STOCK PURCHASE AGREEMENT

EXHIBIT 10.1
------------


STOCK PURCHASE AGREEMENT






Buyer: PAINEWEBBER INCORPORATED

Seller: BAY APARTMENT COMMUNITIES, INC.

Date: May 6, 1996




STOCK PURCHASE AGREEMENT

TABLE OF CONTENTS
-----------------

Section Page
------- ----

I. PURCHASE AND SALE OF STOCK...................................... 1
1.1 Sale and Issuance of Common Stock....................... 1
1.2 Sale and Issuance of Preferred Stock.................... 1
1.3 Closing................................................. 1
1.4 Use of Proceeds......................................... 2

II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................... 2
2.1 Organization, Good Standing and Qualification........... 2
2.2 Capitalization.......................................... 3
2.3 Authorization; Enforcement.............................. 4
2.4 Valid Issuance of Shares................................ 4
2.5 Compliance with Other Instruments....................... 5
2.6 SEC Documents; Financial Statements; Other Information.. 5
2.7 Litigation.............................................. 6
2.8 Title to Properties; Leasehold Interests................ 7
2.9 Environmental Compliance................................ 7
2.10 Taxes................................................... 8
2.11 Employees; ERISA........................................ 9
2.12 Legal Compliance........................................ 9

III. REPRESENTATIONS AND WARRANTIES OF PAINEWEBBER................... 10
3.1 Authorization........................................... 10

IV. CONDITIONS OF PAINEWEBBER'S OBLIGATIONS AT CLOSING.............. 10
4.1 Series B Preferred Articles Supplementary............... 10
4.2 Representations and Warranties.......................... 10
4.3 Performance............................................. 10
4.4 Compliance Certificate.................................. 10
4.5 Opinions of Company Counsel............................. 10
4.6 Absence of Certain Events............................... 10
4.7 NYSE Listing............................................ 10
4.8 No Material Change...................................... 11

V. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.............. 11
5.1 Representations and Warranties.......................... 11
5.2 Compliance Certificate.................................. 11




TABLE OF CONTENTS
-----------------

(Continued)

Section Page
------- ----

VI. COVENANTS....................................................... 11
6.1 Confidentiality......................................... 11
6.2 Indemnification......................................... 11

VII. MISCELLANEOUS................................................... 15
7.1 Survival of Warranties.................................. 15
7.2 Successors and Assigns.................................. 15
7.3 Governing Law........................................... 15
7.4 Waiver of Right to Jury Trial........................... 15
7.5 Counterparts............................................ 15
7.6 Titles and Subtitles.................................... 16
7.7 Notices................................................. 16
7.8 Attorney's Fees......................................... 16
7.9 Amendments and Waivers.................................. 17
7.10 Copies of Filed Documents............................... 17
7.11 Earnings Statement...................................... 17
7.12 Compliance with Act..................................... 17
7.13 Blue Sky Qualification.................................. 18
7.14 Payment of Fees and Expenses............................ 18
7.16 Severability............................................ 19
7.17 Entire Agreement........................................ 19

SCHEDULES AND EXHIBITS
----------------------

Schedule 2.5 - Compliance With Other Instruments
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Schedule 2.7 - Litigation
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Schedule 2.8 - Title
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Schedule 2.9 - Environmental Compliance
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Exhibit A - Series B Preferred Articles Supplementary
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Exhibit B - Opinion of Goodwin, Procter & Hoar LLP, Counsel to the
---------
Company




STOCK PURCHASE AGREEMENT
------------------------

THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of this 6th day
of May, 1996 (the "Effective Date") by and between BAY APARTMENT COMMUNITIES,
INC., a Maryland corporation (the "Company"), and PAINEWEBBER INCORPORATED, a
Delaware corporation ("PaineWebber").

THE PARTIES HEREBY AGREE AS FOLLOWS:

I. PURCHASE AND SALE OF STOCK.
--------------------------

1.1 SALE AND ISSUANCE OF COMMON STOCK. Subject to the terms and conditions of
this Agreement, PaineWebber agrees to purchase at the Closing (as defined
below), for the sum of Nine Million Eight Hundred Ninety-Six Thousand Six
Hundred Ninety-One Dollars ($9,896,691) (the "Common Stock Purchase Price"), and
the Company agrees to sell and issue to PaineWebber at the Closing, 413,223
shares of the Company's Common Stock (the "Common Stock"). The Company
understands and acknowledges that PaineWebber intends to immediately resell the
Common Stock to one or more investors selected by PaineWebber in its sole
discretion.

1.2 Sale and Issuance of Preferred Stock.
------------------------------------

a. The Company shall adopt and file with the State Department of
Assessments and Taxation of Maryland (the "SDAT") on or before the Closing Date
(as defined below) the Articles Supplementary (Series B Preferred Stock) in the
form attached hereto as EXHIBIT A (the "Series B Preferred Articles
Supplementary").

b. Subject to the terms and conditions of this Agreement, PaineWebber
agrees to purchase at the Closing, for the sum of Nine Million Eight Hundred
Ninety-Eight Thousand Seven Hundred Thirty-Eight Dollars ($9,898,738) (the
"Preferred Stock Purchase Price"), and the Company agrees to sell and issue to
PaineWebber at the Closing, 405,022 shares of the Company's Series B Preferred
Stock described in the Series B Preferred Articles Supplementary (the "Series B
Preferred Stock"). The Preferred Stock Purchase Price, together with the Common
Stock Purchase Price, shall be collectively referred to as the "Purchase Price".
The Company understands and acknowledges that PaineWebber intends to immediately
resell the Preferred Stock to one or more investors selected by PaineWebber in
its sole discretion.

