outstanding, (B) 405,022 shares
designated as Bay Series B Preferred Stock were outstanding, (C) 2,300,000
shares designated as Bay 8.50% Series C Preferred Stock were outstanding and (D)
3,267,700 shares designated as Bay 8.00% Series D Preferred Stock were
outstanding. As of the date hereof, there are partnership units presently
outstanding under the Bay Partnership Agreements which may be convertible,
exchangeable or redeemable into cash, but which Bay may, in its sole discretion,
exchange for an aggregate of 295,011 shares of Bay Common Stock (and which Bay
may exchange for the same aggregate number of shares of Bay Common Stock
immediately following the Effective Time). As of the date hereof, the authorized
stock of Avalon consists solely of 80,000,000 shares of Avalon Common Stock, of
which, as of March 5, 1998, 43,139,392.33 shares were outstanding, and
20,000,000 shares of preferred stock, of which, as of the date hereof, (A)
4,455,000 shares of
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Avalon Series A Preferred Stock were outstanding and (B) 4,300,000 shares of
Avalon Series B Preferred Stock were outstanding. As of the date hereof, there
are partnership units presently outstanding under the Avalon Partnership
Agreements which may be convertible, exchangeable or redeemable into cash, but
which Avalon may, in its sole discretion, exchange for an aggregate of 605,188
shares of Avalon Common Stock (and which Bay may exchange for shares of Bay
Common Stock immediately following the Effective Time). The outstanding shares
of such party's stock are validly issued and outstanding, fully paid and
nonassessable, and subject to no preemptive rights (and were not issued in
violation of any preemptive rights). As of the date hereof, there are no shares
of such party's stock authorized and reserved for issuance, such party does not
have any Rights issued or outstanding with respect to its stock, and such party
does not have any commitment to authorize, issue or sell any such shares or
Rights, except pursuant to this Agreement, the Stock Option Agreements,
Compensation and Benefit Plans, the Bay Rights Agreement and the Avalon Rights
Agreement, as the case may be. Since September 30, 1997, neither Bay nor Avalon
has issued any shares of its stock or rights in respect thereof or reserved any
shares for such purposes except pursuant to plans or commitments Previously
Disclosed in its Disclosure Schedule.
(ii) The number of shares of Bay Common Stock which are
issuable and reserved for issuance upon exercise of any employee and director
stock options to purchase shares of Bay Common Stock as of the date hereof is
set forth in Bay's Disclosure Schedule, and the number of shares of Avalon
Common Stock which are issuable and reserved for issuance upon exercise of
Avalon Stock Options as of the date hereof is set forth in Avalon's Disclosure
Schedule.
(c) Subsidiaries. (i) (A) Such party has Previously Disclosed in
its Disclosure Schedule a list of all of its Subsidiaries together with the
jurisdiction of organization of each such Subsidiary, (B) it owns, directly or
indirectly, at least 99% of the issued and outstanding shares of each of its
Significant Subsidiaries, (C) no equity securities of any of its Significant
Subsidiaries are or may become required to be issued (other than to it or a
Subsidiary of it) by reason of any Rights, (D) there are no contracts,
commitments, understandings or arrangements by which any of such Significant
Subsidiaries is or may be bound to sell or otherwise transfer any shares of the
stock of any such Significant Subsidiaries (other than to it or a Subsidiary of
it), (E) there are no contracts, commitments, understandings, or arrangements
relating to its rights to vote or to dispose of such shares (other than to it or
a Subsidiary of it), and (F) all of the shares of stock of each such Significant
Subsidiary held by it or its Subsidiaries have been duly authorized and validly
issued, are fully paid and nonassessable and not subject to preemptive rights
and are owned by it or its Subsidiaries free and clear of any Liens.
(ii) Other than interests in the Subsidiaries listed on its
Disclosure Schedule, such party does not own (other than in a bona fide
fiduciary capacity) beneficially, directly or indirectly, any shares of any
equity securities or similar interests of any person, or any interest in a
partnership or joint venture of any kind.
(iii) Each of such party's Significant Subsidiaries has been
duly organized and is validly existing in good standing under the laws of the
jurisdiction of its organi-
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zation, and is duly qualified to do business and in good standing in the
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified. Each of such Significant Subsidiaries
has in effect all federal, state, local, and foreign governmental
authorizations necessary for it to own or lease its properties and
assets and to carry on its business as it is now conducted.
(d) Corporate Power. Such party and each of its Significant
Subsidiaries has the corporate power and authority to carry on its business as
it is now being conducted and to own all its properties and assets; and it has
the corporate power and authority to execute, deliver and perform its
obligations under this Agreement and the Stock Option Agreements and to
consummate the transactions contemplated hereby and thereby.
(e) Corporate Authority. This Agreement and the Stock Option
Agreements and the transactions contemplated hereby and thereby, and subject in
the case of this Agreement to approval by the holders of two-thirds of the
shares of Bay Common Stock entitled to vote thereon and, if required, the
requisite vote of the holders of Bay Preferred Stock (in the case of Bay) and by
the holders of two-thirds of the shares of Avalon Common Stock entitled to vote
thereon (in the case of Avalon), have been authorized by all necessary corporate
action of such party, and each of this Agreement and the Stock Option Agreements
is a legal, valid and binding agreement of such party, enforceable in accordance
with its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting creditors' rights
or by general principles of equity).
(f) No Defaults. Subject to the receipt of regulatory approvals
referred to in Section 7.2, if any, and the required filings under federal and
state securities laws, the execution, delivery and performance of this Agreement
and the Stock Option Agreements and the consummation of the transactions
contemplated hereby and thereby by such party do not and will not (i) constitute
a breach or violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, permit, license, credit agreement, indenture, loan,
note, bond, mortgage, reciprocal easement agreement, lease, instrument,
concession, franchise or other agreement of it or of any of its Significant
Subsidiaries or to which it or any of its Significant Subsidiaries, properties
or assets is subject or bound, (ii) constitute a breach or violation of, or a
default under, its articles of incorporation or by-laws, or (iii) except as
disclosed on Section 5.3(f) of its Disclosure Schedule, require the consent or
approval of any third party or Governmental Entity under any such law, rule,
regulation, judgment, decree, order, permit, license, credit agreement,
indenture, loan, note, bond, mortgage, reciprocal easement agreement, lease,
instrument, concession, franchise or other agreement.
(g) Financial Reports and SEC Documents. It or its predecessor has
filed its Annual Report on Form 10-K for the fiscal year ended December 31,
1996, and all other reports, registration statements, definitive proxy
statements or information statements required to be filed by it or any of its
Subsidiaries subsequent to December 31, 1994 under the Securities Act, or under
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act (collectively, its "SEC
Documents"), with the SEC, and all its SEC Documents filed with the SEC, in the
form filed or to be filed, (i)
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complied or will comply in all material respects as to form with the applicable
requirements under the Securities Act or the Exchange Act, as the case may be,
and (ii) did not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they were
made, not misleading; and each of the balance sheets contained in or
incorporated by reference into any such SEC Document (including the related
notes and schedules thereto) fairly presents and will fairly present the
financial position of the entity or entities to which such balance sheet relates
as of its date, and each of the statements of income and changes in
stockholders' equity and cash flows or equivalent statements in such SEC
Documents (including any related notes and schedules thereto) fairly presents
and will fairly present the results of operations, changes in stockholders'
equity and changes in cash flows, as the case may be, of the entity or entities
to which such statement relates for the periods to which it relates, in each
case in accordance with GAAP consistently applied during the periods involved,
except in each case as may be noted therein, subject to normal year-end audit
adjustments in the case of unaudited statements. Except as set forth in its SEC
Documents, neither it nor any of its Subsidiaries has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
required by GAAP to be set forth on its consolidated balance sheet or in the
notes thereto.
