Exhibit 10.3

 

AvalonBay Communities, Inc.

671 N. Glebe Road, Suite 800

Arlington, VA  22203

 

December 16, 2011

 

Leo S. Horey

[address]

 

Dear Leo:

 

As you know, the Board of Directors and its Compensation Committee of AvalonBay
Communities, Inc. (the “Company”) have concluded that employment agreements, as
a general matter of policy, may no longer be in the best interests of the
Company except under special circumstances and only then narrowly tailored to
fit the situation.  Therefore, the Company and you have negotiated to terminate
your existing Employment Agreement dated September 10, 2001, as the same has
been amended to date (the “Current Employment Agreement”), on the following
terms and conditions:

 

1.  Defined terms used in this letter and not defined elsewhere in this letter
have the meanings ascribed thereto on Exhibit A attached hereto.

 

2.   You and the Company agree that, as of the Effective Date, your Current
Employment Agreement will be of no further force and effect and will be
terminated in full.  In consideration of your agreeing to terminate the Current
Employment Agreement and your rights and benefits thereunder, and for your help
with a smooth organizational transition related to the recently announced CEO
transition, the Company has agreed to provide you with the benefits described in
paragraphs 3 and 4 below.

 

3.  In the event the Company or any successor to the Company terminates your
employment without Cause, then:

 

A.  The Company shall pay to you as severance following your termination the
following (subject to tax withholding):

 

(a)          An amount of cash determined as follows:  your annual cash bonus at
target plus the dollar value of your annual long term incentive award at target,
for the year of termination, pro rated to reflect the portion of the year worked
through the date of termination.  For example, if the termination occurs on
June 30, 20XX, and your annual cash bonus at target for 20XX is $X and the
dollar value of your long term incentive award at target for 20XX is $Y, then
the amount due under this clause (a) would be 50% of ($X plus $Y).

 

plus

 

(b)         An amount of cash equal to one (1) times your Covered Compensation
as in effect on the date of termination, provided that if such termination
occurs within a two-year period after a Sale Event, then the amount of cash
under this clause (b) shall equal two (2) times your Covered Compensation as in
effect on the date of termination.  (We further agree that if your employment is
terminated by us without Cause either (i) after the Company has entered into a
definitive agreement with a third party with respect to a transaction that if
consummated

 

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would result in a Sale Event or (ii) at a time when we actively anticipate or
are planning to enter into such an agreement, and thereafter in either case a
Sale Event occurs within six months after your employment terminates, you will
receive an additional cash payment of one (1) times your Covered Compensation
(so that the total amount received by you, after receipt of such additional cash
payment, shall equal two (2) times your Covered Compensation as in effect on the
date of termination).)

 

B.  In addition, your unvested employee stock options and restricted stock
grants would vest on the date of termination and you would have one year to
exercise your employee stock options (subject to the earlier expiration of the
10 year term of such options).

 

C.  You would also be provided with other customary benefits, if any, that are
generally provided by the Company for officers who are terminated without cause,
such as payment of COBRA premiums for a period of time.

 

D.  Notwithstanding any other provision of this agreement, in the event that the
amounts you would receive pursuant to this agreement for a termination without
Cause, together with any other amounts you would receive in connection with such
termination of employment, would be subject to the excise tax imposed by
Section 4999 of the Internal Revnue Code of 1986, as amended (“Code”), then the
limitation provisions relating to Section 4999 of the Code contained in
Section 6 of the Company’s Officer Severance Plan (as such plan is in effect on
the date hereof, or a successor provision in an amended or successor Officer
Severance Plan if such successor provision when applied is more beneficial to
you) will apply as if stated in full herein and may limit the the cash payments
and benefits you receive upon such termination.

 

We agree that if (i) we do any of the following (each, a “Default”),  and
(ii) within thirty days of a Default or alleged Default you provide us of notice
of your intent to terminate your employment by reason of such Default with
reasonable specificity as to the actions taken by us which constitute a Default,
and (iii) we do not cure such Default within ten days of our receipt of your
notice relating thereto, then in such event you may terminate your employment
and such termination shall constitute a termination without Cause such that you
are entitled to the benefits described above:  (a) we reduce your title to below
that of an Executive Vice President,  or (b) you are no longer included in the
executive officer group or a participant at executive officer meetings, or
(c) we violate our agreement in Section 5 of this letter agreement.

 

Notwithstanding the foregoing, you will only be entitled to the payments above
upon execution by you, within 30 days following your termination and upon the
lapse of the seven-day revocation period (or such other revocation period as we
are required to legally provide you), of a Separation and Release Agreement
containing reasonable general release, confidentiality, return of property, one
year employee non-solicitation, and mutual non-disparagement provisions, with
provisions addressing these and related matters to be in a form substantially
similar to those set forth in Exhibit B.  Subject to the foregoing,  and the
delay that may be required pursuant to the provisions set forth in Exhibit C
attached hereto, payments will be made as soon as reasonably practicable (as
determined by the Company) after your execution of such Separation and Release
Agreement and the lapse of any required revocation period but in all events such
payments must be made (unless you do not timely execute a Separation and Release
Agreement through no fault of the Company’s) on or before the 60th day after
your involuntary termination of employment, except that (i) if such 60-day
period begins in one calendar year and ends in a second calendar year, such
payment in all events will occur during the second calendar year and within such
60-day period, and (ii) such payment may be further delayed in accordance with
the provisions set forth in Exhibit C.

