Exhibit 10.1
SECOND
AMENDED** AND RESTATED **AGREEMENT
OF LIMITED PARTNERSHIP
OF
UNITED** DOMINION REALTY, **L.P.
Dated** as of July 1, **2026
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**SECOND **
AMENDED** AND RESTATED AGREEMENT OF LIMITED **PARTNERSHIP
OF
UNITED** DOMINION REALTY, **L.P.
Dated** as of **July 1, 2026
** **RECITALS
United Dominion Realty, L.P. (the “Partnership”) was formed as a limited partnership under the laws of the State of Delaware by a Certificate of Limited Partnership filed with the Secretary of State of the State of Delaware on February 19, 2004 and is the successor-in-interest to United Dominion Realty Trust, L.P., a limited partnership formed under the laws of Virginia, which commenced operations on November 4, 1995.The limited partnership agreement of the Partnership was amended and restated on the 29th day of October, 2025 (such agreement, the “First A&R Agreement”). This Second Amended and Restated Agreement of Limited Partnership amends and restates the First A&R Agreement and is adopted this 1st day of July, 2026 pursuant to the provisions of Section 17-211(g) of the Act (as defined below).
AGREEMENT
NOW,THEREFORE,inconsiderationoftheforegoing,ofmutualcovenantsbetweenthe parties hereto, and ofother goodandvaluable consideration,the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
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DEFINED** **TERMS
| 1.01 | Defined** **Terms. |
ThefollowingdefinedtermsusedinthisAgreementshallhavethemeaningsspecified
below:
“Act”meanstheDelawareRevisedUniformLimitedPartnershipAct,asitmaybe
amendedfromtimetotime.
“Additional** **Funds”isdefinedinSection4.03.
“Additional Limited Partner” means a Person admitted to this Partnership as a Limited Partner pursuant to Section 4.02.
“Affiliate”means,(i)anyPersonthat,directlyorindirectly,controlsoriscontrolledbyor is under common control with such Person, (ii)any other Person that owns, beneficially, directly or indirectly, 10% or more of the outstanding capital stock, shares or equity interests of such Person, or (iii)any officer, director, employee, partner or trustee of such Person or any Person controlling, controlled by or under common control with such Person (excluding trustees and persons serving in similar capacities who are not otherwise an Affiliate of such Person).For the purposesofthisdefinition,“control”(includingthecorrelativemeaningsoftheterms“controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession,directly or indirectly, ofthe power to direct or cause the direction of themanagement and policiesof such Person, throughthe ownership of voting securities orpartnershipinterests or otherwise.
“Agreed** **Value”meansthefairmarketvalueofaPartner’snon-cashCapitalContribution asofthedateofcontributionasagreedtobythesuchPartnerandtheGeneralPartner.Thename and address of each Partner, number of Partnership Units issued to such Partner, and the Agreed ValueofsuchPartner’snon-cashCapitalContributionsasofthedateofcontributionthereofisset forth on Exhibit A.
“Agreement” means this Second Amended and Restated Agreement of Limited Partnership, as amended from time to time.
“Available Cash” means, for any period, the excess, if any, of (i)the cash receipts of the Partnership (other than from the sale, exchange or other disposition of the assets of the Partnership), including amounts withdrawn from reserves, over (ii)the disbursements of cash by the Partnership (other than distributions to Partners and amounts paid with the receipts from the sale, exchange or other disposition of the assets of the Partnership), including amounts deposited in reserves.Available Cash for any period shall be determined by the General Partner in its reasonable discretion.
“Capital** **Account”isdefinedinSection4.04.
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“Capital Contribution” means the total amount of capital contributed to the Partnership by each Partner.Any reference to the Capital Contribution of a Partner shall include the Capital ContributionmadebyapredecessorholderofthePartnershipInterestofsuchPartner.Thepaid-in Capital Contribution shall mean the cash amount or the Agreed Value of other assets actually contributed by each Partner to the capital of the Partnership.
“Cash Amount” means an amount of cash per Partnership Unit equal to the Value of the REIT Shares Amount on the date of receipt by the General Partner of a Notice of Redemption.
“Certificate” means any instrument or document that is required under the laws of the State of Delaware, or any other jurisdiction in which the Partnership conducts business, to be signed and sworn to by the Partners of the Partnership (either by themselves or pursuant to the power-or-attorney granted to the General Partner in Section 8.02) and filed for recording in the appropriate public offices within the State of Delaware or such other jurisdiction to perfect or maintain the Partnership as a limited partnership, to effect the admission, withdrawal, or substitution of any Partner of the Partnership, or to protect the limited liability of the Limited Partners as limited partners under the laws of the State of Delaware or such other jurisdiction.
“Charter”means the Articlesof Incorporation ofthe Company, asamended fromtime to
time.
“Class** A **Partner”meansaLimitedPartnerwhoholdsClassAPartnershipUnits.
“Class** A Partnership **Units”meansPartnershipInterestshavingtherightsand preferencesofaClassAPartnershipUnitas setforthinthisAgreement.
“Class** A Specified Redemption **Date”meansthedatethatClassAPartnershipUnitsare required to be redeemed or acquired pursuant to Section 8.05(d).
“Code”meanstheInternalRevenueCodeof1986,asamended,andashereafteramended fromtimetotime.ReferencetoanyparticularprovisionoftheCodeshallmeanthatprovisionin the Code at the date hereof and any successor provision of the Code.
“Commission”meanstheSecuritiesandExchangeCommission.
“Company” means UDR, Inc., a Maryland corporation.
“Contribution** **Agreements”meanscollectivelythatcertainContributionAgreement datedasof May2,2003 between the General Partner, the Partnership,MesaVerde Villas II, L.P. andM.V.JV,LLCandthatcertainContributionAgreementdatedasofMay2,2003betweenthe General Partner, the Partnership and Windjammer Apartments, L.P.
“Contributor”** **meanseachofMesaVerdeVillasII,L.P.,M.V.JV,LLC,orWindjammer Apartments, L.P.
“Conversion Factor” means 1.0, as adjusted pursuant to Section 8.05(f) of this Agreement.
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“Cross** Over **Date”means,withrespecttoaClassAPartnershipUnit,thefirsttooccurof (i)thedateonwhichaClassAPartnerwouldhavereceiveddistributionswithrespecttotheClass A Partnership Units held by such Class A Partner equal to or greater than the Threshold Amount for a period of four consecutive calendar quarters, assuming such Class A Partner had received distributionsbasedontheDividendEquivalentinsteadofdistributionsontheClassAPartnership UnitspursuanttothisAgreement,or(ii)thedateonwhichtheClassAPartnerholdingsuchClass A Partnership Units gives written notice to the Partnership in accordance with Section 12.01 of thisAgreementthatsuchdateshallbetheCrossOverDatewithrespecttosuchClassAPartnership Units.
“Dividend Equivalent” as to any Partner means the amount of distributions such Partner wouldhavereceivedforthequarter(orotherdistributionperiod)fromREITSharesifsuchPartner owned the number of REIT Shares equal to the product of such Partner’s Partnership Units and the Conversion Factor for the Partnership Record Date pertaining to such quarter (or other distribution period); provided, however, that for purposes of determining any Partner’s Dividend EquivalentforanyperiodforwhichtheCompanypaysadividendwithrespecttoREITSharesin whichholdersofREITShareshaveanoptiontoelecttoreceivesuchdividendincashoradditional REIT Shares, the amount of distributions such Partner shall be deemed to have received with respecttosuchdividend(ifsuchPartnerwasdeemedtoownthespecifiednumberofREITShares) shall be equal to the product of (i) the specified number of REIT Shares deemed to be owned by such Partner, and (ii) the quotient obtained by dividing (a) the aggregate amount of cash paid by theCompanyinsuchdividendtoallholdersofREITShares,by(b)theaggregatenumberofREIT Shares outstanding as of the close of business on the record date for such dividend.
“Event** of **Bankruptcy”astoanyPersonmeansthefilingofapetitionforreliefastosuch Person as debtor or bankrupt under the Bankruptcy Code of 1978 or similar provision of law of anyjurisdiction(exceptifsuchpetitioniscontestedbysuchPersonandhasbeendismissedwithin 90 days); insolvency or bankruptcy of such Person as finally determined by a court proceeding; filingbysuchPersonofapetitionorapplicationtoaccomplishthesameorfortheappointmentof a receiver or a trustee for such Person or a substantial part of his assets; commencement of any proceedings relating to such Person as a debtor under any other reorganization, arrangement, insolvency,adjustmentofdebtorliquidationlawofanyjurisdiction,whethernowinexistenceor hereinafter in effect, either by such Person or by another, provided that if such proceeding is commenced by another, such Person indicates his approval of such proceeding, consents thereto or acquiesces therein, or such proceeding is contested by such Person and has not been finally dismissed within 90 days.
“Family Member” means, as to a Person that is an individual, such Person’s spouse, ancestors, descendants (whether by blood or by adoption), brothers, sisters and inter vivos or testamentarytrustsofwhichonlysuchPersonandhisspouse,ancestors,descendants(whetherby blood or by adoption), brothers and sisters are beneficiaries.
“General Partner” means the Company and any Person who becomes a substitute or additionalGeneralPartnerasprovidedherein,andanyoftheirsuccessorsasGeneralPartner.At anytimeatwhichthePartnershiphastwoormoreGeneralPartners,allsuchGeneralPartnersshall designate one of such General Partners as managing General Partner and may from time to time designateasuccessormanagingGeneralPartnerand,unlessthecontextotherwiserequires,
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referencestotheGeneralPartnershallmeantheGeneralPartneratthetimesodesignatedas managing General Partner.
“General** Partnership **Interest”meansaPartnershipInterestheldbytheGeneralPartner that is a general partnership interest.
“Indemnitee” means (i)any Person made a party to a proceeding by reason of such Person’s status as the General Partner or a director, officer or employee of the Partnership or the General Partner, and (ii)such other Persons (including Affiliates of the General Partner or the Partnership) as the General Partner may designate from time to time, in its sole and absolute discretion,
“Limited Partner” means any Person named as a Limited Partner on Exhibit* *Aattached hereto,andanyPersonwhobecomesaSubstituteorAdditionalLimitedPartner,insuchPerson’s capacity as a Limited Partner in the Partnership.
“Limited** Partnership **Interest”meanstheownershipinterestofaLimitedPartnerinthe Partnership at any particular time, including the right of such Limited Partner to any and all benefits to which such Limited Partner may be entitled as provided in this Agreement and in the Act,togetherwiththeobligationsofsuchLimitedPartnertocomplywithalltheprovisionsofthis Agreement and of such Act.
“Loss”isdefinedinSection 5.01(f).
“Minimum Limited Partnership Interest” means the lesser of (i)1% or (ii)if the total Capital Contributions to the Partnership exceeds $50 million, 1% divided by the ratio of the total Capital Contributions to the Partnership to $50 million; provided, however, that the Minimum Limited Partnership Interest shall not be less than 0.2% at any time.
“Notice** of **Redemption”meanstheNoticeofExerciseofRedemptionRightsubstantially in the form attached as Exhibit Bhereto.
“NYSE” means the New York Stock Exchange and includes any other national securities exchange on which the REIT Shares are listed at the determination date.
“Offer”isdeemedinSection7.01(c).
“Original Limited Partner” means UDRT of North Carolina, LLC., a North Carolina limited liability company.
“Outside** **Partner”meansanyPartnerotherthanaUDRPartner. “Partner” means any General Partner or Limited Partner.
“Partner Nonrecourse Debt Minimum Gain” has the meaning set forth in Regulations Section 1.704-2(i).A Partner’s share of Partner Nonrecourse Debt Minimum Gain shall be determined in accordance with Regulations Section 1.704-2(i)(5).
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“Partnership Interest” means an ownership interest in the Partnership held by either a Limited Partner or the General Partner and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement.
“Partnership** Minimum **Gain”hasthemeaningsetforthinRegulationsSection1.704- 2(d).In accordance with Regulations Section 1.704-2(d), the amount of Partnership Minimum Gain is determined by first computing, for each Partnership nonrecourse liability, any gain the Partnershipwouldrealizeifitdisposedofthepropertysubjecttothatliabilityfornoconsideration otherthanfullsatisfactionoftheliability,andthenaggregatingtheseparatelycomputedgains.A Partner’sshareofPartnershipMinimumGainshallbedeterminedinaccordancewithRegulations Section 1.704-2(g)(l).
“Partnership** Record **Date”meanstherecorddateestablishedbytheGeneralPartnerfor thedistributionofcashpursuanttoSection5.02,whichrecorddateshallbethesameastherecord date established by the General Partner for a distribution to the holders of the REIT Shares.
“Partnership** **Unit”meansafractional,undividedshareofthePartnershipInterestsofall Partners issued hereunder.The allocation of Partnership Units among thePartners shall be as set forth on Exhibit A, as may be amended from time to time.
“Percentage Interest” means at any time the percentage ownership interest in the PartnershipofeachPartner,asdeterminedbydividingthePartnershipUnitsownedbysuchPartner bythetotalnumberofPartnershipUnitsoutstandingatsuchtime.ThePercentageInterestofeach Partner shall be as set forth on Exhibit A, as may be amended from time to time.
“Percentage** Interest Adjustment **Date”meanstheeffectivedateofanadjustmentofthe Partners’ Percentage Interests pursuant to Section 4.05.
“Person”meansanyindividual,partnership,corporation,jointventure,trustorother entity.
“Preferred** **Return”means,astoeachClass APartner,acumulativeannual,non- compounded return on each ClassA Partnership Unit equal to eight percent (8%) based upon avalue of $16.61 per Class A Partnership Unit.
“Profit”isdefinedinSection5.01(f).
“Property” means any apartment property or other investment in which the Partnership holds an ownership interest.
“Redeeming** **Partner”isdeemedinSection8.05(a). “Redemption Right” is defined in Section 8.05(a).
“Regulations”meanstheFederalIncomeTaxRegulationsissuedundertheCode,as amendedandashereafteramendedfromtimetotime.Referencetoanyparticularprovisionofthe
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Regulations shall mean that provision of the Regulations on the date hereof and any successor provision of the Regulations.
“REIT”meansarealestateinvestmenttrustunderSections856through860oftheCode.
“REIT** **Expenses”means(i)costsandexpensesrelatingtothecontinuityofexistenceof the Company and its Subsidiaries (all such entities shall, for purposes of this section, be included within the definition of Company), including, without limitation, taxes, fees and assessments associated therewith and any costs, expenses or fees payable to any director, officer or employee of the Company (including, without limitation, any costs of indemnification), (ii)costs and expenses relating to any offer or registration of REIT Shares or other securities by the Company and all statements, reports, fees and expenses incidental thereto, including, without limitation, underwritingdiscountsandsellingcommissionsapplicabletoanysuchofferofsecuritiesandany costs and expenses associated with any claims made by any holders of such securities or any underwritersorplacementagentsthereof,(iii)costsandexpensesincurredinconnectionwiththe repurchase of any securities by the Company, (iv)costs and expenses associated with the preparationandfilingofanyperiodicorotherreportsandcommunicationsbytheCompanyunder federal, state or local laws or regulations, including filings with the Commission, (v)costs and expenses associated with compliance by the Company with laws, rules and regulations promulgatedbyanyregulatorybody,includingtheCommissionandanysecuritiesexchange, (vi)costs and expenses associated with any 401(k) plan, incentive plan, bonus plan or other plan providingfor compensation forthe employees ofthe Company, (vii)costs and expenses incurred bytheCompanyrelatingtoanyissuanceorredemptionofPartnershipInterests,and(viii)allother operatingoradministrativecostsincurredbytheCompanyinconnectionwiththeordinarycourse oftheCompany’sorthePartnership’sbusiness(includingthebusinessofanySubsidiarythereof).
“REIT Share” means a share of common stock of the Company, $1 par value per share, or a share of the common stock of any Successor Entity.
“REIT** Shares **Amount”shallmeanawholenumberofREITSharesequaltotheproduct ofthenumberofPartnershipUnitsofferedforredemptionbyaRedeemingPartner,multipliedby the Conversion Factor as adjusted to and including the Specified Redemption Date plus cash in lieuofanyfractionalREITSharesbasedontheValueofaREITShareasofthedateofreceiptby the General Partner of a Notice of Redemption; provided that in the event the Company issues to all holders of REIT Shares rights, options, warrants or convertible or exchangeable securities entitling the stockholders to subscribe for or purchase REIT Shares, or any other securities or property (collectively, the “rights”), and the rights have not expired at the Specified Redemption Date, then the REIT Shares Amount shall also include the rights issuable to a holder of the REIT Shares Amount of REIT Shares on the record date fixed for purposes of determining the holders of REIT Shares entitled to rights.
“Securities** **Act”meanstheSecuritiesActof1933,asamended. “Service” means the Internal Revenue Service.
“Specified** Redemption **Date”means(i)withrespecttoPartnershipUnitstoberedeemed foraCashAmount,thefirstBusinessDayofthemonththatisatleast20businessdaysafterthe
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receiptbytheGeneralPartneroftheNoticeofRedemption,asthesamemaybeextendedpursuant to Section 8.05(d)and (ii)with respect to Partnership Units to be redeemed for a REIT Shares Amount, the fifth Business Day following the date of the General Partner’s notice of its election to purchase such Partnership Units pursuant to Section 8.05(b).
“Subsidiary” means, with respectto any Person, any corporation or otherentity of which a majority of (i)the voting power of the voting equity securities (including general partners’ interests) or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person.
“Substitute** Limited **Partner”meansanyPersonadmittedtothePartnershipasaLimited Partner pursuant to Section 9.03.
“Threshold** **Amount”meansafixeddistributionof$1.3288perannum. “Transaction” is defined in Section 7.01(c).
“Transfer”isdefinedinSection9.02(a).
“UDR** **Partner”meanstheCompanyandanyPartnerthatisanAffiliateoftheCompany.
“Value”means,withrespecttoanysecurity,theaverageofthedailymarketpriceofsuch security for the twenty (20) consecutive trading days immediately preceding the date of such valuation.The market price for each such trading day shall be: (i)if such security is listed or admittedtotradingonanysecuritiesexchangeorTheNasdaqNationalMarket,theclosingprice, regularway,onsuchdayor,ifnosaletakesplaceonsuchday,theaverageoftheclosingbidand asked prices on such day, (ii)if such security is not listed or admitted to trading on any securities exchange or The Nasdaq National Market, the last reported sale price on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported byarecognizedquotationsourcedesignatedbytheCompany,or(iii)ifsuchsecurityisnotlisted oradmittedtotradingonanysecuritiesexchangeorTheNasdaqNationalMarketandnosuchlast reported sale price or closing bid and asked prices are available, the average of the reported high bidandlowaskedpricesonsuchday,asreportedbyarecognizedquotationsourcedesignatedby the General Partner, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than twenty (20) days prior to the date in question) for which prices have been so reported; provided, that if there are no bid and asked prices reported during the twenty (20) days prior to the date in question, the valueofsuchsecurityshallbedeterminedbytheGeneralPartneractingingoodfaithonthebasis of such quotations and other information as it considers, in its reasonable judgment, appropriate. In the event that any security includes any additional rights the value of which is not included within such price, then the value of such rights shall be determined by the General Partner acting ingoodfaithonthebasisofsuchquotationsandotherinformationasitconsiders,initsreasonable judgment, appropriate, and included in determining the “Value” of such security.
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PARTNERSHIP** CONTINUATION AND **IDENTIFICATION
2.01Defined** **Terms.ThePartnersherebyagreetocontinuethePartnershippursuantto the Act and upon the terms and conditions set forth in this Agreement.
2.02** Name, Office and Registered **Agent.ThenameofthePartnershipshallbeUnited DominionRealty,L.P.ThespecifiedofficeandplaceofbusinessofthePartnershipshallbe1745 SheaCenterDrive,Suite200,HighlandsRanch,Colorado80129.TheGeneralPartnermayatany time change the location of such office, provided the General Partner gives notice to the Partners ofanysuchchange.ThenameandaddressofthePartnership’sregisteredagentisTheCorporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle.The sole duty of the registered agent as such is to forward to the Partnership any notice that is served on it as registered agent.
| 2.03 | ** **Partners. |
(a)TheGeneralPartnerofthePartnershipistheCompany.Itsprincipalplace of business shall be the same as that of the Partnership.
(b)The Limited Partners shall be those Persons identified as Limited Partners on Exhibit Ahereto, as amended from time to time.
| 2.04 | Term** and Dissolution**. |
(a)The term of the Partnership shall continue in full force and effect until the Partnershipisdissolvedasprovidedbylaworuponthefirsttooccurofanyofthefollowingevents:
(i)The occurrence of an Event of Bankruptcy as to a General Partner or the dissolution, deathor withdrawal of a General Partner unless the Partnership is continued pursuant to Section 2.04(c); provided, that if a General Partner is on the date of such occurrence a partnership, the dissolution of such General Partner asaresultofthedissolution,death,withdrawal,removalorEventofBankruptcyof apartnerinsuchpartnershipshallnotbeaneventofdissolutionofthePartnership if the business of such General Partner is continued by the remaining partner or partners,eitheraloneorwithadditionalpartners,andsuchGeneralPartnerandsuch partners comply with any other applicable requirements of this Agreement;
(ii)The passage of 90 days after the sale or other disposition of all or substantially all of the assets of the Partnership (provided that if the Partnership receivesoneormoreobligationsasconsiderationforsuchsaleorotherdisposition, thePartnershipshallcontinue,unlesssoonerdissolvedundertheprovisionsofthis Agreement, until such time as all of such obligations are paid or satisfied in full);
(iii)Theredemptionof all LimitedPartnershipInterests(other thanany of such interests held by the Company or any Subsidiary thereof); or
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(iv)The election by the General Partner that the Partnership should be dissolved.
(b)Upon dissolution of the Partnership (unless the Partnership is continued pursuant to Section 2.04(c)) the General Partner (or its trustee, receiver, successor or legal representative) shall amend or cancel the Certificate and liquidate the Partnership’s assets and apply and distribute the proceeds thereof in accordance with Section 5.06.Notwithstanding the foregoing, the liquidating General Partner may either (i)defer liquidation of, or withhold from distribution for a reasonable time, any assets of the Partnership (including those necessary to satisfythePartnership’sdebtsandobligations),or(ii)distributetheassetstothePartnersinkind.
(c)Notwithstanding Section 2.04(a)(i), upon the occurrence of an Event of Bankruptcy as to a General Partner or the dissolution, death or withdrawal of a General Partner, the Limited Partners, within 90 days after such occurrence, may elect to continue the Partnership for the balance of the term specified in Section 2.04(a)by selecting, subject to Section 7.02 and any other provisions of this Agreement, a substitute General Partner by consent of a majority in interestoftheLimitedPartners.IftheLimitedPartnerselecttocontinuethePartnershipandadmit asubstituteGeneralPartner,therelationshipwiththePartnersandofanyPersonwhohasacquired an interest of a Partner in the Partnership shall be governed by this Agreement.
2.05Filing of Certificate and Perfection of Limited Partnership.The General Partner shall execute, acknowledge, record and file at the expense of the Partnership, the Certificate and any and all amendments thereto and all requisite fictitious name statements and noticesinsuchplacesandjurisdictionsasmaybenecessarytocausethePartnershiptobetreated as a limited partnership under, and otherwise to comply with, the laws of each state or other jurisdiction in which the Partnership conducts business.
2.06Certificates Describing Partnership Units.At the request of a Limited Partner, the General Partner, at its option, may issue a certificate summarizing the terms of such Limited Partner’s interest in the Partnership, including the number of Partnership Units owned and the Percentage Interest represented by such Partnership Units as of the date of such certificate.Any suchcertificate(i)shallbeinformandsubstanceasapprovedbytheGeneralPartner,(ii)shallnot be negotiable and (iii) shall bear the following legend:
Thiscertificateisnotnegotiable.ThePartnershipUnitsrepresentedbythiscertificateare governedbyandtransferableonlyinaccordancewiththeprovisionsoftheSecond AmendedandRestated Agreement of Limited Partnership of United Dominion Realty, L.P., as amended from time to time.
BUSINESS** OF THE PARTNERSHIP**
3.01Business of the Partnership.The purpose and nature of the business to be conducted by the Partnership is (i)to conduct any business that may be lawfully conducted by a limited partnership organized pursuant to the Act, provided, however, that such business shall be limited to andconductedinsuch a manner as topermit the Companyatalltimestoqualifyas a
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REIT,unlesstheCompanyotherwiseceasestoqualifyasaREIT,(ii)toenterintoanypartnership, joint venture or other similar arrangement to engage in any of the foregoing or the ownership of interests in any entity engaged in any of the foregoing and (iii)to do anything necessary or incidentaltotheforegoing.Inconnectionwiththeforegoing,andwithoutlimitingtheCompany’s right in its sole and absolute discretion to cease qualifying as a REIT, the Partners acknowledge thattheCompany’scurrentstatusasaREITandtheavoidanceofincomeandexcisetaxesonthe CompanyinurestothebenefitofallthePartnersandnotsolelytotheCompany.Notwithstanding the foregoing, the Limited Partners acknowledge that the Company may terminate its status as a REITundertheCodeatanytimetothefullextentpermittedbytheCharter.SubjecttoArticleXI hereof, the General Partner shall also be empowered (but shall not be required) to do any and all acts and things necessary or prudent to ensure that the Partnership will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Code.
CAPITAL** CONTRIBUTIONS AND **ACCOUNTS
4.01Capital Contributions.The General Partner and the Limited Partners have contributed to the capital of the Partnership cash or property in an amount or having an Agreed Value set forth opposite their names on Exhibit A, as amended from time to time.
4.02Additional Capital Contributions and Issuances of Additional Partnership** **Interests.Except as provided in this Section 4.02 or in Section 4.03, the Partners shall have no right or obligation to make any additional Capital Contributions or loans to the Partnership.The Partners, with the consent of the General Partner, which consent may be withheld in its sole and absolute discretion, may contribute additional capital to the Partnership, from time to time, and receive additional Partnership Interests in respect thereof, in the manner contemplated in this Section 4.02.
(a)Issuances of Additional Partnership Interests.The General Partner is herebyauthorizedtocausethePartnershiptoissuesuchadditionalPartnershipInterestsintheform of Partnership Units for any Partnership purpose at any time or from time to time, to the Partners (including the General Partner) or to other Persons for such consideration and on such terms and conditions as shall be established by the General Partner in its sole and absolute discretion, all withouttheapprovalofanyLimitedPartners.AnyadditionalPartnershipInterestsissuedthereby may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties, including rights, powers and duties senior to Limited Partnership Interests, all as shall be determined by the General Partner in its sole and absolute discretion and without the approval of any Limited Partner, subject to Delaware law, including, without limitation, (i)the allocations of items of Partnership income, gain, loss, deduction and credit to each such class or series of Partnership Interests; (ii)the right of each such class or series of Partnership Interests to share in Partnership distributions; and (iii)the rights of each such class or series of Partnership Interests upon dissolution and liquidation of the Partnership.Without limiting the foregoing, the General PartnerisexpresslyauthorizedtocausethePartnershiptoissuePartnershipUnitsforlessthanfair marketvalue,solongastheGeneralPartnerconcludesingoodfaiththatsuchissuanceisinthe
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bestinterestsoftheCompanyandthePartnership.UponeachissuanceofPartnershipUnits hereunder, the General Partner shall amend Exhibit Aattached hereto to reflect such issuance.
(b)Certain Deemed Contributions of Proceeds of Issuance of Company**Securities.If (i)the Company issues securitiesand contributes some orallthe proceeds raised in connection with such issuance to the Partnership and (ii)the proceeds actually received and contributedbytheCompanytothePartnershiparelessthanthePartnership’sshare(asdetermined by the General Partner, in its sole and absolute discretion) of the gross proceeds of such issuance asaresultofanyunderwriter’sdiscountorotherexpensespaidorincurredinconnectionwithsuch issuance,thentheCompanyshallbedeemedtohavemadeCapitalContributionstothePartnership in the aggregate amountof the Partnership’s share of the gross proceeds of such issuance that are contributed to the Partnership and the Partnership shall be deemed simultaneously to have paid such offering expenses in connection with the issuance of additional Partnership Units to the Company for such Capital Contributions pursuant to Section 4.02(a).In any case in which the Company contributes less than all of the proceeds of such issuance to the Partnership, it shall be deemed to have contributed the gross proceeds of issuance of the number of units of the issued security (or the number of dollars of principal in the case of debt securities) equal to the quotient of the division of the amount of proceeds contributed by the net proceeds per unit (or per dollar), and the Partnership shall be deemed to have paid offering expenses equal to the product of such number of units (or dollars) times the per unit (or per dollar) offering expenses.
(c)Minimum Limited Partnership Interest.In the event that either a redemption pursuant to Section 8.05 or additional Capital Contributions by the General Partner and the Original Limited Partner would result in the Limited Partners (other than the Original Limited Partner), in the aggregate, owning less than the Minimum Limited Partnership Interest, the General Partner and the Limited Partners (other than the Original Limited Partner) shall form anotherpartnershipandcontributesufficientLimitedPartnershipIntereststogetherwithsuchother Limited Partners so that the Limited Partners (other than the Original Limited Partner), in the aggregate, own at least the Minimum Limited Partnership Interest.
4.03Loans to the Partnership.If the General Partner determines that it is in the best interests of the Company and the Partnership to provide for additional Partnership funds (“Additional Funds”) for any Partnership purpose, the General Partner may (i)cause the Partnership to obtain such funds from outside borrowings or (ii)elect to have the Company or a Subsidiary or Subsidiaries of the Company loan such Additional Funds to the Partnership.The loans to the Partnership shall be in exchange for such consideration and on such terms and conditions as shall be established by the General Partner in its sole and absolute discretion, all withouttheapprovalofanyLimitedPartners.Withoutlimitingtheforegoing,theGeneralPartner is expressly authorized to cause the Partnership to issue debt securities for less than fair market value, so long as the General Partner concludes in good faith that such issuance is in the best interests of the Company and the Partnership.
4.04Capital Accounts.A separate capital account (a “Capital Account”) shall be established and maintained for each Partner in accordance with Regulations Section 1.704-l(b)(2)(iv).If(i)aneworexistingPartneracquiresanadditionalPartnershipInterestinexchange formorethanademinimisCapitalContribution;(ii)thePartnershipdistributestoaPartnermore than a de minimis amount of Partnership property as consideration for a PartnershipInterest; (iii)
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thePartnershipisliquidatedwithinthemeaningofRegulationSection1.704-1(b)(2)(ii)(g);or(iv) an interest in the Partnership (other than a de minimis interest) is granted as consideration for the provision of services to or for the benefit of the Partnership by an existing Partner acting in a partnercapacity,orbyanewPartneractinginapartner capacityorinanticipation ofbecominga Partner of the Partnership (including the grant of an LTIP Unit (as defined in Exhibit H attached hereto)), the General Partner shall revalue the property of the Partnership to its fair market value (as determined by the General Partner, in its soleand absolutediscretion,and takinginto account Section7701(g)oftheCode)inaccordancewithRegulationsSection1.704-1(b)(2)(iv)(f).When thePartnership’spropertyisrevaluedbytheGeneralPartner,theCapitalAccountsofthePartners shall be adjusted in accordance with Regulations Sections 1.704-l(b)(2)(iv)(f)and (g), which generally require such Capital Accounts to be adjusted to reflect the manner in which the unrealized gain or loss inherent in such property (that has not been reflected in the Capital Accountspreviously)wouldbeallocatedamongthePartnerspursuanttoSection5.01iftherewere a taxable disposition of such property for its fair market value (as determined by the General Partner, in its sole and absolute discretion, and taking into account Section 7701 (g)of the Code) on the date of the revaluation.
