exv10w1



 





Exhibit 10.1




 














AvalonBay Communities, Inc.




Medium-Term Notes



Due Nine Months Or More From Date Of Issue




Amended & Restated Distribution Agreement




August 6, 2003




Banc Of America Securities LLC

Citigroup Global Markets Inc.

Fleet Securities, Inc.

J.P. Morgan Securities Inc.

Lehman Brothers Inc.



Morgan Stanley & Co. Incorporated



Wachovia Capital Markets, llc.


















 









 
















TABLE OF CONTENTS




	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page

	 	1.	 	 	Description of Notes	 	 	2	 
	 	2.	 	 	Appointment as Agent	 	 	3	 
	 	 	 	 	(a)

	 	Appointment
	 	 	3	 
	 	 	 	 	(b)

	 	Sale of Notes
	 	 	4	 
	 	 	 	 	(c)

	 	Purchases as Principal
	 	 	4	 
	 	 	 	 	(d)

	 	Solicitations as Agent
	 	 	4	 
	 	 	 	 	(e)

	 	Reliance
	 	 	4	 
	 	3.	 	 	Representations and Warranties of the Company	 	 	4	 
	 	 	 	 	(a)

	 	Effectiveness of Registration Statement; Filing of Prospectus
	 	 	5	 
	 	 	 	 	(b)

	 	Compliance with Securities Act
	 	 	5	 
	 	 	 	 	(c)

	 	Incorporated Documents
	 	 	5	 
	 	 	 	 	(d)

	 	Organization, Power and Authority of Company
	 	 	6	 
	 	 	 	 	(e)

	 	Organization, Power and Authority and Capitalization of Subsidiaries
	 	 	6	 
	 	 	 	 	(f)

	 	Capital Stock Matters
	 	 	6	 
	 	 	 	 	(g)

	 	Financial Statements
	 	 	7	 
	 	 	 	 	(h)

	 	Company’s Internal Accounting System
	 	 	7	 
	 	 	 	 	(i)

	 	Notes
	 	 	7	 
	 	 	 	 	(j)

	 	Distribution Agreement and Indenture
	 	 	8	 
	 	 	 	 	(k)

	 	Rating
	 	 	9	 
	 	 	 	 	(l)

	 	No Material Adverse Change
	 	 	9	 
	 	 	 	 	(m)

	 	Company Not an Investment Company
	 	 	9	 
	 	 	 	 	(n)

	 	No Material Actions or Proceedings
	 	 	9	 
	 	 	 	 	(o)

	 	Filing and Enforceability of Contracts
	 	 	10	 
	 	 	 	 	(p)

	 	Compliance With Law
	 	 	10	 
	 	 	 	 	(q)

	 	No Further Consents Required
	 	 	10	 
	 	 	 	 	(r)

	 	Title to Properties
	 	 	10	 
	 	 	 	 	(s)

	 	Mortgages; Community Matters
	 	 	11	 
	 	 	 	 	(t)

	 	Title Insurance
	 	 	11	 
	 	 	 	 	(u)

	 	Accuracy of Company’s Statements
	 	 	11	 
	 	 	 	 	(v)

	 	No Price Stabilization or Manipulation
	 	 	12	 
	 	 	 	 	(w)

	 	No Labor Disputes
	 	 	12	 
	 	 	 	 	(x)

	 	No Unlawful Contributions
	 	 	12	 
	 	 	 	 	(y)

	 	Compliance With Environmental Laws
	 	 	12	 
	 	 	 	 	(z)

	 	Hazardous Materials
	 	 	12	 
	 	 	 	 	(aa)

	 	Periodic Review of Costs of Environmental Compliance
	 	 	13	 
	 	 	 	 	(bb)

	 	Property and Casualty Insurance
	 	 	14	 
	 	 	 	 	(cc)

	 	REIT Status
	 	 	14	 
	 	 	 	 	(dd)

	 	No Plan Assets
	 	 	14	 
	 	 	 	 	(ee)

	 	Distribution of Offering Materials
	 	 	14	 
	 	 	 	 	(ff)

	 	Form S-3 Eligibility
	 	 	14	 







i









 






	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page

	 	4.	 	 	Purchases as Principal; Solicitations as Agent	 	 	14	 
	 	 	 	 	(a)

	 	Purchases as Principal
	 	 	14	 
	 	 	 	 	(b)

	 	Solicitations as Agent
	 	 	16	 
	 	 	 	 	(c)

	 	Administrative Procedures
	 	 	16	 
	 	 	 	 	(d)

	 	Agents’ Obligations Several and Not Joint
	 	 	16	 
	 	5.	 	 	Covenants of the Company. The Company covenants and agrees with the Agents as follows:	 	 	16	 
	 	 	 	 	(a)

	 	Amendments and Supplements
	 	 	17	 
	 	 	 	 	(b)

	 	Notification Upon Certain Events
	 	 	17	 
	 	 	 	 	(c)

	 	Compliance With Securities Laws
	 	 	17	 
	 	 	 	 	(d)

	 	Copies of Offering Documents
	 	 	17	 
	 	 	 	 	(e)

	 	Copies of Securities Filings and Distributions
	 	 	18	 
	 	 	 	 	(f)

	 	Earnings Statements
	 	 	18	 
	 	 	 	 	(g)

	 	Payment of Expenses
	 	 	18	 
	 	 	 	 	(h)

	 	Blue Sky Qualification
	 	 	19	 
	 	 	 	 	(i)

	 	No Price Stabilization or Manipulation
	 	 	19	 
	 	 	 	 	(j)

	 	Rating Agency Matters
	 	 	19	 
	 	 	 	 	(k)

	 	Establishing Terms of Notes
	 	 	19	 
	 	 	 	 	(l)

	 	Use of Proceeds
	 	 	19	 
	 	 	 	 	(m)

	 	Preparation of Pricing Supplements
	 	 	19	 
	 	 	 	 	(n)

	 	Unaudited Financial Information
	 	 	19	 
	 	 	 	 	(o)

	 	Audited Financial Information
	 	 	20	 
	 	 	 	 	(p)

	 	REIT Status
	 	 	20	 
	 	 	 	 	(q)

	 	Market Stand-Off Pending Settlement
	 	 	20	 
	 	 	 	 	(r)

	 	Market Stand-Off Generally
	 	 	20	 
	 	6.	 	 	Conditions of Agents’ Obligations at the Closing	 	 	20	 
	 	 	 	 	(a)

	 	Opinion of Company Counsel
	 	 	20	 
	 	 	 	 	(b)

	 	Opinion of Company Tax Counsel
	 	 	21	 
	 	 	 	 	(c)

	 	Opinion of Counsel to the Agents
	 	 	21	 
	 	 	 	 	(d)

	 	Comfort Letter
	 	 	21	 
	 	 	 	 	(e)

	 	Officers’ Certificate
	 	 	22	 
	 	 	 	 	(f)

	 	No Stop Orders or Unmet Commission Requests
	 	 	24	 
	 	 	 	 	(g)

	 	No Material Adverse Change
	 	 	24	 
	 	 	 	 	(h)

	 	No Material Litigation Commenced
	 	 	24	 
	 	 	 	 	(i)

	 	Accuracy of Representations and Warranties; Observance of Covenants
	 	 	24	 
	 	 	 	 	(j)

	 	Blue Sky Qualification
	 	 	25	 
	 	 	 	 	(k)

	 	Other Documents
	 	 	25	 
	 	 	 	 	(l)

	 	Special Conditions for Agents’ Purchases as Principal
	 	 	25	 
	 	7.	 	 	Delivery of and Payment for Notes Sold through the Agents	 	 	26	 
	 	8.	 	 	Additional Covenants of the Company	 	 	26	 
	 	 	 	 	(a)

	 	Reaffirmation of Representations and Warranties
	 	 	26	 
	 	 	 	 	(b)

	 	Subsequent Delivery of Certificates
	 	 	26	 
	 	 	 	 	(c)

	 	Subsequent Delivery of Legal Opinions
	 	 	27	 







ii









 






	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page

	 	 	 	 	(d)

	 	Subsequent Delivery of Comfort Letters
	 	 	27	 
	 	9.	 	 	Indemnification and Contribution.	 	 	28	 
	 	 	 	 	(a)

	 	Indemnification of the Agents by the Company
	 	 	28	 
	 	 	 	 	(b)

	 	Indemnification of the
Company and its Directors, Certain Officers and Control Persons by the Agents
	 	 	28	 
	 	 	 	 	(c)

	 	Procedures
	 	 	29	 
	 	 	 	 	(d)

	 	Contribution
	 	 	30	 
	 	 	 	 	(e)

	 	Survival of Indemnity and Contribution Provisions
	 	 	31	 
	 	10.	 	 	Reimbursement of Agents’ Expenses	 	 	31	 
	 	11.	 	 	Representations and Agreements to Survive Delivery	 	 	31	 
	 	12.	 	 	Role of Agents	 	 	31	 
	 	13.	 	 	Termination	 	 	31	 
	 	14.	 	 	Notices	 	 	32	 
	 	15.	 	 	Parties	 	 	34	 
	 	16.	 	 	Governing Law	 	 	35	 
	 	17.	 	 	Counterparts	 	 	35	 
	 	18.	 	 	Enforceability	 	 	35	 
	 	19.	 	 	Waiver of Rights to Trial by Jury	 	 	35	 
	 	20.	 	 	Amendments and
Modifications	 	 	35	 







	 	 	 
	EXHIBIT A

	 	Terms of Notes
	 
	EXHIBIT B

	 	Administrative Procedures Agreement







	 	 	 
	Part I

	   	Administrative Procedures for Certificates Notes and Generally Applicable Administrative Procedures
	Part II

	   	Administrative Procedures for Global Note Method of Book-Entry Notes
	Part III

	   	Administrative Procedures for Master Note Method of Book-Entry Notes







	 	 	 
	EXHIBIT C
	 	Form of Opinion of Counsel to the Company
	 	 	 
	SCHEDULE I
	 	Information in the Prospectus Furnished by any Agent
	SCHEDULE II	 	List of Subsidiaries
	SCHEDULE III
	 	Commissions







iii









 






AVALONBAY COMMUNITIES INC.




MEDIUM-TERM NOTES



DUE NINE MONTHS OR MORE FROM DATE OF ISSUE




AMENDED AND RESTATED DISTRIBUTION AGREEMENT




August 6, 2003




Banc of America Securities LLC

100 No. Tryon Street, 7th Floor

Charlotte, NC 28255




Citigroup Global Markets Inc.

Medium-Term Note Department

388 Greenwich Street

New York, NY 10013




Fleet Securities, Inc.

100 Federal Street, MADE 10012H

Boston, MA 02110




J.P. Morgan Securities Inc.

270 Park Avenue, 7th Floor

New York, NY 10017

Attention: Transaction Execution Group




Lehman Brothers Inc.

745 Seventh Avenue

New York, NY 10019

Attention: Fixed Income Syndicate/Medium Term Note Desk




Morgan Stanley & Co. Incorporated

1585 Broadway

New York, NY 10036




Wachovia Capital Markets, LLC

301 So. College Street, DC-8

One Wachovia Center

Charlotte, NC 28288




Ladies and Gentlemen:




     AvalonBay Communities, Inc., a Maryland corporation (the “Company”),
confirms its agreement with Banc of America Securities LLC, Citigroup Global
Markets Inc., Fleet Securities, Inc., J.P. Morgan Securities Inc., Lehman
Brothers Inc., Morgan Stanley & Co. Incorporated, and Wachovia Capital Markets,
LLC, (each, an “Agent” and collectively, the



 









 





“Agents”), with respect to the issue and sale from time to time by the
Company of its Medium-Term Notes Due Nine Months or More From Date of Issue
(the “Notes”), as follows:



     Capitalized terms used but not otherwise defined herein shall have the
meanings given to those terms in the Prospectus (as defined herein).




     1. Description of Notes. The Company proposes to issue the Notes under that
certain Indenture, dated as of January 16, 1998 (the “Original Indenture”), as
supplemented by that certain First Supplemental Indenture, dated as of January
20, 1998, that certain Second Supplemental Indenture, dated as of July 7, 1998,
and that certain Amended and Restated Third Supplemental Indenture, dated as of
July 10, 2000 (collectively and together with the Original Indenture and any
additional indentures supplemental thereto entered into after the date hereof,
the “Indenture”) between the Company and US Bank, National Association (as
successor to State Street Bank and Trust Company), as trustee (the “Trustee”).
As of the date of this agreement (this “Distribution Agreement”), the Company
has authorized the issuance and sale of up to U.S. $750,000,000 aggregate
initial offering price (or its equivalent, based upon the applicable exchange
rate at the time of issuance, in such foreign or composite currencies as the
Company shall designate at the time of issuance) of Notes to or through the
Agents pursuant to the terms of this Distribution Agreement, as such amount may
be reduced by the aggregate initial offering price of any other debt securities
issued by the Company, whether within or without the United States, pursuant to
the registration statement referred to below. It is understood, however, that
the Company may from time to time authorize the issuance of additional Notes
and that such additional Notes may be sold to or through the Agents or through
or to other agents pursuant to the terms of this Distribution Agreement, all as
though the issuance of such Notes were authorized as of the date hereof.



     This Distribution Agreement provides both for the sale of Notes by the
Company to one or more Agents as principal for resale to investors and other
purchasers and for the sale of Notes by the Company directly to investors (as
may from time to time be agreed to by the Company and the applicable Agent), in
which case the applicable Agent will act as an agent of the Company in
soliciting offers for the purchase of Notes.



     The Company has filed with the Securities and Exchange Commission (the
“Commission”) a registration statement on Form S-3 (File No. 333-103755) for
the registration of debt securities, including the Notes, under the Securities
Act of 1933, as amended (the “Securities Act”), and the offering thereof from
time to time in accordance with Rule 430A or Rule 415 of the rules and
regulations of the Commission thereunder (the “Securities Act Rules and
Regulations”). Such registration statement has been declared effective by the
Commission. Such registration statement (and any further registration
statements which may be filed by the Company for the purpose of registering
additional Notes and in connection with which this Distribution Agreement is
included or incorporated by reference as an exhibit) and the prospectus
constituting a part thereof (including in each case the information, if any,
deemed to be part thereof pursuant to Rule 430A(b) of the Securities Act Rules
and Regulations), and any prospectus supplement and pricing supplement relating
to the Notes, including all documents incorporated therein by reference, as
from time to time amended or supplemented by the filing of documents pursuant
to the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
or the Securities Act or otherwise, is referred to herein as the
“Registration Statement.” A



2









 





prospectus supplement (the “Prospectus
Supplement”) setting forth the terms of the offer of the Notes contemplated by
this Distribution Agreement, and additional information concerning the Company
has been or will be prepared and will be filed by the Company pursuant to Rule
424(b) of the Securities Act Rules and Regulations, on or before the second
business day after it is first used in connection with the offer and sale of
Notes under this Distribution Agreement (or such earlier time as may be
required by the Securities Act Rules and Regulations). The final form of
prospectus included in the Registration Statement, as supplemented by the
Prospectus Supplement (including any supplement to the Prospectus that sets
forth the purchase price, interest rate or formula, maturity date and other
terms of a particular issue of Notes and all documents incorporated therein by
reference (each, a “Pricing Supplement”)), is referred to herein as the
“Prospectus,” except that if any revised prospectus, whether or not such
revised prospectus is required to be filed by the Company pursuant to Rule
424(b) of the Securities Act Rules and Regulations, shall be provided to the
Agents by the Company for use in connection with the offer and sale of any of
the Notes under this Distribution Agreement, the term “Prospectus” shall refer
to such revised prospectus from and after the time such documents are first
provided to the Agents for such use. If the Company elects to rely on Rule 434
promulgated pursuant to the Securities Act, all references to the Prospectus
shall be deemed to include, without limitation, the form of prospectus and the
term sheet, taken together, provided to the Agents by the Company in reliance
on such Rule 434. Any registration statement (including any supplement thereto
or information which is deemed part thereof) filed by the Company under Rule
462(b) of the Securities Act Rules and Regulations (a “Rule 462(b) Registration
Statement”) shall be deemed to be part of the Registration Statement. Any
prospectus (including any amendment or supplement thereto or information which
is deemed part thereof) included in the Rule 462(b) Registration Statement
shall be deemed to be part of the Prospectus. For purposes of this Distribution
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 any Agent for use in connection with the offering of the Notes by
the Company.




     2. Appointment as Agent.




          (a) Appointment. Subject to the terms and conditions stated herein and subject
to the reservation by the Company of the right to solicit, sell or accept
offers for Notes directly on its own behalf, the Company hereby appoints the
Agents as its exclusive agents (except as described below), for the purpose of
soliciting and receiving offers to purchase Notes from the Company by others
and, on the basis of the representations and warranties herein contained, but
subject to the terms and conditions herein set forth, each Agent agrees to use
reasonable efforts to solicit and receive offers to purchase Notes upon terms
acceptable to the Company at such times and in such amounts as the Company
shall from time to time specify. The Company agrees that Notes will be sold
exclusively to or through the Agents except as otherwise described below. The
Company may accept offers to purchase Notes through an agent other than an Agent (and,
in connection therewith, may respond to inquiries and requests for information
from any such agents), provided that (i) the Company and such agent shall have
executed an agreement with respect to such purchases having terms and
conditions (including, without limitation, commission rates) with respect to
such purchases substantially the same as



3









 





the terms and conditions that would
apply to such purchases under this Distribution Agreement if such agent were an
Agent (which may be accomplished by incorporating by reference in such
agreement the terms and conditions of this Distribution Agreement) and (ii) the
Company shall provide the Agents with a copy of such agreement promptly
following the execution thereof.




          (b) Sale of Notes. The Company shall not sell or approve the solicitation of
offers for the purchase of Notes in excess of the amount which shall be
authorized by the Company from time to time or in excess of the aggregate
initial offering price of Notes registered pursuant to the Registration
Statement. The Agents shall have no responsibility for maintaining records
with respect to the aggregate initial offering price of Notes sold, or of
otherwise monitoring the availability of Notes for sale, under the Registration
Statement.




          (c) Purchases as Principal. The Agents shall not have any obligation to
purchase Notes from the Company as principal, but one or more Agents may agree
from time to time to purchase Notes as principal for resale to investors and
other purchasers determined by such Agent or Agents. Any such purchase of
Notes by an Agent or Agents as principal shall be made in accordance with
Section 4(a) hereof.




          (d) Solicitations as Agent. If agreed upon by an Agent and the Company, such
Agent, acting solely as agent for the Company and not as principal, will
solicit offers for the purchase of Notes. Such Agent will communicate to the
Company, orally, each offer to purchase Notes solicited by it on an agency
basis, other than those offers rejected by such Agent. Such Agent shall have
the right, in its discretion reasonably exercised, to reject any proposed
purchase of Notes, in whole or in part, and any such rejection shall not be
deemed a breach of its agreement contained herein. The Company shall have the
right to withdraw, cancel or modify any offer hereunder without notice and the
sole right to accept offers to purchase the Notes and may reject any such offer
in whole or in part and any such rejection shall not be deemed a breach of its
agreements contained herein. Such Agent shall make reasonable efforts to
assist the Company in obtaining performance by each purchaser whose offer to
purchase Notes has been solicited by it and accepted by the Company. Such
Agent shall not have any liability to the Company in the event that any such
purchase is not consummated for any reason. If the Company shall default on
its obligation to deliver Notes to a purchaser whose offer it has accepted, the
Company shall (i) hold such Agent harmless against any loss, claim or damage
arising from or as a result of such default by the Company and (ii)
notwithstanding such default, pay to such Agent any commission to which it
would otherwise be entitled.




          (e) Reliance. The Company and the Agents agree that any Notes purchased by one or more
Agents as principal shall be purchased, and any Notes the placement of which an
Agent arranges as agent shall be placed by such Agent, in reliance on the
representations, warranties, covenants and agreements of the Company contained
herein and on the terms and conditions and in the manner provided herein.




     3. Representations and Warranties of the Company. The Company represents and
warrants to and agrees with each Agent as of the date hereof, as of the date of
each acceptance by the Company of an offer for the purchase of Notes (whether
to an Agent as principal or through an Agent as agent), as of the date of each
delivery of Notes (whether to an Agent as principal or through an Agent as
agent (each a “Delivery Date”)) (the date of each such



4









 





delivery to an Agent as
principal being hereafter referred to as a “Settlement Date”), and as of any
time that the Registration Statement or the Prospectus shall be amended or
supplemented (it being understood that such representations, warranties and
agreements shall be deemed to relate to the Registration Statement and the
Prospectus as amended or supplemented to each such time) as follows:




          (a) Effectiveness of Registration Statement; Filing of Prospectus. The Company
has filed with the Commission a registration statement on Form S-3 (File No.
333-103755) for the registration of debt securities, including the Notes, under
the Securities Act, and the offering thereof from time to time in accordance
with Rule 430A or Rule 415 of the Securities Act Rules and Regulations. Such
registration statement has been declared effective by the Commission. The
Prospectus Supplement setting forth the terms of the offer of the Notes
contemplated by this Distribution Agreement, and additional information
concerning the Company has been or will be prepared and will be filed by the
Company pursuant to Rule 424(b) of the Securities Act Rules and Regulations, on
or before the second business day after it is first used in connection with the
offer and sale of Notes under this Distribution Agreement (or such earlier time
as may be required by the Securities Act Rules and Regulations).




          (b) Compliance with Securities Act. Each part of the Registration Statement,
when such part became or becomes effective, and the Prospectus and any
amendment or supplement to such Registration Statement or such Prospectus, on
the date of filing thereof with the Commission and as of the date hereof,
complied or will comply in all material respects with the requirements of the
Securities Act and the Securities Act Rules and Regulations; the Indenture, on
the date of filing thereof with the Commission and as of the date hereof
complied or will comply 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,
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; the Prospectus and any amendment or supplement thereto, on the date
of filing thereof with the Commission and as of the date hereof 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; except
that the foregoing shall not apply to (i) that part of the Registration
Statement which constitutes the Statement of Eligibility and Qualification
under the TIA and (ii) statements in, or omissions from, any such document in
reliance upon, and in conformity with, information concerning the Agents that
was furnished to the Company by the Agents specifically for use in the
preparation thereof. The Company acknowledges that the only information
furnished to the Company by the Agents on or before the date hereof
specifically for inclusion in the Registration Statement or the Prospectus is
the information set forth in Schedule I hereto.




          (c) Incorporated Documents. 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 Securities 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 Securities Act, the Securities



5









 





Act Rules
and Regulations, the Exchange Act and the rules and regulations of the
Commission thereunder (the “Exchange Act Rules and Regulations”), as
applicable.




          (d) Organization, Power and Authority of Company. The Company has been duly
organized and is 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 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) Organization, Power and Authority and Capitalization of Subsidiaries. As
of the date of this Agreement, the only subsidiaries (as defined in the
Securities Act Rules and Regulations) of the Company are the entities listed on
Schedule II, attached hereto. Each of the Company’s
subsidiaries is 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 validly existing and in good standing under the laws of its
respective jurisdiction of organization or incorporation. Each of the
Company’s subsidiaries has 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 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, 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, 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, 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 charter of the Company, as amended through the date hereof (collectively,
the “Charter”), and the bylaws of the Company, as amended through the date
hereof (the “Bylaws”), and the charter documents of each of its subsidiaries
and all amendments thereto have been delivered to counsel for the Agents.
Except as otherwise described in the Registration Statement or the Prospectus,
or as described in Schedule II, 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.




          (f) Capital Stock Matters. 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 of preferred stock (the
“Preferred Stock”) have been duly



6









 





authorized and are validly issued, fully paid
and nonassessable by the Company and conform to the description thereof in the
Prospectus. 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.




          (g) Financial Statements. 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 Properties, Inc. applied different principles than the Company
prior to its merger with and into the Company 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
Securities Act or the Securities
Act Rules and Regulations to be included in the Registration Statement or the
Prospectus. Ernst & Young LLP (together with any other nationally recognized
accounting firm that the Company may from time to time engage, 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 Securities Act and the Securities Act 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 Securities Act Rules
and Regulations are true and correct in all material respects.




          (h) Company’s Internal Accounting System. 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.