 

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4.  The Company shall also award you, effective as of December 30, 2011, a
restricted stock award under the Company’s 2009 Stock Incentive Plan, subject to
the following:

 

A.           The number of shares awarded shall be determined by dividing three
hundred thousand dollars ($300,000) by the closing price on the New York Stock
Exchange of a share of the Company’s Common Stock on December 30, 2011, rounded
up or down to the nearest whole number.

 

B.             Seventy-five percent (75%) of the shares so granted shall cliff
vest in full on December 31, 2013 if you remain employed through such date, with
no interim or partial vesting before such date except that the vesting of such
shares may accelerate if your employment is terminated without Cause or by
reason of death or disability or if there is a Sale Event (for clarification, it
is noted that the vesting of such shares shall not occur in the event your
employment terminates by reason of Retirement (as defined in the Company’s
current standard award agreements) prior to December 31, 2013).  The remaining
twenty-five percent (25%) of such shares shall vest on December 31, 2014,
subject to earlier acceleration of vesting in the event of a termination of
employment due to death, disability, termination without Cause or Retirement, or
upon a Sale Event.  The Form of such restricted stock agreement is attached as
Exhibit D hereto.

 

5.  The Company acknowledges that your base salary, cash bonus and long term
incentive bonus are each a material part of your total compensation.   The
Company will endeavor to provide you with a reasonable bonus program which
continues to provide for a reasonable cash bonus and/or reasonable long term
incentive bonus to compensate you for the achievement by the Company and/or you
of reasonable goals and objectives such that your total compensation (consisting
of base salary, cash bonus and long term incentive bonus), in light of the
Company’s performance and your performance and service as Executive Vice
President, is reasonable under the circumstances and reasonable relative to the
cash bonuses and long term incentive bonuses awarded other officers of the
Company as compared to their target bonuses.  The Company shall not be in breach
of this provision unless it can be demonstrated that the Company acted in bad
faith in determining whether to award (or the size of an award of) a cash bonus
or long term incentive bonus, which determination of bad faith shall
specifically be made with reference to the target awards set for other officers
and the actual awards paid other officers.

 

6.  This agreement shall remain in effect until December 31, 2015, and may be
renewed thereafter upon mutual agreement of the parties.  While this agreement
is in effect, you would not receive cash severance under the Company’s Officer
Severance Plan in addition to the cash severance provided hereunder (except to
the extent that you would have been entitled to a greater benefit under the
Officer Severance Plan).

 

7.  This agreement shall be governed by the laws of the state of Virginia.

 

8.  Your employment remains “at will” and may be terminated at any time, with or
without Cause, at the option of the Company, subject only to the severance
obligations provided herein and as otherwise provided by law.

 

9.  Reference is made to the Endorsement Split Dollar Life Insurance Company
Agreement between you and the Company originally entered into on February 19,
2003 and most recently amended and restated on December 14, 2008 (as so amended
and restated, the “Split Dollar Agreement”).  In the Split Dollar Agreement,
“Employment Agreement” is defined as your Current Employment

 

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Agreement, but you agree, by your execution of this agreement, that, regardless
of whether this agreement is in effect or has expired, (i) such reference in the
Split Dollar Agreement shall hereafter be understood to refer to this Agreement,
and (ii) the reference in the Split Dollar Agreement to a Constructive
Termination Without Cause, which is a term that is not used in this Agreement,
shall hereafter be understood to refer to your decision to terminate your
employment because of an uncured Default as provided in Section 3 of this
Agreement.

 

 

 

Sincerely,

 

 

 

AvalonBay Communities, Inc.

 

 

 

 

 

By:

/s/ Timothy J. Naughton

 

 

Name:

Timothy J. Naughton

 

 

Title:

President

 

Accepted and Agreed to:

 

/s/ Leo S. Horey

 

Name: Leo S. Horey

Dated: December 16, 2011

 

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Exhibit A

 

Definitions

 

“Effective Date” means the latest date on which letter agreements terminating
the current employment agreements of you, Timothy Naughton and Thomas Sargeant
are fully signed by all of the Company, you and Messrs. Naughton and Sargeant.

 

“Cause” means a vote of the Board of Directors of the Company resolving that you
should be dismissed as a result of (i) any material breach by you of any
agreement to which the you and the Company are parties, (ii) any act (other than
retirement) or omission to act by you which may have a material and adverse
effect on the business of the Company or on your ability to perform services for
the Company, including, without limitation, the commission of any crime (other
than ordinary traffic violations), or (iii) any material misconduct or neglect
of duties by you in connection with the business or affairs of the Company.

 

“Covered Compensation” means the sum of (i) your base salary on the date of
termination plus (ii) the average of your last two annual cash bonuses as of the
date of termination.

 

“Sale Event” shall have the meaning given thereto in the Company’s 2009 Stock
Incentive Plan.

 

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Exhibit B

 

Separation and Release Agreement Terms

 

Offset for Withholding Tax.  You acknowledge that income taxes or other legally
mandated withholding will be due upon the transfer or vesting of stock or the
exercise of stock options and the Company will not be obligated to deliver to
you any share certificates until you have satisfied all withholding tax
obligations.  You agree and authorize the Company to withhold cash payments
otherwise due to you under this Separation and Release Agreement, and to use
such withheld payments for the purpose of satisfying any obligations which you
may have for taxes or other legally mandated withholding until such obligations
are fully satisfied.  In the event that the payments withheld are insufficient
to satisfy such obligations, you agree to make any additional payments necessary
directly to the Company until all such obligations are satisfied.  The Company
will allow you, should you elect, to have shares withheld to satisfy the tax
withholding obligation that accrues upon the vesting of the shares.

 

Release of Claims.  In consideration of all payments described in this
Separation and Release Agreement, you hereby covenant and agree as follows:

 

(a)           You, on behalf of yourself and your successors, heirs, assigns,
executors, administrators and/or estate, hereby knowingly and voluntarily,
irrevocably and unconditionally release, acquit and forever discharge the
Company, its subsidiaries, divisions and related or affiliated entities, and
each of their respective predecessors, successors or assigns, and the current
and former officers, directors, partners, shareholders, representatives,
employees and agents of each of the foregoing (the “Releasees”), from any and
all charges, complaints, claims, liabilities, obligations, promises, agreements,
controversies, damages, actions, causes of action, suits, rights, demands,
costs, losses, debts and expenses (including attorneys’ fees and costs actually
incurred), known or unknown, that directly or indirectly arise out of, relate to
or concern your employment or termination of employment with the Company
(“Claims”), which you have, own or hold, or at any time heretofore had, owned or
held against the Releasees up to the date on which you execute this Separation
and Release Agreement, including without limitation, express or implied, all
Claims for:  breach of express or implied contract; promissory estoppel; fraud,
deceit or misrepresentation; intentional, reckless or negligent infliction of
emotional distress; breach of any express or implied covenant of employment,
including the covenant of good faith and fair dealing; interference with
contractual or advantageous relations; or any alleged violation of:

 

Title VII of the Civil Rights Act of 1964, as amended;

The Civil Rights Act of 1991;

Sections 1981 through 1988 of Title 42 of the United States Code, as amended;

The Employee Retirement Income Security Act of 1974, as amended;

The Immigration Reform and Control Act, as amended;

The Americans with Disabilities Act of 1990, as amended;

The Age Discrimination in Employment Act of 1967, as amended;

The Workers Adjustment and Retraining Notification Act, as amended;

The Occupational Safety and Health Act, as amended;

The National Labor Relations Act;

The Sarbanes-Oxley Act of 2002;

Genetic Information Nondiscrimination Act of 2008;

Equal Pay Act of 1963, as amended;

The Family and Medical Leave Act of 1993, as amended;

The Fair Labor Standards Act, as amended;

The  Consolidated Omnibus Budget Reconciliation Act, as amended;

The Virginia Human Rights Act — Va. Code § 2.2-3900 et seq.;

 

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Virginia Statutory Provisions Regarding Retaliation/Discrimination for Filing a
Workers’ Compensation Claim — Va. Code § 65.2-308(A) and (B);

The Virginia Equal Pay Act — Va. Code § 40.1-28.6;

Virginia Statutory Provisions Regarding Genetic Testing and Genetic
Characteristics — Va. Code § 40.1-28.7:1;

The Virginians With Disabilities Act — Va. Code § 51.5-1 et seq.;

AIDS Testing Law — Va. Code Ann. §32.1-36.1;

Virginia Wage Payment and Hour Laws — Va. Code § 40.1-28.8 et seq. and Va. Code
§ 40.1-29;

Virginia Occupational Safety and Health (VOSH) Law — Va. Code § 40.1-49.3 et
seq.;

Any other federal, state or local civil or human rights law or any other local,
state or federal law, regulation or ordinance;

Any public policy, contract, tort or common law; and

Any claim for costs, fees or other expenses including attorneys’ fees.

 

You intend this release to fully discharge the Releasees to the maximum extent
permitted by law.

 

(b)           You acknowledge that you are releasing unknown claims.

 

(c)           You represent and warrant that you have not filed any complaints
or charges asserting any Claims against the Releasees with any local, state or
federal agency or court.  You further represent and warrant that you have not
assigned or transferred to any person or entity any Claims or any part or
portion thereof.

 

(d)           You agree that you will not hereafter pursue any Claim against any
Releasee by filing a lawsuit in any local, state or federal court for or on
account of anything which has occurred up to the present time as a result of
your employment, and you shall not seek reinstatement with, or damages of any
nature, severance, incentive or retention pay, attorney’s fees, or costs from
the Company or any of the other Releasees; provided, however, that nothing in
this Section      shall be deemed to release the Company from any claims that
you may have (i) under this Separation and Release Agreement, (ii) for
indemnification pursuant to and in accordance with applicable statutes and the
by-laws of the Company, (iii) for vested retirement benefits under the terms of
qualified employee pension or defined contribution benefit plans, or (iv) for
accrued but unpaid wages. Nothing in this Separation and Release Agreement shall
be construed to prohibit you from filing a charge or complaint, including a
challenge to the validity of this Separation Agreement, with the Equal
Employment Opportunity Commission or participating in any investigation or
proceeding conducted by the Equal Employment Opportunity Commission.

 

(e)           You acknowledge that you are knowingly and voluntarily waiving and
releasing any rights you may have under the federal Age Discrimination in
Employment Act of 1967, as amended (the “ADEA”).  You also acknowledge that the
consideration given in paragraphs          hereof is in addition to anything of
value to which you were already entitled.  You further acknowledge that you have
been advised by this Separation and Release Agreement, as required by the ADEA,
that: (a) your waiver and release do not apply to any rights or claims that may
arise after the execution date of this Separation and Release Agreement; (b) you
have been advised hereby to consult with an attorney prior to executing this
Separation and Release Agreement; (c) you have twenty-one (21) days to consider
this Separation and Release Agreement (although you may choose to voluntarily
execute this Separation and Release Agreement earlier); and (d) you have seven
(7) days following the execution of this Separation and Release Agreement to
revoke this Separation and Release Agreement.  Any revocation within this period
must be submitted, in writing, to                         , 671 North Glebe
Road, Suite 800, Arlington, VA 22203, and state, “I hereby

 

 

B-2

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revoke my acceptance of our letter agreement dated as of September 30, 2011 and
the release contained therein.”  The revocation must be delivered to and
received by the Vice President of Human Resources or her designee, or mailed to
Suzanne Jakstavich and postmarked within seven (7) calendar days after execution
of this Separation and Release Agreement.  This Separation and Release Agreement
shall not become effective or enforceable until the revocation period has
expired (the “Effective Date”).  If the last day of the revocation period is a
Saturday, Sunday, or legal holiday in Virginia, then the revocation period shall
not expire until the next following day which is not a Saturday, Sunday or legal
holiday.

 

Disputes.  Any and all of your claims (i) arising under this Separation and
Release Agreement, (ii) for indemnification pursuant to and in accordance with
applicable statutes and the by-laws of the Company, (iii) for vested retirement
benefits under the terms of qualified employee pension or defined contribution
benefit plans, (iv) for accrued but unpaid wages, or (v) arising after the
execution date of this Separation and Release Agreement may be brought in a
court of competent jurisdiction.  The Company shall pay your reasonable
attorney’s fees and costs if you prevail in the litigation.

 

Return of Property.  To the extent you have not already done so, (i) you will
return to the Company all records, correspondence, notes, financial statements,
computer printouts and other documents and recorded material of every nature
(including copies thereof) that may be in your possession or control dealing
with Confidential Information (as described in the Company’s Code of Business
Conduct and Ethics), or other work product that is proprietary to the Company,
including yield matrices, templates and model documents, and (ii) you will
return to the Company all other Company property.   Notwithstanding the
foregoing, you may copy and keep your electronic contacts and address book.

 

Non-Solicitation Agreement.  You agree that for the one (1) year period
following your termination of employment, you will not, without the prior
written consent of the Company, solicit or attempt to solicit for employment
with or on behalf of any organization or enterprise, any employee of the Company
or any of its affiliates or any person who was formerly employed by the Company
or any of its affiliates within the preceding six months, unless such person’s
employment was terminated by the Company or any of such affiliates.

 

Litigation Cooperation.  You agree to continue to serve the Company as a
litigation consultant and, in connection therewith, to cooperate reasonably with
the Company in (i) the defense or prosecution of any claims or actions which
already have been brought or which may be brought in the future against or on
behalf of the Company and (ii) responding to, cooperating with, or contesting
any governmental audit, inspection, inquiry, proceeding or investigation, which
relate to events or occurrences that transpired during your employment with the
Company.  Your cooperation in connection with such claims or actions shall
include, without implication of limitation: promptly notifying the Company in
writing of any subpoena, interview, investigation, request for information, or
other contact concerning events or occurrences that transpired during your
employment with any of the Company; being reasonably available to meet with
counsel for the Company, or any of its affiliates, to prepare for discovery or
trial; to testify truthfully as a witness when reasonably requested and at
reasonable times designated by the Company; and to meet with counsel or other
designated representatives of the Company at reasonable times and places; to
prepare responses to and to cooperate with any Company’s processing of
governmental audits, inspections, inquiries, proceedings or investigations.  You
further agree that you shall not voluntarily provide information to or otherwise
cooperate with any individual or entity that is contemplating or pursuing
litigation against any of the Releasees or that is undertaking any investigation
or review of any of the Releasees’ activities or practices; provided, however,
that you may participate in or otherwise assist in any investigation or inquiry
conducted by the EEOC.  The Company will try, in good faith, to exercise its
rights under this Section so as not to unreasonably interfere with your personal
schedule or ability to engage in gainful employment.  In the event other
commitments preclude you from being available to the Company

 

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when requested, you may decline a Company request for cooperation so long as you
promptly provide to the Company reasonable alternative dates when you will be
available to provide such cooperation.  The Company agrees to reimburse you for
any reasonable out-of-pocket expenses that you incur in connection with such
cooperation, subject to reasonable documentation.  The Company shall compensate
you at an hourly rate based on your current base salary for time that you
reasonably spend complying with your obligations as a litigation consultant
under this Section, except that the Company shall not, under any circumstances,
compensate you for time spent (i) testifying under oath or (ii) responding to
questions from governmental investigators in a capacity as a fact witness.  You
acknowledge that to the best of your knowledge you are not now aware of any
violations of law that have been committed by the Company or, relating to
Company business, by any of its officers or employees.

 

Confidentiality.  In furtherance of your obligations under this Separation and
Release Agreement, you agree that you shall not disclose, provide or reveal,
directly or indirectly, any confidential or proprietary information concerning
the Company, including without implication of limitation, its operations, plans,
strategies or administration, to any other person or entity unless compelled to
do so pursuant to (a) a valid subpoena or (b) as otherwise required by law, but
in either case only after providing the Company, to the attention of its Senior
Vice President-General Counsel, with prior written notice and opportunity to
contest such subpoena or other requirement. Written notice shall be provided to
the Company as soon as practicable, but in no event less than five (5) business
days after you receive notice compelling such disclosure.  You also agree to
keep the terms of this Separation and Release Agreement confidential, although
you may share it with your spouse and, as needed, with your attorneys, tax
accountants and preparers, and financial advisors.

 

Exclusivity.  This Separation and Release Agreement sets forth all the
consideration to which you are entitled by reason of your termination from the
Company.

 

Tax Matters.  All payments and other consideration provided to you pursuant to
this Separation and Release Agreement shall be subject to any deductions,
withholding or tax reporting that the Company reasonably determines to be
required for tax purposes.  Nothing in this Agreement shall be construed to
require the Company to make any payments to compensate you for any adverse tax
effect associated with any payments or benefits or for any deduction or
withholding from any payment or benefit.  Payments and benefits under this
Agreement will be administered in accordance with Section 409A of the Internal
Revenue Code of 1986, as amended.

 

Survival.  You and the Company agree that the terms set out in this Separation
and Release Agreement, including but not limited to Sections                 ,
shall survive the signing of this Agreement.

 

Nondisparagement.  You agree not to take any action or make any statement,
written or oral, which disparages or criticizes the Company or its officers,
directors, agents, or management and business practices, or which disrupts or
impairs the Company’s normal operations.  The Company agrees that its current
executive officers (i.e., persons who at present hold the title of Executive
Vice President, Chief Financial Officer, President or CEO)  and its current
Senior Vice President-General Counsel will not take any action or make any
statement, written or oral, which disparages or criticizes you or your
management and business practices.  The provisions of this Section       shall
not apply to any truthful statement required to be made by you or any executive
officer of the Company, as the case may be, in any legal proceeding,
governmental or regulatory investigation, in any public filing or disclosure
legally required to be filed or made, or in any confidential discussion or
consultation with professional advisors.

 

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Notices, Acknowledgments, and Other Terms.

 

(a)           You are advised to consult with an attorney and tax advisor before
signing this Separation and Release Agreement.  You acknowledge that you have
been given a reasonable period of time to consider this Separation and Release
Agreement before executing it.

 

(b)           By signing this Separation and Release Agreement, you acknowledge
that you are doing so voluntarily and knowingly, fully intending to be bound by
this Separation and Release Agreement.  You also acknowledge that you are not
relying on any representations by any representative of the Company concerning
the meaning of any aspect of this Separation and Release Agreement.

 

(c)           In the event of any dispute, this Separation and Release Agreement
will be construed as a whole, will be interpreted in accordance with its fair
meaning, and will not be construed strictly for or against either you or the
Company.  Section headings and parenthetical explanations of section references
are for convenience only and shall not be used to interpret the meaning of any
provision or term of this Separation and Release Agreement.

 

(d)           The law of the Commonwealth of Virginia, excluding its conflict of
laws principles, will govern any dispute about this Separation and Release
Agreement, including any interpretation or enforcement of this Separation and
Release Agreement.

 

(e)           In the event that any provision or portion of a provision of this
Separation and Release Agreement shall be determined to be illegal, invalid or
unenforceable, the remainder of this Separation and Release Agreement shall be
enforced to the fullest extent possible and the parties expressly agree that the
illegal, invalid or unenforceable provision or portion of a provision will be
amended by a court of competent jurisdiction, or otherwise thereafter shall be
interpreted, to reflect as nearly as possible without being illegal, invalid or
unenforceable the parties’ intent if possible.  If such amendment or
interpretation is not possible, the illegal, invalid or unenforceable provision
or portion of a provision will be severed from the remainder of this Separation
and Release Agreement and the remainder of this Separation and Release Agreement
shall be enforced to the fullest extent possible as if such illegal, invalid or
unenforceable provision or portion of a provision was not included.

 

(f)            This Separation and Release Agreement may be modified only by a
written agreement signed by you and an authorized representative of the Company.

 

(g)           This Separation and Release Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and,
except as expressly provided herein, supersedes all prior agreements between the
parties with respect to any related subject matter.  It shall be subject to
waiver, modification or amendment only by written instrument duly executed by
both parties.

 

(h)           This Separation and Release Agreement shall be binding upon each
of the parties and upon their respective heirs, administrators, representatives,
executors, successors and assigns, and shall inure to the benefit of each party
and to their heirs, administrators, representatives, executors, successors, and
assigns.

 

(i)            Notices by the Company to you shall be made to your home address
as reflected in the Company’s records, and notices by you to the Company shall
be made to the attention of the Senior Vice President-General Counsel and
delivered to the Company’s Arlington, Virginia office (or such other address as
you are notified in writing).  Notices shall be by a nationally recognized
overnight courier or by certified U.S. mail.

