UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 1-10524
UNITED DOMINION REALTY TRUST,
INC.
(Exact name of registrant as specified in its charter)
Virginia 54-0857512
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
10 South Sixth Street, Richmond, Virginia 23219-3802
(Address of principal executive offices - zip code)
(804) 780-2691
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of exchange on which registered
- - ------------------- -------------------------------------
<S> <C>
Common Stock, $1 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
9.25% Series A Cumulative Redeemable Preferred Stock New York Stock Exchange
8.60% Series B Cumulative Redeemable Preferred Stock New York Stock Exchange
7.50% Series D Cumulative Convertible Redeemable Preferred Stock None
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to filing requirements
for at least the past 90 days.
Yes X No
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K ( ).
The aggregate market value of the shares of common stock held by non-affiliates
(based upon the closing sales price on the New York Stock Exchange) on March 2,
1999 was approximately $1 billion. * As of March 2, 1999 there were 104,060,609
shares of common stock, $1 par value, outstanding.
Part III incorporates certain information be reference from the Proxy Statement
to be filed with respect to the Annual Meeting of Shareholders on May 11, 1999.
*In determining this figure, the Company has assumed that all of its officers &
directors, and persons known to the Company to be beneficial owners of more than
5% of the Company's shares, are affiliates. Such assumptions should not be
deemed conclusive for any other purpose.
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
TABLE OF CONTENTS
PAGE
----
PART I.
Item 1. Business 3
Item 2. Properties 14
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II.
Item 5. Market for Registrant's Common Equity and Related 17
Stockholder Matters
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial 21
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 37
Item 9. Changes in and Disagreements with Accountants on 37
Accounting and Financial Disclosure
PART III.
Item 10. Directors and Executive Officers of the Registrant 38
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial Owners and 38
Management
Item 13. Certain Relationships and Related Transactions 38
PART IV.
Item 14. Exhibits, Financial Statement Schedule, and 39
Reports on Form 8-K
2
<PAGE>
Part I
Item 1. BUSINESS
The Company
General
United Dominion Realty Trust, Inc., a Virginia corporation, (collectively with
its subsidiaries, the Company), is a self-administered equity real estate
investment trust ("REIT"), that operates within one defined business segment as
a fully integrated owner, operator, renovator and developer of apartment
communities located nationwide.
Formed in 1972, the Company is headquartered in Richmond, Virginia with regional
offices in Richmond, Dallas and Atlanta. In addition, the Company has area
offices in the previously mentioned cities plus Orlando, Raleigh, Charlotte,
Tampa, Houston, San Francisco and Phoenix. The regional offices are responsible
for the operation, acquisition, construction and asset management activities in
their respective geographic regions. The Company had approximately 2,700
employees as of March 15, 1999.
The Company manages its properties directly, rather than through outside
property management firms. During 1998, the cost of internal property management
of the Company's communities totaled 3.5% of rental revenue. In determining its
cost of self management, the Company considers all direct and indirect costs
associated with the internal property management function.
The Company operates as a real estate investment trust under the applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"). To
qualify, the Company 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 taxable income be distributed
to its common shareholders. Because the Company qualifies as a REIT, it is
generally not subject to federal income taxes.
Apartments and Markets
At December 31, 1998, the Company's apartment portfolio included 326 communities
having a total of 86,893 completed apartment homes (See Item 2, Properties.).
The Company had eight communities and two additional phases to existing
communities with 1,946 apartment homes under development at December 31, 1998.
The apartment community is the Company's basic business unit and is staffed with
well trained property management personnel. The communities have a community
director, leasing assistants and a maintenance staff who oversee the daily
operation of the communities. Other than Dallas, Texas where 9.5% of the
Company's apartment homes are located, no other market has more than 5% of the
Company's apartment homes. The Company's apartment communities consist primarily
of upper middle to moderate income garden and townhouse communities which make
up the broadest segment of the apartment market. Most of the communities are
considered to be "B" grade quality although the Company does own class A
properties that compete at or near the top of their respective markets. "B"
grade communities are generally either of 1980's construction, located in good
neighborhoods or 1970's construction in good neighborhoods where the apartments
have been, or can be, significantly upgraded and repositioned. Management
believes that these well located apartments offer the Company a good combination
of current income and longer-term income growth.
Management's strategy is to be a national, highly efficient provider of quality
apartment homes with meaningful size in approximately 35 growth markets.
Geographic market diversification is important as it balances the portfolio
performance and makes the Company less vunerable to cyclical real estate cycles
and economies in a specific market. In a given year, the Company will have some
markets that are strong or recovering, some will be balanced and others may be
softening. However, with its market diversification, the Company's aggregate
results of operations are anticipated to be balanced year to year.
3
<PAGE>
Physical occupancy at the Company's apartment communities averaged 91.9% for
December 1996 and bottomed out in January 1997 at 91.6%. Occupancy grew steadily
throughout 1997 as these markets began to recover, and by December 1997,
physical occupancy had increased to 92.6%, one full basis point above the
beginning of the year. In 1997, the increased supply led to softness in certain
of the Company's southeastern markets, however, supply and demand in the
Company's markets are generally in equilibrium. During 1998, physical occupancy
of 92.9% was the same as 1997. In 1998, the Company's best performing markets
were also its largest: Dallas, Houston and Orlando. The Company experienced
improvements in markets that were weak in 1997, including Baltimore, Washington,
Atlanta and Jacksonville. Greenville, Greensboro and Albuquerque continued to be
soft. During 1998, apartment supply and demand are in relative balance in most
of the Company's markets. Although there was an increase in apartment
construction in 1997 and 1998, a strong economy led to good absorption of the
new supply of apartments. Apartment supply and demand are in relative balance in
most of the Company's major markets. During 1999, the Company anticipates some
slowdown in economic growth and a slight increase in apartment completions which
is expected to result in a modest decline in physical occupancy and slightly
lower rent growth.
Although there is no known move toward rent control in any of the markets in
which the Company currently owns apartments, the Company's ability to raise
rents to cover increases in operating expenses might be impaired should rent
control legislation be enacted. As the Company has expanded, attempts have been
made to avoid markets where the exposure to reduced defense spending is believed
to be high.
Business and Operating Strategies
The Company seeks to increase shareholder value by (i) generating growth in the
operating results of its existing communities, (ii) acquiring communities that
will provide a good long-term investment, (iii) developing communities in its
existing markets which provide above market yields, (iv) selling communities
that no longer meet its investment criteria and (v) financing its activities at
the lowest possible cost of capital.
The apartment sector has become increasingly competitive, as ownership has
shifted to large companies with more resources and sophisticated management. In
order to compete more effectively, the Company began a strategic repositioning
in 1996, with the objective of being better positioned to achieve more
consistent earnings growth in the future. The repositioning included expanding
geographically, upgrading the quality of its apartment portfolio through the
sale of non-strategic assets and the upgrade of its existing portfolio and
investing in scalable management systems. The key elements of the Company's
strategic repositioning included: (i) investing in property upgrades, including
revenue-enhancing improvements, (ii) establishing a development pipeline, (iii)
selling non-strategic properties and reinvesting the proceeds in newer
communities with more growth potential, (iv) investing in scalable
infrastructure, primarily in the form of people and technology and (v) expanding
into new markets in new regions of the country. The Company believes that the
repositioning strategy provides the following benefits:
o More stable operating growth
o Lower capital expenditures per apartment home
o Improved operating margins
o A balance between acquisitions and development that will
provide better investment returns
o Lower general and administrative costs as a percentage of rental
income
o Increased productivity
Acquisitions
The Company seeks to acquire communities in individual and portfolio
transactions that can provide returns on investment (property rental income less
property operating expenses divided by the average capital investment in real
estate) substantially in excess of the Company's cost of capital by the third
year of ownership. During 1998, the Company continued added size to its existing
markets where it was under-invested. During 1998, the Company acquired 24
communities, in individual and portfolio transactions, containing 6,959
apartment homes (excluding ASR Investments Corporation ("ASR") and American
Apartment Communities II, Inc. ("AAC") at a total cost (including closing costs)
of $314.7 million or $45,200 per home.
When evaluating potential acquisitions, the Company considers, among other
things: (i) the geographic location, (ii) construction quality, condition and
design of the community, (iii) asset quality and age of the property, (iv)
current and projected cash flow of the property, (v) the ability to increase the
value and cash flow of the property through upgrades and repositioning, (vi)
potential for rent increases, (vii) competition from existing multi-family
communities, (viii) anticipated new construction and (ix) the potential for
economic growth in the market.
4
<PAGE>
The following table summarizes the Company's growth during the last five years
(dollars in thousands):
<TABLE>
<CAPTION>
1998 (a) 1997 1996 (b) 1995 1994
-------- ---- -------- ---- ------
<S> <C> <C> <C> <C> <C>
Homes acquired 28,510 8,628 22,032 5,142 11,368
Homes owned at December 31, 86,893 62,789 55,664 34,224 29,282
Total real estate owned, at cost $3,916,785 $2,472,537 $2,085,023 $1,182,113 $1,007,599
Total rental income $ 478,718 $ 386,672 $ 241,260 $ 194,511 $ 139,380
</TABLE>
(a) Includes 7,550 apartment homes acquired in the ASR Merger on March 27,
1998 and 14,001 apartment homes acquired in the AAC Merger on December 7,
1998.
(b) Includes 14,320 completed apartment homes and 675 homes under development
acquired in connection with the South West Property Trust Inc. Merger on
December 31, 1996.
During 1999, the Company does not anticipate acquiring communities except to
reinvest a portion of the proceeds from property sales.
Mergers
Prior to 1990, the Company was the only major publicly held REIT focusing
predominantly on apartment investments. Since then, a number of new multi-family
REITs have been formed. Some of these REITs may seek to be acquired by larger,
more strongly capitalized REITs that have superior access to the capital
markets. During the past few years, the apartment sector has undergone
consolidation and the Company has been a major participant in this real estate
consolidation process, completing the following mergers:
On December 31, 1996, The Company completed the acquisition of South West
Property Trust Inc. ("South West") in a statutory merger (the "South West
Merger"). South West was a publicly traded multifamily REIT that owned 44
communities with 14,320 apartment homes primarily located in Texas and
several other Southwestern markets. The South West Merger provided the
Company with significant diversification beyond its traditional Southeast
and Mid-Atlantic markets, expanding the Company into Southwestern markets.
On March 27, 1998, the Company completed the acquisition of ASR
Investments Corporation ("ASR") in a statutory merger (the "ASR Merger").
ASR was a publicly traded multifamily REIT that owned 39 communities with
7,550 apartment homes located in Arizona, Texas, New Mexico and the state
of Washington. The ASR Merger furthered the Company's investment in
Southwestern markets, provided an initial presence in the Pacific
Northwest, and provided the Company with critical size in Houston and
Phoenix.
On December 7, 1998, the Company completed the acquisition of American
Apartment Communities II, Inc. (AAC) in a statutory merger (the "AAC
Merger"). In connection with the acquisition of AAC, the Company acquired
53 communities with 14,001 apartment homes located primarily in
California, the Pacific Northwest, the Midwest and Florida. The AAC Merger
allowed the Company to enter into new major markets that are believed to
have the potential for good long-term growth, such as, Portland, San
Francisco, Sacramento, San Jose, Monterey, Los Angeles, Denver,
Indianapolis and Detroit. In addition, it added size to our existing
portfolios in Columbus, Tampa, South Florida and Seattle.
5
<PAGE>
Real estate under development
Development activity is focused in certain of the Company's major markets. With
acquisition costs approaching replacement cost and the spreads over the
Company's cost of capital narrowing, building in selected markets enables the
Company to increase its return on investment. In determining whether to develop
in a certain market, the Company considers among other things, the following:
(i) income levels and employment growth, (ii) location, (iii) barriers to entry
that would limit competition, (iii) demographic information such as expected
household growth, (iv) supply/demand ratio and competition among other apartment
communities or housing alternatives and (v) pricing and yields on acquisition
properties relative to development properties.
During 1998, the Company increased is commitment to development as part of its
strategic repositioning, investing $97.2 million on development projects which
included eight new communities, four additional phases to existing communities
and nine parcels of undeveloped land. The Company plans to invest approximately
$150 million on development, including communities currently under development
plus six new starts during the year. These communities are anticipated to
provide stabilized returns on investment in excess of 10%. The Company believes
that having a development capability provides the following benefits: (i)
returns on investment in excess of returns on acquisitions, (ii) control over
the quality of the product which includes quality of features, size and floor
plan, (iii) ability to add presence in existing markets and (iv) a new, high
quality community that requires no material capital expenditures for five years.
Same Communities
The Company's net income is primarily generated from the operations of its
apartment communities. During 1998, the Company's same communities (those
communities acquired, developed and stabilized prior to January 1, 1997 and held
throughout the annual reporting period) consisted of 180 communities containing
47,875 apartment homes. These same communities provided rental growth of 3.3%
which was coupled with a .3% decrease in rental expenses. Average physical
occupancy and rental rates at the Company's same communities during the
comparable periods are set forth below:
1998 1997 1996
---- ---- ----
Physical occupancy 92.9% 92.9% 92.6%
Average monthly rental rates $602 $582 $572
The Company's strategic objectives include upgrading the apartment
portfolio through the addition of features and initiatives to the communities
that are appropriate for the market and which will support higher rents. Value
enhancing improvements plus improvements that substantially extend the useful
life of an existing asset are capitalized. A significant portion of the
Company's capital expenditures relate to an upgrade and repositioning program
that began in 1996. The Company recognized the need to improve its asset quality
in order to compete with an increase in the supply of newer communities, and
consequently, embarked on the upgrade program. In addition, several initiatives
which are considered revenue enhancing or expense reducing are underway that
either allow the Company to increase rents by more than the inflationary rate or
allow the Company to pass expenses to residents including: (i) sub-metering of
water and sewer to residents where local and state regulations allow, (ii)
gating and fencing of apartment communities, (iii) installing monitoring devices
such as intrusion alarms or controlled access devices, (iv) adding business and
fitness centers and (v) constructing carports, garages and self storage units.
Sales
The Company continually undertakes portfolio review analysis with the
objective of identifying communities that do not meet the Company's long-term
investment objectives. When determining whether to dispose of communities, the
Company considers the following factors: (i) size, location, asset quality and
age of the community, (ii) current operating performance of the community,
(iii) markets where the economy is not expected to be strong over the long-term
and (iv) markets where the Company does not intend to establish a long-term
concentration. These sales allow the Company to reduce the age of its existing
portfolio, which should result in lower operating expenses and capital
expenditures associated with the older communities and to exit non-core markets.
Since 1997, the Company sold 30 communities with 7,888 non-strategic
apartment homes (average age of communities sold was 25 years), the net proceeds
from which were used to acquire and develop newer communities that will provide
higher long-term returns on investment than the communities that are being sold.
The Company intends to sell 6,000 to 7,000 apartment homes during 1999 to
complete the sale of non-strategic assets, the proceeds from which will be used
to fund acquisitions in order to complete tax deferred exchanges, to repay debt
and to fund new development. At December 31, 1998, the Company had 26
communities, four commercial properties and one parcel of undeveloped land
included in real estate held for disposition.
6
<PAGE>
Financing Strategies
As a qualified REIT, the Company distributes a substantial portion of its cash
flow to its shareholders in the form of distributions. The Company seeks to
retain sufficient cash to cover normal operating needs, including routine
replacements and to help fund additional acquisitions and development activity.
The Company utilizes a variety of primarily external financing sources to fund
portfolio growth, major capital improvement programs and balloon debt payments.
Bank lines of credit generally have been used to temporarily finance these
expenditures, and subsequently this short-term bank debt has been replaced with
longer-term debt or equity. The Company may also fund its capital requirements
through (i) the assumption of mortgage indebtedness, (ii) property sales, (iii)
common shares sold through the Company's Dividend Reinvestment and Stock
Purchase Plan, (iv) retained operating cash flow, (v) the issuance of operating
partnership units and (vi) the use of unused credit facilities.
At December 31, 1998, the Company had the following credit facilities: (i) $200
million three year unsecured revolving credit facility which includes a $100
million competitive bid option which allows the Company to solicit bids from
participating banks at rates below the contractual rate, (ii) a $50 million one
year unsecured line of credit and (iii) a $15 million uncommitted line of credit
with a major U.S. financial institution. At December 31, 1998, the Company had
$240 million of borrowings outstanding under these credit facilities.
During 1998, the Company completed the following financing activities: (i)
issued 1.7 million shares of common stock at a gross sales price of $14.31 per
share to a Unit Investment Trust (UIT) and 1.1 million shares of common stock at
a gross sales price of $14.19 to a second UIT, for net proceeds of $38.0
million, (ii) issued $150 million of 8.125% Notes, (iii) issued $62.5 million of
8.5% Monthly Income Notes, (iv) raised $36.6 million under the Dividend
Reinvestment and Stock Purchase Plan, (v) assumed debt of $753.5 million in
connection with the acquisition of communities, (vi) issued 8,396,863 Operating
Partnership Units valued at $107.3 million in connection with the acquisition of
communities, (vii) issued 8,224,090 shares of common stock with an aggregate
value of $115.6 million in connection with the acquisition of communities,
(viii) issued eight million shares of convertible preferred stock with a fair
value of $175 million in connection with the AAC Merger and (ix) had net
borrowings under its bank credit facilities of $104.4 million.
In January 1999, the Company established a program for the sale of up to $200
million aggregate principal amount of medium-term notes (the "MTN Program"). The
Company subsequently sold an aggregate of $150 million of senior unsecured notes
under the MTN Program which consisted of the following: (i) $70 million of 7.60%
Notes due January 25, 2002, (ii) $58 million of 7.67% Notes due January 26,
2004, (iii) $10 million of variable-rate Notes due January 27, 2003 on which the
Company subsequently executed a swap fixing the rate at 7.52% and (iv) $12
million of 7.22% notes due February 19, 2003. Net proceeds from the offerings
were used to repay revolving bank debt and prepay mortgage debt. The Company
anticipates issuing the remaining $50 million of notes under the MTN Program
during the first half of 1999, the net proceeds of which will be used to repay a
senior unsecured note maturing in April 1999.
The Company is currently negotiating a $130 million five year variable-rate
revolving credit agreement ("the Credit Facility") with a lender through which
the Company will have access to secured funding through Federal National
Mortgage Association. The proceeds from the Credit Facility will be used to
repay a $91 million secured credit facility assumed in connection with the AAC
transaction and repay unsecured bank debt. Additional features of this Credit
Facility may allow the Company to extend the maturity for five or ten years and
increase the amount available under the Credit Facility to $200 million. It is
anticipated that this Credit Facility will be executed during the first quarter
of 1999.
7
<PAGE>
Depending on the volume and timing of acquisition activity, the Company
anticipates raising additional debt during the next twelve months primarily to
refinance debt maturities, however, 1999 acquisition and development activity is
expected to be funded primarily with the proceeds from the planned sales of
communities.
Competition
In most of the Company's markets, the competition for residents among
communities is extremely intense as some competing communities offer features
that the Company's communities do not have. Also, some competing communities are
larger and/or newer than the Company's communities. The competitive situation of
each community varies and intensifies as additional properties are constructed.
When in the market for new acquisitions, the Company competes with numerous
other investors, including other REITs, individuals, partnerships, corporations,
pension funds, insurance companies, foreign investors and other real estate
entities. Although the Company has certain advantages because of its substantial
presence in its markets and its access to capital, some competing investors are
larger than and may have a competitive advantage over the Company in terms of
assets and other investment resources. During 1998, the competition for both
single property and portfolio acquisitions intensified which resulted in lower
acquisition capitalization rates. Management believes that the Company, in
general, is well positioned in terms of economic and other resources to compete
effectively and intends to maintain its pricing discipline while continuing to
pursue acquisitions that meet the Company's long-term investment objectives.
Environmental Regulations
To date, compliance with federal, state, and local environmental protection
regulations has not had a material effect on the capital expenditures, earnings
or competitive position of the Company. However, over the past few years, the
issue has been raised regarding the presence of asbestos and other hazardous
materials in existing real estate properties. In response to this, on March 1,
1991, the Company adopted a property management plan for hazardous materials. As
part of the plan, Phase I environmental site investigation and reports have been
completed for each property owned by the Company and not previously inspected.
In addition, all proposed acquisitions are inspected prior to acquisition.
Acquisitions through merger are inspected on a case by case basis given
historical information available. The inspections are conducted by qualified
environmental consultants, and the report issued is reviewed by the Company
prior to the purchase or development of any property. Nevertheless, it is
possible that the Company's environmental assessments will not reveal all
environmental liabilities, or that some material environmental liabilities exist
in which the Company is unaware. In some cases, the Company has abandoned
otherwise economically attractive acquisitions because the costs of removal or
control have been prohibitive and/or the Company has been unwilling to accept
the potential risks involved. The Company does not believe it will be required
to engage in any large scale abatement at any of its properties as asbestos is
managed in place in accordance with current environmental laws and regulations.
Management believes that through professional environmental inspections and
testing for asbestos and other hazardous materials, coupled with a conservative
posture toward accepting known risk, the Company can minimize its exposure to
potential liability associated with environmental hazards.
Recently enacted federal legislation requires owners and landlords of
residential housing constructed prior to 1978 to disclose to potential residents
or purchasers of the communities any known lead paint hazards and will impose
treble damages for failure to so notify. In addition, lead based paint in any of
the communities may result in lead poisoning in children residing in that
community if chips or particles of such lead based paint are ingested, and the
Company may be held liable under state laws for any such injuries caused by
ingestion of lead based paint by children living at the communities.
The Company is unaware of any environmental hazards at any of its properties
which individually or in the aggregate may have a material adverse impact on its
operations or financial position. The Company has not been notified by any
governmental authority, and is not otherwise aware, of any material
non-compliance, liability or claim relating to environmental liabilities in
connection with any of its properties. The Company does not believe that the
cost of continued compliance with applicable environmental laws and regulations
will have a material adverse effect on the Company or its financial condition or
results of operations. There can be no assurance, however, that future
environmental laws, regulations or ordinances will not require additional
remediation of existing conditions that are not currently actionable. Also, if
more stringent requirements are imposed on the Company in the future, the costs
of compliance could have a material adverse effect on the Company or its
financial condition. To the best of its knowledge, the Company is in compliance
with all applicable environmental rules and regulations.
8
<PAGE>
Operating Partnership - United Dominion Realty Trust, L.P.
On October 23, 1995, the Company organized United Dominion Realty, L.P. (the
"Partnership") under the Virginia Revised Uniform Limited Partnership Act, as
amended (the "Partnership Act"). The Company is the sole General Partner of the
Partnership and currently holds a 79.8% interest. The Partnership is intended to
assist the Company in competing for the acquisition of properties that meet the
Company's investment strategies from seller partnerships, some or all of whose
partners may wish to defer taxation of gain realized on sale through an exchange
of partnership interests.
The Partnership was organized under a First Amended and Restated Agreement of
Limited Partnership dated as of December 31, 1995 which was subsequently amended
in the Second Amended and Restated Agreement of Limited Partnership dated as of
August 30, 1997 and later amended by the Third Amended and Restated Agreement of
Limited Partnership dated as of December 7, 1998 (the "Partnership Agreement").
A summary of certain provisions of the Partnership Agreement is set forth below.
The summary does not purport to be complete and is subject to and qualified in
its entirety by reference to applicable provisions of the Partnership Act and
the complete Partnership Agreement. The Partnership Agreement is filed as an
exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
Admission of Limited Partners; Investment Agreements
The Company presently intends to limit admission to the Partnership to Limited
Partners who are "accredited investors," as defined in Rule 501(a) under the
Securities Act of 1933, as amended (the "Securities Act"). Limited Partners will
be admitted upon executing and delivering to the Company an Investment Agreement
(the "Investment Agreement") and delivering to the Partnership the consideration
prescribed therein. In the Investment Agreement, the prospective Limited Partner
makes both representations as to his status as an accredited investor and other
representations and agreements regarding the Units (defined below) to be issued
to him, thus, assuring compliance with the Securities Act. Any rights to
Securities Act registration of the Common Stock of the Company issued to such
Limited Partner upon redemption of his Units (see "Redemption Rights" below),
will also be set forth in the Investment Agreement or a separate registration
rights agreement.
Units
The interests in the Partnership of the Partnership's limited partners (the
"Limited Partners") are represented by units of limited partnership interest
(the "Units"). All holders of Units are entitled to share in the cash
distributions from, and in the profits and losses of, the Partnership.
Distributions by the Partnership are made equally for each Unit outstanding
except that outside partners have first priority as described in the
"Distributions" section. As the Partnership's sole General Partner, the Company
intends to make distributions per Unit in the same amount as the cash dividends
paid by the Company on each share of Common Stock. However, because Partnership
properties, which are the primary source of cash available for distribution to
Unit holders, are significantly fewer than properties held directly by the
Company and may not perform as well, there can be no assurance that
distributions per Unit will always equal Common Stock dividends per share. A
distribution made to the Company that enables it to maintain its REIT status
(see "Management and Operations" below) may deplete cash otherwise available to
Unit holders. The Partnership may borrow from the Company for the purpose of
equalizing per Unit and per Common share distributions, but neither the
Partnership nor the Company is under any obligation regarding Partnership
borrowings for this or any other purpose.
The Limited Partners have the rights to which limited partners are entitled
under the Partnership Act. The Units are illiquid, they are not registered for
secondary sale under any securities laws, state or federal, and they cannot be
transferred by a holder except as provided in the Partnership Agreement and
unless they are registered as such or an exemption from such registration is
available. Except as provided in any Investment Agreement or other agreement
with a partner, neither the Partnership nor the Company is under any obligation
to effect any such registration or to establish any such exemption. The
Partnership Agreement imposes additional restrictions on the transfer of Units,
as described below under "Transferability of Interests."
9
<PAGE>
Management and Operations
The Company, as the sole General Partner of the Partnership, has full, exclusive
and complete responsibility and discretion in the management and control of the
Partnership. The Limited Partners have no authority to transact business for, or
participate in the management activities or decisions of the Partnership.
The Partnership Agreement requires that the Partnership be operated in a manner
that will enable the Company to both satisfy the requirements for being
classified as a REIT and avoid any federal income tax liability. The General
Partner is expressly directed, notwithstanding anything to the contrary in the
Partnership Agreement, to cause the Partnership to distribute amounts (including
proceeds of Partnership borrowings) that sufficiently enable the Company to pay
distributions to its shareholders that are required in order to maintain REIT
status and to avoid income tax or excise tax liability.
Ability to Engage in Other Businesses; Conflicts of Interest
The Company and other persons (including officers, directors, employees, agents
and other affiliates of the Company) are not prohibited under the Partnership
Agreement from engaging in other business activities, including business
activities substantially similar or identical to those of the Partnership. The
Company will not be required to present any business opportunities to the
Partnership or to any Limited Partner.
Borrowing by the Partnership
The General Partner is authorized under the Partnership Agreement to cause the
Partnership to borrow money and to issue and guarantee debt as it deems
necessary for the conduct of the activities of the Partnership. Such debt may be
secured by mortgages, deeds of Company, pledges or other liens on the assets of
the Partnership.
Reimbursement of General Partner; Transactions with the General Partner and its
Affiliates
The General Partner will receive no compensation for its services as General
Partner of the Partnership. However, as a partner in the Partnership, the
General Partner has the same right to allocations of profit and loss and
distributions as other partners of the Partnership. In addition, the Partnership
will reimburse the General Partner for all expenses it incurs relating to the
ownership and operation of, or for the benefit of, the Partnership and any
offering of Units or other partnership interests, and for the pro rata share of
the expenses of any offering of securities of the Company some or all of the
proceeds of which are contributed to the Partnership.
Liability of General Partner and Limited Partners
The General Partner is liable for all general obligations of the Partnership to
the extent not paid by the Partnership. The General Partner is not liable for
the non-recourse obligations of the Partnership.
The Limited Partners are not required to make further capital contributions to
the Partnership after their respective initial contributions are fully paid.
Assuming that a Limited Partner acts in conformity with the provisions of the
Partnership Agreement, the liability of the Limited Partner for obligations of
the Partnership under the Partnership Agreement and Partnership Act will be
limited to, subject to certain possible exceptions, the loss of the Limited
Partner's investment in the Partnership.
The Partnership is qualified to conduct business in each state in which it owns
property and may qualify to conduct business in other jurisdictions. Maintenance
of limited liability may require compliance with certain legal requirements of
those jurisdictions and certain other jurisdictions. Limitations on the
liability of a limited partner for the obligations of a limited partnership have
not clearly been established in many states. Accordingly, if it were determined
that the right, or exercise of the right by the Limited Partners, to make
certain amendments to the Partnership Agreement or to take other action pursuant
to the Partnership Agreement constituted "control" of the Partnership's business
for the purposes of the statutes of any relevant state, the Limited Partners
might be held personally liable for the Partnership's obligations. The
Partnership will operate in a manner the General Partner deems reasonable,
necessary and appropriate to preserve the limited liability of the Limited
Partners.
Exculpation and Indemnification of the General Partner
If acting in good faith, the Partnership Agreement provides that the General
Partner will incur no liability for monetary damages to the Partnership or any
Limited Partner for losses sustained or liabilities incurred as a result of
errors in judgment or of any act or omission. In addition, the General Partner
is not responsible for any misconduct or negligence on the part of its agents,
provided the General Partner appointed such agents in good faith.
10
<PAGE>
The Partnership Agreement also provides for indemnification of the General
Partner, the directors, officers and employees of the General Partner, and such
other persons as the General Partner may from time to time designate, against
any and all losses, claims, damages, liabilities (joint or several), expenses
(including reasonable legal fees and expenses), judgments, fines, settlements
and other amounts arising from any and all claims, demands, actions, suits or
proceedings, whether civil, criminal, administrative or investigative, that
relate to the operations of the Partnership in which any such indemnitee may be
involved, or is threatened to be involved, unless it is established that (i) the
act or omission of such indemnitee was material to the matter giving rise to the
proceeding and either was committed in bad faith or was the result of active and
deliberate dishonesty, (ii) such indemnitee actually received an improper
personal benefit in money, property or services or (iii) in the case of any
criminal proceeding, such indemnitee had reasonable cause to believe that the
act or omission was unlawful.
Sale of Assets; Merger
Under the Partnership Agreement, the General Partner generally has the exclusive
authority to determine whether, when and on what terms the assets of the
Partnership will be sold or on which the Partnership will merge or consolidate
with another entity.
Removal of the General Partner; Transfer of General Partner's Interest
The Partnership Agreement does not authorize the Limited Partners to remove the
General Partner and the Limited Partners have no right to remove the General
Partner under the Partnership Act. The General Partner may not transfer any of
its interest as General Partner and withdraw as General Partner, except (a) to a
wholly-owned subsidiary of the General Partner or the owner of all the ownership
interests in the General Partner, (b) in connection with a merger or sale of all
or substantially all of the assets of the General Partner or (c) as a result of
the bankruptcy of the General Partner. A substitute or additional General
Partner may be admitted upon compliance with the applicable provisions of the
Partnership Agreement, including delivery by counsel for the Partnership of an
opinion that admission of such General Partner will not cause (i) the
Partnership to be classified other than as a partnership for federal income tax
purposes or (ii) the loss of any Limited Partner's limited liability. The
General Partner may not sell all or substantially all of its assets, or enter
into a merger, unless the sale or merger includes the sale of all or
substantially all of the assets of, or the merger of, the Partnership and the
Limited Partners receive for each Unit substantially the same consideration as
the holder of one share of Common Stock.
Transferability of Interests
A Limited Partner generally may not transfer his interest in the Partnership
without the consent of the General Partner which may be withheld at its absolute
discretion. The General Partner may require, as a condition of any transfer,
that the transferring Limited Partner assume all costs incurred by the
Partnership in connection with such a transfer.
Redemption Rights
Each Limited Partner has the right (the "Redemption Right"), subject to the
purchase right of the General Partner described below, to cause the redemption
of such Limited Partner's Units for cash in an amount per Unit equal to the
average of the closing sale prices of the Common Stock of the Company on the New
York Stock Exchange (the "NYSE") for the ten trading days immediately preceding
the date of receipt by the General Partner of notice of such Limited Partner's
exercise of the Redemption Right provided that such Units have been outstanding
for at least one year. Subject to certain restrictions intended to prevent
undesirable tax consequences and assure compliance with the Securities Act, a
Limited Partner may exercise the Redemption Right at any time but not more than
twice within the same calendar year and not with respect to less than 1,000
Units (or all Units owned by such Limited Partner, if less than 1,000). A
Limited Partner that exercises the Redemption Right shall be deemed to have
offered to sell the Units to be redeemed to the General Partner, and the General
Partner may elect to purchase such Units by paying to such Limited Partner
either the redemption price in cash or by delivering to such Limited Partner a
number of shares of Common Stock of the Company equal to the product of the
number of such Units, multiplied by the "Conversion Factor," which is 1.0,
subject to customary antidilution provisions in the event of stock dividends on
or subdivisions or combinations of the Common Stock subsequent to issuance of
such Units. Any Common Stock issued to the redeeming Limited Partner will be
listed on the NYSE and, if to the extent provided in such Redeeming Partner's
Investment Agreement or other agreement, registered under the Securities Act
and/or entitled to rights to Securities Act registration.
11
<PAGE>
No Withdrawal of Capital by Limited Partners
No Limited Partner has the right to withdraw any part of his capital
contribution to the Partnership or interest thereon or to receive any
distribution, except as provided in the Partnership Agreement.
Issuance of Additional Limited Partnership Interests and Other Partnership
Securities
The General Partner is authorized, without the consent of the Limited Partners,
to cause the Partnership to issue additional Units or other Partnership
securities to the partners or to other persons on such terms and conditions and
for such consideration, including cash or any property or other assets permitted
by the Partnership Act, as the General Partner deems appropriate.
Meetings
The Partnership Agreement does not provide for annual meetings of the Limited
Partners, and the General Partner does not anticipate calling such meetings.
Amendment of Partnership Agreement
Amendments to the Partnership Agreement may, with four exceptions, be made by
the General Partner without the consent of the Limited Partners. Any amendment
to the Partnership Agreement which would (i) affect the Conversion Factor or the
Redemption Rights of the Limited Partners, (ii) adversely affect the rights of
the Limited Partners to receive distributions payable to them under the
Partnership Agreement, or (iii) alter the Partnership's profit and loss
allocations shall require the consent of Limited Partners. Any amendment that
would impose any obligation upon the Limited Partners to make additional capital
contributions to the Partnership shall require the consent of each Limited
Partner owning more than 50% of the percentage interests in the Partnership.
Books and Reports
The General Partner is required to keep at the specified office of the
Partnership the Partnership's books and records, including copies of the
Partnership's federal, state and local tax returns, a list of the partners and
their last known business addresses, the Partnership Agreement, the Partnership
certificate and all amendments thereto and any other documents and information
required under the Partnership Act. Any partner or his duly authorized
representative, upon paying duplicating, collection and mailing costs, is
entitled to inspect or copy such records during ordinary business hours.
The General Partner will furnish to each Limited Partner, as soon as practicable
after the close of each fiscal year, an annual report containing financial
statements of the Partnership (or the Company, if consolidated financial
statements including the Partnership are prepared) for such fiscal year. The
financial statements will be audited by accountants selected by the General
Partner. In addition, as soon as practicable after the close of each fiscal
quarter (other than the last quarter of the fiscal year), the General Partner
will furnish to each Limited Partner a quarterly report containing unaudited
financial statements of the Partnership (or the Company and the Partnership,
consolidated).
The General Partner will furnish to each Limited Partner, within 75 days after
the close of each fiscal year of the Partnership, the tax information necessary
to file such Limited Partner's individual tax returns.
Loans to Partnership
The Partnership Agreement provides that the General Partner may borrow
additional Partnership funds for any Partnership purpose from the General
Partner or a subsidiary or subsidiaries of the General Partner or otherwise.
Adjustments of Capital Accounts and Percentage Interests
A separate capital account will be established and maintained for each Partner.
The General Partner shall revalue the property of the Partnership to its fair
market value (as determined by the General Partner, in its sole discretion) in
accordance with applicable federal income tax regulations if: (i) a new or
existing general or limited partner of the Partnership (a Partner or
collectively Partners) acquires an additional interest in the Partnership in
exchange for more than a de minimis capital contribution, (ii) the Partnership
distributes to a Partner more than a de minimis amount of Partnership property
as consideration for a Partnership interest or (iii) the Partnership is
liquidated for federal income tax purposes. When the Partnership's property is
revalued by the General Partner, the capital accounts of the partners shall be
adjusted in accordance with such regulations, which generally requires such
capital accounts to be adjusted to reflect the manner in which the unrealized
gain or loss inherent in such property (that has not been reflected in the
capital accounts previously) would be allocated among the Partners pursuant to
the Partnership Agreement if there were a taxable disposition of such property
for its fair market value on the date of the revaluation.
12
<PAGE>
If the number of outstanding Units increases or decreases during a taxable year,
each Partner's percentage interest in the Partnership shall be adjusted by the
General Partner as of the effective date of each such increase or decrease to a
percentage equal to the number of Units held by such Partner divided by the
aggregate number of Units outstanding, after giving effect to such increase or
decrease, and profits and losses for the year will be allocated among the
Partners in a manner selected by the General Partner to give appropriate effect
to such adjustments.
Registration Rights
Limited Partners have no rights to Securities Act registration of any Common
Stock of the Company received in connection with redemption of Units except as
provided in their respective Investment Agreements or other agreements with the
Company.
Tax Matters; Profit and Loss Allocations
Pursuant to the Partnership Agreement, the General Partner is the "tax matters"
partner of the Partnership and, as such, has the authority to handle tax audits
and to make tax elections under the Code on behalf of the Partnership.
Profits of the Partnership are to be allocated first to partners in proportion
to and up to the amount of cash distributions, and second in accordance with the
respective partnership interests. Losses are allocated in accordance with each
partners percentage interest.
Distributions
The Partnership Agreement provides that the General Partner shall distribute
cash quarterly, in amounts determined by the General Partner in its sole
discretion (i) first to the outside limited partners, (ii) second to the Company
(or appropriate subsidiary) until the Company has received an amount equal to
prior distributions to the outside limited partners, and (iii) third, to the
outside limited partners and the Company (or the appropriate subsidiary) in
accordance with their percentage interests in the Partnership. Also, the amount
of cash distributable to a Limited Partner who has not been a Limited Partner
for the full quarter for which the distribution is paid is subject to pro rata
reduction. Upon liquidation of the Partnership, after payment of, or adequate
provision for, debts and obligations of the Partnership, including any Partner
loans, any remaining assets of the Partnership will be distributed to all
Partners with positive capital accounts in accordance with their respective
positive capital account balances. If the General Partner has a negative balance
in its capital account following a liquidation of the Partnership, it will be
obligated to contribute cash to the Partnership equal to the negative balance in
its capital account.
Term
The Partnership will continue until December 31, 2051, or until sooner dissolved
upon (i) the bankruptcy, dissolution, death or withdrawal of a General Partner
(unless the Limited Partners elect to continue the Partnership by electing by
unanimous consent a substitute General Partner within 90 days of such
occurrence), (ii) the passage of 90 days after the sale or other disposition of
all or substantially all the assets of the Partnership, (iii) the redemption of
all Limited Partners' interests in the Partnership or (iv) election by the
General Partner. Upon dissolution of the Partnership, the General Partner will
proceed to liquidate the assets of the Partnership and distribute the proceeds
remaining after payment or adequate provision for payment of all debts and
obligations of the Partnership as provided in the Partnership Agreement.
13
<PAGE>
Item 2. Properties
Real Estate Owned
The table below sets forth a summary by major geographic market of the Company's
portfolio of apartment communities at December 31, 1998.
Included in the table below are (i) 26 apartment communities held for
disposition in the amount of $163,366,912, net of accumulated depreciation in
the amount of $34,176,249 and (ii) real estate under development which includes
eight new communities and two additional phases (excludes land held for future
development). At December 31, 1998, the Company also had two shopping centers,
three other commercial properties and one parcel of undeveloped land in the
consolidated balance sheet classified as real estate held for disposition in the
amount of $16,294,529, net of accumulated depreciation in the amount of
$1,791,161, which are not included in the table below.
See also Notes 1 and 2 to the Consolidated Financial Statements and Schedule
III- Summary of Real Estate Owned.
<TABLE>
<CAPTION>
Number of Number of Percentage of Carrying
Apartment Apartment Apartment Value Encumbrances
Major Geographic Markets Communities Homes Homes (In thousands) (In thousands)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dallas, TX 28 8,954 10% $389,202 $49,002 (A)
Houston, TX 23 5,927 7% 210,015 65,965 (A)
Orlando, FL 12 3,848 4% 177,696 41,630
Phoenix, AZ 8 3,136 4% 177,434 19,931 (A)
San Antonio, TX 13 3,840 4% 170,405 38,609 (A)
Tampa, FL 11 3,777 4% 162,077 41,067 (A)
Raleigh, NC 11 3,484 4% 154,990 16,132 (A)
San Francisco, CA 4 980 1% 128,754 70,086
Nashville, TN 10 2,776 3% 123,343 5,081
Charlotte, NC 11 2,566 3% 122,009 22,772 (A)
Richmond, VA 10 3,091 4% 114,880 3,034
Columbia, SC 11 3,326 4% 113,633 28,639
Columbus, OH 7 1,972 2% 110,996 34,981 (A)
Eastern NC 10 2,710 3% 110,189 10,127
Monterey Peninsula, CA 16 2,076 2% 105,970 (A)
Memphis, TN 7 2,206 3% 103,851 43,412
Greensboro, NC 8 2,123 3% 101,521 4,145 (A)
Other Florida 8 1,722 2% 81,280 --
Miami/Ft Lauderdale, FL 5 1,280 1% 80,473 --
Baltimore, MD 8 1,746 2% 79,665 29,755
Atlanta, GA 7 1,642 2% 78,195 11,093
Hampton Roads, VA 8 1,830 2% 63,774 3,900
Portland, OR 4 996 1% 59,743 12,745
Washington DC 5 1,113 1% 57,759 5,875
Jacksonville, FL 3 1,157 1% 55,913 12,455
Greenville, SC 6 1,436 2% 53,794 3,265
Los Angeles, CA 2 926 1% 53,387 6,141
Lansing, MI 4 1,227 2% 50,558 (A)
Other Virginia 6 1,156 1% 47,739 2,830
Sacramento, CA 2 914 1% 47,549 17,127 (A)
Seattle, WA 4 790 1% 46,382 24,367
Denver, CO 2 876 1% 44,195 (A)
Other Midwest 5 969 1% 42,321 --
Fayetteville, NC 3 884 1% 40,900 18,453
Detroit, MI 4 744 1% 38,125 (A)
Eastern Shore MD 4 784 1% 34,546 --
Indianapolis, IN 3 875 1% 32,663 (A)
Tucson, AZ 8 1,112 1% 30,062 15,557
Albuquerque, NM 4 758 1% 29,422 13,704 (A)
Other Washington State 2 536 1% 25,264 9,702
Other Texas 3 776 1% 23,352 (A)
Austin, TX 2 542 1% 23,315 (A)
Other Georgia 2 468 1% 22,401 6,179
Arkansas 2 512 1% 21,897 --
Nevada 1 384 1% 20,551 --
Other California 2 444 1% 18,277 (A)
Delaware 2 368 -- 17,672 --
Other South Carolina 2 408 -- 13,471 2,200
Alabama 1 242 -- 11,211 --
Oklahoma 1 316 -- 9,734 (A)
Other North Carolina 1 168 -- 7,628 (A)
--------------------------------------------------------------------------------------
Total 326 86,893 100% $3,940,183 $1,068,672
--------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Physical Average Monthly Rental Average
Cost Occupancy Rates for the Year Ended Unit Size
Major Geographic Markets Per Home Full Year 1998 (C) December 31, 1998 (B) (Square Feet)
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dallas, TX $43,467 94.4% $606 (D) 801
Houston, TX 35,434 91.9% 540 (D) 825
Orlando, FL 46,179 94.0% 634 953
Phoenix, AZ 56,580 89.7% 661 (D) 891
San Antonio, TX 44,376 92.6% 622 815
Tampa, FL 42,912 94.2% 604 956
Raleigh, NC 44,486 94.1% 660 926
San Francisco, CA 131,382 -- -- (D) 776
Nashville, TN 44,432 91.0% 536 955
Charlotte, NC 47,548 91.0% 659 961
Richmond, VA 37,166 92.7% 610 951
Columbia, SC 34,165 93.5% 514 929
Columbus, OH 56,286 -- -- (D) 870
Eastern NC 40,660 86.8% 569 1,002
Monterey Peninsula, CA 51,045 -- -- (D) 727
Memphis, TN 47,077 90.9% 541 833
Greensboro, NC 47,820 84.8% 615 981
Other Florida 47,201 94.0% 567 826
Miami/Ft Lauderdale, FL 62,870 90.9% 818 1,084
Baltimore, MD 45,627 94.3% 677 869
Atlanta, GA 47,622 93.2% 628 906
Hampton Roads, VA 34,849 92.0% 558 981
Portland, OR 59,983 -- -- (D) 890
Washington DC 51,895 92.8% 755 859
Jacksonville, FL 48,326 91.3% 616 896
Greenville, SC 37,461 87.5% 532 883
Los Angeles, CA 57,653 -- -- (D) 649
Lansing, MI 41,205 -- -- (D) 815
Other Virginia 41,297 87.2% 607 869
Sacramento, CA 52,023 -- -- (D) 820
Seattle, WA 58,711 -- -- (D) 840
Denver, CO 50,451 -- -- (D) 957
Other Midwest 43,675 -- -- (D) 1,004
Fayetteville, NC 46,267 92.6% 568 900
Detroit, MI 51,243 95.0% -- (D) 946
Eastern Shore MD 44,064 97.5% 656 938
Indianapolis, IN 37,329 -- -- (D) 966
Tucson, AZ 27,034 87.7% -- (D) 582
Albuquerque, NM 38,815 78.5% 553 (D) 712
Other Washington State 47,134 68.4% -- (D) 936
Other Texas 30,093 88.7% 526 725
Austin, TX 43,017 92.9% 595 713
Other Georgia 47,865 88.6% 649 1,142
Arkansas 42,768 92.5% 581 821
Nevada 53,518 81.3% 645 839
Other California 41,164 -- -- (D) 1,031
Delaware 48,022 94.0% 616 889
Other South Carolina 33,017 90.9% 427 909
Alabama 46,326 91.8% 516 1,095
Oklahoma 30,804 91.7% 456 756
Other North Carolina 45,405 94.5% 590 836
----------------------------------------------------------------------------------
Total $45,345 91.7% $602 882
----------------------------------------------------------------------------------
</TABLE>
(A) These communities are encumbered by the following: (i) 23 communities
encumbered by two REMIC financings aggregating $75,919,228, (ii) six
communities encumbered by one secrued note payable in the amount of
$31,700,000, (iii) 24 communities encumbered by two fixed-rate notes
payable aggregating $159,732,050 and (iv) 18 communities encumbered by two
variable-rate notes payable aggregating $111,360,025.
Excludes a $3.5 million mortgage note on one commercial property.
(B) Average Monthly Rental Rates for the Year Ended December 31, 1998,
represents potential rent collections (gross potential rents less market
adjustments), which approximates net effective rents.
These amounts exclude the 1998 acquisitions.
(C) Physical occupancy for the year excludes the communities acquired on
December 7, 1998, in connection with the American Apartment Communities II,
Inc. statutory merger ("AAC Merger").
(D) Average Monthly Rental Rates for the year ended December 31, 1998 exclude
the 14,001 apartment homes acquired on December 7, 1998 in connection with
the AAC Merger and the 7,550 apartment homes acquired on March 27, 1998 in
connection with the acquisition of ASR Investments Corporation. These
apartment homes are excluded because the results are not meaningful on a
yearly comparison as these apartment homes were not owned for a full year.
14
<PAGE>
Item 3. LEGAL PROCEEDINGS
Neither the Company nor any of its apartment communities is presently
subject to any material litigation nor, to the Company's knowledge, is any
litigation threatened against the Company or any of the communities, other than
routine actions arising in the ordinary course of business. Some of these
routine actions are expected to be covered by liability insurance, and none are
expected to have a material adverse effect on the business or financial
condition or results of operations of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year ended December 31, 1998.
Executive Officers of the Registrant
The executive officers of the Company, listed below, serve in their
respective capacities for approximate one year terms.
Name Age Office Since
- - ---- --- ------ ------
John P. McCann 54 Chairman of the Board 1974
and Chief Executive Officer
John S. Schneider 60 Vice-Chairman of the Board, 1996
Chief Operations Officer
and President
James Dolphin 49 Executive Vice President 1979
and Chief Financial Officer
Richard A. Giannotti 43 Senior Vice President and Director 1985
of Development-East
<PAGE>
Mark E. Wood 54 Senior Vice President and Director 1996
of Development-West
Katheryn E. Surface 40 Senior Vice President, Corporate 1992
Secretary and General Counsel
Curt W. Carter 42 Senior Vice President and Director 1985
of Apartment Operations-Northern
Region
Robert L. Landis 40 Senior Vice President and Director 1996
of Apartment Operations-Western
Region
Walter J. Lamperski 41 Senior Vice President and Director 1996
of Apartment Operations-Southern
Region
15
<PAGE>
Mr. McCann has been the Company's managing Chief Executive Officer since
1974. Mr. McCann was elected Chairman of the Board in 1996.
Mr. Schneider is the former Chief Executive Officer and Chairman of the
Board of South West Property Trust Inc. (South West). Mr. Schneider was employed
with the investment banking firm of Donaldson, Lufkin and Jenrette until from
1967 until 1973, when he co-founded a predecessor firm to South West. Mr.
Schneider was elected Vice Chairman of the Board and Executive Vice President in
1996 in connection with the merger with South West and President in 1998.
Mr. Dolphin was first employed by the Company in 1979 as Controller. He was
elected Vice President of Finance in 1985 and has served as the Company's Chief
Financial Officer through December 31, 1998. He was elected Senior Vice
President in 1987 and Executive Vice President in 1996. Effective at the close
of business on December 31, 1998, Mr. Dolphin was no longer employed by the
Company.
Mr. Giannotti joined the Company as Director of Development and
Construction in September 1985. He was elected Assistant Vice President in 1988,
Vice President in 1989 and Senior Vice President in 1996. In 1998, Mr. Giannotti
was elected Director of Development-East.
Mr. Wood joined the Company as Vice President of Construction in connection
with the merger of South West in 1996. He was promoted to Senior Vice President
and Director Development-West in 1998.
Ms. Surface joined the Company in 1992 as Assistant Vice President and
Legal Counsel, elected General Counsel, Corporate Secretary and Vice President
in 1994 and elected to Senior Vice President in 1997.
Mr. Carter joined the Company in 1991 as an Assistant Vice President of
Apartment Operations. In 1992, he was promoted to Vice President of Apartment
Operations. In 1995, he was elected Regional Vice President- Northern Region,
and in 1997 was promoted to Senior Vice President and Director of Apartment
Operations- Northern Region.
Mr. Landis joined the Company in 1996 as Regional Vice President-Florida
Region and was promoted in 1997 to Senior Vice President and Director of
Apartment Operations-Florida Region. During 1998, Mr. Landis became the Senior
Vice President and Director of Apartment Operations-Western Region. Prior to
joining the Company, he was Vice President of Asset Management and Property
Management for CRI/CAPREIT, Inc.
Mr. Lamperski joined the Company joined the Company in 1996 as the Regional
Vice President-Southern Region and was promoted in 1997 to Senior Vice President
and Director of Apartment Operations-Southern Region. From February 1990 to
August 1996, he was Vice President and Director of Property Management for
Steven D. Bell, a property management company located in Greensboro, North
Carolina.
16
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange (NYSE)
under the symbol UDR. The following tables set forth the quarterly high and low
closing sale prices per common share reported on the NYSE for each quarter of
the last two years. Distribution information for Common Stock reflects
distributions declared per share for each calendar quarter and paid at the end
of the following month.
COMMON STOCK
Distributions
High Low Declared
1997
1st Quarter $ 16 $ 14 5/8 $ .2525
2nd Quarter 15 1/8 13 3/8 .2525
3rd Quarter 15 3/8 13 7/8 .2525
4th Quarter 15 1/8 13 5/8 .2525
1998
1st Quarter $ 14 13/16 $ 13 3/4 $ .2625
2nd Quarter 14 1/2 13 5/16 .2625
3rd Quarter 14 1/16 10 11/16 .2625
4th Quarter 11 3/4 10 1/16 .2625
The Company determined that, for federal income tax purposes, approximately
87.8% of the distributions for each of the four quarters of 1998 represented
ordinary income to its shareholders and 12.2% represented return of capital to
its shareholders.
On March 2, 1999, the closing sale price of the Common Stock was $9.81 per share
on the NYSE, and there were 8,809 holders of record of the 104,060,609 shares of
Common Stock.
The Company pays regular quarterly distributions to holders of shares of Common
Stock. Future distributions by the Company will be at the discretion of its
Board of Directors after considering the Company's actual funds from operations,
financial condition and capital requirements, the annual distribution
requirements under the REIT provisions of the Internal Revenue Code and other
factors. The annual distribution payment for calendar year 1998 necessary for
the Company to maintain its status as a REIT was approximately $0.84 per share.
The Company paid total distributions of $1.04 per share for 1998.
SERIES A PREFERRED STOCK
The Company's Series A Preferred Stock ("Series A Preferred") and Series B
Preferred Stock ("Series B Preferred") is traded on the New York Stock Exchange
(NYSE) under the symbol "UDRpfa" and "UDRpfb", respectively. The following
tables set forth the quarterly high and low closing sale prices per share
reported on the NYSE for each quarter of the last two years for the Series A
Preferred and Series B Preferred. Distribution information for the Series A
Preferred and Series B Preferred reflects distributions declared per share for
each calendar quarter and paid at the end of the following month.
17
<PAGE>
Distributions
High Low Declared
1997
1st Quarter $ 26 7/8 $ 25 3/4 $ .578
2nd Quarter 26 5/8 25 5/8 .578
3rd Quarter 27 1/8 25 7/8 .578
4th Quarter 26 7/8 25 1/8 .578
1998
1st Quarter $ 26 11/16 $ 26 1/8 $ .578
2nd Quarter 26 7/8 25 3/4 .578
3rd Quarter 25 15/16 24 1/2 .578
4th Quarter 25 11/16 24 3/8 .578
On or after April 24, 2000, the Series A Preferred Stock may be redeemed for
cash at a redemption price of $25 per share, plus accrued and unpaid dividends
from the proceeds from the sale of additional capital stock (common or
preferred).
SERIES B PREFERRED STOCK
Distributions
High Low Declared
1997
1st Quarter -- -- --
2nd Quarter $ 25 1/2 $ 25 --
3rd Quarter 26 7/8 25 1/4 .5554
4th Quarter 26 5/8 25 7/8 .5375
1998
1st Quarter $ 27 3/8 26 3/16 .5375
2nd Quarter 26 1/2 25 5/8 .5375
3rd Quarter 26 13/16 24 9/16 .5375
4th Quarter 25 7/8 24 9/16
The Series B Preferred Stock may be redeemed beginning May 29, 2007 at the sole
option of the Company at a redemption price of $25 per share, plus accrued and
unpaid dividends from the proceeds from the sale of additional capital stock
(common or preferred).
SERIES D PREFERRED STOCK
On December 7, 1998, in connection with the acquisition of American Apartment
Communities II, Inc. (AAC), the Company issued eight million shares of Series D
Convertible Redeemable Preferred Stock (Series D) to one of the sellers of AAC.
The Series D is convertible into 1.5385 shares of common stock at the option of
the holder at any time at $16.25 per share. The Series D is not redeemable prior
to December 7, 2003. On or after this date, the Company may, at its option,
redeem all or part of the Series D at a price per share of $25, plus accrued and
unpaid dividends from the proceeds from the sale of additional capital stock
(common or preferred). Distributions declared during the fourth quarter were
$.12 per share. The Series D is not listed on any exchange.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Company has a Dividend Reinvestment and Stock Purchase Plan under which
holders of Common and Preferred Stock may elect to automatically reinvest their
distributions and make additional cash payments to acquire additional shares of
the Company's Common Stock at a discount.
18
<PAGE>
OPERATING PARTNERSHIP UNITS
From time to time, the Company issues shares of its common stock in exchange for
Operating Partnership Units (OP Unit) tendered to the Company's operating
partnership, United Dominion Realty L.P., for redemption in accordance with the
provisions of the Agreement of limited Partnership of United Dominion Realty
L.P. Such shares are issued based on the exchange ratio of one share for each OP
Unit. During 1998, the Company issued a total of 39,041 shares of common stock
in exchange for OP Units.
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial and other
information for the Company as of and for each of the years in the five year
period ended December 31, 1998. The table should be read in conjunction with the
Consolidated Financial Statements of United Dominion Realty Trust, Inc. and the
Notes thereto included elsewhere herein.
19
<PAGE>
Selected Financial Data
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996 1995 1994
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
In thousands, except per share data and apartment homes owned
Operating Data (a)
Rental income $ 478,718 $ 386,672 $ 241,260 $ 194,511 $ 139,380
Income before gains on sales of investments, minority interests
and extraordinary item 47,339 57,813 33,726 28,037 19,118
Gains on sales of investments 26,672 12,664 4,346 5,090 108
Extraordinary item - early extinguishment of debt (138) (50) (23) - (89)
Net income 72,332 70,149 37,991 33,127 19,137
Distributions to preferred shareholders 23,593 17,345 9,713 6,637 -
Net income available to common shareholders 48,739 52,804 28,278 26,490 19,137
Common distributions declared 107,758 88,587 55,493 48,610 37,539
Weighted average number of common shares outstanding-basic 99,966 87,145 57,482 52,781 46,182
Weighted average number of common shares outstanding-diluted 100,062 87,339 57,655 52,972 46,391
Per share:
Basic earnings per share $ 0.49 $ 0.61 $ 0.49 $ 0.50 $ 0.41
Diluted earnings per share 0.49 0.60 0.49 0.50 0.41
Common distributions declared 1.05 1.01 0.96 0.90 0.78
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data (a)
Real estate held for investment $3,643,245 $2,281,438 $2,007,612 $1,131,098 $1,007,599
Real estate under development 99,395 24,598 37,855 - -
Real estate held for disposition 174,145 166,501 39,556 51,015 -
Total real estate owned, net of accumulated depreciation 3,636,122 2,272,031 1,911,732 1,052,659 887,258
Total assets 3,755,388 2,313,725 1,966,904 1,080,616 911,913
Notes payable-secured 1,072,185 417,325 376,560 180,481 158,449
Notes payable-unsecured 1,045,564 738,901 668,275 349,858 368,215
Total debt 2,117,749 1,156,226 1,044,835 530,339 526,664
Shareholders' equity 1,374,121 1,058,357 850,379 516,389 356,968
Number of common shares outstanding 103,639 89,168 81,983 56,375 50,356
- - ------------------------------------------------------------------------------------------------------------------------------------
Other Data (a)
Cash Flow Data
Cash provided by operating activities $ 145,323 $ 137,903 $ 90,064 $ 66,428 $ 54,544
Cash used in investing activities (296,437) (345,666) (161,572) (183,930) (359,631)
Cash provided by financing activities 169,170 194,784 82,056 113,145 306,575
Funds from operations (b)
Income before gains on sales of investments, minority
interests and extraordinary item $ 47,339 $ 57,813 $ 33,726 $ 28,037 $ 19,118
Adjustments:
Depreciation of real estate owned 99,588 76,688 47,410 38,939 28,729
Distributions to preferred shareholders (23,593) (17,345) (9,713) (6,637) --
Non-recurring items:
Impairment loss on real estate owned -- 1,400 290 1,700 --
Loss on termination of an interest rate risk
management agreement (d) 15,591 -- -- -- --
Prior years' employment and other taxes -- -- -- 395 --
Adoption of SFAS No. 112 "Employers' Accounting for
Postemployment benefits" -- -- -- -- 450
Adjustment for internal acquisition costs (c) (544) (1,341) (901) (587) (704)
---------------------------------------------------------------
Funds from operations $ 138,381 $ 117,215 $ 70,812 $ 61,847 $ 47,593
===============================================================
Apartment Homes Owned
Total apartment homes owned at December 31 86,893 62,789 55,664 34,224 29,282
Weighted average number of apartment homes owned during the year 70,724 58,038 37,481 31,242 23,160
</TABLE>
(a) During the past three years, the Company has completed three statutory
mergers which include the following: (i) South West Property Trust Inc. on
December 31, 1996 for an aggregate purchase price of $572 million, (ii) ASR
Investments Corporation Inc. on March 27, 1998 for an aggregate purchase
price of $323 million, and (iii) American Apartment Communities II, Inc. on
December 7, 1998, for an aggregate purchase price of $794 million.
(b) Funds from operations ("FFO") is defined as income before gains (losses) on
sales of investments, minority interests and extraordinary items (computed
in accordance with generally accepted accounting principles) plus real
estate depreciation, less preferred dividends and after adjustment for
significant non-recurring items. This definition conforms to recommendations
set forth in a White Paper adopted by the National Association of Real
Estate Investment Trusts (NAREIT) in early 1995. FFO for the years prior to
1995 have been adjusted to conform to the NAREIT definition. The Company
considers FFO in evaluating property acquisitions and its operating
performance and believes that FFO should be considered along with, but not
as an alternative to, net income and cash flows as a measure of the
Company's activities in accordance with generally accepted accounting
principles and is not necessarily indicative of cash available to fund cash
needs.
(c) Reflects the adjustment for internal acquisition costs that were capitalized
prior to March 19, 1998.
(d) During 1998, the Company recorded a loss of $15.6 million on the termination
of an interest rate risk management contract.
20
<PAGE>
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto of United Dominion Realty Trust, Inc.
(the "Company") appearing elsewhere in this report. This annual report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Such forward-looking statements include, without limitation,
statements concerning 1999 property acquisitions and dispositions, 1999
development activity and capital expenditures, 1999 capital raising activities,
1999 rent growth, occupancy and rental expense growth. Such statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievement of the Company to be materially
different from the results of operations or plans expressed or implied by such
forward-looking statements. Such factors include, among other things,
unanticipated adverse business developments affecting the Company, and/or its
properties, adverse changes in the real estate markets and general and local
economies and business conditions. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore there can
be no assurance that such statements included in this report will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as representation by the Company or any other person that
the results or conditions described in such statements or the objectives and
plans of the Company will be achieved.
The Company operates in one defined business segment as an owner, operator,
renovator and developer of apartment communities nationwide. Management's
strategy is to be a national, highly efficient provider of quality apartment
homes with meaningful size in approximately 35 growth markets. The Company has
implemented this strategy through the acquisition of portfolios of higher
quality communities, the sale of lower quality communities, a greater commitment
to development and the upgrade of older communities. The Company seeks to be a
market leader by operating a sufficiently sized portfolio of apartments within
each market in order to drive down operating costs through economies of scale
and management efficiencies. The Company believes that market diversification
increases investment opportunity and decreases the risk associated with cyclical
local real estate markets and economies. At December 31, 1998, the Company owned
326 communities containing 86,893 apartment homes nationwide. The following
table summarizes the Company's apartment information by market:
21
<PAGE>
The following table summarizes the Company's apartment market information by
strategic geographic market:
<TABLE>
<CAPTION>
Year Ended Quarter Ended
As of December 31, 1998 December 31, 1998 December 31, 1998
--------------------------------------------------- -------------------- ---------------------
Average Average
No. of No. of % of Carrying Physical Monthly Physical Monthly
Apartment Apartment Apartment Value Occupancy Rental Occupancy Rental
Market Communities Homes Homes (in thousands) (b) Rates (a) (b) Rates (a)
- - -------------------------------------------------------------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dallas, TX (c) 28 8,954 10% $389,202 94.4% $ 606 94.6% $ 617
Houston, TX (c) 23 5,927 7% 210,015 91.9% 540 89.5% 583
Orlando, FL 12 3,848 4% 177,696 94.0% 634 93.8% 652
Phoenix, AZ (c) 8 3,136 4% 177,434 89.7% 661 90.5% 668
San Antonio, TX 13 3,840 4% 170,405 92.6% 622 93.3% 621
Tampa, FL 11 3,777 4% 162,077 94.2% 604 92.8% 613
Raleigh, NC 11 3,484 4% 154,990 94.1% 660 94.3% 669
San Francisco, CA (d) 4 980 1% 128,754 -- -- -- --
Nashville, TN 10 2,776 3% 123,343 91.0% 536 87.2% 593
Charlotte, NC 11 2,566 3% 122,009 91.0% 659 93.0% 667
Richmond, VA 10 3,091 4% 114,880 92.7% 610 91.7% 622
Columbia, SC 11 3,326 4% 113,633 93.5% 514 92.1% 520
Columbus, OH (d) 7 1,972 2% 110,996 -- -- -- --
Eastern NC 10 2,710 3% 110,189 86.8% 569 83.3% 602
Monterey
Peninsula, CA (d) 16 2,076 2% 105,970 -- -- -- --
Memphis, TN 7 2,206 3% 103,851 90.9% 541 92.3% 546
Greensboro, NC 8 2,123 3% 101,521 84.8% 615 88.1% 619
Miami /
Ft. Lauderdale, FL 5 1,280 1% 80,473 90.9% 818 89.8% 829
Baltimore, MD 8 1,746 2% 79,665 94.3% 677 96.1% 686
Atlanta, GA 7 1,642 2% 78,195 93.2% 628 94.7% 640
Hampton Roads, VA 8 1,830 2% 63,774 92.0% 558 92.8% 566
Portland, OR (d) 4 996 1% 59,743 -- -- -- --
Washington, DC 5 1,113 1% 57,759 92.8% 755 94.3% 764
Jacksonville, FL 3 1,157 1% 55,913 91.3% 616 90.2% 628
Greenville, SC 6 1,436 2% 53,794 87.5% 532 86.5% 538
Los Angeles, CA (d) 2 926 1% 53,387 -- -- -- --
Lansing, MI (d) 4 1,227 2% 50,558 -- -- -- --
Sacramento, CA (d) 2 914 1% 47,549 -- -- -- --
Seattle, WA (c) 4 790 1% 46,382 -- -- -- --
Denver , CO (d) 2 876 1% 44,195 -- -- -- --
Fayetteville, NC 3 884 1% 40,900 92.6% 568 95.7% 573
Detroit, MI (d) 4 744 1% 38,125 95.0% -- 95.0% --
Eastern Shore, MD 4 784 1% 34,546 97.5% 656 97.4% 667
Indianapolis, IN (d) 3 875 1% 32,663 -- -- -- --
Tucson, AZ (c) 8 1,112 1% 30,062 87.7% -- 86.6% --
Albuquerque, NM (c) 4 758 1% 29,422 78.5% 553 81.9% 557
Austin, TX 2 542 1% 23,315 92.9% 595 96.4% 599
Other Florida 8 1,722 2% 81,280 94.0% 567 94.0% 587
Other Virginia 6 1,156 1% 47,739 87.2% 607 93.0% 614
Other Midwest (d) 5 969 1% 42,321 -- -- -- --
Other Washington State (c) 2 536 1% 25,264 68.4% -- 77.1% --
Other Texas 3 776 1% 23,352 88.7% 526 88.8% 528
Other Georgia 2 468 1% 22,401 88.6% 649 88.6% 651
Arkansas 2 512 1% 21,897 92.5% 581 92.0% 585
Nevada 1 384 1% 20,551 81.3% 645 84.0% 642
Other California 2 444 1% 18,277 91.7% -- 91.7% --
Delaware 2 368 -- 17,672 94.0% 616 94.1% 617
Other South Carolina 2 408 -- 13,471 90.9% 427 92.6% 433
Alabama 1 242 -- 11,211 91.8% 516 91.4% 512
Oklahoma 1 316 -- 9,734 91.7% 456 94.6% 457
Other North Carolina 1 168 -- 7,628 94.5% 590 95.5% 597
------------------------------------------ ------------------- ---------------
Total 326 86,893 100% $3,940,183 91.7% $602 91.8% $616
============================================ ================== ===============
</TABLE>
22
<PAGE>
(a) Average monthly rental rates represent potential rent collections
(gross potential rents less market adjustments), which approximate
net effective rents. These figures exclude 1998 acquisitions.
(b) Physical occupancy is defined as rental income (potential rental
collections less vacancy loss, management units, units held out of
service and move-in concessions) divided by potential collections
(gross potential rent less management units, units held out of
service and move-in concessions) for the period, expressed as a
percentage.
(c) The Physical Occupancy and Average Monthly Rental Rates for the
twelve months ended December 31, 1998, does not include communities
which were acquired on March 27, 1998 in connection with the
acquisition of ASR Investments Corporation nor communities acquired
on December 7, 1998 in connection with the acquisition of American
Apartment Communities II or the 1998 single acquisitions.
(d) The Physical Occupancy and Average Monthly Rental Rates are not
available for the communities included in this market which were
acquired on December 7, 1998 in connection with the acquisition of
American Apartment Communities II.
Liquidity and Capital Resources
As a qualified real estate investment trust ("REIT"), the Company distributes a
substantial portion of its cash flow to its shareholders in the form of
quarterly distributions. The Company believes that cash provided by operations
will be adequate to meet normal operating requirements and payment of
distributions by the Company in accordance with REIT requirements in both the
short and long-term. For the year ended December 31, 1998, the Company's cash
flow from operating activities exceeded cash distributions paid to preferred and
common shareholders and operating partnership unitholders by $17.2 million. The
Company utilizes a variety of primarily external financing sources to fund
portfolio growth, major capital improvement programs and balloon debt payments.
The Company's bank lines of credit generally have been used to temporarily
finance these expenditures, and subsequently this short-term bank debt has been
replaced with longer-term debt or equity. At December 31, 1998, the Company had
cash and cash equivalents of $18.5 million and amounts available under its
various credit facilities aggregating $25.0 million.
The Company expects to meet its short-term liquidity requirements through net
cash provided by operations and borrowings under credit facilities. To meet
certain long-term liquidity requirements, such as scheduled debt maturities,
development activity and significant capital improvements, the Company expects
to issue secured and unsecured notes payable. The Company may also fund its
capital requirements through: (i) proceeds from asset sales, (ii) common shares
sold through the Company's Dividend Reinvestment and Stock Purchase Plan, (iii)
retained operating cash flow and (iv) the use of unused credit facilities. The
Company anticipates issuing debt during 1999, primarily to replace existing debt
maturities and to pay down credit facilities.
The following discussion explains the changes in net cash provided by operating
activities, net cash used for investing activities and net cash provided by
financing activities which are presented in the Company's Consolidated
Statements of Cash Flows.
Operating Activities
For the year ended December 31, 1998, the Company's cash flow from operating
activities increased $7.4 million over the same period last year. This increase
is primarily due to the increased operating income from the Company's acquired
communities, as well as increases in property operating income within the
Company's same community portfolio achieved primarily through higher rental
rates as discussed below and under "Results of Operations".
Investing Activities
For the year ended December 31, 1998, net cash used for investing activities was
$296.4 million compared to $345.7 million for 1997, a decrease of $49.3 million.
Changes in the level of investing activities from period to period primarily
reflect the changing levels of the Company's acquisition, capital expenditure,
development and sales programs.
23
<PAGE>
Acquisitions
The Company seeks to acquire communities in individual or portfolio transactions
that can provide returns on investment (property rental income less property
operating expenses divided by the average capital investment in real estate)
substantially in excess of the Company's cost of capital by the third year of
ownership. During 1999, the Company does not anticipate acquiring communities
except to reinvest a portion of the proceeds from property sales. During 1998,
the Company acquired 24 communities, in individual and portfolio transactions,
containing 6,959 apartment homes (excluding ASR and AAC) at a total cost
(including closing costs) of $314.7 million or $45,200 per home. All of these
acquisitions were located within one of the Company's designated major markets.
The communities acquired by market were as follows:
<TABLE>
<CAPTION>
Purchase
Purchase No. Apt. Year Price Cost
Location Date Name Homes Built (thousands) per Home
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
San Antonio, TX 04/16/98 Audubon 216 1984 $7,082 $ 32,800
04/16/98 Carmel 228 1984 8,084 35,500
04/16/98 Cimarron 140 1984 5,087 36,300
04/16/98 Grand Cypress 164 1995 9,975 60,800
04/16/98 Kenton Place 244 1982 11,883 48,700
04/16/98 Peppermill 232 1984 8,151 35,100
04/16/98 Villages of Thousand Oaks 466 1983 13,986 30,000
08/15/98 Inn at Los Patios 167 1990 14,550 87,100
Memphis, TN 01/09/98 The Trails at Kirby Parkway 376 1987 16,757 44,600
01/09/98 Cinnamon Trails 208 1989 9,531 45,800
01/09/98 The Trails at Mount Moriah 630 1990/91 28,026 44,500
02/06/98 Dogwood Creek 278 1997 18,446 66,400
Phoenix, AZ 01/09/98 The Village at North Park 320 1983 15,056 47,100
05/28/98 Rancho Mirage 856 1984/85 38,538 45,000
06/09/98 Woodland Park 300 1980 9,723 32,400
Columbus, OH 07/02/98 Sycamore Ridge 270 1997 19,501 72,200
07/02/98 Washington Park 150 1997/98 9,577 63,800
07/02/98 Heritage Green 264 1997/98 10,476 39,700
Dallas, TX 01/30/98 Summit Ridge 264 1983 8,034 30,400
04/16/98 The Crest 280 1983 7,026 25,100
Atlanta, GA 04/15/98 Waterford Place 180 1990 11,900 66,100
Nashville, TN 05/20/98 Williamsburg 300 1986 12,307 41,000
Orlando. FL 07/20/98 Heron Lake 264 1989 10,734 40,700
Seattle, WA 07/31/98 Aspen Creek 162 1996 10,261 63,300
--------------------------------------------------------------------------------------------------------
Total/Weighted Average 6,959 1986 $314,691 $45,200
------------------------------------------------------------------------------------------------
</TABLE>
Mergers
On March 27, 1998, the Company completed the acquisition of ASR Investments
Corporation ("ASR") in a statutory merger (the "ASR Merger"). ASR was a publicly
traded multifamily REIT that owned 39 communities with 7,550 apartment homes
located in Arizona, Texas, New Mexico and the state of Washington. The
acquisition was structured as a tax-free transaction and was treated as a
purchase for accounting purposes. No goodwill was recorded in connection with
this transaction. In connection with the acquisition, the Company acquired
primarily real estate assets totaling $313.7 million. Each share of ASR's common
stock was exchanged for 1.575 shares of the Company's common stock.
Consideration given by the Company included 7,742,839 shares of the Company's
common stock valued at $14 per share for an aggregate equity value of $108.4
million plus the issuance of 1,529,990 OP Units in the Heritage Communities,
L.P. valued at $21.4 million. In addition, the Company assumed, at fair value,
mortgage debt totaling $179.4 million and other liabilities of $13.6 million.
The aggregate purchase price in the ASR Merger was $323.1 million, including
transaction costs.
On December 7, 1998, the Company completed the acquisition of American Apartment
Communities II ("AAC") in a statutory merger (the "AAC Merger"). In connection
with the acquisition of AAC, the Company acquired 53 communities with 14,001
apartment homes located primarily in California, the Pacific Northwest, the
Midwest and Florida. The AAC Merger was structured as a tax-free merger and was
treated as a purchase for accounting purposes. No goodwill was recorded in
connection with this transaction. In connection with the AAC Merger, the Company
acquired primarily real estate assets totaling $766.9 million. The aggregate
purchase price consisted of the following: (i) 8,000,000 shares of the Company's
24
<PAGE>
7.5% Series D Convertible Preferred Stock ($25 liquidation preference value)
with a fair market value of $175 million which is convertible into the Company's
Common Stock at $16.25 per share, (ii) the issuance of 5,614,035 OP Units to
holders of the 21% interest in AAC with an aggregate fair market value of $67.4
million, (iii) the assumption of $457.7 million of secured notes payable at fair
market value, (iv) the assumption of liabilities and minority interests
aggregating $27.8 million and (v) the payment of $59.8 million of cash. The
aggregate purchase price in the AAC Merger was $793.7 million, including
transaction costs.
The AAC Merger and ASR Merger established the Company as a national owner of
apartment communities. These two transactions enabled the Company to enter into
new markets in the Pacific Northwest, California, Colorado and the Midwest.
Entry into these markets provides the Company with market diversification and
reduces cyclical risks by making the Company less dependent on any one market.
Real Estate under Development
Consistent with the Company's acquisition strategy, development activity is
focused in certain of its major markets. During 1998, the Company increased its
level of development activity, completing the development of 228 apartment homes
in two additional phases to existing communities and 662 apartment homes in four
new communities. During 1998, the Company invested $97.2 million on development
projects, which included eight new communities, four additional phases to
existing communities and nine parcels of undeveloped land.
At December 31, 1998, the Company had 1,946 apartment homes under development as
outlined below (dollars in thousands except estimated cost per home):
<TABLE>
<CAPTION>
Estimated Estimated Expected
No. Apt. Completed Development Development Cost per Completion
Property Location Homes Apt. Homes Costs to Date Costs Home Date
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
New Apartment Communities
Dominion Franklin Nashville, TN 360 360 $24,545 $24,800 $68,900 1Q99
Ashlar I Fort Myers, FL 260 76 13,224 18,600 71,500 2Q99
Sierra Foothill Phoenix, AZ 322 -- 7,125 22,500 69,900 4Q99
Stone Canyon Houston, TX 216 120 8,945 11,100 51,400 2Q99
Alexander Court Columbus, OH 356 106 15,707 23,000 64,600 2Q99
Legends at Park 10 Houston, TX 236 -- 2,800 13,900 58,900 4Q99
Ashton at Waterford Lakes Orlando, FL 292 -- 5,003 18,600 63,700 4Q99
The Meridian I Dallas, TX 250 -- 3,452 15,480 61,700 2Q00
-----------------------------------------------------------------------------
2,292 662 80,801 147,980 64,600
Additional Phases
Heritage Green II Columbus, OH 96 -- 3,919 6,900 71,900 2Q99
Dominion Crown Pointe II Charlotte, NC 220 -- 1,942 14,939 67,900 1Q00
-----------------------------------------------------------------------------
316 -- 5,861 21,839 69,100
Land Held for Future Development -- -- 12,733 -- --
-----------------------------------------------------------------------------
2,608 662 $99,395 $169,819 $65,100
=============================================================================
</TABLE>
During 1998, the following development projects were completed and moved to real
estate held for investment (dollars in thousands):
<TABLE>
<CAPTION>
No. Apt. Development Date % Leased
Property Location Homes Costs Completed at 12/31/98
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Additional Phases
Oak Forest II Dallas, TX 260 $ 11,876 1Q98 95%
Mill Creek II Wilmington, NC 184 11,946 4Q98 56%
</TABLE>
The Company has increased its commitment to development as part of its strategic
repositioning. During 1999, the Company expects to invest approximately $150
million on the development, including communities currently under development
plus six new starts during the year.
25
<PAGE>
Capital Expenditures
The Company capitalizes value enhancing improvements plus improvements that
substantially extend the useful life of an existing asset. In addition to the
Company's capital expenditures on new acquisitions, a significant portion of
capital expenditures relate to the Company's same communities. These capital
expenditures include an upgrade program and other initiatives which began in
1996 and are considered revenue enhancing or expense reducing.
During 1998, the Company invested $100.4 million on capital improvements to its
apartment portfolio which include an upgrade program and other initiatives that
began in 1996. For the same community apartments (those owned prior to January
1, 1997), capital expenditures averaged $1,112 per home as follows: (i) ordinary
capital expenditures including floor coverings, HVAC equipment, roofs,
appliances and other ordinary capital expenditures of $14.5 million or $303 per
home, (ii) asset preservation expenditures including landscaping, parking lots
and other land improvements of $9.4 million or $197 per home and (iii) revenue
enhancing expenditures including sub-metering of water and sewer, interior
improvements and upgrades, construction of carports, garages and self-storage
units, business and fitness centers, security alarms, gating and access devices
and intrusion alarms, washer and dryer connections and other revenue enhancing
expenditures of $29.3 million or $612 per home.
The Company has completed most of its same community upgrade program and will
reduce its capital expenditures related to same communities during 1999, but
will continue to selectively add revenue enhancing improvements which can
provide a high return on investment.
Disposition of Investments
The Company continually undertakes portfolio review analyses with the objective
of identifying communities that do not meet the Company's long-term investment
objectives due to size, location, age, quality and/or performance. These sales
allow the Company to reduce the age of its existing portfolio, which should
result in lower operating expenses and capital expenditures associated with the
older communities and to exit non-core markets. Since 1997, the Company has sold
30 communities with 7,888 non-strategic apartment homes (average age of
communities sold was 25 years), the net proceeds from which were used to acquire
and develop newer communities that will provide higher long-term returns on
investment than the communities that are being sold. The sales are initially
dilutive to earnings as the initial returns on investment on higher quality
apartments are lower than the returns on investment on the communities being
sold. During 1998, the sales program had approximately a $.03 per share dilutive
impact on the Company's net income available to common shareholders.
During 1998, the Company transferred 19 communities and one commercial property
aggregating $128.4 million, net of accumulated depreciation and valuation
allowance, from real estate held for investment to real estate held for
disposition.
During 1998, the Company sold 18 communities with 5,318 apartment homes and one
shopping center for an aggregate sales price of $156.6 million. For income tax
purposes, 11 of the 18 community sales were structured to qualify as a like-kind
exchange under Section 1031 of the Internal Revenue Code, so the related capital
gain will be deferred for federal income tax purposes. Net proceeds of
approximately $135.2 million were primarily used to fund acquisitions.