1.3 CLOSING. At the Closing, PaineWebber shall deliver to the Company a
cashier's or certified check or wire transfer payable to the Company's order for
the Purchase Price against delivery by the Company to PaineWebber of a
certificate representing the shares of Common Stock and Series B Preferred Stock
to be sold to PaineWebber under this Agreement. The





date for closing (the "Closing Date") shall be May 9, 1996. As soon as
practicable following the Effective Date, but in no event later than three (3)
business days before the Closing Date, the Company shall provide PaineWebber and
its counsel written notice that all of the conditions set forth in SECTIONS 4.1
through 4.8, inclusive, of this Agreement have been fulfilled.

1.4 USE OF PROCEEDS. The Company will use the net proceeds from the sale of the
Common Stock and the Series B Preferred Stock for working capital purposes,
which may include the repayment of indebtedness or the acquisition of additional
properties, all as more particularly set forth in the Company's Prospectus
Supplement (to Prospectus dated July 21, 1995) dated May 6, 1996 (the
"Prospectus Supplement").

II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby makes
the representations and warranties set forth below, jointly and severally, to
each of PaineWebber and to each and every direct purchaser from PaineWebber
(each a "Direct Purchaser") of all or any portion of the Common Stock and/or the
Series B Preferred Stock, as applicable.

2.1 Organization, Good Standing and Qualification.
---------------------------------------------

a. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of Maryland with power and authority
(corporate and other) to own its properties and conduct its business as now
being conducted, and has been duly qualified as a foreign corporation for the
conduct of business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties, or conducts any business, so
as to require such qualification, or is subject to no Material Adverse Effect by
reason of the failure to be so qualified in any such jurisdiction. "Material
Adverse Effect" means any material adverse effect on the operations, assets,
business, affairs, properties or financial or other condition of the Company and
its subsidiaries taken as a whole. The Company's consolidated subsidiaries have
each been duly incorporated and are validly existing and in good standing under
the laws of their respective jurisdictions of incorporation and have power and
authority (corporate and other) to conduct their businesses as now being
conducted, and each consolidated subsidiary has been duly qualified as a foreign
corporation for the conduct of business and is in good standing under the laws
of each other jurisdiction in which it owns or leases properties, or conducts
any business, so as to require such qualification, or is subject to no Material
Adverse Effect by reason of the failure to be so qualified in any such
jurisdiction.

b. This Agreement constitutes the legal, valid and binding obligation of
the Company enforceable in accordance with its terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.






c. The Company owns all of the outstanding capital stock of all of its
subsidiaries listed on Exhibit 21 to the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission (the "SEC") for the fiscal
year ended December 31, 1995 (the "10-K").

2.2 Capitalization.
--------------

a. The authorized capital stock (the "Capital Stock") of the Company
consists, or will consist prior to the Closing, of:

(i) PREFERRED STOCK. Twenty-five million (25,000,000) shares currently
classified as Preferred Stock, par value $.01, of which two million three
hundred eight thousand eight hundred (2,308,800) shares of Series A
Preferred Stock are issued and outstanding and four hundred five thousand
twenty-two (405,022) shares which have been classified as Series B
Preferred Stock. None of the shares of Series B Preferred Stock are issued
or outstanding. All of such outstanding shares have been duly authorized
and validly issued and are fully paid and nonassessable.

(ii) COMMON STOCK. Forty million (40,000,000) shares currently
classified as Common Stock, par value $.01 (the "Common Stock"), of which
eleven million five hundred sixty-two thousand six hundred eighty-seven
(11,562,687) shares are issued and outstanding. All of such outstanding
shares have been duly authorized and validly issued and are fully paid and
nonassessable.

(iii) EXCESS COMMON STOCK. Twenty million (20,000,000) shares
currently classified as Excess Common Stock, par value $.01, none of which
are issued and outstanding.

b. No shares of Capital Stock are entitled to preemptive rights. Except as
disclosed in the SEC Documents (as defined below), in the Articles Supplementary
establishing the rights, preferences and other terms of the Series A Preferred
Stock (the "Series A Preferred Articles Supplementary"), the Series B Preferred
Articles Supplementary, the Series A Preferred Stock or the Series B Preferred
Stock or in this Agreement, there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries. The Company has furnished to PaineWebber
true and correct copies of the Company's Articles of Incorporation, as amended
as of the Effective Date (the "Charter") and the Company's Bylaws, as in effect
on the Effective Date (the "Bylaws").

c. The Company has no obligation (contingent or other) to purchase, redeem
or otherwise acquire any of its capital stock or any interest therein or (except
as set forth in the





Series A Preferred Articles Supplementary or the Series B Preferred Articles
Supplementary) to pay any dividend or make any other distribution in respect
thereof.

d. The Company has no knowledge of any voting agreements, voting trusts,
stockholders' agreements, proxies or other agreements or understandings that are
currently in effect or that are currently contemplated with respect to the
voting of any capital stock of the Company.

e. All of the outstanding securities of the Company were issued in
compliance in all material respects with all applicable federal and state
securities laws.

2.3 Authorization; Enforcement.
--------------------------

a. The Company has the requisite corporate power and authority to enter
into and perform this Agreement and to issue the Common Stock and Series B
Preferred Stock in accordance with the terms of this Agreement. Except for the
Ownership Limit (as defined in the Charter), the Charter does not in any way
prevent or restrict the transactions contemplated by this Agreement or preclude
PaineWebber, or any owner purchasing the Common Stock or Series B Preferred
Stock from PaineWebber from owning or holding the amount, value or class of
capital stock to be purchased hereby, including, without limitation, any shares
of Common Stock issuable upon conversion of the Series B Preferred Stock.

b. The execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required.

c. This Agreement has been duly executed and delivered by the Company.

2.4 VALID ISSUANCE OF SHARES. The Common Stock and the Series B Preferred Stock
which is being purchased by PaineWebber under this Agreement, when issued, sold
and delivered in accordance with the terms of this Agreement for the
consideration expressed in this Agreement, will be duly and validly issued,
fully paid and nonassessable and will be issued in compliance with all
applicable federal and state securities laws. The Common Stock issuable upon the
conversion of the Series B Preferred Stock issued and sold under this Agreement
will be duly and validly reserved for such issuance and, when issued upon such
conversion in accordance with the Series B Preferred Articles Supplementary,
will be duly and validly issued, fully paid and nonassessable, and will be
issued in compliance with all applicable federal and state securities laws.