          (i) Notes. The Notes are as of the date hereof duly authorized by the Company
for issuance and sale pursuant to this Distribution Agreement and the
Indenture; and



7









 





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), against payment of the
consideration therefor, the Notes 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, as to enforcement,
to (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, (iv) requirements that a claim with
respect to any Notes payable in a foreign or composite currency (or a foreign
or composite currency judgment in respect of such claim) be converted into U.S.
dollars at a rate of exchange prevailing on a date determined pursuant to
applicable law and (v) governmental authority to limit, delay or prohibit the
making of payments outside the United States (collectively, the “Enforceability
Limitations”) and authorization of the Notes did not, and the execution,
delivery and performance of the Notes will not, constitute a breach or
violation of, or a default under, or conflict with, or give any other party a
right to terminate any of its obligations under, or result in the acceleration
of any obligation under, or 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, the
Charter or Bylaws of the Company, the articles or certificate of incorporation
or bylaws or partnership agreement or operating agreement of any of the
Company’s subsidiaries or any Contract (as defined herein) or any judgment,
ruling, decree, order, law, statute, rule or regulation of any court or other
governmental agency or body applicable to the Communities or the business or
properties of the Company or any of its subsidiaries, except as disclosed in
the Prospectus or except for such instances as, individually or in the aggregate,
do not involve a material risk to the business, properties, condition
(financial or otherwise) or results of operations of the Company and its
subsidiaries, taken as a whole; the Indenture has been duly qualified under the
TIA and prior to the issuance of the Notes will be duly authorized, executed
and delivered by the Company, and assuming due authorization, execution and
delivery thereof by the Trustee, will constitute a valid and legally binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except to the extent that enforcement thereof may be limited by the
Enforceability Limitations; the Notes and the Indenture will conform in all
material respects to the statements relating thereto contained in the
Prospectus; and the Notes are, in all material respects, in the form
contemplated by the Indenture. Upon payment of the purchase price and delivery
of the Notes in accordance with this Distribution Agreement, each of the
purchasers thereof will receive good, valid and marketable title to such Notes,
free and clear of all liens, charges and encumbrances.




          (j) Distribution Agreement and Indenture. The Company has the corporate power
and authority to enter into this Distribution Agreement, the Indenture, the
Notes and each Terms Agreement (as defined herein). This Distribution
Agreement and the Indenture have been duly authorized, executed and delivered
by the Company and constitute valid and binding agreements of the Company,
enforceable against the Company in accordance with the terms hereof and
thereof, except to the extent that enforcement thereof may be limited by the
Enforceability Limitations. The execution, delivery and the performance of
this Distribution Agreement, the Indenture and each Written Terms Agreement (as
defined herein) and the entry into, and the performance of, each non-written
Terms Agreement and the consummation of the transactions contemplated herein
and therein did not and will not constitute a breach or violation



8









 





of, or a
default under, or conflict with, or give any other party a right to terminate
any of its obligations under, or result in the acceleration of any obligation
under, or 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, the Charter or
Bylaws of the Company, the articles or certificate of incorporation or bylaws
or partnership agreement or operating agreement of any of the Company’s
subsidiaries or any material contract, lease or other instrument to which the
Company or any of its subsidiaries is a party or by which any of their property
may be bound or any judgment, ruling, decree, order, law, statute, rule or
regulation of any court or other governmental agency or body applicable to the
Communities or the business or properties of the Company or any of its
subsidiaries, except as disclosed in the Prospectus or except for such
instances as, individually or in the aggregate, do not involve a material risk
to the business, properties, condition (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a whole.




          (k) Rating. At the time of each Settlement Date, the Notes will be rated at
least Baa1 by Moody’s Investors Service, Inc. (“Moody’s”) and at least BBB+ by
Standard & Poor’s Ratings Service (“S&P” and, together with Moody’s, the
“Rating Agencies”), or such other rating as to which the Company shall have
most recently notified the Agents pursuant to Section 5(b)(iv) hereof.



          (l) No Material Adverse Change. Except as contemplated in the Prospectus,
subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus, the Company and its subsidiaries,
taken as a whole, have not incurred any liabilities or obligations, direct or
contingent, or entered into any transactions, not in the ordinary course of
business, that are material to the Company and its subsidiaries taken as a
whole, and there has not been any material change in the capital stock,
short-term debt or long-term debt of the Company, or any material adverse
change, or any development involving a prospective material adverse change, in
the condition (financial or other), business, prospects, net worth or results
of operations of the Company and its subsidiaries taken as a whole.



          (m) Company Not an Investment Company. 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”).



          (n) No Material Actions or Proceedings. Except as set forth in the
Registration Statement and the Prospectus, there is no 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.



9









 






          (o) Filing and Enforceability of Contracts. 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 Securities Act or the
Securities Act Rules and Regulations that have not been so described or filed
(the “Contracts”). 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
and, assuming due authorization, execution and delivery thereof by the other
parties thereto, constitute valid and binding agreements of the other parties
thereto, enforceable against such parties in accordance with the terms thereof,
subject to the Enforceability Limitations.



          (p) Compliance With Law. 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
each sale of a Note, 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 each Delivery 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.



          (q) No Further Consents Required. 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 Distribution
Agreement and the Indenture in connection with the issuance or sale of the
Notes by the Company, except such as may be required under the Securities Act,
the Exchange Act, the TIA or state securities or blue sky laws; and the Company
has full power and authority to authorize, issue and sell the Notes as
contemplated by this Distribution Agreement and the Indenture, free of any
preemptive or similar rights.



          (r) Title to Properties. 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



10









 





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) Mortgages; Community Matters. 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) Title Insurance. Title insurance in favor of the mortgagee, the Company or
its Subsidiaries is maintained with respect to each of the Communities, in an
amount at least equal to the greater of (i) the cost of acquisition of such
property and (ii) the cost of construction by the Company and its subsidiaries
of the improvements located on such property (measured at the time of such
construction), except, in each case, where the failure to maintain such title
insurance would not have a material adverse effect on the condition, financial
or otherwise, or the earnings, business affairs or business prospects of the
Company and its subsidiaries taken as a whole.




          (u) Accuracy of Company’s Statements. No statement, representation, warranty
or covenant made by the Company in this Distribution Agreement or made in any
certificate or document required by this Distribution Agreement to be delivered
to the Agents was or will be, when made, inaccurate, untrue or incorrect.



11









 






          (v) No Price Stabilization or Manipulation. 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 Notes to facilitate the sale
or resale of the Notes.



          (w) No Labor Disputes. 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) No Unlawful Contributions. 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) Compliance With Environmental Laws. As of each Delivery 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) Hazardous Materials.




            (i) None of the Company or any partnership or other subsidiary 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 Agents
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,



12









 






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 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 Agents 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 Agents
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) Periodic Review of Costs of Environmental Compliance. 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



13









 





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.




          (bb) Property and Casualty Insurance. 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) REIT Status. 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) No Plan Assets. 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) Distribution of Offering Materials. 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 Notes, will not distribute any offering material in
connection with the offering and sale of the Notes other than the Registration
Statement, the Prospectus or other materials, if any, permitted by the
Securities Act.



          (ff) Form S-3 Eligibility. The Company satisfies all conditions and
requirements for the use of a Registration Statement on Form S-3 under the
Securities Act and the Securities Act Rules and Regulations.




     4. Purchases as Principal; Solicitations as Agent.



          (a) Purchases as Principal. If so agreed by one or more of the Agents and the
Company in each instance, Notes may be purchased by such Agent or Agents as
principal. An Agent’s commitment to purchase Notes as principal shall be
deemed to have been made on the basis of the representations and warranties of
the Company herein contained and shall be subject to the terms and conditions
herein set forth. In addition, in connection with each such sale, the Company
and such Agent or Agents will enter into a supplemental agreement (a “Terms
Agreement”) that will provide for the terms of the sale of such Notes to, and
the purchase thereof by, such Agent or Agents (which terms, unless otherwise
agreed, shall, to the extent applicable, include those terms specified in
Exhibit A hereto). Each Terms Agreement shall take the form
of either (i) an oral agreement between such Agent or Agents and the Company,
with written



14









 





confirmation prepared by such Agent or Agents and mailed to the
Company, or (ii) a written agreement between such Agent or Agents and the
Company (a “Written Terms Agreement”). Unless the context otherwise requires,
references herein to this “Distribution Agreement” shall include the applicable
Terms Agreement of one or more Agents to purchase Notes from the Company as
principal. Each purchase of Notes, unless otherwise agreed, shall be at a
discount from the principal amount of each such Note equivalent to the
applicable commission set forth in Schedule III hereto. The
Agents may engage the services of any other broker or dealer in connection with
the resale of the Notes purchased by them as principal and may allow any
portion of the discount received in connection with such purchases from the
Company to such brokers and dealers. At the time of each purchase of Notes by
one or more Agents as principal, the Company and such Agent or Agents shall
agree in the Terms Agreement whether any stand-off provision (as referred to in
Section 5(r) hereof) or any officers’ certificate, opinion of counsel or
comfort letter (as referred to in Sections 8(b), 8(c) and 8(d) hereof) will be
required. If the Company and two or more Agents enter into an agreement
pursuant to which such Agents agree to purchase Notes from the Company as
principal and one or more of such Agents shall fail at the Settlement Date to
purchase the Notes which it or they are obligated to purchase (the “Defaulted
Notes”), then the nondefaulting Agents shall have the right, within 24 hours
thereafter, to make arrangements for one of them or one or more other Agents or
underwriters to purchase all, but not less than all, of the Defaulted Notes in
such amounts as may be agreed upon and upon the terms herein set forth;
provided, however, that if such arrangements shall not have been completed
within such 24-hour period, then:




            (i) if the aggregate principal amount of Defaulted Notes does not
exceed 10% of the aggregate principal amount of Notes to be so purchased
by all of such Agents on the Settlement Date, the nondefaulting Agents
shall be obligated, severally and not jointly, to purchase the full
amount thereof in the proportions that their respective initial
underwriting obligations bear to the underwriting obligations of all
nondefaulting Agents; or




            (ii) if the aggregate principal amount of Defaulted Notes exceeds
10% of the aggregate principal amount of Notes to be so purchased by all
of such Agents on the Settlement Date, such agreement shall terminate
without liability on the part of any nondefaulting Agent.



     No action taken pursuant to this paragraph shall relieve any defaulting
Agent from liability in respect of its default. In the event of any such
default which does not result in a termination of such agreement, either the
nondefaulting Agents or the Company shall have the right to postpone the
Settlement Date for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or the Prospectus or in any
other documents or arrangements.



     Unless otherwise specified in a Terms Agreement, if an Agent or Agents are
purchasing Notes as principal, it or they, as the case may be, may resell such
Notes to other dealers. Any such sales may be at a discount, which shall not
exceed the amount set forth in the Prospectus Supplement relating to such
Notes.



15









 






          (b) Solicitations as Agent. On the basis of the representations and warranties
herein contained, but subject to the terms and conditions herein set forth,
when agreed by the Company and an Agent, such Agent, as an agent of the
Company, will use its reasonable efforts to solicit offers to purchase the
Notes upon the terms and conditions set forth herein and in the Prospectus.
The Agents are not authorized to appoint sub-agents with respect to Notes sold
through them as agents. All Notes sold through an Agent as agent will be sold
at 100% of their principal amount unless otherwise agreed to by the Company and
such Agent.



     The Company reserves the right, in its sole discretion, to suspend
solicitation of offers for the purchase of Notes through an Agent, as agent,
commencing at any time for any period of time or permanently. As soon as
practicable, but not later than one business day, after receipt of instructions
from the Company, such Agent will suspend solicitation of offers for the
purchase of Notes from the Company until such time as the Company has advised
such Agent that such solicitation may be resumed. During the period of time
that such solicitation is suspended, the Company shall not be required to
deliver, or cause to be delivered, any opinions, letters, or certificates in
accordance with Section 8 hereof; provided that if the Registration Statement
or Prospectus is amended or supplemented during the period of suspension (other
than by an amendment or supplement providing solely for a change in the
interest rates, redemption provisions, amortization schedules or maturities
offered for the Notes or for a change that the Agents deem to be immaterial),
no Agent shall be required to resume soliciting offers to purchase Notes until
the Company have delivered, or cause to be delivered, such opinions, letters
and certificates in accordance with Section 8 hereof or as such Agent may
reasonably request.



     Upon settlement, the Company agrees to pay to each Agent, as consideration
for the sale of each Note resulting from a solicitation made or an offer to
purchase received by such Agent, a commission, in the form of a discount from
the purchase price of such Note equal to the applicable percentage of the
principal amount of such Note as set forth in Schedule III
hereto.




          (c) Administrative Procedures. The purchase price, interest rate or formula,
maturity date and other terms of the Notes (as applicable) specified in
Exhibit A hereto shall be agreed upon by the Company and the
applicable Agent or Agents and specified in a Pricing Supplement to the
Prospectus to be prepared by the Company in connection with each sale of Notes.
Except as otherwise specified in the applicable Pricing Supplement, the Notes
will be issued in denominations of U.S. $1,000 or any larger amount that is an
integral multiple of U.S. $1,000. Administrative procedures with respect to
the issuance and sale of Notes shall be agreed upon from time to time by the
Company, the Agents and the Trustee (the “Procedures”), and initially such
Procedures shall be as set forth in Exhibit B hereto. The
Agents and the Company agree to perform, and
the Company agrees to cause the Trustee to agree to perform, their respective
duties and obligations specifically provided to be performed by them in the
Procedures.



          (d) Agents’ Obligations Several and Not Joint. The Company acknowledges that
the obligations of the Agents under this Agreement are several and not joint.



     5. Covenants of the Company. The Company covenants and agrees with the
Agents as follows:



16









 






          (a) Amendments and Supplements. During the period in which a prospectus
relating to the Notes is required to be delivered under the Securities Act, the
Company shall (i) notify the Agents promptly of the time when any subsequent
amendment to the Registration Statement has become effective or any supplement
to the Prospectus has been filed and of any request by the Commission for any
amendment or supplement to the Registration Statement or Prospectus or for
additional information, (ii) prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration Statement
or Prospectus that, in your opinion, may be necessary or advisable in
connection with your distribution of the Notes, and (iii) file no amendment or
supplement to the Registration Statement or Prospectus (other than any document
required to be filed under the Exchange Act that upon filing is deemed to be
incorporated by reference therein) to which the Agents or your counsel shall
reasonably object by notice to the Company after having been furnished a copy a
reasonable time prior to the filing.



          (b) Notification Upon Certain Events. The Company shall advise you, promptly
after it receives notice or otherwise learns, (i) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement, (ii) of the suspension of the qualification or registration of the
Notes for offering or sale in any jurisdiction, (iii) of the initiation or
threatening (in writing) of any proceeding for any such purpose or (iv) of any
change in the rating assigned by the Rating Agencies or any other “nationally
recognized statistical rating organization,” as such term is defined for
purposes of Rule 436(g)(2) under the Securities Act, to any debt securities
(including the Notes) of the Company, or the public announcement by any
nationally recognized statistical rating organization that it has under
surveillance or review, with possible negative implications, its rating of any
such debt securities, or the withdrawal by any nationally recognized
statistical rating organization of its rating of such debt securities; and the
Company will promptly use its best efforts to prevent the issuance of any stop
order or to obtain its withdrawal if such a stop order should be issued.



          (c) Compliance With Securities Laws. The Company shall comply with all
requirements imposed upon it by the Securities Act, the Securities 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 is necessary to permit the
continuance of sales of, or dealings in, the Notes as contemplated by the
provisions hereof and
the Prospectus. If during such period any event occurs as a result of which,
in the opinion of counsel to the Agents, the Registration Statement contains an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
or the Prospectus as then amended or supplemented would 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 then existing, not
misleading, or if during such period it is necessary to amend or supplement the
Registration Statement or Prospectus to comply with the Securities Act, the
Company will promptly notify the Agents and will amend or supplement the
Registration Statement or Prospectus (at the expense of the Company) so as to
correct such statement or omission or effect such compliance.



          (d) Copies of Offering Documents. The Company shall furnish to the Agents
copies of the Registration Statement, the Prospectus (including all documents
incorporated by reference therein) and all amendments and supplements to the
Registration Statement and the



17









 





Prospectus that are filed with the Commission
during the period in which a prospectus relating to the Notes is required to be
delivered under the Securities Act (including all documents filed with the
Commission during such period that are deemed to be incorporated by reference
therein), in each case as soon as available and in such quantities as the
Agents may from time to time reasonably request.




          (e) Copies of Securities Filings and Distributions. The Company shall furnish
the Agents with copies of filings of the Company under the Securities Act and
Exchange Act and with all other financial statements and reports it distributes
generally to the holders of any class of its capital stock during the period of
five years commencing on the date upon which the Prospectus Supplement is filed
pursuant to Rule 424(b) of the Securities Act Rules and Regulations.



          (f) Earnings Statements. The Company shall make generally available to its
security holders and to the Agents as soon as practicable after each sale of
Notes, earning statements (which need not be audited) that satisfy the
provisions of Section 11(a) of the Securities Act and the Securities Act Rules
and Regulations (including, without limitation, Rule 158 of the Securities Act
Rules and Regulations) with respect to each sale of Notes.



          (g) Payment of Expenses. The Company shall pay, or reimburse if paid by you,
whether or not the transactions contemplated by this Distribution Agreement are
consummated or this Distribution Agreement is terminated, all costs and
expenses incident to the performance of the obligations of the Company under
this Distribution Agreement, including but not limited to costs and expenses of
or relating to (i) the preparation, printing and filing of the Registration
Statement and exhibits thereto, the Prospectus and any amendment or supplement
to the Registration Statement or the Prospectus, (ii) the word processing and
reproduction of the Indenture and the Notes and the delivery of the Notes,
(iii) the costs incurred by the Company in furnishing (including costs of
shipping, mailing and courier) such copies of the Registration Statement, the
Prospectus and all amendments and
supplements thereto, as may be requested for use in connection with the
offering and sale of the Notes by the Agents or by dealers to whom Notes may be
sold, (iv) the filing fees and the fees and expenses of counsel to the Agents
in connection with any filings required to be made with the National
Association of Securities Dealers or its subsidiary NASD Regulation Inc., (iv)
any registration or qualification of the Notes for offer and sale under the
securities or blue sky laws of such jurisdictions designated by you, including
the reasonable fees, disbursements and other charges of your counsel in
connection therewith, and the preparation of any blue sky or legal investment
memoranda, (iv) the fees charged by each of the Rating Agencies for the rating
of the Notes at the request of the Company, (v) counsel (including local and
special counsel) to the Company and any surveyors, engineers, appraisers,
photographers, accountants and other professionals engaged by the Company, (vi)
the transfer agent for the Notes, (vii) the costs and expenses of the Trustee
under the Indenture, (viii) Ernst & Young LLP or such other
nationally-recognized accountants as may be engaged by the Company in
connection with the offering of the Notes (the “Accountants”) and (ix) the
reasonable fees and disbursements of counsel to the Agents incurred in
connection with the establishment of the program relating to the Notes and
incurred from time to time in connection with the transactions contemplated
hereby.



18









 






          (h) Blue Sky Qualification. The Company shall qualify the notes for offering
and sale under the applicable securities laws and real estate syndication laws
of such states and other jurisdictions of the United States or Canada as the
Agents may designate, and will maintain such qualifications in effect for as
long as may be required for the distribution of the Notes; provided, however,
that the Company shall not be obligated to file any general consent to service
of process or to qualify as a foreign corporation in any jurisdiction in which
it is not so qualified. The Company will file such statements and reports as
may be required by the laws of each jurisdiction in which the Notes have been
qualified as above provided. The Company will promptly advise the Agents of
the receipt by the Company of any notification with respect to the suspension
of the qualification of the Notes for sale in any such state or jurisdiction or
the initiating or threatening of any proceeding for such purpose.



          (i) No Price Stabilization or Manipulation. The Company shall not take, at any
time, directly or indirectly, other than in connection with this Distribution
Agreement, any action designed to stabilize, or which might reasonably be
expected to cause or result in, or which has constituted or which might
reasonably be expected to constitute the stabilization of, the price of the
Notes.



          (j) Rating Agency Matters. The Company shall take all reasonable action
necessary to enable the Rating Agencies to provide their respective credit
ratings of the Notes.



          (k) Establishing Terms of Notes. The Company shall execute and deliver a
Supplemental Indenture or officer’s certificate, as applicable, designating the
Notes as the debt securities to be offered, and establishing the
applicable terms and provisions of each Note in accordance with the provisions
of the Indenture and any applicable Terms Agreement.



          (l) Use of Proceeds. The Company shall apply the net proceeds to the Company
from the sale of the Notes by the Company as set forth under the caption “Use
of Proceeds” in the Prospectus.



          (m) Preparation of Pricing Supplements. The Company shall prepare, with
respect to any Notes to be sold to or through an Agent or Agents pursuant to
this Distribution Agreement, a Pricing Supplement with respect to such Notes in
a form previously approved by such Agent or Agents. The Company will deliver
such Pricing Supplement no later than 11:00 a.m., New York City time, on the
business day following the date of the Company’s acceptance of the offer for
the purchase of such Notes and will file such Pricing Supplement pursuant to
Rule 424(b)(3) under the Securities Act not later than the close of business of
the Commission on the fifth business day after the date on which such Pricing
Supplement is first used.



          (n) Unaudited Financial Information. The Company shall furnish to the Agents,
within two business days following the date on which such information is first
released to the general public, interim financial statement information related
to the Company with respect to each of the first three quarters of any fiscal
year and preliminary financial statement information with respect to any fiscal
year; and the Company shall cause the Prospectus to be amended or supplemented
to include or incorporate by reference financial information with respect
thereto and corresponding information for the comparable period of the
preceding fiscal year, as well as such other information and explanations as
shall be necessary for an



19









 





understanding thereof and as shall be required by the
Securities Act or the Securities Act Rules and Regulations.




          (o) Audited Financial Information. The Company shall furnish to the Agents,
within two business days following the date on which such information is first
released to the general public, financial information included in or derived
from the audited financial statements of the Company for the preceding fiscal
year; and the Company shall cause the Registration Statement and the Prospectus
to be amended, whether by the filing of documents pursuant to the Exchange Act
or the Securities Act or otherwise, to include or incorporate by reference such
audited financial statements and the report or reports, and consent or consents
to such inclusion or incorporation by reference, of the independent accountants
with respect thereto, as well as such other information and explanations as
shall be necessary for an understanding of such financial statements and as
shall be required by the Securities Act or the Securities Act Rules and
Regulations.



          (p) REIT Status. 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” under the Code.



          (q) Market Stand-Off Pending Settlement. Between the date of any Terms
Agreement and the Settlement Date with respect to such Terms Agreement, the
Company will not, without such Agent’s prior consent, offer, sell, contract to
sell or otherwise dispose of any debt securities of the Company substantially
similar to such Notes (other than (i) the Notes that are to be sold pursuant to
such Terms Agreement, (ii) Notes previously agreed to be sold by the Company,
and (iii) commercial paper and short-term bank loans issued in the ordinary
course of business (collectively, the “Market Stand-Off Exceptions”)), except
as may otherwise be provided in such Terms Agreement.



          (r) Market Stand-Off Generally. If requested by any Agent in connection with a
purchase by it of Notes as principal in accordance with Section 4(a) hereof,
the Company shall cause such transaction to be subject to the terms of such
market stand-off provision as shall be agreed upon by the Company and such
Agent at the time of such agreement to purchase Notes as principal.




     6. Conditions of Agents’ Obligations at the Closing. The obligations of the
Agents to purchase Notes as principal and to solicit offers for the purchase of
Notes as agent of the Company, and the obligations of any purchasers of the
Notes sold through an Agent as agent, shall be subject to the accuracy of the
representations and warranties of the Company herein, to the accuracy of the
statements of the officers of the Company made in any certificate furnished
pursuant to the provisions hereof, to the performance and observance by the
Company of all of its covenants and agreements contained herein and to the
following additional conditions precedent:



          (a) Opinion of Company Counsel. On the Commencement Date and, if called for by
any Terms Agreement, on the corresponding Settlement Date, the relevant Agents
shall



20









 





have received the opinion of Goodwin Procter llp, counsel for the
Company, dated the date of its delivery, to the effect set forth in
Exhibit C.




          (b) Opinion of Company Tax Counsel. On the Commencement Date and, if called
for by any Terms Agreement, on the corresponding
Settlement Date, the relevant
Agents shall have received the opinion of Goodwin Procter llp, tax counsel to
the Company, dated the date of its delivery, to the effect that, subject to the
assumptions and qualifications historically included by such counsel in
opinions rendered in recent public offerings by AvalonBay Communities, Inc.,
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.



          (c) Opinion of Counsel to the Agents. On the Commencement Date and, if called
for by any Terms Agreement, on the corresponding Settlement Date, the relevant
Agents shall have received from O’Melveny & Myers llp, counsel to the Agents,
such opinion or opinions, dated the date of its delivery, with respect to the
organization of each of the Company, the validity of the Indenture, the Notes,
the Registration Statement, the Prospectus and other related matters as the
Agents reasonably may request, and such counsel shall have received such
documents and information as they request to enable them to pass upon such
matters.



          (d) Comfort Letter. On the Commencement Date and, if called for by any Terms
Agreement, on the corresponding Settlement Date, the relevant Agents shall have
received a letter from the Accountants, dated the date of its delivery,
containing information of the type ordinarily included in accountants’ “comfort
letters” delivered according to Statement of Auditing Standards No. 72 (or any
successor bulletin) published by the American Institute of Certified Public
Accountants, including, without limitation, statements to the effect that:




            (i) They are independent public accountants with respect to the
Company and the Subsidiaries within the meaning of the Securities Act and
the Securities Act Rules and Regulations, and no information concerning
their relationship with or interest in either of the Company is required
by Item 10 of the Registration Statement.