The Company intends to sell 6,000 to 7,000 apartment homes during 1999 to
complete the sale of non-strategic assets. It is anticipated that the net
proceeds from the sales, estimated between $200 million to $250 million, will be
used to fund acquisitions in order to complete tax-deferred exchanges to defer
large capital gains, to fund development activity and repay mortgage debt.
Financing Activities
Net cash provided by financing activities during 1998 was $169.2 million
compared to $194.8 million for 1997.
26
<PAGE>
Cash Provided by Financing Activities
During the first quarter of 1998, the Company entered into two separate
transactions to sell its common stock to Unit Investment Trusts ("UIT"). In
February 1998, the Company issued 1.7 million shares of its common stock at a
gross sales price of $14.31 per share to a UIT. In March 1998, the Company
issued 1.1 million shares of its common stock at a gross sales price of $14.19
to a second UIT. The net proceeds from the two UIT's aggregating $38.0 million
were primarily used to curtail bank debt.
The Company issued 2,824,627 shares of its common stock and received $36.6
million under its Dividend Reinvestment and Stock Purchase Plan during 1998,
which included $23.5 million in optional cash investments and $13.1 million of
reinvested distributions.
On November 10, 1998, the Company sold an aggregate $212.5 million of senior
unsecured notes payable in two simultaneous but separate public offerings which
consisted of the following: (i) $150 million of 8.125% Notes due November 15,
2000 and (ii) $62.5 million (including the over-allotment option) of 8.5%
Monthly Income Notes due November 15, 2008. Net proceeds from the two offerings
(net of underwriting discounts, commissions and offering expenses) of
approximately $207.6 million were used to repay bank debt outstanding under the
Company's various credit facilities and to fund the acquisition of AAC.
In January 1999, the Company established a program for the sale of up to $200
million aggregate principal amount of medium-term notes (the "MTN Program"). The
Company subsequently sold an aggregate of $150 million of senior unsecured notes
under the MTN Program which consisted of the following: (i) $70 million of 7.60%
Notes due January 25, 2002, (ii) $58 million of 7.67% Notes due January 26,
2004, (iii) $10 million of variable-rate Notes due January 27, 2003 on which the
Company subsequently executed a swap fixing the rate at 7.52% and (iv) $12
million of 7.22% notes due February 19, 2003. Net proceeds from the offerings
were used to repay revolving bank debt and prepay mortgage debt. The Company
anticipates issuing the remaining $50 million of notes under the MTN Program
during the first half of 1999, the net proceeds of which will be used to repay a
senior unsecured note maturing in April 1999.
The Company is currently negotiating a $130 million five year variable-rate
revolving credit agreement ("the Credit Facility") with a lender through which
the Company will have access to secured funding through Federal National
Mortgage Association. The proceeds from the Credit Facility will be used to
repay a $91 million secured credit facility assumed in connection with the AAC
transaction and repay unsecured bank debt. Additional features of this Credit
Facility may allow the Company to extend the maturity for five or ten years and
increase the amount available under the Credit Facility to $200 million. It is
anticipated that this Credit Facility will be executed during the first quarter
of 1999.
Derivative Instruments
The Company, from time to time, uses derivative instruments to synthetically
alter on-balance sheet liabilities or to hedge anticipated financing
transactions.
In order to reduce the interest rate risk associated with the anticipated
issuance of unsecured notes during 1998, the Company entered into a $100 million
(notional amount) fixed pay forward starting swap agreement (interest rate risk
management agreement) with a major Wall Street investment banking firm in July
1997. The Company settled the interest rate risk management agreement on
November 9, 1998, by paying $15.6 million to the counterparty. The Company was
unable to issue the unsecured notes contemplated by the interest rate risk
management agreement because of changed market conditions, and accordingly, the
cost associated with the settlement of this agreement was expensed during the
fourth quarter of 1998.
Market Risk Disclosures
The Company is exposed to market risk principally from interest rate risk
associated with variable-rate notes payable and maturing debt that has to be
refinanced. The Company does not hold financial instruments for trading
27
<PAGE>
purposes, but rather, holds these financial instruments to finance owning and
managing real estate. The Company's interest rate sensitivity position is
managed by its treasury department. Interest rate sensitivity is the
relationship between changes in market interest rates and changes in rate
sensitive income due to the repricing characteristics of assets and liabilities.
The Company's earnings are affected by changes in short-term interest rates on
its variable-rate debt and the repricing of fixed-rate debt maturities. A large
portion of the Company's market risk is exposure to short-term interest rates
from variable-rate borrowings outstanding under its various credit facilities,
which was $240 million at December 31, 1998. The impact on the Company's
financial statements of refinancing fixed-rate debt that matured during 1998 was
not material.
At December 31, 1998, the notional value of the Company's derivative products
for the purpose of managing interest rate risk was $45 million of interest rate
swaps which have an average pay rate fixed at 5.98% to 8.00% and an average
receive rate of one month to three month LIBOR. These agreements effectively fix
$45 million of the Company's variable-rate secured notes payable to a weighted
average interest rate of 7.29%. At December 31, 1998, the fair market value of
the interest rate swaps in an unfavorable value position to the Company was $1.3
million. If interest rates were 100 basis points more or less at December 31,
1998, the fair market value would have been $80,000 and $1.8 million,
respectively.
If market interest rates for variable-rate debt average 100 basis points more in
1999 than they did during 1998, the Company's interest expense, after
considering the effects of its interest rate swap agreements, would increase,
and income before taxes would decrease by $2.9 million. Comparatively, if market
interest rates for variable-rate debt averaged 100 basis points more in 1998
than it did in 1997, the Company's interest expense, after considering the
effects of its interest rate swap agreements, would have increased, and income
before taxes would have decreased by $1.0 million. If market rates for
fixed-rate debt were 100 basis points higher at December 31, 1998, the fair
value of fixed-rate debt would have decreased from $1.75 billion to $1.68
billion. If market interest rates for fixed-rate debt were 100 basis points
lower at December 31, 1998, the fair value of fixed-rate debt would have
increased from $1.75 billion to $1.82 billion.
These amounts are determined by considering the impact of the hypothetical
interest rates on the Company's borrowing cost and interest rate swap
agreements. These analyses do not consider the effects of the reduced level of
overall economic activity that could exist in such an environment. Further, in
the event of a change of such magnitude, management would likely take actions to
further mitigate its exposure to the change. However, due to the uncertainty of
the specific actions that would be taken and their possible effects, the
sensitivity analysis assumes no changes in the Company's financial structure.
Credit Facilities
The Company has a $200 million three year unsecured revolving credit facility
(the "Credit Facility"), a $50 million one year unsecured line of credit (the
"Line of Credit") and a $15 million uncommitted line of credit with a major U.S.
financial institution. Under the Credit Facility, pricing is based upon the
higher of the Company's senior unsecured debt ratings from S&P and Moody's which
are currently BBB and Baa2, respectively. At these rating levels, contractual
interest under the Credit Facility is LIBOR plus 55 basis points. The Credit
Facility also includes a $100 million competitive bid option which allows the
Company to solicit bids from participating banks at rates below the contractual
rate. The Credit Facility and Line of Credit are subject to customary financial
covenants and limitations.
At and for the year ended December 31, 1998, the Company had the following
credit facilities (dollars in thousands):
<TABLE>
<CAPTION>
Twelve Months Ended December 31, 1998 At December 31, 1998
-------------------------------------- ----------------------------------
Weighted Average
Amount of Amount Weighted Average Amount Weighted Average
Credit Facility Facility Outstanding Interest Rate Outstanding Interest Rate
- - ---------------------------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
Credit Facility $ 200,000 $ 180,915 6.1% $190,000 6.0%
Line of Credit 50,000 31,205 6.1% 50,000 6.1%
Uncommitted Line 15,000 6,184 6.1% -- --
----------- --------- ---- -------- ----
$ 265,000 $ 218,304 6.1% $ 240,000 6.0%
=========== ========= ==== ======== ====
</TABLE>
28
<PAGE>
Funds from Operations
Funds from operations ("FFO") is defined as income before gains (losses) on
sales of investments, minority interests and extraordinary items (computed in
accordance with generally accepted accounting principles) plus real estate
depreciation, less preferred dividends and after adjustment for significant
non-recurring items. The Company computes FFO in accordance with the
recommendations set forth by the National Association of Real Estate Investment
Trusts ("NAREIT"). The Company considers FFO in evaluating property acquisitions
and its operating performance, and believes that FFO should be considered along
with, but not as an alternative to, net income and cash flows as a measure of
the Company's operating performance and liquidity. FFO does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and is not necessarily indicative of cash available to
fund cash needs.
For 1998, FFO increased 18.1% to $138.4 million, compared with $117.2 million
during 1997. For 1997, FFO increased 65.5% to $117.2 million, compared with
$70.8 million for 1996. The increase in FFO for both periods was principally due
to the increased property operating income from the Company's non-mature
apartment homes that were acquired and developed.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
In thousands 1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Calculation of funds from operations:
Income before gains on sales of investments,
minority interests and extraordinary item $ 47,339 $ 57,813 $ 33,726
Adjustments:
Depreciation of real estate owned 99,588 76,688 47,410
Distributions to preferred shareholders (23,593) (17,345) (9,713)
Non-recurring items:
Loss on termination of an interest rate
risk management agreement 15,591 -- --
Impairment loss on real estate owned -- 1,400 290
Adjustment for internal acquisition costs (544) (1,341) (901)
------------------------------------------
Funds from operations $ 138,381 $ 117,215 $ 70,812
==========================================
</TABLE>
Results of Operations
The Company's net income is primarily generated from the operations of its
communities. For purposes of evaluating its comparative operating performance,
the Company categorizes its communities into two categories, same community and
non-mature. For the 1998 versus 1997 comparison, these communities are as
follows: (i) same community--those communities acquired, developed and
stabilized prior to January 1, 1997 and held throughout both 1998 and 1997 and
(ii) non-mature--those communities acquired, developed or sold subsequent to
January 1, 1997. For the 1997 versus 1996 comparison, these communities are as
follows: (i) same community--those communities acquired prior to January 1, 1996
and held throughout the annual reporting period and (ii) non-mature--those
communities acquired and developed subsequent to January 1, 1996.
All per share amounts refer to basic earnings per share unless otherwise
indicated.
1998-vs-1997
For 1998, net income available to common shareholders decreased $4.1 million,
with a corresponding decrease of $.12 and $.11 for basic and diluted earnings
per share, respectively, compared to 1997. The decrease per share over last year
is primarily attributable to the $15.6 million ($.15 per share) loss on the
termination of an interest rate risk management agreement during the fourth
quarter of 1998. Net income available to common shareholders for the year ended
December 31, 1998 includes aggregate gains on the sales of investments of $26.7
million ($.27 per share) compared to $12.7 million ($.15 per share) last year.
1997-vs-1996
Net income available to common shareholders increased $24.5 million, with a
corresponding increase of $.12 and $.11 for basic and diluted earnings per
share, respectively, compared to 1996. The per share increase over last year is
29
<PAGE>
primarily attributable to gains recognized on the sales of investments which
aggregated $12.7 million ($.15 per share) for the year ended December 31, 1997.
From January 1, 1996 to December 31, 1997, the Company acquired and developed a
total of 31,270 apartment homes in 98 communities (including those acquired in
the South West Property Trust Inc. Merger on December 31, 1996) representing an
82% expansion in the number of apartment homes owned during that period. These
non-mature apartment homes provided a substantial portion of the aggregate
reported increases. However, these increases were moderated in part due to the
Company's financing activities during 1997 as the Company financed its
acquisition and development activity primarily with common and preferred equity
and the proceeds from property sales rather than debt which was used to finance
much of the 1996 acquisition and development programs.
All Communities
The operating performance for the Company's total apartment portfolio is
summarized below (dollars in thousands):
<TABLE>
<CAPTION>
Years Ended Years Ended
December 31, December 31,
(In thousands) (In thousands)
------------------------------------- ------------------------------------
1998 1997 % Change 1997 1996 % Change
------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Property rental income $ 476,226 $ 384,205 24.0% $ 384,205 $ 236,690 62.3%
Property operating expenses (excluding
depreciation and amortization) (197,824) (162,977) 21.4% (162,977) (102,499) 59.0%
------------------------------------- -----------------------------------
Property operating income $ 278,402 $ 221,228 25.9% $ 221,228 $ 134,191 64.9%
===================================== ====================================
Weighted average number of apartment homes 70,724 58,038 21.9% 58,038 37,481 54.8%
Physical occupancy 91.7% 92.3% (0.6%) 92.3% 92.9% (0.6%)
</TABLE>
1998-vs-1997
During 1998, the weighted average number of apartment homes increased 21.9% to
70,724, which resulted in significant increases in property rental income and
property operating expenses. This includes 7,550 apartment homes acquired in the
ASR Merger on March 27, 1998 and 14,001 apartment homes acquired in the AAC
Merger on December 7, 1998.
1997-vs-1996
Due to the acquisition and development of 31,270 apartment homes from January 1,
1996 to December 31, 1997 (including the 14,320 apartment homes acquired in the
South West Property Trust Inc. Merger on December 31, 1996), the weighted
average number of apartment homes increased 54.8% to 58,038 for the year ended
December 31, 1997, which resulted in significant increases in both property
rental income and property operating expenses.
Same Communities
The operating performance of the Company's same community apartments is
summarized below (dollars in thousands). For 1998 vs. 1997, there were 180
communities with 47,875 apartment homes that were classified as same community.
For 1997 vs. 1996, there were 127 communities with 31,519 apartment homes were
classified as same community.
<TABLE>
<CAPTION>
Years Ended Years Ended
December 31, December 31,
(In thousands) (In thousands)
------------------------------------ -------------------------------
1998 1997 % Change 1997 1996 % Change
------------------------------------ -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Property rental income $ 327,416 $ 316,860 3.3% $207,040 $ 199,432 3.8%
Property operating expenses (excluding
depreciation and amortization (132,156) (132,577) (0.3%) (88,394) (86,529) 2.2%
------------------------------------- ------------------------------
Property operating income $ 195,260 $ 184,283 6.0% $118,646 $ 112,903 5.1%
=================================== ==============================
Physical occupancy 92.9% 92.9% 0.0% 92.6% 93.0% (0.4%)
Average monthly rental rate $ 602 $ 582 3.4% $ 572 $ 551 3.9%
</TABLE>
1998-vs-1997
For 1998, the Company's same communities provided approximately 70.1% of its
total property operating income. During 1998, the Company's same communities
continued to generate rent growth greater than the rate of inflation. Compared
to the same period last year, property rental income grew 3.3%, or approximately
$10.6 million, reflecting an increase in average monthly rental rates of 3.4% to
$602 per month while physical occupancy of 92.9% remained stable compared to
30
<PAGE>
last year. Management believes a portion of the rent growth reflects the impact
of the Company's upgrade and revenue enhancing capital expenditure programs. It
is anticipated that there will be a slowdown in the U.S. economic growth, while
new apartment completions increase. As a result, the Company expects a modest
decline in occupancy and slightly lower rent growth during 1999. The Company
expects to maintain rent growth in the 3% range and physical occupancy in the
92% range during 1999.
For 1998, property operating expenses at these same communities decreased 0.3%,
or $421,000. The decline is primarily the result of the following: (i) utility
expenses decreased $2.1 million, which is directly attributable to the Company's
water and sewer sub-metering initiative where local and state regulations allow
and (ii) an overall decrease in repair and maintenance expenses of $2.6 million.
The decrease in repair and maintenance expenses occurred as the Company
continued to benefit from its upgrade program and centralized purchasing
initiatives. However, these decreases were offset by increases in real estate
taxes, personnel costs and property management expenses. Real estate taxes
increased $1.3 million primarily in certain Florida and Texas markets. Personnel
costs increased $1.6 million as the Company experienced pressure on wages due to
low unemployment and tighter job markets, particularly in the service area. In
addition, the Company's cost of property management increased $1.1 million as a
result of the added infrastructure costs in areas such as Information
Technology, Human Resources and Training, and the cost of entering new markets
in new regions of the country during 1998. The Company's objective is for
operating expenses to be unchanged in 1999 primarily as a result of lower
utility expenses due to the continuing transfer of water and sewer costs to the
resident.
Primarily as a result of an increase in property rental income, the operating
margin improved 1.4% to 59.6% over 1997.
1997-vs-1996
For 1997, the Company's same communities provided approximately 53.6% of its
total property operating income. During 1997, the Company's same communities
continued to generate rent growth greater than the pace of inflation and double
digit growth of other income. Compared to the same period in 1996, property
rental income from these apartment homes grew 3.8%, or approximately $7.6
million, reflecting an increase in average monthly rents of 3.9% to $572 per
month. Growth in property rental income was slightly offset by a .04% decrease
in physical occupancy. In addition, other income, primarily fee income,
increased approximately $1.2 million or 17.6%. Overall, physical occupancy
bottomed out in January 1997 at 90.8% and grew steadily through August before
declining slightly to 92.3% in December 1997, an improvement of 1.9% for the
year. Physical occupancy declined due to the weakening of certain major
southeastern markets during the last half of 1996.
For 1997, property operating expenses at these communities increased 2.2%, or
$1.9 million. The 2.2% increase in property operating expenses was attributable
to higher personnel costs, marketing and advertising costs and the Company's
cost of property management. Personnel costs increased approximately $1.8
million, primarily due to understaffing at some properties during much of 1996.
Marketing and advertising costs increased 33.9% or approximately $845,000 over
the same period in 1996 as a direct result of softening in certain major markets
as discussed above. The cost of property management increased $1.7 million as
the Company invested heavily in its personnel and technological infrastructure
during 1997 in response to growth. However, these expense increases were offset
by decreases in repair and maintenance expense and utility expense. Repair and
maintenance expense decreased 13.1% or approximately $2.0 million primarily as a
result of less exterior painting, extraordinary repairs, mechanical repairs and
the effect of the upgrade program. In addition, the Company benefited from
economies of scale due to its increased size and some centralized purchasing
during the 1997 period. Utility expense decreased primarily as a result of
sub-metering water and sewer that began in 1997.
Due to the increase in property rental income, the operating margin improved
0.8% to 57.3%.
Non-Mature Communities
For 1998 vs. 1997, the Company's non-mature communities include: (i) 28
communities with 8,524 apartment homes acquired during 1997, net of one resold,
(ii) 39 communities with 7,550 apartment homes acquired on March 27, 1998 in
31
<PAGE>
connection with the ASR Merger, (iii) 53 communities with 14,001 apartment homes
acquired on December 7, 1998 in connection with the AAC Merger, (iv) 24
communities with 6,959 apartment homes acquired in individual and portfolio
transactions during 1998, (v) 7,888 apartment homes sold since January 1, 1997
and (vi) the 1,957 apartment homes developed since January 1, 1997, which is
summarized in the chart below (dollars in thousands):
For 1997 vs. 1996, the Company's non-mature communities include: (i) 7,590
apartment homes acquired during 1996, net of one resold, and a community
acquired in 1995 and not stabilized due to significant rehabilitation, (ii)
13,671 apartment homes acquired on December 31, 1996 in connection with the
South West Property Trust Inc. Merger, net of one resold and one under
development, (iii) 8,524 apartment homes acquired since January 1, 1997, net of
one resold, (iv) 3,222 apartment homes sold from January 1, 1996 to December 31,
1997 and (v) the 1,232 apartment homes developed during 1996 and 1997. The
operating performance of these non-mature communities is summarized in the chart
below (dollars in thousands):
Years Ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Sales Development
1997 Acquisitions 1998 Acquisitions Communities Communities Total Non-Mature
----------------- --------------------- ----------------- ----------------- ------------------
1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
------------------------------------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Property rental income $ 57,609 $ 27,292 $ 74,295 $ -- $ 7,660 $ 36,677 $ 9,246 $ 3,376 $ 148,810 $ 67,345
Property operating
expenses (excluding
depreciation and
amortization) (24,925) (10,961) (33,149) -- (3,773) (17,987) (3,821) (1,452) (65,668) (30,400)
------------------- ------------------- ---------------- ----------------- -----------------
Property operating
income $ 32,684 $ 16,331 $ 41,146 $ -- $ 3,887 $18,690 $ 5,425 $ 1,924 $ 83,142 $ 36,945
===================== =================== ================= ================= ==================
</TABLE>
Years Ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 Acquisitions and
Former 1997 and 1996
1996 Acquisitions South West Development & Sales Total Non-Mature
------------------------ -------------------- -------------------- ---------------------
1997 1996 1997 1996 1997 1996 1997 1996
------------------------ -------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property rental income $ 50,977 $ 23,336 $ 86,884 $ -- $ 39,304 $ 13,922 $ 177,165 $ 37,258
Property operating
expenses (excluding
depreciation and
amortization) (20,690) (8,958) (36,923) -- (16,970) (7,012) (74,583) (15,970)
------------------------ ------------------- -------------------- --------------------
Property operating income $ 30,287 $ 14,378 $ 49,961 $ -- $ 22,334 $ 6,910 $ 102,582 $ 21,288
======================== =================== ==================== ====================
</TABLE>
1998-vs-1997
For 1998, the Company's non-mature communities provided approximately 29.9% of
its total property operating income. Property rental income and property
operating expenses increased from 1997 to 1998 directly as a result of the
increase in the weighted average number of apartment homes owned during 1998.
For the year ended December 31, 1998, average economic occupancy was 88.6%, and
the operating margin was 55.9% for the non-mature communities.
1997 Acquisitions
On an average investment of $355.2 million, the 1997 acquisitions provided a
9.1% return on investment during 1998. For the year, these communities had
physical occupancy of 91.9% and an operating margin of 56.7%. During 1998,
property operating expenses were adversely impacted by (i) an increase in real
estate taxes due to reassessments at several Florida communities and (ii) the
delay in the Company's implementation of its water billing and reimbursement
schedule for these communities.
1998 Acquisitions
1998 Single Acquisitions
Included in this category are the 24 communities with 6,959 apartment homes
acquired by the Company during 1998 which are projected to have a first year
return on investment of approximately 9%. The annualized return on investment
for the 1998 single acquisitions on an average investment of $311.9 million was
32
<PAGE>
8.7%. These results were below the Company's full year forecasted return on
investment of 9% primarily as a result of market softness in San Antonio and
Phoenix where the Company acquired communities in 1998. However, it is expected
that these communities will experience improved operating results in 1999 as
improvements are completed.
ASR Investments Corporation (ASR)
The acquisition of the 39 communities containing 7,550 apartment homes included
in the ASR Merger on March 27, 1998, provided the largest increases in property
rental income and property operating expenses for the Company's apartment
portfolio. The annualized return on investment for the ASR properties was 7.3%
on an average investment of $312.5 million during 1998. The under-performance of
this portfolio is primarily attributable to weak markets and seasonality in the
Phoenix/Tuscon/Albuquerque markets, however, certain assets are undergoing
upgrading and repositioning that is expected to improve operating results in
1999. While the Phoenix and Tuscon markets suffer temporarily from an abundance
of supply in the apartment sector, the Company believes in these markets over
the long-term. For the year ended December 31, 1998, these communities had
economic occupancy of 87.9% and an operating margin of 49.5%.
American Apartment Communities (AAC)
The acquisition of the 53 communities containing 14,001 apartment homes included
in the AAC Merger on December 7, 1998, had economic occupancy of 94.0% and an
operating margin of 67.4% for the 24 days owned during 1998. The return on
investment for the AAC properties is projected to be approximately 9% during
1999 on an initial investment of $766.9 million. This acquisition did not have a
material effect on 1998 results of operations.
Sales Communities
Since January 1, 1997, the Company sold approximately $225 million of property
consisting of 30 communities with 7,888 apartment homes, the net proceeds from
which were used to acquire newer communities that will provide higher long-term
returns on investment than the communities being sold. The properties sold
during 1998 had an annualized return on investment in excess of 10%.
Development Communities
The development communities consist of 1,957 apartment homes in five new
communities and five additional phases to existing communities developed since
January 1, 1997. Once stabilized, development communities are projected to
generate an average return on investment in excess of 10%.
1997-vs-1996
For 1997, the Company's non-mature communities provided approximately 46.4% of
the Company's total property operating income. Property rental income and
property operating expenses increased from 1996 to 1997 directly as a result of
the increase in the weighted average number of apartment homes owned during
1997. For the year ended December 31, 1997, average physical occupancy was
90.7%, and the operating margin was 57.9% for the non-mature communities.
1996 Acquisitions (excluding the South West Merger)
The 29 communities containing 7,590 apartment homes that were acquired during
1996 (net of one community containing 122 apartment homes resold and a community
acquired in 1995 and not stabilized due to significant rehabilitation) provided
a significant increase in property rental income and property operating expenses
for the Company's apartment portfolio for 1997. For 1997, these communities had
economic occupancy of 89.8% and an operating margin of 59.4%. The first year
return on investment for these communities in 1997, on an average investment of
$319 million, was 9.0% (excluding one community under renovation). This reflects
the under-performance of nine communities in the Greensboro/Winston-Salem, North
Carolina market that were acquired in August 1996 as part of a portfolio
transaction. Occupancy in this region peaked in August 1996 when the Company
acquired these properties and subsequently fell, reflecting an oversupply of
apartment product in this market. However, the Company believes Greensboro is a
good long-term market.
South West Property Trust Inc. (South West)
The acquisition of the 43 communities containing 13,671 apartment homes included
in the South West Merger on December 31, 1996, net of one community resold and
33
<PAGE>
one under development, provided the largest increases in property rental income
and property operating expenses for the Company's entire apartment portfolio for
the year ended December 31, 1997. The return on investment for the South West
properties was 9.4% during 1997. For the year ended December 31, 1997, these
communities had economic occupancy of 92.7% and an operating margin of 57.5%.
1997 Acquisitions, Development and Sales
Included in this category are the following: (i) the 28 communities containing
8,524 apartment homes acquired by the Company during 1997 (net of one resold),
(ii) the 1,232 apartment homes developed during 1996 and 1997 and (iii) the 16
communities containing 3,222 apartment homes sold between January 1, 1996 and
December 31, 1997. The annualized return on investment for 1997 acquisitions on
an average investment of $345 million was projected to be 9.5%, but fell
slightly short at 9.3%.
Interest Expense
During 1998, interest expense increased $27.2 million or $.15 per common share
over 1997. The weighted average amount of debt employed during 1998 was higher
than it was in 1997 ($1.5 billion in 1998 versus $1 billion in 1997) which
accounted for the majority of the increase in interest expense. The weighted
average interest rate on this debt was slightly lower than it was last year,
decreasing from 7.5% in 1997 to 7.4% in 1998 reflecting the fact that the
Company's reliance on the lower rate short-term bank borrowings increased in
1998 compared to 1997 ($238.6 million weighted average outstanding in 1998
versus $74.6 million in 1997). For 1998, 1997 and 1996, total interest
capitalized was $3.4 million, $2.6 million and $541,000, respectively.
For 1997, interest expense increased $28.2 million or $.02 per common share over
1996. The weighted average amount of debt employed during 1997 was higher than
it was in 1996 ($1 billion in 1997 versus $647 million in 1996). The weighted
average interest rate on this debt was slightly lower in 1997, decreasing from
7.6% in 1996 to 7.5% in 1997. The slightly lower interest rate during 1997
reflected the fact that the weighted average interest rate on short-term bank
borrowings decreased compared to 1996 and the Company's reliance on these lower
rate short-term bank borrowings increased in 1997 compared to 1996 ($74.6
million weighted average outstanding in 1997 versus $49.9 million in 1996).
General and Administrative
During the year ended December 31, 1998, general and administrative expenses
increased by $3.1 million over 1997. In 1998, the Company incurred increases in
most of its general and administrative expense categories which were directly
attributable to the increased size of the Company and its investment in
infrastructure. The largest increases occurred in payroll and payroll-related
expenses. General and administrative expense as a percentage of rental income
increased 0.3% from 1.8% during 1997 to 2.1% during 1998 primarily due to (i)
the added infrastructure costs incurred due to the increased size of the Company
and (ii) the change in accounting for internal acquisition costs subsequent to
March 19, 1998.
During 1997, general and administrative expenses increased by $1.7 million over
the same period in the prior year. In 1997, the Company incurred increases in
most of its general and administrative expense categories. The largest increases
occurred in payroll expenses, investor relations expenses and office rent which
was directly related to increasing the size of the Company. However, general and
administrative expense, as a percentage of property rental income, remained
relatively flat compared to 1996.
Impairment Loss
During 1997, the Company recorded an impairment loss of $1.4 million relating to
two communities included in the Company's real estate held for investment. These
communities were subsequently moved to real estate held for disposition based
upon management's decision to dispose of these properties.
Gains on Sales of Investments
For the year ended December 31, 1998, the Company recognized gains on the sales
of investments for financial reporting purposes aggregating $26.7 million as a
result of the sale of 18 communities with 5,318 apartment homes and one shopping
center for an aggregate sales price of $156.6 million.
34
<PAGE>
During 1997, the Company recognized gains on the sales of investments
aggregating $12.7 million as a result of the: (i) first quarter sale of the
Company's investment in the preferred stock of First Washington Realty Trust,
Inc. on which the Company recognized a gain for financial reporting purposes of
$2.1 million and (ii) the sale of 12 communities containing 2,570 apartment
homes and one shopping center for an aggregate sales price of $68.4 million on
which the Company recognized aggregate gains for financial reporting purposes of
$10.6 million.
Distributions to Preferred Shareholders
Distributions to preferred shareholders totaled $23.6 million for 1998 compared
to $17.3 million for 1997. The increase in distributions to preferred
shareholders is a result of the issuance of eight million shares of Series D
7.50% Cumulative Convertible Redeemable Preferred Stock in December 1998, in
connection with the acquisition of AAC and the issuance of six million shares of
Series B 8.60% Cumulative Redeemable Preferred Stock in May 1997.
Distributions to preferred shareholders totaled $17.3 million for the year ended
December 31, 1997 compared to $9.7 million for 1996. The increase in
distributions to preferred shareholders was a result of the issuance of six
million shares of Series B 8.60% Cumulative Redeemable Preferred Stock in May
1997.
Inflation
The Company believes that the direct effects of inflation on the Company's
operations have been inconsequential.
Year 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date sensitive software or embedded
chips may recognize a date using "00"" as the year 1900 rather than the year
2000. This could result in system failure or miscalculations causing disruptions
of operations, including, among other things, a temporary inability to process
transactions or engage in similar normal business activities.
The Company continues to identify and address issues regarding the transition to
Year 2000, as it is dependent on computer systems and applications to conduct
its business. The Company has performed a thorough assessment of its personal
computers, desktop software and major applications and is in the process of
completing its server environment assessment. To ensure that the Company
completed a formalized and thorough assessment of its Year 2000 issues, the
Company engaged an outside consulting firm to conduct a Year 2000 assessment and
develop a remediation plan. The plans covers four stages: (i) inventory, (ii)
assessment, (iii) remediation and (iv) testing and certification. Because the
Company operates in a structured, standardized environment, the assessment
indicated a high degree of Year 2000 compliance with few items for remediation.
All mission-critical applications have been determined to be Year 2000
compliant. Desktop hardware and software are 90% compliant, with remediation of
the non-compliant 10% to be completed by July 1999. None of the non-compliant
issues identified are mission-critical.
The Company is commencing the assessment phase for non-IT operating equipment at
its communities (gates, security, telephone, elevator, HVAC systems and other
such systems). This assessment will be completed by May 1, 1999, with any
remediation to be completed by November 1, 1999.
The Company is also assessing the Year 2000 compliance of vendors and other
external relationships to determine the extent to which the Company may be
vulnerable to such parties' failure to resolve their own Year 2000 issues. The
Company has initiated formal communication with these parties. The Company
cannot insure timely compliance of third parties and; therefore, could be
adversely affected by failure of a significant third party to become Year 2000
compliant. The effect, if any, on the Company's results of operations from the
failure of such third parties to be Year 2000 compliant is not reasonably
estimable.
The Company estimates that the total Year 2000 project cost will be
approximately $100,000, of which approximately 50% has been incurred as of
December 31, 1998. Amounts expended to ensure Year 2000 compliance have been
35
<PAGE>
funded by cash flows from operations and are not expected to have a material
impact on the Company's financial position, results of operations, or cash
flows. The Company believes that its Year 2000 initiatives are adequate to
address reasonably likely Year 2000 issues.
<TABLE>
<CAPTION>
- - --------------------------------- ------------------------------- ------------------------------ -------------------------------
Assessment Remediation / Testing
% Complete Compliance Expected Completion
- - --------------------------------- ------------------------------- ------------------------------ -------------------------------
- - --------------------------------- ------------------------------- ------------------------------ -------------------------------
<S> <C> <C> <C>
IT - Mission-Critical
Applications 100% 100% July 1999
- - --------------------------------- ------------------------------- ------------------------------ -------------------------------
- - --------------------------------- ------------------------------- ------------------------------ -------------------------------
IT - Desktop
Hardware / Software 95% 90% July 1999
- - --------------------------------- ------------------------------- ------------------------------ -------------------------------
- - --------------------------------- ------------------------------- ------------------------------ -------------------------------
IT - Network
Hardware / Software 60% 90% July 1999
- - --------------------------------- ------------------------------- ------------------------------ -------------------------------
- - --------------------------------- ------------------------------- ------------------------------ -------------------------------
Operating Equipment 0%, Expected Completion, Expected
at Communities May 1999 Completion, November 1999
July 1999
- - --------------------------------- ------------------------------- ------------------------------ -------------------------------
</TABLE>
Failure to correct a material Year 2000 problem could result in the failure of
certain normal business activities or operations. Management believes that, with
the implementation of new or upgraded business systems, as needed, and the
completion of the Year 2000 project as scheduled, the possibility of significant
interruptions of normal operations due to the failure of those systems will be
reduced. However, the Company is dependent on the power and telecommunications
infrastructure within the United States. The most reasonably likely worst case
scenario would be that the Company may experience disruption in its operations
if any of the third-party suppliers reported a system failure. Although the
Company's Year 2000 project will reduce the level of uncertainty about the
compliance and readiness of its material third-party providers, due to the
general uncertainty over Year 2000 readiness of these third-party suppliers, the
Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact.
The final phase of the Company's Year 2000 project relates to a contingency
plan. The Company maintains contingency plans in the normal course of business
designed to be deployed in the event of various potential business
interruptions.
36
<PAGE>
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item regarding Quantitative and
Qualitative Disclosures about Market Risk is included in Part II, Item 7 of this
Annual Report on Form 10-K included in Managements Discussion and Analysis of
Financial Condition and Results of Operations.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Schedule on page F-1 of
this Annual Report on Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
37
<PAGE>
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference from the Company's Proxy Statement to be
filed with respect to its Annual Meeting of Shareholders to be held on May 11,
1999.
Information required by this item regarding the executive officers of the
Company is included in Part I of this Annual Report on Form 10-K in the section
entitled "Executive Officers of the Registrant".
Item 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's Proxy Statement to be
filed with respect to its Annual Meeting of Shareholders to be held on May 11,
1999.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Company's Proxy Statement to be
filed with respect to its Annual Meeting of Shareholders to be held on May 11,
1999.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Company's Proxy Statement to be
filed with respect to its Annual Meeting of Shareholders to be held on May 11,
1999.
38
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1&2) See Index to Consolidated Financial Statements and Schedule on
page F-1 of this Annual Report on Form 10-K.
(3) Exhibits
The exhibits listed below are filed as part of this Annual Report.
References under the caption Location to exhibits, forms, or other filings
indicate that the form or other filing has been filed, that the indexed exhibit
and the exhibit referred to are the same and that the exhibit referred to is
incorporated by reference.
<TABLE>
<CAPTION>
Exhibit Description Location
- - ------- ----------- --------
<S> <C> <C>
2(a) Agreement and Plan of Merger dated Exhibit 2(a) to the Company's Form S-4 Registration
as of December 19, 1997, between Statement (Registration No. 333-45305) filed with
the Company, ASR Investment the Commission on January 30, 1998.
Corporation and ASR Acquisition Sub,
Inc.
2(b) Agreement of Plan of Merger dated as Exhibit 2(c) to the Company's Form S-3 Registration
of September 10, 1998, between the Statement (Registration No. 333-64281) filed with
Company and American Apartment the Commission on September 25, 1998.
Communities II, Inc. including as
exhibits thereto the proposed
terms of the Series D Preferred
Stock and the proposed form of
Investment Agreement between the
Company, United Dominion Realty,
L.P., American Apartment Communities
II, Inc., American Apartment
Communities Operating Partnership,
L.P., Schnitzer Investment Corp.,
AAC Management LLC and LF Strategic
Realty Investors, L.P.
2(c) Partnership Interest Purchase and Exhibit 2(d) to the Exchange Company's Form S-3 Registration
Agreement dated as of September 10, 1998, Statement (Registration No. 333-64281) filed with
between the Company, United Dominion the Commission on September 25, 1998.
Realty, L.P., American Apartment
Communities Operating Partnership,
L.P., AAC Management LLC, Schnitzer
Investment Corp., Fox Point Ltd.
and James D. Klingbeil including as an
exhibit thereto the proposed
form of the Third Amended and Restated
Limited Partnership Agreement
of United Dominion Realty, L.P.
3(a) Restated Articles of Incorporation Exhibit 4(a)(ii) to the Company's Form S-3
Registration Statement (Registration No. 333-72885)
filed with the Commission on February 24, 1999.
</TABLE>
39
<PAGE>
<TABLE>
<S> <C> <C>
3(b) Restated By-Laws Filed herewith.
4(i)(a) Specimen Common Stock Exhibit 4(i) to the Company's Annual Report
Certificate on Form 10-K for the year ended December
31, 1993.
4(i)(b) Form of Certificate for Shares Exhibit 1(e) to the Company's Form 8-A
of 9 1/4% Series A Cumulative Registration Statement dated April 24, 1995.
Redeemable Preferred Stock
4(i)(c) Form of Certificate for Shares Exhibit 1(e) to the Company's Form 8-A
of 8.60% Series B Cumulative Registration Statement dated June 11, 1997.
Redeemable Preferred Stock
4(i)(d) Rights Agreement dated as of Exhibit 1 to the Company's Form 8-A
January 27, 1998, between the Company Registration Statement dated February 4, 1998.
and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent.
4(i)(e) Form of Rights Certificate Exhibit 4(e) to the Company's Form 8-A
Registration Statement dated February 4, 1998.
4(ii)(b) Amended and Restated Credit Filed herewith.
Agreement dated as of December 7,
1998, among AAC Funding
Partnership III, certain affiliates of
AAC Funding Partnership III, the
Lenders identified therein and
NationsBank, N.A., as Administrative
Agent
4(ii)(e) Note Purchase Agreement dated Exhibit 6(c)(5) to the Company's Form 8-A
as of February 15, 1993, between Registration Statement dated April 19, 1990.
the Company 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
10(i) Employment Agreement between Filed herewith.
the Company and John P. McCann
dated December 8, 1998
10(ii) Employment Agreement between Filed herewith.
the Company and John S. Schneider
dated December 8, 1998
</TABLE>
40
<PAGE>
<TABLE>
<S> <C> <C>
10(iii) Employment Agreement between Filed herewith.
the Company and Richard Giannotti
dated December 8, 1998
10(iv) 1985 Stock Option Plan, Exhibit 10(iv) to the Company's Quarterly
as amended. Report on Form 10-Q for the quarter ended
June 30, 1998.
10(v) 1991 Stock Purchase and Loan Exhibit 10(viii) to the Company's Quarterly Report
Plan. on Form 10-Q for the quarter ended March 31, 1997.
10(vi) Third Amended and Restated Filed herewith.
Agreement of Limited Partnership of
United Dominion Realty, L.P.
Dated as of December 7, 1998.
10(vi)(a) Subordination Agreement dated Exhibit 10(vi)(a) to the Company's Form 10-Q for
April 16, 1998, between the the quarter ended March 31, 1998.
Company and United Dominion
Realty, L.P.
12 Computation of Ratio of Earnings Filed herewith.
to Fixed Charges.
21 The Company has the following subsidiaries, all of which but
United Dominion Realty, L.P. are wholly owned. The Company owns general
and limited partnership interests in United Dominion Realty, L.P.,
constituting 79.1% of the aggregate partnership interest.
United Dominion Realty Trust, Inc., a Virginia corporation
The Commons of Columbia, Inc., a Virginia corporation
UDRT of North Carolina, L.L.C., a North Carolina limited liability company
UDRT of Alabama, Inc., an Alabama corporation
UDR at Marble Hill, L.L.C., a Virginia limited liability company
United Dominion Realty, L.P., a Virginia limited partnership
UDRT of Virginia, Inc., a Virginia corporation
United Dominion Residential, Inc., a Virginia corporation
UDR South Carolina Trust, a Maryland real estate investment trust
Cleary Court Property Owner's Association, Inc., a Florida non-profit corporation
United Sub, Inc., a Virginia corporation
ASR Acquisition Sub, Inc.
UDR Developers, Inc., a Virginia corporation
UDR of Tennessee, L.P., a Virginia limited partnership
United Dominion Residential Ventures, L.L.C., a Virginia limited liability company
UDR Western Residential, Inc., a Virginia corporation
UDR Summit Ridge, L.P., a Delaware limited partnership
SWO REMIC Properties II-A, L.P., a Delaware limited partnership
South West Properties, L.P., a Delaware limited partnership
SWP Arkansas Properties, Inc., an Arkansas corporation
SWP Depositor, Inc., a Texas corporation
SWP Developers, Inc., a Texas corporation
SRL Amarillo Investors, Inc., a Texas corporation
UDR Camino Village, L.P., a Delaware limited partnership
UDR Pecan Grove, L.P., a Delaware limited partnership
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C>
UDR Seniors Housing, L.P. a Delaware limited partnership
UDR Texas Properties, L.P., a Delaware limited partnership
UDR Aspen Creek, L.L.C., a Virginia limited liability company
South West REIT Holding, Inc., a Texas corporation
SWP Properties, Inc., a Texas corporation
SWP Woodscape Properties, Inc., a Texas corporation
SWP Creeks Properties, Inc., a Texas corporation
SWP Properties I, L.P., a Delaware limited partnership
SWP Woodscape Properties I, L.P., a Delaware limited partnership
SWP Creeks Properties, I, L.P., a Delaware limited partnership
SWP REMIC Properties II, Inc., a Texas corporation
SWPT II Arizona Properties, Inc., an Arizona corporation
UDR Audobon, L.P., a Delaware limited partnership
UDR Cimarron City, L.P. a Delaware limited partnership
UDR Kenton, L.P., a Delaware limited partnership
UDR Villages of Thousand Oaks, L.P., a Delaware limited partnership
ASR Investments Corporation, an Arizona corporation
ASR Properties, Inc., an Arizona corporation
Heritage Communities L.P., a Delaware limited partnership
Heritage SGP Corporation, an Arizona corporation
Heritage Residential Group, an Arizona corporation
RMA Investments Holdings, Inc., an Arizona corporation
RMA Investments, Inc., an Arizona corporation
RMA Investments II, Inc., an Arizona corporation
Cholla Estates Construction L.L.C., an Arizona limited liability company
Pima Realty Advisors
JC Mortgage Advisors
JG Mortgage Advisors
FP Mortgage Advisors
CIMSA Financial Corporation, an Arizona corporation
ASR Finance Corporation, an Arizona corporation
Southwest Funding Capital Mortgage L.P., an Arizona limited partnership
ASR Mortgage Acceptance, Inc., an Arizona corporation
Rescap, Inc., an Arizona corporation
Rescap Manager Limited Partnership
ASC Properties, Inc., an Arizona corporation
ASV-II Properties, Inc., an Arizona corporation
ASV-XVII Properties, Inc., an Arizona corporation
ASC II Properties, Inc., an Arizona corporation
La Privada L.L.C., an Arizona limited liability company
Contempo Heights L.L.C., an Arizona limited liability company
Finesterra Apartments L.L.C., an Arizona limited liability company
Residential Mortgage Acceptance
AAC Funding II, Inc., a Delaware corporation
AAC Funding III, Inc., a Delaware corporation
AAC Funding IV, Inc., a Delaware corporation
AAC Funding IV, L.L.C., a Delaware limited liability company
AAC Funding Partnership II, a Delaware corporation
AAC Funding Partnership III, a Delaware corporation
AAC Management L.L.C., a Delaware limited liability company
AAC Seattle I, Inc., a Delaware corporation
AAC Vancouver I, L.P., a Washington limited partnership
</TABLE>
42
<PAGE>
<TABLE>
<S> <C> <C>
AAC/FSC Clocktower Investors, L.L.C., a Washington limited liability company
AAC/FSC Crown Pointe Investors, L.L.C., a Washington limited liability company
AAC/FSC Hilltop Investors, L.L.C., a Washington limited liability company
AAC/FSC Seattle Properties, L.L.C., a Delaware limited liability company
Alexandria Executive Limited Partnership
American Apartment Communities II, Inc., a Maryland corporation
American Apartment Communities II, L.P., a Delaware limited partnership
American Apartment Communities Holdings, Inc., a Delaware corporation
American Apartment Communities Operating Partnership, L.P., a Delaware limited partnership
Bainbridge Associates PL-I, Ltd.
Bainbridge Associates PL-II, Ltd.
Bainbridge Communities, L.L.C.
C.A. Property Associates, L.L.C.
CMP-1, L.L.C.
Coastal Anaheim Properties, L.L.C., a Delaware limited liability company
Coastal Long Beach Properties, L.L.C., a Delaware limited liability company
Coastal Monterey Properties, L.L.C.
FMP Member, Inc., a Delaware corporation
FSC Realty, L.L.C.
Ft. Craig, L.P., an Ohio limited partnership
Fountainhead Apartments, L.P. an Ohio limited partnership
Jamestown of St. Matthews
Governour's Square of Columbus Co., an Ohio company
Jamestown of St. Matthews Co., an Ohio company
L.B. Property Associates, L.L.C.
LF Strategic Realty Investors, L.P.
Monterey Property Associates, L.L.C.
Northbay Properties II, L.P., a California limited partnership
Parker's Landing Venture I
Parker's Landing Venture II
Polo Chase Venture, L.L.C., a Delaware limited liability company
Regency park, L.P., an Indiania limited partnership
Schitzer Investment Corporation
Sunset Company, an Ohio company
Tivoli of Columbus L.P., an Ohio limited partnership
University Arms L.P.
Windward Point, L.L.C., a California limited liability company
Winterland San Francisco Partners
Woodlake Village, L.P., a California limited partnership
23 Consent of Independent Filed herewith.
Auditors
27 Financial Data Schedule Filed electronically with the Securities
and Exchange Commission.
</TABLE>
Exhibits 10(i) through 10(v) inclusive, are management contracts or compensatory
plans or arrangements required to be filed as an exhibit to this Form 10-K
pursuant to Item 14(c) of this report.
43
<PAGE>
(b) Reports on Form 8-K
A Form 8-K dated September 11, 1998 was filed with the Securities and
Exchange Commission on October 23, 1998. The filing reported the proposed
merger of American Apartment Communities II, Inc. by the Company. The
filing included the audited financial statements of American Apartment
Communities II, Inc, and American Apartment Communities II, LP for the
year ended December 31, 1997.
A Form 8-K dated October 28, 1998 was filed with the Securities and
Exchange Commission on October 28, 1998. The filing reported on the
Company's results of operations for the three and nine months ended
September 30, 1998.
A Form 8-K dated November 2, 1998 was filed with the Securities and
Exchange Commission on November 6, 1998. The filing included the Exhibits
for the Consents of Experts as used in the Company's Prospectus Supplement
for the issuance of debt securities.
A Form 8-K dated November 12, 1998 was filed with the Securities and
Exchange Commission on November 12, 1998. The filing included the Exhibits
for the Underwriting Agreements, Pricing Agreements and Form of Notes as
used in the Company's Prospectus Supplement for the issuance of debt
securities.
A Form 8-K/A amending the Form 8-K dated September 11, 1998 was filed with
the Securities and Exchange Commission on December 21, 1998. The filing
amended the Item under which the original 8-K was previously filed.
A Form 8-K dated December 7, 1998, was filed with the Securities and
Exchange Commission on December 21, 1998. The filing reported the
acquisition of American Apartment Communities II, Inc. on December 7,
1998.
A Form 8-K dated January 20, 1999 was filed with the Securities and
Exchange Commission on January 20, 1999. The filing included pro forma
financial statements for the Company for the nine months ended September
30, 1998.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
United Dominion Realty Trust, Inc.
- - ----------------------------------
(registrant)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 9, 1999 by the following persons on behalf of the
registrant and in the capacities indicated.
/s/ John P. McCann /s/ Jeff C. Bane
- - ------------------------------- ------------------------------
John P. McCann Jeff C. Bane
Chairman of the Board and Chief Director
Executive Officer
/s/ Lynne Sagalyn /s/ Mark J. Sandler
- - ------------------------ -------------------------------
Lynne Sagalyn Mark J. Sandler
Director Director
/s/ John S. Schneider
- - ---------------------------------- --------------------------------
John S. Schneider Robert W. Scharar
Director, Vice Chairman of the Board, Director
President and Chief Operating Officer
/s/ C. Harmon Williams, Jr. /s/ R. Toms Dalton
- - ---------------------------- --------------------------------
C. Harmon Williams, Jr. R. Toms Dalton
Director Director
/s/ Robert P. Freeman /s/ Jon A. Grove
- - ---------------------------- --------------------------------
Robert P. Freeman Jon A. Grove
Director Director
/s/ James D. Klingbeil /s/ Barry M. Kornblau
- - ---------------------------- -------------------------------
James D. Klingbeil Barry M. Kornblau
Director Director
/s/ Robin R. Flanagan
- - ---------------------------------------
Robin R. Flanagan
Assistant Vice President, Controller-Corporate
Accounting and Chief Accounting Officer
45
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
UNITED DOMINION REALTY TRUST, INC.
Page
----
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
Report of Ernst & Young LLP, Independent Auditors F-2
Consolidated Balance Sheets at December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1998 F-4
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1998 F-5
Consolidated Statements of Shareholders' Equity for each of the
three years in the period ended December 31, 1998 F-6
Notes to Consolidated Financial Statements F-7
SCHEDULE FILED AS PART OF THIS REPORT
Schedule III-Summary of Real Estate Owned F-26
All other schedules are omitted since the required information is not present in
amounts sufficient to require submission of the schedule, or because the
information required is included in the financial statements and notes thereto.
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders
United Dominion Realty Trust, Inc.
We have audited the accompanying consolidated balance sheets of United
Dominion Realty Trust, Inc. (the "Company") as of December 31, 1998 and 1997,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of United Dominion
Realty Trust, Inc. at December 31, 1998 and 1997, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.
Ernst & Young LLP
Richmond, Virginia
January 27, 1999
F-2
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
<TABLE>
<CAPTION>
December 31, 1998 1997
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Real estate owned:
Real estate held for investment (Notes 2 and 3) $ 3,643,245 $ 2,281,438
Less: accumulated depreciation 280,663 200,506
---------------- ----------------
3,362,582 2,080,932
Real estate under development 99,395 24,598
Real estate held for disposition (Note 2) 174,145 166,501
---------------- ----------------
Total real estate owned, net of accumulated depreciation 3,636,122 2,272,031
Cash and cash equivalents 18,529 473
Restricted cash 50,805 17,107
Deferred financing costs-net 10,894 10,588
Other assets 39,038 13,526
---------------- ----------------
Total assets $ 3,755,388 $ 2,313,725
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable-secured (Note 4) $ 1,072,185 $ 417,325
Notes payable-unsecured (Note 5) 1,045,564 738,901
Real estate taxes payable 29,078 21,744
Accrued interest payable 20,714 14,912
Security deposits and prepaid rent 21,125 12,105
Distributions payable 31,423 25,607
Accounts payable, accrued expenses and other liabilities 45,736 10,081
---------------- ----------------
Total liabilities 2,265,825 1,240,675
Minority interests 115,442 14,693
Shareholders' equity: (Notes 8 and 9)
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
8,000,000 shares 7.50% Series D Cumulative Convertible Redeemable 175,000 -
Common stock, $1 par value; 150,000,000 shares authorized
103,639,117 shares issued and outstanding (89,168,442 in 1997) 103,639 89,168
Additional paid-in capital 1,090,432 906,307
Notes receivable from officer-shareholders (7,619) (8,806)
Distributions in excess of net income (242,331) (183,312)
---------------- ----------------
Total shareholders' equity 1,374,121 1,058,357
================ ================
Total liabilities and shareholders' equity $ 3,755,388 $ 2,313,725
================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
- - ------------------------------------------------------------------------------------------------------------- -------------
<S> <C> <C> <C>
Revenues
Rental income $478,718 $386,672 $241,260
Interest and other non-property income 3,382 1,123 1,707
-------------- -------------- -------------
482,100 387,795 242,967
Expenses
Rental expenses:
Utilities 26,361 24,861 17,735
Repair and maintenance 62,753 54,607 40,665
Real estate taxes 41,768 30,961 17,348
Property management 16,748 12,203 5,575
Other operating expenses 51,930 41,099 22,658
Depreciation of real estate owned 99,588 76,688 47,410
Interest 106,238 79,004 50,843
General and administrative 10,139 7,075 5,418
Other depreciation and amortization 3,645 2,084 1,299
Loss on termination of an interest rate risk management agreement (Note 6) 15,591 - -
Impairment loss on real estate owned - 1,400 290
-------------- -------------- -------------
434,761 329,982 209,241
-------------- -------------- -------------
Income before gains on sales of investments, minority interests
and extraordinary item 47,339 57,813 33,726
Gains on sales of investments 26,672 12,664 4,346
-------------- -------------- -------------
Income before minority interests and extraordinary item 74,011 70,477 38,072
Minority interests (1,541) (278) (58)
-------------- -------------- -------------
Income before extraordinary item 72,470 70,199 38,014
Extraordinary item - early extinguishment of debt (138) (50) (23)
-------------- -------------- -------------
Net income $ 72,332 $ 70,149 $ 37,991
Distributions to preferred shareholders (23,593) (17,345) (9,713)
-------------- -------------- -------------
Net income available to common shareholders $ 48,739 $ 52,804 $ 28,278
============== ============== =============
Earnings per common share: (Note 1)
Basic $ 0.49 $ 0.61 $ 0.49
============== ============== =============
Diluted $ 0.49 $ 0.60 $ 0.49
============== ============== =============
Common distributions declared per share $ 1.05 $ 1.01 $ 0.96
============== ============== =============
Weighted average number of common shares outstanding-basic 99,966 87,145 57,482
Weighted average number of common shares outstanding -diluted 100,062 87,339 57,655
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 72,332 $ 70,149 $ 37,991
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 103,233 78,772 48,709
Minority interests 1,541 278 58
Extraordinary item-early extinguishment of debt 138 50 23
Impairment loss on real estate owned -- 1,400 290
Gains on sales of investments (26,672) (12,664) (4,346)
Amortization of deferred financing costs 2,061 1,706 1,319
Changes in operating assets and liabilities:
Increase in operating liabilities 23,130 8,830 8,899
Increase in operating assets (30,440) (10,618) (2,879)
----------- ----------- -----------
Net cash provided by operating activities 145,323 137,903 90,064
- - ----------------------------------------------------------------------------------------------------------------------------
Investing Activities
Net cash acquired in acquisition of ASR Investments Corporation 321 -- --
Net cash used in acquisition of American Apartment Communities II (59,767) -- --
Acquisition of real estate, net of liabilities assumed (169,808) (271,836) (137,236)
Capital expenditures (100,398) (95,499) (50,533)
Development of real estate assets (97,222) (52,217) (9,229)
Additions to non-real estate assets (2,876) (3,659) (2,554)
Net proceeds from sales of investments 135,164 73,864 33,823
Proceeds from interest rate risk management agreements -- 1,538 3,025
Net cash acquired in acquisition of South West Property Trust Inc. -- -- 1,129
Other investing activities (1,851) 2,143 3
----------- ----------- -----------
Net cash used in investing activities (296,437) (345,666) (161,572)
- - ----------------------------------------------------------------------------------------------------------------------------
Financing Activities
Net proceeds from the issuance of common stock 40,040 61,009 1,824
Net proceeds from the sale of preferred stock -- 145,068 --
Net proceeds from the issuance of common stock through the
dividend reinvestment and stock purchase plan 36,646 39,742 13,188
Gross proceeds from the issuance of notes payable-unsecured 212,500 125,000 200,111
Net proceeds from the issuance of notes payable-secured -- -- 5,925
Net borrowings of short-term bank debt 104,400 10,350 37,800
Proceeds from refunding of tax exempt bonds 7,700 -- --
Conversion of operating partnership units (3,528) -- --
Distributions paid to preferred shareholders (22,611) (16,270) (9,713)
Distributions paid to common shareholders (103,074) (85,777) (53,979)
Distributions paid to minority interest operating partnership unitholders (2,413) (144) --
Scheduled principal payments on notes payable-secured (18,255) (6,547) (2,729)
Non-scheduled payments on notes payable-secured (67,942) (9,397) (40,628)
Mortgage financing proceeds released from construction fund -- -- 3,627
Payments on notes payable-unsecured (9,418) (65,414) (72,064)
Payment of financing costs (4,875) (2,836) (1,306)
----------- ----------- -----------
Net cash provided by financing activities 169,170 194,784 82,056
- - ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 18,056 (12,979) 10,548
Cash and cash equivalents, beginning of year 473 13,452 2,904
----------- ----------- -----------
Cash and cash equivalents, end of year $ 18,529 $ 473 $ 13,452
=========== =========== ===========
- - ----------------------------------------------------------------------------------------------------------------------------
Supplemental Information:
Interest paid during the period $ 104,858 $ 76,669 $ 48,500
Non-cash transactions associated with the acquisition of properties:
Secured debt assumed 116,326 60,052 137,988
Issuance of common stock 7,099 -- 22,769
Issuance of unsecured notes payable -- -- 25,000
Issuance of operating partnership units 18,477 12,530 2,006
Non-cash transactions associated with Mergers:
Real estate assets acquired 1,080,696 -- 559,591
Other operating assets acquired 26,845 -- --
Issuance of preferred stock 175,000 -- --
Issuance of common stock 108,456 -- 322,110
Issuance of operating partnership units 88,831 -- --
Secured debt assumed 637,188 -- 99,921
Unsecured debt assumed -- -- 125,035
Operating liabilities assumed 36,026 -- 23,805
Minority interests in partnerships assumed 5,382 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31 1998 1997 1996
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stock
Balance, beginning of year $ 255,000 $ 105,000 $ 105,000
Issuance of 8.60% Series B Cumulative Redeemable -- 150,000 --
Issuance of 7.50% Series D Cumulative Convertible Redeemable 175,000
=========== =========== ===========
Balance, end of year $ 430,000 $ 255,000 $ 105,000
=========== =========== ===========
Common Stock, $1 Par Value
Balance, beginning of year $ 89,168 $ 81,983 $ 56,375
Issuance of common shares in public offerings 2,804 4,000 --
Issuance of common shares in the acquisition of South West Property Trust Inc. -- -- 22,804
Issuance of common shares in the acquisition of ASR Investments Corporation 7,743 -- --
Issuance of common shares in private placement -- -- 1,680
Issuance of common shares to employees and officer-shareholders 78 333 152
Issuance of common shares through dividend reinvestment
and stock purchase plan 2,825 2,852 972
Issuance of common shares in connection with the acquisition of properties 482 -- --
Conversion of operating partnership units to common stock 539 -- --
=========== =========== ===========
Balance, end of year $ 103,639 $ 89,168 $ 81,983
=========== =========== ===========
Additional Paid-in Capital
Balance, beginning of year $ 906,307 $ 814,795 $ 480,971
Issuance of commons shares in public offerings, net of issuance costs 35,170 55,386 --
Issuance of common shares in the acquisition of South West Property Trust Inc. -- -- 299,109
Issuance of common shares in the acquisition of ASR Investments Corporation 100,713 -- --
Issuance of common shares in private placement, net of issuance costs -- -- 21,059
Offering costs associated with the issuance of preferred shares -- (4,934) --
Issuance of common shares to employees and officer-shareholders 801 4,170 1,440
Issuance of common shares through dividend reinvestment
and stock purchase plan 33,821 36,890 12,216
Issuance of common shares in connection with the acquisition of properties 6,617 -- --
Conversion of operating partnership units to common stock 7,003 -- --
=========== =========== ===========
Balance, end of year $ 1,090,432 $ 906,307 $ 814,795
=========== =========== ===========
Notes Receivable from Officer-Shareholders
Balance, beginning of year $ (8,806) $ (5,926) $ (6,091)
Principal repayments 1,413 635 381
Notes received for issuance of common shares (226) (3,515) (216)
=========== =========== ===========
Balance, end of year $ (7,619) $ (8,806) $ (5,926)
=========== =========== ===========
Distributions in Excess of Net Income
Balance, beginning of year $ (183,312) $ (147,529) $ (120,314)
Net income 72,332 70,149 37,991
Common stock distributions declared ($1.05 per share for 1998, --
$1.01 per share for 1997 and $.96 per share for 1996) (107,758) (88,587) (55,493)
Preferred stock distributions declared-Series A ($2.31 per share for 1998, --
1997 and 1996) (9,704) (9,713) (9,713)
Preferred stock distributions declared-Series B ($2.15 per share for 1998
and $1.27 per share for 1997) (12,903) (7,632) --
Preferred stock distributions declared-Series D ($.12 per share for 1998) (986) -- --
=========== =========== ===========
Balance, end of year $ (242,331) $ (183,312) $ (147,529)
=========== =========== ===========
Unrealized Gains on Securities Available-for-Sale
Balance, beginning of year $ -- $ 2,056 $ 448
Realized gain on securities available-for-sale -- (2,056) --
Unrealized gain on securities availabe-for-sale -- -- 1,608
=========== =========== ===========
Balance, end of year $ -- $ -- $ 2,056
=========== =========== ===========
Total Shareholders' Equity $ 1,374,121 $ 1,058,357 $ 850,379
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization United Dominion Realty Trust, Inc., a Virginia corporation, was
formed in 1972. The Company operates within one defined business segment. The
Company is a fully integrated owner, operator, renovator and developer of
apartment communities located nationwide. At December 31, 1998, the Company
owned 326 communities with 86,893 completed apartment homes. The Company had
eight communities and two additional phases to existing communities with 1,946
apartment homes under development at December 31, 1998.
Basis of presentation The accompanying consolidated financial statements include
the accounts of the Company and its subsidiaries, including United Dominion
Realty, L.P., its Operating Partnership, and Heritage Communities, L.P.
(collectively, the "Company"). As of December 31, 1998, there were 38,218,389
units in the Operating Partnership outstanding, of which, 30,486,005, or 79.8%
were owned by the Company and 7,732,384, or 20.2% were owned by non-affiliated
limited partners. In connection with the acquisition of ASR Investment
Corporation, the Company acquired Heritage Communities, L.P., a Delaware limited
partnerhip (Heritage OP). As of December 31, 1998, there were 3,834,837 units in
the Heritage OP outstanding, of which, 2,974,252 or 77.5% were owned by the
Company and 22.5% were owned by non-affiliated limited partnerships. The
financial statements of the Company include the minority interest of the
unitholders in the operating partnerships. All significant inter-company
accounts and transactions have been eliminated in consolidation. Certain
previously reported amounts have been reclassified to conform with the current
financial statement presentation.
Use of estimates The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Federal income taxes The Company is operated as and elects to be taxed as a real
estate investment trust under the Internal Revenue Code of 1986, as amended (the
Code). Generally, a real estate investment trust which complies with the
provisions of the Code and distributes at least 95% of its taxable income to its
shareholders, does not pay federal income taxes on its distributed income.
Accordingly, no provision has been made for federal income taxes.
Cash and cash equivalents All highly liquid investments with maturities of three
months or less, when purchased, are considered to be cash equivalents.
Real estate assets and depreciation Real estate assets held for investment are
carried at historical cost less accumulated depreciation less any recorded
impairment losses.
Ordinary repair and maintenance costs are expensed as incurred. Significant
improvements, renovations and replacements related to the acquisition and
improvement of real estate assets are capitalized at cost and depreciated over
their estimated useful lives.
The Company recognizes impairment losses on long-lived assets used in operations
when indicators of impairment are present and the undiscounted future cash flows
are not sufficient to recover the assets carrying value. If such indicators are
present, an impairment loss is recognized based on the excess of the carrying
amount of the impaired asset over its fair value.
For long-lived assets to be disposed of, impairment losses are recognized when
the fair value of the asset less estimated cost to sell is less than the
carrying value of the asset. Real estate is classified as real estate held for
disposition when management has committed to sell and is actively marketing the
property, and the Company expects to dispose of these properties within the next
twelve months. Real estate held for disposition is carried at the lower of cost,
net of accumulated depreciation or fair value less cost to dispose, determined
on an asset by asset basis. Depreciation is not recorded on real estate held for
F-7
<PAGE>
disposition and gains (losses) from initial and subsequent adjustments to the
carrying value of the assets, if any, are recorded as a separate component of
income from continuing operations.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the related assets which is 35 years for buildings, 10 to 35 years for
major improvements, and 5 to 20 years for fixtures, equipment and other assets.
All development projects and related carrying costs, principally interest and
real estate taxes, are capitalized and reported on the balance sheet as "real
estate under development" until such time as the development project is
completed. Upon completion, the total cost of the building and associated land
is transferred to real estate held for investment and the assets are depreciated
over their estimated useful lives. The cost of development projects includes
interest, property taxes, insurance and allocated development overhead during
the construction period.
Interest and real estate taxes incurred during the construction period are
capitalized as part of the projects under development to the extent that such
charges do not cause the carrying value of the asset to exceed its net
realizable value. During 1998, 1997 and 1996, total interest capitalized was
$3,360,000, $2,634,000 and $541,000, respectively.
Commencing with the adoption of EITF No. 97-11 on March 19, 1998, "Accounting
for Internal Costs Relating to Real Estate Property Acquisitions", the Company
expenses direct internal costs related to identifying and acquiring operating
properties.
Revenue recognition The Company's apartment homes are leased under operating
leases with terms generally of one year or less. Rental income is recognized as
it is earned.
Restricted cash Restricted cash mainly consists of escrow deposits held by
lenders for property taxes, insurance and replacement reserves and resident
security deposits.
Deferred financing costs Deferred financing costs include fees and other costs
incurred to obtain long-term debt obligations and are generally amortized over a
period not to exceed the term of the related debt.
Interest rate swap agreements The Company enters into interest rate swap
agreements to alter the interest rate characteristics of outstanding debt
instruments. Each interest rate swap agreement is designated with all or a
portion of the principal balance and term of a specific debt obligation. The
interest rate swaps involve the periodic exchange of payments over the life of
the related agreements. Amounts received or paid on the interest rate swaps are
recorded on an accrual basis as an adjustment to the related interest expense of
the outstanding debt based on the accrual method of accounting. The related
amounts payable to and receivable from counterparties are included in other
liabilities and other assets, respectively. The fair value of and changes in the
fair value as a result of changes in market interest rates for the interest rate
swap agreements are not reflected in the financial statements.
Gains and losses on terminations of interest rate swap agreements are deferred
as an adjustment to the carrying amount of the outstanding debt and amortized
into interest expense over the remaining term of the original contract life of
the terminated swap agreement. In the event of early extinguishment of a
designated debt obligation, any realized or unrealized gain or loss from the
swap would be recognized in income coincident with the extinguishment gain or
loss. There were no gains or losses on terminations of interest rate swap
agreements recognized by the Company for the periods presented.
F-8
<PAGE>
Any interest rate swap agreements that are not designated with outstanding debt
or notional amounts of interest rate swap agreements in excess of the original
amounts of the underlying debt obligations are recorded as an asset or liability
at fair value, with the changes in the fair value recorded in other income or
expense (fair value method).
Interest rate risk management agreements The Company enters into interest rate
futures contracts to hedge interest rate risk associated with anticipated debt
transactions. The Company follows SFAS No. 80, "Accounting for Futures
Contracts", which permits hedge accounting for anticipatory transactions meeting
certain criteria. Gains and losses, if any, on these transactions are deferred
as an adjustment to the carrying amount of the outstanding debt and amortized
over the terms of the related debt as an adjustment to interest expense. The
fair values of interest rate risk management agreements are not recognized in
the financial statements. At the time the anticipated transaction is no longer
likely to occur, the Company marks the derivative instrument to market and
recognizes any adjustment in the consolidated statement of operations.
Earnings per share Basic earnings per common share is computed based upon the
weighted average number of common shares outstanding during the year. Diluted
earnings per common share is computed based on common shares outstanding plus
the effect of dilutive stock options and other potentially dilutive common stock
equivalents. The dilutive effect of stock options and other potential common
stock equivalents is determined using the treasury stock method based on the
Company's average stock price. The early extinguishment of debt does not have an
effect on the earnings per share calculation for the periods presented. The
effect of the conversion of the operating partnership units and convertible
preferred stock is not dilutive and is therefore not included in the following
calculations. The weighted average effect of the conversion of the operating
partnership units for the years ended December 31, 1998, 1997 and 1996 was
2,963,427, 317,120 and 68,502, respectively. The weighted average effect of the
conversion of the convertible preferred stock for the year ended December 31,
1998, was 809,273. The following table sets forth the computation of basic and
diluted earning per share (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Numerator for basic and diluted earnings
per share-net income available to common
shareholders $ 48,739 $ 52,804 $ 28,278
Denominator:
Denominator for basic earnings per share-
weighted average shares 99,966 87,145 57,482
Effect of dilutive securities:
Employee stock options 96 194 173
-------- -------- --------
Dilutive potential common shares
Denominator for dilutive earnings per
share-adjusted weighted average shares
and assumed conversions 100,062 87,339 57,655
======== ======== ========
Basic earnings per share $ .49 $ .61 $ .49
======== ======== ========
Diluted earnings per share $ .49 $ .60 $ .49
======== ======== ========
</TABLE>
Investment in marketable equity securities In connection with a shopping center
sale in 1995, the Company received marketable preferred stock with a fair value
of $7.7 million on the date of receipt. In January 1997, the Company sold the
preferred stock and received $9.9 million in cash and recognized a $2.1 million
gain on the sale of investment for financial reporting purposes.
F-9
<PAGE>
Minority interests in operating partnerships Interests in the Operating
Partnership held by limited partners are represented by operating partnerships
units (OP Units). The Operating Partnerships' income is allocated to holders of
OP Units based upon net income available to common shareholders and the weighted
average number of OP Units outstanding to total common shares plus OP Units
outstanding during the period. Capital contributions, distributions and profits
and losses are allocated to minority interests in accordance with the terms of
the individual partnership agreements. OP Units can be exchanged for cash or
shares of the Company's common stock on a one-for-one basis, at the option of
the Company. OP Units as a percentage of total units and shares outstanding was
7.7%, 1.1% and 0.1% at December 31, 1998, 1997 and 1996, respectively.
Minority interests in other partnerships The Company has limited partners in
certain real estate partnerships acquired as part of the acquisition of American
Apartment Communities II on December 7, 1998. Net income for these partnerships
is allocated based on the percentage interest owned by these limited partners in
each respective real estate partnership.
Stock based compensation The Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under SFAS No. 123, "Accounting
for Stock Based Compensation", requires use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation cost has
been recognized.
Impact of recently issued accounting standards As of January 1, 1998, the
Company adopted SFAS No. 130, "Reporting Comprehensive Income" (Statement 130).
Statement 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of Statement 130
had no impact on the Company's financial statements for each of the periods
presented as the Company has no items of comprehensive income.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (Statement 133)
which is required to be adopted in years beginning after June 15, 1999.
Statement 133 permits early adoption as of the beginning of any fiscal quarter
after its issuance, however, the Company does not anticipate adopting Statement
133 until such time as it is required. Statement 133 will require the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of the derivative's change in fair value will be immediately
recognized in earnings. The Company has not yet determined what the effect of
Statement 133 will be on earnings and the financial position of the Company,
however, management does not anticipate that the adoption of Statement 133 will
have a significant effect on earnings or the financial position of the Company.
F-10
<PAGE>
2. REAL ESTATE OWNED
The Company operates primarily in 34 major markets dispersed throughout a 22
state area. At December 31, 1998, the Company's largest apartment market was
Dallas, where it owned 9.5% of its apartment homes, based upon carrying value.
Excluding Dallas, the Company did not own more than 5% of its apartment homes in
any one market, based upon carrying value.
The following table summarizes the components of real estate held for investment
at December 31, (dollars in thousands):
1998 1997
----------- ----------
Land and land improvements $ 647,328 $ 393,505
Buildings and improvements 2,819,312 1,783,565
Furniture, fixtures and equipment 169,364 100,380
Construction in progress 7,241 3,988
----------- -----------
Real estate held for investment 3,643,245 2,281,438
Accumulated depreciation (280,663) (200,506)
----------- -----------
Real estate held for investment, net $ 3,362,582 $ 2,080,932
=========== ===========
The following is a reconciliation of the carrying amount of real estate held for
investment at December 31, (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Balance at January 1 $ 2,281,438 $ 2,007,612 $ 1,131,098
Real estate acquired 1,388,514 344,363 843,277
Capital expenditures 98,872 96,102 49,434
Transferred from real estate under development 23,350 65,475 --
Real estate sold -- -- (230)
Impairment loss -- (1,400) --
Transferred to real estate held for disposition (148,929) (230,714) (15,967)
----------- ----------- -----------
Balance at December 31 $ 3,643,245 $ 2,281,438 $ 2,007,612
=========== =========== ===========
</TABLE>
The following is a reconciliation of accumulated depreciation for real estate
held for investment at December 31, (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- ----------
<S> <C> <C> <C>
Balance at January 1 $ 200,506 $ 173,291 $ 129,454
Depreciation expense for the year* 100,683 77,440 48,039
Transferred to real estate held for disposition (20,526) (50,225) (4,202)
--------- --------- ---------
Balance at December 31 $ 280,663 $ 200,506 $ 173,291
========= ========= =========
</TABLE>
* Includes $1,095, $752, and $629 for 1998, 1997 and 1996, respectively,
classified as "Other depreciation and amortization" in the Consolidated
Statements of Operations.
F-11
<PAGE>
The following is a summary of real estate owned by market at December 31, 1998
(dollars in thousands):
Real Estate Held for Investment by Market (Excluding real estate under
development)
<TABLE>
<CAPTION>
Initial
Number of Acquisition Carrying Accumulated
Properties Cost Value Depreciation Encumbrances
---------- ----------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Apartments
Dallas, TX 27 $340,778 $375,962 $18,872 $40,510 (A)
Houston, TX 22 183,317 195,997 7,276 65,965 (A)
Orlando, FL 12 146,114 172,692 17,647 41,630
Phoenix, AZ 8 162,162 168,309 5,194 19,931 (A)
Tampa, FL 11 146,849 162,077 13,855 41,067 (A)
San Antonio, TX 12 150,741 159,216 6,514 38,609 (A)
Raleigh, NC 10 123,071 137,946 19,070 9,132 (A)
San Francisco, CA 4 128,754 128,754 240 70,086
Charlotte, NC 10 95,265 116,668 16,227 22,772 (A)
Eastern NC 10 80,116 110,189 19,514 10,127
Monterey Peninsula, CA 16 105,970 105,970 183 (A)
Columbia, SC 10 89,168 104,132 17,440 21,639
Memphis, TN 6 95,594 101,809 6,260 43,412
Nashville, TN 9 85,781 98,798 11,059 5,081
Richmond, VA 8 74,856 96,063 20,511 3,034
Columbus, OH 6 90,539 91,395 617 34,981 (A)
Miami/Ft.
Lauderdale, FL 5 75,030 80,473 7,478 --
Atlanta, GA 7 66,892 78,195 8,382 11,093
Greensboro, NC 5 63,359 77,768 5,211 (A)
Portland, OR 4 59,743 59,743 108 12,745 (A)
Jacksonville, FL 3 44,787 55,913 6,173 12,455
Los Angeles, CA 2 53,387 53,387 96 6,141
Hampton, VA 6 42,741 53,286 13,198 --
Baltimore, MD 5 46,071 51,827 8,788 12,980
Lansing, MI 4 50,559 50,559 89 (A)
Greenville, SC 5 41,703 50,058 7,544 --
Sacramento, CA 2 47,549 47,549 85 17,127 (A)
Seattle, WA 4 46,147 46,383 386 24,367
Denver, CO 2 44,195 44,195 79 (A)
Fayetteville, NC 3 39,004 40,900 3,255 18,453
Detroit, MI 4 38,126 38,126 68 (A)
Washington DC 2 32,603 35,509 3,339 --
Eastern Shore MD 4 31,403 34,546 4,014 --
Indianapolis, IN 3 32,663 32,663 57 (A)
</TABLE>
F-12
<PAGE>
<TABLE>
<CAPTION>
Initial
Number of Acquisition Carrying Accumulated
Properties Cost Value Depreciation Encumbrances
---------- ----------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Apartments (continued)
Albuquerque, NM 4 28,531 29,101 999 13,704 (A)
Tucson, AZ 6 25,679 26,341 702 13,937
Austin, TX 2 21,005 23,315 1,680 (A)
Other FL 7 54,048 66,929 7,898 --
Other VA 6 29,510 47,194 7,666 2,830
Other Midwest 5 41,556 42,321 207 --
Other WA 3 24,728 25,264 635 9,702
Other GA 2 19,049 22,401 3,769 6,179
Arkansas 2 20,500 21,897 1,287 --
Nevada 1 20,000 20,549 1,138 --
Other CA 2 18,277 18,277 32 (A)
Delaware 2 14,732 17,670 2,364 --
Alabama 1 7,947 11,212 1,799 --
Other NC 1 6,770 7,628 663 (A)
Other SC 1 4,558 6,089 995 --
- ----- ----- ---- ------
296 $3,291,927 $3,643,245 $280,663 $ 629,689
=== ========== ========== ======== =========
</TABLE>
Real Estate Held for Disposition (B)
<TABLE>
<CAPTION>
Initial
Number of Acquisition Carrying Accumulated
Properties Cost Value Depreciation Encumbrances
---------- ----------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Apartments 26 $ 154,733 $ 197,543 $ 34,177 $ 60,273 (A)
Commercial 4 11,082 12,569 1,790 3,512
- ------ ------ ----- --------
30 $165,815 $ 210,112 $ 35,967 $ 63,785
== ======== ========= ========= ========
Total Real Estate
Owned (C) 326 $3,457,742 $3,853,357 $316,630 $1,072,185
=== ========== ========== ======== ==========
</TABLE>
(A) There are 23 communities encumbered by two REMIC financings
aggregating $75.9 million, 6 communities encumbered by one
secured note payable aggregating $31.7 million, 24 communities
encumbered by fixed-rate debt aggregating $159.7 million and
18 communities encumbered by variable-rate debt aggregating
$111.4 million.
(B) Real estate held for disposition contributed property
operating income (property rental income less property
operating expenses) in the aggregate amount of $19.7 million,
$19.5 million and $3.9 million, respectively for the years
ended December 31, 1998, 1997 and 1996, respectively.
(C) Excludes real estate under development.
In connection with the Company's periodic evaluation of its apartment portfolio
during 1997 the Company recorded an impairment loss of $1.4 million relating to
two communities included in real estate held for investment. These apartment
communities were subsequently moved to real estate held for disposition based
upon management's decision to dispose of these properties.
F-13
<PAGE>
3. ACQUISITIONS
On March 27, 1998, the Company completed the acquisition of ASR Investments
Corporation ("ASR") in a statutory merger (the "ASR Merger"). ASR was a
publicly-traded multifamily REIT that owned 39 communities with 7,550 apartment
homes located in Arizona, Texas, New Mexico and the state of Washington. Each
share of ASR's common stock was exchanged for 1.575 shares of the Company's
common stock. The transaction was structured as a tax-free merger and was
treated as a purchase for accounting purposes. No good will was recorded in
connection with this transaction. In connection with the acquisition, the
Company acquired primarily real estate assets totaling $313.7 million.
Consideration given by the Company included 7,742,839 shares of the Company's
common stock valued at $14 per share for an aggregate equity value of $108.4
million plus the issuance of 1,529,990 OP Units in Heritage Communities, L.P.
valued at $21.4 million. In addition, the Company assumed, at fair value,
mortgage debt totaling $179.4 million and other liabilities of $13.6 million.
The aggregate purchase price in the ASR Merger was $323.1 million, including
transaction costs.
On December 7, 1998, the Company completed the acquisition of American Apartment
Communities II, Inc. ("AAC") in a statutory merger (the "AAC Merger"). American
Apartment Communities II, Inc.'s principal asset was a 79% interest in American
Apartment Communities II, LP. In connection with the acquisition of AAC, the
Company acquired 53 communities with 14,001 apartment homes located primarily in
California, the Pacific Northwest, the Midwest and Florida. The AAC Merger was
structured as a tax-free merger and was treated as a purchase for accounting
purposes. No good will was recorded in connection with this transaction. In
connection with the AAC Merger, the Company acquired primarily real estate
assets totaling $766.9 million. The aggregate purchase price consisted of the
following: (i) 8,000,000 shares of the Company's 7.5% Series D Convertible
Preferred Stock ($25 liquidation preference value) with a fair market value of
$175 million which is convertible into the Company's Common Stock at $16.25 per
share, (ii) the issuance of 5,614,035 OP units to holders of the 21% minority
interests in American Apartment Communities, L.P. with an aggregate fair market
value of $67.4 million, (iii) the assumption of $457.7 million of secured notes
payable at fair market value, (iv) the assumption of liabilities and minority
interests aggregating $27.8 million and (v) $59.8 million of cash. The aggregate
purchase price in the AAC Merger was $793.7 million, including transaction
costs.
