Document:

exv10w10

 

Exhibit 10.10

EMPLOYMENT AGREEMENT

     EMPLOYMENT AGREEMENT (this “Agreement”) made as of the 10th day of September, 2001
(the “Effective Date”) by and between Leo S. Horey and AvalonBay Communities, Inc., a
Maryland corporation (the “Company”).

     WHEREAS, Executive has been performing services for the Company; and

     WHEREAS, Executive and the Company desire to enter into an employment agreement, effective as
of the date of execution of this Agreement.

     NOW, THEREFORE, the parties hereto do hereby agree as follows.

     1. Term. The Company hereby agrees to employ Executive, and Executive
hereby agrees to remain in the employ of the Company subject to the terms and conditions of this
Agreement for the period commencing on the Effective Date and terminating on December 24, 2003 (the
“Original Term”), unless earlier terminated as provided in Section 7. The Original Term
shall be extended automatically for additional one year periods measured from December 25, 2003
(each a “Renewal Term”), unless notice that this Agreement will not be extended is given by
either party to the other at least 90 days prior to the expiration of the Original Term or any
Renewal Term. Notwithstanding the foregoing, upon a Change in Control, the Employment Period shall
be extended automatically to three years from the date of such Change in Control. (The period of
Executive’s employment hereunder within the Original Term and any Renewal Terms is herein referred
to as the “Employment Period.”)

     2. Employment Duties.

          (a) During the Employment Period, Executive shall be employed in the business of the
Company and its affiliates. Executive shall serve as a corporate officer of the Company with the
title of Senior Vice President – Property Operations. In the performance of his duties, Executive
shall be subject to the direction of the Board of Directors of the Company (the “Board”), including
any committee of the Board designated by the Board, if any, and the Company’s Chief Operating
Officer and any officer senior to the Chief Operating Officer (“CEO”, which term refers to
the Chief Operating Officer and any officer senior to the Chief Operating Officer (such as the
President, Chief Executive Officer and Executive Chairman), each with authority acting alone to
give direction hereunder in the event that more than one person holds these positions) and shall
not be required to take direction from or report to any other person. Executive will report
directly to the Chief Operating Officer of the Company. Executive’s duties and authority shall be
commensurate with Executive’s title and position with the Company, and shall not be materially
diminished from, or materially inconsistent with, Executive’s duties and responsibilities with the
Company immediately prior to the date of this Agreement, provided, however, that it
will not be a violation of this Section 2(a), or otherwise be a breach by the Company under any
term of this Agreement, if either (x) or (y) immediately below are true:

          (x) The Company modifies Executive’s title or duties, provided that all of
the following conditions are met:

(i) Executive remains on the Management Investment Committee, or a similar
successor committee of management that considers and approves investment
proposals developed by management; and

(ii) Executive’s title is Senior Vice President or a higher ranking title;
and

(iii) Executive reports directly to the CEO (which term, as noted above,
includes the Chief Operating Officer); and

(iv) Executive either

 

 

(I) remains as the most senior officer (other than the CEO) in
charge of at least one “current national principal business
function” (which is defined to mean any business function which is
headed by a senior vice president or higher ranking officer of the
Company as of the date hereof — i.e., finance, human resources,
property operations, development or construction) or,

(II) if the Company’s management structure is reorganized to give
effect to two or more major geographic regions, Executive is put
in charge of at least three “major business functions” for a major
geographic region of the Company. “Major business functions”
means any of the five “current national principal business
functions” cited above plus, as a sixth major business function,
acquisitions and dispositions. By way of example only, titles in
such a case could include President of the West Coast Division or
Senior Vice President of Construction, Development and Acquistions
and Dispositions of the West Coast Division; and

(v) Executive’s targeted total compensation is not less than what it would
have been had Executive remained in the position of Senior Vice President
 — Property Operations for AvalonBay Communities (e.g., in determining
total compensation in accordance with Section 3(j), Executive’s targeted
total compensation will not be reduced because, for example, it is
determined by the Company to be appropriate for a “Senior Vice President
of Construction, Development and Property Operations of the West Coast
Division” to receive less compensation than the Senior Vice President of
Property Operations of a national company).

(y) The Executive’s duties are modified from time to time as Executive and
Company mutually reasonably agree.

          (b) Executive agrees to his employment as described in this Section 2 and agrees to
devote substantially all of his working time and efforts to the performance of his duties under
this Agreement; provided that nothing in this Section 2(b) shall be interpreted to preclude
Executive from (i) participating with the prior written consent of the Board as an officer or
director of, or advisor to, any other entity or organization that is not a customer or material
service provider to the Company or a Competing Enterprise, as defined in Section 8, so long as such
participation does not interfere with the performance of Executive’s duties hereunder, whether or
not such entity or organization is engaged in religious, charitable or other community or
non–profit activities, (ii) investing in any entity or organization which is not a customer or
material service provider to the Company or a Competing Enterprise, so long as such investment does
not interfere with the performance of Executive’s duties hereunder, or (iii) delivering lectures or
fulfilling speaking engagements so long as such lectures or engagements do not interfere with the
performance of Executive’s duties hereunder.

 

 

          (c) In performing his duties hereunder, Executive shall be available for reasonable
travel as the needs of the business require. Executive shall be based in Alexandria, Virginia (or
otherwise in the Washington, Baltimore, DC-MD-VA-WV Consolidated Metropolitan Statistical Area as
defined by the U.S. Census Bureau (the “Metropolitan Area”)).

          (d) Breach by either party of any of his or its respective obligations under this
Section 2 shall be deemed a material breach of that party’s obligations hereunder.

     3. Compensation/Benefits. In consideration of Executive’s services
hereunder, the Company shall provide Executive the following:

          (a) Base Salary. During the Employment Period, the Executive shall receive
an annual rate of base salary (“Base Salary”) in an amount not less than $285,000.
Executive’s Base Salary will be reviewed by the Company annually and may be adjusted upward (but
not downward) at such time. Base Salary shall be payable in accordance with the Company’s normal
business practices, but in no event less frequently than monthly.

          (b) Bonuses. Commencing at the close of each fiscal year during the
Employment Period, the Company shall review the performance of the Company and of Executive during
the prior fiscal year, and the Company may provide Executive with additional compensation in the
form of a cash bonus (“Cash Bonus”) and/or in the form of long term equity incentives such
as stock options and restricted stock grants (“LT Equity Bonus”) if the Board, or any
compensation committee thereof, in its discretion, determines that the performance of the Company
and Executive’s contribution to the Company warrants such additional payment and the Company’s
anticipated financial performance of the present period permits such payment. Any Cash Bonuses
hereunder shall be paid as a lump sum not later than 75 days after the end of the Company’s
preceding fiscal year.

          (c) Medical and Disability Insurance/Physical. During the Employment
Period, the Company shall provide to Executive and Executive’s immediate family a comprehensive
policy of health insurance in accordance with the Company’s general practice applicable to officers
(including payment of all or a portion of the premiums due thereon) and shall provide to Executive
a disability policy in accordance with the Company’s general practice applicable to officers
(including payment of all or a portion of the premiums due thereon). During the Employment Period,
Executive shall be entitled to a comprehensive annual physical performed, at the expense of the
Company (but not including any related travel expense), by the physician or medical group of
Executive’s choosing.

          (d) Split Dollar Life Insurance. During the Employment Period, the Company
shall keep in force and pay the premiums on the split–dollar life insurance policy referenced in
the Split Dollar Insurance Agreement between the Company and Executive, subject to reimbursement by
Executive as provided in such Split Dollar Insurance Agreement. Executive agrees to submit to such
medical examinations as may be required in order to maintain such policy of insurance.

          (e) Vacations. Executive shall be entitled to reasonable paid vacations
during the Employment Period in accordance with the then regular procedures of the Company
governing officers.

          (f) Office/Secretary, etc. During the Employment Period, Executive shall
be entitled to secretarial services and a private office commensurate with his title and duties.

          (g) Annual Allowance. The Company will provide the Executive with an annual
allowance of up to $5,000 per year (the “Allowance”). The Executive may draw on the
Allowance for expenses incurred in his discretion for items such as country club membership,
financial counseling or tax preparation. Payment of the Allowance shall be subject to
substantiation of expenses in accordance with the Company’s policies in effect from time to time
for executive officers of the Company. Unused portions of the Allowance shall not be carried over
from year to year. For purposes of this Section 3(g), a new year shall be deemed to commence on
each January 1. For the 2001 calendar year, Executive will receive the full, unprorated $5,000
Allowance.

 

 

          (h) Automobile. The Company shall provide Executive with a monthly car
allowance during the Employment Period in accordance with the Company’s current practices but in no
event less than Executive’s current monthly car allowance.

          (i) Other Benefits. During the Employment Period, the Company shall
provide to Executive such other benefits, excluding severance benefits, but including the right to
participate in such retirement or pension plans, as are made generally available to officers of the
Company from time to time. Executive shall be given credit for purposes of eligibility and vesting
of employee benefits and benefit accrual for service prior to the Effective Date with Avalon
Properties, Inc. and its affiliates (“Avalon”), and Trammell Crow Residential
(“TCR”) under each benefit plan of the Company and its subsidiaries to the extent such
service had been credited under employee benefit plans of Avalon or TCR, provided that no such
crediting of service results in duplication of benefits.

          (j) Total Compensation. The Company acknowledges that the Executive’s Cash
Bonus and LT Equity Bonus awarded to the Executive by the Board or Compensation Committee of the
Board in its discretion from time-to-time, are a material part of total compensation for the
Executive. The Company will endeavor to provide Executive with a reasonable Cash Bonus and/or
reasonable LT Equity Bonus on an annual basis such that the Executive’s total compensation, in
light of the Company’s performance and his performance in his role as provided in this Agreement,
is reasonable under the circumstances and reasonable relative to the Cash Bonuses and LT Equity
Bonuses awarded other officers of the Company. The Company shall not be in breach of this
provision unless it can be demonstrated that the Company acted in bad faith in determining whether
to award (or the size of an award of) a Cash Bonus or LT Equity Bonus, which determination of bad
faith shall specifically be made with reference to the target awards set for other officers and the
actual awards paid other officers.

     4. Expenses/Indemnification.

          (a) During the Employment Period, the Company shall reimburse Executive for the
reasonable business expenses incurred by Executive in the course of performing his duties for the
Company hereunder, upon submission of invoices, vouchers or other appropriate documentation, as may
be required in accordance with the policies in effect from time to time for executive employees of
the Company.

          (b) To the fullest extent permitted by law, the Company shall indemnify Executive
with respect to any actions commenced against Executive in his capacity as an officer or director
or former officer or director of the Company, or any affiliate thereof for which he may render
service in such capacity, whether by or on behalf of the Company, its shareholders or third
parties, and the Company shall advance to Executive on a timely basis an amount equal to the
reasonable fees and expenses incurred in defending such actions, after receipt of an itemized
request for such advance, and an undertaking from Executive to repay the amount of such advance,
with interest at a reasonable rate from the date of the request, as determined by the Company, if
it shall ultimately be determined that he is not entitled to be indemnified against such expenses.
Notwithstanding the foregoing, the Company shall not indemnify Executive with respect to any acts
or omissions attributable, directly or indirectly, to Executive’s gross negligence, willful
misconduct or material breach of this Agreement. The Company agrees that it shall use reasonable
best efforts to secure and maintain officers’ and directors’ liability insurance that shall include
coverage with respect to Executive.

