EMPLOYMENT AGREEMENT RE: RICHARD L. MICHAUX

EXHIBIT 10.1


EMPLOYMENT AGREEMENT





EMPLOYMENT AGREEMENT (this "Agreement") made as of the 9th day of
March, 1998 by and between Richard L. Michaux ("Executive") and Bay Apartment
Communities, Inc., a Maryland corporation (the "Company").

WHEREAS, Executive and Avalon Properties, Inc. ("Avalon") have
previously entered into an Employment Agreement, dated as of July 15, 1997 (the
"Prior Agreement"); and

WHEREAS, pursuant to the Agreement and Plan of Merger, by and between
the Company and Avalon, dated as of March 9, 1998 (the "Merger Agreement"),
Avalon will merge into the Company (the "Merger"); and

WHEREAS, Executive and the Company desire to enter into a new
employment agreement, effective as of the consummation of the merger
contemplated by the Merger Agreement (the "Effective Date"), to replace the
Prior Agreement.

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

1. Term. Subject to the consummation of the merger contemplated by
the Merger Agreement, 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 the third
anniversary of the Effective Date (the "Original Term"), unless
earlier terminated as provided in Section 7. The Original Term shall
be extended automatically for additional 1 year periods (each a
"Renewal Term"), unless notice that this Agreement will not be
extended is given by either party to the other 6 months 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 3 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 Chief Executive Officer. In the performance of his
duties, Executive shall be subject to the direction of the
Board of Directors of the Company (the "Board of Directors")
and shall not be required to take direction from or report to
any other person. Executive shall be appointed to the Board of
Directors of the Company effective as of the Effective Date.
Executive's duties and authority under this Agreement are set
forth on Exhibit 1 to this Agreement.



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 herein shall be
interpreted to preclude Executive from (i) participating with
the prior written consent of the Board of Directors 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. The Company consents to Executive's status as a
"former partner" with a current financial interest in certain
Midwest projects of Trammell Crow Residential ("TCR"), and
such activity shall not be treated as a Competing Enterprise.

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 greater Washington, D.C. metropolitan area.

d. Breach by either party of any of 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 $350,000. Executive's Base Salary will be
reviewed by the Company as of the first anniversary of the
Effective Date, and may be adjusted upward (but not downward)
at such time to reflect any inequities in compensation.
Commencing as of January 1, 2000, Executive's Base Salary
shall be reviewed no less frequently than annually by the
Company and may be adjusted upward (but not downward) by the
Company. Upon such annual review during the Renewal Term, if
any, Executive's Base Salary shall be increased to the
greatest of (i) an amount equal to Base Salary for the prior
year plus 5%, (ii) a factor measured by the increase, if any,
in the Consumer Price Index for Wage Earners and Clerical
Workers (CPI-W) (City Average for Washington, D.C.-MD-Va
1982-84=100), as published by the Bureau of Labor Statistics,
for the prior calendar year (the "CPI Adjustment") or (iii)
such greater amount as may be agreed by Executive and the
Company. 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 as a bonus if the Board, or any
compensation committee hereof, in its discretion, determines
that Executive's contribution to the Company warrants such
additional payment and the Company's anticipated financial
performance of the present period permits such payment. The
bonuses hereunder shall be paid as a lump sum not later than
60 days after the end of the Company's preceding fiscal year.

c. Medical Insurance/Physical. During the Employment Period, the
Company shall provide to Executive and Executive's immediate
family a comprehensive policy of health insurance. During the
Employment Period, Executive shall be entitled to a
comprehensive annual physical performed, at the expense of the
Company by the physician or medical group of Executive's
choosing.

d. Life Insurance/Disability 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 Avalon and Executive,
subject to reimbursement by Executive as provided in such
Split Dollar Insurance Agreement. The Company shall reimburse
Executive for the cost of the comprehensive disability
insurance policy, which is in effect on January 1, 1997, and
shall also be responsible for any increases in premiums which
become effective during the Employment Period as may be
necessary to maintain the same level of insurance as in effect
on January 1, 1997. Executive agrees to submit to such medical
examinations as may be required in order to maintain such
policies 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 executives,
not to exceed 6 weeks per annum, in the aggregate.

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. Club Membership. The Company will pay, or at Executive's
election reimburse, during the Employment Period (i) the
membership dues and special assessments (exclusive of
initiation or admittance costs) for country club memberships
of Executive's choice in an aggregate amount not to exceed
$10,000 per year,


increased but not decreased for each succeeding twelve month
period during the Employment Period by the CPI Adjustment
plus (ii) other costs and fees of use of such country
club(s) reasonably related to the Company's business,
subject to substantiation thereof in accordance with the
Company's policies in effect from time to time for executive
employees of the Company.

h. Automobile. The Company shall provide Executive with a monthly
car allowance during the Employment Period of not less than
$950 per month (adjusted annually for inflation by the CPI
Adjustment); provided that, at Executive's election, the
Company may instead purchase or lease, and maintain insurance
for, an automobile of comparable value for use by Executive,
who shall be responsible for maintaining such automobile, at
his own expense, with the same standard of care Executive
applies to his own property and as may be required under any
applicable lease agreement.

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 executives of the Company from time to time, and
shall be given credit for purposes of eligibility and vesting
of employee benefits and benefit accrual for service with
Avalon, its affiliates and TCR prior to the Effective Date
under each benefit plan of the Company and its subsidiaries to
the extent such service had been credited under employee
benefit plans of Avalon and its subsidiaries, provided that no
such crediting of service results in duplication of benefits.

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. The Company agrees to use
its best efforts to secure and maintain officers and
directors' liability insurance 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.

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.