Information concerning unaudited pro forma results of operations of the Company
for the years ended December 31, 1998 and 1997 are set forth below. For 1998,
such pro forma information assumes the following transactions occurred on
January 1, 1997: (i) the acquisition of ASR, (ii) the acquisition of AAC and
(iii) the acquisition of 13 communities with 4,318 apartment homes for an
aggregate purchase price of $144 million. For 1997, in addition to the
acquisitions previously described, such pro forma information assumes the
following transactions occurred on January 1, 1997: (i) the acquisition by the
Company of 17 communities with 5,659 apartment homes at a total cost of $219
million and (ii) the acquisition by ASR of 22 communities with 4,208 apartment
homes at a total cost of $176 million.
In addition to the ASR Merger and the AAC Merger, all of the acquisitions
previously described have been accounted for as purchases of real estate and
operating results for those communities are reflected in the accompanying
consolidated financial statements from their respective dates of acquisition.
F-14
<PAGE>
<TABLE>
<CAPTION>
Pro Forma
Year Ended December 31,
----------------------
In thousands, except per share amounts 1998 1997
- - --------------------------------------- -------- ----------
<S> <C> <C>
(Unaudited)
Rental income $597,460 $566,681
Net income available to common shareholders
before extraordinary item 43,218 37,468
Net income available to common shareholders 43,080 37,418
Net income per common share before extraordinary item-basic
and diluted $ .41 $ .39
Net income per common share-basic and diluted .41 .39
</TABLE>
The unaudited information is not necessarily indicative of what the Company's
consolidated results of operations would have been if the acquisitions
previoulsy described had occurred at the beginning of each period presented.
Additionally, the pro forma information does not purport to be indicative of the
Company's results of operations for future periods.
4. NOTES PAYABLE-SECURED
Notes payable-secured, which encumber $1.9 billion or 48.7% of the Company's
real estate owned, ($2.0 billion or 51.3% of the Company's real estate owned is
unencumbered) consist of the following at December 31, 1998 (dollars in
thousands):
<TABLE>
<CAPTION>
Weighted Weighted
Average Average No. of
Interest Years to Communities
Principal Outstanding Rate Maturity Encumbered
- - --------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1998 1998
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed-Rate Debt
Mortgage Notes Payable (a) $ 618,997 $ 134,888 7.87% 6.1 76
Tax-Exempt Secured Notes Payable 125,405 127,437 7.02% 21.5 18
REMIC Financings 75,919 88,574 7.82% 2.0 23
Secured Notes Payable 45,000 45,000 7.29% 0.2 6
-------------------------------------------------------------------
Total Fixed-Rate Secured Notes Payable 865,321 395,899 7.69% 7.1 123
Variable-Rate Debt
Secured Notes Payable 141,969 19,226 7.13% 3.9 7
Tax-Exempt Secured Notes Payable 64,895 2,200 5.45% 15.5 5
-------------------------------------------------------------------
Total Variable-Rate Secured Notes Payable 206,864 21,426 6.60% 10.1 12
-------------------------------------------------------------------
Total Notes Payable-Secured $1,072,185 $ 417,325 7.48% 7.6 135
===================================================================
</TABLE>
(a) Includes fair value adjustments aggregating $18.9 million recorded in
connection with the ASR Merger and the AAC Merger.
F-15
<PAGE>
Fixed-Rate
Mortgage Notes Payable Fixed-rate mortgage notes payable are generally due in
monthly installments of principal and interest and mature at various dates from
March 1999 through June 2034 and carry interest rates ranging from 7.13% to
9.58%. During 1998, the Company assumed sixty fixed-rate mortgage notes payable
aggregating $515.6 million with a weighted average interest rate of 8.03% in
connection with the acquisition of communities, including the ASR Merger and AAC
Merger.
Tax-Exempt Secured Notes Payable Fixed-rate mortgage notes payable which secure
tax-exempt housing bond issues mature at various dates from November 2004
through December 2025 and carry interest rates from 6.03% to 8.50%. Interest on
these notes is generally payable in semi-annual installments. During 1998, the
Company assumed one fixed-rate tax-exempt secured note payable carrying an
interest rate of 7.54%.
REMIC Financings The Company has two fixed-rate REMIC Financings which bear
interest of 7.01% and 8.50% and mature on December 10, 2000 and February 10,
2001, respectively. The Company makes monthly installments of principal and
interest over the term of the REMIC Financings. Principal balances at maturity
are expected to be $29.3 million and $36.6 million, respectively.
Secured Notes Payable Secured notes payable consist of a $31.7 million
variable-rate secured senior credit facility and two secured variable-rate notes
payable aggregating $13.3 million, all of which mature in August 1999. The
variable-rate secured notes payable bear interest at LIBOR + .65% or 6.06% at
December 31, 1998. The Company has five interest rate swap agreements with an
aggregate notional value of $45 million under which the Company pays a
fixed-rate of interest and receives a variable-rate on the notional amounts. The
interest rate swap agreements effectively change the Company's interest rate
exposure on the $45 million secured notes payable from a variable-rate to a
weighted average fixed-rate of 7.29%.
Variable-Rate
Secured Notes Payable Variable-rate mortgage notes payable are generally due in
monthly installments of principal and interest and mature at various dates from
August 1999 through September 2027. At December 31, 1998, these notes carry
interest rates ranging from 6.33% to 7.21%. During 1998, the Company assumed
five variable-rate mortgage notes payable aggregating $129.4 million with a
weighted average interest rate of 7.26%.
Tax-Exempt Secured Notes Payable Variable-rate mortgage notes payable which
secure tax-exempt housing bond issues mature at various dates from December 2002
to April 2029. At December 31, 1998, these notes carry interest rates ranging
from 3.07% to 7.00%. During 1998, the Company assumed three variable-rate
tax-exempt notes payable aggregating $55 million which carry a weighted average
interest rate of 5.33%.
The aggregate maturities of secured notes payable for the five years subsequent
to December 31, 1998 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Fixed-Rate Variable-Rate
--------------------------------------------------- ------------------------
Mortgage Tax-Exempt REMIC Secured Mortgage Tax-Exempt
Notes Bonds Financings Notes Notes Notes Total
- - ---------------------------------------------------------------------- ------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 $ 32,209 $ 1,769 $ 3,396 $ 45,000 $ 111,365 $ 1,400 $ 195,139
2000 61,451 1,400 34,464 -- 743 1,500 99,558
2001 55,636 1,657 38,059 -- 10,386 1,500 107,238
2002 61,108 1,845 -- -- 293 4,000 67,246
2003 110,314 1,786 -- -- 5,810 1,900 119,810
Thereafter 298,279 116,948 -- -- 13,372 54,595 483,194
------------------------------------------------------- ------------------------- ----------
$ 618,997 $ 125,405 $ 75,919 $ 45,000 $ 141,969 $ 64,895 $1,072,185
======================================================= ========================= ==========
</TABLE>
F-16
<PAGE>
5. NOTES PAYABLE-UNSECURED
A summary of notes payable-unsecured at December 31, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
Dollars in thousands 1998 1997
--------- ----------
<S> <C> <C>
Commercial Banks
Borrowings outstanding under
credit facilities $ 240,000 $ 135,600
Insurance Companies -Senior Unsecured Notes
7.98% due March 1999-2003 (a) 37,228 44,571
8.72% due November 1998 -- 2,000
---------- ----------
37,228 46,571
Other (b)
5,836 6,730
Senior Unsecured Notes - Other
8.50% Monthly Income Notes due November 2008 62,500 --
8.13% Senior Notes due November 2000 150,000 --
7.25% Notes due April 1999 75,000 75,000
8.50% Debentures due September 2024 (c) 150,000 150,000
7.95% Medium-Term Notes due July 2006 125,000 125,000
7.07% Medium-Term Notes due November 2006 25,000 25,000
7.02% Medium-Term Notes due November 2005 50,000 50,000
7.25% Notes due January 2007 125,000 125,000
---------- ----------
762,500 550,000
---------- ----------
Total Notes Payable-Unsecured $1,045,564 $ 738,901
========== ==========
</TABLE>
(a) Payable in five equal principal installments of $7.4 million.
(b) Includes $5.4 million and $6.2 million at December 31, 1998 and 1997,
respectively, of deferred gain from the termination of interest rate risk
management agreements.
(c) Debentures include an investor put feature which grants a one time option
to redeem debentures in September 2004.
On January 21, 1999, the Company established a program for the sale of up to
$200 million aggregate principal amount of Medium-Term Notes (the "MTN
Program"). The Company sold an aggregate of $150 million of senior unsecured
notes which consisted of the following: (i) $70 million of 7.60% Notes due
January 25, 2002, (ii) $58 million of 7.67% Notes due January 26, 2004, (iii)
$10 million of variable rate Notes due January 27, 2003 on which the Company
subsequently executed an interest rate swap with a notional amount of $10
million which effectively fixed the interest rate at 7.52% and (iv) $12 million
of 7.22% Notes due February 19, 2003. Net proceeds from the offerings will be
used to repay revolving bank debt and prepay mortgage debt.
The extraordinary items for the years ended December 31, 1998, 1997 and 1996
resulted from the write-off of deferred financing costs on mortgage debt
satisfied.
F-17
<PAGE>
Information concerning short-term bank borrowings is summarized in the table
that follows:
<TABLE>
<CAPTION>
In thousands 1998 1997 1996
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revolving credit facilities
and lines of credit at December 31 $265,000 $265,000 $228,500
Borrowings outstanding at December 31 240,000 135,600 125,250
Weighted average daily borrowings during the year (d) 238,587 74,623 49,941
Maximum daily borrowings during the year (d) 334,500 135,600 125,250
Weighted average daily interest rate during the year(d) 6.1% 6.3% 6.0%
Weighted average daily interest rate at December 31 6.0% 6.4% 6.3%
</TABLE>
(d) Includes balances on a $75 million bridge facility funded in July 1998 that
matured in November 1998.
At December 31, 1998, the Company had in place a syndicated three year $200
million unsecured revolving credit facility (the "Credit Facility") of which
$190 million was outstanding at December 31, 1998. The Credit Facility will
expire on August 4, 2000. Borrowings under the Credit Facility generally bear
interest at LIBOR plus 55 basis points. The Company is also required to pay a
fee of .200% of the committed amount. This fee and the interest rate are both
subject to change as the Company's credit ratings change.
At December 31, 1998, the Company had a $50 million interim syndicated 364-day
credit agreement (the "Credit Agreement") of which $50 million was outstanding
at December 31, 1998. The Credit Agreement will mature on August 4, 1999.
Borrowings under the Credit Agreement generally bear interest at LIBOR plus 55
basis points. The Company is also required to pay a fee of .150% of the
committed amount. This fee and the interest rate are both subject to change as
the Company's credit ratings change.
At December 31, 1998, the Company had a $15 million unsecured line of credit
with a commercial bank, of which there were no borrowings outstanding at
December 31, 1998. Currently expiring on June 30, 1999, this credit facility is
renewable annually by mutual agreement between the Company and the bank. The
line is subject to periodic bank review and requires the Company to maintain a
depository relationship with the bank; however, there are no formal compensating
balance arrangements. Borrowings bear interest generally at negotiated rates in
line with borrowings under the Company's revolving credit facility.
The Credit Facility and Credit Agreement are subject to customary financial
covenants and limitations. The underlying loan agreements contain certain
covenants which, among other things, require the Company to maintain minimum
consolidated tangible net worth, as defined, and maintain certain financial
ratios.
F-18
<PAGE>
6. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
The following disclosures of estimated fair value of financial instruments were
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgement is necessary to interpret market
data and develop estimated fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts the Company would realize
on the disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts. The carrying amounts and estimated fair value of
the Company's financial instruments at December 31, 1998 and 1997, both on and
off-balance sheet, are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------------------- ----------------------------
In thousands Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------------ ----------------------------
<S> <C> <C> <C> <C>
Notes payable-secured $ 1,072,185 $ 1,125,582 $ 417,325 $ 444,925
Notes payable-unsecured 1,045,564 1,068,868 738,901 780,051
Interest rate swap agreements -- (1,321) -- (547)
Interest rate risk management agreements -- -- -- (5,620)
</TABLE>
The following methods and assumptions were used by the Company in estimating the
fair values set forth above.
Cash and cash equivalents The carrying amount of cash and cash equivalents
approximates fair value.
Notes payable Estimated fair value is based on mortgage rates and tax-exempt
bond rates believed to be available to the Company for the issuance of debt with
similar terms and remaining lives. The carrying amount of the Company's
variable-rate notes payable-secured approximate fair value at December 31, 1998
and 1997. The carrying amounts of the Company's borrowings under short-term
revolving credit agreements and lines of credit approximate their fair values.
Interest rate swap agreements Fair value is based on external market quotations
from investment banks.
Interest rate risk management agreements Fair value is based on external market
quotations from investment banks.
Derivative Instruments
Interest rate swap agreements At December 31, 1998 and 1997, the Company had
five interest rate swap agreements (the "Agreements") outstanding with an
aggregate notional amount of $45 million. These agreements effectively fix the
interest rate on certain variable-rate secured notes payable to a weighted
average fixed-rate of 7.29%. These Agreements have a weighted average maturity
of 2.6 years and mature at various times from May 2000 to July 2004. The
Company's credit exposure on swaps is limited to the value of interest rate
swaps that are favorable to the Company at December 31, 1998.
For all periods presented, the Company had no deferred gains or losses relating
to terminated swap contracts.
Interest rate risk management agreements The Company deferred gains of $1.5
million in 1997 related to the termination of an interest rate risk management
agreement used to hedge the issuance of $125 million of notes issued in 1997.
This agreement had the economic impact of reducing the interest rate from 7.31%
to 7.14% over the ten year term of the notes.
F-19
<PAGE>
In order to reduce the interest rate risk associated with the anticipated
issuance of unsecured notes during 1998, the Company entered into a $100 million
(notional amount) fixed pay forward starting swap agreement (interest rate risk
management agreement) with a major Wall Street investment banking firm in July
1997. The Company settled the interest rate risk management agreement on
November 9, 1998, by paying $15.6 million to the counterparty. The Company was
unable to issue the unsecured notes contemplated by the interest rate risk
management agreement, and accordingly, the cost associated with this settlement
is reflected in the 1998 Statement of Operations.
The Company has no interest rate risk management agreements outstanding at
December 31, 1998.
The Company has not obtained collateral or other security to support financial
instruments. In the event of non-performance by the counterparty, the Company's
credit loss on its derivative instruments is limited to the value of the
derivative instruments that are favorable to the Company at December 31, 1998.
However, such non-performance is not anticipated as the counterparties are
highly rated, credit quality U.S. financial institutions.
7. INCOME TAXES
The differences between net income available to common shareholders for
financial reporting purposes and taxable income before dividend deductions
relate primarily to temporary differences, principally real estate depreciation
and the tax deferral of certain gains on property sales. The temporary
differences in depreciation result from differences in the book and tax basis of
certain real estate assets and the differences in the methods of depreciation
and lives of the real estate assets.
All realized gains (losses) on sales of investments are distributed to
shareholders if and when recognized for income tax purposes. Since 1980, gains
aggregating approximately $82.6 million have been deferred for income tax
purposes and are undistributed at December 31, 1998.
For income tax purposes, distributions paid to common shareholders consist of
ordinary income, capital gains, return of capital or a combination thereof. For
the three years ended December 31, 1998, distributions paid per common share
were taxable as follows:
1998 1997 1996
---- ----- ------
Ordinary income $ .913 $ .727 $ .638
Long-term capital gain --- .021 ---
Return of capital .127 .249 .307
------ ------ -------
$1.040 $ .997 $ .945
====== ====== =======
8. EMPLOYEE BENEFIT PLANS
Profit Sharing Plan
The United Dominion Realty Trust, Inc. Profit Sharing Plan (the "Profit Sharing
Plan") is a defined contribution plan covering all eligible full-time employees.
Under the Profit Sharing Plan, the Company makes discretionary profit sharing
and matching contributions to the Profit Sharing Plan as determined by the
Compensation Committee of the Board of Directors. Aggregate contributions, both
matching and discretionary, which are included in the Company's consolidated
statements of operations for the three years ended December 31, 1998, 1997 and
1996 were $550,000, $646,000 and $600,000, respectively.
F-20
<PAGE>
Stock Option Plan
The Company's 1985 Share Option Plan, (the "Option Plan"), authorizes the grant
of options, at the discretion of the Board of Directors, to certain officers,
directors and key employees of the Company, for up to 10,000,000 shares of the
Company's common stock which is limited to 8% of the number of shares of common
stock issued and outstanding. The Option Plan generally provides, among other
things, that options be granted at exercise prices equal to the market value of
the shares on the date of grant. Shares under options which subsequently expire
or are canceled are available for subsequent grant. For options granted prior to
December 12, 1995, the optionee has up to five years from the date on which the
options first become exercisable during which to exercise the options. For all
options granted subsequent to December 12, 1995, the options have ten year terms
and typically vest on December 31 of the year subsequent to grant. On December
8, 1998, the Company cancelled 1,047,165 options which were granted on December
9, 1997 at $14.25. The Company subsequently reissued these options on December
8, 1998 at the Company's then market price of $10.875.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123 "Accounting for Stock Based Compensation" (SFAS No. 123), and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of accounting as defined in SFAS No. 123. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for 1998,
1997 and 1996:
1998 1997 1996
---- ---- ----
Risk free interest rate 4.9% 4.8% 4.8%
Dividend yields 6.6% 6.6% 6.6%
Volatility factor .150 .150 .150
Weighted average expected life (years) 9 9 9
For purposes of the pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. SFAS No. 123
is applicable only to options granted subsequent to December 31, 1994,
consequently, the pro forma effect is not fully reflected until 1997. The
Company's pro forma information is as follows: (in thousands, except per share
amounts):
1998 1997 1996
---- ---- ----
Net income available
to common shareholders
As reported $ 48,739 $ 52,804 $ 28,278
Pro forma 47,841 52,221 27,961
Earnings per common share-diluted
As reported $ .49 $ .60 $ .49
Pro forma .48 .60 .48
F-21
<PAGE>
A summary of the Company's stock option activity during the three years ended
December 31, 1998 is provided in the following table (in thousand of dollars,
except per share amounts).
<TABLE>
<CAPTION>
Outstanding Options
-----------------------------------------------------
Shares Available Weighted Average Range of
For Future Grant Options Exercise Price Exercise Prices
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 602,840 1,490,636 $12.41 $ 7.44-$14.63
Granted (472,000) 472,000 15.21 13.88-15.25
Exercised -- (148,220) 10.33 7.44-13.63
Forfeited 39,200 (39,200) 14.17 13.13-14.63
Additional shares authorized 1,800,000 -- -- --
-----------------------------------------------------------------------------------
Balance, December 31, 1996 1,970,040 1,775,216 13.29 7.44-15.25
Granted (1,841,000) 1,841,000 14.34 13.50-15.38
Exercised -- (116,495) 11.18 7.44-14.63
Forfeited 51,000 (51,000) 15.09 13.13-15.38
---------------------------------------------------------------------------------------
Balance, December 31, 1997 180,040 3,448,721 13.89 7.44- 15.38
Granted (1,137,665) 1,137,665 11.16 10.88-14.13
Exercised -- (73,490) 11.47 7.44-13.88
Forfeited 1,153,883 (1,153,883) 14.28 7.44-15.38
Additional shares authorized (a) 4,735,858 -- -- --
---------------------------------------------------------------------------------------
Balance, December 31, 1998 4,932,116 3,359,013 $12.89 $ 7.44- $ 15.38
=======================================================================================
</TABLE>
(a) The number of shares of common stock issuable upon the exercise of options
outstanding is limited to 8% of the number of shares of common stock issued and
outstanding.
Exercisable at December 31,
1996 713,791 $11.94 $7.44-$15.25
1997 916,981 12.67 7.44-15.38
1998 1,691,863 13.79 7.44-15.38
The weighted average remaining contractual life on all options outstanding is
7.6 years. Approximately 1,533,335 of share options had exercise prices between
$14.13 and $15.38, approximately 1,781,454 had exercise prices between $10.88
and $13.94 and approximately 44,224 of share options had exercise prices
between $7.44 and $9.19.
The weighted average fair value of options granted during 1998, 1997 and 1996
was $.66, $1.35 and $1.43, respectively.
9. SHAREHOLDERS' EQUITY
Preferred Stock Both Series A and Series B Preferred Stock have no stated par
value, with a liquidation preference of $25 per share. With no voting rights and
no stated maturity, the preferred stock in both series is not subject to any
sinking fund or mandatory redemption and is not convertible into any other
securities of the Company. The Series A and Series B Preferred Stock are not
redeemable prior to April 24, 2000 and May 29, 2007, respectively. On or after
these dates, the Series A and Series B Preferred Stock may be redeemed for cash
at the option of the Company, in whole or in part, at a redemption price of $25
per share plus accrued and unpaid dividends. The redemption price is payable
solely out of the proceeds of the sales proceeds of other capital stock of the
Company. All dividends due and payable on the Series A and Series B Preferred
Stock have been accrued or paid as of the end of each fiscal year.
On December 7, 1998, in connection with the AAC Merger, the Company issued eight
million shares of newly created Series D Convertible Redeemable Preferred Stock
(Series D), with a liquidation preference of $25 per share. The Series D has no
voting rights, no stated maturity and is not subject to any sinking fund or
mandatory redemption. Series D is
F-22
<PAGE>
convertible into 1.5385 shares of common stock at the option of the holder of
Series D at any time at $16.25 per share. The Series D is not redeemable prior
to December 7, 2003. On or after this date, the Company may, at its option,
redeem at any time all or part of the Series D at a price per share of $25,
payable in cash, plus all accrued and unpaid dividends, provided that the
current market price of the common stock at least equals the conversion price,
initially set at $16.25 per share. The redemption is payable solely out of the
sale proceeds of other capital stock. In addition, the Company may not redeem in
any consecutive 12 month period a number of shares of Series D having an
aggregate liquidation preference of more than $100 million.
Officers' Stock Purchase and Loan Plan Under the Officer Stock Purchase and Loan
Plan (the "Loan Plan"), certain officers have purchased common stock at the then
current market price with financing provided by the Company at 7.5% interest
only. Originally, the underlying notes began maturing in November 1998, however,
the maturity date for the 194,000 shares maturing November 1998 was extended to
November 2001. A total of 823,500 shares have been issued and 576,500 shares are
available for future issuance under the Loan Plan.
Dividend Reinvestment and Stock Purchase Plan The Company's Dividend
Reinvestment and Stock Purchase Plan (the "Stock Purchase Plan") allows common
and preferred shareholders the opportunity to purchase, through reinvestment of
cash dividends and optional cash constributions, additional shares of the
Company's common stock. As of December 31, 1998, 6,740,120 shares of common
stock had been issued under the Stock Purchase Plan. Shares in the amount of
7,259,880 were reserved for further issuance under the Stock Purchase Plan at
December 31, 1998. During 1998, 2,824,627 shares were issued under the Stock
Purchase Plan for a total market equity value of approximately $36.6 million.
Purchase Rights On January 27, 1998, the Board of Directors authorized a
Shareholders Rights Plan (the "Rights Plan") which will become exercisable only
if a person or group (the "Acquiring Person") acquires or announces a tender
offer for more than 15% of the outstanding common stock of the Company. Upon
exercise, the Company may issue one share of common stock in exchange for each
right. Each right will entitle the holder to purchase for $45 one thousandth of
a share of Series C Preferred stock or, at the option of the Company, the
Company's common stock having a value of $90.
10. COMMITMENTS AND CONTINGENCIES
Land and Other Leases
The Company is party to several ground leases relating to operating communities.
In addition, the Company is party to various other operating leases related to
the operation of its corporate and regional offices. Future minimum lease
payments for noncancelable land and other leases at December 31, 1998 are as
follows (in thousands):
1999 $ 2,129
2000 1,336
2001 1,233
2002 1,227
2003 1,180
Thereafter 29,996
-----------
Total $ 37,101
===========
The Company incurred $1,614, $1,150, and $707, of rent expense for the years
ended December 31, 1998, 1997 and 1996.
F-23
<PAGE>
Contingencies
The Company is party to various legal actions which are incidental to its
business. Management believes that these actions will not have a material
adverse affect on the consolidated balance sheets and statements of operation.
Commitments
The Company is committed to completing its real estate currently under
development which has an estimated cost to complete of $83.2 million at December
31, 1998.
11. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA
Summarized consolidated quarterly financial data for the year ended December 31,
1998 is as follows (In thousands, except per share information):
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------
March 31(a) June 30 September 30 December 31(a), (b)
---------- ---------- ------------ ------------------
<S> <C> <C> <C> <C>
Rental income $ 104,249 $ 118,176 $ 123,475 $ 132,818
Income before gains (losses) on sales of investments,
minority interests and extraordinary item 17,578 15,387 13,872 502
Gains (losses) on the sales of investments (260) 20,721 13 6,198
Net income 17,183 35,005 13,807 6,337
Distributions to preferred shareholders 5,650 5,653 5,650 6,640
Net income (loss) available to common shareholders 11,533 29,352 8,157 (303)
Earnings per common share:
Basic $ .13 $ .29 $ .08 $ (.00)
Diluted $ .13 $ .29 $ .08 $ (.00)
Weighted average number of common shares
outstanding-basic 90,867 101,562 103,104 103,467
Weighted average number of common shares
outstanding-diluted 90,985 102,358 103,145 103,476
</TABLE>
(a) The Company completed the acquisition of ASR Investments Corporation on
March 27, 1998 and the acquisition of American Apartment Communities II on
December 7, 1998.
(b) The fourth quarter of 1998 includes a $15.6 million charge associated with
the termination of an interest rate risk management agreement.
F-24
<PAGE>
Summarized consolidated quarterly financial data for the year ended December 31,
1997 is as follows (In thousands, except per share information):
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------
March 31 June 30 September 30 December 31
----------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Rental income $ 89,984 $ 95,382 $ 98,816 $ 102,490
Income before gains (losses) on sales of investments,
minority interests and extraordinary item 15,024 13,451 14,053 15,285
Gains (losses) on the sales of investments 2,120 1,254 9,309 (19)
Net income 17,113 14,677 23,309 15,050
Distributions to preferred shareholders 2,428 3,611 5,653 5,653
Net income available to common shareholders 14,685 11,066 17,656 9,397
Earnings per common share:
Basic $ .17 $ .13 $ .20 $ .11
Diluted $ .17 $ .13 $ .20 $ .11
Weighted average number of common shares
outstanding-basic 85,046 86,877 87,853 88,756
Weighted average number of common shares
outstanding -diluted 85,273 87,036 88,007 88,906
</TABLE>
F-25
<PAGE>
SCHEDULE III.
Summary of Real Estate Owned
<TABLE>
<CAPTION>
Cost of
Intitial Costs Improvements
--------------------------------------- Total Capitalized
Land and Building Initials Subsequent
Land and Acquisition to Acquisition
Encumbrances Improvements Improvement Costs (Net of Disposals)
---------------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Apartments:
Real estate held for investment
Dallas, Texas
Citiscape b 2,092,387 7,532,613 9,625,000 293,033
Preston Oaks b 1,783,626 6,416,374 8,200,000 353,018
Preston Trace 2,195,500 8,304,500 10,500,000 427,246
Rock Creek c 4,076,680 15,823,320 19,900,000 1,677,201
Windridge b 3,414,311 14,027,310 17,441,621 1,915,476
Autumnwood c 2,412,180 8,687,820 11,100,000 650,093
Cobblestone c 2,925,372 10,527,738 13,453,110 1,187,891
Pavillion b 4,428,258 18,692,922 23,121,180 872,429
Oak Park 3,966,129 17,848,850 21,814,979 3,404,370
Catalina b 1,543,321 5,631,679 7,175,000 356,305
Wimbledon Court c 1,809,183 10,930,306 12,739,489 2,009,275
Southern Oaks 1,565,000 5,335,000 6,900,000 451,052
Hunters Ridge 1,613,000 5,837,000 7,450,000 480,238
Lakeridge c 1,631,350 5,668,650 7,300,000 543,554
Summergate c 1,171,300 3,928,700 5,100,000 535,904
Dove Park 2,309,195 9,699,046 12,008,241 790,709
Oak Forest 5,630,740 19,961,055 25,591,795 1,181,665
Oak Forest II/Dallas, TX - 3,332,867 3,332,867 8,543,425
Post Oak Ridge 3,726,795 13,563,181 17,289,976 2,593,852
Kelly Crossing 2,496,701 9,156,355 11,653,056 847,386
Parc Plaza 1,683,531 5,279,123 6,962,654 901,066
Summit Ridge 4,925,555 1,725,508 6,308,032 8,033,540 1,041,606
Greenwood Creek 4,993,022 1,958,378 8,551,018 10,509,396 330,832
Highlands of Preston 4,774,686 2,151,056 8,167,630 10,318,686 599,129
Merit Place 7,416,554 3,121,153 12,071,435 15,192,588 1,667,007
Park on Preston 5,668,758 1,521,877 9,950,455 11,472,332 196,598
Aspen Court 2,022,724 776,587 4,944,947 5,721,534 232,885
Smith Summit 5,516,872 1,932,195 9,041,301 10,973,496 699,299
Springfield 5,192,011 3,074,511 6,823,120 9,897,631 401,450
Orlando, Florida
Fisherman's Village 2,387,368 7,458,897 9,846,265 2,661,274
Seabrook 1,845,853 4,155,275 6,001,128 2,529,430
Dover Village 2,894,702 6,456,100 9,350,802 3,023,040
Lakeside North 12,440,000 1,532,700 11,076,062 12,608,762 3,086,935
Regatta Shores 757,008 6,607,367 7,364,375 2,176,134
Alafaya Woods 1,653,000 9,042,256 10,695,256 1,629,505
Vinyards 9,080,000 1,840,230 11,571,625 13,411,855 2,367,182
Andover Place 13,560,000 3,692,187 7,756,919 11,449,106 2,574,008
Los Altos 2,803,805 12,348,464 15,152,269 2,071,136
Lotus Landing 2,184,723 8,638,664 10,823,387 1,483,462
Seville on the Green 1,282,616 6,498,062 7,780,678 1,570,126
Arbors at Lee Vista 3,975,679 16,920,454 20,896,133 1,166,563
Heron Lake 6,549,795 1,446,553 9,287,878 10,734,431 239,004
Raleigh, North Carolina
Dominion on Spring Forest 1,257,500 8,586,255 9,843,755 2,658,993
Dominion Park Green 500,000 4,321,872 4,821,872 1,151,529
Dominion on Lake Lynn 1,723,363 5,303,760 7,027,123 1,998,600
Dominion Courtney Place 1,114,600 5,119,259 6,233,859 2,568,045
Dominion Walnut Ridge 1,791,215 11,968,852 13,760,067 1,845,863
Dominion Walnut Creek 3,170,290 21,717,407 24,887,697 2,481,164
Dominion Ramsgate d 907,605 6,819,154 7,726,759 565,726
Harbour Pointe 1,898,740 7,101,260 9,000,000 137,505
Copper Mill 1,548,280 16,066,720 17,615,000 772,401
Trinity Park 9,132,143 4,579,648 17,575,712 22,155,360 695,680
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which
Carried at Close of Period
------------------------------ Total
Land and Buildings Carrying
Land and Value Accumulated Date of
Improvements Improvements (i) (a) Depreciation Construction
--------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
Apartments:
Real estate held for investment
Dallas, Texas
Citiscape 2,162,504 7,755,529 9,918,033 584,774 1973
Preston Oaks 1,879,294 6,673,724 8,553,018 497,289 1980
Preston Trace 2,303,887 8,623,359 10,927,246 616,382 1984
Rock Creek 4,454,182 17,123,019 21,577,201 1,297,000 1974
Windridge 3,971,087 15,386,010 19,357,097 1,163,009 1980
Autumnwood 2,625,778 9,124,315 11,750,093 700,677 1984
Cobblestone 3,060,821 11,580,180 14,641,001 835,546 1984
Pavillion 4,576,772 19,416,837 23,993,609 1,302,289 1979
Oak Park 2,257,661 22,961,688 25,219,349 1,535,094 1982
Catalina 1,615,288 5,916,017 7,531,305 453,230 1982
Wimbledon Court 1,889,146 12,859,618 14,748,764 755,713 1983
Southern Oaks 1,593,240 5,757,812 7,351,052 469,256 1982
Hunters Ridge 1,786,871 6,143,367 7,930,238 502,247 1992
Lakeridge 1,754,334 6,089,219 7,843,553 489,394 1984
Summergate 1,364,304 4,271,600 5,635,904 320,733 1984
Dove Park 2,557,532 10,241,418 12,798,950 719,443 1984
Oak Forest 5,674,617 21,098,843 26,773,460 1,678,772 1996
Oak Forest II/Dallas, TX 606,365 11,269,927 11,876,292 803,552 1998
Post Oak Ridge 4,358,867 15,524,961 19,883,828 1,157,558 1983
Kelly Crossing 2,791,685 9,708,757 12,500,442 588,853 1984
Parc Plaza 1,864,220 5,999,500 7,863,720 323,701 1986
Summit Ridge 2,110,943 6,964,203 9,075,146 291,473 1983
Greenwood Creek 2,007,346 8,832,882 10,840,228 259,035 1984
Highlands of Preston 2,222,899 8,694,916 10,917,815 242,580 1985
Merit Place 3,276,257 13,583,338 16,859,595 375,279 1984
Park on Preston 1,572,297 10,096,633 11,668,930 287,753 1983
Aspen Court 843,321 5,111,098 5,954,419 144,617 1986
Smith Summit 2,261,908 9,410,887 11,672,795 261,913 1983
Springfield 3,180,328 7,118,753 10,299,081 214,697 1985
Orlando, Florida
Fisherman's Village 3,057,520 9,450,019 12,507,539 1,351,487 1984
Seabrook 2,222,219 6,308,339 8,530,558 1,006,352 1984
Dover Village 3,351,532 9,022,310 12,373,842 2,341,719 1981
Lakeside North 2,209,769 13,485,928 15,695,697 2,568,868 1984
Regatta Shores 1,487,257 8,053,252 9,540,509 1,795,008 1988
Alafaya Woods 2,070,133 10,254,628 12,324,761 1,866,181 1988/90
Vinyards 2,351,199 13,427,838 15,779,037 2,375,293 1984/86
Andover Place 4,428,435 9,594,679 14,023,114 1,383,978 1987/88
Los Altos 3,256,262 13,967,144 17,223,406 1,219,123 1990
Lotus Landing 2,364,862 9,941,987 12,306,849 510,974 1985
Seville on the Green 1,430,736 7,920,068 9,350,804 369,368 1986
Arbors at Lee Vista 4,189,389 17,873,307 22,062,696 670,345 1991
Heron Lake 1,534,759 9,438,676 10,973,435 188,470 1989
Raleigh, North Carolina
Dominion on Spring Forest 1,542,668 10,960,080 12,502,748 3,765,984 1978/81
Dominion Park Green 674,640 5,298,761 5,973,401 1,706,827 1987
Dominion on Lake Lynn 2,156,066 6,869,657 9,025,723 1,807,699 1986
Dominion Courtney Place 1,377,228 7,424,676 8,801,904 1,513,094 1979/81
Dominion Walnut Ridge 2,085,931 13,519,999 15,605,930 2,496,621 1982/84
Dominion Walnut Creek 3,643,340 23,725,521 27,368,861 4,160,114 1985/86
Dominion Ramsgate 994,517 7,297,968 8,292,485 653,113 1988
Harbour Pointe 1,898,796 7,238,709 9,137,505 517,692 1984
Copper Mill 1,742,427 16,644,974 18,387,401 1,205,279 1997
Trinity Park 4,695,353 18,155,687 22,851,040 1,244,633 1987
</TABLE>
<TABLE>
<CAPTION>
Depreciable
Life of
Date Building
Acquired Component
------------------ -------------
<S> <C> <C>
Apartments:
Real estate held for investment
Dallas, Texas
Citiscape 12/31/96 35 yrs.
Preston Oaks 12/31/96 35 yrs.
Preston Trace 12/31/96 35 yrs.
Rock Creek 12/31/96 35 yrs.
Windridge 12/31/96 35 yrs.
Autumnwood 12/31/96 35 yrs.
Cobblestone 12/31/96 35 yrs.
Pavillion 12/31/96 35 yrs.
Oak Park 12/31/96 35 yrs.
Catalina 12/31/96 35 yrs.
Wimbledon Court 12/31/96 35 yrs.
Southern Oaks 12/31/96 35 yrs.
Hunters Ridge 12/31/96 35 yrs.
Lakeridge 12/31/96 35 yrs.
Summergate 12/31/96 35 yrs.
Dove Park 12/31/96 35 yrs.
Oak Forest 12/31/96 35 yrs.
Oak Forest II/Dallas, TX 01/31/98 35 yrs.
Post Oak Ridge 03/27/97 35 yrs.
Kelly Crossing 06/18/97 35 yrs.
Parc Plaza 10/30/97 35 yrs.
Summit Ridge 3/27/98 35 yrs.
Greenwood Creek 3/27/98 35 yrs.
Highlands of Preston 3/27/98 35 yrs.
Merit Place 3/27/98 35 yrs.
Park on Preston 3/27/98 35 yrs.
Aspen Court 3/27/98 35 yrs.
Smith Summit 3/27/98 35 yrs.
Springfield 3/27/98 35 yrs.
Orlando, Florida
Fisherman's Village 12/29/95 35 yrs.
Seabrook 02/20/96 35 yrs.
Dover Village 3/31/93 35 yrs.
Lakeside North 04/14/94 35 yrs.
Regatta Shores 06/30/94 35 yrs.
Alafaya Woods 10/21/94 35 yrs.
Vinyards 10/31/94 35 yrs.
Andover Place 9/29/95 35 yrs.
Los Altos 10/31/96 35 yrs.
Lotus Landing 07/01/97 35 yrs.
Seville on the Green 10/21/97 35 yrs.
Arbors at Lee Vista 12/31/97 35 yrs.
Heron Lake 3/27/98 35 yrs.
Raleigh, North Carolina
Dominion on Spring Forest 05/21/91 35 yrs.
Dominion Park Green 09/27/91 35 yrs.
Dominion on Lake Lynn 12/01/92 35 yrs.
Dominion Courtney Place 07/08/93 35 yrs.
Dominion Walnut Ridge 03/04/94 35 yrs.
Dominion Walnut Creek 05/17/94 35 yrs.
Dominion Ramsgate 08/15/96 35 yrs.
Harbour Pointe 12/31/96 35 yrs.
Copper Mill 12/31/96 35 yrs.
Trinity Park 02/28/97 35 yrs.
</TABLE>
F-26
<PAGE>
<TABLE>
<CAPTION>
Cost of
Intitial Costs Improvements
--------------------------------------- Total Capitalized
Land and Building Initials Subsequent
Land and Acquisition to Acquisition
Encumbrances Improvements Improvement Costs (Net of Disposals)
---------------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Charlotte, North Carolina
The Highlands 321,400 2,830,346 3,151,746 2,352,583
Emerald Bay 626,070 4,722,862 5,348,932 2,559,463
Dominion Peppertree 1,546,267 7,699,221 9,245,488 1,189,092
Dominion Crown Point 70,641 1,115,261 8,648,865 9,764,126 1,022,310
Dominion Harris Pond 4,962,658 886,788 6,728,097 7,614,885 1,056,872
Dominion Mallard Creek (A) 5,345,937 698,860 6,488,061 7,186,921 515,832
Chateau Village 1,046,610 6,979,555 8,026,165 1,891,855
Dominion at Sharon d 667,368 4,856,103 5,523,471 903,292
Providence Court - 22,047,803 22,047,803 8,957,196
Stoney Pointe 12,393,112 1,499,650 15,855,610 17,355,260 954,937
Richmond, Virginia
Dominion Olde West 1,965,097 12,203,965 14,169,062 3,372,637
Dominion Creekwood - - - 100,362
Dominion Laurel Springs 464,480 3,119,716 3,584,196 1,016,484
Dominion English Hills 1,979,174 11,524,313 13,503,487 4,878,966
Dominion Gayton Crossing 3,027,211 825,760 5,147,968 5,973,728 6,248,180
Dominion West End 2,059,252 15,049,088 17,108,340 2,182,406
Courthouse Green 732,050 4,702,353 5,434,403 2,942,594
Waterside at Ironbridge 6,874 1,843,819 13,238,590 15,082,409 465,623
Houston, Texas
Woodtrail b 1,543,000 5,457,000 7,000,000 1,598,821
Park Trails b 1,144,750 4,105,250 5,250,000 235,290
Green Oaks 5,313,920 19,626,181 24,940,101 1,801,513
Seahawk 2,297,741 7,157,965 9,455,706 1,598,418
Greenhouse Patio 11,142,725 4,058,090 14,755,809 18,813,899 2,088,263
Breakers 1,527,467 5,297,930 6,825,397 832,009
Braesridge 9,478,127 3,048,212 10,961,749 14,009,961 889,358
Bammelwood 2,914,992 929,601 3,330,352 4,259,953 207,914
Camino Village 8,550,559 3,604,483 11,592,432 15,196,915 806,930
Briar Park 1,463,642 329,002 2,742,196 3,071,198 50,963
Chelsea Park 3,241,830 1,991,478 5,787,626 7,779,104 407,440
Clear Lake Falls 1,764,277 1,090,080 4,534,335 5,624,415 43,878
Country Club Place 3,649,073 498,632 5,658,634 6,157,266 268,962
Ivy Stone 3,916,943 1,688,948 4,761,680 6,450,628 348,902
London Park 4,714,569 2,018,478 6,534,362 8,552,840 454,256
Marymont 1,150,696 4,155,411 5,306,107 296,151
Memorial Bend 1,972,752 882,230 3,157,829 4,040,059 (37,095)
Nantucket Square 2,825,491 1,067,617 4,222,908 5,290,525 45,805
Prestonwood 2,532,249 998,433 4,128,699 5,127,132 70,540
Riverway 1,250,187 523,457 2,828,282 3,351,739 23,632
Riviera Pines 3,420,047 1,413,851 5,578,207 6,992,058 29,917
The Gallery 3,127,232 768,708 2,410,732 3,179,440 19,822
Timbercreek Landing 1,333,958 5,308,884 6,642,842 598,363
Columbia, South Carolina
Gable Hill 824,847 5,307,194 6,132,041 1,163,591
Colonial Villa 1,014,181 5,100,269 6,114,450 1,898,967
St. Andrews Commons 1,428,826 9,371,378 10,800,204 1,315,853
Forestbrook 5,000,000 395,516 2,902,040 3,297,556 1,693,495
Crossroads 2,074,800 13,760,014 15,834,814 2,935,215
The Park 1,004,072 5,558,436 6,562,508 1,881,195
St. Andrews 976,192 6,884,502 7,860,694 938,009
Waterford 957,980 6,947,939 7,905,919 1,071,145
Hampton Greene 7,183,907 1,363,046 10,118,453 11,481,499 1,177,708
Rivergate 9,454,788 1,122,500 12,055,625 13,178,125 889,548
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which
Carried at Close of Period
------------------------------ Total
Land and Buildings Carrying
Land and Value Accumulated Date of
Improvements Improvements (i) (a) Depreciation Construction
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Charlotte, North Carolina
The Highlands 629,591 4,874,738 5,504,329 2,930,714 1970
Emerald Bay 1,171,772 6,736,623 7,908,395 3,084,174 1972
Dominion Peppertree 1,830,202 8,604,378 10,434,580 1,875,697 1987
Dominion Crown Point 1,316,111 9,470,325 10,786,436 1,730,037 1987
Dominion Harris Pond 1,199,843 7,471,914 8,671,757 1,265,039 1987
Dominion Mallard Creek (A) 775,856 6,926,897 7,702,753 1,141,100 1989
Chateau Village 1,407,248 8,510,771 9,918,019 888,350 1974
Dominion at Sharon 897,820 5,528,943 6,426,763 520,656 1984
Providence Court 7,332,921 23,672,078 31,004,999 1,607,404 1997
Stoney Pointe 1,722,292 16,587,905 18,310,197 1,184,108 1991
Richmond, Virginia
Dominion Olde West 2,376,176 15,165,523 17,541,699 6,372,898 1978/82/85/87
Dominion Creekwood 17,786 82,576 100,362 5,114 1984
Dominion Laurel Springs 617,439 3,983,241 4,600,680 1,343,137 1972
Dominion English Hills 2,579,333 15,803,120 18,382,453 5,055,054 1969/76
Dominion Gayton Crossing 1,125,116 11,096,792 12,221,908 1,768,866 1973
Dominion West End 2,460,328 16,830,418 19,290,746 1,936,326 1989
Courthouse Green 1,068,765 7,308,232 8,376,997 3,399,361 1974/78
Waterside at Ironbridge 1,960,369 13,587,663 15,548,032 630,628 1987
Houston, Texas
Woodtrail 1,653,334 6,945,487 8,598,821 608,145 1978
Park Trails 1,145,558 4,339,732 5,485,290 363,216 1983
Green Oaks 5,724,396 21,017,218 26,741,614 1,237,112 1985
Seahawk 2,665,473 8,388,651 11,054,124 539,300 1984
Greenhouse Patio 4,011,815 16,890,347 20,902,162 759,509 1985
Breakers 1,689,613 5,967,793 7,657,406 320,120 1985
Braesridge 3,098,893 11,800,426 14,899,319 594,692 1982
Bammelwood 946,970 3,520,897 4,467,867 198,498 1980
Camino Village 3,614,087 12,389,758 16,003,845 748,207 1979
Briar Park 332,107 2,790,054 3,122,161 77,096 1987
Chelsea Park 2,027,451 6,159,093 8,186,544 180,100 1983
Clear Lake Falls 1,095,021 4,573,272 5,668,293 123,003 1980
Country Club Place 564,173 5,862,055 6,426,228 167,766 1985
Ivy Stone 1,813,711 4,985,819 6,799,530 172,079 1983
London Park 2,151,877 6,855,219 9,007,096 210,184 1983
Marymont 1,150,696 4,451,562 5,602,258 128,040 1983
Memorial Bend 883,645 3,119,319 4,002,964 98,900 1967
Nantucket Square 1,068,145 4,268,185 5,336,330 116,824 1983
Prestonwood 1,003,137 4,194,535 5,197,672 124,329 1978
Riverway 523,457 2,851,914 3,375,371 95,032 1985
Riviera Pines 1,415,859 5,606,116 7,021,975 167,615 1979
The Gallery 770,447 2,428,815 3,199,262 77,014 1968
Timbercreek Landing 1,447,042 5,794,163 7,241,205 168,809 1984
Columbia, South Carolina
Gable Hill 1,135,416 6,160,216 7,295,632 2,153,319 1985
Colonial Villa 1,481,347 6,532,070 8,013,417 1,723,195 1974
St. Andrews Commons 1,773,706 10,342,351 12,116,057 2,436,770 1986
Forestbrook 626,697 4,364,354 4,991,051 1,246,558 1974
Crossroads 2,559,396 16,210,633 18,770,029 2,838,789 1977/84
The Park 1,415,284 7,028,419 8,443,703 1,295,885 1975/77
St. Andrews 1,188,669 7,610,034 8,798,703 1,330,794 1972
Waterford 1,226,683 7,750,381 8,977,064 1,480,926 1985
Hampton Greene 1,833,229 10,825,978 12,659,207 1,791,543 1990
Rivergate 1,352,160 12,715,513 14,067,673 1,142,450 1989
</TABLE>
<TABLE>
<CAPTION>
Depreciable
Life of
Date Building
Acquired Component
--------------------------------
<S> <C> <C>
Charlotte, North Carolina
The Highlands 01/17/84 35 yrs.
Emerald Bay 02/06/90 35 yrs.
Dominion Peppertree 12/14/93 35 yrs.
Dominion Crown Point 07/01/94 35 yrs.
Dominion Harris Pond 07/01/94 35 yrs.
Dominion Mallard Creek (A) 08/16/94 35 yrs.
Chateau Village 08/15/96 35 yrs.
Dominion at Sharon 08/15/96 35 yrs.
Providence Court 09/30/97 35 yrs.
Stoney Pointe 02/28/97 35 yrs.
Richmond, Virginia
Dominion Olde West 12/31/84 35 yrs.
Dominion Creekwood 08/27/91 35 yrs.
Dominion Laurel Springs 09/06/91 35 yrs.
Dominion English Hills 12/06/91 35 yrs.
Dominion Gayton Crossing 09/28/95 35 yrs.
Dominion West End 12/28/95 35 yrs.
Courthouse Green 12/31/84 35 yrs.
Waterside at Ironbridge 09/30/97 35 yrs.
Houston, Texas
Woodtrail 12/31/96 35 yrs.
Park Trails 12/31/96 35 yrs.
Green Oaks 06/25/97 35 yrs.
Seahawk 05/08/97 35 yrs.
Greenhouse Patio 09/26/97 35 yrs.
Breakers 09/26/97 35 yrs.
Braesridge 09/26/97 35 yrs.
Bammelwood 10/30/97 35 yrs.
Camino Village 11/20/97 35 yrs.
Briar Park 3/27/98 35 yrs.
Chelsea Park 3/27/98 35 yrs.
Clear Lake Falls 3/27/98 35 yrs.
Country Club Place 3/27/98 35 yrs.
Ivy Stone 3/27/98 35 yrs.
London Park 3/27/98 35 yrs.
Marymont 3/27/98 35 yrs.
Memorial Bend 3/27/98 35 yrs.
Nantucket Square 3/27/98 35 yrs.
Prestonwood 3/27/98 35 yrs.
Riverway 3/27/98 35 yrs.
Riviera Pines 3/27/98 35 yrs.
The Gallery 3/27/98 35 yrs.
Timbercreek Landing 3/27/98 35 yrs.
Columbia, South Carolina
Gable Hill 12/04/89 35 yrs.
Colonial Villa 09/16/92 35 yrs.
St. Andrews Commons 05/20/93 35 yrs.
Forestbrook 07/01/93 35 yrs.
Crossroads 07/01/94 35 yrs.
The Park 07/01/94 35 yrs.
St. Andrews 07/01/94 35 yrs.
Waterford 07/01/94 35 yrs.
Hampton Greene 08/19/94 35 yrs.
Rivergate 08/15/96 35 yrs.
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
Cost of
Intitial Costs Improvements
--------------------------------------- Total Capitalized
Land and Building Initials Subsequent
Land and Acquisition to Acquisition
Encumbrances Improvements Improvement Costs (Net of Disposals)
---------------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Tampa, Florida
Bay Cove 2,928,847 6,578,257 9,507,104 2,304,898
Summit West 2,176,500 4,709,970 6,886,470 1,937,832
Pinebrook 1,780,375 2,458,172 4,238,547 2,689,874
Village at Old Tampa Bay 1,750,320 10,756,337 12,506,657 1,844,632
Lakewood Place 1,395,051 10,647,377 12,042,428 936,027
Hunters Ridge 2,461,548 10,942,434 13,403,982 1,185,735
Bay Meadow 7,855,253 2,892,526 9,253,525 12,146,051 2,258,216
Cambridge 1,790,804 7,166,329 8,957,133 1,061,448
Orange Oaks 1,361,553 6,541,980 7,903,533 1,008,878
Parker's Landing 33,211,758 10,178,355 38,584,669 48,763,024 -
Sugar Mill Creek e 2,241,880 8,252,520 10,494,400 -
Greensboro, North Carolina
Beechwood 1,409,377 6,086,677 7,496,054 823,687
Steeplechase 3,208,108 11,513,978 14,722,086 11,949,577
Northwinds d 1,557,654 11,735,787 13,293,441 804,111
Lake Brandt 1,546,950 13,489,466 15,036,416 572,667
Deep River Pointe 1,670,648 11,140,329 12,810,977 258,714
Eastern North Carolina
Colony Village 346,330 3,036,956 3,383,286 1,768,928
Brynn Marr 432,974 3,821,508 4,254,482 2,247,425
Liberty Crossing 869,731 840,000 3,873,139 4,713,139 2,453,104
Bramblewood 401,538 3,150,912 3,552,450 1,277,629
Cape Harbor 9,257,264 1,891,671 18,113,109 20,004,780 786,419
Mill Creek 597,248 4,489,398 5,086,646 1,679,481
Mill Creek II/Wilmington, NC 807,250 - 807,250 11,138,762
The Creek 417,500 2,506,206 2,923,706 1,372,412
Forest Hills 1,028,000 5,420,478 6,448,478 1,625,769
Clear Run 874,830 8,740,602 9,615,432 5,000,303
Crosswinds 1,096,196 18,230,236 19,326,432 722,601
San Antonio, Texas
Promontory Pointe 7,548,219 28,051,781 35,600,000 1,419,789
Bluffs b 1,901,146 6,898,854 8,800,000 1,115,367
Ashley Oaks c 4,590,782 16,809,218 21,400,000 217,320
Sunflower 2,209,000 7,891,000 10,100,000 367,744
Carmel 4,087,024 875,417 6,709,349 7,584,766 778,025
Cimarron City 3,158,544 487,906 4,284,793 4,772,699 441,320
Kenton 7,469,865 2,344,962 8,817,376 11,162,338 1,026,816
Peppermill 4,459,272 773,405 6,873,146 7,646,551 786,793
Villages of Thousand Oaks 8,923,129 3,201,039 9,919,680 13,120,719 1,636,801
Audubon 4,641,035 771,037 5,873,917 6,644,954 1,445,307
Grand Cypress 5,870,421 749,341 8,609,353 9,358,694 777,896
Inn At Los Patios 3,005,300 11,544,700 14,550,000 (1,537,310)
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which
Carried at Close of Period
------------------------------ Total
Land and Buildings Carrying
Land and Value Accumulated Date of
Improvements Improvements (i) (a) Depreciation Construction
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tampa, Florida
Bay Cove 3,257,053 8,554,949 11,812,002 2,314,008 1972
Summit West 2,446,995 6,377,307 8,824,302 1,758,153 1972
Pinebrook 2,022,578 4,905,843 6,928,421 1,462,590 1977
Village at Old Tampa Bay 2,108,454 12,242,835 14,351,289 2,605,702 1986
Lakewood Place 1,565,662 11,412,793 12,978,455 2,108,171 1986
Hunters Ridge 2,915,105 11,674,612 14,589,717 1,694,918 1992
Bay Meadow 3,415,436 10,988,831 14,404,267 909,254 1985
Cambridge 2,049,576 7,969,005 10,018,581 480,927 1985
Orange Oaks 1,529,357 7,383,054 8,912,411 414,613 1986
Parker's Landing 10,178,355 38,584,669 48,763,024 87,684 1991
Sugar Mill Creek 2,241,880 8,252,520 10,494,400 18,816 1988
Greensboro, North Carolina
Beechwood 1,599,720 6,720,021 8,319,741 1,397,580 1985
Steeplechase 3,730,687 22,940,976 26,671,663 1,296,142 1990/97
Northwinds 1,725,289 12,372,263 14,097,552 755,072 1989/97
Lake Brandt 1,742,758 13,866,325 15,609,083 1,208,681 1995
Deep River Pointe 1,752,525 11,317,166 13,069,691 554,003 1997
Eastern North Carolina
Colony Village 543,318 4,608,896 5,152,214 2,355,236 1972/74
Brynn Marr 714,169 5,787,738 6,501,907 2,753,746 1973/77
Liberty Crossing 1,362,097 5,804,146 7,166,243 2,464,291 1972/74
Bramblewood 551,414 4,278,665 4,830,079 2,274,746 1980/82
Cape Harbor 2,214,575 18,576,624 20,791,199 1,658,467 1996
Mill Creek 822,733 5,943,393 6,766,126 1,671,542 1986
Mill Creek II/Wilmington, NC 1,654,093 10,291,919 11,946,012 - 1998
The Creek 485,163 3,810,955 4,296,118 1,210,607 1973
Forest Hills 1,165,162 6,909,085 8,074,247 1,754,109 1964/69
Clear Run 1,230,647 13,385,088 14,615,735 2,013,480 1987/89
Crosswinds 1,179,387 18,869,646 20,049,033 1,358,307 1990
San Antonio, Texas
Promontory Pointe 7,749,116 29,270,673 37,019,789 2,206,529 1997
Bluffs 2,034,223 7,881,144 9,915,367 678,287 1978
Ashley Oaks 4,631,887 16,985,433 21,617,320 1,190,444 1993
Sunflower 2,299,470 8,168,274 10,467,744 624,998 1980
Carmel 878,986 7,483,805 8,362,791 208,163 1986
Cimarron City 518,973 4,695,046 5,214,019 133,162 1983
Kenton 2,384,911 9,804,243 12,189,154 274,164 1983
Peppermill 780,771 7,652,573 8,433,344 220,604 1984
Villages of Thousand Oaks 3,457,982 11,299,539 14,757,521 357,774 1984
Audubon 841,343 7,248,917 8,090,260 213,945 1985
Grand Cypress 760,798 9,375,792 10,136,590 252,007 1995
Inn At Los Patios 3,005,300 10,007,390 13,012,690 153,450 1990
</TABLE>
<TABLE>
<CAPTION>
Depreciable
Life of
Date Building
n Acquired Component
----------------------------------
<S> <C> <C>
Tampa, Florida
Bay Cove 12/16/92 35 yrs.
Summit West 12/16/92 35 yrs.
Pinebrook 09/28/93 35 yrs.
Village at Old Tampa Bay 12/08/93 35 yrs.
Lakewood Place 03/10/94 35 yrs.
Hunters Ridge 06/30/95 35 yrs.
Bay Meadow 12/09/96 35 yrs.
Cambridge 06/06/97 35 yrs.
Orange Oaks 07/01/97 35 yrs.
Parker's Landing 12/7/98 35 yrs.
Sugar Mill Creek 12/7/98 35 yrs.
Greensboro, North Carolina
Beechwood 12/22/93 35 yrs.
Steeplechase 03/07/96 35 yrs.
Northwinds 08/15/96 35 yrs.
Lake Brandt 08/15/96 35 yrs.
Deep River Pointe 10/01/97 35 yrs.
Eastern North Carolina
Colony Village 12/31/84 35 yrs.
Brynn Marr 12/31/84 35 yrs.
Liberty Crossing 11/30/90 35 yrs.
Bramblewood 12/31/84 35 yrs.
Cape Harbor 08/15/96 35 yrs.
Mill Creek 09/30/91 35 yrs.
Mill Creek II/Wilmington, NC 35 yrs.
The Creek 06/30/92 35 yrs.
Forest Hills 06/30/92 35 yrs.
Clear Run 07/22/94 35 yrs.
Crosswinds 02/28/97 35 yrs.
San Antonio, Texas
Promontory Pointe 12/31/96 35 yrs.
Bluffs 12/31/96 35 yrs.
Ashley Oaks 12/31/96 35 yrs.
Sunflower 12/31/96 35 yrs.
Carmel 4/16/98 35 yrs.
Cimarron City 4/16/98 35 yrs.
Kenton 4/16/98 35 yrs.
Peppermill 4/16/98 35 yrs.
Villages of Thousand Oaks 4/16/98 35 yrs.
Audubon 4/16/98 35 yrs.
Grand Cypress 4/16/98 35 yrs.
Inn At Los Patios 8/15/98 35 yrs.
</TABLE>
F-28
<PAGE>
<TABLE>
<CAPTION>
Cost of
Intitial Costs Improvements
--------------------------------------- Total Capitalized
Land and Building Initials Subsequent
Land and Acquisition to Acquisition
Encumbrances Improvements Improvement Costs (Net of Disposals)
---------------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Nashville, Tennessee
2131 Apartments 869,860 9,155,185 10,025,045 3,413,587
The Lakes 1,285,657 5,980,197 7,265,854 1,131,216
Harbour Town 572,567 3,522,092 4,094,659 891,015
Legacy Hill 5,080,972 1,147,660 5,867,567 7,015,227 2,569,984
Hickory Run 1,468,727 11,583,786 13,052,513 1,200,687
Brookridge 707,508 5,461,251 6,168,759 916,879
Club at Hickory Hollow 2,139,774 15,231,201 17,370,975 1,552,323
Breckenridge 766,428 7,713,862 8,480,290 521,768
Williamsburg 1,376,190 10,931,309 12,307,499 819,399
Baltimore, Maryland
Gatewater Landing 2,078,422 6,084,526 8,162,948 1,025,553
Dominion Kings Place 4,795,000 1,564,942 7,006,574 8,571,516 700,588
Dominion at Eden Brook 8,185,000 2,361,167 9,384,171 11,745,338 995,646
Dominion Great Oaks 2,919,481 9,099,691 12,019,172 2,410,980
Dominion Constant Friendship 903,122 4,668,956 5,572,078 623,209
Atlanta, Georgia
Stanford Village 884,500 2,807,839 3,692,339 1,016,626
Griffin Crossing 1,509,633 7,544,018 9,053,651 1,103,728
Gwinnett Square 1,924,325 7,376,454 9,300,779 1,255,281
Dunwoody Pointe 5,783,881 2,763,324 6,902,996 9,666,320 4,119,690
Riverwood 5,309,328 2,985,599 11,087,903 14,073,502 2,866,910
Lake of the Woods 835,352 8,388,258 9,223,610 846,137
Waterford Place 1,579,478 10,302,679 11,882,157 94,149
Miami/Fort Lauderdale, Florida
Copperfield 4,424,128 20,428,969 24,853,097 1,476,079
Mediterranean Village 2,064,788 11,939,113 14,003,901 1,233,880
Cleary Court 2,399,848 7,913,450 10,313,298 1,389,858
University Club 1,390,220 6,992,620 8,382,840 1,342,786
Polo Chase 3,675,276 13,801,853 17,477,129 -
Washington D.C.
Dominion Middle Ridge/Woodbridge 3,311,468 13,283,047 16,594,515 772,923
Dominion Lake Ridge/Woodbridge 2,366,061 8,386,439 10,752,500 665,608
Knolls at Newgate/Fairfax 1,725,725 3,530,134 5,255,859 1,467,169
Hampton Roads, Virginia
Forest Lakes at Oyster Point 780,117 8,861,878 9,641,995 1,558,191
Woodscape 798,700 7,209,525 8,008,225 2,670,385
Eastwind 155,000 5,316,738 5,471,738 1,944,651
Kings Arms 1,823,983 4,106,710 5,930,693 1,060,252
Heather Lake 616,800 3,400,672 4,017,472 2,796,641
York Pointe 1,088,887 8,581,771 9,670,658 515,331
Jacksonville, Florida
Greentree Place 12,455,000 1,634,330 11,226,990 12,861,320 3,316,528
Westland Park 1,834,535 14,864,742 16,699,277 3,189,368
The Antlers 4,034,039 11,192,842 15,226,881 4,619,321
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which
Carried at Close of Period
------------------------------ Total
Land and Buildings Carrying
Land and Value Accumulated Date of
Improvements Improvements (i) (a) Depreciation Construction
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nashville, Tennessee
2131 Apartments 1,190,094 12,248,538 13,438,632 2,768,622 1972
The Lakes 1,461,651 6,935,419 8,397,070 1,661,764 1986
Harbour Town 721,324 4,264,350 4,985,674 944,649 1974
Legacy Hill 1,416,362 8,168,849 9,585,211 1,122,442 1977
Hickory Run 1,621,766 12,631,434 14,253,200 1,479,324 1989
Brookridge 909,717 6,175,921 7,085,638 779,067 1986
Club at Hickory Hollow 2,645,694 16,277,604 18,923,298 1,246,401 1987
Breckenridge 924,092 8,077,966 9,002,058 598,483 1986
Williamsburg 1,436,225 11,690,672 13,126,897 457,939 1986
Baltimore, Maryland
Gatewater Landing 2,166,411 7,022,090 9,188,501 1,797,148 1970
Dominion Kings Place 1,645,423 7,626,681 9,272,104 1,688,397 1983
Dominion at Eden Brook 2,462,172 10,278,813 12,740,985 2,312,986 1984
Dominion Great Oaks 3,241,013 11,189,139 14,430,152 2,255,101 1974
Dominion Constant Friendship 1,038,234 5,157,053 6,195,287 734,120 1990
Atlanta, Georgia
Stanford Village 1,156,761 3,552,204 4,708,965 1,551,738 1985
Griffin Crossing 1,671,386 8,485,993 10,157,379 1,573,554 1987/89
Gwinnett Square 2,110,130 8,445,930 10,556,060 1,194,754 1985
Dunwoody Pointe 3,265,954 10,520,056 13,786,010 1,439,655 1980
Riverwood 3,321,388 13,619,024 16,940,412 1,509,651 1980
Lake of the Woods 1,064,519 9,005,229 10,069,748 842,622 1989
Waterford Place 1,612,011 10,364,295 11,976,306 270,375 1985
Miami/Fort Lauderdale, Florida
Copperfield 4,955,878 21,373,298 26,329,176 3,045,731 1991
Mediterranean Village 2,262,087 12,975,694 15,237,781 2,011,391 1989
Cleary Court 2,613,237 9,089,919 11,703,156 1,398,251 1984/85
University Club 1,757,874 7,967,752 9,725,626 991,011 1988
Polo Chase 3,675,276 13,801,853 17,477,129 31,352 1991
Washington D.C.
Dominion Middle Ridge/Woodbridge 3,408,199 13,959,239 17,367,438 1,292,977 1990
Dominion Lake Ridge/Woodbridge 2,489,682 8,928,426 11,418,108 1,026,435 1987
Knolls at Newgate/Fairfax 1,844,394 4,878,634 6,723,028 1,020,075 1972
Hampton Roads, Virginia
Forest Lakes at Oyster Point 1,144,089 10,056,096 11,200,185 1,410,934 1986
Woodscape 1,060,243 9,618,367 10,678,610 4,025,551 1974/76
Eastwind 349,983 7,066,406 7,416,389 2,986,791 1970
Kings Arms 2,010,103 4,980,842 6,990,945 526,341 1966
Heather Lake 954,979 5,859,134 6,814,113 3,899,340 1972/74
York Pointe 1,251,487 8,934,502 10,185,989 349,065 1987
Jacksonville, Florida
Greentree Place 2,245,862 13,931,986 16,177,848 2,451,035 1986
Westland Park 2,567,434 17,321,210 19,888,644 1,891,845 1990
The Antlers 4,757,500 15,088,701 19,846,201 1,829,629 1985
</TABLE>
<TABLE>
<CAPTION>
Depreciable
Life of
Date Building
Acquired Component
---------------------------------
<S> <C> <C>
Nashville, Tennessee
2131 Apartments 12/16/92 35 yrs.
The Lakes 09/15/93 35 yrs.
Harbour Town 12/10/93 35 yrs.
Legacy Hill 11/06/95 35 yrs.
Hickory Run 12/29/95 35 yrs.
Brookridge 03/28/96 35 yrs.
Club at Hickory Hollow 02/21/97 35 yrs.
Breckenridge 03/27/97 35 yrs.
Williamsburg 5/20/98 35 yrs.
Baltimore, Maryland
Gatewater Landing 12/16/92 35 yrs.
Dominion Kings Place 12/29/92 35 yrs.
Dominion at Eden Brook 12/29/92 35 yrs.
Dominion Great Oaks 07/01/94 35 yrs.
Dominion Constant Friendship 05/04/95 35 yrs.
Atlanta, Georgia
Stanford Village 09/26/89 35 yrs.
Griffin Crossing 06/08/94 35 yrs.
Gwinnett Square 03/29/95 35 yrs.
Dunwoody Pointe 10/24/95 35 yrs.
Riverwood 06/26/96 35 yrs.
Lake of the Woods 08/15/96 35 yrs.
Waterford Place 04/15/98 35 yrs.
Miami/Fort Lauderdale, Florida
Copperfield 09/21/94 35 yrs.
Mediterranean Village 09/30/94 35 yrs.
Cleary Court 11/30/94 35 yrs.
University Club 09/26/95 35 yrs.
Polo Chase 12/7/98 35 yrs.
Washington D.C.
Dominion Middle Ridge/Woodbridge 06/25/96 35 yrs.
Dominion Lake Ridge/Woodbridge 02/23/96 35 yrs.
Knolls at Newgate/Fairfax 07/01/94 35 yrs.
Hampton Roads, Virginia
Forest Lakes at Oyster Point 08/15/95 35 yrs.
Woodscape 12/29/87 35 yrs.
Eastwind 04/04/88 35 yrs.
Kings Arms 08/15/96 35 yrs.
Heather Lake 03/01/80 35 yrs.
York Pointe 12/23/97 35 yrs.
Jacksonville, Florida
Greentree Place 07/22/94 35 yrs.
Westland Park 05/09/96 35 yrs.
The Antlers 05/28/96 35 yrs.
</TABLE>
F-29
<PAGE>
<TABLE>
<CAPTION>
Cost of
Intitial Costs Improvements
--------------------------------------- Total Capitalized
Land and Building Initials Subsequent
Land and Acquisition to Acquisition
Encumbrances Improvements Improvement Costs (Net of Disposals)
---------------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Greenville, South Carolina
Key Pines 601,693 3,773,304 4,374,997 1,877,702
Riverwind 802,484 6,386,212 7,188,696 842,648
The Landing 685,000 5,640,176 6,325,176 1,852,861
Overlook 824,600 5,098,194 5,922,794 2,835,133
Stonesthrow 1,557,015 16,334,483 17,891,498 946,578
Phoenix, Arizona
Greenway Park c 1,622,700 6,170,800 7,793,500 2,682,360
Vista Point b 1,587,400 5,612,600 7,200,000 1,076,149
Sierra Palms 4,638,950 17,361,050 22,000,000 163,100
Northpark Village 36,957 1,519,314 13,536,707 15,056,021 818,456
Contempo Heights 3,887,969 735,036 7,639,875 8,374,911 287,769
Finisterra 1,273,798 26,392,207 27,666,005 87,620
La Privada 16,005,613 7,303,161 18,507,617 25,810,778 530,259
Rancho Mirage 3,757,224 34,780,779 38,538,003 710,794
Woodland Park 3,016,907 6,706,473 9,723,380 (210,136)
Tucson, Arizona
Casa Del Norte 1,410,911 319,181 1,980,628 2,299,809 18,496
Desert Springs 4,728,191 1,118,402 6,186,758 7,305,160 154,363
Landmark 3,120,868 460,791 3,980,299 4,441,090 132,988
Park Terrace 2,768,268 530,136 3,590,288 4,120,424 38,971
Posada Del Rio 843,748 3,742,175 4,585,923 269,539
South Point 1,909,114 447,370 2,479,069 2,926,439 47,593
Eastern Shore Maryland
Brittingham Square 650,143 4,962,246 5,612,389 537,805
Greens at Schumaker Pond 709,559 6,117,582 6,827,141 786,483
Greens at Cross Court 1,182,414 4,544,012 5,726,426 792,429
Greens at Hilton Run 2,754,447 10,482,579 13,237,026 1,026,716
Fayetteville, North Carolina
Cumberland Trace 632,281 7,895,674 8,527,955 430,321
Village At Cliffdale 10,259,673 941,284 15,498,216 16,439,500 942,148
Morganton Place 8,193,194 819,090 13,217,086 14,036,176 523,433
Memphis, Tennessee
Briar Club 1,214,400 6,928,959 8,143,359 1,765,174
Hunters Trace 5,715,000 888,440 6,676,552 7,564,992 1,234,099
Hickory Pointe 1,074,424 6,052,020 7,126,444 1,399,445
Cinnamon Trails 1,886,632 7,644,522 9,531,154 (529,642)
The Trails 27,696,865 10,387,416 34,394,843 44,782,259 1,948,511
Dogwood Creek 10,000,000 2,771,868 15,673,846 18,445,714 397,714
Columbus, Ohio
Sycamore Ridge 14,008,386 4,067,900 15,433,285 19,501,185 580,955
Heritage Green 2,990,199 11,391,797 14,381,996 275,495
Govenour's Square 20,972,590 7,512,513 27,695,050 35,207,563 -
Grandview Terrace 511,610 1,923,940 2,435,550 -
Hickory Creek g 3,421,413 12,539,402 15,960,815 -
The Tivoli 653,372 2,398,488 3,051,860 -
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which
Carried at Close of Period
------------------------------ Total
Land and Buildings Carrying
Land and Value Accumulated Date of
) Improvements Improvements (i) (a) Depreciation Construction
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Greenville, South Carolina
Key Pines 715,531 5,537,168 6,252,699 1,683,686 1974
Riverwind 953,688 7,077,656 8,031,344 1,498,576 1987
The Landing 1,018,551 7,159,486 8,178,037 1,306,801 1976
Overlook 1,327,738 7,430,189 8,757,927 1,520,361 1976
Stonesthrow 1,705,535 17,132,541 18,838,076 1,534,995 1993
Phoenix, Arizona
Greenway Park 1,794,474 8,681,386 10,475,860 492,378 1986
Vista Point 1,656,868 6,619,281 8,276,149 472,090 1986
Sierra Palms 4,666,075 17,497,025 22,163,100 1,262,425 1996
Northpark Village 1,755,745 14,118,732 15,874,477 503,184 1983
Contempo Heights 786,471 7,876,209 8,662,680 223,595 1978
Finisterra 1,281,243 26,472,382 27,753,625 699,060 1997
La Privada 7,483,518 18,857,519 26,341,037 508,599 1987
Rancho Mirage 3,889,108 35,359,688 39,248,796 860,128 1984
Woodland Park 3,021,817 6,491,427 9,513,244 172,615 1979
Tucson, Arizona
Casa Del Norte 325,937 1,992,368 2,318,305 62,032 1984
Desert Springs 1,118,946 6,340,577 7,459,523 187,196 1985
Landmark 471,887 4,102,191 4,574,078 127,103 1986
Park Terrace 532,907 3,626,488 4,159,395 117,849 1986
Posada Del Rio 929,027 3,926,435 4,855,462 121,384 1980
South Point 457,330 2,516,702 2,974,032 86,023 1984
Eastern Shore Maryland
Brittingham Square 775,922 5,374,272 6,150,194 751,840 1991
Greens at Schumaker Pond 853,788 6,759,836 7,613,624 927,317 1988
Greens at Cross Court 1,362,894 5,155,961 6,518,855 781,560 1987
Greens at Hilton Run 3,041,042 11,222,700 14,263,742 1,553,356 1988
Fayetteville, North Carolina
Cumberland Trace 663,198 8,295,078 8,958,276 756,005 1973
Village At Cliffdale 1,107,855 16,273,794 17,381,649 1,374,710 1992
Morganton Place 886,825 13,672,784 14,559,609 1,124,625 1994
Memphis, Tennessee
Briar Club 1,490,502 8,418,031 9,908,533 1,569,826 1987
Hunters Trace 1,125,488 7,673,603 8,799,091 1,360,476 1986
Hickory Pointe 1,560,332 6,965,557 8,525,889 1,214,489 1985
Cinnamon Trails 1,967,974 7,033,538 9,001,512 281,464 1989
The Trails 10,852,433 35,878,337 46,730,770 1,300,464 1990
Dogwood Creek 2,796,344 16,047,084 18,843,428 533,684 1997
Columbus, Ohio
Sycamore Ridge 4,101,080 15,981,060 20,082,140 262,645 1997
Heritage Green 3,030,466 11,627,025 14,657,491 253,770 1998
Govenour's Square 7,512,513 27,695,050 35,207,563 62,695 1967
Grandview Terrace 511,610 1,923,940 2,435,550 4,329 1974
Hickory Creek 3,421,413 12,539,402 15,960,815 28,105 1988
The Tivoli 653,372 2,398,488 3,051,860 5,365 1967
</TABLE>
<TABLE>
<CAPTION>
Depreciable
Life of
Date Building
Acquired Component
-------------------------------------
<S> <C> <C>
Greenville, South Carolina
Key Pines 09/25/92 35 yrs.
Riverwind 12/31/93 35 yrs.
The Landing 07/01/94 35 yrs.
Overlook 07/01/94 35 yrs.
Stonesthrow 08/15/96 35 yrs.
Phoenix, Arizona
Greenway Park 12/31/96 35 yrs.
Vista Point 12/31/96 35 yrs.
Sierra Palms 12/31/96 35 yrs.
Northpark Village 03/27/98 35 yrs.
Contempo Heights 03/27/98 35 yrs.
Finisterra 03/27/98 35 yrs.
La Privada 03/27/98 35 yrs.
Rancho Mirage 05/28/98 35 yrs.
Woodland Park 06/09/98 35 yrs.
Tucson, Arizona
Casa Del Norte 3/27/98 35 yrs.
Desert Springs 3/27/98 35 yrs.
Landmark 3/27/98 35 yrs.
Park Terrace 3/27/98 35 yrs.
Posada Del Rio 3/27/98 35 yrs.
South Point 3/27/98 35 yrs.
Eastern Shore Maryland
Brittingham Square 05/04/95 35 yrs.
Greens at Schumaker Pond 05/04/95 35 yrs.
Greens at Cross Court 05/04/95 35 yrs.
Greens at Hilton Run 05/04/95 35 yrs.
Fayetteville, North Carolina
Cumberland Trace 08/15/96 35 yrs.
Village At Cliffdale 08/15/96 35 yrs.
Morganton Place 08/15/96 35 yrs.
Memphis, Tennessee
Briar Club 10/14/94 35 yrs.
Hunters Trace 10/14/94 35 yrs.
Hickory Pointe 02/10/95 35 yrs.
Cinnamon Trails 1/9/98 35 yrs.
The Trails 1/9/98 35 yrs.
Dogwood Creek 2/6/98 35 yrs.
Columbus, Ohio 3/27/98 35 yrs.
Sycamore Ridge 7/2/98 35 yrs.
Heritage Green 7/2/98 35 yrs.
Govenour's Square 12/7/98 35 yrs.
Grandview Terrace 12/7/98 35 yrs.
Hickory Creek 12/7/98 35 yrs.
The Tivoli 12/7/98 35 yrs.
</TABLE>
F-30
<PAGE>
<TABLE>
<CAPTION>
Cost of
Intitial Costs Improvements
--------------------------------------- Total Capitalized
Land and Building Initials Subsequent
Land and Acquisition to Acquisition
Encumbrances Improvements Improvement Costs (Net of Disposals)
---------------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Austin, Texas
Pecan Grove b 1,406,750 5,293,250 6,700,000 156,669
Anderson Mill 3,134,669 11,170,376 14,305,045 2,152,805
Albuquerque, New Mexico
Alvarado b 1,930,229 5,969,771 7,900,000 297,767
Dorado Heights 5,345,522 1,567,762 6,555,395 8,123,157 155,175
Villa Serena 2,749,125 512,421 3,403,906 3,916,327 37,545
Whispering Sands 5,609,631 865,633 7,725,456 8,591,089 80,378
East Lansing, Michigan
2900 Place g 1,818,957 6,593,327 8,412,284 -
Brandywine Creek e 4,665,991 16,736,466 21,402,457 -
Lakewood e 1,113,126 3,877,503 4,990,629 -
Nemoke Trail e 3,430,631 12,322,526 15,753,157 -
Detroit, Michigan
American Heritage e 1,021,412 3,608,146 4,629,558 -
Ashton Pines g 1,822,351 6,513,902 8,336,253 -
Kings Gate e 1,180,664 4,328,504 5,509,168 -
Lancaster Lakes e 4,237,887 15,412,797 19,650,684 -
Other Midwest
Washington Park/Centerville, Ohio 2,011,520 7,565,279 9,576,799 765,800
Fountainhead/Dayton, Ohio 390,542 1,420,166 1,810,708 -
Jamestown of St.Matthews/
St. Matthews, Kentucky 3,865,596 14,422,383 18,287,979 -
Jamestown of Toledo/Toledo, Ohio 1,800,271 6,453,585 8,253,856 -
Sunset Village/Flint, Michigan - 796,994 2,829,226 3,626,220 -
Other Florida
Brantley Pines/Ft. Myers 1,892,888 8,247,621 10,140,509 4,619,987
Santa Barbara Landing/Naples 1,134,120 8,019,814 9,153,934 1,439,501
Mallards of Wedgewood/Lakeland 959,284 6,864,666 7,823,950 1,506,236
The Groves/Daytona Beach 789,953 4,767,055 5,557,008 1,563,944
Lakeside/Daytona Beach 2,404,305 6,420,160 8,824,465 1,084,294
Mallards of Brandywine/Deland 765,949 5,407,683 6,173,632 927,687
Lake Washington Downs/Melbourne 1,434,450 4,940,166 6,374,616 1,739,542
Seattle, Washington
Arbor Terrace I 4,568,671 831,068 6,834,471 7,665,539 91,196
Arbor Terrace II 3,116,814 622,274 5,160,501 5,782,775 56,047
Aspen Creek 7,052,655 1,177,714 9,115,789 10,293,503 88,508
Crown Point 4,958,705 2,486,252 9,437,256 11,923,508 -
Hill Top 4,670,040 2,173,969 8,307,628 10,481,597 -
Indianapolis, Indiana
Cold Springs Manor e 599,646 2,074,834 2,674,480 -
International Village e 3,934,102 13,778,908 17,713,010 -
Regency Park South g 2,643,025 9,632,098 12,275,123 -
Denver, Colorado
Greensview g 2,974,024 11,029,598 14,003,622 -
Mountain View g 6,401,851 23,789,403 30,191,254 -
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which
Carried at Close of Period
------------------------------ Total
Land and Buildings Carrying
Land and Value Accumulated Date of
Improvements Improvements (i) (a) Depreciation Construction
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Austin, Texas
Pecan Grove 1,440,733 5,415,936 6,856,669 347,068 1984
Anderson Mill 3,437,730 13,020,120 16,457,850 1,333,117 1984
Albuquerque, New Mexico
Alvarado 1,961,453 6,236,314 8,197,767 494,554 1984
Dorado Heights 1,615,674 6,662,658 8,278,332 189,464 1986
Villa Serena 513,602 3,440,270 3,953,872 97,695 1986
Whispering Sands 869,838 7,801,629 8,671,467 217,575 1986
East Lansing, Michigan
2900 Place 1,818,957 6,593,327 8,412,284 14,791 1966
Brandywine Creek 4,665,991 16,736,466 21,402,457 37,986 1974
Lakewood 1,113,126 3,877,503 4,990,629 8,666 1974
Nemoke Trail 3,430,631 12,322,526 15,753,157 27,831 1978
Detroit, Michigan
American Heritage 1,021,412 3,608,146 4,629,558 8,088 1968
Ashton Pines 1,822,351 6,513,902 8,336,253 14,755 1987
Kings Gate 1,180,664 4,328,504 5,509,168 9,803 1973
Lancaster Lakes 4,237,887 15,412,797 19,650,684 35,510 1988
Other Midwest
Washington Park/Centerville, Ohio 2,050,015 8,292,584 10,342,599 149,955 1998
Fountainhead/Dayton, Ohio 390,542 1,420,166 1,810,708 3,028 1966
Jamestown of St. Matthews/
St. Matthews, Kentucky 3,865,596 14,422,383 18,287,979 32,917 1968
Jamestown of Toledo/Toledo, Ohio 1,800,271 6,453,585 8,253,856 14,540 1965
Sunset Village/Flint, Michigan 796,994 2,829,226 3,626,220 6,072 1940
Other Florida
Brantley Pines/Ft. Myers 801,116 13,959,380 14,760,496 1,839,427 1986
Santa Barbara Landing/Naples 1,674,582 8,918,853 10,593,435 1,655,803 1987
Mallards of Wedgewood/Lakeland 1,240,264 8,089,921 9,330,185 1,222,376 1985
The Groves/Daytona Beach 1,413,329 5,707,623 7,120,952 840,751 1989
Lakeside/Daytona Beach 2,602,581 7,306,178 9,908,759 408,287 1985
Mallards of Brandywine/Deland 974,487 6,126,832 7,101,319 359,393 1985
Lake Washington Downs/Melbourne 1,725,169 6,388,989 8,114,158 1,571,641 1984
Seattle, Washington
Arbor Terrace I 832,888 6,923,847 7,756,735 194,030 1996
Arbor Terrace II 623,750 5,215,072 5,838,822 151,046 1996
Aspen Creek 1,251,783 9,130,228 10,382,011 - 1996
Crown Point 2,486,252 9,437,256 11,923,508 21,676 1987
Hill Top 2,173,969 8,307,628 10,481,597 19,032 1985
Indianapolis, Indiana
Cold Springs Manor 599,646 2,074,834 2,674,480 4,512 1963
International Village 3,934,102 13,778,908 17,713,010 30,968 1968
Regency Park South 2,643,025 9,632,098 12,275,123 21,739 1968
Denver, Colorado
Greensview 2,974,024 11,029,598 14,003,622 24,956 1987
Mountain View 6,401,851 23,789,403 30,191,254 54,260 1973
</TABLE>
<TABLE>
<CAPTION>
Depreciable
Life of
Date Building
Acquired Component
---------------------------------
<S> <C> <C>
Austin, Texas
Pecan Grove 12/31/96 35 yrs.