 

 

     5. Employer’s Authority/Policies.

          (a) General. Executive agrees to observe and comply with the rules and
regulations of the Company as adopted by its Board respecting the performance of his duties and to
carry out and perform orders, directions and policies communicated to him from time to time by the
Board or the CEO.

          (b) Ethics Policies. Executive agrees to comply with and be bound by the
Ethics Policies of the Company, as reflected in the attachment at Annex A hereto and made a
part hereof. Executive agrees to comply with and be bound by the Company’s insider trading
policies and procedures that are generally applicable to employees and/or senior officers.

     6. Records/Nondisclosure/Company Policies.

          (a) General. All records, manuals, financial statements and similar
documents obtained, reviewed or compiled by Executive in the course of the performance by him of
services for the Company, whether or not confidential information or trade secrets, shall be the
exclusive property of the Company. Executive shall have no rights in such documents upon any
termination of this Agreement.

          (b) Nondisclosure Agreement. Without limitation of the Company’s rights
under Section 6(a), Executive agrees to abide by and be bound by the Nondisclosure Agreement of the
Company executed by Executive and the Company as reflected in the attachment at Annex B and
made a part hereof.

     7. Termination; Severance and Related Matters.

          (a) At–Will Employment. Executive’s employment hereunder is “at will” and,
therefore, may be terminated at any time, with or without Cause, at the option of the Company,
subject only to the severance obligations under this Section 7. Upon any termination hereunder,
the Employment Period shall expire.

          (b) Definitions. For purposes of this Section 7, the following terms shall
have the indicated definitions:

               (1) Cause. “Cause” shall mean:

               (i) Executive is convicted of or enters a plea of nolo contendere
to an act which is defined as a felony under any federal, state or local law, not
based upon a traffic violation, which conviction or plea has or can be expected to
have, in the good faith opinion of the Board, a material adverse impact on the
business or reputation of the Company;

               (ii) any one or more acts of theft, larceny, embezzlement, fraud or
material intentional misappropriation from or with respect to the Company;

               (iii) a breach by Executive of his fiduciary duties under Maryland
law as an officer; or material breach by Executive of any rule, regulation, policy
or procedure, the Company (including, without limitation, as described in Section 5
hereof);

               (iv) Executive’s commission of any one or more acts of gross
negligence or willful misconduct which in the good faith opinion of the Board has
resulted in material harm to the business or reputation of the Company; or

               (v) default by Executive in the performance of his material duties
under this Agreement, without correction of such action within 15 days of written
notice thereof.

 

 

     Notwithstanding the foregoing, no termination of Executive’s employment by the Company shall
be treated as for Cause or be effective until and unless all of the steps described in
subparagraphs (A) through (C) below have been complied with:

          (A) Notice of intention to terminate for Cause has been
given by the Company within 120 days after the Board learns of the act,
failure or event (or latest in a series of acts, failures or events)
constituting “Cause”;

          (B) The Board has voted (at a meeting of the Board duly
called and held as to which termination of Executive is an agenda item) to
terminate Executive for Cause after Executive has been given notice of the
particular acts or circumstances which are the basis for the termination
for Cause and has been afforded at least 20 days notice of the meeting and
an opportunity to present his position in writing; and

          (C) The Board has given a Notice of Termination to
Executive within 20 days after such Board meeting.

     The Company may suspend Executive with pay at any time during the period commencing with the
giving of notice to Executive under clause (A) above until final Notice of Termination is given
under clause (C) above. Upon the giving of notice as provided in clause (C) above, no further
payments shall be due Executive except as provided in Section 7(c)(vii).

          (2) Change in Control. A “Change in Control” shall mean the
occurrence of any one or more of the following events following the Effective Date:

          (i) Any individual, entity or group (a “Person”) within the meaning
of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “Act”)
(other than the Company, any corporation, partnership, trust or other entity
controlled by the Company (a “Subsidiary”), or any trustee, fiduciary or other
person or entity holding securities under any employee benefit plan or trust of the
Company or any of its Subsidiaries), together with all “affiliates” and
“associates” (as such terms are defined in Rule 12b–2 under the Act) of such
Person, shall become the “beneficial owner” (as such term is defined in Rule 13d–3
under the Act) of securities of the Company representing 30% or more of the
combined voting power of the Company’s then outstanding securities having the right
to vote generally in an election of the Company’s Board of Directors (“Voting
Securities”), other than as a result of (A) an acquisition of securities directly
from the Company or any Subsidiary 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 Section 7(b)(2) are satisfied; or

          (ii) Individuals who, as of the Effective Date, constitute the
Company’s Board (the “Incumbent Directors”) cease for any reason to constitute at
least a majority of the Board, provided, however, that any individual becoming a
director of the Company subsequent to the date hereof (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 the
Board or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board, 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 and
occurring during the Employment Period), whose election or nomination for election
by the Company’s shareholders 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; or

 

 

          (iii) Consummation of a reorganization, merger or consolidation of
the Company, unless, following such reorganization, merger or consolidation, (A)
more than 50% of, respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or consolidation and the
combined voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then 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 the Company, any employee benefit plan (or related trust) of the
Company, a Subsidiary or the corporation resulting from such reorganization, merger
or consolidation or any subsidiary thereof, and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, 30% or more of the outstanding Voting Securities), beneficially owns,
directly or indirectly, 30% or more of, respectively, the then outstanding shares
of common stock of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding voting
securities of such corporation 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 corporation resulting from such reorganization, merger or consolidation were
members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation;

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

          (v) The sale, lease, exchange or other disposition of all or
substantially all of the assets of the Company, other than to a corporation, with
respect to which following such sale, lease, exchange or other disposition (A) more
than 50% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of directors is then
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 the Company and any employee benefit plan (or related
trust) of the Company or a Subsidiary or such corporation or a subsidiary thereof
and any Person beneficially owning, immediately prior to such sale, lease, exchange
or other disposition, directly or indirectly, 30% or more of the outstanding Voting
Securities), beneficially owns, directly or indirectly, 30% or more of,
respectively, the then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting securities of such
corporation 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 corporation were
members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board of Directors providing for such sale, lease,
exchange or other disposition of assets of the Company.

Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have
occurred for purposes of this Agreement solely as the result of an acquisition of
securities by the Company 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 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
in Control” shall be deemed to have occurred for purposes of this Agreement.

          (3) Complete Change in Control. A “Complete Change in Control”
shall mean that a Change in Control has occurred, after modifying the definition of “Change
in Control” by deleting clause (i) from Section 7(b)(2) of this Agreement.

          (4) Constructive Termination Without Cause. “Constructive
Termination Without Cause” shall mean a termination of Executive’s employment initiated by
Executive not later than 12 months following the occurrence (not including any time during
which an arbitration proceeding referenced below is pending), without Executive’s prior
written consent, of one or more of the following events (or the latest to occur in a series
of events), and effected after giving the Company not less than 10 working days’ written
notice of the specific act or acts relied upon and right to cure:

                    (i) a material adverse change in the functions, duties or
responsibilities of Executive’s position which is inconsistent with Section 2(a),
except in connection with the termination of Executive’s employment for Disability,
Cause, as a result of Executive’s death or by Executive other than for a
Constructive Termination Without Cause;

                    (ii) any material breach by the Company of this Agreement;

                    (iii) any purported termination of Executive’s employment for Cause
by the Company which does not comply with the terms of Section 7(b)(1) of this
Agreement;

                    (iv) the failure of the Company to obtain an agreement, satisfactory
to the Executive, from any successor or assign of the Company, to assume and agree
to perform this Agreement, as contemplated in Section 10 of this Agreement;

                    (v) the failure by the Company to continue in effect any
compensation plan in which Executive participates immediately prior to a Change in
Control which is material to Executive’s total compensation, unless comparable
alternative arrangements (embodied in ongoing substitute or alternative plans) have
been implemented with respect to such plans, or the failure by the Company to
continue Executive’s participation therein (or in such substitute or alternative
plans) on a basis not materially less favorable, in terms of the amount of benefits
provided and the level of Executive’s participation relative to other participants,
as existed during the last completed fiscal year of the Company prior to the Change
in Control;

                    (vi) the relocation of the Company’s Alexandria, Virginia offices to
a new location outside of the Metropolitan Area or the failure to locate
Executive’s own office at the Alexandria, Virginia office (or at the office to
which such office is relocated which is within the Metropolitan Area)
(“Relocation Termination”); or

                    (vii) any voluntary termination of employment by the Executive for any
reason during the 12–month period immediately following a Complete Change in
Control of the Company if such Complete Change in Control occurs during the
Employment Period (a “CIC Pull”).

 

 

     Notwithstanding the foregoing, a Constructive Termination Without Cause shall not be
treated as having occurred unless Executive has given a final Notice of Termination
delivered after expiration of the Company’s cure period. Executive or the Company may, at
any time after the expiration of the Company’s cure period and either prior to or up until
three months after giving a final Notice of Termination, commence an arbitration proceeding
to determine the question of whether, taking into account the actions complained of and any
efforts made by the Company to cure such actions, a termination by Executive of his
employment should be treated as a Constructive Termination Without Cause for purposes of
this Agreement. If the Executive or the Company commences such a proceeding prior to
delivery by Executive of a final Notice of Termination, the commencement of such a
proceeding shall be without prejudice to either party and Executive’s and the Company’s
rights and obligations under this Agreement shall continue unaffected unless and until the
arbitrator has determined such question in the affirmative, or, if earlier, the date on
which Executive or the Company has delivered a Notice of Termination in accordance with the
provisions of this Agreement.

          (5) Average Covered Total Compensation. “Average Covered Total
Compensation” shall mean the sum of Executive’s Covered Total Compensation as calculated
for the calendar year in which the Date of Termination occurs and for each of the two
preceding calendar years, divided by three, provided, however, that if the
Date of Termination occurs before February 26, 2003, then “Average Covered Total
Compensation” shall mean the sum of Executive’s Covered Total Compensation as calculated
for the calendar year in which the Date of Termination occurs and for the preceding
calendar year, divided by two. “Average Covered Base And Cash Bonus Compensation,”
“Average Covered Cash Bonus Compensation” and “Average Covered LT Equity Compensation”
shall have analogous meanings but with reference to Covered Base And Cash Bonus
Compensation, Covered Cash Bonus Compensation and Covered LT Equity Compensation,
respectively.

