As filed with the Securities and Exchange Commission on January 30, 1998
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)
---------------
<TABLE>
<S> <C>
Virginia 6513 54-0857512
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
10 South Sixth Street
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
United Dominion Realty Trust, Inc.
10 South Sixth Street
Richmond, Virginia 23219-3802
(804) 780-2691
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
James W. Featherstone, III Robert S. Kant Jay L. Bernstein
Hunton & Williams O'Connor, Cavanagh, Anderson, Rogers & Wells
951 East Byrd Street Killingsworth & Beashears, P.A. 200 Park Avenue
Richmond, Virginia 23219-4074 One East Camelback Road, Suite 1100 New York, NY 10166
Phoenix, Arizona 85012-1656
</TABLE>
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. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]_____________________________
---------------------
If this form is a post-efffective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]____________________________________________________
-----------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Title of Each Proposed Proposed
Class of Maximum Maximum Maximum Amount of
Securities To Amount To Offering Price Aggregate Registration
Be Registered Be Registered Per Share (2) Offering Price (2) Fee
<S> <C>
Common Stock, $1 par
value .................. 8,412,714 shares (1) $13.96875 $117,515,099 $34,666.95
Rights to Purchase Series C
Junior Participating
Redeemable Preferred
Stock, no par value (3) ... 8,412,714 Rights N/A N/A N/A
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(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).
(3) The Rights will be attached to and trade with the Common Stock
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[ASR INVESTMENTS CORPORATION]
335 N. Wilmont, Suite 250
Tucson, Arizona 85711
February , 1998
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders
(the "Special Meeting") of ASR Investments Corporation ("ASR") to be held at
the Williams Center Courtyard Marriott, 201 S. Williams Boulevard, Tucson,
Arizona, on March , 1998 at 9:00 a.m., Arizona time (the "Special
Meeting").
At the Special Meeting, you will be asked to approve the merger (the
"Merger") of ASR into a wholly owned subsidiary of United Dominion Realty
Trust, Inc. ("United Dominion"). Pursuant to the Merger, which is more fully
described in the accompanying Proxy Statement/Prospectus, each share of ASR
Common Stock will be exchanged for 1.575 shares of United Dominion Common Stock
on a tax-free basis and ASR will pay a closing dividend in an amount that will
vary depending on the effective date of the Merger. Assuming consummation of
the Merger on March , 1998, ASR will pay a closing dividend of $0. per
share on that date, and ASR stockholders will also receive United Dominion's
regular dividend for the first quarter which is expected to be paid in April
1998. The exchange of ASR Common Stock for United Dominion Common Stock will be
made on a tax-free basis. The enclosed Proxy Statement/Prospectus sets forth
detailed information, including financial data, relating to the the Merger.
United Dominion was founded in 1972 and is the second largest apartment
REIT in the United States. At September 30, 1997, United Dominion owned 61,099
completed apartment homes in 220 apartment communities. United Dominion has
increased its annual dividends each year for the last 20 years and has
increased its funds from operations ("FFO") in nine of the last ten years. At
September 30, 1997, United Dominion had a market equity of approximately $1.6
billion and total market capitalization of approximately $2.7 billion. Its
Common Stock is traded on the New York Stock Exchange under the symbol "UDR,"
and the average daily trading volume for the 90 trading days prior to December
19, 1997 was 209,501 shares.
ASR's Board of Directors has carefully reviewed and considered the terms
of the Merger and believes it to be fair to, and in the best interest of, ASR's
stockholders. The Board believes that the Merger offers ASR's stockholders an
opportunity to take advantage of the general trend in the real estate industry
towards consolidation by offering them participation in a much larger, more
geographically diversified and better capitalized REIT with greater potential
for long-term appreciation and improved access to debt and equity capital
markets. Additionally, the exchange ratio was more favorable than the then
current market price of ASR Common Stock at the date of the Merger Agreement.
ASR's Board has received a fairness opinion from Furman Selz LLC ("Furman
Selz"), originally dated December 19, 1997 and subsequently updated to the date
of this Proxy Statement/Prospectus , to the effect that as of such dates and
based on the assumptions and subject to qualifications and limitations set
forth therein, the consideration to be received by ASR's stockholders in the
Merger is fair to the ASR stockholders from a financial point of view.
The Board of Directors has carefully considered the terms of the Merger
Agreement and has unanimously approved the Merger Agreement as being fair to,
and in the best interests of, ASR and its stockholders. The Board of Directors
of ASR recommends that ASR's stockholders vote FOR the approval of the Merger
Agreement.
<PAGE>
Approval of the Merger requires an affirmative vote of two-thirds of the
shares of ASR Common Stock entitled to be voted at the Special Meeting. It is
important that your shares be represented at the Special Meeting, whether or
not you plan to attend. Accordingly, I urge you to complete, date and sign the
enclosed proxy and return it promptly in the enclosed postage-paid envelope
even if you plan to attend the Special Meeting. Your vote is important
regardless of the number of shares that you own. Your prompt return of the
completed proxy saves ASR the expense of costly additional proxy solicitation.
You may revoke your proxy if you decide to attend the Special Meeting and vote
in person. Should you require assistance in completing your proxy or if you
have any questions concerning the voting procedures or the Proxy
Statement/Prospectus, please feel free to contact Joseph Chan or myself at
(520) 748-2111.
Sincerely,
/s/ Jon A. Grove
JON A. GROVE
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE>
ASR INVESTMENTS CORPORATION
335 N. Wilmot, Suite 250
Tucson, AZ 85711
(520) 748-2111
NOTICE OF SPECIAL MEETING OF THE STOCKHOLDERS
TO BE HELD MARCH , 1998
Notice is hereby given that a special meeting of stockholders (the
"Special Meeting") of ASR Investments Corporation, a Maryland corporation
("ASR") will be held at the Williams Center Courtyard Marriott, 201 S. Williams
Boulevard, Tucson, Arizona, on March , 1998 at 9:00 a.m., Arizona time, for
the following purposes:
1. To consider and vote upon a proposal, as described in the Proxy
Statement/Prospectus accompanying this Notice, to approve and adopt the
Agreement and Plan of Merger, dated as of December 19, 1997, among ASR, United
Dominion Realty Trust, Inc., a Virginia corporation ("United Dominion"), and
ASR Acquisition Sub, Inc. ("ASRSub"), a Maryland corporation that is a wholly
owned subsidiary of United Dominion, pursuant to which, among other things: (i)
ASR will merge with ASRSub; and (ii) each outstanding share of ASR Common
Stock, $.01 par value, will be converted into the right to receive 1.575 shares
of United Dominion Common Stock, $1.00 par value, with cash in lieu of the
issuance of any fractional shares, all as described more fully in the
accompanying Proxy Statement/Prospectus.
2. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponement thereof.
Only holders of record of ASR Common Stock at the close of business on
January 23, 1998, the record date of the Special Meeting fixed by the Board of
Directors of ASR, are entitled to notice of and to vote at the Special Meeting
and any adjournments thereof. The approval of the Merger will require the
affirmative vote of two-thirds of the shares entitled to vote.
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 ASR 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,
/s/ Joseph C. Chan
JOSEPH C. CHAN
SECRETARY
Tucson, Arizona
February , 1998
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. PLEASE
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING
POSTAGE-PAID ENVELOPE OR VOTE VIA FASCIMILE SO THAT YOUR SHARES WILL BE
REPRESENTED AT THE MEETING. STOCKHOLDERS ATTENDING THE MEETING MAY VOTE
PERSONALLY, IN WHICH EVENT THE SIGNED PROXIES WILL BE REVOKED.
<PAGE>
-------------- --------------
PROXY STATEMENT PROSPECTUS
ASR Investments Corporation United Dominion Realty Trust, Inc.
Special Meeting of Stockholders Common Stock
-------------- --------------
This Proxy Statement/Prospectus is being furnished to the stockholders of
ASR Investments Corporation, a Maryland corporation ("ASR"), in connection with
the solicitation of proxies by the Board of Directors of ASR (the "ASR Board")
for use at the Special Meeting of Stockholders of ASR (including any
adjournments or postponements thereof) (the "Special Meeting"), to be held on
March , 1998 at the time and place set forth in the accompanying notice. Only
stockholders of record as of the close of business on January 23, 1998, the
record date of the Special Meeting, are entitled to notice of and to vote at
the Special Meeting. This Proxy Statement also constitutes a Prospectus of
United Dominion.
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve and adopt the Agreement and Plan of Merger, dated as of December 19,
1997 (the "Merger Agreement"), among ASR, United Dominion Realty Trust, Inc., a
Virginia corporation ("United Dominion"), and ASR Acquisition Sub, Inc.
("ASRSub"), a Maryland corporation that is a wholly owned subsidiary of United
Dominion. The merger and other transactions contemplated by the Merger
Agreement are collectively referred to as the "Merger." The Merger Agreement
(exclusive of exhibits and schedules) is attached to this Proxy
Statement/Prospectus as Appendix I.
The Merger Agreement provides that ASR will merge with ASRSub, and each
share of Common Stock, $.01 par value, of ASR ("ASR Common Stock") will be
converted into the right to receive 1.575 shares of Common Stock, $1.00 par
value, of United Dominion ("United Dominion Common Stock"), with cash in lieu
of the issuance of any fractional shares. The Merger Agreement also provides
that ASR will pay a closing dividend in an amount that will vary depending on
the effective date of the Merger. Assuming consummation of the merger on
March , 1998, the closing dividend will be $ per share. ASR stockholders
will also receive United Dominion's regular first quarter dividend which is
expected to be paid in April 1998.
Based on the closing price of United Dominion Common Stock on the New York
Stock Exchange (the "NYSE") of $ per share on February , 1998, if the
Merger is consummated, the total market value of United Dominion will be
approximately $ billion. Based on the number of shares of United Dominion
and ASR outstanding on that date, approximately % of the shares of United
Dominion expected to be outstanding immediately after the Merger will be held
by ASR stockholders. Based on the exchange ratio and the closing price of
United Dominion Common Stock on that date, each ASR stockholder will receive in
the Merger United Dominion Common Stock worth $ for each share of ASR
Common Stock owned on that date. See "THE MERGER" for a description of the
Merger Agreement.
This Proxy Statement/Prospectus also constitutes a Prospectus of United
Dominion in respect of the shares of United Dominion Common Stock to be issued
to the stockholders of ASR 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 Proxy Statement/Prospectus relating to
United Dominion and its subsidiaries has been supplied by United Dominion, and
all information relating to ASR and its subsidiaries has been supplied by ASR.
This Proxy Statement/Prospectus and the accompanying proxy card are first being
mailed to the stockholders of ASR on or about February , 1998.
For certain factors which should be considered in evaluating the Merger
Agreement and the transactions contemplated thereby, including the Merger, see
"RISK FACTORS" beginning on page 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
The date of this Proxy Statement/Prospectus is
February , 1998
<PAGE>
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 Proxy Statement/Prospectus, and if given or made, such
information or representation must not be relied upon. This 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 Proxy Statement/ Prospectus at any time
does not imply that the information herein is correct as of any time subsequent
to the date hereof.
TABLE OF CONTENTS
Page
-----
FORWARD-LOOKING STATEMENTS ........................ 1
AVAILABLE INFORMATION .............................. 1
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE ........................ 1
SUMMARY ............................................. 3
RISK FACTORS ....................................... 7
Stock Price Fluctuations ........................ 7
Dividend ....................................... 7
Break-up Fees and Other Payments ............... 7
Benefits to Certain ASR Directors and
Officers; Possible Conflicts of Interest ...... 7
Dissimilar Nature of Investment and Terms
of Shares .................................... 7
Real Estate Investment Risks ..................... 8
Illiquidity of Real Estate ..................... 8
Dependence on Sunbelt Regions .................. 8
Operating Risks ................................. 8
Future Acquisitions .............................. 8
Development Risks .............................. 9
Possible Environmental Liabilities ............... 9
Uninsured Loss ................................. 10
Americans with Disabilities Act .................. 10
Fair Housing Amendments of 1988 .................. 10
Future Offerings of Common Stock ............... 10
Adverse Consequences of Failure to Qualify
as a REIT .................................... 10
Competition .................................... 11
Ownership Limits ................................. 11
Change in Policies .............................. 12
EQUIVALENT PER SHARE DATA ........................... 13
SUMMARY HISTORICAL AND UNAUDITED
PRO FORMA COMBINED FINANCIAL
DATA ............................................. 16
THE SPECIAL MEETING ................................. 21
THE MERGER .......................................... 22
Background of and Reasons for the Merger ......... 22
Exchange Ratio ................................. 27
Opinions of Financial Advisors .................. 27
Dividends ....................................... 30
Exchange for United Dominion Common
Stock .......................................... 30
Management and Operations After the
Merger ....................................... 31
Conditions to Consummation of the Merger ......... 31
Conduct of Business Pending the Merger ......... 31
Employee Matters ................................. 32
Waiver and Amendment ........................... 33
Termination of Merger Agreement .................. 33
Interests of Certain Persons in the Merger ...... 35
Effective Time of the Merger ..................... 35
Headquarters .................................... 36
Certain Federal Income Tax Consequences ......... 36
Accounting Treatment ........................... 36
Resales of United Dominion Common Stock ......... 37
Other Related Transactions ..................... 37
DISSENTERS' RIGHTS ................................. 37
Page
-----
UNITED DOMINION -- UNAUDITED PRO
FORMA COMBINED FINANCIAL
STATEMENTS ....................................... 38
BUSINESS OF UNITED DOMINION ........................ 49
BUSINESS OF ASR .................................... 52
COMPARATIVE RIGHTS OF
SHAREHOLDERS ....................................... 58
Capitalization ................................. 58
Voting Rights .................................... 58
Directors ....................................... 59
Anti-Takeover Provisions ........................ 59
REIT Qualification Provisions .................. 61
Preemptive Rights .............................. 62
Assessment ....................................... 62
Conversion; Redemption; Sinking Fund ............ 62
Liquidation Rights .............................. 62
Dividends and Other Distributions ............... 63
Special Meetings of Shareholder .................. 64
Indemnification ................................. 64
Director Liability .............................. 65
FEDERAL INCOME TAX
CONSIDERATIONS ................................. 65
Tax Considerations Relating to the Merger ...... 65
Taxation of United Dominion and ASR ............ 66
Requirements for Qualification .................. 67
Failure to Qualify .............................. 70
Taxation of Taxable U.S. Shareholders ............ 71
Taxation of Shareholders on the Disposition
of Common Stock .............................. 72
Capital Gains and Losses ........................ 72
Information Reporting Requirements and
Backup Withholding ........................... 72
Taxation of Tax-Exempt Shareholders ............ 72
Taxation of Non-U.S. Shareholders ............... 73
Other Tax Consequences ........................... 74
Tax Aspects of the Operating Partnership and
the ASR Operating Partnership .................. 74
Classification as a Partnership .................. 75
EXPERTS ............................................. 76
LEGAL OPINIONS .................................... 76
OTHER MATTERS ....................................... 77
Appendix I -- Agreement and Plan of Merger . I-1
Appendix II -- Opinion of Furman Selz LLC ......... II-1
i
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements and information contained or incorporated by reference
in this Proxy Statement/Prospectus are 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," "believe," "expect," "anticipate," "estimate," "project" or
"continue" or the negative thereof or other comparable terminology. By their
nature, forward-looking statements are subject to certain risks, uncertainties,
and assumptions. Should one or more of these risks or uncertainties materialize
or should underlying assumptions prove incorrect, actual results may vary
materially from those expressed or implied by such forward-looking statements.
Although United Dominion and ASR believe that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, it can give no
assurance that its expectations will be achieved.
AVAILABLE INFORMATION
Both United Dominion and ASR 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 ASR 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. Such reports, proxy statements and other information filed by
United Dominion can also be inspected and copied at the offices of the NYSE, 20
Broad Street, New York, New York 10005, and those filed by ASR can also be
inspected and copied at the offices of the American Stock Exchange at 86
Trinity Place, New York, New York 10006-1881. Copies of such materials 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 United Dominion, ASR and other
registrants that have been filed electronically with the Commission. The
address of such site is http://www.sec.gov.
This Proxy Statement/Prospectus incorporates documents by reference which
are not described herein or delivered herewith. Documents relating to United
Dominion are available upon request from Investor Relations, United Dominion
Realty Trust, Inc., 10 South Sixth Street, Richmond, Virginia 23219-3801
(telephone 804/780-2691; fax 804/343-1912). Documents relating to ASR are
available upon request from Investor Relations, ASR Investments Corporation,
335 N. Wilmot, Suite 250, Tucson, Arizona 85711 (telephone 520/748-2111; fax
520/750-8865). In order to ensure timely delivery of the documents, any request
should be made by , 1998.
This 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 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.
All information contained in this Proxy Statement/Prospectus relating to
ASR and its subsidiaries has been supplied by ASR. All information contained in
this Proxy Statement/Prospectus relating to United Dominion and its
subsidiaries has been supplied by United Dominion.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
ASR hereby incorporates by reference in this Proxy Statement/Prospectus
the following documents (File No. 1-9646) previously filed by ASR with the
Commission pursuant to the Exchange Act: (i) ASR's annual report on Form 10-K
for the year ended December 31, 1996 filed on March 28, 1997; (ii) the
description of ASR Common Stock contained in the registration Statement on Form
8-A dated July 31, 1987, filed under the Exchange Act, including any amendment
or reports filed for the purpose of updating such description, (iii) ASR's
quarterly report on Form 10-Q for the quarter ended March 31, 1997 filed on May
14, 1997; (iv) ASR's quarterly report on Form 10-Q for the quarter ended June
30, 1997 filed on August 13, 1997; (v) ASR's quarterly report on Form 10-Q for
the quarter ended September 30, 1997 filed on November 12, 1997; (vi) ASR's
Current Report
1
<PAGE>
on Form 8-K filed on May 15, 1997, as amended on Form 8-K/A filed on June 16,
1997; (vii) ASR's Current Report on Form 8-K filed on June 18, 1997; (viii)
ASR's Current Report on Form 8-K filed on August 28, 1997; (ix) ASR's Current
Report on Form 8-K filed on September 29, 1997, (x) ASR's Current Report on
Form 8-K filed on October 15, 1997, and (xi) ASR's Current Report on Form 8-K
filed on November 6, 1997, as amended on Form 8-K/A filed on January 6, 1998.
United Dominion hereby incorporates by reference in this Proxy
Statement/Prospectus the following documents (File No. 1-10524) previously
filed by United Dominion with the Commission under the Exchange Act: (i) United
Dominion's annual report on Form 10-K for the year ended December 31, 1996
filed on March 31, 1997; (ii) United Dominion's quarterly report on Form 10-Q
for the quarter ended March 31, 1997 filed on May 15, 1997; (iii) United
Dominion's quarterly report on Form 10-Q for the quarter ended June 30, 1997
filed on August 14, 1997; (iv) United Dominion's quarterly report on Form 10-Q
for the quarter ended September 30, 1997 filed on November 14, 1997; (v) United
Dominion's current report on Form 8-K dated December 31, 1996 filed on January
15, 1997, as amended on Form 8-K/A filed on March 18, 1997; (vi) United
Dominion's current report on Form 8-K dated January 21, 1997 filed on January
21, 1997; (vii) United Dominion's current report on Form 8-K dated July 1, 1997
filed on July 15, 1997, as amended on Form 8-K/A filed on September 15, 1997;
(viii) United Dominion's current report on Form 8-K dated October 21, 1997
filed on November 5, 1997, as amended on Form 8K/A filed on December 31, 1997;
and (ix) 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.
All reports and other documents subsequently filed by ASR or United
Dominion pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this Proxy Statement/Prospectus and prior to the Special
Meeting shall be deemed to be incorporated by reference herein and to be a part
hereof from the date of filing of such reports and documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein prior to the date hereof shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement/Prospectus.
The information relating to ASR and its subsidiaries and United Dominion
and its subsidiaries contained in this Proxy Statement/ Prospectus summarizes,
is based upon, or refers to, information and financial statements contained in
one or more of the documents incorporated by reference herein; accordingly,
such information contained herein is qualified in its entirety by reference to
such documents and should be read in conjunction therewith.
2
<PAGE>
SUMMARY
The following summary is not intended to be a complete description of all
material information regarding United Dominion, ASR or the matters to be
considered at the Special Meeting. This summary is qualified in all respects by
the more detailed information appearing elsewhere or incorporated by reference
in this Proxy Statement/ Prospectus, the Appendices hereto and the documents
referred to herein. Unless otherwise defined herein, capitalized terms used in
this summary are defined elsewhere in this Proxy Statement/Prospectus.
Principal Parties to the Merger 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 the ownership and operation of apartment communities
located primarily in the Sunbelt region of the United States. United Dominion
is a fully integrated real estate company with acquisition, development and
property management capabilities. At September 30, 1997, United Dominion's
portfolio consisted of 220 apartment communities containing 61,099 apartment
homes, five other properties and one parcel of undeveloped land. United
Dominion's apartment portfolio also included one apartment community containing
360 apartment homes under development and five additions to existing apartment
communities that, when completed, will add an additional 556 apartment homes to
its portfolio. Its Common Stock is listed on the New York Stock Exchange under
the symbol "UDR."
United Dominion's principal executive offices are located at 10 South
Sixth Street, Richmond, Virginia 23219-3802, and its telephone number is (804)
780-2691. Unless the context otherwise requires, the term "United Dominion"
means United Dominion Realty Trust, Inc. and its subsidiaries. For further
information concerning United Dominion, see "BUSINESS OF UNITED DOMINION."
ASR. ASR, a Maryland corporation headquartered in Tucson, Arizona, is a
self-administered, self-managed apartment REIT operating in the Southwest and
Northwest regions of the United States. ASR commenced operations on August 26,
1987. At September 30, 1997, ASR's portfolio consisted of 40 apartment
communities containing 7,449 units and one office building. Prior to 1994, ASR
invested in mortgage assets. In early 1993, ASR determined to shift its focus
to the acquisition, development and operation of apartment communities. Its
Common Stock is listed on the American Stock Exchange under the symbol "ASR."
The principal executive offices of ASR are located at 335 N. Wilmot, Suite
250, Tucson, Arizona 85711, and its telephone number is (520) 748-2111. Unless
the context otherwise requires, the term "ASR" means ASR Investments
Corporation, its subsidiaries and Heritage Communities L.P. (the "ASR Operating
Partnership") in which ASR and a wholly owned subsidiary are the sole general
partners and own approximately 63% interest therein. For further information
concerning ASR, see "BUSINESS OF ASR."
Special Meeting
A special meeting of stockholders of ASR (the "Special Meeting") will be
held on March , 1998, at 9:00 a.m., Arizona time, at the Williams Center
Courtyard Marriott, 201 S. Williams Center Boulevard., Tucson, Arizona. The
purpose of the Special Meeting is to consider and vote upon a proposal to
approve the Merger Agreement. See "THE SPECIAL MEETING" and "THE MERGER."
Record Dates; Votes Required
Only holders of record of ASR Common Stock at the close of business on
January 23, 1998 (the "Record Date") are entitled to notice of and to vote at
the Special Meeting. As of the Record Date, there were 4,990,057 shares of ASR
Common Stock outstanding, each of which will be entitled to one vote on each
matter to be acted upon or which may properly come before the Special Meeting.
The presence of stockholders at the Special Meeting, in person or by proxy,
entitled to cast a majority of all votes entitled to be cast at such meeting
will constitute a quorum. The affirmative vote of two-thirds of the shares of
ASR Common Stock entitled to vote is required to approve the Merger Agreement.
As of the Record Date, the directors and executive officers of ASR and
their affiliates beneficially owned a total of 363,192 shares, or approximately
7.3% of the outstanding shares of ASR Common Stock. The directors and executive
officers of United Dominion and their affiliates beneficially owned, a total of
less than 1% of the outstanding shares of ASR Common Stock as of the Record
Date. See "THE SPECIAL MEETING -- Vote Required."
3
<PAGE>
Recommendation of the ASR Board of Directors
ASR's Board of Directors has unanimously approved the Merger and the
Merger Agreement and recommends that ASR stockholders vote FOR approval of the
Merger Agreement. In making its recommendation, the ASR Board has considered,
among other things, the opinion of Furman Selz that the consideration to be
received by ASR stockholders is fair to ASR stockholders from a financial point
of view. See "THE MERGER -- Background of and Reasons for the Merger" and "THE
MERGER -- Opinion of Financial Advisor."
Background of and Reasons for the Merger
The ASR Board believes that the Merger is fair to and in the best interest
of ASR's stockholders for the following reasons: (i) the implied value of the
ASR Common Stock, based on the Exchange Ratio, represented a 3.9% premium to
its closing price on December 19, 1997 and a 24% premium to its book value;
(ii) the Merger offers ASR stockholders an opportunity to take advantage of the
general trends in the real estate industry towards consolidation and to
participate in a much larger, better capitalized and more geographically
diversified REIT with potential for long-term growth and appreciation; (iii)
United Dominion's history of increasing its annual dividend rate every year for
the last 20 years and increasing its funds from operations per share in nine of
the past ten years; (iv) ASR stockholders will earn a higher amount of funds
from operations on the United Dominion shares than on the ASR shares; (v)
improved liquidity for ASR stockholders; (vi) the tax-free nature of the
Merger; (vii) the opinion of Furman Selz that the consideration to be received
by ASR stockholders is fair from a financial point of view; and (viii) the
election of Jon A. Grove, ASR's Chairman, President and Chief Executive Officer
to the United Dominion Board.
The ASR Board also considered certain potentially negative factors,
including (a) the possibility of a decrease in the price of United Dominion
Common Stock at the time of the Merger, thus reducing the value to be received
by ASR stockholders and (b) a reduction in the dividend to be received by ASR
stockholders after the Merger.
See "THE MERGER -- Background of and Reasons For the Merger -- Reasons For
the Merger."
The Merger
The Merger Agreement provides for the merger of ASR with ASR Acquisition
Sub, Inc. ("ASRSub"), a Maryland corporation that is a wholly owned subsidiary
of United Dominion. Upon consummation of the Merger, each share of ASR Common
Stock will be converted into the right to receive 1.575 shares of United
Dominion Common Stock, with cash in lieu of the issuance of any fractional
shares.
Exchange Ratio
Each outstanding share of ASR Common Stock will be converted into the
right to receive 1.575 shares of United Dominion Common Stock (the "Exchange
Ratio"), with cash in lieu of the issuance of any fractional shares. See "THE
MERGER -- Exchange Ratio."
Based on the Exchange Ratio, United Dominion will (i) issue 7,859,340
shares of United Dominion Common Stock in exchange for the 4,990,057
outstanding shares of ASR Common Stock, (ii) reserve 1,529,990 shares of United
Dominion Common Stock for issuance upon the conversion of the currently
outstanding limited partnership interests (971,422 LP Units) in the ASR
Operating Partnership, and (iii) reserve 553,374 shares of United Dominion
Common Stock for issuance upon the exercise of 351,349 currently outstanding
ASR stock options (the "ASR Stock Options"). Based on the closing price of
United Dominion Common Stock on the NYSE on February , 1998 of $ per
share, the total market value of United Dominion will be approximately
$ billion immediately following the Merger. Based on the Exchange
Ratio and the number of shares of United Dominion Common Stock and ASR Common
Stock outstanding on that date and assuming the conversion of all LP Units in
the ASR Operating Partnership and the exercise of all ASR Stock Options,
approximately % of the shares expected to be outstanding immediately after
the Merger will be held by ASR stockholders, limited partners in the ASR
Operating Partnership and ASR stock optionees.
Dividend
ASR will also pay a closing dividend in an amount that will vary depending
on the effective date of the Merger. Assuming the Merger is consummated on
March , 1998, ASR stockholders will receive a closing
4
<PAGE>
dividend of $. per share. ASR stockholders will, by becoming United Dominion
shareholders after the Merger, receive United Dominion's first quarter dividend
expected to be paid in April 1998. See "THE MERGER -- Dividends".
Opinion of Financial Advisor
ASR has received the opinion of Furman Selz at the meeting of the ASR
Board on December 19, 1997, updated as of February , 1998, that, as of such
dates, the Exchange Ratio is fair to holders of ASR Common Stock from a
financial point of view. A copy of Furman Selz's opinion is attached hereto as
Appendix II. See "THE MERGER -- Opinion of Financial Advisor," which also
contains a discussion of the fees paid to Furman Selz.
Risk Factors
In deciding whether to approve the Merger and, as a result, to acquire the
United Dominion Common Stock, ASR's stockholders should consider the
information set forth under "RISK FACTORS."
Effective Time of the Merger
The Merger will become effective as promptly as practicable after the
requisite stockholder approval has been obtained and all other conditions to
the Merger have been satisfied or waived. For state law purposes, the Merger
will become effective at such time as Articles of Merger have been duly filed
with the Department of Assessments and Taxation of Maryland in accordance with
the Maryland General Corporation Law (the "MGCL"), or at such other time as
United Dominion and ASR shall specify in the Articles of Merger (the "Effective
Time"). ASR and United Dominion have agreed to cause the Effective Time to occur
no later than the second business day after satisfaction or waiver of the
conditions to consummation of the Merger. See "THE MERGER -- Effective Time of
the Merger."
Conditions to Consummation
Consummation of the Merger is subject to satisfaction or waiver of certain
conditions, including (i) ASR obtaining the requisite stockholder approval and
(ii) receipt by United Dominion and ASR of opinions of counsel that the Merger
will qualify as a tax-free reorganization under Section 368(a)(1) of the
Internal Revenue Code of 1986, as amended (the "Code"). See "THE MERGER --
Conditions to Consummation of the Merger."
Termination
The Merger may be terminated by ASR or United Dominion at any time prior to
the Effective Time under certain circumstances, whether before or after the
approval of the Merger Agreement by ASR stockholders. Termination of the Merger
under certain circumstances may result in one of the parties being required to
pay the other party a termination or break-up fee of $5.5 million. In addition,
if United Dominion terminates the Merger Agreement upon a breach of any
representation, warranty, covenant or agreement on the part of ASR set forth in
the Merger Agreement, or if any representation or warranty of ASR shall have
become untrue, in either case such that the conditions set forth in the Merger
Agreement would be incapable of being satisfied by June 30, 1998 (or as
otherwise extended), and the resulting Economic Losses (as defined in the Merger
Agreement) would exceed $4 million; ASR is required to reimburse United Dominion
for out-of-expenses of up to $1 million. See "THE MERGER -- Termination."
Dissenters' Rights
ASR stockholders are not entitled to stockholders' appraisal rights under
Maryland law; i.e., they may not demand the fair value of their stock and will
be bound by the terms of the Merger Agreement. See "DISSENTERS' RIGHTS."
Certain Differences in the Rights of Stockholders
The rights of stockholders of ASR are currently governed by the MGCL,
ASR's Amended and Restated Articles of Incorporation , as amended (the "ASR
Articles"), and ASR's Bylaws, as amended (the "ASR Bylaws"). Upon consummation
of the Merger, ASR stockholders who receive United Dominion Common Stock will
become shareholders of United Dominion, and their rights will be governed by
the Virginia Stock Corporation Act ("VSCA") and the Articles of Incorporation,
as amended (the "United Dominion Articles"), and Bylaws of United Dominion. See
"COMPARATIVE RIGHTS OF SHAREHOLDERS."
5
<PAGE>
Federal Income Tax Consequences of the Merger
The Merger is intended to qualify as a tax-free reorganization under
Section 368(a)(1) of the Code, with the result that ASR stockholders will not
recognize gain or loss on the exchange of ASR Common Stock for United Dominion
Common Stock, except with respect to the receipt of cash in lieu of fractional
shares and any dividends paid by ASR at the consummation of the Merger. ASR and
United Dominion have received opinions of counsel as to the qualification of the
Merger as a tax-free reorganization and with respect to certain other federal
income tax matters. A condition to consummation of the Merger is the receipt by
each of United Dominion and ASR of opinions of counsel reaffirming such
opinions. See "THE MERGER -- Conditions to Consummation of the Merger" and "THE
MERGER -- Certain Federal Income Tax Consequences."
Accounting Treatment
The Merger will be accounted for using the purchase method in accordance
with Accounting Principles Board Opinion No. 16. See "THE MERGER -- Accounting
Treatment."
Conduct of Business Pending the Merger
Subject to certain exceptions, the Merger Agreement requires each of
United Dominion and ASR 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. See "THE MERGER --
Conduct of Business Pending the Merger."
Management, Operations and Headquarters After the Merger
Following the Merger, the Board of Directors of United Dominion will
consist of the 12 current United Dominion directors and Jon A. Grove, Chairman,
President and Chief Executive Officer of ASR, and the executive officers of
United Dominion will consist of the current United Dominion executive officers.
See "THE MERGER -- Management and Operations After the Merger." The
headquarters of United Dominion will continue to be located in Richmond,
Virginia.
Interests of Certain Persons in the Merger
Certain directors and executive officers of ASR have interests in the
Merger in addition to their interests as stockholders of ASR. These include,
among other things, provisions in the Merger Agreement relating to the
appointment of Mr. Grove to the Board of United Dominion and their rights under
current ASR employment agreements and employee benefit plans that are triggered
by the Merger. See "THE MERGER -- Interests of Certain Persons in the Merger."
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 received by
persons who may be deemed to be "affiliates" under applicable federal
securities laws (generally including directors, certain executive officers and
10% or more stockholders) of ASR or United Dominion. United Dominion will
receive the written agreements of the "affiliates" of ASR 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."
Other Related Transactions
Upon consummation of the Merger, United Dominion will (i) make provision
such that limited partners in the ASR Operating Partnership will be entitled to
receive, upon conversion of the LP Units, 1.575 shares of United Dominion
Common Stock for each LP Unit and (ii) assume the rights and obligations of ASR
under certain registration rights agreements with limited partners in the ASR
Operating Partnership.
6
<PAGE>
RISK FACTORS
Information contained or incorporated by reference in this 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,"
"believe," "expect," "anticipate," "estimate," "project" or "continue" or the
negative thereof or other comparable terminology. The following matters and
certain other factors noted throughout this 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 the actual results to differ materially from
those predicted in any such forward-looking statements.
In considering whether to approve the Merger Agreement, ASR stockholders
should carefully consider, in addition to the other information in this Proxy
Statement/Prospectus, the following matters:
Stock Price Fluctuations
The relative stock prices of United Dominion Common Stock and ASR Common
Stock at the Effective Time of the Merger may vary significantly from the
prices as of the date of the Merger Agreement, the date hereof or the date of
the Special Meeting as a result of changes in the business, operations and
prospects of United Dominion or ASR, market assessments of the likelihood that
the Merger will be consummated and the timing thereof, general market and
economic conditions and other factors. In addition, the market price of United
Dominion Common Stock in the future could be subject to wide fluctuations in
response to quarterly variations in United Dominion's operating results,
changes in analysts' estimates of United Dominion's financial performance,
actual or perceived sales of United Dominion Common Stock by ASR stockholders
following the Merger, actual and anticipated dividend payments, prevailing
interest rates, general industry conditions, changes in the real estate market,
local economic factors, governmental regulations, modifications of tax laws or
tax rates, and other events and factors. An increase in market interest rates
may lead purchasers of United Dominion Common Stock to demand a higher yield on
the price paid for shares from dividend distribution.
Dividend
ASR stockholders will receive a lower amount of dividend on United
Dominion Common Stock to be received upon the exchange for their ASR Common
Stock. Based on United Dominion's dividend for 1997 and the Exchange Ratio, the
dividend on the United Dominion Common Stock in exchange for one share of ASR
Common Stock would be $1.59, which is lower than the current ASR annual
dividend rate of $2.00 per share. There is no assurance that United Dominion
will maintain its current dividend rate.
Break-up Fees and Other Payments
The Merger can be terminated under certain specified circumstances,
including the failure by either ASR or United Dominion to fulfill its
obligations, the failure of ASR to obtain the requisite votes of its
stockholders, the withdrawal by the ASR Board of its recommendation to the ASR
stockholders, and the execution of a definitive agreement by ASR for a merger
with another entity. See "THE MERGER -- Conditions to Consummation of the
Merger." If ASR terminates the Merger, ASR will be required to pay United
Dominion termination expenses or break-up fees under certain circumstances. See
"THE MERGER -- Termination."
Benefits to Certain ASR Directors and Officers; Possible Conflicts of Interest
In considering the recommendation of the ASR Board with respect to the
Merger Agreement and the transactions contemplated thereby, ASR stockholders
should be aware that certain directors and officers of ASR have certain
interests in the Merger that are in addition to the interests of stockholders
of ASR generally. See "THE MERGER -- Interests of Certain Persons in the
Merger."
Dissimilar Nature of Investment and Terms of Shares
The rights of ASR stockholders are presently governed by Maryland law, the
ASR Articles and the ASR Bylaws. After consummation of the Merger, the rights
of the holders of shares of ASR Common Stock that are
7
<PAGE>
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
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 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, 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 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.
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 federal
income tax laws place limits on United Dominion's ability to sell properties
held for less than four years, which may affect United Dominion's ability to
sell properties without adversely affecting returns to shareholders.
Dependence on Sunbelt Regions
United Dominion's current portfolio consists entirely of multifamily
residential properties with a large portion located in the Southeastern and
Southwestern Sunbelt states. ASR's portfolio, to which United Dominion will
succeed as a result of the Merger, consists primarily of multifamily
residential properties located primarily in the Southwestern Sunbelt states.
The performance of the combined portfolio may depend on economic conditions and
the market for apartments in those regions.
Operating Risks
United Dominion's and ASR's properties are subject to the operating risks
common to apartment communities in general. These risks include competition
from other apartment communities and alternative housing and new construction
of competing properties or increases in unemployment in the areas in which
United Dominion's and ASR's properties are located, either or both of which may
adversely affect occupancy or rental rates; increases in operating costs
resulting from inflation and other factors, which may not necessarily be offset
by increased rents; the inability or unwillingness of residents to pay rent
increases; future enactment of rental control laws or other laws regulating
multifamily housing, including current and possible future laws relating to
access by disabled persons; and disagreements with joint venture partners or
other real estate co-investors. If operating expenses increase, the local
rental market may limit the extent to which rents may be increased to meet
increased expenses without resulting in decreased occupancy rates. The
occurrence of any of these factors could adversely affect United Dominion's
operating performance and its distributions to stockholders.
Future Acquisitions
In the normal course of business, United Dominion continually evaluates a
number of potential acquisitions and acquires additional properties. No
assurance can be given, however, that United Dominion will be able to continue
to make suitable property acquisitions on terms favorable to it. Expansion into
new markets may present operating and marketing challenges that are different
from those in existing markets. Several of ASR's properties are located in
markets where United Dominion has not historically managed properties. There
can be no
8
<PAGE>
assurance that United Dominion will anticipate all of the changing demands that
expanding operations will impose on its management.
Development Risks
United Dominion seeks selective opportunities for development. The real
estate development business involves significant risks in addition to those
involved in the acquisition, ownership, and operation of established apartment
communities. The development risks include the availability of construction
financing on favorable terms, construction delays, construction costs in excess
of the budgeted amounts, the achievement and maintenance of anticipated rental
rates and occupancy levels in the market, availability of long-term permanent
financing upon completion, shortages of materials or skilled labor, labor
disputes, unforeseen environmental or engineering problems, work stoppages,
fire and other natural disasters, and weather interferences. New development
activities, regardless of their ultimate success, typically require a
substantial amount of management's time and attention. Development activities
also are subject to risks relating to the inability to obtain, or delays in
obtaining, all necessary zoning, land use, building, occupancy, and other
required governmental permits and authorizations.
Possible Environmental Liabilities
Under various federal, state, and local laws, ordinances and regulations,
an owner or operator of real estate may be held liable for the costs of removal
or remediation of certain hazardous or toxic substances located on or in the
property. These laws often impose such liability without regard to whether the
owner or operator knew of, or was responsible for, the presence of the
hazardous or toxic substances. The presence of such substances, or the failure
to remediate such substances properly, may adversely affect the owner's ability
to sell or rent the property or to borrow using the property as collateral. In
addition to investigation and clean-up actions brought by federal, state, and
local agencies, the presence of hazardous wastes on a property could result in
personal injury or similar claims by private plaintiffs. Neither United
Dominion nor ASR has been notified by any governmental authority of any
noncompliance, liability, or other claim in connection with its properties.
Other federal and state laws require the removal of damaged asbestos-containing
material in the event of remodeling or renovation.
All of the current properties of United Dominion and ASR have been subject
to Phase I environmental site assessments (which involve inspection without
soil or groundwater analysis) and limited asbestos surveys by independent
environmental consultants. As a result of the findings of the Phase I
environmental assessments, a Phase II assessment involving soil and groundwater
testing was performed at four ASR properties by independent environmental
consultants. The assessments show that the groundwater at one of the properties
is contaminated. Based on the report of the environmental engineers, ASR
believes that the contamination has been caused by a nearby service station and
that the owner of the station has commenced clean-up procedures under the
direction of the local governmental authority. ASR has informed the local
governmental authority of the groundwater contamination and asked the authority
to expand the clean-up procedures to include ASR's property. ASR believes that
the environmental condition of this property will not have a material adverse
effect on its business or results of operations.
ASR has determined that there are minor amounts of asbestos-containing
materials ("ACMs") in five of its properties. ASR maintains an Operations and
Maintenance Program that details operating procedures with respect to ACMs
prior to any renovation and that requires periodic inspection by ASR's
employees for any change in condition of existing ACMs.
In addition, the site of an ASR apartment community in Tempe, Arizona was
formerly used for agricultural purposes, and a portion of the site was used as
the runway for a pesticide aerial application firm located adjacent to the
apartment site. The site of the pesticide aerial application firm is currently
a subject of remediation by the U.S. Environmental Protection Agency ("EPA")
and the Arizona Department of Environmental Quality ("ADEQ"). Extensive soil
tests on the apartment site revealed that a few samples contained minor amounts
of toxaphene above the regulatory level. ASR engaged an independent
environmental consulting firm to conduct a "site specific risk assessment" to
evaluate the potential threat to human health based on exposures and conditions
unique to the site. The consulting firm's report indicates that the potential
threat is minimal and no further action was necessary prior to the development
of the site as an apartment community. The EPA and ADEQ have
9
<PAGE>
not required ASR to take any remedial actions on the site. The agencies also
have not informed ASR of any regulatory actions on the site.
Neither United Dominion nor ASR is aware of any environmental liability
that it believes would have a material adverse effect on its businesses,
assets, or results of operations. No assurance, however, can be given that
these reports reveal all environmental liabilities, that any prior owner
created any material environmental condition not known to United Dominion or
ASR or that future uses and conditions (including changes in applicable
environmental laws and regulations) will not result in imposition of
environmental liability. In the event United Dominion discovers a material
environmental condition relating to any of the properties, it could be required
to expend substantial funds to remedy such condition.
Uninsured Loss
United Dominion carries comprehensive liability, fire, flood (where
applicable), extended coverage, and rental loss insurance with policy
specifications, limits, and deductibles customarily carried for similar
properties. There are, however, certain types of extraordinary losses (such as
losses resulting from earthquakes) that may be either uninsurable or not
economically insurable. Should an uninsured loss occur, or should the loss be
greater than the insurance coverage, United Dominion could lose its investment
in and anticipated profits and cash flow from a property but would continue to
be obligated on any mortgage indebtedness on the property.
Americans with Disabilities Act
United Dominion's and ASR's properties must comply with Title III of the
Americans with Disabilities Act (the "ADA") to the extent that the properties
are "public accommodations" and/or "commercial facilities" as defined by the
ADA. Compliance with the ADA requirements could require removal of structural
barriers to handicapped access in certain public access areas where such
removal is "readily achievable." The ADA does not, however, consider
residential properties, such as apartment communities, to be public
accommodations or commercial facilities, except to the extent portions of such
facilities, such as a leasing office, are open to the public. United Dominion
and ASR believe that their properties comply with all present requirements
under the ADA. Noncompliance with the ADA could result in imposition of fines
or an award of damages to private litigants. Further, if required changes
involve a greater expenditure than currently anticipated, or if the changes
must be made on a more accelerated basis than anticipated, operations could be
adversely affected. No specific regulations have been promulgated under the ADA
and, thus, it is uncertain how enforcement of the ADA would affect specific
building attributes.