(h) Litigation; Regulatory Action. (i) Other than personal injury
and other routine tort litigation arising from the ordinary course of its
operations (x) which are covered by adequate insurance or (y) for which all
material costs and liabilities arising therefrom are reimbursable pursuant to
common area maintenance or similar agreements, no litigation, claim or other
proceeding before any court or governmental agency is pending against it or any
of its Subsidiaries and, to the best of its knowledge, no such litigation, claim
or other proceeding has been threatened.
(ii) Neither it nor any of its Subsidiaries or properties
is a party to or is subject to any order, decree, agreement, memorandum of
understanding or similar arrangement with any Governmental Entity.
(iii) Neither it nor any of its Subsidiaries has been
advised by any Governmental Entity that such Governmental Entity is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, agreement, memorandum of
understanding or similar arrangement.
(i) Compliance with Laws. It and each of its Subsidiaries:
(i) in the conduct of its business, is in compliance with
all applicable federal, state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders or decrees applicable thereto or to the
employees conducting such businesses, including laws relating to discriminatory
business practices;
(ii) has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations with, all
Governmental Entities that are required in order to permit them to conduct their
businesses substantially as presently conducted;
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all such permits, licenses, certificates of authority, orders and approvals are
in full force and effect and, to the best of its knowledge, no suspension or
cancellation of any of them is threatened; and
(iii) has received, since December 31, 1994, no notification
or communication from any Governmental Entity (A) asserting that it or any of
its Subsidiaries is not in compliance with any of the statutes, regulations, or
ordinances which such Governmental Entity enforces, (B) threatening to revoke
any license, franchise, permit, or governmental authorization or (C) failing to
approve any proposed acquisition, development or construction or stating its
intention not to approve acquisitions, developments or constructions proposed to
be effected by it within a certain time period or indefinitely.
(j) Contractual Defaults. Neither it nor any of its Subsidiaries is
in default under any contract, agreement, commitment, arrangement, lease,
insurance policy, or other instrument to which it is a party, by which its
assets, business, or operations may be bound or affected, or under which it or
its respective assets, business, or operations receives benefits, and there has
not occurred any event that, with the lapse of time or the giving of notice or
both, would constitute such a default.
(k) No Brokers. No action has been taken by it that would give rise
to any valid claim against any party hereto for a brokerage commission, finder's
fee or other like payment with respect to the transactions contemplated by this
Agreement, excluding, in the case of Bay, fees to be paid to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ &
Co. Incorporated and, in the case of Avalon, fees to be paid to PaineWebber
Incorporated and Lazard Freres & Co. LLC, in each case pursuant to letter
agreements copies of which have been heretofore delivered to the other party.
(l) Employee Benefit Plans. (i) Such party's Disclosure Schedule
contains a complete list of all material written bonus, vacation, deferred
compensation, pension, retirement, profit-sharing, thrift, savings, employee
stock ownership, stock bonus, stock purchase, restricted stock and stock option
plans, all employment or severance contracts, all medical, dental, disability,
health and life insurance plans, all other employee benefit and fringe benefit
plans, contracts or arrangements and any applicable "change of control" or
similar provisions in any plan, contract or arrangement maintained or
contributed to by it or any of its Subsidiaries for the benefit of officers,
former officers, employees, former employees, directors, former directors, or
the beneficiaries of any of the foregoing (collectively, "Compensation and
Benefit Plans").
(ii) True and complete copies of its Compensation and
Benefit Plans, including, but not limited to, any trust instruments and/or
insurance contracts, if any, forming a part thereof, and all amendments thereto
have been made available to the other party.
(iii) Each of its Compensation and Benefit Plans has been
administered in accordance with the terms thereof. All "employee benefit plans"
within the meaning of Section 3(3) of ERISA, other than "multiemployer plans"
within the meaning of Section 3(37) of ERISA ("Multiemployer Plans"), covering
employees or former employees of it and its Subsidiaries (its "Plans"), to the
extent subject to ERISA, are in material compliance with ERISA, the Code and
other applicable laws. Each Compensation and Benefit Plan of it or its
Subsidiaries
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which is an "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA ("Pension Plan") and which is intended to be qualified
under Section 401(a) of the Code has received a favorable determination letter
from the Internal Revenue Service, and it is not aware of any circumstances
reasonably likely to result in the revocation or denial of any such favorable
determination letter. There is no pending or, to its knowledge, threatened
litigation or governmental audit, examination or investigation relating to the
Plans.
(iv) No liability under Title IV of ERISA has been or is
expected to be incurred by it or any of its Subsidiaries with respect to any
ongoing, frozen or terminated "single-employer plan," within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them,
or the single-employer plan of any entity which is considered one employer with
it under Section 4001(a)(15) of ERISA or Section 414 of the Code (an "ERISA
Affiliate"). Neither it nor any of its Subsidiaries presently contributes to a
Multiemployer Plan, nor has it or any of its Subsidiaries contributed to such a
plan within the past five calendar years. No notice of a "reportable event,"
within the meaning of Section 4043 of ERISA for which the 30-day reporting
requirement has not been waived, has been required to be filed for any Pension
Plan of it or any of its Subsidiaries or by any ERISA Affiliate within the past
12 months or will be required to be filed as a result of the transactions
contemplated hereby.
(v) All contributions, premiums and payments required to be
made under the terms of any Compensation and Benefit Plan of it or any of its
Subsidiaries have been made or have been accrued on the balance sheets contained
in its SEC Documents. Neither any Pension Plan of it or any of its Subsidiaries
nor any single-employer plan of an ERISA Affiliate of it or any of its
Subsidiaries has an "accumulated funding deficiency" (whether or not waived)
within the meaning of Section 412 of the Code or Section 302 of ERISA. Neither
it nor any of its Subsidiaries has provided, or is required to provide, security
to any Pension Plan or to any single-employer plan of an ERISA Affiliate
pursuant to Section 401(a)(29) of the Code.
(vi) Under each Pension Plan of it or any of its
Subsidiaries which is a single-employer plan, as of the last day of the most
recent plan year ended prior to the date hereof, the actuarially determined
present value of all "benefit liabilities," within the meaning of Section
4001(a)(16) of ERISA (as determined on the basis of the actuarial assumptions
contained in the Plan's most recent actuarial valuation) did not exceed the then
current value of the assets of such Plan, and there has been no adverse change
in the financial condition of such Plan (with respect to either assets or
benefits) since the last day of the most recent Plan year.
(vii) Neither it nor any of its Subsidiaries has any
obligations under any Compensation and Benefit Plans to provide benefits,
including death or medical benefits, with respect to employees of it or its
Subsidiaries beyond their retirement or other termination of service other than
(i) coverage mandated by Part 6 of Title I of ERISA or Section 4980B of the
Code, (ii) retirement or death benefits under any employee pension benefit plan
(as defined under Section 3(2) of ERISA), (iii) disability benefits under any
employee welfare plan that have been fully provided for by insurance or
otherwise, (iv) benefits in the nature of severance pay or (v) benefits the full
cost of which are borne by the former employee or such employee's beneficiary.
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(viii) Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will (i) result in
any payment (including severance, unemployment compensation, golden parachute or
otherwise) becoming due to any director or any employee of it or any of its
Subsidiaries under any Compensation and Benefit Plan or otherwise from it or any
of its Subsidiaries, (ii) increase any benefits otherwise payable under any
Compensation and Benefit Plan or (iii) result in any acceleration of the time of
payment or vesting of any such benefit.
