Shareholder Agreement - Bay Apartment Communities Inc. and Central States, Southeast and Southwest Areas Pension Fund
SHAREHOLDER AGREEMENT
This Shareholder Agreement, dated as of March 9, 1998 (this
"Agreement"), is among Bay Apartment Communities, Inc., a Maryland corporation
(the "Company"), and Central States, Southeast and Southwest Areas Pension Fund
(the "Stockholder"), acting by and through its agent, LaSalle Advisors Capital
Management, Inc. ("LaSalle"), a registered investment advisor and successor to
LaSalle Advisors Limited Partnership.
RECITALS:
A. As of the date hereof, the Stockholder owns 2,308,800 shares of
Series A Preferred Stock, par value $0.01 per share (the "Series A Preferred
Stock"), and 405,022 shares of Series B Preferred Stock, par value $.01 per
share (the "Series B Preferred Stock"), of the Company (collectively, the shares
of Series A Preferred Stock and Series B Preferred Stock are hereinafter
referred to as the "Shares");
B. The Company proposes to enter into an Agreement and Plan of Merger,
dated on or about the date hereof (as the same may be amended from time to time,
the "Merger Agreement"), which will provide, on the terms and subject to the
conditions thereof, for the merger of Avalon Properties, Inc. with and into the
Company and/or any of its affiliates (the "Merger"); and
C. As a condition to the willingness of the Company to enter into the
Merger Agreement, the Company has requested that the Stockholder agree, and, in
order to induce the Company to enter into the Merger Agreement, the Stockholder
is willing to agree, to convert, or to cause to be converted, the Shares into
shares of common stock, par value $.01 per share (the "Common Stock"), of the
Company pursuant to the terms and conditions hereof.
NOW, THEREFORE, the parties hereto agree as follows:
I. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to the Company as
follows:
1.1 Due Authority. The Stockholder has full power and authority to
execute and deliver this Agreement and to perform its obligations hereunder and
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by or on behalf of the Stockholder and, assuming its due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of the Stockholder, enforceable against it in accordance
with its terms.
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1.2 No Conflict; Consents.
(a) The execution and delivery of this Agreement by the
Stockholder does not, and the performance by the Stockholder of its obligations
under this Agreement and the compliance by the Stockholder with the provisions
hereof do not and will not, conflict with or violate (i) the advisory agreement
between LaSalle and the Stockholder (the "Advisory Agreement") or (ii) any law,
statute, rule, regulation, order, writ, judgment or decree referred to in the
Advisory Agreement applicable to the Stockholder or the Shares.
(b) The execution and delivery of this Agreement by the
Stockholder does not, and the performance of this Agreement by the Stockholder
will not, require any consent, approval, authorization or permit of, or filing
with (except for applicable requirements, if any, of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), or notification to, any government or
regulatory authority by the Stockholder.
(c) Only the Stockholder has, and during the Conversion Term will
have, any right, directly or indirectly, to convert or control the conversion of
the Shares.
1.3 Title to Shares. Each of Mellon Bank, N.A. ("Mellon"), as custodian,
with respect to all the outstanding shares of Series A Preferred Stock, and CS &
Co., with respect to all the outstanding shares of Series B Preferred Stock, (a)
is the record owner of the Shares free and clear, to the Stockholder's
knowledge, of any proxy or voting restriction other than pursuant to that
certain Proxy Agreement, dated as of the date hereof, between the Company and
the Stockholder (the "Proxy Agreement") and (b) has, and prior to their
conversion pursuant to this Agreement will have (subject to the possible
termination of Mellon's right to act as custodian, it being understood that no
such termination shall affect any of the Company's rights or any of the
Stockholder's obligations hereunder or under the Irrevocable Proxy given to the
Company by Mellon), the sole right to convert (subject to the direction of
LaSalle) the Shares.
II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Stockholder as
follows:
2.1 Due Authority. The Company has full power, corporate or otherwise,
and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement has been duly executed and delivered by or
on behalf of the Company and, assuming its due authorization, execution and
delivery by the Stockholder, constitutes a legal, valid and binding obligation
of the Company enforceable against it in accordance with its terms.
2.2 No Conflict; Consents. (a) The execution and delivery of this
Agreement does
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not, and the performance by the Company of its obligations contemplated by this
Agreement and its compliance with any provisions hereof do not and will not, (i)
conflict with or violate any law, statute, rule, regulation, order, writ,
judgment or decree applicable to such party, (ii) conflict with or violate the
Company's charter or bylaws, or (iii) result in any breach of or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company is a party or by which the Company is bound.