 

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Exhibit C

 

Section 409A Saving Provisions

 

(a)           Anything in this Agreement to the contrary notwithstanding, if at
the time of the Executive’s separation from service within the meaning of
Section 409A of the Code, the Company determines that the Executive is a
“specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code,
then to the extent any payment or benefit that the Executive becomes entitled to
under this Agreement on account of the Executive’s separation from service would
be considered deferred compensation subject to the 20 percent additional tax
imposed pursuant to Section 409A(a) of the Code as a result of the application
of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and
such benefit shall not be provided until the date that is the earlier of (A) six
months and one day after the Executive’s separation from service, or (B) the
Executive’s death.  If any such delayed cash payment is otherwise payable on an
installment basis, the first payment shall include a catch-up payment covering
amounts that would otherwise have been paid during the six-month period but for
the application of this provision, and the balance of the installments shall be
payable in accordance with their original schedule.

 

(b)           To the extent that any payment or benefit described in this
Agreement constitutes “non-qualified deferred compensation” under Section 409A
of the Code, and to the extent that such payment or benefit is payable upon the
Executive’s termination of employment, then such payments or benefits shall be
payable only upon the Executive’s “separation from service.”  The determination
of whether and when a separation from service has occurred shall be made in
accordance with the presumptions set forth in Treasury Regulation Section 1.409A
1(h).

 

(c)           The parties intend that this Agreement will be administered in
accordance with Section 409A of the Code.  To the extent that any provision of
this Agreement is ambiguous as to its compliance with Section 409A of the Code,
the provision shall be read in such a manner so that all payments hereunder
comply with Section 409A of the Code.  The parties agree that this Agreement may
be amended, as reasonably requested by either party, and as may be necessary to
fully comply with Section 409A of the Code and all related rules and regulations
in order to preserve the payments and benefits provided hereunder without
additional cost to either party.

 

(d)           The Company makes no representation or warranty and shall have no
liability to the Executive or any other person if any provisions of this
Agreement are determined to constitute deferred compensation subject to
Section 409A of the Code but do not satisfy an exemption from, or the conditions
of, such Section.

 

C-1

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Exhibit D

 

Form of Restricted Stock Agreement

 

AVALONBAY COMMUNITIES, INC.
STOCK GRANT AND RESTRICTED STOCK AGREEMENT

 

 

Pursuant to the terms of the AvalonBay Communities, Inc. 2009 Stock Option and
Incentive Plan (the “Plan”), in consideration for services rendered and to be
rendered to AvalonBay Communities, Inc. (the “Company”) and for other good and
valuable consideration, the Company is issuing to the Employee named below
contemporaneously herewith the Shares, upon the terms and conditions set forth
herein and in the Restricted Stock Agreement Terms (the “Terms”) which are
attached hereto and incorporated herein in their entirety.  Capitalized terms
used but not defined herein shall have the respective meanings ascribed thereto
in the Plan or in the Terms, as applicable.

 

Employee:

 

 

Award Date:

 

December 30, 2011

Vesting Commencement Date:

 

December 31, 2013

Number of Shares Granted (“Shares”):

 

 

 

Vesting Schedule:                     Subject to the provisions of the Terms and
the discretion of the Company to accelerate the vesting schedule, the Employee’s
ownership interest in the Shares shall vest, and the status of the Shares as
Restricted Stock and all Restrictions with respect to the Shares shall
terminate, in accordance with the following schedule of events:  75% on
December 31, 2013 and 25% on December 31, 2014.

 

The Shares shall also vest upon the occurrence of the following events:

 

Termination of the Employee’s Employment by the Company without Cause, as
defined in the Employee’s letter agreement with the Company dated December 16,
2011.

 

100% of the Award

 

 

 

The death or Disability of the Employee

 

100% of the Award

 

 

 

The Employee’s Retirement after December 31, 2013

 

100% of the Award

 

 

 

If earlier than any of the above events, a Sale Event

 

100% of the Award

 

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*or, if fewer, all Restricted Shares

 

The Administrator’s determination of the reason for termination of the
Employee’s employment shall be conclusive and binding on the Employee and his or
her representatives or legatees.

 

Additional Terms/Acknowledgements: The undersigned Employee acknowledges receipt
of, and understands and agrees to, this Stock Grant and Restricted Stock
Agreement, including, without limitation, the Terms.  Employee further
acknowledges that as of the Award Date, this Stock Grant and Restricted Stock
Agreement, including, without limitation, the Terms, sets forth the entire
understanding between Employee and the Company regarding the stock grant
described herein and supersedes all prior oral and written agreements on that
subject.

 

ATTACHMENT:  Restricted Stock Agreement Terms

 

D-1

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AVALONBAY COMMUNITIES, INC.

 

RESTRICTED STOCK AGREEMENT TERMS

 

ARTICLE I

 

DEFINITIONS

 

The following terms used below in this Agreement shall have the meaning
specified below unless the context clearly indicates to the contrary. 
Capitalized terms not otherwise defined herein shall have the meanings set forth
in the Plan.

 

Section 1.1 — Cause

 

“Cause” is defined as set forth in the Employee’s letter agreement with the
Company dated November     , 2011..

 

Section 1.2 — Common Stock

 

“Common Stock” shall mean the common stock of the Company, $.01 par value.

 

Section 1.3 — Disability

 

“Disability” shall mean the Employee’s inability to perform his normal required
services for the Company and its Subsidiaries for a period of six consecutive
months by reason of the individual’s mental or physical disability, as
determined by the Committee in good faith in its sole discretion.

