-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GYvW+Fxqkop5+rIAabRTQdGnBH9oP9miyUMxTOi6+0bLKC0LXt0z5UkV7qkFlDzS BZN/flM5p82bfbIJK/+w3A== 0000916641-99-000869.txt : 19991115 0000916641-99-000869.hdr.sgml : 19991115 ACCESSION NUMBER: 0000916641-99-000869 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED DOMINION REALTY TRUST INC CENTRAL INDEX KEY: 0000074208 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 540857512 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10524 FILM NUMBER: 99749454 BUSINESS ADDRESS: STREET 1: 10 S 6TH ST STE 203 CITY: RICHMOND STATE: VA ZIP: 23219-3802 BUSINESS PHONE: 8047802691 MAIL ADDRESS: STREET 1: 10 SOUTH SIXTH STREET STREET 2: SUITE 203 CITY: RICHMOND STATE: VA ZIP: 23219-3802 FORMER COMPANY: FORMER CONFORMED NAME: OLD DOMINION REAL ESTATE INVESTMENT TRUST DATE OF NAME CHANGE: 19850110 FORMER COMPANY: FORMER CONFORMED NAME: OLD DOMINION REIT ONE DATE OF NAME CHANGE: 19770921 FORMER COMPANY: FORMER CONFORMED NAME: OLD DOMINION REAL ESTATE INVESTMENT TRUS DATE OF NAME CHANGE: 19741216 10-Q 1 THIRD QUARTER REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q FOR QUARTERLY AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission file number 1-10524 UNITED DOMINION REALTY TRUST, INC. ---------------------------------- (Exact name of registrant as specified in its charter) VIRGINIA 54-0857512 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 10 South Sixth Street, Richmond, Virginia 23219-3802 - -------------------------------------------------------------------------------- (Address of principal executive offices - zip code) (804) 780-2691 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to filing requirements for at least the past 90 days. Yes X No ------- -------- APPLICABLE ONLY TO CORPORATE USERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of November 9, 1999: Common Stock, $1 Par Value: 102,996,532
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS,EXCEPT SHARE DATA) (UNAUDITED) SEPTEMBER 30, December 31, 1999 1998 ------------------------------------------------------------------------------------------------------------- ASSETS Real estate owned: Real estate held for investment $ 3,471,754 $ 3,643,245 Less: accumulated depreciation 342,291 280,663 ----------------- ----------------- 3,129,463 3,362,582 Real estate under development 123,394 99,395 Real estate held for disposition 377,657 174,145 ----------------- ----------------- Total real estate owned, net of accumulated depreciation 3,630,514 3,636,122 Cash and cash equivalents 9,050 18,529 Restricted cash 56,144 50,805 Deferred financing costs, net of accumulated amortization 14,930 10,894 Other assets 52,292 39,038 ----------------- ----------------- Total assets $ 3,762,930 $ 3,755,388 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable-secured $ 1,031,344 $ 1,072,185 Notes payable-unsecured 1,145,727 1,045,564 Real estate taxes payable 35,708 29,078 Accrued interest payable 21,019 20,714 Security deposits and prepaid rent 21,757 21,125 Distributions payable 34,226 31,423 Accounts payable, accrued expenses and other liabilities 32,010 45,736 ----------------- ----------------- Total liabilities 2,321,791 2,265,825 Minority interests 107,126 115,442 Shareholders' equity: Preferred stock, no par value; $25 liquidation preference, 25,000,000 shares authorized; 4,200,000 shares 9.25% Series A Cumulative Redeemable 105,000 105,000 6,000,000 shares 8.60% Series B Cumulative Redeemable 150,000 150,000 8,000,000 shares 7.50% Series D Cumulative Convertible Redeemable 175,000 175,000 Common stock, $1 par value; 150,000,000 shares authorized 102,616,349 shares issued and outstanding (103,639,117 in 1998) 102,616 103,639 Additional paid-in capital 1,078,427 1,090,432 Distributions in excess of net income (269,163) (242,331) Deferred compensation - unearned restricted stock awards (348) -- Notes receivable from officer-shareholders (7,519) (7,619) ----------------- ----------------- Total shareholders' equity 1,334,013 1,374,121 ----------------- ----------------- Total liabilities and shareholders' equity $ 3,762,930 $ 3,755,388 ================= =================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 2 UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 -------------------------------- --------------------------- Revenues: Rental income $155,523 $123,471 $463,745 $346,164 Interest and other non-property income 701 576 1,631 2,735 ------------- ------------ ------------ ------------ Total revenues 156,224 124,047 465,376 348,899 Expenses: Rental expenses: Real estate taxes and insurance 15,207 12,257 47,717 35,010 Personnel 17,308 13,558 50,347 36,858 Utilities 7,468 7,260 23,107 19,205 Repair and maintenance 10,735 10,104 30,440 26,408 Administrative and marketing 6,583 5,195 19,018 13,503 Other operating expenses 538 47 1,218 130 Property management 4,722 4,202 14,018 12,088 Real estate depreciation 29,957 26,901 90,814 73,376 Interest 39,014 27,224 116,011 75,784 Impairment loss on real estate owned --- --- 7,100 --- General and administrative 3,065 2,534 9,509 7,306 Other depreciation and amortization 1,106 893 3,226 2,434 ------------- ------------ ------------ ------------ Total expenses 135,703 110,175 412,525 302,102 ------------- ------------ ------------ ------------ Income before gains on sales of investments, minority interests and extraordinary item 20,521 13,872 52,851 46,797 Gains on sales of investments 48 13 32,454 20,474 ------------- ------------ ------------ ------------ Income before minority interests and extraordinary item 20,569 13,885 85,305 67,271 Minority interests of outside partnerships (276) --- (657) --- Minority interests of unitholders in operating partnerships (251) (78) (4,232) (1,200) ------------- ------------ ------------ ------------ Income before extraordinary item 20,042 13,807 80,416 66,071 Extraordinary item - early extinguishment of debt (166) --- 343 (116) ------------- ------------ ------------ ------------ Net income 19,876 13,807 80,759 65,955 Distributions to preferred shareholders-Series A and B (5,653) (5,650) (16,953) (16,953) Distributions to preferred shareholders-Series D (Convertible) (3,788) --- (11,367) --- ------------- ------------ ------------ ------------ Net income available to common shareholders $10,435 $8,157 $52,439 $49,002 ============= ============ ============ ============ Earnings per common share: Basic $0.10 $0.08 $0.50 $0.50 ============= ============ ============ ============ Diluted $0.10 $0.08 $0.50 $0.50 ============= ============ ============ ============ Common distributions declared per share $0.2650 $0.2625 $0.7950 $0.7875 ============= ============ ============ ============ Weighted average number of common shares outstanding-basic 103,439 103,104 103,897 98,786 Weighted average number of common shares outstanding -diluted 103,490 103,145 103,919 98,870
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 3
UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ OPERATING ACTIVITIES Net income $ 80,759 $ 65,955 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 94,040 75,810 Minority interests 4,889 1,200 Impairment loss on real estate owned 7,100 -- Amortization of deferred financing costs 2,613 1,500 Gains on sales of investments (32,454) (20,474) Extraordinary item-early extinguishment of debt (343) 116 Changes in operating assets and liabilities: Increase in operating assets (549) (6,636) Increase (decrease) in operating liabilities (3,161) 9,469 -------------- ------------ Net cash provided by operating activities 152,894 126,940 INVESTING ACTIVITIES Proceeds from sales of investments 119,150 142,580 Development of real estate assets, including acquisition of land (92,576) (63,006) Acquisition of real estate, net of liabilities assumed (47,204) (172,123) Capital expenditures to real estate assets (46,136) (55,290) Funds held in escrow from 1031 exchanges pending the acquisition of real estate (9,029) (10,211) Net cash paid or acquired in connection with mergers (6,237) 321 Capital expenditures-non real estate assets (5,180) (2,895) Other 1,132 (1,852) -------------- ------------ Net cash used in investing activities (86,080) (162,476) FINANCING ACTIVITIES Proceeds from the issuance of a notes payable - unsecured 197,345 -- Proceeds from the issuance of a notes payable - secured 201,931 -- Proceeds from the issuance of common stock 12,971 71,754 Net borrowings of short-term bank debt 4,800 171,400 Distributions paid to common shareholders (80,823) (75,975) Distributions paid to preferred shareholders (25,517) (16,959) Distributions paid to minority interest operating partnership unitholders (5,844) (2,078) Non-scheduled payments on notes payable-secured (196,939) (54,949) Balloon debt maturities and repurchase of notes payable - unsecured (101,641) (7,504) Payment of notes payable-secured in connection with the sales of investments (30,769) (9,889) Repurchase of common stock (26,083) -- Scheduled principal payments on notes payable - secured (15,064) (7,382) Payments of financing costs (6,649) (1,800) Cash paid to redeem operating partnership units (3,551) (3,070) Purchase of common stock for restricted stock awards (460) -- -------------- ------------ Net cash (used in) provided by financing activities (76,293) 63,548 -------------- ------------ Net (decrease) increase in cash and cash equivalents (9,479) 28,012 Cash and cash equivalents, beginning of period 18,529 473 -------------- ------------ Cash and cash equivalents, end of period $ 9,050 $ 28,485 ============== ============ SUPPLEMENTAL INFORMATION: Interest paid during the period $ 117,506 $ 75,968 Conversion of operating partnership units to common stock 1,005 -- Non-cash transactions associated with the acquisition of properties: Secured debt assumed -- 128,905 Issuance of operating partnership units -- 20,295 Issuance of common stock -- 5,240 Non-cash transactions associated with mergers: Real estate assets acquired -- 313,700 Other operating assets acquired -- 8,848 Issuance of common stock -- 108,465 Issuance of operating partnership units -- 21,420 Secured debt assumed -- 179,440 Operating liabilities assumed -- 13,553
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 4 UNITED DOMINION REALTY TRUST, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY NINE MONTHS ENDED SEPTEMBER 30, 1999 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
PREFERRED STOCK Balance, December 31, 1998 $ 430,000 -------------------- Balance, September 30, 1999 $ 430,000 ==================== COMMON STOCK, $1 PAR VALUE Balance, December 31, 1998 $ 103,639 Issuance of common shares through dividend reinvestment and stock purchase plan 1,216 Purchase of treasury stock (2,300) Issuance of common shares to employees, officers and director- shareholders 6 Conversion of minority interests of unitholders in operating partnerships 55 Purchase of common stock for restricted stock awards (46) Issuance of restricted stock awards 46 -------------------- Balance, September 30, 1999 $ 102,616 ==================== ADDITIONAL PAID-IN CAPITAL Balance, December 31, 1998 $ 1,090,432 Issuance of common shares through dividend reinvestment and stock purchase plan 11,433 Purchase of treasury stock (23,783) Issuance of common shares to employees, officers and director- shareholders 161 Adjustment for cash purchase and conversion of minority interests of unitholders in operating partnerships 184 -------------------- Balance, September 30, 1999 $ 1,078,427 ==================== DISTRIBUTIONS IN EXCESS OF NET INCOME Balance, December 31, 1998 $ (242,331) Net income 80,759 Common stock distributions declared ($.795 per share) (79,271) Preferred stock distributions declared-Series A ($1.73 per share) (7,278) Preferred stock distributions declared-Series B ($1.61 per share) (9,675) Preferred stock distributions declared-Series D ($1.42 per share) (11,367) -------------------- Balance, September 30, 1999 $ (269,163) ==================== DEFERRED COMPENSATION - UNEARNED RESTRICTED STOCK AWARDS Balance, December 31, 1998 $ - Issuance of restricted stock awards (460) Amortization of deferred compensation 112 -------------------- Balance, September 30, 1999 $ (348) ==================== NOTES RECEIVABLE FROM OFFICER-SHAREHOLDERS Balance, December 31, 1998 $ (7,619) Principal repayments 100 -------------------- Balance, September 30, 1999 $ (7,519) ==================== TOTAL SHAREHOLDERS' EQUITY $ 1,334,013 ====================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 5 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation The accompanying consolidated financial statements include the accounts of United Dominion Realty Trust, Inc. and its subsidiaries, including United Dominion Realty, L.P., its Operating Partnership, and Heritage Communities, L.P. (collectively, "United Dominion"). As of September 30, 1999, there were 38,338,636 units in the Operating Partnership outstanding, of which 30,926,136, or 80.7% were owned by United Dominion and 7,412,501, or 19.3% were owned by non-affiliated limited partners. In connection with the acquisition of ASR Investments Corporation, United Dominion acquired Heritage Communities, L.P., a Delaware limited partnership (Heritage OP). As of September 30, 1999, there were 3,945,674 units in the Heritage OP outstanding, of which 3,422,038 or 86.7% were owned by United Dominion and 13.3% were owned by non-affiliated limited partners. The financial statements of United Dominion include the minority interests of the unitholders in the operating partnerships. The accompanying interim unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted according to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. The accompanying consolidated financial statements should be read in conjunction with the audited financial statements and related notes appearing in United Dominion's December 31, 1998 Annual Report on Form 10-K filed with the Securities and Exchange Commission. In the opinion of management, the consolidated financial statements reflect all adjustments which are necessary for the fair presentation of financial position at September 30, 1999 and results of operations for the interim periods ended September 30, 1999 and 1998. Such adjustments are normal and recurring in nature. All significant inter-company accounts and transactions have been eliminated in consolidation. The interim results presented are not necessarily indicative of results that can be expected for a full year. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the dates of the financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates. Certain previously reported amounts have been reclassified to conform with the current financial statement presentation. 2. Real Estate Held for Investment At September 30, 1999, there are 265 communities with 74,340 apartment homes classified as real estate held for investment. The following table summarizes the components of real estate held for investment at September 30, 1999 and December 31, 1998: September 30, December 31, Dollars in thousands 1999 1998 - ------------------------------------------------------------------------- Land and land improvements $ 619,184 $ 647,328 Buildings and improvements 2,683,469 2,819,312 Furniture, fixtures and equipment 163,057 169,364 Construction in progress 6,044 7,241 ----------- ----------- Real estate held for investment 3,471,754 3,643,245 Accumulated depreciation (342,291) (280,663) ----------- ----------- Real estate held for investment, net of accumulated depreciation $ 3,129,463 $ 3,362,582 =========== =========== At the beginning of June 1999, United Dominion embarked on an accelerated disposition plan for non-strategic properties. As a result of the review of its real estate apartment portfolio, 21 properties included in real estate held for investment were moved to real estate held for disposition during the second quarter. Accordingly, through the review and analysis of communities targeted for strategic disposition which included exiting one of United Dominion's major markets, an aggregate $7.1 million impairment loss was recognized on five communities. An impairment loss was indicated as a 2. Real Estate Held for Investment (CONTINUED) 6 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) result of the net book value of the assets held for disposition being greater than the estimated fair market value less the cost of disposal. 3. Notes Payable - Secured Notes payable-secured, which encumber $1.92 billion or 47.9% of United Dominion's real estate owned, ($2.09 billion or 52.1% of United Dominion's real estate owned is unencumbered) consist of the following at September 30, 1999:
Principal Weighted Average Weighted Average No. Communities Dollars in thousands Balance Interest Rate Years to Maturity Encumbered - ------------------------------------------------------------------------------------------------------------ Fixed-Rate Debt Mortgage Notes Payable (a) $ 562,800 8.06% 7.0 85 Tax-Exempt Notes Payable 113,236 6.99% 13.1 16 REMIC Financings 69,249 7.88% 1.3 23 Secured Notes Payable (FNMA) (b)(c) 7,000 6.78% 4.5 0 ------------------------------------------------------------------------ Total Fixed-Rate Notes Payable 752,285 7.87% 7.4 124 Variable-Rate Debt Mortgage Notes Payable 23,769 7.50% 17.5 9 Tax-Exempt Notes Payable 66,615 4.17% 19.4 5 Secured Credit Facilities (FNMA) (c) 188,675 6.18% 4.5 19 ------------------------------------------------------------------------ Total Variable-Rate Notes Payable 279,059 5.81% 9.1 33 ------------------------------------------------------------------------ Total Notes Payable - Secured $ 1,031,344 7.31% 7.8 157 ========================================================================
(a) Includes fair value adjustments aggregating $15.4 million recorded in connection with two statutory mergers consummated in 1998. (b) United Dominion has one interest rate swap agreement associated with secured debt with an aggregate notional value of $7 million under which United Dominion pays a fixed rate of interest and receives a variable rate on the notional amount. The interest rate swap agreement effectively changes United Dominion's interest rate exposure on $7 million from a variable rate to a weighted average fixed rate of approximately 6.78%. (c) During the first nine months of 1999, United Dominion closed on $195.7 million of a $200 million revolving credit facility (the "Credit Facility") with the Federal National Mortgage Association ("FNMA"). The Credit Facility currently bears a variable rate of interest of 6.20%. The financing is for an initial term of five years, bears interest at a floating rate which can be fixed for periods of up to 270 days, and can be extended for an additional five or ten years at United Dominion's discretion. The current floating rate will be reset on December 1, 1999. The Company entered into two forward rate swap agreements dated August 29, 1999 and August 31, 1999 for $10 million and $40 million, respectively. The two agreements have an effective date of December 1, 1999 and a termination date of April 1, 2004. The agreements will be used to synthetically fix the interest rate on $10 million of this Credit Facility to a weighted average fixed rate of 6.47% and $40 million of this Credit Facility to a weighted average fixed rate of 5.74%. 4. Notes Payable - Unsecured A summary of notes payable - unsecured at September 30, 1999 and December 31, 1998 is as follows (dollars in thousands): September 30, December 31, 1999 1998 ------------- ------------- Commercial Banks Borrowings outstanding under credit facilities (a) (b) $244,800 $240,000 Insurance Companies--Senior Unsecured Notes 7.98% due March, 2000-2003 (c) 29,800 37,228 Other (d) 5,394 5,836 4. Notes Payable - Unsecured (continued) Senior Unsecured Notes - Other 7 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7.73% Medium-Term Notes due April 2005 (g) 25,000 -- 7.53% Medium-Term Notes due April 2029 (e) (g) 15,000 -- 7.60% Medium-Term Notes due January 2002 (g) 70,000 -- 7.67% Medium-Term Notes due January 2004 (g) 58,000 -- 7.65% Medium-Term Notes due January 2003 (f) (g) 10,000 -- 7.22% Medium-Term Notes due February 2003 (g) 12,000 -- 5.05% City of Portland, OR Bonds due October 2003 7,345 -- 8.50% Monthly Income Notes due November 2008 60,863 62,500 8.13% Senior Notes due November 2000 146,150 150,000 7.25% Notes repaid April 1999 -- 75,000 8.50% Debentures due September 2024 (h) 150,000 150,000 7.95% Medium-Term Notes due July 2006 123,400 125,000 7.25% Notes due January 2007 112,975 125,000 7.07% Medium-Term Notes due November 2006 25,000 25,000 7.02% Medium-Term Notes due November 2005 50,000 50,000 ----------- ---------- 865,733 762,500 ----------- ---------- Total Notes Payable - Unsecured $ 1,145,727 $1,045,564 =========== ==========
(a) Weighted average interest rate of 6.0% at September 30, 1999 and December 31, 1998. (b) United Dominion has five interest rate swap agreements with an aggregate notional value of $45 million under which United Dominion pays a fixed rate of interest and receives a variable rate of interest on the notional amounts. The interest rate swap agreements effectively change United Dominion's interest rate exposure on $45 million of its outstanding credit facilities from a variable rate to a weighted average fixed rate of approximately 6.84%. (c) Payable annually in four equal principal installments of $7.4 million. (d) Includes $4.8 million and $5.4 million at September 30, 1999 and December 31, 1998, respectively, of deferred gains from the termination of interest rate risk management agreements. (e) Notes include an investor put feature which grants options to redeem the notes in April 2003, 2009, 2014 and 2019 at par. (f) United Dominion has one interest rate swap agreement associated with unsecured notes with an aggregate notional value of $10 million under which United Dominion pays a fixed rate of interest and receives a variable rate on the notional amount. The interest rate swap agreement effectively changes United Dominion's interest rate exposure on the $10 million from a variable rate to a fixed rate of 7.65%. (g) During the first nine months of 1999, United Dominion issued $190 million aggregate principal amounts of senior unsecured notes under its $200 million Medium-Term Note Program, with a weighted average interest rate of 7.6% and a weighted average term of 6.3 years. (h) Debentures include an investor put feature which grants a one-time option to redeem debentures in September 2004. During the first nine months of 1999, United Dominion recognized a $343 thousand extraordinary gain related to the repurchase of $19.1 million of its unsecured notes payable at less than face value. 8 UNITED DOMINION REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 5. Earnings Per Share Basic earnings per common share is computed based upon the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed based on common shares outstanding plus the effect of dilutive stock options and other potentially dilutive common stock equivalents. The dilutive effect of stock options and other potential common stock equivalents is determined using the treasury stock method based on United Dominion's average stock price. The early extinguishment of debt does not have an effect on the earnings per share calculation for the periods presented. The effect of the conversion of the operating partnership units and convertible preferred stock is not dilutive and is therefore not included in the following calculations. For the three and nine months ended September 30, 1999 and 1998, the weighted average number of operating partnership units was 8,251,432 and 8,398,303 for 1999 and 3,077,181 and 2,482,255 for 1998, respectively. For the three and nine months ended September 30, 1999, the weighted average number of preferred shares was 12,307,692. The following table sets forth the computation of basic and diluted earning per share.
Three months ended Nine months ended September 30, September 30, 1999 1998 1999 1998 ------------------------- ------------------------- In thousands, except per share data Numerator for basic and diluted earnings per share-net income available to common shareholders $ 10,435 $ 8,157 $ 52,439 $ 49,002 Denominator: Denominator for basic earnings per share- weighted average shares 103,439 103,104 103,897 98,786 Effect of dilutive securities: Employee stock options 51 41 22 84 -------------- ----------- -------------- ----------- Dilutive potential common shares Denominator for dilutive earnings per share-adjusted weighted average shares and assumed conversions 103,490 103,145 103,919 98,870 ============== =========== ============== =========== Basic earnings per share $ .10 $ .08 $ .50 $ .50 ============== =========== ============== =========== Diluted earnings per share $ .10 $ .08 $ .50 $ .50 ============== =========== ============== ===========
6. Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (Statement 133), as amended by Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 - an Amendment of FASB Statement No. 133", which is required to be adopted in years beginning after June 15, 2000. Statement 133 permits early adoption as of the beginning of any fiscal quarter after its issuance, however, United Dominion does not anticipate adopting Statement 133 until such time as it is required. Statement 133 will require United Dominion to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of the derivative's change in fair value will be immediately recognized in earnings. United Dominion has not yet determined what the effect of Statement 133 will be on earnings and the financial position of United Dominion, however, management does not anticipate that the adoption of Statement 133 will have a significant effect on earnings or the financial position of United Dominion. 9 PART I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto of United Dominion Realty Trust, Inc. ("United Dominion") appearing elsewhere in this report. This quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, statements concerning 1999 property acquisitions and dispositions, 1999 development activity and capital expenditures, 1999 capital raising activities, 1999 rent growth, occupancy and rental expense growth. Such statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of United Dominion to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Such factors include, among other things, unanticipated adverse business developments affecting United Dominion, and/or its properties, adverse changes in the real estate markets and general and local economies and business conditions. Although United Dominion believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and there can be no assurance that such statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by United Dominion or any other person that the results or conditions described in such statements or the objectives and plans of United Dominion will be achieved. United Dominion operates in one defined business segment with activities related to the ownership, acquisition, development, management and strategic disposition of multifamily apartment communities nationwide. Management's strategy is to be a national, highly efficient provider of quality apartment homes. During the past several years, United Dominion has implemented this strategy through the acquisition of portfolios of higher quality communities, the disposition of non-strategic communities, a greater commitment to development and the upgrade of its older communities. United Dominion seeks to be a market leader by operating a sufficiently sized portfolio of apartments within each if its targeted markets in order to drive down operating costs through economies of scale and management efficiencies. United Dominion believes that geographic market diversification increases investment opportunity and decreases the risk associated with cyclical local real estate markets and economies. At September 30, 1999, United Dominion owned 318 communities with 85,216 apartment homes. 10 The following table summarizes United Dominion's apartment information by geographic location including its 34 major markets:
Nine Months Ended Three Months Ended As of September 30, 1999 September 30, 1999 September 30, 1999 ------------------------------------------- ------------------ ------------------- Average Average No. of % of Carrying Monthly Monthly No. of Apartment Apartment Value Physical Rental Physical Rental Market Communities Homes Homes (in thousands) Occupancy Rates (a) Occupancy Rates (a) - --------------------------------------------------------------- --------------------- ----------------------- Dallas/Ft. Worth, TX 29 8,956 11% $ 405,738 94.4% $ 622 94.8% $ 628 Houston, TX 25 6,180 7% 236,878 91.7% 573 91.3% 579 Phoenix, AZ 10 3,374 4% 194,320 90.9% 661 91.3% 663 Orlando, FL 14 3,940 5% 190,540 94.1% 664 95.2% 669 San Antonio, TX 13 3,840 4% 177,371 92.1% 619 91.9% 626 Tampa, FL 12 4,018 5% 175,947 92.2% 644 92.8% 649 Raleigh, NC 9 2,951 3% 144,272 92.6% 691 93.2% 695 Nashville, TN 11 3,064 4% 143,639 94.0% 603 94.7% 607 San Francisco, CA 4 980 1% 129,942 98.5% 1,477 99.0% 1,491 Charlotte, NC 10 2,490 3% 124,778 91.2% 678 91.4% 683 Columbus, OH 7 2,330 3% 121,808 93.8% 621 94.9% 624 Columbia, SC 11 3,320 4% 114,686 90.8% 530 91.0% 532 Wilmington, NC 10 2,710 3% 111,390 88.4% 594 92.0% 588 Monterey Peninsula, CA 16 2,076 2% 106,675 93.9% 737 94.8% 755 Memphis, TN 7 2,196 3% 105,411 93.8% 593 94.9% 593 South Florida 6 1,638 2% 102,245 91.2% 826 89.7% 834 Greensboro, NC 8 2,123 2% 102,015 88.2% 624 88.8% 626 Richmond, VA 8 2,372 3% 98,051 93.4% 658 96.2% 663 Southern CA 5 1,578 2% 80,998 93.8% 695 92.7% 712 Baltimore, MD 7 1,596 2% 72,478 95.9% 693 96.9% 699 Atlanta, GA 6 1,426 2% 69,009 92.1% 689 93.9% 697 Portland, OR 4 996 1% 60,258 91.2% 682 90.3% 687 Jacksonville, FL 3 1,157 1% 56,410 90.1% 637 91.5% 640 Hampton Roads, VA 6 1,437 2% 54,104 94.4% 600 95.3% 605 Greenville, SC 6 1,436 2% 51,013 85.8% 546 86.1% 548 Sacramento, CA 2 914 1% 48,031 97.6% 643 97.6% 651 Seattle, WA 4 790 1% 46,917 92.0% 678 95.7% 684 Denver , CO 2 876 1% 44,592 93.0% 638 95.0% 651 Washington, DC 4 803 1% 44,056 96.1% 776 96.5% 782 Detroit, MI 4 744 1% 38,299 94.8% 688 96.1% 697 Indianapolis, IN 3 875 1% 33,210 94.5% 518 94.6% 519 Austin, TX 2 542 1% 23,625 93.6% 616 94.4% 625 Albuquerque, NM 3 530 1% 20,639 89.0% 526 92.6% 527 Tucson, AZ 2 408 -- 14,053 90.4% 445 91.8% 445 Other FL 7 1,666 2% 78,369 91.2% 618 91.7% 625 Eastern Shore, MD / Delaware 6 1,156 1% 52,441 96.5% 663 96.3% 672 Other, MI 4 1,227 1% 50,729 88.9% 622 89.2% 627 Other North Carolina 4 1,052 1% 48,785 94.8% 583 95.7% 588 Other Virginia 6 1,154 1% 47,913 93.5% 621 94.9% 625 Other Midwest 5 969 1% 42,828 94.4% 603 94.9% 609 Other Washington State 2 536 1% 25,288 79.9% 699 85.8% 654 Other Georgia 2 468 1% 22,644 85.7% 659 84.6% 663 Other Texas 3 776 1% 22,322 87.2% 490 89.1% 492 Arkansas 2 512 1% 22,191 93.5% 592 94.8% 595 Nevada 1 384 -- 20,716 92.2% 644 92.7% 646 Other South Carolina 2 408 -- 13,601 91.3% 441 91.8% 446 Alabama 1 242 -- 8,762 91.8% 511 90.8% 514 ----------------------------------------- --------------------- ----------------------- Total 318 85,216 100% $3,999,987 92.5% $640 93.2% $645 ========================================= ===================== =======================
(a) Average monthly rental rates represent potential rent collections (gross potential rents less market adjustments), which approximate net effective rents. These average rent figures exclude three acquisitions completed in 1999 and development communities in lease-up. Liquidity and Capital Resources 11 As a qualified real estate investment trust ("REIT"), United Dominion distributes a substantial portion of its cash flow to its shareholders in the form of quarterly distributions. United Dominion believes that cash provided by operations will be adequate to meet normal operating requirements and payment of distributions in accordance with REIT requirements in both the short and long-term. United Dominion utilizes a variety of primarily external financing sources to fund portfolio growth, major capital improvement programs and balloon debt payments. United Dominion's bank lines of credit generally have been used to temporarily finance these expenditures, and subsequently this short-term bank debt has been replaced with longer-term debt or equity. At September 30, 1999, United Dominion had cash and cash equivalents of $9.1 million and amounts available under its credit facilities aggregating $65.2 million. United Dominion expects to meet its short-term liquidity requirements through net cash provided by operations and borrowings under credit facilities. To meet certain long-term liquidity requirements, such as scheduled debt maturities, development activity and significant capital improvements, United Dominion uses secured and unsecured notes payable and common and preferred equity. Although United Dominion believes that it will have the capacity to meet its long-term liquidity needs, there can be no assurance that such additional debt financing or debt and equity offerings will be available or, if available, on terms satisfactory to United Dominion. United Dominion may also fund its capital requirements through: (i) proceeds from asset sales, (ii) common shares sold through the Dividend Reinvestment and Stock Purchase Plan, (iii) retained operating cash flow and (iv) the use of unused credit facilities. United Dominion completed the majority of its 1999 financing activity during the first half of 1999 (see Financing Activities). United Dominion has no significant debt maturities until August 2000 at which time United Dominion's $200 million revolving credit facility expires. The following discussion explains the changes in net cash provided by operating activities, net cash used in investing activities and net cash (used in) provided by financing activities which are presented in United Dominion's Consolidated Statement of Cash Flows. Operating Activities For the nine months ended September 30, 1999, United Dominion's cash flow from operating activities was $152.9 million compared to $126.9 million for the same period last year. The increase is primarily due to the increased operating income from United Dominion's acquired communities as well as increases in property operating income achieved primarily through higher rent growth as discussed under "Results of Operations". Investing Activities During the nine months ended September 30, 1999, net cash used for investing activities was $86.1 million compared to $162.5 million for the same period last year. Changes in the level of investing activities from period to period reflect the changing levels of United Dominion's acquisition, capital expenditure, development and sales programs, as well as the impact of the capital market environment on these activities. During 1999, United Dominion's investment activities have consisted primarily of the sale of non-strategic properties, with a portion of the proceeds used in the acquisition of real estate. In addition, United Dominion has funded the development of higher quality communities, as well as capital expenditures on its apartment portfolio. Disposition of Investments As part of its strategic repositioning, United Dominion has undertaken proactive portfolio review analyses with the objective of identifying communities that no longer meet United Dominion's long-term investment objectives due to size, location, age, quality or performance. The disposition program allows United Dominion to reduce the age of its existing portfolio, which should result in lower operating expense and capital expenditure growth associated with the older communities, to exit non-core markets and to divest itself of communities that are no longer strategically important. United Dominion intends to sell between 7,000 and 8,000 apartment homes during 1999 as part of the strategic repositioning plan which will continue into 2000. It is anticipated that the proceeds from the sales, estimated in the $250 million range, will be used to fund acquisitions in order to complete tax-deferred exchanges to defer large capital gains, to fund development activity, to reduce debt and to repurchase common and 12 preferred stock. The dispositions are expected to be moderately dilutive to current earnings as the initial returns on investment in higher quality communities and the interest rate on debt repaid are lower than the returns on investment in the communities being sold. In connection with its disposition strategy, for the nine months ended September 30, 1999, United Dominion sold 18 communities with 3,635 apartment homes for an aggregate sales price of $122.6 million and a net book value of $87.8 million which included two parcels of land located adjacent to two of the communities sold. Proceeds received in connection with the sales were used to repay debt, repurchase common stock and complete 1031 tax deferred exchanges (see Acquisitions). For financial reporting purposes, gains on the sales of these assets aggregated $32.5 million. At September 30, 1999, there were 53 communities with 10,876 apartment homes and three commercial properties classified as real estate held for disposition with a net book value of $377.7 million (net of $41.5 million of accumulated depreciation). These communities contributed property operating income (property rental income less property operating expenses) of $9.1 million and $26.8 million for the three and nine month periods ended September 30, 1999. Management believes that the majority of these properties will be disposed of over the next twelve months. In October 1999, United Dominion sold three additional apartment communities with 761 homes for an aggregate sales price of $25.1 million. In addition, United Dominion has entered into various contracts with a number of purchasers to sell 24 communities with 5,649 apartment homes for an aggregate sales price of $168.3 million. Furthermore, United Dominion has four communities with 513 apartment homes under letter of intent for an aggregate sales price of $17.1 million. For financial reporting purposes, aggregate gains on the sales of investments are not expected to be material. The transactions are expected to close during the fourth quarter of 1999 and the first quarter of 2000; however, there can be no assurance that any of these transactions will be consummated as planned. Real Estate under Development United Dominion focuses its development activity in certain of its significant markets where it believes there will be stabilized demand. For the nine months ended September 30, 1999, United Dominion invested $92.6 million on development projects, including the acquisition of land. At September 30, 1999, United Dominion had six apartment communities and two additional phases to existing communities under development with 2,368 apartment homes as outlined below (dollars in thousands except estimated cost per home):
Development Estimated Estimated Expected No. Apt. Completed Costs Development Cost per Completion Property Location Homes Apt. Homes To Date Costs Home Date - --------------------------------------------------------------------------------------------------------------- NEW COMMUNITIES - --------------- Sierra Foothills Phoenix, AZ 322 238 $ 19,136 $ 22,400 $ 69,600 4Q99 Alexander Court Columbus, OH 356 356 21,024 23,000 64,600 4Q99 Legends at Park Row Houston, TX 236 188 12,891 13,900 58,900 4Q99 Ashton at Waterford Lakes Orlando, FL 292 92 15,962 19,000 65,100 1Q00 The Meridian I Dallas, TX 250 -- 6,907 15,500 62,000 2Q00 Oaks at Weston Raleigh, NC 380 -- 4,740 30,200 79,500 1Q01 -------------------------------------------------------------- 1,836 874 80,660 124,000 67,500 -- Additional Phases - ----------------- Dominion Crown Point II Charlotte, NC 220 -- 6,950 14,800 67,300 1Q00 Carmel II San Antonio, TX 312 -- 3,156 19,700 63,100 4Q00 Land Held for Future Development -- -- 32,628 -- -- -- ---------------------------------------------------------------- Total to Date 2,368 874 $123,394 $158,500 $66,900 -- ================================================================ During 1999, the following development projects were completed (dollars in thousands except estimated cost per home): No. Apt. Development Cost per Date % Leased Property Location Homes Costs Home Completed at 9/30/99 - ----------------------------------------------------------------------------------------------------------------- New Communities - --------------- Stone Canyon Houston, TX 216 $ 10,227 $ 47,300 3/99 81.5%
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Dominion Franklin Nashville, TN 360 25,831 71,800 3/99 87.2% Ashlar I Fort Myers, FL 260 18,919 72,800 5/99 89.2% Additional Phases - ----------------- Heritage Green II Columbus, OH 96 5,897 61,400 5/99 96.9% --------------------- Total 932 $ 60,874 $65,300 =====================
United Dominion is committed to completing its real estate currently under development, which has an estimated cost to complete of $67.7 million. Additional development starts planned for the remainder of 1999 will likely be done with financial partners through joint ventures. Acquisitions During the nine months ended September 30, 1999, United Dominion acquired three communities with 854 apartment homes at a total cost (including closing costs) of $47.2 million or $55,300 per home. In October 1999, one additional apartment community was acquired with 184 apartment homes for a total cost (including closing costs) of $14.2 million or $77,000 per home. Through the remainder of 1999, United Dominion does not anticipate acquiring communities except to reinvest a portion of the proceeds from property dispositions.