          (6) Covered Compensation Definitions. “Covered Total Compensation,”
for any calendar year, shall mean an amount equal to the sum of (i) Executive’s Base Salary
for the calendar year, (ii) the cash bonus actually earned by Executive with respect to
such calendar year, and (iii) the value of all stock and other equity–based compensation
awards made to Executive during such calendar year. In the event that the Company has or
hereafter makes any special, mid-year or other non-routine grant of equity outside of the
Company’s recurring annual equity compensation programs, or in the event that the Company
grants, outside of the current recurring annual equity compensation programs, any equity
based compensation pursuant to any long-term plan under which equity grants may be made
based on multi-year Company results, the value of any such mid-year, special, or long-term
plan equity based compensation shall not be included in clause (iii) of the preceding
sentence and therefore shall not be included in the calculation of Covered Compensation
definitions, and the value of such equity shall have no impact on any cash payments made
under Section 7(c) of the Agreement.

     “Covered Base And Cash Bonus Compensation” for any calendar year shall mean
Covered Total Compensation for such year but without the inclusion of amounts
attributable to clause (iii) of the definition of Covered Total Compensation.

     “Covered Cash Bonus Compensation” for any calendar year shall mean Covered
Total Compensation for such year but without the inclusion of amounts attributable
to clauses (i) and (iii) of the definition of Covered Total Compensation.

     “Covered LT Equity Compensation” for any calendar year shall mean Covered
Total Compensation for such year but without the inclusion of clauses (i) and (ii)
of the definition of Covered Total Compensation.

 

 

          For purposes of applying the Covered Compensation definitions set forth above, the
following rules shall apply:

          (A) In valuing awards for purposes of clause (iii) of the
definition of Covered Total Compensation, all such awards shall be treated
as if fully vested when granted, stock grants shall be valued by reference
to the fair market value on the date of grant of the Company’s common
stock, par value $.01 per share, and other equity–based compensation
awards shall be valued at the value established in good faith by the
Compensation Committee of the Board. Reference is made to Section
7(c)(viii) for further clarification regarding this matter.

          (B) In determining the cash bonus actually paid with
respect to a calendar year, if no cash bonus has been paid with respect to
the calendar year in which the Date of Termination occurs, the cash bonus
paid with respect to the immediately preceding calendar year shall be
assumed to have been paid in each of the current and immediately preceding
calendar years, and if no cash bonus has been paid by the Date of
Termination with respect to the immediately preceding calendar year, the
cash bonus paid with respect to the second preceding calendar year shall
be assumed to have been paid in all three (or two, as applicable) of the
calendar years taken into account in determining Average Covered Total
Compensation (or any of the derivative definitions under Section 7(b)(5)).

          (C) If (i) any cash bonus paid with respect to the current
or immediately preceding calendar year was paid within three months of
Executive’s Date of Termination, (ii) such cash bonus is lower than the
last cash bonus paid more than three months from the Date of Termination,
and (iii) it is determined that the Board acted in bad faith in setting
such cash bonus (which determination of bad faith shall specifically be
made with reference to the target cash bonuses set for other officers and
the actual cash bonuses paid other officers), then in such event any such
cash bonus paid within three months of the Date of Termination shall be
disregarded and the last cash bonus paid more than three months from the
Date of Termination shall be substituted for each cash bonus so
disregarded.

          (D) In determining the amount of stock and other
equity–based compensation awards made during a calendar year during the
averaging period, rules similar to those set forth in subparagraphs (B)
and (C) of this Section 7(b)(6) shall be followed except that all awards
made in connection with the Company’s initial public offering shall be
disregarded.

          (7) Disability. “Disability” shall mean Executive has been
determined to be disabled and to qualify for long–term disability benefits under the
long–term disability insurance policy obtained pursuant to Section 3(d) of this Agreement.

     (c) Rights Upon Termination.

          (i) Payment of Benefits Earned Through Date of Termination.
Upon any termination of Executive’s employment during the Employment Period,
Executive, or his estate, shall in all events be paid (I) all accrued but unpaid
Base Salary and (II) (except in the case of a termination by the Company for Cause
or a voluntary termination by Executive which is not due to a Constructive
Termination Without Cause, in either of which cases this clause (II) shall not
apply) a pro rata portion of the Executive’s Cash Bonus and LT Equity Bonus. For
purposes of fulfilling the requirements of clause (II) of the prior sentence, the
following shall apply:

 

 

	 	(a)	 	In all events, any stock options
issued will be issued prior to Executive’s Date of Termination so
that such stock options are employee stock options. Such stock
options shall have an exercise price equal to the closing price of
the Company’s stock on the date of grant of such options, and such
options shall expire one year after the date of grant.
	 
	 	(b)	 	The Company and Executive shall
work in good faith to determine an appropriate Cash Bonus and LT
Equity Bonus for the year in which the Date of Termination occurs.
Such determination shall be based in good faith on an evaluation of
Executive’s and the Company’s performance. If the Company and
Executive cannot agree on appropriate amounts, then:

	 	(A)	 	The Company may defer the
determination of the Cash Bonus and the restricted stock
portion of the LT Equity Bonus until such bonuses in respect
of such year are determined for other officers, and at such
time the amounts to be used for determining Executive’s pro
rata bonuses shall be a percentage of his target Cash Bonus
and a percentage of his target number of restricted shares
with such percentages being equal to the average of the
percentages that apply to the Cash Bonus and restricted shares, respectively, of other officers ranked Senior Vice
President or higher; and
	 
	 	(B)	 	The Company may grant to
Executive a number of stock options based on the assumption
that the percentage of the target number of options Executive
would have received in respect of the year in which the Date
of Termination occurs would equal the average of the
percentage realization applied to options granted with
respect to the prior three calendar years.

	 	(c)	 	Once the determination in the
preceding paragraph is made, the pro rata portion of such amounts
shall equal such amounts multiplied by a fraction, the numerator of
which is the number of days from January 1 to the Date of Termination
in the year of termination and the denominator of which is 365.

Executive shall also retain all such rights with respect to vested equity–based
awards as are provided under the circumstances under the applicable grant or award
agreement, and shall be entitled to all other benefits which are provided under the
circumstances in accordance with the provisions of the Company’s generally
applicable employee benefit plans, practices and policies, other than severance
plans.

          (ii) Death. In the event of Executive’s death during the
Employment Period, the Company shall, in addition to paying the amounts set forth
in Section 7(c)(i), take whatever action is necessary to cause all of Executive’s
unvested equity–based awards to become fully vested as of the date of death and, in
the case of equity–based awards which have an exercise schedule, to become fully
exercisable and continue to be exercisable for such period as is provided in the
case of vested and exercisable awards in the event of death under the terms of the
applicable award agreements.

 

 

          (iii) Disability. In the event the Company elects to
terminate Executive’s employment during the Employment Period on account of
Disability, the Company shall, in addition to paying the amounts set forth in
Section 7(c)(i) and subject to Executive first entering into a separation
agreement, including a general release of all claims, in a form reasonably
acceptable to the Company (“Separation Agreement”), pay to Executive, in
one lump sum, no later than the later of the effective date of said Separation
Agreement or 31 days following the Date of Termination, an amount equal to one
times Average Covered Total Compensation. The Company shall also, commencing upon
the Date of Termination and subject to Executive entering into a Separation
Agreement:

          (A) Continue, without cost to Executive, benefits comparable
to the medical benefits provided to Executive immediately prior to the
Date of Termination under Section 3(c) for a period of 12 months following
the Date of Termination or until such earlier date as Executive obtains
comparable benefits through other employment;

          (B) Continue to pay, or reimburse Executive, for all
premiums then due or thereafter payable on the whole–life portion of the
split–dollar insurance policy referenced under Section 3(d) for so long as
such payments are due; provided, that the Company’s obligations
under this Section 7(c)(iii)(B) are contingent on Executive’s timely
payment of the premiums then due or thereafter payable on the term portion
of said split-dollar insurance policy; and

          (C) Take whatever action is necessary to cause Executive to
become vested as of the Date of Termination in all stock options,
restricted stock grants, and all other equity–based awards and be entitled
to exercise and continue to exercise all stock options and all other
equity–based awards having an exercise schedule and to retain such grants
and awards to the same extent as if they were vested upon termination of
employment in accordance with their terms.

          (D) If Executive obtains a disability policy on commercially
reasonable terms with the same or similar coverage as provided by the
Company prior to the Date of Termination then, until that date that is 12
months following the Date of Termination (or, if earlier, until Executive
obtains comparable benefits through other employment), reimburse Executive
for an amount equal to the difference between (i) the monthly premiums for
such disability policy, less (ii) the amount paid by Executive in respect
of a portion of the premiums on the disability policy provided by Company
prior to the Date of Termination.

          (iv) Non–Renewal by the Company. In the event the Company
gives Executive a notice of non–renewal pursuant to Section 1 above, and either (I)
within one year after expiration of the Employment Period the Executive voluntarily
terminates his employment (“Post-Expiration Resignation”) or (II) within
two years after expiration of the Employment Period the Executive’s employment is
terminated by the Company without Cause or Constructively Terminated without Cause
(“Post-Expiration Termination”), then, in either such case, the Company
shall, in addition to paying the amounts set forth in Section 7(c)(i), and subject
to Executive first entering into a Separation Agreement, pay to Executive, for 12
consecutive months beginning with the first business day of the calendar month
following the Effective Date of said Separation Agreement, a monthly amount equal
to one-twelfth ( 1/12) of the sum of one times his then
applicable Base Salary plus one times Average Covered Cash Bonus Compensation. The
Company shall also, commencing upon the Date of Termination and subject to
Executive entering into a Separation Agreement, continue, without cost to
Executive, benefits comparable to the medical benefits provided to Executive
immediately prior to the Date of Termination under Section 3(c) for a period of 12
months following the Date of Termination or until such earlier date as Executive
obtains comparable benefits through other employment. In addition, if Executive
obtains a disability policy on commercially reasonable terms with the same or
similar coverage as provided by the Company prior to the Date of Termination then,
until that date that is 12 months following the Date of Termination (or, if
earlier, until Executive obtains comparable benefits through other employment),
reimburse Executive for an amount equal to the difference between (i) the monthly
premiums for such disability policy, less (ii) the amount paid by Executive in
respect of a portion of the premiums on the disability policy provided by Company
prior to the Date of Termination.

