AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 9, 1996
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
UNITED DOMINION REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
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VIRGINIA 6513 54-0857512
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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10 SOUTH SIXTH STREET, SUITE 203
RICHMOND, VIRGINIA 23219-3802
(804) 780-2691
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
KATHERYN E. SURFACE
VICE PRESIDENT AND GENERAL COUNSEL
UNITED DOMINION REALTY TRUST, INC.
10 SOUTH SIXTH STREET, SUITE 203
RICHMOND, VIRGINIA 23219-3802
(804) 780-2691
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
COPIES TO:
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JAMES W. FEATHERSTONE, III BRYAN L. GOOLSBY
RANDALL S. PARKS GINA E. BETTS
HUNTON & WILLIAMS LIDDELL, SAPP, ZIVLEY, HILL & LABOON, L.L.P.
951 EAST BYRD STREET 2200 ROSS AVENUE, SUITE 900
RICHMOND, VIRGINIA 23219-4074 DALLAS, TEXAS 75201
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.
CALCULATION OF REGISTRATION FEE
[CAPTION]
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TITLE OF EACH CLASS MAXIMUM PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFER-
BE REGISTERED REGISTERED PER SHARE (2) ING PRICE (2)
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Common Stock,
$1 par value.............. 22,845,000 shares(1) $14.00 $319,830,000
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TITLE OF EACH CLASS AMOUNT OF
OF SECURITIES TO REGISTRATION
BE REGISTERED FEE
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Common Stock,
$1 par value.............. $96,918.18
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(1) This Registration Statement covers the maximum number of shares of Common
Stock of the registrant that are expected to be issued in connection with
the transactions described herein.
(2) Determined pursuant to Rule 457(f)(1).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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UNITED DOMINION REALTY TRUST, INC.
CROSS-REFERENCE SHEET
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ITEM OF FORM S-4 LOCATION IN REGISTRATION STATEMENT OR PROSPECTUS
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1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................. Facing page of Registration Statement; Cross Reference Sheet; outside
front cover page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Inside front cover page of Prospectus; Table of Contents; Available
Information; Incorporation of Certain Information by Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information........................... Summary; Equivalent Per Share Data; Summary Historical and Unaudited
Pro Forma Combined Financial Data; Risk Factors; United Dominion Realty
Trust, Inc. -- Unaudited Pro Forma Combined Financial Statements
4. Terms of the Transaction........................ Summary; The Merger; Comparative Rights of Shareholders; Annex I; Annex
II; Annex III
5. Pro Forma Financial Information................. United Dominion Realty Trust, Inc. -- Unaudited Pro Forma Combined
Financial Statements; Incorporation of Certain Information by Reference
6. Material Contacts With the Company Being
Acquired........................................ Summary; The Merger
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be
Underwriters.................................... Not applicable
8. Interests of Named Experts and Counsel.......... Not applicable
9. Disclosure of Commission Position on
Indemnification For Securities Act Liabilities.. Not applicable
10. Information With Respect to S-3 Registrants..... Available Information; Incorporation of Certain Information by
Reference; Summary; Business of United Dominion
11. Incorporation of Certain Information by
Reference....................................... Incorporation of Certain Information by Reference
12. Information With Respect to S-2 or S-3
Registrants..................................... Not applicable
13. Incorporation of Certain Information by
Reference....................................... Not applicable
14. Information With Respect to Registrants Other
Than S-2 or S-3 Registrants..................... Not applicable
15. Information With Respect to S-3 Companies....... Available Information; Incorporation of Certain Information by
Reference; Summary; Business of South West
16. Information With Respect to S-2 or S-3
Companies....................................... Not applicable
17. Information with Respect to Companies Other Than
S-2 or S-3 Companies............................ Not applicable
18. Information if Proxies, Consents or Authori-
zations Are to be Solicited..................... Incorporation of Certain Information By Reference; Summary; The Special
Meetings; The Merger; Dissenters' Rights
19. Information if Proxies, Consents or Authori-
zations Are Not to be Solicited, or in an
Exchange Offer.................................. Not applicable
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<PAGE>
[UNITED DOMINION LETTERHEAD]
November , 1996
Fellow Shareholders:
We cordially invite you to attend a special meeting of shareholders (the
"Special Meeting") of United Dominion Realty Trust, Inc. ("United Dominion") to
be held at the offices of United Dominion at the Atrium, 10 South Sixth Street,
Richmond, Virginia, on Tuesday, December 17, 1996, at 10:00 a.m., Eastern
Standard Time.
At this meeting, you will have an opportunity to consider and vote on the
merger of South West Property Trust Inc. ("South West") with United Dominion
pursuant to the terms of the Agreement and Plan of Merger between United
Dominion and South West (the "Agreement").
The Agreement generally provides for a tax-free exchange of South West
Common Stock for shares of United Dominion Common Stock. The currently
outstanding shares of United Dominion Common and Preferred Stock will remain
outstanding. The terms of the proposed merger, including the methods for valuing
South West Common Stock and United Dominion Common Stock and determining the
exchange ratio, are explained in detail in the accompanying Joint Proxy
Statement/Prospectus. I urge you to read it carefully.
The Board of Directors of United Dominion is unanimously of the opinion
that the proposed merger with South West will be beneficial to United Dominion
shareholders. The Board has received a written opinion from Merrill Lynch & Co.
as to the fairness of the consideration to be paid by United Dominion pursuant
to the proposed merger to United Dominion from a financial point of view.
The proposed merger will be approved if it receives the affirmative vote of
a majority of the shares outstanding and entitled to vote. It is especially
important that your shares be represented at the Special Meeting and voted FOR
the proposal. Even if you plan to attend the Special Meeting in person, please
complete, date, sign and promptly return the proxy in the envelope provided.
Your vote is important, regardless of the number of shares that you own. Your
promptly completing, signing and returning the proxy saves our company the cost
of expensive proxy solicitation.
Thank you.
Sincerely,
JOHN P. MCCANN
PRESIDENT
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UNITED DOMINION REALTY TRUST, INC.
10 South Sixth Street, Suite 203
Richmond, Virginia 223219-3802
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD TUESDAY, DECEMBER 17, 1996
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of United
Dominion Realty Trust, Inc. ("United Dominion") will be held at the offices of
United Dominion in the Atrium at 10 South Sixth Street, Richmond, Virginia, on
Tuesday, December 17, 1996, at 10:00 a.m., Eastern Standard Time, for the
purpose of considering and voting upon the following matters:
1. PROPOSED MERGER. To approve an Agreement and Plan of Merger among United
Dominion, United Sub, Inc., a wholly-owned subsidiary of United Dominion
("Sub"), and South West Property Trust Inc. ("South West"), dated as of
October 1, 1996, pursuant to which: (i) South West would merge with and
into Sub; (ii) each outstanding share of South West Common Stock, $.01
par value, would be converted into the right to receive 1.0833 shares of
United Dominion Common Stock, $1.00 par value ("United Dominion Common
Stock"), with cash in lieu of the issuance of any fractional share
interest; (iii) the Articles of Incorporation of United Dominion would
be amended to increase the number of authorized shares of United
Dominion Common Stock from 100,000,000 shares to 150,000,000 shares; and
(iv) the Board of Directors of United Dominion would be increased from
nine to 13 members and four persons designated by South West would
become members of the Board of Directors of United Dominion, filling the
vacancies created by the increase in the size of the United Dominion
Board, all as described more fully in the accompanying Joint Proxy
Statement/Prospectus.
2. OTHER BUSINESS. To consider and vote upon such other matters as properly
may come before the meeting or any adjournments thereof.
Only those United Dominion shareholders of record at the close of business
on November 1, 1996, will be entitled to notice of and to vote at the meeting
and any adjournments thereof. The Agreement will be approved if it receives the
affirmative vote of a majority of the shares outstanding and entitled to vote.
By Order of the Board of Directors,
KATHERYN E. SURFACE
SECRETARY
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. PLEASE
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID
ENVELOPE SO THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING. SHAREHOLDERS
ATTENDING THE MEETING MAY VOTE PERSONALLY ON ALL MATTERS THAT ARE CONSIDERED, IN
WHICH EVENT THE SIGNED PROXIES ARE REVOKED.
Richmond, Virginia
November , 1996
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[LETTERHEAD OF SOUTH WEST PROPERTY TRUST INC.]
November , 1996
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
South West Property Trust Inc. ("South West") to be held at the Park City Club,
5956 Sherry Lane, Suite 1700, Dallas, Texas, on Tuesday, December 17, 1996, at
9:00 a.m., Central Time (the "Special Meeting").
The purpose of the Special Meeting is to consider a proposal to approve an
Agreement and Plan of Merger (the "Merger Agreement") pursuant to which South
West will merge with United Dominion Realty Trust, Inc. ("United Dominion").
Upon consummation of the proposed merger, you would receive 1.0833 shares
of Common Stock of United Dominion for each share of Common Stock of South West
held by you, and cash in lieu of any fractional share. United Dominion Common
Stock is traded on the New York Stock Exchange under the symbol "UDR." South
West stockholders will not recognize gain or loss for federal income tax
purposes to the extent United Dominion Common Stock is received in the Merger in
exchange for South West Common Stock, although the receipt of cash in lieu of
fractional share interests will be taxable.
On November , 1996, the last sale price of United Dominion Common Stock
on the New York Stock Exchange was per share. Based on the exchange ratio
and the last sale price of United Dominion Common Stock on November , 1996,
you would receive United Dominion Common Stock worth $ for each share of
South West Common Stock held by you if the proposed merger were consummated on
that date.
Your Board of Directors believes that the proposed merger is in the best
interests of the South West stockholders. The merger is anticipated to improve
significantly South West's access to capital markets, which should make
additional debt or other financing available on more attractive terms, and
consequently permit the combined company to take advantage of additional
acquisition and development opportunities. In addition, your Board of Directors
believes that the combination of South West and United Dominion will result in a
combined institution with a strong presence in a larger and more diversified
market area than that currently served by either participant alone.
The Board has unanimously approved the Merger Agreement and also recommends
that you vote FOR approval. The Board has received a written opinion from Lehman
Brothers Inc. as to the fairness of the proposed merger to South West's
stockholders from a financial point of view. You are encouraged to read the
accompanying Joint Proxy Statement/Prospectus, which provides additional
information regarding United Dominion, South West and the proposed merger.
Your vote is important, regardless of the number of shares you own.
Approval of the Merger requires an affirmative vote of two-thirds of the shares
of South West Common Stock entitled to be voted at the Special Meeting.
Accordingly, on behalf of your Board of Directors, I urge you to complete, date
and sign the accompanying proxy and return it promptly in the enclosed
postage-paid envelope. This will not prevent you from attending the Special
Meeting or voting in person, but will assure that your vote is counted if you
are unable to attend the Special Meeting.
On behalf of the Board of Directors, I thank you for your support and urge
you to vote FOR approval of the Merger Agreement.
Sincerely,
JOHN S. SCHNEIDER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
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NOTICE OF SPECIAL MEETING OF
THE STOCKHOLDERS OF
SOUTH WEST PROPERTY TRUST INC.
TO BE HELD ON TUESDAY, DECEMBER 17, 1996 AT 9:00 A.M.
To the Stockholders:
Notice is hereby given that a Special Meeting of the stockholders of South
West Property Trust Inc. ("South West") will be held at the Park City Club, 5956
Sherry Lane, Suite 1700, Dallas, Texas, on Tuesday, December 17, 1996, at 9:00
a.m., Central Standard Time (the "Special Meeting"), for the following purposes:
1. To approve an Agreement and Plan of Merger among United Dominion Realty
Trust, Inc. ("United Dominion"), United Sub, Inc., a wholly-owned
subsidiary of United Dominion ("Sub") and South West, dated as of
October 1, 1996, pursuant to which: (i) South West would merge with and
into Sub; (ii) each outstanding share of South West Common Stock, $.01
par value, would be converted into the right to receive 1.0833 shares of
United Dominion Common Stock, $1.00 par value ("United Dominion Common
Stock"), with cash in lieu of the issuance of any fractional share
interest; (iii) the Articles of Incorporation of United Dominion would
be amended to increase the number of authorized shares of United
Dominion Common Stock from 100,000,000 shares to 150,000,000 shares; and
(iv) the Board of Directors of United Dominion would be increased from
nine to 13 members and four persons designated by South West would
become members of the Board of Directors of United Dominion, filling the
vacancies created by the increase in the size of the United Dominion
Board, all as described more fully in the accompanying Joint Proxy
Statement/Prospectus.
2. To transact such other business as properly may come before the Special
Meeting or any adjournments thereof.
Any action may be taken on the foregoing proposal at the Special Meeting on
the date specified above, or on any date or dates to which the Special Meeting
may be adjourned. Stockholders of record at the close of business on November 1,
1996, are the stockholders entitled to vote at the Special Meeting and any
adjournments thereof.
You are cordially invited to attend the Special Meeting in person. Whether
or not you plan to attend the Special Meeting, you are urged to complete, date,
sign and return the accompanying proxy card in the enclosed postage-paid
envelope as soon as possible. You may revoke your written proxy by delivering a
written instruction, or a duly executed proxy bearing a later date, to the
Secretary of South West at any time prior to or at the Special Meeting or by
attending the Special Meeting and voting in person. However, returning a proxy
now will assure your vote is counted at the Special Meeting if you are unable to
attend.
By Order of the Board of Directors,
LEWIS H. SANDLER
SECRETARY
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. PLEASE
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID
ENVELOPE SO THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING. STOCKHOLDERS
ATTENDING THE MEETING MAY VOTE PERSONALLY ON ALL MATTERS THAT ARE CONSIDERED, IN
WHICH EVENT THE SIGNED PROXIES ARE REVOKED.
Dallas, Texas
November , 1996
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JOINT PROXY STATEMENT/PROSPECTUS
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UNITED DOMINION REALTY TRUST, INC. SOUTH WEST PROPERTY TRUST INC.
SPECIAL MEETING SPECIAL MEETING
TO BE HELD ON TO BE HELD ON
DECEMBER 17, 1996 DECEMBER 17, 1996
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PROSPECTUS
[UDRT logo]
COMMON STOCK
This Joint Proxy Statement/Prospectus is being furnished to shareholders of
United Dominion Realty Trust, Inc., a Virginia corporation ( together with its
subsidiaries, "United Dominion"), and stockholders of South West Property Trust
Inc., a Maryland corporation (together with its subsidiaries, "South West"), in
connection with the solicitation of proxies by the Board of Directors of United
Dominion (the "United Dominion Board") for use at the Special Meeting of
Shareholders of United Dominion (including any adjournments or postponements
thereof) (the "United Dominion Special Meeting") and by the Board of Directors
of South West (the "South West Board") for use at the Special Meeting of
Stockholders of South West (including any adjournments or postponements thereof)
(the "South West Special Meeting" and, together with the United Dominion Special
Meeting, the "Shareholder Meetings"), each to be held on Tuesday, December 17,
1996, at the time and place set forth in the accompanying notices.
The purpose of the Shareholder Meetings is to consider and vote upon an
Agreement and Plan of Merger, dated as of October 1, 1996 (the "Agreement"). The
Agreement is attached to this Joint Proxy Statement/Prospectus as ANNEX I.
The Agreement provides that South West would merge with and into United
Sub, Inc. ("Sub"), a Virginia corporation and a wholly-owned subsidiary of
United Dominion (the "Merger," which term includes, where the context so
indicates, the other transactions contemplated by the Agreement). Upon
consummation of the Merger, each share of Common Stock, $.01 par value, of South
West (the "South West Common Stock") would be converted into the right to
receive 1.0833 shares of Common Stock, $1.00 par value, of United Dominion (the
"United Dominion Common Stock"), with cash in lieu of the issuance of any
fractional share interest. The outstanding shares of United Dominion Common
Stock and 9 1/4% Series A Cumulative Redeemable Preferred Stock of United
Dominion (the "Series A Preferred") would remain outstanding as stock of United
Dominion. The Agreement also provides that United Dominion's Articles of
Incorporation (the "United Dominion Articles") would be amended to increase the
authorized number of shares of United Dominion Common Stock from 100,000,000 to
150,000,000; and that four persons designated by South West would become members
of the United Dominion Board, filling vacancies created by increasing the size
of the United Dominion Board from nine to 13 directors.
Based on the closing price of United Dominion Common Stock on the New York
Stock Exchange (the "NYSE") of $ per share on , 1996, if the
Agreement is approved and the Merger is consummated, the total market value of
United Dominion would be approximately $ billion. Based on the number of
shares of United Dominion and South West outstanding on that date, approximately
% of the shares of United Dominion expected to be outstanding after the Merger
would be issued to South West stockholders. Based on the exchange ratio, each
South West stockholder would receive in the Merger United Dominion Common Stock
worth $ for each share of South West Common Stock owned on that date. For a
description of the Agreement, which is included in its entirety as Annex I to
this Joint Proxy Statement/Prospectus, see "THE MERGER."
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
United Dominion in respect of the shares of United Dominion Common Stock to be
issued to stockholders of South West in connection with the Merger. The
outstanding shares of United Dominion Common Stock are, and the shares offered
hereby will be, listed on the NYSE and traded under the symbol "UDR."
All information contained in this Joint Proxy Statement/Prospectus relating
to United Dominion and its subsidiaries has been supplied by United Dominion,
and all information relating to South West and its subsidiaries has been
supplied by South West. This Joint Proxy Statement/Prospectus and the
accompanying proxy cards are first being mailed to shareholders of United
Dominion and stockholders of South West on or about November , 1996.
FOR CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN EVALUATING THE AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, SEE "RISK
FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION OF THE CONTRARY IS
UNLAWFUL.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOVEMBER , 1996
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AVAILABLE INFORMATION
Both United Dominion and South West are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by United Dominion and
South West with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at its Regional Office at Suite 1400,
500 West Madison Street, Chicago, Illinois 60661 and Suite 1300, 7 World Trade
Center, New York, New York 10048, and can also be inspected and copied at the
offices of the NYSE, 20 Broad Street, New York, New York 10005. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the prescribed
fees. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding the Company and other
registrants that have been filed electronically with the Commission. The address
of such site is http://www.sec.gov.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE UPON REQUEST FROM OFFICE OF THE SECRETARY, UNITED DOMINION REALTY
TRUST, INC., 10 SOUTH SIXTH STREET, SUITE 203, RICHMOND, VIRGINIA 23219-3801
(TELEPHONE 804/780-2691; FAX 804/788-4607) AND OFFICE OF THE SECRETARY, SOUTH
WEST PROPERTY TRUST INC., 5949 SHERRY LANE, SUITE 1400, DALLAS, TEXAS 75225-8010
(TELEPHONE 214/369-1995; FAX 214/369-6882). IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY DECEMBER 10, 1996.
This Joint Proxy Statement/Prospectus is part of a registration statement
on Form S-4 (together with all amendments and exhibits, the "Registration
Statement") filed by United Dominion with the Commission under the Securities
Act of 1933, as amended (the "Securities Act"). This Joint Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules of the Commission. For further information, reference is made to the
Registration Statement.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THE OFFER
CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES,
NOR DOES IT CONSTITUTE AN OFFER TO OR SOLICITATION OF ANY PERSON IN ANY
JURISDICTION TO WHOM IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS AT ANY TIME DOES NOT IMPLY
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
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TABLE OF CONTENTS
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE...................................................................... 1
SUMMARY................................................................................................................ 2
RISK FACTORS........................................................................................................... 6
EQUIVALENT PER SHARE DATA.............................................................................................. 9
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA..................................................... 11
THE SPECIAL MEETINGS................................................................................................... 15
United Dominion Special Meeting...................................................................................... 15
South West Special Meeting........................................................................................... 16
THE MERGER............................................................................................................. 18
Background of and Reasons for the Merger............................................................................. 18
Opinions of Financial Advisors....................................................................................... 23
Exchange Ratio and Exchange for United Dominion Common Stock......................................................... 31
Management and Operations After the Merger........................................................................... 32
Effective Time of the Merger......................................................................................... 33
Headquarters......................................................................................................... 34
Amendment of United Dominion Articles................................................................................ 34
Conditions to Consummation of the Merger............................................................................. 34
Conduct of Business Pending the Merger............................................................................... 35
Waiver and Amendment; Termination.................................................................................... 36
Interests of Certain Persons in the Merger........................................................................... 37
Certain Federal Income Tax Consequences.............................................................................. 39
Purchase Option Agreement............................................................................................ 40
Resales of United Dominion Common Stock.............................................................................. 41
DISSENTERS' RIGHTS..................................................................................................... 41
UNITED DOMINION REALTY TRUST, INC. -- UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS................................ 42
BUSINESS OF UNITED DOMINION............................................................................................ 51
BUSINESS OF SOUTH WEST................................................................................................. 54
COMPARATIVE RIGHTS OF SHAREHOLDERS..................................................................................... 58
Capitalization....................................................................................................... 58
Voting Rights........................................................................................................ 58
Directors............................................................................................................ 59
Anti-Takeover Provisions............................................................................................. 59
REIT Qualification Provisions........................................................................................ 60
Preemptive Rights.................................................................................................... 61
Assessment........................................................................................................... 61
Conversion; Redemption; Sinking Fund................................................................................. 61
Liquidation Rights................................................................................................... 62
Dividends and Other Distributions.................................................................................... 62
Shareholder Meetings................................................................................................. 63
Indemnification...................................................................................................... 63
Director Liability................................................................................................... 64
FEDERAL INCOME TAX CONSIDERATIONS...................................................................................... 64
Tax Considerations Relating to the Merger............................................................................ 64
Taxation of United Dominion and South West........................................................................... 64
Requirements for Qualification....................................................................................... 65
Failure to Qualify................................................................................................... 68
Taxation of Taxable U.S. Shareholders................................................................................ 68
Taxation of Shareholders on the Disposition of Common Stock.......................................................... 69
Capital Gains and Losses............................................................................................. 69
Information Reporting Requirements and Backup Withholding............................................................ 69
Taxation of Tax-Exempt Shareholders.................................................................................. 70
Taxation of Non-U.S. Shareholders.................................................................................... 70
Other Tax Consequences............................................................................................... 71
EXPERTS................................................................................................................ 72
LEGAL OPINIONS......................................................................................................... 72
SHAREHOLDER PROPOSALS.................................................................................................. 72
OTHER MATTERS.......................................................................................................... 72
ANNEX I -- Agreement and Plan of Merger
ANNEX II-A -- Opinion of Merrill Lynch & Co.
ANNEX II-B -- Opinion of Lehman Brothers Inc.
ANNEX III -- Purchase Option Agreement
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<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents (File No. 1-10524) filed by United Dominion with
the Commission under the Exchange Act are hereby incorporated by reference in
this Joint Proxy Statement/Prospectus: (i) United Dominion's annual report on
Form 10-K for the year ended December 31, 1995 filed on March 29, 1996,
including United Dominion's Form 10-K/A No. 1 to Form 10-K for the year ended
December 31, 1995 filed on April 12, 1996, United Dominion's Form 10-K/A No. 2
to Form 10-K for the year ended December 31, 1995 filed on May 20, 1996 and
United Dominion's Form 10-K/A No. 3 to Form 10-K for the year ended December 31,
1995 filed on May 20, 1996; (ii) United Dominion's quarterly report on Form 10-Q
for the quarter ended March 31, 1996 filed on May 15, 1996; (iii) United
Dominion's quarterly report on Form 10-Q for the quarter ended June 30, 1996
filed on August 14, 1996; (iv) United Dominion's Current Report on Form 8-K
dated April 11, 1995, including United Dominion's Form 8-K/A No. 1 to Form 8-K
dated April 11, 1995 filed on April 12, 1996, Form 8-K/A No. 2 to Form 8-K dated
April 11, 1995 filed on April 19, 1996 and Form 8-K/A No. 3 to Form 8-K dated
April 11, 1995 filed on May 20, 1996; (v) United Dominion's Current Report on
Form 8-K dated June 30, 1995 filed on June 30, 1995, including United Dominion's
Form 8-K/A No. 1 to Form 8-K dated June 30, 1995 filed on January 31, 1996; (vi)
United Dominion's Current Report on Form 8-K dated December 28, 1995 filed on
January 11, 1996, including United Dominion's Form 8-K/A No. 1 to Form 8-K dated
December 28, 1995 filed on March 11, 1996, Form 8-K/A No. 2 to Form 8-K dated
December 28, 1995 filed on April 19, 1996, and Form 8-K/A No. 3 to Form 8-K
dated December 28, 1995 filed on May 20, 1996; (vii) United Dominion's Current
Report on Form 8-K dated January 31, 1996 filed on January 31, 1996; (viii)
United Dominion's Current Report on Form 8-K dated April 12, 1996 filed on April
12, 1996; (ix) United Dominion's Current Report on Form 8-K dated August 15,
1996 filed on August 30, 1996; (x) United Dominion's Current Report on Form 8-K
dated October 1, 1996 filed on October 4, 1996; and (xi) the description of the
United Dominion Common Stock contained in United Dominion's registration
statement on Form 8-A dated April 19, 1990, filed under the Exchange Act,
including any amendment or reports filed for the purpose of updating such
description.
The following documents (File No. 1-11224) filed by South West with the
Commission under the Exchange Act are hereby incorporated by reference in this
Joint Proxy Statement/Prospectus: (i) South West's annual report on Form 10-K
for the year ended December 31, 1995 filed on March 2, 1996; (ii) South West's
quarterly report on Form 10-Q for the quarter ended March 31, 1996 filed on May
3, 1996; (iii) South West's quarterly report on Form 10-Q for the quarter ended
June 30, 1996 filed on August 2, 1996; (iv) South West's Current Report on Form
8-K dated July 15, 1996 filed on July 16, 1996; (v) South West's Current Report
on Form 8-K dated October 1, 1996 filed on October 3, 1996; and (vi) the
description of the South West Common Stock contained in South West's
registration statement on Form 8-A dated July 28, 1993, filed under the Exchange
Act, including any amendment or reports filed for the purpose of updating such
description.
All documents filed by United Dominion and South West pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the Shareholder Meetings
shall be deemed to be incorporated by reference herein. Also incorporated by
reference herein is the Agreement, which is attached to this Joint Proxy
Statement/Prospectus as ANNEX I.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/Prospectus to the extent that a
statement contained herein, or in any subsequently filed document which also is
or is deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
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SUMMARY
THE FOLLOWING SUMMARY IS NOT INTENDED TO BE A COMPLETE DESCRIPTION OF ALL
MATERIAL FACTS REGARDING UNITED DOMINION, SOUTH WEST AND THE MATTERS TO BE
CONSIDERED AT THE SHAREHOLDER MEETINGS AND IS QUALIFIED IN ALL RESPECTS BY THE
INFORMATION APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, THE ANNEXES HERETO AND THE DOCUMENTS REFERRED TO HEREIN.
PARTIES TO THE AGREEMENT
UNITED DOMINION. United Dominion, a Virginia corporation headquartered in
Richmond, Virginia, is a self-administered equity real estate investment trust
("REIT") whose business is devoted to the ownership and operation of apartment
communities located primarily in the Southeastern region of the United States.
United Dominion is a fully integrated real estate company with acquisition,
development and property management capabilities. At September 30, 1996, United
Dominion's portfolio consisted of 167 apartment communities containing 41,204
apartment homes, three shopping centers, four other properties and two parcels
of undeveloped land. United Dominion's apartment portfolio also includes one
apartment community containing 360 apartment homes under development and three
additions to existing apartment communities under construction which will add
344 apartment homes.
United Dominion's principal executive offices are located at 10 South Sixth
Street, Suite 203, Richmond, Virginia 23219-3802, and its telephone number is
(804) 780-2691. For further information concerning United Dominion, see
"BUSINESS OF UNITED DOMINION."
SOUTH WEST. South West, a Maryland corporation headquartered in Dallas,
Texas, is a self-administered, fully integrated equity REIT operating in the
Southwest and Southeast regions of the United States. At September 30, 1996,
South West's portfolio included 42 apartment communities containing 13,905
units, an additional two properties containing 698 units under development and
three additions to existing properties under construction which will add 372
units.
The principal executive offices of South West are located at 5949 Sherry
Lane, Suite 1400, Dallas, Texas 75225-8010, and its telephone number is (214)
369-1995. For further information concerning South West, see "BUSINESS OF SOUTH
WEST."
SHAREHOLDER MEETINGS
UNITED DOMINION. The United Dominion Special Meeting will be held on
Tuesday, December 17, 1996, at 10:00 a.m., Eastern Standard Time, at the offices
of United Dominion at the Atrium, 10 South Sixth Street, Richmond, Virginia. The
purpose of the United Dominion Special Meeting is to consider and vote upon a
proposal to approve the Agreement.
SOUTH WEST. The South West Special Meeting will be held at 9:00 a.m.,
Central Standard Time, on Tuesday, December 17, 1996, at the Park City Club,
5956 Sherry Lane, Suite 1700, Dallas, Texas. The purpose of the South West
Special Meeting is to consider and vote upon a proposal to approve the
Agreement. See "THE SPECIAL MEETINGS."
RECORD DATES; VOTES REQUIRED
UNITED DOMINION. Only holders of United Dominion Common Stock of record at
the close of business on November 1, 1996 (the "United Dominion Record Date"),
will be entitled to vote at the United Dominion Special Meeting. The Agreement
will be approved if it receives the affirmative vote of a majority of the shares
outstanding and entitled to vote. As of the United Dominion Record Date, there
were shares of United Dominion Common Stock outstanding and entitled to
vote.
The members of the United Dominion Board and executive officers of United
Dominion and their affiliates beneficially owned, as of the United Dominion
Record Date, shares or approximately % of the outstanding shares of
United Dominion Common Stock. The directors and executive officers of South West
and their affiliates currently beneficially own no shares of United Dominion
Common Stock. See "THE SPECIAL MEETINGS -- United Dominion Special Meeting."
SOUTH WEST. Only holders of South West Common Stock of record at the close
of business on November 1, 1996 (the "South West Record Date" and, together with
the United Dominion Record Date, the "Record Dates"), will be entitled to vote
at the South West Special Meeting. The affirmative vote of the holders of
two-thirds of the shares of South West Common Stock outstanding and entitled to
vote is required to approve the Agreement. As of the South West Record Date,
there were shares of South West Common Stock outstanding and entitled to
vote.
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The members of the South West Board and executive officers of South West
and their affiliates beneficially owned, as of the South West Record Date,
shares or approximately % of the outstanding shares of South West
Common Stock. The directors and executive officers of United Dominion and their
affiliates beneficially owned, as of the South West Record Date, a total of less
than 1% of the outstanding shares of South West Common Stock. See "THE SPECIAL
MEETINGS -- South West Special Meeting."
RECOMMENDATIONS
The Boards of both United Dominion and South West have unanimously approved
and adopted the Agreement and each Board recommends a vote FOR approval of the
Agreement. See "THE SPECIAL MEETINGS" and "THE MERGER."
In determining to recommend the Merger, the United Dominion Board
considered the following expected benefits from the Merger (i) its potential for
immediate accretion to United Dominion, (ii) increased size and increased
liquidity in the United Dominion Common Stock and related improvement in access
to equity and debt capital and operating efficiencies, (iii) increased market
share in certain key Southeastern markets and entry into new Southwestern growth
markets with the potential for becoming a major apartment owner in some of these
markets, (iv) increased geographic diversification of the post-Merger company's
portfolio, (v) access to South West's management talent and development
expertise, (vi) favorable positioning for future portfolio acquisitions and
(vii) the opinion of United Dominion's financial advisor that the consideration
to be paid by United Dominion pursuant to the Merger was fair to United Dominion
from a financial point of view. See "THE MERGER -- Background of and Reasons for
the Merger -- UNITED DOMINION'S REASONS FOR THE MERGER."
In determining to recommend the Merger, the South West Board considered the
following factors: (i) the Merger would create the largest developer, owner and
manager of multi-unit residential properties in the Southeastern and
Southwestern United States with strong, experienced management, (ii) the
timeliness and potential benefits to Southwest Stockholders of the transaction
in light of trends toward industry consolidation, (iii) the attractiveness of
the Exchange Ratio relative to historical trading prices for South West Common
Stock and the opportunity for South West shareholders to continue their
investment in a seasoned multi-family residential REIT while maintaining current
dividends and benefitting from expanded geographic diversification, (iv)
improved post-Merger access to capital markets and related ability to take
advantage of additional acquisition and development opportunities, (v) improved
liquidity for South West shareholders, (vi) opportunities for significant
administrative cost savings in the combined company, (vii) the tax-free nature
of the Merger and (viii) the opinion of South West's financial advisor that the
Exchange Ratio was fair to South West stockholders from a financial point of
view. See "THE MERGER -- Background of and Reasons for the Merger -- SOUTH
WEST'S REASONS FOR THE MERGER."
THE MERGER
The Agreement provides for a merger of South West with and into United Sub,
Inc. ("Sub"), a wholly-owned subsidiary of United Dominion. At the Effective
Time of the Merger (as hereinafter defined), each outstanding share of South
West Common Stock would be converted into the right to receive 1.0833 shares of
United Dominion Common Stock and each outstanding option to purchase South West
Common Stock (collectively, the "South West Options"), whether or not vested,
would be purchased by South West, and authorized but unissued South West Options
would be canceled. See "THE MERGER -- Exchange Ratio and Exchange for United
Dominion Common Stock."
OPINIONS OF FINANCIAL ADVISORS
UNITED DOMINION. United Dominion has received the opinion of Merrill Lynch
& Co. ("Merrill Lynch"), at the meeting of the United Dominion Board on
September 27, 1996, and as of the date of this Joint Proxy Statement/Prospectus,
that, as of such date, the consideration to be paid by United Dominion pursuant
to the Merger is fair to United Dominion from a financial point of view.
Merrill Lynch is a nationally recognized investment banking firm and is
continually engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings
and secondary distributions of listed and unlisted securities, and valuations
for estate, corporate and other purposes. Merrill Lynch has been one of United
Dominion's lead investment bankers since 1988. United Dominion selected Merrill
Lynch to serve as a financial advisor with respect to the Merger because of its
reputation and substantial experience in transactions such as the Merger and
Merrill Lynch's familiarity with United Dominion and its operations.
United Dominion has agreed to pay Merrill Lynch certain fees, to reimburse
Merrill Lynch for its reasonable out-of-pocket expenses and to indemnify Merrill
Lynch against certain liabilities, including liabilities under the federal
securities laws. For additional information concerning Merrill Lynch and its
opinion, see "THE MERGER -- Opinions of Financial
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Advisors" and Merrill Lynch's opinion, dated as of the date of this Joint Proxy
Statement/Prospectus, attached hereto as ANNEX II-A.
SOUTH WEST. South West received the opinion of Lehman Brothers Inc.
("Lehman Brothers") at the meeting of the South West Board on September 29, 1996
that, as of the date of such opinion, the Exchange Ratio is fair to holders of
South West Common Stock from a financial point of view.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking business, is regularly engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Lehman Brothers has been
one of South West's lead investment bankers. South West selected Lehman Brothers
as its financial advisor because of Lehman Brothers' reputation and substantial
experience in transactions such as the Merger and Lehman Brothers' familiarity
with South West and its operations.
South West has agreed to pay Lehman Brothers certain fees, to reimburse
Lehman Brothers for its reasonable and necessary out-of-pocket expenses and to
indemnify Lehman Brothers against certain liabilities, including liabilities
under the federal securities laws. For additional information concerning Lehman
Brothers and its opinion, see "THE MERGER -- Opinions of Financial Advisors" and
Lehman Brothers' opinion, dated as of the date of this Joint Proxy
Statement/Prospectus, attached hereto as ANNEX II-B.
EXCHANGE RATIO
At the Effective Time of the Merger, each outstanding share of South West
Common Stock would be converted into the right to receive 1.0833 shares of
United Dominion Common Stock (the "Exchange Ratio"), with cash in lieu of the
issuance of any fractional share interest. See "THE MERGER -- Exchange Ratio and
Exchange for United Dominion Common Stock."
Based on the Exchange Ratio and the shares of South West Common Stock
outstanding on November 1, 1996, United Dominion would issue a total of
shares of United Dominion Common Stock in the Merger. Based on the closing price
of United Dominion Common Stock on the NYSE on November , 1996, of $ per
share, the total market value of United Dominion would be approximately $
billion dollars. Based on the Exchange Ratio and the number of shares of United
Dominion Common Stock and South West Common Stock outstanding on that date,
approximately % of the shares expected to be outstanding after the Effective
Time of the Merger would be issued to South West stockholders.
MANAGEMENT, OPERATIONS AND HEADQUARTERS AFTER THE MERGER
Following the Merger, the Board of Directors of United Dominion would
consist of 13 persons, consisting of nine current United Dominion directors and
four current South West directors.
John P. McCann, the current President and Chief Executive Officer of United
Dominion, would be Chairman of the Board, President and Chief Executive Officer
of United Dominion. John S. Schneider, the current Chairman of the Board and
Chief Executive Officer of South West, would become Vice Chairman of the United
Dominion Board and Executive Vice President of United Dominion. The remaining
executive officers of United Dominion would consist of the current United
Dominion executive officers and two other current South West executive officers.
See "THE MERGER -- Management and Operations After the Merger."
The headquarters of United Dominion would be located in Richmond, Virginia,
the current administrative headquarters of United Dominion.
AMENDMENT OF UNITED DOMINION ARTICLES
If the Agreement is approved by the United Dominion shareholders and the
Merger is consummated, the United Dominion Articles will be amended to increase
the number of authorized shares of United Dominion Common Stock from 100,000,000
shares to 150,000,000 shares. See "THE MERGER -- Amendment of United Dominion
Articles."
EFFECTIVE TIME OF THE MERGER
As soon as practicable after satisfaction of all conditions to consummation
of the Merger (see "THE MERGER -- Conditions to Consummation of the Merger"),
the Merger will become effective. The Merger will become effective for
accounting and all other purposes to the fullest extent permitted by law as of
the close of business on December 31, 1996 (the
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"Effective Time of the Merger"). For state law purposes, the Merger will become
effective upon the later of issuance of a certificate of merger by the Virginia
State Corporation Commission in accordance with the Virginia Stock Corporation
Act (the "VSCA") and issuance of a certificate of merger by the State Department
of Assessments and Taxation of Maryland in accordance with the Maryland General
Corporation Law (the "MGCL"), or at such later time which United Dominion and
South West shall have agreed upon and designated in such filings in accordance
with applicable law. South West and United Dominion each has the right, acting
unilaterally, to terminate the Agreement should the Merger not be consummated by
the close of business on March 31, 1997. See "THE MERGER -- Waiver and
Amendment; Termination."
CONDITIONS TO CONSUMMATION
Consummation of the Merger is subject to satisfaction or waiver of other
conditions, including receipt by United Dominion and South West of opinions of
counsel that the Merger will qualify as a tax-free reorganization under Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). See "THE
MERGER -- Conditions to Consummation of the Merger."
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be accounted for using the purchase method in accordance
with Accounting Principles Board Opinion No. 16. See "THE MERGER -- Anticipated
Accounting Treatment."
CONDUCT OF BUSINESS PENDING THE MERGER
Each of United Dominion and South West has agreed in the Agreement to
operate its business in the ordinary course and to refrain from taking certain
actions relating to the operation of its business pending consummation of the
Merger without the prior approval of the other party, except as otherwise
permitted by the Agreement. See "THE MERGER -- Conduct of Business Pending the
Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of South West's management, as well as certain members of
the South West Board, have interests in the Merger in addition to their
interests as stockholders of South West. These include, among other things,
provisions in the Agreement relating to employment by United Dominion following
the Merger, indemnification and eligibility for and receipt of certain United
Dominion employee benefits, including options for United Dominion Common Stock,
and entitlements under current South West employment agreements and employee
benefit plans that are triggered by the Merger. See "THE MERGER -- Interests of
Certain Persons in the Merger."
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Merger is intended to qualify as a tax-free reorganization as defined
in Section 368(a) of the Code, with the result that South West stockholders will
not recognize gain or loss on the exchange of South West Common Stock for United
Dominion Common Stock except with respect to the receipt of cash in lieu of
fractional share interests. A condition to consummation of the Merger is the
receipt by each of United Dominion and South West of an opinion of counsel as to
the qualification of the Merger as a tax-free reorganization and certain other
federal income tax matters. See "THE MERGER -- Conditions to Consummation of the
Merger" and " -- Certain Federal Income Tax Consequences."
PURCHASE OPTION AGREEMENT
Pursuant to a Purchase Option Agreement, dated as of October 1, 1996 (the
"Purchase Option Agreement"), South West has granted to United Dominion an
option to purchase 4,000,000 shares of South West Common Stock (approximately
19.437% of the outstanding South West Common Stock as of September 30, 1996) at
an exercise price of $13 7/8 per share, subject to adjustment as provided
therein, and United Dominion has granted to South West an option to acquire
4,333,200 shares of United Dominion Common Stock (approximately 6.089% of the
outstanding United Dominion Common Stock as of September 30, 1996) at an
exercise price of $14 1/8 per share, subject to adjustment as provided therein.
Upon occurrence of certain events specified in the Purchase Option Agreement
that could jeopardize consummation of the Merger, each of United Dominion or
South West may exercise its respective option by providing written notice to the
other party as required by the Purchase Option Agreement. Each party may require
the issuer to repurchase shares issued on exercise of an option at the exercise
price. The Purchase Option Agreement is attached to this Joint Proxy
Statement/Prospectus as ANNEX III. See "THE MERGER -- Purchase Option
Agreement."
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RESALES OF UNITED DOMINION COMMON STOCK
Shares of United Dominion Common Stock received in the Merger will be
freely transferable by the holders thereof except for those shares held by those
holders who may be deemed to be "affiliates" (generally including directors,
certain executive officers and ten percent or more shareholders) of South West
or United Dominion under applicable federal securities laws. United Dominion and
South West have agreed to use their respective best efforts to cause their
respective directors and certain officers to execute "lock-up" agreements by
which dispositions of United Dominion Common Stock by such persons will be
generally prohibited during the 90 days following the Effective Date of the
Merger, and it is a condition to United Dominion's obligation to consummate the
Agreement that United Dominion receive the written agreements of "affiliates" of
South West that they will not dispose of United Dominion Common Stock received
by them in the Merger except in compliance with the Securities Act. See "THE
MERGER -- Resales of United Dominion Common Stock."
DISSENTERS' RIGHTS
Neither holders of United Dominion Common Stock nor holders of South West
Common Stock will have statutory rights to appraisal of their shares. See
"DISSENTERS' RIGHTS."
RISK FACTORS
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS MAY INCLUDE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WHICH STATEMENTS CAN BE
IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL,"
"EXPECT," "ANTICIPATE," "ESTIMATE," OR "CONTINUE" OR THE NEGATIVE THEREOF OR
OTHER COMPARABLE TERMINOLOGY. THE FOLLOWING MATTERS AND CERTAIN OTHER FACTORS
NOTED THROUGHOUT THIS JOINT PROXY STATEMENT/PROSPECTUS AND ANY DOCUMENTS
INCORPORATED BY REFERENCE HEREIN OR THEREIN AND EXHIBITS HERETO AND THERETO
CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS WITH RESPECT TO
ANY SUCH FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES,
THAT COULD CAUSE UNITED DOMINION'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE PREDICTED IN ANY SUCH FORWARD-LOOKING STATEMENTS.
In considering whether to approve the Agreement, United Dominion and South
West shareholders should carefully consider, in addition to the other
information in this Joint Proxy Statement/Prospectus, the following matters:
STOCK PRICE FLUCTUATIONS
The relative stock prices of the United Dominion Common Stock and the South
West Common Stock at the Effective Time of the Merger may vary significantly
from the prices as of the date of execution of the Agreement, the date hereof or
the date on which shareholders vote on the Agreement, due to changes in the
business, operations and prospects of United Dominion or South West, market
assessments of the likelihood that the Merger will be consummated and the timing
thereof, general market and economic conditions and other factors.
BENEFITS TO CERTAIN SOUTH WEST DIRECTORS AND OFFICERS; POSSIBLE CONFLICTS OF
INTEREST
In considering the recommendation of the South West Board with respect to
the Agreement and the transactions contemplated thereby, South West stockholders
should be aware that certain members of the South West Board and management of
South West have certain interests in the Merger that are in addition to the
interests of stockholders of South West generally. See "THE MERGER -- Interests
of Certain Persons in the Merger."
DISSIMILAR TERMS OF SHARES
The rights of the holders of South West Common Stock are presently governed
by Maryland law, the Articles of Incorporation of South West (the "South West
Articles") and South West's Bylaws. After consummation of the Merger, the rights
of the holders of shares of South West Common Stock that are converted into
United Dominion Common Stock will be governed by Virginia law, the United
Dominion Articles and United Dominion's Bylaws. See "COMPARATIVE RIGHTS OF
SHAREHOLDERS."
REAL ESTATE INVESTMENT RISKS
GENERAL
Real property investments are subject to varying degrees of risk. The
yields from equity investments in real estate depend on the amount of income
generated and expenses incurred. If United Dominion's properties do not generate
income
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sufficient to meet operating expenses, including debt service and capital
expenditures, United Dominion's ability to make distributions to its
shareholders will be adversely affected. Income from properties may be adversely
affected by the general economic climate, local conditions such as oversupply of
apartments or a reduction in demand for apartments in the area, the
attractiveness of the properties to tenants, competition from other available
apartments, the ability of the owner to provide adequate maintenance and
insurance and increased operating costs (including real estate taxes). United
Dominion's income would also be adversely affected if a significant number of
tenants were unable to pay rent or apartments could not be rented on favorable
terms. Certain significant expenditures associated with each equity investment
(such as mortgage payments, if any, real estate taxes and maintenance costs) are
generally not reduced when circumstances cause a reduction in income from the
investment. If a property is mortgaged to secure payment of indebtedness, and if
United Dominion is unable to meet its mortgage payments, a loss could be
sustained as a result of foreclosure on the mortgage. In addition, income from
properties and real estate values are also affected by such factors as
applicable laws, including tax laws, interest rate levels and the availability
of financing.
United Dominion in the normal course of its business is continually
evaluating a number of potential acquisitions and entering into non-binding
letters of intent and may at any time or from time to time enter into contracts
to acquire and may acquire additional properties. No assurance can be given,
however, that United Dominion will have the opportunity to continue to make
suitable property acquisitions on terms favorable to United Dominion.
ILLIQUIDITY OF REAL ESTATE
Real estate investments are relatively illiquid and, therefore, will tend
to limit the ability of United Dominion to vary its portfolio promptly in
response to changes in economic or other conditions. In addition, the Code
places limits on United Dominion's ability to sell properties held for fewer
than four years, which may affect United Dominion's ability to sell properties
without adversely affecting returns to shareholders.
DEPENDENCE ON SOUTHEASTERN AND SOUTHWESTERN REGIONS
The developed properties in United Dominion's current portfolio are located
in the Southeastern region of the United States and except for certain
commercial properties classified as real estate held for disposition consist
entirely of multifamily properties. The properties in South West's portfolio, to
which United Dominion will succeed as a result of the Merger, are located
primarily in the Southwestern region of the United States and consist entirely
of multifamily properties. The performance of the portfolio of either party, and
the performance of United Dominion's portfolio following the Merger, may
therefore be linked to economic conditions in those regions and in the market
for apartments therein.
DEVELOPMENT RISKS
As a result of the Merger, United Dominion will obtain ownership of South
West's development properties. United Dominion will be subject to the risks of
real estate development with respect to such development properties, including
risks of lack of financing, construction delays, budget overruns and lease-up.
United Dominion will be subject to similar risks in connection with any future
development of other properties.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local laws, ordinances and regulations, an
owner of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on or in such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The
presence of such substances, or the failure to properly remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral. All of the properties
of United Dominion and South West have been subjected to Phase I or similar
environmental audits (which involve inspection without soil sampling or ground
water analysis) by independent environmental consultants. Neither party's
environmental audit reports have revealed any significant environmental
liability, nor is United Dominion or South West aware of any environmental
liability with respect to its properties that United Dominion's or South West's
management believes would have a material adverse effect on United Dominion's
business, assets or results of operations following the Merger. No assurance can
be given that existing environmental studies with respect to such properties
reveal all environmental liabilities or that any prior owner of any such
property did not create any material environmental condition not known to United
Dominion or South West.
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ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
United Dominion believes that it has operated so as to qualify as a REIT
under the Code since its formation. Although management of United Dominion
believes that United Dominion is organized and is operating in such a manner, no
assurance can be given that United Dominion will be able to continue to operate
in a manner so as to qualify or remain so qualified. Qualification as a REIT
involves the application of highly technical and complex Code provisions for
which there are only limited judicial or administrative interpretations and the
determination of various factual matters and circumstances not entirely within
United Dominion's control. For example, in order to qualify as a REIT, at least
95% of United Dominion's gross income in any year must be derived from
qualifying sources and United Dominion must make distributions to shareholders
aggregating annually at least 95% of its REIT taxable income (excluding net
capital gains). In addition, no assurance can be given that new legislation,
regulations, administrative interpretations or court decisions will not change
the tax laws with respect to qualification as a REIT or the federal income tax
consequences of such qualification. United Dominion, however, is not aware of
any currently pending tax legislation that would adversely affect its ability to
continue to qualify as a REIT.
If United Dominion fails to qualify as a REIT, United Dominion will be
subject to federal income tax (including any applicable alternative minimum tax)
on its taxable income at corporate rates. In addition, unless entitled to relief
under certain statutory provisions, United Dominion will also be disqualified
from treatment as a REIT for the four taxable years following the year during
which qualification is lost. This treatment would reduce the net earnings of
United Dominion available for investment or distribution to shareholders because
of the additional tax liability to United Dominion for the year or years
involved. In addition, distributions would no longer be required to be made. To
the extent that distributions to shareholders would have been made in
anticipation of United Dominion's qualifying as a REIT, United Dominion might be
required to borrow funds or to liquidate certain of its investments to pay the
applicable tax. Failing to qualify as a REIT would also constitute a default
under certain debt obligations of United Dominion.
South West believes that, since its formation, it has operated so as to
qualify as a REIT under the Code. The failure of South West to qualify as a REIT
could have consequences to United Dominion generally similar to the consequences
of the failure by United Dominion to qualify as a REIT, as described above.
COMPETITION
All of the properties of United Dominion and South West are located in
developed areas. There are numerous other multifamily properties and real estate
companies within the market area of each such property which compete with United
Dominion and South West and will continue to compete with United Dominion after
the Merger for tenants and development and acquisition opportunities, some of
whom may have greater resources than United Dominion. The number of competitive
multifamily properties and real estate companies in such areas could have a
material effect on United Dominion's ability to rent its apartments, its ability
to raise or maintain the rents charged, and its development and acquisition
opportunities.
OWNERSHIP LIMITS
In order to maintain United Dominion's qualification as a REIT, not more
than 50% in value of its outstanding shares may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities). To minimize the possibility that United Dominion will fail to
qualify as a REIT under this test, the United Dominion Articles authorize the
United Dominion Board to take such action as may be required to preserve its
qualification as a REIT. The provisions of the United Dominion Articles may be
similar in effect to comparable provisions of the South West Articles. See
"COMPARATIVE RIGHTS OF SHAREHOLDERS -- REIT Qualification Provisions"
These ownership limits, as well as the ability of United Dominion to issue
other classes of equity securities, may delay, defer or prevent a change in
control of United Dominion and may also deter tender offers for the United
Dominion Common Stock, which offers may be attractive to the shareholders, or
limit the opportunity for shareholders to receive a premium for their United
Dominion Common Stock that might otherwise exist if an investor were attempting
to effect a change in control of United Dominion.
EQUIVALENT PER SHARE DATA
The following summary presents selected comparative unaudited per share
information for United Dominion and South West on an historical basis and United
Dominion and South West on a pro forma combined basis assuming the combination
had been effective throughout the periods presented. South West pro forma
equivalent per share amounts are presented with
8
<PAGE>
respect to pro forma information. Such per share amounts allow comparison of
historical information with respect to the value of one share of South West
Common Stock to the corresponding information with respect to the projected
value of one share of South West Common Stock as a result of the Merger and are
computed by multiplying the pro forma amounts by the Exchange Ratio of 1.0833 to
1.
For each of United Dominion and South West, income statement information
for the year ended December 31, 1995 and balance sheet information as of
December 31, 1995, are based on, and should be read in conjunction with, the
consolidated audited financial statements of United Dominion and South West
incorporated herein by reference. See "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE." The remaining financial information is based on the respective
historical consolidated unaudited financial statements of United Dominion and
South West and the notes thereto. In the opinion of the respective managements
of United Dominion and South West, all adjustments necessary to present a fair
statement of results of interim periods of United Dominion and South West (which
adjustments were of a normal recurring nature) have been included. Results for
United Dominion and South West for the six months ended June 30, 1996, are not
necessarily indicative of results to be expected for their entire fiscal years,
nor are pro forma amounts necessarily indicative of results that will be
obtained on a combined basis.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
<S> <C> <C>
NET INCOME PER COMMON SHARE
Primary
United Dominion $ .23 $ .50
South West .39 .70
United Dominion and South West pro forma combined .27 .52
South West pro forma equivalent (A) .29 .56
Fully-diluted
United Dominion $ .23 $ .50
South West .39 .70
United Dominion and South West pro forma combined .27 .52
South West pro forma equivalent (A) .29 .56
CASH DIVIDENDS DECLARED PER COMMON SHARE
United Dominion $ .48 $ .90
South West .52 1.00
United Dominion and South West pro forma combined .48 .90
South West pro forma equivalent (A) .52 .97
SHAREHOLDERS' EQUITY PER COMMON SHARE
(end of period)
United Dominion $ 8.95 $ 9.16
South West 8.89 9.03
United Dominion and South West pro forma combined 10.40 10.54
South West pro forma equivalent (A) 11.27 11.42
</TABLE>
9
<PAGE>
The following table presents the weighted average shares outstanding
relevant to the calculation of primary and fully-diluted net income per share as
shown in the preceding table.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
<S> <C> <C>
(000S) (000S)
PRIMARY
United Dominion 56,566 52,781
South West 20,637 18,627
United Dominion and South West pro forma combined 80,221 74,235
FULLY-DILUTED
United Dominion 56,566 52,781
South West 20,637 18,627
United Dominion and South West pro forma combined 80,221 74,235
</TABLE>
NOTE:
(A) The South West pro forma equivalent is determined by multiplying the
Exchange Ratio (1.0833) by the United Dominion and South West pro forma combined
per share amounts so that the per share amounts are equated to the comparative
values for each share of South West Common Stock.
MARKET PRICES PRIOR TO ANNOUNCEMENT OF THE MERGER
The following table discloses the price per share of United Dominion Common
Stock and South West Common Stock based on the last reported sale prices per
share on the NYSE on October 1, 1996, the last trading day prior to public
announcement of the execution of the Agreement, and on
, 1996.
<TABLE>
<CAPTION>
PRICE PER SHARE
HISTORICAL
UNITED DOMINION SOUTH WEST
EQUIVALENT
PRO FORMA SOUTH WEST (A)
<S> <C> <C> <C>
October 1, 1996 $14 1/8 $ 13 7/8 $ 15.30
, 1996 $ $ $
</TABLE>
(a) Computed by multiplying the last sale price of United Dominion Common Stock
by the Exchange Ratio.
10
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA
The following tables set forth the summary historical financial data for
United Dominion and the unaudited pro forma combined financial data for United
Dominion and South West as a combined entity, giving effect to the Merger as if
it had occurred on the dates indicated herein, after giving effect to the pro
forma adjustments described in the notes to the unaudited pro forma combined
financial statements appearing elsewhere in the Joint Proxy
Statement/Prospectus. The summary historical operating data, balance sheet data
and cash flow data for each of the years ended December 31, 1991, 1992, 1993,
1994 and 1995 are derived from the audited financial statements of United
Dominion as reported in their Annual Reports on Form 10-K and the summary
historical operating data, balance sheet data and cash flow data for each of the
interim periods ended June 30, 1996 and 1995 are derived from the unaudited
financial statements of United Dominion as reported in their Quarterly Reports
on Form 10-Q.
The unaudited pro forma combined operating and other data are presented as
if the Merger had been consummated at the beginning of each period presented and
as if the following acquisitions by United Dominion occurred at the beginning of
each period presented: (i) the acquisition of 13 apartment communities during
1995 and (ii) the acquisition of an 18 apartment community portfolio in August,
1996 (See Note (A) to the Unaudited Pro Forma Combined Statements of
Operations). The unaudited pro forma combined balance sheet data at June 30,
1996 is presented as if the Merger and the acquisition of a portfolio of 18
apartment communities had occurred on June 30, 1996 (See Note (A) to the
Unaudited Pro Forma Combined Balance Sheet). In the opinion of management, all
adjustments necessary to reflect the effects of these transactions have been
made. The Merger has been accounted for under the purchase method of accounting
in accordance with the Accounting Principles Board Opinion No. 16.
The pro forma financial information should be read in conjunction with, and
are qualified in their entirety by, the respective historical audited financial
statements and notes thereto of United Dominion and South West incorporated by
reference into this Joint Proxy Statement/Prospectus and the unaudited pro forma
financial statements and notes thereto appearing elsewhere in the Joint Proxy
Statement/Prospectus.
The unaudited pro forma operating data and other data are presented for
comparative purposes only and are not necessarily indicative of what the actual
combined results of operations of United Dominion and South West would have been
for the periods presented, nor does such data purport to represent the results
of future periods.