Purchase Purchase No. Apt. Price Cost Location Date Name Homes (thousands) per Home - --------------------------------------------------------------------------------------------------------------- Nashville, Tennessee 01/07/99 Colonnade 288 $17,475 $60,700 San Bernadino, California 06/30/99 Grand Terrace 208 8,739 42,000 Pembroke Pines, Florida 07/26/99 Pembroke Bay 358 21,107 59,000 ----------------------- Total/Weighted Average 854 $47,321 $55,400 =======================
Capital Expenditures United Dominion capitalizes value enhancing improvements plus improvements that substantially extend the useful life of an existing asset. In addition to United Dominion's capital expenditures to upgrade and improve new acquisitions, a significant portion of capital expenditures relate to United Dominion's same communities. For the nine months ended September 30, 1999, United Dominion invested $46.1 million on capital improvements to its total apartment portfolio, of which, $21.1 million was used to fund capital expenditures to its same community portfolio. For the nine months ended September 30, 1999, non-revenue enhancing capital expenditures related to United Dominion's same communities, including floor coverings, HVAC equipment, roofs, appliances, landscaping, parking lots and other non-revenue enhancing capital expenditures, aggregated $14.7 million or $270 per home ($360 per home on an annualized basis). In addition, revenue enhancing capital expenditures related to the same communities, including water sub-metering, the additions of microwaves, washer-dryers, interior upgrades and new business and fitness centers totaled $6.5 million or $119 per home ($159 per home on an annualized basis) for the nine months ended September 30, 1999. United Dominion has completed the majority of its same community upgrade program and has reduced its capital expenditures related to same communities during the first nine months of 1999, but will continue to selectively add revenue enhancing improvements which are budgeted to provide a high return on investment. Financing Activities Net cash used in financing activities during the nine months ended September 30, 1999 was $76.3 million compared to net cash provided by financing activities of $63.5 million last year. The capital markets environment and the level of its acquisition, development, capital expenditures and sales programs affect the financing activities of United Dominion. Cash (used in) Provided by Financing Activities On March 18, 1999, United Dominion closed on the first part of a $200 million revolving credit facility (the "Credit Facility") with the Federal National Mortgage Association. The $102.3 million initially borrowed under the terms of the Credit Facility has an initial interest rate of 5.70%, which is fixed through December 1, 1999. In April 1999, United Dominion borrowed an additional $16.6 million at an interest rate of 5.68% and $10.7 million at an interest 14 rate of 5.72%. Each of the financings are for an initial term of five years, bear interest at a floating rate which can be fixed for periods of up to 270 days, and can be extended for an additional five or ten years at United Dominion's discretion. The proceeds from the Credit Facility were used to repay a $91 million secured credit facility assumed in connection with the American Apartment Communities II transaction and the remaining proceeds were used to repay revolving bank debt. In August, an additional $66.0 million was borrowed under the Credit Facility which has an initial interest rate of 6.53%. Proceeds from the borrowing were used to replace $58 million in maturing secured debt and the remaining $8 million was used to repay revolving bank debt. In January 1999, United Dominion established a program for the sale of up to $200 million aggregate principal amount of medium-term notes (the "MTN Program"). During the first nine months of 1999, United Dominion sold an aggregate of $190 million of senior unsecured notes under the MTN Program which consisted of the following: (i) $70 million of 7.60% Notes due January 25, 2002, (ii) $58 million of 7.67% Notes due January 26, 2004, (iii) $10 million of variable-rate Notes due January 27, 2003 on which United Dominion subsequently executed a swap fixing the rate at 7.65%, (iv) $12 million of 7.22% Notes due February 19, 2003, (v) $25 million of 7.73% Notes due April 5, 2005 and (vi) $15 million of 7.53% Notes due April 27, 2029 (puttable to United Dominion beginning 2003). Net proceeds from the offerings were used to repay $7.5 million amortizing unsecured debt, repay maturing mortgage debt, repay a $75 million senior unsecured note that matured in April 1999 and repay revolving bank debt. United Dominion issued 1,213,978 shares of its common stock and received $12.6 million under its Dividend Reinvestment and Stock Purchase Plan during the nine months ended September 30, 1999 which included $0.9 million in optional cash investments and $11.7 million of reinvested dividends. For the nine months ended September 30, 1999, United Dominion paid distributions to its common shareholders and unitholders in its operating partnerships aggregating $86.7 million. The distributions to common shareholders and holders of common operating partnership units equate to an annualized dividend rate of $1.06 per share or unit. In addition, $25.5 million of preferred dividends were paid to Series A, B and D preferred shareholders. In May 1999, the Board of Directors authorized the repurchase of up to 5.5 million common shares, or 5% of the total common shares outstanding, using proceeds from the disposition program. Such purchases will be made from time to time in the open market or in privately negotiated transactions; the timing, volume and price of such purchases will be at the discretion of management and the Board. For the nine months ended September 30, 1999, United Dominion repurchased 2,300,000 common shares at an average price of $11.34 per share. Subsequent to September 30, 1999, United Dominion repurchased an additional 181,000 common shares at an average price of $10.88 per share. The Board of Directors, in its October 1999 meeting, authorized United Dominion to repurchase United Dominion's 9.25% Series A Cumulative Redeemable Preferred Stock and its 8.60% Series B Cumulative Redeemable Preferred Stock from time to time as market conditions permit. During the first nine months of 1999, using proceeds from its disposition program, United Dominion repurchased $19.1 million of certain of its higher rate outstanding unsecured debt with a weighted average yield of 8.63%. In addition, in connection with the sales program, United Dominion was relieved of $30.7 million of mortgage debt. Credit Facilities United Dominion has a $200 million unsecured revolving credit facility (the "Bank Credit Facility") which expires in August 2000, and a $110 million one-year unsecured line of credit (the "Line of Credit"). In September 1999, United Dominion obtained the Line of Credit from eight banks which provides United Dominion with access to up to $110 million in unsecured bank credit. The $110 million Line of Credit replaced an expiring line of credit in the amount of $50 million and provides United Dominion with access to an additional $60 million in funding. In September 1999, United Dominion's $15 million uncommitted line of credit with a major U.S. financial institution expired. At and for the nine months ended September 30, 1999, United Dominion had the following credit facilities (dollars in thousands):
Three Months Ended September 30, 1999 At September 30, 1999 -------------------------------------- ----------------------- Weighted Average
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Amount of Amount Weighted Average Amount Weighted Average Facility Facility Outstanding Interest Rate Outstanding Interest Rate - ------------------------------------------------------------------------- ------------------------------- Bank Credit Facility $ 200,000 $194,862 5.8% $194,800 6.0% Line of Credit 110,000 33,461 6.1% 50,000 6.4% ---------- ------------------------ ------------------------ $ 310,000 $228,323 5.8% $ 244,800 6.0% ========== ======================== ========================
Derivative Instruments United Dominion has, from time to time, used derivative instruments to synthetically alter on-balance sheet liabilities to hedge anticipated transactions. Derivative contracts did not have a material impact on the results of operations during the nine months ended September 30, 1999. Market Risk Disclosures United Dominion is exposed to market risk principally from interest rate risk associated with variable-rate notes payable and maturing debt that has to be refinanced. A large portion of United Dominion's market risk is exposure to short-term interest rate fluctuations on variable-rate borrowings outstanding under its various bank credit facilities, which was $244.8 million at September 30, 1999 and borrowings of $195.7 million outstanding under its revolving credit facility with FNMA. The impact on United Dominion's financial statements of refinancing fixed-rate debt that matured during the third quarter was not material. United Dominion's market risk has not changed materially from the amounts reported in United Dominion's Annual Report on Form 10-K for the year ended December 31, 1998. Funds from Operations Funds from operations ("FFO") is defined as income before gains (losses) on sales of investments, minority interests of unitholders in operating partnerships and extraordinary items (computed in accordance with generally accepted accounting principles) plus real estate depreciation, less preferred dividends and after adjustment for significant non-recurring items, if any. United Dominion computes FFO in accordance with the recommendations set forth by the National Association of Real Estate Investment Trusts ("NAREIT"). United Dominion considers FFO in evaluating property acquisitions and its operating performance, and believes that FFO should be considered along with, but not as an alternative to, net income and cash flows as a measure of United Dominion's operating performance and liquidity. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs. For the nine months ended September 30, 1999, FFO increased 28.8% to $132.2 million, compared with $102.7 million for the same period last year. The increase in FFO was principally due to the increased net rental income from United Dominion's apartment homes acquired and developed subsequent to January 1, 1998 as well as increased property operating income from its same community portfolio.
Three Months Ended Nine Months Ended September 30, September 30, (in thousands) (in thousands) -------------------------- ----------------------------- 1999 1998 % Change 1999 1998 % Change -------------------------- ----------------------------- Calculation of funds from operations: Income before gains on sales of investments; minority interests and extraordinary items $ 20,521 $ 13,872 47.9% $ 52,851 $ 46,797 12.9% Adjustments: Real estate depreciation, net of outside partners' interest 29,651 26,901 10.2% 89,902 73,376 22.5% Minority interests of outside partnerships (276) -- -- (657) -- --
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Distributions to preferred shareholders (9,441) (5,650) 67.1% (28,320) (16,953) 67.1% Impairment loss on real estate owned -- -- -- 7,100 -- -- Adjustment for internal acquisition costs -- -- -- -- (544) -- -------------------------- ----------------------------- Funds from operations-basic $ 40,455 $ 35,123 15.2% $ 120,876 $ 102,676 17.7% ========================== ============================= Adjustments: Distributions to preferred shareholders- Series D (Convertible) 3,788 -- -- 11,367 -- -- -------------------------- ----------------------------- Funds from operations-diluted $ 44,243 $ 35,123 26.0% $ 132,243 $ 102,676 28.8% ========================== =============================
Results of Operations United Dominion's net income is primarily generated from the operations of its apartment communities. For purposes of evaluating its comparative operating performance, United Dominion categorizes its communities into two categories, same community and non-mature. For the 1999 versus 1998 comparison, these communities are as follows: (i) same community--those communities acquired, developed and stabilized prior to January 1, 1998 and held throughout the first nine months of 1999 and 1998 and (ii) non-mature--those communities acquired, developed or sold subsequent to January 1, 1998. For the three and nine months ended September 30, 1999, United Dominion reported increases over the same period last year in rental income and rental expenses. United Dominion's 122 non-mature communities with 30,824 apartment homes provided a substantial portion of the aggregate reported increases. Compared to the same periods last year, the acquisition and development of these non-mature communities resulted in an increase in the weighted average number of apartment homes by 18.4% and 26.0% for the three and nine months ended September 30, 1999, respectively. Same Communities The operating performance for the three and nine months ended September 30, 1999 and 1998 is summarized below (dollars in thousands):
Three Months Ended Nine Months Ended September 30, September 30, -------------------------- ----------------------------- 1999 1998 % Change 1999 1998 % Change -------------------------- ----------------------------- Property rental income $ 97,212 $ 94,765 2.6% $ 287,502 $ 278,980 3.1% Property operating expenses (excluding depreciation and amortization) (38,711) (38,984) (0.7)% (113,219) (112,547) 0.6% -------------------------- ----------------------------- Property operating income $ 58,501 $ 55,781 4.9% $ 174,283 $ 166,433 4.7% ========================== ============================== Physical occupancy 93.2% 94.0% (0.8)% 92.6% 93.1% (0.5)% Average monthly rental rates $ 630 $ 610 3.3% $ 625 $ 604 3.5% Operating margin 60.2% 58.9% 1.3% 60.6% 59.6% 1.0%
For the three and nine months ended September 30, 1999, same community property operating income was strong, increasing 4.9% and 4.7%, respectively, over the same periods last year. During the first nine months of 1999, property rental income for the same communities grew 3.1%, or $8.5 million over the same period last year. The increase was attributable to an increase in average monthly rents of 3.5% to $625 per home that was offset by a slight decrease of 0.5% in physical occupancy to 92.6%. For the quarter ended September 30, 1999, property rental income grew 2.6% or $2.4 million, reflecting an increase in average monthly rents of 3.3% to $630 per home that was offset by a decrease of 0.8% in physical occupancy to 93.2%. United Dominion expects to maintain annualized rent growth in the 3% range during the remainder of the year. For the nine months ended September 30, 1999, property operating expenses at the same communities increased 0.6%, or $672 thousand. Utility expenses decreased due to further progress on water sub-metering reimbursements, repair and maintenance expense decreased due to benefit from the upgrade program undertaken during the past several years and management expenses decreased due to better economies of scale. However, United Dominion did experience increases in real estate taxes due to general increases in property tax rates or revaluations. In addition, personnel costs increased due to higher salaries and benefit costs and administrative and marketing costs increased due to the addition of monitored alarms in more communities during 1999 and higher technology costs. For the 17 quarter, rental expenses were relatively flat, decreasing 0.7% or $273 thousand for the same reasons previously described. United Dominion expects to maintain annualized expense growth in the 2% range during the remainder of 1999. For the nine month period, the operating margin (property operating income divided by property rental income) improved 1.0% to 60.6% primarily as a result of increased property rental income during this period. For the three month period, the operating margin improved 1.3% to 60.2%. Non-Mature Communities The operating performance for the three and nine months ended September 30, 1999 and 1998 is summarized in the chart below (dollars in thousands):
THREE MONTHS ENDED SEPTEMBER 30: Disposition Development Total Non-Mature 1998 Acquisitions 1999 Acquisitions Communities Communities Communities ----------------- ----------------- ------------- --------------- ---------------- 1999 1998 1999 1998 1999 1998 1999 1998 1999 1998 ----------------- ----------------- ------------- --------------- ---------------- Property rental income $ 51,870 $ 21,354 $ 1,422 $ -- $ 911 $ 5,955 $ 3,785 $ 1,006 $ 57,988 $ 28,315 Property operating expenses (excluding depreciation and amortization) (20,035) (10,176) (603) -- (696) (2,885) (1,755) (477) (23,089) (13,538) ----------------- ----------------- ------------- --------------- ---------------- Property operating income $ 31,835 $ 11,178 $ 819 $ -- $ 215 $ 3,070 $ 2,030 $ 529 $ 34,899 $ 14,777 ==================== ================= ================ ================= =================== NINE MONTHS ENDED SEPTEMBER 30: Disposition Development Total Non-Mature 1998 Acquisitions 1999 Acquisitions Communities Communities Communities ----------------- ----------------- ------------- --------------- ---------------- 1999 1998 1999 1998 1999 1998 1999 1998 1999 1998 ----------------- ----------------- ------------- --------------- ---------------- Property rental income $ 153,500 $ 41,756 $ 2,304 $ -- $ 10,909 $ 22,119 $ 8,470 $ 2,195 $ 175,183 $ 66,070 Property operating expenses (excluding depreciation and amortization) (60,598) (18,759) (1,033) -- (5,200) (10,407) (4,204) (1,087) (71,035) (30,253) ----------------- ----------------- ------------- --------------- ---------------- Property operating income $ 92,902 $ 22,997 $ 1,271 $ -- $ 5,709 $ 11,712 $ 4,266 $ 1,108 $ 104,148 $ 35,817 ==================== ================= ================ ================= ===================
For the quarter ended September 30, 1999, the non-mature communities had physical occupancy of 93.1% (excluding Development Properties undergoing lease-up) and an operating margin of 60.2%. For the nine months ended September 30, 1999, these communities had physical occupancy of 92.4% and an operating margin of 59.5%. 1998 Acquisitions American Apartment Communities II, Inc. (AAC) The acquisition of 53 communities with 14,001 apartment homes on December 7, 1998 included in the statutory merger with AAC was on target with United Dominion's pro forma acquisition expectations of a 9% return on investment for the first year of ownership. During the nine months ended September 30, 1999, the AAC portfolio provided an annualized first year return on investment of 8.9% on an average investment of $779 million. For the quarter, on an average investment of $781 million, the return on investment was 9.4%. These communities achieved physical occupancy of 94.0% and 93.5% for the three and nine months periods, which is higher than United Dominion's average physical occupancy primarily due to the California communities included in this portfolio. 1998 Acquisitions (Excluding AAC) Included in this category are 56 communities with 13,577 apartment homes acquired in individual, portfolio and merger transactions by United Dominion during 1998 (net of seven communities with 932 apartment homes sold). The return on investment (property rental income less property operating expenses divided by the average capital investment in real estate) for these communities for the nine months ended September 30, 1999, on an average investment of $631 million, was 8.3%. For the quarter, on an average investment of $640 million, the return on investment was 8.1%. These communities continue to be upgraded and repositioned which should improve their operating results over the long-term. In addition, these communities are an active area of the disposition program. 18 1999 Acquisitions Included in this category are three communities with 854 apartment homes acquired by United Dominion during the first nine months of 1999 that are projected to have a first year average return on investment in the 8.5% to 9% range. These communities did not have a material impact on 1999 results of operation. Disposition Communities Included in this category are the 36 communities with 8,953 apartment homes sold as part of United Dominion's strategic repositioning (see Disposition of Investments under Liquidity and Capital Resources) since January 1, 1998. The communities sold during 1998 and 1999 had an annualized return on investment between 9% and 11%. Development Communities This represents the 2,034 homes developed at various times since January 1, 1998, which included the completion of three new communities and one additional phase to an existing community during the first nine months of 1999. Once stabilized, development communities are projected to generate an average return on investment in excess of approximately 10%, however, the full impact on property operating income is not realized until after the communities are stabilized, which is generally six months after construction is completed. United Dominion considers a development community stabilized on the earlier to occur of (i) one year after completion of construction or (ii) attainment of 90% physical occupancy. Construction activity is staged to allow for leasing and occupancy during the construction period in order to minimize the lease-up period subsequent to the completion of construction. All Communities The operating performance for the three and nine months ended September 30, 1999 and 1998 is summarized in the chart below (dollars in thousands):
Three Months Ended Nine Months Ended September 30, September 30, --------------------------------- ------------------------------- 1999 1998 % Change 1999 1998 % Change --------------------------------- ------------------------------- Property rental income $ 155,200 $ 123,080 26.1% $ 462,685 $ 345,050 34.1% Property operating expenses (excluding depreciation and amortization) (61,800) (52,522) 17.7% (184,254) (142,800) 29.0% --------------------------------- ------------------------------- Property operating income $ 93,400 $ 70,558 32.3% $ 278,431 $ 202,250 37.7% ================================= =============================== Weighted average number of apartment homes 85,673 72,365 18.4% 86,590 68,723 26.0% Physical occupancy 93.2% 92.2% 1.0% 92.5% 91.6% 0.9%
Due to the impact of the acquisition and development of 31,398 apartment homes since January 1, 1998, the increase in the weighted average number of apartment homes for the three and nine months ended September 30, 1999 resulted in significant increases in property rental income and property operating expenses for both the three and nine months ended September 30, 1999. Reast Estate Depreciation Real estate depreciation increased $3.0 million or 11.4% and $17.4 million or 23.8% for the three and nine months ended September 30, 1999, respectively over the same period last year. This increase is directly attributable to the addition of depreciable real estate assets as a result of United Dominion's acquisition, development and capital expenditure programs during 1998 and 1999. Interest Expense Interest expense increased $11.8 million and $40.2 million for the three and nine months ended September 30, 1999, respectively, over the same period last year as the weighted average amount of debt employed during 1999 was higher than it was for the same periods last year primarily due to debt assumed and issued during 1998 to fund United Dominion's investment activities. For the nine month period, the weighted average debt outstanding was $2.2 billion in 1999 versus $1.4 billion in 1998 and for the three month period it was $2.2 billion in 1999 versus $1.5 billion in 1998. For both the three and nine months ended September 30, 1999, the weighted average interest rate on this debt was 7.4%, reflecting no change from the same periods last year. For the three and nine months ended September 30, 1999, total interest capitalized was $1.1 million and $4.3 million, respectively. For the three and nine months ended September 30, 1998, total interest capitalized was $910 thousand and $2.2 million, respectively. 19 General and Administrative During the three and nine months ended September 30, 1999, general and administrative expenses increased $531 thousand and $2.2 million, respectively over the same period last year primarily due to (i) the added infrastructure costs incurred due to the increased size of United Dominion, (ii) the change in accounting for internal acquisition costs subsequent to March 19, 1998 commencing with the adoption of EITF No 97-11, "Accounting for Internal Costs Relating to Real Estate Property Acquisitions", which required that United Dominion expense direct internal costs related to identifying and acquiring operating properties, and (iii) severance compensation fully expensed during the first quarter of 1999. Distribution to Preferred Shareholders Distributions to preferred shareholders increased $3.8 million and $11.4 million for the three and nine months ended September 30, 1999, respectively over the same periods last year. The increase is the result of the issuance of 8 million shares of 7.5% Series D Cumulative Convertible Redeemable Preferred Stock on December 7, 1998 in connection with the acquisition of AAC. Inflation United Dominion believes that the direct effects of inflation on United Dominion's operations have been inconsequential. Information Technology United Dominion is currently engaged in the development of an innovative on-site property management system and a leasing automation system (the `systems") to enable management to capture, review and analyze data to a greater extent than is possible using available existing commercial software. United Dominion believes these new systems will enable the company to become a more efficient provider of a high quality living environment for our current residents, and provide the scalability necessary to support future growth. United Dominion intends to enter into a formal joint venture with another public multifamily real estate company, our joint venture partner, and to continue development of these systems and system software, through the joint venture entity. The system development process is currently managed by the employees of United Dominion who have significant related project management experience and the employees of the joint venture partner. The actual programming and documentation of the system is being conducted by these employees and third party consultants under the supervision of these experienced project managers. Current projections indicate that total development costs over a three-year period will be approximately $7.5 million (including hardware costs and expenses, the costs of employees and related overhead, and the costs of engaging third party consultants) and that such development costs will be shared on an equal basis by the joint venture partners. Once developed, the systems would be used in place of current property management information systems for which a license fee is paid to third parties. The leasing automation system would be used to make the lease application process easier for residents and more efficient for United Dominion. The systems are currently projected to undergo an on-site test (i.e., a "beta test") during the second quarter of 2000 and the systems should be functional by the fourth quarter of 2000. The leasing automation system is currently in beta testing at two communities and we intend, if such testing is successful, to implement the system during the first quarter of 2000. Neither United Dominion nor its joint venture partner have been engaged in the development of systems software. There are several risks associated with the development of the systems for internal use, such as: (i) the inability to maintain the schedule or budget that has been projected for the development and implementation of the software, and (ii) the systems may not have with the functionality and efficiencies desired. 20 Year 2000 The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of United Dominion's computer programs or hardware that have date sensitive software or embedded chips may recognize a date using "00"" as the year 1900 rather than the year 2000. This could result in system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions or engage in similar normal business activities. United Dominion continues to identify and address issues regarding the transition to Year 2000, as it is dependent on computer systems and applications to conduct its business. United Dominion has performed a thorough assessment of its personal computers, desktop software and major applications and is in the process of completing its server environment assessment. To ensure that United Dominion completed a formalized and thorough assessment of its Year 2000 issues, United Dominion engaged an outside consulting firm to conduct a Year 2000 assessment and develop a remediation plan. The plan covers four stages: (i) inventory, (ii) assessment, (iii) remediation and (iv) testing and certification. Because United Dominion operates in a structured, standardized environment, the assessment indicated a high degree of Year 2000 compliance with few items for remediation. All mission-critical applications have been determined to be Year 2000 compliant. Remediation of all desktop hardware and software will be completed by November 30, 1999. None of the non-compliance issues identified were mission-critical. During the first quarter of 1999, United Dominion commenced the assessment phase for non-IT operating equipment at its communities (gates, security, telephone, elevator, HVAC systems and other such systems). This assessment was completed in August 1999, with remediation to be completed by November 30, 1999. United Dominion also assessed the Year 2000 compliance of vendors and other external relationships to determine the extent to which United Dominion may be vulnerable to such parties' failure to resolve their own Year 2000 issues. United Dominion initiated formal communication with these parties. United Dominion cannot ensure timely compliance of third parties and; therefore, could be adversely affected by failure of a significant third party to become Year 2000 compliant. The effect, if any, on United Dominion's results of operations from the failure of such third parties to be Year 2000 compliant is not reasonably estimable. United Dominion estimates that the total Year 2000 project cost will be approximately $100,000, of which approximately 90% has been incurred as of September 30, 1999. Amounts expended to ensure Year 2000 compliance have been funded by cash flows from operations and are not expected to have a material impact on United Dominion's financial position, results of operations, or cash flows. United Dominion believes that its Year 2000 initiatives are adequate to address reasonably likely Year 2000 issues.
- ---------------------------- -------------------------- -------------------------- -------------------------- Assessment Remediation / Testing % Complete Compliance Completion - ---------------------------- -------------------------- -------------------------- -------------------------- IT - Mission-Critical Applications 100% 100% November 1999 - ---------------------------- -------------------------- -------------------------- -------------------------- IT - Desktop Hardware / Software 100% 100% November 1999 - ---------------------------- -------------------------- -------------------------- -------------------------- IT - Network Hardware / Software 100% 100% November 1999 - ---------------------------- -------------------------- -------------------------- -------------------------- Operating Equipment Expected at Communities 100% 100% Completion, November 30, 1999 - ---------------------------- -------------------------- -------------------------- --------------------------
21 Failure to correct a material Year 2000 problem could result in the failure of certain normal business activities or operations. Management believes that, with the implementation of new or upgraded business systems, as needed, and the completion of the Year 2000 project as scheduled, the possibility of significant interruptions of normal operations due to the failure of those systems will be reduced. However, United Dominion is dependent on the power and telecommunications infrastructure within the United States. The most reasonably likely worst case scenario would be that United Dominion may experience disruption in its operations if any of the third-party suppliers reported a system failure. Although United Dominion's Year 2000 project will reduce the level of uncertainty about the compliance and readiness of its material third-party providers, due to the general uncertainty over Year 2000 readiness of these third-party suppliers, United Dominion is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact. The final phase of United Dominion's Year 2000 project relates to a contingency plan. United Dominion maintains contingency plans in the normal course of business designed to be deployed in the event of various potential business interruptions. 22 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK Information required by Item 3 regarding Quantitative and Qualitative Disclosure of Market Risk is included in Part I, Item 2 of this Form 10-Q included in Management's Discussion and Analysis of Financial Condition and Results of Operations. 23 PART II ITEM 1. LEGAL PROCEEDINGS Neither the Company nor any of its apartment communities is presently subject to any material litigation nor, to the Company's knowledge, is any litigation threatened against the Company or any of the communities, other than routine actions arising in the ordinary course of business, some of which are expected to be covered by liability insurance and all of which collectively are not expected to have a material adverse effect on the business or financial condition or results of operations of the Company. ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULT UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The exhibits listed on the accompanying index to exhibits are filed as part of this quarterly report. 24 EXHIBIT INDEX Item 6 (a) The exhibits listed below are filed as part of this Quarterly Report. References under the caption Location to exhibits, forms, or other filings indicate that the form or other filing has been filed, that the indexed exhibit and the exhibit referred to are the same and that the exhibit referred to is incorporated by reference.
Exhibit Description Location - ------- ----------- --------- 2(a) Agreement and Plan of Merger dated Exhibit 2(a) to the Company's Form S-4 Registration as of December 19, 1997, between Statement (Registration No. 333-45305) filed with Company, ASR Investment the the Commission on January 30, 1998. Corporation and ASR Acquisition Sub, Inc. 2(b) Agreement of Plan of Merger dated as Exhibit 2(c) to the Company's Form S-3 Registration of September 10, 1998, between the Statement (Registration No. 333-64281) filed with Company and American Apartment the Commission on September 25, 1998. Communities II, Inc. including as exhibits thereto the proposed terms of the Series D Preferred Stock and the proposed form of Investment Agreement between the Company, United Dominion Realty, L.P., American Apartment Communities II, Inc., American Apartment Communities Operating Partnership, L.P., Schnitzer Investment Corp., AAC Management LLC and LF Strategic Realty Investors, L.P. 2(c) Partnership Interest Purchase and Exchange Exhibit 2(d) to the Company's Form S-3 Registration Agreement dated as of September 10, 1998, Statement (Registration No. 333-64281) filed with between the Company, United Dominion the Commission on September 25, 1998. Realty, L.P., American Apartment Communities Operating Partnership, L.P., AAC Management LLC, Schnitzer Investment Corp., Fox Point Ltd. and James D. Klingbeil including as an exhibit thereto the proposed form of the Third Amended and Restated Limited Partnership Agreement of United Dominion Realty, L.P. 3(a) Restated Articles of Incorporation Exhibit 4(a)(ii) to the Company's Form S-3 Registration Statement (Registration No. 333-72885) filed with the Commission on February 24, 1999. 3(b) Restated By-Laws Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
25
4(i)(a) Specimen Common Stock Exhibit 4(i) to the Company's Annual Report Certificate on Form 10-K for the year ended December 31, 1993. 4(i)(b) Form of Certificate for Shares Exhibit 1(e) to the Company's Form 8-A of 9 1/4% Series A Cumulative Registration Statement dated April 24, 1995. Redeemable Preferred Stock 4(i)(c) Form of Certificate for Shares Exhibit 1(e) to the Company's Form 8-A of 8.60% Series B Cumulative Registration Statement dated June 11, 1997. Redeemable Preferred Stock 4(i)(d) Rights Agreement dated as of Exhibit 1 to the Company's Form 8-A January 27, 1998, between the Company Registration Statement dated February 4, 1998. and ChaseMellon Shareholder Services, L.L.C., as Rights Agent. 4(i)(d)(A) First Amended and Restated Rights Filed herewith. Agreement dated as of September 14, 1999, between the Company and ChaseMellon Sharelholder Services, L.L.C., as Rights Agent 4(i)(e) Form of Rights Certificate Exhibit 4(e) to the Company's Form 8-A Registration Statement dated February 4, 1998. 4(ii)(e) Note Purchase Agreement dated Exhibit 6(c)(5) to the Company's Form 8-A as of February 15, 1993, between Registration Statement dated April 19, 1990. the Company and CIGNA Property and Casualty Insurance Company, Connecticut General Life Insurance Company, Connecticut General Life Insurance Company, on behalf of one or more separate accounts, Insurance Company of North America, Principal Mutual Life Insurance Company and Aid Association for Lutherans 4(ii)(f) 364-day Credit Agreement dated Filed herewith. as of September 16, 1999, between the Company and certain subsidiaries and a syndicate of banks represented by Bank of America, N.A. 10(i) Employment Agreement between Exhibit 10(i) to the Company's Annual Report the Company and John P. McCann on Form 10-K for the year ended December 31, dated December 8, 1998. 1998. 10(ii) Employment Agreement between Exhibit 10(ii) to the Company's Annual Report theCompany and John S. Schneider on Form 10-K for the year ended December 31, dated December 8,1998. 1998.
26
10(iii) Employment Agreement between Exhibit 10(iii) to the Company's Annual Report the Company and Richard Giannotti on Form 10-K for the year ended December 31, dated December 8, 1998. 1998. 10(iv) Employment Agreement between Filed herewith. the Company and A. William Hamill dated September 30, 1999. 10(v) 1985 Stock Option Plan, Exhibit 10(iv) to the Company's Quarterly as amended. Report on Form 10-Q for the quarter ended June 30, 1998. 10(vi) 1991 Stock Purchase and Loan Exhibit 10(viii) to the Company's Quarterly Report Plan. on Form 10-Q for the quarter ended March 31, 1997. 10(vii) Third Amended and Restated Exhibit 10(vi) to the Company's Annual Report Agreement of Limited Partnership of on Form 10-K for the year ended December 31, United Dominion Realty, L.P. 1998. dated as of December 7, 1998. 10(vii)(a) Subordination Agreement dated Exhibit 10(vi)(a) to the Company's Form 10-Q for April 16, 1998, between the the quarter ended March 31, 1998. Company and United Dominion Realty, L.P. 10(viii) Servicing and Purchase Exhibit 10(vii) to the Company's Form 10-Q for Agreement dated as of June 24, the quarter ended June 30, 1999. 1999, including as an exhibit thereto the Note and Participation Agreement forms. 12 Computation of Ratio of Earnings Filed herewith. to Fixed Charges. 27 Financial Data Schedule. Filed herewith.
SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized. 27 United Dominion Realty Trust, Inc. - ---------------------------------- (registrant) Date: November 12, 1999 /s/ A. William Hamill - ----------------------- ----------------------------- A. William Hamill Executive Vice President and Chief Financial Officer Date: November 12, 1999 /s/ Robin R. Flanagan - ----------------------- ----------------------------- Robin R. Flanagan Assistant Vice President and Chief Accounting Officer SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized. 28 EX-4 2 EXHIBIT 4(I)(D)(A) EXHIBIT 4(i)(d)(A) - -------------------------------------------------------------------------------- UNITED DOMINION REALTY TRUST, INC. and CHASEMELLON SHAREHOLDER SERVICES, L.L.C. Rights Agent --------------- First Amended and Restated Rights Agreement Dated as of September 14, 1999 - --------------------------------------------------------------------------------
Table of Contents ----------------- Page ---- Section 1. Certain Definitions...................................................................................1 Section 2. Appointment of Rights Agent...........................................................................5 Section 3. Issue of Rights and Rights Certificates...............................................................6 Section 4. Form of Rights Certificates...........................................................................7 Section 5. Countersignature and Registration.....................................................................8 Section 6. Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates..........................................................9 Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights; Restriction on Transfer of Rights.....................................................................................10 Section 8. Cancellation and Destruction of Rights Certificates..................................................12 Section 9. Reservation and Availability of Series C Preferred Stock.............................................12 Section 10. Series C Preferred Stock Record Date.................................................................13 Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights..........................14 Section 12. Certificates of Adjusted Purchase Price or Number of Shares..........................................21 Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power.................................21 Section 14. Fractional Rights and Fractional Shares..............................................................24 Section 15. Rights of Action.....................................................................................25 Section 16. Agreement of Rights Holders..........................................................................25 Section 17. Rights Certificate Holder Not Deemed a Shareholder..................................................26 Section 18. Concerning the Rights Agent..........................................................................26 Section 19. Merger or Consolidation or Change of Name of Rights Agent............................................26 Section 20. Duties of Rights Agent...............................................................................27
Section 21. Change of Rights Agent...............................................................................29 Section 22. Issuance of New Rights Certificates..................................................................30 Section 23. Redemption and Termination...........................................................................30 Section 24. Exchange.............................................................................................31 Section 25. Notice of Certain Events.............................................................................32 Section 26. Notices..............................................................................................33 Section 27. Supplements and Amendments...........................................................................34 Section 28. Successors...........................................................................................35 Section 29. Determinations and Actions by the Board of Directors, etc............................................35 Section 30. Benefits of this Agreement...........................................................................35 Section 31. Severability.........................................................................................35 Section 32. Governing Law........................................................................................35 Section 33. Counterparts.........................................................................................36 Section 34. Descriptive Headings.................................................................................36
Exhibit A - Form of Rights Certificate (ii) FIRST AMENDED AND RESTATED RIGHTS AGREEMENT This First Amended and Restated Rights Agreement, dated as of September 14, 1999, (the "Agreement") between UNITED DOMINION REALTY TRUST, INC., a Virginia corporation (the "Company"), and CHASEMELLON SHAREHOLDER SERVICES, L.L.C., a New Jersey limited liability company (the "Rights Agent"), provides as follows: W I T N E S S E T H WHEREAS, in January of 1998, the Board of Directors of the Company authorized and declared a dividend distribution of one Right (as hereinafter defined) for each outstanding share of Common Stock of the Company to shareholders of record at the Close of Business (as hereafter defined) on the Record Date (as hereinafter defined) and authorized the issuance of one Right (as such number may hereinafter be adjusted as provided herein) for each share of Common Stock that shall be issued between the Record Date and the earliest of the Distribution Date, the Redemption Date or the Expiration Date (as such terms are hereinafter defined) unless the Board of Directors provides to the contrary before or at the time of issuance of any such Common Stock, each Right initially representing the right to purchase one Unit of Series C Preferred Stock, (as hereinafter defined), and being in the form of the Rights Certificate attached hereto as Exhibit A, upon the terms and subject to the conditions hereof (the "Rights"); and WHEREAS, on January 27, 1998, the Company entered into a Rights Agreement with the Rights Agent (the "First Rights Agreement"); and WHEREAS, on September 14, 1999, the Board of Directors of the Company determined that it was in the best interests of the Company to amend the First Rights Agreement to remove all of the provisions requiring the vote of the Continuing Directors (as defined in the Rights Agreement), in the form of this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. Certain Definitions. For purposes of this Agreement, the following terms have the meanings indicated: (a) "Acquiring Person" shall mean any Person who or which, alone or together with all Affiliates and Associates of such Person, shall at any time be the Beneficial Owner of either or both of (i) more than 15% of the shares of Common Stock then outstanding or (ii) more than 15% of the Rights then outstanding, but shall not include (a) the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan or, (b) any such Person who has become and is such a Beneficial Owner solely because (1) of a reduction in the aggregate number of shares of Common Stock outstanding due to a repurchase of shares of Common Stock by the Company since the last date on which such Person acquired Beneficial Ownership of any shares of Common Stock or (2) it acquired such Beneficial Ownership in the good faith belief that such acquisition would not (A) cause such Beneficial Ownership to exceed 15% of the shares of Common Stock then outstanding and such Person relied in good faith in computing the percentage of its Beneficial Ownership on publicly filed reports or documents of the Company that are inaccurate or out-of-date or (B) otherwise cause a Distribution Date or the adjustment provided for in Section 11(a) to occur. Notwithstanding clause (b)(2) of the preceding sentence, if any Person that is not an Acquiring Person due to such clause (b)(2) does not reduce its percentage of Beneficial Ownership of shares of Common Stock to 15% or less by the Close of Business on the fifth Business Day after notice from the Company (the date of notice being the first day) that such Person's Beneficial Ownership of shares of Common Stock so exceeds 15%, such Person shall, at the end of such five Business Day period, become an Acquiring Person (and such clause (b)(2) shall no longer apply to such Person). For purposes of this definition, the determination whether any Person acted in "good faith" shall be conclusively determined by the Board of Directors of the Company, acting by a vote of those directors of the Company whose approval would be required to redeem the Rights under Section 23. (b) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. (c) A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to "beneficially own," any securities: (i) that such Person or any of such Person's Affiliates or Associates is deemed to "beneficially own" within the meaning of Rule 13d-3 of the General Rules and Regulations under the Exchange Act; (ii) that such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed to be the "Beneficial Owner" of, or to "beneficially own," (A) securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange or (B) securities issuable upon exercise of the Rights. 2 (iii) that such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote, including pursuant to any agreement, arrangement or understanding, whether or not in writing; provided, however, that a Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own," any security under this subparagraph (iii) as a result of an agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding: (A) arises solely from a revocable proxy given in response to a public proxy solicitation made pursuant to, and in accordance with, the applicable provisions of the General Rules and Regulations under the Exchange Act, and (B) the beneficial ownership of such security is not also then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iv) that are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person's Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subparagraph (iii) of this paragraph (c)) or disposing of any voting securities of the Company; provided, however, that notwithstanding any provision of this Section 1(c), any Person engaged in business as an underwriter of securities who acquires any securities of the Company through such Person's participation in good faith in a firm commitment underwriting registered under the Securities Act of 1933, as amended (the "Act"), shall not be deemed the "Beneficial Owner" of, or to "beneficially own," such securities until the expiration of 40 days after the date of acquisition; and provided, further, that in no case shall an officer or director of the Company be deemed (x) the beneficial owner of any securities beneficially owned by another officer or director of the Company solely by reason of actions undertaken by such persons in their capacity as officers or directors of the Company; or (y) the beneficial owner of securities held of record by the trustee of any employee benefit plan of the Company or any Subsidiary of the Company for the benefit of any employee of the Company or any Subsidiary of the Company, other than the officer or director, by reason of any influence that such officer or director may have over the voting of the securities held in the plan. (d) "Business Day" shall mean any day other than a Saturday, Sunday or a day on which national banking institutions in the Commonwealth of Virginia or State of New Jersey are authorized or obligated by law or executive order to close. (e) "Close of Business" on any given date shall mean 5:00 P.M., Richmond, Virginia time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 P.M., Richmond, Virginia time, on the next succeeding Business Day. (f) "Common Stock" shall mean the common stock of the Company, except that "Common Stock" when used with reference to any Person other than the Company, if such Person is a corporation, shall mean the capital stock of such Person with the greatest voting power, or the equity securities or other equity interest in such Person having power to control or direct 3 the management of such Person, or any shares of capital stock or other equity interests into which the foregoing shall be reclassified or changed. (g) "Distribution Date" shall mean the earlier of (i) the close of business on the tenth business day after the Stock Acquisition Date (as hereinafter defined) or (ii) the close of business on the tenth business day after the date that a tender or exchange offer by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan) is first published or sent or given within the meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act if, upon consummation thereof, such Person would be an Acquiring Person (irrespective of whether any shares were actually purchased pursuant to any such offer). (h) "Equivalent Shares" shall mean shares of Series C Preferred Stock (as hereinafter defined) and any other class or series of capital stock of the Company that is entitled to participate in dividends and other distributions, including distributions upon the liquidation, dissolution or winding up of the Company, on a proportional basis with the Common Stock. In calculating the number of any class or series of Equivalent Shares for purposes of Section 11 hereof, the number of shares, or fractions of a share, of such class or series of capital stock that is entitled to the same dividend or distribution as a whole share of Common Stock shall be deemed to be one share. (i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended and in effect on the date of this Agreement, unless a different date is otherwise specifically provided herein. (j) "Exchange Date" shall mean the date on which the Board of Directors authorizes the exchange of Rights for shares of Common Stock pursuant to Section 24 hereof. (k) "Expiration Date" shall mean the earliest of (i) the close of business on the Final Expiration Date, or (ii) the time at which the Rights are redeemed as provided in Section 23 hereof, or (iii) the Exchange Date. (l) "Final Expiration Date" shall mean February 4, 2008. (m) "Person" shall mean any individual, firm, corporation, partnership or other entity and any particular Person shall include any "group" acting as described in Section 13(d)(3) of the Exchange Act. 4 (n) "Purchase Price" shall have the meaning set forth in Section 4(a) hereof, as adjusted in accordance with this Agreement and as in effect from time to time. (o) "Record Date" shall mean the Close of Business on February 4, 1998. (p) "Rights" shall mean the rights to purchase Series C Preferred Stock (or other securities) as provided in this Agreement. (q) "Rights Certificate" shall have the meaning set forth in Section 3(a) hereof. (r) "Section 11(a)(ii) Event" shall mean any occurrence of the event described in the first sentence of Section 11(a)(ii) hereof. (s) "Section 13 Event" shall mean any event described in clause (w), (x), (y) or (z) of Section 13(a) hereof. (t) "Series C Preferred Stock" shall mean shares of Series C Junior Participating Cumulative Redeemable Preferred Stock, without par value, of the Company. (u) "Stock Acquisition Date" shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has become such. (v) "Subsidiary" shall mean, with reference to any Person, any corporation or other entity of which an amount of voting securities sufficient to elect a majority of the directors or Persons having similar authority of such corporation or other entity is beneficially owned, directly or indirectly, by such Person, or otherwise controlled by such Person. (w) "Triggering Event" shall mean any Section 11(a)(ii) Event or any Section 13 Event. (x) "Unit" shall mean one one-thousandth of a share of Series C Preferred Stock. Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with 5 Section 3 hereof, shall prior to the Distribution Date also be holders of Common Stock) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such Co-Rights Agents as it may deem necessary or desirable. Section 3. Issue of Rights and Rights Certificates. (a) Until the Distribution Date, (x) the Rights shall be evidenced (subject to the provisions of paragraphs (b) and (c) of this Section 3) by the certificates for the Common Stock registered in the names of the holders of the Common Stock (which certificates for Common Stock shall be deemed also to be certificates for Rights) and not by separate certificates, and (y) the Rights shall be transferable only in connection with the transfer of the underlying shares of Common Stock (including a transfer to the Company). Subject to the provisions of Section 7(e) hereof, as soon as practicable after the Company has notified the Rights Agent of the occurrence of a Distribution Date, the Rights Agent shall send by first-class, insured, postage prepaid mail, to each such record holder of shares of the Common Stock as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Company, one or more rights certificates, in substantially the form of Exhibit A hereto (the "Rights Certificates"), evidencing one Right for each share of Common Stock so held, subject to adjustment as provided herein. In the event that an adjustment in the number of Rights per share of Common Stock has been made pursuant to Section 11(n) hereof, at the time of distribution of the Rights Certificates, the Company shall make the necessary and appropriate rounding adjustments (in accordance with Section 14(a) hereof) so that Rights Certificates representing only whole numbers of Rights are distributed and cash is paid in lieu of any fractional Rights. As of and after the Distribution Date, the Rights shall be evidenced solely by such Rights Certificates. (b) Until the Distribution Date, the Rights shall be evidenced by such certificates evidencing the Common Stock, and the registered holders of the Common Stock shall also be the registered holders of the associated Rights. Until the earlier of the Distribution Date or the Expiration Date, the transfer of any certificates evidencing shares of Common Stock in respect of which Rights have been issued shall also constitute, subject to the provisions of Section 7(e) hereof, the transfer of the Rights associated with such shares of Common Stock. (c) Unless the Board of Directors by resolution adopted at or before the time of the issuance (including pursuant to the exercise of rights under the Company's benefit plans) of any shares of Common Stock specifies to the contrary, Rights shall be issued in respect of all shares of Common Stock that are issued after the Record Date but prior to the earlier of the Distribution Date or the Expiration Date. Certificates representing shares of Common Stock outstanding prior to the Record Date that are issued upon transfer or exchange of such Common Stock, shall also be deemed to be certificates for Rights, and shall bear the following legend: 6 This certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Rights Agreement between United Dominion Realty Trust, Inc. (the "Company") and ChaseMellon Shareholder Services, L.L.C., (the "Rights Agent") dated as of January 27, 1998 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights that are owned or that were previously owned by a Person who is, was or becomes an Acquiring Person or any Affiliate or Associate of an Acquiring Person may become null and void. With respect to such certificates containing the foregoing legend, until the earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights associated with the Common Stock represented by such certificates shall be evidenced by such certificates alone and registered holders of Common Stock shall also be the registered holders of the associated Rights, and the transfer of any of such certificates shall also constitute, subject to the provisions of Section 7(e) hereof, the transfer of the Rights associated with the Common Stock represented by such certificates. In the event that the Company purchases or acquires any shares of Common Stock after the Record Date but prior to the Distribution Date, any Rights associated with such shares of Common Stock shall be deemed canceled and retired so that the Company shall not be entitled to exercise any Rights associated with the shares of Common Stock that are no longer outstanding. Section 4. Form of Rights Certificates. (a) The Rights Certificates (and the forms of election to purchase and of assignment to be printed on the reverse thereof) shall each be substantially in the form set forth in Exhibit A hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Section 11 and Section 22 hereof, the Rights Certificates, whenever distributed, shall be dated as of the Distribution Date, and on their face shall entitle the holders thereof to purchase such number of Units of Series C Preferred Stock as shall be set forth therein at the price set forth therein (such exercise price per unit, being hereinafter referred to as 7 the "Purchase Price"), but the amount and type of securities purchasable upon the exercise of each Right and the Purchase Price thereof shall be subject to adjustment as provided herein. (b) Any Rights Certificate issued pursuant to Section 3(a) or Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom such Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer that the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has a primary purpose to avoid or effects the avoidance of Section 7(e) hereof, and any Rights Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain (to the extent feasible) the following legend: The Rights represented by this Rights Certificate are or were beneficially owned by a person who was or became an Acquiring Person or an Affiliate or an Associate of an Acquiring Person. Accordingly, this Rights Certificate and the Rights represented hereby may become void in the circumstances specified in Section 7(e) of the Rights Agreement. The Company shall notify the Rights Agent, and, if such notification is given orally, the Company shall confirm promptly the same in writing, at such time as the Company has notice that any Person constitutes an Acquiring Person or an Affiliate or Associate of an Acquiring Person, and until such notice is received by the Rights Agent the Rights Agent may conclusively presume for all purposes that the foregoing legend need be imprinted only on Right Certificates beneficially owned by Persons that the Company has previously identified to the Rights Agent as constituting an Acquiring Person or an Affiliate or Associate of an Acquiring Person and transferees of any such Persons. Section 5. Countersignature and Registration. (a) The Rights Certificates shall be executed on behalf of the Company by its Chief Executive Officer, its President or any Vice President, either manually or by facsimile signature, and shall have affixed thereto the Company's seal or a facsimile thereof which shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The Rights Certificates shall be countersigned manually or by facsimile by the Rights Agent and shall not be valid for any purpose unless so countersigned. The Rights Certificates shall be countersigned by an authorized signatory of the Rights Agent but it shall not 8 be necessary for the same signatory to countersign all of the Rights Certificates issued hereunder. In case any officer of the Company who shall have signed any of the Rights Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Rights Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Rights Certificates had not ceased to be such officer of the Company; and any Rights Certificates may be signed on behalf of the Company by any person who, at the actual date of the execution of such Rights Certificate, shall be a proper officer of the Company to sign such Rights Certificate, although at the date of the execution of this Agreement any such person was not such an officer. (b) Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its principal office or offices designated as the appropriate place for surrender of Rights Certificates upon exercise or transfer, books for registration and transfer of the Rights Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Rights Certificates, the number of Rights evidenced on its face by each of the Rights Certificates and the date of each of the Rights Certificates. Section 6. Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates. (a) Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the Expiration Date, any Rights Certificate or Certificates may be transferred, split up, combined or exchanged for another Rights Certificate or Certificates, (other than Rights Certificates that have become void pursuant to Section 7(e) hereof or that have been exchanged pursuant to Section 24 hereof) entitling the registered holder to purchase a like number of Units of Series C Preferred Stock (or, following a Triggering Event, Common Stock, other securities, cash or other assets, as the case may be) as the Rights Certificate or Certificates surrendered then entitle such holder (or former holder in the case of a transfer) to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Rights Certificate or Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Rights Certificate or Certificates to be transferred, split up, combined or exchanged at the principal office or offices of the Rights Agent designated for such purpose. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer of any such surrendered Rights Certificate until the registered holder shall have completed and signed the certificate contained in the form of assignment on the reverse side of such Rights Certificate and shall have provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Thereupon the Rights Agent shall countersign and deliver to the Person entitled thereto a Rights Certificate or Rights Certificates, as the case may be, as so requested. The Company may require payment from the holder of the Rights of a sum sufficient to cover any tax or 9 governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Rights Certificates. (b) Subject to Section 7(e) hereof, upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Rights Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Rights Certificate if mutilated, the Company will execute and deliver a new Rights Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated. Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights; Restriction on Transfer of Rights. (a) Subject to Section 7(e) hereof, the registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein including, without limitation, the restrictions on exercisability set forth in Section 9(c), Section 11(a)(ii), Section 11(a)(iii), Section 13, Section 23(a), and Section 24 hereof) in whole or in part at any time after the Distribution Date upon surrender of the Rights Certificate, with the form of election to purchase and the certificate on the reverse side thereof duly executed, to the Rights Agent at the principal office or offices of the Rights Agent designated for such purpose, together, except as otherwise provided in Section 11(a)(ii) hereof, with payment of the aggregate Purchase Price with respect to the total number of Units of Series C Preferred Stock (or Common Stock or other securities or property, as the case may be) as to which surrendered Rights are then exercisable, at or prior to the Expiration Date. (b) The Purchase Price for each Unit of Series C Preferred Stock pursuant to the exercise of a Right shall initially be $45.00 and shall be subject to adjustment from time to time as provided in Section 11 hereof and shall be payable in accordance with paragraph (c) below. (c) Upon receipt of a Rights Certificate representing exercisable Rights, with the form of election to purchase and the certificate duly executed, accompanied by payment, with respect to each Right so exercised, of the Purchase Price per Unit of Series C Preferred Stock (or Common Stock, other securities or property, as the case may be) to be purchased as set forth below and an amount equal to any applicable transfer tax, the Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly, (i) (A) requisition from any transfer agent of the Units of Series C Preferred Stock (or make available, if the Rights Agent is the transfer agent for such shares) certificates for the total number of Units of Series C Preferred Stock to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) if the Company shall have elected to deposit the total number of Units of Series C Preferred 10 Stock issuable upon exercise of the Rights hereunder with a depositary agent, requisition from the depositary agent depositary receipts representing such number of Units of Series C Preferred Stock as are to be purchased (in which case certificates for the Units of Series C Preferred Stock represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company will direct the depositary agent to comply with such request, (ii) requisition from the Company the amount of cash, if any, to be paid in lieu of fractional shares in accordance with Section 14 hereof, (iii) after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, and (iv) after receipt thereof, deliver such cash, if any, to or upon the order of the registered holder of such Rights Certificate. The payment of the Purchase Price (as such amount may be reduced (including to zero) pursuant to Section 11(a)(iii) hereof) may be made in cash or by certified bank check or bank draft payable to the order of the Company. In the event that the Company is obligated to issue other securities of the Company, pay cash and/or distribute other property pursuant to Section 11(a) hereof, the Company will make all arrangements necessary so that such other securities, cash and/or other property are available for distribution by the Rights Agent, if and when appropriate. (d) In case the registered holder of any Rights Certificate shall exercise less than all the Rights evidenced thereby, a new Rights Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent and delivered to, or upon the order of, the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, subject to the provisions of Section 14 hereof. (e) Notwithstanding anything in this Agreement to the contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any Rights beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom the Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has as a primary purpose or effects the avoidance of this Section 7(e), shall become null and void without any further action and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The Company shall use all reasonable efforts to ensure that the provisions of this Section 7(e) and Section 4(b) hereof are complied with, but shall have no liability to any holder of Rights Certificates or any other Person as a result of its failure to make any determinations with respect to an Acquiring Person or its Affiliates or Associates, or any transferee thereof, hereunder. 11 (f) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder upon the occurrence of any purported exercise as set forth in this Section 7 unless such registered holder shall have (i) completed and signed the certificate contained in the form of election to purchase set forth on the reverse side of the Rights Certificate surrendered for such exercise and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Section 8. Cancellation and Destruction of Rights Certificates. All Rights Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or any of its agents, be delivered to the Rights Agent for cancellation or in canceled form, or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Rights Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all canceled Rights Certificates to the Company, or shall, at the written request of the Company, destroy such canceled Rights Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. Section 9. Reservation and Availability of Series C Preferred Stock. (a) The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued shares of Series C Preferred Stock (or, following the occurrence of a Triggering Event, out of its authorized and unissued Series C Preferred Stock or other securities, as the case may be), the number of shares of Series C Preferred Stock (or such other securities) that, except as provided in Section 11(a)(iii) hereof, will be sufficient from time to time to permit the exercise in full of all outstanding Rights and all Rights that are at the time issuable, in accordance with the provisions of this Agreement. (b) So long as the shares of Series C Preferred Stock (and, following the occurrence of a Triggering Event, any other securities) issuable and deliverable upon the exercise of the Rights may be listed on any national securities exchange, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares reserved for such issuance to be listed on such exchange upon official notice of issuance. (c) The Company shall use its best efforts (i) to file, as soon as practicable following the earliest date after the first occurrence of a Section 11(a)(ii) Event on which the consideration to be delivered by the Company upon exercise of the Rights has been determined in accordance with Section 11(a)(ii) and (iii) hereof, or as soon as is required by law following the Distribution Date, as the case may be, a registration statement under the Act on an 12 appropriate form, with respect to the securities purchasable upon exercise of the Rights, (ii) to cause such registration statement to become effective as soon as practicable after such filing, and (iii) to cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for such securities, and (B) the Expiration Date. The Company will also take such action as may be appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercisability of the Rights. The Company may temporarily suspend, for a period of time not to exceed ninety days after the date set forth in clause (i) of the first sentence of this Section 9(c), the exercisability of the Rights in order to prepare and file such registration statement and permit it to become effective. Upon any such suspension, the Company shall issue a public announcement stating, and notify the Rights Agent, that the exercisability of the Rights has been temporarily suspended. The Company shall also issue a public announcement at such time as the suspension is no longer in effect. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction unless the requisite qualification in such jurisdiction shall have been obtained. (d) The Company covenants and agrees that it will take all such action as may be necessary to ensure that all shares of Series C Preferred Stock (or other securities, as the case may be) delivered upon exercise of the Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Purchase Price), be duly authorized, validly issued, fully paid and nonassessable. (e) The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges that may be payable in respect of the issuance or delivery of the Rights Certificates and of any certificates for shares of Series C Preferred Stock (or other securities, as the case may be) upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax that may be payable in respect of any transfer or delivery of Rights Certificates to a Person other than, or the issuance or delivery of a number of shares of Series C Preferred Stock (or other securities, as the case may be) in respect of a name other than that of, the registered holder of the Rights Certificates evidencing Rights surrendered for exercise or to issue or deliver any certificates for a number of shares of Series C Preferred Stock (or other securities, as the case may be) in a name other than that of the registered holder upon the exercise of any Rights until such tax shall have been paid (any such tax being payable by the holder of such Rights Certificate at the time of surrender) or until it has been established to the Company's satisfaction that no such tax is due. Section 10. Series C Preferred Stock Record Date. Each person in whose name any certificate for a number of Units of Series C Preferred Stock (or other securities, as the case may be) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of such Units of Series C Preferred Stock (or other securities, as the case may be) represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and 13 all applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the Series C Preferred Stock (or other securities, as the case may be) transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares (fractional or otherwise) on, and such certificate shall be dated, the next succeeding Business Day on which such transfer books are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Rights Certificate as such shall not be entitled to any rights of a shareholder of the Company with respect to shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights. The Purchase Price, and the number and kind of shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a) (i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Series C Preferred Stock payable in shares of Series C Preferred Stock, (B) subdivide the outstanding Series C Preferred Stock, (C) combine the outstanding Series C Preferred Stock into a smaller number of shares, or (D) issue any shares of its capital stock in a reclassification of the Series C Preferred Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a), the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of Series C Preferred Stock or the number and kind of shares of other capital stock, as the case may be, issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive, upon payment of the Purchase Price then in effect, the aggregate number of shares of Series C Preferred Stock or the number and kind of shares of other capital stock, as the case may be, that, if such Right had been exercised immediately prior to such date and at a time when the Series C Preferred Stock transfer books of the Company were open, he would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. If an event occurs that would require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof. (ii) Subject to Section 23 and Section 24 hereof, in the event any Person becomes an Acquiring Person, then, proper provision shall be made by the Company so that each record holder of each Right (except as provided in Section 7(e) hereof) shall thereafter have the right to receive, upon exercise thereof for the Purchase Price in accordance with terms of this Agreement, such number of Units of Series C Preferred Stock (or, in lieu of Series C Preferred Stock, at the option of the Company and to the extent available, such number of shares 14 of Common Stock) as shall equal the result obtained by multiplying the Purchase Price by a fraction, the numerator of which is the number of Units of Series C Preferred Stock for which a Right is then exercisable and the denominator of which is 50% of the current market price of a share of Common Stock (determined pursuant to Section 11(d) hereof) on the date of the first occurrence of a Section 11(a)(ii) Event (such result being hereinafter referred to as the "Adjustment Shares"). (iii) To the extent that the number of shares of Series C Preferred Stock that are authorized by the Company's articles of incorporation but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights is not sufficient to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii) of this Section 11(a), and subject to such limitations as are necessary to prevent a default under any agreement for money borrowed as presently constituted to which the Company is a party and subject to any limitations contained in Section 13.1-653 of the Virginia Stock Corporation Act, the Company shall: (A) determine the excess of (1) the value of the Adjustment Shares issuable upon the exercise of a Right (the "Current Value"), over (2) the Purchase Price (such excess being hereinafter referred to as the "Spread"), and (B) with respect to each Right, make adequate provision to substitute for such unavailable Adjustment Shares, upon payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) other equity securities of the Company, (4) debt securities of the Company, (5) other assets, or (6) any combination of the foregoing, having, together with the Adjustment Shares issued upon exercise of such Right, an aggregate value equal to the Current Value, where such aggregate value has been determined by the Board of Directors of the Company based upon the advice of a nationally recognized investment banking firm selected by the Board of Directors of the Company; provided, however, if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within 30 days following the first occurrence of a Section 11(a)(ii) Event, then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, shares of preferred stock of the Company or Common Stock (to the extent such securities are available) and then, if necessary, cash, which securities and/or assets in the aggregate are equal to the Spread. If the Board of Directors of the Company shall determine in good faith that it is likely that sufficient additional shares of preferred stock of the Company or Common Stock could be authorized for issuance upon exercise in full of the Rights, the 30 day period set forth above may be extended to the extent necessary, but not more than 90 days following the first occurrence of a Section 11(a)(ii) Event, in order that the Company may seek shareholder approval for the authorization of such additional shares (such period, as it may be extended, the "Substitution Period"). To the extent that the Company determines that some action need be taken pursuant to the first and/or second sentences of this Section 11(a)(iii), the Company (x) shall provide, subject to Section 7(e) hereof, that such action shall apply uniformly to all outstanding Rights, and (y) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek any authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of the Common Stock shall be 15 the current market price (as determined pursuant to Section 11(d) hereof) per share of the Common Stock on the date of the first occurrence of a Section 11(a)(ii) Event. (b) If at any time after the date of this Agreement the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Common Stock or of any class or series of Equivalent Shares entitling such holders (for a period expiring within 45 calendar days after such record date) to subscribe for or to purchase Common Stock or Equivalent Shares (or securities convertible into Common Stock or Equivalent Shares) at a price per share (or having a conversion price per share, if a security convertible into Common Stock or Equivalent Shares) less than the current market price of such Common Stock or Equivalent Shares on such record date, then, in each such case, each Right outstanding immediately prior to such record date shall thereafter evidence the right to purchase, for the Purchase Price, that number of Units of Series C Preferred Stock or Equivalent Shares obtained by multiplying the number of Units of Series C Preferred Stock issuable upon exercise of a Right immediately prior to such record date by a fraction, the numerator of which shall be the total number of shares of Common Stock and Equivalent Shares (if any) outstanding on such record date plus the number of additional shares of Common Stock and Equivalent Shares (if any) to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible) and the denominator of which shall be the total number of shares of Common Stock and Equivalent Shares (if any) outstanding on such record date plus the number of shares of Common Stock or Equivalent Shares, as the case may be, that the aggregate offering price of the total number of shares of Common Stock or Equivalent Shares, as the case may be, so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price. In case such subscription price may be paid in a consideration, part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. Common Stock and Equivalent Shares owned by or held for the account of the Company or any Subsidiary of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights, options or warrants are not so issued, each Right shall be adjusted to evidence the right to receive that number of Units of Series C Preferred Stock that such Right would have entitled the holder to receive, for the Purchase Price, if such record date had not been fixed. (c) If at any time after the date of this Agreement the Company shall fix a record date for the making of a distribution to all holders of Common Stock or of any class or series of Equivalent Shares (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) of cash (other than a regular quarterly cash dividend of the Company in compliance with Section 13.1-653 of the Virginia Stock Corporation Act), evidences of indebtedness, assets, securities (other than Common Stock or any Equivalent Shares) or subscription rights, options or warrants (excluding those referred to in Section 11(b) hereof), then, in each such case, each Right outstanding immediately prior to such record date shall thereafter evidence the right to purchase, for the Purchase Price, that number of Units of Series C Preferred Stock obtained by multiplying 16 the number of Units of Series C Preferred Stock issuable upon exercise of a Right immediately prior to such record date by a fraction, the numerator of which shall be the current market price of a share of Common Stock or an Equivalent Share on the record date and the denominator of which shall be the current market price of a share of Common Stock or an Equivalent Share on such record date less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the cash, evidences of indebtedness, assets or securities so to be distributed or of such subscription rights, options or warrants applicable to a share of Common Stock or an Equivalent Share, as the case may be. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, each Right shall be adjusted to evidence the right to receive that number of Units of Series C Preferred Stock that such Right would have entitled the holder to receive, for the Purchase Price, if such record date had not been fixed. (d) (i) For the purpose of any computation hereunder, other than computations made pursuant to Section 11(a)(iii) hereof, the "current market price" per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date, and for purposes of computations made pursuant to Section 11(a)(iii) hereof, the "current market price" per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the ten consecutive Trading Days immediately following such date; provided, however, that in the event that the current market price per share of the Common Stock is determined during a period following the announcement by the issuer of such Common Stock of (A) a dividend or distribution on such Common Stock payable in shares of such Common Stock or securities convertible into shares of such Common Stock (other than the Rights), or (B) any subdivision, combination or reclassification of such Common Stock, and prior to the expiration of the requisite 30 Trading Day or ten Trading Day period, as set forth above, after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the "current market price" shall be properly adjusted to take into account ex-dividend trading. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the shares of Common Stock are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices quoted on the Nasdaq Stock Market, as reported by the National Association of Securities Dealers, Inc. ("Nasdaq") or such other quotation system then in use, or, if on any such date the shares of Common Stock are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the 17 Common Stock selected by the Board of Directors of the Company. If on any such date no market maker is making a market in the Common Stock, the fair value of such shares on such date as determined in good faith by the Board of Directors of the Company shall be used. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading is open for the transaction of business or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, a Business Day. If the Common Stock is not publicly held or not so listed or traded, "current market price" per share shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. (ii) For the purpose of any computation hereunder, the "current market price" per share of Series C Preferred Stock shall be determined in the same manner as set forth above for the Common Stock in Section 11(d)(i) hereof (other than the last sentence thereof). If the current market price per share of Series C Preferred Stock cannot be determined in the manner provided above or if the Series C Preferred Stock is not publicly held or listed or traded in a manner described in clause (i) of this Section 11(d), the "current market price" per share of Series C Preferred Stock shall be conclusively deemed to be an amount equal to 1000 (as such number may be appropriately adjusted for such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock and Series C Preferred Stock occurring after the date of this Agreement) multiplied by the current market price per share of the Common Stock. If neither the Common Stock nor the Series C Preferred Stock is publicly held or so listed or traded, "current market price" per share of the Series C Preferred Stock shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. For all purposes of this Agreement, the "current market price" of one one-thousandth of a share of Series C Preferred Stock shall be equal to the "current market price" of one share of Series C Preferred Stock divided by 1000. (e) Anything herein to the contrary notwithstanding, no adjustment in the number of Units of Series C Preferred Stock for which a Right is exercisable or in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least one percent in such number of shares or in the Purchase Price; provided, however, that any adjustments that by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest ten-thousandth of a Unit of Series C Preferred Stock, as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three years from the date of the transaction that mandates such adjustment, or (ii) the Expiration Date. (f) If as a result of an adjustment made pursuant to Section 11(a) or 13(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock other than Series C Preferred Stock, thereafter the number of such other shares so receivable upon exercise of any Right and, if required, the Purchase Price thereof shall be subject 18 to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Series C Preferred Stock contained in Section 11(a), (b), (c), (e), (g), (h), (i), (k) and (l) hereof, and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Series C Preferred Stock shall apply on like terms to any such other shares. (g) All Rights originally issued by the Company subsequent to any adjustment made to the number or kind of shares purchasable upon exercise of the Rights or to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the adjusted number of Units of Series C Preferred Stock or other securities purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised its election as provided below in this Section 11(h), upon each adjustment of the Purchase Price as a result of the calculations made in Section 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of Units of Series C Preferred Stock obtained by (i) multiplying (x) the number of Units of Series C Preferred Stock covered by a Right immediately prior to this adjustment by (y) the Purchase Price in effect immediately prior to such adjustment and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. On or after the date of any adjustment of the Purchase Price, in lieu of any adjustment in the number of Units of Series C Preferred Stock or any other capital stock purchasable upon the exercise of a Right, the Company may elect to adjust the number of Rights. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the number of Units of Series C Preferred Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one-ten-thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Rights Certificates have been issued, shall be at least ten days later than the date of the public announcement. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(h), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates on such record date Rights Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Rights Certificates on the record date specified in the public announcement. 19 (i) Irrespective of any adjustment or change in the Purchase Price or the number of Units of Series C Preferred Stock or the number and kind of other securities issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Purchase Price per Unit, the number of Units and the other terms that were expressed in the initial Rights Certificates issued hereunder. (j) In any case in which this Section 11 shall require that an adjustment be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date of the number of Units of Series C Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the number of Units of Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise before giving effect to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares (fractional or otherwise) or securities upon the occurrence of the event requiring such adjustment. (k) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that in its good faith judgment the Board of Directors of the Company shall determine to be advisable in order that any (i) consolidation or subdivision of the Series C Preferred Stock, (ii) issuance wholly for cash of any shares of Series C Preferred Stock at less than the current market price, (iii) issuance wholly for cash of shares of Series C Preferred Stock or securities that by their terms are convertible into or exchangeable for shares of Series C Preferred Stock, (iv) stock dividend or (v) issuance of rights, options or warrants referred to in this Section 11, hereafter made by the Company to holders of its Series C Preferred Stock shall not be taxable to such shareholders. (l) The Company covenants and agrees that it shall not, at any time after the Distribution Date, (i) consolidate with any other Person (other than a Subsidiary of the Company in a transaction that complies with Section 11(m) hereof), (ii) merge with or into any other Person (other than a Subsidiary of the Company in a transaction that complies with Section 11(m) hereof), (iii) effect a statutory share exchange with any Person (other than a Subsidiary of the Company in a transaction that complies with Section 11(m) hereof), or (iv) sell or transfer (or permit any Subsidiary to sell or transfer), in one transaction, or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or more transactions each of which complies with Section 11(m) hereof), if at the time of or immediately after such consolidation, merger, statutory share exchange or sale there are any rights, warrants or other instruments or securities outstanding or agreements in effect that would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights. 