Document:

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%.exv10w02

 

Exhibit
10.02

Description
of the
Series C Out-Performance Program

General

     
The New Out-Performance Program, including the Series C
Out-Performance Program, of United Dominion Realty Trust, Inc. (the
“Company”), was approved by the
Company’s stockholders at the Company’s Annual Meeting of
Stockholders held on May 3, 2005. 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 first series of new
out-performance partnership shares, or “New OPPSs,” to be issued under the New-Out Performance Program will be the Series
C Out-Performance Shares, referred to herein as the “Series C OPPSs.”  The principal
terms of the Series C OPPSs that the Company intends to offer to
participants in 2005 are the principal terms set forth below in the description of the New OPPSs
and as described in Exhibit 10.01 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 Series C
Out-Performance Program is designed to provide participants with
the possibility of substantial returns on their investment if the total
return of 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,
including the Series C Out-Performance Program, will be administered
by the Compensation Committee of the Company’s Board of Directors.

Overview of 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 the Company’s 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’s and thereby
discourage an attempt to take control of the Company. However,
the Company’s Board of Directors is not aware of any attempt to take
control of the Company, and the 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
the Company’s equity ownership in UDR LP. However, the dilutive impact of
each series of New OPPSs will be limited to 1.0%.

Series
C Out-Performance Program

Terms
of the Series C OPPSs

     
The principal terms of the Series C OPPSs that the Company intends to
offer to participants in 2005 are the principal terms set forth above
in the description of the New OPPSs under the New Out-Performance
Program.

Participants

     
For the Series C OPPSs, participation rights will be
approximately as follows:

	 	 	 	 	 
	 	 	Percentage of Units	
	Participant	 	to be Offered	
	 	 	 	
	
    
    Thomas W. Toomey

    	 	 	25-33%	 
	
    
    W. Mark Wallis

    	 	 	10-12%	 
	
    
    Christopher D. Genry

    	 	 	10-12%	 
	
    
    Martha R. Carlin

    	 	 	8-10%	 
	
    
    Richard A. Giannotti

    	 	 	8-10%	 
	
    
    Rodney A. Neuheardt

    	 	 	5-8%	 
	
    
    Scott A. Shanaberger

    	 	 	5-8%	 
	
    
    Mark E. Wood

    	 	 	5-8%	 
	
    
    Patrick S. Gregory

    	 	 	5-8%	 
	
    
    Lester C. Boeckel

    	 	 	5-8%	 
	
    
    Michael J. Kelly

    	 	 	5-8%	 
	
    
    Thomas A. Spangler

    	 	 	5-8%	 
	
    
    Matthew T. Akin

    	 	 	5-8%	 
	
    
    Other Executive Officers as a Group

    	 	 	5-8%	 
	
    
    Non-Executive Officers as a Group

    	 	 	0%	 

Purchase
Price

     
The purchase price for the Series C OPPSs has been
determined by the Compensation Committee to be $750,000,
assuming 100% participation, and was based upon the advice of an
independent valuation expert. The valuation took into account
that any investment in the Series C OPPSs will become
worthless if the targeted Total Return (as defined below) is not achieved. The
value of the Series C OPPSs also has been discounted
significantly because of the restrictions on transfer and the
limited redemption rights provided for with respect to the
Series C OPPSs.

 

     
Subscription

     
Any executive officer or other
key employee of the Company who is provided the opportunity to invest is under
no obligation to exercise that right. The Series C OPPSs
must be initially subscribed within 60 days of stockholder
approval. However, the New LLC that will hold the
Series C OPPSs has the right, but not the obligation, to
repurchase units from members whose employment with the Company
terminates and such units may be retained or re-sold by the New
LLC to selected executive officers or other key employees of the
Company. If some of those eligible to participate elect not to
participate, the remaining OPPSs may be reoffered in the future
to existing participants or other executive officers or key
employees.

     
Measurement
Period

     
The Company’s performance for the Series C OPPSs will
be measured over a 36-month, period beginning June 1, 2005.
The New LLC that holds the Series C OPPSs will have no
right to receive distributions or allocations of income or loss,
or to redeem those shares prior to the date, referred to as the
“Series C Valuation Date,” that is the earlier of (i) the
expiration of the measurement period for the series
(May 30, 2008), 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).

     
Payments to Participants

     
The Series C OPPSs will only be entitled to receive
distributions and allocations of income and loss if, as of the
Series C Valuation Date, the cumulative Total Return of the Company's common stock
during the measurement period is at least the equivalent of a
36% Total Return or 12% annualized (the “Minimum
Return”).