2.5 COMPLIANCE WITH OTHER INSTRUMENTS. Except as set forth on SCHEDULE 2.5, the
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated by this Agreement
do not (i)




result in a violation of the Charter or Bylaws or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
applicable to the Company, any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries is bound or affected (except for
such conflicts, defaults, terminations, amendments, accelerations, cancellations
and violations as would not, individually or in the aggregate, have a Material
Adverse Effect or materially impair the Company's ability to perform its
obligations under the Agreements). The Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under the Agreements or issue and sell the Common Stock or
the Series B Preferred Stock in accordance with the terms of this Agreement,
except such as have been or will be obtained prior to the Closing.

2.6 SEC Documents; Financial Statements; Other Information.
------------------------------------------------------

a. Since the completion of the Company's Initial Public Offering on March
17, 1994, the Company has timely filed all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC pursuant to the
reporting requirements of Section 13 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (all of the foregoing filed prior to the date of
this Agreement being hereinafter referred to as the "SEC Documents"). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Documents, and none of the SEC
Documents (when read together with all exhibits included therein and financial
statement schedules thereto and documents (other than exhibits) incorporated by
reference) contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments).

b. Since March 17, 1994, (i) the business of the Company has been conducted
in




the ordinary course and (ii) there has been no Material Adverse Effect on the
Company and its subsidiaries taken as a whole that has not been described in the
SEC Documents or other items provided to the investor. As of the Closing and as
of the Effective Date, there are no material liabilities of the Company which
would be required to be provided for in a consolidated balance sheet of the
Company as of either such date prepared in accordance with generally accepted
accounting principles consistently applied, other than liabilities provided for
in the financial statements referred to above.

c. The Company is not aware of any material liabilities, contingent or
otherwise, of the Company that have not been disclosed in the financial
statements (including the notes thereto) referred to above or otherwise
disclosed in the SEC Documents or other items provided to PaineWebber.

2.7 LITIGATION. Except as disclosed on SCHEDULE 2.7 or in the SEC Documents,
there is no action, suit, proceeding, investigation or claim pending against the
Company or, to the knowledge of the Company, threatened against the Company in
law, equity or otherwise before any federal, state, municipal or local court,
administrative agency, commission, board, bureau, instrumentality or arbitrator
which either (a) questions the validity of this Agreement, the Series B
Preferred Articles Supplementary, the Common Stock or the Series B Preferred
Stock or any action taken or to be taken pursuant to this Agreement or thereto,
or (b) may adversely affect the right, title or interest of PaineWebber or any
purchaser from PaineWebber to the Common Stock or the Series B Preferred Stock
or (c), if decided adversely to the Company, may individually or in the
aggregate have a Material Adverse Effect. The Company is not aware of facts or
circumstances that could give rise to a legal action that, if determined
adversely, would have a Material Adverse Effect. There is no action or suit by
the Company pending or threatened against others except litigation in the
ordinary course of business such as tenant eviction proceedings, none of which
individually or in the aggregate will result in a Material Adverse Effect.

2.8 TITLE TO PROPERTIES; LEASEHOLD INTERESTS. Except as disclosed on SCHEDULE
2.8 or in the SEC Documents, the Company has good and marketable title to each
of the properties and assets owned by it. Certain real property used by the
Company in the conduct of its business is held under lease, and the Company is
not aware of any pending or threatened claim or action by any lessor of any such
property to terminate any such lease. None of the properties owned or leased by
the Company is subject to any Liens which, taken as a whole, could reasonably be
expected to have a Material Adverse Effect. Each lease or agreement to which the
Company is a party under which it is the lessee of any property, real or
personal, is a valid and subsisting agreement without any material default of
the Company thereunder and, to the best of the Company's knowledge, without any
material default thereunder of any other party thereto. No event has occurred
and is continuing which, with due notice or lapse of time or both, would
constitute a default or event of default by the Company under any such lease or
agreement or, to the best of the Company's knowledge, by any party thereto,
except for such defaults that would not individually or in the aggregate have a
Material Adverse Effect. The





Company's possession of such property has not been disturbed and, to the best of
the Company's knowledge, no claim has been asserted against it adverse to its
rights in such leasehold interests.

2.9 Environmental Compliance.
------------------------

a. Except as disclosed and described in all material respects in the SEC
Documents or on SCHEDULE 2.9 to this Agreement, there is no hazardous material
about or in any property, real or personal, in which the Company has any
interest, in violation of law in a manner which could reasonably be expected to
have a Material Adverse Effect.

b. Except as disclosed and described in all material respects on SCHEDULE
2.9 to this Agreement, there is no (and has not been any) off-site disposal or
on-site disposal by the Company, or, to the best knowledge of the Company, by
any prior owner operator, tenant, subtenant, or invitee at any locations
currently or formerly owned or occupied by the Company as a result of which
disposal there would exist a reasonably foreseeable risk that the Company would
incur a material liability or obligation under federal, state or local
environmental or other laws, regulations or ordinances.

c. Except as disclosed and described in all material respects on SCHEDULE
2.9 to this Agreement, neither the Company nor, to the best of the knowledge of
the Company, any prior or present owner, operator, tenant, subtenant or invitee
of any of the real property (including improvements) currently or formerly owned
or occupied by the Company has (i) used, installed, stored, spilled, released,
transported, disposed of or discharged any hazardous material upon, into,
beneath, from or affecting such real property (including improvements) in
violation of law in a manner which could reasonably be expected to have a
Material Adverse Effect, or (ii) received any written notice, citation, subpoena
summons, complaint or other correspondence or communication from any Person (not
previously satisfactorily resolved) with respect to the presence of hazardous
material upon, into, beneath, or emanating from or affecting any of the real
property (including improvements) currently or formerly owned or occupied by the
Company which could reasonably be expected to have a Material Adverse Effect.





d. Except as disclosed and described in all material respects on SCHEDULE
2.9 to this Agreement, there has been no intentional or unintentional, gradual
or sudden, release, disposal or discharge upon, into or beneath the real
property (including improvements) currently or formerly owned or occupied by the
Company or, to the best of the knowledge of the Company, by any prior owner,
operator, tenant, subtenant or invitee with respect thereto, that has caused or
is causing soil or ground water contamination which under applicable
environmental laws, regulations or ordinances could reasonably be expected to
have a Material Adverse Effect.