20 (m) The Company covenants and agrees that, after the Distribution Date, it will not, except as permitted by Section 23 or Section 27 hereof, take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights. (n) Anything in this Agreement to the contrary notwithstanding, in the event that the Company shall at any time after the Record Date and prior to the Distribution Date (i) declare a dividend on the outstanding shares of Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, the number of Rights associated with each share of Common Stock then outstanding, or issued or delivered thereafter but prior to the Distribution Date, shall be proportionately adjusted so that the number of Rights thereafter associated with each share of Common Stock following any such event shall equal the result obtained by multiplying the number of Rights associated with each share of Common Stock immediately prior to such event by a fraction the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of shares of Common Stock outstanding immediately following the occurrence of such event. Section 12. Certificates of Adjusted Purchase Price or Number of Shares. Whenever an adjustment is made as provided in Section 11 or Section 13 hereof, the Company shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent, and with each transfer agent for the Series C Preferred Stock or the Common Stock, a copy of such certificate, and (c) mail a brief summary thereof to each holder of a Rights Certificate (or, if prior to the Distribution Date, to each holder of a certificate representing shares of Common Stock) in accordance with Section 25 hereof. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained. Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. (a) In the event that, following the Stock Acquisition Date, directly or indirectly, (w) the Company shall consolidate with, or merge with and into, any other Person (other than a Subsidiary of the Company in a transaction that complies with Section 11(m) hereof), and the Company shall not be the continuing or surviving corporation of such consolidation or merger, (x) any Person (other than a Subsidiary of the Company in a transaction that complies with Section 11(m) hereof) shall consolidate with, or merge with or into, the Company, and the Company shall be the continuing or surviving corporation of such consolidation or merger and, in connection with such consolidation or merger, all or part of the outstanding shares of Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, (y) the Company shall be a party to a 21 statutory share exchange with any other Person (other than a Subsidiary of the Company in a transaction that complies with Section 11(m) hereof) after which the Company is a Subsidiary of any other Person, or (z) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one transaction or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons (other than the Company or any Subsidiary of the Company in one or more transactions each of which complies with Section 11(m) hereof), then, and in each such case, proper provision shall be made so that: (i) each record holder of a Right, except as provided in Section 7(e) hereof, shall thereafter have the right to receive, upon the exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, such number of validly authorized and issued, fully paid, nonassessable and freely tradable shares of Common Stock of the Principal Party (as hereinafter defined), not subject to any liens, encumbrances, rights of first refusal or other adverse claims, as shall be equal to the result obtained by (1) multiplying the then current Purchase Price by the number of shares of Common Stock for which a Right is exercisable immediately prior to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the first occurrence of a Section 13 Event, multiplying the number of such shares for which a Right was exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event by the Purchase Price in effect immediately prior to such first occurrence), and (2) dividing that product (which, following the first occurrence of a Section 13 Event, shall be referred to as the "Purchase Price" for each Right for all purposes of this Agreement) by 50% of the current market price (determined pursuant to Section 11(d)(i) hereof) per share of the Common Stock of such Principal Party on the date of consummation of such Section 13 Event; and (ii) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such Section 13 Event, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such Principal Party, it being specifically intended that the provisions of Section 11 hereof shall apply only to such Principal Party following the first occurrence of a Section 13 Event; (iv) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of shares of its Common Stock) in connection with the consummation of any such transaction as may be necessary to ensure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its shares of Common Stock thereafter deliverable upon the exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof shall be of no effect following the first occurrence of any Section 13 Event. (b) "Principal Party" shall mean (i) in the case of any transaction described in clause (w), (x) or (y) of the first sentence of Section 13(a) hereof, the Person that is the issuer of any securities into which shares of Common Stock of the Company are converted in such merger, consolidation or statutory share exchange, and if no securities are so issued, the Person that is the other party to such merger, consolidation or statutory share exchange; and 22 (ii) in the case of any transaction described in clause (z) of the first sentence of Section 13(a) hereof, the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions; provided, however, that in any such case, (1) if the Common Stock of such Person is not at such time and has not been continuously over the preceding twelve-month period registered under Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary of another Person the Common Stock of which is and has been so registered, "Principal Party" shall refer to such other Person; and (2) in case such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Stocks of two or more of which are and have been so registered, "Principal Party" shall refer to whichever of such Persons is the issuer of the Common Stock having the greatest aggregate market value. (c) The Company shall not consummate any such consolidation, merger, statutory share exchange, sale or transfer unless the Principal Party shall have a sufficient number of authorized shares of its Common Stock that have not been issued or reserved for issuance to permit the exercise in full of the Rights in accordance with this Section 13 and unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in paragraphs (a) and (b) of this Section 13 and further providing that, as soon as practicable after the date of any consolidation, merger, statutory share exchange or sale of assets mentioned in paragraph (a) of this Section 13, the Principal Party will (i) prepare and file a registration statement under the Act on an appropriate form with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, and will use its best efforts to cause such registration statement to (A) become effective as soon as practicable after such filing and (B) remain effective (with a prospectus at all times meeting the requirements of the Act) until the Expiration Date and similarly comply with applicable state securities laws; and (ii) deliver to record holders of the Rights historical financial statements for the Principal Party and each of its Affiliates that comply in all respects with the requirements for registration on Form 10 under the Exchange Act. The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or statutory share exchanges or sales or other transfers. In the event that a Section 13 Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the Rights that have not theretofore been exercised shall thereafter become exercisable in the manner described in Section 13(a) hereof. 23 Section 14. Fractional Rights and Fractional Shares. (a) The Company shall not be required to issue fractions of Rights, except prior to the Distribution Date as provided in Section 11(n) hereof, or to distribute Rights Certificates that evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Rights Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price of the Rights for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading, or if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price, or, if not so quoted, the average of the high bid and low asked prices on the Nasdaq Stock Market, as reported by Nasdaq or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights, the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used. (b) The Company shall not be required to issue fractions of shares of Series C Preferred Stock (other than fractions that are integral multiples of one one-thousandth of a share of Series C Preferred Stock) upon exercise of the Rights or to distribute certificates that evidence fractional shares of Series C Preferred Stock (other than in such integral multiples). In lieu of fractional shares of Series C Preferred Stock that are not in such integral multiples, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one one-thousandth of a share of Series C Preferred Stock. For purposes of this Section 14(b), the current market value of one one-thousandth of a share of Series C Preferred Stock shall be one one-thousandth of the current market price of a share of Series C Preferred Stock (as determined pursuant to Section 11(d) hereof) for the Trading Day immediately prior to the date of such exercise. (c) The holder of a Right by the acceptance of the Right expressly waives his right to receive any fractional Right or any fractional shares upon exercise of a Right, except as permitted by this Section 14. 24 Section 15. Rights of Action. All rights of action in respect of this Agreement are vested in the respective registered holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock in respect of which Rights have been issued); and any registered holder of any Rights Certificate (or, prior to the Distribution Date, of such Common Stock), without the consent of the Rights Agent or of the holder of any other Rights Certificate (or, prior to the Distribution Date, of such Common Stock), may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Rights Certificate in the manner provided in such Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and shall be entitled to specific performance of the obligations hereunder and injunctive relief against actual or threatened violations of the obligations hereunder of any Person subject to this Agreement. Section 16. Agreement of Rights Holders. Every holder of a Right by accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of Common Stock; (b) after the Distribution Date, the Rights Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office or offices of the Rights Agent designated for such purposes, duly endorsed or accompanied by a proper instrument of transfer and with the appropriate forms and certificates fully executed; (c) subject to Section 6(a) and Section 7(f) hereof, the Company and the Rights Agent may deem and treat the person in whose name a Rights Certificate (or, prior to the Distribution Date, the associated Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Rights Certificate or the associated Common Stock certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company, subject to the last sentence of Section 7(e) hereof, nor the Rights Agent shall be required to be affected by any notice to the contrary; and (d) notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental 25 authority, prohibiting or otherwise restraining performance of such obligation; provided, however, the Company must use its best efforts to have any such order, decree or ruling lifted or otherwise overturned as soon as possible. Section 17. Rights Certificate Holder Not Deemed a Shareholder. No holder, as such, of any Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of Units of Series C Preferred Stock or any other securities of the Company that may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights Certificate, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in Section 25 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Rights Certificate shall have been exercised in accordance with the provisions hereof. Section 18. Concerning the Rights Agent. (a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and disbursements and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises. (b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any Rights Certificate or certificate for Common Stock or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, instruction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons. Section 19. Merger or Consolidation or Change of Name of Rights Agent. (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a 26 party, or any corporation succeeding to the corporate trust business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided, however, that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Rights Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of a predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor or in the name of the successor Rights Agent; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person and the determination of "current market price") be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, any Vice-Chairman, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. 27 (c) The Rights Agent shall be liable hereunder only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Rights Certificates or be required to verify the same (except as to its countersignature on such Rights Certificates), but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Rights Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Rights Certificate; nor shall it be responsible for any adjustment required under the provisions of Section 11 or Section 13 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Rights Certificates after actual notice of any such adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Series C Preferred Stock to be issued pursuant to this Agreement or any Rights Certificate or as to whether any shares of Series C Preferred Stock will, when so issued, be duly authorized, validly issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman, the President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer. At any time the Rights Agent may apply to the Company for written instructions with respect to any matter arising in connection with the Rights Agent's duties and obligations arising under this Agreement. Such application by the Rights Agent for written instructions from the Company may, at the option of the Rights Agent, set forth in writing any action proposed to be taken or omitted by the Rights Agent with respect to its duties or obligations under this Agreement and the date on and/or after which such action shall be taken and the Rights Agent shall not be liable for any action taken or omitted in accordance with a proposal included in any such application on or after the date specified therein (which date shall be not less than one Business Day after the Company receives such application, without the Company's consent) unless, prior to taking or initiating any such action, the Rights Agent has 28 received written instructions in response to such application specifying the action to be taken or omitted. (h) The Rights Agent and any shareholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct; provided, however, reasonable care was exercised in the selection and continued employment thereof. (j) No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it. (k) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate attached to the form of assignment or form of election to purchase, as the case may be, has either not been completed or indicates an affirmative response to clause 1 and/or 2 thereof, the Rights Agent shall not take any further action with respect to such requested exercise of transfer without first consulting with the Company. Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days notice in writing mailed to the Company, and to each transfer agent of the Series C Preferred Stock or Common Stock, by registered or certified mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Series C Preferred Stock or Common Stock, by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Rights Certificate (who shall, with such notice, submit his Rights Certificate for inspection by the Company), then any registered 29 holder of any Rights Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be a corporation organized and doing business under the laws of the United States or the Commonwealth of Virginia (or of any other state of the United States so long as such corporation is authorized to do business as a banking institution in the Commonwealth of Virginia), in good standing, having a principal office in the Commonwealth of Virginia, that is authorized under such laws to exercise corporate trust powers and is subject to supervision or examination by federal or state authority and that has at the time of its appointment as Rights Agent a combined capital and surplus of at least $100,000,000. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock, and mail a notice thereof in writing to the registered holders of the Rights Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. Issuance of New Rights Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Rights Certificates made in accordance with the provisions of this Agreement. In addition, the Company may, if deemed necessary or appropriate by the Board of Directors of the Company, issue Rights Certificates representing the appropriate number of Rights in connection with the issuance or sale of shares of Common Stock following the Distribution Date. Section 23. Redemption and Termination. (a) (i).The Company may, at its option, at any time prior to the earlier of (A) the close of business on the tenth day following the Stock Acquisition Date, or (B) the Final Expiration Date, redeem all but not less than all the then outstanding Rights (which shall not include any rights that have become void pursuant to Section 7(e) hereof) at a redemption price of $.001 per Right, as it may be appropriately adjusted by the Board of Directors of the Company to reflect any stock split or combination, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price") and the Company may, at its option, pay the Redemption Price either in shares of Common Stock (based on the current market price (as determined pursuant to Section 11(d) hereof) per share of the Common Stock at the time of redemption) or cash. 30 (ii) In addition, the Board of Directors may redeem all, but not less than all, of the then outstanding Rights at the Redemption Price following the occurrence of a Stock Acquisition Date and following the expiration of the right of redemption hereunder, if either (A)(1) a Person who is an Acquiring Person shall have transferred or otherwise disposed of a number of shares of Common Stock in one transaction or a series of transactions not directly or indirectly involving the Company or any of its Subsidiaries, such that such Person is thereafter a Beneficial Owner of 15% or less of the outstanding shares of Common Stock and (2) there are no other Persons, immediately following the occurrence of the event described in clause (1), who are Acquiring Persons, or (B) in connection with the type of transaction specified in Section 13(a) hereof in which all holders of Common Stock are treated alike and not involving an Acquiring Person or an Affiliate or Associate of an Acquiring Person or any other Person in which such Acquiring Person, Affiliate or Associate has any interest, or any other Person acting directly or indirectly on behalf of or in association with any such Acquiring Person, Affiliate or Associate. Notwithstanding anything contained in this Agreement to the contrary, the Rights shall not be exercisable after the first occurrence of a Triggering Event until such time as the Company's right of redemption hereunder is not exercisable. (b) Immediately upon the action of the Board of Directors of the Company authorizing the redemption of the Rights pursuant to subsection (a) of this Section 23 and without any further action and without any notice, the right to exercise the Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive the Redemption Price for each Right so held. Promptly after the action of the Board of Directors authorizing the redemption of the Rights, the Company shall give notice of such redemption to the Rights Agent and to the holders of such Rights by mailing such notice to all such holders at each holder's last address as it appears upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Stock. Any notice that is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption shall state the method by which the payment of the Redemption Price will be effected. Section 24. Exchange. (a) The Company may, at its option, by resolution of its Board of Directors, at any time after any Person becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to Section 7(e) hereof) for shares of Common Stock at an exchange ratio of one share of Common Stock per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring with respect to the Common Stock after the date hereof (such exchange ratio being hereinafter referred to as the "Exchange Ratio"). 31 (b) Immediately upon the action of the Board of Directors of the Company authorizing the exchange of the Rights pursuant to subsection (a) of this Section 24 and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of a holder of such Rights shall be to receive that number of shares of Common Stock equal to the number of Rights held by such holder multiplied by the Exchange Ratio. Promptly after the action of the Board of Directors authorizing the exchange of the Rights, the Company shall give notice of such exchange to the Rights Agent and to the holders of such Rights by mailing such notice to all such holders at each holder's last address as it appears upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Stock. Any notice that is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the shares of Common Stock for Rights will be effected. (c) In the event that there shall not be sufficient shares of Common Stock authorized but unissued to permit the exchange in full of such Rights in accordance with this Section 24, the Company shall take all such action as may be necessary to authorize additional shares of Common Stock for issuance upon exchange of the Rights. In the event the Company shall, after good faith effort, be unable to take all such action as may be necessary to authorize such additional shares of Common Stock, the Company shall substitute, for each share of Common Stock that would otherwise be issuable upon exchange of a Right, a number of shares of other equity securities of the Company or fraction thereof such that the current per share market price of one share of such other equity securities multiplied by such number or fraction is equal to the current per share market price of one share of Common Stock as of the date of issuance of such shares of such other equity securities or fraction thereof. (d) The Company shall not be required to issue fractions of shares of Common Stock or to distribute certificates that evidence fractional shares of Common Stock. In lieu of such fractional shares of Common Stock, there shall be paid to the registered holders of the Right Certificates with regard to which such fractional shares of Common Stock would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole share of Common Stock. For the purposes of this subsection (d), the current market value of a whole share of Common Stock shall be the closing price of a share of Common Stock (as determined pursuant to Section 11(d) hereof) for the Trading Day immediately prior to the Exchange Date. Section 25. Notice of Certain Events. (a) In case the Company shall propose, at any time after the Distribution Date, (i) to pay any dividend payable in stock of any class to the holders of Series C Preferred Stock or to make any other distribution to the holders of Series C Preferred Stock (other than a regular quarterly cash dividend of the Company in compliance with Section 13.1-653 of the Virginia 32 Stock Corporation Act), or (ii) to offer to the holders of Series C Preferred Stock rights or warrants to subscribe for or to purchase any additional shares of Series C Preferred Stock or shares of stock of any class or any other securities, rights or options, or (iii) to effect any reclassification of its Series C Preferred Stock (other than a reclassification involving only the subdivision of outstanding shares of Series C Preferred Stock), or (iv) to effect any consolidation or merger into or with any other Person (other than a Subsidiary of the Company in a transaction that complies with Section 11(m) hereof), or to effect a statutory share exchange with any Person (other than a Subsidiary of the Company in a transaction that complies with Section 11(m) hereof), or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one transaction or a series of related transactions, of more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than a Subsidiary of the Company in one or more transactions each of which complies with Section 11(m) hereof), or (v) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 26 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the shares of Series C Preferred Stock, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least 20 days prior to the record date for determining holders of the shares of Series C Preferred Stock for purposes of such action, and in the case of any such other action, at least 20 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the shares of Series C Preferred Stock whichever shall be the earlier. (b) In case any Section 11(a)(ii) Event shall occur, then, in any such case, (i) the Company shall as soon as practicable thereafter give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 26 hereof, a notice of the occurrence of such event, which shall specify the event and the consequences of the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all references in the preceding paragraph to Series C Preferred Stock shall be deemed thereafter to refer, if appropriate, not only to Series C Preferred Stock but also to Common Stock or other securities. Section 26. Notices. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Rights Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: United Dominion Realty Trust, Inc. 10 South Sixth Street Richmond, Virginia 23219 Attention: Corporate Secretary 33 Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Rights Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: ChaseMellon Shareholder Services, L.L.C. Overpark Center 85 Challenger Road Ridgefield Park, New Jersey 07660 Attention: Mitzi Brinkman Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Rights Certificate (or, if prior to the Distribution Date, to the holder of certificates representing shares of Common Stock) shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section 27. Supplements and Amendments. Prior to the Distribution Date and subject to the penultimate sentence of this Section 27, the Company may, and the Rights Agent shall, if the Company so directs, supplement or amend any provision of this Agreement without the approval of any holders of certificates representing shares of Common Stock. From and after the Distribution Date and subject to the penultimate sentence of this Section 27, the Company and the Rights Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of any holders of Rights Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement any provision contained herein that may be defective or inconsistent with any other provisions herein, (iii) to shorten or lengthen any time period hereunder, or (iv) to change or supplement the provisions hereunder in any manner that the Company may deem necessary or desirable and that shall not adversely affect the interests of the holders of Rights Certificates (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person); provided, that this Agreement may not be supplemented or amended to lengthen, pursuant to clause (iii) of this sentence, (A) a time period relating to when the Rights may be redeemed at such time as the Rights are not then redeemable, or (B) any other time period unless such lengthening is for the purpose of protecting, enhancing or clarifying the rights of, and/or the benefits to, the holders of Rights. Upon the delivery of a certificate from an appropriate officer of the Company that states that the proposed supplement or amendment is in compliance with the terms of this Section 27, the Rights Agent shall execute such supplement or amendment. No supplement or amendment shall be made that changes the Redemption Price, the Final Expiration Date, the Purchase Price or the number of shares of Common Stock for which a Right is exercisable; provided, however, that at any time prior to the Distribution Date, the Board of Directors of the Company may amend this Agreement to increase the Purchase Price or extend the Final Expiration Date. Prior to the Distribution Date, the interests of the holders of Rights shall be deemed coincident with the interests of the holders of Common Stock. 34 Section 28. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 29. Determinations and Actions by the Board of Directors, etc. For all purposes of this Agreement, any calculation of the number of shares of Common Stock outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding shares of Common Stock of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act. The Board of Directors of the Company shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board, or the Company or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement, and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including a determination to redeem or not redeem the Rights or to amend the Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties, and (y) not subject the Board to any liability to the holders of the Rights. Section 30. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent, the registered holders from time to time of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock) any legal or equitable right, remedy or claim under this Agreement; and this Agreement shall be for the sole and exclusive benefit of the Company and the Persons specified above. Section 31. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated; provided, however, that notwithstanding anything in this Agreement to the contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid, void or unenforceable and the Board of Directors of the Company determines in its good faith judgment that severing the invalid language from this Agreement would adversely affect the purpose or effect of this Agreement, the right of redemption set forth in Section 23 hereof shall be reinstated and shall not expire until the close of business on the tenth day following the date of such determination by the Board of Directors. Section 32. Governing Law. This Agreement, each Right and each Rights Certificate issued hereunder shall be deemed to be a contract made under the laws of the Commonwealth of 35 Virginia and for all purposes shall be governed by and construed in accordance with the laws of such Commonwealth applicable to contracts made and to be performed entirely within such Commonwealth. Section 33. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 34. Descriptive Headings. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 36 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, all as of the day and year first above written. UNITED DOMINION REALTY TRUST, INC. By:_______________________________________ Name:____________________________ Title:___________________________ CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By:_______________________________________ Name:____________________________ Title:___________________________ 37 EXHIBIT A [Form of Rights Certificate] Certificate No. R- _________ Rights NOT EXERCISABLE AFTER FEBRUARY 4, 2008, OR EARLIER IF REDEEMED OR EXCHANGED BY THE COMPANY. THE COMPANY, AT ITS OPTION, MAY REDEEM THE RIGHTS EVIDENCED BY THIS CERTIFICATE AT A REDEMPTION PRICE OF $.01 PER RIGHT OR EXCHANGE THE RIGHTS FOR SHARES OF COMMON STOCK ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR AN ASSOCIATE OF AN ACQUIRING PERSON. ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS AGREEMENT.](1) Rights Certificate This certifies that ________________________________, or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of January 27, 1998 (the "Rights Agreement"), between United Dominion Realty Trust, Inc., a Virginia corporation (the "Company"), and ChaseMellon Shareholder Services, L.L.C., a New Jersey limited liability company (the "Rights Agent"), to purchase from the Company at any time prior to 5:00 P.M. (Richmond, Virginia time) on February 4, 2008 at the office or offices of the Rights Agent designated for such purpose, or its successors as Rights Agent, one one-hundredth of a fully paid, non-assessable share (a "Unit") of Series C Junior Participating Cumulative Redeemable Preferred Stock (the "Series C Preferred Stock") or other securities of the Company, at a purchase price of $45.00 per Unit (the "Purchase Price"), upon presentation and surrender of this Rights Certificate with the Form of Election to Purchase and related Certificate duly executed. (All capitalized terms not defined herein shall have the meaning set forth in the Rights Agreement.) The Purchase Price may be paid in cash or by certified bank check or bank draft payable to the order of the Company. The number of Rights evidenced by this Rights Certificate (and the number of shares which may be purchased upon exercise thereof) set forth above, and the Purchase Price per share set forth above, are the number and Purchase Price as of ______ __, [199_], based on the Series C Preferred Stock as constituted at such date. A-1 As provided in the Rights Agreement, the Purchase Price and the number and kind of shares of Series C Preferred Stock or other securities that may be purchased upon the exercise of the Rights evidenced by this Rights Certificate are subject to modification and adjustment upon the happening of certain events, including Triggering Events. This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Rights Certificates, which limitations of rights include the temporary suspension of the exercisability of such Rights under the specific circumstances set forth in the Rights Agreement. Under certain circumstances specified in Section 7(e) of the Rights Agreement, Rights that are or were owned by an Acquiring Person or an Affiliate or Associate of an Acquiring Person may become null and void and no longer exercisable by any Person (including any subsequent transferee). Copies of the Rights Agreement are on file at the above-mentioned office of the Rights Agent and are also available upon written request to the Rights Agent or the Secretary of the Corporation. This Rights Certificate, with or without other Rights Certificates, upon surrender at the principal office or offices of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of Units of Series C Preferred Stock as the Rights evidenced by the Rights Certificate or Rights Certificates surrendered then entitle such holder to purchase. If this Rights Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Rights Certificate or Rights Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Company, at its option, may redeem the Rights evidenced by this Certificate at a redemption price of $.001 per Right or exchange the Rights for shares of Common Stock. No fractional shares of Series C Preferred Stock will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions that are integral multiples of one one-hundredth of a share of Series C Preferred Stock), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. No holder of this Rights Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of shares of Series C Preferred Stock or of any other securities of the Company that may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or A-2 withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement. This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signatures of the proper officers of the Company and its corporate seal. Dated as of ___________ __, ______ [SEAL] ATTEST: UNITED DOMINION REALTY TRUST, INC. ________________________________ By: ____________________________________ Secretary Title: _____________________________ A-3 Countersigned: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By __________________________ Authorized Signature A-4 [Form of Reverse Side of Rights Certificate] FORM OF ASSIGNMENT - ------------------ (To be executed by the registered holder if such holder desires to transfer the Rights Certificate.) FOR VALUE RECEIVED ________________________ hereby sells, assigns and transfers unto ______________________________________________________________________________ (Please print name and address of transferee) ______________________________________________________________________________ this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _________________________ Attorney, to transfer the within Rights Certificate on the books of the within-named Company, with full power of substitution. Dated: ____________________, ____ ---------------------------------- Signature Signature Guaranteed: A-5 Certificate ----------- The undersigned hereby certifies by checking the appropriate boxes that: (1) this Rights Certificate [ ] is [ ] is not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the Rights Agreement); (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: _______________________, ____ _______________________________ Signature Signature Guaranteed: NOTICE ------ The signature to the foregoing Assignment and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. A-6 FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise Rights represented by the Rights Certificate.) To: UNITED DOMINION REALTY TRUST, INC.: The undersigned hereby irrevocably elects to exercise ____________ Rights represented by this Rights Certificate to purchase the shares of Series C Preferred Stock issuable upon the exercise of the Rights (or such other securities of the Company or of any other person that may be issuable upon the exercise of the Rights) and requests that certificates for such shares (or other securities) be issued in the name of and delivered to: Please insert social security or other identifying number ______________________________________________________________________________ (Please print name and address) ______________________________________________________________________________ If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to: Please insert social security or other identifying number ______________________________________________________________________________ (Please print name and address) ______________________________________________________________________________ (Please print name and address) 1 Date: _______________, ____ -------------------------------- Signature Signature Guaranteed: A-7 Certificate ------------ The undersigned hereby certifies by checking the appropriate boxes that: (1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the Rights Agreement); (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: _______________________, ____ ________________________________ Signature Signature Guaranteed: NOTICE ------ The signature to the foregoing Election to Purchase and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. (1) The bracketed language shall be inserted only if applicable. A-8 Path: DOCSOPEN\RICHMOND\07667\27789\000253\2g6204!.DOC Doc #: 114266; V. 4 Doc Name: udrt rights plan Author: Parks, Randall, 07667 Last Edit: 1/23/98 B-1 EX-4 3 EXHIBIT 4(II)(F) EXHIBIT 4(ii)(f) 364-DAY CREDIT AGREEMENT Dated as of September 16, 1999 among UNITED DOMINION REALTY TRUST, INC., as Borrower, UNITED DOMINION REALTY, L.P. and Certain Other Subsidiaries and Affiliates of the Borrower, as Guarantors, THE LENDERS NAMED HEREIN AND BANK OF AMERICA, N.A., as Administrative Agent and FIRST UNION NATIONAL BANK, as Syndication Agent Arranged by: BANC OF AMERICA SECURITIES LLC, as Sole Lead Arranger and Sole Book Manager TABLE OF CONTENTS SECTION 1 DEFINITIONS..................................................... 1 1.1 Definitions.................................................. 1 1.2 Computation of Time Periods.................................. 20 1.3 Accounting Terms............................................. 20 SECTION 2 CREDIT FACILITIES............................................... 21 2.1 Revolving Loans.............................................. 21 SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES.................. 22 3.1 Default Rate................................................. 22 3.2 Extension and Conversion..................................... 23 3.3 Prepayments.................................................. 23 3.4 Termination and Reduction of Commitments..................... 24 3.5 Fees......................................................... 24 3.6 Capital Adequacy............................................. 24 3.7 Inability To Determine Interest Rate......................... 25 3.8 Illegality................................................... 25 3.9 Requirements of Law.......................................... 25 3.10 Taxes....................................................... 26 3.11 Indemnity................................................... 28 3.12 Pro Rata Treatment.......................................... 28 3.13 Sharing of Payments......................................... 29 3.14 Payments, Computations, Etc................................. 30 3.15 Evidence of Debt............................................ 31 SECTION 4 GUARANTY........................................................ 32 4.1 The Guarantee................................................ 32 4.2 Obligations Unconditional.................................... 32 4.3 Reinstatement................................................ 33 4.4 Certain Additional Waivers................................... 34 4.5 Remedies..................................................... 34 4.6 Rights of Contribution....................................... 34 4.7 Continuing Guarantee......................................... 35 SECTION 5 CONDITIONS...................................................... 35 5.1 Conditions to Closing........................................ 35 5.2 Conditions to All Extensions of Credit....................... 36 SECTION 6 REPRESENTATIONS AND WARRANTIES.................................. 37 6.1 Financial Condition.......................................... 37 6.2 No Material Adverse Changes.................................. 38 6.3 Organization; Existence; Compliance with Law................. 38 6.4 Power; Authorization; Enforceable Obligations................ 38 6.5 No Legal Bar................................................. 38 6.6 No Material Litigation....................................... 39 6.7 No Default................................................... 39 6.8 Ownership of Property; Liens................................. 39 6.9 Taxes........................................................ 39 i 6.10 ERISA....................................................... 39 6.11 Governmental Regulations, Etc............................... 41 6.12 Subsidiaries................................................ 41 6.13 Purpose of Extensions of Credit............................. 42 6.14 Environmental Matters....................................... 42 6.15 Year 2000 Compliance........................................ 43 SECTION 7 AFFIRMATIVE COVENANTS........................................... 43 7.1 Financial Statements......................................... 43 7.2 Certificates; Other Information.............................. 44 7.3 Notices...................................................... 45 7.4 Payment of Obligations....................................... 46 7.5 Conduct of Business and Maintenance of Existence............. 46 7.6 Maintenance of Property; Insurance........................... 46 7.7 Inspection of Property; Books and Records; Discussions....... 47 7.8 Environmental Laws........................................... 47 7.9 Financial Covenants.......................................... 48 7.10 Agency Fees................................................. 49 7.11 Additional Guaranties and Stock Pledges..................... 49 7.12 Ownership of Subsidiaries................................... 49 7.13 Use of Proceeds............................................. 49 7.14 Year 2000 Compliance........................................ 49 SECTION 8 NEGATIVE COVENANTS.............................................. 50 8.1 Limitations on Debt.......................................... 50 8.2 Restriction on Liens......................................... 50 8.3 Consolidations, Mergers and Sales of Assets.................. 51 8.4 Loans and Investments........................................ 52 8.5 Transactions with Affiliates................................. 52 8.6 Transactions with Other Persons regarding this Agreement..... 53 8.7 Limitation on Certain Restrictions on Subsidiaries........... 53 SECTION 9 EVENTS OF DEFAULT............................................... 53 9.1 Events of Default............................................ 53 9.2 Acceleration; Remedies....................................... 56 SECTION 10 AGENCY PROVISIONS.............................................. 56 10.1 Appointment................................................. 56 10.2 Delegation of Duties........................................ 57 10.3 Exculpatory Provisions...................................... 57 10.4 Reliance on Communications.................................. 57 10.5 Notice of Default........................................... 58 10.6 Non-Reliance on Administrative Agent and Other Lenders...... 58 10.7 Indemnification............................................. 59 10.8 Administrative Agent in its Individual Capacity............. 59 10.9 Successor Administrative Agent.............................. 60 SECTION 11 MISCELLANEOUS.................................................. 60 11.1 Notices..................................................... 60 11.2 Right of Set-Off............................................ 61 ii 11.3 Benefit of Agreement........................................ 62 11.4 No Waiver; Remedies Cumulative.............................. 64 11.5 Payment of Expenses, etc.................................... 64 11.6 Amendments, Waivers and Consents............................ 65 11.7 Counterparts................................................ 66 11.8 Headings.................................................... 66 11.9 Survival.................................................... 67 11.10 Governing Law; Submission to Jurisdiction; Venue........... 67 11.11 Severability............................................... 67 11.12 Entirety................................................... 68 11.13 Binding Effect; Termination................................ 68 11.14 Source of Funds............................................ 68 11.15 Conflict................................................... 69 iii SCHEDULES Schedule 2.1(a) Schedule of Lenders and Commitments Schedule 2.1(b)(i) Form of Notice of Borrowing Schedule 2.1(e) Form of Revolving Note Schedule 3.2 Form of Notice of Extension/Conversion Schedule 5.1(e)(v) Officer's Certificate Schedule 6.3 Qualifications Concerning Organization, Existence and Compliance with Law Schedule 6.12 Subsidiaries Schedule 7.2(b) Form of Officer's Compliance Certificate Schedule 7.11 Form of Joinder Agreement Schedule 8.7 REMICs and Other Special Subsidiaries Schedule 11.1 Schedule of Lender's Addresses Schedule 11.3(b) Form of Assignment and Acceptance iv 364-DAY CREDIT AGREEMENT THIS CREDIT AGREEMENT dated as of September 16, 1999 (the "Credit Agreement"), is by and among UNITED DOMINION REALTY TRUST, INC., a Virginia corporation (the "Borrower"), UNITED DOMINION REALTY, L.P., a Virginia limited partnership and the other subsidiaries and affiliates identified on the signature pages hereto and such other subsidiaries and affiliates as may from time to time become Guarantors hereunder in accordance with the provisions hereof (the "Guarantors"), the lenders named herein and such other lenders as may become a party hereto (the "Lenders"), BANK OF AMERICA, N.A., as Administrative Agent (in such capacity, the "Administrative Agent") and FIRST UNION NATIONAL BANK, as Syndication Agent. W I T N E S S E T H WHEREAS, the Borrower has requested that the Lenders provide a $110 million credit facility for the purposes hereinafter set forth; WHEREAS, the Borrower intends to use the credit facility in part to make loans and transfers to certain of its Subsidiaries and Affiliates, including the Guarantors; WHEREAS, the Guarantors acknowledge that establishment of the credit facility inures to the mutual benefit of the Borrower and the Guarantors; WHEREAS, the Lenders have agreed to make the requested credit facility available to the Borrower on the terms and conditions hereinafter set forth; NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1 DEFINITIONS ----------- 1.1 Definitions. As used in this Credit Agreement, the following terms shall have the meanings specified below unless the context otherwise requires: "Additional Credit Party" means each Person that becomes a Guarantor after the Closing Date by execution of a Joinder Agreement. "Administrative Agent" means Bank of America, N.A. and its successors and assigns. 1 "Administrative Agent's Fee Letter" means that certain letter agreement, dated as of September 13, 1999, between the Administrative Agent and the Borrower, as amended, modified, supplemented or replaced from time to time. "Affiliate" means, with respect to any Person, any other Person (i) directly or indirectly controlling or controlled by or under direct or indirect common control with such Person or (ii) directly or indirectly owning or holding five percent (5%) or more of the equity interest in such Person. For purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Aggregate Revolving Committed Amount" means the aggregate amount of Revolving Commitments in effect from time to time, being initially ONE HUNDRED TEN MILLION DOLLARS ($110,000,000). "Applicable Percentage" means for any day, the rate per annum set forth below opposite the applicable rating for the Borrower's senior unsecured (non-credit enhanced) long term debt then in effect, it being understood that the Applicable Percentage for (i) Base Rate Loans shall be the percentage set forth under the column "Base Rate Margin", (ii) Eurodollar Loans shall be the percentage set forth under the column "Eurodollar Margin", and (iii) the Facility Fee shall be the percentage set forth under the column "Facility Fee": Pricing S&P Moody's Eurodollar Base Rate Facility Level Rating Rating Margin Margin Fee ------- ------ ------- ---------- --------- -------- I A- or above A3 or above 0.75% 0% 0.15% II BBB+ Baa1 0.90% 0% 0.20% III BBB Baa2 1.00% 0% 0.20% IV BBB- Baa3 1.10% 0% 0.25% V below BBB- below Baa3 1.60% 0% 0.30% or unrated or unrated The numerical classification set forth under the column "Pricing Level" shall be established based on the better of ratings by S&P and Moody's for the Borrower's senior unsecured (non-credit enhanced) long term debt; provided, however, that if the ratings of S&P and Moody's are two Pricing Levels apart, then the Applicable Percentage shall be based on the Pricing Level that falls between the Pricing Levels that correspond to the ratings of S&P and Moody's. The Applicable Percentage shall be determined and adjusted on the date five (5) Business Days after each change in debt rating. Adjustments in the Applicable Percentage shall be effective as to all Loans, existing and prospective, from the date of adjustment. The Administrative Agent shall promptly notify the Lenders 2 of changes in the Applicable Percentage. Adjustments in the Applicable Percentage shall be effective as to existing Extensions of Credit as well as new Extensions of Credit made thereafter. "Attributable Debt" means, in connection with any Sale-Leaseback Transaction occurring subsequent to the Closing Date, the lesser of (i) the present value, discounted according to GAAP at the debt rate implicit in the related lease, of the obligation of the lessee for rental payments over the remaining term of such lease(including any period for which such lease has been extended or may, at the option of the lessor be extended) and (ii) the fair market value of the assets subject to such Sale-Leaseback Transaction. "Attributed Principal Amount" means, on any day, with respect to any Securitization Transaction entered into by any member of the Consolidated Group, the aggregate amount (with respect to any such transaction, the "Invested Amount") paid to, or borrowed by, such Person as of such date under such Securitization Transaction, minus the aggregate amount received by the applicable Receivables Financier and applied to the reduction of the Invested Amount under such Securitization Transaction. "Bank of America" means Bank of America, N.A. and its successors. "Bankruptcy Code" means the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time. "Bankruptcy Event" means, with respect to any Person, the occurrence of any of the following with respect to such Person: (i) a court or governmental agency having jurisdiction in the premises shall enter a decree or order for relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or ordering the winding up or liquidation of its affairs; or (ii) there shall be commenced against such Person an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or any case, proceeding or other action for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or for the winding up or liquidation of its affairs, and such involuntary case or other case, proceeding or other action shall remain undismissed, undischarged or unbonded for a period of ninety (90) consecutive days; or (iii) such Person shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or make any general assignment for the benefit of creditors; or (iv) such Person shall be unable to, or shall admit in writing its inability to, pay its debts generally as they become due. 3 "Base Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest whole multiple of 1/100 of 1%) equal to the greater of (a) the Federal Funds Rate in effect on such day plus 1/2 of 1% or (b) the Prime Rate in effect on such day. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable after due inquiry to ascertain the Federal Funds Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms hereof, the Base Rate shall be determined without regard to clause (a) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Rate, respectively. "Base Rate Loan" means any Loan bearing interest at a rate determined by reference to the Base Rate. "Borrower" means the Person identified as such in the heading hereof, together with any permitted successors and assigns. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in Charlotte, North Carolina or New York, New York are authorized or required by law to close, except that, when used in connection with a Eurodollar Loan, such day shall also be a day on which dealings between banks are carried on in U.S. dollar deposits in London, England. "Cash Equivalents" means (a) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than twelve months from the date of acquisition, (b) U.S. dollar denominated time deposits and certificates of deposit of (i) any Lender, or (ii) any domestic commercial bank of recognized standing (y) having capital and surplus in excess of $500,000,000 and (z) whose short-term commercial paper rating from S&P is at least A-2 (and not lower than A-3) or the equivalent thereof or from Moody's is at least P-2 (and not lower than P-3) or the equivalent thereof (any such bank being an "Approved Bank"), in each case with maturities of not more than 270 days from the date of acquisition, (c) commercial paper and variable or fixed rate notes issued by any Approved Bank (or by the parent company thereof) or any variable rate notes issued by, or guaranteed by, any domestic corporation rated at least A-2 (and not lower than A-3) or the equivalent thereof by S&P or at least P-2 (and not lower than P-3) or the equivalent by Moody's and maturing within six months of the date of acquisition, (d) repurchase agreements entered into by a Person with a bank or trust company (including any of the Lenders) or recognized securities dealer having capital and surplus in excess of $500,000,000 for direct obligations issued by or fully guaranteed by the United States of America in which such Person shall have a perfected first priority security interest (subject to no other Liens) and having, on the date of purchase thereof, a fair market value of at least 100% of the amount of the repurchase obligations, (e) obligations of any State of the United States or any political subdivision 4 thereof, the interest with respect to which is exempt from federal income taxation under Section 103 of the Internal Revenue Code, having a long term rating of at least AA- or Aa-3 by S&P or Moody's, respectively, and maturing within three years from the date of acquisition thereof, (f) Investments in municipal auction preferred stock (i) rated A- (or the equivalent thereof) or better by S&P or A3 (or the equivalent thereof) or better by Moody's and (ii) with dividends that reset at least once every 365 days and (g) Investments, classified in accordance with GAAP as current assets, in money market investment programs registered under the Investment Borrower Act of 1940, as amended, which are administered by reputable financial institutions having capital of at least $100,000,000 and the portfolios of which are limited to Investments of the character described in the foregoing subdivisions (a) through (f). "Change of Control" means the occurrence of any of the following events: (i) any Person or two or more Persons acting in concert shall have acquired beneficial ownership, directly or indirectly, of, or shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation, will result in its or their acquisition of, control over, voting stock of the Borrower (or other securities convertible into such voting stock) representing 35% or more of the combined voting power of all voting stock of the Borrower, or (ii) during any period of up to 24 consecutive months, commencing after the Closing Date, individuals who at the beginning of such 24 month period were directors of the Borrower (together with any new director whose election by the Borrower's Board of Directors or whose nomination for election by the Borrower's shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors of the Borrower then in office. As used herein, "beneficial ownership" shall have the meaning provided in Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934. "Closing Date" means the date hereof. "Commitment" means the Revolving Commitment. "Commitment Percentage" means the Revolving Commitment Percentage. "Commitment Period" means the period from and including the Closing Date to but not including the earlier of (i) the Termination Date, or (ii) the date on which the Commitments terminate in accordance with the provisions of this Credit Agreement. "Consolidated Adjusted Capitalization" means at any date the sum of (i) Consolidated Funded Debt plus (ii) Consolidated Adjusted Tangible Net Worth. "Consolidated Adjusted EBITDA" means, for any period for the Consolidated Group, the sum of Consolidated EBITDA for such period minus a reserve of $250 per apartment unit for such period. Except as expressly provided otherwise, the applicable 5 period shall be for the four consecutive fiscal quarters ending as of the date of determination. "Consolidated Adjusted Tangible Net Worth" means at any date (i) the sum of (A) the consolidated shareholders' equity of the Consolidated Group plus (B) accumulated depreciation of real estate owned to the extent reflected in the then book value of the Consolidated Assets minus, without duplication, (ii) the sum of (A) the Intangible Assets of the Consolidated Group plus (B) all Restricted Investments (valued at the then book value thereof) of the Consolidated Group plus (C) Minority Interests. "Consolidated Assets" means the assets of the members of the Consolidated Group determined in accordance with GAAP on a consolidated basis. "Consolidated Attributable Debt" means at any date the Attributable Debt of the Consolidated Group, determined on a consolidated basis. "Consolidated EBITDA" means for any period for the Consolidated Group, the sum of Consolidated Net Income plus Consolidated Interest Expense plus all provisions for any Federal, state or other income taxes plus depreciation, amortization and other non-cash charges, in each case on a consolidated basis determined in accordance with GAAP applied on a consistent basis, but excluding in any event gains and losses on Investments and extraordinary gains and losses, and taxes on such excluded gains and tax deductions or credits on account of such excluded losses. Except as expressly provided otherwise, the applicable period shall be for the four consecutive fiscal quarters ending as of the date of determination. "Consolidated Funded Debt" means total Funded Debt of the Consolidated Group on a consolidated basis determined in accordance with GAAP applied on a consistent basis. "Consolidated Group" means the Borrower and its consolidated Subsidiaries, as determined in accordance with GAAP. "Consolidated Interest Coverage Ratio" means, for any period, the ratio of Consolidated Adjusted EBITDA to Consolidated Interest Expense. "Consolidated Interest Expense" means for any period for the Consolidated Group, all interest expense, including the amortization of debt discount and premium, the interest component under capital leases and the implied interest component under Securitization Transactions, in each case on a consolidated basis determined in accordance with GAAP applied on a consistent basis. The applicable period shall be for the four consecutive fiscal quarters ending as of the date of determination. 6 "Consolidated Mortgage Debt" means at any date the Mortgage Debt of the Consolidated Group, determined on a consolidated basis. "Consolidated Net Income" means for any period, the net income of the Consolidated Group on a consolidated basis determined in accordance with GAAP applied on a consistent basis. The applicable period shall be for the four consecutive fiscal quarters ending as of the date of determination. "Consolidated Net Operating Income from Realty" means, for any period for any Realty of the Consolidated Group, an amount equal to (i) the aggregate rental and other income from the operation of such Realty during such period; minus (ii) all expenses and other proper charges incurred in connection with the operation of such Realty (including, without limitation, real estate taxes and bad debt expenses) during such period; but, in any case, before payment of or provision for debt service charges for such period, income taxes for such period, and depreciation, amortization and other non-cash expenses for such period, all on a consolidated basis determined in accordance with GAAP on a consistent basis. "Consolidated Net Operating Income from Unencumbered Realty" means, for any period, an amount equal to (i) the aggregate rental and other income from the operation of Consolidated Unencumbered Realty during such period; minus (ii) all expenses and other proper charges incurred in connection with the operation of Consolidated Unencumbered Realty (including, without limitation, real estate taxes and bad debt expenses) during such period; but, in any case, before payment of or provision for debt service charges for such period, income taxes for such period, and depreciation, amortization and other non-cash expenses for such period, all on a consolidated basis determined in accordance with GAAP on a consistent basis. "Consolidated Net Worth" means total stockholders' equity for the Consolidated Group on a consolidated basis determined in accordance with GAAP applied on a consistent basis. "Consolidated Priority Claims" means at any date the sum (without duplication) of (i) Consolidated Mortgage Debt plus (ii) Consolidated Attributable Debt plus (iii) Consolidated Subsidiary Debt plus (iv) all preferred stock of Subsidiaries not owned by the Borrower and/or one or more of its Wholly-Owned Subsidiaries, valued at the higher of the voluntary or involuntary liquidation preference thereof. "Consolidated Senior Funded Debt" means Consolidated Funded Debt (determined without including Subordinated Funded Debt). "Consolidated Subsidiary Debt" means at any date all Debt of Subsidiaries (exclusive of Debt owed to the Borrower), determined on a consolidated basis. 7 "Consolidated Total Fixed Charge Coverage Ratio" means, for any period, the ratio of Consolidated Adjusted EBITDA to Consolidated Total Fixed Charges. "Consolidated Total Fixed Charges" means, as of the last day of each fiscal quarter for the Consolidated Group, the sum of the cash portion of Consolidated Interest Expense paid in the period of four consecutive fiscal quarters ending on such day plus scheduled maturities of Consolidated Funded Debt (excluding the amount by which a final installment exceeds the next preceding principal installment thereon) in the period of four consecutive fiscal quarters ending on such day plus all cash dividends and distributions on preferred stock or other preferred beneficial interests of members of the Consolidated Group paid in the period of four consecutive fiscal quarters ending on such day, all on a consolidated basis determined in accordance with GAAP on a consistent basis. "Consolidated Total Realty" means, for the Consolidated Group on a consolidated basis, the undepreciated cost of all Realty, whether improved or not. "Consolidated Unencumbered Interest Coverage Ratio" means, for any period, the ratio of (i) Consolidated Net Operating Income from Consolidated Unencumbered Realty to (ii) Consolidated Interest Expense relating to Consolidated Unsecured Debt. "Consolidated Unencumbered Realty" means, for the Consolidated Group on a consolidated basis, all Realty which is not encumbered by a Lien securing Funded Debt. "Consolidated Unimproved Realty" means, for the Consolidated Group on a consolidated basis, the undepreciated cost of all raw unimproved land held for current or future development. For purposes hereof, property under development where construction and development is in progress shall not be considered to be unimproved to the extent that completed buildings are available for rent and are at least 75% leased. In such case, the undepreciated cost of the completed building(s) together with a proportionate cost of the related land and land improvements shall be considered as improved for purposes hereof. "Consolidated Unsecured Debt" means, for the Consolidated Group on a consolidated basis, all unsecured Consolidated Funded Debt. "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any material agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Credit Documents" means a collective reference to this Credit Agreement, the Notes, each Joinder Agreement, the Administrative Agent's Fee Letter, and all other related agreements and documents issued or delivered hereunder or thereunder or pursuant hereto or thereto. 8 "Credit Party" means any of the Borrower and the Guarantors. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable arising in the ordinary course of business), (iv) all obligations of such Person as lessee under capital leases, (v) all obligations of such Person to purchase securities or other property which arise out of or in connection with the sale of the same or substantially similar securities or property, (vi) all obligations of such Person to reimburse any bank or other person in respect of amounts payable under a letter of credit or similar instrument (being the amount available to be drawn thereunder, whether or not then drawn), (vii) all obligations of others secured by a Lien on any asset of such Person, whether or not such obligation is assumed by such Person, (viii) all obligations of others Guaranteed by such Person, (ix) all obligations which in accordance with GAAP would be shown as liabilities on a balance sheet of such Person, (x) the Attributed Principal Amount under any Securitization Transaction and (xi) all obligations of such Person owing under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product to which such Person is a party, where such transaction is considered borrowed money indebtedness for tax purposes, but is classified as an operating lease in accordance with GAAP. Debt of any Person shall include Debt of any partnership or joint venture in such Person is a general partner or joint venturer to the extent of recourse to such Person for payment thereof. "Default" means any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Defaulting Lender" means, at any time, any Lender that, at such time, (i) has failed to make an Extension of Credit required pursuant to the terms of this Credit Agreement, (ii) has failed to pay to the Administrative Agent or any Lender an amount owed by such Lender pursuant to the terms of the Credit Agreement or any other of the Credit Documents, or (iii) has been deemed insolvent or has become subject to a bankruptcy or insolvency proceeding or to a receiver, trustee or similar proceeding. "Dollars" and "$" means dollars in lawful currency of the United States of America. "Domestic Credit Party" means any Credit Party which is incorporated or organized under the laws of any State of the United States or the District of Columbia. "Domestic Subsidiary" means any Subsidiary which is incorporated or organized under the laws of any State of the United States or the District of Columbia. "Eligible Assignee" means (i) a Lender; (ii) an affiliate of a Lender; and (iii) any other commercial bank, financial institution, institutional lender or "accredited investor" (as defined in Regulation D of the Securities and Exchange Commission) with (i) total assets of 9 at least $25 billion, (ii) a long term unsecured debt rating of BBB+ or better from S&P or its equivalent and (iii) an office in the United States. Neither the Borrower nor an Affiliate of the Borrower shall qualify as an Eligible Assignee. "Environmental Laws" means any and all lawful and applicable Federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. "Equity Transaction" means, with respect to any member of the Consolidated Group, any issuance of shares of its capital stock or other equity interest, other than an issuance (i) to a member of the Consolidated Group or (ii) in connection with exercise by a present or former employee, officer or director under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto, as interpreted by the rules and regulations thereunder, all as the same may be in effect from time to time. References to sections of ERISA shall be construed also to refer to any successor sections. "ERISA Affiliate" means an entity which is under common control with any Credit Party within the meaning of Section 4001(a)(14) of ERISA, or is a member of a group which includes the Borrower and which is treated as a single employer under Sections 414(b) or (c) of the Internal Revenue Code. "ERISA Event" means (i) with respect to any Plan, the occurrence of a Reportable Event or the substantial cessation of operations (within the meaning of Section 4062(e) of ERISA); (ii) the withdrawal by the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a substantial employer (as such term is defined in Section 4001(a)(2) of ERISA), or the termination of a Multiple Employer Plan; (iii) the distribution of a notice of intent to terminate or the actual termination of a Plan pursuant to Section 4041(a)(2) or 4041A of ERISA; (iv) the institution of proceedings to terminate or the actual termination of a Plan by the PBGC under Section 4042 of ERISA; (v) any event or condition which could reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan; (vi) the complete or partial withdrawal of the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate from a Multiemployer Plan; (vii) the conditions for imposition of a lien under Section 302(f) of ERISA exist with respect to any Plan; or (vii) the adoption of an amendment to any Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA. 10 "Eurodollar Loan" means any Loan bearing interest at a rate determined by reference to the Eurodollar Rate. "Eurodollar Rate" means, for the Interest Period for each Eurodollar Loan comprising part of the same borrowing (including conversions, extensions and renewals), a per annum interest rate determined pursuant to the following formula: Eurodollar Rate = Interbank Offered Rate ----------------------------------- 1 - Eurodollar Reserve Percentage "Eurodollar Reserve Percentage" means for any day, that percentage (expressed as a decimal) which is in effect from time to time under Regulation D as the maximum reserve requirement (including, without limitation, any basic, supplemental, emergency, special, or marginal reserves) applicable with respect to Eurocurrency liabilities as that term is defined in Regulation D (or against any other category of liabilities that includes deposits by reference to which the interest rate of Eurodollar Loans is determined), whether or not Lender has any Eurocurrency liabilities subject to such reserve requirement at that time. Eurodollar Loans shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to reserve requirements without benefits of credits for proration, exceptions or offsets that may be available from time to time to a Lender. The Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Percentage. "Event of Default" means such term as defined in Section 9.1. "Extension of Credit" means, as to any Lender, the making of, or participation in, a Loan by such Lender. "Facility Fee" shall have the meaning given such term in Section 3.5(a). "Fees" means all fees payable pursuant to Section 3.5. "Federal Funds Rate" means, for any day, the rate of interest per annum (rounded upwards, if necessary, to the nearest whole multiple of 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (A) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day and (B) if no such rate is so published on such next preceding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to the Administrative Agent on such day on such transactions as determined by the Administrative Agent. 11 "Foreign Credit Party" means a Credit Party which is not a Domestic Credit Party. "Foreign Subsidiary" means a Subsidiary which is not a Domestic Subsidiary. "Funded Debt" means at any date, with respect to any Person, without duplication, all Debt of such Person. "Funds From Operations" for any period, with respect to any Person, shall have the meaning given to such term in, and shall be calculated in accordance with, the "white paper" issued in March 1995 by the National Association of Real Estate Investment Trusts. "GAAP" means generally accepted accounting principles in the United States applied on a consistent basis and subject to the terms of Section 1.3 hereof. "Governmental Authority" means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "Guarantee" by any Person, means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guaranteed Obligations" means, as to each Guarantor, without duplication, all obligations of the Borrower to the Lenders and the Administrative Agent, whenever arising, under this Credit Agreement, the Notes or the Credit Documents (including interest accruing after a Bankruptcy Event, regardless of whether such interest is allowed as a claim under the Bankruptcy Code). "Guarantor" means each of those Persons identified as a "Guarantor" on the signature pages hereto, and each other Person which may hereafter become a Guarantor by execution of a Joinder Agreement, together with their successors and permitted assigns. "Intangible Assets" of any Person means at any date the amount of (i) all write-ups (other than write-ups resulting from write-ups of assets of a going concern business made within twelve months after the acquisition of such business) in the book value of any asset owned by such Person and (ii) all unamortized debt discount and expense, 12 unamortized deferred charges, capitalized start-up costs, goodwill, patents, licenses, trademarks, trade names, copyrights, organization or developmental expenses, covenants not to compete and other intangible items. "Interbank Offered Rate" means, for the Interest Period for each Eurodollar Loan comprising part of the same borrowing (including conversions, extensions and renewals), a per annum interest rate (rounded upwards, if necessary, to the nearest whole multiple of 1/100 of 1%) equal to the rate of interest, determined by the Administrative Agent on the basis of the offered rates for deposits in dollars for a period of time corresponding to such Interest Period (and commencing on the first day of such Interest Period), appearing on Telerate Page 3750 (or, if, for any reason, Telerate Page 3750 is not available, the Reuters Screen LIBO Page) as of approximately 11:00 A.M. (London time) two (2) Business Days before the first day of such Interest Period. As used herein, "Telerate Page 3750" means the display designated as page 3750 by Dow Jones Telerate, Inc. (or such other page as may replace such page on that service for the purpose of displaying the British Bankers Association London interbank offered rates) and "Reuters Screen LIBO Page" means the display designated as page "LIBO" on the Reuters Monitor Money Rates Service (or such other page as may replace the LIBO page on that service for the purpose of displaying London interbank offered rates of major banks). "Interest Payment Date" means (i) as to any Base Rate Loan, the last day of each March, June, September and December and the Termination Date and (ii) as to any Eurodollar Loan, the last day of each Interest Period for such Loan, the date of repayment of principal of such Loan and the Termination Date, and in addition where the applicable Interest Period is more than three months, then also the date three months from the beginning of the Interest Period, and each three months thereafter. If an Interest Payment Date falls on a date which is not a Business Day, such Interest Payment Date shall be deemed to be the next succeeding Business Day. "Interest Period" means as to any Eurodollar Loan, a period of one, two, three or six month's duration, as the Borrower may elect, commencing in each case, on the date of the borrowing (including conversions, extensions and renewals); provided, however, (A) if any Interest Period would end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day (except where the next succeeding Business Day falls in the next succeeding calendar month, then such Interest Period shall end on the next preceding Business Day), (B) no Interest Period shall extend beyond the Termination Date, and (C) where an Interest Period begins on a day for which there is no numerically corresponding day in the calendar month in which the Interest Period is to end, such Interest Period shall end on the last day of such calendar month. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, and any successor statute thereto, as interpreted by the rules and regulations issued thereunder, in each case as in effect from time to time. References to sections of the Internal Revenue Code shall be construed also to refer to any successor sections. 13 "Invested Amount" shall have the meaning given such term in the definition of Attributed Principal Amount. "Investment", in any Person, means any loan or advance to such Person, any purchase or other acquisition of any capital stock, warrants, rights, options, obligations or other securities of, or equity interest in, such Person, any capital contribution to such Person or any other investment in such Person, including, without limitation, any Guaranty Obligation incurred for the benefit of such Person. "Joinder Agreement" means a Joinder Agreement substantially in the form of Schedule 7.11 hereto, executed and delivered by an Additional Credit Party in accordance with the provisions of Section 7.11. "Lenders" means each of the Persons identified as a "Lender" on the signature pages hereto, and their successors and assigns. "Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, encumbrance, lien (statutory or otherwise), preference, priority or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the Uniform Commercial Code as adopted and in effect in the relevant jurisdiction or other similar recording or notice statute, and any lease in the nature thereof). "Loan" or "Loans" means the Revolving Loans. "Material Adverse Effect" means a material adverse effect on (i) the condition (financial or otherwise), operations, business, assets, liabilities or prospects of the Consolidated Group taken as a whole, (ii) the ability of the Credit Parties taken as a whole to perform any material obligation under the Credit Documents to which they are parties or (iii) the rights and remedies of the Lenders or the Borrower under the Credit Documents. "Materials of Environmental Concern" means any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Laws, including, without limitation, polychlorinated biphenyls and urea-formaldehyde insulation. "Minority Interests" means any shares of stock of any class of a Subsidiary (other than directors' qualifying shares as required by law) that are not owned by the Borrower and/or one or more Wholly-Owned Subsidiaries. Minority Interests constituting preferred stock shall be valued at the voluntary or involuntary liquidation value of such preferred stock, whichever is greater, and by valuing common stock at the book value of the capitalized surplus applicable thereto adjusted, if necessary, to reflect any changes from the book value of such common stock required by the foregoing method of valuing Minority Interests in preferred stock. 14 "Moody's" means Moody's Investors Service, Inc., or any successor or assignee of the business of such Borrower in the business of rating securities. "Mortgage Debt" of any Person means at any date the aggregate principal amount of all Debt of such Person secured by a Lien on any real property owned or leased by it. "Multiemployer Plan" means a Plan which is a multiemployer plan as defined in Sections 3(37) or 4001(a)(3) of ERISA. "Multiple Employer Plan" means a Plan which the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate and at least one employer other than the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate are contributing sponsors. "Non-Excluded Taxes" means such term as is defined in Section 3.10. "Note" or "Notes" means any Revolving Note. "Notice of Borrowing" means a written notice of borrowing in substantially the form of Schedule 2.1(b)(i), as required by Section 2.1(b)(i). "Notice of Extension/Conversion" means the written notice of extension or conversion in substantially the form of Schedule 3.2, as required by Section 3.2. "Operating Partnership" means United Dominion Realty, L.P., together with any permitted successors and assigns. "Participation Interest" means the purchase by a Lender of a participation in Loans as provided in Section 3.13. "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA and any successor thereof. "Permitted Investments" means Investments which are either (i) cash and Cash Equivalents; (ii) Investments consisting of stock, obligations, securities or other property received in settlement of accounts receivable (created in the ordinary course of business) from bankrupt obligors; (iii) acquisitions permitted by Section 8.3; (iv) Investments by a member of the Consolidated Group or an Affiliate of a member of the Consolidated Group in connection with a Permitted Securitization Transaction; (v) Investments by a member of the Consolidated Group in and to a Credit Party; and (vi) Investments permitted by Section 8.4(b) or (c). "Permitted Securitization Transaction" means any Securitization Transaction which (i) the structure and documentation for such Securitization Transaction are reasonably satisfactory to the Administrative Agent and the Required Lenders, (ii) the terms of such 15 Securitization Transaction, including the discount applicable to the Receivables which are subject of such financing and any termination events, are (in the good faith understanding of the Administrative Agent and the Required Lenders) consistent with those prevailing in the market at the time of commitment thereto for similar transactions involving a receivables originator/servicer of similar credit quality and a receivables pool or other similar characteristics and (iii) the documentation for such Securitization Transaction shall not be amended or modified in any manner which is materially adverse to the interests of the Lenders without the prior written consent of the Administrative Agent and the Required Lenders. "Person" means any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise (whether or not incorporated) or any Governmental Authority. "Plan" means any employee benefit plan (as defined in Section 3(3) of ERISA) which is covered by ERISA and with respect to which the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" within the meaning of Section 3(5) of ERISA. "Prime Rate" means the rate of interest per annum publicly announced from time to time by Bank of America as its prime rate in effect at its principal office in Charlotte, North Carolina, with each change in the Prime Rate being effective on the date such change is publicly announced as effective (it being understood and agreed that the Prime Rate is a reference rate used by Bank of America in determining interest rates on certain loans and is not intended to be the lowest rate of interest charged on any extension of credit by Bank of America to any debtor). "Pro Forma Basis" means, with respect to any transaction, that such transaction shall be deemed to have occurred as of the first day of the four fiscal-quarter period ending as of the most recent fiscal quarter end preceding the date of such transaction with respect to which the Administrative Agent and the Lenders have received the officer's certificate in accordance with the provisions of Section 7.2(b). As used herein, "transaction" means and includes (i) any corporate merger or consolidation as referred to in Section 8.3(a), and (ii) any acquisition of capital stock or securities or any purchase, lease or other acquisition of property as referred to in Section 8.3(c). "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Realty" means all real property and interests therein, together with all improvements thereon. "Receivables" means any right of payment from or on behalf of any obligor, whether constituting an account, chattel paper, instrument, general intangible or 16 otherwise, arising from the sale or financing by a member of the Consolidated Group or merchandise or services, and monies due thereunder, security in the merchandise and services financed thereby, records related thereto, and the right to payment of any interest or finance charges and other obligations with respect thereto, proceeds from claims on insurance policies related thereto, any other proceeds related thereto, and any other related rights. "Receivables Financier" means, in connection with a Securitization Transaction, the Person which provides financing for such transaction whether by purchase, loan or otherwise in respect of Receivables. "Register" shall have the meaning given such term in Section 11.3(c). "Regulation D, T, U, or X" means Regulation D, T, U or X, respectively, of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "REIT" means a real estate investment trust as defined in Sections 856-860 of the Internal Revenue Code. "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment (including the abandonment or discarding of barrels, containers and other closed receptacles containing any Materials of Environmental Concern). "Reportable Event" means any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the notice requirement has been waived by regulation. "Required Lenders" means Lenders having, at the time of determination thereof, more than sixty six and two-thirds percent (66 2/3%) of the Commitments, or if the Commitments have been terminated, Lenders having, at the time of determination thereof, more than sixty six and two-thirds percent (66 2/3%) of the aggregate principal amount of the Loans outstanding (taking into account in each case Participation Interests or obligation to participate therein); provided that the Commitments of, and outstanding principal amount of Loans (taking into account Participation Interests therein) owing to, a Defaulting Lender shall be excluded for purposes hereof in making a determination of Required Lenders. "Requirement of Law" means, as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its material property is subject. 17 "Responsible Officer" means the Chief Financial Officer, the Controller, the Senior Vice President of Finance or the Treasurer. "Restricted Investments" means Investments, including loans and advances, other than Permitted Investments. "Revolving Commitment" means, with respect to each Lender, the commitment of such Lender to make Revolving Loans in an aggregate principal amount at any time outstanding of up to such Lender's Revolving Commitment as specified in Schedule 2.1(a), as such amount may be reduced from time to time in accordance with the provisions hereof. "Revolving Commitment Percentage" means, for each Lender, a fraction (expressed as a decimal) the numerator of which is the Revolving Commitment of such Lender at such time and the denominator of which is the Aggregate Revolving Committed Amount at such time. The initial Revolving Commitment Percentage of each Lender is set out on Schedule 2.1(a). "Revolving Committed Amount" means, for each Lender, the amount of such Lender's Revolving Commitment at such time. The initial Revolving Committed Amount of each Lender is set out on Schedule 2.1(a). "Revolving Loans" shall have the meaning assigned to such term in Section 2.1(a). "Revolving Note" or "Revolving Notes" means the promissory notes of the Borrower in favor of each of the Lenders evidencing the Revolving Loans in substantially the form attached as Schedule 2.1(e), individually or collectively, as appropriate, as such promissory notes may be amended, modified, supplemented, extended, renewed or replaced from time to time. "S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill, Inc., or any successor or assignee of the business of such division in the business of rating securities. "Sale-Leaseback Transaction" means any arrangement with any Person (other than the Borrower or a Wholly-Owned Subsidiary or the Operating Partnership) providing for the leasing by the Borrower or any Subsidiary (as tenant) of real or personal property which has been or is to be sold or transferred by the Borrower or such Subsidiary to such Person or to any Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Borrower or such Subsidiary. "Securitization Subsidiary" shall have the meaning provided in the definition of "Securitization Transaction". "Securitization Transaction" means any financing transaction or series of financing transactions that have been or may be entered into by a member of the 18 Consolidated Group pursuant to which such member of the Consolidated Group may sell, convey or otherwise transfer to (i) a Subsidiary or affiliate (a "Securitization Subsidiary"), or (ii) any other Person, or may grant a security interest in, any Receivables or interests therein secured by merchandise or services financed thereby (whether such Receivables are then existing or arising in the future) of such member of the Consolidated Group, and any assets related thereto, including without limitation, all security interests in merchandise or services financed thereby, the proceeds of such Receivables, and other assets which are customarily sold or in respect of which security interests are customarily granted in connection with securitization transactions involving such assets. "Single Employer Plan" means any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan or a Multiple Employer Plan. "Subordinated Debt" means any Debt which by its terms is specifically subordinated in right of payment to the prior payment of the obligations of the Credit Parties under this Credit Agreement and the other Credit Documents on terms and conditions satisfactory to the Required Lenders. "Subordinated Funded Debt" means at any date all unsecured Funded Debt (i) no part of the principal of which is required to be paid (whether by way of mandatory sinking fund, mandatory redemption or otherwise) prior to the payment in full of the Loans hereunder and (ii) the payment of the principal of and interest on which, and any other obligations to the holder of such Debt, is subordinated to the prior payment in full of the Loans hereunder (including interest accruing after the date of commencement of any proceeding under any bankruptcy, insolvency, or similar law in which such Person is a debtor). "Subsidiary" means as to any Person, any corporation, partnership, limited liability company or other entity of which securities or other ownership interest having an ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person. Unless otherwise provided, references to a "Subsidiary" or "Subsidiaries" shall mean a Subsidiary or Subsidiaries of the Borrower. "Tangible Fair Market Value of Assets" means, as of any date for the Consolidated Group, the sum (without duplication) of (a) with respect to any Realty owned by a member of the Consolidated Group for six months or more, (i) the sum of (A) Consolidated Net Operating Income for such Realty for the fiscal quarter most recently ended multiplied by four, minus (B) a reserve of $250 per apartment unit, divided by (ii) 9.50%, plus (b) with respect to any Realty owned by a member of the Consolidated Group for six months or less, the actual cost of such Realty, plus (c) with respect to any Realty currently under development, the sum of (i) one hundred percent (100%) of the GAAP value of the land associated with such Realty plus (ii) an amount equal to 25% of the actual expenditures for improvements on such land (up to, in the aggregate for all Realty currently under development, ten percent (10%) of the sum of clauses (a), (b), (d) and (e) 19 of this definition), plus (d) cash and Cash Equivalents, in each case on a consolidated basis determined in accordance with GAAP applied on a consistent basis, plus (e) one hundred percent (100%) of the GAAP value of all land contributed to or otherwise invested in joint ventures. "Termination Date" means August 4, 2000, or if extended with the written consent of each of the Lenders, such later date not more than 364 days following the then applicable Termination Date. "Three Year Credit Agreement" means that Three Year Credit Agreement dated as of August 4, 1997, as amended and modified from time to time, among the Borrower, the Guarantors and Lenders identified therein and Bank of America, N.A., a national banking association formerly known as NationsBank, N.A., as Administrative Agent. "Wholly-Owned Subsidiary" means as to any Person, any Subsidiary all of the voting stock or other similar voting interests are owned directly or indirectly by such Person. Unless otherwise provided, references to "Wholly-Owned Subsidiary" shall mean Wholly-Owned Subsidiaries of the Borrower. 1.2 Computation of Time Periods. For purposes of computation of periods of time hereunder, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." 1.3 Accounting Terms. Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lenders hereunder shall be prepared, in accordance with GAAP applied on a consistent basis. Financial statements, certificates and reports delivered hereunder shall be accompanied by a description of any changes in application of accounting principles and an estimation of the effects thereof. All calculations made for the purposes of determining compliance with this Credit Agreement shall (except as otherwise expressly provided herein) be made by application of GAAP applied on a basis consistent with the most recent annual or quarterly financial statements delivered pursuant to Section 7.1 hereof (or, prior to the delivery of the first financial statements pursuant to Section 7.1 hereof, consistent with the annual audited financial statements referenced in Section 6.1(i) hereof); provided, however, if (a) the Borrower shall object to determining such compliance on such basis at the time of delivery of such financial statements due to any change in GAAP or the rules promulgated with respect thereto or (b) the Administrative Agent or the Required Lenders shall so object in writing within 30 days after delivery of such financial statements, then in either case such calculations shall be made on a basis consistent with the most recent financial statements delivered by the Borrower to the Lenders as to which no such objection shall have been made. 20 SECTION 2 CREDIT FACILITIES 2.1 Revolving Loans. (a) Revolving Commitment. During the Commitment Period, subject to the terms and conditions hereof, each Lender severally agrees to make revolving credit loans (the "Revolving Loans") to the Borrower from time to time in the amount of such Lender's Revolving Commitment Percentage of such Revolving Loans for the purposes hereinafter set forth; provided that (i) with regard to the Lenders collectively, the aggregate principal amount of Loans outstanding at any time shall not exceed the Aggregate Revolving Committed Amount, and (ii) with regard to each Lender individually, such Lender's Revolving Commitment Percentage of Loans outstanding at any time shall not exceed such Lender's Revolving Committed Amount. Revolving Loans may consist of Base Rate Loans or Eurodollar Loans, or a combination thereof, as the Borrower may request, and may be repaid and reborrowed in accordance with the provisions hereof. (b) Revolving Loan Borrowings. (i) Notice of Borrowing. The Borrower shall request a Revolving Loan borrowing by written notice (or telephone notice promptly confirmed in writing) to the Administrative Agent not later than 11:00 A.M. (Charlotte, North Carolina time) on the Business Day prior to the date of the requested borrowing in the case of Base Rate Loans, and on the third Business Day prior to the date of the requested borrowing in the case of Eurodollar Loans. Each such request for borrowing shall be irrevocable and shall specify (A) that a Revolving Loan is requested, (B) the date of the requested borrowing (which shall be a Business Day), (C) the aggregate principal amount to be borrowed, and (D) whether the borrowing shall be comprised of Base Rate Loans, Eurodollar Loans or a combination thereof, and if Eurodollar Loans are requested, the Interest Period(s) therefor. If the Borrower shall fail to specify in any such Notice of Borrowing (I) an applicable Interest Period in the case of a Eurodollar Loan, then such notice shall be deemed to be a request for an Interest Period of one month, or (II) the type of Revolving Loan requested, then such notice shall be deemed to be a request for a Eurodollar Loan with an Interest Period of one month. The Administrative Agent shall give notice to each Lender promptly upon receipt of each Notice of Borrowing pursuant to this Section 2.1(b)(i), the contents thereof and each such Lender's share of any borrowing to be made pursuant thereto. (ii) Minimum Amounts. Each Revolving Loan shall be in a minimum aggregate principal amount of $5,000,000, in the case of Eurodollar Loans, or $1,000,000 (or the remaining Aggregate Revolving Committed Amount, if less), in the case of Base Rate Loans, and integral multiples of $1,000,000 in excess thereof. (iii) Advances. Each Lender will make its Revolving Commitment Percentage of each Revolving Loan borrowing available to the Administrative Agent for the account of the Borrower as specified in Section 3.14(a), or in such other manner as the 21 Administrative Agent may specify in writing, by 2:30 P.M. (Charlotte, North Carolina time) on the date specified in the applicable Notice of Borrowing in Dollars and in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent by crediting the account of the Borrower on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent. (c) Repayment. The principal amount of all Revolving Loans shall be due and payable in full on the Termination Date. (d) Interest. Subject to the provisions of Section 3.1, (i) Base Rate Loans. During such periods as Revolving Loans shall be comprised in whole or in part of Base Rate Loans, such Base Rate Loans shall bear interest at a per annum rate equal to the Base Rate plus the Applicable Percentage; (ii) Eurodollar Loans. During such periods as Revolving Loans shall be comprised in whole or in part of Eurodollar Loans, such Eurodollar Loans shall bear interest at a per annum rate equal to the Eurodollar Rate plus the Applicable Percentage. Interest on Revolving Loans shall be payable in arrears on each applicable Interest Payment Date (or at such other times as may be specified herein). (e) Revolving Notes. The Revolving Loans shall be evidenced by a duly executed Revolving Note in favor of each Lender. (f) Maximum Number of Eurodollar Loans. The Borrower will be limited to a maximum number of ten (10) Eurodollar Loans outstanding at any time. For purposes hereof, Eurodollar Loans with separate or different Interest Periods will be considered as separate Eurodollar Loans even if their Interest Periods expire on the same date. SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES 3.1 Default Rate. Upon the occurrence, and during the continuance, of an Event of Default, the principal of and, to the extent permitted by law, interest on the Loans and any other amounts owing hereunder or under the other Credit Documents shall bear interest, payable on demand, at a per annum rate 2% greater than the rate which would otherwise be applicable (or if no rate is applicable, whether in respect of interest, fees or other amounts, then 2% greater than the Base Rate). 22 3.2 Extension and Conversion. Subject to the terms of Section 5.2, the Borrower shall have the option, on any Business Day, to extend existing Loans into a subsequent permissible Interest Period or to convert Loans into Loans of another interest rate type; provided, however, that (i) except as provided in Section 3.8, Eurodollar Loans may be converted into Base Rate Loans only on the last day of the Interest Period applicable thereto, (ii) Eurodollar Loans may be extended, and Base Rate Loans may be converted into Eurodollar Loans, only if no Default or Event of Default is in existence on the date of extension or conversion, (iii) Loans extended as, or converted into, Eurodollar Loans shall be subject to the terms of the definition of "Interest Period" set forth in Section 1.1 and shall be in such minimum amounts as provided in Section 2.1(b)(ii) , and (iv) any request for extension or conversion of a Eurodollar Loan which shall fail to specify an Interest Period shall be deemed to be a request for an Interest Period of one month. Each such extension or conversion shall be effected by the Borrower by giving a Notice of Extension/Conversion (or telephone notice promptly confirmed in writing) to the Administrative Agent prior to 11:00 A.M. (Charlotte, North Carolina time) on the Business Day of, in the case of the conversion of a Eurodollar Loan into a Base Rate Loan, and on the third Business Day prior to, in the case of the extension of a Eurodollar Loan as, or conversion of a Base Rate Loan into, a Eurodollar Loan, the date of the proposed extension or conversion, specifying the date of the proposed extension or conversion, the Loans to be so extended or converted, the types of Loans into which such Loans are to be converted and, if appropriate, the applicable Interest Periods with respect thereto. Each request for extension or conversion shall be irrevocable and shall constitute a representation and warranty by the Borrower of the matters specified in subsections (a) through (e) of Section 5.2. In the event the Borrower fails to request extension or conversion of any Eurodollar Loan in accordance with this Section, or any such conversion or extension is not permitted or required by this Section, then such Eurodollar Loan shall be automatically converted into a Base Rate Loan at the end of the Interest Period applicable thereto. The Administrative Agent shall give each Lender notice as promptly as practicable of any such proposed extension or conversion affecting any Loan. 3.3 Prepayments. (a) Voluntary Prepayments. Revolving Loans may be repaid in whole or in part without premium or penalty; provided that (i) Eurodollar Loans may be prepaid only upon three (3) Business Days' prior written notice to the Administrative Agent and must be accompanied by payment of any amounts owing under Section 3.11, and (ii) partial prepayments shall be minimum principal amounts of $5,000,000, in the case of Eurodollar Loans, and $1,000,000, in the case of Base Rate Loans, and in integral multiples of $1,000,000 in excess thereof. (b) Mandatory Prepayments. If at any time, the aggregate principal amount of Loans shall exceed the Aggregate Revolving Committed Amount, the Borrower shall immediately make payment on the Loans in an amount sufficient to eliminate the excess. (c) Application. Unless otherwise specified by the Borrower, prepayments made hereunder shall be applied first to Revolving Loans which are Base Rate Loans, then to 23 Revolving Loans which are Eurodollar Loans in direct order of Interest Period maturities. Amounts prepaid hereunder may be reborrowed in accordance with the provisions hereof. 3.4 Termination and Reduction of Commitments (a) Voluntary Reductions. The Revolving Commitments may be terminated or permanently reduced in whole or in part by the Borrower upon three (3) Business Days' prior written notice to the Administrative Agent, provided that (i) after giving effect to any voluntary reduction the aggregate amount of Loans shall not exceed the Aggregate Revolving Committed Amount, as reduced, and (ii) partial reductions shall be minimum principal amount of $5,000,000, and in integral multiples of $1,000,000 in excess thereof. (b) Mandatory Reduction. The Commitments hereunder shall terminate on the Termination Date. 3.5 Fees. (a) Facility Fee. In consideration of the Commitments hereunder, the Borrower agrees to pay to the Administrative Agent for the ratable benefit of the Lenders a facility fee (the "Facility Fee") equal to the Applicable Percentage per annum on the average daily Aggregate Revolving Committed Amount for the applicable period. The Facility Fee shall be payable quarterly in arrears on the 15th day following the last day of each calendar quarter for the immediately preceding quarter (or portion thereof) beginning with the first such date to occur after the Closing Date. (b) Administrative Fees. The Borrower agrees to pay to the Administrative Agent, for its own account, an annual administrative fee and such other fees, if any, referred to in the Administrative Agent's Fee Letter. 3.6 Capital Adequacy. If any Lender has determined, after the date hereof, that the adoption or the becoming effective of, or any change in, or any change by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof in the interpretation or administration of, any applicable law, rule or regulation regarding capital adequacy, or compliance by such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's capital or assets as a consequence of its commitments or obligations hereunder to a level below that which such Lender could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy), then, upon notice from such Lender to the Borrower, the Borrower shall be obligated to pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. Each determination by any such Lender of amounts owing under this Section shall, absent manifest error, be conclusive and binding on the parties hereto. 24 3.7 Inability To Determine Interest Rate. If prior to the first day of any Interest Period, the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, the Administrative Agent shall give telecopy or telephonic notice thereof to the Borrower and the Lenders as soon as practicable thereafter. If such notice is given (a) any Eurodollar Loans requested to be made on the first day of such Interest Period shall be made as Base Rate Loans and (b) any Loans that were to have been converted on the first day of such Interest Period to or continued as Eurodollar Loans shall be converted to or continued as Base Rate Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made or continued as such, nor shall the Borrower have the right to convert Base Rate Loans to Eurodollar Loans. 3.8 Illegality. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof occurring after the Closing Date shall make it unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by this Credit Agreement, (a) such Lender shall promptly give written notice of such circumstances to the Borrower and the Administrative Agent (which notice shall be withdrawn whenever such circumstances no longer exist), (b) the commitment of such Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert a Base Rate Loan to Eurodollar Loans shall forthwith be canceled and, until such time as it shall no longer be unlawful for such Lender to make or maintain Eurodollar Loans, such Lender shall then have a commitment only to make a Base Rate Loan when a Eurodollar Loan is requested and (c) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Lender, upon demand, without duplication, such amounts, if any, as may be reasonably required pursuant to Section 3.11. 