Anderson Mill 03/27/97 35 yrs.
Albuquerque, New Mexico
Alvarado 12/31/96 35 yrs.
Dorado Heights 03/27/98 35 yrs.
Villa Serena 03/27/98 35 yrs.
Whispering Sands 03/27/98 35 yrs.
East Lansing, Michigan
2900 Place 12/07/98 35 yrs.
Brandywine Creek 12/07/98 35 yrs.
Lakewood 12/07/98 35 yrs.
Nemoke Trail 12/07/98 35 yrs.
Detroit, Michigan
American Heritage 12/07/98 35 yrs.
Ashton Pines 12/07/98 35 yrs.
Kings Gate 12/07/98 35 yrs.
Lancaster Lakes 12/07/98 35 yrs.
Other Midwest
Washington Park/Centerville, Ohio 12/07/98 35 yrs.
Fountainhead/Dayton, Ohio 12/07/98 35 yrs.
Jamestown of St. Matthews/
St. Matthews, Kentucky 12/07/98 35 yrs.
Jamestown of Toledo/Toledo, Ohio 12/07/98 35 yrs.
Sunset Village/Flint, Michigan 12/07/98 35 yrs.
Other Florida
Brantley Pines/Ft. Myers 08/11/94 35 yrs.
Santa Barbara Landing/Naples 09/01/94 35 yrs.
Mallards of Wedgewood/Lakeland 07/27/95 35 yrs.
The Groves/Daytona Beach 12/13/95 35 yrs.
Lakeside/Daytona Beach 07/01/97 35 yrs.
Mallards of Brandywine/Deland 07/01/97 35 yrs.
Lake Washington Downs/Melbourne 09/24/93 35 yrs.
Seattle, Washington
Arbor Terrace I 3/27/98 35 yrs.
Arbor Terrace II 3/27/98 35 yrs.
Aspen Creek 12/7/98 35 yrs.
Crown Point 12/7/98 35 yrs.
Hill Top 12/7/98 35 yrs.
Indianapolis, Indiana
Cold Springs Manor 12/7/98 35 yrs.
International Village 12/7/98 35 yrs.
Regency Park South 12/7/98 35 yrs.
Denver, Colorado
Greensview 12/7/98 35 yrs.
Mountain View 12/7/98 35 yrs.
</TABLE>
F-31
<PAGE>
<TABLE>
<CAPTION>
Cost of
Intitial Costs Improvements
--------------------------------------- Total Capitalized
Land and Building Initials Subsequent
Land and Acquisition to Acquisition
Encumbrances Improvements Improvement Costs (Net of Disposals)
---------------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Portland, Oregon
Lancaster Commons e 2,485,291 9,301,165 11,786,456 -
Tualatin Heights e 3,272,585 12,134,089 15,406,674 -
University Park 7,345,000 3,007,202 11,691,307 14,698,509 -
Double Tree 5,400,078 3,878,138 13,973,051 17,851,189 -
Los Angeles, California
Pine Avenue 6,141,240 2,158,423 8,387,744 10,546,167 -
The Grand Resort 8,884,151 33,956,606 42,840,757 -
Sacramento, California
Foothills Tennis Village e 3,617,507 13,192,028 16,809,535 -
Woodlake Village 17,126,871 6,772,438 23,966,750 30,739,188 -
San Francisco, California
2000 Post Street 26,850,000 9,860,627 38,577,506 48,438,133 -
Birch Creek 1,668,896 4,365,315 16,645,509 21,010,824 -
Highlands of Marin 20,800,000 5,995,838 23,168,350 29,164,188 -
Marina Playa 20,766,883 6,224,383 23,916,283 30,140,666 -
Monterey Peninsula, California
Boronda Manor f 1,946,423 6,981,742 8,928,165 -
Garden Court h 888,038 3,187,950 4,075,988 -
Glenridge h 415,284 1,552,934 1,968,218 -
Harding Park Townhomes f 549,393 2,051,322 2,600,715 -
Heather Plaza f 2,020,384 7,226,038 9,246,422 -
Laurel Tree f 1,303,902 4,615,356 5,919,258 -
New San Pablo h 289,468 1,020,473 1,309,941 -
Pine Grove f 1,383,161 5,283,993 6,667,154 -
San Pablo h 804,394 3,094,626 3,899,020 -
Santanna h 957,079 3,526,117 4,483,196 -
The Capri f 1,018,493 3,657,274 4,675,767 -
The Claremont h 463,143 1,637,120 2,100,263 -
The Pointe At Harden Ranch f 6,388,446 23,853,534 30,241,980 -
The Pointe At Northridge f 2,043,736 7,528,443 9,572,179 -
The Pointe At Westlake f 1,329,064 4,834,004 6,163,068 -
Valli Hi h 881,376 3,237,805 4,119,181 -
Other California
Silk Oak/Fresno g 2,324,562 7,566,446 9,891,008 -
Windward Point/Chula Vista g 1,767,970 6,617,879 8,385,849 -
Other Virginia
Greens at Falls Run/Fredericksburg 2,730,722 5,300,203 8,030,925 752,246
Manor at England Run/Fredericksburg 1,168,810 7,006,464 8,175,274 13,113,435
Laurel Ridge/Roanoke 2,830,000 445,400 2,531,357 2,976,757 1,482,339
Greens at Hollymead/Charlottesville 965,114 5,250,374 6,215,488 562,402
Craig Manor/Salem 282,200 2,419,570 2,701,770 949,636
Northview/Salem 171,600 1,238,501 1,410,101 823,888
Other Georgia
Royal Oaks/Savannah 6,178,829 533,100 9,926,017 10,459,117 1,667,483
River Place/Macon 1,097,280 7,492,385 8,589,665 1,684,859
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which
Carried at Close of Period
------------------------------ Total
Land and Buildings Carrying
Land and Value Accumulated Date of
Improvements Improvements (i) (a) Depreciation Construction
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Portland, Oregon
Lancaster Commons 2,485,291 9,301,165 11,786,456 21,046 1992
Tualatin Heights 3,272,585 12,134,089 15,406,674 27,836 1989
University Park 3,007,202 11,691,307 14,698,509 27,345 1987
Double Tree 3,878,138 13,973,051 17,851,189 31,820 1988
Los Angeles, California
Pine Avenue 2,158,423 8,387,744 10,546,167 19,350 1987
The Grand Resort 8,884,151 33,956,606 42,840,757 76,300 1971
Sacramento, California
Foothills Tennis Village 3,617,507 13,192,028 16,809,535 30,333 1988
Woodlake Village 6,772,438 23,966,750 30,739,188 54,502 1979
San Francisco, California
2000 Post Street 9,860,627 38,577,506 48,438,133 90,657 1987
Birch Creek 4,365,315 16,645,509 21,010,824 38,909 1968
Highlands of Marin 5,995,838 23,168,350 29,164,188 54,230 1991
Marina Playa 6,224,383 23,916,283 30,140,666 55,851 1971
Monterey Peninsula, California
Boronda Manor 1,946,423 6,981,742 8,928,165 15,810 1979
Garden Court 888,038 3,187,950 4,075,988 7,166 1973
Glenridge 415,284 1,552,934 1,968,218 3,540 1989
Harding Park Townhomes 549,393 2,051,322 2,600,715 4,743 1984
Heather Plaza 2,020,384 7,226,038 9,246,422 16,348 1974
Laurel Tree 1,303,902 4,615,356 5,919,258 10,348 1977
New San Pablo 289,468 1,020,473 1,309,941 2,304 1973
Pine Grove 1,383,161 5,283,993 6,667,154 12,188 1963
San Pablo 804,394 3,094,626 3,899,020 7,019 1963
Santanna 957,079 3,526,117 4,483,196 8,077 1989
The Capri 1,018,493 3,657,274 4,675,767 826 1973
The Claremont 463,143 1,637,120 2,100,263 3,694 1973
The Pointe At Harden Ranch 6,388,446 23,853,534 30,241,980 55,046 1986
The Pointe At Northridge 2,043,736 7,528,443 9,572,179 17,186 1979
The Pointe At Westlake 1,329,064 4,834,004 6,163,068 10,963 1975
Valli Hi 881,376 3,237,805 4,119,181 7,410 1965
Other California
Silk Oak/Fresno 2,324,562 7,566,446 9,891,008 16,648 1985
Windward Point/Chula Vista 1,767,970 6,617,879 8,385,849 15,311 1983
Other Virginia
Greens at Falls Run/Fredericksburg 2,872,643 5,910,528 8,783,171 834,669 1989
Manor at England Run/Fredericksburg 2,794,777 18,493,932 21,288,709 1,448,501 1990
Laurel Ridge/Roanoke 665,161 3,793,935 4,459,096 1,874,928 1970/72
Greens at Hollymead/Charlottesville 1,048,258 5,729,632 6,777,890 779,314 1990
Craig Manor/Salem 364,351 3,287,055 3,651,406 1,412,021 1975
Northview/Salem 241,143 1,992,846 2,233,989 1,316,170 1969
Other Georgia
Royal Oaks/Savannah 935,619 11,190,981 12,126,600 1,937,253 1980
River Place/Macon 1,689,302 8,585,222 10,274,524 1,831,308 1988
</TABLE>
<TABLE>
<CAPTION>
Depreciable
Life of
f Date Building
ion Acquired Component
-----------------------------------
<S> <C> <C>
Portland, Oregon
Lancaster Commons 12/8/98 35 yrs.
Tualatin Heights 12/8/98 35 yrs.
University Park 3/27/98 35 yrs.
Double Tree 3/27/98 35 yrs.
Los Angeles, California
Pine Avenue 12/7/98 35 yrs.
The Grand Resort 12/7/98 35 yrs.
Sacramento, California
Foothills Tennis Village 12/7/98 35 yrs.
Woodlake Village 12/7/98 35 yrs.
San Francisco, California
2000 Post Street 12/7/98 35 yrs.
Birch Creek 12/7/98 35 yrs.
Highlands of Marin 12/7/98 35 yrs.
Marina Playa 12/7/98 35 yrs.
Monterey Peninsula, California
Boronda Manor 12/7/98 35 yrs.
Garden Court 12/7/98 35 yrs.
Glenridge 12/7/98 35 yrs.
Harding Park Townhomes 12/7/98 35 yrs.
Heather Plaza 12/7/98 35 yrs.
Laurel Tree 12/7/98 35 yrs.
New San Pablo 12/7/98 35 yrs.
Pine Grove 12/7/98 35 yrs.
San Pablo 12/7/98 35 yrs.
Santanna 12/7/98 35 yrs.
The Capri 12/7/98 35 yrs.
The Claremont 12/7/98 35 yrs.
The Pointe At Harden Ranch 12/7/98 35 yrs.
The Pointe At Northridge 12/7/98 35 yrs.
The Pointe At Westlake 12/7/98 35 yrs.
Valli Hi 12/7/98 35 yrs.
Other California
Silk Oak/Fresno 12/7/98 35 yrs.
Windward Point/Chula Vista 12/7/98 35 yrs.
Other Virginia
Greens at Falls Run/Fredericksburg 05/04/95 35 yrs.
Manor at England Run/Fredericksburg 05/04/95 35 yrs.
Laurel Ridge/Roanoke 05/17/88 35 yrs.
Greens at Hollymead/Charlottesville 05/04/95 35 yrs.
Craig Manor/Salem 11/06/87 35 yrs.
Northview/Salem 09/29/78 35 yrs.
Other Georgia
Royal Oaks/Savannah 07/01/94 35 yrs.
River Place/Macon 04/08/94 35 yrs.
F-32
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Cost of
Intitial Costs Improvements
--------------------------------------- Total Capitalized
Land and Building Initials Subsequent
Land and Acquisition to Acquisition
Encumbrances Improvements Improvement Costs (Net of Disposals)
---------------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Little Rock, Arkansas
Turtle Creek 1,913,177 7,086,823 9,000,000 652,892
Shadow Lake 2,523,670 8,976,330 11,500,000 743,946
Las Vegas, Nevada
Sunset Pointe 4,295,050 15,704,950 20,000,000 549,273
Dover, Delaware
Dover Country Club 2,007,878 6,365,053 8,372,931 2,260,287
Greens at Cedar Chase 1,528,667 4,830,738 6,359,405 677,819
Other Washington
Campus Commons North/Pullman 7,027,934 305,143 9,867,157 10,172,300 287,619
On The Boulevard/Kennewick 1,164,652 9,547,299 10,711,951 18,507
Campus Commons South/Pullman 2,674,005 838,324 3,005,784 3,844,108 229,249
Alabama
Three Fountains/Montgomery 1,075,009 6,872,302 7,947,311 3,263,986
Other North Carolina
Woodberry/Asheville d 388,699 6,380,899 6,769,598 858,015
Other South Carolina
Somerset/Charleston 485,160 4,072,780 4,557,940 1,530,833
============================================================================================
$ 629,688,918 $ 589,223,859 $ 2,702,702,804 $3,291,926,663 $ 351,318,208
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which
Carried at Close of Period
------------------------------ Total
Land and Buildings Carrying
Land and Value Accumulated Date of
Improvements Improvements (i) (a) Depreciation Construction
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Little Rock, Arkansas
Turtle Creek 2,150,367 7,502,525 9,652,892 564,049 1985
Shadow Lake 2,672,445 9,571,501 12,243,946 722,571 1984
Las Vegas, Nevada
Sunset Pointe 4,435,225 16,114,048 20,549,273 1,137,800 1990
Dover, Delaware
Dover Country Club 2,355,591 8,277,627 10,633,218 1,583,479 1970
Greens at Cedar Chase 1,709,779 5,327,445 7,037,224 780,941 1988
Other Washington
Campus Commons North/Pullman 328,060 10,131,859 10,459,919 286,517 1972
On The Boulevard/Kenniwick 1,166,044 9,564,414 10,730,458 255,088 1995
Campus Commons South/Pullman 886,377 3,186,980 4,073,357 93,617 1972
Alabama
Three Fountains/Montgomery 1,263,205 9,948,092 11,211,297 1,798,645 1973
Other North Carolina
Woodberry/Asheville 521,039 7,106,574 7,627,613 663,418 1987
Other South Carolina
Somerset/Charleston 692,721 5,396,052 6,088,773 994,586 1979
==============================================================================
$ 647,327,889 $ 2,995,916,977 $ 3,643,244,866 $ 280,663,279
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
Depreciable
Life of
Date Building
Acquired Component
----------------------------------
<S> <C> <C>
Little Rock, Arkansas
Turtle Creek 12/31/96 35 yrs.
Shadow Lake 12/31/96 35 yrs.
Las Vegas, Nevada
Sunset Pointe 12/31/96 35 yrs.
Dover, Delaware
Dover Country Club 07/01/94 35 yrs.
Greens at Cedar Chase 05/04/95 35 yrs.
Other Washington
Campus Commons North/Pullman 3/27/98 35 yrs.
On The Boulevard/Kenniwick 3/27/98 35 yrs.
Campus Commons South/Pullman 3/27/98 35 yrs.
Alabama
Three Fountains/Montgomery 07/01/94 35 yrs.
Other North Carolina
Woodberry/Asheville 08/15/96 35 yrs.
Other South Carolina
Somerset/Charleston 07/01/94 35 yrs.
</TABLE>
F-33
<PAGE>
<TABLE>
<CAPTION>
Cost of
Intitial Costs Improvements
--------------------------------------- Total Capitalized
Land and Building Initials Subsequent
Land and Acquisition to Acquisition
Encumbrances Improvements Improvement Costs (Net of Disposals)
---------------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Real estate held for disposition
Apartments
Heritage Trace/Hampton Roads, VA 3,900,000 880,000 2,312,285 3,192,285 1,879,478
Twin Coves/Baltimore, MD 3,615,000 912,771 2,904,304 3,817,075 835,231
Cedar Point/Raleigh, NC 75,400 4,514,435 4,589,835 3,306,726
Cinnamon Ridge/Raleigh, NC 7,000,000 967,230 3,337,197 4,304,427 4,841,777
Plum Chase/Columbia, SC 7,000,000 802,750 3,149,607 3,952,357 5,542,032
Hunting Ridge/Greenville, SC 3,265,000 449,500 2,246,908 2,696,408 1,039,761
Patriot Place/Florence, SC 2,200,000 212,500 1,600,757 1,813,257 5,568,491
Bluff Creek/Oklahoma City, OK c 2,172,063 7,202,937 9,375,000 359,258
Chandler's Mill/Corpus Christi, TX b 1,930,120 6,844,880 8,775,000 269,535
Ryan's Mill/El Paso, TX c 1,522,900 5,277,100 6,800,000 232,009
The Crest/Dallas, TX 4,616,074 1,464,755 5,126,939 6,591,694 683,389
Dominion Mallard Creek (M)/Charlotte, NC 329,300 2,772,449 3,101,749 296,545
Parkwood Court/Alexandria, VA 5,875,000 2,482,633 3,813,116 6,295,749 2,096,342
Hampton Court/Alexandria, VA 7,388,420 4,811,937 12,200,357 1,624,145
Westlake Villas /San Antonio, TX b 2,371,865 8,278,135 10,650,000 538,502
Meadowdale Lakes/Richmond, VA 1,581,671 6,717,237 8,298,908 3,963,789
Meadow Run/Richmond, VA 636,059 3,423,884 4,059,943 1,891,890
Acacia Hills/Tuscon, AZ 1,053,831 410,737 1,415,788 1,826,525 214,275
Park Village/Tuscon, AZ 566,324 187,860 1,065,384 1,253,244 13,238
Bayberry Commons/Hampton Roads, VA 516,800 3,485,645 4,002,445 1,411,705
Montfort/Dallas, TX 3,876,278 1,696,778 4,747,254 6,444,032 34,876
Holly Tree Park/Baltimore, MD 1,576,366 5,106,716 6,683,082 1,287,803
Woodside/Baltimore, MD 13,160,000 3,112,881 8,893,721 12,006,602 3,129,401
Deerwood Crossing/Greensboro, NC 1,539,901 7,989,043 9,528,944 894,394
Dutch Village/Greensboro, NC 1,197,593 4,826,266 6,023,859 508,099
Park Forest/Greensboro, NC 4,145,270 679,671 5,770,413 6,450,084 347,611
Commercial
Pacific South Center/Seattle, WA 3,512,328 1,000,000 4,000,000 5,000,000 655
Hanover Village-Land/Richmond, VA 1,623,910 - 1,623,910 -
Gloucester Exchange/Gloucester, VA 403,688 2,278,553 2,682,241 85,667
Tri-County Buildings/Bristol, TN 275,580 900,281 1,175,861 1,280,670
Meadowdale Office/Richmond, VA 240,563 359,913 600,476 119,344
========================================================================================
$63,785,105 $40,642,265 $125,173,084 $165,815,349 $44,296,638
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which
Carried at Close of Period
------------------------------ Total
Land and Buildings Carrying
Land and Value Accumulated Date of
Improvements Improvements (i) (a) Depreciation Construction
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate held for disposition
Apartments
Heritage Trace/Hampton Roads, VA 1,200,782 3,870,981 5,071,763 1,603,230 1973
Twin Coves/Baltimore, MD 1,020,290 3,632,016 4,652,306 376,566 1974
Cedar Point/Raleigh, NC 249,622 7,646,939 7,896,561 3,432,650 1972
Cinnamon Ridge/Raleigh, NC 1,272,296 7,873,908 9,146,204 3,308,395 1968/70
Plum Chase/Columbia, SC 1,138,202 8,356,187 9,494,389 2,754,252 1974
Hunting Ridge/Greenville, SC 611,412 3,124,757 3,736,169 366,795 1972
Patriot Place/Florence, SC 1,435,436 5,946,312 7,381,748 2,671,178 1974
Bluff Creek/Oklahoma City , OK 2,224,067 7,510,191 9,734,258 298,127 1984
Chandler's Mill/Corpus Christi , TX 1,956,652 7,087,883 9,044,535 261,307 1984
Ryan's Mill/El Paso, TX 1,561,530 5,470,479 7,032,009 212,958 1985
The Crest/Dallas, TX 1,536,987 5,738,096 7,275,083 117,872 1983
Dominion Mallard Creek (M)/Charlotte, NC 451,420 2,946,874 3,398,294 474,575 1985
Parkwood Court/Alexandria, VA 2,730,047 5,662,044 8,392,091 1,220,304 1964
Hampton Court/Alexandria, VA 7,631,128 6,193,374 13,824,502 1,526,912 1967
Westlake Villas /San Antonio, TX 2,447,517 8,740,985 11,188,502 314,309 1985
Meadowdale Lakes/Richmond, VA 2,212,224 10,050,473 12,262,697 5,629,984 1967/71
Meadow Run/Richmond, VA 869,735 5,082,098 5,951,833 2,676,832 1973/74
Acacia Hills/Tuscon, AZ 609,735 1,431,065 2,040,800 29,596 1986
Park Village/Tuscon, AZ 191,195 1,075,287 1,266,482 24,112 1985
Bayberry Commons/Hampton Roads, VA 744,991 4,669,159 5,414,150 2,108,631 1973/74
Montfort/Dallas, TX 1,704,006 4,774,902 6,478,908 80,288 1986
Holly Tree Park/Baltimore, MD 1,764,001 6,206,884 7,970,885 1,098,776 1973
Woodside/Baltimore, MD 3,449,637 11,686,366 15,136,003 1,911,050 1966
Deerwood Crossing/Greensboro, NC 1,670,815 8,752,523 10,423,338 740,581 1973
Dutch Village/Greensboro, NC 1,282,479 5,249,478 6,531,957 469,550 1970
Park Forest/Greensboro, NC 772,557 6,025,137 6,797,694 467,852 1987
Commercial
Pacific South Center/Seattle, WA 1,000,000 4,000,655 5,000,655 - 1965
Hanover Village-Land/Richmond, VA 1,103,600 520,310 1,623,910 - --
Gloucester Exchange/Gloucester, VA 531,881 2,236,027 2,767,908 757,307 1974
Tri-County Buildings/Bristol, TN 364,123 2,092,408 2,456,531 733,820 1976/79
Meadowdale Office/Richmond, VA 259,684 460,136 719,820 300,034 1976/82
===========================================================================
$45,998,051 $164,113,934 $210,111,985 $35,967,843
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
Depreciable
Life of
Date Building
Acquired Component
-------------------------------
<S> <C> <C>
Real estate held for disposition
Apartments
Heritage Trace/Hampton Roads, VA 06/30/89 35 yrs.
Twin Coves/Baltimore, MD 08/16/94 35 yrs.
Cedar Point/Raleigh, NC 12/18/85 35 yrs.
Cinnamon Ridge/Raleigh, NC 12/01/89 35 yrs.
Plum Chase/Columbia, SC 01/04/91 35 yrs.
Hunting Ridge/Greenville, SC 11/01/94 35 yrs.
Patriot Place/Florence, SC 10/23/85 35 yrs.
Bluff Creek/Oklahoma City , OK 12/31/96 35 yrs.
Chandler's Mill/Corpus Christi , TX 12/31/96 35 yrs.
Ryan's Mill/El Paso, TX 12/31/96 35 yrs.
The Crest/Dallas, TX 03/27/98 35 yrs.
Dominion Mallard Creek (M)/Charlotte 07/01/94 35 yrs.
Parkwood Court/Alexandria, VA 06/30/93 35 yrs.
Hampton Court/Alexandria, VA 02/19/93 35 yrs.
Westlake Villas /San Antonio, TX 12/31/96 35 yrs.
Meadowdale Lakes/Richmond, VA 12/31/84 35 yrs.
Meadow Run/Richmond, VA 12/31/84 35 yrs.
Acacia Hills/Tuscon, AZ 3/27/98 35 yrs.
Park Village/Tuscon, AZ 3/27/98 35 yrs.
Bayberry Commons/Hampton Roads, VA 04/07/88 35 yrs.
Montfort/Dallas, TX 3/27/98 35 yrs.
Holly Tree Park/Baltimore, MD 07/01/94 35 yrs.
Woodside/Baltimore, MD 08/16/94 35 yrs.
Deerwood Crossing/Greensboro, NC 08/15/96 35 yrs.
Dutch Village/Greensboro, NC 08/15/96 35 yrs.
Park Forest/Greensboro, NC 09/26/96 35 yrs.
Commercial
Pacific South Center/Seattle, WA 08/28/86 35 yrs.
Hanover Village-Land/Richmond, VA 06/30/86 35 yrs.
Gloucester Exchange/Gloucester, VA 11/12/87 35 yrs.
Tri-County Buildings/Bristol, TN 01/21/81 35 yrs.
Meadowdale Office/Richmond, VA 12/31/84 35 yrs.
</TABLE>
F-34
<PAGE>
<TABLE>
<CAPTION>
Cost of
Intitial Costs Improvements
--------------------------------------- Total Capitalized
Land and Building Initials Subsequent
Land and Acquisition to Acquisition
Encumbrances Improvements Improvement Costs (Net of Disposals)
---------------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Real estate under development
New apartment communites
Ashlar I/Fort Myers, FL 2,853,178 10,370,767 13,223,945
Sierra Foothills/Phoenix, AZ 2,728,172 4,397,105 7,125,277
Dominion Franklin/Nashville, TN 2,117,244 22,428,101 24,545,345
Alexander Court/Columbus, OH 1,573,412 14,133,628 15,707,040
Stone Canyon/Houston, TX 899,515 8,045,153 8,944,668
Legends at Park 10/Houston, TX 1,995,011 804,518 2,799,529
Ashton at Waterford Lakes/Orlando, FL 3,077,956 1,925,512 5,003,468
The Meridian I/Dallas, TX 2,979,656 472,617 3,452,273
Additions to existing communites
Heritage Green II/Columbus, OH 767,040 3,151,567 3,918,607
Dominion Crown Pointe/Charlotte, NC 1,936,427 5,654 1,942,081
Other Land Held for Development 12,733,141 12,733,141
============================================================================================
$0 $33,660,752 $65,734,622 $99,395,374 $0
============================================================================================
============================================================================================
Total real estate owned $1,072,185,325 $663,526,876 $2,893,610,510 $3,557,137,386 $395,614,846
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which
Carried at Close of Period
------------------------------ Total
Land and Buildings Carrying
Land and Value Accumulated Date of
Improvements Improvements (i) (a) Depreciation Construction
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate under development
New apartment communites
Ashlar I/Fort Myers, FL 2,853,178 10,370,767 13,223,945 1999
Sierra Foothills/Phoenix, AZ 2,728,172 4,397,105 7,125,277 1998
Dominion Franklin/Nashville, TN 2,117,244 22,428,101 24,545,345 4,899 1999
Alexander Court/Columbus, OH 1,573,412 14,133,628 15,707,040 1,103 1999
Stone Canyon/Houston, TX 899,515 8,045,153 8,944,668 1998
Legends at Park 10/Houston, TX 1,995,011 804,518 2,799,529 1998
Ashton at Waterford Lakes/Orlando, 3,077,956 1,925,512 5,003,468 1999
The Meridian I/Dallas, TX 2,979,656 472,617 3,452,273 1999
Additions to existing communites
Heritage Green II/Columbus, OH 767,040 3,151,567 3,918,607 1998
Dominion Crown Pointe/Charlotte, NC 1,936,427 5,654 1,942,081 1999
Other Land Held for Development 12,733,141 12,733,141
============================================================================
$33,660,752 $65,734,622 $99,395,374 $6,002
============================================================================
============================================================================
Total real estate owned $726,986,692 $3,225,765,533 $3,952,752,225 $316,637,124
============================================================================
</TABLE>
<TABLE>
<CAPTION>
Depreciable
Life of
Date Building
Acquired Component
-----------------------------
<S> <C> <C>
Real estate under development
New apartment communites
Ashlar I/Fort Myers, FL 12/24/97
Sierra Foothills/Phoenix, AZ 2/18/98
Dominion Franklin/Nashville, TN 12/6/95
Alexander Court/Columbus, OH 7/2/98
Stone Canyon/Houston, TX 12/17/97
Legends at Park 10/Houston, TX 5/19/98
Ashton at Waterford Lakes/Orlando, FL 5/28/98
The Meridian I/Dallas, TX 1/27/98
Additions to existing communites
Heritage Green II/Columbus, OH 7/2/98
Dominion Crown Pointe/Charlotte, NC 12/29/98
Other Land Held for Development
Total real estate owned
</TABLE>
(a) The aggregate cost for federal income tax purposes was approximately $3.3
billion and $2.3 billion at December 31, 1998 and 1997, respectively.
(b) Represents a $34,262,390 REMIC financing encumbering 12 apartment
communities.
(c) Represents a $41,656,838 REMIC financing encumbering 13 apartment
communites.
(d) Represents a $31,700,000 notes payable-secured which encumbers six
apartment communities.
(e) Represents $114,833,855 of fixed rate debt which encumbers 15 apartment
communities.
(f) Represents $44,898,195 of fixed rate debt which encumbers 9 apartment
communties.
(g) Represents $97,265,000 of variable rate debt which encumbers 11 apartment
communties.
(h) Represents $14,095,024 of variable rate debt which encumbers 7 apartment
communities.
(i) The depreciable life for all buildings is 35 years.
EHIBIT 3(b)
UNITED DOMINION REALTY TRUST, INC.
RESTATEMENT OF BYLAWS
1. The name of the corporation is UNITED DOMINION REALTY TRUST, INC..
2. The text of the restated Bylaws is attached hereto and is incorporated herein
by reference.
3. The restatement does not contain an amendment to the Bylaws requiring
shareholder approval.
4. The Board of Directors of the corporation adopted the restatement by a
unanimous vote at its meeting held on January 26, 1999.
UNITED DOMINION REALTY TRUST, INC.
By: ____________________________________
Katheryn E. Surface
Senior Vice President
Dated: January 26, 1999
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
UNITED DOMINION REALTY TRUST, INC.
ARTICLE I
STOCKHOLDERS' AND DIRECTORS' MEETINGS
The annual meeting of the stockholders of the corporation shall be held
in May of each year on the date and at the time and place fixed by the Board of
Directors. The date, time and place of all meetings of stockholders shall be
stated in the notice of the meeting. Meetings of the stockholders shall be held
whenever called by the Chairman of the Board, the President, a majority of the
directors or stockholders holding at least 1/10 of the number of shares of stock
entitled to vote then outstanding.
The holders of a majority of the outstanding shares of stock entitled to
vote shall constitute a quorum at any meeting of the stockholders. Less than a
quorum may adjourn the meeting to a fixed time and place, no further notice of
any adjourned meting being required. Each stockholder shall be entitled to one
vote in person or by proxy for each share entitled to vote then outstanding in
his name on the books of the corporation.
The transfer books for shares of stock of the corporation may be closed
by order of the Board of Directors for not exceeding 70 days for the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof or entitled to receive payment of any
dividend or in order to make a determination of stockholders for any other
purpose. In lieu of closing the stock transfer books, the Board of Directors may
fix in advance a date as the record date for any such determination of
stockholders, such date to be not more than 70 days preceding the date on which
the particular action requiring such determination of the stockholders is to be
taken.
The Chairman of the Board shall preside over all meetings of the
stockholders. If he is not present, the Vice Chairman of the Board shall
preside. If neither the Chairman of the Board nor the Vice Chairman of the Board
is present, the President shall preside, or, if none be present, a Chairman
shall be elected by the meeting. The Secretary of the corporation shall act as
Secretary of all the meetings, if he be present. If he is not present, the
Chairman shall appoint a Secretary of the meeting. The Chairman of the meeting
may appoint one or more inspectors of the election to determine the
qualification of voters, the validity of proxies and the results of ballots.
<PAGE>
ARTICLE II
BOARD OF DIRECTORS
The Board of Directors shall be chosen at the annual meeting of the
stockholders or any special meeting held in lieu thereof. The number of
directors shall be twelve. This number may be increased or decreased at any time
by amendment of these Bylaws, but shall always be a number of not less than
three. Directors need not be stockholders. Directors shall hold office until
removed or until the next annual meeting of the stockholders or until their
successors are elected. A majority of the directors shall constitute a quorum.
Less than a quorum may adjourn the meeting to a fixed time and place, no further
notice of any adjourned meeting being required. A director may not stand for
re-election if he has attained age 70 on or before the date of the annual
meeting at which directors are elected.
The stockholders at any meeting, by a vote of the holders of a majority
of all the shares of stock at the time outstanding and having voting power, may
remove any director and fill the vacancy. Any vacancy arising among the
directors, including a vacancy resulting from an increase by not more than two
in the number of directors, may be filled by the remaining directors unless
sooner filed by the stockholders in meeting.
Meetings of the Board of Directors shall be held at times fixed by
resolution of the Board upon the call of the Chairman of the Board of Directors,
the President or a majority of the members of the Board. Notice of any meeting
not held at a time fixed by a resolution of the Board shall be given to each
director at least two days before the meeting at his residence or business
address or by delivering such notice to him or by telephoning or telegraphing it
to him at least one day before the meeting. Any such notice shall contain the
time and place of the meeting. Meetings may be held without notice if all of the
directors are present or those not present waive notice before or after the
meeting.
ARTICLE III
EXECUTIVE COMMITTEE
The Board of Directors may designate by resolution adopted by a majority
of all the directors two or more of the directors to constitute an Executive
Committee. The Executive Committee, when the Board of Directors is not in
session, may to the extent permitted by law exercise all of the powers of the
Board of Directors. The Executive Committee may make rules for the holding and
conduct of its meetings, the notice thereof required and the keeping of its
records. Directors who are not members of the Executive committee shall be
entitled to notice of and to attend meetings of the Executive Committee but
shall not be entitled to vote or otherwise participate in the proceedings at
such meetings.
<PAGE>
ARTICLE IV
OFFICERS
The Board of Directors, promptly after its election in each year, shall
appoint a Chairman of the Board of Directors, a Vice Chairman of the Board of
Directors and a President (all of whom shall be directors) and a Secretary, and
may appoint a Treasurer and one or more Vice Presidents and such other officers
or assistant officers as it may deem proper. Any officer may hold more than one
office. The term of an officer or assistant officer expires at the first meeting
of the Board of Directors held after the annual meeting of the stockholders next
following such officer's or assistant officer's appointment, but notwithstanding
expiration of his term, an officer or assistant officer continues to serve until
removed or until his successor is appointed. Any officer or assistant officer
may be removed at any time with or without cause by the Board of Directors.
Vacancies among the officers and assistant officers shall be filled by the Board
of Directors. The President shall be the chief executive officer of the
corporation. All officers and assistant officers shall have such duties as
generally pertain to their respective offices as well as such powers and duties
as from time to time may be delegated to them by the Board of Directors.
ARTICLE V
STOCK CERTIFICATES
Each stockholder shall be entitled to a certificate or certificates of
stock in such form as may be approved by the Board of Directors, which shall be
signed manually or by facsimile by the Chairman of the Board, the President or a
Vice President and by the Secretary or an Assistant Secretary or the Treasurer
or an Assistant Treasurer, and which may bear the seal of the corporation or a
facsimile thereof.
All transfers of stock of the corporation shall be made upon its books
by surrender of the certificate for the shares transferred accompanied by an
assignment in writing by the holder and may be accomplished either by the holder
in person or by a duly authorized attorney in fact.
In case of the loss, mutilation or destruction of a certificate of
stock, a duplicate certificate may be issued upon such terms not in conflict
with law as the Board of Directors may prescribe.
<PAGE>
The Board of Directors may also appoint one or more transfer agents and
registrars and may require stock certificates to be countersigned by a transfer
agent or registered by a registrar or may require stock certificates to be both
countersigned by a transfer agent and registered by a registrar. If certificates
for stock of the corporation are signed by a transfer agent or by a registrar
(other than the corporation itself or one of its employees), the signature
thereon of the officers of the corporation and the seal of the corporation
thereon may be facsimiles, engraved or printed. In case any officer or officers
who shall have signed, or whose facsimile signature or signatures shall have
been used on, any such certificate or certificates shall cease to be such
officer or officers of the corporation, whether because of death, resignation or
otherwise, before such certificate or certificates shall have been delivered by
the corporation, such certificate or certificates may nevertheless be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures shall have been used
thereon had not ceased to be such officer or officers of the corporation.
ARTICLE VI
SEAL
The seal of the corporation shall be a flat-faced circular die, of which
there may be any number of counterparts, with the word "SEAL" and the name of
the corporation engraved thereon.
ARTICLE VII
VOTING OF STOCK HELD
Unless otherwise provided by a vote of the Board of Directors, the
Chairman of the Board, the President or any Vice President may appoint attorneys
to vote any stock in any other corporation owned by the corporation or may
attend any meeting of the holders of stock of such corporation and vote such
shares in person.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the corporation shall be the calendar year.
EXHIBIT 4(ii)(b)
AMENDED AND RESTATED
CREDIT AGREEMENT
among
AAC FUNDING PARTNERSHIP III
as Borrower
and
CERTAIN AFFILIATES OF AAC FUNDING PARTNERSHIP III
as Guarantors
and
THE LENDERS IDENTIFIED HEREIN
and
NATIONSBANK, N.A.
as Administrative Agent
DATED AS OF DECEMBER 7, 1998
<PAGE>
TABLE OF CONTENTS
SECTION 1 DEFINITIONS AND ACCOUNTING TERMS..................................2
1.1 Definitions..................................................2
1.2 Computation of Time Periods and
Other Definition Provisions...............................19
1.3 Accounting Terms............................................19
SECTION 2 CREDIT FACILITY..................................................20
2.1 Term Loans..................................................20
SECTION 3 GENERAL PROVISIONS APPLICABLE TO LOANS...........................21
3.1 Interest....................................................21
3.2 Place and Manner of Payments................................22
3.3 Prepayments.................................................22
3.4 Commitment Fee..............................................23
3.5 Payment in full at Maturity.................................23
3.6 Computations of Interest and Fees...........................23
3.7 Pro Rata Treatment..........................................24
3.8 Sharing of Payments.........................................25
3.9 Capital Adequacy............................................25
3.10 Inability To Determine Interest Rate.......................26
3.11 Illegality.................................................26
3.12 Requirements of Law........................................27
3.13 Taxes......................................................28
3.14 Indemnity..................................................30
SECTION 4 GUARANTY.........................................................31
4.1 Guaranty of Payment.........................................31
4.2 Obligations Unconditional...................................31
4.3 Modifications...............................................32
4.4 Waiver of Rights............................................33
4.5 Reinstatement...............................................33
4.6 Remedies....................................................33
4.7 Limitation of Guaranty......................................34
4.8 Additional Waivers..........................................34
SECTION 5 CONDITIONS PRECEDENT.............................................35
5.1 Closing Conditions..........................................35
SECTION 6 REPRESENTATIONS AND WARRANTIES...................................40
6.1 Financial Condition.........................................40
6.2 No Material Change..........................................40
6.3 Organization and Good Standing..............................41
6.4 Due Authorization...........................................41
<PAGE>
6.5 No Conflicts................................................41
6.6 Consents....................................................41
6.7 Enforceable Obligations.....................................41
6.8 No Default..................................................42
6.9 Ownership...................................................42
6.10 Indebtedness...............................................42
6.11 Litigation.................................................42
6.12 Taxes......................................................42
6.13 Compliance with Law........................................42
6.14 Compliance with ERISA......................................43
6.16 Use of Proceeds; Margin Stock..............................44
6.17 Government Regulation......................................44
6.18 Environmental Matters......................................45
6.19 Solvency...................................................46
6.20 Investments................................................46
6.21 Location of Collateral.....................................46
6.22 Disclosure.................................................46
6.23 Licenses, etc. ............................................47
6.24 No Burdensome Restrictions.................................47
6.25 Collateral Documents.......................................47
SECTION 7 AFFIRMATIVE COVENANTS............................................47
7.1 Information Covenants.......................................48
7.2 Financial Covenants.........................................51
7.3 Preservation of Existence, Franchises, and
Management Agreements.....................................52
7.4 Books and Records...........................................52
7.5 Compliance with Law.........................................52
7.6 Payment of Taxes and Other Indebtedness.....................53
7.7 Insurance...................................................53
7.8 Maintenance of Property.....................................54
7.9 Performance of Obligations..................................54
7.10 Use of Proceeds............................................54
7.11 Audits/Inspections.........................................55
7.12 Additional Credit Parties..................................55
7.13 Refinancing of Collateral Properties.......................55
7.14 Collateral.................................................55
SECTION 8 NEGATIVE COVENANTS...............................................56
8.1 Indebtedness................................................56
8.2 Liens.......................................................56
8.3 Nature of Business..........................................57
8.4 Consolidation and Merger....................................57
8.5 Sale or Lease of Assets.....................................57
8.6 Advances, Investments and Loans.............................57
8.8 Transactions with Affiliates................................58
<PAGE>
8.9 Fiscal Year; Organizational Documents.......................58
8.10 Limitations................................................58
8.11 Negative Pledges...........................................58
8.12 Subordinated Debt..........................................59
SECTION 9 EVENTS OF DEFAULT................................................59
9.1 Events of Default...........................................59
9.2 Acceleration; Remedies......................................62
9.3 Allocation of Payments After Event of Default...............62
SECTION 10 AGENCY PROVISIONS................................................63
10.1 Appointment................................................63
10.2 Delegation of Duties.......................................64
10.3 Exculpatory Provisions.....................................64
10.4 Reliance on Communications.................................64
10.5 Notice of Default..........................................65
10.6 Non-Reliance on Agents and Other Lenders...................65
10.7 Indemnification............................................66
10.8 Agents in Their Individual Capacity........................66
10.9 Successor Agent............................................66
SECTION 11 MISCELLANEOUS....................................................67
11.1 Notices....................................................67
11.2 Right of Set-Off...........................................67
11.3 Benefit of Agreement.......................................67
11.4 No Waiver; Remedies Cumulative.............................70
11.5 Payment of Expenses; Indemnification.......................70
11.6 Amendments, Waivers and Consents...........................71
11.11 Governing Law; Jurisdiction...............................72
11.12 Waiver of Jury Trial......................................73
11.13 Time......................................................73
11.14 Severability..............................................73
11.15 Entirety..................................................73
11.16 Binding Effect............................................74
11.17 Confidentiality...........................................74
11.18 Continuance of Indebtedness and Collateral................74
<PAGE>
SCHEDULES
Schedule 1.1(b) Underwriting Criteria and Due Diligence Package
Schedule 1.1(c) Term Loan Commitment Percentages
Schedule 6.10 Indebtedness
Schedule 6.15 Organization Structure
Schedule 6.18 Environmental Matters
Schedule 6.21(a) Collateral Property Locations
Schedule 6.21(b) Personal Property Locations
Schedule 6.21(c) Chief Executive Offices
Schedule 7.3 Management Agreements
Schedule 7.7(a) Insurance Coverage
Schedule 7.7(b) Borrower's Use of Insurance Proceeds
Schedule 8.2 Liens
Schedule 8.6 Investments
Schedule 8.8 Affiliate Transactions
Schedule 11.1 Notices
EXHIBITS
Exhibit 2.1(e) Form of Notice of Continuation/Conversion
Exhibit 2.1(g) Form of Term Note
Exhibit 7.1(d) Form of Officer's Certificate
Exhibit 7.12 Form of Joinder Agreement
Exhibit 11.3 Form of Assignment Agreement
<PAGE>
AMENDED AND RESTATED
CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "Credit Agreement")
is entered into as of December 7, 1998 among AAC FUNDING PARTNERSHIP III, a
Delaware general partnership ("Borrower"), UNITED DOMINION REALTY, L.P., a
Virginia limited partnership, UNITED DOMINION REALTY TRUST, INC., a Virginia
corporation, COASTAL ANAHEIM PROPERTIES, LLC, a Delaware limited liability
company, WINDWARD POINT, LLC, a California limited liability company, REGENCY
PARK, L.P., an Indiana limited partnership, and AAC FUNDING PARTNERSHIP II, a
Delaware general partnership (each individually a "Guarantor" and collectively
the "Guarantors"), the Lenders (as defined herein), NATIONSBANC MONTGOMERY
SECURITIES LLC, as Lead Arranger and Book Manager and NATIONSBANK, N.A.,
successor by merger to NationsBank of Texas, N.A. ("NationsBank"), as
Administrative Agent for the Lenders (in such capacity, the "Administrative
Agent").
RECITALS
WHEREAS, the Borrower, American Apartment Communities II, L.P. ("AAC
II, L.P."), American Apartment Communities II, Inc. ("AAC"), American Apartment
Communities Operating Partnership, L.P., AAC Funding Partnership II, the Lenders
and the Administrative Agent entered into a Credit Agreement, dated as of
December 20, 1996 (as modified by that certain Modification Agreement dated as
of December 20, 1996 and that certain Second Modification Agreement dated as of
April 18, 1997, as amended by that certain First Amendment to Credit Agreement
dated as of August 15, 1997 and as further amended, modified or supplemented,
the "Existing Credit Agreement"), pursuant to which the Lenders agreed to
provide the Borrower with a revolving credit facility in an aggregate amount of
up to $100 million;
WHEREAS, pursuant to (i) an Agreement and Plan of Merger dated as of
September 10, 1998, AAC merged with and into United Dominion Realty Trust, Inc.
("UDRT") with UDRT being the surviving entity and (ii) a Partnership Interest
Purchase and Exchange Agreement dated as of September 10, 1998, United Dominion
Realty, L.P. ("UDRLP") acquired all of the partnership interests in AAC II,
L.P.;
WHEREAS, pursuant to an Assignment, Assumption and Consent Agreement
of even date herewith among the Borrower, the Guarantors, the Administrative
Agent and the Lenders, UDRT and UDRLP agreed to assume all of the rights, duties
and obligations of UDRT and AAC II, L.P., respectively, under this Credit
Agreement and the other Credit Documents and to become "Guarantors" and "Credit
Parties" for purposes of this Credit Agreement and the other Credit Documents;
and
<PAGE>
WHEREAS, the Lenders have agreed to amend and restate the Existing
Credit Agreement to replace AAC II, Inc. and AAC II, L.P. as Guarantors,
respectively, with UDRT and UDRLP, to convert the revolving credit facility to a
term loan credit facility and to make certain other modifications to the Credit
Agreement on the terms and conditions hereinafter set forth.
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 Definitions.
As used herein, the following terms shall have the meanings herein
specified unless the context otherwise requires. Defined terms herein shall
include in the singular number the plural and in the plural the singular:
"AAC II, Inc." means American Apartment Communities II,
Inc., a Maryland corporation, together with its successors and
permitted assigns.
"AAC II, L.P." means American Apartment Communities II,
L.P., a Delaware limited partnership, together with its successors
and permitted assigns.
"AAC Funding II" means AAC Funding Partnership II, a
Delaware general partnership, together with its successors and
permitted assigns.
"Additional Credit Party" means each Person that becomes
a Guarantor after the Closing Date, as provided in Section 7.12.
"Adjusted Eurodollar Rate" means, for the Interest
Period for each Eurodollar Loan comprising part of the same
borrowing (including conversions, extensions and renewals), a per
annum interest rate determined pursuant to the following formula:
Adjusted Eurodollar Rate = Eurodollar Rate
---------------------------------
1 - Eurodollar Reserve Percentage
"Administrative Agent" means NationsBank, N.A. (or any
successor thereto) or any successor administrative agent appointed
pursuant to Section 10.9.
"Agents" means the Administrative Agent and the
Collateral Agent and any successors and assigns in any such
capacity.
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited
to all directors and officers of such Person), controlled by or
under direct or indirect common control with such Person. A Person
shall be deemed to control a corporation or partnership if such
Person possesses, directly or indirectly, the power (i) to vote 25%
or more of the securities having ordinary voting power for the
election of directors of such corporation or to vote 25% or more of
the partnership interests of such partnership or (ii) to direct or
cause direction of the management and policies of such corporation
or partnership, whether through the ownership of voting securities,
as managing or general partner, by contract or otherwise.
<PAGE>
"Agency Services Address" means NationsBank, N.A., 6610
Rockledge Drive, 6th Floor, MD2-600-06-13, Bethesda, Maryland
20817-1876, Attn: Loan Administration, or such other address as may
be identified by written notice from the Administrative Agent to the
Borrower.
"Asset Disposition" means any disposition of any or all
of the assets (including without limitation (i) any sale or
refinancing of a Collateral Property or (ii) any sale of the capital
stock or partnership interests of a Subsidiary to an unrelated third
party) of any Credit Party whether by sale, lease, transfer or
otherwise.
"Assignment, Assumption and Consent Agreement" means
that certain Assignment, Assumption and Consent Agreement, dated as
of the date hereof, among the Borrower, the Guarantors, AAC II,
Inc., AAC II, L.P., the Administrative Agent and the Lenders.
"Assignment of Leases" means an assignment of all
leases, rents, income, issues and profits with respect to any
Collateral Property.
"Bankruptcy Code" means the Bankruptcy Code in Title 11
of the United States Code, as amended, modified, succeeded or
replaced from time to time.
"Base Rate" means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest whole multiple of
1/100 of 1%) equal to the greater of (a) the Federal Funds Rate in
effect on such day plus 1/2 of 1% or (b) the Prime Rate in effect on
such day. If for any reason the Administrative Agent shall have
determined (which determination shall be conclusive absent manifest
error) that it is unable after due inquiry to ascertain the Federal
Funds Rate for any reason, including the inability or failure of the
Administrative Agent to obtain sufficient quotations in accordance
with the terms hereof, the Base Rate shall be determined without
regard to clause (a) of the first sentence of this definition until
the circumstances giving rise to such inability no longer exist. Any
change in the Base Rate due to a change in the Prime Rate or the
Federal Funds Rate shall be effective on the effective date of such
change in the Prime Rate or the Federal Funds Rate, respectively.
"Base Rate Loan" means any Loan bearing interest at a
rate determined by reference to the Base Rate.
"Borrower" means AAC Funding Partnership III, a Delaware
general partnership, together with any successors and permitted
assigns.
<PAGE>
"Business Day" means any day other than a Saturday, a
Sunday, a legal holiday or a day on which banking institutions are
authorized or required by law or other governmental action to close
in Charlotte, North Carolina, Bethesda, Maryland or New York, New
York; provided that in the case of Eurodollar Loans, such day is
also a day on which dealings between banks are carried on in U.S.
dollar deposits in the London interbank market.
"Businesses" has the meaning set forth in Section
6.18(a)(i).
"Capital Expenditures" means all expenditures of the
Credit Parties and their Subsidiaries which, in accordance with
GAAP, would be classified as capital expenditures, including,
without limitation, Capital Leases.
"Capital Lease" means, as applied to any Person, any
lease of any property (whether real, personal or mixed) by that
Person as lessee which, in accordance with GAAP, is or should be
accounted for as a capital lease on the balance sheet of that
Person.
"Cash Equivalents" means (a) securities issued or
directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in
support thereof) having maturities of not more than twelve months
from the date of acquisition, (b) U.S. dollar denominated time and
demand deposits and certificates of deposit of (i) any Lender or any
of its Affiliates, (ii) any domestic commercial bank having capital
and surplus in excess of $500,000,000 or (iii) any bank whose
short-term commercial paper rating from S&P is at least A-1 or the
equivalent thereof or from Moody's is at least P-1 or the equivalent
thereof (any such bank being an "Approved Bank"), in each case with
maturities of not more than 270 days from the date of acquisition,
(c) commercial paper and variable or fixed rate notes issued by any
Approved Bank (or by the parent company thereof) or any variable
rate notes issued by, or guaranteed by, any domestic corporation
rated A-1 (or the equivalent thereof) or better by S&P or P-1 (or
the equivalent thereof) or better by Moody's and maturing within six
months of the date of acquisition, (d) repurchase agreements with a
bank or trust company (including any of the Lenders) or securities
dealer having capital and surplus in excess of $500,000,000 for
direct obligations issued by or fully guaranteed by the United
States of America in which a Credit Party shall have a perfected
first priority security interest (subject to no other Liens) and
having, on the date of purchase thereof, a fair market value of at
least 100% of the amount of the repurchase obligations and (e)
Investments, classified in accordance with GAAP as current assets,
in money market investment programs registered under the Investment
Company Act of 1940, as amended, which are administered by financial
institutions having capital of at least $500,000,000 and the
portfolios of which are limited to Investments of the character
described in the foregoing subdivisions (a) through (d).
"Change of Control" means any one of the following: (a)
UDRLP shall fail to own at least 99% of the voting and economic
equity interests of the Borrower or AAC Funding III, Inc. shall fail
to own at least 1% of the voting and economic equity interests of
the Borrower, or (b) UDRT shall fail to own (i) at least 50.1% of
the voting interests of UDRLP and (ii) directly or indirectly, 60%
of the economic equity interests of UDRLP.
<PAGE>
"Closing Date" means the date hereof.
"Coastal" means Coastal Anaheim Properties, LLC, a
Delaware limited liability company, together with its successors and
permitted assigns.
"Code" means the Internal Revenue Code of 1986, as
amended, and any successor statute thereto, as interpreted by the
rules and regulations issued thereunder, in each case as in effect
from time to time. References to sections of the Code shall be
construed also to refer to any successor sections.
"Collateral" means all collateral referred to in and
covered by the Collateral Documents.
"Collateral Agent" means NationsBank, N.A. (or any
successor thereto) or any successor collateral agent appointed
pursuant to Section 10.9.
"Collateral Documents" means the Security Agreement, the
Mortgage Documents and such other documents executed and delivered
in connection with the attachment and perfection of the Lenders'
security interests in the Collateral Properties and the personal
property owned by the Borrower and its Subsidiaries, including,
without limitation, the Mortgage Policies and UCC financing
statements.
"Collateral Guarantor" means any Guarantor that owns a
parcel of Collateral Property.
"Collateral Properties" means each Real Property as
designated as a Collateral Property on Schedule 6.21(a).
"Collateral Properties Leverage Ratio" means the ratio
of (i) the aggregate principal amount of the Term Loan outstanding
to (ii) Net Operating Income (less reserves of $300 per unit per
year) divided by 0.095.
"Commitments" means the commitment of each Lender with
respect to the Term Loan Committed Amount.
"Consolidated Basis" means, with respect to financial
statements of a Credit Party or any of its Subsidiaries, that such
financial statements are prepared on a consolidated basis consistent
with the audited financial statements of UDRT, dated December 31,
1997, prepared by Ernst & Young LLP.
"Credit Documents" means this Credit Agreement, the
Notes, any Joinder Agreement, the Collateral Documents, the Fee
Letter, the Assignment, Assumption and Consent Agreement, the
Intercreditor Agreement and all other related agreements and
documents issued or delivered hereunder or thereunder or pursuant
hereto or thereto.
<PAGE>
"Credit Parties" means the Borrower and the Guarantors
and "Credit Party" means any one of them.
"Credit Party Obligations" means, without duplication,
all of the obligations of the Credit Parties to the Lenders and the
Agents, whenever arising, under this Credit Agreement, the Notes,
the Collateral Documents or any of the other Credit Documents to
which the Borrower or any other Credit Party is a party.
"Debt Issuance" means the issuance of any Indebtedness
for borrowed money by a Credit Party or any of its Subsidiaries,
other than Indebtedness permitted by Section 8.1.
"Debt Service" means, as of any date of determination,
the principal and interest payments which would be due in the first
year of a loan in the amount of the aggregate principal balance
outstanding under the Notes as of the date of determination assuming
a debt constant for such loan of 10.07%.
"Debt Service Coverage Ratio" means the ratio of (a) Net
Operating Income (net of a reserve for Capital Expenditures of
$300.00 per unit per year) to (b) Debt Service.
"Default" means any event, act or condition which with
notice or lapse of time, or both, would constitute an Event of
Default.
"Defaulting Lender" means, at any time, any Lender that,
(a) has failed to make a Loan or purchase a Participation Interest
required pursuant to the terms of this Credit Agreement (but only
for so long as such Loan is not made or such Participation Interest
is not purchased), (b) has failed to pay to the Agents or any Lender
an amount owed by such Lender pursuant to the terms of this Credit
Agreement (but only for so long as such amount has not been repaid)
or (c) has been deemed insolvent or has become subject to a
bankruptcy or insolvency proceeding or to a receiver, trustee or
similar official.
"Dollars" and "$" means dollars in lawful currency of
the United States of America.
"Effective Date" means the date, as specified by the
Administrative Agent, on which the conditions set forth in Section
5.1 shall have been fulfilled (or waived in the sole discretion of
the Lenders) and on which the initial Loans shall have been made.
"80% Term Note" means the promissory note of the
Borrower in favor of NationsBank in the original principal amount of
$77,812,000 or any promissory note or notes made by the Borrower in
favor of any Lender in substitution for such promissory note,
individually or collectively, as appropriate, as such promissory
note or notes may be amended, modified, supplemented, extended,
renewed or replaced from time to time and as evidenced in the form
of Exhibit 2.1(g).
<PAGE>
"Eligible Assignee" means (a) any Lender or any
Affiliate or subsidiary of a Lender and (b) any other commercial
bank, financial institution, institutional lender or "accredited
investor" (as defined in Regulation D of the Securities and Exchange
Commission) with capital of at least $500 million and with an office
in the United States.
"Environmental Claim" means any investigation, written
notice, violation, written demand, written allegation, action, suit,
injunction, judgment, order, consent decree, penalty, fine, lien,
proceeding, or written claim whether administrative, or judicial in
nature arising (a) pursuant to, or in connection with, an actual or
alleged violation of, any Environmental Law, (b) in connection with
any Hazardous Material, (c) from any assessment, abatement, removal,
remedial, corrective, or other response action in connection with an
Environmental Law or other order of a Governmental Authority or (d)
from any actual or alleged damage, injury, threat, or harm to
health, safety, natural resources, or the environment.
"Environmental Laws" means any current or future legal
requirement of any Governmental Authority pertaining to (a) the
protection of health, safety, and the indoor or outdoor environment,
(b) the conservation, management, or use of natural resources and
wildlife, (c) the protection or use of surface water and groundwater
or (d) the management, manufacture, possession, presence, use,
generation, transportation, treatment, storage, disposal, release,
threatened release, abatement, removal, remediation or handling of,
or exposure to, any hazardous or toxic substance or material or (e)
pollution (including any release to land surface water and
groundwater) and includes, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986,
42 USC 9601 et seq., Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act of 1976 and Hazardous and
Solid Waste Amendment of 1984, 42 USC 6901 et seq., Federal Water
Pollution Control Act, as amended by the Clean Water Act of 1977, 33
USC 1251 et seq., Clean Air Act of 1966, as amended, 42 USC 7401 et
seq., Toxic Substances Control Act of 1976, 15 USC 2601 et seq.,
Hazardous Materials Transportation Act, 49 USC App. 1801 et seq.,
Occupational Safety and Health Act of 1970, as amended, 29 USC 651
et seq., Oil Pollution Act of 1990, 33 USC 2701 et seq., Emergency
Planning and Community Right-to-Know Act of 1986, 42 USC 11001 et
seq., National Environmental Policy Act of 1969, 42 USC 4321 et
seq., Safe Drinking Water Act of 1974, as amended, 42 USC 300(f) et
seq., any analogous implementing or successor law, and any
amendment, rule, regulation, order, or directive issued thereunder.
"Equity Issuance" means any issuance by a Credit Party
to any Person (other than a member of senior management, or an
entity composed of senior management approved by the Required
Lenders, of such Credit Party) of shares of its capital stock or
other equity interests (other than pursuant to (a) any dividend
reinvestment plan of a Credit Party, (b) any employee stock purchase
plan of a Credit Party or (c) any redemption of operating
partnership units of UDRLP), including pursuant to (i) the exercise
of options or warrants or (ii) the conversion of any debt securities
to equity.
<PAGE>
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended, and any successor statute thereto, as
interpreted by the rules and regulations thereunder, all as the same
may be in effect from time to time. References to sections of ERISA
shall be construed also to refer to any successor sections.
"ERISA Affiliate" means an entity, whether or not
incorporated, which is under common control with a Credit Party or
any of its Subsidiaries within the meaning of Section 4001(a)(14) of
ERISA, or is a member of a group which includes a Credit Party and
which is treated as a single employer under Sections 414(b) or (c)
of the Code.
"ERISA Event" means (i) with respect to any Plan, the
occurrence of a Reportable Event or the substantial cessation of
operations (within the meaning of Section 4062(e) of ERISA); (ii)
the withdrawal of a Credit Party, any Subsidiary of a Credit Party
or any ERISA Affiliate from a Multiple Employer Plan during a plan
year in which it was a substantial employer (as such term is defined
in Section 4001(a)(2) of ERISA), or the termination of a Multiple
Employer Plan; (iii) the distribution of a notice of intent to
terminate or the actual termination of a Plan pursuant to Section
4041(a)(2) or 4041A of ERISA; (iv) the institution of proceedings to
terminate or the actual termination of a Plan by the PBGC under
Section 4042 of ERISA; (v) any event or condition which might
constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan; (vi)
the complete or partial withdrawal of a Credit Party, any Subsidiary
of a Credit Party or any ERISA Affiliate from a Multiemployer Plan;
(vii) the conditions for imposition of a lien under Section 302(f)
of ERISA exist with respect to any Plan; or (viii) the adoption of
an amendment to any Plan requiring the provision of security to such
Plan pursuant to Section 307 of ERISA.
"Eurodollar Loan" means a Loan bearing interest based at
a rate determined by reference to the Adjusted Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Telerate Page
3750 (or any successor page) as the London interbank offered rate
for deposits in Dollars at approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Interest Period for
a term comparable to such Interest Period; provided, however, if
more than one rate is specified on Telerate Page 3750, the
applicable rate shall be the arithmetic mean of all such rates. If
for any reason such rate is not available, the term "Eurodollar
Rate" shall mean, for any Eurodollar Loan for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the
London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two Business Days prior to
the first day of such Interest Period for a term comparable to such
Interest Period; provided, however, if more than one rate is
specified on Reuters Screen LIBO Page, the applicable rate shall be
the arithmetic mean of all such rates.
<PAGE>
"Eurodollar Reserve Percentage" means, for any day, that
percentage (expressed as a decimal) which is in effect from time to
time under Regulation D of the Board of Governors of the Federal
Reserve System (or any successor), as such regulation may be amended
from time to time, or any successor regulation, as the maximum
reserve requirement (including, without limitation, any basic,
supplemental, emergency, special, or marginal reserves) applicable
with respect to Eurocurrency liabilities as that term is defined in
Regulation D (or against any other category of liabilities that
includes deposits by reference to which the interest rate of
Eurodollar Loans is determined), whether or not any Lender has any
Eurocurrency liabilities subject to such reserve requirement at that
time. Eurodollar Loans shall be deemed to constitute Eurocurrency
liabilities and as such shall be deemed subject to reserve
requirements without benefits of credits for proration, exceptions
or offsets that may be available from time to time to a Lender. The
Adjusted Eurodollar Rate shall be adjusted automatically on and as
of the effective date of any change in the Eurodollar Reserve
Percentage.
"Event of Default" means any of the events or
circumstances described in Section 9.1.
"Exchange Act" means the Securities Exchange Act of
1934, as amended, modified, succeeded or replaced from time to time,
and the rules and regulations promulgated thereunder.
"Federal Funds Rate" means, for any day, the rate per
annum (rounded upward, if necessary, to the nearest 1/100th of 1%)
equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by the
Federal Reserve Bank of New York on the Business Day next succeeding
such day; provided that (a) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day and (b) if no such
rate is so published on such next preceding Business Day, the
Federal Funds Rate for such day shall be the average rate quoted to
the Administrative Agent on such day on such transactions as
determined by the Administrative Agent.
"Fee Letter" means that certain letter agreement, dated
as of the Closing Date, among the Administrative Agent and the
Borrower, as amended, modified, supplemented or replaced from time
to time.
"Funded Debt" means, without duplication, the sum of (a)
all Indebtedness of UDRT and its Subsidiaries for borrowed money,
(b) all purchase money Indebtedness of UDRT and its Subsidiaries,
(c) the principal portion of all obligations of UDRT and its
Subsidiaries under Capital Leases, (d) all obligations, contingent
or otherwise, relative to the face amount of all letters of credit
(other than letters of credit supporting trade payables in the
ordinary course of business), whether or not drawn, and banker's
acceptances issued for the account of UDRT or any of its
Subsidiaries (it being understood that, to the extent an undrawn
letter of credit supports another obligation consisting of
Indebtedness, in calculating aggregated Indebtedness only such other
obligation shall be included), (e) all Guaranty Obligations of UDRT
and its Subsidiaries with respect to Funded Debt of another Person,
(f) all Funded Debt of another entity secured by a Lien on any
property of UDRT and its Subsidiaries whether or not such Funded
Debt has been assumed by UDRT or any of its Subsidiaries, (g) all
Funded Debt of any partnership or unincorporated joint venture to
the extent UDRT or one of its Subsidiaries is legally obligated or
has a reasonable expectation of being liable with respect thereto,
net of any assets of such partnership or joint venture and (h) the
principal balance outstanding under any synthetic lease, tax
retention operating lease, off-balance sheet loan or similar
off-balance sheet financing product of UDRT or any of its
Subsidiaries where such transaction is considered borrowed money
indebtedness for tax purposes but is classified as an operating
lease in accordance with GAAP.
<PAGE>
"Funds From Operations" means, for any Person and any
period, net income plus depreciation and amortization, excluding
gains (or losses) from debt restructuring and sales of properties,
as calculated in accordance with standards promulgated by the
National Association of Real Estate Investment Trusts as in effect
from time to time.
"GAAP" means generally accepted accounting principles in
the United States applied on a consistent basis and subject to
Section 1.3.
"Governmental Authority" means any Federal, state, local
or provincial court or governmental agency, authority,
instrumentality or regulatory body.
"Guarantor" means each of UDRT, UDRLP, Coastal, Regency
Park, Windward Point and AAC Funding II and each Additional Credit
Party which has executed a Joinder Agreement, together with their
successors and assigns.
"Guaranty" shall have the meaning set forth in Section
4.1.
"Guaranty Obligations" means, with respect to any
Person, without duplication, any obligations (other than
endorsements in the ordinary course of business of negotiable
instruments for deposit or collection) guaranteeing or intended to
guarantee any Indebtedness of any other Person in any manner,
whether direct or indirect, and including without limitation any
obligation, whether or not contingent, (a) to purchase any such
Indebtedness or other obligation or any property constituting
security therefor, (b) to advance or provide funds or other support
for the payment or purchase of such indebtedness or obligation or to
maintain working capital, solvency or other balance sheet condition
of such other Person (including, without limitation, maintenance
agreements, comfort letters, take or pay arrangements, put
agreements or similar agreements or arrangements) for the benefit of
the holder of Indebtedness of such other Person, (c) to lease or
purchase property, securities or services primarily for the purpose
of assuring the owner of such Indebtedness or (d) to otherwise
assure or hold harmless the owner of such Indebtedness or obligation
against loss in respect thereof. The amount of any Guaranty
Obligation hereunder shall (subject to any limitations set forth
therein) be deemed to be an amount equal to the outstanding
principal amount (or maximum principal amount, if larger) of the
Indebtedness in respect of which such Guaranty Obligation is made.
<PAGE>
"Hazardous Materials" means any substance, material or
waste defined or regulated in or under any Environmental Laws.
"Indebtedness" of any Person means, without duplication,
(a) all obligations of such Person for borrowed money, (b) all
obligations of such Person evidenced by bonds, debentures, notes or
similar instruments, or upon which interest payments are customarily
made (c) all obligations of such Person under conditional sale or
other title retention agreements relating to property purchased by
such Person to the extent of the value of such property (other than
customary reservations or retentions of title under agreements with
suppliers entered into in the ordinary course of business), (d) all
obligations, other than intercompany items, of such Person issued or
assumed as the deferred purchase price of property or services
purchased by such Person which would appear as liabilities on a
balance sheet of such Person, (e) all Indebtedness of others secured
by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on, or
payable out of the proceeds of production from, property owned or
acquired by such Person, whether or not the obligations secured
thereby have been assumed, (f) all Guaranty Obligations of such
Person, (g) the principal portion of all obligations of such Person
under (i) Capital Leases and (ii) any synthetic lease, tax retention
operating lease, off-balance sheet loan or similar off-balance sheet
financing product of such Person where such transaction is
considered borrowed money indebtedness for tax purposes but is
classified as an operating lease in accordance with GAAP, (h) all
obligations of such Person in respect of interest rate protection
agreements, foreign currency exchange agreements, or other interest
or exchange rate or commodity price hedging agreements, (i) the
maximum amount of all performance and standby letters of credit
issued or bankers' acceptances facilities created for the account of
such Person and, without duplication, all drafts drawn thereunder
(to the extent unreimbursed), and (j) all preferred stock issued by
such Person and required by the terms thereof to be redeemed, or for
which mandatory sinking fund payments are due, by a fixed date. The
Indebtedness of any Person shall include the Indebtedness of any
partnership or unincorporated joint venture in which such Person is
legally obligated or has a reasonable expectation of being liable
with respect thereto.
"Intangible Assets" of any Person means at any date the
amount of (i) all write-ups (other than write-ups resulting from
write-ups of assets of a going concern business made within twelve
months after the acquisition of such business) in the book value of
any asset owned by such Person and (ii) all unamortized debt
discount and expense, unamortized deferred charges, capitalized
start-up costs, goodwill, patents, licenses, trademarks, trade
names, copyrights, organization or developmental expenses, covenants
not to compete and other intangible items.
<PAGE>
"Intercreditor Agreement" means that certain
Intercreditor Agreement, dated as of the date hereof, among UDRT,
UDRLP and the Administrative Agent, as amended, modified,
supplemented or restated from time to time.
"Interest Payment Date" means the first day of each
calendar month beginning with the first of such dates to occur after
the month containing the Closing Date, and the Term Loan Maturity
Date.
"Interest Period" means, as to Eurodollar Loans, a
period of one, two, three or six months' duration, as the Borrower
may elect, commencing, in each case, on the date of the borrowing
(including continuations and conversions thereof); provided,
however, (a) if any Interest Period would end on a day which is not
a Business Day, such Interest Period shall be extended to the next
succeeding Business Day (except that where the next succeeding
Business Day falls in the next succeeding calendar month, then on
the next preceding Business Day), (b) no Interest Period shall
extend beyond the Term Loan Maturity Date, and (c) where an Interest
Period begins on a day for which there is no numerically
corresponding day in the calendar month in which the Interest Period
is to end, such Interest Period shall end on the last Business Day
of such calendar month.
"Investment" in any Person means (a) the acquisition
(whether for cash, property, services, assumption of Indebtedness,
securities or otherwise) of assets, shares of capital stock, bonds,
notes, debentures, partnership, joint ventures or other ownership
interests or other securities of such other Person or (b) any
deposit with, or advance, loan or other extension of credit to, such
Person (other than deposits made in connection with the purchase of
equipment or other assets in the ordinary course of business) or (c)
any other capital contribution to or investment in such Person,
including, without limitation, any Guaranty Obligation (including
any support for a letter of credit issued on behalf of such Person)
incurred for the benefit of such Person.
"Joinder Agreement" means a Joinder Agreement
substantially in the form of Exhibit 7.12.
"Lender" means any of the Persons identified as a
"Lender" on the signature pages hereto, and any Person which may
become a Lender by way of assignment in accordance with the terms
hereof, together with their successors and permitted assigns.
"Lien" means any mortgage, pledge, hypothecation,
assignment, deposit arrangement, security interest, encumbrance,
lien (statutory or otherwise), preference, priority or charge of any
kind (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any financing
or similar statement or notice filed under the Uniform Commercial
Code as adopted and in effect in the relevant jurisdiction or other
similar recording or notice statute, and any lease in the nature
thereof).
"Loan" or "Loans" means the Term Loans (or a portion of
any Term Loan), individually or collectively, as appropriate.
<PAGE>
"Material Adverse Effect" means a material adverse
effect on (a) the business, assets, operations, condition (financial
or otherwise) or prospects of any of the Credit Parties or any of
their subsidiaries, (b) the ability of a Credit Party to perform its
respective obligations under this Credit Agreement or any of the
other Credit Documents, or (c) the validity or enforceability of
this Credit Agreement, any of the other Credit Documents, or the
rights and remedies of the Lenders hereunder or thereunder taken as
a whole.
"Moody's" means Moody's Investors Service, Inc., or any
successor or assignee of the business of such company in the
business of rating securities.
"Mortgage Documents" means the Mortgages, the Mortgage
Policies and such other documents and agreements executed or
delivered in connection with the Collateral Properties.
"Mortgage Policies" means ALTA or other appropriate form
mortgagee title insurance policies issued by the Title Insurance
Company in amounts reasonably satisfactory to the Collateral Agent
with respect to each Collateral Property, assuring the Collateral
Agent that the applicable Mortgages create valid and enforceable
first priority mortgage liens on the respective Collateral
Properties, free and clear of all defects and encumbrances except
Permitted Liens, containing such coverage and endorsements as shall
be reasonably satisfactory to the Collateral Agent and for any other
matters that the Collateral Agent may request and providing
affirmative insurance and such reinsurance as the Collateral Agent
may request, all of the foregoing in form and substance reasonably
satisfactory to the Collateral Agent
"Mortgages" means, collectively, mortgages, deeds of
trust or deeds to secure debt encumbering the fee interests of the
Borrower and each Collateral Guarantor in each Collateral Property;
and "Mortgage" means any one of the them.
"Multiemployer Plan" means a Plan which is a
multiemployer plan as defined in Sections 3(37) or 4001(a)(3) of
ERISA.
"Multiple Employer Plan" means a Plan (other than a
Multiemployer Plan) which a Credit Party or any ERISA Affiliate and
at least one employer other than a Credit Party or any ERISA
Affiliate are contributing sponsors.
"NationsBank" means NationsBank, N.A., and its
successors and assigns.
"Net Cash Proceeds" means the aggregate cash proceeds
received from an Asset Disposition, an Equity Issuance or a Debt
Issuance net of (a) reasonable and customary transaction costs
payable to third parties, (b) taxes paid or a good faith estimate of
the taxes payable with respect to such proceeds, (c) any reserve for
adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP, provided that any subsequent
reversal or reduction of such reserves shall constitute additional
Net Cash Proceeds, (d) any proceeds from a Debt Issuance used to
refinance maturing Indebtedness, provided that such maturing
Indebtedness is permitted by Section 8.1 and (e) any proceeds from
an Asset Disposition reinvested in other real property in a manner
sufficient to defer (under Section 1031 of the Code) taxes in any
gain realized from the sale of such Collateral Property.
<PAGE>
"Net Income" means, for any period, the net income after
taxes for such period of UDRT and its Subsidiaries on a consolidated
basis, as determined in accordance with GAAP.
"Net Operating Income" means, for the four fiscal
quarter period ending as of the date of determination, (a) for
purposes of calculating compliance with Sections 7.2(b) and (d),
earnings of the Credit Parties before deduction of interest, income
taxes, depreciation and amortization relating to the Real Properties
held at least six months, as determined in accordance with GAAP and
(b) for purposes of calculating compliance with Sections 7.2(e) and
(f), earnings of the Credit Parties before deduction of interest,
income taxes, depreciation and amortization relating to the
Collateral Properties, as determined in accordance with GAAP.
"Non-Excluded Taxes" has the meaning set forth in
Section 3.13.
"Note" or "Notes" means the Term Notes, individually or
collectively, as appropriate.
"Notice of Continuation/Conversion" means a request by
the Borrower to continue an existing Eurodollar Loan to a new
Interest Period or to convert a Eurodollar Loan to a Base Rate Loan
or a Base Rate Loan to a Eurodollar Loan, in the form of Exhibit
2.1(e).
"Participation Interest" means the Loans advanced by a
Lender by way of a purchase of a participation in any Loans as
provided in Section 3.8.
"PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA and any
successor thereof.
"Permitted Investments" means Investments which are (a)
cash or Cash Equivalents, (b) accounts receivable created, acquired
or made in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms, (c)
Investments by one Credit Party in another Credit Party as permitted
hereunder, (d) earnest money and similar deposits in respect of real
property made in the ordinary course of business, (e) temporary
Investments in Cash Equivalents and Investments in Real Properties
with proceeds from any Asset Disposition made in accordance with
Section 1031 of the Code and (f) the Investments set forth on
Schedule 8.6.
<PAGE>
"Permitted Liens" means (a) Liens securing Credit Party
Obligations, (b) Liens for taxes not yet due or Liens for taxes
being contested in good faith by appropriate proceedings for which
adequate reserves determined in accordance with GAAP have been
established (and as to which the property subject to any such Lien
is not yet subject to foreclosure, sale or loss on account thereof),
(c) Liens in respect of property imposed by law arising in the
ordinary course of business such as materialmens', mechanics',
warehousemens', carriers', landlords' and other nonconsensual
statutory Liens which are not yet due and payable or which are being
contested in good faith by appropriate proceedings for which
adequate reserves determined in accordance with GAAP have been
established (and as to which the property subject to any such Lien
is not yet subject to foreclosure, sale or loss on account thereof);
provided, however, that such Liens may not secure Indebtedness in
excess of 5% of the then outstanding Term Loans, (d) Liens arising
from good faith deposits in connection with or to secure performance
of tenders, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations incurred in the
ordinary course of business (other than obligations in respect of
the payment of borrowed money), (e) Liens arising from good faith
deposits in connection with or to secure performance of statutory
obligations and surety and appeal bonds, (f) easements,
rights-of-way, restrictions (including zoning restrictions), matters
of plat, minor defects or irregularities in title, license or lease
agreements for laundry, cable tv, telephone or other comparable
items and other similar charges or encumbrances not, in any material
respect, impairing the use of the encumbered property for its
intended purposes, (g) judgment Liens that would not constitute an
Event of Default, (h) Liens arising by virtue of any statutory or
common law provision relating to bankers' liens, rights of setoff or
similar rights as to deposit accounts or other funds maintained with
a creditor depository institution, (i) Liens existing on the date
hereof and identified on Schedule 8.2; provided that no such Lien
shall extend to any property other than the property subject thereto
on the Closing Date and (j) Permitted Encumbrances (as defined in
any Mortgage Document).
"Person" means any individual, partnership, joint
venture, firm, corporation, limited liability company, association,
trust or other enterprise (whether or not incorporated), or any
Governmental Authority.
"Plan" means any employee benefit plan (as defined in
Section 3(3) of ERISA) which is covered by ERISA and with respect to
which a Credit Party or any ERISA Affiliate is (or, if such plan
were terminated at such time, would under Section 4069 of ERISA be
deemed to be) an "employer" within the meaning of Section 3(5) of
ERISA.
