-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AW7P1fhjrOiEd0zxby8OUJguRK/+9CbwIfFXhW+TmxC017nZFpCGMr/btuB4/pE1 hxUWxvD6k6a56hA/bGyl3g== 0000950168-02-001033.txt : 20020423 0000950168-02-001033.hdr.sgml : 20020423 ACCESSION NUMBER: 0000950168-02-001033 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20020423 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED DOMINION REALTY TRUST INC CENTRAL INDEX KEY: 0000074208 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 540857512 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-86808 FILM NUMBER: 02618859 BUSINESS ADDRESS: STREET 1: 400 EAST CARY STREET CITY: RICHMOND STATE: VA ZIP: 23219-3802 BUSINESS PHONE: 8047802691 MAIL ADDRESS: STREET 1: 400 EAST CARY STREET CITY: RICHMOND STATE: VA ZIP: 23219-3802 FORMER COMPANY: FORMER CONFORMED NAME: OLD DOMINION REIT ONE DATE OF NAME CHANGE: 19770921 FORMER COMPANY: FORMER CONFORMED NAME: OLD DOMINION REAL ESTATE INVESTMENT TRUS DATE OF NAME CHANGE: 19741216 FORMER COMPANY: FORMER CONFORMED NAME: OLD DOMINION REAL ESTATE INVESTMENT TRUST DATE OF NAME CHANGE: 19850110 S-3 1 ds3.txt FORM S-3 As filed with the Securities and Exchange Commission on April 23, 2002 Registration No. 333-_____ SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ----------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 UNITED DOMINION REALTY TRUST, INC. (Exact name of registrant as specified in its charter) Virginia 54-0857512 (State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
400 East Cary Street Richmond, Virginia 23219 (804)780-2691 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Christopher D. Genry Chief Financial Officer United Dominion Realty Trust, Inc. 400 East Cary Street Richmond, Virginia 23219 (804) 780-2691 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copy to: David C. Wright Hunton & Williams Riverfront Plaza, East Tower 951 East Byrd Street Richmond, Virginia 23219-4074 (804) 788-8267 Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box.[X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.[_] CALCULATION OF REGISTRATION FEE
============================================================================================================================= Proposed Maximum Proposed Maximum Title of Each Class of Amount Being Offering Price Aggregate Offering Amount of Securities Being Registered Registered Per Unit (1) Price (1) Registration Fee - ----------------------------------------------------------------------------------------------------------------------------- Common Stock, $1.00 par value (including associated rights) 12,307,692 shares (2) $15.64 $192,492,303 $17,709 =============================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) of the Securities Act of 1933, as amended, based on the average of the high and low sale prices on the New York stock exchange on April 22, 2002. (2) Plus such additional shares of common stock that become issuable in connection with the shares registered for sale hereby by reason of any stock dividend, stock split, recapitalization or other similar transaction effected without the receipt of consideration that results in an increase in the number of our outstanding shares of common stock. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ + The information in the preliminary prospectus is not complete and may be + + changed. These securities may not be sold until the registration statement + + filed with the Securities and Exchange Commission is effective. This + + preliminary prospectus is not an offer to sell nor does it seek an offer to + + buy these securities in any jurisdiction where the offer or sale is not + + permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED APRIL 23, 2002 12,307,692 United Dominion Realty Trust, Inc. Common Stock This prospectus relates to 12,307,692 shares of common stock, $1.00 par value, of United Dominion Realty Trust, Inc., which may be offered from time to time by one of our shareholders. The shares may be sold directly by the selling shareholder, or by its pledgee, donee, transferee or other successor in interest: . in underwritten public offerings; . in ordinary brokerage transactions on securities exchanges, including the New York Stock Exchange; . to or through brokers or dealers who may act as principal or agent; or . in one or more negotiated transactions. The selling shareholder and the brokers or dealers through or to whom the shares of common stock may be sold may be deemed underwriters of the shares within the meaning of the Securities Act of 1933, in which event all brokerage commissions or discounts and other compensation received by those brokers or dealers may be deemed underwriting compensation. To the extent required, the names of any underwriters and applicable commissions or discounts and any other required information with respect to any particular sale will be set forth in an accompanying prospectus supplement. See "Plan of Distribution" on page 23 for a further description of how the selling shareholder may dispose of the shares covered by this prospectus. We will not receive any of the proceeds from sales of common stock made by the selling shareholder pursuant to this prospectus. Our common stock is listed on the New York Stock Exchange under the symbol "UDR." On April 22, 2002, the last reported sale price of our common stock was $15.45 per share. Investing in our common stock involves risks. See "Risks of Investment" beginning on page 2 for certain risks and uncertainties that you should consider. Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. The date of this prospectus is ________, 2002. ABOUT THIS PROSPECTUS This prospectus is part of a resale registration statement. The selling shareholder may sell some or all of its shares in one or more transactions from time to time. You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone else to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. You should assume that the information appearing in this prospectus, as well as the information we previously filed with the SEC and incorporated by reference, is accurate only as of the date of the documents containing the information. HOW TO OBTAIN MORE INFORMATION We file reports, proxy statements and other information with the SEC. You may read any document we file at the SEC's public reference room at 450 Fifth Street, NW, Room 1024, Washington, D.C. 20549. Please call the SEC toll free at 1-800-SEC-0330 for information about its public reference rooms. You also may read our filings at the SEC's Web site at http://www.sec.gov. ------------------ We have filed with the SEC a registration statement on Form S-3 (File No. 333-_____) under the Securities Act of 1933. This prospectus does not contain all of the information in the registration statement. We have omitted certain parts of the registration statement, as permitted by the rules and regulations of the SEC. You may inspect and copy the registration statement, including exhibits, at the SEC's public reference facilities or Web site. Our statements in this prospectus about the contents of any contract or other document are not necessarily complete. You should refer to the copy of each contract or other document we have filed as an exhibit to the registration statement for complete information. INCORPORATION OF INFORMATION FILED WITH THE SEC The SEC allows us to "incorporate by reference" into this prospectus the information we file with the SEC which means that we have disclosed important information to you by referring you to those documents. The information we incorporate by reference is considered a part of this prospectus, and information that we file later with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 prior to completion of this offering. . Annual Report on Form 10-K for the year ended December 31, 2001. . Current Reports on Form 8-K and amendments filed January 4, January 16, January 22, March 6, March 15 and March 19, 2002, except with regard to the disclosure in such reports pursuant to Item 9, Regulation FD Disclosure, which disclosure shall not be considered "filed" under the Exchange Act or incorporated by reference into this prospectus or any other filing under the Securities Act. . The description of our common stock contained in our registration statement on Form 8-A dated April 19, 1990, including any amendment filed for the purpose of updating that description. 1 RISKS OF INVESTMENT Unless the context otherwise requires, all references to "we," "us," "the company" or "our company" in this prospectus refer collectively to United Dominion Realty Trust, Inc., a Virginia corporation, and its subsidiaries. Before you invest in our securities, you should be aware that there are risks involved in the investment. You should consider carefully these risks together with all of the information included or incorporated by reference in this prospectus before you decide to purchase our securities. This section includes or refers to certain forward-looking statements; you should refer to the explanation of the qualifications and limitations on such forward-looking statements discussed on page 7. Unfavorable Changes in Apartment Market and Economic Conditions Could Adversely Affect Occupancy Levels and Rental Rates Market and economic conditions in the various metropolitan areas of the United States in which we operate may significantly affect our occupancy levels and rental rates and therefore our profitability. This may impair our ability to satisfy our financial obligations and pay distributions to our shareholders. Factors that may adversely affect these conditions include the following: . a reduction in jobs and other local economic downturns; . oversupply of, or reduced demand for, apartment homes; . declines in household formation; and . rent control or stabilization laws, or other laws regulating rental housing, which could prevent us from raising rents to offset increases in operating costs. The weakness in the United States economy has been exacerbated by the events of September 11, 2001, as well as by the United States' war on terrorism. The weak economy has adversely affected employment and other significant elements of the economy that drive productivity and the financial strength of businesses. Any continuation or worsening of current economic conditions, generally and in our principal market areas, could have a material adverse effect on our occupancy levels, our rental rates and our ability to strategically acquire and dispose of apartment communities. This may impair our ability to satisfy our financial obligations and pay distributions to our shareholders. Acquisitions or New Development May Not Achieve Anticipated Results We intend to continue to selectively acquire apartment communities that meet our investment criteria. Our acquisition activities and their success may be exposed to the following risks: . An acquired community may fail to perform as we expected in analyzing our investment, or a significant exposure related to the acquired property may go undetected during our due diligence procedures. . When we acquire an apartment community, we often invest additional amounts in it with the intention of increasing profitability. These additional investments may not produce the anticipated improvements in profitability. 2 . New developments may not achieve forecasted rents or occupancy levels or problems with construction or local building codes may delay initial occupancy dates for all or a portion of a development community. Possible Difficulty of Selling Apartment Communities Could Limit Operational and Financial Flexibility We periodically dispose of apartment communities that no longer meet our strategic objectives. There can be no assurance that potential purchasers will be willing to pay prices acceptable to us. A weak market may limit our ability to change our portfolio promptly in response to changing economic conditions. Furthermore, a significant portion of the proceeds from our overall property sales may be held in escrow accounts in order for some sales to qualify as a like-kind exchange under Section 1031 of the Internal Revenue Code so that any related capital gain can be deferred for federal income tax purposes. As a result, we may not have immediate access to all of the cash flow generated from our property sales. In addition, federal tax laws limit our ability to profit on the sale of communities that we have owned for fewer than four years, and this limitation may prevent us from selling communities when market conditions are favorable. Increased Competition Could Limit Our Ability to Lease Apartment Homes or Increase or Maintain Rents Our apartment communities compete with numerous housing alternatives in attracting residents, including other apartment communities and single-family rental homes, as well as owner occupied single- and multi-family homes. Competitive housing in a particular area could adversely affect our ability to lease apartment homes and increase or maintain rents. Insufficient Cash Flow Could Affect Our Debt Financing and Create Refinancing Risk We are subject to the risks normally associated with debt financing, including the risk that our cash flow will be insufficient to make required payments of principal and interest or restrict our borrowing capacity under our line of credit due to debt covenant restraints. We cannot assure you that sufficient cash flow will be available to make all required principal payments and still satisfy our distribution requirements to maintain our status as a REIT, nor can we assure you that the full limits of our line of credit will be available to us if our operating performance falls outside the constraints of our debt covenants. Additionally, we are likely to need to refinance substantially all of our outstanding debt as it matures. We may not be able to refinance existing debt, or the terms of any refinancing may not be as favorable as the terms of the existing debt, which could create pressures to sell assets or to issue additional equity when we would otherwise choose not to do so. Failure to Generate Sufficient Revenue Could Impair Debt Service Payments and Distributions to Shareholders If our apartment communities do not generate sufficient net rental income to meet rental expenses, our ability to make required payments of interest and principal on our debt securities and to pay distributions to our shareholders will be adversely affected. The following factors, among others, may affect the net rental income generated by our apartment communities: . the national and local economies; . local real estate market conditions, such as an oversupply of apartment homes; 3 . tenants' perceptions of the safety, convenience and attractiveness of our communities and the neighborhoods where they are located; . our ability to provide adequate management, maintenance and insurance; and . rental expenses, including real estate taxes and utilities. Expenses associated with our investment in a community, such as debt service, real estate taxes, insurance and maintenance costs, are generally not reduced when circumstances cause a reduction in rental income from that community. If a community is mortgaged to secure payment of debt and we are unable to make the mortgage payments, we could sustain a loss as a result of foreclosure on the community or the exercise of other remedies by the mortgagee. Debt Level May Be Increased Our current debt policy does not contain any limitations on the level of debt that we may incur, although our ability to incur debt is limited by covenants in our bank and other credit agreements. We manage our debt to be in compliance with these debt covenants, but subject to compliance with these covenants, we may increase the amount of our debt at any time without a concurrent improvement in our ability to service the additional debt. Financing May Not Be Available and Could be Dilutive Our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing, including common and preferred equity. Debt or equity financing may not be available in sufficient amounts, or on favorable terms or at all. If we issue additional equity securities to finance developments and acquisitions instead of incurring debt, the interests of our existing shareholders could be diluted. Development and Construction Risks Could Impact Our Profitability We intend to continue to develop and construct apartment communities. Development activities may be conducted through wholly-owned affiliated companies or through joint ventures with unaffiliated parties. Our development and construction activities may be exposed to the following risks: . We may be unable to obtain, or face delays in obtaining, necessary zoning, land-use, building, occupancy, and other required governmental permits and authorizations, which could result in increased development costs and could require us to abandon our activities entirely with respect to a project for which we are unable to obtain permits or authorizations. . If we are unable to find joint venture partners to help fund the development of a community or otherwise obtain acceptable financing for the developments, our development potential may be limited. . We may abandon development opportunities that we have already begun to explore, and we may fail to recover expenses already incurred in connection with exploring them. 4 . We may be unable to complete construction and lease-up of a community on schedule, or incur development or construction costs that exceed our original estimates, and we may be unable to charge rents that would compensate for any increase in such costs. . Occupancy rates and rents at a newly developed community may fluctuate depending on a number of factors, including market and economic conditions, preventing us from meeting our profitability goals for that community. Construction costs have been increasing in our existing markets, and the costs of upgrading acquired communities have, in some cases, exceeded our original estimates. We may experience similar cost increases in the future. Our inability to charge rents that will be sufficient to offset the effects of any increases in these costs may impair our profitability. Failure to Succeed in New Markets May Limit Our Growth We may from time to time make acquisitions outside of our existing market areas if appropriate opportunities arise. We may be exposed to a variety of risks if we choose to enter new markets and we may not be able to operate successfully in new markets. These risks include, among others: . inability to evaluate accurately local apartment market conditions and local economies; . inability to obtain land for development or to identify appropriate acquisition opportunities; . inability to hire and retain key personnel; and . lack of familiarity with local governmental and permitting procedures. Changing Interest Rates Could Increase Interest Costs and Could Affect the Market Price of Our Securities We currently have, and expect to incur in the future, debt bearing interest at rates that vary with market interest rates. Therefore, if interest rates increase, our interest costs will rise to the extent our variable rate debt is not hedged effectively. In addition, an increase in market interest rates may lead purchasers of our securities to demand a higher annual yield, which could adversely affect the market price of our common and preferred stock and debt securities. Limited Investment Opportunities Could Adversely Affect Our Growth We expect that other real estate investors will compete with us to acquire existing properties and to develop new properties. These competitors include insurance companies, pension and investment funds, developer partnerships, investment companies and other apartment REITs. This competition could increase prices for properties of the type that we would likely pursue, and our competitors may have greater resources than we do. As a result, we may not be able to make attractive investments on favorable terms, which could adversely affect our growth. 