exv10w1



 






Exhibit 10.1




AVALONBAY VALUE ADDED FUND, L.P.




AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT




      



      



      



      



      



      



      



      



      



      



      


THE PARTNERSHIP INTERESTS OF THE LIMITED PARTNERS ISSUED PURSUANT TO THIS AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER THE SECURITIES OR “BLUE SKY” LAWS OF ANY STATE OR OTHER JURISDICTION, AND MAY NOT
BE SOLD OR TRANSFERRED UNLESS THEY ARE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
ANY OTHER APPLICABLE SECURITIES OR “BLUE SKY” LAWS, OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION
IS AVAILABLE. SUCH PARTNERSHIP INTERESTS ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN
THIS AGREEMENT.





 









 








AvalonBay Value Added Fund, L.P.




Amended and Restated Limited Partnership Agreement




Table of Contents




	 	 	 	 	 	 	 	 	 
	1.	 	Recitals and Definitions	 	 	1	 
	 	 	1.1	 	Recitals
	 	 	1	 
	 	 	1.2	 	Definitions
	 	 	1	 
	 	 	 	 	 	 	 	 	 
	2.	 	Formation of Limited Partnership	 	 	11	 
	 	 	2.1	 	Organization
	 	 	11	 
	 	 	2.2	 	Partnership Name
	 	 	11	 
	 	 	2.3	 	Purposes and Business
	 	 	11	 
	 	 	2.4	 	Principal Business Office, Registered Office and Registered Agent
	 	 	12	 
	 	 	2.5	 	Qualification in Other Jurisdictions
	 	 	12	 
	 	 	2.6	 	Powers
	 	 	12	 
	 	 	 	 	 	 	 	 	 
	3.	 	Authority of the General Partner	 	 	12	 
	 	 	3.1	 	General Authority
	 	 	12	 
	 	 	3.2	 	Authority for Specific Actions
	 	 	13	 
	 	 	3.3	 	Investment Restrictions
	 	 	15	 
	 	 	3.4	 	ERISA Matters
	 	 	16	 
	 	 	3.5	 	Company Actions and Voting
	 	 	16	 
	 	 	3.6	 	Stockholder Rights; REIT Matters
	 	 	17	 
	 	 	3.7	 	Expense Reimbursement
	 	 	17	 
	 	 	3.8	 	Management Fees
	 	 	19	 
	 	 	3.9	 	Other Permitted Business
	 	 	20	 
	 	 	3.10	 	Exculpation
	 	 	21	 
	 	 	3.11	 	Indemnification
	 	 	22	 
	 	 	3.12	 	Payment of Indemnification Expenses
	 	 	22	 
	 	 	3.13	 	Partnership Classification
	 	 	23	 
	 	 	3.14	 	Reliance by Third Parties
	 	 	23	 
	 	 	3.15	 	Co-Investment Entities
	 	 	23	 
	 	 	3.16	 	Warehoused Properties
	 	 	23	 
	 	 	 	 	 	 	 	 	 
	4.	 	Capital Commitments and Contributions	 	 	24	 
	 	 	4.1	 	Payment of Capital Contributions
	 	 	24	 
	 	 	4.2	 	Defaulting Partners
	 	 	26	 
	 	 	4.3	 	Requirements for Admission as Limited Partner
	 	 	29	 
	 	 	4.4	 	Admission of Limited Partners
	 	 	29	 
	 	 	4.5	 	Interest
	 	 	30	 
	 	 	4.6	 	Assignees
	 	 	30	 
	 	 	 	 	 	 	 	 	 
	5.	 	Capital Accounts; Profits and Losses; Distributions	 	 	30	 
	 	 	5.1	 	Capital Accounts
	 	 	30	 






(i)









 






	 	 	 	 	 	 	 	 	 
	 	 	5.2	 	Allocation of Net Income and Net Loss
	 	 	32	 
	 	 	5.3	 	Minimum Gain Chargebacks and Non-Recourse Deductions
	 	 	32	 
	 	 	5.4	 	Code Section 704(b) Compliance
	 	 	33	 
	 	 	5.5	 	Elections
	 	 	33	 
	 	 	5.6	 	Distributions
	 	 	33	 
	 	 	5.7	 	No Deficit Restoration by General Partner
	 	 	36	 
	 	 	5.8	 	No Deficit Restoration by Limited Partners
	 	 	36	 
	 	 	5.9	 	Right of Set-Off
	 	 	36	 
	 	 	5.10	 	Withholding
	 	 	36	 
	 	 	 	 	 	 	 	 	 
	6.	 	Advisory Committee and Investment Committee	 	 	37	 
	 	 	6.1	 	Advisory Committee Membership
	 	 	37	 
	 	 	6.2	 	Advisory Committee Meetings and Expense Reimbursement
	 	 	37	 
	 	 	6.3	 	Advisory Committee Authority
	 	 	37	 
	 	 	6.4	 	Quorum and Voting of Members of Advisory Committee
	 	 	38	 
	 	 	6.5	 	Investment Committee
	 	 	38	 
	 	 	6.6	 	Partnership Meetings
	 	 	38	 
	 	 	 	 	 	 	 	 	 
	7.	 	Transfers of Limited Partnership Interests	 	 	39	 
	 	 	7.1	 	Assignability of Interests
	 	 	39	 
	 	 	7.2	 	Substitute Limited Partners
	 	 	40	 
	 	 	7.3	 	Obligations of Assignee
	 	 	40	 
	 	 	7.4	 	Allocation of Distributions Between Assignor and Assignee
	 	 	40	 
	 	 	7.5	 	Assignment by Removed or Withdrawn General Partner
	 	 	40	 
	 	 	 	 	 	 	 	 	 
	8.	 	Transfer of Partnership Interest by General Partner; Withdrawal	 	 	41	 
	 	 	8.1	 	Assignability of Interest
	 	 	41	 
	 	 	8.2	 	Voluntary Withdrawal
	 	 	41	 
	 	 	8.3	 	Involuntary Withdrawal
	 	 	42	 
	 	 	8.4	 	Removal of General Partner
	 	 	42	 
	 	 	8.5	 	Payment of Expenses to General Partner Upon Withdrawal
	 	 	43	 
	 	 	8.6	 	General Partner’s Interest upon Removal or Withdrawal
	 	 	43	 
	 	 	8.7	 	Further Consequences of Removal or Withdrawal
	 	 	44	 
	 	 	8.8	 	Continuation of Partnership Business
	 	 	45	 
	 	 	 	 	 	 	 	 	 
	9.	 	Rights and Obligations of the Limited Partners	 	 	45	 
	 	 	9.1	 	Limited Liability
	 	 	45	 
	 	 	9.2	 	Authority of Limited Partners
	 	 	46	 
	 	 	9.3	 	Confidentiality
	 	 	46	 
	 	 	9.4	 	Preservation of REIT Status
	 	 	46	 
	 	 	9.5	 	Special Rights of the Company
	 	 	47	 
	 	 	 	 	 	 	 	 	 
	10.	 	Duration and Termination of the Partnership	 	 	47	 
	 	 	10.1	 	Duration
	 	 	47	 
	 	 	10.2	 	Bankruptcy of Limited Partner
	 	 	47	 
	 	 	10.3	 	Termination
	 	 	48	 






(ii)









 






	 	 	 	 	 	 	 	 	 
	11.	 	Liquidation of the Partnership	 	 	48	 
	 	 	11.1	 	General
	 	 	48	 
	 	 	11.2	 	Priority on Liquidation; Distributions
	 	 	49	 
	 	 	11.3	 	Orderly Liquidation
	 	 	49	 
	 	 	11.4	 	Source of Distributions
	 	 	49	 
	 	 	11.5	 	Statements on Termination
	 	 	49	 
	 	 	11.6	 	Return of Incentive Distributions
	 	 	49	 
	 	 	 	 	 	 	 	 	 
	12.	 	Books; Accounting; Tax Elections; Reports	 	 	50	 
	 	 	12.1	 	Books and Accounts
	 	 	50	 
	 	 	12.2	 	Records Available
	 	 	50	 
	 	 	12.3	 	Annual Financial Statements and Valuation
	 	 	51	 
	 	 	12.4	 	Quarterly Financial Statements
	 	 	51	 
	 	 	12.5	 	Reliance on Accountants
	 	 	51	 
	 	 	12.6	 	Tax Matters Partner; Filing of Returns
	 	 	51	 
	 	 	12.7	 	Fiscal Year
	 	 	52	 
	 	 	 	 	 	 	 	 	 
	13.	 	Power of Attorney	 	 	52	 
	 	 	13.1	 	General
	 	 	52	 
	 	 	13.2	 	Survival of Power of Attorney
	 	 	52	 
	 	 	13.3	 	Written Confirmation of Power of Attorney
	 	 	52	 
	 	 	 	 	 	 	 	 	 
	14.	 	Miscellaneous	 	 	52	 
	 	 	14.1	 	Further Assurances
	 	 	52	 
	 	 	14.2	 	Successors and Assigns
	 	 	53	 
	 	 	14.3	 	Applicable Law
	 	 	53	 
	 	 	14.4	 	Severability
	 	 	53	 
	 	 	14.5	 	Counterparts
	 	 	53	 
	 	 	14.6	 	Entire Agreement
	 	 	53	 
	 	 	14.7	 	Amendment
	 	 	53	 
	 	 	14.8	 	Construction
	 	 	54	 
	 	 	14.9	 	Force Majeure
	 	 	54	 
	 	 	14.10	 	Notices
	 	 	54	 
	 	 	14.11	 	No Right of Partition for Redemption
	 	 	55	 
	 	 	14.12	 	Third-Party Beneficiaries
	 	 	55	 
	 	 	14.13	 	General Partner as Limited Partner or Stockholder
	 	 	55	 
	 	 	14.14	 	UCC Article 8 Election
	 	 	55	 






	 	 	 
	Schedules and Exhibits:
	 	 
	 
	Schedule A
	 	List of Partners and Capital Commitments
	 
	Exhibit A
	 	Form of Guaranty
	 
	Exhibit B
	 	Form of Power of Attorney






(iii)









 






AvalonBay Value Added Fund, L.P.




Amended and Restated Limited Partnership Agreement




1. Recitals and Definitions




     1.1 Recitals. This Amended and Restated Limited Partnership Agreement (this “Agreement”)
by and among AvalonBay Capital Management, Inc., as the sole general partner, AvalonBay Value Added
Fund, Inc., a Maryland corporation (the “Company”), as a limited partner, and those persons and
entities, if any, that are listed from time to time on Schedule A hereto as limited
partners (together with the Company and those limited partners subsequently admitted pursuant to
the terms of this Agreement, the “Limited Partners”) is entered into to amend and restate in its
entirety that certain Limited Partnership Agreement entered into as of May 17, 2004 pursuant to the
laws of the State of Delaware.



     1.2 Definitions. Capitalized terms used in this Agreement shall have the meanings set
forth or referred to below.



     “Acquisition Cost” shall mean (i) the total out-of-pocket costs incurred by the Partnership or
reimbursable by the Partnership to the General Partner or any AVB Affiliate in connection with the
acquisition of any Strategic Investment, including, without limitation, the full purchase price
therefor, all costs incurred in connection with diligence investigations of the Strategic
Investment and closing costs, including, without limitation, the fees of attorneys, consultants,
appraisers and other advisers, and commissions, plus (ii) the total amount of costs (including
incentive compensation) incurred or funded by the Partnership in connection with the leasing of a
Strategic Investment (including leasing commissions and any other costs related to leasing) and any
development, redevelopment, renovation, tenant fit-out or other property improvement of such
Strategic Investment (collectively, “Development Costs”), plus (iii) the total amount of reserves
determined at the time of acquisition to be necessary to cover contemplated capital improvements to
the extent not included in Development Costs; provided, however, that, except as otherwise provided
in this Agreement, Acquisition Costs shall not include any of the foregoing costs paid with
indebtedness incurred or assumed by the Partnership.



     “Act” shall have the meaning set forth in Section 2.1.



     “Advisory Committee” shall have the meaning set forth in Section 6.1.



     “Affiliate” of any Person means any Person that directly or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with, the Person specified.



     “Agreement” shall have the meaning set forth in Section 1.1.



1









 





     “Appraisal” means with respect to any Strategic Investment or other assets of the Partnership,
the opinion of an Independent Appraiser as to the fair market value of such Strategic Investment or
other assets. Such opinion may be in the form of an opinion by such Independent Appraiser that the
fair market value of such Strategic Investment or other asset as set by the General Partner is
fair, from a financial point of view, to the Partnership.



     “AVB” means AvalonBay Communities, Inc., a Maryland corporation.



     “AVB Affiliate” means AVB or any Person controlling, controlled by or under common control
with AVB but shall exclude Persons in which the Partnership makes an Investment; provided, however,
that in no event shall the Company be deemed to be an AVB Affiliate.



     “AVB Stockholder” means AVB or any AVB Affiliate that is a Stockholder.



     “Board of Directors” means the Board of Directors of the Company.



     “Capital Account” shall have the meaning set forth in Section 5.1(a).



     “Capital Commitment” shall mean the total amount of cash agreed to be paid to the Partnership
(whether or not yet paid) by each Partner pursuant to Section 4.1, as set forth on Schedule
A hereto, subject to Section 4.1(e) with respect to PSERS’ Capital Commitment.



     “Capital Contribution” shall mean, as to each Partner (excluding the General Partner), the
amount of cash actually contributed to the Partnership by such Partner as of the time the
determination is made, and, as to the General Partner, the amount of cash and/or Warehoused
Properties contributed to the Partnership by the General Partner at the time the contribution is
made.



     “Carried Interest” shall have the meaning set forth in Section 8.6(c).



     “Catch-up Interest” shall mean an amount equivalent to interest on Catch-up Payments at the
rate of 10% per annum, or such higher rate as is determined by the General Partner in its sole
discretion, plus any other amount determined by the General Partner in its sole discretion,
calculated as provided in Section 4.4(b).



     “Catch-up Payment” shall mean, with respect to a newly admitted Limited Partner or an existing
Limited Partner that is increasing its Capital Commitment, an amount determined by multiplying (x)
the aggregate amount of Capital Contributions made by all Partners prior to the date of the
relevant Subsequent Closing by (y) in the case of a newly admitted Limited Partner, such Limited
Partner’s Equity Interest Percentage, or in the case of a Limited Partner increasing its Capital
Commitment, the additional Equity Interest Percentage purchased at the Subsequent Closing, each
calculated after taking into account the adjustment, if any, to the Equity Interest Percentage of
the General Partner.



     “Certificate” shall have the meaning set forth in Section 2.1.



2









 





     “Change of Control of AVB” shall mean the occurrence of any one or more of the following
events:




     (i) Any individual, entity or group (for the purposes of this definition, a “Person”)
within the meaning of Sections 13(d) and 14(d) of the Securities Act (other than AVB, any
AVB Affiliate, or any trustee, fiduciary or other person or entity holding securities under
any employee benefit plan or trust of AVB or any AVB Affiliate), together with all
“affiliates” and “associates” (as such terms are defined in Rule 12b-2 under the Securities
Act) of such Person, becomes the “beneficial owner” (as such term is defined in Rule 13d-3
under the Securities Act) of securities of AVB representing thirty percent (30%) or more of
the combined voting power of AVB’s then outstanding securities having the right to vote
generally in an election of AVB’s Board of Directors (“Voting Securities”), other than as a
result of (A) an acquisition of securities directly from AVB or any AVB Affiliate approved
by the Incumbent Directors (as defined below) or (B) an acquisition by any corporation
pursuant to a reorganization, consolidation or merger if, following such reorganization,
consolidation or merger the conditions described in clauses (A), (B) and (C) of subparagraph
(iii) of this definition are satisfied;




     (ii) Individuals who constitute AVB’s Board of Directors (the “Incumbent Directors”)
cease for any reason to constitute at least a majority of AVB’s Board of Directors,
provided, however, that any individual becoming a director of AVB (excluding, for this
purpose, (A) any such individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of members of AVB’s Board of
Directors or other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than AVB’s Board of Directors, including by reason of agreement intended
to avoid or settle any such actual or threatened contest or solicitation, and (B) any
individual whose initial assumption of office is in connection with a reorganization, merger
or consolidation, involving an unrelated entity), whose election or nomination for election
by AVB’s stockholders was approved by a vote of at least a majority of the persons then
comprising Incumbent Directors shall for purposes of this Agreement be considered an
Incumbent Director;




     (iii) Approval by the shareholders of AVB of a reorganization, merger or consolidation
of AVB, or, if consummation of such reorganization, merger or consolidation is subject, at
the time of such approval by shareholders, to the consent of any government or governmental
agency, obtaining such consent (either explicitly or implicitly by consummation), unless,
following such reorganization, merger or consolidation, (A) more than fifty percent (50%)
of, respectively, the then outstanding shares of common stock of the entity resulting from
such reorganization, merger or consolidation (the “Surviving Entity”) and the combined
voting power of the then outstanding voting securities of such Surviving Entity entitled to
vote generally in the election of directors will be beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the outstanding Voting Securities immediately prior to
such reorganization, merger or consolidation, (B) no Person (excluding AVB, any employee
benefit plan (or related trust) of AVB, an AVB Affiliate or the Surviving Entity or any
subsidiary thereof, and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, thirty percent (30%)
or more of the outstanding Voting Securities) will beneficially own, directly or indirectly,
thirty percent (30%) or more of, respectively, the then outstanding shares of common stock
of the Surviving Corporation or the combined voting power of the then outstanding voting
securities of such Surviving Entity entitled to vote generally in the election of directors,
and (C) at least a majority of the members of the board of directors of the Surviving Entity
will have been members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation;



3









 






     (iv) Approval by the shareholders of AVB of a complete liquidation or dissolution of
AVB; or




     (v) Approval by the shareholders of AVB of the sale, lease, exchange or other
disposition of all or substantially all of the assets of AVB, or, if consummation of such
sale, lease, exchange or other disposition is subject, at the time of such approval by
shareholders, to the consent of any government or governmental agency, obtaining such
consent (either explicitly or implicitly by consummation), other than to an entity, with
respect to which following such sale, lease, exchange or other disposition (A) more than
fifty percent (50%) of, respectively, the then outstanding shares of common stock of the of
such entity and the combined voting power of the then outstanding voting securities of such
entity entitled to vote generally in the election of directors will be beneficially owned,
directly or indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners of the outstanding Voting Securities immediately prior to such sale,
lease, exchange or other disposition, (B) no Person (excluding AVB and any employee benefit
plan (or related trust) of AVB or an AVB Affiliate or such entity or a subsidiary thereof
and any Person beneficially owning, immediately prior to such sale, lease, exchange or other
disposition, directly or indirectly, thirty percent (30%) or more of the outstanding Voting
Securities) will beneficially own, directly or indirectly, thirty percent (30%) or more of,
respectively, the then outstanding shares of common stock of such entity and the combined
voting power of the then outstanding voting securities of such entity entitled to vote
generally in the election of directors and (C) at least a majority of the members of the
board of directors of such entity will have been members of the Incumbent Board at the time
of the execution of the initial agreement or action of the AVB Board of Directors providing
for such sale, lease, exchange or other disposition of assets of AVB.



     Notwithstanding the foregoing, a “Change of Control of AVB” shall not be deemed to have
occurred for purposes of this Agreement solely as the result of an acquisition of securities by AVB
which, by reducing the number of shares of Voting Securities outstanding, increases the
proportionate voting power represented by the Voting Securities beneficially owned by any Person to
thirty percent (30%) or more of the combined voting power of all then outstanding Voting
Securities; provided, however, that if any Person referred to in this sentence shall thereafter
become the beneficial owner of any additional shares of Stock or other Voting Securities (other
than pursuant to a stock split, stock dividend or similar transaction), then a “Change of Control
of AVB” shall be deemed to have occurred for purposes of this Agreement.



     “Charter” shall mean the Articles of Incorporation of the Company, as amended from time to
time.



4









 





     “Closing” shall mean the Initial Closing or any Subsequent Closing.



     “Code” shall have the meaning set forth under “Internal Revenue Code” in this Section 1.2.



     “Co-Investment Entity” shall have the meaning set forth in Section 3.15.



     “Company” shall have the meaning set forth in Section 1.1.



     “Confidential Information” shall have the meaning set forth in Section 9.3.



     “Contribution Call” shall have the meaning set forth in Section 4.1(a).



     “Default Date” shall have the meaning set forth in Section 4.2(a).



     “Default Portion” shall have the meaning set forth in Section 4.2(h).



     “Defaulted Interest” shall have the meaning set forth in Section 4.2(b).



     “Defaulting Partner” shall mean any Partner that fails to pay when due any installment of its
Capital Commitment under Section 4.1 hereof.



     “Defaulting Stockholder” shall have the meaning set forth in Section 4.2(h).



     “Development Fees” shall have the meaning set forth in Section 3.8(b).



     “Disposition” shall mean, with respect to all or a portion of any Strategic Investment, any
complete or partial repayment, syndication of interests, sale and/or other disposition, including
sale upon liquidation of the Partnership, of such Strategic Investment in each case such that the
Partnership ceases to have an ownership interest in such Strategic Investment or such portion
thereof.



     “Disposition Proceeds” shall mean the proceeds to the Partnership from the Disposition of any
of its Strategic Investments, net of all related expenses, taxes and liabilities (including
expenditures and fees paid directly or indirectly by the Partnership to the General Partner or any
Affiliate of the General Partner or to third parties in connection with such Disposition in
accordance with the terms of this Agreement), and in the case of any purchase money obligation or
other interest (other than marketable securities) received on the disposition of a Strategic
Investment shall mean both the principal thereof and interest thereon or other payments or
distributions with respect to such interest at the time when either is received.



     “Economic Capital Account” means, with respect to any Partner, such Partner’s Capital Account
as of the date of determination, after crediting to such Capital Account any amounts that the
Partner is deemed obligated to restore under Treasury Regulations Section 1.704-2.



     “Election Date” shall have the meaning set forth in Section 4.1(e).



     “Electing Limited Partner” shall have the meaning set forth in Section 5.6(b).