 

Section 1.4  — Restricted Stock

 

“Restricted Stock” shall mean the Shares issued under this Agreement for as long
as such shares are subject to the Restrictions (as hereinafter defined) imposed
by this Agreement.

 

Section 1.5 - Restrictions

 

“Restrictions” shall mean the restrictions set forth in Article III of this
Agreement.

 

Section 1.6 - Retirement

 

“Retirement” shall mean the termination of the Employee’s employment (and other
business relationships) with the Company and its Subsidiaries, other than for
Cause, following the date on which the sum of the following equals or exceeds 70
years: (i) the number of full months of the Employee’s employment and other
business relationships with the Company and any predecessor Company and (ii) the
Employee’s age on the date of termination (i.e., a person whose age is 55 years,
6 months and who has worked at the Company for 14 years, 6 months meets the 70
years requirement); provided that:

 

(x)                                   the Employee’s employment by (or other
business relationships with) the Company and any predecessor company of the
Company have continued for a period of at least 120 continuous full months at
the time of termination and, on the date of termination, the Employee is at
least 50 years old;

 

(y)                                 in the case of termination of employment,
the Employee gives at least six months’ prior written notice to the Company of
his or her intention to retire; and

 

(z)                                   in the case of termination of employment,
the Employee enters into a “Non-Compete and Non-Solicitation Agreement,” as
hereinafter defined, and a general release of all claims in a form that is
reasonably satisfactory to the Company.

 

D-2

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As used in the foregoing sentence, “Non-Compete and Non-Solicitation Agreement”
shall mean a written agreement between the Employee and the Company providing
that, for a period of at least 12 months following the Employee’s termination of
employment with the Company (A) the Employee shall not, without the prior
written consent of the Company, become associated with, or engage in any
“Restricted Activities” with respect to any “Competing Enterprise,” as such
terms are hereinafter defined, whether as an officer, employee, principal,
partner, agent, consultant, independent contractor or shareholder, and (B) the
Employee shall not, without the prior written consent of the Company, solicit or
attempt to solicit for employment with or on behalf of any Competing Enterprise
any employee of the Company or any of its affiliates or any person who was
formerly employed by the Company or any of its affiliates within the preceding
six months, unless such person’s employment was terminated by the Company or any
of such affiliates.  “Competing Enterprise,” for purposes of this section, shall
mean any person, corporation, partnership, venture or other entity which is
engaged in the business of managing, owning, leasing, or joint-venturing
multifamily rental real estate within 30 miles of multifamily rental real estate
owned or under management by the Company or its affiliates.  “Restricted
Activities,” for purposes of this section, shall mean executive, managerial,
directorial, administrative, strategic, business development or supervisory
responsibilities and activities relating to any aspects of multifamily rental
real estate ownership, management, multifamily rental real estate franchising,
and multifamily rental real estate joint-venturing.

 

Section 1.7 - Secretary

 

“Secretary” shall mean the secretary of the Company.

 

ARTICLE II

 

RESTRICTED STOCK

 

Section 2.1 - Restricted Stock

 

Any shares of Common Stock granted pursuant to this Agreement which vest on a
date other than the Award Date shall be considered Restricted Stock for purposes
of this Agreement and shall be subject to the Restrictions until such time or
times and except to the extent that the Employee’s ownership interest in Shares
vests in accordance with the Vesting Schedule set forth on the first page of
this Agreement.

 

Section 2.2 - Escrow

 

If the Restricted Stock is certificated, the Secretary or such other escrow
holder as the Company may from time to time appoint shall retain physical
custody of the certificates representing Restricted Stock, until all of the
Restrictions expire or shall have been removed; provided, however, that in no
event shall the Employee retain physical custody of any certificates
representing Restricted Stock issued to him.  The Company may cause a book entry
deposit of Restricted Stock at the Company’s transfer agent in lieu of physical
custody.

 

Section 2.3 - Rights as Stockholder

 

From and after the Award Date, the Employee shall have all the rights of a
stockholder with respect to the Shares, subject to the Restrictions herein
(including the provisions of Article IV), including the right to vote the Shares
and to receive all dividends or other distributions paid or made with respect to
the Shares unless and to the extent that the Employee’s interest in Restricted
Stock shall have terminated and the Restricted Stock reverts to the Company as
provided in Section 3.1 of this Agreement.

 

D-3

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ARTICLE III

 

RESTRICTIONS

 

Section 3.1 - Reversion of Restricted Stock

 

Except as provided in Section 2.3, this Section 3.1, and the Vesting Schedule
set forth on the first page of this Agreement, the Restricted Stock shall be the
property of the Company for as long as and to the extent that the Shares are
Restricted Stock pursuant to Section 2.1.  In the event that the Employee’s
employment by the Company terminates for any reason other than (a) death,
(b) Disability or (c) termination of the Employee’s employment by the Company
other than for Cause, any interest of the Employee in Shares that are Restricted
Stock shall thereupon immediately terminate and all rights with respect to the
Restricted Stock shall immediately revert to and unconditionally be the property
of the Company; provided, however, that the Employee shall be entitled to retain
any cash dividends paid before the date of such event on the Restricted Stock.