5 Failure to Integrate Acquired Communities and New Personnel Could Create Inefficiencies To grow successfully, we must be able to apply our experience in managing our existing portfolio of apartment communities to a larger number of properties. In addition, we must be able to integrate new management and operations personnel as our organization grows in size and complexity. Failures in either area will result in inefficiencies that could adversely affect our expected return on our investments and our overall profitability. Interest Rate Hedging Contracts May Be Ineffective and May Result in Material Charges From time to time when we anticipate issuing debt securities, we may seek to limit our exposure to fluctuations in interest rates during the period prior to the pricing of the securities by entering into interest rate hedging contracts. We may do this to increase the predictability of our financing costs. Also, from time to time we may rely on interest rate hedging contracts to limit our exposure under variable rate debt to unfavorable changes in market interest rates. If the pricing of new debt securities is not within the parameters of, or market interest rates produce a lower interest cost than that which we incur under a particular interest rate hedging contract, the contract is ineffective. Furthermore, the settlement of interest rate hedging contracts has involved and may in the future involve material charges. Potential Liability for Environmental Contamination Could Result in Substantial Costs Under various federal, state and local environmental laws, as a current or former owner or operator, we could be required to investigate and remediate the effects of contamination of currently or formerly owned real estate by hazardous or toxic substances, often regardless of our knowledge of or responsibility for the contamination and solely by virtue of our current or former ownership or operation of the real estate. In addition, we could be held liable to a governmental authority or to third parties for property damage and for investigation and clean-up costs incurred in connection with the contamination. These costs could be substantial, and in many cases environmental laws create liens in favor of governmental authorities to secure their payment. The presence of such substances or a failure to properly remediate any resulting contamination could materially and adversely affect our ability to borrow against, sell or rent an affected property. Compliance With REIT Share Ownership Limit May Prevent Takeovers Beneficial to Shareholders One of the requirements for maintenance of our qualification as a REIT for federal income tax purposes is that no more than 50% in value of our outstanding capital stock may be owned by five or fewer individuals, including entities specified in the Internal Revenue Code, during the last half of any taxable year. Our charter includes provisions allowing us to stop transfers of and redeem our shares that are intended to assist us in complying with this requirement. These provisions may have the effect of delaying, deferring or preventing someone from taking control of us, even though a change of control might involve a premium price for our shareholders or might otherwise be in our shareholders' best interests. See the subsection entitled "Requirements for Qualification" in the section entitled "Federal Income Tax Consequences of Our Status as a REIT" in this prospectus. Failure to Qualify as a REIT Would Cause Us to Be Taxed as a Corporation, Which Would Significantly Lower Funds Available For Distribution to Our Shareholders If we fail to qualify as a REIT for federal income tax purposes, we would be taxed as a corporation. We cannot assure you that we are qualified as a REIT or that we will remain qualified as a REIT in the future. Qualification as a REIT involves the application of highly technical and complex 6 provisions of the federal income tax laws, as to which there are only limited judicial and administrative interpretations, and requires favorable determination of various factual matters and circumstances not entirely within our control. In addition, future legislation, new regulations, administrative interpretations or court decisions may significantly change the tax laws or the application of the tax laws with respect to our qualification as a REIT for federal income tax purposes or the federal income tax consequences of our qualification. If, in any taxable year, we fail to qualify as a REIT, we would be subject to federal income tax on our taxable income at regular corporate rates, plus any applicable alternative minimum tax. In addition, unless we are entitled to relief under applicable statutory provisions, we would be disqualified from treatment as a REIT for the four taxable years following the year in which we lose our qualification. The additional tax liability resulting from the failure to qualify as a REIT would significantly reduce or eliminate funds otherwise available for distribution to our shareholders. Furthermore, we would no longer be required to make distributions to our shareholders. See the section entitled "Federal Income Tax Consequences of our Status as a REIT" in this prospectus. Failure to Make Required Distributions Would Subject Us to Tax. In order to qualify as a REIT, each year we must pay out to our shareholders at least 90% of our taxable income, other than any net capital gain. To the extent that we satisfy the distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our shareholders in a calendar year is less than a minimum amount specified under federal tax laws. We may be required to borrow money or sell assets to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. The Ability of Our Shareholders to Control Our Policies and Effect a Change of Control of Our Company is Limited, Which May Not Be in Our Shareholders' Best Interests In 1998, we adopted a shareholder rights plan. Under the terms of the shareholder rights plan, our Board of Directors can in effect prevent a person or group from acquiring more than 15% of the outstanding shares of our common stock. Unless our Board of Directors approves the person's purchase, after that person acquires more than 15% of our outstanding common stock, all other shareholders will have the right to purchase securities from us at a price that is less than their then fair market value. Purchases by other shareholders would substantially reduce the value and influence of the shares of our common stock owned by the acquiring person. Our Board of Directors, however, can prevent the shareholder rights plan from operating in this manner. This gives our Board of Directors significant discretion to approve or disapprove a person's efforts to acquire a large interest in us. FORWARD-LOOKING INFORMATION We have included in this document, and in the documents incorporated by reference in this document, statements containing "forward-looking information," as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking information, by its nature, involves estimates, projections, goals, forecasts, assumptions, risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in a statement that contains forward-looking information. Such forward-looking statements include, without limitation, statements concerning property acquisitions and dispositions, development activity and capital expenditures, capital raising activities, rent growth, occupancy and rental expense growth. Examples of statements containing 7 forward-looking information that we make in this document include, but are not limited to, statements regarding our expectations, beliefs, plans, goals, objectives and future financial or other performance. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. Any statement containing forward-looking information speaks only as of the date on which it is made; and, except to fulfill our obligations under the United States securities laws, we undertake no obligation to update any such statement to reflect events or circumstances after the date on which it is made. Examples of factors that can affect our expectations, beliefs, plans, goals, objectives and future financial or other performance include, but are not limited to, the matters described in "Risk Factors" herein or in reports we file with the SEC from time to time. All such factors are difficult to predict, contain uncertainties that may materially affect actual results, and may be beyond our control. New factors emerge from time to time, and it is not possible for our management to predict all of such factors or to assess the effect of each such factor on our business. Although we believe 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 a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. 8 UNITED DOMINION REALTY TRUST, INC. We are a self-administered equity real estate investment trust that owns, acquires, renovates, develops and manages middle market apartment communities nationwide. We operate as a real estate investment trust, or REIT, under the applicable provisions of the Internal Revenue Code of 1986, as amended. To qualify, we must meet certain tests which, among other things, require that our assets consist primarily of real estate, our income be derived primarily from real estate and at least 90% of our taxable income be distributed to our preferred and common shareholders. Because we qualify as a REIT, we are generally not subject to federal income taxes. Our principal executive office is located at 1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado 80129. The telephone number of our principal executive offices is (720) 283-6120. Our corporate headquarters is located at 400 East Cary Street, Richmond, Virginia 23219. The telephone number of our corporate headquarters is (804) 780-2691. USE OF PROCEEDS We will receive no proceeds from the sale of the shares by the selling shareholder. THE SELLING SHAREHOLDER The following table sets forth the number of shares owned by the selling shareholder. No estimate can be given as to the amount of shares that will be held by the selling shareholder after completion of this offering because the selling shareholder may offer all or some of the shares and because there currently are no agreements, arrangements or understandings with respect to the sale of any of the shares. The shares are being registered to permit public secondary trading of the shares, and the selling shareholder may offer the shares for resale from time to time. We agreed to file the registration statement with the SEC for the benefit of the selling shareholder and to keep it effective until the earlier of the date that the selling shareholder has sold all of the shares offered under this prospectus or the date that all of the shares under this prospectus may be sold in accordance with Rule 144(k) under the Securities Act of 1933. The shares offered by this prospectus have been or may be issued by us to the selling shareholder upon the selling shareholder's conversion of 8,000,000 shares of our Series D Cumulative Convertible Preferred Stock held by the selling shareholder. When the selling shareholder acquired this preferred stock, we granted the selling shareholder consultation rights with respect to actions of our company for so long as the selling shareholder held the equivalent of 2,000,000 shares of the preferred stock. We have agreed to consult the selling shareholder regarding certain major decisions including: . appointment and dismissal of senior management and auditors; . development of our business strategy; . entering into acquisitions and dispositions exceeding $100,000,000; . termination of our status as a REIT; 9 . change of control transactions; and . termination of our operating partnership's status as a limited partnership. The shares offered by this prospectus may be offered from time to time by the following selling shareholder or by its pledgee, donee, transferee or other successor in interest:
NUMBER OF SHARES NUMBER OF SHARES OF OF COMMON STOCK SERIES D PREFERRED COVERED BY THIS NAME OF SELLING SHAREHOLDER STOCK OWNED PROSPECTUS (1)(2) --------------------------- ----------- ----------------- Security Capital Preferred Growth Incorporated 8,000,000 12,307,692
(1) This prospectus also shall cover any additional shares of common stock that become issuable in connection with the shares registered for sale hereby by reason of any stock dividend, stock split, recapitalization or other similar transaction effected without the receipt of consideration that results in an increase in the number of our outstanding shares of common stock. (2) Represents the current maximum number of shares of common stock that the selling shareholder currently can receive upon conversion of the Preferred Stock. FEDERAL INCOME TAX CONSEQUENCES OF OUR STATUS AS A REIT The following is a summary of material federal income tax considerations that may be relevant to a prospective holder of the common stock. The discussion does not address all aspects of taxation that may be relevant to particular shareholders in light of their personal investment or tax circumstances, or to certain types of shareholders who are subject to special treatment under the federal income tax laws, such as insurance companies, financial institutions or broker-dealers, and, except as discussed below, tax-exempt organizations, foreign corporations, and persons who are not citizens or residents of the United States. The statements in this discussion are based on current provisions of the Internal Revenue Code of 1986, as amended, existing, temporary, and final Treasury regulations thereunder, and current administrative rulings and court decisions. No assurance can be given that future legislative, judicial, or administrative actions or decisions, which may be retroactive in effect, will not affect the accuracy of any statements in this Prospectus with respect to the transactions entered into or contemplated prior to the effective date of such changes. - -------------------------------------------------------------------------------- We urge you to consult your own tax advisor regarding the specific tax consequences to you of ownership of our common stock and of our election to be taxed as a REIT. Specifically, you should consult your own tax advisor regarding the federal, state, local, foreign, and other tax consequences of such ownership and election, and regarding potential changes in applicable tax laws. - -------------------------------------------------------------------------------- Taxation of United Dominion We elected to be taxed as a REIT under the federal income tax laws commencing with our taxable year ended December 31, 1972. We believe that, commencing with such taxable year, we have been organized and have operated in such a manner as to qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to continue to qualify as a REIT. This section discusses the laws governing the federal income tax treatment of a REIT and its shareholders. These laws are highly technical and complex. 10 Our qualification and taxation as a REIT depend upon our ability to meet on a continuing basis, through actual annual operating results, certain qualification tests set forth in the federal tax laws. Those qualification tests involve the percentage of income that we earn from specified sources, the percentage of our assets that falls within specified categories, the diversity of our share ownership, and the percentage of our earnings that we distribute. The REIT qualification tests are described in more detail below. No assurance can be given that the actual results of our operation for any particular taxable year will satisfy such requirements. For a discussion of the tax consequences of our failure to qualify as a REIT, see "--Failure to Qualify." If we qualify as a REIT, we generally will not be subject to federal income tax on the taxable income that we distribute to our shareholders. The benefit of that tax treatment is that it avoids the "double taxation," or taxation at both the corporate and shareholder levels, that generally results from owning stock in a corporation. However, we will be subject to federal tax in the following circumstances: . We will pay federal income tax on taxable income, including net capital gain, that we do not distribute to our shareholders during, or within a specified time period after, the calendar year in which the income is earned. . We may be subject to the "alternative minimum tax" on any items of tax preference that we do not distribute or allocate to our shareholders. . We will pay income tax at the highest corporate rate on (1) net income from the sale or other disposition of property acquired through foreclosure ("foreclosure property") that we hold primarily for sale to customers in the ordinary course of business and (2) other non-qualifying income from foreclosure property. . We will pay a 100% tax on net income from sales or other dispositions of property, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business. . If we fail to satisfy the 75% gross income test or the 95% gross income test, as described below under "--Requirements for Qualification--Income Tests," and nonetheless continue to qualify as a REIT because we meet other requirements, we will pay a 100% tax on (1) the gross income attributable to the greater of the amounts by which we fail the 75% and 95% gross income tests, multiplied by (2) a fraction intended to reflect our profitability. . If we fail to distribute during a calendar year at least the sum of (1) 85% of our REIT ordinary income for such year, (2) 95% of our REIT capital gain net income for such year, and (3) any undistributed taxable income from prior periods, we will pay a 4% excise tax on the excess of such required distribution over the amount we actually distributed. . We may elect to retain and pay income tax on our net long-term capital gain. In that case, a U.S. shareholder would be taxed on its proportionate share of our undistributed long-term capital gain and would receive a credit or refund for its proportionate share of the tax we paid. . If we acquire any asset from a C corporation, or a corporation that generally is subject to full corporate-level tax, in a merger or other transaction in which we acquire a basis 11 in the asset that is determined by reference to the C corporation's basis in the asset, we will pay tax at the highest regular corporate rate applicable if we recognize gain on the sale or disposition of such asset during the 10-year period after we acquire such asset. The amount of gain on which we will pay tax generally is the lesser of: - the amount of gain that we recognize at the time of the sale or disposition; and - the amount of gain that we would have recognized if we had sold the asset at the time we acquired the asset. . We will incur a 100% excise tax on transactions with a "taxable REIT subsidiary" that are not conducted on an arm's-length basis. Requirements for Qualification A REIT is a corporation, trust, or association that meets the following requirements: . it is managed by one or more trustees or directors; . its beneficial ownership is evidenced by transferable shares, or by transferable certificates of beneficial interest; . it would be taxable as a domestic corporation, but for the REIT provisions of the federal income tax laws; . it is neither a financial institution nor an insurance company subject to special provisions of the federal income tax laws; . at least 100 persons are beneficial owners of its shares or ownership certificates; . no more than 50% in value of its outstanding shares or ownership certificates is owned, directly or indirectly, by five or fewer individuals, as defined in the federal income tax laws to include certain entities, during the last half of any taxable year; . it elects to be a REIT, or has made such election for a previous taxable year, and satisfies all relevant filing and other administrative requirements established by the Internal Revenue Service that must be met to elect and maintain REIT status; . it uses a calendar year for federal income tax purposes and complies with the recordkeeping requirements of the federal income tax laws; and . it meets certain other qualification tests, described below, regarding the nature of its income and assets. We must meet requirements 1 through 4 during our entire taxable year and must meet requirement 5 during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. If we comply with all the requirements for ascertaining the ownership of our outstanding shares in a taxable year and have no reason to know that we violated requirement 6, we will be deemed to have satisfied requirement 6 for such taxable year. For purposes of determining share ownership under requirement 6, an "individual" generally includes a supplemental 12 unemployment compensation benefits plan, a private foundation, or a portion of a trust permanently set aside or used exclusively for charitable purposes. An "individual," however, generally does not include a trust that is a qualified employee pension or profit sharing trust under the federal income tax laws, and beneficiaries of such a trust will be treated as holding shares of our stock in proportion to their actuarial interests in the trust for purposes of requirement 6. We have has issued sufficient common stock with enough diversity of ownership to satisfy requirements 5 and 6 set forth above. In addition, our charter restricts the ownership and transfer of the common stock so that we should continue to satisfy requirements 5 and 6. A corporation that is a "qualified REIT subsidiary" is not treated as a corporation separate from its parent REIT. All assets, liabilities, and items of income, deduction, and credit of a "qualified REIT subsidiary" are treated as assets, liabilities, and items of income, deduction, and credit of the REIT. A "qualified REIT subsidiary" is a corporation, all of the capital stock of which is owned by the REIT, other than a "taxable REIT subsidiary." Thus, in applying the requirements described herein, any "qualified REIT subsidiary" that we own will be ignored, and all assets, liabilities, and items of income, deduction, and credit of such subsidiary will be treated as our assets, liabilities, and items of income, deduction, and credit. In the case of a REIT that is a partner in a partnership, the REIT is treated as owning its proportionate share of the assets of the partnership and as earning its allocable share of the gross income of the partnership for purposes of the applicable REIT qualification tests. Thus, our proportionate share of the assets, liabilities, and items of income of any other partnership, joint venture, or limited liability company that is treated as a partnership for federal income tax purposes in which we own or will acquire an interest, directly or indirectly, are treated as our assets and gross income for purposes of applying the various REIT qualification requirements. REITs are permitted to own up to 100% of the stock of one or more "taxable REIT subsidiaries" ("TRSs"). A TRS is a fully taxable corporation that may provide services to our tenants without tainting our rent from the related properties and may perform activities unrelated to our tenants, such as third-party management, development, and other independent business activities. TRSs are subject to corporate income tax on their taxable income. We have formed and made elections for several TRSs. See "Other Tax Consequences--Taxable REIT Subsidiaries." Income Tests We must satisfy two gross income tests annually to maintain our qualification as a REIT. First, at least 75% of our gross income for each taxable year must consist of defined types of income that we derive, directly or indirectly, from investments relating to real property or mortgages on real property or temporary investment income. Qualifying income for purposes of that 75% gross income test generally includes: . rents from real property; . interest on debt secured by mortgages on real property or on interests in real property; . dividends or other distributions on and gain from the sale of shares in other REITs; and . gain from the sale of real estate assets. 