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EXHIBIT 10.4
[AvalonBay Letterhead]
July 30, 1999
[ADDRESS OF MR. MICHAUX/BLAIR/SLATER]
Dear :
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Reference is made to the employment agreement between you and AvalonBay
Communities, Inc. (sometimes referred to below as the "Company") dated March 9,
1998 (as the same has been or may hereafter be amended, the "Employment
Agreement"). This letter sets forth our understanding with regard to certain
matters related to, or certain interpretations of, the Employment Agreement.
Capitalized terms that are used herein and not defined herein have the meanings
given thereto in the Employment Agreement, and section references refer to
sections of the Employment Agreement.
(i) TREATMENT OF "MERGER OPTIONS." On or about March 8, 1998 you were
granted, by Avalon Properties, Inc., the Avalon Stock Option, which is now
an option to purchase shares of common stock of the Company. You
acknowledge that, since such option was not part of your normal annual
equity compensation, it was not the intent of you or the Company to
include, and there shall not be included, the value of such option in any
calculation of Covered Compensation or Covered Average Compensation, and
that the value of such option shall have no impact on any cash payments
made under Section 7(c) of the Agreement. [NOT APPLICABLE TO MR. MICHAUX -
NO GRANT ON 3/8/98 OF AN OPTION]
(ii) OPTION VALUATIONS. You acknowledge that, for purposes of Section
7(b)(6)(A), the value of any option may be determined by the Compensation
Committee of the Board of Directors at any time after its grant date by
setting such value at the value determined by a nationally recognized
accounting firm or employee benefits compensation firm, selected by such
Committee, that calculates such value in accordance with a Black-Scholes
formula or variations thereof using such parameters and procedures
(including, without limitation, parameters and procedures used to measure
the historical volatility of the Company's common stock as of the relevant
grant date) as the Compensation Committee and/or such firm deems reasonably
appropriate. In all events, if the parameters used for valuing any option
for purposes of Section 7(b)(6)(A) are the same as the parameters used for
valuing any other options for purposes of disclosure or inclusion in the
Company's financial statements or financial statement footnotes, then such
parameters shall be deemed reasonable.
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(iii) EFFECT ON OPTIONS OF A TERMINATION UNDER EMPLOYMENT AGREEMENT. The
stock option and restricted stock agreements (the "Equity Award
Agreements") that you have or may hereafter receive may contain language
regarding the effect of a termination of your employment under certain
circumstances. Notwithstanding such language in the Equity Award
Agreements, for so long as the Employment Agreement is in effect the
Company will be obligated, if the terms of the Employment Agreement are
more favorable in this regard than the terms of the Equity Award
Agreements, to take the actions required under Sections 7(c)(ii),
7(c)(iii)(C), 7(c)(iv)(C), and 7(c)(v)C) of the Employment Agreement upon
the happening of the circumstances described in such sections. Those
sections provide that the Company will cause you to become vested as of the
Date of Termination in all equity based awards, and that such equity based
awards will thereafter be subject to the provisions of the applicable
Equity Award Agreement as it applies to vested awards upon a termination.
For purposes of clarification, you acknowledge that although an option
grant may vest under the termination circumstances described above, such
option will thereafter be exercisable only for so long as the related
option agreement provides, except that the Compensation Committee may, in
its sole discretion, elect to extend the expiration date of such option.
For example, in general your option agreements provide that (in the absence
of an extension by the Compensation Committee) upon a termination of
employment for any reason other than death, disability, retirement or
cause, any vested options will only be exercisable for three months from
the date of termination or, if earlier, the expiration date of the option.
(iv) PAYMENT OF ACCRUED SALARY AND BONUS UPON TERMINATION FOR CAUSE. The
last sentence of Section 7(b)(1), which states that upon the giving of a
notice of termination for Cause no further payments shall be due you, is
subject, nevertheless, to the provisions of Section 7(c)(vi), which states
that upon a termination other than for death, disability, non-renewal, or
termination without cause you shall receive, through the Date of
Termination, all accrued but unpaid Base Salary and all earned but unpaid
cash incentive compensation.
(v) DEFINITION OF CAUSE IN EQUITY AWARD AGREEMENTS. Notwithstanding the
definition of "Cause" which may appear in an Equity Award Agreement, for so
long as the Employment Agreement is in effect (X) any "for Cause"
termination must be in compliance with the terms of the Employment
Agreement, including the definition of "Cause" set forth therein and (Y)
only in the event of a "for Cause" termination that meets both the
definition in the Employment Agreement and the definition in the Equity
Award Agreement will the disposition of options and restricted stock under
such Equity Award Agreement be treated in the manner described in such
Equity Award Agreement in the case of a termination "for Cause".
Please indicate your acknowledgement and agreement with the above by
executing this letter below and returning one copy to Edward M. Schulman,
Vice President - General Counsel.
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Very truly yours,
Gilbert M. Meyer
Executive Chairman
ACKNOWLEDGED AND AGREED:
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Name: