AVALONBAY COMMUNITIES,
INC.
(As adopted September 9, 1999
and amended and restated November 18, 2008)
1.
Purpose . AvalonBay Communities, Inc. (the “
Company ”) considers it essential to the best
interests of its stockholders to foster the continuous employment
of key management personnel. The Board of Directors of the Company
(the “ Board ”) recognizes, however, that, as is
the case with many publicly held corporations, the possibility of a
Change in Control (as defined in Section 2 hereof) exists and
that such possibility, and the uncertainty and questions which it
may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company
and its stockholders. Therefore, the Board has determined that the
AvalonBay Communities, Inc. Officer Severance Plan (the “
Plan ”) should be adopted to reinforce and encourage
the continued attention and dedication of the Covered Employees (as
defined below) to their assigned duties without distraction in the
face of potentially disturbing circumstances arising from the
possibility of a Change in Control. The term “Covered
Employee” means any officer of the Company holding the
position of Vice President or higher (it being noted that any
officer receiving severance payments under any other agreement or
arrangement with the Company shall be subject to the limitation on
benefits hereunder set forth in the last sentence of Section 4
hereof) (each, a “ Covered Employee ”). Nothing
in this Plan shall be construed as creating an express or implied
contract of employment and, except as otherwise agreed in writing
between the Covered Employee and the Company or any of its
subsidiaries or affiliates (together with the Company, the “
Employers ”), the Covered Employee shall not have any
right to be retained in the employ of the Employers.
2. Change
in Control . For purposes of this Plan, a “Change in
Control” shall mean the occurrence of any one of the
following events:
(a) Any
individual, entity or group (a “ Person ”)
within the meaning of Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934 (the “ Act ”) (other than
the Company, any corporation, partnership, trust or other entity
controlled by the Company (a “ Subsidiary ”), or
any trustee, fiduciary or other person or entity holding securities
under any employee benefit plan or trust of the Company or any of
its Subsidiaries), together with all “affiliates” and
“associates” (as such terms are defined in
Rule 12b-2 under the Act) of such Person, shall become the
“beneficial owner” (as such term is defined in
Rule 13d-3 under the Act) of securities of the Company
representing 30% or more of the combined voting power of the
Company’s then outstanding securities having the right to
vote generally in an election of the Company’s Board of
Directors (“ Voting Securities ”), other than as
a result of (i) an acquisition of securities directly from the
Company or any Subsidiary or (ii) an acquisition by any
corporation pursuant to a reorganization, consolidation or merger
if, following such reorganization, consolidation or merger the
conditions described in clauses (i), (ii) and (iii) of
subparagraph (c) of this Section 2 are satisfied;
or
(b) Individuals
who, as of the Effective Date, constitute the Company’s Board
of Directors (the “ Incumbent Directors ”) cease
for any reason to constitute at least a majority of the Board,
provided, however, that any individual becoming a director of the
Company subsequent to the date hereof (excluding, for this purpose,
(i) any such individual whose initial assumption of office is
in connection with an actual or threatened election contest
relating to the election of members of the Board of Directors or
other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board of Directors,
including by reason of agreement intended to avoid or settle any
such actual or threatened contest or solicitation, and
(ii) any individual whose initial assumption of office is in
connection with a reorganization, merger or consolidation,
involving an unrelated entity and occurring after the date hereof),
whose election or nomination for election by the Company’s
shareholders was approved by a vote of at
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least a
majority of the persons then comprising Incumbent Directors shall
for purposes of this Plan be considered an Incumbent Director;
or
(c) Consummation
of a reorganization, merger or consolidation of the Company,
unless, following such reorganization, merger or consolidation,
(i) more than 50% of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting
power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the outstanding Voting Securities immediately
prior to such reorganization, merger or consolidation, (ii) no
Person (excluding the Company, any employee benefit plan (or
related trust) of the Company, a Subsidiary or the corporation
resulting from such reorganization, merger or consolidation or any
subsidiary thereof, and any Person beneficially owning, immediately
prior to such reorganization, merger or consolidation, directly or
indirectly, 30% or more of the outstanding Voting Securities),
beneficially owns, directly or indirectly, 30% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors, and (iii) at least a majority of
the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of