 

 

In addition to the above, in the case of a Post-Expiration Termination the Company
additionally shall:

	 	I.	 	Take
whatever action is necessary to cause Executive to
become vested as of the Date of Termination in all
stock options, restricted stock grants, and all other
equity–based awards and be entitled to exercise and
continue to exercise all stock options and all other
equity–based awards having an exercise schedule and
to retain such grants and awards to the same extent
as if they were vested upon termination of employment
in accordance with their terms; and
	 
	 	II.	 	Continue
to pay, or reimburse Executive for, all premiums then
due or thereafter payable on the whole–life portion
of the split–dollar insurance policy referenced under
Section 3(d) for so long as such payments are due;
provided, that the Company’s obligations
under this Section 7(c)(iv)(B)(II) are contingent on
Executive’s timely payment of the premiums then due
or thereafter payable on the term portion of said
split-dollar insurance policy;

          (v) Termination Without Cause or Constructive Termination
Without Cause Prior to Change in Control of Company. In the event the Company
or any successor to the Company terminates Executive’s employment without Cause, or
if Executive terminates his employment in a Constructive Termination without Cause,
in either case prior to the effective time of any Change in Control of the Company
or at any time after two years after a Change in Control of the Company, the
Company shall, in addition to paying the amounts provided under Section 7(c)(i),
and subject to Executive first entering into a Separation Agreement, pay to
Executive, in one lump sum no later than the later of the Effective Date of said
Separation Agreement or 31 days following the Date of Termination, an amount equal
to the sum of (x) two times Average Covered Base And Cash Bonus Compensation
plus (y) one times Average Covered LT Equity Compensation (such sum, the
“Section 7(c)(v) Payment”); provided, however, that in the
event that the Constructive Termination Without Cause is a Relocation Termination,
the Section 7(c)(v) Payment shall be an amount equal to one times Average Covered
Total Compensation. The Company shall also, commencing upon the Date of
Termination and subject to the Executive entering into a Separation Agreement:

          (A) Continue, without cost to Executive, benefits comparable
to the medical benefits provided to Executive immediately prior to the
Date of Termination under Section 3(c) for a period of 24 months (12
months in the case of a Relocation Termination) following the Date of
Termination or until such earlier date as Executive obtains comparable
benefits through other employment;

          (B) Continue to pay, or reimburse Executive, for so long as
such payments are due, all premiums then due or payable on the whole–life
portion of the split–dollar insurance policy referenced under Section
3(d); provided that the Company’s obligations under this Section
7(c)(v)(B) are contingent on Executive’s timely payment of the premiums
then due or thereafter payable on the term portion of said split-dollar
insurance policy; and

 

 

          (C) Take whatever action is necessary to cause Executive to
become vested as of the Date of Termination in all stock options,
restricted stock grants, and all other equity–based awards and be entitled
to exercise and continue to exercise all stock options and all other
equity–based awards having an exercise schedule and to retain such grants
and awards to the same extent as if they were vested upon termination of
employment in accordance with their terms.

          (D) If Executive obtains a disability policy on commercially
reasonable terms with the same or similar coverage as provided by the
Company prior to the Date of Termination then, until that date that is 24
months (12 months in the case of a Relocation Termination) following the
Date of Termination (or, if earlier, until Executive obtains comparable
benefits through other employment), reimburse Executive for an amount
equal to the difference between (i) the premium for such disability
policy, less (ii) the amount paid by Executive in respect of a portion of
the premiums on the disability policy provided by Company prior to the
Date of Termination.

In the event that, within six months after the Notice of Termination which gave
rise to the termination of Executive’s employment under this Section 7(c)(v), a
Change in Control of the Company occurs, then (provided Executive previously signed
a Separation Agreement), Executive shall be entitled to receive the payments and
benefits under Section 7(c)(vi) rather than this Section 7(c)(v). To effect this
increase in payments and benefits, within 31 days of the Change in Control the
Company shall pay to Executive, in one lump sum, an amount equal to the difference
between (A) three times Average Covered Total Compensation (calculated as of the
Date of Termination) less (B) the Section 7(c)(v) Payment. No payment in the nature
of interest or for the time value of money shall be paid by the Company. In
addition, the benefits described in Section 7(c)(v)(A) shall continue for 36 months
following the Date of Termination (or until such earlier date as Executive obtains
comparable benefits through other employment) rather than 24 months.

          (vi) Termination without Cause within Two Years Following a
Change in Control. In the event the Company or any successor to the Company
terminates Executive’s employment without Cause (or Executive’s employment is
Constructively Terminated without Cause) within two years following the effective
time of a Change in Control of the Company, the Company shall, in addition to
paying the amounts provided under Section 7(c)(i), and subject to the Executive
first entering into a Separation Agreement, pay to the Executive, in one lump sum
no later than the later of the effective date of said Separation Agreement or 31
days following the Date of Termination, an amount equal to three times Average
Covered Total Compensation, provided, however, that in the event
the termination is due to a CIC Pull, then the payment shall be an amount equal to
two times Average Covered Total Compensation. The Company shall also, commencing
upon the Date of Termination:

          (A) Continue, without cost to Executive, benefits comparable
to the medical benefits provided to Executive immediately prior to the
Date of Termination under Section 3(c) for a period of 36 months (24
months in the case of a termination due to a CIC Pull) following the Date
of Termination or until such earlier date as Executive obtains comparable
benefits through other employment;

          (B) Continue to pay, or reimburse Executive, for so long as
such payments are due, all premiums then due or payable on the whole–life
portion of the split–dollar insurance policy referenced under Section
3(d); provided that the Company’s obligations under this Section
7(c)(vi)(B) are contingent on Executive’s timely payment of the premiums
then due or thereafter payable on the term portion of said split-dollar
insurance policy; and

 

 

          (C) Take whatever action is necessary to cause Executive to
become vested as of the Date of Termination in all stock options,
restricted stock grants, and all other equity–based awards and be entitled
to exercise and continue to exercise all stock options and all other
equity–based awards having an exercise schedule and to retain such grants
and awards to the same extent as if they were vested upon termination of
employment in accordance with their terms.

          (D) If Executive obtains a disability policy on commercially
reasonable terms with the same or similar coverage as provided by the
Company prior to the Date of Termination then, until that date that is 36
months (24 months in the case of a termination due to a CIC Pull)
following the Date of Termination (or, if earlier, until Executive obtains
comparable benefits through other employment), reimburse Executive for an
amount equal to the difference between (i) the monthly premiums for such
disability policy, less (ii) the amount paid by Executive in respect of a
portion of the premiums on the disability policy provided by Company prior
to the Date of Termination.

          (vii) Termination for Cause; Voluntary Resignation. In the
event Executive’s employment terminates during the Employment Period other than in
connection with a termination meeting the conditions of subparagraphs (ii), (iii),
(iv), (v) or (vi) of this Section 7(c), Executive shall receive the amounts set
forth in Section 7(c)(i) in full satisfaction of all of his entitlements from the
Company. All equity–based awards not vested as of the Date of Termination shall
terminate (unless otherwise provided in the applicable award agreement) and
Executive shall have no further entitlements with respect thereto.

          (viii) Clarification Regarding Treatment of Options and Restricted
Stock. The stock option and restricted stock agreements (the “Equity Award
Agreements”) that Executive has or may receive may contain language regarding
the effect of a termination of Executive’s employment under certain circumstances.

          (A) Notwithstanding such language in the Equity Award
Agreements, for so long as this Agreement is in effect, the Company will
be obligated, if the terms of this Agreement are more favorable in this
regard than the terms of the Equity Award Agreements, to take the actions
required under Sections 7(c)(ii), 7(c)(iii)(C), 7(c)(iv)(for a
Post-Expiration Termination), 7(c)(v)(C) and 7(c)(vi)(C) hereof upon the
happening of the circumstances described therein. Those sections provide
that in certain situations the Company will cause the Executive to become
vested as of the Date of Termination in all or certain equity-based
awards, and that such equity-based awards will thereafter be subject to
the provisions of the applicable Equity Award Agreement as it applies to
vested awards upon a termination. For purposes of clarification, although
an option grant may vest in accordance with these above-referenced
Sections, such optionwill thereafter be exercisable only for so long as
the related option agreement provides, except that the Compensation
Committee of the Board of Directors may, in its sole discretion, elect to
extend the expiration date of such option. For example, in general
Executive’s option agreements granted prior to the date hereof provide
that (in the absence of an extension by the Compensation Committee) upon a
termination of employment for any reason other than death, disability,
retirement or cause, any vested options will only be exercisable for three
months from the date of termination or, if earlier, the expiration date of
the option.

 

 

          (B) Notwithstanding the definition of “Cause” which may
appear in the Equity Award Agreements, for so long as this Agreement is in
effect (X) any “for Cause” termination must be in compliance with the
terms of this Agreement, including the definition of “Cause” set forth
herein, and (Y) only in the event of a “for Cause” termination that meets
both the definition in this Agreement and the definition in the Equity
Award Agreement will the disposition of options and restricted stock under
such Equity Award Agreement be treated in the manner described in such
Equity Award Agreement in the case of a termination “for Cause.”

          (C) For purposes of Section 7(b)(6)(A), the value of any
option may be determined by the Compensation Committee of the Board at any
time after its grant date by setting such value at the value determined by
a nationally recognized accounting firm or employee benefits compensation
firm, selected by such Committee, that calculates such value in accordance
with a Black-Scholes formula or variations thereof using such parameters
and procedures (including, without limitation, parameters and procedures
used to measure the historical volatility of the Company’s common stock as
of the relevant grant date) as the Compensation Committee and/or such firm
deems reasonably appropriate. In all events, if the parameters used for
valuing any option for purposes of Section 7(b)(6)(A) are the same as the
parameters used for valuing any other options for purposes of disclosure
or inclusion in the Company’s financial statements or financial statement
footnotes, then such parameters shall be deemed reasonable.

          (D) During the Employment Period any stock options issued to
Executive shall provide that if Executive’s employment is terminated in
any manner which gives rise to an obligation under this Agreement (or any
successor Agreement or other severance arrangement) to cause the
acceleration of vesting of stock options, then in such event such stock
options shall not expire until one year after the Date of Termination (or,
if earlier, the expiration of their ordinary term). This covenant of the
Company shall not apply to any stock options issued prior to June 1, 2001
or to any stock options issued after the expiration of the Employment
Period.

     (d) Additional Benefits.

          (i) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the Company to
or for the benefit of Executive, whether paid or payable or distributed or
distributable (1) pursuant to the terms of Section 7 of this Agreement, (2)
pursuant to or in connection with any compensatory or employee benefit plan,
agreement or arrangement, including but not limited to any stock options,
restricted or unrestricted stock grants issued to or for the benefit of Executive
and forgiveness of any loans by the Company to Executive or (3) otherwise
(collectively, “Severance Payments”), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), and any
interest or penalties are incurred by Executive with respect to such excise tax
(such excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the “Excise Tax”), then Executive shall be entitled to
receive an additional payment from the Company (a “Partial Gross–Up Payment”), such
that the net amount retained by Executive, before accrual or payment of any
Federal, state or local income tax or employment tax, but after accrual or payment
of the Excise Tax attributable to the Partial Gross–Up Payment, is equal to the
Excise Tax on the Severance Payments.