11
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
SUMMARY HISTORICAL AND
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED
PRO FORMA JUNE 30,
1991 1992 1993 1994 1995 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE DATA AND APARTMENTS HOMES OWNED
OPERATING DATA:
Rental income............... $ 51,250 $ 63,202 $ 89,084 $ 139,972 $ 195,240 $296,467 $93,239 $ 112,036
Income before gains (losses)
on sales of investments,
minority interest of
unitholders in Operating
Partnership and
extraordinary items....... 3,578 6,577 11,286 19,118 28,037 42,798 13,080 16,890
Gains (losses) on sales of
investments............... 26 -- (89) 108 5,090 5,100 4,639 836
Minority interest of
unitholders in Operating
Partnership............... -- -- -- -- -- (8 ) -- (1)
Extraordinary item -- early
extinguishment of debt.... (35) (242) -- (89) -- -- --
Net income.................. 3,569 6,335 11,197 19,137 33,127 47,890 17,719 17,725
Dividends to preferred
shareholders.............. -- -- -- -- 6,637 9,236 1,781 4,856
Net income available to
common shareholders....... 3,569 6,335 11,197 19,137 26,490 38,654 15,938 12,869
Common distributions
declared.................. 15,872 23,271 27,988 37,539 48,610 69,816 23,303 27,183
Weighted average number of
common shares outstanding
(A)....................... 24,642 34,604 38,202 46,182 52,781 74,235 51,452 56,566
Per share:(A)
Net income per common
share................... $ 0.14 $ 0.18 $ 0.29 $ 0.41 $ 0.50 $ 0.52 $ 0.31 $ 0.23
Common distributions
declared................ 0.63 0.66 0.70 0.78 0.90 0.90 0.45 0.48
<CAPTION>
PRO FORMA
1996
<S> <C>
IN THOUSANDS, EXCEPT PER SHARE
OPERATING DATA:
Rental income............... $ 164,860
Income before gains (losses)
on sales of investments,
minority interest of
unitholders in Operating
Partnership and
extraordinary items....... 25,548
Gains (losses) on sales of
investments............... 836
Minority interest of
unitholders in Operating
Partnership............... (1)
Extraordinary item -- early
extinguishment of debt....
Net income.................. 26,383
Dividends to preferred
shareholders.............. 4,856
Net income available to
common shareholders....... 21,527
Common distributions
declared.................. 38,563
Weighted average number of
common shares outstanding
(A)....................... 80,221
Per share:(A)
Net income per common
share................... $ 0.27
Common distributions
declared................ 0.48
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31,
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate held for
investment and construction
in progress................. $361,503 $454,115 $582,213 $1,007,599 $1,131,098 $1,238,045
Real estate held for
disposition................. -- -- -- -- 51,015 48,710
Accumulated depreciation...... 56,074 71,806 91,444 120,341 129,454 146,988
Total assets.................. 314,473 390,365 505,840 911,913 1,080,616 1,170,919
Mortgage and secured
construction notes
payable..................... 73,373 76,516 72,862 158,449 180,481 195,017
Notes payable................. 94,973 104,605 156,558 368,215 349,858 422,118
Shareholders' equity.......... 136,152 197,677 259,963 356,968 516,389 507,841
Number of common shares
outstanding (A)............. 27,133 35,285 41,653 50,356 56,375 56,745
<CAPTION>
PRO FORMA
1996
<S> <C>
BALANCE SHEET DATA:
Real estate held for
investment and construction
in progress................. $1,944,182
Real estate held for
disposition................. 48,710
Accumulated depreciation...... 146,988
Total assets.................. 1,895,741
Mortgage and secured
construction notes
payable..................... 511,935
Notes payable................. 485,377
Shareholders' equity.......... 838,028
Number of common shares
outstanding (A)............. 80,612
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED
PRO FORMA JUNE 30,
1991 1992 1993 1994 1995 1995 (A) 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
CASH FLOW DATA
Cash provided by operating
activities......................... $16,614 $24,608 $ 33,939 $ 54,544 $ 66,428 $101,061 $36,856 $47,093
Cash used in investing activities.... (67,321) (81,373) (130,064) (359,631) (183,930) (247,334 ) (93,021) (89,738)
Cash provided by financing
activities......................... 50,815 56,777 100,793 306,575 113,145 156,629 62,921 47,333
FUNDS FROM OPERATIONS (B)
Income before gains (losses) on sales
of investments, minority interest
of unitholders in Operating
Partnership and extraordinary
items.............................. $ 3,578 $ 6,577 $ 11,286 $ 19,118 $ 28,037 $ 42,798 $13,080 $16,890
Adjustments:
Real estate depreciation........... 12,732 15,557 19,516 28,729 38,939 59,005 18,549 21,365
Minority interest attributable to
depreciation..................... -- -- -- -- -- (3 ) -- --
Non-recurring items:
Impairment loss on real estate
held for disposition.......... -- -- -- -- 1,700 1,700 -- 290
Prior years' employment and other
taxes (C)..................... -- -- -- -- 395 395 -- --
Adoption of SFAS No. 112
"Employers' Accounting for
Postemployment Benefits"...... -- -- -- 450 -- -- -- --
Provision for possible investment
losses........................ -- 1,564 -- -- -- -- -- --
Imputed interest expense......... 530 -- -- -- -- -- -- --
Dividends to preferred
shareholders..................... -- -- -- -- (6,637) (9,236 ) (1,781) (4,856)
Funds from operations................ $16,840 $23,698 $ 30,802 $ 48,297 $ 62,434 $ 94,659 $29,848 $33,689
APARTMENTS HOMES OWNED
Total apartment homes owned.......... 10,924 13,832 17,914 29,282 34,224 47,585 31,507 36,361
Weighted average number of apartment
homes owned........................ 9,491 11,387 15,445 23,160 31,242 43,985 30,095 34,942
<CAPTION>
PRO FORMA
1996 (A)
<S> <C>
OTHER DATA:
CASH FLOW DATA
Cash provided by operating
activities......................... $ 63,678
Cash used in investing activities.... (116,252 )
Cash provided by financing
activities......................... 76,396
FUNDS FROM OPERATIONS (B)
Income before gains (losses) on sales
of investments, minority interest
of unitholders in Operating
Partnership and extraordinary
items.............................. $ 25,548
Adjustments:
Real estate depreciation........... 31,321
Minority interest attributable to
depreciation..................... --
Non-recurring items:
Impairment loss on real estate
held for disposition.......... 290
Prior years' employment and other
taxes (C)..................... --
Adoption of SFAS No. 112
"Employers' Accounting for
Postemployment Benefits"...... --
Provision for possible investment
losses........................ --
Imputed interest expense......... --
Dividends to preferred
shareholders..................... (4,856 )
Funds from operations................ $ 52,303
APARTMENTS HOMES OWNED
Total apartment homes owned.......... 50,202
Weighted average number of apartment
homes owned........................ 48,555
</TABLE>
(A) All share and per share information has been adjusted to give effect to a
2-for-1 stock split in May, 1993.
(B) Funds from operations ("FFO") is defined as income before gains (losses) on
sales of investments, minority interest of unitholders in Operating
Partnership and extraordinary items (computed in accordance with generally
accepted accounting principles) plus real estate depreciation, less
preferred dividends and after adjustment for significant non-recurring
items, if any. United Dominion computes FFO in accordance with the
recommendations set forth by the National Association of Real Estate
Investment Trusts ("NAREIT"). United Dominion considers FFO in evaluating
property acquisitions and its operating performance, and believes that FFO
should be considered along with, but not as an alternative to, net income
and cash flows as a measure of the United Dominion's operating performance
and liquidity. FFO does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and
is not necessarily indicative of cash available to fund cash needs.
(C) Prior years' payroll tax liability resulting from an Internal Revenue
Service examination for the years 1993 and 1994.
13
<PAGE>
SOUTH WEST PROPERTY TRUST INC.
SUMMARY HISTORICAL FINANCIAL DATA
The following tables set forth summary historical financial data for South
West. The summary historical financial data for each of the years ended December
31, 1991, 1992, 1993, 1994 and 1995 are derived from the audited financial
statements of South West as reported in its Annual Reports on Form 10-K and the
summary historical financial data for each of the interim periods ended June 30,
1996 and 1995 are derived from the unaudited financial statements of South West
as reported in its Quarterly Reports on Form 10-Q. The summary historical
financial data should be read in conjunction with, and is qualified in its
entirety by, the historical financial statements and notes thereto of South West
incorporated by reference into this Joint Proxy Statement/Prospectus. Certain
reclassifications have been made to South West's historical financial data to
conform to United Dominion's presentation.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
1991 (A) 1992 (A) 1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE DATA AND APARTMENTS HOMES OWNED
OPERATING DATA
Rental income.................................... $18,398 $19,279 $32,187 $57,926 $71,061 $34,058 $39,907
Income (loss) before gains (losses) on sales of
investments, minority interest of unitholders
in Operating Partnership and extraordinary
items.......................................... (2,640 ) (3,786 ) 2,915 10,024 13,029 6,364 8,109
Gains (losses) on sales of investments........... -- -- -- -- 10 -- --
Minority interest in net income of consolidated
partnerships................................... 348 605 267 (61) (8) (6) --
Extraordinary item -- gain from forgiveness of
debt (B)....................................... 160 1,005 -- -- -- -- --
Net income (loss)................................ (2,132 ) (2,176 ) 3,182 9,963 13,031 6,358 8,109
Dividends to preferred shareholders/preferred
depository receipts............................ (1,614 ) (1,211 ) -- -- -- -- --
Net income (loss) available to common
shareholders................................... (3,746 ) (3,387 ) 3,182 9,963 13,031 6,358 8,109
Common distributions declared.................... -- 547 8,331 14,329 18,996 8,895 10,690
Weighted average number of common shares
outstanding.................................... -- 962 8,100 15,633 18,627 17,383 20,637
Per share:
Net income (loss) per common share............. ($ 5.29 ) ($ 3.52 ) $ 0.39 $ 0.64 $ 0.70 $ 0.37 $ 0.39
Common distributions declared.................. -- 0.18 0.82 0.91 1.00 0.50 0.52
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1991 (A) 1992 (A) 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Real estate held for investment and construction
in progress................................... $86,884 $87,750 $247,220 $355,956 $425,714 $454,728
Accumulated depreciation........................ (33,202 ) (36,422 ) (49,697) (59,443) (69,584) (76,163)
Total assets.................................... 62,444 67,099 229,579 323,616 378,165 401,653
Mortgage, construction and other secured notes
payable....................................... 64,619 22,848 57,691 149,554 178,042 205,083
Notes payable................................... 1,250 -- -- -- -- --
Convertible debentures.......................... -- 55,000 28,378 13,529 -- --
Shareholders' equity (deficit).................. (17,757 ) (17,072 ) 134,820 146,852 183,472 182,112
Number of common shares outstanding............. -- 1,421 14,527 16,182 20,319 20,480
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
1992 (A) 1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
CASH FLOW DATA
Cash provided by operating activities........................ $ 1,448 $ 8,217 $17,932 $27,655 $14,022 $15,883
Cash used in investing activities............................ (11,044 ) (157,841) (93,483) (63,404) (31,424) (29,514)
Cash provided by financing activities........................ 14,006 157,184 63,144 36,821 18,048 17,296
FUNDS FROM OPERATIONS (C)
Income before gains (losses) on sales of investments,
minority interest of unitholders in Operating Partnership
and extraordinary items.................................... ($3,786 ) $ 2,915 $10,024 $13,029 $ 6,364 $ 8,109
Adjustments:
Real estate depreciation................................... 3,220 5,616 9,746 12,304 5,488 6,483
Minority interest attributable to depreciation 49 (247) (212) (3) (11) --
Non-recurring items:
Reorganization costs and other (D)....................... 1,711 -- -- -- -- --
Debenture interest expense (E)........................... 880 4,030 1,577 656 458 --
Funds from operations........................................ $ 2,074 $ 12,314 $21,135 $25,986 $12,299 $14,592
APARTMENTS HOMES OWNED
Total apartment homes owned at end of period................. 5,347 9,959 12,317 13,361 12,721 13,841
Weighted average number of apartment homes owned............. 5,255 7,079 11,144 12,743 12,428 13,613
</TABLE>
(A) South West was formed in 1992 for the purpose of acquiring all of the assets
subject to the liabilities of Southwest Realty, Ltd. ("SRL") in connection
with the reorganization of SRL into a corporation which would elect to
qualify as a real estate investment trust for federal income tax purposes.
The reorganization of SRL into South West in 1992 has been accounted for as
a pooling of interests and has been applied by restating the financial
statements of SRL, with the only impact being the change in the
classification of certain equity accounts and disclosures with respect to
earnings per share.
(B) Primarily discounts granted by lenders in connection with the early
retirement of debt.
(C) Funds from operations ("FFO") is defined as income before gains (losses) on
sales of investments, minority interest of unitholders in consolidated
partnerships and extraordinary items (computed in accordance with generally
accepted accounting principles) plus real estate depreciation, less
preferred dividends and after adjustment for significant non-recurring
items, if any. South West computes FFO in accordance with the
recommendations set forth by NAREIT. South West considers FFO in evaluating
property acquisitions and its operating performance, and believes that FFO
should be considered along with, but not as an alternative to, net income
and cash flows as a measure of South West's operating performance and
liquidity. FFO does not represent cash generated from operating activities
in accordance with generally accepted accounting principles and is not
necessarily indicative of cash available to fund cash needs.
(D) Represents the non-recurring reorganization charge associated with the
reorganization of SRL into South West in 1992 as described in (A).
(E) Represents interest forfeited by debentureholders upon conversion into
common shares.
THE SPECIAL MEETINGS
UNITED DOMINION SPECIAL MEETING
GENERAL. Each copy of this Joint Proxy Statement/Prospectus mailed to
holders of United Dominion Common Stock is accompanied by a form of proxy
furnished in connection with the solicitation of proxies by the United Dominion
Board for use at the United Dominion Special Meeting and any adjournment
thereof. The United Dominion Special Meeting is scheduled to be held on Tuesday,
December 17, 1996, at 10:00 a.m., Eastern Standard Time, at the offices of
United Dominion at the Atrium, 10 South Sixth Street, Richmond, Virginia. Only
holders of record of United Dominion Common Stock on the United Dominion Record
Date are entitled to receive notice of and to vote at the United Dominion
Special Meeting. At the United Dominion Special Meeting, shareholders will
consider and vote upon a proposal to approve the Agreement. See "THE MERGER."
15
<PAGE>
EACH HOLDER OF UNITED DOMINION COMMON STOCK IS REQUESTED TO COMPLETE, DATE
AND SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO UNITED DOMINION IN THE
ENCLOSED, POSTAGE-PAID ENVELOPE. FAILURE TO RETURN YOUR PROPERLY EXECUTED PROXY
OR TO VOTE AT THE MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE
AGREEMENT.
VOTING AND REVOCATION OF PROXIES. Any holder of United Dominion Common
Stock who has executed and delivered a proxy may revoke it at any time before it
is voted by attending and voting in person at the United Dominion Special
Meeting or by giving written notice of revocation or submitting a signed proxy
bearing a later date to United Dominion, Attention: Secretary, provided such
notice or proxy is actually received by United Dominion prior to the vote of
shareholders. A proxy will not be revoked by the death or incapacity of the
shareholder executing it unless, before the shares are voted, notice of such
death or supervening incapacity is filed with the Secretary or other person
authorized to tabulate the votes on behalf of United Dominion. The shares of
United Dominion Common Stock represented by properly executed proxies received
at or before the United Dominion Special Meeting and not subsequently revoked
will be voted as directed by the shareholders submitting such proxies. IF
INSTRUCTIONS ARE NOT GIVEN, PROXIES WILL BE VOTED FOR APPROVAL OF THE AGREEMENT.
IF ANY OTHER MATTERS ARE PROPERLY PRESENTED FOR CONSIDERATION AT THE UNITED
DOMINION SPECIAL MEETING OR ANY ADJOURNMENTS THEREOF, THE PERSONS NAMED IN THE
UNITED DOMINION PROXY ENCLOSED HEREWITH WILL HAVE DISCRETIONARY AUTHORITY TO
VOTE ON SUCH MATTERS. If necessary, and unless the shares represented by the
proxy were voted against the applicable proposal therein, the proxy holder also
may vote in favor of a proposal to adjourn the United Dominion Special Meeting
to permit further solicitation of proxies in order to obtain sufficient votes to
approve any of the matters being considered at the United Dominion Special
Meeting. United Dominion is unaware of any matter to be presented at the United
Dominion Special Meeting other than the proposal described above.
The Bylaws of United Dominion permit the holders of a majority of the
shares represented at the United Dominion Special Meeting, whether or not
constituting a quorum, to adjourn the United Dominion Special Meeting or any
adjournment thereof. United Dominion shareholders who wish to withhold authority
from the persons named as proxies in the enclosed United Dominion proxy to vote
such shareholders' shares to adjourn the United Dominion Special Meeting should
so indicate by appropriately marking Item 2 on the proxy.
SOLICITATION OF PROXIES. The cost of soliciting proxies from holders of
United Dominion Common Stock will be borne by United Dominion. Such solicitation
will be made by mail but also may be made by telephone or in person by the
directors, officers or employees of United Dominion (who will receive no
additional compensation for doing so). In addition, United Dominion will make
arrangements with brokerage firms and other custodians, nominees and fiduciaries
to send proxy materials to their principals.
VOTE REQUIRED. The Merger will be approved if it receives the affirmative
vote of a majority of the shares of United Dominion Common Stock outstanding and
entitled to vote. Abstentions and "broker non-votes" will have the same effect
as negative votes for purposes of determining whether the proposal has received
sufficient votes for approval.
As of the United Dominion Record Date, there were shares of United
Dominion Common Stock outstanding and entitled to vote at the United Dominion
Special Meeting, with each share being entitled to one vote. As of the United
Dominion Record Date, the members of the United Dominion Board and the executive
officers of United Dominion and their affiliates beneficially owned a total of
shares (representing approximately % of the outstanding shares of United
Dominion Common Stock), all of which are expected to be voted in favor of the
Agreement. South West management currently owns beneficially no shares of United
Dominion Common Stock.
RECOMMENDATION. For the reasons described herein, the United Dominion Board
unanimously has approved the Agreement. The United Dominion Board believes the
Merger is in the best interests of United Dominion and its shareholders and
unanimously recommends that the shareholders of United Dominion vote FOR
approval of the Agreement. In making its recommendation, the United Dominion
Board considered, among other things, the opinion Merrill Lynch that the
Exchange Ratio is fair to United Dominion from a financial point of view. See
"THE MERGER -- Background of and Reasons for the Merger" and " -- Opinions of
Financial Advisors."
SOUTH WEST SPECIAL MEETING
GENERAL. This Joint Proxy Statement/Prospectus is being furnished to the
holders of South West Common Stock as of the South West Record Date and is
accompanied by a form of proxy, which is being solicited by the South West Board
for use at the South West Special Meeting to be held on Tuesday, December 17,
1996, at 9:00 a.m., Central Standard Time, at the Park City Club, 5956 Sherry
Lane, Suite 1700, Dallas, Texas, and any adjournments thereof. At the South West
Special
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Meeting, stockholders will vote on whether to approve the Agreement. Proxies may
be voted on such other matters as may properly come before the South West
Special Meeting, or any adjournments thereof, in the best judgment of the proxy
holders named therein. See "THE MERGER."
EACH HOLDER OF SOUTH WEST COMMON STOCK IS REQUESTED TO COMPLETE, DATE AND
SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO SOUTH WEST IN THE
ENCLOSED, POSTAGE-PAID ENVELOPE. FAILURE TO RETURN YOUR PROPERLY EXECUTED PROXY
OR TO VOTE AT THE MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE
AGREEMENT.
SOUTH WEST STOCKHOLDERS SHOULD NOT FORWARD ANY CERTIFICATES WITH THEIR
PROXIES.
VOTING AND REVOCATION OF PROXIES. Any holder of South West Common Stock who
has executed and delivered a proxy may revoke it at any time before it is voted
by attending and voting in person at the South West Special Meeting or by giving
written notice of revocation or submitting a signed proxy bearing a later date
to South West, Attention: Secretary, provided such notice or proxy is actually
received by South West prior to the vote of stockholders. A proxy will not be
revoked by the death or incapacity of the stockholder executing it unless,
before the shares are voted, notice of such death or supervening incapacity is
filed with the Secretary or other person authorized to tabulate the votes on
behalf of South West. The shares of South West Common Stock represented by
properly executed proxies received at or before the South West Special Meeting
and not subsequently revoked will be voted as directed by the stockholders
submitting such proxies. IF INSTRUCTIONS ARE NOT GIVEN, PROXIES WILL BE VOTED
FOR APPROVAL OF THE AGREEMENT. IF ANY OTHER MATTERS ARE PROPERLY PRESENTED FOR
CONSIDERATION AT THE SOUTH WEST SPECIAL MEETING OR ANY ADJOURNMENTS THEREOF, THE
PERSONS NAMED IN THE SOUTH WEST PROXY ENCLOSED HEREWITH WILL HAVE DISCRETIONARY
AUTHORITY TO VOTE ON SUCH MATTERS. If necessary, and unless the shares
represented by the proxy were voted against the applicable proposal therein, the
proxy holder also may vote in favor of a proposal to adjourn the South West
Special Meeting to permit further solicitation of proxies in order to obtain
sufficient votes to approve any of the matters being considered at the South
West Special Meeting. South West is unaware of any matter to be presented at the
South West Special Meeting other than the proposal described above.
The Bylaws of South West permit the holders of a majority of the shares
represented at the South West Special Meeting, whether or not constituting a
quorum, to adjourn the South West Special Meeting or any adjournment thereof.
South West stockholders who wish to withhold authority from the persons named as
proxies in the enclosed South West proxy to vote such stockholders' shares to
adjourn the South West Special Meeting should so indicate by appropriately
marking Item 2 on the proxy.
SOLICITATION OF PROXIES. South West will bear the costs of soliciting
proxies from the South West stockholders. In addition to use of the mails,
proxies may be solicited personally or by telephone or facsimile by directors,
officers and other employees of South West, who will not be specially
compensated for such solicitation activities. Arrangements also will be made
with brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation materials to the beneficial owners of shares held of
record by such persons, and such persons will be reimbursed for their reasonable
expenses incurred in that effort by South West. South West expects to utilize
the services of Morrow & Co. in connection with the solicitation of proxies for
the South West Special Meeting, and expects that the cost of such services will
not exceed $6,500 plus out-of-pocket expenses.
VOTE REQUIRED. The affirmative vote of the holders of two-thirds of the
outstanding shares of South West Common Stock entitled to vote at the South West
Special Meeting is required in order to approve the Agreement. Abstentions and
"broker non-votes" will have the same effect as negative votes for purposes of
determining whether the proposal has received sufficient votes for approval.
As of the South West Record Date, there were shares of South West
Common Stock outstanding and entitled to vote at the South West Special Meeting,
with each share being entitled to one vote. As of the South West Record Date,
the members of the South West Board and the executive officers of South West and
their affiliates beneficially owned a total of shares (representing
approximately % of the outstanding shares of South West Common Stock), all of
which are expected to be voted in favor of the Agreement. Also as of the South
West Record Date, United Dominion management owns beneficially a total of less
than 1% of the outstanding shares of South West Common Stock.
RECOMMENDATION. The South West Board unanimously has approved the Agreement
and believes that the Merger is fair to and in the best interests of South West
and its stockholders. The South West Board unanimously recommends that the South
West stockholders vote FOR approval of the Agreement. In making its
recommendation, the South West Board has considered, among other things, the
opinion of Lehman Brothers that the Exchange Ratio is fair to the South West
stockholders from a financial point of view. See "THE MERGER -- Background of
and Reasons for the Merger" and " -- Opinions of Financial Advisors."
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THE MERGER
THE DETAILED TERMS OF THE MERGER ARE CONTAINED IN THE AGREEMENT ATTACHED AS
ANNEX I TO THIS JOINT PROXY STATEMENT/PROSPECTUS. THE FOLLOWING DISCUSSION
DESCRIBES THE MORE IMPORTANT ASPECTS OF THE MERGER AND THE TERMS OF THE
AGREEMENT. THIS DESCRIPTION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
AGREEMENT, WHICH IS INCORPORATED BY REFERENCE HEREIN AND WHICH SOUTH WEST AND
UNITED DOMINION SHAREHOLDERS ARE URGED TO READ CAREFULLY.
BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND OF THE MERGER. Both United Dominion and South West are
publicly-owned apartment REITs whose business involves the acquisition,
development, improvement and operation of apartments in the Sunbelt. United
Dominion is the largest apartment REIT in the Southeast and has grown primarily
through acquisitions. Over the past few years, South West has grown by
developing additional apartments. Management of United Dominion believed that
the apartment industry was undergoing rapid consolidation and that the apartment
REITs would experience a consolidation phase. Because approximately 90% of South
West's apartments are located in Texas, Arkansas and North Carolina, United
Dominion believed that a merger with South West would result in a logical
geographical expansion. United Dominion also thought that more development
experience would be beneficial. For these reasons, United Dominion felt that
South West could be a potential merger candidate.
At an institutional investor conference in 1995, John P. McCann, President
and Chief Executive Officer of United Dominion and John S. Schneider, Chairman
and Chief Executive Officer of South West, discussed the potential benefits of
consolidation among the apartment REITs. Both felt that consolidation was
inevitable. They agreed to continue some dialogue between their companies. Mr.
McCann invited Mr. Schneider to come to Richmond to informally meet some of the
senior officers of United Dominion when he was in North Carolina visiting South
West properties. Mr. Schneider visited United Dominion on August 22, 1995 and
had lunch with several officers of United Dominion, including Mr. McCann. Mr.
McCann promised to reciprocate by visiting South West the next time he was in
the Southwest.
At the November, 1995 South West Board meeting, Mr. Schneider reported that
he had visited United Dominion and had additional discussions with Mr. McCann
regarding REIT industry trends and that further potential merger discussions
might take place at some future date.
On June 11, 1996, while attending an apartment industry meeting in Dallas,
Mr. McCann met with Robert F. Sherman, South West's President and Chief
Operating Officer, and Diana M. Laing, South West's former Executive Vice
President and Chief Financial Officer, while Mr. Schneider was on vacation. Mr.
McCann toured Oak Forest Apartments, a recently completed South West development
in the Dallas suburb of Lewisville, and Wimbledon Court, also in Lewisville, an
older community that South West was beginning to upgrade. Following Mr. McCann's
visit to Dallas, Messrs. McCann and Schneider agreed to meet in Charlotte, North
Carolina, later in the month so that Mr. McCann could see Providence Court, a
South West development under construction, and explore whether there might be a
basis for merger negotiations.
On June 27, Messrs. McCann and Schneider met at South West's Providence
Court property in Charlotte which was under development and toured the
construction. Following the tour of Providence Court, Mr. McCann and Mr.
Schneider discussed various potential benefits to their respective shareholders
of a merger.
At this meeting, Mr. McCann agreed to send Mr. Schneider a letter
addressing various issues, including price and governance that would need to be
addressed before United Dominion and South West could engage in serious merger
negotiations. Mr. McCann emphasized the need for a merger to be immediately
accretive to FFO per share for United Dominion. Mr. Schneider suggested that the
exchange rate should protect South West's current dividend and provide a premium
over the then market price of South West's shares. (At the close of business
that day United Dominion and South West shares were trading at $14.50 and
$13.25, respectively, and the United Dominion and South West annual dividend
rates were $0.96 and $1.04, respectively.) During a July 11, 1996 telephone
meeting, Mr. Schneider advised the South West Board that additional discussions
had taken place with Mr. McCann and that, on a preliminary basis, the
possibility of a merger appeared mutually attractive. He also said he intended
to invite Mr. McCann to meet with the South West Board following its August
meeting in Asheville, North Carolina.
By letter, dated July 22, 1996, Mr. McCann asked Mr. Schneider to address
the issues of pricing and any requirement for positions for key South West
employees, and to furnish United Dominion with a breakdown of South West's
general and administrative expenses, information on accounting policies, and
details on South West's current capitalization, including financing plans.
Following a telephone conversation between Messrs. McCann and Schneider, Mr.
Schneider responded in a letter dated August 6, 1996. Mr. Schneider agreed that
an exchange rate of 1.0833 shares of United Dominion for each share
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of South West would be acceptable provided that it represented a minimum value
of $15 per South West share. Mr. Schneider further indicated that with regard to
South West officers and employees, their role in United Dominion would be the
decision of United Dominion. He addressed the issue of membership on the United
Dominion Board and furnished several schedules and information on South West's
operations and policies. As a result of this exchange of letters, information
and subsequent telephone conversations, Messrs. McCann and Schneider felt that
it was worthwhile to schedule additional meetings and exchange other information
to allow the companies to do some analysis on valuation.
Mr. McCann met with the South West Board and executive officers on
Saturday, August 17 and Sunday, August 18 in Asheville, North Carolina, and made
a presentation on United Dominion focusing primarily on United Dominion's
current strategy, objectives and outlook. As a group, the participants discussed
the potential benefits of a merger. After the South West Board met with Mr.
McCann, it reconvened and determined that discussions with United Dominion
appeared to be in the best interests of South West's shareholders and authorized
Mr. Schneider to continue negotiations.
On August 22, Messrs. McCann and Schneider met for a day in Charlotte with
a lengthy agenda to discuss various terms of a merger including economic,
governance, projections, market outlooks, technology, scheduling, employees,
financial advisors and other issues. At this meeting, Mr. McCann and Mr.
Schneider reaffirmed their support for an exchange rate of 1.0833 shares of
United Dominion, with a minimum valuation of $15 per South West share, a price
that would represent a premium to South West stockholders and would be
immediately accretive to United Dominion's FFO per share. Mr. McCann stated that
in the event the market price of the United Dominion Common Stock dropped below
$13.375 per share, United Dominion might not be willing to proceed with the
merger. They reviewed United Dominion's current organizational chart and
discussed the potential role that certain officers and key employees of South
West might have following a merger.
On September 3, Mr. McCann visited Dallas and interviewed certain executive
officers of South West. Following the interviews, Messrs. McCann and Schneider
exchanged correspondence regarding their negotiations and agreed that Mr.
Schneider, Mr. Robert F. Sherman, South West's President and Chief Operating
Officer, and Mr. David L. Johnston, South West's Executive Vice President and
Chief Investment Officer, would be offered positions as executive officers of
United Dominion.
On September 5, Mr. McCann, Mr. James Dolphin, Senior Vice President and
Chief Financial Officer of United Dominion, and Ms. Katheryn E. Surface, Vice
President and General Counsel of United Dominion, met in Richmond with Mr.
Schneider, Mr. Daniel Jones, Senior Vice President of Finance of South West, and
Mr. Lewis H. Sandler, Executive Vice President and General Counsel of South
West, to discuss an agreement of merger and to negotiate terms. The participants
reviewed the proposed terms of the merger, set up a time table leading towards
an effective date of December 31, 1996, reviewed the estimated costs associated
with the transaction, and discussed a joint proxy and registration statement.
At its regularly scheduled meeting on September 10, the United Dominion
Board was briefed by management on negotiations with South West, including the
proposed terms and potential benefits and risks of the merger. The United
Dominion Board authorized management to continue negotiations and set dates for
special meetings to discuss and consider all aspects of the merger. The United
Dominion Board also authorized the hiring of a financial advisor to render an
opinion on the fairness of the proposed merger.
During a September 17 telephone meeting, Mr. Schneider advised the South
West Board that outside lawyers and accountants had been engaged and that a
merger agreement was in the process of being drafted. The South West Board
approved the retention of an investment banking firm to render an opinion as to
the fairness of the merger to South West shareholders.
On September 18 and 19, various officers of United Dominion and South West,
together with their outside counsel and accountants, met in Richmond to review a
draft of the Agreement, discuss responsibilities, and to begin drafting the
Registration Statement and this Joint Proxy Statement/Prospectus. At this
meeting, the parties completed negotiations on the details of the pricing
formula, a mechanism for determining the Exchange Ratio and breakup fees if the
Merger was not completed.
On September 20, the United Dominion Board convened by telephone to discuss
the Merger. Management briefed the United Dominion Board on negotiations and the
possible timeframe of signing the Agreement and making a public announcement.
Discussions between United Dominion, South West and their representatives
and drafting continued during the week of September 23 to finalize the Agreement
and remaining governance issues within the merged companies. United Dominion met
with its financial advisor, Merrill Lynch, on September 23 and with South West's
financial advisor, Lehman Brothers, on
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September 24. South West met with its financial advisor, Lehman Brothers, on
September 24 and with United Dominion's financial advisor, Merrill Lynch, on
September 25.
Additional materials regarding the economic benefits and details of the
Merger along with the terms of the Merger were sent to the United Dominion Board
on September 24. Merrill Lynch sent its Merger analysis to the United Dominion
Board on September 25. On September 26 Mr. McCann, Mr. Dolphin and Mr. Schneider
met with the Moody's and Standard & Poor's rating agencies to discuss the
Merger.
On the afternoon of September 27, the United Dominion Board held a special
meeting to discuss the Merger. Representatives of Merrill Lynch were present at
this meeting. Mr. McCann discussed the background of the Merger and reviewed the
history of the negotiations with South West. Mr. McCann reviewed with the United
Dominion Board the potential benefits as well as the risks of the transaction to
United Dominion as described below under " -- United Dominion's Reasons for the
Merger." Mr. Dolphin discussed the areas and the extent of potential cost
savings in the merged company and South West's current capitalization. He also
briefed the United Dominion Board on the response of the debt rating agencies to
the Merger. Ms. Surface briefed the United Dominion Board on the legal issues.
The various benefits of the Merger discussed included: (i) the accretion to
United Dominion's FFO per share, (ii) the increased size of the combined entity,
which could be expected to improve access to capital and reduce its cost of
capital as a result of greater share liquidity, which is important to
institutional investors, and also to stabilize, if not improve, the combined
entity's standing with the debt rating agencies, thus providing potential cost
savings when accessing both debt and equity in the public and private markets,
(iii) addition of the development capability of South West, (iv) opportunity for
immediate entry to the Texas market, where the projected population and job
growth over the next decade were expected to exceed the national averages, (v)
further market diversification into another but contiguous growing region, and
(vi) the experience and expertise of the South West executive officers and their
knowledge of the Southwest markets, which would strengthen the United Dominion
management team.
The risks that were also discussed included those related to (i) entering
new markets where United Dominion has no experience, (ii) increased reliance on
development, (iii) South West's secured debt, which could be viewed a negative
factor by the debt rating agencies and allowed less flexibility in selling
assets, (iv) South West's larger concentration of one-bedroom apartments which
are less desirable in certain submarkets, (v) lack of size or an efficient
market position in several of South West's markets and (vi) the overall cost of
the transaction. The United Dominion Board concluded in voting to approve the
Agreement that the benefits of the Merger, including accretion to current FFO,
the other economics of the Merger, the benefits of size, the added depth of
management and the development expertise were important considerations that more
than offset the risks of the transaction. Merrill Lynch presented its analysis
of the Merger, which is summarized below under " -- Opinions of Financial
Advisors -- UNITED DOMINION."
Merrill Lynch's opinion was that, as of the date of the meeting, the
proposed consideration to be paid by United Dominion pursuant to the Merger was
fair to United Dominion from a financial point of view. Given Merrill Lynch's
detailed valuation analysis, its experience with REITs and mergers of public
companies, Merrill Lynch's opinion was an important consideration in the
conclusion of United Dominion's Board to approve the Agreement and the Merger.
After lengthy discussions, the United Dominion Board approved the Agreement and
the Merger and the other transactions contemplated thereby.
Lehman Brothers sent its Merger analysis and other discussion materials to
the South West Board on September 28. On the morning of September 29, Mr. McCann
met with Messrs. Schneider, Sherman and Johnston to finalize the terms of their
employment agreements and their positions, duties and responsibilities when they
join United Dominion following the Merger. In the afternoon of September 29,
following the meetings with Mr. McCann, the South West Board convened a special
telephone meeting to discuss the Agreement, a draft copy of which had been
forwarded to each member on September 25. Lehman Brothers participated in this
meeting. Mr. Schneider reviewed with the South West Board the potential benefits
was well as the risks of the transaction as described below under " -- South
West's Reasons for the Merger". Mr. Sandler briefed the South West Board on the
legal issues. After lengthy discussions, the South West Board concluded that the
advantages of the Merger outweighed the potential risks and approved the
Agreement, the Merger and the other transactions contemplated thereby.
The various benefits of the Merger discussed included: (i) the Exchange
Ratio results in an immediate premium to South West stockholders; (ii) the
importance of the increased size of the combined companies in determining access
to and the cost of capital; (iii) the experience in the Southwest markets and
the development expertise which South West's management team could bring to the
combined companies; (iv) the acquisition expertise combined with a lower cost of
capital which United Dominion could bring to South West's markets; (v) the
compatibility with United Dominion's management team, business
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and accounting practices; (vi) the value of portfolio diversification; (vii) the
tax-free nature of the Merger; and (viii) general industry, economic and market
conditions. The risks which were also discussed included: (i) the significant
cost and management time evolved in consummating the Merger; (ii) the effort
required to integrate the businesses of United Dominion and South West and the
related disruption to South West operations; (iii) the risk that the anticipated
benefits of the Merger might not be fully realized; and (iv) the loss of control
inherent in the Merger.
During the September 29 meeting of the South West Board, Lehman Brothers
presented its analysis of the Merger, which is summarized below under
" -- Opinions of Financial Advisors -- SOUTH WEST." A discussion followed during
which members of the South West Board asked representatives of Lehman Brothers
various questions regarding its analysis.
Lehman Brothers' opinion was that, as of the date of the meeting, the
proposed Exchange Ratio as set forth in the Agreement was fair to its
stockholders from a financial point of view. Given Lehman Brothers' detailed
valuation analysis, its experience with REITs and mergers of public companies,
Lehman Brothers' opinion was an important consideration in the conclusion of the
South West Board to approve the Agreement and the Merger.
On October 1, the parties executed the Agreement and issued a joint press
release.
As set forth above, the Exchange Ratio was the result of arms-length
negotiations between United Dominion and South West over about three months. The
Exchange Ratio was determined by an analysis on the effects of the Merger on
United Dominion's FFO per share, the premium to which the South West
stockholders would be entitled and the resulting dividend that South West
shareholders would receive following the Merger, and, to a lesser extent, by the
respective valuations of the real estate portfolios of the parties and the
equity values of those portfolios.
UNITED DOMINION'S REASONS FOR THE MERGER. The United Dominion Board
believes that the terms of the Agreement and the Merger and the other
transactions contemplated thereby are fair to and in the best interest of United
Dominion and its shareholders. Accordingly, the United Dominion Board has
unanimously approved the Agreement and recommends approval of the Agreement and
such transaction by the shareholders of United Dominion. In reaching its
decision, the United Dominion Board in three separate meetings, one of which was
by telephone, considered several factors, consulted with United Dominion
management and was advised by Merrill Lynch, its financial advisor in this
transaction. The principal reasons for the United Dominion Board's approval of
the Agreement and its recommendation to the shareholders are as follows:
(1) Management's and Merrill Lynch's analyses showed that the Merger would
be accretive to United Dominion's FFO per share in 1997. This is a widely
accepted measure of an equity REIT's operating performance. Higher FFO per share
will likely result in higher distributions to shareholders.
(2) There are many advantages to increased size. Depending upon United
Dominion's stock price, the transaction should add more than $300 million to the
market value of United Dominion's shareholders' equity and $500 million to its
total market capitalization. With shareholders' equity at market following the
Merger of approximately $1.2 billion and an expected total market capitalization
of approximately $2.2 billion, there will be greater liquidity in the market for
the United Dominion Common Stock. This alone should attract more institutional
investors which ultimately increases United Dominion's access to equity capital
and may reduce the cost of accessing it. It is generally believed that the debt
rating agencies give credit for added size. The Merger should increase the
availability and reduce the cost of debt capital. Added size can also bring
increased efficiency, reducing general and administrative expenses as a percent
of revenues and reducing the cost of apartment management. These reductions
ultimately improve the overall profit margin of United Dominion.
(3) United Dominion's strategic objective has been to be a major or even a
dominant apartment owner in the larger markets in the Southeast. The Merger adds
two communities in Raleigh/Durham and one in Charlotte, North Carolina, both
major markets for United Dominion. Almost 90% of South West's apartments are
located in North Carolina, Arkansas and primarily Texas. Arkansas and Texas
represent a natural expansion of United Dominion's geography in the Sunbelt.
South West has a major presence in Dallas and San Antonio and some presence in
Houston and Austin from which to grow. United Dominion will now seek to become a
major apartment owner, not only in Dallas but also in San Antonio, Austin and
Houston, similar to its objective in the Southeast.
(4) The expansion of United Dominion into the Southwest adds geographical
diversification to the portfolio which reduces vulnerability to recessions in
particular geographic regions. The last recession was a "rolling recession,"
because it affected the economies of different regions at different times. The
Southwestern United States went into and emerged from the recession earlier than
the Southeast. This expansion into the Southwest reduces the risk that a
regional economic downturn affects all of the apartment communities
simultaneously. Thus, the geographic diversification as a result of the Merger
may smooth United Dominion's performance through the economic cycles.
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(5) Currently, United Dominion has only limited development experience and
has relied upon acquisitions rather than development to grow. United Dominion
will continue to grow primarily by acquisitions, but consistent with its
strategic objective of building presence in its existing markets, it should
benefit from additional development expertise which comes in the Merger. South
West has developed successfully in multiple markets in both the Southeast and
the Southwest.
(6) In each of the past three years, United Dominion has acquired an
apartment portfolio. By expanding its geography beyond the Southeast to include
Texas and other Sunbelt markets, United Dominion will have more opportunities to
acquire apartment portfolios having communities spread over a wider geographical
area. Increased investment opportunities could result in higher returns on
investment.
(7) All of the senior executive officers of United Dominion have worked for
United Dominion for 10 years or more. The Merger adds additional real estate
experience to United Dominion in key executive positions. The background and
experience of the new officers differs from those of United Dominion's officers.
In addition to adding development experience, these new officers bring knowledge
of the Southwest markets. The additional depth of management and their diversity
that results from the transaction is an added benefit which should allow United
Dominion to continue to grow successfully and be less dependent upon any one
individual.
(8) The oral and written presentation of Merrill Lynch on September 27,
1996, that the consideration to be paid by United Dominion pursuant to the
Merger is fair from a financial point of view to the shareholders of United
Dominion.
(9) Presentations from, and discussions with, certain executive officers of
United Dominion and outside legal counsel regarding the business, real estate
assets, financial, accounting and legal due diligence with respect to South West
and the terms and conditions of the Agreement.
The United Dominion Board and management also discussed certain potential
negative factors and risks that could arise or do arise from the Merger. These
included, among others, the expansion into a new region and new markets with
which United Dominion has no prior experience, potential current imbalance
between supply of, and demand for, apartments in certain of these new markets,
the potential difficulties of integrating South West's officers and employees
into United Dominion, the higher risk associated with increased development
activities, the significant costs involved in connection with consummating the
Merger, the substantial time and effort required to effectuate the Merger and
integrate the business of South West into United Dominion and the risk that the
expected benefits of the Merger might not be fully realized. The United Dominion
Board believed that the benefits and advantages of the Merger far outweighed the
negative factors and risks.
THE UNITED DOMINION BOARD BELIEVES THAT THE MERGER, INCLUDING THE EXCHANGE
RATIO, IS FAIR AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF UNITED DOMINION
AND HAS UNANIMOUSLY APPROVED THE AGREEMENT AND RECOMMENDS THAT THE STOCKHOLDERS
VOTE FOR APPROVAL OF THE AGREEMENT.
In the event the Merger is not consummated for any reason, United Dominion
will return to executing its strategic objective of being a major or even
dominant apartment owner in the larger markets in the Southeast. It would likely
pursue other potential combinations with public or private apartment owners that
its Board of Directors and management believe add value and enhance the future
earnings of United Dominion.
The United Dominion Board believes that the Merger, including the exchange
ratio, is fair and in the best interests of the shareholders of United Dominion
and has approved the Agreement and recommends that the shareholders vote for
approval of the Agreement.
SOUTH WEST'S REASONS FOR THE MERGER. The South West Board has determined
that the Merger is in the best interest of its stockholders and, at a special
meeting on September 29, 1996, has unanimously approved the Agreement and
recommends that the stockholders of South West vote for approval of the
Agreement.
In reaching a decision that the Agreement is in the best interests of the
South West stockholders, the South West Board consulted with South West
management, Lehman Brothers, legal counsel and independent accountants, and
considered the short-term and long-term interests of South West based on several
factors to which relative weights were not assigned. Among the most important
factors the South West Board considered were the following:
(1) The Merger would create the largest developer, owner and manager of
multi-unit residential properties in the Southeastern and Southwestern United
States. United Dominion and South West have each been in the apartment business
since 1973 and the combination will bring together one of the strongest and most
experienced teams in the industry;
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(2) The general trend in the real estate industry towards consolidation and
the potential benefits to South West stockholders of participation in a timely
transaction of this magnitude;
(3) The Exchange Ratio represents an attractive opportunity, relative to
historical trading price of South West Common Stock, for South West stockholders
to continue their investment in the stock of a seasoned multi-family residential
REIT, while maintaining current quarterly dividends, but with significantly
expanded geographic diversification and little overlap of portfolios;
(4) The Merger is anticipated to improve significantly South West's access
to capital markets, which should make additional debt or other financing
available upon more attractive terms, and consequently permit the combined
company to take advantage of additional acquisition and development
opportunities;
(5) The Merger would significantly increase the market capitalization of
the combined company, which may enhance the liquidity of the South West Common
Stock after the Merger by increasing trading volumes;
(6) The Merger could allow opportunities to realize significant
administrative cost savings, which are expected to have a positive effect on the
financial results for South West;
(7) The tax-free nature of the Merger;
(8) The opinion of Lehman Brothers presented on September 29, 1996, later
confirmed by its formal written opinion on September 30, 1996, that the Exchange
Ratio was fair to the stockholders of South West from a financial point of view;
and
(9) Presentations from, and discussions with, senior executives of South
West and United Dominion and representatives of South West's outside legal
counsel regarding the business, financial and legal due diligence with respect
to United Dominion and the terms and conditions of the Agreement.
The South West Board also considered certain potentially negative factors
which could arise from the Merger. These included, among others, the significant
costs involved in connection with consummating the Merger, the substantial
management time and effort required to effectuate the Merger and integrate the
businesses of United Dominion and South West and the related disruption to South
West's operations. The South West Board also considered the loss of control
inherent in the Merger as well as the risk that the anticipated benefits of the
Merger might not be fully realized. The South West Board did not believe that
the negative factors were sufficient, either individually or collectively, to
outweigh the advantages of the Merger.
THE SOUTH WEST BOARD BELIEVES THAT THE MERGER, INCLUDING THE EXCHANGE
RATIO, IS FAIR AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF SOUTH WEST AND
HAS APPROVED THE AGREEMENT AND RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
APPROVAL OF THE AGREEMENT.
In the event the Merger is not consummated for any reason, South West will
continue to pursue its fundamental strategy of capitalizing on the growth
opportunities already existing in its portfolio of properties with the goals of
protecting its capital, increasing its annual dividends and cash flow available
per share for distribution. South West expects to pursue this internal growth
strategy through completion of its existing development portfolio, strategic
expansion and property improvements and improved operating margins. In
conjunction with this primary focus, South West expects to pursue new
developments and acquisitions on a selected basis.
OPINIONS OF FINANCIAL ADVISORS
UNITED DOMINION. United Dominion has retained Merrill Lynch to act as its
financial advisor in connection with rendering a fairness opinion with respect
to the Merger. Merrill Lynch has delivered its opinion to the United Dominion
Board that, based upon and subject to the various considerations set forth
therein, as of September 27, 1996, the consideration to be paid by United
Dominion pursuant to the Merger is fair to United Dominion from a financial
point of view.
THE FULL TEXT OF THE OPINION OF MERRILL LYNCH WHICH SETS FORTH ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN BY MERRILL LYNCH,
IN CONNECTION WITH SUCH OPINION, IS ATTACHED HERETO AS ANNEX II-A. UNITED
DOMINION SHAREHOLDERS ARE URGED TO READ THIS OPINION IN ITS ENTIRETY. THE
SUMMARY SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS OF THE OPINION OF
MERRILL LYNCH IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION.
THE MERRILL LYNCH OPINION IS ADDRESSED TO THE UNITED DOMINION BOARD AND
ADDRESSES ONLY THE FAIRNESS FROM A FINANCIAL POINT OF VIEW TO UNITED DOMINION OF
THE
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PROPOSED CONSIDERATION TO BE PAID BY UNITED DOMINION IN THE MERGER AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY UNITED DOMINION SHAREHOLDER AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE AT THE UNITED DOMINION SPECIAL MEETING. MERRILL LYNCH
DID NOT ADDRESS UNITED DOMINION'S UNDERLYING BUSINESS DECISION TO PROCEED WITH
THE MERGER AND DID NOT MAKE ANY RECOMMENDATION TO THE UNITED DOMINION BOARD WITH
RESPECT TO THE MERGER.
In connection with its opinion, Merrill Lynch reviewed, among other things:
(i) South West's annual Reports on Form 10-K and related financial information
for the five fiscal years ended December 31, 1995, and South West's Quarterly
Reports on Form 10-Q and related unaudited financial information for the
quarterly periods ended March 31 and June 30, 1996; (ii) United Dominion's
Annual Reports on Form 10-K and related financial information for the five
fiscal years ended December 31, 1995, and United Dominion's Quarterly Reports on
Form 10-Q and related unaudited financial information for the quarterly periods
ended March 31 and June 30, 1996; (iii) certain information, including financial
forecasts, relating to the business, earnings, cash flow, assets and prospects
of South West and United Dominion, furnished to Merrill Lynch by South West and
United Dominion, which Merrill Lynch discussed with members of senior management
of South West and United Dominion; (iv) historical market prices and trading
activity for the South West Common Stock and United Dominion Common Stock and
similar data for certain publicly traded companies which Merrill Lynch deemed to
be reasonably similar to South West and United Dominion, respectively; (v) the
results of operations of South West and United Dominion and similar data for
certain companies which Merrill Lynch deemed to be reasonably similar to South
West and United Dominion, respectively; (vi) the pro forma effect of the Merger
on United Dominion's capitalization ratios and earnings, cash flow and book
value per share; (vii) a draft of the Agreement dated September 19, 1996; and
(viii) such other matters as Merrill Lynch deemed necessary. Merrill Lynch also
met with certain officers and representatives of South West and United Dominion
to discuss the foregoing as well as other matters. Merrill Lynch also considered
such financial and other factors as it deemed appropriate under the
circumstances and took into account its assessment of general economic, market
and financial conditions, and its experience in similar transactions, as well as
its experience in securities valuation and its knowledge of the REIT industry
generally. Merrill Lynch's opinion is necessarily based upon conditions as they
existed and could be evaluated on the respective dates thereof and the
information made available to Merrill Lynch through the respective dates
thereof.
In preparing its opinion, Merrill Lynch relied on the accuracy and
completeness of all information supplied or otherwise made available to it by
South West and United Dominion, and it did not independently verify such
information or undertake an independent appraisal of the assets or liabilities
of South West or United Dominion. With respect to the financial information
furnished by South West and United Dominion, including information relating to
potential expense savings and revenue enhancements resulting from the Merger,
Merrill Lynch assumed that they were reasonably prepared and reflected the best
currently available estimates and judgment of South West's or United Dominion's
management as of the expected future financial performance of South West or
United Dominion, as the case may be.
In connection with rendering its opinion to the United Dominion Board,
Merrill Lynch performed a variety of financial analyses, which are summarized
below. The summary set forth below does not purport to be a complete description
of the analyses performed. Merrill Lynch believes that its analyses must be
considered as a whole and that selecting portions of such analyses and the
factors considered therein, without considering all factors and analyses, could
create a misleading view of the analyses and the processes underlying Merrill
Lynch's opinion. The preparation of a fairness opinion is a complex process
involving subjective judgments and is not necessarily susceptible to partial
analysis or summary description. In its analyses, Merrill Lynch also took into
account its assessment of general economic, market, and financial conditions,
many of which are beyond the control of United Dominion or Merrill Lynch, as
well as its experience in similar transactions and its experience in securities
valuation and its knowledge of the REIT industry generally. With respect to the
peer group analysis summarized below, no public company utilized as a comparison
is identical to South West or United Dominion, and such analyses necessarily
involve complex considerations and judgments concerning the differences in
financial and operating characteristics of the companies and transactions, and
other factors that could affect the companies concerned. Any estimates contained
in Merrill Lynch's analyses are not necessarily indicative of future results or
values, which may be significantly more or less favorable than such estimates.
Estimates of values of companies do not purport to be appraisals or necessarily
reflect the prices at which companies or their securities actually may be sold.
None of the analyses performed by Merrill Lynch was assigned a greater
significance by Merrill Lynch than any other.
The following is a brief summary of the analyses performed by Merrill Lynch
in connection with its opinion:
(a) ANALYSIS OF SELECTED COMPARABLE PUBLICLY TRADED COMPANIES. Using
publicly available information and estimates of future financial results
published by First Call (as defined below), Merrill Lynch compared certain
financial
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and operating information and ratios for both United Dominion and South
West with the corresponding financial and operating information for a group
of eleven publicly traded companies engaged primarily in the ownership,
management, operation, development and acquisition of multifamily apartment
properties which Merrill Lynch deemed to be reasonably comparable to United
Dominion and South West for the purpose of its analysis, including Equity
Residential Properties Trust, Security Capital Pacific Trust, Merry Land &
Investment Company, Inc., Post Properties, Inc. and Avalon Properties, Inc.
as comparable companies for United Dominion (the "United Dominion
Comparable Companies") and Summit Properties Inc., Gables Residential
Trust, Camden Property Trust, Mid-America Apartment Communities, Inc.,
Walden Residential Properties, Inc. and Columbus Realty Trust as comparable
companies for South West (the "South West Comparable Companies," together
with the United Dominion Comparable Companies, the "Comparable Companies").
"First Call" is a data service that monitors and publishes a compilation of
earnings estimates produced by selected research analysts regarding
companies of interest to institutional investors.
Merrill Lynch's calculations resulted in the following relevant ranges
for the United Dominion Comparable Companies and for United Dominion as of
June 30, 1996: a range of debt to total market capitalization of 25.7% to
34.3% with a mean of 29.0% (with United Dominion at 41.5%) a range of
multiples (each, a "Multiple"), i.e., the common stock price as a multiple
of latest twelve months FFO of 10.9x to 14.2x, with a mean of 13.0x (with
United Dominion at 11.2x); the stock price as a multiple of projected 1996
FFO of 10.5x to 13.3x, with a mean of 12.3x (with United Dominion at
10.7x); the stock price as a multiple of projected 1997 FFO of 9.8x to
12.0x, with a mean of 11.2x (with United Dominion at 9.9x); the stock price
as a multiple of latest twelve months Cash Available for Distribution
("CAD") of 12.4x to 15.0x, with a mean of 14.0x (with United Dominion at
13.1x); and the stock price as a multiple of projected 1996 CAD of 11.8x to
14.0x, with a mean of 13.2x (with United Dominion at 12.5x).
Merrill Lynch's calculations resulted in the following relevant ranges
for the South West Comparable Companies and for South West as of June 30,
1996: a range of debt to total market capitalization of 36.0% to 51.6% with
a mean of 38.6% (with South West at 41.9%); a range of Multiples of latest
twelve months FFO of 9.6x to 11.7x, with a mean of 10.9x (with South West
at 10.1x); the stock price as a multiple of projected 1996 FFO of 9.2x to
11.3x, with a mean of 10.5x (with South West at 9.6x); the stock price as a
multiple of projected 1997 FFO of 8.7x to 10.3x, with a mean of 9.7x (with
South West at 8.7x); the stock price as a multiple of latest twelve months
CAD of 11.2x to 12.6x, with a mean of 12.2x (with South West at 10.5x); and
the stock price as a multiple of projected 1996 CAD of 10.7x to 12.1x, with
a mean of 11.6x (with South West at 10.0x).
Merrill Lynch observed that based on the closing price of United
Dominion Common Stock on the NYSE of $13.50 as of September 24, 1996, the
Exchange Ratio yielded an offer value for the South West Common Stock that
was within the range of values implied by the above trading multiples.
None of the companies utilized in the above analysis for comparative
purposes is, of course, identical to United Dominion or South West.
Accordingly, a complete analysis of the results of the foregoing
calculations cannot be limited to a quantitative review of such results and
involves complex considerations and judgments concerning differences in
financial and operating characteristics or the Comparable Companies and
other factors that could affect the public trading value of the Comparable
Companies as well as that of United Dominion or South West. In addition,
the multiples of common stock price to projected 1996 FFO, projected 1997
FFO and projected 1996 CAD for the Comparable Companies are based on
projections prepared by research analysts using only publicly available
information. Accordingly, such estimates may or may not prove to be
accurate.