6. Records/Nondisclosure/Company Policies.

a. General. All records, 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:

i. Cause. "Cause" shall mean:

(1) 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 of Directors, a material
adverse impact on the business or reputation of
the Company;

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

(3) a breach by Executive of his fiduciary duties
under Maryland law as an officer;

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

(5) 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 (i) through (iii) below have been
complied with:

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

ii.The Board of Directors has voted (at a meeting of the Board of Directors 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 after the meeting and an
opportunity to present his position in writing; and

iii.The Board of Directors has given a Notice of Termination to Executive within
20 days of 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 (i) above
until final Notice of Termination is given under clause (iii) above. Upon the
giving of notice as provided in clause (iii) above, no further payments shall be
due Executive.

ii. Change in Control. A "Change in Control" shall mean the
occurrence of


any one or more of the following events following the
Effective Date:

(1) 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

(2) Individuals who, as of the Effective Date,
constitute the Company's Board of Directors
(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 of Directors or other actual
or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board
of Directors, including by reason of agreement
intended to avoid or settle any such actual or
threatened contest or solicitation, and (B) any
individual whose initial assumption of office is
in connection with a reorganization, merger or
consolidation, involving an unrelated entity 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

(3) 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;

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

(5) 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.

iii. 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.

iv. 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:

(1) a material adverse change in the functions,
duties or responsibilities of Executive's
position which would reduce the level,
importance or scope of such position; or any
removal of Executive from or failure to
reappoint or reelect Executive to any position
set forth in


this Agreement, 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;

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

(3) 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;

(4) 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;

(5) 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;

(6) the relocation of the Company's Alexandria office
to a new location more than fifty (50) miles from
Alexandria, or the failure to locate Executive's
own office at the Alexandria office (or at the
office to which such office is relocated which is
within 50 miles of Alexandria) or, following a
Change in Control, the failure to locate
Executive's office at the Company's principal
executive office or the relocation of Company's
principal executive office to a location more than
50 miles from Alexandria; or

(7) any termination of employment by the Executive
for any reason during the 12-month period
immediately following a Complete Change in
Control of the Company.

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.

v. Covered Average Compensation. "Covered Average
Compensation" shall mean the sum of Executive's Covered
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.

vi. Covered Compensation. "Covered Compensation," for any
calendar year, shall mean an amount equal to the sum of
(i) Executive's Base Salary for the calendar year
(disregarding any decreases made effective during the
Employment Period), (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.

Covered Compensation shall be calculated according to the
following rules:

(a) In valuing awards for purposes of clause (iii)
above, 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 (or of the
common stock of Avalon, as the case may be) and
other equity-based compensation awards shall
be valued at the value established by the
Compensation Committee of the Board of
Directors on the date of grant.

(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 of the calendar
years taken into account in determining Covered
Average Compensation.

(c) If 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, and is lower than the
last cash bonus paid more than three months
from the Date of Termination, 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.

vii. 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.

(1) 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 all accrued but unpaid Base Salary and all
earned but unpaid cash incentive compensation
earned through his Date of Termination. 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.

(2) 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.

(3) 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), pay to Executive, in
one lump sum, no later than 31 days following the
Date of Termination, an amount equal to two times
Covered Average Compensation. The Company shall
also, commencing upon the Date of Termination:

(a) Continue, without cost to Executive, benefits
comparable to the medical and disability
benefits provided to Executive immediately
prior to the Date of Termination under
Section 3(c) and Section 3(d) for a period of
24 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;
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.

(4) Non-Renewal. In the event the Company gives
Executive a notice of non-renewal pursuant to
Section 1 above, the Company shall, in addition to
paying the amounts set forth in Section 7(c)(i),
commencing upon the Date of Termination:

(a) Pay to Executive, for 12 consecutive months,
commencing with the first day of the month
immediately following the Date of
Termination, a monthly amount equal to the
result obtained by dividing Covered Average
Compensation by twelve;

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

(d) 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.

(5) Termination Without Cause; Constructive
Termination Without Cause. 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, the
Company shall, in addition to paying the amounts
provided under Section 7(c)(i), pay to Executive,
in one lump sum no later than 31 days following
the Date of Termination, an amount equal to three
times Covered Average Compensation. The Company
shall also, commencing upon the Date of
Termination:


(a) Continue, without cost to Executive, benefits
comparable to the medical and disability
benefits provided to Executive immediately
prior to the Date of Termination under
Section 3(c) and Section 3(d) for a period
of 36 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
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); 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.

(6) 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), or (v) 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.

d. Additional Benefits.

(1) 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 (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.

(2) 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 Coopers &
Lybrand 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 within 15 business days of the Date of
Termination, if applicable, or at such earlier
time as is reasonably requested by the Company or
Executive. 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.

(3) 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
knows 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.

(4) 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 on the Board of Directors.

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
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 (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.

b. Non-Solicitation. During the Employment Period, and for a
period of one year following the Date of Termination,
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 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 5904 Richmond Avenue, Alexandria, VA 22303, 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 Exhibit 1, Annex A and
Annex B and the Split Dollar Insurance Agreement, 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 agreementproviding 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. As of the Effective
Date, this Agreement supersedes the Prior Agreement which will have no
further force or effect. Executive hereby waives, to the extent
applicable, the effect of the transactions contemplated by the Merger
Agreement (or shareholder approval of such transaction) on any change
in control provisions in any Avalon employee benefit plan or agreement.
This Agreement shall terminate upon termination of the Merger Agreement
and abandonment of the merger contemplated by the Merger Agreement.
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 Virginia in
accordance with the National 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.

(1) 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.

(2) 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.

(3) 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 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.

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.




Bay Apartment Communities, Inc.



By: /S/ GILBERT M. MEYER


Its: Chairman of the Board

/S/
Richard L. Michaux