 

 

          (ii) Subject to the provisions of Section 7(d)(iii), all
determinations required to be made under this Section 7, including whether a
Partial Gross–Up Payment is required and the amount of such Partial Gross–Up
Payment, shall be made by Arthur Andersen LLP or such other nationally recognized
accounting firm as may at that time be the Company’s independent public accountants
immediately prior to the Change in Control (the “Accounting Firm”), which shall
provide detailed supporting calculations both to the Company and Executive as soon
as practicable after the Date of Termination, if applicable. The initial Partial
Gross–Up Payment, if any, as determined pursuant to this Section 7(d)(ii), shall be
paid to Executive within five days of the receipt of the Accounting Firm’s
determination. If the Accounting Firm determines that no Excise Tax is payable by
Executive, the Company shall furnish Executive with an opinion of counsel that
failure to report the Excise Tax on Executive’s applicable federal income tax
return would not result in the imposition of a negligence or similar penalty. Any
determination by the Accounting Firm shall be binding upon the Company and
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm hereunder,
it is possible that Partial Gross–Up Payments which will not have been made by the
Company should have been made (an “Underpayment”). In the event that the Company
exhausts its remedies pursuant to Section 7(d)(iii) and Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall determine
the amount of the Underpayment that has occurred, consistent with the calculations
required to be made hereunder, and any such Underpayment, and any interest and
penalties imposed on the Underpayment and required to be paid by Executive in
connection with the proceedings described in Section 7(d)(iii), and any related
legal and accounting expenses, shall be promptly paid by the Company to or for the
benefit of Executive.

          (iii) Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by the
Company of the Partial Gross–Up Payment. Such notification shall be given as soon
as practicable but no later than 10 business days after Executive acquires actual
knowledge of such claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid. Executive shall not pay
such claim prior to the expiration of the 30–day period following the date on which
he gives such notice to the Company (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Company notifies
Executive in writing prior to the expiration of such period that it desires to
contest such claim, Executive shall:

          (A) give the Company any information reasonably requested by
the Company relating to such claim,

          (B) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation with
respect to such claim by an attorney selected by the Company,

          (C) cooperate with the Company in good faith in order
effectively to contest such claim, and

          (D) permit the Company to participate in any proceedings
relating to such claim; provided, however that the Company shall bear and
pay directly all costs and expenses attributable to the failure to pay the
Excise Tax (including related additional interest and penalties) incurred
in connection with such contest and shall indemnify and hold Executive
harmless, for any Excise Tax up to an amount not exceeding the Partial
Gross–Up Payment, including interest and penalties with respect thereto,
imposed as a result of such representation, and payment of related legal
and accounting costs and expenses (the “Indemnification Limit”).

 

 

Without
limitation on the foregoing provisions of this Section 7(d)(iii), the
Company shall control all proceedings taken in connection with such
contest and, at its sole option may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the
Company directs Executive to pay such claim and sue for a refund, the
Company shall advance so much of the amount of such payment as does not
exceed the Excise Tax, and related interest and penalties, to Executive on
an interest–free basis and shall indemnify and hold Executive harmless,
from any related legal and accounting costs and expenses, and from any
Excise Tax, including related interest or penalties imposed with respect
to such advance or with respect to any imputed income with respect to such
advance up to an amount not exceeding the Indemnification Limit; and
further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of Executive with respect to
which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company’s control of the contest shall
be limited to issues with respect to which a Partial Gross–Up Payment
would be payable hereunder and Executive shall be entitled to settle or
contest, as the case may be, any other issues raised by the Internal
Revenue Service or any other taxing authority.

          (iv) If, after the receipt by Executive of an amount advanced by the
Company pursuant to Section 7(d)(iii), Executive becomes entitled to receive any
refund with respect to such claim, Executive shall (subject to the Company’s
complying with the requirements of Section 7(d)(iii)) promptly pay to the Company
so much of such refund (together with any interest paid or credited thereon after
taxes applicable thereto) (the “Refund”) as is equal to (A) if the Company advanced
or paid the entire amount required to be so advanced or paid pursuant to Section
7(d)(iii) hereof (the “Required Section 7(d) Advance”), the aggregate amount
advanced or paid by the Company pursuant to this Section 7(d) less the portion of
such amount advanced to Executive to reimburse him for related legal and accounting
costs, or (B) if the Company advanced or paid less than the Required Section 7(d)
Advance, so much of the aggregate amount so advanced or paid by the Company
pursuant to this Section 7(d) as is equal to the difference, if any, between (C)
the amount refunded to Executive with respect to such claim and (D) the sum of the
portion of the Required Section 7(d) Advance that was paid by Executive and not
paid or advanced by the Company plus Executive’s related legal and accounting fees,
as applicable. If, after the receipt by Executive of an amount advanced by the
Company pursuant to Section 7(d)(iii), a determination is made that Executive shall
not be entitled to any refund with respect to such claim and the Company does not
notify Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Partial Gross–Up Payment
required to be paid.

          (e) Notice of Termination. Notice of non–renewal of this Agreement pursuant
to Section 1 hereof or of any termination of Executive’s employment (other than by reason of death)
shall be communicated by written notice (a “Notice of Termination”) from one party hereto to the
other party hereto in accordance with this Section 7 and Section 9.

 

 

          (f) Date of Termination. “Date of Termination,” with respect to any
termination of Executive’s employment during the Employment Period, shall mean (i) if Executive’s
employment is terminated for Disability, 30 days after Notice of Termination is given (provided
that Executive shall not have returned to the full–time performance of Executive’s duties during
such 30 day period), (ii) if Executive’s employment is terminated for Cause, the date on which a
Notice of Termination is given which complies with the requirements of Section 7(b)(1) hereof, and
(iii) if Executive’s employment is terminated for any other reason, the date specified in the
Notice of Termination. In the case of a termination by the Company other than for Cause, the Date
of Termination shall not be less than 30 days after the Notice of Termination is given. In the
case of a termination by Executive, the Date of Termination shall not be less than 15 days from the
date such Notice of Termination is given. Notwithstanding the foregoing, in the event that
Executive gives a Notice of Termination to the Company, the Company may unilaterally accelerate the
Date of Termination and such acceleration shall not result in the termination being treated as a
termination without Cause. Upon any termination of his employment, Executive will concurrently
resign his membership as a director and/or officer of the Company and all subsidiaries of the
Company, to the extent applicable.

          (g) No Mitigation. The Company agrees that, if Executive’s employment by
the Company is terminated during the term of this Agreement, Executive is not required to seek
other employment, or to attempt in any way to reduce any amounts payable to Executive by the
Company pursuant to Section 7(d)(i) hereof. Further, the amount of any payment provided for in
this Agreement shall not be reduced by any compensation earned by Executive as the result of
employment by another employer, by retirement benefits, or, except for amounts then due and payable
in accordance with the terms of any promissory notes given by Executive in favor of the Company, by
offset against any amount claimed to be owed by Executive to the Company or otherwise.

          (h) Nature of Payments. The amounts due under this Section 7 are in the
nature of severance payments considered to be reasonable by the Company and are not in the nature
of a penalty. Such amounts are in full satisfaction of all claims Executive may have in respect of
his employment by the Company or its affiliates and are provided as the sole and exclusive benefits
to be provided to Executive, his estate, or his beneficiaries in respect of his termination of
employment from the Company or its affiliates.

     8. Non–Competition; Non–Solicitation; Specific Enforcement.

          (a) Non–Competition. Because Executive’s services to the Company are
special and because Executive has access to the Company’s confidential information, Executive
covenants and agrees that, during the Employment Period and, for a period of one year following the
Date of Termination by the Company for Cause or Disability, or a termination by Executive (other
than a Constructive Termination Without Cause) prior to a Change in Control, Executive shall not,
without the prior written consent of the Board of Directors, become associated with, or engage in
any “Restricted Activities” with respect to any “Competing Enterprise,” as such terms are
hereinafter defined, whether as an officer, employee, principal, partner, agent, consultant,
independent contractor or shareholder. “Competing Enterprise,” for purposes of this Agreement,
shall mean any person, corporation, partnership, venture or other entity which is engaged in the
business of managing, owning, leasing or joint venturing multifamily rental real estate within 30
miles of multifamily rental real estate owned or under management by the Company or its affiliates.
“Restricted Activities,” for purposes of this Agreement, shall mean executive, managerial,
directorial, administrative, strategic, business development or supervisory responsibilities and
activities relating to all aspects of multifamily rental real estate ownership, management,
multifamily rental real estate franchising, and multifamily rental real estate joint–venturing.

          (b) Non–Solicitation. For so long as the Executive remains employed by the
Company (or any successor thereto) and for one year following termination of employment, regardless
of reason, Executive shall not, without the prior written consent of the Company, except in the
course of carrying out his duties hereunder, solicit or attempt to solicit for employment with or
on behalf of any corporation, partnership, venture or other business entity, any employee of the
Company or any of its affiliates or any person who was formerly employed by the Company or any of
its affiliates within the preceding six months, unless such person’s employment was terminated by
the Company or any of such affiliates.

 

 

          (c) Specific Enforcement. Executive and the Company agree that the
restrictions, prohibitions and other provisions of this Section 8 are reasonable, fair and
equitable in scope, terms, and duration, are necessary to protect the legitimate business interests
of the Company and are a material inducement to the Company to enter into this Agreement. Should a
decision be made by a court of competent jurisdiction that the character, duration or geographical
scope of the provisions of this Section 8 is unreasonable, the parties intend and agree that this
Agreement shall be construed by the court in such a manner as to impose all of those restrictions
on Executive’s conduct that are reasonable in light of the circumstances and as are necessary to
assure to the Company the benefits of this Agreement. The Company and Executive further agree that
the services to be rendered under this Agreement by Executive are special, unique and of
extraordinary character, and that in the event of the breach by Executive of the terms and
conditions of this Agreement or if Executive, without the prior consent of the Board of Directors,
shall take any action in violation of this Section 8, the Company will suffer irreparable harm for
which there is no adequate remedy at law. Accordingly, Executive hereby consents to the entry of a
temporary restraining order or ex parte injunction, in addition to any other remedies available at
law or in equity, to enforce the provisions hereof. Any proceeding or action seeking equitable
relief for violation of this Section 8 must be commenced in the federal or state courts, in either
case in Virginia. Executive and the Company irrevocably and unconditionally submit to the
jurisdiction of such courts and agree to take any and all future action necessary to submit to the
jurisdiction of and venue in such courts.

     9. Notice. Any notice required or permitted hereunder shall be in writing
and shall be deemed sufficient when given by hand or by nationally recognized overnight courier or
by Express, registered or certified mail, postage prepaid, return receipt requested, and addressed,
if to the Company at 2900 Eisenhower Avenue, Suite 300, Alexandria, VA 22303, Attention: Chief
Executive Officer (with a second copy, sent by the same means and to the same address, Attention:
General Counsel), and if to Executive at the address set forth in the Company’s records (or to such
other address as may be provided by notice).

     10. Miscellaneous. This Agreement, together with Annex A and Annex B and
the Split Dollar Insurance Agreement and any Equity Award Agreements now or hereafter in effect,
constitutes the entire agreement between the parties concerning the subjects hereof and supersedes
any and all prior agreements or understandings, including, without limitation, any plan or
agreement providing benefits in the nature of severance, but excluding benefits provided under
other Company plans or agreements, except to the extent this Agreement provides greater rights than
are provided under such other plans or agreements. This Agreement may not be assigned by Executive
without the prior written consent of the Company, and may be assigned by the Company and shall be
binding upon, and inure to the benefit of, the Company’s successors and assigns. The Company will
require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to assume expressly and
agree to perform this Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As used in this Agreement, “Company”
shall mean the Company as hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.
Headings herein are for convenience of reference only and shall not define, limit or interpret the
contents hereof.

