Exhibit 10.1
SECOND
AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
UNITED DOMINION REALTY, L.P.
Dated as of July 1, 2026
TABLE OF CONTENTS
| | Page |
2 | ||
2 | ||
9 | ||
9 | ||
9 | ||
9 | ||
9 | ||
10 | ||
10 | ||
10 | ||
10 | ||
11 | ||
11 | ||
Additional Capital Contributions and Issuances of Additional Partnership Interests. | 11 | |
12 | ||
12 | ||
13 | ||
13 | ||
13 | ||
13 | ||
14 | ||
14 | ||
16 | ||
18 | ||
18 | ||
18 | ||
18 | ||
19 | ||
-i-
TABLE OF CONTENTS
(continued)
-ii-
TABLE OF CONTENTS
(continued)
| | Page |
Effect of Bankruptcy, Death, Incompetence or Termination of a Limited Partner. | 38 | |
38 | ||
39 | ||
39 | ||
39 | ||
39 | ||
39 | ||
Tax Matters Partner; Tax Elections; Special Basis Adjustments | 39 | |
40 | ||
40 | ||
41 | ||
41 | ||
41 | ||
41 | ||
42 | ||
42 | ||
42 | ||
42 | ||
42 | ||
42 | ||
43 | ||
43 | ||
43 | ||
43 | ||
43 | ||
-iii-
TABLE OF CONTENTS
(continued)
-iv-
SECOND
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
UNITED DOMINION REALTY, L.P.
Dated as of July 1, 2026
RECITALS
United Dominion Realty, L.P. (the “Partnership”) was formed as a limited partnership under the laws of the State of Delaware by a Certificate of Limited Partnership filed with the Secretary of State of the State of Delaware on February 19, 2004 and is the successor-in-interest to United Dominion Realty Trust, L.P., a limited partnership formed under the laws of Virginia, which commenced operations on November 4, 1995. The limited partnership agreement of the Partnership was amended and restated on the 29th day of October, 2025 (such agreement, the “First A&R Agreement”). This Second Amended and Restated Agreement of Limited Partnership amends and restates the First A&R Agreement and is adopted this 1st day of July, 2026 pursuant to the provisions of Section 17-211(g) of the Act (as defined below).
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, of mutual covenants between the parties hereto, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1
DEFINED TERMS
| 1.01 | Defined Terms. |
The following defined terms used in this Agreement shall have the meanings specified
below:
“Act” means the Delaware Revised Uniform Limited Partnership Act, as it may be
amended from time to time.
“Additional Funds” is defined in Section 4.03.
“Additional Limited Partner” means a Person admitted to this Partnership as a Limited Partner pursuant to Section 4.02.
“Affiliate” means, (i) any Person that, directly or indirectly, controls or is controlled by or is under common control with such Person, (ii) any other Person that owns, beneficially, directly or indirectly, 10% or more of the outstanding capital stock, shares or equity interests of such Person, or (iii) any officer, director, employee, partner or trustee of such Person or any Person controlling, controlled by or under common control with such Person (excluding trustees and persons serving in similar capacities who are not otherwise an Affiliate of such Person). For the purposes of this definition, “control” (including the correlative meanings of the terms “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities or partnership interests or otherwise.
“Agreed Value” means the fair market value of a Partner’s non-cash Capital Contribution as of the date of contribution as agreed to by the such Partner and the General Partner. The name and address of each Partner, number of Partnership Units issued to such Partner, and the Agreed Value of such Partner’s non-cash Capital Contributions as of the date of contribution thereof is set forth on Exhibit A.
“Agreement” means this Second Amended and Restated Agreement of Limited Partnership, as amended from time to time.
“Available Cash” means, for any period, the excess, if any, of (i) the cash receipts of the Partnership (other than from the sale, exchange or other disposition of the assets of the Partnership), including amounts withdrawn from reserves, over (ii) the disbursements of cash by the Partnership (other than distributions to Partners and amounts paid with the receipts from the sale, exchange or other disposition of the assets of the Partnership), including amounts deposited in reserves. Available Cash for any period shall be determined by the General Partner in its reasonable discretion.
“Capital Account” is defined in Section 4.04.
2
“Capital Contribution” means the total amount of capital contributed to the Partnership by each Partner. Any reference to the Capital Contribution of a Partner shall include the Capital Contribution made by a predecessor holder of the Partnership Interest of such Partner. The paid-in Capital Contribution shall mean the cash amount or the Agreed Value of other assets actually contributed by each Partner to the capital of the Partnership.
“Cash Amount” means an amount of cash per Partnership Unit equal to the Value of the REIT Shares Amount on the date of receipt by the General Partner of a Notice of Redemption.
“Certificate” means any instrument or document that is required under the laws of the State of Delaware, or any other jurisdiction in which the Partnership conducts business, to be signed and sworn to by the Partners of the Partnership (either by themselves or pursuant to the power-or-attorney granted to the General Partner in Section 8.02) and filed for recording in the appropriate public offices within the State of Delaware or such other jurisdiction to perfect or maintain the Partnership as a limited partnership, to effect the admission, withdrawal, or substitution of any Partner of the Partnership, or to protect the limited liability of the Limited Partners as limited partners under the laws of the State of Delaware or such other jurisdiction.
“Charter” means the Articles of Incorporation of the Company, as amended from time to
time.
“Class A Partner” means a Limited Partner who holds Class A Partnership Units.
“Class A Partnership Units” means Partnership Interests having the rights and preferences of a Class A Partnership Unit as set forth in this Agreement.
“Class A Specified Redemption Date” means the date that Class A Partnership Units are required to be redeemed or acquired pursuant to Section 8.05(d).
“Code” means the Internal Revenue Code of 1986, as amended, and as hereafter amended from time to time. Reference to any particular provision of the Code shall mean that provision in the Code at the date hereof and any successor provision of the Code.
“Commission” means the Securities and Exchange Commission.
“Company” means UDR, Inc., a Maryland corporation.
“Contribution Agreements” means collectively that certain Contribution Agreement dated as of May 2, 2003 between the General Partner, the Partnership, Mesa Verde Villas II, L.P. and M.V. JV, LLC and that certain Contribution Agreement dated as of May 2, 2003 between the General Partner, the Partnership and Windjammer Apartments, L.P.
“Contributor” means each of Mesa Verde Villas II, L.P., M.V. JV, LLC, or Windjammer Apartments, L.P.
“Conversion Factor” means 1.0, as adjusted pursuant to Section 8.05(f) of this Agreement.
3
“Cross Over Date” means, with respect to a Class A Partnership Unit, the first to occur of (i) the date on which a Class A Partner would have received distributions with respect to the Class A Partnership Units held by such Class A Partner equal to or greater than the Threshold Amount for a period of four consecutive calendar quarters, assuming such Class A Partner had received distributions based on the Dividend Equivalent instead of distributions on the Class A Partnership Units pursuant to this Agreement, or (ii) the date on which the Class A Partner holding such Class A Partnership Units gives written notice to the Partnership in accordance with Section 12.01 of this Agreement that such date shall be the Cross Over Date with respect to such Class A Partnership Units.
“Dividend Equivalent” as to any Partner means the amount of distributions such Partner would have received for the quarter (or other distribution period) from REIT Shares if such Partner owned the number of REIT Shares equal to the product of such Partner’s Partnership Units and the Conversion Factor for the Partnership Record Date pertaining to such quarter (or other distribution period); provided, however, that for purposes of determining any Partner’s Dividend Equivalent for any period for which the Company pays a dividend with respect to REIT Shares in which holders of REIT Shares have an option to elect to receive such dividend in cash or additional REIT Shares, the amount of distributions such Partner shall be deemed to have received with respect to such dividend (if such Partner was deemed to own the specified number of REIT Shares) shall be equal to the product of (i) the specified number of REIT Shares deemed to be owned by such Partner, and (ii) the quotient obtained by dividing (a) the aggregate amount of cash paid by the Company in such dividend to all holders of REIT Shares, by (b) the aggregate number of REIT Shares outstanding as of the close of business on the record date for such dividend.
“Event of Bankruptcy” as to any Person means the filing of a petition for relief as to such Person as debtor or bankrupt under the Bankruptcy Code of 1978 or similar provision of law of any jurisdiction (except if such petition is contested by such Person and has been dismissed within 90 days); insolvency or bankruptcy of such Person as finally determined by a court proceeding; filing by such Person of a petition or application to accomplish the same or for the appointment of a receiver or a trustee for such Person or a substantial part of his assets; commencement of any proceedings relating to such Person as a debtor under any other reorganization, arrangement, insolvency, adjustment of debt or liquidation law of any jurisdiction, whether now in existence or hereinafter in effect, either by such Person or by another, provided that if such proceeding is commenced by another, such Person indicates his approval of such proceeding, consents thereto or acquiesces therein, or such proceeding is contested by such Person and has not been finally dismissed within 90 days.
“Family Member” means, as to a Person that is an individual, such Person’s spouse, ancestors, descendants (whether by blood or by adoption), brothers, sisters and inter vivos or testamentary trusts of which only such Person and his spouse, ancestors, descendants (whether by blood or by adoption), brothers and sisters are beneficiaries.
“General Partner” means the Company and any Person who becomes a substitute or additional General Partner as provided herein, and any of their successors as General Partner. At any time at which the Partnership has two or more General Partners, all such General Partners shall designate one of such General Partners as managing General Partner and may from time to time designate a successor managing General Partner and, unless the context otherwise requires,
4
references to the General Partner shall mean the General Partner at the time so designated as managing General Partner.
“General Partnership Interest” means a Partnership Interest held by the General Partner that is a general partnership interest.
“Indemnitee” means (i) any Person made a party to a proceeding by reason of such Person’s status as the General Partner or a director, officer or employee of the Partnership or the General Partner, and (ii) such other Persons (including Affiliates of the General Partner or the Partnership) as the General Partner may designate from time to time, in its sole and absolute discretion,
“Limited Partner” means any Person named as a Limited Partner on Exhibit A attached hereto, and any Person who becomes a Substitute or Additional Limited Partner, in such Person’s capacity as a Limited Partner in the Partnership.
“Limited Partnership Interest” means the ownership interest of a Limited Partner in the Partnership at any particular time, including the right of such Limited Partner to any and all benefits to which such Limited Partner may be entitled as provided in this Agreement and in the Act, together with the obligations of such Limited Partner to comply with all the provisions of this Agreement and of such Act.
“Loss” is defined in Section 5.01(f).
“Minimum Limited Partnership Interest” means the lesser of (i) 1% or (ii) if the total Capital Contributions to the Partnership exceeds $50 million, 1% divided by the ratio of the total Capital Contributions to the Partnership to $50 million; provided, however, that the Minimum Limited Partnership Interest shall not be less than 0.2% at any time.
“Notice of Redemption” means the Notice of Exercise of Redemption Right substantially in the form attached as Exhibit B hereto.
“NYSE” means the New York Stock Exchange and includes any other national securities exchange on which the REIT Shares are listed at the determination date.
“Offer” is deemed in Section 7.01(c).
“Original Limited Partner” means UDRT of North Carolina, LLC., a North Carolina limited liability company.
“Outside Partner” means any Partner other than a UDR Partner. “Partner” means any General Partner or Limited Partner.
“Partner Nonrecourse Debt Minimum Gain” has the meaning set forth in Regulations Section 1.704-2(i). A Partner’s share of Partner Nonrecourse Debt Minimum Gain shall be determined in accordance with Regulations Section 1.704-2(i)(5).
5
“Partnership Interest” means an ownership interest in the Partnership held by either a Limited Partner or the General Partner and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement.
“Partnership Minimum Gain” has the meaning set forth in Regulations Section 1.704- 2(d). In accordance with Regulations Section 1.704-2(d), the amount of Partnership Minimum Gain is determined by first computing, for each Partnership nonrecourse liability, any gain the Partnership would realize if it disposed of the property subject to that liability for no consideration other than full satisfaction of the liability, and then aggregating the separately computed gains. A Partner’s share of Partnership Minimum Gain shall be determined in accordance with Regulations Section 1.704-2(g)(l).
“Partnership Record Date” means the record date established by the General Partner for the distribution of cash pursuant to Section 5.02, which record date shall be the same as the record date established by the General Partner for a distribution to the holders of the REIT Shares.
“Partnership Unit” means a fractional, undivided share of the Partnership Interests of all Partners issued hereunder. The allocation of Partnership Units among the Partners shall be as set forth on Exhibit A, as may be amended from time to time.
“Percentage Interest” means at any time the percentage ownership interest in the Partnership of each Partner, as determined by dividing the Partnership Units owned by such Partner by the total number of Partnership Units outstanding at such time. The Percentage Interest of each Partner shall be as set forth on Exhibit A, as may be amended from time to time.
“Percentage Interest Adjustment Date” means the effective date of an adjustment of the Partners’ Percentage Interests pursuant to Section 4.05.
“Person” means any individual, partnership, corporation, joint venture, trust or other entity.
“Preferred Return” means, as to each Class A Partner, a cumulative annual, non- compounded return on each Class A Partnership Unit equal to eight percent (8%) based upon a value of $16.61 per Class A Partnership Unit.
“Profit” is defined in Section 5.01(f).
“Property” means any apartment property or other investment in which the Partnership holds an ownership interest.
“Redeeming Partner” is deemed in Section 8.05(a). “Redemption Right” is defined in Section 8.05(a).
“Regulations” means the Federal Income Tax Regulations issued under the Code, as amended and as hereafter amended from time to time. Reference to any particular provision of the
6
Regulations shall mean that provision of the Regulations on the date hereof and any successor provision of the Regulations.
“REIT” means a real estate investment trust under Sections 856 through 860 of the Code.
“REIT Expenses” means (i) costs and expenses relating to the continuity of existence of the Company and its Subsidiaries (all such entities shall, for purposes of this section, be included within the definition of Company), including, without limitation, taxes, fees and assessments associated therewith and any costs, expenses or fees payable to any director, officer or employee of the Company (including, without limitation, any costs of indemnification), (ii) costs and expenses relating to any offer or registration of REIT Shares or other securities by the Company and all statements, reports, fees and expenses incidental thereto, including, without limitation, underwriting discounts and selling commissions applicable to any such offer of securities and any costs and expenses associated with any claims made by any holders of such securities or any underwriters or placement agents thereof, (iii) costs and expenses incurred in connection with the repurchase of any securities by the Company, (iv) costs and expenses associated with the preparation and filing of any periodic or other reports and communications by the Company under federal, state or local laws or regulations, including filings with the Commission, (v) costs and expenses associated with compliance by the Company with laws, rules and regulations promulgated by any regulatory body, including the Commission and any securities exchange, (vi) costs and expenses associated with any 401(k) plan, incentive plan, bonus plan or other plan providing for compensation for the employees of the Company, (vii) costs and expenses incurred by the Company relating to any issuance or redemption of Partnership Interests, and (viii) all other operating or administrative costs incurred by the Company in connection with the ordinary course of the Company’s or the Partnership’s business (including the business of any Subsidiary thereof).