13 Second, in general, at least 95% of our gross income for each taxable year must consist of income that is qualifying income for purposes of the 75% gross income test, other types of dividends and interest, gain from the sale or disposition of stock or securities, income from certain hedging transactions, or any combination of the foregoing. Gross income from our sale of property that we hold primarily for sale to customers in the ordinary course of business is excluded from both income tests. The following paragraphs discuss the specific application of the gross income tests to us. Rents from Real Property. Rent that we receive from real property that we own and lease to tenants will qualify as "rents from real property," which is qualifying income for purposes of the 75% and 95% gross income tests, only if the following conditions are met: . First, the rent must not be based, in whole or in part, on the income or profits of any person, but may be based on a fixed percentage or percentages of receipts or sales. . Second, neither we nor a direct or indirect owner of 10% or more of our stock may own, actually or constructively, 10% or more of a tenant from whom we receive rent (a "Related Party Tenant"). . Third, all of the rent received under a lease of real property will not qualify as "rents from real property" unless the rent attributable to the personal property leased in connection with such lease is no more than 15% of the total rent received under the lease. The rent attributable to the personal property contained in a hotel is the amount that bears the same ratio to total rent for the taxable year as the average of the fair market values of the personal property at the beginning and at the end of the taxable year bears to the average of the aggregate fair market values of both the real and personal property contained in the hotel at the beginning and at the end of such taxable year (the "personal property ratio"). Prior to January 1, 2001, the personal property ratio was computed based on relative adjusted tax bases instead of fair market values. . Fourth, we generally must not operate or manage our real property or furnish or render services to our tenants, other than through an "independent contractor" who is adequately compensated and from whom we do not derive revenue. However, we need not provide services through an "independent contractor," but instead may provide services directly to our tenants, if the services are "usually or customarily rendered" in connection with the rental of space for occupancy only and are not considered to be provided for the tenants' convenience. In addition, we may provide a minimal amount of "non-customary" services to the tenants of a property, other than through an independent contractor, as long as our income from the services does not exceed 1% of our income from the related property. Furthermore, we may own up to 100% of the stock of a TRS, which may provide customary and noncustomary services to our tenants without tainting our rental income from the related properties. See "--Taxable REIT Subsidiaries." We do not receive any rent that is based on the income or profits of any person. In addition, we do not own, directly or indirectly, 10% or more of any tenant. Furthermore, we believe that any personal property rented in connection with our apartment facilities is well within the 15% restriction. Finally, we do not provide services, other than within the 1% de minimis exception described above, to our tenants that are not customarily furnished or rendered in connection with the rental of the apartment units, other than through an independent contractor. 14 Our investment in apartment communities in major part gives rise to rental income that is qualifying income for purposes of the 75% and 95% gross income tests. Gains on sales of apartment communities, other than from prohibited transactions, as described below, or of our interest in a partnership generally will be qualifying income for purposes of the 75% and 95% gross income tests. We anticipate that income on our other investments will not result in our failing the 75% or 95% gross income test for any year. Prohibited Transactions. A REIT will incur a 100% tax on the net income derived from any sale or other disposition of property, other than foreclosure property, that the REIT holds primarily for sale to customers in the ordinary course of a trade or business. Whether a REIT holds an asset "primarily for sale to customers in the ordinary course of a trade or business" depends on the facts and circumstances in effect from time to time, including those related to a particular asset. We believe that none of our assets is held for sale to customers and that a sale of any such asset would not be in the ordinary course of the owning entity's business. We will attempt to comply with the terms of safe-harbor provisions in the federal income tax laws prescribing when an asset sale will not be characterized as a prohibited transaction. We cannot provide assurance, however, that we can comply with such safe-harbor provisions or that we will avoid owning property that may be characterized as property held "primarily for sale to customers in the ordinary course of a trade or business." Hedging Transactions. From time to time, we may enter into hedging transactions with respect to one or more of our assets or liabilities. Our hedging activities may include entering into interest rate swaps, caps, and floors, options to purchase such items, and futures and forward contracts. To the extent that we enter into an interest rate swap or cap contract, option, futures contract, forward rate agreement, or any similar financial instrument to hedge our indebtedness incurred to acquire or carry "real estate assets," any periodic income or gain from the disposition of such contract should be qualifying income for purposes of the 95% gross income test, but not the 75% gross income test. To the extent that we hedge with other types of financial instruments, or in other situations, it is not entirely clear how the income from those transactions will be treated for purposes of the gross income tests. We intend to structure any hedging transactions in a manner that does not jeopardize our status as a REIT. Failure to Satisfy Gross Income Tests. If we fail to satisfy one or both of the gross income tests for any taxable year, we nevertheless may qualify as a REIT for such year if we qualify for relief under certain provisions of the federal income tax laws. Those relief provisions generally will be available if: . our failure to meet such tests is due to reasonable cause and not due to willful neglect; . we attach a schedule of the sources of our income to our tax return; and . any incorrect information on the schedule was not due to fraud with intent to evade tax. We cannot predict, however, whether in all circumstances we would qualify for the relief provisions. In addition, as discussed above in "--Taxation of United Dominion," even if the relief provisions apply, we would incur a 100% tax on the gross income attributable to the greater of the 15 amounts by which we fail the 75% and 95% gross income tests, multiplied by a fraction intended to reflect our profitability. Asset Tests To maintain our qualification as a REIT, we also must satisfy the following asset tests at the close of each quarter of each taxable year: . First, at least 75% of the value of our total assets must consist of: - cash or cash items, including certain receivables; - government securities; - interests in real property, including leaseholds and options to acquire real property and leaseholds; - interests in mortgages on real property; - stock in other REITs; and - investments in stock or debt instruments during the one-year period following our receipt of new capital that we raise through equity offerings or offerings of debt with at least a five-year term. . Second, of our investments not included in the 75% asset class, the value of our interest in any one issuer's securities may not exceed 5% of the value of our total assets. . Third, we may not own more than 10% of the voting power or value of -- any one issuer's outstanding securities. . Fourth, no more than 20% of the value of our total assets may consist of the securities of one or more TRSs. . Fifth, no more than 25% of the value of our total assets may consist of the securities of TRSs and other non-TRS taxable subsidiaries and other assets that are not qualifying assets for purposes of the 75% asset test. For purposes of the second and third asset tests, the term "securities" does not include stock in another REIT, equity or debt securities of a qualified REIT subsidiary or TRS, or equity interests in any partnership. The term "securities," however, generally includes debt securities issued by a partnership, except that debt securities of a partnership are not treated as "securities" for purposes of the 10% value test if we own at least a 20% profits interest in the partnership and such debt is classified as "straight debt" for purposes of the REIT rules. If we should fail to satisfy the asset tests at the end of a calendar quarter, we would not lose our REIT status if (1) we satisfied the asset tests at the close of the preceding calendar quarter and (2) the discrepancy between the value of our assets and the asset test requirements arose from changes in the market values of our assets and was not wholly or partly caused by the acquisition of one or more non- 16 qualifying assets. If we did not satisfy the condition described in clause (2) of the preceding sentence, we still could avoid disqualification as a REIT by eliminating any discrepancy within 30 days after the close of the calendar quarter in which the discrepancy arose. Distribution Requirements Each taxable year, we must distribute dividends, other than capital gain dividends and deemed distributions of retained capital gain, to our shareholders in an aggregate amount at least equal to: . the sum of (1) 90% of our "REIT taxable income," computed without regard to the dividends paid deduction and our net capital gain or loss, and (2) 90% of our after-tax net income, if any, from foreclosure property; minus . the sum of certain items of non-cash income. We must pay such distributions in the taxable year to which they relate, or in the following taxable year if we declare the distribution before we timely file our federal income tax return for such year and pay the distribution on or before the first regular dividend payment date after such declaration. We will pay federal income tax on taxable income, including net capital gain, that we do not distribute to our shareholders. Furthermore, if we fail to distribute during a calendar year, or by the end of January following such calendar year in the case of distributions with declaration and record dates falling in the last three months of the calendar year, at least the sum of: . 85% of our REIT ordinary income for such year; . 95% of our REIT capital gain income for such year; and . any undistributed taxable income from prior periods, we will incur a 4% nondeductible excise tax on the excess of such required distribution over the amounts we actually distributed. We may elect to retain and pay income tax on the net long-term capital gain we receive in a taxable year. See "--Taxation of Taxable U.S. Shareholders." If we so elect, we will be treated as having distributed any such retained amount for purposes of the 4% excise tax described above. We have made, and we intend to continue to make, timely distributions sufficient to satisfy the annual distribution requirements. It is possible that, from time to time, we may experience timing differences between (1) the actual receipt of income and actual payment of deductible expenses and (2) the inclusion of that income and deduction of such expenses in arriving at our REIT taxable income. For example, we may not deduct recognized capital losses from our "REIT taxable income." Further, it is possible that, from time to time, we may be allocated a share of net capital gain attributable to the sale of depreciated property that exceeds our allocable share of cash attributable to that sale. As a result of the foregoing, we may have less cash than is necessary to distribute all of our taxable income and thereby avoid corporate income tax and the excise tax imposed on certain undistributed income. In such a situation, we may need to borrow funds or issue additional common or preferred stock. Under certain circumstances, we may be able to correct a failure to meet the distribution requirement for a year by paying "deficiency dividends" to our shareholders in a later year. We may include such deficiency dividends in our deduction for dividends paid for the earlier year. Although we 17 may be able to avoid income tax on amounts distributed as deficiency dividends, we will be required to pay interest to the Internal Revenue Service based upon the amount of any deduction we take for deficiency dividends. Recordkeeping Requirements We must maintain certain records in order to qualify as a REIT. In addition, to avoid a monetary penalty, we must request on an annual basis information from our shareholders designed to disclose the actual ownership of our outstanding stock. We have complied, and intend to continue to comply, with such requirements. Failure to Qualify If we were to fail to qualify as a REIT in any taxable year, and no relief provision applied, we would be subject to federal income tax and any applicable alternative minimum tax on our taxable income at regular corporate rates. In calculating our taxable income in a year in which we failed to qualify as a REIT, we would not be able to deduct amounts paid out to shareholders. In fact, we would not be required to distribute any amounts to shareholders in such year. In such event, to the extent of our current and accumulated earnings and profits, all distributions to shareholders would be taxable as ordinary income. Subject to certain limitations of the federal income tax laws, corporate shareholders might be eligible for the dividends received deduction. Unless we qualified for relief under specific statutory provisions, we also would be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT. We cannot predict whether in all circumstances we would qualify for such statutory relief. Taxation of Taxable U.S. Shareholders As long as we qualify as a REIT, a taxable "U.S. shareholder" must take into account distributions that are made out of our current or accumulated earnings and profits and that we do not designate as capital gain dividends or retained long-term capital gain as ordinary income. A U.S. shareholder will not qualify for the dividends received deduction generally available to corporations. As used herein, the term "U.S. shareholder" means a holder of our common stock that for U.S. federal income tax purposes is: . a citizen or resident of the United States; . a corporation or partnership (including an entity treated as a corporation or partnership for U.S. federal income tax purposes) created or organized in or under the laws of the United States or of a political subdivision thereof; . an estate whose income is subject to U.S. federal income taxation regardless of its source; or . any trust if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be treated as a U.S. person. A U.S. shareholder generally will recognize distributions that we designate as capital gain dividends as long-term capital gain without regard to the period for which the U.S. shareholder has held 18 our common stock. We generally will designate our capital gain dividends as either 20% or 25% rate distributions. A corporate U.S. shareholder, however, may be required to treat up to 20% of certain capital gain dividends as ordinary income. We may elect to retain and pay income tax on the net long-term capital gain that we receive in a taxable year. In that case, a U.S. shareholder would be taxed on its proportionate share of our undistributed long-term capital gain. The U.S. shareholder would receive a credit or refund for its proportionate share of the tax we paid. The U.S. shareholder would increase the basis in its stock by the amount of its proportionate share of our undistributed long-term capital gain, minus its share of the tax we paid. A U.S. shareholder will not incur tax on a distribution in excess of our current and accumulated earnings and profits if such distribution does not exceed the adjusted tax basis of the U.S. shareholder's common stock. Instead, such distribution will reduce the adjusted tax basis of such common stock. A U.S. shareholder will recognize a distribution in excess of both our current and accumulated earnings and profits and the U.S. shareholder's adjusted tax basis in its common stock as long-term capital gain, or short-term capital gain if the common stock has been held for one year or less, assuming the common stock is a capital asset in the hands of the U.S. shareholder. In addition, if we declare a distribution in October, November, or December of any year that is payable to a U.S. shareholder of record on a specified date in any such month, such distribution shall be treated as both paid by us and received by the U.S. shareholder on December 31 of such year, provided that we actually pay the distribution during January of the following calendar year. Shareholders may not include in their individual income tax returns any of our net operating losses or capital losses. Instead, we would carry over such losses for potential offset against our future income generally. Taxable distributions from us and gain from the disposition of our common stock will not be treated as passive activity income and, therefore, shareholders generally will not be able to apply any "passive activity losses," such as losses from certain types of limited partnerships in which the shareholder is a limited partner, against such income. In addition, taxable distributions from us and gain from the disposition of the common stock generally will be treated as investment income for purposes of the investment interest limitations. We will notify shareholders after the close of our taxable year as to the portions of the distributions attributable to that year that constitute ordinary income, return of capital, and capital gain. Taxation of U.S. Shareholders on the Disposition of Common Stock In general, a U.S. shareholder who is not a dealer in securities must treat any gain or loss realized upon a taxable disposition of our common stock as long-term capital gain or loss if the U.S. shareholder has held the common stock for more than one year and otherwise as short-term capital gain or loss. However, a U.S. shareholder must treat any loss upon a sale or exchange of common stock held by such shareholder for six months or less as a long-term capital loss to the extent of any actual or deemed distributions from us that such U.S. shareholder previously has characterized as long-term capital gain. All or a portion of any loss that a U.S. shareholder realizes upon a taxable disposition of the common stock may be disallowed if the U.S. shareholder purchases other shares of common stock within 30 days before or after the disposition. Capital Gains and Losses A taxpayer generally must hold a capital asset for more than one year for gain or loss derived from its sale or exchange to be treated as long-term capital gain or loss. The highest marginal individual 19 income tax rate is 38.6% for the period from January 1, 2002 to December 31, 2003, 37.6% for the period from January 1, 2004 to December 31, 2005, and 35% for the period from January 1, 2006 to December 31, 2010. The maximum tax rate on long-term capital gain applicable to non-corporate taxpayers is 20% for sales and exchanges of assets held for more than one year. The maximum tax rate on long-term capital gain from the sale or exchange of "section 1250 property," or depreciable real property, is 25% to the extent that such gain would have been treated as ordinary income if the property were "section 1245 property." With respect to distributions that we designate as capital gain dividends and any retained capital gain that we are deemed to distribute, we generally may designate whether such a distribution is taxable to our non-corporate shareholders at a 20% or 25% rate. Thus, the tax rate differential between capital gain and ordinary income for non-corporate taxpayers may be significant. In addition, the characterization of income as capital gain or ordinary income may affect the deductibility of capital losses. A non-corporate taxpayer may deduct capital losses not offset by capital gains against its ordinary income only up to a maximum annual amount of $3,000. A non-corporate taxpayer may carry forward unused capital losses indefinitely. A corporate taxpayer must pay tax on its net capital gain at ordinary corporate rates. A corporate taxpayer may deduct capital losses only to the extent of capital gains, with unused losses being carried back three years and forward five years. Information Reporting Requirements and Backup Withholding We will report to our shareholders and to the Internal Revenue Service the amount of distributions we pay during each calendar year, and the amount of tax we withhold, if any. Under the backup withholding rules, a shareholder may be subject to backup withholding at the rate of up to 30% with respect to distributions unless such holder: . is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact; or . provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with the applicable requirements of the backup withholding rules. A shareholder who does not provide us with its correct taxpayer identification number also may be subject to penalties imposed by the Internal Revenue Service. Any amount paid as backup withholding will be creditable against the