            (ii) In their opinion, the financial statements and supporting
schedules examined by them and included or incorporated by reference in
the Registration Statement and Prospectus and audited by them and covered
by their opinions therein comply as to form in all material respects with
the applicable accounting requirements of the Securities Act and the
Securities Act Rules and Regulations with respect to registration
statements on Form S-3 and the Exchange Act and the Exchange Act Rules
and Regulations.




            (iii) They have performed limited procedures, not constituting an
audit, including a reading of the latest available unaudited interim
consolidated financial statements of the Company, a reading of the minute
books of the Company, inquiries of certain officials of the Company who
have responsibility for financial and accounting matters and such other
inquiries and procedures as may be specified in such letter, and on the
basis of such limited review and procedures nothing came to their
attention that caused them to believe that:



21









 






               (A) the unaudited financial statements of the Company included
in the Registration Statement, or incorporated by reference
therein, do not comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and the
Securities Act Rules and Regulations and the Exchange Act and the
Exchange Act Rules and Regulations, or material modifications are
required for them to be presented in conformity with generally
accepted accounting principles;




               (B) the operating data and balance sheet data included or
incorporated by reference in the Prospectus were not determined on
a basis substantially consistent with that used in determining the
corresponding amounts in the audited financial statements included
or incorporated by reference in the Registration Statement;




               (C) the pro forma financial information included or
incorporated by reference in the Registration Statement was not
determined on a basis substantially consistent with that of the
audited financial statements included or incorporated by reference
in the Registration Statement; or




               (D) at a specified date not more than five days prior to the
date hereof, there had been any change in the capital stock of the
Company or the Subsidiaries, or any increase in the debt of the
Company or the Subsidiaries or any decrease in the net assets of
the Company or the Subsidiaries, as compared with the amounts shown
in the most recent consolidated balance sheet of the Company and
the Subsidiaries, included in the Registration Statement or
incorporated by reference therein, or, during the period from the
date of the most recent consolidated statement of operations
included in the Registration Statement or incorporated by reference
therein to a specified date not more than five days prior to the
date hereof, there were any decreases, as compared with the
corresponding period in the preceding year, in revenues, net income
or funds from operations of the Company and the Subsidiaries,
except in all instances for changes, increases or decreases which
the Registration Statement and the Prospectus disclose have
occurred or may occur.




            (iv) In addition to the examination referred to in their report
included in the Registration Statement and the Prospectus and the limited
procedures referred to in clause (iii) above, they have carried out
certain other specified procedures, not constituting an audit, with
respect to certain amounts, percentages and financial information which
are included in the Registration Statement and the Prospectus and which
are specified by the Agents, and have found such amounts, percentages and
financial information to be in agreement with the relevant accounting,
financial and other records of the Company and the Subsidiaries
identified in such letter.




          (e) Officers’ Certificate. On the Commencement Date and, if called for by any
Terms Agreement, on the corresponding Settlement Date, the Agents shall have
received from the Company a certificate, dated the date of its delivery, signed
by each of the Chief



22









 





Executive Officer and the Chief Financial Officer of the
Company, in form and substance satisfactory to the Agents, 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 Notes 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 (1) to make the
statements therein not untrue or misleading in any material respect or
(2) to otherwise comply with the disclosure requirements of Form S-3.
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 Distribution Agreement was, when originally made, and
is, 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 in all material respects, 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,
in all material respects; and




            (vii) Subsequent to the latter of the execution and delivery of the
Distribution Agreement and the date of the most recent Terms Agreement
through the date of such certificate, there has not occurred any
downgrading in the rating accorded the Notes 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 by any
Rating Agency
in such securities, or (B) any review or possible change by any Rating



23









 







Agency that does not indicate a stable, positive or improving rating
accorded such securities.




          (f) No Stop Orders or Unmet Commission Requests. (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 Notes 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 (other than any
document required to be filed under the Exchange Act that upon filing is deemed
to be incorporated by reference therein) shall have been filed unless a copy
thereof was first submitted to the Agents and the Agents did not object thereto
in good faith.



          (g) No Material Adverse Change. 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
material change on a consolidated basis, in the equity capitalization 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 Agents any such development makes
it impracticable or inadvisable to offer or deliver the Notes on the terms and
in the manner contemplated in the Prospectus.



          (h) No Material Litigation Commenced. 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.



          (i) Accuracy of Representations and Warranties; Observance of Covenants. At
each Delivery Date, each of the representations and warranties of the Company
contained herein shall be true and correct in all material respects, as if made
at such Delivery Date, and all



24









 





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 such Delivery Date,
shall have been duly performed, fulfilled or complied with.




          (j) Blue Sky Qualification. The Notes shall be qualified for sale in the
jurisdictions designated pursuant to Section 5(h), each such qualification
shall be in effect and not subject to any stop order or other proceeding.



          (k) Other Documents. On the Commencement Date and on each Delivery Date,
counsel to the Agents shall have been furnished with such other documents and
opinions as such counsel may reasonably require for the purpose of enabling
such counsel to pass upon the issuance and sale of Notes as herein contemplated
and related proceedings, or in order to evidence the accuracy and completeness
of any of the representations and warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company in
connection with the issuance and sale of Notes as herein contemplated shall be
satisfactory in form and substance to the Agents and to counsel to the Agents.



          (l) Special Conditions for Agents’ Purchases as Principal. The obligations of
the Agents to purchase Notes as principal will be subject to the following
further conditions: (i) the rating assigned by each of the Rating Agencies, or
any other nationally recognized securities rating agency, to any debt
securities of the Company as of the date of the agreement to purchase Notes as
principal shall not have been lowered and no such rating agency shall have
publicly announced that it has under surveillance or review, with possible
negative implications, its ratings of any debt securities of the Company since
that date and (ii) there shall not have come to the attention of any Agent any
facts that would cause such Agent to believe that the Prospectus, at the time
it was required to be delivered to a purchaser of the Notes, contained an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in light of the
circumstances existing at such time, not misleading.



     The documents required to be delivered by this Section 6 as a condition
precedent to each Agent’s obligation to begin soliciting offers to purchase
Notes as an agent of the Company were originally delivered to the Agents at the
San Francisco office of O’Melveny & Myers llp, counsel for the Agents, on
December 21, 1998. The date of delivery of such documents is referred to
herein as the “Commencement Date.”



     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 Agents and their counsel. The Company will furnish
the Agents with such conformed copies of such opinions, certificates, letters
and other documents as the Agents shall reasonably request.



     If any condition specified in this Section 6 shall not have been fulfilled
when and as required to be fulfilled, this Distribution Agreement may be
terminated by any Agent in accordance with Section 13 below (such termination
to be effective only with respect to such Agent) and any such termination shall
be without liability of any party to any other party, except that the covenant
regarding provision of an earnings statement set forth in Section 5(f) hereof,
the indemnity and contribution agreements set forth in Section 9 hereof, the
provisions concerning payment of expenses under Section 10 hereof, the
provisions concerning the



25









 





representations, warranties and agreements to survive delivery of Section
11 hereof, the provisions relating to parties set forth in Section 15 and the
provisions relating to governing law set forth in Section 16 hereof shall
remain in effect.




     7. Delivery of and Payment for Notes Sold through the Agents. Delivery of
Notes sold through any Agent as agent shall be made by the Company to such
Agent for the account of any purchaser only against payment therefor in
immediately available funds. In the event that a purchaser shall fail either
to accept delivery of or to make payment for a Note on the date fixed for
settlement, such Agent shall promptly notify the Company and deliver such Note
to the Company and, if such Agent has theretofore paid the Company for such
Note, the Company will promptly return such funds to such Agent unless the
failure arose from the gross negligence or willful misconduct of such Agent or
from a default by such Agent in the performance of its obligations hereunder.
If such failure occurred for any reason other than the gross negligence or
willful misconduct of such Agent or from a default by such Agent in the
performance of its obligations hereunder, the Company will reimburse such Agent
on an equitable basis for its loss of the use of the funds for the period such
funds were credited to the Company’s account.



     8. Additional Covenants of the Company. The Company covenants and agrees with
the Agents that:




          (a) Reaffirmation of Representations and Warranties. Each acceptance by the
Company of an offer for the purchase of Notes (whether to an Agent as principal
or through an Agent as agent), and each delivery of Notes (whether to an Agent
as principal or through an Agent as agent), shall be deemed to be an
affirmation that the representations and warranties of the Company contained in
this Distribution Agreement and in the most recent certificate (for each type
of certificate) theretofore delivered to any Agent pursuant hereto (and if the
applicable Agent has not received a copy of such certificate, one shall be
supplied) are true and correct in all material respects at the time of such
acceptance or sale, as the case may be, and an undertaking that such
representations and warranties will be true and correct at the time of delivery
to such Agent or to the purchaser, as the case may be, of the Note or Notes
relating to such acceptance or sale, as the case may be, as though made at and
as of each such time (and it is understood that such representations and
warranties shall relate to the Registration Statement and Prospectus as amended
and supplemented to each such time).



          (b) Subsequent Delivery of Certificates. Upon the written request of any Agent
within 45 days of the Company’s filing with the Commission of any Quarterly
Report on Form 10-Q or Annual Report on Form 10-K incorporated by reference
into the Prospectus, and otherwise only (i) as may be required in connection
with a sale pursuant to Section 4(a) or (ii) at such times as may be reasonably
requested by an Agent following the occurrence of any event that such Agent
reasonably considers to be a material adverse change to the business,
prospects, properties, financial position or results of operations of the
Company and its subsidiaries, taken as a whole, the Company shall furnish or
cause to be furnished to the Agents forthwith a certificate, dated the date of
filing with
the Commission of such document, the date of such sale or the date requested by
such Agent, as applicable, in form reasonably satisfactory to such Agent, to
the effect that the statements contained in the certificate referred to in
Section 6(e) hereof which were last furnished to the Agents are true and
correct at the time of such filing, as though



26









 





made at and as of such time
(except that such statements shall be deemed to relate to the Registration
Statement and the Prospectus as amended and supplemented to such time) or, in
lieu of such certificate, a certificate substantially similar to the
certificate referred to in Section 6(e) hereof, modified as necessary to relate
to the Registration Statement and the Prospectus as amended and supplemented to
the time of delivery of such certificate.




          (c) Subsequent Delivery of Legal Opinions. Upon the written request of any
Agent within 45 days of the Company’s filing with the Commission of any
Quarterly Report on Form 10-Q or Annual Report on Form 10-K incorporated by
reference into the Prospectus, and otherwise only (i) as may be required in
connection with a sale pursuant to Section 4(a) or (ii) at such times as may be
reasonably requested by an Agent following the occurrence of any event that
such Agent reasonably considers to be material adverse change to the business,
prospects, properties, financial position or results of operations of the
Company taken as a whole, the Company shall furnish or cause to be furnished
forthwith, and in any case promptly upon request, to the Agents and to counsel
to the Agents the written opinions of counsel to the Company, dated the date of
filing with the Commission of such document, the date of such sale or the date
requested by such Agent, as applicable, to the effect of the opinions and
statements referred to in Sections 6(a)and 6(b) and in form and substance
reasonably satisfactory to the Agents, which opinions may include such
reductions or limitations as shall be reasonably satisfactory to the Agents,
and shall be modified, as necessary, to relate to the Registration Statement
and the Prospectus as amended and supplemented to the time of delivery of such
opinion or, in lieu of such opinion, counsel last furnishing such opinion to
the Agents may furnish the Agents with a letter substantially to the effect
that the Agents may rely on such last opinion to the same extent as though it
were dated the date of such letter authorizing reliance (except that statements
in such last opinion shall be deemed to relate to the Registration Statement
and the Prospectus as amended and supplemented to the time of delivery of such
letter authorizing reliance).



          (d) Subsequent Delivery of Comfort Letters. Upon the written request of any
Agent within 45 days of the Company’s filing with the Commission of any
Quarterly Report on Form 10-Q or Annual Report on Form 10-K incorporated by
reference into the Prospectus, and otherwise only (i) as may be required in
connection with a sale pursuant to Section 4(a) or (ii) at such times as may be
reasonably requested by an Agent following the occurrence of any event that
such Agent reasonably believes may have caused a material adverse change to the
financial position or results of operations of the Company and its consolidated
subsidiaries, taken as a whole, the Company shall cause the Accountants
forthwith to furnish the Agents a letter, dated the date of the filing of such
document with the Commission, the date of such sale or the date requested by
such Agent, as applicable, in form and substance reasonably satisfactory to the
Agents, substantially similar to the portions of the letter referred to in
clauses (i) and (ii) of Section 6(d) hereof (but modified to relate to the
Registration Statement and Prospectus as amended and supplemented to the date
of such letter) and substantially similar to the portions of the letter
referred to in clauses (iii) and (iv) of said Section 6(d) with such changes as
may be necessary to reflect changes in the financial statements and other
information derived from the accounting records of the Company.



27









 






     9. Indemnification and Contribution.




          (a) Indemnification of the Agents by the Company. The Company will indemnify
and hold harmless the Agents and their directors, officers, employees and
agents and each person, if any, who controls any Agent within the meaning of
Section 15 of the Securities 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 an Agent, or any such person, may become subject under the Securities
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 documents filed under
the Exchange Act and deemed to be incorporated by reference into the
Prospectus, or in any application or other document executed by or on behalf of
the Company or based on written information furnished by or on behalf of the
Company filed in any jurisdiction in order to qualify the Notes 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 an Agent in
connection with, or relating in any manner to, the Notes 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 an Agent through gross negligence
or willful misconduct); provided that the Company will not be liable to the
extent that such loss, claim, liability, expense or damage arises from the sale
of the Notes to any person by an Agent 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 an Agent furnished in writing to the
Company by such Agent expressly for inclusion in the Registration Statement,
any preliminary prospectus or the Prospectus.



          (b) Indemnification of the Company and its Directors, Certain Officers and
Control Persons by the Agents. The Agents will indemnify and hold harmless the
Company and each person, if any, who controls the Company within the meaning of
Section 15 of the Securities 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 the each Agent, but only insofar as losses, claims, liabilities,
expenses or damages 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 an Agent furnished in writing to the
Company by such Agent expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus. This indemnity will be in addition
to any liability that an Agent might otherwise have; provided, however, that in
no case shall an Agent be liable or responsible for any amount in excess of the
total discount or



28









 





commission received by such Agent in connection with the
offering of the Notes that were the subject of the claim for indemnification.




          (c) Procedures. Any party that proposes to assert the right to be indemnified
under this Section 9 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 9, 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 9 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 (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 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 9 (whether or not any
indemnified party is a party thereto), unless such settlement, compromise or
consent includes a unconditional release of each indemnified party from all
liability arising or that may arise out of such claim, action or proceeding.



29









 






          (d) Contribution. In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 9 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company or the Agents, the
Company and any applicable Agent 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 an
Agent, such as persons who control the Company within the meaning of the
Securities Act and officers of the Company who signed the Registration
Statement, who also may be liable for contribution) to which the Company and
any applicable Agent may be subject in such proportion as shall be appropriate
to reflect the relative benefits received by the Company on the one hand and
any applicable Agent on the other. The relative benefits received by the
Company on the one hand and any applicable Agent on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering of any
Notes (before deducting expenses) received by the Company bear to the total
commissions received by applicable Agent or Agents. 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 any applicable Agent, 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 an Agent, the intent of the parties
and their relative knowledge, access to information and opportunity to correct
or prevent such statement or omission. 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 9(d) shall be
deemed to include, for purpose of this Section 9(d), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 9(d), no Agent shall be required to contribute any
amount in excess of the commissions and other compensation received by such
Agent and no person found guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 9(d), any person who controls
a party to this Distribution Agreement within the meaning of the Securities 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 9(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 9(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).



30









 






          (e) Survival of Indemnity and Contribution Provisions. The indemnity and
contribution agreements contained in this Section 9 and the representations and
warranties of the Company contained in this Distribution Agreement shall remain
operative and in full force and effect regardless of (i) any investigation made
by an Agent or on its behalf, (ii) acceptance of any of the Notes and payment
therefore or (iii) any termination of this Distribution Agreement.




     10. Reimbursement of Agents’ Expenses. If the Company shall fail to perform
any agreement on its part to be performed hereunder, or if any condition of the
Agents’ obligations hereunder required to be fulfilled by the Company is not
fulfilled, the Company will reimburse any applicable Agent for all reasonable
out-of-pocket expenses (including fees and disbursements of counsel) incurred
by such Agent in connection with this Distribution Agreement, and upon demand
the Company shall pay the full amount thereof to such Agent. If this
Distribution Agreement is terminated pursuant to Section 13 by reason of the
default of any Agent, the Company shall not be obligated to reimburse such
Agent on account of those expenses.




     11. Representations and Agreements to Survive Delivery. All representations,
warranties and agreements contained in this Distribution Agreement or in
certificates of officers of the Company submitted pursuant hereto shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any Agent or any con-trolling person of such Agent, or by or on
behalf of the Company or of any of its Subsidiaries, and shall survive each
delivery of and payment for any of the Notes.




     12. Role of Agents. In acting under this Agreement and in connection with the
sale of any Notes by the Company (other than Notes sold to an Agent as
principal), each Agent is acting solely as agent of the Company and does not
assume any obligation towards or relationship of agency or trust with any
purchaser of Notes. An Agent shall make reasonable efforts to assist the
Company in obtaining performance by each purchaser whose offer to purchase
Notes has been solicited by such Agent and accepted by the Company, but such
Agent shall not have any liability to the Company in the event any such
purchase is not consummated for any reason. If the Company shall default in
its obligations to deliver Notes to a purchaser whose offer it has accepted,
the Company shall hold the relevant Agent harmless against any loss, claim,
damage or liability arising from or as a result of such default and shall, in
particular, pay to such Agent the commission it would have received had such
sale been consummated.




     13. Termination. The Company shall have the right to terminate this
Distribution Agreement with respect to any or all of the Agents at any time by
giving notice hereunder to the Agents as hereinafter specified. Each Agent
shall have the right by giving notice as hereinafter specified to terminate
this Distribution Agreement and/or any Terms Agreement hereunder at any time,
provided that if such termination would occur on or after the date of such
Terms Agreement and prior to the Settlement Date with respect to such Terms
Agreement, any Agent may terminate this Distribution Agreement and such Terms
Agreement only if (i) the Company shall have failed, refused or been unable, at
any time, to perform any agreement on its part to be performed hereunder, (ii)
any other condition of the Agents’ obligations hereunder is not fulfilled when
due, (iii) the rating assigned by either of the Rating Agencies to the Company
or the Notes as of or subsequent to the date of this Distribution Agreement
shall have been lowered since that date or if either of the Rating Agencies
shall have publicly announced that it has under



31









 





surveillance or review for the
purpose of considering lowering such rating, its rating of the Company or the
Notes, (iv) trading in any of the equity securities of the Company shall have
been suspended by the Commission, the NASD, by an exchange that lists such
equity securities or by the Nasdaq Stock Market, (v) trading in securities
generally on the New York Stock Exchange or the Nasdaq Stock Market shall have
been suspended or limited or minimum or maximum prices shall have been
generally established on such exchange or over the counter market, or
additional material governmental restrictions, not in force on the date of this
Agreement, shall have been imposed upon trading in securities generally by such
exchange or by order of the Commission or the NASD or any court or other
governmental authority, (vi) a general banking moratorium shall have been
declared by either Federal or New York State authorities, (vii) 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 or any
outbreak or material escalation of hostilities or declaration by the United
States of a national emergency or war or other calamity or crisis shall have
occurred the effect of any of which is such as to make it, in the sole judgment
of the Agents, impracticable or inadvisable to market the Shares on the terms
and in the manner contemplated by the Prospectus, or (viii) if there shall have
come to the attention of the Agents any facts that would cause them to believe
that the Prospectus, at the time it was required to be delivered to a purchaser
of Notes, included an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in light of
the circumstances existing at the time of such delivery, not misleading. Any
such termination notice shall be effective only with respect to such Agent. As
used in this Section 13, the term “Prospectus” means the Prospectus in the form
first provided to the Agents for use in confirming sales of the related Notes.
In the event of any such termination, neither party will have any liability to
the other party hereto, except that (i) an Agent shall be entitled to any
commission earned in accordance with the third paragraph of Section 4(b)
hereof, (ii) if at the time of termination (a) such Agent shall own any Notes
purchased by it as principal with the intention of reselling them or (b) an
offer to purchase any of the Notes has been accepted by the Company but the
time of delivery to the purchaser or his agent of the Note or Notes relating
thereto has not occurred, the covenants set forth in Sections 5 and 8 hereof
shall remain in effect until such Notes are so resold or delivered, as the case
may be, and (iii) the covenant set forth in Section 5(f) hereof, the provisions
of Section 10 hereof, the indemnity and contribution agreements set forth in
Section 9 hereof, and the provisions of Sections 11, 15 and 16 hereof shall
remain in effect.




     14. Notices. All notices or communications hereunder shall be in writing and
shall be mailed, delivered or telecopied and confirmed (a) if to the Company,
to:




	 	 	 	AvalonBay Communities, Inc.

2900 Eisenhower Avenue, Suite 300

Alexandria, Virginia 22314

Attention: Thomas J. Sargeant

Telephone: 703-317-4635 

Telecopy: 703-329-0060




32









 











with a copy to:





	 	 	 	Goodwin Procter llp

Exchange Place

53 State Street

Boston, Massachusetts 02109-2881

Attention: Gilbert G. Menna, P.C.

Telephone: 617-570-1433

Telecopy: 617-523-1231





(b) and if to the Agents to:





	 	 	 	Banc of America Securities LLC

100 N. Tryon Street, 7th Floor

Charlotte, NC 28255

Mail Code: NC 1007-07-01

Telecopy: (704) 388-9939







	 	 	 	Citigroup Global Markets Inc.

Medium-Term Note Department

388 Greenwich Street

New York, NY 10013

Telephone: (212) 816-5831

Telecopy: (212) 816-0949






	 	 	 	Fleet Securities, Inc.

100 Federal Street, MADE 10012H

Boston, MA 02110

Attention: John Crees

Telephone: (617) 434-5983

Telecopy: (617) 434-8702






	 	 	 	J.P. Morgan Securities Inc.

270 Park Avenue, 7th Floor

New York, NY 10017

Attention: Transaction Execution Group

Telephone: (212) 834-5710

Telecopy: (212) 834-6702






	 	 	 	Lehman Brothers Inc.

745 Seventh Avenue

New York, NY 10019

Attention: Fixed Income Syndicate/Medium Term Notes Desk

Telephone: (212) 526-9664

Telecopy: (212) 526-0943




33









 












	 	 	 	Morgan Stanley & Co. Incorporated

1585 Broadway

New York, NY 10036

Attention: Legal Department

Telephone: (212) 761-4000

Telecopy: (212) 761-0783







	 	 	 	Wachovia Capital Markets, LLC

301 So. College Street, DC-8

One Wachovia Center

Charlotte, NC 28288

Attention: Corporate Syndicate Desk

Telephone: (704) 383-7727

Telecopy: (704) 383-9165






	 	 	 	with a copy to:






	 	 	 	O’Melveny & Myers llp

275 Battery Street, Suite 2600

San Francisco, CA 94111-3305

Attention: Peter T. Healy, Esq.

Telephone: (415) 984-8833

Telecopy: (415) 984-8701






	 	 	 	Morgan Stanley & Co. Incorporated

1585 Broadway

New York, NY 10036

Attention: Debt Syndicate Desk

Telephone: (212) 761-2000





Any party to this Distribution Agreement may change such address for notices by
sending to the other parties to this Distribution Agreement written notice of a
new address for such purpose.




     15. Parties. This Distribution Agreement shall inure to the benefit of and be
binding upon the Agents and the Company and their respective successors.
Nothing expressed or mentioned in this Distribution Agreement is intended, or
shall be construed, to give any person, firm or corporation, other than the
parties hereto and their respective successors and the controlling persons and
officers and directors referred to in Section 9 hereof and their heirs and
legal representatives, any legal or equitable right, remedy or claim under or
in respect of this Distribution Agreement or any provision herein contained.
This Distribution Agreement and all conditions and provisions hereof are
intended to be for the sole and exclusive benefit of the parties hereto and
respective successors and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Notes shall be deemed to be a
successor by reason merely of such purchase.



34









 






     16. Governing Law. THIS DISTRIBUTION 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.




     17. Counterparts. This Distribution Agreement may be executed in one or more
counterparts, signature pages may be detached from such separately executed
counterparts and reattached to other counterparts and, in each such case, the
executed counterparts hereof shall constitute a single instrument. Signature
pages may be delivered by telecopy.




