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EXHIBIT 1.1
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$100,000,000 AGGREGATE PRINCIPAL AMOUNT OF 6.50% SENIOR NOTES DUE 2003
$150,000,000 AGGREGATE PRINCIPAL AMOUNT OF 6.80% SENIOR NOTES DUE 2006
AVALON BAY COMMUNITIES, INC.
UNDERWRITING AGREEMENT
dated July 1, 1998
PAINEWEBBER INCORPORATED
FIRST UNION CAPITAL MARKETS
J.P. MORGAN SECURITIES INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
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$100,000,000 Aggregate Principal Amount of 6.50% Senior Notes due 2003
$150,000,000 Aggregate Principal Amount of 6.80% Senior Notes due 2006
AVALON BAY COMMUNITIES, INC.
UNDERWRITING AGREEMENT
July 1, 1998
PAINEWEBBER INCORPORATED
FIRST UNION CAPITAL MARKETS, a division
of Wheat First Securities, Inc.
J.P. MORGAN SECURITIES INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
c/o Painewebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
Avalon Bay Communities, Inc., a Maryland corporation (the
"Company"), confirms its agreement with you (collectively, the "Underwriters")
as follows:
1. DESCRIPTION OF SECURITIES. The Company proposes to issue and
sell to the Underwriters the principal amount of its debt securities identified
on SCHEDULE A hereto (the "Securities") to be issued under that certain
Indenture, dated as of January 16, 1998, as supplemented by the First
Supplemental Indenture, dated as of January 20, 1998 (collectively, the
"Original Indenture"), and the Second Supplemental Indenture, to be dated July
7, 1998 (the "Supplemental Indenture" and, together with the Original Indenture,
the "Indenture"), each between the Company and State Street Bank and Trust
Company, as trustee (the "Trustee").
2. AGREEMENT TO SELL AND PURCHASE.
(a) On the basis of the representations, warranties and
agreements contained herein, but subject to the terms and conditions set forth
herein, the Company agrees to issue and sell the Securities to the Underwriters
as hereinafter provided, and the Underwriters agree to purchase from the Company
the Securities at the purchase price set forth on SCHEDULE A hereto plus accrued
interest, if any, from the date specified on SCHEDULE A hereto to the date of
payment and delivery.
(b) The Company understands that the Underwriters intend (i)
to make a public offering of the Securities, and (ii) initially to offer the
Securities upon the terms set forth in the Prospectus.
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3. DELIVERY AND PAYMENT. Payment for the Securities shall be made
to the Company or to its order in immediately available funds in the amount, on
the date and at the place set forth on SCHEDULE A hereto (or at such other time
and place on the same date or such other date, not later than the third Business
Day thereafter, as the Underwriters and the Company may agree in writing). Such
payment will be made against delivery to the Underwriters of the Securities
registered in such names and in such denominations as the Underwriters shall
request no less than two full Business Days prior to the date of delivery, with
transfer taxes, if any, payable in connection with transfer to the Underwriters
duly paid by the Company. As used herein, the term "Business Day" means any day
other than a day on which banks are permitted or required to be closed in New
York City. The time and date of such payment and delivery with respect to the
Securities are referred to herein as the "Closing Date." If the Underwriters so
request, the Securities will be delivered through the book entry facilities of
The Depository Trust Company ("DTC") and will be made available for inspection
by the Underwriters by 1:00 P.M. New York City time on the Business Day prior to
the Closing Date at such place in New York City as the Underwriter, DTC and the
Company shall agree.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents, warrants and covenants to each Underwriter that:
(a) The Company meets the requirements for use of Form S-3 and
a registration statement (Registration No. 333-41511) on Form S-3, as amended,
with respect to the Securities, including a prospectus (the "Base Prospectus"),
has been carefully prepared by the Company in conformity with the requirements
of the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, and has been filed with the Commission
and has become effective. Such registration statement and prospectus may have
been amended or supplemented prior to the date of this Agreement; any such
amendment or supplement was so prepared and filed, and any such amendment or
supplement filed after the effective date of such registration statement has
become effective. No stop order suspending the effectiveness of the registration
statement has been issued, and, to the Company's knowledge, no proceeding for
that purpose has been instituted or threatened by the Commission. A prospectus
supplement and a final prospectus containing information permitted to be omitted
at the time of effectiveness by Rule 430A of the Rules and Regulations has been
or will be so prepared and filed with the Commission pursuant to Rule 424(b) of
the Rules and Regulations on or before the second business day after the date
hereof (or such earlier time as may be required by the Rules and Regulations);
and the Rules and Regulations do not require the Company to, and, without the
Underwriters' consent, the Company will not, file a post-effective amendment
after the time of execution of this Agreement and prior to the filing of such
final form of prospectus. The registration statement may be supplemented by one
or more forms of preliminary prospectus supplement, as contemplated by Rule 430
or Rule 430A of the Rules and Regulations, to be used in connection with the
offering and sale of the Securities (each a "Preliminary Prospectus"). Copies of
such registration statement, any such amendments, and each related Preliminary
Prospectus and all documents incorporated by reference therein that were filed
with the Commission on or prior to the date of this Underwriting Agreement have
been delivered to the Underwriters or their counsel. The term "Registration
Statement" means such registration statement as amended at the time it becomes
or became effective (the "Effective Date"), including financial statements and
all exhibits and any information deemed by virtue of Rule 430A of the Rules and
Regulations to be included in such Registration Statement at the Effective Date
and any prospectus supplement filed thereafter with the Commission and shall
include the documents incorporated by reference therein pursuant to Item 12 of
Form S-3 which were filed under the Securities Exchange Act of 1934, as amended
(the "Exchange
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Act"). The term "Prospectus" means, collectively, the Base Prospectus together
with any prospectus supplement, in the respective forms they are filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations. Any reference
herein to the terms "amend," "amendment" or "supplement" with respect to the
Registration Statement, the Base Prospectus, any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include the filing of any document
under the Exchange Act after the Effective Date, or the date of any Preliminary
Prospectus or the Prospectus, as the case may be, that is incorporated therein
by reference. For purposes of this Underwriting Agreement, all references to the
Registration Statement, the Prospectus, any preliminary prospectus or any
amendment or supplement thereto shall be deemed to include any copy filed with
the Commission pursuant to its Electronic Data Gathering Analysis and Retrieval
System (EDGAR), and such copy shall be identical (except to the extent permitted
by Regulation S-T) to any Prospectus delivered to the Underwriters for use in
connection with the offering of the Securities by the Company.
(b) Each part of the Registration Statement (excluding any
prospectus supplement with respect to an offering of securities other than the
offering of the Securities contemplated hereby), when such part became or
becomes effective, each Preliminary Prospectus, on the date of filing thereof
with the Commission, and the Prospectus and any amendment or supplement thereto,
on the date of filing thereof with the Commission and at the Closing Date (as
hereinafter defined) conformed or will conform in all material respects with the
requirements of the Act and the Rules and Regulations; the Indenture, on the
date of filing thereof with the Commission and at the Closing Date (as
hereinafter defined) conformed or will conform in all material respects with the
requirements of the Trust Indenture Act of 1939, as amended, and the rules and
regulations of the Commission thereunder (the "TIA"); each part of the
Registration Statement (excluding any prospectus supplement with respect to an
offering of securities other than the offering of the Securities contemplated
hereby), when such part became or becomes effective, did not or will not contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading;
each Preliminary Prospectus, on the date of filing thereof with the Commission,
and the Prospectus and any amendment or supplement thereto, on the date of
filing thereof with the Commission and at the Closing Date, did not or will not
include an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; the foregoing shall not apply to (i)
that part of the Registration Statement which constitutes the Statement of
Eligibility and Qualification under the TIA (the "Form T-1") and (ii) the
statements in or omissions from any such document in reliance upon, and in
conformity with, written information relating to any Underwriter furnished to
the Company by any Underwriter, specifically for use in the preparation thereof.
The Company acknowledges that the only information furnished to the Company by
any Underwriter specifically for inclusion in the Registration Statement is the
information set forth in SCHEDULE B hereto. The Company has not distributed any
offering material in connection with the offering or sale of the Securities
other than the Registration Statement, any Preliminary Prospectus, the
Prospectus or any other materials, if any, permitted by the Act.