5









 





     “Equity Interest” with respect to any Partner shall mean the entire right, title and interest
of such Partner in the Partnership and any appurtenant rights, including, without limitation, any
voting rights and any right or obligation to contribute capital to the Partnership.



     “Equity Interest Percentage” with respect to any Partner shall mean the ratio that the Capital
Commitment of such Partner bears to the aggregate Capital Commitments of all Partners.



     “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time
to time, and any successor thereto.



     “ERISA Partner” shall mean each Limited Partner the assets of which constitute “plan assets”
under ERISA.



     “Estimated Value Capital Account” shall mean, with respect to any Partner, the amount such
Partner would receive in a hypothetical liquidation of the Partnership following a hypothetical
sale of all of the assets of the Partnership at prices equal to their most recent valuations, and
the distribution of the proceeds thereof to the Partners pursuant to this Agreement (after the
hypothetical payment of all actual Partnership indebtedness, and any other liabilities related to
the Partnership’s assets, limited, in the case of non-recourse liabilities, to the collateral
securing or otherwise available to the lender to satisfy such liabilities).



     “Excepted Event” shall have the meaning set forth in Section 4.1(e).



     “Final Closing Date” means the date of the last Subsequent Closing.



     “Fiscal Year” shall have the meaning set forth in Section 12.7.



     “For Cause Removal Notice” shall have the meaning set forth in Section 8.4(a).



     “Formation Expenses” shall mean all fees and out of pocket expenses incurred in connection
with the formation of the Company, the Partnership and the General Partner and the consummation of
the Initial Closing and any Subsequent Closings, including, without limitation, all expenses
incurred in connection with the offer and sale of Limited Partnership interests and REIT Shares,
but excluding any Placement Agent Fees.



     “General Partner” shall mean AvalonBay Capital Management, Inc. or any successor thereto.



     “Incentive Distributions” shall have the meaning set forth in Section 5.6(a).



     “Indebtedness” of any Person shall mean, without duplication, (A) as shown on such Person’s
balance sheet (i) all indebtedness of such Person for borrowed money or for the deferred purchase
price of property, and (ii) all other obligations of such Person evidenced by a note, bond,
debenture or similar instrument (but only to the extent disbursed with respect to construction
loans or other lines of credit), (B) the face amount of all letters of credit issued for the
account of such Person and, without duplication, all unreimbursed amounts drawn
thereunder, (C) all capitalized leases, and (D) all net payment obligations of such Person
under any rate hedging agreements which were not entered into specifically in connection with
Indebtedness set forth in clauses (A) or (B) hereof.



6









 





     “Indemnified Party” shall have the meaning set forth in Section 3.10.



     “Independent Appraiser” means a Person who is not an AVB Affiliate and who is experienced in
the valuation of properties similar to the Partnership’s Strategic Investments for institutional
clients.



     “Initial Closing” shall mean the initial admission of Limited Partners into the Partnership.



     “Initial Closing Date” shall mean the date when the Initial Closing occurs.



     “Interim Investments” shall mean cash, cash equivalent securities and other short-term
investments of Partnership funds held for future investment in Strategic Investments or other
Partnership purposes.



     “Internal Revenue Code” or “Code” shall mean the United States Internal Revenue Code of 1986,
as from time to time amended, and any successor thereto.



     “Investment” shall mean an asset constituting an Interim Investment or a Strategic Investment.



     “Investment Committee” shall have the meaning set forth in Section 6.5.



     “Investment Company Act” shall mean the Investment Company Act of 1940, as amended.



     “Investment Period” shall mean the period commencing on the Initial Closing Date and ending on
the third anniversary of the Initial Closing Date.



     “Involuntary Withdrawal” shall have the meaning set forth in Section 8.3.



     “IRS” shall mean the Internal Revenue Service of the United States Department of the Treasury.



     “Limited Partners” shall have the meaning set forth in Section 1.1.



     “Liquidating Agent” shall have the meaning set forth in Section 11.1.



     “Managed Assets” shall have the meaning set forth in Section 5.6(b)(iii).



     “Management Fee” shall have the meaning set forth in Section 3.8(a).



7









 





     “Management/Oversight Group” shall mean Bryce Blair, Thomas J. Sargeant, Lili Dunn and Kevin
O’Shea, and any successor to any such individual in accordance with the following sentence. In the
event that any one of Bryce Blair, Thomas J. Sargeant, Lili Dunn or
Kevin O’Shea shall cease to be involved in the management or oversight of the Partnership at a
level substantially consistent with such person’s prior involvement, then the General Partner shall
be entitled to appoint a successor to such person to serve as a member of the Management/Oversight
Group, subject to PSERS’ right to approve such successor (which approval will not be unreasonably
withheld); provided, however, that the General Partner shall be entitled to appoint Timothy J.
Naughton to fill the first vacancy on the Management/Oversight Group without obtaining PSERS’
consent to such appointment for so long as Mr. Naughton is employed by AVB.



     “Net Loss from Writedowns” as of any date shall be calculated on an aggregate basis with
respect to all Unrealized Investments that have previously been written down or written off on the
Partnership’s books (other than the books required to comply with Section 5.1 and the definition of
“Capital Account”) and shall mean the excess, if any, of the aggregate cost of such Unrealized
Investments over the aggregate fair market value of such Unrealized Investments as of such date;
provided, however, that the Net Loss from Writedowns for any Investment shall not exceed the
aggregate Acquisition Costs for such Investment.



     “No-Fault Removal Notice” shall have the meaning set forth in Section 8.4(b).



     “Non-Default Portion” shall have the meaning set forth in Section 4.2(h).



     “Partner Nonrecourse Debt” shall have the meaning set forth in Section 5.3(c).



     “Partners” shall mean the General Partner and the Limited Partners.



     “Partnership” shall mean AvalonBay Value Added Fund, L.P.



     “Partnership Minimum Gain” shall have the meaning set forth in Section 5.3(a).



     “Person” shall mean a corporation, association, retirement system, international organization,
joint venture, partnership, limited liability company, trust or individual.



     “Placement Agent Fees” shall have the meaning set forth in Section 3.7.



     “Plan Asset Regulations” shall mean the regulations promulgated under ERISA by the United
States Department of Labor in 29 C.F. R. Part 2510.3-101, and any successor regulations thereto.



     “Predecessor In Interest,” as to the Equity Interest of any Partner, shall mean any Partner
which was the prior holder of all or any portion of such Equity Interest.



     “Preferred Return” shall mean an amount equal to ten percent (10%) per annum, cumulative and
compounded annually, of a Partner’s Unreturned Capital Contributions, calculated as if all Partners
were admitted on the Initial Closing Date.



     “PSERS” shall mean the Commonwealth of Pennsylvania Public School Employees’ Retirement
System, in its capacity as a Limited Partner of the Partnership.



     “Purchase Option” shall have the meaning set forth in Section 8.6(d).



8









 





     “Redevelopment Fees” shall have the meaning set forth in Section 3.8(b).



     “Reimbursement Amount” shall mean AVB’s, or the applicable AVB Affiliate’s, costs associated
with the Warehoused Properties, including the cost of acquiring such Warehoused Properties and
other out-of-pocket costs associated with acquiring, financing and carrying such Warehoused
Properties and any expenses advanced by AVB or such AVB Affiliate with respect to such Warehoused
Properties.



     “REIT” shall mean a real estate investment trust under Code Section 856.



     “REIT Share” shall mean a share of common stock, par value $.01 per share, of the Company.



     “Removal” (or “Removed”) shall have the meaning set forth in Section 8.4(a).



     “REOC Opinion” shall have the meaning set forth in Section 3.4.



     “Residual Value” shall have the meaning set forth in Section 5.1(c).



     “Return Account” for the Partners shall mean the sum of:




     (i) the aggregate Capital Contributions used to fund the Acquisition Costs of all
Investments that have been disposed of or otherwise subject to a Disposition;




     (ii) the aggregate Capital Contributions used to pay expenses of the Partnership,
including, without limitation, expenses incurred under Sections 3.7 and 3.8 hereof; and




     (iii) any Net Loss from Writedowns.



     “Second Preferred Return” with respect to a Partner shall mean an amount equal to fourteen
percent (14%) per annum, cumulative and compounded annually, of a Partner’s Second Unreturned
Capital Contributions, calculated as if all Partners were admitted on the Initial Closing Date.



     “Second Unreturned Capital Contributions” for any Partner shall mean, as of any date, the
aggregate amount of Capital Contributions less all distributions received other than distributions
of Preferred Return and Second Preferred Return.



     “Securities Act” shall mean the Securities Act of 1933, as amended.



     “Stockholders” shall mean the stockholders of the Company.



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     “Strategic Investment” shall mean any direct or indirect, current or contingent interest,
option or commitment to acquire interests in (i) multifamily apartment communities (located
primarily in markets where AVB owns and operates properties from time to time) through fee
simple title or otherwise; (ii) non-apartment community properties as part of a portfolio of
multifamily apartment communities; (iii) ancillary development opportunities related to or in
connection with multifamily apartment communities; (iv) ancillary retail or office space related to
or in connection with multifamily apartment communities; (v) joint ventures or other entities that
own or operate any of the real property described in the preceding clauses (i) through (iv); or
(vi) indebtedness secured by any of the real property described in the preceding clauses (i)
through (iv), including, without limitation, first mortgage debt, participating mortgages,
mezzanine debt and convertible debt.



     “Subject Insurance Payment” shall have the meaning set forth in Section 3.2(d).



     “Subject Insurance Policy” shall have the meaning set forth in Section 3.2(d).



     “Subsequent Closing” shall have the meaning set forth in Section 4.4(b).



     “Subscription Agreement” shall have the meaning set forth in Section 4.3.



     “Target Balance” shall mean, with respect to any Partner as of the close of any period for
which allocations are made under Section 5.2, the net amount such Partner would receive (or be
required to contribute or pay) in a hypothetical liquidation of the Partnership as of the close of
such period, assuming for purposes of such hypothetical liquidation:




     (i) a sale of all of the assets of the Partnership at prices equal to their then book
values (as maintained by the Partnership for purposes of, and as maintained pursuant to, the
capital account maintenance provisions of Treasury Regulations Sections 1.704-1(b)(2)(iv));




     (ii) the distribution of the net proceeds thereof to the Partners pursuant to Section
5.6(a) and Section 5.6(e)(ii) after the payment of all actual Partnership indebtedness, and
any other liabilities related to the Partnership’s assets, limited, in the case of
non-recourse liabilities, to the collateral securing or otherwise available to satisfy such
liabilities (assuming for this purpose that the General Partner exercises its discretion
under Section 5.6(e)(ii) to recover any Incentive Distributions paid to the Partners under
Section 5.6(e)(i));




     (iii) the return of Incentive Distributions by the General Partner to the Partnership
in accordance with Section 11.6; and




     (iv) the distribution of the amounts returned to the Partnership under clause (iii)
above to the Partners in accordance with Section 11.6.



     The net payment a Partner would receive (or have to make) shall also reflect any payment it
(or any of its affiliates) would have to make (or receive) following such hypothetical liquidation
under any agreement that is treated as part of this Agreement for purposes of Treasury Regulations
Section 1.704-1(b)(2)(ii)(h).



     “Treasury Regulations” shall mean the regulations promulgated under the Code, as such
regulations may be amended from time to time (including corresponding provisions of succeeding
regulations).



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     “Unrealized Investments” shall mean Investments (or portions thereof) that have not been
subject to a Disposition.



     “Unreturned Capital Contributions” for any Partner shall mean, as of any date, the aggregate
amount of Capital Contributions less all distributions received other than distributions of
Preferred Return.



     “VCOC Opinion” shall have the meaning set forth in Section 3.4.



     “Voluntary Withdrawal” shall have the meaning set forth in Section 8.2.



     “Voting Interest” shall mean, with respect to any Partner(s) entitled to vote or otherwise
participate with respect to a matter, the ratio which the Capital Commitment(s) of such Partner(s)
voting in favor of the matter with respect to which such vote is being taken bears to the aggregate
Capital Commitments of all Partners entitled to vote or otherwise participate with respect to such
matter, expressed as a percentage. Notwithstanding any other provision of this Agreement to the
contrary, whenever the Company has the right to vote on or approve any matter in its capacity as a
Limited Partner, the Company’s vote or approval shall be cast in accordance with Section 3.5
hereof.



     “Warehoused Properties” shall mean properties acquired by AVB or an AVB Affiliate subsequent
to January 1, 2004 and held directly or indirectly by the Partnership immediately prior to the
Initial Closing Date (excluding any properties with respect to which AVB or an AVB Affiliate had,
prior to January 1, 2004, an option to purchase or had entered into a binding agreement giving it
the right to acquire such properties).



     “Withdrawal” (or “Withdrawn” or “Withdraws”) shall have the meaning set forth in Section 8.5.



2. Formation of Limited Partnership




     2.1 Organization. The Partnership has been formed by the filing of the certificate of
limited partnership (as it may be amended or restated from time to time, the “Certificate”) for the
Partnership required under the Delaware Revised Uniform Limited Partnership Act (as in effect from
time to time, the “Act”), with the Delaware Secretary of State pursuant to the Act. Without the
consent or approval of any Limited Partner, the Certificate may be restated by the General Partner
as provided in the Act or amended by the General Partner to change the address of the office of the
Partnership in Delaware or the name and address of its resident agent in Delaware or to make
corrections required by the Act. The General Partner shall deliver a copy of the Certificate and
any amendment thereto to any Partner who so requests.



     2.2 Partnership Name. The name of the Partnership shall be “AvalonBay Value Added Fund, L.P.” All business of the
Partnership shall be conducted under the Partnership name.



11









 





     2.3 Purposes and Business. Subject to any limitations contained herein, the purpose of the
Partnership is to acquire, improve, develop, lease, maintain, own, operate, manage, mortgage, hold,
sell, exchange and otherwise deal in and with Strategic Investments, to acquire, hold and dispose
of Interim Investments, and to engage in any other activities necessary or related or incidental
thereto; provided, however, that such business shall be conducted in such a manner as the General
Partner reasonably believes will permit the Company to be classified as a REIT beginning with its
taxable year ending December 31, 2005, unless the Board of Directors and the Stockholders determine
pursuant to the Charter that it is no longer in the best interests of the Company to continue to
qualify as a REIT. In connection with the foregoing, and without limiting the Company’s right, in
its sole discretion, to cease to qualify as a REIT, the Partners acknowledge that the Company’s
status as a REIT inures to the benefit of all of the Partners and not solely the Company.



     2.4 Principal Business Office, Registered Office and Registered Agent. The principal
business office of the Partnership shall be located at 2900 Eisenhower Avenue, Suite 300,
Alexandria, Virginia 22314-5223. The principal business office of the Partnership may be changed
from time to time by the General Partner. The General Partner shall promptly notify the Limited
Partners of any change in such principal business office. The registered office of the Partnership
in the State of Delaware shall be c/o The Corporation Trust Company, Corporation Trust Center, 1209
Orange Street, Wilmington, Delaware 19801. The agent for service of process on the Partnership
pursuant to the Act shall be The Corporation Trust Company, Corporation Trust Center, 1209 Orange
Street, Wilmington, Delaware 19801. The registered agent and registered office of the Partnership
may be changed by the General Partner from time to time. The General Partner shall promptly notify
the Limited Partners of any such change.



     2.5 Qualification in Other Jurisdictions. The General Partner shall cause the Partnership
to be qualified or registered under applicable laws in such states as may be appropriate to avoid
any material adverse effect on the business of the Partnership and shall be authorized to execute,
deliver and file any certificates and documents necessary to effect such qualification or
registration, including without limitation the appointment of agents for service of process in such
jurisdictions.



     2.6 Powers. In furtherance of its purposes, but subject to all of the provisions of this
Agreement, the Partnership shall have and may exercise all of the powers and rights which can be
conferred upon limited partnerships formed pursuant to the Act; provided, however, that the
Partnership shall not take any action which, in the judgment of the General Partner could
reasonably be anticipated to adversely affect the ability of the Company to continue to qualify as
a REIT beginning with its taxable year ending December 31, 2005 (including by reason of the
Partnership being taxable as a corporation pursuant to Code Section 7701 or Section 7704), unless
the Board of Directors and the Stockholders determine pursuant to the Charter that it is no longer
in the best interests of the Company to continue to qualify as a REIT.



12









 





3. Authority of the General Partner




     3.1 General Authority. Except as expressly limited by the provisions of this Agreement,
the General Partner shall have complete and exclusive discretion in the management and control of
the affairs and business of the Partnership and shall have all powers necessary, convenient or
appropriate to carry out the purposes, conduct the business and exercise the powers of the
Partnership. Except as so expressly limited, the General Partner shall possess and enjoy with
respect to the Partnership all of the rights and powers of a partner of a partnership without
limited partners to the extent permitted by Delaware law. The Partnership hereby irrevocably
delegates to the General Partner, without limitation, the power and authority to act on behalf of
and in the name of the Partnership, without obtaining the consent of or consulting with any other
Person, to take any and all actions on behalf of the Partnership set forth in this Agreement,
including, without limitation, in Section 2.6 hereof. The General Partner, to the extent of its
powers set forth herein, is an agent of the Partnership for the purpose of the Partnership’s
business and the actions of the General Partner taken in accordance with such powers shall bind the
Partnership.



     3.2 Authority for Specific Actions. Subject to Section 3.3 and such other limitations
expressly provided by this Agreement, the General Partner is authorized to take the actions listed
below in this Section 3.2 on behalf of the Partnership. This Section 3.2 is intended as an
amplification of and not a limitation of the authority granted to the General Partner under Section
3.1.



     (a) To borrow money from sellers of property or from banks or other lending institutions or
the commercial paper market or otherwise to procure extensions of credit for the Partnership,
including at the discretion of the General Partner, to issue instruments evidencing indebtedness or
other debt obligations (including, without limitation, mortgages) and, if security is required
therefore, to pledge, hypothecate, mortgage, assign, transfer and grant a security interest in the
Strategic Investments, Capital Commitments and other assets of the Partnership, including, without
limitation, the Partners’ Subscription Agreements (provided, however, that in no event shall any
such pledge obligate any Partner to make any payments in excess of the sum of such Partner’s
uncontributed Capital Commitment); and in connection with any of the foregoing to execute, seal,
acknowledge and deliver promissory notes, guarantees, mortgages, security and other agreements,
assignments and any other written documents, to request any AVB Affiliate to guaranty or otherwise
provide security for any Partnership Indebtedness, and to prepay in whole or in part, refinance,
recast, increase, modify or extend any such debt affecting any of the assets of the Partnership and
in connection therewith to execute any extensions or renewals of any such debt and/or any other
loans;



     (b) To borrow funds to make Strategic Investments or to obtain working capital or to otherwise
leverage the Partnership’s assets through the issuance of mortgage-backed securities or preferred
equity interests;



     (c) To hold assets of the Partnership in the name of one or more trustees, nominees, other
agents or directly or indirectly through one or more entities owned in whole or in part directly or
indirectly by the Partnership;



13









 





     (d) To maintain such insurance as the General Partner may deem appropriate to protect the
assets and interests of the Partnership and Indemnified Parties and to satisfy any contractual
undertakings of the Partnership; provided, that, in the event that an Indemnified Party receives an
insurance payment (the “Subject Insurance Payment”) under any insurance policy (the “Subject
Insurance Policy”) maintained by the Partnership with respect to any losses, liabilities, damages
and/or expenses incurred by such Indemnified Party for any act or omission related to the
performance of such Indemnified Party’s duties under the Partnership Agreement for which the
Indemnified Party is not entitled to indemnification from the Partnership pursuant to Section 3.11
of the Partnership Agreement, the General Partner shall reimburse the Partnership for an amount
equal to the product of (i) the ratio of (x) the Subject Insurance Payment to (y) all insurance
payments made under the Subject Insurance Policy in the year in which the Subject Insurance Payment
is made and (ii) the premium of the Subject Insurance Policy for the year in which the Subject
Insurance Payment is made.



     (e) To establish reserves for any Partnership purposes and to fund such reserves with any
Partnership assets or borrowed funds;



     (f) To enter into property management, servicing and special servicing or other service
provider arrangements with respect to any asset of the Partnership, including, without limitation,
agreements that provide for incentive compensation;



     (g) To enter into transactions with AVB or one or more AVB Affiliates for the purchase or sale
of assets, provided that all such purchases or sales (excluding the sale or contribution of
Warehoused Properties pursuant to Sections 3.16 and 5.1(c) and the acquisition of Strategic
Investments by the General Partner pursuant to Section 8.6(d)) have been approved by the Limited
Partners representing one-hundred percent (100%) of the Voting Interest of the Limited Partners,
excluding from the vote any Limited Partner that is an AVB Affiliate so long as the General Partner
is an AVB Affiliate;



     (h) To create one or more entities to hold any assets of the Partnership, acquire Equity
Interests in the Partnership or for any other Partnership purpose, and to hold or distribute to the
Partners any interest in such entities, provided that any such entity preserves the limited
liability of the Limited Partners. The General Partner may have management rights in any such
entities, but may not have financial interests in any such entities other than in its capacity as a
Partner in the Partnership. The purpose of this provision is to allow the General Partner to
invest capital contributed by the Partnership through parallel partnerships or other arrangements
when the General Partner deems such arrangements to be appropriate to minimize taxes, comply with
regulatory requirements, structure transactions so as to avoid the application of taxes or
regulatory requirements or otherwise as the General Partner deems appropriate; and



     (i) Subject to Section 6.2, to determine and establish the procedures to be utilized in the
preparation of the current value financial statements of the Partnership described in Sections 12.3
and 12.4 of this Agreement.



     (j) At anytime during the term of the Partnership after the earlier of (i) the date on which
the Partnership has made Contribution Calls with respect to all of the Capital Commitments of the
Partners as set forth on Schedule A hereto or (ii) the expiration or termination of the
Investment Period, to borrow funds (on a secured or unsecured basis) from AVB or an AVB Affiliate
at an interest rate equal to the then current prime rate as published by the Wall Street Journal
plus one percent (1%) per annum in order to (x) fund capital improvements and other expenditures
and investments with respect to existing Strategic Investments or (y) pay property-level expenses.