     18. Enforceability. In case any provision of this Distribution 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.




     19. Waiver of Rights to Trial by Jury. The Company and the Agents 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 Distribution Agreement or the
transactions contemplated hereby.




     20. Amendments and Modifications. This Distribution Agreement may not be
amended or otherwise modified or any provision hereof waived except by an
instrument in writing signed by the Agents and the Company.



[Signature page follows]




35









 








     If the foregoing correctly sets forth the understanding between the
Company and the several Agents, 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 Agents.



	 	 	 	 	 
	 	 	AvalonBay Communities, Inc.
	 
	 	 	 	 
	

	 	By:
	 	/s/ Thomas J. Sargeant
	

	 	 	 	
 
	

	 	Name:
	 	Thomas J. Sargeant
	

	 	Title:
	 	Executive Vice President and
	

	 	 	 	Chief Executive Officer







	 	 	 
	ACCEPTED as of the date first above written:
	 
	 	 
	Banc of America Securities LLC
	 
	 	 
	By:

	 	/s/ Lily Chang
	

	 	
 
	Name:

	 	Lily Chang
	Title:

	 	Principal
	 
	 	 
	Citigroup Global Markets Inc.
	 
	 	 
	By:

	 	/s/ Douglas Sesler
	

	 	
 
	Name:

	 	Douglas Sesler
	Title:

	 	Managing Director
	 
	 	 
	Fleet Securities, Inc.
	 
	 	 
	By:

	 	/s/ John Crees
	

	 	
 
	Name:

	 	John Crees
	Title:

	 	Managing Director
	 
	 	 
	J.P. Morgan Securities Inc.
	 
	 	 
	By:

	 	/s/ Carl J. Mehldau, Jr.
	

	 	
 
	Name:

	 	Carl J. Mehldau, Jr.
	Title:

	 	Vice President
	 
	 	 
	Lehman Brothers Inc.
	 
	 	 
	By:

	 	/s/ Martin Goldberg
	

	 	
 
	Name:

	 	Martin Goldberg
	Title:

	 	Senior Vice President
	 
	 	 







S-1









 






	 	 	 
	MORGAN STANLEY & CO. INCORPORATED
	 
	 	 
	By:

	 	/s/ Michael Fusco
	

	 	
 
	Name:

	 	Michael Fusco
	Title:

	 	Executive Director
	 
	 	 
	Wachovia Capital Markets, LLC
	 
	 	 
	By:

	 	/s/ William Ingram
	

	 	
 
	Name:

	 	William Ingram
	Title:

	 	Managing Director







S-2









 






EXHIBIT A




Terms of Notes




     The following terms, if applicable, shall be agreed to
by an Agent or Agents and the Company in connection with each sale of Notes:



	 	 	 
	Principal Amount: $        

	 	Issue Price (Public Offering Price):        %
	Net Proceeds to Issuer: $        

	 	Agents’ Discount Commission:         %
	Stated Maturity Date:         

	 	Interest Rate:        %
	Original Issue Date:         

	 	CUSIP:         
	Interest Payment Dates:          and         

	 	First Interest Payment Date:         







	 	 	 	 	 	 	 	 	 	 	 
	Redemption:	 	 	 	 	 	 	 	 
	o	 	The Notes cannot be redeemed prior to the Stated Maturity Date at the option of the issuer.	 	 
	o	 	The Notes may be redeemed prior to the Stated Maturity Date at the option of the issuer.	 	 
	 	 	Initial Redemption Date:	 	 	 	 
	 	 	Initial Redemption Percentage/Redemption Price:	 	 	 	 
	 	 	Annual Redemption Percentage Reduction:	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Optional Repayment:	 	 	 	 	 	 
	o	 	The Notes cannot be required to be repaid prior to the Stated Maturity Date at
the option of the Holder of the Notes.	 	 
	o	 	The Notes can be repaid prior to the Stated Maturity Date at the option of the Holder of the Notes.	 	 
	 	 	Optional Repayment Dates:	 	 	 	 
	 	 	Repayment Price: ____%	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Currency:	 	 	 	 	 	 	 	 
	 	 	Specified Currency:	 	 	 	 	 	 
	 	 	(If other than U.S. Dollars, see attached)	 	 	 	 
	 	 	Minimum Denominations:	 	 	 	 	 	 
	 	 	(Applicable only if Specified Currency is other than U.S. Dollars)	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Original Issue Discount (“OID”):	 	o Yes	 	o No	 	 
	 	 	Total Amount of OID:	 	 	 	 	 	 
	 	 	Yield to Maturity:	 	 	 	 	 	 
	 	 	Initial Accrual Period:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Form:

	 	o
	 	Book-Entry
	 	o Certificated	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Agent:	 	o	 	Banc of America Securities LLC	 	o       Lehman Brothers Inc.	 	 
	 	 	o	 	Citigroup Global Markets Inc.	 	o       Morgan Stanley & Co. Incorporated	 	 
	 	 	o	 	Fleet Securities, Inc.	 	o       Wachovia Capital Markets, LLC	 	 
	 	 	o	 	J.P. Morgan Securities Inc.	 	o       Other (names):	 	 







Exhibit A – Page 1









 






	 	 	 	 	 	 	 	 	 	 	 
	Agent acting in the capacity as indicated below:	 	 	 	 
	

	 	o
	 	Agent
	 	o Principal	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	If as Principal:	 	 	 	 	 	 
	 	 	o	 	The Notes are being offered at varying prices related to prevailing market
prices at the time of resale.
	 	 	o	 	The Notes are being offered at a fixed initial public offering price
of ____% of principal amount.
	 
	 	 	 	 	 	 	 	 	 	 
	If as Agent:	 	 	 	 	 	 
	 	 	The Notes are being offered at a fixed initial public offering price of __% of Principal Amount.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Exchange Rate Agent:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Additional/Other Terms:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	Also, in connection with the purchase of Notes by an Agent as principal,
agreement as to whether the following will be required:
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	o	 	Officers’ Certificate pursuant to Section 8(b) of the Distribution Agreement.
	 	 	o	 	Legal Opinions of Company Counsel pursuant to Section 8(c) of the Distribution Agreement.
	 	 	o	 	Legal Opinion of Agents Counsel pursuant to Section 6(c) of the Distribution Agreement.
	 	 	o	 	Comfort Letter pursuant to Section 8(d) of the Distribution Agreement.
	 	 	o	 	Stand-off Agreement pursuant to Section 5(r) of the Distribution Agreement.







Exhibit A – Page 2









 






EXHIBIT B




Administrative Procedures Agreement




AVALONBAY COMMUNITIES, INC.

MEDIUM-TERM NOTE PROGRAM




ADMINISTRATIVE PROCEDURES




     The Medium-Term Notes Due Nine Months or More from Date of Issue (the
“Notes”) are to be offered on a continuous basis by AvalonBay Communities,
Inc., a Maryland corporation (the “Issuer”). Banc of America Securities LLC,
Citigroup Global Markets Inc., Fleet Securities, Inc., J.P. Morgan Securities
Inc., Lehman Brothers Inc., Morgan Stanley & Co. Incorporated, and Wachovia
Capital Markets, LLC, (the “Agents”), have each agreed to use their best
efforts to solicit purchases of the Notes. The Issuer reserves the right to
sell Notes directly or indirectly on its own behalf to investors (other than
broker-dealers). The Agents will not be obligated to, but may from time to
time, purchase Notes as principal for their own account. The Notes are being
sold pursuant to a Distribution Agreement dated August 6, 2003 (the “Agency
Agreement”), among the Issuer, and the Agents, and will be issued pursuant to
an indenture dated as of January 16, 1998 and all indentures supplemental
thereto, including that certain First Supplemental Indenture, dated as of
January 20, 1998, that certain Second Supplemental Indenture, dated as of July
7, 1998, and that certain Amended and Restated Third Supplemental Indenture,
dated as of July 10, 2000 (collectively, the “Indenture”), between the Issuer
and US Bank, National Association (as successor to State Street Bank and Trust
Company), as Trustee (the “Trustee”). Capitalized terms used herein and not
defined herein shall have the meanings ascribed to such terms in the Agency
Agreement. The Notes have been registered under the Securities Act of 1933, as
amended (the “Act”).



     Each Note will be represented by either a Global Security (as defined in
the Indenture), such Global Security, for purposes hereof either a global note
(a “Global Note”) or a master note (a “Master Note”), registered in the name of
a nominee of The Depository Trust Company, as Depositary (“DTC”) (a “Book-Entry
Note”), or a certificate issued in definitive form (a “Certificated Note”). It
is currently contemplated that both Notes that bear interest at a fixed rate (a
“Fixed Rate Note”) and Notes that bear interest at a variable rate (a “Floating
Rate Note”) and that are denominated and payable in U.S. dollars may be issued
as Book-Entry Notes.



     Administrative procedures and specific terms of the offering are explained
below. The Issuer will advise the Agents in writing of those persons handling
administrative responsibilities with whom the Agents are to communicate
regarding offers to purchase Notes and the details of their delivery.
Administrative procedures may be modified from time to time as reflected in the
applicable Pricing Supplement (as defined below) or elsewhere.



Exhibit B – Page 1









 





PART I




ADMINISTRATIVE PROCEDURES FOR CERTIFICATED NOTES

AND GENERALLY APPLICABLE ADMINISTRATIVE PROCEDURES




	 	 	 
	Issue/Authentication Date:

	 	Each Note shall be dated as of the date of its authentication
by the Trustee or an agent designated by the Issuer for such
purpose (the “Designated Agent”). Each Note will also bear an
original issue date (the “Issue Date”) which, with respect to
any Note (or portion thereof), shall mean the date of its
original issuance (i.e., the settlement date) and shall be
specified therein. The issue date will remain the same for all
Notes subsequently issued upon transfer, exchange or
substitution of an original Note regardless of their dates of
authentication.
	 
	 	 
	Maturities:

	 	Each Note shall mature on a Business Day, selected by the
purchaser and agreed to by the Issuer, which shall be nine
months or more from the date of issue.
	 
	 	 
	Price to Public:

	 	Each Note shall be issued at 100% of principal amount unless
otherwise specified in a supplement to the Prospectus (a
“Pricing Supplement”).
	 
	 	 
	Denominations:

	 	The denominations of the Notes shall be $1,000 and integral
multiples of $1,000 in excess thereof. (Any Notes denominated
other than in U.S. dollars will be issuable in denominations as
set forth in such Notes.)
	 
	 	 
	Registration:

	 	Notes shall be issued only in fully registered form.
	 
	 	 
	Minimum Purchase:

	 	The minimum aggregate amount of Notes denominated and payable
in U.S. dollars which may be offered to any purchaser will be
$1,000.
	 
	 	 
	Interest:

	 	General. Each Note shall bear interest in accordance with its
terms, as described in the Prospectus Supplement (as defined in
the Agency Agreement), as supplemented by the applicable
Pricing Supplement.
	 
	 	 
	Calculation of Interest:

	 	Interest on Fixed Rate Notes and interest rates on Floating
Rate Notes will be determined as set forth in the form of
Notes. With respect to Floating Rate Notes, the Calculation
Agent shall determine the interest rate for each Interest Reset
Date and communicate such interest rate to the Issuer, and the
Issuer will promptly notify the Trustee, or the







Exhibit B – Page 2









 






	 	 	 
	

	 	Designated
Agent, and the Paying Agent of each such determination.
	 
	 	 
	Payments of Interest and Principal:

	 	All interest payments (excluding interest payments made at
maturity) will be made by check mailed to the person entitled
thereto; provided, however, that if a holder of one or more
Notes of like tenor and terms with an aggregate principal
amount equal to or greater than U.S. $10,000,000 (or the
equivalent thereof in foreign currencies or currency units)
shall designate in writing to the Paying Agent at its corporate
trust office in The City of New York on or prior to the Regular
Record Date relating to the Interest Payment Date an
appropriate account with a bank, the Paying Agent will, subject
to applicable laws and regulations and until it receives notice
to the contrary, make such payment and all succeeding payments
to such person by wire transfer to the designated account. If
a payment cannot be made by wire transfer because the
information received by the Paying Agent is incomplete, a
notice will be mailed to the holder at its registered address
requesting such information. Upon presentation of the relevant
Note, the Trustee, or the Designated Agent, (or any duly
appointed Paying Agent) will pay in immediately available funds
the principal amount of such Note at maturity and accrued
interest, if any, due at maturity; provided that the Note is
presented to the Trustee, or the Designated Agent, (or any such
Paying Agent) to make payments in accordance with its normal
procedures. The Issuer will provide the Trustee, or the
Designated Agent, (and any such Paying Agent) with funds
available for such purpose. Notes presented to the Trustee, or
the Designated Agent, at maturity for payment will be canceled
and destroyed by the Trustee, or the Designated Agent, and a
certificate of destruction will be delivered to the Issuer. On
the fifth Business Day (as defined below) immediately preceding
each interest payment date, the Trustee, or the Designated
Agent, will furnish to the Issuer a statement showing the total
amount of the interest payments to be made on such interest
payment date. The Trustee, or the Designated Agent, will
provide monthly to the Issuer a list of the principal and
interest to be paid on Notes maturing in the next succeeding
six months. The Trustee, or the Designated Agent, will assume
required by law.







Exhibit B – Page 3









 






	 	 	 
	Acceptance of Offers

	 	The Agents will promptly advise the Issuer of each reasonable
offer to purchase Notes received by it, other than those
rejected by the Agents. The Agents may, in their discretion
reasonably exercised, without notice to the Issuer, reject any
offer received by it, in whole or in part. The Issuer will
have the right to withdraw, cancel or modify such offer without
notice and will have the sole right to accept offers to
purchase Notes and may reject any such offer, in whole or in
part. If the Issuer rejects an offer, the Issuer will promptly
notify the Agents.
	 
	 	 
	Settlement:

	 	All offers accepted by the Issuer will be settled on the third
Business Day next succeeding the date of acceptance unless
otherwise agreed by any purchaser, the Agents and the Issuer.
The settlement date shall be specified upon receipt of an
offer. Prior to 3:00 p.m., New York City time, on the business
day prior to the settlement date, the Issuer will instruct the
Trustee, or the Designated Agent, to authenticate and deliver
the Notes pursuant to the terms communicated by the Presenting
Agent (as defined below) pursuant to the next succeeding
section no later than 2:15 p.m., New York City time, on that
day.
	 
	 	 
	Details for Settlement

	 	For each offer accepted by the Issuer, the Agent who presented
the offer (the “Presenting Agent”) shall communicate to the
Issuer, Attention: Thomas J. Sargeant, CFO (Fax No.: (703)
329-0060) who will provide a copy to the Trustee, Attention: Ward Spooner (Fax No.: (212) 361-6153) and the Designated
Agent, if any, by facsimile transmission or other acceptable
means the following information (the “Purchase Information”):








	 	•	 	Exact name in which the Note or Notes are to be registered
(“registered owner”).
	 
	 	•	 	Exact address of registered owner.
	 
	 	•	 	Taxpayer identification number of registered owner.
	 
	 	•	 	Principal amount of each Note to be delivered to the
registered owner.
	 
	 	•	 	Specified Currency and, if other than U.S. dollar,
denominations.




Exhibit B – Page 4









 






	 	•	 	In the case of a Fixed Rate Note, the interest rate or, in
the case of a Floating Rate Note, the interest rate formula,
the Initial Interest Rate (if known at such time), Index
Maturity, Interest Reset Period, Interest Reset Dates, Spread
or Spread Multiplier (if any), minimum interest rate (if any)
and maximum interest rate (if any).
	 
	 	•	 	Interest Payment Period and Interest Payment Dates.
	 
	 	•	 	Maturity Date of Notes.
	 
	 	•	 	Issue Price of Notes.
	 
	 	•	 	Settlement date for Notes.
	 
	 	•	 	Presenting Agent’s commission (to be paid in the form of a
discount from the proceeds remitted to the Issuer upon
settlement).
	 
	 	•	 	Redemption provisions, if any.
	 
	 	•	 	Repayment provisions, if any.
	 
	 	•	 	Original issue discount provisions, if any.
	 
	 	•	 	In the case of Currency Indexed Notes, the above-listed
information, as applicable and the Base Exchange Rate(s), Base
Interest Rate and Indexed Currencies.
	 
	 	•	 	In the case of Dual Currency Notes, the above listed
information, as applicable, and the Optional Payment Currency,
Designated Exchange Rate and Option Election Dates.






The issue date of, and the settlement date for, Notes will be
the same. Before accepting any offer to purchase Notes to be
settled in less than three days, the Issuer shall verify that
the Trustee, or the Designated Agent, will have adequate time
to prepare and authenticate the Notes. Prior to preparing the
Notes for delivery, the Trustee, or the Designated Agent, will
confirm the Purchase Information by telephone with the
Presenting Agent and the Issuer.




Exhibit B – Page 5










 






	 	 	 
	Confirmation:

	 	For each accepted offer, the Presenting Agent will issue a
confirmation, in writing, telephonically or through any other
commonly used method of communication to the purchaser and a
confirmation to the Issuer, Attention: Thomas J. Sargeant, CFO
(Fax No.: (703) 329-0060).
	 
	 	 
	Note Deliveries and
Cash Payment:

	 	Upon the receipt of appropriate documentation and instructions
from the Issuer and verification thereof, the Trustee, or the
Designated Agent, will cause the Notes to be prepared and
authenticated and hold the Notes for delivery against payment.
	 
	 	 
	

	 	The Trustee, or the Designated Agent, will deliver the Notes,
in accordance with instructions from the Issuer, to the
Presenting Agent, as the Issuer’s agent, for the benefit of the
purchaser only against payment in immediately available funds
in an amount equal to the face amount of the Notes less the
Presenting Agent’s commission plus any premium or less any
discount; provided, however, that the Trustee, or the
Designated Agent, may deliver Notes to the Presenting Agent
against receipt therefor and, later the same day, receipt of
such funds in such amount. Upon receipt of such payment, the
Trustee, or the Designated Agent, shall pay promptly an amount
equal thereto to the Issuer in immediately available funds by
wire transfer to the following account of the Issuer:







	 	 	 	 
	 	Bank Name:

	 	Bank of America
	 	Account Name:

	 	AvalonBay Communities, Inc.
	 	 
	 	Concentration Account
	 	Account Number:

	 	3752291106
	 	ABA Number:

	 	111000012







	 	 	 
	

	 	The Presenting Agent, as the Issuer’s agent, will deliver the
Notes (with the written confirmation provided for above) to the
purchaser thereof against payment by such purchaser in
immediately available funds. Delivery of any confirmation or
Note will be made in compliance with “Delivery of Prospectus”
below.
	 
	 	 
	Failure of Purchaser:

	 	In the event that a purchaser shall fail to accept delivery of
and make payment for a Note on the settlement date, the
Presenting Agent will notify the Trustee or the Designated
Agent and the Issuer, by telephone, confirmed in writing. If
the Note has been delivered to the Presenting Agent, as the
Issuer’s agent, the Presenting Agent shall return such Note







Exhibit B – Page 6









 






	 	 	 
	

	 	to the Trustee, or the Designated Agent. If funds have been
advanced for the purchase of such Note, the Trustee, or the
Designated Agent, will, immediately upon receipt of such Note
contact the Issuer to the attention of Thomas J. Sargeant, CFO
(Fax No.: (703) 329-0060) advising the Issuer of such failure.
At such time, the Issuer will refund the payment previously
made by the Presenting Agent in immediately available funds.
Such payments will be made on the settlement date, if possible,
and in any event not later than the business day following the
settlement date. If such failure shall have occurred for any
reason other than the failure of the Presenting Agent to
provide the Purchase Information to the Issuer or to provide a
confirmation to the purchaser, the Issuer will reimburse the
Presenting Agent on an equitable basis for its loss of the use
of funds during the period when they were credited to the
account of the Issuer.
	 
	 	 
	

	 	Immediately upon receipt of the Note in respect of which the
failure occurred, the Trustee, or the Designated Agent, will
cause the Security Registrar to make appropriate entries to
reflect the fact that the Note was never issued and will
destroy the Note.
	 
	 	 
	Procedure for Rate

Changes:

	 	The Issuer and the Agents will discuss from time to time the
price of, and the rates to be borne by, the Notes that may be
sold as a result of the solicitation of offers by the Agent.
Once an Agent has recorded any indication of interest in Notes
upon certain terms, and communicated with the Issuer, if the
Issuer plans to accept an offer to purchase Notes upon such
terms, it will prepare a Pricing Supplement to the Prospectus,
as then amended or supplemented, reflecting the terms of such
Notes and will arrange to transmit such Pricing Supplement to
the Commission for filing in accordance with and within the
time prescribed by the applicable paragraph of Rule 424(b)
under the Act. The Issuer will supply at least two copies of
the Prospectus as then amended or supplemented, and bearing
such Pricing Supplement, to the Presenting Agent. The Issuer
shall use its reasonable best efforts to send such Pricing
Supplement by telecopy or overnight express (for delivery by
the close of business on the applicable trade date, but in no
event later than 11:00 a.m. New York City time, on the Business
Day following the applicable trade date) to the Presenting
Agent and the Trustee at the







Exhibit B – Page 7









 






	 	 	 
	

	 	following applicable address:







	 	 	 	 	 
	

	 	If to:
	 	Banc of America Securities LLC
	

	 	to both:
	 	Continuously Offered Products
	

	 	 	 	100 No. Tryon Street
	

	 	 	 	Charlotte, NC 28255
	

	 	 	 	Mail Code: NC 1007-07-01
	

	 	 	 	Telecopy Number: (704) 388-99391
	 
	 	 	 	 
	

	 	 	 	and
	 
	 	 	 	 
	

	 	 	 	Syndicate Operations
	

	 	 	 	100 North Tryon Street
	

	 	 	 	Charlotte, NC 28255
	

	 	 	 	Mail Code: NC 1007-07-01
	

	 	 	 	Telecopy Number: (704) 388-92122
	 
	 	 	 	 
	

	 	if to:
	 	Citigroup Global Markets Inc.
	

	 	to:
	 	Attention: Annabelle Avila
	

	 	 	 	Brooklyn Army Terminal
	

	 	 	 	140 58th Street,
8th Floor
	

	 	 	 	Brooklyn, NY 11220
	

	 	 	 	Telephone Number: (718) 765-6725
	

	 	 	 	Telecopy Number: (718) 765-6734
	 
	 	 	 	 
	

	 	if to:
	 	Fleet Securities, Inc.
	

	 	to:
	 	Attention: John Crees
	

	 	 	 	100 Federal Street MADE 10012H
	

	 	 	 	Boston, MA 02110
	

	 	 	 	Telephone Number: (617) 434-5983
	

	 	 	 	Telecopy Number: (617) 434-8702
	 
	 	 	 	 
	

	 	if to:
	 	J.P. Morgan Securities Inc.
	

	 	to:
	 	Attention: Medium-Term Note Desk
	

	 	 	 	270 Park Avenue, 8th Floor
	

	 	 	 	New York, NY 10017
	

	 	 	 	Telephone Number: (212) 834-4421
	

	 	 	 	Telecopy Number: (212) 834-60813
	 
	 	 	 	 
	

	 	if to:
	 	Lehman Brothers Inc.
	

	 	to:
	 	Attention: Fixed Income Syndicate/













	 	 	1 Please send by telecopy rather than mail.
	 
	 	 	2 Please send by telecopy rather than mail.
	 
	 	 	3 Please send by telecopy with original to follow by mail.






Exhibit B – Page 8










 





	 	 	 	 	 
	

	 	 	 	Medium Term Notes Desk
	

	 	 	 	745 Seventh Avenue
	

	 	 	 	New York, NY 10019
	

	 	 	 	Telephone Number: (212) 526-9664
	

	 	 	 	Telecopy Number: (212) 526-0943
	 
	 	 	 	 
	

	 	 	 	with a copy to:
	 
	 	 	 	 
	

	 	 	 	ADP Prospectus Services
	

	 	 	 	For Lehman Brothers Inc.
	