(b) The execution and delivery of this Agreement by the Company
does not, and the performance of this Agreement by the Company will not, require
any consent, approval, authorization or permit of, or filing with (except for
applicable requirements, if any, of the Exchange Act) or notification to, any
governmental or regulatory authority by the Company.
2.3 Affiliate Status. Assuming the Stockholder and LaSalle do not
increase their stock ownership in the Company and that the other current
relevant facts and circumstances do not change, the Company will not take the
position that either the Stockholder or LaSalle is an "affiliate" of the Company
as that term is defined in Rule 144 under the Securities Act of 1933, as
amended.
III. CERTAIN COVENANTS OF THE STOCKHOLDER
The Stockholder hereby covenants and agrees with the Company as follows:
3.1 Right to Convert. The Stockholder acknowledges and affirms that the
execution of the Merger Agreement by the Company will result in the right of the
Stockholder, pursuant to the terms of (A) Section 4.1(iii) of the Articles
Supplementary to the Company's Articles of Incorporation relating to the rights,
preferences and privileges of the Series A Preferred Stock (the "Series A
Articles Supplementary") and (B) Section 4.1(iii) of the Articles Supplementary
to the Company's Articles of Incorporation relating to the rights, preferences
and privileges of the Series B Preferred Stock (the "Series B Articles
Supplementary"), to convert the Shares into Common Stock.
3.2 Agreement Not to Convert. Notwithstanding anything contained in
Section 3.1 hereof, the Stockholder agrees that it shall not exercise its right
to convert the Shares into Common Stock as a result of the execution of the
Merger Agreement except as required by and pursuant to the terms of Section 3.3
hereof.
3.3 Conversion of Shares. On the date (the "Conversion Date") which is
two business days after the record date (the "Record Date") for determining the
holders of common stock of the Company entitled to notice of and to vote at any
annual or special meeting of stockholders called to approve the Merger Agreement
and the other transactions contemplated
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by the Merger, the Stockholder shall exercise its right to convert, or otherwise
cause to be converted, 1,345,000 shares of Series A Preferred Stock into an
aggregate of 1,345,000 shares (as adjusted, if hereafter required, pursuant to
the terms of the Series A Articles Supplementary) of Common Stock in accordance
with Section 3.4 hereof; provided, however, that if such number of shares of
Common Stock would then equal more than 4.9% of the number of shares of the
Company's Common Stock to be outstanding immediately after such conversion, the
number of shares of Series A Preferred Stock to be converted shall instead be
reduced so that the number of shares of Common Stock issued upon such conversion
will equal 4.9% of the number of shares of the Company's Common Stock to be
outstanding immediately after such conversion. If at any later date additional
shares of either Series A Preferred Stock or Series B Preferred Stock could be
converted without causing the 4.9% Limitation (as defined in the Series A
Articles Supplementary and Series B Articles Supplementary) to be exceeded, the
Stockholder will convert or cause to be converted such shares promptly (and will
convert or cause to be converted all shares of Series A Preferred Stock before
converting any shares of Series B Preferred Stock); provided, however, that it
shall have no obligation to do so unless the additional number of shares of
Common Stock which would be issued upon such conversions without exceeding the
4.9% Limitation would equal at least .5% of the number of shares of Common Stock
then outstanding or unless all of the then remaining outstanding shares of
Series A Preferred Stock could then be converted without exceeding the 4.9%
Limitation. In connection therewith, the Company agrees to provide written
notice to the Stockholder of the Record Date within 48 hours after it has been
fixed and publicly announced by the Company.
3.4 Procedure for Conversion. In order to convert the Shares into Common
Stock, the Stockholder shall comply with the procedures set forth in the Series
A Articles Supplementary or Series B Articles Supplementary, as the case may be,
except that even if the Stockholder does not comply with such procedures, at the
Company's election the Shares shall be deemed to have been converted immediately
prior to the close of business on the Conversion Date (or, in the event of
conversions after the Conversion Date, on the applicable date by which the
conversion should have occurred), and the person(s) entitled to receive the
Common Stock issuable upon such conversion shall be deemed for all purposes to
be record holder(s) of such Common Stock as of the close of business on such
Conversion Date (or, in the event of conversions after the Conversion Date, on
the applicable date by which the conversion should have occurred).