14









 





     3.3 Investment Restrictions.



     (a) The following restrictions shall be applicable to the Partnership unless waived, with
respect to a particular Investment by either (i) two-thirds of the members of the Advisory
Committee, or (ii) the Limited Partners representing a Voting Interest of the Limited Partners in
excess of fifty percent (50%), excluding from such vote any Limited Partner that is an AVB
Affiliate so long as the General Partner is an AVB Affiliate:




     (i) The Partnership shall not make any Strategic Investment in any publicly traded
security of an issuer in connection with any merger, tender or exchange offer, business
combination, restructuring, recapitalization or similar transaction to or with such issuer
if a majority of the board of directors of such issuer is opposed to such transaction.




     (ii) Following the Final Closing Date and prior to the expiration of the Investment
Period, the Partnership shall not incur, directly or indirectly, Indebtedness if,
immediately after giving effect to the incurrence of such Indebtedness, the aggregate
Indebtedness of the Partnership would exceed sixty-five percent (65%) of the aggregate
Acquisition Costs at such time (including for purposes of this Section 3.3(ii) any
Acquisition Costs paid with indebtedness incurred or assumed by the Partnership).
Following the expiration of the Investment Period, the Partnership shall not incur,
directly or indirectly, Indebtedness if, immediately after giving effect to the incurrence
of such Indebtedness, the aggregate Indebtedness of the Partnership would exceed
sixty-five percent (65%) of the aggregate fair value market of the Strategic Investments
as determined in accordance with Section 12.3. For purposes of this Section 3.3(a)(ii),
Indebtedness shall not include (x) any amount outstanding under any line of credit
established for the benefit of the Partnership and/or the Company or (y) any amount
borrowed from AVB or an AVB Affiliate pursuant to Section 3.2(j).




     (iii) The Partnership shall not invest in any new development at existing apartment
communities that have ancillary ground-up development opportunities if the total capital
invested in such development opportunities is, at the
time of such investment, projected to represent more than fifteen percent (15%) of
the Partnership’s projected aggregate capitalization, consisting of the aggregate Capital
Commitments (whether or not contributed) and the aggregate Indebtedness available to the
Partnership under any debt instruments (whether or not such Indebtedness has been drawn).




     (iv) The Partnership shall not invest in a portfolio of properties if more than
fifteen percent (15%) of such portfolio’s aggregate net operating income is, at the time
of such investment, projected to be attributable to non-apartment community properties
that are a part of such portfolio.




     (v) Immediately following the termination of the Investment Period, the aggregate
capital invested by the Partnership in Strategic Investments located in any one of AVB’s
sixteen (16) markets as of the date of this Agreement (or any other markets in which the
Partnership owns and operates properties from time to time) shall not exceed thirty-five
percent (35%) of the amount obtained by dividing the aggregate Capital Commitments by
0.35.



15









 






     (vi) The Partnership and the General Partner shall not invest in any real estate
properties located outside of the United States.




     (vii) In the event that the Partnership borrows under any credit facility secured by
the Capital Commitments of the Partners, as described in Section 4.1(d) below, no
individual borrowing under such credit facility shall be outstanding for a period
exceeding twelve (12) months. The foregoing however is not intended to prohibit the term
of any such credit facility as a whole from exceeding twelve (12) months.



     (b) The Partnership shall use its best efforts to ensure that the Company will qualify for
taxation as a REIT for each taxable year commencing with its taxable year ending December 31, 2005,
in accordance with Section 3.6 of this Agreement.



     (c) The Partnership shall not take any action that the General Partner reasonably believes
would be likely to prevent the Company from maintaining its status as a “venture capital operating
company” (as defined in the Plan Asset Regulations).



     (d) No Capital Commitments may be drawn, and no Partnership capital may be invested in any
Strategic Investment, prior to the first date on which the Partnership will qualify as a “real
estate operating company,” as such terms are defined in the Plan Asset Regulations; provided,
however that the foregoing restriction shall not preclude the Partnership from making refundable
deposits or other short-term investments prior to such date.



     3.4 ERISA Matters. The Partnership shall use its best efforts to conduct its affairs so as
to qualify as a “real estate operating company” as defined in the Plan Asset Regulations. For
purposes of determining that the Partnership so qualifies, the annual valuation period of the
Partnership for purposes of the Plan Asset Regulations shall be the ninety (90) day period
commencing on each anniversary of
the date on which the Partnership makes its first Investment (other than a short-term investment
pending long-term commitment). Simultaneously with the date of the closing of such first
Investment by the Partnership and, thereafter, prior to the expiration of each annual valuation
period, the Partnership shall obtain an opinion from counsel to the Partnership as to whether the
Partnership qualifies as a “real estate operating company” (a “REOC Opinion”), and the Company
shall obtain an opinion from counsel to the Company as to whether the Company qualifies as a
“venture capital operating company” as defined in the Plan Asset Regulations (a “VCOC Opinion”).
Within ten (10) days after obtaining a REOC Opinion or a VCOC Opinion, the General Partner shall
mail a copy of such REOC Opinion or VCOC Opinion to each Limited Partner and Stockholder that is
subject to ERISA.



16









 





     3.5 Company Actions and Voting. In the event that any matter is submitted to the Company
for its consideration as a Limited Partner of the Partnership pursuant to the terms of this
Agreement, the Company shall deliver a request in writing to each Stockholder of the Company, at
least ten (10) business days prior to the date on which such matter shall be considered, asking
each Stockholder of the Company to provide written direction with respect to the Company’s vote in
such matter, and the Board of Directors of the Company will cause the Company, in its capacity as a
Limited Partner of the Partnership, to grant or withhold the consent or approval of the Company as
such Limited Partner, and with respect to such matter, as follows: (i) if a Stockholder of the
Company directs the Company to vote in favor of such matter, the Company shall vote its percentage
interest as a Limited Partner that corresponds to such stockholder’s percentage interest of the
Company in favor of such matter; (ii) if a Stockholder of the Company directs the Company to vote
against such matter, the Company shall vote its percentage interest as a Limited Partner that
corresponds to such Stockholder’s percentage interest of the Company against such matter; and (iii)
if a Stockholder abstains with respect to such matter or the Company does not receive written
direction from a Stockholder with respect to such matter at the location specified in the foregoing
request at least one (1) business day prior to date on which such matter shall be considered, the
Company shall vote its percentage interest as a Limited Partner that corresponds to such
Stockholder’s percentage interest of the Company in accordance with the direction provided by the
Company’s Board of Directors in its sole and absolute discretion. Notwithstanding any other
provision of this Agreement, for purposes of calculating the Voting Interest of the Partners that
is required or that has been obtained for any matter, if the vote of AVB Affiliates is excluded
from voting on such matter pursuant to this Agreement, then the REIT Shares held by any AVB
Affiliate will be voted in the same proportion as the votes of the other Stockholders with respect
to such matter. For purposes of this Section 3.5, a written consent in lieu of meeting of the
Stockholders or a vote of the Stockholders taken at a meeting of the Stockholders duly called and
held in accordance with the Company’s Bylaws and Charter shall each be deemed to constitute a
written direction with respect to the Company’s vote on a matter in its capacity as a Limited
Partner.



     3.6 Stockholder Rights; REIT Matters. The Partnership and the General Partner shall use
their best efforts to ensure that no action taken by the Partnership shall cause the rights of
Stockholders to differ in a materially adverse manner from the rights which may be given to Limited
Partners under this Agreement. The
Partnership and the General Partner shall use their best efforts to maintain the status of the
Company as a REIT commencing with its taxable year ending December 31, 2005, except and to the
extent that the requirements of this Section 3.6 with respect to a particular Investment or other
activity of the Partnership are specifically waived by the Board of Directors and Stockholders that
hold in the aggregate REIT Shares representing at least seventy-five percent (75%) of all the
outstanding REIT Shares at the time of such waiver. The General Partner may cause the Partnership
to take such action (or refrain from taking such action) as may be reasonably necessary to preserve
AVB’s status as a REIT. The preceding two sentences shall not, however, have the effect of
overriding any provision of Article 5 hereof and shall not otherwise adversely affect the
allocations and distributions provided for in this Agreement. Any action of the General Partner to
enforce or otherwise cause the Partnership to comply with the provisions of this Section shall not
be deemed to be a breach of any fiduciary duty otherwise owed to the Partners and shall not require
the approval of any Limited Partner or the Advisory Committee.



     3.7 Expense Reimbursement. The Partnership shall reimburse the General Partner or any AVB
Affiliate for the following (to the extent not directly paid by the Partnership):



     (a) all Formation Expenses incurred on behalf of the Partnership and the Company, up to an
aggregate maximum reimbursement equal to one million dollars ($1,000,000);



17









 





     (b) the charges and expenses of maintaining the Partnership’s and the Company’s bank accounts
or of any banks, custodians or depositories appointed for the safekeeping of the Interim
Investments or other property of the Partnership, including the costs of bookkeeping and accounting
services;



     (c) all costs incurred by the General Partner or any AVB Affiliate in connection with
providing the services of development, construction, reconstruction, accounting and budgeting
professionals for the Partnership’s projects (which professionals may include employees of the
General Partner or any AVB Affiliate, provided that the terms of such services are no less
favorable than those that would be obtained from an unaffiliated third party) including, without
limitation, the compensation expenses and overhead for such professionals corresponding to the
portion of their business time spent on such projects for the Partnership;



     (d) the Reimbursement Amount with respect to the Warehoused Properties as provided in Sections
3.16 and 5.1(c); and



     (e) all other expenses not specifically provided for in this Section 3.7 which are reasonably
incurred by the General Partner or any AVB Affiliate in connection with operating the Partnership,
any entity organized pursuant to Section 3.2(h) for the purpose of holding Partnership assets or
the Company, or performing the duties of the General Partner under this Agreement, including,
without limitation, (i) travel costs, fees and other out-of-pocket expenses related to a specific
investment or proposed investment, (ii) auditor and counsel fees, (iii) taxes, (iv) insurance, (v)
litigation expenses, and (vi) expenses associated with preparing and distributing reports to
investors pursuant to Section 12 of this Agreement (but specifically
excluding (x) office overhead of the General Partner, (y) compensation of the General
Partner’s employees except as provided in clause (c) above, or (z) travel expenses of the General
Partner’s employees that are not related to a specific Investment or proposed Investment).


In addition to the foregoing, if any AVB Affiliate guaranties or otherwise provides security for
any Indebtedness of the Partnership (including, without limitation, acting as a guarantor with
respect to environmental liabilities and other customary “bad boy” recourse carveouts), then (i)
the Partnership shall reimburse such AVB Affiliate for all expenses or other amounts incurred or
paid by such AVB Affiliate in connection with any such guaranty or security, provided that no AVB
Affiliate shall be reimbursed for any liabilities, obligations or other amounts paid by it pursuant
hereto that are finally adjudicated by a court of competent jurisdiction to have resulted from such
AVB Affiliate’s gross negligence, fraud or willful misconduct, and (ii) the General Partner shall
cause the Partnership to make any such reimbursement payment in preference to any other obligation
of the Partnership.



All Formation Expenses in excess of one million dollars ($1,000,000) shall be paid by the General
Partner and shall not be reimbursed by the Partnership. All fees and expenses of placement agents
incurred by the Partnership in connection with the offering or sale of interests in the Partnership
on or before the Final Closing Date (the “Placement Agent Fees”), including, without limitation,
the Placement Agent Fees due to Morgan Stanley & Co. Incorporated shall be paid by the General
Partner and shall not be reimbursed pursuant to this Section 3.7. The Partnership shall reimburse
the Company for all costs, expenses and liabilities paid by the Company.




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     3.8 Management Fees.



     (a) Commencing with the Initial Closing Date, the General Partner shall be paid a quarterly
asset management fee (the “Management Fee”) by the Partnership. The Management Fee shall be paid
by the Partnership quarterly in arrears from the Initial Closing Date as follows:




     (i) During the period from Initial Closing Date to the Final Closing Date, and after
the termination of the Investment Period, the Management Fee for each calendar quarter
shall equal one-fourth (1/4) of one and one-quarter percent (1.25%) of the difference
between (x) the aggregate Capital Contributions of all of the Partners and (y) the
aggregate Capital Contributions of all of the Partners used to fund Strategic Investments
which have been disposed of (or have been written off such that the General Partner is not
providing any, or is providing an insignificant amount of, management activities with
respect to such Strategic Investments ) as of such date.




     (ii) From the Final Closing until and including the termination of the Investment
Period, the Management Fee for each calendar quarter shall equal one-fourth (1/4) of one
and one-quarter percent (1.25%) of the aggregate Capital Commitments of all of the
Partners.




     (iii) The Management Fee shall be pro rated for any period less than a calendar
quarter based on the number of days during such period.



     (b) At the election of the General Partner, the Partnership may retain the General Partner or
an AVB Affiliate to provide property management and redevelopment services on behalf of the
Partnership in the ordinary course of business for the following fees, payable on a monthly basis:




     (i) Property Management: 3.75% of gross revenues of the managed properties plus
reimbursement of all reasonable direct costs, including any leasing commissions to third
parties and tenant improvements, incurred by the General Partner or the AVB Affiliate
providing such services; and




     (ii) Redevelopment: 10% of total project costs (including allocated general
conditions) plus reimbursement of all reasonable direct costs incurred by the General
Partner or the AVB Affiliate providing such services (the “Redevelopment Fees”).


The Partnership may also retain the General Partner or an AVB Affiliate to provide development
services on behalf of the Partnership with respect to any ancillary ground-up development at
Strategic Investments, subject to Section 3.3(a)(iii), on terms consistent with those which could
be obtained from an unaffiliated third party service provider and which are approved by the
Advisory Committee, which approval shall not be unreasonably withheld (the “Development Fees”).
The General Partner or the AVB Affiliate providing any of the foregoing services shall be entitled
to indemnification and exculpation with respect to any losses, liabilities, damages or expenses
incurred by such entity in connection with such property management, development and redevelopment
services to the same extent that indemnification and exculpation are provided to Indemnified
Parties pursuant to Sections 3.10 and 3.11 hereof. The rights of the General Partner or an AVB
Affiliate to provide the services set forth in this Section 3.8(b) will terminate upon a Removal of
the General Partner.




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     3.9 Other Permitted Business.



     (a) Except as otherwise limited by this Agreement, the General Partner and any AVB Affiliate
may engage independently or with others in other business ventures of every nature and description,
including, without limitation, the rendering of advice or services of any kind to other investors
and the making or management of other investments and serving as a general partner of or otherwise
operating any public or private real estate partnerships. Nothing in this Agreement, except as
provided in Section 3.9(b), shall be deemed to prohibit the General Partner or any AVB Affiliate
from dealing or otherwise engaging in business with Persons transacting business with the
Partnership or from providing services relating to the purchase, sale, financing, management,
development or operation of real property or other assets of the type included within the
definition of Strategic Investments and receiving compensation therefor. Neither the Partnership
nor any Partner shall have any right by virtue of this Agreement or the partnership relationship
created hereby in or to such other ventures or activities or to the income or proceeds derived
therefrom, and the pursuit of such ventures shall not be deemed wrongful or improper. The Limited
Partners hereby acknowledge that AVB is a publicly traded corporation and, as such,
AVB and its directors and officers owe a fiduciary duty to the holders of shares of capital
stock of AVB.



     (b) Following the Initial Closing, no AVB Affiliate or the Company (other than on behalf of
the Partnership and any other Co-Investment Entity) will form an investment fund with investment
objectives substantially similar to the Partnership, until the earlier of:




     (i) the first date on which an amount equal to eighty percent (80%) of the
Partnership’s Capital Commitments has been invested, committed for investment or used to
pay expenses by the Partnership; or




    (ii) the expiration of the Investment Period.


In the event that AVB or an AVB Affiliate forms such an investment fund prior to the expiration of
the Investment Period, the Partnership will have first priority to any investment which qualifies
as a Strategic Investment, to the extent that the Partnership has the financial capacity to make
such investment. Notwithstanding the foregoing, AVB Affiliates will be permitted at any time to
manage and make any existing or future investments managed or made by any AVB Affiliate in
connection with or on behalf of other funds and accounts managed, ventures entered into and assets
acquired (or committed to be acquired) by any AVB Affiliate prior to the Initial Closing Date, or
in connection with any additional investments managed or made by any AVB Affiliate during any
period of time that the exclusivity provisions described above are not in effect.




     (c) Subject to Section 3.9(d), following the Initial Closing, no AVB Affiliate will make any
investment which would be a Strategic Investment that the Partnership would otherwise be permitted
to make pursuant to the terms of this Agreement, until the earlier of:



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     (i) the first date on which an amount equal to eighty percent (80%) of the
Partnership’s Capital Commitments have been invested, committed for investment or used to
pay expenses by the Partnership; or




    (ii) the expiration of the Investment Period.



     (d) Section 3.9(c) notwithstanding, an AVB Affiliate may invest in the following at any time:




     (i) properties that, at the time a commitment to acquire the property is made, have
not yet started construction or construction is not expected to be completed for at least
six (6) months thereafter;




    (ii) properties acquired in tax-deferred transactions, including, without limitation,
properties acquired in exchange for “down REIT units” and transactions intended to qualify
for non-recognition under Section 1031 of the Code;




   (iii) an individual property with an aggregate purchase price in excess of one
hundred million dollars ($100,000,000) or a portfolio of properties in a single
state, the District of Columbia or a geographic region with an aggregate purchase
price in excess of two hundred fifty million dollars ($250,000,000);




    (iv) properties with respect to which AVB or an AVB Affiliate had prior to January 1,
2004, an option to purchase or had entered into a binding agreement giving it the right to
acquire such properties; and




     (v) any investment which the General Partner has decided not to make or pursue for
the Partnership based on the reasonable good faith determination (which determination
shall be binding on the Partnership) that such investment is inappropriate or inadvisable
for the Partnership, whether due to capacity, diversification, rate of return objectives,
seller’s tax objectives or other considerations; provided that to the extent the General
Partner reasonably determines in good faith that it is desirable for the Partnership to
make some but not all of a particular investment, then the Partnership may make such
investment to such extent and the General Partner or another AVB affiliate (alone or with
other investors) may co-invest with the Partnership in such investment on a side-by-side
basis on terms no more favorable than those applicable to the Partnership in respect of
the investment.



     3.10 Exculpation. Neither the General Partner, the members of the Advisory Committee, the
members of the Investment Committee, the Company, AVB, any AVB Affiliate, nor any principal, heir,
executor, administrator, member, stockholder, manager, partner, director, officer, agent, employer,
employee, successor or assign of any of the foregoing (including any person who serves at the
request of the General Partner as a director, officer, manager, partner, employee or agent of
another entity in which the Partnership has an interest as a security holder, creditor or
otherwise) (each an “Indemnified Party”) shall have any liability to the Company, the Partnership,
any Stockholder or any Partner for any loss suffered by the Company, the Partnership, any
Stockholder or any Partner which arises out of any action or inaction of an Indemnified Party,
provided that for any Indemnified Party other than a member of the Advisory Committee, such
exculpation shall not apply to any action or inaction of such Indemnified Party that constitutes
fraud, gross negligence or willful misconduct of such Indemnified Party in connection with the
performance of its duties under this Agreement.



21









 





     3.11 Indemnification. Subject to the limitations contained in this Section 3.11, the
Partnership shall indemnify each Indemnified Party against all losses, liabilities, damages and
expenses incurred by such Indemnified Party for any act or omission related to the performance of
its duties under this Agreement or otherwise taken on behalf of the Partnership or in furtherance
of its business. Such indemnity shall cover, without implied limitation, judgments, settlements,
fines, penalties, counsel fees and all other expenses reasonably incurred in connection with the
defense or disposition of any action, suit or other proceeding, whether civil or criminal, before
or threatened to be brought before any court or administrative body, in which an Indemnified Party
may be or may have been involved as a party or otherwise, or with which it may have been
threatened, by reason of being or having been an Indemnified Party, or by reason of any act or
omission on behalf of the Partnership or in furtherance of its business; provided, however, that an Indemnified
Party shall not be entitled to indemnification pursuant to this Section 3.11 with respect to any
matter as to which such Indemnified Party shall have been finally adjudicated in any such action,
suit or other proceeding, or otherwise by a court of competent jurisdiction, to have committed an
act or omission that constitutes fraud or willful misconduct on the part of such Indemnified Party
(or gross negligence in the case of all Indemnified Parties other than members of the Advisory
Committee) in connection with the performance of its duties under this Agreement. The right of
indemnification provided hereby shall not be exclusive of, and shall not affect, any other rights
to which any Indemnified Party may be entitled and nothing contained in this Section 3.11 shall
limit any lawful rights to indemnification existing independently of this Section 3.11.
Notwithstanding anything to the contrary in this Agreement, to the extent that, at law or in
equity, a Partner or Advisory Committee member has duties (including fiduciary duties) and
liabilities relating thereto to the Partnership, any Partner or any other Person, such Partner or
Advisory Committee member acting under this Agreement shall not be liable to the Partnership, any
Partner or any other Person for breach of fiduciary duty for its good faith reliance on the
provisions of this Agreement, and the provisions of this Agreement, to the extent that they
restrict the duties (including fiduciary duties) and liability of a Partner or Advisory Committee
member otherwise existing at law or in equity, are agreed by each Partner to replace such other
duties and liabilities of such Partner or Advisory Committee member.