Fair Housing Amendments Act of 1988
The Fair Housing Amendments Act of 1988 (the "FHA") requires multifamily
residential properties first occupied after March 13, 1991 to be accessible to
the handicapped. Noncompliance with the FHA could result in the imposition of
fines or an award of damages to private litigants. United Dominion and ASR
believe that their properties that are subject to the FHA are in compliance
with such law.
Future Offerings of Common Stock
United Dominion may increase its capital resources by making additional
offerings of its Common Stock or securities convertible into its Common Stock.
The actual or perceived effect of such offerings may be the dilution of the
book value or earnings per share of the Common Stock, which may result in the
reduction of the market price of the Common Stock.
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 United Dominion believes that it
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,
10
<PAGE>
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 which would cause the
obligations to become due and would have a negative impact on United Dominion's
operating results and its ability to pay dividends. In the opinion of Hunton &
Williams, commencing with the taxable year beginning on January 1, 1993, United
Dominion has been organized and operated, and its proposed method of operation
following the Merger will permit it to continue to be organized and operated,
in conformity with the requirements for qualification as a REIT under the Code.
ASR believes that, since its formation, it has operated so as to qualify as
a REIT under the Code. ASR has received an opinion of counsel from O'Connor,
Cavanagh, Anderson, Killingsworth & Beshears P.A. to the effect that (i) based
on the assumptions set forth therein commencing with the taxable year beginning
on January 1, 1993, ASR has been organized and operated in conformity with the
requirements for qualification as a REIT under the Code and (ii) the ASR
Operating Partnership and each ASR subsidiary that is a partnership or limited
liability company has been since its formation treated for federal income tax
purposes as a partnership. The failure of ASR to qualify as a REIT prior to the
Merger would have consequences to United Dominion shareholders generally similar
to the consequences of the failure by United Dominion to qualify as a REIT, as
described above. United Dominion will assume the risk of paying unpaid taxes of
ASR if ASR did not qualify as a REIT.
Competition
All of the properties of United Dominion and ASR are located in developed
areas. There are numerous other multifamily properties and real estate
companies, insurance companies and other financial institutions within the
market area of each such property that compete with such properties for tenants
and development and acquisition opportunities, some of whom may have greater
resources than United Dominion. The number of competitive multi family
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) during the last half of any taxable year. 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 are similar in effect to comparable
provisions of the ASR 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
11
<PAGE>
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.
Change in Policies
The major policies of United Dominion, including the policies with respect
to acquisition, development, disposition, financing, debt and equity
capitalization and distributions, are determined by the United Dominion Board.
The United Dominion Board may, from time to time, amend or revise these and
other policies without a vote of the shareholders of United Dominion.
Accordingly, shareholders will have no control over changes in these and
similar policies of United Dominion, and changes in policies may not serve the
interest of all shareholders of United Dominion.
12
<PAGE>
EQUIVALENT PER SHARE DATA
The following summary presents selected comparative unaudited per share
information for United Dominion and ASR on a historical basis and United
Dominion and ASR on a pro forma combined basis assuming the Merger had been
effective on January 1, 1996. ASR pro forma equivalent per share amounts are
presented with respect to pro forma information. Such per share amounts allow
comparison of historical information with respect to the value of one share of
ASR Common Stock to the corresponding information with respect to the projected
value of one share of ASR Common Stock as a result of the Merger and are
computed by multiplying the pro forma amounts by the Exchange Ratio of 1.575 to
1.
For each of United Dominion and ASR, income statement information for the
year ended December 31, 1996 and balance sheet information as of December 31,
1996 are based on, and should be read in conjunction with, the audited
consolidated financial statements of United Dominion and ASR 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 ASR and the
notes thereto incorporated herein by reference. In the opinion of the
respective managements of United Dominion and ASR, all adjustments necessary
for a fair presentation of results of interim periods of United Dominion and
ASR (which adjustments were of a normal recurring nature) have been included.
Results for United Dominion and ASR for the nine months ended September 30,
1997 are not necessarily indicative of results to be expected for the entire
fiscal year, nor are pro forma amounts necessarily indicative of results that
will be obtained on a combined basis.
13
<PAGE>
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, 1996 September 30, 1997
------------------- -------------------
<S> <C>
Net income per common share
Primary
United Dominion ....................................... $ .49 $ .50
ASR (A) ............................................. 2.80 2.28
United Dominion and ASR pro forma combined (C) ...... .49 .42
ASR pro forma equivalent (B) ........................ .77 .66
Fully diluted ..........................................
United Dominion .................................... $ .49 $ .50
ASR (A) ............................................. 2.80 2.28
United Dominion and ASR pro forma combined (C) ...... .49 .42
ASR pro forma equivalent (B) ........................ .77 .66
Weighted average common shares outstanding (000's)
Primary
United Dominion ....................................... 57,482 86,602
ASR (D) ............................................. 3,153 3,913
United Dominion and ASR pro forma combined ............ 89,364 94,461
Fully diluted ..........................................
United Dominion ....................................... 57,482 86,602
ASR (D) ............................................. 3,153 3,913
United Dominion and ASR pro forma combined ............ 89,364 94,461
Cash dividends declared per common share
United Dominion .......................................... $ .96 $ .7575
ASR ...................................................... 2.00 1.50
United Dominion and ASR pro forma combined ............... .96 .7575
ASR pro forma equivalent (B) ........................ 1.51 1.19
</TABLE>
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, 1996 September 30, 1997
------------------- -------------------
<S> <C>
Shareholders' equity (book value) per common share
(end of period)
United Dominion ................................. $ 9.09 $ 9.10
ASR ............................................. 12.74 16.00
United Dominion and ASR pro forma combined ...... 9.43 9.55
ASR pro forma equivalent (B) .................. 14.85 15.04
</TABLE>
Note:
(A) ASR's historical net income per share for the year ended December 31, 1996
and the nine months ended September 30, 1997 was primarily attributable to
the income from and gains on sales or redemptions of mortgage assets. The
income and gains amounted to $4.40 per share and $3.77 per share for the
nine months ended September 30, 1997 and the year ended December 31, 1996,
respectively. In June 1997, ASR sold all of its remaining mortgage assets.
The net income for periods after June 1997 is expected to be substantially
reduced as the ongoing operations of ASR will no longer reflect any
mortgage portfolio income.
14
<PAGE>
(B) The ASR pro forma equivalent is determined by multiplying the Exchange
Ratio (1.575) by the United Dominion and ASR pro forma combined per share
amounts so that the per share amounts are equated to the comparative
values for each share of ASR Common Stock.
(C) The historical results of operations of ASR for the nine months ended
September 30, 1997 and the year ended December 31, 1996 include $17.2
million ($4.40 per share) and $11.9 million ($3.77 per share),
respectively, of income from and gains on sales or redemptions of mortgage
assets. Such income has been eliminated in the Pro Forma Combined Results
of Operations as a result of ASR's decision to divest all mortgage assets.
See Note (C) to the Unaudited Pro Forma Combined Statements of Operations.
(D) Exclusive of a weighted average of 534,000 LP Units of the ASR Operating
Partnership for the nine months ended September 30, 1997. There were no LP
Units in 1996.
Market Prices Prior to Announcement of the Merger
The following table sets forth the per share price of United Dominion
Common Stock and ASR Common Stock based on the closing prices on the NYSE and
AMEX on December 19, 1997, the last trading day prior to public announcement of
the execution of the Merger Agreement, and on February , 1998, the most
recent date for which prices are available prior to mailing of the Proxy
Statement/Prospectus. The ASR pro forma equivalent price is computed by
multiplying the closing price of United Dominion Common Stock by the Exchange
Ratio.
<TABLE>
<CAPTION>
Historical
-----------------------------
ASR
United Dominion ASR Pro Forma Equivalent
----------------- --------- ---------------------
<S> <C>
December 19, 1997 $14.00 $21.375 $ 22.05
February , 1998
</TABLE>
15
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
SUMMARY HISTORCIAL 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 ASR as a combined entity, giving effect to the Merger as if it had
occurred on January 1, 1996, after giving effect to the pro forma adjustments
described in the notes thereto appearing elsewhere herein. The Merger has been
accounted for under the purchase method of accounting in accordance with the
Accounting Principles Board Opinion No. 16. The summary historical operating
data, balance sheet data and cash flow data for United Dominion for each of the
years ended December 31, 1992, 1993, 1994, 1995 and 1996 are derived from the
audited financial statements of United Dominion as reported in its Annual
Reports on Form 10-K and the summary historical operating data, balance sheet
data and cash flow data at and for the interim periods ended September 30, 1997
and 1996 are derived from the unaudited financial statements of United Dominion
as reported in its Quarterly Reports on Form 10-Q.
The unaudited pro forma combined operating and other data for United
Dominion are presented giving effect to the Merger as if it had occurred on
January 1, 1996 and as if the following acquisitions by United Dominion
occurred on January 1, 1996: (i) the acquisition of two apartment communities
in May 1996, (ii) the acquisition of an 18 apartment community portfolio in
August 1996, (iii) the acquisition of South West Property Trust Inc. (44
apartment communities) on December 31, 1996, and (iv) the acquisition of 17
apartment communities during 1997 (see Note (A) to the Unaudited Pro Forma
Combined Statements of Operations). In addition, the pro forma combined
operating and other data of United Dominion include the pro forma adjustments
made by ASR for the acquisitions and certain other transactions in 1996 and
1997 (see Note (B) to the Unaudited Pro Forma Combined Statements of
Operations).
The unaudited pro forma combined balance sheet data at September 30, 1997
is presented as if the Merger had occurred on September 30, 1997 and as if
United Dominion had acquired two additional apartment communities on September
30, 1997 (see Note (A) to the Unaudited Pro Forma Combined Balance Sheet). In
addition, the pro forma balance sheet data include the pro forma adjustments
made by ASR for the acquisition of one apartment community in October 1997 (see
Note (B) to the Unaudited Pro Forma Combined Balance Sheet).
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 ASR would have been for
the periods presented, nor does such data purport to represent the results of
future periods. In the opinion of United Dominion's management, all adjustments
necessary to reflect the effects of the Merger have been made. 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 ASR incorporated herein by reference and
the unaudited pro forma financial statements and notes thereto appearing
elsewhere herein.
16
<PAGE>
United Dominion Realty Trust, Inc.
Summary Historical and Unaudited Pro Forma Combined Financial Data
In thousands, except per share data and apartment homes owned
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------
Pro Forma
Combined
1992 1993 1994 1995 1996 1996
--------- --------- ---------- ---------- ---------- -----------
<S> <C>
OPERATING DATA:
Rental income .......................................... $63,202 $89,084 $139,972 $195,240 $242,112 $422,339
Income before gains (losses) on sales of
investments, minority interest of unitholders in
operating partnership and extraodinary item ............ 6,577 11,286 19,118 28,037 33,726 50,572
Gains (losses) on sales of investments .................. -- (89) 108 5,090 4,346 4,346
Minority interest of unitholders in operating
partnership .......................................... (58) (1,155)
Extraordinary item -- early extinguishment of debt ...... (242) -- (89) -- (23) --
Net income ................................................ 6,335 11,197 19,137 33,127 37,991 53,763
Dividends to preferred shareholders ..................... -- -- -- 6,637 9,713 9,713
Net income available to common shareholders ............ 6,335 11,197 19,137 26,490 28,278 44,050
Common distributions declared ........................... 23,271 27,988 37,539 48,610 55,493 85,903
Weighted average number of common shares
outstanding (A) ....................................... 34,604 38,202 46,182 52,781 57,482 89,364
Per share: (A)
Net income .......................................... $ .18 $ .29 $ .41 $ .50 $ .49 $ .49
Common distributions declared ........................ .66 .70 .78 .90 .96 .96
<CAPTION>
Nine Months Ended September 30,
--------------------------------
Pro Forma
Combined
1996 1997 1997
---------- ---------- ----------
<S> <C>
OPERATING DATA:
Rental income .......................................... $175,119 $284,182 $335,169
Income before gains (losses) on sales of
investments, minority interest of unitholders in
operating partnership and extraodinary item ............ 25,394 42,529 39,245
Gains (losses) on sales of investments .................. 2,176 12,682 13,156
Minority interest of unitholders in operating
partnership .......................................... (26) (112) (817)
Extraordinary item -- early extinguishment of debt ...... -- -- --
Net income ................................................ 27,544 55,099 51,584
Dividends to preferred shareholders ..................... 7,284 11,692 11,692
Net income available to common shareholders ............ 20,260 43,407 39,892
Common distributions declared ........................... 41,282 66,071 72,024
Weighted average number of common shares
outstanding (A) ....................................... 56,978 86,602 94,461
Per share: (A)
Net income .......................................... $ .36 $ .50 $ .42
Common distributions declared ........................ .72 .7575 .7575
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ------------ ------------ ------------
<S> <C>
BALANCE SHEET DATA:
Real estate held for investment ............ $454,115 $582,213 $1,007,599 $1,131,098 $2,007,612
Real estate under development ............... -- -- -- -- 37,855
Real estate held for disposition ............ -- -- -- 51,015 39,556
Accumulated depreciation ..................... 71,806 91,444 120,341 129,454 173,291
Total assets ................................. 390,365 505,840 911,913 1,080,616 1,966,904
Notes payable -- secured ..................... 76,516 72,862 158,449 180,481 376,560
Notes payable -- unsecured .................. 104,605 156,558 368,215 349,858 668,275
Shareholders' equity ........................ 197,677 259,963 356,968 516,389 850,379
Number of common shares outstanding (A) ...... 35,285 41,653 50,356 56,375 81,983
<CAPTION>
September 30, 1997
------------------------
Pro Forma
Historical Combined
------------ -----------
<S> <C>
BALANCE SHEET DATA:
Real estate held for investment ............ $2,217,063 $2,536,967
Real estate under development ............... 33,628 34,553
Real estate held for disposition ............ 131,576 146,406
Accumulated depreciation ..................... 200,538 200,538
Total assets ................................. 2,252,751 2,606,824
Notes payable -- secured ..................... 412,624 607,633
Notes payable -- unsecured .................. 687,521 696,711
Shareholders' equity ........................ 1,057,502 1,171,821
Number of common shares outstanding (A) ...... 88,162 96,021
</TABLE>
17
<PAGE>
United Dominion Realty Trust, Inc.
Summary Historical and Unaudited Pro Forma Combined Financial Data
In thousands, except per share data and apartment homes owned
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1992 1993 1994 1995
------------ ------------- ------------- -------------
<S> <C>
OTHER DATA:
Cash Flow Data
Cash provided by operating activities ............... $ 24,608 $ 33,939 $ 54,544 $ 66,428
Cash used in investing activities .................. (81,373) (130,064) (359,631) (183,930)
Cash provided by financing activities ............... 56,777 100,793 306,575 113,145
Funds from Operations (B)
Income before gains (losses) on sales of
investments, minority interest of unitholders in
operating partnership and extraordinary item ...... $ 6,577 $ 11,286 $ 19,118 $ 28,037
Adjustments:
Real estate depreciation ........................ 15,557 19,516 28,729 38,939
Non-recurring items:
Impairment loss on real estate held for
disposition .................................... -- -- -- 1,700
Prior years' employment and other taxes (C) ...... -- -- -- 395
Adoption of SFAS No. 112 "Employers'
Accounting for Postemployment Benefits" ......... -- -- 450 --
Provision for possible investment losses ......... 1,564 -- -- --
Acquisition related expenses (D) .................. -- -- -- --
Dividends to preferred shareholders ............... -- -- -- (6,637)
---------- ----------- ----------- -----------
Funds from operations .............................. $ 23,698 $ 30,802 $ 48,297 $ 62,434
========== =========== =========== ===========
Apartment Homes Owned
Total apartment homes owned ........................ 13,832 17,914 29,282 34,224
Weighted average number of apartment homes
owned during the year .............................. 11,387 15,445 23,160 31,242
<CAPTION>
Nine Months Ended September 30,
-----------------------------------------
Pro Forma Pro Forma
Combined Combined
1996 1996 (A) 1996 1997 1997 (A)
------------- ------------- ------------- ------------- -------------
<S> <C>
OTHER DATA:
Cash Flow Data
Cash provided by operating activities ............... $ 90,064 $ 139,074 $ 72,600 $ 111,091 133,891
Cash used in investing activities .................. (161,572) (168,488) (190,305) (283,571) (308,701)
Cash provided by financing activities ............... 82,056 76,916 122,604 164,411 181,827
Funds from Operations (B)
Income before gains (losses) on sales of
investments, minority interest of unitholders in
operating partnership and extraordinary item ...... $ 33,726 $ 50,572 $ 25,394 $ 42,529 $ 39,245
Adjustments:
Real estate depreciation ........................ 47,410 82,669 33,711 55,029 64,674
Non-recurring items:
Impairment loss on real estate held for
disposition .................................... 290 290 290 1,400 1,400
Prior years' employment and other taxes (C) ...... -- -- -- -- --
Adoption of SFAS No. 112 "Employers'
Accounting for Postemployment Benefits" ......... -- -- -- -- --
Provision for possible investment losses ......... -- -- -- -- --
Acquisition related expenses (D) .................. -- -- -- -- 6,215
Dividends to preferred shareholders ............... (9,713) (9,713) (7,284) (11,692) (11,692)
----------- ----------- ----------- ----------- -----------
Funds from operations .............................. $ 71,713 $ 123,818 $ 52,111 $ 87,266 $ 99,842
=========== =========== =========== =========== ===========
Apartment Homes Owned
Total apartment homes owned ........................ 55,664 69,499 41,204 61,099 69,499
Weighted average number of apartment homes
owned during the year .............................. 37,481 68,098 36,193 57,803 69,514
</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 item (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. This definition conforms to the recommendations set forth in
a White Paper adopted by the National Association of Real Estate Investment
Trusts ("NAREIT") in early 1995. FFO for years prior to 1995 have been
adjusted to conform to the NAREIT definition. 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 its 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.
(D) Acquisition related expenses which were attributable to the contract
termination costs and other expenses related to ASR's acquisition of
properties in 1997.
18
<PAGE>
ASR INVESTMENT CORPORATION
SUMMARY HISTORICAL FINANCIAL DATA
In thousands, except per share data and apartment homes owned
The following summary historical financial data for ASR for each of the
years ended December 31, 1992, 1993, 1994, 1995 and 1996 are derived from the
audited financial statements of ASR as reported in its Annual Reports on Form
10-K. The summary historical financial data for each of the interim periods
ended September 30, 1997 and 1996 are derived from the unaudited financial
statements of ASR 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 ASR incorporated herein by reference.
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
-------------------------------------------------------------- ------------------------
1992 1993 1994 1995 1996 1996 1997
----------- ------------ --------- --------- --------- --------- ------------
<S> <C>
OPERATING DATA
Rental income ..................... -- -- $12,528 $14,034 $14,581 $10,941 $ 20,777
Income from mortgage assets ...... $ 919 $ 7,264 6,433 3,884 2,630 2,174 588
Income (loss) before gains on
sales of investments,
provision for reserves and
cumulative effect of
accounting change ............... (7,287) 807 3,439 1,252 (620) 33 (6,974)
Gains on sales of mortgage
assets (a) ..................... -- -- 4,263 5,302 9,461 7,725 16,650
Gain on sale of real estate ...... 474
Provision for reserves (b) ........ (57,588) (20,286) -- -- -- -- --
Cumulative effect of
accounting change (b) ......... -- (21,091) -- -- -- -- --
Net income (loss) ............... (64,875) (40,570) 7,702 6,554 8,841 7,758 10,150
Dividends declared ............... 7,305 3,565 1,550 6,304 6,308 4,734 6,953
Weighted average shares of
common stock and common
stock equivalents (c) ......... 3,209 3,104 3,100 3,141 3,153 3,155 4,447
Per shares (c)
Net income ..................... $ (20.20) $ (13.07) $ 2.48 $ 2.09 $ 2.80 $ 2.46 $ 2.28
Dividends declared per
share ........................ 2.25 1.15 0.50 2.00 2.00 1.50 1.50
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
September 30,
1992 1993 1994 1995 1996 1997
---------- --------- --------- --------- --------- --------------
<S> <C>
BALANCE SHEET DATA
Investments in apartments, net ...... -- -- $67,870 $74,381 $88,011 $248,952
Other real estate assets ............ -- $ 3,855 5,186 5,129 1,947 1,766
Mortgage assets ..................... $108,623 37,881 18,965 11,877 5,039 --
Total assets ........................ 116,589 54,068 96,745 94,169 97,796 275,305
Real estate notes payable ............ -- -- 50,693 49,212 49,110 167,273
Mortgage assets borrowing, net ...... 39,517 22,062 6,422 4,495 2,014 --
Stockholders' equity ............... 75,284 30,948 37,100 37,395 40,102 97,985
</TABLE>
19
<PAGE>
ASR INVESTMENT CORPORATION
SUMMARY HISTORICAL FINANCIAL DATA
In thousands, except per share data and apartment homes owned
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
1992 1993 1994 1995 1996
------------ ------------ ------------ ----------- -----------
<S> <C>
OTHER DATA
Cash Flow Data
Cash provided by (used in) operating
activities .............................. $ (7,742) $ 2,768 $ 10,109 $ 7,867 $ 12,968
Cash provided by (used in) investing
activities .............................. 49,493 28,130 (49,696) (2,160) (6,916)
Cash provided by (used in) financing
activities .............................. (38,118) (25,620) 33,309 (7,415) (6,070)
Funds From Operations (e)
Income (loss) before gains on sales of
assets and cumulative effect of
accounting change ..................... $ (64,875) $ (19,479) $ 3,439 $ 1,252 $ (620)
Adjustments:
Real Estate depreciation ............... -- -- 2,083 3,028 3,271
Non-recurring items:
Provision for reserves (b) ............ 57,588 20,286 -- -- --
Acquisition-related expenses (d) ...... -- -- -- -- 404
--------- --------- ---------- --------- ---------
Funds from operations ..................... $ (7,287) $ 807 $ 5,522 $ 4,280 $ 3,055
========= ========= ========== ========= =========
Apartment Home Owned
Total apartment homes owned at end
of period .............................. -- -- 2,461 2,683 2,683
Weighted Average number of
apartment homes owned .................. -- -- 2,461 2,665 2,683
<CAPTION>
Nine Months Ended
September 30,
------------------------
1996 1997
----------- ------------
<S> <C>
OTHER DATA
Cash Flow Data
Cash provided by (used in) operating
activities .............................. $ 11,645 $ 23,407
Cash provided by (used in) investing
activities .............................. (2,141) (25,130)
Cash provided by (used in) financing
activities .............................. (6,008) 10,521
Funds From Operations (e)
Income (loss) before gains on sales of
assets and cumulative effect of
accounting change ..................... $ 33 $ (6,974)
Adjustments:
Real Estate depreciation ............... 2,415 4,174
Non-recurring items:
Provision for reserves (b) ............ -- --
Acquisition-related expenses (d) ...... 404 6,215
--------- ----------
Funds from operations ..................... $ 2,852 $ 3,415
========= ==========
Apartment Home Owned
Total apartment homes owned at end
of period .............................. 2,683 7,449
Weighted Average number of
apartment homes owned .................. 2,683 5,101
</TABLE>
- ----------
(a) ASR's historical net income per share for the year ended December 31, 1996
and the nine months ended September 30, 1997 was primarily attributable to
the income from and gains on sales or redemptions of mortgage assets. The
income and gains amounted to $4.40 per share and $3.77 per share for the
nine months ended September 30, 1997 and the year ended December 31, 1996,
respectively. In June 1997, ASR sold all of its remaining mortgage assets.
The net income for periods after June 1997 is expected to be substantially
reduced as the ongoing operations of ASR will no longer reflect any
mortgage portfolio income.
(b) Prior to December 1993, ASR followed the practice of writing down the
carrying value of a mortgage asset to its estimated future cash flows. In
December 1993, ASR adopted SFAS No. 115, which requires that the carrying
value of a mortgage asset be written down to its estimated fair value when
its estimated yield is less than a "risk-free yield." As a result, ASR
wrote down substantially all its mortgage assets in 1993 to their
estimated fair value and recorded a charge of $21,091,000, which was
reported as a cumulative effect of accounting change.
(c) All shares and per share data have been adjusted to give effect to a
1-for-5 reverse stock split in July 1995.
(d) Acquisition-related expenses are attributable to the contract termination
costs of the Pima Entities and other expenses incurred as a result of the
acquisition of the Pima Entities and the Winton Properties in April 1997.
(e) Funds from operations ("FFO") is defined as income before gains (losses) on
sales of investments, minority interest of unitholders in operating
partnership and extraordinary item (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. This definition conforms to the recommendations set forth
in a White Paper adopted by the National Association of Real Estate
Investment Trusts ("NAREIT") in early 1995. FFO for years prior to 1995
have been adjusted to conform to the NAREIT definition. ASR 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 its 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.
20
<PAGE>
THE SPECIAL MEETING
General
This Proxy Statement/Prospectus is being furnished to the holders of ASR
Common Stock as of the Record Date and is accompanied by a form of proxy, which
is being solicited by the ASR Board for use at the Special Meeting to be held
on March , 1998 at 9:00 a.m., Arizona time, at the Williams Center Courtyard
Marriott, 201 S. Williams Boulevard, Tucson, Arizona and any postponements or
adjournments thereof. Only stockholders of record as of the close of business
on January 23, 1998, the Record Date, are entitled to notice of and to vote at
the Special Meeting or any postponements or adjournment thereof. As of the
Record Date, there were 4,990,057 shares of ASR Common Stock outstanding.
EACH HOLDER OF ASR COMMON STOCK IS REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO ASR IN THE ENCLOSED, POSTAGE-
PAID ENVELOPE OR BY FACSIMILE. FAILURE TO RETURN A PROPERLY EXECUTED PROXY OR
TO VOTE AT THE MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER
AGREEMENT. THE MERGER WILL BE APPROVED IF IT RECEIVES THE AFFIRMATIVE VOTE OF
TWO-THIRDS OF THE SHARES OF THE COMMON STOCK ENTITLED TO VOTE AT THE SPECIAL
MEETING IF A QUORUM IS PRESENT OR REPRESENTED BY PROXIES.
ASR STOCKHOLDERS SHOULD NOT FORWARD ANY CERTIFICATES WITH THEIR PROXIES.
Matters to be Considered at the Special Meeting
At the Special Meeting, stockholders of ASR will (i) consider and vote on
a proposal to approve and adopt the Merger Agreement providing for the merger
of ASR with ASRSub in a tax-free exchange, and (ii) transact such other
business as may properly come before the Special Meeting, or any postponement
or adjournment thereof.
Quorum and Voting Requirement
The presence of stockholders at the Special Meeting, in person or by
proxy, entitled to cast a majority of all votes entitled to be cast at the
meeting will constitute a quorum for the transaction of business. Any proxy
marked "abstain" as to any matter will be counted as present for purposes of
determining the existence of a quorum, but will not be counted for voting
purposes on such matter.
The affirmative vote of two-thirds of the outstanding shares of ASR Common
Stock entitled to be voted at the Special Meeting is required to approve and
adopt the Merger Agreement. Abstentions and "broker non-votes" will have the
same effect as a vote against the proposal.
As of the Record Date, there were 4,990,057 shares of ASR Common Stock
entitled to vote at the Special Meeting, with each share being entitled to one
vote. As of the Record Date, the directors and executive officers of ASR
beneficially owned a total of 363,192 shares (representing approximately 7.3%
of the outstanding shares of ASR Common Stock), all of which are expected to be
voted in favor of approval of Merger and adoption of the Merger Agreement. As
of the Record Date, United Dominion management owned beneficially a total of
less than 1% of the outstanding shares of ASR Common Stock.
Recommendation
The ASR Board has unanimously approved the Merger Agreement and believes
that the Merger is fair to and in the best interests of ASR and its
stockholders. The ASR Board unanimously recommends that the ASR stockholders
vote FOR approval of the Merger Agreement. In making its recommendation, the ASR
Board has considered, among other things, the opinion of Furman Selz that the
consideration to be received by ASR stockholders is fair to the ASR stockholders
from a financial point of view. See "THE MERGER -- Background of and Reasons for
the Merger" and "THE MERGER -- Opinion of Financial Advisor."
21
<PAGE>
Voting and Revocation of Proxies
Any holder of ASR Common Stock who has executed and delivered a proxy may
revoke it at any time before it is voted by attending the Special Meeting and
voting in person or by giving written notice of revocation or submitting a
signed proxy bearing a later date to ASR, Attention: Secretary, provided such
notice or proxy is actually received by ASR prior to the vote of stockholders.
The shares of ASR Common Stock represented by properly executed proxies
received at or before the Special Meeting and not subsequently revoked will be
voted as directed by the stockholders submitting such proxies. Unless contrary
instructions are given, proxies received by ASR will be voted for approval of
the Merger Agreement and will be voted in the discretion of the proxy holders
on any other matters properly presented for consideration at the Special
Meeting or any adjournment thereof.
The ASR Bylaws permit the holders of a majority of the shares represented
at the Special Meeting, whether or not constituting a quorum, to adjourn the
Special Meeting or any adjournment thereof. Unless authority to do so is
withheld, the proxy holders also may vote, if necessary, in favor of a proposal
to adjourn the Special Meeting to permit further solicitation of proxies in
order to obtain sufficient votes to approve any of the matters being considered
at the Special Meeting. ASR stockholders who wish to withhold from the persons
named as proxies in the enclosed ASR proxy authority to vote such stockholders'
shares to adjourn the Special Meeting should so indicate by appropriately
marking Item 2 on the proxy.
Solicitation of Proxies
ASR will bear the costs of soliciting proxies from its 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 ASR, 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
ASR. ASR expects to utilize the services of W.F. Doring & Co. in connection
with the solicitation of proxies for the Special Meeting and expects that the
cost of such services will not exceed $10,000 plus out-of-pocket expenses.
Other Matters
ASR is unaware of any matter to be presented at the Special Meeting other
than the proposal to approve and adopt the Merger Agreement.
THE MERGER
The detailed terms of the merger are contained in the Merger Agreement
attached as Appendix I to this Proxy Statement/Prospectus. The following
discussion describes the more important aspects of the Merger and the terms of
the Merger Agreement. This description is qualified in its entirety by
reference to the Merger Agreement, which ASR stockholders are urged to read
carefully. Certain terms used but not defined in the following discussion are
defined in the Merger Agreement.
Background of and Reasons For the Merger
Background Of The Merger
During early 1997, as part of ASR's ongoing efforts to enhance stockholder
value, ASR's management began a detailed review of ASR's long-term business
plan. ASR's management analyzed various opportunities to achieve additional
growth and to enhance value for ASR's stockholders, including (i) reinvestment
of operating cash flows and the sale and redemption of ASR's mortgage assets,
(ii) issuance of equity or debt securities, (iii) acquisition of privately held
portfolios through the issuance of limited partnership interests in the ASR
Operating Partnership (the "LP Units") or shares of ASR Common Stock and (iv)
strategic business combinations with other public REITs or real estate
companies.
As part of these efforts, ASR's management sought advice from various
investment banking firms. ASR formally interviewed two of the firms and decided
to recommend that the ASR Board retain Furman Selz to
22
<PAGE>
advise ASR in the exploration of strategic alternatives. Furman Selz presented
a report to management regarding various strategic alternatives available to
ASR. Furman Selz reviewed with management ASR's price trading history, its
performance relative to comparable apartment REITs and several potential
strategic options available to it, including the issuance of common and
preferred stock and secured and unsecured debt, reducing ASR's current dividend
to provide additional funds for investment, portfolio acquisitions, and a
business combination with an existing apartment REIT or a private real estate
company. Furman Selz indicated that ASR's ability to generate internal and
external growth would continue to be constrained by several factors, including
the difficulty in generating returns on acquisitions in excess of ASR's high
cost of capital, increased competition for apartment communities, and its
relatively high dividend payout ratio. Furman Selz advised ASR management that
it believed that it would be difficult for ASR to issue ASR Common Stock at the
then current price level, and that any stock offering would necessitate
reducing the current dividend to a payout ratio more comparable to other REITs.
Based on this initial analysis, Furman Selz recommended that ASR consider the
exploration of a strategic merger with a larger, more liquid and better
capitalized apartment REIT to determine whether this course of action would be
in the long term best interests of ASR and its stockholders.
At the regularly scheduled June 25, 1997 meeting of the ASR Board, Jon A.
Grove, ASR's Chairman, President and Chief Executive Officer, presented various
alternatives being explored and reported on management's discussions with
Furman Selz. Mr. Grove also presented management's recommendation that ASR
explore a merger with a larger REIT in order to determine whether this
alternative would best achieve ASR's strategic objectives. After considerable
discussions of the various alternatives and their effects on ASR and its
stockholders, the ASR Board formally confirmed the engagement of Furman Selz as
ASR's financial advisor and authorized Furman Selz to begin a structured
process to locate a business combination partner and to explore other possible
strategic alternatives to maximize stockholder value.
With the assistance of ASR's management, Furman Selz prepared a
Confidential Information Memorandum, containing detailed information concerning
ASR. Furman Selz presented to ASR management a list of a number of strong,
well-managed apartment REITs that it believed might be interested in merging
with ASR. With Furman Selz's assistance, ASR's management reviewed the list and
selected six apartment REITs that it deemed to be the most favorable strategic
candidates to acquire ASR. ASR's management was subsequently contacted by a
seventh apartment REIT that was interested in the acquisition of ASR.
During August 1997, Furman Selz contacted the seven potential strategic
buyers. Six of them signed confidentiality agreements and received the
Confidential Information Memorandum. Furman Selz requested each of these
companies to submit an initial expression of interest, including a proposed
purchase price, by September 15, 1997. On September 15 and 16, 1997,
respectively, ASR received preliminary letters of interest from two of the
REITs, including United Dominion. ASR also received a letter from United
Dominion on September 23, 1997 that provided additional details on the earlier
letter of interest.
During the period from October 1 through October 10, 1997, both interested
parties conducted due diligence at ASR's offices, met with ASR's management and
discussed at length ASR's operations, financial results, projections and
potential merger synergies. During the week of October 6, 1997, members of
ARS's management visited certain properties of both interested parties,
evaluated their operations, and visited with their managements. On October 20,
1997, Furman Selz sent a letter to both REITs requesting final indications of
interest by October 23, 1997 and enclosing for comment a preliminary draft of a
merger agreement. On October 22, 1997, one of the interested parties advised
Furman Selz that it would not be continuing in the process.
On October 27, 1997, ASR received a letter from United Dominion indicating
that it was unwilling to offer preferred or common stock with a value in excess
of ASR's then trading price and, thus, would not submit a formal offer at that
time. Subsequently, representatives of Furman Selz contacted United Dominion
and discussed the information United Dominion had used in its analyses of ASR.
After several exchanges of additional information between United Dominion,
Furman Selz and ASR, on November 20, 1997, ASR received a letter from United
Dominion indicating that it would be interested in pursuing a merger with ASR
in a stock-for-stock transaction, subject to certain parameters specified in
the letter.
On November 24, 1997, Mr. Grove and a representative of Furman Selz met
with John McCann, Chairman, President and Chief Executive Officer of United
Dominion, to discuss the proposal. On December 4, 1997, ASR received a letter
from Mr. McCann modifying United Dominion's proposal in response to these
discussions. On December 5, 1997, Mr. Grove, Joseph C. Chan, Executive Vice
President of ASR, a representative of Furman
23
<PAGE>
Selz, and ASR's legal counsel met with Mr. McCann and Ms. Katheryn Surface,
General Counsel of United Dominion. At that meeting, the terms of the Exchange
Ratio (1.575 shares of United Dominion Common Stock for each share of ASR
Common Stock), the allowance for a special dividend to ASR's stockholders and
other principal terms of the proposed merger were agreed upon, subject to
negotiation of a definitive merger agreement and approval of the transaction by
the Boards of Directors of both companies. Negotiations between United Dominion
and ASR continued through December 21, 1997.
On December 12, 1997, the ASR Board held a telephonic meeting to discuss
the proposed merger with United Dominion and to review other strategic options
available to ASR. At this meeting, Mr. Grove discussed in detail (i) the
various options available to ASR and management's evaluation of each and (ii)
the merger proposal from United Dominion. A representative of Furman Selz also
made a presentation to the ASR Board relating to the merger proposal. The
Company's legal counsel also participated and reported to the ASR Board on the
terms of the proposed Merger Agreement and other legal issues related to the
transaction. ASR's management recommended further consideration of the merger
proposal from United Dominion based on management's belief that it represented
the best available opportunity for ASR's stockholders. Furman Selz reported to
the ASR Board that its preliminary analyses supported a conclusion that the
merger with United Dominion on the terms proposed was fair to ASR's stockholders
from a financial point of view.
A subsequent meeting of the ASR Board was held on December 15, 1997 to
further discuss and review the proposed merger and related agreements.
Representatives of Furman Selz and legal counsel also attended. ASR's
management presented a proposal for severance arrangements for ASR's employees
in connection with the proposed merger and recommended that the ASR independent
directors receive a one-time fee as compensation for the significant extra time
commitments required in connection with their deliberation on the merger
proposal.
Further discussions and review of the merger proposal and the related
agreements took place at a regularly scheduled meeting of the ASR Board on
December 17, 1997. ASR's legal counsel and a representative of Furman Selz
participated in the discussion. At a telephonic meeting of the ASR Board on
December 19, 1997, the ASR Board accepted the Fairness Opinion of Furman Selz
and unanimously approved the Merger, subject to the finalization of
documentation.
On the evening of December 21, 1997, at a telephonic meeting held among
Messrs. Grove, Chan and McCann, Ms. Surface and James Dolphin, Executive Vice
President and Chief Financial Officer of United Dominion, both companies agreed
to all terms of the Merger Agreement and executed the Merger Agreement. On
December 22, 1997, press releases describing the Merger were issued by both
companies.
Reasons for the Merger
The ASR Board determined that the Merger is fair to and in the best
interests of ASR's stockholders. Accordingly, the ASR Board has unanimously
approved the Merger and recommends that ASR's stockholders vote FOR the
approval and adoption of the Merger Agreement.
In reaching its determination that the Merger is in the best interests of
ASR's stockholders, the ASR Board consulted with ASR's management, Furman Selz
and legal counsel and considered the short-term and long-term interests of ASR
based on various factors. Among the principal factors the ASR Board considered
were the following:
(1) Information and analyses relating to the financial performance,
condition, business operations and prospects of ASR and United Dominion and
current industry, economic and market conditions and trends. In this
regard, the ASR Board reviewed the 1996 and 1997 financial information of
ASR and United Dominion (both on a historical basis and a pro forma basis)
and their stock prices relative to each other and to other comparable
apartment REITs. The ASR Board viewed as favorable to its determination
that the implied value of the ASR Common Stock, based on the Exchange
Ratio, represented a 3.9% premium to the closing price of ASR Common Stock
on December 19, 1997 and a 24% premium to the book value (before
accumulated depreciation) of ASR Common Stock at September 30, 1997.
24
<PAGE>
(2) The Merger offers ASR stockholders an opportunity to take advantage
of the general trends in the real estate industry towards consolidation by
affording stockholders participation in a much larger, better capitalized
and more geographically diversified REIT with the potential for long-term
appreciation and improved access to capital markets. The ASR Board viewed
the following factors as favorable to its determination:
(a) Because United Dominion is a substantially larger and better
capitalized apartment REIT than ASR, the Merger provides ASR's
stockholders with the opportunity to substantially enhance the liquidity
of their investments. At September 30, 1997, United Dominion had market
equity of approximately $1.6 billion and market capitalization (market
equity plus total debt) of approximately $2.7 billion compared to ASR's
market equity of $140 million and market capitalization of $308 million.
The average trading volume of United Dominion shares on the NYSE during
the 90 trading days preceding December 19, 1997 was 209,501 shares per
day compared to the average volume of ASR shares of 8,829 per day on the
American Stock Exchange during the same period.
(b) Because of its size and following by market analysts and
institutional investors, United Dominion has substantially greater
access to capital markets than ASR, which enables it to take advantage
of additional acquisition and development opportunities not currently
available to ASR. United Dominion also has substantially less debt as a
percentage of market capitalization, 42% at September 30, 1997 compared
to 57% for ASR. Therefore, ASR's stockholders should benefit from the
lower leverage, which affords United Dominion increased growth
opportunities and decreased risks and volatility.
(c) Based on the pro forma combined results of operations of United
Dominion for the nine months ended September 30, 1997 included elsewhere
herein and the Exchange Ratio, the amount of funds from operations
("FFO") on the shares of United Dominion Common Stock to be received by
ASR stockholders in the Merger would exceed the FFO earned on the ASR
shares to be exchanged in the Merger.
(d) United Dominion has increased its FFO per share in nine of the last
ten years and has also increased its annual dividend rate every year for
the last 20 years. Although there is no assurance that United Dominion
can continue to achieve increases in FFO and dividends, the ASR Board
believes that United Dominion has greater opportunities for FFO and
dividend growth than ASR.
(e) United Dominion is the second largest apartment REITs in the United
States with 220 apartment communities in a number of markets.
Consequently, United Dominion is significantly more geographically
diverse than ASR, and ASR's stockholders would gain substantially
greater asset diversity as shareholders of United Dominion.
(3) The Merger has been structured as a stock-for-stock transaction rather
than a cash-for-stock transaction, which allows ASR's stockholders to share
in any future appreciation of the combined company. Although there can be
no assurance as to the future performance of United Dominion Common Stock,
the ASR Board believes that United Dominion's management and acquisition
and business strategies provide favorable prospects for future appreciation
on the value of United Dominion Common Stock.
(4) The exchange of ASR Common Stock for United Dominion Common Stock will
be made on a tax-free basis. The ASR Board viewed a tax-free transaction as
favorable to its determination because it gives ASR stockholders the
ability to retain the United Dominion shares received in the Merger and
defer payment of any taxes until they choose to sell the shares.
(5) The terms of the Merger Agreement, including ASR's ability to
terminate the Merger Agreement by paying a break-up fee to United Dominion,
if required by the fiduciary duties of the ASR Board in responding to a
"Superior Competing Transaction" (as defined therein) from a third party. See
"THE MERGER -- Termination of Merger Agreement." The ASR Board viewed such
factor as favorable to its determination because the Merger Agreement does
not preclude a third party from making a financially superior acquisition
proposal for ASR.
(6) The Furman Selz Fairness Opinion, described under "THE MERGER -- Opinion
of Financial Advisor," that the Merger is fair to ASR's stockholders from a
financial point of view.
25
<PAGE>
(7) The absence of more attractive alternatives to the Merger for
enhancing stockholder value. In this regard, the ASR Board determined that as a
stand-alone entity, (a) ASR would experience difficulty in accessing the
capital markets or acquiring private portfolios in exchange for equity
securities on terms that would provide stockholders with substantially greater
income and growth potential than the Merger and (b) in view of ASR's high
dividend payout ratio (estimated to be 110% of FFO for 1997), it may become
necessary in the future for ASR to reduce its dividend payout ratio in order to
enhance its ability of accessing capital markets or continuing to acquiring
portfolios in exchange for equity securities.
The ASR Board also considered certain potentially negative factors in its
deliberations including the following:
(1) Because the Exchange Ratio is fixed, a decline in the price of United
Dominion Common Stock would reduce the market value of the consideration, but
not the number of shares, to be received by ASR's stockholders in the Merger.
