Document:

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                           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>   2

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

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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

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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

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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,

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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

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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>   8

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

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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>   10
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>   11
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>   12
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>   13
Gilbert M. Meyer
March 24, 2000
Page 13

Accepted and Agreed to:

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

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

<PAGE>   14

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>   15

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><PAGE>   1

                              CONSULTING AGREEMENT

           This Consulting Agreement (the "Agreement"), made as of the
Effective Date (as that term is defined in Section 7(a) below), by and between
AvalonBay Communities, Inc. (the "Company," a term which for purposes of this
Agreement includes its related or affiliated entities) and Gilbert M. Meyer
(the "Consultant")

                                   WITNESSETH

           WHEREAS, the Consultant and the Company have agreed that the
Consultant shall retire as Executive Chairman of the Company on the 10th day of
May 2000 (the "Date of Retirement"); and

           WHEREAS, the Company and the Consultant have agreed that the
Consultant will continue to serve the Company as a consultant for a period of
time following the Consultant's retirement as Executive Chairman of the
Company;

           NOW THEREFORE, in consideration of the mutual covenants contained in
this Agreement, the Company and the Consultant agree as follows:

           1.      Consulting Fees.

                   (a)    In consideration of the Consultant's provision of
Consulting Services, in accordance with and subject to Section 2 below, the
Company will pay the Consultant the consulting fees (the "Fees") in three
installments as follows on the following payment dates:

                          (i)        One Million Three Hundred Ninety-Five
                                     Thousand Dollars ($1,395,000) on the Date
                                     of Retirement;

                          (ii)       One Million Three Hundred Ninety-Five
                                     Thousand Dollars ($1,395,000) on the first
                                     anniversary of the Date of Retirement; and

                          (iii)      One Million Three Hundred Ninety-Five
                                     Thousand Dollars ($1,395,000) on the
                                     second anniversary of the Date of
                                     Retirement.

                   (b)    The Consultant and the Company acknowledge that, due
to transitional issues, on-going developments, and other activities during the
first year of the Consulting Period, the Consultant will provide more services
than in the second and third years. As additional consideration for the
Consultant's provision of Consulting Services during the first year of the
Consulting Period, in accordance with and subject to Section 2 below, the
Company will deliver to the Consultant 5,880 shares (which shall be adjusted
equitably to reflect stock splits, stock dividends or similar changes affecting
the common stock of the Company occurring prior to the date such shares are to
be delivered to the Consultant) of the Company's common stock on each of the
Date of Retirement (i.e., May 10, 2000), July 1, 2000, October 1, 2000 and
January 1, 2001 (the "Additional Fees"). Such common stock may bear a
restricted securities legend to the extent the Company reasonably deems such
legend necessary to comply with applicable law.

           2.      Consulting Services and Payment Therefore

                   (a)    The Consultant hereby agrees to provide non-exclusive
consulting services to the Company for a period of three (3) years following
the Date of Retirement (the "Consulting Period"). By way of clarification, the
parties agree that the Consulting Period will continue in accordance with the
terms of this Agreement regardless of Consultant's continuing role as a
Director of the Company and that the Consultant's failure or inability to
continue as a Director shall not constitute "Cause" as defined in Section 2(f)
below.

                   (b)    In his capacity as a consultant to the Company, the
Consultant, upon reasonable advance notice and at times reasonably agreeable to
the Consultant, shall (i) assist with respect to transitional matters that may
arise in connection with the Consultant's retirement as Executive Chairman of
the Company; (ii) respond to

<PAGE>   2

requests for assistance or information concerning business matters with which
the Consultant became familiar while employed; and (iii) provide business
advice and counsel to the Company with respect to business strategies and
acquisition, dispositions, development and redevelopment of multi-family rental
properties (collectively, the "Consulting Services").

                   (c)    It is intended and agreed by and between the parties
that while providing Consulting Services, the Consultant is and shall at all
times be and remain, an independent contractor. The Consultant understands and
agrees that during the Consulting Period, he is not an employee of the Company
or any of its affiliates and shall not be treated as an employee for any
purpose. The Consultant understands that he will not be entitled by reason of
providing the Consulting Services to any compensation other than the
consideration provided in this Agreement, including, without limitation, the
Fees and Additional Fees described in Section 1 above. The Company shall
promptly reimburse the Consultant for all reasonable out-of-pocket costs
incurred by him in connection with providing Consulting Services, subject to
approval and documentation in accordance with applicable policies as may be in
effect from time to time. Nothing in this Agreement or otherwise shall be
construed as identifying the Consultant as an employee, agent or legal
representative of the Company or any of its affiliates during the Consulting
Period for any purpose whatsoever. The Consultant will not be authorized to
transact business, incur obligations, sell goods, receive payments, solicit
orders or assign or create any obligation of any kind, express or implied, on
behalf of the Company, or to bind in any way whatsoever, or to make any
promise, warranty or representation on behalf of the Company with respect to
any matter, except as expressly authorized in writing by the Company. The
Consultant shall not use any of the Company's trade names, trademarks, service
names or servicemarks without the prior written approval of the Company.