     3.12 Payment of Indemnification Expenses. Prior to any final disposition of any claim or
proceeding with respect to which any Indemnified Party may be entitled to indemnification
hereunder, at the discretion of the General Partner the Partnership may pay to the Indemnified
Party, in advance of such final disposition, an amount equal to all expenses of said Indemnified
Party reasonably incurred in the defense of said claim or proceeding so long as the Partnership has
received a written undertaking of said Indemnified Party to repay to the Partnership the amount so
advanced if it shall be finally determined that said Indemnified Party was not entitled to
indemnification hereunder. Any Person entitled to indemnification hereunder shall first seek
recovery under any insurance policies of the Partnership by which such Person is covered prior to
such Person receiving any indemnification payment from the Partnership. To the extent that the
Partnership makes any payments to an Indemnified Party for any indemnification claim (including
advances) hereunder, if the Indemnified Party has no continuing liability with respect to any claim
or proceeding with respect to which such Indemnified Party may be entitled to indemnification
hereunder, the Partnership shall be subrogated to the extent of such payment to any rights which
the Indemnified Party may have to receive indemnification payments (including payments under any
insurance policies of the Partnership) from other Persons with respect to the subject matter
underlying such indemnification claim.



22









 





     3.13 Partnership Classification. The Partnership and the General Partner shall use their
best efforts to assure that the Partnership will be treated for federal income tax purposes as a
partnership and not as an association or publicly traded partnership taxable as a corporation. The
Partnership shall not elect to be treated other than as a partnership for federal income tax
purposes.



     3.14 Reliance by Third Parties. Any contract, instrument or act of the General Partner on
behalf of the Partnership shall be conclusive evidence in favor of any third party dealing with the
Partnership that the General Partner has the authority, power, and right to execute and deliver
such contract or instrument and to take such action on behalf of the Partnership. This Section
3.14 shall not be deemed to limit the liabilities and obligations of the General Partner as set
forth in this Agreement.



     3.15 Co-Investment Entities. To address specific tax issues or other regulatory concerns,
the General Partner may form one or more co-investment entities (together with the Partnership, the
“Co-Investment Entities”). It is the intent of the Partners that each Co-Investment Entity
participate in the same Strategic Investments on the same terms as if all of the Co-Investment
Entities were investing through a single partnership, subject to any specific investment
limitations applicable to any such fund. Whenever the General Partner determines that a particular
Strategic Investment opportunity is appropriate for the Co-Investment Entities, all of the
Co-Investment Entities shall invest in such Strategic Investment opportunity on a pro rata basis in
accordance with the ratio of the respective capital commitments of such funds that are available
for that Strategic Investment at that time, subject to the maximum investment amount deemed
appropriate by the general partner or manager of each Co-Investment Entity and subject to any
specific investment limitations applicable to any such Co-Investment Entity. Whenever the General
Partner determines that a particular Strategic Investment should be disposed of by the
Co-Investment Entities, all of the Co-Investment Entities will dispose of such Strategic Investment
at the same time and on the same terms, subject to any specific structuring requirements that are
necessary to achieve tax or regulatory objectives.



     3.16 Warehoused Properties. In connection with the first Contribution Call following the
Initial Closing, and in any event prior to the earlier of the end of the first calendar quarter in
which the Initial Closing occurs and the date of the first Subsequent Closing, the Partnership
shall pay the Reimbursement Amount to the General Partner. The General Partner’s obligation to
fund its share of such Contribution Call and the AVB Stockholder’s obligation to purchase REIT
Shares in connection with such Contribution Call shall be deemed satisfied by offset against such
Reimbursement Amount (i.e., so that the net cash received by the General Partner is the
Reimbursement Amount net of such contribution obligations). The portion of the Company’s
obligation as a Limited Partner to fund such Contribution Call which corresponds to the AVB
Stockholder’s interest in the Company shall be deemed satisfied by the in-kind Capital Contribution
of a portion of the Warehoused Properties as described in Section 5.1(c). For purposes of
determining the Partners’ Capital Accounts, Capital Contributions and distributions, the General
Partner’s right to the Reimbursement Amount, the payment thereof and the offset thereof against the
General Partner and the Company’s direct or indirect share of such Contribution Call shall be
treated as provided in Section 5.1(c). Following the Initial Closing Date, the General Partner, in
its discretion, may cause the Partnership to replace AVB as the guarantor under any Indebtedness on
the Warehoused Properties.



23









 





4. Capital Commitments and Contributions




     4.1 Payment of Capital Contributions.



     (a) Each Partner agrees to pay to the Partnership an aggregate amount in cash equal to its
Capital Commitment, as set forth in Schedule A hereto; provided that the General Partner
shall be entitled to pay the Capital Commitment with respect to its Partnership interest in cash
and/or Warehoused Properties pursuant to Sections 3.16 and 5.1(c) hereof. The total aggregate
Capital Commitments of all Partners shall not exceed three hundred and thirty million dollars
($330,000,000). All or any portion of each Partner’s Capital Commitment shall be payable upon not
less than ten (10) business days prior written notice from the General Partner (each, a
“Contribution Call”) in accordance with Section 4.1(b) below. Except as otherwise provided below
in this Section 4.1, no Contribution Calls shall be made after the expiration of the Investment
Period. Contribution Calls may be made at any time after the expiration of the Investment Period
for the purpose of (w) paying amounts owing or that come due under any credit facility obtained by
the Partnership, to the extent secured by such Capital Commitment, regardless of whether such
borrowing occurred before or after the expiration of the Investment Period, provided that no such
borrowing shall occur after the expiration of the Investment Period for the purpose of making
Strategic Investments after the end of the Investment Period unless prior to the expiration of the
Investment Period the Partnership has entered into a written letter of intent, written agreement in
principal or written definitive agreement to make such Strategic Investment, (x) paying amounts to
satisfy obligations of the Company or the Partnership under any guarantees, indemnities, covenants
or other obligations existing prior to the expiration of the Investment Period, (y) funding
investments in Strategic Investments with respect to which the Partnership has entered into a
written letter of intent, written agreement in principle or written definitive agreement to invest
prior to the expiration of the Investment Period or (z) enabling the Partnership to acquire a
Defaulting Partner’s Defaulted Interest pursuant to Section 4.2(b) below. Contribution Calls also
may be made at any time after the expiration of the Investment Period for the purpose of paying
operating and other expenses of the Partnership and the Company or establishing reserves for the
payment of such expenses. Except as provided in Sections 3.16 and 5.1(c), no Partner shall have
any right to make any Capital Contribution that has not been called by the General Partner pursuant
to this Section 4.1.



     (b) A Contribution Call shall be in the form of a written notice to all Partners, specifying
the general purpose of such Contribution Call, an aggregate dollar amount and a date on which
payment shall be due, which date shall be no less than ten (10) business days after the date of
receipt of notice of such Contribution Call. Each Partner shall be required to contribute such
Partner’s Equity Interest Percentage of the Contribution Call. The General Partner may, subject to
compliance with the requirement of ten (10) business days’ advance notice, for any increase in any
Contribution Call, amend, delay or rescind Contribution Calls at any time prior to the payment due
date thereof. The amendment, delay or rescission of a Contribution Call shall not affect or
abridge the right of the General Partner to make any subsequent Contribution Call. As provided in
Sections 3.16 and 5.1(c), the General Partner may make certain Capital Contributions by offset
against the Reimbursement Amount payable to it.



24









 





     (c) Each Limited Partner and the General Partner shall grant to the Partnership a security
interest in its Equity Interest securing payment of its Capital Commitment. Each Limited Partner
agrees to execute such security agreements and UCC financing statements as the General Partner may
reasonably request to perfect such security interest, and the General Partner shall execute and
file an agreement and statement in a form substantially similar to that required of the Limited
Partners. Neither the Partnership nor the General Partner, nor any other party, may assign,
re-pledge or re-grant a security interest in any Limited Partner’s Equity Interest in the
Partnership to any third party without the consent of such Limited Partner, and any assignment,
re-pledge or re-grant in violation of this Section 4.1(c) shall be null and void and have no force
or effect. Except as provided above, no Limited Partner shall pledge or grant a security interest
in its Equity Interest without the prior approval of the General Partner, such approval to be
granted or withheld at the sole discretion of the General Partner.



     (d) In connection with any Partnership borrowings, the General Partner shall be authorized to
pledge, mortgage, assign, transfer and grant security interests in the right to initiate
Contribution Calls and collect the Capital Commitments of the Partners hereunder. Each Partner
shall promptly execute and deliver appropriate estoppel certificates and parent entity guarantees
(to the extent required by lenders to the Partnership) and deliver required opinions of counsel
regarding the due formation, valid existence and good standing of such Partner and the due
authorization, valid execution and delivery of its Subscription Agreement and this Agreement and
any documents executed in connection with any such borrowing, and such other opinion issues as may
be requested by such lenders, and shall execute such other instruments and take such other action
as the General Partner or such lender may require in order to effectuate any such borrowings by the
Partnership. To the extent that the Partnership has outstanding obligations under a credit
facility secured by the Capital Commitments of the Partners hereunder, each Partner shall be
obligated to fund any remaining portion of its Capital Commitment without defense, counterclaim or
offset of any kind, including any defense arising under Section 365(c) of the U.S. Bankruptcy Code,
if applicable, provided that such agreement to fund shall not act as a waiver by the Partner of its
right to assert independently any claim that the Partner may have against any other Partner, the
Partnership or the Company. Nothing in this Section 4.1(d) shall require any Partner to take any
action that would cause such Partner to assume personal liability to the Partnership in an amount
which exceeds such Partner’s uncontributed Capital Commitment. In the event that, as a result of
any such pledge, mortgage, assignment, transfer or grant of security interest a Partner makes a
payment directly to a lender as required pursuant thereto, such payment shall be deemed to be a
Capital Contribution of such Partner to the Partnership.



25









 





     (e) Notwithstanding any provision herein to the contrary, but subject to the following
sentence, PSERS shall be entitled to not make any additional Capital Contributions beginning on a
certain date selected by PSERS (the “Election Date”) by providing the Partnership written notice
thereof at least five (5) business days prior to the Election Date, in the following circumstances
(each, an “Excepted Event”): (i) there are two (2) or more vacancies on the Management/Oversight
Group at the same time for which successors have not been appointed in accordance with the
definition of the Management/Oversight Group set forth herein; or (ii) the Partnership makes two
or more indemnification payments pursuant to Section 3.11 of this Agreement where each such
indemnification payment (a) relates to separate and distinct indemnification claims pertaining to
unrelated acts, omissions or events; (b) is equal to or exceeds $500,000 and (c) is the direct result of any action or inaction of the General Partner
in connection with making decisions to (1) purchase or sell real estate assets or (2) invest
significant capital to redevelop real estate assets on behalf of the Partnership that, in either
such case, constitutes a failure to exercise the care and skill under the circumstances then
prevailing that a prudent person acting in a like capacity and familiar with such matters would use
in the conduct of real estate investment enterprises that operate with investment objectives
substantially similar to the investment objectives of the Partnership as described in its private
placement memorandum. Notwithstanding the foregoing sentence, PSERS shall be required to make
Capital Contributions after the Election Date for the limited purpose of paying its pro rata share
of any borrowings that occurred prior to the Election Date under any credit facility obtained by
the Partnership to the extent that such borrowings were secured in whole or in part by PSERS’
Capital Commitment. In the event that PSERS elects to not make any Additional Capital
Contributions pursuant to this Section 4.1(e), for all purposes of this Agreement, PSERS’ Capital
Commitment shall be reduced to the amount of its aggregate Capital Contributions at the Election
Date (as increased from time to time by any subsequent Capital Contributions made by PSERS pursuant
to the preceding sentence).



     4.2 Defaulting Partners.



     (a) If a Partner fails to pay any installment of its Capital Commitment when due, a notice of
default shall be given to such Partner by the General Partner by facsimile transmission, hand
delivery or by certified or registered mail. If the installment is not received by the Partnership
within ten (10) business days after the receipt of such notice of default, such amount shall bear
interest payable to the Partnership at a rate of 18% per annum or, if lower, the highest rate of
interest permitted under applicable law, from and after the original due date of such installment
(the “Default Date”) until the earliest of either (i) the payment of such installment, including
any interest accruing under this Section 4.2(a), (ii) the purchase of such Defaulting Partner’s
Defaulted Interest (as defined below) under Section 4.2(b), or (iii) the conclusion of foreclosure
proceedings under Section 4.2(d). Any interest paid by a Defaulting Partner pursuant to this
Section 4.2(a) shall not be treated as a Capital Contribution but shall be treated as income of the
Partnership.



     (b) In addition to, and not in limitation of the foregoing, upon ten (10) days’ written notice
to any Partner that becomes a Defaulting Partner (and provided that such default has not been cured
by the Defaulting Partner within such 10-day period), the General Partner, in its sole discretion,
may:




     (i) offer to all non-defaulting Partners the right to acquire (subject to the terms
of Articles 7 and 8 hereof) all or any portion of the Equity Interest of the Defaulting
Partner in the Partnership (a “Defaulted Interest”);



26









 






     (ii) in the event that the Defaulting Partner’s entire Defaulted Interest is not
acquired by the Partners pursuant to clause (i) above, cause the Partnership to acquire
all or a portion of the portion of such Defaulting Partner’s Defaulted Interest in the
Partnership not so acquired; provided, however, that the aggregate amount of the
Defaulting Partner’s Defaulted Interest purchased by the Partners pursuant to clause
(i) and by the Partnership pursuant to this clause (ii) must be equal to the entire
Defaulted Interest of the Defaulting Partner, unless the remainder of such Defaulted
Interest is acquired pursuant to clause (iii) below; and/or




     (iii) in the event that the entire Defaulted Interest of the Defaulting Partner is
not acquired by the Partners pursuant to clause (i) above and/or by the Partnership
pursuant to clause (ii) above, designate one or more third parties, which parties may be
Partners, to acquire (subject to the terms of Articles 7 and 8 hereof) all, but not less
than all, of the Defaulting Partner’s Defaulted Interest not so acquired by the Partners
or the Partnership.


A copy of any notice provided to a Defaulting Partner pursuant to this Section 4.2(b) shall be
transmitted promptly to all other Partners. In the event that a Defaulting Partner shall pay any
overdue installment of its Capital Commitment, plus interest in accordance with paragraph (a),
prior to the expiration of the above-referenced 10-day notice period, such Partner shall cease to
be a Defaulting Partner and the remedies provided in this paragraph (b) and in paragraph (d) shall
not be available with respect thereto. In the event that the Defaulting Partner is an AVB
Affiliate, and at the time of such default the General Partner is an AVB Affiliate, the General
Partner shall be required to pursue the remedy set forth in this Section 4.2(b) against such
Defaulting Partner.




     (c) With respect to any acquisition made pursuant to subsection (b) above, the aggregate
consideration payable to the Defaulting Partner shall be a cash payment in an amount equal to
seventy percent (70%) of such Defaulting Partner’s Estimated Value Capital Account; and each
acquiring party shall be obligated, severally and not jointly, to pay its pro rata portion of such
consideration based on the percentage of the Defaulting Partner’s Defaulted Interest acquired by
such party. In the event that the General Partner exercises its right to cause the Partnership to
acquire all or a portion of a Defaulting Partner’s Defaulted Interest pursuant to subsection
(b)(ii) above, for purposes of determining each Partner’s liability for any resulting Contribution
Calls made in connection therewith, the Equity Interest Percentages of the Partners shall be
calculated assuming that the Partnership’s proposed purchase of all or a portion of the Defaulted
Interest has been completed. Any non-defaulting Partner that acquires all or a portion of a
Defaulting Partner’s Defaulted Interest shall also assume the portion of the Defaulting Partner’s
Capital Commitment corresponding to the acquired portion of the Defaulted Interest and shall pay to
the Partnership, concurrently with the payment of the purchase price to the Defaulting Partner, an
amount representing the portion of the Defaulting Partner’s Contribution Call that is then due and
unpaid that corresponds to the acquired portion of the Defaulted Interest. In the event that the
Partnership acquires any portion of a Defaulting Partner’s Defaulted Interest, the portion of the
Defaulting Partner’s Capital Commitment that corresponds to the portion of the Defaulted Interest
acquired by the Partnership shall be cancelled. Any interest that accrues under Section 4.2(a)
with respect to a Defaulting Partner’s Defaulted Interest prior to the acquisition of such
Defaulted Interest pursuant to Section 4.2(b), shall remain an obligation of the Defaulting Partner
and shall not be assumed by any Person acquiring the Defaulted Interest unless otherwise agreed in
writing by such Person and the Defaulting Partner.



27









 





     (d) In addition to, or in lieu of, and not in limitation of any of the foregoing, upon
termination of the 10-day period provided in paragraph (b) above, the General Partner, in its sole
discretion, may commence proceedings to collect any due and unpaid installment of the Defaulting
Partner’s Capital Commitment (plus interest in accordance with paragraph (a) above) and the
expenses of collection, including court costs and attorneys’ fees and disbursements.



     (e) Any actions taken by the General Partner or the Partnership pursuant to paragraphs (a)
through (d), inclusive, of this Section 4.2 shall be in addition to and not in limitation of any
other rights or remedies that the Partnership may have against the Defaulting Partner, including,
but not limited to, the right to hold the Defaulting Partner responsible for any damages or
liabilities (including attorneys’ fees) to which the Partnership may be subjected (in whole or in
part) as a result of the default by the Defaulting Partner.



     (f) Each Partner hereby agrees that, in the event that such Partner shall fail to pay when due
any installment of its Capital Commitment required pursuant to Section 4.1 and the General Partner
elects to pursue any remedy set forth in paragraph (b) above, such Partner shall sell, assign,
transfer and convey to the Partnership, any designee of the General Partner, any and all Partners
making the election contemplated by subparagraph (b) or any third party, its entire Equity Interest
in the Partnership in consideration of the amount determined in accordance with the provisions of
paragraph (c) of this Section 4.2.



     (g) So long as a Defaulting Partner remains a Defaulting Partner, such Partner shall not be
entitled to exercise any voting rights otherwise granted to such Partner under this Agreement.



     (h) In the event that the Company is a Defaulting Partner because of a default by a
Stockholder (a “Defaulting Stockholder”) in the payment of amounts that the Defaulting Stockholder
is obligated to pay to the Company, then the Company’s Equity Interest shall be separated into two
parts for purposes of exercising all default remedies under this Section 4.2. One part will
consist of the Defaulted Interest and will represent an amount of the Company’s Equity Interest
that corresponds to the interest of the Defaulting Stockholder in the Company (the “Default
Portion”). The second part will consist of the balance of the Company’s Equity Interest (the
“Non-Default Portion”). Only the Default Portion of the Company’s Equity Interest will be treated
as a Defaulted Interest for purposes of this Agreement and the Company will continue to have the
same rights as all other non-defaulting Partners to the extent of the Non-Default Portion of the
Company’s Equity Interest. In the event that the Partnership or any non-defaulting Partner (other
than the Company) elects to purchase part or all of the Default Portion, such purchase shall occur
by the Partnership or the non-defaulting Partner, as the case may be, acquiring part or all of the
Default Portion and the Company using the proceeds received from such purchase to then acquire from
the Defaulting Stockholder the corresponding portion of the Defaulting Stockholder’s interest in
the Company. In the event that the Company is a Defaulting Partner as a result of a default by
one of its Stockholders, the General Partner may make such modifications to this Section 4.2 and
Article 5 as are necessary or appropriate so that a REIT Share is the economic equivalent (other
than with respect to tax attributes) of an Equity Interest of the same subscription amount.



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     4.3 Requirements for Admission as Limited Partner. Each Person desiring to become a Limited Partner upon the Initial Closing Date or the date of
any Subsequent Closing shall execute and deliver to the General Partner a subscription agreement (a
“Subscription Agreement”) and such other documents as shall be deemed appropriate by the General
Partner. Under such Subscription Agreement and other documents, such subscriber shall, subject to
acceptance of its subscription by the General Partner, execute and agree to be bound by this
Agreement.



     4.4 Admission of Limited Partners.



     (a) Each Limited Partner admitted to the Partnership pursuant to this Article 4 shall become a
Limited Partner on the Initial Closing Date or on the date of any Subsequent Closing, as
applicable. To the extent any AVB Affiliate acquires an interest in the Partnership as a Limited
Partner, such interest shall be treated as a Limited Partner interest in all respects, except as
otherwise specified in this Agreement.



     (b) Additional Limited Partners may be admitted to the Partnership after the Initial Closing
Date as follows:




     (i) After the Initial Closing Date, the General Partner may admit additional Limited
Partners, or accept additional Capital Commitments from existing Limited Partners, at one
or more additional closings (each a “Subsequent Closing”) to be held on or prior to the
ninth month anniversary of the Initial Closing Date (or, if such date is not a business
day, the next business day). In connection with any Subsequent Closing, newly admitted
Limited Partners, and existing Limited Partners that increase their Capital Commitments,
will each be required to make payments equal to the Catch-up Payment plus Catch-up
Interest (calculated from each date on which the existing Limited Partners made any prior
Capital Contributions), which amounts will be paid to the existing Limited Partners, pro
rata, in proportion to each such Partner’s Equity Interest Percentage immediately prior to
such Subsequent Closing. Any Catch-up Payment and Catch-up Interest paid to the
Predecessor(s) In Interest, pursuant to this Section 4.4(b), shall be treated as a payment
to such Predecessor(s) In Interest with respect to a sale of a portion of their Equity
Interests in the Partnership. The portion of the Equity Interest in the Partnership sold
by each Predecessor In Interest shall be a portion equal to the percentage obtained by
dividing the amount of the Catch-up Payment made to such Predecessor In Interest by the
aggregate amount of the Capital Contributions made by such Predecessor In Interest
immediately prior to such Subsequent Closing. The General Partner may, in its discretion,
make an election pursuant to Code Section 754.



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     (ii) In connection with each Subsequent Closing, the General Partner shall modify
Schedule A and the books and records of the Partnership to accurately reflect the
Capital Contributions, Capital Commitments subject to call and Capital Account balances of
all Partners, determined as of the time of such Subsequent Closing. The Capital
Commitment of each existing Partner shall not be increased, or decreased, by any Catch-Up
Payment or Catch-Up Interest received. The Capital Contributions of
each existing Partner shall be reduced by the amount of any Catch-Up Payment received
(i.e., such Capital Contributions that are attributable to the interest in the
Partnership that was sold). In computing the Capital Commitments subject to call set
forth on Schedule A, Catch-up Payments made by a Partner shall be treated as
Capital Contributions by such Partner.