“REIT Share” means a share of common stock of the Company, $1 par value per share, or a share of the common stock of any Successor Entity.
“REIT Shares Amount” shall mean a whole number of REIT Shares equal to the product of the number of Partnership Units offered for redemption by a Redeeming Partner, multiplied by the Conversion Factor as adjusted to and including the Specified Redemption Date plus cash in lieu of any fractional REIT Shares based on the Value of a REIT Share as of the date of receipt by the General Partner of a Notice of Redemption; provided that in the event the Company issues to all holders of REIT Shares rights, options, warrants or convertible or exchangeable securities entitling the stockholders to subscribe for or purchase REIT Shares, or any other securities or property (collectively, the “rights”), and the rights have not expired at the Specified Redemption Date, then the REIT Shares Amount shall also include the rights issuable to a holder of the REIT Shares Amount of REIT Shares on the record date fixed for purposes of determining the holders of REIT Shares entitled to rights.
“Securities Act” means the Securities Act of 1933, as amended. “Service” means the Internal Revenue Service.
“Specified Redemption Date” means (i) with respect to Partnership Units to be redeemed for a Cash Amount, the first Business Day of the month that is at least 20 business days after the
7
receipt by the General Partner of the Notice of Redemption, as the same may be extended pursuant to Section 8.05(d) and (ii) with respect to Partnership Units to be redeemed for a REIT Shares Amount, the fifth Business Day following the date of the General Partner’s notice of its election to purchase such Partnership Units pursuant to Section 8.05(b).
“Subsidiary” means, with respect to any Person, any corporation or other entity of which a majority of (i) the voting power of the voting equity securities (including general partners’ interests) or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person.
“Substitute Limited Partner” means any Person admitted to the Partnership as a Limited Partner pursuant to Section 9.03.
“Threshold Amount” means a fixed distribution of $1.3288 per annum. “Transaction” is defined in Section 7.01(c).
“Transfer” is defined in Section 9.02(a).
“UDR Partner” means the Company and any Partner that is an Affiliate of the Company.
“Value” means, with respect to any security, the average of the daily market price of such security for the twenty (20) consecutive trading days immediately preceding the date of such valuation. The market price for each such trading day shall be: (i) if such security is listed or admitted to trading on any securities exchange or The Nasdaq National Market, the closing price, regular way, on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, (ii) if such security is not listed or admitted to trading on any securities exchange or The Nasdaq National Market, the last reported sale price on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a recognized quotation source designated by the Company, or (iii) if such security is not listed or admitted to trading on any securities exchange or The Nasdaq National Market and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a recognized quotation source designated by the General Partner, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than twenty (20) days prior to the date in question) for which prices have been so reported; provided, that if there are no bid and asked prices reported during the twenty (20) days prior to the date in question, the value of such security shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. In the event that any security includes any additional rights the value of which is not included within such price, then the value of such rights shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate, and included in determining the “Value” of such security.
8
PARTNERSHIP CONTINUATION AND IDENTIFICATION
| 2.03 | Partners. |
| 2.04 | Term and Dissolution. |
9
This certificate is not negotiable. The Partnership Units represented by this certificate are governed by and transferable only in accordance with the provisions of the Second Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., as amended from time to time.
BUSINESS OF THE PARTNERSHIP
10
REIT, unless the Company otherwise ceases to qualify as a REIT, (ii) to enter into any partnership, joint venture or other similar arrangement to engage in any of the foregoing or the ownership of interests in any entity engaged in any of the foregoing and (iii) to do anything necessary or incidental to the foregoing. In connection with the foregoing, and without limiting the Company’s right in its sole and absolute discretion to cease qualifying as a REIT, the Partners acknowledge that the Company’s current status as a REIT and the avoidance of income and excise taxes on the Company inures to the benefit of all the Partners and not solely to the Company. Notwithstanding the foregoing, the Limited Partners acknowledge that the Company may terminate its status as a REIT under the Code at any time to the full extent permitted by the Charter. Subject to Article XI hereof, the General Partner shall also be empowered (but shall not be required) to do any and all acts and things necessary or prudent to ensure that the Partnership will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Code.
CAPITAL CONTRIBUTIONS AND ACCOUNTS
11
best interests of the Company and the Partnership. Upon each issuance of Partnership Units hereunder, the General Partner shall amend Exhibit A attached hereto to reflect such issuance.
12
the Partnership is liquidated within the meaning of Regulation Section 1.704-1(b)(2)(ii)(g); or (iv) an interest in the Partnership (other than a de minimis interest) is granted as consideration for the provision of services to or for the benefit of the Partnership by an existing Partner acting in a partner capacity, or by a new Partner acting in a partner capacity or in anticipation of becoming a Partner of the Partnership (including the grant of an LTIP Unit (as defined in Exhibit H attached hereto)), the General Partner shall revalue the property of the Partnership to its fair market value (as determined by the General Partner, in its sole and absolute discretion, and taking into account Section 7701(g) of the Code) in accordance with Regulations Section 1.704-1(b)(2)(iv)(f). When the Partnership’s property is revalued by the General Partner, the Capital Accounts of the Partners shall be adjusted in accordance with Regulations Sections 1.704-l(b)(2)(iv)(f) and (g), which generally require such Capital Accounts to be adjusted to reflect the manner in which the unrealized gain or loss inherent in such property (that has not been reflected in the Capital Accounts previously) would be allocated among the Partners pursuant to Section 5.01 if there were a taxable disposition of such property for its fair market value (as determined by the General Partner, in its sole and absolute discretion, and taking into account Section 7701 (g) of the Code) on the date of the revaluation.
13
being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may be enforced solely by, the parties hereto and their respective successors and assigns. None of the rights or obligations of the Partners herein set forth to make Capital Contributions or loans to the Partnership shall be deemed an asset of the Partnership for any purpose by any creditor or other third party; nor may such rights or obligations be sold, transferred or assigned by the Partnership or pledged or encumbered by the Partnership to secure any debt or other obligation of the Partnership or of any of the Partners. In addition, it is the intent of the parties hereto that no distribution to any Limited Partner shall be deemed a return of money or other property in violation of the Act. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Limited Partner is obligated to return such money or property, such obligation shall be the obligation of such Limited Partner and not of the General Partner. Without limiting the generality of the foregoing, a deficit Capital Account of a Partner shall not be deemed to be a liability of such Partner nor an asset or property of the Partnership.
PROFITS AND LOSSES: DISTRIBUTIONS
| 5.01 | Allocation of Profit and Loss. |
| (a) | General. |
14
net decrease in Partner Nonrecourse Debt Minimum Gain within the meaning of Regulations Section 1.704-2(i)(4) for any Partnership taxable year, items of gain and income shall be allocated among the Partners in accordance with Regulations Section 1.7042(i)(4) and the ordering rules contained in Regulations Section 1.704-2(j). A Partner’s “interest in partnership profits” for purposes of determining its share of the nonrecourse liabilities of the Partnership within the meaning of Regulations Section 1.752-3(a)(3) shall be such Partner’s Percentage Interest.
15
identical to all allocations of such items set forth in this Section 5.01, except as otherwise required by Section 704(c) of the Code and Regulations Section 1.704-1(b)(4). The General Partner shall have the authority to elect the method to be used by the Partnership for allocating items of income, gain, and expense as required by Section 704(c) of the Code (including a method that may result in a Partner receiving a disproportionately larger share of the Partnership’s tax depreciation deductions) and such election shall be binding on all Partners.
| 5.02 | Distribution of Cash. |
16
The amount and frequency of distributions of any cash other than Available Cash shall be determined by the General Partner in its sole discretion and, if distributed, such cash shall be distributed to the Partners in accordance with this Section 5.02(a). If a new or existing Partner acquires an additional Partnership Interest in exchange for a Capital Contribution on any date other than a Partnership Record Date, the cash distribution attributable to such additional Partnership Interest for the Partnership Record Date following the issuance of such additional Partnership Interest shall be reduced in the proportion that the number of days that such additional Partnership Interest is held by such Partner bears to the number of days between such Partnership Record Date and the immediately preceding Partnership Record Date.
17
such interest to accrue from the date the Partnership is deemed to extend the loan until such loan is repaid in full.
| 5.06 | Distributions Upon Liquidation. |
18
the Capital Account of each Partner shall be determined after all adjustments made in accordance with Sections 5.01 and 5.02 resulting from Partnership operations and from all sales and dispositions of all or any part of the Partnership’s assets. Any distributions pursuant to this Section 5.06 shall be made by the end of the Partnership’s taxable year in which the liquidation occurs (or, if later, within 90 days after the date of the liquidation). To the extent deemed advisable by the General Partner, appropriate arrangements (including the use of a liquidating trust) may be made to ensure that adequate funds are available to pay any contingent debts or obligations.
RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER
| 6.01 | Management of the Partnership. |
19
20
the conservation of Partnership assets, or for any other purpose convenient or beneficial to the Partnership, in such amounts and such types, as it shall determine from time to time;
21
General Partner deems necessary or appropriate for the formation, continuation and conduct of the business and affairs of the Partnership (including, without limitation, all actions consistent with allowing the General Partner at all times to qualify as a REIT unless the General Partner voluntarily terminates its REIT status) and to possess and enjoy all of the rights and powers of a general partner as provided by the Act.
| 6.03 | Indemnification and Exculpation of Indemnitees. |
22
| 6.04 | Liability of the General Partner. |
23
Partnership to take (or decline to take) any actions. In any case in which the General Partner determines in good faith that the interests of the Limited Partners and the General Partner’s stockholders may conflict, the Limited Partners further acknowledge and agree that the General Partner shall be deemed to have discharged its fiduciary duties to the Limited Partners by discharging such duties to the General Partner’s stockholders. The General Partner shall not be liable for monetary damages for losses sustained, liabilities incurred, or benefits not derived by Limited Partners in connection with any such decisions, provided that the General Partner has acted in good faith.
24
| 6.07 | Employment or Retention of Affiliates. |
CHANGES IN GENERAL PARTNER AND THE COMPANY
25
the Limited Partners (other than those held by the Company or any Subsidiary of the Company) is obtained;
The General Partner shall give the Limited Partners notice of any Transaction at least 20 business days prior to the effective date of such Transaction, provided, however, that the General Partner need not give any such notice prior to the date on which the holders of REIT Shares are first notified of such Transaction by the Company.
26
| (d) | Notwithstanding Sections 7.01(a), 7.01(b) and 7.01(c), |
| 7.03 | Effect of Bankruptcy, Withdrawal, Death or Dissolution of a General Partner. |
27
The merger of the General Partner with or into any entity that is admitted as a substitute or successor General Partner pursuant to Section 7.02 hereof shall not be deemed to be the withdrawal, dissolution or removal of the General Partner.
| 7.04 | Removal of a General Partner. |
28
the fair market value of the General Partner’s General Partnership Interest shall be the average of the two appraisals closest in value.
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
29
| 8.05 | Redemption Right. |
30
shall not have any obligation to the Redeeming Partner or the Partnership with respect to the Redeeming Partner’s exercise of the Redemption Right. In the event the General Partner shall exercise its right to purchase Partnership Units with respect to the exercise of a Redemption Right in the manner described in the first sentence of this Section 8.05(b), the Partnership shall have no obligation to pay any amount to the Redeeming Partner with respect to such Redeeming Partner’s exercise of such Redemption Right, and each of the Redeeming Partner, the Partnership, and the General Partner shall treat the transaction between the General Partner and the Redeeming Partner for federal income tax purposes as a sale of the Redeeming Partner’s Partnership Units to the General Partner. Each Redeeming Partner agrees to execute such documents as the Partnership may reasonably require in connection with the issuance of REIT Shares upon exercise of the Redemption Right. If Section 5.05 hereof shall prevent the Partnership from satisfying, in whole or in part, any exercise of the Redemption Right by a Redeeming Partner, then the Company (whether or not it is then the General Partner) shall be deemed to have elected pursuant to this Section 8.05(b) to purchase, and hereby agrees to purchase, directly from such Redeeming Partner, such number of Partnership Units as the Partnership is unable to redeem due to the operation of Section 5.05.
31
the foregoing, the General Partner agrees to use its best efforts to cause the closing of the acquisition of redeemed Partnership Units hereunder to occur as quickly as reasonably possible.
| (f) | The Conversion Factor shall be adjusted from time to time as follows: |
32
shall be adjusted by multiplying the Conversion Factor in effect prior to the Record Date by a fraction, the numerator of which is the Pre-Distribution Value and the denominator of which is the Post-Distribution Value, provided. however, that no adjustment shall be made if (a) with respect to any cash dividend or distribution with respect to REIT shares, the Partnership distributes with respect to each Partnership Unit an amount equal to the amount of such dividend or distribution multiplied by the Conversion Factor or (b) with respect to any dividend or distribution of securities or property other than cash, the Partnership distributes with respect to each Partnership Unit an amount of securities or other property equal to the amount distributed with respect to each REIT share multiplied by the Conversion Ratio or a partnership interest or other security readily convertible into such securities or other property.
33
specified on the Reuters Screen LIBOR Page, the applicable rate shall be the arithmetic mean of all such rates.
| 8.07 | Guaranty Opportunity, Etc. |
34
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
| 9.01 | Purchase for Investment. |
| 9.02 | Restrictions on Transfer of Limited Partnership Interests. |
35
“established securities market” or a “secondary market (or the substantial equivalent thereof)” within the meaning of Section 7704 of the Code,
(ii) any Family Member of such Class A Partner, (iii) any trust of which a Person described in clause (i) of this Section 9.02(f) or a Family Member of such Person or such Class A Partner and/or a bona fide tax-exempt charitable organization are the sole beneficiaries and (iv) any bona fide tax-exempt charitable organization in connection with a bona fide gift or donation. Further, notwithstanding Section 9.02(a), a Class A Partner may pledge the Class A Partnership Units held by such Class A Partner (i) as set forth in Section 7.04 of the respective Contribution Agreements and (ii) to a lending institution to secure a bona fide loan or extension of credit made by such lending institution to such Class A Partner and, upon such lending institution exercising its remedy, if any, to foreclose and take possession of such Class A Partnership Units and taking possession of such Class A Partnership Units with respect to a default under such loan or extension of credit and compliance by such lending institution with the provisions of Section 9.03(a), the General Partner will consent to the admission of such lending institution to the Partnership as a Substitute Limited Partner notwithstanding the provisions of Section 9.03(a)(vii); provided that notwithstanding the foregoing the General Partner may withhold such consent if the General Partner in its sole discretion determines that there is a reasonable business purpose for the Partnership not to admit such lending institution as a Substitute Limited Partner.