	 	 	 	Attention: Client Services Desk
	

	 	 	 	1155 Long Island Avenue
	

	 	 	 	Edgewood, NY 11717
	

	 	 	 	Telecopy Number: (631) 254-7268
	 
	

	 	if to:
	 	Morgan Stanley & Co. Incorporated
	

	 	to:
	 	Attention: Legal Department
	

	 	 	 	1585 Broadway
	

	 	 	 	New York, NY 10036
	

	 	 	 	Telephone Number: (212) 761-4000
	

	 	 	 	Telecopy Number: (212) 761-0783
	 
	 	 	 	 
	

	 	 	 	with a copy to:
	 
	 	 	 	 
	

	 	 	 	Morgan Stanley & Co. Incorporated
	

	 	 	 	Attention: Debt Syndicate Desk
	

	 	 	 	1585 Broadway
	

	 	 	 	New York, NY 10036
	

	 	 	 	Telephone Number: (212) 761-2000
	 
	 	 	 	 
	

	 	if to:
	 	Wachovia Capital Markets, LLC
	

	 	to:
	 	Attention: Corporate Syndicate Desk
	

	 	 	 	301 South College St., DC-8
	

	 	 	 	One Wachovia Center
	

	 	 	 	Charlotte, NC 28288
	

	 	 	 	Telephone Number: 704-383-7727
	

	 	 	 	Telecopy Number: 704-383-9165
	 
	 	 	 	 
	

	 	if to:
	 	US Bank, National Association (the Trustee)
	

	 	to:
	 	Attention: Ward Spooner
	

	 	 	 	100 Wall Street
	

	 	 	 	New York, NY 10005
	

	 	 	 	Telephone Number: (212) 361-6175
	

	 	 	 	Telecopy Number: (212) 361-6153







Exhibit B – Page 9









 






	 	 	 	 
	

	 	 	 	and to: the Designated Agent, if any.







	 	 
	 	For record keeping purposes, one copy of such Pricing
Supplement shall also be mailed to:








	 	 
	 	O’Melveny & Myers LLP

	 	275 Battery Street, Suite 2600

	 	San Francisco, CA 94111-3305

	 	Attention: Peter T. Healy, Esq.

	 	Telecopy Number: (415) 984-8701








	 	 
	 	and








	 	 
	 	Goodwin Procter LLp

	 	Exchange Place

	 	53 State Street

	 	Boston, MA 02109-2281

	 	Attention: Gilbert G. Menna, P.C.

	 	Telephone Number: (617) 570-1433

	 	Telecopy Number: (617) 523-1231









In each instance that a Pricing Supplement is prepared, the
Presenting Agent will provide a copy of such Pricing Supplement
to each investor or purchaser of the relevant Notes or its
agent. Pursuant to Rule 434 of the Securities Act of 1933, as
amended, the Pricing Supplement may be delivered separately
from the Prospectus. No settlements with respect to Notes upon
such terms may occur prior to such transmitting and such Agent
will not, prior to such transmitting, mail confirmations to
customers who have offered to purchase Notes upon such terms.
After such transmitting, sales, mailing of confirmations and
settlements may occur with respect to Notes upon such terms,
subject to the provisions of “Delivery of Prospectus” below.




Outdated Pricing Supplements and copies of the Prospectus to
which they are attached (other than those retained for files),
will be destroyed.



	 	 	 
	Suspension of Solicitation; Amendment or Supplement:

	 	As provided in the Agency Agreement, the Issuer may suspend
solicitation of purchases at any time and, upon receipt of
notice from the Issuer, the Agents will, as promptly as
practicable, but in no event later than one business day
following such notice, suspend solicitation until such time as
the Issuer has advised them that







Exhibit B – Page 10









 






	 	 	 
	 	 	 solicitation of purchases may
be resumed. If the Agents receive the notice from the Issuer
contemplated by Section 4(b) of the Agency Agreement, they will
promptly suspend solicitation and will only resume solicitation
as provided in the Agency Agreement. If the Issuer decides to
amend or supplement the Registration Statement or the
Prospectus relating to the Notes, it will promptly advise the
Agents and will furnish the Agents with the proposed amendment
or supplement in accordance with the terms of the Agency
Agreement. The Issuer will promptly file or mail to the
Commission for filing such amendment or supplement, provide the
Agents with copies of any such amendment or supplement, confirm
to the Agents that such amendment or supplement has been filed
with the Commission and advise the Agents that solicitation may
be resumed. Any such suspension shall not affect the Issuer’s
obligations under the Agency Agreement; and in the event that
at the time the Issuer suspends solicitation of purchases there
shall be any offers already accepted by the Issuer outstanding
for settlement, the Issuer will have the sole responsibility
for fulfilling such obligations; the Agents will make
reasonable efforts to assist the Issuer to fulfill such
obligations, but the Agents will not be obligated to fulfill
such obligations. The Issuer will in addition promptly advise
the Agents and the Trustee, or the Designated Agent, if such
offers are not to be settled and if copies of the Prospectus as
in effect at the time of the suspension may not be delivered in
connection with the settlement of such offers.
	 
	Delivery of Prospectus:

	 	A copy of the Prospectus, as most recently amended or
supplemented on the date of delivery thereof (except as
provided below), must be delivered to a purchaser prior to or
together with the earlier of delivery of (i) the written
confirmation provided for above, and (ii) any Note purchased by
such purchaser at the following address:







	 	 	 	 
	 	If to:

	 	Banc of America Securities LLC
	 	to both:

	 	Continuously Offered Products
	 	

	 	100 No. Tryon Street
	 	

	 	Charlotte, NC 28255
	 	

	 	Mail Code: NC 1007-07-01
	 	

	 	Telecopy Number: (704) 388-99394








4 Please send by telecopy rather than mail.





Exhibit B – Page 11










 






	 	 	 	 	 
	 
	 	 	 	and
	 
	 	 	 	 
	

	 	 	 	Syndicate Operations
	

	 	 	 	100 North Tryon Street
	

	 	 	 	Charlotte, NC 28255
	

	 	 	 	Mail Code: NC 1007-07-01
	

	 	 	 	Telecopy Number: (704) 388-92125
	 
	 	 	 	 
	

	 	if to:
	 	Citigroup Global Markets Inc.
	

	 	to:
	 	Attention: Annabelle Avila
	

	 	 	 	Brooklyn Army Terminal
	

	 	 	 	140 58th Street, 8th Floor
	

	 	 	 	Brooklyn, NY 11220
	

	 	 	 	Telephone Number: (718) 765-6725
	

	 	 	 	Telecopy Number: (718) 765-6734
	 
	 	 	 	 
	

	 	if to:
	 	Fleet Securities, Inc.
	

	 	to:
	 	Attention: John Crees
	

	 	 	 	100 Federal Street MADE 10012H
	

	 	 	 	Boston, MA 02110
	

	 	 	 	Telephone Number: (617) 434-5983
	

	 	 	 	Telecopy Number: (617) 434-8702
	 
	 	 	 	 
	

	 	if to:
	 	J.P. Morgan Securities Inc.
	

	 	to:
	 	Attention: Medium-Term Note Desk
	

	 	 	 	270 Park Avenue, 8th Floor
	

	 	 	 	New York, NY 10017
	

	 	 	 	Telephone Number: (212) 834-4421
	

	 	 	 	Telecopy Number: (212) 834-60816
	 
	 	 	 	 
	

	 	if to:
	 	Lehman Brothers Inc.
	

	 	to:
	 	Attention: Fixed Income Syndicate/
	

	 	 	 	Medium Term Notes Desk
	

	 	 	 	745 Seventh Avenue
	

	 	 	 	New York, NY 10019
	

	 	 	 	Telephone Number: (212) 526-9664
	

	 	 	 	Telecopy Number: (212) 526-0943
	 
	 	 	 	 
	

	 	 	 	with a copy to:
	 
	 	 	 	 
	

	 	 	 	ADP Prospectus Services
	

	 	 	 	For Lehman Brothers Inc.







_____________________





	 	 	5 Please send by telecopy rather than mail.
	 
	 	 	6 Please send by telecopy with original to follow by mail.






Exhibit B – Page 12









 








	 	 	 	 	 
	

	 	 	 	Attention: Client Services Desk
	

	 	 	 	1155 Long Island Avenue
	

	 	 	 	Edgewood, NY 11717
	

	 	 	 	Telecopy Number: (631) 254-7268
	 
	 	 	 	 
	

	 	if to:
	 	Morgan Stanley & Co. Incorporated
	

	 	to:
	 	Attention: Legal Department
	

	 	 	 	1585 Broadway
	

	 	 	 	New York, NY 10036
	

	 	 	 	Telephone Number: (212) 761-4000
	

	 	 	 	Telecopy Number: (212) 761-0783
	 
	 	 	 	 
	

	 	 	 	with a copy to:
	 
	 	 	 	 
	

	 	 	 	Morgan Stanley & Co. Incorporated
	

	 	 	 	Attention: Debt Syndicate Desk
	

	 	 	 	1585 Broadway
	

	 	 	 	New York, NY 10036
	

	 	 	 	Telephone Number: (212) 761-2000
	 
	 	 	 	 
	

	 	if to:
	 	Wachovia Capital Markets, LLC
	

	 	to:
	 	Attention: Corporate Syndicate Desk
	

	 	 	 	301 South College St., DC-8
	

	 	 	 	One Wachovia Center
	

	 	 	 	Charlotte, NC 28288
	

	 	 	 	Telephone Number: 704-383-7727
	

	 	 	 	Telecopy Number: 704-383-9165
	 
	 	 	 	 
	

	 	if to:
	 	US Bank, National Association (the Trustee)
	

	 	to:
	 	Attention: Ward Spooner
	

	 	 	 	100 Wall Street
	

	 	 	 	New York, NY 10005
	

	 	 	 	Telephone Number: (212) 361-6175
	

	 	 	 	Telecopy Number: (212) 361-6153
	 
	 	 	 	 
	

	 	and to:
	 	the Designated Agent, if any.
	 
	 	 	 	 








For record keeping purposes, one copy of such Pricing

Supplement shall also be mailed to:



Exhibit B – Page 13









 





	 	 	 	 	 
	

	 	 	 	O’Melveny & Myers LLP
	

	 	 	 	275 Battery Street, Suite 2600
	

	 	 	 	San Francisco, CA 94111-3305
	

	 	 	 	Attention: Peter T. Healy, Esq.
	

	 	 	 	Telecopy Number: (415) 984-8701
	 
	 	 	 	 
	

	 	and	 	 
	 
	 	 	 	 
	 

	 	 	 	Goodwin Procter llp
	

	 	 	 	Exchange Place
	

	 	 	 	53 State Street
	

	 	 	 	Boston, MA 02109-2281
	

	 	 	 	Attention: Gilbert G. Menna, P.C.
	

	 	 	 	Telephone Number: (617) 570-1433
	

	 	 	 	Telecopy Number: (617) 523-1231







	 	 	 
	

	 	The Issuer shall ensure that the Presenting Agent receives
copies of the Prospectus and each amendment or supplement
thereto (including appropriate Pricing Supplements) in such
quantities and within such time limits as will enable the
Presenting Agent to deliver such confirmation or Note to a
purchaser as contemplated by these procedures and in compliance
with the preceding sentence. If, since the date of acceptance
of a purchaser’s offer, the Prospectus shall have been
supplemented solely to reflect any sale of Notes on terms
different from those agreed to between the Issuer and such
purchaser or a change in posted rates not applicable to such
purchaser, such purchaser shall not receive the Prospectus as
supplemented by such new supplement, but shall receive the
Prospectus as supplemented to reflect the terms of the Notes
being purchased by such purchaser and otherwise as most
recently amended or supplemented on the date of delivery of the
Prospectus.
	 
	 	 
	Authenticity of
Signatures:

	 	The Issuer will cause the Trustee, or the Designated Agent, to
furnish the Agent from time to time with the specimen
signatures of each of the officers, employees or agents of the
Trustee, or the Designated Agent, who have been authorized by
the Trustee, or the Designated Agent, respectively, to
authenticate Notes, but the Agent will have no obligation or
liability to the Issuer or the Trustee, or the Designated
Agent, in respect of the authenticity of the signature of any
officer, employee or agent of the Issuer or the Trustee, or the
Designated Agent, on any Note.







Exhibit B – Page 14









 






	 	 	 
	Advertising Cost:

	 	The Issuer and the Company will determine with the Agent the
amount of advertising that may be appropriate in offering the
Notes.
	 
	 	 
	Business Day:

	 	“Business Day” means any day (other than a Saturday, Sunday or
legal holiday) on which banking institutions in The City of New
York are open for business (and, (i) with respect to LIBOR
Notes which is also a day on which dealings in the Specified
Currency, or if no currency is so specified, in deposits in
U.S. dollars, are transacted in the London interbank market,
and (ii) with respect to Notes denominated in a Specified
Currency other than U.S. dollars, on which banking institutions
in the principal financial center of the country of the
Specified Currency are open for business).







Exhibit B – Page 15









 






PART II




ADMINISTRATIVE PROCEDURES FOR GLOBAL NOTE METHOD

OF BOOK-ENTRY NOTES




     The following explains the administrative procedures for the Global Note
method of the DTC book-entry system. Any reference to “Book-Entry Notes” in
this Part II refers to the Global Note method (for a discussion of the Master
Note method of the DTC book-entry system, see Part III below). Certain
generally applicable administrative procedures are set forth in Part I above
(See “Issue/Authentication Date,” “Price to Public,” “Minimum Purchase,”
“Authenticity of Signatures,” “Advertising Cost,” and “Business Day”). In
connection with the qualification of the Book-Entry Notes for eligibility in
the book-entry system maintained by DTC, the Trustee will perform the
custodial, document control and administrative functions described below, in
accordance with its respective obligations under a Letter of Representations
(the “Letter”) from the Issuer and the Trustee to DTC dated December 21, 1998,
and a Medium-Term Note Certificate Agreement between the Trustee and DTC and
its obligations as a participant in DTC, including DTC’s Same-Day Funds
Settlement System (“SDFS”). Both Fixed and Floating Rate Notes denominated and
payable in U.S. dollars may be issued in book-entry form. Single and
Multi-Indexed Notes may also be issued in book-entry form.



	 	 	 
	Issuance:

	 	On any date of settlement (as defined under “Settlement”
below) for one or more Book-Entry Notes, the Issuer will
issue a single global security in fully registered form
without coupons (a “Global Note”) representing up to
$150,000,000 principal amount of all such Notes that have
the same Stated Maturity, redemption provisions, if any,
repayment provisions, if any, Interest Payment Dates,
Original Issue Date, original issue discount provisions,
if any, and, in the case of Fixed Rate Notes, interest
rate, or in the case of Floating Rate Notes, interest
rate formula, initial interest rate, Index Maturity,
Interest Reset Period, Interest Reset Dates, Spread or
Spread Multiplier (if any), minimum interest rate (if
any) and maximum interest rate (if any) and, in the case
of Fixed Rate Notes or Floating Rate Notes that are also
Currency Indexed Notes, Specified Currency, Indexed
Currency, Face Amount and Base Exchange Rate and the Base
Interest Rate, if any, or that are also other Indexed
Notes, the same terms (all of the foregoing are
collectively referred to as the “Terms”). Each Global
Note will be dated and issued as of the date of its
settlement date, which will be (i) with respect to an
original Global Note (or any portion thereof), its
original issue date, and (ii) following a consolidation
of Global Notes, the most recent Interest Payment Date to
which interest has been paid or duly provided for on the
predecessor Global Notes, regardless of the date of
authentication of such subsequently







Exhibit B – Page 16









 






	 	 	 
	

	 	issued Global Note.
Each Book-Entry Note will be deemed to have been dated
and issued as of the settlement date, which date shall be
the Original Issue Date. No Global Note will represent
any Certificated Note.
	 
	 	 
	Identification

Numbers:

	 	The Issuer has arranged with the CUSIP Service Bureau of
Standard & Poor’s Ratings Services (the “CUSIP Service
Bureau”) for the reservation of a series of CUSIP numbers
consisting of approximately 900 CUSIP numbers relating to
Book-Entry Notes. The Trustee, the Issuer and DTC have
obtained from the CUSIP Service Bureau a written list of
such reserved CUSIP numbers. The Trustee will assign
CUSIP numbers to Global Notes as described below under
Settlement Procedure “B”. DTC will notify the CUSIP
Service Bureau periodically of the CUSIP numbers that the
Trustee has assigned to Global Notes. The Trustee will
notify the Issuer at any time when fewer than 100 of the
reserved CUSIP numbers remain unassigned to Global Notes,
and, if it deems necessary, the Issuer will reserve
additional CUSIP numbers for assignment to Global Notes
representing Book Entry Notes. Upon obtaining such
additional CUSIP numbers, the Issuer shall deliver a list
of such additional CUSIP numbers to the Trustee and DTC.
	 
	 	 
	Registration:

	 	Each Global Note will be issued only in fully registered
form without coupons. Each Global Note will be
registered in the name of Cede & Co., as nominee for DTC,
on the Securities Register maintained under the
Indenture. The beneficial owner of a Book-Entry Note (or
one or more indirect participants in DTC designated by
such owner) will designate one or more participants in
DTC (with respect to such Note, the “Participants”) to
act as agent or agents for such owner in connection with
the book-entry system maintained by DTC, and DTC will
record in book-entry form, in accordance with
instructions provided by such Participants, a credit
balance with respect to such Note in the account of such
Participants. The ownership interest of such beneficial
owner in such Note will be recorded through the records
of such Participants or through the separate records of
such Participants and one or more indirect participants
in DTC.
	 
	 	 
	Transfers:

	 	Transfers of a Book-Entry Note will be accomplished by
book entries made by DTC and, in turn, by Participants
(and, in certain cases, one or more indirect participants
in DTC acting on behalf of beneficial transferors and
transferees of such







Exhibit B – Page 17









 






	 	 	 
	

	 	Note).
	 
	 	 
	Exchanges:

	 	The Trustee may deliver to DTC and the CUSIP Service
Bureau at any time a written notice of consolidation (a
copy of which shall be attached to the Global Note
resulting from such consolidation) specifying (i) the
CUSIP numbers set forth on two or more outstanding Global
Notes that represent Book-Entry Notes having the same
Terms and for which interest has been paid to the same
date, (ii) a date, occurring at least thirty days after
such written notice is delivered and at least thirty days
before the next Interest Payment Date for such Book-Entry
Notes, on which such Global Notes shall be exchanged for
a single replacement Global Note and (iii) a new CUSIP
number to be assigned to such replacement Global Note.
Upon receipt of such a notice, DTC will send to its
Participants (including the Trustee) a written
reorganization notice to the effect that such exchange
will occur on such date. Prior to the specified exchange
date, the Trustee will deliver to the CUSIP Service
Bureau a written notice setting forth such exchange date
and the new CUSIP number and stating that, as of such
exchange date, the CUSIP numbers of the Global Notes to
be exchanged will no longer be valid. On the specified
exchange date, the Trustee will exchange such Global
Notes for a single Global Note bearing the new CUSIP
number and a new Original Issue Date and the CUSIP
numbers of the exchanged Global Notes will, in accordance
with CUSIP Service Bureau procedures, be canceled and not
immediately reassigned. Notwithstanding the foregoing,
if the Global Notes to be exchanged exceed $150,000,000
in aggregate principal amount, one Global Note will be
authenticated and issued to represent each $150,000,000
of principal amount of the exchanged Global Notes and an
additional Global Note will be authenticated and issued
to represent any remaining principal amount of such
Global Notes (see “Denominations” below).
	 
	 	 
	 
Maturities:

	 	Each Book-Entry Note will mature on a Business Day nine
months or more from the settlement date for such Note.
	 
	 	 
	Notice of Repayment
Terms:

	 	With respect to each Book-Entry Note that is repayable at
the option of the Holder, the Trustee will furnish DTC on
the settlement date pertaining to such Book-Entry Note a
notice setting forth the terms of such repayment option.
Such terms shall include the start date and end dates of
the first exercise period, the purchase date following
such exercise period, the frequency that such exercise
periods occur (e.g., quarterly,







Exhibit B – Page 18









 






	 	 	 
	

	 	semiannually, annually,
etc.) and if the repayment option expires before
maturity, the same information (except frequency)
concerning the last exercise period. It is understood
that the exercise period shall be at least 15 calendar
days long and that the purchase date shall be at least
seven calendar days after the last day of the exercise
period.
	 
	 	 
	Redemption and
Repayment:

	 	The Trustee will comply with the terms of the Letter with
regard to redemptions and repayments of the Notes. If a
Global Note is to be redeemed or repaid in part, the
Trustee will exchange such Global Note for two Global
Notes, one of which shall represent the portion of the
Global Note being redeemed or repaid and shall be
canceled immediately after issuance and the other of
which shall represent the remaining portion of such
Global Note and shall bear the CUSIP number of the
surrendered Global Note.
	 
	 	 
	Denominations:

	 	Book Entry Notes will be issued in principal amounts of
$1,000 or any amount in excess thereof that is an
integral multiple of $1,000. Global Notes will be
denominated in principal amounts not in excess of
$150,000,000. If one or more Book Entry Notes having an
aggregate principal amount in excess of $150,000,000
would, but for the preceding sentence, be represented by
a single Global Note, then one Global Note will be issued
to represent each $150,000,000 principal amount of such
Book-Entry Note or Notes and an additional Global Note
will be issued to represent any remaining principal
amount of such Book-Entry Note or Notes. In such a case,
each of the Global Notes representing such Book-Entry
Note or Notes shall be assigned the same CUSIP number.
	 
	 	 
	Interest:

	 	General. Interest on each Book-Entry Note will begin to
accrue from the Original Issue Date of the Global Note
representing such Note or from the most recent date to
which interest has been paid, as the case may be, in
accordance with the terms of the Note, as described in
the Prospectus Supplement (as defined in the Agency
Agreement), as supplemented by the applicable Pricing
Supplement. Standard & Poor’s Ratings Services will use
the information received in the pending deposit message
described under the Settlement Procedure “C” below in
order to include the amount of any interest payable and
certain other information regarding the related Global
Note in the appropriate weekly bond report published by
Standard & Poor’s Ratings Services.







Exhibit B - Page 19









 






	 	 	 
	Notice of Interest
Payment and Regular
Record Dates:

	 	On the first Business Day of January, April, July and
October of each year, the Trustee will deliver to the
Issuer and DTC a written list of Regular Record Dates and
Interest Payment Dates that will occur with respect to
Book-Entry Notes during the six-month period beginning on
such first Business Day. Promptly after each Interest
Determination Date or Calculation Date, as applicable (as
defined in or pursuant to the applicable Note) for
Floating Rate Notes, the Issuer, upon receiving notice
thereof, will notify Standard & Poor’s Ratings Services
of the interest rate determined on such Interest
Determination Date or Calculation Date, as applicable.
	 
	 	 
	Calculation of
Interest:

	 	Interest on Fixed Rate Book-Entry Notes (including
interest for partial periods) and interest rates on
Floating Rate Book-Entry Notes will be determined as set
forth in the form of Notes. With respect to Floating
Rate Book-Entry Notes, the Calculation Agent shall
determine the interest for each Interest Reset Date and
communicate such interest rate to the Issuer and the
Issuer will promptly notify the Trustee and the Paying
Agent of each such determination.
	 
	 	 
	Payments of
Principal and
Interest:

	 	Promptly after each Regular Record Date, the Trustee will
deliver to the Issuer and DTC a written notice specifying
by CUSIP number the amount of interest to be paid on each
Global Note on the following Interest Payment Date (other
than an Interest Payment Date coinciding with maturity)
and the total of such amounts. The Issuer will confirm
with the Trustee the amount payable on each Global Note
on such Interest Payment Date. DTC will confirm the
amount payable on each Global Note on such Interest
Payment Date by reference to the daily or weekly bond
reports published by Standard & Poor’s Ratings Services.
The Issuer will pay to the Trustee, as paying agent, the
total amount of interest due on such Interest Payment
Date (other than at maturity), and the Trustee will pay
such amount to DTC at the times and in the manner set
forth below under “Manner of Payment”.
	 
	 	 
	Payments at Maturity:

	 	On or about the first Business Day of each month, the
Trustee will deliver to the Issuer and DTC a written list
of principal and interest to be paid on each Global Note
maturing either at Stated Maturity or on a Redemption or
Repayment Date in the following month. The Issuer, the
Trustee and DTC will confirm the amounts of such
principal and interest payments with respect to each such
Global Note on or about the fifth Business Day preceding
the maturity of such Global Note. The Issuer will pay to
the Trustee, as paying agent, the







Exhibit B – Page 20









 






	 	 	 
	

	 	principal amount of
such Global Note, together with interest due at such
maturity. The Trustee will pay such amounts to DTC at
the times and in the manner set forth below under “Manner
of Payment.” Promptly after payment to DTC of the
principal and interest due at the maturity of such Global
Note, the Trustee will cancel and destroy such Global
Note in accordance with the terms of the Indenture and
deliver a certificate of destruction to the Issuer.
	 
	 	 
	Manner of Payment:

	 	The total amount of any principal and interest due on
Global Notes on any Interest Payment Date or at maturity
shall be paid by the Issuer to the Trustee in funds
available for use by the Trustee as of 9:30 A.M. (New
York City time), or as soon as practicable thereafter on
such date. The Issuer will confirm instructions
regarding payment in writing to the Trustee. Prior to
10:00 A.M. (New York City time) on each Maturity Date or
as soon as possible thereafter, following receipt of such
funds from the Issuer, the Trustee will pay by separate
wire transfer (using Fedwire message entry instructions
in a form previously specified by DTC) to an account at
the Federal Reserve Bank of New York previously specified
by DTC, in funds available for immediate use by DTC, each
payment of principal (together with interest thereon) due
on Global Notes on any Maturity Date. On each Interest
Payment Date, interest payments shall be made to DTC in
same-day funds in accordance with existing arrangements
between the Trustee and DTC. Thereafter, on each such
date, DTC will pay, in accordance with its SDFS operating
procedures then in effect, such amounts in funds
available for immediate use to the respective
Participants in whose names the Book-Entry Notes
represented by such Global Notes are recorded in the
book-entry system maintained by DTC. Neither the Issuer
nor the Trustee shall have any direct responsibility or
liability for the payment by DTC to such Participants of
the principal of and interest on the Book-Entry Notes.
	 