4.05Percentage** **Interests.IfthenumberofoutstandingPartnershipUnitsincreasesor decreasesduringataxableyear,eachPartner’sPercentageInterestshallbeadjustedbytheGeneral Partnereffectiveasoftheeffectivedateofeachsuchincreaseordecreasetoapercentageequalto the number of Partnership Units held by such Partner divided by the aggregate number of Partnership Units outstanding after giving effect to such increase or decrease.If the Partners’ Percentage Interests are adjusted pursuant to this Section 4.05, the Profits and Losses for the taxableyearinwhichtheadjustmentoccursshallbeallocatedbetweentheseveralpartsoftheyear (a)beginning on the first day of the year and ending on the next following Percentage Interest Adjustment Date, (b)beginning on the day following a Percentage Interest Adjustment Date and ending on the next following Percentage Interest Adjustment Date, and/or (c)beginning on the first day following the last Percentage Interest Adjustment Date occurring during the year and endingonthelastdayoftheyear,asmaybeappropriate,either(i)asifthetaxableyearhadended onthelastdayofeachpartor(ii)basedonthenumberofdaysineachpart.TheGeneralPartner, in its sole and absolute discretion, shall determine which method shall be used to allocate Profits andLossesforthetaxableyearinwhichtheadjustmentoccurs.TheallocationamongthePartners of Profits and Losses allocated to any part of the year shall be based on the Percentage Interests determined as of the first day of such part.
4.06No** Interest on **Contributions.NoPartnershallbeentitledtointerestonitsCapital Contribution.
4.07**Return **of Capital Contributions.No Partner shall be entitled to withdraw any part of its Capital Contribution or its Capital Account or to receive any distribution from the Partnership, except as specifically provided in this Agreement.Except as otherwise provided herein,thereshall be noobligation toreturnto any Partner orwithdrawn Partner any part of such Partner’s Capital Contribution for so long as the Partnership continues in existence.
4.08No** Third Party **Beneficiary.Nocreditororotherthirdpartyhavingdealingswith thePartnershipshallhavetherighttoenforcetherightorobligationofanyPartnertomakeCapital Contributions or loans or to pursue any other right or remedy hereunder or at law or in equity, it
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being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may be enforced solely by, the parties hereto and their respective successors and assigns. None of the rights or obligations of the Partnersherein set forth to makeCapital Contributions or loanstothePartnershipshallbedeemedanassetofthePartnershipforanypurposebyanycreditor or other third party; nor may such rights or obligations be sold, transferred or assigned by the PartnershiporpledgedorencumberedbythePartnershiptosecureanydebtorotherobligationof the Partnership or of any of the Partners.In addition, it is the intent of the parties hereto that no distributiontoanyLimitedPartnershallbedeemedareturnofmoneyorotherpropertyinviolation of the Act.However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Limited Partner is obligated to return such money or property, such obligation shall be the obligation of such Limited Partner and not of the General Partner. Withoutlimitingthegeneralityoftheforegoing,adeficitCapitalAccountofaPartnershallnotbe deemed to be a liability of such Partner nor an asset or property of the Partnership.
PROFITS** AND LOSSES: **DISTRIBUTIONS
| 5.01 | Allocation** of Profit and **Loss. |
| (a) | General. |
(i)ProfitofthePartnershipforeachfiscalyearofthePartnershipshall be allocated in the following order of priority:
(A)First, to the Partners in proportion to and up to the amount of cash distributed to each such Partner pursuant to Section 5.02 for the fiscal year; and
(B)Thereafter, to the Partners in accordance with their respective Percentage Interests.
(ii)Loss of the Partnership for each fiscal year of the Partnership shall beallocatedtothePartnersinaccordancewiththeirrespectivePercentageInterests.
(iii)Depreciation and amortization expenses of the Partnership shall be allocated among the Partners in accordance with their respective Percentage Interests.
(b)Minimum Gain Chargeback.Notwithstanding any provision to the contrary, (i)any expenseof the Partnership that is a “nonrecourse deduction” within the meaning ofRegulationsSection1.704-2(b)(1)shallbeallocatedinaccordancewiththePartners’respective PercentageInterests,(ii)anyexpenseofthePartnershipthatisa“partnernonrecoursededuction” within the meaning of Regulations Section 1.704-2(i)(2) shall be allocated in accordance with Regulations Section 1.704-2(i)(1), (iii) if there is a net decrease in Partnership Minimum Gain withinthemeaningofRegulationsSection1.704-2(f)(1)foranyPartnershiptaxableyear,itemsof gain and income shall be allocated among the Partners in accordance with Regulations Section 1.704-2(f) andtheorderingrulescontainedinRegulationsSection1.7042(j),and(iv)ifthereisa
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net decrease in Partner Nonrecourse Debt Minimum Gain within the meaning of Regulations Section1.704-2(i)(4)foranyPartnershiptaxableyear,itemsofgainandincomeshallbeallocated among the Partners in accordance with Regulations Section 1.7042(i)(4) and the ordering rules contained in Regulations Section 1.704-2(j).A Partner’s “interest in partnership profits” for purposes of determining its share of the nonrecourse liabilities of the Partnership within the meaning of Regulations Section 1.752-3(a)(3) shall be such Partner’s Percentage Interest.
(c)Qualified Income Offset.If a Limited Partner receives in any taxable year anadjustment,allocation,ordistributiondescribedinsubparagraphs(4),(5),or(6)ofRegulations Section 1.704-1(b)(2)(ii)(d) that causes or increases a negative balance in such Partner’s Capital AccountthatexceedsthesumofsuchPartner’ssharesofPartnershipMinimumGainandPartner NonrecourseDebtMinimumGain,asdeterminedinaccordancewithRegulationsSections1.704-2(g) and 1.704-2(i), such Partner shall be allocated specially for such taxable year (and, if necessary, later taxable years) items of income and gain in an amount and manner sufficient to eliminatesuchnegativeCapitalAccountbalanceasquicklyaspossibleasprovidedinRegulations Section1.704-1(b)(2)(ii)(d).AftertheoccurrenceofanallocationofincomeorgaintoaLimited Partner in accordance with this Section 5.01(c), to the extent permitted by Regulations Section 1.704-l(b) and Section 5.01(d), items of expense or loss shall be allocated to such Partner in an amount necessary to offset the income or gain previously allocated to such Partner under this Section 5.01(c).
(d)Capital Account Deficits.Loss shall not be allocated to a Limited Partner to the extent that such allocation would cause a deficit in such Partner’s Capital Account (after reductiontoreflecttheitemsdescribedinRegulationsSection1.704-1(b)(2)(ii)(d)(4),(5)and(6)) toexceedthesumofsuchPartner’ssharesofPartnershipMinimumGainandPartnerNonrecourse Debt Minimum Gain.Any Loss in excess of that limitation shall be allocated to the General Partner.After the occurrence of an allocation of Loss to the General Partner in accordance with this Section 5.01(d), to the extent permitted by Regulations Section 1.704-1(b), Profit shall be allocated to such Partner in an amount necessary to offset the Loss previously allocated to such Partner under this Section 5.01(d).
(e)Allocations Between Transferor and Transferee.If a Partner transfers any partorallofitsPartnershipInterest,thedistributivesharesofthevariousitemsofProfitandLoss allocableamongthePartnersduringsuchfiscalyearofthePartnershipshallbeallocatedbetween the transferor and the transferee Partner either (i)as if the Partnership’s fiscal year had ended on the date of the transfer, or (ii)based on the number of days of such fiscal year that each was a Partner without regard to the results of Partnership activities in the respective portions of such fiscal year in which the transferor and the transferee were Partners.The General Partner, in its soleandabsolutediscretion,shalldeterminewhichmethodshallbeusedtoallocatethedistributive shares of the various items of Profit and Loss between the transferor and the transferee Partner.
(f)Definition* of Profit and *Loss.“Profit”and“Loss”andanyitemsofincome, gain,expense,orlossreferredtointhisAgreementshallbedeterminedinaccordancewithfederal income tax accounting principles, as modified by Regulations Section 1.704-1(b)(2)(iv), except thatProfitandLossshallnotincludeitemsofincome,gainandexpensethatarespeciallyallocated pursuanttoSection5.01(a)(iii),5.01(b),5.01(c),or5.01(d).Allallocationsofincome,Profit,gain, Loss,andexpense(andallitemscontainedtherein)forfederalincometaxpurposesshallbe
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identicaltoallallocationsofsuchitemssetforthinthisSection5.01,exceptasotherwiserequired by Section 704(c) of the Code and Regulations Section 1.704-1(b)(4).The General Partner shall havetheauthoritytoelectthemethodtobeusedbythePartnershipforallocatingitemsofincome, gain, and expense as required by Section 704(c) of the Code (including a method that may result in a Partner receiving a disproportionately larger share of the Partnership’s tax depreciation deductions) and such election shall be binding on all Partners.
| 5.02 | Distribution** of **Cash. |
(a)ExceptasprovidedinSection5.06,theGeneralPartnershallberequiredto make distributions of Available Cash pursuant to Sections 5.02(a)(i), 5.02(a)(ii), 5.02(a)(iii) and 5.02(a)(iv) on a quarterly (or, at the election of the General Partner, more frequent) basis to the Partners who are Partners on the Partnership Record Date with respect to such quarter (or other distributionperiod).TheamountandfrequencyofthedistributionsofAvailableCashpursuantto Section 5.02(a)(v) shall be determined by the General Partner in its sole discretion.Available Cash shall be distributed to the Partners in the following order of priority:
(i)First,totheClassAPartnersuntiltheCrossOverDate,inanamount sufficienttoprovideeachClassAPartneritsPreferredReturnfromthedateofthe first issuance of ClassA Partnership Units through the date ofthe distribution less any prior distributions to the ClassA Partners pursuant to this Section 5.01(a)(i); provided that if the Partnership does not have sufficient funds to distribute to provide each ClassA Partner with its Preferred Return, distributions pursuant to thisSection5.02(a)(i)shallbemadeproratatotheClassAPartnersinaccordance with the amount otherwise due to each ClassA Partner under this Section 5.02(a)(i);
(ii)Second, to the Outside Partners (which shall exclude the ClassA PartnerspriortotheCrossOverDate,butshallincludetheClassAPartners,other thanClassAPartnersthatarealsoUDRPartners,onandaftertheCrossOverDate) in proportion to their respective Percentage Interests on the Partnership Record Date, until each Outside Partner has received an amount equal to its Dividend Equivalent for such quarter (or other distribution period);
(iii)Third,totheUDRPartners,otherthan,priortotheCrossOverDate, UDR Partners who are also ClassA Partners, in proportion to their respective Percentage Interests on the Partnership Record Date, until each UDR Partner has received an amount equal to the excess, if any, of (A) the amount that such UDR Partner would have received pursuant to Sections 5.02(a)(iv) and 5.02(a)(v) in the absence of Section 5.02(a)(ii) and this Section 5.02(a)(iii) from the date of this Agreementtotheendoftheperiodtowhichthedistributionrelates(assumingthat distributions under Section 5.02(a)(v), like the distributions under Sections 5.02(a)(i) through 5.02(a)(iv), were required to be made on a quarterly or more frequent basis), over (B) the sum of all prior distributions to such UDR Partner pursuant to this Section 5.02(a)(iii), Section 5.02(a)(iv) and Section 5.02(a)(v);
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(iv)Fourth, to the Partners (which shall exclude the ClassA Partners priortotheCrossOverDate,butshallincludetheClassAPartnersonandafterthe Cross Over Date) in accordance with their respective Percentage Interests on the Partnership Record Date, until each such Outside Partner has received an amount equaltotheexcess,ifany,of(A)theamountequaltoitsDividendEquivalentfrom thedateofthisAgreementtotheendoftheperiodtowhichthedistributionrelates, over (B) the sum of all prior distributions to such Outside Partner pursuant to Section 5.02(a)(ii) and this Section 5.02(a)(iv); and
(v)Thereafter,tothePartners(whichshallexcludetheClassAPartners priortotheCrossOverDate,butshallincludetheClassAPartnersonandafterthe Cross Over Date) in accordance with their respective Percentage Interests on the Partnership Record Date.
TheamountandfrequencyofdistributionsofanycashotherthanAvailableCashshallbe determined by the General Partner in its sole discretion and, if distributed, such cash shall be distributed to the Partners in accordance with this Section 5.02(a).If a new or existing Partner acquiresanadditionalPartnershipInterestinexchangeforaCapitalContributiononanydateother than a Partnership Record Date, the cash distribution attributable to such additional Partnership Interest for the Partnership Record Date following the issuance of such additional Partnership InterestshallbereducedintheproportionthatthenumberofdaysthatsuchadditionalPartnership InterestisheldbysuchPartnerbearstothenumberofdaysbetweensuchPartnershipRecordDate and the immediately preceding Partnership Record Date.
(b)NotwithstandinganyotherprovisionofthisAgreement,theGeneralPartner is authorized to take any action that it determines to be necessary or appropriate to cause the PartnershiptocomplywithanywithholdingrequirementsestablishedundertheCodeoranyother federal, state or local law including, without limitation, pursuant to Sections 1441, 1442, 1445, and 1446 of the Code.If the Partnership is required to withhold and pay over to any taxing authority any amount resulting from the allocation or distribution of income to a Partner or its assignee (including by reason of Section 1446 of the Code) and if the amount to be distributed to thePartner(the“DistributableAmount”)equalsorexceedstheamountrequiredtobewithheldby the Partnership (the “Withheld Amount”), the Withheld Amount shall be treated as a distribution ofcashtosuchPartner.If,however,theDistributableAmountislessthantheWithheldAmount, no amount shall be distributed to the Partner, the Distributable Amount shall be treated as a distributionofcashtosuchPartner,andtheexcessoftheWithheldAmountovertheDistributable Amount shall be treated as a loan (a “Partnership Loan”) from the Partnership to the Partner on the day the Partnership pays over such excess to a taxing authority.A Partnership Loan may be repaid, at the election of the General Partner in its sole and absolute discretion, either (i)through withholding by the Partnership with respect to subsequent distributions to the applicable Partner or assignee, or (ii)at any time more than twelve (12) months after a Partnership Loan arises, by cancellationofPartnershipUnitswithavalueequaltotheunpaidbalanceofthePartnershipLoan (including accrued interest).Any amounts treated as a Partnership Loan pursuant to this Section 5.02(b)shallbearinterestatthelesserof(i)thebaserateoncorporateloansatlargeUnitedStates moneycentercommercialbanks,aspublishedfromtimetotimeinTheWallStreetJournal(oran equivalentsuccessorpublication),or(ii)themaximumlawfulrateofinterestonsuchobligation,
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such interest to accrue from the date the Partnership is deemed to extend the loan until such loan is repaid in full.
(c)In no event may a Partner receive a distribution of cash with respect to a Partnership Unit if such Partner is entitled to receive a cash dividend as the holder of record of a REIT Share for which all or part of such Partnership Unit has been or will be exchanged.
5.03REIT Distribution Requirements.Notwithstanding anything to the contrary in this Agreement, the General Partner, if it is not able to borrow money from the Partnership, may cause the Partnership to distribute amounts sufficient to enable the Company to pay stockholder dividendsthatwillallowtheCompanyto(i)meetitsdistributionrequirementforqualificationas a REIT as set forth in Section 857(a)(1) of the Code and (ii)avoid any federal income or excise tax liability imposed by the Code.
5.04Distributions** in **Kind.NoPartnershallbeentitledtodemandpropertyotherthan cashinconnectionwithanydistributionsbythePartnership;providedhoweverthat,attherequest ofaPartner(including,withoutlimitation,theGeneralPartner),andwiththeapproval(initssole andabsolutediscretion)oftheGeneralPartner,inlieuofadistributionofAvailableCashpursuant toSection5.02oradistributionofcashuponliquidationpursuanttoSection5.06,thePartnership maymakeadistributiontoaPartnerinwholeorinpartintheformoftheconveyanceofProperty (or interests therein) having a fair market value, as determined by the General Partner in its sole and absolute discretion, equal to the entirety or a portion of the distribution of cash that would otherwise be made to such Partner, and upon such conveyance, such Partner shall be deemed for all purposes of this Agreement to have received a distribution in an amount that equals the fair market value, as so determined, of the Property (or interest therein) so conveyed to such Partner. SuchconveyanceshallbeonsuchtermsandconditionsastheGeneralPartnermayapproveinits sole and absolute discretion, and may be consummated on a deferred basis (once the cumulative amount distributable to such Partner as of a given date equals or exceeds the fair market value of theProperty(orintereststherein)tobeconveyed),orovertime(throughtheconveyanceofpartial interests in a Property having a fair market value equal to the entirety or a portion of the amount thendistributabletosuchPartnerasofagivendate).NothingcontainedinthisSection5.04shall limit the rights of the General Partner to distribute the assets of the Partnership to the Partners in kind pursuant to any other provision of this Agreement.
5.05Limitations on Return of Capital Contributions.Notwithstanding any of the provisionsofthisArticleV,noPartnershallhavetherighttoreceiveandtheGeneralPartnershall nothavetherighttomake,adistributionthatincludesareturnofallorpartofaPartner’sCapital Contributions, unless after giving effect to the return of a Capital Contribution, the sum of all Partnership liabilities, other than the liabilities to a Partner for the return of his Capital Contribution, does not exceed the fair market value of the Partnership’s assets.
| 5.06 | Distributions** Upon **Liquidation. |
(a)UponliquidationofthePartnership,afterpaymentof,oradequateprovision for,debtsandobligationsofthePartnership,includinganyPartnerloans,anyremainingassetsof the Partnership shall be distributed to all Partners with positive Capital Accounts in accordance withtheirrespectivepositiveCapitalAccountbalances.Forpurposesoftheprecedingsentence,
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theCapitalAccountofeachPartnershallbedeterminedafteralladjustmentsmadeinaccordance with Sections 5.01 and 5.02 resulting from Partnership operations and from all sales and dispositionsofalloranypartofthePartnership’sassets.AnydistributionspursuanttothisSection 5.06shallbemadebytheendofthePartnership’staxableyearinwhichtheliquidationoccurs(or, if later, within 90 days after the date of the liquidation).To the extent deemed advisable by the General Partner, appropriate arrangements (including the use of a liquidating trust) may be made to ensure that adequate funds are available to pay any contingent debts or obligations.
(b)If the General Partner has a negative balance in its Capital Account following a liquidation of the Partnership, as determined after taking into account all Capital Account adjustments in accordance with Sections 5.01 and 5.02 resulting from Partnership operations and from all sales and dispositions of all or any part of the Partnership’s assets, the GeneralPartnershallcontributetothePartnershipanamountofcashequaltothenegativebalance initsCapitalAccountandsuchcashshallbepaidordistributedbythePartnershiptocreditors,if any, and then to the Limited Partners in accordance with Section 5.06(a).Such contribution by the General Partner shall be made by the end of the Partnership’s taxable year in which the liquidation occurs (or, if later, within 90 days after the date of the liquidation).
5.07Substantial** Economic **Effect.ItistheintentofthePartnersthattheallocationsof Profit and Loss under the Agreement have substantial economic effect (or be consistent with the Partners’ interests in the Partnership in the case of the allocation of losses attributable to nonrecourse debt) within the meaning of Section 704(b) of the Code as interpreted by the Regulations promulgated pursuant thereto.ArticleV and other relevant provisions of this Agreement shall be interpreted in a manner consistent with such intent.
RIGHTS,** OBLIGATIONS AND POWERS OF THE GENERAL PARTNER**
| 6.01 | Management** of the **Partnership. |
(a)Except as otherwise expressly provided in this Agreement, the General Partner shall have full, complete and exclusive discretion to manage and control the business of the Partnership for the purposes herein stated, and shall make all decisions affecting the business andassetsofthePartnership.SubjecttotherestrictionsspecificallycontainedinthisAgreement, the powers of the General Partner shall include, without limitation, the authority to take the following actions on behalf of the Partnership:
(i)to acquire, purchase, own, operate, lease and dispose of any real property and any other property or assets, including, without limitation, equity interestsinotherREITs,mortgageloansandparticipationstherein,thattheGeneral Partner determines are necessary or appropriate or in the best interests of the business of the Company and the Partnership;
(ii)to construct buildings and make’ other improvements on the properties owned or leased by the Partnership;
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(iii)to authorize, issue, sell, redeem or otherwise purchase any Partnership Interests or any securities (including secured and unsecured debt obligations of the Partnership, debt obligations of the Partnership convertible into any class or series of Partnership Interests, or options, rights, warrants or appreciation rights relating to any Partnership Interests) of the Partnership;
(iv)to borrow or lend money for the Partnership, issue or receive evidences ofindebtedness in connection therewith, refinance, increase the amount of, modify, amend or change the terms of, or extend the time for the payment of, any such indebtedness, and secure such indebtedness by mortgage, deed of trust, pledge or other lien on the Partnership’s assets;
(v)toguaranteeorbecomeacomakerofindebtednessoftheCompany or any Subsidiary thereof, refinance, increase the amount of, modify, amend or change the terms of, or extend the time for the payment of, any such guarantee or indebtedness,andsecuresuchguaranteeorindebtednessbymortgage,deedoftrust, pledge or other lien on the Partnership’s assets;
(vi)to use assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with this Agreement, including, without limitation,payment,eitherdirectlyorbyreimbursement,ofalloperatingcostsand generaladministrativeexpensesoftheCompany,thePartnership,oranySubsidiary of either to third parties or to the Company as set forth in this Agreement;
(vii)toleasealloranyportionofanyofthePartnership’sassets,whether ornotthetermsofsuchleasesextendbeyondtheterminationdateofthePartnership and whether or not any portion of the Partnership’s assets so leased are to be occupiedbythelessee,or,inturn,subleasedinwholeorinparttoothers,forsuch consideration and on such terms as the General Partner may determine;
(viii)toprosecute,defend,arbitrate,orcompromiseanyandallclaimsor liabilities in favor of or against the Partnership, on such terms and in such manner astheGeneralPartnermayreasonablydetermine,andsimilarlytoprosecute,settle ordefendlitigationwithrespecttothePartners,thePartnership,orthePartnership’s assets;provided,however,thattheGeneralPartnermaynot,withouttheconsentof the Limited Partners (other than the Original Limited Partner) holding more than 50% of the Percentage Interests of the Limited Partners (other than the Original Limited Partner), confess a judgment against the Partnership;
(ix)to file applications, communicate, and otherwise deal with any and all governmental agencies having jurisdiction over, or in any way affecting, the Partnership’s assets or any other aspect of the Partnership business;
(x)to make or revoke any election permitted or required of the Partnership by any taxing authority;
(xi)to maintain such insurance coverage for public liability, fire and casualty, and any and all other insurance for the protection of the Partnership, for
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the conservation of Partnership assets, or for any other purpose convenient or beneficialtothePartnership,insuchamountsandsuchtypes,asitshalldetermine from time to time;
(xii)todeterminewhetherornottoapplyanyinsuranceproceedsforany property to the restoration of such property or to distribute the same;
(xiii)to establish one or more divisions of the Partnership, to hire and dismiss employees of the Partnership or any division of the Partnership, and to engage legal counsel, accountants, consultants, real estate brokers, and other professionals, as the General Partner may deem necessary or appropriate in connection with the Partnership business, on such terms (including provisions for compensation and eligibilityto participatein employee benefit plans,stock option plansandsimilarplansfundedbythePartnership)astheGeneralPartnermaydeem reasonable and proper;
(xiv)toretainotherservicesofanykindornatureinconnectionwiththe Partnershipbusiness,andtopaythereforsuchremunerationastheGeneralPartner may deem reasonable and proper;
(xv)to negotiate and conclude agreements on behalf of the Partnership with respectto anyofthe rights, powers and authorityconferred uponthe General Partner;
(xvi)to maintain accurate accounting records and to file promptly all federal, state and local income tax returns on behalf of the Partnership;
(xvii)to distribute Partnership cash or other Partnership assets in accordance with this Agreement;
(xviii)to form or acquire an interest in, and contribute property to, any further limited or general partnerships, joint ventures or other relationships that it deems desirable (including, without limitation, the acquisition of interests in, and the contributions of property to, its Subsidiaries and any other Person in which it has an equity interest from time to time);
(xix)to establish Partnership reserves for working capital, capital expenditures, contingent liabilities, or any other valid Partnership purpose;
(xx)subject to ArticleXI, to merge, consolidate or combine the Partnership with or into another Person;
(xxi)subject to ArticleXI, to do any and all acts and things necessary or prudent to ensure that the Partnership will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Code; and
(xxii)totakesuchotheraction,execute,acknowledge,sweartoordeliver such other documents and instruments, and perform any and all other acts that the
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GeneralPartnerdeemsnecessaryorappropriatefortheformation,continuationand conductofthebusinessandaffairsofthePartnership(including,withoutlimitation, all actions consistent with allowing the General Partner at all times to qualify as a REIT unless the General Partner voluntarily terminates its REIT status) and to possess and enjoy all of the rights and powers of a general partner as provided by the Act.
(b)Exceptasotherwiseprovidedherein,totheextentthedutiesoftheGeneral Partnerrequireexpendituresoffundstobepaidtothirdparties,theGeneralPartnershallnothave anyobligationshereunderexcepttotheextentthatPartnershipfundsarereasonablyavailabletoit for the performance of such duties, and nothing herein contained shall be deemed to authorize or require the General Partner, in its capacity as such, to expend its individual funds for payment to third parties or to undertake any individual liability or obligation on behalf of the Partnership.
6.02Delegation of Authority.The General Partner may delegate any or all of its powers, rights and obligations hereunder, and may appoint, employ, contract or otherwise deal with any Person for the transaction of the business of the Partnership, which Person may, under supervisionoftheGeneralPartner,performanyactsorservicesforthePartnershipastheGeneral Partner may approve.
| 6.03 | Indemnification** and Exculpation of Indemnitees**. |
(a)ThePartnershipshallindemnifyanIndemniteefromandagainstanyandall losses,claims,damages,liabilities,jointorseveral,expenses(includingreasonablelegalfeesand expenses), judgments, fines, settlements, and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate totheoperationsofthePartnershipassetforthinthisAgreementinwhichanyIndemniteemaybe involved,oristhreatenedtobeinvolved,asapartyorotherwise,unlessitisestablishedthat:(i)the act or omission of the Indemnitee was material to the matter giving rise to the proceeding and either was committed in bad faith or was the result of active and deliberate dishonesty; (ii)the Indemniteeactuallyreceivedanimproperpersonalbenefitinmoney,propertyorservices;or (iii)in the case of any criminal proceeding, the Indemnitee had reasonable cause to believe that the act or omission was unlawful.The termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 6.03(a).The termination of any proceeding by conviction or upon a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment,createsarebuttablepresumptionthattheIndemniteeactedinamannercontrarytothat specifiedinthisSection6.03(a).AnyindemnificationpursuanttothisSection6.03shallbemade only out of the assets of the Partnership.
(b)The Partnership may reimburse an Indemnitee for reasonable expenses incurredbyanIndemniteewhoisapartytoaproceedinginadvanceofthefinaldispositionofthe proceeding upon receipt by the Partnership of (i)a written affirmation by the Indemnitee of the Indemnitee’s good faith belief that the standard of conduct necessary for indemnification by the PartnershipasauthorizedinthisSection6.03hasbeenmet,and(ii)awrittenundertakingbyoron behalfoftheIndemniteetorepaytheamountifitshallultimatelybedeterminedthatthestandard of conduct has not been met.
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(c)The indemnification provided by this Section 6.03 shall be in addition to anyotherrightstowhichanIndemniteeoranyotherPersonmaybeentitledunderanyagreement, pursuant to any vote of the Partners, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity.
(d)The Partnership may purchase and maintain insurance, on behalf of the Indemnitees and such other Persons as the General Partner shall determine, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Partnership’s activities, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement.
(e)For purposes of this Section 6.03, the Partnership shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by it of its duties to the Partnership also imposes duties on, or otherwise involves services by, it to the plan or participants or beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall constitute fineswithinthemeaningofthisSection6.03;andactionstakenoromittedbyanIndemniteewith respect to an employee benefit plan in the performance of its duties for a purpose reasonably believedbyittobeintheinterestoftheparticipantsandbeneficiariesoftheplanshallbedeemed to be for a purpose which is not opposed to the best interests of the Partnership.
(f)In no event may an Indemnitee subject the Limited Partners to personal liability by reason of the indemnification provisions set forth in this Agreement.
(g)AnIndemniteeshallnotbedeniedindemnificationinwholeorinpartunder this Section 6.03 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.
(h)The provisions of this Section 6.03 are for the benefit of the Indemnitees, theirheirs,successors,assignsandadministratorsandshallnotbedeemedtocreateanyrightsfor the benefit of any other Persons.
| 6.04 | Liability** of the General Partner**. |
(a)Notwithstanding anything to the contrary set forth in this Agreement, the General Partner shall not be liable for monetary damages to the Partnership or any Partners for lossessustainedorliabilitiesincurredasaresultoferrorsinjudgmentorofanyactoromissionif the General Partner acted in good faith.The General Partner shall not be in breach of any duty that the General Partner may owe to the Limited Partners or the Partnership or any other Persons under this Agreement or of any duty stated or implied by law or equity provided the General Partner, acting in good faith, abides by the terms of this Agreement.
(b)The Limited Partners expressly acknowledge that the General Partner is acting on behalf of the Partnership, the Company and the Company’s stockholders collectively, that the General Partner is under no obligation to consider the separate interests of the Limited Partners (including, without limitation, the tax consequences to Limited Partners or the tax consequencesofsome,butnotall,oftheLimitedPartners)indecidingwhethertocausethe
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Partnership to take (or decline to take) any actions.In any case in which the General Partner determines in good faith that the interests of the Limited Partners and the General Partner’s stockholders may conflict, the Limited Partners further acknowledge and agree that the General Partner shall be deemed to have discharged its fiduciary duties to the Limited Partners by discharging such duties to the General Partner’s stockholders.The General Partner shall not be liable for monetary damages for losses sustained, liabilities incurred, or benefits not derived by Limited Partners in connection with any such decisions, provided that the General Partner has acted in good faith.
(c)Subject to its obligations and duties as General Partner set forth in Section 6.01, the General Partner may exercise any of the powers granted to it under this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents. The General Partner shall not be responsible for any misconduct or negligence on the part of any such agent appointed by it in good faith.
(d)Notwithstanding any other provisions of this Agreement or the Act, any action of the General Partner on behalf of the Partnership or any decision of the General Partner to refrain from acting on behalf of the Partnership, undertaken in the good faith belief that such action or omission is necessary or advisable in order (i)to protect the ability of the Company to continue to qualify as a REIT or (ii)to prevent the Company from incurring any taxes under Section 857, Section 4981, or any other provision of the Code, is expressly authorized under this Agreement and is deemed approved by all of the Limited Partners.
(e)Any amendment, modification or repeal of this Section 6.04 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the General Partner’s liability to the Partnership and the Limited Partners under this Section 6.04 as in effect immediately prior to such amendment, modification or repeal with respect to matters occurring,inwholeorinpart,priortosuchamendment,modificationorrepeal,regardlessofwhen claims relating to such matters may arise or be asserted.