the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or
consolidation;
(d) Approval
by the shareholders of the Company of a complete liquidation or
dissolution of the Company; or
(e) The sale,
lease, exchange or other disposition of all or substantially all of
the assets of the Company, other than to a corporation, with
respect to which following such sale, lease, exchange or other
disposition (i) more than 50% of, respectively, the then
outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were
the beneficial owners of the outstanding Voting Securities
immediately prior to such sale, lease, exchange or other
disposition, (ii) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company or a
Subsidiary or such corporation or a subsidiary thereof and any
Person beneficially owning, immediately prior to such sale, lease,
exchange or other disposition, directly or indirectly, 30% or more
of the outstanding Voting Securities), beneficially owns, directly
or indirectly, 30% or more of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors and
(iii) at least a majority of the members of the board of
directors of such corporation were members of the Incumbent Board
at the time of the execution of the initial agreement or action of
the Board of Directors providing for such sale, lease, exchange or
other disposition of assets of the Company.
Notwithstanding
the foregoing, a “Change in Control” shall not be
deemed to have occurred for purposes of this Plan solely as the
result of an acquisition of securities by the Company which, by
reducing the number of shares of Voting Securities outstanding,
increases the proportionate voting power represented by the Voting
Securities beneficially owned by any Person to 30% or more of the
combined voting power of all then outstanding Voting Securities;
provided, however, that if any Person referred to in this sentence
shall thereafter become the beneficial owner of any additional
shares of Stock or other Voting Securities (other than pursuant to
a stock split, stock dividend, or similar transaction), then a
“Change in Control” shall be deemed to have occurred
for purposes of this Plan.
3.
Terminating Event . A “Terminating Event” shall
mean the termination of employment of a Covered Employee in
connection with any of the events provided in this Section 3
occurring within twenty-four (24) months following a Change in
Control. In addition, notwithstanding the foregoing, in the event
of the termination of employment of a Covered Employee in
connection with any of the events provided in this Section 3
within six (6) months prior to the occurrence of a Change in
Control (based on an event, such as a Notice of Termination, that
occurred within such six (6) month period prior to a Change in
Control), such termination shall, upon the occurrence
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of a Change in
Control, be deemed a Terminating Event under this Plan. To give
effect to the prior sentence, references in Sections 3(b)(ii),
(iii) and (iv) to circumstances existing
“immediately prior to a Change in Control” will be
interpreted to mean, in a case where the six month look-back of the
prior sentence is being applied, to circumstances existing
immediately prior to the change in circumstances.
(a) termination
by the Employers of the employment of the Covered Employee with the
Employers for any reason other than (i) for Cause or
(ii) as a result of the death or disability (as determined
under the Employers’ then existing long-term disability
coverage) of such Covered Employee. “Cause” shall mean,
and shall be limited to, the occurrence of any one or more of the
following events:
(i) the
Covered Employee is convicted of or enters a plea of nolo
contendere to an act which is defined as a felony under any
federal, state or local law, not based upon a traffic violation,
which conviction or plea has or can be expected to have, in the
good faith opinion of the Board of Directors or the CEO, a material
adverse impact on the business or reputation of the Company;
or
(ii) any one
or more acts of theft, larceny, embezzlement, fraud or material
intentional misappropriation from or with respect to the Company;
or
(iii) a
breach by the Covered Employee of his fiduciary duties under
Maryland law as an officer, or a material breach by the Covered
Employee of any rule, regulation, policy or procedure of the
Company that is generally announced or distributed to, and applies
to, all employees of the Company or a subset of employees that
includes the Covered Employee (including, without limitation, in
all events the Company’s ethics, sexual harassment and
insider trading policies); or
(iv) the
Covered Employee’s commission of any one or more acts of
gross negligence or willful misconduct which in the good faith
opinion of the Board of Directors or the CEO has resulted in
material harm to the business or reputation of the Company;
or
(v) the
deliberate or willful failure by the Covered Employee (other than
by reason of the Covered Employee’s physical or mental
illness, incapacity or disability) to substantially perform the
Covered Employee’s duties with the Employers and the
continuation of such failure for a period of fifteen (15) days
after written notice thereof.