	 	 
	Withholding Taxes:

	 	The amount of any taxes required under applicable law to
be withheld from any interest payment on a Book-Entry
Note will be determined and withheld by the Participant,
indirect participant in DTC or other Person responsible
for forwarding payments and materials directly to the
beneficial owner of such Note.
	 
	 	 
	Acceptance
of Offers:

	 	Each Agent will promptly advise the Issuer of each
reasonable offer to purchase Notes received by it, other
than those rejected by such Agent. Each Agent may, in its
discretion







Exhibit B – Page 21









 






	 	 	 
	

	 	reasonably exercised, without notice to the
Issuer, reject any offer received by it, in whole or in
part. The Issuer will have the right to withdraw, cancel
or modify such offer without notice and will have the
sole right to accept offers to purchase Notes and may
reject any such offer, in whole or in part. If the
Issuer rejects an offer, the Issuer will promptly notify
such Agent.
	 
	 	 
	Settlement:

	 	The receipt by the Issuer of immediately available funds
in payment for a Book-Entry Note and the authentication
and issuance of the Global Note or Global Notes
representing such Note shall constitute “settlement” with
respect to such Note. All orders accepted by the Issuer
will be settled on the third Business Day from the date
of the sale pursuant to the timetable for settlement set
forth below unless the Issuer and the purchaser agree to
settlement on another day which shall be no earlier than
the next Business Day.
	 
	 	 
	Settlement Procedures:

	 	Settlement Procedures with regard to each Book-Entry Note
sold by the For Issuer through an Agent as agent, shall
be as follows:
	 
	 	 
	

	 	For each offer accepted by the Issuer, the Presenting
Agent shall communicate to the Issuer, Attention: Thomas
J. Sargeant, CFO (Fax No.: (703) 329-0060), who will
provide a copy to the Trustee, Attention: Ward Spooner
(Fax No.: (212) 361-6153) and the Designated Agent, if
any, by facsimile transmission or other acceptable means,
the information set forth below:








	 	•	 	Principal amount.
	 
	 	•	 	Maturity Date of Notes.
	 
	 	•	 	In the case of a Fixed Rate Book-Entry Note, the
interest rate or, in the case of a Floating Rate
Book-Entry Note, the Interest Rate Formula, the Initial
Interest Rate (if known at such time), Index Maturity,
Interest Reset Period, Interest Reset Dates, Spread or
Spread Multiplier (if any), Minimum Interest Rate (if
any) and Maximum Interest Rate (if any).
	 
	 	•	 	Interest Payment Period and Interest Payment Dates.
	 
	 	•	 	Redemption provisions, if any.




Exhibit B – Page 22









 






	 	•	 	Repayment provisions, if any.
	 
	 	•	 	Settlement date (Original Issue Date).
	 
	 	•	 	Price to public of the Note (expressed as a percentage).
	 
	 	•	 	Agent’s commission (to be paid in the form of a
discount from the proceeds remitted to the Issuer upon
settlement).
	 
	 	•	 	Original issue discount provisions if any.
	 
	 	•	 	In the case of Currency Indexed Notes, the above-listed
information, as applicable, and the Base Exchange
Rate(s), Base Interest Rate and Indexed Currencies.
	 
	 	•	 	In the case of Dual Currency Notes, the above-listed
information, as applicable, and the Optional Payment
Currency, Designated Exchange Rate and Optional Election
Dates.






	 	 	 	Net proceeds to the Issuer.



	 

	 	 	 	The Trustee will confirm the information set forth in
Settlement Procedure “A” above by telephone with such
Agent and the Issuer.





	 

	 	 	 	
The Trustee will assign a CUSIP number to the Global Note
representing such Note and will telephone the Issuer and
advise the Issuer of such CUSIP number. The Trustee will
enter a pending deposit message through DTC’s Participant
Terminal System, providing the following settlement
information to DTC (which shall route such information to
Standard & Poor’s Ratings Services) and the Presenting
Agent:






	 	•	 	The applicable information set forth in Settlement
Procedure “A”.
	 
	 	•	 	Identification as a Fixed Rate Book-Entry Note or a
Floating Rate Book-Entry Note.
	 
	 	•	 	Initial Interest Payment Date for such Note, number of
days by which such date succeeds the related DTC Record
Date (which, in the case of Floating Rate Notes which
reset daily or weekly shall be the date five




Exhibit B - Page 23









 






	 	 	 	calendar
days immediately preceding the applicable Interest
Payment Date and in the case of all other Notes shall be
the Regular Record Date as defined in the Note), the
amount of interest payable on such Interest Payment Date
per $1,000 principal amount of Notes at Maturity, and
amount of interest payable per $1,000 principal amount of
Notes in the case of Fixed Rate Notes.
	 
	 	•	 	CUSIP number of the Global Note representing such Note.
	 
	 	•	 	Whether such Global Note will represent any other
Book-Entry Note (to the extent known at such time).






	 	 	 	To the extent the Issuer has not already done so, the
Issuer will deliver to the Trustee a Pricing Supplement
in a form that has been approved by the Issuer and the
Agents. The Issuer will also deliver to the Trustee a
Global Note representing such Note.
	 
	 	 	 	The Trustee will complete and authenticate the Global
Note representing such Note.
	 
	 	 	 	DTC will credit such Note to the Trustee’s participant
account at DTC.
	 
	 	 	 	The Trustee will enter an SDFS deliver order through
DTC’s Participant Terminal System instructing DTC to (i)
debit such Note to the Trustee’s participant account and
credit such Note to such Agent’s participant account and
(ii) debit such Agent’s settlement account and credit the
Trustee’s settlement account for an amount equal to the
price of such Note less such Agent’s commission. The
entry of such a deliver order shall constitute a
representation and warranty by the Trustee to DTC that
(i) the Global Note representing such Book-Entry Note has
been executed, delivered and authenticated and (ii) the
Trustee is holding such Global Note pursuant to the
relevant Medium-Term Note Certificate Agreement between
the Trustee and DTC.
	 
	 	 	 	An Agent will enter an SDFS deliver order through DTC’s
Participant Terminal System instructing DTC (i) to debit
such Note to such Agent’s participant account and credit
such Note to the participant accounts of the Participants
with respect to such Note and (ii) to debit the
settlement accounts of such




Exhibit B – Page 24









 






	 	 	 	Participants and credit the
settlement account of such Agent for an amount equal to
the price of such Note.
	 
	 	 	 	Transfers of funds in accordance with SDFS deliver orders
described in Settlement Procedures “G” and “H” will be
settled in accordance with SDFS operating procedures in
effect on the settlement date.
	 
	 	 	 	The Trustee, upon confirming receipt of such funds in
accordance with Settlement Procedure “G,” will wire
transfer to the following account of the Issuer:





	 	 	 	 
	 	Bank Name:

	 	Bank of America
	 	Account Name

	 	AvalonBay Communities, Inc.
	 	

	 	Concentration Account
	 	Account Number:

	 	3752291106
	 	ABA Number:

	 	111000012








	 	 	 	in funds available for immediate use, the amount
transferred to the Trustee in accordance with Settlement
Procedure “G.”
	 
	 	 	 	An Agent will confirm the purchase of such Note to the
purchaser either by transmitting to the Participants with
respect to such Note a confirmation order or orders
through DTC’s institutional delivery system or by mailing
a written confirmation to such purchaser.





	 	 	 
	Settlement

Procedure Timetable:

	 	For orders of Book-Entry Notes solicited by the Agent, as
agent, and accepted by the Issuer for settlement on the
first Business Day after the sale date, Settlement
Procedures “A” through “K” set forth above shall be
completed as soon as possible but not later than the
respective times (New York City time) set forth below:
	 
	 	 







	 	 	 	 
	 	Settlement
	 	Procedure Time

	 	A

	 	11:00 a.m. on the sale date
	 	B

	 	12:00 noon on the sale date
	 	C

	 	2:00 p.m. on the sale date
	 	D

	 	3:00 p.m. on the day before settlement
	 	E

	 	9:00 a.m. on settlement date
	 	F

	 	10:00 a.m. on settlement date
	 	G-H

	 	2:00 p.m. on settlement date
	 	I

	 	4:45 p.m. on settlement date
	 	J-K

	 	5:00 p.m. on settlement date







	 	 	 
	

	 	If a sale is to be settled two Business Days after the
sale date,







Exhibit B – Page 25









 






	 	 	 
	

	 	Settlement Procedures “A,” “B” and “C” shall
be completed as soon as practicable but not later than
11:00 a.m., 12:00 noon and 2:00 p.m., as the case may be,
on the first Business Day after the sale date.
	 
	 	 
	

	 	If a sale is to be settled more than two Business Days
after the sale date, Settlement Procedure “A” shall be
completed as soon as practicable but no later than 11:00
a.m. on the first Business Day after the sale date and
Settlement Procedures “B” and “C” shall be completed as
soon as practicable but no later than 12:00 noon and 2:00
p.m., as the case may be, on the second Business Day
before the settlement date. If the initial interest rate
for a Floating Rate Book-Entry Note has not been
determined at the time that Settlement Procedure “A” is
completed, Settlement Procedures “B” and “C” shall be
completed as soon as such rate has been determined but
not later than 12:00 noon and 2:00 p.m., respectively, on
the Business Day before the settlement date. Settlement
Procedure “I” is subject to extension in accordance with
any extension of Fedwire closing deadlines and in the
other events specified in the SDFS operating procedures
in effect on the settlement date.
	 
	 	 
	

	 	If settlement of a Book-Entry Note is rescheduled or
canceled, the Trustee, upon receipt of notice from the
Issuer, will deliver to DTC, through DTC’s Participant
Terminal System, a cancellation message to such effect by
no later than 2:00 p.m. on the Business Day immediately
preceding the scheduled settlement date.
	 
	 	 
	Failure to Settle:

	 	If an Agent or Trustee fails to enter an SDFS deliver
order with respect to a Book-Entry Note pursuant to
Settlement Procedure “G,” the Trustee may deliver to DTC,
through DTC’s Participant Terminal System, as soon as
practicable, a withdrawal message instructing DTC to
debit such Note to the Trustee’s participant account.
DTC will process the withdrawal message, provided that
the Trustee’s participant account contains a principal
amount of the Global Note representing such Note that is
at least equal to the principal amount to be debited. If
a withdrawal message is processed with respect to all the
Book-Entry Notes represented by a Global Note, the
Trustee will mark such Global Note “canceled”, make
appropriate entries in its records and send such canceled
Global Note to the Issuer. The CUSIP number assigned to
such Global Note shall, in accordance with CUSIP Service
Bureau procedures, be canceled and not immediately







Exhibit B – Page 26









 






	 	 	 
	

	 	reassigned. If a withdrawal message is processed with
respect to one or more, but not all, of the Book-Entry
Notes represented by a Global Note, the Trustee will
exchange such Global Note for two Global Notes, one of
which shall represent such Book-Entry Note or Notes and
shall be canceled immediately after issuance and the
other of which shall represent the remaining Book-Entry
Notes previously represented by the surrendered Global
Note and shall bear the CUSIP number of the surrendered
Global Note.
	 
	 
	 

	 
	 	If the purchase price for any Book-Entry Note is not
timely paid to the Participants with respect to such Note
by the beneficial purchaser thereof (or a person,
including an indirect participant in DTC, acting on
behalf of such purchaser), such Participants and, in
turn, the Presenting Agent may enter SDFS deliver orders
through DTC’s Participant Terminal system reversing the
orders entered pursuant to Settlement Procedures “G” and
“H,” respectively. Thereafter, the Trustee will deliver
the withdrawal message and take the applicable related
actions described in the preceding paragraph. If such
failure shall have occurred for any reason other than the
failure of the Presenting Agent to provide the Purchase
Information to the Issuer or to provide a confirmation to
the purchaser, the Issuer will reimburse the Presenting
Agent on an equitable basis for its loss of the use of
funds during the period when they were credited to the
account of the Issuer.
	 
	 
	 

	 

	 	Notwithstanding the foregoing, upon any failure to settle
with respect to a Book-Entry Note, DTC may take any
actions in accordance with its SDFS operating procedures
then in effect. In the event of a failure to settle with
respect to one or more, but not all, of the Book-Entry
Notes to have been represented by a Global Note, the
Trustee will provide, in accordance with Settlement
Procedures “D” and “E,” for the authentication and
issuance of a Global Note representing the other
Book-Entry Notes to have been represented by such Global
Note and will make appropriate entries in its records.
	 
	 	 
	Procedure for Rate

Changes:

	 	The Issuer and each Agent will discuss from time to time
the price of, and the rates to be borne by, the Notes
that may be sold as a result of the solicitation of
offers by any Agent. Once an Agent has recorded any
indication of interest in Notes upon certain terms, and
communicated with the Issuer, if the Issuer plans to
accept an offer to purchase Notes upon such terms, it
will prepare a Pricing Supplement to the Prospectus, as
then amended or supplemented, reflecting the terms of
such







Exhibit B – Page 27









 






	 	 	 
	

	 	Notes and will arrange to transmit such Pricing
Supplement to the Commission for filing in accordance
with and within the time prescribed by the applicable
paragraph of Rule 424(b) under the Act. The Issuer will
supply at least two copies of the Prospectus as then
amended or supplemented, and bearing such Pricing
Supplement, to the Presenting Agent. The Issuer shall use
its reasonable best efforts to send such Pricing
Supplement by telecopy or overnight express (for delivery
by the close of business on the applicable trade date,
but in no event later than 11:00 a.m. New York City time,
on the Business Day following the applicable trade date)
to the Presenting Agent and the Trustee at the following
applicable address:
	 
	 	 







	 	 	 	 	 
	

	 	If to:
	 	Banc of America Securities LLC
	

	 	to both:
	 	Continuously Offered Products
	

	 	 	 	100 No. Tryon Street
	

	 	 	 	Charlotte, NC 28255
	

	 	 	 	Mail Code: NC 1007-07-01
	

	 	 	 	Telecopy Number: (704) 388-99397
	 
	 	 	 	 
	

	 	 	 	and
	 
	 	 	 	 
	

	 	 	 	Syndicate Operations
	

	 	 	 	100 North Tryon Street
	

	 	 	 	Charlotte, NC 28255
	

	 	 	 	Mail Code: NC 1007-07-01
	

	 	 	 	Telecopy Number: (704) 388-92128
	 
	 	 	 	 
	

	 	if to:
	 	Citigroup Global Markets Inc.
	

	 	to:
	 	Attention: Annabelle Avila
	

	 	 	 	Brooklyn Army Terminal
	

	 	 	 	140 58th Street, 8th Floor
	

	 	 	 	Brooklyn, NY 11220
	

	 	 	 	Telephone Number: (718) 765-6725
	

	 	 	 	Telecopy Number: (718) 765-6734
	 
	 	 	 	 
	

	 	if to:
	 	Fleet Securities, Inc.
	

	 	to:
	 	Attention: John Crees
	

	 	 	 	100 Federal Street MADE 10012H
	

	 	 	 	Boston, MA 02110
	

	 	 	 	Telephone Number: (617) 434-5983







_________________





	 	 	7 Please send by telecopy rather than mail.
	 
	 	 	8 Please send by telecopy rather than mail.




Exhibit B – Page 28









 











	 	 	 	 	 
	

	 	 	 	Telecopy Number: (617) 434-8702
	 
	 	 	 	 
	

	 	if to:
	 	J.P. Morgan Securities Inc.
	

	 	to:
	 	Attention: Medium-Term Note Desk
	

	 	 	 	270 Park Avenue, 8th Floor
	

	 	 	 	New York, NY 10017
	

	 	 	 	Telephone Number: (212) 834-4421
	

	 	 	 	Telecopy Number: (212) 834-60819
	 
	 	 	 	 
	

	 	if to:
	 	Lehman Brothers Inc.
	

	 	to:
	 	Attention: Fixed Income Syndicate/
	

	 	 	 	Medium Term Notes Desk
	

	 	 	 	745 Seventh Avenue
	

	 	 	 	New York, NY 10019
	

	 	 	 	Telephone Number: (212) 526-9664
	

	 	 	 	Telecopy Number: (212) 526-0943
	 

	 	 	 	with a copy to:
	 
	 	 	 	 
	

	 	 	 	ADP Prospectus Services
	

	 	 	 	For Lehman Brothers Inc.
	

	 	 	 	Attention: Client Services Desk
	

	 	 	 	1155 Long Island Avenue
	

	 	 	 	Edgewood, NY 11717
	

	 	 	 	Telecopy Number: (631) 254-7268
	 
	 	 	 	 
	

	 	if to:
	 	Morgan Stanley & Co. Incorporated
	

	 	to:
	 	Attention: Legal Department
	

	 	 	 	1585 Broadway
	

	 	 	 	New York, NY 10036
	

	 	 	 	Telephone Number: (212) 761-4000
	

	 	 	 	Telecopy Number: (212) 761-0783
	 
	 	 	 	 
	

	 	 	 	with a copy to:
	 
	 	 	 	 
	

	 	 	 	Morgan Stanley & Co. Incorporated
	

	 	 	 	Attention: Debt Syndicate Desk
	

	 	 	 	1585 Broadway
	

	 	 	 	New York, NY 10036
	

	 	 	 	Telephone Number: (212) 761-2000
	 
	 	 	 	 
	

	 	if to:
	 	Wachovia Capital Markets, LLC
	

	 	to:
	 	Attention: Corporate Syndicate Desk
	

	 	 	 	301 South College St., DC-8







____________________





	 	 	9 Please send by telecopy with original to follow by mail.




Exhibit B – Page 29









 











	 	 	 	 	 
	

	 	 	 	One Wachovia Center
	

	 	 	 	Charlotte, NC 28288
	

	 	 	 	Telephone Number: 704-383-7727
	

	 	 	 	Telecopy Number: 704-383-9165
	 
	 	 	 	 
	

	 	if to:
	 	US Bank, National Association (the Trustee)
	

	 	to:
	 	Attention: Ward Spooner
	

	 	 	 	100 Wall Street
	

	 	 	 	New York, NY 10005
	

	 	 	 	Telephone Number: (212) 361-6175
	

	 	 	 	Telecopy Number: (212) 361-6153
	 
	 	 	 	 
	

	 	and to:
	 	the Designated Agent, if any.
	 
	 	 	 	 








	 	 	 	For record keeping purposes, one copy of such Pricing

Supplement shall also be mailed to:





	 	 	 	 	 
	

	 	 	 	O’Melveny & Myers LLP
	

	 	 	 	275 Battery Street, Suite 2600
	

	 	 	 	San Francisco, CA 94111-3305
	

	 	 	 	Attention: Peter T. Healy, Esq.
	

	 	 	 	Telecopy Number: (415) 984-8701
	 
	 	 	 	 
	

	 	and	 	 
	 
	 	 	 	 
	

	 	 	 	Goodwin Procter llp
	

	 	 	 	Exchange Place
	

	 	 	 	53 State Street
	

	 	 	 	Boston, MA 02109-2281
	

	 	 	 	Attention: Gilbert G. Menna, P.C.
	

	 	 	 	Telephone Number: (617) 570-1433
	

	 	 	 	Telecopy Number: (617) 523-1231







	 	 	 
	

	 	In each instance that a Pricing Supplement is prepared,
the Presenting Agent will provide a copy of such Pricing
Supplement to each investor or purchaser of the relevant
Notes or its agent. Pursuant to Rule 434 of the
Securities Act of 1933, as amended, the Pricing
Supplement may be delivered separately from the
Prospectus. No settlements with respect to Notes upon
such terms may occur prior to such transmitting and such
Agent will not, prior to such transmitting, mail
confirmations to customers who have offered to purchase
Notes upon such terms. After such transmitting, sales,
mailing of confirmations and settlements may occur with
respect to Notes upon such terms, subject to the
provisions of “Delivery of Prospectus” below. Outdated
Stickers, and copies of the







Exhibit B – Page 30









 






	 	 	 
	

	 	Prospectus to which they are
attached (other than those retained for files), will be
destroyed.
	 
	 	 
	Suspension of
Solicitation;
Amendment or
Supplement:

	 	As provided in the Agency Agreement, the Issuer may
suspend solicitation of purchase at any time, and, upon
receipt of notice from the Issuer, the Agents will as
promptly as practicable, but in no event later than one
Business Day following such notice, suspend solicitation
until such time as the Issuer has advised them that
solicitation of purchases may be resumed.
	 
	 	 
	

	 	If the Agents receive the notice from the Issuer
contemplated by Section 4(b) of the Agency Agreement,
they will promptly suspend solicitation and will only
resume solicitation as provided in the Agency Agreement.
If the Issuer decides to amend or supplement the
Registration Statement or the Prospectus relating to the
Notes, it will promptly advise the Agents and will
furnish the Agents with the proposed amendment or
supplement in accordance with the terms of the Agency
Agreement. The Issuer will promptly file or mail to the
Commission for filing such amendment or supplement,
provide the Agents with copies of any such amendment or
supplement, confirm to the Agents that such amendment or
supplement has been filed with the Commission and advise
the Agents that solicitation may be resumed. Any such
suspension shall not affect the Issuer’s obligations
under the Agency Agreement; and in the event that at the
time the Issuer suspends solicitation of purchases there
shall be any offers already accepted by the Issuer
outstanding for settlement, the Issuer will have the sole
responsibility for fulfilling such obligations; the
Agents will make reasonable efforts to assist the Issuer
to fulfill such obligations, but the Agents will not be
obligated to fulfill such obligations. The Issuer will
in addition promptly advise the Agents and the Trustee if
such offers are not to be settled and if copies of the
Prospectus as in effect at the time of the suspension may
not be delivered in connection with the settlement of
such offers.
	 
	 	 
	Delivery of
Prospectus:

	 	A copy of the Prospectus, as most recently amended or
supplemented on the date of delivery thereof (except as
provided below), must be delivered to a purchaser prior
to or together with the earlier of delivery of (i) the
written confirmation provided for above, and (ii) any
Note purchased by such purchaser at the following
address:







Exhibit B – Page 31









 






	 	 	 	 	 
	

	 	If to:
	 	Banc of America Securities LLC
	

	 	to both:
	 	Continuously Offered Products
	

	 	 	 	100 No. Tryon Street
	

	 	 	 	Charlotte, NC 28255
	

	 	 	 	Mail Code: NC 1007-07-01
	

	 	 	 	Telecopy Number: (704) 388-993910
	 

	 	 	 	and
	 
	 	 	 	 
	

	 	 	 	Syndicate Operations
	

	 	 	 	100 North Tryon Street
	

	 	 	 	Charlotte, NC 28255
	

	 	 	 	Mail Code: NC 1007-07-01
	

	 	 	 	Telecopy Number: (704) 388-921211
	 
	 	 	 	 
	

	 	if to:
	 	Citigroup Global Markets Inc.
	

	 	to:
	 	Attention: Annabelle Avila
	

	 	 	 	Brooklyn Army Terminal
	

	 	 	 	140 58th Street, 8th Floor
	

	 	 	 	Brooklyn, NY 11220
	

	 	 	 	Telephone Number: (718) 765-6725
	

	 	 	 	Telecopy Number: (718) 765-6734
	 
	 	 	 	 
	

	 	if to:
	 	Fleet Securities, Inc.
	

	 	to:
	 	Attention: John Crees
	

	 	 	 	100 Federal Street MADE 10012H
	

	 	 	 	Boston, MA 02110
	

	 	 	 	Telephone Number: (617) 434-5983
	

	 	 	 	Telecopy Number: (617) 434-8702
	 
	 	 	 	 
	

	 	if to:
	 	J.P. Morgan Securities Inc.
	

	 	to:
	 	Attention: Medium-Term Note Desk
	

	 	 	 	270 Park Avenue, 8th Floor
	

	 	 	 	New York, NY 10017
	

	 	 	 	Telephone Number: (212) 834-4421
	

	 	 	 	Telecopy Number: (212) 834-608112
	 
	 	 	 	 
	

	 	if to:
	 	Lehman Brothers Inc.
	

	 	to:
	 	Attention: Fixed Income Syndicate/
	

	 	 	 	Medium Term Notes Desk
	

	 	 	 	745 Seventh Avenue







___________________





	 	 	10 Please send by telecopy rather than mail.
	 
	 	 	11 Please send by telecopy rather than mail.
	 
	 	 	12 Please send by telecopy with original to follow by mail.




Exhibit B – Page 32









 











	 	 	 	 	 
	

	 	 	 	New York, NY 10019
	

	 	 	 	Telephone Number: (212) 526-9664
	

	 	 	 	Telecopy Number: (212) 526-0943
	 
	 	 	 	 
	

	 	 	 	with a copy to:
	 
	 	 	 	 
	

	 	 	 	ADP Prospectus Services
	

	 	 	 	For Lehman Brothers Inc.
	