(b) IMPLIED EQUITY VALUATION ANALYSIS. Merrill Lynch performed an
implied equity valuation (calculated by reference to a combination of
multiples of projected FFO per share through 2001 and projected dividends
per share through 2001, in each case discounted to present value) using
United Dominion's and South West's management projections under three
scenarios: (a) on a standalone basis for United Dominion (the "United
Dominion Standalone Case"), (b) on a standalone basis for South West (the
"South West Standalone Case") and on a pro forma combined basis (the
"Combination Case"). Using United Dominion's terminal values for the years
1997-2001 based on multiples of projected FFO per share ranging from 12.0x
to 14.0x and discounting these terminal values (and projected dividends per
share) to present value using discount rates ranging from 17% to 19%, the
implied values per share ranged from $13.30 to $17.58 for the United
Dominion Standalone Case. Using South West's terminal values for the years
1997-2001 based on multiples of projected FFO per share ranging from 10.0x
to 12.0x and discounting these terminal values (and projected dividends per
share) to present value using discount rates ranging from 18% to 20%, the
implied values per share ranged from $12.31 to $17.20 for the South West
Standalone Case. Using United Dominion's terminal values for the years
1997-2001 based
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on multiples of projected FFO per share ranging from 12.0x to 14.0x and
discounting these terminal values (and projected dividends per share) to
present value using discount rates ranging from 17% to 19%, the implied
values per share ranged from $14.43 to $18.15 for the Combination Case.
Merrill Lynch observed that based on the closing price of United
Dominion Common Stock on the NYSE of $13.50 as of September 24, 1996, the
Exchange Ratio yielded an offer value for the South West Common Stock that
was within the range of values implied by the discounted cash flow
analysis.
(c) DISCOUNTED CASH FLOW ANALYSIS. Merrill Lynch performed two
discounted cash flow analyses, using the discounted dividend method
(calculated by reference to the sum of the terminal value per share based
on a multiple of projected 2001 AFFO per share (the FFO less normalized
recurring capital expenditures), the projected 1997-2001 five year stream
of dividends per share and the terminal value per share of projected 2001
cash per share) and the discounted AFFO method (calculated by reference to
the sum of the terminal value per share based on a multiple of projected
2001 AFFO per share and the projected 1997-2001 five year stream of AFFO
per share in each case discounted to present value) using United Dominion's
and South West's management projections. Each discounted cash flow analysis
was performed under three scenarios: (a) on a standalone basis for United
Dominion (the "United Dominion Standalone Case"), (b) on a standalone basis
for South West (the "South West Standalone Case") and on a pro forma
combined basis (the "Combination Case").
Under its discounted dividend cash flow analysis, using United
Dominion's terminal values in the year 2001 based on multiples of projected
AFFO per share ranging from 12.5x to 13.5x and discounting these terminal
values (and projected cash per share) to present value using discount rates
ranging from 16% to 20%, the implied values per share ranged from $11.43 to
$14.01 for the United Dominion Standalone Case. Using South West's terminal
values in the year 2001 based on multiples of projected AFFO per share
ranging from 11.0x to 13.0x and discounting these terminal values (and
projected cash per share) to present value using discount rates ranging
from 17% to 21%, the implied values per share ranged from $12.29 to $16.13
for the South West Standalone Case. Using United Dominion's terminal values
in the year 2001 based on multiples of projected AFFO per share ranging
from 12.5x to 13.5x and discounting these terminal values (and projected
cash per share) to present value using discount rates ranging from 16% to
20%, the implied values per share ranged from $13.27 to $16.27 for the
Combination Case.
Under its discounted AFFO cash flow analysis, using United Dominion's
terminal values in the year 2001 based on multiples of projected AFFO per
share ranging from 12.5x to 13.5x and discounting these terminal values to
present value using discount rates ranging from 16% to 20%, the implied
values per share ranged from $11.96 to $14.59 for the United Dominion
Standalone Case. Using South West's terminal values in the year 2001 based
on multiples of projected AFFO per share ranging from 11.0x to 13.0x and
discounting these terminal values to present value using discount rates
ranging from 17% to 21%, the implied values per share ranged from $13.78 to
$17.77 for the South West Standalone Case. Using United Dominion's terminal
values in the year 2001 based on multiples of projected AFFO per share
ranging from 12.5x to 13.5x and discounting these terminal values to
present value using discount rates ranging from 16% to 20%, the implied
values per share ranged from $13.75 to $16.81 for the Combination Case.
Merrill Lynch observed that based on the closing price of United
Dominion Common Stock on the NYSE of $13.50 as of September 24, 1996, the
Exchange Ratio yielded an offer value for the South West Common Stock that
was within the range of values implied by the discounted cash flow
analysis.
(d) NET ASSET VALUE ANALYSIS. Merrill Lynch performed a net asset
value summary (derived by subtracting outstanding debt from gross value
(based on projected 1996 annualized net operating income at capitalization
rates plus the value of other assets)) using United Dominion's and South
West's management projections under two scenarios: (a) on a standalone
basis for United Dominion (the "United Dominion Standalone Case") and (b)
on a standalone basis for South West (the "South West Standalone Case").
Using capitalization rates ranging from 8.5% to 10.5%, the net asset value
per share ranged from $9.46 to $14.22 for the United Dominion Standalone
Case. Using capitalization rates ranging from 8.5% to 10.5%, the net asset
value per share ranged from $9.56 to $14.10 for the South West Standalone
Case.
Merrill Lynch observed that based on the closing price of United
Dominion Common Stock on the NYSE of $13.50 as of September 24, 1996, the
Exchange Ratio yielded an offer value for the South West Common Stock that
was within the range of values implied by the discounted cash flow
analysis.
(e) IMPLIED EXCHANGE RATIO ANALYSIS. Merrill Lynch utilized the
results of the discounted cash flow analyses described above as well as the
United Dominion's management's estimates of the expense savings achievable
as a result of the Merger to calculate a range of implied exchange ratios
based on a comparison of the relative ranges of value for
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South West and United Dominion. In the instance where estimated expense
savings were given no effect, this analysis yielded a range of implied
exchange ratios of United Dominion Common Stock for each share of South
West Common Stock which included the maximum Exchange Ratio of 1.1215.
In the instance where estimated expense savings were allocated to the
shareholders of South West in proportion to such shareholders' proposed
interest in the United Dominion (approximately 28.5%), this analysis
yielded a range of implied exchange ratios of United Dominion Common Stock
for each share of South West Common Stock which was higher than the
Exchange Ratio of 1.0833 and included the maximum Exchange Ratio of 1.1215.
(f) CONTRIBUTION ANALYSIS. Merrill Lynch observed that South West
shareholders would receive 28.5% of the outstanding United Dominion Common
Stock pursuant to the Merger assuming the maximum Exchange Ratio of 1.1215,
after giving effect to the issuance of United Dominion Common Stock in the
Merger. Merrill Lynch reviewed certain projected operating and financial
information (including, among other things, rental income, total revenues,
net operating income, and Funds From Operations) for United Dominion, South
West and the pro forma combined entity giving effect to the estimated
expense savings. Merrill Lynch also analyzed the relative income statement
and operating contributions of United Dominion and South West to the
combined entity. Merrill Lynch observed that in 1997, 1998, 1999 and 2000
South West would contribute, after giving credit to South West for the
contribution of 100% of the synergy, 23.8%, 23.5%, 22.9% and 22.4% to
United Dominion's earnings before interest, taxes depreciation and
amortization ("EBITDA"), respectively, 27.4%, 25.6%, 26.8% and 25.3% to
United Dominion's FFO, respectively and 30.3%, 28.0%, 26.8% and 25.3% to
United Dominion's CAD, respectively. Merrill Lynch observed that South
West's pro forma contribution to United Dominion's projected EBITDA, FFO
and CAD in 1997, 1998, 1999 and 2000 is roughly proportionate to the amount
of United Dominion Common Stock to be received by South West shareholders
in the Merger.
(g) PRO FORMA COMBINATION ANALYSIS. Merrill Lynch also analyzed the
pro forma effects resulting from the Merger, including the potential impact
on United Dominion's projected standalone FFO per share and the anticipated
accretion (i.e., the incremental increase) to United Dominion's FFO per
share resulting from the Merger. Merrill Lynch observed that, after giving
effect to United Dominion's management's estimate of the expense savings
achievable as a result of the Merger, the Merger was accretive to United
Dominion's projected FFO per share in each of the years 1997 through 2001
and that the year-over-year and five year compounded annual growth rate for
FFO per share exceeded such comparable results for United Dominion on a
standalone basis.
Merrill Lynch is a nationally recognized investment banking firm and is
continually engaged in the valuation of businesses and securities in connection
with the mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, and
valuations for estate, corporate and other purposes. Merrill Lynch has been one
of United Dominion's lead investment bankers since 1988 and has from time to
time provided underwriting, financial advisory and/or brokerage services to
United Dominion, for all of which Merrill Lynch has received customary
compensation. United Dominion selected Merrill Lynch as a financial advisor in
connection with the Merger because of its reputation and because Merrill Lynch
has substantial experience in transactions such as the Merger and Merrill
Lynch's familiarity with United Dominion and its operations.
In addition to the financial advisory services referred to above, in the
ordinary course of business, Merrill Lynch trades the debt and equity securities
of South West and United Dominion for its own account and for the accounts of
its customers and may at any time hold a long or short position in such
securities.
United Dominion and Merrill Lynch have entered into a letter agreement,
dated September 27, 1996, relating to the services to be provided by Merrill
Lynch in connection with the Merger. United Dominion agreed to pay Merrill Lynch
a cash fee of $600,000, which has been paid. In such letter agreement, United
Dominion also agreed to reimburse Merrill Lynch for its reasonable out-of-pocket
expenses and to indemnify Merrill Lynch against certain liabilities, including
liabilities under the federal securities laws.
SOUTH WEST. South West has retained Lehman Brothers to act as its financial
advisor in connection with rendering a fairness opinion with respect to the
Merger. Lehman Brothers has delivered its opinion to the South West Board that,
based upon and subject to the various considerations set forth therein, as of
the date of such opinion, the Exchange Ratio to be offered to the holders of
South West Common Stock was fair, from a financial point of view, to such
holders.
THE FULL TEXT OF THE OPINION OF LEHMAN BROTHERS, DATED THE DATE OF THIS
JOINT PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN BY LEHMAN BROTHERS, IS ATTACHED
HERETO AS ANNEX II-B. THE SUMMARY SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS OF THE OPINION OF LEHMAN BROTHERS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
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No limitations were imposed by South West on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
its opinion, except that South West did not authorize Lehman Brothers to
solicit, and Lehman Brothers did not solicit, any indications of interest from
any third party with respect to the purchase of all or a part of South West's
business or assets. Lehman Brothers was not requested to and did not make any
recommendation to the Board of Directors of South West as to the form or amount
of the consideration to be offered to the holders of South West Common Stock in
the Merger, which was determined through arm's length negotiations between the
parties. In arriving at its opinion, Lehman Brothers did not ascribe a specific
range of value to South West, but rather made its determination as to the
fairness, from a financial point of view, of the Exchange Ratio on the basis of
the financial and comparative analyses described below. Lehman Brothers' opinion
is for the use and benefit of the Board of Directors of South West and was
rendered to the Board in connection with its consideration of the Merger. Lehman
Brothers' opinion is not intended to be and does not constitute a recommendation
to any holder of South West Common Stock as to how such stockholder should vote
with respect to the Merger. Lehman Brothers was not requested to opine as to,
and its opinion does not address, South West's underlying business decision to
proceed with or effect the Merger or whether South West should proceed with or
effect the Merger.
In connection with its opinion, Lehman Brothers reviewed and analyzed: (i)
a draft of the Agreement dated September 19, 1996 and the specific terms of the
Merger; (ii) certain publicly available information concerning South West and
United Dominion, including the Annual Report on Form 10-K of each of South West
and United Dominion for the year ended December 31, 1995, and the Quarterly
Reports on Form 10-Q of each of South West and United Dominion for the quarters
ended March 31 and June 30, 1996; (iii) financial and operating information
furnished to Lehman Brothers by South West and United Dominion with respect to
their respective businesses, operations, assets, liabilities and prospects; (iv)
a trading history of the South West Common Stock and the United Dominion Common
Stock and a comparison of such trading histories to each other and to the
trading histories of such other companies and indices that Lehman Brothers
deemed relevant; (v) a comparison of the historical financial results and
present financial condition of each of South West and United Dominion with those
of other companies that Lehman Brothers deemed relevant; and (vi) a comparison
of the financial terms of the Merger with the financial terms of certain other
transactions that Lehman Brothers deemed relevant. In addition, Lehman Brothers
had discussions with the managements of South West and United Dominion
concerning their respective businesses, operations, assets, financial conditions
and prospects and undertook such other studies, analyses and investigations as
Lehman Brothers deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without independent verification. Lehman Brothers further assumed that the
financial projections of South West and United Dominion have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the respective managements of South West and United Dominion as to
the future financial performance of South West and United Dominion, as the case
may be, and that South West and United Dominion will perform substantially in
accordance with such projections. In arriving at its opinion, Lehman Brothers
conducted only a physical inspection of the properties and facilities of South
West or United Dominion and did not make nor obtain any evaluations or
appraisals of the assets or liabilities of South West or United Dominion. In
addition, South West did not authorize Lehman Brothers to solicit, and Lehman
Brothers did not solicit, any indications of interest from any third party with
respect to the purchase of all or a part of South West's business or assets.
Lehman Brothers further assumed that the merger will qualify as a reorganization
within the meaning of Section 368(a)(1)(A) of the Code, and therefore as a
tax-free reorganization to the stockholders of South West and United Dominion.
Lehman Brothers' opinion was necessarily based upon market, economic and other
conditions as they existed on and could be evaluated as of the date thereof.
In connection with rendering its opinion to the South West Board, Lehman
Brothers performed a variety of financial and comparative analyses, as described
below. The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant methods of financial and comparative
analysis and the application of those methods to the particular circumstances,
and therefore, such an opinion is not readily susceptible to summary
description. Furthermore, in arriving at its fairness opinion, Lehman Brothers
did not attribute any particular weight to any analysis or factor considered by
it, but rather made qualitative judgments as to the significance and relevancy
of each analysis and factor. Accordingly, Lehman Brothers believes that its
analyses must be considered as a whole and that a review of selected portions of
such analyses and the factors considered therein, without considering all
analyses and factors, could create a misleading or incomplete view of the
process underlying its opinion. In its analyses, Lehman Brothers made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond South West's and United
Dominion's control. Any estimates contained in Lehman Brothers' analyses are not
necessarily indicative
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of actual values or predictive of future results or values, which may be
significantly more or less favorable than such estimates. Estimates of values of
companies do not purport to be appraisals or necessarily reflect the prices at
which companies or their securities actually may be sold.
The projections used by Lehman Brothers in its analyses were prepared by
the managements of South West and United Dominion. Neither South West nor United
Dominion publicly discloses internal management projections of the type provided
to Lehman Brothers in connection with the review of the Merger and such
projections were not prepared with a view towards public dissemination. The
projections were based on numerous variables and assumptions that are inherently
uncertain and beyond the control of South West and United Dominion, including,
without limitation, factors related to general economic and competitive
conditions. Accordingly, actual results could vary significantly from those set
forth in such projections.
At the meeting of the South West Board on September 29, 1996, Lehman
Brothers presented certain written materials and financial analyses in
connection with the delivery of its opinion. The following is a description of
the material analyses performed by Lehman Brothers in arriving at its opinion.
(a) PRO FORMA MERGER ANALYSIS. Lehman Brothers analyzed the effect of
the Merger on, among other things, United Dominion's estimated FFO and FFO
per share for the year ended December 31, 1997. In doing so, Lehman
Brothers combined the estimated operating results of South West and United
Dominion and assumed certain savings in general and administrative expenses
per estimates provided by the managements of South West and United
Dominion. For purposes of calculating FFO per share, Lehman Brothers
utilized the closing common stock prices for South West and United Dominion
as of September 26, 1996 in order to determine the total number of shares
outstanding following the Merger. This resulted in a hypothetical Exchange
Ratio of approximately 1.1009 based upon $15.00 per share in consideration
to South West's stockholders. Lehman Brothers then compared the estimated
1997 FFO per share for United Dominion on a standalone basis to the
estimated 1997 FFO per share for United Dominion following the Merger, and
noted that United Dominion's estimated 1997 FFO per share was higher
assuming the completion of the Merger.
Lehman Brothers also observed that the Merger would result in an
equivalent or increased dividend rate to South West's stockholders. Based
upon the closing common stock prices for United Dominion and South West as
of September 26, 1996, Lehman Brothers noted that the annual dividend rate
to South West's stockholders would increase by approximately $0.02 per
share (or 1.62%) following the completion of the Merger.
Lehman Brothers also analyzed the effect of the Merger on the equity
market capitalization, total market capitalization, leverage ratios and
dividend payout ratios for both South West and United Dominion. In this
regard, Lehman Brothers noted that the Merger would create a significant
increase in both companies' equity and total market capitalization. Lehman
Brothers further observed that, on a pro forma basis, South West's
debt-to-total market capitalization ratio would increase slightly (from
42.4% to 44.3%) and its dividend payout ratio would also increase slightly
(from approximately 65.0% to 67.1%, based upon management estimates of 1997
FFO per share).
(b) SELECTED COMPARABLE PUBLIC COMPANY ANALYSIS. Lehman Brothers
compared certain operating, financial and stock market data for South West
and United Dominion to corresponding data for selected publicly-traded
companies that Lehman Brothers deemed relevant to its analysis. The
comparable companies consisted of the following eight real estate
investment trusts specializing in the apartment property sector: Equity
Residential Properties Trust, Gables Residential Trust, Merry Land and
Investment Company, Inc., Paragon Group, Inc., Post Properties, Inc.,
Security Capital Pacific Trust, Summit Properties Inc. and Wellsford
Residential Property Trust (the "Comparable Companies"). For the purpose of
its analysis, Lehman Brothers utilized the latest publicly available
balance sheet data for the Comparable Companies (as of June 30, 1996), but
utilized somewhat more current balance sheet data for South West and United
Dominion.
In its analysis, Lehman Brothers compared the ratio of closing common
stock prices as of September 26, 1996 to estimated 1996 and 1997 FFO per
share for South West, United Dominion and each of the Comparable Companies.
In estimating FFO per share, Lehman Brothers utilized internal management
estimates for South West and United Dominion and First Call research
analysts' estimates for the Comparable Companies. Lehman Brothers observed
that South West's stock price as a multiple of 1996 and 1997 FFO was 9.5x
and 8.7x, respectively, as compared to 10.8x and 9.8x, respectively, for
United Dominion and 11.4x and 10.3x, respectively (on average) for the
Comparable Companies. As a result, Lehman Brothers noted that United
Dominion's FFO multiples were more favorable than South West's relative to
the average for the Comparable Companies. Lehman Brothers also noted that,
at an assumed stock price of $15.00, South West's implied 1996 and 1997 FFO
multiples were 10.3x and 9.4x, respectively.
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Lehman Brothers also analyzed dividend yields, dividend payout ratios
and leverage ratios for South West, United Dominion and the Comparable
Companies. In this regard, Lehman Brothers observed that United Dominion's
dividend yield of 7.0% and dividend payout ratio of 69.0% were lower than
the average for the Comparable Companies of 7.7% and 77.8%, respectively,
while its ratio of debt-to-total market capitalization of 46.3% was
slightly higher than the average of 41.9%.
However, because of the inherent differences between the businesses,
operations and prospects of South West, United Dominion and the Comparable
Companies, Lehman Brothers believed that it was inappropriate to, and
therefore did not, rely solely upon the quantitative results of the
analysis, and accordingly also made qualitative judgments concerning the
differences in financial and operating characteristics and historical
performance of these companies which might affect their relative market
valuation.
(c) STOCK TRADING ANALYSIS. Lehman Brothers reviewed the historical
Common Stock trading prices and volumes of South West and United Dominion
relative to each other and to certain other indices that Lehman Brothers
deemed relevant to its analysis. Lehman Brothers observed that the average
closing price for South West for the month, year and two years ended
September 26, 1996 were $13.59, $13.30 and $12.66 per share, respectively,
compared to $13.60, $14.38 and $14.10 per share for United Dominion over
the same periods.
Lehman Brothers observed that the resulting historical ratios between
South West's and United Dominion's Common Stock prices of 1.00, 0.92 and
0.90 for the month, year and two years ended September 26, 1996 compared
favorably to the proposed Exchange Ratio of 1.0833 and the hypothetical
Exchange Ratio of 1.1009 as of September 26, 1996. Lehman Brothers also
noted that the implied merger consideration to South West's shareholders
based upon the terms of the Agreement and United Dominion's Common Stock
prices for the three historical periods specified above was $15.00, $15.58
and $15,27, respectively, which represent premiums of 10.4%, 17.1% and
20.6% to South West's historical Common Stock prices for such periods.
Lehman Brothers noted that South West's closing Common Stock price of
$13.875 as of September 26, 1996 was greater than its average closing
prices for the historical periods, while United Dominion's closing Common
Stock price of $13.625 as of September 26, 1996 was equivalent to or less
than its average closing prices for the historical periods. Additionally,
Lehman Brothers observed that South West's average daily trading volume for
the year ended September 26, 1996 was approximately 45,000 shares, while
United Dominion's was approximately 121,000.
(d) CONTRIBUTION ANALYSIS. Lehman Brothers reviewed South West's
contribution to the combined company on a pro forma basis and compared such
contribution to the pro forma percentage interest of South West's
stockholders in United Dominion following the Merger. Lehman Brothers noted
that, based upon financial results as of and for the six months ended June
30, 1996, South West's contribution to the combined company's total
revenues, total assets and shareholders equity (on a book value basis)
would be 26.0%, 25.5% and 26.4%, respectively. Lehman Brothers also noted
that South West's contribution to the combined company's estimated 1997 FFO
would be approximately 28.7% on a pro forma basis. Lehman Brothers observed
that South West's stockholders would own approximately 27.8% of United
Dominion's common equity following the Merger (based upon closing Common
Stock prices as of September 26, 1996), and that such percentage was
approximately equivalent to or greater than South West's relative
contribution to the combined company's total revenues, total assets,
shareholders equity and 1997 FFO per share.
(e) COMPARABLE TRANSACTION ANALYSIS. Lehman Brothers considered seven
public stock-for-stock mergers among real estate investment trusts
completed since 1994, three of which involved companies specializing in the
apartment sector: the mergers of Holly Residential Properties, Inc. with
Wellsford Residential Property Trust, America First REIT, Inc. with
Mid-America Apartment Communities and Real Estate Investment Trust of
California with BRE Properties, Inc. Lehman Brothers determined that the
Holly/Wellsford and REIT of California/BRE mergers (the "Comparable
Transactions") were relevant to its analysis, while the America
First/Mid-America transaction was too small to provide a reliable basis of
comparison.
With respect to the Comparable Transactions, Lehman Brothers reviewed
the premiums offered relative to the average closing common stock prices
for the 20 trading days prior to the public announcement of the
transactions. Lehman Brothers then compared such premiums with the
corresponding premium for South West in the Merger as of September 26,
1996. Lehman Brothers observed that the 9.2% premium offered to South
West's stockholders falls within the 6.9% to 15.3% range for the Comparable
Transactions. Lehman Brothers also analyzed the ratio of the merger
consideration to historical FFO per share in each transaction. Historical
FFO per share was calculated by annualizing actual FFO per share for the
quarter most recently ended as of the public announcement of the
transaction and for which
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public financial information was available. Lehman Brothers noted that the
implied FFO multiple to South West's stockholders as of September 26, 1996
of 10.4x falls within the 9.6x to 11.7x range for the Comparable
Transactions.
However, because the reasons for and the circumstances surrounding
each of the transactions analyzed were specific to each transaction and
because of the inherent differences between the businesses, operations and
prospects of South West, United Dominion and the companies which were
parties to the Comparable Transactions, Lehman Brothers believed that it
was inappropriate to, and therefore did not, rely solely upon the
quantitative results of the analysis, and accordingly also made qualitative
judgments concerning the differences in the characteristics of these
transactions and in the financial and operating characteristics and
historical performance of these companies which might affect their relative
acquisition values.
(f) LIQUIDATION ANALYSIS. Lehman Brothers calculated a range of
theoretical undiscounted liquidation values for both South West and United
Dominion. In its analysis, Lehman Brothers applied a range of estimated
capitalization rates to each company's estimated 1997 property net cash
flow (property net operating income less a reserve for capitalized
expenditures) to determine the theoretical value of each company's property
portfolio. Lehman Brothers then adjusted its valuation to reflect certain
other assets and liabilities.
However, Lehman Brothers' liquidation analysis did not take into
account the potential strategic benefits and synergies resulting from the
Merger, nor did it consider the costs, timing or potential market
fluctuations associated with a liquidation of assets. Based upon these and
other limiting factors, in arriving at its opinion Lehman Brothers
attributed less significance to the liquidation analysis than to the other
analyses described herein.
Lehman Brothers is an internationally recognized investment banking firm
and, as a part of its investment banking business, is regularly engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Lehman Brothers has been
one of South West's lead investment bankers and has from time to time provided
underwriting, financial advisory and/or brokerage services to South West, for
all of which Lehman Brothers has received customary compensation. Lehman
Brothers has also served as lender under South West's revolving line of credit
and has received and may receive customary amounts on account of interest and
other fees and charges in connection therewith. South West selected Lehman
Brothers as its financial advisor because of Lehman Brothers' reputation and
substantial experience in transactions such as the Merger and Lehman Brothers'
familiarity with South West and its operations.
In addition to the financial advisory services referred to above, in the
ordinary course of its business, Lehman Brothers may trade in the debt and
equity securities of each of South West and United Dominion for its own account
and for the accounts of its customers and, accordingly, may at any time hold a
long or short position in such securities.
South West and Lehman Brothers have entered into a letter agreement, dated
September 27, 1996, relating to the services to be provided by Lehman Brothers
in connection with the Merger. South West agreed to pay Lehman Brothers a fee of
$600,000 payable upon delivery of its opinion. In such letter agreement, South
West also has agreed to reimburse Lehman Brothers for its reasonable
out-of-pocket expenses and to indemnify Lehman Brothers for certain liabilities,
including liabilities under the federal securities laws.
EXCHANGE RATIO AND EXCHANGE FOR UNITED DOMINION COMMON STOCK
The Exchange Ratio was arrived at through arm's-length negotiations between
United Dominion and South West. See " -- Background of and Reasons for the
Merger." Each share of South West Common Stock issued and outstanding at the
Effective Time of the Merger would cease to be outstanding and would be
converted into and exchanged for the right to receive 1.0833 shares of United
Dominion Common Stock.
Notwithstanding any other provision of the Agreement, each holder of shares
of South West Common Stock exchanged pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a share of United Dominion Common
Stock (after taking into account all certificates delivered by such holder)
shall receive, in lieu thereof, cash (without interest) in an amount equal to
such fractional part of a share of United Dominion Common Stock multiplied by
the United Dominion Exchange Price.
At the Effective Time of the Merger, South West will purchase all options
to purchase South West Common Stock granted by South West under a South West
employee benefit plan (individually, an "South West Option" and collectively,
the "South West Options") that are outstanding at the Effective Time of the
Merger (whether or not vested) for the difference
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between the exercise price of each of such South West Options and the United
Dominion Exchange Price multiplied by the Exchange Ratio. At the Effective Time
of the Merger, all South West Options that have been authorized but are unissued
under a South West employee benefit plan shall be canceled.
As promptly as practicable after the Effective Time of the Merger, United
Dominion and South West will cause United Dominion's stock transfer agent to
send to each holder of record of South West Common Stock at such time,
transmittal materials for use in exchanging all of their certificates
representing South West Common Stock for a certificate or certificates
representing United Dominion Common Stock and a check for any fractional share
interest, as applicable. The transmittal materials will contain information and
instructions with respect to the surrender of South West Common Stock
certificates in exchange for certificates representing United Dominion Common
Stock.
SOUTH WEST STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS.
Upon surrender following the Effective Time of the Merger of all of the
certificates for South West Common Stock registered in the name of a holder of
South West Common Stock (or indemnity satisfactory to United Dominion or the
exchange agent if any of such certificates are lost, stolen or destroyed),
together with a properly completed letter of transmittal, the stock transfer
agent will mail to such holder a certificate or certificates representing the
number of shares of United Dominion Common Stock to which such holder is
entitled, together with all undelivered dividends or distributions in respect of
such shares and, where applicable, a check for the amount representing any
fractional share interest (in each case, without interest).
After the Effective Time of the Merger, former holders of record of South
West Common Stock will be entitled to vote the number of shares of United
Dominion Common Stock into which their shares of South West Common Stock have
been converted, regardless of whether they have surrendered their South West
Common Stock certificates. Dividends declared by United Dominion after the
Effective Time of the Merger will include dividends on all United Dominion
Common Stock issued in the Merger, but no dividend or other distribution payable
to the holders of record of United Dominion Common Stock at or as of any time
after the Effective Time of the Merger will be paid to the holder of any South
West Common Stock certificates until such holder physically surrenders all such
certificates as described above. Promptly after such surrender, all undelivered
dividends and other distributions and, where applicable, a check for the amount
representing any fractional share interest, will be delivered to such holder (in
each case, without interest). After the Effective Time of the Merger, the stock
transfer books of South West will be closed and there will be no transfers on
the transfer books of South West of the shares of South West Common Stock that
were outstanding immediately prior to the Effective Time of the Merger.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
From and after the Effective Time of the Merger, the United Dominion Board
will consist of 13 persons, nine of whom are currently members of the United
Dominion Board and four of whom are members of the current South West Board
designated by South West. As of the Effective Time of the Merger, the United
Dominion Board will adopt a resolution increasing the size of the United
Dominion Board from nine to 13 members and the United Dominion Board will elect
the four South West designees to serve on the United Dominion Board.
South West's designees are:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
<S> <C> <C>
John S. Schneider 58 Chief Executive Officer and Chairman
of the Board of South West
Ira T. Wender 69 Of counsel, Patterson, Belknap, Webb
& Tyler, New York, New York
Mark J. Sandler 53 Private investor
Robert W. Scharar 46 President and director of FCA
Corporation
</TABLE>
John S. Schneider has been Chief Executive Officer of South West and its
predecessor-in-interest, Southwest Realty, Ltd., since 1983 and is the Chairman
of the South West Board. He is primarily responsible for the overall direction
of South West. Mr. Schneider graduated from the Harvard Business School in 1967
and was employed by the investment banking firm of Donaldson, Lufkin and
Jenrette until 1973, when he cofounded a predecessor firm to South West. In
addition, Mr. Schneider will be elected to serve as a member of the Executive
Committee of United Dominion.
Ira T. Wender is a former partner and is currently of counsel to the law
firm of Patterson, Belknap, Webb & Tyler, New York, NY since July 1986. From
January 1994 to December 1995, he was Chairman of Perry Ellis International,
Inc. He
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is also a Director of Dime Savings Bank of New York and REFAC Technology, Inc.
Mr. Wender is a director of South West and a member of the Compensation and
Audit Committees of the South West Board.
Mark J. Sandler was a senior managing director of Bear, Stearns & Co. Inc.,
an investment banking firm, in charge of its real estate operations from prior
to 1987 until his retirement in October 1988. Since that time, Mr. Sandler has
managed his personal and family investments. Mr. Sandler is a director of South
West and a member of the Compensation and Audit Committees of the South West
Board.
Robert W. Scharar is President and a director of FCA Corporation, a
registered investment advisor which he founded in 1983. He is also president and
a director of FCA Investment Company, a small business investment company, and
serves as a trustee of First Commonwealth Mortgage Trust and of United Investors
Realty Trust, both of which are REITs. Mr. Scharar is also past president of the
American Association of Attorneys -- CPAs. Mr. Scharar is a director of South
West and a member of the Compensation and Audit Committees of the South West
Board.
United Dominion and South West expect that each of South West's designees
will be available to serve as a director of United Dominion. In the event that
any of such persons becomes unable to serve as a director, South West will
designate an alternate. South West's designees will serve until the 1997 Annual
Meeting of United Dominion shareholders. Messrs. Schneider, Sandler and Scharar
will be nominated for election by the United Dominion Board at that meeting, and
Mr. Wender will then retire.
For a description of certain benefits to which Messrs. Schneider, Wender,
Sandler and Scharar will be entitled as a result of the Merger and as directors
of United Dominion, see " -- Interests of Certain Persons in the Merger."
From and after the Effective Time of the Merger, the following persons will
serve as executive officers of United Dominion in the following capacities:
<TABLE>
<CAPTION>
POSITION WITH
UNITED DOMINION
PERSON FOLLOWING THE MERGER CURRENT POSITION
<S> <C> <C>
John P. McCann Chairman of the Board, President and Chief President and Chief Executive Officer of
Executive Officer United Dominion
John S. Schneider Vice Chairman of the Board and Executive Chairman of the Board and Chief Executive
Vice President Officer of South West
James Dolphin Senior Vice President and Chief Financial Senior Vice President and Chief Financial
Officer Officer of United Dominion
Barry M. Kornblau Senior Vice President and Director of Senior Vice President and director of
Apartment Operations -- Apartment Operations of United Dominion
Eastern Division
Robert F. Sherman Senior Vice President and Director of President and Chief Operating Officer of
Apartment Operations -- Western Division South West
David L. Johnston Senior Vice President and Director of Executive Vice President and Chief
Acquisitions and Development -- Western Investment Officer of South West
Division
Richard B. Chess Vice President and Director of Vice President and Director of
Acquisitions -- Eastern Division Acquisitions of United Dominion
Richard A. Giannotti Vice President and Director of Development Vice President and Director of Development
and Construction -- Eastern Division and Construction of United Dominion
Katheryn E. Surface Vice President, Secretary and General Vice President, Secretary and General
Counsel Counsel of United Dominion
Jerry A. Davis Vice President and Corporate Controller Vice President and Corporate Controller of
United Dominion
</TABLE>
Messrs. Schneider, Sherman and Johnston will be employed by United Dominion
pursuant to employment agreements and will be entitled to employment benefits as
described under " -- Interests of Certain Persons in the Merger."
EFFECTIVE TIME OF THE MERGER
As soon as practicable after satisfaction of all conditions to consummation
of the Merger (see " -- Conditions to Consummation of the Merger"), the Merger
will become effective. The Merger will become effective for accounting and all
other purposes to the fullest extent permitted by law as of the close of
business on December 31, 1996. For state law purposes, the
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<PAGE>
Merger will become effective upon the later of issuance of a certificate of
merger by the Virginia State Corporation Commission in accordance with the VSCA
and issuance of a certificate of merger by the State Department of Assessments
and Taxation of Maryland in accordance with the MGCL, or at such later time
which United Dominion and South West shall have agreed upon and designated in
such filings in accordance with applicable law. Either South West or United
Dominion may terminate the Agreement if the Merger has not been consummated by
March 31, 1997. See " -- Waiver and Amendment; Termination."
Until the Effective Time of the Merger, South West stockholders will retain
their rights as stockholders of South West to vote on matters submitted to them.
HEADQUARTERS
After the Merger, the headquarters of United Dominion will be located at 10
South Sixth Street, Suite 203, Richmond, Virginia, the current administrative
headquarters of United Dominion.
AMENDMENT OF UNITED DOMINION ARTICLES
If the Agreement is approved by the United Dominion shareholders and the
Merger is consummated, the United Dominion Articles will be amended to increase
the number of authorized shares of United Dominion Common Stock from 100,000,000
shares to 150,000,000 shares. The amendment would delete the first sentence of
Article 3 of the United Dominion Articles and substitute the following:
"The corporation shall have authority to issue 150,000,000
shares of common stock having a par value of $1.00 per share and
25,000,000 shares of preferred stock without par value."
On November 1, 1996, shares of United Dominion Common Stock were
outstanding. On such date, an aggregate of shares of United Dominion Common
Stock were reserved for issuance pursuant to United Dominion's stock option,
stock purchase and dividend reinvestment plans. An aggregate of approximately
22,845,000 shares of United Dominion Common Stock would be issued to the holders
of South West Common Stock pursuant to the Merger.
The additional shares of United Dominion Common Stock would be available
for issuance in the Merger and for future issuance by United Dominion and would
give United Dominion flexibility in its corporate planning and in responding to
developments in United Dominion's business, including possible financing and
acquisition transactions, stock splits or dividends and other general corporate
purposes. United Dominion has no present plans to issue additional shares of
United Dominion Common Stock except as noted herein. United Dominion could use
the unissued shares of United Dominion Common Stock, as well as any unissued
shares of Preferred Stock, no par value, of United Dominion (the "United
Dominion Preferred Stock"), in a manner that could make a takeover attempt more
difficult.
Authorized shares of United Dominion Common Stock may be issued by the
United Dominion Board from time to time without further shareholder approval,
except in situations when shareholder approval is required by the VSCA or the
rules of the NYSE. Shareholders of United Dominion would have no preemptive
right to acquire additional shares of United Dominion Common Stock. See
"COMPARATIVE RIGHTS OF SHAREHOLDERS."
The amendment is recommended to the United Dominion shareholders by the
United Dominion Board as one of the transactions contemplated by the Agreement.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of United Dominion and South West to effect the
Merger are subject to the satisfaction of certain conditions, including the
following: (i) the Agreement and the transactions contemplated thereby shall
have been approved by the shareholders of the parties; (ii) neither of the
parties shall be subject to any order or injunction of a court of competent
jurisdiction which prohibits the consummation of the transactions contemplated
by the Agreement; (iii) the Registration Statement shall have become effective
and all necessary state securities law or "Blue Sky" permits or approvals
required to carry out the transactions contemplated by the Agreement shall have
been obtained and no stop order with respect to any of the foregoing shall be in
effect; (iv) United Dominion shall have obtained the approval for the listing of
the United Dominion Common Stock issuable in the Merger on the NYSE, subject to
official notice of issuance; and (v) all material consents, authorizations,
orders and approvals of (or filings or registrations with) any governmental
commission, board, other regulatory body or third parties required in connection
with the execution, delivery and performance of the Agreement shall have been
obtained or made, except for filings in connection with the Merger.
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<PAGE>
Consummation of the Merger also is subject to the satisfaction or waiver of
various other conditions specified in the Agreement, including, among others:
(i) each party shall have performed its covenants contained in the Agreement and
the representations and warranties of such party contained in the Agreement
shall be true and correct in all material respects; (ii) each party shall have
received an opinion of counsel to the effect described in " -- Certain Federal
Income Tax Consequences;" and (iii) from the date of the Agreement through the
Effective Time of the Merger, there shall not have occurred any change in the
financial condition, business or operations of either party that would have or
would be reasonably likely to have a material adverse effect on the business,
results of operations or financial condition of such party, other than any such
change that affects both parties in a substantially similar manner (a "Material
Adverse Effect").
CONDUCT OF BUSINESS PENDING THE MERGER
South West and United Dominion have agreed that, unless the other party has
consented in writing, and except as otherwise contemplated by the Agreement: (i)
they shall use their reasonable efforts, and shall cause each of their
respective subsidiaries to use their reasonable efforts, to preserve intact
their business organizations and goodwill and keep available the services of
their respective officers and employees; (ii) they shall confer on a regular
basis with one or more representatives of the other to report operational
matters of materiality and any proposals to engage in material transactions;
(iii) they shall promptly notify each other of any material emergency or other
material change in the condition (financial or otherwise), business, properties,
assets, liabilities, prospects or the normal course of their businesses or in
the operation of their properties, any material governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), or the breach in any material respect of any representation,
warranty, covenant or agreement contained in the Agreement; (iv) they shall set
the record date for the quarterly dividend payable with respect to the United
Dominion Common Stock and South West Common Stock, respectively, for the fourth
calendar quarter of 1996 to a date no later than December 31, 1996; and (v) they
shall promptly deliver to each other true and correct copies of any report,
statement or schedule filed with the Commission subsequent to the date of the
Agreement.
In addition, each of United Dominion and South West has agreed that unless
the other party shall consent in writing and except as otherwise contemplated by
the Agreement, it (i) shall, and shall cause each of its subsidiaries to,
conduct its operations according to their usual, regular and ordinary course in
substantially the same manner as heretofore conducted; (ii) shall not amend its
Articles of Incorporation or Bylaws; (iii) shall not (a) except pursuant to the
exercise of options, warrants, conversion rights and other contractual rights
existing on the date of and disclosed pursuant to the Agreement, issue any
shares of its capital stock, effect any stock split, reverse stock split, stock
dividend, recapitalization or other similar transaction, (b) grant, confer or
award any option, warrant, conversion right or other right not existing on the
date hereof to acquire any shares of its capital stock, (c) increase any
compensation or enter into or amend any employment agreement with any of its
present or future officers or directors, or (d) adopt any new employee benefit
plan (including any stock option, stock benefit or stock purchase plan) or amend
any existing employee benefit plan in any material respect, except for changes
which are less favorable to participants in such plans; (iv) shall not (a)
declare, set aside or pay any dividend or make any other distribution or payment
with respect to any shares of its capital stock, except such party's regular
dividends for the third and fourth calendar quarters of 1996, or (b) except in
connection with the use of shares of capital stock to pay the exercise price or
tax withholding in connection with stock-based employee benefit plans, directly
or indirectly redeem, purchase or otherwise acquire any shares of its capital
stock or capital stock of any of its subsidiaries, or make any commitment for
any such action; (v) shall not, and shall not permit any of its subsidiaries to,
sell, lease or otherwise dispose of (a) any properties or any of its capital
stock of or other interests in subsidiaries or (b) except in the ordinary course
of business, any of its other assets which are material, individually or in the
aggregate; (vi) shall not, and shall not permit any of its subsidiaries to, make
any loans, advances or capital contributions to, or investments in, any other
person; (vii) shall not, and shall not permit any of its subsidiaries to, pay,
discharge or satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business consistent with
past practice or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, its most recent consolidated financial
statements (or the notes thereto) included in its reports to the Commission
under the Exchange Act or incurred in the ordinary course of business consistent
with past practice; (viii) shall not, and shall not permit any of its
subsidiaries to, enter into any commitment which individually may result in
total payments or liability by or to it in excess of the amount permitted by the
Agreement; and (ix) shall not, and shall not permit any of its subsidiaries to,
enter into any commitment with any officer, director, consultant or affiliate of
such party or any of its subsidiaries except to the extent the same occur in the
ordinary course of business.
Finally, United Dominion and South West have agreed not to initiate,
solicit or encourage, directly or indirectly, any proposal (an "Acquisition
Proposal") with respect to a merger, acquisition, tender offer, exchange offer,
consolidation or
35
<PAGE>
similar transaction involving all or any significant portion of the assets or
any equity securities of, United Dominion or South West, respectively, or their
respective subsidiaries; that it will immediately terminate any existing
activities, discussions or negotiations with respect thereto; and that it will
notify the other party immediately if any Acquisition Proposal is received.
WAIVER AND AMENDMENT; TERMINATION
WAIVER AND AMENDMENT. Either party, by action taken by its Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other party, (b)
waive any inaccuracies in the representations and warranties made to such party
contained in the Agreement or in any document delivered pursuant thereto and (c)
waive compliance with any of the agreements or conditions for the benefit of
such party contained in the Agreement. The parties may amend the Agreement at
any time before or after approval of the Agreement by their respective
shareholders by action of their respective Boards of Directors, but after any
such shareholder approval, no amendment shall be made which by law requires the
further approval of shareholders without obtaining such further approval.
TERMINATION. The Agreement may be terminated prior to the Effective Time of
the Merger, either before or after approval by the United Dominion and South
West shareholders, under the circumstances specified therein, including: (i) by
mutual consent of the parties to the Agreement; and (ii) by either United
Dominion or South West, (a) in the event the Merger is not consummated by March
31, 1997; (b) if the Merger is not approved by the requisite vote of United
Dominion and South West shareholders; (c) if a court or governmental, regulatory
or administrative agency or commission shall have issued a final and
non-appealable order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
the Agreement, provided that the party seeking to terminate this Agreement on
account thereof shall have used all reasonable efforts to remove such order,
decree, ruling or injunction; or (e) any of the conditions set forth in the
Agreement shall not have been satisfied, provided, in the case of a termination
pursuant to clause (a) or (e) above, that the terminating party is without
contributory fault.
In addition, either United Dominion or South West may terminate the
Agreement prior to the Effective Time of the Merger, either before or after
approval by the United Dominion and South West shareholders, if (i) in the
exercise of its good faith judgment as to its fiduciary duties to its
shareholders imposed by law its Board of Directors determines that such
termination is required by reason of a competing Acquisition Proposal being
made, (ii) the Board of Directors of the other party withdraws, materially
modifies or changes in a manner materially adverse to the terminating party its
shareholder recommendations with respect to the Agreement or the Merger, other
than as a result of the occurrence of an event that in the good faith judgment
of such Board of Directors has or is reasonably likely to have a Material
Adverse Effect upon the terminating party, (iii) the Board of Directors of the
other party postpones the date scheduled for the meeting of stockholders of such
party to approve the Agreement beyond March 31, 1997 or fails to set a date for
such meeting by such date, (iv) there has been a breach by the other party of
any representation or warranty contained in the Agreement which would have or
would be reasonably likely to have a material adverse effect on the business,
results of operations or financial condition of such party, which breach is not
curable by March 31, 1997, or (v) there has been a material breach of any of the
covenants or agreements set forth in the Agreement on the part of the other
party, which breach is not curable or, if curable, is not cured within 30 days
after written notice thereof to the breaching party.
If either party terminates the Agreement (a) because the Merger is not
consummated by March 31, 1997 (except as a result of a default or breach by the
other party) or because its shareholders do not approve the Agreement, and a
competing Acquisition Proposal shall have been made and, within one year from
the date of such termination, the terminating party consummates a competing
Acquisition Proposal or enters into an agreement to consummate a competing
Acquisition Proposal which is subsequently consummated, or (b) on account of a
determination that such termination is required by law by reason of a competing
Acquisition Proposal, the terminating party shall pay to the other party,
provided that the other party was not in material breach of its obligations
under the Agreement at the time of such termination, as liquidated damages and
not as a penalty or forfeiture, an amount equal to the lesser of (1) $10,000,000
(the "Liquidated Damages Amount") and (2) the sum of (A) the maximum amount that
can be paid to the other party without causing the other party to fail to meet
the income requirements of the Code (for continued REIT qualification described
under "FEDERAL INCOME TAX CONSIDERATIONS -- Requirements for
Qualification -- INCOME TESTS"), determined as if the payment thereof did not
constitute income the receipt of which will not adversely affect qualification
as a REIT ("Qualifying Income"), plus (B) in the event such party has received a
ruling from the Internal Revenue Service ("IRS") to the effect that Liquidated
Damages Amount payments constitute Qualifying Income, an amount equal to the
Liquidated Damages Amount less the amount payable under clause (A) above. In
addition, the other party shall be entitled to receive from the terminating
party its documented out-of-pocket costs and expenses incurred in connection
with the Agreement and the transactions contemplated thereby ("Expenses") up to
a maximum of $1,750,000. Notwithstanding the foregoing, if a party terminates
the Agreement on
36
<PAGE>
account of a determination that such termination is required by law by reason of
a competing Acquisition Proposal, and the other party has given notice of
exercise of its option under the Purchase Option Agreement (see " -- Purchase
Option Agreement"), the terminating party shall not be obligated to pay the
Liquidated Damages Amount. The payments described in this paragraph shall be the
non-terminating party's sole remedy with respect to the termination of the
Agreement under the circumstances described in this paragraph.
If either party terminates the Agreement because of the occurrence of a
Material Adverse Effect affecting the other, the other party shall, provided
that the terminating party was not in material breach of its obligations under
the Agreement at the time of such termination, pay the terminating party its
Expenses, up to a maximum of $1,750,000, although it shall not be required to
pay the Liquidated Damages Amount, which payment shall be the terminating
party's sole remedy for termination of the Agreement in such circumstances.
If the Agreement is terminated by either party because of a material breach
of warranty or covenant by the other, the other party shall, provided that the
terminating party was not in material breach of its obligations under the
Agreement at the time of such termination, pay the terminating party its
Expenses, up to a maximum of $1,750,000, and the other party shall remain liable
to the terminating party for its breach.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of management of South West and the South West Board may be
deemed to have interests in the Merger in addition to their interests as
stockholders of South West generally. The South West Board either was aware of
these interests or, with respect to interests that arose subsequent to the
execution of the Agreement, was aware of their potential and considered them,
among other matters, in approving the Agreement and the transactions
contemplated thereby.
EMPLOYMENT AGREEMENTS. United Dominion will enter into employment
agreements with Messrs. Schneider, Sherman and Johnston prior to the Effective
Time of the Merger. The employment agreements will have a one-year term but
renew automatically for successive one-year periods unless sooner terminated and
will be on substantially similar terms except for compensation terms. The
initial annual base salaries, which are subject to annual increases, are as
follows:
<TABLE>
<CAPTION>
NAME BASE SALARY
<S> <C>
John S. Schneider $ 250,000
Robert F. Sherman $ 186,000
David L. Johnston $ 186,000
</TABLE>
The employment agreements will provide for an automobile allowance, bonus
compensation and participation in United Dominion's Management/Incentive
Compensation Plan, 1985 Stock Option Plan and Officers' Stock Purchase Plan. The
employment agreements will also provide that other than as a result of a merger
or change of control of United Dominion, the executive officer will receive 13
weeks salary and benefits if terminated during the first three years, and 26
weeks of salary and benefits if terminated after three years. If the executive
officer is terminated or resigns as a result of a merger or change of control,
the executive officer will receive 26 weeks of salary and benefits if during the
first three years of employment and a full years salary and benefits if after
three years.
Under existing employment agreements, each of Messers. Schneider, Sherman
and Johnston will be entitled to receive from South West in conjunction with the
consummation of the Merger, an amount equal to his salary for 1996 and a bonus
for 1996 of up to 50% of such salary. The bonus is dependent upon South West's
achievement of certain minimum FFO for the year and other South West performance
standards. The maximum amounts payable to Messrs. Schneider, Sherman and
Johnston under these employment agreements are $369,000, $295,200 and $278,550,
respectively.
INDEMNIFICATION. For a period of six years from and after the Effective
Time of the Merger, United Dominion shall indemnify the directors, officers,
employees or agents of South West who at any time prior to the Effective Time of
the Merger were entitled to indemnification under the Articles of Incorporation
and Bylaws of South West or employment agreements between South West and its
officers existing on the date of the Agreement to the same extent as such
directors, officers, employees or agents are entitled to indemnification under
such Articles of Incorporation and Bylaws or existing employment agreements in
respect of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by the Agreement).
As described above under " -- Exchange Ratio and Exchange for United
Dominion Common Stock," South West will purchase as of the Effective Time of the
Merger all outstanding South West Options (whether or not vested) for the
difference between the exercise price and the United Dominion Exchange Price
multiplied by the Exchange Ratio. South West believes
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<PAGE>
that all South West Options which are vested will be exercised at or before the
Effective Time of the Merger and accordingly the shares of South West Common
Stock issued upon exercise will be converted into shares of United Dominion
Common Stock. The following persons will hold unvested South West Options at the
Effective Date of the Merger and, assuming a United Dominion Exchange Price of
$15 per share, will receive the indicated amounts upon purchase of such South
West Options by South West:
<TABLE>
<CAPTION>
PURCHASE PRICE
OF
NAME UNVESTED OPTIONS
<S> <C>
John S. Schneider $511,240
Ira T. Wender 85,859
Mark J. Sandler 106,399
Robert W. Scharar 78,000
Robert F. Sherman 371,909
David L. Johnston 274,000
</TABLE>
In addition, under the terms of the plans pursuant to which the South West
Options were issued, South West optionees are entitled to forgiveness of 50% of
any indebtedness to South West incurred by reason of exercise thereof, if South
West should engage in a transaction such as the Merger. Option exercise
indebtedness of the following persons, computed on the assumption that vested
unexercised South West Options will be exercised in partial consideration of the
maximum amount of optionee indebtedness permitted under the South West plans,
will be accelerated and forgiven as indicated:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
ACCELERATED FORGIVEN
NAME INDEBTEDNESS INDEBTEDNESS
<S> <C> <C>
John S. Schneider $ 758,395 $758,395
Ira T. Wender 245,907 185,965
Mark J. Sandler 194,303 194,303
Robert W. Scharar 250,509 180,193
Robert F. Sherman 1,036,545 747,787
David L. Johnston 597,000 597,000
</TABLE>
POST-ACQUISITION COMPENSATION AND BENEFITS. The Agreement provides that
United Dominion will employ certain officers of South West and its subsidiaries
at the Effective Time of the Merger. United Dominion also plans to employ
certain other employees of South West at the Effective Time of the Merger. Such
officers and employees shall be entitled to substantially the same benefits as
are enjoyed by United Dominion employees of comparable positions as of the
Effective Time of the Merger. Such benefits shall include but not be limited to
health, disability and life insurance, pension and profit sharing arrangements,
401(k) plans and deferred compensation plans, if any. Such employment shall be
at will and United Dominion shall be under no obligation to continue to employ
any individuals. Subject to the foregoing and to considerations relating to the
particular geographic region in which the officer or employee is located, it is
the intent of United Dominion and South West that the officers and employees of
South West employed by United Dominion after the Effective Time of the Merger
shall in general receive compensation and benefits on the same basis and subject
to the same standards as the officers and employees of United Dominion. United
Dominion further agrees to grant, as of the Effective Time of the Merger,
options to purchase United Dominion Common Stock, under any United Dominion
management incentive bonus or stock option plan, to certain South West officers
and employees employed by United Dominion, on no less favorable terms and
conditions as similar grants that have been made to United Dominion employees of
similar stature during the two years immediately preceding the Effective Time of
the Merger. United Dominion expects to grant options under its 1985 Stock Option
Plan (the "United Dominion Plan") as follows as of the Effective Time of the
Merger. All such options will be granted at an option price equal to the closing
sale price of the United Dominion Common Stock on the NYSE at the date of grant
and will be subject to such terms and conditions, including a maximum term of 10
years, as may be prescribed by the United Dominion Plan and the Compensation
Committee of the United Dominion Board. The options will vest in the named
executive officer at the end of the first year of employment.
38
<PAGE>
<TABLE>
<CAPTION>
NAME NUMBER OF OPTIONS
<S> <C>
John S. Schneider 30,000
Robert F. Sherman 30,000
David L. Johnston 30,000
</TABLE>
United Dominion currently pays non-employee United Dominion Board members
an annual retainer of $9,000 and an additional $1,000 for attendance at each
regular and special meeting. In addition, under a policy currently in effect,
upon retirement from the United Dominion Board after 20 years' service,
non-employee directors are entitled to retirement compensation of $5,000 per
year for the five years immediately following retirement. South West currently
pays non-employee South West Board members an annual retainer of $12,000 and
$1,000 for attendance at each regular Board meeting. In each case, directors who
are also employees receive no additional compensation. Following the Merger,
United Dominion initially will compensate non-employee United Dominion Board
members at the rates at which United Dominion currently compensates its
non-employee directors.
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be accounted for using the purchase method in accordance
with Accounting Principals Board Opinion No. 16. The fair market value of the
consideration given by United Dominion in the Merger and the market value of
liabilities assumed will be used as the basis of the purchase price. The assets
and liabilities of South West will be revalued to their respective fair market
values. The financial statements of United Dominion will reflect the combined
operations of United Dominion and South West from the Effective Time of the
Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING DISCUSSION SUMMARIZES FOR GENERAL INFORMATION THE MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO SOUTH WEST STOCKHOLDERS. THE
SUMMARY DOES NOT DISCUSS ALL POTENTIALLY RELEVANT FEDERAL INCOME TAX MATTERS OR
CONSEQUENCES TO ANY FOREIGN OR OTHER STOCKHOLDERS SUBJECT TO SPECIAL TAX
TREATMENT.THE TAX CONSEQUENCES TO ANY PARTICULAR STOCKHOLDER MAY DEPEND ON THE
STOCKHOLDER'S CIRCUMSTANCES. SOUTH WEST STOCKHOLDERS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS WITH REGARD TO FEDERAL, STATE AND LOCAL TAX CONSEQUENCES.
The Merger is intended to be a reorganization under Section 368(a) of the
Code, and the federal income tax consequences summarized below are based on the
assumption that the Merger will qualify as a reorganization. One condition to
consummation of the Merger is the receipt by each of United Dominion and South
West of an opinion of its counsel to the effect that for federal income tax
purposes the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and that United Dominion and South West will each be
a party to that reorganization within the meaning of Section 368(b) of the Code.
In addition, the opinion delivered to United Dominion by its counsel must state
that no gain or loss will be recognized for federal income tax purposes by
United Dominion, Sub or South West upon consummation of the Merger and that
consummation of the Merger will not result in the failure of United Dominion to
continue to qualify as a REIT for federal income tax purposes. The opinions of
counsel will be based on certain customary assumptions and representations
regarding, among other things, the lack of previous dealings between South West
and United Dominion, the existing and future ownership of South West and United
Dominion stock and the future business plans for United Dominion.
If the Merger qualifies as a reorganization under Section 368(a) of the
Code, a South West stockholder who receives solely United Dominion Common Stock
in exchange for his shares of South West Common Stock will not recognize any
gain or loss on the exchange. If a stockholder receives United Dominion Common
Stock and cash in lieu of a fractional share of United Dominion Common Stock,
the stockholder will recognize taxable gain or loss solely with respect to such
cash equal to the difference between such cash amount and the tax basis
allocated to such stockholder's fractional share interest. Such gain or loss
generally will constitute capital gain or loss if the stockholder's South West
Common Stock was held as a capital asset. A stockholder will have an aggregate
tax basis in his shares of United Dominion Common Stock (including any
fractional share interest treated as received) received in the Merger equal to
his aggregate tax basis in the shares of South West Common Stock exchanged
therefor. A stockholder's holding period for shares of United Dominion Common
Stock (including any fractional share interest treated as received) received in
the Merger will include his holding period for the shares of South West Common
Stock exchanged therefor if they are held as a capital asset at the effective
date of the Merger. No gain or loss should be recognized by United Dominion, Sub
or South West as a result of the Merger.