A Terminating
Event shall not be deemed to have occurred pursuant to this Section
3(a) solely as a result of the Covered Employee being an employee
of any direct or indirect successor to the business or assets of
any of the Employers, rather than continuing as an employee of the
Employers following a Change in Control. For purposes of clauses
(iv) and (v) of this Section 3(a), no act, or
failure to act, on the Covered Employee’s part shall be
deemed “willful” unless done, or omitted to be done, by
the Covered Employee without reasonable belief that the Covered
Employee’s act, or failure to act, was in the best interest
of the Employers; or
(b) termination
by the Covered Employee of the Covered Employee’s employment
with the Employers for Good Reason. “Good Reason” shall
mean the occurrence of any of the following events:
(i) a
material adverse change in the functions, duties or
responsibilities of the Covered Employee’s position (other
than a termination of employment for Cause) which would reduce the
level, importance or scope of such position (a change in the person
and/or department to whom the Covered Employee is required to
report, or a change in the personnel that report to the Covered
Employee, shall not by itself constitute a material adverse change
in the Covered Employee’s position); or
(ii) the
relocation of the office at which the Covered Employee is
principally located immediately prior to the Change in Control (the
“Original Office”) to a new location outside of the
metropolitan area of the Original Office or the failure to locate
the Covered Employee’s own office
3
at the Original
Office (or at the office to which such office is relocated which is
within the metropolitan area of the Original Office); or
(iii) either
(X) the failure by the Company to continue in effect any
compensation plan or program in which the Covered Employee
participates immediately prior to a Change in Control which is
material to the Covered Employee’s total compensation, unless
comparable alternative arrangements (embodied in ongoing substitute
or alternative plans or programs) have been implemented with
respect to such plans or programs, or (Y) the failure by the
Company to continue the Covered Employee’s participation
therein following a Change in Control (or in such substitute or
alternative plans or programs) on a basis not materially less
favorable, in terms of the amount of benefits provided and the
level of the Covered Employee’s participation relative to
other participants, as existed during the last completed fiscal
year of the Company prior to the Change in Control (the occurrence
of either failure in clause (X) or (Y), a “ CIC
Compensation Failure ”); provided , however
, that in no event shall a CIC Compensation Failure have occurred
if:
(A) the value
of the Covered Employee’s total annual compensation following
a Change in Control, including, but not limited to, cash
compensation (including salary and bonus), stock grants (valued
using stock price less consideration paid), stock options (valued
using the Black-Scholes method or a variation thereof, as
determined by the Board of Directors or a compensation consultant
engaged by the Board of Directors) and benefits (valued using an
actuarial or similar valuation method), is at least 90% of the
Covered Employee’s total annual compensation in the last
fiscal year prior to the Change in Control; or
(B) (I) the
Covered Employee’s total annual cash compensation (including
salary and bonus) following a Change in Control is at least 90% of
what it was in the year prior to the Change in Control, with such
reasonable adjustments thereto as are necessary to give effect to
performance based bonuses (with respect to which the performance
criteria may reasonably be modified) and the level of performance
achieved with respect thereto;
(II) the
total value of the Covered Employee’s annual stock grants
(valued using stock price less consideration paid) following a
Change in Control are at least 90% of what they were in the year
prior to the Change in Control, with such reasonable adjustments
thereto as are necessary to give effect to (x) performance based
bonuses (with respect to which the performance criteria may
reasonably be modified) and the level of performance achieved with
respect thereto, and (y) to changes in the price of the
Company’s or the successor’s stock due to market
fluctuations;
(III) the
Covered Employee’s
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