    (iii) For purposes of Article 5 hereof, any item of income, gain, loss, or deduction
previously allocated pursuant to Article 5 hereof, as well as any amounts credited or
debited to the Return Account, in each case with respect to any portion of an Equity
Interest sold for a Catch-Up Payment pursuant to Section 4.4(b)(i) shall be deemed
attributable to such transferred interests.



     (c) After the date which is nine months following the Initial Closing Date (or, if such date
is not a business day, the next business day), no new Limited Partner shall be admitted to the
Partnership except (A) pursuant to Section 4.2 hereof, (B) as a substitute Limited Partner in
accordance with Article 7 hereof, or (C) on such terms and conditions as have received the prior
written consent of the Limited Partners representing a Voting Interest of the Limited Partners in
excess of fifty percent (50%), excluding from such vote any Limited Partner that is an AVB
Affiliate so long as the General Partner is an AVB Affiliate, and the approval of the General
Partner.



     (d) The admission of a Person to the Partnership that would cause the Partnership to be an
investment company within the meaning of Section 3 of the Investment Company Act shall be void ab
initio and shall not bind or be recognized by the Partnership.



     (e) The admission of a new Limited Partner or Limited Partners or the acceptance by the
Partnership of an additional Capital Commitment with respect to one or more existing Partners,
shall not cause the dissolution or termination of the Partnership.



     4.5 Interest. Except as provided in Section 4.4(b) with respect to Catch-up Interest, no
Partner shall be entitled to receive any interest on any Capital Contributions to the Partnership.



     4.6 Assignees. Subject to Section 4.4(b), any reference in this Agreement to the Capital
Commitment or Capital Contribution of a Partner who is an assignee of all or a portion of an Equity
Interest shall include the Capital Commitment and Capital Contribution of the assignor (or a pro
rata portion thereof in the case of an assignment of less than the entire Equity Interest of the
assignor).



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5. Capital Accounts; Profits and Losses; Distributions




     5.1 Capital Accounts.



     (a) A separate capital account (each a “Capital Account”) shall be maintained for each Partner
in accordance with the rules of Treasury Regulations Section 1.704-1(b)(2)(iv), and this Section
5.1 shall be interpreted and applied in a manner consistent therewith. Whenever the Partnership
would be permitted to adjust the Capital Accounts of the Partners pursuant to Treasury Regulations
Section 1.704-1(b)(2)(iv)(f) to reflect revaluations of Partnership property, the
Partnership may so adjust the Capital Accounts of the Partners. In the event that the Capital
Accounts of the Partners are adjusted pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(f) to reflect revaluations of Partnership property, (i) the Capital
Accounts of the Partners shall be adjusted in accordance with Treasury Regulations Section
1.704-1(b)(2)(iv)(g) for allocations of depreciation, depletion, amortization and gain or
loss, as computed for book purposes, with respect to such property, (ii) the Partners’ distributive
shares of depreciation, depletion, amortization and gain or loss, as computed for tax purposes,
with respect to such property shall be determined so as to take account of the variation between
the adjusted tax basis and book value of such property in the same manner as under Code Section
704(c), and (iii) the amount of upward and/or downward adjustments to the book value of the
Partnership property shall be treated as income, gain, deduction and/or loss for purposes of
applying the allocation provisions of this Article 5. In the event that Code Section 704(c)
applies to Partnership property, the Capital Accounts of the Partners shall be adjusted in
accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g) for allocations of
depreciation, depletion, amortization and gain and loss, as computed for book purposes, with
respect to such property.



     (b) In furtherance and not in limitation of the provisions of Section 5.1(a), the following
adjustments shall be made to the Capital Accounts of the Partners if and to the extent required by
the Treasury Regulations promulgated under Code Section 704(b):




     (i) Any Partner that is a disregarded entity for federal income tax purposes and is
treated as the same taxpayer (or part of the same taxpayer) as any other Partner shall be
treated as a single Partner. Except as otherwise required to comply with the requirements
of Code Section 704(b), such Partners shall be treated as distinct and separate Partners
for all other purposes of this Agreement.




    (ii) Any fees, expenses or other costs of the Partnership that are paid by the
General Partner and that are required to be treated as capital contributions to the
Partnership for purposes of Code Section 704(b) and the Treasury Regulations thereunder
shall be added to the balance of the General Partner’s Capital Account. Any fees, costs
or other expenses of a Partner (including the Company) that are paid by the Partnership
and that are required to be treated as distributions for purposes of Code Section 704(b)
and the Treasury Regulation thereunder, or where failure to treat such payment as a
distribution would cause the Company to fail the REIT income tests of Code Section 856(c),
shall be treated as a distribution to the appropriate Partner and the Partnership’s
payment thereof shall not be treated as an item of deduction or loss. In cases where
failure to treat payment of a Company expense as a distribution would cause the Company to
fail the REIT income tests, the Company shall be obligated to refund the aggregate amount
of such payments to the Partnership to the extent that such amount exceeds the cumulative
net income of the Partnership. This Section 5.1(b)(ii), in conjunction with Section 5.2,
is intended to prevent any payments by the General Partner or the Partnership from giving
rise to a violation of Code Section 704(b) or, in
the case of the Company, Code Section 856(c) while at the same time preserving to the
extent possible the parties’ intended economic arrangement and shall be applied consistent
with such intent.



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     (c) The payment of the Reimbursement Amount shall not be treated as a distribution to the
General Partner. The General Partner shall be deemed to have made an in-kind Capital Contribution
of a portion of the equity interests in the Warehoused Properties in an agreed upon value equal to
the product of the Reimbursement Amount and the General Partner’s Equity Interest Percentage
(including its Equity Percentage Interest as a Partner). The remaining portion of the equity
interests in the Warehoused Properties (with an agreed upon value equal to the product of the
Reimbursement Amount and the Company’s Equity Interest Percentage (the “Residual Value”)) shall be
deemed to have been (i) contributed by the AVB Stockholder to the Company as payment for REIT
Shares in an amount equal to the product of the Residual Value and the AVB Stockholder’s percentage
interest of the Company and (ii) purchased by the Company for cash in an amount equal to the
difference between the Residual Value and the amount under clause (i). The Company shall then be
deemed to have made an in-kind Capital Contribution to the Partnership in an amount equal to the
sum of the amounts in (i) and (ii) of the preceding sentence.



     5.2 Allocation of Net Income and Net Loss. After application of Section 5.3, and subject
to the other provisions of this Article 5, any remaining net income or net loss for the taxable
year (or items of income or loss) shall be allocated among the Partners in such ratio or ratios as
may be required to cause the balances of the Partners’ Economic Capital Accounts to be as nearly
equal to their Target Balances as possible.



     5.3 Minimum Gain Chargebacks and Non-Recourse Deductions.



     (a) Notwithstanding any other provisions of this Agreement, in the event there is a net
decrease in Partnership Minimum Gain during a taxable year, the Partners shall be allocated items
of income and gain in accordance with Treasury Regulations Section 1.704-2(f). For purposes of
this Agreement, the term “Partnership Minimum Gain” shall have the meaning set forth in Treasury
Regulations Section 1.704-2(b)(2), and any Partner’s share of Partnership Minimum Gain shall be
determined in accordance with Treasury Regulations Section 1.704-2(g)(1). This Section 5.3(a) is
intended to comply with the minimum gain charge-back requirement of Treasury Regulations Section
1.704-2(f) and shall be interpreted and applied in a manner consistent therewith.



     (b) Notwithstanding any other provision of this Agreement, non-recourse deductions shall be
allocated to the Partners, pro rata, in proportion to their Equity Interest Percentages.
“Non-recourse deductions” shall have the meaning set forth in Treasury Regulations Section
1.704-2(b)(1).



     (c) Notwithstanding any other provisions of this Agreement, to the extent required by Treasury
Regulations Section 1.704-2(i), any items of income, gain, loss or deduction of the
Partnership that are attributable to a nonrecourse debt of the Partnership that constitutes
“partner nonrecourse debt” as defined in Treasury Regulations Section 1.704-2(b)(4) (including
chargebacks of partner nonrecourse debt minimum gain, “Partner Nonrecourse Debt”) shall be
allocated in accordance with the provisions of Treasury Regulations Section 1.704-2(i). This
Section 5.3(c) is intended to satisfy the requirements of Treasury Regulations Section 1.704-2(i)
(including the partner nonrecourse debt minimum gain chargeback requirements) and shall be
interpreted and applied in a manner consistent therewith.



32









 





     (d) Notwithstanding any other provision of this Agreement, creditable foreign taxes shall be
allocated to the Partners in accordance with the provisions of Treasury Regulations Section
1.704-1T(b)(4)(xi)(a). “Creditable foreign taxes” shall have the meaning set forth in
Treasury Regulations Section 1.704-1T(b)(4)(xi)(b).



     5.4 Code Section 704(b) Compliance. The allocation provisions contained in this Article 5
are intended to comply with Code Section 704(b) and the Treasury Regulations promulgated
thereunder, and shall be interpreted and applied in a manner consistent therewith.



     5.5 Elections. Any elections or other decisions relating to the allocations of Partnership
items of income, gain, loss, deduction or credit shall be made by the General Partner in any manner
that reasonably reflects the purpose and intent of this Agreement.



     5.6 Distributions.



     (a) Distributions of Net Cash Flow from Operations and Proceeds from Capital
Transactions. Net cash flow from operations and all net proceeds from capital transactions, in
each case in excess of working capital requirements (including reserves and any amounts used to
repay indebtedness of the Partnership), shall be distributed to the Partners quarterly, or more
frequently in the General Partner’s sole discretion. All such distributions and any other
distribution by the Partnership shall be made in the following manner:




   (i)  First, subject to Section 5.6(c), to the Partners, pro rata, in proportion to
their respective Equity Interest Percentages, until the aggregate amount distributed to
the Partners pursuant to this Section 5.6(a)(i) equals the lesser of (x) Partners’ Return
Account and (y) the Partners’ aggregate Capital Contributions;




   (ii) Second, to the Partners, pro rata, in proportion to their respective Equity
Interest Percentages, until the aggregate amount distributed to the Partners pursuant to
this Section 5.6(a)(ii) is equal to the Preferred Return of all Partners;




  (iii) Third, (A) eighty percent (80%) to the Partners, pro rata, in proportion to
their respective Equity Interest Percentages, and (B) twenty percent (20%) to the General
Partner until the aggregate amount distributed to the Limited
Partners pursuant to Sections 5.6(a)(ii) and (iii) is equal to the Second Preferred
Return of the Limited Partners;




  (iv) Fourth, (A) sixty percent (60%) to the Partners, pro rata, in proportion to
their respective Equity Interest Percentages, and (B) forty percent (40%) to the General
Partner until the aggregate amount distributed to the General Partner pursuant to Section
5.6(a)(iii)(B) and this Section 5.6(a)(iv)(B) for all periods is equal to twenty percent
(20%) of the aggregate amount of distributions made to all Partners pursuant to Sections
5.6(a)(ii), (iii) and (iv); and




   (v) Thereafter, (A) eighty percent (80%) to the Partners, pro rata, in proportion to
their respective Equity Interest Percentages, and (B) twenty percent (20%) to the General
Partner.



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Distributions to the General Partner under Section 5.6(a)(iii)(B), Section 5.6(a)(iv)(B) and
Section 5.6(a)(v)(B) are referred to herein as “Incentive Distributions.”




     (b) Distributions in Kind. Except as permitted by this Section 5.6(b) and Section
3.2(h), the Partnership shall not make in-kind distributions.




     (i) Except as provided in Sections 5.6(b)(ii) and (iii), the Partnership may elect to
make any distribution to a Partner hereunder, either wholly or partially, in securities
for which a public market (National Exchange or Nasdaq National Market) exists and which
may be traded by the Partners without restrictions. Securities distributed pursuant to
this Section 5.6(b) shall be valued based on the average of the closing prices for such
securities during the twenty (20) trading days prior to the date of distribution and
adjusted, if appropriate, taking into account the amount of securities relative to the
trading volume of securities of the same class, the existence or absence of a control
position on the part of the Partnership with respect to the issuer of such securities, and
any other factors that are customarily taken into account in determining whether the fair
market value of securities of the same type is greater or less than market quotation. The
Partnership may make other types of distributions in kind to Partners, including Incentive
Distributions, only with the approval of Limited Partners holding a majority of
the outstanding Equity Interest Percentages (excluding any AVB Affiliate for so long as
the General Partner is an AVB Affiliate), except as provided in Section 5.6(b)(ii) and
(iii).




     (ii) Notwithstanding the provisions of Section 5.6(b)(i), no in-kind distribution
shall be made to an ERISA Partner unless: (A) notice is given to such ERISA Partner at
least ten (10) business days prior to the in-kind distribution date; and (B) the ERISA
Partner does not deliver to the General Partner, at least five (5) business days prior to
such distribution date, an opinion of counsel, in form and substance reasonably
satisfactory to the General Partner and signed by counsel reasonably satisfactory to the
General Partner (which may include an opinion of a nationally recognized counsel or
in-house counsel regularly employed by a Limited Partner with expertise in the subject
matter of such opinion), stating that receiving or holding such property by the ERISA
Partner would be materially likely to result in a violation of
ERISA. In the event that such ERISA Partner provides the General Partner with such
an opinion of counsel in a timely manner, such ERISA Partner (such Limited Partner to be
referred to as the “Electing Limited Partner”) shall be entitled to receive instead such
other securities, property or cash of the Partnership as the General Partner may determine
in accordance with paragraph (iii) below.




   (iii) In the case of (ii) above, the Partnership may (1) retain the securities or
other assets on behalf of the ERISA Partner, or (2) transfer the securities or other
assets that would have been distributed to the ERISA Partner to a subsidiary of the
Partnership and distribute the interests in such subsidiary to the ERISA Partner and the
General Partner. In either case, the General Partner will act as temporary manager of the
securities or other assets (the “Managed Assets”) for the exclusive benefit of the
Electing Limited Partner without collecting a fee for such management services. In the
case of (1) or (2) above, the following provisions shall apply:



34









 






     (A) The Partnership or subsidiary of the Partnership shall hold the Managed
Assets as nominee for the benefit of, and on behalf of, the Electing Limited
Partner. Subject to the following sentence, the General Partner shall use
commercially reasonable efforts to effect the disposition of the Managed Assets.
The General Partner shall have sole discretion with respect to the sale, exchange or
disposition of the Managed Assets and shall have no fiduciary or other duty to the
Partnership or the other Limited Partners in the exercise of such discretion. The
Electing Limited Partner shall be liable for all taxes and other charges levied upon
the Managed Assets and on any income or distributions thereon, and shall be liable
for any and all costs incurred by the Partnership for the benefit of the Electing
Limited Partner pursuant to this Section. The Electing Limited Partner shall have
the benefit, and bear the risk, of all distributions of income, dividends, cash or
other property on or relating to the Managed Assets , all losses with respect to the
Managed Assets or any change in the character of the Managed Assets. The provisions
of Sections 3.10, 3.11 and 3.12 shall be available with respect to the Managed
Assets; provided, that any indemnification obligation arising under Section 3.12
with respect to the Managed Assets shall be borne solely by the Electing Limited
Partner to the extent of the fair market value of all Managed Assets held by the
Partnership or its subsidiary on behalf of the Electing Limited Partner and
determined at the time that securities corresponding to such Managed Assets were
originally distributed in-kind to the other Partners.




     (B) Upon any disposition of the Managed Assets for cash, the Partnership shall
transfer to the Electing Limited Partner the proceeds of such disposition, less the
amount of any expenses related to such disposition.




     (C) For all purposes under this Agreement, including for purposes of
determining the Electing Limited Partner’s Capital Account, the Electing Limited
Partner shall be treated as if it received the Managed Assets at the time that
assets corresponding to such Managed Assets were originally distributed in-kind to
the other Partners.




     (iv) To the extent that distributions under Section 5.6(b)(i) or (ii) would violate
any law or regulation and such violation cannot be cured after commercially reasonable
efforts are taken by the Electing Limited Partner, upon the determination of a manner in
which such distributions would be permissible to the ERISA Partner, the General Partner
shall have sole discretion to determine in which manner such distributions may be made.



     (c) Distributions in Proportion to Partner Contributions. With respect to any
distributions occurring subsequent to the Election Date, distributions to Partners pursuant to
Section 5.6(a)(i) shall be made in proportion to the Partners’ respective Capital Contributions and
not in proportion to the Partners’ respective Equity Interest Percentages, provided that in no
event shall the aggregate distributions to a Partner pursuant to Section 5.6(a)(i) exceed that
Partner’s aggregate Capital Contributions.



35









 





     (d) Direction of Distribution Proceeds. All distributions made to a Partner pursuant
to this Agreement shall, at the election of such Partner, be made via wire transfer pursuant to
instructions provided by such Partner to the General Partner from time to time in writing, such
instructions to be as initially set forth in such Partner’s Subscription Agreement.



     (e) Special Distribution to Limited Partners.




     (i) In the event that the General Partner would be entitled to receive an Incentive
Distribution, the General Partner, in its sole discretion, may elect to distribute under
Section 5.6(a) to the Limited Partners all or a portion of the Incentive Distributions.




     (ii) To the extent that an election under Section 5.6(e)(i) reduces the amount of an
Incentive Distribution that the General Partner would otherwise receive, the General
Partner in its discretion may cause one or more distributions otherwise payable to the
Limited Partners under Section 5.6(a) to be distributed to the General Partner until the
aggregate amount distributed to the General Partner in accordance with this Section
5.6(e)(ii) equals the aggregate amount of the reduction in distributions to the General
Partner as a result of one or more elections under Section 5.6(e)(i).




     (iii) To the extent not recovered pursuant to Section 5.6(e)(ii), distributions
pursuant to this Section 5.6(e) shall be treated for purposes of subsequently applying
Section 5.6(a) first as distributions under Section 5.6(a)(i) to the extent of the amounts
in Section 5.6(a)(i) to the date of determination and then as distributions under Section
5.6(a)(ii).



     5.7 No Deficit Restoration by General Partner. Except as otherwise provided in Section
11.6, the General Partner shall have no obligation to restore a deficit balance in its Capital
Account upon liquidation of its interest in the Partnership or otherwise.



     5.8 No Deficit Restoration by Limited Partners. No Limited Partner shall have any obligation to restore a deficit balance in its Capital Account
upon liquidation of its interest in the Partnership or otherwise.



     5.9 Right of Set-Off. No part of any distribution shall be paid pursuant this Article 5 to
any Partner from which there is due and owing to the Partnership, at the time of such distribution,
any amount required to be paid to the Partnership pursuant to Article 4. Any such withheld
distribution shall be deemed to have been distributed to such Partner, shall be set off against
such Partner’s obligation to the Partnership and shall reduce such Partner’s obligation to the
Partnership accordingly.



   5.10 Withholding.



     (a) If the Partnership is required by law or regulation to withhold and pay to any taxing or
other governmental authority any amount otherwise distributable to a Partner, the Partnership shall
be entitled to withhold such amount and the amount so withheld shall for all purposes of this
Agreement be treated as if distributed to such Partner.



36









 





     (b) In the event that the proceeds to the Partnership from an investment are reduced on
account of taxes withheld at the source, and such taxes (or a portion thereof) are imposed on one
or more, but not all, of the Partners in the Partnership, the amount of the reduction in the
Partnership’s net proceeds shall be borne by and apportioned among the relevant Partners and
treated as if it were paid by the Partnership as a withholding obligation with respect to such
Partners in accordance with such apportionment.



6. Advisory Committee and Investment Committee




     6.1 Advisory Committee Membership. The Partnership shall have an advisory committee (the
“Advisory Committee”) composed of members appointed pursuant to this Section 6.1. The number of
members of the Advisory Committee and the designation of such members shall be determined by the
General Partner, in its sole discretion, provided that such members shall be associated with
Limited Partners or Stockholders, other than officers, directors, shareholders, employees or
partners of the General Partner or an AVB Affiliate, that collectively represent (either directly
through ownership of Equity Interests in the Partnership or indirectly through ownership of REIT
Shares) a majority of the aggregate Capital Commitments (excluding the Capital Commitments of any
AVB Affiliate so long as the General Partner is an AVB Affiliate). In the event of the resignation
or death of a member of the Advisory Committee, the General Partner shall promptly designate a
successor to such member in accordance with foregoing criteria.



     6.2 Advisory Committee Meetings and Expense Reimbursement. The General Partner shall
convene meetings of the Advisory Committee in person or by telephonic meeting at such times as the
General Partner determines, but in no event less than semi-annually. Written notice of the time
and place of each such meeting of the Advisory
Committee shall be given to the members of the Advisory Committee, if such meeting is to be held in
person, at least two (2) weeks prior to the date of the meeting or, if such meeting is to be held
by a telephonic meeting, at least twenty-four (24) hours prior to the time of the meeting. Notice
of meetings may be waived, either before or after the meeting, by the unanimous consent of all of
the members of the Advisory Committee. Advisory Committee members shall be entitled to
reimbursement from the Partnership for their reasonable travel expenses and other reasonable
out-of-pocket expenses incurred in connection with their attendance at meetings of the Advisory
Committee and any annual or special meetings of the Partnership, but shall not be entitled to any
fees, remuneration or other reimbursements from the Partnership or any of the Partners. The
Advisory Committee, upon the approval of at least seventy-five percent (75%) in number of its
members, may retain independent legal counsel, accountants and such other advisors and consultants
as it deems necessary in order to adequately perform its duties under this Agreement. The
reasonable expenses and fees of such legal counsel, accountants, advisors and consultants shall be
paid by the Partnership.