(m) Labor Matters. Neither it nor any of its Subsidiaries is a
party to, or is bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is it
nor any of its Subsidiaries the subject of a proceeding asserting that it or any
such Subsidiaries has committed an unfair labor practice (within the meaning of
the National Labor Relations Act) or seeking to compel it or such Subsidiaries
to bargain with any labor organization as to wages and conditions of employment.
(n) Takeover Laws; Rights Plans. (i) It has taken all action
required to be taken by it in order to exempt this Agreement and the Stock
Option Agreements and the transactions contemplated hereby and thereby from, and
this Agreement and the Stock Option Agreements and the transactions contemplated
hereby and thereby are exempt from, the requirements of any "moratorium,"
"control share," "fair price" or other takeover defense laws and regulations
(collectively, "Takeover Laws") of the State of Maryland, including Sections
3-601 to 3-603 of the MGCL. It has taken all action required to waive any excess
share or similar ownership limitations in its charter with regard to the other
party for the transactions contemplated by this Agreement and the Stock Option
Agreement.
(ii) In the case of Bay, it has taken all action necessary
or appropriate so that the entering into of this Agreement and the Stock Option
Agreements, and the consummation of the transactions contemplated hereby
(including the Merger) and thereby, do not and will not result in the ability of
any person to exercise any Bay Rights under the Bay Rights Agreement or enable
or require Bay Rights to separate from the shares of Bay Common Stock to which
they are attached or to be triggered or become exercisable.
(iii) In the case of Bay, there is no "Acquiring Person",
and no "Distribution Date" or "Stock Acquisition Date" (as such terms are
defined in the Bay Rights Agreement) has occurred.
(iv) In the case of Avalon, it has taken all action
necessary or appropriate (x) so that the entering into of this Agreement and the
Stock Option Agreements, and the consummation of the transactions contemplated
hereby (including the Merger) and thereby, do not and will not result in the
ability of any person to exercise any Avalon Rights under the Avalon Rights
Agreement or enable or require Avalon Rights to separate from the shares of
Avalon Common Stock to which they are attached or to be triggered or become
exercisable and (y) to ensure that the Avalon Rights will expire at the
Effective Time.
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(v) In the case of Avalon, there is no "Acquiring Person",
and no "Distribution Date" or "Shares Acquisition Date" (as such terms are
defined in the Avalon Rights Agreement) has occurred.
(o) Properties. (i) It or one of its Subsidiaries owns fee simple
title or a leasehold estate in each of the real properties listed in its SEC
Documents or has such other title or interest in such listed real properties as
is described in its SEC Documents (all such listed properties, collectively, its
"Properties").
(ii) Its Properties are not subject to any Liens, security
interests or other encumbrances on title (collectively, "Encumbrances") and are
not subject to any rights of way, written agreements, laws, ordinances and
regulations affecting building use or occupancy, or reservations of an interest
in title (collectively, "Property Restrictions"), except for Encumbrances and
Property Restrictions disclosed on existing title reports or existing surveys
which would not have a Material Adverse Effect. None of its Properties is
subject to any restriction on the sale or other disposition thereof or on the
financing or release of any financing thereon, except for due-on-sale and
due-on-encumbrance clauses contained in mortgages, deeds of trust or other
financing documents, copies of which have been delivered to the other party and
except for restrictions which may be contained in documentation relating to
tax-exempt bonds.
(iii) Valid policies of title insurance have been issued
insuring its or its applicable Subsidiary's fee simple title or leasehold
estate, as the case may be, to its Properties in amounts which are at least
equal to the purchase price thereof paid by it or its applicable Subsidiary
therefor.
(iv) To the best of its knowledge, (A) there is no necessary
certificate, permit or license from any governmental authority having
jurisdiction over any of its Properties or agreement, easement or other right
which is necessary to permit the lawful use and operation of the buildings and
improvements on any of its Properties or which is necessary to permit the lawful
use and operation of all driveways, roads and other means of egress and ingress
to and from any of its Properties which has not been obtained or is not in full
force and effect, and there is no pending threat of modification or cancellation
of any of the same, (B) there is no written notice of any violation of any
federal, state or municipal law, ordinance, order, rule, regulation or
requirement affecting any of its Properties issued by any governmental
authorities and (C) there are no structural defects relating to its Properties,
the building systems in each of its Properties is in working order and there is
no physical damage to any Property for which there is no insurance in effect
covering the cost of restoration, any current renovation or uninsured
restoration.
(v) Neither it nor any of its Subsidiaries has received any
written or published notice to the effect that (A) any condemnation or rezoning
proceedings are pending or threatened with respect to any of its Properties or
(B) any zoning, building or similar law, code, ordinance, order or regulation is
or will be violated by the continued maintenance, operation or use of any
buildings or other improvements on any of its Properties or by the continued
maintenance, operation or use of the parking areas associated with any of its
Properties.
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(vi) All work to be performed, payments to be made and
actions to be taken by it or its Subsidiaries prior to the date hereof pursuant
to any agreement entered into with a governmental body or authority in
connection with a site approval, zoning reclassification or similar action
relating to any of its Properties, has been performed, paid or taken, as the
case may be, and to the best of its knowledge, there is not any planned or
proposed work, payment or action that may be required after the date hereof
pursuant to any such agreement.
(vii) All properties currently under development or
construction by it or its Subsidiaries and all properties currently proposed for
acquisition, development or commencement of construction prior to the Effective
Time by it and its Subsidiaries are listed as such on its Disclosure Schedule.
All executory agreements entered into by it or any of its Subsidiaries relating
to the development or construction of multifamily residential or other real
estate properties (other than agreements for architectural, engineering,
planning, accounting, legal or other professional services, or construction
agreements for material or labor) are listed on its Disclosure Schedule. Copies
of such agreements, all of which have previously been delivered or made
available to the other party, are listed on its Disclosure Schedule and are true
and correct.
(p) Environmental Matters. (A) Neither it nor any of its
Subsidiaries or, to the best of its knowledge, any other person has caused or
permitted the unlawful presence of any hazardous substances, hazardous
materials, toxic substances or waste materials (collectively, "Hazardous
Materials") on or under any of its Properties and (B) no unlawful spills,
releases, discharges or disposals of Hazardous Materials have occurred or are
presently occurring on, under or from its Properties as a result of any
construction on or operation and use of such Properties. In connection with the
construction on or operation and use of its Properties, it and its Subsidiaries
have not failed to comply in any material respect with all applicable local,
state and federal environmental laws, regulations, ordinances and administrative
and judicial orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Materials.