                   (d)    The Company will indemnify and hold the Consultant
harmless with respect to any liability, cost, claims, damage (including
reasonable attorney's fees) arising from his provision of Consulting Services
except to the extent arising from the Consultant's reckless or willful
misconduct and provided in any such case, that the Consultant promptly notify
the Company, in writing, of any claim for indemnification made hereunder and
allow the Company to assume the defense of any claim with counsel reasonably
acceptable to the Consultant.

                   (e)    During the Consulting Period, the Consultant shall be
free to pursue other business opportunities or employment, except to the extent
that such other business opportunities or employment might violate the terms of
this Agreement, any other agreement between the Consultant and the Company, or
the Consultant's fiduciary duties to the Company to the extent he remains a
Director of the Company. The Consultant shall not be required to provide
Consulting Services in a manner that unreasonably interferes with his ability
to pursue such other business opportunities or employment; provided, that the
Consultant shall remain available in any event to provide and shall provide, on
reasonable notice, Consulting Services to the Company.

                   (f)    This Agreement shall terminate prior to the end of
the Consulting Period, without further obligation on the part of the Company,
automatically upon the death of the Consultant or the Company's termination of
this Agreement for "Cause". For purposes of this Agreement, the term "Cause"
shall mean the Consultant's reckless or willful misconduct in the provision of
Consulting Services or the Consultant's willful and material breach of this
Agreement. Notwithstanding the foregoing, no termination of this Agreement by
the Company shall be treated as for Cause unless and until all the steps
described in Subparagraphs (i) to (iii) below have been complied with:

                          (i)        Notice of intention to terminate for Cause
has been given to the Consultant in writing by the Company within 120 days
after the Chief Executive Officer of the Company learns of the act, failure to
act or event (or latest in a series of acts, failures to act or events)
constituting Cause;

                          (ii)       Consultant has been given written notice
of the particular acts, failures to act or events which forms the basis for the
Company's assertion of Cause and has been afforded at least 30 days in which
(A) to present his position with respect to such basis in writing and, (B) if,
in the reasonable judgment of the Company, such act, failure to act or event is
curable, Consultant has been given a reasonable opportunity to cure the
asserted basis for Cause; and

                          (iii)      In the event the Company reasonably
determines that the Consultant's written statement of his position with respect
to the Company's assertion of Cause is not satisfactory and, if curable,

                                       2
<PAGE>   3

Consultant failed to cure to the Company's reasonable satisfaction, the Company
then may commence an arbitration proceeding to establish that it has Cause to
terminate the Agreement. In the event that an arbitrator determines that the
Company does not have a basis to terminate this Agreement for Cause, the
Company's obligation to continue paying the Fees shall continue. The
arbitration shall take place in accordance with the procedures described in
Section 5 of the Mutual Release and Separation Agreement, of even date
herewith, by and between the Consultant and the Company (the "Separation
Agreement"). In the event that the date of payment for any installment of the
Fees or date of delivery of the Additional Fees occurs while the process
described in Subsections (i) through (iii) hereof is pending, the Company shall
pay that installment of the Fees or deliver that installment of the Additional
Fees into an escrow account in accordance with and subject to the escrow
provisions of Section 5(e) of the Separation Agreement. The arbitrator shall
direct that the amount held in escrow, including accrued interest, be paid over
to the prevailing party. Nothing in this Section 2(f) shall be deemed to
preclude the Company or the Consultant from seeking equitable relief in a court
as specified in, and for the limited purposes set forth in, Section 5(f) of the
Separation Agreement.

           3.      Non-Compete.

                   (a)    During the Consulting Period, the Consultant
covenants and agrees that he shall not participate in any manner, directly or
indirectly, whether as an officer, employee, principal, partner, agent,
consultant, independent contractor or shareholder (other than through ownership
of less than 3% of the outstanding shares), in any publicly-traded real estate
investment trust or publicly-traded real estate company that, in either case,
is primarily or significantly involved in the ownership, operation, management
or rental of multi-family apartment homes. This provision in no way shall limit
the Consultant's fiduciary and common law obligations to the Company in his
role as a director of the Company.

                   (b)    In furtherance of the Consultant's obligations under
this Agreement, Consultant further agrees that he shall not disclose, provide
or reveal, directly or indirectly, any confidential information concerning the
Company, including without implication of limitation, their respective
operations, plans, strategies or administration, to any other person or entity
unless compelled to do so pursuant to (i) a valid subpoena or (ii) as otherwise
required by law, but in either case only after providing the Company, to the
attention of its Chief Executive Officer, with prior written notice and
opportunity to contest such subpoena or other requirement. Written notice shall
be provided to the Company as soon as practicable, but in no event less than
five (5) business days before any such disclosure is compelled, or, if later,
at least one (1) business day after the Consultant receives notice compelling
such disclosure.

