FORM OF INDEMNITY
AGREEMENT
BETWEEN THE COMPANY AND EACH OF
ITS DIRECTORS
[The Company
has entered into an Indemnity Agreement with each of its Directors
in substantially the following form as of the following dates:
Bryce Blair-November 29, 2001; Bruce A.
Choate-October 30, 1998; John J. Healy, Jr.-October 30,
1998; Gilbert M. Meyer-October 30, 1998; Charles D. Peebler,
Jr.-November 29, 2001; Lance R. Primis-October 30, 1998;
Allan D. Schuster-October 30, 1998; Amy P.
Williams-November 29, 2001; Timothy J.
Naughton-November 7, 2005; and H. Jay Sarles-November 7,
2005.]
AGREEMENT, as of
___(the “Agreement”), between AvalonBay Communities,
Inc., a Maryland corporation (the “Company”) and
___(the “Indemnitee”).
WHEREAS, it is
essential to the success of the Company to retain and attract as
directors and officers the most capable persons
available;
WHEREAS,
Indemnitee has agreed to serve as a director of the
Company;
WHEREAS, both the
Company and Indemnitee recognize the increased risk of litigation
and other claims being asserted against directors and officers of
public companies in today’s environment;
WHEREAS, the
Bylaws (the “Bylaws”) and the Articles of Incorporation
(the ‘Articles”) of the Company require the Company to
indemnify and advance expenses to its directors and officers to the
fullest extent provided by law, and the Indemnitee has agreed to
serve as a director of the Company in part in reliance on such
provisions in the Bylaws and Articles;
WHEREAS, in
recognition of Indemnitee’s need for substantial protection
against personal liability in order to enhance Indemnitee’s
continued service to the Company in an effective manner and
Indemnitee’s reliance on the foregoing provisions in the
Bylaws and Articles, and in part to provide Indemnitee with
specific contractual protections in addition to those protections
promised Indemnitee in the Bylaws and Articles and with specific
contractual assurance that the protection promised by such
provisions in the Bylaws and Articles will be available to
Indemnitee (regardless of, among other things, any amendment to or
revocation of such provisions in the Bylaws or Articles or any
change in the composition of the Company’s Board of Directors
or any acquisition transaction relating to the Company), the
Company wishes to provide in this Agreement for the indemnification
of and the advancing of expenses to Indemnitee to the fullest
extent permitted by law, in addition to any other right to
indemnification to which Indemnitee may be entitled, and as set
forth in this Agreement and, to the extent insurance is maintained,
for the continued coverage of Indemnitee under the Company’s
directors’ and officers’ liability insurance
policies;
[Form of Indemnity
Agreement]
NOW THEREFORE, in
consideration of the premises and of the Indemnitee agreeing to
continue to serve as a director of the Company, and intending to be
legally bound hereby, the parties agree as follows:
(a)
Change in Control . Change in control shall be deemed to
have occurred upon any of the following events:
(i) The
acquisition in one or more transactions by any “Person”
(as the term person is used for purposes of Section 13(d) or 14(d)
of the Securities Exchange Act of 1934, as amended (the “1934
Act”)) of “Beneficial Ownership” (within the
meaning of Rule 13d-3 promulgated under the 1934 Act) of
twenty percent (20%) or more of the combined voting power of the
Company’s then outstanding voting securities (the
“Voting Securities”), provided , however
, that for purposes of this Section 1(a)(i), the Voting
Securities acquired directly from the Company by any Person shall
be excluded from the determination of such Person’s
Beneficial Ownership of voting securities (but such Voting
Securities shall be included in the calculation of the total number
of Voting Securities then outstanding); or
(ii) The
individuals who, as of the date hereof, are members of the Board
(the “Incumbent Board”), cease for any reason to
constitute at least two-thirds of the Board; provided, however,
that if the election, or nomination for election by the
Company’s shareholders, of any new director is hereafter
approved by a vote of at least two-thirds of the Incumbent Board,
such new director shall, for purposes of this Agreement, be
considered as a member of the Incumbent Board; or
(iii) Approval
by shareholders of the Company of (A) a merger or
consolidation involving the Company if the shareholders of the
Company immediately before such merger or consolidation do not own,
directly or indirectly immediately following such merger or
consolidation, more than eighty percent (80%) of the combined
voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation in
substantially the same proportion as their ownership of the Voting
Securities immediately before such merger or consolidation or
(B) a complete liquidation or dissolution of the Company or an
agreement for the sale or other disposition of all or substantially
all of the assets of the Company.
(iv) Notwithstanding
the foregoing, a Change in Control shall not be deemed to occur
solely because twenty percent (20%) or more of the then outstanding
Voting Securities is acquired by (i) a trustee or other
fiduciary holding securities under one or more employee benefit
plans maintained by the Company or any of its subsidiaries or
(ii) any corporation which, immediately prior to such
acquisition, is owned directly or indirectly by the shareholders of
the Company in the same proportion as their ownership of stock in
the Company immediately prior to such acquisition. Nor shall a
Change in Control be deemed to occur solely because any Person (the
“Subject Person”) acquired Beneficial Ownership of 20%
or more of the outstanding Voting
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[Form of Indemnity
Agreement]
Securities as a
result of the subsequent acquisition of Voting Securities by the
Company which, by reducing the number of Voting Securities
outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Person, provided that if a Change
in Control would occur (but for the operation of this sentence) as
a result of the acquisition of Voting Securities by the Company,
and after such share acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional Voting Securities
which increases the percentage of the then outstanding Voting
Securities Beneficially Owned by the Subject Person, then a Change
in Control shall occur.
(b)
Claim . Any threatened, pending or completed action, suit or
proceeding, or any inquiry or investigation, whether threatened,
commenced or conducted by the Company or any other party, that
Indemnitee in good faith believes might lead to the institution of
any such action, suit or proceeding, whether civil, criminal,
administrative, investigative or other.