3.9 Requirements of Law. If, after the date hereof, the adoption of or any change in any Requirement of Law or in the interpretation or application thereof applicable to any Lender, or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority, in each case made subsequent to the Closing Date (or, if later, the date on which such Lender becomes a Lender): (a) shall subject such Lender to any tax of any kind whatsoever with respect to any Eurodollar Loans made by it or its obligation to make Eurodollar Loans, or change the basis of taxation of payments to such Lender in respect thereof (except for (i) 25 Non-Excluded Taxes covered by Section 3.10 (including Non-Excluded Taxes imposed solely by reason of any failure of such Lender to comply with its obligations under Section 3.10(b)) and (ii) changes in taxes measured by or imposed upon the overall net income, or franchise tax (imposed in lieu of such net income tax), of such Lender or its applicable lending office, branch, or any affiliate thereof)); (b) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the Eurodollar Rate hereunder; or (c) shall impose on such Lender any other condition (excluding any tax of any kind whatsoever); and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender reasonably deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or to reduce any amount receivable hereunder in respect thereof, then, in any such case, upon notice to the Borrower from such Lender, through the Administrative Agent, in accordance herewith, the Borrower shall be obligated to promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable, provided that, in any such case, the Borrower may elect to convert the Eurodollar Loans made by such Lender hereunder to Base Rate Loans by giving the Administrative Agent at least one Business Day's notice of such election, in which case the Borrower shall promptly pay to such Lender, upon demand, without duplication, such amounts, if any, as may be reasonably required pursuant to Section 3.11. If any Lender becomes entitled to claim any additional amounts pursuant to this subsection, it shall provide prompt notice thereof to the Borrower, through the Administrative Agent, certifying (x) that one of the events described in this paragraph (a) has occurred and describing in reasonable detail the nature of such event, (y) as to the increased cost or reduced amount resulting from such event and (z) as to the additional amount demanded by such Lender and a reasonably detailed explanation of the calculation thereof. Such a certificate as to any additional amounts payable pursuant to this subsection submitted by such Lender, through the Administrative Agent, to the Borrower shall be conclusive and binding on the parties hereto in the absence of manifest error. This covenant shall survive the termination of this Credit Agreement and the payment of the Loans and all other amounts payable hereunder. 3.10 Taxes. (a) Except as provided below in this subsection, all payments made by the Borrower under this Credit Agreement and any Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any court, or governmental body, agency or other official, excluding taxes measured by or imposed upon the overall net income of any Lender or its applicable lending office, or any branch or affiliate thereof, and all franchise taxes, branch taxes, 26 taxes on doing business or taxes on the overall capital or net worth of any Lender or its applicable lending office, or any branch or affiliate thereof, in each case imposed in lieu of net income taxes, imposed: (i) by the jurisdiction under the laws of which such Lender, applicable lending office, branch or affiliate is organized or is located, or in which its principal executive office is located, or any nation within which such jurisdiction is located or any political subdivision thereof; or (ii) by reason of any connection between the jurisdiction imposing such tax and such Lender, applicable lending office, branch or affiliate other than a connection arising solely from such Lender having executed, delivered or performed its obligations, or received payment under or enforced, this Credit Agreement or any Notes. If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts payable to the Administrative Agent or any Lender hereunder or under any Notes, (A) the amounts so payable to the Administrative Agent or such Lender shall be increased to the extent necessary to yield to the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Credit Agreement and any Notes, provided, however, that the Borrower shall be entitled to deduct and withhold any Non-Excluded Taxes and shall not be required to increase any such amounts payable to any Lender that is not organized under the laws of the United States of America or a state thereof if such Lender fails to comply with the requirements of paragraph (b) of this subsection whenever any Non-Excluded Taxes are payable by the Borrower, and (B) as promptly as possible thereafter the Borrower shall send to the Administrative Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure. The agreements in this subsection shall survive the termination of this Credit Agreement and the payment of the Loans and all other amounts payable hereunder. (b) Each Lender that is not a United States person under Section 7701(a)(30) of the Internal Revenue Code, on or prior to the date of its execution and delivery of this Credit Agreement in the case of each Lender listed on the signature pages hereof and on or prior to the date on which it becomes a Lender in the case of each other Lender, and from time to time thereafter if requested in writing by the Borrower or the Administrative Agent (but only so long as such Lender remains lawfully able to do so), shall provide the Borrower and the Administrative Agent with (i) Internal Revenue Service Form W-8 BEN or W-8 ECI, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces to zero the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Credit Agreement is effectively connected with the conduct of a trade or business in the United States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any successor form prescribed by the Internal Revenue Service, and/or (iii) any other form or certificate required by any taxing authority (including any certificate required by Sections 871(h) and 881(c) of the Internal Revenue Code), certifying that such Lender is entitled to an exemption from tax on payments pursuant to this Credit Agreement or any of the other Credit Documents. 27 3.11 Indemnity. The Borrower promises to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur (other than through such Lender's gross negligence or willful misconduct) as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Credit Agreement, (b) default by the Borrower in making any prepayment of a Eurodollar Loan after the Borrower has given a notice thereof in accordance with the provisions of this Credit Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which is not the last day of an Interest Period with respect thereto. With respect to Eurodollar Loans, such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of the applicable Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Percentage included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank Eurodollar market. The covenants of the Borrower set forth in this Section 3.11 shall survive the termination of this Credit Agreement and the payment of the Loans and all other amounts payable hereunder. 3.12 Pro Rata Treatment. Except to the extent otherwise provided herein: (a) Loans. Each Loan, each payment or prepayment of principal of any Loan, each payment of interest on the Loans, each payment of Facility Fees, each reduction of the Aggregate Revolving Committed Amount and each conversion or extension of any Loan, shall be allocated pro rata among the Lenders in accordance with the respective principal amounts of their outstanding Loans and Participation Interests. (b) Advances. No Lender shall be responsible for the failure or delay by any other Lender in its obligation to make its ratable share of a borrowing hereunder (and further, no Lender shall be required to fulfill any obligation of a Defaulting Lender); provided, however, that the failure of any Lender to fulfill its obligations hereunder shall not relieve any other Lender of its obligations hereunder. Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its ratable share of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Administrative Agent by such Lender within the time period specified therefor hereunder, such Lender shall pay to the 28 Administrative Agent, on demand, such amount with interest thereon at a rate equal to the Federal Funds Rate for a period of two (2) Business Days, and thereafter at the Base Rate, for the period until such Lender makes such amount immediately available to the Administrative Agent. If such Lender does not pay such amounts to the Administrative Agent forthwith upon demand, the Administrative Agent may notify the Borrower and request the Borrower to immediately pay such amount to the Administrative Agent with interest at the Base Rate. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. 3.13 Sharing of Payments. The Lenders agree among themselves that, in the event that any Lender shall obtain payment in respect of any Loan or any other obligation owing to such Lender under this Credit Agreement through the exercise of a right of setoff, banker's lien or counterclaim, or pursuant to a secured claim under Section 506 of the Bankruptcy Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, in excess of its pro rata share of such payment as provided for in this Credit Agreement, such Lender shall promptly purchase from the other Lenders a participation in such Loans and other obligations in such amounts, and make such other adjustments from time to time, as shall be equitable to the end that all Lenders share such payment in accordance with their respective ratable shares as provided for in this Credit Agreement. The Lenders further agree among themselves that if payment to a Lender obtained by such Lender through the exercise of a right of setoff, banker's lien, counterclaim or other event as aforesaid shall be rescinded or must otherwise be restored, each Lender which shall have shared the benefit of such payment shall, by repurchase of a participation theretofore sold, return its share of that benefit (together with its share of any accrued interest payable with respect thereto) to each Lender whose payment shall have been rescinded or otherwise restored. The Borrower agrees that any Lender so purchasing such a participation may, to the fullest extent permitted by law, exercise all rights of payment, including setoff, banker's lien or counterclaim, with respect to such participation as fully as if such Lender were a holder of such Loan or other obligation in the amount of such participation. Except as otherwise expressly provided in this Credit Agreement, if any Lender or the Administrative Agent shall fail to remit to the Administrative Agent or any other Lender an amount payable by such Lender or the Administrative Agent to the Administrative Agent or such other Lender pursuant to this Credit Agreement on the date when such amount is due, such payments shall be made together with interest thereon for each date from the date such amount is due until the date such amount is paid to the Administrative Agent or such other Lender at a rate per annum equal to the Federal Funds Rate. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section 3.13 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders under this Section 3.13 to share in the benefits of any recovery on such secured claim. 3.14 Payments, Computations, Etc. 29 (a) Except as otherwise specifically provided herein, all payments hereunder shall be made to the Administrative Agent in dollars in immediately available funds, without offset, deduction, counterclaim or withholding of any kind, at the Administrative Agent's office specified in Section 11.1 not later than 2:00 P.M. (Charlotte, North Carolina time) on the date when due. Payments received after such time shall be deemed to have been received on the next succeeding Business Day. The Administrative Agent may (but shall not be obligated to) debit the amount of any such payment which is not made by such time to any ordinary deposit account of the Borrower maintained with the Administrative Agent (with notice to the Borrower). The Borrower shall, at the time it makes any payment under this Credit Agreement, specify to the Administrative Agent the Loans, Fees, interest or other amounts payable by the Borrower hereunder to which such payment is to be applied (and in the event that it fails so to specify, or if such application would be inconsistent with the terms hereof, the Administrative Agent shall distribute such payment to the Lenders in such manner as the Administrative Agent may determine to be appropriate in respect of obligations owing by the Borrower hereunder, subject to the terms of Section 3.12(a)). The Administrative Agent will distribute such payments to such Lenders, if any such payment is received prior to 12:00 Noon (Charlotte, North Carolina time) on a Business Day in like funds as received prior to the end of such Business Day and otherwise the Administrative Agent will distribute such payment to such Lenders on the next succeeding Business Day. Whenever any payment hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day (subject to accrual of interest and Fees for the period of such extension), except that in the case of Eurodollar Loans, if the extension would cause the payment to be made in the next following calendar month, then such payment shall instead be made on the next preceding Business Day. Except as expressly provided otherwise herein, all computations of interest and fees shall be made on the basis of actual number of days elapsed over a year of 360 days, except with respect to computation of interest on Base Rate Loans which (unless the Base Rate is determined by reference to the Federal Funds Rate) shall be calculated based on a year of 365 or 366 days, as appropriate. Interest shall accrue from and include the date of borrowing, but exclude the date of payment. (b) Allocation of Payments After Event of Default. Notwithstanding any other provisions of this Credit Agreement to the contrary, after the occurrence and during the continuance of an Event of Default, all amounts collected or received by the Administrative Agent or any Lender on account of the Guaranteed Obligations or any other amounts outstanding under any of the Credit Documents shall be paid over or delivered as follows: FIRST, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation reasonable attorneys' fees) of the Administrative Agent in connection with enforcing the rights of the Lenders under the Credit Documents; SECOND, to payment of any fees owed to the Administrative Agent; THIRD, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation, reasonable attorneys' fees) of each of the Lenders in connection with enforcing its rights under the Credit Documents or otherwise with respect to the Loans owing to such Lender; 30 FOURTH, to the payment of all accrued interest and fees on or in respect of the Guaranteed Obligations; FIFTH, to the payment of the outstanding principal amount of the Guaranteed Obligations; SIXTH, to all other Loans and other obligations which shall have become due and payable under the Credit Documents or otherwise and not repaid pursuant to clauses "FIRST" through "FIFTH" above; and SEVENTH, to the payment of the surplus, if any, to whoever may be lawfully entitled to receive such surplus. In carrying out the foregoing, (i) amounts received shall be applied in the numerical order provided until exhausted prior to application to the next succeeding category; and (ii) each of the Lenders shall receive an amount equal to its pro rata share (based on the proportion that the then outstanding Loans held by such Lender bears to the aggregate then outstanding Loans) of amounts available to be applied pursuant to clauses "THIRD", "FOURTH", "FIFTH" and "SIXTH" above. 3.15 Evidence of Debt. (a) Each Lender shall maintain an account or accounts evidencing each Loan made by such Lender to the Borrower from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Credit Agreement. Each Lender will make reasonable efforts to maintain the accuracy of its account or accounts and to promptly update its account or accounts from time to time, as necessary. (b) The Administrative Agent shall maintain the Register pursuant to Section 11.3(c) hereof, and a subaccount for each Lender, in which Register and subaccounts (taken together) shall be recorded (i) the amount, type and Interest Period of each such Loan hereunder, (ii) the amount of any principal or interest due and payable or to become due and payable to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder from or for the account of the Borrower and each Lender's share thereof. The Administrative Agent will make reasonable efforts to maintain the accuracy of the subaccounts referred to in the preceding sentence and to promptly update such subaccounts from time to time, as necessary. (c) The entries made in the accounts, Register and subaccounts maintained pursuant to subsection (b) of this Section 3.15 (and, if consistent with the entries of the Administrative Agent, subsection (a)) shall be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain any such account, such Register or such subaccount, as applicable, or any error therein, shall not in any manner affect the obligation of the Borrower to repay the Loans made by such Lender in accordance with the terms hereof. 31 SECTION 4 GUARANTY 4.1 The Guarantee. Each of the Guarantors hereby jointly and severally guarantees to each Lender and to the Administrative Agent as hereinafter provided the prompt payment of the Guaranteed Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, a mandatory cash collateralization or otherwise) strictly in accordance with the terms thereof. The Guarantors hereby further agree that if any of the Guaranteed Obligations are not paid in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as mandatory cash collateralization or otherwise), the Guarantors will, jointly and severally, promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration or otherwise) in accordance with the terms of such extension or renewal. Notwithstanding any provision to the contrary contained herein or in any other of the Credit Documents, to the extent the obligations of a Guarantor shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation, because of any applicable state or federal law relating to fraudulent conveyances or transfers) then the obligations of each Guarantor hereunder shall be limited to the maximum amount that is permissible under applicable law (whether federal or state and including, without limitation, the Bankruptcy Code). 4.2 Obligations Unconditional. The obligations of the Guarantors under Section 4.1 hereof are joint and several, absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of any of the Credit Documents, or any other agreement or instrument referred to therein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 4.2 that the obligations of the Guarantors hereunder shall be absolute and unconditional under any and all circumstances. Each Guarantor agrees that such Guarantor shall have no right of subrogation, indemnity, reimbursement or contribution against the Borrower or any other Guarantor of the Guaranteed Obligations for amounts paid under this Section 4 until such time as the Lenders have been irrevocably paid in full, all Commitments under the Credit Agreement have been terminated and no Person or Governmental Authority shall have any right to request any return or reimbursement of funds from the Lenders in connection with monies received under the Credit Documents. Without limiting the generality of the foregoing, it is agreed that, to the fullest extent permitted by law, the occurrence of any one or more of the following shall not alter or impair the liability of any Guarantor hereunder which shall remain absolute and unconditional as described above: 32 (i) at any time or from time to time, without notice to any Guarantor, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of any of the Credit Documents or any other agreement or instrument referred to in the Credit Documents shall be done or omitted; (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under any of the Credit Documents or any other agreement or instrument referred to in the Credit Documents shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; (iv) any Lien granted to, or in favor of, the Administrative Agent or any Lender or Lenders as security for any of the Guaranteed Obligations shall fail to attach or be perfected; or (v) any of the Guaranteed Obligations shall be determined to be void or voidable (including, without limitation, for the benefit of any creditor of any Guarantor) or shall be subordinated to the claims of any Person (including, without limitation, any creditor of any Guarantor). With respect to its obligations hereunder, each Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Administrative Agent or any Lender exhaust any right, power or remedy or proceed against any Person under any of the Credit Documents or any other agreement or instrument referred to in the Credit Documents, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. 4.3 Reinstatement. The obligations of the Guarantors under this Section 4 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Person in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and each Guarantor agrees that it will indemnify the Administrative Agent and each Lender on demand for all reasonable costs and expenses (including, without limitation, fees and expenses of counsel) incurred by the Administrative Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. 4.4 Certain Additional Waivers. 33 Each Guarantor agrees that such Guarantor shall have no right of recourse to security for the Guaranteed Obligations, except through the exercise of the rights of subrogation pursuant to Section 4.2. 4.5 Remedies. The Guarantors agree that, to the fullest extent permitted by law, as between the Guarantors, on the one hand, and the Administrative Agent and the Lenders, on the other hand, the Guaranteed Obligations may be declared to be forthwith due and payable as provided in Section 9.2 hereof (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 9.2) for purposes of Section 4.1 hereof notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing the Guaranteed Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such declaration (or the Guaranteed Obligations being deemed to have become automatically due and payable), the Guaranteed Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by the Guarantors for purposes of said Section 4.1. 4.6 Rights of Contribution. The Guarantors hereby agree, as among themselves, that if any Guarantor shall become an Excess Funding Guarantor (as defined below), each other Guarantor shall, on demand of such Excess Funding Guarantor (but subject to the succeeding provisions of this Section 4.6), pay to such Excess Funding Guarantor an amount equal to such Guarantor's Pro Rata Share (as defined below and determined, for this purpose, without reference to the properties, assets, liabilities and debts of such Excess Funding Guarantor) of such Excess Payment (as defined below). The payment obligation of any Guarantor to any Excess Funding Guarantor under this Section 4.6 shall be subordinate and subject in right of payment to the prior payment in full of the obligations of such Guarantor under the other provisions of this Section 4, and such Excess Funding Guarantor shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all of such obligations. For purposes hereof, (i) "Excess Funding Guarantor" shall mean, in respect of any obligations arising under the other provisions of this Section 4 (hereafter, the "Guarantied Obligations"), a Guarantor that has paid an amount in excess of its Pro Rata Share of the Guarantied Obligations; (ii) "Excess Payment" shall mean, in respect of any Guarantied Obligations, the amount paid by an Excess Funding Guarantor in excess of its Pro Rata Share of such Guarantied Obligations; and (iii) "Pro Rata Share", for the purposes of this Section 4.6, shall mean, for any Guarantor, the ratio (expressed as a percentage) of (a) the amount by which the aggregate present fair saleable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Guarantor (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Guarantor hereunder) to (b) the amount by which the aggregate present fair saleable value of all assets and other properties of the Borrower and all of the Guarantors exceeds the amount of all of the debts and liabilities (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Borrower and the Guarantors hereunder) of the Borrower and all of the Guarantors, all as of the Closing Date (if any Guarantor becomes a party hereto subsequent to the Closing Date, then for the 34 purposes of this Section 4.6 such subsequent Guarantor shall be deemed to have been a Guarantor as of the Closing Date and the information pertaining to, and only pertaining to, such Guarantor as of the date such Guarantor became a Guarantor shall be deemed true as of the Closing Date). 4.7 Continuing Guarantee. The guarantee in this Section 4 is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising. SECTION 5 CONDITIONS 5.1 Conditions to Closing. This Credit Agreement shall become effective, and the initial Extensions of Credit may be made, upon the satisfaction of the following conditions precedent: (a) Execution of Credit Agreement and Credit Documents. Receipt of (i) multiple counterparts of this Credit Agreement, and (ii) a Revolving Note for each Lender. (b) Financial Information. Receipt of financial information regarding the Borrower and its subsidiaries, as may be requested by, and in each case in form and substance satisfactory to the Administrative Agent and the Lenders. (c) Absence of Legal Proceedings. The absence of any action, suit, investigation or proceeding pending in any court or before any arbitrator or governmental instrumentality which could reasonably be expected to have a Material Adverse Effect. (d) Legal Opinions. Receipt of multiple counterparts of opinions of counsel for the Credit Parties relating to the Credit Documents and the transactions contemplated herein, in form and substance satisfactory to the Administrative Agent and the Required Lenders. (e) Corporate Documents. Receipt of the following (or their equivalent) for each of the Credit Parties: (i) Articles of Incorporation. Copies of the articles of incorporation or charter documents certified to be true and complete as of a recent date by the appropriate governmental authority of the state of its incorporation or organization. (ii) Resolutions. Copies of resolutions of the Board of Directors or other governing body approving and adopting the respective Credit Documents, the transactions contemplated therein and authorizing execution and delivery thereof, certified by a secretary or assistant secretary as of the Closing Date to be true and correct and in force and effect as of such date. 35 (iii) Bylaws. Copies of the bylaws certified by a secretary or assistant secretary as of the Closing Date to be true and correct and in force and effect as of such date. (iv) Good Standing. Copies of (A) certificates of good standing, existence or its equivalent issued as of a recent date by the appropriate governmental authorities of the respective states of incorporation or organization and of each other state in which the failure to qualify and be in good standing would have a Material Adverse Effect and (B) where available, certificates indicating payment of all corporate franchise taxes issued as of a recent date by the appropriate governmental taxing authorities of such states. (v) Officer's Certificate. An officer's certificate for each of the Credit Parties dated as of the Closing Date substantially in the form of Schedule 5.1(e)(v) with appropriate insertions and attachments. (f) Fees. Receipt of all fees, if any, owing pursuant to the Administrative Agent's Fee Letter and Section 3.5. (g) Subsection 5.2 Conditions. The conditions specified in Section 5.2 shall be satisfied. (h) Additional Matters. All other documents and legal matters in connection with the transactions contemplated by this Credit Agreement shall be reasonably satisfactory in form and substance to the Agent and the Required Lenders. 5.2 Conditions to All Extensions of Credit. The obligation of each Lender to make any Extension of Credit hereunder (including the initial Extension of Credit to be made hereunder) is subject to the satisfaction of the following conditions precedent on the date of making such Extension of Credit: (a) Representations and Warranties. The representations and warranties made by the Credit Parties herein or in any other Credit Documents or which are contained in any certificate furnished at any time under or in connection herewith shall be true and correct in all material respects on and as of the date of such Extension of Credit as if made on and as of such date (except for those which expressly relate to an earlier date). (b) No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Extension of Credit to be made on such date unless such Default or Event of Default shall have been waived in accordance with this Credit Agreement. 36 (c) No Material Adverse Effect. No circumstances, events or conditions shall have occurred since the date of the audited financial statements referenced in Section 6.1 which would have a Material Adverse Effect. (d) Additional Conditions to Revolving Loans. If a Revolving Loan is requested pursuant to Section 2.1, all conditions set forth in Section 2 shall have been satisfied. Each request for Extension of Credit (including extensions and conversions) and each acceptance by the Borrower of an Extension of Credit (including extensions and conversions) shall be deemed to constitute a representation and warranty by the Borrower as of the date of such Extension of Credit that the applicable conditions in paragraphs (a), (b), (c) and (d) of this subsection have been satisfied. SECTION 6 REPRESENTATIONS AND WARRANTIES To induce the Lenders to enter into this Credit Agreement and to make Extensions of Credit herein provided for, each of the members of the Consolidated Group parties hereto (in the case of the Borrower, for itself and for each of the other members of the Consolidated Group; and in the case of each of the other Credit Parties, for itself) hereby represents and warrants to the Administrative Agent and to each Lender that: 6.1 Financial Condition. As to the Borrower, each of the financial statements described below (copies of which have heretofore been provided to the Administrative Agent for distribution to the Lenders), have been prepared in accordance with GAAP consistently applied throughout the periods covered thereby, are complete and correct in all material respects and present fairly the financial condition and results from operations of the entities and for the periods specified, subject in the case of interim Borrower-prepared statements to normal year-end adjustments: (i) an audited consolidated balance sheet of the Borrower and its consolidated subsidiaries dated as of December 31, 1998, together with related statements of operations, cash flows and shareholders' equity certified by Ernst & Young LLP, independent auditors; and (ii) a Borrower-prepared consolidated balance sheet of the Borrower and its consolidated subsidiaries dated as of June 30, 1999, together with related consolidated statements of operations and cash flows. 6.2 No Material Adverse Changes. Since the date of the audited financial statements referenced in Section 6.1(i), there has been no circumstance, development or event relating to or affecting the members of the 37 Consolidated Group which has had or would be reasonably expected to have a Material Adverse Effect. 6.3 Organization; Existence; Compliance with Law. Except as disclosed on Schedule 6.3, each of the members of the Consolidated Group (a) is duly organized, validly existing in good standing under the laws of the jurisdiction of its incorporation or organization, except in such jurisdictions where the failure to be so qualified and in good standing would not, in the aggregate, have a Material Adverse Effect, (b) has the corporate or other necessary power and authority, and the legal right to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign entity and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, other than in such jurisdictions where the failure to be so qualified and in good standing would not, in the aggregate, have a Material Adverse Effect, and (d) is in compliance with all Requirements of Law, except to the extent that the failure to comply therewith would not, in the aggregate, be reasonably expected to have a Material Adverse Effect. The Borrower is a "real estate investment trust" within the meaning provided under the Internal Revenue Code. 6.4 Power; Authorization; Enforceable Obligations. Each of the Credit Parties has the corporate or other necessary power and authority, and the legal right, to make, deliver and perform the Credit Documents to which it is a party and has taken all necessary corporate or other action to authorize the execution, delivery and performance by it of the Credit Documents to which it is a party. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with acceptance of extensions of credit or the making of the guaranties hereunder or with the execution, delivery or performance of any Credit Documents by the Credit Parties (other than those which have been obtained, such filings as are required by the Securities and Exchange Commission and to fulfill other reporting requirements with Governmental Authorities) or with the validity or enforceability of any Credit Document against the Credit parties. Each Credit Document to which it is a party constitutes a legal, valid and binding obligation of such Credit Party enforceable against such Credit Party in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 6.5 No Legal Bar. The execution, delivery and performance of the Credit Documents, the borrowings hereunder and the use of the Extensions of Credit will not violate any Requirement of Law or any Contractual Obligation of any member of the Consolidated Group (except those as to which waivers or consents have been obtained), and will not result in, or require, the creation or 38 imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or Contractual Obligation other than the Liens arising under or contemplated in connection with the Credit Documents. No member of the Consolidated Group is in default under or with respect to any of its Contractual Obligations in any respect which would reasonably be expected to have a Material Adverse Effect. 6.6 No Material Litigation. No claim, litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the best knowledge of the Credit Parties, threatened by or against, any members of the Consolidated Group or against any of their respective properties or revenues which (a) relate to the Credit Documents or any of the transactions contemplated hereby or thereby, or (b) if adversely determined, would reasonably be expected to have a Material Adverse Effect. 6.7 No Default. No Default or Event of Default has occurred and is continuing. 6.8 Ownership of Property; Liens. Each of members of the Consolidated Group has good title in fee simple to, or a valid leasehold interest in, all its material real property, and good title to, or a valid leasehold interest in, all its other material property, and none of such property is subject to any Lien, except for liens permitted under Section 8.2. 6.9 Taxes. Each of the members of the Consolidated Group has filed or caused to be filed all United States federal income tax returns and all other material tax returns which, to the best knowledge of the Credit Parties, are required to be filed and has paid or received extensions regarding (a) all taxes shown to be due and payable on said returns or (b) all taxes shown to be due and payable on any assessments of which it has received notice made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any (i) taxes, fees or other charges with respect to which the failure to pay, in the aggregate, would not have a Material Adverse Effect or (ii) taxes, fees or other charges the amount or validity of which are currently being contested and with respect to which reserves in conformity with GAAP have been provided on the books of such Person), and no tax Lien has been filed, and, to the best knowledge of the Credit Parties, no claim is being asserted, with respect to any such tax, fee or other charge. 6.10 ERISA. Except as would not reasonably be expected to have a Material Adverse Effect: 39 (a) During the five-year period prior to the date on which this representation is made or deemed made: (i) no ERISA Event has occurred, and, to the best knowledge of the Credit Parties, no event or condition has occurred or exists as a result of which any ERISA Event could reasonably be expected to occur, with respect to any Plan; (ii) no "accumulated funding deficiency," as such term is defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code, whether or not waived, has occurred with respect to any Plan; (iii) each Plan has been maintained, operated, and funded in compliance with its own terms and in material compliance with the provisions of ERISA, the Internal Revenue Code, and any other applicable federal or state laws; and (iv) no lien in favor of the PBGC or a Plan has arisen or is reasonably likely to arise on account of any Plan. (b) The actuarial present value of all "benefit liabilities" (as defined in Section 4001(a)(16) of ERISA), whether or not vested, under each Single Employer Plan, as of the last annual valuation date prior to the date on which this representation is made or deemed made (determined, in each case, in accordance with Financial Accounting Standards Board Statement 87, utilizing the actuarial assumptions used in such Plan's most recent actuarial valuation report), did not exceed as of such valuation date the fair market value of the assets of such Plan. (c) No member of the Consolidated Group nor any ERISA Affiliate has incurred, or, to the best knowledge of the Credit Parties, could be reasonably expected to incur, any withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer Plan. No member of the Consolidated Group nor any ERISA Affiliate would become subject to any withdrawal liability under ERISA if any member of the Consolidated Group or any ERISA Affiliate were to withdraw completely from all Multiemployer Plans and Multiple Employer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No member of the Consolidated Group nor any ERISA Affiliate has received any notification that any Multiemployer Plan is in reorganization (within the meaning of Section 4241 of ERISA), is insolvent (within the meaning of Section 4245 of ERISA), or has been terminated (within the meaning of Title IV of ERISA), and no Multiemployer Plan is, to the best knowledge of the Credit Parties, reasonably expected to be in reorganization, insolvent, or terminated. (d) No prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code) or breach of fiduciary responsibility has occurred with respect to a Plan which has subjected or may subject any member of the Consolidated Group or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Internal Revenue Code, or under any agreement or other instrument pursuant to which any member of the Consolidated Group or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability. (e) No member of the Consolidated Group nor any ERISA Affiliates has any material liability with respect to "expected post-retirement benefit obligations" within the meaning of the Financial Accounting Standards Board Statement 106. Each Plan which is a welfare plan (as defined in Section 3(1) of ERISA) to which Sections 601-609 of ERISA and Section 4980B of the Internal Revenue Code apply has been administered in compliance in all material respects of such sections. 40 6.11 Governmental Regulations, Etc. (a) No part of the proceeds of Extensions of Credit hereunder will be used, directly or indirectly, for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U, or for the purpose of purchasing or carrying or trading in any securities. If requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in said Regulation U. No indebtedness being reduced or retired out of the proceeds of Extensions of Credit hereunder was or will be incurred for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U or any "margin security" within the meaning of Regulation T. "Margin stock" within the meanings of Regulation U does not constitute more than 25% of the value of the consolidated assets of the Borrower and its Subsidiaries. None of the transactions contemplated by this Credit Agreement (including, without limitation, the direct or indirect use of the proceeds of the Loans) will violate or result in a violation of the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or regulations issued pursuant thereto, or Regulation T, U or X. (b) None of the members of the Consolidated Group is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or the Investment Company Act of 1940, each as amended. In addition, none of the members of the Consolidated Group is (i) an "investment company" registered or required to be registered under the Investment Company Act of 1940, as amended, and is not controlled by such a company, or (ii) a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. (c) Each of the members of the Consolidated Group has obtained all material licenses, permits, franchises or other governmental authorizations necessary to the ownership of its respective Property and to the conduct of its business. (d) None of the members of the Consolidated Group is in violation of any applicable statute, regulation or ordinance of the United States of America, or of any state, city, town, municipality, county or any other jurisdiction, or of any agency thereof (including without limitation, environmental laws and regulations), which violation could reasonably be expected to have a Material Adverse Effect. (e) Each of the members of the Consolidated Group is current with all material reports and documents, if any, required to be filed with any state or federal securities commission or similar agency and is in full compliance in all material respects with all applicable rules and regulations of such commissions. 6.12 Subsidiaries. 41 Set forth on Schedule 6.12 are all the Subsidiaries of the Borrower at the Closing Date, the jurisdiction of their incorporation and the direct or indirect ownership interest of the Borrower therein. 6.13 Purpose of Extensions of Credit. The Extensions of Credit will be used to refinance existing Funded Debt, and to finance working capital and other corporate purposes. 6.14 Environmental Matters. Except as would not reasonably be expected to have a Material Adverse Effect: (a) Each of the facilities and properties owned, leased or operated by the members of the Consolidated Group (the "Properties") and all operations at the Properties are in compliance with all applicable Environmental Laws, and there is no violation of any Environmental Law with respect to the Properties or the businesses operated by the members of the Consolidated Group (the "Businesses"), and there are no conditions relating to the Businesses or Properties that could give rise to material liability under any applicable Environmental Laws. (b) To the knowledge of the members of the Consolidated Group, none of the Properties contains any Materials of Environmental Concern at, on or under the Properties in amounts or concentrations that constitute or constituted a violation of, or could give rise to liability under, Environmental Laws. (c) None of the members of the Consolidated Group has received any written notice of, or inquiry from any Governmental Authority regarding, any violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the Businesses. (d) Materials of Environmental Concern have not been transported or disposed of from the Properties, or generated, treated, stored or disposed of at, on or under any of the Properties or any other location, in each case by or on behalf any members of the Consolidated Group during their ownership of the Properties in violation of, or in a manner that would be reasonably likely to give rise to liability under, any applicable Environmental Law. (e) No judicial proceeding or governmental or administrative action is pending or, to the best knowledge of any Credit Party, threatened, under any Environmental Law to which any member of the Consolidated Group is or will be named as a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to any member of the Consolidated Group, the Properties or the Businesses. (f) There has been no release or, threat of release of Materials of Environmental Concern at or from the Properties or arising from or related to the operations (including, without 42 limitation, disposal) of any member of the Consolidated Group in connection with the Properties or otherwise in connection with the Businesses, in violation of or in amounts or in a manner that could give rise to liability under Environmental Laws. 6.15 Year 2000 Compliance. The Borrower has (i) initiated a review and assessment of all areas within its and each of its Subsidiaries' businesses and operations (including those affected by suppliers, vendors and customers) that could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications may not be able to recognize and properly perform date-sensitive functions after December 31, 1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis, and (iii) to date, implemented that plan in accordance with that timetable. Based on the foregoing, the Borrower believes that all computer applications (including those of its suppliers, vendors and customers) that are material to its or any of its Subsidiaries' business and operations are reasonably expected on a timely basis to be able to perform properly date-sensitive functions for all dates before and after January 1, 2000 (that is, be "Year 2000 Compliant"), except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. SECTION 7 AFFIRMATIVE COVENANTS Each of the Credit Parties (in the case of the Borrower, for itself and each of the other members of the Consolidated Group, and in the case of each of the other Credit Parties, for itself) covenants and agrees that on the Closing Date, and so long as this Credit Agreement is in effect and until the Commitments have been terminated, no Loans remain outstanding and all amounts owing hereunder or in connection herewith have been paid in full: 7.1 Financial Statements. The Borrower shall furnish, or cause to be furnished, to the Administrative Agent for distribution to the Lenders: (a) Audited Financial Statements. As soon as available, but in any event within 90 days after the end of each fiscal year, an audited consolidated balance sheet of the Borrower and its subsidiaries as of the end of the fiscal year and the related consolidated statements of operations, shareholders' equity and cash flows for the year, audited by Ernst & Young LLP, or other firm of independent certified public accountants of nationally recognized standing, setting forth in each case in comparative form the figures for the previous year, reported without a "going concern" or like qualification or exception, or qualification indicating that the scope of the audit was inadequate to permit such independent certified public accountants to certify such financial statements without such qualification. 43 (b) Borrower-Prepared Financial Statements. As soon as available, but in any event within 60 days after the end of each of the first three fiscal quarters, a Borrower-prepared consolidated balance sheet of the Borrower and its subsidiaries as of the end of the quarter and related Borrower-prepared consolidated statements of operations and cash flows for such quarterly period and for the fiscal year to date, in each case setting forth in comparative form the consolidated figures for the corresponding period or periods of the preceding fiscal year or the portion of the fiscal year ending with such period, as applicable, in each case subject to normal recurring year-end audit adjustments. All such financial statements shall be complete and correct in all material respects (subject, in the case of interim statements, to normal recurring year-end audit adjustments) and shall be prepared in reasonable detail and, in the case of the annual and quarterly financial statements provided in accordance with subsections (a) and (b) above, in accordance with GAAP applied consistently throughout the periods reflected therein and further accompanied by a description of, and an estimation of the effect on the financial statements on account of, a change in the application of accounting principles as provided in Section 1.3. 7.2 Certificates; Other Information. The Borrower shall furnish, or cause to be furnished, to the Administrative Agent for distribution to the Lenders: (a) Accountant's Certificate and Reports. Concurrently with the delivery of the financial statements referred to in subsection 7.1(a) above, a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate. (b) Officer's Certificate. Concurrently with the delivery of the financial statements referred to in Sections 7.1(a) and 7.1(b) above, a certificate of a Responsible Officer stating that, to the best of such Responsible Officer's knowledge and belief, (i) the financial statements fairly present in all material respects the financial condition of the parties covered by such financial statements, (ii) during such period the members of the Consolidated Group have observed or performed in all material respects the covenants and other agreements hereunder and under the other Credit Documents relating to them, and satisfied in all material respects the conditions, contained in this Credit Agreement to be observed, performed or satisfied by them, and (iii) such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate. Such certificate shall include the calculations required to indicate compliance with Section 7.9. A form of Officer's Certificate is attached as Schedule 7.2(b). (c) Accountants' Reports. Promptly upon receipt, a copy of any final (as distinguished from a preliminary or discussion draft) "management letter" or other similar report submitted by independent accountants or financial consultants to the members of the Consolidated Group in connection with any annual, interim or special audit. 44 (d) Public Information. Within thirty days after the same are sent, copies of all reports (other than those otherwise provided pursuant to subsection 7.1) and other financial information which any member of the Consolidated Group sends to its public stockholders, and within thirty days after the same are filed, copies of all financial statements and non-confidential reports which any member of the Consolidated Group may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority. (e) Other Information. Promptly, such additional financial and other information as the Administrative Agent, at the request of any Lender, may from time to time reasonably request. 7.3 Notices. Each of the Credit Parties shall give notice (in accordance with Section 11.1) to the Administrative Agent (which shall promptly transmit such notice to each Lender) of: (a) Defaults. Immediately (and in any event within two (2) Business Days) after any Responsible Officer of any Credit Party knows or has reason to know thereof, the occurrence of any Default or Event of Default (such notice shall expressly state that it is a "notice of default"). (b) Contractual Obligations. Promptly, the occurrence of any default or event of default under any Contractual Obligation of any member of the Consolidated Group which would reasonably be expected to have a Material Adverse Effect. (c) Legal Proceedings. Promptly, any litigation, or any investigation or proceeding (including without limitation, any environmental proceeding) known to any member of the Consolidated Group, or any material development in respect thereof, affecting any member of the Consolidated Group which, if adversely determined, would reasonably be expected to have a Material Adverse Effect. (d) ERISA. Promptly, after any Responsible Officer of the Borrower knows or has reason to know of (i) any event or condition, including, but not limited to, any Reportable Event, that constitutes, or might reasonably lead to, an ERISA Event; (ii) with respect to any Multiemployer Plan, the receipt of notice as prescribed in ERISA or otherwise of any withdrawal liability assessed against any of their ERISA Affiliates, or of a determination that any Multiemployer Plan is in reorganization or insolvent (both within the meaning of Title IV of ERISA); (iii) the failure to make full payment on or before the due date (including extensions) thereof of all amounts which the members of the Consolidated Group or any ERISA Affiliate are required to contribute to each Plan pursuant to its terms and as required to meet the minimum funding standard set forth in ERISA and the Internal Revenue Code with respect; or (iv) any change in the funding status of any Plan that reasonably could be expected to have a Material Adverse Effect; 45 together with a description of any such event or condition or a copy of any such notice and a statement by the chief financial officer of the Borrower briefly setting forth the details regarding such event, condition, or notice, and the action, if any, which has been or is being taken or is proposed to be taken by the Credit Parties with respect thereto. Promptly upon request, the members of the Consolidated Group shall furnish the Administrative Agent and the Lenders with such additional information concerning any Plan as may be reasonably requested, including, but not limited to, copies of each annual report/return (Form 5500 series), as well as all schedules and attachments thereto required to be filed with the Department of Labor and/or the Internal Revenue Service pursuant to ERISA and the Internal Revenue Code, respectively, for each "plan year" (within the meaning of Section 3(39) of ERISA). (e) Other. Promptly, any other development or event which a Responsible Officer of the Borrower determines could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating what action the relevant Credit Parties propose to take with respect thereto. 7.4 Payment of Obligations. Each member of the Consolidated Group shall pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, in accordance with prudent business practice (subject, where applicable, to specified grace periods) all material obligations of each member of the Consolidated Group of whatever nature and any additional costs that are imposed as a result of any failure to so pay, discharge or otherwise satisfy such obligations, other than (i) obligations with respect to which the failure to pay, in the aggregate, would not have a Material Adverse Effect, or (ii) obligations, the amount or validity of which are being contested and with respect to which reserves in conformity with GAAP have been provided on the books of the appropriate members of the Consolidated Group. 