6.05Partnership** **Expenses.Inadditiontotheexpensesthataredirectlyattributableto thePartnership,thePartnershipshallpaytheREITExpensesthatareallocabletothePartnership. TheGeneralPartner,initssoleandabsolutediscretion,shalldeterminewhatportionoftheREIT Expenses are allocable to the Partnership.If any REIT Expenses determined by the General PartnertobeallocabletothePartnershiparepaidbytheGeneralPartner,theGeneralPartnershall be reimbursed by the Partnership therefor.
6.06Outside Activities.The Partners and any officer, director, employee, agent, trustee, Affiliate, Subsidiary, or stockholder of any Partner shall be entitled to and may have businessinterestsandengageinbusinessactivitiesinadditiontothoserelatingtothePartnership, including business interests and activities substantially similar or identical to those of the Partnership.Neither the Partnership nor any of the Partners nor any other Person shall have any rights by virtue of this Agreement or the partnership relationship established hereby in any such businessventures,interestsoractivities,andthePartnersshallhavenoobligationpursuanttothis Agreement to offer any interest in any such business ventures, interests and activities to the Partnership or any Partner, even if such opportunity is of a character which, if presented to the Partnership or any Partner, could be taken by such Person.
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| 6.07 | Employment** or Retention of **Affiliates. |
(a)Any Affiliate of the General Partner may be employed or retained by the Partnership and may otherwise deal with the Partnership (whether as a buyer, lessor, lessee, manager,furnisherofgoodsorservices,broker,agent,lenderorotherwise)andmayreceivefrom the Partnership any compensation, price, or other payment therefor which the General Partner determines to be fair and reasonable.
(b)The Partnership may lend or contribute to its Subsidiaries or other Persons inwhichithasanequityinvestment,andsuchPersonsmayborrowfundsfromthePartnership,on terms and conditions established in the sole and absolute discretion of the General Partner.The foregoing authority shall not create any right or benefit in favor of any Subsidiary or any other Person.
(c)The Partnership may transfer assets to joint ventures, other partnerships, corporations or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions as the General Partner deems are consistent with this Agreement and applicable law.
6.08Title** to Partnership **Assets.TitletoPartnershipassets,whetherreal,personalor mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner, individually or collectively, shall have any ownership interest in such Partnershipassetsoranyportionthereof.TitletoanyorallofthePartnershipassetsmaybeheld inthenameofthePartnership,theGeneralPartneroroneormorenominees,astheGeneralPartner may determine, including Affiliates of the General Partner.
CHANGES** IN GENERAL PARTNER AND THE COMPANY**
7.01Transfer** of a General Partner’s Partnership Interest; Transactions Involving **the Company.
(a)ExceptasprovidedinSection7.01(c),7.01(d)or7.03(a),aGeneralPartner shall not transfer all or any portion of its General Partnership Interest or withdraw as General Partner.
(b)ExceptasprovidedinSection7.01(c)or7.01(d),theGeneralPartner(orall General Partners if at any time there are two or more General Partners) and the Original Limited Partner will at all times own in the aggregate at least a 1% Percentage Interest.
(c)Except as otherwise provided in Section 7.01(d), the Company shall not merge,consolidateorotherwisecombinewithorintoanotherPersonorsellallorsubstantiallyall of its assets (other than in connection with a change in the Company’s state of incorporation or organizational form) (a “Transaction”), unless one of the following conditions is met:
(i)theconsentofLimitedPartners(otherthantheCompanyorany SubsidiaryoftheCompany)holdingmorethan50%ofthePercentageInterestsof
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the Limited Partners (other than those held by the Company or any Subsidiary of the Company) is obtained;
(ii)the Transaction also includes a merger, consolidation or combination of the Partnership or sale of substantially all of the assets of the PartnershiporothertransactionasaresultofwhichallLimitedPartners(otherthan the Company or any Subsidiary) will receive for each Partnership Unit an amount of cash, securities, or other property (or a partnership interest or other security readily convertible into such cash, securities, or other property) no less than the product of the Conversion Factor and the greatest amount of cash, securities or otherproperty(expressedasanamountperREITShare)paidintheTransactionin considerationforREITShares,providedthatif,inconnectionwiththeTransaction, a purchase, tender or exchange offer (“Offer”) shall have been made to and accepted by the holders of more than 50 percent of the outstanding REIT Shares, all Limited Partners (other than the Company or any Subsidiary) will receive no less than the amount of cash and the fair market value of securities or other consideration that they would have received had they (A)exercised their Redemption Right and (B)sold, tendered or exchanged pursuant to the Offer the REITSharesreceiveduponexerciseoftheRedemptionRightimmediatelypriorto the expiration of the Offer;
(iii)theCompanyisthesurvivingentityintheTransactionandeither (A)theholdersofREITSharesdonotreceivecash,securities,orotherpropertyin the Transaction or (B)all Limited Partners (other than the Company or any Subsidiary) receive an amount of cash, securities, or other property (expressed as an amount per Partnership Unit) that is no less than the product of the Conversion Factor and the greatest amount of cash, securities, or other property (expressed as an amount per REIT Share) received in the Transaction by any holder of REIT Shares; or
(iv)theCompanymerges,consolidates,orcombineswithorintoanother entity and, immediatelyafter such merger, (A) substantially all of the assets of the surviving entity, other than Partnership Units and the ownership interests in any wholly-ownedSubsidiariesheldbytheCompany,arecontributedtothePartnership asaCapitalContributioninexchangeforPartnershipunitswithafairmarketvalue equal to the value of the assets so contributed as determined pursuant to Section 704(b)oftheCode,(B)anysuccessororsurvivingcorporationexpresslyagreesto assume all obligations of the Company hereunder, and (C) the Conversion Factor is adjusted appropriately to reflect the ratio at which REIT Shares are converted into shares of the surviving entity.
TheGeneralPartnershallgivetheLimitedPartnersnoticeofanyTransactionatleast20business days prior to the effective date of such Transaction, provided, however, that the General Partner need not give any such notice prior to the date on which the holders of REIT Shares are first notified of such Transaction by the Company.
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| (d) | NotwithstandingSections7.01(a),7.01(b)and7.01(c), |
(i)a General Partner may transfer all or any portion of its General PartnershipInterestto(A)awholly-ownedSubsidiaryofsuchGeneralPartneror (B)the owner of all of the ownership interests of such General Partner, and following a transfer of all of its General Partnership Interest, may withdraw as General Partner; and
(ii)the Company may engage in a Transaction not required by law or bytherulesofanynationalsecuritiesexchangeonwhichtheREITSharesarelisted to be submitted to the vote of the holders of the REIT Shares and the General Partner shall not be required to give notice to the Limited Partners of any such Transaction as provided by Section 7.01(c).
7.02Admission of a Substitute or Additional General Partner.A Person shall be admittedasasubstituteoradditionalGeneralPartnerofthePartnershiponlyifthefollowingterms and conditions are satisfied:
(a)thePersontobeadmittedasasubstituteoradditionalGeneralPartnershall have accepted and agreed to be bound by all the terms and provisions of this Agreement by executing a counterpart thereof and such other documents or instruments as may be required or appropriate in order to effect the admission of such Person as a General Partner, and a certificate evidencingtheadmissionofsuchPersonasaGeneralPartnershallhavebeenfiledforrecordation and all other actions required by Section 2.05 in connection with such admission shall have been performed;
(b)if the Person to be admitted as a substitute or additional General Partner is a corporation or a partnership it shall have provided the Partnership with evidence satisfactory to counselforthePartnershipofsuchPerson’sauthoritytobecomeaGeneralPartnerandtobebound by the terms and provisions of this Agreement; and
(c)counselforthePartnershipshallhaverenderedanopinion(relyingonsuch opinions from other counsel and the state or any other jurisdiction as may be necessary) that the admissionofthepersontobeadmittedasasubstituteoradditionalGeneralPartnerisinconformity with the Act, that none of the actions taken in connection with the admission of such Person as a substituteoradditionalGeneralPartnerwillcause(i)thePartnershiptobeclassifiedotherthanas a partnership for federal income tax purposes, or (ii)the loss of any Limited Partner’s limited liability.
| 7.03 | Effect** of Bankruptcy, Withdrawal, Death or Dissolution of a General **Partner. |
(a)UpontheoccurrenceofanEventofBankruptcyastoaGeneralPartner(and its removal pursuant to Section 7.04(a) hereof) or the withdrawal, removal or dissolution of a General Partner (except that, if a General Partner is on the date of such occurrence a partnership, the withdrawal, death, dissolution, Event of Bankruptcy as to or removal of a partner in such partnershipshallbedeemednottobeadissolutionofsuchGeneralPartnerifthebusinessofsuch General Partner is continued by the remaining partner or partners), the Partnership shall be dissolved and terminated unless the Partnership is continued pursuant to Section 7.03(b) hereof.
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The merger of the General Partner with or into any entity that is admitted as a substitute or successor General Partner pursuant to Section 7.02 hereof shall not be deemed to be the withdrawal, dissolution or removal of the General Partner.
(b)FollowingtheoccurrenceofanEventofBankruptcyastoaGeneralPartner (and its removal pursuant to Section 7.04(a) hereof) or the withdrawal, removal or dissolution of aGeneralPartner(exceptthat,ifaGeneralPartnerisonthedateofsuchoccurrenceapartnership, the withdrawal, death, dissolution, Event of Bankruptcy as to or removal of a partner in such partnershipshallbedeemednottobeadissolutionofsuchGeneralPartnerifthebusinessofsuch GeneralPartneriscontinuedbytheremainingpartnerorpartners),theLimitedPartners,within90 days after such occurrence, may elect to continue the business of the Partnership for the balance of the term specified in Section 2.04 hereof by selecting, subject to Section 7.02 hereof and any otherprovisionsofthisAgreement,asubstituteGeneralPartnerbyconsentoftheLimitedPartners holdingmorethan50%ofthePercentageInterestsoftheLimitedPartners.IftheLimitedPartners elect to continue the business of the Partnership and admit a substitute General Partner, the relationship with the Partners and of any Person who has acquired an interest of a Partner in the Partnership shall be governed by this Agreement.
| 7.04 | Removal** of a ****General **Partner. |
(a)UpontheoccurrenceofanEventofBankruptcyasto,orthedissolutionof, a General Partner, such General Partner shall be deemed to be removed automatically; provided, however,thatifaGeneralPartnerisonthedateofsuchoccurrenceapartnership,thewithdrawal, death, dissolution, Event of Bankruptcy as to or removal of a partner in such partnership shall be deemed not to be a dissolution of the General Partner if the business of such General Partner is continuedbytheremainingpartnerorpartners.TheLimitedPartnersmaynotremovetheGeneral Partner, with or without cause.
(b)IfaGeneralPartnerhasbeenremovedpursuanttothisSection7.04andthe Partnership is continued pursuant to Section 7.03 hereof, such General Partner shall promptly transfer and assign its General Partnership Interest in the Partnership (i)to the substitute General PartnerapprovedbytheLimitedPartnersinaccordancewithSection7.03(b)hereofandotherwise admittedtothePartnershipinaccordancewithSection7.02hereof.Atthetimeofassignment,the removed General Partner shall be entitled to receive from the substitute General Partner the fair market value of the General Partnership Interest of such removed General Partner as reduced by any damages caused to the Partnership by such General Partner.Such fair market value shall be determinedbyanappraisermutuallyagreeduponbytheGeneralPartnerandamajorityininterest oftheLimitedPartnerswithin10daysfollowingtheremovaloftheGeneralPartner.Intheevent thatthepartiesareunabletoagreeuponanappraiser,theGeneralPartnerandamajorityininterest of the Limited Partners each shall select an appraiser, each of which appraisers shall complete an appraisal of the fair market value of the General Partner’s General Partnership Interest within 30 daysoftheGeneralPartner’sremoval,andthefairmarketvalueoftheGeneralPartner’sGeneral PartnershipInterestshallbetheaverageofthetwoappraisals;provided,however,thatifthehigher appraisalexceedsthelowerappraisalbymorethan20%oftheamountofthelowerappraisal,the two appraisers, no later than 40 days after the removal of the General Partner, shall select a third appraiserwhoshallcompleteanappraisalofthefairmarketvalueoftheGeneralPartner’sGeneral PartnershipInterestnolaterthan60daysaftertheremovaloftheGeneralPartner.Insuchcase,
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the fair market value ofthe GeneralPartner’s General Partnership Interest shall be theaverage of the two appraisals closest in value.
(c)The General Partnership Interest of a removed General Partner, during the timeafterdefaultuntiltransferunderSection7.04(b),shallbeconvertedtothatofaspecialLimited Partner,providing,however,suchremovedGeneralPartnershallnothaveanyrightstoparticipate in the management and affairs of the Partnership, and shall not be entitled to any portion of the income,expenses,Profit,gainorLoss,distributionsorallocations,asthecasemaybe,payableor allocabletotheLimitedPartnersassuch.Instead,suchremovedGeneralPartnershallreceiveand be entitled to retain only distributions or allocations of such items which it would have been entitled to receive in its capacity as General Partner, until the transfer is effective pursuant to Section 7.04(b).
(d)All Partners shall have given and hereby do give such consents, shall take suchactionsandshallexecutesuchdocumentsasshallbelegallynecessaryandsufficienttoeffect all the foregoing provisions of this Section 7.04.
RIGHTS** AND OBLIGATIONS OF THE LIMITED PARTNERS**
8.01Management of the Partnership.The Limited Partners shall not participate in the management or control of Partnership business nor shall they transact any business for the Partnership, nor shall they have the power to sign for or bind the Partnership, such powers being vested solely and exclusively in the General Partner.
8.02Power** of **Attorney.EachLimitedPartnerherebyirrevocablyappointstheGeneral Partneritstrueandlawfulattorney-in-fact,whomayactforeachLimitedPartnerandinitsname, placeandstead,andforitsuseandbenefit,tosign,acknowledge,swearto,deliver,fileandrecord, at the appropriate public offices, any and all documents, certificates, and instruments as may be deemed necessary or desirable by the General Partner to carry out fully the provisions of this Agreement and the Act in accordance with their terms, which power of attorney is coupled with aninterestandshallsurvivethedeath,dissolutionorlegalincapacityoftheLimitedPartner,orthe transfer by the Limited Partner of any part or all of its Partnership Interest.
8.03Limitation on Liability of Limited Partners.No Limited Partner shall be liable for any debts, liabilities, contracts or obligations of the Partnership.A Limited Partner shall be liable to the Partnership only to make payments of its Capital Contribution, if any, as and when due hereunder.After its Capital Contribution is fully paid, no Limited Partner shall, except as otherwise required by the Act, be required to make any further Capital Contributions or other payments or lend any funds to the Partnership.Notwithstanding the foregoing provisions of this Section 8.03, a ClassA Partner shall be liable to the Partnership or to its lenders to the extent set forth in any guarantee of Partnership debt or in any agreement to contribute capital to the Partnership in connection with any Partnership debt, in each case only to the extent so agreed by such Class A Partner in such guarantee or contribution agreement.
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8.04Ownership** by Limited Partner of Corporate General Partner or **Affiliate.No Limited Partner shall at any time, either directly or indirectly, own any stock or other interest in the General Partner or in any Affiliate thereof, if such ownership by itself or in conjunction with otherstockorotherinterestsownedbyotherLimitedPartnerswould,intheopinionofcounselfor thePartnership,jeopardizetheclassificationofthePartnershipasapartnershipforfederalincome taxpurposes.TheGeneralPartnershallbeentitledtomakesuchreasonableinquiryoftheLimited Partners asis required toestablish compliance bythe LimitedPartners with the provisions of this Section.
| 8.05 | Redemption** **Right. |
(a)Subject to Sections 8.05(b), 8.05(c), 8.05(d), and 8.05(e), and the provisions of any agreement between the Partnership and any Limited Partner with respect to Partnership Units held by such Limited Partners, such Limited Partner, other than the Original LimitedPartner,shallhavetheright(the“RedemptionRight”)torequirethePartnershiptoredeem on a Specified Redemption Date, or on the Class A Specified Redemption Date with respect to a Class A Partner, all or a portion of the Partnership Units held by such Limited Partner at a redemption price equal to and in the form of the Cash Amount to be paid by the Partnership, provided, that such Partnership Units shall have been outstanding for at least one year.The Redemption Right shall be exercised pursuant to a Notice of Redemption delivered to the Partnership (with a copy to the General Partner) by the Limited Partner who is exercising the Redemption Right (the “Redeeming Partner”); provided, however, that the Partnership shall not be obligated to satisfy such Redemption Right if the General Partner elects to purchase the Partnership Units subject to the Notice of Redemption pursuant to Section 8.05(b).A Limited Partner may not exercise the Redemption Right for less than 1,000 Partnership Units or, if such Limited Partner holds less than 1,000 Partnership Units, all of the Partnership Units held by such Partner.Except as otherwise provided in Section 8.05(h), the Redeeming Partner shall have no right, with respect to any Partnership Units so redeemed, to receive any distribution paid with respect to Partnership Units if the record date for such distribution is on or after the Specified Redemption Date or the Class A Specified Redemption Date, as applicable.
(b)Notwithstanding the provisions of Section 8.05(a), a Limited Partner that exercises the Redemption Right shall be deemed to have offered to sell the Partnership Units describedintheNoticeofRedemptiontotheGeneralPartner,andtheGeneralPartnermay,inits soleandabsolutediscretionbutsubjecttothelastsentenceofthissubsection(b),electtopurchase directly and acquire such Partnership Units by paying to the Redeeming Partner either the Cash Amount or the REIT Shares Amount, as elected by the General Partner (in its sole and absolute discretion),ontheSpecifiedRedemptionDateorontheClassASpecifiedRedemptionDatewith respect to a ClassA Partner, whereupon the General Partner shall acquire the Partnership Units offered for redemption by the Redeeming Partner and shall be treated for all purposes of this Agreement as the owner of such Partnership Units.If the General Partner shall elect to exercise its right to purchase Partnership Units under this Section 8.05(b) with respect to a Notice of Redemption, it shall so notify the Redeeming Partner within five (three for any ClassA Partner) BusinessDaysafterthereceiptbytheGeneralPartnerofsuchNoticeofRedemption.Suchnotice shallindicatewhethertheGeneralPartnerwillpaytheCashAmountortheREITSharesAmount. Unless theGeneral Partner (in its sole andabsolute discretion) shall exerciseitsrightto purchase PartnershipUnitsfromtheRedeemingPartnerpursuanttothisSection8.05(b),theGeneralPartner
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shall not have any obligation to the Redeeming Partner or the Partnership with respect to the Redeeming Partner’s exercise of the Redemption Right.In the event the General Partner shall exerciseitsrighttopurchasePartnershipUnitswithrespecttotheexerciseofaRedemptionRight in themanner describedinthefirstsentenceofthis Section8.05(b),thePartnershipshallhaveno obligationtopayanyamounttotheRedeemingPartnerwithrespecttosuchRedeemingPartner’s exercise of such Redemption Right, and each of the Redeeming Partner, the Partnership, and the GeneralPartnershalltreatthetransactionbetweentheGeneralPartnerandtheRedeemingPartner for federal income tax purposes as a sale of the Redeeming Partner’s Partnership Units to the General Partner.Each Redeeming Partner agrees to execute such documents as the Partnership may reasonably require in connection with the issuance of REIT Shares upon exercise of the Redemption Right.If Section 5.05hereof shall prevent the Partnership from satisfying, in whole or in part, any exercise of the Redemption Right by a Redeeming Partner, then the Company (whether or not it is then the General Partner) shall be deemed to have elected pursuant to this Section8.05(b)topurchase,andherebyagreestopurchase,directlyfromsuchRedeemingPartner, such number of Partnership Units as the Partnership is unable to redeem due to the operation of Section 5.05.
(c)Notwithstanding the provisions of Section 8.05(a) and 8.05(b), a Limited Partner shall not be entitled to exercise the Redemption Right if the delivery of REIT Shares to such Partner on the Specified Redemption Date by the Company pursuant to Section 8.05(b) (regardlessofwhetherornottheCompanywouldinfactexerciseitsrightsunderSection8.05(b)) would (i)result in REIT Shares being owned by fewer than 100 persons (determined without reference to any rules of attribution), (ii)result in the Company being “closely held” within the meaningofSection856(h)oftheCode,(iii)causetheCompanytoown,directlyorconstructively, 10% or more of the ownership interests in a tenant of the Company’s, the Partnership’s or a Subsidiary’s real property, within the meaning of Section 856(d)(2)(B) of the Code, (iv)in the good faith opinion of the Board of Directors of the Company, otherwise disqualify the Company as a REIT, or (v)in the opinion of counsel for the Company, constitute or result in a violation of Section5 of the Securities Act, or cause the acquisition of REIT Shares by such Partner to be “integrated” with any other distribution of REIT Shares for purposes of complying with the registration provisions of the Securities Act.The Company, in its sole and absolute discretion, may waive the restriction on redemption set forth in this Section 8.05(c);provided, however, that in the event such restriction is waived, the Redeeming Partner shall be paid the Cash Amount. Notwithstanding the foregoing, each ClassA Partner shall be entitled to exercise its Redemption Right with respect to the ClassA Partnership Units regardless of whether the issuance of REIT Shares to such ClassA Partner would violate the restrictions set forth above, provided that the Class A Partner shall receive the Cash Amount in connection with such redemption.
(d)Any Cash Amount to be paid by the Partnership to a Redeeming Partner pursuant to Section 8.05(a), and any Cash Amount or REIT Shares Amount to be paid by the General Partner to a Redeeming Partner pursuant to Section 8.05(b), shall be paid within 20 Business Days, or with respect to a Redeeming Partner who is a ClassA Partner, five Business Days, after the initial date of receipt by the General Partner of the Notice of Redemption relating tothePartnershipUnitstoberedeemed;provided,however,thatsuch20BusinessDayperiod,but not the five Business Day period, may be extended for up to an additional 180-day period to the extent required for the Company to issue and sell securities the proceeds of which will be contributedtothePartnershiptoprovidecashforpaymentoftheCashAmount.Notwithstanding
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theforegoing,theGeneralPartneragreestouseitsbesteffortstocausetheclosingofthe acquisition of redeemed Partnership Units hereunder to occur as quickly as reasonably possible.
(e)NotwithstandinganyotherprovisionofthisAgreement,theGeneralPartner may place appropriate restrictions on the ability of the Limited Partners to exercise their RedemptionRightsasandifdeemednecessarytoensurethatthePartnershipdoesnotconstitutea “publicly traded partnership” under Section 7704 of the Code.If and when the General Partner determines that imposing such restrictions is necessary, the General Partner shall give prompt written notice thereof to each of the Limited Partners, which notice shall be accompanied by a copyofanopinionofcounseltothePartnershipwhichstatesthat,intheopinionofsuchcounsel, suchrestrictionsarenecessaryinordertoavoidthePartnershipbeingtreatedasa“publiclytraded partnership” under Section 7704 of the Code.
| (f) | TheConversionFactorshallbeadjustedfromtimetotimeasfollows: |
(i)IntheeventthattheCompany(A)declaresorpaysadividendonits outstanding REIT Shares in REIT Shares or makes a distribution to all holders of its outstanding REIT Shares in REIT Shares, (B) subdivides its outstanding REIT Shares,or(C)combinesitsoutstandingREITSharesintoasmallernumberofREIT Shares, the Conversion Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the numerator of which shall be the number of REIT Shares issued and outstanding on the record date for such dividend, distribution, subdivision or combination (assuming for such purposes that such dividend, distribution, subdivision or combination has occurred as of such time), and the denominator of which shall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on such date; provided, however, that notwithstanding the foregoing, if the Company declares or pays a dividendonitsoutstandingREITSharesinREITSharesormakesadistributionto allholdersofitsoutstandingREITSharesinREITShares(includingadividendin which stockholders may elect to receive all or a portion of such dividend in cash), no adjustment shall be made if, promptly thereafter, with respect to any dividend ordistributionwithrespecttoREITShares,thePartnershippaysadistributionwith respect to each Partnership Unit consisting of a number of Partnership Units (or fractionthereof)equaltotheproductof(i)thequotientobtainedbydividing(a)the aggregate number of REIT Shares paid by the Company as a dividend to all stockholders, by (b) the aggregate number of REIT Shares outstanding as of the closeofbusinessontherecorddateforsuchdividend,and(ii)thenumberofREIT SharesforwhichsuchPartnershipUnitisthenredeemablepursuanttoSection8.05.
(ii)In the event that the Company declares or pays a dividend or other distributiononitsoutstandingREITShares(otherthan(a)ordinarycashdividends or (b)dividends payable in REIT Shares that give rise to an adjustment in the Conversion Factor under subsection (i)hereof) and the Value of the REIT Shares onthe20thtradingdayfollowingtherecorddate(“RecordDate”)forsuchdividend or distribution (the “Post-Distribution Value”) is less than the Value of the REIT Shares on the Business Day immediately preceding such Record Date (the “Pre-DistributionValue”),thentheConversionFactorineffectaftertheRecordDate
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shallbeadjustedbymultiplyingtheConversionFactorineffectpriortotheRecord Date by a fraction, the numerator of which is the Pre-Distribution Value and the denominator of which is the Post-Distribution Value, provided.however, that no adjustment shall be made if (a)with respect to any cash dividend or distribution with respect to REIT shares, the Partnership distributes with respect to each Partnership Unit an amount equal to the amount of such dividend or distribution multiplied by the Conversion Factor or (b)with respect to any dividend or distribution of securities or property other than cash, the Partnership distributes withrespecttoeachPartnershipUnitanamountofsecuritiesorotherpropertyequal to the amount distributed with respect to each REIT share multiplied by the ConversionRatioorapartnershipinterestorothersecurityreadilyconvertibleinto such securities or other property.
(iii)Any adjustment to the Conversion Factor shall become effective immediatelyaftertheeffectivedateofanyoftheeventsdescribedinsubsections (i)and(ii),retroactivetotherecorddate,ifany,forsuchevent,provided,however, thatifthePartnershipreceivesNoticeofRedemptionaftertherecorddate,butprior to the payment date or effective date, of any dividend, distribution, subdivision or combination referred to in subsection (i)or (ii), the Conversion Factor shall be determined as if the Company had received the Notice of Exchange immediately priortotherecorddateforsuchdividend,distribution,subdivisionorcombination.
(iv)If the rights (the “Stockholder Rights”) governed by the Rights Agreement, dated as of January27, 1998 (the “Rights Agreement”), by and between the General Partner and ChaseMellon Shareholder Services L.L.C., are issuedandexercised,theConversionFactorshallbeequitablyadjustedtotakeinto account the resulting dilution in the REIT Shares, provided, however, that the ConversionFactorshallnotbeadjustedwithrespecttoanyPartnershipUnitsheld by any person to which the provisions of Section7(e)of the Rights Agreement apply or would apply if such person were a holder of Stockholder Rights.
(g)IfaClassAPartnerexercisesitsRedemptionRightwithrespecttoClassA Partnership Units and the Partnership elects to pay the Cash Amount with respect to such redemption and does not pay such amount to such ClassA Partner by the ClassA Specified RedemptionDatethenonsuchdatethePartnershipshallissuesuchClassAPartnerapromissory note (the “ClassA Note”).The ClassA Note shall be payable within 30 calendar days and will bear interest at a rate per annum equal to LIBOR plus 90 basis points.Payment of the ClassA Note shall be guaranteed by the General Partner.For purposes of this Section 8.05(g), “LIBOR” means the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the date the ClassANoteisissuedforatermof30days.Ifforanyreasonsuchrateisnotavailable,theterm “LIBOR” shall mean the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on the Reuters Screen LIBOR Page as the London interbank offered rate for depositsinDollarsatapproximately11:00a.m.(Londontime)twoBusinessDayspriortothedate theClass ANoteisissuedforatermof30days;provided,however,ifmorethanonerateis
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specified on the Reuters Screen LIBOR Page, the applicable rate shall be the arithmetic mean of all such rates.
(h)Notwithstanding anything set forth in this Agreement to the contrary, if a ClassAPartnerdeliversaNoticeofRedemption,aPartnershipRecordDatesubsequentlyoccurs withrespecttoadistributiontotheClassAPartnerspursuanttoSection5.02andsuchdistribution isnotdistributedpriortotheClassASpecifiedRedemptionDate,thentheClassAPartnerwhose ClassA Partnership Units are redeemed on such date shall be entitled to receive the distribution pursuant to Section 5.02(a) with respect to such ClassA Partnership Units notwithstanding such redemptionunlesssuchClassAPartnershipUnitsareredeemedforREITStockandsuchClassA Specified Redemption Date occurs on or before the record date for the payment of a dividend on such REIT Stock that is payable in respect of the same period as such distribution on the ClassA Partnership Units so redeemed, in which event the distribution made to such ClassA Partner pursuant to Section 5.02(a) shall be reduced by the amount of such dividend on the REIT Stock.
8.06NYSE** Listing and Securities Act Registration of REIT **Shares.Intheeventthat the General Partner elects to acquire a Redeeming Partner’s Partnership Units by paying to such Partner the REIT Shares Amount, the REIT Shares issued to the Redeeming Partner if and to the extentprovidedinsuchRedeemingPartner’sRegistrationRightsAgreementshallbe(a)registered undertheSecuritiesActand/orentitledtorightstoSecuritiesActregistrationand(b)listedonthe NYSE.
| 8.07 | Guaranty** Opportunity, **Etc. |
(a)At the written request of any Partner other than the Company or any Subsidiary of the Company, the Partnership will use commercially reasonable efforts to provide such Partner with the opportunity to guaranty, in such amounts as requested by such Partner, one or more liabilities owed, directly or indirectly, by the Partnership, which may be indebtedness owed to the General Partner or an Affiliate thereof, enter into any other substantially similar arrangementorenterintoanamendmentormodificationofanyexistingguarantyorsubstantially similar arrangement. The Partnership shall cooperate in good faith with any such Partner to consummate such request (i) with respect to one or more liabilities selected by the Partner and acceptable to the Partnership, (ii) using a form of guaranty (or other arrangement) reasonably acceptable to such Partner, and (iii) in a manner that results in the allocation of Partnership liabilitiestosuchPartnerintherequestedamountunderTreasuryRegulationsSection1.752-2(or any successor thereto).
(b)Fortheavoidanceofdoubt,thePartnership:(i)shallnotberequiredtotake any actions pursuant to this Section 8.07 that would adversely affect the Partnership or other Partners,orresultinabreachbythePartnershipofanyothercontractualobligations;(ii)shallnot berequired,pursuanttothisSection8.07,toincuranyindebtednessorotherliabilitiesthatitwould not otherwise have incurred; and (iii) makes no, and shall not be required to make any, representation to any Partner regarding the effectiveness of any action taken pursuant to this Section 8.07, and shall not be liable to any Partner for the failure of any guaranty or other arrangement to provide an allocation of Partnership liabilities to such Partner under Treasury Regulations Section 1.752-2 (or any successor thereto).
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(c)Notwithstanding any provision herein to the contrary, the General Partner shall not be entitled to amend any provision of this Section 8.07 without the consent of Limited Partners (other than the Company or any Subsidiary of the Company) holding more than 50% of thePercentageInterestsoftheLimitedPartners(otherthantheCompanyoranySubsidiaryofthe Company).
TRANSFERS** OF LIMITED PARTNERSHIP **INTERESTS
| 9.01 | Purchase** for Investment**. |
(a)EachLimitedPartnerherebyrepresentsandwarrantstotheGeneralPartner andtothePartnershipthattheacquisitionofhisPartnershipInterestismadeasaprincipalforhis account for investment purposes only and not with a view to the resale or distribution of such Partnership Interest.
(b)Each Limited Partner agrees that he will not sell, assign or otherwise transferhisPartnershipInterestoranyfractionthereof,whethervoluntarilyorbyoperationoflaw oratjudicialsaleorotherwise,toanyPersonwhodoesnotmaketherepresentationsandwarranties to the General Partner set forth in Section 9.01(a)above and similarly agree not to sell, assign or transfer such Partnership Interest or fraction thereof to any Person who does not similarly represent, warrant and agree.
| 9.02 | Restrictions** on Transfer of Limited Partnership Interests**. |
(a)Except as otherwise provided in this ArticleIX, no Limited Partner may offer, sell, assign, hypothecate, pledge or otherwise transfer his Limited Partnership Interest, in whole or in part, whether voluntarily or by operation of law or at judicial sale or otherwise (collectively,a“Transfer”)withoutthewrittenconsentoftheGeneralPartner,whichconsentmay be withheld in the sole and absolute discretion of the General Partner.The General Partner may require, as a condition of any Transfer, that the transferor assume all costs incurred by the Partnership in connection therewith.
(b)NoLimitedPartnermayeffectaTransferofitsLimitedPartnershipInterest, in whole or in part, if, in the opinion of legal counsel for the Partnership, such proposed Transfer wouldrequiretheregistrationoftheLimitedPartnershipInterestundertheSecuritiesActorwould otherwise violate any applicable federal or state securities or blue sky law (including investment suitability standards).
(c)No Transfer by a Limited Partner of its Partnership Units, in whole or in part, may be made to any Person if (i)in the opinion of counsel for the Partnership, the Transfer would result in the Partnership’s being treated as an association taxable as a corporation (other than a qualified REIT subsidiary within the meaning of Section 856(i)of the Code), (ii)in the opinion of counsel for the Partnership, the Transfer would adversely affect the ability of the Company to continue to qualify as a REIT or subject the Company to any additional taxes under Section857orSection4981oftheCode,or(iii)suchTransferiseffectuatedthroughan
35
“established securities market” or a “secondary market (or the substantial equivalent thereof)”within the meaning of Section 7704 of the Code,
(d)No transfer of any Partnership Units may be made to a lender to the Partnership or any Person who is related (within the meaning of Regulations Section 1.752-4(b)) toanylendertothePartnershipwhoseloanconstitutesanonrecourseliability(withinthemeaning of Regulations Section 1.752-1(a)(2)), without the consent of the General Partner, which may be withheldinitssoleandabsolutediscretion,provided* *thatasaconditiontosuchconsentthelender will be required to enter into an arrangement with the Partnership and the General Partner to exchangeorredeemfortheCashAmountanyPartnershipUnitsinwhichasecurityinterestisheld simultaneously with the time at which such lender would be deemed to be a partner in the Partnership for purposes of allocating liabilities to such lender under Section 752 of the Code.
(e)Section 9.02(a) shall not apply to any Transfer by a Limited Partner pursuant to the exercise of its Redemption Right under Section 8.05 hereof.
(f)NotwithstandingSection9.02(a),aClassAPartnermaytransferthe ClassA Partnership Units held by such ClassA Partner to (i)any Person who, directly or indirectly,ownedanequityinterestinsuchClassAPartnerimmediatelypriortosuchtransfer,
(ii)any Family Member of such ClassA Partner, (iii)any trust of which a Person described in clause(i)ofthisSection9.02(f)oraFamilyMemberofsuchPersonorsuchClassAPartnerand/or a bona fide tax-exempt charitable organization are the sole beneficiaries and (iv)any bona fide tax-exempt charitable organization in connection with a bona fide gift or donation.Further, notwithstandingSection9.02(a),aClassAPartnermaypledgetheClassAPartnershipUnitsheld bysuchClassAPartner(i)assetforthinSection7.04oftherespectiveContributionAgreements and (ii) to a lending institution to secure a bona fide loan or extension of credit made by such lending institution to such ClassA Partner and, upon such lending institution exercising its remedy, if any, to foreclose and take possession of such ClassA Partnership Units and taking possessionofsuchClassAPartnershipUnitswithrespecttoadefaultundersuchloanorextension of credit and compliance by such lending institution with the provisions of Section 9.03(a), the General Partner will consent to the admission of such lending institution to the Partnership as a Substitute Limited Partner notwithstanding the provisions of Section 9.03(a)(vii); provided that notwithstanding the foregoing the General Partner may withhold such consent if the General Partner in its sole discretion determines that there is a reasonable business purpose for the Partnership not to admit such lending institution as a Substitute Limited Partner.
(g)Notwithstanding anything set forth in this Agreement to the contrary, no transfer of a ClassA Partnership Unit is permitted without the consent of the General Partner, whichconsentmaybegivenorwithheldinitssoleandabsolutediscretion,ifsuchtransferwould result in more than eighty (80) “partners” of the Partnership holding all outstanding ClassA Partnership Units for purposes of SectionII.A of Internal Revenue Service Notice 88-75, 1988-2
C.B.386.
(h)Any Transfer in contravention of any of the provisions of this ArticleIX shall be void and ineffectual and shall not be binding upon, or recognized by, the Partnership.
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| 9.03 | Admission** of Substitute Limited **Partner. |
(a)SubjecttotheotherprovisionsofthisArticleIX,anassigneeoftheLimited Partnership Interest of a Limited Partner (which shall be understood to include any purchaser, transferee, donee, or other recipient of any disposition of such Limited Partnership Interest) shall bedeemedadmittedasaLimitedPartnerofthePartnershiponlyuponthesatisfactorycompletion of the following:
(i)The assignee shall have accepted and agreed to be bound by the terms and provisions of this Agreement by executing a counterpart or an amendment thereof, including a revised Exhibit* *A, and such other documents or instruments as the General Partner may require in order to effect the admission of such Person as a Limited Partner.
(ii)To the extent required, an amended Certificate evidencing the admission of such Person as a Limited Partner shall have been signed, acknowledged and filed for record in accordance with the Act.
(iii)The assignee shall have delivered a letter containing the representation set forth in Section 9.01(a)and the agreement set forth in Section 9.01(b).
(iv)If the assignee is a corporation, partnership or trust, the assignee shall have provided the General Partner with evidence satisfactory to counsel for the Partnership of the assignee’s authority to become a Limited Partner under the terms and provisions of this Agreement.
(v)Theassigneeshallhaveexecutedapowerofattorneycontainingthe terms and provisions set forth in Section 8.02.
(vi)The assignee shall have paid all reasonable legal fees of the Partnership and the General Partner and filing and publication costs in connection with its substitution as a Limited Partner.
(vii)The assignee has obtained the prior written consent of the General Partner to its admission as a Substitute Limited Partner, which consent may be givenordeniedintheexerciseoftheGeneralPartner’ssoleandabsolutediscretion.
(b)For the purpose of allocating Profits and Losses and distributing cash received by the Partnership, a Substitute Limited Partner shall be treated as having become, and appearingintherecordsofthePartnershipas,aPartneruponthefilingoftheCertificatedescribed in Section 9.03(a)(ii)or, if no such filing is required, the later of the date specified in the transfer documents or the date on which the General Partner has received all necessary instruments of transfer and substitution.
(c)The General Partner shall cooperate with the Person seeking to become a Substitute Limited Partner by preparing the documentation required by this Section and making allofficialfilingsandpublications.ThePartnershipshalltakeallsuchactionaspromptlyas
37
practicableafterthesatisfactionoftheconditionsinthisArticleIXtotheadmissionofsuchPerson as a Limited Partner of the Partnership.
| 9.04 | Rights** of Assignees of Partnership **Interests. |
(a)Subject to the provisions of Sections 9.01 and 9.02, except as required by operation oflaw, the Partnership shall not be obligated for any purposeswhatsoeverto recognize theassignmentbyanyLimitedPartnerofitsPartnershipInterestuntilthePartnershiphasreceived notice thereof.
(b)AnyPersonwhoistheassigneeofalloranyportionofaLimitedPartner’s LimitedPartnershipInterest,butdoesnotbecomeaSubstituteLimitedPartneranddesirestomake a further assignment of such Limited Partnership Interest, shall be subject to all the provisions of thisArticleIXtothesameextentandinthesamemannerasanyLimitedPartnerdesiringtomake an assignment of its Limited Partnership Interest.
(c)TheGeneralPartnershallhavetheright,initssoleandabsolutediscretion, toredeemtheLimitedPartnershipInterestassignedbyanyLimitedPartner(an“AssigningLimited Partner”) to any person who does not, within 20 business days following the date of such assignment, become a Substitute Limited Partner (an “Assignee”).In such case, the Assigning Limited Partner and the Assignee shall be deemed to have tendered irrevocably to the General Partner a Notice of Redemption with respect to all of the Limited Partnership Interest assigned.
9.05Effect** of Bankruptcy, Death, Incompetence or Termination of a Limited**** **Partner.TheoccurrenceofanEventofBankruptcyastoaLimitedPartner,thedeathofaLimited PartnerorafinaladjudicationthataLimitedPartnerisincompetent(whichtermshallinclude,but not be limited to, insanity) shall not cause the termination or dissolution of the Partnership, and the business of the Partnership shall continue if an order for relief in a bankruptcy proceeding is entered against a Limited Partner, the trustee or receiver of his estate or, if he dies, his executor, administrator or trustee, or, if he is finally adjudicated incompetent, his committee, guardian or conservator, shall have the rights of such Limited Partner for the purpose of settling or managing his estate property and such power as the bankrupt, deceased or incompetent Limited Partner possessed to assign all or any part of his Partnership Interest and to join with the assignee in satisfying conditions precedent to the admission of the assignee as a Substitute Limited Partner.
9.06Joint Ownership of Interests.A Partnership Interest may be acquired by two individuals as joint tenants with right of survivorship, provided that such individuals either are marriedorarerelatedandsharethesamehomeastenantsincommon.Thewrittenconsentorvote of both owners of any such jointly held Partnership Interest shall be required to constitute the action of the owners of such Partnership Interest; provided, however, that the written consent of only one joint owner will be required if the Partnership has been provided with evidence satisfactorytothecounselforthePartnershipthattheactionsofasinglejointownercanbindboth owners under the applicable laws of the state of residence of such joint owners.Upon the death of one owner of a Partnership Interest held in a joint tenancy with a right of survivorship, the PartnershipInterestshallbecomeownedsolelybythesurvivorasaLimitedPartnerandnotasan assignee.The Partnership need not recognize the death of one of the owners of a jointly-held PartnershipInterestuntilitshallhavereceivednoticeofsuchdeath.UponnoticetotheGeneral
38
Partner from either owner, the General Partner shall cause the Partnership Interest to be divided into two equal Partnership Interests, which shall thereafter be owned separately by each of the former owners.
BOOKS** AND RECORDS; ACCOUNTING; TAX **MATTERS
10.01Books and** Records**.At all times during the continuance of the Partnership, the General Partner shall keep or cause to be kept at the Partnership’s specified office true and completebooksofaccountinaccordancewithgenerallyacceptedaccountingprinciples,including: (a)a current list of the full name and last known business address of each Partner, (b)a copy of the Certificate of Limited Partnership and all certificates of amendment thereto, (c)copies of the Partnership’s federal, state and local income tax returns and reports, (d)copies of the Agreement and any financial statements of the Partnership for the three most recent years and (e)all documents and information required under the Act.Any Partner or its duly authorized representative, upon paying the costs of collection, duplication and mailing, shall be entitled to inspect or copy such records during ordinary business hours.
| 10.02 | Custody** of Partnership Funds; Bank **Accounts. |
(a)AllfundsofthePartnershipnototherwiseinvestedshallbedepositedinone ormoreaccountsmaintainedinsuchbankingorbrokerageinstitutionsastheGeneralPartnershall determine, and withdrawals shall be made only on such signature or signatures as the General Partner may, from time to time, determine.
(b)All deposits and other funds not needed in the operation of the business of the Partnership may be invested by the General Partner in investment grade instruments (or investment companies whose portfolio consists primarily thereof), government obligations, certificates of deposit, bankers’ acceptances and municipal notes and bonds.The funds of the Partnership shall not be commingled with the funds of any other Person except for such commingling as may necessarily result from an investment in those investment companies permitted by this Section 10.02(b).
10.03Fiscal and Taxable Year.The fiscal and taxable year of the Partnership shall be the calendar year.
10.04Annual** Tax Information and **Report.Within75daysaftertheendofeachfiscal yearofthePartnership,theGeneralPartnershallfurnishtoeachpersonwhowasaLimitedPartner atanytimeduringsuchyearthetaxinformationnecessarytofilesuchLimitedPartner’sindividual tax returns as shall be reasonably required by law.
| 10.05 | Tax** Matters Partner; Tax Elections; Special Basis **Adjustments. |
(a)The General Partner shall be the Tax Matters Partner of the Partnership withinthemeaningofSection6231(a)(7)oftheCode.AsTaxMattersPartner,theGeneralPartner shallhavetherightandobligationtotakeallactionsauthorizedandrequired,respectively,bythe Code for the Tax Matters Partner.The General Partner shall have the right to retain professional
39
assistanceinrespectofanyauditofthePartnershipbytheServiceandallout-of-pocketexpenses andfeesincurredbytheGeneralPartneronbehalfofthePartnershipasTaxMattersPartnershall constitute Partnership expenses.In the event the General Partner receives notice of a final PartnershipadjustmentunderSection6223(a)(2)oftheCode,theGeneralPartnershalleither (i)fileacourtpetitionforjudicialreviewofsuchfinaladjustmentwithintheperiodprovidedunder Section 6226(a)of the Code, a copy of which petition shall be mailed to all Limited Partners on the date such petition is filed, or (ii)mail a written notice to all Limited Partners, within such period, that describes the General Partner’s reasons for determining not to file such a petition.
(b)AllelectionsrequiredorpermittedtobemadebythePartnershipunderthe Code or any applicable state or local tax law shall be made by the General Partner in its sole and absolute discretion.
(c)IntheeventofatransferofalloranypartofthePartnershipInterestofany Partner,thePartnership,attheoptionoftheGeneralPartner,mayelectpursuanttoSection754of theCodetoadjustthebasisoftheProperties.NotwithstandinganythingcontainedinArticleVof this Agreement, any adjustments made pursuant to Section 754 shall affect only the successor in interest to the transferring Partner and in no event shall be taken into account in establishing, maintaining or computing Capital Accounts for the other Partners for any purpose under this Agreement.EachPartnerwillfurnishthePartnershipwithallinformationnecessarytogiveeffect to such election.
| 10.06 | Reports** to Limited Partners**. |
(a)As soon as practicable after the close of each fiscal quarter (other than the last quarter of the fiscal year), the General Partner shall cause to be delivered or made available electronically to each Limited Partner a quarterly report containing financial statements of the Partnership, or of the Company if such statements are prepared solely on a consolidated basis with the Company, for such fiscal quarter, presented in accordance with generally accepted accounting principles. As soon as practicable after the close of each fiscal year, the General Partner shall cause to be delivered or made available electronically to each Limited Partner an annual report containing financial statements of the Partnership, or of the Company if such statements are prepared solely on a consolidated basis with the Company, for such fiscal year, presented in accordance with generally accepted accounting principles. The annual financial statements shall be audited by accountants selected by the General Partner. For purposes of this Section 10.06(a), delivery or availability may be effected by electronic mail or by posting such reports to a secure electronic portal or website maintained by or on behalf of the Partnership, with electronic notice of availability provided to the applicable Limited Partner.
(b)Any Partner shall further have the right to a private audit of the books and recordsofthePartnership,providedsuchauditismadeforPartnershippurposes,attheexpenseof the Partner desiring it and is made during normal business hours.
10.07Offset.Except as otherwise provided in a written agreement between a ClassA Partner and the Partnership, the Partnership agrees that it will not exercise any right to offset amountspayabletoaContributorasdistributionspursuanttothisAgreementorinconnectionwith a redemption of ClassA Partnership Units by a Contributor against any amounts owed by such Contributor to the Partnership.
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AMENDMENT** OF AGREEMENT; MERGER; **NOTICE
11.01**Amendment **of Agreement; Merger.The General Partner’s consent shall be requiredforanyamendmenttotheAgreementoranymerger,consolidationorcombinationofthe Partnership.The General Partner, without the consent of the Limited Partners, may amend this Agreement in any respect or cause the Partnership to merge, consolidate or combine with or into any other partnership, limited partnership, limited liability company or corporation as contemplatedinSection7.01(c)or(d)hereof;provided,however,thatthefollowingamendments and any other such merger, consolidation or combination of the Partnership (a “Merger”) shall require the consent of Limited Partners (other than the Company or any Subsidiary of the Company) holdingmorethan50% of the Percentage Interestsofthe Limited Partners(otherthan the Company or any Subsidiary of the Company):
(a)any amendment affecting the operation of the Conversion Factor or the Redemption Right (except as provided in Sections 7.01(c) or 8.05(e)) in a manner adverse to the Limited Partners;
(b)any amendment that would adversely affect the rights of the Limited Partners to receive the distributions payable to them hereunder, other than with respect to the issuance of additional Partnership Units pursuant to Section 4.02;
(c)any amendment that would alter the Partnership’s allocations of Profit and LosstotheLimitedPartners,otherthanwithrespecttotheissuanceofadditionalPartnershipUnits pursuant to Section 4.02; or
| (d) | anyamendmenttothisArticleXI. |
The consent of each Limited Partner shall be required for any amendment that would impose on the Limited Partners any obligation to make additional Capital Contributions to the Partnership.
11.02Notice** to Limited **Partners.TheGeneralPartnershallnotifytheLimitedPartners of the substance of any amendment or Merger requiring the consent of the Limited Partners pursuant to Section 11.01 at least 20 business days prior to the effective date of such amendment or Merger.
| 11.03 | Class** A Voting **Rights. |
(a)So long as any ClassA Partnership Units remain outstanding, neither the General Partner nor the Partnership shall, without the affirmative vote of the ClassA Partners holding at least a majority of the ClassA Partnership Units then outstanding increase the authorized or issued amount of ClassA Partnership Units or reclassify any Partnership Interest intoClassAPartnershipUnitsorcreate,authorizeorissueanyobligationsorsecurityconvertible into or evidencing the right to purchase any ClassA Partnership Units.Further, subject to the Partnership’srightssetforthinSection7.03(g)oftherespectiveContributionAgreementsduring theTaxProtectionPeriod(asdefinedinsuchContributionAgreements),theconsentoftheClassA
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Partners holding at least a majority of the ClassA Partnership Units then outstanding will be required to approve any merger, acquisition or other fundamental transaction involving the Partnership, unless (i)the holders of such ClassA Partnership Units will not recognize a taxable gaininthetransactionandthetaxprotectionssetforthinSection7.03ofeachoftheContribution Agreementsarepreservedfollowingsuchmerger,acquisitionorotherfundamentaltransaction, (ii)theClassAPartnersareofferedaportionoftheconsiderationofferedtotheholdersofLimited PartnershipInterestswhichisinproportiontotheValueoftheirrespectivePartnershipInterests, (iii)the value, as determined in good faith by the General Partner, of the liquidation, redemption rightsandpreferencesoftheClassALimitedPartnerssetforthinthisAgreement,eitherinrespect ofthePartnershiporanotherlimitedpartnership,limitedliabilitycompanyorother“pass-through” entity for federal income tax purposes which succeeds to the interests of or is the survivor of a transactionwiththePartnership,arepreservedinconnectionwithsuchmerger,acquisitionorother fundamental transaction and (iv) the ClassA Limited Partners’ fixed or guaranteed entitlements orpreferencesastodividendsordistributionsassetforthhereinarepreservedandtheotherrelative rights, preferences and privileges of the Class A Partnership Units are maintained.
(b)So long as any ClassA Partnership Units remain outstanding, no amendmentormodificationtothisAgreementthatadverselyaffectstherelativerights,preferences orprivilegesoftheClassAPartnershipUnitsshallbeeffectivewithoutthepriorwrittenapproval of Class A Partners holding at least a majority of the Class A PartnershipUnits then outstanding.
**ARTICLE XII GENERAL **PROVISIONS
12.01Notices.AllcommunicationsrequiredorpermittedunderthisAgreementshallbe in writing and shall be deemed to have been given when delivered personally or upon deposit in the United States mail, registered, postage prepaid return receipt requested, to the Partners at the addressessetforthinExhibitAattachedhereto;provided,however,thatanyPartnermayspecify a different address by notifying the General Partner in writing of such different address.Notices to the Partnership shall be delivered at or mailed to its specified office.
12.02Survival of Rights.Subject to the provisions hereof limiting transfers, this Agreement shall be binding upon and inure to the benefit of the Partners and the Partnership and their respective legal representatives, successors, transferees and assigns.
12.03Additional Documents.Each Partner agrees to perform all further acts and execute, swear to, acknowledge and deliver all further documents which may be reasonable, necessary, appropriate or desirable to carry out the provisions of this Agreement or the Act.
12.04Severability.IfanyprovisionofthisAgreementshallbedeclaredillegal,invalid, orunenforceableinanyjurisdiction,thensuchprovisionshallbedeemedtobeseverablefromthis Agreement (to the extent permitted by law) and in any event such illegality, invalidity or unenforceability shall not affect the remainder hereof.
12.05Entire Agreement.This Agreement and exhibits attached hereto constitute the entireAgreementofthePartnersandsupersedeallpriorwrittenagreementsandpriorand
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contemporaneous oral agreements, understandings and negotiations with respect to the subjectmatter hereof.
12.06Additional Agreements.The Parties agree that (a) the ClassA Partnership Units will be evidenced by certificates in accordance with Section2.06 and (b)the ClassA Partnership Units will be subject to the provisions set forth in Article VII of the Contribution Agreements.
12.07Rules of** Construction**.When the context in which words are used in the Agreement indicates that such is the intent, words in the singular number shall include the plural and the masculine gender shall include the neuter or female gender as the context may require. Unlessthecontextotherwiseindicates,referencestoparticularArticlesandSectionsarereferences to Articles and Sections of this Agreement.
12.08Headings.TheArticleheadingsorsectionsinthisAgreementareforconvenience only and shall not be used in construing the scope of this Agreement or any particular Article.
12.09Counterparts.This Agreement may be executed in several counterparts, each of whichshallbedeemedtobeanoriginalcopyandallofwhichtogethershallconstituteoneandthe sameinstrumentbindingonallpartieshereto,notwithstandingthatallpartiesshallnothavesigned the same counterpart.
**12.10 **Governing Law.This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.
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IN WITNESS WHEREOF, the General Partner has hereunder affixed its signature to this Second Amended and Restated Agreement of Limited Partnership, as of the 1st day of July, 2026 to witness and evidence its adoption pursuant to the provisions of Section 17-211(g) of the Act.
| GENERAL PARTNER**:UDR, INC.By: /s/ Keith Benson_ _Keith BensonSenior Vice President – Chief Legal Officer |
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LISTOFPARTNERS
[On file with the General Partner]
A-1
NOTICEOFEXERCISEOFREDEMPTIONRIGHT
In accordance with Section 8.05 of the Second Amended and Restated Agreement of Limited Partnership (the “Agreement”) of United Dominion Realty, L.P., the undersigned hereby irrevocably(i) presentsforredemption*_____________*Partnership Units in United Dominion Realty,L.P.inaccordancewiththetermsoftheAgreementandtheRedemptionRightreferredto inSection8.05thereof,(ii)surrenderssuchPartnershipUnitsandallright,titleandinteresttherein, and (iii)directs that the Cash Amount or REIT Shares Amount (as defined in the Agreement) as determinedbytheGeneralPartnerdeliverableuponexerciseoftheRedemptionRightbedelivered to the address specified below, and if REIT Shares (as defined in the Agreement) are to be delivered,suchREITSharesberegisteredorplacedinthename(s)andattheaddress(es)specified below.
Dated: ________________, _______
NameofLimitedPartner:
| (SignatureofLimitedPartner) |
| (MailingAddress) |
| (City)(State)(ZipCode) |
| SignatureGuaranteedby: |
| |
| |
| |
IfREITSharesare tobeissued,issueto:
Pleaseinsertsocialsecurityoridentifyingnumber:
B-1
PARTNERSHIP** UNIT ****DESIGNATION **
OF THE
CLASS** I OUT-PERFORMANCE PARTNERSHIP ****SHARES **
OF UNITED DOMINION REALTY, L.P.
| 1. | NUMBEROFUNITSANDDESIGNATION. |
AclassofPartnershipUnitsisherebydesignatedas“ClassIOut-PerformancePartnership Shares,”andthenumberofPartnershipUnitsinitiallyconstitutingsuchclassshallbeonemillion two hundred and seventy thousand (1,270,000).
| 2. | DEFINITIONS. |
For purposes of this Partnership Unit Designation, the following terms shall have the meanings indicated in this Section 2.Capitalized terms used and not otherwise defined herein shall have the meanings assigned thereto in the Agreement.
“ChangeofControl”shallmeantheoccurrenceofanyofthefollowingevents:
(i)an acquisition of any voting securities of the Company (the “Voting Securities”) by any “person” (as the term “person” is used for purposes of Section 13(d) or Section 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) immediately after which such person has “beneficial ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) (“Beneficial Ownership”) of 30% or more of the combined voting power of the Company’s then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities that are acquired in a Non-Control Acquisition(ashereinafterdefined)shallnotconstituteanacquisitionthatwouldcauseaChange in Control.“Non-Control Acquisition” shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (1) the Company or (2) any corporation, partnership or other person of which a majority of its voting power or its equity securities or equity interest is owned directly or indirectly by the Company or in which the Company serves as a generalpartner ormanager(a “Subsidiary”),(B) the Company or anySubsidiary,or (C) any person in connection with a Non-Control Transaction (as hereinafter defined);
(ii)theindividualswhoconstitutetheBoardofDirectorsoftheCompanyasof May 9, 2001 (the “Incumbent Board”) cease for any reason to constitute at least two-thirds (2/3) of the members of the Board of Directors of the Company; provided, however, that if the election, or nomination for election by the Company’s stockholders, of any new director was approved by a vote of at least two-thirds (2/3) of the Incumbent Board, such new director shall beconsideredasamemberoftheIncumbentBoard;provided,further,thatnoindividualshallbe considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened “election contest” (as described in Rule 14a-11 promulgated under the Exchange Act) (an “Election Contest”) or other actual or threatened
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solicitationof proxies or consents byor on behalf of a personother than the Board of Directors oftheCompany(a“ProxyContest”)includingbyreasonofanyagreementintendedtoavoidor settle any Election Contest or Proxy Contest; or
(iii)approval by stockholders of the Company of:(A) a merger, consolidation, share exchange or reorganization involving the Company, unless (1) the stockholders of the Company immediately before such merger, consolidation, share exchange or reorganization, own, directly or indirectly immediately following such merger, consolidation, share exchange or reorganization,atleast60%ofthecombinedvotingpoweroftheoutstandingvotingsecuritiesof the corporation that is the successor in such merger, consolidation, share exchange or reorganization (the “Surviving Company”) in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation, share exchange or reorganization, (2) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation, share exchange or reorganization constitute at least two-thirds (2/3) of the members of the board of directors of the Surviving Company, and (3) no persons (other than the Company or any Subsidiary of the Company, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Company or any Subsidiary of the Company, or any person who, immediately prior to such merger, consolidation, share exchange or reorganization had Beneficial Ownership of 30% or more of the then outstanding Voting Securities has Beneficial Ownership of 30% or more of the combined voting power of the Surviving Company’s then outstanding voting securities (a transaction described in clauses (1) through (3) is referred to herein as a “Non-Control Transaction”); (B) a complete liquidation or dissolution oftheCompany;or(C)anagreementforthesaleorotherdispositionofallorsubstantiallyallof the assets of the Company to any person (other than a transfer to a Subsidiary of the Company).
Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because any person (a “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company that, by reducing the number of Voting Securities outstanding, increasestheproportionalnumberofsharesBeneficiallyOwnedbysuchSubjectPerson,provided that if a Change of Control would occur (but for the operation of this sentence) as a result of the acquisitionofVotingSecuritiesbytheCompany,andaftersuchshareacquisitionbytheCompany, such Subject Person becomes the Beneficial Owner of any additional Voting Securities that increases the percentage of the then outstanding Voting Securities Beneficially Owned by such Subject Person, then a Change of Control shall occur.
“Class I Out-Performance Partnership Share” shall mean a Partnership Unit with the designations, preferences and relative, participating, optional or other special rights, powers and duties as are set forth in this Exhibit C.
“Class I Out-Performance Valuation Date” shall mean the earlier to occur of (i)June 1, 2003, or (ii) the date on which a Change of Control occurs.
“ConversionFactor”shallmeanthequotientobtainedbydividing(i)thequotientobtained by dividing (x) the product of (A) 4% of the Excess Return multiplied by (B) the UDR Market Capitalization,by(y)theValueofaREITShareontheClassIOut-PerformanceValuationDate
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by (ii) the number of Class I Out-Performance Partnership Shares outstanding at the Class I Out-PerformanceValuationDate;provided,however,thattheamountdeterminedpursuanttoclause (x) shall not exceed an amount equal to 2% of the UDR Market Capitalization.The Conversion Factor shall be adjusted pursuant to Section 8.05(f) of the Agreement.
“Determination Date” shall mean (i) when used with respect to any dividend or other distribution,thedatefixedforthedeterminationoftheholdersofthesecuritiesentitledtoreceive such dividend or distribution, or, if a dividend or distribution is paid or made without fixing such a date, the date of such dividend or distribution, and (ii) when used with respect to any split, subdivision,reversestocksplit,combinationorreclassificationofsecurities,thedateuponwhich such split, subdivision, reverse stock split, combination or reclassification becomes effective.
“Excess Return” shall mean the amount, if any, by which the UDR Total Return over the Measurement Period exceeds the greater of (i)the Industry Total Return or (ii)the Minimum Return.
“Ex-Date” shall mean (i) when used with respect to any dividend or distribution, the first dateonwhichthesecuritiesonwhichthedividendordistributionispayabletraderegularwayon the relevant exchange or in the relevant market without the right to receive such dividend or distribution, and (ii) when used with respect to any split, subdivision, reverse stock split, combination or reclassification of securities, the first date on which the securities trade regular way on such exchange or in such market to reflect such split, subdivision, reverse stock split, combination or reclassification becoming effective.
“Extraordinary Distribution” shall mean the distribution by the Company, by dividend or otherwise, to all holders of its REIT Shares of evidences of its indebtedness or assets (including securities) other than cash.
“FamilyControlledEntity”means,astoanyholderofClassIOut-PerformanceShares,(a) anycorporationmorethan50%oftheoutstandingvotingstockofwhichisownedbysuchholder andsuchholder’sFamilyMembers,(b)anytrust,whetherornotrevocable,ofwhichsuchholder and such holder’s Family Members are the sole beneficiaries, (c) any partnership of which such holder and such holder’s Family Members hold partnership interests representing at least 25% of such partnership’s capital and profits and (d) any limited liability company of which such holder is the manager and in which such holder and such holder’s Family Members hold membership interests representing at least 25% of such limited liability company’s capital and profits.
“IndustryPeerGroupIndex”shallmeantheMorganStanleyREITIndex.
“Industry Total Return” shall mean the Total Return of the securities included in the IndustryPeerGroupIndexfortheMeasurementPeriod,withsuchaveragedeterminedinamanner consistent with the manner in which such index is calculated; provided, however, that if such Industry Total Return would be less than zero without giving effect to the reinvestment of dividends, then the “Industry Total Return” shall be equal to zero.
