March 31, 1999
Shareholders of
United Dominion Realty Trust, Inc.
Re: 1998 Stock Option Grant
The proxy statement for our 1998 Annual Meeting of Shareholders discloses the
granting of stock options to officers in 1998 under the caption, "Ten year
Options/SAR Repricings." While the news media has criticized the Company for
"repricing" certain stock options, this characterization is not completely
correct. We wanted to tell you what we did and why we did it.
In the second quarter of 1998, after losing three key executives, the Company
employed KPMG-Peat Marwick to do a compensation study, with special emphasis on
long-term incentive compensation. The Board asked the consultant to design a
plan that would better bind officers to the Company while aligning their
interests with those of the shareholders. Among the consultant's recommendations
in furtherance of both of these goals was an annual grant of stock options to
officers that would vest one-third in each of the years subsequent to the year
of grant. The Compensation Committee of the Board of Directors adopted this and
other recommendations for 1998. The extended vesting period and annual grant of
stock have two key benefits for the Company. They better bind associates to the
Company because if associates leave, they lose a significant number of unvested
options. Also, with an annual grant, the average stock option exercise price
reflects various market conditions. The Committee also adopted a shareholders'
value plan, as recommended by the consultant, that is based on the performance
of the Company, including the stock price, versus other apartment REITs.
In the fourth quarter of 1998, the Company asked the officers and other key
associates to agree to have part of the options granted to them in 1997
cancelled so that these options would go back into the Company's stock option
plan and be available for future annual grants. Effectively what the Company did
was to cancel approximately 30% of the outstanding stock options, all of which
would vest at the end of 1999. None of the vested options were changed.
Canceling these options would be less dilutive to the shareholders in the long
term than allowing these options to remain outstanding and granting additional
stock options in 1998.
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The Board of Directors thought that it was critical for the Company to grant a
target number of stock options at the end of 1998 because of the binding
benefit. At its meeting in December, the Compensation Committee of the Board
granted 1,137,665 stock options to 47 officers of the Company, vesting one-third
per year at the end of 1999 through 2001. The option price of $10.875 was the
closing stock price on the date of grant. On a fully converted basis, this grant
of stock options for 1998 represented approximately 0.9% of the Company's common
stock. The Company, on an annual basis, expects to grant similar numbers of
stock options to the officers of the Company in future years. This percentage of
the fully converted common stock, 0.9%, as an annual grant, is in line with
other REITs and other companies. The 3,359,000 stock options currently
outstanding to directors and officers have an average exercise price of $12.89.
The Company has always been applauded for being a shareholder friendly company.
We continue to be that kind of company. Eight of the Company's Board members
have more than $1 million invested in our Company. The interests of the Board of
Directors and officers are closely aligned with the shareholders, and the
implementation of a revised long-term incentive compensation plan further aligns
these interests.
Please feel free to contact our Shareholder Relations Department at (804)
780-2691 or by e-mail at [email protected] with any questions that you might have.
Thank you.
Sincerely,
United Dominion Realty Trust, Inc.
John P. McCann
Chairman
JPM/dej