7.5 Conduct of Business and Maintenance of Existence. Each member of the Consolidated Group shall continue to engage in business of the same general type as now conducted by it on the date hereof and similar or related businesses, and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges, licenses and franchises necessary or desirable in the normal conduct of its business; comply with all Contractual Obligations and Requirements of Law applicable to it except to the extent that failure to comply therewith would not, in the aggregate, have a Material Adverse Effect. 7.6 Maintenance of Property; Insurance. 46 Each member of the Consolidated Group shall keep all material property useful and necessary in its business in reasonably good working order and condition (ordinary wear and tear excepted); maintain with financially sound and reputable insurance companies casualty (on a full replacement cost basis), liability and such other insurance (which may include plans of self-insurance) with such coverage and deductibles, and in such amounts as may be consistent with prudent business practice and in any event consistent with normal industry practice (except to any greater extent as may be required by the terms of any of the other Credit Documents); and furnish to the Administrative Agent, upon written request, full information as to the insurance carried. 7.7 Inspection of Property; Books and Records; Discussions. Each member of the Consolidated Group shall keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its businesses and activities; and permit, during regular business hours and upon reasonable notice by the Administrative Agent, the Administrative Agent to visit and inspect any of its properties and examine and make abstracts (including photocopies) from any of its books and records (other than materials protected by the attorney-client privilege and materials which the Credit Parties may not disclose without violation of a confidentiality obligation binding upon them) at any reasonable time, and to discuss the business, operations, properties and financial and other condition of the members of the Consolidated Group with officers and employees of the members of the Consolidated Group and with their independent certified public accountants. The cost of the inspection referred to in the preceding sentence shall be for the account of the Lenders unless an Event of Default has occurred and is continuing, in which case the cost of such inspection shall be for the account of the Credit Parties. 7.8 Environmental Laws. Each member of the Consolidated Group shall: (a) Comply in all material respects with all applicable Environmental Laws and obtain and comply in all material respects with and maintain any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws except to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect; (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws except to the extent that the same are being contested in good faith by appropriate proceedings and the failure to do or the pendency of such proceedings would not reasonably be expected to have a Material Adverse Effect; and 47 (c) Defend, indemnify and hold harmless the Administrative Agent and the Lenders, and their respective employees, agents, officers and directors, from and against any and all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the members of the Consolidated Group or the Properties, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, reasonable attorney's and consultant's fees, investigation and laboratory fees, response costs, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. The agreements in this paragraph shall survive repayment of the Loans and all other amounts payable hereunder, and termination of the Commitments. 7.9 Financial Covenants. (a) Consolidated Adjusted Tangible Net Worth. Consolidated Adjusted Tangible Net Worth will not at any time be less than the sum of (i) $1,600,000,000 plus (ii) 90% of the net proceeds (after customary underwriting discounts and commissions and reasonable offering expenses) from Equity Transactions occurring after June 30, 1999. (b) Consolidated Funded Debt Ratio. Consolidated Funded Debt shall not at any time exceed 60% of Tangible Fair Market Value of Assets. (c) Consolidated Priority Claims. Consolidated Priority Claims will not at any time exceed 35% of Tangible Fair Market Value of Assets. (d) Consolidated Interest Coverage Ratio. As of the end each fiscal quarter, the Consolidated Interest Coverage Ratio shall not be less than 2.0:1.0. (e) Consolidated Total Fixed Charge Coverage Ratio. As of the end of each fiscal quarter, the Consolidated Total Fixed Charge Coverage Ratio shall be not less than 1.5:1.0. (f) Consolidated Unsecured Debt to Consolidated Unencumbered Realty. The ratio of Consolidated Unsecured Debt to Consolidated Unencumbered Realty shall not at any time be greater than 0.55:1.0. (g) Consolidated Unencumbered Interest Coverage Ratio. As of the end of each fiscal quarter, the Consolidated Unencumbered Interest Coverage Ratio shall be not less than 1.8:1.0. (h) Dividend Payouts. During any period the Borrower shall not make distributions on common stock (excluding dividends paid resulting from extraordinary gains which extraordinary gains are excluded from the calculation of Funds From Operations) in an aggregate amount in excess of ninety five percent (95%) of Funds From Operations attributable to such period; provided, however, the Borrower may pay dividends or distributions that exceed the amount permitted by the 48 preceding subclause if such larger distribution is required in order for the Borrower to maintain its status as a REIT. 7.10 Agency Fees. The Borrower shall pay to the Administrative Agent the annual agency fee and comply with the other agreements provided for in the Administrative Agent's Fee Letter. 7.11 Additional Guaranties and Stock Pledges. (a) Domestic Subsidiaries. Where the assets of Domestic Subsidiaries which are not Guarantors hereunder (the "Non-Guarantor Subsidiaries") shall at any time exceed (i) five percent (5%) of Consolidated Assets in any instance, or (ii) fifteen percent (15%) of Consolidated Assets collectively as a group (the "Threshold Requirement"), then the Borrower shall promptly notify the Administrative Agent thereof, and cause one or more Non-Guarantor Subsidiaries to become a Guarantor hereunder by way of execution of a Joinder Agreement such that immediately after the joinder of such Subsidiaries as Guarantors hereunder, the remaining Non-Guarantor Subsidiaries shall not exceed the Threshold Requirement. Delivery of any such Joinder Agreement shall be accompanied by supporting resolutions, incumbency certificates, corporation formation and organizational documentation and opinions of counsel as the Administrative Agent may reasonably request. (b) Foreign Subsidiaries. At any time any Person becomes a Foreign Subsidiary, the Borrower will promptly notify the Administrative Agent thereof and cause delivery of supporting resolutions, incumbency certificates, corporation formation and organizational documentation and opinions of counsel as the Administrative Agent may reasonably request. 7.12 Ownership of Subsidiaries. Except to the extent otherwise permitted in Section 8.4(b) and Section 8.7 and to the extent as would not cause a Change of Control and except as set forth on Schedule 6.12, the Borrower shall, directly or indirectly, own at all times 100% of the voting stock of each of its Subsidiaries. 7.13 Use of Proceeds. Extensions of Credit will be used solely for the purposes provided in Section 6.13. 7.14 Year 2000 Compliance. The Credit Parties will promptly notify the Agent in the event any Credit Party discovers or determines that any computer application (including those of its suppliers, vendors and customers) that is material to its or any of its Subsidiaries' business and operations will not be Year 2000 Compliant, except to the extent that such failure could not reasonably be expected to have a Material Adverse Effect. 49 SECTION 8 NEGATIVE COVENANTS Each of the Credit Parties (in the case of the Borrower, for itself and each of the other members of the Consolidated Group, and in the case of each of the other Credit Parties, for itself) covenants and agrees that on the Closing Date, and so long as this Credit Agreement is in effect and until the Commitments have been terminated, no Loans remain outstanding and all amounts owing hereunder or in connection herewith, have been paid in full, no member of the Consolidated Group shall: 8.1 Limitations on Debt. Create, incur, assume or suffer to exist any Debt, except for Debt the existence or incurrence of which would not violate the financial covenants of Section 7.9. 8.2 Restriction on Liens. Create, assume, incur or suffer to exist any Lien on any Property or asset of any kind, real or personal, tangible or intangible, now owned or hereafter acquired by it or assign or subordinate any present or future right to receive assets except: (a) Liens securing Funded Debt the existence or incurrence of which would not violate the financial covenants of Section 7.9; (b) Liens securing taxes, assessments or governmental charges or levies or the claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons; provided that (A) with respect to Liens securing state and local taxes, such taxes are not yet payable, (B) with respect to Liens securing claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and the like, such liens are (1) unfiled and no other action has been taken to enforce the same and (2) the cumulative effect of all such Liens will not have a Material Adverse Effect, or (C) with respect to taxes, assessments or governmental charges or levies or claims or demand secured by such Liens, payment is not at the time required; (c) Liens not securing Debt which are incurred in the ordinary course of business in connection with worker's compensation, unemployment insurance, unemployment insurance, social security and other like laws; (d) any Lien arising pursuant to any order of attachment, distraint or similar legal process arising in connection with court proceedings so long as the execution or other enforcement thereof is effectively stayed and the claims secured thereto are being contested in good faith by appropriate proceedings; 50 (e) zoning restrictions, easements, licenses, reservations, covenants, conditions, waivers, restrictions on the use of property or other minor encumbrances or irregularities of title which do not materially impair the use of any property in the operation or business of the Borrower or such Subsidiary or the value of such property for the purpose of such business; and (f) Liens on property or assets of such Subsidiary to secure obligations of such Subsidiary solely to the Borrower or a Wholly-Owned Subsidiary. 8.3 Consolidations, Mergers and Sales of Assets. (a) Enter into a transaction of merger or consolidation, except (i) a member of the Consolidated Group may be a party to a transaction of merger or consolidation with another member of the Consolidated Group, provided that (A) if the Borrower is a party thereto, it is the surviving corporation, or (B) if a Guarantor is a party thereto, it shall be the surviving corporation or the surviving corporation shall be a Domestic Subsidiary and shall become a Guarantor hereunder as an Additional Credit Party pursuant to Section 7.11 concurrently therewith, and (C) no Default or Event of Default shall exist either immediately prior to or immediately after giving effect thereto; and (ii) a member of the Consolidated Group (other than the Borrower) may be a party to a transaction of merger or consolidation with any other Person, provided that (A) the provisions of Section 7.11 regarding joinder of certain Subsidiaries as Additional Credit Parties hereunder shall be complied with, (B) no Default or Event of Default shall exist either immediately prior to or immediately after giving effect thereto, and (C) the provisions of subsection (c) of this Section shall be complied with. (b) other than as between Credit Parties, sell, lease, transfer or otherwise dispose of assets, property and/or operations which in the aggregate in any fiscal year shall constitute more than fifteen percent (15%) of Consolidated Total Realty at the end of the immediately preceding fiscal year or contributed more than fifteen percent (15%) Consolidated EBITDA for the immediately preceding fiscal year, without the prior written consent of the Required Lenders (which consent shall not be unreasonably withheld or delayed). (c) Acquire all or any portion of the capital stock or other ownership interest in any Person which is not a Subsidiary or all or any substantial portion of the assets, property and/or operations of a Person which is not a Subsidiary, without the prior written consent of the Required Lenders (which consent shall not be unreasonably withheld or delayed), unless (i) in the case of an acquisition of capital stock or other ownership interest where after giving effect thereto, such Person will not be a Subsidiary, then such acquisition will not cause a violation of Section 8.4; 51 (ii) in the case of an acquisition of capital stock or other ownership interest where after giving effect thereto, such Person will be a Subsidiary, or in the case of an acquisition of assets, property and/or operations then (A) the aggregate cost of all such acquisitions shall not exceed an amount equal to twenty-five percent (25%) of Consolidated Assets at the end of the immediately preceding fiscal year; (B) the Board of Directors (or functional equivalent) of the Person which is the subject of the acquisition shall have approved the acquisition; and (C) no Default or Event of Default would exist after giving effect thereto on a Pro Forma Basis. (d) In the case of the Borrower, liquidate, wind-up or dissolve, whether voluntarily or involuntarily (or suffer to permit any such liquidation or dissolution). (e) Alter the character of their business in any material respect from that conducted as of the Closing Date and similar or related businesses. (e) The foregoing provisions of this Section shall not apply to leases of property and assets by members of the Consolidated Group to individual tenants in the ordinary course of business. 8.4 Loans and Investments. (a) Make loans, advances or Investments (including, for purposes hereof, Guaranty Obligations) to or in respect of any other Person, except for (i) Permitted Investments and (ii) other Investments which in the aggregate do not at any time exceed five percent (5%) of Consolidated Assets. (b) Notwithstanding clause (a)(ii) above, make any Investment in or acquisition of unimproved real property such that following such investment or acquisition, Consolidated Unimproved Realty and purchase money mortgages are at any time greater than ten percent (10%) of the Consolidated Total Realty. (c) Notwithstanding clause (a)(ii) above, make any capital contribution or other Investment of land to or in joint ventures except for such capital contributions and other Investments which in the aggregate do not exceed $50 million. 8.5 Transactions with Affiliates. Enter into any transaction, directly or indirectly, including without limitation, the purchase, sale or exchange of property or the rendering of any service to, any Affiliate or 52 shareholder of the Borrower, except in the ordinary course of business pursuant to the reasonable requirements of the business of the Borrower or such Subsidiary and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than would be obtainable in a comparable arms-length transaction with a person not an Affiliate or shareholder; provided that the foregoing restrictions shall not apply to extensions of credit by the Borrower to its officers and directors pursuant to the Borrower's Stock Purchase and Loan Plan in an aggregate amount not to exceed at any time 5% of Consolidated Adjusted Tangible Net Worth. 8.6 Transactions with Other Persons regarding this Agreement. Enter into any agreement with any Person whereby any of them would agree to any restriction on the Borrower's right with the Lenders' consent to amend or waive any of the provisions of this Credit Agreement. 8.7 Limitation on Certain Restrictions on Subsidiaries. Other than as presently exist in respect of REMICs and other special Subsidiaries listed on Schedule 8.7, create or otherwise cause or suffer to exist or become effective, directly or indirectly, any encumbrance or restriction on the ability of any Subsidiary to (i) pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits owned by any member of the Consolidated Group, (ii) make loans or advances to any member of the Consolidated Group, or (iii) transfer any of its properties or assets to any member of the Consolidated Group, except for encumbrances or restrictions existing under or by reason of (A) applicable law or (B) this Credit Agreement unless, after giving effect thereto on a Pro Forma Basis, the aggregate amount of Consolidated EBITDA attributable to all such REMICs and other special Subsidiaries shall be less than 25% of Consolidated EBITDA. SECTION 9 EVENTS OF DEFAULT 9.1 Events of Default. An Event of Default shall exist upon the occurrence of any of the following specified events (each an "Event of Default"): (a) Payment. Any Credit Party shall (i) default in the payment when due of any principal of any of the Loans, or (ii) default, and such default shall continue for five (5) or more Business Days, in the payment when due of any interest on the Loans or of any Fees or other amounts owing hereunder, under any of the other Credit Documents or in connection herewith or therewith; or 53 (b) Representations. Any representation, warranty or statement made or deemed to be made herein, in any of the other Credit Documents, or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove untrue in any material respect on the date as of which it was deemed to have been made; or (c) Covenants. (i) Default in the due performance or observance of any term, covenant or agreement contained in Section 7.3(a), 7.9, 7.11, 7.13 or 8.1 through 8.7 (except in the case of negative covenants contained in Sections 8.1 through 8.7, those Defaults which may occur or arise other than on account of or by affirmative or intentional act of the Borrower or event or condition which the Borrower shall with knowledge permit to exist, all of which shall be subject to the provisions of clause (ii) hereof), inclusive, or (ii) Default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in subsections (a), (b) or (c)(i) of this Section 9.1) contained in this Credit Agreement and such default shall continue unremedied for a period of at least 30 days after the earlier of a Responsible Officer of a Credit Party becoming aware of such default or notice thereof by the Administrative Agent or such longer period not to exceed an additional 30 days provided that the Borrower is diligently pursuing remedy of such default; or (d) Other Credit Documents. (i) Any Credit Party shall default in the due performance or observance of any material term, covenant or agreement in any of the other Credit Documents (subject to applicable grace or cure periods, if any), or (ii) any Credit Document shall fail to be in full force and effect or to give the Administrative Agent and/or the Lenders any material part of the rights, powers and privileges purported to be created thereby; or (e) Guaranties. The guaranty given by any Guarantor hereunder or any material provision thereof shall cease to be in full force and effect, or any Guarantor hereunder or any Person acting by or on behalf of such Guarantor shall deny or disaffirm such Guarantor's obligations under such guaranty, or any Guarantor shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to any guaranty; or (f) Bankruptcy, etc. Any Bankruptcy Event shall occur with respect to any member of the Consolidated Group; or (g) Defaults under Other Agreements. (i) Any member of the Consolidated Group shall default in the performance or observance (beyond the applicable grace period with respect thereto, if any) of any material obligation or condition of any contract or lease material to the Consolidated Group, taken as a whole; or 54 (ii) With respect to any Debt (other than Debt outstanding under this Credit Agreement) in excess of $25,000,000 in the aggregate for the Consolidated Group taken as a whole, (A) (1) any member of the Consolidated Group shall default in any payment (beyond the applicable grace period with respect thereto, if any) with respect to any such Debt, or (2) the occurrence and continuance of a default in the observance or performance relating to such Debt or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event or condition shall occur or condition exist, the effect of which default or other event or condition is to cause, or permit, the holder or holders of such Debt (or trustee or agent on behalf of such holders) to cause (determined without regard to whether any notice or lapse of time is required), any such Debt to become due prior to its stated maturity; or (B) any such Debt shall be declared due and payable, or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof; or (iii) The occurrence of an Event of Default under the Three Year Credit Agreement; or (h) Judgments. Any member of the Consolidated Group shall fail within 30 days of the date due and payable to pay, bond or otherwise discharge any judgment, settlement or order for the payment of money which judgment, settlement or order, when aggregated with all other such judgments, settlements or orders due and unpaid at such time, exceeds $5,000,000, and which is not stayed on appeal (or for which no motion for stay is pending) or is not otherwise being executed; or (i) ERISA. Any of the following events or conditions, if such event or condition could reasonably be expected to have a Material Adverse Effect shall occur: (1) any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code, whether or not waived, shall exist with respect to any Plan, or any lien shall arise on the assets of a member of the Consolidated Group or any ERISA Affiliate in favor of the PBGC or a Plan; (2) an ERISA Event shall occur with respect to a Single Employer Plan, which is, in the reasonable opinion of the Administrative Agent, likely to result in the termination of such Plan for purposes of Title IV of ERISA; (3) an ERISA Event shall occur with respect to a Multiemployer Plan or Multiple Employer Plan, which is, in the reasonable opinion of the Administrative Agent, likely to result in (i) the termination of such Plan for purposes of Title IV of ERISA, or (ii) a member of the Consolidated Group or any ERISA Affiliate incurring any liability in connection with a withdrawal from, reorganization of (within the meaning of Section 4241 of ERISA), or insolvency of (within the meaning of Section 4245 of ERISA) such Plan; or (4) any prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code) or breach of fiduciary responsibility shall occur which may subject a member of the Consolidated Group or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Internal Revenue Code, or under any agreement or other instrument pursuant to which a member of the Consolidated Group or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability; or 55 (j) Ownership. There shall occur a Change of Control. 9.2 Acceleration; Remedies. Upon the occurrence of an Event of Default, and at any time thereafter, the Administrative Agent shall, upon the request and direction of the Required Lenders, by written notice to the Credit Parties take any of the following actions: (i) Termination of Commitments. Declare the Commitments terminated whereupon the Commitments shall be immediately terminated. (ii) Acceleration. Declare the unpaid principal of and any accrued interest in respect of all Loans and any and all other indebtedness or obligations of any and every kind owing by the Credit Parties to the Administrative Agent and/or any of the Lenders hereunder to be due whereupon the same shall be immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each of the Credit Parties. (iii) Enforcement of Rights. Enforce any and all rights and interests created and existing under the Credit Documents. Notwithstanding the foregoing, if an Event of Default specified in Section 9.1(f) shall occur, then the Commitments shall automatically terminate and all Loans, all accrued interest in respect thereof, all accrued and unpaid Fees and other indebtedness or obligations owing to the Administrative Agent and/or any of the Lenders hereunder automatically shall immediately become due and payable without presentment, demand, protest or the giving of any notice or other action by the Administrative Agent or the Lenders, all of which are hereby waived by the Credit Parties. SECTION 10 AGENCY PROVISIONS 10.1 Appointment. Each Lender hereby designates and appoints Bank of America, N.A. as Administrative Agent of such Lender to act as specified herein and the other Credit Documents, and each such Lender hereby authorizes the Administrative Agent as the Administrative Agent for such Lender, to take such action on its behalf under the provisions of this Credit Agreement and the other Credit Documents and to exercise such powers and perform such duties as are expressly delegated by the terms hereof and of the other Credit Documents, together with such other powers as are reasonably incidental thereto. Each Lender further directs and authorizes the Administrative Agent to execute releases (or similar agreements) to give effect to the provisions of this Credit Agreement and the other Credit Documents. Notwithstanding any provision to the contrary elsewhere herein and in the other Credit Documents, the Administrative Agent shall not have any duties or responsibilities, 56 except those expressly set forth herein and therein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Credit Agreement or any of the other Credit Documents, or shall otherwise exist against the Administrative Agent. The provisions of this Section are solely for the benefit of the Administrative Agent and the Lenders and none of the Credit Parties shall have any rights as a third party beneficiary of the provisions hereof. In performing its functions and duties under this Credit Agreement and the other Credit Documents, the Administrative Agent shall act solely as Administrative Agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation or relationship of agency or trust with or for any Credit Party or any of their respective Affiliates. 10.2 Delegation of Duties. The Administrative Agent may execute any of its duties hereunder or under the other Credit Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 10.3 Exculpatory Provisions. The Administrative Agent and its officers, directors, employees, agents, attorneys-in-fact or affiliates shall not be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection herewith or in connection with any of the other Credit Documents (except for its or such Person's own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any of the Credit Parties contained herein or in any of the other Credit Documents or in any certificate, report, document, financial statement or other written or oral statement referred to or provided for in, or received by the Administrative Agent under or in connection herewith or in connection with the other Credit Documents, or enforceability or sufficiency therefor of any of the other Credit Documents, or for any failure of any Credit Party to perform its obligations hereunder or thereunder. The Administrative Agent shall not be responsible to any Lender for the effectiveness, genuineness, validity, enforceability, collectability or sufficiency of this Credit Agreement, or any of the other Credit Documents or for any representations, warranties, recitals or statements made herein or therein or made by the Borrower or any Credit Party in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by the Administrative Agent to the Lenders or by or on behalf of the Credit Parties to the Administrative Agent or any Lender or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans or of the existence or possible existence of any Default or Event of Default or to inspect the properties, books or records of the Credit Parties or any of their respective Affiliates. 10.4 Reliance on Communications. 57 The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to any of the Credit Parties, independent accountants and other experts selected by the Administrative Agent with reasonable care). The Administrative Agent may deem and treat the Lenders as the owners of their respective interests hereunder for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent in accordance with Section 11.3(b) hereof. The Administrative Agent and the Borrower shall be fully justified in failing or refusing to take any action under this Credit Agreement or under any of the other Credit Documents unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or under any of the other Credit Documents in accordance with a request of the Required Lenders (or to the extent specifically provided in Section 11.6, all the Lenders) and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders (including their successors and assigns). 10.5 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or a Credit Party referring to the Credit Document, describing such Default or Event of Default and stating that such notice is a "notice of default." In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders. 10.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender expressly acknowledges that each of the Administrative Agent and its officers, directors, employees, Administrative Agents, attorneys-in-fact or affiliates has not made any representations or warranties to it and that no act by the Administrative Agent or any affiliate thereof hereinafter taken, including any review of the affairs of any Credit Party or any of their respective Affiliates, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, assets, operations, property, financial and other conditions, prospects and creditworthiness of the Borrower, the other Credit Parties or their respective Affiliates and made its own decision to make its Loans hereunder and enter into this Credit Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall 58 deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Credit Agreement, and to make such investigation as it deems necessary to inform itself as to the business, assets, operations, property, financial and other conditions, prospects and creditworthiness of the Borrower, the other Credit Parties and their respective Affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, assets, property, financial or other conditions, prospects or creditworthiness of the Borrower, the other Credit Parties or any of their respective Affiliates which may come into the possession of the Administrative Agent or any of its officers, directors, employees, Administrative Agents, attorneys-in-fact or affiliates. 10.7 Indemnification. The Lenders agree to indemnify the Administrative Agent in its capacity as such (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Commitments (or if the Commitments have expired or been terminated, in accordance with the respective principal amounts of outstanding Loans and Participation Interests of the Lenders), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, reasonable costs, reasonable expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the final payment of all of the obligations of the Borrower hereunder and under the other Credit Documents) be imposed on, incurred by or asserted against the Administrative Agent in its capacity as such in any way relating to or arising out of this Credit Agreement or the other Credit Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of the Administrative Agent. If any indemnity furnished to the Administrative Agent for any purpose shall, in the opinion of the Administrative Agent, be insufficient or become impaired, the Administrative Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. The agreements in this Section shall survive the repayment of the Loans and other obligations under the Credit Documents and the termination of the Commitments hereunder. 10.8 Administrative Agent in its Individual Capacity. The Administrative Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower, its Subsidiaries or their respective Affiliates as though the Administrative Agent were not the Administrative Agent hereunder. With respect to the Loans made by and all obligations of the Borrower hereunder and under the other Credit Documents, the Administrative Agent shall have the same rights and powers under this Credit Agreement as any Lender and may exercise the same as though it were not the 59 Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. 10.9 Successor Administrative Agent. The Administrative Agent may, at any time, resign upon 20 days' written notice to the Lenders and the Borrower, and may be removed, upon show of cause, by the Required Lenders upon 30 days' written notice to the Administrative Agent. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the notice of resignation or notice of removal, as appropriate, then the retiring Administrative Agent shall select a successor Administrative Agent provided such successor is a Lender hereunder or a commercial bank organized under the laws of the United States of America or of any State thereof and has a combined capital and surplus of at least $400,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations as Administrative Agent, as appropriate, under this Credit Agreement and the other Credit Documents and the provisions of this Section 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Credit Agreement. SECTION 11 MISCELLANEOUS 11.1 Notices. Except as otherwise expressly provided herein, all notices and other communications shall have been duly given and shall be effective (i) when delivered, (ii) when transmitted via telecopy (or other facsimile device) to the number set out below, (iii) the day following the day on which the same has been delivered prepaid to a reputable national overnight air courier service, or (iv) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case to the respective parties at the address, in the case of the Borrower, Guarantors and the Administrative Agent, set forth below, and, in the case of the Lenders, set forth on Schedule 11.1, or at such other address as such party may specify by written notice to the other parties hereto: if to the Borrower or the Guarantors: United Dominion Realty Trust, Inc. 10 South Sixth Street Richmond, Virginia 23219-3802 Attn: Chief Financial Officer Telephone: (804) 344-1691 60 Telecopy: (804) 780-0431 with a copy to: United Dominion Realty Trust, Inc. 10 South Sixth Street Richmond, Virginia 23219-3802 Attn: General Counsel Telephone: (804) 819-1885 Telecopy: (804) 788-4607 if to the Administrative Agent: Bank of America, N.A. Real Estate Structured Debt MD2-600-06-14 6610 Rockledge Drive, 6th Floor Bethesda, Maryland 20817 Attn: Eleanor Mitchell-Wharton Loan Administration Telephone: (301) 493-7146 Telecopy: (301) 493-2885 with a copy to: Bank of America, N.A. Real Estate Structured Debt MD2-600-06-14 6610 Rockledge Drive, 6th Floor Bethesda, Maryland 20817 Attn: Kevin McCullough Telephone: (301) 493-2879 Telecopy: (301) 493-2885 11.2 Right of Set-Off. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default, each Lender is authorized at any time and from time to time, without presentment, demand, protest or other notice of any kind (all of which rights being hereby expressly waived), to set-off and to appropriate and apply (subject to Section 3.13) any and all deposits (general or special) and any other indebtedness at any time held or owing by such Lender (including, without limitation branches, agencies or Affiliates of such Lender wherever located) to or for the credit or the account of any Credit Party against obligations and liabilities of such Person to such Lender hereunder, under the Notes, the other Credit Documents or otherwise, irrespective of whether such Lender shall have made any 61 demand hereunder and although such obligations, liabilities or claims, or any of them, may be contingent or unmatured, and any such set-off shall be deemed to have been made immediately upon the occurrence of an Event of Default even though such charge is made or entered on the books of such Lender subsequent thereto. Any Person purchasing a participation in the Loans and Commitments hereunder pursuant to Section 3.13 or Section 11.3(d) may exercise all rights of set-off with respect to its participation interest as fully as if such Person were a Lender hereunder. It is specifically acknowledged and agreed that no right of set-off shall be exercised against accounts identified as holding tenant deposit accounts. 11.3 Benefit of Agreement. (a) Generally. This Credit Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided that none of the Credit Parties may assign or transfer any of its interests without prior written consent of the Lenders; provided further that the rights of each Lender to transfer, assign or grant participations in its rights and/or obligations hereunder shall be limited as set forth in this Section 11.3, provided however that nothing herein shall prevent or prohibit any Lender from (i) pledging its Loans hereunder to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank, or (ii) granting assignments or selling participations in such Lender's Loans and/or Commitments hereunder to its parent Borrower and/or to any Affiliate or Subsidiary of such Lender. (b) Assignments. Each Lender may, with the prior written consent of the Administrative Agent and the Borrower (provided that the consent of the Borrower shall not be unreasonably delayed or withheld and provided further that the consent of the Borrower shall not be required during the existence and continuation of an Event of Default), assign all or a portion of its rights and obligations hereunder, pursuant to an assignment agreement substantially in the form of Schedule 11.3(b), to an Eligible Assignee; provided that (i) any such assignment (other than any assignment to an existing Lender) shall be in a minimum aggregate amount of $10,000,000 (or, if less, the remaining amount of the Commitment of the assigning Lender) of the Commitments and in integral multiples of $1,000,000 above such amount and (ii) each such assignment shall be of a constant, not varying, percentage of all such Lender's rights and obligations under this Credit Agreement. Any assignment hereunder shall be effective upon delivery to the Administrative Agent of written notice of the assignment together with a transfer fee of $3,500 payable to the Administrative Agent for its own account from and after the later of (i) the effective date specified in the applicable assignment agreement and (ii) the date of recording of such assignment in the Register pursuant to the terms of subsection (c) below. The assigning Lender will give prompt notice to the Administrative Agent and the Borrower of any such assignment. Upon the effectiveness of any such assignment (and after notice to, and (to the extent required pursuant to the terms hereof), with the consent of, the Borrower as provided herein), the assignee shall become a "Lender" for all purposes of this Credit Agreement and the other Credit Documents and, to the extent of such assignment, the assigning Lender shall be relieved of its obligations hereunder to the extent of the Loans and Commitment components being assigned. Along such lines the Borrower agrees that upon notice of any 62 such assignment and surrender of the appropriate Note or Notes, it will promptly provide to the assigning Lender and to the assignee separate promissory notes in the amount of their respective interests substantially in the form of the original Note (but with notation thereon that it is given in substitution for and replacement of the original Note or any replacement notes thereof). If the assignee is not a United States person under Section 7701(a)(30) of the Internal Revenue Code, it shall deliver to the Credit Parties and the Administrative Agent certification as to exemption from deduction or withholding of Non-Excluded Taxes in accordance with Section 3.10. By executing and delivering an assignment agreement in accordance with this Section 11.3(b), the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim; (ii) except as set forth in clause (i) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Credit Agreement, any of the other Credit Documents or any other instrument or document furnished pursuant hereto or thereto, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Credit Agreement, any of the other Credit Documents or any other instrument or document furnished pursuant hereto or thereto or the financial condition of any Credit Party or any of their respective Affiliates or the performance or observance by any Credit Party of any of its obligations under this Credit Agreement, any of the other Credit Documents or any other instrument or document furnished pursuant hereto or thereto; (iii) such assignee represents and warrants that it is legally authorized to enter into such assignment agreement; (iv) such assignee confirms that it has received a copy of this Credit Agreement, the other Credit Documents and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such assignment agreement; (v) such assignee will independently and without reliance upon the Administrative Agent, such assigning Lender or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Credit Agreement and the other Credit Documents; (vi) such assignee appoints and authorizes the Administrative Agent to take such action on its behalf and to exercise such powers under this Credit Agreement or any other Credit Document as are delegated to the Administrative Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Credit Agreement and the other Credit Documents are required to be performed by it as a Lender. (c) Maintenance of Register. The Administrative Agent shall maintain at one of its offices in Charlotte, North Carolina a copy of each Lender assignment agreement delivered to it in accordance with the terms of subsection (b) above and a register for the recordation of the identity of the principal amount, type and Interest Period of each Loan outstanding hereunder, the names, addresses and the Commitments of the Lenders pursuant to the terms hereof from time to time (the "Register"). The Administrative Agent will make reasonable efforts to maintain the accuracy of the Register and to promptly update the Register from time to time, as necessary. The entries in the Register shall be conclusive in 63 the absence of manifest error and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Credit Agreement. The Register shall be available for inspection by the Borrower and each Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Participations. Each Lender may sell, transfer, grant or assign participations in all or any part of such Lender's interests and obligations hereunder; provided that (i) such selling Lender shall remain a "Lender" for all purposes under this Credit Agreement (such selling Lender's obligations under the Credit Documents remaining unchanged) and the participant shall not constitute a Lender hereunder, (ii) no such participant shall have, or be granted, rights to approve any amendment or waiver relating to this Credit Agreement or the other Credit Documents except to the extent any such amendment or waiver would (A) reduce the principal of or rate of interest on or Fees in respect of any Loans in which the participant is participating, (B) postpone the date fixed for any payment of principal (including extension of the Termination Date or the date of any mandatory prepayment), interest or Fees in which the participant is participating, or (C) except as expressly provided in the Credit Documents, release any Guarantor from its guaranty obligations hereunder, and (iii) sub-participations by the participant (except to an affiliate, parent Borrower or affiliate of a parent Borrower of the participant) shall be prohibited. In the case of any such participation, the participant shall not have any rights under this Credit Agreement or the other Credit Documents (the participant's rights against the selling Lender in respect of such participation to be those set forth in the participation agreement with such Lender creating such participation) and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation, provided, however, that such participant shall be entitled to receive additional amounts under Sections 3.6, 3.9, 3.10 and 3.11 on the same basis as if it were a Lender. 11.4 No Waiver; Remedies Cumulative. No failure or delay on the part of the Administrative Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Administrative Agent or any Lender and any of the Credit Parties shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies provided herein are cumulative and not exclusive of any rights or remedies which the Administrative Agent or any Lender would otherwise have. No notice to or demand on any Credit Party in any case shall entitle the Borrower or any other Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Administrative Agent or the Lenders to any other or further action in any circumstances without notice or demand. 11.5 Payment of Expenses, etc. 64 The Borrower agrees to: (i) pay all reasonable out-of-pocket costs and expenses (A) of the Administrative Agent in connection with the negotiation, preparation, execution and delivery and administration of this Credit Agreement and the other Credit Documents and the documents and instruments referred to therein (including, without limitation, the reasonable fees and expenses of Moore & Van Allen, PLLC, special counsel to the Administrative Agent) and any amendment, waiver or consent relating hereto and thereto including, but not limited to, any such amendments, waivers or consents resulting from or related to any work-out, renegotiation or restructure relating to the performance by the Credit Parties under this Credit Agreement and (B) of the Administrative Agent and the Lenders in connection with enforcement of the Credit Documents and the documents and instruments referred to therein (including, without limitation, in connection with any such enforcement, the reasonable fees and disbursements of counsel for the Administrative Agent and each of the Lenders); (ii) pay and hold each of the Lenders harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save each of the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Lender) to pay such taxes; and (iii) indemnify each Lender, its officers, directors, employees, representatives and Administrative Agents from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of (A) any investigation, litigation or other proceeding (whether or not any Lender is a party thereto) related to the entering into and/or performance of any Credit Document or the use of proceeds of any Loans (including other extensions of credit) hereunder or the consummation of any other transactions contemplated in any Credit Document, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding or (B) the presence or Release of any Materials of Environmental Concern at, under or from any Property owned, operated or leased by the Borrower or any of its Subsidiaries, or the failure by the Borrower or any of its Subsidiaries to comply with any Environmental Law (but excluding, in the case of either of clause (A) or (B) above, any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of gross negligence or willful misconduct on the part of the Person to be indemnified). 11.6 Amendments, Waivers and Consents. Neither this Credit Agreement nor any other Credit Document nor any of the terms hereof or thereof may be amended, changed, waived, discharged or terminated unless such amendment, change, waiver, discharge or termination is in writing entered into by, or approved in writing by, the Required Lenders and the Borrower, provided, however, that: (a) without the consent of each Lender affected thereby, no such amendment may: (i) extend the final maturity of any Loan, or extend or waive any principal amortization payment of any Loan, or any portion thereof, (ii) reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-default increase in interest rates) thereon or Fees hereunder, 65 (iii) reduce or waive the principal amount of any Loan, (iv) increase the Commitment of a Lender over the amount thereof in effect (it being understood and agreed that a waiver of any Default or Event of Default (other than an Event of Default of the type described in Section 9.1(f) hereof) or mandatory reduction in the Commitments shall not constitute a change in the terms of any Commitment of any Lender), (v) except as the result of or in connection with a dissolution, merger or disposition of a Subsidiary permitted under Section 8.3, release the Borrower or substantially all of the other Credit Parties from its or their obligations under the Credit Documents, (vi) amend, modify or waive any provision of this Section 11.6 or Section 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 9.1(a), 11.2, 11.3, 11.5 or 11.9, (vii) reduce any percentage specified in, or otherwise modify, the definition of Required Lenders, or (viii) consent to the assignment or transfer by the Borrower (or another Credit Party) of any of its rights and obligations under (or in respect of) the Credit Documents except as permitted thereby; and (b) without the consent of the Administrative Agent, no provision of Section 10 may be amended. Notwithstanding the fact that the consent of all the Lenders is required in certain circumstances as set forth above, (x) each Lender is entitled to vote as such Lender sees fit on any bankruptcy reorganization plan that affects the Loans, and each Lender acknowledges that the provisions of Section 1126(c) of the Bankruptcy Code supersedes the unanimous consent provisions set forth herein and (y) the Required Lenders may consent to allow a Credit Party to use cash collateral in the context of a bankruptcy or insolvency proceeding. 11.7 Counterparts. This Credit Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Credit Agreement to produce or account for more than one such counterpart. 11.8 Headings. 66 The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Credit Agreement. 11.9 Survival. All indemnities set forth herein, including, without limitation, in Section 3.9, 3.11, 10.7 or 11.5 shall survive the execution and delivery of this Credit Agreement, the making of the Loans, the repayment of the Loans and other obligations under the Credit Documents and the termination of the Commitments hereunder, and all representations and warranties made by the Credit Parties herein shall survive delivery of the Notes and the making of the Loans hereunder. 11.10 Governing Law; Submission to Jurisdiction; Venue. (a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA. Any legal action or proceeding with respect to this Credit Agreement or any other Credit Document may be brought in the courts of the Commonwealth of Virginia in the City of Richmond, or of the United States for the Eastern District of Virginia, and, by execution and delivery of this Credit Agreement, each of the Credit Parties hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the nonexclusive jurisdiction of such courts. Each of the Credit Parties further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at the address set out for notices pursuant to Section 11.1, such service to become effective three (3) days after such mailing. Nothing herein shall affect the right of the Administrative Agent to serve process in any other manner permitted by law or to commence legal proceedings or to otherwise proceed against any Credit Party in any other jurisdiction. (b) Each of the Credit Parties hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Credit Agreement or any other Credit Document brought in the courts referred to in subsection (a) hereof and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. (c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE ADMINISTRATIVE AGENT, THE LENDERS, THE BORROWER AND THE CREDIT PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY. 11.11 Severability. 67 If any provision of any of the Credit Documents is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions. 11.12 Entirety. This Credit Agreement together with the other Credit Documents represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Credit Documents or the transactions contemplated herein and therein. 11.13 Binding Effect; Termination. (a) This Credit Agreement shall become effective at such time on or after the Closing Date when it shall have been executed by the Borrower, the Guarantors and the Administrative Agent, and the Administrative Agent shall have received copies hereof (telefaxed or otherwise) which, when taken together, bear the signatures of each Lender, and thereafter this Credit Agreement shall be binding upon and inure to the benefit of the Borrower, the Guarantors, the Administrative Agent and each Lender and their respective successors and assigns. (b) The term of this Credit Agreement shall be until no Loans, or any other amounts payable hereunder or under any of the other Credit Documents shall remain outstanding and until all of the Commitments hereunder shall have expired or been terminated. 