37









 





     6.3 Advisory Committee Authority. Except as otherwise specifically provided in this
Agreement, the Advisory Committee shall have no control over management of the Partnership or its
activities, shall not take part in the management of the Partnership, and shall not have any
authority to bind the Partnership or the General Partner or to act for or on behalf of the
Partnership. The Advisory Committee shall (i) select the Independent Appraiser pursuant to Section
8.6(d); (ii) approve any material contracts or agreements between the Partnership and AVB or any
AVB Affiliate, except as expressly provided for in this Agreement, including, without limitation,
pursuant to Sections 3.2(g), 3.2(j), 3.7(c), 3.8(b), 3.16 and 5.1(c); (iii) approve any change in
the valuation policies of the Partnership after the date of this Agreement; (iv) approve any
proposed settlements of litigation or disputes involving the Partnership or the Company where the
amount of any such settlement exceeds $500,000; and (v) approve any amendments to this Agreement
pursuant to the last sentence of Section 14.7. The Advisory Committee shall act as promptly as
possible with respect to any request to approve any material contract or agreement, any change in
the Partnership’s valuation policies or any proposed settlements pursuant to clauses (ii), (iii)
and (iv) of the preceding sentence, respectively. The General Partner shall also notify the
Advisory Committee of any Strategic Investments made by the General Partner or an AVB Affiliate and
not involving the Partnership pursuant to Section 3.9(d). In its discretion, the General Partner
may discuss such other matters with the Advisory Committee as the General Partner deems
appropriate. No member of the Advisory Committee shall be deemed to have any fiduciary or other
duties to any other Partner or to the Partnership in respect of the activities of the Advisory
Committee.



     6.4 Quorum and Voting of Members of Advisory Committee. Each member of the Advisory
Committee shall be entitled to one vote. A majority in number of the members of the Advisory
Committee shall constitute a quorum for a meeting. Members of the Advisory Committee may attend
meetings in person, by proxy approved by the General Partner, or by telephone conference call
pursuant to which all meeting attendees can speak with all other meeting attendees. Unless
otherwise provided in this Agreement, any approval or consent required to be given by the Advisory
Committee shall be deemed to have been given
upon the written consent of a majority of the total number of the members of the Advisory Committee
or upon the approval of a majority of a quorum of the members of the Advisory Committee at a duly
held meeting of the Advisory Committee.



     6.5 Investment Committee. The Partnership shall have an investment committee (the
“Investment Committee”), composed of up to five (5) voting members and two (2) non-voting members
appointed pursuant to this Section 6.5. The initial voting members of the Investment Committee
shall be composed of the members of AVB’s senior management team, as follows: (i) Bryce Blair;
(ii) Timothy J. Naughton; (iii) Thomas J. Sargeant; (iv) Samuel G. Fuller and (v) Leo S. Horey.
The initial non-voting members of the Investment Committee shall be Kevin O’Shea and Lili Dunn.
The approval of a majority of the voting members of the Investment Committee shall be required for
all Strategic Investments and Interim Investments made by the Partnership. The non-voting members
will review and, if appropriate, present, acquisition, disposition and redevelopment opportunities
to the Investment Committee for its consideration. Each member of the Investment Committee shall
serve until he or she resigns or is removed by the General Partner and any vacancy on the
Investment Committee for any reason shall be filled by the General Partner or a designee of the
General Partner. The members of the Investment Committee may adopt such procedures as they may
deem appropriate to make decisions regarding investment of the Partnership’s capital, financings,
ongoing management of the Partnership’s portfolio of Strategic Investments, dispositions of the
Partnership’s assets and other Partnership business.



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     6.6 Partnership Meetings. The Partnership shall hold an annual meeting (in the continental
U.S.) of the Partners during each full Fiscal Year of the Partnership’s existence at which the
General Partner will review and discuss the Partnership’s investment activities. The Partnership
shall hold special meetings of the Partners upon the call of (a) the General Partner, or (b) (i)
Limited Partners representing at least a majority of the aggregate Capital Commitments or (ii)
Stockholders that hold in the aggregate REIT Shares representing an indirect economic interest in
at least a majority of the aggregate Capital Commitments or (iii) a combination of Limited Partners
and Stockholders collectively representing, either directly in the case of Limited Partners or
indirectly through their holdings of REIT Shares in the case of Stockholders, at least a majority
of the aggregate Capital Commitments, if such Limited Partners and/or such Stockholders give
written notice to the General Partner that they wish to call a special meeting of the Partners for
the purpose of exercising any right of the Limited Partners provided for in this Agreement. The
General Partner shall notify each Limited Partner and each Stockholder of the time and place of
each such annual or special meeting at least thirty (30) days prior to the date thereof. Each
Stockholder shall be entitled to attend Partnership meetings.



7. Transfers of Limited Partnership Interests




     7.1 Assignability of Interests. Subject to the limitations set forth in this Section 7.1,
except as specifically provided by this Agreement, the Equity Interest in the Partnership of a
Limited Partner may not be directly or
indirectly assigned without the written consent of the General Partner, which consent may be
withheld in its sole and absolute discretion; provided that the consent of the General Partner
shall not be required to effect any assignment to the successor trustee or successor investment
manager of an ERISA Partner. No Limited Partner shall be entitled to assign its Equity Interest in
the Partnership without providing to the General Partner such evidence as it may reasonably
require, including an opinion of a nationally recognized counsel or in-house counsel regularly
employed by a Limited Partner, such counsel having expertise in the subject matter of such opinion,
if so required, that the assignment or transfer will not:



     (a) violate the registration provisions of the Securities Act, or the securities laws of any
applicable jurisdiction;



     (b) cause the Partnership not to be entitled to any exemption from the definition of an
“investment company” pursuant to Section 3 of the Investment Company Act, and the rules and
regulations of the Securities and Exchange Commission thereunder;



     (c) result in the termination of the Partnership under the Internal Revenue Code (unless such
requirement is waived by the General Partner);



     (d) cause the Partnership to fail to satisfy the requirements of any otherwise applicable safe
harbor from treatment as a publicly traded partnership under Treasury Regulations Section 1.7704-1;



     (e) result in the assets of the Partnership or the actions of the General Partner being
subject to Part 4 of Subtitle B of Title I of ERISA;



     (f) cause the Partnership or any Partner to be in violation of any law, contract or other
obligation legally binding upon any of them or otherwise suffer any material adverse consequence;
or



39









 





     (g) cause the Company to receive or accrue any amounts described in Code Section 856(d)(2)(B)
or otherwise jeopardize the Company’s status as a REIT.


In addition, no assignment of a Partner’s Equity Interest, other than pursuant to Section 4.2,
shall be permitted if at the time of such assignment, the assigning Limited Partner is in default
in its obligations under this Agreement. No assignment of a Partner’s Equity Interest shall be
binding upon the Partnership until the General Partner receives an executed copy of all documents
effecting such assignment, which shall be in form and substance satisfactory to the General
Partner, and until such assignment is approved by the General Partner pursuant to this Section 7.1.
Notwithstanding the assignment of all or any portion of a Partner’s Equity Interest in the
Partnership, (i), unless otherwise agreed by the General Partner, in its sole discretion, the
assignor shall continue to be liable with respect to its Capital Commitment relating to the
interest assigned, and (ii) the assignment of an Equity Interest in the Partnership shall not
entitle the assignee to be admitted as a substitute Limited Partner other than pursuant to Section
7.2.




     7.2 Substitute Limited Partners. A person that acquires an Equity Interest in the Partnership by assignment from a Limited
Partner in accordance with the provisions of Section 7.1 may only be admitted to the Partnership as
a substitute Limited Partner with the consent of the General Partner, which may be withheld in its
sole and absolute discretion; provided that the consent of the General Partner shall not be
required to effect the substitution of an assignee that is a successor trustee or successor
investment manager of an ERISA Partner. The admission of an assignee as a substitute Limited
Partner shall in all events be conditioned upon the assignee’s written assumption, in form and
substance satisfactory to the General Partner, of all obligations of the assigning Limited Partner
and execution of an instrument satisfactory to the General Partner whereby such assignee becomes a
party to this Agreement as a Limited Partner. Upon the admission of an assignee as a substitute
Limited Partner, the assignor shall cease to be liable with respect to its Capital Commitment
relating to the Equity Interest in the Partnership assigned.



     7.3 Obligations of Assignee. Any assignee of the Equity Interest of a Limited Partner in
the Partnership, irrespective of whether such assignee has accepted and adopted in writing the
terms and provisions of this Agreement or been admitted as a substituted Limited Partner, shall be
deemed by the acceptance of such assignment to have agreed to be subject to the terms and
provisions of this Agreement in the same manner as its assignor, and to have assumed the assignor’s
Capital Commitment obligation pursuant to Section 4.1 with respect to the Equity Interest in the
Partnership assigned.



     7.4 Allocation of Distributions Between Assignor and Assignee. Upon the assignment of an
Equity Interest in the Partnership pursuant to this Article 7, distributions pursuant to Article 5
shall be made to the Person owning the Equity Interest in the Partnership at the date of
distribution, unless the assignor and assignee otherwise agree and direct the General Partner in a
written statement signed by both.



     7.5 Assignment by Removed or Withdrawn General Partner. Notwithstanding any provision
herein to the contrary, in the event that the General Partner shall be Removed or Withdraws as a
general partner in accordance with Article 8 of this Agreement and the General Partner retains an
Equity Interest as a Limited Partner subsequent to such Removal or Withdrawal pursuant to Section
8.7, then the Removed or Withdrawn General Partner shall be entitled to assign its Equity Interest
without obtaining the prior consent or approval of the then serving General Partner or any of the
Limited Partners.



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8. Transfer of Partnership Interest by General Partner; Withdrawal




     8.1 Assignability of Interest. Without the consent of the Limited Partners representing a
Voting Interest of the Limited Partners of at least sixty-six and two-thirds percent (66-2/3%),
excluding from the vote any Limited Partner that is an AVB Affiliate so long as the General Partner
is an AVB Affiliate, except to the extent provided in Section 4.1(d), and as described below in
this Section 8.1, neither the General Partner nor any AVB Affiliate may transfer its interest in
the Partnership to any Person other than an AVB Affiliate if such transfer could result in AVB and
the AVB Affiliates having aggregate Capital Commitments less than the lesser of (i) twenty percent (20%) of
the aggregate Capital Commitments (including, for this purpose, any commitments to acquire REIT
Shares) and (ii) fifty million dollars ($50,000,000). Any assignment of the General Partner’s or
the AVB Affiliate’s interest which requires consent pursuant to this Section 8.1 shall only become
effective upon (i) the execution by the General Partner or the AVB Affiliate of a written
assignment, the execution by the successor of this Agreement, and the written assumption by the
successor of the obligations of the General Partner hereunder (in the case of an assignment of the
interest of the General Partner hereunder), (ii) the receipt by the Partnership of an opinion of
counsel that such assignment and assumption will not violate the registration provisions of the
Securities Act, or the securities laws of any applicable jurisdiction, or cause the Partnership not
to be entitled to any exemption from the definition of an “investment company” pursuant to Section
3 of the Investment Company Act, and (iii) delivery of notice of such assignment to the Limited
Partners. In the event of an assignment of the interest of the General Partner, the successor
shall become the General Partner hereunder, and the predecessor and successor General Partner shall
cause the execution of any necessary papers including, without limitation, an amendment to the
Certificate to record the substitution of the successor as General Partner. In addition to the
foregoing, and subject to the following sentence below, without the consent of the Limited Partners
representing a Voting Interest of the Limited Partners in excess of fifty percent (50%) (excluding
from the vote any Limited Partner that is an AVB Affiliate so long as the General Partner is an AVB
Affiliate), AVB, or any successor to all or substantially all of its assets, shall continue to
control the General Partner and to own, together with the other AVB Affiliates, at least fifty
percent (50%) of the equity interests of the General Partner. Notwithstanding the foregoing, (x)
the General Partner or any AVB Affiliate may transfer its interests in the Partnership and (y) AVB,
or its successor, may cease to control the General Partner and to own, together with other AVB
Affiliates, at least fifty percent (50%) of the equity interests in the General Partner, in either
case without the prior consent of the Limited Partners, as a result of or in connection with a
Change of Control of AVB.



     8.2 Voluntary Withdrawal. Except as a result of or in connection with a Change of Control
of AVB, the General Partner shall not effect a voluntary withdrawal (a “Voluntary Withdrawal”) as a
General Partner from the Partnership until such time as a new General Partner shall have been
selected who, (i) shall have stated a willingness to be admitted, and (ii) shall have received the
specific written consent of Limited Partners representing a Voting Interest of the Limited Partners
of at least sixty-six and two-thirds percent (66-2/3%), excluding from such vote, any Limited
Partner that is an AVB Affiliate so long as the General Partner is an AVB Affiliate.



41









 





     8.3 Involuntary Withdrawal. The General Partner shall be deemed to have involuntarily
withdrawn (an “Involuntarily Withdrawal”) as a General Partner from the Partnership upon the
occurrence of any of the following events: (i) in the case of a corporate General Partner, the
revocation of its charter, other than by voluntary act of its stockholders, (ii) in the case of a
General Partner which is a partnership, the death, dissolution (other than by voluntary act of its
partners) or bankruptcy of all the general partners of such partnership, (iii) the making of an
assignment for the benefit of
creditors, the filing of a voluntary petition in bankruptcy, or an adjudication of bankruptcy, or
(iv) any other event which constitutes an event of withdrawal under the Act.



     8.4 Removal of General Partner.



     (a) For Cause Removal. The General Partner may be removed (a “Removal”) by the
Limited Partners representing a Voting Interest of the Limited Partners in excess of fifty percent
(50%), excluding from the vote any Limited Partner that is an AVB Affiliate so long as the General
Partner is an AVB Affiliate, in the event of any actions or omissions by it or any AVB Affiliate in
connection with performing their duties under this Agreement that have a material adverse effect on
the Partnership and constitute fraud, willful misconduct or gross negligence. At least ninety (90)
days prior to the date of any such written consent or vote to remove, the Limited Partners or
Stockholders (who directly or indirectly control the Voting Interest that is required to remove the
General Partner in accordance with the preceding sentence) seeking to remove the General Partner
shall give the General Partner written notice of their intention to seek such Removal (a “For Cause
Removal Notice”). Such notice shall specify the alleged fraud, willful misconduct or gross
negligence constituting the basis for such Removal. Within said 90-day period, the General Partner
shall have the right to call a meeting of the Partners in accordance with Section 6.6. At such
meeting, the General Partner shall have the opportunity to rebut any allegations against it. In
addition to the foregoing, the General Partner may challenge the basis for its Removal by any other
means. Notwithstanding any other provision of this Agreement, in the event that the General
Partner elects to initiate legal proceedings to challenge the basis for its Removal, the party who
is successful on the merits of the disputed matter shall be entitled to reimbursement from the
other parties of all reasonable attorneys’ fees and expenses incurred by it in connection with such
dispute. In the event that the General Partner has received a For Cause Removal Notice, the
restrictions on Contribution Calls set forth in Section 4.1(a) applicable to the period after the
Investment Period shall apply until the earlier of (x) ninety (90) days after the date of the For
Cause Removal Notice and (y) the date on which the Limited Partners vote on whether to Remove the
General Partner as set forth in the For Cause Removal Notice, provided that if the requisite
percentage of the Limited Partners vote in favor of Removing the General Partner in accordance with
the provisions of this Section 8.4(a), such restrictions on Contribution Calls shall continue to
apply until such Removal is effected.



42









 





     (b) No-Fault Removal. The General Partner also may be Removed at any time without
cause by the Limited Partners representing a Voting Interest of the Limited Partners in excess of
fifty percent (50%), excluding from the vote any Limited Partner that is an AVB Affiliate so long
as the General Partner is an AVB Affiliate. At least sixty (60) days prior to the date of any such
written consent or vote to remove, the Limited Partners or Stockholders seeking to remove the
General Partner shall give the General Partner written notice of their intention to effect such
Removal (a “No-Fault Removal Notice”). Such notice shall provide an explanation of the reasons for
such Removal. Within said sixty (60) day period, the General Partner shall have the right to call
a meeting of the Partners in accordance with Section 6.6, or otherwise contact some or all of the
Partners to discuss such Removal and the reasons therefor. The Removal of the General Partner
pursuant to this Section 8.4(b) shall be effective sixty (60) days after the date on which the
required percentage vote of the Limited Partners has been obtained.



     8.5 Payment of Expenses to General Partner Upon Withdrawal. Without in any way limiting
the provisions of Section 8.6 below, upon the assignment of all of the General Partner’s interest,
a Voluntary Withdrawal or an Involuntary Withdrawal (collectively, a “Withdrawal”) or Removal of
the General Partner, the Withdrawn or Removed General Partner or its estate or legal
representatives shall be entitled to receive from the Partnership any reimbursements of expenses
due and owing to it by the Partnership. The right of the General Partner, its estate or legal
representatives to payment of said amounts shall be subject to any claim for damages which the
Partnership or any Partner may have against such General Partner, its estate or legal
representatives if such Withdrawal is in contravention of this Agreement.



     8.6 General Partner’s Interest upon Removal or Withdrawal.



     (a) In the event that the General Partner shall be Removed in accordance with Section 8.4(a)
hereof or Withdraws as a general partner of the Partnership in accordance with Section 8.3 hereof,
in addition to the reimbursement of expense pursuant to Section 8.5, the General Partner shall be
entitled to payment of the Management Fees, the Redevelopment Fees and the Development Fees, in
each case computed through the date on which the General Partner is Removed or Withdraws, provided,
however, that the General Partner’s entitlement to the Carried Interest (as defined below) provided
hereby shall terminate on the date on which the General Partner is Removed.



     (b) In the event that the General Partner shall be Removed in accordance with Section 8.4(b)
hereof or shall Withdraw in accordance with Section 8.2 hereof, in addition to the reimbursement of
expenses pursuant to Section 8.5, and the rights pursuant to Section 8.6(d), the Partnership shall
distribute to such Removed General Partner or Withdrawn General Partner an amount equal to the sum
of (i) the General Partner’s Estimated Value Capital Account as of the date of such Removal or
Withdrawal (including that portion representing the Equity Interest held by the General Partner)
plus (ii) the amount of the Management Fees, the Redevelopment Fees and the Development Fees, in
each case computed through the date on which the General Partner is Removed or Withdraws plus (iii)
an amount equal to nine (9) months of Management Fees calculated at the rate applicable to the
Management Fees in effect immediately prior to the date of such Removal, provided,
however, that the amount described in clause (iii) of this sentence shall not be paid in
the event that the General Partner Withdraws pursuant to Section 8.2. The amount described in
clause (iii) of the preceding sentence shall be treated as a guaranteed payment within the meaning
of Code Section 707(c). If, at the time of such Removal, the Partnership does not have sufficient
cash available to pay in full the distribution required under this Section 8.6(b), such
distribution shall be made as soon as cash becomes available thereafter (and, in any event, prior
to any distributions to other Partners), and any unpaid balance shall be evidenced by a promissory
note and shall accrue interest, from the date of such Removal until paid, at the then-current prime
rate as published in the Wall Street Journal plus one percent (1%), per annum. Any such interest
shall be treated as a guaranteed payment within the meaning of Code Section 707(c).



43









 





     (c) For purposes of this Section 8.6, the General Partner’s “Carried Interest” shall be its
entitlement to the Incentive Distributions.



     (d) In the event that the General Partner shall be Removed in accordance with Section 8.4(b)
hereof, the General Partner shall have the right, but not the obligation, (the “Purchase Option”)
to purchase, either directly or indirectly through an AVB Affiliate, any one of the multi-family
apartment communities or other real estate assets held by the Partnership at the time of such
Removal. The price for such Strategic Investment to be acquired by the General Partner shall be
determined by an Appraisal of the applicable Strategic Investment conducted by an Independent
Appraiser selected by the Advisory Committee. The General Partner shall notify the Partnership
within a reasonable period of time of such Removal whether it intends to exercise the Purchase
Option, and if so, the identity of the real estate asset selected by the General Partner and the
anticipated date of acquisition, which date shall be promptly after delivering such notice. Prior
to the receipt of such notice by the Partnership, the Purchase Option shall not be deemed to impair
the Partnership’s rights or title with respect to any of its real estate assets. Upon the receipt
of such notice by the Partnership, (i) the Purchase Option shall not be deemed to impair the
Partnership’s rights or title with respect to any of its real estate assets other than the real
estate asset selected by the General Partner, and (ii) the Partnership shall not sell, offer to
sell, borrow against, pledge or otherwise encumber the real estate asset selected by the General
Partner.



     (e) In the event that the General Partner shall be Removed pursuant to Section 8.4(a), the
General Partner shall return Incentive Distributions to the Partnership as calculated in accordance
with Section 11.6 at the time of such Removal based on a hypothetical liquidation of the
Partnership following a hypothetical sale of all of the assets of the Partnership at prices equal
to their most recent valuations and the distribution of the proceeds thereof to the Partners
pursuant to this Agreement (after the hypothetical payment of all actual Partnership indebtedness,
and any other liabilities related to the Partnership’s assets, limited, in the case of non-recourse
liabilities, to the collateral securing or otherwise available to the lender to satisfy such
liabilities). In the event that the General Partner shall be Removed in accordance with Section
8.4(b), the General Partner shall not be required to return any Incentive Distributions to the
Partnership and all obligations of the General Partner under Section 11.6 shall be discharged at
the time of such Removal.



     8.7 Further Consequences of Removal or Withdrawal.



     (a) If the Partnership does not terminate as provided in Section 8.8 hereof, then in the event
of the Removal or Withdrawal of the General Partner as a general partner of the Partnership, the
former General Partner shall, to the extent of any remaining interest in the Partnership, become a
Limited Partner of the Partnership as of the effective date of its Withdrawal or Removal.
Thereafter, except as otherwise provided in this Article 8, the former General Partner shall be
treated as a Limited Partner for all purposes of this Agreement. Upon becoming a Limited Partner,
the former General Partner’s Capital Account and Commitment shall initially be the same as they
were on the effective date of its Withdrawal or Removal (after giving effect to any adjustment
required under or as a result of Section 8.6). The General Partner
shall also retain any interest as a Stockholder of the Company as of the effective date of any
Removal or Withdrawal.



44









 





     (b) After Withdrawal or Removal of a General Partner, the Withdrawn or Removed General Partner
or its estate or legal representatives shall remain liable for all obligations and liabilities
incurred by it while a General Partner and for which it was liable as a General Partner, but shall
be free of any obligation or liability incurred on account of or arising from the activities of the
Partnership from and after the time such Withdrawal or Removal shall have become effective.