“Initial Holder” shall mean UDR Out-Performance I, LLC, a Virginia limited liability company.
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“Measurement Period” shall mean the period from and including February 1, 2001 to but excluding the Class I Out-Performance Valuation Date.
“Minimum Return” shall mean 30% (compounded annually) for the Measurement Period or,iftheClassIOut-PerformanceValuationDateisnotJune1,2003,12%(compoundedannually) per annum from February 1,2001.
“Morgan Stanley REIT Index” shall mean the Morgan Stanley REIT Index quoted on the American Stock Exchange under the symbol “RMS”.
“Partnership” shall mean United Dominion Realty, L.P., a Delaware limited partnership.
“TotalReturn”shallmean,foranysecurityorindexandforanyperiod,thecumulative total return for such security or index over such period, as measured by (i) the sum of (A) the cumulativeamountofdividendspaidinrespectofsuchsecurityorindexforsuchperiod(assuming that all dividends other than Extraordinary Distributions are reinvested in such security or index asofthepaymentdateforsuchdividendbasedonthesecuritypriceonthedividendpaymentdate), and(B)anamountequalto(1)thesecuritypriceorindexvalueattheendofsuchperiod,minus (2) the security price or index value at the beginning of such period, divided by (ii) the security price or index value at the beginning of such period; provided, however, that if the foregoing calculation results in a negative number, the “Total Return” shall be equal to zero.
“UDR Market Capitalization” shall mean the average number of shares outstanding over the Measurement Period (including,for this purpose, REIT Shares and Partnership Units, but not including outstanding options, convertible securities or Class I Out-Performance Partnership Shares) multiplied by the daily closing price of the REIT Shares.
“UDRTotalReturn”shallmeantheTotalReturnoftheREITSharesfortheMeasurement
Period.
| 3. | FORFEITURE. |
If,ontheClassIOut-PerformanceValuationDate,thereisnoExcessReturn,then,from and after such date, each Class I Out-Performance Partnership Share shall, without any action on the part of the Partnership, the Company or the holder thereof, be automatically forfeited and be no longer outstanding.
| 4. | DISTRIBUTIONS. |
On and after the Class I Out-Performance Valuation Date, the holders of Class I Out-Performance Partnership Shares not forfeited under Section 3 shall be entitled to receive distributions at the same time and in the same amount that would be received on the number of Partnership Units held by Outside Partners (assuming such Partnership Units were originally issuedontheClassIOut-PerformanceValuationDate)thatisobtainedbymultiplyingthenumber of Class I Out-Performance Partnership Shares by the Conversion Factor.
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| 5. | ALLOCATIONS. |
(a)From and after the Class I Out-Performance Valuation Date, Profits and Losses shall be allocated to each of the holders of Class I Out-Performance Partnership Shares notforfeitedunderSection3atthesametimeandinthesameamountthatwouldbeallocatedon thenumberofPartnershipUnitsheldbyOutsidePartners(assumingsuchPartnershipUnitswere originallyissuedontheClassIOut-PerformanceValuationDate)thatisobtainedbymultiplying the number of Class I Out-Performance Partnership Shares by the Conversion Factor.
(b)In the event that the Partnership disposes of all or substantially all of its assets in a transaction that will lead to a liquidation of the Partnership pursuant to Article II oftheAgreement,then,notwithstandingSection5.06oftheAgreement,eachholderofClassIOut-Performance Partnership Shares not forfeited under Section 3 shall be specifically allocateditems of Partnership income and gain in an amount sufficient to cause the Capital Account of such holder to be equal to that of an Outside Partner that holds Partnership Units equal to the number of Class I Out-Performance Partnership Shares held by such holder multiplied by the Conversion Factor.
| 6. | EXCHANGE. |
IftheClassIOut-PerformancePartnershipShareshavenotbeenforfeitedunderSection3 andtheClassIOut-PerformancePartnershipShareshavebeentransferredbytheInitialHolderin accordance with Section 8, the transferee and subsequent transferees of the Class I Out-Performance Partnership Shares may exchange from time to time some or all of the Class I Out-Performance Partnership Shares for a number of Partnership Units equal to the Class I Out-Performance Partnership Shares multiplied by the Conversion Factor.
| 7. | REDEMPTIONUPONCHANGEOFCONTROL. |
UpontheoccurrenceofaChangeofControl,andsubjecttotheapplicablerequirementsof Federalsecuritieslawsandanysecuritiesexchangeorquotationsystemrulesorregulations,each holderofClassIOut-PerformancePartnershipSharesshallhavetheredemptionrightsofLimited Partners set forth in Section 8.05 of the Agreement with respect to a number of Partnership Units equaltothenumberofClassIOut-PerformancePartnershipSharesmultipliedbytheConversion Factor and the 40-month transfer limitation period applicable to the Class I Out-Performance Partnership Shares shall be deemed to have passed.
| 8. | RESTRICTIONSONOWNERSHIPANDTRANSFER. |
The restrictions on Transfer set forth in Article IX of the Agreement shall not apply to Transfers of Class I Out-Performance Partnership Shares.Prior to the Class I Out-Performance Valuation Date, the Class I Out-Performance Partnership Shares shall be owned and held solely bytheInitialHolder.OnorafterthelateroftheClassIOut-PerformanceValuationDateandthe forty (40) month period from the date the Class I Out-Performance Partnership Shares are issued theClassIOut-PerformancePartnershipSharesmaybeTransferred(i)bytheInitialHolderto(a) anyPersonwhoisamember(a“Member”)oftheInitialHolderimmediatelypriortosuchtransfer, (b) a Family Member of a Member, (c) a Family Controlled Entity of a Member, (d) any Person withrespecttowhomtheMemberconstitutes aFamily ControlledEntity,(e)upon thedeathofa
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Member, by will or by the laws of descent and distribution to any Family Member or Family Controlled Entity, and (ii) by any other Person to (a) a Family Member of a such Person, (b) a Family Controlled Entity of such Person, (c) any other Person with respect to whom such Person constitutes a Family Controlled Entity, (d) upon the death of such Person, by will or by the laws ofdescentanddistributiontoanyFamilyMemberorFamilyControlledEntity;provided,however, that,untilMay31,2004,theClassIOut-PerformancePartnershipSharesmaynotbeTransferred by the Initial Holder without the approval of the managers of the Initial Holder.
| 9. | ADJUSTMENTS. |
(a)In the event of any Extraordinary Distribution occurring on or after February 1, 2001, for purposes of determining the Value of a REIT Share or the UDR Total Return, each price of a REIT Share determined as of a date on or after the Ex-Date for such Extraordinary Distribution shall be adjusted by multiplying such price by a fraction (i) the numeratorofwhichshallbethepriceofaREITShareonthedateimmediatelypriortosuchEx-Date, and (ii) the denominator of which shall be (A) the price of a REIT Share on the date immediately prior to such Ex-Date, minus (B) the fair market value on the date fixed for such determination of the portion of the evidences of indebtedness or assets so distributed applicable to one REIT Share (as determined by the Company, whose determination shall be conclusive); provided further,that such amount shall be so adjustedfor each such Extraordinary Distribution occurring on or after February 1, 2001.
(b)Intheeventthat,onorafterFebruary1,2001,theCompany(i)declaresor pays a dividend on its outstanding REIT Shares in REIT Shares or makes a distribution to all holders of its outstanding REIT Shares in REIT Shares, (ii) splits or subdivides its outstanding REIT Shares, (iii) effects a reverse stock split or otherwise combines its outstanding REITShares into a smaller number of REIT Shares, or (iv) otherwise reclassifies its outstanding REIT Shares, then, for purposes of determining the Value of a REIT Share or the UDR Total Return, each price of a REIT Share determined as of a date on or after the Ex-Date for such transaction shall be adjusted by multiplying such price by a fraction (x) the numerator of which shall be the number of REIT Shares issued and outstanding on the Determination Date for such dividend, distribution, split, subdivision, reverse stock split, combination or reclassification (assuming for suchpurposesthatsuchdividend,distribution,split,subdivision,reversesplitorcombinationhas occurred as of such time) and (y) the denominator of which shall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on the Determination Date for such dividend, distribution, split, subdivision, reverse stock split. combination or reclassification.
(c)TheCompanyshallhaveauthoritytoappropriatelyadjusttheUDR Market Capitalization, the UDR Total Return or the Value of a REIT Share if any other transaction or circumstance occurs or arises that without such adjustment would have an inequitable result.
| 10. | GENERAL. |
The ownership of Class I Out-Performance Partnership Shares may (but need not, in the soleandabsolutediscretionoftheCompany)beevidencedbyoneormorecertificates.The
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Company shall amend Exhibit Ato the Agreement from time to time to the extent necessary to reflect accurately the issuance of, and subsequent conversion, redemption, or any other event having an effect on the ownership of Class I Out-Performance Partnership Shares.
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PARTNERSHIP** UNIT ****DESIGNATION **
OF THE
CLASS** II OUT-PERFORMANCE PARTNERSHIP ****SHARES **
OF UNITED DOMINION REALTY, L.P.
| 1. | NUMBEROFUNITSANDDESIGNATION. |
A class of Partnership Units is hereby designated as “Class II Out-Performance Partnership Shares,” and the number of Partnership Units initially constituting such class shall be one million (1,000,000).
| 2. | DEFINITIONS. |
For purposes of this Partnership Unit Designation, the following terms shall have themeaningsindicatedinthisSection2.Capitalizedtermsusedandnototherwisedefined herein shall have the meanings assigned thereto in the Agreement.
“ChangeofControl”shallmeantheoccurrenceofanyofthefollowingevents:
(i)an acquisition of any voting securities of the Company (the “Voting Securities”) by any “person” (as the term “person” is used for purposes of Section 13(d) or Section 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) immediately after which such person has “beneficial ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) (“Beneficial Ownership”) of30%ormoreofthecombinedvotingpoweroftheCompany’sthenoutstandingVoting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities that are acquired in a Non-Control Acquisition (as hereinafter defined) shall not constitute an acquisition that would cause a Change in Control.“Non-Control Acquisition” shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (1) the Company or (2) any corporation, partnershiporotherpersonofwhichamajorityofitsvotingpoweroritsequitysecurities or equity interest is owned directly or indirectly by the Company or in which the Company serves as a general partner or manager (a “Subsidiary”), (B) the Company or any Subsidiary, or (C) any person in connection with a Non-Control Transaction (as hereinafter defined);
(ii)the individuals who constitute the Board of Directors of the Company as of May 6, 2003 (the “Incumbent Board”)ceasefor any reason to constitute atleast two-thirds (2/3) of the members of the Board of Directors of the Company; provided, however,thatiftheelection,ornominationforelectionbytheCompany’sstockholders, ofanynewdirectorwasapprovedbyavoteofatleasttwo-thirds(2/3)oftheIncumbent Board, such new director shall be considered as a member of the Incumbent Board; provided, further, that no individual shall be considered a member of the Incumbent
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Board if such individual initially assumed office as a result of either an actual or threatened “election contest” (as described in Rule 14a-11 promulgated under the Exchange Act) (an “Election Contest”) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board of Directors of the Company(a“ProxyContest”)includingbyreasonofanyagreementintendedtoavoidor settle any Election Contest or Proxy Contest; or
(iii)approvalbystockholdersoftheCompanyof:(A)amerger,consolidation, share exchange or reorganization involving the Company, unless (1) the stockholders of the Company immediately before such merger, consolidation, share exchange or reorganization, own, directly or indirectly immediately following such merger, consolidation, share exchange or reorganization, at least 60% of the combined voting power of the outstanding voting securities of the corporation that is the successor in such merger, consolidation, share exchange or reorganization (the “Surviving Company”) in substantiallythesameproportionastheirownershipoftheVotingSecuritiesimmediately before such merger, consolidation, share exchange or reorganization, (2) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation, share exchange or reorganization constitute at least two-thirds (2/3) of the members of the board of directors of the Surviving Company, and (3) no persons (other than the Company or any Subsidiary ofthe Company, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Company or any Subsidiary of the Company, or any person who, immediately prior to such merger, consolidation, share exchange or reorganization had Beneficial Ownership of 30% or more of the then outstanding Voting SecuritieshasBeneficialOwnershipof30%ormoreofthecombinedvotingpowerofthe Surviving Company’s then outstanding voting securities (a transaction described in clauses (1) through (3) is referred to herein as a “Non-Control Transaction”); (B) a complete liquidation or dissolution of the Company; or (C) an agreement for the sale or other disposition of all or substantially all of the assets of the Company to any person (other than a transfer to a Subsidiary of the Company).
Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because any person (a “Subject Person”) acquired Beneficial Ownership of more thanthepermittedamountoftheoutstandingVotingSecuritiesasaresultoftheacquisition of Voting Securities by the Company that, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by such SubjectPerson,providedthatifaChangeofControlwouldoccur(butfortheoperationof thissentence)asaresultoftheacquisitionofVotingSecuritiesbytheCompany,andafter such share acquisition by the Company, such Subject Person becomes the Beneficial Owner of any additional Voting Securities that increases the percentage of the then outstandingVotingSecuritiesBeneficiallyOwnedbysuchSubjectPerson,thenaChange of Control shall occur.
“Class II Out-Performance Partnership Share” shall mean a Partnership Unit with the designations, preferences and relative, participating, optional or other special rights, powers and duties as are set forth in this Exhibit D.
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“ClassIIOut-PerformanceValuationDate”shallmeantheearliertooccurof May31,2005, or(ii)thedate onwhich aChange ofControl occurs.
“ConversionFactor”shallmeanthequotientobtainedby(a)multiplying5%ofthe Excess Return by the Company’s Market Capitalization and (b) dividing the number obtainedinclause(b)bythemarketvalueofoneREITShareontheClassII Out-PerformanceValuationDate,astheweightedaveragepriceperdayofcommonstock for the 20 trading days immediately preceding the Class II Out-Performance Valuation Date
“Determination Date” shall mean (i) when used with respect to any dividend or other distribution, the date fixed for the determination of the holders of the securities entitled to receive such dividend or distribution, or, if a dividend or distribution is paid or made without fixing such a date, the date of such dividend or distribution, and (ii) when used with respect to any split, subdivision, reverse stock split, combination or reclassification of securities, the date upon which such split, subdivision, reverse stock split, combination or reclassification becomes effective.
“Excess Return” shall mean the amount, if any, by which the cumulative Total ReturnofREITSharesovertheMeasurementPeriodexceedsthegreaterofthecumulative Total Return of the Morgan Stanley REIT Index, which is the peer group index, or the Minimum Return.
“Ex-Date” shall mean (i) when used with respect to any dividend or distribution, thefirstdateonwhichthesecuritiesonwhichthedividendordistributionispayabletrade regularwayontherelevantexchangeorintherelevantmarketwithouttherighttoreceive such dividend or distribution, and (ii) when used with respect to any split, subdivision, reversestocksplit,combinationorreclassificationofsecurities,thefirstdateonwhichthe securities trade regular way on such exchange or in such market to reflect such split, subdivision, reverse stock split, combination or reclassification becoming effective.
“Extraordinary Distribution” shall mean the distribution by the Company, by dividendorotherwise,toallholdersofitsREITSharesofevidencesofitsindebtednessor assets (including securities) other than cash.
“Family Controlled Entity” means, as to any holder of Class II Out-Performance Shares, (a) any corporation more than 50% of the outstanding voting stock of which is owned by such holder and such holder’s Family Members, (b) any trust, whether or not revocable, of which such holder and such holder’s Family Members are the sole beneficiaries,(c)anypartnershipofwhichsuchholderandsuchholder’sFamilyMembers holdpartnershipinterestsrepresentingatleast25%ofsuchpartnership’scapitalandprofits and (d) any limited liability company of which such holder is the manager and in which suchholderandsuchholder’sFamilyMembersholdmembershipinterestsrepresentingat least 25% of such limited liability company’s capital and profits.
“IndustryPeerGroupIndex”shallmeantheMorganStanleyREITIndex.
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“Industry Total Return” shall mean the Total Return of the securities included in theIndustryPeerGroupIndexfortheMeasurementPeriod,withsuchaveragedetermined in a manner consistent with the manner in which such index is calculated; provided, however, that if such Industry Total Return would be less than zero without giving effect to the reinvestment of dividends, then the “Industry Total Return” shall be equal to zero.
“Initial Holder” shall mean UDR Out-Performance II, LLC, a Maryland limited liability company.
“Measurement Period” shall mean the 24 month period beginning June 1, 2003 to but excluding the Class II Out-Performance Valuation Date.
“MinimumReturn”shallmeana22%TotalReturn(compoundedannually)or11% annualizedasoftheClassIIOut-PerformanceValuationDateor,iftheClassIIOut-Performance Valuation Date is not May 31, 2005, 11% (compounded annually) per annum from June 1, 2003.
“MorganStanleyREITIndex”shallmeantheMorganStanleyREITIndexquoted on the American Stock Exchange under the symbol “RMS”.
“Partnership” shall mean United Dominion Realty, L.P., a Delaware limited partnership.
“Total Return” shall mean, for any security or index and for any period, the cumulativetotalreturnforsuchsecurityorindexoversuchperiod,asmeasuredbythesum of(a)thecumulativeamountofdividendspaidinrespectofsuchsecurityorindexforsuch period (assuming that all cash dividends are reinvested in such security as of the payment date for such dividend based on the security price on the dividend payment date), and (b) anamountequalto(x)thesecuritypriceorindexvalueattheendofsuchperiod,minus thesecuritypriceorindexvalueatthebeginningofthemeasurementperiod.
“UDR Market Capitalization” shall mean the average number of REIT Shares outstanding over the Measurement Period (including, for this purpose, REIT Shares, PartnershipUnits,outstandingoptionsandconvertiblesecurities,butnotincludingClassII Out-Performance Partnership Shares) multiplied by the daily closing price of the REIT Shares.
“UDR Total Return” shall mean the Total Return of the REIT Shares for the Measurement Period.
| 3. | FORFEITURE. |
If,ontheClassIIOut-PerformanceValuationDate,thereisnoExcessReturn,then, from and after such date, each Class II Out-Performance Partnership Share shall, without any action on the part of the Partnership, the Company or the holder thereof, be automatically forfeited and be no longer outstanding.
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| 4. | DISTRIBUTIONS. |
SubjecttoSection5.06oftheAgreement,onandaftertheClassIIOut-Performance Valuation Date, the holders of ClassII Out-Performance Partnership Shares not forfeited under Section 3 shall be entitled to receive distributions at the same time and in the same amountthatwouldbereceivedonthenumberofPartnershipUnitsheldbyOutsidePartners (assuming such Partnership Units were originally issued on the Class II Out-Performance Valuation Date) that is obtained by multiplying the number of Class II Out-Performance Partnership Shares by the Conversion Factor.
| 5. | ALLOCATIONS. |
(a)From and after the Class II Out-Performance Valuation Date, Profits and Losses shall be allocated to each of the holders of Class II Out-Performance PartnershipSharesnotforfeitedunderSection3atthesametimeandinthesameamount that would be allocated on the number of Partnership Units held by Outside Partners (assumingsuchPartnershipUnitswereoriginallyissuedontheClassIIOut-Performance Valuation Date) that is obtained by multiplying the number of Class II Out-Performance Partnership Shares by the Conversion Factor.
(b)In the event that the Partnership disposes of all or substantially all of its assets in a transaction that will lead to a liquidation of the Partnership pursuant to Article II of the Agreement, then, notwithstanding Section 5.06 of the Agreement, each holder of Class II Out-Performance PartnershipShares not forfeited under Section 3shall be, to the extent possible, specially allocated items of Partnership income and gain in an amount sufficient to cause the Capital Account of such holder to be equal to that of an Outside Partner that holds Partnership Units equal to the number of Class II Out-PerformancePartnershipSharesheldbysuchholdermultipliedbytheConversionFactor. Amounts allocated pursuant to this Section 5(b) and/or Section 5(b) of Exhibit Cto the Agreement shall be excluded from “Profits” and “Losses” otherwise determined underthe Agreement.
| 6. | EXCHANGE. |
If the Class II Out-Performance Partnership Shares have not been forfeited under Section 3 and the Class II Out-Performance Partnership Shares have been transferred by the Initial Holder in accordance with Section 8, the transferee and subsequent transferees oftheClassIIOut-PerformancePartnershipSharesmayexchangefromtimetotimesome oralloftheClassIIOut-PerformancePartnershipSharesforanumberofPartnershipUnits equal to the Class II Out-Performance Partnership Shares multiplied by the Conversion Factor.
| 7. | REDEMPTIONUPONCHANGEOFCONTROL. |
Upon the occurrence of a Change of Control, and subject to the applicable requirements of Federal securities laws and any securities exchange or quotation system rulesorregulations,eachholderofClassIIOut-PerformancePartnershipSharesshallhave theredemptionrightsofLimitedPartnerssetforthinSection8.05oftheAgreementwith
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respecttoanumberofPartnershipUnitsequaltothenumberofClassIIOut-Performance Partnership Shares multiplied by the Conversion Factor and the 40-month transfer limitation period applicable to the Class II Out-Performance Partnership Shares shall be deemed to have passed.
| 8. | RESTRICTIONSONOWNERSHIPANDTRANSFER. |
TherestrictionsonTransfersetforthinArticleIXoftheAgreementshallnotapply to Transfers of Class II Out-Performance Partnership Shares.Prior to the Class II Out-Performance Valuation Date, the Class II Out-Performance Partnership Shares shall be owned and held solely by the Initial Holder.On or after the later of the Class II Out-PerformanceValuationDateandthetwentyfour(24)monthperiodfromthedatetheClass IIOut-PerformancePartnershipSharesareissuedtheClassIIOut-PerformancePartnership Shares may be Transferred (i) by the Initial Holder to (a) any Person who is a member (a “Member”) of the Initial Holder immediately prior to such transfer, (b) a Family Member of a Member, (c) a Family Controlled Entity of a Member, (d) any Person with respect to whomtheMemberconstitutesaFamilyControlledEntity,(e)uponthedeathofaMember, by will or by the laws of descent and distribution to any Family Member or Family ControlledEntity,and(ii)byanyotherPersonto(a)aFamilyMemberofasuchPerson, (b) a Family Controlled Entity of such Person, (c) any other Person with respect to whom such Person constitutes a Family Controlled Entity, (d) upon the death of such Person, by willorbythelawsofdescentanddistributiontoanyFamilyMemberorFamilyControlled Entity; provided, however, that, until May31, 2005, the Class II Out-Performance Partnership Shares may not be Transferred by the Initial Holder without the approval of the managers of the Initial Holder.
| 9. | ADJUSTMENTS. |
(a)IntheeventofanyExtraordinaryDistributionoccurringonorafter May 6, 2003, for purposes of determining the Value of a REIT Share or the UDR Total Return, each price of a REIT Share determined as of a date on or after the Ex-Date for such Extraordinary Distribution shall be adjusted by multiplying such price by a fraction (i) the numerator of which shall be the price of a REIT Share on the date immediately priortosuchEx-Date,and(ii)thedenominatorofwhichshallbe(A)thepriceofaREIT Share on thedate immediately prior to such Ex-Date, minus (B) the fairmarket value on the date fixed for such determination of the portion of the evidences of indebtedness or assets so distributed applicable to one REIT Share (as determined by the Company, whose determination shallbeconclusive); providedfurther,that suchamount shall beso adjusted for each such Extraordinary Distribution occurring on or after May 6, 2003.
(b)Intheeventthat,onor afterMay6, 2003,the Company (i)declaresorpaysadividendonitsoutstandingREITSharesinREITSharesormakesa distribution to all holders of its outstanding REIT Shares in REIT Shares, (ii) splits or subdivides its outstanding REIT Shares, (iii) effects a reverse stock split or otherwise combines its outstanding REIT Shares into a smaller number of REIT Shares, or (iv)otherwisereclassifiesitsoutstandingREITShares,then,forpurposesofdetermining the Value of a REIT Share or the UDR Total Return, each price of a REIT Share
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determined as of a date on or after the Ex-Date for such transaction shall be adjusted by multiplying such price by a fraction (x) the numerator of which shall be the number of REIT Shares issued and outstanding on the Determination Date for such dividend, distribution, split, subdivision, reverse stock split, combination or reclassification (assuming for such purposes that such dividend, distribution, split, subdivision, reverse splitorcombinationhasoccurredasofsuchtime)and(y)thedenominatorofwhichshall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on the Determination Date for such dividend, distribution, split, subdivision, reverse stock split. combination or reclassification.
(c)TheCompanyshallhaveauthoritytoappropriatelyadjusttheUDR Market Capitalization, the UDR Total Return or the Value of a REIT Share if any other transaction or circumstance occurs or arises that without such adjustment would have an inequitable result.
| 10. | GENERAL. |
TheownershipofClassIIOut-PerformancePartnershipSharesmay(butneednot, in the sole and absolute discretion of the Company) be evidenced by one or more certificates.The Company shall amend Exhibit Ato the Agreement from time to time to the extent necessary to reflect accurately the issuance of, and subsequent conversion, redemption, or any other event having an effect on the ownership of Class II Out-Performance Partnership Shares.
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PARTNERSHIP** UNIT ****DESIGNATION **
OF THE
CLASS** III OUT-PERFORMANCE PARTNERSHIP ****SHARES **
OF UNITED DOMINION REALTY, L.P.
| 1. | NUMBEROFUNITSANDDESIGNATION. |
A class of Partnership Units is hereby designated as “Class III Out-Performance Partnership Shares,” and the number of Partnership Units initially constituting such class shall be seven hundred fifty thousand (750,000).
| 2. | DEFINITIONS. |
For purposes of this Partnership Unit Designation, the following terms shall have themeaningsindicatedinthisSection2.Capitalizedtermsusedandnototherwisedefined herein shall have the meanings assigned thereto in the Agreement.
“ChangeofControl”shallmeantheoccurrenceofanyofthefollowingevents:
(i)an acquisition of any voting securities of the Company (the “Voting Securities”) by any “person” (as the term “person” is used for purposes of Section 13(d) or Section 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) immediately after which such person has “beneficial ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) (“Beneficial Ownership,” “BeneficialOwner” or “BeneficiallyOwned,” as the specificcontextrequires) of 30%or more of the combined voting power of the Company’s then-outstanding Voting Securities;provided,however,indeterminingwhetheraChangeinControlhasoccurred, Voting Securities that are acquired in a Non-Control Acquisition (as hereinafter defined) shall not constitute an acquisition that would cause a Change in Control.“Non-Control Acquisition” shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (1) the Company or (2) any corporation, partnershiporotherpersonofwhichamajorityofitsvotingpoweroritsequitysecurities or equity interest is owned directly or indirectly by the Company or in which the Company serves as a general partner or manager (a “Subsidiary”), (B) the Company or any Subsidiary, or (C) any person in connection with a Non-Control Transaction (as hereinafter defined);
(ii)the individuals who constitute the Board of Directors of the Company as ofJune24,2005(the“IncumbentBoard”)ceaseforanyreasontoconstituteatleasttwo-thirds (2/3) of the members of the Board of Directors of the Company; provided, however, that if the election, or nomination for election by the Company’s stockholders, of any new director was approved by a vote of at least two-thirds (2/3) of the Incumbent Board, such new director shall be considered as a member of the Incumbent Board;
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provided, further, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened “election contest” (as described in Rule 14a-11 promulgated under the Exchange Act) (an “Election Contest”) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board of Directors of the Company(a“ProxyContest”)includingbyreasonofanyagreementintendedtoavoidor settle any Election Contest or Proxy Contest; or
(iii)approvalbystockholdersoftheCompanyof:(A)amerger,consolidation, share exchange or reorganization involving the Company, unless (1) the stockholders of the Company immediately before such merger, consolidation, share exchange or reorganization, own, directly or indirectly immediately following such merger, consolidation, share exchange or reorganization, at least 60% of the combined voting power of the outstanding voting securities of the corporation that is the successor in such merger, consolidation, share exchange or reorganization (the “Surviving Company”) in substantiallythesameproportionastheirownershipoftheVotingSecuritiesimmediately before such merger, consolidation, share exchange or reorganization, (2) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation, share exchange or reorganization constitute at least two-thirds (2/3) of the members of the board of directors of the Surviving Company, and (3) no persons (other than the Company or any Subsidiary ofthe Company, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Company or any Subsidiary of the Company), or any person who, immediately prior to such merger, consolidation, share exchange or reorganization had Beneficial Ownership of 30% or more of the then-outstanding Voting SecuritieshasBeneficialOwnershipof30%ormoreofthecombinedvotingpowerofthe Surviving Company’s then-outstanding voting securities (a transaction described in clauses (1) through (3) is referred to herein as a “Non-Control Transaction”); (B) a complete liquidation or dissolution of the Company; or (C) an agreement for the sale or other disposition of all or substantially all of the assets of the Company to any person (other than a transfer to a Subsidiary of the Company).
Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because any person (a “Subject Person”) acquired Beneficial Ownership of more thanthepermittedamountoftheoutstandingVotingSecuritiesasaresultoftheacquisition of Voting Securities by the Company that, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by such SubjectPerson,providedthatifaChangeofControlwouldoccur(butfortheoperationof thissentence)asaresultoftheacquisitionofVotingSecuritiesbytheCompany,andafter such share acquisition by the Company, such Subject Person becomes the Beneficial Owner of any additional Voting Securities that increases the percentage of the then-outstandingVotingSecuritiesBeneficiallyOwnedbysuchSubjectPerson,thenaChange of Control shall occur.
“ClassIIIOut-PerformancePartnershipShare”shallmeanaPartnershipUnitwith the designations, preferences and relative, participating, optional or other special rights, powers and duties as are set forth in this Exhibit E.
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“ClassIIIOut-PerformanceValuationDate”shallmeantheearliertooccurof (i)May30,2008, or(ii)thedate onwhich aChange ofControl occurs.
“Conversion Factor” shall mean the quotient obtained by dividing (i)the product of 2% of the Excess Return and the UDR Market Capitalization (provided, however, that the product obtained by this clause (i)shall not exceed 1% of the UDR Market Capitalization) by (ii)the market value of one REIT Share on the Class III Out-PerformanceValuationDate,computedastheweightedaveragepriceperdayoftheREIT Shares for the 20 trading days immediately preceding the Class III Out-Performance Valuation Date.
“Determination Date” shall mean (i) when used with respect to any dividend or other distribution, the date fixed for the determination of the holders of the securities entitled to receive such dividend or distribution, or, if a dividend or distribution is paid or made without fixing such a date, the date of such dividend or distribution, and (ii) when used with respect to any split, subdivision, reverse stock split, combination or reclassification of securities, the date upon which such split, subdivision, reverse stock split, combination or reclassification becomes effective.
“Excess Return” shall mean the amount, if any, by which the cumulative Total Return of REIT Shares over the Measurement Period exceeds the Minimum Return.
“Ex-Date” shall mean (i) when used with respect to any dividend or distribution, thefirstdateonwhichthesecuritiesonwhichthedividendordistributionispayabletrade regularwayontherelevantexchangeorintherelevantmarketwithouttherighttoreceive such dividend or distribution, and (ii) when used with respect to any split, subdivision, reversestocksplit,combinationorreclassificationofsecurities,thefirstdateonwhichthe securities trade regular way on such exchange or in such market to reflect such split, subdivision, reverse stock split, combination or reclassification becoming effective.
“Extraordinary Distribution” shall mean the distribution by the Company, by dividendorotherwise,toallholdersofitsREITSharesofevidencesofitsindebtednessor assets (including securities) other than cash.
