EX-10.1

a


Exhibit 10.1


EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT (this "AGREEMENT") made as of the 1st day of July,
2003 (the "EFFECTIVE DATE") by and between Thomas J. Sargeant ("EXECUTIVE") and
AvalonBay Communities, Inc., a Maryland corporation (the "COMPANY").

WHEREAS, Executive and the Company have previously entered into an
employment agreement dated as of March 9, 1998 (as amended, the "PRIOR
AGREEMENT"); and

WHEREAS, Executive and the Company desire to enter into a new
employment agreement, effective as of the Effective Date indicated above, to
replace the Prior Agreement.

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

1. TERM. The Company hereby agrees to employ Executive, and Executive
hereby agrees to remain in the employ of the Company subject to the terms and
conditions of this Agreement for the period commencing on the Effective Date and
terminating on June 24, 2006 (the "ORIGINAL TERM"), unless earlier terminated as
provided in Section 7. The Original Term shall be extended automatically for
additional one- year periods measured from June 25, 2006 (each a "RENEWAL
TERM"), unless notice that this Agreement will not be extended is given by
either party to the other at least 180 days prior to, but not more than 270 days
prior to, the expiration of the Original Term or any Renewal Term.
Notwithstanding the foregoing, upon a Change in Control, the Employment Period
shall be extended automatically to three years from the date of such Change in
Control. (The period of Executive's employment hereunder within the Original
Term and any Renewal Terms is herein referred to as the "EMPLOYMENT PERIOD.")

2. EMPLOYMENT DUTIES.

(a) During the Employment Period, Executive shall serve as the
Executive Vice President - Chief Financial Officer of the Company. In this
capacity, Executive shall have such duties, authorities and responsibilities
commensurate with the duties, authorities and responsibilities of persons in
similar capacities in similarly sized companies, and such other duties and
responsibilities as the Board of Directors of the Company (the "BOARD") shall
designate that are consistent with Executive's position as Executive Vice
President - Chief Financial Officer of the Company. Executive shall report to
the Chief Executive Officer.

(b) Executive agrees to his employment as described in this
Section 2 and agrees to devote substantially all of his working time and efforts
to the performance of his duties under this Agreement; provided that nothing in
this Section 2(b) shall be interpreted to preclude Executive from (i)
participating with the prior written consent of the Board as an officer or
director of, or advisor to, any other entity or organization that is not a
customer or material service provider to the Company or a Competing Enterprise,
as defined in Section 8, so long as such participation does not interfere with
the performance of Executive's duties hereunder, whether or not such entity or
organization is engaged in religious, charitable or other community or
non-profit activities, (ii) investing in any entity or organization which is not
a customer or material service provider to the Company or a Competing
Enterprise, so long as such investment does not interfere with the performance
of Executive's duties hereunder, or (iii) delivering lectures or fulfilling
speaking engagements so long as such lectures or engagements do not interfere
with the performance of Executive's duties hereunder. The Company consents to
Executive's status as a "former partner" with a current financial interest in
certain 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, if such headquarters office shall move, to a
headquarters office of the Company that is within 50 miles of Alexandria,
Virginia).

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

3. COMPENSATION/BENEFITS. In consideration of Executive's services
hereunder, the Company shall provide Executive the following:

(a) BASE SALARY. During the Employment Period, the Executive shall
receive an annual rate of base salary ("BASE SALARY") in an amount not less than
$356,796. Executive's Base Salary will be reviewed by the Company annually and
may be adjusted upward (but not downward) at such time. Base Salary shall be
payable in accordance with the Company's normal business practices, but in no
event less frequently than monthly.

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

(c) MEDICAL AND DISABILITY INSURANCE/PHYSICAL. During the
Employment Period, the Company shall provide (i) to Executive and Executive's
immediate family a comprehensive policy of health insurance in accordance with
the Company's general practice applicable to officers (including payment of all
or a portion of the premiums due thereon) and (ii) to Executive a disability
policy in accordance with the Company's general practice applicable to officers
(including payment of all or a portion of the premiums due thereon) (the "BASE
DISABILITY POLICY") and a supplemental disability policy (the "SUPPLEMENTAL
POLICY") providing for coverage mutually reasonably acceptable to the Company
and Executive. During the Employment Period, Executive shall be entitled to a
comprehensive annual physical performed, at the expense of the Company (but not
including any related travel expense), by the physician or medical group of
Executive's choosing.