Mitigating this factor was the fact that ASR's stockholders would benefit
from price increases in United Dominion's Common Stock. In addition, (i) if
the average closing price of United Dominion Common Stock for the 20 trading
day period ended at the end of the fifth trading day prior to the date of the
Proxy Statement/Prospectus exceeds $16.00 per share, then the Exchange Ratio
will be reduced such that ASR's stockholders would not benefit from the
increase in the price of United Dominion Common Stock over $16.00 per share;
and (ii) ASR's Board retained the right in the Merger Agreement to terminate
ASR's obligations under the Merger Agreement prior to the date of this Proxy
Statement/Prospectus, without penalty, if the average price of United
Dominion's Common Stock for the measurement period prior to the date of this
Proxy Statement/Prospectus fell below $13.50.
(2) The annual dividend on the United Dominion Common Stock equivalent to
a share of ASR Common Stock, based on the 1997 dividend rate, would be
$1.59 per share, which is lower than the current ASR annual dividend rate
of $2.00 per share. This is mitigated by the fact that United Dominion's
dividend payout ratio for 1997 is approximately 75% of FFO compared to
ASR's payout ratio of 110%. The ASR Board also considered the fact that (i)
in the absence of the Merger, ASR's pursuit of alternative strategies to
increase long-term stockholder value may necessitate a reduction in the
dividend in the future, and (ii) United Dominion's history of increasing
its annual dividend rate every year during the last 20 years.
(3) The risks that the anticipated benefits of the Merger may not be
realized.
(4) The possibility that ASR may be required to pay United Dominion a
break-up fee of up to $5.5 million and reimburse United Dominion
out-of-pocket expenses of up to $1 million if the Merger Agreement is
terminated under certain circumstances as well as paying its own expenses
incurred in connection with the Merger, which would be substantial.
(5) The substantial costs involved in consummating the Merger, including
payments to be made to ASR's executive officers for termination of their
employment contracts, payments made to other employees in recognition of
their contributions to ASR and as inducement for them to continue
employment until the consummation of the Merger and fees payable to Furman
Selz and other professional advisors.
(6) The disruption of business affairs of ASR and substantial management
time required to negotiate and consummate the Merger.
(7) The loss of control over the combined company by ASR's stockholders.
The ASR Board concluded that the potentially negative factors considered
by it were not sufficient, either individually or collectively, to outweigh the
positive factors it considered in its deliberations.
The foregoing discussion of the information and factors considered by the
ASR Board is not intended to be exhaustive, but includes all material factors
considered by the ASR Board. The ASR Board did not assign relative weights to
the above factors or determine that any factor was of particular importance. In
the view of the ASR Board, a determination of various weightings would be
impractical. Rather, the ASR Board viewed its position and recommendations as
being based on the totality of the information presented to and considered by
it. In addition, individual members of the ASR Board may have given different
weight to different factors.
THE ASR BOARD BELIEVES THAT THE MERGER, INCLUDING THE EXCHANGE RATIO, IS
FAIR TO AND IN THE BEST INTERESTS OF ASR'S STOCKHOLDERS THE ASR BOARD HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT THE STOCKHOLDERS
VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
In the event the Merger is not consummated for any reason, ASR will
continue its fundamental strategy of seeking future growth through property
acquisitions and through the issuance of equity securities in order to
26
<PAGE>
increase its cash flows available per share for distribution and provide
stockholders with enhanced long-term total return (dividends plus growth in
stock price). ASR anticipates that, the pursuit of this strategy may
necessitate a reduction in the dividend in the future to provide (i) increased
growth potential from internally generated cash flows, (ii) increased assurance
to investors of stability of the reduced dividend level and (iii) increased
acceptance of ASR by market analysts in order to attract additional
institutional investors.
Exchange Ratio
The Exchange Ratio was arrived at through arm's-length negotiations
between United Dominion and ASR. See "THE MERGER -- Background of and Reasons
for the Merger." Each share of ASR Common Stock issued and outstanding at the
Effective Time will be (i) converted into the right to receive 1.575 shares of
United Dominion Common Stock and (ii) automatically cancelled and retired and
all rights with respect thereto will cease to exist. Each holder of shares of
ASR 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) will
receive, in lieu thereof, cash (without interest) in an amount equal to such
fractional portion of the closing price per share of the United Dominion Common
Stock on the NYSE at the Effective Time.
The ASR Operating Partnership agreement provides that ASR may not merge
with another entity unless appropriate provision is made such that each limited
partner of the ASR Operating Partnership remains entitled to exchange each LP
Unit owned by such limited partner for the securities that such limited partner
would have received if such limited partner had exercised the right to convert
such LP Unit into one share of ASR Common Stock immediately before the Merger.
Accordingly, at the Effective Time, the 971,422 outstanding LP Units will
become convertible into 1,529,990 shares of United Dominion Common Stock at the
rate of 1.575 shares of United Dominion Common Stock for one LP Unit. The
Merger Agreement also provides that, as a condition to ASR's obligation to
consummate the Merger, United Dominion shall have assumed ASR's obligations
under certain registration rights agreements (the "Registration Rights
Agreements") between ASR and certain ASR Operating Partnership limited partners
relating to shares of ASR Common Stock (United Dominion Common Stock following
the Merger) issued and issuable to such limited partners on conversion of their
LP Units.
Opinion of Financial Advisor
ASR has retained Furman Selz to act as its financial advisor in connection
with the Merger and to render an opinion with respect to the fairness to the ASR
stockholders of the consideration to be received by them in the Merger. Furman
Selz has delivered its opinion to the ASR Board that, based upon and subject to
the various considerations set forth therein, as of December 19, 1997 and
updated as of the date of this Proxy Statement/Prospectus, the consideration to
be received by ASR stockholders is fair from a financial point of view.
The full text of the opinion of Furman Selz, dated as of December 19, 1997
and updated as of the date of this Proxy Statement/Prospectus, sets forth
assumptions made, matters considered and limits on the review undertaken by
Furman Selz, and is attached hereto as Appendix II. ASR stockholders are urged
to read this opinion in its entirety. The summary of the opinion of Furman Selz
set forth herein is qualified in its entirety by reference to the full text of
such opinion.
ASR retained Furman Selz to render financial advisory and investment
banking services in connection with ASR's review of various strategic
alternatives. In connection with this engagement, the ASR Board asked Furman
Selz to render an opinion to the ASR Board as to the fairness from a financial
point of view of the consideration to be received by ASR stockholders based on
the Exchange Ratio referred to in the Merger Agreement. At ASR's request,
Furman Selz delivered its oral opinion to the ASR Board on December 19, 1997
and updated it as of the date of this Proxy Statement/Prospectus (the "Fairness
Opinion"). The Fairness Opinion states that as of such dates, based upon the
facts and circumstances existing at that time, and subject to certain
assumptions, facts and limitations stated therein, the consideration to be
received by the stockholders of ASR pursuant to the Merger Agreement is fair
from a financial point of view to ASR stockholders.
In arriving at the Fairness Opinion, Furman Selz did not ascribe a
specific range of fair value with respect to ASR Common Stock, but made its
determinations as to the fairness of the consideration based on the Exchange
Ratio and the financial and comparative analyses described below. The Fairness
Opinion does not constitute a recommendation to any stockholders as to how to
vote at the Special Meeting. In addition, Furman Selz was not
27
<PAGE>
asked to opine as to, and its opinion does not address, the underlying business
decision of the ASR Board to proceed with or to consummate the Merger.
In connection with rendering the Fairness Opinion, Furman Selz, among
other things, (i) reviewed the Merger Agreement in substantially final form;
(ii) reviewed ASR's Annual Report on Form 10-K for the fiscal years ended
December 31, 1994, 1995 and 1996, and its Quarterly Reports on Form 10-Q for
the periods ended March 31, 1997, June 30, 1997, and September 30, 1997; (iii)
reviewed certain operating and financial information, including projections,
provided to Furman Selz by ASR relating to ASR's business and prospects ("ASR's
Projections"); (iv) met with certain members of ASR's senior management to
discuss ASR's operations, historical financial statements and future prospects;
(v) reviewed the historical prices and trading volumes of ASR Common Stock;
(vi) reviewed publicly available financial data and stock market acquisitions
of companies that it deemed generally comparable to ASR; (vii) reviewed the
terms of recent acquisitions of companies that it deemed generally comparable
to ASR; and (viii) conducted other such studies, analyses, inquiries, and
investigations as it deemed appropriate.
Furman Selz assumed that ASR's Projections were reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
management of ASR as to the expected future performance of ASR. Furman Selz did
not assume any responsibility for the information or projections provided to
it, and Furman Selz further relied upon the assurances of the management of ASR
that they have no actual knowledge of any material facts that would make ASR's
Projections incomplete or misleading. ASR stockholders are cautioned, however,
that ASR's Projections are based on numerous variables and assumptions that are
inherently uncertain, including general economic conditions and competitive
conditions within the real estate industry, and that such information should
not be regarded as an indication that ASR or any persons who received such
information consider it other than an estimate of future events. ASR's
Projections reflect the current best judgment of management of ASR as to the
future financial performance of ASR and are not necessarily indicative of
future results of ASR, which may be significantly more or less favorable than
reflected by ASR's Projections. The material assumptions upon which the
Projections were based relate to various matters, including (i) the levels of
industry growth for ASR's business; (ii) the competitive environment in the
real estate industry; (iii) the degree of ASR's success in competing against
new entrants in its markets; and (iv) levels of indebtedness and debt service
requirements of ASR. ASR's Projections are not publicly available and have not
been disseminated to any party other than Furman Selz. In arriving at the
Fairness Opinion, Furman Selz did not perform or obtain any independent
appraisal of the assets ASR.
In rendering the Fairness Opinion, Furman Selz assumed and relied on,
without independent verification, the accuracy, completeness and fairness of
all the financial and other information that was available to it from public
sources or that was provided to it by ASR or its representatives. The Fairness
Opinion is necessarily based on economic, market, financial and other
conditions as they existed on, and on the information made available to it as
of the dates of the Fairness Opinion. It should be understood that, although
subsequent developments may affect its opinion, except as agreed upon by Furman
Selz, Furman Selz does not have any obligation to update, revise, or reaffirm
its opinion.
The following is a summary of the material factors considered and the
principal financial analyses performed by Furman Selz to arrive at the Fairness
Opinion. In arriving at the Fairness Opinion, Furman Selz did not quantify or
attempt to assign relative weights to the specific factors considered and
financial analyses performed.
Discounted Cash Flow Analysis. Furman Selz performed a discounted cash
flow analysis ("DCF") for ASR on a stand-alone basis based on ASR's
Projections for the years 1998 to 2002. The DCF was calculated assuming
discount rates ranging from 10% to 13%, consistent with Furman Selz's
industry research and analysis of average industry weighted average cost of
capital ("WACC"). The DCF valuation consisted of (1) adding (a) the present
value of the projected unleveraged free cash flow for the years 1998
through 2002, and (b) the present value of ASR's estimated terminal value
in year 2002 based on a 12.0x multiple of projected Earnings Before
Interest, Taxes, Depreciation and Amortization ("EBITDA") in such year,
consistent with Furman Selz's analysis of public company EBITDA trading
multiples and EBITDA transaction multiples, and (2) subtracting the current
net debt of ASR. Furman Selz's calculation of a theoretical terminal value
of ASR was based upon a capitalization rate applied to EBITDA assuming ASR
performs in accordance with ASR's Projections.
28
<PAGE>
Utilizing this methodology, Furman Selz derived estimated valuations of
the stockholders' equity, including the LP Units of the ASR Operating
Partnership ranging from approximately $107 million to $141 million, which
equates to $17.37 to $22.87 per share, as compared to the consideration to
be received in the proposed Merger of approximately $22.50 per share.
Analysis of Certain Other Publicly Traded Companies. Furman Selz
compared selected historical share prices, operating and financial ratios
for ASR to the corresponding data and ratios for selected apartment real
estate companies whose securities are publicly traded and that Furman Selz
believed were comparable to ASR in that they are real estate companies with
business characteristics similar to ASR. Such data and ratios included the
ratio of market capitalization of the common stock plus the principal
amount of total debt outstanding less cash on hand to operating EBITDA and
the ratio of market capitalization of the common stock to funds from
operations ("FFO"). The companies selected for this comparison were
Ambassador Apartments Inc., AMLI Residential Properties Trust, Berkshire
Realty Company, Inc., Home Properties of New York, Mid-America Apartment
Communities and Oasis Residential (collectively, the "Trading
Comparables").
Such financial ratios were compared to the corresponding historical and
projected operating results of ASR to derive valuation estimates for ASR.
Based on its review of the Trading Comparables for the 1998 estimated
EBITDA Multiple, Furman Selz utilized a range of values of 10.3x to 12.0x,
and for the FFO Multiple, ranges of value of 10.0x to 12.8x for 1997
estimated FFO, and 9.2x to 11.4x for 1998 estimated FFO. Utilizing this
methodology, Furman Selz derived estimated valuation for the ASR Common
Stock ranging from $12.13 to $24.03 per share as compared to the
consideration to be received in the proposed Merger of approximately $22.50
per share.
Comparable Merger and Acquisition Transactions Analysis. Using publicly
available information, Furman Selz reviewed four transactions since
December 16, 1996, which have been announced or consummated involving the
acquisition of publicly traded apartment REITs (the "Comparable
Transactions") and which Furman Selz deemed to be reasonably similar to the
Merger. The Comparable Transactions and their respective dates of
announcement include (acquiror/target) Equity Residential Properties
Trust/Evans Withycombe Residential (8/28/97); Post Properties Inc./Columbus
Realty Trust (8/4/97); Equity Residential Properties Trust/Wellsford
Residential Property Trust (1/17/97); and Camden Property Trust/Paragon
Group Inc. (12/16/96).
With respect to each of the Comparable Transactions, Furman Selz
compared (1) the equity purchase price as a multiple of last 12 months
("LTM") and Forward Year FFO (defined as either 1998 First Call estimates
if available or forward year as projected by industry analysts) and (2) the
Implied Firm Value (defined as the equity purchase price plus the total
principal amount of debt, plus the liquidation value of preferred stock,
less investments in affiliates, plus minority interest, less cash and cash
equivalents) as a multiple of (a) LTM revenue, (b) LTM earnings before
interest and taxes ("EBIT"), and (c) Forward-Year EBIT (defined as either
1998 analysts' estimates if available or forward year as projected by
industry analysts). Based on its review of the Comparable Transactions,
Furman Selz utilized a range of values of 8.1x to 12.1x and 10.0x and 12.8x
for the Forward-Year FFO and EBITDA multiple, respectively.
Utilizing this methodology, Furman Selz derived estimated valuations per
share of the ASR Common Stock ranging from approximately $15.30 to $27.13
as compared to the consideration to be received in the proposed Merger of
approximately $22.50 per share.
None of the Trading Comparables utilized as a comparison are identical to
ASR, and none of the Comparable Transactions, or other business combinations
utilized as a comparison, are identical to the proposed Merger. Accordingly, an
analysis of publicly traded comparable companies and comparable business
combinations is not mathematical; rather, it involves complex considerations
and judgements concerning differences in financial and operating
characteristics of the comparable companies and other factors that could affect
the public trading or acquisition value of the comparable companies or company
to which they are being compared.
The summary set forth above does not purport to be a complete description
of the analyses performed by Furman Selz. Estimated values do not purport to be
appraisals and do not necessarily reflect the prices at which businesses or
companies may be sold in the future, and such estimates are inherently subject
to uncertainty. The preparation of a fairness opinion is a complex analytical
process involving various determinations as to the most appropriate and
relevant methods of financial analyses and the application of these methods to
the particular circumstances and, therefore, is not necessarily susceptible to
partial analysis or summary description. Furman Selz
29
<PAGE>
believes that its analysis must be considered as a whole and that selecting
portions of its analyses and factors, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
such analyses and opinion.
In its analyses, Furman Selz made numerous macroeconomic, operating and
financial assumptions with respect to industry performance, general business
and economic conditions and other matters, many of which are beyond ASR's
control and involve the application of complex methodologies and educated
judgement. Any estimates incorporated in the analyses performed by Furman Selz
are not necessarily indicative of actual past or future results or values,
which may be significantly more or less favorable than such estimates.
Furman Selz is an internationally recognized investment banking firm,
which as a part of its investment banking services, is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuation for corporate and other
purposes. Furman Selz was retained by the ASR Board to act as its financial
advisor in connection with the Merger based upon Furman Selz's reputation and
experience as a financial advisor in mergers and acquisitions as well as Furman
Selz's familiarity with ASR and its industry.
ASR has entered into an engagement letter with Furman Selz for financial
advisory services. Under the agreement, ASR has agreed to pay Furman Selz a
retainer of $50,000 plus reimbursement of reasonable expenses; and if a merger
transaction occurs, ASR will pay a fee equal to $950,000 plus 10% of the
product of (a) the excess per share consideration for the ASR Common Stock over
$25.00 times (b) the aggregate of the number of outstanding shares of ASR
Common Stock, ASR Stock Options and the LP Units of the ASR Operating
Partnership. As the value of the consideration to be received by ASR
stockholders in the Merger is less than $25.00 per share, the total financial
advisory fee will be $1,000,000. In addition, ASR has paid Furman Selz $50,000
for the services rendered in connection with the issuance of the Fairness
Opinion.
Dividends
The Merger Agreement provides that at the Effective Time, ASR will
declare, set aside and pay a cash dividend (the "ASR Closing Dividend") of
$.1667 per share of ASR Common Stock for each month (with a pro rated amount
being paid for partial months) that the Effective Day occurs after February 28,
1998. If the Effective Day occurs during any calendar quarter (other than the
first calendar quarter of 1998) on a date that is after the record date for the
payment of regular quarterly dividends by United Dominion to its shareholders
during that calendar quarter, the amount of the ASR Closing Dividend will be
increased by $.334 per share of ASR Common Stock. The ASR Closing Dividend will
be reduced by the amount of other dividends paid by ASR during calendar year
1998. In addition, unless United Dominion otherwise notifies ASR, ASR will
before the Effective Time declare and set aside a special cash dividend, the
record date for which will precede the Effective Time, in an amount per share
that will enable ASR to meet the distribution requirements for qualification as
a REIT for the ASR tax year ending on the Effective Time. See "FEDERAL INCOME
TAX CONSIDERATIONS -- Requirements for Qualification -- Distribution
Requirements." ASR will also set aside and pay a corresponding amount of
distribution to the limited partners of the ASR Operating Partnership for the
Closing Dividend and any special dividends paid.
Under the Merger Agreement, United Dominion agrees not to declare or pay
any dividends prior to the Effective Time other than regular quarterly
dividends of not more than $.30 per share of United Dominion Common Stock.
Exchange for United Dominion Common Stock
As soon as reasonably practicable after the Effective Time, Chase Mellon
Shareholder Services, L.L.C. (ASR's stock registrar and transfer agent) will
mail to each holder of record of ASR Common Stock converted into United
Dominion Common Stock a letter of transmittal and instructions for surrendering
ASR Common Stock certificates in exchange for a certificate or certificates
representing the number of shares of United Dominion Common Stock to which such
holder is entitled, together with all unpaid dividends or distributions in
respect of the shares of ASR Common Stock surrendered and, when applicable, a
check for the amount representing any fractional shares (in each case, without
interest). After the Effective Time, until so surrendered, an ASR Common Stock
certificate will represent only the right to receive such United Dominion
Common Stock, unpaid dividends or distributions and fractional share payment.
No former stockholder of ASR will have any rights as
30
<PAGE>
a shareholder of United Dominion, including voting rights and rights to
dividends and distributions, with respect to shares of United Dominion Common
Stock into which shares of ASR Common Stock are converted until such surrender
and exchange are completed and such former ASR stockholder becomes the holder
of record of such shares of United Dominion Common Stock. After the Effective
Time, there will be no further registrations of transfers on the stock transfer
books of ASR of the shares of ASR Common Stock that were outstanding
immediately prior to the Effective Time.
ASR STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE
THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS.
Management and Operations After the Merger
Upon the consummation of Merger, Jon A. Grove, Chairman, President and
Chief Executive Officer of ASR, will be appointed to the United Dominion Board.
Mr. Grove will serve until the 1998 Annual Meeting of United Dominion
shareholders and will be nominated for election by the United Dominion Board at
that meeting and at the United Dominion shareholders' meeting in 1999.
Except for the appointment of Mr. Grove to the United Dominion Board, the
terms of the Merger do not require other directors and executive officers of
ASR to be appointed to the United Dominion Board or to be employed by United
Dominion.
Conditions to Consummation of the Merger
The respective obligations of United Dominion and ASR to consummate the
Merger are subject to the satisfaction of certain conditions, including the
following: (i) the Merger Agreement and the transactions contemplated thereby
shall have been approved by the stockholders of ASR; (ii) the NYSE shall have
approved for listing the United Dominion Common Stock to be issued in the
Merger; (iii) the Registration Statement, of which this Proxy
Statement/Prospectus forms a part, shall have become effective and shall not be
the subject of any stop order or proceedings seeking a stop order; (iv) no
injunction or similar legal restraint or prohibition preventing the
consummation of the Merger or other transactions contemplated by the Merger
Agreement shall be in effect; and (v) all material required actions by or in
respect of or filings with any governmental entity shall have been obtained or
made.
The consummation of the Merger also is subject to the satisfaction or
waiver of various other conditions specified in the Merger Agreement,
including, among others the following: (i) each party shall have performed its
covenants contained in the Merger Agreement and the representations and
warranties of such party contained in the Merger Agreement shall be true and
correct in all material respects; (ii) each party shall have received the
opinions of counsel to the effect described in "THE MERGER -- Certain Federal
Income Tax Consequences"; (iii) all third-party consents and waivers necessary
in connection with the consummation of the Merger shall have been obtained; and
(iv) United Dominion shall assume the rights and obligations of ASR under the
Registration Rights Agreements. These conditions are to be deemed satisfied
despite the failure of a representation and warranty to be true or of a
third-party consent or waiver to be obtained if the resulting net damage, net
loss net liability or expense does not exceed $4 million (in the case of ASR)
or $15 million (in the case of United Dominion).
Conduct of Business Pending the Merger
Each of United Dominion and ASR has agreed that it will carry on its
business in the usual, regular and ordinary course in substantially the same
manner as currently conducted and will use commercially reasonable efforts to
preserve intact its present business organization, goodwill, ongoing businesses
and status as a REIT. Except as otherwise disclosed to the other party or as
contemplated by the Merger Agreement, each of ASR and United Dominion has
agreed that it will not (i) declare, set aside or pay any distributions, except
as described in "THE MERGER -- Dividends," or effect any capital stock split,
combination or reclassification, issue or authorize the issuance of securities
in substitution for shares of capital stock or purchase, redeem or otherwise
acquire any shares of capital stock; (ii) amend its charter or bylaws; (iii)
issue, deliver, sell or grant any option or other right in respect of any
shares of capital stock or debt securities, other voting or redeemable
securities, or any securities convertible into any rights, warrants or options
to acquire, any such shares, voting securities or convertible or redeemable
securities; (iv) merge or consolidate with any other entity; (v) change in any
material
31
<PAGE>
manner any of its methods, principles or practices of accounting (except as
otherwise required by the Commission, applicable law or generally accepted
accounting principles), make or rescind any election relating to taxes or
settle or compromise any claim, litigation or controversy relating to taxes or
change any of its methods of reporting income or deductions for federal income
tax purposes; or (vi) without the consent of the other party, which shall not
be unreasonably withheld, settle any stockholder derivative or class action
claims arising out of or in connection with the Merger.
ASR has agreed that it will not directly or indirectly initiate, solicit
or make any proposal that constitutes or may reasonably be expected to lead to
any "Competing Transaction," defined as (i) any merger, consolidation, share
exchange, business combination or similar transaction involving ASR, (ii) any
disposition of 50% or more of the assets of ASR in a single transaction or
series of related transactions (excluding bona fide financing transactions),
(iii) any tender or exchange offer for 30% or more of the outstanding shares of
capital stock of ASR, or (iv) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing. However, to the extent required by the fiduciary obligations of the
ASR Board, as determined in good faith based on the advice of outside counsel,
ASR may disclose to its stockholders any information required to be disclosed
under applicable law; in response to an unsolicited request therefor,
participate in discussions or negotiations with any person in connection with a
Competing Transaction proposed by such person; and approve or recommend (and in
connection therewith withdraw or modify its approval or recommendation of the
Merger Agreement and the Merger) a Superior Competing Transaction or enter into
an agreement with respect to such Superior Competing Transaction. A "Superior
Competing Transaction" is a bona fide proposal of a Competing Transaction made
by a third party, which a majority of the ASR Board determines in good faith
(based on the advice of its investment banking firm) to be more favorable to
the ASR stockholders than the Merger.
ASR also has agreed that it will not enter into or modify any agreement or
arrangement with its affiliates or officers, directors or employees not
approved by a majority of the independent members of the ASR Board or, without
the consent of United Dominion, acquire or transfer any real property or incur
or secure any debt that is not prepayable at principal amount without penalty.
Employee Matters
ASR will terminate all of its employees prior to the Effective Time and
will satisfy all of its obligations to them under employment contracts and
employee benefit plans and programs. ASR also will terminate, to the extent
permitted by law, all obligations, liabilities and commitments of ASR and all
participants under such benefit plans and programs, other than options
outstanding under ASR's stock option plans and stock option agreements ("ASR
Stock Options"), the ASR Key Executive Share Option Plan (the "ASR KEYSOP") and
certain deferred compensation arrangements with ASR officers and directors
(collectively, "Continued ASR Benefit Programs").
ASR Stock Options outstanding at the Effective Time will be assumed by
United Dominion as options to purchase at the same exercise price the number of
shares of United Dominion Common Stock into which the number of shares of ASR
Common Stock subject to such ASR Stock Options would be converted pursuant to
the Merger. Assuming that none of the ASR Stock Options are exercised before
the Effective Time, the outstanding ASR Stock Options previously granted to the
indicated ASR directors and officers will be converted to options to purchase
the following numbers of shares of United Dominion Common Stock at the
indicated average exercise prices per share:
<TABLE>
<CAPTION>
Number Price
Name of Shares Per Share
- ----------------------------------------------------- ----------- ----------
<S> <C>
Jon A. Grove .............................. 170,910 $ 5.81
Joseph C. Chan .............................. 170,910 5.81
Frank S. Parise, Jr. ........................ 173,597 5.74
Earl M. Baldwin ........................... 5,476 9.67
John J. Gisi .............................. 4,134 12.70
Raymond L. Horn ........................... 2,756 14.61
Frederick C. Moor ........................... 5,242 10.24
Other officers as a group (3 persons) ...... 1,991 7.81
</TABLE>
32
<PAGE>
Following the Merger, United Dominion will also assume ASR's obligations
under the existing ASR KEYSOP and deferred compensation agreements. The ASR
KEYSOP is a tax-deferral plan under which ASR directors and officers can elect
to defer the receipt of compensation by exchanging such compensation for
options to acquire certain specified assets. The individual's equity in the ASR
KEYSOP at the time of the election is equal to the amount of compensation
deferred. The amounts of compensation deferred under deferred compensation
agreements and the ASR KEYSOP for the directors and officers of ASR as of
September 30, 1997 were as follows:
<TABLE>
<CAPTION>
Name Amount
- ----------------------------------------------------- ----------
<S> <C>
Jon A. Grove .............................. $ 483,080
Joseph C. Chan .............................. 949,486
Frank S. Parise, Jr. ........................ 799,236
John J. Gisi .............................. 13,885
Raymond L. Horn ........................... 13,885
Frederick C. Moor ........................... 13,885
Other officers as a group (2 persons) ...... 97,454
</TABLE>
The ASR Stock Options will be modified to eliminate certain dividend
equivalency rights and the holders thereof will be compensated for the loss of
the rights. See "THE MERGER -- Interests of Certain Persons in the Merger."
Prior to the Effective Time, ASR will make severance payments to certain
of its employees, not to exceed a total of $1.1 million.
Waiver and Amendment
At any time prior to the Effective Time, either party may (i) extend the
time for the performance of any of the obligations or other acts of the other
party, (ii) waive any inaccuracies in the representations and warranties made
to such party contained in the Merger Agreement or in any document delivered
pursuant thereto and (iii) waive compliance with any of the agreements or
conditions for the benefit of such party contained in the Merger Agreement. The
parties may by action of their respective Boards of Directors amend the Merger
Agreement at any time before or after approval of the Merger Agreement by the
ASR stockholders and before Articles of Merger relating to the Merger are filed
pursuant to the MGCL. However, no such waiver or amendment may alter the amount
or change the form of the consideration to be delivered to ASR's stockholders.
Termination of Merger Agreement
The Merger Agreement may be terminated prior to the Effective Time of the
Merger, either before or after approval by the ASR stockholders, under the
circumstances specified therein, which are summarized as follows:
(i) by mutual consent of the Boards of Directors of each of United
Dominion and ASR;
(ii) by either United Dominion or ASR if (a) any judgment, injunction,
order, decree or action by any governmental entity of competent authority
preventing the consummation of the Merger shall have become final and
nonappealable; (b) the Merger is not consummated by June 30, 1998, provided
such terminating party has not wilfully and materially breached its
representations, warranties and or covenants; or (c) the Merger is not approved
by the requisite vote of ASR stockholders;
(iii) by ASR upon a breach of any representation, warranty, covenant or
agreement on the part of United Dominion set forth in the Merger Agreement, or
if any representation or warranty of United Dominion shall have become untrue,
in either case such that the conditions set forth in the Merger Agreement would
be incapable of being satisfied by June 30, 1998 (or as otherwise extended),
provided that this condition will be deemed satisfied despite any failure of
any representations or warranties to be true and correct if the aggregate
amount of Economic Losses (as defined in the Merger Agreement) that would
reasonably be expected to arise as a result of the failure of such
representations and warranties to be true and correct as of the Effective Time
does not exceed $15 million;
33
<PAGE>
(iv) by ASR if, prior to the Special Meeting, the Board of Directors of
ASR or any committee thereof shall have withdrawn or modified in any manner
adverse to United Dominion the Board's approval or recommendation of the Merger
or the Merger Agreement in connection with the approval and recommendation of a
Superior Competing Transaction;
(v) by ASR if on any date after December 19, 1997 but on or prior to the
date of the Proxy Statement/ Prospectus, the average daily closing prices per
share of the United Dominion Common Stock on the NYSE, reported as "New York
Exchange Composite Transactions" by The Wall Street Journal over the consecutive
20-day period ending on such date is less than $13.50 per share, provided notice
of termination shall be given by ASR to United Dominion within ten business days
after the date that such right of termination arises;
(vi) by United Dominion upon a breach of any representation, warranty,
covenant or agreement on the part of ASR set forth in the Merger Agreement, or
if any representation or warranty of ASR shall have become untrue, in either
case such that the conditions set forth in the Merger Agreement would be
incapable of being satisfied by June 30, 1998 (or as otherwise extended),
provided that this condition shall be deemed satisfied despite any failure of
any representations or warranties to be true and correct if the aggregate
amount of Economic Losses (as defined in the Merger Agreement) that would
reasonably be expected to arise as a result of the failure of such
representations and warranties to be true and correct as of the Effective Time
does not exceed $4 million; and
(vii) by United Dominion if (a) prior to the Special Meeting, the ASR
Board of Directors or any committee thereof shall have withdrawn or modified in
any manner adverse to United Dominion the Board's approval or recommendation of
the Merger or the Merger Agreement in connection with, or approved or
recommended, any Superior Competing Transaction, (b) ASR shall have entered
into an agreement with respect to any Competing Transaction, or (c) the ASR
Board or any committee thereof shall have resolved to do any of the foregoing.
Except as otherwise specified in the Merger Agreement or agreed in writing
by ASR and United Dominion, all out-of-pocket costs and expenses incurred in
connection with the Merger Agreement and the other transactions contemplated
thereby shall be paid by the party incurring such costs or expenses.
The Merger Agreement provides that if the Merger is terminated in
accordance with the terms thereof pursuant to the conditions summarized in item
(vi) above, ASR will reimburse United Dominion for out-of-expenses of up to $1
million. In addition, ASR has agreed to pay United Dominion a break-up fee of
up to $5.5 million if the Merger Agreement is terminated in accordance with the
terms thereof pursuant to the conditions summarized in items (ii)(c), (iv),
(vi) and (vii) above and, in the case of the conditions summarized in items
(ii)(c) and (vi) above, following the date of the Merger Agreement and prior to
termination, ASR shall have received a proposal constituting a Competing
Transaction and within six months following termination ASR shall enter into a
definitive agreement providing for a Competing Transaction that is equally or
more favorable from a financial point of view to ASR's stockholders as the
Merger.
If the Merger Agreement is terminated in accordance with the terms thereof
pursuant to the conditions summarized in item (iii) above, United Dominion has
agreed to pay ASR termination fee of up to $5.5 million.
The expense and break-up fee payments made by either party are subject to
limitations imposed by Section 856(c)(2) and (3) of the Code as to the kind and
amount of income a qualified REIT may derive. In addition, United Dominion and
ASR have agreed that such payments are an integral part of the contemplated
transactions and constitute liquidated damages and not penalties. See Section
8.2 of the Merger Agreement which is included in Appendix I.
Interests of Certain Persons in the Merger
Certain directors and officers of ASR may be deemed to have interests in
the Merger in addition to their interests as stockholders of ASR generally. The
ASR Board either was aware of these interests or, with respect to interests
that arose subsequent to the execution of the Merger Agreement, was aware of or
considered their potential, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby.
Termination of Employment Agreements. Messrs. Jon A. Grove, Joseph C.
Chan, and Frank S. Parise, are parties to existing employment agreements with
ASR under which each individual receives an annual salary of
34
<PAGE>
$100,000. The employment agreements terminate on April 30, 2002. These
individuals will not be employed by United Dominion, and their employment
agreements with ASR will be terminated upon the consummation of the Merger.
Pursuant to the terms of the employment agreements, upon termination of the
employment agreements, each of Messrs. Grove, Chan and Parise will be paid the
compensation for the remainder of the term of his employment agreement
($416,667 each as of February 28, 1998).
Amendment of Certain Stock Option Terms. Messrs. Grove, Chan and Parise
hold stock options and stock appreciation rights ("SARs") granted by ASR in
prior years that entitle them to receive dividend equivalent rights ("DERs")
payments on the unexercised options and SARs. These stock options and SARs
expire in December 1998. Under the Merger Agreement, upon the consummation of
the Merger, rights to receive DERs will be cancelled and the holders will
receive an amount equal to the loss of the DERs for the remainder of the term
of the stock option and SAR agreements, provided that the total amount paid to
all of the individuals will not exceed $375,000. Based on the closing price of
ASR Common Stock on the AMEX as of February , 1998, the amounts payable to
Messrs. Grove, Chan and Parise would be $ , $ and $ ,
respectively.
In addition all outstanding SARs must be exercised and the amounts earned
thereunder will be paid to the holders upon the consummation of the Merger. At
September 30, 1997, the amount payable to Mr. Grove was $463,042. Messrs. Chan
and Parise do not have any outstanding SARs.
Indemnification. ASR and, from and after the Effective Time, United
Dominion have agreed to indemnify the officers and current and past directors
of ASR to the fullest extent a corporation is permitted to indemnify its
officers and directors under the MGCL, with respect to ASR, and the VSCA, with
respect to United Dominion, against all liabilities and expenses based upon or
arising out of the fact that the indemnified party is or was a director or
officer of ASR or an ASR subsidiary at or prior to the Effective Time. In
addition, United Dominion has agreed in the Merger Agreement to use its
reasonable best efforts to provide "run off" or "tail" director and officer
liability insurance coverage to the existing directors and officers of ASR
without reduction of existing coverage for a period of three years after the
Effective Time.
Director Compensation. United Dominion currently pays non-employee Board
members an annual retainer of $15,000 and $1,000 for attendance at each
meeting. In addition, non-employee Board member are granted 2,000 stock options
under United Dominion's 1985 Stock Option Plan, as amended, annually upon
reelection by the shareholders. 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. Mr. Grove, who will be appointed to the Board of United Dominion
upon the consummation of the Merger, will be eligible for these benefits as a
director of United Dominion.
Each independent director of ASR will receive a one-time fee of $75,000 as
compensation for the significant extra time commitments required in connection
with the deliberation of the merger proposal.
Effective Time of the Merger
The Merger will become effective as soon as practicable after satisfaction
or waiver of all conditions to consummation of the Merger, see "THE MERGER --
Conditions to Consummation of the Merger." 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 March , 1998. For state law purposes, the Merger
will become effective at such time as the Articles of Merger have been duly
filed with the Department of Assessments and Taxation of Maryland in accordance
with the MGCL, or at such other time as United Dominion and ASR shall specify
in the Articles of Merger (the "Effective Time"). ASR and United Dominion have
agreed to cause the Effective Time to occur no later than the second business
day after satisfaction or waiver of the conditions to consummation of the
Merger. Either ASR or United Dominion may terminate the Merger Agreement under
certain circumstances including if the Merger has not been consummated by June
30, 1998. See "THE MERGER -- Waiver and Amendment" and "THE MERGER --
Termination of Merger Agreement."
Until the Effective Time ASR stockholders will retain their rights as
stockholders of ASR to vote on matters submitted to them.
35
<PAGE>
Headquarters
After the Merger, the headquarters of United Dominion will continue to be
located at 10 South Sixth Street, Richmond, Virginia.
Certain Federal Income Tax Consequences
The following discussion summarizes for general information the material
federal income tax consequences of the Merger to ASR 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. ASR stockholders are urged to consult their own
tax advisors with regard to federal, state, and local tax consequences.
In the opinion of Hunton & Williams, counsel for United Dominion, and
Rogers & Wells, special counsel for ASR, the Merger will qualify as a
reorganization under Section 368(a)(1) of the Code and the federal income tax
consequences to ASR stockholders upon the exchange of stock pursuant to the
Merger will be as described below. A condition to consummation of the Merger is
the receipt of substantially identical opinions of counsel as of the Effective
Day. The opinions of counsel are based on (and the opinions to be delivered as
of the Effective Day will be based on) certain customary assumptions and
representations regarding, among other things, the lack of previous dealings
between ASR and United Dominion, the existing and future ownership of ASR and
United Dominion stock and the future business plans for United Dominion. ASR
stockholders should be aware that opinions of counsel are not binding on the
Internal Revenue Service (the "Service" or "IRS") or any court. The federal
income tax consequences summarized below are based on the assumption that the
Merger will qualify as a reorganization.
Provided the Merger qualifies as a reorganization under Section 368(a)(1)
of the Code, an ASR stockholder who receives solely United Dominion Common
Stock in exchange for his shares of ASR 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 as if the fractional share had been received and then redeemed for the
cash. A stockholder will have an aggregate tax basis in his shares of United
Dominion Common Stock (including any fractional share interest) received in the
Merger equal to his aggregate tax basis in the shares of ASR Common Stock
exchanged therefor. A stockholder's holding period for shares of United
Dominion Common Stock (including any fractional share interest) received in the
Merger will include his holding period for the shares of ASR Common Stock
exchanged therefor if they are held as a capital asset at the Effective Time.
Accounting Treatment
The Merger will be accounted for using the purchase method in accordance
with Accounting Principles 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 ASR will be revalued to their respective fair market values.
The financial statements of United Dominion will reflect the combined
operations of United Dominion and ASR from the Effective Time of the Merger.
Resales of United Dominion Common Stock
The shares of United Dominion Common Stock issuable to holders of ASR
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 ASR Common Stock who receive such shares following
consummation of the
36
<PAGE>
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 ASR or United Dominion. ASR has agreed
in the Merger Agreement to use its best efforts to have each person whom ASR
has identified as an "affiliate" of ASR 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 Proxy
Statement/Prospectus does not cover any resales of United Dominion Common Stock
received by affiliates of ASR.
Other Related Transactions
Upon consummation of the Merger, limited partners in the ASR Operating
Partnership will have the right to convert their LP Units into shares of United
Dominion Common Stock. Further, United Dominion will assume the obligations of
ASR under the Registration Rights Agreements with such limited partners.
DISSENTERS' RIGHTS
Because the ASR Common Stock was listed on the AMEX on the Record Date,
under Section 3-202(c)(1)(ii) of the MGCL, holders of the ASR Common Stock will
not have statutory rights to demand and receive payment of the fair value
thereof and they will be bound by the terms of the Merger.
37
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1996
and the Nine Months Ended September 30, 1997
BASIS OF PRESENTION
The Unaudited Pro Forma Combined Statements of Operations for the year
ended December 31, 1996 and the nine months ended September 30, 1997 are
presented as if the Merger had occurred on January 1, 1996. 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 give effect to the following
acquisitions as if they had occurred on January 1, 1996: (i) the acquisition of
a portfolio of 18 apartment communities in August 1996, (ii) the acquisition of
two apartment communities in May 1996, (iii) the acquisition of South West
Property Trust Inc. (44 apartment communities) on December 31, 1996 and (iv)
the acquisition of 17 apartment communities during 1997 (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 ASR Pro Forma Statements of Operations give
effect to the following acquisitions as if they had occurred on January 1,
1996: (i) the acquisition of the Winton Properties and Winton and Associates on
April 30, 1997, (ii) the acquisition of Pima Mortgage L.P. and Pima Realty
Advisors, Inc. on April 30, 1997, (iii) the acquisition of London Park
Apartments in March 1997, (iv) the acquisition of the remaining 85% interest in
La Privada Apartments L.L.C. and the related sale of ASR's interest in the
other five joint ventures on April 30, 1997, (v) the acquisition of
Ivystone/Woodsedge Apartments and The Court Apartments in April 1997, (vi) the
acquisition of Gentry Place Apartments, Smith Summit Apartments, Park on
Preston Apartments and On The Boulevard Apartments in September 1997, and
(viii) the acquisition of Arbor Terrace Apartments in October 1997 (see Note
(B) to the Unaudited Pro Forma Combined Statements of Operations).
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 ASR would have been for the year
ended December 31, 1996 and the nine months ended September 30, 1997 if the
Merger and other acquisitions had occurred on January 1, 1996, 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 ASR
incorporated by reference herein.
38
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
United
United Disposition Pro Forma Dominion
Dominion ASR of Mortgage Merger Pro Forma
Pro Forma (A) Pro Forma (B) Assets (C) Adjustments Combined
--------------- --------------- ------------- ------------------ ----------
<S> <C>
Income
Rental income .............................. $377,580 $44,759 $422,339
Interest and other non-property
income ................................. 2,683 2,683
-------- --------
380,263 44,759 425,022
-------- ------- --------
Expenses
Rental expenses:
Utilities .............................. 26,744 3,541 30,285
Repairs and maintenance .................. 58,365 5,712 64,077
Real estate taxes ........................ 30,706 4,139 34,845
Property management ..................... 8,948 1,481 $ (372) (E) 10,057
Other rental expenses .................. 39,486 5,769 45,255
Depreciation of real estate owned ......... 73,220 9,839 (390) (D) 82,669
Interest ................................. 85,109 13,429 (1,229) (F) 97,309
General and administrative ............... 7,113 3,158 (2,605) (G) 7,666
Other depreciation and amortization ...... 1,629 438 (70) (H) 1,997
Impairment loss on real estate
owned ................................. 290 290
-------- ------- ------------ --------
331,610 47,506 (4,666) 374,450
-------- ------- ------------ --------
Income from and gains on sales or
redemptions of mortgage assets ............ 12,103 $ (12,103)
------- ----------
Income before gains on sales of
investments and minority interest of
unitholders in operating partnership ...... 48,653 9,356 (12,103) 4,666 50,572
Gains on sales of investments ............... 4,346 4,346
Minority interest of unitholders in
operating partnership ..................... (582) (573) (1,155)
-------- ------- ---------- ------------ --------
Net income ................................. 52,417 8,783 (12,103) 4,666 53,763
Dividends to preferred shareholders ......... 9,713 9,713
-------- ------- ---------- ------------ --------
Net income available to common
shareholders .............................. $ 42,704 $ 8,783 $ (12,103) $ 4,666 $44,050
======== ======= ========== ============ ========
Net income per common share ............... $ 0.52 $ 0.49
======== ========
Distributions declared per common
share .................................... $ 0.96 $ 0.96
======== ========
Weighted average number of common
shares outstanding ........................ 81,505 7,859 (I) 89,364
======== ============ ========
</TABLE>
See accompanying notes.