	 	 	 	Attention: Client Services Desk
	

	 	 	 	1155 Long Island Avenue
	

	 	 	 	Edgewood, NY 11717
	

	 	 	 	Telecopy Number: (631) 254-7268
	 
	 	 	 	 
	

	 	if to:
	 	Morgan Stanley & Co. Incorporated
	

	 	to:
	 	Attention: Legal Department
	

	 	 	 	1585 Broadway
	

	 	 	 	New York, NY 10036
	

	 	 	 	Telephone Number: (212) 761-4000
	

	 	 	 	Telecopy Number: (212) 761-0783
	 
	 	 	 	 
	

	 	 	 	with a copy to:
	 
	 	 	 	 
	

	 	 	 	Morgan Stanley & Co. Incorporated
	

	 	 	 	Attention: Debt Syndicate Desk
	

	 	 	 	1585 Broadway
	

	 	 	 	New York, NY 10036
	

	 	 	 	Telephone Number: (212) 761-2000
	 
	 	 	 	 
	

	 	if to:
	 	Wachovia Capital Markets, LLC
	

	 	to:
	 	Attention: Corporate Syndicate Desk
	

	 	 	 	301 South College St., DC-8
	

	 	 	 	One Wachovia Center
	

	 	 	 	Charlotte, NC 28288
	

	 	 	 	Telephone Number: 704-383-7727
	

	 	 	 	Telecopy Number: 704-383-9165
	 
	 	 	 	 
	

	 	if to:
	 	US Bank, National Association (the Trustee)
	

	 	to:
	 	Attention: Ward Spooner
	

	 	 	 	100 Wall Street
	

	 	 	 	New York, New York 10005
	

	 	 	 	Telephone Number: (212) 361-6175
	

	 	 	 	Telecopy Number: (212) 361-6153
	 
	 	 	 	 
	

	 	and to:
	 	the Designated Agent, if any.







Exhibit B – Page 33









 







For record keeping purposes, one copy of such Pricing

Supplement shall also be mailed to:



	 	 	 	 	 
	

	 	 	 	O’Melveny & Myers LLP
	

	 	 	 	275 Battery Street, Suite 2600
	

	 	 	 	San Francisco, CA 94111-3305
	

	 	 	 	Attention: Peter T. Healy, Esq.
	

	 	 	 	Telecopy Number: (415) 984-8701
	 
	 	 	 	 
	

	 	and	 	 
	 
	 	 	 	 
	

	 	 	 	Goodwin Procter llp
	

	 	 	 	Exchange Place
	

	 	 	 	53 State Street
	

	 	 	 	Boston, MA 02109-2281
	

	 	 	 	Attention: Gilbert G. Menna, P.C.
	

	 	 	 	Telephone Number: (617) 570-1433
	

	 	 	 	Telecopy Number: (617) 523-1231








The Issuer shall ensure that the Presenting Agent
receives copies of the Prospectus and each amendment or
supplement thereto (including appropriate Pricing
Supplements) in such quantities and within such time
limits as will enable the Presenting Agent to deliver
such confirmation or Note to a purchaser as contemplated
by these procedures and in compliance with the preceding
sentence. If, since the date of acceptance of a
purchaser’s offer, the Prospectus shall have been
supplemented solely to reflect any sale of Notes on terms
different from those agreed to between the Issuer and
such purchaser or a change in posted rates not applicable
to such purchaser, such purchaser shall not receive the
Prospectus as supplemented by such new supplement, but
shall receive the Prospectus as supplemented to reflect
the terms of the Notes being purchased by such purchaser
and otherwise as most recently amended or supplemented on
the date of delivery of the Prospectus.



Exhibit B – Page 34









 





PART III




ADMINISTRATIVE PROCEDURES FOR MASTER NOTE

METHOD OF BOOK-ENTRY NOTES




     The following explains the administrative procedures for the Master Note
method of the DTC book-entry system. Any reference to “Book-Entry Notes” in
this Part III refers to the Master Note method (for a discussion of the Global
Note method of the book-entry system, see Part II above). (Certain generally
applicable administrative procedures are set forth in Part I above. See
“Issue/Authentication Date,” “Price to Public,” “Minimum Purchase,”
“Authenticity of Signatures,” “Advertising Cost,” and “Business Day”). In
connection with the qualification of the Book-Entry Notes for eligibility in
the book-entry system maintained by DTC, the Trustee will perform the
custodial, document control and administrative functions described below, in
accordance with its respective obligations under a Letter of Representations
(the “Letter”) from the Issuer and the Trustee to DTC dated as of December 21,
1998, and a Medium-Term Note Certificate Agreement between the Trustee and DTC
and its obligations as a participant in DTC, including DTC’s Same-Day Funds
Settlement System (“SDFS”). Both Fixed and Floating Rate Notes denominated and
payable in U.S. dollars may be issued in book-entry form. Single and
Multi-Indexed Notes may also be issued in book-entry form.



	 	 	 
	Issuance:

	 	On or before any date of settlement (as defined under “Settlement”
below) for one or more Book-Entry Notes represented by one or more
Master Notes, the Issuer will deliver one or more Pricing Supplements
(with a Prospectus and a Prospectus Supplement attached thereto
unless previously delivered to the Trustee) to the Trustee
identifying each issue of Book-Entry Notes that have the same Stated
Maturity, redemption provisions, if any, Interest Payment Dates,
Original Issue Date, original issue discount provisions, if any, and,
in the case of Fixed Rate Notes, interest rate, or, in case of
Floating Rate Notes, interest rate formula, initial interest rate,
Index Maturity, Interest Reset Period, Interest Reset Dates, Spread
or Spread Multiplier (if any), minimum interest rate (if any) and
maximum interest rate (if any) and, in the case of Fixed Rate Notes
or Floating Rate Notes that are also Currency Indexed Notes,
Specified Currency, Indexed Currency, Face Amount and Base Exchange
Rate and the Base Interest Rate, if any, or that are also Other
Indexed Notes, the same terms (all of the foregoing are collectively
referred to as the “Terms”). Each Pricing Supplement shall be
accompanied by a letter from the







Exhibit B – Page 35









 






	 	 	 
	

	 	Issuer (i) advising the Trustee that
as of the date of such letter, the Issuer has issued Notes pursuant
to the Indenture having the Terms specified in such Pricing
Supplement, (ii) confirming that such Notes are debt obligations of
the Issuer referred to and evidenced by the Master Note registered in
the name of Cede & Co., as nominee for DTC and (iii) requesting the
Trustee to make an appropriate entry identifying such debt
obligations on the records of the Issuer maintained by the Trustee.
Each Book-Entry Note will be deemed to have been dated and issued as
of the settlement date, which date shall be the Original Issue Date.
No Master Note will represent any Certificated Note.
	 
	 	 
	Identification Numbers:

	 	The Issuer has arranged with the CUSIP Service Bureau of Standard &
Poor’s Ratings Services (the “CUSIP Service Bureau”) for the
reservation of a series of CUSIP numbers, consisting of approximately
900 CUSIP numbers relating to Book-Entry Notes. The Trustee, the
Issuer and DTC have obtained from the CUSIP Service Bureau a written
list of such reserved CUSIP numbers. The Trustee will assign CUSIP
numbers to each issue of Book-Entry Notes identified by a Pricing
Supplement as described below under Settlement Procedure “B.” DTC
will notify the CUSIP Service Bureau periodically of the CUSIP
numbers that the Trustee has assigned to each issue of Book-Entry
Notes. The Trustee will notify the Issuer at any time when fewer
than 100 of the reserved CUSIP numbers remain unassigned to issue of
Book-Entry Notes, and, if it deems necessary, the Issuer will reserve
additional CUSIP numbers for assignment to issues of Book-Entry
Notes. Upon obtaining such additional CUSIP numbers, the Issuer
shall deliver a list of such additional CUSIP numbers to the Trustee
and DTC.







Exhibit B – Page 36









 






	 	 	 
	Registration:

	 	The Master Note representing the Book-Entry Notes will be issued only
in fully registered form without coupons. The Master Note will be
registered in the name of Cede & Co., as nominee for DTC, on the
Securities Register maintained under the Indenture. The beneficial
owner of a Book-Entry Note (or one or more indirect participants in
DTC designated by such owner) will designate one or more direct
participants in DTC (with respect to such Book-Entry Note, the
“Participants”) to act as agent or agents for such owner in
connection with the book-entry system maintained by DTC, and DTC will
record in book-entry form, in accordance with instructions provided
by such Participants, a credit balance with respect to such Note in
the account of such Participants. The ownership interest of such
beneficial owner in such Book-Entry Note will be recorded through the
records of such Participants or through the separate records of such
Participants and one or more indirect participants in DTC.
	 
	 	 
	Transfers:

	 	Transfers of a Book-Entry Note will be accomplished by book entries
made by DTC and, in turn, by Participants (and, in certain cases, one
or more indirect participants in DTC) acting on behalf of beneficial
transferors and transferees of such Note.
	 
	 	 
	Exchanges:

	 	The Trustee may deliver to DTC and the CUSIP Service Bureau at any
time a written notice of consolidation specifying (i) the CUSIP
numbers set forth on two or more Pricing Supplements that identify
issues of Book-Entry Notes having the same Terms and for which
interest has been paid to the same date, (ii) a date, occurring at
least thirty days after such written notice is delivered and at least
thirty days before the next Interest Payment Date for such issues of
Book-Entry Notes, and (iii) a new CUSIP number to be assigned to such
issues of Book-Entry Notes having the same terms. Upon receipt of
such a notice, DTC will send to its Participants (including the
Trustee) a written reorganization notice to the effect that such
exchange will occur on such date. Prior to the specified exchange
date, the Trustee will deliver to the CUSIP Service Bureau a written
notice setting forth such exchange date and the new CUSIP number and







Exhibit B – Page 37









 






	 	 	 
	

	 	stating that, as of such exchange date, the CUSIP numbers of the
relevant issues of Book-Entry Notes will no longer be valid. On the
specified exchange date, the CUSIP numbers of the relevant issues of
Book-Entry Notes will, in accordance with CUSIP Service Bureau
procedures, be canceled and not immediately reassigned.
	 
	 	 
	Maturities:

	 	Each Issue of Book-Entry Notes will mature on a Business Day nine
months or more from the settlement date for such issue of Book-Entry
Notes.
	 
	 	 
	Notice of Repayment:

	 	With respect to each Book-Entry Note that is repayable at the option
of the Holder the Trustee will furnish DTC on the settlement date
pertaining to such Book-Entry Note a notice setting forth the terms
of such repayment option. Such terms shall include the start date
and end dates of the first exercise period, the purchase date
following such exercise period, the frequency that such exercise
periods occur (e.g.., quarterly, semiannually, annually, etc.) and if
the repayment option expires before maturity, the same information
(except frequency) concerning the last exercise period. It is
understood that the exercise period shall be at least 15 calendar
days long and that the purchase date shall be at least seven calendar
days after the last day of the exercise period.
	 
	 	 
	Redemption and
Repayment:

	 	The Trustee will comply with the terms of the Letter with regard to
redemptions and repayments of the Notes. If an issue of Book-Entry
Notes is to be redeemed or repaid in part, the Trustee will make
appropriate entries in its records to reflect the remaining portion
of such issue of Book Entry Notes, which portion shall bear the same
CUSIP number as prior to the redemption or repayment, as the case may
be.
	 
	 	 
	Denominations:

	 	Book-Entry Notes will be issued in principal amounts of $1,000 or any
amount in excess thereof that is an integral multiple of $1,000.







Exhibit B – Page 38









 






	 	 	 
	Interest:

	 	General. Interest on each Book-Entry Note will begin to accrue from
the Original Issue Date of an issue of Book-Entry Notes or from the
most recent date to which interest has been paid, as the case may be,
and will be calculated and paid in the manner described in the
Prospectus Supplement (as defined in the Agency Agreement), as
supplemented by the applicable Pricing Supplement. Standard & Poor’s
Ratings Services will use the information received in the pending
deposit message described under the Settlement Procedure “C” below in
order to include the amount of any interest payable and certain other
information regarding the related issue of Book-Entry Notes in the
appropriate weekly bond report published by Standard & Poor’s Ratings
Services.
	 
	 	 
	Notice of Interest Payment
and Regular Record Dates:

	 	On the first Business Day of January, April, July and October of each
year, the Trustee will deliver to the Issuer and DTC a written list
of Regular Record Dates and Interest Payment Dates that will occur
with respect to Book-Entry Notes during the six-month period
beginning on such first Business Day. Promptly after each Interest
Determination Date or Calculation Date, as applicable (as set forth
in the Prospectus Supplement, as supplemented by the applicable
Pricing Supplement and pursuant to the applicable Note) for Floating
Rate Notes, the Issuer, upon receiving notice thereof, will notify
Standard & Poor’s Ratings Services of the interest rate determined on
such Interest Determination Date or Calculation Date, as applicable.
	 
	 	 
	Calculation of Interest:

	 	Interest on Fixed Rate Book-Entry Notes (including interest for
partial periods) and interest rates on Floating Rate Book-Entry Notes
will be determined as set forth in the Prospectus Supplement, as
supplemented by the applicable Pricing Supplement, and pursuant to
the applicable form of Notes. With respect to Floating Rate
Book-Entry Notes, the Calculation Agent shall determine the interest
for each Interest Reset Date and communicate such interest rate to
the Issuer and the Issuer will promptly notify the Trustee and the
Paying Agent of each such determination.







Exhibit B – Page 39









 






	 	 	 	 	 	 
	Payments of Principal and
Payment of Interest Only
Interest:

	 	Promptly after each Regular Record Date, the Trustee will deliver to
the Issuer and DTC a written notice specifying by CUSIP number the
amount of interest to be paid on each issue of Book-entry Notes on
the following Interest Payment Date (other than an Interest Payment
Date coinciding with maturity) and the total of such amounts. The
Issuer will confirm with the Trustee the amount payable on each issue
of Book-Entry Notes on such Interest Payment Date. DTC will confirm
the amount payable on each issue of Book-Entry Notes on such Interest
Payment Date by reference to the daily or weekly bond reports
published by Standard & Poor’s Ratings Services. The Issuer will pay
to the Trustee, as paying agent, the total amount of interest due on
such Interest Payment Date (other than the maturity), and the Trustee
will pay such amount to DTC at the times and in the manner set forth
below under “Manner of Payment.”
	 
	 	 
	Payments at Maturity:

	 	On or about the first Business Day of each month, the Trustee will
deliver to the Issuer and DTC a written list of principal and
interest to be paid on each issue of Book-Entry Notes represented by
a single CUSIP number maturing either at Stated Maturity or on a
Redemption or Repayment Date in the following month. The Issuer, the
Trustee and DTC will confirm the amounts of such principal and
interest payments with respect to each such issue of Book-Entry Notes
on or about the fifth Business Day preceding the maturity of such
issue of Book-Entry Notes. The Issuer will pay to the Trustee, as
paying agent, the principal amount of each issue of Book-Entry Notes
identified by a single CUSIP number, together with interest due at
such maturity. The Trustee will pay such amounts to DTC at the times
and in the manner set forth below under “Manner of Payment”.
Promptly after payment to DTC of the principal and interest due at
the maturity of each issue of Book-Entry Notes, the Trustee will
reduce the principal amount of the Master Note representing the issue
of Book-Entry Notes and so advise the Issuer.







Exhibit B – Page 40









 






	 	 	 
	Manner of Payment:

	 	The total amount of any principal and interest due on each issue of
Book-Entry Notes identified by a single CUSIP number on any Interest
Payment Date or at maturity shall be paid by the Issuer to the
Trustee in funds available for use by the Trustee as of 9:30 A.M.
(New York City time), or as soon as practicable thereafter on such
date. The Issuer will confirm instructions regarding payment in
writing to the Trustee. Prior to 10:00 A.M. (New York City time) on
each Maturity Date or as soon as possible thereafter, following
receipt of such funds from the Issuer, the Trustee will pay by
separate wire transfer (using Fedwire message entry instructions in a
form previously specified by DTC) to an account at the Federal
Reserve Bank of New York previously specified by DTC, in funds
available for immediate use by DTC, each payment of principal
(together with interest thereon) due on each issue of Book-Entry
Notes on any Maturity Date. On each Interest Payment Date, interest
payments shall be made to DTC in same-day funds in accordance with
existing arrangements between the Trustee and DTC. Thereafter, on
each such date, DTC will pay, in accordance with its SDFS operating
procedures then in effect, such amounts in funds available for
immediate use to the respective Participants in whose names the
Book-Entry represented by the Master Note are recorded in the
book-entry system maintained by DTC. Neither the Issuer nor the
Trustee shall have any direct responsibility or liability for the
payment by DTC to such Participants of the principal of and interest
on the Book-Entry Notes.
	 
	 	 
	Withholding Taxes:

	 	The amount of any taxes required under applicable law to be withheld
from any interest payment on a Book-Entry Note will be determined and
withheld by the Participant, indirect participant in DTC or other
Person responsible for forwarding payments and materials directly to
the beneficial owner of such Note.







Exhibit B – Page 41









 






	 	 	 
	Acceptance of Offers:

	 	Each Agent will promptly advise the Issuer of each reasonable offer
to purchase Notes received by it, other than those rejected by the
Agent. Such Agent may, in its discretion reasonably exercised,
without notice to the Issuer, reject any offer received by it, in
whole or in part. The Issuer will have the sole right to accept
offers to purchase Notes and may reject any such offer, in whole or
in part. If the Issuer rejects an offer, the Issuer will promptly
notify such Agent.
	 
	 	 
	Settlement:

	 	The receipt by the Issuer of immediately available funds in payment
for a Book-Entry Note and receipt by the Trustee of a property
completed by the Trustee of a properly completed Pricing Supplement
shall constitute “settlement” with respect to such Book-Entry Note.
All orders accepted by the Issuer will be settled on the third
Business Day from the date of the sale pursuant to the timetable for
settlement set forth below unless the Issuer and the purchaser agree
to settlement on another day which shall be no earlier than the next
Business Day.
	 
	 	 
	 Settlement
Procedures:

	 	Settlement Procedures with regard to each Book-Entry Note sold by the
Issuer through an Agent as agent, shall be as follows:
	 
	 	 
	

	 	For each offer accepted by the Issuer, the Presenting Agent shall
communicate to the Issuer, Attention: Thomas J. Sargeant, CFO (Fax
No.: (703) 329-0060) who will provide a copy to the Trustee,
Attention: Ward Spooner (Fax No.: (212) 361-6153) and the Designated
Agent, if any, by facsimile transmission or other acceptable means,
the information set forth below:








	 	•	 	Principal amount.
	 
	 	•	 	Maturity Date of Notes.




Exhibit B – Page 42









 






	 	•	 	In the case of a Fixed Rate Book-Entry Note, the interest rate or,
in the case of a Floating Rate Book-Entry Note, the interest rate
formula, the Initial Interest Rate (if known at such time), Index
Maturity, Interest Reset Period, Interest Reset Dates, Spread or
Spread Multiplier (if any), minimum interest rate (if any) and
maximum interest rate (if any).
	 
	 	•	 	Interest Payment Period and Interest Payment Dates.
	 
	 	•	 	Redemption provisions, if any.
	 
	 	•	 	Repayment provisions, if any.
	 
	 	•	 	Settlement date (Original Issue Date).
	 
	 	•	 	Price to public of the Note (expressed as a percentage).
	 
	 	•	 	Agent’s commission (to be paid in the form of a discount from the
proceeds remitted to the Issuer upon settlement).
	 
	 	•	 	Original issue discount provisions if any.
	 
	 	•	 	In the case of Currency Indexed Notes, the above-listed
information, as applicable, and the Base Exchange Rate(s), Base
Interest Rate and Indexed Currencies.
	 
	 	•	 	In the case of Dual Currency Notes, the above-listed information,
as applicable, and the Optional Payment Currency, Designated Exchange
Rate and Optional Election Dates.
	 
	 	•	 	Net proceeds to the Issuer.






	 	 	 	The Trustee will confirm the information set forth in Settlement
Procedure “A” above by telephone with such Agent and the Issuer.




Exhibit B – Page 43









 






	 	 	 	The Trustee will assign a CUSIP number to the issue of Book-Entry
Notes and will telephone the Issuer and notify the Issuer of such
CUSIP number. The Trustee will enter a pending deposit message
through DTC’s Participant Terminal System, providing the following
settlement information to DTC (which shall route such information to
Standard & Poor’s Ratings Services) and the Presenting Agent:






	 	•	 	The applicable information set forth in Settlement Procedure “A.”
	 
	 	•	 	Identification as a Fixed Rate Book-Entry Note or a Floating Rate
Book-Entry Note.
	 
	 	•	 	Initial Interest Payment Date for each issue of Book-Entry Notes of
days by which such date succeeds the related DTC Record Date (which,
in the case of Floating Rate Notes which reset daily or weekly shall
be the date five calendar days immediately preceding the applicable
Interest Payment Date and in the case of all other Notes shall be the
Regular Record Date as defined in the Prospectus Supplement), the
amount of interest payable on such Interest Payment Date per $1,000
principal amount of Notes at Maturity, and amount of interest payable
per $1,000 principal amount of Notes in the case of Fixed Rate Notes.
	 
	 	•	 	CUSIP number of the such issue of Book-Entry Notes.
	 
	 	•	 	Whether such CUSIP number will identify any other issue of
Book-Entry Notes (to the extent known at such time).

	 
	 	 	To the extent the Issuer has not already done so, the Issuer will
deliver to the Trustee a Pricing Supplement in a form that has been
approved by the Issuer and the Agents and a letter advising of the
relevant Issuance.

	 
	 	 	DTC will credit such Book-Entry Notes to the Trustee’s participant
account at DTC.




Exhibit B – Page 44









 





	 	 	 	The Trustee will enter an SDFS deliver order through DTC’s
Participant Terminal System instructing DTC to (i) debit such
Book-Entry Notes to the Trustee’s participant account and credit such
Book-Entry Notes to such Agent’s participant account and (ii) debit
such Agent’s settlement account and credit the Trustee’s settlement
account for an amount equal to the price of such Book-Entry Notes
less such Agent’s commission. The entry of such a deliver order
shall constitute a representation and warranty by the Trustee to DTC
that (i) such Book-Entry Notes have been executed, delivered and
authenticated and (ii) the Trustee is holding the Master Note
representing such Book-Entry Notes pursuant to the relevant
Medium-Term Note Certificate Agreement between the Trustee and DTC.
	 
	 	 	 	An Agent will enter an SDFS deliver order through DTC’s Participant
Terminal System instructing DTC (i) to debit such Note to such
Agent’s participant account and credit such Note to the participant
accounts of the Participants with respect to such Note and (ii) to
debit the settlement accounts of such Participants and credit the
settlement account of such Agent for an amount equal to the price of
such Note.
	 
	 	 	 	Transfers of funds in accordance with SDFS deliver orders described
in Settlement Procedures “F” and “G” will be settled in accordance
with SDFS operating procedures in effect on the settlement date.
	 
	 	 	 	The Trustee, upon confirming receipt of such funds in accordance with
Settlement Procedure “F,” will wire transfer to the following account
of the Issuer:





	 	 	 	 
	 	Bank Name:

	 	Bank of America
	 	Account Name:

	 	AvalonBay Communities, Inc.
	 	Account Number:

	 	Concentration Account
	 	ABA Number:

	 	3752291106
	 	

	 	111000012







	 	 	 
	

	 	in funds available for immediate use, the amount transferred to the
Trustee in accordance with Settlement Procedure “F.”







Exhibit B – Page 45








 






	 	 	 
	

	 	An Agent will confirm the purchase of such Note to the purchaser
either by transmitting to the Participants with respect to such Note
a confirmation order or orders through DTC’s institutional delivery
system or by mailing a written confirmation to such purchaser.
	 
	 	 
	Settlement Procedures

Timetable:

	 	For orders of Book-Entry Notes solicited by an Agent, as agent, and
accepted by the Issuer for settlement on the first Business Day after
the sale date, Settlement Procedures “A” through “J” set forth above
shall be completed as soon as possible but not later than the
respective times (New York City time) set forth below:







	 	 	 	 
	 	Settlement
	 	 
	 	Procedure
	 	Time

	 	A

	 	11:00 a.m. on the sale date
	 	B

	 	12:00 noon on the sale date
	 	C

	 	2:00 p.m. on the sale date
	 	D

	 	3:00 p.m. on the day before settlement
	 	E

	 	9:00 a.m. on settlement date
	 	F-G

	 	2:00 p.m. on settlement date
	 	H

	 	4:45 p.m. on settlement date
	 	I-J

	 	5:00 p.m. on settlement date







	 	 	 
	

	 	If a sale is to be settled two Business Days after the sale date,
Settlement Procedure “A,” “B” and “C” shall be completed as soon as
practicable but not later than 11:00 a.m., 12:00 noon and 2:00 p.m.,
as the case may be, on the first Business Day after the sale date.