"Prime Rate" means the per annum rate of interest
established from time to time by the Administrative Agent at its
principal office in Charlotte, North Carolina (or such other
principal office of the Administrative Agent as communicated in
writing to the Borrower and the Lenders) as its Prime Rate. Any
change in the interest rate resulting from a change in the Prime
Rate shall become effective as of 12:01 a.m. of the Business Day on
which each change in the Prime Rate is announced by the
Administrative Agent. The Prime Rate is a reference rate used by the
Administrative Agent in determining interest rates on certain loans
and is not intended to be the lowest rate of interest charged on any
extension of credit to any debtor.
<PAGE>
"Real Properties" means all real property assets of the
Credit Parties and their Subsidiaries and "Real Property" means any
one of them.
"Regency Park" means Regency Park, L.P., an Indiana
limited partnership, together with its successors and permitted
assigns.
"Regulation D, U, or X" means Regulation D, U or X,
respectively, of the Board of Governors of the Federal Reserve
System as from time to time in effect and any successor to all or a
portion thereof.
"Reportable Event" means any of the events set forth in
Section 4043(c) of ERISA, other than those events as to which the
notice requirement has been waived by regulation.
"Required Lenders" means (a) if there are only two
Lenders or less, all the Lenders and (b) if there are more than two
Lenders, the Lenders whose aggregate Credit Exposure (as hereinafter
defined) constitutes more than 66% of the Credit Exposure of all
Lenders at such time; provided, however, that if any Lender shall be
a Defaulting Lender at such time then there shall be excluded from
the determination of Required Lenders the aggregate principal amount
of Credit Exposure of such Lender at such time. For purposes of the
preceding sentence, the term "Credit Exposure" as applied to each
Lender shall mean (a) at any time prior to the termination of the
Commitments, the sum of the Term Loan Commitment Percentage of such
Lender multiplied by the Term Loan Committed Amount and (b) at any
time after the termination of the Commitments, the principal balance
of the outstanding Loans of such Lender.
"Requirement of Law" means, as to any Person, the
articles or certificate of incorporation and by-laws or other
organizational or governing documents of such Person, and any law,
treaty, rule or regulation or final, non-appealable determination of
an arbitrator or a court or other Governmental Authority, in each
case applicable to or binding upon such Person or to which any of
its material property is subject.
"Revolving Notes" and "Revolving Note" means the Term
Notes and Term Note, respectively.
"S&P" means Standard & Poor's Ratings Group, a division
of McGraw Hill, Inc., or any successor or assignee of the business
of such division in the business of rating securities.
"Securities Act" means the Securities Act of 1933, as
amended, modified, succeeded or replaced from time to time, and the
rules and regulations promulgated thereunder.
"Security Agreement" means that certain security
agreement executed and delivered by the Borrower and the
Subsidiaries of the Borrower from time to time party thereto in
favor of the Collateral Agent, for the benefit of the Lenders, to
secure their obligations under the Credit Documents, as the same may
be amended, modified, extended, renewed, restated or replaced from
time to time.
<PAGE>
"Single Employer Plan" means any Plan which is covered
by Title IV of ERISA, but which is not a Multiemployer Plan or a
Multiple Employer Plan.
"SMSA" means Standard Metropolitan Statistical Area as
defined by the United States Census Bureau.
"Solvent" means, with respect to any Person as of a
particular date, that on such date (a) such Person is able to pay
its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (b)
such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person's ability to pay as
such debts and liabilities mature in their ordinary course, (c) such
Person is not engaged in a business or a transaction, and is not
about to engage in a business or a transaction, for which such
Person's assets would constitute unreasonably small capital after
giving due consideration to the prevailing practice in the industry
in which such Person is engaged or is to engage, (d) the fair value
of the assets of such Person is greater than the total amount of
liabilities, including, without limitation, contingent liabilities,
of such Person and (e) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they
become absolute and matured. In computing the amount of contingent
liabilities at any time, it is intended that such liabilities will
be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"Subordinated Debt" means unsecured Indebtedness issued
by a Credit Party on a subordinated basis, all of the terms and
conditions of which are acceptable to the Lenders in their sole
discretion.
"Subsidiary" means, as to any Person, (a) any
corporation more than 50% of whose stock of any class or classes
having by the terms thereof ordinary voting power to elect a
majority of the directors of such corporation (irrespective of
whether or not at the time, any class or classes of such corporation
shall have or might have voting power by reason of the happening of
any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries, and (b) any partnership,
association, joint venture or other entity in which such Person
directly or indirectly through Subsidiaries has more than a 50%
equity interest at any time.
"Tangible Fair Market Value" means, with respect to the
Credit Parties taken as a whole, the Net Operating Income associated
with the Real Properties held at least six months (net of reserves
of $300.00 per unit per year) divided by 0.095 plus the purchase
price of Real Properties held less than six months plus 40% of costs
incurred on Real Properties under development plus cash and Cash
Equivalents.
<PAGE>
"Tangible Net Worth" means, as of any date of
determination, net worth of UDRLP and its Subsidiaries on a
consolidated basis, as determined in accordance with GAAP less the
GAAP amount of all organizational expenses, patents, copyrights,
trademarks, licenses, goodwill, covenants not to compete, research
and development costs, training costs, other intangible assets and
all unamortized debt discount, plus Subordinated Debt of UDRLP and
its Subsidiaries.
"Term Loan Commitment Percentage" means, for each
Lender, the percentage identified as its Term Loan Commitment
Percentage on Schedule 1.1(c), as such percentage may be modified in
connection with any assignment made in accordance with the
provisions of Section 11.3.
"Term Loan Committed Amount" means NINETY-SEVEN MILLION
TWO HUNDRED SIXTY-FIVE THOUSAND DOLLARS ($97,265,000).
"Term Loan Maturity Date" means December 7, 1999.
"Term Loans" means the Term Loans made to the Borrower
pursuant to Section 2.1.
"Term Note" or "Term Notes" means the 80% Term Note, the
20% Term Note and any other promissory notes of the Borrower in
favor of the Lenders evidencing the Term Loans provided pursuant to
Section 2.1, individually or collectively, as appropriate, as such
promissory notes may be amended, modified, supplemented, extended,
renewed or replaced from time to time and as evidenced in the form
of Exhibit 2.1(g).
"Termination Event" means (a) with respect to any Single
Employer Plan, the occurrence of a Reportable Event or the
substantial cessation of operations (within the meaning of Section
4062(e) of ERISA); (b) the withdrawal of any Credit Party or any of
its Subsidiaries or any ERISA Affiliate from a Multiple Employer
Plan during a plan year in which it was a substantial employer (as
such term is defined in Section 4001(a)(2) of ERISA), or the
termination of a Multiple Employer Plan; (c) the distribution of a
notice of intent to terminate or the actual termination of a Plan
pursuant to Section 4041(a)(2) or 4041A of ERISA; (d) the
institution of proceedings to terminate or the actual termination of
a Plan by the PBGC under Section 4042 of ERISA; (e) any event or
condition which might reasonably constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan; or (f) the complete or partial
withdrawal of any Credit Party or any of its Subsidiaries or any
ERISA Affiliate from a Multiemployer Plan.
"Title Insurance Company" means a title insurer
reasonably satisfactory to the Collateral Agent.
"20% Term Note" means the promissory note of the
Borrower in favor of NationsBank in the original principal amount of
$19,453,000 or any promissory note or notes made by the Borrower in
favor of any Lender in substitution for such promissory note,
individually or collectively, as appropriate, as such promissory
note or notes may be amended, modified, supplemented, extended,
renewed or replaced from time to time and as evidenced in the form
of Exhibit 2.1(g). The 20% Term Note represents Indebtedness
incurred under the Existing Credit Agreement to finance the
Collateral Properties known as Mountain View Apartments and
Grandview Terrace Apartments.
<PAGE>
"UDRT Facility" means that certain credit facility
provided by NationsBank and other lenders to UDRT, as evidenced by a
Three Year Credit Agreement and a 364-Day Credit Agreement, each
dated as of August 4, 1997, among UDRT, the guarantors party
thereto, the lenders party thereto and NationsBank.
"Unsecured NationsBank Loan" means the unsecured term
loan provided by NationsBank to UDRT in the aggregate principal
amount of $25,000,000.
"Windward Point" means Windward Point, LLC, a California
limited liability company, together with successors and permitted
assigns.
"Year 2000 Problem" means any risk (a) that any computer
hardware, software or other equipment used by a Credit Party or any
of its Subsidiaries (or by any of its suppliers, vendors or
customers that is material to the business of such Credit Party or
Subsidiary) will not function as effectively and reliably on and
after January 1, 2000 as it does prior to January 1, 2000 or (b)
that any computer applications used by a Credit Party may not be
able to recognize and properly perform date-sensitive functions
after December 31, 1999, to the extent any such risk specified in
items (a) or (b) above would cause or be reasonably expected to
cause a Material Adverse Effect.
1.2 Computation of Time Periods and Other Definition Provisions.
For purposes of computation of periods of time hereunder, the word
"from" means "from and including" and the words "to" and "until" each mean "to
but excluding." References in this Credit Agreement to "Articles", "Sections",
"Schedules" or "Exhibits" shall be to Articles, Sections, Schedules or Exhibits
of or to this Credit Agreement unless otherwise specifically provided.
1.3 Accounting Terms.
Except as otherwise expressly provided herein, all accounting terms
used herein shall be interpreted, and all financial statements and certificates
and reports as to financial matters required to be delivered to the Lenders
hereunder shall be prepared, in accordance with GAAP applied on a consistent
basis. All financial statements delivered to the Lenders hereunder shall be
accompanied by a statement from the Borrower that GAAP has not changed since the
most recent financial statements delivered by the Borrower to the Lenders or if
GAAP has changed describing such changes in detail and explaining how such
changes affect the financial statements. All calculations made for the purposes
of determining compliance with this Credit Agreement shall (except as otherwise
expressly provided herein) be made by application of GAAP applied on a basis
consistent with the most recent annual or quarterly financial statements
delivered pursuant to Section 7.1 (or, prior to the delivery of the first
financial statements pursuant to Section 7.1, consistent with the financial
statements described in Section 5.1(d)); provided, however, if (a) the Borrower
shall object to determining such compliance on such basis at the time of
delivery of such financial statements due to any change in GAAP or the rules
promulgated with respect thereto or (b) either Agent or the Required Lenders
shall so object in writing within 60 days after delivery of such financial
statements (or after the Lenders have been informed of the change in GAAP
affecting such financial statements, if later), then such calculations shall be
made on a basis consistent with the most recent financial statements delivered
by the Borrower to the Lenders as to which no such objection shall have been
made.
<PAGE>
SECTION 2
CREDIT FACILITY
2.1 Term Loans.
(a) Term Loan Commitment. Subject to the terms and
conditions set forth herein, all outstanding Revolving Loans (as
defined in the Existing Credit Agreement) on the Effective Date
shall be converted to a Term Loan (the "Term Loan"). The Borrower
may not repay and then reborrow all or any portion of the Term Loan.
(b) Continuation of Base Rate and Eurodollar Loans. All
Base Rate Loans and Eurodollar Loans outstanding immediately prior
to the Effective Date shall continue as Base Rate Loans and
Eurodollar Loans, respectively, on the Effective Date.
(c) [Intentionally Omitted].
(d) References to Revolving Loans and Revolving Notes.
As of the Effective Date, all references in the Credit Documents to
a Revolving Loan or the Revolving Loans and to a Revolving Note or
the Revolving Notes shall refer to the Term Loan and the Term Note,
respectively.
(e) Continuations and Conversions. The Borrower shall
have the option, on any Business Day, to continue existing
Eurodollar Loans for a subsequent Interest Period, to convert Base
Rate Loans into Eurodollar Loans or to convert Eurodollar Loans into
Base Rate Loans; provided, however, that (i) each such continuation
or conversion must be requested by the Borrower pursuant to a
written Notice of Continuation/Conversion, in the form of Exhibit
2.1(e), in compliance with the terms set forth below, (ii) except as
provided in Section 3.11, Eurodollar Loans may only be continued or
converted into Base Rate Loans on the last day of the Interest
Period applicable thereto, (iii) Eurodollar Loans may not be
continued nor may Base Rate Loans be converted into Eurodollar Loans
during the existence and continuation of a Default or Event of
Default and (iv) any request to continue a Eurodollar Loan that
fails to comply with the terms hereof or any failure to request a
continuation of a Eurodollar Loan at the end of an Interest Period
shall result in a conversion of such Eurodollar Loan to a Base Rate
Loan on the last day of the applicable Interest Period. Each
continuation or conversion must be requested by the Borrower no
later than 11:00 a.m. (A) one Business Day prior to the date for a
requested conversion of a Eurodollar Loan to a Base Rate Loan or (B)
three Business Days prior to the date for a requested continuation
of a Eurodollar Loan or conversion of a Base Rate Loan to a
Eurodollar Loan, in each case pursuant to a written Notice of
Continuation/Conversion submitted to the Administrative Agent which
shall set forth (x) whether the Borrower wishes to continue or
convert such Loans and (y) if the request is to continue a
Eurodollar Loan or convert a Base Rate Loan to a Eurodollar Loan,
the Interest Period applicable thereto.
<PAGE>
(f) Minimum Amounts. Each request for a conversion or
continuation shall be subject to the requirements that (i) each
conversion or continuation of a Loan shall be in a minimum amount of
$1,000,000 and in integral multiples of $100,000 in excess thereof
or the remaining amount of the Term Loan and (ii) no more than four
Eurodollar Loans shall be outstanding hereunder at any one time. For
the purposes of this Section, all Eurodollar Loans with the same
Interest Periods shall be considered as one Eurodollar Loan, but
Eurodollar Loans with different Interest Periods, even if they begin
on the same date, shall be considered as separate Eurodollar Loans.
(g) Notes. The Term Loan made by each Lender shall be
evidenced by one or more duly executed promissory notes of the
Borrower to each Lender in the aggregate face amount of its Term
Loan Commitment Percentage of the Term Loan Committed Amount in
substantially the form of Exhibit 2.1(g).
SECTION 3
GENERAL PROVISIONS APPLICABLE TO LOANS
3.1 Interest.
(a) Interest Rate. All Base Rate Loans shall accrue
interest at the Base Rate plus three-fourths of one percent (.75%)
per annum and all Eurodollar Loans shall accrue interest at the
Adjusted Eurodollar Rate plus two percent (2.00%) per annum.
(b) Default Rate of Interest. Upon the occurrence, and
during the continuance, of an Event of Default, the principal of
and, to the extent permitted by law, interest on the Loans and any
other amounts owing hereunder or under the other Credit Documents
(including without limitation fees and expenses) shall bear
interest, payable on demand, at a per annum rate equal to 2% plus
the rate which would otherwise be applicable (or if no rate is
applicable, then the rate for Base Rate Loans plus two percent (2%)
per annum).
<PAGE>
(c) Interest Payments. Interest on Loans shall be due
and payable in arrears on each Interest Payment Date. If an Interest
Payment Date falls on a date which is not a Business Day, such
Interest Payment Date shall be deemed to be the next succeeding
Business Day, except that in the case of Eurodollar Loans where the
next succeeding Business Day falls in the next succeeding calendar
month, then on the next preceding Business Day.
3.2 Place and Manner of Payments.
All payments of principal, interest, fees, expenses and other
amounts to be made by a Credit Party under this Agreement shall be received not
later than 2:00 p.m. on the date when due, in Dollars and in immediately
available funds, by the Administrative Agent at its offices in Bethesda,
Maryland. Payments received after such time shall be deemed to have been
received on the next Business Day. The Borrower shall, at the time it makes any
payment under this Agreement, specify to the Administrative Agent the Loans,
fees or other amounts payable by the Borrower hereunder to which such payment is
to be applied (and in the event that it fails to specify, or if such application
would be inconsistent with the terms hereof, the Administrative Agent shall,
subject to Section 3.7, distribute such payment to the Lenders in such manner as
the Administrative Agent may deem appropriate). The Administrative Agent will
distribute any such payment to the Lenders on the day received if such payment
is received prior to 2:00 p.m.; otherwise the Administrative Agent will
distribute such payment to the Lenders on the next succeeding Business Day.
Whenever any payment hereunder shall be stated to be due on a day which is not a
Business Day, the due date thereof shall be extended to the next succeeding
Business Day (subject to accrual of interest and fees for the period of such
extension), except that in the case of Eurodollar Loans, if the extension would
cause the payment to be made in the next following calendar month, then such
payment shall instead be made on the next preceding Business Day.
3.3 Prepayments.
(a) Voluntary Prepayments. The Borrower shall have the
right to prepay Loans in whole or in part from time to time without
premium or penalty; provided, however, that (i) Eurodollar Loans may
only be prepaid on three Business Days' prior written notice to the
Administrative Agent and any prepayment of Eurodollar Loans will be
subject to Section 3.14 and (ii) each such partial prepayment of
Loans shall be in the minimum principal amount of $1,000,000 and
integral multiples of $100,000 in excess thereof.
(b) Mandatory Prepayments.
(i) [Intentionally Omitted].
(ii) Asset Disposition. Immediately upon
receipt by a Credit Party or any of its Subsidiaries of
proceeds from any Asset Disposition after the Closing
Date, the Borrower shall forward 100% of the Net Cash
Proceeds of such Asset Disposition to the Lenders as a
prepayment of the Loans (to be applied as set forth in
Section 3.3(c) below).
<PAGE>
(iii) Issuances of Equity. Immediately upon
receipt by a Credit Party or any of its Subsidiaries of
proceeds from any Equity Issuance after the Closing
Date, the Borrower shall forward 100% of the Net Cash
Proceeds of such Equity Issuance to the Lenders as a
prepayment of the Loans (to be applied as set forth in
Section 3.3(c) below).
(iv) Issuance of Debt. Immediately upon
receipt by a Credit Party or any of its Subsidiaries of
proceeds from any Debt Issuance, the Borrower shall
forward 100% of the Net Cash Proceeds of such Debt
Issuance to the Lenders as a prepayment of the Loans (to
be applied as set forth in Section 3.3(c) below).
(c) Application of Prepayments. Prepayments pursuant to
Section 3.3(b)(ii), (iii) and (iv) shall be applied to the Term Loan
or to the Unsecured NationsBank Loan, as the Borrower may specify
or, if the Borrower has not so specified, to the Term Loan.
Prepayments on the Term Loan shall be applied first to that portion
of the Term Loan evidenced by the 20% Note and second to that
portion of the Term Loan evidenced by the 80% Note. Within the
parameters set forth in the immediately preceding sentence, such
prepayments on the Term Loan shall be applied as specified by the
Borrower or, if the Borrower has not so specified, first to Base
Rate Loans and then to Eurodollar Loans in direct order of Interest
Period maturities. All prepayments hereunder shall be subject to
Section 3.14.
3.4 Commitment Fee.
The Borrower agrees to pay to the Administrative Agent, for its own
account, a commitment fee as agreed to between the Borrower and the
Administrative Agent in the Fee Letter.
3.5 Payment in full at Maturity.
On the Term Loan Maturity Date, the entire outstanding principal
balance of the Term Loan, together with accrued but unpaid interest and all
other sums owing with respect thereto, shall be due and payable in full, unless
accelerated sooner pursuant to Section 9.
3.6 Computations of Interest and Fees.
(a) All computations of interest and fees hereunder
shall be made on the basis of the actual number of days elapsed over
a year of 360 days. Interest shall accrue from and include the date
of borrowing (or continuation or conversion) but exclude the date of
payment.
(b) It is the intent of the Lenders and the Credit
Parties to conform to and contract in strict compliance with
applicable usury law from time to time in effect. All agreements
between the Lenders and the Borrower are hereby limited by the
provisions of this paragraph which shall override and control all
such agreements, whether now existing or hereafter arising and
<PAGE>
whether written or oral. In no way, nor in any event or contingency
(including but not limited to prepayment or acceleration of the
maturity of any obligation), shall the interest taken, reserved,
contracted for, charged, or received under this Credit Agreement,
under the Notes or otherwise, exceed the maximum nonusurious amount
permissible under applicable law. If, from any possible construction
of any of the Credit Documents or any other document, interest would
otherwise be payable in excess of the maximum nonusurious amount,
any such construction shall be subject to the provisions of this
paragraph and such interest shall be automatically reduced to the
maximum nonusurious amount permitted under applicable law, without
the necessity of execution of any amendment or new document. If any
Lender shall ever receive anything of value which is characterized
as interest on the Loans under applicable law and which would, apart
from this provision, be in excess of the maximum lawful amount, an
amount equal to the amount which would have been excessive interest
shall, without penalty, be applied to the reduction of the principal
amount owing on the Loans and not to the payment of interest, or
refunded to the Borrower or the other payor thereof if and to the
extent such amount which would have been excessive exceeds such
unpaid principal amount of the Loans. The right to demand payment of
the Loans or any other indebtedness evidenced by any of the Credit
Documents does not include the right to receive any interest which
has not otherwise accrued on the date of such demand, and the
Lenders do not intend to charge or receive any unearned interest in
the event of such demand. All interest paid or agreed to be paid to
the Lenders with respect to the Loans shall, to the extent permitted
by applicable law, be amortized, prorated, allocated, and spread
throughout the full stated term (including any renewal or extension)
of the Loans so that the amount of interest on account of such
indebtedness does not exceed the maximum nonusurious amount
permitted by applicable law.
3.7 Pro Rata Treatment.
Except to the extent otherwise provided herein, the initial Term
Loan borrowing, each payment or prepayment of principal of the Term Loan, and
each conversion or continuation of any Loan, shall (except as otherwise provided
in Section 3.11) be allocated pro rata among the Lenders in accordance with the
respective Term Loan Commitment Percentages of such Lenders (or, if the
Commitments of such Lenders have expired or been terminated, in accordance with
the respective principal amounts of the outstanding Loans and Participation
Interests of such Lenders); provided that in the event any amount paid to any
Lender pursuant to this Section 3.7 is rescinded or must otherwise be returned
by the Administrative Agent, each Lender shall, upon the request of the
Administrative Agent, repay to the Administrative Agent the amount so paid to
such Lender, with interest for the period commencing on the date such payment is
returned by the Administrative Agent until the date the Administrative Agent
receives such repayment at a rate per annum equal to, during the period to but
excluding the date two Business Days after such request, the Federal Funds Rate,
and thereafter, at the Base Rate plus four percent (4%) per annum.
<PAGE>
3.8 Sharing of Payments.
The Lenders agree among themselves that, except to the extent
otherwise provided herein, in the event that any Lender shall obtain payment in
respect of any Loan or any other obligation owing to such Lender under this
Credit Agreement through the exercise of a right of setoff, banker's lien or
counterclaim, or pursuant to a secured claim under Section 506 of the Bankruptcy
Code or other security or interest arising from, or in lieu of, such secured
claim, received by such Lender under any applicable bankruptcy, insolvency or
other similar law or otherwise, or by any other means, in excess of its pro rata
share of such payment as provided for in this Credit Agreement, such Lender
shall promptly pay in cash or purchase from the other Lenders a participation in
such Loans and other obligations in such amounts, and make such other
adjustments from time to time, as shall be equitable to the end that all Lenders
share such payment in accordance with their respective ratable shares as
provided for in this Credit Agreement. The Lenders further agree among
themselves that if payment to a Lender obtained by such Lender through the
exercise of a right of setoff, banker's lien, counterclaim or other event as
aforesaid shall be rescinded or must otherwise be restored, each Lender which
shall have shared the benefit of such payment shall, by payment in cash or a
repurchase of a participation theretofore sold, return its share of that benefit
(together with its share of any accrued interest payable with respect thereto)
to each Lender whose payment shall have been rescinded or otherwise restored.
The Borrower agrees that any Lender so purchasing such a participation may, to
the fullest extent permitted by law, exercise all rights of payment, including
setoff, banker's lien or counterclaim, with respect to such participation as
fully as if such Lender were a holder of such Loan or other obligation in the
amount of such participation. Except as otherwise expressly provided in this
Credit Agreement, if any Lender or an Agent shall fail to remit to an Agent or
any other Lender an amount payable by such Lender or such Agent to such Agent or
such other Lender pursuant to this Credit Agreement on the date when such amount
is due, such payments shall be made together with interest thereon for each date
from the date such amount is due until the date such amount is paid to such
Agent or such other Lender at a rate per annum equal to the Federal Funds Rate.
If under any applicable bankruptcy, insolvency or other similar law, any Lender
receives a secured claim in lieu of a setoff to which this Section 3.8 applies,
such Lender shall, to the extent practicable, exercise its rights in respect of
such secured claim in a manner consistent with the rights of the Lenders under
this Section 3.8 to share in the benefits of any recovery on such secured claim.
3.9 Capital Adequacy.
If, after the date hereof, any Lender has determined that the
adoption or the becoming effective of, or any change in, or any change by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof in the interpretation or administration
of, any applicable law, rule or regulation regarding capital adequacy, or
compliance by such Lender, or its parent corporation, with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's (or parent corporation's)
capital or assets as a consequence of its commitments or obligations hereunder
to a level below that which such Lender, or its parent corporation, could have
achieved but for such adoption, effectiveness, change or compliance (taking into
consideration such Lender's (or parent corporation's) policies with respect to
capital adequacy), then, upon notice from such Lender to the Borrower and the
Administrative Agent, within 90 days of such event occurring, the Borrower shall
be obligated to pay to such Lender such additional amount or amounts as will
compensate such Lender on an after-tax basis (after taking into account
applicable deductions and credits in respect of the amount indemnified) for such
reduction. Each determination by any such Lender of amounts owing under this
Section shall, absent manifest error, be conclusive and binding on the parties
hereto; provided, however, that such determination shall be made on a reasonable
basis. This covenant shall survive for one year following the termination of
this Credit Agreement and the payment of the Loans and all other amounts payable
hereunder.
<PAGE>
3.10 Inability To Determine Interest Rate.
If prior to the first day of any Interest Period, the Administrative
Agent shall have reasonably determined in good faith (which determination shall
be conclusive and binding upon the Borrower) that, by reason of circumstances
affecting the relevant market, adequate and reasonable means do not exist for
ascertaining the Adjusted Eurodollar Rate for such Interest Period, the
Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the Lenders as soon as practicable thereafter, and will also give
prompt written notice to the Borrower when such conditions no longer exist. If
such notice is given (a) any Eurodollar Loans requested to be made on the first
day of such Interest Period shall be made as Base Rate Loans and (b) any Loans
that were to have been converted on the first day of such Interest Period to or
continued as Eurodollar Loans shall be converted to or continued as Base Rate
Loans. Until such notice has been withdrawn by the Agent, no further Eurodollar
Loans shall be made or continued as such, nor shall the Borrower have the right
to convert Base Rate Loans to Eurodollar Loans.
3.11 Illegality.
Notwithstanding any other provision herein, if the adoption of or
any change in any Requirement of Law or in the interpretation or application
thereof occurring after the Closing Date shall make it unlawful for any Lender
to make or maintain Eurodollar Loans as contemplated by this Credit Agreement,
(a) such Lender shall promptly give written notice of such circumstances to the
Borrower and the Administrative Agent (which notice shall be promptly withdrawn
in a writing addressed to the Borrower and the Administrative Agent whenever
such circumstances no longer exist), (b) the commitment of such Lender hereunder
to make Eurodollar Loans, continue Eurodollar Loans as such and convert a Base
Rate Loan to Eurodollar Loans shall forthwith be canceled and, until such time
as it shall no longer be unlawful for such Lender to make or maintain Eurodollar
Loans, such Lender shall then have a commitment only to make a Base Rate Loan
when a Eurodollar Loan is requested and (c) such Lender's Loans then outstanding
as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans
on the respective last days of the then current Interest Periods with respect to
such Loans or within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of the
then current Interest Period with respect thereto, the Borrower shall pay to
such Lender such amounts, if any, as may be required pursuant to Section 3.14.
<PAGE>
3.12 Requirements of Law.
If the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof applicable to any Lender, or compliance by
any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority, in each case made
subsequent to the Closing Date (or, if later, the date on which such Lender
becomes a Lender):
(a) shall subject such Lender to any tax of any kind
whatsoever with respect to any Eurodollar Loans made by it or its
obligation to make Eurodollar Loans, or change the basis of taxation
of payments to such Lender in respect thereof (except for
Non-Excluded Taxes covered by Section 3.13 (including Non-Excluded
Taxes imposed solely by reason of any failure of such Lender to
comply with its obligations under Section 3.13(b)) and changes in
taxes measured by or imposed upon the overall net income, or
franchise tax (imposed in lieu of such net income tax), of such
Lender or its applicable lending office, branch, or any affiliate
thereof);
(b) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against
assets held by, deposits or other liabilities in or for the account
of, advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of such Lender which is not
otherwise included in the determination of the Adjusted Eurodollar
Rate hereunder; or
(c) shall impose on such Lender any other condition
(excluding any tax of any kind whatsoever);
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender reasonably deems to be material, of making,
converting into, continuing or maintaining Eurodollar Loans or to reduce any
amount receivable hereunder in respect thereof, then, in any such case, upon
notice to the Borrower from such Lender, through the Agent, in accordance
herewith, the Borrower shall be obligated to promptly pay such Lender, upon its
written demand, any additional amounts necessary to compensate such Lender on an
after-tax basis (after taking into account applicable deductions and credits in
respect of the amount indemnified) for such increased cost or reduced amount
receivable, provided that, in any such case, the Borrower may elect to convert
the Eurodollar Loans made by such Lender hereunder to Base Rate Loans by giving
the Administrative Agent at least one Business Day's notice of such election, in
which case the Borrower shall promptly pay to such Lender, upon demand, without
duplication, such amounts, if any, as may be required pursuant to Section 3.14.
If any Lender becomes entitled to claim any additional amounts pursuant to this
Section 3.12, it shall provide prompt notice thereof to the Borrower, through
the Administrative Agent, certifying (x) that one of the events described in
this Section 3.12 has occurred and describing in reasonable detail the nature of
such event, (y) as to the increased cost or reduced amount resulting from such
event and (z) as to the additional amount demanded by such Lender and a
reasonably detailed explanation of the calculation thereof. Such a certificate
as to any additional amounts payable pursuant to this Section 3.12 submitted by
such Lender, through the Administrative Agent, to the Borrower shall be
conclusive and binding on the parties hereto in the absence of manifest error;
provided, however, that such certification shall be made on a reasonable basis.
This covenant shall survive for one year following the termination of this
Credit Agreement and the payment of the Loans and all other amounts payable
hereunder.
<PAGE>
3.13 Taxes.
(a) Except as provided below in this Section 3.13, all
payments made by the Borrower under this Credit Agreement and any
Notes shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income,
stamp or other taxes, levies, imposts, duties, charges, fees,
deductions or withholdings, now or hereafter imposed, levied,
collected, withheld or assessed by any court, or governmental body,
agency or other official, excluding taxes measured by or imposed
upon the overall net income of any Lender or its applicable lending
office, or any branch or affiliate thereof, and all franchise taxes,
branch taxes, taxes on doing business or taxes on the overall
capital or net worth of any Lender or its applicable lending office,
or any branch or affiliate thereof, in each case imposed in lieu of
net income taxes: (i) by the jurisdiction under the laws of which
such Lender, applicable lending office, branch or affiliate is
organized or is located, or in which its principal executive office
is located, or any nation within which such jurisdiction is located
or any political subdivision thereof; or (ii) by reason of any
connection between the jurisdiction imposing such tax and such
Lender, applicable lending office, branch or affiliate other than a
connection arising solely from such Lender having executed,
delivered or performed its obligations, or received payment under or
enforced, this Credit Agreement or any Notes. If any such
non-excluded taxes, levies, imposts, duties, charges, fees,
deductions or withholdings ("Non-Excluded Taxes") are required to be
withheld from any amounts payable to an Agent or any Lender
hereunder or under any Notes, (A) the amounts so payable to an Agent
or such Lender shall be increased to the extent necessary to yield
to an Agent or such Lender (after payment of all Non-Excluded Taxes)
interest on any such other amounts payable hereunder at the rates or
in the amounts specified in this Credit Agreement and any Notes,
provided, however, that the Borrower shall be entitled to deduct and
withhold any Non-Excluded Taxes and shall not be required to
increase any such amounts payable to any Lender that is not
organized under the laws of the United States of America or a state
thereof if such Lender fails to comply with the requirements of
paragraph (b) of this Section 3.13 whenever any Non-Excluded Taxes
are payable by the Borrower, and (B) as promptly as possible after
requested the Borrower shall send to such Agent for its own account
or for the account of such Lender, as the case may be, a certified
copy of an original official receipt received by the Borrower
showing payment thereof. If the Borrower fails to pay any
Non-Excluded Taxes when due to the appropriate taxing authority or
fails to remit to the Administrative Agent the required receipts or
other required documentary evidence, the Borrower shall indemnify
the Agents and any Lender for any incremental taxes, interest or
penalties that may become payable by an Agent or any Lender as a
result of any such failure. The agreements in this subsection shall
survive for one year following the termination of this Credit
Agreement and the payment of the Loans and all other amounts payable
hereunder.
<PAGE>
(b) Each Lender that is not incorporated under the laws
of the United States of America or a state thereof shall:
(i) (A) on or before the date of any
payment by the Borrower under this Credit Agreement or
Notes to such Lender, deliver to the Borrower and the
Administrative Agent (x) two duly completed copies of
United States Internal Revenue Service Form 1001 or
4224, or successor applicable form, as the case may be,
certifying that it is entitled to receive payments under
this Credit Agreement and any Notes without deduction or
withholding of any United States federal income taxes
and (y) an Internal Revenue Service Form W-8 or W-9, or
successor applicable form, as the case may be,
certifying that it is entitled to an exemption from
United States backup withholding tax;
(B) deliver to the Borrower and the
Administrative Agent two further copies of any such form
or certification on or before the date that any
such form or certification expires or becomes obsolete
and after the occurrence of any event requiring a change
in the most recent form previously delivered by it to
the Borrower; and
(C) obtain such extensions of time
for filing and complete such forms or certifications as
may reasonably be requested by the Borrower or the
Administrative Agent; or
(ii) in the case of any such Lender
that is not a "bank" within the meaning of Section
881(c)(3)(A) of the Internal Revenue Code, (A) represent
to the Borrower (for the benefit of the Borrower and the
Agents) that it is not a bank within the meaning of
Section 881(c)(3)(A) of the Internal Revenue Code, (B)
agree to furnish to the Borrower, on or before the date
of any payment by the Borrower, with a copy to the
Administrative Agent, two accurate and complete original
signed copies of Internal Revenue Service Form W-8, or
successor applicable form certifying to such Lender's
legal entitlement at the date of such certificate to an
exemption from U.S. withholding tax under the provisions
of Section 881(c) of the Internal Revenue Code with
respect to payments to be made under this Credit
Agreement and any Notes (and to deliver to the Borrower
and the Administrative Agent two further copies of such
form on or before the date it expires or becomes
obsolete and after the occurrence of any event requiring
a change in the most recently provided form and, if
necessary, obtain any extensions of time reasonably
requested by the Borrower or the Administrative Agent
for filing and completing such forms), and (C) agree, to
the extent legally entitled to do so, upon reasonable
request by the Borrower, to provide to the Borrower (for
the benefit of the Borrower and the Agents) such other
forms as may be reasonably required in order to
establish the legal entitlement of such Lender to an
exemption from withholding with respect to payments
under this Credit Agreement and any Notes.
<PAGE>
Notwithstanding the above, if any change in treaty, law or
regulation has occurred after the date such Person becomes a Lender
hereunder which renders all such forms inapplicable or which would
prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower and
the Administrative Agent then such Lender shall be exempt from such
requirements. Each Person that shall become a Lender or a
participant of a Lender pursuant to Section 11.3 shall, upon the
effectiveness of the related transfer, be required to provide all of
the forms, certifications and statements required pursuant to this
subsection (b); provided that in the case of a participant of a
Lender, the obligations of such participant of a Lender pursuant to
this subsection (b) shall be determined as if the participant of a
Lender were a Lender except that such participant of a Lender shall
furnish all such required forms, certifications and statements to
the Lender from which the related participation shall have been
purchased.
3.14 Indemnity.
The Borrower promises to indemnify each Lender and to hold each
Lender harmless from any loss or expense which such Lender may sustain or incur
as a consequence of (a) default by the Borrower in making a borrowing of,
conversion into or continuation of Eurodollar Loans after the Borrower has given
a notice requesting the same in accordance with the provisions of this Credit
Agreement, (b) default by the Borrower in making any prepayment of a Eurodollar
Loan after the Borrower has given a notice thereof in accordance with the
provisions of this Credit Agreement and (c) the making of a prepayment of
Eurodollar Loans on a day which is not the last day of an Interest Period with
respect thereto. Such indemnification may include an amount equal to (i) the
amount of interest which would have accrued on the amount so prepaid, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
the applicable Interest Period (or, in the case of a failure to borrow, convert
or continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Eurodollar
Loans provided for herein minus (ii) the amount of interest (as reasonably
determined by such Lender) which would have accrued to such Lender on such
amount by placing such amount on deposit for a comparable period with leading
banks in the interbank Eurodollar market. The agreements in this Section shall
survive for one year following the termination of this Credit Agreement and the
payment of the Loans and all other amounts payable hereunder.
3.15 Mitigation; Mandatory Assignment.
Each Lender shall use reasonable efforts to avoid or mitigate any
increased cost or suspension of the availability of an interest rate under
Sections 3.9 through 3.14 inclusive to the greatest extent practicable
(including transferring the Loans to another lending office or affiliate of a
Lender) unless, in the opinion of such Lender, such efforts would be likely to
have an adverse effect upon it. In the event a Lender makes a request to the
Borrower for additional payments in accordance with Sections 3.9, 3.10, 3.11,
3.12, 3.13 or 3.14, then, provided that no Default or Event of Default has
occurred and is continuing at such time, the Borrower may, at its own expense
(such expense to include any transfer fee payable to the Administrative Agent
under Section 11.3(b) and any expense pursuant to Section 3.14), and in its sole
discretion, require such Lender to transfer and assign in whole (but not in
part), without recourse (in accordance with and subject to the terms and
conditions of Section 11.3(b)), all of its interests, rights and obligations
under this Credit Agreement to an assignee which shall assume such assigned
obligations (which assignee may be another Lender, if a Lender accepts such
assignment); provided that (a) such assignment shall not conflict with any law,
rule or regulation or order of any court or other governmental authority and (b)
the Borrower or such assignee shall have paid to the assigning Lender in
immediately available funds the principal of and interest accrued to the date of
such payment on the portion of the Loans hereunder held by such assigning Lender
and all other amounts owed to such assigning Lender hereunder, including amounts
owed pursuant to Sections 3.9 through 3.14.
<PAGE>
SECTION 4
GUARANTY
4.1 Guaranty of Payment.
Subject to Section 4.7 below, each of the Guarantors hereby, jointly
and severally, unconditionally guarantees to each Lender and the Agents the
prompt payment of the Credit Party Obligations in full when due (whether at
stated maturity, as a mandatory prepayment, by acceleration or otherwise);
provided, however, the guaranty of UDRT shall be limited to an unconditional
guarantee of the prompt payment of all Credit Party Obligations other than the
20% Term Note in full when due (whether at stated maturity, as a mandatory
prepayment, by acceleration or otherwise). The Guarantors additionally, jointly
and severally, unconditionally guarantee to each Lender and the Agents the
timely performance of all other obligations (to the extent such obligations are
susceptible to being performed or cured by a Guarantor) under the Credit
Documents (together with the guaranty set forth in the immediately preceding
sentence, the "Guaranty"). This Guaranty is a guaranty of payment and not of
collection and is a continuing guaranty and shall apply to all Credit Party
Obligations whenever arising.
4.2 Obligations Unconditional.
The obligations of the Guarantors hereunder are absolute and
unconditional, irrespective of the value, genuineness, validity, regularity or
enforceability of any of the Credit Documents, or any other agreement or
instrument referred to therein, to the fullest extent permitted by applicable
law, irrespective of any other circumstance whatsoever which might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor.
Each Guarantor agrees that this Guaranty may be enforced by the Lenders without
the necessity at any time of resorting to or exhausting any other security or
collateral and without the necessity at any time of having recourse to the Notes
or any other of the Credit Documents or any collateral, if any, hereafter
securing the Credit Party Obligations or otherwise and each Guarantor hereby
waives the right to require the Lenders to proceed against the Borrower or any
other Person (including a co-guarantor) or to require the Lenders to pursue any
other remedy or enforce any other right. Each Guarantor further agrees that it
shall have no right of subrogation, indemnity, reimbursement or contribution
<PAGE>
against the Borrower or any other Guarantor of the Credit Party Obligations for
amounts paid under this Guaranty until such time as the Lenders have been paid
in full, all Commitments under the Credit Agreement have been terminated and no
Person or Governmental Authority shall have any right to request any return or
reimbursement of funds from the Lenders in connection with monies received under
the Credit Documents. Each Guarantor further agrees that nothing contained
herein shall prevent the Lenders from suing on the Notes or any of the other
Credit Documents or foreclosing its security interest in or Lien on any
collateral, if any, securing the Credit Party Obligations or from exercising any
other rights available to it under this Credit Agreement, the Notes, any other
of the Credit Documents, or any other instrument of security, if any, and the
exercise of any of the aforesaid rights and the completion of any foreclosure
proceedings shall not constitute a discharge of any of any Guarantor's
obligations hereunder; it being the purpose and intent of each Guarantor that
its obligations hereunder shall be absolute, independent and unconditional under
any and all circumstances. Neither any Guarantor's obligations under this
Guaranty nor any remedy for the enforcement thereof shall be impaired, modified,
changed or released in any manner whatsoever by an impairment, modification,
change, release or limitation of the liability of the Borrower or by reason of
the bankruptcy or insolvency of the Borrower. Each Guarantor waives any and all
notice of the creation, renewal, extension or accrual of any of the Credit Party
Obligations and notice of or proof of reliance by any Agent or any Lender upon
this Guaranty or acceptance of this Guaranty. The Credit Party Obligations, and
any of them, shall conclusively be deemed to have been created, contracted or
incurred, or renewed, extended, amended or waived, in reliance upon this
Guaranty. All dealings between the Borrower and any of the Guarantors, on the
one hand, and the Agents and the Lenders, on the other hand, likewise shall be
conclusively presumed to have been had or consummated in reliance upon this
Guaranty.
4.3 Modifications.
Each Guarantor agrees that (a) all or any part of the security now
or hereafter held for the Credit Party Obligations, if any, may be exchanged,
compromised or surrendered from time to time; (b) the Lenders shall not have any
obligation to protect, perfect, secure or insure any such security interests,
liens or encumbrances now or hereafter held, if any, for the Credit Party
Obligations or the properties subject thereto; (c) the time or place of payment
of the Credit Party Obligations may be changed or extended, in whole or in part,
to a time certain or otherwise, and may be renewed or accelerated, in whole or
in part; (d) the Borrower and any other party liable for payment under the
Credit Documents may be granted indulgences generally; (e) any of the provisions
of the Notes or any of the other Credit Documents may be modified, amended or
waived; (f) any party (including any co-guarantor) liable for the payment
thereof may be granted indulgences or be released; and (g) any deposit balance
for the credit of the Borrower or any other party liable for the payment of the
Credit Party Obligations or liable upon any security therefor may be released,
in whole or in part, at, before or after the stated, extended or accelerated
maturity of the Credit Party Obligations, all without notice to or further
assent by such Guarantor, which shall remain bound thereon, notwithstanding any
such exchange, compromise, surrender, extension, renewal, acceleration,
modification, indulgence or release.
<PAGE>
4.4 Waiver of Rights.
Each Guarantor expressly waives to the fullest extent permitted by
applicable law: (a) notice of acceptance of this Guaranty by the Lenders and of
all extensions of credit to the Borrower by the Lenders; (b) presentment and
demand for payment or performance of any of the Credit Party Obligations; (c)
protest and notice of dishonor or of default (except as specifically required in
the Credit Agreement) with respect to the Credit Party Obligations or with
respect to any security therefor; (d) notice of the Lenders obtaining, amending,
substituting for, releasing, waiving or modifying any security interest, lien or
encumbrance, if any, hereafter securing the Credit Party Obligations, or the
Lenders' subordinating, compromising, discharging or releasing such security
interests, liens or encumbrances, if any; (e) all other notices to which such
Guarantor might otherwise be entitled; and (f) demand for payment under this
Guaranty.
4.5 Reinstatement.
The obligations of the Guarantors under this Section 4 shall be
automatically reinstated if and to the extent that for any reason any payment by
or on behalf of any Person in respect of the Credit Party Obligations is
rescinded or must be otherwise restored by any holder of any of the Credit Party
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and each Guarantor agrees that it will indemnify
the Agents and each Lender on demand for all reasonable costs and expenses
(including, without limitation, reasonable fees of counsel) incurred by an Agent
or such Lender in connection with such rescission or restoration, including any
such costs and expenses incurred in defending against any claim alleging that
such payment constituted a preference, fraudulent transfer or similar payment
under any bankruptcy, insolvency or similar law.
4.6 Remedies.
The Guarantors agree that, as between the Guarantors, on the one
hand, and the Agents and the Lenders, on the other hand, the Credit Party
Obligations may be declared to be forthwith due and payable as provided in
Section 9 (and shall be deemed to have become automatically due and payable in
the circumstances provided in Section 9) notwithstanding any stay, injunction or
other prohibition preventing such declaration (or preventing such Credit Party
Obligations from becoming automatically due and payable) as against any other
Person and that, in the event of such declaration (or such Credit Party
Obligations being deemed to have become automatically due and payable), subject
to the limitation on UDRT's guaranty set forth in Section 4.1, such Credit Party
Obligations (whether or not due and payable by any other Person) shall forthwith
become due and payable by the Guarantors. Each of the Guarantors that is a
Collateral Guarantor acknowledges and agrees that its obligations hereunder are
secured in accordance with the terms of the Mortgage Documents and the other
Collateral Documents and that the Lenders may exercise their remedies thereunder
in accordance with the terms thereof.
<PAGE>
4.7 Limitation of Guaranty.
Notwithstanding any provision to the contrary contained herein or in
any of the other Credit Documents, to the extent the obligations of any
Guarantor shall be adjudicated to be invalid or unenforceable for any reason
(including, without limitation, because of any applicable state or federal law
relating to fraudulent conveyances or transfers) then the obligations of such
Guarantor hereunder shall be limited to the maximum amount that is permissible
under applicable law (whether federal or state and including, without
limitation, the Bankruptcy Code).
4.8 Additional Waivers.
It is the intent of the parties hereto that the Guaranty and all of
the other provisions of this Section 4 be construed according to the law of the
State of North Carolina. However, if this Section 4 is ever construed under the
law of the State of California, the following provisions shall apply, to the
extent permitted by applicable law, in addition to all the other waivers agreed
to and made by each Guarantor as otherwise set forth in this Section 4:
(a) by executing this Credit Agreement each Guarantor
freely, irrevocably and unconditionally waives all rights and
defenses that such Guarantor may have because the Borrower's
Indebtedness is secured by real property; this means, among other
things:
(i) the Lenders and the Agents may collect
from any Guarantor without first foreclosing on any real
or personal property collateral pledged by the Borrower;
(ii) if the Lenders or the Agents foreclose
on any real property collateral pledged by the Borrower,
(A) the amount of the Indebtedness may
be reduced only by the price for which that
collateral is sold at the foreclosure sale,
even if the collateral is worth more than
the sale price; and
(B) the Lenders may collect from any
Guarantor even if the Agents or the
Lenders, by foreclosing on the real property
collateral, have destroyed any right such
Guarantor may have to collect from the
Borrower.
This is an unconditional and irrevocable waiver of any rights and
defenses any Guarantor may have because the Borrower's Indebtedness
is secured by real property. These rights and defenses include, but
are not limited to, any rights or defenses based upon Section 580a,
580b, 580d, or 726 of the California Code of Civil Procedure.
(b) Each Guarantor waives such Guarantor's or other
surety's rights of subrogation, reimbursement, indemnification and
contribution and other rights, benefits and defenses, if any,
otherwise available to a Guarantor pursuant to California law,
including, without limitation, the rights, benefits or defenses set
forth in California Civil Code Sections 2787 to 2855, inclusive,
2899 or 3433 and any rights, benefits or defenses resulting from
alteration, impairment or suspension in any respect or by any means
of any of the Borrower's obligations under the Credit Documents or
any of the Lender's or Agents' rights or remedies under the Credit
Documents without a Guarantor's prior consent.
<PAGE>
(c) Each Guarantor waives all rights and defenses
arising out of an election of remedies by the Lenders or the Agents,
even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation,
has destroyed such Guarantor's rights of subrogation and
reimbursement against the principal by the operation of Section 580d
of the California Code of Civil Procedure or otherwise.
(d) Each Guarantor waives the benefit of or right to
assert any statute of limitations affecting the liability of such
Guarantor hereunder or the enforcement thereof to the extent
permitted by law; any partial payment by the Borrower or other
circumstance which operates to toll any statute of limitations as to
the Borrower shall also operate to toll the statute of limitations
as to each Guarantor.
SECTION 5
CONDITIONS PRECEDENT
5.1 Closing Conditions.
The obligation of the Lenders to enter into this Credit Agreement
and to make the Term Loan is subject to satisfaction of the following
conditions:
(a) Executed Credit Documents. Receipt by the
Administrative Agent of duly executed copies of: (i) this Credit
Agreement; (ii) the 80% Term Note; (iii) the 20% Term Note; (iv) the
Assignment, Assumption and Consent Agreement; and (v) the
Intercreditor Agreement, each in form and substance reasonably
acceptable to the Administrative Agent in its reasonable discretion.
(b) Partnership Documents. Receipt by the
Administrative Agent of the following:
(i) Certificates of Authorization.
Certificate of authorization of the general partners of
the Borrower (and each other Credit Party that is a
partnership) as of the Effective Date, approving and
adopting the Credit Documents to be executed by the
Borrower (or such other Credit Party) and authorizing
the execution and delivery thereof.
<PAGE>
(ii) Partnership Agreement. Certified
copies of the partnership agreement of UDRLP, together
with all amendments thereto.
(iii) Certificates of Good Standing or
Existence. Certificate of good standing or existence for
UDRLP issued as of a recent date by its state of
organization and each other state where the failure to
qualify or be in good standing could have a Material
Adverse Effect.
(c) Corporate Documents. Receipt by the
Administrative Agent of the following:
(i) Charter Documents. Copies of the
articles or certificates of incorporation or other
charter documents of UDRT certified to be true and
complete as of a recent date by the appropriate
Governmental Authority of the state or other
jurisdiction of its incorporation and certified by a
secretary or assistant secretary of UDRT to be true and
correct as of the Effective Date.
(ii) Bylaws. A copy of the bylaws of UDRT
certified by a secretary or assistant secretary of UDRT
to be true and correct as of the Effective Date.
(iii) Resolutions. Copies of resolutions of
the Board of Directors of each Credit Party that is a
corporation approving and adopting the Credit Documents
to which it is a party, the transactions contemplated
therein and authorizing execution and delivery thereof,
certified by a secretary or assistant secretary of such
Credit Party to be true and correct and in full force
and effect as of the Effective Date.
(iv) Good Standing. Copies of (A)
certificates of good standing, existence or their
equivalent with respect to UDRT certified as of a recent
date by the appropriate Governmental Authorities of the
state or other jurisdiction of incorporation and each
other jurisdiction in which the failure to so qualify
and be in good standing could have a Material Adverse
Effect and (B) to the extent available, a certificate
indicating payment of all corporate franchise taxes
certified as of a recent date by the appropriate
governmental taxing authorities.
(v) Incumbency. An incumbency certificate of
each Credit Party that is a corporation certified by a
secretary or assistant secretary of such Credit Party to
be true and correct as of the Effective Date.
(d) Limited Liability Company Documents. Receipt
by the Administrative Agent of the following:
(i) Resolutions. Copies of a certificate of
action of the members of each Credit Party that is a
limited liability company approving and adopting the
Credit Documents to which it is a party, the
transactions contemplated therein and authorizing
execution and delivery thereof, certified by an
authorized member of such Credit Party to be true and
correct and in full force and effect as of the Effective
Date.
<PAGE>
(ii) Certificate of Action of Members. An
incumbency certificate of each Credit Party that is a
limited liability company certified by an authorized
member of such Credit Party to be true and correct as of
the Effective Date.
(e) Financial Information. Receipt and approval by the
Administrative Agent of such financial information regarding UDRT,
UDRLP and their Subsidiaries as the Administrative Agent may
reasonably request.
(f) Opinion of Counsel. Receipt by the Administrative
Agent of (i) opinions (which shall cover, among other things,
authority, legality, validity, binding effect and enforceability),
satisfactory to the Administrative Agent, addressed to the
Administrative Agent on behalf of the Lenders and dated as of the
Effective Date, from legal counsel to the Credit Parties and (ii)
written confirmation from local legal counsel to the Credit Parties
that no documents or instruments are required to be recorded, and no
filings are required to be made, in order to maintain the perfection
of the Liens and security interests of the Lenders in the
Collateral.
(g) Assignments. Receipt by the Administrative Agent of
an executed assignment agreement between NationsBank and each of the
other Lenders party to the Existing Credit Agreement assigning the
entirety of each such Lender's Commitment to NationsBank.
(h) Material Adverse Effect. There shall not have
occurred a change since December 31, 1997 that has had or could
reasonably be expected to have a Material Adverse Effect.
(i) Litigation. There shall not exist any pending or
threatened action, suit, investigation or proceeding against a
Credit Party or any of their Subsidiaries that would have or would
reasonably be expected to have a Material Adverse Effect.
(j) Fees and Expenses. Payment by the Borrower of all
fees and expenses owed by it to the Lenders and the Administrative
Agent, including, without limitation, payment to the Administrative
Agent of the fees set forth herein and in the Fee Letter.
(k) Consents and Approvals. All governmental,
shareholder, partner and third-party consents and approvals
necessary or, in the opinion of the Administrative Agent, desirable
in connection with the Loans and the transactions contemplated under
the Credit Documents shall have been duly obtained and shall be in
full force and effect, and a copy of each such consent or approval
shall have been delivered to the Administrative Agent.
(l) Other. Receipt by the Lenders of such other
documents, instruments, agreements or information as reasonably and
timely requested by any Lender, including, but not limited to, the
documents, instruments, agreements and information required in
Section 5.2 and information regarding litigation, tax, accounting,
labor, insurance, pension liabilities (actual or contingent), real
estate leases, material contracts, debt agreements, property
ownership and contingent liabilities of the Credit Parties and their
Subsidiaries.
<PAGE>
5.2 Post-Closing Documentation and Information Requirements.
The Credit Parties agree to provide, upon the reasonable request of
the Administrative Agent, the following documents, instruments, agreements and
information if necessary to successfully syndicate this credit facility:
(a) Information. Updated information regarding any
Collateral Property in form and substance satisfactory to the
Administrative Agent, including, without limitation, updates of the
information set forth on Schedule 1.1(b) in the format and
conforming to the terms required by such Schedule 1.1(b), (or if not
conforming to the terms of Schedule 1.1(b) identifying the variance
from such terms).
(b) Real Property Collateral. The Collateral Agent
shall have received, in form and substance reasonably satisfactory
to the Collateral Agent:
(i) Title Policy Updates. A Mortgage Policy
update issued by the Title Insurance Company reasonably
satisfactory to the Collateral Agent with respect to any
Collateral Property, assuring the Collateral Agent that
the applicable Mortgage creates a valid and enforceable
first priority mortgage lien on such Collateral
Property, free and clear of all defects and encumbrances
except Permitted Liens, and for any other matters that
the Collateral Agent may request and provide affirmative
insurance and such reinsurance as the Collateral Agent
may request, all of the foregoing in form and substance
reasonably satisfactory to the Collateral Agent.
(ii) Surveys. Maps or plats of an
as-built survey of the site of any Collateral Property
certified (or recertified) to the Collateral Agent and
the Title Insurance Company in a manner reasonably
satisfactory to them, dated a date satisfactory to the
Collateral Agent and the Title Insurance Company by an
independent professional licensed land surveyor
reasonably satisfactory to the Collateral Agent and the
Title Insurance Company, which maps or plats and the
surveys on which they are based shall be sufficient to
delete any standard printed survey exception contained
in the applicable Mortgage Policy or any update to the
applicable Mortgage Policy and be made in accordance
with the Minimum Standard Detail Requirements for Land
Title Surveys jointly established and adopted by the
American Land Title Association and the American
Congress on Surveying and Mapping in 1992 (or such
alternative standards as are satisfactory to the
Collateral Agent and the Title Insurance Company), and,
without limiting the generality of the foregoing, there
shall be surveyed and shown on such maps, plats or
surveys the following: (A) the locations on such sites
of all the buildings, structures and other improvements
and the established building setback lines; (B) the
lines of streets abutting the sites and width thereof;
(C) all access and other easements appurtenant to the
sites necessary to use the sites; (D) all roadways,
paths, driveways, easements, encroachments and
overhanging projections and similar encumbrances
affecting the site, whether recorded, apparent from a
physical inspection of the sites or otherwise known to
the surveyor; (E) any encroachments on any adjoining
property by the building structures and improvements on
the sites; and (F) if the site is described as being on
a filed map, a legend relating the survey to said map.
<PAGE>
(iii) Flood Certificates. A current
certification from a registered engineer or land
surveyor or other evidence reasonably acceptable to the
Collateral Agent as to whether any of the improvements
on any Collateral Property are located within any area
designated by the Director of the Federal Emergency
Management Agency as a "special flood hazard" area and
if any improvements on such parcel are located within a
"special flood hazard" area, evidence of a flood
insurance policy from a company and in an amount
reasonably satisfactory to the Collateral Agent for the
applicable portion of the premises, naming the
Collateral Agent, for the benefit of the Lenders, as
mortgagee.
(iv) Appraisals. A current appraisal
of any Collateral Property prepared for the benefit of
the Collateral Agent by a qualified appraiser
satisfactory to the Collateral Agent and dated a date
satisfactory to the Collateral Agent, which shall
indicate a fair market value for such Collateral
Property acceptable to the Collateral Agent and which
shall otherwise be in form and substance satisfactory to
the Collateral Agent.
(v) Environmental Reports. A current
report of an environmental assessment of any Collateral
Property of such scope (including, but not limited to,
the taking of soil borings and air and groundwater
samples and other above and below ground testing) as the
Collateral Agent may request, which report shall (A)
be certified to the benefit of the Collateral Agent
by a consulting firm acceptable to the Collateral
Agent,(B) be dated a date satisfactory to the Collateral
Agent, (C) conform to the current minimum standards for
the American Society of Testing and Materials (ASTM),
and (D) otherwise be in form and substance satisfactory
to the Collateral Agent.
(vi) Zoning Evidence. Current zoning
letters from appropriate authorities in form and
substance acceptable to the Collateral Agent or other
evidence satisfactory to the Collateral Agent that any
Collateral Property, and the uses of such Collateral
Property, are in compliance in all material respects
with all applicable zoning laws, including the zoning
designation made for such Collateral Property, the
permitted uses of such Collateral Property under such
zoning designation and zoning requirements as to
parking, lot size, ingress, egress and building
setbacks.
<PAGE>
(vii) Engineer's Reports. A current
engineer's report for any Collateral Property prepared
for the benefit of the Collateral Agent by an engineer
approved by the Collateral Agent, each of which shall
(a) be dated a date satisfactory to the Collateral
Agent, (b) certify that such Collateral Property is in
compliance with all applicable requirements of the
Americans with Disabilities Act of 1990, and (c)
otherwise be in form and substance satisfactory to the
Collateral Agent.
(viii) Seismic Report. A current
seismic report for any Collateral Property if such
property is located in the State of California prepared
for the benefit of the Collateral Agent by an engineer
approved by the Collateral Agent, each of which shall be
dated a date satisfactory to the Collateral Agent and
otherwise be in form and substance satisfactory to the
Collateral Agent.
(c) Other. Receipt by the Lenders of such other
documents, instruments, agreements or information as reasonably
requested, including, without limitation, Uniform Commercial Code
filings and amendments or modifications to the Mortgages.
SECTION 6
REPRESENTATIONS AND WARRANTIES
The Credit Parties hereby represent to the Administrative Agent and
each Lender that:
6.1 Financial Condition.
The financial statements delivered to the Lenders pursuant to
Section 5.1(d) and Section 7.1(a) and (b): (a) have been prepared in accordance
with GAAP and (b) present fairly the consolidated financial condition, results
of operations and cash flows of the Credit Parties and their Subsidiaries as of
such date and for such periods. Since December 31, 1997, there has been no sale,
transfer or other disposition by any Credit Party or any of their Subsidiaries
of any material part of the business or property of the Credit Parties, taken as
a whole, and no purchase or other acquisition by any of them of any business or
property (including any capital stock of any other Person) material in relation
to the consolidated financial condition of the Credit Parties, taken as a whole,
in each case, which, is not (i) reflected in the most recent financial
statements delivered to the Lenders pursuant to Section 5.1(d) and Section 7.1
or in the notes thereto or (ii) otherwise permitted by the terms of this Credit
Agreement and communicated to the Administrative Agent.
6.2 No Material Change.
Since December 31, 1997, there has been no development or event
relating to or affecting a Credit Party or any of its Subsidiaries which has had
or would be reasonably expected to have a Material Adverse Effect.
<PAGE>
6.3 Organization and Good Standing.
Each Credit Party (a) is either a partnership or a limited liability
company or a corporation duly organized, validly existing and in good standing
under the laws of the State (or other jurisdiction) of its organization, (b) is
duly qualified and in good standing as either a foreign partnership, limited
liability company or corporation and authorized to do business in every other
jurisdiction unless the failure to be so qualified, in good standing or
authorized would not have a Material Adverse Effect and (c) has the power and
authority to own its properties and to carry on its business as now conducted
and as proposed to be conducted.
6.4 Due Authorization.
Each Credit Party (a) has the power and authority to execute,
deliver and perform this Credit Agreement and the other Credit Documents to
which it is a party and to incur the obligations herein and therein provided for
and (b) is duly authorized to, and has been authorized by all necessary action,
to execute, deliver and perform this Credit Agreement and the other Credit
Documents to which it is a party.
6.5 No Conflicts.
Neither the execution and delivery of the Credit Documents, nor the
consummation of the transactions contemplated therein, nor the performance of or
compliance with the terms and provisions thereof by such Credit Party will (a)
violate or conflict with any provision of its organizational documents, (b)
violate, contravene or materially conflict with any Requirement of Law or any
other law, regulation (including, without limitation, Regulation U or Regulation
X), order, writ, judgment, injunction, decree or permit applicable to it, (c)
violate, contravene or conflict with contractual provisions of, or cause an
event of default under, any indenture, loan agreement, mortgage, deed of trust,
contract or other agreement or instrument to which it is a party or by which it
may be bound, the violation of which could have or might be reasonably expected
to have a Material Adverse Effect, or (d) result in or require the creation of
any Lien (other than those contemplated in or created in connection with the
Credit Documents) upon or with respect to its properties.
6.6 Consents.
Except for consents, approvals and authorizations which have been
obtained, no consent, approval, authorization or order of, or filing,
registration or qualification with, any court or Governmental Authority or third
party in respect of any Credit Party is required in connection with the
execution, delivery or performance of this Credit Agreement or any of the other
Credit Documents by such Credit Party.
6.7 Enforceable Obligations.
This Credit Agreement and the other Credit Documents have been duly
executed and delivered and constitute legal, valid and binding obligations of
each Credit Party enforceable against such Credit Party in accordance with their
respective terms, except as may be limited by bankruptcy or insolvency laws or
similar laws affecting creditors' rights generally or by general equitable
principles.
<PAGE>
6.8 No Default.
No Credit Party, nor any of its Subsidiaries, is in default in any
respect under any contract, lease, loan agreement, indenture, mortgage, security
agreement or other agreement or obligation to which it is a party or by which
any of its properties is bound which default would have or would be reasonably
expected to have a Material Adverse Effect. No Default or Event of Default has
occurred or exists except as previously disclosed in writing to the Lenders.
6.9 Ownership.
Each Credit Party, is the owner of, and has good and marketable
title to, all of its respective assets and none of such assets is subject to any
Lien other than Permitted Liens.
6.10 Indebtedness.
The Credit Parties (other than UDRT) have no Indebtedness except (a)
as disclosed in the financial statements referenced in Section 6.1, (b) as set
forth on Schedule 6.10 and (c) as otherwise permitted by this Credit Agreement.
6.11 Litigation.
There are no actions, suits or legal, equitable, arbitration or
administrative proceedings, pending or, to the knowledge of any Credit Party,
threatened against, a Credit Party or any of its Subsidiaries which could have
or might be reasonably expected to have a Material Adverse Effect.
6.12 Taxes.
Each Credit Party, and each of its Subsidiaries, has filed, or
caused to be filed, all tax returns (federal, state, local and foreign) required
to be filed and has paid (a) all amounts of taxes shown thereon to be due
(including interest and penalties) and (b) all other taxes, fees, assessments
and other governmental charges (including mortgage recording taxes, documentary
stamp taxes and intangibles taxes) owing by it, except for such taxes (i) which
are not yet delinquent or (ii) that are being contested in good faith and by
proper proceedings, and against which adequate reserves are being maintained in
accordance with GAAP. No Credit Party is aware of any proposed tax assessments
against it or any of its Subsidiaries.
6.13 Compliance with Law.
Each Credit Party, and each of its Subsidiaries, is in compliance
with all Requirements of Law and all other laws, rules, regulations, orders and
decrees (including without limitation Environmental Laws) applicable to it, or
to its properties, unless such failure to comply would not have or would not be
reasonably expected to have a Material Adverse Effect. No Requirement of Law
would be reasonably expected to cause a Material Adverse Effect.
<PAGE>
6.14 Compliance with ERISA.
Except as would not result in a Material Adverse Effect:
(a) During the five-year period prior to the date on
which this representation is made or deemed made: (i) no ERISA Event
has occurred, and, to the best of each Credit Party's, each
Subsidiary of a Credit Party's and each ERISA Affiliate's knowledge,
no event or condition has occurred or exists as a result of which
any ERISA Event could reasonably be expected to occur, with respect
to any Plan; (ii) no "accumulated funding deficiency," as such term
is defined in Section 302 of ERISA and Section 412 of the Code,
whether or not waived, has occurred with respect to any Plan; (iii)
each Plan has been maintained, operated, and funded in compliance
with its own terms and in material compliance with the provisions of
ERISA, the Code, and any other applicable federal or state laws; and
(iv) no Lien in favor or the PBGC or a Plan has arisen or is
reasonably likely to arise on account of any Plan.
(b) The actuarial present value of all "benefit
liabilities" (as defined in Section 4001(a)(16) of ERISA), whether
or not vested, under each Single Employer Plan, as of the last
annual valuation date prior to the date on which this representation
is made or deemed made (determined, in each case, in accordance with
Financial Accounting Standards Board Statement 87, utilizing the
actuarial assumptions used in such Plan's most recent actuarial
valuation report), did not exceed as of such valuation date the fair
market value of the assets of such Plan.
(c) No Credit Party, Subsidiary of a Credit Party or
ERISA Affiliate has incurred, or, to the best of each such party's
knowledge, is reasonably expected to incur, any withdrawal liability
under ERISA to any Multiemployer Plan or Multiple Employer Plan. No
Credit Party, Subsidiary of a Credit Party or ERISA Affiliate would
become subject to any withdrawal liability under ERISA if any such
party were to withdraw completely from all Multiemployer Plans and
Multiple Employer Plans as of the valuation date most closely
preceding the date on which this representation is made or deemed
made. No Credit Party, Subsidiary of a Credit Party or ERISA
Affiliate has received any notification that any Multiemployer Plan
is in reorganization (within the meaning of Section 4241 of ERISA),
is insolvent (within the meaning of Section 4245 of ERISA), or has
been terminated (within the meaning of Title IV of ERISA), and no
Multiemployer Plan is, to the best of each such party's knowledge,
reasonably expected to be in reorganization, insolvent, or
terminated.
(d) No prohibited transaction (within the meaning of
Section 406 of ERISA or Section 4975 of the Code) or breach of
fiduciary responsibility has occurred with respect to a Plan which
has subjected or may subject any Credit Party, any Subsidiary of a
Credit Party or any ERISA Affiliate to any liability under Sections
406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or
under any agreement or other instrument pursuant to which any Credit
Party, any Subsidiary of a Credit Party or any ERISA Affiliate has
agreed or is required to indemnify any person against any such
liability.
<PAGE>
(e) Except as set forth in the Financial Statements, no
Credit Party, Subsidiary of a Credit Party nor any of their ERISA
Affiliates has material liability with respect to "expected
post-retirement benefit obligations" within the meaning of the
Financial Accounting Standards Board Statement 106. Each Plan which
is a welfare plan (as defined in Section 3(1) of ERISA) to which
Sections 601-609 of ERISA and Section 4980B of the Code apply has
been administered in compliance in all material respects with such
sections.
6.15 Organization Structure.
Set forth on Schedule 6.15 is a complete and accurate organization
chart of the Credit Parties and their Subsidiaries.
6.16 Use of Proceeds; Margin Stock.
The proceeds of the Loans hereunder will be used solely for the
purposes specified in Section 7.10. None of the proceeds of the Loans will be
used for the purpose of purchasing or carrying any "margin stock" as defined in
Regulation U or Regulation X, or for the purpose of reducing or retiring any
Indebtedness which was originally incurred to purchase or carry "margin stock"
or any "margin security" or for any other purpose which might constitute this
transaction a "purpose credit" within the meaning of Regulation U, Regulation X
or Regulation T. None of the Credit Parties owns any "margin stock."
6.17 Government Regulation.
No Credit Party nor any of its Subsidiaries is subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Investment Company Act of 1940 or the Interstate Commerce Act, each as amended.
In addition, no Credit Party nor any of its Subsidiaries is (a) an "investment
company" registered or required to be registered under the Investment Company
Act of 1940, as amended, or controlled by such a company, or (b) a "holding
company," or a "Subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "Subsidiary" or a "holding company," within the
meaning of the Public Utility Holding Company Act of 1935, as amended. No
director, executive officer or principal shareholder of UDRT or any of its
Subsidiaries is a director, executive officer or principal shareholder of any
Lender. For the purposes hereof the terms "director," "executive officer" and
"principal shareholder" (when used with reference to any Lender) have the
respective meanings assigned thereto in Regulation O issued by the Board of
Governors of the Federal Reserve System.
<PAGE>
6.18 Environmental Matters.
(a) Except as set forth on Schedule 6.18:
(i) Each of the Collateral Properties
and all operations at the Collateral Properties are
in material compliance with all applicable Environmental
Laws, and there is no violation of any Environmental
Law with respect to the Collateral Properties or the
businesses operated by a Credit Party or any of its
Subsidiaries (the "Businesses"), and there are no
conditions relating to the Businesses or Collateral
Properties that would be reasonably expected to give
rise to liability under any applicable Environmental
Laws.
(ii) No Credit Party nor any of its
Subsidiaries has received any written notice of, or
inquiry from any Governmental Authority regarding, any
violation, alleged violation, non-compliance, liability
or potential liability regarding Hazardous Materials or
compliance with Environmental Laws with regard to any of
the Collateral Properties or the Businesses, except for
any such notice or inquiry that has been finally
resolved without any determination of liability against
a Credit Party other than any liability which has been
paid in full or which has been adequately reserved
against in accordance with GAAP and which would not have
or be reasonably expected to have a Material Adverse
Effect, nor does any Credit Party or any of its
Subsidiaries have knowledge that any such notice is
being threatened.
(iii) Hazardous Materials have not
been transported or disposed of from the Collateral
Properties, or generated, treated, stored or disposed of
at, on or under any of the Collateral Properties or any
other location, in each case by, or on behalf or with
the permission of, any Credit Party or any of its
Subsidiaries in a manner that would reasonably be
expected to give rise to liability under any applicable
Environmental Law.
(iv) No judicial proceeding or
governmental or administrative action is pending or, to
the knowledge of any Credit Party or any of its
Subsidiaries, threatened, under any Environmental Law to
which any Credit Party or any of its Subsidiaries is or
will be named as a party, nor are there any consent
decrees or other decrees, consent orders, administrative
orders or other orders, or other administrative or
judicial requirements outstanding under any
Environmental Law with respect to any Credit Party or
any of its Subsidiaries, the Collateral Properties or
the Businesses, in any amount reportable under the
federal Comprehensive Environmental Response,
Compensation and Liability Act or any analogous state
law, except releases in compliance with any
Environmental Laws.
(v) To the best of Borrower's
knowledge, there has been no release or threat of
release of Hazardous Materials at or from the Collateral
Properties, or arising from or related to the
operations (including, without limitation, disposal)
of a Credit Party or any of its Subsidiaries in
connection with the Collateral Properties or
otherwise in connection with the Businesses except
in compliance with Environmental Laws.
<PAGE>
(vi) None of the Collateral
Properties contains, or to the best of our knowledge has
previously contained, any Hazardous Materials at, on or
under the Collateral Properties in amounts or
concentrations that, if released, constitute or
constituted a violation of, or could give rise to
liability under, Environmental Laws.
(vii) Neither the Borrower nor any
Collateral Guarantor has knowingly assumed any liability
of any Person (other than another Credit Party) under
any Environmental Law.
(b) Each Credit Party and each of its Subsidiaries has
adopted procedures that are designed to (i) ensure that each such
party, any of its operations and each of the properties owned or
leased by such party remains in compliance with applicable
Environmental Laws and (ii) minimize any liabilities or potential
liabilities that each such party, any of its operations and each of
the properties owned or leased by each such party may have under
applicable Environmental Laws.
6.19 Solvency.
Each Credit Party, is and, after consummation of the transactions
contemplated by this Credit Agreement, will be Solvent.
6.20 Investments.
All Investments of the Borrower and the Collateral Guarantors are
either Permitted Investments or otherwise permitted by the terms of this Credit
Agreement.
6.21 Location of Collateral.
Set forth on Schedule 6.21(a) is a list of all Collateral Properties
(with street address, county and state where located). Set forth on Schedule
6.21(b) is a list of all locations where any personal property of the Borrower
or any Collateral Guarantor is located, including county and state where
located. Set forth on Schedule 6.21(c) is the chief executive office and
principal place of business of the Borrower and each Collateral Guarantor.
Schedules 6.21(a), 6.21(b) and 6.21(c) may be updated from time to time by the
Borrower by giving written notice thereof to the Administrative Agent.
6.22 Disclosure.
Neither this Agreement nor any financial statements delivered to the
Lenders nor any other document, certificate or statement furnished to the
Lenders by or on behalf of any Credit Party in connection with the transactions
contemplated hereby contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained
therein or herein not misleading.
<PAGE>
6.23 Licenses, etc.
The Credit Parties and their Subsidiaries have obtained, and hold in
full force and effect, all franchises, licenses, permits, certificates,
authorizations, qualifications, accreditations, easements, rights of way and
other rights, consents and approvals which are necessary for the operation of
their respective businesses as presently conducted, except where the failure to
obtain the same would not have a Material Adverse Effect.
6.24 No Burdensome Restrictions.
No Credit Party nor any of its Subsidiaries is a party to any
agreement or instrument or subject to any other obligation or any charter or
corporate restriction or any provision of any applicable law, rule or regulation
which, individually or in the aggregate, would have or be reasonably expected to
have a Material Adverse Effect.
6.25 Collateral Documents.
The Collateral Documents create valid first-priority security
interests in, and first mortgage Liens on, the Collateral purported to be
covered thereby, which security interests and mortgage Liens are and will remain
perfected security interests and mortgage Liens, prior to all other Liens other
than Permitted Liens. Each of the representations and warranties made by the
Credit Parties in the Collateral Documents is true and correct in all material
respects.
6.26 Year 2000 Compliance.
Each Credit Party reasonably believes that the Year 2000 Problem has
been appropriately addressed by it, through the development of appropriate
software programs or applications or through its acquisition of any necessary
hardware, and the Year 2000 Problem will not exist with respect to it or any of
its Subsidiaries on and after January 1, 2000, to the extent such Year 2000
Problem could reasonably be expected to cause a Material Adverse Effect.
SECTION 7
AFFIRMATIVE COVENANTS
Each Credit Party hereby covenants and agrees that so long as this
Credit Agreement is in effect and until the Loans, together with interest and
fees and other obligations hereunder, have been paid in full and the Commitments
hereunder shall have terminated:
<PAGE>
7.1 Information Covenants.
The Borrower and Guarantors will furnish, or cause to be furnished,
to the Administrative Agent and each of the Lenders:
(a) Audited Financial Statements. As soon as available,
but in any event within 90 days after the end of each fiscal year,
an audited consolidated balance sheet of UDRT and its Subsidiaries
as of the end of the fiscal year and the related consolidated
statements of operations, shareholders' equity and cash flows for
the year, audited by Ernst & Young LLP, or other firm of independent
certified public accountants of nationally recognized standing,
setting forth in each case in comparative form the figures for the
previous year, reported without a "going concern" or like
qualification or exception, or qualification indicating that the
scope of the audit was inadequate to permit such independent
certified public accountants to certify such financial statements
without such qualification.
(b) Quarterly Financial Statements. As soon as
available, but in any event within 60 days after the end of each of
the first three fiscal quarters, a UDRT-prepared consolidated
balance sheet of UDRT and its Subsidiaries as of the end of the
quarter and related UDRT-prepared consolidated statements of
operations and cash flows for such quarterly period and for the
fiscal year to date, in each case setting forth in comparative form
the consolidated figures for the corresponding period or periods of
the preceding fiscal year or the portion of the fiscal year ending
with such period, as applicable, in each case subject to normal
recurring year-end audit adjustments. As soon as available, but in
any event within 60 days after the end of each of the first three
fiscal quarters, a UDRLP-prepared consolidated balance sheet of
UDRLP and its Subsidiaries as of the end of the quarter and related
UDRLP-prepared consolidated statements of operations and cash flows
for such quarterly period and for the fiscal year to date, in each
case setting forth in comparative form the consolidated figures for
the corresponding period or periods of the preceding fiscal year or
the portion of the fiscal year ending with such period, as
applicable, in each case subject to normal recurring year-end audit
adjustments.
All of the foregoing financial statements shall be complete and
correct in all material respects (subject, in the case of interim
statements, to normal recurring year-end audit adjustments) and
shall be prepared in reasonable detail and, in the case of the
annual and quarterly financial statements provided in accordance
with subsections (a) and (b) above, in accordance with GAAP applied
consistently throughout the periods reflected therein and further
accompanied by a description of, and an estimation of the effect on
the financial statements on account of, a change in the application
of accounting principles as provided in Section 1.3.
(c) Quarterly Reports. As soon as available and in any
event within 45 days after the end of each fiscal quarter of the
Credit Parties, detailed occupancy and net operating income reports
and detailed operations statements on each parcel of Collateral
Property.
<PAGE>
(d) Officer's Certificate. At the time of delivery of
the financial statements provided for in Sections 7.1(a) and 7.1(b)
above, a certificate of the chief financial officer of UDRLP,
substantially in the form of Exhibit 7.1(d), (i) demonstrating
compliance with the financial covenants contained in Section 7.2 by
calculation thereof as of the end of each such fiscal period and
(ii) stating that no Default or Event of Default exists, or if any
Default or Event of Default does exist, specifying the nature and
extent thereof and what action the Borrower proposes to take with
respect thereto.
(e) Annual Projections. Within 30 days after the end of
each fiscal year of the Credit Parties, summary annual projections
for each real property owned by UDRLP or any of its Subsidiaries
(other than the Borrower and its Subsidiaries) and detailed annual
projections for each parcel of Collateral Property owned by the
Borrower and its Subsidiaries.
(f) Balance Sheets. Prior to February 15, 1999, a
balance sheet of (i) the Borrower and its Subsidiaries and (ii) UDRT
and its Subsidiaries, in each case as of December 31, 1998 and
prepared by such Credit Party in conformity with GAAP and certified
as correct by the chief financial officer of such Credit Party.
(g) Auditor's Reports. Promptly upon receipt thereof, a
copy of any "management letter" submitted by independent accountants
to any Credit Party or any of its Subsidiaries in connection with
any annual, interim or special audit of the books of such Credit
Party or any of its Subsidiaries. Without limiting the foregoing,
Concurrently with the delivery of the financial statements referred
to in subsection 7.1(a) above, a certificate of the independent
certified public accountants reporting on such financial statements
stating that in making the examination necessary therefor no
knowledge was obtained of any Default or Event of Default, except as
specified in such certificate.
(h) Reports. Promptly upon transmission or receipt
thereof, (i) copies of any filings and registrations with, and
reports to or from, the Securities and Exchange Commission, or any
successor agency, and copies of all financial statements, proxy
statements, notices and reports as any Credit Party or any of its
Subsidiaries shall send to its shareholders or partners generally
and (ii) upon the written request of the Collateral Agent, all
reports and written information to and from the United States
Environmental Protection Agency, or any state or local agency
responsible for environmental matters, the United States
Occupational Health and Safety Administration, or any state or local
agency responsible for health and safety matters, or any successor
agencies or authorities concerning environmental, health or safety
matters.