     (c) If a court of competent jurisdiction determines that the Partnership has suffered any
loss, damage or liability in consequence of the conduct that formed the basis for the General
Partner’s Removal under Section 8.4(a), the amount of any distributions to the former General
Partner, in its capacity as the general partner pursuant to Sections 5.6(a) or Section 8.6 shall be
reduced by the value of such loss, damage or liability (as determined by the court) to the extent
not otherwise paid by the former General Partner.



     8.8 Continuation of Partnership Business. If, following the Withdrawal or Removal of a
General Partner, there is no remaining General Partner, any Limited Partner may notify the other
Limited Partners of such circumstances. Any Limited Partner may then propose for admission a
substitute General Partner. A substitute General Partner proposed pursuant to this Section 8.8
shall, with the specific written consent of Limited Partners representing a Voting Interest of the
Limited Partners of at least sixty-six and two-thirds percent (66-2/3%), excluding from the vote
any Limited Partner that is an AVB Affiliate, become a substitute General Partner as of the date of
Withdrawal or Removal of the former General Partner, upon his or its execution of this Agreement
and shall thereupon continue the Partnership business. If no substitute General Partner has
received such consent of the Limited Partners and executed this Agreement within ninety (90) days
from the date of the General Partner’s Withdrawal or Removal, then the Partnership shall thereupon
terminate and dissolve in accordance with Article 10 hereof.



9. Rights and Obligations of the Limited Partners




     9.1 Limited Liability. A Limited Partner that receives the return of any part of its
Capital Contribution shall be liable to the Partnership for the amount of its Capital Contribution
so returned to the extent, and only to the extent, provided by the Act except as may otherwise be
provided in Section 4.4(b)(ii). Except as provided in Sections 4.1 and 4.4 or the Act, the Limited
Partners shall not otherwise be liable to the Partnership for the repayment, satisfaction, or
discharge of the Partnership’s debts, liabilities, and obligations. Except as provided in Sections
4.2 or 4.4 with respect to the payment of interest upon failure to pay when due any installment of
a Capital Commitment and the payment of Catch-up Interest, respectively, no Limited Partner shall
have any obligation to contribute money in excess of such Limited Partner’s Capital Commitment. No
Limited Partner shall be personally liable to any third party for any liability or other obligation
of the Partnership.



45









 





     9.2 Authority of Limited Partners. The Limited Partners shall not participate in or have any control over the management of the
Partnership or its business and affairs and shall not have any power or authority to act for or
bind the Partnership.



     9.3 Confidentiality.



     (a) All information (including, without limitation, processes, plans, data, reports, drawings,
documents, business secrets, financial information or information of any other kind) received by
any Limited Partner pursuant to the terms of this Agreement (“Confidential Information”) shall be
received and maintained in confidence by such Limited Partner.



     (b) Confidential Information may be used by Limited Partners only for the purpose of
monitoring their investments in the Partnership. The Limited Partners agree that they will not use
any Confidential Information for any other purpose, including, without limitation, use in
conducting or furthering their own business or that of any affiliates or any competing business.



     (c) The obligations of limited use and nondisclosure contained in this Section 9.3 will not
(i) restrict the disclosure of Confidential Information to a Limited Partner’s attorneys, tax
advisors, accountants or other professional advisors or consultants (so long as such Persons are
under an obligation of confidentiality consistent with the terms of this Section 9.3), (ii)
restrict the disclosure of Confidential Information to the extent required by law or legal process
or to the extent permitted with the prior written consent of the General Partner or (iii) apply to
information that (w) was publicly known or otherwise known to a Limited Partner prior to the time
of such disclosure, (x) subsequently becomes publicly known through no act or omission by a Limited
Partner or any person acting on a Limited Partner’s behalf, (y) otherwise becomes known to a
Limited Partner without breach of this Agreement other than through disclosure by the Partnership
or (z) constitutes financial statements delivered to a Limited Partner under Section 12 that are
otherwise publicly available.



     (d) Stockholders shall have the same rights and obligations as a Limited Partner with respect
to Confidential Information. Therefore, for purposes of this Section 9.3, the term “Limited
Partner” shall be deemed to include Stockholders.



     (e) The obligations of confidentiality provided for in this Section 9.3 shall not apply to the
tax treatment and tax structure of the Partnership, the Company, a Partner’s interests in the
Partnership or a Stockholder’s interests in the Company, which may be disclosed; provided,
however, that this authorization to disclose the tax treatment and tax structure is limited to the
extent that confidentiality is required to comply with any applicable securities laws.



     9.4 Preservation of REIT Status. The Limited Partners shall cooperate with the General
Partner to accommodate any requested changes to this Agreement that are reasonably necessary or
desirable for the Company to maintain its status as a REIT as long as such changes do not have a
material adverse economic or
tax impact on the Limited Partners or a material adverse impact on the rights of the Limited
Partners under this Agreement.



46









 





     9.5 Special Rights of the Company. To facilitate the Company’s input with respect to the
management of the business of the Partnership, at all times the Company shall have the following
management rights:




     (i) the right to discuss, and provide advice with respect to, the business
operations, properties and financial and other conditions of the Partnership with the
Partnership’s officers and employees and the right to consult with and advise the
Partnership’s management on matters affecting the business and affairs of the Partnership;




     (ii) the right to submit business proposals or suggestions to the Partnership’s
management from time to time with the requirement that one or more members of the
Partnership’s management discuss such proposals or suggestions with the Company within a
reasonable period after such submission and the right to call a meeting with the
Partnership’s management in order to discuss such proposals or suggestions; and




     (iii) the right (a) upon reasonable notice and accompanied by the General Partner, to
visit the Partnership’s business premises and other properties during normal business
hours, (b) to receive financial statements, operating reports, budgets or other financial
reports of the Partnership on a regular basis describing the Partnership’s financial
performance, material developments or events, significant proposals and other material
aspects of the Partnership’s business and operations, (c) to examine the books and records
of the Partnership, and (d) to request such other information at reasonable times and
intervals in light of the Partnership’s normal business operations concerning the general
status of the Partnership’s business, financial condition and operations.


The rights set forth in this Section 9.5 shall be in addition to all other rights that the Company
has under this Agreement. The Company’s exercise of its rights under this Section 9.5 shall not be
deemed to be participation in or control of the management of the Partnership for purposes of
determining whether the Company is acting as a general partner of the Partnership under the Act.




10. Duration and Termination of the Partnership




     10.1 Duration. Except as provided in Section 8.8, the duration of the Partnership shall
continue until the eighth anniversary of the Final Closing Date, provided, however, that the
General Partner, after consultation with the Advisory Committee, may, in its sole discretion, elect
to extend the Partnership’s term for an additional year, and provided, further, that the term of
the Partnership may be subsequently further extended for an additional year upon the approval of
(i) the General Partner and (ii) the Limited Partners representing a Voting Interest of the Limited
Partners in excess of fifty percent (50%), excluding from the vote any Partner that is an AVB
Affiliate so long as the General Partner is an AVB Affiliate. If so extended, the duration of the Partnership
shall continue until the ninth or tenth anniversary of the Final Closing Date, as applicable.



     10.2 Bankruptcy of Limited Partner. The bankruptcy, insolvency, dissolution, or
liquidation of, or the making of an assignment for the benefit of creditors by, or any other act or
circumstance with respect to, a Limited Partner shall not cause the dissolution or termination of
the Partnership.



47









 





     10.3 Termination. The Partnership shall terminate and commence dissolution ninety (90)
days from the earlier of (i) the date of the Withdrawal or Removal of a General Partner, unless the
remaining General Partner or Partners or a substitute General Partner elect to continue the
Partnership in accordance with Section 8.8, in which event the Partnership shall not terminate or
dissolve, but shall continue as though no such Withdrawal or Removal had occurred; (ii) the
expiration of the duration of the Partnership as provided in Section 10.1; (iii) upon the vote of
the General Partner and Limited Partners representing a Voting Interest of the Limited Partners of
at least sixty-six and two-thirds percent (66-2/3%), excluding from the vote any Limited Partner
that is an AVB Affiliate so long as the General Partner is an AVB Affiliate; or (iv) at the
election of the General Partner, any time after the first date following the Investment Period on
which the Partnership no longer, directly or indirectly, owns any Strategic Investments.



11. Liquidation of the Partnership




     11.1 General. Upon the termination and/or commencement of the dissolution of the
Partnership, the Partnership shall be liquidated in accordance with this Article and the Act. The
termination, dissolution and liquidation shall be conducted and supervised by the General Partner
or, if there is no remaining General Partner and no substitute General Partner has been appointed
following the Withdrawal or Removal of a General Partner, by a Person who shall be designated for
such purpose by Limited Partners which have made a majority of the aggregate Capital Contributions
made by all of the Limited Partners, excluding from the vote any Limited Partner that is an AVB
Affiliate (the General Partner or such trustee or other Person, as applicable, being referred to in
this Article 11 as the “Liquidating Agent”). The Liquidating Agent shall have all of the rights,
powers, and authority with respect to the assets and liabilities of the Partnership in connection
with the liquidation, dissolution and termination of the Partnership that the General Partner has
with respect to the assets and liabilities of the Partnership during the term of the Partnership,
and the Liquidating Agent is hereby expressly authorized and empowered to execute any and all
documents necessary or desirable to effectuate the liquidation of the Partnership and the transfer
of any assets or liabilities of the Partnership. The Liquidating Agent shall have the right from
time to time, by revocable powers of attorney, to delegate to one or more Persons any or all of
such rights and powers and such authority and power to execute documents and, in connection
therewith, to fix the reasonable compensation of each such Person, which compensation shall be
charged as an expense of liquidation.



     The Liquidating Agent shall liquidate the Partnership as promptly as shall be practicable
after termination, consistent with the preservation of capital. Without limiting the rights,
powers, and authority of the Liquidating Agent as provided in this Section 11.1, any Partnership
asset that the Liquidating Agent may sell shall be sold at such price and on such terms as the
Liquidating Agent may, in its sole discretion, deem appropriate. Subject to Section 5.6(b)(ii),
the Liquidating Agent may, if it so determines, distribute restricted securities and other assets
of the Partnership in-kind to the Partners.



     Notwithstanding any other provision of this Agreement, in the event that the Company adopts a
plan of liquidation pursuant to Section 8.3 of the Charter, then the Partnership shall commence the
liquidation of its assets at the same time as the Company commences liquidation of its assets
pursuant to such plan.



48









 





     11.2 Priority on Liquidation; Distributions. The proceeds of liquidation shall be applied
in the following order of priority:



     (a) To pay the costs and expenses of the dissolution and liquidation;




     (b) To pay matured debts and liabilities of the Partnership to all creditors of the
Partnership (including, without limitation, any liability to any Partner);



     (c) To establish any reserves which the Liquidating Agent may deem necessary or advisable for
any contingent or unmatured liability of the Partnership to all Persons who are not Partners;



     (d) To pay any outstanding balances of promissory notes payable to a Removed General Partner
pursuant to Section 8.6(b);



     (e) To establish any reserves which the Liquidating Agent may deem necessary or advisable for
any contingent or unmatured liability of the Partnership to Partners; and



     (f) The balance, if any, to the Partners in accordance with Section 5.6(a).



   11.3 Orderly Liquidation. A reasonable time shall be allowed for the orderly liquidation
of the assets of the Partnership and the discharge of liabilities so as to minimize the losses
normally attendant upon a liquidation. The Liquidating Agent shall, however, if possible
consistent with the preceding sentence, dispose of Partnership assets and effect distributions to
the Partners within one hundred eighty (180) days after the date of termination of the Partnership.



   11.4 Source of Distributions. Subject to Section 11.6, the General Partner shall not be
liable out of its own assets for the return of the Capital Contributions of the Limited Partners,
it being expressly understood that any such return shall be made solely from the Partnership’s
assets.



   11.5 Statements on Termination. Each Partner shall be furnished with a statement prepared
by the Partnership’s accountant, which shall set forth the assets and liabilities of the
Partnership as at the date of complete liquidation, and each Partner’s share thereof. Upon
consummation of the liquidation of the Partnership set forth in Article 11 hereof, the Limited
Partners shall cease to be such, and the Liquidating Agent shall execute, acknowledge, and cause to
be filed a certificate of cancellation of the Partnership.



49









 





     11.6 Return of Incentive Distributions. If upon liquidation of the Partnership, the
aggregate Incentive Distributions received by the General Partner (net of any distributions
previously returned by the General Partner) represent more than twenty percent (20%) of the
aggregate distributions in excess of the aggregate Capital Contributions, then the General Partner
shall repay such excess to the Partnership, and the Partnership shall distribute such amount to the
Partners in accordance with their Equity Interest Percentages. If following such payment the
Partners have not received the full Preferred Return (calculated through the date of liquidation),
then the General Partner shall return such additional Incentive Distributions as necessary so that
the Partners receive the full Preferred Return, and the Partnership shall pay such amount to the
Partners in accordance with their Equity Interest Percentages. Notwithstanding the foregoing, in
no event shall the aggregate amount payable by the General Partner to the Partnership pursuant to
this Section 11.6 exceed the aggregate Incentive Distributions received by the General Partner.
For so long as the General Partner is an AVB Affiliate, AVB shall guarantee the obligations of the
General Partner to make the payments required by this Section 11.6 as and to the extent provided in
the form of guaranty attached hereto as Exhibit A.



12. Books; Accounting; Tax Elections; Reports




     12.1 Books and Accounts. Complete and accurate books and accounts shall be kept and
maintained for the Partnership at its principal place of business. Such books and accounts shall
be kept in accordance with generally accepted accounting principles consistently applied, the
provisions of Section 5.1 and on such other basis, if any, as the General Partner determines is
necessary to properly reflect the operations of the Partnership. Each Partner and each Stockholder
or its duly authorized representative, at its own expense, shall at all reasonable times have
access to, and may inspect and make copies of, such books and accounts and any other records of the
Partnership for reasons reasonably related to such Partner’s or such Stockholder’s interest in the
Partnership, upon reasonable prior written notice to the General Partner, subject to the General
Partner’s right to keep information confidential pursuant to and in accordance with Section
17-305(b) of the Act.



     All funds received by the Partnership other than those invested in Interim or Strategic
Investments shall be deposited in the name of the Partnership in such bank account or accounts, and
all securities owned by the Partnership may be deposited with such custodian, as the General
Partner may designate from time to time and withdrawals therefrom shall be made upon such
signature or signatures on behalf of the Partnership as the General Partner may designate from
time to time.



     12.2 Records Available. The General Partner shall maintain at the Partnership’s principal
office the following documents: (i) a current list of the full name and last known business address
of each Partner, (ii) a copy of the Certificate of Limited Partnership and all amendments thereto,
(iii) copies of the Partnership’s federal, state and local income tax returns and of any financial
statements and accounting records of the Partnership during the term of the Partnership, as
determined pursuant to Section 10.1 hereof, and for five (5) years thereafter, and (iv) copies of
this Agreement and all amendments thereto, together with executed copies of any powers of attorney
pursuant to which this Agreement, the Certificate of Limited Partnership, or any such amendment has
been executed. Such documents and all other Partnership documents are subject to inspection and
copying at the reasonable request and at the expense of any Partner or any Stockholder during
ordinary business hours upon reasonable prior notice to the General Partner. Except to the extent
requested by a Limited Partner, the General Partner shall have no obligation to deliver or mail a
copy of the Partnership’s Certificate of Limited Partnership or any amendment thereto to the
Limited Partners. The General Partner shall have the right to preserve all records and accounts in
original form or on microfilm, magnetic tape, or any other process or form that the General Partner
reasonably determines is appropriate to preserve such records and accounts.



50









 





     12.3 Annual Financial Statements and Valuation. The Partnership shall engage a nationally
recognized accounting firm to act as the accountant for the Partnership. Within ninety (90) days
after the end of each Fiscal Year, the General Partner, at Partnership expense, shall prepare and
mail to each Limited Partner and to each former Partner who withdrew during such Fiscal Year (or to
such former Partner’s legal representative, as applicable) (i) a summary description of each
acquisition or disposition by the Partnership during the previous Fiscal Year, including any
transactions with any AVB Affiliate, and (ii) a statement of all distributions made to such Partner
during the previous fiscal quarter and the previous Fiscal Year and such Partner’s Capital Account
balance and the Return Account balance as of the end of the immediately preceding Fiscal Year. The
General Partner shall also furnish to the Limited Partners (x) a balance sheet of the Partnership
as of the end of the Fiscal Year and statements of operations, Partners’ Equity and cash flow for
such Fiscal Year, prepared in accordance with generally accepted accounting principles, together
with the auditors’ report thereon indicating that the audit was performed in accordance with
generally accepted auditing standards and (y) current value financial statement of the Partnership
as of the end of the Fiscal Year. The financial statements described in clause (y) of the
preceding sentence will be prepared in accordance with procedures established by the General
Partner and shall be certified by the General Partner as having been prepared in accordance with
such procedures.



     12.4 Quarterly Financial Statements. Within sixty (60) days after the end of each of the
first three calendar quarters of each Fiscal Year, the General Partner shall mail to each Partner
unaudited current value financial statements of the Partnership as at such quarter-end, prepared in
accordance with procedures established by
the General Partner. At the same time the General Partner shall also provide the Partners with a
detailed report of the Partnership’s business and activities during such quarter, including a
statement of Capital Accounts and remaining Capital Commitments, a summary of investments and
dispositions made during such quarter and a summary of any transaction with any AVB Affiliate
during such quarter.



     12.5 Reliance on Accountants. All decisions as to accounting matters, except as
specifically provided to the contrary herein, shall be made by the General Partner, to the extent
consistent with the terms of this Agreement, in accordance with generally accepted accounting
principles and procedures applied in a consistent manner. The General Partner may rely upon the
advice of the Partnership’s accountants as to whether such decisions are in accordance with
generally accepted accounting principles.



     12.6 Tax Matters Partner; Filing of Returns.



     (a)   The General Partner shall be the “tax matters partner” of the Partnership and shall, at
the Partnership’s expense, use commercially reasonable efforts to cause to be prepared and timely
filed after the end of each Fiscal Year of the Partnership all Federal and state income tax returns
required of the Partnership for such Fiscal Year. The Partnership shall make such elections
pursuant to the provisions of the Internal Revenue Code as the General Partner, in its sole
discretion, deems appropriate.



51









 





     (b)  The Partnership shall use commercially reasonable efforts to deliver to each Partner a
Form K-1 by August 1st of each year (or the 1st day of the 8th month following the close of the
Fiscal Year if the Fiscal Year is not the calendar year).



     12.7 Fiscal Year. The fiscal year (the “Fiscal Year”) of the Partnership shall be the
period ending on December 31 of each year, or such other period as the General Partner may
designate as the Fiscal Year of the Partnership, consistent with the requirements of the Code.



13. Power of Attorney




     13.1 General. Each Limited Partner irrevocably constitutes and appoints each officer and
director of the General Partner and each Liquidating Agent the true and lawful attorney-in-fact of
such Limited Partner to execute, acknowledge, swear to and file (i) any certificate or other
instrument which may be required to be filed by the Partnership under the laws of any jurisdiction
in which the Partnership does business, or which the General Partner shall deem advisable to file,
so long as no such certificate or instrument shall have the effect of amending this Agreement; (ii)
any agreement, document, certificate or other instrument which any Limited Partner is required to
execute in connection with the termination of such Limited Partner’s interest in the Partnership
and the withdrawal of such Limited Partner pursuant to Section 4.2 hereof and which such Limited
Partner has failed to execute and deliver within ten (10) days after written request therefor by
the General Partner; and (iii) any instrument which the General Partner deems necessary or
appropriate to facilitate the implementation of the terms of this Agreement, including the pledging
of Capital Commitment obligations as contemplated by Sections 3.2 and 4.1(d), so long as such
instruments do not alter the rights or obligations of the Limited Partners under the terms of this
Agreement.



     13.2 Survival of Power of Attorney. It is expressly acknowledged by each Limited Partner
that the foregoing power of attorney is coupled with an interest and shall survive death, legal
incapacity, bankruptcy, insolvency, assignment for the benefit of creditors and assignment by a
Limited Partner of its Limited Partner’s interest in the Partnership; provided, however, that if a
Limited Partner shall assign all of its interest in the Partnership and the assignee shall, in
accordance with the provisions of this Agreement, become a substitute Limited Partner, such power
of attorney shall survive such assignment only for the purpose of enabling the General Partner to
execute, acknowledge, swear to and file any and all instruments necessary to effect such
substitution.



     13.3 Written Confirmation of Power of Attorney. Each Limited Partner hereby agrees to
execute a confirmatory or special power of attorney, containing the substantive provisions of this
Section substantially in the form attached hereto as Exhibit B.



14. Miscellaneous




     14.1 Further Assurances. The Partners agree to execute such instruments and documents as
may be required by the Act or by law or which the General Partner reasonably deems necessary or
appropriate to carry out the intent of this Agreement so long as they do not alter the rights and
obligations of the Limited Partners under this Agreement.



52









 





     14.2 Successors and Assigns. The agreements contained herein shall be binding upon and
inure to the benefit of the permitted successors and assigns of the respective parties hereto.



     14.3 Applicable Law. This Agreement shall be governed by, and construed in accordance
with, the Act and judicial interpretations thereof to the extent applicable and otherwise in
accordance with the laws of the State of Delaware. Notwithstanding the foregoing, any legal
proceeding involving any contract claim asserted against PSERS arising out of this Agreement may
only be brought before and subject to the exclusive jurisdiction of the Board of Claims of the
Commonwealth of Pennsylvania pursuant to §§1721-1726 of Title 62 Pa. Statutes, and such proceeding
shall be governed by the procedural rules and laws of the Commonwealth of Pennsylvania, without regard to
the principles of conflicts of law.