                   (c)    By way of background, the Consultant acknowledges
that he presently is under the following obligations that may limit his ability
to compete with the Company: Section 3 of this Agreement, Section 10 of that
certain Retirement Agreement, of even date herewith, by and between the
Consultant and the Company (the "Retirement Agreement"); Annex B to the
Employment Agreement; and ongoing fiduciary obligations to the extent
Consultant remains a Director of the Company (collectively, the
"Restrictions"). The Company agrees that aside from the Restrictions: (i)
nothing else in this or any other agreement prohibits the Consultant from
competing with, or providing services, to an entity that competes with, the
Company; (ii) such competition or services alone would not constitute a
violation of this or any other agreement or law; and (iii) the Company will not
assert that such competition or services alone constitutes a violation of this
or any agreement or law on the theory that it inevitably would result in the
disclosure of confidential information or trade secrets. This provision,
however, shall not relieve the Consultant of any obligations he may have under
Sections 8(b) or 8(c) of the Employment Agreement, Annex B thereto, or common
or statutory law not to use or disclose trade secrets or confidential
information of the Company.
           4.      Adverse Actions. The Consultant agrees that for forty-eight
(48) months following the date he executes this Agreement, or, if later, until
that date on which he ceases to be a Director of the Company, without the prior
written consent of the Company the Consultant shall not, directly or indirectly
or in any manner, or solicit, request, advise, assist or encourage any other
person or entity to, (a) undertake any action that would be reasonably likely
to, or is intended to, result in a Change in Control (as that term is defined
in the Employment Agreement) of the Company, including, for these purposes,
without limitation, a valuation of the Company; (b) seek to change or control
in any manner the management or the Board of Directors of the Company, or the
business, operations or affairs of the Company; or (c) undertake an investment
(other than in respect to the equity rights with respect to option awards and
stock grants provided to the Consultant in consideration of his employment), in
the Company. The foregoing shall not apply to the Consultant's routine
participation as a Director of the Company or to routine interests in Company
equity, such as through reinvestments of Company dividends.

                                       3

<PAGE>   4

           5.      Exclusivity.  This Agreement sets forth all the
consideration to which the Consultant is entitled by reason of providing
Consulting Services.

           6.      Tax Matters. All payments and other consideration provided
to the Consultant 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 6 affects the Consultant's independent obligation and primary
responsibility, which obligation and responsibility the Consultant hereby
affirms, to determine and make proper judgments regarding the payment of taxes
under applicable law. The Company represents that it is the Company's current
belief that withholding of income taxes on the Fees is not required and the
Company further intends to pay to the Consultant the full amount of the Fees
(subject to offsets, if any, authorized by the Consultant) and report same for
tax purposes on a Form 1099.

           7.      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) of the
Separation Agreement (the "Effective Date").

                   (b)    By signing this Agreement, the Consultant
acknowledges that he is doing so voluntarily and knowingly, fully intending to
be bound by this Agreement. The Consultant also acknowledges that he is not
relying on any representations by any representative of the Company concerning
the meaning of any aspect of this Agreement.

                   (c)    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 the Consultant 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.
                   (d)    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 the Consultant 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

                                       4

<PAGE>   5

                   555 South Flower Street
                   Los Angeles, CA 90071-2371

                   If to the Company, to it at:

                   AvalonBay Communities, Inc.
                   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 the Consultant and an authorized representative of the
Company.

                   (i)    This Agreement, the Retirement Agreement and the
Separation Agreement and Sections 4(b), 6, 7(d), 8(a) (as amended by Section 10
of the Retirement Agreement), 8(b) (as clarified by Section 14(i) of the
Retirement Agreement), 8(c) and 13(a) (as amended by Section 5 of the
Separation Agreement), and Annex B of the Employment Agreement constitute the
entire agreement between the parties with respect to the subject matter hereof
and, except as

                                       5

<PAGE>   6

expressly provided therein, supersede all prior agreements between the parties
with respect to any related subject matter.

                   (j)    Neither the Company nor the Consultant may make any
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other party; provided that
the Company may assign its rights under this Agreement without the consent of
the Consultant in the event that the Company shall effect a reorganization,
consolidate with or merge into any other corporation, partnership, organization
or other entity, or transfer all or substantially all of its properties or
assets to any other corporation, partnership, organization or other entity.
This Agreement shall inure to the benefit of and be binding upon the Company
and the Consultant, their respective successors, executors, administrators,
heirs and permitted assigns.

                   (k)    Subject in all events to applicable laws, in the
event of the Consultant's death, any payments or other consideration then due
and payable or deliverable to the Consultant by the Company under this
Agreement will be paid or delivered to the Consultant's designated beneficiary,
or, if the Consultant is not survived by such designated beneficiary, or the
Consultant fails to effectively designate a beneficiary, to the Consultant's
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. The Consultant 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.

                   (l)    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.

           IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, by its duly authorized officer, and by the
Consultant.

<TABLE>
<CAPTION>

           CONSULTANT:                 AVALONBAY COMMUNITIES, INC.

<S>                                 <C>

/s/ GILBERT M. MEYER                   By:    /s/ RICHARD L. MICHAUX
--------------------------                --------------------------
Gilbert M. Meyer                                  Richard L. Michaux
                                                  Its: Chief Executive Officer

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

</TABLE>

                                       6

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