(i) Notices. Upon a Credit Party obtaining knowledge
thereof, such Credit Party will give written notice to the
Administrative Agent immediately of (i) the occurrence of an event
or condition consisting of a Default or Event of Default, specifying
the nature and existence thereof and what action the Borrower
proposes to take with respect thereto, (ii) the occurrence of any of
the following with respect to any Credit Party or any of its
Subsidiaries (A) the pendency or commencement of any litigation,
arbitral or governmental proceeding against any Credit Party or any
of its Subsidiaries which if adversely determined would have or
would be reasonably expected to have a Material Adverse Effect, or
(B) the institution of any proceedings against any Credit Party or
any of its Subsidiaries with respect to, or the receipt of notice by
such Person of potential liability or responsibility for violation,
or alleged violation of any federal, state or local law, rule or
regulation, including but not limited to, Environmental Laws, the
violation of which would have or would be reasonably expected to
have a Material Adverse Effect and (i) any information that a Credit
Party may have a Year 2000 Problem on or after January 1, 2000.
<PAGE>
(j) ERISA. Upon a Credit Party or any ERISA Affiliate
obtaining knowledge thereof, the Borrower will give written notice
to the Administrative Agent promptly (and in any event within five
Business Days) of: (i) any event or condition, including, but not
limited to, any Reportable Event, that constitutes, or might
reasonably lead to, an ERISA Event; (ii) with respect to any
Multiemployer Plan, the receipt of notice as prescribed in ERISA or
otherwise of any withdrawal liability assessed against a Credit
Party or any ERISA Affiliate, or of a determination that any
Multiemployer Plan is in reorganization or insolvent (both within
the meaning of Title IV of ERISA); (iii) the failure to make full
payment on or before the due date (including extensions) thereof of
all amounts which a Credit Party or any ERISA Affiliate is required
to contribute to each Plan pursuant to its terms and as required to
meet the minimum funding standard set forth in ERISA and the Code
with respect thereto; or (iv) any change in the funding status of
any Plan that could have a Material Adverse Effect; together, with a
description of any such event or condition or a copy of any such
notice and a statement by the chief financial officer of a Credit
Party briefly setting forth the details regarding such event,
condition, or notice, and the action, if any, which has been or is
being taken or is proposed to be taken by a Credit Party or any
ERISA Affiliate with respect thereto. Promptly upon request, the
Borrower shall furnish the Administrative Agent and the Lenders with
such additional information concerning any Plan as may be reasonably
requested, including, but not limited to, copies of each annual
report/return (Form 5500 series), as well as all schedules and
attachments thereto required to filed with the Department of Labor
and/or the Internal Revenue Service pursuant to ERISA and the Code,
respectively, for each "plan year" (within the meaning of Section
3(39) of ERISA).
(k) Environmental.
(i) Subsequent to a notice from any
Governmental Authority that would reasonably cause
concern or during the existence of an Event of Default,
and upon the written request of the Collateral Agent,
the Borrower will furnish or cause to be furnished to
the Administrative Agent, at the Borrower's expense, an
updated report of an environmental assessment of
reasonable scope, form and depth, including, where
appropriate, invasive soil or groundwater sampling, by
a consultant reasonably acceptable to the Collateral
Agent as to the nature and extent of the presence of
any Hazardous Materials on any property owned, leased
or operated by a Borrower or Collateral Guarantor and
as to the compliance by the Borrower and Collateral
Guarantors with Environmental Laws. If the Borrower
fails to deliver such an environmental report within
seventy-five (75) days after receipt of such written
request then the Collateral Agent may arrange for same,
and the Borrower hereby grants to the Collateral Agent
and their representatives access to the Collateral
Properties and a license of a scope reasonably
necessary to undertake such an assessment (including,
where appropriate, invasive soil or groundwater
sampling). The reasonable cost of any assessment
arranged for by the Collateral Agent pursuant to this
provision will be payable by the Borrower on demand and
added to the obligations secured by the Collateral
Documents.
(ii) Each of the Borrower and the
Collateral Guarantor will conduct and complete all
investigations, studies, sampling, and testing and all
remedial, removal, and other actions necessary to
address all Hazardous Materials on, from, or affecting
any real property owned or leased by the Borrower or a
Collateral Guarantor to the extent necessary to be in
compliance with all Environmental Laws and all other
applicable federal, state, and local laws, regulations,
rules and policies and with the orders and directives of
all Governmental Authorities exercising jurisdiction
over such real property to the extent any failure would
have or be reasonably expected to have a Material
Adverse Effect.
(l) Other Information. With reasonable promptness upon
any such request, such other information regarding the business,
properties or financial condition of the Credit Parties as an Agent
or any Lender may reasonably request.
7.2 Financial Covenants.
(a) Incorporation of Financial Covenants from UDRT
Facility. The Credit Parties and the Lenders agree that the
financial covenants set forth in Section 7.9 of the UDRT Facility
(and corresponding definitions used therein), as such covenants may
be amended from time to time, are incorporated herein by reference
as if restated herein. The Credit Parties acknowledge that they
shall be bound by such financial covenants and that a breach of any
such financial covenant shall constitute an Event of Default
hereunder.
(b) Total Debt to Tangible Fair Market Value Ratio. As
of the end of each fiscal quarter commencing with the fiscal quarter
ending March 31, 1999, the ratio of total Indebtedness of the Credit
Parties to Tangible Fair Market Value shall be less than or equal to
0.60 to 1.0.
(c) Development Limitation. As of the end of each fiscal
quarter commencing with the fiscal quarter ending March 31, 1999,
the total amount of actual expenditures made by the Credit Parties
during such fiscal quarter on properties under development shall not
exceed $40,000,000.
<PAGE>
(d) Total Budgeted Project Costs of Properties Under
Development Limitation. As of the end of each fiscal quarter
commencing with the fiscal quarter ending March 31, 1999, the total
budgeted costs (whether previously incurred or to be incurred) to
complete all properties of the Credit Parties under development
shall be less than or equal to 10% of Tangible Fair Market Value.
(e) Collateral Properties Leverage Ratio. As of the end
of each fiscal quarter commencing with the fiscal quarter ending
March 31, 1999, the Collateral Properties Leverage Ratio shall be
less than 0.75 to 1.0.
(f) Debt Service Coverage Ratio. As of the end of each
fiscal quarter commencing March 31, 1999, the Debt Service Coverage
Ratio shall be greater than or equal to 1.20 to 1.0.
(g) Tangible Net Worth. The Tangible Net Worth shall at
all times be equal to or greater than $350,000,000.
For purposes determining compliance with the financial covenants
above, a property will be deemed under development until a certificate of
occupancy is issued for the entire property and 75% of all units in such
property have been leased in accordance with the Borrower's standard leasing
practices.
7.3 Preservation of Existence, Franchises, and Management
Agreements.
Each of the Credit Parties will do all things necessary to preserve
and keep in full force and effect its existence, rights, franchises and
authority except as permitted by Section 8.4. Without limiting the generality of
the foregoing, (i) UDRT will do all things necessary to maintain its status as a
Real Estate Investment Trust (REIT) and (ii) each Credit Party which is a party
thereto shall do all things necessary to keep in full force and effect each of
the management agreements described on Schedule 7.3.
7.4 Books and Records.
Each of the Credit Parties will, and will cause its Subsidiaries to,
keep complete and accurate books and records of its transactions in accordance
with good accounting practices on the basis of GAAP (including the establishment
and maintenance of appropriate reserves).
7.5 Compliance with Law.
Each of the Credit Parties will, and will cause its Subsidiaries to,
comply with all material laws, rules, regulations and orders, and all applicable
material restrictions imposed by all Governmental Authorities, applicable to it
and its property (including, without limitation, Environmental Laws and ERISA).
<PAGE>
7.6 Payment of Taxes and Other Indebtedness.
Each of the Credit Parties will, and will cause its Subsidiaries to,
pay, settle or discharge (a) all taxes, assessments and governmental charges or
levies imposed upon it, or upon its income or profits, or upon any of its
properties, before they shall become delinquent, (b) all lawful claims
(including claims for labor, materials and supplies) which, if unpaid, might
give rise to a Lien upon any of its properties, and (c) except as prohibited
hereunder, all of its other Indebtedness as it shall become due; provided,
however, that a Credit Party or any of its Subsidiaries shall not be required to
pay any such tax, assessment, charge, levy, claim or Indebtedness which is being
contested in good faith by appropriate proceedings and as to which adequate
reserves therefor have been established in accordance with GAAP, unless the
failure to make any such payment (i) would give rise to an immediate right to
foreclose on a Lien securing such amounts or (ii) would have a Material Adverse
Effect.
7.7 Insurance.
Each of the Credit Parties will, and will cause its Subsidiaries to,
at all times maintain in full force and effect insurance (including worker's
compensation insurance, liability insurance, casualty insurance and business
interruption insurance) in such amounts, covering such risks and liabilities and
with such deductibles or self-insurance retentions as are in accordance with
normal industry practice. All liability policies of the Borrower and any
Collateral Guarantor shall have the Collateral Agent, on behalf of the Lenders,
as an additional insured and all casualty policies shall have the Administrative
Agent, on behalf of the Lenders, as loss payee with respect to the Collateral.
In the event there occurs any material loss, damage to or destruction of the
Collateral, the Borrower shall promptly give written notice thereof to the
Collateral Agent generally describing the nature and extent of such damage or
destruction. Subsequent to any loss, damage to or destruction of the Collateral,
the Borrower, or a Collateral Guarantor, whether or not the insurance proceeds,
if any, received on account of such damage or destruction shall be sufficient
for that purpose, at the Borrower's (or such Collateral Guarantor's) cost and
expense, will promptly repair or replace the Collateral so lost, damaged or
destroyed; provided, however, that the Borrower or a Collateral Guarantor need
not repair or replace the Collateral so lost, damaged or destroyed to the extent
the failure to make such repair or replacement (a) is desirable to the proper
conduct of the business of the Borrower or a Collateral Guarantor in the
ordinary course and otherwise is in the best interest of the Borrower or a
Collateral Guarantor and (b) would not materially impair the rights and benefits
of the Agents or the Lenders under this Credit Agreement or any other Credit
Document. In the event the Borrower or a Collateral Guarantor shall receive any
insurance proceeds, as a result of any loss, damage or destruction, in a net
amount in excess of $1,000,000, the Borrower, or such Collateral Guarantor, will
immediately pay over such proceeds to the Collateral Agent as cash collateral
for the Credit Party Obligations. The Collateral Agent agrees to release such
insurance proceeds to the Borrower, or the applicable Collateral Guarantor, for
replacement or restoration of the portion of the Collateral lost, damaged or
destroyed if (A) within 15 days from the date the Collateral Agent receives such
insurance proceeds, the Collateral Agent has received written application for
such release from the Borrower, or such Collateral Guarantor, together with
evidence reasonably satisfactory to it that the Collateral lost, damaged or
destroyed has been or will be replaced or restored to its condition (or by
Collateral having a value at least equal to the condition of the asset subject
to the loss, damage or destruction) immediately prior to the loss, destruction
or other event giving rise to the payment of such insurance proceeds and (B) on
the date of such release no Default or Event of Default exists. If the
conditions in the preceding sentence are not met, the Collateral Agent shall, on
the first Business Day subsequent to the date 30 days after it received such
insurance proceeds, apply such insurance proceeds as a mandatory prepayment of
the Credit Party Obligations for application in accordance with the terms of
Section 3.3(c). All insurance proceeds shall be subject to the security interest
of the Lenders under the Collateral Documents.
<PAGE>
The present insurance coverage of the Credit Parties and their Subsidiaries is
outlined as to carrier, policy number, expiration date, type and amount on
Schedule 7.7(a), as Schedule 7.7(a) may be amended from time to time by written
notice to the Administrative Agent.
It is the intent of the parties hereto that the application of insurance
proceeds and all of the other provisions of this Section 7.7 be construed
according to the law of the State of North Carolina. However, if this Section
7.7 is ever construed under the law of the State of California, then
notwithstanding the provisions set forth above (except for any destruction which
occurs during the six (6) months immediately preceding the Term Loan Maturity
Date), the provisions set forth on Schedule 7.7 (b) shall apply to the
Borrower's use of insurance proceeds to the extent of any conflict between the
terms of this Section 7.7 and the terms set forth on Schedule 7.7(b).
7.8 Maintenance of Property.
Each of the Credit Parties will maintain and preserve its properties
and equipment in good repair, working order and condition, normal wear and tear
excepted (subject to damage by casualties), and will make, or cause to be made,
in such properties and equipment from time to time all repairs, renewals,
replacements, extensions, additions, betterments and improvements thereto as may
be needed or proper, to the extent and in the manner customary for companies in
similar businesses.
7.9 Performance of Obligations.
Each of the Credit Parties will perform in all material respects all
of its obligations under the terms of all material agreements, indentures,
mortgages, security agreements or other debt instruments to which it is a party
or by which it is bound.
7.10 Use of Proceeds.
The Borrower will use the proceeds of the Loans solely (a) to
refinance existing Indebtedness on the Collateral Properties and (b) for other
general corporate purposes of the Borrower and its Subsidiaries.
<PAGE>
7.11 Audits/Inspections.
Upon reasonable notice and during normal business hours, each Credit
Party will, and will cause its Subsidiaries to, permit representatives appointed
by an Agent, including, without limitation, independent accountants, agents,
attorneys and appraisers to visit and inspect such Credit Party's or such
Subsidiary's property, including, without limitation, the Collateral Properties,
including its books and records, its accounts receivable and inventory, its
facilities and its other business assets, and to make photocopies or photographs
thereof and to write down and record any information such representative obtains
and shall permit an Agent or its representatives to investigate and verify the
accuracy of information provided to the Lenders and to discuss all such matters
with the officers, employees and representatives of the Credit Parties and their
Subsidiaries.
7.12 Additional Credit Parties.
At the time the Borrower or a Collateral Guarantor forms or acquires
a new Subsidiary, the Borrower shall so notify the Administrative Agent and
immediately shall cause such new Subsidiary to (a) execute a Joinder Agreement
in substantially the same form as Exhibit 7.12, (b) execute any and all
necessary mortgages, deeds of trust, deeds to secure debt or other appropriate
real estate collateral documentation in a form substantially similar to the
Mortgages, with appropriate covenants as necessary and (c) deliver such other
documentation as the Administrative Agent or Collateral Agent may reasonably
request in connection with the foregoing, including, without limitation,
appropriate UCC-1 financing statements, real estate title insurance policies,
environmental reports, certified resolutions and other organizational and
authorizing documents of such Subsidiary and favorable opinions of counsel to
such Subsidiary (which shall cover, among other things, the legality, validity,
binding effect and enforceability of the documentation referred to above), all
in form, content and scope reasonably satisfactory to the Administrative Agent.
7.13 Refinancing of Collateral Properties.
If the Borrower or a Collateral Guarantor refinances a Collateral
Property, the Borrower shall immediately pay to the Administrative Agent an
amount equal to at least the amount required by Section 3.3(b)(ii).
In connection with a refinancing of a Collateral Property, the
Collateral Agent agrees that it shall (and the Lenders hereby authorize the
Collateral Agent to), upon satisfaction of the above conditions and at the
Borrower's request and expense, promptly deliver to the Borrower such
documentation as is reasonably necessary to evidence the release of the Lenders'
security interest in such Collateral Property (and the personal property with
respect thereto) and, if appropriate, to release a Collateral Guarantor from its
guaranty obligations hereunder.
7.14 Collateral.
If subsequent to the Closing Date, the Borrower or a Collateral
Guarantor (a) acquires or leases any real property or (b) acquires any personal
property required to be delivered by the Collateral Documents or located in a
new jurisdiction not set forth on Schedule 6.21(b), the Borrower shall promptly
notify the Collateral Agent of same. The Borrower and the Collateral Guarantors
shall take such action as requested by the Collateral Agent, at the Borrower's
expense, to ensure the Lenders have a first priority Lien in all assets of the
Borrower and the Collateral Guarantors, subject only to Permitted Liens.
Notwithstanding this Section 7.14, the Lenders agree that the Liens in favor of
the Lenders shall be released and the Collateral Guarantors may be released from
their guaranty obligations hereunder in accordance with the terms and conditions
of Section 7.13 and 8.5 (and the Lenders hereby authorize the Collateral Agent
to execute and deliver such documentation necessary to evidence such releases).
<PAGE>
SECTION 8
NEGATIVE COVENANTS
Each Credit Party hereby covenants and agrees that so long as this
Credit Agreement is in effect and until the Loans, together with interest, fees
and other obligations hereunder, have been paid in full and the Commitments
hereunder shall have terminated:
8.1 Indebtedness.
No Credit Party will, nor will it permit any of its Subsidiaries to,
contract, create, incur, assume or permit to exist any Indebtedness, except:
(a) Indebtedness arising under this Credit Agreement
and the other Credit Documents;
(b) Indebtedness existing as of the Closing Date as
referenced in Section 6.10 (and renewals, refinancings or extensions
thereof in a principal amount not in excess of that outstanding as
of the date of such renewal, refinancing or extension);
(c) Indebtedness in respect of current accounts payable
and accrued expenses incurred in the ordinary course of business;
and
(d) Indebtedness of a Credit Party or any of its
Subsidiaries (other than the Borrower or a Collateral Guarantor);
provided that no Default or Event of Default exists at the time of
such incurrence of Indebtedness or is caused by such incurrence of
Indebtedness.
8.2 Liens.
Neither the Borrower nor any Collateral Guarantor will contract,
create, incur, assume or permit to exist any Lien with respect to any of its
property or assets of any kind (whether real or personal, tangible or
intangible), whether now owned or after acquired, except for Permitted Liens;
provided that this Section 8.2 shall not apply to Collateral Guarantors that
have been released from their guaranty obligations hereunder pursuant to
Sections 7.13 or 8.5.
<PAGE>
8.3 Nature of Business.
No Credit Party will alter the character of its business from that
conducted as of the Closing Date.
8.4 Consolidation and Merger.
No Credit Party (other than UDRT) will enter into any transaction of
merger or consolidation and no Credit Party (including UDRT) will enter into any
transaction to liquidate, wind up or dissolve itself (or suffer any liquidation
or dissolution); provided that notwithstanding the foregoing provisions of this
Section 8.4, any Collateral Guarantor may be merged or consolidated with or into
the Borrower or any other Collateral Guarantor if (a) the transaction is between
the Borrower and the Collateral Guarantor, the Borrower is the continuing or
surviving entity; (b) the Administrative Agent is given prior written notice of
such action, and the Borrower and the Collateral Guarantor execute and deliver
such documents, instruments and certificates as the Collateral Agent may request
in order to maintain the perfection and priority of the Liens on the assets of
the Borrower and the Collateral Guarantors; and (c) after giving effect thereto
no Default or Event of Default exists.
8.5 Sale or Lease of Assets.
No Credit Party will convey, sell, lease, transfer or otherwise
dispose of, in one transaction or a series of transactions, all or any part of
its business or assets whether now owned or hereafter acquired other than (a)
the sale or transfer of assets by a Credit Party (other than the Borrower or a
Collateral Guarantor); provided that no Default or Event of Default exists at
the time of such sale or transfer or is caused by such sale or transfer and the
Borrower makes a prepayment on the outstanding principal balance of the Term
Loan as required by Section 3.3(b)(ii) at the time of such sale and (b) the
transfer of assets which constitute a Permitted Investment.
Upon a sale of assets permitted by this Section 8.5, the Collateral
Agent shall promptly deliver to the Borrower (and the Lenders hereby authorize
the Collateral Agent to), upon the Borrower's request and at the Borrower's
expense, such documentation as is reasonably necessary to evidence the release
of the Lenders' security interest in such assets, including, without limitation,
amendments or terminations of UCC financing statements and, if appropriate, to
release a Collateral Guarantor from its guaranty obligations hereunder.
8.6 Advances, Investments and Loans.
Neither the Borrower nor any Collateral Guarantors will make any
Investments except for Permitted Investments.
<PAGE>
8.7 Restricted Payments.
(a) No Credit Party will directly or indirectly, declare
or pay any dividends or make any other distribution upon any shares
of its capital stock of any class or with respect to any of its
partnership interests that exceeds, in the aggregate, 90% of Funds
From Operations earned subsequent to the Closing Date; provided that
any Subsidiary of the Borrower may pay dividends to the Borrower
and, without duplication, any Credit Party may make dividends or
distributions necessary to maintain its status as a real estate
investment trust; and
(b) Neither the Borrower, UDRT, UDRLP nor any Collateral
Guarantors will, at any time, purchase, redeem (other than
redemption of operating partnership units) or otherwise acquire or
retire or make any provisions for redemption, acquisition or
retirement of any shares of its capital stock of any class or any
warrants or options to purchase any such shares or with respect to
any of its partnership interests.
(c) No Credit Party shall prepay, redeem, purchase or
defease any amount of any Subordinated Debt.
8.8 Transactions with Affiliates.
Except as set forth on Schedule 8.8, no Credit Party will enter into
any transaction or series of transactions, whether or not in the ordinary course
of business, with any officer, director, shareholder, Subsidiary or Affiliate
other than on terms and conditions substantially as favorable as would be
obtainable in a comparable arm's-length transaction with a Person other than an
officer, director, shareholder, Subsidiary or Affiliate.
8.9 Fiscal Year; Organizational Documents.
No Credit Party will change its fiscal year. Neither the Borrower
nor any of the Collateral Guarantors will change its articles or certificate of
incorporation, bylaws, articles or certificate of partnership, partnership
agreement, articles of organization or operating agreement, as applicable.
8.10 Limitations.
No Credit Party will directly or indirectly, create or otherwise
cause, incur, assume, suffer or permit to exist or become effective any
consensual encumbrance or restriction of any kind on the ability of any such
Person to pay any Indebtedness owed to the Borrower or any other Credit Party.
8.11 Negative Pledges.
Neither the Borrower nor any Collateral Guarantors will enter into,
assume or become subject to any agreement prohibiting or otherwise restricting
the creation or assumption of any Lien upon its properties or assets, whether
now owned or hereafter acquired, or requiring the grant of any security for such
obligation if security is given for some other obligation except as provided
under the Credit Documents.
<PAGE>
8.12 Subordinated Debt.
No Credit Party will, without the written consent of the Required
Lenders, permit an amendment or modification to any Subordinated Debt if such
amendment or modification would materially adversely affect the Lenders.
SECTION 9
EVENTS OF DEFAULT
9.1 Events of Default.
An Event of Default shall exist upon the occurrence of any of the
following specified events (each an "Event of Default"):
(a) Payment. Any Credit Party shall default in the
payment (i) within ten days of when due of any principal of any
Loans in connection with mandatory prepayments required by Section
3.3(b), (ii) when due of any principal of any of the Loans in
connection with payments required by any other section of this
Credit Agreement or (iii) within three days of when due of any
interest on the Loans or any fees or other amounts owing hereunder,
under any of the other Credit Documents or in connection herewith.
(b) Representations. Any representation, warranty or
statement made or deemed to be made by any Credit Party herein, in
any of the other Credit Documents, or in any statement or
certificate delivered or required to be delivered pursuant hereto or
thereto shall prove untrue in any material respect on the date as of
which it was made or deemed to have been made.
(c) Covenants. Any Credit Party shall:
(i) default in the due performance
or observance of any term, covenant or agreement
contained in Sections 7.2, 7.6, 7.10, 7.11, 7.12, 7.13,
7.14, or 8.1 through 8.12 inclusive; or
(ii) default in the due performance
or observance by it of any term, covenant or agreement
contained in Section 7.1 and such default shall continue
unremedied for a period of five Business Days after the
earlier of an officer of a Credit Party becoming aware
of such default or notice thereof given by the
Administrative Agent; or
<PAGE>
(iii) default in the due performance
or observance by it of any term, covenant or agreement
(other than those referred to in subsections (a), (b) or
(c)(i) or (ii) of this Section 9.1) contained in this
Credit Agreement and such default shall continue
unremedied for a period of at least 30 days after the
earlier of an officer of a Credit Party becoming aware
of such default or notice thereof given by the
Administrative Agent.
(d) Other Credit Documents. (i) Any Credit Party shall
default in the due performance or observance of any term, covenant
or agreement in any of the other Credit Documents and such default
shall continue unremedied for a period of at least 30 days after the
earlier of an officer of a Credit Party becoming aware of such
default or notice thereof given by the Administrative Agent, or (ii)
any Credit Document shall fail to be in full force and effect or any
Credit Party shall so assert or any Credit Document shall fail to
give the Administrative Agent and/or the Lenders the security
interests, liens, rights, powers and privileges purported to be
created thereby.
(e) Guaranties. The guaranty given by any of the Credit
Parties hereunder or by any Additional Credit Party hereafter or any
provision thereof shall cease to be in full force and effect, or any
Guarantor hereunder or any Person acting by or on behalf of such
Guarantor shall deny or disaffirm such Guarantor's obligations under
such guaranty.
(f) Bankruptcy, etc. The occurrence of any of the
following with respect to any Credit Party or any of its
Subsidiaries (i) a court or governmental agency having jurisdiction
in the premises shall enter a decree or order for relief in respect
of any Credit Party or any of its Subsidiaries in an involuntary
case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or appoint a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of
any Credit Party or any of its Subsidiaries or for any substantial
part of its property or ordering the winding up or liquidation of
its affairs; or (ii) an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in
effect is commenced against any Credit Party or any of its
Subsidiaries and such petition remains unstayed and in effect for a
period of 60 consecutive days; or (iii) any Credit Party or any of
its Subsidiaries shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for relief
in an involuntary case under any such law, or consent to the
appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of
such Person or any substantial part of its property or make any
general assignment for the benefit of creditors; or (iv) any Credit
Party or any of its Subsidiaries shall admit in writing its
inability to pay its debts generally as they become due or any
action shall be taken by such Person in furtherance of any of the
aforesaid purposes.
(g) Defaults under Other Agreements. With respect to any
Indebtedness (other than Indebtedness outstanding under this Credit
Agreement, but specifically including, without limitation, the
Indebtedness evidenced by the UDRT Facility) of any Credit Party or
any of its Subsidiaries in an aggregate principal amount in excess
of $5,000,000, (i) a Credit Party shall (A) default in any payment
(beyond the applicable grace period with respect thereto, if any)
with respect to any such Indebtedness, or (B) default (after giving
effect to any applicable grace period) in the observance or
performance of any term, covenant or agreement relating to such
Indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event or condition shall
occur or condition exist, the effect of which default or other event
or condition is to cause, or permit, the holder or holders of such
Indebtedness (or trustee or agent on behalf of such holders) to
cause (determined without regard to whether any notice or lapse of
time is required) any such Indebtedness to become due prior to its
stated maturity; or (ii) any such Indebtedness shall be declared due
and payable, or required to be prepaid other than by a regularly
scheduled required prepayment prior to the stated maturity thereof;
or (iii) any such Indebtedness shall mature and remain unpaid.
<PAGE>
(h) Judgments. One or more judgments, orders, or decrees
shall be entered against any one or more of the Credit Parties
involving a liability of $5,000,000 or more, in the aggregate (to
the extent not paid or covered by insurance provided by a carrier
who has acknowledged coverage), and such judgments, orders or
decrees (i) are the subject of any enforcement proceeding commenced
by any creditor or (ii) shall continue unsatisfied, undischarged and
unstayed for a period ending on the first to occur of (A) the last
day on which such judgment, order or decree becomes final and
unappealable or (B) 20 days.
(i) ERISA Events. The occurrence of any of the following
events or conditions, unless such event or occurrence would not have
or be reasonably expected to have a Material Adverse Effect: (1) any
"accumulated funding deficiency," as such term is defined in Section
302 of ERISA and Section 412 of the Code, whether or not waived,
shall exist with respect to any Plan, or any lien shall arise on the
assets of a Credit Party or any ERISA Affiliate in favor of the PBGC
or a Plan; (2) an ERISA Event shall occur with respect to a Single
Employer Plan, which is, in the reasonable opinion of the Agent,
likely to result in the termination of such Plan for purposes of
Title IV of ERISA; (3) an ERISA Event shall occur with respect to a
Multiemployer Plan or Multiple Employer Plan, which is, in the
reasonable opinion of the Administrative Agent, likely to result in
(i) the termination of such Plan for purposes of Title IV of ERISA,
or (ii) a Credit Party or any ERISA Affiliate incurring any
liability in connection with a withdrawal from, reorganization of
(within the meaning of Section 4241 of ERISA), or insolvency (within
the meaning of Section 4245 of ERISA) of such Plan; or (4) any
prohibited transaction (within the meaning of Section 406 of ERISA
or Section 4975 of the Code) or breach of fiduciary responsibility
shall occur which may subject a Credit Party or any ERISA Affiliate
to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA
or Section 4975 of the Code, or under any agreement or other
instrument pursuant to which a Credit Party or any ERISA Affiliate
has agreed or is required to indemnify any person against any such
liability.
(j) Ownership. There shall occur a Change of Control.
<PAGE>
9.2 Acceleration; Remedies.
Upon the occurrence of an Event of Default, and at any time
thereafter unless and until such Event of Default has been waived in writing by
the Required Lenders (or the Lenders as may be required hereunder), the
Administrative Agent shall, upon the request and direction of the Required
Lenders, by written notice to the Borrower, take any of the following actions
without prejudice to the rights of the Agents or any Lender to enforce its
claims against the Credit Parties, except as otherwise specifically provided for
herein:
(a) Termination of Commitments. Declare the Commitments
terminated whereupon the Commitments shall be immediately
terminated.
(b) Acceleration of Loans. Declare the unpaid principal
of and any accrued interest in respect of all Loans and any and all
other indebtedness or obligations of any and every kind owing by a
Credit Party to any of the Lenders hereunder to be due whereupon the
same shall be immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby
waived by the Credit Parties.
(c) Enforcement of Rights. Enforce any and all rights
and interests created and existing under the Credit Documents,
including, without limitation, all rights and remedies existing
under the Collateral Documents, all rights and remedies against a
Guarantor and all rights of set-off.
Notwithstanding the foregoing, if an Event of Default specified in Section
9.1(f) shall occur, then the Commitments shall automatically terminate and all
Loans, all accrued interest in respect thereof, all accrued and unpaid fees and
other indebtedness or obligations owing to the Lenders hereunder shall
immediately become due and payable without the giving of any notice or other
action by the Administrative Agent or the Lenders, which notice or other action
is expressly waived by the Credit Parties.
Notwithstanding the fact that enforcement powers reside primarily with the
Administrative Agent, each Lender has, to the extent permitted by law, a
separate right of payment and shall be considered a separate "creditor" holding
a separate "claim" within the meaning of Section 101(5) of the Bankruptcy Code
or any other insolvency statute.
9.3 Allocation of Payments After Event of Default.
Notwithstanding any other provisions of this Credit Agreement, after
the occurrence and during the continuance of an Event of Default, all amounts
collected or received by the Administrative Agent, the Collateral Agent or any
Lender on account of amounts outstanding under any of the Credit Documents or in
respect of the Collateral shall be paid over or delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket
costs and expenses (including without limitation reasonable
attorneys' fees) of the Agents in connection with enforcing the
rights of the Lenders under the Credit Documents and any protective
advances made by the Agents with respect to the Collateral under or
pursuant to the terms of the Collateral Documents;
<PAGE>
SECOND, to payment of any fees owed to an Agent;
THIRD, to the payment of all reasonable out-of-pocket
costs and expenses, (including, without limitation, reasonable
attorneys' fees) of each of the Lenders in connection with enforcing
its rights under the Credit Documents;
FOURTH, to the payment of all accrued fees and interest
payable to the Lenders hereunder;
FIFTH, to the payment of the outstanding principal
amount of the Loans, pro rata, as set forth below;
SIXTH, to all other obligations which shall have become
due and payable under the Credit Documents and not repaid pursuant
to clauses "FIRST" through "FIFTH" above; and
SEVENTH, to the payment of the surplus, if any, to
whoever may be lawfully entitled to receive such surplus.
In carrying out the foregoing, (a) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; and (b) each of the Lenders shall receive an amount equal
to its pro rata share (based on the proportion that the then outstanding Loans
held by such Lender bears to the aggregate then outstanding Loans) of amounts
available to be applied pursuant to clauses "THIRD", "FOURTH," "FIFTH," and
"SIXTH" above.
SECTION 10
AGENCY PROVISIONS
10.1 Appointment.
Each Lender hereby designates and appoints NationsBank, N.A. as
Administrative Agent and Collateral Agent of such Lender to act as specified
herein and the other Credit Documents, and each such Lender hereby authorizes
the Agents, as the agents for such Lender, to take such action on its behalf
under the provisions of this Credit Agreement and the other Credit Documents and
to exercise such powers and perform such duties as are expressly delegated by
the terms hereof and of the other Credit Documents, together with such other
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary elsewhere herein and in the other Credit Documents, the Agents
shall not have any duties or responsibilities, except those expressly set forth
herein and therein, or any fiduciary relationship with any Lender, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Credit Agreement or any of the other Credit
Documents, or shall otherwise exist against the Agents. The provisions of this
Section are solely for the benefit of the Agents and the Lenders and none of the
Credit Parties shall have any rights as a third party beneficiary of the
provisions hereof. In performing its functions and duties under this Credit
Agreement and the other Credit Documents, each Agent shall act solely as an
agent of the Lenders and does not assume and shall not be deemed to have assumed
any obligation or relationship of agency or trust with or for any Credit Party.
<PAGE>
10.2 Delegation of Duties.
An Agent may execute any of its duties hereunder or under the other
Credit Documents by or through agents or attorneys-in-fact and shall be entitled
to advice of counsel concerning all matters pertaining to such duties. An Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
10.3 Exculpatory Provisions.
Neither the Agents nor any of their officers, directors, employees,
agents, attorneys-in-fact or affiliates shall be (a) liable for any action
lawfully taken or omitted to be taken by it or such Person under or in
connection herewith or in connection with any of the other Credit Documents
(except for its or such Person's own gross negligence or willful misconduct) or
(b) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by any of the Credit Parties
contained herein or in any of the other Credit Documents or in any certificate,
report, document, financial statement or other written or oral statement
referred to or provided for in, or received by an Agent under or in connection
herewith or in connection with the other Credit Documents, or enforceability or
sufficiency therefor of any of the other Credit Documents, or for any failure of
the Borrower to perform its obligations hereunder or thereunder. The Agents
shall not be responsible to any Lender for the effectiveness, genuineness,
validity, enforceability, collectibility or sufficiency of this Credit
Agreement, or any of the other Credit Documents or for any representations,
warranties, recitals or statements made herein or therein or made by the
Borrower or any Credit Party in any written or oral statement or in any
financial or other statements, instruments, reports, certificates or any other
documents in connection herewith or therewith furnished or made by an Agent to
the Lenders or by or on behalf of the Credit Parties to the Agents or any Lender
or be required to ascertain or inquire as to the performance or observance of
any of the terms, conditions, provisions, covenants or agreements contained
herein or therein or as to the use of the proceeds of the Loans or of the
existence or possible existence of any Default or Event of Default or to inspect
the properties, books or records of the Credit Parties. The Agents are not
trustees for the Lenders and owe no fiduciary duty to the Lenders.
10.4 Reliance on Communications.
The Agents shall be entitled to rely, and shall be fully protected
in relying, upon any note, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to any of the Credit Parties, independent accountants and
other experts selected by the Agents with reasonable care). Each Agent may deem
and treat each Lender as the owner of its interests hereunder for all purposes
unless a written notice of assignment, negotiation or transfer thereof shall
have been filed with the Administrative Agent in accordance with Section
11.3(b). The Agents shall be fully justified in failing or refusing to take any
action under this Credit Agreement or under any of the other Credit Documents
unless it shall first receive such advice or concurrence of the Required Lenders
as it deems appropriate or it shall first be indemnified to its satisfaction by
the Lenders against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action. The Agents shall
in all cases be fully protected in acting, or in refraining from acting,
hereunder or under any of the other Credit Documents in accordance with a
request of the Required Lenders (or to the extent specifically provided in
Section 11.6, all the Lenders) and such request and any action taken or failure
to act pursuant thereto shall be binding upon all the Lenders (including their
successors and assigns).
<PAGE>
10.5 Notice of Default.
An Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default hereunder unless such Agent has
received notice from a Lender or a Credit Party referring to the Credit
Document, describing such Default or Event of Default and stating that such
notice is a "notice of default." In the event that the Administrative Agent
receives such a notice, the Administrative Agent shall give prompt notice
thereof to the Lenders. The Administrative Agent shall take such action with
respect to such Default or Event of Default as shall be reasonably directed by
the Required Lenders and as is permitted by the Credit Documents.
10.6 Non-Reliance on Agents and Other Lenders.
Each Lender expressly acknowledges that neither the Agents,
NationsBanc Montgomery Securities LLC ("NMS") nor any of their officers,
directors, employees, agents, attorneys-in-fact or affiliates has made any
representations or warranties to it and that no act by the Agents, NMS or any
affiliate thereof hereinafter taken, including any review of the affairs of any
Credit Party, shall be deemed to constitute any representation or warranty by
the Agents or NMS to any Lender. Each Lender represents to the Agents and NMS
that it has, independently and without reliance upon the Agents or NMS or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
assets, operations, property, financial and other conditions, prospects and
creditworthiness of the Credit Parties and made its own decision to make its
Loans hereunder and enter into this Credit Agreement. Each Lender also
represents that it will, independently and without reliance upon the Agents, NMS
or any other Lender, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Credit
Agreement, and to make such investigation as it deems necessary to inform itself
as to the business, assets, operations, property, financial and other
conditions, prospects and creditworthiness of the Credit Parties. Except for
notices, reports and other documents expressly required to be furnished to the
Lenders by the Administrative Agent hereunder, the Agents and NMS shall not have
any duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, assets, property, financial or
other conditions, prospects or creditworthiness of the Credit Parties which may
come into the possession of the Agents, NMS or any of their officers, directors,
employees, agents, attorneys-in-fact or affiliates.
<PAGE>
10.7 Indemnification.
The Lenders agree to indemnify each Agent in its capacity as such
(to the extent not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so), ratably according to their respective
Commitments (or if the Commitments have expired or been terminated, in
accordance with the respective principal amounts of outstanding Loans and
Participation Interest of the Lenders), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including without limitation at any time following payment in full of the
Credit Party Obligations) be imposed on, incurred by or asserted against an
Agent in its capacity as such in any way relating to or arising out of this
Credit Agreement or the other Credit Documents or any documents contemplated by
or referred to herein or therein or the transactions contemplated hereby or
thereby or any action taken or omitted by an Agent under or in connection with
any of the foregoing; provided that no Lender shall be liable for the payment of
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the
gross negligence or willful misconduct of an Agent. If any indemnity furnished
to an Agent for any purpose shall, in the opinion of such Agent, be insufficient
or become impaired, such Agent may call for additional indemnity and cease, or
not commence, to do the acts indemnified against until such additional indemnity
is furnished. The agreements in this Section shall survive the payment of the
Credit Party Obligations and all other amounts payable hereunder and under the
other Credit Documents.
10.8 Agents in Their Individual Capacity.
Each Agent and its affiliates may make loans to, accept deposits
from and generally engage in any kind of business with the Borrower or any other
Credit Party as though such Agent were not an Agent hereunder. With respect to
the Loans made and all obligations owing to it, an Agent shall have the same
rights and powers under this Credit Agreement as any Lender and may exercise the
same as though it were not an Agent, and the terms "Lender" and "Lenders" shall
include each Agent in its individual capacity.
10.9 Successor Agent.
Any Agent may, at any time, resign upon 20 days written notice to
the Lenders. Upon any such resignation, the Required Lenders shall have the
right to appoint a successor Agent. If no successor Agent shall have been so
appointed by the Required Lenders, and shall have accepted such appointment,
within 45 days after the notice of resignation, then the retiring Agent shall
select a successor Agent provided such successor is an Eligible Assignee. Upon
the acceptance of any appointment as an Agent hereunder by a successor, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations as an Agent, as
appropriate, under this Credit Agreement and the other Credit Documents and the
provisions of this Section 10.9 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was an Agent under this Credit
Agreement.
<PAGE>
SECTION 11
MISCELLANEOUS
11.1 Notices.
Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (a) when
delivered, (b) when transmitted via telecopy (or other facsimile device) to the
number set out below, (c) the Business Day following the day on which the same
has been delivered prepaid to a reputable national overnight air courier
service, or (d) the third Business Day following the day on which the same is
sent by certified or registered mail, postage prepaid, in each case to the
respective parties at the address or telecopy numbers set forth on Schedule
11.1, or at such other address as such party may specify by written notice to
the other parties hereto.
11.2 Right of Set-Off.
In addition to any rights now or hereafter granted under applicable
law or otherwise, and not by way of limitation of any such rights, upon the
occurrence of an Event of Default and the commencement of remedies described in
Section 9.2, each Lender is authorized at any time and from time to time,
without presentment, demand, protest or other notice of any kind (all of which
rights being hereby expressly waived), to set-off and to appropriate and apply
any and all deposits (general or special) and any other indebtedness at any time
held or owing by such Lender (including, without limitation, branches, agencies
or Affiliates of such Lender wherever located) to or for the credit or the
account of any Credit Party against obligations and liabilities of such Credit
Party to the Lenders hereunder, under the Notes, the other Credit Documents or
otherwise, irrespective of whether the Administrative Agent or the Lenders shall
have made any demand hereunder and although such obligations, liabilities or
claims, or any of them, may be contingent or unmatured, and any such set-off
shall be deemed to have been made immediately upon the occurrence of an Event of
Default even though such charge is made or entered on the books of such Lender
subsequent thereto; provided, however, that no right of set-off shall be
exercised against accounts identified as holding tenant security deposits. The
Credit Parties hereby agree that any Person purchasing a participation in the
Loans and Commitments hereunder pursuant to Section 11.3(c) or 3.8 may exercise
all rights of set-off with respect to its participation interest as fully as if
such Person were a Lender hereunder.
<PAGE>
11.3 Benefit of Agreement.
(a) Generally. This Credit Agreement shall be binding
upon and inure to the benefit of and be enforceable by the
respective successors and assigns of the parties hereto; provided
that none of the Credit Parties may assign and transfer any of its
interests (except as permitted by Section 8.4 or 8.5) without the
prior written consent of the Lenders; and provided further that the
rights of each Lender to transfer, assign or grant participations in
its rights and/or obligations hereunder shall be limited as set
forth below in subsections (b) and (c) of this Section 11.3.
Notwithstanding the above (including anything set forth in
subsections (b) and (c) of this Section 11.3), nothing herein shall
restrict, prevent or prohibit any Lender from (A) pledging its Loans
hereunder to a Federal Reserve Bank in support of borrowings made by
such Lender from such Federal Reserve Bank, or (B) granting
assignments or participations in such Lender's Loans and/or
Commitments hereunder to its parent company and/or to any Affiliate
of such Lender or to any existing Lender or Affiliate thereof.
(b) Assignments. In addition to the assignments
permitted by Section 11.3(a), each Lender may, with the prior
written consent of the Borrower and the Administrative Agent
(provided that no consent of the Borrower shall be required during
the existence and continuation of an Event of Default), which
consent shall not be unreasonably withheld or delayed, assign all or
a portion of its rights and obligations hereunder pursuant to an
assignment agreement substantially in the form of Exhibit 11.3 to
one or more Eligible Assignees; provided that (i) any such
assignment shall be in a minimum aggregate amount of $10,000,000 of
the Commitments and in integral multiples of $1,000,000 above such
amount (or the remaining amount of Commitments held by such Lender)
and (ii) each such assignment shall be of a constant, not varying,
percentage of all of the assigning Lender's rights and obligations
under the Commitment being assigned. Any assignment hereunder shall
be effective upon satisfaction of the conditions set forth above and
delivery to the Administrative Agent of a duly executed assignment
agreement together with a transfer fee of $3,500 payable to the
Administrative Agent for its own account. Upon the effectiveness of
any such assignment, the assignee shall become a "Lender" for all
purposes of this Credit Agreement and the other Credit Documents
and, to the extent of such assignment, the assigning Lender shall be
relieved of its obligations hereunder to the extent of the Loans and
Commitment components being assigned. The Borrower agrees that upon
notice of any such assignment and surrender of the appropriate Note
or Notes, it will promptly provide to the assigning Lender and to
the assignee separate promissory notes in the amount of their
respective interests substantially in the form of the original Note
or Notes (but with notation thereon that it is given in substitution
for and replacement of the original Note or Notes or any replacement
notes thereof).
By executing and delivering an assignment agreement in accordance
with this Section 11.3(b), the assigning Lender thereunder and the
assignee thereunder shall be deemed to confirm to and agree with
each other and the other parties hereto as follows: (i) such
assigning Lender warrants that it is the legal and beneficial owner
of the interest being assigned thereby free and clear of any adverse
claim and the assignee warrants that it is an Eligible Assignee;
(ii) except as set forth in clause (i) above, such assigning Lender
makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made
in or in connection with this Credit Agreement, any of the other
Credit Documents or any other instrument or document furnished
pursuant hereto or thereto, or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Credit
Agreement, any of the other Credit Documents or any other instrument
or document furnished pursuant hereto or thereto or the financial
condition of any Credit Party or the performance or observance by
any Credit Party of any of its obligations under this Credit
Agreement, any of the other Credit Documents or any other instrument
or document furnished pursuant hereto or thereto; (iii) such
assignee represents and warrants that it is legally authorized to
enter into such assignment agreement; (iv) such assignee confirms
that it has received a copy of this Credit Agreement, the other
Credit Documents and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to
enter into such assignment agreement; (v) such assignee will
independently and without reliance upon the Agents, such assigning
Lender or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under
this Credit Agreement and the other Credit Documents; (vi) such
assignee appoints and authorizes the Agents to take such action on
its behalf and to exercise such powers under this Credit Agreement
or any other Credit Document as are delegated to the Agents by the
terms hereof or thereof, together with such powers as are reasonably
incidental thereto; and (vii) such assignee agrees that it will
perform in accordance with their terms all the obligations which by
the terms of this Credit Agreement and the other Credit Documents
are required to be performed by it as a Lender.
<PAGE>
(c) Participations. Each Lender may sell, transfer,
grant or assign participations in all or any part of such Lender's
interests and obligations hereunder; provided that (i) such selling
Lender shall remain a "Lender" for all purposes under this Credit
Agreement (such selling Lender's obligations under the Credit
Documents remaining unchanged) and the participant shall not
constitute a Lender hereunder, (ii) no such participant shall have,
or be granted, rights to approve any amendment or waiver relating to
this Credit Agreement or the other Credit Documents except to the
extent any such amendment or waiver would (A) reduce the principal
of or rate of interest on or fees in respect of any Loans in which
the participant is participating or increase any Commitments with
respect thereto, (B) postpone the date fixed for any payment of
principal (including the extension of the final maturity of any Loan
or the date of any mandatory prepayment), interest or fees in which
the participant is participating, or (C) release all or
substantially all of the collateral or guaranties (except as
expressly provided in the Credit Documents) supporting any of the
Loans or Commitments in which the participant is participating,
(iii) sub-participations by the participant (except to an Affiliate,
parent company or Affiliate of a parent company of the participant)
shall be prohibited and (iv) any such participations shall be in a
minimum aggregate amount of $10,000,000 of the Commitments and in
integral multiples of $1,000,000 in excess thereof. In the case of
any such participation, the participant shall not have any rights
under this Credit Agreement or the other Credit Documents (the
participant's rights against the selling Lender in respect of such
participation to be those set forth in the participation agreement
with such Lender creating such participation) and all amounts
payable by the Borrower hereunder shall be determined as if such
Lender had not sold such participation; provided, however, that such
participant shall be entitled to receive additional amounts under
Sections 3.9, 3.12, 3.13 and 3.14 to the same extent that the Lender
from which such participant acquired its participation would be
entitled to the benefit of such cost protection provisions.
<PAGE>
11.4 No Waiver; Remedies Cumulative.
No failure or delay on the part of an Agent or any Lender in
exercising any right, power or privilege hereunder or under any other Credit
Document and no course of dealing between the Borrower or any Credit Party and
the Agents or any Lender shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, power or privilege hereunder or under any
other Credit Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder or thereunder. The
rights and remedies provided herein are cumulative and not exclusive of any
rights or remedies which the Agents or any Lender would otherwise have. No
notice to or demand on any Credit Party in any case shall entitle any Credit
Party to any other or further notice or demand in similar or other circumstances
or constitute a waiver of the rights of the Agents or the Lenders to any other
or further action in any circumstances without notice or demand.
11.5 Payment of Expenses; Indemnification.
The Credit Parties agree to: (a) pay all reasonable out-of-pocket
costs and expenses of (i) the Agents and NationsBanc Montgomery Securities LLC
("NMS") in connection with (A) the negotiation, preparation, execution and
delivery, syndication and administration of this Credit Agreement and the other
Credit Documents and the documents and instruments referred to therein
(including, without limitation, the reasonable fees and expenses of Moore & Van
Allen, special counsel to the Agents and the fees and expenses of counsel for
the Agents in connection with collateral issues), and (B) any amendment, waiver
or consent relating hereto and thereto including, but not limited to, any such
amendments, waivers or consents resulting from or related to any work-out,
renegotiation or restructure relating to the performance by the Credit Parties
under this Credit Agreement, and (ii) the Agents and the Lenders in connection
with (A) enforcement of the Credit Documents and the documents and instruments
referred to therein, including, without limitation, in connection with any such
enforcement, the reasonable fees and disbursements of counsel for the Agents and
each of the Lenders, and (B) any bankruptcy or insolvency proceeding of a Credit
Party or any of its Subsidiaries, and (b) indemnify each Agent, NMS and each
Lender, its officers, directors, employees, representatives and agents from and
hold each of them harmless against any and all losses, liabilities, claims,
damages or expenses incurred by any of them as a result of, or arising out of,
or in any way related to, or by reason of, any investigation, litigation or
other proceeding (whether or not any Agent, NMS or Lender is a party thereto)
related to (i) the entering into and/or performance of any Credit Document or
the use of proceeds of any Loans (including other extensions of credit)
hereunder or the consummation of any other transactions contemplated in any
Credit Document, including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceeding (but excluding any such losses, liabilities,
claims, damages or expenses to the extent incurred by reason of gross negligence
or willful misconduct on the part of the Person to be indemnified), (ii) any
Environmental Claim and (iii) any claims for Non-Excluded Taxes.
<PAGE>
11.6 Amendments, Waivers and Consents.
Neither this Credit Agreement nor any other Credit Document nor any
of the terms hereof or thereof may be amended, changed, waived, discharged or
terminated unless such amendment, change, waiver, discharge or termination is in
writing and signed by the Required Lenders and the then Credit Parties; provided
that no such amendment, change, waiver, discharge or termination shall without
the consent of each Lender affected thereby:
(a) extend the final maturity of any Loan or any portion
thereof or postpone any other date fixed for any payment of
principal;
(b) reduce the rate or extend the time of payment of
interest (other than as a result of waiving the applicability of any
post-default increase in interest rates) thereon or fees hereunder;
(c) reduce or waive the principal amount of any Loan;
(d) increase the Commitment of a Lender over the amount
thereof in effect (it being understood and agreed that a waiver of
any Default or Event of Default or a waiver of any mandatory
reduction in the Commitments shall not constitute a change in the
terms of any Commitment of any Lender);
(e) release all or substantially all of the Collateral
securing the Credit Party Obligations hereunder (provided that the
Collateral Agent may, without consent from any other Lender, release
any Collateral that is sold or transferred by a Credit Party in
conformance with Section 8.5 or refinanced in accordance with
Section 7.13);
(f) release the Borrower or any of the other Credit
Parties from its obligations under the Credit Documents;
(g) amend, modify or waive any provision of this Section
or Section 3.4, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 9.1(a),
11.2, 11.3 or 11.5;
(h) reduce any percentage specified in, or otherwise
modify, the definition of Required Lenders; or
(i) consent to the assignment or transfer by the
Borrower of any of its rights and obligations under (or in respect
of) the Credit Documents except as permitted under Section 8.4.
Notwithstanding the fact that the consent of all the Lenders is required in
certain circumstances as set forth above, (x) each Lender is entitled to vote as
such Lender sees fit on any reorganization plan that affects the Loans, and each
Lender acknowledges that the provisions of Section 1126(c) of the Bankruptcy
Code supersedes the unanimous consent provisions set forth herein and (y) the
Required Lenders may consent to allow a Credit Party to use cash collateral in
the context of a bankruptcy or insolvency proceeding.
<PAGE>
11.7 Counterparts; Telecopy.
This Credit Agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall constitute one and the same instrument. It shall not be necessary in
making proof of this Credit Agreement to produce or account for more than one
such counterpart. Delivery of executed counterparts by telecopy shall be
effective as an original and shall constitute a representation that an original
will be delivered.
11.8 Headings.
The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Credit Agreement.
11.9 Defaulting Lender.
Each Lender understands and agrees that if such Lender is a
Defaulting Lender then notwithstanding the provisions of Section 11.6 it shall
not be entitled to vote on any matter requiring the consent of the Required
Lenders or to object to any matter requiring the consent of all the Lenders;
provided, however, that all other benefits and obligations under the Credit
Documents shall apply to such Defaulting Lender.
11.10 Survival of Indemnification and Representations and
Warranties.
All indemnities set forth herein and all representations and
warranties made herein shall survive the execution and delivery of this Credit
Agreement, the making of the Loans and the repayment of the Loans and other
obligations and the termination of the Commitments hereunder.
11.11 Governing Law; Jurisdiction.
(a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS (OTHER
THAN THE MORTGAGES) AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA. Any legal action or proceeding with respect to this
Agreement or any other Credit Document may be brought in the courts
of the State of North Carolina in Mecklenburg County, or of the
United States for the Western District of North Carolina and, by
execution and delivery of this Credit Agreement, each Credit Party
hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of such
courts. Each Credit Party further irrevocably consents to the
service of process out of any of the aforementioned courts in any
such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to it at the address
for notices pursuant to Section 11.1, such service to become
effective 15 days after such mailing. Nothing herein shall affect
the right of a Lender to serve process in any other manner permitted
by law or to commence legal proceedings or to otherwise proceed
against a Credit Party in any other jurisdiction. Each Credit Party
agrees that a final judgment in any action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law; provided that
nothing in this Section 11.11(a) is intended to impair a Credit
Party's right under applicable law to appeal or seek a stay of any
judgment.
<PAGE>
(b) Each Credit Party hereby irrevocably waives any
objection which it may now or hereafter have to the laying of venue
of any of the aforesaid actions or proceedings arising out of or in
connection with this Agreement or any other Credit Document brought
in the courts referred to in subsection (a) hereof and hereby
further irrevocably waives and agrees not to plead or claim in any
such court that any such action or proceeding brought in any such
court has been brought in an inconvenient forum.
11.12 Waiver of Jury Trial.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF
OR RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
11.13 Time.
All references to time herein shall be references to Eastern
Standard Time or Eastern Daylight Time, as the case may be, unless specified
otherwise.
11.14 Severability.
If any provision of any of the Credit Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
11.15 Entirety.
This Credit Agreement together with the other Credit Documents
represent the entire agreement of the parties hereto and thereto, and supersede
all prior agreements and understandings, oral or written, if any, including any
commitment letters or correspondence relating to the Credit Documents or the
transactions contemplated herein and therein.
<PAGE>
11.16 Binding Effect.
This Credit Agreement shall become effective at such time when all
of the conditions set forth in Section 5.1 have been satisfied or waived by the
Lenders and it shall have been executed by the Borrower, the Guarantors and the
Agents, and the Agents shall have received copies hereof (telefaxed or
otherwise) which, when taken together, bear the signatures of each Lender, and
thereafter this Credit Agreement shall be binding upon and inure to the benefit
of the Borrower, the Guarantors, the Agents and each Lender and their respective
successors and assigns.
11.17 Confidentiality.
Each Lender agrees that it will use its reasonable best efforts to
keep confidential and to cause any representative designated under Section 7.11
to keep confidential any non-public information from time to time supplied to it
under any Credit Document; provided, however, that nothing herein shall prevent
the disclosure of any such information to (a) the extent a Lender in good faith
believes such disclosure is required by Requirement of Law, (b) counsel for a
Lender or to its accountants, (c) bank examiners or auditors or comparable
Persons, (d) any affiliate of a Lender, (e) any other Lender, or any assignee,
transferee or participant, or any potential assignee, transferee or participant,
of all or any portion of any Lender's rights under this Agreement who is
notified of the confidential nature of the information or (f) any other Person
in connection with any litigation to which any one or more of the Lenders is a
party; and provided further that no Lender shall have any obligation under this
Section 11.17 to the extent any such information becomes available on a
non-confidential basis from a source other than a Credit Party or that any
information becomes publicly available other than by a breach of this Section
11.17.
11.18 Continuance of Indebtedness and Collateral.
The parties hereto acknowledge that the Revolving Loans and
Collateral referenced in the Existing Credit Agreement are the same Loans and
Collateral referenced hereunder and that the principal amount of Revolving Loans
outstanding under the Existing Credit Agreement have not been paid in full and
reborrowed in connection with the amendment and restatement of the Existing
Credit Agreement. Furthermore, it is the intent of the parties hereto that the
Indebtedness referenced herein not constitute a novation in any manner
whatsoever.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Each of the parties hereto has caused a counterpart of this Credit
Agreement to be duly executed and delivered as of the date first above written.
BORROWER:
AAC FUNDING PARTNERSHIP III,
a Delaware general partnership
By: United Dominion Realty, L.P.,
a Virginia limited partnership,
its general partner
By: United Dominion Realty
Trust, Inc.,
a Virginia corporation,
its sole general partner
By: ____________________________
Name: __________________________
Title: _________________________
By: AAC Funding III, Inc.,
a Delaware corporation,
its general partner
By: ____________________________
Name: __________________________
Title: _________________________
GUARANTORS:
UNITED DOMINION REALTY, L.P.,
a Virginia limited partnership
By: United Dominion Realty
Trust, Inc.,
a Virginia corporation,
its sole general partner
By: ____________________________
Name: __________________________
Title: ________________________
UNITED DOMINION REALTY TRUST, INC.,
a Virginia corporation
By: ____________________________
Name: __________________________
Title: ________________________
<PAGE>
AAC FUNDING PARTNERSHIP II,
a Delaware general partnership
By: United Dominion Realty, L.P.,
a Virginia limited partnership,
its general partner
By: United Dominion Realty
Trust, Inc.,
a Virginia corporation,
its sole general partner
By: _______________________
Name: _____________________
Title: ___________________
By: AAC Funding II, Inc.,
a Delaware corporation,
its general partner
By: ____________________________
Name: __________________________
Title: ________________________
COASTAL ANAHEIM PROPERTIES, LLC,
a Delaware limited liability company
By: United Dominion Realty,
L.P.,
a Virginia limited
partnership,
its ____________
By: United Dominion Realty
Trust, Inc.,
a Virginia corporation,
its sole general
partner
By: ___________________
Name: _________________
Title: ________________
<PAGE>
WINDWARD POINT, LLC,
a California limited liability
company
By: United Dominion Realty,
L.P.,
a Virginia limited
partnership,
its ____________
By: United Dominion Realty
Trust, Inc.,
a Virginia corporation,
its sole general
partner
By: ___________________
Name: _________________
Title: _______________
REGENCY PARK, L.P.,
an Indiana limited partnership
By: United Dominion Realty,
L.P.,
a Virginia limited
partnership,
its general partner
By: United Dominion Realty
Trust, Inc.,
a Virginia
corporation,
its sole general
partner
By: __________________
Name: ________________
Title: _______________
<PAGE>
LENDERS:
NATIONSBANK, N.A.,
individually in its capacity as a
Lender and in its capacity as
Administrative Agent and Collateral
Agent
By: _________________________________
Name: _______________________________
Title: _____________________________
Exhibit 10 (i)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), entered into this 8th day of
December, 1998, between UNITED DOMINION REALTY TRUST, INC., a Virginia
corporation (the "Company") and JOHN P. McCANN (the "Executive"), recites and
provides as follows:
R E C I T A L S:
In October of 1982, the Company and the Executive entered into an
employment agreement (the "Employment Agreement"). The Company and the Executive
now wish to terminate the Employment Agreement and replace it with this
Agreement.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing, and the
mutual promises and undertakings hereinafter set forth, and the payments to be
made to the Executive hereunder, the parties hereto agree as follows:
1. Position and Duties.
a. The Company hereby agrees to and hereby does continue to
employ the Executive as an executive officer of the Company, subject to the
supervision of the Board of Directors of the Company (the "Board"). Currently,
the Executive is Chairman of the Board and Chief Executive Officer and reports
to the Board. The parties hereby agree that the Employment Agreement is hereby
terminated and this Agreement is replaced in its stead.
The Executive agrees that the description of the executive position above
shall not limit the Company from assigning to the Executive such other duties
and functions in addition to or in substitution of those described above.
b. The Executive agrees to serve the Company as a full time
executive officer with duties and authority as set forth in the Company's
by-laws or as otherwise prescribed by the Board. The Executive shall devote such
time, attention, skill, and efforts to the performance of his duties as a
Company executive as shall be required therefore, all under the supervision and
direction of the Board. The Executive agrees that during the period of his
employment he will not, without the approval of a majority of the independent
directors of the Board, have any other (i) real estate investment trust or
business affiliations, or (ii) corporate affiliations that conflict with the
business of the Company or interfere with the ability of the Executive to
perform his duties for the Company or comply with the covenants under this
Agreement.
<PAGE>
2. Term of Agreement.
This Agreement will take effect as of the date of this Agreement and will
end on December 31, 1998. After December 31, 1998, this Agreement will
automatically renew for successive one (1) year periods, ending as of December
31 of each year, unless sooner terminated in accordance with Section 4.
3. Compensation and Benefits.
a. Base Salary. The Executive's pay will not be less than $374,000 per
year, payable in accordance with the Company's regular payroll practices, unless
the Executive consents to a lesser base salary in writing.
b. Annual Incentive Compensation. The Executive's annual compensation shall
also include an annual incentive where the Executive has an opportunity to earn
a bonus of at least fifty percent (50%) of base salary based upon the Executive
and the Company meeting certain performance goals and objectives as determined
by the Board, or the appropriate committee of the Board. The Executive
acknowledges that the Board or the Compensation Committee of the Board (the
"Compensation Committee"), as appropriate, may elect to modify or terminate
annual incentive compensation for all executives at any time.
c. Long Term Incentive Compensation. The Executive's compensation shall
also include participation (i) in the Company's 1982 Stock Option Plan; (ii) in
the Company's 1991 Officers Stock Purchase and Loan Plan; and (iii) any
"shareholder value plan" or other long-term compensation plan for senior
officers of the Company adopted by the Compensation Committee or the Board, on
the same basis as similarly situated executive officers of the Company. The
Executive acknowledges that the Company Board or the Compensation Committee, as
appropriate, may elect to terminate or modify any or all long-term incentive
compensation at any time.
d. Associate Benefit Plans. The Executive will be eligible to participate
in any and all employee benefit plans, medical insurance plans, retirement
plans, and other benefit plans in effect for employees in similar positions at
the Company (the "Company Plans") or any other plans applicable for other
officers or executive officers of the Company. Such participation shall be
subject to the terms of the applicable plan documents and the Company's
generally applied policies. In addition, the Executive acknowledges that the
Company may elect to terminate or modify any or all Company Plans at any time.
e. Travel. It is contemplated that the Executive will be required to incur
travel and entertainment expense in the interests and on behalf of the Company
and in furtherance of its business. The Executive agrees to comply with the
travel and entertainment guidelines of the Company, which may be modified from
time to time (the "T&E Guidelines"). The Company at the end of each month during
the period of this Agreement will, upon submission of appropriate bills or
vouchers, reimburse expenses incurred by the Executive during such month in
compliance with the T&E Guidelines, such The Executive agrees to maintain
adequate records, in such detail as the Company may reasonably request, of all
expenses to be reimbursed by the Company hereunder and to make such records
available for inspection as and when reasonably requested by the Company.
4. Employment Termination Outside of Change of Control.
a. Incapacity; Death. This Agreement may be terminated by the
Company, by delivery of a "Notice of Termination" (defined in Section 8) to the
Executive or his personal representative given at least thirty (30) days prior
to the effective date specified therein, in the event that the Executive shall
be unable to perform his duties hereunder for a period of more than three
consecutive months as a result of illness or incapacity.
This Agreement shall terminate on the death of the Executive.
b. Without Cause. This Agreement may be terminated by the
Company, without cause, by delivery of a "Notice of Termination" (defined in
Section 8) given to the Executive ten (10) days prior to the effective date of
such termination.
c. Severance Compensation. Upon termination of this
Agreement pursuant to Section 4 (a), 4 (b), or 4 (d) the Company shall pay to
the Executive or his legal representative certain compensation (the "Severance
Compensation") as follows:
(i) Base Salary. The Executive shall be paid fifty-two (52) weeks of base
salary, and the Company shall continue in effect for a period of fifty-two (52)
weeks after the effective date of the Executive's termination, all
health/life/disability insurance coverage provided to the Executive and his
immediate family on the day immediately prior to the date of notice of
termination or, if the Executive shall so elect, the Company shall pay to the
Executive an amount equal to the portion of the premium allocable to the
Executive for providing such coverage, provided, however, if such coverage
cannot be continued by the Company, the Company shall pay to the Executive an
amount sufficient for the Executive to obtain substantially similar coverage for
a period of fifty-two (52) weeks after the effective date of termination.
(ii) Incentive Compensation. The Executive shall also be entitled to annual
incentive compensation (i) actually earned by the Executive, if any, pursuant to
Section 3(b) of this Agreement for the Company's current fiscal year prorated
through the effective date of termination, which compensation shall be paid no
later than forty-five (45) days after the end of the Company's fiscal year and
(ii) an amount equal to the sum of the annual incentive compensation earned by
the Executive over the two calendar years prior to the effective date of
termination, divided by two ("Average Annual Incentive Compensation").
Compensation pursuant to paragraph 3(c) (long term incentive compensation) shall
be governed by the terms of the subject plans.
(iii) Severance Compensation Reduction. In the event termination is pursuant to
Section 4 (a) of this Agreement, the portion of Severance Compensation to be
paid pursuant to Section 4(i) and (ii) shall be reduced by the amount of any
life insurance proceeds paid by or through the Company or disability insurance
payments for one (1) year, as appropriate, payable to the Executive or his
personal representative or other beneficiary.
(iv) Timing. The Company, at its option, shall pay to the Executive or his legal
representative the sums payable to such Executive or his legal representative on
account of the portion of Severance Compensation consisting of (y) base salary
either in a lump sum or in monthly increments payable on the first day of each
month over the succeeding twelve (12) month period and (z) the Average Annual
Incentive Compensation within thirty (30) days after the effective date of
termination.
(v) Life Insurance. The Executive shall also be entitled to direct the Company
to change the beneficiary of any non-group life insurance policy to another
person or group.
d. By the Executive. This Agreement may be terminated by the
Executive, upon delivery of a "Notice of Termination" (defined in Section 8)
given at least ninety (90) days before the end of the term or for "Good Reason,"
which, for the purposes of this subsection, shall mean the reasons set forth in
subsections 5(d)(i) to (vi).
e. For Cause. The Company may terminate this Agreement for
cause by providing delivery of a "Notice of Termination" (as defined in Section
8). In such event, the Executive shall not be entitled to any compensation under
this Agreement for the period after the termination date, and any compensation
paid to the Executive shall be net of any sums owed by the Executive to the
Company as a result of the act for which the employment of the Executive was
terminated. The circumstances under which the Company will be deemed to have
cause to terminate this Agreement include, but are not limited to, the
following:
(i) The Executive is convicted of or pleads nolo contendere to any crime, other
than a traffic offense or misdemeanor;
(ii) The Executive shall commit, with respect to the Company, an act of fraud or
embezzlement or shall have been grossly negligent in the performance of his
duties hereunder;
(iii) The Executive engages in gross dereliction of duties, refusal to perform
assigned duties consistent with his position, or repeated violation of the
Company's policies after written warning; or,
(iv) The Executive engages in drug abuse.
f. Consulting Services. Upon termination of this Agreement,
the Executive shall, for a period of up to one year following the effective date
of termination, render such advisory or consulting services to the Company as it
may reasonably request, taking into account the Executive's health, business
commitments, geographical location and other relevant circumstances. The intent
of this paragraph is not to obligate the Executive to perform any day-to-day
duties for the Company following termination of his employment but only to
assist management in effecting a smooth transition of the functions or projects
for which the Executive was responsible while an employee of the Company. Should
the Executive fail to render such advisory or consulting services, after 30
days' prior written notice to the Executive and the Executive's failure to
commence the rendering of such service, the Company's sole remedy shall be to
terminate payment of any remaining severance compensation. If this Agreement is
terminated pursuant to Section 4(e) and no Severance Compensation is paid to the
Executive, the Executive shall be paid on an hourly basis to the extent
requested by the Company to perform advisory or consulting services, based upon
his base salary prior to termination for the actual time spent for advisory or
consulting services for the Company.
g. Return of Company Property. The parties acknowledge and
agree that records, files, reports, manuals, handbooks, computer diskettes,
computer software, customer files and information, documents, equipment and the
like, relating to the Company's business or which are developed for or by the
Company, or which Executive shall develop, create, use, prepare or come into
possession of during his employment with the Company, shall remain the sole
property of the Company and Executive covenants to promptly deliver to the
Company any and all such property and any copies thereof no later than the
termination of Executive's employment with the Company.
h. Covenants. The Executive shall not be entitled to any Severance Compensation
or benefits for any period he is in violation of the Covenants in Section 6.
5. Change of Control.
a. Change of Control. For purposes of this Agreement, "Change
of Control" shall mean (i) the merger or consolidation of the Company with any
other real estate investment trust, corporation or other business entity, in
which the Company is not the survivor (without respect to the legal structure of
the transaction), (ii) the transfer or sale of all or substantially all of the
assets of the Company other than to an affiliate or subsidiary of the Company,
(iii) the liquidation of the Company, or (iv) the acquisition by any person or
by a group of persons acting in concert, of more than fifty percent (50%) of the
outstanding voting securities of the Company, which results in the resignation
or addition of fifty percent (50%) or more members of the Board or the
resignation or addition of fifty percent (50%) or more independent members of
the Board.
b. Compensation Upon Termination. Following a Change in
Control that results in termination of the Executive's employment, the Executive
shall be entitled to the following benefits unless such termination is by the
Executive other than for "Good Reason" (as defined below):
(i) Compensation. The Company shall pay the Executive one hundred fifty six
(156) weeks of base salary at the rate in effect at the time Notice of
Termination is given, and the equivalent of three years of annual incentive
compensation based upon the average annual incentive compensation earned by the
Executive for the two calendar years prior to the effective date of termination,
plus all other amounts to which the Executive is entitled under any compensation
plan of the Company.
(ii) Benefits. The Company shall provide the Executive with life, disability,
accident and health insurance coverage (including any dependent coverage)
substantially similar to the coverage the Executive is receiving immediately
prior to the Notice of Termination, for a thirty six (36) month period after the
Executive's termination. Benefits otherwise receivable by the Executive pursuant
to this subsection (ii) shall be reduced to the extent comparable benefits are
actually received by the Executive during the thirty six (36) month period
following termination, and any such benefits actually received by the Executive
shall be reported to the Company.
(iii) Long-Term Incentive Compensation. All of the Executive's outstanding
options, stock appreciation rights and any other awards in the nature of rights
that may be exercised shall become fully vested and immediately exercisable; all
restrictions on any outstanding other awards held by the Executive (such as
awards of restricted stock) shall lapse; and the Executive's balance in any
deferred compensation plan or shareholder value plan shall become fully vested
and immediately payable; provided, however, that such acceleration will not
occur if, in the opinion of the Company's accountants, such acceleration would
preclude the use of "pooling of interest" accounting treatment for a Change of
Control transaction that (a) would otherwise qualify for such accounting
treatment, and (b) is contingent upon qualifying for such accounting treatment.
(iv) Timing. The Severance Payments shall be made no later than the thirtieth
(30th) business day following the effective date of termination. However, if the
amounts of the Severance Payments cannot be finally determined on or before such
day, the Company shall pay to the Executive on such day an estimate of the
minimum amount of such payments and shall pay the remainder of such payments as
soon as the amount thereof can be determined but in no event later than the
ninetieth (90th) day after the effective Date of Termination.date of
termination.
c. Limitation of Benefits.
(i) Notwithstanding anything in this Agreement to the contrary, in the event it
shall be determined that any benefit, payment or distribution by the Company to
or for the benefit of Executive (whether payable or distributable pursuant to
the terms of this Agreement or otherwise)(such benefits, payments or
distributions are hereinafter referred to as "Payments") would, if paid, be
subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the
Code, then the aggregate present value of the Payments shall be reduced (but not
below zero) to an amount expressed in present value that maximizes the aggregate
present value of the Payments without causing the Payments or any part thereof
to be subject to the Excise Tax and therefore nondeductible by the Company
because of Section 280G of the Code (the "Reduced Amount"). For purposes of this
Section, present value shall be determined in accordance with Section 280G(d)(4)
of the Code.
(ii) All determinations required to be made under this Section, including
whether an Excise Tax would otherwise be imposed, whether the Payments shall be
reduced, the amount of the Reduced Amount, and the assumptions to be utilized in
arriving at such determinations, shall be made by Ernst & Young, LLP or such
other certified public accounting firm acceptable to the Company, in its sole
discretion, (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and Executive within fifteen (15) business days
of the receipt of notice from Executive that a Payment is due to be made, or
such earlier time as is requested by the Company. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any determination by the
Accounting Firm shall be binding upon the Company and Executive. As a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Payments hereunder will have been unnecessarily limited by this Section
("Underpayment"), consistent with the calculations required to be made
hereunder. The Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of Executive.
d. Good Reason. The Executive shall be entitled to terminate
this Agreement for Good Reason. For purposes of this Section 5, "Good Reason"
shall mean the occurrence, within two (2) years after a Change in Control, of
any of the following circumstances:
(i) the assignment to the Executive of any duties inconsistent with the
Executive's position and status as Chief Executive Officer or a substantial
adverse alteration in the nature or status of the Executive's responsibilities
from those in effect immediately prior to the Change in Control;
(ii) a ten percent (10%) or greater reduction by the Company in the Executive's
annual base salary as in effect on the date hereof or as the same may be
increased from time to time except for across-the-board salary reductions
affecting senior executives of the Company and senior executives of any person
directly or indirectly in control of the Company;
(iii) the Executive's relocation by the Company to a location not within fifty
miles of the Executive's present office or job location;
(iv) the failure by the Company to pay to the Executive any portion of the
Executive's current compensation, or to pay to the Executive any portion of an
installment of deferred compensation under any deferred compensation program of
the Company, within thirty (30) days of the date such compensation is due;
(v) the failure by the Company to continue in effect any annual or long-term
monetary incentive opportunity to which the Executive was entitled, or any
compensation plan in which the Executive participates immediately prior to the
Change in Control which constitutes more than ten percent (10%) of the
Executive's total compensation; provided, however, that the Company may modify
the monetary incentive opportunities so as to provide the Executive with the
same or similar monetary incentive opportunities;
(vi) the failure of the Company to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement or a similar agreement
satisfactory to the Executive;
(vii) in the event the Executive terminates this Agreement for Good Reason
following a Change in Control as provided by this Section 5, the Executive shall
be entitled to the compensation provided by Section 5(b), reduced by the amount
of compensation received by the Executive following the Change in Control
through the effective date of termination.
e. Potential Change of Control. For purposes of this
Agreement, a "Potential Change in Control" shall be deemed to have occurred if
(i) the Company enters into an agreement, the consummation of which would result
in the occurrence of a Change in Control; (ii) any person (including the
Company) publicly announces an intention to take or to consider taking actions
which if consummated would constitute a Change in Control; (iii) any person, who
is or becomes the beneficial owner, directly or indirectly, of securities of the
Company representing 9.5% or more of the combined voting power of the Company's
then outstanding securities increases his beneficial ownership of such
securities by 5% or more over the percentage so owned by such person on the date
hereof; or (iv) the Board adopts a resolution to the effect that, for the
purposes of this Agreement, a Potential Change in Control has occurred. In the
event of a Potential Change in Control the Executive will remain in the employ
of the Company until the earliest of (x) a date which is six (6) months from the
occurrence of such Potential Change in Control, or (y) the occurrence of a
Change in Control.
6. Confidentiality; Non-Competition and Non-Solicitation Covenants.
a. Basis for Covenants. The Executive acknowledges that i) he
will be employed as an executive officer in a managerial capacity; ii) his
employment with the Company gives him access to confidential and proprietary
information concerning the Company; iii) the agreements and covenants contained
in this Section 6 (the "Covenants") are essential to protect the business of the
Company; and iv) the Executive is to receive consideration pursuant to this
Agreement. Executive recognizes and acknowledges that the confidential
information described in Section 6(b) (the "Confidential Information") which he
will acquire in the course of his employment is utilized by the Company in all
geographic areas in which the Company does business. Further, the Confidential
Information will also be utilized in all geographic areas into which the Company
expands its business. Thus, Executive acknowledges that he will be a formidable
competitor in all areas where the Company conducts business. Executive also
acknowledges that the Covenants serve to protect the Company's investment in the
Confidential Information.
b. Confidentiality.
(i) The Executive acknowledges that he will be exposed to and learn a
substantial amount of information which is proprietary and confidential to the
Company, whether or not he develops or creates such information. The Executive
acknowledges that such proprietary and confidential information may include, but
is not limited to, trade secrets; acquisition or merger information; advertising
and promotional programs; resource or developmental projects; plans or
strategies for future business development; financial or statistical data;
customer information, including, but not limited to, customer lists, sales
records, account records, sales and marketing programs, pricing matters, and
strategies and reports; and any Company manuals, forms, techniques, and other
business procedures or methods, devices, computer software or matters of any
kind relating to or with respect to any confidential program or projects of the
Company, or any other information of a similar nature made available to the
Executive and not known in the trade in which the Company is engaged, which, if
misused or disclosed, could adversely affect the business or standing of the
Company. Confidential Information shall not include information that is
generally known or generally available to the public through no fault of the
Executive.
(ii) The Executive agrees that except as required by law, he will not at any
time divulge to any person, agency, institution, company or other entity any
information which he knows or has reason to believe is proprietary or
confidential to the Company, including but not limited to the types of
information described in Section 6(b)(i), or use such information to the
competitive disadvantage of the Company. The Executive agrees that his duties
and obligations under this Section 6 will continue for 12 months from the
termination of his employment or as long as the Confidential Information remains
proprietary or confidential to the Company.
c. Non-Competition. During the period of the Executive's
employment, the Executive agrees that he will not, on behalf of anyone other
than the Company, engage in any managerial, executive, sales, or marketing
activities related to any business in which the Company is or becomes engaged
during the Executive's employment without the consent of the Board.
d. Non-Solicitation. The Executive agrees that for a twelve
(12) month period following the termination of his employment with the Company
for any reason (including the Executive's resignation), the Executive shall not,
directly or indirectly, hire or solicit any employee of the Company employed at
the time of his termination, or encourage any such employee to leave such
employment.
e. Scope of Covenants.
(i) Executive acknowledges that the Company intends to extend business
operations throughout the United States of America. Therefore, for a period of
twelve (12) months after termination of Executive's employment for any reason
(including Executive's resignation), Executive agrees that he shall not directly
or indirectly carry on or participate in the ownership or management of
apartment communities of the same class and quality of the communities owned by
the Company that directly competes with the Company anywhere within the United
States of America.
(ii) Independent of the preceding provision, Executive agrees that he shall not,
for a period of twelve (12) months after termination of Executive's employment,
directly or indirectly carry on or participate in the ownership or management of
apartment communities of the same class and quality of the apartment communities
owned by the Company that directly competes with the Company within any county
or city in which the Company conducts business.
(iii) These covenants shall not apply in the event the Executive is terminated
without cause, as a result of a Change of Control, or by the Executive for Good
Reason, which, for the purposes of this subsection, shall mean any of the
reasons set forth in subsections 5(d)(i) to (iv).
f. Reasonableness of Covenants. The Executive agrees that the
Covenants are necessary for the reasonable and proper protection of the Company
and that the Covenants are reasonable in respect of subject matter, length of
time, and geographic scope. The Executive further acknowledges that the
Covenants will not unreasonably restrict him from earning a livelihood following
the termination of his employment with the Company.
g.
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Governing Law; Public Policy.
(i) The parties agree that it is not their intention to violate any public
policy or statutory or common law. The parties intend that the provisions of
this Agreement be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought. If
any provision of this Agreement is found by a court to be unenforceable, the
parties authorize the court to amend or modify the provision to make it
enforceable in the most restrictive fashion permitted by law.
(ii) The Executive and the Company are sophisticated parties and fully
understand (i) the ramifications of the non-competition, non-solicitation and
confidentiality restrictions of this Agreement and (ii) that the laws of each
state with respect to the enforceability of such provisions vary. The parties
are specifically selecting the internal laws of the Commonwealth of Virginia to
govern this Agreement in order that it be enforceable against all of them.
h. Separate Agreement Upon Termination. The provisions of
this Section 6 so far as they relate to the period after the end of the term of
this Agreement shall continue to have effect and shall operate as a separate
agreement between the Company and the Executive.
7. Successors and Assigns.
a. The Executive acknowledges and agrees that this Agreement
is a contract for his personal services, he is not entitled to assign,
subcontract, or transfer any of the obligations imposed or benefits provided
under this Agreement.
b. This Agreement shall be binding on and will inure to the
benefit of any successors or assigns of the Company.