C.B. 386.
36
| 9.03 | Admission of Substitute Limited Partner. |
37
practicable after the satisfaction of the conditions in this Article IX to the admission of such Person as a Limited Partner of the Partnership.
| 9.04 | Rights of Assignees of Partnership Interests. |
38
Partner from either owner, the General Partner shall cause the Partnership Interest to be divided into two equal Partnership Interests, which shall thereafter be owned separately by each of the former owners.
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS
| 10.02 | Custody of Partnership Funds; Bank Accounts. |
| 10.05 | Tax Matters Partner; Tax Elections; Special Basis Adjustments. |
39
assistance in respect of any audit of the Partnership by the Service and all out-of-pocket expenses and fees incurred by the General Partner on behalf of the Partnership as Tax Matters Partner shall constitute Partnership expenses. In the event the General Partner receives notice of a final Partnership adjustment under Section 6223(a)(2) of the Code, the General Partner shall either (i) file a court petition for judicial review of such final adjustment within the period provided under Section 6226(a) of the Code, a copy of which petition shall be mailed to all Limited Partners on the date such petition is filed, or (ii) mail a written notice to all Limited Partners, within such period, that describes the General Partner’s reasons for determining not to file such a petition.
| 10.06 | Reports to Limited Partners. |
40
AMENDMENT OF AGREEMENT; MERGER; NOTICE
| (d) | any amendment to this Article XI. |
The consent of each Limited Partner shall be required for any amendment that would impose on the Limited Partners any obligation to make additional Capital Contributions to the Partnership.
| 11.03 | Class A Voting Rights. |
41
Partners holding at least a majority of the Class A Partnership Units then outstanding will be required to approve any merger, acquisition or other fundamental transaction involving the Partnership, unless (i) the holders of such Class A Partnership Units will not recognize a taxable gain in the transaction and the tax protections set forth in Section 7.03 of each of the Contribution Agreements are preserved following such merger, acquisition or other fundamental transaction, (ii) the Class A Partners are offered a portion of the consideration offered to the holders of Limited Partnership Interests which is in proportion to the Value of their respective Partnership Interests, (iii) the value, as determined in good faith by the General Partner, of the liquidation, redemption rights and preferences of the Class A Limited Partners set forth in this Agreement, either in respect of the Partnership or another limited partnership, limited liability company or other “pass-through” entity for federal income tax purposes which succeeds to the interests of or is the survivor of a transaction with the Partnership, are preserved in connection with such merger, acquisition or other fundamental transaction and (iv) the Class A Limited Partners’ fixed or guaranteed entitlements or preferences as to dividends or distributions as set forth herein are preserved and the other relative rights, preferences and privileges of the Class A Partnership Units are maintained.
ARTICLE XII GENERAL PROVISIONS
42
contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof.
12.10 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.
43
IN WITNESS WHEREOF, the General Partner has hereunder affixed its signature to this Second Amended and Restated Agreement of Limited Partnership, as of the 1st day of July, 2026 to witness and evidence its adoption pursuant to the provisions of Section 17-211(g) of the Act.
GENERAL PARTNER: UDR, INC. By: /s/ Keith Benson Keith Benson Senior Vice President – Chief Legal Officer |
44
NOTICE OF EXERCISE OF REDEMPTION RIGHT
In accordance with Section 8.05 of the Second Amended and Restated Agreement of Limited Partnership (the “Agreement”) of United Dominion Realty, L.P., the undersigned hereby irrevocably (i) presents for redemption _____________ Partnership Units in United Dominion Realty, L.P. in accordance with the terms of the Agreement and the Redemption Right referred to in Section 8.05 thereof, (ii) surrenders such Partnership Units and all right, title and interest therein, and (iii) directs that the Cash Amount or REIT Shares Amount (as defined in the Agreement) as determined by the General Partner deliverable upon exercise of the Redemption Right be delivered to the address specified below, and if REIT Shares (as defined in the Agreement) are to be delivered, such REIT Shares be registered or placed in the name(s) and at the address(es) specified below.
Dated: ________________, _______
Name of Limited Partner:
(Signature of Limited Partner) |
(Mailing Address) |
(City) (State) (Zip Code) |
Signature Guaranteed by: |
|
|
|
If REIT Shares are to be issued, issue to:
Please insert social security or identifying number:
B-1
PARTNERSHIP UNIT DESIGNATION
OF THE
CLASS I OUT-PERFORMANCE PARTNERSHIP SHARES
OF UNITED DOMINION REALTY, L.P.
| 1. | NUMBER OF UNITS AND DESIGNATION. |
A class of Partnership Units is hereby designated as “Class I Out-Performance Partnership Shares,” and the number of Partnership Units initially constituting such class shall be one million two hundred and seventy thousand (1,270,000).
| 2. | DEFINITIONS. |
For purposes of this Partnership Unit Designation, the following terms shall have the meanings indicated in this Section 2. Capitalized terms used and not otherwise defined herein shall have the meanings assigned thereto in the Agreement.
“Change of Control” shall mean the occurrence of any of the following events:
C-1
solicitation of proxies or consents by or on behalf of a person other than the Board of Directors of the Company (a “Proxy Contest”) including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or
Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because any person (a “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company that, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by such Subject Person, provided that if a Change of Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company, such Subject Person becomes the Beneficial Owner of any additional Voting Securities that increases the percentage of the then outstanding Voting Securities Beneficially Owned by such Subject Person, then a Change of Control shall occur.
“Class I Out-Performance Partnership Share” shall mean a Partnership Unit with the designations, preferences and relative, participating, optional or other special rights, powers and duties as are set forth in this Exhibit C.
“Class I Out-Performance Valuation Date” shall mean the earlier to occur of (i) June 1, 2003, or (ii) the date on which a Change of Control occurs.
“Conversion Factor” shall mean the quotient obtained by dividing (i) the quotient obtained by dividing (x) the product of (A) 4% of the Excess Return multiplied by (B) the UDR Market Capitalization, by (y) the Value of a REIT Share on the Class I Out-Performance Valuation Date
C-2
by (ii) the number of Class I Out-Performance Partnership Shares outstanding at the Class I Out-Performance Valuation Date; provided, however, that the amount determined pursuant to clause (x) shall not exceed an amount equal to 2% of the UDR Market Capitalization. The Conversion Factor shall be adjusted pursuant to Section 8.05(f) of the Agreement.
“Determination Date” shall mean (i) when used with respect to any dividend or other distribution, the date fixed for the determination of the holders of the securities entitled to receive such dividend or distribution, or, if a dividend or distribution is paid or made without fixing such a date, the date of such dividend or distribution, and (ii) when used with respect to any split, subdivision, reverse stock split, combination or reclassification of securities, the date upon which such split, subdivision, reverse stock split, combination or reclassification becomes effective.
“Excess Return” shall mean the amount, if any, by which the UDR Total Return over the Measurement Period exceeds the greater of (i) the Industry Total Return or (ii) the Minimum Return.
“Ex-Date” shall mean (i) when used with respect to any dividend or distribution, the first date on which the securities on which the dividend or distribution is payable trade regular way on the relevant exchange or in the relevant market without the right to receive such dividend or distribution, and (ii) when used with respect to any split, subdivision, reverse stock split, combination or reclassification of securities, the first date on which the securities trade regular way on such exchange or in such market to reflect such split, subdivision, reverse stock split, combination or reclassification becoming effective.
“Extraordinary Distribution” shall mean the distribution by the Company, by dividend or otherwise, to all holders of its REIT Shares of evidences of its indebtedness or assets (including securities) other than cash.
“Family Controlled Entity” means, as to any holder of Class I Out-Performance Shares, (a) any corporation more than 50% of the outstanding voting stock of which is owned by such holder and such holder’s Family Members, (b) any trust, whether or not revocable, of which such holder and such holder’s Family Members are the sole beneficiaries, (c) any partnership of which such holder and such holder’s Family Members hold partnership interests representing at least 25% of such partnership’s capital and profits and (d) any limited liability company of which such holder is the manager and in which such holder and such holder’s Family Members hold membership interests representing at least 25% of such limited liability company’s capital and profits.
“Industry Peer Group Index” shall mean the Morgan Stanley REIT Index.
“Industry Total Return” shall mean the Total Return of the securities included in the Industry Peer Group Index for the Measurement Period, with such average determined in a manner consistent with the manner in which such index is calculated; provided, however, that if such Industry Total Return would be less than zero without giving effect to the reinvestment of dividends, then the “Industry Total Return” shall be equal to zero.
“Initial Holder” shall mean UDR Out-Performance I, LLC, a Virginia limited liability company.
C-3
“Measurement Period” shall mean the period from and including February 1, 2001 to but excluding the Class I Out-Performance Valuation Date.
“Minimum Return” shall mean 30% (compounded annually) for the Measurement Period or, if the Class I Out-Performance Valuation Date is not June 1, 2003, 12% (compounded annually) per annum from February 1,2001.
“Morgan Stanley REIT Index” shall mean the Morgan Stanley REIT Index quoted on the American Stock Exchange under the symbol “RMS”.
“Partnership” shall mean United Dominion Realty, L.P., a Delaware limited partnership.
“Total Return” shall mean, for any security or index and for any period, the cumulative total return for such security or index over such period, as measured by (i) the sum of (A) the cumulative amount of dividends paid in respect of such security or index for such period (assuming that all dividends other than Extraordinary Distributions are reinvested in such security or index as of the payment date for such dividend based on the security price on the dividend payment date), and (B) an amount equal to (1) the security price or index value at the end of such period, minus (2) the security price or index value at the beginning of such period, divided by (ii) the security price or index value at the beginning of such period; provided, however, that if the foregoing calculation results in a negative number, the “Total Return” shall be equal to zero.
“UDR Market Capitalization” shall mean the average number of shares outstanding over the Measurement Period (including, for this purpose, REIT Shares and Partnership Units, but not including outstanding options, convertible securities or Class I Out-Performance Partnership Shares) multiplied by the daily closing price of the REIT Shares.
“UDR Total Return” shall mean the Total Return of the REIT Shares for the Measurement
Period.
| 3. | FORFEITURE. |
If, on the Class I Out-Performance Valuation Date, there is no Excess Return, then, from and after such date, each Class I Out-Performance Partnership Share shall, without any action on the part of the Partnership, the Company or the holder thereof, be automatically forfeited and be no longer outstanding.
| 4. | DISTRIBUTIONS. |
On and after the Class I Out-Performance Valuation Date, the holders of Class I Out-Performance Partnership Shares not forfeited under Section 3 shall be entitled to receive distributions at the same time and in the same amount that would be received on the number of Partnership Units held by Outside Partners (assuming such Partnership Units were originally issued on the Class I Out-Performance Valuation Date) that is obtained by multiplying the number of Class I Out-Performance Partnership Shares by the Conversion Factor.
C-4
| 5. | ALLOCATIONS. |
| 6. | EXCHANGE. |
If the Class I Out-Performance Partnership Shares have not been forfeited under Section 3 and the Class I Out-Performance Partnership Shares have been transferred by the Initial Holder in accordance with Section 8, the transferee and subsequent transferees of the Class I Out-Performance Partnership Shares may exchange from time to time some or all of the Class I Out-Performance Partnership Shares for a number of Partnership Units equal to the Class I Out-Performance Partnership Shares multiplied by the Conversion Factor.
| 7. | REDEMPTION UPON CHANGE OF CONTROL. |
Upon the occurrence of a Change of Control, and subject to the applicable requirements of Federal securities laws and any securities exchange or quotation system rules or regulations, each holder of Class I Out-Performance Partnership Shares shall have the redemption rights of Limited Partners set forth in Section 8.05 of the Agreement with respect to a number of Partnership Units equal to the number of Class I Out-Performance Partnership Shares multiplied by the Conversion Factor and the 40-month transfer limitation period applicable to the Class I Out-Performance Partnership Shares shall be deemed to have passed.
| 8. | RESTRICTIONS ON OWNERSHIP AND TRANSFER. |
The restrictions on Transfer set forth in Article IX of the Agreement shall not apply to Transfers of Class I Out-Performance Partnership Shares. Prior to the Class I Out-Performance Valuation Date, the Class I Out-Performance Partnership Shares shall be owned and held solely by the Initial Holder. On or after the later of the Class I Out-Performance Valuation Date and the forty (40) month period from the date the Class I Out-Performance Partnership Shares are issued the Class I Out-Performance Partnership Shares may be Transferred (i) by the Initial Holder to (a) any Person who is a member (a “Member”) of the Initial Holder immediately prior to such transfer, (b) a Family Member of a Member, (c) a Family Controlled Entity of a Member, (d) any Person with respect to whom the Member constitutes a Family Controlled Entity, (e) upon the death of a
C-5
Member, by will or by the laws of descent and distribution to any Family Member or Family Controlled Entity, and (ii) by any other Person to (a) a Family Member of a such Person, (b) a Family Controlled Entity of such Person, (c) any other Person with respect to whom such Person constitutes a Family Controlled Entity, (d) upon the death of such Person, by will or by the laws of descent and distribution to any Family Member or Family Controlled Entity; provided, however, that, until May 31, 2004, the Class I Out-Performance Partnership Shares may not be Transferred by the Initial Holder without the approval of the managers of the Initial Holder.
| 9. | ADJUSTMENTS. |
| 10. | GENERAL. |
The ownership of Class I Out-Performance Partnership Shares may (but need not, in the sole and absolute discretion of the Company) be evidenced by one or more certificates. The
C-6
Company shall amend Exhibit A to the Agreement from time to time to the extent necessary to reflect accurately the issuance of, and subsequent conversion, redemption, or any other event having an effect on the ownership of Class I Out-Performance Partnership Shares.