 

Section 3.2 - Restricted Stock Not Transferable

 

No Restricted Stock or any interest or right therein or part thereof shall be
liable for the debts, contracts or engagements of the Employee or his successors
in interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law or judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null and
void and of no effect; provided, however, that the Employee may designate one or
more trusts or other similar arrangements for the benefit of the Employee or
members of his immediate family as the registered holders of Restricted Stock if
and as long as the Employee acts as trustee or in a similar capacity with
respect to such trust or arrangement.  Any Restricted Stock so registered shall
for all purposes hereunder be deemed to be held of record by the Employee and
shall be subject to all of the terms and conditions of this Agreement, including
but not limited to the Restrictions and the provisions of Article III of this
Agreement.

 

Section 3.3 - Legend

 

Certificates representing shares of Restricted Stock or book entries for shares
of Restricted Stock issued pursuant to this Agreement shall, until all
Restrictions lapse and new certificates are issued pursuant to Section 3.4, bear
the following legend:

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN VESTING
REQUIREMENTS AND MAY BE SUBJECT TO FORFEITURE TO AVALONBAY COMMUNITIES, INC.
(THE “COMPANY”) UNDER THE TERMS OF THAT CERTAIN RESTRICTED STOCK AGREEMENT BY
AND BETWEEN THE COMPANY AND THE HOLDER OF THE SECURITIES.  PRIOR TO VESTING OF
OWNERSHIP IN THE SECURITIES, THEY MAY NOT BE, DIRECTLY OR INDIRECTLY, OFFERED,
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
UNDER ANY CIRCUMSTANCES.  COPIES OF THE ABOVE REFERENCED AGREEMENT ARE ON FILE
AT AND MAY BE OBTAINED ON REQUEST AND WITHOUT CHARGE FROM THE OFFICES OF THE
COMPANY AT 671 N. GLEBE ROAD, ARLINGTON, VA 22203.”

 

Section 3.4 - Lapse of Restrictions

 

Upon the vesting of some or all of the Restricted Stock as provided in the
Vesting Schedule set forth on the first page of this Agreement, and subject to
the conditions to issuance set forth in Article IV, if such Shares are
certificated, the Company shall cause new certificates to be issued with respect
to such vested Shares and delivered to the Employee or his legal representative,
free from the legend provided for in Section 3.3.

 

D-4

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ARTICLE IV

 

MISCELLANEOUS

 

Section 4.1 - Conditions to Issuance of Stock

 

The Company shall not be required to issue or deliver any certificate or
certificates for shares of stock or enter the Employee’s name as the stockholder
of record on the books of the Company pursuant to this Agreement prior to
fulfillment of all of the following conditions:

 

(a)           The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and

 

(b)           The completion of any registration or other qualification of such
shares under any state or Federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Company shall deem necessary or advisable; and

 

(c)           The obtaining of any approval or other clearance from any state or
Federal governmental agency which the Company shall, in its absolute discretion,
determine to be necessary or advisable; and

 

(d)           The payment by the Employee of all amounts required to be withheld
under federal, state and local tax laws, with respect to the issuance of
Restricted Stock and/or the lapse or removal of any of the Restrictions.

 

Section 4.2 - Notices

 

Any notice to be given under the terms of this Agreement to the Company shall be
addressed to the Company in care of its Secretary, and any notice to be given to
the Employee shall be addressed to him at his address as set forth in the
Company’s records.  By a notice given pursuant to this Section 4.2, either party
may hereafter designate a different address for notices to be given to it or
him.  Any notice which is required to be given to the Employee shall, if the
Employee is then deceased, be given to the Employee’s personal representative if
such representative has previously informed the Company of his status and
address by written notice under this Section 4.2.  Any notice shall have been
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid and deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.

 

Section 4.3 - Titles

 

Titles and captions are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.

 

Section 4.4 - Amendment

 

This Agreement may be amended only by a writing executed by the parties hereto
which specifically states that it is amending this Agreement.

 

Section 4.5 - Tax Withholding

 

The Company’s obligation (i) to issue or deliver to the Employee any certificate
or certificates for unrestricted shares of stock or (ii) to pay to the Employee
any dividends or make any distributions with respect to the Common Stock issued
under this Agreement is expressly conditioned on the Company’s satisfaction of
its obligation, if any, to withhold taxes.  The Employee shall, not later than
the date as of which the receipt of this Award becomes a taxable event for
Federal income tax purposes, pay to the Company or make arrangements
satisfactory to the Administrator for payment of any Federal, state, and local
taxes required by law to be withheld on account of such taxable event.  The
Employee may elect to have the required minimum tax withholding obligation
satisfied, in whole or in part, by authorizing the Company to withhold from
shares of Stock to be issued or released by the transfer agent a number of
shares of Stock with an aggregate Fair Market Value that would satisfy the
withholding amount due.

 

D-5

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Section 4.6 — Governing Law

 

The laws of the State of Maryland shall govern the interpretation, validity,
administration, enforcement and performance of the terms of this Agreement
regardless of the law that might be applied under principles of conflicts of
laws.

 

Section 4.7 - Counterparts

 

This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.

 

Section 4.8 - No Special Employment Rights

 

This Agreement does not, and shall not be interpreted to, create any right on
the part of the Employee to continue in the employ of the Company or any
subsidiary or affiliate thereof, nor to any continued compensation,
prerequisites or other current or future benefits or other incidents of
employment.

 

[End of Text]

 

D-6

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