shareholder's income tax liability. In addition, we may be required to withhold a portion of capital gain distributions to any shareholders who fail to certify their non-foreign status to us. See "--Taxation of Non-U.S. Shareholders." Taxation of Tax-Exempt Shareholders Tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts and annuities, generally are exempt from federal income taxation. However, they are subject to taxation on their unrelated business taxable income. While many investments in real estate generate unrelated business taxable income, the Internal Revenue Service has issued a published ruling that dividend distributions from a REIT to an exempt employee pension trust do not constitute unrelated business taxable income, provided that the exempt employee pension trust does not otherwise use the shares of the REIT in an unrelated trade or business of the pension trust. Based on that ruling, amounts that we distribute to tax-exempt shareholders generally should not constitute unrelated business taxable income. However, if a tax-exempt shareholder were to finance its acquisition of our common stock with debt, a portion of the income that it receives from us would constitute unrelated business taxable income pursuant to the "debt-financed property" rules. Furthermore, social 20 clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans that are exempt from taxation under special provisions of the federal income tax laws are subject to different unrelated business taxable income rules, which generally will require them to characterize distributions that they receive from us as unrelated business taxable income. Finally, in certain circumstances, a qualified employee pension or profit sharing trust that owns more than 10% of our stock is required to treat a percentage of the dividends that it receives from us as unrelated business taxable income. Such percentage is equal to the gross income that we derive from an unrelated trade or business, determined as if we were a pension trust, divided by our total gross income for the year in which we pay the dividends. That rule applies to a pension trust holding more than 10% of our stock only if: . the percentage of our dividends that the tax-exempt trust would be required to treat as unrelated business taxable income is at least 5%; . we qualify as a REIT by reason of the modification of the rule requiring that no more than 50% of our stock be owned by five or fewer individuals that allows the beneficiaries of the pension trust to be treated as holding our stock in proportion to their actuarial interests in the pension trust (see "--Requirements for Qualification" above); and . either (1) one pension trust owns more than 25% of the value of our stock or (2) a group of pension trusts individually holding more than 10% of the value of our stock collectively owns more than 50% of the value of our stock. Taxation of Non-U.S. Shareholders The rules governing U.S. federal income taxation of nonresident alien individuals, foreign corporations, foreign partnerships, and other foreign shareholders (collectively, "non-U.S. shareholders") are complex. This section is only a summary of such rules. We urge non-U.S. shareholders to consult their own tax advisors to determine the impact of federal, state, and local income tax laws on ownership of our common stock, including any reporting requirements. A non-U.S. shareholder that receives a distribution that is not attributable to gain from our sale or exchange of U.S. real property interests, as defined below, and that we do not designate as a capital gain dividend or retained capital gain will recognize ordinary income to the extent that we pay such distribution out of our current or accumulated earnings and profits. A withholding tax equal to 30% of the gross amount of the distribution ordinarily will apply to such distribution unless an applicable tax treaty reduces or eliminates the tax. However, if a distribution is treated as effectively connected with the non-U.S. shareholder's conduct of a U.S. trade or business, the non-U.S. shareholder generally will be subject to federal income tax on the distribution at graduated rates, in the same manner as U.S. shareholders are taxed with respect to such distributions. A non-U.S. shareholder that is a corporation also may be subject to the 30% branch profits tax with respect to the distribution. We plan to withhold U.S. income tax at the rate of 30% on the gross amount of any such distribution paid to a non-U.S. shareholder unless either: . a lower treaty rate applies and the non-U.S. shareholder files an IRS Form W-8BEN evidencing eligibility for that reduced rate with us; or . the non-U.S. shareholder files an IRS Form W-8ECI with us claiming that the distribution is effectively connected income. 21 A non-U.S. shareholder will not incur tax on a distribution in excess of our current and accumulated earnings and profits if such distribution does not exceed the adjusted basis of its common stock. Instead, such a distribution will reduce the adjusted basis of such common stock. A non-U.S. shareholder will be subject to tax on a distribution that exceeds both our current and accumulated earnings and profits and the adjusted basis of its common stock, if the non-U.S. shareholder otherwise would be subject to tax on gain from the sale or disposition of its common stock, as described below. Because we generally cannot determine at the time we make a distribution whether or not the distribution will exceed our current and accumulated earnings and profits, we normally will withhold tax on the entire amount of any distribution at the same rate as we would withhold on a dividend. However, a non-U.S. shareholder may obtain a refund of amounts that we withhold if we later determine that a distribution in fact exceeded our current and accumulated earnings and profits. We must withhold 10% of any distribution that exceeds our current and accumulated earnings and profits. Consequently, although we intend to withhold at a rate of 30% on the entire amount of any distribution, to the extent that we do not do so, we will withhold at a rate of 10% on any portion of a distribution not subject to withholding at a rate of 30%. For any year in which we qualify as a REIT, a non-U.S. shareholder will incur tax on distributions that are attributable to gain from our sale or exchange of "U.S. real property interests" under special provisions of the federal income tax laws referred to as FIRPTA. The term "U.S. real property interests" includes certain interests in real property and stock in corporations at least 50% of whose assets consists of interests in real property. Under those rules, a non-U.S. shareholder is taxed on distributions attributable to gain from sales of U.S. real property interests as if such gain were effectively connected with a U.S. business of the non-U.S. shareholder. A non-U.S. shareholder thus would be taxed on such a distribution at the normal capital gains rates applicable to U.S. shareholders, subject to applicable alternative minimum tax and a special alternative minimum tax in the case of a nonresident alien individual. A non-U.S. corporate shareholder not entitled to treaty relief or exemption also may be subject to the 30% branch profits tax on such a distribution. We must withhold 35% of any distribution that we could designate as a capital gain dividend. A non-U.S. shareholder may receive a credit against its tax liability for the amount we withhold. A non-U.S. shareholder generally will not incur tax under FIRPTA as long as at all times non-U.S. persons hold, directly or indirectly, less than 50% in value of our stock. We cannot assure you that that test will be met. However, a non-U.S. shareholder that owned, actually or constructively, 5% or less of our common stock at all times during a specified testing period will not incur tax under FIRPTA if the common stock is "regularly traded" on an established securities market. Because our common stock is regularly traded on an established securities market, a non-U.S. shareholder will not incur tax under FIRPTA unless it owns more than 5% of our common stock. If the gain on the sale of the common stock were taxed under FIRPTA, a non-U.S. shareholder would be taxed in the same manner as U.S. shareholders with respect to such gain, subject to applicable alternative minimum tax, a special alternative minimum tax in the case of nonresident alien individuals, and the possible application of the 30% branch profits tax in the case of non-U.S. corporations. Furthermore, a non-U.S. shareholder will incur tax on gain not subject to FIRPTA if (1) the gain is effectively connected with the non-U.S. shareholder's U.S. trade or business, in which case the non-U.S. shareholder will be subject to the same treatment as U.S. shareholders with respect to such gain, or (2) the non-U.S. shareholder is a nonresident alien individual who was present in the U.S. for 183 days or more during the taxable year and has a "tax home" in the United States, in which case the non-U.S. shareholder will incur a 30% tax on his capital gains. 22 Other Tax Consequences Taxable REIT Subsidiaries As described above, we may own up to 100% of the stock of one or more TRSs. A TRS is a fully taxable corporation. A TRS may provide services to our tenants without tainting our rent from our tenants and perform activities unrelated to our tenants, such as third-party management, development, and other independent business activities. We and a subsidiary must elect for the subsidiary to be treated as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 20% of the value of our assets may consist of securities of one or more TRSs, and no more than 25% of the value of our assets may consist of the securities of TRSs and other non-TRS taxable subsidiaries and other assets that are not qualifying assets for purposes of the 75% asset test. A TRS may not directly or indirectly operate or manage any hotels or health care facilities or provide rights to any brand name under which any hotel or health care facility is operated. In addition, we may rent space at our properties to a TRS if at least 90% of the leased space in the property is leased to persons other than TRSs and Related Party Tenants and the amount paid by the TRS to rent space at the property is substantially comparable to rents paid by other tenants of the property for comparable space. The TRS rules limit the deductibility of interest paid or accrued by a TRS to us to assure that the TRS is subject to an appropriate level of corporate taxation. Further, the rules impose a 100% excise tax on transactions between a TRS and us or our tenants that are not conducted on an arm's-length basis. We have formed and made elections for several TRSs. We believe that the value of the stock of our TRSs constitutes less than 20% of the value of our assets and that all transactions between us and our TRSs are conducted on an arm's-length basis. State and Local Taxes We and/or you may be subject to state and local tax in various states and localities, including those states and localities in which we or you transact business, own property, or reside. The state and local tax treatment in such jurisdictions may differ from the federal income tax treatment described above. Consequently, you should consult your own tax advisor regarding the effect of state and local tax laws upon an investment in our common stock. PLAN OF DISTRIBUTION The shares being offered by the selling shareholder have been or may be issued by us upon the selling shareholder's conversion of 8,000,000 shares of our Series D Cumulative Convertible Preferred Stock held by the selling shareholder. These shares of preferred stock were issued pursuant to an exemption from the registration provisions of the Securities Act. The selling shareholder represented to us that it was acquiring the shares for investment and with no present intention of distributing the shares. We will not receive any proceeds from the sale of the common stock covered by this prospectus. The selling shareholder may sell its shares directly or through broker-dealers or underwriters who may act solely as agents or who may acquire shares as principals. The shares may be sold in one or more transactions at: 23 . fixed prices; . prevailing market prices at the time of sale; . prices related to the prevailing market prices; . varying prices determined at the time of sale; or . negotiated prices. The methods by which the shares may be sold include: . a block trade in which the broker-dealer so engaged will attempt to sell the offered securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; . purchases by a broker-dealer as principal and resale by such broker-dealer for its account pursuant to this prospectus; . ordinary brokerage transactions and transactions in which the broker solicits purchasers; . privately negotiated transactions; . put or call transactions; . short-sales; and . underwritten transactions. Usual and customary or specifically negotiated underwriting discounts and concessions or brokerage fees or commissions may be paid by the selling shareholder in connection with such sales. The aggregate proceeds to the selling shareholder from the sale of the shares will be the purchase price of the common stock sold less the aggregate agents' commissions if any, and other expenses of issuance and distribution not borne by us. The selling shareholder and any dealers or agents that participate in the distribution of the shares may be deemed to be "underwriters" within the meaning of the Securities Act, and any profit on the sale of such shares by them and any commissions received by any such dealers or agents might be deemed to be underwriting discounts and commissions under the Securities Act. To the extent required, the specific shares of common stock to be sold, the name of the selling shareholder, purchase price, public offering price, the names of any agent, dealer or underwriter, and any applicable commission or discount with respect to a particular offering will be set forth in an accompanying prospectus supplement. We have agreed to bear certain expenses of registration of the common stock under the federal and state securities laws and of any offering and sale hereunder but not certain expenses, such as commissions of dealers or agents, and fees attributable to the sale of the shares. 24 We also have agreed to indemnify the selling shareholder from certain damages or liabilities arising out of or based upon any untrue statement of a material fact contained in, or material omission from, the Registration Statement, except to the extent such untrue statement or omission was made in the Registration Statement in reliance upon written information furnished by the selling shareholder. This offering will terminate on the earlier of: . the date that all of the shares under this prospectus may be sold in accordance with Rule 144(k) under the Securities Act of 1933; or . the date on which all shares offered hereby have been sold by the selling shareholder. Any securities covered by this prospectus that qualify for sale pursuant to Rule 144 under the Securities Act may be sold under that rule rather than pursuant to this prospectus. There can be no assurance that the selling shareholder will sell any or all of the shares of common stock offered hereunder. LEGAL MATTERS The validity of the shares of common stock offered will be passed upon for us by Hunton & Williams. EXPERTS The consolidated financial statements of the Company appearing in the Annual Report (Form 10-K) of United Dominion Realty Trust, Inc. for the year ended December 31, 2001, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing. 25 ================================================================================ You should rely only on the information contained in or incorporated by reference into this prospectus. We have not authorized anyone to provide you with different information, and you should not rely on any such information. We are not making an offer of these securities in any jurisdiction where an offer or sale of these securities is not permitted. You should not assume that the information in this prospectus and the documents incorporated by reference herein, is accurate as of any date other than their respective dates. Our business, financial condition, results of operations and prospects may have changed since such dates. ------------------------------- TABLE OF CONTENTS
Page ABOUT THIS PROSPECTUS ..................................................... 1 HOW TO OBTAIN MORE INFORMATION ............................................ 1 INCORPORATION OF INFORMATION FILED WITH THE SEC ........................... 1 RISKS OF INVESTMENT ....................................................... 2 FORWARD-LOOKING INFORMATION ............................................... 7 UNITED DOMINION REALTY TRUST, INC. ........................................ 9 USE OF PROCEEDS ........................................................... 9 THE SELLING SHAREHOLDER ................................................... 9 FEDERAL INCOME TAX CONSEQUENCES OF OUR STATUS AS A REIT ................... 10 PLAN OF DISTRIBUTION ...................................................... 23 LEGAL MATTERS ............................................................. 25 EXPERTS ................................................................... 25
12,307,692 Shares United Dominion Realty Trust, Inc. Common Stock PROSPECTUS _______, 2002 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution The estimated expenses in connection with the offering are as follows: Amount To Be Paid ----------------- Securities and Exchange Commission registration fee .... $ 17,709 Accounting fees and expenses ........................... 5,000 Legal fees and expenses ................................ 10,000 Miscellaneous .......................................... 1,291 ----------------- Total .................................................. $ 34,000 ================= Item 15. Indemnification of Officers and Directors Our directors and officers may be indemnified against liabilities, fines, penalties, and claims imposed upon or asserted against them as provided in the Virginia Stock Corporation Act and our Articles of Incorporation. Such indemnification covers all costs and expenses reasonably incurred by a director or officer. The board of directors, by a majority vote of a quorum of disinterested directors or, under certain circumstances, independent counsel appointed by the board of directors, must determine that the director or officer seeking indemnification was not guilty of willful misconduct or a knowing violation of the criminal law. In addition, the Virginia Stock Corporation Act and our Articles of Incorporation may under certain circumstances eliminate the liability of directors and officers in a shareholder or derivative proceeding. If the person involved is not a director or officer of United Dominion, the board of directors may cause the company to indemnify to the same extent allowed for directors and officers of the company such person who was or is a party to a proceeding, by reason of the fact that he is or was an employee or agent of United Dominion, or is or was serving at the request of the company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. Item 16. Exhibits 4.1 Restated Articles of Incorporation of the Company (filed as Exhibit 4(a)(ii) to the Company's Form S-3 Registration Statement, filed with the Commission on February 24, 1999 (File No. 333-72885), and incorporated by reference herein) 4.2 Restated Bylaws of the Company (filed as Exhibit 3(b) to the Company's annual report on Form 10-K for the year ended December 31, 1998 (File No. 1-10524), and incorporated by reference herein) 4.3 Specimen United Dominion Common Stock certificate (filed as Exhibit 4(i) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 1-10524), and incorporated by reference herein) 4.4 First Amended and Restated Rights Agreement dated as of September 14, 1999, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (filed as Exhibit 4(i)(d)(A) to the Company's quarterly report on Form 10-Q dated September 30, 1999 (File No. 1-10524) and incorporated by reference herein) 4.5 Form of Rights Certificate (included in Exhibit 4.4) 4.6 Investment Agreement dated as of August 14, 2001, between United Dominion Realty Trust, Inc. and Security Capital Preferred Growth Incorporated* 5 Opinion of Hunton & Williams* 8 Opinion of Hunton & Williams as to certain tax matters* 23.1 Consent of Ernst & Young LLP, Richmond, Virginia* 23.2 Consent of Hunton & Williams (included in Exhibit 5 and Exhibit 8) 24 Power of Attorney (included on signature page) ___________ * Filed herewith. Item 17. Undertakings (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions of the Virginia Code, the Articles of Incorporation or By-laws of the registrant or resolutions of the Board of Directors of the registrant adopted pursuant thereto, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the county of Douglas, State of Colorado on the 23rd day of April, 2002. UNITED DOMINION REALTY TRUST, INC. By: /s/ Thomas W. Toomey ------------------------------------- Thomas W. Toomey President and Chief Executive Officer POWER OF ATTORNEY Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated. Each of the undersigned officers and directors of the registrant hereby constitutes Christopher D. Genry and Scott A. Shanaberger, each of whom may act, his true and lawful attorneys-in-fact with full power to sign for him and in his name in the capacities indicated below and to file any and all amendments to the registration statement filed herewith, making such changes in the registration statement as the registrant deems appropriate, and generally to do all such things in his name and behalf in his capacity as an officer and director to enable the registrant to comply with the provisions of the Securities Act of 1933 and all requirements of the Securities and Exchange Commission.