39
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
United
United ASR Disposition Pro Forma Dominion
Dominion Pro of Mortgage Merger Pro Forma
Pro Forma(A) Forma(B) Assets(C) Adjustments Combined
-------------- ---------- ------------- ------------------ ----------
<S> <C>
Income
Rental income ........................... $300,752 $34,417 $335,169
Interest and other non-property
income ................................. 867 464 1,331
-------- ------- --------
301,619 34,881 336,500
-------- ------- --------
Expenses
Rental expenses:
Utilities .............................. 19,429 2,569 21,998
Repairs and maintenance ............... 43,139 3,819 46,958
Real estate taxes ..................... 24,682 3,389 28,071
Property management ..................... 9,679 1,065 $ (279) (E) 10,465
Other rental expenses .................. 32,134 4,981 37,115
Depreciation of real estate owned ......... 57,487 7,330 (143) (D) 64,674
Interest ................................. 64,212 10,075 (853) (F) 73,434
General and administrative ............... 5,271 2,506 (2,374) (G) 5,403
Acquisition related expense ............... 6,215 6,215
Other depreciation and amortization ...... 1,339 207 (24) (H) 1,522
Impairment loss on real estate
owned ................................. 1,400 1,400
-------- ------------ --------
258,772 42,156 (3,673) 297,255
-------- ------- ------------ --------
Income from and gains on sales or
redemptions of mortgage assets ......... 17,265 $ (17,265)
------- ---------
Income before gains on sales of
investments and minority interest of
unitholders in operating partnership 42,847 9,990 (17,265) 3,673 39,245
Gains on sales of investments ............ 12,682 474 13,156
Minority interest of unitholders in
operating partnership .................. (443) (374) (817)
-------- ------- --------- ------------ --------
Net income .............................. 55,086 10,090 (17,265) 3,673 51,584
Dividends to preferred shareholders ...... 11,692 11,692
-------- ------- --------- ------------ --------
Net income available to common
shareholders ........................... $ 43,394 $10,090 $ (17,265) $ 3,673 $39,892
======== ======= ========= ============ ========
Net income per common share ............ $ 0.50 $0.42
======== ========
Distributions declared per common
share ................................. $ 0.7575 $0.7575
======== ========
Weighted average number of common
shares outstanding ..................... 86,602 7,859 (I) 94,461
======== ============ ========
</TABLE>
See accompanying notes.
40
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS
OF OPERATIONS OR THE YEAR ENDED DECEMBER 31, 1996
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(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
filed with the Securities and Exchange Commission on August 31, 1996
(subsequently updated to reflect results of operations for the twelve
months ended December 31, 1996 on Form 8-K/A filed March 17, 1997), (ii)
the acquisition of two apartment communities in May 1996, as previously
reported on Form 8-K dated October 31, 1996 filed with the Securities and
Exchange Commission on November 15, 1996 (subsequently updated to reflect
results of operations for the twelve months ended December 31, 1996 on
Form 8-K/A filed on March 17, 1997, (iii) the acquisition of 44 apartment
communities owned by South West Property Trust Inc. on December 31, 1996,
as previously reported on Form 8-K dated December 31, 1996 filed with the
Securities and Exchange Commission on January 15, 1997, including Form
8-K/A filed on March 17, 1997, (iv) the acquisition of 12 apartment
communities as previously reported on Form 8-K dated July 1, 1997,
including Form 8-K/A filed September 15, 1997 (subsequently amended to
reflect the results of operations for the nine months ended September 30,
1997 on Form 8-K/A filed on December 31, 1997), and (v) the acquisition
of five apartment communities during the third quarter of 1997 as
previously reported on Form 8-K dated October 21, 1997 filed with the
Securities and Exchange Commission on November 5, 1997, including Form
8-K/A filed on December 31, 1997, all incorporated by reference into this
Registration Statement, for the periods not owned by United Dominion.
(B) The ASR Pro Forma Statements of Operations reflect the historical results
of ASR adjusted to reflect the following 1997 transactions. The pro forma
adjustments for these transactions have been reported in the Current
Reports on Form 8-K filed by ASR with the Securities and Exchange
Commission: (a) (i) the acquisition of the Winton Properties and Winton &
Associates on April 30, 1997, (ii) the acquisition of Pima Mortgage L.P.
and Pima Realty Advisors, Inc. on April 30, 1997, (iii) the acquisition of
London Park Apartments in March 1997, (iv) the acquisition of the
remaining 85% interest in La Privada Apartments L.L.C. and the related
sale of the Company's interests in the other five joint ventures on April
30, 1997, and (v) the acquisition of Ivystone/Woodsedge Apartments and The
Court Apartments in April 1997, all as previously reported on Form 8-K
filed on May 15, 1997, as amended on Form 8-K/A filed on June 16, 1997;
(b) the acquisition of three apartment communities in September 1997 as
previously reported on Form 8-K filed on September 18, 1997; (c) the
acquisition of On The Boulevard Apartments in September, 1997 and the
acquisition of Arbor Terrace Apartments in October, 1997, as previously
reported on Form 8-K filed on November 6, 1997, as amended on Form 8-K/A
filed on January 6, 1998. Certain reclassifications have been made to
ASR's pro forma statements of operations to conform to United Dominion's
financial statement presentations. The reclassifications consist primarily
of reporting minority interest consistent with United Dominion's
presentation.
(C) Represents the elimination of the income from and gains on sales or
redemptions of mortgage assets reported by ASR during the periods
presented. Beginning in 1996, ASR implemented a strategic plan to divest
its mortgage asset portfolio and reinvest the net proceeds in the
acquisition of apartment communities. ASR completed the sale of its
remaining mortgage asset portfolio in June 1997, the net proceeds of which
were primarily used to acquire apartment communities. The income from and
gains on sales of mortgage assets is eliminated since these assets will
not have a continuing impact on results of operations for the combined
entity.
(D) Represents the net decrease in depreciation of real estate owned as a
result of recording the ASR real estate assets at fair value versus
historical cost and using United Dominion's depreciable lives.
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 26.8 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.
41
<PAGE>
Calculation of the fair value of depreciable real estate assets at
September 30, 1997:
<TABLE>
<S> <C>
Purchase price (See Pro Forma Combined Balance Sheet Note
(C)) ................................................ $ 334,616
Less: Purchase price allocated to cash and
cash equivalents .................................... 8,284
Purchase price allocated to other assets ......... 10,130
Purchase price allocated to land ............... 47,290
Purchase price allocated to real estate under
development .................................... 925
Purchase price allocated to real estate held for
disposition .................................... 14,830
----------
Pro forma basis of ASR's depreciable real estate held for
investment at fair value .............................. $ 253,157
==========
</TABLE>
Calculation of depreciation of real estate owned for the year ended December
31, 1996 and the nine months ended September 30, 1997 are as follows:
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1996 1997
-------------- --------------
<S> <C>
Depreciation expense based upon an estimated
weighted average useful life of
approximately 26.8 years ............... $ 9,449 $ 7,187
Less: ASR's pro forma depreciation of real
estate owned ........................... (9,839) (7,330)
-------- --------
Pro forma adjustment ..................... $ (390) $ (143)
======== ========
</TABLE>
(E) Reflects the net estimated reduction of property management costs of $372
and $279 for the year ended December 31, 1996 and the nine months ended
September 30, 1997, 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>
Nine Months
Year Ended Ended
December 31, September 30,
1996 1997
-------------- --------------
<S> <C>
Net reduction in salary, benefits and other
compensation due to the termination of all
ASR employees prior to the Merger in
accordance with the Merger Agreement ......... $ (249) $ (187)
Net reduction in travel and entertainment ...... (20) (15)
Net reduction in professional services ......... (34) (25)
Net reduction in other expenses ............... (69) (52)
------ ------
Pro forma adjustment ........................... $ (372) $ (279)
====== ======
</TABLE>
42
<PAGE>
(F) Represents the net adjustment to interest expense for the year ended
December 31, 1996 and the nine months ended September 30, 1997, as
follows:
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1996 1997
-------------- --------------
<S> <C>
To adjust amortization of ASR's deferred financing
costs which would be eliminated in the Merger ...... $ (368) $ (207)
To reflect the amortization of the premium required
to record ASR's mortgage notes payable at fair
value ............................................. (1,196) (897)
To reflect the additional borrowings of $5,492 (See
Note (G) of the Pro Forma Combined Balance
Sheet) at current market interest rates available to
United Dominion of 6.1% ........................... 335 251
-------- ------
Pro forma adjustment ................................. $ (1,229) $ (853)
======== ======
</TABLE>
(G) Represents the net reduction to general and administrative expenses of
$2,605 and $2,374 for the year ended December 31, 1996 and the nine months
ended September 30, 1997, respectively, based upon the identified
historical costs of certain items which are anticipated to be eliminated
or reduced as a result of the Merger, as follows:
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1996 1997
-------------- --------------
<S> <C>
Salary, benefits and other compensation due to the termination
of all ASR employees prior to the Merger in accordance
with the Merger Agreement ................................. ($ 2,155) ($ 1,954)
Duplicate public company expenses ........................... (64) (28)
Professional services ....................................... (238) (273)
Other expenses ............................................. (148) (119)
-------- --------
Pro forma adjustment ....................................... ($ 2,605) ($ 2,374)
======== ========
</TABLE>
(H) Represents the elimination of the pro forma amortization of goodwill
included in the ASR Pro Forma Statements of Operations which would be
eliminated in the Merger.
(I) The pro forma weighted average shares outstanding for the year ended
December 31, 1996 and the nine months ended September 30, 1997 are
computed as follows:
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1996 1997
-------------- --------------
<S> <C>
ASR's pro forma weighted average common shares and
operating partnership units outstanding ............... 5,961 5,961
Less: units in the operating partnership ............... (971) (971)
------ ------
ASR pro forma weighted average common shares outstanding 4,990 4,990
====== ======
United Dominion pro forma weighted average common shares
outstanding .......................................... 81,505 86,602
Increase in United Dominion common stock at an the
Exchange Ratio of 1.575 for the ASR pro forma weighted
average common shares outstanding** .................. 7,859 7,859
------ ------
Pro forma combined shares .............................. 89,364 94,461
====== ======
</TABLE>
** Weighted average pro forma adjusted ASR common shares outstanding multiplied
by the Exchange Ratio.
43
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
BASIS OF PRESENTATION
The Unaudited Pro Forma Combined Balance Sheet gives effect to the
proposed Merger of United Dominion and ASR as if the Merger had occurred on
September 30, 1997. In addition, The Unaudited Pro Forma Combined Balance Sheet
gives effect to the acquisition by United Dominion of two apartment communities
during the fourth quarter of 1997 as previously reported on Form 8-K dated
October 21, 1997 filed with the Securities and Exchange Commission on November
5, 1997, including Form 8-K/A filed on December 31, 1997, and the acquisition
by ASR of one apartment community on October 27, 1997, as previously reported
on Form 8-K dated October 27, 1997 filed with the Securities and Exchange
Commission on November 6, 1997, including Form 8-K/A filed on January 6, 1998.
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.
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 ASR would have been at
September 30, 1997, nor does it purport to represent the future combined
financial position of United Dominion and ASR. 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 ASR incorporated by reference into this
Registration Statement.
44
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1997
(Amounts in thousands, except for share data)
<TABLE>
<CAPTION>
United
United ProForma Dominion
Dominion ASR Merger Pro Forma
Pro Forma (A) Pro Forma (B) Adjustments Combined
--------------- --------------- ------------------ --------------
<S> <C>
ASSETS
Real estate owned:
Real estate held for investment ..................... $2,236,520 $ 273,780 $ 26,667 (D) $2,536,967
Less: accumulated depreciation ..................... (200,538) (11,539) 11,539 (D) (200,538)
---------- ---------- ------------ ----------
2,035,982 262,241 38,206 2,336,429
Real estate under development ..................... 33,628 925 34,553
Real estate held for disposition .................. 131,576 14,830 (D) 146,406
Cash and cash equivalents ........................... 5,383 8,284 13,667
Other assets ....................................... 65,639 14,363 (4,233) (E) 75,769
---------- ---------- ------------ ----------
Total assets .................................... $2,272,208 $ 285,813 $ 48,803 $2,606,824
========== ========== ============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable-secured .............................. $ 424,295 $ 175,118 $ 8,220 (F) $ 607,633
Notes payable-unsecured .............................. 691,219 5,492 (G) 696,711
Distributions payable to common shareholders ......... 22,261 22,261
Accounts payable and other liabilities ............... 62,361 10,047 72,408
---------- ---------- ------------- ----------
Total liabilities .............................. 1,200,136 185,165 13,712 1,399,013
Minority interest of unitholders in operating
partnership ....................................... 14,570 19,527 1,893 (H) 35,990
Shareholders' equity:
Preferred stock, no par value; $25 liquidation
preference, 25,000,000 shares authorized;
4,200,000 shares 9.25% Series A
Cumulative Redeemable ............................. 105,000 105,000
6,000,000 shares 8.60% Series B
Cumulative Redeemable ............................. 150,000 150,000
Common stock ....................................... 88,162 51 7,808 (I) 96,021
Additional paid-in capital ........................ 893,701 191,155 (84,695) (I) 1,000,161
Notes receivable from officer shareholders ......... (9,168) (317) 317 (I) (9,168)
Distributions in excess of earnings ............... (170,193) (109,768) 109,768 (I) (170,193)
---------- ---------- ------------ ----------
Total shareholders' equity ........................ 1,057,502 81,121 33,198 1,171,821
---------- ---------- ------------ ----------
Total liabilities and shareholders' equity ...... $2,272,208 $ 285,813 $ 48,803 $2,606,824
========== ========== ============ ==========
</TABLE>
See accompanying notes.
45
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(A) The Unaudited Pro Forma Balance Sheet reflects the historical results of
United Dominion adjusted to reflect the acquisition of two apartment
communities during the fourth quarter of 1997 as previously reported on
Form 8-K dated October 21, 1997 filed with the Securities and Exchange
Commission on November 5, 1997, including Form 8-K/A filed on December 31,
1997.
(B) The Unaudited Pro Forma Balance Sheet reflects the historical results of
ASR adjusted to reflect the acquisition of one apartment community
acquired on October 27, 1997 as previously reported on Form 8-K dated
October 27, 1997 filed by ASR with the Securities and Exchange Commission
on November 6, 1997, as amended on Form 8-K/A filed on January 6, 1998.
Certain reclassifications have been made to ASR's historical balance sheet
to conform to United Dominion's balance sheet presentation. The
reclassifications consist primarily of reporting minority interest
consistent with United Dominion's presentation.
(C) Represents adjustments to record the Merger in accordance with the purchase
method of accounting, based upon the assumed purchase price of $334,616,
assuming a market value of $14.00 per share of United Dominion common
stock, as follows:
<TABLE>
<S> <C>
Issuance of 7,859 shares of United Dominion common stock
based on the 1.575 exchange ratio in exchange for 4,990
shares of ASR common stock at an assumed price of
$14.00 per share .......................................... $110,031
Adjustment to record the fair value of the 971 ASR LP Units
not acquired by United Dominion which are convertible to
1.575 shares at an assumed price of $14.00 per share ...... 21,420
Assumption of ASR liabilities .............................. 185,165
Adjustment to record ASR mortgage notes payable at fair
value ................................................... 8,220
Adjustment to record ASR stock options at fair value
(353 stock options convertible to 1.575 shares of United
Dominion common stock at a fair value of $7.875) ......... 4,378
Merger costs (see calculation below) ..................... 5,402
---------
Total adjustment .......................................... $334,616
=========
</TABLE>
The following is an estimate of the fees and other expenses related to
the Merger:
<TABLE>
<S> <C>
Advisory fees ........................ $1,100
Legal and accounting fees ............ 800
Severance and other compensation ...... 3,187
Other ................................. 315
-------
Total adjustment ..................... $5,402
=======
</TABLE>
46
<PAGE>
(D) Increase of $53,036 in the net book value of ASR's real estate assets based
upon United Dominion's purchase price and the adjustment to eliminate
ASR's pro forma accumulated depreciation of $11,539, as follows:
<TABLE>
<S> <C>
Purchase price (See Note (C)) .............................. $334,616
Less basis of ASR's assets assumed:
Real estate held for investment, net of accumulated
depreciation .......................................... $262,241
Real estate held for development ........................ 925
Cash and cash equivalents .............................. 8,284
Other assets (See Note (E)) .............................. 10,130
---------
281,580
---------
Pro forma adjustment -- step up to record fair value of ASR's
real estate assets ....................................... 53,036
Less: Reclass of real estate held for disposition** ......... 14,830
---------
Pro forma adjustments real estate held for investment ...... $ 38,206
=========
</TABLE>
** United Dominion intends to sell three apartment communities and one office
building included in the ASR portfolio. Consequently, the assumed fair
value less the estimated costs to sell aggregating $14,830 would be
reclassified to real estate held for disposition.
(E) To adjust the pro forma basis of ASR's other assets to eliminate deferred
financing and similar costs in the aggregate amount of $4,233, which would
be eliminated in connection with the Merger.
(F) To record the $8,220 premium required to adjust the ASR fixed-rate mortgage
notes payable to estimated fair value based on interest rates believed to
be available to United Dominion for issuance of mortgage debt with similar
terms and remaining maturities.
(G) Represents the additional borrowings of $5,492 of variable-rate bank debt
incurred by United Dominion to fund Merger costs of $5,402 (See Note (C))
and registration costs of $90 (See Note (I)).
(H) Adjustment to record the fair value of 971 ASR LP Units convertible to
1.575 shares of United Dominion Common Stock pursuant to the Merger
Agreement at an assumed price of $14.00 per share, as follows:
<TABLE>
<S> <C>
ASR LP Units .............................. 971
Exchange Ratio .............................. 1.575
--------
Adjusted ASR LP Units ..................... 1,530
Assumed price per Unit ..................... $14.00
--------
Value of ASR LP Units ..................... $21,420
Less: ASR pro forma minority interest ...... 19,527
--------
Pro forma adjustment ........................ $ 1,893
========
</TABLE>
47
<PAGE>
(I) To adjust ASR's pro forma shareholders' equity to reflect the issuance of
7,859 shares of United Dominion common stock at an assumed price of $14.00
per share (at an exchange ratio of 1.575), in exchange for all of the
4,990 outstanding shares of ASR's common stock, to record the estimated
Registration Costs in connection with the Merger of $90 and to record the
fair value of the ASR Stock Options of $4,378 (see Note (C)), as follows:
<TABLE>
<CAPTION>
Additional Notes Receivable Distributions
Common Paid-In Officer In Excess
Stock Capital Shareholders Of Earnings
-------- ------------ ------------------ --------------
<S> <C>
Issuance of United Dominion common stock ......... $7,859 $ 102,172 $ -- $ --
Registration costs incurred in connection with the
Merger .......................................... (90)
Record the fair value of the ASR Stock Options (See
Note (C)) ....................................... 4,378
ASR's pro forma shareholders' equity ............ (51) (191,155) 317 109,768
------ ---------- ----- ---------
Pro forma adjustments ........................... $7,808 $ (84,695) $317 $109,768
====== ========== ===== =========
</TABLE>
48
<PAGE>
BUSINESS OF UNITED DOMINION
United Dominion is a self-administered equity real estate investment trust
("REIT"), formed in 1972, which acquires, repositions, develops, manages and
selectively sells apartment communities for its own portfolio in the Sunbelt
region of the United States.
United Dominion is headquartered in Richmond, Virginia with regional
offices located in Richmond, Atlanta, Georgia, Dallas, Texas and Orlando,
Florida and area offices in the previously mentioned cities plus Columbia,
Maryland, Raleigh, North Carolina, Charlotte, North Carolina, Tampa, Florida,
Nashville, Tennessee, San Antonio, Texas, Houston, Texas and Phoenix, Arizona.
United Dominion employed approximately 2,100 associates as of September 30,
1997.
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 apartment communities that 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. As
of September 30, 1997, United Dominion owned 61,099 completed apartments in 220
apartment communities. For the nine months ended September 30, 1997, apartments
provided approximately 99% of United Dominion's total rental income. During the
first nine months of 1997, United Dominion acquired 22 apartment communities,
having a total of 6,802 apartment homes at a total cost of approximately $267
million.
United Dominion's investment strategy focuses on acquiring apartment
communities where it can add value. In addition, United Dominion has been a
major participant in the real estate consolidation process, having acquired
apartment portfolios in each of the last four years and completed a statutory
merger with South West Property Trust Inc. at the end of 1996. United Dominion
expects to continue to participate in the consolidation process as an acquiror
of other apartment portfolios and/or apartment companies (including REITs) when
such transactions can enhance both dividend growth and shareholder value.
United Dominion expects to expand geographically into other regions primarily
through such portfolio acquisitions. United Dominion seeks to be a market
leader by operating a sufficiently sized portfolio of apartments within each
market. United Dominion believes this market diversification increases
investment opportunity and decreases the risk associated with cyclical real
estate markets and economies. At September 30, 1997, United Dominion owned 14%
of its apartment homes in the Dallas market, and did not own more than 6% of
its apartment homes in any of its other markets. United Dominion's strategy is
to establish a major presence in each of its existing 23 markets in order to:
o Be a local market leader.
o Obtain economies of scale in use of personnel, advertising and
purchasing goods and services locally.
o Efficiently add services to produce other sources of income.
o Benefit from utility deregulation by purchasing utilities in bulk and
remarketing them to residents.
o Build stronger local and regional teams of associates.
United Dominion will continue to grow principally through acquisitions.
Development, however, has been and will continue to be an important business
segment given United Dominion's size and its strategic objective to be a major
owner in its larger markets. Development capability allows United Dominion to
continually upgrade its apartment portfolio and grow in existing markets.
During the first nine months of 1997, United Dominion invested approximately
$37.4 million in development projects at nine apartment communities (including
two new communities and seven additional phases to existing apartment
communities). During the period, 739 apartment homes were completed and became
available for occupancy. At September 30, 1997, 916 apartment homes remained
under development. United Dominion expects to invest in excess of $50 million
in new development during the full year 1997.
During 1997, United Dominion analyzed its portfolio with the objective of
identifying properties believed to no longer meet its long-term investment
objectives due to size, location, age, quality and future investment
49
<PAGE>
potential. United Dominion believes it will sell approximately 20% of its
apartment portfolio although many of the specific properties to be sold have
not yet been identified. These sales allow United Dominion to reduce the age of
its existing portfolio which should result in lower operating expense ratios
and per unit capital expenditures. During 1997, United Dominion transferred 19
apartment communities aggregating $135.6 million, net of accumulated
depreciation and valuation allowance, from real estate held for investment to
real estate held for disposition. During the first nine months of 1997, United
Dominion sold four apartment communities in separate transactions and six
properties in a portfolio transaction. United Dominion hopes to sell $50-$70
million or more of properties each quarter through at least the first three
quarters of fiscal year 1998.
Management expects United Dominion's apartment business to continue to be
stable during the next two to three years as apartment markets in the Sunbelt,
in general, are expected to remain relatively balanced. In 1994 and 1995, the
Sunbelt apartment markets generally benefited from good job growth which led to
strong growth in the number of renter households. This offset new apartment
construction in most markets. United Dominion believes there will be good
long-term demand for B grade apartment communities in the Sunbelt. After
peaking in mid-1994 and gradually trending downward through 1995 and 1996,
physical occupancy has rebounded during the first nine months of 1997, with the
physical occupancy of mature apartments (those apartment communities acquired,
developed and stabilized prior to January 1, 1996 and held throughout both 1996
and 1997) reaching 94.3% during September 1997. Economic occupancy bottomed out
at 90.7% in January 1997 after a gradual decrease over 1995 and 1996, but has
grown steadily over the remainder of the year to 93% for September 1997. United
Dominion expects to maintain rent growth in the 4% range and economic occupancy
in the 92% to 93% range during the remainder of 1997.
As United Dominion's capital base has broadened over the past several
years, primarily through the sale of Common Stock in seven of the last nine
years and 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 has used secured debt financing but to a lesser extent
and only when such financing has taken the form of tax-exempt housing bonds or
when, in connection with an acquisition, existing mortgage financing is in
place that (i) is closed to prepayment, (ii) cannot be repaid either at a
reasonable cost or by reason of agreement with the seller, or (iii) carries an
attractive interest rate.
At September 30, 1997, United Dominion's outstanding indebtedness totaled
$1.1 billion with a weighted average interest rate of 7.4%. At September 30,
1997, total senior debt equaled approximately 41% of United Dominion's total
market capitalization. Financing activities during the first nine months ended
September 30, 1997 included: (i) net proceeds from the issuance of United
Dominion Common Stock in the amount of $86.6 million, which consists primarily
of $59.4 million received through the issuance of 4 million shares of Common
Stock and $26.7 million received under United Dominion's dividend reinvestment
and stock purchase plan, (ii) net proceeds from the issuance of unsecured notes
payable totaling $125 million, (iii) net proceeds from the sale of 6,000,000
shares of 8.60% Series B Redeemable Preferred Stock of $145.3 million and (iv)
the assumption of five mortgage notes payable aggregating $48.4 million with a
weighted average interest rate of 8.4%.
50
<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 September 30, 1997. The
table includes 15 apartment communities classified at September 30, 1997 as
real estate held for disposition. The nine apartment communities acquired
during the third quarter of 1997 are excluded from the Economic Occupancy and
Average Monthly Rental Rate calculations.
<TABLE>
<CAPTION>
Percentage
Number of Number of of Real Estate
Apartment Apartment Apartment at Cost
Communities Homes Homes (000)
------------- ----------- ------------ -------------
<S> <C>
Dallas/ Fort Worth, Texas .................. 22 8,257 13.5% $ 313,344
Columbia, South Carolina .................. 12 3,534 5.8% 114,132
Richmond, Virginia ........................ 11 3,518 5.8% 117,933
Raleigh, North Carolina .................. 12 3,484 5.7% 149,235
Tampa/Clearwater, Florida .................. 12 3,209 5.3% 111,705
Orlando, Florida ........................... 10 3,076 5.0% 122,820
Charlotte, North Carolina .................. 13 3,009 4.9% 128,827
Houston, Texas ........................... 7 2,847 4.7% 87,239
Eastern North Carolina ..................... 10 2,530 4.1% 94,739
Greensboro, North Carolina ............... 9 2,242 3.7% 96,884
Nashville, Tennessee ..................... 8 2,116 3.5% 87,113
San Antonio, Texas ........................ 5 1,983 3.2% 88,105
Atlanta, Georgia ........................... 7 1,822 3.0% 75,552
Baltimore, Maryland ........................ 8 1,746 2.9% 77,668
Greenville/Spartanburg, South Carolina ... 8 1,718 2.8% 59,915
Hampton Roads, Virginia .................. 7 1,628 2.7% 51,469
Washington D.C. ........................... 6 1,483 2.4% 65,682
Jacksonville, Florida ..................... 3 1,157 1.9% 52,371
Miami/Ft. Lauderdale, Florida ............ 4 960 1.6% 61,067
Memphis, Tennessee ........................ 4 935 1.5% 32,818
Fayetteville, North Carolina ............... 3 884 1.4% 39,664
Austin, Texas .............................. 3 867 1.4% 29,928
Eastern Shore Maryland ..................... 4 784 1.3% 33,612
Phoenix, Arizona ........................... 3 728 1.2% 39,029
Little Rock, Arkansas ..................... 2 512 0.8% 20,833
Nevada .................................... 1 384 0.6% 20,239
Delaware ................................. 2 368 0.6% 17,301
Oklahoma ................................. 1 316 0.5% 9,938
Alabama .................................... 1 242 0.4% 10,864
New Mexico ................................. 1 210 0.3% 9,354
Other Florida .............................. 7 1,646 2.7% 64,471
Other Virginia ........................... 6 1,036 1.7% 42,270
Other Texas .............................. 3 824 1.3% 24,570
Other Georgia .............................. 2 468 0.8% 21,228
Other South Carolina ..................... 2 408 0.7% 12,886
Other North Carolina ..................... 1 168 0.3% 7,214
---- ------- ------ -----------
Total/weighted average ..................... 220 61,099 100.0% $2,392,018
==== ======= ====== ===========
<CAPTION>
Average Average
Monthly Monthly
Economic Rental Average Rental
Occupancy Rates for Unit Rates
Nine the Nine Size Per
Encumbrances Cost Months Months (Square Square
(000) per Home 1997 9/30/1997* Feet) Ft.**
------------------- ---------- ----------- ------------ --------- ----------
<S> <C>
Dallas/ Fort Worth, Texas .................. $ 49,130 $37,949 93.6% $544 793 $ 0.69
Columbia, South Carolina .................. 29,085 32,295 91.3% 500 859 0.58
Richmond, Virginia ........................ 10,913 33,523 91.8% 552 949 0.58
Raleigh, North Carolina .................. 21,739 42,834 95.4% 630 925 0.68
Tampa/Clearwater, Florida .................. 8,016 34,810 93.4% 572 960 0.60
Orlando, Florida ........................... 27,635 39,928 95.5% 571 914 0.62
Charlotte, North Carolina .................. 27,374 42,814 86.7% 573 970 0.59
Houston, Texas ........................... 25,847 30,643 93.1% 466 770 0.61
Eastern North Carolina ..................... 10,636 37,446 95.1% 554 924 0.60
Greensboro, North Carolina ............... 16,709 43,213 83.9% 545 1,015 0.54
Nashville, Tennessee ..................... 5,147 41,168 91.5% 584 952 0.61
San Antonio, Texas ........................ 9,779 44,430 92.3% 615 847 0.73
Atlanta, Georgia ........................... 11,379 41,467 89.5% 588 938 0.63
Baltimore, Maryland ........................ 30,180 44,484 92.4% 650 864 0.75
Greenville/Spartanburg, South Carolina ... 14,965 34,875 86.6% 515 882 0.58
Hampton Roads, Virginia .................. 3,900 31,615 90.6% 540 983 0.55
Washington D.C. ........................... 11,272 44,290 87.0% 682 830 0.82
Jacksonville, Florida ..................... 22,325 45,264 86.2% 596 872 0.68
Miami/Ft. Lauderdale, Florida ............ -- 63,611 94.0% 786 1,092 0.72
Memphis, Tennessee ........................ 5,715 35,100 90.0% 513 784 0.65
Fayetteville, North Carolina ............... 18,863 44,869 88.3% 556 899 0.62
Austin, Texas .............................. 5,749 34,519 89.2% 532 755 0.70
Eastern Shore Maryland ..................... -- 42,872 97.3% 624 935 0.67
Phoenix, Arizona ........................... 4,572 53,612 90.8% 644 892 0.72
Little Rock, Arkansas ..................... 5,011 40,689 93.5% 569 821 0.69
Nevada .................................... -- 52,705 91.1% 635 837 0.76
Delaware ................................. -- 47,012 96.1% 600 892 0.67
Oklahoma ................................. 3,167 31,449 92.3% 452 756 0.60
Alabama .................................... -- 44,892 83.7% 511 1,097 0.47
New Mexico ................................. 3,190 44,544 85.9% 567 729 0.78
Other Florida .............................. 4,838 39,168 95.8% 547 842 0.65
Other Virginia ........................... 2,875 40,801 94.0% 550 971 0.57
Other Texas .............................. 9,061 29,818 88.6% 509 795 0.64
Other Georgia .............................. 6,281 45,359 82.7% 638 1,140 0.56
Other South Carolina ..................... 2,200 31,584 91.6% 409 908 0.45
Other North Carolina ..................... 5,070 42,938 89.7% 573 836 0.69
--------- -------- ----- ----- ------ ---------
Total/weighted average ..................... $412,624 $39,150 91.6% $570 891 $ 0.64
========= ======== ===== ===== ====== =========
</TABLE>
- ----------
* Represents potential rent collections (gross potential rents less market
adjustments), which approximates net effective rents.
** Based upon Average Monthly Rental rates for the nine months ended September
30, 1997.
51
<PAGE>
BUSINESS OF ASR
The following discussion relates to the objectives and strategies pursued
by ASR prior to the Merger.
Introduction
ASR is a self-administered, self-managed apartment REIT. At September 30,
1997, ASR owned and operated one office building in Seattle, Washington, and 41
apartment communities, containing 7,725 apartment units, located in Phoenix and
Tucson, Arizona; Houston and Dallas, Texas; Albuquerque, New Mexico; Seattle
and Pullman, Washington. The apartment communities are "garden apartments,"
typically consisting of two- and three-story buildings in landscaped settings
with ground level parking. The communities are well maintained and targeted to
provide attractive lifestyles at low to moderate rates. The apartment
communities were built between 1967 and 1997 and have a weighted average age
(by number of apartment units) of approximately 14 years. The number of units
per apartment community ranges from 60 to 356 and averages 182 units. Average
size per unit approximates 804 square feet. Average rent is $535 per month,
with community averages ranging from $362 to $995 per month. As of September
30, 1997, the communities had an average occupancy rate of approximately 92%.
Tenant leases generally are from six to 12 months and require security
deposits.
The apartment communities typically provide residents with attractive
amenities, including a clubhouse, swimming pool, other recreational facilities,
laundry facilities, cable television access, patio or balconies, and
mini-blinds. Certain communities offer additional amenities, such as
fireplaces, storage and walk-in closets, microwave ovens, alarms, and limited
access gates.
Growth Strategy
ASR's business objectives are to increase the cash flow and value of its
existing portfolio of apartment communities, to expand its portfolio of
apartment communities through the acquisition and development of additional
communities and to issue equity securities to fund the expansion. Key elements
of ASR's strategy to achieve its objectives include (i) enhancing the
performance and value of its existing properties by maintaining high occupancy
and favorable rental rates, managing operating expenses, and emphasizing
regular programs of repairs and capital improvements, (ii) acquiring and
developing apartment communities that have strong cash flows and capital
appreciation potential, (iii) focusing on middle income properties located in
geographical areas that ASR believes will experience higher growth rates in
population, household formation, and employment than the national average, and
(iv) disposing of investments that no longer satisfy ASR's objective.
Investment Policy
ASR focuses on apartment communities in Arizona, New Mexico, Texas, and
Washington. However, future investments are not limited (as to percentage of
assets or otherwise) to any geographic area or any specific type of property.
In this regard, ASR may expand its current geographic focus and may acquire
other types of income-producing properties. ASR may enter into agreements to
acquire newly developed communities upon completion or upon achievement of
certain specified occupancy rates. ASR also develops new apartment communities
for its own account directly or through joint ventures with others. ASR may
purchase or lease properties for long-term investment and improve its
properties, or sell such properties, in whole or in part, when circumstances
warrant. ASR also may participate with other entities in property ownership
through joint ventures or other types of co-ownership. Equity investments may
be subject to existing mortgage financing and other indebtedness or such
financing or indebtedness may be incurred in connection with acquiring
investments. Any such financing or indebtedness will have a priority over the
equity interest of ASR.
Acquisition and Development Policies
ASR acquired 40 of its 41 apartment communities, of which 22 were acquired
in 1997. In evaluating acquisitions, ASR considers such factors as (i) the
geographic location and type of property; (ii) the age, construction quality,
condition, and design of the property; (iii) the current and projected cash
flow of the property and the potential to increase cash flow through lower debt
service requirements, enhanced management, and other factors; (iv) the
potential for capital appreciation of the property; (v) the terms of tenant
leases, including the potential for rent increases; (vi) the potential for
economic growth and the tax and regulatory environment of the
52
<PAGE>
community in which the property is located; (vii) the occupancy and demand by
tenants for properties of similar type in the vicinity; and (viii) the
prospects for liquidity through sale, financing, or refinancing of the
property. In acquiring apartment properties, ASR generally seeks properties
that (a) are available at prices below estimated replacement cost after initial
renovations and improvements, (b) are well-located in their markets, and (c)
are capable of enhanced performance through intensive asset management and
cosmetic improvements.
In determining whether to develop an apartment community, ASR considers
many of the same factors relevant to a potential apartment community
acquisition. In addition, ASR considers whether the property can be developed
at a cost that is below the estimated value upon completion based upon land
acquisition costs; construction costs; terms of available financing; and the
availability of property acquisitions opportunities in the area. In July 1997,
ASR completed the development of a luxury apartment community located in Tempe,
Arizona. The community is built on 20 acres and has 356 units with an average
size of 919 square feet. The total cost of the community is approximately
$21,000,000. The community began leasing in December 1996 and was 97% occupied
at September 30, 1997. ASR has acquired two other parcels of land for future
development of apartment communities. ASR may develop or sell one or more of
these parcels. As of September 30, 1997, ASR had invested $925,000.
In acquiring or developing apartment communities, ASR focuses on
geographic markets that it believes will experience higher growth rates in
population, household formation, and employment than national averages. ASR
also seeks to concentrate its properties in specific geographical areas to
achieve economies of scale in management and operations.
Operating Policies
ASR seeks to (i) achieve and maintain high occupancy and increase rental
rates through effective leasing, reducing turnover rates, and providing quality
maintenance and services to maximize tenant satisfaction; (ii) manage operating
expenses and achieve cost reductions through operating efficiencies and
economies of scale generally inherent in the management of a large property
portfolio in a specific region; and (iii) emphasize regular programs of repairs
and capital improvements to enhance the properties' competitive advantages in
their respective markets.
ASR utilizes computer, accounting, management, reporting, and control
systems to monitor property operations. Detailed annual budgets are prepared
for each property. Monthly, quarterly, and annual reports are prepared
addressing occupancy rates, turnover ratios, budget variances, delinquencies,
and other operating information. Weekly reports are provided for each property
detailing leasing and occupancy activities. ASR also maintains and analyzes
demographic resident data. Prior to entering into a lease, ASR generally
reviews the credit of the prospective tenant to attempt to minimize bad credit
risks and identify tenants having a poor rental history. This information is
intended to enable ASR to identify and act quickly on specific conditions
affecting individual properties.
Each of the current properties is operated by a staff, including a
resident manager and a maintenance and apartment preparation staff. Policies
and procedures utilized at the property sites follow established federal and
state laws and regulations, including lease contracts, on-site marketing
procedures, credit, collection, and eviction standards. As a result of active
onsite management and strict prospective tenant qualification standards, ASR
expects to experience low rent loss to delinquencies or early lease
terminations. Individual property lease programs are structured to respond to
local market conditions. ASR attempts to balance rent increases with high
occupancy and stabilized turnover costs. None of the current properties is
currently subject to rent control or rent stabilization regulations. Standard
lease terms stipulate due dates for rent payments, late charges, no offset or
withholding provisions, security deposits and damage reimbursement clauses, and
other provisions considered favorable to ASR.
Financing Policies
ASR attempts to finance acquisitions and developments with the most
appropriate sources of capital, which may include undistributed funds from
operations, the issuance of equity securities, the sale of assets, bank and
other institutional borrowings, and the issuance of debt securities. Borrowings
for acquisitions and developments may be either on a secured or unsecured
basis. ASR also may incur indebtedness for purposes other than the acquisition
of properties when ASR believes it is advisable to do so. For short-term
purposes, ASR, from time
53
<PAGE>
to time, may arrange for short-term borrowings from banks or in the commercial
paper market or otherwise. ASR also may arrange for long-term borrowings from
institutional lenders or through public or private offerings or other means.
ASR has no commitments from anyone with respect to any such borrowings, and
there is no assurance that any such borrowings will be available.
In addition, ASR may incur debt secured by equity investments held in its
portfolio. ASR may invest in properties subject to existing loans secured by
mortgages, deeds of trust or similar liens on the properties, or such financing
and other indebtedness may be incurred in connection with acquiring
investments. ASR also may obtain other mortgage financing for unleveraged or
underleveraged properties or may refinance properties acquired on a leveraged
basis. The mortgage financings may be recourse, non-recourse, or
cross-collateralized. ASR does not have a policy limiting the number or amount
of mortgages that may be placed on any particular property, but mortgage
financing instruments usually limit additional indebtedness on such properties.
ASR also may determine to finance acquisitions through the exchange of
properties or issuance of stock or other securities.
Capital Resources
Subject to the terms of ASR's Bylaws, the availability and cost of
borrowings, various market conditions and restrictions that may be contained in
ASR's financing arrangements from time to time and other factors as described
herein, ASR increases the amount of funds available for its activities with the
proceeds of borrowings including mortgage loans, short-term borrowing and other
credit arrangements. It can be anticipated that a substantial portion of the
assets of ASR will be pledged to secure indebtedness incurred by ASR.
Accordingly, such assets will not be available for distribution to the
stockholders of ASR in the event of ASR's liquidation except to the extent that
the value of such assets exceeds the amount of such indebtedness. ASR has
obtained a first mortgage loan for each of its properties. At September 30,
1997, the mortgage loans totalled $167,273,000, which bear a weighted average
rate of 8.2%. The mortgage loans generally bear fixed interest rates and are
non-recourse to ASR and not cross-collateralized.
ASR's Bylaws provide that it may not incur indebtedness if, after giving
effect to the incurrence thereof, aggregate indebtedness, secured and
unsecured, would exceed 300% of ASR's net assets, on a consolidated basis,
unless approved by a majority of the Unaffiliated Directors. For this purpose,
the term "net assets" means the total assets (less intangibles) of ASR at cost,
before deducting depreciation or other non-cash reserves, less total
liabilities, as calculated at the end of each quarter in accordance with
generally accepted accounting principles. ASR may increase its capital
resources by making additional offerings of its Common Stock or securities
convertible into ASR's Common Stock. The actual or perceived effect of such
offerings may be the dilution of the book value or earnings per share which may
result in the reduction of the market price of shares of ASR's Common Stock.
ASR is unable to estimate the amount, timing or nature of future sales of its
Common Stock as such sales will depend upon market conditions and other
factors.
Operating Restrictions
ASR presently may not purchase commodities or commodity futures contracts
(other than interest rate futures when used solely for hedging). ASR may not
invest in unimproved real property or underwrite securities of other issuers.
The foregoing restrictions may not be changed without the approval of the
holders of a majority of the outstanding shares of ASR's Common Stock. Except
as otherwise restricted, the operating policy of ASR is controlled by its Board
of Directors, which has the power to modify or alter such policy without the
consent of the stockholders. Although ASR has no present intention of modifying
its operating policies described herein, the Board of Directors in the future
may conclude that it would be advantageous for ASR to do so.
54
<PAGE>
Properties
The following table sets forth certain information relating to the properties
in ASR's portfolio of September 30, 1997.