(c) The documents incorporated by reference in the
Registration Statement, the Prospectus and any amendment or supplement to such
Registration Statement or such prospectus, when they became or become effective
under the Act or were or are filed with the Commission under the Exchange Act,
as the case may be, conformed or will conform in all material respects with the
requirements of the Act, the 1933 Act Rules and Regulations, the Exchange Act
and the rules and regulations of the Commission thereunder (the "Exchange Act
Rules and Regulations"), as applicable.
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(d) The Company has been duly organized and is, and at the
Closing Date will be, validly existing as a corporation in good standing under
the laws of the State of Maryland with the power and authority to conduct all
the activities conducted by it, to own or lease all the assets owned or leased
by it and otherwise to conduct its business as described in the Registration
Statement and Prospectus. The Company is, and at the Closing Date will be, duly
licensed or qualified to do business and in good standing in each jurisdiction
in which the nature of the activities conducted by it or the character of the
assets owned or leased by it makes such licensing or qualification necessary
except where the failure to be so qualified, considering all such cases in the
aggregate, will not have a material adverse effect on the business, properties,
business prospects, condition (financial or otherwise) or results of operations
of the Company and its Subsidiaries (as hereinafter defined), taken as a whole.
(e) The merger (the "Merger") between Bay Apartment
Communities, Inc. and Avalon Properties, Inc. ("Avalon") has been validly
consummated in accordance with the Agreement and Plan of Merger by and between
Bay Apartment Communities, Inc. and Avalon Properties, Inc. dated as of March 9,
1998 (the "Agreement") and Maryland law.
(f) The only subsidiaries (as defined in the Rules and
Regulations) of the Company are the entities listed on SCHEDULE C attached
hereto. Each of such subsidiaries is, and at the Closing Date will be, an entity
duly organized or formed, as the case may be, and, in the case of each such
subsidiary that is a corporation, limited partnership or limited liability
company (each a "Subsidiary" and, collectively, the "Subsidiaries") is, and at
the Closing Date will be, validly existing and in good standing under the laws
of its respective jurisdiction of organization or incorporation. Each of the
subsidiaries listed in SCHEDULE C has, and at the Closing Date will have, full
power and authority to conduct all the activities conducted by it, to own or
lease all the assets owned or leased by it and otherwise to conduct its business
as described in the Registration Statement and the Prospectus. Each of the
Subsidiaries is, and at the Closing Date will be, duly licensed or qualified to
do business in good standing as a corporation, limited partnership or limited
liability company, as the case may be, in all jurisdictions in which the nature
of the activities conducted by it or the character of the assets owned or leased
by it makes such licensing or qualification necessary except where the failure
to be so qualified will not have a material adverse effect on the business,
properties, business prospects, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, taken as a whole. Except for the
stock or other interests in the subsidiaries and as disclosed in the
Registration Statement, the Company does not own, and at the Closing Date will
not own, directly or indirectly, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity interest in any
firm, partnership, joint venture, trust, association or other entity. Complete
and correct copies of the Amended and Restated Articles of Incorporation and the
Articles of Merger (collectively, the "Charter") and the Amended and Restated
Bylaws (the "Bylaws") of the Company and the charter documents of each of its
subsidiaries and all amendments thereto have been delivered to the Underwriters,
and no changes therein will be made subsequent to the date hereof and prior to
the Closing Date, except as heretofore disclosed in writing to the Underwriters.
Except as otherwise described in the Registration Statement or the Prospectus,
or as described in SCHEDULE C, all of the issued and outstanding capital stock
of each corporate Subsidiary of the Company has been duly authorized and will
be, as of the Closing Date, validly issued, fully paid and non-assessable, and
owned by the Company.
(g) The outstanding securities of the Company, including the
outstanding shares of common stock, $0.01 par value (the "Common Stock"), and
the outstanding shares of each series
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of preferred stock (the "Preferred Stock"), have been duly authorized and are
validly issued, fully paid and nonassessable by the Company and conform to the
description thereof in the Prospectus. There are no requirements, restrictions
or limitations in the terms of the Preferred Stock applicable to the issuance
and sale of the Securities. The shareholders of the Company have no preemptive
or similar rights with respect to the Securities. Except as set forth in the
Registration Statement or the Prospectus, the Company does not have outstanding
any option to purchase, or any rights or warrants to subscribe for, or any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, any of its securities or any shares of capital stock of any
subsidiary or any such warrants, convertible securities or obligations, except
for shares of Common Stock to be issued to certain employees in connection with
the deferment of income, shares of Common Stock issuable pursuant to awards
granted or to be granted under the Company's 1994 Stock Incentive Plan, as
amended and restated, shares of Common Stock issuable under the Company's 1996
Non-Qualified Employee Stock Purchase Plan, shares of Common Stock issuable
under the Company's Dividend Reinvestment and Stock Purchase Plan and shares of
Common Stock issuable upon redemption or conversion of units of limited
partnership interests.
(h) The financial statements and schedules included or
incorporated by reference in the Registration Statement and the Prospectus set
forth fairly the financial condition of the respective entity or entities
presented as of the dates indicated and the results of operations and changes in
financial position for the periods therein specified in conformity with
generally accepted accounting principles consistently applied throughout the
periods involved (except as otherwise stated therein and except to the extent
that Avalon applied different principles than the Company prior to the Merger
and except, in the case of interim periods, for the notes thereto and normal
year-end adjustment). The pro forma financial statements of the Company included
in the Registration Statement and the Prospectus comply in all material respects
with the applicable requirements of Rule 11-02 of Regulation S-X of the
Commission and the pro forma adjustments have been properly applied to the
historical amounts in the compilation of such statements. No other financial
statements (or schedules) of the Company or any predecessor of the Company are
required by the Act or the Rules and Regulations to be included in the
Registration Statement or the Prospectus. Coopers & Lybrand L.L.P. (the
"Accountants"), who have reported on the financial statements and schedules
which are audited, are independent accountants with respect to the Company as
required by the Act and the Rules and Regulations. The statements included in
the Registration Statement with respect to the Accountants pursuant to Rule 509
of Regulation S-K of the Rules and Regulations are true and correct in all
material respects.
(i) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that: (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets and financial and
corporate books and records is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(j) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus and prior to the
Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) there has not been and will not have been any
change in the capitalization of the Company, or in the business, properties,
business
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prospects, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, arising for any reason whatsoever, (ii) neither
the Company nor any of its Subsidiaries has incurred nor will it incur any
material liabilities or obligations, direct or contingent, nor has it entered
into nor will it enter into any material transactions other than pursuant to
this Agreement and the transactions referred to herein and (iii) the Company has
not and will not have paid or declared any dividends or other distributions of
any kind on any class of its capital stock.
(k) The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended (the "1940 Act").
(l) Except as set forth in the Registration Statement and the
Prospectus, there is not pending or, to the knowledge of the Company, threatened
any action, suit or proceeding against or affecting the Company or any of its
subsidiaries or any of their respective directors, partners or officers in their
capacity as such, or any of the Current Communities, the Development Communities
or the Redevelopment Communities (each as defined in the Prospectus and
collectively, the "Communities") before or by any Federal or state court,
commission, regulatory body, administrative agency or other governmental body,
domestic or foreign, wherein an unfavorable ruling, decision or finding might,
individually or in the aggregate, have a material adverse effect on the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company and its subsidiaries, taken as a whole.
(m) There are no contracts or documents of a character
required to be described in the Prospectus or to be filed as exhibits to the
Registration Statement by the Act or the Rules and Regulations that have not
been so described or filed (the "Contracts").
(n) Each of the Company and its subsidiaries has complied in
all material respects with all laws, regulations and orders applicable to it or
their respective businesses and properties where the failure to comply would,
individually or in the aggregate, have a material adverse effect on the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company and its subsidiaries, taken as a whole;
neither the Company nor any of its subsidiaries is, and upon consummation of the
Offering (as defined below), none of them will be, in default under any
Contract, the violation of which would individually or in the aggregate have a
material adverse effect on the Company and its subsidiaries taken as a whole,
and no other party under any such Contract to which the Company or any of its
subsidiaries is a party is, to the knowledge of the Company, in default in any
material respect thereunder; the Company is not in violation of its Charter or
Bylaws; except as disclosed in the Prospectus, the Company and each of its
subsidiaries have or, upon the Closing Date, will have all governmental licenses
(including, without limitation, a California real estate brokerage license and a
California general contractor's license, if applicable), permits, consents,
orders, approvals and other authorizations required to carry on its business as
contemplated in the Prospectus, and none of them has received any notice of
proceedings relating to the revocation or modification of any such governmental
license, permit, consent, order, approval or other authorization which,
individually or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse effect on the business,
properties, business prospects, condition (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a whole.