Signature Title Date --------- ----- ---- /s/ Thomas W. Toomey President, Chief Executive Officer April 23, 2002 - ------------------------------------- and Director Thomas W. Toomey /s/ Christopher D. Genry Executive Vice President and Chief April 23, 2002 - ------------------------------------- Financial Officer Christopher D. Genry /s/ Scott A. Shanaberger Senior Vice President, Corporate April 23, 2002 - ------------------------------------- Controller and Chief Accounting Scott A. Shanaberger Officer /s/ Robert C. Larson Chairman of the Board April 23, 2002 - ------------------------------------- Robert C. Larson /s/ James D. Klingbeil Vice Chairman of the Board April 23, 2002 - ------------------------------------- James D. Klingbeil /s/ John P. McCann Chairman Emeritus April 23, 2002 - ------------------------------------- John P. McCann
/s/ R. Toms Dalton, Jr. Director April 23, 2002 - ------------------------------------- R. Toms Dalton, Jr. /s/ Robert P. Freeman Director April 23, 2002 - ------------------------------------- Robert P. Freeman /s/ Jon A. Grove Director April 23, 2002 - ------------------------------------- Jon A. Grove /s/ Lynne B. Sagalyn Director April 23, 2002 - ------------------------------------- Lynne B. Sagalyn /s/ Mark J. Sandler Director April 23, 2002 - ------------------------------------- Mark J. Sandler /s/ Robert W. Scharar Director April 23, 2002 - ------------------------------------- Robert W. Scharar EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION 4.1 Restated Articles of Incorporation of the Company (filed as Exhibit 4(a)(ii) to the Company's Form S-3 Registration Statement, filed with the Commission on February 24, 1999 (File No. 333-72885), and incorporated by reference herein) 4.2 Restated Bylaws of the Company (filed as Exhibit 3(b) to the Company's annual report on Form 10-K for the year ended December 31, 1998 (File No. 1-10524), and incorporated by reference herein) 4.3 Specimen United Dominion Common Stock certificate (filed as Exhibit 4(i) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993 (File No. 1-10524), and incorporated by reference herein) 4.4 First Amended and Restated Rights Agreement dated as of September 14, 1999, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (filed as Exhibit 4(i)(d)(A) to the Company's quarterly report on Form 10-Q dated September 30, 1999 (File No. 1-10524) and incorporated by reference herein) 4.5 Form of Rights Certificate (included in Exhibit 4.4) 4.6 Investment Agreement dated as of August 14, 2001, between United Dominion Realty Trust, Inc. and Security Capital Preferred Growth Incorporated* 5 Opinion of Hunton & Williams* 8 Opinion of Hunton & Williams as to certain tax matters* 23.1 Consent of Ernst & Young LLP, Richmond, Virginia* 23.2 Consent of Hunton & Williams (included in Exhibit 5 and Exhibit 8) 24 Power of Attorney (included on signature page) _______________ * Filed herewith. EX-4.6 3 dex46.txt INVESTMENT AGREEMENT EXHIBIT 4.6 INVESTMENT AGREEMENT -------------------- INVESTMENT AGREEMENT, dated as of August 14, 2001 (this "Agreement"), by --------- and between United Dominion Realty Trust, Inc., a Virginia corporation (the "Company"), and Security Capital Preferred Growth Incorporated, a Maryland ------- corporation (the "Investor"). -------- WHEREAS, the Investor has entered into a Purchase Agreement (the "Purchase -------- Agreement") with LF Strategic Realty Investors, L.P. (the "Seller"), dated as of - --------- ------ August 6, 2001, pursuant to which the Investor is acquiring from the Seller 8,000,000 shares of Series D Cumulative Convertible Preferred Stock of the Company (the "Preferred Shares"), all of which Preferred Shares may be converted ---------------- into shares (the "Conversion Shares") of the Company's common stock, par value ----------------- $.01 per share (the "Common Stock") pursuant to the terms of such Preferred ------------ Shares; WHEREAS, the Company acknowledges that the Investor's acquisition of the Preferred Shares is beneficial to the Company; WHEREAS, in connection with the Investor's acquisition of the Preferred Shares, the Company has agreed to register the Conversion Shares for sale by the Investor and certain transferees; and WHEREAS, the parties hereto desire to enter into this Agreement to evidence the foregoing agreement of the Company and the mutual covenants of the parties relating thereto. NOW, THEREFORE, in consideration of the foregoing and the covenants of the parties set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, subject to the terms and conditions set forth herein, the parties hereby agree as follows: Section 1. Certain Definitions. In this Agreement the following terms ------------------- shall have the following respective meanings: "Affiliate" shall mean, when used with respect to a specified Person, --------- another Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the Person specified. "Agreement" shall have the meaning ascribed to it in the first paragraph --------- hereof. "Articles of Incorporation" shall mean the Company's restated articles of ------------------------- incorporation in effect on the date of this Agreement and as they may be amended from time to time in accordance with their terms and applicable law. "Average Market Capitalization" on or as of any date shall mean the ----------------------------- Company's average common equity market capitalization for the ten consecutive Trading Days prior to but not including such date. The number of shares of Common Stock into which the Preferred Shares outstanding at the determination date are convertible shall be taken into account in any determination of Average Market Capitalization; otherwise, Average Market Capitalization shall not be determined on a Fully-Diluted Basis. "Beneficial Ownership" shall be determined in accordance with Rule 13d-3 of -------------------- the Commission under the Exchange Act. "Beneficially Own" shall have a ---------------- correlative meaning. "Board" shall mean the Board of Directors of the Company. ----- "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, (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 50% or more members of the Board or the resignation or addition of 50% or more independent members of the Board, (v) cessation for any reason of those directors of the Company who were elected at the annual meeting of shareholders of the Company immediately preceding the determination date (together with any new directors elected after such annual meeting whose election by the Board or whose nomination for election by the shareholders of the Company was approved by a vote of 66 2/3% of the directors who were either elected at such annual meeting or whose election or nomination for election was previously so approved) to constitute a majority of the Board in office on the determination date or (vi) the Common Stock ceases to be listed on the NYSE, the American Stock Exchange or the Nasdaq National Market. "Closing Date" shall mean the date of the closing of the sale of the ------------ Preferred Shares to the Investor pursuant to the Purchase Agreement. "Code" shall have the meaning ascribed to it in Section 2(f) of this ---- ------------ Agreement. "Commission" shall mean the Securities and Exchange Commission or any other ---------- federal agency at the time administering the Securities Act. "Common Stock" shall have the meaning ascribed to it in the recitals to ------------ this Agreement. "Company" shall have the meaning ascribed to it in the first paragraph of ------- this Agreement. "Control" shall mean with respect to any Person the power to direct the ------- management and policies of such Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise. "Controlled" shall have a correlative meaning. 2 "Conversion Price" shall have the meaning ascribed to it in Section ---------------- ------- 3(d)(7)(A) of the Articles of Incorporation. - ---------- "Conversion Shares" shall have the meaning ascribed to it in the recitals ----------------- to this Agreement. "Covered Transaction" shall have the meaning ascribed to it in Section ------------------- ------- 5(b)(iii) of this Agreement. - --------- "Disclosure Documents" shall have the meaning ascribed to it in Section -------------------- ------- 2(d) of this Agreement. - ---- "Dispose Of" shall mean to offer, pledge, sell, contract to sell, grant any ---------- options for the sale of, seek the redemption or exchange of, transfer, distribute or otherwise dispose of, directly or indirectly, any Securities. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, ------------ and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the relevant time. "Fully-Diluted Basis" as a qualifier of any determination to be made ------------------- pursuant to this Agreement shall mean that the number of shares of Common Stock then outstanding, plus the number of shares of Common Stock issuable upon conversion, exchange or exercise of other securities which are then convertible into or exchangeable or exercisable for Common Stock, plus the number of votes which may be cast by holders of other securities of the Company then outstanding that are entitled to vote with the holders of the Common Stock as a single voting group shall be taken into account in making such determination. "Group" shall mean a "group," as such term is used in Section 13(d)(3) of ----- the Exchange Act, identified in a Schedule 13D filed or proposed to be filed with respect to the Company. "Holders" shall mean (i) the Investor and (ii) each Person holding ------- Registrable Shares as a result of a transfer or assignment to that Person of Registrable Shares permitted under this Agreement and other than pursuant to an effective registration statement or Rule 144 (or any successor provision) under the Securities Act. "Indemnified Party" shall have the meaning ascribed to it in Section 10(c) ----------------- ------------- of this Agreement. "Indemnifying Party" shall have the meaning ascribed to it in Section 10(c) ------------------ ------------- of this Agreement. "Investor" shall have the meaning ascribed to it in the first paragraph of -------- this Agreement. "Liquidation Preference" shall have the meaning ascribed to it in Section ---------------------- ------- 3(d)(4)(A) of the Articles of Incorporation. - ---------- 3 "Mandatory Conversion Date" shall have the meaning ascribed to it in ------------------------- Section 15 of this Agreement. - ---------- "Mandatory Conversion Option" shall have the meaning ascribed to it in --------------------------- Section 15 of this Agreement. - ---------- "Material Adverse Effect" shall mean any material adverse effect on the ----------------------- operations, assets, business, affairs, properties, or financial or other condition of the Company, the Operating Partnership and their direct and indirect subsidiaries taken as a whole. "NYSE" shall mean the New York Stock Exchange. ---- "Operating Partnership" shall mean United Dominion Realty Trust, L.P., a --------------------- Virginia limited partnership. "Option Shares" shall have the meaning ascribed to it in Section 14(a) of ------------- ------------- this Agreement. "Option Shares Repurchase Date" shall have the meaning ascribed to it in ----------------------------- Section 14(a) of this Agreement. - ------------- "Permitted Preferred Share Transferee" shall have the meaning ascribed to ------------------------------------ it in Section 4(c) of this Agreement. ------------ "Person" shall mean an individual, corporation, partnership, estate, trust, ------ association, private foundation, joint stock company, limited liability company or other entity. "Preferred Shares" shall have the meaning ascribed to it in the recitals to ---------------- this Agreement. "Preferred Threshold Amount Period" shall have the meaning ascribed to it --------------------------------- in Section 7(a) of this Agreement. ------------ "Purchase Agreement" shall have the meaning ascribed to it in the recitals ------------------ to this Agreement. The terms "Register," "Registered" and "Registration" refer to a -------- ---------- ------------ registration effected by preparing and filing a registration statement in compliance with the Securities Act providing for the sale by the Holders of Registrable Shares in accordance with the method or methods of distribution designated by the Holders, and the declaration or ordering of the effectiveness of such registration statement by the Commission. "Registrable Shares" shall mean the Conversion Shares; provided, however, ------------------ that any such Conversion Shares shall cease to be Registrable Shares when (A) a registration statement with respect to the sale of such shares shall have become effective under the Securities Act and such shares shall have been disposed of in accordance with such registration statement; (B) such shares 4 shall have been sold in accordance with Rule 144; (C) such shares shall have been otherwise transferred and new certificates not subject to transfer restrictions under the Securities Act and not bearing any legend restricting further transfer shall have been delivered by the Company, and no other applicable and legally binding restriction on transfer under the federal securities laws shall exist; or (D) such shares may be sold in accordance with Rule 144(k) under the Securities Act. "Registration Expenses" shall mean all out-of-pocket expenses --------------------- (excluding Selling Expenses) incurred by the Company in complying with Section 8 --------- hereof, including, without limitation, the following: (a) all registration and filing fees; (b) fees and expenses of compliance with federal and state securities or real estate syndication laws (including, without limitation, reasonable fees and disbursements of counsel in connection with state securities and real estate syndication qualifications of the Registrable Shares under the laws of such jurisdictions as the Holders may reasonably designate); (c) printing (including, without limitation, expenses of printing or engraving certificates representing the Registrable Shares in a form eligible for deposit with The Depository Trust Company and otherwise meeting the requirements of any securities exchange on which they are listed and of printing registration statements and prospectuses), messenger, telephone, shipping and delivery expenses; (d) fees and disbursements of counsel for the Company; (e) fees and disbursements of all independent public accountants of the Company (including without limitation the expenses of any annual or special audit and "cold comfort" letters reasonably required by the managing underwriter); (f) Securities Act liability insurance if the Company so desires; (g) fees and expenses of other Persons reasonably necessary in connection with the registration, including any experts, retained by the Company; (h) fees and expenses incurred in connection with the listing of the Registrable Shares on each securities exchange on which securities of the same class are then listed; and (i) fees and expenses associated with any filing with the National Association of Securities Dealers, Inc. required to be made in connection with the registration statement. "Registration Statement" shall have the meaning ascribed to it in ---------------------- Section 8(a) of this Agreement. - ------------ "REIT" shall have the meaning ascribed to it in Section 3(g) of this ---- ------------ Agreement. "REOC" shall have the meaning ascribed to it in Section 3(i) of this ---- ------------ Agreement. "Repurchase Option" shall have the meaning ascribed to it in Section ----------------- ------- 14(a) of this Agreement. - ----- "Repurchase Price" shall have the meaning ascribed to it in Section ---------------- ------- 14(a) of this Agreement. - ----- "Rule 144" shall mean Rule 144 promulgated by the Commission under the -------- Securities Act. "Securities" shall mean the Preferred Shares and the Conversion Shares. ---------- 5 "Securities Act" shall mean the Securities Act of 1933, as amended, and -------------- the rules and regulations of the Commission thereunder, all as the same shall be in effect at the relevant time. "Seller" shall have the meaning ascribed to it in the recitals to this ------ Agreement. "Selling Expenses" shall mean all underwriting discounts, selling ---------------- commissions and stock transfer taxes applicable to any sale of Registrable Shares. "Standstill Termination Event" shall have the meaning ascribed to it in ---------------------------- Section 5(b) of this Agreement. - ------------ "10% Shareholders" shall have the meaning ascribed to it in Section ---------------- ------- 2(f) of this Agreement. - ---- "Trading Day" for purposes of any computation pursuant to this ----------- Agreement in which the market value of any security of the Company is taken into account, shall mean any day on which such security is traded on the NYSE, or if such security is not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such security is listed or admitted for trading, or if not listed or admitted for trading on any national securities exchange, on the NASDAQ National Market or, if such security is not quoted on the NASDAQ National Market, in the applicable securities market in which the security is traded. "Weighted Average Trading Price" shall mean, for any period of Trading ------------------------------ Days, (i) the "Volume Weighted Price" of the Common Stock during such Trading Day period as reported by Bloomberg LP on its "Volume at Price" screen, or, if such information is not available (ii) the number obtained by dividing (a) the sum of the products, for each sale of shares of Common Stock during such Trading Day period, of (1) the sale price per share of Common Stock and (2) the number of shares of Common Stock sold by (b) the total number of shares of Common Stock sold during such Trading Day period. For purposes of the calculation of Weighted Average Trading Price set forth in clause (ii) above, if necessary, sales of shares of Common Stock, sale prices per share of Common Stock and the number and total number of shares of Common Stock sold shall each be as reported in the composite transactions for the principal United States securities exchange on which the Common Stock is traded or, if the Common Stock is not listed on a United States national or regional securities exchange, as reported by the National Association of Securities Dealers Automated Quotation System or by the National Quotation Bureau Incorporated. Section 2. Representations and Warranties of the Investor. The ---------------------------------------------- Investor hereby represents and warrants, as of the date of this Agreement and as of the Closing Date, to the Company that: (a) The Investor is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Maryland. The Investor has the requisite corporate power and authority, and has taken all required corporate action necessary, to execute, deliver, and perform its obligations hereunder. 6 (b) This Agreement has been duly executed and delivered by the Investor and constitutes the legal, valid and binding obligation of the Investor enforceable against the Investor in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, and (ii) equitable principles of general applicability relating to the availability of specific performance, injunctive relief, or other equitable remedies. (c) The execution, delivery and performance of this Agreement by the Investor and the consummation by the Investor of the transactions contemplated hereby do not (i) result in a violation of the Investor's articles of incorporation or bylaws or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Investor is a party, or result in a violation of any law, rule, regulation, order, judgment or decree applicable to the Investor or by which any property or asset of the Investor is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, materially impair the Investor's ability to perform its obligations under this Agreement). (d) The Investor is acquiring the Preferred Shares for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof, and the Investor has no present intention or plan to effect any distribution of the Preferred Shares. The Investor is an "accredited investor" as defined in Regulation D under the Securities Act and is able to bear the economic risk of acquisition of the Preferred Shares, can afford to sustain a total loss on such investment, and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risk of the proposed investment. The Investor has received copies of all of the Company's periodic reports (excluding exhibits thereto) filed with the Commission since December 31, 2000, pursuant to Section 13 of the Exchange Act (the "Disclosure Documents") and has been -------------------- furnished the opportunity to ask questions of and receive answers from representatives of the Company concerning the Disclosure Documents and the business and financial affairs of the Company. (e) The Investor understands that the Preferred Shares have not been registered under the Securities Act or applicable state securities laws and agrees not to sell, pledge or otherwise transfer any of the Preferred Shares in the absence of (i) such registration or (ii) an exemption therefrom, in which case the Investor shall provide an opinion of counsel reasonably satisfactory to the Company that such registration is not required; provided, however, that no opinion needs to be delivered in connection with any pledge of Preferred Shares not requiring such registration to, or any foreclosure or private sale by, Merrill Lynch International Private Finance Limited or any other institutional accredited investor pledgee. The Investor acknowledges that the Company is not required to register the Preferred Shares under the Securities Act or any applicable state securities laws. The certificate evidencing the Preferred Shares will bear the following legend: 7 "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, or state securities laws and may not be transferred except pursuant to (i) such registration or (ii) an exemption therefrom, in which case the holder hereof shall provide an opinion of counsel reasonably satisfactory to the Company that such registration is not required; provided, however, that no opinion needs to be delivered in connection with any pledge of the securities represented by this certificate not requiring such registration to, or any foreclosure or private sale by, Merrill Lynch International Private Finance Limited or any other institutional accredited investor pledgee. The securities represented by this certificate are subject to transfer restrictions contained in the Investment Agreement, dated as of August 14, 2001, by and between the Company and Security Capital Preferred Growth Incorporated." (f) No more than two shareholders of the Investor (the "10% --- Shareholders"), own 10% or more of the value of the outstanding shares of the - ------------ Investor. Each of the 10% Shareholders owns no more than 24% of the shares of the Investor and is a widely held qualified pension trust described in Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"). No ---- shareholder of the Investor other than the 10% Shareholders owns more than 9.995% of the value of the outstanding shares of the Investor. (g) No more than 50% of the value of the Investor's outstanding shares is owned by five or fewer individuals (as that term is defined in Code Section 542(a)(2), as modified by Code Section 856(h)(3)). (h) Neither the Investor nor, to the knowledge of the Investor, either 10% Shareholder or any Affiliate of the Investor is a tenant of the Company (or any of its Affiliates). (i) Upon purchasing the Preferred Shares, the Investor and its "affiliates" and "associates," as those terms are defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, will not be deemed to Beneficially Own more than 15% of the outstanding shares of the Common Stock. Section 3. Representations and Warranties of the Company. The Company hereby --------------------------------------------- represents and warrants, as of the date of this Agreement and as of the Closing Date, to the Investor that: (a) The Company is a corporation duly incorporated, validly existing as a corporation, in good standing under the laws of the Commonwealth of Virginia with full power and authority to own, lease and operate its properties and conduct its business as now being conducted, and has been duly qualified to transact business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, except where the failure to so qualify would not have a Material Adverse Effect. 