39
<PAGE>
PURCHASE OPTION AGREEMENT
As an inducement and a condition to enter into the Agreement, United
Dominion and South West entered into the Purchase Option Agreement, whereby
South West granted United Dominion an option entitling it to purchase 4,000,000
shares of South West Common Stock (representing approximately 19.437% of the
outstanding shares of South West Common Stock as of September 30, 1996) at an
exercise price per share equal to $13 7/8, and United Dominion granted South
West an option entitling it to purchase 4,333,200 shares of United Dominion
Common Stock (representing approximately 6.089% of the outstanding shares of
United Dominion Common Stock as of September 30, 1996) at an exercise price per
share equal to $14 1/8, each under the circumstances described below. Both the
number of shares subject to each option and the purchase prices are subject to
adjustment in certain circumstances. Neither party may transfer its interest in
the Purchase Option Agreement or the shares subject to option before the date on
which a Triggering Event (as defined below) occurs. THIS DESCRIPTION OF THE
PURCHASE OPTION AGREEMENT DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE PURCHASE OPTION AGREEMENT, WHICH IS
INCORPORATED HEREIN BY REFERENCE AND ATTACHED HERETO AS ANNEX III.
Neither United Dominion nor South West may exercise its option (a) during
any period in which (i) it is in material breach of its representations or
warranties under the Agreement, (ii) it is failing, in any material respect, to
perform its obligations or observe its covenants under the Agreement, unless the
reason for such failure is that the other party is failing in any material
respect to perform its obligations or observe its covenants, or (b) the issuance
of the shares underlying such option would violate applicable laws or
regulations. Otherwise, the option may be exercised, in whole or in part, by
United Dominion or South West but only if a Triggering Event occurs before the
occurrence of a Termination Event (as defined below).
The term "Triggering Event" shall mean any one of the following events or
transactions:
(a) United Dominion or South West or a subsidiary of either of them (the
"Acting Party") shall take any action (each an "Acquisition Transaction"),
including authorizing, recommending or entering into an agreement with any third
party, without the prior written consent of the other party hereto, to effect
(i) a merger, consolidation or similar transaction involving the Acting Party,
(ii) a sale, lease or other disposition of all or substantially all of its
assets, (iii) a sale or other disposition (including, by way of merger,
consolidation, share exchange or otherwise) of securities representing 15% or
more (or convertible into 15% or more) of the voting power of the Acting Party,
or (iv) a transaction substantially similar to any of the foregoing;
(b) a third party shall acquire or receive, directly or indirectly, from
the Acting Party, the right to acquire an aggregate of 15% or more (or
convertible into 15% or more) of the voting power of the Acting Party;
(c) a third party shall make a bona fide proposal to the Acting Party by
public announcement or written communication that becomes the subject of public
disclosure to engage in an Acquisition Transaction; or
(d) the Agreement shall be terminated because the Board of Directors of the
terminating party determines that such termination is required by law by reason
of a competing Acquisition Proposal.
The term "Termination Event" means the earliest to occur of (i)
consummation of the Agreement, (ii) termination of the Agreement for any reason
other than a determination by the terminating party's Board of Directors that
such termination is required by law by reason of a competing Acquisition
Proposal, (iii) the expiration of 12 months after a termination of the Agreement
by reason of such a determination, unless within such 12 month period, a
Triggering Event occurs or (iv) the expiration of 12 months after the occurrence
of a Triggering Event occurring within 12 months after termination of the
Agreement by reason of such a determination. A "Termination Event" for either
party shall also include a termination by such party during the due diligence
period provided for in the Agreement for any diligence-related matter. If any
Triggering Event has occurred, and the Agreement is thereafter terminated, the
Purchase Option Agreement shall remain in effect for a period of 12 months from
such termination.
To exercise its option, the exercising party shall notify the other party
of its intention to exercise after the occurrence of the Triggering Event and
before the occurrence of a Termination Event. Within 30 days thereafter, the
exercising party shall deliver to its counsel, in good funds, an amount equal to
the product of the option price and the number of shares of the other party
which the exercising party elects to acquire; the other party shall deliver to
such counsel the shares for which the option has been exercised; such counsel
shall deliver to the other party an amount equal to the difference between the
amount delivered by the exercising party and the exercising party's "Liquidated
Damages Amount"; and such counsel shall deliver the exercising party's
"Liquidated Damages Amount" to the exercising party. An exercising party's
"Liquidated Damages Amount" is an the amount by which (a) the lesser of (1)
$10,000,000 or (2) the maximum amount that can be paid to the
40
<PAGE>
exercising party without causing it to fail to meet the requirements of the Code
for continued REIT qualification described under "FEDERAL INCOME TAX
CONSIDERATIONS -- Requirements for Qualification -- INCOME TESTS," determined as
if the payment of such "Liquidated Damages Amount" did not constitute Qualifying
Income, exceeds (b) the amount, if any, previously paid to the exercising party
as liquidated damages pursuant to the Agreement, as described in "THE MERGER --
Waiver and Amendment; Termination"; provided, that the "Liquidated Damages
Amount" shall be $10,000,000, less such previous liquidated damages payment, if
the exercising party has received a ruling from the IRS to the effect that
"Liquidated Damages Amount" payments constitute Qualifying Income. The Purchase
Option Agreement provides for retention for a period of nine months of the
amount payable to the exercising party upon receipt of a favorable IRS ruling,
to permit application for and receipt of that ruling; if the ruling is not
received before expiration of the nine months' period, such amount is paid to
the other party.
Each party shall have the right, exercisable for a period of twelve months
from the date of the acquisition of shares of the other pursuant to exercise of
its option, to cause the other to repurchase such shares at a price equal to the
exercise price.
Shares issued on exercise of an option may not be transferred except in
compliance with the Securities Act, and the exercising party has limited rights
to require or participate in a Securities Act registration by the other party.
The number and kind of shares issuable upon exercise of an option and the
exercise price will be adjusted in the event of any stock dividend, stock split
or other subdivision, reverse stock split or other combination, or
reclassification affecting such shares or consolidation or merger of the issuer
thereof with or into another entity, or the sale or conveyance to a third,
unrelated party, of all or substantially all of the assets of such issuer.
RESALES OF UNITED DOMINION COMMON STOCK
The shares of United Dominion Common Stock issuable to holders of South
West Common Stock upon consummation of the Merger have been registered under the
Securities Act, and will be transferable freely and without restriction by those
holders of South West Common Stock who receive such shares following
consummation of the Merger and who are not deemed to be "affiliates" (as defined
under the Securities Act, but generally including directors, certain executive
officers and ten percent or more stockholders) of South West or United Dominion.
It is a condition to United Dominion's obligation to consummate the Agreement
that each person whom South West has identified as an "affiliate" of South West
for purposes of the Securities Act deliver to United Dominion an agreement
providing that such person will not transfer any United Dominion Common Stock
received by such person in connection with the Merger except in compliance with
the Securities Act. This Joint Proxy Statement/Prospectus does not cover any
resales of United Dominion Common Stock received by affiliates of South West. In
addition, each of United Dominion and South West agree in the Agreement to use
their respective best efforts to have certain of their respective officers and
directors execute "lock-up" agreements that will generally prohibit dispositions
of United Dominion Common Stock by such persons for 90 days following the
Effective Date of the Merger.
THE SOUTH WEST BOARD AND THE UNITED DOMINION BOARD EACH UNANIMOUSLY
RECOMMEND A VOTE FOR THE AGREEMENT.
DISSENTERS' RIGHTS
Because the South West Common Stock was listed on the NYSE on the South
West Record Date, under Section 3-202(c)(1) (ii) of the MGCL, holders of the
South West Common Stock will not have statutory rights to demand and receive
payment of the fair value thereof. Holders of United Dominion Common Stock will
not have statutory rights to dissent from and obtain payment of the fair value
of their shares because United Dominion is not a party to the statutory merger
of South West into Sub.
41
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE SIX MONTHS ENDED JUNE 30, 1996
BASIS OF PRESENTATION
The Unaudited Pro Forma Combined Statements of Operations for the year
ended December 31, 1995 and the six months ended June 30, 1996 are presented as
if the Merger had occurred at the beginning of each period presented. The
Unaudited Pro Forma Combined Statements of Operations give effect to the Merger
under the purchase method of accounting in accordance with Accounting Standards
Board Opinion No. 16, and the combined entity qualifying as a REIT, distributing
at least 95% of its taxable income, and therefore, incurring no federal income
tax liability for the periods presented. In addition to the Merger, the United
Dominion Pro Forma Statements of Operations gives effect to the following
acquisitions as if they had occurred on the first day of each period presented:
(i) the acquisition of 13 apartment communities during 1995 and (ii) the
acquisition of a portfolio of 18 apartment communities in August 1996 (See Note
(A) to the Unaudited Pro Forma Combined Statements of Operations). In the
opinion of management, all adjustments necessary to reflect the effects of these
transactions have been made.
The Unaudited Pro Forma Combined Statements of Operations are presented for
comparative purposes only and are not necessarily indicative of what the actual
combined results of United Dominion and South West would have been for the year
ended December 31, 1995 and the six months ended June 30, 1996 if the Merger and
other acquisitions had occurred at the beginning of each period presented, nor
do they purport to be indicative of the results of operations in future periods.
The Unaudited Pro Forma Combined Statements of Operations should be read in
conjunction with, and are qualified in their entirety by, the respective
historical financial statements and notes thereto of United Dominion and South
West incorporated by reference into this Joint Proxy Statement/Prospectus.
42
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA UNITED DOMINION
UNITED DOMINION SOUTH WEST MERGER PRO FORMA
PRO FORMA(A) HISTORICAL(B) ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
INCOME
Rental income................................................ $ 124,953 $39,907 $ 164,860
Interest and other income.................................... 795 218 1,013
125,748 40,125 -- 165,873
EXPENSES
Rental expenses:
Utilities................................................. 9,266 2,649 11,915
Repairs and maintenance................................... 20,598 4,735 25,333
Real estate taxes......................................... 9,161 3,888 13,049
Property management....................................... 3,064 1,238 ($ 190)(D) 4,112
Other operating expenses.................................. 11,484 5,733 17,217
Depreciation of real estate owned............................ 24,267 6,483 571(C) 31,321
Interest..................................................... 27,273 6,192 (446)(E) 33,019
General and administrative................................... 2,932 933 (521)(F) 3,344
Other depreciation and amortization.......................... 560 165 725
Impairment loss on real estate held for disposition.......... 290 -- 290
108,895 32,016 (586) 140,325
Income before gains on sales of investments and minority
interest of unitholders in Operating Partnership............. 16,853 8,109 586 25,548
Gains on sales of investments.................................. 836 -- 836
Minority interest of unitholders in Operating Partnership...... (1) -- (1)
Net income..................................................... 17,688 8,109 586 26,383
Dividends to preferred shareholders............................ 4,856 -- 4,856
Net income available to common shareholders.................... $ 12,832 $ 8,109 $ 586 $ 21,527
Net income per common share.................................... $ .22 $ .27
Distributions declared per common share........................ $ .48 $ .48
Weighted average number of common shares outstanding........... 58,088 22,133(G) 80,221
</TABLE>
notes.43
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA UNITED DOMINION
UNITED DOMINION SOUTH WEST MERGER PRO FORMA
PRO FORMA(A) HISTORICAL(B) ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
INCOME
Rental income................................................ $ 225,406 $71,061 $ 296,467
Interest and other income.................................... 1,423 1,053 2,476
226,829 72,114 -- 298,943
EXPENSES
Rental expenses:
Utilities................................................. 16,592 4,940 21,532
Repairs and maintenance................................... 34,459 9,980 44,439
Real estate taxes......................................... 16,262 6,499 22,761
Property management....................................... 6,115 2,464 ($ 493)(D) 8,086
Other operating expenses.................................. 20,422 9,782 30,204
Depreciation of real estate owned............................ 45,228 12,304 1,473(C) 59,005
Interest..................................................... 50,987 10,686 (614)(E) 61,059
General and administrative................................... 4,865 2,037 (1,039)(F) 5,863
Other depreciation and amortization.......................... 1,103 393 1,496
Impairment loss on real estate held for disposition.......... 1,700 -- 1,700
197,733 59,085 (673) 256,145
Income before gains on sales of investments and minority
interest of unitholders in Operating Partnership............. 29,096 13,029 673 42,798
Gains on sales of investments.................................. 5,090 10 5,100
Minority interest of unitholders in Operating Partnership...... (8) (8)
Net income..................................................... 34,186 13,031 673 47,890
Dividends to preferred shareholders............................ 9,236 -- 9,236
Net income available to common shareholders.................... $ 24,950 $13,031 $ 673 $ 38,654
Net income per common share.................................... $ .46 $ .52
Distributions declared per common share........................ $ .90 $ .90
Weighted average number of common shares outstanding........... 54,156 20,079(G) 74,235
</TABLE>
notes.44
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(A) The United Dominion Pro Forma Statements of Operations reflect the
historical results of United Dominion adjusted to reflect the operations of:
(i) 18 apartment communities acquired in an August 15, 1996 portfolio
acquisition as previously reported on Form 8-K dated August 15, 1996, (ii)
nine apartment communities acquired in a May 4, 1995 portfolio acquisition
as previously reported on Form 8-K dated June 30, 1995 and (iii) four
apartment communities acquired during the second half of 1995, as previously
reported on Form 8-K dated December 28, 1995, all incorporated by reference
into this Joint Proxy Statement/Prospectus, for the periods not owned by
United Dominion.
(B) Certain reclassifications have been made to South West's historical
statements of operations to conform to United Dominion's financial statement
presentations.
(C) Represents the net increase in depreciation of real estate owned as a result
of recording the South West real estate assets at fair value versus
historical cost. Depreciation is computed on a straight-line basis over the
estimated useful lives of the related assets which have an estimated
weighted average useful life of approximately 25.9 years. Buildings have
been depreciated over 35 years and other assets over 5, 10 or 20 years
depending on the useful life of the related asset.
Calculation of the fair value of depreciable real estate assets at June 30,
1996:
<TABLE>
<S> <C>
Purchase price (See Pro Forma Combined Balance Sheet Note (C))...................... $542,181
Less:
Purchase price allocated to cash and other assets................................. (18,685)
Purchase price allocated to land.................................................. (64,502)
Purchase price allocated to Construction in progress**............................ (93,483)
Pro forma basis of South West's depreciable real estate held for investment at
fair value..................................................................... $365,511
</TABLE>
** At June 30, 1996, South West had three apartment communities containing
1,018 apartment homes and three additions to existing properties which
will total 436 apartment homes under construction. The historical cost
of construction in progress is assumed to be at fair value.
Calculation of depreciation of real estate owned for the year ended December
31, 1995 and the six months ended June 30, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996
<S> <C> <C>
Depreciation expense based upon an estimated weighted average useful
life of approximately 25.9 years................................... $ 13,777 $ 7,054
Less historical South West depreciation of real estate owned.......... (12,304) (6,483)
Pro forma adjustment.................................................. $ 1,473 $ 571
</TABLE>
(D) Reflects the net estimated reduction of property management costs of
$493 and $190 for the year ended December 31, 1995 and the six months
ended June 30, 1996, respectively, based upon the identified historical
costs for those items which are anticipated to be eliminated or reduced
as a result of the Merger, as follows:
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996
<S> <C> <C>
Net reduction in salary, benefits and occupancy costs..... $ 285 $ 114
Net reduction in travel, entertainment and other.......... 57 34
Net reduction in other expenses........................... 151 42
Pro forma adjustment...................................... $ 493 $ 190
</TABLE>
45
<PAGE>
(E) Represents the net adjustment to interest expense, as follows:
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996
<S> <C> <C>
To adjust amortization of South West's deferred financing
costs which would be eliminated in connection with the
Merger................................................. $ (965) $ (557)
To adjust the amortization of the premium required to
record South West's mortgages and other notes payable
at fair value.......................................... (440) (285)
To reflect the additional borrowings of $13,115 of
variable-rate bank line borrowings used to fund the
Merger and Registration costs (See Note (G) of the Pro
Forma Combined Balance Sheet) at current market
interest rates available to United Dominion of 6.03%... 791 396
Pro forma adjustment...................................... $ (614) $ (446)
</TABLE>
(F) Represents the net reduction to general and administrative expenses of
$1,039 and $521 for the year ended December 31, 1995 and the six months
ended June 30, 1996, respectively, based upon the identified historical
costs of certain items which are anticipated to be eliminated or reduced
as a result of the Merger, as follows:
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996
<S> <C> <C>
Net reduction in salary, benefits and occupancy costs........... $ 704 $ 335
Net reduction in duplication of public company expenses......... 181 99
Net reduction in other expenses................................. 154 87
$ 1,039 $ 521
</TABLE>
(G) The pro forma weighted average shares outstanding for the year ended
December 31, 1995 and the six months ended June 30, 1996 are computed as
follows:
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996
<S> <C> <C>
South West's historical weighted average common shares
outstanding.................................................. 18,627 20,637
Less: dilutive effect of South West stock options to be
eliminated in the Merger..................................... (92) (206)
South West historical adjusted weighted average common shares
outstanding.................................................. 18,535 20,431
United Dominion pro forma weighted average common shares
outstanding.................................................. 54,156 58,088
Issuance of United Dominion common stock at an exchange ratio of
1.0833 for all of the South West common stock in connection
with the Merger **........................................... 20,079 22,133
Pro forma shares................................................ 74,235 80,221
</TABLE>
** Weighted average historical adjusted South West common shares outstanding
multiplied by the exchange ratio.
46
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
BASIS OF PRESENTATION
The Unaudited Pro Forma Combined Balance Sheet gives effect to the
proposed Merger of United Dominion and South West as if the Merger had
occurred on June 30, 1996. The Unaudited Pro Forma Combined Balance Sheet
gives effect to the Merger under the purchase method of accounting in
accordance with Accounting Standards Board Opinion No. 16. In the opinion of
management, all significant adjustments necessary to reflect the effects of
the Merger have been made. In addition, the United Dominion Pro Forma
Balance Sheet column at June 30, 1996 assumes the completion, as of June 30,
1996, of the acquisition of a portfolio of 18 apartment communities (See
Note (A) to the Unaudited Pro Forma Combined Balance Sheet).
The Unaudited Pro Forma Combined Balance Sheet is presented for
comparative purposes only and is not necessarily indicative of what the
actual combined financial position of United Dominion and South West would
have been at June 30, 1996, nor does it purport to represent the future
combined financial position of United Dominion and South West. This
Unaudited Pro Forma Combined Balance Sheet should be read in conjunction
with, and is qualified in its entirety by, the respective historical
financial statements and notes thereto of United Dominion and South West
incorporated by reference into this Joint Proxy Statement/Prospectus.
47
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNITED
UNITED PRO FORMA DOMINION
DOMINION SOUTH WEST MERGER PRO FORMA
PRO FORMA (A) HISTORICAL (B) ADJUSTMENTS (C) COMBINED
<S> <C> <C> <C> <C>
ASSETS
Real estate held for investment............................. $ 1,420,686 $361,245 $ 68,768(D) $1,850,699
Less accumulated depreciation............................ (146,988) (76,163) 76,163(D) (146,988)
1,273,698 285,082 144,931 1,703,711
Construction in progress.................................... -- 93,483 -- 93,483
1,273,698 378,565 144,931 1,797,194
Real estate held for disposition............................ 48,710 -- -- 48,710
Cash and cash equivalents................................... 7,592 8,644 -- 16,236
Other assets................................................ 23,560 14,444 (4,403)(E) 33,601
$ 1,353,560 $401,653 $ 140,528 $1,895,741
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage and secured construction notes payable............. $ 304,836 $205,083 $ 2,016(F) $ 511,935
7 1/4% Notes due April 1, 1999.............................. 75,000 -- -- 75,000
8 1/2% Debentures due September 15, 2024.................... 150,000 -- -- 150,000
Other notes payable......................................... 247,262 -- 13,115(G) 260,377
Distributions payable to shareholders....................... 13,621 5,348 -- 18,969
Accounts payable, accrued expenses and other................ 30,315 9,110 -- 39,425
821,034 219,541 15,131 1,055,706
Minority interest of unitholders in Operating Partnership... 2,007 -- -- 2,007
Shareholders' equity:
Preferred stock, no par value; 25,000,000 shares
authorized: 9 1/4% Series A Cumulative Redeemable
Preferred Stock (liquidation preference of $25 per
share), 4,200,000 shares issued and outstanding........ 105,000 -- -- 105,000
Common stock............................................. 58,425 205 21,982(H) 80,612
Additional paid in capital............................... 506,406 235,040 50,282(H) 791,728
Notes receivable from officer shareholders............... (6,024) (2,613) 2,613(H) (6,024)
Distributions in excess of earnings...................... (134,628) (50,520) 50,520(H) (134,628)
Unrealized gain on securities available-for-sale......... 1,340 -- -- 1,340
Total shareholders' equity.................................. 530,519 182,112 125,397 838,028
$ 1,353,560 $401,653 $ 140,528 $1,895,741
</TABLE>
See accompanying notes.
48
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(A) The United Dominion Pro Forma Balance Sheet at June 30, 1996 gives effect
to the August 15, 1996, acquisition by United Dominion of a portfolio of 18
apartment communities as previously reported on Form 8-K dated August 15,
1996 that is incorporated by reference into this Joint Proxy
Statement/Prospectus, as if the transaction had been consummated on June
30, 1996.
(B) Certain reclassifications have been made to South West's historical balance
sheet to conform to United Dominion's balance sheet presentation.
(C) Represents adjustments to record the Merger in accordance with the purchase
method of accounting, based upon the assumed purchase price of $542,181,
assuming a market value of $13.875 per share of United Dominion common
stock, as follows:
<TABLE>
<S> <C>
Issuance of 22,187 shares of United Dominion common stock based on the 1.0833 exchange
ratio in exchange for 20,480 shares of South West common stock...................... $307,836
Assumption of South West liabilities.................................................. 219,541
Adjustment to record South West mortgages and other notes payable at fair value....... 2,016
Merger costs (See calculation below).................................................. 12,788
$542,181
</TABLE>
The following is a calculation of the estimated fees and other expenses
related to the Merger:
<TABLE>
<S> <C>
Advisory fees.............................................................................. $ 1,200
Legal and accounting fees.................................................................. 985
Termination, severance and relocations costs............................................... 1,887
Loan transfer fees......................................................................... 222
Payments of options and notes**............................................................ 7,539
Due diligence.............................................................................. 230
Other...................................................................................... 725
$12,788
</TABLE>
** Represents payments for termination of unvested options and forgiveness
of notes to South West employees and directors (see "The
Merger -- Interests' of Certain Persons in the Merger")
(D) Increase of $144,931 in the book value of South West's real estate
assets based upon United Dominion purchase price and the adjustment to
eliminate South West's historical accumulated depreciation of $76,163,
as follows:
<TABLE>
<S> <C> <C>
Purchase price (See Note (C))................................................. $ 542,181
Less basis of South West's assets assumed:
Real estate held for investment............................................. 361,245
Construction in progress.................................................... 93,483
Cash and cash equivalents................................................... 8,644
Other assets (See Note (E))................................................. 10,041
(473,413)
</TABLE>
49
<PAGE>
<TABLE>
<S> <C> <C>
Pro forma adjustment.......................................................... $ 68,768
South West historical accumulated depreciation................................ $ 76,163
Less basis assigned to accumulated depreciation............................... --
Pro forma adjustment.......................................................... $ 76,163
Total pro forma adjustment to real estate held for investment................. $ 144,931
</TABLE>
(E) To adjust the historical basis of South West's other assets to
eliminate deferred financing and similar costs in the aggregate amount
of $4,403, which would be eliminated in connection with the Merger.
(F) To record the premium required to adjust South West fixed-rate
mortgages and other notes payable and a $68 million interest rate swap
agreement to estimated fair value using market quotations from
investment banks.
(G) Additional borrowings of $13,115 of variable-rate bank debt incurred
by United Dominion to fund Merger costs of $12,788 (See Note (C) and
registration costs of $327. (See Note (H)).
(H) To adjust South West's shareholders' equity to reflect the issuance of
22,187 (at an exchange ratio of 1.0833) shares of United Dominion
common stock at an assumed price of $13.875 per share, in exchange for
all of the 20,480 outstanding shares of South West's common stock and
to record the estimated Registration costs in connection with the
Merger of $327, as follows:
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
FROM DISTRIBUTIONS
COMMON PAID-IN OFFICER IN EXCESS
STOCK CAPITAL SHAREHOLDERS OF EARNINGS
<S> <C> <C> <C> <C>
Issuance of United Dominion common stock.......... $22,187 $ 285,649 $ -- $ --
Registration costs incurred in connection with the
Merger.......................................... -- (327) -- --
South West's historical shareholders' equity...... (205) (235,040) 2,613 50,520
Pro forma adjustments........................... $21,982 $ 50,282 $2,613 $50,520
</TABLE>
50
<PAGE>
BUSINESS OF UNITED DOMINION
United Dominion is a self-administered equity REIT, formed in 1972, whose
business is devoted to one industry segment, the ownership and operation of
apartment communities located in the Southeastern United States. United Dominion
is headquartered in Richmond, Virginia with regional offices in Richmond,
Atlanta, Georgia, and Orlando, Florida, and area offices in the previously
mentioned cities plus Columbia, Maryland, Raleigh, North Carolina, Charlotte,
North Carolina, Tampa, Florida and Nashville, Tennessee. United Dominion
employed approximately 1,400 associates as of September 30, 1996. United
Dominion is a fully integrated real estate company with acquisition, development
and asset and property management capabilities. United Dominion acquires,
upgrades, develops and operates its properties with the goals of growing its FFO
and quarterly distributions to shareholders, while building equity primarily
through real estate appreciation.
United Dominion is operated so as to qualify as a REIT under the applicable
provisions of the Code. To qualify as a REIT, United Dominion must meet certain
tests which, among other things, require that its assets consist primarily of
real estate, its income be derived primarily from real estate and at least 95%
of its annual taxable income be distributed to its shareholders. Because United
Dominion qualifies as a REIT, it generally is not subject to federal corporate
income tax on its taxable income that is distributed to its shareholders.
United Dominion's apartment communities consist primarily of upper middle
to moderate income properties which make up the broadest segment of the
apartment market. Management believes that well located apartments offer United
Dominion a good combination of current income and longer term growth. At
September 30, 1996, United Dominion owned 167 apartment communities having a
total of 41,204 apartment homes. For the six months ended June 30, 1996,
apartments provided approximately 97% of United Dominion's total rental income.
During the first nine months of 1996, United Dominion acquired 28 apartment
communities, having a total of 7,096 apartment homes at a total cost of
approximately $294 million. In addition, United Dominion completed 60 apartment
homes as the second phase of Clear Run Apartments in Wilmington, North Carolina
during the third quarter of 1996.
A significant aspect of United Dominion's investment strategy has been to
concentrate its investments within the Southeast. United Dominion currently owns
properties in the seven coastal states from Delaware to Florida plus Tennessee
and Alabama. United Dominion is a significant apartment owner in 17 Southeast
markets with each market averaging approximately 2,000 apartment homes. At
September 30, 1996, United Dominion did not own more than 10% of its apartment
homes in any one market. United Dominion's strategy is to establish a major
presence in each of these 17 markets in order to:
(Bullet) Be a local market leader.
(Bullet) Improve operating efficiencies in the purchase of good and
services.
(Bullet) Reduce the cost of property management.
(Bullet) Generate new sources of revenue from services marketed to
residents.
(Bullet) Reduce costs and add revenues from utility deregulation.
(Bullet) Build stronger local organizations which are conducive to growing
and retaining associates.
United Dominion will continue to grow principally through acquisitions,
however, given its size, as well as its strategic objective to be a major owner
in its larger markets, management believes it is important that United Dominion
have some development capability. United Dominion has created a prototype two or
three story apartment building that can be adapted to and developed at multiple
locations. In addition to the second phase of Clear Run, in 1996, United
Dominion has begun building this prototype as a second phase at Brantley Pines
Apartments in Ft. Myers, Florida (96 units), Steeplechase Apartments in
Greensboro, North Carolina (176 units) and Manor at England Run Apartments in
Fredericksburg, Virginia (168 units). United Dominion has also begun the ground
up development of a 360 unit apartment community in a suburb of Nashville,
Tennessee.
United Dominion has an active program of selling or exchanging apartment
communities that no longer meet its long-term investment objectives. During the
first nine months of 1996, United Dominion sold two smaller apartment
communities in two separate transactions. Currently, United Dominion is offering
seven apartment properties for sale, of which at least two are expected to be
sold prior to year end.
Management expects United Dominion's apartment business to continue to be
stable during the next two to three years. Apartment markets in United
Dominion's region in 1994 and 1995 generally benefitted from the combination of
job growth which led to strong growth in the number of renter households and
only modest apartment construction. Beginning in mid-
51
<PAGE>
year 1994 and lasting through mid-year 1995, economic occupancy of United
Dominion's mature apartments communities (the 116 communities containing 28,906
apartment homes acquired prior to January 1, 1995) steadily increased to levels
approximating 95%. However, mature apartment economic occupancy trended downward
beginning in August, 1995 and continued to decline, albeit slowly, through
December, 1995 and, since then, has remained steady in the 93% to 94% range.
Mature apartment economic occupancy at United Dominion's apartment properties
averaged 93.2% for the first six months of 1996 and was 94.1% for the month of
August, 1996. Management believes that apartment markets within the Southeast,
in general, will remain relatively balanced over the next few years if
construction activity remains at reasonable levels. Because United Dominion's
apartment economic occupancy has stabilized between 93% and 94% during 1996, it
is anticipated that United Dominion will benefit more from higher rent growth in
1996 and 1997 than from occupancy gains.
In addition to 167 apartment communities, United Dominion also owns three
shopping centers, two industrial properties, two small office properties and
some undeveloped commercial land. United Dominion hopes to dispose of these
commercial properties over time as suitable opportunities arise. One industrial
property and part of the undeveloped land are expected to be sold during the
fourth quarter of 1996. United Dominion recognized cash proceeds from sales of
real estate owned of $24.5 million for the nine months ended September 30, 1996.
These sales included both apartments and commercial properties. Property sales
should continue to be a funding source for acquisitions and development in the
future.
As United Dominion's capital base has broadened over the past several years
primarily through the sale of United Dominion Common Stock in seven of the last
nine years, its financial strength and credit standing have improved. United
Dominion's senior debt is currently rated BBB+ by Standard & Poor's and Baal by
Moody's. As a result of its investment grade debt ratings, United Dominion has
used and expects to continue to use unsecured debt as its primary debt funding
source. United Dominion also uses secured debt financing but to a much lesser
extent and only (i) when such financing takes the form of tax-exempt housing
bonds or (ii) in connection with an acquisition when existing mortgage financing
is in place that either is closed to prepayment or cannot be repaid at a
reasonable cost.
At June 30, 1996, United Dominion's outstanding indebtedness totaled $617.1
million with a weighted average interest rate of 7.52%. At June 30, 1996, total
senior debt equaled approximately 40% of United Dominion's total market
capitalization. Financing activities during the first six months ended June 30,
1996 included: (i) short-term bank borrowings aggregating $82.4 million, (ii)
the issuance of United Dominion Common Stock through the exercise of stock
options and amounts received under United Dominion's dividend reinvestment and
stock purchase plan of $4.9 million and (iii) the assumption of mortgage notes
payable aggregating $15.7 million.
Subsequent to June 30, 1996, United Dominion has completed significant
financing activities. During 1996, United Dominion implemented a $200 million
medium-term note ("MTN") program under its $462.5 million shelf registration
statement. On July 9, 1996, United Dominion issued $125 million of ten year
notes under this program at an interest rate of 7.95%. Net proceeds of
approximately $124.2 million were used to (i) curtail existing bank debt in the
amount of $93.1 million, and (ii) repay a $35 million senior note that matured
on July 15, 1996. In July, 1995 and June, 1996, United Dominion entered into
separate interest rate protection transactions in the aggregate notional amount
of $125 million in anticipation of the July, 1996 debt financing. The two
interest rate hedge agreements were terminated simultaneously with the $125
million MTN issuance and United Dominion received $3.0 million in cash on the
settlement. This had the economic effect of reducing the interest rate on the
MTNs to approximately 7.61% over the ten year term. Additionally, on August 15,
1996, United Dominion purchased an 18 property apartment portfolio at an
aggregate cost of $182.6 million. The acquisition was financed with: (i)
additional borrowings under bank lines of credit of $25.1 million, (ii) the
assumption of secured debt encumbering properties aggregating approximately
$109.8 million, (iii) Seller financing of $25 million and (iv) the issuance of
approximately 1.7 million shares of United Dominion Common Stock valued at $22.7
million.
52
<PAGE>
APARTMENTS OWNED BY GEOGRAPHIC MARKET
The table below sets forth a summary by major geographic market of United
Dominion's portfolio of apartment communities owned at June 30, 1996. The
table includes seven apartment communities classified at June 30, 1996, as
real estate held for disposition and (except for the Economic Occupancy and
Average Monthly Rental Rate calculations) a portfolio of 18 apartment
communities acquired by United Dominion on August 15, 1996. The table also
includes one apartment community sold subsequent to June 30, 1996
containing 76 apartment homes, and excludes two apartment communities
acquired during September, 1996 containing 351 apartment homes for an
aggregate purchase price of $12.2 million, including closing costs.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF PERCENTAGE OF ECONOMIC
APARTMENT APARTMENT APARTMENT REAL ESTATE COST OCCUPANCY
MAJOR GEOGRAPHIC MARKETS COMMUNITIES HOMES HOMES AT COST ENCUMBRANCES PER UNIT SIX MONTHS 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Richmond, Virginia....... 13 3,773 9% $ 106,651,953 $ 11,521,793 $28,267 95.1%
Columbia, South
Carolina............... 12 3,534 9% 110,470,647 29,568,321 31,259 92.2%
Charlotte, North
Carolina............... 14 2,728 7% 95,558,917 21,511,184 35,029 95.3%
Raleigh, North
Carolina............... 9 2,628 6% 97,208,394 11,800,000 36,989 98.4%
Orlando, Florida......... 9 2,453 6% 87,201,636 27,510,000 35,549 90.7%
Atlanta, Georgia......... 9 2,450 6% 89,296,714 15,782,095 36,448 94.8%
Tampa, Florida........... 8 2,351 6% 77,124,949 -- 32,805 92.1%
Eastern North Carolina... 9 2,150 5% 70,651,656 10,875,406 32,861 96.1%
Greensboro/Winston Salem,
North Carolina......... 8 1,971 5% 75,571,801 26,410,915 38,342 92.6%
Greenville/Spartanburg,
South Carolina......... 9 1,840 4% 58,602,434 20,416,000 31,849 92.5%
Baltimore, Maryland...... 8 1,746 4% 74,894,379 30,590,000 42,895 89.6%
Hampton Roads,
Virginia............... 7 1,628 5% 49,034,928 6,456,542 30,120 91.4%
Nashville, Tennessee..... 6 1,520 4% 51,060,608 5,201,353 33,593 94.3%
Washington, DC........... 6 1,483 4% 62,688,349 11,357,183 42,271 89.0%
Jacksonville, Florida.... 3 1,157 3% 46,077,612 12,455,000 39,825 93.0%
Ft. Lauderdale,
Florida................ 4 960 2% 58,551,052 -- 60,991 91.6%
Memphis, Tennessee....... 4 935 2% 31,551,783 5,805,000 33,745 93.5%
Eastern Shore
Maryland/Delaware...... 6 1,152 3% 47,656,230 -- 41,368 97.3%
Other North Carolina..... 4 1,052 2% 45,773,286 27,681,759 43,511 ***
Other Florida............ 5 1,172 3% 39,422,746 15,049,934 33,637 89.5%
Other Virginia........... 6 988 2% 33,603,926 2,920,000 34,012 96.5%
Other Georgia............ 2 468 1% 20,440,028 6,373,250 43,675 95.9%
Other South Carolina..... 2 408 1% 12,268,875 2,200,000 30,071 78.7%
Alabama.................. 2 382 1% 12,913,593 -- 33,805 86.8%
Total.............. 165 40,929 100% $1,454,276,496 $301,485,735 $35,532 93.2%
<CAPTION>
AVERAGE MONTHLY
AVERAGE MONTHLY RENTAL AVERAGE RENTAL RATES
RATES FOR THE SIX MONTHS UNIT SIZE PER
MAJOR GEOGRAPHIC MARKETS JUNE 30, 1996* (SQUARE FEET) SQUARE FT. **
<S> <C> <C> <C>
Richmond, Virginia....... $511 928 $0.55
Columbia, South
Carolina............... 478 893 0.53
Charlotte, North
Carolina............... 532 937 0.57
Raleigh, North
Carolina............... 568 941 0.60
Orlando, Florida......... 544 915 0.59
Atlanta, Georgia......... 555 965 0.57
Tampa, Florida........... 541 998 0.54
Eastern North Carolina... 490 913 0.54
Greensboro/Winston Salem,
North Carolina......... 527 933 0.56
Greenville/Spartanburg,
South Carolina......... 482 860 0.56
Baltimore, Maryland...... 632 847 0.75
Hampton Roads,
Virginia............... 522 973 0.54
Nashville, Tennessee..... 553 982 0.56
Washington, DC........... 663 831 0.80
Jacksonville, Florida.... 586 871 0.67
Ft. Lauderdale,
Florida................ 773 1,087 0.71
Memphis, Tennessee....... 483 784 0.62
Eastern Shore
Maryland/Delaware...... 593 921 0.64
Other North Carolina..... *** 887 ***
Other Florida............ 534 831 0.64
Other Virginia........... 523 848 0.62
Other Georgia............ 617 1,148 0.54
Other South Carolina..... 395 869 0.45
Alabama.................. 490 1,056 0.46
Total.............. $545 926 $0.59
</TABLE>
* Represents potential rent collections (gross potential rents less
market adjustments), which approximates net effective rents.
** Based upon Average Monthly Rental Rates for the Six Months Ended
June 30, 1996.
*** The four properties included in "Other North Carolina" were
acquired on August 15, 1996.
53
<PAGE>
BUSINESS OF SOUTH WEST
South West is a self-administered, fully-integrated, equity REIT that has
acquired, developed and managed apartment communities since 1973. As of
September 30, 1996, South West's portfolio included 42 properties containing
13,905 apartment units. South West also has two properties under development
with about 48% of their 698 units completed and three additions to existing
properties which are about 15% completed and which will add 372 units. South
West operates in the Southwest and Southeast regions of the U.S. and is
headquartered in Dallas, Texas.
South West has approximately 437 officers and full-time employees involved
in the administration of South West and operation of its properties. The
executive officers of South West are responsible for the day-to-day operations
and engage in the management of real estate exclusively through South West. The
South West Board (a majority of whose members are independent) are responsible
for overall direction of South West. South West's policies with respect to
investment, financing and dividends are determined by its Board of Directors.
South West is the successor-in-interest to Southwest Realty, Ltd., a
publicly-traded limited partnership ("SRL"), which began operations in January
1983 as a result of a consolidation of affiliated partnerships which were
controlled by John S. Schneider, Robert F. Sherman and Lewis H. Sandler, each of
whom is an executive officer of South West. In October 1992, SRL reorganized
into South West in order to elect REIT status (the "Reorganization"). The term
"South West" as used herein includes SRL with respect to all matters prior to
the Reorganization.
South West's principal investment objectives are to protect its investors'
capital, to increase both FFO per share and quarterly dividends to its
stockholders, and to maximize the long-term value of its portfolio. As a result
of South West's experience and capacity in all aspects of the apartment
industry, South West has been able to grow through acquisition, development and
the intensive management of its portfolio.
South West's acquisition and development programs focus on well-located
communities in high job-growth markets which appeal to middle and upper-middle
income apartment residents, and which can be acquired or developed at attractive
prices. Management believes that in 1996 the supply of new apartments in its
aggregated markets will somewhat exceed demand, which will result in a modest
decline in occupancy and a slower pace of rental rate increases. South West also
believes that prices of existing properties and the current cost to develop new
properties are generally too high to justify substantial new investment, based
on its current cost of capital. In 1996, therefore, South West has been focusing
on adding value through revenue-generating capital improvements to its existing
portfolio and building additions to a select few of its communities where the
total potential return is equal to or in excess of its 11% objective.
South West has been geographically diversifying its portfolio but has no
policy limiting the percentage of assets that may be invested in any particular
property. South West may participate with other entities in property ownership
through joint ventures or other types of ownership. Equity investments may be
subject to existing mortgage financing and other indebtedness which have
priority over the equity interests of South West. The executive officers of
South West, including John S. Schneider, Robert F. Sherman, Lewis H. Sandler,
Daniel M. Jones, III, and David L. Johnston (the "Executive Officers"), have no
individual economic interest in the properties in which South West has an
interest. South West will not engage in transactions in which its Executive
Officers have an economic interest.
Subject to REIT qualification requirements, South West may also invest in
securities of other REITs or other entities engaged in real estate activities or
securities of other insurers. If the Merger is not consummated, South West may,
in the future, acquire all or substantially all of the securities or assets of
other REITs or other real estate entities where such investments would be
consistent with South West's investment policies. South West does not intend
that its investments in securities will require it to register as an "investment
company" under the Investment Company Act of 1940, and South West will divest
any such securities before registration would be required. Further, if the
Merger is not consummated, South West does not intend to invest in any
securities which would violate the asset holding requirements for REITs.
Management's primary operating objective is to provide residents of its
apartment communities with a consistent, high-quality living environment.
Management services for the properties are provided by South West's management
staff, which includes approximately 372 on-site leasing, management and
maintenance personnel, many of whom have extensive experience in apartment
management.
South West believes that it has developed the people, procedures, operating
systems and financial controls to maximize rental income, minimize resident
turnover and control operating expenses. A key aspect of management's strategy
has been to focus on maximizing rental revenue as opposed to concentrating
exclusively on occupancy. This is accomplished primarily
54
<PAGE>
through monthly reviews of competitive conditions in each market and by
aggressively increasing rent levels on each unit type and amenity.
Management believes that a geographically diversified portfolio is an
important factor in achieving consistent internal growth in the apartment
industry. When South West's current development portfolio is completed,
approximately 23% of its apartment units will be located in Dallas, Texas, and
25% in suburban Dallas communities; 13% in San Antonio, Texas; 7% in Houston,
Texas; 5% in Phoenix, Arizona; 3% each in Austin and Fort Worth, Texas, Little
Rock, Arkansas, Las Vegas, Nevada, Raleigh/Durham and Charlotte, North Carolina;
2% each in Amarillo, Corpus Christi and El Paso, Texas, and Oklahoma City,
Oklahoma, and 1% in Albuquerque, New Mexico.
The creation of new jobs, which management believes is one of the most
important factors affecting demand for apartments, continues to be greater in
South West's markets than in the United States as a whole. Non-agricultural
employment in South West's markets increased by a monthly average of 268,000
jobs in the first half of 1996, a gain of 2.8% over the average monthly growth
for the same markets in 1995. During the same period, average monthly
non-agricultural employment in the United States grew by 1,489,000 jobs, a 1.3%
increase from the monthly average for 1995.
A primary objective of South West is to raise its dividend annually.
Beginning with the first quarter of 1996, South West increased its quarterly
dividend to $0.26 per share, bringing the total dividend increase since 1992 to
49%. In the first six months of 1996, South West paid out 73% of its FFO as
dividends. This low payout ratio allows South West to invest internally
generated funds in revenue-enhancing capital improvements to its existing
communities and in its development properties.
South West's policies with respect to the activities described below have
been determined by the South West Board and may be amended or revised from time
to time at the discretion of the South West Board without a vote of the
stockholders of South West. If the Merger is not consummated, such policies
shall continue to be the policies of South West until revised in the manner
described in the preceding sentence.
FINANCING POLICIES. To the extent that the South West Board determines to
obtain additional capital, South West may raise such capital through additional
equity offerings, debt financing or retention of cash flow (subject to REIT
distribution requirements), or a combination of these methods.
POLICIES WITH RESPECT TO PROPERTY ADDITIONS AND RESERVES. Only those
expenditures that generally do not recur annually and/or that will increase the
rental income potential of its properties are capitalized. Expenditures for
replacement of items such as carpet, air conditioning compressors, appliances,
blinds and landscaping (which aggregate approximately $212 per apartment unit
annually) are generally expensed. In addition, South West has cash reserves to
provide for predictable expenditures for additions to property. The estimate of
the requirements for these reserves is based on the replacement cost and useful
lives of exterior paint, boilers, roofs, asphalt and miscellaneous items. At
June 30, 1996, South West had cash reserves aggregating $5.15 million for
additions to property, or an average of $405 per apartment unit.
LENDING POLICIES. South West may acquire mortgage loans on apartment
properties. Once acquired, South West may modify, increase, or extend such loans
as the South West Board shall deem appropriate.
POLICIES WITH RESPECT TO OTHER ACTIVITIES. South West does not presently
intend to make investments other than as previously described, although it may
do so. South West has authority to offer shares of its capital stock and
preferred or debt securities for cash or in exchange for securities or
properties, and to repurchase or otherwise reacquire its common stock or any
other securities, and may engage in such activities in the future. It may also
offer warrants, options and rights on such terms as the South West Board shall
determine to be in the best interests of South West. South West does not intend
to underwrite the securities of any other issuers.
South West has operated so as to qualify as a REIT for federal income tax
purposes and its policy is to continue to operate in such a manner unless,
because of a change in circumstances or changes in applicable federal income tax
laws, the Board of Directors determines that it is no longer in the best
interests of South West to qualify as a REIT.
The following table sets forth certain information relating to the
properties in South West's portfolio. The information presented is as of August
31, 1996, except as otherwise indicated. No single property has a book value
equalling or exceeding 10% of South West's consolidated total assets or produced
gross revenue in 1995 amounting to 10% or more of South West's consolidated
gross revenues.
55
<PAGE>
SOUTH WEST PORTFOLIO SUMMARY
<TABLE>
<CAPTION>
AVERAGE
SQUARE
NUMBER FEET
OF SQUARE PER YEAR
PROPERTY LOCATION UNITS FEET UNIT BUILT
<S> <C> <C> <C> <C> <C>
EXISTING PROPERTIES
Citiscape Dallas, Texas 231 204,946 887 1973(d)
Foxfire (c) Dallas, Texas 310 239,098 771 1977
High Ridge Dallas, Texas 360 259,434 721 1979
Preston Oaks Dallas, Texas 200 165,160 826 1980
Preston Trace Dallas, Texas 228 182,120 799 1984
Rock Creek Dallas, Texas 540 376,760 698 1979
Timbercreek Dallas, Texas 1,083 767,047 708 1977
Windridge Dallas, Texas 444 359,820 810 1980
Autumnwood Arlington, Texas 320 237,322 742 1984
Cobblestone Arlington, Texas 344 289,916 843 1984
Pavilion Arlington, Texas 500 442,616 885 1979(d)
Oak Park Euless, Texas 528 430,176 815 1980
Catalina Lewisville, Texas 208 164,064 789 1982
Wimbledon Court Lewisville, Texas 312 234,208 751 1983
Southern Oaks Fort Worth, Texas 248 182,352 735 1982
Hunter's Ridge Fort Worth, Texas 248 195,096 787 1981
Lakeridge Irving, Texas 244 165,628 679 1984
Summergate Irving, Texas 176 119,424 679 1984
Dove Park Grapevine, Texas 263 250,908 954 1984
The Bluffs San Antonio, Texas 318 212,772 669 1978
Westlake Villas San Antonio, Texas 325 222,865 686 1985
Ashley Oaks San Antonio, Texas 216 151,612 702 1985
Sunflower San Antonio, Texas 282 259,412 920 1974
Woodscape Houston, Texas 544 348,768 641 1978
Woodtrail Houston, Texas 304 209,126 688 1978
Park Trails Houston, Texas 210 168,480 802 1983
The Creeks Austin, Texas 325 267,918 824 1975
Pecan Grove Austin, Texas 192 115,200 600 1984
Foxfire Amarillo, Texas 328 289,572 883 1978
Chandler's Mill Corpus Christi, Texas 248 183,320 739 1984
Ryan's Mill El Paso, Texas 248 182,456 736 1985
Turtle Creek Little Rock, Arkansas 216 172,248 797 1985
Shadow Lake Little Rock, Arkansas 296 248,000 838 1984
Greenway Park Phoenix, Arizona 200 163,904 820 1986
Vista Point Phoenix, Arizona 192 138,352 721 1986
Sunset Pointe Las Vegas, Nevada 336 294,332 876 1989
Bluff Creek Oklahoma City, Oklahoma 316 238,896 756 1984
Alvarado Albuquerque, New Mexico 210 153,192 729 1984
Harbour Pointe Raleigh, North Carolina 198 172,320 870 1984
SUBTOTAL OR WEIGHTED AVERAGE (E) 12,291 9,458,840 770
DEVELOPMENT PROPERTIES:
Oak Forest Lewisville, Texas 436 363,280 833 1995
Promontory Pointe San Antonio, Texas 596 591,436 992 1996
Sierra Palms Chandler, Arizona 320 329,640 1,030 1996
Copper Mill Durham, North Carolina 278 264,896 953 1996
Providence Court Charlotte, North
Carolina 420 453,804 1,080 1997
Oak Forest -- Phase 2 Lewisville, Texas 260 223,712 860 1998
Ashley Oaks -- Phase 2 San Antonio, Texas 246 241,184 980 1996
Oak Park -- Phase 2 Euless, Texas 80 68,448 856 1997
Sunset Pointe -- Phase 2 Las Vegas, Nevada 48 27,060 564 1996
SUBTOTAL OR WEIGHTED AVERAGE (E) 2,684 2,563,460 955
GRAND TOTAL OR WEIGHTED AVERAGE 14,975 12,022,300 803
<CAPTION>
AVERAGE ECONOMIC
RENT PER OCCUPANCY CURRENT
UNIT (A) (B) MARKET
YEAR ENDED YEAR ENDED RENT
UNIT MIX DECEMBER DECEMBER PER
ONE TWO THREE 31, 31, SQ.
PROPERTY BEDROOM BEDROOM BEDROOM 1995 1994 1995 1994 FOOT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EXISTING PROPERTIES
Citiscape 133 78 20 $553 $533 92% 93% $0.74
Foxfire (c) 190 120 0 418 471 91% 95% 0.68
High Ridge 312 48 0 397 367 94% 92% 0.67
Preston Oaks 104 96 0 549 513 94% 94% 0.78
Preston Trace 130 98 0 565 536 93% 92% 0.85
Rock Creek 476 64 0 451 416 94% 90% 0.77
Timbercreek 888 195 0 281 372 87% 91% 0.67
Windridge 324 120 0 484 452 93% 90% 0.69
Autumnwood 224 96 0 469 444 94% 94% 0.74
Cobblestone 168 176 0 538 510 94% 95% 0.75
Pavilion 192 216 92 527 520 92% 91% 0.70
Oak Park 240 240 48 461 435 92% 90% 0.67
Catalina 88 104 16 473 456 89% 92% 0.72
Wimbledon Court 152 160 0 485 453 92% 93% 0.77
Southern Oaks 176 72 0 461 397 97% 96% 0.70
Hunter's Ridge 144 104 0 471 393 94% 92% 0.66
Lakeridge 172 72 0 453 414 93% 90% 0.81
Summergate 152 24 0 452 433 94% 93% 0.79
Dove Park 48 215 0 511 514 92% 94% 0.68
The Bluffs 282 36 0 408 387 89% 91% 0.75
Westlake Villas 157 168 0 478 461 90% 92% 0.80
Ashley Oaks 180 36 0 487 472 90% 94% 0.82
Sunflower 122 112 48 528 506 93% 95% 0.65
Woodscape 436 108 0 310 288 88% 85% 0.57
Woodtrail 240 64 0 388 372 88% 86% 0.65
Park Trails 130 80 0 452 428 87% 88% 0.66
The Creeks 180 145 0 442 437 85% 91% 0.68
Pecan Grove 168 24 0 483 444 97% 96% 0.92
Foxfire 136 176 16 445 427 93% 96% 0.59
Chandler's Mill 160 88 0 491 470 92% 92% 0.79
Ryan's Mill 168 80 0 444 452 85% 90% 0.73
Turtle Creek 168 48 0 509 498 93% 97% 0.76
Shadow Lake 152 128 16 502 470 94% 92% 0.69
Greenway Park 108 92 0 479 448 89% 91% 0.70
Vista Point 136 56 0 463 417 94% 92% 0.75
Sunset Pointe 160 144 32 579 618 87% 95% 0.80
Bluff Creek 216 100 0 396 377 92% 91% 0.64
Alvarado 175 35 0 540 511 93% 96% 0.83
Harbour Pointe 58 140 0 612 588 95% 93% 0.78
SUBTOTAL OR WEIGHTED AVERAGE (E) 64% 34% 2% $455 $437 91% 92% $0.71
DEVELOPMENT PROPERTIES:
Oak Forest 292 120 24 0.86
Promontory Pointe 312 284 0 0.80
Sierra Palms 96 192 32 0.80
Copper Mill 144 110 24 0.85
Providence Court
144 204 72 0.81
Oak Forest -- Phase 2 92 144 24 0.86(f)
Ashley Oaks -- Phase 2 48 118 80 0.75
Oak Park -- Phase 2 44 36 0.81(f)
Sunset Pointe -- Phase 2 48 0.90(f)
SUBTOTAL OR WEIGHTED AVERAGE (E) 45% 45% 10% $0.82
GRAND TOTAL OR WEIGHTED AVERAGE 60% 36% 4% $0.74
</TABLE>
(a) Represents average collected rental revenue per unit per month
(after giving effect to vacancy, concessions, delinquent rent and
non-revenue units) for all months owned during the period.
(b) Represents average collected rental revenue divided by gross
potential rent for all months owned during the period.
(c) During 1995 South West acquired 100% interest in this property.
Prior to 1995 South West owned 5% of Phase I and 66% of Phase II.
(d) Substantially refurbished in 1993.
(e) The weighted average rent per unit and economic occupancy
percentage have been based on the South West's portfolio of
wholly-owned apartments and its percentage of apartments owned in
joint ventures in each of the periods presented.
(f) For development properties not currently in lease-up phase,
represents management's estimate of market rent for the property.
56
<PAGE>
COMPARATIVE RIGHTS OF SHAREHOLDERS
At the Effective Time of the Merger, South West stockholders automatically
would become shareholders of United Dominion and their rights as shareholders
would be determined by the United Dominion Articles and the Bylaws of United
Dominion. The following is a summary of the material differences in the rights
of shareholders of United Dominion and South West.
CAPITALIZATION
UNITED DOMINION. United Dominion is authorized to issue 100,000,000 shares
of United Dominion Common Stock, of which shares were issued and
outstanding as of the United Dominion Record Date. If the United Dominion
Articles are amended pursuant to the Agreement, United Dominion will be
authorized to issue 150,000,000 shares of United Dominion Common Stock. United
Dominion also is authorized to issue 25,000,000 shares of Preferred Stock, no
par value (the "United Dominion Preferred Stock"), of which 4,200,000 shares,
constituting the Series A Preferred, have been issued.
Under the United Dominion Articles, the United Dominion Board has the
power, without further action by the United Dominion shareholders, to provide
for the issuance of United Dominion Preferred Stock in one or more series and to
fix the voting powers, designations, preferences and relative, participating,
optional or special rights, and qualifications, limitations or restrictions
thereof, by adopting a resolution or resolutions creating and designating such
series. The rights of the holders of United Dominion Common Stock are subject to
the rights and preferences of the holders of the United Dominion Preferred Stock
and would be subject to any rights and preferences of any other United Dominion
Preferred Stock or series thereof that the United Dominion Board may issue. See
" -- Anti-Takeover Provisions."
Under Virginia law, any outstanding shares of capital stock of United
Dominion reacquired by United Dominion would be considered authorized but
unissued shares.
SOUTH WEST. South West's authorized capital stock (the "South West Capital
Stock") consists of two classes, represented by 50,000,000 shares of South West
Common Stock, of which shares were issued and outstanding as of the South
West Record Date, and 10,000,000 shares of Preferred Stock, $.01 par value (the
"South West Preferred Stock"), no shares of which are issued or outstanding. The
South West Articles authorize the South West Board, without stockholder
approval, to issue the South West Preferred Stock in series and to fix the
preferences, conversion and other rights, voting rights, restrictions and
limitations as to dividends, qualifications and terms and conditions of
redemption as the South West Board may determine. If any shares of South West
Preferred Stock are issued, the rights of holders of South West Common Stock
would be subject to the rights and preferences of such shares. The South West
Board has designated 150,881 shares of South West Preferred Stock as a series
entitled "Series A Preferred Stock" (the "South West Series A Preferred") which
is described under " -- Anti-Takeover Provisions -- South West -- Stockholder
Rights Plan."
VOTING RIGHTS
UNITED DOMINION. Each holder of United Dominion Common Stock is entitled to
one vote per share and to the same and identical voting rights as other holders
of United Dominion Common Stock. Holders of United Dominion Common Stock do not
have cumulative voting rights.