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(o) No consent, approval, authorization or order of, or filing
with, any court or governmental agency or body is required for the consummation
of the transactions contemplated by this Agreement or in connection with the
issuance or sale of the Securities by the Company, except such as may be
required under the Act, the Exchange Act or state securities or Blue Sky laws,
or the By-Laws and Rules of the National Association of Securities Dealers, Inc.
(the "NASD") in connection with the purchase and distribution by the
Underwriters of the Securities to be sold by the Company.
(p) The Company has the corporate power and authority to enter
into this Agreement and the Indenture. This Agreement has been duly authorized,
executed and delivered by the Company and constitutes a valid and binding
agreement of the Company and is enforceable against the Company in accordance
with the terms hereof, except as limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally, (ii) general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or law), (iii) the
discretion of the court before which any proceeding therefor may be brought, and
(iv) applicable Federal and state securities laws and public policy which may
limit the application of provisions relating to indemnification and contribution
with respect to securities law matters (clauses (i), (ii), (iii) and (iv) are
collectively referred to as the "Enforceability Limitations"). The execution,
delivery and the performance of this Agreement and the Indenture and the
consummation of the transactions herein and therein contemplated will not result
in the creation or imposition of any lien, charge or encumbrance upon the
Communities or any of the other assets of the Company or any of its subsidiaries
pursuant to the terms or provisions of, or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, or give any
other party a right to terminate any of its obligations under, or result in the
acceleration of any obligation under, the Charter or Bylaws of the Company, the
articles or certificate of incorporation or by-laws or partnership agreement or
operating agreement of any of the Company's subsidiaries, or any Contract, or
violate or conflict with any judgment, ruling, decree, order, statute, rule or
regulation of any court or other governmental agency or body applicable to the
Communities or business or properties of the Company or any of its subsidiaries,
except as disclosed in the Prospectus and except as will not have a material
adverse effect on the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company and its
subsidiaries, taken as a whole. The Company has the power and authority to
authorize, issue, offer and sell the Securities, as contemplated by this
Agreement.
(q) On the Closing Date, the Securities will be duly
authorized by the Company for issuance and sale pursuant to this Agreement and
the Indenture and, when duly authenticated and delivered by the Trustee in
accordance with the terms of the Indenture (assuming the due authorization,
execution and delivery of the Indenture by the Trustee) and delivered to, and
paid for in full by, the Underwriters pursuant to this Underwriting Agreement,
will be valid and legally binding obligations of the Company entitled to the
benefit of the Indenture and will be enforceable against the Company in
accordance with their terms, subject to the Enforceability Limitations; the
Indenture has been duly qualified under the TIA and the execution, delivery and
performance of the Indenture has been, duly authorized by the Company; the
Original Indenture has been and, prior to the issuance of the Securities the
Supplemental Indenture will be, duly executed and delivered by the Company;
assuming due authorization, execution and delivery thereof by the Trustee, the
Original Indenture constitutes and, upon execution and delivery by the Company
the Supplemental Indenture will constitute, a valid and legally binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to the Enforceability Limitations; the Original Indenture
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conforms and, upon issuance of the Securities, the Securities and the
Supplemental Indenture will conform, in all material respects to the statements
relating thereto contained in the Prospectus; and upon issuance the Securities
will be, in all material respects, in the form contemplated by the Indenture.
(r) The Company, or its subsidiaries, as applicable, has good
and marketable title to the Communities, and the Communities are not subject to
any liens or encumbrances except for monetary liens as set forth in the
Prospectus or the Registration Statement, non-delinquent property taxes, utility
easements and other immaterial non-monetary liens or encumbrances of record. All
liens, charges, encumbrances, claims or restrictions on or affecting the
Communities which are required to be disclosed in the Prospectus are disclosed
therein. Except as is disclosed in the Registration Statement or the Prospectus
and except as would not, in the aggregate, have a material adverse effect on the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company and its subsidiaries, taken as a whole, (i)
each of the Company and each of its subsidiaries has valid, subsisting and
enforceable leases with its tenants for the properties described in the
Prospectus as leased by it, (ii) no tenant under any of the leases pursuant to
which the Company or any subsidiary leases its properties has an option or right
of first refusal to purchase the premises demised under such lease, (iii) the
use and occupancy of each of the properties of the Company and its subsidiaries
complies in all material respects with all applicable codes and zoning laws and
regulations, (iv) the Company has no knowledge of any pending or threatened
condemnation or zoning change that will in any material respect affect the size
of, use of, improvements of, construction on, or access to any of the properties
of the Company or its subsidiaries, and (v) the Company has no knowledge of any
pending or threatened proceeding or action that will in any manner affect the
size of, use of, improvements on, construction on, or access to any of the
properties of the Company or its subsidiaries.
(s) Except as disclosed in the Registration Statement, the
mortgages and deeds of trust encumbering the Communities are not convertible nor
will the Company or any of its subsidiaries hold a participating interest
therein and such mortgages and deeds of trust are not cross-defaulted or
cross-collateralized to any property not to be owned directly or indirectly by
the Company. To the knowledge of the Company (i) the present use and occupancy
of each of the Communities complies with all applicable codes and zoning laws
and regulations, if any, except for such failures to comply which would not
individually or in the aggregate have a material adverse effect on the
condition, financial or otherwise, or on the earnings, business affairs or
business prospects of the Company and its subsidiaries taken as a whole; and
(ii) there is no pending or, to the Company's knowledge, threatened
condemnation, zoning change, environmental or other proceeding or action that
will in any material respect affect the size of, use of, improvements on,
construction on, or access to the Communities, except for such proceedings or
actions that would not individually or in the aggregate have a material adverse
effect on the condition, financial or otherwise, or on the earnings, business
affairs or business prospects of the Company and its subsidiaries taken as a
whole.
(t) All Contracts executed and delivered on or before the date
hereof to which the Company or any subsidiary of the Company is a party have
been duly authorized, executed and delivered by the Company or such subsidiary,
constitute valid and binding agreements of the Company or such subsidiary and
are enforceable against the Company or such subsidiary in accordance with the
terms thereof, subject to the Enforceability Limitations.
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(u) No statement, representation, warranty or covenant
made by the Company in this Agreement or made in any certificate or document
required by this Agreement to be delivered to the Underwriters was or will be,
when made, inaccurate, untrue or incorrect.
(v) Except as stated in the Prospectus, neither the
Company nor any of its directors, officers or controlling persons has taken, nor
will it take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Securities to facilitate the sale or resale of the Securities.
(w) No labor dispute with the employees of the Company or
any subsidiary exists or, to the knowledge of the Company after due inquiry and
investigation, is threatened, which, in either case, would have a material
adverse effect on the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company and its
subsidiaries, taken as a whole.
(x) Neither the Company nor any of its subsidiaries nor,
to the Company's knowledge, any employee or agent of the Company of any
subsidiary has made any payment of funds of the Company or any subsidiary or
received or retained any funds in violation of any law, rule or regulation or of
a character required to be disclosed in the Prospectus which has not been so
disclosed.
(y) As of the Closing Date the Company, and each of its
subsidiaries (i) will be in compliance in all material respects with any and all
applicable foreign, Federal, state and local laws and regulations relating to
the protection of human health and safety, the Hazardous Materials (as defined
below), or hazardous or toxic wastes, pollutants or contaminants (the
"Environmental Laws"); (ii) will have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses; and (iii) will be in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals are otherwise disclosed in the Prospectus
or would not, individually or in the aggregate, have a material adverse effect
on the Company and its subsidiaries taken as a whole.
(z)(i) None of the Company or any partnership that
owns a Community (each a "Partnership") has at any time, and, to the
best knowledge of the Company after due inquiry and investigation, no
other party has, at any time, handled, buried, stored, retained,
refined, transported, processed, manufactured, generated, produced,
spilled, allowed to seep, leak, escape or leach, or be pumped, poured,
emitted, emptied, discharged, released, injected, dumped, transferred
or otherwise disposed of or dealt with, Hazardous Materials (as
hereinafter defined) on, to, above under, in, into or from the
Communities, except as disclosed in the environmental reports
previously delivered to the Underwriters or referred to in the
Prospectus, or such as would not individually or in the aggregate have
a material adverse effect on the Company and its subsidiaries, taken as
a whole. Neither the Company nor its subsidiaries intends to use the
Communities or any subsequently acquired properties described in the
Prospectus for the purpose of handling, burying, storing, retaining,
refining, transporting, processing, manufacturing, generating,
producing, spilling, seeping, leaking, escaping, leaching, pumping,
pouring, emitting, emptying, discharging, releasing, injecting,
dumping, transferring or otherwise disposing of or dealing with
Hazardous Materials, except for the use, storage and transportation of
small quantities of substances that are regularly used
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as office supplies, household cleaning supplies, gardening supplies, or
pool maintenance supplies in compliance with applicable Environmental
Laws and in accordance with prudent business practices and good
hazardous materials storage and handling practices.