8. Definitions. The following terms shall have the following meanings:
a. A "Notice of Termination" shall mean a written notice
which shall indicate the specific termination provision in this Agreement relied
upon and, if appropriate, shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provisions so indicated.
b. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
9. Miscellaneous.
a. Integration. This Agreement contains the complete
agreement between the Executive and the Company with respect to its subject
matter. This Agreement supersedes all previous and contemporaneous agreements,
negotiations, commitments, writings, and undertakings.
b. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Virginia,
regardless of choice of law rules. Any dispute arising between the parties
related to or involving this Agreement will be litigated in a court having
jurisdiction in the Commonwealth of Virginia.
c. Modifications. This Agreement may be modified or waived
only by a writing signed by both parties.
d. Waivers. Any waiver of a breach of this Agreement will
not constitute a waiver of any future breach, whether of a similar or dissimilar
nature.
e. Severability. The covenants in the various provisions of
Section 6 are separate and independent contractual provisions. The invalidity or
unenforceability of any particular restrictive covenant or any other provision
of this Agreement shall not affect the other provisions hereof, and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provision were omitted.
WE AGREE TO THIS:
UNITED DOMINION REALTY TRUST, INC.,
a Virginia corporation
By: _______________________________
Its: ________________________________
EXECUTIVE
- - -----------------------------------
JOHN P. McCANN
EXHIBIT 10(ii)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), entered into this 8th day of
December, 1998, between UNITED DOMINION REALTY TRUST, INC., a Virginia
corporation (the "Company") and JOHN S. SCHNEIDER (the "Executive"), recites and
provides as follows:
R E C I T A L S:
On December 11, 1996, the Company and the Executive entered into an
employment agreement (the "Employment Agreement"). The Company and the Executive
now wish to terminate the Employment Agreement and replace it with this
Agreement.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing, and the mutual
promises and undertakings hereinafter set forth, and the payments to be made to
the Executive hereunder, the parties hereto agree as follows:
1. Position and Duties.
a. The Company hereby agrees to and hereby does continue to employ the
Executive as an executive officer of the Company, subject to the supervision of
the Chief Executive Officer of the Company, or such other senior officer of the
Company as may be prescribed by the Chief Executive Officer or the Board of
Directors of the Company (the "Board"). Currently, the Executive is President,
Vice Chairman of the Board and Chief Operating Officer and reports to the Chief
Executive Officer, and the Board. The parties hereby agree that the Employment
Agreement is hereby terminated and this Agreement is replaced in its stead.
The Executive agrees that the description of the executive position
above shall not limit the Company from assigning to the Executive such other
duties and functions in addition to or in substitution of those described above.
b. The Executive agrees to serve the Company as a full time executive
officer with duties and authority as set forth in the Company's by-laws or as
otherwise prescribed by the Board, the Chief Executive Officer, or such other
senior officer prescribed by the Chief Executive Officer or the Board. The
Executive shall devote such time, attention, skill, and efforts to the
performance of his duties as a Company executive as shall be required therefore,
all under the supervision and direction of the Board, the Chief Executive
Officer, or such other senior officer prescribed by the Board. The Executive
agrees that during the period of his employment he will not, without the
approval of a majority of the independent directors of the Board, have any other
(i) real estate investment trust or business affiliations, or (ii) corporate
affiliations that conflict with the business of the Company or interfere with
the ability of the Executive to perform his duties for the Company or comply
with the covenants under this Agreement.
2. Term of Agreement.
This Agreement will take effect as of the date of this Agreement and
will end on December 31, 1998. After December 31, 1998, this Agreement will
automatically renew for successive one (1) year periods, ending as of December
31 of each year, unless sooner terminated in accordance with Section 4.
3. Compensation and Benefits.
a. Base Salary. The Executive's pay will not be less than $275,000 per
year (beginning January 1, 1999), payable in accordance with the Company's
regular payroll practices, unless the Executive consents to a lesser base salary
in writing.
b. Annual Incentive Compensation. The Executive's annual compensation
shall also include an annual incentive where the Executive has an opportunity to
earn a bonus of at least forty five (45%) of base salary based upon the
Executive and the Company meeting certain performance goals and objectives as
determined by the Compensation Committee of the Board (the "Compensation
Committee"). The Executive acknowledges that the Board or the Compensation
Committee, as appropriate, may elect to modify or terminate annual incentive
compensation for all executives at any time.
c. Long Term Incentive Compensation. The Executive's compensation shall
also include participation (i) in the Company's 1982 Stock Option Plan; (ii) in
the Company's 1991 Officers Stock Purchase and Loan Plan; and (iii) any
"shareholder value plan" or other long-term compensation plan for senior
officers of the Company adopted by the Compensation Committee or the Board, on
the same basis as similarly situated executive officers of the Company. The
Executive acknowledges that the Board or the Compensation Committee, as
appropriate, may elect to terminate or modify any or all long-term incentive
compensation at any time.
d. Associate Benefit Plans. The Executive will be eligible to
participate in any and all employee benefit plans, medical insurance plans,
retirement plans, and other benefit plans in effect for employees in similar
positions at the Company (the "Company Plans") or any other plans applicable for
other officers or executive officers of the Company. Such participation shall be
subject to the terms of the applicable plan documents and the Company's
generally applied policies. In addition, the Executive acknowledges that the
Company may elect to terminate or modify any or all Company Plans at any time.
e. Travel. It is contemplated that the Executive will be required to
incur travel and entertainment expense in the interests and on behalf of the
Company and in furtherance of its business. The Executive agrees to comply with
the travel and entertainment guidelines of the Company, which may be modified
from time to time (the "T&E Guidelines"). The Company at the end of each month
during the period of this Agreement will, upon submission of appropriate bills
or vouchers, reimburse expenses incurred by the Executive during such month in
compliance with the T&E Guidelines. The Executive agrees to maintain adequate
records, in such detail as the Company may reasonably request, of all expenses
to be reimbursed by the Company hereunder and to make such records available for
inspection as and when reasonably requested by the Company.
4. Employment Termination Outside of Change of Control.
a. Incapacity; Death. This Agreement may be terminated by the Company,
by delivery of a "Notice of Termination" (defined in Section 8) to the Executive
or his personal representative given at least thirty (30) days prior to the
effective date specified therein, in the event that the Executive shall be
unable to perform his duties hereunder for a period of more than three
consecutive months as a result of illness or incapacity.
This Agreement shall terminate on the death of the Executive.
b. Without Cause. This Agreement may be terminated by the Company,
without cause, by delivery of a "Notice of Termination" (defined in Section 8)
given to the Executive ten (10) days prior to the effective date of such
termination.
c. Severance Compensation. Upon termination of this Agreement pursuant
to Section 4 (a) or 4 (b), the Company shall pay to the Executive or his legal
representative certain compensation (the "Severance Compensation") as follows:
(i) Base Salary. The Executive shall be paid fifty-two (52) weeks of base
salary, and the Company shall continue in effect for a period of fifty-two (52)
weeks after the effective date of the Executive's termination, all
health/life/disability insurance coverage provided to the Executive and his
immediate family on the day immediately prior to the date of notice of
termination or, if the Executive shall so elect, the Company shall pay to the
Executive an amount equal to the portion of the premium allocable to the
Executive for providing such coverage, provided, however, if such coverage
cannot be continued by the Company, the Company shall pay to the Executive an
amount sufficient for the Executive to obtain substantially similar coverage for
a period of fifty-two (52) weeks after the effective date of termination.
(ii) Incentive Compensation. The Executive shall also be entitled to annual
incentive compensation, (i) actually earned by the Executive, if any, pursuant
to Section 3(b) of this Agreement for the Company's current fiscal year prorated
through the effective date of termination, which compensation shall be paid no
later than forty-five (45) days after the end of the Company's fiscal year and
(ii) an amount equal to the sum of the annual incentive compensation earned by
the Executive over the two calendar years prior to the effective date of
termination, divided by two ("Average Annual Incentive Compensation").
Compensation pursuant to paragraph 3(c) (long term incentive compensation) shall
be governed by the terms of the subject plans.
(iii) Severance Compensation Reduction. In the event termination is pursuant to
Section 4 (a) of this Agreement, the portion of Severance Compensation to be
paid pursuant to Section 4(i) and (ii) shall be reduced by the amount of any
life insurance proceeds paid by or through the Company or disability insurance
payments for one (1) year, as appropriate, payable to the Executive or his
personal representative or other beneficiary.
(iv) Timing. The Company, at its option, shall pay to the Executive or his legal
representative the sums payable to such Executive or his legal representative on
account of the portion of Severance Compensation consisting of (y) base salary
either in a lump sum or in monthly increments payable on the first day of each
month over the succeeding twelve (12) month period; and (z) the Average Annual
Incentive Compensation within thirty (30) days after the effective date of
termination.
(v) Life Insurance. The Executive shall also be entitled to direct the Company
to change the beneficiary of any non-group life insurance policy to another
person or group.
d. By the Executive. This Agreement may be terminated by the Executive,
upon delivery of a "Notice of Termination" (defined in Section 8) given at least
ninety (90) days before the effective date of termination or for "Good Reason,"
which, for the purposes of this subsection, shall mean for the reasons set forth
in subsections 5(d)(i) to (vi). In such event, the Executive shall not be
entitled to any compensation under this Agreement for any period not worked
after the termination date, other than compensation to which the Executive is
entitled pursuant to Section 5.
e. For Cause. The Company may terminate this Agreement for cause by
providing a "Notice of Termination" (as defined in Section 8). In such event,
the Executive shall not be entitled to any compensation under this Agreement for
the period after the termination date, and any compensation paid to the
Executive shall be net of any sums owed by the Executive to the Company as a
result of the act for which the employment of the Executive was terminated. The
circumstances under which the Company will be deemed to have cause to terminate
this Agreement include, but are not limited to, the following:
(i) The Executive is convicted of or pleads nolo contendere to any crime, other
than a traffic offense or misdemeanor;
(ii) The Executive shall commit, with respect to the Company, an act of fraud or
embezzlement or shall have been grossly negligent in the performance of his
duties hereunder;
(iii) The Executive engages in gross dereliction of duties, refusal to perform
assigned duties consistent with his position, or repeated violation of the
Company's policies after written warning; or,
(iv) The Executive engages in drug abuse.
f. Consulting Services. Upon termination of this Agreement, the
Executive shall, for a period of up to one year following the effective date of
termination, render such advisory or consulting services to the Company as it
may reasonably request, taking into account the Executive's health, business
commitments, geographical location and other relevant circumstances. The intent
of this paragraph is not to obligate the Executive to perform any day-to-day
duties for the Company following termination of his employment but only to
assist management in effecting a smooth transition of the functions or projects
for which the Executive was responsible while an employee of the Company. Should
the Executive fail to render such advisory or consulting services, after 30
days' prior written notice to the Executive and the Executive's failure to
commence the rendering of such service, the Company's sole remedy shall be to
terminate payment of any remaining severance compensation. If this Agreement is
terminated pursuant to Section 4(d)(except where the termination is for "Good
Reason") or 4(e) and no Severance Compensation is paid to the Executive, the
Executive shall be paid on an hourly basis to the extent requested by the
Company to perform advisory or consulting services, based upon his base salary
prior to termination for the actual time spent for advisory or consulting
services for the Company.
g. Return of Company Property. The parties acknowledge and agree that
records, files, reports, manuals, handbooks, computer diskettes, computer
software, customer files and information, documents, equipment and the like,
relating to the Company's business or which are developed for or by the Company,
or which Executive shall develop, create, use, prepare or come into possession
of during his employment with the Company, shall remain the sole property of the
Company and Executive covenants to promptly deliver to the Company any and all
such property and any copies thereof no later than the termination of
Executive's employment with the Company.
h. Covenants. The Executive shall not be entitled to any Severance
Compensation or benefits for any period he is in violation of the Covenants in
Section 6.
5. Change of Control.
a. Change of Control. For purposes of this Agreement, "Change of
Control" shall mean (i) the merger or consolidation of the Company with any
other real estate investment trust, corporation or other business entity, in
which the Company is not the survivor (without respect to the legal structure of
the transaction), (ii) the transfer or sale of all or substantially all of the
assets of the Company other than to an affiliate or subsidiary of the Company,
(iii) the liquidation of the Company, or (iv) the acquisition by any person or
by a group of persons acting in concert, of more than 50% of the outstanding
voting securities of the Company, which results in the resignation or addition
of fifty percent (50%) or more members of the Board or the resignation or
addition of fifty percent (50%) or more independent members of the Board.
b. Compensation Upon Termination. Following a Change in Control that
results in termination of the Executive's employment, the Executive shall be
entitled to the following benefits unless such termination is by the Executive
other than for "Good Reason" (as defined below):
(i) Compensation. The Company shall pay the Executive one hundred fifty six
(156) weeks of base salary at the rate in effect at the time Notice of
Termination is given, and the equivalent of three years of annual incentive
compensation based upon the average annual incentive earned by the Executive for
the two calendar years prior to the effective date of termination, plus all
other amounts to which the Executive is entitled under any compensation plan of
the Company.
(ii) Benefits. The Company shall provide the Executive with life, disability,
accident and health insurance coverage (including any dependent coverage)
substantially similar to the coverage the Executive is receiving immediately
prior to the Notice of Termination, for a thirty six (36) month period after the
Executive's termination. Benefits otherwise receivable by the Executive pursuant
to this subsection (ii) shall be reduced to the extent comparable benefits are
actually received by the Executive during the thirty six (36) month period
following termination, and any such benefits actually received by the Executive
shall be reported to the Company.
(iii) Long-Term Incentive Compensation. All of the Executive's outstanding
options, stock appreciation rights and any other awards in the nature of rights
that may be exercised shall become fully vested and immediately exercisable; all
restrictions on any outstanding other awards held by the Executive (such as
awards of restricted stock) shall lapse; and the Executive's balance in any
deferred compensation plan or shareholder value plan shall become fully vested
and immediately payable; provided, however, that such acceleration will not
occur if, in the opinion of the Company's accountants, such acceleration would
preclude the use of "pooling of interest" accounting treatment for a Change of
Control transaction that (a) would otherwise qualify for such accounting
treatment, and (b) is contingent upon qualifying for such accounting treatment.
(iv) Timing. The Severance Payments shall be made no later than the thirtieth
(30th) business day following the effective date of termination. However, if the
amounts of the Severance Payments cannot be finally determined on or before such
day, the Company shall pay to the Executive on such day an estimate of the
minimum amount of such payments and shall pay the remainder of such payments as
soon as the amount thereof can be determined but in no event later than the
ninetieth (90th) day after the effective date of termination.
c. Limitation of Benefits.
(i) Notwithstanding anything in this Agreement to the contrary, in the event it
shall be determined that any benefit, payment or distribution by the Company to
or for the benefit of Executive (whether payable or distributable pursuant to
the terms of this Agreement or otherwise)(such benefits, payments or
distributions are hereinafter referred to as "Payments") would, if paid, be
subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the
Code, then the aggregate present value of the Payments shall be reduced (but not
below zero) to an amount expressed in present value that maximizes the aggregate
present value of the Payments without causing the Payments or any part thereof
to be subject to the Excise Tax and therefore nondeductible by the Company
because of Section 280G of the Code (the "Reduced Amount"). For purposes of this
Section, present value shall be determined in accordance with Section 280G(d)(4)
of the Code.
(ii) All determinations required to be made under this Section, including
whether an Excise Tax would otherwise be imposed, whether the Payments shall be
reduced, the amount of the Reduced Amount, and the assumptions to be utilized in
arriving at such determinations, shall be made by Ernst & Young, LLP or such
other certified public accounting firm acceptable to the Company, in its sole
discretion (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and Executive within fifteen (15) business days
of the receipt of notice from Executive that a Payment is due to be made, or
such earlier time as is requested by the Company. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any determination by the
Accounting Firm shall be binding upon the Company and Executive. As a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Payments hereunder will have been unnecessarily limited by this Section
("Underpayment"), consistent with the calculations required to be made
hereunder. The Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of Executive.
d. Good Reason. The Executive shall be entitled to terminate this
Agreement for Good Reason. For purposes of this Section 5, "Good Reason" shall
mean the occurrence, within two (2) years after a Change in Control, of any of
the following circumstances:
(i) the assignment to the Executive of any duties inconsistent with the
Executive's position and status as Chief Operating Officer or a substantial
adverse alteration in the nature or status of the Executive's responsibilities
from those in effect immediately prior to the Change in Control;
(ii) a ten percent (10%) or greater reduction by the Company in the Executive's
annual base salary as in effect on the date hereof or as the same may be
increased from time to time except for across-the-board salary reductions
affecting senior executives of the Company and senior executives of any person
directly or indirectly in control of the Company;
(iii) the Executive's relocation by the Company to a location not within fifty
miles of the Executive's present office or job location;
(iv) the failure by the Company to pay to the Executive any portion of the
Executive's current compensation, or to pay to the Executive any portion of an
installment of deferred compensation under any deferred compensation program of
the Company, within thirty (30) days of the date such compensation is due;
(v) the failure by the Company to continue in effect any annual or long-term
monetary incentive opportunity to which the Executive was entitled, or any
compensation plan in which the Executive participates immediately prior to the
Change in Control which constitutes more than ten percent (10%) of the
Executive's total compensation; provided, however, that the Company may modify
the monetary incentive opportunities so as to provide the Executive with the
same or similar monetary incentive opportunities;
(vi) the failure of the Company to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement or a similar agreement
satisfactory to the Executive;
(vii) in the event the Executive terminates this Agreement for Good Reason
following a Change in Control as provided by this Section 5, the Executive shall
be entitled to the compensation provided by Section 5(b), reduced by the amount
of compensation received by the Executive following the Change in Control
through the effective date of termination.
e. Potential Change of Control. For purposes of this Agreement, a
"Potential Change in Control" shall be deemed to have occurred if (i) the
Company enters into an agreement, the consummation of which would result in the
occurrence of a Change in Control; (ii) any person (including the Company)
publicly announces an intention to take or to consider taking actions which if
consummated would constitute a Change in Control; (iii) any person, who is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company representing 9.5% or more of the combined voting power of the Company's
then outstanding securities increases his beneficial ownership of such
securities by 5% or more over the percentage so owned by such person on the date
hereof; or (iv) the Board adopts a resolution to the effect that, for the
purposes of this Agreement, a Potential Change in Control has occurred. In the
event of a Potential Change in Control the Executive will remain in the employ
of the Company until the earliest of (x) a date which is six (6) months from the
occurrence of such Potential Change in Control, or (y) the occurrence of a
Change in Control.
6. Confidentiality; Non-Competition and Non-Solicitation Covenants.
a. Basis for Covenants. The Executive acknowledges that i) he will be
employed as an executive officer in a managerial capacity; ii) his employment
with the Company gives him access to confidential and proprietary information
concerning the Company; iii) the agreements and covenants contained in this
Section 6 (the "Covenants") are essential to protect the business of the
Company; and iv) the Executive is to receive consideration pursuant to this
Agreement. Executive recognizes and acknowledges that the confidential
information described in Section 6(b) (the "Confidential Information") which he
will acquire in the course of his employment is utilized by the Company in all
geographic areas in which the Company does business. Further, the Confidential
Information will also be utilized in all geographic areas into which the Company
expands its business. Thus, Executive acknowledges that he will be a formidable
competitor in all areas where the Company conducts business. Executive also
acknowledges that the Covenants serve to protect the Company's investment in the
Confidential Information.
b. Confidentiality.
(i) The Executive acknowledges that he will be exposed to and learn a
substantial amount of information which is proprietary and confidential to the
Company, whether or not he develops or creates such information. The Executive
acknowledges that such proprietary and confidential information may include, but
is not limited to, trade secrets; acquisition or merger information; advertising
and promotional programs; resource or developmental projects; plans or
strategies for future business development; financial or statistical data;
customer information, including, but not limited to, customer lists, sales
records, account records, sales and marketing programs, pricing matters, and
strategies and reports; and any Company manuals, forms, techniques, and other
business procedures or methods, devices, computer software or matters of any
kind relating to or with respect to any confidential program or projects of the
Company, or any other information of a similar nature made available to the
Executive and not known in the trade in which the Company is engaged, which, if
misused or disclosed, could adversely affect the business or standing of the
Company. Confidential Information shall not include information that is
generally known or generally available to the public through no fault of the
Executive.
(ii) The Executive agrees that except as required by law, he will not at any
time divulge to any person, agency, institution, company or other entity any
information which he knows or has reason to believe is proprietary or
confidential to the Company, including but not limited to the types of
information described in Section 6(b)(i), or use such information to the
competitive disadvantage of the Company. The Executive agrees that his duties
and obligations under this Section 6 will continue for 12 months from the
termination of his employment or as long as the Confidential Information remains
proprietary or confidential to the Company.
c. Non-Competition. During the period of the Executive's employment,
the Executive agrees that he will not, on behalf of anyone other than the
Company, engage in any managerial, executive, sales, or marketing activities
related to any business in which the Company is or becomes engaged during the
Executive's employment without the consent of the Board.
d. Non-Solicitation. The Executive agrees that for a twelve (12) month
period following the termination of his employment with the Company for any
reason (including the Executive's resignation), the Executive shall not,
directly or indirectly, hire or solicit any employee of the Company employed at
the time of his termination, or encourage any such employee to leave such
employment.
e. Scope of Covenants.
(i) Executive acknowledges that the Company intends to extend business
operations throughout the United States of America. Therefore, for a period of
twelve (12) months after termination of Executive's employment for any reason
(including Executive's resignation), Executive agrees that he shall not directly
or indirectly carry on or participate in the ownership of apartment communities
of the same class and quality of the communities owned by the Company that
directly competes with the Company anywhere within the United States of America.
(ii) Independent of the preceding provision, Executive agrees that he shall not,
for a period of twelve (12) months after termination of Executive's employment,
directly or indirectly carry on or participate in the ownership or management of
apartment communities of the same class and quality of the apartment communities
owned by the Company that directly competes with the Company within any county
or city in which the Company conducts business.
(iii) These covenants shall not apply in the event the Executive is terminated
without cause, as a result of a Change of Control, or by the Executive for Good
Reason, which, for the purposes of this subsection, shall mean any of the
reasons set forth in subsections 5(d)(i) to (iv).
f. Reasonableness of Covenants. The Executive agrees that the
Covenants are necessary for the reasonable and proper protection of the Company
and that the Covenants are reasonable in respect of subject matter, length of
time, and geographic scope. The Executive further acknowledges that the
Covenants will not unreasonably restrict him from earning a livelihood following
the termination of his employment with the Company.
g. Governing Law; Public Policy.
(i) The parties agree that it is not their intention to violate any public
policy or statutory or common law. The parties intend that the provisions of
this Agreement be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought. If
any provision of this Agreement is found by a court to be unenforceable, the
parties authorize the court to amend or modify the provision to make it
enforceable in the most restrictive fashion permitted by law.
(ii) The Executive and the Company are sophisticated parties and fully
understand (i) the ramifications of the non-competition, non-solicitation and
confidentiality restrictions of this Agreement and (ii) that the laws of each
state with respect to the enforceability of such provisions vary. The parties
are specifically selecting the internal laws of the Commonwealth of Virginia to
govern this Agreement in order that it be enforceable against all of them.
h. Separate Agreement Upon Termination. The provisions of this Section
6 so far as they relate to the period after the end of the term of this
Agreement shall continue to have effect and shall operate as a separate
agreement between the Company and the Executive.
7. Successors and Assigns.
a. The Executive acknowledges and agrees that this Agreement is a
contract for his personal services, he is not entitled to assign, subcontract,
or transfer any of the obligations imposed or benefits provided under this
Agreement.
b. This Agreement shall be binding on and will inure to the benefit of
any successors or assigns of the Company.
8. Definitions. The following terms shall have the following meanings:
a. A "Notice of Termination" shall mean a written notice which shall
indicate the specific termination provision in this Agreement relied upon and,
if appropriate, shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provisions so indicated.
b. "Code" shall mean the Internal Revenue Code of 1986, as amended.
<PAGE>
9. Miscellaneous.
a. Integration. This Agreement contains the complete agreement between
the Executive and the Company with respect to its subject matter. This Agreement
supersedes all previous and contemporaneous agreements, negotiations,
commitments, writings, and undertakings.
b. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the Commonwealth of Virginia, regardless of
choice of law rules. Any dispute arising between the parties related to or
involving this Agreement will be litigated in a court having jurisdiction in the
Commonwealth of Virginia.
c. Modifications. This Agreement may be modified or waived only by a
writing signed by both parties.
d. Waivers. Any waiver of a breach of this Agreement will not
constitute a waiver of any future breach, whether of a similar or dissimilar
nature.
e. Severability. The covenants in the various provisions of Section 6
are separate and independent contractual provisions. The invalidity or
unenforceability of any particular restrictive covenant or any other provision
of this Agreement shall not affect the other provisions hereof, and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provision were omitted.
WE AGREE TO THIS:
UNITED DOMINION REALTY TRUST, INC.,
a Virginia corporation
By: _______________________________
Its: ________________________________
EXECUTIVE
- - -----------------------------------
JOHN S. SCHNEIDER
EXHIBIT 10(iii)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), entered into this 8th day of
December, 1998, between UNITED DOMINION REALTY TRUST, INC., a Virginia
corporation (the "Company") and RICHARD A. GIANNOTTI (the "Executive"), recites
and provides as follows:
R E C I T A L S:
On September 24, 1997, the Company and the Executive entered into an
employment agreement (the "Employment Agreement"). The Company and the Executive
now wish to terminate the Employment Agreement and replace it with this
Agreement.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing, and the mutual promises
and undertakings hereinafter set forth, and the payments to be made to the
Executive hereunder, the parties hereto agree as follows:
1. Position and Duties.
a. The Company hereby agrees to and hereby does continue to employ the
Executive as an executive officer of the Company, subject to the supervision of
the Chief Executive Officer of the Company, or such other senior officer of the
Company as may be prescribed by the Chief Executive Officer or the Board of
Directors of the Company (the "Board"). Currently, the Executive reports to the
Chief Executive Officer and is responsible for Development for the Northern and
Southern Regions of the Company. The parties agree that the Employment Agreement
is hereby terminated and this Agreement is replaced in its stead.
The Executive agrees that the description of the executive position above
shall not limit the Company from assigning to the Executive such other duties
and functions in addition to or in substitution of those described above.
b. The Executive agrees to serve the Company as a full time executive
officer with duties and authority as set forth in the Company's by-laws or as
otherwise prescribed by the Board, the Chief Executive Officer, or such other
senior officer prescribed by the Chief Executive Officer or the Board. The
Executive shall devote such time, attention, skill, and efforts to the
performance of his duties as a Company executive as shall be required therefore,
all under the supervision and direction of the Board, the Chief Executive
Officer, or such other senior officer prescribed by the Board. The Executive
agrees that during the period of his employment he will not, without the
approval of a majority of the independent directors of the Board, have any other
(i) real estate investment trust or business affiliations, or (ii) corporate
affiliations that conflict with the business of the Company or interfere with
the ability of the Executive to perform his duties for the Company or comply
with the covenants under this Agreement.
2. Term of Agreement.
This Agreement will take effect as of the date of this Agreement and will
end on December 31, 1998. After December 31, 1998, this Agreement will
automatically renew for successive one (1) year periods, ending as of December
31 of each year, unless sooner terminated in accordance with Section 4.
3. Compensation and Benefits.
a. Base Salary. The Executive's pay will not be less than $175,000 per
year, payable in accordance with the Company's regular payroll practices, unless
the Executive consents to a lesser base salary in writing.
b. Annual Incentive Compensation. The Executive's annual compensation
shall also include an annual incentive where the Executive has an opportunity to
earn a bonus of at least forty five percent (45%) of base salary based upon the
Executive and the Company meeting certain performance goals and objectives as
determined by the Compensation Committee of the Board (the "Compensation
Committee"). The Executive acknowledges that the Board or the Compenstion
Committee, as appropriate, may elect to modify or terminate annual incentive
compensation for all executives at any time.
c. Long Term Incentive Compensation. The Executive's compensation shall
also include participation (i) in the Company's 1982 Stock Option Plan; (ii) in
the Company's 1991 Officers Stock Purchase and Loan Plan; and (iii) any
"shareholder value plan" or other long-term compensation plan for senior
officers of the Company adopted by the Compensation Committee or the Board, on
the same basis as similarly situated executive officers of the Company. The
Executive acknowledges that the Board, or the Compensation Committee, as
appropriate, may elect to terminate or modify any or all long-term incentive
compensation at any time.
d. Associate Benefit Plans. The Executive will be eligible to participate
in any and all employee benefit plans, medical insurance plans, retirement
plans, and other benefit plans in effect for employees in similar positions at
the Company (the "Company Plans") or any other plans applicable for other
officers or executive officers of the Company. Such participation shall be
subject to the terms of the applicable plan documents and the Company's
generally applied policies. In addition, the Executive acknowledges that the
Company may elect to terminate or modify any or all Company Plans at any time.
e. Travel. It is contemplated that the Executive will be required to incur
travel and entertainment expense in the interests and on behalf of the Company
and in furtherance of its business. The Executive agrees to comply with the
travel and entertainment guidelines of the Company, which may be modified from
time to time (the "T&E Guidelines"). The Company at the end of each month during
the period of this Agreement will, upon submission of appropriate bills or
vouchers, reimburse expenses incurred by the Executive during such month in
compliance with the T&E Guidelines. The Executive agrees to maintain adequate
records, in such detail as the Company may reasonably request, of all expenses
to be reimbursed by the Company hereunder and to make such records available for
inspection as and when reasonably requested by the Company.
4. Employment Termination Outside of Change of Control.
a. Incapacity; Death. This Agreement may be terminated by the Company, by
delivery of a "Notice of Termination" (defined in Section 8) to the Executive or
his personal representative given at least thirty (30) days prior to the
effective date specified therein, in the event that the Executive shall be
unable to perform his duties hereunder for a period of more than three
consecutive months as a result of illness or incapacity. This Agreement shall
terminate on the death of the Executive.
b. Without Cause. This Agreement may be terminated by the Company, without
cause, by delivery of a "Notice of Termination" (defined in Section 8) given to
the Executive ten (10) days prior to the effective date of such termination.
c. Severance Compensation. Upon termination of this Agreement pursuant to
Section 4 (a) or 4 (b), the Company shall pay to the Executive or his legal
representative certain compensation (the "Severance Compensation") as follows:
(i) Base Salary. The Executive shall be paid fifty-two (52) weeks of base
salary, and the Company shall continue in effect for a period of fifty-two (52)
weeks after the effective date of the Executive's termination, all
health/life/disability insurance coverage provided to the Executive and his
immediate family on the day immediately prior to the date of notice of
termination or, if the Executive shall so elect, the Company shall pay to the
Executive an amount equal to the portion of the premium allocable to the
Executive for providing such coverage, provided, however, if such coverage
cannot be continued by the Company, the Company shall pay to the Executive an
amount sufficient for the Executive to obtain substantially similar coverage for
a period of fifty-two (52) weeks after the effective date of termination.
(ii) Incentive Compensation. The Executive shall also be entitled to annual
incentive compensation (i) actually earned by the Executive, if any, pursuant to
Section 3(b) of this Agreement for the Company's current fiscal year prorated
through the effective date of termination, which compensation shall be paid no
later than forty-five (45) days after the end of the Company's fiscal year and
(ii) an amount equal to the sum of the annual incentive compensation earned by
the Executive over the two calendar years prior to the effective date of
termination, divided by two ("Average Annual Incentive Compensation").
Compensation pursuant to paragraph 3(c) (long term incentive compensation) shall
be governed by the terms of the subject plans.
(iii) Severance Compensation Reduction. In the event termination is pursuant to
Section 4 (a) of this Agreement, the portion of Severance Compensation to be
paid pursuant to Section 4(i) and (ii) shall be reduced by the amount of any
life insurance proceeds paid by or through the Company or disability insurance
payments for one (1) year, as appropriate, payable to the Executive or his
personal representative or other beneficiary.
(iv) Timing. The Company, at its option, shall pay to the Executive or his legal
representative the sums payable to such Executive or his legal representative on
account of the portion of Severance Compensation consisting of (y) base salary
either in a lump sum or in monthly increments payable on the first day of each
month over the succeeding twelve (12) month period; and (z) the Average Annual
Incentive Compensation within thirty (30) days after the effective date of
termination.
(v) Life Insurance. The Executive shall also be entitled to direct the Company
to change the beneficiary of any non-group life insurance policy to another
person or group.
d. By the Executive. This Agreement may be terminated by the Executive,
upon delivery of a "Notice of Termination" defined in Section 8) given at least
ninety (90) days before the effective date of termination or for "Good Reason,"
which, for the purposes of this subsection, shall mean for the reasons set forth
in subsections 5(d)(i) to (vi). In such event, the Executive shall not be
entitled to any compensation under this Agreement for any period not worked
after the termination date, other than compensation to which the Executive is
entitled pursuant to Section 5.
e. For Cause. The Company may terminate this Agreement for cause by
providing a "Notice of Termination" (as defined in Section 8). In such event,
the Executive shall not be entitled to any compensation under this Agreement for
the period after the termination date, and any compensation paid to the
Executive shall be net of any sums owed by the Executive to the Company as a
result of the act for which the employment of the Executive was terminated. The
circumstances under which the Company will be deemed to have cause to terminate
this Agreement include, but are not limited to, the following:
(i) The Executive is convicted of or pleads nolo contendere to any crime, other
than a traffic offense or misdemeanor;
(ii) The Executive shall commit, with respect to the Company, an act of fraud or
embezzlement or shall have been grossly negligent in the performance of his
duties hereunder;
(iii) The Executive engages in gross dereliction of duties, refusal to perform
assigned duties consistent with his position, or repeated violation of the
Company's policies after written warning; or,
(iv) The Executive engages in drug abuse.
f. Consulting Services. Upon termination of this Agreement, the Executive
shall, for a period of up to one year following the effective date of
termination, render such advisory or consulting services to the Company as it
may reasonably request, taking into account the Executive's health, business
commitments, geographical location and other relevant circumstances. The intent
of this paragraph is not to obligate the Executive to perform any day-to-day
duties for the Company following termination of his employment but only to
assist management in effecting a smooth transition of the functions or projects
for which the Executive was responsible while an employee of the Company. Should
the Executive fail to render such advisory or consulting services, after 30
days' prior written notice to the Executive and the Executive's failure to
commence the rendering of such service, the Company's sole remedy shall be to
terminate payment of any remaining severance compensation. If this Agreement is
terminated pursuant to Section 4(d)(except where the termination is for "Good
Reason") or 4(e) and no Severance Compensation is paid to the Executive, the
Executive shall be paid on an hourly basis to the extent requested by the
Company to perform advisory or consulting services, based upon his base salary
prior to termination for the actual time spent for advisory or consulting
services for the Company.
g. Return of Company Property. The parties acknowledge and agree that
records, files, reports, manuals, handbooks, computer diskettes, computer
software, customer files and information, documents, equipment and the like,
relating to the Company's business or which are developed for or by the Company,
or which Executive shall develop, create, use, prepare or come into possession
of during his employment with the Company, shall remain the sole property of the
Company and Executive covenants to promptly deliver to the Company any and all
such property and any copies thereof no later than the termination of
Executive's employment with the Company.
h. Covenants. The Executive shall not be entitled to any Severance
Compensation or benefits for any period he is in violation of the Covenants in
Section 6.
5. Change of Control.
a. Change of Control. For purposes of this Agreement, "Change of Control"
shall mean (i) the merger or consolidation of the Company with any other real
estate investment trust, corporation or other business entity, in which the
Company is not the survivor (without respect to the legal structure of the
transaction), (ii) the transfer or sale of all or substantially all of the
assets of the Company other than to an affiliate or subsidiary of the Company,
(iii) the liquidation of the Company, or (iv) the acquisition by any person or
by a group of persons acting in concert, of more than 50% of the outstanding
voting securities of the Company, which results in the resignation or addition
of fifty percent (50%) or more members of the Board or the resignation or
addition of fifty percent (50%) or more independent members of the Board.
b. Compensation Upon Termination. Following a Change in Control that
results in termination of the Executive's employment, the Executive shall be
entitled to the following benefits unless such termination is by the Executive
other than for "Good Reason" (as defined below):
(i) Compensation. The Company shall pay the Executive one hundred four (104)
weeks of base salary at the rate in effect at the time Notice of Termination is
given, and the equivalent of two years of annual incentive compensation based
upon the average annual incentive compensation earned by the Executive for the
two calendar years prior to the effective date of termination, plus all other
amounts to which the Executive is entitled under any compensation plan of the
Company.
(ii) Benefits. The Company shall provide the Executive with life, disability,
accident and health insurance coverage (including any dependent coverage)
substantially similar to the coverage the Executive is receiving immediately
prior to the Notice of Termination, for a twenty four (24) month period after
the Executive's termination. Benefits otherwise receivable by the Executive
pursuant to this subsection (ii) shall be reduced to the extent comparable
benefits are actually received by the Executive during the twenty-four (24)
month period following termination, and any such benefits actually received by
the Executive shall be reported to the Company.
(iii) Long-Term Incentive Compensation. All of the Executive's outstanding
options, stock appreciation rights and any other awards in the nature of rights
that may be exercised shall become fully vested and immediately exercisable; all
restrictions on any outstanding other awards held by the Executive (such as
awards of restricted stock) shall lapse; and the Executive's balance in any
deferred compensation plan or shareholder value plan shall become fully vested
and immediately payable; provided, however, that such acceleration will not
occur if, in the opinion of the Company's accountants, such acceleration would
preclude the use of "pooling of interest" accounting treatment for a Change of
Control transaction that (a) would otherwise qualify for such accounting
treatment, and (b) is contingent upon qualifying for such accounting treatment.
(iv) Timing. The Severance Payments shall be made no later than the thirtieth
(30th) business day following the effective date of termination. However, if the
amounts of the Severance Payments cannot be finally determined on or before such
day, the Company shall pay to the Executive on such day an estimate of the
minimum amount of such payments and shall pay the remainder of such payments as
soon as the amount thereof can be determined but in no event later than the
ninetieth (90th) day after the effective date of termination.
c. Limitation of Benefits.
(i) Notwithstanding anything in this Agreement to the contrary, in the event it
shall be determined that any benefit, payment or distribution by the Company to
or for the benefit of Executive (whether payable or distributable pursuant to
the terms of this Agreement or otherwise)(such benefits, payments or
distributions are hereinafter referred to as "Payments") would, if paid, be
subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the
Code, then the aggregate present value of the Payments shall be reduced (but not
below zero) to an amount expressed in present value that maximizes the aggregate
present value of the Payments without causing the Payments or any part thereof
to be subject to the Excise Tax and therefore nondeductible by the Company
because of Section 280G of the Code (the "Reduced Amount"). For purposes of this
Section, present value shall be determined in accordance with Section 280G(d)(4)
of the Code.
(ii) All determinations required to be made under this Section, including
whether an Excise Tax would otherwise be imposed, whether the Payments shall be
reduced, the amount of the Reduced Amount, and the assumptions to be utilized in
arriving at such determinations, shall be made by Ernst & Young, LLP or such
other certified public accounting firm acceptable to the Company, in its sole
discretion (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and Executive within fifteen (15) business days
of the receipt of notice from Executive that a Payment is due to be made, or
such earlier time as is requested by the Company. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any determination by the
Accounting Firm shall be binding upon the Company and Executive. As a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Payments hereunder will have been unnecessarily limited by this Section
("Underpayment"), consistent with the calculations required to be made
hereunder. The Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of Executive.
d. Good Reason. The Executive shall be entitled to terminate this
Agreement for Good Reason. For purposes of this Section 5, "Good Reason" shall
mean the occurrence, within two (2) years after a Change in Control, of any of
the following circumstances:
(i) the assignment to the Executive of any duties inconsistent with the
Executive's position and status as Director of Development for the Northern and
Southern Regions or a substantial adverse alteration in the nature or status of
the Executive's responsibilities from those in effect immediately prior to the
Change in Control;
(ii) a ten percent (10%) or greater reduction by the Company in the Executive's
annual base salary as in effect on the date hereof or as the same may be
increased from time to time except for across-the-board salary reductions
affecting senior executives of the Company and senior executives of any person
directly or indirectly in control of the Company;
(iii) the Executive's relocation by the Company to a location not within fifty
miles of the Executive's present office or job location;
(iv) the failure by the Company to pay to the Executive any portion of the
Executive's current compensation, or to pay to the Executive any portion of an
installment of deferred compensation under any deferred compensation program of
the Company, within thirty (30) days of the date such compensation is due;
(v) the failure by the Company to continue in effect any annual or long-term
monetary incentive opportunity to which the Executive was entitled, or any
compensation plan in which the Executive participates immediately prior to the
Change in Control which constitutes more than ten percent (10%) of the
Executive's total compensation; provided, however, that the Company may modify
the monetary incentive opportunities so as to provide the Executive with the
same or similar monetary incentive opportunities;
(vi) the failure of the Company to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement or a similar agreement
satisfactory to the Executive;
(vii) in the event the Executive terminates this Agreement for Good Reason
following a Change in Control as provided by this Section 5, the Executive shall
be entitled to the compensation provided by Section 5(b), reduced by the amount
of compensation received by the Executive following the Change in Control
through the effective date of termination.
e. Potential Change of Control. For purposes of this Agreement, a
"Potential Change in Control" shall be deemed to have occurred if (i) the
Company enters into an agreement, the consummation of which would result in the
occurrence of a Change in Control; (ii) any person (including the Company)
publicly announces an intention to take or to consider taking actions which if
consummated would constitute a Change in Control; (iii) any person, who is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company representing 9.5% or more of the combined voting power of the Company's
then outstanding securities increases his beneficial ownership of such
securities by 5% or more over the percentage so owned by such person on the date
hereof; or (iv) the Board adopts a resolution to the effect that, for the
purposes of this Agreement, a Potential Change in Control has occurred. In the
event of a Potential Change in Control the Executive will remain in the employ
of the Company until the earliest of (x) a date which is six (6) months from the
occurrence of such Potential Change in Control, or (y) the occurrence of a
Change in Control.
6. Confidentiality; Non-Competition and Non-Solicitation Covenants.
a. Basis for Covenants. The Executive acknowledges that i) he will be
employed as an executive officer in a managerial capacity; ii) his employment
with the Company gives him access to confidential and proprietary information
concerning the Company; iii) the agreements and covenants contained in this
Section 6 (the "Covenants") are essential to protect the business of the
Company; and iv) the Executive is to receive consideration pursuant to this
Agreement. Executive recognizes and acknowledges that the confidential
information described in Section 6(b) (the "Confidential Information") which he
will acquire in the course of his employment is utilized by the Company in all
geographic areas in which the Company does business. Further, the Confidential
Information will also be utilized in all geographic areas into which the Company
expands its business. Thus, Executive acknowledges that he will be a formidable
competitor in all areas where the Company conducts business. Executive also
acknowledges that the Covenants serve to protect the Company's investment in the
Confidential Information.
b. Confidentiality.
(i) The Executive acknowledges that he will be exposed to and learn a
substantial amount of information which is proprietary and confidential to the
Company, whether or not he develops or creates such information. The Executive
acknowledges that such proprietary and confidential information may include, but
is not limited to, trade secrets; acquisition or merger information; advertising
and promotional programs; resource or developmental projects; plans or
strategies for future business development; financial or statistical data;
customer information, including, but not limited to, customer lists, sales
records, account records, sales and marketing programs, pricing matters, and
strategies and reports; and any Company manuals, forms, techniques, and other
business procedures or methods, devices, computer software or matters of any
kind relating to or with respect to any confidential program or projects of the
Company, or any other information of a similar nature made available to the
Executive and not known in the trade in which the Company is engaged, which, if
misused or disclosed, could adversely affect the business or standing of the
Company. Confidential Information shall not include information that is
generally known or generally available to the public through no fault of the
Executive.
(ii) The Executive agrees that except as required by law, he will not at any
time divulge to any person, agency, institution, company or other entity any
information which he knows or has reason to believe is proprietary or
confidential to the Company, including but not limited to the types of
information described in Section 6(b)(i), or use such information to the
competitive disadvantage of the Company. The Executive agrees that his duties
and obligations under this Section 6 will continue for 12 months from the
termination of his employment or as long as the Confidential Information remains
proprietary or confidential to the Company.
c. Non-Competition. During the period of the Executive's employment, the
Executive agrees that he will not, on behalf of anyone other than the Company,
engage in any managerial, executive, sales, or marketing activities related to
any business in which the Company is or becomes engaged during the Executive's
employment without the consent of the Board.
d. Non-Solicitation. The Executive agrees that for a twelve (12) month
period following the termination of his employment with the Company for any
reason (including the Executive's resignation), the Executive shall not,
directly or indirectly, hire or solicit any employee of the Company employed at
the time of his termination, or encourage any such employee to leave such
employment.
e. Scope of Covenants.
(i) Executive acknowledges that the Company intends to extend business
operations throughout the United States of America. Therefore, for a period of
twelve (12) months after termination of Executive's employment for any reason
(including Executive's resignation), Executive agrees that he shall not directly
or indirectly carry on or participate in the ownership or management of
apartment communities of the same class and quality of the communities owned by
the Company that directly competes with the Company anywhere within the United
States of America.
(ii) Independent of the preceding provision, Executive agrees that he shall not,
for a period of twelve (12) months after termination of Executive's employment,
directly or indirectly carry on or participate in the ownership or management of
apartment communities of the same class and quality of the apartment communities
owned by the Company that directly competes with the Company within any county
or city in which the Company conducts business.
(iii) These covenants shall not apply in the event the Executive is terminated
(i) by the Company without cause or as a result of a Change of Control, or (ii)
by the Executive (y) for Good Reason, which, for the purposes of this
subsection, shall mean any of the reasons set forth in subsections 5(d)(i) to
(iv), or (z) for a period of one (1) year following any change in the officer to
whom the Executive directly reports.
f. Reasonableness of Covenants. The Executive agrees that the Covenants
are necessary for the reasonable and proper protection of the
Company and that the Covenants are reasonable in respect of subject
matter, length of time, and geographic scope. The Executive further
acknowledges that the Covenants will not unreasonably restrict him
from earning a livelihood following the termination of his
employment with the Company.
g. Governing Law; Public Policy.
(i) The parties agree that it is not their intention to violate any public
policy or statutory or common law. The parties intend that the provisions of
this Agreement be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought. If
any provision of this Agreement is found by a court to be unenforceable, the
parties authorize the court to amend or modify the provision to make it
enforceable in the most restrictive fashion permitted by law.
(ii) The Executive and the Company are sophisticated parties and fully
understand (i) the ramifications of the non-competition, non-solicitation and
confidentiality restrictions of this Agreement and (ii) that the laws of each
state with respect to the enforceability of such provisions vary. The parties
are specifically selecting the internal laws of the Commonwealth of Virginia to
govern this Agreement in order that it be enforceable against all of them.
h. Outside Business. The Company acknowledges that the Executive's family is
engaged in seniors housing and land banking (the `Family Business') and that the
Executive is engaged in the Family Business. Sections 6(c) and 6(e) shall not
apply to the Executive's participation in the Family Business. The Company also
acknowledges that the Executive is involved in the "land bank" business
described in the attached memo dated January 8, 1999, (the "Land Bank
Business"). In the event the Company elects to participate in the Land Bank
Business or similar business in the future, Executives participation in the Land
Bank Business shall not be a violation of the covenants in Section 6(c) or 6(e).
i. Separate Agreement Upon Termination. The provisions of this Section 6
so far as they relate to the period after the end of the term of this Agreement
shall continue to have effect and shall operate as a separate agreement between
the Company and the Executive.
7. Successors and Assigns.
a. The Executive acknowledges and agrees that this Agreement is a contract
for his personal services, he is not entitled to assign, subcontract, or
transfer any of the obligations imposed or benefits provided under this
Agreement.
b. This Agreement shall be binding on and will inure to the benefit of any
successors or assigns of the Company.
8. Definitions. The following terms shall have the following meanings:
a. A "Notice of Termination" shall mean a written notice which shall
indicate the specific termination provision in this Agreement relied upon and,
if appropriate, shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provisions so indicated.
b. "Code" shall mean the Internal Revenue Code of 1986, as amended.
9. Miscellaneous.
a. Integration. This Agreement contains the complete agreement between the
Executive and the Company with respect to its subject matter. This Agreement
supersedes all previous and contemporaneous agreements, negotiations,
commitments, writings, and undertakings.
b. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Virginia, regardless of choice
of law rules. Any dispute arising between the parties related to or involving
this Agreement will be litigated in a court having jurisdiction in the
Commonwealth of Virginia.
c. Modifications. This Agreement may be modified or waived only by a
writing signed by both parties.
d. Waivers. Any waiver of a breach of this Agreement will not
constitute a waiver of any future breach, whether of a similar or dissimilar
nature.
e. Severability. The covenants in the various provisions of Section 6 are
separate and independent contractual provisions. The invalidity or
unenforceability of any particular restrictive covenant or any other provision
of this Agreement shall not affect the other provisions hereof, and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provision were omitted.
<PAGE>
WE AGREE TO THIS:
UNITED DOMINION REALTY TRUST, INC.,
a Virginia corporation
By: _______________________________
Its: ________________________________
EXECUTIVE
- - -----------------------------------
RICHARD A. GIANNOTTI
EXHIBIT 10 (vi)
THIRD AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
UNITED DOMINION REALTY, L.P.
Dated as of December 7, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINED TERMS
<TABLE>
<CAPTION>
<S> <C>
1.01. Defined Terms........................................................................................................2
ARTICLE II
PARTNERSHIP CONTINUATION AND IDENTIFICATION
2.01. Defined Terms........................................................................................................9
2.02. Name, Office and Registered Agent....................................................................................9
2.03. Partners.............................................................................................................9
2.04. Term and Dissolution.................................................................................................9
2.05. Filing of Certificate and Perfection of Limited Partnership.........................................................10
2.06. Certificates Describing Partnership Units...........................................................................10
ARTICLE III
BUSINESS OF THE PARTNERSHIP
3.01. Business of the Partnership.........................................................................................11
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS
4.01. Capital Contributions...............................................................................................11
4.02. Additional Capital Contributions and Issuances of Additional
Partnership Interests........................................................................................11
4.03. Loans to the Partnership............................................................................................13
4.04. Capital Accounts....................................................................................................13
4.05. Percentage Interests................................................................................................13
4.06. No Interest on Contributions........................................................................................14
4.07. Return of Capital Contributions.....................................................................................14
4.08. No Third Party Beneficiary..........................................................................................14
<PAGE>
ARTICLE V
PROFITS AND LOSSES; DISTRIBUTIONS
5.01. Allocation of Profit and Loss.......................................................................................15
5.02. Distribution of Cash................................................................................................17
5.03. REIT Distribution Requirements......................................................................................18
5.04. No Right to Distributions in Kind...................................................................................19
5.05. Limitations on Return of Capital Contributions......................................................................19
5.06. Distributions Upon Liquidation......................................................................................19
5.07. Substantial Economic Effect.........................................................................................19
ARTICLE VI
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER
6.01. Management of the Partnership.......................................................................................20
6.02. Delegation of Authority.............................................................................................23
6.03. Indemnification and Exculpation of Indemnitees......................................................................23
6.04. Liability of the General Partner....................................................................................24
6.05. Partnership Expenses................................................................................................25
6.06. Outside Activities..................................................................................................25
6.07. Employment or Retention of Affiliates...............................................................................26
6.08. Title to Partnership Assets.........................................................................................26
ARTICLE VII
CHANGES IN GENERAL PARTNER AND THE COMPANY
7.01. Transfer of a General Partner's Partnership Interest; Transactions Involving the Company............................26
7.02. Admission of a Substitute or Additional General Partner.............................................................28
7.03. Effect of Bankruptcy, Withdrawal, Death or Dissolution of a General Partner........................................29
7.04. Removal of a General Partner........................................................................................30
ARTICLE VIII
RIGHTS AND OBLIGATIONS
OF THE LIMITED PARTNERS
8.01. Management of the Partnership.......................................................................................31
8.02. Power of Attorney...................................................................................................31
8.03. Limitation on Liability of Limited Partners.........................................................................31
8.04. Ownership by Limited Partner of Corporate General Partner or Affiliate..............................................31
8.05. Redemption Right....................................................................................................32
8.06. NYSE Listing and Securities Act Registration of REIT Shares.........................................................35
<PAGE>
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
9.01. Purchase for Investment.............................................................................................35
9.02. Restrictions on Transfer of Limited Partnership Interests...........................................................35
9.03. Admission of Substitute Limited Partner.............................................................................36
9.04. Rights of Assignees of Partnership Interests........................................................................38
9.05. Effect of Bankruptcy, Death, Incompetence or Termination of a Limited Partner.......................................38
9.06. Joint Ownership of Interests........................................................................................38
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS
10.01. Books and Records..................................................................................................39
10.02. Custody of Partnership Funds; Bank Accounts........................................................................39
10.03. Fiscal and Taxable Year............................................................................................40
10.04. Annual Tax Information and Report..................................................................................40
10.05. Tax Matters Partner; Tax Elections; Special Basis Adjustments......................................................40
10.06. Reports to Limited Partners........................................................................................40
ARTICLE XI
AMENDMENT OF AGREEMENT; MERGER; NOTICE
11.01. Amendment of Agreement; Merger.....................................................................................41
11.02. Notice to Limited Partners.........................................................................................42
ARTICLE XII
GENERAL PROVISIONS
12.01. Notices............................................................................................................42
12.02. Survival of Rights.................................................................................................42
12.03. Additional Documents...............................................................................................42
12.04. Severability.......................................................................................................42
12.05. Entire Agreement...................................................................................................42
12.06. Rules of Construction..............................................................................................42
12.07. Headings...........................................................................................................43
12.08. Counterparts.......................................................................................................43
12.09. Governing Law......................................................................................................43
</TABLE>
<PAGE>
EXHIBITS
EXHIBIT A - Partners, Capital Contributions and Percentage Interests
EXHIBIT B - Notice of Exercise of Redemption Right
<PAGE>
THIRD AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
UNITED DOMINION REALTY, L.P.
Dated as of December 7, 1998
RECITALS
United Dominion Realty, L.P. (the "Partnership") was formed as a
limited partnership under the laws of the Commonwealth of Virginia by a
Certificate of Limited Partnership filed with the Clerk of the State Corporation
Commission of Virginia on October 23, 1995 and commenced operations on November
4, 1995. The Second Amended and Restated Agreement of Limited Partnership of the
Partnership was entered into as of August 30, 1997 (the "Second Restatement").
This Third Amended and Restated Agreement of Limited Partnership is entered into
this 7th day of December, 1998 by and among United Dominion Realty Trust, Inc.
(the "Company") as the general partner (in such capacity, the "General Partner")
and the Limited Partners set forth on Exhibit A hereto, for the purpose of
amending and restating the Second Restatement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, of mutual
covenants between the parties hereto, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree to amend the Second Restatement to read in its entirety as
follows:
<PAGE>
ARTICLE I
DEFINED TERMS
1.01.00 Defined Terms.
The following defined terms used in this Agreement shall have the
meanings specified below:
"Act" means the Virginia Revised Uniform Limited Partnership Act, as
it may be amended from time to time.
"Additional Funds" is defined in Section 4.03.
"Additional Limited Partner" means a Person admitted to this
Partnership as a Limited Partner pursuant to Section 4.02.
"Affiliate" means, (i) any Person that, directly or indirectly,
controls or is controlled by or is under common control with such Person, (ii)
any other Person that owns, beneficially, directly or indirectly, 10% or more of
the outstanding capital stock, shares or equity interests of such Person, or
(iii) any officer, director, employee, partner or trustee of such Person or any
Person controlling, controlled by or under common control with such Person
(excluding trustees and persons serving in similar capacities who are not
otherwise an Affiliate of such Person). For the purposes of this definition,
"control" (including the correlative meanings of the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities or partnership interests or otherwise.
"Agreed Value" means the fair market value of a Partner's non-cash
Capital Contribution as of the date of contribution as agreed to by the such
Partner and the General Partner. The name and address of each Partner, number of
Partnership Units issued to such Partner, and the Agreed Value of such Partner's
non-cash Capital Contributions as of the date of contribution thereof is set
forth on Exhibit A.
"Agreement" means this Third Amended and Restated Agreement of
Limited Partnership, as amended from time to time.
"Available Cash" means, for any period, the excess, if any, of (i)
the cash receipts of the Partnership (other than from the sale, exchange or
other disposition of the assets of the Partnership), including amounts withdrawn
from reserves, over (ii) the disbursements of cash by the Partnership (other
than distributions to Partners and amounts paid with the receipts from the sale,
exchange or other disposition of the assets of the Partnership), including
amounts deposited in reserves. Available Cash for any period shall be determined
by the General Partner in its reasonable discretion.
<PAGE>
"Capital Account" is defined in Section 4.04.
"Capital Contribution" means the total amount of capital contributed
to the Partnership by each Partner. Any reference to the Capital Contribution of
a Partner shall include the Capital Contribution made by a predecessor holder of
the Partnership Interest of such Partner. The paid-in Capital Contribution shall
mean the cash amount or the Agreed Value of other assets actually contributed by
each Partner to the capital of the Partnership.
"Capital Transaction" means the refinancing, sale, exchange,
condemnation, recovery of a damage award or insurance proceeds (other than
business or rental interruption insurance proceeds not reinvested in the repair
or reconstruction of Properties), or other disposition of any Property (or the
Partnership's interest therein).
"Cash Amount" means an amount of cash per Partnership Unit equal to
the Value of the REIT Shares Amount on the date of receipt by the General
Partner of a Notice of Redemption.
"Certificate" means any instrument or document that is required
under the laws of the Commonwealth of Virginia, or any other jurisdiction in
which the Partnership conducts business, to be signed and sworn to by the
Partners of the Partnership (either by themselves or pursuant to the
power-of-attorney granted to the General Partner in Section 8.02) and filed for
recording in the appropriate public offices within the Commonwealth of Virginia
or such other jurisdiction to perfect or maintain the Partnership as a limited
partnership, to effect the admission, withdrawal, or substitution of any Partner
of the Partnership, or to protect the limited liability of the Limited Partners
as limited partners under the laws of the Commonwealth of Virginia or such other
jurisdiction.
"Charter" means the Articles of Incorporation of the Company, as
amended from time to time.
"Code" means the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular provision of
the Code shall mean that provision in the Code at the date hereof and any
successor provision of the Code.
"Commission" means the Securities and Exchange Commission.
"Company" means United Dominion Realty Trust, Inc., a Virginia
corporation.
"Conversion Factor" means 1.0, as adjusted pursuant to Section
8.05(f).
"Dividend Equivalent" as to any Partner means the amount of
distributions such Partner would have received for the quarter (or other
distribution period) from REIT Shares if such Partner owned the number of REIT
Shares equal to the product to such Partner's Partnership Units and the
Conversion Factor for the Partnership Record Date pertaining to such quarter (or
other distribution period).
<PAGE>
"Event of Bankruptcy" as to any Person means the filing of a
petition for relief as to such Person as debtor or bankrupt under the Bankruptcy
Code of 1978 or similar provision of law of any jurisdiction (except if such
petition is contested by such Person and has been dismissed within 90 days);
insolvency or bankruptcy of such Person as finally determined by a court
proceeding; filing by such Person of a petition or application to accomplish the
same or for the appointment of a receiver or a trustee for such Person or a
substantial part of his assets; commencement of any proceedings relating to such
Person as a debtor under any other reorganization, arrangement, insolvency,
adjustment of debt or liquidation law of any jurisdiction, whether now in
existence or hereinafter in effect, either by such Person or by another,
provided that if such proceeding is commenced by another, such Person indicates
his approval of such proceeding, consents thereto or acquiesces therein, or such
proceeding is contested by such Person and has not been finally dismissed within
90 days.
"General Partner" means the Company and any Person who becomes a
substitute or additional General Partner as provided herein, and any of their
successors as General Partner. At any time at which the Partnership has two or
more General Partners, all such General Partners shall designate one of such
General Partners as managing General Partner and may from time to time designate
a successor managing General Partner and, unless the context otherwise requires,
references to the General Partner shall mean the General Partner at the time so
designated as managing General Partner.
"General Partnership Interest" means a Partnership Interest held by
the General Partner that is a general partnership interest.
"Indemnitee" means (i) any Person made a party to a proceeding by
reason of such Person's status as the General Partner or a director, officer or
employee of the Partnership or the General Partner, and (ii) such other Persons
(including Affiliates of the General Partner or the Partnership) as the General
Partner may designate from time to time, in its sole and absolute discretion.
"Investment Agreement" means the contribution, investment,
subscription or other agreement or agreements pursuant to which a Limited
Partner contributes property or cash to the Partnership in exchange for a
Partnership Interest.
"Limited Partner" means any Person named as a Limited Partner on
Exhibit A attached hereto, and any Person who becomes a Substitute or Additional
Limited Partner, in such Person's capacity as a Limited Partner in the
Partnership.
"Limited Partnership Interest" means the ownership interest of a
Limited Partner in the Partnership at any particular time, including the right
of such Limited Partner to any and all benefits to which such Limited Partner
may be entitled as provided in this Agreement and in the Act, together with the
obligations of such Limited Partner to comply with all the provisions of this
Agreement and of such Act.
<PAGE>
"Loss" is defined in Section 5.01(f).
"Minimum Limited Partnership Interest" means the lesser of (i) 1% or
(ii) if the total Capital Contributions to the Partnership exceeds $50 million,
1% divided by the ratio of the total Capital Contributions to the Partnership to
$50 million; provided, however, that the Minimum Limited Partnership Interest
shall not be less than 0.2% at any time.
"Notice of Redemption" means the Notice of Exercise of Redemption
Right substantially in the form attached as Exhibit B hereto.
"NYSE" means the New York Stock Exchange and includes any other
national securities exchange on which the REIT Shares are listed at the
determination date.
"Offer" is defined in Section 7.01(c).
"Original Limited Partner" means UDRT of North Carolina, L.L.C., a
North Carolina limited liability company.
"Outside Partner" means any Partner other than a UDR Partner.
"Partner" means any General Partner or Limited Partner.
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(i). A Partner's share of Partner Nonrecourse Debt
Minimum Gain shall be determined in accordance with Regulations Section
1.704-2(i)(5).
"Partnership Interest" means an ownership interest in the
Partnership held by either a Limited Partner or the General Partner and includes
any and all benefits to which the holder of such a Partnership Interest may be
entitled as provided in this Agreement, together with all obligations of such
Person to comply with the terms and provisions of this Agreement.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(d). In accordance with Regulations Section 1.704-2(d), the
amount of Partnership Minimum Gain is determined by first computing, for each
Partnership nonrecourse liability, any gain the Partnership would realize if it
disposed of the property subject to that liability for no consideration other
than full satisfaction of the liability, and then aggregating the separately
computed gains. A Partner's share of Partnership Minimum Gain shall be
determined in accordance with Regulations Section 1.704-2(g)(1).
"Partnership Record Date" means the record date established by the
General Partner for the distribution of cash pursuant to Section 5.02, which
record date shall be the same as the record date established by the General
Partner for a distribution to the holders of the REIT Shares.
<PAGE>
"Partnership Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued hereunder. The allocation of
Partnership Units among the Partners shall be as set forth on Exhibit A, as may
be amended from time to time.
"Percentage Interest" means at any time the percentage ownership
interest in the Partnership of each Partner, as determined by dividing the
Partnership Units owned by such Partner by the total number of Partnership Units
outstanding at such time. The Percentage Interest of each Partner shall be as
set forth on Exhibit A, as may be amended from time to time.
"Percentage Interest Adjustment Date" means the effective date of an
adjustment of the Partners' Percentage Interests pursuant to Section 4.05.
"Person" means any individual, partnership, corporation, joint
venture, trust or other entity.
"Profit" is defined in Section 5.01(f).
"Property" means any apartment property or other investment in which
the Partnership holds an ownership interest.
"Redeeming Partner" is defined in Section 8.05(a).
"Redemption Amount" means either the Cash Amount or the REIT Shares
Amount, as selected by the General Partner in its sole and absolute discretion
pursuant to Section 8.05(b).
"Redemption Right" is defined in Section 8.05(a).
"Regulations" means the Federal Income Tax Regulations issued under
the Code, as amended and as hereafter amended from time to time. Reference to
any particular provision of the Regulations shall mean that provision of the
Regulations on the date hereof and any successor provision of the Regulations.
"REIT" means a real estate investment trust under Sections 856
through 860 of the Code.
"REIT Expenses" means (i) costs and expenses relating to the
continuity of existence of the Company and its Subsidiaries (all such entities
shall, for purposes of this section, be included within the definition of
Company), including, without limitation, taxes, fees and assessments associated
therewith and any costs, expenses or fees payable to any director, officer or
employee of the Company (including, without limitation, any costs of
indemnification), (ii) costs and expenses relating to any offer or registration
of REIT Shares or other securities by the Company and all statements, reports,
fees and expenses incidental thereto, including, without limitation,
underwriting discounts and selling commissions applicable to any such offer of
<PAGE>
securities and any costs and expenses associated with any claims made by any
holders of such securities or any underwriters or placement agents thereof,
(iii) costs and expenses incurred in connection with the repurchase of any
securities by the Company, (iv) costs and expenses associated with the
preparation and filing of any periodic or other reports and communications by
the Company under federal, state or local laws or regulations, including filings
with the Commission, (v) costs and expenses associated with compliance by the
Company with laws, rules and regulations promulgated by any regulatory body,
including the Commission and any securities exchange, (vi) costs and expenses
associated with any 401(k) plan, incentive plan, bonus plan or other plan
providing for compensation for the employees of the Company, (vii) costs and
expenses incurred by the Company relating to any issuance or redemption of
Partnership Interests, and (viii) all other operating or administrative costs
incurred by the Company in connection with the ordinary course of the Company's
or the Partnership's business (including the business of any Subsidiary
thereof).
"REIT Share" means a share of common stock of the Company, $1 par
value per share, or a share of the common stock of any Successor Entity.
"REIT Shares Amount" shall mean a whole number of REIT Shares equal
to the product of the number of Partnership Units offered for redemption by a
Redeeming Partner, multiplied by the Conversion Factor as adjusted to and
including the Specified Redemption Date plus cash in lieu of any fractional REIT
Shares based on the Value of a REIT Share as of the date of receipt by the
General Partner of a Notice of Redemption; provided that in the event the
Company issues to all holders of REIT Shares rights, options, warrants or
convertible or exchangeable securities entitling the shareholders to subscribe
for or purchase REIT Shares, or any other securities or property (collectively,
the "rights"), and the rights have not expired at the Specified Redemption Date,
then the REIT Shares Amount shall also include the rights issuable to a holder
of the REIT Shares Amount of REIT Shares on the record date fixed for purposes
of determining the holders of REIT Shares entitled to rights.
"Securities Act" means the Securities Act of 1933, as amended.
"Service" means the Internal Revenue Service.
"Specified Redemption Date" means (i) with respect to Partnership
Units to be redeemed for a Cash Amount, the first Business Day of the month that
is at least 20 business days after the receipt by the General Partner of the
Notice of Redemption, as the same may be extended pursuant to Section 8.05(d)
and (ii) with respect to Partnership Units to be redeemed for a REIT Shares
Amount, the fifth Business Day following the date of the General Partner's
notice of its election to purchase such Partnership Units pursuant to Section
8.05(b).
<PAGE>
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which a majority of (i) the voting power of the voting equity
securities (including general partners' interests) or (ii) the outstanding
equity interests is owned, directly or indirectly, by such Person.
"Subsidiary Partnership" means any partnership of which the majority
of the limited or general partnership interests therein are owned, directly or
indirectly, by the Partnership.
"Substitute Limited Partner" means any Person admitted to the
Partnership as a Limited Partner pursuant to Section 9.03.
"Transaction" is defined in Section 7.01(c).
"Transfer" is defined in Section 9.02(a).
"UDR Partner" means the Company and any Partner that is an Affiliate
of the Company.
"Value" means, with respect to any security, the average of the
daily market price of such security for the twenty (20) consecutive trading days
immediately preceding the date of such valuation. The market price for each such
trading day shall be: (i) if such security is listed or admitted to trading on
any securities exchange or The Nasdaq National Market, the closing price,
regular way, on such day or, if no sale takes place on such day, the average of
the closing bid and asked prices on such day, (ii) if such security is not
listed or admitted to trading on any securities exchange or The Nasdaq National
Market, the last reported sale price on such day or, if no sale takes place on
such day, the average of the closing bid and asked prices on such day, as
reported by a recognized quotation source designated by the Company, or (iii) if
such security is not listed or admitted to trading on any securities exchange or
The Nasdaq National Market and no such last reported sale price or closing bid
and asked prices are available, the average of the reported high bid and low
asked prices on such day, as reported by a recognized quotation source
designated by the General Partner, or if there shall be no bid and asked prices
on such day, the average of the high bid and low asked prices, as so reported,
on the most recent day (not more than twenty (20) days prior to the date in
question) for which prices have been so reported; provided, that if there are no
bid and asked prices reported during the twenty (20) days prior to the date in
question, the value of such security shall be determined by the General Partner
acting in good faith on the basis of such quotations and other information as it
considers, in its reasonable judgment, appropriate. In the event that any
security includes any additional rights the value of which is not included
within such price, then the value of such rights shall be determined by the
General Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate, and
included in determining the "Value" of such security.
<PAGE>
ARTICLE II
PARTNERSHIP CONTINUATION AND IDENTIFICATION
2.01.00 Defined Terms. The Partners hereby agree to continue the
Partnership pursuant to the Act and upon the terms and conditions set forth in
this Agreement.
2.02.00 Name, Office and Registered Agent. The name of the
Partnership shall be United Dominion Realty, L.P. The specified office and place
of business of the Partnership shall be 10 South 6th Street, Richmond, Virginia
23219-3802. The General Partner may at any time change the location of such
office, provided the General Partner gives notice to the Partners of any such
change. The name and address of the Partnership's registered agent is Katheryn
E. Surface, United Dominion Realty Trust, Inc., 10 South Sixth Street, Richmond
Virginia 23219-3802. The sole duty of the registered agent as such is to forward
to the Partnership any notice that is served on her as registered agent.
2.03.00 Partners.
(a) The General Partner of the Partnership is the Company. Its
principal place of business shall be the same as that of the Partnership.
(b) The Limited Partners shall be those Persons identified as
Limited Partners on Exhibit A hereto, as amended from time to time.
2.04.00 Term and Dissolution.
(a) The term of the Partnership shall continue in full force and
effect until December 31, 2051, except that the General Partner, in its sole and
absolute discretion, may extend the term of the Partnership and the Partnership
shall be dissolved upon the first to occur of any of the following events:
(i) The occurrence of an Event of Bankruptcy
as to a General Partner or the dissolution, death or
withdrawal of a General Partner unless the Partnership
is continued pursuant to Section 2.04(c); provided, that
if a General Partner is on the date of such occurrence a
partnership, the dissolution of such General Partner as
a result of the dissolution, death, withdrawal, removal
or Event of Bankruptcy of a partner in such partnership
shall not be an event of dissolution of the Partnership
if the business of such General Partner is continued by
the remaining partner or partners, either alone or with
additional partners, and such General Partner and such
partners comply with any other applicable requirements
of this Agreement;
<PAGE>
(ii) The passage of 90 days after the sale
or other disposition of all or substantially all of the
assets of the Partnership (provided that if the
Partnership receives one or more obligations as
consideration for such sale or other disposition, the
Partnership shall continue, unless sooner dissolved
under the provisions of this Agreement, until such time
as all of such obligations are paid or satisfied in
full);
(iii) The redemption of all Limited
Partnership Interests (other than any of such interests
held by the Company or any Subsidiary thereof); or
(iv) The election by the General Partner
that the Partnership should be dissolved.
(b) Upon dissolution of the Partnership (unless the
Partnership is continued pursuant to Section 2.04(c)), the General Partner (or
its trustee, receiver, successor or legal representative) shall amend or cancel
the Certificate and liquidate the Partnership's assets and apply and distribute
the proceeds thereof in accordance with Section 5.06. Notwithstanding the
foregoing, the liquidating General Partner may either (i) defer liquidation of,
or withhold from distribution for a reasonable time, any assets of the
Partnership (including those necessary to satisfy the Partnership's debts and
obligations), or (ii) distribute the assets to the Partners in kind.
(c) Notwithstanding Section 2.04(a)(i), upon the
occurrence of an Event of Bankruptcy as to a General Partner or the dissolution,
death or withdrawal of a General Partner, the Limited Partners, within 90 days
after such occurrence, may elect to continue the Partnership for the balance of
the term specified in Section 2.04(a) by selecting, subject to Section 7.02 and
any other provisions of this Agreement, a substitute General Partner by consent
of a majority in interest of the Limited Partners. If the Limited Partners elect
to continue the Partnership and admit a substitute General Partner, the
relationship with the Partners and of any Person who has acquired an interest of
a Partner in the Partnership shall be governed by this Agreement.
2.05.00 Filing of Certificate and Perfection of Limited Partnership.
The General Partner shall execute, acknowledge, record and file at the expense
of the Partnership, the Certificate and any and all amendments thereto and all
requisite fictitious name statements and notices in such places and
jurisdictions as may be necessary to cause the Partnership to be treated as a
limited partnership under, and otherwise to comply with, the laws of each state
or other jurisdiction in which the Partnership conducts business.
2.06.00 Certificates Describing Partnership Units. At the request of
a Limited Partner, the General Partner, at its option, may issue a certificate
summarizing the terms of such Limited Partner's interest in the Partnership,
including the number of Partnership Units owned and the Percentage Interest
represented by such Partnership Units as of the date of such certificate. Any
such certificate (i) shall be in form and substance as approved by the General
Partner, (ii) shall not be negotiable and (iii) shall bear the following legend:
<PAGE>
This certificate is not negotiable. The Partnership
Units represented by this certificate are governed by
and transferable only in accordance with the provisions
of the Agreement of Limited Partnership of United
Dominion Realty, L.P., as amended from time to time.
ARTICLE III
BUSINESS OF THE PARTNERSHIP
3.01.00 Business of the Partnership. The purpose and nature of the
business to be conducted by the Partnership is (i) to conduct any business that
may be lawfully conducted by a limited partnership organized pursuant to the
Act, provided, however, that such business shall be limited to and conducted in
such a manner as to permit the Company at all times to qualify as a REIT, unless
the Company otherwise ceases to qualify as a REIT, (ii) to enter into any
partnership, joint venture or other similar arrangement to engage in any of the
foregoing or the ownership of interests in any entity engaged in any of the
foregoing and (iii) to do anything necessary or incidental to the foregoing. In
connection with the foregoing, and without limiting the Company's right in its
sole and absolute discretion to cease qualifying as a REIT, the Partners
acknowledge that the Company's current status as a REIT and the avoidance of
income and excise taxes on the Company inures to the benefit of all the Partners
and not solely to the Company. Notwithstanding the foregoing, the Limited
Partners acknowledge that the Company may terminate its status as a REIT under
the Code at any time to the full extent permitted by the Charter. Subject to
Article XI hereof, the General Partner shall also be empowered (but shall not be
required) to do any and all acts and things necessary or prudent to ensure that
the Partnership will not be classified as a "publicly traded partnership" for
purposes of Section 7704 of the Code.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS
4.01.00 Capital Contributions. The General Partner and the Limited
Partners have contributed to the capital of the Partnership cash or property in
an amount or having an Agreed Value set forth opposite their names on Exhibit A,
as amended from time to time.
4.02.00 Additional Capital Contributions and Issuances of Additional
Partnership Interests. Except as provided in this Section 4.02 or in Section
4.03, the Partners shall have no right or obligation to make any additional
Capital Contributions or loans to the Partnership. The Partners, with the
consent of the General Partner, which consent may be withheld in its sole and
absolute discretion, may contribute additional capital to the Partnership, from
time to time, and receive additional Partnership Interests in respect thereof,
in the manner contemplated in this Section 4.02.
<PAGE>
(a) Issuances of Additional Partnership Interests. The
General Partner is hereby authorized to cause the Partnership to issue such
additional Partnership Interests in the form of Partnership Units for any
Partnership purpose at any time or from time to time, to the Partners (including
the General Partner) or to other Persons for such consideration and on such
terms and conditions as shall be established by the General Partner in its sole
and absolute discretion, all without the approval of any Limited Partners. Any
additional Partnership Interests issued thereby may be issued in one or more
classes, or one or more series of any of such classes, with such designations,
preferences and relative, participating, optional or other special rights,
powers and duties, including rights, powers and duties senior to Limited
Partnership Interests, all as shall be determined by the General Partner in its
sole and absolute discretion and without the approval of any Limited Partner,
subject to Virginia law, including, without limitation, (i) the allocations of
items of Partnership income, gain, loss, deduction and credit to each such class
or series of Partnership Interests; (ii) the right of each such class or series
of Partnership Interests to share in Partnership distributions; and (iii) the
rights of each such class or series of Partnership Interests upon dissolution
and liquidation of the Partnership. Without limiting the foregoing, the General
Partner is expressly authorized to cause the Partnership to issue Partnership
Units for less than fair market value, so long as the General Partner concludes
in good faith that such issuance is in the best interests of the Company and the
Partnership. Upon each issuance of Partnership Units hereunder, the General
Partner shall amend Exhibit A attached hereto to reflect such issuance.
(b) Certain Deemed Contributions of Proceeds of Issuance
of Company Securities. If (i) the Company issues securities and contributes some
or all the proceeds raised in connection with such issuance to the Partnership
and (ii) the proceeds actually received and contributed by the Company to the
Partnership are less than the Partnership's share (as determined by the General
Partner, in its sole and absolute discretion) of the gross proceeds of such
issuance as a result of any underwriter's discount or other expenses paid or
incurred in connection with such issuance, then the Company shall be deemed to
have made Capital Contributions to the Partnership in the aggregate amount of
the Partnership's share of the gross proceeds of such issuance that are
contributed to the Partnership and the Partnership shall be deemed
simultaneously to have paid such offering expenses in connection with the
issuance of additional Partnership Units to the Company for such Capital
Contributions pursuant to Section 4.02(a). In any case in which the Company
contributes less than all of the proceeds of such issuance to the Partnership,
it shall be deemed to have contributed the gross proceeds of issuance of the
number of units of the issued security (or the number of dollars of principal in
the case of debt securities) equal to the quotient of the division of the amount
of proceeds contributed by the net proceeds per unit (or per dollar), and the
Partnership shall be deemed to have paid offering expenses equal to the product
of such number of units (or dollars) times the per unit (or per dollar) offering
expenses.
<PAGE>
(c) Minimum Limited Partnership Interest. In the event
that either a redemption pursuant to Section 8.05 or additional Capital
Contributions by the General Partner and the Original Limited Partner would
result in the Limited Partners (other than the Original Limited Partner), in the
aggregate, owning less than the Minimum Limited Partnership Interest, the
General Partner and the Limited Partners (other than the Original Limited
Partner) shall form another partnership and contribute sufficient Limited
Partnership Interests together with such other Limited Partners so that the
Limited Partners (other than the Original Limited Partner), in the aggregate,
own at least the Minimum Limited Partnership Interest.
4.03.00 Loans to the Partnership. If the General Partner determines
that it is in the best interests of the Company and the Partnership to provide
for additional Partnership funds ("Additional Funds") for any Partnership
purpose, the General Partner may (i) cause the Partnership to obtain such funds
from outside borrowings or (ii) elect to have the Company or a Subsidiary or
Subsidiaries of the Company loan such Additional Funds to the Partnership. The
loans to the Partnership shall be in exchange for such consideration and on such
terms and conditions as shall be established by the General Partner in its sole
and absolute discretion, all without the approval of any Limited Partners.
Without limiting the foregoing, the General Partner is expressly authorized to
cause the Partnership to issue debt securities for less than fair market value,
so long as the General Partner concludes in good faith that such issuance is in
the best interests of the Company and the Partnership.
4.04.00 Capital Accounts. A separate capital account (a "Capital
Account") shall be established and maintained for each Partner in accordance
with Regulations Section 1.704-1(b)(2)(iv). If (i) a new or existing Partner
acquires an additional Partnership Interest in exchange for more than a de
minimis Capital Contribution, (ii) the Partnership distributes to a Partner more
than a de minimis amount of Partnership property as consideration for a
Partnership Interest, or (iii) the Partnership is liquidated within the meaning
of Regulation Section 1.704-1(b)(2)(ii)(g), the General Partner shall revalue
the property of the Partnership to its fair market value (as determined by the
General Partner, in its sole and absolute discretion, and taking into account
Section 7701(g) of the Code) in accordance with Regulations Section
1.704-1(b)(2)(iv)(f). When the Partnership's property is revalued by the General
Partner, the Capital Accounts of the Partners shall be adjusted in accordance
with Regulations Sections 1.704-1(b)(2)(iv)(f) and (g), which generally require
such Capital Accounts to be adjusted to reflect the manner in which the
unrealized gain or loss inherent in such property (that has not been reflected
in the Capital Accounts previously) would be allocated among the Partners
pursuant to Section 5.01 if there were a taxable disposition of such property
for its fair market value (as determined by the General Partner, in its sole and
absolute discretion, and taking into account Section 7701(g) of the Code) on the
date of the revaluation.
4.05.00 Percentage Interests. If the number of outstanding
Partnership Units increases or decreases during a taxable year, each Partner's
Percentage Interest shall be adjusted by the General Partner effective as of the
effective date of each such increase or decrease to a percentage equal to the
number of Partnership Units held by such Partner divided by the aggregate number
of Partnership Units outstanding after giving effect to such increase or
decrease. If the Partners' Percentage Interests are adjusted pursuant to this
Section 4.05, the Profits and Losses for the taxable year in which the
<PAGE>
adjustment occurs shall be allocated between the several parts of the year (a)
beginning on the first day of the year and ending on the next following
Percentage Interest Adjustment Date, (b) beginning on the day following a
Percentage Interest Adjustment Date and ending on the next following Percentage
Interest Adjustment Date, and/or (c) beginning on the first day following the
last Percentage Interest Adjustment Date occurring during the year and ending on
the last day of the year, as may be appropriate, either (i) as if the taxable
year had ended on the last day of each part or (ii) based on the number of days
in each part. The General Partner, in its sole and absolute discretion, shall
determine which method shall be used to allocate Profits and Losses for the
taxable year in which the adjustment occurs. The allocation among the Partners
of Profits and Losses allocated to any part of the year shall be based on the
Percentage Interests determined as of the first day of such part.