Except as may otherwise be provided in the designation of a series of
United Dominion Preferred Stock or as otherwise from time to time expressly
required by law, holders of United Dominion Preferred Stock do not have any
voting rights. The designation of the Series A Preferred provides that whenever
dividends on any shares of Series A Preferred shall be in arrears for six or
more consecutive quarterly periods, the holders of such shares (voting
separately as a class with all other series of United Dominion Preferred Stock
upon which like voting rights have been conferred and are exercisable) will be
entitled to vote for the election of two additional directors of United Dominion
at a special meeting called by the holders of record of at least 10% of the
Series A Preferred or the holders of any other series of United Dominion
Preferred Stock so in arrears (unless such request is received less than 90 days
before the date fixed for the next annual or special meeting of the
shareholders) or at the next annual meeting of shareholders, and at each
subsequent annual meeting until all dividends accumulated on such shares of
Series A Preferred for the past dividend periods and the then current dividend
period shall have been fully paid or declared and a sum sufficient for the
payment thereof set aside for payment. In such case, the entire United Dominion
Board will be increased by two directors.
SOUTH WEST. The holders of South West Common Stock have one vote for each
share held on any matter presented for consideration by the stockholders. The
holders of South West Common Stock are not entitled to cumulative voting in the
election of directors.
57
<PAGE>
DIRECTORS
UNITED DOMINION. The United Dominion Bylaws provide for a Board of
Directors having nine members. The United Dominion Board may increase or
decrease the number of directors and vacancies, whether arising from an increase
in the number of directors or from the failure by shareholders to elect the full
authorized number of directors, may be filled by the shareholders or by the
United Dominion Board (by the affirmative vote of a majority of the remaining
directors if less than a quorum of the directors remains).
A member of the United Dominion Board may be removed with or without cause
by the vote of the holders of a majority of the shares of United Dominion Common
Stock voting on his or her removal.
SOUTH WEST. Members of the South West Board serve staggered three year
terms. The number of persons constituting the South West Board is seven. The
South West Articles provide that a majority of the South West Board shall at all
times consist of independent directors.
Under the South West Articles, South West directors may be removed only for
cause upon a majority vote of all shares of South West Capital Stock entitled to
vote generally on the election of directors, voting as a single class.
ANTI-TAKEOVER PROVISIONS
Certain provisions of Virginia and Maryland law, the United Dominion
Articles and the South West Articles may discourage an attempt to acquire
control of United Dominion or South West, respectively, that a majority of
either corporation's shareholders determined was in their best interests. These
provisions also may render the removal of one or all directors more difficult or
deter or delay corporate changes of control that the United Dominion Board or
South West Board, respectively, did not approve. Provisions of the United
Dominion Articles and South West Articles intended to preserve qualified REIT
status under the Code may have the same effects. See " -- REIT Qualification
Provisions."
UNITED DOMINION
AUTHORIZED PREFERRED STOCK. The rights of holders of United Dominion Common
Stock will be subject to, and may be adversely affected by, the rights of
holders of any United Dominion Preferred Stock that may be issued in the future.
Any such issuance may adversely affect the interests of holders of United
Dominion Common Stock by limiting the control that such holders may exert by
exercise of their voting rights, by subordinating their rights in liquidation to
the rights of the holders of such United Dominion Preferred Stock, and
otherwise. In addition, the issuance of United Dominion Preferred Stock, in some
circumstances, may deter or discourage takeover attempts and other changes in
control of United Dominion by making it more difficult for a person who has
gained a substantial equity interest in United Dominion to obtain control or to
exercise control effectively. United Dominion has no current plans or agreements
with respect to the issuance of any shares of United Dominion Preferred Stock.
VIRGINIA LEGISLATION. The VSCA contains provisions governing "affiliated
transactions" designed to deter uninvited takeovers of Virginia corporations.
These provisions, with several exceptions discussed below, require approval of
material acquisition transactions between a Virginia corporation and any holder
of more than 10% of any class of its outstanding voting shares (an "Interested
Shareholder") by the holders of at least two-thirds of the remaining voting
shares. For three years following the time that the Interested Shareholder
becomes an owner of 10% of the outstanding voting shares, Virginia corporations
cannot engage in an affiliated transaction with such Interested Shareholder
without approval of two-thirds of the voting shares other than those shares
beneficially owned by the Interested Shareholder, and majority approval of the
"disinterested directors." At the expiration of the three year period, the
statute requires approval of affiliated transactions by two-thirds of the voting
shares other than those beneficially owned by the Interested Shareholder absent
an exception. The principal exceptions to the special voting requirement apply
to transactions proposed after the three year period has expired and require
either that the transaction be approved by a majority of the corporation's
disinterested directors or that the transaction satisfy the fair-price
requirements of the law.
The VSCA also provides that shares acquired in a transaction that would
cause the acquiring person's voting strength to cross any of three thresholds
(20%, 33 1/3%, or 50%) have no voting rights unless granted by a majority vote
of shares not owned by the acquiring person or any officer or employee-director
of the corporation. An acquiring person may require the corporation to hold a
special meeting of shareholders to consider the matter within 50 days of its
request.
SOUTH WEST
58
<PAGE>
AUTHORIZED PREFERRED STOCK. The South West Board may authorize the issuance
of South West Preferred Stock at such times, for such purposes and for such
consideration as it may deem advisable without further stockholder approval. The
issuance of South West Preferred Stock under certain circumstances may have the
effect of discouraging an attempt by a third party to acquire control of South
West by, for example, authorizing the issuance of a series of South West
Preferred Stock with rights and preferences designed to impede the proposed
transaction.
STOCKHOLDER RIGHTS PLAN. On August 17, 1994, the South West Board adopted a
plan granting to stockholders of record as of September 2, 1994 certain rights
to purchase additional shares of stock upon the occurrence of certain triggering
events, including certain mergers or other business combination transactions.
The rights will cause substantial dilution to any person or group that attempts
to acquire South West without the approval of the South West Board and thus may
render more difficult any attempt to acquire South West. The South West Board
has waived the provisions of this plan with respect to the Merger.
MARYLAND LEGISLATION. The MGCL provides that control shares (as defined
below) of a Maryland corporation acquired in a "control share acquisition" have
no voting rights except to the extent approved by a vote of two-thirds of the
votes entitled to be cast on the matter, excluding shares owned by the acquiror,
by officers or by directors who are employees of the corporation. "Control
shares" are voting shares which, if aggregated with all other such shares
previously acquired by the acquiror or in respect of which the acquiror is
entitled to exercise or direct the exercise of voting power (except solely by
virtue of a revocable proxy), would entitle the acquiror, directly or
indirectly, to exercise or direct the exercise of voting power in electing
directors within one of the following ranges of voting power: (i) one-fifth or
more but less than one-third, (ii) one-third or more but less than a majority,
or (iii) a majority or more of all voting power. Control shares do not include
shares the acquiring person is then entitled to vote as a result of having
previously obtained stockholder approval. A "control share acquisition" means
the direct or indirect acquisition of control shares, subject to certain
exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay certain of
the corporation's expenses), may compel the board of directors of the
corporation to call a special meeting of stockholders to be held within 50 days
of demand to consider the voting rights of the shares. If no request for a
meeting is made, the corporation may itself present the question at any
stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition by the acquiror or, if a meeting is held, as of the date of any
meeting of stockholders at which the voting rights of such shares are considered
and not approved. If voting rights for control shares are approved at a
stockholders meeting and the acquiror becomes entitled to vote a majority of the
shares entitled to vote, all other stockholders may exercise appraisal rights.
The fair value of the shares as determined for purposes of such appraisal rights
may not be less than the highest price per share paid by the acquiror in the
control share acquisition.
The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or (b) to acquisitions approved or exempted by the articles of
incorporation or bylaws of the corporation.
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns, directly or indirectly, ten
percent or more of the voting power of the corporation's voting stock (an
"Interested Stockholder") or an affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was an Interested
Stockholder or an affiliate thereof, are prohibited for five years after the
most recent date on which the Interested Stockholder becomes an Interested
Stockholder. Thereafter, any such business combination must be recommended by
the board of directors of the corporation and approved by the affirmative vote
of at least (a) 80% of the votes entitled to be cast by holders of outstanding
voting stock of the corporation and (b) two-thirds of the votes entitled to be
cast by holders of voting stock of the corporation other than shares held by the
Interested Stockholder with whom (or with whose affiliate) the business
combination is to be effected, unless, among other conditions, the corporation's
common stockholders receive a minimum price (as defined in the MGCL) for their
shares and the consideration is received in cash or in the same form as
previously paid by the Interested Stockholder for its shares. These provisions
of Maryland law do not apply, however, to business combinations that are
approved or exempted by the board of directors of the corporation prior to the
time that the Interested Stockholder becomes an Interested Stockholder.
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REIT QUALIFICATION PROVISIONS
UNITED DOMINION. In order to preserve United Dominion's status as a REIT
under the Code, United Dominion can redeem or stop the transfer of its shares.
The United Dominion Articles provide that United Dominion is organized to
qualify as a REIT. Because the Code provides that no more than 50% in value of
the outstanding shares of a REIT may be owned, directly or indirectly, by five
or fewer individuals during the last half of any taxable year, the United
Dominion Articles provide that United Dominion shall have the power (i) to
redeem that number of concentrated shares sufficient in the opinion of the
United Dominion Board to maintain or bring the direct or indirect ownership of
shares into conformity with the requirements of the Code, and (ii) to stop the
transfer of shares to any person whose acquisition thereof would, in the opinion
of the United Dominion Board, result in the disqualification of United Dominion
as a REIT. The per share redemption price of any shares redeemed by United
Dominion pursuant to this provision shall be the last reported sale price for
the shares as of the business day preceding the day on which notice of
redemption is given. The United Dominion Board can require shareholders to
disclose in writing to United Dominion such information with respect to
ownership of its shares as it deems necessary to comply with the REIT provisions
of the Code.
SOUTH WEST. In order to preserve South West's status as a REIT under the
Code, the South West Articles provide that, subject to certain exceptions, no
stockholder may directly or indirectly acquire or hold a beneficial ownership
interest (determined in accordance with the attribution rules applicable to
ownership of REIT shares under the Code) in more than 4.0% of the outstanding
shares of any class or series of South West Capital Stock (the "Percentage
Limit"). The South West Board may reduce the Percentage Limit or increase it to
an amount not in excess of 9.9% and may waive the Percentage Limit with respect
to a particular stockholder if it is provided with acceptable evidence that the
REIT status of South West will not be jeopardized thereby.
Subject to certain exceptions, including exceptions for underwritings of
South West Capital Stock and certain cash tender offers for South West Capital
Stock, if any person acquires or holds shares of South West Capital Stock in
excess of the applicable Percentage Limit (the "Excess Shares"), such Excess
Shares will be deemed to have been converted into a distinct class designated
"Excess Shares of [the name of the acquiror or holder]" and transferred by
operation of law to South West as trustee for the person or persons unaffiliated
with the acquiror or holder to whom the Excess Shares are ultimately
transferred. Upon transfer to such person or persons, the Excess Shares are
reconverted to shares of Capital Stock of the same class or series from which
converted to Excess Shares.
Excess Shares may not be voted and are not considered outstanding for
quorum purposes, and are not entitled to distributions or dividends until they
cease to be Excess Shares, at which time accumulated distributions and dividends
will be paid. In addition, South West may redeem Excess Shares within 90 days of
receipt of actual notice of their existence at a redemption price equal to the
lower of the price paid by the acquiror or holder for the shares of South West
Capital Stock becoming Excess Shares and the market price of such shares on the
redemption date. Unless the South West Board otherwise determines or the
acquiror or holder of the shares of the class or series of South West Capital
Stock becoming Excess Shares sells a number of shares of such class or series
equal to the number of such Excess Shares, the redemption price is payable,
without interest, only upon liquidation of South West.
Notwithstanding any other provision of the South West Articles, any
acquisition of South West Capital Stock that would result in the
disqualification of South West as a REIT under the Code shall be null and void,
and the South West Board is authorized to take any action it deems necessary or
desirable to preserve South West's qualification as a REIT.
South West stockholders and their transferees are or may be required to
disclose to South West information relating to ownership of South West Capital
Stock, and the South West Board may refuse to permit a transfer of South West
Capital Stock if in its opinion such transfer would jeopardize the qualification
of South West as a REIT.
PREEMPTIVE RIGHTS
Neither the shareholders of United Dominion nor the stockholders of South
West have preemptive rights. Thus, if additional shares of United Dominion
Common Stock or South West Common Stock were issued, the proportions of capital
stock ownership of the holders thereof would be reduced, to the extent they did
not participate in such additional issuance of shares.
ASSESSMENT
All outstanding shares of United Dominion Common Stock are, and those to be
issued pursuant to the Agreement will be, fully paid and nonassessable. All
outstanding shares of United Dominion Preferred Stock are fully paid and
nonassessable.
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The shares of South West Common Stock presently outstanding are fully paid
and nonassessable.
CONVERSION; REDEMPTION; SINKING FUND
Neither United Dominion Common Stock nor South West Common Stock is
convertible, redeemable or entitled to any sinking fund.
LIQUIDATION RIGHTS
UNITED DOMINION. In the event of the liquidation, dissolution or winding-up
of the affairs of United Dominion, holders of outstanding shares of United
Dominion Common Stock are entitled to share, in proportion to their respective
interests, in United Dominion's assets and funds remaining after payment, or
provision for payment, of all debts and other liabilities of United Dominion. In
the event of any voluntary or involuntary liquidation, dissolution or winding up
of United Dominion, the holders of shares of the United Dominion Preferred Stock
will be entitled to receive out of the assets of United Dominion available for
distribution to shareholders, before any distribution is made to holders of
United Dominion Common Stock, liquidation preferences in the amounts prescribed
by the applicable series designations. The liquidation preference of the Series
A Preferred is $100 per share, plus accrued but unpaid dividends to, but
excluding, the date of final distribution. The holders of any series of United
Dominion Preferred Stock will not be entitled to receive the liquidation
preference of such series until the liquidation preference of any other series
of United Dominion Preferred Stock ranking senior to the such series with
respect to rights upon liquidation, dissolution or winding up shall have been
paid (or a sum set aside therefor sufficient to provide for payment) in full. No
series of United Dominion Preferred Stock is outstanding but the Series A
Preferred, and the designation of the Series A Preferred limits the ability of
the United Dominion Board to designated a series senior to the Series A
Preferred.
If upon any voluntary or involuntary liquidation, dissolution or winding up
of United Dominion, the assets of United Dominion shall be insufficient to make
such full payments to holders of the United Dominion Preferred Stock, then such
assets shall be distributed pro rata among holders of the United Dominion
Preferred Stock. After payment of the full amount of the liquidating
distribution to which they are entitled, the holders of the United Dominion
Preferred Stock will not be entitled to any further participation in any
distribution of assets by United Dominion. Neither a consolidation or merger of
United Dominion with or into another corporation nor a merger of another
corporation with or into United Dominion nor a sale, lease or conveyance of all
or any part of United Dominion's property or business shall be considered a
liquidation, dissolution, or winding up of United Dominion.
SOUTH WEST. In the event of liquidation, dissolution or winding up of South
West, whether voluntary or involuntary, the holders of South West Common Stock
would be entitled to share ratably in any of its net assets or funds which are
available for distribution to its stockholders after the satisfaction of its
liabilities or after adequate provision is made therefor, subject to the rights
of the holders of any South West Preferred Stock outstanding at the time.
DIVIDENDS AND OTHER DISTRIBUTIONS
In order to remain qualified as a REIT under the Code, each of United
Dominion and South West must distribute to its shareholders at least 95% of its
taxable income (other than net capital gain) annually. See "FEDERAL INCOME TAX
CONSIDERATIONS -- Requirements for Qualification -- Distribution Requirements."
UNITED DOMINION. Holders of shares of United Dominion Common Stock are
entitled to cash dividends when, if and as declared by the United Dominion
Board.
Holders of shares of the Series A Preferred are entitled to receive, when
and as declared by the United Dominion Board, out of funds legally available
therefor, cumulative annual cash dividends of 9.25% per annum (equivalent to
$2.3125 per share). Unless full cumulative dividends on the Series A Preferred
have been declared and paid or declared and a sum sufficient for the payment
thereof set apart for payment for all past dividend periods and the then current
dividend period, no dividends (other than in Common Stock or other capital stock
ranking junior to the Series A Preferred as to dividends and upon liquidation)
may be declared or paid or set aside for payment or other distribution declared
or made upon the United Dominion Common Stock, nor may United Dominion redeem,
purchase or otherwise acquire for any consideration any United Dominion Common
Stock.
Covenants in its loan agreements with certain lenders effectively prohibit
United Dominion from declaring or paying dividends if, after giving effect
thereto (i) a default or "Event of Default under the particular agreement shall
have occurred
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and be continuing, (ii) United Dominion would be prohibited from incurring debt
under other covenants in such agreement, and (iii):
(a) in the case of the loan agreement with one insurance company lender,
such dividends and other "Restricted Payments" (as defined in such agreement)
after July 1, 1991, would exceed the sum of $10,000,000, plus 100% of "Cash
Flow" (as so defined) from and after July 1, 1991, to and including the last day
of the fiscal quarter immediately preceding payment of such dividends, plus the
net cash proceeds received by United Dominion from the sale of capital stock
after July 1, 1991;
(b) in the case of the loan agreement with a group of insurance company
lenders, such dividends and other"Restricted Payments" (as defined in such
agreement) declared during the same fiscal year as such dividends would exceed
the sum of (A) "Cash Flow" (as so defined) from the beginning of such fiscal
year to and including the last day of the completed fiscal quarter immediately
preceding the date of payment of such dividends, and (B) the net cash proceeds
received by United Dominion from the issuance or sale of capital stock after
February 24, 1993, plus $20,000,000, minus the total of the amounts, if any, by
which "Restricted Payments" declared during each fiscal year subsequent to
December 31, 1992, exceed "Cash Flow" for such fiscal year; and
(c) in the case of the loan agreements with its bank lenders, such
dividends and other "Restricted Payments" (as defined in such agreement) after
July 1, 1991, would exceed the sum of $10,000,000, plus 100% of "Consolidated
Cash Flow" (as so defined) from and after July 1, 1991, to and including the
last day of the fiscal quarter immediately preceding payment of such dividends,
plus the net cash proceeds received by United Dominion from the sale of capital
stock after July 1, 1991.
Notwithstanding such covenants, United Dominion may pay dividends required
to maintain its qualification as a REIT under the Code.
There can be no assurance as to the payment of dividends on shares of
United Dominion Common Stock in the future because such payment will depend upon
the earnings and financial condition of United Dominion, as well as other
related factors.
SOUTH WEST. The holders of South West Common Stock are entitled to share
ratably in dividends when and as declared by the South West Board out of funds
legally available therefor. The South West Articles permit the issuance of South
West Preferred Stock having the right to receive dividends before dividends on
the South West Common Stock are declared or paid. A covenant in a South West
loan agreement prohibits South West from distributing more than 110% of FFO to
its shareholders except to preserve its status as a qualified REIT.
SHAREHOLDER MEETINGS
UNITED DOMINION. Under United Dominion's Bylaws, special meetings of United
Dominion shareholders may be called by the Chairman of the Board, the President,
Secretary or a majority of the United Dominion Board.
SOUTH WEST. Under South West's Bylaws, special meetings of the stockholders
may be called at any time by the President or the South West Board and shall be
called upon the written request of the holders of not less than 25% of all of
the outstanding voting stock of South West, provided that such holders comply
with the requirements of the MGCL.
INDEMNIFICATION
UNITED DOMINION. Directors and officers of United Dominion may be
indemnified against liabilities, fines, penalties, and claims imposed upon or
asserted against them as provided in the VSCA and the United Dominion Articles.
Such indemnification covers all costs and expenses reasonably incurred by a
director or officer. The United Dominion Board, by a majority vote of a quorum
of disinterested directors or, under certain circumstances, independent counsel
appointed by the United Dominion Board, must determine that the director or
officer seeking indemnification was not guilty of willful misconduct or a
knowing violation of the criminal law.
If the person involved is not a director or officer of United Dominion, the
United Dominion Board may cause United Dominion to indemnify to the same extent
allowed for directors and officers of United Dominion such person who was or is
a party to a proceeding, by reason of the fact that he is or was an employee or
agent of United Dominion, or is or was serving at the request of United Dominion
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise.
SOUTH WEST. The South West Articles authorizes South West, to the maximum
extent permitted by Maryland law, to indemnify and to make advances for
indemnification to any present or former director or officer of South West and
any
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person who, while a director or officer of South West, is or was serving at the
request of South West as a director, officer, partner, trustee, employee or
agent of another corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan and who is made a party to the proceeding by
reason of his service in that capacity, unless it is established that (a) the
act or omission of the indemnitee was material to the matter giving rise to the
proceeding and (i) was committed in bad faith or (ii) was the result of active
and deliberate dishonesty, (b) the indemnitee actually received an improper
personal benefit in money, property or services or (c) in the case of any
criminal proceeding, the indemnitee had reasonable cause to believe that the act
or omission was unlawful.
Indemnification may not be made unless authorized for a specific proceeding
after a favorable determination by (a) a majority of a quorum of directors not
parties to the proceeding or if such a quorum cannot be obtained by a majority
of a committee of two or more such directors designated by a majority of the
full South West Board, (b) special legal counsel or (c) the South West
stockholders.
DIRECTOR LIABILITY
As permitted by the VSCA and the MGCL, respectively, the United Dominion
Articles and the South West Articles eliminate the liability of directors and
officers of United Dominion and South West for monetary damages in a shareholder
or derivative proceeding.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of material federal income tax considerations
that may be relevant to a holder of United Dominion Common Stock or South West
Common Stock. The summary does not address all aspects of taxation that may be
relevant to particular shareholders in light of their personal investment or tax
circumstances, or to certain types of shareholders (including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
foreign corporations, persons who are not citizens or residents of the U.S., and
persons who acquired their South West Common Stock pursuant to the exercise of
an employee stock option or otherwise as compensation) subject to special
treatment under the federal income tax laws. The summary is based on current
provisions of the Code, existing, temporary, and currently proposed Treasury
Regulations promulgated under the Code, the legislative history of the Code,
existing administrative rulings and practices of the Internal Revenue Service
(the "Service" or "IRS"), and judicial decisions. No assurance can be given that
future legislative, judicial, or administrative actions or decisions, which may
be retroactive in effect, will not affect the accuracy of statements in the
summary as applicable to transactions entered into or contemplated prior to the
effective date of such changes.
EACH SOUTH WEST STOCKHOLDER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE MERGER, THE ACQUISITION,
OWNERSHIP AND SALE OF THE UNITED DOMINION COMMON STOCK AND OF UNITED DOMINION'S
ELECTION TO BE TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN,
AND OTHER TAX CONSEQUENCES OF THE MERGER, SUCH ACQUISITION, OWNERSHIP, SALE, AND
ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAX CONSIDERATIONS RELATING TO THE MERGER
The Merger is intended to be a reorganization under Section 368(a) of the
Code, and the federal income tax consequences summarized below are based on the
assumption that the Merger will qualify as a reorganization. If the Merger
qualifies as a reorganization under Section 368(a) of the code, a South West
stockholder who receives solely United Dominion Common Stock in exchange for his
shares of South West Common Stock will not recognize any gain or loss on the
exchange. If a stockholder receives United Dominion Common Stock and cash in
lieu of a fractional share of United Dominion Common Stock, the stockholder will
recognize taxable gain or loss solely with respect to such cash equal to the
difference between such cash amount and the tax basis allocated to such
stockholder's fractional share interest. Such gain or loss generally will
constitute capital gain or loss if the stockholder's South West Common Stock was
held as a capital asset. A stockholder will have an aggregate tax basis in his
shares of United Dominion Common Stock (including any fractional share interest
treated as received) received in the Merger equal to his aggregate tax basis in
the shares of South West Common Stock exchanged therefor. A stockholder's
holding period for shares of United Dominion Common Stock (including any
fractional share interest treated as received) received in the Merger will
include his holding period for the shares of South West Common Stock exchanged
therefor if such shares are held as a capital asset at the effective date of the
Merger. No gain or loss should be recognized by United Dominion, Sub or South
West as a result of the Merger.
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TAXATION OF UNITED DOMINION AND SOUTH WEST
Each of United Dominion and South West currently has in effect an election
to be taxed as a REIT under Sections 856 through 860 of the Code. Each of United
Dominion and South West believes that it has since its inception been organized
and operated in such a manner as to qualify for taxation as a REIT under the
Code. United Dominion's qualification as a REIT after the Merger will depend in
part upon South West's qualification as a REIT immediately prior to the Merger.
United Dominion intends to continue to operate in a manner so as to qualify as a
REIT following the Effective Date of the Merger, but no assurance can be given
that United Dominion will qualify or remain qualified as a REIT.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following discussion sets forth the
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its shareholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change prospectively or retroactively.
If United Dominion and South West qualify for taxation as REITs, they
generally will not be subject to federal corporate income tax on their net
income that is distributed currently to their shareholders. That treatment
substantially eliminates the "double taxation" (I.E., taxation at both the
corporate and shareholder levels) that generally results from investment in a
corporation. However, United Dominion and South West will be subject to federal
income tax in the following circumstances. First, United Dominion and South West
will be taxed at regular corporate rates on any undistributed REIT taxable
income, including undistributed net capital gains. Second, under certain
circumstances, United Dominion and South West may be subject to the "alternative
minimum tax" on items of tax preference, if any. Third, if either United
Dominion or South West has (i) net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or (ii) other nonqualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, if United Dominion or South West has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property (other than foreclosure property) held primarily for sale to customers
in the ordinary course of business), such income will be subject to a 100% tax.
Fifth, if United Dominion or South West should fail to satisfy the 75% gross
income test or the 95% gross income test (as discussed below), and nonetheless
has maintained its qualification as a REIT because certain other requirements
have been met, it will be subject to a 100% tax on the net income attributable
to the greater of the amount by which it fails the 75% or 95% gross income test.
Sixth, if United Dominion or South West should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, it would be subject to a 4%
excise tax on the excess of such required distribution over the amounts actually
distributed. Seventh, if United Dominion or South West acquires any asset from a
C corporation (i.e., a corporation generally subject to full corporate-level
tax) in a transaction in which the basis of the asset in the acquiror's hands is
determined by reference to the basis of the asset (or any other asset) in the
hands of the C corporation and the acquiror recognizes gain on the disposition
of such asset during the 10-year period beginning on the date on which such
asset was acquired by it, then to the extent of such asset's "built-in-gain"
(i.e., the excess of the fair market value of such asset at the time of
acquisition by United Dominion or South West over the adjusted basis in such
asset at such time), such gain will be subject to tax at the highest regular
corporate rate applicable (as provided in Treasury Regulations that have not yet
been promulgated). The results described above with respect to the recognition
of "built-in-gain" assume that United Dominion or South West will make an
election pursuant to IRS Notice 88-19 if it were to make any such acquisition.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust, or association (i) that is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation, but
for sections 856 through 860 of the Code; (iv) that is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi) not
more than 50% in value of the outstanding shares of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of each taxable year (the "5/50 Rule");
(vii) that makes an election to be a REIT (or has made such election for a
previous taxable year) and satisfies all relevant filing and other
administrative requirements established by the Service that must be met in order
to elect and maintain REIT status; (viii) that uses a calendar year for federal
income tax purposes and complies with the recordkeeping requirements of the Code
and Treasury Regulations promulgated thereunder; and (ix) that meets certain
other tests, described below, regarding the nature of its income and assets. The
Code provides that conditions (i) to (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met during at least 335 days
of a taxable year of
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12 months, or during a proportionate part of a taxable year of less than 12
months. For purposes of determining stock ownership under the 5/50 Rule, a
supplemental unemployment compensation benefits plan, a private foundation, or a
portion of a trust permanently set aside or used exclusively for charitable
purposes generally is considered an individual. A trust that is a qualified
trust under Code section 401(a), however, generally is not considered an
individual and beneficiaries of such trust are treated as holding shares of a
REIT in proportion to their actuarial interests in such trust for purposes of
the 5/50 Rule.
The United Dominion Articles and the South West Articles contain
restrictions regarding transfer of United Dominion Common Stock and South West
Common Stock that are intended to assist United Dominion and South West in
continuing to satisfy the share ownership requirements described in clauses (v)
and (vi) above. Such transfer restrictions are described in "COMPARATIVE RIGHTS
OF SHAREHOLDERS -- REIT Qualification Provisions."
Both United Dominion and South West currently have wholly-owned corporate
subsidiaries (the "Corporate Subsidiaries"). Upon consummation of the Merger the
South West Corporate Subsidiaries in existence at the Effective Date of the
Merger will become Corporate Subsidiaries of United Dominion. United Dominion
may have additional corporate subsidiaries in the future. Code section 856(i)
provides that a corporation that is a "qualified REIT subsidiary" shall not be
treated as a separate corporation, and all assets, liabilities, and items of
income, deduction, and credit of a "qualified REIT subsidiary" shall be treated
as assets, liabilities, and items of income, deduction, and credit of the REIT.
A "qualified REIT subsidiary" is a corporation, all of the capital stock of
which has been held by the REIT at all times during the period such corporation
was in existence. Thus, in applying the requirements described herein, any
"qualified REIT subsidiaries" of United Dominion or South West will be ignored,
and all assets, liabilities, and items of income, deduction, and credit of such
subsidiaries will be treated as assets, liabilities, and items of income,
deduction, and credit of United Dominion or South West, as the case may be. Each
of the current Corporate Subsidiaries of United Dominion and South West is a
"qualified REIT subsidiary" and will continue to be a "qualified REIT
subsidiary" after the Merger. Therefore, no Corporate Subsidiary will be subject
to federal corporate income taxation, although it may be subject to state and
local taxation.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the gross
income of the partnership attributable to such share. In addition, the assets
and gross income of the partnership will retain the same character in the hands
of the REIT for purposes of section 856 of the Code, including satisfying the
gross income and asset tests described below. Thus, United Dominion's
proportionate share of the assets, liabilities, and items of income of the
Operating Partnership will be treated as assets, liabilities, and items of
income of United Dominion for purposes of applying the requirements described
herein.
INCOME TESTS
In order for each of United Dominion and South West to qualify and to
maintain its qualification as a REIT, three requirements relating to gross
income must be satisfied annually. First, at least 75% of its gross income
(excluding gross income from prohibited transactions) for each taxable year must
consist of defined types of income derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or temporary
investment income. Second, at least 95% of its gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived from
such real property or temporary investments, and from dividends, other types of
interest, and gain from the sale or disposition of stock or securities, or from
any combination of the foregoing. Third, not more than 30% of its gross income
(including gross income from prohibited transactions) for each taxable year may
be gain from the sale or other disposition of (i) stock or securities held for
less than one year, (ii) dealer property that is not foreclosure property, and
(iii) certain real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property). The specific
application of these tests to United Dominion and South West is discussed below.
The rent received by United Dominion or South West from its tenants
("Rent") will qualify as "rents from real property" in satisfying the gross
income requirements for a REIT described above only if several conditions are
met. First, the amount of Rent must not be based, in whole or in part, on the
income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term "rents from real property" solely
by reason of being based on a fixed percentage or percentages of receipts or
sales. Second, the Code provides that rents received from a tenant of United
Dominion or South West will not qualify as "rents from real property" in
satisfying the gross income tests if United Dominion or South West, as the case
may be, or a direct or indirect owner of 10% or more of United Dominion or South
West, as the case may be, directly or constructively owns 10% or more of such
tenant (a "Related Party Tenant"). Third, if rent attributable to
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personal property, leased in connection with a lease of real property, is
greater than 15% of the total rent received under the lease, then the portion of
rent attributable to such personal property will not qualify as "rents from real
property." Finally, for the Rent to qualify as "rents from real property,"
United Dominion or South West generally must not operate or manage its
properties or furnish or render services to the tenants of such properties,
other than through an "independent contractor" who is adequately compensated and
from whom United Dominion derives no revenue. The "independent contractor"
requirement, however, does not apply to the extent the services provided by
United Dominion are "usually or customarily rendered" in connection with the
rental of space for occupancy only and are not otherwise considered "rendered to
the occupant."
Except with respect to United Dominion's commercial properties, neither
United Dominion nor South West charges, and United Dominion will not charge
after the Merger, Rent for any portion of any property that is based, in whole
or in part, on the income or profits of any person. United Dominion does not
charge Rent for any portion of any commercial property that is based, in whole
or in part, on the income or profits of any person except by reason of being
based on a fixed percentage or percentages of receipts of sales, as described
above. United Dominion intends to dispose completely of its commercial
properties and will restrict its rental activities to apartment properties for
which it will not charge Rent for any portion that is based, in whole or in
part, on the income or profits of any person. In addition, neither United
Dominion nor South West has received and United Dominion does not anticipate
receiving after the Merger any Rent from a Related Party Tenant. Also, the Rent
attributable to personal property leased in connection with any lease (a
"Lease") of real property by United Dominion or South West does not exceed, and
such Rent charged by United Dominion after the Merger will not exceed, 15% of
the total Rent received under the Lease.
If any portion of the Rent does not qualify as "rents from real property"
because the Rent attributable to personal property leased in connection with any
Lease of real property exceeds 15% of the total Rent received under the Lease
for a taxable year, the portion of the Rent that is attributable to personal
property will not be qualifying income for purposes of either the 75% or 95%
gross income test. Thus, if the Rent attributable to personal property, plus any
other income received by United Dominion or South West during a taxable year
that is not qualifying income for purposes of the 95% gross income test, exceeds
5% of its gross income during such year, United Dominion or South West, as
applicable, likely would lose its REIT status. If, however, any portion of the
Rent received under a Lease does not qualify as "rents from real property"
because either (i) the Rent is considered based on the income or profits of any
person or (ii) the tenant is a Related Party Tenant, none of the Rent received
by United Dominion or South West under such Lease would qualify as "rents from
real property." In that case, if the Rent received by United Dominion or South
West under such Lease, plus any other income received by it during the taxable
year that is not qualifying income for purposes of the 95% gross income test,
exceeds 5% of its gross income for such year, United Dominion or South West, as
applicable, likely would lose its REIT status. Finally, if any portion of the
Rent does not qualify as "rents from real property" because United Dominion or
South West furnishes noncustomary services with respect to a property other than
through a qualifying independent contractor, none of the Rent received by it
with respect to the such property would qualify as "rents from real property."
In that case, if the Rent received by United Dominion or South West with respect
to such property, plus any other income received by it during the taxable year
that is not qualifying income for purposes of the 95% gross income test, exceeds
5% of its gross income for such year, United Dominion or South West, as
applicable, would lose its REIT status.
From time to time, each of United Dominion and South West has entered into
hedging transactions with respect to one or more of its assets or liabilities,
and United Dominion may continue to enter into such hedging transactions
following consummation of the Merger. Such transactions include or may include
interest rate swap contracts, interest rate cap or floor contracts, futures or
forward contracts, and options. To the extent that United Dominion or South West
has entered or enters into an interest rate swap or cap contract to hedge any
variable rate indebtedness incurred to acquire or carry real estate assets, any
periodic income or gain from the disposition of such contract should be
qualifying income for purposes of the 95% gross income test, but not the 75%
gross income test. Furthermore, any such contract would be considered a
"security" for purposes of applying the 30% gross income test. To the extent
that United Dominion or South West hedges with other types of financial
instruments or in other situations, it may not be entirely clear how the income
from those transactions will be treated for purposes of the various income tests
that apply to REITs under the Code. United Dominion and South West have
structured, and United Dominion intends to structure in the future, any hedging
transactions in a manner that will not jeopardize their status as REITS.
If United Dominion or South West fails to satisfy one or both of the 75% or
95% gross income tests for any taxable year, it nevertheless may qualify as a
REIT for such year if it is entitled to relief under certain provisions of the
Code. Those relief provisions generally will be available if the failure to meet
such tests is due to reasonable cause and not due to willful neglect, United
Dominion or South West attaches a schedule of the sources of its income to its
return, and any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
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circumstances United Dominion or South West would be entitled to the benefit of
those relief provisions. As discussed above in "Federal Income Tax
Considerations -- Taxation of United Dominion and South West" even if those
relief provisions apply, a 100% tax would be imposed on the net income
attributable to the greater of the amount by which United Dominion or South West
fails the 75% and 95% gross income tests. No such relief is available for
violations of the 30% income test.
ASSET TESTS
Each of United Dominion and South West, at the close of each quarter of
each taxable year, also must satisfy two tests relating to the nature of its
assets. First, at least 75% of the value of its total assets must be represented
by cash or cash items (including certain receivables), government securities,
"real estate assets," or, in cases where it raises new capital through stock or
long-term (at least five-year) debt offerings, temporary investments in stock or
debt instruments during the one-year period following its receipt of such
capital. The term "real estate assets" includes interests in real property,
interests in mortgages on real property to the extent the principal balance of a
mortgage does not exceed the value of the associated real property, and shares
of other REITs. For purposes of the 75% asset test, the term "interest in real
property" includes an interest in land and improvements thereon, such as
buildings or other inherently permanent structures (including items that are
structural components of such buildings or structures), a leasehold of real
property, and an option to acquire real property (or a leasehold of real
property). Second, of the investments not included in the 75% asset class, the
value of any one issuer's securities owned by United Dominion or South West may
not exceed 5% of the value of its total assets and United Dominion or South West
may not own more than 10% of any one issuer's outstanding voting securities
(except for the interest of United Dominion in the Operating Partnership and the
interest of United Dominion or South West in any qualified REIT subsidiary).
For purposes of the asset tests, United Dominion is deemed to own its
proportionate share of the assets of the Operating Partnership, rather than its
interest in the Operating Partnership. United Dominion has operated and will
continue to operate the Operating Partnership so that it has not acquired or
disposed, and in the future will not acquire or dispose, of assets in a way that
would cause it to violate either asset test.
If United Dominion or South West should fail to satisfy the asset tests at
the end of a calendar quarter, such a failure would not cause it to lose its
REIT status if (i) it satisfied the asset tests at the close of the preceding
calendar quarter and (ii) the discrepancy between the value of its assets and
the asset tests either did not exist immediately after the acquisition of any
particular asset or was not wholly or partly caused by such an acquisition
(i.e., the discrepancy arose from changes in the market values of its assets).
If the condition described in clause (ii) of the preceding sentence were not
satisfied, United Dominion or South West still could avoid disqualification by
eliminating any discrepancy within 307days after the close of the calendar
quarter in which it arose.
DISTRIBUTION REQUIREMENTS
Each of United Dominion and South West, in order to qualify as a REIT, is
required to distribute with respect to each taxable year dividends (other than
capital gain dividends) to its shareholders in an aggregate amount at least
equal to (i) the sum of (A) 95% of its "REIT taxable income" (computed without
regard to the dividends paid deduction and its net capital gain) and (B) 95% of
the net income (after tax), if any, from foreclosure property, minus (ii) the
sum of certain items of noncash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if declared
before United Dominion timely files its federal income tax return for such year
and if paid on or before the first regular dividend payment date after such
declaration. To the extent that United Dominion or South West does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its "REIT taxable income," as adjusted, it will be subject to tax
thereon at regular ordinary and capital gains corporate tax rates. Furthermore,
if United Dominion or South West should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain income for such year, and (iii) any undistributed
taxable income from prior periods, it would be subject to a 4% nondeductible
excise tax on the excess of such required distribution over the amounts actually
distributed.
Under certain circumstances, United Dominion or South West may be able to
rectify a failure to meet the distribution requirements for a year by paying
"deficiency dividends" to its shareholders in a later year, which may be
included in its deduction for dividends paid for the earlier year. Although
United Dominion or South West may be able to avoid being taxed on amounts
distributed as deficiency dividends, it will be required to pay to the Service
interest based upon the amount of any deduction taken for deficiency dividends.
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RECORDKEEPING REQUIREMENTS
Pursuant to applicable Treasury Regulations, in order to be able to elect
to be taxed as a REIT, each of United Dominion and South West must maintain
certain records and request on an annual basis certain information from its
shareholders designed to disclose the actual ownership of its outstanding
shares.
FAILURE TO QUALIFY
If United Dominion or South West fails to qualify for taxation as a REIT in
any taxable year, and the relief provisions do not apply, it will be subject to
tax (including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which
United Dominion or South West fails to qualify will not be deductible nor will
they be required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income and, subject to certain limitations of the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, United Dominion
or South West also will be disqualified from taxation as a REIT for the four
taxable years following the year during which it ceased to qualify as a REIT. It
is not possible to predict whether in all circumstances United Dominion or South
West would be entitled to such statutory relief.
TAXATION OF TAXABLE U.S. SHAREHOLDERS
As long as each of United Dominion and South West qualifies as a REIT,
distributions made to taxable U.S. shareholders out of current or accumulated
earnings and profits (and not designated as capital gain dividends) will be
taken into account by such U.S. shareholders as ordinary income and will not be
eligible for the dividends received deduction generally available to
corporations. As used herein, the term "U.S. shareholder" means a holder of
United Dominion Common Stock or South West Common Stock that for U.S. federal
income tax purposes is (i) a citizen or resident of the U.S., (ii) a
corporation, partnership, or other entity created or organized in or under the
laws of the U.S. or of any political subdivision thereof, or (iii) an estate or
trust the income of which is subject to U.S. federal income taxation regardless
of its source. Distributions that are designated as capital gain dividends will
be taxed as long-term capital gains (to the extent they do not exceed the
payor's actual net capital gain for the taxable year) without regard to the
period for which the shareholder has held his shares. However, corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and accumulated
earnings and profits will not be taxable to a shareholder to the extent that
they do not exceed the adjusted basis of the shareholder's shares, but rather
will reduce the adjusted basis of such shares. To the extent that such
distributions in excess of current and accumulated earnings and profits exceed
the adjusted basis of a shareholder's shares, such distributions will be
included in income as long-term capital gain (or short-term capital gain if such
shares have been held for one year or less), assuming that such shares are
capital assets in the hands of the shareholder. In addition, any distribution
declared by United Dominion or South West in October, November, or December of
any year and payable to a shareholder of record on a specified date in any such
month shall be treated as both paid by the payor and received by the shareholder
on December 31 of such year, provided that the distribution is actually paid by
the payor during January of the following calendar year.
Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of United Dominion or South West. Instead,
such losses would be carried over by United Dominion or South West for potential
offset against its future income (subject to certain limitations). Taxable
distributions from United Dominion or South West and gain from the disposition
of United Dominion Common Stock or South West Common Stock will not be treated
as passive activity income and, therefore, shareholders generally will not be
able to apply any "passive activity losses" (such as losses from certain types
of limited partnerships in which a shareholder is a limited partner) against
such income. In addition, taxable distributions from United Dominion or South
West generally will be treated as investment income for purposes of the
investment interest limitations. Capital gains from the disposition of United
Dominion Common Stock or South West Common Stock (or distributions treated as
such), however, will be treated as investment income only if the shareholder so
elects, in which case such capital gains will be taxed at ordinary income rates.
United Dominion will notify shareholders after the close of United Dominion's
taxable year as to the portions of the distributions attributable to that year
that constitute ordinary income, return of capital, and capital gain.
TAXATION OF SHAREHOLDERS ON THE DISPOSITION OF COMMON STOCK
In general, any gain or loss realized upon a taxable disposition of shares
of United Dominion Common Stock or South West Common Stock by a shareholder who
is not a dealer in securities will be treated as long-term capital gain or loss
if the shares have been held for more than one year and otherwise as short-term
capital gain or loss. However, any loss upon a sale
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or exchange by a shareholder who has held such shares for six months or less
(after applying certain holding period rules), will be treated as a long-term
capital loss to the extent of distributions from United Dominion or South West,
as the case may be, required to be treated by such shareholder as long-term
capital gain. All or a portion of any loss realized upon a taxable disposition
of shares of United Dominion Common Stock or South West Common Stock may be
disallowed if other shares of the same Common Shares are purchased within 30
days before or after the disposition.
CAPITAL GAINS AND LOSSES
A capital asset generally must be held for more than one year in order for
gain or loss derived from its sale or exchange to be treated as long-term
capital gain or loss. The highest marginal individual income tax rate is 39.6%,
and the tax rate on net capital gains applicable to individuals is 28%. Thus,
the tax rate differential between capital gain and ordinary income for
individuals may be significant. In addition, the characterization of income as
capital or ordinary may affect the deductibility of capital losses. Capital
losses not offset by capital gains may be deducted against an individual's
ordinary income only up to a maximum annual amount of $3,000. Unused capital
losses may be carried forward. All net capital gain of a corporate taxpayer is
subject to tax at ordinary corporate rates. A corporate taxpayer can deduct
capital losses only to the extent of capital gains, with unused losses being
carried back three years and forward five years.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
United Dominion will report to its U.S. shareholders and to the Service the
amount of distributions paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to distributions
paid unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with the applicable requirements of the
backup withholding rules. A shareholder who does not provide United Dominion
with his correct taxpayer identification number also may be subject to penalties
imposed by the Service. Any amount paid as backup withholding will be creditable
against the shareholder's income tax liability. In addition, United Dominion may
be required to withhold a portion of capital gain distributions to any
shareholders who fail to certify their nonforeign status to United Dominion. The
Service issued proposed regulations in April 1996 regarding the backup
withholding rules as applied to Non-U.S. Shareholders. Those proposed
regulations would alter the current system of backup withholding compliance. See
" -- Taxation of Non-U.S. Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, the Service has issued a published
ruling that dividend distributions from a REIT to an exempt employee pension
trust do not constitute UBTI, provided that the shares of the REIT are not
otherwise used in an unrelated trade or business of the exempt employee pension
trust. Based on that ruling, amounts distributed by United Dominion or South
West to Exempt Organizations generally should not constitute UBTI. However, if
an Exempt organization finances its acquisition of shares of United Dominion
Common Stock or South West Common Stock with debt, a portion of its income from
distributions on such shares will constitute UBTI pursuant to the "debt-financed
property" rules. Furthermore, social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts, and qualified group
legal services plans that are exempt from taxation under paragraphs (7), (9),
(17), and (20), respectively, of Code section 501(c) are subject to different
UBTI rules, which generally will require them to characterize distributions from
United Dominion or South West as UBTI. In addition, in certain circumstances, a
pension trust that owns more than 10% of the Common Stock of United Dominion or
South West is required to treat a percentage of the dividends on its United
Dominion or South West shares as UBTI (the "UBTI Percentage"). The UBTI
Percentage is the gross income derived by United Dominion or South West from an
unrelated trade or business (determined as if United Dominion or South West were
a pension trust) divided by the gross income of United Dominion or South West
for the year in which the dividends are paid. The UBTI rule applies to a pension
trust holding more than 10% of the Common Stock of United Dominion or South West
only if (i) the UBTI Percentage is at least 5%, (ii) United Dominion or South
West, as the case may be, qualifies as a REIT by reason of the modification of
the 5/50 Rule that allows the beneficiaries of the pension trust to be treated
as holding shares of United Dominion or South West, as the case may be, in
proportion to their actuarial interests in the pension trust, and (iii) either
(A) one pension trust owns more than 25% of the value of United Dominion's or
South Wet's shares or (B) a group of pension trusts individually holding more
than 10% of the value of United
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Dominion's or South West's shares collectively owns more than 50% of the value
of United Dominion's or South West's shares.
TAXATION OF NON-U.S. SHAREHOLDERS
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
holders of United Dominion or South West Common Stock (collectively, "Non-U.S.
Shareholders") are complex and no attempt will be made herein to provide more
than a summary of such rules. NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR
OWN TAX ADVISORS TO DETERMINE THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX
LAWS WITH REGARD TO AN INVESTMENT IN UNITED DOMINION COMMON STOCK, INCLUDING ANY
REPORTING REQUIREMENTS.
Distributions to Non-U.S. Shareholders that are not attributable to gain
from sales or exchanges of U.S. real property interests and are not designated
by the payor as capital gains dividends will be treated as dividends of ordinary
income to the extent that they are made out of the payor's current or
accumulated earnings and profits. Such distributions ordinarily will be subject
to a withholding tax equal to 30% of the gross amount of the distribution unless
an applicable tax treaty reduces or eliminates that tax. However, if income from
the investment in United Dominion Common Stock or South West Common Stock is
treated as effectively connected with the Non-U.S. Shareholder's conduct of a
U.S. trade or business, the Non-U.S. Shareholder generally will be subject to
federal income tax at graduated rates, in the same manner as U.S. shareholders
are taxed with respect to such distributions (and also may be subject to the 30%
branch profits tax in the case of a Non-U.S. Shareholder that is a non-U.S.
corporation). United Dominion expects to withhold U.S. income tax at the rate of
30% on the gross amount of any such distributions made to a Non-U.S. Shareholder
unless (i) a lower treaty rate applies and any required form evidencing
eligibility for that reduced rate is filed with United Dominion or (ii) the
Non-U.S. Shareholder files an IRS Form 4224 with United Dominion claiming that
the distribution is effectively connected income. The Service issued proposed
regulations in April 1996 that would modify the manner in which United Dominion
and South West comply with the withholding requirements.
Distributions in excess of current and accumulated earnings and profits of
United Dominion or South West will not be taxable to a shareholder to the extent
that such distributions do not exceed the adjusted basis of the shareholder's
United Dominion Common Stock or South West Common Stock, as the case may be, but
rather will reduce the adjusted basis of such shares. To the extent that
distributions in excess of current and accumulated earnings and profits exceed
the adjusted basis of a Non-U.S. Shareholder's United Dominion Common Stock,
such distributions will give rise to tax liability if the Non-U.S. Shareholder
would otherwise be subject to tax on any gain from the sale or disposition of
his United Dominion Common Stock or South West Common Stock, as described below.
Because it generally cannot be determined at the time a distribution is made
whether or not such distribution will be in excess of current and accumulated
earnings and profits, the entire amount of any distribution normally will be
subject to withholding at the same rate as a dividend. However, amounts so
withheld are refundable to the extent it is determined subsequently that such
distribution was, in fact, in excess of the payor's current and accumulated
earnings and profits.
In August 1996, the President signed into law the Small Business Job
Protection Act of 1996, which requires United Dominion and South West to
withhold 10% of any distribution in excess of its current and accumulated
earnings and profits. That statute is effective for distributions made after
August 20, 1996. Consequently, to the extent that United Dominion or South West
does not withhold at a rate greater than 10% on the entire amount of any
distribution, any portion of a distribution will be subject to withholding at a
rate of 10%.
For any year in which United Dominion or South West qualifies as a REIT,
distributions that are attributable to gain from sales or exchanges of U.S. real
property interests will be taxed to a Non-U.S. Shareholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under
FIRPTA, distributions attributable to gain from sales of U.S. real property
interests are taxed to a Non-U.S. Shareholder as if such gain were effectively
connected with a U.S. business. Non-U.S. Shareholders thus would be taxed at the
normal capital gain rates applicable to U.S. shareholders (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals). Distributions subject to FIRPTA also may be
subject to the 30% branch profits tax in the hands of a non-U.S. corporate
shareholder not entitled to treaty relief or exemption. The payor is required to
withhold 35% of any distribution that is designated by it as a capital gains
dividend. The amount withheld is creditable against the Non-U.S. Shareholder's
FIRPTA tax liability.
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Gain recognized by a Non-U.S. Shareholder upon a sale of his United
Dominion Common Stock or South West Common Stock generally will not be taxed
under FIRPTA if United Dominion or South West, as the case may be, is a
"domestically controlled REIT," defined generally as a REIT in which at all
times during a specified testing period less than 50% in value of the stock was
held directly or indirectly by non-U.S. persons. Each of United Dominion and
South West is currently a "domestically controlled REIT" and, therefore, the
sale of United Dominion Common Stock or South West Common Stock will not be
subject to taxation under FIRPTA. However, no assurance can be given that United
Dominion will continue to be a "domestically controlled REIT." Furthermore, gain
not subject to FIRPTA will be taxable to a Non-U.S. Shareholder if (i)
investment in United Dominion Common Stock or South West Common Stock is
effectively connected with the Non-U.S. Shareholder's U.S. trade or business, in
which case the Non-U.S. Shareholder will be subject to the same treatment as
U.S. shareholders with respect to such gain, or (ii) the Non-U.S. Shareholder is
a nonresident alien individual who was present in the U.S. for 183 days or more
during the taxable year and certain other conditions apply, in which case the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gains. If the gain on the sale of United Dominion Common Stock or South
West Common Stock were to be subject to taxation under FIRPTA, the Non-U.S.
Shareholder would be subject to the same treatment as U.S. shareholders with
respect to such gain (subject to applicable alternative minimum tax, a special
alternative minimum tax in the case of nonresident alien individuals, and the
possible application of the 30% branch profits tax in the case of non-U.S.
corporations).
OTHER TAX CONSEQUENCES
United Dominion, South West, the Operating Partnership, the Corporate
Subsidiaries, or United Dominion or South West shareholders may be subject to
state or local taxation in various state or local jurisdictions, including those
in which it or they own property, transact business, or reside. The state and
local tax treatment of United Dominion, South West and their shareholders may
not conform to the federal income tax consequences discussed above.
CONSEQUENTLY, SOUTH WEST STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS
REGARDING THE EFFECT OF STATE AND LOCAL TAX LAWS ON AN INVESTMENT IN UNITED
DOMINION.
EXPERTS
The consolidated financial statements of United Dominion included in its
annual report on Form 10-K for the year ended December 31, 1995 have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The combined statement of rental operations of Brittingham Square
Apartments, The Greens at Cedar Chase Apartments, The Greens at Cross Court
Apartments, The Greens at Falls Run Apartments, The Greens at Hilton Run
Apartments, The Greens at Hollymead Apartments, The Greens at Schumaker Pond
Apartments, The Greens of Constant Friendship Apartments and The Manor at
England Run Apartments, included in United Dominion's Current Report on Form
8-K, dated June 30, 1995, incorporated by reference herein, has been
incorporated herein in reliance upon the report dated May 24, 1995, of L. P.
Martin & Company, P.C., independent auditors, also incorporated by reference
herein, and upon the authority of such firm as experts in accounting and
auditing. The statements of rental operations of Hunters Ridge at Walden Lake
Apartments, Marble Hill Apartments, Mallards of Wedgewood Apartments and Andover
Place Apartments, included in United Dominion's current report on Form 8-K,
dated December 28, 1995, incorporated by reference herein, have been
incorporated herein in reliance upon the reports respectively dated November 21,
December 5, December 6 and December 7, 1995, of L.P. Martin & Company, P.C.,
independent auditors, also incorporated by reference herein, and upon the
authority of such firm as experts in accounting and auditing. The combined
statements of rental operations of the Properties, included in United Dominion's
Current Report on Form 8-K, dated August 15, 1996, incorporated by reference
herein, has been incorporated herein in reliance upon the report dated May 16,
1996, of Dixon, Odom & Co., L.L.P., independent public accountants, also
incorporated by reference herein, and upon the authority of such firm as experts
in accounting and auditing.
The consolidated financial statements of South West included in its annual
report on Form 10-K for the year ended December 31, 1995 have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
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LEGAL OPINIONS
The legality of the United Dominion Common Stock to be issued in the Merger
will be passed on for United Dominion by Hunton & Williams, Richmond, Virginia.
Hunton & Williams and Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., Dallas,
Texas, will deliver opinions to United Dominion and South West, respectively,
concerning certain federal income tax consequences of the Merger. See "THE
MERGER -- Certain Federal Income Tax Consequences."
SHAREHOLDER PROPOSALS
Any proposals by United Dominion shareholders to be presented at United
Dominion's 1997 Annual Meeting of Shareholders must be received by United
Dominion no later than December 15, 1996, in order to be included in United
Dominion's proxy materials relating to the meeting. Any proposals by South West
stockholders to be presented at South West's 1997 Annual Meeting of
Stockholders, assuming that the Merger is not yet consummated, must be received
by South West no later than November 19, 1996, in order to be included in South
West's proxy materials relating to the meeting.
OTHER MATTERS
The United Dominion Board does not intend to bring any matter before the
United Dominion Special Meeting other than as specifically set forth in the
Notice of Special Meeting of Shareholders, nor does it know of any matter to be
brought before the United Dominion Special Meeting by others. If, however, any
other matters properly come before the Special Meeting, it is the intention of
the proxyholders to vote such proxy in accordance with the decision of a
majority of the United Dominion Board.
The South West Board does not intend to bring any matter before the South
West Special Meeting other than as specifically set forth in the Notice of
Special Meeting of Stockholders, nor does it know of any matter to be brought
before the South West Special Meeting by others. If, however, any other matters
properly come before the South West Special Meeting, it is the intention of the
proxyholders to vote such proxy in accordance with the decision of a majority of
the South West Board.
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ANNEX I
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of October
1, 1996, is entered into by and between United Dominion Realty Trust, Inc., a
Virginia corporation ("UDR"), United Sub, Inc., a Virginia corporation and a
wholly-owned subsidiary of UDR ("Sub"), and South West Property Trust Inc., a
Maryland corporation ("SWP").
RECITALS
A. The Board of Directors of UDR and the Board of Directors of SWP each
have determined that a business combination between UDR and SWP is in the best
interests of their respective shareholders and presents an opportunity for their
respective companies to achieve long-term strategic and financial benefits, and
accordingly have agreed to effect a merger subject to the terms conditions set
forth herein.
B. For federal income tax purposes, it is intended that the merger provided
for herein shall qualify as a reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), and
for financial accounting purposes shall be accounted for as a "purchase."
C. Concurrently with the execution and delivery of this Agreement, UDR and
SWP have executed a purchase option agreement (the "Purchase Option Agreement").