     11. Amendment. This Agreement may be amended, modified or supplemented by
the mutual consent of the parties in writing, but no oral amendment, modification or supplement
shall be effective. No waiver by either party of any breach by the other party of any condition or
provision contained in this Agreement to be performed by such other party shall be deemed a waiver
of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any
waiver must be in writing and signed by Executive or an authorized officer of the Company, as the
case may be.

 

 

     12. Severability. The provisions of this Agreement are severable. The
invalidity of any provision shall not affect the validity of any other provision, and each
provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

     13. Resolution of Disputes.

          (a) Procedures and Scope of Arbitration. Except for any controversy or
claim seeking equitable relief pursuant to Section 8 of this Agreement, all controversies and
claims arising under or in connection with this Agreement or relating to the interpretation, breach
or enforcement thereof and all other disputes between the parties, shall be resolved by expedited,
binding arbitration, to be held in the District of Columbia metropolitan area in accordance with
the applicable rules of the American Arbitration Association governing employment disputes (the
“National Rules”). In any proceeding relating to the amount owed to Executive in connection with
his termination of employment, it is the contemplation of the parties that the only remedy that the
arbitrator may award in such a proceeding is an amount equal to the termination payments, if any,
required to be provided under the applicable provisions of Section 7(c) and, if applicable, Section
7(d) hereof, to the extent not previously paid, plus the costs of arbitration and Executive’s
reasonable attorneys fees and expenses as provided below. Any award made by such arbitrator shall
be final, binding and conclusive on the parties for all purposes, and judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction thereof.

          (b) Attorneys Fees.

          (i) Reimbursement After Executive Prevails. Except as
otherwise provided in this paragraph, each party shall pay the cost of his or its
own legal fees and expenses incurred in connection with an arbitration proceeding.
Provided an award is made in favor of Executive in such proceeding, all of his
reasonable attorneys fees and expenses incurred in pursuing or defending such
proceeding shall be promptly reimbursed to Executive by the Company within five
days of the entry of the award. Any award of reasonable attorneys’ fees shall take
into account any offer of the Company, such that an award of attorneys’ fees to the
Executive may be limited or eliminated to the extent that the final decision in
favor of the Executive does not represent a material increase in value over the
offer that was made by the Company during the course of such proceeding. However,
any elimination or limitation on attorneys’ fees shall only apply to those
attorneys’ fees incurred after the offer by the Company.

          (ii) Reimbursement in Actions to Stay, Enjoin or Collect.
In any case where the Company or any other person seeks to stay or enjoin the
commencement or continuation of an arbitration proceeding, whether before or after
an award has been made, or where Executive seeks recovery of amounts due after an
award has been made, or where the Company brings any proceeding challenging or
contesting the award, all of Executive’s reasonable attorneys fees and expenses
incurred in connection therewith shall be promptly reimbursed by the Company to
Executive, within five days of presentation of an itemized request for
reimbursement, regardless of whether Executive prevails, regardless of the forum in
which such proceeding is brought, and regardless of whether a Change in Control has
occurred.

 

 

          (iii) Reimbursement After a Change in Control. Without
limitation on the foregoing, solely in a proceeding commenced by the Company or by
Executive after a Change in Control has occurred, the Company shall advance to
Executive, within five days of presentation of an itemized request for
reimbursement, all of Executive’s legal fees and expenses incurred in connection
therewith, regardless of the forum in which such proceeding was commenced, subject
to delivery of an undertaking by Executive to reimburse the Company for such
advance if he does not prevail in such proceeding (unless such fees are to be
reimbursed regardless of whether Executive prevails as provided in clause (ii)
above).

     14. Survivorship. The provisions of Sections 4(b), 6, 8 (to the extent
described below) and 13 of this Agreement shall survive Executive’s termination of employment.
Other provisions of this Agreement shall survive any termination of Executive’s employment to the
extent necessary to the intended preservation of each party’s respective rights and obligations.
The provisions of Section 8(a) shall in no event apply if Executive’s employment terminates for any
reason after the expiration of the Employment Period (for clarification, this means that if
Executive’s employment terminates on or prior to the expiration of the Original Term or any later
Renewal Term then the one year post-termination non-compete set forth in Section 8(a) will apply if
the termination is for one of the reasons set forth in Section 8(a)). The provisions of Section
8(b) shall apply during the Employment Period, and shall also apply with respect to any termination
of Executive’s employment for any reason during the two year period following the expiration of the
Employment Period (for clarification, this means that if Executive’s employment terminates for any
reason on or prior to the second anniversary of the expiration of the Original Term or any later
Renewal Term, then the non-solicitation requirement of Section 8(b) shall apply to Executive for
one year following termination of employment).

     15. Board Action. Where an action called for under this Agreement is
required to be taken by the Board of Directors, such action shall be taken by the vote of not less
than a majority of the members then in office and authorized to vote on the matter.

     16. Withholding. All amounts required to be paid by the Company shall be
subject to reduction in order to comply with applicable federal, state and local tax withholding
requirements.

     17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument. The execution of this Agreement may be by actual or
facsimile signature.

     18. Governing Law. This Agreement shall be construed and regulated in all
respects under the laws of the State of Maryland.

     IN WITNESS WHEREOF, this Agreement is entered into as of the date and year first above
written.

	 	 	 	 	 
	AVALONBAY COMMUNITIES, INC.	 	 
	 
	 	 	 	 
	By:

	 	/s/ Bryce Blair
	 	 
	 

	 	 	 	 
	
Its:

	 	Bryce Blair

Chief Executive Officer	 	 
	 
	 	 	 	 
	/s/ Leo S. Horey	 	 
	 	 	 
	Leo S. Horey<PAGE>

                                                                  Exhibit 10.15
                           AVALONBAY COMMUNITIES, INC.
                       2900 EISENHOWER AVENUE, THIRD FLOOR
                              ALEXANDRIA, VA 22314
                                 MARCH 24, 2000

Gilbert M. Meyer
26007 Torello Lane
Los Altos Hills, CA 94022

           RE:       RETIREMENT AGREEMENT

Dear Mr. Meyer:

           This letter agreement (the "Agreement") confirms the terms that will
govern your resignation, by reason of retirement, from your offices and
employment with AvalonBay Communities, Inc. (the "Company," a term which for
purposes of this Agreement includes its related or affiliated entities).

           1.     Retirement; Nomination as Director at 2000 Annual Meeting. You
and the Company hereby confirm that you will retire (i) effective immediately
following the next annual meeting of the shareholders of the Company if held in
May 2000, or (ii) if such annual meeting is held after May 2000, effective as of
May 10, 2000 (such date as may apply, the "Date of Retirement"). Accordingly,
you hereby irrevocably tender your resignation, as of the Date of Retirement, as
Executive Chairman of the Company and (except for your position as a Director of
AvalonBay Communities, Inc.) from all positions and offices you hold with the
Company or any of its affiliated entities. The Company hereby acknowledges your
retirement and accepts your resignations effective as of the Date of Retirement.

                  Subject to the execution in good faith by the Company's Board
of Directors of its fiduciary duties, the Company agrees that the Board (i)
shall nominate you for re-election at the Company's 2000 annual meeting of
stockholders as a Director of the Company and, (ii) following the 2000 annual
meeting shall grant you the honorary title of "Founder". Following the Date of
Retirement and upon your re-election as a Director, if applicable, in calendar
year 2001 and thereafter for so long as you remain a Director, you will receive
the same compensation as other outside non-employee Directors of the Company.
You waive your right, if any, to receive compensation, whether in the form of
stock grants, options awards or otherwise, as an outside non-employee Director
during calendar year 2000.

                  The Company will make a public announcement on or promptly
following the date hereof, in a mutually acceptable form, regarding your
retirement in May 2000.

           2.      Compensation Through Date of Retirement.

                   (a)    Through the Date of Retirement, you will continue to
receive a base salary at a rate of $410,000 per year (subject to applicable
withholding).

                   (b)    On the Date of Retirement, you will be paid in lieu
of a prorated cash bonus for calendar year 2000 the amount of $73,374.32
(subject to applicable withholding).

<PAGE>

Gilbert M. Meyer
March 24, 2000
Page 2

                   (c)    As of the date of this letter, your accrued but
unused vacation is 56 days. From and after the date hereof, you will no longer
accrue additional vacation per bi-weekly pay period and/or be charged against
such accrual for vacation days you reasonably use between the date of this
letter and the Date of Retirement. You will be paid $62,904.11 (i.e., 56/365
($410,000)) for all accrued but unused vacation days on the Date of Retirement
(subject to applicable withholding).

                   (d)    Through the Date of Retirement, you will receive the
benefits for which you are eligible under the Company's other generally
applicable employee benefit plans, practices and policies.

                   (e)    By vote of the Compensation Committee on February 28,
2000, your cash bonus and equity awards in respect of service during 1999 are
as follows: $243,200 cash bonus (which is fully vested and has been paid to you
in accordance with the Company's practice for senior managers); 7,260
restricted shares of common stock; and 59,400 stock options with an exercise
price equal to the market closing price on February 28, 2000. Such options and
shares will vest in accordance with the customary terms provided therein,
subject, in the case of options, to acceleration on the Date of Retirement as
provided herein, and, in the case of restricted shares, subject to Section 4
hereinbelow.

           3.      Split Dollar Life Insurance/Term Life.

                   (a)    In recognition of your services to the Company, the
Company will continue to pay, for so long as such payments are due, all
premiums then due and payable on, but only to the extent relating to, the
whole-life portion of, the split dollar life insurance policy obtained for you
pursuant to Section 3(d) of the Employment Agreement dated March 9, 1998, by
and between you and the Bay Apartment Communities, Inc. (a predecessor name of
the Company) (the "Employment Agreement"); provided that the Company's
obligations to pay under this Section 3 are conditioned upon your payment of
all premiums payable on, but only to the extent relating to, the term-life
portion of, said split dollar life insurance policy. You agree to cooperate
with the Company in verifying your continuing satisfaction of the foregoing
condition. The Company agrees to promptly notify you and you agree to promptly
notify the Company of any premium notice or other notice it or you receive from
the insurer relating to the policy. In the event that the Company determines
that its obligation to make payments under this Section 3 has ceased by reason
of your non-payment of premiums relating to the term-life portion of said split
dollar life insurance policy, the Company shall provide you with thirty (30)
days advance written notice of its intent to terminate payments hereunder. Such
notice shall identify specifically your non-payment of the term life premium
that is the basis on which the Company asserts its right to cease payments and
shall provide you with a

<PAGE>

Gilbert M. Meyer
March 24, 2000
Page 3
reasonable opportunity to cure.

                   (b)    As an additional retirement benefit, the Company has
agreed to provide you with the following death benefit, which shall provide
assurances to you that the fees payable to you under the Consulting Agreement
in respect of your services during the three year period following the date
hereof will accrue to you or your estate in the event of your death during such
period:

                   (i)    In the event that you die during the three year
                          period following the Date of Retirement, the Company
                          will pay in accordance with Sections 14(j) below, on
                          the date or dates when such payments would otherwise
                          have been due, the remaining cash consulting Fees due
                          to you under the Consulting Agreement.