3.5 Transfer of Shares. (a) Except pursuant to the Proxy Agreement,
prior to the conversion of the Shares the Stockholder shall not, and shall not
permit anyone else to, (i) sell, tender, encumber, pledge, assign or otherwise
dispose of any of the Shares, (ii) deposit the Shares into a voting trust or
enter into a voting agreement or arrangement with respect to the Shares or grant
any proxy or power of attorney with respect thereto, or (iii) enter into any
contract, option or other legally binding undertaking providing for any
transaction listed in (i) or (ii) of this Section 3.5, unless prior thereto the
proposed transferee or pledgee shall have entered into a written agreement with
the Company, containing terms and conditions
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satisfactory to the Company, in which such transferee or pledgee shall agree to
be bound by all the terms and conditions of this Agreement.
(b) The Stockholder agrees to take such further action and
execute such other instruments as may be reasonably necessary to effectuate the
intent of this Agreement.
3.6 Legend. The Stockholder agrees it will use commercially reasonable
efforts to, and will instruct the custodian of the Shares to, tender to the
Company, within ten days after the date hereof, the certificates representing
the Shares and the Company will inscribe upon such certificates the following
legend: "The shares of preferred stock of Bay Apartment Communities, Inc. (the
"Company") represented by this certificate are subject to a Shareholder
Agreement dated as of March 9, 1998, and may not be converted, sold or otherwise
transferred except in accordance therewith. Copies of such Agreement may be
obtained at the principal executive offices of the Company upon request and
without charge."
IV. CONSIDERATION
As an inducement to the Stockholder to convert Shares pursuant to the
provisions of Article III hereof, the Company shall pay the Stockholder, at the
time of the conversion on the Conversion Date of the number of Shares required
to be converted pursuant to the first sentence of Section 3.3 hereof, Four
Hundred Eighty-Five Thousand Dollars ($485,000).
V. MISCELLANEOUS; GENERAL PROVISIONS
5.1 Severability. If any term or other provision of this Agreement is
determined to be invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement will
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto will negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
5.2 Entire Agreement. This Agreement constitutes the entire agreement of
the parties and supersedes all prior agreements and undertakings, both written
and oral, between the parties with respect to the subject matter hereof.
5.3 Amendments. This Agreement may not be modified, amended, waived,
altered or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto.
5.4 Assignment. This Agreement may not be assigned by either party
hereto by operation of law or otherwise without the other party's consent and is
binding on each party's successors and permitted assignees.
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5.5 Parties in Interest. This Agreement is binding upon, and shall inure
solely to the benefit of, each party hereto and nothing in this Agreement,
express or implied, is intended to or will confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
5.6 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof or was otherwise breached. It is
accordingly agreed that the parties will be entitled to specific relief
hereunder including, without limitation, an injunction or injunctions to prevent
and enjoin breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof, in any state or federal court in
the State of Maryland, in addition to any other remedy to which they may be
entitled at law or in equity. Any requirements for the securing or posting of
any bond with respect to any such remedy are hereby waived.
5.7 Governing Law; Jurisdiction and Venue. This Agreement shall be
governed by, and construed in accordance with, the internal laws of the State of
Maryland without regard to its rules of conflict of laws. The parties hereto
hereby irrevocably and unconditionally consent to and submit to the exclusive
jurisdiction of the federal and state Maryland courts for any litigation arising
out of or relating to this Agreement and the transactions contemplated hereby
(and agree not to commence any litigation relating thereto except in such
courts), waive any objection to the laying of venue of any such litigation in
such Maryland courts and agree not to plead or claim in any such Maryland court
that such litigation brought therein has been brought in any inconvenient forum.
5.8 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed will be deemed to be an original but all of which taken
together will constitute one and the same agreement.
5.9 Termination. Except for Section 2.3 hereof, this Agreement shall
terminate upon the earlier of (i) the termination of the Merger Agreement and
(ii) the consummation of the Merger in accordance with the terms of the Merger
Agreement.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first written above.
BAY APARTMENT COMMUNITIES, INC.
By: /s/ Gilbert M. Meyer
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Name: Gilbert M. Meyer
Title: President
CENTRAL STATES, SOUTHEAST AND
SOUTHWEST AREAS PENSION FUNDS
By Its Agent:
LaSalle Advisors Capital Management, Inc.
By: /s/ Stanley J. Kraska, Jr.
-------------------------------------
Name: Stanley J. Kraska, Jr.
Title: Managing Director
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