Under the Purchase Option Agreement, UDR or SWP may purchase, upon certain
conditions, shares of the other party's common stock. Specifically, in the event
of an SWP Acquisition Proposal (as described in Section 7.1, below), UDR may
exercise an option (the "SWP Liquidated Damages Option") to purchase 4,000,000
shares of SWP Common Stock (the "SWP Option Shares"). Concomitantly, in the
event of a UDR Acquisition Proposal (as described in Section 7.1, below), SWP
may exercise an option (the "UDR Liquidated Damages Option") to purchase
4,333,200 shares of UDR Common Stock (the "UDR Option Shares"). The option
exercise price (the "SWP Liquidated Damages Option Exercise Price"or the "UDR
Liquidated Damages Option Exercise Price," as the case may be) shall be the
closing price of the shares of common stock underlying the options being
exercised on the day that UDR and SWP jointly announce publicly the execution of
this Agreement.
D. UDR acknowledges and agrees that it will be directly benefitted from the
merger of SWP into Sub.
E. UDR, Sub and SWP desire to make certain representations, warranties and
agreements in connection with the merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, UDR, Sub
and SWP hereby agree as follows:
ARTICLE 1
1. THE MERGER.
1.1. THE MERGER. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.3), SWP shall be merged with and
into Sub in accordance with this Agreement and the Plan of Merger (the "Plan of
Merger") in substantially the form attached hereto as Exhibit A , with such
completions, additions and substitutions conforming to the terms of this
Agreement as the parties shall approve, such approval to be conclusively
evidenced by their causing the Plan of Merger containing such completions,
additions or substitutions to be filed in accordance with laws; and the separate
corporate existence of SWP shall thereupon cease (the "Merger"). Sub shall be
the surviving corporation in the Merger (sometimes hereinafter referred to as
the "Corporation"or as the "Surviving Corporation"). The Merger shall have the
effects specified in Section 3-114 of the Maryland General Corporation Law (the
"MGCL") and Section 13.1-721 of the Virginia Stock Corporation Act (the "VSCA").
1.2. THE CLOSING. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") shall take place at the offices of
Hunton & Williams, located at Riverfront Plaza, East Tower, 951 East Byrd
Street, Richmond, Virginia 23219, at 9:00 a.m., local time, on December 31,
1996, or at such other time, date or place as UDR and SWP may agree. The date on
which the Closing occurs is hereinafter referred to as the "Closing Date."
1.3. EFFECTIVE TIME. If all the conditions to the Merger set forth in
Article 8 shall have been fulfilled or waived (and this Agreement shall not have
been terminated as provided in Article 9), UDR, Sub and SWP shall cause Articles
of Merger satisfying the requirements of the VSCA and Articles of Merger
satisfying the requirements of the MGCL to be properly
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executed, verified and delivered for filing in accordance with the VSCA and
MGCL, respectively, on the Closing Date. The Merger shall become effective for
accounting and all other purposes to the fullest extent permitted by law as of
the close of business on December 31, 1996 (the "Effective Time"). For state law
purposes, the Merger shall become effective upon the later of: (i) issuance of a
certificate of merger by the Virginia State Corporation Commission in accordance
with the VSCA, and (ii) the issuance of a certificate of merger by the State
Department of Assessments and Taxation of Maryland in accordance with the MGCL,
or at such later time which UDR and SWP shall have agreed upon and designated in
such filings in accordance with applicable law.
ARTICLE 2
2. ARTICLES OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION.
2.1. ARTICLES OF INCORPORATION. The Articles of Incorporation of Sub in
effect immediately prior to the Effective Time shall be the Charter of the
Surviving Corporation, until duly amended in accordance with applicable law.
2.2. BYLAWS. The Bylaws of Sub in effect immediately prior to the Effective
Time shall be the Bylaws of the Surviving Corporation, until duly amended in
accordance with applicable law.
ARTICLE 3
3. DIRECTORS AND OFFICERS OF UDR.
3.1. DIRECTORS. The directors of UDR immediately prior to the Effective
Time shall be the directors of UDR as of the Effective Time and John S.
Schneider, Ira T. Wender, Mark J. Sandler and Robert W. Scharar shall be elected
as members of the Board of Directors of UDR.
3.2. OFFICERS. The officers of UDR immediately prior to the Effective Time
shall be the officers of UDR as of the Effective Time, except that the following
executive officers of SWP shall be elected as of the Effective Time as executive
officers of UDR: (i) John S. Schneider as Vice Chairman of the UDR Board,
Executive Vice President and a member of the UDR Executive Committee , (ii)
Robert F. Sherman as Senior Vice President and director of apartment operations
of the western division, and (iii) David L. Johnston as Senior Vice President
and director of acquisitions and development of the western division. The terms
and conditions of employment for each of the SWP executive officers shall be set
forth in separate employment agreements.
3.3. EMPLOYEES. At or before Closing, SWP will terminate the employment of
all SWP employees, and shall satisfy all compensation, severance pay, vacation
pay, sick pay and other legal obligations under the Worker Adjustment,
Retraining and Notification Act. Except as otherwise provided in this Agreement,
UDR shall have no liability or obligation with respect to former SWP employees
but may, in its sole discretion, offer employment to such employees on terms and
conditions established by UDR. SWP makes no representation or warranty as to
whether such employees shall accept employment with UDR.
ARTICLE 4
4. SWP STOCK.
4.1. CONVERSION OF THE SWP STOCK.
(a) At the Effective Time, each share of the Common Stock, $1.00 par
value per share, of Sub outstanding immediately prior to the Effective Time
shall remain outstanding and shall represent one share of Common Stock,
$1.00 par value per share, of Sub.
(b) At the Effective Time, each share of the Common Stock, $.01 par
value per share (the "SWP Common Stock"), of SWP issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive 1.0833 shares of Common Stock, $1.00 par value per share
(the "UDR Common Shares") of UDR (the "Exchange Ratio"). Notwithstanding
the foregoing, (i) in the event that the average closing price (as reported
by the New York Stock Exchange ("NYSE")), of UDR Common Shares on the NYSE
for the twenty (20) trading days immediately preceding the fifth trading
day preceding the date on which the Form S-4 (as defined in Section 7.7) is
declared effective by the SEC (the "UDR Exchange Price") is less than
$13.8467 per UDR Common Share, then the Exchange Ratio shall be equal to
the quotient of $15.00 divided by the
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UDR Exchange Price, provided, that if the Exchange Ratio so calculated
would be greater than 1.1215, UDR may, at its sole option, elect to proceed
to Closing at an Exchange Ratio of 1.1215. If UDR elects pursuant to the
preceding sentence to proceed to Closing at an Exchange Ratio of 1.1215,
then SWP, at its sole option, may elect to terminate this Agreement. A
termination pursuant to this subsection 4.1(b) shall be without liability
on the part of UDR or SWP or any of their affiliates and shall not result
in the payment of any Expenses or Liquidated Damage Amount (both as defined
in Section 9.5(a), below). If the record date for payment of the dividend
on the UDR Common Shares for the fourth calendar quarter of 1996 shall
occur during the period of twenty (20) trading days over which the UDR
Exchange Price is determined, there shall be excluded from such period such
record date, the four (4) trading days immediately preceding such record
date, and there shall be included in such period the four (4) trading days
immediately preceding the first trading day of such twenty (20) day period
as originally calculated.
(c) As a result of the Merger and without any action on the part of
the holder thereof, at the Effective Time all shares of SWP Common Stock
shall cease to be outstanding and shall be canceled and retired, and each
holder of a certificate (a "Certificate") representing any shares of SWP
Common Stock shall thereafter cease to have any rights with respect to such
shares of SWP Common Stock, except the right to receive, without interest,
the UDR Common Shares and cash for fractional shares of UDR Common Shares
in accordance with Sections 4.1(b) and 4.2(e) upon the surrender of such
Certificate.
(d) Each share of SWP Common Stock issued and held in SWP's treasury
at the Effective Time, if any, shall, by virtue of the Merger, cease to be
outstanding and shall be canceled and retired without payment of any
consideration therefor.
(e) As of the Effective Time, SWP shall purchase all outstanding
options (whether or not vested) to purchase shares of SWP Common Stock
(individually, an "SWP Option" and collectively, the "SWP Options") for the
difference between the exercise price of each of such SWP Options and the
fair market value of the underlying shares of SWP Common Stock. Such fair
market value per share shall be equal to the UDR Exchange Price multiplied
by the Exchange Ratio. At the Effective Time, all SWP Options that have
been authorized but are unissued under SWP's 1992 Non-qualified Stock
Option Plan and under SWP's 1995 Omnibus Incentive Plan (collectively, the
"SWP Stock Option Plans") shall be canceled. From and after the date of
this Agreement, no additional options shall be granted by SWP or its
Subsidiaries under the SWP Stock Option Plans or otherwise.
4.2. EXCHANGE OF CERTIFICATES REPRESENTING SWP COMMON STOCK.
(a) As of the Effective Time, UDR shall deposit, or shall cause to be
deposited, with an exchange agent selected by UDR, which shall be UDR's
Transfer Agent or such other party reasonably satisfactory to SWP (the
"Exchange Agent"), for the benefit of the holders of shares of SWP Common
Stock, for exchange in accordance with this Article 4, certificates
representing the shares of UDR Common Shares and the cash in lieu of
fractional shares (such cash and certificates for shares of UDR Common
Shares together with any dividends or distributions with respect thereto,
being hereinafter referred to as the "Exchange Fund") to be issued pursuant
to Section 4.1 and paid pursuant to this Section 4.2 in exchange for
outstanding shares of SWP Common Stock.
(b) Promptly after the Effective Time, UDR shall cause the Exchange
Agent to mail to each holder of record of a Certificate or Certificates (i)
a letter of transmittal which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as UDR may reasonably specify and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of UDR Common Shares and cash
in lieu of fractional shares. Upon surrender of a Certificate for
cancellation to the Exchange Agent together with such letter of
transmittal, duly executed and completed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor (x) a certificate representing the number of
whole shares of UDR Common Shares and (y) a check representing the amount
of cash in lieu of fractional shares, if any, and unpaid dividends and
distributions, if any, which such holder has the right to receive in
respect of the Certificate surrendered pursuant to the provisions of this
Article 4, after giving effect to any required withholding tax, and the
Certificate so surrendered shall forthwith be canceled.
No interest will be paid or accrued on the cash in lieu of fractional
shares and unpaid dividends and distributions, if any, payable to holders of
Certificates. In the event of a transfer of ownership of SWP Common Stock which
is not registered in the transfer records of SWP, a certificate representing the
proper number of shares of UDR Common Shares, together with a check for the cash
to be paid in lieu of fractional shares, may be issued to such a transferee if
the Certificate representing
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shares of such SWP Common Stock is presented to the Exchange Agent, accompanied
by all documents required to evidence and effect such transfer and to evidence
that any applicable stock transfer taxes have been paid.
(c) Notwithstanding any other provisions of this Agreement, no
dividends or other distributions on UDR Common Shares shall be paid with
respect to any shares of SWP Common Stock represented by a Certificate
until such Certificate is surrendered for exchange as provided herein.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the holder of the certificates
representing whole shares of UDR Common Shares issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective
Time theretofore payable with respect to such whole shares of UDR Common
Shares and not paid, less the amount of any withholding taxes which may be
required thereon, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective
Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such whole shares of UDR Common Shares, less the
amount of any withholding taxes which may be required thereon.
(d) At and after the Effective Time, there shall be no transfers on
the stock transfer books of SWP of the shares of SWP Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to UDR, they shall be delivered
to the Exchange Agent, canceled and exchanged for certificates for shares
of UDR Common Shares and cash in lieu of fractional shares, if any, and
unpaid dividends and distributions deliverable in respect thereof pursuant
to this Agreement in accordance with the procedures set forth in this
Article 4.
(e) No fractional shares of UDR Common Shares shall be issued pursuant
hereto. In lieu of the issuance of any fractional share of UDR Common
Shares pursuant to Section 4.1(b), cash adjustments will be paid to holders
in respect of any fractional share of UDR Common Shares that would
otherwise be issuable, and the amount of such cash adjustment shall be
equal to such fractional proportion of the UDR Exchange Price.
(f) Any portion of the Exchange Fund (including the proceeds of any
investments thereof and any shares of UDR Common Shares) that remains
unclaimed by the former stockholders of SWP one year after the Effective
Time shall be delivered to UDR. Any former stockholders of SWP who have not
theretofore complied with this Article 4 shall thereafter look only to UDR
for delivery of their shares of UDR Common Shares, and payment of cash in
lieu of fractional shares and unpaid dividends and distributions on the UDR
Common Shares deliverable in respect of each share of SWP Common Stock such
stockholder holds as determined pursuant to this Agreement, in each case,
without any interest thereon.
(g) None of UDR, SWP, the Exchange Agent or any other person shall be
liable to any former holder of shares of SWP Common Stock for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(h) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required
by UDR or the Exchange Agent, the posting by such person of a bond in such
reasonable amount as UDR may direct as indemnity against any claim that may
be made against it with respect to such Certificate, the Exchange Agent or
UDR will issue in exchange for such lost, stolen or destroyed Certificate
the shares of UDR Common Shares and cash in lieu of fractional shares, and
unpaid dividends and distributions on shares of UDR Common Shares as
provided in Section 4.2(c), deliverable in respect thereof pursuant to this
Agreement.
(i) SWP's predecessor-in-interest, Southwest Realty, Ltd., a Texas
limited partnership ("SRL"), was reorganized into SWP in October 1992 on
the basis of one share of SWP Common Stock for five shares (or "Depositary
Receipts") of SRL. An amount equal to two dollars per SRL Depositary
Receipt was payable for fractional SWP shares of Common Stock. There are
currently reserved for issuance 4,759 shares of SWP Common Stock that have
not been redeemed by holders of SRL Depositary Receipts. Any former holders
of SRL Depositary Receipts who have not exchanged their SRL Depositary
Receipts for shares of SWP Common Stock prior to the Closing Date, shall
thereafter look only to UDR for payment of their shares of UDR Common
Shares, cash in lieu of fractional shares and unpaid dividends and
distributions on the SWP Common Stock deliverable in respect of each SRL
Depositary Receipt as described in the first two sentences of this Section
4.2(i) and on each share of SWP Common Stock deliverable in respect of each
share of UDR Common Shares such stockholder holds as determined pursuant to
this Agreement, in each case, without any interest thereon.
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ARTICLE 5
5. REPRESENTATIONS AND WARRANTIES OF SWP. SWP represents and warrants to
UDR as set forth below. As contemplated below, an "SWP Disclosure Letter" will
be delivered to UDR on or before October 15, 1996. The SWP Disclosure Letter
shall provide the information or exceptions described below. The SWP Disclosure
Letter shall be amended prior to Closing to cause such representations and
warranties to be true and correct on the Closing Date, but SWP shall remain
liable for any breach of such representations and warranties reflected in such
amendment only as provided in Section 9.5(d), below.
5.1. EXISTENCE; GOOD STANDING; AUTHORITY; COMPLIANCE WITH LAW. SWP is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Maryland. SWP is duly licensed or qualified to do business
as a foreign corporation and is in good standing under the laws of any other
state of the United States in which the character of the properties owned or
leased by it therein or in which the transaction of its business makes such
qualification necessary, except where the failure to be so qualified would not
have a material adverse effect on the business, results of operations or
financial condition of SWP and its Subsidiaries taken as a whole (an "SWP
Material Adverse Effect"). SWP has all requisite corporate power and authority
to own, operate, lease and encumber its properties and carry on its business as
now conducted. Each of SWP's Subsidiaries is a corporation or partnership duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has the corporate or partnership
power and authority to own its properties and to carry on its business as it is
now being conducted, and is duly qualified to do business and is in good
standing in each jurisdiction in which the ownership of its property or the
conduct of its business requires such qualification, except for jurisdictions in
which such failure to be so qualified or to be in good standing would not have
an SWP Material Adverse Effect.
Neither SWP nor any of its Subsidiaries is in violation of any order of any
court, governmental authority or arbitration board or tribunal, or any law,
ordinance, governmental rule or regulation to which SWP or any SWP Subsidiary or
any of their respective properties or assets is subject, where such violation
would have an SWP Material Adverse Effect. SWP and its Subsidiaries have
obtained all licenses, permits and other authorizations and have taken all
actions required by applicable law or governmental regulations in connection
with their business as now conducted, where the failure to obtain any such item
or to take any such action would have an SWP Material Adverse Effect. Copies of
SWP's and its Subsidiaries' Articles of Incorporation, Bylaws, organizational
documents and partnership and joint venture agreements have been or will be
prior to October 15, 1996, delivered or made available to UDR and its counsel
and such documents will be listed in the SWP Disclosure Letter and were or will
be true and correct when delivered or made available. For the purposes of the
immediately preceding sentence, the term "Subsidiary" shall include the entities
set forth on Schedule 5.1 attached hereto, which are all of SWP's subsidiaries.
5.2. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. SWP has the
requisite corporate power and authority to enter into the transactions
contemplated hereby and to execute and deliver this Agreement and the Purchase
Option Agreement and all other documents, agreements and instruments related to
the transactions contemplated by this Agreement (the "SWP Ancillary
Agreements"). Subject only to the approval of this Agreement and the
transactions contemplated hereby by the holders of two-thirds of the outstanding
shares of SWP Common Stock, the consummation by SWP of this Agreement, the SWP
Ancillary Agreements and the transactions contemplated hereby have been duly
authorized by all requisite corporate action on the part of SWP. This Agreement
constitutes, and the SWP Ancillary Agreements (when executed and delivered
pursuant hereto for value received) will constitute, the valid and legally
binding obligations of SWP, enforceable against SWP in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity.
5.3. CAPITALIZATION. The authorized capital stock of SWP consists of
50,000,000 shares of SWP Common Stock and 10,000,000 shares of preferred stock,
$.01 par value per share (the "SWP Preferred Stock"), of which 150,881 shares of
SWP Preferred Stock are designated as "Series A Preferred Stock". As of the date
hereof, there were 20,578,786 shares of SWP Common Stock issued and outstanding,
and no shares of SWP Preferred Stock (including the Series A Preferred Stock
were issued and outstanding. SWP has no outstanding bonds, debentures, notes or
other obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the stockholders of SWP on any matter. All such issued and outstanding shares of
SWP Common Stock are duly authorized, validly issued, fully paid, nonassessable
and free of preemptive rights. There are not at the date of this Agreement any
existing options, warrants, calls, subscriptions, convertible securities, or
other rights, agreements or commitments which obligate SWP or any of its
Subsidiaries to issue, transfer or sell any shares of capital stock of SWP or
any of its Subsidiaries, except for the SWP Options and the SRL Depositary
Receipts. After the Effective Time, UDR will have no obligation to issue,
transfer or sell
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any shares of capital stock or other equity interest of SWP or UDR pursuant to
any SWP Benefit Plan (as defined in Section 5.14).
5.4. SUBSIDIARIES. SWP owns directly or indirectly each of the outstanding
shares of capital stock or all of the partnership or other equity interests of
each of SWP's Subsidiaries. Each of the outstanding shares of capital stock of
or other equity interest in each of SWP's Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable, and is owned, directly or
indirectly, by SWP free and clear of all liens, pledges, security 8 interests,
claims or other encumbrances other than liens imposed by local law which are not
material. The following information for each Subsidiary of SWP will be set forth
in the SWP Disclosure Letter, if applicable: (i) its name and jurisdiction of
incorporation or organization; (ii) its authorized capital stock or share
capital or partnership or other interests; (iii) the name of each stockholder or
owner of an equity interest and the number of issued and outstanding shares of
capital stock or share capital or percentage ownership for non-corporate
entities held by it; and (iv) the name, ownership structure and equity owners of
the general partner(s).
5.5. OTHER INTERESTS. Except for interests in the SWP Subsidiaries, neither
SWP nor any SWP Subsidiary owns directly or indirectly any interest or
investment (whether equity or debt) in any corporation, partnership, joint
venture, business, trust or entity (other than investments in short-term
investment securities).
5.6. NO VIOLATION. Neither the execution and delivery by SWP of this
Agreement nor the consummation by SWP of the transactions contemplated hereby in
accordance with the terms hereof, will: (i) conflict with or result in a breach
of any provisions of the Articles of Incorporation or Bylaws of SWP; (ii) result
in a breach or violation of, a default under, or, except as will be set forth in
the SWP Disclosure Letter, the triggering of any payment or other material
obligations pursuant to, or accelerate vesting under, any of the SWP Stock
Option Plans, or any grant or award made under any of the foregoing; (iii)
except as contemplated by the SWP Ancillary Agreements or as will be set forth
in the SWP Disclosure Letter, violate, or conflict with, or result in a breach
of any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination or in a right of termination or cancellation of, or accelerate the
performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of SWP or its
Subsidiaries under, or result in being declared void, voidable or without
further binding effect, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust or any license, franchise, permit,
lease, contract, agreement or other instrument, commitment or obligation to
which SWP or any of its Subsidiaries is a party, or by which SWP or any of its
Subsidiaries or any of their properties is bound or affected, except for any of
the foregoing matters which, individually or in the aggregate, would not have an
SWP Material Adverse Effect; or (iv) other than the filings provided for in
Article 1, any filings required under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Securities Act or applicable state securities
and "Blue Sky" laws (collectively, the "Regulatory Filings"), require any
consent, approval or authorization of, or declaration, filing or registration
with, any domestic governmental or regulatory authority, except where the
failure to obtain any such consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority would not have an SWP Material Adverse Effect.
5.7. SEC DOCUMENTS. SWP has delivered or made available or will deliver or
make available prior to October 15, 1996, to UDR the registration statement of
SWP filed with the United States Securities and Exchange Commission (the "SEC")
in connection with the reorganization of SRL into SWP, and all exhibits,
amendments and supplements thereto (the "SWP Registration Statement"), and each
registration statement, report, proxy statement or information statement and all
exhibits thereto prepared by it or relating to its properties (including
registration statements covering mortgage pass-through certificates) since the
effective date of the SWP Registration Statement, which will be listed in the
SWP Disclosure Letter, each in the form (including exhibits and any amendments
thereto) filed with the SEC (collectively, the "SWP Reports"). The SWP Reports,
which were or will be filed with the SEC in a timely manner, constitute all
forms, reports and documents required to be filed by SWP under the Securities
Act, the Exchange Act and the rules and regulations promulgated thereunder (the
"Securities Laws").
As of their respective dates, the SWP Reports (i) complied as to form in
all material respects with the applicable requirements of the Securities Laws
and (ii) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. Each of the consolidated balance sheets of SWP included in
or incorporated by reference into the SWP Reports (including the related notes
and schedules) fairly presents the consolidated financial position of SWP and
its Subsidiaries as of its date and each of the consolidated statements of
income, retained earnings and cash flows of SWP included in or incorporated by
reference into the SWP Reports (including any related notes and schedules)
fairly presents the results of operations, retained earnings or cash flows, as
the case may be, of SWP and the SWP Subsidiaries for the periods
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set forth therein (subject, in the case of unaudited statements, to normal
year-end audit adjustments which would not be material in amount or effect), in
each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except as may be noted therein
and except, in the case of the unaudited statements, as permitted by the
Securities Laws.
Except as and to the extent set forth on the consolidated balance sheet of
SWP and the SWP Subsidiaries at December 31, 1995, including all notes thereto,
or as set forth in the SWP Reports, neither SWP nor any of the SWP Subsidiaries
has any material liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would be required to be reflected on, or
reserved against in, a balance sheet of SWP or in the notes thereto, prepared in
accordance with generally accepted accounting principles consistently applied,
except liabilities arising in the ordinary course of business since such date
which would not have an SWP Material Adverse Effect.
5.8. LITIGATION. There are (i) no continuing orders, injunctions or decrees
of any court, arbitrator or governmental authority to which SWP or any SWP
Subsidiary is a party or by which any of its properties or assets are bound or,
to the knowledge of any of John S. Schneider, Robert F. Sherman, Lewis H.
Sandler, David L. Johnston and Dan M. Jones (each of whom is hereinafter
sometimes referred to as an "Executive Officer" and together as the "Executive
Officers of SWP") ("Knowledge of SWP"), to which any of its directors, officers,
or affiliates is a party or by which any of their properties or assets are
bound, and (ii) except as will be set forth in the SWP Disclosure Letter, no
actions, suits or proceedings pending against SWP or any SWP Subsidiary or, to
the Knowledge of SWP, against any of its directors, officers, or affiliates or,
to the Knowledge of SWP, threatened against SWP or any SWP Subsidiary or against
any of its directors, officers, or affiliates, at law or in equity, or before or
by any federal or state commission, board, bureau, agency or instrumentality,
that in the case of clauses (i) or (ii) above are reasonably likely,
individually or in the aggregate, to have an SWP Material Adverse Effect.
5.9. ABSENCE OF CERTAIN CHANGES. Except as disclosed in the SWP Reports
filed with the SEC prior to the date hereof, since December 31, 1995, (i) SWP
and its Subsidiaries have conducted their business only in the ordinary course
of such business (which for purposes of this section only, shall include all
acquisitions of real estate properties and financing arrangements made in
connection therewith or otherwise will be set forth in the SWP Disclosure
Letter); (ii) there has not been any SWP Material Adverse Effect; (iii) as of
the date hereof, there has not been any declaration, setting aside or payment of
any dividend or other distribution with respect to the SWP Common Stock, except
dividends of $0.26 per share payable to stockholders of record on October 1,
1996 (and about to be declared and payable to stockholders of record on or about
December 31, 1996); and (iv) there has not been any material change in SWP's
accounting principles, practices or methods.
5.10. TAXES. Except as may be set forth in the SWP Disclosure Letter, SWP
and each of its Subsidiaries (i) has timely filed all federal, state and foreign
tax returns including, without limitation, information returns and reports
required to be filed by any of them for tax periods ended prior to the date of
this Agreement or requests for extensions have been timely filed and any such
request has been granted and has not expired and all such returns are accurate
and complete in all material respects, (ii) has paid or accrued all taxes shown
to be due and payable on such returns or which have become due and payable
pursuant to any assessment, deficiency notice, 30-day letter or other notice
received by it and (iii) has properly accrued all taxes for such periods and
periods subsequent to the periods covered by such returns. Neither SWP nor any
of its Subsidiaries has received notice that the federal, state and local income
and franchise tax returns of SWP or any such Subsidiary has been or will be
examined by any taxing authority. Neither SWP nor any of its Subsidiaries has
executed or filed with the Internal Revenue Service (the "IRS") or any other
taxing authority any agreement now in effect extending the period for assessment
or collection of any income or other taxes.
Except as may be set forth in the SWP Disclosure Letter, neither SWP nor
any of its Subsidiaries is a party to any pending action or proceeding by any
governmental authority for assessment or collection of taxes, and no claim for
assessment or collection of taxes has been asserted against it. True, correct
and complete copies of all federal, state and local income or franchise tax
returns filed by SWP and each of its Subsidiaries and all communications
relating thereto have been delivered to UDR or made available to representatives
of UDR or will be so delivered or made available prior to October 15, 1996. SWP
(i) has qualified to be taxed as a real estate investment trust (a "REIT")
pursuant to Sections 856 through 859 of the Code for its taxable years ended
December 31, 1992, 1993, 1994 and 1995, (ii) has operated, and intends to
continue to operate, in such a manner as to qualify to be taxed as a REIT
pursuant to Sections 856 through 859 of the Code for its taxable year ended on
the effective date of the Merger, and (iii) has not taken or omitted to take any
action which could result in, and each of the executive officers of SWP, each
acting in his respective capacity as such, has no actual knowledge of a
challenge to, its status as a REIT. SWP represents that each of its Subsidiaries
which is a corporation for federal income tax purposes and of which all the
outstanding capital stock is owned solely by SWP (or by SWP and one or more of
its Subsidiaries or by one or more of its Subsidiaries) is a Qualified REIT
Subsidiary as defined in Section 856 (i) of the Code. Neither SWP nor
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any of its Subsidiaries holds any asset (i) the disposition of which could be
subject to rules similar to Section 1374 of the Code as a result of an election
under IRS Notice 88-19 or (ii) that is subject to a consent filed pursuant to
Section 341(f) of the Code and regulations thereunder. For purposes of this
Section 5.10, "taxes" includes any interest, penalty or additional amount
payable with respect to any tax.
5.11. BOOKS AND RECORDS.
(a) The books of account and other financial records of SWP and its
Subsidiaries are in all material respects true, complete and correct, have
been maintained in accordance with good business practices, and are
accurately reflected in all material respects in the financial statements
included in the SWP Reports.
(b) The minute books and other records of SWP and its Subsidiaries
contain in all material respects accurate records of all meetings and
accurately reflect in all material respects all other corporate action of
the stockholders and directors and any committees of the Board of Directors
of SWP and its Subsidiaries.
5.12. PROPERTIES. SWP or one of its Subsidiaries own fee simple title to
each of the real properties reflected on the most recent balance sheet of SWP
included in the SWP Reports or as may be identified in the SWP Disclosure Letter
(the "SWP Properties"), which are all of the real estate properties owned by
them, free and clear of liens, mortgages or deeds of trust, claims against
title, charges which are liens, security interests or other encumbrances on
title ("Encumbrances") except as will be noted in the SWP Disclosure Letter. The
SWP Properties are not subject to any rights of way, written agreements, laws,
ordinances and regulations affecting building use or occupancy, or reservations
of an interest in title (collectively, "Property Restrictions"), except for (i)
Encumbrances and Property Restrictions that will be set forth in the SWP
Disclosure Letter, (ii) Property Restrictions imposed or promulgated by law or
any governmental body or authority with respect to real property, including
zoning regulations, provided they do not materially adversely affect the current
use of the property, (iii) Encumbrances and Property Restrictions disclosed on
existing title reports or current surveys (in either case copies of which title
reports and surveys have been or will be delivered or made available to UDR
prior to October 15, 1996), (iv) mechanics', carriers', workmen's, repairmen's
liens and other Encumbrances, Property Restrictions and other limitations of any
kind, if any, which have heretofore been bonded (and that will be listed in the
SWP Disclosure Letter) or which individually or in the aggregate do not exceed
$100,000, do not materially detract from the value of or materially interfere
with the present use of any of the SWP Properties subject thereto or affected
thereby, and do not otherwise materially impair business operations conducted by
SWP and its Subsidiaries and which have arisen or been incurred only in its
construction activities or in the ordinary course of business.
Valid policies of title insurance have been issued insuring either (a)
SWP's or any of its Subsidiaries' fee simple title to the SWP Properties or (b)
first mortgage liens thereon, subject only to the matters disclosed above and as
may be set forth in the SWP Disclosure Letter, and such policies are, at the
date hereof, in full force and effect and no claim has been made against any
such policy. Except as will be set forth in the SWP Disclosure Letter: (i) there
is no certificate, permit or license from any governmental authority having
jurisdiction over any of the SWP Properties or any agreement, easement or other
right which is necessary to permit the lawful use and operation of the buildings
and improvements on any of the SWP Properties or which is necessary to permit
the lawful use and operation of all driveways, roads and other means of egress
and ingress to and from any of the SWP Properties that has not been obtained and
is not in full force and effect, or of any pending threat of modification or
cancellation of any of same; (ii) neither SWP nor its Subsidiaries has received
written notice of any violation of any federal, state or municipal law,
ordinance, order, regulation or requirement affecting any portion of any of the
SWP Properties issued by any governmental authority; (iii) there are no
structural defects relating to the SWP Properties and no SWP Properties whose
building systems are not in working order in any material respect; and (iv)
there is (A) no physical damage to any SWP Property in excess of $100,000 for
which there is no insurance in effect covering the cost of the restoration, (B)
no current renovation to any SWP Property the cost of which exceeds $100,000 and
(C) no current restoration of any SWP Property, the cost of which exceeds
$100,000.
Except as will be set forth in the SWP Disclosure Letter, SWP or its
Subsidiaries have received no notice to the effect that and there are no (A)
condemnation or rezoning proceedings that are pending or threatened with respect
to any of the SWP Properties or (B) zoning, building or similar laws, codes,
ordinances, orders or regulations that are or will be violated by the continued
maintenance, operation or use of any buildings or other improvements on any of
the SWP Properties or by the continued maintenance, operation or use of the
parking areas. All work to be performed, payments to be made and actions to be
taken by SWP or its Subsidiaries prior to the date hereof pursuant to any
agreement entered into with a governmental body or authority in connection with
a site approval, zoning reclassification or other similar action relating to the
SWP Properties (e.g., Local Improvement District, Road Improvement District,
Environmental Mitigation) has been performed,
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paid or taken, as the case may be, and SWP is not aware of any planned or
proposed work, payments or actions that may be required after the date hereof
pursuant to such agreements, except as will be set forth in the SWP Disclosure
Letter.
5.13. ENVIRONMENTAL MATTERS. To the actual knowledge of each of the
Executive Officers of SWP, each acting in his respective capacity as such, none
of SWP, any of its Subsidiaries or, any other person, has caused or permitted
(a) the unlawful presence of any hazardous substances, hazardous materials,
toxic substances or waste materials (collectively, "Hazardous Materials") on any
of the SWP Properties, or (b) any unlawful spills, releases, discharges or
disposal of Hazardous Materials to have occurred or be presently occurring on or
from the SWP Properties as a result of any construction on or operation and use
of such properties, which presence or occurrence would, individually or in the
aggregate, have a SWP Material Adverse Effect; and in connection with the
construction on or operation and use of the SWP Properties, SWP and its
Subsidiaries have not failed to comply, in any material respect, with any
applicable local, state and federal environmental laws, regulations, ordinances
and administrative and judicial orders relating to the generation, recycling,
reuse, sale, storage, handling, transport and disposal of any Hazardous
Materials.
5.14. EMPLOYEE BENEFIT PLANS. All employee benefits plans and other benefit
arrangements covering employees of SWP and the SWP Subsidiaries (the "SWP
Benefit Plans") will be listed in the SWP Disclosure Letter. True and complete
copies of the SWP Benefit Plans have been made available to UDR. To the extent
applicable, the SWP Benefit Plans comply, in all material respects, with the
requirements of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code, and any SWP Benefit Plan intended to be qualified under
Section 401(a) of the Code has been determined by the IRS to be so qualified. No
SWP Benefit Plan is covered by Title IV of ERISA or Section 412 of the Code.
Neither SWP nor any SWP Benefit Plan has incurred any liability or penalty under
Section 4975 of the Code or Section 502 (i) of ERISA. Each SWP Benefit Plan has
been maintained and administered in all material respects in compliance with its
terms and with ERISA and the Code to the extent applicable thereto.
Except as will be set forth in the SWP Disclosure Letter, there are no
pending or, to the Knowledge of SWP, threatened claims against or otherwise
involving any of the SWP Benefit Plans and no suit, action or other litigation
(excluding claims for benefits incurred in the ordinary course of SWP Benefit
Plan activities) has been brought against or with respect to any such SWP
Benefit Plan, except for any of the foregoing which would not have an SWP
Material Adverse Effect. All material contributions required to be made as of
the date hereof to the SWP Benefit Plans have been made or provided for. Neither
SWP nor any entity under "common control" with SWP within the meaning of ERISA
Section 4001 has contributed to, or been required to contribute to, any
"multiemployer plan" (as defined in Sections 3(37) and 4001(a)(3) of ERISA).
SWP does not maintain or contribute to any plan or arrangement which
provides or has any liability to provide life insurance, medical or other
employee welfare benefits to any employee or former employee upon his retirement
or termination of employment except as will be set forth in the SWP Disclosure
Letter and SWP has never represented, promised or contracted (whether in oral or
written form) to any employee or former employee that such benefits would be
provided except as will be set forth in the SWP Disclosure Letter.
5.15. LABOR MATTERS. Neither SWP nor any of its Subsidiaries is a party to,
or bound by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor union organization. There is no unfair
labor practice or labor arbitration proceeding pending or, to the knowledge of
each of the executive officers of SWP, each acting in his respective capacity as
such, threatened against SWP or its Subsidiaries relating to their business,
except for any such proceeding which would not have an SWP Material Adverse
Effect. To the Knowledge of SWP, there are no organizational efforts with
respect to the formation of a collective bargaining unit presently being made or
threatened involving employees of SWP or any of its Subsidiaries.
5.16. NO BROKERS. Except the fee that is to be paid to Lehman Brothers Inc.
by SWP as described below, SWP has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of SWP
or UDR to pay any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby. SWP is not aware of any
claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
5.17. OPINION OF FINANCIAL ADVISOR. SWP has retained Lehman Brothers Inc.
to review the transaction contemplated by this Agreement and to issue an opinion
to the effect that, as of the date of such opinion, the Exchange Ratio is fair
to the holders of SWP Common Stock from a financial point of view.
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5.18. UDR SHARE OWNERSHIP. Except as expressly described in the RECITALS
hereto or as may be set forth in the SWP Disclosure Letter, neither SWP nor any
of its Subsidiaries owns any shares of UDR Common Shares or other securities
convertible into any capital stock of UDR.
5.19. RELATED PARTY TRANSACTIONS. Except for employment agreements with its
executive officers and option agreements (including loan transactions in
connection therewith) issued to SWP officers, directors and other key employees
pursuant to the SWP Stock Option Plans, copies of which have been or will be
delivered or made available to UDR prior to October 15, 1996, and which are or
will be true, complete and correct when delivered or made available, there are
no arrangements, agreements or contracts entered into by SWP or any of its
Subsidiaries with (i) any consultant, (ii) any person who is an officer,
director or affiliate of SWP or any of its Subsidiaries, any relative of any of
the foregoing or any entity of which any of the foregoing is an affiliate or
(iii) any person who acquired SWP Common Stock in a private placement.
5.20. CONTRACTS AND COMMITMENTS. The SWP Disclosure Letter will set forth
(i) all unsecured notes or other obligations of SWP and SWP Subsidiaries which
individually may result in total payments in excess of $250,000, (ii) all notes,
debentures, bonds and other evidence of indebtedness which are secured or
collateralized by mortgages, deeds of trust or other security interests in the
SWP Properties or personal property of SWP and its Subsidiaries and (iii) each
Commitment entered into by SWP or any of its Subsidiaries which may result in
total payments or liability in excess of $250,000. Copies of the foregoing will
be delivered or made available to UDR prior to October 15, 1996, will be listed
on the SWP Disclosure Letter and will be true and correct when delivered or made
available. None of SWP or any of its Subsidiaries has received any notice of a
default that has not been cured under any of the documents described in clause
(i) above or is in default respecting any payment obligations thereunder beyond
any applicable grace periods. All options of SWP or any of its Subsidiaries to
purchase real property will be set forth on the SWP Disclosure Letter and such
options and SWP's or its Subsidiaries' rights thereunder are in full force and
effect. All joint venture agreements to which SWP or any of its Subsidiaries is
a party will be set forth on the SWP Disclosure Letter and SWP or its
Subsidiaries are not in default with respect to any obligations, which
individually or in the aggregate are material, thereunder.
5.21. DEVELOPMENT RIGHTS. Set forth in the SWP Disclosure Letter will be a
list of all material agreements entered into by SWP or any of its Subsidiaries
relating to the development, rehabilitation, capital improvement or construction
of multifamily residential communities or additions thereto or other real estate
properties, which development or construction has not been substantially
completed as of the date of this Agreement. Such agreements, true and correct
copies of all of which will be delivered or made available to UDR prior to
October 15, 1996, will be listed in the SWP Disclosure Letter, have not been
modified and are valid and enforceable in accordance with their respective
terms.
5.22. CERTAIN PAYMENTS RESULTING FROM TRANSACTIONS. Except for the payments
described in Section 5.19 and except for option agreements (and loans made in
connection therewith) executed pursuant to SWP Stock Option Plans, deferred
compensation arrangements with certain SWP executive officers and employment
agreements with certain SWP officers, the execution of, and performance of the
transactions contemplated by, this Agreement will not (either alone or upon the
occurrence of any additional or subsequent events) (i) constitute an event under
any SWP Benefit Plan, policy, practice, agreement or other arrangement or any
trust or loan (the "Employee Arrangements") that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any employee, director or consultant of SWP or any of
its Subsidiaries, or (ii) result in the triggering or imposition of any
restrictions or limitations on the right of SWP or UDR to amend or terminate any
Employee Arrangement and receive the full amount of any excess assets remaining
or resulting from such amendment or termination, subject to applicable taxes.
Except as may be described in the SWP Disclosure letter, no payment or benefit
which will be required to be made pursuant to the terms of any agreement,
commitment or SWP Benefit Plan, as a result of the transactions contemplated by
this Agreement, to any officer, director or employee of SWP or any of its
Subsidiaries, will be characterized as an "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Code.
5.23. CONVERTIBLE SECURITIES. SWP has no outstanding options, warrants or
other securities exercisable for, or convertible into, shares of SWP Common
Stock, the terms of which would require any anti-dilution adjustments by reason
of the consummation of the transactions contemplated hereby.
5.24. RIGHTS; ACQUISITION OF SHARES. The SWP Board of Directors has adopted
all resolutions necessary to ensure that the rights issued by SWP pursuant to
the Rights Agreement, dated as of August 17, 1994, between South West Property
Trust Inc. and Society National Bank, as Rights Agent, do not become separable
from the SWP Common Stock or exercisable as a result of the execution and
delivery of this Agreement by SWP and will not become separable or exercisable
as a result of the consummation of the transactions contemplated hereby. The
Board of Directors of SWP has taken all action necessary to
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irrevocably exempt from the provisions of Paragraph C of Article V of the SWP
Articles of Incorporation the acquisition by UDR and Sub of shares of SWP Common
Stock pursuant to this Agreement or the Purchase Option Agreement.
ARTICLE 6
6. REPRESENTATIONS AND WARRANTIES OF UDR AND SUB. UDR and Sub represent and
warrant to SWP as set forth below. As contemplated below, a "UDR Disclosure
Letter" will be delivered to SWP on or before October 15, 1996. The UDR
Disclosure Letter shall provide the information or exceptions described below.
The UDR Disclosure Letter shall be amended prior to Closing to cause such
representations and warranties to be true and correct on the Closing Date, but
UDR shall remain liable for any breach of such representations and warranties
reflected in such amendment only as provided in Section 9.5(d), below.
6.1. EXISTENCE; GOOD STANDING; AUTHORITY; COMPLIANCE WITH LAW. UDR is a
corporation duly organized, incorporated, validly existing and in good standing
under the laws of the Commonwealth of Virginia. UDR is duly licensed or
qualified to do business and is in good standing under the laws of any other
state of the United States in which the character of the properties owned or
leased by it therein or in which the transaction of its business makes such
qualification necessary, except where the failure to be so qualified would not
have a material adverse effect on the business, results of operations or
financial condition of UDR and its Subsidiaries taken as a whole (a "UDR
Material Adverse Effect"). UDR has all requisite power and authority to own,
operate, lease and encumber its properties and carry on its business as now
conducted. Each of UDR's Subsidiaries is a corporation, limited liability
company or partnership duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation or organization, has the
corporate or partnership power and authority to own its properties and to carry
on its business as it is now being conducted, and is duly qualified to do
business and is in good standing in each jurisdiction in which the ownership of
its property or the conduct of its business requires such qualification, except
for jurisdictions in which such failure to be so qualified or to be in good
standing would not have a UDR Material Adverse Effect. Sub has no material
assets or liabilities and does not now and has never had any material
operations.
Neither UDR nor any UDR Subsidiary is in violation of any order of any
court, governmental authority or arbitration board or tribunal, or any law,
ordinance, governmental rule or regulation to which UDR or any UDR Subsidiary or
any of their respective properties or assets is subject, where such violation
would have a UDR Material Adverse Effect. UDR and its Subsidiaries have obtained
all licenses, permits and other authorizations and have taken all actions
required by applicable law or governmental regulations in connection with their
business as now conducted, where the failure to obtain any such item or to take
any such action would have a UDR Material Adverse Effect. Copies of UDR's and
its Subsidiaries' Articles of Incorporation, Bylaws, organization documents and
partnership and joint venture agreements have been or will be prior to October
15, 1996, delivered or made available to SWP and such documents will be listed
in the UDR Disclosure Letter and were or will be true and correct when delivered
or made available. For the purposes of the immediately preceding sentence, the
term "Subsidiary"shall include the entities set forth on Schedule 6.1 attached
hereto, which are all of UDR's subsidiaries.
6.2. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. UDR and Sub have the
requisite corporate power and authority to enter into the transactions
contemplated hereby and to execute and deliver this Agreement and the Purchase
Option Agreement and all other documents, agreements and instruments related to
the transactions contemplated by this Agreement to which each of them is a party
(the "UDR Ancillary Agreements"). Subject only to the approval of the issuance
of the shares of UDR Common Shares pursuant to the Merger contemplated hereby by
the holders of a majority of the outstanding shares of UDR Common Shares,
present and voting thereon, the consummation by UDR and Sub of this Agreement,
the UDR Ancillary Agreements and the transactions contemplated hereby have been
duly authorized by all requisite corporate action on the part of UDR and Sub.
This Agreement constitutes, and the UDR Ancillary Agreements (when executed and
delivered pursuant hereto for value received) will constitute, the valid and
legally binding obligations of UDR and Sub, enforceable against UDR and Sub in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights and
general principles of equity.
6.3. CAPITALIZATION. The authorized capital stock of UDR consists of
100,000,000 shares of UDR Common Shares and 25,000,000 shares of UDR Preferred
Stock, without par value ("UDR Preferred Shares"). As of September 24, 1996,
there were 58,752,771 shares of UDR Common Shares issued and outstanding and
4,200,000 shares of UDR Preferred Shares, constituting the series designated as
the 9 1/4% Series A Cumulative Redeemable Preferred Stock, issued and
outstanding. In addition, there are 6,377,074 units of limited partnership
interest ("O.P. Units") issued and outstanding in United Dominion Realty, L.P.
(the "O.P."), a Subsidiary of UDR. UDR has no outstanding bonds, debentures,
notes or other obligations the holders of which have the right to vote (or which
are convertible into or exercisable for securities having the right to vote)
with the shareholders of UDR on any matter. All such issued and outstanding
shares of UDR Common Shares are duly
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authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. There are not at the date of this Agreement any existing options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements or commitments which obligate UDR or any of its Subsidiaries to
issue, transfer or sell any shares of stock or other equity interest of UDR or
any of its Subsidiaries, other than the issuance, by UDR up to 1,385,616 UDR
Common Shares upon the exercise of stock options issued to employees and
directors. There are no agreements or understandings to which UDR is a party
with respect to the voting of any shares of UDR Common Shares or which restrict
the transfer of any such shares, except in order to protect its REIT status.
6.4. SUBSIDIARIES. Except as in the next sentence provided, UDR owns
directly or indirectly each of the outstanding shares of capital stock or all of
the partnership or other equity interests of each of UDR's Subsidiaries free and
clear of all liens, pledges, security interests, claims or other encumbrances
other than liens imposed by local law which are not material. There are
currently outstanding 136,260 O.P. units owned by persons other than UDR and its
Subsidiaries. There are currently outstanding 63,771 units of general
partnership interest in the O.P., all of which are owned by UDR. Each of the
outstanding shares of capital stock of or other equity interest in each of UDR's
Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable.The following information for each Subsidiary of UDR will be set
forth in the UDR Disclosure Letter, if applicable: (i) its name and jurisdiction
of incorporation or organization; (ii) its authorized capital stock or share
capital or partnership or other interests; (iii) the name of each shareholder or
owner of an equity interest and the number of issued and outstanding shares of
capital stock or share capital or percentage ownership for non-corporate
entities held by it; and (iv) the name, ownership structure and equity owners of
the general partner(s).
6.5. OTHER INTERESTS. Except as will be disclosed in the UDR Disclosure
Letter and except for interests in the UDR Subsidiaries, neither UDR nor any UDR
Subsidiary owns directly or indirectly any interest or investment (whether
equity or debt) in any corporation, partnership, joint venture, business, trust
or entity (other than investments in short-term investment securities).
6.6. NO VIOLATION. Neither the execution and delivery by UDR of this
Agreement nor the consummation by UDR of the transactions contemplated hereby in
accordance with the terms hereof, will: (i) conflict with or result in a breach
of any provisions of the Articles of Incorporation or Bylaws of UDR; (ii) result
in a breach or violation of, a default under, or the triggering of any payment
or other material obligations pursuant to, or accelerate vesting under, any of
UDR's Stock Option Plans, or any grant or award made under any of the foregoing;
(iii) violate, or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination or in a right of
termination or cancellation of, or accelerate the performance required by, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties of UDR or its Subsidiaries under, or result in being
declared void, voidable or without further binding effect, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust
or any license, franchise, permit, lease, contract, agreement or other
instrument, commitment or obligation to which UDR or any of its Subsidiaries is
a party, or by which UDR or any of its Subsidiaries or any of their properties
is bound or affected, except for any of the foregoing matters which,
individually or in the aggregate, would not have a UDR Material Adverse Effect;
or (iv) other than the Regulatory Filings require any consent, approval or
authorization of, or declaration, filing or registration with, any domestic
governmental or regulatory authority, except where the failure to obtain such
consent, approval or authorization of, or declaration, filing or registration
with, any governmental or regulatory authority would not have a UDR Material
Adverse Effect.
6.7. SEC DOCUMENTS. UDR has delivered or made available or will deliver or
make available prior to October 15, 1996, to SWP the registration statements of
UDR filed with the SEC in connection with public offerings of UDR securities
since January 1, 1992 and all exhibits, amendments and supplements thereto (the
"UDR Registration Statements"), and each registration statement, report, proxy
statement or information statement and all exhibits thereto prepared by it or
relating to its properties since the effective date of the latest UDR
Registration Statement, which will be listed in the UDR Disclosure Letter, each
in the form (including exhibits and any amendments thereto) filed with the SEC
(collectively, the "UDR Reports"). The UDR Reports, which were or will be filed
with the SEC in a timely manner, constitute all forms, reports and documents
required to be filed by UDR under the Securities Laws.
As of their respective dates, the UDR Reports (i) complied as to form in
all material respects with the applicable requirements of the Securities Laws
and (ii) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. Each of the consolidated balance sheets of UDR included in
or incorporated by reference into the UDR Reports (including the related notes
and schedules) fairly presents the consolidated financial position of UDR and
the UDR Subsidiaries as of its date and each of the consolidated statements of
income, retained earnings and cash flows
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of UDR included in or incorporated by reference into the UDR Reports (including
any related notes and schedules) fairly presents the results of operations,
retained earnings or cash flows, as the case may be, of UDR and the UDR
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments which would not be
material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein and except, in the case of the unaudited
statements, as permitted by the Securities Laws.
Except as and to the extent set forth on the consolidated balance sheet of
UDR and its Subsidiaries at December 31, 1995, including all notes thereto, or
as set forth in the UDR Reports, neither UDR nor any of the UDR Subsidiaries has
any material liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would be required to be reflected on, or
reserved against in, a balance sheet of UDR or in the notes thereto, prepared in
accordance with generally accepted accounting principles consistently applied,
except (i) liabilities arising in the ordinary course of business since such
date which would not have a UDR Material Adverse Effect and (ii) liabilities
related to the acquisition by UDR of 18 properties on August 15, 1996.
6.8. LITIGATION. There are (i) no continuing orders, injunctions or decrees
of any court, arbitrator or governmental authority to which UDR or any UDR
Subsidiary is a party or by which any of its properties or assets are bound or,
to the knowledge of any of John P. McCann, James Dolphin, Barry M. Kornblau,
Katheryn E. Surface, Richard A. Giannotti and Richard B. Chess (each of whom is
hereinafter sometimes referred to as an "Executive Officer" and together as the
"Executive Officers of UDR") ("Knowledge of UDR"), to which any of its
directors, officers, or affiliates is a party or by which any of their
properties or assets are bound, and (ii) except as will be set forth in the UDR
Disclosure Letter, no actions, suits or proceedings pending against UDR or any
UDR Subsidiary or, to the Knowledge of UDR, against any of its directors,
officers, or affiliates or, to the Knowledge of UDR, threatened against UDR or
any UDR Subsidiary or against any of its directors, officers, or affiliates, at
law or in equity, or before or by any federal or state commission, board,
bureau, agency or instrumentality, that in the case of clauses (i) or (ii) above
are reasonably likely, individually or in the aggregate, to have a UDR Material
Adverse Effect.
6.9. ABSENCE OF CERTAIN CHANGES. Except as disclosed in the UDR Reports
filed with the SEC prior to the date hereof, (i) UDR and its Subsidiaries have
conducted their business only in the ordinary course of such business (which,
for purposes of this section only, shall include all acquisitions of real estate
properties and financing arrangements made in connection therewith); (ii) there
has not been any UDR Material Adverse Effect; (iii) as of the date hereof, there
has not been any declaration, setting aside or payment of any dividend or other
distribution with respect to the UDR Common Shares, except dividends of $0.24
per share payable to shareholders of record on October 11, 1996 (and about to be
declared and payable to shareholders of record on or about December 12, 1996);
and (iv) there has not been any material change in UDR's accounting principles,
practices or methods.
6.10. TAXES. Except as may be set forth in the UDR Disclosure Letter, UDR
and each of its Subsidiaries (i) has timely filed all federal, state and foreign
tax returns including, without limitation, information returns and reports
required to be filed by any of them for tax periods ended prior to the date of
this Agreement or requests for extensions have been timely filed and any such
request has been granted and has not expired and all such returns are absolute
and complete in all material respects, (ii) has paid or accrued all taxes shown
to be due and payable on such returns or which have become due and payable
pursuant to any assessment, deficiency notice, 30-day letter or other notice
received by it and (iii) has properly accrued all taxes for such periods
subsequent to the periods covered by such returns. Neither UDR nor any of its
Subsidiaries has received notice that the federal, state and local income and
franchise tax returns of UDR or any such Subsidiary has been or will be examined
by any taxing authority. Neither UDR nor any of its Subsidiaries has executed or
filed with the IRS or any other taxing authority any agreement now in effect
extending the period for assessment or collection of any income or other taxes.
Except as will be disclosed in the UDR Disclosure Letter, neither UDR nor
any of its Subsidiaries is a party to any pending action or proceeding by any
governmental authority for assessment or collection of taxes, and no claim for
assessment or collection of taxes has been asserted against it. True, correct
and complete copies of all federal, state and local income or franchise tax
returns filed by UDR and each of its Subsidiaries and all communications
relating thereto have been delivered to SWP or made available to representatives
of SWP or will be so delivered or made available prior to October 15, 1996. UDR
(i) has qualified to be taxed as a REIT pursuant to Sections 856 through 859 of
the Code for its taxable years ended December 31, 1984 through 1995, inclusive
(ii) has operated, and intends to continue to operate, in such a manner as to
qualify to be taxed as a REIT pursuant to Sections 856 through 859 of the Code
for its taxable year ended on the effective date of the Merger, and (iii) has
not taken or omitted to take any action which could result in, and each of the
executive
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officers of UDR, each acting in his or her respective capacity as such, has no
actual knowledge of, a challenge to its status as a REIT. UDR represents that
each of its Subsidiaries which is a corporation for federal income tax purposes
and of which all the outstanding capital stock is owned solely by UDR (or by UDR
and one or more of its Subsidiaries or by one or more of its Subsidiaries) is a
Qualified REIT Subsidiary as defined in Section 856 (i) of the Code. Neither UDR
nor any of its Subsidiaries holds any asset (i) the disposition of which could
be subject to rules similar to Section 1374 of the Code as a result of an
election under IRS Notice 88-19 or (ii) that is subject to a consent filed
pursuant to Section 341(f) of the Code and regulations thereunder. For purposes
of this Section 6.10, "taxes" includes any interest, penalty or additional
amount payable with respect to any tax.
6.11. BOOKS AND RECORDS.
(a) The books of account and other financial records of UDR and its
Subsidiaries are in all material respects true, complete and correct, have
been maintained in accordance with good business practices, and are
accurately reflected in all material respects in the financial statements
included in the UDR Reports.
(b) The minute books and other records of UDR and its Subsidiaries
contain in all material respects accurate records of all meetings and
accurately reflect in all material respects all other corporate action of
the shareholders and directors and any committees of the Board of Directors
of UDR and its Subsidiaries.
6.12. PROPERTIES. UDR and its Subsidiaries own fee simple title or
leasehold estates to each of the real properties reflected on the most recent
balance sheet of UDR included in the UDR Reports or as may be identified in the
UDR Disclosure Letter (the "UDR Properties"), which are all of the real estate
properties owned by them, free and clear of Encumbrances. The UDR Properties are
not subject to any rights of way, written agreements, laws, ordinances and
regulations affecting building use or occupancy, or reservations of an interest
in title (collectively, "Property Restrictions"), except for (i) Encumbrances
and Property Restrictions that will be set forth in the UDR Disclosure Letter,
(ii) Property Restrictions imposed or promulgated by law or any governmental
body or authority with respect to real property, including zoning regulations,
provided they do not materially adversely affect the current use of the
property, (iii) Encumbrances and Property Restrictions disclosed on existing
title reports or surveys (in either case copies of which title reports and
surveys have been or will be delivered or made available to SWP prior to October
15, 1996), and (iv) mechanics', carriers', workmen's, repairmen's liens and
other Encumbrances, Property Restrictions and other limitations of any kind, if
any, which have heretofore been bonded (and that will be listed in the UDR
Disclosure Letter) or which individually or in the aggregate, do not exceed
$100,000, do not materially detract from the value of or materially interfere
with the present use of any of the UDR Properties subject thereto or affected
thereby, and do not otherwise materially impair business operations conducted by
UDR and its Subsidiaries and which have arisen or been incurred only in its
construction activities or in the ordinary course of business.