2.10 TAXES. The Company has filed all federal, state, local and other tax
returns and reports (except for foreign returns and reports the failure to file
which will not result in any material liability to the Company), and any other
material returns and reports with any governmental authorities (federal, state
or local), required to be filed by it. The Company has paid or caused to be paid
all taxes (including interest and penalties) that are due and payable, except
those which are being contested by it in good faith by appropriate proceedings
and in respect of which adequate reserves are being maintained on its books in
accordance with generally accepted accounting principles consistently applied.
The Company does not have any material liabilities for taxes other than those
incurred in the ordinary course of business and in respect of which adequate
reserves are being maintained by it in accordance with generally accepted
accounting principles consistently applied. Federal and state income tax returns
for the Company have not been audited by the Internal Revenue Service or state
authorities. No deficiency assessment with respect to or proposed adjustment of
the Company's federal, state, local or other tax returns is pending or, to the
best of the Company's knowledge, threatened. There is no tax lien, whether
imposed by any federal, state, local or other tax authority outstanding against
the assets, properties or business of the Company. There are no applicable
taxes, fees or other governmental charges payable by the Company in connection
with the execution and delivery of this Agreement or the issuance by the Company
of the Common Stock, the Series B Preferred Stock or the Common Stock issuable
upon conversion of the Series B Preferred Stock, except for governmental fees
paid in connection with securities law filings.

2.11 EMPLOYEES; ERISA. The Company has good relationships with its employees and
has not had any substantial labor problems. The Company does not have any
knowledge as to any intentions of any key employee or any group of employees to
leave the employ of the Company. Other than as disclosed in the SEC Documents
and other materials provided to PaineWebber, the Company has not established,
sponsored, maintained, made any contributions to or been obligated by law to
establish, maintain, sponsor or make any contributions to any "employee pension
benefit plan" or "employee welfare benefit plan" (as such terms are defined in
ERISA), including, without limitation, any "multi-employer plan." The Company
has complied in all material respects with all applicable laws relating to the
employment of labor, including provisions relating to wages, hours, equal
opportunity, collective bargaining and the payment of Social Security and other
taxes, and with ERISA.





2.12 Legal Compliance.
----------------

a. The Company has complied with all applicable laws, rules, regulations,
orders, licenses, judgments, writs, injunctions, decrees or demands, except to
the extent that failure to comply would not have a Material Adverse Effect. The
Company has all necessary permits, licenses and other authorizations required to
conduct its business as currently conducted, and as proposed to be conducted, in
all material respects.

b. There are no adverse orders, judgments, writs, injunctions, decrees or
demands of any court or administrative body, domestic or foreign, or of any
other governmental agency or instrumentality, domestic or foreign, outstanding
against the Company which may result in a Material Adverse Effect.

c. There is no existing law, rule, regulation or order, and the Company is
not aware of any proposed law, rule, regulation or order, which would prohibit
or materially restrict the Company from, or otherwise materially adversely
affect the Company in, conducting its business as now being conducted and as
proposed to be conducted.

III. REPRESENTATIONS AND WARRANTIES OF PAINEWEBBER.
---------------------------------------------

PaineWebber hereby represents and warrants that:

3.1 AUTHORIZATION. This Agreement constitutes the legal, valid and binding
obligation of PaineWebber enforceable in accordance with its terms, except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies. PaineWebber has
full power and authority to enter into this Agreement.

IV. CONDITIONS OF PAINEWEBBER'S OBLIGATIONS AT CLOSING.
--------------------------------------------------

PaineWebber's obligations at the Closing under SECTIONS 1.1 and 1.2.b of this
Agreement are subject to the fulfillment on or before the Closing of each of the
following conditions:

4.1 SERIES B PREFERRED ARTICLES SUPPLEMENTARY. The Series B Preferred Articles
Supplementary shall have been filed with and accepted for record by the SDAT.

4.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the
Company contained in SECTION 2 shall be true on and as of the Closing with the
same effect as though such representations and warranties had been made on and
as of the date of such Closing.

4.3 PERFORMANCE. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.



4.4 COMPLIANCE CERTIFICATE. The President of the Company shall have delivered to
PaineWebber at the Closing a certificate certifying that the conditions
specified in SECTIONS 4.1 and 4.2 have been fulfilled.

4.5 OPINIONS OF COMPANY COUNSEL. PaineWebber shall have received from Goodwin,
Procter & Hoar LLP counsel for the Company, an opinion, dated as of the Closing,
in the form attached hereto as EXHIBIT B.

4.6 ABSENCE OF CERTAIN EVENTS. No event shall have occurred which is described
in SECTION 4.1 of the Series B Preferred Articles Supplementary (relating to
excess debt, a change of control, or certain changes in management personnel)
which event would entitle the holder of the Series B Preferred Stock to convert
such shares immediately to Common Stock.

4.7 NYSE LISTING. The President of the Company shall have delivered to
PaineWebber a certificate certifying that all shares of Common Stock issuable as
a result of this Agreement have been approved for listing on the NYSE upon
official notice of issuance.

4.8 NO MATERIAL CHANGE. No event or change of circumstances shall have occurred
and be continuing at the time of disbursement of funds by PaineWebber which, in
the reasonable opinion of PaineWebber, is likely to have a Material Adverse
Effect.