(q) Taxes. Each of it and its Subsidiaries (A) has filed (or
there has been filed on its behalf) all material returns, declarations, reports
estimates, information returns and statements required to be filed under
federal, state, local or any foreign Tax laws ("Tax Returns"), and all such Tax
Returns are accurate and complete in all material respects, and (B) has paid (or
payment has been made on its behalf) all Taxes shown on such Tax Returns as
required to be paid by it. The most recent audited financial statements
contained in its SEC Documents reflect an adequate reserve for all material
Taxes payable by it and its Subsidiaries for all taxable periods and portions
thereof through the date of such financial statements. Since September 30, 1997,
it has incurred no liability for Taxes under Sections 857(b), 860(c) or 4981 of
the Code, including any Tax arising from a prohibited transaction described in
Section 857(b)(6) of the Code, and neither it nor any of its Subsidiaries has
incurred any material liability for Taxes other than in the ordinary course of
business. No event has occurred, and no condition or circumstance exists, which
presents a material risk that any material Tax described in the preceding
sentence will be imposed upon it. To the best of its knowledge, no deficiencies
for any Taxes have been proposed, asserted or assessed against it or any of its
Subsidiaries, and no requests for waivers of the time to assess any such Taxes
are pending. It (A) has been organized in conformity with the
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requirements for qualification as a REIT, (B) has operated, and intends to
continue to operate, in such a manner as to qualify as a REIT for the current
period through the Closing Date and (C) has not taken or omitted to take any
action which would reasonably be expected to result in a challenge to or
revocation of its status as a REIT, and to the best of its knowledge, no such
challenge or revocation is pending or threatened. Each of its Subsidiaries
which is a partnership, joint venture or limited liability company (i) has been
treated since such Subsidiary's formation and continues to be treated for
federal income tax purposes as a partnership and not as a corporation or as an
association taxable as a corporation and (ii) has not since the later of such
Subsidiary's formation or the acquisition by Bay (in the case of Bay's
Subsidiaries) or Avalon (in the case of Avalon's Subsidiaries) of a direct or
indirect interest therein, owned any assets (including securities) that would
cause such party to violate Section 856(c)(5) of the Code. Each of its
Subsidiaries which is a corporation has been since its formation a qualified
REIT subsidiary under Section 856(i) of the Code. Neither it nor any of its
Subsidiaries holds any asset (x) the disposition of which would be subject to
rules similar to Section 1374 of the Code as a result of a notice under
Internal Revenue Service Notice 88-19 or (y) which is subject to a consent
filed pursuant to Section 341(f) of the Code and the regulations thereunder.
(r) Investment Company Act of 1940. Neither it nor any of its
Subsidiaries is, or at the Effective Time will be, required to be registered
under the Investment Company Act of 1940, as amended.
(s) HSR Act. For purposes of determining whether compliance with
the HSR Act is required, it confirms that the conduct of its business consists
solely of investing in, owning and operating real estate for the benefit of its
stockholders.
(t) Tax-Exempt Financing. Since October 31, 1997, no tax-exempt
bonds have been issued or reissued of which it is a beneficiary.
(u) Conversion of Bay Preferred Stock. In the case of Bay, Bay has
entered into agreements (true, correct and complete copies of which have
previously been provided to Avalon), which are binding and enforceable and in
full force and effect, with the sole holder of the shares of Bay Series A
Preferred Stock and Bay Series B Preferred Stock (the "Bay Preferred Holder") to
the effect that, (i) two business days after the record date for the Bay
Meeting, shares of Bay Series A Preferred Stock and Bay Series B Preferred Stock
shall be converted into a number of common shares of Bay Common Stock equaling
4.9% of the total issued and outstanding shares of Bay Common Stock as of the
date thereof, and (ii) the Bay Preferred Holder agrees to approve and agree to
certain modifications to the terms of such Bay Series A Preferred Stock, all as
more fully set forth in such agreements.
(v) No Material Adverse Effect. Since September 30, 1997, except as
disclosed in its SEC Documents filed with the SEC on or before the date hereof,
(i) it and its Subsidiaries have conducted their respective businesses in the
ordinary and usual course (excluding the incurrence of expenses related to this
Agreement and the transactions contemplated hereby) and (ii) no event has
occurred or circumstance arisen that, individually or taken together with all
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other facts, circumstances and events (described in any paragraph of Section 5.3
or otherwise), is reasonably likely to have a Material Adverse Effect with
respect to it.
ARTICLE VI
COVENANTS
Bay hereby covenants to and agrees with Avalon, and Avalon hereby
covenants to and agrees with Bay, that:
6.1. Best Efforts. Subject to the terms and conditions of this
Agreement, it shall use its reasonable best efforts in good faith to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or desirable, or advisable under applicable laws, so as to
permit consummation of the Merger as promptly as practicable and otherwise to
enable consummation of the transactions contemplated hereby, including
effecting all filings and obtaining (and cooperating with the other party
hereto to obtain) any permit, consent, authorization, order or approval of, or
any exemption by, any Governmental Entity and any other third party that is
required to be obtained by Bay or Avalon or any of their respective
Subsidiaries in connection with the Merger and the other transactions
contemplated by this Agreement, and using reasonable efforts to lift or rescind
any injunction or restraining order or other order adversely affecting the
ability of the parties to consummate the transactions contemplated hereby, and
using reasonable efforts to defend any litigation seeking to enjoin, prevent or
delay the consummation of the transactions contemplated hereby or seeking
material damages, and each shall cooperate fully with the other parties hereto
to that end.
6.2. Stockholder Approvals. Each of them shall take, in accordance
with applicable law, applicable stock exchange rules and its articles of
incorporation and by-laws, all action necessary to convene, respectively, an
appropriate meeting of stockholders of Bay to consider and vote upon the
approval of this Agreement and the Merger and any other matters required to be
approved by Bay stockholders for consummation of the Merger (including any
adjournment or postponement, the "Bay Meeting"), and an appropriate meeting of
stockholders of Avalon to consider and vote upon the approval of this Agreement
and any other matters required to be approved by Avalon's stockholders for
consummation of the Merger (including any adjournment or postponement, the
"Avalon Meeting"; and each of the Bay Meeting and the Avalon Meeting, a
"Meeting"), as promptly as practicable after the date hereof. Subject to their
respective duties under Maryland law, the Board of Directors of each of Bay and
Avalon shall recommend such approval, and each of Bay and Avalon shall take all
reasonable lawful action to solicit such approval by its stockholders.
6.3. Registration Statement. (a) Bay and Avalon agree to cooperate
in the preparation of a registration statement on Form S-4 (the "Registration
Statement") to be filed by Bay with the SEC in connection with the issuance of
Bay Stock in the Merger (including the joint proxy statement and prospectus and
other proxy solicitation materials of Bay and Avalon constituting a part thereof
(the "Joint Proxy Statement") and all related documents). Bay and Avalon agree
to file a draft of the Joint Proxy Statement with the SEC as promptly as
practicable,
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but in no event later than 45 days after the date hereof. Each of
Bay and Avalon agrees to use all reasonable efforts to cause the Registration
Statement to be filed and declared effective under the Securities Act as
promptly as reasonably practicable after the SEC has cleared the Joint Proxy
Statement. Bay also agrees to use all reasonable efforts to obtain all necessary
state securities law or "blue sky" permits and approvals required to carry out
the transactions contemplated by this Agreement. Avalon agrees to promptly
furnish to Bay all information concerning Avalon, its Subsidiaries, officers,
directors and stockholders as may be reasonably requested in connection with the
foregoing.
(b) Each of Bay and Avalon agrees, upon request, to furnish the
other party with all information concerning itself, its Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably necessary
or advisable in connection with the Registration Statement, the Joint Proxy
Statement or any filing, notice or application made by or on behalf of such
other party or any of its Subsidiaries to any Governmental Entity in connection
with the transactions contemplated hereby. Each of Bay and Avalon agrees, as to
itself and its Subsidiaries, that none of the information supplied or to be
supplied by it for inclusion or incorporation by reference in (i) the
Registration Statement will, at the time the Registration Statement and each
amendment or supplement thereto, if any, becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Joint Proxy Statement and any amendment or
supplement thereto will, at the date of mailing to stockholders and at the times
of the Bay Meeting and the Avalon Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading or any statement
which, in the light of the circumstances under which such statement is made,
will be false or misleading with respect to any material fact, or which will
omit to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier statement in the Joint Proxy Statement or any amendment or supplement
thereto. Each of Bay and Avalon further agrees that if it shall become aware
prior to the Effective Date of any information that would cause any of the
statements in the Joint Proxy Statement to be false or misleading with respect
to any material fact, or to omit to state any material fact necessary to make
the statements therein not false or misleading, it shall promptly inform the
other party thereof and shall take the necessary steps to correct the Joint
Proxy Statement.