     
If the threshold is met, holders of the Series C 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 a similar number of OP Units, obtained by:

		
	 	     
    (i) determining the amount by which the cumulative Total
    Return of the Company's common stock over the measurement period exceeds
    the Minimum Return (such excess being the “Excess
    Return”);
	 
	 	     
    (ii) multiplying 2.0% of the Excess Return by our Market
    Capitalization; and
	 
	 	     
    (iii) dividing the number obtained in clause (ii) by
    the market value of one share of the Company's common stock on the
    Series C Valuation Date, computed as the volume-weighted average price
    per day of the Company's common stock for the 20 trading days
    immediately preceding the Series C Valuation Date.

     
For the Series C OPPSs, the number determined pursuant to
clause (ii) in the preceding paragraph is capped at 1% of
Market Capitalization. “Market Capitalization” is
defined as the average number of shares outstanding over the
36-month period (including common stock, common stock
equivalents and OP Units) multiplied by the daily closing
price of the Company's common stock.

     
“Total Return” means, for any security and for any
period, the cumulative total return for such security over such
period, assuming that all cash dividends are reinvested in such
security as of the payment date for such dividend based on the
security price on the dividend payment date, computed by taking
the market value of the accumulated shares at the end of the
period (including fractional shares acquired with dividend
proceeds) and dividing by the market value of a share at the
beginning of the period.

     
Forfeiture of Investment

     
If, on the Series C Valuation Date, the cumulative Total Return of the Company's common stock does not meet the Minimum Return and there is no
Excess Return, then holders of Series C OPPSs will forfeit
their initial investment.

 

       Examples
of the Value of Series C OPPSs

     
The following table illustrates the value of the Series C
OPPSs under different share prices and Total Returns at the
Series C Valuation Date, assuming the starting price of the Company’s common stock
for the valuation period was $22.00.

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Value to Stockholders		 	 
	 	 	 		 	Value of Series C	
	 	 	United Dominion		 	Stockholder Value		 	OPPSs	
	Stock Price at Series C Valuation Date	 	Total Return (1)		 	Achieved(2)		 	to Participants(3)	
	 	 	 		 	 		 	 	
	 	 	 	 	(Million)		 	(Million)	
	
    
    $23.00

    	 	 	21.59	%	 	$	173	 	 	$	—	 
	
    
    $24.00

    	 	 	26.14	 	 	 	324	 	 	 	—	 
	
    
    $25.00

    	 	 	30.68	 	 	 	475	 	 	 	—	 
	
    
    $26.00

    	 	 	35.23	 	 	 	625	 	 	 	—	 
	
    
    $27.00

    	 	 	39.77	 	 	 	776	 	 	 	2.81	 
	
    
    $28.00

    	 	 	44.32	 	 	 	927	 	 	 	6.29	 
	
    
    $29.00

    	 	 	48.86	 	 	 	1,078	 	 	 	9.91	 
	
    
    $30.00

    	 	 	53.41	 	 	 	1,229	 	 	 	13.67	 
	
    
    $31.00

    	 	 	57.95	 	 	 	1,380	 	 	 	17.56	 
	
    
    $32.00

    	 	 	62.50	 	 	 	1,531	 	 	 	21.59	 
	
    
    $33.00

    	 	 	67.05	 	 	 	1,682	 	 	 	25.76	 
	
    
    $34.00

    	 	 	71.59	 	 	 	1,833	 	 	 	30.07	 
	
    
    $35.00

    	 	 	76.14	 	 	 	1,984	 	 	 	34.51	 
	
    
    $36.00

    	 	 	80.68	 	 	 	2,135	 	 	 	39.09	 
	
    
    $37.00

    	 	 	85.23	 	 	 	2,286	 	 	 	43.80	 

 

		
	(1) 	
    Total Return to our stockholders, assuming a 3% dividend growth
    rate.
	 
	(2) 	
    Total Return multiplied by beginning market capitalization of
    $3.3 billion (based on 150,000,000 outstanding shares of
    common stock, common stock equivalents and OP Units, and an
    assumed per share price of $22.00 at the beginning of the
    Series C OPPSs measurement period).
	 
	(3) 	
    Out-Performance stockholder value multiplied by management
    participation of 2% subject to 1% dilution limit.

     
The numbers used in the table above are for illustrative purposes
only, and actual outcomes may not be within the ranges used. The
results set forth in the table may be affected by the market
value of the Company’s common stock during any Measurement Period, general
economic conditions, local real estate conditions and the Company’s
dividend policy.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00084-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00084-of-00352.parquet"}]]