     14.4 Severability. If any one or more of the provisions contained in this Agreement, or
any application thereof, shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein and all other applications
thereof shall not in any way be affected or impaired thereby, unless the absence of the invalid,
illegal or unenforceable provision would materially affect the respective interests of the
Partners, in which case the Partners shall use their best efforts to make such changes or
adjustments in this Agreement as would restore the respective economic interests of the Partners as
originally contemplated hereby.



     14.5 Counterparts. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original of this Agreement binding on the parties hereto.



     14.6 Entire Agreement. This Agreement represents the entire agreement among the parties
hereto with respect to the subject matter hereof. In the event of any conflict or inconsistency
between the terms of the Private Placement Memorandum of the Partnership, as supplemented or
amended from time to time, and the terms of this Agreement, the Charter, the Bylaws of the Company,
and/or any subscription agreement to acquire interests in the Partnership or REIT Shares,
respectively, as such documents may be amended or restated from time to time, the terms of this
Agreement, the Charter, the Bylaws of the Company, and any such subscription agreements,
respectively, shall govern in all respects.



     14.7 Amendment. Except as provided below in this Section 14.7, the provisions of this
Agreement may be amended or waived at any time and from time to time only with the consent of the
General Partner and of Limited Partners representing a Voting Interest of the Limited Partners in
excess of fifty percent (50%), excluding from the vote any Limited Partner that is an AVB Affiliate
so long as the General Partner is an AVB Affiliate. The General Partner may amend Schedule
A hereto at any time and from time to time without the consent of any other Partner to reflect
the admission or withdrawal of any Partner, or the change in any Partner’s Capital Commitment, as
contemplated by this Agreement. The General Partner may amend this Agreement, without the consent
of the Limited Partners, for the purposes of correcting typographical errors, eliminating
ambiguities or making other immaterial changes which it determines in good faith not to be
materially adverse to the Limited Partners. No amendment shall become effective without the
consent of a Limited Partner if such amendment would cause an increase in the Capital Commitment or
adversely affect the limited liability of that Limited Partner. No amendment of this Section 14.7
shall become effective without the unanimous consent of the Partners. No amendment shall become
effective without the unanimous consent of the Partners adversely affected if such amendment would
materially adversely affect the allocations, distributions or
deficit restoration obligations provided for by this Agreement. No amendment shall be made to
Sections 3.3(c), 3.4 or 5.6(b)(ii) without the consent of the General Partner and of Limited
Partners which are ERISA Partners and which made a majority of the aggregate Capital Contributions
made by all ERISA Partners. No amendment shall be made to cause any provision(s) of this Agreement
to comply with Section 514(c)(9) of the Code or to Sections 3.3(b) or 3.6 without the consent of
the Board of Directors and Stockholders that hold in the aggregate REIT Shares representing at
least seventy-five percent (75%) of all outstanding REIT Shares. Notwithstanding any provision of
this Agreement or this Section 14.7 to the contrary, the General Partner may amend this Agreement,
without the consent of the Limited Partners, to make such modifications as the General Partner
reasonably determines are appropriate in order to qualify the Company as a REIT or preserve the
Company’s qualification as a REIT, provided that such modifications are approved in advance by the
Advisory Committee.



53









 





     14.8 Construction. The captions used herein are intended for convenience of reference
only, and shall not modify or affect in any manner the meaning or interpretation of any of the
provisions of this Agreement. As used herein, the singular shall include the plural, the masculine
gender shall include the feminine and neuter, and the neuter gender shall include the masculine and
feminine, unless the context otherwise requires. The words “hereof”, “herein”, and “hereunder”,
and words of similar import, when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement.



     14.9 Force Majeure. Whenever any act or thing is required of the Partnership or the
General Partner hereunder to be done within any specified period of time, the Partnership or the
General Partner, as the case may be, shall be entitled to such additional period of time to do such
act or thing as shall equal any period of delay resulting from causes beyond the reasonable control
of the Partnership or the General Partner, as the case may be, including, without limitation, bank
holidays, actions of governmental agencies, and financial crises of a nature materially affecting
the purchase and sale of securities; provided, that this provision shall not have the effect of
relieving the Partnership or the General Partner from the obligation to perform any such act or
thing.



     14.10 Notices. All notices, demands, solicitations of consent or approval, and other
communications hereunder shall be in writing and shall be sufficiently given if personally
delivered, transmitted by facsimile, or sent postage prepaid by overnight courier or registered or
certified mail, return receipt requested, addressed as follows: if intended for the Partnership or
the General Partner, to the Partnership’s principal office determined pursuant to Section 2.4
hereof, and if intended for any Limited Partner to the address of such Limited Partner set forth on
Schedule A hereto, or to such other address as such Partner may designate by written
notice. Notices shall be deemed to have been given when personally delivered or when transmitted
on a business day by facsimile with a machine-generated confirmation of transmission or, if mailed
or sent by overnight courier, the date on which received. The provisions of this Section shall not
prohibit the giving of written
notice in any other manner; provided that any such written notice shall be deemed given only when
actually received.



54









 





     14.11 No Right of Partition for Redemption. No Partner and no successor-in-interest to any
Partner shall have the right while this Agreement remains in effect to have the property of the
Partnership partitioned, or to file a complaint or institute any proceeding at law or in equity to
have the property of the Partnership partitioned or, except on such terms and conditions as the
General Partner may, in its sole discretion, approve, to require the redemption of its interest in
the Partnership.



     14.12 Third-Party Beneficiaries. Except with respect to Section 3.6 hereof and except with
respect to any rights expressly granted to Stockholders in this Agreement, the provisions of this
Agreement are not intended to be for the benefit of any creditor or other person to whom any debts
or obligations are owed by, or who may have any claim against, the Partnership or any of its
Partners, except for Partners in their capacities as such. Notwithstanding any contrary provision
of this Agreement, no such creditor or person shall obtain any rights under this Agreement or
shall, by reason of this Agreement, be permitted to make any claim against the Partnership or any
Partner.



     14.13 General Partner as Limited Partner or Stockholder. A General Partner may also be a
Limited Partner or may make a Capital Commitment as a General Partner or as a Stockholder, and in
such event its rights, powers, restrictions and liabilities as a General Partner shall remain
unaffected, and in addition it shall, in respect of its Capital Contributions as a Partner, have
all of the rights and powers and be subject to all of the restrictions and liabilities of a
Partner, except as otherwise expressly provided in this Agreement.



     14.14 UCC Article 8 Election. Partnership interests in the Partnership shall be securities
governed by Article 8 of the Delaware Uniform Commercial Code.



[Remainder of Page Intentionally Left Blank]



55









 





     IN WITNESS WHEREOF, this Amended and Restated Limited Partnership Agreement has been executed
by the parties as of this 16th day of March, 2005.


	 	 	 	 	 
	 	GENERAL PARTNER:



AVALONBAY CAPITAL 

MANAGEMENT, INC.

 	 
	 	By:  	/s/ Thomas J. Sargeant
 	 
	 	 	Name:  	Thomas J. Sargeant 	 
	 	 	Title:  	Executive Vice President and CFO 	 
	 
	 
	 	LIMITED PARTNERS:



See Signature Pages attached hereto

 	 
	 	 	 
	 	 	 
	 	 	 
	 




[Signature Page to Amended and Restated Limited Partnership Agreement

of AvalonBay Value Added Fund, L.P.]



 









 





AVALONBAY VALUE ADDED FUND, L.P.




LIMITED PARTNERSHIP AGREEMENT




LIMITED PARTNER SIGNATURE PAGE





     The Subscriber, desiring to become a Limited Partner of AvalonBay Value Added Fund, L.P., a
Delaware limited partnership (the “Partnership”), hereby executes the Amended and Restated Limited
Partnership Agreement of the Partnership to which AvalonBay Capital Management, Inc., a Maryland
corporation, is a party as the General Partner. The Subscriber hereby agrees to all the provisions
of said Limited Partnership Agreement, and agrees that this signature page may be attached to any
counterpart copy of said Limited Partnership Agreement.


	 	 	 	 	 
	 	Name of Subscriber:



AvalonBay Value Added Fund, Inc.

 	 
	 	By:  	/s/ Thomas J. Sargeant
 	 
	 	 	Hereunto duly authorized 	 
	 	 	 	 
	 



	 	 	 	 	 
	 	Print Name:  	Thomas J. Sargeant
 	 



	 	 	 	 	 
	 	Title:  	Executive Vice President and CFO 	 



	 	 	 	 	 
	 	Date:  	March 16, 2005	 




2









 






AVALONBAY VALUE ADDED FUND, L.P.




LIMITED PARTNERSHIP AGREEMENT




LIMITED PARTNER SIGNATURE PAGE




     The Subscriber, desiring to become a Limited Partner of AvalonBay Value Added Fund, L.P., a
Delaware limited partnership (the “Partnership”), hereby executes the Amended and Restated Limited
Partnership Agreement of the Partnership to which AvalonBay Capital Management, Inc., a Maryland
corporation, is a party as the General Partner. The Subscriber hereby agrees to all the provisions
of said Limited Partnership Agreement, and agrees that this signature page may be attached to any
counterpart copy of said Limited Partnership Agreement.


	 	 	 	 	 
	 	Date: March 16, 2005





Name of Subscriber:





COMMONWEALTH OF

PENNSYLVANIA PUBLIC SCHOOL

EMPLOYEES’ RETIREMENT SYSTEM

 	 
	 	By:  	/s/ Alan H. Van Noord
 	 
	 	 	Name:  	Alan H. Van Noord, CFA 	 
	 	 	Title:  	Chief Investment Officer 	 
	 
	 	 	 
	 	By:  	                                                     /s/ Jeffrey B. Clay
 	 
	 	 	Name:  	Jeffrey B. Clay 	 
	 	 	Title:  	Executive Director 	 
	 
	 	Approved for form and legality:

 	 
	 	/s/ David DeVries
 	 
	 	Deputy General Counsel 	 
	 	Office of General Counsel 	 
	 
	 	 	 
	 	                                                     /s/ Robert Mulley
 	 
	 	Chief Deputy Attorney General 	 
	 	Office of Attorney General 	 
	 
	 	 	 
	 	                                                     /s/ Gerald Gornish
 	 
	 	Gerald Gornish, Chief Counsel 	 
	 	Public School Employees’ Retirement System 	 
	 





3









 








AvalonBay Value Added Fund, L.P.




Schedule A




List of Partners and Capital Commitments




	 	 	 	 	 
	General Partner

	 	Capital Commitment

	 
	 	 	 	 
	AvalonBay Capital Management, Inc.
	 	 	 	 
	c/o AvalonBay Communities, Inc.

2900 Eisenhower Avenue, Suite 300

Alexandria, VA 22314-5223

	 	5% of the aggregate Capital Commitments

	 
	 	 	 	 
	Limited Partner

	 	Capital Commitment

	 
	 	 	 	 
	AvalonBay Value Added Fund, Inc.

c/o AvalonBay Communities, Inc.

2900 Eisenhower Avenue, Suite 300

Alexandria, VA 22314-5223

	 	$238,500,000
	 
	 	 	 	 
	Commonwealth of Pennsylvania

Public School Employees’

Retirement System

Five North Fifth Street

Harrisburg, Pennsylvania 17101

	 	25% of the aggregate Capital
Commitments up to a maximum of
$75,000,000






[Note: AvalonBay Communities, Inc. has made a capital commitment of $50,000,000 to AvalonBay
Capital Management, Inc. (“ACM”). ACM in turn has made capital commitments of (i) $16.5 million to
AvalonBay Value Added Fund, L.P., for a general partnership interest, and (ii) $33.5 million to
AvalonBay Value Added Fund, Inc., a Maryland corporation that intends to qualify as a real estate
investment trust (“VAF”). Seven institutional investors have also made capital commitments to VAF
totaling $205 million.]














 








AvalonBay Value Added Fund, L.P.




Exhibit A




FORM OF GUARANTY




     THIS GUARANTY (the “Guaranty”) is entered into as of [___], by and between AvalonBay
Communities, Inc., a Maryland corporation (the “Guarantor”), and AvalonBay Value Added Fund, L.P.,
a Delaware limited partnership (the “Partnership”). Any capitalized terms used herein but not
defined shall have the meanings ascribed to them in the Partnership’s Amended and Restated Limited
Partnership Agreement (the “Partnership Agreement”).



     WHEREAS, for the purpose of inducing certain Persons to acquire Equity Interests in the
Partnership, the Guarantor has agreed to guarantee the punctual payment of certain obligations of
AvalonBay Capital Management, Inc., the General Partner of the Partnership.



     NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Guarantor and the Partnership hereby agree as follows.



1. Guarantee.




     1.1 Guarantee of General Partner’s Reimbursement Obligations. The Guarantor
unconditionally, absolutely and irrevocably guarantees the punctual performance of the General
Partner’s obligations under Sections 8.6(e) and 11.6 of the Partnership Agreement, subject to the
limitations on payment contained therein (the “Guaranteed Obligation”).



     1.2 Guarantee Absolute. The liability of the Guarantor under this Guaranty shall be
irrevocable, absolute and unconditional, and the Guarantor hereby irrevocably waives any defenses
it may now or hereafter have in any way relating to any or all of the following:



          (a) any change in the time, manner or place of payment of, or in any other term of, all or any
of the Guaranteed Obligation, or any other amendment or waiver of or any consent to departure from
the Partnership Agreement including without limitation, any increase in the Guaranteed Obligation
or any other modification adverse to the Guarantor;



          (b) any other circumstance (including, without limitation, any statute of limitations) or any
existence of or reliance on any representation by the Partnership that might otherwise constitute a
defense available to, or a discharge of, the Guarantor;



          (c) any merger or consolidation of the Partnership or the General Partner or any affiliate of
any such entity;



          (d) any change in the direct or indirect ownership or right to vote by the Guarantor or any
other person, firm or entity of any partnership or other ownership interest of the General Partner
or any of its affiliates;



Exh. A-1









 





          (e) any release or discharge, by operation of law, of the Guarantor from the performance or
observance of any obligation, covenant or agreement contained in this Guaranty;



          (f) any failure by the Partnership, the General Partner or any Affiliate of any such entity to
mitigate its damages;



          (g) the effect of any foreign or domestic laws, rules, regulations or actions of a court or
governmental body;



          (h) or any other amendment or waiver of any consent to departure from the Partnership
Agreement; or



          (i) any other condition, event or circumstance which might otherwise constitute a legal or
equitable discharge, release or defense of a surety or guarantor or otherwise, or which might
otherwise limit recourse against the Guarantor, it being agreed that the Guaranteed Obligation of
the Guarantor hereunder shall not be discharged except by performance of the Guaranteed Obligation
as herein provided.



     To the maximum extent permitted by applicable law, the Guarantor waives notice of acceptance
of the Guaranty, notice of any Guaranteed Obligation, notice of protest, notice of dishonor or
nonpayment of any Guaranteed Obligation, and any other notice to the Guarantor, and waives any
defense, offset or counterclaim to any liability hereunder. To the maximum extent permitted by
applicable law, the Guarantor hereby waives and agrees not to assert or take advantage of any
rights or defenses based on any rights or defenses of the General Partner to the Guaranteed
Obligation including, without limitation, any failure of consideration, any statute of limitations,
or any insolvency or bankruptcy of the General Partner, and no invalidity, irregularity or
unenforceability of all or any part of the Guaranteed Obligation shall affect, impair or be a
defense to this Guaranty nor shall any other circumstance which might otherwise constitute a
defense available to, or legal or equitable discharge of, the General Partner in respect of the
Guaranteed Obligation affect, impair or be a defense to this Guaranty. One or more successive or
concurrent actions may be brought hereon against the Guarantor either in the same action in which
the General Partner is sued or in separate actions. If any claim or action, or action on any
judgment, based on this Guaranty is brought against the Guarantor, the Guarantor agrees not to
deduct, set-off or seek to counterclaim, for or recoup any amounts which are or may be owed by the
Partnership to the Guarantor.



     1.3 Continuing Guarantee. This Guaranty is a continuing guarantee and (a) shall
remain in full force and effect until the later of the payment in full in cash of the Guaranteed
Obligation or the date on which the Partnership has fully liquidated and no Guaranteed Obligation
can arise, (b) shall be binding upon the Guarantor, its successors and assigns and (c) shall inure
to the benefit of and be enforceable by the Partnership and its successors, transferees and
assigns.



     Each Limited Partner is a beneficiary of this Guaranty with the right to enforce it to the
extent provided herein. The failure (by waiver, delay, consent or otherwise) of any Limited
Partner to assert any claim or demand or to enforce any remedy under this Guaranty or under the



Exh. A-2









 







Partnership Agreement will not in any manner or to any extent vary or reduce the obligations
of the Guarantor hereunder.


2. Entire Agreement. This Guaranty constitutes the entire agreement of the parties and supersedes
any and all previous agreements between the Guarantor and the Partnership, whether written or oral,
respecting the subject matter hereof and thereof. This Guaranty may not be modified or amended
except by an instrument in writing signed by or on behalf of the parties hereto. No amendment or
waiver of any provision hereof and no consent to any departure by the Guarantor herefrom, will be
effective unless the same is in writing and signed by the General Partner and all Limited Partners
adversely affected thereby, provided that any Limited Partner may grant such a waiver or consent
with respect to such Limited Partner’s rights hereunder if the same is in writing and signed by
such Limited Partner. The Partnership Agreement may be amended, modified or supplemented in
accordance with its terms without notice to, consent of or agreement by any Guarantor.



3. Severability. In the event that any provision or any part of any provision of this Guaranty is
held to be illegal, invalid or unenforceable, such illegality, invalidity or enforceability shall
not affect the validity or enforceability of any other provision or part thereof.



4. Governing Law. This Guaranty shall be construed and enforced in accordance with the laws of the
State of Delaware.



5. Section Headings. The section headings in this Guaranty are included for convenience only, are
not a part of this Guaranty and shall not be used in construing it.




     This Guaranty is entered into for the sole and exclusive benefit of the Limited Partners, and
their successor and assigns permitted under the Partnership Agreement, and no other Person shall
have any rights with respect hereto. This Guaranty may not be assigned by the Guarantor without
the prior written consent of the Limited Partners. This Guaranty shall be binding on the
successors, including the heirs, executors, administrators and personal representatives, of the
Guarantor.



Exh. A-3









 





     IN WITNESS WHEREOF, the parties have executed this Guaranty as of the date first written
above.


	 	 	 	 	 
	 	AVALONBAY COMMUNITIES, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 
	 	AVALONBAY VALUE ADDED FUND, L.P.

 	 
	 	By:  	AvalonBay Capital Management,
 Inc., its General Partner	 
	 	 	 	 
	 	 	 	 
	 
	 	 	 


	 	 	 	 	 
	 	 	By:  	
 	 
	 	 	 	Name:  	 	 
	 	 	 	Title:  	 	 




Exh. A-4









 





AvalonBay Value Added Fund, L.P.




Exhibit B




FORM OF POWER OF ATTORNEY

FOR

AVALONBAY VALUE ADDED FUND, L.P.





     Know all by these presents, that the undersigned Limited Partner of AvalonBay Value Added
Fund, L.P. (the “Partnership”), pursuant to the Amended and Restated Limited Partnership Agreement
of the Partnership (the “Partnership Agreement”), hereby constitutes and appoints each member of
AvalonBay Capital Management, Inc. or its successor (the “General Partner”) and each Liquidating
Agent (as defined in the Partnership Agreement), signing singly, the undersigned’s true and lawful
attorney-in-fact to:



     (1) execute, acknowledge, swear to and file any certificate or other instrument that may be
required to be filed by the Partnership in order to conduct its business under the laws of any
jurisdiction in which the Partnership does business, so long as no such certificate or instrument
shall have the effect of amending the Partnership Agreement;



     (2) execute, acknowledge, swear to and file any agreement, document, certificate or other
instrument that any Limited Partner is required to execute in connection with the termination of
the Limited Partner’s interest in the Partnership and the withdrawal of such Limited Partner
pursuant to Section 4.2 of the Partnership Agreement and if such Limited Partner has failed to
execute and deliver such required agreement, document, certificate or other instrument within ten
days after written request therefor by the General Partner; and



     (3) execute, acknowledge, swear to and file any instrument that the General Partner deems
necessary or appropriate to facilitate the implementation of the terms of the Partnership
Agreement, including the pledging of Capital Commitment obligations as contemplated by Sections 3.2
and 4.1(d) of the Partnership Agreement, so long as such instruments do not alter the rights or
obligations of the Limited Partners under the terms of the Partnership Agreement.



     In no instance shall such attorney-in-fact be permitted to create a partnership, special
purpose vehicle or limited liability company without the prior advice and consent of the
undersigned.



     The undersigned hereby grants to each such attorney-in-fact full power and authority to do and
perform any and every act and thing whatsoever requisite, necessary or proper to be done in the
exercise of any of the rights and powers herein granted, as fully to all intents and purposes as
the undersigned might or could do if personally present, with full power of substitution or
revocation, hereby ratifying and confirming all that such attorney-in-fact, or such
attorney-in-fact’s substitute or substitutes, shall lawfully do or cause to be done by virtue of
this power of attorney and the rights and powers herein granted.



     This power of attorney is coupled with an interest, is irrevocable and shall survive death,
legal incapacity, bankruptcy, insolvency, assignment for the benefit of creditors and assignment by
a Limited Partner of its limited partnership interest in the Partnership; provided, however, that



Exh. B-1









 







if a Limited Partner shall assign all of its interest in the Partnership and the assignee
shall, in accordance with the provisions of the Partnership Agreement, become a substitute Limited
Partner, this power of attorney shall survive such assignment only for the purpose of enabling the
General Partner to execute, acknowledge, swear to and file any and all instruments necessary to
effect such substitution.



     IN WITNESS WHEREOF, the undersigned has caused this power of attorney to be executed as of
this ___day of ___, 2005.


	 	 	 	 	 
	 	Name of Limited Partner:
	 
	 	  	 	 
	 
	 	By:  	 	 
	 	 	Hereunto duly authorized 	 
	 	 	 	 
	 




	 	 	 	 	 
	 	 	Print Name:
	 	 
	 
	 	 	Title:
	 	 







Exh. B-2