4.06.00 No Interest on Contributions. No Partner shall be entitled
to interest on its Capital Contribution.
4.07.00 Return of Capital Contributions. No Partner shall be
entitled to withdraw any part of its Capital Contribution or its Capital Account
or to receive any distribution from the Partnership, except as specifically
provided in this Agreement. Except as otherwise provided herein, there shall be
no obligation to return to any Partner or withdrawn Partner any part of such
Partner's Capital Contribution for so long as the Partnership continues in
existence.
4.08.00 No Third Party Beneficiary. No creditor or other third party
having dealings with the Partnership shall have the right to enforce the right
or obligation of any Partner to make Capital Contributions or loans or to pursue
any other right or remedy hereunder or at law or in equity, it being understood
and agreed that the provisions of this Agreement shall be solely for the benefit
of, and may be enforced solely by, the parties hereto and their respective
successors and assigns. None of the rights or obligations of the Partners herein
set forth to make Capital Contributions or loans to the Partnership shall be
deemed an asset of the Partnership for any purpose by any creditor or other
third party, nor may such rights or obligations be sold, transferred or assigned
by the Partnership or pledged or encumbered by the Partnership to secure any
debt or other obligation of the Partnership or of any of the Partners. In
addition, it is the intent of the parties hereto that no distribution to any
Limited Partner shall be deemed a return of money or other property in violation
of the Act. However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, any Limited Partner is
obligated to return such money or property, such obligation shall be the
obligation of such Limited Partner and not of the General Partner. Without
limiting the generality of the foregoing, a deficit Capital Account of a Partner
shall not be deemed to be a liability of such Partner nor an asset or property
of the Partnership.
<PAGE>
ARTICLE V
PROFITS AND LOSSES; DISTRIBUTIONS
5.01.00 Allocation of Profit and Loss. (a) General.
(i) Profit of the Partnership for each
fiscal year of the Partnership shall be allocated in the
following order of priority:
(A) First, to the Partners in
proportion to and up to the amount of cash
distributed to each such Partner pursuant to
Section 5.02 for the fiscal year; and
(B) Thereafter, to the Partners
in accordance with their respective
Percentage Interests.
(ii) Loss of the Partnership for each fiscal
year of the Partnership shall be allocated to the
Partners in accordance with their respective Percentage
Interests.
(iii) Depreciation and amortization expenses
of the Partnership shall be allocated among the Partners
in accordance with their respective Percentage
Interests.
(b) Minimum Gain Chargeback. Notwithstanding any
provision to the contrary, (i) any expense of the Partnership that is a
"nonrecourse deduction" within the meaning of Regulations Section 1.704-2(b)(1)
shall be allocated in accordance with the Partners' respective Percentage
Interests, (ii) any expense of the Partnership that is a "partner nonrecourse
deduction" within the meaning of Regulations Section 1.704-2(i)(2) shall be
allocated in accordance with Regulations Section 1.704-2(i)(1), (iii) if there
is a net decrease in Partnership Minimum Gain within the meaning of Regulations
Section 1.704-2(f)(1) for any Partnership taxable year, items of gain and income
shall be allocated among the Partners in accordance with Regulations Section
1.704-2(f) and the ordering rules contained in Regulations Section 1.704-2(j),
and (iv) if there is a net decrease in Partner Nonrecourse Debt Minimum Gain
within the meaning of Regulations Section 1.704-2(i)(4) for any Partnership
taxable year, items of gain and income shall be allocated among the Partners in
accordance with Regulations Section 1.704-2(i)(4) and the ordering rules
contained in Regulations Section 1.704-2(j). A Partner's "interest in
partnership profits" for purposes of determining its share of the nonrecourse
liabilities of the Partnership within the meaning of Regulations Section
1.752-3(a)(3) shall be such Partner's Percentage Interest.
<PAGE>
(c) Qualified Income Offset. If a Limited Partner
receives in any taxable year an adjustment, allocation, or distribution
described in subparagraphs (4), (5), or (6) of Regulations Section
1.704-1(b)(2)(ii)(d) that causes or increases a negative balance in such
Partner's Capital Account that exceeds the sum of such Partner's shares of
Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain, as
determined in accordance with Regulations Sections 1.704-2(g) and 1.704-2(i),
such Partner shall be allocated specially for such taxable year (and, if
necessary, later taxable years) items of income and gain in an amount and manner
sufficient to eliminate such negative Capital Account balance as quickly as
possible as provided in Regulations Section 1.704-1(b)(2)(ii)(d). After the
occurrence of an allocation of income or gain to a Limited Partner in accordance
with this Section 5.01(c), to the extent permitted by Regulations Section
1.704-1(b) and Section 5.01(d), items of expense or loss shall be allocated to
such Partner in an amount necessary to offset the income or gain previously
allocated to such Partner under this Section 5.01(c).
(d) Capital Account Deficits. Loss shall not be
allocated to a Limited Partner to the extent that such allocation would cause a
deficit in such Partner's Capital Account (after reduction to reflect the items
described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed
the sum of such Partner's shares of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain. Any Loss in excess of that limitation shall be
allocated to the General Partner. After the occurrence of an allocation of Loss
to the General Partner in accordance with this Section 5.01(d), to the extent
permitted by Regulations Section 1.704-1(b), Profit shall be allocated to such
Partner in an amount necessary to offset the Loss previously allocated to such
Partner under this Section 5.01(d).
(e) Allocations Between Transferor and Transferee. If a
Partner transfers any part or all of its Partnership Interest, the distributive
shares of the various items of Profit and Loss allocable among the Partners
during such fiscal year of the Partnership shall be allocated between the
transferor and the transferee Partner either (i) as if the Partnership's fiscal
year had ended on the date of the transfer, or (ii) based on the number of days
of such fiscal year that each was a Partner without regard to the results of
Partnership activities in the respective portions of such fiscal year in which
the transferor and the transferee were Partners. The General Partner, in its
sole and absolute discretion, shall determine which method shall be used to
allocate the distributive shares of the various items of Profit and Loss between
the transferor and the transferee Partner.
(f) Definition of Profit and Loss. "Profit" and "Loss"
and any items of income, gain, expense, or loss referred to in this Agreement
shall be determined in accordance with federal income tax accounting principles,
as modified by Regulations Section 1.704-1(b)(2)(iv), except that Profit and
Loss shall not include items of income, gain and expense that are specially
allocated pursuant to Section 5.01(a)(iii), 5.01(b), 5.01(c), or 5.01(d). All
allocations of income, Profit, gain, Loss, and expense (and all items contained
therein) for federal income tax purposes shall be identical to all allocations
of such items set forth in this Section 5.01, except as otherwise required by
Section 704(c) of the Code and Regulations Section 1.704-1(b)(4). The General
Partner shall have the authority to elect the method to be used by the
Partnership for allocating items of income, gain, and expense as required by
Section 704(c) of the Code (including a method that may result in a Partner
receiving a disproportionately larger share of the Partnership's tax
depreciation deductions) and such election shall be binding on all Partners.
<PAGE>
5.02.00 Distribution of Cash.
(a) The General Partner shall be required make
distributions of Available Cash pursuant to Sections 5.02(a)(i), 5.02(a)(ii) and
5.02(a)(iii) on a quarterly (or, at the election of the General Partner, more
frequent) basis to the Partners who are Partners on the Partnership Record Date
with respect to such quarter (or other distribution period). The amount and
frequency of the distributions of Available Cash pursuant to Section 5.02(a)(iv)
shall be determined by the General Partner in its sole discretion. Available
Cash shall be distributed to the Partners in the following order of priority:
(i) First, to the Outside Partners, in
proportion to their respective Percentage Interests on
the Partnership Record Date, until each Outside Partner
has received an amount equal to its Dividend Equivalent
for such quarter (or other distribution period);
(ii) Second, to the UDR Partners, in
proportion to their respective Percentage Interests on
the Partnership Record Date, until each UDR Partner has
received an amount equal to the excess, if any, of (A)
the amount that such UDR Partner would have received
pursuant to Sections 5.02(a)(iii) and 5.02(a)(iv) in the
absence of Section 5.02(a)(i) and this Section
5.02(a)(ii) from the date of this Agreement to the end
of the period to which the distribution relates
(assuming that distributions under Section 5.02(a)(iv),
like the distributions under Sections 5.02(a)(i) through
5.02(a)(iii), were required to be made on a quarterly or
more frequent basis), over (B) the sum of all prior
distributions to such UDR Partner pursuant to this
Section 5.02(a)(ii), Section 5.02(a)(iii) and Section
5.02(a)(iv);
(iii) Third, to the Partners, in accordance
with their respective Percentage Interests on the
Partnership Record Date, until each Outside Partner has
received an amount equal to the excess, if any, of (A)
the amount equal to its Dividend Equivalent from the
date of this Agreement to the end of the period to which
the distribution relates, over (B) the sum of all prior
distributions to such Outside Partner pursuant to
Section 5.02(a)(i) and this Section 5.02(a)(iii); and
(iv) Thereafter, to the Partners in
accordance with their respective Percentage Interests on
the Partnership Record Date.
The amount and frequency of distributions of any cash other than Available Cash
shall be determined by the General Partner in its sole discretion and, if
distributed, such cash shall be distributed to the Partners in accordance with
this Section 5.02(a). If a new or existing Partner acquires an additional
Partnership Interest in exchange for a Capital Contribution on any date other
<PAGE>
than a Partnership Record Date, the cash distribution attributable to such
additional Partnership Interest for the Partnership Record Date following the
issuance of such additional Partnership Interest shall be reduced in the
proportion that the number of days that such additional Partnership Interest is
held by such Partner bears to the number of days between such Partnership Record
Date and the immediately preceding Partnership Record Date.
(b) Notwithstanding any other provision of this
Agreement, the General Partner is authorized to take any action that it
determines to be necessary or appropriate to cause the Partnership to comply
with any withholding requirements established under the Code or any other
federal, state or local law including, without limitation, pursuant to Sections
1441, 1442, 1445, and 1446 of the Code. If the Partnership is required to
withhold and pay over to any taxing authority any amount resulting from the
allocation or distribution of income to a Partner or its assignee (including by
reason of Section 1446 of the Code) and if the amount to be distributed to the
Partner (the "Distributable Amount") equals or exceeds the amount required to be
withheld by the Partnership (the "Withheld Amount"), the Withheld Amount shall
be treated as a distribution of cash to such Partner. If, however, the
Distributable Amount is less than the Withheld Amount, no amount shall be
distributed to the Partner, the Distributable Amount shall be treated as a
distribution of cash to such Partner, and the excess of the Withheld Amount over
the Distributable Amount shall be treated as a loan (a "Partnership Loan") from
the Partnership to the Partner on the day the Partnership pays over such excess
to a taxing authority. A Partnership Loan may be repaid, at the election of the
General Partner in its sole and absolute discretion, either (i) through
withholding by the Partnership with respect to subsequent distributions to the
applicable Partner or assignee, or (ii) at any time more than twelve (12) months
after a Partnership Loan arises, by cancellation of Partnership Units with a
value equal to the unpaid balance of the Partnership Loan (including accrued
interest). Any amounts treated as a Partnership Loan pursuant to this Section
5.02(b) shall bear interest at the lesser of (i) the base rate on corporate
loans at large United States money center commercial banks, as published from
time to time in The Wall Street Journal (or an equivalent successor
publication), or (ii) the maximum lawful rate of interest on such obligation,
such interest to accrue from the date the Partnership is deemed to extend the
loan until such loan is repaid in full.
(c) In no event may a Partner receive a distribution of
cash with respect to a Partnership Unit if such Partner is entitled to receive a
cash dividend as the holder of record of a REIT Share for which all or part of
such Partnership Unit has been or will be exchanged.
5.03.00 REIT Distribution Requirements. Notwithstanding anything to
the contrary in this Agreement, the General Partner, if it is not able to borrow
money from the Partnership, may cause the Partnership to distribute amounts
sufficient to enable the Company to pay shareholder dividends that will allow
the Company to (i) meet its distribution requirement for qualification as a REIT
as set forth in Section 857(a)(1) of the Code and (ii) avoid any federal income
or excise tax liability imposed by the Code.
<PAGE>
5.04.00 No Right to Distributions in Kind. No Partner shall be
entitled to demand property other than cash in connection with any distributions
by the Partnership.
5.05.00 Limitations on Return of Capital Contributions.
Notwithstanding any of the provisions of this Article V, no Partner shall have
the right to receive and the General Partner shall not have the right to make, a
distribution that includes a return of all or part of a Partner's Capital
Contributions, unless after giving effect to the return of a Capital
Contribution, the sum of all Partnership liabilities, other than the liabilities
to a Partner for the return of his Capital Contribution, does not exceed the
fair market value of the Partnership's assets.
5.06.00 Distributions Upon Liquidation.
(a) Upon liquidation of the Partnership, after payment
of, or adequate provision for, debts and obligations of the Partnership,
including any Partner loans, any remaining assets of the Partnership shall be
distributed to all Partners with positive Capital Accounts in accordance with
their respective positive Capital Account balances. For purposes of the
preceding sentence, the Capital Account of each Partner shall be determined
after all adjustments made in accordance with Sections 5.01 and 5.02 resulting
from Partnership operations and from all sales and dispositions of all or any
part of the Partnership's assets. Any distributions pursuant to this Section
5.06 shall be made by the end of the Partnership's taxable year in which the
liquidation occurs (or, if later, within 90 days after the date of the
liquidation). To the extent deemed advisable by the General Partner, appropriate
arrangements (including the use of a liquidating trust) may be made to assure
that adequate funds are available to pay any contingent debts or obligations.
(b) If the General Partner has a negative balance in its
Capital Account following a liquidation of the Partnership, as determined after
taking into account all Capital Account adjustments in accordance with Sections
5.01 and 5.02 resulting from Partnership operations and from all sales and
dispositions of all or any part of the Partnership's assets, the General Partner
shall contribute to the Partnership an amount of cash equal to the negative
balance in its Capital Account and such cash shall be paid or distributed by the
Partnership to creditors, if any, and then to the Limited Partners in accordance
with Section 5.06(a). Such contribution by the General Partner shall be made by
the end of the Partnership's taxable year in which the liquidation occurs (or,
if later, within 90 days after the date of the liquidation).
5.07.00 Substantial Economic Effect. It is the intent of the
Partners that the allocations of Profit and Loss under the Agreement have
substantial economic effect (or be consistent with the Partners' interests in
the Partnership in the case of the allocation of losses attributable to
nonrecourse debt) within the meaning of Section 704(b) of the Code as
interpreted by the Regulations promulgated pursuant thereto. Article V and other
relevant provisions of this Agreement shall be interpreted in a manner
consistent with such intent.
<PAGE>
ARTICLE VI
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER
6.01.00 Management of the Partnership.
(a) Except as otherwise expressly provided in this
Agreement, the General Partner shall have full, complete and exclusive
discretion to manage and control the business of the Partnership for the
purposes herein stated, and shall make all decisions affecting the business and
assets of the Partnership. Subject to the restrictions specifically contained in
this Agreement, the powers of the General Partner shall include, without
limitation, the authority to take the following actions on behalf of the
Partnership:
(i) to acquire, purchase, own, operate,
lease and dispose of any real property and any other
property or assets, including, without limitation,
equity interests in other REITs, mortgage loans and
participations therein, that the General Partner
determines are necessary or appropriate or in the best
interests of the business of the Company and the
Partnership;
(ii) to construct buildings and make other
improvements on the properties owned or leased by the
Partnership;
(iii) to authorize, issue, sell, redeem or
otherwise purchase any Partnership Interests or any
securities (including secured and unsecured debt
obligations of the Partnership, debt obligations of the
Partnership convertible into any class or series of
Partnership Interests, or options, rights, warrants or
appreciation rights relating to any Partnership
Interests) of the Partnership;
(iv) to borrow or lend money for the
Partnership, issue or receive evidences of indebtedness
in connection therewith, refinance, increase the amount
of, modify, amend or change the terms of, or extend the
time for the payment of, any such indebtedness, and
secure such indebtedness by mortgage, deed of trust,
pledge or other lien on the Partnership's assets;
(v) to guarantee or become a comaker of
indebtedness of the Company or any Subsidiary thereof,
refinance, increase the amount of, modify, amend or
change the terms of, or extend the time for the payment
of, any such guarantee or indebtedness, and secure such
guarantee or indebtedness by mortgage, deed of trust,
pledge or other lien on the Partnership's assets;
(vi) to use assets of the Partnership
(including, without limitation, cash on hand) for any
purpose consistent with this Agreement, including,
without limitation, payment, either directly or by
reimbursement, of all operating costs and general
administrative expenses of the Company, the Partnership,
or any Subsidiary of either to third parties or to the
Company as set forth in this Agreement;
<PAGE>
(vii) to lease all or any portion of any of
the Partnership's assets, whether or not the terms of
such leases extend beyond the termination date of the
Partnership and whether or not any portion of the
Partnership's assets so leased are to be occupied by the
lessee, or, in turn, subleased in whole or in part to
others, for such consideration and on such terms as the
General Partner may determine;
(viii) to prosecute, defend, arbitrate, or
compromise any and all claims or liabilities in favor of
or against the Partnership, on such terms and in such
manner as the General Partner may reasonably determine,
and similarly to prosecute, settle or defend litigation
with respect to the Partners, the Partnership, or the
Partnership's assets; provided, however, that the
General Partner may not, without the consent of the
Limited Partners (other than the Original Limited
Partner) holding more than 50% of the Percentage
Interests of the Limited Partners (other than the
Original Limited Partner), confess a judgment against
the Partnership;
(ix) to file applications, communicate, and
otherwise deal with any and all governmental agencies
having jurisdiction over, or in any way affecting, the
Partnership's assets or any other aspect of the
Partnership business;
(x) to make or revoke any election permitted
or required of the Partnership by any taxing authority;
(xi) to maintain such insurance coverage for
public liability, fire and casualty, and any and all
other insurance for the protection of the Partnership,
for the conservation of Partnership assets, or for any
other purpose convenient or beneficial to the
Partnership, in such amounts and such types, as it shall
determine from time to time;
(xii) to determine whether or not to apply
any insurance proceeds for any property to the
restoration of such property or to distribute the same;
(xiii) to establish one or more divisions of
the Partnership, to hire and dismiss employees of the
Partnership or any division of the Partnership, and to
engage legal counsel, accountants, consultants, real
estate brokers, and other professionals, as the General
Partner may deem necessary or appropriate in connection
with the Partnership business, on such terms (including
provisions for compensation and eligibility to
participate in employee benefit plans, stock option
plans and similar plans funded by the Partnership) as
the General Partner may deem reasonable and proper;
<PAGE>
(xiv) to retain other services of any kind
or nature in connection with the Partnership business,
and to pay therefor such remuneration as the General
Partner may deem reasonable and proper;
(xv) to negotiate and conclude agreements on
behalf of the Partnership with respect to any of the
rights, powers and authority conferred upon the General
Partner;
(xvi) to maintain accurate accounting
records and to file promptly all federal, state and
local income tax returns on behalf of the Partnership;
(xvii) to distribute Partnership cash or
other Partnership assets in accordance with this
Agreement;
(xviii) to form or acquire an interest in,
and contribute property to, any further limited or
general partnerships, joint ventures or other
relationships that it deems desirable (including,
without limitation, the acquisition of interests in, and
the contributions of property to, its Subsidiaries and
any other Person in which it has an equity interest from
time to time);
(xix) to establish Partnership reserves for
working capital, capital expenditures, contingent
liabilities, or any other valid Partnership purpose;
(xx) subject to Article XI, to merge,
consolidate or combine the Partnership with or into
another Person;
(xxi) subject to Article XI, to do any and
all acts and things necessary or prudent to ensure that
the Partnership will not be classified as a "publicly
traded partnership" for purposes of Section 7704 of the
Code; and
(xxii) to take such other action, execute,
acknowledge, swear to or deliver such other documents
and instruments, and perform any and all other acts that
the General Partner deems necessary or appropriate for
the formation, continuation and conduct of the business
and affairs of the Partnership (including, without
limitation, all actions consistent with allowing the
General Partner at all times to qualify as a REIT unless
the General Partner voluntarily terminates its REIT
status) and to possess and enjoy all of the rights and
powers of a general partner as provided by the Act.
<PAGE>
(b) Except as otherwise provided herein, to the extent
the duties of the General Partner require expenditures of funds to be paid to
third parties, the General Partner shall not have any obligations hereunder
except to the extent that Partnership funds are reasonably available to it for
the performance of such duties, and nothing herein contained shall be deemed to
authorize or require the General Partner, in its capacity as such, to expend its
individual funds for payment to third parties or to undertake any individual
liability or obligation on behalf of the Partnership.
6.02.00 Delegation of Authority. The General Partner may delegate
any or all of its powers, rights and obligations hereunder, and may appoint,
employ, contract or otherwise deal with any Person for the transaction of the
business of the Partnership, which Person may, under supervision of the General
Partner, perform any acts or services for the Partnership as the General Partner
may approve.
6.03.00 Indemnification and Exculpation of Indemnitees.
(a) The Partnership shall indemnify an Indemnitee from
and against any and all losses, claims, damages, liabilities, joint or several,
expenses (including reasonable legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the Partnership as set forth in this Agreement
in which any Indemnitee may be involved, or is threatened to be involved, as a
party or otherwise, unless it is established that: (i) the act or omission of
the Indemnitee was material to the matter giving rise to the proceeding and
either was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal benefit
in money, property or services; or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 6.03(a). The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
an entry of an order of probation prior to judgment, creates a rebuttable
presumption that the Indemnitee acted in a manner contrary to that specified in
this Section 6.03(a). Any indemnification pursuant to this Section 6.03 shall be
made only out of the assets of the Partnership.
(b) The Partnership may reimburse an Indemnitee for
reasonable expenses incurred by an Indemnitee who is a party to a proceeding in
advance of the final disposition of the proceeding upon receipt by the
Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee's
good faith belief that the standard of conduct necessary for indemnification by
the Partnership as authorized in this Section 6.03 has been met, and (ii) a
written undertaking by or on behalf of the Indemnitee to repay the amount if it
shall ultimately be determined that the standard of conduct has not been met.
(c) The indemnification provided by this Section 6.03
shall be in addition to any other rights to which an Indemnitee or any other
Person may be entitled under any agreement, pursuant to any vote of the
Partners, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity.
<PAGE>
(d) The Partnership may purchase and maintain insurance,
on behalf of the Indemnitees and such other Persons as the General Partner shall
determine, against any liability that may be asserted against or expenses that
may be incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
(e) For purposes of this Section 6.03, the Partnership
shall be deemed to have requested an Indemnitee to serve as fiduciary of an
employee benefit plan whenever the performance by it of its duties to the
Partnership also imposes duties on, or otherwise involves services by, it to the
plan or participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute fines within the meaning of this Section 6.03; and actions
taken or omitted by an Indemnitee with respect to an employee benefit plan in
the performance of its duties for a purpose reasonably believed by it to be in
the interest of the participants and beneficiaries of the plan shall be deemed
to be for a purpose which is not opposed to the best interests of the
Partnership.
(f) In no event may an Indemnitee subject the Limited
Partners to personal liability by reason of the indemnification provisions set
forth in this Agreement.
(g) An Indemnitee shall not be denied indemnification in
whole or in part under this Section 6.03 because the Indemnitee had an interest
in the transaction with respect to which the indemnification applies if the
transaction was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.03 are for the
benefit of the Indemnitees, their heirs, successors, assigns and administrators
and shall not be deemed to create any rights for the benefit of any other
Persons.
6.04.00 Liability of the General Partner.
(a) Notwithstanding anything to the contrary set forth
in this Agreement, the General Partner shall not be liable for monetary damages
to the Partnership or any Partners for losses sustained or liabilities incurred
as a result of errors in judgment or of any act or omission if the General
Partner acted in good faith. The General Partner shall not be in breach of any
duty that the General Partner may owe to the Limited Partners or the Partnership
or any other Persons under this Agreement or of any duty stated or implied by
law or equity provided the General Partner, acting in good faith, abides by the
terms of this Agreement.
<PAGE>
(b) The Limited Partners expressly acknowledge that the
General Partner is acting on behalf of the Partnership, the Company and the
Company's shareholders collectively, that the General Partner is under no
obligation to consider the separate interests of the Limited Partners
(including, without limitation, the tax consequences to Limited Partners or the
tax consequences of some, but not all, of the Limited Partners) in deciding
whether to cause the Partnership to take (or decline to take) any actions. In
any case in which the General Partner determines in good faith that the
interests of the Limited Partners and the General Partner's shareholders may
conflict, the Limited Partners further acknowledge and agree that the General
Partner shall be deemed to have discharged its fiduciary duties to the Limited
Partners by discharging such duties to the General Partner's shareholders. The
General Partner shall not be liable for monetary damages for losses sustained,
liabilities incurred, or benefits not derived by Limited Partners in connection
with any such decisions, provided that the General Partner has acted in good
faith.
(c) Subject to its obligations and duties as General
Partner set forth in Section 6.01, the General Partner may exercise any of the
powers granted to it under this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its agents. The General
Partner shall not be responsible for any misconduct or negligence on the part of
any such agent appointed by it in good faith.
(d) Notwithstanding any other provisions of this
Agreement or the Act, any action of the General Partner on behalf of the
Partnership or any decision of the General Partner to refrain from acting on
behalf of the Partnership, undertaken in the good faith belief that such action
or omission is necessary or advisable in order (i) to protect the ability of the
Company to continue to qualify as a REIT or (ii) to prevent the Company from
incurring any taxes under Section 857, Section 4981, or any other provision of
the Code, is expressly authorized under this Agreement and is deemed approved by
all of the Limited Partners.
(e) Any amendment, modification or repeal of this
Section 6.04 or any provision hereof shall be prospective only and shall not in
any way affect the limitations on the General Partner's liability to the
Partnership and the Limited Partners under this Section 6.04 as in effect
immediately prior to such amendment, modification or repeal with respect to
matters occurring, in whole or in part, prior to such amendment, modification or
repeal, regardless of when claims relating to such matters may arise or be
asserted.
6.05.00 Partnership Expenses. In addition to the expenses that are
directly attributable to the Partnership, the Partnership shall pay the REIT
Expenses that are allocable to the Partnership. The General Partner, in its sole
and absolute discretion, shall determine what portion of the REIT Expenses are
allocable to the Partnership. If any REIT Expenses determined by the General
Partner to be allocable to the Partnership are paid by the General Partner, the
General Partner shall be reimbursed by the Partnership therefor.
6.06.00 Outside Activities. The Partners and any officer, director,
employee, agent, trustee, Affiliate, Subsidiary, or shareholder of any Partner
shall be entitled to and may have business interests and engage in business
<PAGE>
activities in addition to those relating to the Partnership, including business
interests and activities substantially similar or identical to those of the
Partnership. Neither the Partnership nor any of the Partners nor any other
Person shall have any rights by virtue of this Agreement or the partnership
relationship established hereby in any such business ventures, interests or
activities, and the Partners shall have no obligation pursuant to this Agreement
to offer any interest in any such business ventures, interests and activities to
the Partnership or any Partner, even if such opportunity is of a character
which, if presented to the Partnership or any Partner, could be taken by such
Person.
6.07.00 Employment or Retention of Affiliates.
(a) Any Affiliate of the General Partner may be employed
or retained by the Partnership and may otherwise deal with the Partnership
(whether as a buyer, lessor, lessee, manager, furnisher of goods or services,
broker, agent, lender or otherwise) and may receive from the Partnership any
compensation, price, or other payment therefor which the General Partner
determines to be fair and reasonable.
(b) The Partnership may lend or contribute to its
Subsidiaries or other Persons in which it has an equity investment, and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Subsidiary or any other Person.
(c) The Partnership may transfer assets to joint
ventures, other partnerships, corporations or other business entities in which
it is or thereby becomes a participant upon such terms and subject to such
conditions as the General Partner deems are consistent with this Agreement and
applicable law.
6.08.00 Title to Partnership Assets. Title to Partnership assets,
whether real, personal or mixed and whether tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, individually
or collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
ARTICLE VII
CHANGES IN GENERAL PARTNER AND THE COMPANY
7.01.00 Transfer of a General Partner's Partnership Interest;
Transactions Involving the Company.
<PAGE>
(a) Except as provided in Section 7.01(c), 7.01(d) or
7.03(a), a General Partner shall not transfer all or any portion of its General
Partnership Interest or withdraw as General Partner.
(b) Except as provided in Section 7.01(c) or 7.01(d),
the General Partner (or all General Partners if at any time there are two or
more General Partners) and the Original Limited Partner will at all times own in
the aggregate at least a 1% Percentage Interest.
(c) Except as otherwise provided in Section 7.01(d), the
Company shall not merge, consolidate or otherwise combine with or into another
Person or sell all or substantially all of its assets (other than in connection
with a change in the Company's state of incorporation or organizational form) (a
"Transaction"), unless one of the following conditions is met:
(i) the consent of Limited Partners (other
than the Company or any Subsidiary of the Company)
holding more than 50% of the Percentage Interests of the
Limited Partners (other than those held by the Company
or any Subsidiary of the Company) is obtained;
(ii) the Transaction also includes a merger,
consolidation or combination of the Partnership or sale
of substantially all of the assets of the Partnership or
other transaction as a result of which all Limited
Partners (other than the Company or any Subsidiary) will
receive for each Partnership Unit an amount of cash,
securities, or other property (or a partnership interest
or other security readily convertible into such cash,
securities, or other property) no less than the product
of the Conversion Factor and the greatest amount of
cash, securities or other property (expressed as an
amount per REIT Share) paid in the Transaction in
consideration for REIT Shares, provided, that if, in
connection with the Transaction, a purchase, tender or
exchange offer ("Offer") shall have been made to and
accepted by the holders of more than 50 percent of the
outstanding REIT Shares, all Limited Partners (other
than the Company or any Subsidiary) will receive no less
than the amount of cash and the fair market value of
securities or other consideration that they would have
received had they (A) exercised their Redemption Right
and (B) sold, tendered or exchanged pursuant to the
Offer the REIT Shares received upon exercise of the
Redemption Right immediately prior to the expiration of
the Offer;
(iii) the Company is the surviving entity in
the Transaction and either (A) the holders of REIT
Shares do not receive cash, securities, or other
property in the Transaction or (B) all Limited Partners
(other than the Company or any Subsidiary) receive an
amount of cash, securities, or other property (expressed
as an amount per Partnership Unit) that is no less than
the product of the Conversion Factor and the greatest
amount of cash, securities, or other property (expressed
as an amount per REIT Share) received in the Transaction
by any holder of REIT Shares; or
<PAGE>
(iv) the Company merges, consolidates, or
combines with or into another entity and, immediately
after such merger, (A) substantially all of the assets
of the surviving entity, other than Partnership Units
and the ownership interests in any wholly-owned
Subsidiaries held by the Company, are contributed to the
Partnership as a Capital Contribution in exchange for
Partnership Units with a fair market value equal to the
value of the assets so contributed as determined
pursuant to Section 704(c) of the Code, (B) any
successor or surviving corporation expressly agrees to
assume all obligations of the Company hereunder, and (C)
the Conversion Factor is adjusted appropriately to
reflect the ratio at which REIT Shares are converted
into shares of the surviving entity.
The General Partner shall give the Limited Partners notice of any Transaction at
least 20 business days prior to the effective date of such Transaction,
provided, however, that the General Partner need not give any such notice prior
to the date on which the holders of REIT Shares are first notified of such
Transaction by the Company.
(d) Notwithstanding Sections 7.01(a), 7.01(b) and
7.01(c),
(i) a General Partner may transfer all or
any portion of its General Partnership Interest to (A) a
wholly-owned Subsidiary of such General Partner or (B)
the owner of all of the ownership interests of such
General Partner, and following a transfer of all of its
General Partnership Interest, may withdraw as General
Partner; and
(ii) the Company may engage in a Transaction
not required by law or by the rules of any national
securities exchange on which the REIT Shares are listed
to be submitted to the vote of the holders of the REIT
Shares and the General Partner shall not be required to
give notice to the Limited Partners of any such
Transaction as provided by Section 7.01(c).
7.02.00 Admission of a Substitute or Additional General Partner. A
Person shall be admitted as a substitute or additional General Partner of the
Partnership only if the following terms and conditions are satisfied:
(a) the Person to be admitted as a substitute or
additional General Partner shall have accepted and agreed to be bound by all the
terms and provisions of this Agreement by executing a counterpart thereof and
such other documents or instruments as may be required or appropriate in order
to effect the admission of such Person as a General Partner, and a certificate
evidencing the admission of such Person as a General Partner shall have been
filed for recordation and all other actions required by Section 2.05 in
connection with such admission shall have been performed;
<PAGE>
(b) if the Person to be admitted as a substitute or
additional General Partner is a corporation or a partnership it shall have
provided the Partnership with evidence satisfactory to counsel for the
Partnership of such Person's authority to become a General Partner and to be
bound by the terms and provisions of this Agreement; and
(c) counsel for the Partnership shall have rendered an
opinion (relying on such opinions from other counsel and the state or any other
jurisdiction as may be necessary) that the admission of the person to be
admitted as a substitute or additional General Partner is in conformity with the
Act, that none of the actions taken in connection with the admission of such
Person as a substitute or additional General Partner will cause (i) the
Partnership to be classified other than as a partnership for federal income tax
purposes, or (ii) the loss of any Limited Partner's limited liability.
7.03.00 Effect of Bankruptcy, Withdrawal, Death or Dissolution of a
General Partner.
(a) Upon the occurrence of an Event of Bankruptcy as to
a General Partner (and its removal pursuant to Section 7.04(a) hereof) or the
withdrawal, removal or dissolution of a General Partner (except that, if a
General Partner is on the date of such occurrence a partnership, the withdrawal,
death, dissolution, Event of Bankruptcy as to or removal of a partner in such
partnership shall be deemed not to be a dissolution of such General Partner if
the business of such General Partner is continued by the remaining partner or
partners), the Partnership shall be dissolved and terminated unless the
Partnership is continued pursuant to Section 7.03(b) hereof. The merger of the
General Partner with or into any entity that is admitted as a substitute or
successor General Partner pursuant to Section 7.02 hereof shall not be deemed to
be the withdrawal, dissolution or removal of the General Partner.
(b) Following the occurrence of an Event of Bankruptcy
as to a General Partner (and its removal pursuant to Section 7.04(a) hereof) or
the withdrawal, removal or dissolution of a General Partner (except that, if a
General Partner is on the date of such occurrence a partnership, the withdrawal,
death, dissolution, Event of Bankruptcy as to or removal of a partner in such
partnership shall be deemed not to be a dissolution of such General Partner if
the business of such General Partner is continued by the remaining partner or
partners), the Limited Partners, within 90 days after such occurrence, may elect
to continue the business of the Partnership for the balance of the term
specified in Section 2.04 hereof by selecting, subject to Section 7.02 hereof
and any other provisions of this Agreement, a substitute General Partner by
consent of the Limited Partners holding more than 50% of the Percentage
Interests of the Limited Partners. If the Limited Partners elect to continue the
business of the Partnership and admit a substitute General Partner, the
relationship with the Partners and of any Person who has acquired an interest of
a Partner in the Partnership shall be governed by this Agreement.
<PAGE>
7.04.00 Removal of a General Partner.
(a) Upon the occurrence of an Event of Bankruptcy as to,
or the dissolution of, a General Partner, such General Partner shall be deemed
to be removed automatically; provided, however, that if a General Partner is on
the date of such occurrence a partnership, the withdrawal, death, dissolution,
Event of Bankruptcy as to or removal of a partner in such partnership shall be
deemed not to be a dissolution of the General Partner if the business of such
General Partner is continued by the remaining partner or partners. The Limited
Partners may not remove the General Partner, with or without cause.
(b) If a General Partner has been removed pursuant to
this Section 7.04 and the Partnership is continued pursuant to Section 7.03
hereof, such General Partner shall promptly transfer and assign its General
Partnership Interest in the Partnership (i) to the substitute General Partner
approved by the Limited Partners in accordance with Section 7.03(b) hereof and
otherwise admitted to the Partnership in accordance with Section 7.02 hereof. At
the time of assignment, the removed General Partner shall be entitled to receive
from the substitute General Partner the fair market value of the General
Partnership Interest of such removed General Partner as reduced by any damages
caused to the Partnership by such General Partner. Such fair market value shall
be determined by an appraiser mutually agreed upon by the General Partner and a
majority in interest of the Limited Partners within 10 days following the
removal of the General Partner. In the event that the parties are unable to
agree upon an appraiser, the General Partner and a majority in interest of the
Limited Partners each shall select an appraiser, each of which appraisers shall
complete an appraisal of the fair market value of the General Partner's General
Partnership Interest within 30 days of the General Partner's removal, and the
fair market value of the General Partner's General Partnership Interest shall be
the average of the two appraisals; provided, however, that if the higher
appraisal exceeds the lower appraisal by more than 20% of the amount of the
lower appraisal, the two appraisers, no later than 40 days after the removal of
the General Partner, shall select a third appraiser who shall complete an
appraisal of the fair market value of the General Partner's General Partnership
Interest no later than 60 days after the removal of the General Partner. In such
case, the fair market value of the General Partner's General Partnership
Interest shall be the average of the two appraisals closest in value.
(c) The General Partnership Interest of a removed
General Partner, during the time after default until transfer under Section
7.04(b), shall be converted to that of a special Limited Partner; provided,
however, such removed General Partner shall not have any rights to participate
in the management and affairs of the Partnership, and shall not be entitled to
any portion of the income, expenses, Profit, gain or Loss, distributions or
allocations, as the case may be, payable or allocable to the Limited Partners as
such. Instead, such removed General Partner shall receive and be entitled to
retain only distributions or allocations of such items which it would have been
entitled to receive in its capacity as General Partner, until the transfer is
effective pursuant to Section 7.04(b).
<PAGE>
(d) All Partners shall have given and hereby do give
such consents, shall take such actions and shall execute such documents as shall
be legally necessary and sufficient to effect all the foregoing provisions of
this Section 7.04.
ARTICLE VIII
RIGHTS AND OBLIGATIONS
OF THE LIMITED PARTNERS
8.01.00 Management of the Partnership. The Limited Partners shall
not participate in the management or control of Partnership business nor shall
they transact any business for the Partnership, nor shall they have the power to
sign for or bind the Partnership, such powers being vested solely and
exclusively in the General Partner.
8.02.00 Power of Attorney. Each Limited Partner hereby irrevocably
appoints the General Partner its true and lawful attorney-in-fact, who may act
for each Limited Partner and in its name, place and stead, and for its use and
benefit, to sign, acknowledge, swear to, deliver, file and record, at the
appropriate public offices, any and all documents, certificates, and instruments
as may be deemed necessary or desirable by the General Partner to carry out
fully the provisions of this Agreement and the Act in accordance with their
terms, which power of attorney is coupled with an interest and shall survive the
death, dissolution or legal incapacity of the Limited Partner, or the transfer
by the Limited Partner of any part or all of its Partnership Interest.
8.03.00 Limitation on Liability of Limited Partners. No Limited
Partner shall be liable for any debts, liabilities, contracts or obligations of
the Partnership. A Limited Partner shall be liable to the Partnership only to
make payments of its Capital Contribution, if any, as and when due hereunder.
After its Capital Contribution is fully paid, no Limited Partner shall, except
as otherwise required by the Act, be required to make any further Capital
Contributions or other payments or lend any funds to the Partnership.
8.04.00 Ownership by Limited Partner of Corporate General Partner or
Affiliate. No Limited Partner shall at any time, either directly or indirectly,
own any stock or other interest in the General Partner or in any Affiliate
thereof, if such ownership by itself or in conjunction with other stock or other
interests owned by other Limited Partners would, in the opinion of counsel for
the Partnership, jeopardize the classification of the Partnership as a
partnership for federal income tax purposes. The General Partner shall be
entitled to make such reasonable inquiry of the Limited Partners as is required
to establish compliance by the Limited Partners with the provisions of this
Section.
<PAGE>
8.05.00 Redemption Right.
(a) Subject to Sections 8.05(b), 8.05(c), 8.05(d), and
8.05(e), and the provisions of any agreement between the Partnership and any
Limited Partner with respect to Partnership Units held by such Limited Partners,
each Limited Partner, other than the Original Limited Partner, shall have the
right (the "Redemption Right") to require the Partnership to redeem on a
Specified Redemption Date all or a portion of the Partnership Units held by such
Limited Partner at a redemption price equal to and in the form of the Cash
Amount to be paid by the Partnership, provided, that such Partnership Units
shall have been outstanding for at least one year. The Redemption Right shall be
exercised pursuant to a Notice of Redemption delivered to the Partnership (with
a copy to the General Partner) by the Limited Partner who is exercising the
Redemption Right (the "Redeeming Partner"); provided, however, that the
Partnership shall not be obligated to satisfy such Redemption Right if the
General Partner elects to purchase the Partnership Units subject to the Notice
of Redemption pursuant to Section 8.05(b); and provided, further, that no
Limited Partner may deliver more than two Notices of Redemption during each
calendar year. A Limited Partner may not exercise the Redemption Right for less
than 1,000 Partnership Units or, if such Limited Partner holds less than 1,000
Partnership Units, all of the Partnership Units held by such Partner. The
Redeeming Partner shall have no right, with respect to any Partnership Units so
redeemed, to receive any distribution paid with respect to Partnership Units if
the record date for such distribution is on or after the Specified Redemption
Date.
(b) Notwithstanding the provisions of Section 8.05(a), a
Limited Partner that exercises the Redemption Right shall be deemed to have
offered to sell the Partnership Units described in the Notice of Redemption to
the General Partner, and the General Partner may, in its sole and absolute
discretion but subject to the last sentence of this subsection (b), elect to
purchase directly and acquire such Partnership Units by paying to the Redeeming
Partner either the Cash Amount or the REIT Shares Amount, as elected by the
General Partner (in its sole and absolute discretion), on the Specified
Redemption Date, whereupon the General Partner shall acquire the Partnership
Units offered for redemption by the Redeeming Partner and shall be treated for
all purposes of this Agreement as the owner of such Partnership Units. If the
General Partner shall elect to exercise its right to purchase Partnership Units
under this Section 8.05(b) with respect to a Notice of Redemption, it shall so
notify the Redeeming Partner within five Business Days after the receipt by the
General Partner of such Notice of Redemption. Such notice shall indicate whether
the General Partner will pay the Cash Amount or the REIT Shares Amount. Unless
the General Partner (in its sole and absolute discretion) shall exercise its
right to purchase Partnership Units from the Redeeming Partner pursuant to this
Section 8.05(b), the General Partner shall not have any obligation to the
Redeeming Partner or the Partnership with respect to the Redeeming Partner's
exercise of the Redemption Right. In the event the General Partner shall
exercise its right to purchase Partnership Units with respect to the exercise of
a Redemption Right in the manner described in the first sentence of this Section
8.05(b), the Partnership shall have no obligation to pay any amount to the
Redeeming Partner with respect to such Redeeming Partner's exercise of such
Redemption Right, and each of the Redeeming Partner, the Partnership, and the
General Partner shall treat the transaction between the General Partner and the
Redeeming Partner for federal income tax purposes as a sale of the Redeeming
Partner's Partnership Units to the General Partner. Each Redeeming Partner
<PAGE>
agrees to execute such documents as the Partnership may reasonably require in
connection with the issuance of REIT Shares upon exercise of the Redemption
Right. If Section 5.05 hereof shall prevent the Partnership from satisfying, in
whole or in part, any exercise of the Redemption Right by a Redeeming Partner,
then the Company (whether or not it is then the General Partner) shall be deemed
to have elected pursuant to this Section 8.05(b) to purchase, and hereby agrees
to purchase, directly from such Redeeming Partner, such number of Partnership
Units as the Partnership is unable to redeem due to the operation of Section
5.05.
(c) Notwithstanding the provisions of Section 8.05(a)
and 8.05(b), a Limited Partner shall not be entitled to exercise the Redemption
Right if the delivery of REIT Shares to such Partner on the Specified Redemption
Date by the Company pursuant to Section 8.05(b) (regardless of whether or not
the Company would in fact exercise its rights under Section 8.05(b)) would (i)
result in REIT Shares being owned by fewer than 100 persons (determined without
reference to any rules of attribution), (ii) result in the Company being
"closely held" within the meaning of Section 856(h) of the Code, (iii) cause the
Company to own, directly or constructively, 10% or more of the ownership
interests in a tenant of the Company's, the Partnership's or a Subsidiary's real
property, within the meaning of Section 856(d)(2)(B) of the Code, (iv) in the
good faith opinion of the Board of Directors of the Company, otherwise
disqualify the Company as a REIT, or (v) in the opinion of counsel for the
Company, constitute or result in a violation of Section 5 of the Securities Act
of 1933, as amended (the "Securities Act"), or cause the acquisition of REIT
Shares by such Partner to be "integrated" with any other distribution of REIT
Shares for purposes of complying with the registration provisions of the
Securities Act. The Company, in its sole and absolute discretion, may waive the
restriction on redemption set forth in this Section 8.05(c); provided, however,
that in the event such restriction is waived, the Redeeming Partner shall be
paid the Cash Amount.
(d) Any Cash Amount to be paid to a Redeeming Partner
pursuant to this Section 8.05 shall be paid within 20 Business Days after the
initial date of receipt by the General Partner of the Notice of Redemption
relating to the Partnership Units to be redeemed; provided, however, that such
20-Business Day period may be extended for up to an additional 180-day period to
the extent required for the Company to issue and sell securities the proceeds of
which will be contributed to the Partnership to provide cash for payment of the
Cash Amount. Notwithstanding the foregoing, the General Partner agrees to use
its best efforts to cause the closing of the acquisition of redeemed Partnership
Units hereunder to occur as quickly as reasonably possible.
(e) Notwithstanding any other provision of this
Agreement, the General Partner may place appropriate restrictions on the ability
of the Limited Partners to exercise their Redemption Rights as and if deemed
necessary to ensure that the Partnership does not constitute a "publicly traded
partnership" under section 7704 of the Code. If and when the General Partner
determines that imposing such restrictions is necessary, the General Partner
shall give prompt written notice thereof (a "Restriction Notice") to each of the
Limited Partners, which notice shall be accompanied by a copy of an opinion of
counsel to the Partnership which states that, in the opinion of such counsel,
such restrictions are necessary in order to avoid the Partnership being treated
as a "publicly traded partnership" under Section 7704 of the Code.
<PAGE>
(f) The Conversion Factor shall be adjusted from time to
time as follows:
(i) In the event that the Company (A)
declares or pays a dividend on its outstanding REIT
Shares in REIT Shares or makes a distribution to all
holders of its outstanding REIT Shares in REIT Shares,
(B) subdivides its outstanding REIT Shares, or (C)
combines its outstanding REIT Shares into a smaller
number of REIT Shares, the Conversion Factor shall be
adjusted by multiplying the Conversion Factor by a
fraction, the numerator of which shall be the number of
REIT Shares issued and outstanding on the record date
for such dividend, distribution, subdivision or
combination (assuming for such purposes that such
dividend, distribution, subdivision or combination has
occurred as of such time), and the denominator of which
shall be the actual number of REIT Shares (determined
without the above assumption) issued and outstanding on
such date.
(ii) In the event that the Company declares
or pays a dividend or other distribution on its
outstanding REIT Shares (other than (a) ordinary cash
dividends or (b) dividends payable in REIT Shares that
give rise to an adjustment in the Conversion Factor
under subsection (i) hereof) and the Value of the REIT
Shares on the 20th trading day following the record date
("Record Date") for such dividend or distribution (the
"Post-Distribution Value") is less than the Value of the
REIT Shares on the Business Day immediately preceding
such Record Date (the "Pre-Distribution Value"), then
the Conversion Factor in effect after the Record Date
shall be adjusted by multiplying the Conversion Factor
in effect prior to the Record Date by a fraction, the
numerator of which is the Pre-Distribution Value and the
denominator of which is the Post-Distribution Value,
provided, however, that no adjustment shall be made if
(a) with respect to any cash dividend or distribution
with respect to REIT shares, the Partnership distributes
with respect to each Partnership Unit an amount equal to
the amount of such dividend or distribution multiplied
by the Conversion Factor or (b) with respect to any
dividend or distribution of securities or property other
than cash, the Partnership distributes with respect to
each Partnership Unit an amount of securities or other
property equal to the amount distributed with respect to
each REIT share multiplied by the Conversion Ratio or a
partnership interest or other security readily
convertible into such securities or other property.
(iii) Any adjustment to the Conversion
Factor shall become effective immediately after the
effective date of any of the events described in
subsections (i) and (ii), retroactive to the record
date, if any, for such event, provided, however, that if
the Partnership receives a Notice of Redemption after
<PAGE>
the record date, but prior to the payment date or
effective date, of any dividend, distribution,
subdivision or combination referred to in subsection (i)
or (ii), the Conversion Factor shall be determined as if
the Company had received the Notice of Exchange
immediately prior to the record date for such dividend,
distribution, subdivision or combination.
(iv) If the rights (the "Shareholder
Rights") governed by the Rights Agreement, dated as of
January 27, 1998 (the "Rights Agreement"), by and
between the General Partner and ChaseMellon Shareholder
Services L.L.C., are issued and exercised, the
Conversion Factor shall be equitably adjusted to take
into account the resulting dilution in the REIT Shares,
provided, however, that the Conversion Factor shall not
be adjusted with respect to any Partnership Units held
by any person to which the provisions of Section 7(e) of
the Rights Agreement apply or would apply if such person
were a holder of Shareholder Rights.
8.06.00 NYSE Listing and Securities Act Registration of REIT Shares.
In the event that the General Partner elects to acquire a Redeeming Partner's
Partnership Units by paying to such Partner the REIT Shares Amount, the REIT
Shares issued to the Redeeming Partner if and to the extent provided in such
Redeeming Partner's Registration Rights Agreement (a) registered under the
Securities Act and/or entitled to rights to Securities Act registration and (b)
listed on the NYSE.
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
9.01.00 Purchase for Investment.
(a) Each Limited Partner hereby represents and warrants
to the General Partner and to the Partnership that the acquisition of his
Partnership Interest is made as a principal for his account for investment
purposes only and not with a view to the resale or distribution of such
Partnership Interest.
(b) Each Limited Partner agrees that he will not sell,
assign or otherwise transfer his Partnership Interest or any fraction thereof,
whether voluntarily or by operation of law or at judicial sale or otherwise, to
any Person who does not make the representations and warranties to the General
Partner set forth in Section 9.01(a) above and similarly agree not to sell,
assign or transfer such Partnership Interest or fraction thereof to any Person
who does not similarly represent, warrant and agree.
<PAGE>
9.02.00 Restrictions on Transfer of Limited Partnership Interests.
(a) Except as otherwise provided in this Article IX, no
Limited Partner may offer, sell, assign, hypothecate, pledge or otherwise
transfer his Limited Partnership Interest, in whole or in part, whether
voluntarily or by operation of law or at judicial sale or otherwise
(collectively, a "Transfer") without the written consent of the General Partner,
which consent may be withheld in the sole and absolute discretion of the General
Partner. The General Partner may require, as a condition of any Transfer, that
the transferor assume all costs incurred by the Partnership in connection
therewith.
(b) No Limited Partner may effect a Transfer of its
Limited Partnership Interest, in whole or in part, if, in the opinion of legal
counsel for the Partnership, such proposed Transfer would require the
registration of the Limited Partnership Interest under the Securities Act or
would otherwise violate any applicable federal or state securities or blue sky
law (including investment suitability standards).
(c) No Transfer by a Limited Partner of its Partnership
Units, in whole or in part, may be made to any Person if (i) in the opinion of
counsel for the Partnership, the Transfer would result in the Partnership's
being treated as an association taxable as a corporation (other than a qualified
REIT subsidiary within the meaning of Section 856(i) of the Code), (ii) in the
opinion of counsel for the Partnership, the Transfer would adversely affect the
ability of the Company to continue to qualify as a REIT or subject the Company
to any additional taxes under Section 857 or Section 4981 of the Code, or (iii)
such Transfer is effectuated through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Code.
(d) No transfer of any Partnership Units may be made to
a lender to the Partnership or any Person who is related (within the meaning of
Regulations Section 1.752-4(b)) to any lender to the Partnership whose loan
constitutes a nonrecourse liability (within the meaning of Regulations Section
1.752-1(a)(2)), without the consent of the General Partner, which may be
withheld in its sole and absolute discretion, provided that as a condition to
such consent the lender will be required to enter into an arrangement with the
Partnership and the General Partner to exchange or redeem for the Cash Amount
any Partnership Units in which a security interest is held simultaneously with
the time at which such lender would be deemed to be a partner in the Partnership
for purposes of allocating liabilities to such lender under Section 752 of the
Code.
(e) Section 9.02(a) shall not apply to any Transfer by a
Limited Partner pursuant to the exercise of its Redemption Right under Section
8.05 hereof.
(f) Any Transfer in contravention of any of the
provisions of this Article IX shall be void and ineffectual and shall not be
binding upon, or recognized by, the Partnership.
<PAGE>
9.03.00 Admission of Substitute Limited Partner.
(a) Subject to the other provisions of this Article IX,
an assignee of the Limited Partnership Interest of a Limited Partner (which
shall be understood to include any purchaser, transferee, donee, or other
recipient of any disposition of such Limited Partnership Interest) shall be
deemed admitted as a Limited Partner of the Partnership only upon the
satisfactory completion of the following:
(i) The assignee shall have accepted and
agreed to be bound by the terms and provisions of this
Agreement by executing a counterpart or an amendment
thereof, including a revised Exhibit A, and such other
documents or instruments as the General Partner may
require in order to effect the admission of such Person
as a Limited Partner.
(ii) To the extent required, an amended
Certificate evidencing the admission of such Person as a
Limited Partner shall have been signed, acknowledged and
filed for record in accordance with the Act.
(iii) The assignee shall have delivered a
letter containing the representation set forth in
Section 9.01(a) and the agreement set forth in Section
9.01(b).
(iv) If the assignee is a corporation,
partnership or trust, the assignee shall have provided
the General Partner with evidence satisfactory to
counsel for the Partnership of the assignee's authority
to become a Limited Partner under the terms and
provisions of this Agreement.
(v) The assignee shall have executed a power
of attorney containing the terms and provisions set
forth in Section 8.02.
(vi) The assignee shall have paid all
reasonable legal fees of the Partnership and the General
Partner and filing and publication costs in connection
with its substitution as a Limited Partner.
(vii) The assignee has obtained the prior
written consent of the General Partner to its admission
as a Substitute Limited Partner, which consent may be
given or denied in the exercise of the General Partner's
sole and absolute discretion.
(b) For the purpose of allocating Profits and Losses and
distributing cash received by the Partnership, a Substitute Limited Partner
shall be treated as having become, and appearing in the records of the
Partnership as, a Partner upon the filing of the Certificate described in
Section 9.03(a)(ii) or, if no such filing is required, the later of the date
specified in the transfer documents or the date on which the General Partner has
received all necessary instruments of transfer and substitution.
<PAGE>
(c) The General Partner shall cooperate with the Person
seeking to become a Substitute Limited Partner by preparing the documentation
required by this Section and making all official filings and publications. The
Partnership shall take all such action as promptly as practicable after the
satisfaction of the conditions in this Article IX to the admission of such
Person as a Limited Partner of the Partnership.
9.04.00 Rights of Assignees of Partnership Interests.
(a) Subject to the provisions of Sections 9.01 and 9.02,
except as required by operation of law, the Partnership shall not be obligated
for any purposes whatsoever to recognize the assignment by any Limited Partner
of its Partnership Interest until the Partnership has received notice thereof.
(b) Any Person who is the assignee of all or any portion
of a Limited Partner's Limited Partnership Interest, but does not become a
Substitute Limited Partner and desires to make a further assignment of such
Limited Partnership Interest, shall be subject to all the provisions of this
Article IX to the same extent and in the same manner as any Limited Partner
desiring to make an assignment of its Limited Partnership Interest.
(c) The General Partner shall have the right, in its
sole and absolute discretion, to redeem the Limited Partnership Interest
assigned by any Limited Partner (an "Assigning Limited Partner") to any person
who does not, within 20 business days following the date of such assignment,
become a Substitute Limited Partner (an "Assignee"). In such case, the Assigning
Limited Partner and the Assignee shall be deemed to have tendered irrevocably to
the General Partner a Notice of Redemption with respect to all of the Limited
Partnership Interest assigned.
9.05.00 Effect of Bankruptcy, Death, Incompetence or Termination of
a Limited Partner. The occurrence of an Event of Bankruptcy as to a Limited
Partner, the death of a Limited Partner or a final adjudication that a Limited
Partner is incompetent (which term shall include, but not be limited to,
insanity) shall not cause the termination or dissolution of the Partnership, and
the business of the Partnership shall continue if an order for relief in a
bankruptcy proceeding is entered against a Limited Partner, the trustee or
receiver of his estate or, if he dies, his executor, administrator or trustee,
or, if he is finally adjudicated incompetent, his committee, guardian or
conservator, shall have the rights of such Limited Partner for the purpose of
settling or managing his estate property and such power as the bankrupt,
deceased or incompetent Limited Partner possessed to assign all or any part of
his Partnership Interest and to join with the assignee in satisfying conditions
precedent to the admission of the assignee as a Substitute Limited Partner.
9.06.00 Joint Ownership of Interests. A Partnership Interest may be
acquired by two individuals as joint tenants with right of survivorship,
provided that such individuals either are married or are related and share the
same home as tenants in common. The written consent or vote of both owners of
<PAGE>
any such jointly held Partnership Interest shall be required to constitute the
action of the owners of such Partnership Interest; provided, however, that the
written consent of only one joint owner will be required if the Partnership has
been provided with evidence satisfactory to the counsel for the Partnership that
the actions of a single joint owner can bind both owners under the applicable
laws of the state of residence of such joint owners. Upon the death of one owner
of a Partnership Interest held in a joint tenancy with a right of survivorship,
the Partnership Interest shall become owned solely by the survivor as a Limited
Partner and not as an assignee. The Partnership need not recognize the death of
one of the owners of a jointly-held Partnership Interest until it shall have
received notice of such death. Upon notice to the General Partner from either
owner, the General Partner shall cause the Partnership Interest to be divided
into two equal Partnership Interests, which shall thereafter be owned separately
by each of the former owners.
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS
10.01.00 Books and Records. At all times during the continuance of
the Partnership, the General Partner shall keep or cause to be kept at the
Partnership's specified office true and complete books of account in accordance
with generally accepted accounting principles, including: (a) a current list of
the full name and last known business address of each Partner, (b) a copy of the
Certificate of Limited Partnership and all certificates of amendment thereto,
(c) copies of the Partnership's federal, state and local income tax returns and
reports, (d) copies of the Agreement and any financial statements of the
Partnership for the three most recent years and (e) all documents and
information required under the Act. Any Partner or its duly authorized
representative, upon paying the costs of collection, duplication and mailing,
shall be entitled to inspect or copy such records during ordinary business
hours.
10.02.00 Custody of Partnership Funds; Bank Accounts.
(a) All funds of the Partnership not otherwise invested
shall be deposited in one or more accounts maintained in such banking or
brokerage institutions as the General Partner shall determine, and withdrawals
shall be made only on such signature or signatures as the General Partner may,
from time to time, determine.
(b) All deposits and other funds not needed in the
operation of the business of the Partnership may be invested by the General
Partner in investment grade instruments (or investment companies whose portfolio
consists primarily thereof), government obligations, certificates of deposit,
bankers' acceptances and municipal notes and bonds. The funds of the Partnership
shall not be commingled with the funds of any other Person except for such
commingling as may necessarily result from an investment in those investment
companies permitted by this Section 10.02(b).
<PAGE>
10.03.00 Fiscal and Taxable Year. The fiscal and taxable year of the
Partnership shall be the calendar year.
10.04.00 Annual Tax Information and Report. Within 75 days after the
end of each fiscal year of the Partnership, the General Partner shall furnish to
each person who was a Limited Partner at any time during such year the tax
information necessary to file such Limited Partner's individual tax returns as
shall be reasonably required by law.
10.05.00 Tax Matters Partner; Tax Elections; Special Basis
Adjustments.
(a) The General Partner shall be the Tax Matters Partner
of the Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax
Matters Partner, the General Partner shall have the right and obligation to take
all actions authorized and required, respectively, by the Code for the Tax
Matters Partner. The General Partner shall have the right to retain professional
assistance in respect of any audit of the Partnership by the Service and all
out-of-pocket expenses and fees incurred by the General Partner on behalf of the
Partnership as Tax Matters Partner shall constitute Partnership expenses. In the
event the General Partner receives notice of a final Partnership adjustment
under Section 6223(a)(2) of the Code, the General Partner shall either (i) file
a court petition for judicial review of such final adjustment within the period
provided under Section 6226(a) of the Code, a copy of which petition shall be
mailed to all Limited Partners on the date such petition is filed, or (ii) mail
a written notice to all Limited Partners, within such period, that describes the
General Partner's reasons for determining not to file such a petition.
(b) All elections required or permitted to be made by
the Partnership under the Code or any applicable state or local tax law shall be
made by the General Partner in its sole and absolute discretion.
(c) In the event of a transfer of all or any part of the
Partnership Interest of any Partner, the Partnership, at the option of the
General Partner, may elect pursuant to Section 754 of the Code to adjust the
basis of the Properties. Notwithstanding anything contained in Article V of this
Agreement, any adjustments made pursuant to Section 754 shall affect only the
successor in interest to the transferring Partner and in no event shall be taken
into account in establishing, maintaining or computing Capital Accounts for the
other Partners for any purpose under this Agreement. Each Partner will furnish
the Partnership with all information necessary to give effect to such election.
10.06.00 Reports to Limited Partners.
(a) As soon as practicable after the close of each
fiscal quarter (other than the last quarter of the fiscal year), the General
Partner shall cause to be mailed to each Limited Partner a quarterly report
containing financial statements of the Partnership, or of the Company if such
statements are prepared solely on a consolidated basis with the Company, for
such fiscal quarter, presented in accordance with generally accepted accounting
principles. As soon as practicable after the close of each fiscal year, the
<PAGE>
General Partner shall cause to be mailed to each Limited Partner an annual
report containing financial statements of the Partnership, or of the Company if
such statements are prepared solely on a consolidated basis with the Company,
for such fiscal year, presented in accordance with generally accepted accounting
principles. The annual financial statements shall be audited by accountants
selected by the General Partner.
(b) Any Partner shall further have the right to a
private audit of the books and records of the Partnership, provided such audit
is made for Partnership purposes, at the expense of the Partner desiring it and
is made during normal business hours.
ARTICLE XI
AMENDMENT OF AGREEMENT; MERGER; NOTICE
11.01.00 Amendment of Agreement; Merger. The General Partner's
consent shall be required for any amendment to the Agreement or any merger,
consolidation or combination of the Partnership. The General Partner, without
the consent of the Limited Partners, may amend this Agreement in any respect or
cause the Partnership to merge, consolidate or combine with or into any other
partnership, limited partnership, limited liability company or corporation as
contemplated in Section 7.01(c) or (d) hereof; provided, however, that the
following amendments and any other such merger, consolidation or combination of
the Partnership (a "Merger") shall require the consent of Limited Partners
(other than the Company or any Subsidiary of the Company) holding more than 50%
of the Percentage Interests of the Limited Partners (other than the Company or
any Subsidiary of the Company):
(a) any amendment affecting the operation of the
Conversion Factor or the Redemption Right (except as provided in Sections
7.01(c) or 8.05(e)) in a manner adverse to the Limited Partners;
(b) any amendment that would adversely affect the rights
of the Limited Partners to receive the distributions payable to them hereunder,
other than with respect to the issuance of additional Partnership Units pursuant
to Section 4.02;
(c) any amendment that would alter the Partnership's
allocations of Profit and Loss to the Limited Partners, other than with respect
to the issuance of additional Partnership Units pursuant to Section 4.02; or
(d) any amendment to this Article XI.
<PAGE>
The consent of each Limited Partner shall be required
for any amendment that would impose on the Limited Partners any obligation to
make additional Capital Contributions to the Partnership.
11.02.00 Notice to Limited Partners. The General Partner shall
notify the Limited Partners of the substance of any amendment or Merger
requiring the consent of the Limited Partners pursuant to Section 11.01 at least
20 business days prior to the effective date of such amendment or Merger.
ARTICLE XII
GENERAL PROVISIONS
12.01.00 Notices. All communications required or permitted under
this Agreement shall be in writing and shall be deemed to have been given when
delivered personally or upon deposit in the United States mail, registered,
postage prepaid return receipt requested, to the Partners at the addresses set
forth in Exhibit A attached hereto; provided, however, that any Partner may
specify a different address by notifying the General Partner in writing of such
different address. Notices to the Partnership shall be delivered at or mailed to
its specified office.
12.02.00 Survival of Rights. Subject to the provisions hereof
limiting transfers, this Agreement shall be binding upon and inure to the
benefit of the Partners and the Partnership and their respective legal
representatives, successors, transferees and assigns.
12.03.00 Additional Documents. Each Partner agrees to perform all
further acts and execute, swear to, acknowledge and deliver all further
documents which may be reasonable, necessary, appropriate or desirable to carry
out the provisions of this Agreement or the Act.
12.04.00 Severability. If any provision of this Agreement shall be
declared illegal, invalid, or unenforceable in any jurisdiction, then such
provision shall be deemed to be severable from this Agreement (to the extent
permitted by law) and in any event such illegality, invalidity or
unenforceability shall not affect the remainder hereof.
12.05.00 Entire Agreement. This Agreement and exhibits attached
hereto constitute the entire Agreement of the Partners and supersede all prior
written agreements and prior and contemporaneous oral agreements, understandings
and negotiations with respect to the subject matter hereof.
12.06.00 Rules of Construction. When the context in which words are
used in the Agreement indicates that such is the intent, words in the singular
number shall include the plural and the masculine gender shall include the
neuter or female gender as the context may require. Unless the context otherwise
indicates, references to particular Articles and Sections are references to
Articles and Sections of this Agreement.
<PAGE>
12.07.00 Headings. The Article headings or sections in this
Agreement are for convenience only and shall not be used in construing the scope
of this Agreement or any particular Article.
12.08.00 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original copy and all of
which together shall constitute one and the same instrument binding on all
parties hereto, notwithstanding that all parties shall not have signed the same
counterpart.
12.09.00 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this Third Amended and Restated Agreement of Limited Partnership,
all as of the ____ day of _____________, 1998.
GENERAL PARTNER:
UNITED DOMINION REALTY TRUST, INC.
By:
Name: Katheryn E. Surface
Title: Senior Vice President
LIMITED PARTNERS:
UDRT OF NORTH CAROLINA, L.L.C.
By: United Dominion Realty Trust, Inc.,
sole managing member
By:
Name: Katheryn E. Surface
Title: Senior Vice President
[Additional limited partners on following pages.]
<PAGE>
Signature page to Third Amended and Restated Agreement of Limited Partnership,
dated _______________, 199__.
The Partnership and American Apartment Communities Operating
Partnership, L.P., AAC Management LLC, Schnitzer Investment Corp. and American
Apartment Communities III, L.P. (the "AAC Limited Partners") agree that
notwithstanding the proviso to the first sentence of Section 8.05(a) hereof (i)
the AAC Limited Partners shall be entitled to exercise their Redemption Rights
as provided in Section 5(c)(ii) and (iii) of the Partnership Interest Purchase
and Exchange Agreement, dated as of September 10, 1998, among the AAC Limited
Partners, the Partnership and the General Partner, among others, and (ii) the
Redemption Rights of the AAC Limited Partners shall be modified as set forth in
Section 3.1(b) of the Investment Agreement, dated as of September 10, 1998,
among the General Partner, the Partnership and the AAC Limited Partners, among
others. The Partnership, the General Partner and the AAC Limited Partners agree
that the foregoing modifications shall be deemed to be an amendment to this
Agreement binding upon each of them.
GENERAL PARTNER:
UNITED DOMINION REALTY TRUST, INC.
By:
Name: Katheryn E. Surface
Title: Senior Vice President
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this Third Amended and Restated Agreement of Limited Partnership,
all as of the ____ day of _____________, 1998.
The Partnership and American Apartment Communities Operating
Partnership, L.P., AAC Management LLC, Schnitzer Investment Corp. and American
Apartment Communities III, L.P. (the "AAC Limited Partners") agree that
notwithstanding the proviso to the first sentence of Section 8.05(a) hereof (i)
the AAC Limited Partners shall be entitled to exercise their Redemption Rights
as provided in Section 5(c)(ii) and (iii) of the Partnership Interest Purchase
and Exchange Agreement, dated as of September 10, 1998, among the AAC Limited
Partners, the Partnership and the General Partner, among others, and (ii) the
Redemption Rights of the AAC Limited Partners shall be modified as set forth in
Section 3.1(b) of the Investment Agreement, dated as of September 10, 1998,
among the General Partner, the Partnership and the AAC Limited Partners, among
others. The Partnership, the General Partner and the AAC Limited Partners agree
that the foregoing modifications shall be deemed to be an amendment to this
Agreement binding upon each of them.
LIMITED PARTNER:
AMERICAN APARTMENT COMMUNITIES
OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership
By: American Apartment Communities, Inc.,
its General Partner
By:
Name: George R. Nickerson
Title: Vice President
Number of Units :
Date Issued :
SSN or EIN : 94-3203276
Address : 615 Front Street
San Francisco, CA 94111
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this Third Amended and Restated Agreement of Limited Partnership,
all as of the ____ day of _____________, 1998.
The Partnership and American Apartment Communities Operating
Partnership, L.P., AAC Management LLC, Schnitzer Investment Corp. and American
Apartment Communities III, L.P. (the "AAC Limited Partners") agree that
notwithstanding the proviso to the first sentence of Section 8.05(a) hereof (i)
the AAC Limited Partners shall be entitled to exercise their Redemption Rights
as provided in Section 5(c)(ii) and (iii) of the Partnership Interest Purchase
and Exchange Agreement, dated as of September 10, 1998, among the AAC Limited
Partners, the Partnership and the General Partner, among others, and (ii) the
Redemption Rights of the AAC Limited Partners shall be modified as set forth in
Section 3.1(b) of the Investment Agreement, dated as of September 10, 1998,
among the General Partner, the Partnership and the AAC Limited Partners, among
others. The Partnership, the General Partner and the AAC Limited Partners agree
that the foregoing modifications shall be deemed to be an amendment to this
Agreement binding upon each of them.
LIMITED PARTNER:
AAC MANAGEMENT LLC, a Delaware
limited liability company
By:
Name: George R. Nickerson
Title: Secretary
Number of Units :
Date Issued :
SSN or EIN : 94-3239757
Address : 615 Front Street
San Francisco, CA 94111
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this Third Amended and Restated Agreement of Limited Partnership,
all as of the ____ day of _____________, 1998.
The Partnership and American Apartment Communities Operating
Partnership, L.P., AAC Management LLC, Schnitzer Investment Corp. and American
Apartment Communities III, L.P. (the "AAC Limited Partners") agree that
notwithstanding the proviso to the first sentence of Section 8.05(a) hereof (i)
the AAC Limited Partners shall be entitled to exercise their Redemption Rights
as provided in Section 5(c)(ii) and (iii) of the Partnership Interest Purchase
and Exchange Agreement, dated as of September 10, 1998, among the AAC Limited
Partners, the Partnership and the General Partner, among others, and (ii) the
Redemption Rights of the AAC Limited Partners shall be modified as set forth in
Section 3.1(b) of the Investment Agreement, dated as of September 10, 1998,
among the General Partner, the Partnership and the AAC Limited Partners, among
others. The Partnership, the General Partner and the AAC Limited Partners agree
that the foregoing modifications shall be deemed to be an amendment to this
Agreement binding upon each of them.
LIMITED PARTNER:
SCHNITZER INVESTMENT CORP.,
an Oregon corporation
By:
Name:
Title:
Number of Units :
Date Issued :
SSN or EIN :
Address: 3200 Northwest Yeon Avenue
Portland, Or 97210
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this Third Amended and Restated Agreement of Limited Partnership,
all as of the ____ day of _____________, 1998.
The Partnership and American Apartment Communities Operating
Partnership, L.P., AAC Management LLC, Schnitzer Investment Corp. and American
Apartment Communities III, L.P. (the "AAC Limited Partners") agree that
notwithstanding the proviso to the first sentence of Section 8.05(a) hereof (i)
the AAC Limited Partners shall be entitled to exercise their Redemption Rights
as provided in Section 5(c)(ii) and (iii) of the Partnership Interest Purchase
and Exchange Agreement, dated as of September 10, 1998, among the AAC Limited
Partners, the Partnership and the General Partner, among others, and (ii) the
Redemption Rights of the AAC Limited Partners shall be modified as set forth in
Section 3.1(b) of the Investment Agreement, dated as of September 10, 1998,
among the General Partner, the Partnership and the AAC Limited Partners, among
others. The Partnership, the General Partner and the AAC Limited Partners agree
that the foregoing modifications shall be deemed to be an amendment to this
Agreement binding upon each of them.
LIMITED PARTNER:
AMERICAN APARTMENT COMMUNITIES III,
L.P., a Delaware limited partnership
By: American Apartment Communities III, Inc.,
its General Partner
By:
Name: George R. Nickerson
Title: Vice President
Number of Units :
Date Issued :
SSN or EIN : 94-3288870
Address : 615 Front Street
San Francisco, CA 94111
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this Third Amended and Restated Agreement of Limited Partnership,
all as of the ____ day of _____________, 1998.
The Partnership and American Apartment Communities Operating
Partnership, L.P., AAC Management LLC, Schnitzer Investment Corp. and American
Apartment Communities III, L.P. (the "AAC Limited Partners") agree that
notwithstanding the proviso to the first sentence of Section 8.05(a) hereof (i)
the AAC Limited Partners shall be entitled to exercise their Redemption Rights
as provided in Section 5(c)(ii) and (iii) of the Partnership Interest Purchase
and Exchange Agreement, dated as of September 10, 1998, among the AAC Limited
Partners, the Partnership and the General Partner, among others, and (ii) the
Redemption Rights of the AAC Limited Partners shall be modified as set forth in
Section 3.1(b) of the Investment Agreement, dated as of September 10, 1998,
among the General Partner, the Partnership and the AAC Limited Partners, among
others. The Partnership, the General Partner and the AAC Limited Partners agree
that the foregoing modifications shall be deemed to be an amendment to this
Agreement binding upon each of them.
LIMITED PARTNER:
UNITED DOMINION REALTY TRUST, INC.,
Attorney-in-fact for the other Limited
Partners listed on Exhibit A to the Agreement
By:
Name: Katheryn E. Surface
Title: Vice President
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Agreed Value
of
Partner Cash Non-Cash Partnership Percentage
and Address Contribution Contribution Units Interest
- - ----------- ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
General Partner:
United Dominion Realty Trust, Inc.
10 South Sixth Street, Suite 203
Richmond, Virginia 23219
Limited Partners:
UDRT of North Carolina, L.L.C.
c/o United Dominion Realty Trust, Inc.
10 South Sixth Street, Suite 203
Richmond, Virginia 23219
[UPDATE TO COME
FROM UDRT]
</TABLE>
<PAGE>
EXHIBIT B
NOTICE OF EXERCISE OF REDEMPTION RIGHT
In accordance with Section 8.05 of the Third Amended and Restated
Agreement of Limited Partnership (the "Agreement") of United Dominion Realty,
L.P., the undersigned hereby irrevocably (i) presents for redemption ________
Partnership Units in United Dominion Realty, L.P. in accordance with the terms
of the Agreement and the Redemption Right referred to in Section 8.05 thereof,
(ii) surrenders such Partnership Units and all right, title and interest
therein, and (iii) directs that the Cash Amount or REIT Shares Amount (as
defined in the Agreement) as determined by the General Partner deliverable upon
exercise of the Redemption Right be delivered to the address specified below,
and if REIT Shares (as defined in the Agreement) are to be delivered, such REIT
Shares be registered or placed in the name(s) and at the address(es) specified
below.
Dated:________ __, _____
Name of Limited Partner:
------------------------------
(Signature of Limited Partner)
------------------------------
(Mailing Address)
------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
------------------------------
If REIT Shares are to be issued, issue to:
Please insert social security or identifying number:
Name:
EXHIBIT 12
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends
<TABLE>
<CAPTION>
Years ended December 31, 1994 1995 1996 1997 1998
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net income before extraordinary item $19,226 $33,127 $38,014 $70,199 $72,470
Add:
Portion of rents representative
of the interest factor 177 201 257 412 569
Interest on indebtedness 28,521 40,646 50,843 79,004 106,238
Adoption of SFAS No. 112 "Employers' Accounting
for Postemployment Benefits" 450 -- -- -- --
----------- ---------- ---------- ---------- ----------
Earnings $48,374 $73,974 $89,114 $149,615 $179,277
=========== ========== ========== ========== ==========
Fixed charges and preferred stock dividend:
Interest on indebtedness $28,521 $40,646 $50,843 $79,004 $106,238
Capitalized interest -- 40 541 2,634 3,360
Portion of rents representative
of the interest factor 177 201 257 412 569
----------- ---------- ---------- ---------- ----------
Fixed charges 28,698 40,887 51,641 82,050 110,167
----------- ---------- ---------- ---------- ----------
Add:
Preferred stock dividend -- 6,637 9,713 17,345 23,593
----------- ---------- ---------- ---------- ----------
Combined fixed charges and preferred stock
dividend $28,698 $47,524 $61,354 $99,395 $133,760
=========== ========== ========== ========== ==========
Ratio of earnings to fixed charges 1.69 x 1.81 x 1.73 x 1.82 x 1.63 x
Ratio of earnings to combined fixed charges
and preferred stock dividend 1.69 1.56 1.45 1.51 1.34
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements of United Dominion Realty Trust, Inc. and in the related Prospectuses
of our report dated January 27, 1999, with respect to the consolidated financial
statements and schedule of United Dominion Realty Trust, Inc. included in this
Annual Report (Form 10-K) for the year ended December 31, 1998:
<TABLE>
<CAPTION>
Registration Statement Number Description
----------------------------- -----------
<S> <C>
33-40433 Form S-3, pertaining to the private placement of 900,000
shares of the Company's common stock in May,
1991.
33-47296 Form S-8, pertaining to the Company's Stock Purchase
and Loan Plan.
33-48000 Form S-8, pertaining to the Company's Stock Option
Plan.
33-58201 Form S-8, pertaining to the Employee's Stock Purchase
Plan.
33-64275 Form S-3, Shelf Registration Statement, pertaining to the
registration of $462.3 million of Common Stock, Preferred
Stock and Debt Securities.
333-11207 Form S-3, Shelf Registration Statement, pertaining to the
private placement of 1,679,840 shares of the Company's
Common Stock in August, 1996.
333-15133 Form S-3, pertaining to the Company's Dividend Reinvestment
and Stock Purchase Plan.
333-27221 Form S-3, Shelf Registration Statement, pertaining to the
registration of $600 million of Common Stock,
Preferred Stock and Debt Securities.
333-32829 Form S-8, pertaining to the Company's Stock Purchase
and Loan Plan.
333-42691 Form S-8, pertaining to the Company's Stock Option Plan.
333-44463 Form S-3, pertaining to the Company's Dividend Reinvestment
and Stock Purchase Plan.
333-48557 Form S-3, Shelf Registration Statement, pertaining to the
private placement of 104,920 shares of Common Stock
and 104,920 rights to purchase Series C Junior
Participating Redeemable Preferred Stock.
333-53401 Form S-3, Shelf Registration Statement, pertaining to the
private placement of 1,528,089 shares of Common
Stock and 1,528,089 rights to purchase Series C
Junior Participating Redeemable Preferred Stock.
333-64281 Form S-3, Shelf Registration Statement, pertaining to the
private placement of 849,498 shares of Common
Stock and 849,498 rights to Purchase Series C
Junior Participating, Redeemable Preferred Stock.
333-72885 Form S-3, Shelf Registration Statement, pertaining to the
private placement of 130,416 shares of Common
` Stock and 130,416 rights to purchase Series C Junior
Participating Redeemable Preferred Stock.
</TABLE>
Ernst & Young LLP
Richmond, Virginia
March 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 18,529
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 100,737
<PP&E> 3,916,785
<DEPRECIATION> 280,663
<TOTAL-ASSETS> 3,755,388
<CURRENT-LIABILITIES> 148,076
<BONDS> 2,117,749
0
430,000
<COMMON> 103,639
<OTHER-SE> 840,482
<TOTAL-LIABILITY-AND-EQUITY> 3,755,388
<SALES> 478,718
<TOTAL-REVENUES> 482,100
<CGS> 0
<TOTAL-COSTS> 199,560
<OTHER-EXPENSES> 128,963
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106,238
<INCOME-PRETAX> 72,470
<INCOME-TAX> 0
<INCOME-CONTINUING> 72,470
<DISCONTINUED> 0
<EXTRAORDINARY> (138)
<CHANGES> 0
<NET-INCOME> 72,332
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