8 (b) The Company has all requisite corporate power and authority, and has taken all required corporate action necessary, to execute, deliver, and perform its obligations under this Agreement (c) This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, and (ii) equitable principles of general applicability relating to the availability of specific performance, injunctive relief, or other equitable remedies. (d) The Preferred Shares have been duly and validly issued and are nonassessable. The Conversion Shares, when issued upon conversion of the Preferred Shares, will be duly and validly issued, fully paid and nonassessable and, subject to the accuracy of the Investor's representations set forth in Section 2, will be issued in compliance with all applicable federal and state - --------- securities laws. (e) The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby do not (i) result in a violation of the Company's restated articles of incorporation or bylaws or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its direct or indirect subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree applicable to the Company or any of its direct or indirect subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect or materially impair the Company's ability to perform its obligations under this Agreement). (f) The Company and each of its direct and indirect subsidiaries have filed or caused to be filed all federal, state, local, foreign and other tax returns, reports, information returns and statements (except for returns, reports, information returns and statements the failure to file which will not result in any Material Adverse Effect) required to be filed by them. The Company and each of its direct and indirect subsidiaries have paid or caused to be paid all taxes (including interest and penalties) that are shown as due and payable on such returns or claimed by any taxing authority to be due and payable with respect to such returns, except those which are being contested by them in good faith by appropriate proceedings and in respect of which adequate reserves are being maintained on their books in accordance with generally accepted accounting principles consistently applied. The Company and its direct and indirect subsidiaries do not have any material liabilities for taxes other than those incurred in the ordinary course of business and in respect of which adequate reserves are being maintained by them in accordance with generally accepted accounting principles consistently applied. Federal and state income tax returns for the Company and its direct 9 and indirect subsidiaries have not been audited by the Internal Revenue Service or state authorities. No deficiency, assessment with respect to or proposed adjustment of the Company's or any of its direct and indirect subsidiaries' federal, state, local, foreign or other tax returns is pending or, to the best of the Company's knowledge, threatened except as would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect. There is no tax lien, whether imposed by any federal, state, local or other tax authority, outstanding against the assets, properties or business of the Company or any of its direct or indirect subsidiaries except as would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect. There are no applicable taxes, fees or other governmental charges payable by the Company or any of its direct or indirect subsidiaries in connection with the execution and delivery of this Agreement. (g) The Company has qualified to be taxed as a real estate investment trust pursuant to Sections 856 through 860 of the Code (a "REIT") for all ---- taxable years ending on or after December 31, 1997, and the Company expects under present law to so qualify in the future. (h) The Operating Partnership is not a publicly traded partnership that is taxed as a corporation under Section 7704 of the Code. (i) The Company is a real estate operating company ("REOC") (as such ---- term is defined in 29 CFR 2510.3-101(e)). (j) The Board has determined, based on the representations and warranties of the Investor contained in Section 2, that the purchase by the --------- Investor of the Preferred Shares will not result in such concentration of ownership of the Company's shares as would disqualify the Company as a REIT. Section 4. Lock-up Agreement. ----------------- (a) During any 12 month period after the date of this Agreement, except as otherwise provided in this Agreement, the Investor shall be entitled to Dispose Of Preferred Shares, Conversion Shares or a combination of Preferred Shares and Conversion Shares representing not more than the greater of (i) 4,000,000 Preferred Shares (as adjusted for stock splits or similar events), or their equivalent in Conversion Shares, or a combination of Preferred Shares and Conversion Shares representing not more than 4,000,000 Preferred Shares (as adjusted for stock splits or similar events) or (ii) the number of Conversion Shares or equivalent number of Preferred Shares, or a combination thereof, equaling the number of Conversion Shares the total closing sale price of which on the NYSE on the day before the day on which the Investor seeks to Dispose Of such Securities is not more than 5% of Average Market Capitalization on such date. For purposes of this Section 4(a), a number of Preferred Shares shall be ------------ deemed to be equivalent to the number of Conversion Shares into which it is convertible at the Conversion Price provided in the restated articles of incorporation of the Company on the determination date, and a number of Conversion Shares shall be deemed to be equivalent to the number of Preferred Shares that, if converted at such Conversion Price, would equal such number of Conversion Shares. 10 (b) The restrictions in Section 4(a) shall terminate upon the ------------ occurrence of any Standstill Termination Event or upon any material breach by the Company of any of its obligations under this Agreement. (c) Notwithstanding Section 4(a) of this Agreement, the Investor may ------------ transfer any of the Preferred Shares or Conversion Shares to any Controlled Affiliate (each, a "Permitted Preferred Share Transferee") if before such ------------------------------------ transfer it shall deliver to the Company: (i) an opinion of counsel reasonably acceptable to the Company that such transfer will not constitute or result in a violation of the registration requirements of the Securities Act and state "blue sky" laws, and (ii) agreements substantially identical in form and substance to this Agreement executed by each Permitted Preferred Share Transferee. (d) Notwithstanding Section 4(a), the Investor may from time to time, ------------ in a transaction or transactions entered into bona fide and not for the purpose of evading any provision of this Agreement, pledge all or any of the Preferred Shares or Conversion Shares (i) to a bank or other financial institution to secure obligations for borrowed money or (ii) as margin collateral. Upon foreclosure or private sale under any such pledge, neither the pledgee nor any transferee of the pledgee shall be bound by any of the obligations, or entitled to any of the benefits or rights, under any provision of this Agreement (except this Section 4(d) and Sections 8 through 18, inclusive). Prior to any such ------------ ---------- -- pledge, foreclosure or private sale of Preferred Shares, the Company shall receive an opinion of counsel reasonably acceptable to the Company to the effect that the applicable transaction will not constitute or result in a violation of the registration requirements of the Securities Act and state "blue sky" laws; provided, however, that no opinion needs to be delivered in connection with any pledge of Preferred Shares not requiring such registration to, or any foreclosure or private sale by, Merrill Lynch International Private Finance Limited or any other institutional accredited investor pledgee. Section 5. Standstill. ---------- (a) The Investor hereby agrees that until November 1, 2003, the Investor will not directly or indirectly: (i) sell or transfer any Securities to any Person if such sale or transfer would result in Beneficial Ownership by the purchaser or transferee, or any Group of which, to the actual knowledge of the Investor, the purchaser or transferee is a member, of more than 9.8% of the number of shares of Common Stock outstanding at the time of such sale or transfer, determined on a Fully-Diluted Basis, except (A) as a participant in a merger, consolidation or other business combination approved by the Board or (B) in a transaction on the NYSE or other market in which such Securities are traded (which shall include purchases by an investment bank or a similar institution in the capacity of principal), in which the identity of 11 the ultimate buyer or transferee is not known by the seller or transferor in advance of the transaction; (ii) purchase or acquire Securities or shares of Common Stock if such purchase or acquisition would result in Beneficial Ownership by the Investor and its Controlled Affiliates in the aggregate of more than 15% of the number of shares of Common Stock outstanding at the time of such purchase or acquisition, determined on a Fully-Diluted Basis; (iii) solicit, propose or effect any business combination, liquidation or sale of the Company or similar extraordinary transaction in which the Company would not be the survivor; (iv) seek representation on the Board; (v) solicit, initiate, encourage or participate in any "solicitation" of "proxies" or become a "participant" in any "election contest" (as such terms are defined or used in Regulation 14A under the Exchange Act, disregarding clause (iv) of Rule 14a-1(1) (2) and including an exempt solicitation pursuant to Rule 14a-2(b)(1)); or (vi) contest the validity or enforceability of this Section 5, except --------- as a consequence of establishing the occurrence of any Standstill Termination Event defined in Section 5(b). ------------ (b) The restrictions in Section 5(a) shall terminate upon any of the ------------ following (each a "Standstill Termination Event"): ---------------------------- (i) a quarterly distribution on the Preferred Shares is in arrears for any quarter for a period exceeding five days, (ii) the occurrence of a Change of Control, (iii) the authorization by the Board of the direct or indirect solicitation of offers with respect to any merger, consolidation, other business combination, liquidation or sale of the Company or all or substantially all of its assets or any other similar extraordinary transaction (any of the foregoing, other than any transaction in which the Company is the surviving and acquiring entity and in which (A) the only other parties to the transaction are subsidiaries or Controlled Affiliates of the Company or (B) the business or assets acquired do not, or would not reasonably be expected to, have a value greater than 50% of the assets of the Company and its subsidiaries, consolidated, prior to such transaction, a "Covered Transaction"), it being understood that mere direction by the ------------------- Board that the officers of the Company or a committee of the Board review and report on a proposal originated by any officer or director of the Company or by a third party that might result in a solicitation of offers shall not, without more, be deemed a "solicitation of offers," 12 (iv) the written submission by any person or Group other than the Investor of a proposal to the Company (including the Board and any agent, representative or Affiliate of the Company) with respect to, or otherwise expressing interest in pursuing, a Covered Transaction, unless, as soon as practicable after receipt of any such proposal, the Board determines that such proposal is not in the best interests of the Company and its shareholders and continues to reject such proposal as a result of such determination, (v) in connection with any actual or proposed Covered Transaction, the termination of any shareholder rights plan or amendment of the restated articles of incorporation or bylaws of the Company to delete staggered terms of directors, supermajority voting of the Company/s shareholders, "excess share" provisions, or other similar provisions which would reasonably be expected to impede the consummation of such Covered Transaction, (vi) the initiation by the Company or any of its Affiliates of any action, suit or other legal proceeding against the Investor, any of its Affiliates or any of their respective officers or directors with respect to any matter unrelated to the express terms of this Agreement and the related documents and the transactions contemplated thereby; provided that if there shall be a final judgment on the merits in favor of the Investor or such Affiliate in any such action, suit or legal proceeding that is so authorized by the Board, a Standstill Termination Event shall exist even though such judgment may be subject to further appeal, (vii) the date on which the Investor ceases (otherwise than as a result of a transfer of Preferred Shares and Conversion Shares pursuant to Section 4(c)) to be the Beneficial Owner of Securities having an aggregate ------------- market value of more than 5% of Average Market Capitalization. For purposes of this Section 5(b)(viii), the "market value" of Conversion Shares shall ------------------ be determined by reference to the closing sale price of the Common Stock on the day preceding the determination date and the "market value" of the Preferred Shares shall be the Series D Redemption Price (as defined in the Company's restated articles of incorporation), and (viii) the earliest to occur of: (A) the filing of a federal income tax return by the Company for any taxable year on which the Company does not compute its income as a REIT; (B) the approval by the shareholders of the Company of a proposal for the Company to cease to qualify as a REIT; (C) a determination by the Board, based on the advice of counsel, that the Company has ceased to qualify as a REIT; or (D) a "determination" within the meaning of Section 1313(a) of the Code that the Company has ceased to qualify as a REIT. Section 6. Consultation Rights. For so long as the Investor holds at ------------------- least 25% of the Preferred Shares that it held on the date of this Agreement (or 25% of the Conversion Shares that the Investor could have obtained at that time upon conversion of such Preferred Shares whether or not such shares are then convertible) (the "Threshold Amount"), the Investor shall have the right to ---------------- 13 directly participate (within the meaning of 29 CFR 2510.3-101(d)(3)(ii)) in the management of the Company and the Operating Partnership through and by the following rights and powers: (a) The right to be consulted on the appointment and dismissal of (i) the chief operating officer and the chief financial officer, or any person or persons fulfilling similar duties, and the auditors and accountants for the Company and (ii) the general partner, the chief operating officer and the chief financial officer, or any person or persons fulfilling similar duties, and the auditors and accountants for the Operating Partnership. (b) The right to inspect the books and records of the Company and the Operating Partnership; provided, that all costs and expenses of such -------- inspection shall be borne by the Investor; and provided, further, that the -------- ------- Investor shall keep such information confidential, except that the Investor may disclose such information to its employees and advisors as necessary in the management and operation of the Investor's business and investment in the Company and that, upon reasonable prior notice to the Company, the Investor may disclose such information as required by law. (c) The right to be consulted concerning the development of the Company's and the Operating Partnership's annual strategic plan that incorporates a specific business strategy, an operating agenda, investment and disposition objectives, and capitalization and funding strategies. (d) The right to be consulted concerning Major Transactions. "Major Transactions" means (i) any acquisition or disposition of any assets in any single transaction or any series of related transactions where the aggregate purchase price paid or received by the Company or the Operating Partnership exceeds $100,000,000 but not including asset transfers between or among the Company and any of its subsidiaries respecting which the Company has direct or indirect majority ownership or management control (including any such subsidiaries who are not consolidated with the Company for financial reporting purposes) or between or among such subsidiaries, (ii) a determination by the Board to terminate the Company's status as a REIT, (iii) any Change of Control initiated by the Company and in the response to any Change of Control not initiated by the Company and (iv) a determination by the Operating Partnership's General Partner to terminate the Operating Partnership's status as a limited partnership. (e) The Company shall notify the Investor of any of the foregoing proposed actions for its consideration, together with information which sets forth in reasonable detail the background and reasons for such action, reasonably in advance (but in no event less than two business days) of the date any action would be required to be taken by or on behalf of the Company to permit the Investor to review the information and to provide its views to the Company. In connection with the development and preparation of the Company's annual operating budget and strategic plan, the Company shall present to the Investor a reasonably detailed operating budget and strategic plan for the upcoming calendar year of the Company. Notwithstanding the foregoing, the Company (i) shall not have any obligation to comply with any advice offered by the Investor in any consultation pursuant to this Section 6 (and the provisions --------- of this Section 6 shall not be construed --------- 14 to create any approval rights over any matters) and (ii) will not be required to disclose material information to the Investor if, in the reasonable judgment of the Company, such disclosure would (a) require any public disclosure thereof or (b) jeopardize any proposed transaction. (f) The Company shall not be liable for any incidental or consequential damages to the Investor resulting from the Company's failure to comply with the provisions of this Section 6. --------- (g) The Investor agrees that any information obtained through the foregoing consultation rights which is not public shall be kept confidential, and shall not be disclosed to any persons other than the directors, officers, employees, financial advisors, legal advisors, and accountants of the Investor and the Investor's investment advisor who reasonably need to have access to such information and who are advised of the confidential nature of such information and agree to maintain the confidentiality of such information; provided that the foregoing obligation of the Investor shall not (a) relate to any information that (i) is or becomes generally available other than as a result of unauthorized disclosure by the Investor or by persons to whom the Investor has made such information available or (ii) is or becomes available to the Investor on a non-confidential basis from a third party that is not, to the Investor's knowledge, bound by any other confidentiality agreement with the Company or its subsidiaries, or (b) prohibit disclosure of any information if required by law, rule, regulation, court order, or other legal or governmental process. Subject