(c)
Expenses . Expenses consist of attorneys’ fees and all
other costs, charges and expenses paid or incurred in connection
with investigating, defending, settling, being a witness in or
participating in (including on appeal), or preparing to defend, be
a witness in or participate in, any Claim relating to any
Indemnifiable Event.
(d)
Indemnifiable Event . Any event or occurrence related to the
fact that Indemnitee is, was or has agreed to become a director,
officer, employee, agent or fiduciary of the Company, or is, is
deemed to be, or was serving or has agreed to serve in any
capacity, at the request of the Company, in any other corporation,
partnership, joint venture, employee benefit plan, trust or other
enterprise, or by reason of anything done or not done by Indemnitee
in any such capacity. For the purposes of the preceding sentence,
the term “Company” shall be deemed to include Avalon
Properties, Inc., a Maryland corporation which was merged into the
Company on June 4, 1998.
(e)
Potential Change in Control . A potential change in control
shall be deemed to have occurred if (i) the Company enters
into an agreement or arrangement, the consummation of which would
result in the occurrence of a Change in Control; (ii) any
person (including the Company) publicly announces an intention to
take or to begins taking actions which if completed would
constitute a Change in Control; or (iii) the Board adopts a
resolution to the effect that, for purposes of this Agreement, a
Potential Change in Control has occurred.
(f)
Voting Securities . Any securities of the Company which vote
generally in the election of directors.
3
[Form of Indemnity
Agreement]
2.
Indemnification; Expenses; Procedure .
(a)
Basic Indemnification Agreement . In the event Indemnitee
was, is or becomes a party to or witness or other participant in,
or is threatened to be made a party to or witness or other
participant in, a Claim by reason of (or arising in part out of) an
Indemnifiable Event, the Company shall indemnify Indemnitee
(without regard to the negligence or other fault of the Indemnitee)
to the fullest extent permitted by applicable law, as soon as
practicable but in no event later than thirty days after written
demand is presented to the Company, against any and all Expenses,
judgments, fines, penalties, excise taxes and amounts paid or to be
paid in settlement (including all interest, assessments and other
charges paid or payable in connection with or in respect of such
Expenses, judgments, fines, penalties, excise taxes or amounts paid
or to be paid in settlement) of or in connection with such Claim,
provided , however , that the Company shall not be
required to indemnify Indemnitee for amounts paid or to be paid in
settlement unless such settlement is approved in advance by the
Company, which approval shall not be unreasonably withheld, or
subsequently deemed reasonable by the Company, a court of
appropriate jurisdiction, or an independent legal counsel chosen
and approved by both the Company and Indemnitee. The
Company’s obligation to indemnify Indemnitee under this
paragraph shall be deemed mandatory in all cases without regard to
the fault or negligence of Indemnitee unless it is determined, by
final adjudication, that the liability imposed upon Indemnitee was
the result of Indemnitee’s actual improper receipt of a
personal benefit or profit or of Indemnitee’s active and
deliberate dishonesty to the Company. The Company shall indemnify
Indemnitee’s spouse (whether by statute or at common law and
without regard to the location of the governing jurisdiction) and
children to the same extent and subject to the same limitations
applicable to Indemnitee hereunder for claims arising out of the
status of such person as a spouse or child of Indemnitee, including
claims seeking damages from marital property (including community
property) or property held by such Indemnitee and such spouse or
child or property transferred to such spouse or child but such
indemnity shall not otherwise extend to protect the spouse or child
against liabilities caused by the spouse’s or child’s
own acts. If Indemnitee makes a request to be indemnified under
this Agreement (which request need not be made prior to the
incurrence of any Indemnifiable Expenses), the Board of Directors
(acting by majority vote of a quorum consisting of directors who
are not parties to the Claim with respect to the Indemnifiable
Event or by majority vote of a committee of two or more directors
who are duly designated to act on the matter by the full Board, or,
if such a quorum is not obtainable and no such committee has been
designated, acting upon an opinion in writing of special
independent legal counsel selected by majority vote of the full
Board of Directors (“Board Action”)) shall, as soon as
practicable but in no event later than thirty days after such
request, authorize such indemnification. Notwithstanding anything
in the Company’s Restated Articles of Incorporation, as
amended from time to time, (the “Articles”), the
Company’s Bylaws, as amended from time to time, (the
“Bylaws”) or this Agreement to the contrary, following
a Change in Control Indemnitee shall, unless prohibited by law, be
entitled to indemnification pursuant to this Agreement in
connection with any Claim initiated by Indemnitee.
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[Form of Indemnity
Agreement]
(b)
Advancement of Expenses . Notwithstanding anything in the
Articles, the Bylaws or this Agreement to the contrary, if so
requested by Indemnitee, the Company shall advance (within ten
business days of such request) any and all Expenses relating to a
Claim to Indemnitee (an “Expense Advance”), upon the
receipt of a written undertaking by or on behalf of Indemnitee (and
without regard to any determination of Indemnitee’s financial
ability to repay such Expense Advance) to repay such Expense
Advance if a judgment or other final adjudication adverse to
Indemnitee establishes that Indemnitee, with respect to such Claim,
is not eligible for indemnification.
(c)
Notice to Insurers . If, at the time of the receipt of a
notice of a Claim pursuant to Section 2(c) hereof, the Company has
director and officer liability insurance in effect, the Company
shall give prompt notice of the commencement of such proceeding to
the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all
necessary or desirable action to cause such insurers to pay, on
behalf of the Indemnitee, all amounts payable as a result of such
proceeding in accordance with the terms of such
policies.
(d)
Selection of Counsel . In the event the Company
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