(ii) None of the Company or the Partnerships, to
the best knowledge of the Company after due inquiry and investigation,
knows of any seepage, leak, escape, leach, discharge, injection,
release, emission, spill, pumping, pouring, emptying or dumping of
Hazardous Materials into waters on, under or adjacent to the
Communities or onto lands from which such hazardous or toxic waste or
substances might seep, flow or drain into such waters, except as
disclosed in the environmental reports previously delivered to the
Underwriters or referred to in the Prospectus or such as would not
individually or in the aggregate have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(iii) None of the Company or the Partnerships to
the best knowledge of the Company after due inquiry and investigation,
has received notice of, or has knowledge of any occurrence or
circumstance which, with notice or passage of time or both, would give
rise to, any claim under or pursuant to any Environmental Law
pertaining to Hazardous Materials, hazardous or toxic waste or
substances on or originating from the Communities arising out of the
conduct of any such party, including, without limitation, pursuant to
any Environmental Law, except as disclosed in the environmental reports
previously delivered to the Underwriters or referred to in the
Prospectus or such as would not individually or in the aggregate have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
As used herein, "Hazardous Material" shall include, without
limitation, any flammable materials or explosives, petroleum or petroleum-based
products, radioactive materials, hazardous materials, hazardous wastes,
hazardous or toxic substances, or related materials, asbestos or any material as
defined by any Federal, state or local environmental law, ordinance, rule, or
regulation including, without limitation, Environmental Laws, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. Section 9601, et seq.) ("CERCLA"), the Hazardous Materials Transportation
Act, as amended (49 U.S.C. Section 1801, et seq.), the Resource Conservation and
Recovery Act, as amended (42 U.S.C. Section 9601, et seq.), and in the
regulations adopted and publications promulgated pursuant to each of the
foregoing or by any Federal, state or local governmental authority having or
claiming jurisdiction over the Communities as described in the Prospectus.
(aa) In the ordinary course of its business, each of the
Company and the Partnerships conducts a periodic review of the effect of
Environmental Laws on its business, operations and properties in the course of
which it identifies and evaluates associated costs and liabilities (including,
without limitation, any capital or operating expenditures required for
investigation, clean-up, closure of properties or compliance with Environmental
Laws or any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties). On the basis of such
review and on the basis of the reviews conducted by the Company in connection
with the Communities, the Company has reasonably concluded that such associated
costs and liabilities would not individually or in the aggregate, have a
material adverse effect on the Company and its subsidiaries taken as a whole.
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(bb) The Company and its subsidiaries maintain property
and casualty insurance (other than earthquake insurance) in favor of the Company
and its subsidiaries with respect to each of the Communities, in an amount and
on such terms as is reasonable for businesses of the type proposed to be
conducted by the Company and its subsidiaries. The Company maintains earthquake
insurance on the Communities to the extent described in the Prospectus. Neither
the Company nor any subsidiary has received from any insurance company notice of
any material defects or deficiencies affecting the insurability of any of the
Communities (other than with respect to seismic activities).
(cc) The Company has elected to be taxed as a REIT under
the Code and will use its best efforts to continue to be organized and will
continue to operate in a manner so as to qualify as a "real estate investment
trust" ("REIT") under Sections 856 through 860 of the Internal Revenue Code of
1986, as amended (the "Code"), unless the Board of Directors determines that it
is no longer in the best interest of the Company to continue to be so qualified.
(dd) Neither the assets of the Company nor its
subsidiaries constitute, nor will such assets, as of the Closing Date,
constitute, "plan assets" under the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
(ee) The Company has not distributed and, prior to the
later to occur of (i) the Closing Date and (ii) completion of the distribution
of the Securities, will not distribute any offering material in connection with
the offering and sale of the Securities other than the Registration Statement,
the Prospectus or other materials, if any, permitted by the Act.
5. AGREEMENTS OF THE COMPANY. The Company covenants and agrees
with the Underwriters as follows:
(a) The Company will cause the Prospectus Supplement to
be filed as contemplated by Section 4(a) hereof (but only if the Underwriters
have not reasonably objected thereto by notice to the Company after having been
furnished a copy within a reasonable time prior to filing) and will notify the
Underwriters promptly of such filing. The Company will not during such period as
the Prospectus is required by law to be delivered in connection with sales of
the Securities by any Underwriter or dealer (the "Prospectus Delivery Period"),
file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Underwriters within a reasonable period of time prior to the filing thereof and
the Underwriters shall not have objected thereto in good faith.
(b) The Company will use its best efforts to cause the
Registration Statement to remain effective through the completion of the
Underwriters' distribution of the Securities, and will notify the Underwriters
promptly, and will confirm such advice in writing, (i) of the preparation and
filing (subject to Section 5(a)) of any post-effective amendment and when any
such post-effective amendment to the Registration Statement becomes effective,
(ii) of any request by the Commission for amendments or supplements to the
Registration Statement or the Prospectus or for additional information, (iii) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the initiation of any proceedings for that purpose
or the threat thereof, (iv) of the suspension of the qualification or
registration of the Securities for offering or sale in any jurisdiction, or of
the initiation or threat of any proceeding for any such purpose; (v) of the
happening of any event during the Prospectus Delivery Period that in the
judgment of the Company makes any statement made in the Registration Statement
or the Prospectus untrue or that requires the making of
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any changes in the Registration Statement or the Prospectus in order to make the
statements therein, in light of the circumstances in which they are made, not
misleading and (vi) of receipt by the Company or any representative or attorney
of the Company of any other communication from the Commission relating to the
Company, the Registration Statement, any preliminary prospectus or the
Prospectus. If at any time the Commission or any jurisdiction shall threaten to
issue, or shall issue, any order suspending the effectiveness of the
Registration Statement or suspending the qualification or registration of the
Securities for sale in any jurisdiction, the Company will make every reasonable
effort to prevent the issuance of such order and, if such an order should be
issued, to obtain the withdrawal of such order at the earliest possible moment.
The Company will use its best efforts to comply with the provisions of and make
all requisite filings with the Commission pursuant to Rule 430A and to notify
the Underwriters promptly of all such filings.
(c) The Company will furnish to the Underwriters without
charge two signed copies of the Registration Statement and of any post-effective
amendments thereto, including financial statements and schedules, and all
exhibits thereto (including any document filed under the Exchange Act and deemed
to be incorporated by reference into the Prospectus).
(d) The Company will comply with all requirements imposed
upon it by the Act, the 1933 Act Rules and Regulations, the Exchange Act, the
Exchange Act Rules and Regulations and the TIA, as from time to time in force,
so far as necessary to permit the continuance of sales of, or dealings in, the
Securities as contemplated by the provisions hereof and the Prospectus.
(e) The Company will comply with all the provisions of
any undertakings contained, or incorporated by reference, in the Registration
Statement.
(f) During the Prospectus Delivery Period, the Company
will promptly furnish to the Underwriters, without charge, as many copies of
each preliminary prospectus, the Prospectus (containing the Prospectus
Supplement) and any amendment or supplement thereto as the Underwriters may from
time to time reasonably request. The Company consents to the use of the
Prospectus, as amended or supplemented from time to time, by the Underwriters
and by all dealers to whom the Securities may be sold, both in connection with
the offering or sale of the Securities and, thereafter, during the Prospectus
Delivery Period. If during the Prospectus Delivery Period any event shall occur
which in the judgment of the Company or counsel to the Underwriters should be
set forth in the Prospectus in order to make any statement therein, in the light
of the circumstances under which it was made, not misleading, or if, in the
reasonable opinion of counsel to the Underwriters, it is necessary to supplement
or amend the Prospectus to comply with law, the Company will forthwith prepare
and duly file with the Commission an appropriate supplement or amendment
thereto. Except as required by the Exchange Act or the Exchange Act Rules and
Regulations, the Company shall not file any document under the Exchange Act
before the termination of the Prospectus Delivery Period if such document would
be deemed to be incorporated by reference into the Prospectus to which the
Underwriters reasonably object.