<TABLE>
<CAPTION>
Real
Estate
Number Percentage at
of of Carrying
Property Regional Apartment Apartment Value
Name Location Homes Homes (000)
- -------------------------------- -------------------------- ----------- ------------ ----------
<S> <C>
Contempo Heights ............... Phoenix, Arizona 222 2.9% $ 6,060
Finisterra (1) ............... Phoenix, Arizona 356 4.6% 20,623
La Privada ..................... Phoenix, Arizona 350 4.5% 24,861
Acacia Hills .................. Tucson, Arizona 64 0.8% 1,231
Casa del Norte ............... Tucson, Arizona 84 1.1% 1,716
Desert Springs ............... Tucson, Arizona 248 3.2% 5,491
Landmark ..................... Tucson, Arizona 176 2.3% 4,316
Park Terrace .................. Tucson, Arizona 176 2.3% 3,220
Park Village .................. Tucson, Arizona 60 0.8% 727
Posada ........................ Tucson, Arizona 160 2.1% 3,190
Southpoint ..................... Tucson, Arizona 144 1.9% 2,212
Dorado ........................ Albuquerque, New Mexico 216 2.8% 6,741
Villa Serena .................. Albuquerque, New Mexico 104 1.3% 3,326
Whispering ..................... Albuquerque, New Mexico 228 3.0% 6,993
Aspen Court .................. Dallas/Fort Worth, Texas 140 1.8% 4,565
Gentry Place .................. Dallas/Fort Worth, Texas 360 4.7% 11,489
Greenwood ..................... Dallas/Fort Worth, Texas 328 4.2% 7,901
Highlands ..................... Dallas/Fort Worth, Texas 220 2.8% 9,002
Montfort ..................... Dallas/Fort Worth, Texas 83 1.1% 5,709
Park on Preston ............... Dallas/Fort Worth, Texas 286 3.7% 9,140
Smith Summit .................. Dallas/Fort Worth, Texas 254 3.3% 8,815
Springfield .................. Dallas/Fort Worth, Texas 218 2.8% 8,628
Briar Park ..................... Houston, Texas 80 1.0% 2,261
Chelsea Park .................. Houston, Texas 204 2.6% 5,868
Clear Lake ..................... Houston, Texas 90 1.2% 3,918
Country Club .................. Houston, Texas 169 2.2% 5,484
Ivystone ..................... Houston, Texas 266 3.4% 5,070
London Park .................. Houston, Texas 257 3.3% 6,282
Marymont ..................... Houston, Texas 128 1.7% 4,513
Memorial ..................... Houston, Texas 124 1.6% 2,615
Nantucket ..................... Houston, Texas 106 1.4% 3,435
Prestonwood .................. Houston, Texas 156 2.0% 3,389
Riverway ..................... Houston, Texas 152 2.0% 2,003
Riviera Pines .................. Houston, Texas 224 2.9% 4,380
The Gallery .................. Houston, Texas 101 1.3% 2,446
Timbercreek .................. Houston, Texas 204 2.6% 5,645
On the Boulevard ............... Kennewick, Washington 202 2.6% 10,650
Campus Commons North (2) ...... Pullman, Washington 234 3.0% 11,174
Campus Commons South (2) ...... Pullman, Washington 100 1.3% 4,188
Court ........................ Seattle, Washington 175 2.3% 4,218
Pacific South Center (3) ...... Seattle, Washington n/a 5,459
Other assets .................. 1,765
------- ------ ---------
Total/weighted average ...... 7,449 100.0% $250,718
======= ====== =========
<CAPTION>
Average Average
Monthly Monthly
Economic Rental Average Rental
Occupancy Rates for Unit Rates
Cost Nine the Nine Size Per
Property Encumbrances per Months Months (Square Square
Name (000) Home (4) 1997 9/30/97 (5) Feet) Ft.
- -------------------------------- -------------- ---------- ----------- ------------- ---------- ----------
<S> <C>
Contempo Heights ............... $ 3,767 $27,297 95.9% $460 595 $ 0.77
Finisterra (1) ............... 15,835 57,930 87.3% 805 919 0.88
La Privada ..................... 15,992 71,032 93.3% 869 1,195 0.73
Acacia Hills .................. 1,011 19,231 93.4% 437 540 0.81
Casa del Norte ............... 1,353 20,425 90.7% 433 525 0.82
Desert Springs ............... 4,535 22,140 94.0% 435 590 0.74
Landmark ..................... 2,993 24,522 85.8% 428 641 0.67
Park Terrace .................. 2,655 18,293 86.2% 433 579 0.75
Park Village .................. 579 12,121 89.5% 393 540 0.73
Posada ........................ 1,697 19,940 94.6% 456 621 0.73
Southpoint ..................... 1,831 15,362 91.1% 373 526 0.71
Dorado ........................ 5,127 31,207 92.2% 528 608 0.87
Villa Serena .................. 2,637 31,977 89.1% 561 681 0.82
Whispering ..................... 5,491 30,672 91.6% 539 808 0.67
Aspen Court .................. 2,026 32,611 90.9% 567 742 0.77
Gentry Place .................. 7,410 31,913 96.0% 563 911 0.62
Greenwood ..................... 5,007 24,088 93.3% 448 720 0.62
Highlands ..................... 4,837 40,919 88.2% 626 786 0.80
Montfort ..................... 4,025 68,781 92.9% 995 1,112 0.90
Park on Preston ............... 5,596 31,958 93.8% 518 633 0.82
Smith Summit .................. 5,545 34,703 94.6% 603 955 0.63
Springfield .................. 5,461 39,577 92.7% 622 844 0.74
Briar Park ..................... 1,391 28,263 96.6% 540 915 0.59
Chelsea Park .................. 3,376 28,764 96.8% 536 829 0.65
Clear Lake ..................... 3,076 43,532 95.4% 848 1,169 0.73
Country Club .................. 3,556 32,447 91.4% 549 814 0.67
Ivystone ..................... 3,707 19,060 88.2% 435 771 0.56
London Park .................. 4,414 24,444 95.4% 482 814 0.59
Marymont ..................... 2,528 35,259 94.9% 575 876 0.66
Memorial ..................... 1,892 21,087 91.8% 599 939 0.64
Nantucket ..................... 2,710 32,410 93.6% 768 1,428 0.54
Prestonwood .................. 2,429 21,726 96.5% 526 957 0.55
Riverway ..................... 1,179 13,177 84.3% 362 723 0.50
Riviera Pines .................. 3,216 19,552 94.6% 500 717 0.70
The Gallery .................. 1,615 24,222 94.6% 557 763 0.73
Timbercreek .................. 3,372 27,672 95.9% 499 775 0.64
On the Boulevard ............... 7,900 52,721 84.6% 732 938 0.78
Campus Commons North (2) ...... 6,636 47,750 85.3% 625 868 0.72
Campus Commons South (2) ...... 2,741 41,885 93.9% 598 1,086 0.55
Court ........................ 2,913 24,103 93.6% 441 590 0.75
Pacific South Center (3) ...... 3,214 n/a n/a n/a n/a n/a
Other assets ..................
--------- -------- ----- ----- ------ ---------
Total/weighted average ...... $167,273 $32,688 92.2% $535 804 $ 0.67
========= ======== ===== ===== ====== =========
</TABLE>
- --------------
Notes:
(1) The average rent and occupancy percentage for Finisterra is for the three
months ended September 30, 1997
(2) The two Campus Commons properties are occupied approximately 90-95% by
students for ten months and appoximately 50% occupied at much lower rent
for the other two months. Rent in the two summer months is approximately
$150 a month per unit, while rent at December 97 is approximately $765 for
Campus Commons North and approximately $729 for Campus Commons South
(3) Pacific South Center has been excluded in the calulcation for average
rent per unit, occupancy percentage and rent per foot
(4) Cost per unit excludes the value of other assets and Pacific South Center.
(5) Represents potential rent collections (gross potential rents less market
adjustments), whcih approximates net effective rents.
55
<PAGE>
Heritage Communities L.P.
ASR formed Heritage Communities L.P. (the "ASR Operating Partnership") in
1997 to facilitate the acquisition of apartment communities. The partnership is
a Delaware limited partnership in which ASR and a wholly owned subsidiary of
ASR are the general partners. The ASR Operating Partnership acquired
substantially all of the assets and properties of the Winton Partnerships in
exchange for cash and LP Units. Upon consummation of the Merger, United
Dominion will become the general partner (the "General Partner") of the ASR
Operating Partnership. The following is a summary of the more significant
provisions of the Partnership Agreement of ASR Operating Partnership on a
post-Merger basis.
Distributions. The portion, if any, of the ASR Operating Partnership's
cash funds and other property, after the payment of expenses and the making of
all other expenditures that ASR determines, in its sole discretion, to be in
excess of the ASR Operating Partnership's working capital needs and such
reserves as the General Partner deems appropriate for the fixed and contingent
obligations of the ASR Operating Partnership ("Available Cash Flow"), will be
distributed quarterly. To the extent that there is sufficient cash flow, the
holder of an LP Unit will receive distributions that are intended to mirror
United Dominion's dividends per share, which such holders would have received
as stockholders of United Dominion. To the extent that the available cash flow
is insufficient to pay such amount, accounts for the holders of LP Units will
be credited for the unpaid distribution and with interest on the unpaid
distribution. Any unpaid balances will be given priority for future
distributions. In addition, until the tenth anniversary of the partnership
agreement, proceeds from the ASR Operating Partnership's capital transactions,
if any, will also be applied to reduce any unpaid balances in the distribution
accounts of the holders of LP Units. To the extent that the ASR Operating
Partnership's available cash flow and capital transaction proceeds exceed the
unpaid balances and the current distributions to holders of LP Units, all
additional amounts will be distributed to the ASR Operating Partnership's
general partners. In addition, following the tenth anniversary of the
partnership agreement, all capital transaction proceeds will be distributed to
the ASR Operating Partnership's general partners. Consequently, the maximum
amount of distributions payable to a holder of an LP Unit (excluding interest
on unpaid distributions) will not exceed the dividends paid with respect to a
share of United Dominion's Common Stock.
Allocation of Profits and Losses. The ASR Operating Partnership will
maintain a capital account for each of its partners. The ASR Operating
Partnership's items of income, gain, loss, and deduction will be allocated
among its partners, subject to certain special allocations, in a similar manner
for purposes of both book gain or loss and tax gain or loss. Net income will be
allocated (i) first, to each limited partner to the extent that, on a
cumulative basis, net losses previously allocated to the limited partners
exceed net income previously allocated to limited partners, (ii) second, to
each limited partner to the extent that such limited partner has been allocated
on a cumulative basis, net income equal to the sum of the distributions paid to
such limited partner and the unreturned balances in the accrual accounts and
the unpaid distribution accounts maintained with respect to the LP Units held
by such limited partner, and (iii) thereafter, to the General Partner.
Notwithstanding (i) and (ii), the general partners will be allocated on a
combined basis not less than one percent of each item of the ASR Operating
Partnership's gain, loss, income, and deduction for each year. Net losses will
be allocated to the partners in accordance with their respective percentage
interests in the ASR Operating Partnership, except that net losses will not be
allocated to any limited partner to the extent that such allocation would cause
such limited partner to have an adjusted capital account deficit at the end of
such taxable year. All net losses in excess of such limitations will be
allocated to the as general partners on a pro rata basis.
Conversion of LP Units. At any time after April 30, 1998, holders of LP
Units may convert such LP Units into shares of United Dominion's Common Stock.
Any holder of an LP Unit who exercises his conversion right on or prior to the
tenth anniversary of the Partnership Agreement will be paid, at the time of
such conversion, any outstanding unpaid balances in the distribution accounts
attributable to such Units. However, after the tenth anniversary of the
Partnership Agreement, the ASR Operating Partnership will not be required to
pay the holder of an LP Unit who converts such LP Unit into a share of United
Dominion Common Stock the Unpaid Balances in the holder's distribution accounts
if the market value of a share of United Dominion Common Stock received upon
conversion is equal to at least 110% of the sum of the initial capital
contribution and the unpaid balances with respect to such LP Unit. Moreover,
United Dominion's obligation to keep its registration statement filed with
respect to resales of shares of United Dominion's Common Stock received upon
conversion will expire after ten years.
56
<PAGE>
Management. The General Partner has the exclusive discretion and broad
authority in the management and control of the business and affairs of the ASR
Operating Partnership, The General Partner has complete power to do all things
necessary or incident to the management and conduct of the business of the ASR
Operating Partnership.
Transfer of General Partners' Interest. Generally, ASR may not transfer
the general partners' interest. ASR also shall not engage in any merger,
consolidation or other business combination unless appropriate provision is
made as part of the terms of such transaction such that each limited partner of
the ASR Operating Partnership remains entitled to exchange each limited
partnership unit for the securities which the limited partner would have
received if such limited partner had exercised the right to convert such LP
Unit into one share of ASR Common Stock immediately before the merger
transaction.
Rights of Holders of LP Units. Holders of LP Units do not have the right
to take part in the management or control of the business or affairs of, to
transact any business for, or to sign for or bind the ASR Operating
Partnership. The limited partners, however, have the right to receive tax
reports and certain other financial information, the most recent annual,
quarterly, and current reports and proxy statements as provided to United
Dominion's stockholders and, upon request, copies of documents as filed by
United Dominion with the Commission under the Exchange Act. Holders of LP Units
also have the right to inspect certain records of the ASR Operating
Partnership. Upon the requisite vote of the holders of LP Units, such persons
will have the right to amend the partnership agreement, subject to certain
limitations specified therein, with the consent of the general partners. The
exercise of the foregoing right will require the affirmative vote of the owners
of record of more than 50 percent of the LP Units.
Limited Liability. No limited partner will be liable for the ASR Operating
Partnership's debts or other obligations, except to the extent that the ASR
Operating Partnership withholds from or pays on behalf of such limited partner
any amount of federal, state, local, or foreign taxes that the General Partners
determines that the ASR Operating Partnership is required to withhold or pay
with respect to any amount distributable or allocable to such limited partner.
The General Partner is required to cause the ASR Operating Partnership to
operate in such manner as they deem appropriate to avoid unlimited liability
for the limited partners.
Termination and Winding Up. The ASR Operating Partnership will be
dissolved upon the occurrence of any of the following events: (i) the end of
its term on December 31, 2086, (ii) the election of the general partners,
unless any original limited partner that holds an original LP Unit objects in
writing within 30 days of the notice of such election, (iii) entry of a decree
of judicial dissolution of the ASR Operating Partnership, (iv) the sale or
other disposition of all or substantially all of the ASR Operating
Partnership's assets and properties, (v) an event of withdrawal by a general
partner as described in Section 17-402 of the Delaware Limited Partnership Act,
unless all of the remaining partners agree in writing, within 90 days after
such event of withdrawal, to continue the business of the ASR Operating
Partnership and elect one or more additional or successor general partners if
necessary or desirable to do so, or (vi) 120 days after the commencement of any
proceeding against the last remaining general partner seeking relief under
certain statutes, including, among other things, reorganization, liquidation,
or dissolution unless all of the remaining partners agree in writing, within 90
days after the occurrence of such event, to continue the business of the ASR
Operating Partnership and to the appointment of a substitute general partner.
In the event of dissolution, (a) the partnership's affairs will be
terminated and wound up, (b) an accounting will be made, (c) the partnership's
liabilities (including any amounts owed to the partners) will be paid or
adequately provided for, and (d) any remaining assets will be distributed to
the partners.
Books and Records. The General Partner is required to (i) make available
to each limited partner, within 90 days following the close of the fiscal year
on December 31, annual information necessary for tax purposes; (ii) maintain a
list of the names and last known business addresses of all partners at the
partnership's principal office and to make such list available for review by
any limited partner or such partner's representative at reasonable times; and
(iii) to maintain at the partnership's principal office certain financial
statements, a copy of the Certificate of Limited Partnership for the
partnership and executed copies of any powers of attorney used by the ASR
Operating Partnership to file such certificate, a copy of the Partnership
Agreement, certain federal, state, and local income tax records, and a
description, including the amount, of the contributions by each partner and the
date on which each person became a partner, any of which documents may be
inspected by partners at any reasonable time and upon adequate notice.
57
<PAGE>
Power of Attorney. Each limited partner irrevocably designates the General
Partner as such limited partner's agent, with full power of substitution, to
execute, acknowledge, and file of record the Partnership Agreement,
certificates of limited partnership, and any and all other instruments that the
general partners deem necessary or appropriate to qualify and continue the ASR
Operating Partnership as a limited partnership and also all conveyances and
other instruments as the general partners deem necessary or appropriate to
reflect the dissolution and termination of the ASR Operating Partnership. In
addition, the general partners have been designated as the agent of each
limited partner to execute, acknowledge, and deliver all conveyance and other
instruments that the general partners deem appropriate to effect the transfer
of partnership interests, including assignments on the default of any limited
partner, to admit, substitute, or delete partners, to sell, exchange, or
dispose of assets or properties of the ASR Operating Partnership, to borrow
money and otherwise enter into financing transactions, and to execute all
amendments and/or restatements of the partnership agreement. Such power will be
deemed to be coupled with an interest and will survive the death of the limited
partner.
COMPARATIVE RIGHTS OF SHAREHOLDERS
At the Effective Time of the Merger, ASR stockholders automatically will
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 ASR.
Capitalization
United Dominion. United Dominion is authorized to issue 150,000,000 shares
of United Dominion Common Stock, of which shares were issued and
outstanding on February , 1998. 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 of 9.25% Series A Cumulative
Redeemable Preferred Stock (the "Series A Preferred"), 6,000,000 shares of
8.60% Series B Cumulative Redeemable Preferred Stock (the "Series B Preferred",
and 1,000,000 shares of Series C Junior Participating Cumulative Redeemable
Preferred Stock (the "Series C Preferred)" and, together with the Series A
Preferred and the Series B Preferred, the ("Alphabetical Series Preferred"),
have been designated. At February , 1998, there were 4,200,000 shares of
Series A Preferred, 6,000,000 shares of Series B Preferred and no shares of
Series C Preferred issued and outstanding.
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. United Dominion will not issue any shares of Series C
Preferred except upon the exercise of Rights distributed pursuant to its
Shareholder Rights Plan. 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.
ASR. ASR's authorized capital stock (the "ASR Capital Stock") consists of
a single class, the ASR Common Stock, of which 40,000,000 shares are authorized
and 4,990,057 shares were issued and outstanding as of the Record Date.
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 C Preferred provides that each
share of Series C Preferred
58
<PAGE>
entitles the holder thereof to 1,000 votes on all matters submitted to a vote
of shareholders and that the holders of the Series C Preferred and the holders
of the United Dominion Common Stock will vote together as one voting group. The
designation of each series of Alphabetical Series Preferred provides that
whenever dividends on any shares of such series 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 shares of such series 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 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.
ASR. The holders of ASR Common Stock have one vote for each share held on
any matter presented for consideration by the stockholders. The holders of ASR
Common Stock are not entitled to cumulative voting in the election of
directors.
Directors
United Dominion. The United Dominion Bylaws provide for a Board of
Directors having 12 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.
ASR. The number of persons constituting the ASR Board is nine. The bylaws
of ASR provide that so long as ASR maintains its REIT election a majority of
the ASR Board and any committee of the ASR Board shall at all times consist of
directors who are not employees of ASR.
ASR directors may be removed with or without cause by the affirmative vote
of a majority of all the votes entitled to be cast for the election of
directors.
Anti-Takeover Provisions
Certain provisions of Virginia and Maryland law, the United Dominion
Articles and the ASR Articles may discourage an attempt to acquire control of
United Dominion or ASR, respectively, that a majority of either corporation's
shareholders determine is 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 ASR Board,
respectively, do not approve. Provisions of the United Dominion Articles and
ASR 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.
Shareholder Rights Plan. At its meeting on January 27, 1998, the Board of
Directors of United Dominion approved a Shareholder Rights Plan (the "Plan").
When the Plan is implemented, effective February 4, 1998,
59
<PAGE>
United Dominion will distribute to the holders of the outstanding United
Dominion Common Stock Rights equal in number to the number of shares of United
Dominion Common Stock respectively held by them. The Rights will become
exercisable only if a person or group (an "Acquiring Person") acquires or
announces a tender offer for more than 15% of the outstanding United Dominion
Common Stock. When the Rights are exercisable, United Dominion may issue one
share of United Dominion Common Stock in exchange for each Right. Each Right
will entitle the holder, other than the Acquiring Person, upon payment of the
exercise price of $45, subject to adjustment, to purchase one thousandth of a
share of Series C Preferred or, at the option of United Dominion, United
Dominion Common Stock having a value equal to twice the Right's exercise price.
If United Dominion is acquired in a merger or other business combination or if
50% or more of its assets or earnings power is sold, each Right will entitle
the holder, other than the other party to such transaction, upon payment of the
exercise price, to purchase publicly traded voting securities of such party (or
the entity that controls such other party) possessing the greatest voting
power, having a market value equal to twice the exercise price. The Rights will
expire on January 27, 2008, and may be redeemed by United Dominion at a price
of $.001 per Right at any time prior to the tenth day after public announcement
that a person or group has become an Acquiring Person.
Until such time as a person or group becomes an Acquiring Person, the
Rights will be evidenced by certificates for shares of United Dominion Common
Stock, with each such certificate representing the same number of Rights as
shares, and will be transferred with and only with such certificates, as and
when such certificates are transferred. Rights may not be transferred directly
or indirectly to an Acquiring Person, to any person or group in a transaction
in which the transferee becomes an Acquiring Person, or to an affiliate or
associate of an Acquiring Person or any such person or group, and any Right
purportedly transferred to an Acquiring Person or any such person or group, or
any such affiliate or associate, will be null and void.
The Plan provides that unless the United Dominion Board otherwise
specifies, Rights shall be issued in respect of all shares of United Dominion
Common Stock issued after February 4, 1998. If the Merger Agreement is
approved, Rights will be issued in respect of the shares of United Dominion
Common Stock issued to stockholders of ASR pursuant to the Merger.
The Rights will function as a deterrent to uninvited takeovers of United
Dominion. They will present a threat of substantial dilution of any acquisition
of or offer for United Dominion Common Stock in which the acquiror or offeror
becomes or seeks to become an Acquiring Person. However, United Dominion may
redeem the Rights at nominal expense if they would otherwise impede an
acceptable takeover or business combination.
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%, 331/3%, 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.
ASR
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
60
<PAGE>
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.
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,
61
<PAGE>
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.
ASR. In order to preserve ASR's status as a REIT under the Code, the ASR
Articles provide that any acquisition of shares of capital stock of ASR that
would results in the disqualification of ASR as a REIT shall be void ab initio
to the fullest extent permitted under applicable law. In addition, the ASR
Articles provide that if a person or persons acting as a group own more than
9.8% of the outstanding shares of the capital stock of ASR, such shares shall
be deemed "excess shares." The ASR Board has the discretion to redeem all
excess shares upon written notice of redemption to the holder.
The ASR Articles also provide that if any transfer of shares would result
in (i) ownership by any person of 9.8% or more of ASR's outstanding shares;
(ii) ownership of ASR stock by fewer than 100 persons; (iii) ownership of 50%
or more of ASR's stock by five or fewer persons; (iv) ownership by ASR of 10%
or more of the ownership interests of any tenant of ASR; or (v) the
disqualification of ASR as a REIT under the Code, then such transfer shall be
void ab initio to the extent of the number of shares causing such a violation,
and the purported transferee will acquire no rights or interest in such shares.
Rather, such shares will be designated shares-in-trust and will be transferred
to a share trust (the "Share Trust"). The trustee of the Share Trust will
designate a beneficiary for whose benefit the shares will be held. Dividends,
liquidation proceeds, and voting rights with respect to shares-in-trust will be
received by or exercised by the trustee on behalf of the beneficiary. The
trustee may transfer the shares-in-trust to a permitted transferee provided
that compensation, determined according to the ASR Articles, is paid to the
stockholder or transferee who would have owned such shares absent the ownership
restrictions.
Preemptive Rights
Neither the shareholders of United Dominion nor the stockholders of ASR
have preemptive rights. Thus, if additional shares of United Dominion Common
Stock or ASR 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 Merger Agreement will be, fully paid and
nonassessable. All outstanding shares of United Dominion Preferred Stock are
fully paid and nonassessable.
The shares of ASR Common Stock presently outstanding are fully paid and
nonassessable.
Conversion; Redemption; Sinking Fund
Neither United Dominion Common Stock nor ASR 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
capital stock of United Dominion 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 and the Series B Preferred is $25 per
share, and the liquidation preference of the Series C Preferred is $1,000 per
share, plus in each case 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
62
<PAGE>
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 are outstanding but the Alphabetical Series Preferred.
The designations of the Series A Preferred and the Series B Preferred limit the
ability of the United Dominion Board to designate a series senior to such
Alphabetical Series Preferred. The Series A Preferred and the Series B
Preferred are senior to the Series C 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 series of United
Dominion Preferred Stock in accordance with the respective rankings of such
series. After payment of the full amount of the liquidating distribution to
which they are entitled, the holders of the Series A Preferred and the Series B
Preferred will not be entitled to any further participation in any distribution
of assets by United Dominion. The holders of the Series C Preferred will
participate with holders of the United Dominion Common Stock in assets
distributable to holders of United Dominion Common Stock remaining after
payment to the holders of the United Dominion Common Stock of a distribution of
$1 per share of United Dominion Common Stock, subject to adjustment upon the
taking of certain action affecting the United Dominion Common Stock. 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.
ASR. In the event of liquidation, dissolution or winding up of ASR,
whether voluntary or involuntary, the holders of ASR 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.
Dividends and Other Distributions
In order to remain qualified as a REIT under the Code, each of United
Dominion and ASR 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). Holders of shares of the Series B 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 8.60% per annum
(equivalent to $2.15 per share). Holders of shares of the Series C Preferred
are entitled to receive, when and as declared by the United Dominion Board, out
of funds legally available therefor, cumulative dividends payable quarterly in
an amount per share equal to the greater of (a) $.01 or (b) subject to
adjustment upon the taking of certain action affecting the United Dominion
Common Stock, 1,000 times the aggregate per share amount of all cash dividends,
and 1,000 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions other than a dividend payable in
shares of United Dominion Common Stock, declared on the United Dominion Common
Stock since the immediately preceding Series C Preferred dividend payment date,
or, with respect to the first such dividend payment date, since the first
issuance of any Series C Preferred. Unless full cumulative dividends on the
Alphabetical Series 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 Alphabetical Series
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.
63
<PAGE>
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 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; and
(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.
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.
ASR. The holders of ASR Common Stock are entitled to share ratably in
dividends when and as declared by the ASR Board out of funds legally available
therefor.
Special Meeting of Shareholders
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.
ASR. Under ASR's Bylaws, special meetings of the stockholders may be
called by the President, by the ASR Board or by stockholders entitled to cast
at least 20% of the votes which all stockholders are entitled to cast votes at
the meeting.
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.
ASR. The ASR Articles require ASR, to the maximum extent permitted by
Maryland law, to indemnify currently acting and former directors and officers
of ASR and authorize indemnification of former officers who do not serve as
directors, employees and agents and persons who serve, and have served, at
ASR's request, as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture or other enterprise. The ASR
Articles also require that expenses be advanced for directors and officers and
authorize the
64
<PAGE>
advancement of expenses for other indemnified persons. ASR's Bylaws require ASR
to indemnify any director or officer made a party to proceedings by reason of
the fact that he is or was serving at the request of ASR as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise (an "Authorized Representative") if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of ASR, and with respect to any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful. Such indemnity extends to
derivative proceedings, except that no indemnification shall be made in respect
of any matter as to which such person is adjudged to be liable for negligence
or misconduct unless and to the extent that a court shall otherwise determine.
The ASR Bylaws require indemnification of an Authorized Representative not a
director or officer of ASR to the extent that he is successful on the merits of
the proceeding to which he is a party. ASR may by bylaw, resolution or
agreement make further provision for indemnification of directors, officers,
employees and agents.
Director Liability
As permitted by the VSCA and the MGCL, respectively, the United Dominion
Articles and the ASR Articles eliminate the liability of directors and officers
of United Dominion and ASR 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 ASR 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 (except as described herein), financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the U.S. (except as described herein), and persons who
acquired their ASR 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
"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 ASR STOCKHOLDER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR REGARDING
THE SPECIFIC TAX CONSEQUENCES TO HIM OF 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 SUCH ACQUISITION, OWNERSHIP, SALE, AND ELECTION, AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
Taxation of United Dominion and ASR
Each of United Dominion and ASR 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 ASR 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 ASR'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. In the opinion of
Hunton & Williams, commencing with its taxable year ended December 31, 1993,
United Dominion has been organized and operated, and its proposed method of
operation following the Merger will permit it to continue to be organized and
operated, in conformity with the requirements for qualification as a REIT under
the Code. In the opinion of O'Connor, Cavanagh, Anderson, Killingsworth &
Beshears, P.A., (i) commencing with its taxable year ended December 31, 1993,
ASR has been organized and has operated, in conformity with the requirements
for qualification as a REIT under the Code, and (ii) each ASR subsidiary that
is a partnership or limited liability company has been since its formation,
treated, for federal income tax purposes, as a partnership and not as a
corporation or an association taxable as a corporation. The opinions of counsel
as to REIT and partnership qualification are based on certain customary
assumptions and representations regarding, among other things, the nature of
United Dominion's and ASR's respective portfolios, the conduct of their
respective businesses, the sources of their respective revenues, the amounts
distributed by them, respectively, to shareholders and other matters germane to
qualification as a REIT. ASR stockholders should be aware that opinions of
counsel are not binding on the IRS or any court.
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 ASR 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 ASR will be subject to federal income tax in the
following circumstances. First, United Dominion and ASR 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 ASR may be subject to the "alternative minimum tax" on
undistributed items of tax preference, if any. Third, if either United Dominion
or ASR 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 ASR 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 ASR 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 gross income attributable to the greater
of the amount by which it fails the 75% or 95% gross income test, multiplied by
a fraction intended to reflect its profitability. Sixth, if United Dominion or
ASR 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. If United Dominion
or ASR elects to retain and pay income tax on its net long-term capital gain in
a taxable year, any retained amounts would be treated as having
66
<PAGE>
been distributed for purposes of the 4% excise tax. See "Requirements for
Qualification -- Distribution Requirements" herein. Seventh, if United Dominion
or ASR 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 ASR 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 ASR 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 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 ASR Articles contain restrictions
regarding transfer of United Dominion Common Stock and ASR Common Stock that
are intended to assist United Dominion and ASR 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 ASR currently have wholly-owned corporate
subsidiaries (the "Corporate Subsidiaries"). Upon consummation of the Merger
the ASR 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.
For taxable years beginning after December 31, 1997, a "qualified REIT
subsidiary" is a corporation all of the capital stock of which is owned by the
REIT. Thus, in applying the requirements described herein, any "qualified REIT
subsidiaries" of United Dominion or ASR 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 ASR, as the case may be. Each of the current
Corporate Subsidiaries of United Dominion and ASR 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
67
<PAGE>
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 and ASR's proportionate share of the assets, liabilities, and items
of income of the Operating Partnership and the ASR Operating Partnership,
respectively, 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 United Dominion or ASR to qualify and to maintain its
qualification as a REIT, two 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. The specific application of these tests to United
Dominion and ASR is discussed below.
The rent received by United Dominion or ASR 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 ASR
will not qualify as "rents from real property" in satisfying the gross income
tests if United Dominion or ASR, as the case may be, or a direct or indirect
owner of 10% or more of United Dominion or ASR, as the case may be, directly or
constructively owns 10% or more of the ownership interests in such tenant (a
"Related Party Tenant"). Third, if rent attributable to 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 ASR
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." In addition,
beginning with its 1998 taxable year, United Dominion or ASR may render a de
minimis amount of "noncustomary" services to the tenants of a property other
than through an independent contractor as long as the amount United Dominion or
ASR receives with respect to such services does not exceed 1% of its total
receipts from the property. For that purpose, the amount attributable to such
services will be at least equal to 150% of United Dominion's or ASR's direct
cost of providing the services.
Except with respect to United Dominion's commercial properties, neither
United Dominion nor ASR 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 ASR
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 ASR 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. Finally, subject to the 1% de minimis exception, neither United
Dominion nor ASR provides noncustomary services to its tenants, other than
through an independent contractor.
68
<PAGE>
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 ASR 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, it 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 ASR under such
Lease would qualify as "rents from real property." In that case, if the Rent
received by United Dominion or ASR 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, it likely would lose its REIT status. Finally, subject to the 1% de
minimis exception, if any portion of the Rent does not qualify as "rents from
real property" because United Dominion or ASR 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 ASR 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, it would lose its REIT status.
From time to time, each of United Dominion and ASR 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 ASR has
entered or enters into an interest rate swap or cap contract, option, futures
contract, forward rate agreement, or similar financial instrument to reduce the
interest rate risk with respect to any indebtedness incurred or to be 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. To the extent that
United Dominion or ASR 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 ASR have structured, and
United Dominion intends to structure in the future, any hedging transactions in
a manner that will not jeopardize status as a REIT.
If United Dominion or ASR 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 ASR 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
circumstances United Dominion or ASR would be entitled to the benefit of those
relief provisions. As discussed above in "FEDERAL INCOME TAX CONSIDERATIONS --
Taxation of United Dominion and ASR" even if those relief provisions apply, a
100% tax would be imposed on the gross income attributable to the greater of
the amount by which the 75% and 95% gross income tests are failed, multiplied
by a fraction intended to reflect United Dominion's or ASR's profitability.
Asset Tests
Each of United Dominion and ASR, 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
69
<PAGE>
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 ASR may not exceed 5% of the value of
its total assets and United Dominion or ASR 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, the interest of ASR in the ASR Operating
Partnership, and the interest of United Dominion or ASR 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 and ASR is
deemed to own its proportionate share of the assets of the ASR Operating
Partnership, rather than its interest in the Operating Partnership or ASR
Operating Partnership, as applicable. United Dominion and ASR have operated and
United Dominion will continue to operate the Operating Partnership and ASR
Operating Partnership so that they have not acquired or disposed, and in the
future will not acquire or dispose, of assets in a way that would cause either
United Dominion or ASR to violate either asset test.
If United Dominion or ASR 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 test requirements was not wholly or partly caused by an acquisition
of non-qualifying assets and 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 ASR still could avoid disqualification
by eliminating any discrepancy within 30 days after the close of the calendar
quarter in which it arose.
Distribution Requirements
Each of United Dominion and ASR, in order to qualify as a REIT, is
required to distribute with respect to each taxable year dividends (other than
capital gain dividends or retained capital gains) 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 ASR 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 ASR 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. To the extent that United
Dominion or ASR elects to retain and pay income tax on its long-term capital
gain in a taxable year, as described in " -- Taxation of Taxable U.S.
Shareholders," such retained amount will be treated as having been distributed
for purposes of the 4% excise tax.
Under certain circumstances, United Dominion or ASR 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 ASR 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.
Recordkeeping Requirements
Pursuant to applicable Treasury Regulations, in order to qualify as a
REIT, each of United Dominion and ASR must maintain certain records. In
addition, to avoid a monetary penalty, each of United Dominion and ASR must
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 ASR 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
70
<PAGE>
income at regular corporate rates. Distributions to shareholders in any year in
which United Dominion or ASR 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 ASR 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 ASR would
be entitled to such statutory relief.
Taxation of Taxable U.S. Shareholders
As long as United Dominion or ASR qualifies as a REIT, distributions
(including the ASR closing Dividend) made to taxable U.S. shareholders out of
current or accumulated earnings and profits (and not designated as capital gain
dividends or retained capital gains) 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. For purposes of
determining whether distributions are out of current or accumulated earnings
and profits, earnings and profits are first allocated to preferred stock and
then allocated to common stock. As used herein, the term "U.S. shareholder"
means a holder of United Dominion Common Stock or ASR 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, (iii) an estate
whose income from sources without the United States is includible in gross
income for U.S. federal income tax purposes regardless of its connection with
the conduct of a trade or business within the United States, or (iv) any trust
with respect to which (A) a U.S. court is able to exercise primary supervision
over the administration of such trust and (B) one or more U.S. fiduciaries have
the authority to control all substantial decisions of the trust. 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. Beginning with its 1998 taxable year, United Dominion or ASR may elect
to retain and pay income tax on its net long-term capital gains. In that case,
United Dominion's or ASR's shareholders would include in income their
proportionate share of its undistributed long-term capital gains. In addition,
the shareholders would be deemed to have paid their proportionate share of the
tax paid by United Dominion or ASR, which would be credited or refunded to the
shareholders. Each shareholder's basis in his shares would be increased by the
amount of the undistributed long-term capital gains included in the
shareholder's income, less the shareholder's share of the tax paid by United
Dominion or ASR.
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 ASR 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 ASR. Instead, such
losses would be carried over by United Dominion or ASR for potential offset
against its future income (subject to certain limitations). Taxable
distributions from United Dominion or ASR and gain from the disposition of
United Dominion Common Stock or ASR 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 ASR
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 ASR 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
71
<PAGE>
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 ASR 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 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 ASR, 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 ASR 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%.
The maximum tax rate on net capital gains applicable to noncorporate taxpayers
is 28% for sales and exchanges of assets held for more than one year but not
more than 18 months, and 20% for sales and exchanges of assets held for more
than 18 months. The maximum tax rate on long-term capital gain applicable to
noncorporate taxpayers from the sale or exchange of "section 1250 property"
(i.e., depreciable real property) is 25% to the extent that such gain would
have been treated as ordinary income if the property were "section 1245
property." With respect to distributions designated by United Dominion or ASR
as capital gain dividends and any retained capital gains that United Dominion
or ASR is deemed to distribute in taxable years beginning on and after January
1, 1998, United Dominion or ASR may designate (subject to certain limits)
whether such a dividend or distribution is taxable to its noncorporate
shareholders at a 20%, 25% or 28% rate. 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 has issued final regulations regarding the backup
withholding rules as applied to Non-U.S. Shareholders. Those regulations alter
the current system of backup withholding compliance and are effective for
distributions made after December 31, 1998. 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
72
<PAGE>
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 ASR to Exempt Organizations
generally should not constitute UBTI. However, if an Exempt Organization
finances its acquisition of shares of United Dominion Common Stock or ASR
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 ASR as UBTI. In addition, in certain circumstances, a pension trust that
owns more than 10% of the Common Stock of United Dominion or ASR is required to
treat a percentage of the dividends on its United Dominion or ASR shares as
UBTI (the "UBTI Percentage"). The UBTI Percentage is the gross income derived
by United Dominion or ASR from an unrelated trade or business (determined as if
United Dominion or ASR were a pension trust) divided by the gross income of
United Dominion or ASR 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 ASR only if (i) the UBTI Percentage is at least 5%, (ii)
United Dominion or ASR, 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 ASR, 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 ASR's shares or (B) a group of pension trusts individually
holding more than 10% of the value of United Dominion's or ASR's shares
collectively owns more than 50% of the value of United Dominion's or ASR'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 ASR 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 or retained capital gains 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. For purposes of
determining whether distributions are made out of current or accumulated
earnings and profits, earnings and profits are allocated first to preferred
stock and then to common stock. 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 ASR 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). Each of United Dominion and ASR 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 ASR or (ii) the Non-U.S. Shareholder files an IRS Form 4224 with United
Dominion or ASR claiming that the distribution is effectively connected income.
The Service has issued regulations that modify the manner in which United
Dominion and ASR comply with the withholding requirements. Those regulations
are effective for distributions made after December 31, 1998.
Distributions in excess of current and accumulated earnings and profits of
United Dominion or ASR 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 ASR Common Stock, as the case may be, but rather will
reduce
73
<PAGE>
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 ASR 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.
Each of United Dominion and ASR is required to withhold 10% of any
distribution in excess of its current and accumulated earnings and profits. To
the extent that United Dominion or ASR does not withhold at a rate of 30% on
the entire amount of any distribution, any portion of a distribution not
subject to withholding at a rate of 30% will be subject to withholding at a
rate of 10%.
For any year in which United Dominion or ASR 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 or could be designated by it as a capital gains dividend. The amount
withheld is creditable against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of his United
Dominion Common Stock or ASR Common Stock generally will not be taxed under
FIRPTA if United Dominion or ASR, 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 ASR is currently
a "domestically controlled REIT" and, therefore, the sale of United Dominion
Common Stock or ASR Common Stock will not be subject to taxation under FIRPTA.
However, no assurance can be given that United Dominion or ASR 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 ASR 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 ASR 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, ASR, the Operating Partnership, the ASR Operating
Partnership, the Corporate Subsidiaries, or United Dominion or ASR 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, ASR
and their shareholders may not conform to the federal income tax consequences
discussed above. CONSEQUENTLY, ASR STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE EFFECT OF STATE AND LOCAL TAX LAWS ON AN INVESTMENT IN
UNITED DOMINION.
74
<PAGE>
Tax Aspects of the Operating Partnership and the ASR Operating Partnership
The following discussion summarizes certain federal income tax
considerations applicable to United Dominion's and ASR's direct or indirect
investment in the Operating Partnership, the ASR Operating Partnership, and
each other United Dominion or ASR subsidiary that is a partnership or limited
liability company (each is referred to herein as a "Partnership"). The
discussion does not cover state or local tax laws or any federal tax laws other
than income tax laws.
Classification as a Partnership
United Dominion or ASR will be entitled to include in its income its
distributive share of a Partnership's income and to deduct its distributive
share of a Partnership's losses only if the Partnership is classified for
federal income tax purposes as a partnership rather than a corporation or an
association taxable as a corporation. An entity will be classified as a
partnership for income tax purposes if the entity (i) is treated as a
partnership under Treasury regulations, effective January 1, 1997, relating to
entity classification (the "Check-the-Box Regulations") and (ii) is not a
"publicly traded" partnership.
In general, under the Check-the-Box Regulations, an unincorporated entity
with at least two members may elect to be classified either as an association
taxable as a corporation or as a partnership. If such entity fails to make an
election, it generally will be treated as a partnership for federal income tax
purposes. The federal income tax classification of an entity that was in
existence prior to January 1, 1997 will be respected for all periods prior to
January 1, 1997 if (i) the entity had a reasonable basis for its claimed
classification, (ii) the entity and all members of the entity recognized the
federal tax consequences of any changes in the entity's classification within
the 60 months prior to January 1, 1997, and (iii) neither the entity nor any of
its members was notified in writing by a taxing authority on or before May 8,
1996 that the classification of the entity was under examination. Each
Partnership in existence on January 1, 1997 reasonable claimed partnership
classification under the Treasury Regulations relating to entity classification
in effect prior to January 1, 1997, and such classification should be respected
for federal income tax purposes. In addition, no Partnership was notified by a
taxing authority on or before May 8, 1996 that its classification was under
examination. The Partnerships intend to continue to be classified as
partnerships and no Partnership has elected or will elect to be treated as an
association taxable as a corporation for federal income tax purposes under the
Check-the-Box Regulations.
A publicly traded partnership is a partnership whose interests are traded
on an established securities market or are readily tradable on a secondary
market (or the substantial equivalent thereof). A publicly traded partnership
will be treated as corporation for federal income tax purposes unless at least
90% of its gross income for a taxable year consists of "qualifying income"
under section 7704(d)of the Code, which generally includes any income that is
qualifying income for purposes of the 95% gross income test applicable to REITs
(the "90% Passive-Type Income Exception"). See " -- Requirements for
Qualification -- Income Tests." The U.S. Treasury Department has issued
regulations (the "PTP Regulations") that provide limited safe harbors from the
definition of a publicly traded partnership. Pursuant to one of those safe
harbors (the "Private Placement Exclusion"), interests in a partnership will
not be treated as readily tradable on a secondary market or the substantial
equivalent thereof if (i) all interests in the partnership were issued in a
transaction (or transactions) that was not required to be registered under the
Securities Act, and (ii) the partnership does not have more than 100 partners
at any time during its taxable year. In determining the number of partners in a
partnership, a person owning an interest in a flow-through entity (i.e., a
partnership, grantor trust, or S corporation) that owns an interest in the
partnership is treated as a partner in such partnership only if (a)
substantially all of the value of the owner's interest in the flow-through
entity is attributable to the flow-through entity's interest (direct or
indirect) in the partnership and (b) a principal purpose of the use of the
flow-through entity is to permit the partnership to satisfy the 100-partner
limitation. Each Partnership qualifies for the Private Placement Exclusion. If
a Partnership is considered a publicly traded partnership under the PTP
Regulations because it is deemed to have more than 100 partners, such
Partnership should not be treated as a corporation because it should be
eligible for the 90% Passive-Type Income Exception.
If for any reason a Partnership were taxable as a corporation, rather than
as a partnership, for federal income tax purposes, United Dominion or ASR, as
applicable, likely would not be able to qualify as a REIT. See "FEDERAL INCOME
TAX CONSIDERATIONS -- Requirements for Qualification -- Income Tests and --
Asset Tests." In addition, any change in a Partnership's status for tax
purposes might be treated as a taxable event, in which
75
<PAGE>
case United Dominion or ASR might incur a tax liability without any related
cash distribution. See "FEDERAL INCOME TAX CONSIDERATIONS -- Requirements for
Qualification-Distribution Requirements." Further, items of income and
deduction of such Partnership would not pass through to its partners, and its
partners would be treated as shareholders for tax purposes. Consequently, such
Partnership would be required to pay income tax at corporate tax rates on its
net income, and distributions to its partners would constitute dividends that
would not be deductible in computing such Partnership's taxable income.