4.9 UNCONDITIONAL COMMITMENT TO PURCHASE. PaineWebber shall have entered into a
contract to sell the Common Stock and the Preferred Stock and all conditions
precedent thereto shall have been satisfied to PaineWebber's satisfaction, in
its sole discretion, and each buyer thereunder shall be unconditionally
committed to purchase the Common Stock and the Preferred Stock from PaineWebber.

V. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of
the Company under SECTIONS 1.1 and 1.2.b of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions:

5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
PaineWebber contained in SECTION 3 shall be true on and as of the Closing with
the same effect as though such representations and warranties had been made on
and as of the Closing.

5.2 COMPLIANCE CERTIFICATE. PaineWebber shall deliver to the Company at the
Closing a certificate certifying that the conditions specified in SECTION 5.1
have been fulfilled.

VI. COVENANTS.
---------

6.1 CONFIDENTIALITY. The parties to this Agreement will not disclose to any
other party (other than to any Direct Purchaser) any information about this
Agreement, the transactions contemplated by this Agreement, and the parties to
this Agreement except as required by law





or the rules of the NYSE.

6.2 Indemnification.
---------------

a. The Company will indemnify and hold harmless PaineWebber, the directors,
officers, employees and agents of PaineWebber and each person, if any, who
controls PaineWebber within the meaning of Section 15 of the Act or Section 20
of the Exchange Act from and against any and all losses, claims, liabilities,
expenses and damages (including any and all investigative, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of any action, suit or proceeding between any of the indemnified
parties and any indemnifying parties or between any indemnified party and any
third party, or otherwise, or any claim asserted), to which they, or any of
them, may become subject under the Act, the Exchange Act or other Federal or
state statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, liabilities, expenses or damages arise out of or are based on
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus, the Registration Statement or the Prospectus or any
amendment or supplement to the Registration Statement or the Prospectus or in
any documents filed under the Exchange Act and deemed to be incorporated by
reference into the Prospectus or the omission or alleged omission to state in
such document a material fact required to be stated in it or necessary to make
the statements in it not misleading, provided that the Company will not be
liable to the extent that such loss, claim, liability, expense or damage arises
from the sale of the Shares in the public offering to any person by PaineWebber
and is based on an untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information relating to
PaineWebber furnished in writing to the Company by PaineWebber on behalf of
PaineWebber expressly for inclusion in any preliminary prospectus supplement or
final prospectus supplement. This indemnity agreement will be in addition to any
liability that the Company might otherwise have.

b. Any party that proposes to assert the right to be indemnified under
SECTION 6.2 will, promptly after receipt of notice of commencement of any action
against such party in respect of which a claim is to be made against an
indemnifying party or parties under SECTION 6.2, notify each such indemnifying
party of the commencement of such action, enclosing a copy of all papers served,
but the omission so to notify such indemnifying party will not relieve it from
any liability that it may have to any indemnified party under the foregoing
provisions of SECTION 6 unless, and only to the extent that, such omission
results in the forfeiture of substantive rights or defenses by the indemnifying
party. If any such action is brought against any indemnified party and it
notifies the indemnifying party of its commencement, the indemnifying party will
be entitled to participate in and, to the extent that it elects by delivering
written notice to the indemnified party promptly after receiving notice of the
commencement of the action from the indemnified party, jointly with any other
indemnifying party similarly notified, to assume the defense of the action, with
counsel satisfactory to the indemnified party, and after notice from the
indemnifying party to the indemnified party of its election to assume the
defense, the indemnifying party will not be





liable to the indemnified party for any legal or other expenses except as
provided below and except for the reasonable costs of investigation subsequently
incurred by the indemnified party in connection with the defense. The
indemnified party will have the right to employ its own counsel in any such
action, but the fees, expenses and other charges of such counsel will be at the
expense of such indemnified party unless (1) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party, (2)
the indemnified party has reasonably concluded (based on advice of counsel) that
there may be legal defenses available to it or other indemnified parties that
are different from or in addition to those available to the indemnifying party,
(3) a conflict or potential conflict exists (based on advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying party
has not in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, in
each of which cases the reasonable fees disbursements and other charges of
counsel will be at the expense of the indemnifying party or parties. It is
understood that the indemnifying party or parties shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees, disbursements and other charges of more than one separate
firm admitted to practice in such jurisdiction at any one time for all such
indemnified party or parties. All such fees, disbursements and other charges
will be reimbursed by the indemnifying party promptly as they are incurred. All
fees, disbursements and other charges not reimbursed as they are incurred shall
accrue interest, compounded daily, determined on the basis of the prime rate (or
other commercial lending rate for borrowers of the highest credit standing)
announced from time to time by Bank of America NT&SA, San Francisco, California.
An indemnifying party will not be liable for any settlement of any action or
claim effected without its written consent (which consent will not be
unreasonably withheld). No indemnifying party shall, without the prior written
consent of each indemnified party, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action or proceeding
relating to the matters contemplated by this SECTION 6.2 (whether or not any
indemnified party is a party thereto), unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising or that may arise out of such claim, action or proceeding.