(g) Prior to any public offering of the Securities, the
Company will cooperate with the Underwriters and their counsel in connection
with the registration or qualification of the Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions within the United
States that require such registration or qualification as the Underwriters may
reasonably request; provided, that in no event shall the Company be obligated to
qualify to do business in any
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jurisdiction where it is not now so qualified or to take any action which would
subject it to general service of process in any jurisdiction where it is not now
so subject.
(h) The Company will make generally available to its
security holders as soon as practicable, but not later than ninety (90) days
after the close of the period covered thereby, an earnings statement (in form
complying with the provisions of Section 11(a) of the Act and Rule 158 of the
Rules and Regulations) covering a twelve-month period beginning not later than
the first day of the Company's fiscal quarter next following the "effective
date" (as defined in said Rule 158) of the Registration Statement.
(i) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company will pay,
or reimburse if paid by the Underwriters, all fees, costs and expenses incident
to the performance of the obligations of the Company under this Agreement,
including, but not limited to, fees, costs and expenses of or relating to (i)
the preparation, printing and filing of the Registration Statement and exhibits
to it, each preliminary prospectus, the Prospectus and any amendment or
supplement to the Registration Statement or the Prospectus and any other filing
made by the Company with the Commission, (ii) the preparation and delivery of
certificates representing the Securities, (iii) the printing of this Agreement
and any Dealer Agreements, (iv) furnishing (including costs of shipping and
mailing) such copies of the Registration Statement, the Prospectus and any
preliminary prospectus, and all amendments and supplements thereto, as may be
reasonably requested for use in connection with the offering and sale of the
Securities by the Underwriters or by dealers to whom Securities may be sold, (v)
the filing fees and the fees and expenses of counsel for the Underwriters in
connection with any filings required to be made with the NASD; (vi) the
reasonable fees, disbursements and other charges of counsel to the Underwriters
in connection with, and the preparation of, preliminary, supplemental and final
Blue Sky memoranda, (vii) counsel (including local and special counsel) to the
Company and any surveyors, engineers, appraisers, photographers, accountants and
other professionals engaged by the Company, (viii) the hotel, airfare and other
travel arrangements of the Company's employees in connection with preparation of
the Registration Statement and Prospectus and in connection with any "road show"
or other presentation to potential investors, (ix) the Accountants and any other
accountants engaged by the Company in connection with the offering of the
Securities, (x) the Trustee under the Indenture, (xi) Moody's Investors Service,
Inc. ("Moody's") and Standard and Poor's Rating Services ("S&P" and, together
with Moody's, the "Rating Agencies") in connection with the rating of the
Securities at the request of the Company.
(j) The Company will not at any time, directly or
indirectly, take any action intended, or which might reasonably be expected, to
cause or result in, or which will constitute, stabilization of the price of the
Securities to facilitate the sale or resale of any of the Securities.
(k) The Company will apply the net proceeds from the
offering and sale of the Securities to be sold by the Company in the manner set
forth in the Prospectus under the caption "Use of Proceeds."
(l) Unless the Board of Directors of the Company
determines in its reasonable business judgment and pursuant the Charter that
continued qualification as a "real estate investment trust" under the Code is
not in the Company's best interest, the Company will use its best efforts to,
and will continue to meet the requirements to, qualify as a "real estate
investment trust."
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(m) The Company will execute and deliver the Supplemental
Indenture on or prior to the Closing Date as authorized by the Board of
Directors, which shall designate the Securities as the debt securities to be
offered and their terms and provisions in accordance with the provisions of the
Indenture; and the Company shall perform its obligations under the Indenture.
6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
Underwriters' obligations hereunder are subject to the following conditions:
(a) All filings required by Rule 424 and Rule 430A of the
Rules and Regulations to be made by the Company prior to the Closing shall have
been made by the Company.
(b) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall be pending or threatened by the Commission, (ii) no order
suspending the effectiveness of the Registration Statement or the qualification
or registration of the Securities under the securities or Blue Sky laws of any
jurisdiction shall be in effect and no proceeding for such purpose shall be
pending before or threatened or contemplated by the Commission or the
authorities of any such jurisdiction, (iii) any request for additional
information on the part of the staff of the Commission or any such authorities
shall have been complied with to the satisfaction of the staff of the Commission
or such authorities, and (iv) after the date hereof no amendment or supplement
to the Registration Statement or the Prospectus shall have been filed unless a
copy thereof was first submitted to the Underwriters and the Underwriters did
not object thereto in good faith.
(c) Subsequent to the execution and delivery of this
Underwriting Agreement and prior to the Closing Date, there shall not have
occurred any downgrading in the rating accorded the Securities or any other debt
securities of the Company by any Rating Agency nor shall any notice have been
given to the Company of (i) any intended or potential downgrading by any Rating
Agency in such securities, or (ii) any review or possible change by any Rating
Agency that does not indicate a stable, positive or improving rating accorded
such securities.
(d) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) there shall not have
been a material adverse change in the general affairs, business, business
prospects, properties, management, condition (financial or otherwise) or results
of operations of the Company and its subsidiaries, taken as a whole, whether or
not arising from transactions in the ordinary course of business, in each case
other than as set forth in or contemplated by the Registration Statement and the
Prospectus, (ii) there shall not have been any change on a consolidated basis,
in the equity capitalization, short-term debt or long-term debt of the Company,
or any adverse change in the rating assigned to any securities of the Company,
in each case other than as set forth in or contemplated by the Registration
Statement and the Prospectus, and (iii) neither the Company nor any of its
subsidiaries shall have sustained any material loss or interference with its
business or properties from fire, explosion, flood or other casualty, whether or
not covered by insurance, or from any labor dispute or any court or legislative
or other governmental action, order or decree, which is not set forth in the
Registration Statement and the Prospectus, if in the judgment of the
Underwriters any such development makes it impracticable or inadvisable to offer
or deliver the Securities on the terms and in the manner contemplated in the
Prospectus.
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(e) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall have been no
litigation or other proceeding instituted against the Company or any of its
subsidiaries or any of their respective officers or directors in their
capacities as such, before or by any Federal, state or local court, commission,
regulatory body, administrative agency or other governmental body, domestic or
foreign, in which litigation or proceeding an unfavorable ruling, decision or
finding would materially and adversely affect the business, properties, business
prospects, condition (financial or otherwise) or results of operations of the
Company and its subsidiaries taken as a whole.
(f) Each of the representations and warranties of the
Company contained herein shall be true and correct in all material respects at
the Closing Date, as if made at the Closing Date, and all covenants and
agreements contained herein to be performed on the part of the Company and all
conditions contained herein to be fulfilled or complied with by the Company at
or prior to the Closing Date, shall have been duly performed, fulfilled or
complied with.
(g) The Underwriters shall have received the opinion of
Goodwin, Procter & Hoar LLP, counsel to the Company, dated the Closing Date, to
the effect set forth in EXHIBIT A.
(h) The Underwriters shall have received the opinion of
Goodwin, Procter & Hoar LLP, tax counsel to the Company, dated the Closing Date,
to the effect that, subject to the assumptions and qualifications historically
included by such counsel in opinions rendered in recent public offerings by Bay
Apartment Communities, Inc. and subject to changes in applicable laws and
regulations and judicial and regulatory developments, commencing with the
taxable year ending December 31, 1994, the form of organization of the Company
and its operations are such as to enable the Company to qualify as a "real
estate investment trust" under the applicable provisions of the Code.
(i) The Underwriters shall have received the opinion of
Cox, Castle & Nicholson LLP, counsel for the Company, dated the Closing Date, to
the effect that to the best of their knowledge statements relating to the
Communities and the Current Development Communities (as defined in the
Prospectus) and tax-exempt bond financing in the Prospectus (but excluding the
statistical and financial data, physical condition and construction status of
such communities included therein) are materially fair and accurate.
(j) The Underwriters shall have received an opinion,
dated the Closing Date, from O'Melveny & Myers LLP, counsel to the Underwriters,
with respect to the Registration Statement, the Prospectus and this Agreement,
which opinion shall be satisfactory in all respects to the Underwriters.