C-7
PARTNERSHIP UNIT DESIGNATION
OF THE
CLASS II OUT-PERFORMANCE PARTNERSHIP SHARES
OF UNITED DOMINION REALTY, L.P.
| 1. | NUMBER OF UNITS AND DESIGNATION. |
A class of Partnership Units is hereby designated as “Class II Out-Performance Partnership Shares,” and the number of Partnership Units initially constituting such class shall be one million (1,000,000).
| 2. | DEFINITIONS. |
For purposes of this Partnership Unit Designation, the following terms shall have the meanings indicated in this Section 2. Capitalized terms used and not otherwise defined herein shall have the meanings assigned thereto in the Agreement.
“Change of Control” shall mean the occurrence of any of the following events:
D-1
Board if such individual initially assumed office as a result of either an actual or threatened “election contest” (as described in Rule 14a-11 promulgated under the Exchange Act) (an “Election Contest”) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board of Directors of the Company (a “Proxy Contest”) including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or
Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because any person (a “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company that, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by such Subject Person, provided that if a Change of Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company, such Subject Person becomes the Beneficial Owner of any additional Voting Securities that increases the percentage of the then outstanding Voting Securities Beneficially Owned by such Subject Person, then a Change of Control shall occur.
“Class II Out-Performance Partnership Share” shall mean a Partnership Unit with the designations, preferences and relative, participating, optional or other special rights, powers and duties as are set forth in this Exhibit D.
D-2
“Class II Out-Performance Valuation Date” shall mean the earlier to occur of May 31, 2005, or (ii) the date on which a Change of Control occurs.
“Conversion Factor” shall mean the quotient obtained by (a) multiplying 5% of the Excess Return by the Company’s Market Capitalization and (b) dividing the number obtained in clause (b) by the market value of one REIT Share on the Class II Out-Performance Valuation Date, as the weighted average price per day of common stock for the 20 trading days immediately preceding the Class II Out-Performance Valuation Date
“Determination Date” shall mean (i) when used with respect to any dividend or other distribution, the date fixed for the determination of the holders of the securities entitled to receive such dividend or distribution, or, if a dividend or distribution is paid or made without fixing such a date, the date of such dividend or distribution, and (ii) when used with respect to any split, subdivision, reverse stock split, combination or reclassification of securities, the date upon which such split, subdivision, reverse stock split, combination or reclassification becomes effective.
“Excess Return” shall mean the amount, if any, by which the cumulative Total Return of REIT Shares over the Measurement Period exceeds the greater of the cumulative Total Return of the Morgan Stanley REIT Index, which is the peer group index, or the Minimum Return.
“Ex-Date” shall mean (i) when used with respect to any dividend or distribution, the first date on which the securities on which the dividend or distribution is payable trade regular way on the relevant exchange or in the relevant market without the right to receive such dividend or distribution, and (ii) when used with respect to any split, subdivision, reverse stock split, combination or reclassification of securities, the first date on which the securities trade regular way on such exchange or in such market to reflect such split, subdivision, reverse stock split, combination or reclassification becoming effective.
“Extraordinary Distribution” shall mean the distribution by the Company, by dividend or otherwise, to all holders of its REIT Shares of evidences of its indebtedness or assets (including securities) other than cash.
“Family Controlled Entity” means, as to any holder of Class II Out-Performance Shares, (a) any corporation more than 50% of the outstanding voting stock of which is owned by such holder and such holder’s Family Members, (b) any trust, whether or not revocable, of which such holder and such holder’s Family Members are the sole beneficiaries, (c) any partnership of which such holder and such holder’s Family Members hold partnership interests representing at least 25% of such partnership’s capital and profits and (d) any limited liability company of which such holder is the manager and in which such holder and such holder’s Family Members hold membership interests representing at least 25% of such limited liability company’s capital and profits.
“Industry Peer Group Index” shall mean the Morgan Stanley REIT Index.
D-3
“Industry Total Return” shall mean the Total Return of the securities included in the Industry Peer Group Index for the Measurement Period, with such average determined in a manner consistent with the manner in which such index is calculated; provided, however, that if such Industry Total Return would be less than zero without giving effect to the reinvestment of dividends, then the “Industry Total Return” shall be equal to zero.
“Initial Holder” shall mean UDR Out-Performance II, LLC, a Maryland limited liability company.
“Measurement Period” shall mean the 24 month period beginning June 1, 2003 to but excluding the Class II Out-Performance Valuation Date.
“Minimum Return” shall mean a 22% Total Return (compounded annually) or 11% annualized as of the Class II Out-Performance Valuation Date or, if the Class II Out-Performance Valuation Date is not May 31, 2005, 11% (compounded annually) per annum from June 1, 2003.
“Morgan Stanley REIT Index” shall mean the Morgan Stanley REIT Index quoted on the American Stock Exchange under the symbol “RMS”.
“Partnership” shall mean United Dominion Realty, L.P., a Delaware limited partnership.
“Total Return” shall mean, for any security or index and for any period, the cumulative total return for such security or index over such period, as measured by the sum of (a) the cumulative amount of dividends paid in respect of such security or index for such period (assuming that all cash dividends are reinvested in such security as of the payment date for such dividend based on the security price on the dividend payment date), and (b) an amount equal to (x) the security price or index value at the end of such period, minus the security price or index value at the beginning of the measurement period.
“UDR Market Capitalization” shall mean the average number of REIT Shares outstanding over the Measurement Period (including, for this purpose, REIT Shares, Partnership Units, outstanding options and convertible securities, but not including Class II Out-Performance Partnership Shares) multiplied by the daily closing price of the REIT Shares.
“UDR Total Return” shall mean the Total Return of the REIT Shares for the Measurement Period.
| 3. | FORFEITURE. |
If, on the Class II Out-Performance Valuation Date, there is no Excess Return, then, from and after such date, each Class II Out-Performance Partnership Share shall, without any action on the part of the Partnership, the Company or the holder thereof, be automatically forfeited and be no longer outstanding.
D-4
| 4. | DISTRIBUTIONS. |
Subject to Section 5.06 of the Agreement, on and after the Class II Out-Performance Valuation Date, the holders of Class II Out-Performance Partnership Shares not forfeited under Section 3 shall be entitled to receive distributions at the same time and in the same amount that would be received on the number of Partnership Units held by Outside Partners (assuming such Partnership Units were originally issued on the Class II Out-Performance Valuation Date) that is obtained by multiplying the number of Class II Out-Performance Partnership Shares by the Conversion Factor.
| 5. | ALLOCATIONS. |
| 6. | EXCHANGE. |
If the Class II Out-Performance Partnership Shares have not been forfeited under Section 3 and the Class II Out-Performance Partnership Shares have been transferred by the Initial Holder in accordance with Section 8, the transferee and subsequent transferees of the Class II Out-Performance Partnership Shares may exchange from time to time some or all of the Class II Out-Performance Partnership Shares for a number of Partnership Units equal to the Class II Out-Performance Partnership Shares multiplied by the Conversion Factor.
| 7. | REDEMPTION UPON CHANGE OF CONTROL. |
Upon the occurrence of a Change of Control, and subject to the applicable requirements of Federal securities laws and any securities exchange or quotation system rules or regulations, each holder of Class II Out-Performance Partnership Shares shall have the redemption rights of Limited Partners set forth in Section 8.05 of the Agreement with
D-5
respect to a number of Partnership Units equal to the number of Class II Out-Performance Partnership Shares multiplied by the Conversion Factor and the 40-month transfer limitation period applicable to the Class II Out-Performance Partnership Shares shall be deemed to have passed.
| 8. | RESTRICTIONS ON OWNERSHIP AND TRANSFER. |
The restrictions on Transfer set forth in Article IX of the Agreement shall not apply to Transfers of Class II Out-Performance Partnership Shares. Prior to the Class II Out-Performance Valuation Date, the Class II Out-Performance Partnership Shares shall be owned and held solely by the Initial Holder. On or after the later of the Class II Out-Performance Valuation Date and the twenty four (24) month period from the date the Class II Out-Performance Partnership Shares are issued the Class II Out-Performance Partnership Shares may be Transferred (i) by the Initial Holder to (a) any Person who is a member (a “Member”) of the Initial Holder immediately prior to such transfer, (b) a Family Member of a Member, (c) a Family Controlled Entity of a Member, (d) any Person with respect to whom the Member constitutes a Family Controlled Entity, (e) upon the death of a Member, by will or by the laws of descent and distribution to any Family Member or Family Controlled Entity, and (ii) by any other Person to (a) a Family Member of a such Person, (b) a Family Controlled Entity of such Person, (c) any other Person with respect to whom such Person constitutes a Family Controlled Entity, (d) upon the death of such Person, by will or by the laws of descent and distribution to any Family Member or Family Controlled Entity; provided, however, that, until May 31, 2005, the Class II Out-Performance Partnership Shares may not be Transferred by the Initial Holder without the approval of the managers of the Initial Holder.
| 9. | ADJUSTMENTS. |
D-6
determined as of a date on or after the Ex-Date for such transaction shall be adjusted by multiplying such price by a fraction (x) the numerator of which shall be the number of REIT Shares issued and outstanding on the Determination Date for such dividend, distribution, split, subdivision, reverse stock split, combination or reclassification (assuming for such purposes that such dividend, distribution, split, subdivision, reverse split or combination has occurred as of such time) and (y) the denominator of which shall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on the Determination Date for such dividend, distribution, split, subdivision, reverse stock split. combination or reclassification.
| 10. | GENERAL. |
The ownership of Class II Out-Performance Partnership Shares may (but need not, in the sole and absolute discretion of the Company) be evidenced by one or more certificates. The Company shall amend Exhibit A to the Agreement from time to time to the extent necessary to reflect accurately the issuance of, and subsequent conversion, redemption, or any other event having an effect on the ownership of Class II Out-Performance Partnership Shares.
D-7
PARTNERSHIP UNIT DESIGNATION
OF THE
CLASS III OUT-PERFORMANCE PARTNERSHIP SHARES
OF UNITED DOMINION REALTY, L.P.
| 1. | NUMBER OF UNITS AND DESIGNATION. |
A class of Partnership Units is hereby designated as “Class III Out-Performance Partnership Shares,” and the number of Partnership Units initially constituting such class shall be seven hundred fifty thousand (750,000).
| 2. | DEFINITIONS. |
For purposes of this Partnership Unit Designation, the following terms shall have the meanings indicated in this Section 2. Capitalized terms used and not otherwise defined herein shall have the meanings assigned thereto in the Agreement.
“Change of Control” shall mean the occurrence of any of the following events:
E-1
provided, further, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened “election contest” (as described in Rule 14a-11 promulgated under the Exchange Act) (an “Election Contest”) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board of Directors of the Company (a “Proxy Contest”) including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or
Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because any person (a “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company that, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by such Subject Person, provided that if a Change of Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company, such Subject Person becomes the Beneficial Owner of any additional Voting Securities that increases the percentage of the then-outstanding Voting Securities Beneficially Owned by such Subject Person, then a Change of Control shall occur.
“Class III Out-Performance Partnership Share” shall mean a Partnership Unit with the designations, preferences and relative, participating, optional or other special rights, powers and duties as are set forth in this Exhibit E.
E-2
“Class III Out-Performance Valuation Date” shall mean the earlier to occur of (i) May 30, 2008, or (ii) the date on which a Change of Control occurs.
“Conversion Factor” shall mean the quotient obtained by dividing (i) the product of 2% of the Excess Return and the UDR Market Capitalization (provided, however, that the product obtained by this clause (i) shall not exceed 1% of the UDR Market Capitalization) by (ii) the market value of one REIT Share on the Class III Out-Performance Valuation Date, computed as the weighted average price per day of the REIT Shares for the 20 trading days immediately preceding the Class III Out-Performance Valuation Date.
“Determination Date” shall mean (i) when used with respect to any dividend or other distribution, the date fixed for the determination of the holders of the securities entitled to receive such dividend or distribution, or, if a dividend or distribution is paid or made without fixing such a date, the date of such dividend or distribution, and (ii) when used with respect to any split, subdivision, reverse stock split, combination or reclassification of securities, the date upon which such split, subdivision, reverse stock split, combination or reclassification becomes effective.
“Excess Return” shall mean the amount, if any, by which the cumulative Total Return of REIT Shares over the Measurement Period exceeds the Minimum Return.
“Ex-Date” shall mean (i) when used with respect to any dividend or distribution, the first date on which the securities on which the dividend or distribution is payable trade regular way on the relevant exchange or in the relevant market without the right to receive such dividend or distribution, and (ii) when used with respect to any split, subdivision, reverse stock split, combination or reclassification of securities, the first date on which the securities trade regular way on such exchange or in such market to reflect such split, subdivision, reverse stock split, combination or reclassification becoming effective.
“Extraordinary Distribution” shall mean the distribution by the Company, by dividend or otherwise, to all holders of its REIT Shares of evidences of its indebtedness or assets (including securities) other than cash.
“Family Controlled Entity” means, as to any holder of Class III Out-Performance Shares, (a) any corporation more than 50% of the outstanding voting stock of which is owned by such holder and such holder’s Family Members, (b) any trust, whether or not revocable, of which such holder and such holder’s Family Members are the sole beneficiaries, (c) any partnership of which such holder and such holder’s Family Members hold partnership interests representing at least 25% of such partnership’s capital and profits and (d) any limited liability company of which such holder is the manager and in which such holder and such holder’s Family Members hold membership interests representing at least 25% of such limited liability company’s capital and profits.
“Family Members” means, as to a Person that is an individual, such Person’s spouse, ancestors, descendants (whether by blood or by adoption), brothers, sisters and
E-3
inter vivos or testamentary trusts of which only such Person and his spouse, ancestors, descendants (whether by blood or by adoption), brothers and sisters are beneficiaries.
“Initial Holder” shall mean UDR Out-Performance III, LLC, a Delaware limited liability company.
“Measurement Period” shall mean the 36-month period beginning June 1, 2005 and ending on May 30, 2008.
“Minimum Return” shall mean the cumulative Total Return of the REIT Shares during the Measurement Period is at least the equivalent of a 36% Total Return or 12% annualized.
“Partnership” shall mean United Dominion Realty, L.P., a Delaware limited partnership.
“Total Return” shall mean, for any security and for any period, the cumulative total return for such security over such period, assuming that all cash dividends are reinvested in such security as of the payment date for such dividend based on the security price on the dividend payment date, computed by taking the market value of the accumulated shares at the end of the period (including fractional shares acquired with dividend proceeds) and dividing by the market value of a share at the beginning of the period.