c. In order to provide for just and equitable contribution in circumstances
in which the indemnification provided for in the foregoing paragraphs of SECTION
6 is applicable in accordance with its terms but for any reason is held to be
unavailable from the Company or PaineWebber, the Company and PaineWebber will
contribute to the total losses, claims, liabilities, expenses and damages
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted, but after deducting any contribution received
by the Company from persons other than PaineWebber, such as persons who control
the Company within the meaning of the Act, officers of the Company who signed
the Registration Statement and directors of the Company, who also may be liable
for contribution) to which the Company and PaineWebber may be subject in such
proportion as shall be appropriate to reflect the





relative benefits received by the Company on the one hand and PaineWebber on the
other. The relative benefits received by the Company on the one hand and
PaineWebber on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received by
PaineWebber, in each case as set forth in this Agreement. If, but only if, the
allocation provided by the foregoing sentence is not permitted by applicable
law, the allocation of contribution shall be made in such proportion as is
appropriate to reflect not only the relative benefits referred to in the
foregoing sentence but also the relative fault of the Company on the one hand,
and PaineWebber on the other, with respect to the statements or omissions which
resulted in such loss, claim, liability, expense or damage, or action in respect
thereof, as well as any other relevant equitable considerations with respect to
such offering. Such relative fault shall be determined by reference to whether
the untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the Company
or PaineWebber, the intent of the parties and their relative knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and PaineWebber agree that it would not be just and equitable if
contributions pursuant to SECTION 6.2.c were to be determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in this Agreement. The amount paid or
payable by an indemnified party as a result of the loss, claim, liability,
expense or damage, or action in respect thereof, referred to above in SECTION
6.2.c shall be deemed to include, for purpose of SECTION 6.2.c, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of SECTION 6.2.c, PaineWebber shall not be required to contribute any
amount in excess of the underwriting discounts received by it, and no person
found guilty of fraudulent misrepresentation (within the meaning of section
11(f) of the Act) will be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of SECTION 6.2.c, any
person who controls a party to this Agreement within the meaning of the Act will
have the same rights to contribution as that party, and each officer of the
Company who signed the Registration Statement will have the same rights to
contribution as the Company, subject in each case to the provisions of this
Agreement. Any party entitled to contribution, promptly after receipt of notice
of commencement of any action against such party in respect of which a claim for
contribution may be made under SECTION 6.2.c, will notify any such party or
parties from whom contribution may be sought, but the omission so to notify will
not relieve the party or parties from whom contribution may be sought from any
other obligation it or they may have under SECTION 6.2.c. No party will be
liable for contribution with respect to any action or claim settled without its
written consent (which consent will not be unreasonably withheld).

d. The indemnity and contribution agreements contained in SECTION 6.2 and
the representations and warranties of the Company contained in this Agreement
shall remain operative and in full force and effect regardless of (i) any
investigation made by or on behalf of PaineWebber, (ii) acceptance of any of the
Shares and payment therefor or (iii) any termination of this Agreement.






VII. MISCELLANEOUS.
--------------

7.1 SURVIVAL OF WARRANTIES. The warranties, representations and covenants of the
Company and PaineWebber contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing in
perpetuity (except that the representations and warranties contained in SECTIONS
2 (other than SECTIONS 2.3 and 2.4) and 3 of this Agreement shall, with respect
to any Direct Purchaser only, survive for a period of three (3) years), and
shall in no way be affected by any investigation of the subject matter thereof
made by or on behalf of PaineWebber, any Direct Purchaser or the Company.

7.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Agreement, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties to this
Agreement and shall specifically and without limitation inure to the benefit of
each Direct Purchaser. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties to this Agreement and
any Direct Purchaser or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement.

7.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAWS PERTAINING TO CONFLICTS OF
LAWS) OF THE STATE OF NEW YORK.

7.4 WAIVER OF RIGHT TO JURY TRIAL. The Company and PaineWebber each hereby
irrevocably waives any right they may have to a trial by jury in respect of any
claim based upon or arising out of this Agreement or the transactions
contemplated by this Agreement.

7.5 COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

7.6 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.

7.7 NOTICES. Unless otherwise provided, any notice required or permitted under
this Agreement shall be given in writing and shall be deemed effectively given
(a) upon personal delivery to the party to be notified, (b) on the fifth
business day after deposit with the United States Post Office, by registered or
certified mail, postage prepaid, (c) on the next business day after dispatch via
nationally recognized overnight courier or (d) upon confirmation of transmission
by facsimile, all addressed to the party to be notified at the address indicated
for such party on the signature page of this Agreement, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties. Notices should be provided in accordance with this Section at the
following addresses:





If to PaineWebber to:

PaineWebber Incorporated
555 California Street, 32nd Floor
San Francisco, California 94104
Attention: Mr. Frederick T. Caven, Jr.

with a copy to:

O'Melveny & Myers
275 Battery Street, 26th Floor
San Francisco, California 94111
Attn: Peter T. Healy, Esq.

If to the Company, to:

Bay Apartment Communities, Inc.
4340 Stevens Creek Boulevard Suite 275
San Jose, California 95129
Attn: Mr. Gilbert M. Meyer

with a copy to:

Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109-2881
Attn: Gilbert G. Menna, P.C.

7.8 ATTORNEY'S FEES. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement or the Series B Preferred Articles
Supplementary, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.

7.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended, and the
observance of any item of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and PaineWebber. Any amendment or waiver effected
in accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.

7.10 COPIES OF FILED DOCUMENTS. The Company will furnish to PaineWebber without
charge, two signed copies of the Registration Statement and of any
post-effective amendment





thereto, including financial statements and schedules, and all exhibits thereto
(including any document filed under the Exchange Act and deemed to be
incorporated by reference into the Prospectus).

7.11 EARNINGS STATEMENT. The Company will make generally available to holders of
its securities as soon as may be practicable but in no event later than the last
day of the fifteenth full calendar month following the calendar quarter in which
the effective date falls, an earnings statement (which need not be audited but
shall be in reasonable detail) for a period of 12 months ended commencing after
the effective date, and satisfying the provisions of Section 11(a) of the Act
(including Rule 158 of the Rules and Regulations). "Effective date" for purposes
of this SECTION 7.11 shall be as defined in Section 158 of the Rules and
Regulations.

7.12 COMPLIANCE WITH ACT. Within the time during which a Prospectus relating to
the Common Stock or the Series B Preferred Shares is required to be delivered
under the Act, the Company will comply with all requirements imposed upon it by
the Act and by the Rules and Regulations, as from time to time in force, so far
as necessary to permit the continuance of sales of or dealings in the Common
Stock or the Series B Preferred Shares as contemplated by the provisions of this
Agreement and the Prospectus. If during such period any event occurs as a result
of which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances then existing, not
misleading, or if during such period it is necessary to amend or supplement the
Registration Statement or Prospectus to comply with the Act, the Company will
promptly notify the Representatives and will amend or supplement the
Registration Statement or Prospectus (at the expense of the Company) so as to
correct such statement or omission or effect such compliance.