(k) Concurrently with the execution and delivery of this
Agreement, the Accountants shall have furnished to the Underwriters a letter,
dated the date of its delivery, addressed to the Underwriters and in form and
substance satisfactory to the Underwriters, confirming that they are independent
accountants with respect to the Company as required by the Act and the 1933 Act
Rules and Regulations and with respect to the financial and other statistical
and numerical information contained in the Registration Statement or
incorporated by reference therein. At the Closing Date, the Accountants shall
have furnished to the Underwriters a letter, dated the date of its delivery,
which shall confirm, on the basis of a review in accordance with the procedures
set forth in the letter from the Accountants, that nothing has come to their
attention during the period from the date of the letter referred to in the prior
sentence to a date (specified in the letter) not more than five days prior to
the
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Closing Date which would require any change in their letter dated the date
hereof if it were required to be dated and delivered at the Closing Date.
(l) On the Closing Date there shall have been furnished
to the Underwriters an accurate certificate, dated the date of its delivery,
signed by each of the Chief Executive Officer and the Chief Financial Officer of
the Company, in form and substance satisfactory to the Underwriters, to the
effect that:
(i) No stop order suspending the effectiveness of the
Registration Statement has been issued and, to the best of such
officers' information and belief, no proceeding for that purpose is
pending or threatened by the Commission;
(ii) No order suspending the effectiveness of the
Registration Statement or the qualification or registration of the
Securities under the securities or Blue Sky laws of any jurisdiction is
in effect and, to the best of such officers' information and belief, no
proceeding for such purpose is pending before or threatened or
contemplated by the Commission or the authorities of any such
jurisdiction;
(iii) Any request for additional information on the part of
the staff of the Commission or any such authorities has been complied
with to the satisfaction of the staff of the Commission or such
authorities;
(iv) Each signer of such certificate has carefully
examined the Registration Statement and the Prospectus (including any
documents filed under the Exchange Act and deemed to be incorporated by
reference into the Prospectus) and (A) as of the date of such
certificate, such documents, taken together, are true and correct in
all material respects and do not omit to state a material fact required
to be stated therein or necessary in order to make the statements
therein not untrue or misleading and (B) no event has occurred as a
result of which it is necessary to amend or supplement the Prospectus
in order to make the statements therein not untrue or misleading in any
material respect and there has been no document required to be filed
under the Exchange Act and the Exchange Act Rules and Regulations that
upon such filing would be deemed to be incorporated by reference into
the Prospectus that has not been so filed;
(v) Each of the representations and warranties of the
Company contained in this Agreement were, when originally made, and
are, at the time such certificate is delivered, true and correct in all
material respects;
(vi) Each of the covenants required to be performed by the
Company herein on or prior to the delivery of such certificate has been
duly, timely and fully performed and each condition herein required to
be complied with by the Company on or prior to the date of such
certificate has been duly, timely and fully complied with; and
(vii) Subsequent to the execution and delivery of the
Underwriting Agreement and through the date of such certificate, there
has not occurred any downgrading in the rating accorded the Securities
or any other debt securities of the Company by any Rating Agency nor
has any notice been given to the Company of (A) any intended or
potential downgrading
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by any Rating Agency in such securities, or (B) any review or possible
change by any Rating Agency that does not indicate a stable, positive
or improving rating accorded such securities.
(m) The Securities shall be qualified for sale in the
jurisdictions designated pursuant to Section 5(g), each such qualification shall
be in effect and not subject to any stop order or other proceeding on the
Closing Date.
(n) The Company shall have furnished to the Underwriters
such certificates, in addition to those specifically mentioned herein, as the
Underwriters may have reasonably requested as to the accuracy and completeness
at the Closing Date of any statement in the Registration Statement or the
Prospectus or any documents filed under the Exchange Act and deemed to be
incorporated by reference into the Prospectus, as to the accuracy at the Closing
Date of the representations and warranties of the Company herein, as to the
performance by the Company of its obligations hereunder, or as to the
fulfillment of the conditions concurrent and precedent to the obligations of the
Underwriters hereunder.
(o) All such opinions, certificates, letters and other
documents will be in compliance with the provisions hereof only if they are
reasonably satisfactory in form and substance to the Underwriters and their
counsel. The Company will furnish the Underwriters with such conformed copies of
such opinions, certificates, letters and other documents as the Underwriters
shall reasonably request.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company will indemnify and hold harmless
each Underwriter, each of the directors, officers, employees and agents of each
Underwriter and each person, if any, who controls each Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act from and
against any and all losses, claims, liabilities, expenses and damages
(including, but not limited to, any and all investigative, legal and other
expenses reasonably incurred in connection with, and any and all amounts paid in
settlement of, any action, suit or proceeding between any of the indemnified
parties and any indemnifying parties or between any indemnified party and any
third party, or otherwise, or any claim asserted), as and when incurred, to
which any Underwriter, or any such person, may become subject under the Act, the
Exchange Act or other Federal or state statutory law or regulation, at common
law or otherwise, insofar as such losses, claims, liabilities, expenses or
damages arise out of or are based on (i) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment or supplement to the
Registration Statement or the Prospectus, or in any application or other
document executed by the Company and filed in any jurisdiction in order to
qualify the Securities under the securities laws thereof or filed with the
Commission, (ii) the omission or alleged omission to state in such document a
material fact required to be stated in it or necessary to make the statements in
it not misleading or (iii) any act or failure to act or any alleged act or
failure to act by any Underwriter in connection with, or relating in any manner
to, the Securities or the offering contemplated hereby, and which is included as
part of or referred to in any loss, claim, liability, expense or damage arising
out of or based upon matters covered by clause (i) or (ii) above (provided that
the Company shall not be liable under this clause (iii) to the extent it is
finally judicially determined by a court of competent jurisdiction that such
loss, claim, liability, expense or damage resulted directly from any such acts
or failures to act undertaken or omitted to be taken by such Underwriter through
its gross negligence or willful misconduct); provided that the
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Company will not be liable to the extent that such loss, claim, liability,
expense or damage (A) arises from the sale of the Securities in the public
offering to any person by an Underwriter and is based on an untrue statement or
omission or alleged untrue statement or omission made in reliance on and in
conformity with information relating to any Underwriter furnished in writing to
the Company by such Underwriter expressly for inclusion in the Registration
Statement, any preliminary prospectus or the Prospectus or (B) results solely
from an untrue statement of a material fact contained in, or the omission of a
material fact from, such preliminary prospectus, which untrue statement or
omission was completely corrected in the Prospectus (as then amended or
supplemented) if the Company shall sustain the burden of proving that the
Underwriters sold Securities to the person alleging such loss, claim, liability,
expense or damage without sending or giving, at or prior to the written
confirmation of such sale, a copy of the Prospectus (as then amended or
supplemented) if the Company had previously furnished copies thereof to the
Underwriters within a reasonable amount of time prior to such sale or such
confirmation, and the Underwriters failed to deliver the corrected Prospectus,
if required by law to have so delivered it and if delivered would have been a
complete defense against the person asserting such loss, claim, liability,
expense or damage. This indemnity agreement will be in addition to any liability
that the Company might otherwise have.
(b) Each Underwriter will indemnify and hold harmless the
Company, each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, each director of the
Company and each officer of the Company who signs the Registration Statement to
the same extent as the foregoing indemnity from the Company to each Underwriter,
but only insofar as losses, claims, liabilities, expenses or damages (or actions
in respect thereof) arise out of or are based on any untrue statement or
omission or alleged untrue statement or omission made in reliance on and in
conformity with information relating to any Underwriter furnished in writing to
the Company by or on behalf of such Underwriter or its counsel expressly for use
in the Registration Statement, the preliminary prospectus or the Prospectus.
This indemnity will be in addition to any liability that each Underwriter might
otherwise have; provided, however, that in no case shall any Underwriter be
liable or responsible for any amount in excess of the underwriting discounts and
commissions received by such Underwriter.