                   (ii)   You agree to use reasonable best efforts to cause a
                          life insurance company to tender to you an offer of a
                          term life insurance policy with reasonable commercial
                          rates that will provide a death benefit approximately
                          equal to the cash consulting Fees still due you under
                          the Consulting Agreement. You will advise the Company
                          of the premiums due therefor prior to entering into
                          such life insurance policy, and the Company will
                          advise you as to whether the Company intends to
                          reimburse you for the premiums therefor in accordance
                          with the next clause (iii). To satisfy this clause
                          (ii), you may procure two policies, one of which may
                          lapse after one year.

                   (iii)  If the Company reimburses you for the premiums
                          therefore, you will enter into such policy,
                          whereupon, during the term of such policy, the
                          Company's obligations under clause (i) shall not
                          apply. You shall have the right to designate, and
                          from time to time change, the beneficiary(ies) under
                          such policy.

                   (iv)   If the Consulting Period is terminated by the Company
                          for Cause (as set forth in the Consulting Agreement),
                          the Company's obligations in this Section 3(b) shall
                          not apply after the date of such termination.

                   (v)    By way of clarification, you and the Company agree
                          that in no event shall you or your estate or other
                          beneficiaries be paid in the aggregate, by virtue of
                          the Company's obligations hereunder, or under the
                          Consulting Agreement, or by virtue of the term life
                          insurance policy that may be procured as contemplated
                          hereby, an

<PAGE>

Gilbert M. Meyer
March 24, 2000
Page 4
                          amount in cash that exceeds the cash consulting Fees
                          that you otherwise would have received under the
                          Consulting Agreement for full service thereunder,
                          and, in the event that you or your estate does
                          receive such excess cash payments, the amount of such
                          excess shall be promptly reported to and remitted to
                          the Company.

                   (c)    As an additional retirement benefit, the Company
further has agreed that, in the event you die before all common stock
deliverable to you as Additional Fees under the Consulting Agreement has been
delivered, the Company shall deliver such installment or installments of common
stock in accordance with Section 14(j) below, on the date or dates when such
deliveries would otherwise have been due under Section 1(b) of the Consulting
Agreement.

           4.      Restricted Stock, Deferred Stock Awards and Founder's Stock.

                   (a)    You and the Company agree and acknowledge that the
Company's 1994 Stock Incentive Plan, as amended (the "Stock Incentive Plan")
provides that all remaining shares of the restricted common stock of the
Company that you were granted as Restricted Stock Awards are to continue to
vest from and after the Date of Retirement in accordance with the terms of each
such grant. For clarification, Exhibit A hereto describes all such Restricted
Stock. Notwithstanding the foregoing, for good and valuable consideration, you
hereby waive your right to and forfeit, as of the Date of Retirement, all then
remaining unvested Restricted Stock. To the extent the Company has not already
done so with respect to previously vested Restricted Stock, the Company shall
(or shall cause the Company's transfer agent to) (i) promptly deliver to you
certificates representing such stock with no restrictive legends, and such
stock shall be freely transferable by you subject to applicable securities laws
and the Company's insider trading policy, which shall apply to you in your
capacity as a Director; and (ii) remove all restrictive legends on shares
previously issued to you. In the event that you hold or were given certificates
regarding such restricted shares, the Company's obligation in the preceding
sentence is subject to: (A) delivery by you to the Company or its agent of such
certificate; or (B) your delivery to the Company or its agent of a loss
affidavit. You acknowledge that the Company has advised you to consult an
attorney regarding your continuing obligations under Section 16 of the
Securities Exchange Act of 1934, as amended, as well as other federal and state
securities (including insider trading) laws. You agree that you shall continue
to be bound by the Company's insider trading policy for so long as you are a
Director.

                   (b)    The Company acknowledges that as of the date hereof,
you have 24,977 Deferred Stock Awards, which number will continue to grow as a
result of the reinvestment of "phantom" dividends in accordance with the
Company's current practice and shall be adjusted equitably to reflect stock
splits, stock dividends or similar changes

<PAGE>

Gilbert M. Meyer
March 24, 2000
Page 5
affecting the common stock of the Company prior to your conversion of such
Deferred Stock as provided hereinbelow. The Company agrees that you may convert
some or all of your Deferred Stock Awards into common stock of the Company at
any time after May 10, 2000 upon ten (10) business days written notice (with
stock certificates promptly delivered to you). Your right to convert the
Deferred Stock Awards remains subject to all applicable securities laws.
Promptly upon your ceasing to serve as a Director, any remaining Deferred Stock
Awards promptly shall be converted into common stock of the Company and paid to
you. Your right to have the Deferred Stock Awards convert into common stock and
be paid to you will in no way depend on your service under the Consulting
Agreement or any defaults by you thereunder.

                   (c)    The Company shall (or shall cause the Company's
transfer agent to) remove all restrictive legends from your founder's shares
(i.e., stock you held in Bay Apartment Communities, Inc. at the time of its
initial public offering).  In the event that you hold or were given
certificates regarding such founder's shares, the Company's obligation in the
preceding sentence is subject to:  (i) delivery by you to the Company or its
agent of such certificate; or (ii) your delivery to the Company or its agent of
a loss affidavit.

           5.      Stock Options.

                   (a)    You and the Company agree and acknowledge that the
Stock Incentive Plan provides that by reason of your retirement, all options to
purchase shares of the Company's common stock that you were granted shall
automatically vest as of the Date of Retirement. For clarification, Exhibit B
hereto lists all such options and their respective exercise prices. The Company
acknowledges that, assuming that you continue to serve as a Director
immediately following your retirement, the exercise periods with respect to
your various options are unaffected by your retirement. Accordingly, (i) you
have until the earlier of (A) the expiration of three (3) months following the
termination of your membership on the Company's board of directors (or six (6)
months from your death if you die while a director) or (B) the expiration of
the original term of such option (i.e., ten years after its grant date), in
which to exercise those options granted to you prior to 1999; and (ii) you have
until the earlier of (A) the expiration of twelve months following the
termination of your membership on the Company's board of directors (or six (6)
months from your death if you die while a director) or (B) the expiration of
the original term of such option (i.e., ten years after its grant date) in
which to exercise those options granted to you in or after 1999.

                   (b)    Notwithstanding the foregoing, the Board of
Directors, or the Compensation Committee of the Board of Directors of the
Company, has taken such action as is necessary so that with respect to options
granted on January 24, 1997, January 30, 1998, and February 28, 2000 you will
have until January 24, 2007,

<PAGE>

Gilbert M. Meyer
March 24, 2000
Page 6
January 30, 2008 and February 28, 2010, respectively in which to exercise such
options (collectively, the "Extended Options") subject to the following
provisions. In the event that you wilfully and materially breach the terms of
the Consulting Agreement or the Mutual Release and Separation Agreement each
dated as of March 24, 2000, by and between you and the Company (respectively,
the "Consulting Agreement" and the "Separation Agreement"), (a "Material
Breach") at any time after the date hereof and within thirty-six (36) months of
the Date of Retirement, in addition to the Company's rights to obtain equitable
relief or damages for such breach, the Company may suspend thirty-three percent
(33%) of the original amount of each tranche of the Extended Options (or, with
respect to a tranche of Extended Options for which less than thirty-three
percent (33%) of the original amount is outstanding at that time, all such
tranche of Extended Options) ("Suspended Options"). The Company shall suspend
your right to exercise the Suspended Options by (i) filing a request for
arbitration within a reasonable time after any Senior Manager (i.e., any
individual holding the title of Senior Vice President or higher) learns of the
Material Breach, which request specifically states that the Company is
suspending your right to exercise, or (ii) in the event the Company reasonably
determines that your asserted Material Breach is curable, by sending you a
written notice describing the Material Breach and the steps you must take to
cure such Material Breach. In the event that the Company asks you to cure a
Material Breach and you fail to cure such breach to the Company's satisfaction
within five (5) business days following delivery to you of written notice from
the Company, the Company then may commence an arbitration proceeding, in which
case your right to exercise the Suspended Options will remain suspended. In the
event that an arbitrator determines that you have not committed a Material
Breach, the arbitrator may award you damages directly caused by the suspension
of your right to exercise the Suspended Options. In the event that an
arbitrator determines that you have committed a Material Breach, the exercise
period of the Suspended Options shall terminate immediately, without prejudice
to the Company's right to obtain equitable relief or damages for such Material
Breach; provided that an award of additional damages (if any) shall take into
account termination of the Suspended Options. Nothing contained herein
otherwise shall be deemed to limit the Company's right to obtain equitable
relief or damages for a Material Breach that occurs before or after thirty-six
(36) months after the date you execute this Agreement.

           In the event of your death, your options shall be exercisable by
your legal representative or legatee in accordance with their terms.

           6.      Loan Forgiveness. The Company will forgive, on the Date of
Retirement, the amount you owe in consideration of loans the Company made to
you in connection with the grant of restricted stock prior to the date hereof
(i.e., approximately $72,500). On or promptly following the Date of Retirement,
the promissory notes representing the

<PAGE>
Gilbert M. Meyer
March 24, 2000
Page 7
approximately said indebtedness shall be returned to you marked "Paid in Full."
You understand and acknowledge that the Company will not make any further loans
to you with respect to restricted stock awarded to you in calendar year 2000.

           7.      Expense Reimbursement. You shall continue to be entitled to
reimbursement of reasonable business expenses incurred through the Date of
Retirement in accordance with Section 4(a) of the Employment Agreement. As a
Director, you will be entitled to reimbursement of reasonable business expenses
in accordance with the Company's customary practices, from and after the Date
of Retirement.

           8.      Status of Other Benefits. Except as expressly provided
hereinabove, your eligibility to participate in any of the Company's employee
benefit plans or programs ceases on or after the Date of Retirement in
accordance with the terms and conditions of each of those benefit plans and
programs and your rights to benefits under any of the employee benefit plans or
programs, if any, are governed by the terms and conditions of each of those
employee benefit plans and programs; provided, that nothing in this Section 8
shall be construed to affect you or your dependents' rights thereafter to
receive continuation coverage to the extent authorized by and consistent with
29 U.S.C. Section 1161, et. seq. (commonly known as "COBRA") and applicable
group health and dental plan terms, entirely at your or their own cost (as
determined for COBRA premium purposes). Notwithstanding any shorter period that
may be provided under COBRA, the Company will make its group health and dental
plans (or reasonably comparable health and dental insurance) available to you
and your qualified dependents for three years following the Date of Retirement,
such coverage to be entirely at your or their own cost (as determined for COBRA
premium purposes).