“UDR Market Capitalization” shall mean the average number of REIT Shares outstanding over the Measurement Period (including, for this purpose, REIT Shares, Partnership Units and common stock equivalents, but not including Class III Out-Performance Partnership Shares) multiplied by the daily closing price of the REIT Shares.
“UDR Total Return” shall mean the Total Return of the REIT Shares for the Measurement Period.
| 3. | FORFEITURE. |
If, on the Class III Out-Performance Valuation Date, there is no Excess Return, then, from and after such date, each Class III Out-Performance Partnership Share shall, without any action on the part of the Partnership, the Company or the holder thereof, be automatically forfeited and be no longer outstanding.
| 4. | DISTRIBUTIONS. |
Subject to Section 5.06 of the Agreement, on and after the Class III Out-Performance Valuation Date, the holders of Class III Out-Performance Partnership Shares not forfeited under Section 3 shall be entitled to receive distributions at the same time and in the same amount that would be received on the number of Partnership Units held by Outside Partners (assuming such Partnership Units were originally issued on the Class III Out-Performance Valuation Date) that is obtained by multiplying the number of Class III Out-Performance Partnership Shares by the Conversion Factor.
E-4
| 5. | ALLOCATIONS. |
| 6. | EXCHANGE. |
If the Class III Out-Performance Partnership Shares have not been forfeited under Section 3 and the Class III Out-Performance Partnership Shares have been transferred by the Initial Holder in accordance with Section 8, the transferee and subsequent transferees of the Class III Out-Performance Partnership Shares may exchange from time to time some or all of the Class III Out-Performance Partnership Shares for a number Partnership Units equal to the Class III Out-Performance Partnership Shares multiplied by the Conversion Factor.
| 7. | REDEMPTION UPON CHANGE OF CONTROL. |
Upon the occurrence of a Change of Control, and subject to the applicable requirements of Federal securities laws and any securities exchange or quotation system rules or regulations, each holder of Class III Out-Performance Partnership Shares shall have the redemption rights of Limited Partners set forth in Section 8.05 of the Agreement with respect to a number of Partnership Units equal to the number of Class III Out-Performance Partnership Shares multiplied by the Conversion Factor and the thirty-six (36) month transfer limitation period applicable to the Class III Out-Performance Partnership Shares shall be deemed to have passed.
| 8. | RESTRICTIONS ON OWNERSHIP AND TRANSFER. |
The restrictions on Transfer set forth in Article IX of the Agreement shall not apply to Transfers of Class III Out-Performance Partnership Shares. Prior to the Class III Out-Performance Valuation Date, the Class III Out-Performance Partnership Shares shall be owned and held solely by the Initial Holder. On or after the later of the Class III Out-
E-5
Performance Valuation Date and the thirty-six (36) month period from the date the Class III Out-Performance Partnership Shares are issued the Class III Out-Performance Partnership Shares may be Transferred (i) by the Initial Holder to (a) any Person who is a member (a “Member”) of the Initial Holder immediately prior to such transfer, (b) a Family Member of a Member, (c) a Family Controlled Entity of a Member, (d) any Person with respect to whom the Member constitutes a Family Controlled Entity, (e) upon the death of a Member, by will or by the laws of descent and distribution to any Family Member or Family Controlled Entity, and (ii) by any other Person to (a) a Family Member of a such Person, (b) a Family Controlled Entity of such Person, (c) any other Person with respect to whom such Person constitutes a Family Controlled Entity, (d) upon the death of such Person, by will or by the laws of descent and distribution to any Family Member or Family Controlled Entity; provided, however, that, until May 30, 2008, the Class III Out-Performance Partnership Shares may not be Transferred by the Initial Holder without the approval of the managers of the Initial Holder.
| 9. | ADJUSTMENTS. |
E-6
| 10. | GENERAL. |
The ownership of Class III Out-Performance Partnership Shares may (but need not, in the sole and absolute discretion of the Company) be evidenced by one or more certificates. The Company shall amend Exhibit A to the Agreement from time to time to the extent necessary to reflect accurately the issuance of, and subsequent conversion, redemption, or any other event having an effect on the ownership of Class III Out-Performance Partnership Shares.
E-7
PARTNERSHIP UNIT DESIGNATION
OF THE
CLASS IV OUT-PERFORMANCE PARTNERSHIP SHARES
OF UNITED DOMINION REALTY, L.P.
| 1. | NUMBER OF UNITS AND DESIGNATION. |
A class of Partnership Units is hereby designated as “Class IV Out-Performance Partnership Shares,” and the number of Partnership Units initially constituting such class shall be eight hundred thirty thousand (830,000).
| 2. | DEFINITIONS. |
For purposes of this Partnership Unit Designation, the following terms shall have the meanings indicated in this Section 2. Capitalized terms used and not otherwise defined herein shall have the meanings assigned thereto in the Agreement.
“Change of Control” shall mean the occurrence of any of the following events:
F-1
Board, such new director shall be considered as a member of the Incumbent Board; provided, further, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened “election contest” (as described in Rule 14a-11 promulgated under the Exchange Act) (an “Election Contest”) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board of Directors of the Company (a “Proxy Contest”) including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or
Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because any person (a “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company that, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by such Subject Person, provided that if a Change of Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company, such Subject Person becomes the Beneficial Owner of any additional Voting Securities that increases the percentage of the then-outstanding Voting Securities Beneficially Owned by such Subject Person, then a Change of Control shall occur.
F-2
“Class IV Out-Performance Partnership Share” shall mean a Partnership Unit with the designations, preferences and relative, participating, optional or other special rights, powers and duties as are set forth in this Exhibit F.
“Class IV Out-Performance Valuation Date” shall mean the earlier to occur of (i) December 31, 2008, or (ii) the date on which a Change of Control occurs.
“Conversion Factor” shall mean the quotient obtained by dividing (i) the product of 2% of the Excess Return and the UDR Market Capitalization (provided, however, that the product obtained by this clause (i) shall not exceed 1% of the UDR Market Capitalization) by (ii) the market value of one REIT Share on the Class IV Out-Performance Valuation Date, computed as the weighted average price per day of the REIT Shares for the 20 trading days immediately preceding the Class IV Out-Performance Valuation Date.
“Determination Date” shall mean (i) when used with respect to any dividend or other distribution, the date fixed for the determination of the holders of the securities entitled to receive such dividend or distribution, or, if a dividend or distribution is paid or made without fixing such a date, the date of such dividend or distribution, and (ii) when used with respect to any split, subdivision, reverse stock split, combination or reclassification of securities, the date upon which such split, subdivision, reverse stock split, combination or reclassification becomes effective.
“Excess Return” shall mean the amount, if any, by which the cumulative Total Return of REIT Shares over the Measurement Period exceeds the Minimum Return.
“Ex-Date” shall mean (i) when used with respect to any dividend or distribution, the first date on which the securities on which the dividend or distribution is payable trade regular way on the relevant exchange or in the relevant market without the right to receive such dividend or distribution, and (ii) when used with respect to any split, subdivision, reverse stock split, combination or reclassification of securities, the first date on which the securities trade regular way on such exchange or in such market to reflect such split, subdivision, reverse stock split, combination or reclassification becoming effective.
“Extraordinary Distribution” shall mean the distribution by the Company, by dividend or otherwise, to all holders of its REIT Shares of evidences of its indebtedness or assets (including securities) other than cash.
“Family Controlled Entity” means, as to any holder of Class IV Out-Performance Shares, (a) any corporation more than 50% of the outstanding voting stock of which is owned by such holder and such holder’s Family Members, (b) any trust, whether or not revocable, of which such holder and such holder’s Family Members are the sole beneficiaries, (c) any partnership of which such holder and such holder’s Family Members hold partnership interests representing at least 25% of such partnership’s capital and profits and (d) any limited liability company of which such holder is the manager and in which such holder and such holder’s Family Members hold membership interests representing at least 25% of such limited liability company’s capital and profits.
F-3
“Family Members” means, as to a Person that is an individual, such Person’s spouse, ancestors, descendants (whether by blood or by adoption), brothers, sisters and inter vivos or testamentary trusts of which only such Person and his spouse, ancestors, descendants (whether by blood or by adoption), brothers and sisters are beneficiaries.
“Initial Holder” shall mean UDR Out-Performance III, LLC, a Delaware limited liability company.
“Measurement Period” shall mean the 36-month period beginning January 1, 2006 and ending on December 31, 2008.
“Minimum Return” shall mean the cumulative Total Return of the REIT Shares during the Measurement Period is at least the equivalent of a 36% Total Return or 12% annualized.
“Partnership” shall mean United Dominion Realty, L.P., a Delaware limited partnership.
“Total Return” shall mean, for any security and for any period, the cumulative total return for such security over such period, assuming that all cash dividends are reinvested in such security as of the payment date for such dividend based on the security price on the dividend payment date, computed by taking the market value of the accumulated shares at the end of the period (including fractional shares acquired with dividend proceeds) and dividing by the market value of a share at the beginning of the period.
“UDR Market Capitalization” shall mean the average number of REIT Shares outstanding over the Measurement Period (including, for this purpose, REIT Shares, Partnership Units and common stock equivalents, but not including Class IV Out-Performance Partnership Shares) multiplied by the daily closing price of the REIT Shares.
“UDR Total Return” shall mean the Total Return of the REIT Shares for the Measurement Period.
| 3. | FORFEITURE. |
If, on the Class IV Out-Performance Valuation Date, there is no Excess Return, then, from and after such date, each Class IV Out-Performance Partnership Share shall, without any action on the part of the Partnership, the Company or the holder thereof, be automatically forfeited and be no longer outstanding.
| 4. | DISTRIBUTIONS. |
Subject to Section 5.06 of the Agreement, on and after the Class IV Out-Performance Valuation Date, the holders of Class IV Out-Performance Partnership Shares not forfeited under Section 3 shall be entitled to receive distributions at the same time and in the same amount that would be received on the number of Partnership Units held by Outside Partners (assuming such Partnership Units were originally issued on the Class IV
F-4
Out-Performance Valuation Date) that is obtained by multiplying the number of Class IV Out-Performance Partnership Shares by the Conversion Factor.
| 5. | ALLOCATIONS. |
| 6. | EXCHANGE. |
If the Class IV Out-Performance Partnership Shares have not been forfeited under Section 3 and the Class IV Out-Performance Partnership Shares have been transferred by the Initial Holder in accordance with Section 8, the transferee and subsequent transferees of the Class IV Out-Performance Partnership Shares may exchange from time to time some or all of the Class IV Out-Performance Partnership Shares for a number Partnership Units equal to the Class IV Out-Performance Partnership Shares multiplied by the Conversion Factor.
| 7. | REDEMPTION UPON CHANGE OF CONTROL. |
Upon the occurrence of a Change of Control, and subject to the applicable requirements of Federal securities laws and any securities exchange or quotation system rules or regulations, each holder of Class IV Out-Performance Partnership Shares shall have the redemption rights of Limited Partners set forth in Section 8.05 of the Agreement with respect to a number of Partnership Units equal to the number of Class IV Out-Performance Partnership Shares multiplied by the Conversion Factor and the thirty-six (36) month transfer limitation period applicable to the Class IV Out-Performance Partnership Shares shall be deemed to have passed.
F-5
| 8. | RESTRICTIONS ON OWNERSHIP AND TRANSFER. |
The restrictions on Transfer set forth in Article IX of the Agreement shall not apply to Transfers of Class IV Out-Performance Partnership Shares. Prior to the Class IV Out-Performance Valuation Date, the Class IV Out-Performance Partnership Shares shall be owned and held solely by the Initial Holder. On or after the later of the Class IV Out-Performance Valuation Date and the thirty-six (36) month period from the date the Class IV Out-Performance Partnership Shares are issued the Class IV Out-Performance Partnership Shares may be Transferred (i) by the Initial Holder to (a) any Person who is a member (a “Member”) of the Initial Holder immediately prior to such transfer, (b) a Family Member of a Member, (c) a Family Controlled Entity of a Member, (d) any Person with respect to whom the Member constitutes a Family Controlled Entity, (e) upon the death of a Member, by will or by the laws of descent and distribution to any Family Member or Family Controlled Entity, and (ii) by any other Person to (a) a Family Member of a such Person, (b) a Family Controlled Entity of such Person, (c) any other Person with respect to whom such Person constitutes a Family Controlled Entity, (d) upon the death of such Person, by will or by the laws of descent and distribution to any Family Member or Family Controlled Entity; provided, however, that, until December 31, 2008, the Class IV Out-Performance Partnership Shares may not be Transferred by the Initial Holder without the approval of the managers of the Initial Holder.
| 9. | ADJUSTMENTS. |
F-6
(assuming for such purposes that such dividend, distribution, split, subdivision, reverse split or combination has occurred as of such time) and (y) the denominator of which shall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on the Determination Date for such dividend, distribution, split, subdivision, reverse stock split, combination or reclassification.
| 10. | GENERAL. |
The ownership of Class IV Out-Performance Partnership Shares may (but need not, in the sole and absolute discretion of the Company) be evidenced by one or more certificates. The Company shall amend Exhibit A to the Agreement from time to time to the extent necessary to reflect accurately the issuance of, and subsequent conversion, redemption, or any other event having an effect on the ownership of Class IV Out-Performance Partnership Shares.
F-7
PARTNERSHIP UNIT DESIGNATION
OF THE
CLASS V OUT-PERFORMANCE PARTNERSHIP SHARES
OF UNITED DOMINION REALTY, L.P.
| 1. | NUMBER OF UNITS AND DESIGNATION. |
A class of Partnership Units is hereby designated as “Class V Out-Performance Partnership Shares,” and the number of Partnership Units initially constituting such class shall be Eight Hundred Five Thousand (805,000).
| 2. | DEFINITIONS. |
For purposes of this Partnership Unit Designation, the following terms shall have the meanings indicated in this Section 2. Capitalized terms used and not otherwise defined herein shall have the meanings assigned thereto in the Agreement.
“Change of Control” shall mean the occurrence of any of the following events:
G-1
Board, such new director shall be considered as a member of the Incumbent Board; provided, further, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened “election contest” (as described in Rule 14a-11 promulgated under the Exchange Act) (an “Election Contest”) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board of Directors of the Company (a “Proxy Contest”) including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or
Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because any person (a “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company that, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by such Subject Person, provided that if a Change of Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company, such Subject Person becomes the Beneficial Owner of any additional Voting Securities that increases the percentage of the then-outstanding Voting Securities Beneficially Owned by such Subject Person, then a Change of Control shall occur.