to the proviso to the foregoing sentence, the Investor further agrees that it will not under any circumstances provide any information obtained through the foregoing consultation rights which is not public to any person or entity or any officer, director (other than a non-executive director, who in no case shall receive any information which is not public and which was obtained pursuant to paragraph (c) and (d) of this Section 6) or employee of any entity that competes with or is contemplating competing with the Company or any of its subsidiaries in the acquisition, ownership, management, leasing, developing or building of multi-family apartment communities. Section 7. Covenants. --------- (a) So long as the Investor holds the Threshold Amount of Preferred Shares (the "Preferred Threshold Amount Period"), (i) the Company will --------------------------------- continue to be taxed as a REIT and (ii) the Company will continue to qualify as a REOC as described under regulations in effect on the date hereof. (b) So long as the Investor holds any Preferred Shares, the Company shall, within 30 days following a written request by the Investor, cause its independent public accountants or a nationally recognized law firm to provide the Investor an opinion or opinions in form and substance reasonably satisfactory to the Investor to the effect that (1) the Company qualifies as a REIT and (2) the Company qualifies as a REOC, which opinion may be based on an assumption that REOC qualification is determined taking into account properties owned and activities conducted by subsidiary entities of the Company, including the Operating Partnership;provided, however, that the Investor may make only one such request during any twelve month period; and provided further that, if such opinion or opinions are requested at a date not within the Preferred Threshold Amount Period 15 or if applicable law in effect on the date hereof has changed in a material respect and the Board has determined in good faith that it is no longer practicable or in the Company's best interest to remain a REOC, it shall not be a breach of this Section 7(b) if such opinion or opinions cannot be so provided ------------ because the Company does not then qualify as a REIT or a REOC, as the case may be. The Investor shall pay the Company's reasonable out-of-pocket expenses in connection with the delivery of any such opinion. (c) So long as it will not jeopardize a proposed transaction, the Investor shall provide not less than five business days' advance notice to the Company before it sells any of the Preferred Shares or Conversion Shares to a third party. Section 8. Registration. ------------ (a) The Company shall prepare and file with the Commission, within 60 days of the date of this Agreement, a registration statement (the "Registration Statement") for the purpose of effecting a Registration of the sale of all of the Registrable Shares. The Company shall cause such Registration Statement to be declared effective by the Commission as soon as practicable but in no event later than 60 days after filing. The Company agrees to use its reasonable efforts to keep such Registration continuously effective until the earlier of (i) the date on which all Registrable Shares have been sold pursuant to such registration statement or Rule 144 and (ii) the date on which, in the reasonable opinion of counsel to the Holders, all of the Registrable Shares may be sold in accordance with Rule 144(k). The Company shall prepare and file with the Commission from time to time such amendments and supplements to the Registration Statement as may be necessary to keep the Registration Statement effective for the period of time specified in this Agreement. Notwithstanding anything to the contrary set forth in this Agreement, the Company may defer its obligation to cause a Registration Statement to become effective or to amend or supplement a Registration Statement for a period of not more than 60 days in the event of (i) an underwritten primary offering by the Company if the Company is advised by the managing underwriter of such offering that the sale of Registrable Shares under such Registration Statement would impair the pricing or commercial practicality of such offering, or (ii) pending negotiations relating to, or consummation of, a transaction or the occurrence of an event that would require additional disclosure of material information by the Company in such Registration Statement, as to which the Company has a bona fide business purpose for preserving confidentiality or which renders the Company unable to comply with the requirements of the Commission and that would in each case make it impractical or inadvisable to cause such Registration Statement to become effective or to amend or supplement such Registration Statement; provided, however, that the Company shall not defer or suspend its obligation under this Agreement to cause a Registration Statement to become effective or to amend or supplement a Registration Statement pursuant to this Section 8(a) for ------------ an aggregate period of more than 90 days during any 12 month period. The Company shall notify each Holder of the existence and, in the case of an event referred to in clause (i) of this Section 8(a), the nature of any such event. ------------ 16 (b) The Company shall promptly notify the Holders of Registrable Shares covered by the Registration Statement of the occurrence of the following events: (i) when the Registration Statement or post-effective amendment thereto filed with the Commission has become effective: (ii) the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement; (iii) the suspension of the Company's filing requirement pursuant to the last paragraph of Section 8(a) above; ------------ (iv) the Company's receipt of any notification of the suspension of the qualification of any Registrable Shares covered by the Registration Statement for sale in any jurisdiction; and (v) the existence of any event, fact or circumstance that results in the Registration Statement or prospectus relating to Registrable Shares or any document incorporated therein by reference containing an untrue statement of material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein not misleading during the distribution of securities. The Company agrees to use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of any such registration statement or any state qualification at the earliest possible moment. (c) The Company shall provide to the Holders of Registrable Shares covered by the Registration Statement, at no cost to such Holders, a copy of the Registration Statement and any amendment thereto used to effect the Registration of the Registrable Shares, each prospectus contained in such registration statement or post-effective amendment and any amendment or supplement thereto and such other documents as the requesting Holders may reasonably request in order to facilitate the disposition of the Registrable Shares covered by such registration statement. The Company consents to the use of each such prospectus and any supplement thereto by the Holders in connection with the offering and sale of the Registrable Shares covered by such registration statement or any amendment thereto. The Company shall also file a sufficient number of copies of the prospectus and any post-effective amendment or supplement thereto with the NYSE (or, if the Common Stock is no longer listed thereon, with such other securities exchange or market on which the Common Stock is then listed) so as to enable the Holders to have the benefits of the prospectus delivery provisions of Rule 153 under the Securities Act. (d) The Company agrees to use its reasonable best efforts to cause the Registrable Shares covered by a registration statement to be registered with or approved by such state securities authorities as may be necessary to enable the Holders to consummate the disposition of such shares 17 pursuant to the plan of distribution set forth in the registration statement; provided, however, that the Company shall not be obligated to take any action to effect any such Registration, qualification or compliance pursuant to this Section 8 in any particular jurisdiction in which the Company would be required - --------- to execute a general consent to service of process in effecting such Registration, qualification or compliance unless the Company is already subject to service in such jurisdiction. (e) Subject to the Company's suspension right provided in the last paragraph of Section 8(a) of this Agreement, if any event, fact or circumstance ------------ requiring an amendment to a registration statement relating to the Registrable Shares or supplement to a prospectus relating to the Registrable Shares shall exist, immediately upon becoming aware thereof the Company agrees to notify the Holders and prepare and furnish to the Holders a post-effective amendment to the registration statement or supplement to the prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Shares, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. (f) The Company agrees to use its reasonable best efforts (including the payment of any listing fees) to obtain the listing of all Registrable Shares covered by the registration statement on each securities exchange on which securities of the same class are then listed. (g) The Company agrees to use its reasonable best efforts to comply with the Securities Act and the Exchange Act in connection with the offer and sale of Registrable Shares pursuant to a registration statement, and, as soon as reasonably practicable following the end of any fiscal year during which a registration statement effecting a Registration of the Registrable Shares shall have been effective, to make available to its security holders an earnings statement satisfying the provisions of Section 11(a) of the Securities Act. (h) The Company agrees to cooperate with the selling Holders to facilitate the timely preparation and delivery of certificates representing Registrable Shares to be sold pursuant to a Registration and not bearing any Securities Act legend; and enable certificates for such Registrable Shares to be issued for such numbers of shares and registered in such names as the Holders may reasonably request at least two business days prior to any sale of Registrable Shares. Section 9. Expenses of Registration. The Company shall pay all Registration ------------------------ Expenses incurred in connection with the registration, qualification or compliance pursuant to Section 8 hereof. All Selling Expenses incurred in --------- connection with the offer and sale of Registrable Shares by any of the Holders shall be borne by the Holder offering or selling such Registrable Shares. Each Holder shall pay the expenses of its own counsel. 18 Section 10. Indemnification. --------------- (a) The Company will indemnify each Holder, each Holder's officers and directors, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages and liabilities (including reasonable legal expenses), arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement or prospectus relating to the Registrable Shares, or any amendment or supplement thereto, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided, however, that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on (i) any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with information furnished in writing to the Company by such Holder or underwriter for inclusion therein or (ii) the Investor's failure to send or give a copy of the final, amended or supplemented prospectus furnished to it by the Company at or prior to the time such action is required by the Securities Act to the person claiming an untrue statement or alleged untrue statement or omission or alleged omission if such statement or omission was corrected in such final, amended or supplemented Prospectus. (b) Each Holder will indemnify the Company, each of its directors and each of its officers who signs the registration statement, each underwriter, if any, of the Company's securities covered by such registration statement, and each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (including reasonable legal fees and expenses) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement or prospectus, or any amendment or supplement thereto, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement or prospectus, in reliance upon and in conformity with information furnished in writing to the Company by such Holder for inclusion therein. (c) Each party entitled to indemnification under this Section 10 ---------- (the "Indemnified Party") shall give notice to the party required to provide ----------------- indemnification (the "Indemnifying Party") promptly after such Indemnified Party ------------------ has actual knowledge of any claim as to which indemnity may be sought, but the omission to so notify the Indemnifying Party shall not relieve it from any liability which it may have to the Indemnified Party pursuant to the provisions of this Section 10 except to the extent of the actual damages suffered by such ---------- delay in notification. The Indemnifying Party shall assume the defense of such action, including the employment of counsel to be chosen by the Indemnifying Party to be reasonably satisfactory to the Indemnified Party, and payment of expenses. The Indemnified Party shall have the right to employ its own counsel in any such case, but the legal fees and expenses of such counsel shall be at the expense of the Indemnified Party, unless the employment of such counsel shall have been authorized in writing by the Indemnifying Party in 19 connection with the defense of such action, or the Indemnifying Party shall not have employed counsel to take charge of the defense of such action or the Indemnified Party shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to the Indemnifying Party (in which case the Indemnifying Party shall not have the right to direct the defense of such action on behalf of the Indemnified Party), in any of which events such fees and expenses shall be borne by the Indemnifying Party. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. (d) If the indemnification provided for in this Section 10 is ---------- unavailable to a party that would have been an Indemnified Party under this Section 10 in respect of any expenses, claims, losses, damages and liabilities - ---------- referred to herein, then each party that would have been an Indemnifying Party hereunder shall, in lieu of indemnifying such Indemnified Party, contribute to the amount paid or payable by such Indemnified Party as a result of such expenses, claims, losses, damages and liabilities in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and such Indemnified Party on the other in connection with the statement or omission which resulted in such expenses, claims, losses, damages and liabilities, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying Party or such Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and each holder of Registrable Shares agrees that it would not be just and equitable if contribution pursuant to this Section ------- 10 were determined by pro rata allocation or by any other method of allocation - -- which does not take account of the equitable considerations referred to above in this Section 10(d). ------------- (e) No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (f) In no event shall any Holder be liable for any expenses, claims, losses, damages or liabilities pursuant to this Section 10 in excess of ---------- the net proceeds to such Holder of any Registrable Shares sold by such Holder. Section 11. Information to be Furnished by Holders. Each Holder shall -------------------------------------- furnish to the Company such information as the Company may reasonably request and as shall be required in connection with the Registration and related proceedings referred to in Section 8 hereof. If any Holder fails to provide the --------- Company with such information within three weeks of the Company's request, the Company's obligations under Section 8 hereof with respect to such Holder or the --------- 20 Registrable Shares owned by such Holder shall be suspended until such Holder provides such information. Section 12. Undertaking to Participate in Underwriting. If the Holders ------------------------------------------ of Registrable Shares with a market value of at least $75 million shall propose to sell such Registrable Shares in an underwritten public offering, the Company shall make available members of the management of the Company and its affiliates for reasonable assistance in selling efforts relating to such offering, to the extent customary for a public offering of such size (including, without limitation, to the extent customary, senior management attendance at due diligence meetings with underwriters and their counsel and road shows) and shall enter into underwriting agreements containing usual and customary terms and conditions for such types of offerings; provided that (i) the Company shall not be required to assist in an underwritten offering more than once in any 12 month period or more than three times while any Person (including, without limitation, a pledgee or transferee) holds Registrable Securities and has rights under Section 8 of this Agreement and (ii) the Company shall pay the Registration - --------- Expenses for one underwritten offering. Notwithstanding the foregoing, the Investor shall pay the reasonable out-of-pocket expenses incurred by the Company's employees in connection with all such due diligence and road show meetings and all other reasonable accountable expenses determined by the Company in good faith to have been incurred by the Company in excess of those expenses that the Company would have incurred in connection with a public offering of the same number of shares that was not underwritten, including, without limitation, such additional legal, accounting and printing fees and expenses. Section 13. Rule 144 Sales. -------------- (a) The Company covenants that it will file the reports required to be filed by the Company under the Exchange Act, so as to enable any Holder to sell Registrable Shares pursuant to Rule 144 under the Securities Act. (b) In connection with any sale, transfer or other disposition by any Holder of any Registrable Shares pursuant to Rule 144 under the Securities Act, the Company shall cooperate with such Holder to facilitate the timely preparation and delivery of certificates representing Registrable Shares to be sold and not bearing any Securities Act legend, if deemed appropriate, and enable certificates for such Registrable Shares to be for such number of shares and registered in such names as the selling Holder may reasonably request, provided that such request is made at least two business days prior to any sale of Registrable Shares. Section 14. Repurchase Option. (a) Subject to the terms of Section 16, ----------------- ---------- the Company shall have the option (the "Repurchase Option"), exercisable upon ----------------- notice given by the Company to the Investor not less than 30 nor more than 60 days prior to the date fixed for such repurchase (the "Option Shares Repurchase Date"), to repurchase from the Investor at any time after the date of this Agreement and on or prior to December 6, 2003, at the price, payable in cash (the "Repurchase Price"), set forth in Section 14(b) below, all or, from time to ---------------- ------------- time, part of 2,000,000 shares (the "Option Shares") of the Preferred Shares; ------------- provided that the Repurchase Option shall be exercisable 21 by the Company only if (i) the Weighted Average Trading Price for the period of 20 consecutive Trading Days immediately preceding the date on which notice of exercise of the Repurchase Option is given shall have been not less than the Conversion Price then in effect with respect to Conversion Shares upon conversion of Preferred Shares and (ii) not less than 2,500,000 shares of Common Stock (adjusted to give effect to stock splits and other transactions affecting the Conversion Price pursuant to the terms of the Series D Cumulative Convertible Preferred Stock contained in the Articles of Incorporation) shall have been traded during such 20-Trading Day period. (b) The Repurchase Price payable, in cash, to the Investor in respect of Option Shares repurchased by the Company pursuant to an exercise of the Repurchase Option shall be payable on the Option Shares Repurchase Date in respect of such exercise and shall be equal to the following amounts, expressed as a percentage of the Liquidation Preference of such Option Shares, determined by the period in which the Option Shares Repurchase Date occurs, together, in each case, with all accrued and unpaid dividends to and including such Option Shares Repurchase Date: Option Shares Repurchase Date Occurs Repurchase Price during Period: ---------------- ------------- Beginning Ending --------- ------ Date of this Agreement December 31, 2001 102.5% January 1, 2002 June 30, 2002 102.0% July 1, 2002 December 31, 2002 101.5% January 1, 2003 June 30, 2003 101.0% July 1, 2003 December 6, 2003 100.5% Section 15. (a) Subject to the terms of Section 16, the Company shall ---------- have the option (the "Mandatory Conversion Option"), exercisable upon notice --------------------------- given by the Company to the Investor not less than 30 nor more than 60 days prior to the date fixed for such conversion (the "Mandatory Conversion Date"), to cause the Investor to convert all or, from time to time, part of the Option Shares into Conversion Shares at the Conversion Price in effect on the Mandatory Conversion Date in accordance with the terms of the Series D Cumulative Convertible Preferred Stock contained in the Articles of Incorporation; provided that the Mandatory Conversion Option shall be exercisable by the Company only if (i) the Weighted Average Trading Price for the period of 20 consecutive Trading Days immediately preceding the date on which notice of exercise of the Mandatory Conversion Option is given shall have been not less than 105% of the Conversion Price then in effect with respect to Conversion Shares upon conversion of Preferred Shares and (ii) not less than 2,500,000 shares of Common Stock (adjusted to give effect to stock splits and other transactions affecting the Conversion Price pursuant to the terms of the Series D Cumulative Convertible Preferred Stock contained in the Articles of Incorporation) shall have been traded during such 20-Trading Day period. 