7.13 BLUE SKY QUALIFICATION. The Company shall prior to the Closing Date qualify
or register the Common Stock and the Series B Preferred Shares for sale under
(or obtain exemptions from the application of) the Blue Sky laws of such
jurisdictions as PaineWebber designates and will comply with such laws and will
continue such qualifications, registrations and exemptions in effect so long as
reasonably required for the distribution of the Common Stock or the Series B
Preferred Shares.

7.14 Payment of Fees and Expenses.
-----------------------------

a. Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, the Company will pay, or reimburse
if paid by PaineWebber all costs and expenses incident to the performance of the
obligations of the Company under this Agreement, including but not limited to
costs and expenses of or relating to (1) the preparation, printing and filing of
the Registration Statement and exhibits to it, each preliminary prospectus, the
Prospectus and any amendment or supplement to the Registration Statement or the
Prospectus, (2) the preparation and delivery of certificates representing the
Common Stock or the Series B Preferred Shares, (3) the listing of the Common
Stock on the





New York Stock Exchange, (4) any filings required to be made by PaineWebber with
the National Association of Securities Dealers, Inc. and the fees, disbursements
and other charges of counsel for PaineWebber in connection therewith, (5) the
registration or qualification of the Common Stock and Series B Preferred Shares
for offer and sale under the securities or Blue Sky laws of such jurisdictions
designated by PaineWebber, (6) counsel to the Company, and (7) the transfer
agent for the Common Stock and Series B Preferred Stock. If this Agreement shall
be terminated by the Company pursuant to any of the provisions of this Agreement
or if for any reason the Company shall be unable to perform its obligations
under this Agreement, the Company will reimburse PaineWebber for all
out-of-pocket expenses (including the fees, disbursements and other charges of
counsel to PaineWebber) reasonably incurred by it in connection herewith.

b. If the Closing shall occur, the Company shall pay each Direct
Purchaser's reasonable fees and expenses, including but not limited to the fees
and expenses of counsel to the Direct Purchasers, incurred in connection with
the transactions contemplated by this Agreement, up to a maximum of Fifty
Thousand Dollars ($50,000) in the aggregate.

7.15 Annual Opinion of Company Counsel for REIT Status.
-------------------------------------------------

a. At or before the Closing, and thereafter until such time as any Direct
Purchaser either disposes of the Series B Preferred Stock (or any other security
of the Company acquired by the Direct Purchaser upon conversion or exchange of
the Series B Preferred Stock) or the Series B Preferred Stock (or any other
security of the Company acquired by any Direct Owner upon conversion or exchange
of the Series B Preferred Stock) becomes convertible and does convert into
Common Stock, each Direct Purchaser shall have received and shall receive from
Goodwin, Procter & Hoar, counsel for the Company (or such other counsel as shall
be reasonably acceptable to the Direct Purchaser) at the same time as the
Company renders such opinion to any other party, an opinion that the Company
should be classified as a "real estate investment trust" under Section 856 of
the Internal Revenue Code of 1986, as amended (after giving effect to the
investment contemplated by this Agreement).

b. The Company will use its reasonable best efforts to operate in a manner
which will not cause it to be classified other than as a real estate investment
trust in accordance with Section 7.15.a above.

7.16 SEVERABILITY. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.





7.17 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among the
parties and no party shall be liable or bound to any other party in any manner
by any warranties, representations or covenants except as specifically set forth
in this Agreement.

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

"Company"

BAY APARTMENT COMMUNITIES, INC.,
a Maryland corporation

By:
----------------------------
Name: Gilbert M. Meyer
Title: Chairman of the Board and
President

"PaineWebber"

PAINEWEBBER INCORPORATED,
a Delaware corporation

By:
----------------------------
Name: Frederick T. Caven, Jr.
Title: Managing Director





Schedule 2.5
------------

Compliance With Other Instruments
---------------------------------

NONE





Schedule 2.7
------------

Litigation
----------

NONE






Schedule 2.8
------------

Title
-----

The Company, through a partnership of which it is a general partner, owns a
94% interest in the Villa Mariposa community, and an unrelated party owns a 6%
interest.






Schedule 2.9
------------

Environmental Compliance
------------------------

The Company has acquired communities that are of a vintage for which the
presence of asbestos containing materials is a potential risk. These communities
include Regatta Bay in Foster City, California, Village Square in San Francisco,
California and Kimberly Woods in Pacifica, California. Accordingly, the Company
has instituted asbestos management programs for these communities.



EXHIBIT A
---------


For EXHIBIT A to this Stock Purchase Agreement see Exhibit 3(i).1 to the
Registrant's Current Report on Form 8-K.

[TO BE ATTACHED BY COMPANY]






EXHIBIT B

[date]

PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019

Re: Bay Apartment Communities. Inc.
-------------------------------

Ladies and Gentlemen:

We have acted as counsel to Bay Apartment Communities, Inc., a Maryland
corporation (the "Company"), in connection with certain matters of Maryland, New
York and federal law arising out of the sale and issuance of certain shares (the
"Shares") of Common Stock, $.01 par value per share (the "Common Stock") and of
Series B Preferred Stock, $.01 par value per share (the "Series B Preferred
Stock"), by the Company, pursuant to a Stock Purchase Agreement dated May 6,
1996, between PaineWebber Incorporated ("PaineWebber") and the Company (the
"Agreement").

This opinion is being delivered to you pursuant to SECTION 4.5 of the
Agreement. Unless otherwise defined herein, capitalized terms used herein shall
have the meanings given to them in the Agreement.