G-2
“Class V Out-Performance Partnership Share” shall mean a Partnership Unit with the designations, preferences and relative, participating, optional or other special rights, powers and duties as are set forth in this Exhibit G.
“Class V Out-Performance Valuation Date” shall mean the earlier to occur of (i) December 31, 2009, or (ii) the date on which a Change of Control occurs.
“Conversion Factor” shall mean the quotient obtained by dividing (i) the product of 2% of the Excess Return and the UDR Market Capitalization (provided, however, that the product obtained by this clause (i) shall not exceed .75% of the UDR Market Capitalization) by (ii) the market value of one REIT Share on the Class V Out-Performance Valuation Date, computed as the weighted average price per day of the REIT Shares for the 20 trading days immediately preceding the Class V Out-Performance Valuation Date.
“Determination Date” shall mean (i) when used with respect to any dividend or other distribution, the date fixed for the determination of the holders of the securities entitled to receive such dividend or distribution, or, if a dividend or distribution is paid or made without fixing such a date, the date of such dividend or distribution, and (ii) when used with respect to any split, subdivision, reverse stock split, combination or reclassification of securities, the date upon which such split, subdivision, reverse stock split, combination or reclassification becomes effective.
“Excess Return” shall mean the amount, if any, by which the cumulative Total Return of REIT Shares over the Measurement Period exceeds the Minimum Return.
“Ex-Date” shall mean (i) when used with respect to any dividend or distribution, the first date on which the securities on which the dividend or distribution is payable trade regular way on the relevant exchange or in the relevant market without the right to receive such dividend or distribution, and (ii) when used with respect to any split, subdivision, reverse stock split, combination or reclassification of securities, the first date on which the securities trade regular way on such exchange or in such market to reflect such split, subdivision, reverse stock split, combination or reclassification becoming effective.
“Extraordinary Distribution” shall mean the distribution by the Company, by dividend or otherwise, to all holders of its REIT Shares of evidences of its indebtedness or assets (including securities) other than cash.
“Family Controlled Entity” means, as to any holder of Class V Out-Performance Shares, (a) any corporation more than 50% of the outstanding voting stock of which is owned by such holder and such holder’s Family Members, (b) any trust, whether or not revocable, of which such holder and such holder’s Family Members are the sole beneficiaries, (c) any partnership of which such holder and such holder’s Family Members hold partnership interests representing at least 25% of such partnership’s capital and profits and (d) any limited liability company of which such holder is the manager and in which such holder and such holder’s Family Members hold membership interests representing at least 25% of such limited liability company’s capital and profits.
G-3
“Family Members” means, as to a Person that is an individual, such Person’s spouse, ancestors, descendants (whether by blood or by adoption), brothers, sisters and inter vivos or testamentary trusts of which only such Person and his spouse, ancestors, descendants (whether by blood or by adoption), brothers and sisters are beneficiaries.
“Initial Holder” shall mean UDR Out-Performance III, LLC, a Delaware limited liability company.
“Measurement Period” shall mean the 36-month period beginning January 1, 2007 and ending on December 31, 2009.
“Minimum Return” shall mean the cumulative Total Return of the REIT Shares during the Measurement Period is at least the equivalent of a 36% Total Return or 12% annualized.
“Partnership” shall mean United Dominion Realty, L.P., a Delaware limited partnership.
“Total Return” shall mean, for any security and for any period, the cumulative total return for such security over such period, assuming that all cash dividends are reinvested in such security as of the payment date for such dividend based on the security price on the dividend payment date, computed by taking the market value of the accumulated shares at the end of the period (including fractional shares acquired with dividend proceeds) and dividing by the market value of a share at the beginning of the period.
“UDR Market Capitalization” shall mean the average number of REIT Shares outstanding over the Measurement Period (including, for this purpose, REIT Shares, Partnership Units and common stock equivalents, but not including Class V Out-Performance Partnership Shares) multiplied by the daily closing price of the REIT Shares.
“UDR Total Return” shall mean the Total Return of the REIT Shares for the Measurement Period.
| 3. | FORFEITURE. |
If, on the Class V Out-Performance Valuation Date, there is no Excess Return, then, from and after such date, each Class V Out-Performance Partnership Share shall, without any action on the part of the Partnership, the Company or the holder thereof, be automatically forfeited and be no longer outstanding.
| 4. | DISTRIBUTIONS. |
Subject to Section 5.06 of the Agreement, on and after the Class V Out-Performance Valuation Date, the holders of Class V Out-Performance Partnership Shares not forfeited under Section 3 shall be entitled to receive distributions at the same time and in the same amount that would be received on the number of Partnership Units held by Outside Partners (assuming such Partnership Units were originally issued on the Class V
G-4
Out-Performance Valuation Date) that is obtained by multiplying the number of Class V Out-Performance Partnership Shares by the Conversion Factor.
| 5. | ALLOCATIONS. |
| 6. | EXCHANGE. |
If the Class V Out-Performance Partnership Shares have not been forfeited under Section 3 and the Class V Out-Performance Partnership Shares have been transferred by the Initial Holder in accordance with Section 8, the transferee and subsequent transferees of the Class V Out-Performance Partnership Shares may exchange from time to time some or all of the Class V Out-Performance Partnership Shares for a number Partnership Units equal to the Class V Out-Performance Partnership Shares multiplied by the Conversion Factor.
| 7. | REDEMPTION UPON CHANGE OF CONTROL. |
Upon the occurrence of a Change of Control, and subject to the applicable requirements of Federal securities laws and any securities exchange or quotation system rules or regulations, each holder of Class V Out-Performance Partnership Shares shall have the redemption rights of Limited Partners set forth in Section 8.05 of the Agreement with respect to a number of Partnership Units equal to the number of Class V Out-Performance Partnership Shares multiplied by the Conversion Factor and the thirty-six (36) month transfer limitation period applicable to the Class V Out-Performance Partnership Shares shall be deemed to have passed.
G-5
| 8. | RESTRICTIONS ON OWNERSHIP AND TRANSFER. |
The restrictions on Transfer set forth in Article IX of the Agreement shall not apply to Transfers of Class V Out-Performance Partnership Shares. Prior to the Class V Out-Performance Valuation Date, the Class V Out-Performance Partnership Shares shall be owned and held solely by the Initial Holder. On or after the later of the Class V Out-Performance Valuation Date and the thirty-six (36) month period from the date the Class V Out-Performance Partnership Shares are issued the Class V Out-Performance Partnership Shares may be Transferred (i) by the Initial Holder to (a) any Person who is a member (a “Member”) of the Initial Holder immediately prior to such transfer, (b) a Family Member of a Member, (c) a Family Controlled Entity of a Member, (d) any Person with respect to whom the Member constitutes a Family Controlled Entity, (e) upon the death of a Member, by will or by the laws of descent and distribution to any Family Member or Family Controlled Entity, and (ii) by any other Person to (a) a Family Member of a such Person, (b) a Family Controlled Entity of such Person, (c) any other Person with respect to whom such Person constitutes a Family Controlled Entity, (d) upon the death of such Person, by will or by the laws of descent and distribution to any Family Member or Family Controlled Entity; provided, however, that, until December 31, 2008, the Class V Out-Performance Partnership Shares may not be Transferred by the Initial Holder without the approval of the managers of the Initial Holder.
| 9. | ADJUSTMENTS. |
G-6
(assuming for such purposes that such dividend, distribution, split, subdivision, reverse split or combination has occurred as of such time) and (y) the denominator of which shall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on the Determination Date for such dividend, distribution, split, subdivision, reverse stock split, combination or reclassification.
| 10. | GENERAL. |
The ownership of Class V Out-Performance Partnership Shares may (but need not, in the sole and absolute discretion of the Company) be evidenced by one or more certificates. The Company shall amend Exhibit A to the Agreement from time to time to the extent necessary to reflect accurately the issuance of, and subsequent conversion, redemption, or any other event having an effect on the ownership of Class V Out-Performance Partnership Shares.
G-7
PARTNERSHIP UNIT DESIGNATIONS
OF THE
LTIP UNITS
OF
UNITED DOMINION REALTY, L.P.
| 1. | Defined Terms. |
The following defined terms used in this Exhibit H shall have the meaning specified below. Capitalized terms used, but not otherwise defined herein, shall have the respective meanings ascribed thereto in the Second Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., as amended (the “Agreement”).
“Adjustment Event” has the meaning set forth in Section 6 hereof. “Auto Conversion” has the meaning set forth in Section 11(d) hereof.
“Auto Conversion Notice” has the meaning set forth in Section 11(d) hereof. “Capital Account Limitation” has the meaning set forth in Section 11(b) hereof. “Class 1 LTIP Units” has the meaning set forth in Section 2 hereof.
“Class 1 Performance LTIP Units” has the meaning set forth in Section 2 hereof. “Class 2 LTIP Units” has the meaning set forth in Section 2 hereof.
“Class 2 Performance LTIP Units” has the meaning set forth in Section 2 hereof. “Constituent Person” has the meaning set forth in Section 11(g) hereof.
“Conversion Date” means, as applicable, (i) with respect to Class 1 or Class 2 LTIP Units, the date set forth in a Conversion Notice or a Forced Conversion Notice or the date of an Auto Conversion, and (ii) with respect to Performance LTIP Units, the date set forth in a Performance LTIP Unit Conversion Notice or a Forced Performance LTIP Unit Conversion Notice or the date of an Expiration Conversion.
“Conversion Notice” has the meaning set forth in Section 11(b) hereof.
“Conversion Right” has the meaning set forth in Section 11(a) hereof.
H-1
“Economic Capital Account Balance” means, with respect to a holder of LTIP Units, its Capital Account balance, plus the amount of its share of any Partner Nonrecourse Debt Minimum Gain or Partnership Minimum Gain, in either case to the extent attributable to its ownership of LTIP Units.
“Eligible Unit” means, as of the time any Liquidating Gain is available to be allocated to an LTIP Unit, an LTIP Unit to the extent, since the date of issuance of such LTIP Unit, such Liquidating Gain when aggregated with other Liquidating Gains realized since the date of issuance of such LTIP Unit exceeds Liquidating Losses realized since the date of issuance of such LTIP Unit.
“Equity Plan” means any stock or other equity-based compensation plan now or hereafter adopted by the Partnership or the General Partner, including the Plan.
“Expiration Conversion” has the meaning set forth in Section 12(f) hereof. “Expiration Conversion Notice” has the meaning set forth in Section 12(f) hereof.
“Expiration Date” means, for any Performance LTIP Unit, the date specified in the Vesting Agreement or other documentation pursuant to which such Performance LTIP Unit is granted.
“Forced Conversion” has the meaning set forth in Section 11(c) hereof. “Forced Conversion Notice” has the meaning set forth in Section 11(c) hereof.
“Forced Performance LTIP Unit Conversion” has the meaning set forth in Section 12(e)
hereof.
“Forced Performance LTIP Unit Conversion Notice” has the meaning set forth in Section
12(e) hereof.
“Full Distribution Participation Date” means, (i) for any Class 2 LTIP Unit, the date specified in the Vesting Agreement or other documentation pursuant to which such Class 2 LTIP Unit is granted, and (ii) for any Performance LTIP Unit (and any LTIP Unit into which a Performance LTIP Unit is converted pursuant to Section 12 hereof), the date upon which such Performance LTIP Unit is converted into Class 1 LTIP Units or Class 2 LTIP Units pursuant to Section 12 hereof or such other date as may be specified in the Vesting Agreement or other documentation pursuant to which such Performance LTIP Unit is granted. Any reference to a “Class 2 LTIP Unit Distribution Participation Date” in an LTIP Agreement issued before the effectiveness of this Exhibit (as amended) shall be deemed a reference to a Full Distribution Participation Date.
“Gross Asset Value” has the meaning set forth in Section 5(b) hereof.
“Initial Sharing Percentage” means, (i) for any Class 2 LTIP Unit, ten percent (10%) or such other percentage specified in the Vesting Agreement or other documentation pursuant to which such Class 2 LTIP Unit is granted, and (ii) for any Performance LTIP Unit, two percent (2%) or such other percentage specified in the Vesting Agreement or other documentation pursuant
H-2
to which such Performance LTIP Unit is granted. Any reference to a “Class 2 LTIP Unit Initial Sharing Percentage” in an LTIP Agreement issued before the effectiveness of this Exhibit (as amended) shall be deemed a reference to an Initial Sharing Percentage.
“Issue Price” means, for any Performance LTIP Unit, the amount specified in the Vesting Agreement or other documentation pursuant to which such Performance LTIP Unit is granted.
“Liquidating Gains” means any net gain realized in connection with the actual or hypothetical sale of all or substantially all of the assets of the Partnership (including upon liquidation of the Partnership), including but not limited to net gain realized in connection with a revaluation of the Partnership’s property pursuant to Section 4.04 of the Agreement, with such net gain calculated in all cases by excluding adjustments to the basis of the Partnership’s assets for depreciation and amortization (as determined for purposes of book allocations under Section 704(b) of the Code and the Regulations thereunder) unless and to the extent the General Partner determines, in its sole discretion, such exclusions would result in unintended consequences.
“Liquidating Losses” means any net loss realized in connection with the actual or hypothetical sale of all or substantially all of the assets of the Partnership (including upon liquidation of the Partnership), including but not limited to net loss realized in connection with a revaluation of the Partnership’s property pursuant to Section 4.04 of the Agreement, with such net loss calculated in all cases by excluding adjustments to the basis of the Partnership’s assets for depreciation and amortization (as determined for purposes of book allocations under Section 704(b) of the Code and the Regulations thereunder) unless and to the extent the General Partner determines, in its sole discretion, such exclusions would result in unintended consequences.
“LTIP Agreement” has the meaning set forth in Section 5(b) hereof.
“LTIP Unit Distribution Payment Date” has the meaning set forth in Section 7(c) hereof. “LTIP Unit Redemption Threshold” means a threshold that will be met with respect to one or more LTIP Units if, when and to the extent, such LTIP Units have satisfied the Capital Account Limitation.
“LTIP Units” means the Partnership Units designated as such having the rights, powers, privileges, restrictions, qualifications and limitations set forth herein, in the Plan and in an applicable Vesting Agreement. LTIP Units may be issued in one or more classes, or one or more series of any such classes bearing such relationship to one another as to allocations, distributions, and other rights as the General Partner shall determine in its sole and absolute discretion subject to Maryland law and the Agreement. For the avoidance of doubt, the Performance LTIP Units are LTIP Units.