(c) In the case of Bay, Bay will advise Avalon, promptly after Bay
receives notice thereof, of the time when the Registration Statement has become
effective or any supplement or amendment has been filed, of the issuance of any
stop order or the suspension of the qualification of the Bay Stock for offering
or sale in any jurisdiction, of the initiation or threat of any proceeding for
any such purpose, or of any request by the SEC for the amendment or supplement
of the Registration Statement or for additional information.
6.4. Press Releases. It will consult with the other party before
issuing any press release with respect to the transactions contemplated by this
Agreement and will not, without the prior approval of the other party hereto,
issue any press release or written statement for
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general circulation relating to the transaction contemplated hereby, except as
otherwise required by applicable law or regulation or the rules of the NYSE or
PCX.
6.5. Access; Information. (a) Upon reasonable notice and subject
to applicable laws relating to the exchange of information, it shall, and shall
cause its Subsidiaries to, afford the other party and its officers, employees,
counsel, accountants and other authorized representatives, access, during normal
business hours throughout the period prior to the Effective Date, to all of its
properties, books, contracts, commitments and records, and to its officers,
employees, accountants, counsel or other representatives, and, during such
period, it shall, and shall cause its Subsidiaries to, furnish promptly to such
other parties and representatives (i) a copy of each material report, schedule
and other document filed by it pursuant to the requirements of federal or state
securities laws (other than reports or documents that Bay or Avalon, or their
respective Subsidiaries, as the case may be, are not permitted to disclose under
applicable law), and (ii) all other information concerning the business,
properties and personnel of it as the other may reasonably request. Neither Bay
nor Avalon nor any of their respective Subsidiaries shall be required to provide
access to or to disclose information where such access or disclosure would
violate or contravene any law, rule, regulation, order, judgment, decree,
fiduciary duty or binding agreement entered into prior to the date hereof. The
parties hereto will make appropriate substitute disclosure arrangements under
the circumstances in which the restrictions of the preceding sentence apply.
(b) It will not use any information obtained pursuant to this
Section 6.5 for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement and, if this Agreement is terminated, will hold
all information and documents obtained pursuant to this paragraph in confidence
(as provided in, and subject to the provisions of, the Confidentiality
Agreement, as if it were the Receiving Party, as defined therein). No
investigation by either party of the business and affairs of the other shall
affect or be deemed to modify or waive any representation, warranty, covenant or
agreement in this Agreement, or the conditions to either party's obligation to
consummate the transactions contemplated by this Agreement.
6.6. Acquisition Proposals. From the date hereof until the earlier
of the Effective Date or the termination of this Agreement, without the prior
written consent of the other party hereto, it shall not, and shall cause its
Subsidiaries and its and its Subsidiaries' officers, directors, agents, advisors
and affiliates not to, solicit or encourage inquiries or proposals with respect
to, or engage in any negotiations concerning, or provide any confidential
information to, or have any discussions with, any such person relating to, any
tender offer or exchange offer for, or any proposal for the acquisition of a
substantial equity interest in, or a substantial portion of the assets of, or
any merger or consolidation with, it or any of its Significant Subsidiaries;
provided, however, that it may, and may authorize and permit its officers,
directors, employees or agents to, furnish or cause to be furnished confidential
information and may participate in such discussions and negotiations if its
Board of Directors, after having consulted with and considered the advice of
outside counsel, has determined that the failure to provide such information or
participate in such negotiations and discussions could cause the members of such
Board of Directors to breach their duties under applicable laws. It shall advise
the other party of its receipt of any such
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proposal or inquiry, of the substance thereof, and of the identity of the
person making such proposal or inquiry within 24 hours of the receipt thereof.
6.7. Affiliate Agreements. (a) Not later than the 15th day prior
to the mailing of the Joint Proxy Statement, each of Bay and Avalon shall
deliver to the other, a schedule of each person that, to the best of its
knowledge, is or is reasonably likely to be, as of the date of the relevant
Meeting, deemed to be an "affiliate" of it (each, an "Affiliate") as that term
is used in SEC Accounting Series Releases 130 and 135 and, in the case of Avalon
only, in Rule 145 under the Securities Act.
(b) Avalon shall use its reasonable best efforts to cause each
person who may be deemed to be an Affiliate of Bay or Avalon, as the case may
be, to execute and deliver to Avalon on or before the date of mailing of the
Joint Proxy Statement an agreement in the form attached hereto as Exhibit B.
6.8. Takeover Laws. Neither party shall take any action that would
cause the transactions contemplated by this Agreement and the Stock Option
Agreements to be subject to requirements imposed by any Takeover Law and each of
them shall take all necessary steps within its control to exempt (or ensure the
continued exemption of) the transactions contemplated by this Agreement and the
Stock Option Agreements from, or if necessary challenge the validity or
applicability of, any applicable Takeover Law, as now or hereafter in effect,
that purports to apply to this Agreement, the Stock Option Agreements or the
transactions contemplated hereby or thereby.
6.9. No Rights Triggered. Each of Bay and Avalon shall take all
steps necessary to ensure that the entering into of this Agreement and the
consummation of the transactions contemplated hereby and any other action or
combination of actions, or any other transactions contemplated hereby, do not
and will not result in the grant of any rights to any person (i) under its
charter or by-laws, (ii) under any material agreement to which it or any of its
Subsidiaries is a party, or (iii) to exercise or receive certificates for Bay
Rights or Avalon Rights, or acquire any property in respect of Bay Rights or
Avalon Rights, under the Bay Rights Agreement or the Avalon Rights Agreement, as
the case may be.
6.10. Shares Listed. In the case of Bay, Bay shall use its
reasonable best efforts to list, prior to the Effective Date, on the NYSE and
PCX, upon official notice of issuance, the shares of Bay Common Stock to be
issued to the holders of Avalon Common Stock in the Merger.
6.11. Filings; Consents. Each of Bay and Avalon shall have the
right to review in advance, and to the extent practicable each will consult with
the other, in each case subject to applicable laws relating to the exchange of
information, with respect to, all material written information submitted to any
third party or any Governmental Entity in connection with the transactions
contemplated by this Agreement. In exercising the foregoing right, each of the
parties hereto agrees to act reasonably and as promptly as practicable. Each
party hereto agrees that it will consult with the other party hereto with
respect to the obtaining of all material permits, consents, approvals and
authorizations of all third parties and Governmental Entities necessary or
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advisable to consummate the transactions contemplated by this Agreement and each
party will keep the other parties apprised of the status of material matters
relating to completion of the transactions contemplated hereby.