In connection with our representation of the Company, and as a basis for
the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (collectively, the "Documents"):

1. The charter of the Company (the "Charter"), including Articles Supplementary
regarding the Series B Preferred Stock (the "Articles Supplementary"), certified
as of a recent date by the Maryland State Department of Assessments and Taxation
(the "SDAT");

2. The Bylaws of the Company, certified as of a recent date by its Secretary;

3. Resolutions adopted by the Board of Directors of the Company relating to the
authorization of the issuance of the outstanding shares of stock of the Company
and the sale and issuance of the Shares, certified as of a recent date by the
Secretary of the Company;






4. Specimens of the certificates representing the Series B Preferred Stock and
the Common Stock of the Company;

5. A certificate as of a recent date of the SDAT as to the good standing of the
Company;

6. The Agreement;

7. The SEC Documents; and

8. Such other documents and matters as we have deemed necessary or appropriate
to express the opinions set forth in this letter, subject to the assumptions,
limitations and qualifications noted below.

In expressing the opinions set forth below, we have assumed, and so far as
is known to us there are no facts inconsistent with, the following:

1. Each of the parties (other than the Company) executing any of the Documents
has duly and validly executed and delivered each of the Documents to which such
party is a signatory, and such party's obligations set forth therein are legal,
valid and binding and are enforceable in accordance with all stated terms except
as limited (a) by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other laws relating to or affecting the enforcement of creditors'
rights or (b) by general equitable principles, whether applied in law or in
equity.

2. Each individual executing any of the Documents on behalf of a party (other
than the Company) is duly authorized to do so.

3. Each individual executing any of the Documents is legally competent to do so.

4. All Documents submitted to us as originals are authentic. All Documents
submitted to us as certified or photostatic copies conform to the original
documents. All signatures on all Documents are genuine. All public records
reviewed or relied upon by us on our behalf are true and complete. All
statements and information contained in the Documents are true and complete.

5. PaineWebber intends to resell the Common Stock and Series B Preferred Stock
to a greater than 5% shareholder of the Company.

The phrase "known to us" is limited to the actual knowledge, without
independent inquiry, of the lawyers at our firm who have performed legal
services for the Company.

Based upon the foregoing, and subject to the assumptions, limitations and
qualifications stated herein, it is our opinion that:





1. The Company is a corporation duly organized and existing under and by virtue
of the laws of the state of Maryland and is in good standing with the SDAT. The
Company has the corporate power to own its current properties and conduct its
business substantially as now conducted as described in the SEC Documents and
the Agreement.

2. The Company has the corporate power to execute, deliver and perform the
Agreement and the Articles Supplementary. The execution, delivery and
performance of the Agreement and the Articles Supplementary have been duly
authorized by the Company.

3. The Company has duly executed and delivered the Agreement and the Articles
Supplementary as of the dates thereon. The Agreement and the Articles
Supplementary are enforceable against the Company in accordance with their
terms.

4. The authorized stock of the Company is as set forth in the Agreement. All of
the outstanding shares of Common Stock and Series B Preferred Stock have been
duly authorized and are validly issued, fully paid and nonassessable.

5. The Shares have been duly authorized and, when sold and delivered against
payment therefor in the manner described in the Agreement, will be validly
issued, fully paid and nonassessable. The stockholders of the Company have no
preemptive rights with respect to the Series B Preferred Stock or to the Common
Stock issuable upon conversion thereof arising under Maryland law or the
Charter, or, to our knowledge, any other agreement or instrument to which the
Company is a party. The shares of Common Stock issuable upon the conversion of
the Series B Preferred Stock have been duly reserved for issuance and, when
issued in accordance with the provisions of the Articles Supplementary upon such
conversion of the Series B Preferred Stock, will be validly issued, fully paid
and nonassessable. The rights, privileges and preferences of the Series B
Preferred Stock are as stated in the Charter, including the Series B Preferred
Articles Supplementary.

6. The execution, delivery, performance and compliance with the terms of the
Agreement and the Articles Supplementary on the part of the Company do not and
will not violate the Charter or the Bylaws of the Company, or any applicable
law, rule or regulation, or, to our knowledge, any agreement or other instrument
to which the Company is a party and which has been filed with the SEC.

7. All consents, approvals, permits, orders or authorizations of, and all
qualifications, registrations, designations, declarations or filings with, any
Maryland governmental authority on the part of the Company required in
connection with the consummation of the transactions contemplated by the
Agreement (other than as may be required by state securities laws) have been
obtained, and are effective, as of the Closing.

8. There is no material action, suit, proceeding, investigation or claim pending
against the Company or, to our best knowledge, threatened against the Company in
law, equity or





otherwise before any federal, state, municipal or local court, administrative
agency or other governmental authority or arbitrator which in any way (a)
questions the validity of, impairs or adversely affects PaineWebber's rights
under the Agreement or the Articles Supplementary, or (b) might result in a
material adverse change in the assets, properties, liabilities, business
affairs, results of operation, condition (financial or otherwise) or prospects
of the Company or its subsidiaries taken as a whole. The Company has not
received any opinion or memorandum from legal counsel indicating that either of
the foregoing conditions may be true. The Company has no action or suit pending
or threatened against others which individually or in the aggregate will result
in a Material Adverse Effect.

The foregoing opinion is limited to the laws of the State of Maryland and
the United States and we do not express any opinion herein concerning any other
law.

Except for the annual opinions described in SECTIONS 6.1 and 6.2 of the
Agreement, we assume no obligation to supplement this opinion if any applicable
law changes after the date hereof or if we become aware of any fact that might
change the opinion expressed herein after the date hereof.

This opinion is being furnished to you solely for your benefit, the benefit
of your counsel and the benefit of any subsequent purchaser of the Common Stock
or the Series B Preferred Stock from PaineWebber. Accordingly, it may not be
relied upon by, quoted in any manner to, or delivered to any other person or
entity without, in each instance, our prior written consent.

Very truly yours,