“Partnership Common Unit” means a fractional, undivided share of the Partnership Interests of all Partners issued pursuant to the Agreement, but does not include any Partnership Unit owned by the General Partner, Class A Partnership Unit, Class I Out-Performance Partnership Share, Class II Out-Performance Partnership Share, Class III Out-Performance Partnership Share, Class IV Out-Performance Partnership Share, Class V Out-Performance Partnership Share, LTIP Unit or any other Partnership Unit, the terms of which provide that such other Partnership Unit is not a Partnership Common Unit.
H-3
“Performance LTIP Unit” has the meaning provided in Section 2.
“Performance LTIP Unit Conversion Notice” has the meaning provided in Section 12(c) hereof.
“Performance LTIP Unit Conversion Right” has the meaning provided in Section 12(a) hereof.
“Performance LTIP Unit Value” means, for any Performance LTIP Unit as of any date,the product of (i) the excess (if any) of the REIT Share Value on such date over the Issue Price for such Performance LTIP Unit, and (ii) the Conversion Factor.
“Plan” means the UDR, Inc. 1999 Long-Term Incentive Plan, as amended from time to time.
“Post-Conversion Period Performance LTIP Unit” means a Performance LTIP Unit that was not converted on or prior to its Expiration Date pursuant to Section 12.
“Proposed Section 83 Safe Harbor Regulation” has the meaning set forth in Section 14 hereof.
“Qualifying Party” means a Limited Partner other than the Original Limited Partner.
“REIT Share Economic Target” means, as of any date and with respect to any LTIP Unit, the product of (i) the REIT Share Value on such date, and (ii) the Conversion Factor.
“REIT Share Value” means, as of the date of valuation, the fair market value of a REIT Share, determined as follows: (i) if the REIT Share is listed or admitted to trading on any securities exchange or The Nasdaq National Market, the closing price, regular way, of a REIT Share on such day or, if no sale takes place on such day, the average of the closing bid and asked prices of a REIT Share on such day, (ii) if the REIT Share is not listed or admitted to trading on any securities exchange or The Nasdaq National Market but is regularly quoted by a recognized quotation source, the last reported sale price of a REIT Share on such day or, if no sale takes place on such day, the average of the closing bid and asked prices of a REIT Share on such day, as reported by a recognized quotation source designated by the Company, or (iii) if the REIT Share is not listed or admitted to trading on any securities exchange or The Nasdaq National Market but is regularly quoted by a recognized quotation source and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices of a REIT Share on such day, as reported by a recognized quotation source designated by the General Partner, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, of a REIT Share on the most recent day (not more than twenty (20) days prior to the date in question) for which prices have been so reported; provided, that if there are no bid and asked prices reported during the twenty (20) days prior to the date in question, the value of a REIT Share shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. In the event that a REIT Share includes any additional rights the value of which is not included within such price, then the value of such rights shall be determined by the General Partner acting in good
H-4
faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate, and included in determining the “REIT Share Value” of such REIT Share.
“Section 83 Safe Harbor” has the meaning set forth in Section 14 hereof.
“Transaction” has the meaning set forth in Section 11(g) hereof.
“Unvested LTIP Units” has the meaning set forth in Section 5(a) hereof.
“Vested LTIP Units” has the meaning set forth in Section 5(a) hereof.
“Vesting Agreement” has the meaning set forth in Section 5(a) hereof.
| 5. | Vesting. |
H-5
to any restrictions on amendment imposed by the relevant Vesting Agreement or by the Plan or any other Equity Plan, if applicable. LTIP Units that were fully vested when issued or that have vested and are no longer subject to forfeiture under the terms of a Vesting Agreement are referred to as “Vested LTIP Units”; all other LTIP Units shall be treated as “Unvested LTIP Units”.
H-6
in respect of a Capital Contribution to the Partnership. If the Partnership takes an action affecting the Partnership Common Units other than actions specifically described above as “Adjustment Events” and in the opinion of the General Partner such action would require an action to maintain the one-to-one correspondence described above, the General Partner shall have the right to take such action, to the extent permitted by law, the Plan and by any applicable Equity Plan or other compensatory arrangement or incentive program pursuant to which LTIP Units are issued, in such manner and at such time as the General Partner, in its sole discretion, may determine to be reasonably appropriate under the circumstances. Notwithstanding the foregoing, if any Adjustment Event or any other action described in the preceding sentence occurs, the General Partner may independently adjust the number of Performance LTIP Units outstanding or held by a particular holder of Performance LTIP Units, the Issue Price of any Performance LTIP Unit, or the number of Class 1 LTIP Units or Class 2 LTIP Units (as applicable) into which any Performance LTIP Unit may be converted, or may undertake any combination of the foregoing, in such manner as the General Partner determines in good faith to be equitable. If an amendment is made to the Agreement adjusting the number of outstanding LTIP Units as herein provided, the Partnership shall promptly file in the books and records of the Partnership an officer’s certificate setting forth a brief statement of the facts requiring such adjustment, which certificate shall be conclusive evidence of the correctness of such adjustment absent manifest error. Promptly after filing of such certificate, the Partnership shall mail a notice to each holder of LTIP Units setting forth the adjustment to his or her LTIP Units and the effective date of such adjustment. Any adjustment to the number of outstanding LTIP Units pursuant to this Section 6 shall be binding on the Partnership and every Limited Partner.
| 7. | Distributions. |
H-7
| 8. | Allocations. |
H-8
attributable to a Performance LTIP Unit exceeds the applicable Performance LTIP Unit Value, and Liquidating Losses are available to be allocated to a holder of LTIP Units, then such Liquidating Losses shall be allocated to each holder of such a Performance LTIP Unit until each such holder’s Capital Account, to the extent attributable to such holder’s Performance LTIP Units, is equal (on a per-unit basis) to the applicable Performance LTIP Unit Value. For purposes of the foregoing allocations, (i) unless and to the extent otherwise determined by the General Partner, calculations shall be made separately with respect to the Eligible Units, including Eligible Units that are Performance LTIP Units with different Performance LTIP Unit Values, and (ii) any such allocations shall be made in proportion to the amounts required to be allocated to each relevant holder under this Section 8(b). The parties agree that the intent of this Section 8(b) is to make the Capital Account balances of the holders of LTIP Units with respect to their LTIP Units economically equivalent (on a per-unit basis) to the applicable REIT Share Economic Target or Performance LTIP Unit Value (calculated in each case using the REIT Share Value on the date as of which such special allocation under this Section 8(b) is being made), but only to the extent the Partnership has recognized cumulative gains (calculated in the same manner as is applicable to calculating Liquidating Gains) with respect to its assets since the issuance of the relevant LTIP Unit. Notwithstanding the foregoing, (i) the special allocations of Liquidating Gains and Losses pursuant to the preceding provisions of this Section 8(b) shall cease to apply to any Eligible Unit (other than a Performance LTIP Unit prior to its conversion) once such Eligible Unit has met the LTIP Unit Redemption Threshold and any Post-Conversion Period Performance LTIP Unit once it becomes a Post-Conversion Period Performance LTIP Unit, and (ii) the General Partner may adjust future allocations with respect to any holder of a Post-Conversion Period Performance LTIP Unit in any manner it determines in its sole discretion necessary or convenient to cause the Capital Account balance of such holder to (x) equal the balance that would have obtained had no allocations of Liquidating Gains or Liquidating Losses been made with respect to such Post-Conversion Period Performance LTIP Unit pursuant to the preceding provisions of this Section 8(b), and (y) otherwise equitably reflect the intended economic entitlements of such holder. The allocations set forth in this Section 8(b) shall be taken into account for determining the Capital Account of each Partner, including for purposes of Section 5.06(a) of the Agreement.
H-9
LTIP Unit, the Percentage Interest for such LTIP Unit shall be the Percentage Interest of a Partnership Common Unit multiplied by the applicable Initial Sharing Percentage.
| 9. | Transfers. |
| 11. | Conversion of Class 1 LTIP Units and Class 2 LTIP Units to Partnership Common |
Units.
H-10
forever have satisfied such threshold and the Capital Account Limitation shall thereafter apply only to any LTIP Units which have not previously satisfied such threshold. In order to exercise his or her Conversion Right, a Qualifying Party shall deliver a notice (a “Conversion Notice”) in the form attached hereto as Annex I to the Partnership (with a copy to the General Partner) not less than three (3) nor more than ten (10) days prior to the Conversion Date specified in such Conversion Notice; provided, however, that if the General Partner has not given to the Qualifying Party notice of a proposed or upcoming Transaction (as defined below) at least thirty (30) days prior to the effective date of such Transaction, then the Qualifying Party shall have the right to deliver a Conversion Notice until the earlier of (x) the tenth (10th) day after such notice from the General Partner of a Transaction or (y) the third Business Day immediately preceding the effective date of such Transaction. A Conversion Notice shall be provided in the manner provided in Section 12.01 of the Agreement. Each Qualifying Party seeking to convert Vested LTIP Units covenants and agrees with the Partnership that all Vested LTIP Units to be converted pursuant to this Section 11 shall be free and clear of all liens. Notwithstanding anything herein to the contrary, if the Vested LTIP Units have been held for at least one year, subject to any restrictions set forth in an applicable LTIP Agreement, a Qualifying Party may deliver a Notice of Redemption pursuant to Section 8.05(a) of the Agreement relating to the Partnership Common Units into which such Vested LTIP Units are being converted in advance of the Conversion Date; provided, however, that the redemption of such Partnership Common Units by the Partnership shall in no event take place until on or after the Conversion Date. For clarity, it is noted that the objective of this paragraph is to put a Qualifying Party in a position where, if he or she so wishes, the Partnership Common Units into which his or her Vested LTIP Units will be converted can be redeemed by the Partnership pursuant to Section 8.05(a) of the Agreement simultaneously with such conversion, with the further consequence that, if the General Partner elects to assume the Partnership’s redemption obligation with respect to such Partnership Common Units under Section 8.05(b) of the Agreement by delivering to such Qualifying Party REIT Shares rather than cash, then such Qualifying Party can have such REIT Shares issued to him or her simultaneously with the conversion of his or her Vested LTIP Units into Partnership Common Units. The General Partner shall cooperate with a Qualifying Party to coordinate the timing of the different events described in the foregoing sentence. For the avoidance of doubt, subject to the limitations of this Section 11, a Qualifying Party may deliver a Conversion Notice with respect to Vested LTIP Units held on the applicable Conversion Date as a result of such Qualifying Party’s exercise of its Performance LTIP Unit Conversion Right (as defined below).
H-11
or (ii) the assets of the Partnership are revalued pursuant to Section 4.04 of the Agreement, all Vested LTIP Units not previously converted into Partnership Common Units shall automatically be converted (an “Auto Conversion”) into an equal number of Partnership Common Units, giving effect to all adjustments (if any) made pursuant to Section 6 hereof; provided, however, that no Auto Conversion shall occur with respect to any LTIP Units that would not at the time be eligible for conversion at the option of such Qualifying Party pursuant to Section 11(b) hereof. Following an Auto Conversion, the Partnership shall deliver a notice (an “Auto Conversion Notice”) in the form attached hereto as Annex III to the applicable holder of LTIP Units as soon as reasonably possible following the Conversion Date (provided that the failure to deliver an Auto Conversion Notice will not affect the Auto Conversion or subject the General Partner or the Partnership to any liability). An Auto Conversion Notice shall be provided in the manner provided in Section 12.01 of the Agreement.
H-12
the Transaction if the assets of the Partnership were sold at the Transaction price or the portion thereof attributable to the Partnership as determined by the General Partner in good faith, or if applicable, at a value for the Partnership assets determined by the General Partner in good faith using the value attributed to the Partnership Common Units in the context of the Transaction (in which case the Conversion Date shall be the effective date of the Transaction and the conversion shall occur immediately prior to the effectiveness of the Transaction). In anticipation of such Forced Conversion and the consummation of the Transaction, the Partnership shall use commercially reasonable efforts to cause each holder of LTIP Units to be afforded the right to receive in connection with such Transaction in consideration for the Partnership Common Units into which his or her LTIP Units will be converted the same kind and amount of cash, securities and other property (or any combination thereof) receivable upon the consummation of such Transaction by a holder of the same number of Partnership Common Units, assuming such holder is not a Person with which the Partnership consolidated or into which the Partnership merged or which merged into the Partnership or to which such sale or transfer was made, as the case may be (a “Constituent Person”), or an affiliate of a Constituent Person. In the event that holders of Partnership Common Units have the opportunity to elect the form or type of consideration to be received upon consummation of the Transaction, prior to such Transaction the General Partner shall give prompt written notice to each holder of LTIP Units of such opportunity, and shall use commercially reasonable efforts to afford the holder of LTIP Units the right to elect, by written notice to the General Partner, the form or type of consideration to be received upon conversion of each LTIP Unit held by such holder into Partnership Common Units in connection with such Transaction. If a holder of LTIP Units fails to make such an election, such holder (and any of its transferees) shall receive upon conversion of each LTIP Unit held by him or her (or by any of his or her transferees) the same kind and amount of consideration that a holder of Partnership Common Units would receive if such holder of Partnership Common Units failed to make such an election. Subject to the rights of the Partnership and the General Partner under any Vesting Agreement and the relevant terms of the Plan or any other applicable Equity Plan, the Partnership shall use commercially reasonable effort to cause the terms of any Transaction to be consistent with the provisions of this Section 11(g) and to enter into an agreement with the successor or purchasing entity, as the case may be, for the benefit of any holder of LTIP Units whose LTIP Units will not be converted into Partnership Common Units in connection with the Transaction that will (i) contain provisions enabling the Qualifying Parties that remain outstanding after such Transaction to convert their LTIP Units into securities as comparable as reasonably possible under the circumstances to the Partnership Common Units and (ii) preserve as far as reasonably possible under the circumstances the distribution, special allocation, conversion, and other rights set forth in the Agreement, including this Exhibit H, for the benefit of the holder of LTIP Units.
