exv10w01



 











Description
of the Company’s

New Out-Performance Program








Exhibit
10.01





Background



     
United Dominion Realty Trust, Inc. (the “Company”) competes for management talent with both public and private
real estate investment vehicles and constantly reviews
compensation structures and practices in an effort to remain
competitive. The Company’s compensation programs are designed to further
the Company’s primary goal of increasing dividend income and share price
appreciation. The Company’s Board of Directors intends for these goals to
be the primary economic motivation of the Company’s executive officers and
other key employees.




     
The Company’s Board of Directors believes that it is in the best interest
of the Company’s stockholders to retain a management team that has a
meaningful equity stake in the long-term success of the Company.
The Company’s Board of Directors does not view stock options as an
effective long-term incentive vehicle, due in part to the
relatively low historical stock price appreciation in the REIT
industry, and therefore does not plan to make grants of stock
options to the Company’s executive officers. The Company’s out-performance programs
and the 1999 Long-Term Incentive Plan currently represent the
primary long-term incentive programs for the Company’s executive officers
and other key employees.






New Out-Performance Program


     
The Company’s New Out-Performance Program was approved by its stockholders at the Company’s Annual Meeting of Stockholders
held on May 3, 2005 (the “Meeting”). Pursuant to the New Out-Performance
Program, certain of the Company’s executive officers and other
key employees may be given the opportunity to invest in performance
shares of United Dominion Realty, L.P., a Delaware limited partnership
(“UDR LP”),
in which the Company is the sole general partner. The new out-performance
partnership shares to be issued under the New Out-Performance
Program are referred to herein as the “New OPPSs.” The first
series of New OPPSs to be issued under the New Out-Performance
Program will be the Series C OPPSs. The Company’s Series C
Out-Performance Program was also approved by the Company’s
stockholders at the Meeting and is described in more detail in
Exhibit 10.02 to the Company’s Current Report on Form 8-K
dated May 3, 2005 (Commission File No. 1-10524).



     Like
the Series A Out-Performance Program approved by the Company’s
stockholders in 2001 and the Series B Out-Performance
Program approved by the Company’s stockholders in 2003, the New
Out-Performance Program is designed to provide participants with
the possibility of substantial returns on their investment if
the total return on the Company’s common stock exceeds targeted levels,
while putting the participants’ investment at risk if the
targeted levels are not exceeded. The New Out-Performance
Program will be administered by the Compensation Committee of the
Company’s Board of Directors.
Members of the Company’s Board of Directors who are not our employees are
not eligible to participate in the New Out-Performance Program.




     Terms
of New OPPSs




     
The Company’s performance for each series of New OPPSs
under the New Out-Performance Program will be measured over a
period to be determined by the Compensation Committee with
respect to each such series (the “Measurement
Period”). Each series of New OPPSs will be issued by UDR LP to a
separate limited liability company, referred to herein as a “New
LLC,” to be formed for the benefit of selected executive
officers and other key employees of the Company who agree to invest in that series
of New OPPSs. The New LLC that holds such series of New OPPSs
will have no right to receive distributions or allocations of
income or loss, or to redeem those units prior to the date,
referred to as the “Valuation Date,” that is the
earlier of (i) the expiration of the Measurement Period for
such series of New OPPSs, or (ii) the date of a change of
control of the Company (defined as a “Transaction” in
UDR LP’s Amended and Restated Agreement of Limited
Partnership).





     
Each series of New OPPSs will only be entitled to receive
distributions and allocations of income and loss if, as of the
Valuation Date, the threshold return during the Measurement
Period for such series was achieved. If the threshold return is
met, holders of such series of New OPPSs will be entitled to
begin receiving distributions and allocations of income and loss
from UDR LP equal to the distributions and allocations that
would be received on the similar number of limited partnership
interests in UDR LP, referred to herein as “OP Units.”





     
For each series of New OPPSs, the total payout, if any, under
each such series of New OPPSs will be capped at 1% of Market
Capitalization. “Market Capitalization” is defined as
the average number of shares of the Company outstanding
(including common stock, common stock equivalents and OP Units)
over the measurement period for each respective series of New
OPPSs multiplied by the daily closing price of the Company’s common stock.




     
If, on the respective Valuation Date, the threshold return does
not meet the minimum return, then holders of each of such series
of New OPPSs will forfeit their initial investment.