(d) SPLIT DOLLAR LIFE INSURANCE. Subject to Section 12(b), during
the Employment Period, the Company shall keep in force and pay the premiums on
the split-dollar life insurance policy owned by the Company and referenced in
the Endorsement Split Dollar Life Insurance Agreement between the Company and
Executive, subject to reimbursement by Executive as provided in such Endorsement
Split Dollar Life Insurance Agreement. Executive agrees to submit to such
medical examinations as may be required in order to maintain such policy of
insurance.

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

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

(g) ANNUAL ALLOWANCE. The Company will provide the Executive with
an annual


2



allowance of up to $5,000 per year (the "ALLOWANCE"). The Executive may draw on
the Allowance for expenses incurred in his discretion for items such as country
club membership, financial counseling or tax preparation. Payment of the
Allowance shall be subject to substantiation of expenses in accordance with the
Company's policies in effect from time to time for executive officers of the
Company. Unused portions of the Allowance shall be forfeited (i.e., not carried
over from year to year or paid out in cash). For purposes of this Section 3(g),
a new year shall be deemed to commence on each January 1. Payments under this
annual allowance will not be grossed up to reflect any income taxes that may be
due thereon. Executive shall be entitled to a full Allowance for 2003.

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

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

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

4. EXPENSES/INDEMNIFICATION.

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

(b) To the fullest extent permitted by law, the Company shall
indemnify Executive with respect to any actions commenced against Executive in
his capacity as an officer or director or former officer or director of the
Company, or any affiliate thereof for which he may render service in such
capacity, whether by or on behalf of the Company, its shareholders or third
parties, and the Company shall advance to Executive on a timely basis an amount
equal to the reasonable fees and expenses incurred in defending such actions,
after receipt of an itemized request for such advance, and an undertaking from
Executive to repay the amount of such advance, with interest at a reasonable
rate from the date of the request, as determined by the Company, if it shall
ultimately be determined that he is not entitled to be


3



indemnified against such expenses. The Company agrees that it shall use
reasonable best efforts to secure and maintain officers' and directors'
liability insurance that shall include coverage with respect to Executive.

5. EMPLOYER'S AUTHORITY/POLICIES.

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

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

(c) SEC CERTIFICATIONS. Executive's duties shall include taking
such actions as are necessary so that Executive is in a position to give, and
does give, all certifications that a Chief Financial Officer, under federal law
or regulations, is required to give with the submission by the Company of
reports or other filings to the Securities and Exchange Commission ("SEC
FILINGS"), PROVIDED, HOWEVER, that Executive shall not have violated this
Agreement if Executive is not in a position to give or does not give any such
certification because (i) Executive determines that he cannot make such
certification truthfully or with sufficient certainty due to the existence of
conditions or information, or the inability to confirm such conditions or
information, and (ii) the existence of such conditions or information or the
inability to confirm such conditions or information, or the failure to have
properly reported in an SEC filing in a timely and appropriate fashion such
conditions or information, was in each case not due to the gross negligence or
willful misconduct of Executive while serving in his capacity as Chief Financial
Officer.

6. RECORDS/NONDISCLOSURE/COMPANY POLICIES.

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

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

7. TERMINATION; SEVERANCE AND RELATED MATTERS.

(a) AT-WILL EMPLOYMENT. Executive's employment hereunder is "at
will" and, therefore, may be terminated at any time, with or without Cause, at
the option of the Company, subject only to the severance obligations under this
Section 7. Upon any termination hereunder, the Employment Period shall expire.

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

(1) CAUSE. "Cause" shall mean:

(i) Executive is convicted of or enters a plea of nolo
contendere to an act which is defined as a felony under any
federal, state or local law, not based upon a


4



traffic violation, which conviction or plea has or can be expected
to have, in the good faith opinion of the Board, a material adverse
impact on the business or reputation of the Company;

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

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

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

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

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

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

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

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

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

(2) CHANGE IN CONTROL. A "Change in Control" shall mean the
occurrence of any one or more of the following events following the
Effective Date:

(i) Any individual, entity or group (a "PERSON") within
the meaning of Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934 (the "ACT") (other than the Company, any corporation,
partnership, trust or other entity controlled by the Company (a
"SUBSIDIARY"), or any trustee, fiduciary or other person or entity
holding securities under any employee benefit plan or trust of the
Company or any of its Subsidiaries), together with all
"affiliates" and "associates" (as such terms are defined in
Rule 12b-2 under the Act) of such Person, shall become the
"beneficial owner" (as such term is defined in Rule 13d-3


5



under the Act) of securities of the Company representing 30% or
more of the combined voting power of the Company's then
outstanding securities having the right to vote generally in an
election of the Company's Board of Directors ("VOTING
SECURITIES"), other than as a result of (A) an acquisition of
securities directly from the Company or any Subsidiary or (B) an
acquisition by any corporation pursuant to a reorganization,
consolidation or merger if, following such reorganization,
consolidation or merger the conditions described in clauses (A),
(B) and (C) of subparagraph (iii) of this Section 7(b)(2) are
satisfied; or

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

(iii) Consummation of a reorganization, merger or
consolidation of the Company, unless, following such
reorganization, merger or consolidation, (A) more than 50% of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the outstanding Voting Securities immediately
prior to such reorganization, merger or consolidation, (B) no
Person (excluding the Company, any employee benefit plan (or
related trust) of the Company, a Subsidiary or the corporation
resulting from such reorganization, merger or consolidation or any
subsidiary thereof, and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation,
directly or indirectly, 30% or more of the outstanding Voting
Securities), beneficially owns, directly or indirectly, 30% or
more of, respectively, the then outstanding shares of common stock
of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors, and (C) at least a
majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of
the execution of the initial agreement providing for such
reorganization, merger or consolidation;

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

(v) The sale, lease, exchange or other disposition of
all or substantially all of the assets of the Company, other than
to a corporation, with respect to


6



which following such sale, lease, exchange or other disposition
(A) more than 50% of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power
of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners of the outstanding Voting Securities immediately
prior to such sale, lease, exchange or other disposition, (B) no
Person (excluding the Company and any employee benefit plan (or
related trust) of the Company or a Subsidiary or such corporation
or a subsidiary thereof and any Person beneficially owning,
immediately prior to such sale, lease, exchange or other
disposition, directly or indirectly, 30% or more of the
outstanding Voting Securities), beneficially owns, directly or
indirectly, 30% or more of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board
of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or
action of the Board of Directors providing for such sale, lease,
exchange or other disposition of assets of the Company.

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

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

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

(i) a material adverse change in the functions, duties
or responsibilities of Executive's position which would reduce
the level, importance or scope of such position, except in
connection with the termination of Executive's employment for
Disability, Cause, as a result of Executive's death or by Executive
other than for a Constructive Termination Without Cause;

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

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


7



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

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

(vi) the relocation of the Company's Alexandria,
Virginia offices to a new location more than 50 miles away from
Alexandria, Virginia or the failure to locate Executive's own
office at the Alexandria office or at a successor office which is
not more than 50 miles away from Alexandria, Virginia or,
following a Change in Control, the failure to locate Executive's
office at the Company's principal executive office or the
relocation of the Company's principal executive office to a
location more than 50 miles from Alexandria; or

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

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

(5) 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.

(6) 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, (ii) the cash bonus actually earned
by Executive with respect to such calendar year, and (iii) the value of
all stock and other equity-based compensation awards made to Executive
during such calendar year. In the event that the Company has or
hereafter makes any special, mid-year or other non-routine grant of
equity outside of the Company's recurring annual equity compensation
programs, the value of any such mid-year, special, or additional equity
based compensation shall not be included in


8



clause (iii) of the preceding sentence and therefore shall not be
included in the calculation of Covered Compensation or Covered Average
Compensation, and the value of such equity shall have no impact on any
cash payments made under Section 7(c) of the Agreement.

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 and other equity-based
compensation awards shall be valued at the value established
by the Compensation Committee of the Board of Directors.
Reference is made to Section 7(c)(vii) for further
clarification regarding this matter.

(B) In determining the cash bonus actually paid
with respect to a calendar year, if no cash bonus has been
paid with respect to the calendar year in which the Date of
Termination occurs, the cash bonus paid with respect to the
immediately preceding calendar year shall be assumed to have
been paid in each of the current and immediately preceding
calendar years, and if no cash bonus has been paid by the Date
of Termination with respect to the immediately preceding
calendar year, the cash bonus paid with respect to the second
preceding calendar year shall be assumed to have been paid in
all three of the calendar years taken into account in
determining Covered Average Compensation.