H-13
| 12. | Conversion of Performance LTIP Units to Class 1 LTIP Units or Class 2 LTIP |
Units.
| (a) | The holder of a Class 1 Performance LTIP Unit or a Class 2 Performance LTIP |
Unit may convert such Unit into a Class 1 LTIP Unit or a Class 2 LTIP Unit (as applicable) at any time (i) on or after such Performance LTIP Unit becomes a Vested LTIP Unit, and (ii) before the Expiration Date of such Performance LTIP Unit (the “Performance LTIP Unit Conversion Right”); provided, however, that a Performance LTIP Unit holder may not exercise a Performance LTIP Unit Conversion Right with respect to the lesser of (i) one thousand (1,000) Performance LTIP Units and (ii) 100% of the Performance LTIP Units held by such person that are Vested LTIP Units. If a Performance LTIP Unit holder is notified of the expected occurrence of an event that will cause his or her Unvested LTIP Units to become Vested LTIP Units, such holder may give the Partnership a Performance LTIP Unit Conversion Notice conditioned upon and effective as of the time of vesting and such Performance LTIP Unit Conversion Notice, unless subsequently revoked by such person, shall be accepted by the Partnership subject to such condition. In all cases, the conversion of any Performance LTIP Units into Class 1 LTIP Unit or a Class 2 LTIP Unit (as applicable) shall be subject to the conditions and procedures set forth in this Section 12.
H-14
(rather than LTIP Units) owned by such holder based on such conversions. The assignee of any Limited Partner pursuant to Article 9 of the Agreement may exercise the rights of such Limited Partner pursuant to this Section 12 and such Limited Partner shall be bound by the exercise of such rights by the assignee.
H-15
the Code, or (iii) be effectuated through an “established securities market” or a “secondary market (or the substantial equivalent thereof)” within the meaning of Section 7704 of the Code or cause the Partnership to fail to qualify for a safe harbor from such treatment which the Partnership desires to preserve.
H-16
including this Exhibit H, for the benefit of the holders of Performance LTIP Units with respect to the Performance LTIP Units under this Section 12(e). To exercise its right of Forced Performance LTIP Unit Conversion, the Partnership shall deliver a notice (a “Forced Performance LTIP Unit Conversion Notice”) in the form attached hereto as Annex V to the applicable holder of Performance LTIP Units not less than ten (10) nor more than sixty (60) days prior to the Conversion Date specified in such Forced Performance LTIP Unit Conversion Notice. A Forced Performance LTIP Unit Conversion Notice shall be provided in the manner provided in Section
12.01 of the Agreement.
(h) For the avoidance of doubt, any Class 1 LTIP Unit and Class 2 LTIP Unit resulting from a conversion under this Section 12, (i) is not a Performance LTIP Unit and (ii) is a Vested LTIP Unit that may be converted (including, if applicable, simultaneously with the conversion of the applicable Performance LTIP Unit) into a Partnership Common Unit under (and subject to the limitations of) Section 11 hereof. Upon conversion into Class 1 LTIP Units or Class 2 LTIP Units under this Section 12, a Performance LTIP Unit shall cease to be treated as outstanding.
H-17
is treated as being equal to the liquidation value of the interest), or in similar Regulations or guidance, if such Proposed Section 83 Safe Harbor Regulation or similar Regulations are promulgated as final or temporary Regulations. If the General Partner determines that the Partnership should make such election, the General Partner is hereby authorized to amend the Agreement without the consent of any other Partner to provide that (i) the Partnership is authorized and directed to elect the Section 83 Safe Harbor, (ii) the Partnership and each of its Partners (including any Person to whom a Partnership Interest, including an LTIP Unit, is Transferred in connection with the performance of services) will comply with all requirements of the Section 83 Safe Harbor with respect to all Partnership Interests Transferred in connection with the performance of services while such election remains in effect and (iii) the Partnership and each of its Partners will take all actions necessary, including providing the Partnership with any required information, to permit the Partnership to comply with the requirements set forth or referred to in the applicable Regulations for such election to be effective until such time (if any) as the General Partner determines, in its sole discretion, that the Partnership should terminate such election. The General Partner is further authorized to amend the Agreement to modify Section 5.01(a) of the Agreement to the extent the General Partner determines in its discretion that such modification is necessary or desirable as a result of the issuance of any applicable law, Regulations, notice or ruling relating to the tax treatment of the transfer of a Partnership Interests in connection with the performance of services. Notwithstanding anything to the contrary in the Agreement, each Partner expressly confirms that it will be legally bound by any such amendment.
H-18
ANNEX I
NOTICE OF ELECTION BY PARTNER TO CONVERT
LTIP UNITS INTO PARTNERSHIP COMMON UNITS
The undersigned holder of LTIP Units hereby irrevocably (i) elects to convert as of the Conversion Date set forth below the number of LTIP Units in United Dominion Realty, L.P. (the “Partnership”) set forth below into Partnership Common Units in accordance with the terms of the Second Amended and Restated Agreement of Limited Partnership of the Partnership, as amended; and (ii) directs that any cash in lieu of Partnership Common Units that may be deliverable upon such conversion be delivered to the address specified below. The undersigned hereby represents, warrants, and certifies that the undersigned (a) has title to such LTIP Units, free and clear of the rights or interests of any other person or entity other than the Partnership; (b) has the full right, power, and authority to cause the conversion of such LTIP Units as provided herein; and (c) has obtained the consent or approval of all persons or entities, if any, having the right to consent or approve such conversion.
Name of LTIP Unit Holder: | | |
| Please Print Name as Registered with Partnership | |
| | |
Number of LTIP Units to be Converted: | | |
| | |
Conversion Date: | | |
| |
| (Signature of LTIP Unit Holder) |
| |
| |
| (Street Address) |
| |
| |
| (City) (State) (Zip Code) |
| |
| |
| |
Issue Check Payable to: | |
| |
| |
Please insert social security or identifying number: | |
Annex I
ANNEX II
NOTICE OF ELECTION BY PARTNERSHIP TO FORCE CONVERSION OF LTIP UNITS INTO PARTNERSHIP COMMON UNITS
United Dominion Realty, L.P. (the “Partnership”) hereby irrevocably elects to cause as of the Conversion Date set forth below the number of LTIP Units held by the LTIP Unit holder set forth below to be converted into Partnership Common Units in accordance with the terms of Second Amended and Restated Agreement of Limited Partnership of the Partnership, as amended.
Name of LTIP Unit Holder: | | |
| Name as Registered with Partnership | |
| | |
Number of LTIP Units to be Converted: | | |
| | |
Conversion Date: | | |
Annex II
ANNEX III
NOTICE OF AUTOMATIC CONVERSION
OF LTIP UNITS INTO PARTNERSHIP COMMON UNITS
United Dominion Realty, L.P. (the “Partnership”) hereby gives you notice that the number of LTIP Units held by the LTIP Unit holder set forth below have been converted into Partnership Common Units in accordance with the terms of the Second Amended and Restated Agreement of Limited Partnership of the Partnership, as amended, effective as of the Conversion Date set forth below.
Name of LTIP Unit Holder: | | |
| Name as Registered with Partnership | |
| | |
Number of LTIP Units to be Converted: | | |
| | |
Conversion Date: | | |
Annex III
ANNEX IV
PERFORMANCE LTIP UNIT CONVERSION NOTICE
The undersigned holder of Performance LTIP Units hereby irrevocably elects to convert as of the Conversion Date set forth below the number of Performance LTIP Units in United Dominion Realty, L.P. (the “Partnership”) set forth below into Class 1 LTIP Units or Class 2 LTIP Units (as applicable) in accordance with the terms of the Second Amended and Restated Agreement of Limited Partnership of the Partnership, as amended. The undersigned hereby represents, warrants, and certifies that the undersigned (a) has title to such Performance LTIP Units, free and clear of the rights or interests of any other person or entity other than the Partnership; (b) has the full right, power, and authority to cause the conversion of such Performance LTIP Units as provided herein; and (c) has obtained the consent or approval of all persons or entities, if any, having the right to consent or approve such conversion.
Name of Performance LTIP Unit Holder:__________________________________________
Please Print Name as Registered with Partnership
Number of Class 1 Performance LTIP Units to be Converted:______
Number of Class 2 Performance LTIP Units to be Converted:______
Date of Award of Class 1 Performance LTIP Units to be Converted:______
Date of Award of Class 2 Performance LTIP Units to be Converted:______
Conversion Date:______
| |
| (Signature of LTIP Unit Holder) |
| |
| |
| (Street Address) |
| |
| |
| (City) (State) (Zip Code) |
| |
| |
| |
| |
Please insert social security or identifying number: | |
Annex IV
ANNEX V
NOTICE OF ELECTION BY PARTNERSHIP TO FORCE CONVERSION
OF PERFORMANCE LTIP UNITS
United Dominion Realty, L.P. (the “Partnership”) hereby irrevocably elects to cause as of the Conversion Date set forth below the number of Performance LTIP Units held by the LTIP Unit holder set forth below to be converted into Class 1 LTIP Units or Class 2 LTIP Units (as specified below) in accordance with the terms of Second Amended and Restated Agreement of Limited Partnership of the Partnership, as amended.
Name of LTIP Unit Holder:___________________________________
Name as Registered with Partnership
Number of Class 1 Performance LTIP Units to be Converted: |  |
Number of Class 2 Performance LTIP Units to be Converted: | |
Date of Award of Class 1 Performance LTIP Units to be Converted: | |
Date of Award of Class 2 Performance LTIP Units to be Converted: | |
Class 1 LTIP Units Resulting From Conversion: | |
Class 2 LTIP Units Resulting From Conversion: | |
Conversion Date: | |
Annex V
ANNEX VI
EXPIRATION CONVERSION NOTICE
United Dominion Realty, L.P. (the “Partnership”) hereby gives you notice that the number of Performance LTIP Units held by the LTIP Unit holder set forth below have been converted into Partnership Class 1 LTIP Units or Class 2 LTIP Units, as applicable, in accordance with the terms of the Second Amended and Restated Agreement of Limited Partnership of the Partnership, as amended, effective as of the Conversion Date set forth below.
Name of Performance LTIP Unit Holder:___________________________________
Name as Registered with Partnership
Number of Class 1 Performance LTIP Units Converted: | |
Number of Class 2 Performance LTIP Units Converted: | |
Date of Award of Class 1 Performance LTIP Units Converted: | |
Date of Award of Class 2 Performance LTIP Units Converted: | |
Class 1 LTIP Units Resulting From Conversion: | |
Class 2 LTIP Units Resulting From Conversion: | |
Conversion Date: | |
Annex VI
PARTNERSHIP UNIT DESIGNATIONS
OF THE
LH UNITS
OF
UNITED DOMINION REALTY, L.P.
| 1. | Defined Terms. |
The following defined terms used in this Exhibit I shall have the meanings specified below. Capitalized terms used, but not otherwise defined herein, shall have the respective meanings ascribed thereto in the Second Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., as amended (the “Agreement”).
“Adjustment Event” has the meaning set forth in Section 10 hereof.
“Capital Receipts” means cash receipts of the Partnership or any of its Subsidiaries from the sale, exchange or other disposition of any assets of the Partnership or any Subsidiary thereof, including the issuance of any equity interest by the Partnership or any Subsidiary thereof, or from the incurrence of any Indebtedness by the Partnership or any Subsidiary thereof.
“Current Profit” shall mean, for any fiscal year, the net taxable income of the Partnership for such fiscal year, as determined for federal income tax purposes, as modified by Regulations Section 1.704-1(b)(2)(iv), except that “Current Profit”:
| (a) | shall not include: |
| (i) | Items of income, gain and expense that are specially allocated pursuant to Sections 5.01(b), 5.01(c), and 5.01(d) of the Agreement; |
| (ii) | Depreciation and amortization; |
| (iii) | Items of loss from the disposition of Partnership assets; and |
| (iv) | Deemed items of gain or loss described in the last sentence of Section 4.04 of the Agreement; |
| (b) | shall not exceed the amount necessary to match allocations under Section 5(a)(i)(A) with distributions of cash under Section 5.02(a) and Section 5.03 of the Agreement; and |
| (c) | shall not be less than zero. |
“LH A Partners” means the Partners holding LH A Units in such capacity.
“LH B Partners” means the Partners holding LH B Units in such capacity.
“LH Partners” means the LH B Partners and the LH A Partners.
I-1
“Non-LH Partners” means the Partners holding Partnership Units other than the LH Units in such capacity.
“Partnership Common Unit” means a fractional, undivided share of the Partnership Interests of all Partners issued pursuant to the Agreement, but does not include any Partnership Unit owned by the General Partner or the Company (if the Company is not the General Partner), Class A Partnership Unit, Class I Out-Performance Partnership Share, Class II Out-Performance Partnership Share, Class III Out-Performance Partnership Share, Class IV Out-Performance Partnership Share, Class V Out-Performance Partnership Share, LTIP Unit or any other Partnership Unit, the terms of which provide that such other Partnership Unit is not a Partnership Common Unit. For the avoidance of doubt, although, pursuant to Section 3, LH Units shall be treated as Partnership Common Units for the purposes described therein and herein, references in the Agreement to Partnership Common Units shall not include LH Units except to the extent provided by Section 3 and the other provisions herein.
“Residual LH A Percent” means, initially, one percent (1%). Upon a redemption, exchange or other transaction in which an LH A Unit ceases to be outstanding, the Residual LH A Percent shall be reduced to equal the immediately prior Residual LH A Percent multiplied by a fraction, the numerator of which is the number of LH A Units outstanding immediately after such transaction and the denominator of which is the number of LH A Units outstanding immediately prior to such transaction.
“Residual LH B Percent” means, initially, one-tenth of one percent (.1%). Upon a redemption, exchange or other transaction in which an LH B Unit ceases to be outstanding, the Residual LH B Percent shall be reduced to equal the immediately prior Residual LH B Percent multiplied by a fraction, the numerator of which is the number of LH B Units outstanding immediately after such transaction and the denominator of which is the number of LH B Units outstanding immediately prior to such transaction.
“Residual Non-LH Percent” means (i) one hundred percent (100%) minus (ii) the sum of (A) the Residual LH A Percent and (B) the Residual LH B Percent.
“Residual Profit” and “Residual Loss” shall mean, for any fiscal year, the net taxable income or loss, as the case may be, of the Partnership for such fiscal year, as determined for federal income tax purposes, as modified by Regulations Section 1.704-1(b)(2)(iv), except that Residual Profit and Residual Loss shall not include:
| (a) | Items of income, gain and expense that are specially allocated pursuant to Section 5.01(b), 5.01(c), and 5.01(d) of the Agreement; and |
| (b) | Any items included within the definition of Current Profit for such fiscal year. |
I-2
| 5. | Allocations. Notwithstanding Section 5.01 of the Agreement: |
I-3
I-4
I-5
I-6
I-7