     Participation in New OPPSs


     
Any executive officer or other
key employee of the Company who is provided the opportunity to participate in
the New OPPSs is under no obligation to exercise that right.
Each New LLC will have the right, but not the obligation, to
repurchase units from members whose employment with the Company
terminates and such units may be re-sold by such New LLC to
selected executive officers or










 





other key employees of the Company. If some of those eligible to
participate elect not to participate in a particular series of
New OPPSs, the remaining units of such series of New OPPSs shall
be retained by UDR LP and may be offered in the future to
existing participants or other executive officers or key
employees.




     
We may issue up to one series of New OPPSs per
year for the next five years, beginning with the Series C
OPPSs. Each series of New OPPSs will have the
same terms and conditions as New OPPSs of the same series but
may have different terms than New OPPSs of a different series.
Each series of New OPPSs will be issued by UDR LP to a New LLC. The participants contribute funds or offer
other consideration to purchase interests in such New LLC and
will indirectly participate in such series of New OPPSs on the
basis of each participant’s investment in the corresponding
New LLC. The purchase price for each series of New OPPSs will be
set by the Compensation Committee based upon the advice of an
independent valuation expert. The specific features of the New OPPSs, the designation of
executive officers and other key employees as potential
participants and the level of participation of each participant
may vary from series to series of New OPPSs. The Company anticipates that interests under an outstanding OPPSs
program may also be tendered to the Company for purchase or
exchanged in payment for a participant’s investment in any
subsequent out-performance programs. (Any such exchange will be
based on the fair market value at the time as determined by an
independent valuation expert.)




     New
LLC Governance and Restrictions on Transfer



     
Except as described below, no series of New OPPSs may be
transferred by a New LLC without the approval of the managers of
such New LLC, who are expected to be the two largest
participants in such New LLC, as long as they are employees of
the Company, and two or more representatives of the independent
directors of our Board of Directors. New OPPSs of any series may
only be transferred by such New LLC without the consent of the
managers of such New LLC after targeted returns have been
achieved and the measurement period for such series of New OPPSs
has passed. Once the series of New OPPSs has vested, individuals may
exchange their interests in such series for an
equivalent number of OP Units. Participants in the New
Out-Performance Program may transfer New OPPSs or OP Units
received to a family member (or a family-owned entity), in the
event of death or disability, sell them to the Company or
exchange them for interests in subsequent out-performance
programs. (Based on fair market value at the time as determined
by an independent valuation expert.)




     
The terms of the operating agreement of each New LLC will
restrict the participants’ ability to transfer their
interests in the New LLC without the consent of the managers of
such New LLC. Each New LLC will have the right, but not the
obligation, to repurchase the interest of any participant in
such New LLC at the original purchase price if prior to the end
of the Measurement Period such participant’s employment
with the Company is terminated for any reason other than by
death or disability and such units may be retained or re-sold by
such New LLC to selected executive officers or other key
employees of the Company. Each New LLC will be used as a vehicle
to purchase such New OPPSs to ensure that there would be no
opportunity for the participants to profit from the ownership of
those New OPPSs of such series prior to the Valuation Date.




     
The New OPPSs will not be convertible into shares of the
Company’s common
stock. However, in the event of a change of control of the
Company, each New LLC or any participant that holds any New
OPPSs will have the same redemption rights as other holders of
OP Units. Upon the occurrence of a change of control, each
New LLC or participant that holds New OPPSs may require
UDR LP to redeem all or a portion of the units held by such
party in exchange for a cash payment per unit equal to the
market value of a share of the Company’s common stock at
the time of redemption. However, in the event that any units are
tendered for redemption, the limited partnership’s
obligation to pay the redemption price will be subject to the
prior right of the Company to acquire such units in exchange for an equal
number of shares of common stock.




     Possible
Negative Effects of the New OPPSs


     
Although we do not believe that the sale of the New OPPSs will
have an antitakeover effect, the New OPPSs could increase the
potential cost of acquiring control of the Company and thereby
discourage an attempt to take control of the Company. However,
our Board of Directors is not aware of any attempt to take
control of the Company, and our Board of Directors has not
approved the sale of the New OPPSs with the intention of
discouraging any such attempt.




     
If with respect to any series of New OPPSs, the threshold return
over the Measurement Period is achieved, then the New LLC that
holds such series of New OPPSs will be entitled to receive the
same distributions and allocations as the holder of a similar
number of OP Units of UDR LP. This could have a dilutive
effect on future earnings per share of our common stock and on
our equity ownership in UDR LP. However, the dilutive impact of
each series of New OPPSs will be limited to 1.0%.