6.12. Indemnification; Directors' and Officers' Insurance. (a) In
the event of any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal or administrative, in which any person
who is now, or has been at any time prior to the date hereof, or who becomes
prior to the Effective Time, a director, officer or employee of Avalon or any of
its Subsidiaries or of Bay or any of its Subsidiaries is, or is threatened to
be, made a party based in whole or in part on, or arising in whole or in part
out of, or pertaining to this Agreement, the Stock Option Agreements, or any of
the transactions contemplated hereby or thereby or any actions taken by any such
person in connection herewith or therewith, whether in any case asserted or
arising before or after the Effective Time, the parties hereto agree to
cooperate and use their best efforts to defend against and respond thereto. It
is understood and agreed that after the Effective Time, Bay shall indemnify and
hold harmless, as and to the fullest extent permitted by Maryland law, each
person who is now, or has been at any time prior to the date hereof, or who
becomes prior to the Effective Time, a director or officer of Avalon or any of
its Subsidiaries (the "Indemnified Parties") against any losses, claims,
damages, liabilities, costs, expenses (including advancing reasonable attorney's
fees and expenses in advance of the final disposition of any claim, suit,
proceeding or investigation to each Indemnified Party to the fullest extent
permitted by law upon receipt of an undertaking from such Indemnified Party to
repay such advanced expenses if it is finally and unappealably determined that
such Indemnified Party was not entitled to indemnification hereunder),
judgments, fines and amounts paid in settlement in connection with any such
threatened or actual claim, action, suit, proceeding or investigation, and in
the event of any such threatened or actual claim, action, suit, proceeding or
investigation (whether asserted or arising before or after the Effective Time
and including any such threatened or actual claim, action, suit, proceeding or
investigation based in whole or in part on, or arising in whole or in part out
of, or pertaining to (i) the fact that he or she is or was a director, officer
or employee of Avalon, any of Avalon's Subsidiaries or any of their respective
predecessors or was prior to the Effective Time serving at the request of any
such party as a director, officer, employee, fiduciary or agent of another
corporation, partnership, trust or other enterprise, or (ii) this Agreement, the
Stock Option Agreements, or any of the transactions contemplated hereby or
thereby and all actions taken by an Indemnified Party in connection herewith or
therewith), and the Indemnified Parties may retain counsel after consultation
with Bay; provided, however, that (1) Bay shall have the right to assume the
defense thereof and upon such assumption Bay shall not be liable to any
Indemnified Party for any legal expenses of other counsel or any other expenses
subsequently incurred by any Indemnified Party in connection with the defense
thereof, except that if Bay elects not to assume such defense, or counsel for
the Indemnified Parties reasonably advises the Indemnified Parties that there
are or may be (whether or not any have yet actually arisen) issues which raise
conflicts of interest between Bay and the Indemnified Parties, the Indemnified
Parties may retain counsel reasonably satisfactory to them, and Bay shall pay
the reasonable fees and expenses of such counsel for the Indemnified Parties,
(2) Bay shall be obligated pursuant to this paragraph to pay for only one firm
of counsel for all Indemnified Parties, (3) Bay shall not be liable for any
settlement effected without its prior written consent (which consent shall not
be unreasonably withheld) and (4) Bay shall have no obligation hereunder to
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any Indemnified Party when and if a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final and
nonappealable, that indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law. Any Indemnified Party
wishing to claim indemnification under this Section 6.12, upon learning of any
such claim, action, suit, proceeding or investigation, shall notify Bay thereof,
provided that the failure to so notify shall not affect the obligations of Bay
under this Section 6.12 except (and only) to the extent such failure to notify
materially prejudices Bay. Bay's obligations under this Section 6.12 shall
continue in full force and effect for a period of six (6) years from the
Effective Time; provided, however, that all rights to indemnification in
respect of any claim (a "Claim") asserted or made within such period shall
continue until the final disposition of such Claim.
(b) Without limiting any of the obligations under paragraph (a) of
this Section 6.12, Bay agrees that all rights to indemnification and all
limitations of liability existing in favor of the Indemnified Parties as
provided in Avalon's charter or by-laws or in the similar governing documents of
any of Avalon's Subsidiaries as in effect as of the date hereof with respect to
matters occurring on or prior to the Effective Time shall survive the Merger and
shall continue in full force and effect, without any amendment thereto, for a
period of six (6) years from the Effective Time; provided, however, that all
rights to indemnification in respect of any Claim asserted or made within such
period shall continue until the final disposition of such Claim; provided
further, however, that nothing contained in this Section 6.12(b) shall be deemed
to preclude the liquidation, consolidation or merger of Avalon or any Avalon
Subsidiary, in which case all of such rights to indemnification and limitations
on liability shall be deemed to so survive and continue notwithstanding any such
liquidation, consolidation or merger and shall constitute rights which may be
asserted against Bay. Nothing contained in this Section 6.12(b) shall be deemed
to preclude any rights to indemnification or limitations on liability provided
in Avalon's Amended and Restated Articles of Incorporation or the similar
governing documents of any of Avalon's Subsidiaries with respect to matters
occurring subsequent to the Effective Time to the extent that the provisions
establishing such rights or limitations are not otherwise amended to the
contrary.
(c) Bay shall use its best efforts to cause the persons serving as
officers and directors of Avalon immediately prior to the Effective Time to be
covered for a period of six (6) years from the Effective Time by the directors'
and officers' liability insurance policy maintained by Avalon (provided that Bay
may substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are not less advantageous to such
directors and officers of Avalon than the terms and conditions of such existing
policy) with respect to acts or omissions occurring prior to the Effective Time
which were committed by such officers and directors in their capacity as such.
(d) In the event Bay or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Bay shall
assume the obligations set forth in this Section 6.12.
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(e) The provisions of this Section 6.12 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or her
heirs and representatives.
6.13. Compensation and Benefit Plans. (a) It is the intention of
the parties that the Surviving Corporation shall formulate Compensation and
Benefit Plans for the Surviving Corporation and its Subsidiaries, with respect
to employees of both Bay and Avalon that provide benefits for services after the
Effective Time on a basis that does not discriminate between such employees.
Employees of Avalon and its Subsidiaries immediately prior to the Effective Time
who become employees of the Surviving Corporation or one of its Subsidiaries
immediately after the Effective Time shall be given credit for purposes of
eligibility and vesting of employee benefits and benefit accrual for service
with Avalon and its affiliates, and predecessors of Avalon and its affiliates,
prior to the Effective Time under each benefit plan of the Surviving Corporation
and its Subsidiaries to the extent such service had been credited under employee
benefit plans of Avalon or its Subsidiaries, provided that no such crediting of
service results in duplication of benefits.
(b) In the case of Avalon Compensation and Benefit Plans under
which the employees' interests are based upon Avalon Common Stock, such
interests shall be based upon Bay Common Stock in accordance with Section 3.7
with respect to Avalon Stock Options and otherwise in accordance with the terms
of the Avalon Compensation and Benefit Plans and in an equitable manner.
6.14. Transfer and Gains Taxes. Bay and Avalon shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use, transfer, value added stock transfer and stamp taxes, any transfer,
recording, registration and other fees and any similar taxes which become
payable in connection with the Transactions (together with any related
interests, penalties or additions to tax, "Transfer and Gains Taxes"). From and
after the Effective Time, the Surviving Company shall pay, without deduction or
withholding from any amounts payable to the holders of Bay Common Stock
(including former holders of Avalon Common Stock), all Transfer and Gains Taxes
(other than any such taxes that are solely the liability of the holders of Bay
Common Stock under applicable state law).
6.15. Headquarters. The Surviving Corporation's executive
headquarters shall be located in the Alexandria, Virginia area, or in such other
location where the Chief Executive Officer shall be based, and the Surviving
Corporation shall have super-regional offices in the San Jose, California area,
where the President and Chief Operating Officer shall be based, and in the
Wilton, Connecticut area.
6.16. Notification of Certain Matters. Each of Bay and Avalon
shall give prompt notice to the other of any fact, event or circumstance known
to it that (i) is reasonably likely, individually or taken together with all
other facts, events and circumstances known to it, to result in any Material
Adverse Effect with respect to it or (ii) notwithstanding the standards set
forth in Section 5.2, would cause or constitute a material breach of any of its
representations, warranties, covenants or agreements contained herein.