(c) Any party that proposes to assert the right to be
indemnified under this Section 7 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section 7, notify
each such indemnifying party of the commencement of such action, enclosing a
copy of all papers served, but the omission so to notify such indemnifying party
will not relieve it from any liability that it may have to any indemnified party
under the foregoing provisions of this Section 7 unless, and only to the extent
that, such omission results in the forfeiture of substantive rights or defenses
by the indemnifying party. If any such action is brought against any indemnified
party and it notifies the indemnifying party of its commencement, the
indemnifying party will be entitled to participate in and, to the extent that it
elects by delivering written notice to the indemnified party promptly after
receiving notice of the commencement of the action from the indemnified party,
jointly with any other indemnifying party similarly notified, to assume the
defense of the action, with counsel satisfactory to the indemnified party, and
after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below and
except for the reasonable costs of investigation subsequently incurred by the
indemnified party in connection with the defense. The indemnified party will
have the right to employ its own counsel in any such action, but the fees,
expenses and other charges of such counsel will be at the expense of such
indemnified party unless
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(i) the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (ii) the indemnified party has reasonably
concluded (based on advice of counsel) that there may be legal defenses
available to it or other indemnified parties that are different from or in
addition to those available to the indemnifying party, (iii) a conflict or
potential conflict exists (based on advice of counsel to the indemnified party)
between the indemnified party and the indemnifying party (in which case the
indemnifying party will not have the right to direct the defense of such action
on behalf of the indemnified party) or (iv) the indemnifying party has not in
fact employed counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be at
the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm admitted to
practice in such jurisdiction at any one time for all such indemnified party or
parties. All such fees, disbursements and other charges will be reimbursed by
the indemnifying party promptly as they are incurred. An indemnifying party will
not be liable for any settlement of any action or claim effected without its
written consent (which consent will not be unreasonably withheld). No
indemnifying party shall, without the prior written consent of each indemnified
party, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action or proceeding relating to the matters
contemplated by this Section 7 (whether or not any indemnified party is a party
thereto), unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising or
that may arise out of such claim, action or proceeding.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 7 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company or the Underwriters, the
Company and the Underwriters will contribute to the total losses, claims,
liabilities, expenses and damages (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted, but after
deducting any contribution received by the Company from persons other than the
Underwriters, such as persons who control the Company within the meaning of the
Act, officers of the Company who signed the Registration Statement and directors
of the Company, who also may be liable for contribution) to which the Company
and any one or more of the Underwriters may be subject in such proportion as
shall be appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other. The relative benefits received
by the Company on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. If, but only if, the
allocation provided by the foregoing sentence is not permitted by applicable
law, the allocation of contribution shall be made in such proportion as is
appropriate to reflect not only the relative benefits referred to in the
foregoing sentence but also the relative fault of the Company, on the one hand,
and the Underwriters, on the other, with respect to the statements or omissions
which resulted in such loss, claim, liability, expense or damage, or action in
respect thereof, as well as any other relevant equitable considerations with
respect to such offering. Such relative fault shall be determined by reference
to whether the untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact relates to information supplied by
the Company or the Underwriters, the intent of the parties and their relative
knowledge, access to information and opportunity to correct
19
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or prevent such statement or omission. The Company and the Underwriters agree
that it would not be just and equitable if contributions pursuant to this
Section 7(d) were to be determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified party as a
result of the loss, claim, liability, expense or damage, or action in respect
thereof, referred to above in this Section 7(d) shall be deemed to include, for
purpose of this Section 7(d), any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action ore claim. Notwithstanding the provisions of this Section 7(d), no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions received by it and no person found guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
will be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute as
provided in this Section 7(d) are several in proportion to their respective
underwriting obligations and not joint. For purposes of this Section 7(d), any
person who controls a party to this Agreement within the meaning of the Act will
have the same rights to contribution as that party, and each officer of the
Company who signed the Registration Statement will have the same rights to
contribution as the Company, subject in each case to the provisions hereof. Any
party entitled to contribution, promptly after receipt of notice of commencement
of any action against such party in respect of which a claim for contribution
may be made under this Section 7(d), will notify any such party or parties from
whom contribution may be sought, but the omission so to notify will not relieve
the party or parties from whom contribution may be sought from any other
obligation it or they may have under this Section 7(d). No party will be liable
for contribution with respect to any action or claim settled without its written
consent (which consent will not be unreasonably withheld).
(e) The indemnity and contribution agreements contained in
this Section 7 and the representations and warranties of the Company contained
in this Agreement shall remain operative and in full force and effect regardless
of (i) any investigation made by or on behalf of the Underwriters, (ii)
acceptance of the Securities and payment therefor or (iii) any termination of
this Agreement.
8. TERMINATION. The Underwriters shall have the right, by giving
notice as hereinafter specified at any time at or prior to the Closing Date, to
terminate this Agreement if (i) the Company shall have failed, refused or been
unable, at or prior to the Closing Date, to perform any agreement on its part to
be performed hereunder, (ii) any other condition of the Underwriters'
obligations hereunder is not fulfilled, (iii) trading on the New York Stock
Exchange shall have been wholly suspended, (iv) minimum or maximum prices for
trading shall have been fixed, or maximum ranges for prices for securities shall
have been required, on the New York Stock Exchange by such exchange or by order
of the Commission or any other governmental authority having jurisdiction, (v) a
banking moratorium shall have been declared by Federal or New York authorities,
or (vi) any material adverse change in the financial or securities markets in
the United States or in political, financial or economic conditions in the
United States, any outbreak or material escalation of hostilities in which the
United States is involved, a declaration of war by Congress, any other
substantial national or international calamity or any other event or occurrence
of a similar character shall have occurred since the execution of this Agreement
that, in your judgment, makes it impractical or inadvisable to proceed with the
completion of the sale of and payment for the Securities. Any such termination
shall be without liability of any party to any other party with respect to
Securities not purchased by reason of such termination except that the
provisions of Section 5(j) (regarding costs and expenses) and Section
20
22
7 (indemnification and contribution) hereof shall at all times be effective. If
you elect to terminate this Agreement as provided in this Section, the Company
shall be notified promptly by you by telephone, telex or telecopy, confirmed by
letter.
9. SUBSTITUTION OF UNDERWRITERS. If any one or more of the
Underwriters shall fail or refuse to purchase any of the Securities which it or
they have agreed to purchase hereunder, and the aggregate principal amount of
Securities which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase is not more than one-tenth of the aggregate principal
amount of the Securities, the other Underwriters shall be obligated, severally,
to purchase the Securities which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase, in the proportions which the aggregate
principal amount of Securities which they have respectively agreed to purchase
pursuant to Section 2 bears to the aggregate principal amount of Securities
which all such non-defaulting Underwriters have so agreed to purchase, or in
such other proportions as the non-defaulting Underwriters may specify; provided
that in no event shall the maximum aggregate principal amount of Securities
which any Underwriter has become obligated to purchase pursuant to Section 2 be
increased pursuant to this Section 9 by more than one-ninth of the aggregate
principal amount of Securities agreed to be purchased by such Underwriter
without the prior written consent of such Underwriter. If any Underwriter or
Underwriters shall fail or refuse to purchase any Securities and the aggregate
principal amount of Securities which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase exceeds one-tenth of the aggregate
principal amount of the Securities and arrangements satisfactory to the
Underwriters and the Company for the purchase of such Securities are not made
within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company for the
purchase or sale of any Securities under this Agreement. In any such case either
the non-defaulting Underwriters or the Company shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and in the Prospectus or
in any other documents or arrangements may be effected. Any action taken
pursuant to this Section 9 shall not relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this Agreement.
10. MISCELLANEOUS.
(a) NOTICE. Notice given pursuant to any of the provisions of
this Agreement shall be in writing and, unless otherwise specified, shall be
mailed or delivered (a) if to the Company, at the office of the Company, 2900
Eisenhower Avenue, Suite 300, Alexandria, Virginia 22314, Attention: Thomas J.
Sargeant, or (b) if to the Underwriters, care of PaineWebber Incorporated, at
the offices of PaineWebber Incorporated, 1285 Avenue of the Americas, New York,
New York 10019, Attention: Corporate Real Estate Department. Any such notice
shall be effective only upon receipt. Any notice under Section 8 hereof may be
made by telex or telephone, but if so made shall be subsequently confirmed in
writing.
(b) PARTIES. This Agreement has been and is made solely for
the benefit of the several Underwriters and the Company and of the controlling
persons, directors and officers referred to in Section 7, and their respective
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" as used
in this Agreement shall not include a purchaser, as such purchaser, of
Securities from any of the several Underwriters.
21
23
(c) REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, agreements and covenants, of the Company herein or
in certificates delivered pursuant hereto, and the agreements of the several
Underwriters contained in Section 7 hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter or any controlling persons, or the Company or any of its officers,
directors or any controlling persons, and shall survive delivery of and payment
for the Securities hereunder.
(d) ACTIONS BY UNDERWRITERS. Any action required or permitted
to be taken by the Underwriters under this Agreement may be taken by them
jointly or by PaineWebber Incorporated.
(e) APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE.
(f) COUNTERPARTS. This Agreement may be signed in two or more
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument.
(g) SEVERABILITY. In case any provision in this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
(h) WAIVER OF TRIAL BY JURY. The Company and the Underwriters
each hereby irrevocably waive any right they may have to a trial by jury in
respect of any claim based upon or arising out of this Agreement or the
transactions contemplated hereby.