“Family Controlled Entity” means, as to any holder of Class III Out-Performance Shares, (a) any corporation more than 50% of the outstanding voting stock of which is owned by such holder and such holder’s Family Members, (b) any trust, whether or not revocable, of which such holder and such holder’s Family Members are the sole beneficiaries,(c)anypartnershipofwhichsuchholderandsuchholder’sFamilyMembers holdpartnershipinterestsrepresentingatleast25%ofsuchpartnership’scapitalandprofits and (d) any limited liability company of which such holder is the manager and in which suchholderandsuchholder’sFamilyMembersholdmembershipinterestsrepresentingat least 25% of such limited liability company’s capital and profits.
“Family Members” means, as to a Person that is an individual, such Person’s spouse,ancestors,descendants(whetherbybloodorbyadoption),brothers,sistersand
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intervivos ortestamentarytrustsofwhichonlysuchPersonandhisspouse,ancestors, descendants (whether by blood or by adoption), brothers and sisters are beneficiaries.
“Initial Holder” shall mean UDR Out-Performance III, LLC, a Delaware limited liability company.
“MeasurementPeriod”shallmeanthe36-monthperiodbeginningJune1,2005and ending on May 30, 2008.
“Minimum Return” shall mean the cumulative Total Return of the REIT Shares during the Measurement Period is at least the equivalent of a 36% Total Return or 12% annualized.
“Partnership” shall mean United Dominion Realty, L.P., a Delaware limited partnership.
“TotalReturn”shallmean,foranysecurityandforanyperiod,thecumulativetotal return for such security over such period, assuming that all cash dividends are reinvested insuchsecurityasofthepaymentdateforsuchdividendbasedonthesecuritypriceonthe dividendpaymentdate,computedbytakingthemarketvalueoftheaccumulatedsharesat the end of the period (including fractional shares acquired with dividend proceeds) and dividing by the market value of a share at the beginning of the period.
“UDR Market Capitalization” shall mean the average number of REIT Shares outstanding over the Measurement Period (including, for this purpose, REIT Shares, Partnership Units and common stock equivalents, but not including ClassIII Out-PerformancePartnershipShares)multipliedbythedailyclosingpriceoftheREITShares.
“UDR Total Return” shall mean the Total Return of the REIT Shares for the Measurement Period.
| 3. | FORFEITURE. |
If, on the Class III Out-Performance Valuation Date, there is no Excess Return, then, from and after such date, each Class III Out-Performance Partnership Share shall, without any action on the part of the Partnership, the Company or the holder thereof, be automatically forfeited and be no longer outstanding.
| 4. | DISTRIBUTIONS. |
Subject to Section 5.06 of the Agreement, on and after the Class III Out-PerformanceValuationDate,theholdersofClassIIIOut-PerformancePartnershipShares notforfeitedunderSection3shallbeentitledtoreceivedistributionsatthesametimeand in the same amount that would be received on the number of Partnership Units held by Outside Partners (assuming such Partnership Units were originally issuedon the Class III Out-Performance Valuation Date) that is obtained by multiplying the number of Class III Out-Performance Partnership Shares by the Conversion Factor.
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| 5. | ALLOCATIONS. |
(a)From and after the Class III Out-Performance Valuation Date, Profits and Losses shall be allocated to each of the holders of Class III Out-Performance PartnershipShares notforfeited under Section 3at thesametime andin the sameamount that would be allocated on the number of Partnership Units held by Outside Partners (assuming such Partnership Units were originally issued on the Class III Out-PerformanceValuationDate)thatisobtainedbymultiplyingthenumberofClassIIIOut-Performance Partnership Shares by the Conversion Factor.
(b)In the event that the Partnership disposes of all or substantially all of its assets in a transaction that will lead to a liquidation of the Partnership pursuant to Article II of the Agreement, then, notwithstanding Section 5.06 of the Agreement, each holder of Class III Out-Performance Partnership Shares not forfeited under Section 3shall be, to the extent possible, specially allocated items of Partnership income and gain in an amount sufficient to cause the Capital Account of such holder to be equal to that of an Outside Partner that holds Partnership Units equal to the number of Class III Out-PerformancePartnershipSharesheldbysuchholdermultipliedbytheConversionFactor. Amounts allocated pursuant to this Section 5(b) shall be excluded from “Profits” and “Losses” otherwise determined under the Agreement.
| 6. | EXCHANGE. |
If the Class III Out-Performance Partnership Shares have not been forfeited under Section 3 and the Class III Out-Performance Partnership Shares have been transferred by the Initial Holder in accordance with Section 8, the transferee and subsequent transferees oftheClassIIIOut-PerformancePartnershipSharesmayexchangefromtimetotimesome or all ofthe Class III Out-Performance Partnership Shares for a numberPartnershipUnits equal to the Class III Out-Performance Partnership Shares multiplied by the Conversion Factor.
| 7. | REDEMPTIONUPONCHANGEOFCONTROL. |
Upon the occurrence of a Change of Control, and subject to the applicable requirements of Federal securities laws and any securities exchange or quotation system rules or regulations, each holder of Class III Out-Performance Partnership Shares shall have the redemption rights of Limited Partners set forth in Section 8.05 of the Agreement with respect to a number of Partnership Units equal to the number of Class III Out-PerformancePartnershipSharesmultipliedbytheConversionFactorandthethirty-six(36) month transfer limitation period applicable to the Class III Out-Performance Partnership Shares shall be deemed to have passed.
| 8. | RESTRICTIONSONOWNERSHIPANDTRANSFER. |
TherestrictionsonTransfersetforthinArticleIXoftheAgreementshallnotapply to Transfers of Class III Out-Performance Partnership Shares.Prior to the Class III Out-Performance Valuation Date, the Class III Out-Performance Partnership Shares shall be ownedandheldsolelybytheInitialHolder.OnorafterthelateroftheClassIIIOut-
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PerformanceValuationDateandthethirty-six(36)monthperiodfromthedatetheClass III Out-Performance Partnership Shares are issued the Class III Out-Performance Partnership Shares may be Transferred (i) by the Initial Holder to (a) any Person who is a member(a“Member”)oftheInitialHolderimmediatelypriortosuchtransfer,(b)aFamily Member of a Member, (c) a Family Controlled Entity of a Member, (d) any Person with respecttowhomtheMemberconstitutesaFamilyControlledEntity,(e)uponthedeathof a Member, by will or by the laws of descent and distribution to any Family Member or Family Controlled Entity, and (ii) by any other Person to (a) a Family Member of a such Person,(b)aFamilyControlledEntityofsuchPerson,(c)anyotherPersonwithrespectto whom such Person constitutes a Family Controlled Entity, (d) upon the death of such Person,bywillorbythelawsofdescentanddistributiontoanyFamilyMemberorFamily Controlled Entity; provided, however, that, until May30, 2008, the Class III Out-Performance Partnership Shares may not be Transferred by the Initial Holder without the approval of the managers of the Initial Holder.
| 9. | ADJUSTMENTS. |
(a)IntheeventofanyExtraordinaryDistributionoccurringonorafter May 3, 2005, for purposes of determining the Value of a REIT Share or the UDR Total Return, each price of a REIT Share determined as of a date on or after the Ex-Date for such Extraordinary Distribution shall be adjusted by multiplying such price by a fraction (i) the numerator of which shall be the price of a REIT Share on the date immediately priortosuchEx-Date,and(ii)thedenominatorofwhichshallbe(A)thepriceofaREIT Share on thedate immediately prior to such Ex-Date, minus (B) the fairmarket value on the date fixed for such determination of the portion of the evidences of indebtedness or assets so distributed applicable to one REIT Share (as determined by the Company, whose determination shallbeconclusive); providedfurther,that suchamount shall beso adjusted for each such Extraordinary Distribution occurring on or after May 3, 2005.
(b)Intheeventthat,onor afterMay3, 2005,the Company (i)declaresorpaysadividendonitsoutstandingREITSharesinREITSharesormakesa distribution to all holders of its outstanding REIT Shares in REIT Shares, (ii) splits or subdivides its outstanding REIT Shares, (iii) effects a reverse stock split or otherwise combines its outstanding REIT Shares into a smaller number of REIT Shares, or (iv) otherwise reclassifies its outstanding REITShares, then, for purposes of determining the Value of a REIT Share or the UDR Total Return, each price of a REIT Share determined as of a date on or after the Ex-Date for such transaction shall be adjusted by multiplying such price by a fraction (x) the numerator of which shall be the number of REIT Shares issued and outstanding on the Determination Date for such dividend, distribution, split, subdivision, reverse stock split, combination or reclassification (assuming for such purposes that such dividend, distribution, split, subdivision, reverse splitorcombinationhasoccurredasofsuchtime)and(y)thedenominatorofwhichshall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on the Determination Date for such dividend, distribution, split, subdivision, reverse stock split, combination or reclassification.
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(c)TheCompanyshallhaveauthoritytoappropriatelyadjusttheUDR Market Capitalization, the UDR Total Return or the Value of a REIT Share if any other transaction or circumstance occurs or arises that without such adjustment would have an inequitable result.
| 10. | GENERAL. |
TheownershipofClassIIIOut-PerformancePartnershipSharesmay(butneednot, in the sole and absolute discretion of the Company) be evidenced by one or more certificates.The Company shall amend Exhibit Ato the Agreement from time to time to the extent necessary to reflect accurately the issuance of, and subsequent conversion, redemption, or any other event having an effect on the ownership of Class III Out-Performance Partnership Shares.
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PARTNERSHIP** UNIT ****DESIGNATION **
OF THE
CLASS** IV OUT-PERFORMANCE PARTNERSHIP ****SHARES **
OF UNITED DOMINION REALTY, L.P.
| 1. | NUMBEROFUNITSANDDESIGNATION. |
A class of Partnership Units is hereby designated as “Class IV Out-Performance Partnership Shares,” and the number of Partnership Units initially constituting such class shall be eight hundred thirty thousand (830,000).
| 2. | DEFINITIONS. |
For purposes of this Partnership Unit Designation, the following terms shall have themeaningsindicatedinthisSection2.Capitalizedtermsusedandnototherwisedefined herein shall have the meanings assigned thereto in the Agreement.
“ChangeofControl”shallmeantheoccurrenceofanyofthefollowingevents:
(i)an acquisition of any voting securities of the Company (the “Voting Securities”) by any “person” (as the term “person” is used for purposes of Section 13(d) or Section 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) immediately after which such person has “beneficial ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) (“Beneficial Ownership,” “BeneficialOwner” or “BeneficiallyOwned,” as the specificcontextrequires) of 30%or more of the combined voting power of the Company’s then-outstanding Voting Securities;provided,however,indeterminingwhetheraChangeinControlhasoccurred, Voting Securities that are acquired in a Non-Control Acquisition (as hereinafter defined) shall not constitute an acquisition that would cause a Change in Control.“Non-Control Acquisition” shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (1) the Company or (2) any corporation, partnershiporotherpersonofwhichamajorityofitsvotingpoweroritsequitysecurities or equity interest is owned directly or indirectly by the Company or in which the Company serves as a general partner or manager (a “Subsidiary”), (B) the Company or any Subsidiary, or (C) any person in connection with a Non-Control Transaction (as hereinafter defined);
(ii)the individuals who constitute the Board of Directors of the Company as of January 1, 2006 (the “Incumbent Board”) cease for any reason to constitute at least two-thirds (2/3) of the members of the Board of Directors of the Company; provided, however,thatiftheelection,ornominationforelectionbytheCompany’sstockholders, ofanynewdirectorwasapprovedbyavoteofatleasttwo-thirds(2/3)oftheIncumbent
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Board, such new director shall be considered as a member of the Incumbent Board; provided, further, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened “election contest” (as described in Rule 14a-11 promulgated under the Exchange Act) (an “Election Contest”) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board of Directors of the Company(a“ProxyContest”)includingbyreasonofanyagreementintendedtoavoidor settle any Election Contest or Proxy Contest; or
(iii)approvalbystockholdersoftheCompanyof:(A)amerger,consolidation, share exchange or reorganization involving the Company, unless (1) the stockholders of the Company immediately before such merger, consolidation, share exchange or reorganization, own, directly or indirectly immediately following such merger, consolidation, share exchange or reorganization, at least 60% of the combined voting power of the outstanding voting securities of the corporation that is the successor in such merger, consolidation, share exchange or reorganization (the “Surviving Company”) in substantiallythesameproportionastheirownershipoftheVotingSecuritiesimmediately before such merger, consolidation, share exchange or reorganization, (2) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation, share exchange or reorganization constitute at least two-thirds (2/3) of the members of the board of directors of the Surviving Company, and (3) no persons (other than the Company or any Subsidiary ofthe Company, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Company or any Subsidiary of the Company), or any person who, immediately prior to such merger, consolidation, share exchange or reorganization had Beneficial Ownership of 30% or more of the then-outstanding Voting SecuritieshasBeneficialOwnershipof30%ormoreofthecombinedvotingpowerofthe Surviving Company’s then-outstanding voting securities (a transaction described in clauses (1) through (3) is referred to herein as a “Non-Control Transaction”); (B) a complete liquidation or dissolution of the Company; or (C) an agreement for the sale or other disposition of all or substantially all of the assets of the Company to any person (other than a transfer to a Subsidiary of the Company).
Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because any person (a “Subject Person”) acquired Beneficial Ownership of more thanthepermittedamountoftheoutstandingVotingSecuritiesasaresultoftheacquisition of Voting Securities by the Company that, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by such SubjectPerson,providedthatifaChangeofControlwouldoccur(butfortheoperationof thissentence)asaresultoftheacquisitionofVotingSecuritiesbytheCompany,andafter such share acquisition by the Company, such Subject Person becomes the Beneficial Owner of any additional Voting Securities that increases the percentage of the then-outstandingVotingSecuritiesBeneficiallyOwnedbysuchSubjectPerson,thenaChange of Control shall occur.
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“ClassIVOut-PerformancePartnershipShare”shallmeanaPartnershipUnitwith the designations, preferences and relative, participating, optional or other special rights, powers and duties as are set forth in this Exhibit F.
“ClassIVOut-PerformanceValuationDate”shallmeantheearliertooccurof (i)December31, 2008,or (ii)the dateonwhich aChange ofControl occurs.
“Conversion Factor” shall mean the quotient obtained by dividing (i)the product of 2% of the Excess Return and the UDR Market Capitalization (provided, however, that the product obtained by this clause (i)shall not exceed 1% of the UDR Market Capitalization) by (ii)the market value of one REIT Share on the Class IV Out-PerformanceValuationDate,computedastheweightedaveragepriceperdayoftheREIT Shares for the 20 trading days immediately preceding the Class IV Out-Performance Valuation Date.
“Determination Date” shall mean (i) when used with respect to any dividend or other distribution, the date fixed for the determination of the holders of the securities entitled to receive such dividend or distribution, or, if a dividend or distribution is paid or made without fixing such a date, the date of such dividend or distribution, and (ii) when used with respect to any split, subdivision, reverse stock split, combination or reclassification of securities, the date upon which such split, subdivision, reverse stock split, combination or reclassification becomes effective.
“Excess Return” shall mean the amount, if any, by which the cumulative Total Return of REIT Shares over the Measurement Period exceeds the Minimum Return.
“Ex-Date” shall mean (i) when used with respect to any dividend or distribution, thefirstdateonwhichthesecuritiesonwhichthedividendordistributionispayabletrade regularwayontherelevantexchangeorintherelevantmarketwithouttherighttoreceive such dividend or distribution, and (ii) when used with respect to any split, subdivision, reversestocksplit,combinationorreclassificationofsecurities,thefirstdateonwhichthe securities trade regular way on such exchange or in such market to reflect such split, subdivision, reverse stock split, combination or reclassification becoming effective.
“Extraordinary Distribution” shall mean the distribution by the Company, by dividendorotherwise,toallholdersofitsREITSharesofevidencesofitsindebtednessor assets (including securities) other than cash.
“Family Controlled Entity” means, as to any holder of Class IV Out-Performance Shares, (a) any corporation more than 50% of the outstanding voting stock of which is owned by such holder and such holder’s Family Members, (b) any trust, whether or not revocable, of which such holder and such holder’s Family Members are the sole beneficiaries,(c)anypartnershipofwhichsuchholderandsuchholder’sFamilyMembers holdpartnershipinterestsrepresentingatleast25%ofsuchpartnership’scapitalandprofits and (d) any limited liability company of which such holder is the manager and in which suchholderandsuchholder’sFamilyMembersholdmembershipinterestsrepresentingat least 25% of such limited liability company’s capital and profits.
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“Family Members” means, as to a Person that is an individual, such Person’s spouse, ancestors, descendants (whether by blood or by adoption), brothers, sisters and inter vivos or testamentary trusts of which only such Person and his spouse, ancestors, descendants (whether by blood or by adoption), brothers and sisters are beneficiaries.
“Initial Holder” shall mean UDR Out-Performance III, LLC, a Delaware limited liability company.
“MeasurementPeriod”shallmeanthe36-monthperiodbeginningJanuary1,2006 and ending on December 31, 2008.
“Minimum Return” shall mean the cumulative Total Return of the REIT Shares during the Measurement Period is at least the equivalent of a 36% Total Return or 12% annualized.
“Partnership” shall mean United Dominion Realty, L.P., a Delaware limited partnership.
“TotalReturn”shallmean,foranysecurityandforanyperiod,thecumulativetotal return for such security over such period, assuming that all cash dividends are reinvested insuchsecurityasofthepaymentdateforsuchdividendbasedonthesecuritypriceonthe dividendpaymentdate,computedbytakingthemarketvalueoftheaccumulatedsharesat the end of the period (including fractional shares acquired with dividend proceeds) and dividing by the market value of a share at the beginning of the period.
“UDR Market Capitalization” shall mean the average number of REIT Shares outstanding over the Measurement Period (including, for this purpose, REIT Shares, Partnership Units and common stock equivalents, but not including Class IV Out-PerformancePartnershipShares)multipliedbythedailyclosingpriceoftheREITShares.
“UDR Total Return” shall mean the Total Return of the REIT Shares for the Measurement Period.
| 3. | FORFEITURE. |
If, on the Class IV Out-Performance Valuation Date, there is no Excess Return, then, from and after such date, each Class IV Out-Performance Partnership Share shall, without any action on the part of the Partnership, the Company or the holder thereof, be automatically forfeited and be no longer outstanding.
| 4. | DISTRIBUTIONS. |
Subject to Section 5.06 of the Agreement, on and after the Class IV Out-PerformanceValuationDate,theholdersofClassIVOut-PerformancePartnershipShares notforfeitedunderSection3shallbeentitledtoreceivedistributionsatthesametimeand in the same amount that would be received on the number of Partnership Units held by OutsidePartners(assumingsuchPartnershipUnitswereoriginally issuedontheClassIV
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Out-Performance Valuation Date) that is obtained by multiplying the number of Class IV Out-Performance Partnership Shares by the Conversion Factor.
| 5. | ALLOCATIONS. |
(a)From and after the Class IV Out-Performance Valuation Date, Profits and Losses shall be allocated to each of the holders of Class IV Out-Performance PartnershipShares not forfeited under Section 3at the same time andin the same amount that would be allocated on the number of Partnership Units held by Outside Partners (assuming such Partnership Units were originally issued on the Class IV Out-PerformanceValuationDate)thatisobtainedbymultiplyingthenumberofClassIVOut-Performance Partnership Shares by the Conversion Factor.
(b)In the event that the Partnership disposes of all or substantially all of its assets in a transaction that will lead to a liquidation of the Partnership pursuant to Article II of the Agreement, then, notwithstanding Section 5.06 of the Agreement, each holder of Class IV Out-Performance Partnership Shares not forfeited under Section 3 shall be, to the extent possible, specially allocated items of Partnership income and gain in an amount sufficient to cause the Capital Account of such holder to be equal to that of an Outside Partner that holds Partnership Units equal to the number of Class IV Out-PerformancePartnershipSharesheldbysuchholdermultipliedbytheConversionFactor. Amounts allocated pursuant to this Section 5(b) shall be excluded from “Profits” and “Losses” otherwise determined under the Agreement.
| 6. | EXCHANGE. |
If the Class IV Out-Performance Partnership Shares have not been forfeited under Section 3 and the Class IV Out-Performance Partnership Shares have been transferred by the Initial Holder in accordance with Section 8, the transferee and subsequent transferees oftheClassIVOut-PerformancePartnershipSharesmayexchangefromtimetotimesome oralloftheClassIVOut-PerformancePartnershipSharesforanumberPartnershipUnits equal to the Class IV Out-Performance Partnership Shares multiplied by the Conversion Factor.
| 7. | REDEMPTIONUPONCHANGEOFCONTROL. |
Upon the occurrence of a Change of Control, and subject to the applicable requirements of Federal securities laws and any securities exchange or quotation system rules or regulations, each holder of Class IV Out-Performance Partnership Shares shall have the redemption rights of Limited Partners set forth in Section 8.05 of the Agreement with respect to a number of Partnership Units equal to the number of Class IV Out-PerformancePartnershipSharesmultipliedbytheConversionFactorandthethirty-six(36) month transfer limitation period applicable to the Class IV Out-Performance Partnership Shares shall be deemed to have passed.
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| 8. | RESTRICTIONSONOWNERSHIPANDTRANSFER. |
TherestrictionsonTransfersetforthinArticleIXoftheAgreementshallnotapply to Transfers of Class IV Out-Performance Partnership Shares.Prior to the Class IV Out-Performance Valuation Date, the Class IV Out-Performance Partnership Shares shall be owned and held solely by the Initial Holder.On or after the later of the Class IV Out-PerformanceValuationDateandthethirty-six(36)monthperiodfromthedatetheClass IV Out-Performance Partnership Shares are issued the Class IV Out-Performance Partnership Shares may be Transferred (i) by the Initial Holder to (a) any Person who is a member(a“Member”)oftheInitialHolderimmediatelypriortosuchtransfer,(b)aFamily Member of a Member, (c) a Family Controlled Entity of a Member, (d) any Person with respecttowhomtheMemberconstitutesaFamilyControlledEntity,(e)uponthedeathof a Member, by will or by the laws of descent and distribution to any Family Member or Family Controlled Entity, and (ii) by any other Person to (a) a Family Member of a such Person,(b)aFamilyControlledEntityofsuchPerson,(c)anyotherPersonwithrespectto whom such Person constitutes a Family Controlled Entity, (d) upon the death of such Person,bywillorbythelawsofdescentanddistributiontoanyFamilyMemberorFamily Controlled Entity; provided, however, that, until December 31, 2008, the Class IV Out-Performance Partnership Shares may not be Transferred by the Initial Holder without the approval of the managers of the Initial Holder.
| 9. | ADJUSTMENTS. |
(a)IntheeventofanyExtraordinaryDistributionoccurringonorafter January 1, 2006, for purposes of determining the Value of a REIT Share or the UDR Total Return, each price of a REIT Share determined as of a date on or after the Ex-Date for such Extraordinary Distribution shall be adjusted by multiplying such price by a fraction (i) the numerator of which shall be the price of a REIT Share on the date immediately prior to such Ex-Date, and (ii) the denominator of which shall be (A) the price of a REIT Share on the date immediately prior to such Ex-Date, minus (B) the fair market value on the date fixed for such determination of the portion of the evidences of indebtedness or assets so distributed applicable to one REIT Share (as determined by the Company, whose determination shall be conclusive); provided further, that such amount shall be so adjusted for each such Extraordinary Distribution occurring on or after January 1, 2006.
(b)Intheeventthat,onor afterJanuary1, 2006,theCompany (i)declaresorpaysadividendonitsoutstandingREITSharesinREITSharesormakesa distribution to all holders of its outstanding REIT Shares in REIT Shares, (ii) splits or subdivides its outstanding REIT Shares, (iii) effects a reverse stock split or otherwise combines its outstanding REIT Shares into a smaller number of REIT Shares, or (iv)otherwisereclassifiesitsoutstandingREITShares,then,forpurposesofdetermining the Value of a REIT Share or the UDR Total Return, each price of a REIT Share determined as of a date on or after the Ex-Date for such transaction shall be adjusted by multiplying such price by a fraction (x) the numerator of which shall be the number of REIT Shares issued and outstanding on the Determination Date for such dividend, distribution, split, subdivision, reverse stock split, combination or reclassification
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(assuming for such purposes that such dividend, distribution, split, subdivision, reverse splitorcombinationhasoccurredasofsuchtime)and(y)thedenominatorofwhichshall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on the Determination Date for such dividend, distribution, split, subdivision, reverse stock split, combination or reclassification.
(c)TheCompanyshallhaveauthoritytoappropriatelyadjusttheUDR Market Capitalization, the UDR Total Return or the Value of a REIT Share if any other transaction or circumstance occurs or arises that without such adjustment would have an inequitable result.
| 10. | GENERAL. |
TheownershipofClassIVOut-PerformancePartnershipSharesmay(butneednot, in the sole and absolute discretion of the Company) be evidenced by one or more certificates.The Company shall amend Exhibit Ato the Agreement from time to time to the extent necessary to reflect accurately the issuance of, and subsequent conversion, redemption, or any other event having an effect on the ownership of Class IV Out-Performance Partnership Shares.
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PARTNERSHIP** UNIT ****DESIGNATION **
OF THE
CLASS** V OUT-PERFORMANCE PARTNERSHIP ****SHARES **
OF UNITED DOMINION REALTY, L.P.
| 1. | NUMBEROFUNITSANDDESIGNATION. |
A class of Partnership Units is hereby designated as “Class V Out-Performance Partnership Shares,” and the number of Partnership Units initially constituting such class shall be Eight Hundred Five Thousand (805,000).
| 2. | DEFINITIONS. |
For purposes of this Partnership Unit Designation, the following terms shall have themeaningsindicatedinthisSection2.Capitalizedtermsusedandnototherwisedefined herein shall have the meanings assigned thereto in the Agreement.
“ChangeofControl”shallmeantheoccurrenceofanyofthefollowingevents:
(i)an acquisition of any voting securities of the Company (the “Voting Securities”) by any “person” (as the term “person” is used for purposes of Section 13(d) or Section 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) immediately after which such person has “beneficial ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) (“Beneficial Ownership,” “BeneficialOwner” or “BeneficiallyOwned,” as the specificcontextrequires) of 30%or more of the combined voting power of the Company’s then-outstanding Voting Securities;provided,however,indeterminingwhetheraChangeinControlhasoccurred, Voting Securities that are acquired in a Non-Control Acquisition (as hereinafter defined) shall not constitute an acquisition that would cause a Change in Control.“Non-Control Acquisition” shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (1) the Company or (2) any corporation, partnershiporotherpersonofwhichamajorityofitsvotingpoweroritsequitysecurities or equity interest is owned directly or indirectly by the Company or in which the Company serves as a general partner or manager (a “Subsidiary”), (B) the Company or any Subsidiary, or (C) any person in connection with a Non-Control Transaction (as hereinafter defined);
(ii)the individuals who constitute the Board of Directors of the Company as of January 1, 2007 (the “Incumbent Board”) cease for any reason to constitute at least two-thirds (2/3) of the members of the Board of Directors of the Company; provided, however,thatiftheelection,ornominationforelectionbytheCompany’sstockholders, ofanynewdirectorwasapprovedbyavoteofatleasttwo-thirds(2/3)oftheIncumbent
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Board, such new director shall be considered as a member of the Incumbent Board; provided, further, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened “election contest” (as described in Rule 14a-11 promulgated under the Exchange Act) (an “Election Contest”) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board of Directors of the Company(a“ProxyContest”)includingbyreasonofanyagreementintendedtoavoidor settle any Election Contest or Proxy Contest; or
(iii)approvalbystockholdersoftheCompanyof:(A)amerger,consolidation, share exchange or reorganization involving the Company, unless (1) the stockholders of the Company immediately before such merger, consolidation, share exchange or reorganization, own, directly or indirectly immediately following such merger, consolidation, share exchange or reorganization, at least 60% of the combined voting power of the outstanding voting securities of the corporation that is the successor in such merger, consolidation, share exchange or reorganization (the “Surviving Company”) in substantiallythesameproportionastheirownershipoftheVotingSecuritiesimmediately before such merger, consolidation, share exchange or reorganization, (2) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation, share exchange or reorganization constitute at least two-thirds (2/3) of the members of the board of directors of the Surviving Company, and (3) no persons (other than the Company or any Subsidiary ofthe Company, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Company or any Subsidiary of the Company), or any person who, immediately prior to such merger, consolidation, share exchange or reorganization had Beneficial Ownership of 30% or more of the then-outstanding Voting SecuritieshasBeneficialOwnershipof30%ormoreofthecombinedvotingpowerofthe Surviving Company’s then-outstanding voting securities (a transaction described in clauses (1) through (3) is referred to herein as a “Non-Control Transaction”); (B) a complete liquidation or dissolution of the Company; or (C) an agreement for the sale or other disposition of all or substantially all of the assets of the Company to any person (other than a transfer to a Subsidiary of the Company).
Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because any person (a “Subject Person”) acquired Beneficial Ownership of more thanthepermittedamountoftheoutstandingVotingSecuritiesasaresultoftheacquisition of Voting Securities by the Company that, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by such SubjectPerson,providedthatifaChangeofControlwouldoccur(butfortheoperationof thissentence)asaresultoftheacquisitionofVotingSecuritiesbytheCompany,andafter such share acquisition by the Company, such Subject Person becomes the Beneficial Owner of any additional Voting Securities that increases the percentage of the then-outstandingVotingSecuritiesBeneficiallyOwnedbysuchSubjectPerson,thenaChange of Control shall occur.
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“Class V Out-Performance Partnership Share” shall mean a Partnership Unit with the designations, preferences and relative, participating, optional or other special rights, powers and duties as are set forth in this Exhibit G.
“ClassVOut-PerformanceValuationDate”shallmeantheearliertooccurof (i)December31, 2009,or (ii)the dateonwhich aChange ofControl occurs.
“Conversion Factor” shall mean the quotient obtained by dividing (i)the product of 2% of the Excess Return and the UDR Market Capitalization (provided, however, that the product obtained by this clause (i)shall not exceed .75% of the UDR Market Capitalization)by(ii)themarketvalueofoneREITShareontheClassVOut-Performance Valuation Date, computed as the weighted average price per day of the REIT Shares for the 20 trading days immediately preceding the Class V Out-Performance Valuation Date.
“Determination Date” shall mean (i) when used with respect to any dividend or other distribution, the date fixed for the determination of the holders of the securities entitled to receive such dividend or distribution, or, if a dividend or distribution is paid or made without fixing such a date, the date of such dividend or distribution, and (ii) when used with respect to any split, subdivision, reverse stock split, combination or reclassification of securities, the date upon which such split, subdivision, reverse stock split, combination or reclassification becomes effective.
“Excess Return” shall mean the amount, if any, by which the cumulative Total Return of REIT Shares over the Measurement Period exceeds the Minimum Return.
“Ex-Date” shall mean (i) when used with respect to any dividend or distribution, thefirstdateonwhichthesecuritiesonwhichthedividendordistributionispayabletrade regularwayontherelevantexchangeorintherelevantmarketwithouttherighttoreceive such dividend or distribution, and (ii) when used with respect to any split, subdivision, reversestocksplit,combinationorreclassificationofsecurities,thefirstdateonwhichthe securities trade regular way on such exchange or in such market to reflect such split, subdivision, reverse stock split, combination or reclassification becoming effective.
“Extraordinary Distribution” shall mean the distribution by the Company, by dividendorotherwise,toallholdersofitsREITSharesofevidencesofitsindebtednessor assets (including securities) other than cash.