EXPERTS
The consolidated financial statements of United Dominion appearing in its
Annual Report on Form 10-K for the year ended December 31, 1996 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 consolidated financial statements of South West Property Trust Inc. at
December 31, 1996 and for each of the three years in the period ended December
31, 1996 appearing in United Dominion's Current Report (Form 8-K/A No. 1) dated
March 17, 1997, 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 statements of rental operations of Anderson Mill Oaks Apartments,
Pineloch Apartments, Post Oak Ridge Apartments, Tradewinds Apartments, Trinity
Place Apartments, Stoneybrook Apartments, Forest Creek Apartments, Lakeside
Apartments, Lotus Landing Apartments, Mallards of Brandywine Apartments and
Orange Oaks Apartments, included in United Dominion's current report on Form
8-K, dated July 1, 1997, incorporated by reference herein, have been
incorporated herein in reliance upon the reports respectively dated June 11,
1997, June 11, 1997, June 11, 1997, June 11, 1997, June 25, 1997, June 25,
1997, June 25, 1997. June 25, 1997, August 7, 1997, August 7, 1997, August 7,
1997, August 7, 1997, and August 7, 1997, 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 Waterside at Ironbridge Apartments, Bammelwood Apartments,
Braesridge Apartments, Camino Village Apartments and Pecan Grove Apartments,
included in United Dominion's current report on Form 8-K, dated October 21,
1997, incorporated by reference herein, have been incorporated herein in
reliance upon the reports respectively dated November 14, 1997, November 20,
1997, November 20, 1997, November 20, 1997, and November 20, 1997, 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 consolidated financial statements of ASR incorporated herein by
reference from its Annual Report on Form 10-K for the year ended December 31,
1996 and (i) the Combined Historical Summary of Revenues and Certain Operating
Expenses of the Winton Properties for the year ended December 31, 1996, the
Historical Summary of Revenues and Certain Operating Expenses of La Privada
Apartments for the year ended December 31, 1996, and the Historical Summary of
Revenues and Certain Operating Expenses of London Park Apartments for the year
ended December 31, 1996, incorporated herein by reference from ASR's Current
Report on Form 8-K/A filed on June 16, 1997, (ii) the Combined Historical
Summary of Revenues and Certain Operating Expenses of the MTP Properties for
the year ended December 31, 1996, incorporated herein by reference from ASR's
Current Report on Form 8-K filed on August 28, 1997, and (iii) the Historical
Summary of Revenues and Certain Operating Expenses of Arbor Terrace Apartments
for the year ended December 31, 1996, incorporated herein by reference from
ASR's Current Report on Form 8-K/A filed on January 6, 1998 have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their reports
which are incorporated herein by reference, and have been so incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
76
<PAGE>
LEGAL OPINIONS
Certain legal matters in connection with the Merger, including the legality
of the United Dominion Common Stock to be issued will be passed on for United
Dominion by Hunton & Williams, Richmond, Virginia. Certain legal matters in
connection with the Merger will be passed on for ASR by O'Connor, Cavanagh,
Anderson, Killingsworth & Beshears, a Professional Association, Phoenix,
Arizona.
Hunton & Williams and Rogers & Wells, New York, New York, will deliver
opinions to United Dominion and ASR, respectively, concerning certain federal
income tax consequences of the Merger. See "THE MERGER --
Certain Federal Income Tax Consequences."
OTHER MATTERS
The ASR Board does not intend to bring any matter before the 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
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 ASR Board.
77
<PAGE>
Appendix I
FORM OF
AGREEMENT AND PLAN OF MERGER
Dated as of December 19, 1997,
Among
UNITED DOMINION REALTY TRUST, INC.,
ASR INVESTMENTS CORPORATION,
and
ASR ACQUISITION SUB, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
The Merger
SECTION 1.1 The Merger ...................................................... I-1
SECTION 1.2 Closing ......................................................... I-1
SECTION 1.3 Effective Time ................................................ I-1
SECTION 1.4 Effects of the Merger .......................................... I-1
SECTION 1.5 Charters and By-Laws .......................................... I-1
SECTION 1.6 Directors ...................................................... I-1
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 2.1 Effect on Capital Stock
(a) Conversion of Stock ............................................. I-2
(b) Conversion of Shares of Common Stock of ASRSub .................. I-2
SECTION 2.2 Exchange of Certificates ....................................... I-2
(a) Exchange Agent ................................................ I-2
(b) Provision of Shares ............................................. I-2
(c) Exchange Procedure ............................................. I-2
(d) Record Dates; Distributions with Respect to Unexchanged Shares I-3
(e) No Further Ownership Rights in ASR Common Stock ............... I-4
(f) No Liability ................................................... I-4
(g) No Fractional Shares .......................................... I-4
(h) Withholding Rights ............................................. I-4
ARTICLE III
Representations and Warranties
SECTION 3.1 Representations and Warranties of ASR ........................... I-5
(a) Organization, Standing and Corporate Power of ASR ............... I-5
(b) ASR Subsidiaries ................................................ I-5
(c) Capital Structure ............................................. I-5
(d) Authority; Noncontravention; Consents ........................... I-6
(e) SEC Documents; Financial Statements; Undisclosed Liabilities ... I-7
(f) Absence of Certain Changes or Events ........................... I-7
(g) Litigation ...................................................... I-8
(h) Absence of Changes in Benefit Plans; ERISA Compliance ......... I-8
(i) Taxes ......................................................... I-8
(j) No Loans or Payments to Employees, Officers or Directors ...... I-9
(k) Brokers; Schedule of Fees and Expenses ........................ I-9
(l) Compliance with Laws .......................................... I-9
(m) Contracts; Debt Instruments .................................... I-9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
(n) Environmental Matters ......................................... I-9
(o) ASR Properties .................................................. I-10
(p) Books and Records ............................................... I-10
(q) Opinion of Financial Advisor ................................... I-11
(r) State Takeover Statutes ......................................... I-11
(s) Registration Statement ......................................... I-11
(t) Vote Required .................................................. I-11
SECTION 3.2 Representations and Warranties of the Company ................. I-11
(a) Organization, Standing and Corporate Power of the Company ..... I-11
(b) The Company Subsidiaries ...................................... I-11
(c) Capital Structure ............................................... I-12
(d) Authority; Noncontravention; Consents .......................... I-12
(e) SEC Documents; Financial Statements; Undisclosed Liabilities .. I-13
(f) Absence of Certain Changes or Events .......................... I-13
(g) Litigation ..................................................... I-14
(h) Absence of Changes in Benefit Plans; ERISA Compliance ........... I-14
(i) Taxes ........................................................... I-14
(j) No Loans or Payments to Employees, Officers or Directors ........ I-15
(k) Brokers ........................................................ I-15
(l) Compliance with Laws ............................................ I-15
(m) Contracts; Debt Instruments ................................... I-15
(n) Environmental Matters ......................................... I-15
(o) Tangible Property and Assets ................................... I-15
(p) Books and Records ............................................... I-16
(q) State Takeover Statutes ......................................... I-16
ARTICLE IV
Covenants
SECTION 4.1 Conduct of Business by ASR ...................................... I-16
SECTION 4.2 Conduct of Business by the Company ............................. I-17
SECTION 4.3 Other Actions .................................................. I-18
ARTICLE V
Additional Covenants
SECTION 5.1 Preparation of the Registration Statement and the Proxy
Statement; Stockholders Meetings................................. I-18
SECTION 5.2 Access to Information; Confidentiality .......................... I-19
SECTION 5.3 Best Efforts; Notification ...................................... I-20
SECTION 5.4 Affiliates ..................................................... I-20
SECTION 5.5 Tax Treatment .................................................. I-20
SECTION 5.6 No Solicitation of Transactions ................................ I-21
SECTION 5.7 Public Announcements ............................................ I-21
SECTION 5.8 Listing ........................................................ I-21
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 5.9 Transfer and Gains Taxes ................................. I-21
SECTION 5.10 Employee Matters .......................................... I-21
(a) Employees ................................................ I-21
(b) Incentive Plans .......................................... I-22
(c) Employment Arrangements ................................. I-22
(d) Termination of Benefit Plans .............................. I-22
(e) Cooperation ............................................. I-22
SECTION 5.11 Indemnification .......................................... I-22
SECTION 5.12 ASR Operating Partnership ................................. I-24
SECTION 5.13 Registration Rights Agreements ........................... I-24
SECTION 5.14 Company Board of Directors .............................. I-24
SECTION 5.15 Comfort Letter .......................................... I-24
ARTICLE VI
Conditions Precedent
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Merger I-25
(a) Stockholder Approval .................................... I-25
(b) Listing of Shares ....................................... I-25
(c) Registration Statement .................................... I-25
(d) No Injunctions or Restraints .............................. I-25
(e) Certain Actions and Consents .............................. I-25
SECTION 6.2 Conditions to Obligations of the Company .................. I-25
(a) Representations and Warranties ........................... I-25
(b) Performance of Obligations of ASR ........................ I-25
(c) Opinions Relating to REIT and Partnership Status ......... I-25
(d) Consents ................................................ I-26
SECTION 6.3 Conditions to Obligation of ASR ........................... I-26
(a) Representations and Warranties ........................... I-26
(b) Performance of Obligations of the Company ............... I-26
(c) Opinions Relating to REIT and Partnership Status ......... I-26
(d) Opinion Related to the Merger ........................... I-26
(e) Consents ................................................ I-26
(f) Registration Rights Agreements ........................... I-27
ARTICLE VII
Board Actions
SECTION 7.1 Board Actions ............................................. I-27
ARTICLE VIII
Termination, Amendment and Waiver
SECTION 8.1 Termination ............................................. I-27
SECTION 8.2 Expenses ................................................ I-28
SECTION 8.3 Effect of Termination .................................... I-30
SECTION 8.4 Amendment ................................................ I-30
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
SECTION 8.5 Extension; Waiver .................................... I-30
ARTICLE IX
General Provisions
SECTION 9.1 Nonsurvival of Representations and Warranties ...... I-31
SECTION 9.2 Notices ............................................. I-31
SECTION 9.3 Interpretation ....................................... I-31
SECTION 9.4 Counterparts ....................................... I-32
SECTION 9.5 Entire Agreement; No Third-Party Beneficiaries ...... I-32
SECTION 9.6 GOVERNING LAW ....................................... I-32
SECTION 9.7 Assignment .......................................... I-32
SECTION 9.8 Enforcement .......................................... I-32
ARTICLE X
Certain Definitions
SECTION 10.1 Certain Definitions ................................. I-32
Exhibits
A Form of Resale Agreement with Affiliates
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of December 19,
1997, among UNITED DOMINION REALTY TRUST, INC., a Virginia corporation (the
"Company"), ASR INVESTMENTS CORPORATION, a Maryland corporation ("ASR"), and
ASR ACQUISITION SUB, INC., a Maryland corporation and a subsidiary of the
Company ("ASRSub").
RECITALS
(a) Certain terms used herein shall have the meanings assigned to them in
Article X;
(b) The Boards of Directors of the Company and ASR have determined that it
is advisable and in the best interest of their respective companies and their
stockholders to consummate the strategic business combination involving ASR and
the Company described herein, pursuant to which ASR will merge with ASRSub and
will be the surviving corporation in such merger (the "Merger") and each issued
and outstanding share of common stock, par value $.01 per share, of ASR (the
"ASR Common Stock") will be converted into the right to receive the Merger
Consideration (as defined below); and
(c) For federal income tax purposes, it is intended that the Merger
qualify as a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and that this Agreement
constitutes a plan of reorganization under Section 368 of the Code.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
The Merger
SECTION 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Maryland General
Corporation Law (the "MGCL"), ASR shall be merged with ASRSub at the Effective
Time (as defined herein). Following the Merger, the separate corporate
existence of ASRSub shall cease and ASR shall continue as the surviving
corporation (the "Surviving Corporation") and shall succeed to and assume all
the rights and obligations of ASRSub in accordance with the MGCL.
SECTION 1.2 Closing. The closing of the Merger will take place at a
mutually agreeable time and place and on a date to be specified by the parties,
which (subject to satisfaction or waiver of the conditions set forth in
Sections 6.2 and 6.3) shall be no later than the second business day after
satisfaction or waiver of the conditions set forth in Section 6.1 (the "Closing
Date").
SECTION 1.3 Effective Time. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VI, the parties
shall file the articles of merger or other appropriate documents for the Merger
(the "Articles of Merger") executed in accordance with Section 3-110 of the
MGCL and shall make all other filings or recordings required under the MGCL to
effect the Merger. The Merger shall become effective at such time as the
Articles of Merger have been duly filed with the Department of Assessments and
Taxation of the State of Maryland, or at such other time as the Company and ASR
shall specify in the Articles of Merger (the time and the day the Merger
becomes effective being, respectively, the "Effective Time" and the "Effective
Day"), it being understood that the parties shall cause the Effective Time to
occur on the Closing Date.
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in the MGCL.
SECTION 1.5 Charters and By-Laws. The Charter and By-Laws of the Surviving
Corporation as in effect at the Effective Time shall be the Charter and By-Laws
of the Surviving Corporation upon consummation of the Merger. The Articles of
Incorporation of the Company (the "Company Charter") and the By-Laws of the
Company (the "Company By-Laws") shall not be affected by the Merger.
SECTION 1.6 Directors. The Board of Directors of ASR shall resign as of
the Effective Time and shall be replaced with designees of the Company.
I-1
<PAGE>
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 2.1 Effect on Capital Stock. By virtue of the Merger and without
any action on the part of the holder of any shares of ASR Common Stock:
(a) Conversion of Stock.
(i) At the Effective Time, each issued and outstanding share of ASR
Common Stock shall be converted (the "Exchange Ratio") into the right to
receive from the Company 1.575 fully paid and nonassessable shares of
Common Stock of the Company, par value $1.00 per share ("Common Stock").
In the event that the Average Closing Price (as defined below) is
greater than $16.00 per share of Common Stock (the "Adjustment Price"),
then the Exchange Ratio shall be adjusted by multiplying the Exchange
Ratio by a fraction, the numerator of which shall equal the Adjustment
Price and the denominator of which shall equal the Average Closing
Price. As used herein, "Average Closing Price" shall mean the average of
the daily closing prices per share of the Common Stock on the New York
Stock Exchange ("NYSE"), reported as "New York Stock Exchange Composite
Transactions" by The Wall Street Journal during the 20 trading day
period ending at the end of the fifth trading day prior to the date of
the Proxy Statement (as defined herein).
(ii) At the Effective Time, all such shares of ASR Common Stock shall
no longer be outstanding and shall automatically be cancelled and
retired and all rights with respect thereto shall cease to exist, and
each holder of a certificate representing any such shares of ASR Common
Stock shall cease to have any rights with respect thereto, except the
right to receive, upon surrender of such certificate in accordance with
Section 2.2(c), certificates representing the shares of Common Stock
required to be delivered under this Section 2.1(a) and any cash in lieu
of fractional shares of Common Stock to be issued or paid in
consideration therefor upon surrender of such certificate (the "Merger
Consideration") and any dividends or other distributions to which such
holder is entitled pursuant to Section 2.2(d), in each case, without
interest and less any required withholding taxes.
(iii) Notwithstanding the foregoing, the parties understand that the
rights of each stockholder of the Company under this Section 2.1(a) will
be subject to the ownership limitations and other related provisions
contained in the Company Charter.
(b) Conversion of Shares of Common Stock of ASRSub. At the Effective
Time, each issued and outstanding share of common stock of ASRSub ("ASRSub
Common Stock") shall be converted into one validly issued, fully paid and
non-assessable share of common stock of the Surviving Corporation.
SECTION 2.2 Exchange of Certificates.
(a) Exchange Agent. Prior to the Effective Time, the Company shall
appoint a bank or trust company to act as exchange agent (the "Exchange
Agent") for the exchange of the Merger Consideration upon surrender of
certificates representing issued and outstanding ASR Common Stock.
(b) Provision of Shares. The Company shall provide to the Exchange Agent
on or before the Effective Time, for the benefit of the holders of ASR
Common Stock, sufficient shares of Common Stock issuable in exchange for
the issued and outstanding shares of ASR Common Stock pursuant to Section
2.1.
(c) Exchange Procedure. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of
a certificate or certificates which immediately prior to the Effective
Time represented outstanding shares of ASR Common Stock (the "ASR
Certificates") whose shares were converted into the right to receive the
Merger Consideration pursuant to Section 2.1, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the ASR Certificates shall pass, only upon delivery of the ASR
Certificates to the Exchange Agent and shall be in a form and have such
other provisions as the Company may reasonably specify) and (ii)
instructions for use in effecting the surrender of the ASR Certificates in
exchange for the Merger Consideration. Upon surrender of an ASR
Certificate for cancellation to the Exchange Agent or to such other agent
or agents as may be appointed by the Company, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such ASR Certificate shall
be
I-2
<PAGE>
entitled to receive in exchange therefor the Merger Consideration and any
dividends or other distributions to which such holder is entitled pursuant
to Section 2.2(d), and the Certificate so surrendered shall forthwith be
cancelled. In the event of a transfer of ownership of ASR Common Stock
which is not registered in the transfer records of ASR, payment may be made
to a person other than the person in whose name the ASR Certificate so
surrendered is registered if such ASR Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person
requesting such payment either shall pay any transfer or other taxes
required by reason of such payment being made to a person other than the
registered holder of such ASR Certificate or establish to the satisfaction
of the Company that such tax or taxes have been paid or are not applicable.
Until surrendered as contemplated by this Section 2.2, each ASR Certificate
shall be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender the Merger Consideration, without
interest, into which the shares theretofore represented by such ASR
Certificate shall have been converted pursuant to Section 2.1 and any
dividends or other distributions to which such holder is entitled pursuant
to Section 2.2(d). No interest will be paid or will accrue on the Merger
Consideration upon the surrender of any ASR Certificate or on any cash
payable pursuant to Section 2.2(d) or Section 2.2(g).
(d) Record Dates; Distributions with Respect to Unexchanged Shares.
(i) At the Effective Time, ASR shall declare, set aside and pay to
the holders of ASR Common Stock a cash dividend (and a corresponding
distribution to the holders ("ASR Limited Partners") of units of
limited partnership ("ASR OP Units") of ASR Heritage Communities L.P.,
a Delaware limited partnership (the "ASR Operating Partnership")),
equal to $.1667 per share of ASR Common Stock per month for each month
(with a pro rated amount being paid for partial months based on a
30-day month) that the Effective Day occurs after February 28, 1998;
provided that if the Effective Day occurs during any calendar quarter
(other than the first calendar quarter) on a date that is after the
record date for the payment of regular quarterly dividends by the
Company to its stockholders during that calendar quarter, the amount
that ASR shall declare, set aside and pay to the holders of ASR Common
Stock (and to the ASR Limited Partners in a corresponding distribution)
shall be increased by $.3334 per share of ASR Common Stock (and an
equivalent amount per ASR OP Unit); provided, further, that the amount
paid by ASR on the Effective Day shall be reduced by the amount of
dividends and distributions paid by ASR during calendar year 1998 to
the holders of ASR Common Stock (and to the ASR Limited Partners in any
corresponding distribution). Any such dividends payable hereunder to
holders of ASR Common Stock shall be paid upon presentation of the ASR
Certificates for exchange in accordance with this Article II. In
addition, unless the Company shall otherwise notify ASR, ASR shall
before the Effective Date declare and set aside a special cash dividend
(and a corresponding distribution to the ASR Limited Partners), the
record date for which shall be a date preceding the Effective Date, in
an amount per share at least equal to the quotient of (A) the excess,
if any, of 100% of ASR's real estate investment trust taxable income
for the tax year ending on the Effective Date, over the total of all
dividends and distributions theretofore declared by ASR and includable
for purposes of determining ASR's deduction for dividends paid for such
tax year, (B) divided by the number of shares of ASR Common Stock
outstanding on the record date. If such special cash dividend (and
corresponding distribution to the ASR Limited Partners) shall be
payable by reason of an excess of 100% of such real estate investment
trust taxable income over the total of such dividends and
distributions, it shall be payable promptly after ascertainment of the
amount thereof. (ii) No dividends or other distributions with respect
to ASR Common Stock with a record date after the Effective Time shall
be paid to the holder of any unsurrendered ASR Certificate with respect
to the shares represented thereby, and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section
2.2(g), in each case until the surrender of such ASR Certificate in
accordance with this Article II. Subject to the effect of applicable
abandoned property, escheat or similar laws, following surrender of any
such ASR Certificate there shall be paid to the holder of such ASR
Certificate, without interest, (A) at the time of such surrender, the
amount of any cash payable in lieu of any fractional share of Common
Stock to which such holder is entitled pursuant to Section 2.2(g) and
(B) if such ASR Certificate is exchangeable for one or more whole
shares of Common Stock, (x) at the time of such surrender, the amount
of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of
Common Stock and (y) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective
Time but prior to such
I-3
<PAGE>
surrender and with a payment date subsequent to such surrender payable
with respect to such whole shares of Common Stock.
(e) No Further Ownership Rights in ASR Common Stock. All Merger
Consideration paid upon the surrender of ASR Certificates in accordance
with the terms of this Article II (and any cash paid pursuant to Section
2.2(g)) shall be deemed to have been paid in full satisfaction of all
rights pertaining to the shares of ASR Common Stock theretofore
represented by such ASR Certificates, subject, however, to the obligation
of the Company to pay, without interest, any dividends or make any other
distributions with a record date prior to the Effective Time which may
have been declared or made by ASR on such shares in accordance with the
terms of this Agreement or prior to the date of this Agreement and which
remain unpaid at the Effective Time and have not been paid prior to such
surrender, and there shall be no further registration of transfers on the
stock transfer books of ASR of the shares of ASR Common Stock which were
outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are properly presented to the Company they
shall be cancelled and exchanged as provided in this Article II.
(f) No Liability. None of the Company, ASR, ASRSub or the Exchange Agent
shall be liable to any person in respect of any Merger Consideration
delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. Any portion of the Merger Consideration
delivered to the Exchange Agent pursuant to this Agreement that remains
unclaimed for six months after the Effective Time shall be redelivered by
the Exchange Agent to the Company, upon demand, and any holders of
Certificates who have not theretofore complied with Section 2.2(c) shall
thereafter look only to the Company for delivery of the Merger
Consideration, subject to applicable abandoned property, escheat and other
similar laws.
(g) No Fractional Shares.
(i) No certificates or scrip representing fractional shares of Common
Stock shall be issued upon the surrender for exchange of ASR
Certificates, and such fractional share interests will not entitle the
owner thereof to vote, to receive dividends or to any other rights of a
stockholder of the Company.
(ii) Notwithstanding any other provision of this Agreement, each
holder of shares of ASR Common Stock exchanged in the Merger who would
otherwise have been entitled to receive a fraction of a share of Common
Stock (after taking into account all ASR Certificates delivered by such
holder) shall receive, from the Exchange Agent in accordance with the
provisions of this Section 2.2(g), a cash payment in lieu of such
fractional share of Common Stock equal to such fractional proportion of
the closing price per share of the Common Stock on the NYSE, reported
as "New York Stock Exchange Composite Transactions" by The Wall Street
Journal, on the Effective Day. As soon as practicable after the
determination of the amount of cash, if any, to be paid to holders of
ASR Certificates in lieu of any fractional shares of Common Stock, the
Exchange Agent shall make available such amounts to such holders of ASR
Certificates without interest.
(h) Withholding Rights. The Company or the Exchange Agent shall be
entitled to deduct and withhold from the Merger Consideration otherwise
payable pursuant to this Agreement to any holder of shares of Common Stock
or ASR Common Stock such amounts as the Company or the Exchange Agent is
required to deduct and withhold with respect to the making of such payment
under the Code, or any provision of state, local or foreign tax law. To
the extent that amounts are so withheld by the Company or the Exchange
Agent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of ASR Common
Stock, in respect of which such deduction and withholding was made by the
Company or the Exchange Agent.
I-4
<PAGE>
ARTICLE III
Representations and Warranties
SECTION 3.1 Representations and Warranties of ASR. ASR represents and
warrants to the Company as follows:
(a) Organization, Standing and Corporate Power of ASR. ASR is a
corporation duly organized and validly existing under the laws of Maryland
and has the requisite corporate power and authority to carry on its
business as now being conducted. ASR is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature
of its business or the ownership, leasing of its properties or management
of properties for others makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so qualified or
licensed, individually or in the aggregate, would not have a material
adverse effect on the business, properties, assets, financial condition or
results of operations of ASR and the ASR Subsidiaries (as defined below)
taken as a whole (an "ASR Material Adverse Effect"). As used herein, "ASR
Subsidiary" shall mean any corporation, partnership, limited liability
company, joint venture or other legal entity of which ASR (either directly
or through or together with another ASR Subsidiary) owns any capital stock
or other equity interests of such entity.
(b) ASR Subsidiaries. Schedule 3.1(b) to the ASR Disclosure Letter (as
defined herein) sets forth each ASR Subsidiary and the ownership interest
therein of ASR. Except as set forth in Schedule 3.1(b) to the ASR
Disclosure Letter, (i) all the outstanding shares of capital stock of each
ASR Subsidiary that is a corporation have been validly issued, are fully
paid and nonassessable and are owned by ASR, by another ASR Subsidiary or
by ASR and another ASR Subsidiary, free and clear of all pledges, claims,
liens, charges, encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens"); (ii) all equity interests in each ASR
Subsidiary that is a partnership (other than the ASR Operating
Partnership), limited liability company or trust are owned by ASR, by
another ASR Subsidiary or by ASR and another ASR Subsidiary, free and
clear of all Liens; and (iii) ASR owns all of its partnership interest in
the ASR Operating Partnership free and clear of all Liens. Each ASR
Subsidiary that is a corporation is duly incorporated and validly existing
under the laws of its jurisdiction of incorporation and has the requisite
corporate power and authority to carry on its business as now being
conducted and each ASR Subsidiary that is a partnership, limited liability
company or trust is duly organized and validly existing under the laws of
its jurisdiction of organization and has the requisite power and authority
to carry on its business as now being conducted. Each ASR Subsidiary is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership, leasing
of its properties or management of properties for others makes such
qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed, individually or in the
aggregate, would not have an ASR Material Adverse Effect.
(c) Capital Structure. The authorized capital stock of ASR consists of
40,000,000 shares of ASR Common Stock and no shares of preferred stock,
par value $.01 per share (the "ASR Preferred Stock"). On the date hereof,
(i) 4,990,054 shares of ASR Common Stock and no shares of ASR Preferred
Stock were issued and outstanding, (ii) 5,901 shares of ASR Common Stock
were available for issuance under ASR's stock option plans (the "ASR Stock
Plans"), (iii) 351,349 shares of ASR Common Stock were reserved for
issuance upon exercise of outstanding stock options to purchase shares of
ASR Common Stock granted to employees or directors of ASR under the ASR
Stock Plans I-5 or otherwise (the "ASR Common Stock Options") and (iv)
971,422 shares of Common Stock were reserved for issuance upon conversion
of the ASR OP Units. On the date of this Agreement, except as set forth
above in this Section 3.1(c), no shares of capital stock or other voting
securities of ASR or any ASR Subsidiary were issued, reserved for issuance
or outstanding. All outstanding shares of capital stock of ASR are duly
authorized, validly issued, fully paid and nonassessable and not subject
to preemptive rights. Except (A) for the ASR Common Stock Options and ASR
OP Units, (B) as set forth in Schedule 3.1(c) to the ASR Disclosure
Letter, and (C) as otherwise permitted under Section 4.1, there are no
outstanding securities, options, stock appreciation rights, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of
any kind to which ASR or any ASR Subsidiary is a party or by which such
entity is bound, obligating ASR or any ASR Subsidiary to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of
capital stock, voting
I-5
<PAGE>
securities or other ownership interests of ASR or any ASR Subsidiary or
obligating ASR or any ASR Subsidiary to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking.
(d) Authority; Noncontravention; Consents. ASR has the requisite
corporate power and authority to enter into this Agreement and, subject to
approval of the Merger, this Agreement and the other transactions
contemplated hereby by the requisite vote of the holders of the ASR Common
Stock (the "ASR Common Stockholder Approvals"), to consummate Merger and
the other transactions contemplated by this Agreement. The execution and
delivery of this Agreement by ASR and the consummation by ASR of the
transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of ASR, subject to approval of this
Agreement pursuant to the ASR Common Stockholder Approvals. This Agreement
has been duly executed and delivered by ASR and constitutes valid and
binding obligations of ASR, enforceable against ASR in accordance with its
terms. Except as set forth in Schedule 3.1(d) to the ASR Disclosure
Letter, the execution and delivery of this Agreement by ASR do not, and
the consummation of the transactions contemplated hereby and compliance by
ASR with the provisions of this Agreement will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation
or acceleration of any obligation or to loss of a material benefit under,
or result in the creation of any Lien upon any of the properties or assets
of ASR or any ASR Subsidiary under, (i) the charter or by-laws of ASR or
the comparable charter or organizational documents or partnership or
similar agreement (as the case may be) of any ASR Subsidiary, each as
amended or supplemented to the date of this Agreement, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, reciprocal easement
agreement, lease or other agreement, instrument, permit, concession,
franchise or license applicable to ASR or any ASR Subsidiary or their
respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any
judgment, order, decree, statute, law, ordinance, rule or regulation
(collectively, "Laws") applicable to ASR or any ASR Subsidiary, or their
respective properties or assets, other than, in the case of clause (ii) or
(iii), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not (x) have an ASR Material
Adverse Effect or (y) prevent the consummation of the Merger or the other
transactions contemplated hereby. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
federal, state or local government or any court, administrative or
regulatory agency or commission or other governmental authority or agency
(a "Governmental Entity"), is required by or with respect to ASR or any
ASR Subsidiary in connection with the execution and delivery of this
Agreement by ASR or the consummation by ASR of any of the transactions
contemplated hereby and thereby, except for (i) the filing with the
Securities and Exchange Commission (the "SEC") of (x) a proxy statement
relating to the approval by ASR stockholders of the Merger or the other
transactions contemplated hereby (as amended or supplemented from time to
time, the "Proxy Statement"), (y) the registration statement on Form S-4
of the Company, of which the Proxy Statement shall be a part (the
"Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act") relating to the issuance of the Merger
Consideration, and (z) such reports under Section 13(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as may be required
in connection with this Agreement, the Merger and the other transactions
contemplated by this Agreement, (ii) the filing of I-6 a listing
application with the NYSE by the Company with respect to the Common Stock
to be issued in the Merger, (iii) the filing of the Articles of Merger for
the Merger with the Department of Assessments and Taxation of the State of
Maryland, (iv) such filings as may be required in connection with the
payment of any Transfer and Gains Taxes (as defined herein) and (v) such
other consents, approvals, orders, authorizations, registrations,
declarations and filings as are set forth in Schedule 3.1(d) to the ASR
Disclosure Letter or (A) as may be required under federal, state, local or
foreign Environmental Laws (as defined herein) or (B) which, if not
obtained or made, would not prevent or delay in any material respect the
consummation of the Merger or the other transactions contemplated hereby
or otherwise prevent ASR from performing its obligations under this
Agreement in any material respect or have, individually or in the
aggregate, an ASR Material Adverse Effect.
(e) SEC Documents; Financial Statements; Undisclosed Liabilities. ASR
has filed all required reports, schedules, forms, statements and other
documents with the SEC since January 1, 1994 (the "ASR SEC Documents").
All of the ASR SEC Documents (other than preliminary material), as of
their respective filing dates, complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act and, in
each case, the rules and regulations promulgated thereunder applicable to
such ASR
I-6
<PAGE>
SEC Documents. None of the ASR SEC Documents at the time of filing
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except to the extent such statements have been
modified or superseded by later filed ASR SEC Documents. Other than as set
forth in Schedule 3.1(e) to the ASR Disclosure Letter, there is no
unresolved violation, criticism or exception by any Governmental Entity of
which ASR has received written notice with respect to any ASR report or
statement which, if resolved in a manner unfavorable to ASR, could have an
ASR Material Adverse Effect. The consolidated financial statements of ASR
included in the ASR SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles ("GAAP") (except,
in the case of interim financial statements, as permitted by Forms 10-Q or
8-K of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly presented, in
accordance with the applicable requirements of GAAP, the consolidated
financial position of ASR and the ASR Subsidiaries taken as a whole, as of
the dates thereof and the consolidated results of operations and cash flows
for the periods then ended (subject, in the case of interim financial
statements, to normal year-end adjustments). ASR has no ASR Subsidiaries
which are not consolidated for accounting purposes.
(f) Absence of Certain Changes or Events. Except as disclosed in the ASR
SEC Documents or in Schedule 3.1(f) to the ASR Disclosure Letter, since the
date of the most recent financial statements included in the ASR SEC
Documents (the "ASR Financial Statement Date") and to the date of this
Agreement, but not thereafter with respect to clause (a) of this Section
3.1(f), ASR and the ASR Subsidiaries have conducted their business only in
the ordinary course and there has not been (a) any material adverse change
in the business, financial condition or results of operations of ASR and
the ASR Subsidiaries taken as a whole, that has resulted or would result,
individually or in the aggregate, in ASR Economic Losses (as defined in
Section 6.2 below) of $4,000,000 or more (an "ASR Material Adverse
Change"), nor has there been any occurrence or circumstance that with the
passage of time would reasonably be expected to result in an ASR Material
Adverse Change, (b) except for regular quarterly distributions (in the case
of ASR) not in excess of $0.50 per share of ASR Common Stock (including any
corresponding distribution by the ASR Operating Partnership) with customary
record and payment dates, any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with
respect to the ASR Common Stock, (c) any split, combination or
reclassification of any ASR Common Stock or any issuance or the
authorization of any issuance of any other securities in respect of, in
lieu of or in substitution for, or giving the right to acquire by exchange
or exercise, shares of its beneficial interest or any issuance of an
ownership interest in, any ASR Subsidiary except as contemplated by this
Agreement, (d) any damage, destruction or loss, whether or not covered by
insurance, that has or would have an ASR I-7 Material Adverse Effect, (e)
any change in accounting methods, principles or practices by ASR or any ASR
Subsidiary materially affecting its assets, liabilities or business, except
insofar as may have been disclosed in ASR SEC Documents or required by a
change in GAAP or (f) any amendment of any employment, consulting,
severance, retention or any other agreement between ASR and any officer or
director of ASR.
(g) Litigation. Except as disclosed in the ASR SEC Documents or in
Schedule 3.1(g) to the ASR Disclosure Letter, and other than personal
injury and other routine tort litigation arising from the ordinary course
of operations of ASR and the ASR Subsidiaries which are covered by adequate
insurance, there is no suit, action or proceeding pending or, to the
knowledge of ASR, threatened against or affecting ASR or any ASR Subsidiary
that, individually or in the aggregate, could reasonably be expected to (i)
have an ASR Material Adverse Effect or (ii) prevent the consummation of the
Merger or any of the other transactions contemplated hereby, nor is there
any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against ASR or any ASR Subsidiary having, or
which, insofar as reasonably can be foreseen, in the future would have, any
such effect.
(h) Absence of Changes in Benefit Plans; ERISA Compliance.
(i) Except as disclosed in the ASR SEC Documents or in Schedule
3.1(h)(i) to the ASR Disclosure Letter, since the date of the most
recent audited financial statements included in the ASR SEC Documents,
there has not been any adoption or amendment in any material respect by
ASR or any ASR Subsidiary of any bonus, pension, profit sharing,
deferred compensation, incentive compensation,
I-7
<PAGE>
stock ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other employee benefit plan, arrangement or
understanding (whether or not legally binding) providing benefits to any
current or former employee, officer or director of ASR or any ASR
Subsidiary or any person affiliated with ASR under Section 414(b), (c),
(m) or (o) of the Code (collectively, "ASR Benefit Plans").
(ii) Except as described in the ASR SEC Documents or in Schedule
3.1(h)(ii) to the ASR Disclosure Letter or as would not have an ASR
Material Adverse Effect, (A) all ASR Benefit Plans, including any such
plan that is an "employee benefit plan" as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), are in compliance with all applicable requirements of law,
including ERISA and the Code, and (B) neither ASR nor any ASR
Subsidiary has any liabilities or obligations with respect to any such
ASR Benefit Plan, whether accrued, contingent or otherwise (other than
obligations to make contributions and pay benefits and administrative
costs incurred in the ordinary course), nor to the knowledge of ASR are
any such liabilities or obligations expected to be incurred. Except as
set forth in Schedule 3.1(h)(ii) to the ASR Disclosure Letter, the
execution of, and performance of the Transactions contemplated in, this
Agreement will not (either alone or together with the occurrence of any
additional or subsequent events) constitute an event under any ASR
Benefit Plan, policy, arrangement or agreement, 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 obligation to fund benefits with respect to any
employee or director. The only severance agreements or severance
policies applicable to ASR or the ASR Subsidiaries are the agreement
and policies specifically referred to in Schedule 3.1(h)(ii) to the ASR
Disclosure Letter.
(i) Taxes.
(i) Each of ASR and each ASR Subsidiary has timely filed all material
Tax Returns (as defined herein) and reports required to be filed by it
(after giving effect to any filing extension properly granted by a
Governmental Entity having authority to do so). Each such Tax Return is
true, correct and complete in all material respects. ASR and each ASR
Subsidiary have paid (or ASR has paid on their behalf), within the time
and manner prescribed by law, all material Taxes (as defined herein)
that are due and payable. As used in this Agreement, "Taxes" shall mean
any federal, state, local or foreign income, gross receipts, license,
payroll, employment withholding, property, sales, excise or other tax
or governmental charges of any nature whatsoever, together with any
penalties, interest or additions thereto and "Tax Return" shall mean
any return, declaration, report, claim for refund, or information
return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
(ii) ASR (A) for all of its taxable years commencing with the year
ending December 31, 1993 through the most recent December 31, has been
subject to taxation as a real estate investment trust under the Code
("REIT") within the meaning of Section 856 of the Code and has
satisfied the requirements to qualify as a REIT for such years, (B) has
operated, and intends to continue to operate, in such a manner as to
qualify as a REIT for its tax year ending December 31, 1997, and (C)
has not taken or omitted to take any action which could reasonably be
expected to result in a challenge to its status as a REIT, and, to
ASR's knowledge, no such challenge is pending or threatened. The ASR
Operating Partnership has at all times, and each other ASR Subsidiary
which is a partnership or files Tax Returns as a partnership for
federal income tax purposes has since its acquisition by ASR been
classified for federal income tax purposes as a partnership and not as
a corporation or as an association taxable as a corporation.
(j) No Loans or Payments to Employees, Officers or Directors. Except as
set forth in the ASR SEC Documents, or Schedule 3.1(h)(ii) or 3.1(j) to
the ASR Disclosure Letter or as otherwise specifically provided for in
this Agreement there is no (i) loan outstanding from or to any employee or
director, (ii) employment or severance contract or other arrangement with
respect to severance, (iii) other agreement requiring payments to be made
on a change of control or otherwise as a result of the consummation of the
I-8
<PAGE>
Merger or any of the other transactions contemplated hereby with respect to
any employee, officer or director of ASR or any ASR Subsidiary or (iv) any
agreement to appoint or nominate any person as a director of ASR or the
Company.
(k) Brokers; Schedule of Fees and Expenses. No broker, investment
banker, financial advisor or other person, other than Furman Selz LLC
("Furman Selz"), the fees and expenses of which, as set forth in a letter
agreement between ASR and Furman Selz, have previously been disclosed to
the Company and will be paid by ASR, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with
the transactions contemplated hereby based upon arrangements made by or on
behalf of ASR or any ASR Subsidiary.
(l) Compliance with Laws. Except as disclosed in the ASR SEC Documents
and except as set forth in Schedule 3.1(l) to the ASR Disclosure Letter,
neither ASR nor any of the ASR Subsidiaries has violated or failed to
comply with any statute, law, ordinance, regulation, rule, judgment, decree
or order of any Governmental Entity applicable to its business, properties
or operations, except for violations and failures to comply that would not,
individually or in the aggregate, reasonably be expected to result in an
ASR Material Adverse Effect.
(m) Contracts; Debt Instruments. Neither ASR nor any ASR Subsidiary is
in violation of or in default under, in any material respect (nor does
there exist any condition which upon the passage of time or the giving of
notice or both would cause such a violation of or default under), any
material loan or credit agreement, note, bond, mortgage, indenture, lease,
or any agreement to acquire real property, or any other material contract,
agreement, arrangement or understanding, to which it is a party or by which
it or any of its properties or assets is bound, except as set forth in
Schedule 3.1(m) to the ASR Disclosure Letter and except for violations or
defaults that would not, individually or in the aggregate, result in an ASR
Material Adverse Effect.
(n) Environmental Matters. Except as disclosed in Schedule 3.1(n) to the
ASR Disclosure Letter or in the environmental audits/reports listed
thereon, each of ASR and each ASR Subsidiary has obtained all licenses,
permits, authorizations, approvals and consents from Governmental Entities
which are required in respect of its business, operations, assets or
properties under any applicable Environmental Law (as defined below) and
each of ASR and each ASR Subsidiary is in compliance in all material
respects with the terms and conditions of all such licenses, permits,
authorizations, approvals and consents and with any applicable Law of any
Governmental Entity relating to human health, safety or protection of the
environment ("Environmental Laws"), except for violations and failures to
comply, individually or in the aggregate, which would not have an ASR
Material Adverse Effect.
(o) ASR Properties. Except as listed in Schedule 3.1(o) to the ASR
Disclosure Letter or except as listed on the title insurance policies,
reports or the surveys, copies of which were made available for review to
the Company: (i) ASR or an ASR Subsidiary owns fee simple title to or has a
valid leasehold interest in, each of the real properties reflected on the
most recent balance sheet of ASR included in the ASR SEC Documents or as
identified in Schedule 3.1(o) to the ASR Disclosure Letter (the "ASR
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"); (ii) the ASR 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 (a) Property
Restrictions imposed or promulgated by law or any Governmental Entity with
respect to real property, including zoning regulations, provided they do
not materially adversely affect the current use of the ASR Properties, (b)
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 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 ASR Properties subject thereto
or affected thereby, and do not otherwise materially interfere with the
present use of any of the ASR Properties subject thereto or affected
thereby, and do not otherwise materially impair business operations
conducted by ASR and the ASR Subsidiaries and which have arisen or been
incurred only in its construction activities or in the ordinary course of
business; (iv) valid policies of title insurance have been issued insuring
ASR's or an ASR Subsidiary's fee simple title to the ASR Properties except
as noted therein,
I-9
<PAGE>
and such policies are, at the date hereof, in full force and effect and no
claim has been made against any such policy; (v) there is no certificate,
permit or license from any Governmental Entity having jurisdiction over any
of the ASR Properties or any agreement, easement or any other right which
is necessary to permit the lawful use and operation of the buildings and
improvements on any of the ASR 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 ASR 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; (vi) neither ASR nor an ASR
Subsidiary 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 ASR Properties issued by any
Governmental Entity; (vii) neither ASR nor an ASR Subsidiary has received
notice to the effect that and there are no (a) condemnation or rezoning or
proceedings that are pending or threatened with respect to any of the ASR
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 ASR Properties or by the continued maintenance, operation or use of
the parking areas.
(p) Books and Records.
(i) The books of account and other financial records of ASR and each
ASR Subsidiary 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 ASR SEC Documents.
(ii) ASR has previously delivered or made available to the Company
true and correct copies of the charter and by-laws of ASR, as amended
to date, and the charter, by-laws, organization documents and
partnership agreements of the ASR Subsidiaries, and all amendments
thereto. All such documents are listed in Schedule 3.1(p)(ii) to the
ASR Disclosure Letter. ASR has also delivered to the Company evidence
of its director and officer liability insurance policy.
(iii) The minute books and other records of corporate or partnership
proceedings of ASR and each ASR Subsidiary that had previously been
made available to the Company, 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 ASR and the ASR
Subsidiaries which are corporations.
(q) Opinion of Financial Advisor. ASR has received the opinion of Furman
Selz, satisfactory to ASR, a signed version of which has been provided to
the Company, with regard to the fairness of the Merger to the stockholders
of ASR from a financial point of view.