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6.17. Interim Transactions Committee. Bay and Avalon shall
establish an interim transactions committee (the "Interim Transactions
Committee") consisting of the individuals listed on Exhibit A. Subject to any
approvals that may be required by law or otherwise on the part of Bay or Avalon,
the Interim Transactions Committee shall approve acquisition, budget and capital
improvement activities (including activities otherwise prohibited by Article IV
of this Agreement) of each of Bay and Avalon between the date hereof and the
Effective Time.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of each of the parties to consummate the Merger is
conditioned upon the satisfaction at or prior to the Effective Time of each of
the following:
7.1. Stockholder Vote. Approval of this Agreement and the
transactions contemplated hereby by the requisite votes of the respective
stockholders of Bay and of Avalon.
7.2. Governmental Approvals. All approvals of Governmental
Entities (except any approvals or consents relating to tax-exempt bonds)
required to consummate the transactions contemplated hereby shall have been
obtained and shall remain in full force and effect and all statutory waiting
periods in respect thereof (including the waiting period under the HSR Act, if
applicable) shall have expired.
7.3. Third Party Consents. All necessary consents or approvals of
all persons (other than Governmental Entities, except as related to tax-exempt
bonds) required for the consummation of the Merger (including those listed on
Section 5.3(f) of each party's respective Disclosure Schedule) shall have been
obtained and shall be in full force and effect, unless the failure to obtain any
such consent or approval is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Bay or Avalon, as the case may be.
7.4. No Injunction, Etc. No order, decree or injunction of any
court or agency of competent jurisdiction shall be in effect, and no law,
statute or regulation shall have been enacted or adopted, that enjoins,
prohibits or makes illegal consummation of any of the transactions contemplated
hereby; provided, however, that each of Bay and Avalon shall have used its
reasonable best efforts to prevent any such rule, regulation, injunction, decree
or other order, and to appeal as promptly as possible any injunction, decree or
other order that may be entered.
7.5. Representations, Warranties and Covenants of Avalon. In the
case of Bay's obligation to consummate the Merger: (i) each of the
representations and warranties contained herein of Avalon shall be true and
correct as of the date hereof and upon the Effective Date with the same effect
as though all such representations and warranties had been made on the Effective
Date, except for any such representations and warranties made as of a specified
date, which shall be true and correct as of such date, in any case subject to
the standard set forth in Section 5.2, (ii) each and all of the agreements and
covenants of Avalon to be performed and complied with pursuant to this Agreement
on or prior to the Effective Date shall have been duly
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performed and complied with in all material respects, and (iii) Bay shall have
received a certificate signed by the President, Chief Executive Officer or
Chief Financial Officer of Avalon, dated the Effective Date, to the effect set
forth in clauses (i) and (ii) of this Section 7.5.
7.6. Representations, Warranties and Covenants of Bay. In the case
of Avalon's obligation to consummate the Merger: (i) each of the representations
and warranties contained herein of Bay shall be true and correct as of the date
hereof and upon the Effective Date with the same effect as though all such
representations and warranties had been made on the Effective Date, except for
any such representations and warranties made as of a specified date, which shall
be true and correct as of such date, in any case subject to the standard set
forth in Section 5.2, (ii) each and all of the agreements and covenants of Bay
to be performed and complied with pursuant to this Agreement on or prior to the
Effective Date shall have been duly performed and complied with in all material
respects, and (iii) Avalon shall have received a certificate signed by the
President, Chief Executive Officer or Chief Financial Officer of Bay, dated the
Effective Date, to the effect set forth in clauses (i) and (ii) of this Section
7.6.
7.7. Effective Registration Statement. The Registration Statement
shall have become effective and no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC or any other
Governmental Entity.
7.8. Tax Opinion Relating to the Merger. Bay and Avalon shall have
received an opinion from ▇▇▇▇▇▇▇, Procter & ▇▇▇▇ LLP, in the case of Bay, and
Wachtell, Lipton, ▇▇▇▇▇ & ▇▇▇▇, in the case of Avalon, dated in each case as of
the Closing Date, substantially to the effect that, on the basis of the facts,
representations and assumptions set forth in such opinions which are consistent
with the state of facts existing at the Closing Date, the Merger will be treated
for Federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code and that accordingly:
(i) No gain or loss will be recognized by Bay or Avalon
as a result of the Merger;
(ii) No gain or loss will be recognized by the stockholders of
Avalon who exchange all of their Avalon Common Stock solely for Bay
Common Stock pursuant to the Merger (except with respect to cash
received in lieu of a fractional share interest in Bay Common
Stock); and
(iii) The aggregate tax basis of the Bay Common Stock received
by stockholders who exchange all of their Avalon Common Stock solely
for Bay Common Stock in the Merger will be the same as the aggregate
tax basis of Avalon Common Stock surrendered in exchange therefor
(reduced by any amount allocable to a fractional share interest for
which cash is received).
In rendering such opinions, such counsel may require and rely upon
representations and covenants including those contained in certificates of
officers of Bay, Avalon and others, reasonably satisfactory in form and
substance to such counsel.
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7.9. Tax Opinion Relating to REIT Status. Bay and Avalon shall
have received an opinion from ▇▇▇▇▇▇▇, Procter & ▇▇▇▇ LLP, dated as of the
Closing Date, substantially to the effect that the Surviving Corporation will
continue to qualify as a REIT for federal income tax purposes immediately after
the Effective Time. In rendering such opinion, ▇▇▇▇▇▇▇, Procter & ▇▇▇▇ LLP may
require and rely upon customary assumptions, representations and covenants
including those contained in certificates of officers of Bay, Avalon and others,
reasonably satisfactory in form and substance to such counsel.
7.10. NYSE Listing. The shares of Bay Common Stock issuable
pursuant to this Agreement shall have been approved for listing on the NYSE,
subject to official notice of issuance.
7.11. Rights Agreements. In the case of Bay's obligation to
consummate the Merger, there shall exist no "Share Acquisition Date",
"Distribution Date" or "Triggering Event" (as each of such terms is defined in
the Avalon Rights Agreement) under the Avalon Rights Agreement. In the case of
Avalon's obligation to consummate the Merger, there shall exist no "Stock
Acquisition Date", "Distribution Date" or "Triggering Event" (as each of such
terms is defined in the Bay Rights Agreement) under the Bay Rights Agreement.
7.12. REIT Income. In the case of Bay's obligation to consummate
the Merger, prior to the Effective Date, to the extent necessary to satisfy the
requirements of Section 857(a)(1) of the Code for the taxable year of Avalon
ending at the Effective Time (and avoid the payment of tax with respect to
undistributed income), Avalon shall declare a dividend (the "Final Company
Dividend") to holders of Avalon Common Shares, the record date for which shall
be the close of business on the last business day prior to the Effective Time,
in an amount equal to the minimum dividend sufficient to permit Avalon to
satisfy such requirements. If Avalon determines it necessary to declare the
Final Company Dividend, it shall notify Bay at least 15 days prior to the
Effective Date.
It is specifically provided, however, that a failure to satisfy the
conditions set forth in Sections 7.5 or 7.12 shall only constitute a condition
if asserted by Bay, and a failure to satisfy the condition set forth in Section
7.6 shall only constitute a condition if asserted by Avalon.
ARTICLE VIII
TERMINATION
8.1. Termination. This Agreement may be terminated, and the Merger
may be abandoned:
(a) Mutual Consent. At any time prior to the Effective Time, by the
mutual consent of Bay and Avalon in a written instrument, if the Board of
Directors of each so determines by vote of a majority of the members of its
entire Board.