“Family Controlled Entity” means, as to any holder of Class V Out-Performance Shares, (a) any corporation more than 50% of the outstanding voting stock of which is owned by such holder and such holder’s Family Members, (b) any trust, whether or not revocable, of which such holder and such holder’s Family Members are the sole beneficiaries,(c)anypartnershipofwhichsuchholderandsuchholder’sFamilyMembers holdpartnershipinterestsrepresentingatleast25%ofsuchpartnership’scapitalandprofits and (d) any limited liability company of which such holder is the manager and in which suchholderandsuchholder’sFamilyMembersholdmembershipinterestsrepresentingat least 25% of such limited liability company’s capital and profits.
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“Family Members” means, as to a Person that is an individual, such Person’s spouse, ancestors, descendants (whether by blood or by adoption), brothers, sisters and inter vivos or testamentary trusts of which only such Person and his spouse, ancestors, descendants (whether by blood or by adoption), brothers and sisters are beneficiaries.
“Initial Holder” shall mean UDR Out-Performance III, LLC, a Delaware limited liability company.
“MeasurementPeriod”shallmeanthe36-monthperiodbeginningJanuary1,2007 and ending on December 31, 2009.
“Minimum Return” shall mean the cumulative Total Return of the REIT Shares during the Measurement Period is at least the equivalent of a 36% Total Return or 12% annualized.
“Partnership” shall mean United Dominion Realty, L.P., a Delaware limited partnership.
“TotalReturn”shallmean,foranysecurityandforanyperiod,thecumulativetotal return for such security over such period, assuming that all cash dividends are reinvested insuchsecurityasofthepaymentdateforsuchdividendbasedonthesecuritypriceonthe dividendpaymentdate,computedbytakingthemarketvalueoftheaccumulatedsharesat the end of the period (including fractional shares acquired with dividend proceeds) and dividing by the market value of a share at the beginning of the period.
“UDR Market Capitalization” shall mean the average number of REIT Shares outstanding over the Measurement Period (including, for this purpose, REIT Shares, Partnership Units and common stock equivalents, but not including Class V Out-PerformancePartnershipShares)multipliedbythedailyclosingpriceoftheREITShares.
“UDR Total Return” shall mean the Total Return of the REIT Shares for the Measurement Period.
| 3. | FORFEITURE. |
If,ontheClassVOut-PerformanceValuationDate,thereisnoExcessReturn,then, from and after such date, each Class V Out-Performance Partnership Share shall, without any action on the part of the Partnership, the Company or the holder thereof, be automatically forfeited and be no longer outstanding.
| 4. | DISTRIBUTIONS. |
Subject to Section 5.06 of the Agreement, on and after the Class V Out-Performance Valuation Date, the holders of Class V Out-Performance Partnership Shares notforfeitedunderSection3shallbeentitledtoreceivedistributionsatthesametimeand in the same amount that would be received on the number of Partnership Units held by OutsidePartners(assumingsuchPartnershipUnitswereoriginallyissuedontheClassV
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Out-Performance Valuation Date) that is obtained by multiplying the number of Class V Out-Performance Partnership Shares by the Conversion Factor.
| 5. | ALLOCATIONS. |
(a)From and after the Class V Out-Performance Valuation Date, Profits and Losses shall be allocated to each of the holders of Class V Out-Performance PartnershipSharesnotforfeitedunderSection3atthesametimeandinthesameamount that would be allocated on the number of Partnership Units held by Outside Partners (assumingsuchPartnershipUnitswereoriginallyissuedontheClassVOut-Performance Valuation Date) that is obtained by multiplying the number of Class V Out-Performance Partnership Shares by the Conversion Factor.
(b)In the event that the Partnership disposes of all or substantially all of its assets in a transaction that will lead to a liquidation of the Partnership pursuant to Article II of the Agreement, then, notwithstanding Section 5.06 of the Agreement, each holder of Class VOut-PerformancePartnershipShares notforfeited under Section 3shall be, to the extent possible, specially allocated items of Partnership income and gain in an amount sufficient to cause the Capital Account of such holder to be equal to that of an Outside Partner that holds Partnership Units equal to the number of Class V Out-PerformancePartnershipSharesheldbysuchholdermultipliedbytheConversionFactor. Amounts allocated pursuant to this Section 5(b) shall be excluded from “Profits” and “Losses” otherwise determined under the Agreement.
| 6. | EXCHANGE. |
If the Class V Out-Performance Partnership Shares have not been forfeited under Section 3 and the Class V Out-Performance Partnership Shares have been transferred by the Initial Holder in accordance with Section 8, the transferee and subsequent transferees oftheClassVOut-PerformancePartnershipSharesmayexchangefromtimetotimesome or all of the Class V Out-Performance Partnership Shares for a number Partnership Units equal to the Class V Out-Performance Partnership Shares multiplied by the Conversion Factor.
| 7. | REDEMPTIONUPONCHANGEOFCONTROL. |
Upon the occurrence of a Change of Control, and subject to the applicable requirements of Federal securities laws and any securities exchange or quotation system rulesorregulations,eachholderofClassVOut-PerformancePartnershipSharesshallhave the redemption rights of Limited Partners set forth in Section 8.05 of the Agreement with respecttoanumberofPartnershipUnitsequaltothenumberofClassVOut-Performance Partnership Shares multiplied by the Conversion Factor and the thirty-six (36) month transfer limitation period applicable to the Class V Out-Performance Partnership Shares shall be deemed to have passed.
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| 8. | RESTRICTIONSONOWNERSHIPANDTRANSFER. |
TherestrictionsonTransfersetforthinArticleIXoftheAgreementshallnotapply to Transfers of Class V Out-Performance Partnership Shares.Prior to the Class V Out-Performance Valuation Date, the Class V Out-Performance Partnership Shares shall be owned and held solely by the Initial Holder.On or after the later of the Class V Out-PerformanceValuationDateandthethirty-six(36)monthperiodfromthedatetheClass V Out-Performance Partnership Shares are issued the Class V Out-Performance Partnership Shares may be Transferred (i) by the Initial Holder to (a) any Person who is a member(a“Member”)oftheInitialHolderimmediatelypriortosuchtransfer,(b)aFamily Member of a Member, (c) a Family Controlled Entity of a Member, (d) any Person with respecttowhomtheMemberconstitutesaFamilyControlledEntity,(e)uponthedeathof a Member, by will or by the laws of descent and distribution to any Family Member or Family Controlled Entity, and (ii) by any other Person to (a) a Family Member of a such Person,(b)aFamilyControlledEntityofsuchPerson,(c)anyotherPersonwithrespectto whom such Person constitutes a Family Controlled Entity, (d) upon the death of such Person,bywillorbythelawsofdescentanddistributiontoanyFamilyMemberorFamily Controlled Entity; provided, however, that, until December 31, 2008, the Class V Out-Performance Partnership Shares may not be Transferred by the Initial Holder without the approval of the managers of the Initial Holder.
| 9. | ADJUSTMENTS. |
(a)IntheeventofanyExtraordinaryDistributionoccurringonorafter January 1, 2006, for purposes of determining the Value of a REIT Share or the UDR Total Return, each price of a REIT Share determined as of a date on or after the Ex-Date for such Extraordinary Distribution shall be adjusted by multiplying such price by a fraction (i) the numerator of which shall be the price of a REIT Share on the date immediately prior to such Ex-Date, and (ii) the denominator of which shall be (A) the price of a REIT Share on the date immediately prior to such Ex-Date, minus (B) the fair market value on the date fixed for such determination of the portion of the evidences of indebtedness or assets so distributed applicable to one REIT Share (as determined by the Company, whose determination shall be conclusive); provided further, that such amount shall be so adjusted for each such Extraordinary Distribution occurring on or after January 1, 2006.
(b)Intheeventthat,onor afterJanuary1, 2006,theCompany (i)declaresorpaysadividendonitsoutstandingREITSharesinREITSharesormakesa distribution to all holders of its outstanding REIT Shares in REIT Shares, (ii) splits or subdivides its outstanding REIT Shares, (iii) effects a reverse stock split or otherwise combines its outstanding REIT Shares into a smaller number of REIT Shares, or otherwisereclassifiesitsoutstandingREITShares,then,forpurposesofdetermining the Value of a REIT Share or the UDR Total Return, each price of a REIT Share determined as of a date on or after the Ex-Date for such transaction shall be adjusted by multiplying such price by a fraction (x) the numerator of which shall be the number of REIT Shares issued and outstanding on the Determination Date for such dividend, distribution, split, subdivision, reverse stock split, combination or reclassification
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(assuming for such purposes that such dividend, distribution, split, subdivision, reverse splitorcombinationhasoccurredasofsuchtime)and(y)thedenominatorofwhichshall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on the Determination Date for such dividend, distribution, split, subdivision, reverse stock split, combination or reclassification.
(c)TheCompanyshallhaveauthoritytoappropriatelyadjusttheUDR Market Capitalization, the UDR Total Return or the Value of a REIT Share if any other transaction or circumstance occurs or arises that without such adjustment would have an inequitable result.
| 10. | GENERAL. |
TheownershipofClassVOut-PerformancePartnershipSharesmay(butneednot, in the sole and absolute discretion of the Company) be evidenced by one or more certificates.The Company shall amend Exhibit Ato the Agreement from time to time to the extent necessary to reflect accurately the issuance of, and subsequent conversion, redemption, or any other event having an effect on the ownership of Class V Out-Performance Partnership Shares.
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PARTNERSHIP** UNIT ****DESIGNATIONS **
OF THE
LTIP** ****UNITS **
OF
UNITED** DOMINION REALTY, **L.P.
| 1. | Defined* *Terms. |
ThefollowingdefinedtermsusedinthisExhibit* *Hshallhavethemeaningspecifiedbelow. Capitalized terms used, but not otherwise defined herein, shall have the respective meanings ascribed thereto in the Second Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., as amended (the “Agreement”).
“Adjustment Event” has the meaning set forth in Section 6 hereof. “Auto* *Conversion”hasthemeaningsetforthinSection11(d)hereof.
“Auto Conversion Notice” has the meaning set forth in Section 11(d) hereof. “Capital* Account *Limitation”hasthemeaningsetforthinSection11(b)hereof. “Class 1 LTIP Units” has the meaning set forth in Section 2 hereof.
“Class* 1 Performance LTIP *Units”hasthemeaningsetforthinSection2hereof. “Class 2 LTIP Units” has the meaning set forth in Section 2 hereof.
“Class* 2 Performance LTIP *Units”hasthemeaningsetforthinSection2hereof. “Constituent Person” has the meaning set forth in Section 11(g) hereof.
“Conversion* *Date”means,asapplicable,(i)withrespecttoClass1orClass2LTIPUnits, the date set forth in a Conversion Notice or a Forced Conversion Notice or the date of an Auto Conversion, and (ii) with respect to Performance LTIP Units, the date set forth in a Performance LTIP Unit Conversion Notice or a Forced Performance LTIP Unit Conversion Notice or the date of an Expiration Conversion.
“Conversion* *Notice”hasthemeaningsetforthinSection11(b)hereof.
“Conversion Right” has the meaning set forth in Section 11(a) hereof.
H-1
“Economic Capital Account Balance” means, with respect to a holder of LTIP Units, its CapitalAccountbalance,plustheamountofitsshareofanyPartnerNonrecourseDebtMinimum Gain or Partnership Minimum Gain, in either case to the extent attributable to its ownership of LTIP Units.
“Eligible Unit” means, as of the time any Liquidating Gain is available to be allocated to an LTIP Unit, an LTIP Unit to the extent, since the date of issuance of such LTIP Unit, such LiquidatingGainwhenaggregatedwithotherLiquidatingGainsrealizedsincethedateofissuance of such LTIP Unit exceeds Liquidating Losses realized since the date of issuance of such LTIP Unit.
“Equity* *Plan”meansanystockorotherequity-basedcompensationplannoworhereafter adopted by the Partnership or the General Partner, including the Plan.
“Expiration Conversion” has the meaning set forth in Section 12(f) hereof. “Expiration* Conversion *Notice”hasthemeaningsetforthinSection12(f)hereof.
“Expiration* *Date”means,foranyPerformanceLTIPUnit,thedatespecifiedintheVesting Agreement or other documentation pursuant to which such Performance LTIP Unit is granted.
“Forced Conversion” has the meaning set forth in Section 11(c) hereof. “Forced* Conversion *Notice”hasthemeaningsetforthinSection11(c)hereof.
“Forced* Performance LTIP Unit *Conversion”hasthemeaningsetforthinSection12(e)
hereof.
“Forced* Performance LTIP Unit Conversion *Notice” hasthe meaning set forth inSection
12(e) hereof.
“Full Distribution Participation Date” means, (i) for any Class 2 LTIP Unit, the date specified in the Vesting Agreement or other documentation pursuant to which such Class 2 LTIP Unit is granted, and (ii) for any Performance LTIP Unit (and any LTIP Unit into which a Performance LTIP Unit is converted pursuant to Section 12 hereof), the date upon which such Performance LTIP Unit is converted into Class 1 LTIP Units or Class 2 LTIP Units pursuant to Section 12 hereof or such other date as may be specified in the Vesting Agreement or other documentation pursuant to which such Performance LTIP Unit is granted.Any reference to a “Class 2 LTIP Unit Distribution Participation Date” in an LTIP Agreement issued before the effectiveness of this Exhibit (as amended) shall be deemed a reference to a Full Distribution Participation Date.
“Gross* Asset *Value”hasthemeaningsetforthinSection5(b)hereof.
“Initial Sharing Percentage” means, (i) for any Class 2 LTIP Unit, ten percent (10%) or such other percentage specified in the Vesting Agreement or other documentation pursuant to which such Class 2 LTIP Unit is granted, and (ii) for any Performance LTIP Unit, two percent (2%)orsuchotherpercentagespecifiedinthe VestingAgreementorotherdocumentationpursuant
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to which such Performance LTIP Unit is granted. Any reference to a “Class 2 LTIP Unit Initial Sharing Percentage” in an LTIP Agreement issued before the effectiveness of this Exhibit (as amended) shall be deemed a reference to an Initial Sharing Percentage.
“Issue* *Price”means,foranyPerformanceLTIPUnit,theamountspecifiedintheVesting Agreement or other documentation pursuant to which such Performance LTIP Unit is granted.
“Liquidating Gains” means any net gain realized in connection with the actual or hypothetical sale of all or substantially all of the assets of the Partnership (including upon liquidation of the Partnership), including but not limited to net gain realized in connection with a revaluationofthePartnership’spropertypursuanttoSection4.04oftheAgreement,withsuchnet gain calculated in all cases by excluding adjustments to the basis of the Partnership’s assets for depreciation and amortization (as determined for purposes of book allocations under Section 704(b) of the Code and the Regulations thereunder) unless and to the extent the General Partner determines, in its sole discretion, such exclusions would result in unintended consequences.
“Liquidating Losses” means any net loss realized in connection with the actual or hypothetical sale of all or substantially all of the assets of the Partnership (including upon liquidation of the Partnership), including but not limited to net loss realized in connection with a revaluationofthePartnership’spropertypursuanttoSection4.04oftheAgreement,withsuchnet loss calculated in all cases by excluding adjustments to the basis of the Partnership’s assets for depreciation and amortization (as determined for purposes of book allocations under Section 704(b) of the Code and the Regulations thereunder) unless and to the extent the General Partner determines, in its sole discretion, such exclusions would result in unintended consequences.
“LTIP* *Agreement”hasthemeaningsetforthinSection5(b)hereof.
“LTIP Unit Distribution Payment Date” has the meaning set forth in Section 7(c) hereof. “LTIP* Unit Redemption *Threshold”meansathresholdthatwillbemetwithrespecttoone ormoreLTIPUnitsif,whenandtotheextent,suchLTIPUnitshavesatisfiedtheCapitalAccount Limitation.
“LTIP Units” means the Partnership Units designated as such having the rights, powers, privileges, restrictions, qualifications and limitations set forth herein, in the Plan and in an applicableVestingAgreement.LTIPUnitsmaybeissuedinoneormoreclasses,oroneormore seriesofanysuchclassesbearingsuchrelationshiptooneanotherastoallocations,distributions, and other rights as the General Partner shall determine in its sole and absolute discretion subject toMarylandlawandtheAgreement.Fortheavoidanceofdoubt,thePerformanceLTIPUnitsare LTIP Units.
“Partnership Common Unit” means a fractional, undivided share of the Partnership Interests of all Partners issued pursuant to the Agreement, but does not include any Partnership UnitownedbytheGeneralPartner,ClassAPartnershipUnit,ClassIOut-PerformancePartnership Share,ClassIIOut-PerformancePartnershipShare,ClassIIIOut-PerformancePartnershipShare, Class IV Out-Performance Partnership Share, Class V Out-Performance Partnership Share, LTIP Unit or anyother Partnership Unit, the terms ofwhich provide that suchother Partnership Unit is not a Partnership Common Unit.
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“Performance* LTIP *Unit”hasthemeaningprovidedinSection2.
“Performance LTIP Unit Conversion Notice” has the meaning provided in Section 12(c) hereof.
“Performance* LTIP Unit Conversion *Right”hasthemeaningprovidedinSection12(a) hereof.
“Performance* LTIP Unit *Value”means,foranyPerformanceLTIPUnitasofanydate,theproductof(i)theexcess(ifany)oftheREITShareValueonsuchdateovertheIssuePricefor such Performance LTIP Unit, and (ii) the Conversion Factor.
“Plan”meanstheUDR,Inc.1999Long-TermIncentivePlan,asamendedfromtimeto time.
“Post-Conversion* Period Performance LTIP *Unit”meansaPerformanceLTIPUnitthat wasnotconvertedonorpriortoitsExpirationDatepursuanttoSection12.
“Proposed* Section 83 Safe Harbor *Regulation”hasthemeaningsetforthinSection14 hereof.
“Qualifying Party” means a Limited Partner other than the Original Limited Partner.
“REIT Share Economic Target” means, as of any date and with respect to any LTIP Unit, theproductof(i) theREITShareValue onsuchdate,and(ii)theConversion Factor.
“REIT Share Value” means, as of the date of valuation, the fair market value of a REIT Share,determinedasfollows:(i)iftheREITShareislistedoradmittedtotradingonanysecurities exchangeorTheNasdaqNationalMarket,theclosingprice,regularway,ofaREITShareonsuch dayor,ifnosaletakesplaceonsuchday,theaverageoftheclosingbidandaskedpricesofaREIT Share on such day, (ii) if the REIT Share is not listed or admitted to trading on any securities exchangeorTheNasdaqNationalMarketbutisregularlyquotedbyarecognizedquotationsource, thelastreportedsalepriceofaREITShareonsuchdayor,ifnosaletakesplaceonsuchday,the average of the closing bid and asked prices of a REIT Share on such day, as reported by a recognizedquotationsourcedesignatedbytheCompany,or(iii)iftheREITShareisnotlistedor admitted to trading on any securities exchange or The Nasdaq National Market but is regularly quoted by a recognized quotation source and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices of a REIT Shareonsuchday,asreportedbyarecognizedquotationsourcedesignatedbytheGeneralPartner, orifthereshallbenobidandaskedpricesonsuchday,theaverageofthehighbidandlowasked prices, as so reported, of a REIT Share on the most recent day (not more than twenty (20) days priortothedateinquestion)forwhichpriceshavebeensoreported;provided,thatifthereareno bid and asked prices reported during the twenty (20) days prior to the date in question, the value of a REIT Share shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate.In theeventthataREITShareincludesanyadditionalrightsthevalueofwhichisnotincludedwithin suchprice,thenthevalueofsuchrightsshallbedeterminedbytheGeneralPartneractingingood
H-4
faithonthebasisofsuchquotationsandotherinformationasitconsiders,initsreasonable judgment,appropriate,andincludedindeterminingthe“REITShareValue”ofsuchREITShare.
“Section* 83 Safe *Harbor”hasthemeaningsetforthinSection14hereof.
“Transaction” has the meaning set forth in Section 11(g) hereof.
“Unvested LTIP Units” has the meaning set forth in Section 5(a) hereof.
“Vested LTIP Units” has the meaning set forth in Section 5(a) hereof.
“Vesting Agreement” has the meaning set forth in Section 5(a) hereof.
2.Designation.A class of Partnership Units in the Partnership designated as the “LTIP Units” is hereby established.The number of LTIP Units that may be issued is not limited by the Agreement.Four classes of LTIP Units in the Partnership are hereby designated as the Class1LTIPUnits,theClass1PerformanceLTIPUnits,theClass2LTIPUnits,andtheClass2 Performance LTIP Units (each Class 1 Performance LTIP Unit and Class 2 Performance LTIP Unit, a “Performance LTIP Unit”).The numbers of Class 1 LTIP Units, Class 1 Performance LTIP Units, Class 2 LTIP Units, and Class 2 Performance LTIP Units shall be determined from time to time by the General Partner in accordance with the terms of the Plan.
3.Issuances of LTIP Units.From time to time, the General Partner is hereby authorized to issue LTIP Units, including Class 1 LTIP Units, Class 1 Performance LTIP Units, Class 2 LTIP Units, and Class 2 Performance LTIP Units, to Persons providing services to or for thebenefitofthePartnershipforsuchconsiderationorfornoconsiderationastheGeneralPartner may determine to be appropriate and on such terms and conditions as shall be established by the General Partner, and admit such Persons as Limited Partners.Except to the extent that a Capital Contribution is made with respect to an LTIP Unit, each LTIP Unit is intended to qualify as a “profits interest” in the Partnership within the meaning of the Code, the Regulations, and any published guidance by the Internal Revenue Service with respect thereto.Except as may be provided from time to time by the General Partner with respect to one or more series of LTIP Units, and except as provided in an applicable LTIP Agreement, LTIP Units shall have the terms setforthinthisExhibit* H*.PursuanttothetermsoftheAgreement,this*Exhibit *Horanapplicable LTIP Agreement, an LTIP Unit may be convertible, exchangeable or otherwise transmutable, in substance, into another type of LTIP Unit or other type of Partnership Unit.
4.Admission* to *Partnership.APerson(otherthananexistingPartner)whoisissued LTIP Units in accordance with Section 3 hereof shall be admitted to the Partnership as an additional Limited Partner only upon the satisfactory completion of the requirements an assignee is required to complete pursuant to Section 9.03(a)(i) through (v) of the Agreement.
| 5. | Vesting. |
(a)Vesting,* Generally*.LTIPUnitsmay,inthesolediscretionoftheGeneralPartner, beissuedsubjecttovesting,forfeitureandadditionalrestrictionsonTransferpursuanttotheterms ofanaward,vestingorothersimilaragreement(a“*Vesting *Agreement”).ThetermsofanyVesting AgreementmaybemodifiedbytheGeneralPartnerfromtimetotimeinitssolediscretion,subject
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to any restrictions on amendment imposed by the relevant Vesting Agreement or by the Plan or any other Equity Plan, if applicable.LTIP Units that were fully vested when issued or that have vestedandarenolongersubjecttoforfeitureunderthetermsofaVestingAgreementarereferred to as “Vested LTIP Units”; all other LTIP Units shall be treated as “Unvested LTIP Units”.
(b)Forfeiture.Unless otherwise specified in an applicable Vesting Agreement, the Plan or in any applicable Equity Plan or other compensatory arrangement or incentive program pursuant to which LTIP Units are issued (collectively, the “LTIP Agreement”), upon the occurrence of any event specified in such LTIP Agreement as resulting in either the right of the PartnershiportheGeneralPartnertorepurchaseLTIPUnitsataspecifiedpurchasepriceorsome otherforfeitureofanyLTIPUnits,ifthePartnershiportheGeneralPartnerexercisessuchrightto repurchaseorupontheoccurrenceoftheeventcausingforfeitureinaccordancewiththeapplicable LTIP Agreement, the relevant LTIP Units shall immediately, and without any further action, be treatedascancelledandnolongeroutstandingforanypurpose.Unlessotherwisespecifiedinthe applicable LTIP Agreement, no consideration or other payment shall be due with respect to any LTIP Units that have been forfeited, other than any distributions declared with respect to a Partnership Record Date and with respect to such LTIP Units prior to the effective date of the forfeiture.
6.Adjustments.The Partnership shall maintain at all times a one-to-one correspondencebetweenLTIPUnits(excludingPerformanceLTIPUnitsbeforetheirconversion) and Partnership Common Units for conversion, distributions, allocations and other purposes, including without limitation complying with the following procedures; provided, that the foregoing is not intended to alter the special allocations pursuant to Section 8 hereof, differences between distributions to be made with respect to the Class 2 LTIP Units or Performance LTIP UnitsandthePartnershipCommonUnitspriortotheFullDistributionParticipationDateforsuch Class 2 LTIP Units or Performance LTIP Units, or differences between distributions to be made with respect to LTIP Units and Partnership Common Units pursuant to Section 5.06 and Section 7(b)hereofintheeventthattheCapitalAccountsattributabletotheLTIPUnitsaredifferentthan those attributable to Partnership Common Units.If an Adjustment Event (as defined below) occurs, then the General Partner shall take any action reasonably necessary, including any amendment to the Agreement or update to Exhibit Ato the Agreement adjusting the number of outstanding LTIP Units or subdividing or combining outstanding LTIP Units, to maintain a one-for-oneconversionandeconomicequivalenceratiobetweenPartnershipCommonUnitsandLTIP Units (excluding Performance LTIP Units before their conversion).The following shall be “Adjustment Events”: (i) the Partnership makes a distribution on all outstanding Partnership Common Units in Partnership Units, (ii) the Partnership subdivides the outstanding Partnership Common Units into a greater number of units or combines the outstanding Partnership Common Units into a smaller number of units, or (iii) the Partnership issues any Partnership Units in exchange for its outstanding Partnership Common Units by way of a reclassification or recapitalizationofitsPartnershipCommonUnits.IfmorethanoneAdjustmentEventoccurs,any adjustmenttotheLTIPUnitsneedbemadeonlyonceusingasingleformulathattakesintoaccount each and every Adjustment Event as if all Adjustment Events occurred simultaneously.For the avoidanceofdoubt,thefollowingshallnotbeAdjustmentEvents:(x)theissuanceofPartnership Units in a financing, reorganization, acquisition or other similar business transaction, (y) the issuance of Partnership Units pursuant to any employee benefit or compensation plan or distributionreinvestmentplan,or (z)theissuanceofanyPartnership UnitstotheGeneralPartner
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inrespectofaCapitalContributiontothePartnership.IfthePartnershiptakesanactionaffecting the Partnership Common Units other than actions specifically described above as “Adjustment Events”andintheopinionoftheGeneralPartnersuchactionwouldrequireanactiontomaintain the one-to-one correspondence described above, the General Partner shall have the right to take such action, to the extent permitted by law, the Plan and by any applicable Equity Plan or other compensatoryarrangementorincentiveprogrampursuanttowhichLTIPUnitsareissued,insuch manner and at such time as the General Partner, in its sole discretion, may determine to be reasonably appropriate under the circumstances.Notwithstanding the foregoing, if any Adjustment Event or any other action described in the preceding sentence occurs, the General Partner may independently adjust the number of Performance LTIP Units outstanding or held by a particular holder of Performance LTIP Units, the Issue Price of any Performance LTIP Unit, or the number of Class 1 LTIP Units or Class 2 LTIP Units (as applicable) into which any PerformanceLTIPUnitmaybeconverted,ormayundertakeanycombinationoftheforegoing,in such manner as the General Partner determines in good faith to be equitable.If an amendment is made to the Agreement adjusting the number of outstanding LTIP Units as herein provided, the Partnership shall promptly file in the books and records of the Partnership an officer’s certificate setting forth a brief statement of the facts requiring such adjustment, which certificate shall be conclusive evidence of the correctness of such adjustment absent manifest error.Promptly after filing of such certificate, the Partnership shall mail a notice to each holder of LTIP Units setting forth the adjustment to his or her LTIP Units and the effective date of such adjustment.Any adjustmenttothenumberofoutstandingLTIPUnitspursuanttothisSection6shallbebindingon the Partnership and every Limited Partner.
| 7. | Distributions. |
(a)Operating* *Distributions.ExceptasotherwiseprovidedintheAgreement,thePlan, any other applicable Equity Plan, any applicable LTIP Agreement or by the General Partner with respect to any particular class or series of LTIP Units, holders of LTIP Units shall be entitled to receive, if, when and as authorized by the General Partner out of funds or other property legally available for the payment of distributions, regular, special, extraordinary or other distributions (otherthandistributionsuponorpursuanttotheliquidationofthePartnership)whichmaybemade fromtimetotime,in anamountperunit equaltotheamountof anysuchdistributionsthatwould have been payable to such holders if the LTIP Units had been Partnership Common Units of the same number (if applicable, assuming such LTIP Units were held for the entire period to which such distributions relate); provided, however, that for each Class 2 LTIP Unit and each Performance LTIP Unit, until any applicable Full Distribution Participation Date occurs, such LTIP Unit will be entitled to receive only such distributions in an amount equal to the product of the Initial Sharing Percentage for such LTIP Unit and the amount otherwise distributable with respect to such LTIP Unit pursuant to this Section 7(a).
(b)Liquidating Distributions.Holders of LTIP Units shall also be entitled to receive, if, when and as authorized by the General Partner out of funds or other property legally available for the payment of distributions, distributions upon liquidation of the Partnership in an amount equal to the positive balances of the Capital Accounts of the holders of such LTIP Units to the extent attributable to the ownership of such LTIP Units as set forth in Section 5.06(a) of the Agreement.
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(c)Distributions Generally.Distributions on the LTIP Units, if authorized, shall be payableonsuchdatesandinsuchmannerasmaybeauthorizedbytheGeneralPartner(anysuch date,an“LTIP* Unit Distribution Payment Date*”).AbsentacontrarydeterminationbytheGeneral Partner, the LTIP Unit Distribution Payment Date shall be the same as the corresponding date relating to the corresponding distribution on the Partnership Common Units, and the record date for determining which holders of LTIP Units are entitled to receive distributions shall be the Partnership Record Date.A holder of LTIP Units will be entitled to distributions with respect to anLTIPUnitonlyassetforthinthis*Exhibit *Hand,inmakingdistributionspursuanttoSection 5.02oftheAgreement,theGeneralPartnerofthePartnershipshalltakeintoaccounttheprovisions of this Section 7.
| 8. | Allocations. |
(a)General.Holders of LTIP Units shall be allocated Profit, Loss and depreciation and amortization expenses of the Partnership in amounts per LTIP Unit equal to the amounts allocated per Partnership Common Unit; provided, however, that prior to the Full Distribution Participation Date with respect to a Class 2 LTIP Unit or Performance LTIP Unit, the amounts allocatedtosuchLTIPUnitshallequalonlytheproductoftheInitialSharingPercentageforsuch LTIP Unit and the amount otherwise allocable with respect to such LTIP Unit pursuant to this Section 8(a).The allocations provided by the preceding sentence shall be subject to Section 5.01(a)oftheAgreementandinadditiontoanyspecialallocationsrequiredbySection8(b)hereof. The General Partner is authorized in its discretion to delay or accelerate the participation of the LTIP Units in allocations of Profit, Loss and depreciation and amortization expenses of the Partnership under this Section 8(a), or to adjust the allocations made under this Section 8(a), so thattheratioof(i)thetotalamountofProfit,Lossanddepreciationandamortizationexpensesof the Partnership allocated with respect to each LTIP Unit in the taxable year in which that LTIP Unit’s Full Distribution Participation Date, if any, falls (excluding special allocations under Section 8(b) hereof), to (ii) the total amount distributed to that LTIP Unit with respect to such period, is more nearly equal to the ratio of (A) the Profit, Loss and depreciation and amortization expenses of the Partnership allocated with respect to the Partnership Common Units in such taxableyearto(B)theamountsdistributedwithrespecttosuchPartnershipCommonUnitsinsuch taxable year.