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

(D) In determining the amount of stock and other
equity-based compensation awards made during a calendar year
during the averaging period, rules similar to those set forth
in subparagraphs (B) and (C) of this Section 7(b)(6) shall be
followed.

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

(c) RIGHTS UPON TERMINATION.

(i) PAYMENT OF BENEFITS EARNED THROUGH DATE OF
TERMINATION. Upon any termination of Executive's employment during
the Employment Period, Executive, or his estate, shall in all
events be paid (I) all accrued but unpaid Base Salary and (II)
(except in the case of a termination by the Company for Cause or a
voluntary termination by Executive which is not due to a
Constructive Termination Without Cause, in either of


9



which cases this clause (II) shall not apply) a pro rata portion of
the Executive's Cash Bonus and LT Equity Bonus. For purposes of
fulfilling the requirements of clause (II) of the prior sentence, the
following shall apply:

(a) In all events, any stock options issued will be issued prior
to Executive's Date of Termination so that such stock options are employee stock
options. Such stock options shall have an exercise price equal to the closing
price of the Company's stock on the date of grant of such options, and such
options shall expire one year after the date of grant.

(b) The Company and Executive shall work in good faith to
determine an appropriate Cash Bonus and LT Equity Bonus for the year in which
the Date of Termination occurs. Such determination shall be based in good faith
on an evaluation of Executive's and the Company's performance. If the Company
and Executive cannot agree on appropriate amounts, then:

(A) The Company may defer the determination
of the Cash Bonus and the restricted stock portion of the LT
Equity Bonus until such bonuses in respect of such year are
determined for other officers, and at such time the amounts to
be used for determining Executive's pro rata bonuses shall be
a percentage of his target Cash Bonus and a percentage of his
target number of restricted shares with such percentages being
equal to the average of the percentages that apply to the Cash
Bonus and restricted shares, respectively, of other officers
ranked Senior Vice President or higher; and

(B) The Company may grant to Executive a number of
stock options based on the assumption that the percentage of
the target number of options Executive would have received in
respect of the year in which the Date of Termination occurs
would equal the average of the percentage realization applied
to options granted with respect to the prior three calendar
years.

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

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

(ii) DEATH. In the event of Executive's death during the
Employment Period, the Company shall, in addition to paying the
amounts set forth in Section 7(c)(i), take whatever action is
necessary to cause all of Executive's unvested equity-based awards
to become fully vested as of the date of death and, in the case of
equity-based awards which have an exercise schedule, to become
fully exercisable and continue to be exercisable for a period of
(a) two years following death (or such greater exercise period as


10



may be provided in the applicable award agreement for awards that
are vested and exercisable at the time of death) or (b) if less,
the end of the original term of the options.

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

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

(B) Subject to Section 12(b), continue to pay, or
reimburse Executive, for all premiums then due or thereafter
payable on the whole-life portion of the split-dollar
insurance policy referenced under Section 3(d) for so long as
such payments are due; PROVIDED, that the Company's
obligations under this Section 7(c)(iii)(B) are contingent on
Executive's timely payment of the premiums then due or
thereafter payable on the term portion of said split-dollar
insurance policy; and

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

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

(iv) 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), subject to Executive entering into a Separation
Agreement commencing upon the Date of Termination:


11



(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 benefits provided to Executive
immediately prior to the Date of Termination under Section
3(c) 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;

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

(E) Subject to Section 12(b), continue to pay, or
reimburse Executive for, all premiums then due or thereafter
payable on the whole-life portion of the split-dollar
insurance policy referenced under Section 3(d) for so long as
such payments are due; provided, that the Company's
obligations under this Section 7(c)(iv)(E) are contingent on
Executive's timely payment of the premiums then due or
thereafter payable on the term portion of said split-dollar
insurance policy.