Exhibit B – Page 46









 






	 	 	 
	

	 	If a sale is to be settled more than two Business Days after the sale
date, Settlement Procedure “A” shall be completed as soon as
practicable but no later than 11:00 a.m. on the first Business Day
after the sale date and Settlement Procedures “B” and “C” shall be
completed as soon as practicable but no later than 12:00 noon and
2:00 p.m., as the case may be, on the second Business Day before the
settlement date. If the initial interest rate for a Floating Rate
Book-Entry Note has not been determined at the time that Settlement
Procedure “A” is completed, Settlement Procedures “B” and “C” shall
be completed as soon as such rate has been determined but not later
than 12:00 noon and 2:00 p.m., respectively, on the Business Day
before the settlement date. Settlement Procedure “H” is subject to
extension in accordance with any extension of Fedwire closing
deadlines and in the other events specified in the SDFS operating
procedures in effect on the settlement date.
	 
	 	 
	

	 	If settlement of a Book-Entry Note is rescheduled or canceled, the
Trustee, upon receipt of notice from the Issuer, will deliver to DTC,
through DTC’s Participant Terminal System, a cancellation message to
such effect by no later than 2:00 p.m. on the Business Day
immediately preceding the scheduled settlement date.
	 
	 	 
	Failure to Settle:

	 	If an Agent or Trustee fails to enter an SDFS deliver order with
respect to a Book-Entry Note pursuant to Settlement Procedure “F,”
the Trustee may deliver to DTC, through DTC’s Participant Terminal
System, as soon as practicable, a withdrawal message instructing DTC
to debit such note to the Trustee’s participant account. DTC will
process the withdrawal message, provided that the Trustee’s
participant account contains a principal amount of Book-Entry Notes
represented by the Master Note that is at least equal to the
principal amount to be debited. If a withdrawal message is processed
with respect to all the Book-Entry Notes identified by a single CUSIP
number, the Trustee will advise the Issuer and will make appropriate
entries in its records. The CUSIP number assigned to such issue of
Book-Entry Notes shall, in accordance with CUSIP Service Bureau
procedures, be canceled and not immediately reassigned. If a








Exhibit B – Page 47










 




	 	 	 
	 	 	
withdrawal message is processed with respect to
one or more, but not all, of the issue of Book-Entry
Notes identified by a single CUSIP number, the Trustee
will advise the Issuer and will make appropriate
entries in its records.
	 	 	 
	 	 	
If the purchase price for any Book-Entry Note is not
timely paid to the Participants with respect to such
Note by the beneficial purchaser thereof (or a person,
including an indirect participant in DTC, acting on
behalf of such purchaser), such Participants and, in
turn, the Presenting Agent may enter SDFS deliver
orders through DTC’s Participant Terminal system
reversing the orders entered pursuant to Settlement
Procedures “F” and “G,” respectively. Thereafter, the
Trustee will deliver the withdrawal message and take
the applicable related actions described in the
preceding paragraph. If such failure shall have
occurred for any reason other than the failure by the
Presenting Agent to provide the Purchase Information to
the Issuer or to provide a confirmation to the
purchaser, the Issuer will reimburse the Presenting
Agent on an equitable basis for its loss of the use of
the funds during the period when they were credited to
the account of the Issuer.
	 	 	 
	 	 	
Notwithstanding the foregoing, upon any failure to
settle with respect to a Book-Entry Note, DTC may take
any actions in accordance with its SDFS operating
procedures then in effect.
	 	 	 
	Periodic Statements

from the Trustee:	 	
Periodically, the Trustee will send to the Issuer a
statement setting forth the principal amount of
Book-Entry Notes outstanding as of that date and
setting forth a brief description of any sales of
Book-Entry Notes of which the Issuer has advised the
Trustee but which have not yet been settled.



Exhibit B – Page 48






 




	 	 	 
	Procedure for Rate Changes:	 	
The Issuer and each Agent will discuss from time to
time the price of, and the rates to be borne by, the
Notes that may be sold as a result of the solicitation
of offers by any Agent. Once an Agent has recorded any
indication of interest in Notes upon certain terms, and
communicated with the Issuer, if the Issuer plans to
accept an offer to purchase Notes upon such terms, it
will prepare a Pricing Supplement to the Prospectus, as
then amended or supplemented, reflecting the terms of
such Notes and will arrange to transmit such Pricing
Supplement to the Commission for filing in accordance
with and within the time prescribed by the applicable
paragraph of Rule 424(b) under the Act. The Issuer
will supply at least two copies of the Prospectus as
then amended or supplemented, and bearing such Pricing
Supplement, to the Presenting Agent. No settlements
with respect to Notes upon such terms may occur prior
to such transmitting and such Agent will not, prior to
such transmitting, mail confirmations to customers who
have offered to purchase Notes upon such terms. After
such transmitting, sales and mailing of confirmations
and settlements may occur with respect to Notes upon
such terms, subject to the provisions of “Delivery of
Prospectus” below.
	 	 	 
	 	 	
Outdated Stickers, and copies of the Prospectus to
which they are attached (other than those retained for
files), will be destroyed.
	 	 	 
	Suspension of Solicitation;
Amendment or Supplement:	 	
As provided in the Agency Agreement, the Issuer may
suspend solicitation of purchase at any time, and, upon
receipt of notice from the Issuer, the Agents will as
promptly as practicable, but in no event later than one
Business Day following such notice, suspend
solicitation until such time as the Issuer has advised
them that solicitation of purchases may be resumed.



Exhibit B – Page 49






 





	 	 	 
	 	 	
If the Agents receive the notice from the Issuer
contemplated by Section 4(b) of the Agency Agreement,
they will promptly suspend solicitation and will only
resume solicitation as provided in the Agency
Agreement. If the Issuer decides to amend or
supplement the Registration Statement or the Prospectus
relating to the Notes, it will promptly advise the
Agents and will furnish the Agents with the proposed
amendment or supplement in accordance with the terms of
the Agency Agreement. The Issuer will promptly file or
mail to the Commission for filing such amendment or
supplement, provide the Agents with copies of any such
amendment or supplement, confirm to the Agents that
such amendment or supplement has been filed with the
Commission and advise the Agents that solicitation may
be resumed. Any such suspension shall not affect the
Issuer’s obligations under the Agency Agreement; and in
the event that at the time the Issuer suspends
solicitation of purchases there shall be any offers
already accepted by the Issuer outstanding for
settlement, the Issuer will have the sole
responsibility for fulfilling such obligations; the
Agents will make reasonable efforts to assist the
Issuer to fulfill such obligations, but the Agents will
not be obligated to fulfill such obligations. The
Issuer will in addition promptly advise the Agents and
the Trustee if such offers are not to be settled and if
copies of the Prospectus as in effect at the time of
the suspension may not be delivered in connection with
the settlement of such offers.
	 	 	 
	Delivery of
Prospectus:	 	
A copy of the Prospectus, as most recently amended or
supplemented on the date of delivery thereof (except as
provided below), must be delivered to a purchaser prior
to or together with the earlier of delivery of (i) the
written confirmation provided for above, and (ii) any
Note purchased by such purchaser at the following
address:




	 	 	 	 
	 	If to:	 	
Banc of America Securities LLC
	 	to both:	 	
Attn: Continuously Offered Products
	 	 	 	
100 No. Tryon Street
	 	 	 	
Charlotte, NC 28255
	 	 	 	
Mail Code: NC 1007-07-01



Exhibit B – Page 50






 




	 	 	 	 	 
	 	 	 	 	Telecopy Number: (704) 388-993913
	 	 	 	 	 
	 	 	 	 	and
	 	 	 	 	 
	 	 	 	 	Syndicate Operations
	 	 	 	 	100 No. Tryon Street
	 	 	 	 	Charlotte, NC 28255
	 	 	 	 	Mail Code: NC 1007-07-01
	 	 	 	 	Telecopy Number: (704) 388-9212214
	 	 	 	 	 
	 	 	
if to:
	 	Citigroup Global Markets Inc.
	 	 	
to:
	 	Attention: Annabelle Avila
	 	 	 	 	Brooklyn Army Terminal
	 	 	 	 	140 58th Street, 8th Floor
	 	 	 	 	Brooklyn, NY 11220
	 	 	 	 	Telephone Number: (718) 765-6725
	 	 	 	 	Telecopy Number: (718) 765-6734
	 	 	 	 	 
	 	 	
if to:
	 	Fleet Securities, Inc.
	 	 	
to:
	 	Attention: John Crees
	 	 	 	 	100 Federal Street MADE 10012H
	 	 	 	 	Boston, MA 02110
	 	 	 	 	Telephone Number: (617) 434-5983
	 	 	 	 	Telecopy Number: (617) 434-8702
	 	 	 	 	 
	 	 	
if to:
	 	J.P. Morgan Securities Inc.
	 	 	
to:
	 	Attention: Medium-Term Note Desk
	 	 	 	 	270 Park Avenue, 8th Floor
	 	 	 	 	New York, NY 10017
	 	 	 	 	Telephone Number: (212) 834-4421
	 	 	 	 	Telecopy Number: (212) 834-6081315
	 	 	 	 	 
	 	 	
if to:
	 	Lehman Brothers Inc.
	 	 	
to:
	 	Attention: Fixed Income Syndicate/
	 	 	 	 	   Medium Term Notes Desk
	 	 	 	 	745 Seventh Avenue
	 	 	 	 	New York, NY 10019
	 	 	 	 	Telephone Number: (212) 526-9664
	 	 	 	 	Telecopy Number: (212) 526-0943








	 	 	13 Please send by telecopy rather than mail.
	 
	 	 	14 Please send by telecopy rather than mail.
	 
	 	 	15 Please send by telecopy with original to follow by mail.


Exhibit B – Page 51






 




	 	 	 	 	 
	 	 	 	 	with a copy to:
	 	 	 	 	 
	 	 	 	 	ADP Prospectus Services
	 	 	 	 	   For Lehman Brothers Inc.
	 	 	 	 	Attention: Client Services Desk
	 	 	 	 	1155 Long Island Avenue
	 	 	 	 	Edgewood, NY 11717
	 	 	 	 	Telecopy Number: (631) 254-7268
	 	 	 	 	 
	 	 	
if to:
	 	Morgan Stanley & Co. Incorporated
	 	 	
to:
	 	Attention: Legal Department
	 	 	 	 	1585 Broadway
	 	 	 	 	New York, NY 10036
	 	 	 	 	Telephone Number: (212) 761-4000
	 	 	 	 	Telecopy Number: (212) 761-0783
	 	 	 	 	 
	 	 	 	 	with a copy to:
	 	 	 	 	 
	 	 	 	 	Morgan Stanley & Co. Incorporated
	 	 	 	 	Attention: Debt Syndicate Desk
	 	 	 	 	1585 Broadway
	 	 	 	 	New York, NY 10036
	 	 	 	 	Telephone Number: (212) 761-2000
	 	 	 	 	 
	 	 	
if to:
	 	Wachovia Capital Markets, LLC
	 	 	
to:
	 	Attention: Corporate Syndicate Desk
	 	 	 	 	301 South College St., DC-8
	 	 	 	 	One Wachovia Center
	 	 	 	 	Charlotte, NC 28288
	 	 	 	 	Telephone Number: 704-383-7727
	 	 	 	 	Telecopy Number: 704-383-9165
	 	 	 	 	 
	 	 	
if to:
	 	US Bank, National Association (the Trustee)
	 	 	
to:
	 	Attention: Ward Spooner
	 	 	 	 	100 Wall Street
	 	 	 	 	New York, New York 10005
	 	 	 	 	Telephone Number: (212) 361-6175
	 	 	 	 	Telecopy Number: (212) 361-6153
	 	 	 	 	 
	 	 	
and to:           the Designated Agent, if any.




	 	 	 	 	 
	 	For record keeping purposes, one copy of such Pricing Supplement shall also be mailed to:



Exhibit B – Page 52






 




	 	 	 	 	 
	 	 	 	 	O’Melveny & Myers LLP
	 	 	 	 	275 Battery Street, Suite 2600
	 	 	 	 	San Francisco, CA 94111-3305
	 	 	 	 	Attention: Peter T. Healy, Esq.
	 	 	 	 	Telecopy Number: (415) 984-8701
	 	 	 	 	 
	 	 	
and	 	 
	 	 	 	 	 
	 	 	 	 	Goodwin Procter LLP
	 	 	 	 	Exchange Place
	 	 	 	 	53 State Street
	 	 	 	 	Boston, MA 02109-2281
	 	 	 	 	Attention: Gilbert G. Menna, P.C.
	 	 	 	 	Telephone Number: (617) 570-1433
	 	 	 	 	Telecopy Number: (617) 523-1231
	 	 	 	 	 
	 	 	The Issuer shall ensure that the Presenting Agent
receives copies of the Prospectus and each amendment or
supplement thereto (including appropriate Pricing
Supplements) in such quantities and within such time
limits as will enable the Presenting Agent to deliver
such confirmation or Note to a purchaser as
contemplated by these procedures and in compliance with
the preceding sentence. If, since the date of
acceptance of a purchaser’s offer, the Prospectus shall
have been supplemented solely to reflect any sale of
Notes on terms different from those agreed to between
the Issuer and such purchaser or a change in posted
rates not applicable to such purchaser, such purchaser
shall not receive the Prospectus as supplemented by
such new supplement, but shall receive the Prospectus
as supplemented to reflect the terms of the Notes being
purchased by such purchaser and otherwise as most
recently amended or supplemented on the date of
delivery of the Prospectus.



Exhibit B – Page 53






 



EXHIBIT C



Form of Opinion of

Counsel to the Company



     In rendering the following opinion, counsel may rely, to the extent they
deem such reliance proper, on the opinions (in form and substance reasonably
satisfactory to counsel to the Agents) of other counsel reasonably acceptable
to counsel to the Agents as to matters governed by the laws of jurisdictions
other than the United States, and as to matters of fact, upon certificates of
officers of the Company and of government officials; provided that counsel to
the Company shall state that the opinion of any such other counsel is in form
satisfactory to counsel to the Company and, in the opinion of counsel to the
company, counsel to the Company and the Agents are justified in relying on such
opinions of other counsel. Copies of all such opinions and certificates shall
be furnished to counsel to the Agents.


* * * *



     1.     The Registration Statement has been declared effective under the 1933
Act. The Prospectus Supplement has been filed with the Commission pursuant to
Rule 424(b) under the 1933 Act. To our knowledge (based solely on an oral
confirmation of a member of the Commission’s staff), no stop order suspending
the effectiveness of the Registration Statement has been issued under the 1933
Act and no proceeding for that purpose has been instituted or threatened by the
Commission.


     2.     Each part of the Registration Statement, when such part became
effective, and the Prospectus, on the date of filing thereof with the
Commission and as of the date hereof, complied as to form in all material
respects with the requirements of the 1933 Act and the rules and regulations
thereunder (other than (i) the financial statements and supporting schedules
and other financial and statistical information and data included therein or
omitted therefrom, and (ii) any documents incorporated by reference into the
Registration Statement, as to which we express no opinion) it being understood
that, in passing upon compliance as to the form of the Registration Statement,
we assume that the statements made therein are correct and complete.


     3.     The descriptions in the Registration Statement (other than the
documents incorporated by reference) and the Prospectus of statutes are
accurate in all material respects and fairly present the information required
to be disclosed therein. We do not know of any statutes or legal or
governmental proceedings required to be described in the Prospectus that are
not described as required, or of any contracts or documents of a character
required to be described in the Registration Statement or Prospectus or to be
filed as exhibits to the Registration Statement that are not so described or
filed.


     4.     The Company is not and, after giving effect to the offering and sale of
the Notes and the application of the proceeds therefrom as described in the
Prospectus, will


Exhibit C – Page 1






 


not be an “investment company” as such term is defined in the Investment
Company Act of 1940, as amended.


     5.     The Company is a corporation validly existing and in good standing
under the laws of the State of Maryland with corporate power under its
organizational documents and the applicable statutory law necessary to conduct
its business as described in the Registration Statement and the Prospectus.


     6.     Each of the Subsidiaries that owns a Current Community or Development
Community (as such terms are defined in the Company’s Quarterly Report on Form
10-Q for the quarterly period ended      , 200     , filed with the
Commission on     , 200     ) is a corporation, limited partnership, or
limited liability company, as the case may be, that has corporate or other
power under its organizational documents and the applicable statutory law
necessary to conduct its business as described in the Registration Statement
and the Prospectus.


     7.     Subject to the completion of the exchange of the common stock of Avalon
Properties, Inc. (“Avalon”) for the Common Stock of the Company in connection
with the merger of Avalon with and into the Company as of June 4, 1998 (the
“Merger”), all of the outstanding shares of Common Stock and Preferred Stock
identified in the Prospectus that were issued in (a) the Merger and (b)
offerings for cash registered under the 1933 Act and sold to underwriters or
through agents in transactions in which we acted as counsel for the Company,
have been duly authorized and are validly issued, fully paid and nonassessable
and conform to the description thereof in the Prospectus.


     8.     The Notes are in substantially the forms annexed to the Amended and
Restated Third Supplemental Indenture as Exhibit A or Exhibit B thereto. The
issuance of the Notes has been duly authorized by the Company and, assuming (i)
the due execution of the Notes on behalf of the Company, (ii) the due
authentication of the Notes by the Trustee in accordance with the terms of the
Indenture, and (iii) the delivery of the Notes and payment therefor in full by
the purchasers of the Notes, (A) the Notes will be valid and binding
obligations of the Company entitled to the benefits provided by the Indenture
and enforceable against the Company in accordance with their terms, subject, as
to enforcement, to (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, (iv) requirements that a claim
with respect to any Notes payable in a foreign or composite currency (or a
foreign or composite currency judgment in respect of such claim) be converted
into U.S. dollars at a rate of exchange prevailing on a date determined
pursuant to applicable law and (v) governmental authority to limit, delay or
prohibit the making of payments outside the United States (collectively, the
“Enforceability Limitations”), and (B) the Indenture and the Notes conform in
all material respects to the descriptions thereof in the Registration Statement
and the Prospectus.


     9.     The Company has full corporate power and authority to enter into the
Indenture. The Indenture has been duly authorized, executed and delivered by
the


Exhibit C – Page 2






 


Company and constitutes a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, subject to the
Enforceability Limitations.


     10.     The Indenture has been duly qualified under the Trust Indenture Act of
1939, as amended (the “TIA”).


     11.     The Company has full corporate power and authority to enter into the
Distribution Agreement, the Terms Agreement and each Appointment Agreement, and
each of the Distribution Agreement, the Terms Agreement and each Appointment
Agreement has been duly authorized, executed and delivered by the Company. The
execution, delivery and performance of the Indenture, the Distribution
Agreement, the Terms Agreement and the Appointment Agreements and the issuance
and sale of the Notes on the terms contemplated in the Distribution Agreement
and the Terms Agreement will not (alone or with the giving of notice or the
passage of time or both) (A) to our knowledge, result in the creation or
imposition of any lien, charge or encumbrance upon any of the assets of the
Company or any of the Subsidiaries, pursuant to the terms or provisions of any
Contract (i) which we have prepared or negotiated on behalf of the Company and
(ii) to which any of the Subsidiaries is a party or by or pursuant to which any
of them or their respective properties is bound, affected or financed or (B)
result in a breach or violation of any of the terms or provisions of, or
constitute a default or result in the acceleration of any obligation under, (i)
the Charter or Bylaws of the Company, (ii) the articles or certificate of
incorporation, bylaws, limited partnership agreements or other organizational
documents of any of the Subsidiaries, (iii) to our knowledge, any Contract to
which the Company or any of the Subsidiaries is a party or by or pursuant to
which any of them or their respective properties is bound, affected or financed
or (iv) any statute, rule or regulation or judgment, ruling, decree or order,
known to us, of any court or other governmental agency or body applicable to
the business or properties of the Company or any of the Subsidiaries (except
that we express no opinion as to the securities or “Blue Sky” laws of any
jurisdiction other than the United States), in each case where such violation
or default, individually or in the aggregate, might have a material adverse
effect on the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company and the Subsidiaries taken
as a whole.


     12.     To our knowledge, no consent, approval, authorization or order of, or
filing with, any court or governmental agency or body is required in connection
with the issuance or sale of the Notes by the Company, except (i) such as have
been obtained under the 1933 Act, the Securities Exchange Act of 1934, as
amended, or the TIA, or (ii) such as may be required under state securities
laws or the bylaws or rules of the NASD in connection with the purchase and
distribution of the Notes through or by the Agents.


               The limitations inherent in the independent verification of factual
matters and the character of determinations involved in the registration
process are such that we are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in or incorporated by reference into the Registration Statement or
the Prospectus and we make no representation that we have




Exhibit C – Page 3






 





independently verified the accuracy, completeness or fairness of such
statements. Without limiting the foregoing, we assume no responsibility for,
and have not independently verified, the accuracy, completeness or fairness of
the financial statements or notes thereto, financial schedules and other
financial and statistical data contained in or incorporated by reference into
the Registration Statement, and we have not examined the accounting, financial
or statistical records from which such statements and notes, schedules and data
are derived. However, in the course of our acting as counsel to the Company in
connection with the preparation of the Registration Statement and the
Prospectus and the public offering of the Notes, we have conferred with
representatives of the Company, independent accountants for the Company, your
representatives and representatives of O’Melveny & Myers LLP, your counsel,
during which conferences and conversations the contents of the Registration
Statement and the Prospectus and related matters were discussed. In addition,
we reviewed certain documents made available to us by the Company or otherwise
in our possession.


     Based on our participation in the above-mentioned conferences and
conversations, our review of the documents described above and our
understanding of applicable law, we advise you that:


     (a)  No facts have come to our attention which cause us to believe that the

Registration Statement (excluding the financial statements and notes thereto,
financial schedules and other financial or statistical information and data
included therein or omitted therefrom and the Trustee’s Statement of
Eligibility and Qualification on Form T-1 (the “Form T-1”), as to which we
express no opinion), at the time it became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.


     (b)  No facts have come to our attention which cause us to believe that the
Prospectus (excluding the financial statements and notes thereto, financial
schedules and other financial or statistical information and data included
therein or omitted therefrom and the Form T-1, as to which we express no
opinion), as of its date or the date hereof, contained or contains an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.


     Such opinion shall also state that it is being rendered to the agents at
the request of the Company and shall authorize the reliance of O’Melveny &
Myers LLP with respect to matters governed by the MGCL for the sole purpose of
rendering their opinion to the Agents under the Distribution Agreement.


Exhibit C – Page 4






 


SCHEDULE I



Information in the Prospectus



Furnished by any Agent



     The following information appearing in the prospectus supplement relating
to the Notes, if any, and the Prospectus has been furnished by the Agents in
writing specifically for use in the preparation of such preliminary prospectus
and the Prospectus:


     1.     The names of the Agents on the front and back covers.


     2.     The following information under the caption “Supplemental Plan of
Distribution:”


          a. the names of the Agents;



          b. the information regarding transactions among the Company and the Agents
and/or affiliates of the Agents (it being understood that each Agent has
supplied only the information relating to such Agent and its affiliates); and



          c. the information concerning stabilization and other syndicate activities
in which the Agents may engage.




Schedule I – Page 1






 



SCHEDULE III



Commissions



     As compensation for the services of an Agent hereunder, the Company shall
pay such Agent, on a discount basis, a commission for the sale of each Note
equal to the principal amount of such Note multiplied by the appropriate
percentage set forth below:



	 	 	 	 	 
	 	 	PERCENT OF
	MATURITY RANGES	 	PRINCIPAL AMOUNT
	
	 	

	From 9 months to less than 1 year
	 	 	.125	%
	From 1 year to less than 18 months
	 	 	.150	%
	From 18 months to less than 2 years
	 	 	.200	%
	From 2 years to less than 3 years
	 	 	.250	%
	From 3 years to less than 4 years
	 	 	.350	%
	From 4 years to less than 5 years
	 	 	.450	%
	From 5 years to less than 6 years
	 	 	.500	%
	From 6 years to less than 7 years
	 	 	.550	%
	From 7 years to less than 10 years
	 	 	.600	%
	From 10 years to less than 15 years
	 	 	.625	%
	From 15 years to less than 20 years
	 	 	.700	%
	From 20 years to 30 years
	 	 	.750	%
	Greater than 30 years
	 	 	*	 




	*	 	As agreed to by the Company and such Agent at the time of sale.




Schedule III – Page 1