11.14 Source of Funds. Each of the Lenders hereby represents and warrants to the Borrower that at least one of the following statements is an accurate representation as to the source of funds to be used by such Lender in connection with the financing hereunder: (a) no part of such funds constitutes assets allocated to any separate account maintained by such Lender in which any employee benefit plan (or its related trust) has any interest; (b) to the extent that any part of such funds constitutes assets allocated to any separate account maintained by such Lender, such Lender has disclosed to the Borrower the name of each employee benefit plan whose assets in such account exceed 10% of the total assets of such account as of the date of such purchase (and, for purposes of this subsection (b), all employee benefit plans maintained by the same employer or employee organization are deemed to be a single plan); (c) to the extent that any part of such funds constitutes assets of an insurance Borrower's general account, such insurance Borrower has complied with all of the requirements of the regulations issued under Section 401(c)(1)(A) of ERISA; or 68 (d) such funds constitute assets of one or more specific benefit plans which such Lender has identified in writing to the Borrower. As used in this Section 11.15, the terms "employee benefit plan" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 11.15 Conflict. To the extent that there is a conflict or inconsistency between any provision hereof, on the one hand, and any provision of any Credit Document, on the other hand, this Credit Agreement shall control. [Signature Page to Follow] 69 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Credit Agreement to be duly executed and delivered as of the date first above written. BORROWER: UNITED DOMINION REALTY TRUST, INC., a Virginia corporation By:_________________________ Name: Title: GUARANTORS: UNITED DOMINION REALTY, L.P., a Virginia limited partnership By: United Dominion Realty Trust, Inc., a Virginia corporation, general partner By:_________________________ Name: Title: UDRT OF NORTH CAROLINA, L.L.C., a North Carolina limited liability company By: United Dominion Realty Trust, Inc., a Virginia corporation, sole member By:_________________________ Name: Title: UDR SOUTH CAROLINA TRUST, a Maryland real estate investment trust By:_________________________ Name: Title: UDR WESTERN RESIDENTIAL, INC., a Virginia corporation By:_________________________ Name: Title: SOUTHWEST REIT HOLDING, INC., a Texas corporation By:_________________________ Name: Title: UDR OF TENNESSEE, L.P., a Virginia limited partnership By: United Dominion Realty Trust, Inc., a Virginia corporation, general partner By:_________________________ Name: Title: UDR OF TEXAS PROPERTIES, L.P., a Virginia limited partnership By: UDR Western Residential, Inc., a Virginia corporation, general partner By:_________________________ Name: Title: UDR CALIFORNIA PROPERTIES, L.L.C., a Virginia limited liability company By: United Dominion Realty Trust, Inc., a Virginia corporation, sole member By:_________________________ Name: Title: UDR VIRGINIA PROPERTIES, L.L.C., a Virginia limited liability company By: United Dominion Realty Trust, Inc., a Virginia corporation, sole member By:_________________________ Name: Title: UDR FLORIDA PROPERTIES, L.L.C., a Virginia limited liability company By: United Dominion Realty Trust, Inc., a Virginia corporation, sole member By:_________________________ Name: Title: LENDERS: BANK OF AMERICA, N.A., individually in its capacity as a Lender and in its capacity as Administrative Agent By:___________________________________ Name: Title: BANK HAPOALIM, B.M. By:___________________________________ Name: Title: BRANCH BANKING & TRUST By:___________________________________ Name: Title: THE CHASE MANHATTAN BANK By:___________________________________ Name: Title: COMERICA BANK By:___________________________________ Name: Title: CRESTAR BANK By:___________________________________ Name: Title: FIRST UNION NATIONAL BANK By:___________________________________ Name: Title: SOUTHTRUST BANK, NATIONAL ASSOCIATION By:___________________________________ Name: Title: Schedule 2.1(a) Schedule of Lenders and Commitments Revolving Revolving Commitment Lender Commitment Percentage ------ ---------- -------------------- Bank of America, N.A. $25,500,000 23.18181818% First Union National Bank $25,000,000 22.72727273% SouthTrust Bank, National Association $25,000,000 22.72727273% Branch Banking & Trust $12,500,000 11.36363636% The Chase Manhattan Bank $10,000,000 9.09090909% Crestar Bank $ 5,000,000 4.54545454% Comerica Bank $ 4,000,000 3.63636363% Bank Hapoalim, B.M. $ 3,000,000 2.72727273% Total $110,000,000 100.00% Schedule 2.1(b)(i) FORM OF NOTICE OF BORROWING Bank of America, N.A., as Administrative Agent for the Lenders Real Estate Structured Debt MD2-600-06-14 6610 Rockledge Drive, 6th Floor Bethesda, Maryland 20817 Attn: Loan Administration Re: 364-Day Credit Agreement dated as of September __, 1999 (as amended and modified, the "Credit Agreement") among United Dominion Realty Trust, Inc., the Guarantors and Lenders identified therein and Bank of America, N.A., as Administrative Agent. Terms used but not otherwise defined herein shall have the meanings provided in the Credit Agreement. Ladies and Gentlemen: The undersigned, UNITED DOMINION REALTY TRUST, INC., a Virginia corporation, being the Borrower under the above-referenced Credit Agreement hereby gives notice pursuant to Section 2.1(b) of the Credit Agreement of a request for a Revolving as follows (A) Date of Borrowing (which is a Business Day) _______________________ (B) Principal Amount of Borrowing _______________________ (C) Interest rate basis _______________________ (D) Interest Period and the last day thereof _______________________ In accordance with the requirements of Section 5.2 of the Credit Agreement, the undersigned Borrower hereby certifies that: (a) The representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects as of the date of this request, and will be true and correct after giving effect to the requested Extension of Credit (except for those which expressly relate to an earlier date). (b) No Default or Event of Default exists, or will exist after giving effect to the requested Extension of Credit. (c) As to any Credit Party, no involuntary action has been commenced under applicable bankruptcy, insolvency or other similar law in effect, or any case, proceeding or other action for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) as to any Credit Party or as to any substantial part of the property of any Credit Party or for the winding up or liquidation of its affairs, and remains undismissed, undischarged or unbonded. (d) No circumstances, events or conditions have occurred since the date of the audited financial statements referenced in Section 6.1 of the Credit Agreement which would have a Material Adverse Effect. (e) All conditions set forth in Section 2.1 as to the making of Revolving Loans have been satisfied. Very truly yours, UNITED DOMINION REALTY TRUST, INC. By:_______________________________ Name: Title: Schedule 2.1(e) FORM OF REVOLVING NOTE September 16, 1999 FOR VALUE RECEIVED, UNITED DOMINION REALTY TRUST, INC., a Virginia corporation (the "Borrower"), hereby promises to pay to the order of _____________________, its successors and assigns (the "Lender"), on or before the Termination Date to the office of the Administrative Agent in immediately available funds as provided in the Credit Agreement, the principal amount of the Lender's Revolving Committed Amount or, if less, the aggregate unpaid principal amount of all Revolving Loans made by the Lender to the Borrower, together with interest thereon at the rates and as provided in the Credit Agreement. This Note is one of the Revolving Notes referred to in the 364-Day Credit Agreement dated as of the date hereof (as amended and modified, the "Credit Agreement") among the Borrower, United Dominion Realty, L.P., a Virginia limited partnership, and the Subsidiaries of the Borrower identified therein, as guarantors, the Lenders identified therein and Bank of America, N.A., as Administrative Agent. Terms used but not otherwise defined herein shall have the meanings provided in the Credit Agreement. The holder may endorse and attach a schedule to reflect borrowings evidenced by this Note and all payments and prepayments thereon; provided that any failure to endorse such information shall not affect the obligation of the Borrower to pay amounts evidenced hereby. Upon the occurrence of an Event of Default, all amounts evidenced by this Note may, or shall, become immediately due and payable as provided in the Credit Agreement without presentment, demand, protest or notice of any kind, all of which are waived by the Borrower. In the event payment of amounts evidenced by this Note is not made at any stated or accelerated maturity, the Borrower agrees to pay, in addition to principal and interest, all costs of collection, including reasonable attorneys' fees. This Note and the Loans and amounts evidenced hereby may be transferred only as provided in the Credit Agreement. This Note shall be governed by, and construed and interpreted in accordance with, the law of the Commonwealth of Virginia. IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed as of the date first above written. UNITED DOMINION REALTY TRUST, INC., a Virginia corporation By_________________________________ Name: Title: Schedule 3.2 Form of Notice of Extension/Conversion Bank of America, N.A., as Administrative Agent for the Lenders Real Estate Structured Debt MD2-600-06-14 6610 Rockledge Drive, 6th Floor Bethesda, Maryland 20817 Attn: Loan Administration Re: 364-Day Credit Agreement dated as of September 16, 1999 (as amended and modified, the "Credit Agreement") among United Dominion Realty Trust, Inc., a Virginia corporation (the "Borrower"), the Guarantors and Lenders identified therein and Bank of America, N.A., as Administrative Agent. Terms used but not otherwise defined herein shall have the meanings provided in the Credit Agreement. Ladies and Gentlemen: The Borrower hereby gives notice pursuant to Section 3.2 of the Credit Agreement that it requests an extension or conversion of a Revolving Loan outstanding under the Credit Agreement, and in connection therewith sets forth below the terms on which such extension or conversion is requested to be made: (A) Date of Extension or Conversion (which is the last day of the the applicable Interest Period) _______________________ (B) Principal Amount of Extension or Conversion _______________________ (C) Interest rate basis _______________________ (D) Interest Period and the last day thereof _______________________ In accordance with the requirements of Section 5.2 of the Credit Agreement, the undersigned Borrower hereby certifies that: (a) The representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects as of the date of this request, and will be true and correct after giving effect to the requested Extension of Credit (except for those which expressly relate to an earlier date). (b) No Default or Event of Default exists, or will exist after giving effect to the requested Extension of Credit. (c) As to any Credit Party, no involuntary action has been commenced under applicable bankruptcy, insolvency or other similar law in effect, or any case, proceeding or other action for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) as to any Credit Party or as to any substantial part of the property of any Credit Party or for the winding up or liquidation of its affairs, and remains undismissed, undischarged or unbonded. (d) No circumstances, events or conditions have occurred since the date of the audited financial statements referenced in Section 6.1 of the Credit Agreement which would have a Material Adverse Effect. Very truly yours, UNITED DOMINION REALTY TRUST, INC. By:_________________________________ Name: Title: Schedule 5.1(e)(v) Officer's Certificate Pursuant to Section 5.1(e)(v) of the 364-Day Credit Agreement (the "Credit Agreement"), dated as of September 16, 1999, among United Dominion Realty Trust, Inc., a Virginia corporation, the Guarantors and Lenders identified therein and Bank of America, N.A., as Administrative Agent, the undersigned, ____________________ ,Secretary of _________________________ (the "Corporation"), hereby certifies as follows: 1. Attached hereto as Annex I is a true and complete copy of resolutions duly adopted by the Board of Directors of the Corporation on __________________, 1999. The attached resolutions have not been rescinded or modified and remain in full force and effect. The attached resolutions are the only corporate proceedings of the Corporation now in force relating to or affecting the matters referenced to therein. 2. Attached hereto as Annex II is a true and complete copy of the By-laws of the Corporation as in effect on the date hereof. 3. Attached hereto as Annex III is a true and complete copy of the Certificate of Incorporation of the Corporation and all amendments thereto as in effect on the date hereof. 4. Each of the following persons is now a duly elected and qualified officer of the Corporation, holding the office(s) indicated, and the signature appearing opposite his name below is his true and genuine signature, and such officer is duly authorized to execute and deliver on behalf of the Corporation the Credit Agreement, the Notes and the other Credit Documents and to act as a Responsible Officer on behalf of the Corporation under the Credit Agreement: Name Office Signature - ---- ------ --------- ________________________ IN WITNESS WHEREOF, the undersigned has hereunto set his/her name and affixed the corporate seal of the Corporation. __________________________, Secretary Date: September 16, 1999 (CORPORATE SEAL) I, _______________, Vice President of _______________, hereby certify that _______________, whose genuine signature appears above, is, and has been at all times since _______________, a duly elected, qualified and acting Secretary of _______________. __________________________, Vice President Date: September 16, 1999 Schedule 6.3 Qualifications Concerning Organization, Existence and Compliance with Law Schedule 6.12 Subsidiaries Schedule 7.2(b) Form of Officer's Compliance Certificate This Certificate is delivered in accordance with the provisions of Section 7.2(b) of that 364-Day Credit Agreement dated as of September 16, 1999 (as amended, modified and supplemented, the "Credit Agreement") among United Dominion Realty Trust, Inc., a Virginia corporation, the Guarantors and Lenders identified therein, and Bank of America, N.A., as Administrative Agent. Terms used but not otherwise defined herein shall have the same meanings provided in the Credit Agreement. The undersigned, being a Responsible Officer of United Dominion Realty Trust, Inc., a Virginia corporation, hereby certifies, in my official capacity and not in my individual capacity, that to the best of my knowledge and belief: (a) the financial statements of the Borrower of this Certificate fairly present the financial condition of the parties covered by such financial statements in all material respects; (b) during the period the Credit Parties have observed or performed all of their covenants and other agreements in all material respects, and satisfied in all material respects every material condition, contained in this Credit Agreement to be observed, performed or satisfied by them; and (c) the undersigned has no actual knowledge of any Default or Event of Default. Detailed calculations demonstrating compliance with the financial covenants set out in Section 7.9 of the Credit Agreement are attached to this Certificate. This the ___________ day of ___________________, 199___. UNITED DOMINION REALTY TRUST, INC. By:___________________________ Name: Title: Attachment to Officer's Certificate Computation of Financial Covenants Schedule 7.11 Form of Joinder Agreement THIS JOINDER AGREEMENT (the "Agreement"), dated as of _____________, 19__, is by and between _____________________, a ___________________ (the "Applicant Guarantor"), and BANK OF AMERICA, N.A., in its capacity as Administrative Agent under that certain 364-Day Credit Agreement dated as of September 16, 1999 (as amended and modified, the "Credit Agreement") by and among United Dominion Realty Trust, Inc., a Virginia corporation, the Guarantors and Lenders identified therein and Bank of America, N.A., as Administrative Agent. All of the defined terms in the Credit Agreement are incorporated herein by reference. The Applicant Guarantor has indicated its desire to become a Guarantor or is required by the terms of Section 7.11 of the Credit Agreement to become, a Guarantor under the Credit Agreement. Accordingly, the Applicant Guarantor hereby agrees as follows with the Administrative Agent, for the benefit of the Lenders: 1. The Applicant Guarantor hereby acknowledges, agrees and confirms that, by its execution of this Agreement, the Applicant Guarantor will be deemed to be a party to the Credit Agreement and a "Guarantor" for all purposes of the Credit Agreement and the other Credit Documents, and shall have all of the obligations of a Guarantor thereunder as if it had executed the Credit Agreement and the other Credit Documents. The Applicant Guarantor agrees to be bound by, all of the terms, provisions and conditions contained in the Credit Documents, including without limitation (i) all of the affirmative and negative covenants set forth in Sections 7 and 8 of the Credit Agreement and (ii) all of the undertakings and waivers set forth in Section 4 of the Credit Agreement. Without limiting the generality of the foregoing terms of this paragraph 1, the Applicant Guarantor hereby (A) jointly and severally together with the other Guarantors, guarantees to each Lender, the Administrative Agent and the Issuing Lender as provided in Section 4 of the Credit Agreement, the prompt payment and performance of the Guaranteed Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) strictly in accordance with the terms thereof. and (B) agrees that if any of the Guaranteed Obligations are not paid or performed in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise), the Applicant Guarantor will, jointly and severally together with the other Guarantors, promptly pay and perform the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) in accordance with the terms of such extension or renewal. 2. The Applicant Guarantor acknowledges and confirms that it has received a copy of the Credit Agreement and the Schedules and Exhibits thereto. The information on the Schedule 6.12 to the Credit Agreement is amended to provide the information shown on the attached Schedule A. 3. The Applicant Guarantor hereby waives acceptance by the Administrative Agent and the Lenders of the guaranty by the Applicant Guarantor under Section 4 of the Credit Agreement upon the execution of this Joinder Agreement by the Applicant Guarantor. 4. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute one contract. 5. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the Commonwealth of Virginia. IN WITNESS WHEREOF, the Applicant Guarantor has caused this Joinder Agreement to be duly executed by its authorized officers, and the Administrative Agent, for the benefit of the Lenders, has caused the same to be accepted by its authorized officer, as of the day and year first above written. APPLICANT GUARANTOR By:___________________________ Name: Title: Address for Notices: Attn: _______________________ Telephone: Telecopy: Acknowledged and accepted: BANK OF AMERICA, N.A., as Administrative Agent By:____________________________ Name: Title: Schedule A to Joinder Agreement Schedule 8.7 REMICs and Other Special Subsidiaries Schedule 11.1 Schedule of Lenders' Addresses Bank of America, N.A. Real Estate Structured Debt MD2-600-06-14 6610 Rockledge Drive, 6th Floor Bethesda, Maryland 20817 Attn: Eleanor Mitchell-Wharton Loan Administration Telephone: (301) 493-7146 Telecopy: (301) 493-2885 with a copy to: Bank of America, N.A. Real Estate Structured Debt MD2-600-06-14 6610 Rockledge Drive, 6th Floor Bethesda, Maryland 20817 Attn: Kevin McCullough Telephone: (301) 493-2879 Telecopy: (301) 493-2885 Bank Hapoalim, B.M. 1177 Avenue of the Americas New York, New York 10036 Attn: Shaun Briedbart Telephone: (212) 782-2186 Telecopy: (212) 782-2187 BB&T Branch Banking & Trust 110 South Stratford Road Suite 301 Winston-Salem, North Carolina 27104 Attn: Rufus Yates Telephone: (336) 733-3244 Telecopy: (336) 733-3254 The Chase Manhattan Bank 270 Park Avenue 31st Floor New York, New York 10017 Attn: Marc Costantino Telephone: (212) 270-9554 Telecopy: (212) 270-3513 Comerica Bank 500 Woodward Street 7th Floor Detroit, Michigan 48226 Attn: Leslie Vogel Telephone: (313) 222-9290 Telecopy: (313)222-9295 Crestar Bank 8245 Boone Boulevard Suite 820 Vienna, Virginia 22182 Attn: Nancy Richards Telephone: (703) 902-9039 ` Telecopy: (703) 902-9245 First Union National Bank One First Union Center NC0166 Charlotte, North Carolina 28288 Attn: John Schissel Telephone: (704) 383-1967 Telecopy: (704) 383-6205 Attn: Cindy Beam Telephone: (704) 383-7534 Telecopy: (704) 383-6205 SouthTrust Bank, National Association 420 North 20th Street 11th Floor Birmingham, Alabama 35203 Attn: Lynn Feuerlein Telephone: (205) 254-5870 Telecopy: (205) 254-8270 Attn: Ronnie Brantley Telephone: (205) 254-4438 Telecopy: (205) 254-8270 Schedule 11.3(b) Form of Assignment and Acceptance THIS ASSIGNMENT AND ACCEPTANCE dated as of _________________________, 1996 is entered into between THE LENDER IDENTIFIED ON THE SIGNATURE PAGES AS THE "ASSIGNOR" (the "Assignor") and THE PARTY IDENTIFIED ON THE SIGNATURE PAGES AS THE "ASSIGNEE" ("Assignee"). Reference is made to that 364-Day Credit Agreement dated as of September 16, 1999 (as amended and modified, the "Credit Agreement") among United Dominion Realty Trust, Inc., a Virginia corporation (the "Borrower"), the Guarantors and Lenders identified therein and Bank of America, N.A., as Administrative Agent. Terms defined in the Credit Agreement are used herein with the same meanings. 1. The Assignor hereby sells and assigns, without recourse, to the Assignee, and the Assignee hereby purchases and assumes, without recourse, from the Assignor, effective as of the Effective Date shown below, those rights and interests of the Assignor under the Credit Agreement identified below (the "Assigned Interests"), including the Loans and Commitments relating thereto, together with unpaid interest and fees relating thereto accruing from the Effective Date. The Assignor represents and warrants that it owns the interests assigned hereby free and clear of liens, encumbrances or other claims. The Assignee represents that it is an Eligible Assignee within the meaning of the term in the Credit Agreement. The Assignor and the Assignee hereby make and agree to be bound by all the representations, warranties and agreements set forth in Section 11.3 of the Credit Agreement, a copy of which has been received by each such party. From and after the Effective Date (i) the Assignee, if it is not already a Lender under the Credit Agreement, shall be a party to and be bound by the provisions of the Credit Agreement and, to the extent of the interests assigned by this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent of the interests assigned by this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement (other than the rights of indemnification referenced in Section 11.9 of the Credit Agreement). 2. This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia. 3. Terms of Assignment (a) Date of Assignment: __________________, 199__ (b) Legal Name of Assignor: SEE SIGNATURE PAGE (c) Legal Name of Assignee: SEE SIGNATURE PAGE (d) Effective Date of Assignment: __________________, 199__ See Schedule I attached for a description of the Loans and Commitments (and the percentage interests therein and relating thereto) which are the subject of this Assignment and Acceptance. 4. The fee payable to the Administrative Agent in connection with this Assignment is enclosed. [remainder of page intentionally left blank.] IN WITNESS WHEREOF, the parties hereto have caused the execution of this instrument by their duly authorized officers as of the date first above written. ASSIGNOR: ASSIGNEE: By________________________ By_________________________ Name: Name: Title: Title: ACKNOWLEDGMENT AND CONSENT BANK OF AMERICA, N.A. United Dominion Realty Trust, Inc. as Administrative Agent By_________________________ By_________________________ Name: Name: Title: Title: SCHEDULE I TO ASSIGNMENT AND ACCEPTANCE UNITED DOMINION REALTY TRUST, INC. REVOLVING LOANS PRIOR TO ASSIGNMENT Revolving Revolving Revolving Committed Commitment Loans Amount Percentage Outstanding --------- ---------- ----------- ASSIGNOR ASSIGNEE Total $ $ REVOLVING LOANS SUBJECT OF THIS ASSIGNMENT Revolving Revolving Revolving Committed Commitment Loans Amount Percentage Outstanding --------- ---------- ----------- ASSIGNOR ASSIGNEE Total $ $ REVOLVING LOANS AFTER ASSIGNMENT Revolving Revolving Revolving Committed Commitment Loans Amount Percentage Outstanding --------- ---------- ----------- ASSIGNOR ASSIGNEE Total $ $ EX-10 4 EXHIBIT 10(IV) EXHIBIT 10(iv) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement"), entered into this 30th day of September, 1999, between UNITED DOMINION REALTY TRUST, INC., a Virginia corporation (the "Company") and A. WILLIAM HAMILL (the "Executive"), provides as follows: A G R E E M E N T: NOW, THEREFORE, in consideration of the foregoing, and the mutual promises and undertakings hereinafter set forth, and the payments to be made to the Executive hereunder, the parties hereto agree as follows: 1. Position and Duties. a. The Company hereby agrees to employ and the Executive hereby accepts the position of Chief Financial Officer of the Company, subject to the supervision of the Chief Executive Officer of the Company, or such other senior officer of the Company as may be prescribed by the Chief Executive Officer or the Board of Directors of the Company (the "Board"). The Executive agrees that the description of the executive position shall not limit the Company from assigning to the Executive such other duties and functions in addition to or in substitution of those described above. b. The Executive agrees to serve the Company as a full time executive officer with duties and authority as set forth in the Company's by-laws or as otherwise prescribed by the Board, the Chief Executive Officer, or such other senior officer prescribed by the Chief Executive Officer or the Board. The Executive shall devote such time, attention, skill, and efforts to the performance of his duties as a Company executive as shall be required therefore, all under the supervision and direction of the Board, the Chief Executive Officer, or such other senior officer prescribed by the Board. The Executive agrees that during the period of his employment he will not, without the approval of a majority of the independent directors of the Board, have any other (i) real estate investment trust or business affiliations, or (ii) corporate affiliations that conflict with the business of the Company or interfere with the ability of the Executive to perform his duties for the Company or comply with the covenants under this Agreement. Generally, the Board recognizes the importance of the executive officers of the Company serving on the boards of other companies whose businesses do not conflict with the business of the Company. The Board consents to the Executive serving on the board of directors of Sola International, Inc. and The Cookson Company provided that the responsibilities as a board member do not interfere with carrying out the duties and responsibilities as Chief Financial Officer of the Company. -1- 2. Term of Agreement. This Agreement will take effect as of the date of this Agreement and will end on December 31, 1999. After December 31, 1999, this Agreement will automatically renew for successive one (1) year periods, ending as of December 31 of each year, unless sooner terminated in accordance with Section 4. 3. Compensation and Benefits. a. Base Salary. The Executive's pay will not be less than $265,000 per year, payable in accordance with the Company's regular payroll practices, unless the Executive consents to a lesser base salary in writing. b. Annual Incentive Compensation. The Executive's annual compensation shall also include an annual incentive where the Executive has an opportunity to earn a bonus of at least fifty (50%) of base salary based upon the Executive and the Company meeting certain performance goals and objectives as determined by the Compensation Committee of the Board (the "Compensation Committee"). The Executive acknowledges that the Board or the Compensation Committee, as appropriate, may elect to modify or terminate annual incentive compensation for all executives at any time. c. Long Term Incentive Compensation. The Executive's compensation shall also include participation (i) in the Company's 1982 Stock Option Plan; (ii) in the Company's 1991 Officers Stock Purchase and Loan Plan; and (iii) the "shareholder value plan" or other long-term compensation plan for senior officers of the Company adopted by the Compensation Committee or the Board, on the same basis as similarly situated executive officers of the Company. The Executive acknowledges that the Board or the Compensation Committee, as appropriate, may elect to terminate or modify any or all long-term incentive compensation at any time. d. Associate Benefit Plans. The Executive will be eligible to participate in any and all employee benefit plans, medical insurance plans, retirement plans, and other benefit plans in effect for employees in similar positions at the Company (the "Company Plans") or any other plans applicable for other officers or executive officers of the Company. Such participation shall be subject to the terms of the applicable plan documents and the Company's generally applied policies. In addition, the Executive acknowledges that the Company may elect to terminate or modify any or all Company Plans at any time. e. Travel. It is contemplated that the Executive will be required to incur travel and entertainment expense in the interests and on behalf of the Company and in furtherance of its business. The Executive agrees to comply with the travel and entertainment guidelines of the Company, which may be modified from time to time (the "T&E Guidelines"). The Company at the end of each month during the period of this Agreement will, upon submission of appropriate bills or vouchers, reimburse expenses incurred by the Executive during such month in compliance with -2- the T&E Guidelines. The Executive agrees to maintain adequate records, in such detail as the Company may reasonably request, of all expenses to be reimbursed by the Company hereunder and to make such records available for inspection as and when reasonably requested by the Company. 4. Employment Termination Outside of Change of Control. a. Incapacity; Death. This Agreement may be terminated by the Company, by delivery of a "Notice of Termination" (defined in Section 8) to the Executive or his personal representative given at least thirty (30) days prior to the effective date specified therein, in the event that the Executive shall be unable to perform his duties hereunder for a period of more than three consecutive months as a result of illness or incapacity. This Agreement shall terminate on the death of the Executive. b. Without Cause. This Agreement may be terminated by the Company, without cause, by delivery of a "Notice of Termination" (defined in Section 8) given to the Executive ten (10) days prior to the effective date of such termination. c. Severance Compensation. Upon termination of this Agreement pursuant to Section 4 (a) or 4 (b), the Company shall pay to the Executive or his legal representative certain compensation (the "Severance Compensation") as follows: (i) Base Salary. The Executive shall be paid fifty-two (52) weeks of base salary, and the Company shall continue in effect for a period of fifty-two (52) weeks after the effective date of the Executive's termination, all health/life/disability insurance coverage provided to the Executive and his immediate family on the day immediately prior to the date of notice of termination or, if the Executive shall so elect, the Company shall pay to the Executive an amount equal to the portion of the premium allocable to the Executive for providing such coverage, provided, however, if such coverage cannot be continued by the Company, the Company shall pay to the Executive an amount sufficient for the Executive to obtain substantially similar coverage for a period of fifty-two (52) weeks after the effective date of termination. (ii) Incentive Compensation. The Executive shall also be entitled to annual incentive compensation, (i) actually earned by the Executive, if any, pursuant to Section 3(b) of this Agreement for the Company's current fiscal year prorated through the effective date of termination, which compensation shall be paid no later than forty-five (45) days after the end of the Company's fiscal year and (ii) an amount equal to the sum of the annual incentive compensation earned by the Executive over the two calendar years prior to the effective date of termination, divided by two ("Average Annual Incentive Compensation"). Compensation pursuant to paragraph 3(c)(long term incentive compensation) shall be governed by the terms of the subject plans. -3- (iii) Severance Compensation Reduction. In the event termination is pursuant to Section 4 (a) of this Agreement, the portion of Severance Compensation to be paid pursuant to Section 4(i) and (ii) shall be reduced by the amount of any life insurance proceeds paid by or through the Company or disability insurance payments for one (1) year, as appropriate, payable to the Executive or his personal representative or other beneficiary. (iv) Timing. The Company, at its option, shall pay to the Executive or his legal representative the sums payable to such Executive or his legal representative on account of the portion of Severance Compensation consisting of (y) base salary either in a lump sum or in monthly increments payable on the first day of each month over the succeeding twelve (12) month period; and (z) the Average Annual Incentive Compensation within thirty (30) days after the effective date of termination. (v) Life Insurance. The Executive shall also be entitled to direct the Company to change the beneficiary of any non-group life insurance policy to another person or group. d. By the Executive. This Agreement may be terminated by the Executive, upon delivery of a "Notice of Termination" (defined in Section 8) given at least ninety (90) days before the effective date of termination or for "Good Reason," which, for the purposes of this subsection, shall mean for the reasons set forth in subsections 5(d)(i) to (vi). In such event, the Executive shall not be entitled to any compensation under this Agreement for any period not worked after the termination date, other than compensation to which the Executive is entitled pursuant to Section 5. e. For Cause. The Company may terminate this Agreement for cause by providing a "Notice of Termination" (as defined in Section 8). In such event, the Executive shall not be entitled to any compensation under this Agreement for the period after the termination date, and any compensation paid to the Executive shall be net of any sums owed by the Executive to the Company as a result of the act for which the employment of the Executive was terminated. The circumstances under which the Company will be deemed to have cause to terminate this Agreement will be a breach of this Agreement or a serious offense inconsistent with his duties as an Executive which shall include but not be limited to the following: (i) The Executive is convicted of or pleads nolo contendere to any crime, other than a traffic offense or misdemeanor; (ii) The Executive shall commit, with respect to the Company, an act of fraud or embezzlement or shall have been grossly negligent in the performance of his duties hereunder; -4- (iii) The Executive engages in gross dereliction of duties, refusal to perform assigned duties consistent with his position, or repeated violation of the Company's policies after written warning; or, (iv) The Executive engages in drug abuse. f. Consulting Services. Upon termination of this Agreement, the Executive shall, for a period of up to one year following the effective date of termination, render such advisory or consulting services to the Company as it may reasonably request, taking into account the Executive's health, business commitments, geographical location and other relevant circumstances. The intent of this paragraph is not to obligate the Executive to perform any day-to-day duties for the Company following termination of his employment but only to assist management in effecting a smooth transition of the functions or projects for which the Executive was responsible while an employee of the Company. Should the Executive fail to render such advisory or consulting services, after 30 days' prior written notice to the Executive and the Executive's failure to commence the rendering of such service, the Company's sole remedy shall be to terminate payment of any remaining severance compensation. If this Agreement is terminated pursuant to Section 4(d)(except where the termination is for "Good Reason") or 4(e) and no Severance Compensation is paid to the Executive, the Executive shall be paid on an hourly basis to the extent requested by the Company to perform advisory or consulting services, based upon his base salary prior to termination for the actual time spent for advisory or consulting services for the Company. g. Return of Company Property. The parties acknowledge and agree that records, files, reports, manuals, handbooks, computer diskettes, computer software, customer files and information, documents, equipment and the like, relating to the Company's business or which are developed for or by the Company, or which Executive shall develop, create, use, prepare or come into possession of during his employment with the Company, shall remain the sole property of the Company and Executive covenants to promptly deliver to the Company any and all such property and any copies thereof no later than the termination of Executive's employment with the Company. h. Covenants. The Executive shall not be entitled to any Severance Compensation or benefits for any period he is in violation of the Covenants in Section 6. 5. Change of Control. a. Change of Control. For purposes of this Agreement, "Change of Control" shall mean (i) the merger or consolidation of the Company with any other real estate investment trust, corporation or other business entity, in which the Company is not the survivor (without respect to the legal structure of the transaction), (ii) the transfer or sale of all or substantially all of the assets of the Company other than to an affiliate or subsidiary of the Company, (iii) the liquidation of the Company, or (iv) the acquisition by any person or by a group of persons acting in concert, of more than 50% of the outstanding voting securities of the Company, which results in the resignation or addition of fifty percent (50%) or more members of the Board or the resignation or addition of fifty percent (50%) or more independent members of the Board. -5- b. Compensation Upon Termination. Following a Change in Control that results in termination of the Executive's employment, the Executive shall be entitled to the following benefits unless such termination is by the Executive other than for "Good Reason" (as defined below): (i) Compensation. The Company shall pay the Executive one hundred fifty six (156) weeks of base salary at the rate in effect at the time Notice of Termination is given, and the equivalent of three years of annual incentive compensation based upon the average annual incentive earned by the Executive for the two calendar years prior to the effective date of termination, plus all other amounts to which the Executive is entitled under any compensation plan of the Company. (ii) Benefits. The Company shall provide the Executive with life, disability, accident and health insurance coverage (including any dependent coverage) substantially similar to the coverage the Executive is receiving immediately prior to the Notice of Termination, for a thirty six (36) month period after the Executive's termination. Benefits otherwise receivable by the Executive pursuant to this subsection (ii) shall be reduced to the extent comparable benefits are actually received by the Executive during the thirty six (36) month period following termination, and any such benefits actually received by the Executive shall be reported to the Company. (iii) Long-Term Incentive Compensation. All of the Executive's outstanding options, stock appreciation rights and any other awards in the nature of rights that may be exercised shall become fully vested and immediately exercisable; all restrictions on any outstanding other awards held by the Executive (such as awards of restricted stock) shall lapse; and the Executive's balance in any deferred compensation plan or shareholder value plan shall become fully vested and immediately payable; provided, however, that such acceleration will not occur if, in the opinion of the Company's accountants, such acceleration would preclude the use of "pooling of interest" accounting treatment for a Change of Control transaction that (a) would otherwise qualify for such accounting treatment, and (b) is contingent upon qualifying for such accounting treatment. (iv) Timing. The Severance Payments shall be made no later than the thirtieth (30th) business day following the effective date of termination. However, if the amounts of the Severance Payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate of the minimum amount of such payments and shall pay the remainder of such payments as soon as the amount thereof can be determined but in no event later than the ninetieth (90th) day after the effective date of termination. -6- c. Limitation of Benefits. (i) Notwithstanding anything in this Agreement to the contrary, in the event it shall be determined that any benefit, payment or distribution by the Company to or for the benefit of Executive (whether payable or distributable pursuant to the terms of this Agreement or otherwise)(such benefits, payments or distributions are hereinafter referred to as "Payments") would, if paid, be subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the Code, then the aggregate present value of the Payments shall be reduced (but not below zero) to an amount expressed in present value that maximizes the aggregate present value of the Payments without causing the Payments or any part thereof to be subject to the Excise Tax and therefore nondeductible by the Company because of Section 280G of the Code (the "Reduced Amount"). For purposes of this Section, present value shall be determined in accordance with Section 280G(d)(4) of the Code. (ii) All determinations required to be made under this Section, including whether an Excise Tax would otherwise be imposed, whether the Payments shall be reduced, the amount of the Reduced Amount, and the assumptions to be utilized in arriving at such determinations, shall be made by Ernst & Young, LLP or such other certified public accounting firm acceptable to the Company, in its sole discretion (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days of the receipt of notice from Executive that a Payment is due to be made, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Payments hereunder will have been unnecessarily limited by this Section ("Underpayment"), consistent with the calculations required to be made hereunder. The Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive. d. Good Reason. The Executive shall be entitled to terminate this Agreement for Good Reason. For purposes of this Section 5, "Good Reason" shall mean the occurrence, within two (2) years after a Change in Control, of any of the following circumstances: (i) the assignment to the Executive of any duties inconsistent with the Executive's position and status as Chief Financial Officer or a substantial adverse alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the Change in Control; -7- (ii) a ten percent (10%) or greater reduction by the Company in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions affecting senior executives of the Company and senior executives of any person directly or indirectly in control of the Company; (iii) the Executive's relocation by the Company to a location not within fifty miles of the Executive's present office or job location; (iv) the failure by the Company to pay to the Executive any portion of the Executive's current compensation, or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within thirty (30) days of the date such compensation is due; (v) the failure by the Company to continue in effect any annual or long-term monetary incentive opportunity to which the Executive was entitled, or any compensation plan in which the Executive participates immediately prior to the Change in Control which constitutes more than ten percent (10%) of the Executive's total compensation; provided, however, that the Company may modify the monetary incentive opportunities so as to provide the Executive with the same or similar monetary incentive opportunities; the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement or a similar agreement satisfactory to the Executive; (vii) in the event the Executive terminates this Agreement for Good Reason following a Change in Control as provided by this Section 5, the Executive shall be entitled to the compensation provided by Section 5(b), reduced by the amount of compensation received by the Executive following the Change in Control through the effective date of termination. e. Potential Change of Control. For purposes of this Agreement, a "Potential Change in Control" shall be deemed to have occurred if (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; (iii) any person, who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 9.5% or more of the combined voting power of the Company's then outstanding securities increases his beneficial ownership of such securities by 5% or more over the percentage so owned by such person on the date hereof; or (iv) the Board adopts a resolution to the effect that, for the purposes of this Agreement, a Potential Change in Control has occurred. In the event of a Potential Change in Control the Executive will remain in the employ of the Company until the earliest of (x) a date which is six (6) -8- months from the occurrence of such Potential Change in Control, or (y) the occurrence of a Change in Control. 6. Confidentiality; Non-Competition and Non-Solicitation Covenants. a. Basis for Covenants. The Executive acknowledges that i) he will be employed as an executive officer in a managerial capacity; ii) his employment with the Company gives him access to confidential and proprietary information concerning the Company; iii) the agreements and covenants contained in this Section 6 (the "Covenants") are essential to protect the business of the Company; and iv) the Executive is to receive consideration pursuant to this Agreement. Executive recognizes and acknowledges that the confidential information described in Section 6(b) (the "Confidential Information") which he will acquire in the course of his employment is utilized by the Company in all geographic areas in which the Company does business. Further, the Confidential Information will also be utilized in all geographic areas into which the Company expands its business. Thus, Executive acknowledges that he will be a formidable competitor in all areas where the Company conducts business. Executive also acknowledges that the Covenants serve to protect the Company's investment in the Confidential Information. b. Confidentiality. (i) The Executive acknowledges that he will be exposed to and learn a substantial amount of information which is proprietary and confidential to the Company, whether or not he develops or creates such information. The Executive acknowledges that such proprietary and confidential information may include, but is not limited to, trade secrets; acquisition or merger information; advertising and promotional programs; resource or developmental projects; plans or strategies for future business development; financial or statistical data; customer information, including, but not limited to, customer lists, sales records, account records, sales and marketing programs, pricing matters, and strategies and reports; and any Company manuals, forms, techniques, and other business procedures or methods, devices, computer software or matters of any kind relating to or with respect to any confidential program or projects of the Company, or any other information of a similar nature made available to the Executive and not known in the trade in which the Company is engaged, which, if misused or disclosed, could adversely affect the business or standing of the Company. Confidential Information shall not include information that is generally known or generally available to the public through no fault of the Executive. (ii) The Executive agrees that except as required by law, he will not at any time divulge to any person, agency, institution, company or other entity any information which he knows or has reason to believe is proprietary or confidential to the Company, including but not limited to the types of information described in Section 6(b)(i), or use such information to the -9- competitive disadvantage of the Company. The Executive agrees that his duties and obligations under this Section 6 will continue for 12 months from the termination of his employment or as long as the Confidential Information remains proprietary or confidential to the Company. c. Non-Competition. During the period of the Executive's employment, the Executive agrees that he will not, on behalf of anyone other than the Company, engage in any managerial, executive, sales, or marketing activities related to any business in which the Company is or becomes engaged during the Executive's employment without the consent of the Board. d. Non-Solicitation. The Executive agrees that for a twelve (12) month period following the termination of his employment with the Company for any reason (including the Executive's resignation), the Executive shall not, directly or indirectly, hire or solicit any employee of the Company employed at the time of his termination, or encourage any such employee to leave such employment. e. Scope of Covenants. (i) Executive acknowledges that the Company intends to extend business operations throughout the United States of America. Therefore, for a period of twelve (12) months after termination of Executive's employment for any reason (including Executive's resignation), Executive agrees that he shall not directly or indirectly carry on or participate in the ownership of apartment communities of the same class and quality of the communities owned by the Company that directly competes with the Company anywhere within the United States of America. (ii) Independent of the preceding provision, Executive agrees that he shall not, for a period of twelve (12) months after termination of Executive's employment, directly or indirectly carry on or participate in the ownership or management of apartment communities of the same class and quality of the apartment communities owned by the Company that directly competes with the Company within any county or city in which the Company conducts business. (iii) These covenants shall not apply in the event the Executive is terminated without cause, as a result of a Change of Control, or by the Executive for Good Reason, which, for the purposes of this subsection, shall mean any of the reasons set forth in subsections 5(d)(i) to (iv). f. Reasonableness of Covenants. The Executive agrees that the Covenants are necessary for the reasonable and proper protection of the Company and that the Covenants are reasonable in respect of subject matter, length of time, and geographic -10- scope. The Executive further acknowledges that the Covenants will not unreasonably restrict him from earning a livelihood following the termination of his employment with the Company. g. Governing Law; Public Policy. (i) The parties agree that it is not their intention to violate any public policy or statutory or common law. The parties intend that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. If any provision of this Agreement is found by a court to be unenforceable, the parties authorize the court to amend or modify the provision to make it enforceable in the most restrictive fashion permitted by law. (ii) The Executive and the Company are sophisticated parties and fully understand (i) the ramifications of the non-competition, non-solicitation and confidentiality restrictions of this Agreement and (ii) that the laws of each state with respect to the enforceability of such provisions vary. The parties are specifically selecting the internal laws of the Commonwealth of Virginia to govern this Agreement in order that it be enforceable against all of them. h. Separate Agreement Upon Termination. The provisions of this Section 6 so far as they relate to the period after the end of the term of this Agreement shall continue to have effect and shall operate as a separate agreement between the Company and the Executive. 7. Successors and Assigns. a. The Executive acknowledges and agrees that this Agreement is a contract for his personal services, he is not entitled to assign, subcontract, or transfer any of the obligations imposed or benefits provided under this Agreement. b. This Agreement shall be binding on and will inure to the benefit of any successors or assigns of the Company. 8. Definitions. The following terms shall have the following meanings: a. A "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and, if appropriate, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provisions so indicated. b. "Code" shall mean the Internal Revenue Code of 1986, as amended. -11- 9. Miscellaneous. a. Integration. This Agreement contains the complete agreement between the Executive and the Company with respect to its subject matter. This Agreement supersedes all previous and contemporaneous agreements, negotiations, commitments, writings, and undertakings. b. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Virginia, regardless of choice of law rules. Any dispute arising between the parties related to or involving this Agreement will be litigated in a court having jurisdiction in the Commonwealth of Virginia. c. Modifications. This Agreement may be modified or waived only by a writing signed by both parties. d. Waivers. Any waiver of a breach of this Agreement will not constitute a waiver of any future breach, whether of a similar or dissimilar nature. e. Severability. The covenants in the various provisions of Section 6 are separate and independent contractual provisions. The invalidity or unenforceability of any particular restrictive covenant or any other provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted. WE AGREE TO THIS: UNITED DOMINION REALTY TRUST, INC., a Virginia corporation By: _______________________________ Its: ________________________________ EXECUTIVE - ----------------------------------- A. WILLIAM HAMILL -12- EX-12 5 EXHIBIT 12 EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (DOLLARS IN THOUSANDS) Three Months ended September 30, Nine Months ended September 30, --------------------------------------- -------------------------------------- 1999 1998 1999 1998 ----------------- ----------------- ----------------- ----------------- Income before extraordinary item $20,042 $13,807 $80,416 $66,071 Add: Portion of rents representative of the interest factor 306 155 795 401 Interest on indebtedness 39,014 27,224 116,011 75,784 ================= ================= ================= ================= Earnings $59,362 $41,186 $197,222 $142,256 ================= ================= ================= ================= Fixed charges and preferred stock dividend: Interest on indebtedness $39,014 $27,224 $116,011 $75,784 Capitalized interest 1,074 910 4,259 2,223 Portion of rents representative of the interest factor 306 155 795 401 ----------------- ----------------- ----------------- ----------------- Fixed charges 40,394 28,289 121,065 78,408 ----------------- ----------------- ----------------- ----------------- Add: Preferred stock dividend 9,441 5,650 28,320 16,953 ----------------- ----------------- ----------------- ----------------- Combined fixed charges and preferred stock dividend $49,835 $33,939 $149,385 $95,361 ================= ================= ================= ================= Ratio of earnings to fixed charges 1.47 x 1.46 x 1.63 x 1.81 x Ratio of earnings to combined fixed charges and preferred stock dividend 1.19 1.21 1.32 1.49
EX-27 6 EXHIBIT 27
5 3-MOS DEC-31-1999 SEP-30-1999 9,050 0 0 0 0 123,366 3,972,805 342,291 3,762,930 144,720 2,177,071 0 430,000 102,616 801,397 3,762,930 463,745 465,376 0 185,865 110,649 0 116,011 80,416 0 80,416 0 343 0 80,759 .50 .50
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