(r) State Takeover Statutes. No Takeover Statute (as defined herein) of
the State of Maryland, including, without limitation, the control share
acquisition provisions of Section 3-701 et seq. of the MGCL or the
business combination provisions of Section 3-601 et seq. of the MGCL,
applies or purports to apply to the Merger, this Agreement, any of the
transactions contemplated hereby, ASR or any holders of its equity
securities.
(s) Registration Statement. The information furnished by ASR to the
Company for inclusion in the Registration Statement will not, as of the
effective date of the Registration Statement, contain 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 not misleading.
(t) Vote Required. The affirmative vote of at least two-thirds of the
outstanding shares of ASR Common Stock is the only vote of the holders of
any class or series of ASR's capital stock necessary (under applicable law
or otherwise) to approve the Merger, this Agreement and the other
transactions contemplated hereby.
SECTION 3.2 Representations and Warranties of the Company. The Company
represents and warrants to ASR as follows:
(a) Organization, Standing and Corporate Power of the Company. The
Company is a corporation duly organized and validly existing under the
laws of Virginia and has the requisite corporate power and authority to
carry on its business as now being conducted. The Company is duly
qualified or licensed to do
I-10
<PAGE>
business and is in good standing in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed, individually or in the
aggregate, would not have a material adverse effect on the business,
properties, assets, financial condition or results of operations of the
Company and the Company Subsidiaries (as defined below), taken as a whole
(a "Company Material Adverse Effect"). As used herein, "Company Subsidiary"
shall mean any corporation, partnership, limited liability company, joint
venture or other legal entity of which the Company (either directly or
through or together with another Company Subsidiary) owns any capital stock
or other equity interests of such entity.
(b) The Company Subsidiaries. Schedule 3.2(b) to the Company Disclosure
Letter (as defined herein) sets forth each Company Subsidiary and the
ownership interest therein of the Company. Except as set forth in Schedule
3.2(b) to the Company Disclosure Letter, (i) all the outstanding shares of
capital stock of each Company Subsidiary that is a corporation have been
validly issued and are fully paid and nonassessable and are owned by the
Company, by another Company Subsidiary or by the Company and another
Company Subsidiary, free and clear of all Liens, (ii) all equity interests
in each Company Subsidiary that is a partnership United Dominion Realty,
L.P. a Virginia limited partnership, which is the operating partnership of
the Company (the "Operating Partnership")) or limited liability company or
trust are owned by the Company or by the Company and another Company
Subsidiary free and clear of all Liens and (iii) the Company owns all of
its partnership interests in the Operating Partnership free and clear of
all Liens. Each Company Subsidiary that is a corporation is duly
incorporated and validly existing under the laws of its jurisdiction of
incorporation and has the requisite corporate power and authority to carry
on its business as now being conducted and each Company Subsidiary that is
a partnership, limited liability company or trust is duly organized and
validly existing under the laws of its jurisdiction of organization and has
the requisite power and authority to carry on its business as now being
conducted. Each Company Subsidiary is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed individually or in the
aggregate, would not have a Company Material Adverse Effect.
(c) Capital Structure. The authorized capital stock of the Company
consists of 150,000,000 shares of Common Stock and 25,000,000 shares of
preferred stock, no par value (the "Company Preferred Stock"). On the date
hereof, (i) 89,183,442 shares of Common Stock and 10,200,000 shares of the
Company Preferred Stock were issued and outstanding, (ii) 1,158,045 shares
of Common Stock were available for grant under the Company's stock option
and stock purchase and loan plans (the "Company Plans"), and (iii)
3,053,221 shares of Common Stock were reserved for issuance upon exercise
of outstanding stock options to purchase shares of Common Stock granted
under the Company Plans (the "Company Stock Options"). On the date of this
Agreement, except as set forth in this Section 3.2(c), no shares of capital
stock or other voting securities of the Company were issued, reserved for
issuance or outstanding. All outstanding shares of capital stock of the
Company are, and all shares which may be issued pursuant to this Agreement
will be when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. Except (A) for the
Company Stock Options, (B) as set forth in Schedule 3.2(c) to the Company
Disclosure Letter and (C) as otherwise permitted under Section 4.2, as of
the date of this Agreement there are no outstanding securities, options,
stock appreciation rights, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Company
or any Company Subsidiary is a party or by which such entity is bound,
obligating the Company or any Company Subsidiary to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital
stock, voting securities or other ownership interests of the Company or of
any Company Subsidiary or obligating the Company or any Company Subsidiary
to issue, grant, extend or enter into any such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking.
(d) Authority; Noncontravention; Consents. The Company has the requisite
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement to which the
Company is a party. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated hereby to which the Company is a party have been duly
authorized by all necessary corporate action on the part of the Company,
including the approval of the Company's Board of Directors. No approval by
the stockholders of the Company is required
I-11
<PAGE>
to complete the Merger and the other transactions contemplated hereby,
including without limitation, under the rules of the NYSE. This Agreement
has been duly executed and delivered by the Company and constitutes a valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms. Except as set forth in Schedule 3.2(d) to the
Company Disclosure Letter, the execution and delivery of this Agreement by
the Company does not, and the consummation of the transactions contemplated
hereby to which the Company is a party and compliance by the Company with
the provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration
of any obligation or to loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of the Company or
any Company Subsidiary under, (i) the Company Charter or Company By-Laws or
the comparable charter or organizational documents or partnership or
similar agreement (as the case may be) of any Company Subsidiary, each as
amended or supplemented to the date of this Agreement, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, reciprocal easement
agreement, lease or other agreement, instrument, permit, concession,
franchise or license applicable to the Company or any Company Subsidiary or
their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any Laws
applicable to the Company or any Company Subsidiary or their respective
properties or assets, other than, in the case of clause (ii) or (iii), any
such conflicts, violations, defaults, rights or Liens that individually or
in the aggregate would not (x) have a Company Material Adverse Effect or
(y) prevent the consummation of the Merger or the other transactions
contemplated hereby. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to the Company or any Company Subsidiary in
connection with the execution and delivery of this Agreement by the Company
or the consummation by the Company of any of the transactions contemplated
hereby and thereby, except for (i) the filing with the SEC of (x) the
Registration Statement relating to the issuance of the Merger Consideration
and (y) such reports under Section 13(a) of the Exchange Act as may be
required in connection with this Agreement and the other transactions
contemplated by this Agreement, (ii) the filing of a listing application
with the NYSE with respect to the Common Stock to be issued in the Merger,
(iii) such filings as may be required in connection with the payment of any
Transfer and Gains Taxes and (iv) such other consents, approvals, orders,
authorizations, registrations, declarations and filings as are set forth in
Schedule 3.2(d) to the Company Disclosure Letter or (A) as may be required
under federal, state or local Environmental Laws or (B) which, if not
obtained or made, would not prevent or delay in any material respect the
consummation of any of the transactions contemplated by this Agreement or
otherwise prevent the Company from performing its obligations under this
Agreement in any material respect or have, individually or in the
aggregate, a Company Material Adverse Effect.
(e) SEC Documents; Financial Statements; Undisclosed Liabilities. The
Company has filed all required reports, schedules, forms, statements and
other documents with the SEC since January 1, 1994 (the "Company SEC
Documents"). All of the Company SEC Documents (other than preliminary
material), as of their respective filing dates, complied in all material
respects with all applicable requirements of the Securities Act and the
Exchange Act and, in each case, the rules and regulations promulgated
thereunder applicable to such Company SEC Documents. None of the Company
SEC Documents at the time of filing contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except to
the extent such statements have been modified or superseded by later filed
Company SEC Documents. Other than as set forth in Schedule 3.2(e) to the
Company Disclosure Letter, there is no unresolved violation, criticism or
exception by any Governmental Entity of which the Company has received
written notice with respect to the Company report or statement which, if
resolved in a manner unfavorable to the Company, could have a Company
Material Adverse Effect. The consolidated financial statements of the
Company included in the Company SEC Documents complied as to form in all
material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP (except, in the case of interim financial
statements, as permitted by Forms 10-Q and 8-K of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated
in the notes thereto) and fairly presented, in accordance with the
applicable requirements of GAAP, the consolidated financial position of
the Company and the Company Subsidiaries, taken as a whole, as of the
dates thereof and the consolidated results of operations and cash
I-12
<PAGE>
flows for the periods then ended (subject, in the case of interim financial
statements, to normal year-end adjustments). The Company has no Company
Subsidiaries which are not consolidated for accounting purposes.
(f) Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Documents or in Schedule 3.2(f) to the Company Disclosure
Letter, since the date of the most recent financial statements included in
the Company SEC Documents (the "Company Financial Statement Date") and to
the date of this Agreement, but not thereafter with respect to clause (a)
of this Section 3.2(f), the Company and the Company Subsidiaries have
conducted their business only in the ordinary course and there has not
been (a) any material adverse change in the business, financial condition
or results of operations of the Company and the Company Subsidiaries taken
as a whole, that has resulted or would result, individually or in the
aggregate, in Company Economic Losses (as defined in Section 6.3 below) of
$15,000,000 or more (a "Company Material Adverse Change"), nor has there
been any occurrence or circumstance that with the passage of time would
reasonably be expected to result in a Company Material Adverse Change, (b)
except for regular quarterly distributions not in excess of $.30 per share
of Common Stock (including any corresponding distribution by the Operating
Partnership) with customary record and payment dates, any declaration,
setting aside or payment of any dividend or other distribution (whether in
cash, stock or property) with respect to any of the Common Stock, (c) any
split, combination or reclassification of any share of Common Stock or any
issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for, or giving the right to
acquire by exchange or exercise, shares of Common Stock or any issuance of
an ownership interest in, any Company Subsidiary except as contemplated by
this Agreement, (d) any damage, destruction or loss, whether or not
covered by insurance, that has or would have a Company Material Adverse
Effect, (e) any change in accounting methods, principles or practices by
the Company or any Company Subsidiary materially affecting its assets,
liabilities or business, except insofar as may have been disclosed in
Company SEC Documents or required by a change in GAAP or (f) any amendment
of any employment, consulting, severance, retention or any other agreement
between the Company and any officer or director of the Company.
(g) Litigation. Except as disclosed in the Company SEC Documents or in
Schedule 3.2(g) of the Company Disclosure Letter, and other than personal
injury and other routine tort litigation arising from the ordinary course
of operations of the Company or the Company Subsidiaries which are covered
by adequate insurance, there is no suit, action or proceeding pending or,
to the knowledge of the Company, threatened against or affecting the
Company or any Company Subsidiary that, individually or in the aggregate,
could reasonably be expected to (i) have a Company Material Adverse Effect
or (ii) prevent the consummation of the Merger or any of the other
transactions contemplated hereby, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against the Company or any Company Subsidiary having, or
which, insofar as reasonably can be foreseen, in the future would have,
any such effect.
(h) Absence of Changes in Benefit Plans; ERISA Compliance.
(i) Except as disclosed in the Company SEC Documents or in Schedule
3.2(h)(i) to the Company Disclosure Letter, since the date of the most
recent audited financial statements included in the Company SEC
Documents, there has not been any adoption or amendment in any material
respect by the Company or any Company Subsidiary of any bonus, pension,
profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization,
medical or other employee benefit plan, arrangement or understanding
(whether or not legally binding) providing benefits to any current or
former employee, officer or director of the Company or any Company
Subsidiary or any person affiliated with the Company under Section
414(b), (c), (m) or (o) of the Code (collectively, "Company Benefit
Plans").
(ii) Except as described in the Company SEC Documents or in Schedule
3.2(h)(ii) to the Company Disclosure Letter or as would not have a
Company Material Adverse Effect, (A) all Company Benefit Plans,
including any such plan that is an "employee benefit plan" as defined
in Section 3(3) of ERISA, are in compliance with all applicable
requirements of law, including ERISA and the Code, and (B) neither the
Company nor any Company Subsidiary has any liabilities or obligations
with
I-13
<PAGE>
respect to any such Company Benefit Plans, whether accrued, contingent
or otherwise (other than obligations to make contributions and pay
benefits and administrative costs incurred in the ordinary course), nor
to the knowledge of the Company are any such liabilities or obligations
expected to be incurred. Except as set forth in Schedule 3.2(h)(ii) to
the Company Disclosure Letter, the execution of, and performance of the
transactions contemplated in, this Agreement will not (either alone or
together with the occurrence of any additional or subsequent events)
constitute an event under any Company Benefit Plan, policy, arrangement
or agreement, 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 obligation
to fund benefits with respect to any employee or director. The only
severance agreements or severance policies applicable to the Company or
the Company Subsidiaries are the agreement and policies specifically
referred to in Schedule 3.2(h)(ii) to the Company Disclosure Letter.
(i) Taxes.
(i) Each of the Company and each Company Subsidiary has timely filed
with the appropriate taxing authority all material Tax Returns and
reports required to be filed by it (after giving effect to any filing
extension properly granted by a Governmental Entity having authority to
do so). Each such Tax Return is true, correct and complete in all
material respects. The Company and each Company Subsidiary have paid
(or the Company has paid on their behalf), within the time and manner
prescribed by law, all material Taxes that are due and payable.
(ii) The Company (A) for all of its taxable years commencing with the
year ended December 31, 1993 through the most recent December 31, has
been subject to taxation as a REIT within the meaning of Section 856 of
the Code and has satisfied the requirements to qualify as a REIT for
such years, (B) has operated, and intends to continue to operate, in
such a manner as to qualify as a REIT for its tax year ending December
31, 1997, and (C) has not taken or omitted to take any action which
could reasonably be expected to result in a challenge to its status as
a REIT, and, to the Company's knowledge, no such challenge is pending
or threatened.
(j) No Loans or Payments to Employees, Officers or Directors. Except as
set forth in Schedule 3.2(h)(ii) or 3.2(j) to the Company Disclosure
Letter or as otherwise specifically provided for in this Agreement, there
is no (i) loan outstanding from or to any employee or director, (ii)
employment or severance contract or other arrangement with respect to
severance, (iii) other agreement requiring payments to be made on a change
of control or otherwise as a result of the consummation of the Merger or
the other transactions contemplated hereby with respect to any employee,
officer or director of the Company or any Company Subsidiary or (iv) any
agreement to appoint or nominate any person as a director of the Company
or any Company Subsidiary.
(k) Brokers. No broker, investment banker, financial advisor or other
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of the Company or any
other Company Subsidiary.
(l) Compliance with Laws. Except as disclosed in the Company SEC
Documents and except as set forth in Schedule 3.2(l) to the Company
Disclosure Letter, neither the Company nor any of the Company Subsidiaries
has violated or failed to comply with any Laws of any Governmental Entity
applicable to its business, properties or operations, except for
violations and failures to comply that would not, individually or in the
aggregate, reasonably be expected to result in a Company Material Adverse
Effect.
(m) Contracts; Debt Instruments. Neither the Company nor any Company
Subsidiary is in violation of or in default under, in any material respect
(nor does there exist any condition which upon the passage of time or the
giving of notice or both would cause such a violation of or default
under), any material loan or credit agreement, note, bond, mortgage,
indenture, lease or any agreement to acquire real property, or any other
material contract, agreement, arrangement or understanding, to which it is
a party or by which it or any of its properties or assets is bound, except
as set forth in Schedule 3.2(m) to the Company Disclosure Letter and
except for violations or defaults that would not, individually or in the
aggregate, result in a Company Material Adverse Effect.
I-14
<PAGE>
(n) Environmental Matters. Except as disclosed in Schedule 3.2(n) to the
Company Disclosure Letter or in the environmental audits/reports listed
thereon, each of the Company and each Company Subsidiary has obtained all
licenses, permits, authorizations, approvals and consents from
Governmental Entities which are required in respect of its business,
operations, assets or properties under any applicable Environmental Law,
and each of the Company and each Company Subsidiary is in compliance in
all material respects with the terms and conditions of all such licenses,
permits, authorizations, approvals and consents and with any applicable
Environmental Law, except for violations and failures to comply,
individually or in the aggregate, which would not have a Company Material
Adverse Effect.
(o) Tangible Property and Assets. The Company and its Subsidiaries have
good and marketable fee simple title to, or have valid leasehold interests
in, those properties reflected on the most recent balance sheet of the
Company included in the Company SEC Documents, free and clear of all Liens
other than (i) Liens securing obligations classified as notes
payable-secured reflected on the most recent balance sheet of the Company
included in the Company SEC Documents, (ii) any statutory Lien arising in
the ordinary course of business by operation of law with respect to a
liability that is not yet due or delinquent and (iii) any easement,
restriction or minor imperfection of title or similar Lien which
individually or in the aggregate with other such Liens does not materially
impair the value of the property or asset subject to such Lien or the use
of such property or asset in the conduct of the business of the Company or
any such Company Subsidiary.
(p) Books and Records.
(i) The books of account and other financial records of the Company
and each Company Subsidiary 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 Company SEC Documents.
(ii) The Company has previously delivered or made available to ASR
true and correct copies of the Company Charter and Company By-Laws, as
amended to date, and the charter, by- laws, organizational documents,
partnership agreements and joint venture agreement of its Subsidiaries,
and all amendments thereto. The Company has also delivered to ASR
evidence of its director and officer liability insurance policy. (iii)
The minute books and other records of corporate or partnership
proceedings of the Company and each Company Subsidiary that had
previously been made available to ASR, 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 Boards of Directors of the Company and the
Company Subsidiaries which are corporations.
(q) State Takeover Statutes. No Takeover Statute of the Commonwealth of
Virginia applies or purports to apply to the Merger, this Agreement, any
of the other transactions contemplated hereby, the Company or any holders
of its equity securities.
ARTICLE IV
Covenants
SECTION 4.1 Conduct of Business by ASR. During the period from the date of
this Agreement to the Effective Time, ASR shall, and shall cause the ASR
Subsidiaries to, carry on its businesses in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted and, to the
extent consistent therewith, use commercially reasonable efforts to preserve
intact its current business organization, goodwill, ongoing businesses and its
status as a REIT within the meaning of the Code. Without limiting the
generality of the foregoing, the following additional restrictions shall apply:
During the period from the date of this Agreement to the Effective Time, except
as set forth in Schedule 4.1 to the ASR Disclosure Letter or as otherwise
contemplated by this Agreement, ASR shall not and shall cause the ASR
Subsidiaries not to (and not to authorize or commit or agree to):
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of ASR's capital stock or ASR OP Units or
stock in any ASR Subsidiary that is not directly or indirectly wholly
owned by ASR, except that ASR may declare, set aside and pay on the
Effective Day, the dividends and distributions permitted under Section
2.2(d) hereof and ASR may also declare, set aside and pay on
I-15
<PAGE>
customary record and payment dates for the payment of regular quarterly
dividends and distributions, dividends and distributions that will not
exceed the amount that ASR would be permitted to pay under Section 2.2(d)
hereof had the Effective Day occurred on such record date for such
quarterly dividends and distributions, (ii) split, combine or reclassify
any capital stock or partnership interests or (except in the case of
conversion of ASR OP Units) issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of such
capital stock or partnership interests or (iii) purchase, redeem or
otherwise acquire any shares of capital stock of ASR or ASR OP Units
(except upon their conversion to ASR Common Stock in accordance with the
partnership agreement of ASR Operating Partnership);
(b) except as otherwise contemplated by this Agreement or in the Company
Disclosure Letter, or in the ASR Disclosure Letter, amend the charter,
by-laws, partnership agreement or other comparable organizational
documents of ASR or any ASR Subsidiary;
(c) issue, deliver or sell, or grant any option or other right in
respect of, any shares of capital stock or debt securities, any other
voting or redeemable securities of ASR or any ASR Subsidiary or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible or redeemable
securities except to ASR or an ASR Subsidiary;
(d) in the case of ASR, the ASR Operating Partnership or any of the ASR
Subsidiaries, merge or consolidate with any Person;
(e) make any tax election (unless required by law or necessary to
preserve the ASR's status as a REIT or the status of the ASR Operating
Partnership as a partnership for federal tax purposes);
(f) (i) change in any material manner any of its methods, principles or
practices of accounting in effect at the ASR Financial Statement Date, or
(ii) make or rescind any express or deemed election relating to taxes,
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes, except
in the case of settlements or compromises in an amount not to exceed,
individually or in the aggregate, $2,500,000, or change any of its methods
of reporting income or deductions for federal income tax purposes from those
employed in the preparation of its federal income tax return for the taxable
year ending December 31, 1996, except, in the case of clause (i), as may be
required by the SEC, applicable law or GAAP and with notice thereof to the
Company;
(g) without the Company's consent, which shall not be unreasonably
withheld, settle any stockholder derivative or class action claims arising
out of or in connection with any of the Merger or the other transactions
contemplated hereby;
(h) enter into or amend or otherwise modify any agreement or arrangement
with persons that are affiliates or, as of the date hereof, are officers,
directors or employees of ASR or any ASR Subsidiary not approved by a
majority of the "independent" directors of the Board of Directors of ASR;
(i) acquire or enter into a contract to acquire, sell, transfer, or
enter into a contract to sell or transfer any real property without the
consent of the Company, whose consent shall not unreasonably be withheld;
(j) incur additional indebtedness, including under existing lines of
credit, or encumber any asset to secure indebtedness which in either case
is not prepayable at the principal amount without penalty without the
consent of the Company.
SECTION 4.2 Conduct of Business by the Company. During the period from the
date of this Agreement to the Effective Time, the Company shall, and shall
cause each of the Company Subsidiaries to, carry on its businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent therewith, use commercially
reasonable efforts to preserve intact its current business organization,
goodwill, ongoing businesses and its status as a REIT within the meaning of the
Code. Without limiting the generality of the foregoing, the following
additional restrictions shall apply: During the period from the date of this
Agreement to the Effective Time, except as set forth in Schedule 4.2 to the
Company Disclosure Letter or as otherwise contemplated by this Agreement, the
Company shall not:
(a) (i) except for regular quarterly dividends (and corresponding
Operating Partnership distributions) not in excess of $.30 per share of
Common Stock with customary record and payment dates, declare, set
aside or pay any dividends on, or make any other distributions in
respect of, the Common Stock; (ii) split,
I-16
<PAGE>
combine or reclassify the Common Stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for
the Common Stock or (iii) purchase, redeem or otherwise acquire any shares
of Common Stock;
(b) except as otherwise contemplated by this Agreement, or in the
Company Disclosure Letter, amend the Charter or By-Laws of the Company;
(c) merge or consolidate with any Person;
(d) issue, deliver or sell, or grant any option or other right in
respect of, any shares of Common Stock, any other voting or redeemable
securities of the Company or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting securities
or convertible or redeemable securities;
(e) (i) change in any material manner any of its methods, principles or
practices of accounting in effect at the Company Financial Statement
Date, or (ii) make or rescind any express or deemed election relating
to taxes, settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating
to taxes, except in the case of settlements or compromises in an amount
not to exceed, individually or in the aggregate, $15,000,000 or change
any of its methods of reporting income or deductions for federal income
tax purposes from those employed in the preparation of its federal
income tax return for the taxable year ending December 31, 1996,
except, in the case of clause (i), as may be required by the SEC,
applicable law or GAAP and with notice thereof to ASR;
(f) without ASR's consent, which shall not unreasonably be withheld,
settle any stockholder derivative or class action claims arising out of or
in connection with any of the transactions contemplated hereby;
(g) During the period from the date of this Agreement to the date of the
Proxy Statement, the Company shall not enter into or permit any Company
Subsidiary to enter into any transaction or series of transactions
described in Item 2 of Form 8-K or propose any such transactions unless
(a) the Company is able to satisfy and does satisfy the applicable
requirement to include or incorporate by reference into the Registration
Statement financial statements relating to all such transactions not later
than 30 days after such requirment first arises, or (b) ASR shall
otherwise consent.
SECTION 4.3 Other Actions. Each of ASR and the Company shall not and shall
cause its respective Subsidiaries not to take any action that would result in
(i) any of the representations and warranties of such party (without giving
effect to any "knowledge" qualification) set forth in this Agreement that are
qualified as to materiality becoming untrue in any material respect, (ii) any
of such representations and warranties (without giving effect to any
"knowledge" qualification) that are not so qualified becoming untrue in any
respect or (iii) except as contemplated by Section 7.1, any of the conditions
to the Merger set forth in Article VI not being satisfied.
ARTICLE V
Additional Covenants
SECTION 5.1 Preparation of the Registration Statement and the Proxy
Statement; Stockholders Meetings.
(a) As soon as practicable following the date of this Agreement, ASR and
the Company shall prepare and file with the SEC the Registration
Statement, which shall include the Proxy Statement, in form and substance
satisfactory to each of the Company and ASR. The Company and ASR shall
cooperate and use their respective best efforts to (i) respond to any
comments of the SEC and (ii) have the Registration Statement declared
effective under the Securities Act and the rules and regulations
promulgated thereunder as promptly as practicable after such filing and to
keep the Registration Statement effective as long as is necessary to
consummate the Merger. ASR shall use its best efforts to mail the Proxy
Statement to the holders of ASR Common Stock as promptly as practicable
after the Registration Statement is declared effective. Each party will
notify the other promptly of the receipt of any comments from the SEC and
of any request by the SEC for amendments or supplements to the
Registration Statement or the Proxy Statement or for additional
information and will supply the other with copies of all correspondence
between such party or any of its representatives and the SEC with respect
to the Registration Statement or the Proxy Statement. The Registration
Statement and the Proxy Statement shall comply in all material respects
with all applicable requirements of Law. Whenever any event occurs which
is required to be set forth in an amendment or supplement to the
Registration Statement or the Proxy Statement, the Company or ASR, as the
case may
I-17
<PAGE>
be, shall promptly inform the other of such occurrences and cooperate in
filing with the SEC and/or mailing to the stockholders of ASR such
amendment or supplement in a form reasonably acceptable to the Company and
ASR.
(b) ASR covenants that the Proxy Statement shall include the
recommendation of the Board of Directors of ASR in favor of the approval
of the Merger, this Agreement and the other transactions contemplated
hereby; provided, that the recommendation of ASR may not be included or
may be withdrawn, modified or amended if ASR shall approve or recommend a
Superior Competing Transaction (as defined herein) or enter into an
agreement with respect to such Superior Competing Transaction and the
Board of Directors of ASR determines in good faith that it is in
compliance with Section 7.1. In connection with the preparation of the
Proxy Statement and the Registration Statement, (a) the Company shall
cause to be delivered to ASR, prior to the mailing of such Proxy
Statement, the opinion dated the date of the Proxy Statement of Hunton &
Williams, ("H&W"), counsel to the Company, subject to certificates,
letters and assumptions, reasonably satisfactory to ASR, that (i)
commencing with its taxable year ended December 31, 1993, the Company has
been organized and has operated, and its proposed method of operation
following the Merger will permit it to continue to be organized and
operated, in conformity with the requirements for qualification as a REIT
under the Code and (ii) the Merger qualifies as a tax-free reorganization
for the ASR stockholders under Section 368(a) of the Code; and (b) ASR
shall cause to be delivered to the Company, prior to the mailing of the
Proxy Statement, the opinions dated the date of the Proxy Statement of (i)
O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A. ("O'Connor
Cavanagh"), subject to certificates, letters and assumptions reasonably
satisfactory to the Company, that (a) commencing with its taxable year
ended December 31, 1993, ASR has been organized and has operated in
conformity with the requirements for qualification as a REIT under the
Code and (b) the ASR Operating Partnership has been since its year of
formation, and each ASR Subsidiary that is a partnership or limited
liability company has been since its formation, treated, for federal
income tax purposes, as a partnership and not as a corporation or an
association taxable as a corporation; and (ii) Rogers & Wells ("R&W"),
subject to certificates, letters and assumptions reasonably satisfactory
to ASR, that the Merger qualifies as a tax-free reorganization for the ASR
stockholders under Section 368(a) of the Code.
(c) ASR will, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "ASR Common Stockholders Meeting") for the purpose of
obtaining the ASR Stockholder Approval. ASR will, through its Board of
Directors, recommend to its stockholders approval of the Merger, this
Agreement and the other transactions contemplated by this Agreement;
provided, that prior to the ASR Common Stockholders Meeting such
recommendation may be withdrawn, modified or amended if ASR shall approve
or recommend a Superior Competing Transaction (as defined herein) or enter
into an agreement with respect to such Superior Competing Transaction and
the Board of Directors of ASR determines in good faith that it is in
compliance with Section 7.1.
SECTION 5.2 Access to Information; Confidentiality. Subject to the
requirements of confidentiality agreements with third parties, each of ASR and
the Company shall, and shall cause each of its respective Subsidiaries to,
afford to the other party and to the officers, employees, accountants, counsel,
financial advisors and other representatives of such other party, reasonable
access during normal business hours during the period prior to the Effective
Time to all their respective properties, books, contracts, commitments,
personnel and records and, during such period, each of ASR and the Company
shall, and shall cause each of its respective Subsidiaries to, furnish promptly
to the other party (a) a copy of each report, schedule, registration statement
and other document filed by it during such period pursuant to the requirements
of federal or state securities laws and (b) all other information concerning
its business, properties and personnel as such other party may reasonably
request. Each of ASR and the Company will hold, and will cause its respective
Subsidiaries' officers, employees, accountants, counsel, financial advisors and
other representatives and affiliates to hold, any nonpublic information in
confidence to the extent required by, and in accordance with, and will comply
with the provisions of the letter agreement between ASR and the Company dated
as of August 12, 1997, and agreed to as of August 15, 1997 (the
"Confidentiality Agreement").
SECTION 5.3 Best Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the Company and ASR agrees to use its best efforts to
take, or cause to be taken, all actions, and to do, or cause to be
I-18
<PAGE>
done, and to assist and cooperate with the other in doing, all things
necessary, proper or advisable to fulfill all conditions applicable to such
party pursuant to this Agreement and to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other
transactions contemplated hereby, including (i) the obtaining of all
necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and
filings and the taking of all reasonable steps as may be necessary to
obtain an approval, waiver or exemption from, or to avoid an action or
proceeding by, any Governmental Entity, (ii) the obtaining of all necessary
consents, approvals, waivers or exemption from non-governmental third
parties; provided, however, that if either party is obliged to make
expenditures, or incur costs, expenses or other liabilities to obtain the
consent of any non-governmental party, it shall consult reasonably with the
other party upon reasonable notice prior to making payment of any such
amount, and in no event shall either ASR or the Company make payment of any
such amount in obtaining such consents (other than for the purposes of
obtaining consents of lenders or avoiding defaults under credit agreements
or mortgages) in excess of $250,000 without obtaining the prior written
consent of the other, which consent shall not unreasonably be withheld or
delayed, (iii) the defending of any lawsuits or other legal proceedings,
whether judicial or administrative, challenging the Merger, this Agreement
or the consummation of any of the other transactions contemplated hereby,
including seeking to have any stay or temporary restraining order entered
by any court or other Governmental Entity vacated or reversed, and (iv) the
execution and delivery of any additional instruments necessary to
consummate the transactions contemplated by and to fully carry out the
purposes of, this Agreement; provided, however, that a party shall not be
obligated to take any action pursuant to the foregoing if the taking of
such action or the obtaining of any waiver, consent, approval or exemption
is reasonably likely to result in the imposition of a condition or
restriction of the type referred to in Section 6.1(d). In connection with
and without limiting the foregoing, ASR, the Company and their respective
Boards of Directors shall (i) take all action necessary so that no "fair
price," "business combination," "moratorium," "control share acquisition"
or any other anti- takeover statute or similar statute enacted under state
or federal laws of the United States or similar statute or regulation (a
"Takeover Statute") is or becomes applicable to the Merger, this Agreement
or any of the other transactions contemplated hereby and (ii) if any
Takeover Statute becomes applicable to the Merger, this Agreement, or any
of the other transactions contemplated hereby, take all action necessary so
that the Merger may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the effect of such
Takeover Statute on the Merger or the consummation of any of the other
transactions contemplated hereby.
(b) ASR shall give prompt notice to the Company, and the Company shall
give prompt notice to ASR, if (i) any representation or warranty made by
it contained in this Agreement that is qualified as to materiality becomes
untrue or inaccurate in any material respect or any such representation or
warranty that is not so qualified becomes untrue or inaccurate in any
respect or (ii) it fails to comply with or satisfy in any material respect
any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement; provided, however, that no such notification
shall affect the representations, warranties, covenants or agreements of
the parties or the conditions to the obligations of the parties under this
Agreement.
SECTION 5.4 Affiliates. Prior to the Closing Date, ASR shall deliver to
the Company a list identifying all persons who are, at the time this Agreement
is submitted for approval to the stockholders of ASR, an "affiliate" of ASR for
purposes of Rule 145 under the Securities Act. ASR shall use its best efforts
to cause each such affiliate to deliver on or prior to the Closing Date a
Resale Agreement with Affiliates substantially in the form attached hereto as
Exhibit A hereto.
SECTION 5.5 Tax Treatment. Each of the Company and ASR shall use its
reasonable best efforts to (a) cause the Merger to qualify as a tax-free
reorganization under Section 368(a) of the Code and (b) to obtain the opinions
of counsel referred to in Section 6.3(d).
SECTION 5.6 No Solicitation of Transactions. Subject to Section 7.1, ASR
shall not directly or indirectly, through any officer, director, employee,
agent, investment banker, financial advisor, attorney, accountant, broker,
finder or other representative, initiate, solicit (including by way of
furnishing nonpublic information or assistance) any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to lead to, any
Competing Transaction (as defined herein), or authorize or permit any of its
officers, directors, employees or agents, attorneys, investment bankers,
financial advisors, accountants, brokers, finders or other representatives to
take any such action. ASR shall notify the Company in writing (as promptly as
practicable) of all of
I-19
<PAGE>
the relevant details relating to all inquiries and proposals which it or any of
its Subsidiaries or any such officer, director, employee, agent, investment
banker, financial advisor, attorney, accountant, broker, finder or other
representative may receive relating to any of such matters and if such inquiry
or proposal is in writing, ASR shall deliver to the other a copy of such
inquiry or proposal. For purposes of this Agreement, "Competing Transaction"
shall mean any of the following (other than the transactions contemplated by
this Agreement): (i) any merger, consolidation, share exchange, business
combination, or similar transaction involving ASR (or any of its Subsidiaries);
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition
of 50or more of the assets of ASR and its Subsidiaries taken as a whole in a
single transaction or series of related transactions, excluding any bona fide
financing transactions which do not, individually or in the aggregate, have as
a purpose or effect the sale or transfer of control of such assets; (iii) any
tender offer or exchange offer for 30% or more of the outstanding shares of
capital stock of ASR (or any of its Subsidiaries) or the filing of a
registration statement under the Securities Act in connection therewith; or
(iv) any public announcements of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
SECTION 5.7 Public Announcements. The Company and ASR will consult with
each other before issuing, and provide each other the opportunity to review and
comment upon, any press release or other public statements with respect to the
Merger or the other transactions contemplated hereby, and shall not issue any
such press release or make any such public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release to be issued with
respect to the Merger will be in the form agreed to by the parties hereto prior
to the execution of this Agreement.
SECTION 5.8 Listing. The Company will promptly prepare and submit to the
NYSE a supplemental listing application covering the Common Stock issuable in
the Merger. Prior to the Effective Time, the Company shall use its best efforts
to have NYSE approve for listing, upon official notice of issuance, the Common
Stock to be issued in the Merger.
SECTION 5.9 Transfer and Gains Taxes. The Company and ASR shall cooperate
in the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use, transfer, value added stock transfer and stamp taxes, any transfer,
recording, registration and other fees and any similar taxes which become
payable in connection with the Merger (together with any related interests,
penalties or additions to tax, "Transfer and Gains Taxes").
SECTION 5.10 Employee Matters.
(a) Employees. ASR shall terminate all of its employees prior to the
Closing Date in compliance with (to the extent applicable) the Worker
Adjustment, Retraining and Notification Act of 1988, as amended, including
the giving of any notice thereunder, and under any applicable state laws
requiring the giving of notice of terminations, lay-offs, site closings or
other comparable events. ASR shall satisfy all severance pay, vacation pay
and other legal obligations with respect to its employees, including but
not limited to any obligations under any employment contracts or employee
benefit plans or programs, except as provided in (b) below. The Company
shall have no liability or obligation to ASR or its employees to employ or
offer employment to any employee of ASR or any group of employees of ASR.
It is understood, however, that on or after the Closing Date, the Company
may, in its sole and absolute discretion, offer employment to those
employees of ASR who, prior to Closing Date, worked as site employees.
Nothing in this Agreement shall limit the Company from taking any action
at any time after the Closing Date in respect of its employees or the
terms and conditions of their employment.
(b) Incentive Plans.
(i) Immediately prior to or as of the Effective Time and solely with
respect to individuals employed by ASR immediately prior to the
Effective Time, ASR shall (A) cause the ASR Common Stock Options to be
accelerated, thereby causing the ASR Common Stock Options to be fully
vested and immediately exercisable and (B) cause the ASR Common Stock
Options and stock appreciation rights ("ASRs") to be modified so as to
eliminate any dividend equivalency rights (with the maximum amount
payable after the date hereof and prior to the Effective Time under the
ASR Common Stock Options and SARs being no more than $375,000). In
addition, ASR shall purchase 2,000 of such ASR Common Stock
I-20
<PAGE>
Options for cash at a price per ASR Common Stock Option not exceeding
the difference between the exercise price thereof and the Average
Closing Price times 1.575.
(ii) At the Effective Time, each outstanding ASR Common Stock Option,
as modified pursuant to (b) (i) above, shall be assumed by the Company
and shall be deemed to constitute an option to acquire, on the same
terms and conditions as were applicable under such ASR Common Stock
Option, the same number of shares of Common Stock as the holder of such
ASR Common Stock Option would have been entitled to receive pursuant to
the Merger had such holder exercised such ASR Common Stock Option in
full immediately prior to the Effective Time at a price per share equal
to the aggregate exercise price for the shares subject to such ASR
Common Stock Option divided by the number of full shares of Common
Stock deemed to be purchasable pursuant to such ASR Common Stock
Option; provided, however, that the number of shares of Common Stock
that may be purchased upon exercise of such ASR Common Stock Option
shall not include any fractional share but shall be rounded upward to
the next whole number of shares.
(iii) The Company will assume the ASR Key Executive Share Option Plan
(the "ASR KEYSOP") and ASR's obligations thereunder; and will afford to
the participants of the ASR KEYSOP, as of the Effective Time, all of the
rights and benefits set forth in the ASR KEYSOP. The Company
acknowledges that certain holders of ASR Stock Options may, prior to the
Merger, exchange their existing ASR Stock Options for benefits under the
ASR KEYSOP, it being understood that such exchange will result in a
charge to income for financial accounting purposes for ASR equal to the
excess of the value of the stock options over the exercise price. In any
such exchange, ASR will not accept, and the Company shall not be bound
by, any designation of "designated property" that is not ASR Common
Stock.
(iv) The Company will assume ASR's obligations under the deferred
compensation arrangements described under Schedule 5.10(b)(iv) to the
ASR Disclosure Letter.
(c) Employment Arrangements. ASR will make the severance payments to
certain ASR employees as disclosed in Schedule 5.10(c) to the ASR
Disclosure Letter prior to the Merger.
(d) Termination of Benefit Plans. Except as otherwise provided in (a)
and (b) above, prior to the Closing Date, ASR shall terminate all ASR
Benefit Plans, and shall, to the extent permitted by law, discharge and
terminate, or cause to be discharged and terminated, all obligations,
liabilities and commitments of ASR, all ASR Subsidiaries and all
participants in the ASR Benefit Plans, including without limitation, stock
appreciation rights and notes given in payment of the exercise price of
ASR Common Stock Options. All such obligations, liabilities and
commitments which may not be discharged and terminated prior to the
Closing Date are identified in Schedule 5.10(c) to the ASR Disclosure
Letter.
(e) Cooperation. ASR and the Company shall cooperate in good faith with
respect to the effectuation of the covenants described in subsections (a)
and (b) above.
SECTION 5.11 Indemnification.
(a) (i) ASR shall, and, from and after the Effective Time, the Company
shall, indemnify, defend and hold harmless each person who is now or
has been at any time prior to the date hereof or who becomes prior to
the Effective Time, an officer or director of ASR or any ASR Subsidiary
(the "ASR Indemnified Parties") against all losses, claims, damages,
costs, expenses (including attorneys' fees and expenses), liabilities
or judgments or amounts that are paid in settlement of, with the
approval of the indemnifying party (which approval shall not be
unreasonably withheld), or otherwise in connection with any threatened
or actual claim, action, suit, proceeding or investigation in
connection with any threatened or actual claim, action, suit,
proceeding or investigation based on or arising out of the fact that
such person is or was a director or officer of ASR or any ASR
Subsidiary at or prior to the Effective Time, whether asserted or
claimed prior to, or at or after, the Effective Time ("ASR Indemnified
Liabilities"), including all ASR Indemnified Liabilities based on, or
arising out of, or pertaining to this Agreement or the transactions
contemplated herein, in each case to the full extent a corporation is
permitted under the MGCL, with respect to ASR and Virginia Stock
Corporation Act (the "VSCA") with respect to the Company, to indemnify
its own directors or officers, as the case may be (and the Company will
pay expenses in advance of the final disposition of any such action or
proceeding to each ASR Indemnified Party to the full extent permitted
by law subject to the limitations set forth in Section 5.11(a)(iii)).
I-21
<PAGE>
(ii) Any Indemnified Parties proposing to assert the right to be
indemnified under this Section 5.11 shall, promptly after receipt of
notice of commencement of any action against such Indemnified Parties
in respect of which a claim is to be made under this Section 5.11
against ASR and/or the Company (collectively, the "Indemnifying
Parties"), notify the Indemnifying Parties of the commencement of such
action, enclosing a copy of all papers served. If any such action is
brought against any of the Indemnified Parties and such Indemnified
Parties notify the Indemnifying Parties of its commencement, the
Indemnifying Parties will be entitled to participate in and, to the
extent that they elect by delivering written notice to such Indemnified
Parties promptly after receiving notice of the commencement of the
action from the Indemnified Parties, to assume the defense of the
action and after notice from the Indemnifying Parties to the
Indemnified Parties of their election to assume the defense, the
Indemnifying Parties will not be liable to the Indemnified Parties for
any legal or other expenses except as provided below and except for the
reasonable costs of investigation subsequently incurred by the
Indemnified Parties in connection with the defense. If the Indemnifying
Parties assume the defense, the Indemnifying Parties shall have the
right to settle such action without the consent of the Indemnified
Parties; provided, however, that the Indemnifying Parties shall be
required to obtain such consent (which consent shall not be
unreasonably withheld) if the settlement includes any admission of
wrongdoing on the part of the Indemnified Parties or any decree or
restriction on the Indemnified Parties or their officers or directors;
provided, further, that no Indemnifying Parties, in the defense of any
such action shall, except with the consent of the Indemnified Parties
(which consent shall not be unreasonably withheld), consent to entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Parties of a release from all liability with respect
to such action. The Indemnified Parties will have the right to employ
their own counsel in any such action, but the fees, expenses and other
charges of such counsel will be at the expense of such Indemnified
Parties unless (a) the employment of counsel by the Indemnified Parties
has been authorized in writing by the Indemnifying Parties, (b) the
Indemnified Parties have reasonably concluded (based on advice of
counsel) that there may be legal defenses available to them that are
different from or in addition to those available to the Indemnifying
Parties, (c) a conflict or potential conflict exists (based on advice
of counsel to the Indemnified Parties) between the Indemnified Parties
and the Indemnifying Parties (in which case the Indemnifying Parties
will not have the right to direct the defense of such action on behalf
of the Indemnified Parties) or (d) the Indemnifying Parties have not in
fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the
action, in each of which cases the reasonable fees, disbursements and
other charges of counsel will be at the expense of the Indemnifying
Parties.