(v) TERMINATION WITHOUT CAUSE; 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 the later of the effective date of a
Separation Agreement or 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 benefits provided to Executive
immediately prior to the Date of Termination under Section
3(c) for a period of 36 months following the Date of
Termination or until such earlier date as Executive obtains
comparable benefits through other employment;


12



(B) Subject to Section 12(b), continue to pay, or
reimburse Executive, for so long as such payments are due, all
premiums then due or payable on the whole-life portion of the
split-dollar insurance policy referenced under Section 3(d);
provided, that the Company's obligations under this Section
7(c)(v)(B) are contingent on Executive's timely payment of the
premiums then due or thereafter payable on the term portion of
said split-dollar insurance policy.; and

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

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

(vi) 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.

(vii) CLARIFICATION REGARDING TREATMENT OF OPTIONS AND
RESTRICTED STOCK. The stock option and restricted stock agreements
(the "EQUITY AWARD AGREEMENTS") that Executive has or may receive
may contain language regarding the effect of a termination of
Executive's employment under certain circumstances.

(A) Notwithstanding such language in the Equity
Award Agreements, for so long as this Agreement is in effect,
the Company will be obligated, if the terms of this Agreement
are more favorable in this regard than the terms of the Equity
Award Agreements, to take the actions required under Sections
7(c)(ii), 7(c)(iii)(C), 7(c)(iv)(C) and 7(c)(v)(C) hereof upon
the happening of the circumstances described therein. Those
sections provide that in certain situations the Company will
cause the Executive to become vested as of the Date of
Termination in all or certain equity-based awards, and that
such equity-based awards will thereafter be subject to the
provisions of the applicable Equity Award Agreement as it
applies to vested awards upon a termination. For purposes of
clarification, although an option grant may VEST in accordance
with these above-referenced Sections, such option will
thereafter be EXERCISABLE only for so long as the related
option agreement provides, except that the Compensation
Committee of


13



the Board of Directors may, in its sole discretion, elect to
extend the expiration date of such option. For example, in
general Executive's option agreements granted prior to the
date hereof provide that (in the absence of an extension by
the Compensation Committee) upon a termination of employment
for any reason other than death, disability, retirement or
cause, any vested options will only be exercisable for three
months from the date of termination or, if earlier, the
expiration date of the option.

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

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

(D) During the Employment Period any stock options
issued to Executive shall provide that if Executive's
employment is terminated in any manner which gives rise to an
obligation under this Agreement (or any successor Agreement or
other severance arrangement) to cause the acceleration of
vesting of stock options, then in such event such stock
options shall not expire until one year after the Date of
Termination (or, if earlier, the expiration of their original
term). The Company represents that the stock options awarded
to Executive in February 2002 have a provision to the same
effect. This covenant of the Company shall not apply to any
stock options issued prior to 2002 or to any stock options
issued after the expiration of the Employment Period.

(d) ADDITIONAL BENEFITS.

(i) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or distributable
(1) pursuant to the terms of Section 7 of this Agreement,
(2) pursuant to or in connection with any compensatory or
employee benefit plan, agreement or arrangement, including but
not limited to any stock options, restricted or unrestricted stock
grants issued to or for the


14



benefit of Executive and forgiveness of any loans by the Company
to Executive or (3) otherwise (collectively, "SEVERANCE PAYMENTS"),
would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "CODE"), and any
interest or penalties are incurred by Executive with respect to
such excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the
"EXCISE TAX"), then Executive shall be entitled to receive an
additional payment from the Company (a "PARTIAL GROSS-UP PAYMENT"),
such that the net amount retained by Executive, before accrual or
payment of any Federal, state or local income tax or employment
tax, but after accrual or payment of the Excise Tax attributable
to the Partial Gross-Up Payment, is equal to the Excise Tax on
the Severance Payments.

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

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

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

(B) take such action in connection with contesting
such claim


15



as the Company shall reasonably request in writing from time
to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
selected by the Company,

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

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

(iv) If, after the receipt by Executive of an amount
advanced by the Company pursuant to Section 7(d)(iii), Executive
becomes entitled to receive any refund with respect to such claim,
Executive shall (subject to the Company's complying with the
requirements of Section 7(d)(iii)) promptly pay to the Company so
much of such refund (together with any interest paid or credited
thereon after taxes applicable thereto) (the "REFUND") as is equal
to (A) if the Company advanced or paid the entire amount required
to be so advanced or paid pursuant to Section 7(d)(iii) hereof
(the "REQUIRED SECTION 7(D) ADVANCE"), the aggregate amount
advanced or paid by the Company pursuant to this Section 7(d) less
the portion of such amount advanced to Executive to reimburse him
for related legal and accounting costs, or (B) if the Company
advanced or paid less than the Required Section 7(d) Advance, so
much of the aggregate amount so advanced or paid by