Valid policies of title insurance have been issued insuring UDR's or any of
its Subsidiaries' fee simple title to, or leasehold estate in the UDR
Properties, subject only to the matters disclosed above and as may be set forth
in the UDR Disclosure Letter, and such policies are, at the date hereof, in full
force and effect and no material claim has been made against any such policy.
Except as will be set forth in the UDR Disclosure Letter, (i) there is no
certificate, permit or license from any governmental authority having
jurisdiction over any of the UDR Properties or any agreement, easement or other
right which is necessary to permit the lawful use and operation of the buildings
and improvements on any of the UDR Properties or which is necessary to permit
the lawful use and operation of all driveways, roads and other means of egress
and ingress to and from any of the UDR Properties that has not been obtained and
is not in full force and effect, or of any pending threat of modification or
cancellation of any of same; (ii) neither UDR nor its Subsidiaries has received
written notice of any violation of any federal, state or municipal law,
ordinance, order, regulation or requirement affecting any portion of any of the
UDR Properties issued by any governmental authority; (iii) there are no
structural defects relating to the UDR Properties and no UDR Properties whose
building systems are not in working order in any material respect; and (iv)
there is (A) no physical damage to any UDR Property in excess of $300,000 for
which there is no insurance in effect covering the cost of the restoration, (B)
no current renovation to any UDR Property the cost of which exceeds $300,000 and
(C) no current restoration of any UDR Property the cost of which exceeds
$300,000.
Except as will be set forth in the UDR Disclosure Letter, UDR or its
Subsidiaries have received no notice to the effect that and there are no (A)
condemnation or rezoning proceedings that are pending or threatened with respect
to any of the UDR Properties or (B) any zoning, building or similar laws, codes,
ordinances, orders or regulations that are or will be violated by the continued
maintenance, operation or use of any buildings or other improvements on any of
the UDR Properties or by the continued maintenance, operation or use of the
parking areas in any material respect. All work to be performed, payments to be
made and actions to be taken by UDR or its Subsidiaries prior to the date hereof
pursuant to any agreement entered into with a governmental body or authority in
connection with a site approval, zoning reclassification or other similar
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action relating to the UDR Properties (e.g., Local Improvement District, Road
Improvement District, Environmental Mitigation) has been performed, paid or
taken, as the case may be, and UDR is not aware of any planned or proposed work,
payments or actions that may be required after the date hereof pursuant to such
agreements, except as will be set forth in the UDR Disclosure Letter.
6.13. ENVIRONMENTAL MATTERS. To the actual knowledge of each of the
Executive Officers of UDR, each acting in his or her respective capacity as
such, none of UDR, any of its Subsidiaries or, any other person has caused or
permitted (a) the unlawful presence of any Hazardous Materials on any of the UDR
Properties, or (b) any unlawful spills, releases, discharges or disposal of
Hazardous Materials to have occurred or be presently occurring on or from the
UDR Properties as a result of any construction on or operation and use of such
properties, which presence or occurrence would, individually or in the
aggregate, have a UDR Material Adverse Effect; and in connection with the
construction on or operation and use of the UDR Properties, UDR and its
Subsidiaries have not failed to comply, in any material respect, with any
applicable local, state and federal environmental laws, regulations, ordinances
and administrative and judicial orders relating to the generation, recycling,
reuse, sale, storage, handling, transport and disposal of any Hazardous
Materials.
6.14. EMPLOYEE BENEFIT PLANS. All employee benefits plans and other benefit
arrangements covering employees of UDR and the UDR Subsidiaries (the "UDR
Benefit Plans") will be listed in the UDR Disclosure Letter. True and complete
copies of the UDR Benefit Plans have been or will be made available to SWP prior
to October 15, 1996. Except as may be set forth in the UDR Disclosure Letter, to
the extent applicable, the UDR Benefit Plans comply, in all material respects,
with the requirements of ERISA, and the Code, and any UDR Benefit Plan intended
to be qualified under Section 401(a) of the Code has been determined by the IRS
to be so qualified. No UDR Benefit Plan is covered by Title IV of ERISA or
Section 412 of the Code. No UDR Benefit Plan nor UDR has incurred any liability
or penalty under Section 4975 of the Code or Section 502(i) of ERISA. Each UDR
Benefit Plan has been maintained and administered in all material respects in
compliance with its terms and with ERISA and the Code to the extent applicable
thereto.
Except as will be set forth in the UDR Disclosure Letter, there are no
pending or, to the Knowledge of UDR, threatened claims against or otherwise
involving any of the UDR Benefit Plans and no suit, action or other litigation
(excluding claims for benefits incurred in the ordinary course of UDR Benefit
Plan activities) has been brought against or with respect to any such UDR
Benefit Plan, except for any of the foregoing which would not have a UDR
Material Adverse Effect. All material contributions required to be made as of
the date hereof to the UDR Benefit Plans have been made or provided for. Neither
UDR nor any entity under "common control" with UDR within the meaning of ERISA
Section 4001 has contributed to, or been required to contribute to, any
"multiemployer plan" (as defined in Sections 3(37) and 4001(a)(3) of ERISA).
UDR does not maintain or contribute to any plan or arrangement which
provides or has any liability to provide life insurance, medical or other
employee welfare benefits to any employee or former employee upon his retirement
or termination of employment and UDR has never represented, promised or
contracted (whether in oral or written form) to any employee or former employee
that such benefits would be provided. Except as will be disclosed in the UDR
Disclosure Letter, the execution of, and performance of the transactions
contemplated in, this Agreement will not (either alone or upon the occurrence of
any additional subsequent events) constitute an event under any benefit plan,
policy, arrangement or agreement or any trust or loan that will or may result in
any payment (whether of severance pay or otherwise), acceleration, forgiveness
of indebtedness, vesting, distribution, increase in benefits or obligations to
fund benefits with respect to any employee, director or consultant of UDR or any
of its Subsidiaries.
6.15. LABOR MATTERS. Neither UDR nor any of its Subsidiaries is a party to,
or bound by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor union organization. There is no unfair
labor practice or labor arbitration proceeding pending or, to the knowledge of
the executive officers of UDR, threatened against UDR or its Subsidiaries
relating to their business, except for any such proceeding which would not have
a UDR Material Adverse Effect. To the Knowledge of UDR, there are no
organizational efforts with respect to the formation of a collective bargaining
unit presently being made or threatened involving employees of UDR or any of its
Subsidiaries.
6.16. NO BROKERS. Except the fee that is to be paid to Merrill Lynch & Co.
by UDR as described below, UDR has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of UDR
or SWP to pay any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby. UDR is not aware of any
claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
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6.17. OPINION OF FINANCIAL ADVISOR. UDR has retained Merrill Lynch & Co. to
review the transaction contemplated by this Agreement and to issue an opinion to
the effect that, as of the date of such opinion, the Exchange Ratio is fair to
the holders of UDR Common Shares from a financial point of view.
6.18. SWP SHARE OWNERSHIP. Except as expressly described in the RECITALS
hereto or as may be set forth in the UDR Disclosure Letter, neither UDR nor any
of its Subsidiaries owns any shares of capital stock of SWP or other securities
convertible into capital stock of SWP.
6.19 UDR COMMON SHARES. The issuance and delivery by UDR of UDR Common
Shares in connection with the Merger and this Agreement have been duly and
validly authorized by all necessary corporate action on the part of UDR except
for the approval of its shareholders contemplated by this Agreement. The UDR
Common Shares to be issued in connection with the Merger and this Agreement,
when issued in accordance with the terms of this Agreement, will be validly
issued, fully paid and nonassessable, except that shareholders may be subject to
further assessment with respect to certain claims for tort, contract, taxes,
statutory liability and otherwise in some jurisdictions to the extent such
claims are not satisfied by UDR.
6.20. CONVERTIBLE SECURITIES. UDR has no outstanding options, warrants or
other securities exercisable for, or convertible into, shares of UDR Common
Shares, the terms of which would require any anti-dilution adjustments by reason
of the consummation of the transactions contemplated hereby.
6.21. RELATED PARTY TRANSACTIONS. Set forth in the UDR Disclosure Letter
will be a list of all arrangements, agreements and contracts entered into by UDR
or any of its Subsidiaries with (i) any consultant, (ii) any person who is an
officer, director or affiliate of UDR or any of its Subsidiaries, any relative
of any of the foregoing or any entity of which any of the foregoing is an
affiliate or (iii) any person who acquired UDR Common Stock in a private
placement. The copies of such documents, all of which have been or will be
delivered or made available to SWP prior to October 15, 1996, are or will be
true, complete and correct when delivered or made available.
6.22. CONTRACTS AND COMMITMENTS. The UDR Disclosure Letter will set forth
(i) all unsecured notes or other obligations of UDR and UDR Subsidiaries which
individually may result in total payments in excess of $750,000, (ii) notes,
debentures, bonds and other evidence of indebtedness which are secured or
collateralized by mortgages, deeds of trust or other security interests in the
UDR Properties or personal property of UDR and its Subsidiaries, and (iii) each
Commitment entered into by UDR or any of its Subsidiaries which individually may
result in total payments or liability in excess of $750,000. Copies of the
foregoing have been or will be delivered or made available to SWP prior to
October 15, 1996, will be listed on the UDR Disclosure Letter and are or will be
true and correct when delivered or made available. None of UDR or any of its
Subsidiaries has received any notice of a default that has not been cured under
any of the documents described in clause (i) or (ii) above or is in default
respecting any payment obligations thereunder beyond any applicable grace
periods. All options of UDR or any of its Subsidiaries to purchase real property
will be set forth on the UDR Disclosure Letter and such options and UDR's or its
Subsidiaries' rights thereunder are in full force and effect. All joint venture
agreements to which UDR or any of its Subsidiaries is a party will be set forth
on the UDR Disclosure Letter and UDR or its Subsidiaries are not in default with
respect to any obligations, which individually or in the aggregate are material,
thereunder.
6.23. DEVELOPMENT RIGHTS. Set forth in the UDR Disclosure Letter will be a
list of all material agreements entered into by UDR or any of its Subsidiaries
relating to the development, rehabilitation, capital improvement or construction
of multifamily residential communities or additions thereto or other real estate
properties which development or construction has not been substantially
completed as of the date of this Agreement. Such agreements, true, complete and
correct copies of all of which have been or will be delivered or made available
to SWP prior to October 15, 1996, will be listed in the UDR Disclosure Letter.
6.24. CERTAIN PAYMENTS RESULTING FROM TRANSACTIONS. The execution of, and
performance of the transactions contemplated by, this Agreement will not (either
alone or upon the occurrence of any additional or subsequent events) (i)
constitute an event under any UDR Benefit Plan, policy, practice, agreement or
other arrangement or any trust or loan (the "Employee Arrangements") that will
or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any employee, director
or consultant of UDR or any of its Subsidiaries, or (ii) result in the
triggering or imposition of any restrictions or limitations on the right of UDR
or SWP to amend or terminate any Employee Arrangement and receive the full
amount of any excess assets remaining or resulting from such amendment or
termination, subject to applicable taxes. No payment or benefit which will be
required to be made pursuant to the terms of any agreement, commitment or UDR
Benefit Plan, as a result of the
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transactions contemplated by this Agreement, to any officer, director or
employee of UDR or any of its Subsidiaries, will be characterized as an "excess
parachute payment" within the meaning of Section 280G(b)(1) of the Code.
ARTICLE 7
7. COVENANTS.
7.1. ACQUISITION PROPOSALS. Prior to the Effective Time, SWP and UDR each
agree (a) that neither of them nor any of their Subsidiaries shall, and each of
them shall direct and use its best efforts to cause its respective officers,
directors, employees, agents, affiliates and representatives (including, without
limitation, any investment banker, attorney or accountant retained by it or any
of its Subsidiaries) not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its shareholders)
with respect to a merger, acquisition, tender offer, exchange offer,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the assets or any equity securities (or any debt
securities convertible into equity securities) of, such party or any of its
Subsidiaries, other than the transactions contemplated by this Agreement (any
such proposal or offer being hereinafter referred to as an "Acquisition
Proposal") or engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal; (b) that it will immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing and each will
take the necessary steps to inform the individuals or entities referred to above
of the obligations undertaken in this Section 7.1; and (c) that it will notify
the other party immediately if any such inquiries or proposals are received by,
any such information is requested from, or any such negotiations or discussions
are sought to be initiated or continued with, it; provided, however, that
nothing contained in this Section 7.1 shall prohibit the Board of Directors of
such party from (i) furnishing information to or entering into discussions or
negotiations with, any person or entity that makes an unsolicited bona fide
Acquisition Proposal, if, and only to the extent that, (A) the Board of
Directors of such party determines in good faith that such action is required
for the Board of Directors to comply with its fiduciary duties to shareholders
imposed by law as advised by counsel, (B) prior to furnishing such information
to, or entering into discussions or negotiations with, such person or entity,
such party provides written notice to the other party to this Agreement to the
effect that it is furnishing information to, or entering into discussions with,
such person or entity, and (C) subject to any confidentiality agreement with
such person or entity (which such party determined in good faith was required to
be executed in order for the Board of Directors to comply with its fiduciary
duties to shareholders imposed by law as advised by counsel), such party keeps
the other party to this Agreement informed of the status (but not the terms) of
any such discussions or negotiations; and (ii) to the extent applicable,
complying with Rule 14e-2 promulgated under the Exchange Act with regard to an
Acquisition Proposal.
Nothing in this Section 7.1 shall (x) permit any party to terminate this
Agreement (except as specifically provided in Article 9 hereof), (y) permit any
party to enter into any agreement with respect to an Acquisition Proposal during
the term of this Agreement (it being agreed that during the term of this
Agreement, no party shall enter into any agreement with any person that provides
for, or in any way facilitates, an Acquisition Proposal (other than a
confidentiality agreement in customary form)), or (z) affect any other
obligation of any party under this Agreement.
7.2 CONDUCT OF BUSINESSES.
(i) Prior to the Effective Time, except as may be set forth in the SWP
Disclosure Letter or the UDR Disclosure Letter or as contemplated by this
Agreement, unless the other party has consented in writing thereto, UDR and SWP:
(a) Shall use their reasonable efforts, and shall cause each of their
respective Subsidiaries to use their reasonable efforts, to preserve intact
their business organizations and goodwill and keep available the services
of their respective officers and employees;
(b) Shall confer on a regular basis with one or more representatives
of the other to report operational matters of materiality and, subject to
Section 7.1, any proposals to engage in material transactions;
(c) Shall promptly notify the other of any material emergency or other
material change in the condition (financial or otherwise), business,
properties, assets, liabilities, prospects or the normal course of their
businesses or in the operation of their properties, any material
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the breach in any
material respect of any representation, warranty, covenant or agreement
contained herein;
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(d) Shall set the record date for the quarterly dividend payable with
respect to the UDR Common Shares and SWP Common Stock, respectively, for
the fourth calendar quarter of 1996 to a date no later than December 31,
1996; provided, however, that such record date for either party shall be
modified to prevent the elimination of a dividend for the stockholders of
either party or to prevent the receipt by the stockholders of either party
of dividends from both UDR and SWP ; and
(e) Shall promptly deliver to the other true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the date of
this Agreement.
(ii) Prior to the Effective Time, except as may be set forth in the SWP
Disclosure Letter, unless UDR has consented (such consent not to be unreasonably
withheld or delayed) in writing thereto, SWP:
(a) Shall, and shall cause each of its Subsidiaries to, conduct its
operations according to their usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
(b) Shall not amend its Articles of Incorporation or Bylaws;
(c) Shall not (i) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights (including SWP's
existing dividend reinvestment plan) existing on the date hereof and
disclosed pursuant to this Agreement, issue any shares of its capital
stock, effect any stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction, (ii) grant, confer or award
any option, warrant, conversion right or other right (other than so-called
"reload options" which have heretofore been authorized for issuance in
connection with the application of existing SWP Common Stock to the
exercise price of existing options) not existing on the date hereof to
acquire any shares of its capital stock, (iii) increase any compensation or
enter into or amend any employment agreement with any of its present or
future officers or directors, or (iv) adopt any new employee benefit plan
(including any stock option, stock benefit or stock purchase plan) or amend
any existing employee benefit plan in any material respect, except for
changes which are less favorable to participants in such plans;
(d) Shall not (i) declare, set aside or pay any dividend or make any
other distribution or payment with respect to any shares of its capital
stock, except (subject to Section 7.2(i)(d)) a dividend not to exceed $0.26
per share of SWP Common Stock for the third calendar quarter and for the
fourth calendar quarter of 1996 and any other dividend or distribution
necessary for SWP to maintain its ability to qualify to be taxed as a REIT
under the Code, or (ii) except in connection with the use of shares of
capital stock to pay the exercise price or tax withholding in connection
with stock-based employee benefit plans of SWP, directly or indirectly
redeem, purchase or otherwise acquire any shares of its capital stock or
capital stock of any of its Subsidiaries, or make any commitment for any
such action;
(e) Shall not, and shall not permit any of its Subsidiaries to, sell
or otherwise dispose of (i) any SWP Properties or any of its capital stock
of or other interests in Subsidiaries or (ii) except in the ordinary course
of business, any of its other assets which are material, individually or in
the aggregate;
(f) Shall not, and shall not permit any of its Subsidiaries to, make
any loans, advances or capital contributions to, or investments in, any
other person;
(g) Shall not, and shall not permit any of its Subsidiaries to, pay,
discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business
consistent with past practice or in accordance with their terms, of
liabilities reflected or reserved against in, or contemplated by, the most
recent consolidated financial statements (or the notes thereto) of SWP
included in the SWP Reports or incurred in the ordinary course of business
consistent with past practice;
(h) Shall not, and shall not permit any of its Subsidiaries to, enter
into any Commitment which individually may result in total payments or
liability by or to it in excess of $250,000 in the case of any one
commitment or in excess of $750,000 for all commitments; and
(i) Shall not, and shall not permit any of its Subsidiaries to, enter
into any Commitment with any officer, director or affiliate of SWP or any
of its Subsidiaries except to the extent the same occur in the ordinary
course of business consistent with past practice and would not have an SWP
Material Adverse Effect.
(iii) Prior to the Effective Time, except as may be set forth in the UDR
Disclosure Letter, unless SWP has consented (such consent not to be unreasonably
withheld or delayed) in writing thereto, UDR:
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(a) Shall, and shall cause each of its Subsidiaries to, conduct its
operations according to their usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
(b) Shall not amend its Articles of Incorporation or Bylaws except as
contemplated by this Agreement;
(c) Shall not (i) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights (including UDR's
existing dividend reinvestment plan) existing on the date hereof and
disclosed pursuant to this Agreement, issue any shares of its capital stock
other than with respect to the O.P., effect any stock split, reverse stock
split, stock dividend, recapitalization or other similar transaction, (ii)
grant, confer or award any option, warrant, conversion right or other right
not existing on the date hereof to acquire any shares of its capital stock,
(iii) amend any employment agreement with any of its present or future
officers or directors, or (iv) adopt any new employee benefit plan
(including any stock option, stock benefit or stock purchase plan);
(d) Shall not (i) declare, set aside or pay any dividend or make any
other distribution or payment with respect to any shares of its capital
stock, except (subject to Section 7.2(i)(d)) a dividend not to exceed $0.24
per share of UDR Common Shares for the third calendar quarter and for the
fourth calendar quarter of 1996 and any other dividend or distribution
necessary for UDR to maintain its ability to qualify to be taxed as a REIT
under the Code, or (ii) except in connection with the use of shares of
capital stock to pay the exercise price or tax withholding in connection
with stock-based employee benefit plans of UDR, directly or indirectly
redeem, purchase or otherwise acquire any shares of its capital stock or
capital stock of any of its Subsidiaries, or make any commitment for any
such action;
(e) Except as will be set forth in the UDR Disclosure Letter, shall
not, and shall not permit any of its Subsidiaries to, sell or otherwise
dispose of (i) any UDR Properties or any of its capital stock of or other
interests in Subsidiaries or (ii) except in the ordinary course of
business, any of its other assets which are material, individually or in
the aggregate;
(f) Shall not, and shall not permit any of its Subsidiaries to, make
any loans, advances or capital contributions to, or investments in, any
other person other than in connection with the sale of properties;
(g) Shall not, and shall not permit any of its Subsidiaries to, pay,
discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business
consistent with past practice or in accordance with their terms, of
liabilities reflected or reserved against in, or contemplated by, the most
recent consolidated financial statements (or the notes thereto) of UDR
included in the UDR Reports or incurred in the ordinary course of business
consistent with past practice;
(h) Shall not, and shall not permit any of its Subsidiaries to, enter
into any Commitment which individually may result in total payments or
liability by or to it in excess of $750,000 other than in the ordinary
course of business; and
(i) Shall not, and shall not permit any of its Subsidiaries to, enter
into any Commitment with any officer, director or affiliate of UDR or any
of its Subsidiaries, except as herein or in the UDR Disclosure Letter
provided and except in the ordinary course of business.
7.3 MEETINGS OF SHAREHOLDERS. Each of UDR, Sub and SWP will take all action
necessary in accordance with applicable law and its Articles of Incorporation
and Bylaws to convene a meeting of its shareholders as promptly as practicable
to consider and vote upon or otherwise to obtain the consent of its shareholders
to (i) in the case of UDR, the approval of the issuance of the shares of UDR
Common Shares pursuant to the Merger and the amendment of its Articles of
Incorporation contemplated hereby, (ii) in the case of SWP, the approval of this
Agreement and the transactions contemplated hereby and (iii) in the case of Sub,
the approval of the Plan of Merger. The Board of Directors of UDR, the Board of
Directors of Sub and the Board of Directors of SWP shall each recommend such
approval and UDR, Sub and SWP shall each take all lawful action to solicit such
approval, including, without limitation, timely mailing the Proxy
Statement/Prospectus (as defined in Section 7.7); provided, however, that such
recommendation or solicitation is subject to any action taken by, or upon
authority of, the Board of Directors of UDR or Sub or the Board of Directors of
SWP, as the case may be, in the exercise of its good faith judgment as to its
fiduciary duties to its shareholders imposed by law as advised by counsel. UDR
and SWP shall coordinate and cooperate with respect to the timing of such
meetings and shall use their best efforts to hold such meetings on the same day.
7.4. FILINGS; OTHER ACTION. Subject to the terms and conditions herein
provided, SWP and UDR shall: (a) use all reasonable efforts to cooperate with
one another in (i) determining which filings are required to be made prior to
the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from
governmental or regulatory authorities of the United States, the several states,
third party secured and unsecured lenders and
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rating agencies in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and (ii) timely
making all such filings and timely seeking all such consents, approvals, permits
or authorizations; (b) use all reasonable efforts to obtain in writing any
consents required from third parties in form reasonably satisfactory to SWP and
UDR necessary to effectuate the Merger; and (c) use all reasonable efforts to
take, or cause to be taken, all other action and do, or cause to be done, all
other things necessary, proper or appropriate to consummate and make effective
the transactions contemplated by this Agreement. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purpose of this Agreement, the proper officers and directors of UDR and SWP
shall take all such necessary action.
7.5. INSPECTION OF RECORDS. From the date hereof to the Effective Time,
each of SWP and UDR shall allow all designated officers, attorneys, accountants
and other representatives of the other access at all reasonable times to the
records and files, correspondence, audits and properties, as well as to all
information relating to commitments, contracts, titles and financial position,
or otherwise pertaining to the business and affairs of SWP and UDR and their
respective Subsidiaries.
7.6. PUBLICITY. The initial press release relating to this Agreement shall
be a joint release and thereafter SWP and UDR shall, subject to their respective
legal obligations (including requirements of stock exchanges and other similar
regulatory bodies), consult with each other, and use reasonable efforts to agree
upon the text of any press release, before issuing any such press release or
otherwise making public statements with respect to the transactions contemplated
hereby and in making any filings with any federal or state governmental or
regulatory agency or with any national securities exchange with respect thereto.
7.7. REGISTRATION STATEMENT. UDR and SWP shall cooperate and promptly
prepare and UDR shall file with the SEC as soon as practicable a Registration
Statement on Form S-4 (the "Form S-4") under the Securities Act, with respect to
the UDR Common Shares issuable in the Merger, a portion of which Registration
Statement shall also serve as the joint proxy statement with respect to the
meetings of the shareholders of SWP and of UDR in connection with the Merger
(the "Proxy Statement/Prospectus"). The respective parties will cause the Proxy
Statement/Prospectus and the Form S-4 to comply as to form in all material
respects with the applicable provisions of the Securities Act, the Exchange Act
and the rules and regulations promulgated thereunder. UDR shall use all
reasonable efforts, and SWP will cooperate with UDR to have the Form S-4
declared effective by the SEC as promptly as practicable. UDR shall use its best
efforts to obtain, prior to the effective date of the Form S-4, all necessary
state securities law or "Blue Sky" permits or approvals required to carry out
the transactions contemplated by this Agreement and will pay all expenses
incident thereto. UDR agrees that the Proxy Statement/Prospectus and each
amendment or supplement thereto, at the time of mailing thereof and at the time
of the respective meetings of shareholders of UDR and SWP, or, in the case of
the Form S-4 and each amendment or supplement thereto, at the time it is filed
or becomes effective, will not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that the foregoing shall not apply to
the extent that any such untrue statement of a material fact or omission to
state a material fact was made by UDR in reliance upon and in conformity with
written information concerning SWP furnished to UDR by SWP specifically for use
in the Proxy Statement/Prospectus. SWP agrees that the written information
provided by it specifically for inclusion in the Proxy Statement/Prospectus and
each amendment or supplement thereto, at the time of mailing thereof and at the
time of the respective meetings of shareholders of UDR and SWP, or, in the case
of written information provided by SWP specifically for inclusion in the Form
S-4 or any amendments or supplement thereto, at the time it is filed or becomes
effective, will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. UDR will advise SWP, promptly after it receives notice thereof,
of the time when the Form S-4 has become effective or any supplement or
amendment has been filed, the issuance of any stop order, the suspension of the
qualification of the UDR Common Shares issuable in connection with the Merger
for offering or sale in any jurisdiction, or any request by the SEC for
amendment of the Proxy Statement/Prospectus or the Form S-4 or comments thereon
and responses thereto or requests by the SEC for additional information.
7.8. LISTING APPLICATION. UDR shall promptly prepare and submit to the NYSE
a listing application covering the UDR Common Shares issuable in the Merger, and
shall use its reasonable efforts to obtain, prior to the Effective Time,
approval for the listing of such UDR Common Shares, subject to official notice
of issuance.
7.9. FURTHER ACTION. Each party hereto shall, subject to the fulfillment at
or before the Effective Time of each of the conditions of performances set forth
herein or the waiver thereof, perform such further acts and execute such
documents as may reasonably be required to effect the Merger.
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7.10. EXPENSES. Subject to Section 9.5, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses. UDR acknowledges that all costs and
expenses incurred by SWP in connection with the execution of this Agreement and
the performance of the transactions contemplated hereby will be obligations of
UDR upon consummation of the Merger and UDR undertakes to timely perform and pay
such obligations in full.
7.11. INDEMNIFICATION. For a period of six years from and after the
Effective Time, UDR shall indemnify the directors, officers, employees or agents
of SWP who at any time prior to the Effective Time were entitled to
indemnification under the Articles of Incorporation and Bylaws of SWP or
employment agreements between SWP and its officers existing on the date hereof
to the same extent as such directors, officers, employees or agents are entitled
to indemnification under such Articles of Incorporation and Bylaws or existing
employment agreements in respect of actions or omissions occurring at or prior
to the Effective Time (including, without limitation, the transactions
contemplated by this Agreement).
7.12. GOVERNANCE.
(a) UDR's Board of Directors shall take all action necessary to cause
the full Board of Directors of UDR at the Effective Time to take all such
action necessary to cause John S. Schneider, Ira T. Wender, Mark J. Sandler
and Robert W. Scharar to be selected and elected as directors of UDR for
terms expiring at the 1997 annual meeting of shareholders, following the
Effective Time, to fill four new positions to be created in connection with
the transaction contemplated hereby; provided that, notwithstanding the
foregoing, the shareholders of UDR at the 1997 annual meeting of
shareholders shall vote on the election of Messrs. Schneider, Sandler and
Scharar, each for one year terms. Mr. Wender shall retire concurrently with
the re-election of such directors at the 1997 annual meeting of UDR's
shareholders. If, prior to the Effective Time, any of such persons shall
decline or be unable to serve as a director, SWP shall designate another
person to serve in such person's stead, which person shall be reasonably
acceptable to UDR.
(b) UDR's Board of Directors shall take all necessary action to cause
John P. McCann to be elected as Chairman and John S. Schneider as Vice
Chairman of the Board of Directors of UDR as of the Effective Time.
(c) UDR's Board of Directors shall take all necessary action to cause
John S. Schneider to be added to the Executive Committee of UDR, and to be
elected as Executive Vice President of UDR as of the Effective Time.
(d) UDR shall take all action necessary to cause David L. Johnston to
be elected as a Senior Vice President of UDR as of the Effective Time.
(e) UDR shall take all action necessary to cause Robert F. Sherman to
be elected as a Senior Vice President of UDR as of the Effective Time.
7.13. EMPLOYEES.
(a) Except as may be set forth in the UDR Disclosure Letter and in
Section 7.12, above, UDR agrees to employ at the Effective Time all
officers and employees of SWP and its Subsidiaries who are employed on the
Closing Date. Such officers and employees shall be entitled to
substantially the same benefits as are enjoyed by UDR employees of
comparable positions and seniority as of the Effective Time. Such benefits
shall include but not be limited to health, disability and life insurance,
pension and profit sharing arrangements, 401(k) plans and deferred
compensation plans, if any. Such employment shall be at will and UDR shall
be under no obligation to continue to employ any individuals. Subject to
the foregoing and to considerations relating to the particular geographic
region in which the officer or employee is located, it is the intent of UDR
and SWP that the officers and employees of SWP employed by UDR after the
Effective Time shall in general receive compensation and benefits on the
same basis and subject to the same standards as the officers and employees
of UDR of similar seniority and responsibility. The UDR Disclosure Letter
shall, except as to site employees, set forth the names, positions,
compensation, and if applicable, stock option grants, for each officer and
employee to whom UDR is extending an employment opportunity.
(b) For purposes of this Section 7.13, the term "employee" shall mean
all current employees of SWP and its Subsidiaries (including those on
disability or leave of absence, paid or unpaid).
(c) UDR agrees to grant, as of the Effective Time, options to purchase
UDR Common Shares, under any UDR management incentive bonus or stock option
plan, to the individuals and in the amounts that will be specified in the
UDR Disclosure Letter. Such grants shall be on no less favorable terms and
conditions as similar grants that have been made to UDR employees of
similar seniority and responsibility during the two years immediately
preceding the Effective Time and such grants shall be made in conformance
with revised Rule 16b-3 promulgated under the Exchange Act.
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Seniority for SWP employees who become UDR employees shall be measured from
the date of initial employment by SWP or one or more of its predecessors,
if earlier.
(d) In connection with the Closing and because the transaction
contemplated by this Agreement is a Merger in which SWP is not the
surviving entity, SWP agrees to pay cash for all options that were issued
and outstanding as of the Effective Time and that were deemed to have
vested only because of the transaction contemplated hereby. The amount of
cash to be paid for each such option shall be the difference between the
option exercise price and the UDR Exchange Price multiplied by the Exchange
Ratio. SWP shall use its best efforts prior to the Closing to have each of
its executive officers waive, in writing, any contractual rights that he
may have to sell his SWP Common Stock holdings back to SWP or any successor
entity. Such waiver shall apply only with respect to UDR and shall be
effective only from and after the Effective Time. Nothing set forth in this
Section 7.13 shall preclude any SWP employee from exercising any options
which they held as of the date of this Agreement and which are currently
vested or which vest by their terms prior to the Effective Time and without
regard to the transactions contemplated hereby.
(e) SWP shall, as of the Effective Time, pay to each SWP Executive
Officer, officer and employee an amount sufficient to satisfy, on a net
basis, SWP's commitments to such employee for all vacation time and sick
pay benefits that such person has accrued and not used prior to the Closing
Date.
7.14. SEVERANCE PAY. If, prior to the Effective Time, UDR specifies to SWP
the identity of any SWP employee (other than any Executive Officer or the Senior
Vice President -- Finance) that UDR does not desire to hire immediately after
the Closing, or the terms of any proposed hiring by UDR, including relocation,
are not acceptable to, such employee, SWP shall, concurrently with the Closing,
pay to each such employee, an amount equal to one week's salary for each twelve
month period of continuous service with SWP or any predecessor-in-interest,
pro-rated for any partial employment year, that such employee has been a full
time employee of SWP or any predecessor-in-interest ("Severance Pay"). If,
within one hundred eighty (180) days after the Closing Date, UDR terminates,
other than for cause, the employment of any former SWP employee, UDR shall remit
forthwith to such employee, Severance Pay calculated as if such employee was
still an SWP employee as provided in the immediately preceding sentence and the
time of employment with UDR shall be counted towards determining the amount of
Severance Pay.
7.15. REORGANIZATION. From and after the date and until the Effective Time,
neither UDR nor SWP nor any of their respective Subsidiaries or other affiliates
shall (i) knowingly take any action, or knowingly fail to take any action, that
would jeopardize qualification of the Merger as a reorganization within the
meaning of Section 368(a)(1)(A) of the Code; or (ii) enter into any contract,
agreement, commitment or arrangement with respect to the foregoing. Following
the Effective Time, UDR shall use its best efforts to conduct its business in a
manner that would not jeopardize the characterization of the Merger as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code.
7.16. SURVIVAL OF SWP OBLIGATIONS; ASSUMPTION OF SWP LIABILITIES BY UDR.
All of the obligations of SWP that are outstanding at the Closing shall survive
the Closing and shall not be merged therein. Upon the consummation of the
Merger, such obligations shall be assumed, automatically, by UDR; provided,
however, that such assumption shall not impose upon or expose UDR to any
liability for which SWP was not liable, and provided, further, that UDR shall be
entitled to the same defenses, offsets and counterclaims to which SWP would have
been entitled, but for the Merger.
7.17. THIRD PARTY CONSENTS. UDR and SWP each shall take all necessary
corporate and other action and will use its commercially reasonable efforts to
obtain the consents and applicable approvals from third parties that may be
required to enable it to carry out the transactions contemplated by this
Agreement.
7.18. EFFORTS TO FULFILL CONDITIONS. UDR, Sub and SWP each shall use
commercially reasonable efforts to insure that all conditions precedent to its
obligations hereunder are fulfilled at or prior to the Closing.
7.19. REPRESENTATIONS, WARRANTIES AND CONDITIONS PRIOR TO CLOSING. UDR, Sub
and SWP each shall use its best efforts to cause its representations and
warranties contained in this Agreement to be true and correct on and as of the
Closing Date in all material respects. Prior to Closing, UDR, Sub and SWP each
shall promptly notify the other in writing (i) if any representation or warranty
contained in this Agreement is discovered to or becomes untrue or (ii) if UDR,
Sub or SWP fails to perform or comply with any of its covenants or agreements
contained in this Agreement or it is reasonably expected that it will be unable
to perform or comply with any of its covenants or agreements contained in this
Agreement.
7.20. COOPERATION OF THE PARTIES. UDR and SWP each will cooperate with the
other in supplying such information as may be reasonably requested by the other
in connection with obtaining consents or approvals to the transactions
contemplated by this Agreement.
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7.21. LOCK-UP.
(a) SWP shall use its best efforts prior to the Closing to have each
of its directors and officers (identified on Schedule 7.21(a) attached
hereto) execute a 90-day lock-up agreement in a form (reasonably acceptable
to SWP) supplied to SWP by UDR. The executed agreements will be delivered
to UDR at the Closing.
(b) UDR shall use its best efforts prior to the Closing to have each
of its directors and officers (identified on Schedule 7.21(b) attached
hereto) execute a 90-day lock-up agreement, with an exception for shares
sold in connection with options granted under the 1985 Stock Option Plan,
in a form (reasonably acceptable to UDR) supplied to UDR by SWP. The
agreements will be delivered to SWP at the Closing.
7.22 AMENDMENT OF UDR ARTICLES OF INCORPORATION. UDR's Board of Directors
shall recommend to its shareholders an amendment of the UDR Articles of
Incorporation increasing the authorized number of UDR Common Shares from
100,000,000 to 150,000,000; and if all the conditions to the Merger set forth in
Article 8, below, shall have been fulfilled or waived (and this Agreement shall
not have been terminated as provided in Article 9below), UDR shall cause
Articles of Amendment satisfying the requirements of the VSCA to be filed in
accordance with the VSCA.
ARTICLE 8
8. CONDITIONS.
8.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated hereby shall have
been approved in the manner required by the respective Articles of
Incorporation and Bylaws of UDR and SWP, and by applicable law or by
applicable regulations of any stock exchange or other regulatory body by
the holders of the issued and outstanding shares of capital stock of SWP
and UDR entitled to vote thereon.
(b) Neither of the parties hereto shall be subject to any order or
injunction of a court of competent jurisdiction which prohibits the
consummation of the transactions contemplated by this Agreement. In the
event any such order or injunction shall have been issued, each party
agrees to use its reasonable efforts to have any such injunction lifted.
(c) The Form S-4 shall have become effective and all necessary state
securities law or "Blue Sky" permits or approvals required to carry out the
transactions contemplated by this Agreement shall have been obtained and no
stop order with respect to any of the foregoing shall be in effect.
(d) UDR shall have obtained the approval for the listing of the UDR
Common Shares issuable in the Merger on the NYSE, subject to official
notice of issuance.
(e) All consents, authorizations, orders and approvals of (or filings
or registrations with) any governmental commission, board, other regulatory
body or third parties required in connection with the execution, delivery
and performance of this Agreement shall have been obtained or made, except
for filings in connection with the Merger and any other documents required
to be filed after the Effective Time and except where the failure to have
obtained or made any such consent, authorization, order, approval, filing
or registration would not have a material adverse effect on the business,
results of operations or financial condition of UDR and SWP (and their
respective Subsidiaries), taken as a whole, following the Effective Time.
8.2 CONDITIONS TO OBLIGATIONS OF SWP TO EFFECT THE MERGER. The obligation
of SWP to effect the Merger shall be subject to the fulfillment at or prior to
the Closing Date of the following conditions, unless waived by SWP:
(a) UDR shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Closing Date and the
representations and warranties of UDR contained in this Agreement shall be
true and correct in all material respects as of the Closing Date as if made
on the Closing Date, and SWP shall have received a certificate of the
President or an Executive or Senior Vice President of UDR, dated the
Closing Date, certifying to such effect.
(b) SWP shall have received the opinion of Liddell, Sapp, Zivley, Hill
& LaBoon, L.L.P. of Dallas, Texas ("Liddell, Sapp") or another recognized
law firm selected by SWP and approved by UDR, dated the Closing Date, to
the effect that the Merger will be treated for Federal income tax purposes
as a reorganization within the meaning of Section 368(a)(1)(A) of the Code,
and that SWP and UDR will each be a party to that reorganization within the
meaning of Section 368(b) of the Code. In rendering its opinion, said
counsel shall be entitled to rely as to any factual matter upon
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certificates given by executive officers of SWP and UDR and shall be
entitled to assume that the covenants of UDR pursuant to Section 7.15 shall
be fully complied with.
(c) From the date of the Agreement through the Effective Time, there
shall not have occurred any change in the financial condition, business or
operations of UDR and its Subsidiaries, taken as a whole, that would have
or would be reasonably likely to have a UDR Material Adverse Effect other
than any such change that affects both SWP and UDR in a substantially
similar manner.
(d) The opinion of Lehman Brothers Inc. addressed to the Board of
Directors of SWP that the consideration to be received by the shareholders
of SWP is fair, from a financial point of view, shall not have been
withdrawn or materially modified.
(e) SWP shall have received the opinion of Hunton & Williams of
Richmond, Virginia ("Hunton & Williams") or another recognized law firm
selected by UDR and approved by SWP, dated the Closing Date, as to such
customary matters as SWP may reasonably request, such opinion to be
reasonably satisfactory to SWP.
8.3 CONDITIONS TO OBLIGATION OF UDR TO EFFECT THE MERGER. The obligations
of UDR to effect the Merger shall be subject to the fulfillment at or prior to
the Closing Date of the following conditions, unless waived by UDR:
(a) SWP shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Closing Date and the
representations and warranties of SWP contained in this Agreement shall be
true and correct in all material respects as of the Closing Date as if made
on the Closing Date and UDR shall have received a certificate of the Chief
Executive Officer, President or an Executive Vice President of SWP dated
the Closing Date, certifying to such effect; provided, however, that
notwithstanding anything herein to the contrary, with respect to such
representations and warranties, this Section 8.3(a) shall be deemed to have
been satisfied even if such representations or warranties, other than those
set forth in the second to last sentence of Section 5.1 and in Sections
5.3, 5.4, 5.5, 5.19 and 5.22 are not so true and correct, unless the
failure of any of such representations or warranties to be so true and
correct, individually or in the aggregate, would have or would be
reasonably likely to have an SWP Material Adverse Effect.
(b) UDR shall have received the opinion of Hunton & Williams or
another recognized law firm selected by UDR and approved by SWP, dated the
Closing Date, to the effect that (i) the Merger will be treated for Federal
income tax purposes as a reorganization within the meaning of Section
368(a)(1)(A) of the Code, UDR and SWP will each be a party to that
reorganization within the meaning of Section 368(b) of the Code, and no
gain or loss will be recognized for federal income tax purposes by UDR, Sub
or SWP on consummation of the Merger, and (ii) the consummation of the
Merger will not result in UDR's failure to continue to satisfy the
requirements for qualification as a REIT for federal income tax purposes.
In rendering its opinion, said counsel shall be entitled to rely as to any
factual matter upon certificates given by executive officers of UDR and SWP
and shall be entitled to assume that the covenants of Section 7.15 shall be
fully complied with.
(c) From the date of this Agreement through the Effective Time, there
shall not have occurred any change in the financial condition, business or
operations of SWP and its Subsidiaries, taken as a whole, that would have
or would be reasonably likely to have an SWP Material Adverse Effect, other
than any such change that affects both SWP and UDR in a substantially
similar manner.
(d) Each person listed on Exhibit 8.3(d) attached hereto shall have
delivered to UDR a written agreement to the effect that such person will
not offer to sell, sell or otherwise dispose of any shares of UDR Common
Stock issued in the Merger, except, in each case, pursuant to an effective
registration statement or in compliance with Rule 145, as amended from time
to time, or in a transaction which, in the opinion of legal counsel
reasonably satisfactory to UDR, is exempt from the registration
requirements of the Securities Act and that the certificates representing
the UDR shares issued to him or her in the Merger may bear a legend to such
effect.
(e) The opinion of Merrill Lynch & Co. addressed to the Board of
Directors of UDR that the Merger is fair, from a financial point of view,
to the shareholders of UDR, shall not have been withdrawn or materially
modified.
(f) UDR shall have received the opinion of Liddell, Sapp or another
recognized law firm selected by SWP and approved by UDR, dated the Closing
Date, as to such customary matters as UDR may reasonably request, such
opinion to be reasonably satisfactory to UDR.
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ARTICLE 9
9. TERMINATION.
9.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time,
before or after the approval of this Agreement by the shareholders of SWP
or UDR or by the mutual written consent of UDR and SWP, with the prior
approval of their respective Boards of Directors.
9.2 TERMINATION BY EITHER UDR OR SWP. This Agreement may be terminated
and the Merger may be abandoned by action of the Board of Directors of SWP
or the Board of Directors of UDR if (a) the Merger shall not have been
consummated by March 31, 1997, (b) a meeting of SWP's stockholders shall
have been duly convened and held and the approval of SWP's stockholders
required by Section 8.1(a) shall not have been obtained at such meeting or
at any adjournment thereof, (c) a meeting of UDR's shareholders shall have
been duly convened and held and the approval of UDR's shareholders required
by Section 8.1(a) shall not have been obtained at such meeting or at any
adjournment thereof, (d) SWP elects to terminate this Agreement pursuant to
Section 4.1(b), (e) as a result of due diligence investigation by one of
the parties hereto, it is determined in good faith by such party that
certain facts or circumstances not previously known by such party
constitute a Material Adverse Effect on the business, results of operations
or financial condition of the other party, (f) a United States federal or
state court of competent jurisdiction or United States federal or state
governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other
action shall have become final and non-appealable, provided that the party
seeking to terminate this Agreement pursuant to this clause (f) shall have
used all reasonable efforts to remove such order, decree, ruling or
injunction or (g) any of the conditions set forth in Article 8 shall not
have been satisfied; and provided, in the case of a termination pursuant to
clause (a) or (g) above, that the terminating party shall not have breached
in any material respect its obligations under this Agreement in any manner
that shall have proximately contributed to the occurrence of the failure
referred to in said clause. UDR and SWP each shall (i) deliver its
Disclosure Letter to one another not later than 5:00 P.M., Eastern Time,
October 15, 1996, and (ii) shall complete its due diligence investigations
not later than 5:00 P.M., Eastern Time, on October 31, 1996 (the period
from the date of this Agreement through October 31, 1996 being hereinafter
referred to as the "Due Diligence Period".) Until the expiration of the Due
Diligence period, either party may terminate this Agreement without
liability or penalty except as otherwise provided in this Agreement. The
notice of termination shall include the reasons, if any, for such
termination and shall be Confidential Material under Section 10.5.
Thereafter, neither party may terminate this Agreement pursuant to Section
9.2(e) unless a fact or circumstance arises or is discovered that
constitutes a Material Adverse Effect on the business, results of
operations or financial condition of the other party.
9.3 TERMINATION BY SWP. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or
after the adoption and approval by the stockholders of SWP referred to in
Section 8.1(a), by action of the Board of Directors of SWP, if (a) in the
exercise of its good faith judgment as to its fiduciary duties to its
stockholders imposed by law, as advised by counsel, the Board of Directors
of SWP determines that such termination is required by reason of an SWP
Acquisition Proposal being made, (b) the Board of Directors of UDR
withdraws, materially modifies or changes in a manner materially adverse to
SWP its recommendations to UDR's shareholders of this Agreement or the
Merger, other than as a result of the occurrence of an event that in the
good faith judgment of the Board of Directors of UDR has or is reasonably
likely to have an SWP Materially Adverse Effect, (c) the Board of Directors
of UDR postpones the date scheduled for the meeting of stockholders of UDR
to approve this Agreement and the transactions contemplated hereby beyond
March 31, 1997 or fails to set a date for such meeting by such date, except
with the written consent of SWP, (d) there has been a breach by UDR of any
representation or warranty contained in this Agreement which would have or
would be reasonably likely to have a UDR Material Adverse Effect, which
breach is not curable by March 31, 1997, (e) there has been material breach
of any of the covenants or agreements set forth in this Agreement on the
part of UDR, which breach is not curable or, if curable, is not cured
within 30 days after written notice of such breach is given by SWP to UDR,
or (f) SWP elects to terminate this Agreement pursuant to Section 4.1(b).
9.4 TERMINATION BY UDR. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or
after the approval by the shareholders of UDR referred to in Section
8.1(a), by action of the Board of Directors of UDR, if (a) in the exercise
of its good faith judgment as to its fiduciary duties to its shareholders
imposed by law, as advised by counsel, the Board of Directors of UDR
determines that such termination is required
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by reason of a UDR Acquisition Proposal being made, (b) the Board of
Directors of SWP withdraws, materially modifies or changes in a manner
materially adverse to UDR its recommendation to SWP's stockholders of this
Agreement or the Merger, other than as a result of the occurrence of an
event that in the good faith judgment of the Board of Directors of SWP has
or is reasonably likely to have a UDR Material Adverse Effect, (c) the
Board of Directors of SWP postpones the date scheduled for the meeting of
stockholders of SWP to approve this Agreement and the transactions
contemplated hereby beyond March 31, 1997 or fails to set a date for such
meeting by such date, except with the written consent of UDR, (d) there has
been a breach by SWP of any representation or warranty contained in this
Agreement which would have or would be reasonably likely to have an SWP
Material Adverse Effect, which breach is not curable by March 31, 1997, or
(e) there has been a material breach of any of the covenants or agreements
set forth in this Agreement on the part of SWP, which breach is not curable
or, if curable, is not cured within 30 days after written notice of such
breach is given by UDR to SWP.
9.5 EFFECT OF TERMINATION AND ABANDONMENT.
(a) If an election to terminate this Agreement is made pursuant to (i)
Section 9.2(a) (except as a result of a default or breach hereunder by UDR)
or Section 9.2(b), and an SWP Acquisition Proposal relating to SWP shall
have been made and, within one year from the date of such termination, SWP
consummates an SWP Acquisition Proposal or enters into an agreement to
consummate an SWP Acquisition Proposal which is subsequently consummated,
or (ii) Section 9.3(a), SWP shall pay to UDR, provided that UDR was not in
material breach of its obligations hereunder at the time of such
termination, as liquidated damages and not as a penalty or forfeiture, an
amount equal to the lesser of (m) $10,000,000 (the "Liquidated Damages
Amount") and (n) the sum of (1) the maximum amount that can be paid to UDR
without causing UDR to fail to meet the requirements of Sections 856(c)(2)
and (3) of the Code determined as if the payment of such amount did not
constitute income described in Sections 856(c)(2)(A)-(H) and
856(c)(3)(A)-(I) of the Code ("Qualifying Income"), as determined by UDR's
certified public accountants, plus (2) an amount equal to the Liquidated
Damages Amount less the amount payable under clause (1) above in the event
UDR receives a letter from UDR's counsel indicating that UDR has received a
ruling from the IRS to the effect that Liquidated Damages Amount payments
constitute Qualifying Income. In addition to the Liquidated Damages Amount,
UDR shall be entitled to receive from SWP (or its successor in interest)
all documented out-of-pocket costs and expenses, up to a maximum of
$1,750,000, in connection with this Agreement and the transactions
contemplated hereby (the "Expenses") incurred by UDR. Notwithstanding the
foregoing, if an election to terminate this Agreement is made pursuant to
Section 9.3(a), and UDR has given SWP notice of exercise of its SWP
Liquidated Damages Option, SWP shall not be obligated to pay to UDR any
amount as liquidated damages under this paragraph. The payments to which
UDR is entitled under this paragraph shall be its sole remedy with respect
to the termination of the Agreement under the circumstances contemplated in
this paragraph.
If an election to terminate this Agreement is made pursuant to Section
9.2(a) (as a result of the condition set forth in Section 8.3(c) not being
satisfied), SWP shall, provided that UDR was not in material breach of its
obligations hereunder at the time of such termination, pay UDR for its Expenses,
up to a maximum of $1,750,000, although it shall not be required to pay the
Liquidated Damages Amount, which payment shall be UDR's sole remedy for
termination of the Agreement in such circumstances.
(b) If an election to terminate this Agreement is made pursuant to (i)
Section 9.2(a) (except as a result of a default or breach hereunder by SWP)
or Section 9.2(c), and a UDR Acquisition Proposal relating to UDR shall
have been made and, within one year from the date of such termination, UDR
consummates a UDR Acquisition Proposal or enters into an agreement to
consummate a UDR Acquisition Proposal which is subsequently consummated, or
(ii) Section 9.4(a), UDR shall pay to SWP, provided that SWP was not in
material breach of its obligations hereunder at the time of such
termination, as liquidated damages and not as a penalty or forfeiture, an
amount equal to the lesser of (m) the Liquidated Damages Amount and (n) the
sum of (1) the maximum amount that can be paid to SWP without causing SWP
to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code
determined as if the payment of such amount did not constitute Qualifying
Income, as determined by SWP's certified public accountants, plus (2) an
amount equal to the Liquidated Damages Amount less the amount payable under
clause (1) above in the event SWP receives a letter from SWP's counsel
indicating that SWP has received a ruling from the IRS to the effect that
Liquidated Damages Amount payments constitute Qualifying Income. In
addition to the Liquidated Damages Amount, SWP shall be entitled to receive
from UDR (or its successor in interest) all documented out-of-pocket costs
and expenses, up to a maximum of $1,750,000, in connection with this
Agreement and the transactions contemplated hereby (the "Expenses")
incurred by SWP. Notwithstanding the foregoing, if an election to terminate
this Agreement is made pursuant to Section 9.4(a), and SWP has given UDR
notice of exercise of its UDR Liquidated Damages Option, UDR shall not be
obligated to pay to
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SWP any amount as liquidated damages under this paragraph. The payments to
which SWP is entitled under this paragraph shall be its sole remedy with
respect to the termination of the Agreement under the circumstances
contemplated in this paragraph.
If an election to terminate this Agreement is made pursuant to Section
9.2(a) (as a result of the condition set forth in Section 8.2(c) not being
satisfied), UDR shall, provided that SWP was not in material breach of its
obligations hereunder at the time of such termination, pay SWP for its Expenses,
up to a maximum of $1,750,000, although it shall not be required to pay the
Liquidated Damages Amount, which payment shall be SWP's sole remedy for
termination of the Agreement in such circumstances.
(c) If this Agreement is terminated pursuant to Section 9.3(d),
Section 9.3(e), Section 9.4(d), or Section 9.4(e), the non-terminating
party shall, provided that the terminating party was not in material breach
of its obligations hereunder at the time of such termination, pay the
terminating party all Expenses, up to a maximum of $1,750,000, incurred by
it and the non-terminating party shall remain liable to the terminating
party for its breach. The payment of the Expenses pursuant to this
Section79.5(c) shall be by wire transfer or bank check. If this Agreement
is terminated by SWP pursuant to Section 4.1(b), neither party shall be
liable to the other party for any Liquidated Damage Amount or for Expenses.
(d) If either party terminates this Agreement during the Due Diligence
Period described in Section 9.2 above other than for a due diligence
related reason, the non-terminating party shall be entitled to receive the
Liquidated Damages Amount and the Expenses as provided in this Article 9.
If either party willfully fails to perform its duties and obligations under
this Agreement, the non-breaching party is entitled to all remedies
available to it at law or in equity and to recover its expenses from the
breaching party.
(e) UDR and SWP each agree to amend this Section 9.5 at the request of
the other party in order to (x) maximize the portion of the Liquidated
Damages Amount that may be distributed to such other party hereunder
without causing such other party to fail to meet the requirements of
Sections 856(c)(2) and (3) of the Code or (y) improve such other party's
chances of securing a favorable ruling described in this Section 9.5,
provided that no such amendment may result in any additional cost or
expense to such other party.
(f) In the event of termination of this Agreement and the abandonment
of the Merger pursuant to this Article 9, all obligations of the parties
hereto shall terminate, except the obligations of the parties pursuant to
this Section 9.5 and Section 7.10 and except for the provisions of Section
10.3, 10.4, 10.5, 10.6, 10.7, 10.9, 10.10, 10.13, 10.14, 10.15 and 10.16.
In the event UDR or SWP has received the Liquidated Damages Amount, such
recipient shall not (i) assert or pursue in any manner, directly or
indirectly, any claim or cause of action based in whole or in part upon
alleged tortious or other interference with rights under this Agreement
against any entity or person submitting an Acquisition Proposal or (ii)
assert or pursue in any manner, directly or indirectly, any claim or cause
of action against the other party hereto or any of its officers or
directors based in whole or part upon its or their receipt, consideration,
recommendation or approval of an Acquisition Proposal or the exercise by
UDR of its right to termination under Section 9.4(a) or the exercise by SWP
of its right to termination under Section 9.3(a). Notwithstanding the
foregoing, in the event UDR or SWP is required to file suit to seek all or
a portion of such Liquidated Damages Amount, and it ultimately succeeds, it
shall be entitled to all expenses, including attorney's fees and expenses,
which it has incurred in enforcing its right hereunder.
9.6 EXTENSION; WAIVER. At any time prior to the Effective Time, any party
hereto, by action taken by its Board of Directors, may, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE 10
10. GENERAL PROVISIONS.
10.1. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties and agreements in this Agreement or in any
instrument delivered 44 pursuant to this Agreement shall not survive the Merger,
provided, however, that the agreements contained in Article 4, the last sentence
of Section 7.4 and Sections 7.10, 7.11, 7.12, 7.13, 7.14, 7.15, 7.16, and 7.21,
and this Article 10 shall survive the Merger.
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10.2. NOTICES. Any notice required to be given hereunder shall be in
writing and shall be sent by facsimile transmission (confirmed by any of the
methods that follow), courier service (with proof of service), hand delivery or
certified or registered mail (return receipt requested and first-class postage
prepaid) and addressed as follows:
If to UDR:
Mr. John P. McCann
Chief Executive Officer
United Dominion Realty Trust, Inc.
10 South Sixth Street, Suite 203
Richmond, Virginia 23219
Facsimile: (804) 343-1465
with a copy to:
Katheryn E. Surface, Esq.
United Dominion Realty Trust, Inc.
at the same address
Facsimile: (804) 788-4607
and to:
Hunton & Williams
Riverfront Plaza, East Tower
901 East Byrd Street
Richmond, Virginia 23219
Attention: James W. Featherstone, III, Esq.
Facsimile: (804) 788-8669
If to SWP:
Mr. John S. Schneider
Chief Executive Officer
South West Property Trust Inc.
5949 Sherry Lane, Suite 1400
Dallas, Texas 75225
Facsimile: (214) 369-6882
with a copy to:
Lewis H. Sandler, Esq.