(iii) It is understood that the Indemnifying Parties shall not, in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one separate firm admitted to practice in
such jurisdiction at any one time for all such Indemnified Parties
unless (a) the employment of more than one counsel has been authorized
in writing by the Indemnifying Parties, (b) any of the Indemnified
Parties has reasonably concluded (based on advice of counsel) that
there may be legal defenses available to such indemnified party that
are different from or in addition to those available to other
Indemnified Parties or (c) a conflict or potential conflict exists
(based on advice of counsel to the Indemnified Parties) between any of
the Indemnified Parties and the other Indemnified Parties, in each of
which case the Indemnifying Parties shall be obligated to pay the
reasonable fees and expenses of such additional counsel or counsels.
(iv) The Indemnifying Parties will not be liable for any settlement
of any action or claim effected without their written consent (which
consent shall not be unreasonably withheld).
(b) The Company shall use its reasonable best efforts to provide
"run-off" or "tail" director and officer liability coverage to the
existing directors and officers of ASR without reduction of existing
coverage for a period of three years after the Effective Time.
(c) The provisions of this Section 5.11 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or
her heirs and his or her personal representatives and shall be binding on
all successors and assigns of the Company and ASR.
I-22
<PAGE>
SECTION 5.12 ASR Operating Partnership. The Company will make provision,
prior to or upon consummation of the Merger such that ASR Limited Partners
shall become entitled, following the Merger, to exchange each ASR OP Unit,
subject to certain adjustments as provided in the Agreement of Limited
Partnership of the ASR Operating Partnership (the "ASR Partnership Agreement"),
for the Merger Consideration each ASR Limited Partner would have received in
the Merger if each ASR Limited Partner had exchanged his or her ASR OP Units
immediately prior to the Merger.
SECTION 5.13 Registration Rights Agreements. At the Effective Time, the
Company agrees to assume the rights and obligations of ASR under the
Registration Rights Agreements dated April 30, 1997, April 30, 1997, September
18, 1997 and September 18, 1997 (the "Registration Rights Agreements"), with
the ASR Limited Partners, and all references in such agreement to "ASR" and
"ASR Common Stock" shall at the Effective Time, refer to the Company and Common
Stock, respectively.
SECTION 5.14 Company Board of Directors. At the Effective Time, the Board
of Directors of the Company shall be expanded by one member and the existing
directors of the Company shall elect Jon A. Grove as a director. Following Jon
A. Grove's initial appointment as a director, the Company will use its
reasonable best efforts to cause Jon A. Grove to be nominated as a director at
the Company's 1998 and 1999 annual meeting of stockholders. The Company agrees
that its annual proxy statement for 1998 and 1999 will include the Board of
Director's recommendation in the favor of the election on Jon A. Grove as a
director. The Company agrees that for the period Jon A. Grove serves as a
director he shall be considered an independent director and shall be entitled
to all of the benefits, fees, expense reimbursements, rights to indemnification
and other rights that are received or enjoyed by the other independent
directors of the Company.
SECTION 5.15 Comfort Letter. ASR shall use its reasonable best efforts to
cause to be delivered to the Company and ASR "comfort" letters of Deloitte &
Touche LLP, ASR's independent public accountants, dated and delivered the date
on which the Registration Statement shall become effective and as of the
Effective Time, and addressed to the Company and ASR, in form and substance
reasonably satisfactory to the Company and ASR and reasonably customary in
scope and substance for letters delivered by independent public accountants in
connection with transactions such as those contemplated by this Agreement
including a Statement on Auditing Standards Number 72 review of the audited
financial statements, and Statement on Auditing Standards Number 71 review of
ASR's interim unaudited financial statements, each included in the ASR SEC
Documents.
ARTICLE VI
Conditions Precedent
SECTION 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of ASR and the Company to effect the Merger
and to consummate the other transactions contemplated hereby is subject to the
satisfaction or waiver on or prior to the Effective Time of the following
conditions:
(a) Stockholder Approval. The ASR Stockholder Approval shall have been
obtained.
(b) Listing of Shares. The NYSE shall have approved for listing the
Common Stock to be issued in the Merger.
(c) Registration Statement. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any
stop order or proceedings by the SEC seeking a stop order.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger or any of the other transactions
contemplated hereby shall be in effect.
(e) Certain Actions and Consents. All material actions by or in respect
of or filings with any Governmental Entity required for the consummation
of the Merger or any of the other transactions contemplated hereby shall
have been obtained or made.
I-23
<PAGE>
SECTION 6.2 Conditions to Obligations of the Company. The obligations of
the Company to issue the Merger Consideration to the ASR Common Stockholders
and to consummate the other transactions contemplated hereby are further
subject to the following conditions, any one or more of which may be waived by
the Company:
(a) Representations and Warranties. The representations and warranties
of ASR set forth in this Agreement shall be true and correct as of the
Closing Date, as though made on and as of the Closing Date, except to the
extent the representation or warranty is expressly limited by its terms to
another date, and the Company shall have received a certificate (which
certificate may be qualified by knowledge to the same extent as such
representations and warranties are so qualified) signed on behalf of ASR
by the chief executive officer or the chief financial officer of ASR to
such effect. This condition shall be deemed satisfied notwithstanding any
failure of a representation or warranty of ASR to be true and correct as
of the Closing Date if the aggregate amount of ASR Economic Losses (as
defined herein) that would reasonably be expected to arise as a result of
the failures of such representations and warranties to be true and correct
as of the Closing Date does not exceed $4,000,000 (such amount to be
calculated by counting in all cases from the first dollar of such ASR
Economic Losses without giving effect to the $4,000,000 limitation set
forth in Section 3.1(f)). "ASR Economic Losses," as used in this Section
6.2, shall mean any and all net damage, net loss, net liability or expense
suffered by ASR and the ASR Subsidiaries taken as a whole, but shall not
include any claims, damages, loss, expense or other liability resulting
from any class action or stockholders' derivative lawsuits relating to the
Merger against ASR, if any, filed subsequent to the date of this Agreement
or any amounts paid or expenses incurred by ASR in obtaining
non-governmental third party consents, as contemplated by Section 5.3 up
to the amount of $250,000 provided therein, other than for the purposes of
obtaining consents of lenders or avoiding defaults under credit agreements
or mortgages.
(b) Performance of Obligations of ASR. ASR shall have performed in all
material respects all obligations required to be performed by it under
this Agreement at or prior to the Effective Time, and the Company shall
have received a certificate signed on behalf of ASR by the chief executive
officer or the chief financial officer of ASR to such effect.
(c) Opinions Relating to REIT and Partnership Status. The Company shall
have received the opinion dated as of the Closing Date of O'Connor
Cavanagh, subject to certificates, letters and assumptions, reasonably
satisfactory to the Company, that (i) commencing with its taxable year
ended December 31, 1993, ASR has been organized and has operated, in
conformity with the requirements for qualification as a REIT under the
Code, and (ii) the ASR Operating Partnership has been since its year of
formation, and each ASR Subsidiary that is a partnership or limited
liability company has been since its formation, treated, for federal
income tax purposes, as a partnership and not as a corporation or an
association taxable as a corporation.
(d) Consents. All consents and waivers from third parties necessary in
connection with the consummation of the Merger and the other transactions
contemplated hereby shall have been obtained, other than such consents and
waivers from third parties, which, if not obtained, would not result,
individually or in the aggregate, in ASR Economic Losses of $4,000,000 or
more.
SECTION 6.3 Conditions to Obligation of ASR. The obligation of ASR to
effect the Merger and to consummate the other transactions contemplated hereby
is further subject to the following conditions, any one or more of which may be
waived by ASR:
(a) Representations and Warranties. The representations and warranties
of the Company set forth in this Agreement shall be true and correct as of
the Closing Date, as though made on and as of the Closing Date, except to
the extent the representation or warranty is expressly limited by its
terms to another date, and ASR shall have received a certificate (which
certificate may be qualified by knowledge to the same extent as such
representations and warranties are so qualified) signed on behalf of the
Company by the chief executive officer or the chief financial officer of
the Company to such effect. This condition shall be deemed satisfied
notwithstanding any failure of a representation or warranty of the Company
to be true and correct as of the Closing Date if the aggregate amount of
Company Economic Losses (as defined herein) that would reasonably be
expected to arise as a result of the failures of such representations and
warranties to be true and correct as of the Closing Date does not exceed
$15,000,000 (such amount to be calculated by counting in all cases from
the first dollar of such Company Economic Losses without giving effect to
the
I-24
<PAGE>
$15,000,000 limitation set forth in Section 3.2(f)). "Company Economic
Losses", as used in this Section 6.3, shall mean any and all net damage,
net loss, net liability or expense suffered by the Company or the Company
Subsidiaries taken as a whole, but shall not include any claims, damages,
loss, expense or other liability resulting from any class action or
stockholders' derivative lawsuits relating to the Merger or the other
transactions contemplated hereby against the Company, if any, filed
subsequent to the date of this Agreement or any amounts paid or expenses
incurred by the Company in obtaining non- governmental third party
consents, as contemplated by Section 5.3 up to the amount of $250,000
provided therein, except in connection with consents of lenders.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Effective Time,
and ASR shall have received a certificate of the Company signed on behalf
of the Company by the chief executive officer or the chief financial
officer of such party to such effect.
(c) Opinions Relating to REIT and Partnership Status. ASR shall have
received an opinion dated as of the Closing Date of H&W, subject to
certificates, letters and assumptions, reasonably satisfactory to ASR,
that (i) commencing with its taxable year ended December 31, 1993, the
Company has been organized and has operated, and its proposed method of
operation following the Merger will permit it to continue to be organized
and operated, in conformity with the requirements for qualification as a
REIT under the Code.
(d) Opinion Related to the Merger. ASR shall have received opinions
dated as of the Closing Date of R&W and H&W, subject to certificates,
letters and assumptions reasonably satisfactory to ASR that the Merger
qualifies as a tax-free reorganization for the ASR stockholders under
Section 368(a) of the Code.
(e) Consents. All consents and waivers from third parties necessary in
connection with the consummation of the other transactions contemplated
hereby shall have been obtained, other than such consents and waivers from
third parties, which, if not obtained, would not result, individually or
in the aggregate, in Company Economic Losses of $15,000,000 or more.
(f) Registration Rights Agreements. The Company shall have executed an
instrument of assumption with respect to the Registration Rights
Agreements.
ARTICLE VII
Board Actions
SECTION 7.1 Board Actions. Notwithstanding Section 5.6 or any other
provision of this Agreement to the contrary, to the extent required by the
fiduciary obligations of the Board of Directors of ASR, as determined in good
faith based on the advice of outside counsel, ASR may:
(a) disclose to its stockholders any information required to be
disclosed under applicable law;
(b) in response to an unsolicited request therefor, participate in
discussions or negotiations with, or furnish information with respect to
itself pursuant to a confidentiality agreement no less favorable to itself
than the Confidentiality Agreement (as determined by its outside counsel)
to, any person in connection with a Competing Transaction proposed by such
person; and
(c) approve or recommend (and in connection therewith withdraw or modify
its approval or recommendation of (i) for ASR, this Agreement and the
Merger and (ii) for the Company, the issuance of the Merger Consideration
to the ASR stockholders) a Superior Competing Transaction (as defined
below) or enter into an agreement with respect to such Superior Competing
Transaction (for purposes of this Agreement, "Superior Competing
Transaction" means a bona fide proposal of a Competing Transaction made by
a third party which a majority of the members of the Board of Directors of
ASR determines in good faith (based on the advice of its investment
banking firm) to be more favorable to its stockholders than the Merger).
I-25
<PAGE>
ARTICLE VIII
Termination, Amendment and Waiver
SECTION 8.1 Termination. This Agreement may be terminated at any time
prior to the filing of the Articles of Merger for each Merger with the
Department of Assessments and Taxation of the State of Maryland, whether before
or after the ASR Stockholder Approval is obtained:
(a) by mutual written consent duly authorized by the respective Boards
of Directors of the Company and ASR;
(b) by the Company, upon a breach of any representation, warranty,
covenant or agreement on the part of ASR set forth in this Agreement, or
if any representation or warranty of ASR shall have become untrue, in
either case such that the conditions set forth in Section 6.2(a) or
Section 6.2(b), as the case may be, would be incapable of being satisfied
by June 30, 1998 (as otherwise extended);
(c) by ASR, upon a breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in this Agreement, or if
any representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 6.3(a) or
Section 6.3(b), as the case may be, would be incapable of being satisfied
by June 30, 1998 (as otherwise extended);
(d) by either the Company or ASR, if any judgment, injunction, order,
decree or action by any Governmental Entity of competent authority
preventing the consummation of the Merger shall have become final and
nonappealable;
(e) by either the Company or ASR, if the Merger shall not have been
consummated before June 30, 1998; provided, however, that a party that has
willfully and materially breached a representation, warranty or covenant
of such party set forth in this Agreement shall not be entitled to
exercise its right to terminate under this Section 8.1(e);
(f) by either the Company or ASR if, upon a vote at a duly held ASR
Common Stockholders Meeting or any adjournment thereof, the ASR Common
Stockholder Approval shall not have been obtained;
(g) by ASR, if prior to the ASR Common Stockholders Meeting, the Board
of Directors of ASR or any committee thereof shall have withdrawn or
modified in accordance with Section 7.1 hereof in any manner adverse to
the Company its approval or recommendation of the Merger or this Agreement
in connection with the approval and recommendation of a Superior Competing
Transaction;
(h) by the Company, if (i) prior to the ASR Common Stockholders Meeting,
the Board of Directors of ASR or any committee thereof shall have
withdrawn or modified in any manner adverse to the Company its approval or
recommendation of the Merger or this Agreement in connection with, or
approved or recommended, any Superior Competing Transaction, (ii) ASR
shall have entered into any agreement with respect to any Competing
Transaction (other than a confidentiality agreement as contemplated by
Section 7.1(b)) or (iii) the Board of Directors of ASR or any committee
thereof shall have resolved to do any of the foregoing;
(i) by ASR, if on any date after the date of this Agreement but on or
prior to the date of the Proxy Statement, the average daily closing prices
per share of Common Stock on the NYSE, reported as "New York Stock
Exchange Composite Transactions" by The Wall Street Journal over the
consecutive 20-day period ending on such date is less than $13.50 per
share (the "Termination Price"); provided, however, to be effective,
notice of termination pursuant to this Section 8.1(i) shall be given by
ASR to the Company within ten business days after the date that such right
of termination arises.
SECTION 8.2 Expenses.
(a) Except as otherwise specified in this Section 8.2 or agreed in
writing by the parties, all out-of-pocket costs and expenses incurred in
connection with this Agreement and the other transactions contemplated
hereby shall be paid by the party incurring such cost or expense.
(b) ASR agrees that if this Agreement shall be terminated pursuant to
Section 8.1(b), then ASR will pay to the Company an amount equal to the
Company Break-Up Expenses (as defined herein). In addition, ASR agrees
that if this Agreement shall be terminated pursuant to Section 8.1(b),
(f), (g) or (h) and, in the
I-26
<PAGE>
case of Section 8.1(b) or (f), following the date of this Agreement and
prior to termination, ASR shall have received a proposal constituting a
Competing Transaction and within six months following termination ASR shall
enter into a definitive agreement providing for a Competing Transaction
that is equally or more favorable from a financial point of view to ASR's
stockholders as the Merger, then ASR will pay to the Company a fee in an
amount equal to the Company Break-Up Fee (as defined herein). Payment of
any of such amounts shall be made, as directed by the Company, by wire
transfer of immediately available funds promptly, but in no event later
than two business days after the amount is due as provided herein. The
"Company Break-Up Fee" shall be an amount equal to the lesser of (i)
$5,500,000 (the "Company Base Amount") or (ii) the sum of (A) the maximum
amount that can be paid to the Company without causing it 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) and (3) of the Code ("Qualifying Income"), as determined by
independent accountants to the Company, and (B) in the event the Company
receives an opinion of outside counsel (the "Company Break-Up Fee Tax
Opinion") to the effect that receipt of the Company Base Amount would
either constitute Qualifying Income as to the Company or would be excluded
from the Company's gross income for purposes of Sections 856(c)(2) and (3)
of the Code (the "REIT Requirements") or that the receipt by the Company of
the remaining balance of the Company Base Amount following the receipt of
and pursuant to such ruling would not be deemed constructively received
prior thereto, the Company Base Amount less the amount payable under clause
(A) above. In the event that the Company is not able to receive the full
Company Base Amount, ASR shall place the unpaid amount in escrow and shall
not release any portion thereof to the Company unless and until ASR
receives any one or a combination of the following: (i) a letter(s) from
the Company's independent accountants indicating the maximum amount that
can be paid at that time to the Company without causing the Company to fail
to meet the REIT Requirements or (ii) a Company Break-Up Fee Tax Opinion,
in which event ASR shall pay to the Company the lesser of the unpaid Base
Amount or the maximum amount stated in the letter(s) referred to in (i)
above from time to time. ASR's obligation to pay any unpaid portion of the
Company Break-Up Fee (provided ASR has otherwise complied with its
obligations under this provision) shall terminate (and any amount still
held in such escrow shall be released to ASR) on the date that is five
years from the date the Company Break-Up Fee first becomes due under this
Agreement. The "Company Break-Up Expenses" shall be an amount equal to the
lesser of (i) the Company's out-of-pocket expenses incurred in connection
with this Agreement and the other transactions contemplated hereby
(including, without limitation, all attorneys', accountants' and investment
bankers' fees and expenses) but in no event in an amount greater than
$1,000,000 (such amount not to exceed such $1,000,000 being referred to in
this Section 8.2(b) as the "Company Expense Fee Base Amount") and (ii) the
sum of (A) the maximum amount that can be paid to the Company without
causing it 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 independent accountants to the Company,
and (B) in the event the Company receives a Company Break-Up Fee Tax
Opinion to the effect that receipt of the remaining balance of the Company
Expense Fee Base Amount would either constitute Qualifying Income as to the
Company with respect to the Company's proportionate share thereof or would
be excluded from the Company's gross income for purposes of the REIT
Requirements or that receipt by the Company of the remaining balance of the
Company Expense Fee Base Amount following the receipt of and pursuant to
such ruling would not be deemed constructively received prior thereto, the
Company Expense Fee Base Amount less the amount payable under clause (A)
above. In the event that the Company is not able to receive the full amount
of the Company Break-Up Expenses, ASR shall place the unpaid amount in
escrow and shall not release any portion thereof to the Company unless and
until ASR receives any one or combination of the following: (i) a letter(s)
from the Company's independent accountants indicating the maximum amount
that can be paid at that time to the Company without causing the Company to
fail to meet the REIT Requirements or (ii) a Company Break-Up Fee Tax
Opinion indicating that the Company's receipt of the remaining balance of
the Company Expense Fee Base Amount would satisfy in whole or in part the
REIT Requirements, in which event ASR shall pay to the Company the lesser
of the unpaid Company Expense Fee Base Amount or the maximum amount stated
in the letter(s) referred to in (i) above from time to time. ASR's
obligation to pay any unpaid portion of the Company Break-Up Expenses
(provided ASR has otherwise complied with its obligations under this
provision) shall terminate (and any amount still held in such escrow shall
be released to ASR) on the date that is five years from the date the
Company Break-Up Expenses first become due under this Agreement.
I-27
<PAGE>
(c) The Company agrees that if this Agreement shall be terminated
pursuant to Section 8.1(c), then the Company will pay, as directed by ASR,
an amount equal to the ASR Termination Fee (as defined herein). Payment of
any of such amounts shall be made, as directed by ASR, by wire transfer of
immediately available funds promptly, but in no event later than two
business days after the amount is due as provided herein. The "ASR
Termination Fee" shall be an amount equal to the lesser of $5,500,000
(such amount being referred to in this Section 8.2(c) as the "ASR
Termination Fee Base Amount") and (ii) the sum of (A) the maximum amount
that can be paid to ASR without causing it 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 independent accountants to ASR, and (B) in the event ASR
receives an opinion of outside counsel (the "ASR Termination Fee Tax
Opinion") to the effect that ASR's receipt of the ASR Termination Fee Base
Amount would either constitute Qualifying Income or would be excluded from
gross income for purposes of the REIT Requirements or that receipt by ASR
of the remaining balance of the ASR Termination Fee Base Amount following
the receipt of and pursuant to such ASR Termination Fee Tax Opinion would
not be deemed constructively received prior thereto, the ASR Termination
Fee Base Amount less the amount payable under clause (A) above. In the
event that ASR is not able to receive the full ASR Termination Fee Base
Amount, the Company shall place the unpaid amount in escrow and shall not
release any portion thereof to ASR unless and until the Company receives
any one or combination of the following: (i) a letter(s) from ASR's
independent accountants indicating the maximum amount that can be paid at
that time to ASR without causing ASR to fail to meet the REIT Requirements
or (ii) an ASR Termination Fee Tax Opinion indicating that ASR's receipt
of the remaining balance of the ASR Termination Fee Base Amount would
satisfy in whole or in part the REIT Requirements, in which event the
Company shall pay to ASR the lesser of the unpaid ASR Termination Expense
Fee Base Amount or the maximum amount stated in the letter(s) referred to
in (i) above from time to time. The Company's obligation to pay any unpaid
portion of the ASR Termination Fee (provided the Company has otherwise
complied with its obligations under this provision) shall terminate (and
any amount still held in such escrow shall be released to the Company) on
the date that is five years from the date the ASR Termination Fee first
become due under this Agreement.
(d) ASR and the Company agree that the agreements contained in Section
8.2(b) and (c) above are an integral part of the transactions contemplated
by this Agreement and constitute liquidated damages and not a penalty.
(e) In the event that the Company or ASR is required to file suit to
seek all or a portion of the amounts payable under this Section 8.2, and
such party prevails in such litigation, such party shall be entitled to
all expenses, including attorney's fees and expenses which it has incurred
in enforcing its rights hereunder.
SECTION 8.3 Effect of Termination. In the event of termination of this
Agreement by either ASR or the Company as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of the Company, or ASR, other than the last sentence
of Section 5.2, Section 8.2, this Section 8.3 and Article IX and except to the
extent that such termination results from a willful breach by a party of any of
its representations, warranties, covenants or agreements set forth in this
Agreement.
SECTION 8.4 Amendment. This Agreement may be amended by the parties in
writing by action of their respective Boards of Directors at any time before or
after the ASR Stockholder Approval is obtained and prior to the filing of the
Articles of Merger with the Department of Assessments and Taxation of the State
of Maryland; provided, however, that, after the ASR Stockholder Approval is
obtained, no such amendment, modification or supplement shall alter the amount
or change the form of the consideration to be delivered to ASR's stockholders.
SECTION 8.5 Extension; Waiver. At any time prior to the Effective Time,
each of ASR and the Company may (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 of the other party contained in this
Agreement or in any document delivered pursuant to this Agreement or (c)
subject to the proviso of Section 8.4, waive compliance with any of the
agreements or conditions of the other party contained in this Agreement. Any
agreement on the part of a party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of those rights.
I-28
<PAGE>
ARTICLE IX
General Provisions
SECTION 9.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 9.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 9.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, sent by overnight courier (providing proof of
delivery) to the parties or sent by telecopy (providing confirmation of
transmission) at the following addresses or telecopy numbers (or at such other
address or telecopy number for a party as shall be specified by like notice):
(a) if to the Company or ASRSub, to
UNITED DOMINION REALTY TRUST, INC.
10 South Sixth Street
Richmond, VA 23219-3802
Attn: John P. McCann,
President
Fax: (804) 343-1912
with a copy to:
UNITED DOMINION REALTY TRUST, INC.
10 South Sixth Street
Richmond, VA 23219-3802
Attn: Katheryn E. Surface, Senior Vice President and General Counsel
Fax: (804) 788-4607
and
HUNTON & WILLIAMS
951 East Byrd Street
Richmond, VA 23219-4074
Attn: James W. Featherstone, III
Fax: (804) 788-8212
(b) if to ASR, to
ASR INVESTMENTS CORPORATION
Suite 250
335 North Wilmont
Tucson, AZ 85711
Attn: Joseph Chan, Executive Vice President
and Chief Operating Officer
Fax: (520) 750-8805
with a copy to:
Rogers & Wells
200 Park Avenue
New York, NY 10166
Attn: Jay L. Bernstein, Esq.
Fax: (212) 878-8375
SECTION 9.3 Interpretation. When a reference is made in this Agreement to
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation."
I-29
<PAGE>
SECTION 9.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
SECTION 9.5 Entire Agreement; No Third-Party Beneficiaries. This
Agreement, the Confidentiality Agreement and the other agreements entered into
in connection with the transactions contemplated hereby (a) constitute the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter of
this Agreement and, (b) except for the provisions of Article II, Section
5.11(c), Section 5.12, Section 5.13 and Section 5.14 are not intended to confer
upon any person other than the parties hereto any rights or remedies.
SECTION 9.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF
LAWS THEREOF.
SECTION 9.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned or delegated,
in whole or in part, by operation of law or otherwise by any of the parties
without the prior written consent of the other parties. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the parties and their respective successors and
assigns.
SECTION 9.8 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were 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 of this Agreement in any court of the United States
located in the State of Maryland or in any Maryland state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself (without
making such submission exclusive) to the personal jurisdiction of any federal
court located in the State of Maryland or any Maryland state court in the event
any dispute arises out of this Agreement or any of the Transactions
contemplated by this Agreement and (b) agrees that it will not attempt to deny
or defeat such personal jurisdiction by motion or other request for leave from
any such court.
ARTICLE X
Certain Definitions
SECTION 10.1 Certain Definitions. For purposes of this Agreement:
An "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person.
"ASR Disclosure Letter" means the letter dated December 19, 1997
previously delivered to the Company by ASR disclosing certain information in
connection with this Agreement.
"Company Disclosure Letter" means the letter dated December 19, 1997
previously delivered to ASR by the Company disclosing certain information in
connection with this Agreement.
"Knowledge" where used herein with respect to ASR shall mean the knowledge
of the persons named in Schedule 10 to the ASR Disclosure Letter and where used
with respect to the Company shall mean the knowledge of the persons named in
Schedule 10 to the Company Disclosure Letter.
"Person" means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization or
other entity.
"Subsidiary" of any person means any corporation, partnership, limited
liability company, joint venture or other legal entity of which such person
(either directly or through or together with another Subsidiary of such person)
owns 50% or more of the voting stock or other equity interests of such
corporation, partnership, limited liability company, joint venture or other
legal entity.
I-30
<PAGE>
IN WITNESS WHEREOF, the Company, ASR, and ASRSub have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
UNITED DOMINION REALTY TRUST, INC.
By: -------------------------------------
Name: -------------------------------
Title: --------------------------------
ASR INVESTMENTS CORPORATION
By: -------------------------------------
Name: -------------------------------
Title: --------------------------------
ASR ACQUISITION SUB, INC.
By: -------------------------------------
Name: -------------------------------
Title: --------------------------------
I-31
<PAGE>
[Furman Selz LLC letterhead]
230 Park Avenue
New York 10169
212-309-8200
Appendix II
December 19, 1997
The Board of Directors
ASR Investments Corporation
335 North Wilmot
Suite 250
Tucson, AZ 85711
Gentlemen:
We understand that ASR Investments Corporation ("ASR") and United Dominion
Realty Trust ("United Dominion") propose to enter into an Agreement and Plan of
Merger substantially in the form of the draft dated December 17, 1997, which
has been furnished to us (the "Merger Agreement"), whereby, among other things,
ASR will be merged with and into United Dominion (the "Proposed Merger"). As a
result of the Proposed Merger, each share of common stock, $0.01 par value, of
ASR (the "ASR Common Stock") issued and outstanding immediately prior to the
Effective Time (as defined in the Merger Agreement) will be converted into
1.575 shares of United Dominion (the "Consideration") subject to limits defined
in the Merger Agreement. The terms and conditions of the Proposed Merger are
set forth in more detail in the Merger Agreement.
You have requested our opinion, as investment bankers, as to the fairness,
from a financial point of view, of the Consideration to be received by the
stockholders of ASR in the Proposed Merger. It is our understanding that the
Proposed Merger is subject to approval by the Board of Directors of ASR and
United Dominion and by holders of the common stock of ASR.
In conducting our analysis and arriving at our opinion as expressed
herein, we have reviewed and analyzed, among other things, the following:
(i) the Merger Agreement and the financial terms of the Proposed Merger
set forth therein;
(ii) ASR's Annual Reports on Form 10-K for the fiscal years ended
December 31, 1994, 1995 and 1996, Quarterly Reports on Form 10-Q for the
quarters ended September 30, 1996 and 1997 and certain other filings with
the Securities and Exchange Commission made by ASR, including proxy
statements;
(iii) selected other publicly available information concerning ASR and
the trading market for the ASR Common Stock;
(iv) selected non-public information relating to ASR, including
financial forecasts and projections, furnished to us by ASR;
(v) selected publicly available information, including research reports,
concerning certain other companies engaged in businesses which we believe
to be comparable to ASR and the trading markets for certain of such
companies' securities;
(vi) the financial terms and conditions of selected recent mergers and
acquisitions which we believe to be relevant;
In addition, we have performed and conducted the following:
(i) discussions with selected members of senior management of ASR
concerning its respective businesses and operations, assets, present
condition and future prospects;
(ii) site visits to selected properties of ASR, although we have not
made or obtained any independent evaluation or appraisal of such properties
nor undertaken any obligation to do so; and
(iii) such other analyses, and procedures, and review of such other
agreements and documents, and consideration such other factors, as we have
deemed, in our sole judgment, to be necessary, appropriate or relevant to
render an opinion.
II-1
<PAGE>
ASR Investments Corporation
December 19, 1997
Page 2
In addition, we have taken into account our assessment of general
economic, market and financial conditions and our experience in similar
transactions, as well as our experience in securities valuation in general. Our
opinion necessarily is based upon conditions as they exist and can be evaluated
on the date hereof, and does not represent an opinion as to the value of the
ASR Common Stock or the impact of the Proposed Merger or its announcement on
the trading price of the ASR Common Stock.
We have assumed and relied, without independent verification, upon the
accuracy and completeness of the financial and other information obtained from
public sources or provided to us by ASR and reviewed by us for purposes of
arriving at our opinion, and we have not assumed any responsibility for
independent verification of such information or undertaken any obligation to
verify such information. In addition, with respect to the financial forecasts
and projections of ASR used in our analysis, the management of ASR has informed
us that such forecasts and projections are reasonable and we have assumed that
they represent the best current judgment of the management of ASR as to the
future financial condition and operating results of ASR, and that such
forecasts and projections have been reasonably prepared based on such current
judgment. We assume no responsibility for and express no view as to such
forecasts and projections or the assumptions on which they are based.
Furman Selz will receive a fee for its services to the Board of Directors
in connection with this opinion pursuant to an engagement letter dated August
19, 1997 entered into between Furman Selz and ASR. Furman Selz will receive an
additional fee upon consummation of the Proposed Merger. In addition, ASR has
agreed to reimburse Furman Selz for certain out-of-pocket expenses and to
indemnify Furman Selz for certain liabilities arising from the delivery of this
opinion. As you may know, in the ordinary course of our business, we may
actively trade the equity securities of ASR 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 in its
consideration of the Proposed Merger. This opinion is not intended to be and
does not constitute a recommendation to any stockholder as to how such
stockholder should vote with respect to or whether to accept the Consideration
to be received by such stockholder in connection with the Proposed Merger. We
were not requested to opine as to, and this opinion does not in any manner
address, ASR's underlying business decision to proceed with or effect the
Proposed Merger. This opinion may be included in its entirety in any proxy
statement with respect to the Proposed Merger, but it may not be summarized,
excerpted from or otherwise publicly referred to without our prior written
consent.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that the Consideration to be received by the stockholders of ASR in the
Proposed Merger is fair, from a financial point of view, to such holders.
Very truly yours,
FURMAN SELZ LLC
II-2
<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
<TABLE>
<CAPTION>
Exhibit
- --------
<S> <C>
2(a) Agreement and Plan of Merger dated as of December 19, 1997, between United Dominion, Sub and
ASR (Appendix I to Proxy Statement/Prospectus)
2(b) Agreement and Plan of Merger dated as of October 1, 1996, between United Dominion, United Sub,
Inc., and South West Property Trust Inc. (filed as Exhibit 2(a) to United Dominion's Form S-4
Registration Statement, filed with the Commission on October 9, 1996 (File No. 333-13745), and
incorporated by reference herein)
4(a) Restated Articles of Incorporation of United Dominion (filed as Exhibit 4(b) to United Dominion's
Form S-3 Registration Statement, filed with the Commission on January 16, 1998 (File No.
333-44463), and incorporated by reference herein)
4(b) Restated Bylaws of United Dominion (filed as Exhibit 3(b) to United Dominion's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1997 (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)
5 Opinion of Hunton & Williams
8(a) Opinion of Hunton & Williams regarding certain federal income tax matters (to be filed by
amendment)
8(b) Opinion of Rogers & Wells regarding certain federal income tax matters (to be filed by amendment)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
- -----------
<S> <C>
8(c) Opinion of O'Connor, Cavanagh, Anderson, Killingsworth & Beashears, P.A. regarding certain federal
income tax matters (to be filed by amendment)
23(a) Consent of Ernst & Young LLP -- Richmond, Virginia
23(b) Consent of Ernst & Young LLP -- Dallas, Texas
23(c) Consent of L.P. Martin & Company, P.C.
23(d) Consent of Deloitte & Touche LLP
23(e) Consent of Hunton & Williams (included in Exhibits 5 and 8(a))
23(f) Consent of Rogers & Wells (included in Exhibit 8(b))
23(g) Consent of O'Connor, Cavanagh, Anderson, Killingsworth & Beashears, P.A. (included in
Exhibit 8(c))
23(h) Consent of Furman Selz LLC (included in Appendix II to the Proxy Statement/Prospectus)
25 Powers of Attorney (included on signature page)
99 Form of ASR 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
II-2
<PAGE>
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.
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 27 day of January, 1998.
UNITED DOMINION REALTY TRUST, INC.
By: /s/ John P. McCann
---------------------------------
John P. McCann
Chairman of the Board, President
and Chief Executive Officer
II-3
<PAGE>
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 January , 1998. Each of the undersigned officers and
directors of the registrant hereby constitutes John P. McCann, James Dolphin
and Katheryn E. Surface, any 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.
Signature Title & Capacity
- -------------------------- ---------------------------------------------
/s/ John P. McCann Chairman of the Board, President, Chief
- -------------------------- Executive Officer) (Principal Executive
John P. McCann Officer) and Director
/s/ James Dolphin Executive Vice President, Chief Financial
- -------------------------- Officer (Principal Financial Officer)
James Dolphin and Director
/s/ Jerry A. Davis Vice President and Controller (Principal
- -------------------------- Accounting Officer)
Jerry A. Davis
/s/ John S. Schneider Vice Chairman of the Board, Executive Vice
- -------------------------- President and Director
John S. Schneider
/s/ Jeff C. Bane Director
- --------------------------
Jeff C. Bane
Director
- --------------------------
R. Toms Dalton, Jr.
/s/ Barry M. Kornblau Director
- --------------------------
Barry M. Kornblau
Director
- --------------------------
John C. Lanford
/s/ H. Franklin Minor Director
- --------------------------
H. Franklin Minor
Director
- --------------------------
Lynne B. Sagalyn
Director
- --------------------------
Mark J. Sandler
Director
- --------------------------
Robert W. Scharar
/s/ C. Harmon Williams Director
- --------------------------
C. Harmon Williams, Jr.
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
- --------- -----
<S> <C>
2(a) Agreement and Plan of Merger dated as of December 19, 1997, between United
Dominion, Sub and ASR (Appendix I to Proxy Statement/Prospectus)
2(b) Agreement and Plan of Merger dated as of October 1, 1996, between United
Dominion, United Sub, Inc., and South West Property Trust Inc. (incorporated by
reference)
4(a) Restated Articles of Incorporation of United Dominion (incorporated by reference)
4(b) Restated Bylaws of United Dominion (incorporated by reference)
4(c) Specimen United Dominion Common Stock certificate (incorporated by reference)
4(d) Loan Agreement dated as of November 7, 1991, between United Dominion and Aid
Association for Lutherans (incorporated by reference)
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 (incorporated by
reference)
5 Opinion of Hunton & Williams
8(a) Opinion of Hunton & Williams regarding certain federal income tax matters (to be filed by amendment)
8(b) Opinion of Rogers & Wells regarding certain federal income tax matters (to be filed by amendment)
8(c) Opinion of O'Connor, Cavanagh, Anderson, Killingsworth & Beashears, P.A.
regarding certain federal income tax matters (to be filed by amendment)
23(a) Consent of Ernst & Young LLP -- Richmond, Virginia
23(b) Consent of Ernst & Young LLP -- Dallas, Texas
23(c) Consent of L.P. Martin & Company, P.C.
23(d) Consent of Deloitte & Touche LLP
23(e) Consent of Hunton & Williams (included in Exhibits 5 and 8(a))
23(f) Consent of Rogers & Wells (included in Exhibit 8(b))
23(g) Consent of O'Connor, Cavanagh, Anderson, Killingsworth & Beashears, P.A.
(included in Exhibit 8(c))
23(h) Consent of Furman Selz LLC (included in Appendix II) to the Proxy Statement/
Prospectus
25 Powers of Attorney (included on signature page)
99 Form of ASR proxy
</TABLE>
Exhibit 5
Hunton & Williams
RIVERFRONT PLAZA, EAST TOWER
951 EAST BYRD STREET
RICHMOND, VIRGINIA 23219-4074
FILE NO.: 27789.252
DIRECT DIAL: (804) 788-8267
January 30, 1998
Board of Directors
United Dominion Realty Trust, Inc.
10 South Sixth Street
Richmond, Virginia 23219
Registration Statement on Form S-4
8,412,714 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 8,412,714 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 January , 1998. 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 and related
transactions 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 Proxy
Statement/Prospectus included therein.
Very truly yours,
HUNTON & WILLIAMS
Exhibit 23 (a)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4 No. 333-00000) and related Prospectus of United
Dominion Realty Trust, Inc. for the registration of 8,412,714 shares of its
common stock and 8,412,714 rights to purchase Series C Junior Participating
Cumulative Redeemable Preferred Stock and to the incorporation by reference
herein of our report dated March 5, 1997, 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, 1996, filed
with the Securities and Exchange Commission.
Ernst & Young LLP
Richmond, Virginia
January 28, 1998
Exhibit 23 (b)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4 No. 333-00000) and related Prospectus of United
Dominion Realty Trust, Inc. for the registration of 8,412,714 shares of its
common stock and 8,412,714 rights to purchase Series C Junior Participating
Cumulative Redeemable Preferred Stock and to the incorporation by reference
herein of our report dated March 4, 1997, with respect to the consolidated
financial statements of South West Property Trust Inc. included in United
Dominion Realty Trust Inc.'s Current Report (Form 8-K/A No. 1) dated March 17,
1997, filed with the Securities and Exchange Commission.
Ernst & Young LLP
Dallas, Texas
January 28, 1998
Exhibit 23 (c)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4 No. 333-00000) and the related Proxy
Statement/Prospectus of ASR Investments Corporation and United Dominion Realty
Trust, Inc. ("United Dominion") for the registration of 8,412,714 shares of
United Dominion common stock and 8,412,714 rights to purchase Series C Junior
Participating Cumulative Redeemable Preferred Stock and to the incorporation by
reference herein of (a) our reports dated June 11, 1997, with respect to the
statements of rental operations of Anderson Mill Oaks Apartments, Pineloch
Apartments, Poat Oak Ridge Apartments and Seahawk Apartments, included in
United Dominion's current report on Form 8-K, dated July 1, 1997, filed with
the Securities and Exchange Commission; (b) our reports dated June 25, 1997,
respect to the statements of rental operations of Tradwinds Apartments, Trinity
Place Apartments and Stoneybrook Apartments, included in United Dominion's
current report on Form 8-K, dated July 1, 1997, filed with the Securities and
Exchange Commission; (c) our reports dated August 7, 1997 with respect to the
statements of rental operations of Forest Creek Apartments, Lakeside
Apartments, Lotus Landing Apartments, Mallards of Brandywine Apartments and
Orange Oaks Apartments, included in United Dominion's current report on Form
8-K, dated July 1, 1997, filed with the Securities and Exchange Commission; (d)
our report dated November 14, 1997 with respect to the statement of rental
operations of Waterside at Ironbridge Apartments, included in United Dominion's
current report on Form 8-K, dated October 21, 1997, filed with the Securities
and Exchange Commission; and (e) our reports dated November 20, 1997 with
respect to the statements of rental operations of Bammelwood Apartments,
Braesridge Apartments, Camino Village Apartments and Pecan Grove Aprtments,
included in United Dominion's current report on Form 8-K, dated October 21,
1997, filed with the Securities and Exchange Commisision.
L.P. MARTIN & COMPANY, P.C.
L.P. Martin & Company, P.C.
Certified Public Accountants
Richmond, Virginia
January 29, 1998
Exhibit 23 (d)
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders
ASR Investments Corporation
Tucson, Arizona
We consent to the incorporation in this Registration Statement of United
Dominion Realty Trust, Inc. on Form S-4 of: (a) our report dated March 18, 1997
on the consolidated financial statements of ASR Investments Corporation ("ASR")
for each of the three years in the period ended December 31, 1996 appearing in
the Annual Report on Form 10-K of ASR for the year ended December 31, 1996; (b)
our report dated April 25, 1997 on the combined historical summary of revenues
and certain operating expenses of Winton Properties for the year ended December
31, 1996 appearing in the Form 8-K/A of ASR filed on June 12, 1997; (c) our
report dated May 23, 1997 on the historical summary of revenues and certain
operating expenses of La Privada Apartments for the year ended December 31,
1996 appearing in the Form 8-K/A of ASR filed on June 12, 1997; (d) our report
dated May 29, 1997 on the historical summary of revenues and certain operating
expenses of London Park Apartments for the year ended December 31, 1996
appearing in the Form 8-K/A of ASR filed on June 12, 1997; (e) our report dated
April 25, 1997 on the combined historical summary of revenues and certain
operating expenses of MTP Properties for the year ended December 31, 1996
appearing in the Form 8-K of ASR filed on August 28, 1997; and (f) our report
dated September 23, 1997 on the historical summary of revenues and certain
operating expenses of Arbor Terrace Apartments for the year ended December 31,
1996 appearing in the Form 8-K/A filed by ASR on January 6, 1998.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Tucson, Arizona
January 30, 1998
EXHIBIT 99(b)
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH , 1998
in Tucson, Arizona
This proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints Jon A. Grove and Joseph C. Chan, or either of
them, with full power of substitution in each, proxies (and if the undersigned
is a proxy, substitute proxies) to vote all shares of the undersigned in ASR
Investments Corporation, at the special meeting of stockholders to be held
March , 1998, and at any and all adjournments or postponements thereof.
IMPORTANT - This Proxy must be signed and dated on the reverse side.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
- -------------------------------------------------------------------------------
ASR INVESTMENTS CORPORATION
PLEASE MARK VOTE IN BOX IN THE FOLLOWING MANNER USING DARK INK ONLY.
<TABLE>
<S> <C>
P 1. Approval of the Agreement and Plan of Merger, FOR AGAINST ABSTAIN
dated as of December 19, 1997, by and among [ ] [ ] [ ]
R United Dominion Realty Trust, Inc., ASR Acquisition
Sub, Inc. and ASR Investments Corporation
O
2. In their discretion, on such other matters as may FOR AGAINST ABSTAIN
X properly come before the Special Meeting or
any postponements or adjournments thereof. [ ] [ ] [ ]
Y
- ------------------------------------------------------------------------------
</TABLE>
This proxy when
properly executed will
be voted in the manner
directed herein by the
undersigned stock-
holder. If no direction
is made, this Proxy
will be voted FOR
Proposals 1 and 2 .
----------------------
Signature
Dated: __________, 1998
NOTE: Please sign name
exactly as it appears
on the stock certi-
ficate. Only one of
several joint owners
need sign. Fiduciaries
should give full title.