           9.      Return of Property. In accordance with Section 4 of the
Nondisclosure Agreement, dated as of March 9, 1998, by and between you and Bay
Apartment Communities, Inc. (a predecessor name to the Company), and
incorporated in the Employment Agreement as Annex B ("Nondisclosure
Agreement"), you agree that, on or promptly following the Date of Retirement,
you will promptly return to the Company (a) all records, correspondence, notes,
financial statements, computer printouts and other documents and recorded
material of every nature (including copies thereof) that may be in your
possession or control dealing with Confidential Information (as defined in
Section 8 of the Nondisclosure Agreement), provided, however, that you may keep
your laptop computer and personal home computer, but at the Company's request,
you will allow the Company to delete all Company records therefrom and to
discontinue computer access to the Company's computer files. Additionally, you
may keep materials you properly possess in your capacity as a Director, and may
download and keep your calendar and rolodex (except to the extent that the
Company reasonably and specifically notifies you that any such information
constitutes Confidential Information, in which case the specifically cited
information may not be downloaded).

<PAGE>

Gilbert M. Meyer
March 24, 2000
Page 8

           10.     Non-Compete   Section 8(a) of the Employment Agreement is
hereby amended and restated and incorporated herein as of the Effective Date as
follows:

                   For so long as Executive remains a Director of the Company,
                   Executive shall not, without the prior written consent of
                   the Board of Directors, become associated with, or engage in
                   any "Restricted Activities" with respect to any "Competing
                   Enterprise," as such terms are hereinafter defined, whether
                   as an officer, employee, principal, partner, agent,
                   consultant, independent contractor or shareholder.
                   "Competing Enterprise," for purposes of this Agreement,
                   shall mean any person, corporation, partnership, venture or
                   other entity which (a) is a publicly traded real estate
                   investment trust, or (b) is engaged in the business of
                   managing, owning, leasing or joint venturing residential
                   real estate within 30 miles of residential real estate owned
                   or under management by the Company or its affiliates.
                   "Restricted Activities," for purposes of this Agreement,
                   shall mean executive, managerial, directorial,
                   administrative, strategic, business development or
                   supervisory responsibilities and activities relating to all
                   aspects of residential real estate ownership, management,
                   residential real estate franchising, and residential real
                   estate joint-venturing.

                   (a)    The Executive's interest in and performance of
                          services for Greenbriar Homes Communities, Inc. and
                          its affiliates (collectively, "Greenbriar"), shall
                          not be deemed to be an association with or engaging
                          in Restricted Activities with respect to any
                          Competing Enterprise within the meaning of this
                          Section 8(a) of the Employment Agreement, but only to
                          the extent that his association with or involvement
                          with Greenbriar relates to the single family,
                          for-sale home business.

                   (b)    The Executive's investment of personal funds in
                          apartment buildings, developments or complexes and
                          the Executive's investment of personal funds in
                          partnerships that invest in apartment buildings,
                          developments or complexes shall not be deemed to be
                          an association with or engaging in Restricted
                          Activities with respect to any Competing Enterprise
                          within the meaning of this Section 8(a) of the
                          Employment Agreement, but only to the extent that (i)
                          such personal investments of equity capital do not
                          exceed $20,000,000 in the aggregate (inclusive of
                          such investments already made) for all such
                          investments (which value is determined at cost as of
                          the date of the Executive's initial

<PAGE>
Gilbert M. Meyer
March 24, 2000
Page 9
                          cash investment) and (ii) such personal funds account
                          for at least 75% of the equity capital invested in
                          any such building, development, complex or
                          partnership.  Personal funds include the funds of the
                          Executive's immediate family, any family trusts and
                          any family partnership.

                   (c)    In addition the Executive may request consent from
                          the Board to engage in any activity that he believes
                          is not competitive with the Company's then current
                          business or prospective business, and the Board will
                          not unreasonably withhold its consent if the Board
                          concludes in good faith that such activity is not in
                          competition with the Company's then current business
                          or prospective business.

                   (d)    The provisions regarding non-competition above in no
                          way shall limit the Executive's fiduciary and common
                          law obligations to the Company in his role as a
                          Director of the Company.

           11.     Exclusivity. This Agreement sets forth all the consideration
to which you are entitled by reason of your retirement and resulting
termination of your employment, and you agree that you shall not be entitled to
or eligible for any payments or benefits under any other Company severance,
bonus, retention or incentive policy, arrangement or plan.

           12.     Tax Matters. All payments and other consideration provided
to you pursuant to this Agreement shall be subject to any deductions,
withholding or tax reporting that the Company reasonably determines to be
required for tax purposes; provided, that nothing contained in this Section 12
affects your independent obligation and primary responsibility, which
obligation and responsibility you hereby affirm, to determine and make proper
judgments regarding the payment of taxes under applicable law. In the case of
non-cash compensation (i.e., vesting of restricted stock, loan forgiveness,
etc.) you hereby authorize the Company to offset amounts required to be
withheld against any other cash compensation or fees then payable by the
Company to you, including Fees under the Consulting Agreement.

           13.     Sale of Equity Interests. On or prior to the Date of
Retirement, you will sell to Bryce Blair or another designee of the Company all
of your interests in AvalonBay Services I, Inc. and AvalonBay Services II, Inc.
pursuant to documents substantially similar in terms to those used when you
purchased such shares from Charles Berman. The price therefor will be the fair
price as determined by you and the Company, which price you acknowledge has not
changed significantly since you purchased said shares from Charles Berman.

<PAGE>
Gilbert M. Meyer
March 24, 2000
Page 10
           14.     Notices, Acknowledgments and Other Terms

                   (a)    This Agreement shall become effective on the
Effective Date of the Separation Agreement (as defined in Section 7(d) thereof)
(the "Effective Date").

                   (b)    You are advised to consult with an attorney and tax
advisor before signing this Agreement.  You acknowledge that you have consulted
with an attorney of your choice.

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

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

                   (e)    Any notices required to be given under this Agreement
shall be provided in writing and delivered by hand or certified mail, and shall
be deemed to have been duly given when received at the following addresses,
unless and to the extent that notice of change of address has been duly given
hereunder

                   If to you at:

                   Mr. Gilbert M. Meyer
                   26007 Torello Lane
                   Los Altos Hills, CA 94022

                   with a copy to:

                   Ethan Lipsig, Esq.
                   Paul, Hastings, Janofsky & Walker LLP
                   555 South Flower Street
                   Los Angeles, CA 90071-2371

                   If to the Company, to it at:

                   AvalonBay Communities, Inc.

<PAGE>
Gilbert M. Meyer
March 24, 2000
Page 11
                   2900 Eisenhower Avenue, Third Floor
                   Alexandria, VA 22314
                   Attention: Chief Executive Officer

                   with a copy to:

                   AvalonBay Communities, Inc.
                   2900 Eisenhower Avenue, Third Floor
                   Alexandria, VA 22314
                   Attention: General Counsel

                   and a copy to:

                   Joseph A. Piacquad, Esq,
                   Goodwin, Procter & Hoar  LLP
                   Exchange Place
                   Boston, MA 02109-2881

                   (f)    The law of the State of Maryland will govern any
dispute about this Agreement, including any interpretation or enforcement of
this Agreement.

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

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

                   (i)    This Agreement, the Separation Agreement and the
Consulting Agreement and Sections 4(b), 6, 7(d), 8(a) (as amended by Section 10
of the Retirement Agreement), 8(b) (as clarified hereinbelow), 8(c) and 13(a)
(as amended by Section 5 of the Separation Agreement), and Annex B of the
Employment Agreement which are incorporated herein, constitute the entire
agreement between the parties with respect to the subject matter hereof and,
except as expressly provided therein, supersede all prior

<PAGE>
Gilbert M. Meyer
March 24, 2000
Page 12
agreements between the parties with respect to any related subject matter.
Without limiting your fiduciary duties as a Director, it is hereby acknowledged
that the contractual one year non-solicitation clause in Section 8(b) of the
Employment Agreement expires one year after the May 10, 2000, Date of
Retirement.

                   (j)    Subject in all events to applicable law, in the event
of your death any payments or other consideration then due and payable or
deliverable to you by the Company under this Agreement will be paid or
delivered to your designated beneficiary, or, if you are not survived by such
designated beneficiary, or you fail to effectively designate a beneficiary, to
your estate. The Company acknowledges that you have designated The Meyer 1997
Irrevocable Trust, dated February 10, 1997, Jo Ann Conner, or her successor,
Trustee, as the beneficiary. You may designate a beneficiary or change such
designation from time-to-time in accordance with the notice provisions of this
Agreement. The Company will reasonably cooperate with you to modify this
provision to the extent reasonably necessary so as to give effect to the
purpose of this provision in a manner that complies with applicable laws.

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

           If you agree to these terms, please sign and date below and return
this Agreement to the Company's Chief Executive Officer. This Agreement may be
executed in counterparts and/or by facsimile transmission, each of which shall
be deemed to be an original but all of which together shall constitute one and
the same instrument. The execution of this Agreement may be by actual or
facsimile signature.

                                   Sincerely,

                                   AvalonBay Communities, Inc.

                                   By: /s/ RICHARD L. MICHAUX
                                       ----------------------
                                           Richard L. Michaux
                                           Its: Chief Executive Officer

<PAGE>
Gilbert M. Meyer
March 24, 2000
Page 13

Accepted and Agreed to:

/s/ GILBERT M. MEYER
- ------------------------
Gilbert M. Meyer

Dated:  March 24, 2000
        ----------------

<PAGE>

Gilbert M. Meyer
March 24, 2000
Page 14

                                    EXHIBIT A

                             RESTRICTED STOCK GRANTS

<TABLE>
<CAPTION>
                    --------------------------------------
                        Issue Date         Total Shares
                    --------------------------------------
                   <S>                   <C>
                       1/24/97                   20,000
                    --------------------------------------
                       1/30/98                   10,000
                    --------------------------------------
                       2/17/99                    6,200
                    --------------------------------------
                       2/28/00                    7,260
                    --------------------------------------
                       TOTAL:                    43,460
                    --------------------------------------
</TABLE>

<PAGE>

Gilbert M. Meyer
March 24, 2000
Page 15

                                    EXHIBIT B

                                  STOCK OPTIONS

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
            ISSUE DATE          SHARES          STRIKE $           EXERCISED       OUTSTANDING
- ----------------------------------------------------------------------------------------------------------
          <S>                 <C>             <C>                 <C>             <C>
             3/10/94            100,000         $20.0000               --            100,000
- ----------------------------------------------------------------------------------------------------------
             3/31/95             60,000         $18.3750               --             60,000
- ----------------------------------------------------------------------------------------------------------
             1/26/96             40,000         $23.3750               --             40,000
- ----------------------------------------------------------------------------------------------------------
             1/24/97            100,000         $36.6250               --            100,000
- ----------------------------------------------------------------------------------------------------------
             1/30/98            100,000         $37.9375               --            100,000
- ----------------------------------------------------------------------------------------------------------
             2/17/99             62,000         $32.0000               --             62,000
- ----------------------------------------------------------------------------------------------------------
             2/28/00             59,400         $33.7500               --             59,400
- ----------------------------------------------------------------------------------------------------------
              TOTAL:            521,400           N/A                  --            521,400
- ----------------------------------------------------------------------------------------------------------
</TABLE>

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