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(b) Breach. At any time prior to the Effective Time, by Bay or
Avalon (provided that the terminating party is not then in material breach of
any representation, warranty, covenant or other agreement contained herein), if
its Board of Directors so determines by vote of a majority of the members of its
entire Board, in the event of either: (i) a breach by the other party of any
representation or warranty contained herein (subject to the standards set forth
in Section 5.2), which breach cannot be or has not been cured within 30 days
after the giving of written notice to the breaching party of such breach; or
(ii) a material breach by the other party of any of the covenants or agreements
contained herein, which breach cannot be or has not been cured within 30 days
after the giving of written notice to the breaching party of such breach.
(c) Delay. At any time prior to the Effective Time, by Bay or
Avalon, if its Board of Directors so determines by vote of a majority of the
members of its entire Board, in the event that the Merger is not consummated by
November 30, 1998, except to the extent that the failure of the Merger then to
be consummated arises out of or results from the failure of the party seeking to
terminate this Agreement to perform or observe the covenants and agreements of
such party set forth herein.
(d) No Approval. By Bay or Avalon, if its Board of Directors so
determines by a vote of a majority of the members of its entire Board, in the
event (i) any Governmental Entity of competent jurisdiction shall have issued a
final nonappealable order enjoining or otherwise prohibiting the consummation of
the transactions contemplated by this Agreement, or (ii) any stockholder
approval required by Section 7.1 herein is not obtained at the Bay Meeting or
the Avalon Meeting.
(e) Recommendation Altered. By either the Board of Directors of Bay
or the Board of Directors of Avalon, if the Board of Directors of the other
party shall have withdrawn, modified or changed in a manner adverse to the
terminating party its approval or recommendation of this Agreement and the
transactions contemplated hereby.
8.2. Effect of Termination and Abandonment. In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, no party to this Agreement shall have any liability or further
obligation to any other party hereunder except (i) as set forth in Section 8.3,
(ii) as set forth in Section 9.1, and (iii) that termination will not relieve a
breaching party from liability for any willful breach of this Agreement giving
rise to such termination.
8.3. Break-Up Expenses. In addition to any other fees and expenses
payable under this Agreement, in the event of termination of this Agreement
under Section 8.1(b) or Section 8.1(e) above, or in the event that either party
terminates this Agreement pursuant to clause (ii) of Section 8.1(d) due to the
failure to obtain the approval of stockholders of the other party, such
terminating party ("Recipient") shall be entitled to receive from the other
party ("Payor") Break-Up Expenses at the time of such termination or at such
other time or times as provided for in this Section 8.3. "Break-Up Expenses"
shall be an amount equal to $10,000,000. Upon termination necessitating the
payment of Break-Up Expenses, Payor shall immediately deposit into escrow with
an escrow agent selected by Recipient an amount in cash equal to the Break-Up
Ex-
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penses. The escrow agent shall pay to Recipient an amount equal to the lesser
of (i) the Break-Up Expenses and (ii) the maximum amount that can be paid to
Recipient without causing Recipient, to fail to meet the requirements of
Sections 856(c)(2) and (3) of the Code determined as if the payment of such
amount did not constitute income described in Sections 856(c)(2)(A)-(H) and
856(c)(3)(A)-(I) of the Code ("Qualifying Income"), as determined by the
independent accountants of Recipient. In the event that all or any portion of
the Break-Up Expenses remains in escrow after payment of the amount, if any,
required by the preceding sentence, the escrow agreement shall provide that the
Recipient shall not be entitled to the remainder of the Break-Up Expenses and no
amount thereof shall be released to Recipient unless and until the escrow agent
receives any one or combination of the following: (i) a letter from Recipient's
outside counsel ("Break-Up Expenses Tax Opinion") indicating that it has
received a ruling from the IRS the effect of which holds that Recipient's
receipt of the Break-Up Expenses would not jeopardize its status as a REIT
("REIT Requirements"), and that receipt by Recipient of the remaining balance of
the Break-Up Expenses following the receipt of and pursuant to such ruling would
not be deemed constructively received prior thereto (in which case the escrow
agent shall release the remainder of the Break-Up Expenses in escrow to
Recipient) or (ii) a letter (or a series of letters) from the independent
accountants of Recipient, each indicating any additional amounts that Recipient
can be entitled to and can be paid at that time without causing it to fail to
meet the REIT Requirements (in which case the escrow agent shall release such
additional amounts from escrow to Recipient). The obligation of Payor to pay any
unpaid portion of the Break-Up Expenses shall terminate three years from the
date hereof, and any unpaid portion of the Break-Up Expenses remaining in escrow
three years from the date hereof shall be released to Payor and the escrow shall
terminate at that time.
ARTICLE IX
MISCELLANEOUS
9.1. Survival. All representations, warranties, agreements and
covenants contained in this Agreement shall not survive the Effective Time or
termination of this Agreement if this Agreement is terminated prior to the
Effective Time; provided, however, that if the Effective Time occurs, the
agreements of the parties in Sections 3.4, 3.7, 6.12, 6.13, 6.14, 6.15, 9.1,
9.4 and 9.8 shall survive the Effective Time, and if this Agreement is
terminated prior to the Effective Time, the agreements of the parties in
Sections 6.5(b), 8.2, 8.3, 9.1, 9.2, 9.4, 9.5, 9.6, 9.7 and 9.8 shall survive
such termination.
9.2. Waiver; Amendment. Subject to compliance with applicable law,
prior to the Effective Time, any provision of this Agreement may be (i) waived
by the party benefited by the provision, or (ii) amended or modified at any
time, by an agreement in writing between the parties hereto approved by their
respective Boards of Directors and executed in the same manner as this
Agreement.
9.3. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to constitute an original.
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9.4. Governing Law. This Agreement shall be governed by,
and interpreted in accordance with, the laws of the State of Maryland,
without regard to the conflict of law principles thereof.
9.5. Expenses. Each party hereto will bear all expenses incurred
by it in connection with this Agreement and the transactions contemplated
hereby, except that printing expenses and SEC filing and registration fees, HSR
filing fees, if any, and NYSE and PCX listing fees shall be shared equally
between Bay and Avalon.
9.6. Confidentiality. Each of the parties hereto and their
respective agents, attorneys and accountants will maintain the confidentiality
of all information provided in connection herewith in accordance, and subject to
the limitations of, the Confidentiality Agreement.
9.7. Notices. All notices, requests and other communications
hereunder to a party shall be in writing and shall be deemed given if personally
delivered, telecopied (with confirmation) or mailed by registered or certified
mail (return receipt requested) to such party at its address set forth below or
such other address as such party may specify by notice to the parties hereto.
If to Bay, to:
Bay Apartment Communities, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, #▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Chairman and President
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to:
▇▇▇▇▇▇▇, Procter & ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, P.C.
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, P.C.
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
If to Avalon, to:
Avalon Properties, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Chairman and Chief Executive Officer
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
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With copies to:
Wachtell, Lipton, ▇▇▇▇▇ & ▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
9.8. Understanding; No Third Party Beneficiaries. Except for the
Confidentiality Agreement, which shall remain in effect, and the Stock Option
Agreements, this Agreement represents the entire understanding of the parties
hereto with reference to the transactions contemplated hereby and thereby and
supersede any and all other oral or written agreements heretofore made. Except
for Section 6.12, nothing in this Agreement, expressed or implied, is intended
to confer upon any person, other than the parties hereto or their respective
successors, any rights, remedies, obligations or liabilities under or by reason
of this Agreement.
9.9. Headings; Interpretation. The headings contained in this
Agreement are for reference purposes only and are not part of this Agreement.
The word "including" and words of similar import when used in this Agreement
shall mean "including, without limitation," unless the context otherwise
requires or unless otherwise specified. Words of number may be read as singular
or plural, as required by context.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
BAY APARTMENT COMMUNITIES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
AVALON PROPERTIES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chief Executive Officer