(i) AMENDMENTS AND MODIFICATIONS. This Agreement may not be
amended or otherwise modified or any provision hereof waived except by an
instrument in writing signed by the Underwriters and the Company.
[signature page follows]
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If the foregoing correctly sets forth the understanding
between the Company and the several Underwriters, please so indicate in the
space provided below for that purpose, whereupon this letter shall constitute a
binding agreement between the Company and the several Underwriters.
Very truly yours,
AVALON BAY COMMUNITIES, INC.
By: /s/ Thomas J. Sargeant
-------------------------------
Thomas J. Sargeant
Chief Financial Officer
ACCEPTED as of the date
first above written
PAINEWEBBER INCORPORATED
FIRST UNION CAPITAL MARKETS, A DIVISION
OF WHEAT FIRST SECURITIES, INC.
J.P. MORGAN SECURITIES INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
By: PAINEWEBBER INCORPORATED
By: /s/ Frederick T. Caven, Jr.
------------------------------------
Frederick T. Caven, Jr.
Managing Director
S - 1
25
SCHEDULE A
UNDERWRITERS; IDENTIFICATION OF SECURITIES; PURCHASE PRICE
Aggregate Principal Aggregate Principal
Amount of 2003 Amount of 2006
Notes to be Notes to be
Purchased Purchased
---------------------------------------------
PaineWebber Incorporated............................... $100,000,000 $37,500,000
First Union Capital Markets............................ 0 37,500,000
J.P. Morgan Securities Inc............................. 0 37,500,000
NationsBanc Montgomery Securities LLC.................. 0 37,500,000
--------------------------------------
Total......................................... $100,000,000 $150,000,000
======================================
Title of Securities: 6.50% Senior Notes due 2003 (the "2003 Notes")
- ------------------- 6.80% Senior Notes due 2006 (the "2006 Notes")
Aggregate principal amount: 2003 Notes: $100,000,000
2006 Notes: $150,000,000
Maturity Date: 2003 Notes: July 15, 2003
- ------------- 2006 Notes: July 15, 2006
Interest Rate: 2003 Notes: 6.500% per annum from July 7, 1998
- ------------- 2006 Notes: 6.800% per annum from July 7, 1998
Coupon Payment Dates: January 15 and July 15
- --------------------
Price to Public: 2003 Notes: 99.719%
- --------------- 2006 Notes: 99.723%
Schedule A - Page 1
26
Underwriting Discount: 2003 Notes: 0.550%
- --------------------- 2006 Notes: 0.625%
Net Price to Company: 2003 Notes: 99.169%
- -------------------- 2006 Notes: 99.098%
Purchase Price to be paid
- -------------------------
to the Company: 2003 Notes: $ 99,169,000
-------------- 2006 Notes: 148,647,000
------------
total: $247,816,000
============
Closing Date and Time: Tuesday, July 7, 1998, 9:45 a.m.
- --------------------- (New York City time)
Closing Location: Offices of Goodwin, Procter & Hoar LLP
- ---------------- Exchange Place, Boston MA 02109
Schedule A - Page 2
27
SCHEDULE B
INFORMATION IN PRELIMINARY PROSPECTUS
AND PROSPECTUS FURNISHED BY THE UNDERWRITERS
The following information appearing in the Preliminary Prospectus, if
any, and the Prospectus has been furnished by the Underwriters in writing
specifically for use in the preparation of such Preliminary Prospectus and the
Prospectus:
1. The legend on the inside front cover page (concerning
stabilization and other matters); and
2. The following information under the heading "Underwriting:"
a. the information appearing in the table following the
first paragraph;
b. the information in the second full paragraph
(regarding the concession and reallowance, among
other matters);
c. the information in the third full paragraph
(regarding market making, among other matters); and
d. the information in the eighth full paragraph
(regarding transactions among the Company and
affiliates of certain Underwriters, among other
matters).
Schedule B - Page 1
28
SCHEDULE C
LIST OF SUBSIDIARIES
AVB Transfer of
LIMITED PARTNERSHIP/LIMITED LIABILITY Ownership Interests or Foreign
COMPANY/JOINT VENTURE INTEREST Interest Formation State Qualification
- ------------------------------------------------------------------------------------------------------
Falkland Partners, a general partnership*.... 50% 7/1/85 MD
4100 Massachusetts Avenue Associates L.P..... 100% 6/21/94 DOC
Town Run Associates*......................... 49% 11/3/94 NJ
Town Grove Limited Liability Company......... 49% 12/27/94 CT
Town Close Associates L.P.................... 86.5% 4/10/92 CT
Avalon Lake Arbor Associates L.P............. 100% 8/4/95 MD
Avalon Decoverly Associates L.P.............. 100% 8/11/95 VA MD
Smithtown Galleria Associates L.P............ 100% 7/25/91 CT NY
Avalon Fairway Hills I Associates, a
general partnership*......................... 100% 8/8/96 MD
Avalon Fairway Hills II Associates, a
general partnership*......................... 100% 8/8/96 MD
Bronxville West Limited Liability Company.... 60% 10/8/96 CT NY
Avalon Ballston II Limited Partnership....... 99% 1/13/97 DE MD, VA
Avalon DownREIT V Limited Partnership........ 99% 11/7/97 DE
San Francisco Bay Partners II, LTD........... 94% 7/2/84 CA
Toyon Road San Jose Partners, L.P............ 100% 3/9/94 CA
San Francisco Bay Partners III, L.P.......... 100% 3/10/94 CA
Foxchase Drive San Jose Partners II, L.P..... 100% 3/9/94 CA
Bay Countrybrook L.P......................... 99% 6/12/96 DE OR
Bay Rincon, L.P.............................. 5/16/97 CA
Bay Pacific Northwest, L.P................... 99% 8/29/97 DE WA
Avalon Bay Devonshire LLC.................... 99% 5/20/98 MN
Avalon Bay Edinburgh LLC..................... 99% 5/20/98 MN
Avalon Bay BFG L. P. ........................ 100% 5/21/98 MA
- ----------------------
* A subsidiary of the Company but not included within the defined term
"Subsidiary" for purposes of this Agreement.
29
AVB Transfer of
CORPORATE SUBSIDIARIES Ownership Interests or Foreign
Interest Formation State Qualification
- ------------------------------------------------------------------------------------------------------
Bay Asset Group, Inc......................... 100% 3/17/94 MD CA
Bay Waterford, Inc........................... 100% 3/17/94 MD CA
Bay Development Partners, Inc................ 100% 3/17/94 MD CA
Bay GP, Inc.................................. 100% 3/17/94 MD CA
Avalon Town Green II, Inc.................... 100% 8/24/93 MD NY
Avalon Chase Ridge, Inc...................... 100% 10/27/93 MD
Avalon Chase Glen, Inc....................... 100% 10/27/93 MD
Avalon Chase Grove, Inc...................... 100% 3/18/94 MD
Avalon Chase Hampton II, Inc................. 100% 10/27/93 MD VA
Avalon Chase Heritage, Inc................... 100% 10/27/93 MD VA
Avalon Chase Lea, Inc........................ 100% 10/27/93 MD
Avalon Town Meadows, Inc..................... 100% 5/27/94 MD MA
Lexington Ridge-Avalon, Inc.................. 100% 10/27/93 MD MA
Avalon Town View, Inc........................ 100% 10/27/93 MD NY
Avalon Development Services, Inc............. 100% 11/24/97 MD WA,OR
Avalon 4100 Mass. Avenue, Inc................ 100% 6/15/94 MD DOC
Town Cove Jersey City Urban Renewal, Inc..... 100% 2/2/94 NJ
Town Cove II Jersey City Urban Renewal, Inc.. 100% 4/16/96 NJ
Avalon Transactions, Inc..................... 100% 12/27/94 CT
Avalon Decoverly, Inc........................ 100% 3/8/95 MD
Avalon Collateral, Inc....................... 100% 3/1/96 MD VA,NJ
Avalon Lake Arbor, Inc....................... 100% 7/14/95 MD
Avalon Fairway II, Inc....................... 100% 6/27/97 MD
Avalon Commons, Inc.......................... 100% 2/1/96 MD NY
Avalon Ballston II, Inc...................... 100% 11/1/96 MD VA
Avalon DownREIT V, Inc....................... 100% 11/7/97 MD IL,IN,MN,
MO,OH
Avalon Oaks, Inc............................. 100% 9/4/97 MD MA
Avalon BFG, Inc.............................. 100% 5/14/98 MD MA