16



the Company pursuant to this Section 7(d) as is equal to the
difference, if any, between (C) the amount refunded to Executive
with respect to such claim and (D) the sum of the portion of the
Required Section 7(d) Advance that was paid by Executive and not
paid or advanced by the Company plus Executive's related legal and
accounting fees, as applicable. If, after the receipt by Executive
of an amount advanced by the Company pursuant to Section 7(d)(iii),
a determination is made that Executive shall not be entitled to
any refund with respect to such claim and the Company does not
notify Executive in writing of its intent to contest such denial
of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Partial Gross-Up
Payment required to be paid.

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

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

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

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

8. NON-COMPETITION; NON-SOLICITATION; SPECIFIC ENFORCEMENT.

(a) NON-COMPETITION. Because Executive's services to the Company
are special and


17



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

(b) NON-SOLICITATION. 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 and venue in
such courts.

9. NOTICE. Any notice required or permitted hereunder shall be in
writing and shall be deemed sufficient when given by hand or by nationally
recognized overnight courier or by Express, registered or certified mail,
postage prepaid, return receipt requested, and addressed, if to the Company at
2900 Eisenhower Avenue, Suite 300, Alexandria, VA 22314, Attention: Chief
Executive Officer (with a second copy, sent by the same means and to the same
address, Attention: General Counsel), and if to Executive at his office address
with a copy to his home address set forth in the Company's records (or to such
other address as may be provided by notice).

10. MISCELLANEOUS. This Agreement, together with Annex A and Annex B
and the


18



Endorsement Split Dollar Life Insurance Agreement and any Equity Award
Agreements now or hereafter in effect, constitutes the entire agreement between
the parties concerning the subjects hereof and supersedes any and all prior
agreements or understandings, including, without limitation, any plan or
agreement providing benefits in the nature of severance, but excluding benefits
provided under other Company plans or agreements, except to the extent this
Agreement provides greater rights than are provided under such other plans or
agreements. As of the Effective Date, this Agreement supersedes the Prior
Agreement which will have not further force or effect. 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.

(a) GENERAL. 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.

(b) SPLIT-DOLLAR INSURANCE POLICY. If at any time, including
as a result of the Sarbanes-Oxley Act of 2002, the Company is not permitted to
make premium payments pursuant to the split-dollar insurance policy arrangement
contemplated in any provision of this Agreement, then such provision (but only
insofar as it pertains to the split-dollar insurance policy) shall be
ineffective and unenforceable, provided, however, that if the Company provides
to any other officer a program or arrangement that is intended to be a
replacement or substitute for the split-dollar insurance policy arrangements in
effect as of the date of this Agreement (a "SUBSTITUTE ARRANGEMENT"), then the
Substitute Arrangement shall also be provided to Executive and references herein
to a split-dollar insurance policy (including requirements to maintain such
policy following termination of employment under certain circumstances) shall be
read as references to the Substitute Arrangement.

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 applicable rules of
the American Arbitration Association governing employment disputes (the
"NATIONAL RULES"). In any proceeding relating to the amount owed to Executive in
connection with his termination of employment, it is the contemplation of the
parties that the only remedy that the arbitrator may award in such a proceeding
is an amount equal to the termination payments, if any, required


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to be provided under the applicable provisions of Section 7(c) and, if
applicable, Section 7(d) hereof, to the extent not previously paid, plus the
costs of arbitration and Executive's reasonable attorneys fees and expenses as
provided below. Any award made by such arbitrator shall be final, binding and
conclusive on the parties for all purposes, and judgment upon the award rendered
by the arbitrator may be entered in any court having jurisdiction thereof.

(b) ATTORNEYS FEES.

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

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

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

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


20



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

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

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

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

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


AVALONBAY COMMUNITIES, INC.


By: /s/ Bryce Blair
-------------------------------
Name: Bryce Blair
Title: Chief Executive Officer
and President





EXECUTIVE


/s/ Thomas J. Sargeant
-----------------------------------
Thomas J. Sargeant


Acknowledgment:

/s/ Amy P. Williams
- ----------------------------------
Amy P. Williams,
Chairman of Compensation Committee
of the Board of Directors


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