22 (b) In addition to any other rights the Investor may have upon conversion of Option Shares pursuant to the terms of the Series D Cumulative Convertible Preferred Stock contained in the Articles of Incorporation, the Company shall pay to the Investor, in cash, on the Mandatory Conversion Date all accrued and unpaid dividends to and including such Mandatory Conversion Date on the Option Shares being converted pursuant to the exercise of the Mandatory Conversion Option. Section 16. Provisions Applicable to the Repurchase Option and the ------------------------------------------------------ Mandatory Conversion Option. (a) The Option Shares shall remain convertible into - --------------------------- Conversion Shares in accordance with the terms of the Preferred Shares prior to the close of business on any Option Shares Repurchase Date, and any Preferred Shares converted to Conversion Shares by the Investor (whether or not after the giving by the Company of notice of an exercise of the Repurchase Option or pursuant to an exercise of the Mandatory Conversion Option) shall be deemed to constitute the conversion of Option Shares, thereby reducing the numberof Option Shares remaining subject to the Repurchase Option and the Mandatory Conversion Option by the number of Preferred Shares converted. In addition, repurchases of Option Shares by the Company pursuant to exercises of the Repurchase Option shall reduce the number of Option Shares remaining subject to the Repurchase Option and the Mandatory Conversion Option by the number of Preferred Shares so repurchased. (b) Neither the repurchase by the Company of Option Shares pursuant to an exercise by the Company of the Repurchase Option nor the sale by the Investor of Conversion Shares obtained through the conversion of Option Shares arising out of an exercise by the Company of the Mandatory Conversion Option shall be deemed to be a Disposal Of such Option Shares or Conversion Shares, as the case may be, by the Investor, including, without limitation, for purposes of calculating the number of Preferred Shares and/or Conversion Shares Disposed Of by the Investor for purposes of the limitations thereon set forth in Section 4 of this Agreement. - --------- (c) The Repurchase Option contained in Section 14 and the ---------- Mandatory Conversion Option contained in Section 15 shall not be transferable or - --------------------------- ---------- assignable by the Company. The Investor may transfer or assign its rights and obligations under Section 14 and Section 15 (in each case, as qualified by ---------- ---------- Section 16) to any party to whom it sells or otherwise transfers Preferred - ---------- Shares, but only (i) to the extent such transferee agrees to be bound by the terms of the Repurchase Option contained in Section 14 and/or the Mandatory ---------- Conversion Option contained in Section 15 and (ii) acknowledges such agreement ---------- by means of a written instrument in form and substance reasonably satisfactory to the Company, delivered to the Company by such transferee provided, however, that to the extent that a sale or transfer of Preferred Shares by the Investor without so transferring or assigning its rights and obligations under Section 14 ---------- or Section 15 would result in a smaller number of Preferred Shares constituting ---------- Option Shares remaining subject to the terms of Section 14 or Section 15 than ---------- ---------- would then have been the case under the terms of this Agreement if such Preferred Shares were not so sold or transferred by the Investor (including, without limitation, taking into account the number of Option Shares previously repurchased by the Company pursuant to exercises of the Repurchase Option or converted by the Investor pursuant to exercises of the Mandatory Conversion Option or otherwise, as provided for in Section 16(a)), then the Investor -------------- 23 shall, if it is to so sell or transfer Preferred Shares, sell or transfer subject to the terms of Section 14 (if still applicable) and Section 15 (in each ---------- ---------- case, as qualified by Section 16) at least such number of Preferred Shares as ----------- would avoid such reduction in such number of Preferred Shares constituting Option Shares remaining so subject to the terms of Section 14 or Section 15, ---------- ---------- with the transferee(s) of such number of Preferred Shares executing and delivering to the Company a written instrument, in form and substance reasonably satisfactory to the Company, acknowledging the applicability of Section 14 or ---------- Section 15 (in each case, as qualified by Section 16) to such Preferred Shares - ---------- ---------- held by such transferee(s). (d) Unless full cumulative dividends on all Preferred Shares have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then current dividend period, the Company may not exercise the Repurchase Option or the Mandatory Conversion Option. Section 17. Agreement to Eliminate Limitation on Redemption. The ----------------------------------------------- Investor agrees (i) to vote the Preferred Shares held by it in favor of an amendment to the Articles of Incorporation to eliminate the applicability of Section 3(d)(5)(C)(i) thereof (relating to the limitation on the redemption of - --------------------- Preferred Shares to require such redemption to be payable solely out of the sale proceeds of other capital stock of the Company and from no other source, as set forth therein) to Option Shares repurchased by the Company pursuant to the Repurchase Option, and (ii) prior to the effectiveness of such amendment, that the Investor will not contest any repurchase of Option Shares by the Company pursuant to the Repurchase Option on the basis that such repurchase could violate the provisions of such Section 3(d)(5)(C)(i). --------------------- Section 18. Miscellaneous. ------------- (a) Governing Law. This Agreement shall be governed in all ------------- respects by the laws of the State of New York. (b) Entire Agreement. This Agreement constitutes the full and ---------------- entire understanding and agreement between the parties with regard to the subject matter hereof. (c) Amendment. No supplement, modification, waiver or termination --------- of this Agreement shall be binding unless executed in writing by the party to be bound thereby. (d) Notices, etc. Each notice, demand, request, request for ------------- approval, consent, approval, disapproval, designation or other communication (each of the foregoing being referred to herein as a notice) required or desired to be given or made under this Agreement shall be in writing (except as otherwise provided in this Agreement), and shall be effective and deemed to have been received (i) when delivered in person, (ii) when sent by fax with receipt acknowledged, (iii) five (5) days after having been mailed by certified or registered United States mail, postage prepaid, return receipt requested, or (iv) the next business day after having been sent by a nationally recognized overnight mail or courier service, receipt requested. Notices shall be addressed as follows: (a) if to 24 the Investor, at the Investor's address or fax number set forth below its signature hereon, or at such other address or fax number as the Investor shall have furnished to the Company in writing, or (b) if to any assignee or transferee of the Investor, at such address or fax number as such assignee or transferee shall have furnished the Company in writing, or (c) if to the Company, at the address or fax number of its principal executive offices set forth below its signature hereon or at such other address or fax number as the Company shall have furnished to the Investor or any assignee or transferee. Any notice or other communication required to be given hereunder to a Holder in connection with a registration may instead be given to the designated representative of such Holder. (e) Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which may be executed by fewer than all of the parties hereto (provided that each party executes one or more counterparts), each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. (f) Severability. In the event that any provision of this ------------ Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. (g) Section Titles. Section titles are for descriptive purposes -------------- only and shall not control or alter the meaning of this Agreement as set forth in the text. (h) Successors and Assigns. Except as otherwise provided herein, ---------------------- (i) this Agreement shall be binding upon the parties hereto and their respective successors and assigns and (ii) the Investor shall not transfer or assign any of the benefits or rights under any provision of this Agreement, except to a Controlled Affiliate of the Investor and except benefits or rights under Section ------- 8 through 13, inclusive and this Section 18. - - -- ---------- (i) Remedies. The Company and the Investor acknowledge that there -------- would be no adequate remedy at law if any party fails to perform any of its obligations hereunder, and accordingly agree that the Company and each Holder, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to compel specific performance of the obligations of another party under this Agreement in accordance with the terms and conditions of this Agreement in any court of the United States or any State thereof having jurisdiction. (j) Attorneys' Fees. If the Company or any Holder brings an --------------- action to enforce its rights under this Agreement, the prevailing party in the action shall be entitled to recover its costs and expenses, including, without limitation, reasonable attorneys' fees, incurred in connection with such action, including any appeal of such action. 25 Section 19. Effectiveness. This Agreement shall be effective upon the ------------- closing of the sale of the Preferred Shares to the Investor pursuant to the Purchase Agreement. 26 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. UNITED DOMINION REALTY TRUST, INC. By: /s/ Thomas W. Toomey ------------------------------------------ Name: Thomas W. Toomey ---------------------------------------- Title: President and Chief Executive Officer --------------------------------------- 1745 Shea Center Drive 4/th/ Floor Highlands Ranch, Colorado 80126 Attention: Thomas W. Toomey Facsimile: (720) 344-5110 SECURITY CAPITAL PREFERRED GROWTH INCORPORATED By: /s/ David Rosenbaum ------------------------------------------- Name: David Rosenbaum ----------------------------------------- Title: Senior Vice President ---------------------------------------- 11 South LaSalle Street Chicago, Illinois 60603 Attention: David Rosenbaum David Novick Facsimile: (312) 345-5888 27 EX-5 4 dex5.txt OPINION OF HUNTON AND WILLIAMS EXHIBIT 5 Hunton & Williams Riverfront Plaza, East Tower 951 East Byrd Street Richmond, Virginia 23219-4074 April 23, 2002 Board of Directors United Dominion Realty Trust 1745 Shea Center Drive, Suite 200 Highlands Ranch, Colorado 80129 Registration Statement on Form S-3 12,307,692 Shares of Common Stock for Resale Ladies and Gentlemen: We have acted as counsel to United Dominion Realty Trust, a Virginia corporation (the "Company"), in connection with the Registration Statement on Form S-3 (the "Registration Statement"), filed under the Securities Act of 1933, as amended, with respect to the offer and sale from time to time of up to 12,307,692 shares of the Company's Common Stock by certain selling shareholders named in the Registration Statement (the "Shares"). In connection therewith, we have relied upon, among other things, our examination of such documents, records of the Company and certificates of its officers and public officials, as we have deemed necessary for purposes of the opinion expressed below. Based upon the foregoing, and having regard for such legal considerations as we have deemed relevant, we are of the opinion that: 1. The Company was duly incorporated and is validly existing and in good standing under the laws of the Commonwealth of Virginia. 2. The issuance of the Shares has been duly authorized and, when issued upon conversion of the United Dominion Series D Cumulative Convertible Preferred Stock by the selling shareholders, as described in the Registration Statement, will be validly issued, fully paid and non-assessable. We consent to the filing of this opinion as Exhibit 5 to the Registration Statement and to the reference to this firm under the heading "Legal Matters" therein. Very truly yours, /s/ Hunton & Williams EX-8 5 dex8.txt OPINION OF HUNTON & WILLIAMS EXHIBIT 8 Hunton & Williams Riverfront Plaza, East Tower 951 East Byrd Street Richmond, Virginia 23219-4074 April 23, 2002 United Dominion Realty Trust, Inc. 400 East Cary Street Richmond, Virginia 23219 United Dominion Realty Trust, Inc. ---------------------------------- Qualification as ---------------- Real Estate Investment Trust ---------------------------- Ladies and Gentlemen: We have acted as counsel to United Dominion Realty Trust, Inc., a Virginia corporation (the "Company"), in connection with the preparation of a Form S-3 registration statement filed with the Securities and Exchange Commission on April 17, 2002 (the "Registration Statement") with respect to the offer and sale from time to time of up to 12,307,692 shares (the "Secondary Shares") of the common stock, par value $0.01 per share, of the Company by the selling shareholder named in the prospectus contained as a part of the Registration Statement (the "Prospectus"). You have requested our opinion on certain United States ("U.S.") federal income tax matters. The Company is an equity real estate investment trust ("REIT") that currently owns equity interests in 277 apartment communities. The Company owns the apartment communities both directly and through qualified REIT subsidiaries ("QRSs") and subsidiary partnerships, joint ventures, and limited liability companies (collectively, the "Subsidiary Partnerships"). In connection with the opinion rendered below, we have examined and relied on the accuracy of the following: 1. the Prospectus; 2. the Articles of Incorporation and Bylaws of the Company, both as amended through the date hereof; 3. the Third Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., a Virginia limited partnership ("UDRLP"), dated as of December 4, 1998 (the "UDRLP Partnership Agreement"), among the Company, as general partner, and several limited partners, as amended through the date hereof; 4. the Second Amended and Restated Agreement of Limited Partnership of Heritage Communities L.P., a Delaware limited partnership ("Heritage" and, together with UDRLP, the "Operating Partnerships"), dated as of September 18, 1997, as amended through the date hereof (the "Heritage Partnership Agreement" and, together with the UDRLP Partnership Agreement, the "Operating Partnership Agreements"); 5. the partnership agreement or operating agreement (together with the Operating Partnership Agreements, the "Partnership Agreements") of the Subsidiary Partnerships other than the Operating Partnerships; 6. the taxable REIT subsidiary elections for each of UDR Trillium Holdings, Inc., Realeum, Inc., United Dominion Residential Ventures, LLC, and United Dominion Residential, Inc. (together, the "TRSs"); 7. the Company's U.S. federal income tax returns for taxable years 1998, 1999, and 2000; 8. the prospectus for the Company's Dividend Reinvestment and Stock Purchase Plan dated June 1, 2000; 9. the letter ruling from the U.S. Internal Revenue Service (the "Service") to the Company dated December 21, 1989, regarding the characterization of certain amounts received by the Company from its rental properties (the "1989 Letter Ruling"); and 10. such other documents as we have deemed necessary or appropriate for purposes of this opinion. In connection with the opinion rendered below, we have assumed generally that: 1. each of the documents referred to above has been duly authorized, executed, and delivered; is authentic, if an original, or is accurate, if a copy; and has not been amended; 2. the Company qualified as a REIT for its 1993 taxable year and all prior taxable years; 3. during its 2002 taxable year and future taxable years, the Company has operated and will continue to operate in such a manner that makes and will continue to make the representations contained in a certificate, dated April 15, 2002 and executed by a duly appointed officer of the Company (the "Officer's Certificate"), true for such years; 4. the Company will not make any amendments to its organizational documents or to the Partnership Agreements after the date of this opinion letter that would affect its qualification as a REIT for any taxable year; 5. each partner or member of the Operating Partnership and the Subsidiary Partnerships (each, a "Partner") that is a corporation or other entity has a valid legal existence; 6. each Partner has full power, authority, and legal right to enter into and to perform the terms of the applicable Partnership Agreement and the transactions contemplated thereby; 7. no action will be taken by the Company, the QRSs, the Operating Partnerships, the Subsidiary Partnerships, the Partners, or the TRSs after the date hereof that would have the effect of altering the facts upon which the opinion set forth below is based; and 8. the 1989 Letter Ruling has not been and will not be revoked or modified by the Service. In connection with the opinions rendered below, we also have assumed the correctness of the factual representations contained in the Officer's Certificate. After reasonable inquiry, we are not aware of any facts inconsistent with the representations set forth in the Officer's Certificate. Furthermore, where such factual representations involve terms defined in the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations thereunder (the "Regulations"), published rulings of the Service, or other relevant authority, we have explained such terms to the Company's representatives and are satisfied that the Company's representatives understand such terms and are capable of making such factual representations. Based on the documents and the assumptions set forth above and the representations set forth in the Officer's Certificate, we are of the opinion that: (a) the Company has been organized and has operated in conformity with the requirements for qualification and taxation as a REIT under the Code for each of its taxable years ended December 31, 1998 through December 31, 2001, and its current organization and proposed method of operation will enable it to continue to meet the requirements for qualification and taxation as a REIT for its taxable year ending December 31, 2002 and thereafter; and (b) the descriptions of the law and the legal conclusions contained in the Prospectus under the caption "Federal Income Tax Consequences of Our Status as a REIT" are correct in all material respects and the discussions thereunder fairly describe the U.S. federal income tax considerations that are likely to be material to a holder of the Secondary Shares. We will not review the Company's compliance with the documents or assumptions set forth above or the representations set forth in the Officer's Certificate on a continuing basis. Accordingly, no assurance can be given that the actual results of the Company's operations for its 2002 and subsequent taxable years will satisfy the requirements for qualification and taxation as a REIT. The foregoing opinions are based on current provisions of the Code and the Regulations, published administrative interpretations thereof, and published court decisions. The Service has not issued Regulations or administrative interpretations with respect to various provisions of the Code relating to REIT qualification. No assurance can be given that the law will not change in a way that will prevent the Company from qualifying as a REIT. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. We also consent to the reference to Hunton & Williams under the caption "Federal Income Tax Consequences of Our Status as a REIT" in the Prospectus. In giving this consent, we do not admit that we are in the category of persons whose consent is required by Section 7 of the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder by the SEC. The foregoing opinions are limited to the U.S. federal income tax matters addressed herein, and no other opinions are rendered with respect to other U.S. federal tax matters or to any issues arising under the tax laws of any other country or any state or locality. We undertake no obligation to update the opinions expressed herein after the date of this letter. This opinion letter is solely for the information and use of the addressees, and it may not be distributed, relied upon for any purpose by any other person, quoted in whole or in part or otherwise reproduced in any document, or filed with any governmental agency without our express written consent. Very truly yours, /s/ Hunton & Williams EX-23.1 6 dex231.txt CONSENT OF ERNST & YOUNG EXHIBIT 23.1 Consent of Independent Auditors We consent to the reference to our firm under the caption "Experts" in the Registration Statement Form S-3 No. 333-00000 and related Prospectus of United Dominion Realty Trust, Inc. for the registration of 12,307,692 shares of its common stock and to the incorporation by reference therein of our report dated January 31, 2002, with respect to the consolidated financial statements and schedule of United Dominion Realty Trust, Inc. included in its Annual Report (Form 10-K) for the year ended December 31, 2001, filed with the Securities and Exchange Commission. /s/Ernst & Young LLP Richmond, Virginia April 22, 2002 -----END PRIVACY-ENHANCED MESSAGE-----