South West Property Trust Inc.
at the same address and Facsimile as set forth above.
and to:
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
2200 Ross Avenue, Suite 900
Dallas, Texas 75201
Attention: Bryan L. Goolsby, Esq.
Facsimile: (214) 220-4899
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
delivered.
10.3. ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, except as provided in the following
sentence, nothing in this Agreement, expressed or implied, is intended to confer
on any person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement. The provisions
of Article 4
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<PAGE>
and Sections77.11, 7.12, 7.13, 7.14 and 7.15 (collectively, the "Third Party
Provisions") shall benefit the persons identified therein, but the aggregate
liability of UDR with respect thereto shall not exceed the amount specified in
Article 9.
10.4. ENTIRE AGREEMENT. This Agreement, the Exhibits, the SWP Disclosure
Letter, the UDR Disclosure Letter, the SWP Ancillary Agreements, the UDR
Ancillary Agreements and any documents delivered by the parties in connection
herewith constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings
among the parties with respect thereto. No addition to or modification of any
provision of this Agreement shall be binding upon any party hereto unless made
in writing and signed by all parties hereto.
10.5. CONFIDENTIALITY.
(a) As used herein, "Confidential Material" means, with respect to
either party hereto (the "Providing Party"), all information (written or
oral) furnished (whether before or after the date hereof) by the Providing
Party and its directors, officers, employees, affiliates or representatives
of advisors, including counsel, lenders and financial advisors
(collectively,the "Providing Party Representatives") to the other party
hereto (the "Receiving Party") or such Receiving Party's directors,
officers, employees, affiliates or representatives of advisors, including
counsel, lenders and financial advisors or the Receiving Party's potential
sources of financing for the transactions contemplated by this Agreement
(collectively "the Receiving Party Representatives") and all analyses,
compilations, forecasts and other studies or other documents prepared by
the Providing Party or the Providing Party Representatives in connection
with its or their review of the transactions contemplated by this Agreement
which contain or reflect such information. The term "Confidential Material"
does not include, however, information which (i) at the time of disclosure
or thereafter is generally available to and known by the public other than
as a result of a disclosure directly or indirectly by the Receiving Party
or the Receiving Party Representatives in violation of this Agreement, (ii)
at the time of disclosure was available on a nonconfidential basis from a
source other than the Providing Party or the Providing Party
Representatives, providing that such source is not and was not bound by a
confidentiality agreement with the Providing Party, (iii) was known by the
Receiving Party prior to receiving the Confidential Material from the
Providing Party or has been independently acquired or developed by the
Receiving Party without violating any of its obligations under this
Agreement, or (iv) is contained in any SWP Reports or UDR Reports or Proxy
Statement/Prospectus.
(b) Subject to paragraph (c) below or except as required by law, the
Confidential Material will be kept confidential and will not, without the
prior written consent of the Providing Party, be disclosed by the Receiving
Party or its Representatives, in whole or in part and will not be used by
the Receiving Party or its Representatives, directly or indirectly, for any
purpose other than in connection with this Agreement, the Merger or the
evaluating, negotiating or advising with respect to a transaction
contemplated herein. Moreover, each Receiving Party agrees to transmit
Confidential Material to its Representatives only if and to the extent that
such Representatives need to know the Confidential Material for purposes of
such transaction and are informed by such Receiving Party of the
confidential nature of the Confidential Material and of the terms of this
Section.
(c) In the event that either Receiving Party, its Representatives or
anyone to whom such Receiving Party or its Representatives supply the
Confidential Material, are requested or required (by oral questions,
interrogatories, requests for information or documents, subpoena, civil
investigative demand, any informal or formal investigation by any
government or governmental agency or authority or otherwise in connection
with legal processes) to disclose any Confidential Material, such Receiving
Party agrees (i) to immediately notify the Providing Party of the
existence, terms and circumstances surrounding such a request, (ii) to
consult with the Providing Party on the advisability of taking legally
available steps to resist or narrow such request and (iii) if disclosure of
such information is required, to furnish only that portion of the
Confidential Material which, in the opinion of such Receiving Party's
counsel, such Receiving Party is legally compelled to disclose and to
cooperate with any action by the Providing Party to obtain an appropriate
protective order or otherwise reliable assurances that confidential
treatment will be accorded the Confidential Material (it being agreed that
the Providing Party shall reimburse the Receiving Party for all reasonable
out-of-pocket expenses incurred by the Receiving Party in connection with
such cooperation).
(d) In the event of the termination of this Agreement in accordance
with its terms, promptly upon request from either Providing Party, the
Receiving Party shall, except to the extent prevented by law, redeliver to
the Providing Party or destroy all tangible Confidential Material and will
not retain any copies, extracts or other reproductions thereof in whole or
in part. Any such destruction shall be certified in writing to the
Providing Party by an authorized officer of the Receiving Party supervising
the same. Notwithstanding the foregoing, each Receiving Party and one
Representative designated by each Receiving Party shall be permitted to
retain one permanent file copy of each document constituting Confidential
Material.
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(e) Each party hereto further agrees that if this Agreement is
terminated in accordance with its terms, until December 31, 1997 (1) it
will not offer to hire or hire any person currently or formerly employed by
the other party with whom such party has had contact prior hereto other
than persons whose employment shall have been terminated by such other
party prior to the date of such offer to hire or hiring and (2) neither it
nor its Affiliates shall directly or indirectly, (a) (w) solicit, seek or
offer to effect or effect, (x) negotiate with or provide any information to
the Board of Directors of the other party, any director or officer of the
other party or any stockholder of the other party with respect to, (y) make
any statement or proposal, whether written or oral, either alone or in
concert with others, to the Board of Directors of the other party, any
director or officer of the other party or any stockholder of the other
party or any other person with respect to, or (z) make any public
announcement (except as required by law in respect of actions permitted
hereby) or proposal or offer whatsoever (including, but not limited to, any
"solicitation"of "proxies"as such terms are defined or used in Regulation
14A of the Exchange Act) with respect to, (i) any form of business
combination or similar or other extraordinary transaction involving the
other party or any Affiliate thereof, including, without limitation, a
merger, tender or exchange offer or liquidation of the other party's
assets, (ii) any form of restructuring, recapitalization or similar
transaction with respect to the other party or any Affiliate thereto, (iii)
any purchase of any securities or assets, or rights or options to acquire
any securities or assets (through purchase, exchange, conversion or
otherwise), of the other party or any Affiliate thereof, (iv) any proposal
to seek representation on the Board of Directors of the other party or
otherwise to seek to control or influence the management, Board of
Directors or policies of the other party or any Affiliate thereof, (v) any
request or proposal to waive, terminate or amend the provisions of this
Section 10.5 or (vi) any proposal or other statement inconsistent with the
terms of this Section 10.5 or (b) instigate, encourage, join, act in
concert with or assist (including, but not limited to, providing or
assisting in any way in the obtaining of financing for, or acting as a
joint or co-bidder for the other party with) any third party to do any of
the foregoing, unless and until such party has received the prior written
invitation or approval of a majority of the Board of Directors of the other
party to do any of the foregoing; provided that without such invitation or
approval, either party may at any time, on a confidential non-public basis,
submit to the Chief Executive Officer or, if none, the President of the
other party a proposal to (a) amend any of the provisions of this Section
10.5(e) or (b) effect a business combination or other extraordinary
transaction with the other party providing for the acquisition of all or
substantially all of the assets or the securities of the other party,
including, without limitation, a merger, tender offer or exchange offer.
Each party hereto agrees that it will not agree with any third party to
waive its rights under this Section 10.5.
10.6. AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors, at any time before or
after approval of this Agreement or any other matter presented in connection
with the Merger by the shareholders of SWP and UDR, but after any such
shareholder approval, no amendment shall be made which by law requires the
further approval of shareholders without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
10.7. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Virginia without regard to its rules of
conflict of laws. Each of UDR and SWP hereby irrevocably and unconditionally
consents to submit to the exclusive jurisdiction of the courts of the State of
Virginia and of the United States District Court, Eastern District of Virginia
(the "Virginia Courts") for any litigation arising out of or relating to this
Agreement and the transactions contemplated hereby (and agrees not to commence
any litigation relating thereto except in such courts), waives any objection to
the laying of venue of any such litigation in the Virginia Courts and agrees not
to plead or claim in any Virginia Court that such litigation brought therein has
been brought in an inconvenient forum.
10.8. COUNTERPARTS. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
10.9. HEADINGS. Heading of the Articles and Sections of this Agreement are
for the convenience of the parties only and shall be given no substantive or
interpretive effect whatsoever.
10.10. INTERPRETATION. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
10.11. WAIVERS. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver
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by any party hereto of a breach of any provision hereunder shall not operate or
be construed as a waiver of any prior or subsequent breach of the same or any
other provision hereunder.
10.12. INCORPORATION. The SWP Disclosure Letter and the UDR Disclosure
Letter and all Exhibits attached hereto and thereto and referred to herein and
therein are hereby incorporated herein and made a part hereof for all purposes
as if fully set forth herein.
10.13. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
10.14. ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any Virginia Court, this being in addition to
any other remedy to which they are entitled at law or in equity.
10.15. SUBSIDIARIES. As used in this Agreement, the word "Subsidiary" when
used with respect to any party means any corporation, partnership, joint
venture, business trust or other entity, of which such party directly or
indirectly owns or controls at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
board of directors or others performing similar functions with respect to such
corporation or other organization.
10.16. NON-RECOURSE. Neither the officers, directors nor shareholders of
UDR shall be personally bound or have any personal liability hereunder. SWP
shall look solely to the assets of UDR for satisfaction of any liability of UDR
with respect to this Agreement and the Ancillary Agreements to which it is a
party. SWP will not seek recourse or commence any action against any of the
shareholders of UDR or any of their personal assets, and will not commence any
action for money judgments against any of the directors or officers of UDR or
seek recourse against any of their personal assets, for the performance or
payment of any obligation of UDR hereunder or thereunder. Neither the directors,
officers nor shareholders of SWP shall be personally bound or have any personal
liability hereunder. UDR shall look solely to the assets of SWP for satisfaction
of any liability of SWP with respect to this Agreement and the Ancillary
Agreements to which it is a party. UDR will not seek recourse or commence any
action against any of the stockholders of SWP or any of their personal assets,
and will not commence any action for money judgments against any of the
directors or officers of SWP or seek recourse against any of their personal
assets, for the performance or payment of any obligation of SWP hereunder or
thereunder.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
ATTEST:
By: /s/ KATHERYN E. SURFACE
ATTEST:
By: /s/ KATHERYN E. SURFACE
ATTEST:
By: /s/ LEWIS H. SANDLER
UNITED DOMINION REALTY
TRUST, INC.
By: /s/ JOHN P. MCCANN
UNITED SUB, INC.
By: /s/ JOHN P. MCCANN
SOUTH WEST PROPERTY
TRUST INC.
By: /s/ JOHN S. SCHNEIDER
I-32
<PAGE>
SCHEDULE 5.1
SOUTH WEST PROPERTY TRUST INC.
SUBSIDIARIES AND AFFILIATES OF THE COMPANY
SWP Properties, Inc.
SWP Creeks Properties, Inc.
SWP Woodscape Properties, Inc.
SWPT II Arizona Properties, Inc.
SWP REMIC Properties II, Inc.
South West REIT Holding, Inc.
SWP Developers, Inc.
Little Rock Apartment Management, Inc.
SWP Depositor, Inc.
SRL Amarillo Investors, Inc.
SWP Arkansas Properties, Inc.
MF-SWP Joint Venture
SWP Creeks, L.P.
SWP Woodscape I, L.P.
SWP Properties I, L.P.
SWP REMIC Properties II-A, L.P.
South West Properties, L.P.
South West Property Apartments, L.P.
High Ridge Investment Partners, a Texas joint venture
I-33
<PAGE>
SCHEDULE 6.1
SUBSIDIARIES
<TABLE>
<S> <C>
1. UNITED DOMINION REALTY TRUST, INC., a Virginia corporation
2. The Commons of Columbia, Inc., a Virginia corporation
3. UDRT of Virginia, Inc., a Virginia corporation
4. United Dominion Residential, Inc., a Virginia corporation
5. UDRT of Alabama, Inc., an Alabama corporation
6. United Sub, Inc., a Virginia corporation
7. United Dominion Realty, L.P., a Virginia limited partnership
8. UDRT of North Carolina, L.L.C., a North Carolina limited liability company
9. UDR at Marble Hill, LLC, a Virginia limited liability company
10. Cleary Court Property Owners' Association, Inc., a Florida non-profit corporation
</TABLE>
I-34
<PAGE>
ANNEX II-A
September 27, 1996
MERRILL LYNCH LOGO
Board of Directors
United Dominion Realty Trust, Inc.
10 South Sixth Street, Suite 203
Richmond, Virginia 23219-3802
Attention: John P. McCann, President
Ladies and Gentlemen:
United Dominion Realty Trust, Inc. (the "Company"), a wholly owned
subsidiary of the Company (the "Purchaser"), and South West Property Trust Inc.
(the "Subject Company") propose to enter into an agreement (the "Agreement")
pursuant to which the Subject Company will be merged with the Purchaser in a
transaction (the "Merger") in which each share of the Subject Company's common
stock, par value $.01 per share (the "Shares"), will be converted into the right
to receive 1.0833 shares of the common stock of the Company (the "Company
Shares"); provided, however, that if the average closing price for the Company
Shares for the twenty trading days immediately preceding the fifth day preceding
the mailing of the proxy statement is less than $13.8467, then the ratio shall
be the quotient of $15.00 divided by such average closing price up to a maximum
ratio of 1.1215. In connection with the Merger, the parties also propose to
enter into an agreement (the "Option Agreement") pursuant to which the Subject
Company will grant the Company an option to acquire 4,000,000 Subject Company
Shares, representing approximately 16.4% of the total Subject Company Shares
outstanding and the Company will grant the Subject Company an option to acquire
4,333,200 Company Shares, representing approximately 7.1% of the total Company
Shares outstanding.
You have asked us whether, in our opinion, the proposed consideration to be
paid by the Company pursuant to the Merger is fair to the Company from a
financial point of view.
In arriving at the opinion set forth below, we have, among other
things:
(1) Reviewed the Subject Company's Annual Reports, Forms 10-K and
related financial information for the five fiscal years ended
December 31, 1995 and the Subject Company's Forms 10-Q and the
related unaudited financial information for the quarterly periods
ending March 31, 1996 and June 30, 1996;
(2) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31,
1995 and the Company's Forms 10-Q and the related unaudited
financial information for the quarterly periods ending March 31,
1996 and June 30, 1996;
(3) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and
prospects of the Subject Company and the Company, furnished to us
by the Subject Company and the Company;
(4) Conducted discussions with members of senior management of the
Subject Company and the Company concerning their respective
businesses and prospects;
(5) Reviewed the historical market prices and trading activity for the
Shares and the Company Shares and compared them with that of
certain publicly traded companies which we deemed to be reasonably
similar to the Subject Company and the Company, respectively;
(6) Compared the results of operations of the Subject Company and the
Company with that of certain companies which we deemed to be
reasonably similar to the Subject Company and the Company,
respectively;
(7) Considered the pro forma effect of the Merger on the Company's
capitalization ratios and earnings, cash flow and book value per
share;
(8) Reviewed a draft of the Agreement dated September 19, 1996; and
IIA-1
<PAGE>
(9) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters
as we deemed necessary, including our assessment of general
economic, market and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Subject
Company and the Company, and we have not independently verified such information
or undertaken an independent appraisal of the assets of the Subject Company or
the Company. With respect to the financial forecasts furnished by the Subject
Company and the Company, we have assumed that they have been reasonably prepared
and reflect the best currently available estimates and judgment of the Subject
Company's or the Company's management as to the expected future financial
performance of the Subject Company or the Company, as the case may be.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed consideration to be paid by the Company pursuant to the Merger is
fair to the Company from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/ Tjarda van S. Clagett
Director
Investment Banking Group
IIA-2
<PAGE>
ANNEX II-B
LEHMAN BROTHERS
September 30, 1996
Board of Directors
South West Property Trust Inc.
5949 Sherry Lane, Suite 1400
Dallas, TX 75225
Members of the Board:
We understand that South West Property Inc. (the "Company") proposes to enter
into an agreement providing for the merger (the "Merger") of the Company with
and into United Sub, Inc. ("Sub"), a wholly-owned subsidiary of United Dominion
Realty Trust, Inc. ("UDR"), pursuant to which the Company's stockholders will
receive shares of common stock of UDR as consideration (the "Merger
Consideration") based upon the Exchange Ratio (as such term is defined below)
(the "Proposed Transaction"). It is our understanding that the Exchange Ratio
provides that the Company's stockholders will receive 1.0833 UDR shares for each
of the Company's shares, subject to the provision that if UDR's average closing
stock price (based on the 20 trading days prior to the fifth day preceding the
date on which the Form S-4 related to the Proposed Transaction is declared
effective by the Securities and Exchange Commission) (the "Average Closing
Price") falls below $13.8467 per share, the Exchange Ratio will be adjusted to
provide the Company's stockholders with a minimum Merger Consideration of $15.00
per share in UDR common stock. We further understand that if UDR's Average
Closing Price falls below $13.375 per share so that the adjusted Exchange Ratio
would be greater than 1.1215 UDR shares for each of the Company's shares, then
UDR would have the right to terminate the Proposed Transaction or to proceed
with the Merger at a maximum Exchange Ratio of 1.1215, in which event the
Company shall then have the right to terminate the Proposed Transaction or to
proceed at such 1.1215 Exchange Ratio. The terms and conditions of the Proposed
Transaction are set forth in more detail in the Agreement and Plan of Merger
dated as of September 30, 1996 (the "Agreement") by and among the Company, UDR
and Sub.
We have been requested by the Board of Directors of the Company to render our
opinion with respect to the fairness, from a financial point of view, to the
Company's stockholders of the Exchange Ratio to be offered to such stockholders
in the Proposed Transaction. We have not been requested to opine as to, and our
opinion does not in any manner address, the Company's underlying business
decision to proceed with or effect the Proposed Transaction. In addition, our
opinion does not in any manner address whether the Company should proceed with
or effect the Proposed Transaction in the event the Company has a right to
terminate the Proposed Transaction as a result of a decline in UDR's Average
Closing Price below $13.375.
In arriving at our opinion, we reviewed and analyzed: (i) the Agreement and the
specific terms of the Proposed Transaction; (ii) publicly available information
concerning the Company and UDR that we believe to be relevant to our analysis,
including the annual report on Form 10-K for the year ended December 31, 1995
and quarterly reports on Form 10-Q for the quarters ended March 31 and June 30,
1996 for both the Company and UDR; (iii) financial and operating information
with respect to the business, operations, assets, liabilities and prospects of
the Company and UDR furnished to us by the Company and UDR, respectively; (iv)
trading histories of the common stock of the Company and UDR from 1994 to the
present and a comparison of such trading histories to each other and to the
trading histories of such other companies and indices that we deemed relevant;
(v) a comparison of the historical financial results and present financial
condition of each of the Company and UDR with those of other companies that we
deemed relevant; and (iv) a comparison of the financial terms of the Proposed
Transaction with the financial terms of certain other transactions that we
deemed relevant. In addition, we have had discussions with the managements of
the Company and UDR concerning their respective business, operations, assets,
financial condition and prospects and have undertaken such other studies,
analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for independent verification of such information and have
further relied upon the assurances of the management of the Company that they
are not aware of any facts that would make such information inaccurate or
misleading. With respect to the financial projections of the Company and UDR,
upon advice of the Company, we have assumed that such projections have been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the managements of the Company and UDR, as the case may be, as
to the future financial performance of the Company and UDR, and that the Company
and UDR will perform substantially in accordance
IIB-1
<PAGE>
with such projections. In arriving at our opinion, we have conducted only a
limited physical inspection of the properties and facilities of the Company and
UDR and have not made or obtained any evaluations or appraisals of the assets or
liabilities of the Company or UDR. In addition, you have not have not authorized
us to solicit, and we have not solicited, any indications of interest from any
third party with respect to the purchase of all or a part of the Company's
business or assets. Upon advice of the Company and its legal and accounting
advisors, we have assumed that the Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended, and therefore as a tax-free transaction to the stockholders of the
Company. Our opinion necessarily is based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter.
Based upon and subject to the foregoing, we are of the opinion as of the date
hereof that, from a financial point of view, the Exchange Ratio to be offered to
the stockholders of the Company in the Proposed Transaction is fair to such
stockholders.
The Company has agreed to pay Lehman Brothers a fee for this opinion and to
indemnify us for certain liabilities that may arise out of the rendering of this
opinion. We also have performed various investment banking services for the
Company in the past and have received customary fees for such services.
Additionally, we serve as lender under the Company's revolving line of credit
and have received and may receive customary amounts on account of interest and
other fees and charges in connection therewith. In the ordinary course of our
business, we may trade in the debt and equity securities of the Company and UDR
for our own account and for the accounts of our customers and, accordingly, may
at any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the Company
and is rendered to the Board of Directors in connection with its consideration
of the Proposed Transaction. This opinion is not intended to be and does not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote with respect to the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS
By /s/ Robert C. Lieber
Managing Director
IIB-2
<PAGE>
ANNEX III
PURCHASE OPTION AGREEMENT
PURCHASE OPTION AGREEMENT dated as of October 1, 1996 by and between United
Dominion Realty Trust, Inc., a Virginia corporation ("UDR") and South West
Property Trust Inc., a Maryland corporation ("SWP").
WHEREAS, concurrently herewith, UDR and SWP have entered into an Agreement
and Plan of Merger (the "Merger Agreement") dated as of October 1, 1996,
pursuant to which the parties thereto have agreed to enter into a strategic
merger of their respective companies,
WHEREAS, UDR and SWP have agreed to grant, each to the other, an
irrevocable option (the "Options") to purchase under certain circumstances, a
fixed number of shares of common stock of the grantor company at a price and
upon terms and conditions as are hereinafter set forth,
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, in hand paid, each to the other, the receipt and
sufficiency whereof is hereby acknowledged, each to the other, the parties agree
to grant certain options on the following terms and conditions:
1. OPTION GRANT BY SWP TO UDR. SWP hereby grants to UDR an irrevocable
option (the "SWP Liquidated Damages Option") to purchase from SWP 4,000,000
shares of SWP common stock (the "SWP Option Shares"). The price per share (the
"SWP Liquidated Damages Option Exercise Price") shall be equal to the closing
price on the New York Stock Exchange (the "NYSE") of SWP's shares of common
stock on the day that UDR and SWP jointly announce publicly the execution of the
Merger Agreement.
2. OPTION GRANT BY UDR TO SWP. UDR hereby grants to SWP an irrevocable
option (the "UDR Liquidated Damages Option") to purchase from UDR 4,333,200
shares of UDR common stock (the "UDR Option Shares"). The price per share (the
"UDR Liquidated Damages Option Exercise Price") shall be equal to the closing
price on the NYSE of UDR's shares of common stock on the day that UDR and SWP
jointly announce publicly the execution of the Merger Agreement.
3. RESTRICTIONS AGAINST EXERCISE OF OPTIONS. Neither UDR nor SWP may
exercise any Options (a) during any period in which (i) it is in material breach
of its representations or warranties under the Merger Agreement, (ii) it is
failing, in any material respect, to perform its obligations or to observe its
covenants under the Merger Agreement, unless the reason for such failure is that
the other party is failing in any material respect to perform its obligations or
to observe its covenants, or (b) the issuance of the shares underlying such
Options would violate applicable laws or regulations. Otherwise, the Options may
be exercised, in whole or in part, by UDR or SWP but only if a Triggering Event
(as defined below) occurs before the occurrence of a Termination Event (defined
below). The date on which such Triggering Event occurs is hereinafter referred
to as the "Exercise Date".
4. EXERCISE OF OPTIONS. UDR or SWP, as the case may be, shall notify (the
"Option Notice") the other party (or its successor in interest) in writing of
its intention to exercise, in whole or in part, its Option at any time after the
occurrence of the Triggering Event and before the occurrence of a Termination
Event.
(a) Within 30 days after UDR shall deliver its Option Notice to SWP,
the parties shall take or cause to be taken the following actions ( either
concurrently or in the order herein set forth): (i) UDR shall deliver to
its special counsel, Hunton & Williams, in good funds, an amount equal to
the product of (A) the SWP Liquidated Damages Option Exercise Price, and
(B) the number of SWP Option Shares which UDR elects to acquire pursuant to
the exercise of such option, (ii) SWP or its successor shall deliver to
Hunton & Williams the SWP Option Shares for which UDR has exercised the SWP
Liquidated Damages Option, (iii) Hunton & Williams shall deliver to SWP or
its successor an amount equal to the difference between the (A) amount
described in Section 4.(a) (i) and (B) the amount (the "UDR Liquidated
Damages Amount") by which (X) the lesser of (1) $10,000,000 or (2) the
maximum amount that can be paid to UDR without causing UDR to fail to meet
the requirements of Sections 856(c)(2) and (3) of the Code determined as if
the payment of the UDR Liquidated Damages Amount did not constitute income
described in Sections 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code
("Qualifying Income"), as determined by UDR's certified public accountants,
exceeds (Y) the amount, if any, theretofore paid to UDR by SWP as
liquidated damages pursuant to Section 9.5(a) of the Merger Agreement;
provided, that the UDR Liquidated Damages Amount shall be $10,000,000 less
the amount described in Section 4(a) (iii) (Y) if UDR shall have received a
letter from UDR's counsel indicating that UDR has received a ruling from
the IRS to the effect that UDR Liquidated Damages Amount payments
constitute Qualifying Income, and (iv) Hunton & Williams shall deliver to
UDR the SWP Liquidated Damages Amount. Hunton & Williams shall retain out
of the amount otherwise deliverable to SWP pursuant to Section 4(a) (iii),
and shall invest and reinvest from time to
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<PAGE>
time in accordance with the instructions of UDR, an amount equal to
$10,000,000 minus the amount described in Section 4(a) (iii) (X) (2), for a
period of nine months from the date of delivery of the Option Notice to
SWP, during which UDR may apply for the IRS ruling described in the proviso
to the preceding sentence. If such IRS ruling is not received before
expiration of such nine month period, the amount so retained by Hunton &
Williams, together with all investment earnings thereon, shall be delivered
to SWP promptly after expiration of such period.
(b) Within 30 days after SWP shall deliver its Option Notice to UDR,
the parties shall take or cause to be taken the following actions (either
concurrently or in the order herein set forth): (i) SWP shall deliver to
its special counsel, Liddell, Sapp, Zively, Hill & LaBoon, L.L.P.
("Liddell, Sapp"), in good funds, an amount equal to the product of (A) the
UDR Liquidated Damages Option Exercise Price, and (B) the number of UDR
Option Shares which SWP elects to acquire pursuant to the exercise of such
option, (ii) UDR or its successor shall deliver to Liddell, Sapp the UDR
Option Shares for which SWP has exercised the UDR Liquidated Damages
Option, (iii) Liddell, Sapp shall deliver to UDR or its successor an amount
equal to the difference between the (A) amount described in Section 4.(b)
(i) and (B) the amount (the "SWP Liquidated Damages Amount") by which (X)
the lesser of (1) $10,000,000 or (2) the maximum amount that can be paid to
SWP without causing SWP to fail to meet the requirements of Sections
856(c)(2) and (3) of the Code determined as if the payment of the SWP
Liquidated Damages Amount did not constitute Qualifying Income, as
determined by SWP's certified public accountants, exceeds (Y) the amount,
if any, theretofore paid to SWP by UDR as liquidated damages pursuant to
Section 9.5(b) of the Merger Agreement; provided, that the SWP Liquidated
Damages Amount shall be $10,000,000 less the amount described in Section
4(b) (iii) (Y) if SWP shall have received a letter from SWP's counsel
indicating that SWP has received a ruling from the IRS to the effect that
SWP Liquidated Damages Amount payments constitute Qualifying Income, and
(iv) Liddell, Sapp shall deliver to SWP the UDR Liquidated Damages Amount.
Liddell, Sapp shall retain out of the amount otherwise deliverable to UDR
pursuant to Section 4(b) (iii), and shall invest and reinvest from time to
time in accordance with the instructions of SWP, an amount equal to
$10,000,000 minus the amount described in Section 4(b) (iii) (X) (2), for a
period of nine months from the date of delivery of the Option Notice to
UDR, during which SWP may apply for the IRS ruling described in the proviso
to the preceding sentence. If such IRS ruling is not received before
expiration of such nine month period, the amount so retained by Liddell,
Sapp, together with all investment earnings thereon, shall be delivered to
UDR promptly after expiration of such period.
5. TRIGGERING EVENT. The term "Triggering Event" shall mean any one of the
following events or transactions:
(a) UDR or SWP or a subsidiary of either of them (the "Acting Party")
shall take any action (each an "Acquisition Transaction"), including
authorizing, recommending or entering into an agreement with any third
party, without the prior written consent of the other party hereto, to
effect (i) a merger, consolidation or similar transaction involving the
Acting Party, (ii) a sale, lease or other disposition of all or
substantially all of its assets, (iii) a sale or other disposition
(including, by way of merger, consolidation, share exchange or otherwise)
of securities representing 15% or more (or convertible into 15% or more) of
the voting power of the Acting Party, or (iv) a transaction substantially
similar to any of the foregoing;
(b) a third party shall acquire or receive, directly or indirectly,
from the Acting Party, the right to acquire an aggregate of 15% or more (or
convertible into 15% or more) of the voting power of the Acting Party;
(c) a third party shall make a bona fide proposal to the Acting Party
by public announcement or written communication that becomes the subject of
public disclosure to engage in an Acquisition Transaction; or
(d) the Merger Agreement shall be terminated pursuant to Section
9.3(a) or 9.4(a) thereof.
6. TERMINATION EVENT.
(a) The term "Termination Event" for purposes of precluding UDR from
exercising the SWP Liquidated Damages Option, shall mean the earliest to
occur of (i) the Closing of the Merger in accordance with the terms of the
Merger Agreement, (ii) the termination of the Merger Agreement pursuant to
Section 9.2 or Section 9.4 (other than pursuant to Subsection (a) thereof),
(iii) the expiration of 12 months after a termination of the Merger
Agreement pursuant to Section 9.3(a) or 9.4(a) thereof, unless within such
12 month period, a Triggering Event occurs, or (iv) the expiration of 12
months after the occurrence of a Triggering Event occurring within 12
months after termination of the Merger Agreement pursuant to Section 9.3(a)
or 9.4(a) thereof.
(b) The term "Termination Event" for purposes of precluding SWP from
exercising the UDR Liquidated Damages Option, shall mean the earliest to
occur of (i) the Closing of the Merger in accordance with the terms of the
Merger
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<PAGE>
Agreement, (ii) the termination of the Merger Agreement pursuant to Section
9.2 or Section 9.3 (other than pursuant to Subsection (a) thereof), (iii)
the expiration of 12 months after a termination of the Merger Agreement
pursuant to Section 9.3(a) or 9.4(a) thereof, unless within such 12 month
period, a Triggering Event occurs, or (iv) the expiration of 12 months
after the occurrence of a Triggering Event occurring within 12 months after
termination of the Merger Agreement pursuant to Section 9.3(a) or 9.4(a)
thereof.
(c) Notwithstanding the provisions of Section 6(a) and (b) above, a
"Termination Event" for either UDR or SWP shall include a termination by
such party during the 30-day due diligence period for any diligence-related
matter.
(d) Notwithstanding the provisions of Section 6(a), (b) and (c),
above, if any Triggering Event has occurred, and the Merger Agreement is
thereafter terminated, this Option Agreement shall remain in effect for a
period of 12 months from such termination.
7. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
(a) Subject to the provisions of the last sentence of this Section
7(a), no sale, transfer, assignment, hypothecation or other disposition by
UDR or SWP of its interest herein or in the shares underlying the Options
to which it is entitled or which it has acquired pursuant to the Option
granted to it hereunder, shall be made unless such transfer, assignment or
other disposition will comply with the rules and statutes administered by
the Securities and Exchange Commission and (i) a registration statement
under the Securities Act of 1933 (the "Act") including the option shares
(the "Option Shares") issued to it pursuant to Section 4, above, is
currently in effect or (ii) in the opinion of counsel, which counsel and
which opinion shall be reasonably satisfactory to UDR or SWP (the
"Exercising Party"), a current registration statement is not required for
the disposition of the Option Shares. Prior to the Exercise Date, neither
UDR nor SWP shall transfer, assign or hypothecate its interest herein or in
its Option Shares.
(b) In the event that an Exercising Party shall exercise all or any
part of the Option granted to it herein, the Exercising Party shall have
the one-time right, exercisable upon written notice to the Acting Party, to
require that the Acting Party prepare and promptly file (i) in the event
that the Option Shares are covered by a registration statement under the
Act, such post-effective amendments to the Acting Party's registration
statement pursuant to which the Option Shares were registered under the
Act, or (ii) a new registration statement as may be required under the Act
in connection with a public offering in a manner reasonably requested by
the Exercising Party for all of the Option Shares held by the Exercising
Party. In connection therewith, the Acting Party shall be obligated to
prepare and file such post-effective amendment or registration statement on
Form S-3 or such other form as may be prescribed by the Securities and
Exchange Commission, from time to time, as the case may be, within 45 days
of receipt of a written request therefor and shall be further obligated to
use its best efforts, including the filing of any amendments or supplements
thereto, to have any such registration statement declared effective under
the Act as soon as practicable after the filing date thereof. The Acting
Party shall also use its best efforts to keep any such post-effective
amendment or registration statement, and the accompanying prospectus,
effective and current under the Act at its expense for a continuous period
of not less than six months.
(c) In addition to the rights of the Exercising Party pursuant to
Section 7(b), above, the Acting Party agrees that, at any time prior to
January 1, 2003 (the "Expiration Date"), as and when it intends to register
any of its common stock under the Act (other than pursuant to the
registration statement described in Section 7(b), above, whether for its
own account or for selling shareholders (except in connection with an
offering registered on Form S-8 or an offering solely relating to an
acquisition registered on Form S-4 or any subsequent similar form) the
Acting Party will notify the Exercising Party of such intention and, upon
request of the Exercising Party, will use its best efforts to cause the
Option Shares to be registered under the Act. The number of Option Shares
to be included in such offering may be reduced if and to the extent that
the underwriter of securities included in the registration statement and
offered by the Acting Party shall be of the opinion that such inclusion
would materially adversely affect the marketing of the securities to be
sold by the Acting Party therein. The Acting Party shall use its best
efforts to keep such registration statement current at its expense for a
continuous period of not less than six months.
(d) The Exercising Party agrees that the Acting Party shall not be
obligated to register any of the Option Shares pursuant to Section 7(b),
above, if at such time the Exercising Party receives an opinion from
securities counsel for the Acting Party, in form reasonably satisfactory to
it, that the Exercising Party may freely sell all such Option Shares under
Rule 144 (subject only to the "trickle" requirements of Rule 144) of the
rules and regulations under the Act during any three month period.
III-3
<PAGE>
(e) The registration statement referred to in Section 7 (b), above,
shall be prepared and processed in accordance with the following terms and
conditions:
(i) The Exercising Party shall cooperate in furnishing promptly to
the Acting Party, in writing, any information reasonably requested by
the Acting Party in connection with the preparation, filing and
processing of the registration statement.
(ii) To the extent requested by an underwriter of securities
included in the registration statement and offered by the Acting Party,
the Exercising Party will defer the sale of the Option Shares for a
period commencing twenty days prior and terminating sixty days after the
effective date of the registration statement.
(iii) The Acting Party shall furnish to the Exercising Party such
number of prospectuses or other documents incident to such registration
as may from time to time be reasonably requested, and shall cause the
Option Shares to be qualified under the blue sky laws of those states
where the Acting Party qualifies its securities for sale, provided, that
the Acting Party shall not be required in connection therewith to
qualify as a foreign company or to execute a general consent to service
of process in any state.
(iv) The Acting Party and the Exercising Party shall each execute
such indemnification and hold harmless agreements as are usual and
customary in a securities registration of the type herein contemplated.
Such indemnities shall, to the extent practicable, be mutual.
(v) Except as set forth in Section 7(e)(vi), below, the Acting
Party shall bear all costs and expenses incident to registration
pursuant to this Section 7.
(vi) The Exercising Party shall pay any and all underwriters'
discounts, brokerage fees and transfer taxes incident to the sale of any
Option Shares sold by the Exercising party pursuant to this Section 7,
and shall pay the fees and expenses of any special attorneys or
accountants retained by it.
8. NO RIGHTS AS A SHAREHOLDER. Nothing herein contained shall be construed
as conferring upon either UDR or SWP any rights as a shareholder of the other
party hereto unless and until the Options held by such party have been
exercised. Neither UDR nor SWP shall have any voting rights or the right to
receive notice or dividends as a stockholder of the other party hereto unless
and until UDR or SWP, as the case may be, shall have exercised its Options
pursuant to this Option Agreement.
9. RESERVATION OF OPTION SHARES. From the date of this Option Agreement and
until the Expiration Date, UDR and SWP shall each reserve for issuance and
delivery upon exercise of the Options herein granted by them, that number of
Option Shares that are required for issuance and delivery upon exercise hereof.
UDR and SWP each covenants to the other that all Option Shares to be issued by
it pursuant to this Option Agreement shall, at the time of delivery thereof, be
duly and validly issued, fully paid and nonassessable and free from all
preemptive or similar rights, taxes, liens and charges with respect to the
issuance thereof, and that upon issuance and registration, if necessary, such
Option Shares shall be listed on each securities exchange, if any, on which the
other shares of outstanding common stock of the Acting Party are then listed. At
the time of issuance, such Option Shares shall also be free and clear of any
restrictions on sale (other than as provided in the Acting Company's certificate
of incorporation and any restrictions on sale set forth herein or pursuant to
applicable federal and state securities laws) and free and clear of all
preemptive rights.
10. ADJUSTMENTS.
(a) In the event that, after the date hereof, the number of shares of
common stock of an Acting Party is (i) increased by means of a stock
dividend payable in shares of common stock, a stock split or other
subdivision or by a reclassification of shares of common stock, or (ii)
decreased by means of a reverse stock split or other combination or
reclassification of shares of common stock, then from and after the record
date for such event, the number of Option Shares issuable upon the exercise
of the Options and the exercise price thereof shall be proportionately
adjusted to reflect such increase or decrease.
(b) In the event of a (i) consolidation or merger of the Acting Party
with or into another entity, or (ii) the sale or conveyance to a third,
unrelated party, of all or substantially all of the assets of the Acting
Party, then as a condition of such event, the Acting Party or its successor
or purchasing entity, as the case may be, shall make lawful and adequate
provision whereby the Exercising Party shall have the right thereafter to
receive, on exercise of its Options, the kind and amount of securities and
property receivable upon such event as shall be as nearly equivalent as may
be practicable to the adjustments provided for in Section 10(a), above.
This Section 10(b) shall similarly apply to successive reclassifications,
changes in shares of common stock, consolidations, mergers, sales and
conveyances.
III-4
<PAGE>
(c) The Acting party shall, as a condition precedent to the
consummation of any event described in Section 10 (a) or (b), above, give
at least thirty days' prior written notice to the Exercising Party of the
pendency of such event.
11. REPURCHASE OBLIGATION.
(a) In the event UDR purchases SWP Option Shares, UDR shall have the
right, exercisable for a period of twelve months from the date of the
acquisition of the SWP Option Shares, to cause SWP to repurchase the SWP
Option Shares at a price equal to the SWP Liquidated Damages Option
Exercise Price.
(b) In the event SWP purchases UDR Option Shares, SWP shall have the
right, exercisable for a period of twelve months from the date of the
acquisition of the UDR Option Shares, to cause UDR to repurchase the UDR
Option Shares at a price equal to the UDR Liquidated Damages Option
Exercise Price.
12. ASSIGNMENT.
(a) Except as provided in Section 7, above, the Exercising Party shall
be entitled, without the consent of the Acting Party, to assign all or part
of its interest in the Option Agreement or to any of the Option Shares
which it has received, to any bona fide officer, director or partner of the
Exercising Party; provided, however, that the transferee, prior to any such
transfer, shall agree, in writing, in form and substance satisfactory to
the Acting Party, to be bound by the terms of this Option Agreement and
provide the Acting Party with an opinion of securities counsel in such form
reasonably acceptable to the Acting Party, that such transfer would not be
in violation of the Act or any applicable state securities, or blue sky
laws.
(b) Subject to the restrictions set forth in this Option Agreement,
the Exercising Party may surrender its certificate representing the Option
Shares to the Acting Party or at the office of the Acting Party's transfer
agent together with sufficient funds to pay any transfer tax, and receive
without charge, certificates for new Option Shares in such denominations
and in the name of such transferees and the Exercising Party, if
appropriate, as the Exercising Party shall designate in writing to the
Acting Party or its transfer agent.
(c) Upon receipt of evidence satisfactory to the Acting Party of the
loss, theft, destruction or mutilation of any certificate for Option Shares
(together with any indemnification or bond as may reasonably be required by
the Acting Party), the Acting Party shall execute and deliver to the
Exercising Party or its permitted transferee(s) a new certificate(s) for
the Option Shares of like tenor and denomination.
13. NOTICES. Any notice required to be given hereunder shall be in writing
and shall be sent by facsimile transmission (confirmed by any of the methods
that follow), courier service (with proof of service), hand delivery or
certified or registered mail (return receipt requested and first-class postage
prepaid) and addressed as follows:
If to UDR:
Mr. John P. McCann
Chief Executive Officer
United Dominion Realty Trust, Inc.
10 South Sixth Street, Suite 203
Richmond, Virginia 23219
Facsimile: (804) 343-1465
with a copy to:
Katheryn E. Surface, Esq.
United Dominion Realty Trust, Inc.
at the same address
Facsimile: (804) 788-4607
and to:
Hunton & Williams
Riverfront Plaza, East Tower
901 East Byrd Street
Richmond, Virginia 23219
Attention: James W. Featherstone, III, Esq.
Facsimile: (804) 788-8669
III-5
<PAGE>
If to SWP:
Mr. John S. Schneider
Chief Executive Officer
South West Property Trust Inc.
5949 Sherry Lane, Suite 1400
Dallas, Texas 75225
Facsimile: (214) 369-6882
with a copy to:
Lewis H. Sandler, Esq.
South West Property Trust Inc.
at the same address and Facsimile as set forth
above.
and to:
Liddell, Sapp, Zively, Hill & LaBoon, L.L.P.
2200 Ross Avenue, Suite 900
Dallas, Texas 75201
Attention: Bryan L. Goolsby, Esq.
Facsimile: (214) 220-4899
or to such other address as any party shall specify by written notice so given
and such notice shall be deemed to have been delivered as of the date so
delivered.
14. SUCCESSORS. All provisions of this Option Agreement by or for the
benefit or burden of UDR or SWP shall bind and inure to the benefit or burden of
their respective successors and permitted assigns.
15. COUNTERPARTS. This Option Agreement may be executed in several
counterparts, which taken together, shall constitute a single document.
16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Virginia without regard to its rules of
conflicts of laws. Each of UDR and SWP hereby irrevocably and unconditionally
consents to submit to the exclusive jurisdiction of the courts of the State of
Virginia and of the United States District Court, Eastern District of Virginia
(the "Virginia Courts") for any litigation arising out of or relating to this
Agreement and the transactions contemplated hereby (and agrees not to commence
any litigation relating thereto except in such courts), waives any objection to
the laying of venue of any such litigation in the Virginia Courts and agrees not
to plead or claim in any Virginia Court that such litigation brought therein has
been brought in an inconvenient forum.
17. SEVERABILITY. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms or provisions of this
Agreement or affecting the validity or enforceablity of any of the terms or
provisiojns of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
III-6
<PAGE>
IN WITNESS WHEREOF, UDR and SWP have entered into this Option Agreement on
or as of the day and year first above written.
UNITED DOMINION REALTY TRUST, INC.
By: /s/ JOHN P. MCCANN
John P. McCann
President
SOUTH WEST PROPERTY TRUST INC.
By: /s/ JOHN S. SCHNEIDER
John S. Schneider
Chief Executive Officer
III-7
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Directors and officers of United Dominion may be indemnified against
liabilities, fines, penalties, and claims imposed upon or asserted against them
as provided in the VSCA and the Articles of Incorporation. Such indemnification
covers all costs and expenses reasonably incurred by a director or officer. The
Board of Directors, by a majority vote of a quorum of disinterested directors
or, under certain circumstances, independent counsel appointed by the Board of
Directors, must determine that the director or officer seeking indemnification
was not guilty of willful misconduct or a knowing violation of the criminal law.
In addition, the VSCA and United Dominion's Articles of Incorporation may under
certain circumstances eliminate the liability of directors and officers in a
shareholder or derivative proceeding.
If the person involved is not a director or officer of United Dominion, the
Board of Directors may cause United Dominion to indemnify to the same extent
allowed for directors and officers of United Dominion such person who was or is
a party to a proceeding, by reason of the fact that he is or was an employee or
agent of United Dominion, or is or was serving at the request of United Dominion
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
2(a) Agreement and Plan of Merger dated as of October 1, 1996, between United Dominion, Sub and South West
(attached to the Joint Proxy Statement/Prospectus as Annex I)
2(b) Agreement of Purchase and Sale dated July 1, 1996 (filed as Exhibit 2 to United Dominion's Current Report
on Form 8-K dated August 15, 1996 (File No. 1-10524), and incorporated by reference herein)
4(a) Restated Articles of Incorporation of United Dominion (filed as Exhibit 4(i)(c) to United Dominion's Form
S-3 Registration Statement (Registration No. 33-64275) filed with the Commission on November 15, 1995, and
incorporated by reference herein)
4( )(i) Bylaws of United Dominion (filed as Exhibit 4(c) to United Dominion's Form S-3 Registration Statement
(Registration No. 33-44743) filed with the Commission on December 31, 1991, and incorporated by reference
herein)
4( (ii) Amendment to Bylaws of United Dominion (filed as Exhibit 3(b) (ii) to United Dominion's Annual Report on
Form 10-K for the year ended December 31, 1995 (File No. 1-10524), and incorporated by reference herein)
4(c) Specimen United Dominion Common Stock certificate (filed as Exhibit 4 (i) to United Dominion's Annual
Report on Form 10-K for the year ended December 31, 1993 (File No. 1-10524), and incorporated by reference
herein)
4(d) Loan Agreement dated as of November 7, 1991, between United Dominion and Aid Association for Lutherans
(filed as Exhibit 6(c)(1) to United Dominion's Form 8-A Registration Statement dated April 19, 1990 (File
No. 1-10524), and incorporated by reference herein)
4(e) Note Purchase Agreement dated as of January 15, 1993, between United Dominion and CIGNA Property and
Casualty Insurance Company, Connecticut General Life Insurance Company, Connecticut General Life Insurance
Company, on behalf of one or more separate accounts, Insurance Company of North America, Principal Mutual
Life Insurance Company and Aid Association for Lutherans (filed as Exhibit 6(c)(5) to United Dominion's
Form 8-A Registration Statement dated April 19, 1990 (File No. 1-10524), and incorporated by reference
herein)
4(f) Credit Agreement dated as of December 15, 1994, between United Dominion and First Union National Bank of
Virginia (filed as Exhibit 6(c)(6) to United Dominion's Form 8-A Registration Statement dated April 19,
1990 (File No. 1-10524), and incorporated by reference herein)
5 Opinion of Hunton & Williams
23(a) Consent of Ernst & Young LLP
23(b) Consent of Ernst & Young LLP
23(c) Consent of L. P. Martin & Company, P.C.
23(d) Consent of Dixon, Odom & Co., L.L.P.
23(e) Consent of Hunton & Williams (included in Exhibits 5 and 8 hereto)
23(f) Consent of Merrill Lynch & Co.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
23(g) Consent of Lehman Brothers Inc.
25 Powers of Attorney (included on signature page)
99(a) Form of United Dominion proxy
99(b) Form of South West proxy
</TABLE>
ITEM 22 UNDERTAKINGS
(a) The undersigned registrant hereby undertakes as follows:
1. That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
2. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
3. That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
4. That prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the registrant undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
5. That every prospectus (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
the purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
6. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first-class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of the
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Richmond, Commonwealth of
Virginia on the 8th day of October, 1996.
UNITED DOMINION REALTY TRUST, INC.
By: /s/ JOHN P. MCCANN
JOHN P. MCCANN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on October 8, 1996. Each of the undersigned officers and
directors of the registrant hereby constitutes John P. McCann and James Dolphin,
either of whom may act, his true and lawful attorneys-in-fact with full power to
sign for him and in his name in the capacities indicated below and to file any
and all amendments to the registration statement filed herewith, making such
changes in the registration statement as the registrant deems appropriate, and
generally to do all such things in his name and behalf in his capacity as an
officer and director to enable the registrant to comply with the provisions of
the Securities Act of 1933 and all requirements of the Securities and Exchange
Commission.
<TABLE>
<CAPTION>
SIGNATURE TITLE & CAPACITY
<C> <S> <C>
/s/ JOHN P. MCCANN President, Chief Executive Officer (Principal
JOHN P. MCCANN Executive Officer) and Director
/s/ JAMES DOLPHIN Senior Vice President, Chief Financial
JAMES DOLPHIN Officer, (Principal Financial and Accounting
Officer) and Director
/s/ JEFF C. BANE Director
JEFF C. BANE
/s/ R. TOMS DALTON, JR. Director
R. TOMS DALTON, JR.
/s/ BARRY M. KORNBLAU Director
BARRY M. KORNBLAU
/s/ JOHN C. LANFORD Director
JOHN C. LANFORD
/s/ H. FRANKLIN MINOR Director
H. FRANKLIN MINOR
/s/ LYNNE B. SAGALYN Director
LYNNE B. SAGALYN
/s/ C. HARMON WILLIAMS, JR. Director
C. HARMON WILLIAMS, JR.
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBITS NUMBERED PAGES
<C> <S> <C>
2(a) Agreement and Plan of Merger dated as of October 1, 1996, between United
Dominion, Sub and South West
2(b) Agreement of Purchase and Sale dated July 1, 1996
4(a) Restated Articles of Incorporation of United Dominion
4(b)(i) Bylaws of United Dominion
4(b)(ii) Amendment to Bylaws of United Dominion
4(c) Specimen United Dominion Common Stock certificate
4(d) Loan Agreement dated as of November 7, 1991, between United Dominion and
Aid Association for Lutherans
4(e) Note Purchase Agreement dated as of January 15, 1993, between United
Dominion and CIGNA Property and Casualty Insurance Company, Connecticut
General Life Insurance Company, Connecticut General Life Insurance
Company, on behalf of one or more separate accounts, Insurance Company
of North America, Principal Mutual Life Insurance Company and Aid
Association for Lutherans
4(f) Credit Agreement dated as of December 15, 1994, between United Dominion
and First Union National Bank of Virginia
5 Opinion of Hunton & Williams
23(a) Consent of Ernst & Young LLP
23(b) Consent of Ernst & Young LLP
23(c) Consent of L. P. Martin & Company, P.C.
23(d) Consent of Dixon, Odom & Co., L.L.P.
23(e) Consent of Hunton & Williams
23(f) Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
23(g) Consent of Lehman Brothers Inc.
25 Powers of Attorney
99(a) Form of United Dominion proxy
99(b) Form of South West proxy
</TABLE>
II-4
EXHIBIT 5
HUNTON & WILLIAMS
RIVERFRONT PLAZA, EAST TOWER
951 EAST BYRD STREET
RICHMOND, VIRGINIA 23219-4074
FILE NO.: 27789.235
DIRECT DIAL: (804) 788-8267
October 9, 1996
Board of Directors
United Dominion Realty Trust, Inc.
10 South Sixth Street
Richmond, Virginia 23219
Registration Statement on Form S-4
22,845,000 Shares of Common Stock
Gentlemen:
We are acting as counsel for United Dominion Realty Trust, Inc. (the
"Company") in connection with the registration under the Securities Act of 1933
of 22,845,000 shares of Common Stock, $1 par value, of the Company (the
"Shares"). The Shares are described in the Registration Statement on Form S-4 of
the Company (the "Registration Statement") to be filed with the Securities and
Exchange Commission (the "Commission") on October 9, 1996. In connection with
the filing of the Registration Statement you have requested our opinion
concerning certain corporate matters.
We are of the opinion that:
1. The Company is a corporation duly organized and validly existing under
the laws of the Commonwealth of Virginia.
2. When the Shares have been issued in the merger transaction described in
the Registration Statement, the Shares will be legally issued, fully paid and
nonassessable.
We consent to the filing of this opinion with the Commission as an exhibit
to the Registration Statement and to the references to us in the Joint Proxy
Statement/Prospectus included therein.
Very truly yours,
HUNTON & WILLIAMS
33/33
EXHIBIT 23(A)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the Joint
Proxy/Prospectus of United Dominion Realty Trust, Inc. that is made a part of
the Registration Statement (Form S-4) and Prospectus of United Dominion Realty
Trust, Inc. for the registration of 22,845,000 shares of its common stock, and
to the incorporation by reference therein of our report dated January 25, 1996,
with respect to the consolidated financial statements and schedule of United
Dominion Realty Trust, Inc. included in its Annual Report (Form 10-K) for the
year ended December 31, 1995, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Richmond, Virginia
October 4, 1996
EXHIBIT 23(B)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the Joint
Proxy Statement/Prospectus of United Dominion Realty Trust, Inc. that is made a
part of the Registration Statement (Form S-4 dated October 9, 1996) and
Prospectus of United Dominion Realty Trust, Inc. for the registration of
22,845,000 shares of its common stock, and to the incorporation by reference
therein of our report dated January 30, 1996, with respect to the consolidated
financial statements and schedule of South West Property Trust Inc. included in
its Annual Report (Form 10-K) for the year ended December 31, 1995, filed with
the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Dallas, Texas
October 4, 1996
EXHIBIT 23(C)
[LETTERHEAD OF L.P. MARTIN & COMPANY]
CONSENT OF L.P. MARTIN & COMPANY, P.C. INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" in the proxy
statement of United Dominion Realty Trust, Inc. that is made a part of the
Registration Statement (Form S-4) and Prospectus of United Dominion Realty
Trust, Inc. for the registration of 22,845,000 shares of its Common Stock and to
the incorporation by reference therein of (a) our reports dated May 24, 1995
with respect to the combined statement of rental operations of Brittingham
Square Apartments, The Greens at Cedar Chase Apartments, The Greens at Cross
Court Apartments, The Greens at Falls Run Apartments, The Greens at Hilton Run
Apartments, The Greens at Hollymead Apartments, The Greens at Schumaker Pond
Apartments, The Greens of Constant Friendship Apartments and The Manor at
England Run Apartments, included in United Dominion Realty Trust's Current
Report on form 8-K dated June 30, 1995 for the year ended December 31, 1994,
filed with the Securities and Exchange Commission and (b) our report dated
November 21, 1995, with respect to the statement of rental operations of Hunters
Ridge at Walden Lake Apartments, our report dated December 5, 1995 with respect
to the statement of rental operations of Marble Hill Apartments, our report
dated December 6, 1995, with respect to the statement of rental operations of
Mallards of Wedgewood Apartments, and our report dated December 7, 1995, with
respect to the statement of rental operations of Andover Place Apartments,
included in United Dominion Realty Trust's Current Report on Form 8-K dated
December 28, 1995 for the year ended December 31, 1994, filed with the
Securities and Exchange Commission.
/s/ L. P. MARTIN & COMPANY, P.C.
L.P. MARTIN & COMPANY, P.C.
Certified Public Accountants
Richmond, Virginia
October 8, 1996
EXHIBIT 23(D)
[LETTERHEAD OF DIXON, ODOM & CO., L.L.P.]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in the Proxy
Statement of United Dominion Realty Trust, Inc., that is made a part of the
Registration Statement (Form S-4) and Prospectus of United Dominion Realty
Trust, Inc. for the registration of 22,845,000 shares of its Common Stock and to
the incorporation by reference therein of our report dated May 16, 1996, with
respect to the combined statement of rental operations of the Properties
included in its Current Report on Form 8-K dated August 15, 1996, filed with the
Securities and Exchange Commission.
/s/ DIXON, ODOM & CO., L.L.P.
DIXON, ODOM, & CO., L.L.P.
Greensboro, North Carolina
October 4, 1996
EXHIBIT 23(F)
CONSENT OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
We hereby consent to the use of our opinion letter to the Board of Directors of
United Dominion Realty Trust, Inc. ("United Dominion") included as Annex II-A to
the Joint Proxy Statement/Prospectus of United Dominion and South West Property
Trust Inc. and the Prospectus of United Dominion which form a part of the
Registration Statement on Form S-4 of United Dominion being filed with the
Securities and Exchange Commission and to the references therein to such opinion
under the captions "Summary" and "The Merger." In giving such consent, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder, nor do we
thereby admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BY: /S/ TIARDA VAN S. CLAGETT
Director
EXHIBIT 23(G)
CONSENT OF LEHMAN BROTHERS INC.
We hereby consent to the inclusion in the Proxy Statement/Prospectus forming
part of this Registration Statement of our opinion dated on or about September
30, 1996 to the Board of Directors of South West Property Trust, Inc., attached
as Appendix II-B to such Proxy Statement/Prospectus, and the references to such
opinion contained therein. In giving such consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (the "Securities Act"), and we do not thereby admit that we are
experts with respect to any part of this Registration Statement within the
meaning of the term "expert" as used in the Securities Act.
LEHMAN BROTHERS
BY: /S/ SPENCER B. HABER