(b)Special* Allocations with Respect to LTIP *Units.IntheeventthatLiquidatingGains are allocated under this Section 8(b), Profit, Loss and depreciation and amortization expenses of the Partnership allocable under Section 5.01(a) of the Agreement to Partners other than Class A Partners shall be recomputed without regard to the Liquidating Gains so allocated.This Section 8(b) shall not affect any allocations to Class A Partners.After giving effect to the special allocations set forth in Sections 5.01(b), 5.01(c) and 5.01(d) of the Agreement and Sections 8(c) and 8(d) hereof, and notwithstanding the provisions of Section 5.01(a) of the Agreement (except insofarastheyallocateProfit,LossanddepreciationandamortizationexpensesofthePartnership to Class A Partners), the recalculated Liquidating Gains shall first be allocated to the holders of Eligible Units until the Economic Capital Account Balances of such holders, to the extent attributabletotheirownershipofEligibleUnits,areequalto(i)theREITShareEconomicTarget (with respect to LTIP Units other than Performance LTIP Units prior to their conversion) and/or PerformanceLTIPUnitValue(withrespecttoPerformanceLTIPUnitspriortotheirconversion), multipliedby(ii)thenumberoftheirEligibleUnits.Inaddition,ifanyCapitalAccountbalance
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attributable to a Performance LTIP Unit exceeds the applicable Performance LTIP Unit Value, and Liquidating Losses are available to be allocated to a holder of LTIP Units, then such Liquidating Losses shall be allocated to each holder of such a Performance LTIP Unit until each suchholder’sCapitalAccount,totheextentattributabletosuchholder’sPerformanceLTIPUnits, isequal(onaper-unitbasis)totheapplicablePerformanceLTIPUnitValue.Forpurposesofthe foregoing allocations, (i) unless and to the extent otherwise determined by the General Partner, calculations shall be made separately with respect to the Eligible Units, including Eligible Units that are Performance LTIP Units with different Performance LTIP Unit Values, and (ii) any such allocations shall be made in proportion to the amounts required to be allocated to each relevant holderunderthisSection8(b).ThepartiesagreethattheintentofthisSection8(b)istomakethe Capital Account balances of the holders of LTIP Units with respect to their LTIP Units economically equivalent (on a per-unit basis) to the applicable REIT Share Economic Target or PerformanceLTIPUnitValue(calculatedineachcaseusingtheREITShareValueonthedateas of which such special allocation under this Section 8(b) is being made), but only tothe extent the Partnership has recognized cumulative gains (calculated in the same manner as is applicable to calculating Liquidating Gains) with respect to its assets since the issuance of the relevant LTIP Unit.Notwithstanding the foregoing, (i) the special allocations of Liquidating Gainsand Losses pursuant to the preceding provisions of this Section 8(b) shall cease to apply to any Eligible Unit (other than a Performance LTIP Unit prior to its conversion) once such Eligible Unit has met the LTIP Unit Redemption Threshold and any Post-Conversion Period Performance LTIP Unit once it becomes a Post-Conversion Period Performance LTIP Unit, and (ii) the General Partner may adjustfutureallocationswithrespecttoanyholderofaPost-ConversionPeriodPerformanceLTIP UnitinanymanneritdeterminesinitssolediscretionnecessaryorconvenienttocausetheCapital Account balance of such holder to (x) equal the balance that would have obtained had no allocations of Liquidating Gains or Liquidating Losses been made with respect to such Post-Conversion Period Performance LTIP Unit pursuant to the preceding provisions of this Section 8(b), and (y) otherwise equitably reflect the intended economic entitlements of such holder.The allocations set forth in this Section 8(b) shall be taken into account for determining the Capital Account of each Partner, including for purposes of Section 5.06(a) of the Agreement.
(c)Capital Account Adjustments and Allocations upon Forfeiture.Except as otherwise provided in the Agreement or any applicable LTIP Agreement, in connection with any repurchase or forfeiture of LTIP Units pursuant to Section 5(b), the balance of the portion of the CapitalAccountoftheholderofsuchLTIPUnitsthatisattributabletoallofhisorherLTIPUnits shall be reduced, to the greatest extent possible, by the amount, if any, by which it exceeds the target balance contemplated by Section 8(b) hereof, calculated with respect to such holder’s remainingLTIPUnits,ifany.SuchreductionshallbeaccomplishedinsuchmannerastheGeneral Partner determines, in its sole and absolute discretion, including a reduction with or without a reallocation of such amount among other Partners, special allocations of items of income, gain, loss or deduction (including pursuant to finalized Treasury Regulations), a “book down” in the value of Partnership assets in the amount of such reduction, or a combination of the foregoing. Notwithstanding the foregoing, in no event shall the foregoing affect the allocations to the Class A Partners.
(d)Regulatory Allocations.For purposes of the allocations set forth in Sections 5.01(b), prior to the Full Distribution Participation Date for a Class 2 LTIP Unit or Performance
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LTIPUnit,thePercentageInterestforsuchLTIPUnitshallbethePercentageInterestofa Partnership Common Unit multiplied by the applicable Initial Sharing Percentage.
| 9. | Transfers. |
(a)Subject to the terms of any Vesting Agreement, a holder of LTIP Units shall be entitledtotransferhisorherLTIPUnitstothesameextent,andsubjecttothesamerestrictionsas holders of Partnership Common Units are entitled to transfer their Partnership Common Units pursuant to Article 9 of the Agreement.
(b)NeitheraconversionofanLTIPUnitintoPartnershipCommonUnits,aconversion ofaPerformanceLTIPUnitpursuanttoSection12hereof,noraconversionorothertransmutation of an LTIP Unit into another type, in substance, of Partnership Unit, pursuant to the terms of this Agreement or an applicable LTIP Agreement, is a “Transfer” for purposes of the Agreement.
10.Legend.AnycertificateevidencinganLTIPUnitshallbearanappropriatelegend indicating that additional terms, conditions and restrictions on transfer, including without limitation any Vesting Agreement, apply to the LTIP Unit.
| 11. | Conversion* of Class 1 LTIP Units and Class 2 LTIP Units to Partnership *Common |
Units.
(a)AQualifyingPartyholdingLTIPUnitsshallhavetheright(the“*Conversion *Right”),athisorheroption,atanytimetoconvertalloraportionofhisorherVestedLTIPUnits into Partnership Common Units, taking into account all adjustments (if any) made pursuant to Section 6 hereof; provided, however, that a Qualifying Party may not exercise the Conversion Rightforlessthanonethousand(1,000)VestedLTIPUnitsor,ifsuchQualifyingPartyholdsless thanonethousand(1,000)VestedLTIPUnits,alloftheVestedLTIPUnitsheldbysuchQualifying Party that are not subject to the limitation on conversion under Section 11(b) hereof.Qualifying Parties shall not have the right to convert Unvested LTIP Units into Partnership Common Units untiltheybecomeVestedLTIPUnits;provided,however,thatwhenaQualifyingPartyisnotified of the expected occurrence of an event that will cause his or her Unvested LTIP Units to become Vested LTIP Units, such Qualifying Party may give the Partnership a Conversion Notice conditioned upon and effective as of the time of vesting and such Conversion Notice, unless subsequentlyrevokedbytheQualifyingParty,shallbeacceptedbythePartnershipsubjecttosuch condition.Inallcases,theconversionofanyLTIPUnitsintoPartnershipCommonUnitsshallbe subject to the conditions and procedures set forth in this Section 11.
(b)AQualifyingPartymayconverthisorherVestedLTIPUnitsintoanequalnumber of fully paid and non-assessable Partnership Common Units, giving effect to all adjustments (if any) made pursuant to Section 6 hereof.Notwithstanding the foregoing, in no event may a Qualifying Party convert a number of Vested LTIP Units that exceeds (i) the Economic Capital Account Balance of such Limited Partner, to the extent attributable to his or her ownership of Vested LTIP Units, divided by (ii) the REIT Share Economic Target applicable to such Vested LTIP Units, in each case as determined as of a date on which satisfaction of the LTIP Unit Redemption Threshold is being determined (in either case, the “Capital Account Limitation”). AfteroneormoreLTIPUnitshavesatisfiedtheLTIPUnitRedemptionThreshold,suchunitsshall
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forever have satisfied such threshold and the Capital Account Limitation shall thereafter apply only to any LTIP Units which have not previously satisfied such threshold.In order to exercise his or her Conversion Right, a Qualifying Party shall deliver a notice (a “Conversion Notice”) in theformattachedheretoasAnnex* *ItothePartnership(withacopytotheGeneralPartner)notless than three (3) nor more than ten (10) days prior to the Conversion Date specified in such ConversionNotice;provided,however,thatiftheGeneralPartnerhasnotgiventotheQualifying Party notice of a proposed or upcoming Transaction (as defined below) at least thirty (30) days prior to the effective date of such Transaction, then the Qualifying Party shall have the right to deliver a Conversion Notice until the earlier of (x) the tenth (10th) day after such notice from the GeneralPartnerofaTransactionor(y)thethirdBusinessDayimmediatelyprecedingtheeffective date of such Transaction.A Conversion Notice shall be provided in the manner provided in Section 12.01 of the Agreement.Each Qualifying Party seeking to convert Vested LTIP Units covenants and agrees with the Partnership that all Vested LTIP Units to be converted pursuant to thisSection11shallbefreeandclearofallliens.Notwithstandinganythinghereintothecontrary, if the Vested LTIP Units have been held for at least one year, subject to any restrictions set forth inanapplicableLTIPAgreement,aQualifyingPartymaydeliveraNoticeofRedemptionpursuant to Section 8.05(a) of the Agreement relating to the Partnership Common Units into which such Vested LTIP Units are being converted in advance of the Conversion Date; provided, however, that the redemption of such Partnership Common Units by the Partnership shall in no event take place until on or after the Conversion Date.For clarity, it is noted that the objective of this paragraph is to put a Qualifying Party in a position where, if he or she so wishes, the Partnership CommonUnitsintowhichhisorherVestedLTIPUnitswillbeconvertedcanberedeemedbythe Partnership pursuant to Section 8.05(a) of the Agreement simultaneously with such conversion, with the further consequence that, if the General Partner elects to assume the Partnership’s redemption obligation with respect to such Partnership Common Units under Section 8.05(b) of the Agreement by delivering to such Qualifying Party REIT Shares rather than cash, then such Qualifying Party can have such REIT Shares issued to him or her simultaneously with the conversionofhisorherVestedLTIPUnitsintoPartnershipCommonUnits.TheGeneralPartner shall cooperate with a Qualifying Party to coordinate the timing of the different events described intheforegoingsentence.Fortheavoidanceofdoubt,subjecttothelimitationsofthisSection11, aQualifyingPartymaydeliveraConversionNoticewithrespecttoVestedLTIPUnitsheldonthe applicableConversionDateasaresultofsuchQualifyingParty’sexerciseofitsPerformanceLTIP Unit Conversion Right (as defined below).
(c)The Partnership, at any time at the election of the General Partner, may cause any number of Vested LTIP Units to be converted (a “Forced Conversion”) into an equal number of Partnership Common Units, giving effect to all adjustments (if any) made pursuant to Section 6 hereof; provided, however, that the Partnership may not cause a Forced Conversion of any LTIP Units that would not at the time be eligible for conversion at the option of such Qualifying Party pursuant to Section 11(b) hereof.In order to exercise its right of Forced Conversion, the Partnership shall deliver a notice (a “Forced Conversion Notice”) in the form attached hereto as Annex IIto the applicable holder of LTIP Units not less than ten (10) nor more than sixty (60) days prior to the Conversion Date specified in such Forced Conversion Notice.A Forced Conversion Notice shall be provided in the manner provided in Section 12.01 of the Agreement.
(d)Except as otherwise provided in an applicable Vesting Agreement, immediately aftereachsuchtimethateither(i)LTIPUnitsbecomeVestedLTIPUnitspursuanttoSection5(a)
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or (ii) the assets of the Partnership are revalued pursuant to Section 4.04 of the Agreement, all Vested LTIP Units not previously converted into Partnership Common Units shall automatically beconverted(an“Auto* *Conversion”)intoanequalnumberofPartnershipCommonUnits,giving effect to all adjustments (if any) made pursuant to Section 6 hereof; provided, however, that no AutoConversionshalloccurwithrespecttoanyLTIPUnitsthatwouldnotatthetimebeeligible forconversionattheoptionofsuchQualifyingPartypursuanttoSection11(b)hereof.Following an Auto Conversion, the Partnership shall deliver a notice (an “Auto Conversion Notice”) in the form attached hereto as Annex IIIto the applicable holder of LTIP Units as soon as reasonably possible following the Conversion Date (provided that the failure to deliver an Auto Conversion NoticewillnotaffecttheAutoConversionorsubjecttheGeneralPartnerorthePartnershiptoany liability).AnAutoConversionNoticeshallbeprovidedinthemannerprovidedinSection12.01 of the Agreement.
(e)A conversion of Vested LTIP Units for which the holder thereof has given a Conversion Notice or the Partnership has given a Forced Conversion Notice or with respect to which an Auto Conversion has occurred shall occur automatically after the close of business on theapplicableConversionDatewithoutanyactiononthepartofsuchholderofLTIPUnits,other thanthesurrenderofanycertificateorcertificatesevidencingsuchVestedLTIPUnits,asofwhich timesuchholderofLTIPUnitsshallbecreditedonthebooksandrecordsofthePartnershipasof theopeningofbusinessonthenextdaywiththenumberofPartnershipCommonUnitsintowhich suchLTIPUnitswereconverted.AftertheconversionofLTIPUnitsasaforesaid,thePartnership shall deliver to such holder of LTIP Units, upon his or her written request, a certificate of the General Partner certifying the number of Partnership Common Units and remaining LTIP Units, if any, held by such person immediately after such conversion.The assignee of any Limited Partner pursuant to Article 9 of the Agreement may exercise the rights of such Limited Partner pursuanttothisSection11andsuchLimitedPartnershallbeboundbytheexerciseofsuchrights by the assignee.
(f)For purposes of making future allocations under Section 8(b) hereof and applying the Capital Account Limitation, the portion of the Economic Capital Account Balance of the applicable holder of LTIP Units that is treated as attributable to his or her LTIP Units shall be reduced, as of the date of conversion, by the product of the number of LTIP Units converted and the REIT Share Economic Target determined for each such LTIP Unit as of the date on which satisfaction of the LTIP Unit Redemption Threshold for such LTIP Unit was determined.
(g)If the Partnership or the General Partner shall be a party to any transaction (including without limitation a merger, consolidation, unit exchange, self-tender offer for all or substantially all Partnership Common Units or other business combination or reorganization, or sale of all or substantially all of the Partnership’s assets, but excluding any transaction which constitutesanAdjustmentEvent)ineachcaseasaresultofwhichPartnershipCommonUnitsshall be exchanged for or converted into the right, or the holders shall otherwise be entitled, to receive cash,securitiesorotherpropertyoranycombinationthereof(eachoftheforegoingbeingreferred tohereinasa“Transaction”),thentheGeneralPartnershall,immediatelypriortotheTransaction, exerciseitsrighttocauseaForcedConversionwithrespecttothemaximumnumberofLTIPUnits then eligible for conversion (or that will become eligible for conversion as a result of a contemporaneous or prior Forced Performance LTIP Unit Conversion), taking into account any allocationsthatoccurinconnectionwiththeTransactionorthatwouldoccurinconnectionwith
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the Transaction if the assets of the Partnership were sold at the Transaction price or the portion thereof attributable to the Partnership as determined by the General Partner in good faith, or if applicable, at a value for the Partnership assets determined by the General Partner in good faith using the value attributed to the Partnership Common Units in the context of the Transaction (in which case the Conversion Date shall be the effective date of the Transaction and the conversion shall occur immediately prior to the effectiveness of the Transaction).In anticipation of such Forced Conversion and the consummation of the Transaction, the Partnership shall use commercially reasonable efforts to cause each holder of LTIP Units to be afforded the right to receive in connection with such Transaction in consideration for the Partnership Common Units into which his or her LTIP Units will be converted the same kind and amount of cash, securities and other property (or any combination thereof) receivable upon the consummation of such TransactionbyaholderofthesamenumberofPartnershipCommonUnits,assumingsuchholder is not a Person with which the Partnership consolidated or into which the Partnership merged or whichmergedintothePartnershiportowhichsuchsaleortransferwasmade,asthecasemaybe (a “Constituent Person”), or an affiliate of a Constituent Person.In the event that holders of Partnership Common Units have the opportunity to elect the form or type of consideration to be received upon consummation of the Transaction, prior to such Transaction the General Partner shall give prompt written notice to each holder of LTIP Units of such opportunity, and shall use commercially reasonable efforts to afford the holder of LTIP Units the right to elect, by written noticetotheGeneralPartner,theformortypeofconsiderationtobereceiveduponconversionof each LTIP Unit held by such holder into Partnership Common Units in connection with such Transaction.If a holder of LTIP Units fails to make such an election, such holder (and any of its transferees)shallreceiveuponconversionofeachLTIPUnitheldbyhimorher(orbyanyofhis orhertransferees)thesamekindandamountofconsiderationthataholderofPartnershipCommon UnitswouldreceiveifsuchholderofPartnershipCommonUnitsfailedtomakesuchanelection. SubjecttotherightsofthePartnershipandtheGeneralPartnerunderanyVestingAgreementand the relevant terms of the Plan or any other applicable Equity Plan, the Partnership shall use commercially reasonable effort to cause the terms of any Transaction to be consistent with the provisions of this Section 11(g) and to enter into an agreement with the successor or purchasing entity, as the case may be, for the benefit of any holder of LTIP Units whose LTIP Units will not be converted into Partnership Common Units in connection with the Transaction that will (i) containprovisionsenablingtheQualifyingPartiesthatremainoutstandingaftersuchTransaction to convert their LTIP Units into securities as comparable as reasonably possible under the circumstances to the Partnership Common Units and (ii) preserve as far as reasonably possible under the circumstances the distribution, special allocation, conversion, and other rights set forth in the Agreement, including this Exhibit H, for the benefit of the holder of LTIP Units.
(h)NoconversionofLTIPUnitsintoPartnershipCommonUnits,orPartnershipUnits that are not LTIP Units, may be made by a Person if, based on the advice of the Partnership’s counsel or accounting firm, the Partnership believes there is a material risk that such conversion could (i) result in the Partnership’s being treated as an association taxable as a corporation (other thanaqualifiedREITsubsidiarywithinthemeaningofSection856(i)oftheCode),(ii)adversely affect the ability ofthe Company to continueto qualify as a REIT or subject the Company to any additionaltaxes under Section 857or Section 4981 of the Code, or (iii) be effectuated through an “established securities market” or a “secondary market (or the substantial equivalent thereof)” within the meaning of Section 7704 of the Code or cause the Partnership to fail to qualify for a safe harbor from such treatment which the Partnership desires to preserve.
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(i)Notwithstanding the foregoing, nothing in this Section 11 shall apply to a Performance LTIP Unit (including, for the avoidance of doubt, the Capital Account balance attributable to such Performance LTIP Unit), other than with respect to Vested LTIP Units into which a Performance LTIP Unit has been converted pursuant to Section 12.
| 12. | Conversion* of Performance LTIP Units to Class 1 LTIP Units or Class 2 *LTIP |
Units.
| (a) | TheholderofaClass1PerformanceLTIPUnitoraClass2PerformanceLTIP |
UnitmayconvertsuchUnitintoaClass1LTIPUnitoraClass2LTIPUnit(asapplicable)atany time (i) on or after such Performance LTIP Unit becomes a Vested LTIP Unit, and (ii) before the ExpirationDateofsuchPerformanceLTIPUnit(the“Performance* LTIP Unit Conversion *Right”); provided, however, that a Performance LTIP Unit holder may not exercise a Performance LTIP Unit Conversion Right with respect to the lesser of (i) one thousand (1,000) Performance LTIP Units and (ii) 100% of the Performance LTIP Units held by such person that are Vested LTIP Units.If a Performance LTIP Unit holder is notified of the expected occurrence of an event that will cause his or her Unvested LTIP Units to become Vested LTIP Units, such holder may give thePartnershipaPerformanceLTIPUnitConversionNoticeconditioneduponandeffectiveasof the time of vesting and such Performance LTIP Unit Conversion Notice, unless subsequently revoked by such person, shall be accepted by the Partnership subject to such condition.In all cases, the conversion of any Performance LTIP Units into Class 1 LTIP Unit or a Class 2 LTIP Unit (as applicable) shall be subject to the conditions and procedures set forth in this Section 12.
(b)AnyPerformanceLTIPUnitsbeingconvertedpursuanttoaPerformanceLTIPUnit Conversion Notice, a Forced Performance LTIP Unit Conversion, or an Expiration Conversion will convert to a number of Class 1 LTIP Units or Class 2 LTIP Units (as applicable) equal to (i) theapplicablePerformanceLTIPUnitValue,multipliedby(ii)thenumberofPerformanceLTIP Unitsbeingconverted,anddividedby(iii)theREITShareValueontheConversionDate.Forthe avoidance of doubt, the foregoing calculation shall be adjusted as necessary to take into account any differences in the Performance LTIP Unit Values of the Performance LTIP Units being converted.A conversion of Performance LTIP Units under this Section 12 shall occur automaticallyafterthecloseofbusinessontheapplicableConversionDatewithoutanyactionon the part of such holder of Performance LTIP Units, other than the surrender of any certificate or certificatesevidencingsuchPerformanceLTIPUnits,asofwhichtimesuchholderofPerformance LTIP Units shall be credited on the books and records of the Partnership as of the opening of businessonthenextdaywiththenumberofClass1LTIPUnitsorClass2LTIPUnitsintowhich such LTIP Units were converted.After the conversion of Performance LTIP Units as aforesaid, the Partnership shall deliver to such holder of LTIP Units, upon his or her written request, a certificate of the General Partner certifying the number of Class 1 LTIP Units or Class 2 LTIP Units, as applicable, and remaining Performance LTIP Units, if any, held by such person immediately after such conversion.Notwithstanding the preceding two sentences, if (x) a Performance LTIP Unit is converted under this Section 12, (y) the corresponding Class 1 LTIP UnitsorClass2LTIPUnitsareconvertedintoPartnershipCommonUnitspursuanttoSection11 as of the same conversion date, and (z) such Partnership Common Units are not redeemed as of the same date, the relevant holder shall be reflected as a holder of Partnership Common Units (rather than as a holder of LTIP Units) as of the opening of the business day following such conversionsandmaybeprovidedacertificatecertifyingthenumberofPartnershipCommonUnits
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(rather than LTIP Units) owned by such holder based on such conversions.The assignee of any Limited Partner pursuant to Article 9 of the Agreement may exercise the rights of such Limited PartnerpursuanttothisSection12andsuchLimitedPartnershallbeboundbytheexerciseofsuch rights by the assignee.
(c)To exercise his or her Performance LTIP Unit Conversion Right, a Performance LTIP Unit holder shall deliver a notice (a “Performance LTIP Unit Conversion Notice”) in the form attached hereto as Annex IVto the Partnership (with a copy to the General Partner) not less than three (3) nor more than ten (10) days prior to the Conversion Date specified in such PerformanceLTIPUnitConversionNotice;provided,however,thatiftheGeneralPartnerhasnot giventotheholdernoticeofaproposedorupcomingTransaction(asdefinedabove)atleastthirty (30) days prior to the effective date of such Transaction, then the holder shall have the right to deliver a Performance LTIP Unit Conversion Notice until the earlier of (x) the tenth (10th) day after such notice from the General Partner of a Transaction or (y) the third Business Day immediately preceding the effective date of such Transaction.Any Performance LTIP Unit Conversion Notice shall be provided in the manner provided in Section 12.01 of the Agreement. EachQualifyingPartyseekingtoconvertPerformanceLTIPUnitscovenantsandagreeswiththe Partnership that all Units to be converted pursuant to this Section 12 shall be free and clear of all liens.Notwithstandinganythinghereintothecontrary,ifthePerformanceLTIPUnitshavebeen held for at least one year, subject to any restrictions set forth herein or in an applicable LTIP Agreement,aQualifyingPartymaydeliveraNoticeofRedemptionpursuanttoSection8.05(a)of the Agreement relating to the Partnership Common Units into which the Class 1 LTIP Units or Class 2 LTIP Units receivable on conversion of such Performance LTIP Units ultimately are convertible in advance of the Conversion Date; provided, however, that the redemption of such Partnership Common Units by the Partnership shall in no event take place until on or after the ConversionDate.Forclarity,itisnotedthattheobjectiveofthisparagraph(togetherwithSection 11(b)above)istoputaPerformanceLTIPUnitholderinapositionwhere,ifheorshesowishes, (i) the Class 1 LTIP Units or Class 2 LTIP Units into which his or her Performance LTIP Units convert canbeconvertedintoPartnershipCommonUnitssimultaneouslybythePartnership,and (ii) the Partnership Common Units into which such Class 1 LTIP Units or Class 2 LTIP Units convert can be redeemed by the Partnership pursuant to Section 8.05(a) of the Agreement simultaneously, with the further consequence that, if the General Partner elects to assume the Partnership’sredemptionobligationwithrespecttosuchPartnershipCommonUnitsunderSection 8.05(b)oftheAgreementbydeliveringtosuchPerformanceLTIPUnitholderREITSharesrather than cash, then such holder can have such REIT Shares issued to him or her simultaneously with the conversion of his or her Performance LTIP Units into Class 1 or Class 2 LTIP Units and correspondingconversionofsuchLTIPUnitsintoPartnershipCommonUnits,inalleventssubject to any restrictions on conversion or redemption set forth herein or in an applicable LTIP Agreement.The General Partner shall cooperate with a holder of Performance LTIP Units to coordinate the timing of the different events described in the foregoing sentence.
(d)No conversion of Performance LTIP Units may be made by a Person if, based on the advice of the Partnership’s counsel or accounting firm, the Partnership believes there is a material risk that such conversion could (i) result in the Partnership’s being treated as an associationtaxableasacorporation(otherthanaqualifiedREITsubsidiarywithinthemeaningof Section856(i)oftheCode),(ii)adverselyaffecttheabilityoftheCompanytocontinuetoqualify as a REIT or subject the Company to any additional taxes under Section 857 or Section 4981 of
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theCode,or(iii)beeffectuatedthroughan“establishedsecuritiesmarket”ora“secondarymarket (or the substantial equivalent thereof)” within the meaning of Section 7704 of the Code or cause thePartnershiptofailtoqualifyforasafeharborfromsuchtreatmentwhichthePartnershipdesires to preserve.
(e)If the Partnership or the General Partner shall be a party to any Transaction, then theGeneralPartnershall,immediatelybeforetheTransaction,beentitledtocauseaconversionof Performance LTIP Units (a “Forced Performance LTIP Unit Conversion”) with respect to the maximum number of PerformanceLTIP Unitsthen eligible for conversion underthisSection 12, taking into account any allocations that occur in connection with the Transaction or that would occur in connection with the Transaction if the assets of the Partnership were sold at the TransactionpriceortheportionthereofattributabletothePartnershipasdeterminedbytheGeneral Partner in good faith, or if applicable, at a value for the Partnership assets determined by the General Partner in good faith using the value attributed to the Partnership Common Units in the context of the Transaction (in which case the Conversion Date shall be the effective date of the Transaction and the conversion shall occur immediately prior to the effectiveness of the Transaction).In anticipation of such Forced Performance LTIP Unit Conversion and the consummation of the Transaction, the Partnership shall use commercially reasonable efforts to causeeachholderofPerformanceLTIPUnitstobeaffordedtherighttoreceiveinconnectionwith such Transaction in consideration for the Partnership Common Units into which his or her Performance LTIP Units ultimately will be converted (based on the conversion ratios set forth herein) the same kind and amount of cash, securities and other property (or any combination thereof) receivable upon the consummation of such Transaction by a holder of the same number of Partnership CommonUnits, assumingsuch holderisnota Constituent Personoran affiliate of aConstituentPerson.IntheeventthatholdersofPartnershipCommonUnitshavetheopportunity to elect the form or type of consideration to be received upon consummation of the Transaction, prior to such Transaction the General Partner shall give prompt written notice to each holder of Performance LTIP Units of such opportunity, and shall use commercially reasonable efforts to afford the holder of Performance LTIP Units the right to elect, by written notice to the General Partner, the form or type of consideration to be received upon conversion of each Performance LTIP Unit held by such holder into Class 1 LTIP Units or Class 2 LTIP Units, as applicable, and correspondingconversionofsuchLTIPUnitsintoPartnershipCommonUnitsinconnectionwith such Transaction.If a holder of LTIP Units fails to make such an election, such holder (and any ofitstransferees)shallreceivethesamekindandamountofconsideration(determinedaftertaking into account the conversion ratios herein) that a holder of Partnership Common Units would receive if such holder of Partnership Common Units failed to make such an election.Subject to therightsofthePartnershipandtheGeneralPartnerunderanyVestingAgreementandtherelevant terms of the Plan or any other applicable Equity Plan, the Partnership shall use commercially reasonableefforttocausethetermsofanyTransactiontobeconsistentwiththeprovisionsofthis Section 12(e) and to enter into an agreement with the successor or purchasing entity, as the case may be, for the benefit of any holder of LTIP Units whose LTIP Units will not be converted into Partnership Common Units in connection with the Transaction that will (i) contain provisions enablingtheholdersofPerformanceLTIPUnitsthatremainoutstandingaftersuchTransactionto convert their Performance LTIP Units into securities as comparable as reasonably possible under the circumstances to the Partnership Common Units (taking into account the conversion ratio derivedfromSection12(b))and(ii)preserveasfarasreasonablypossibleunderthecircumstances thedistribution,specialallocation,conversion,andotherrightssetforthintheAgreement,
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includingthisExhibit* *H,forthebenefitoftheholdersofPerformanceLTIPUnitswithrespectto thePerformanceLTIPUnitsunderthisSection12(e).ToexerciseitsrightofForcedPerformance LTIP Unit Conversion, the Partnership shall deliver a notice (a “Forced Performance LTIP Unit Conversion Notice”) in the form attached hereto as Annex V to the applicable holder of Performance LTIP Units not less than ten (10) nor more than sixty (60) days prior to the Conversion Date specified in such Forced Performance LTIP Unit Conversion Notice.A Forced PerformanceLTIPUnitConversionNoticeshallbeprovidedinthemannerprovidedinSection
12.01 of theAgreement.
(f)Except as otherwise provided in an applicable Vesting Agreement, and subject to the express limitations andrestrictions of this Section12, any Performance LTIPUnit that would have a Performance LTIP Unit Value greater than zero upon becoming aPost-Conversion Period Performance LTIP Unit, instead of becoming a Post-Conversion Period Performance LTIP Unit, automatically and without any action of any party shall be converted into a number of Class 1 LTIP Units or Class 2 LTIP Units, as applicable, calculated in accordance with Section 12(b). Eachsuchconversion(each,an“Expiration* Conversion*”)shallbeeffectiveimmediatelyuponthe close of business on the applicable Expiration Date and all calculations under Section 12(b) shall be made based on the relevant Performance LTIP Unit Value as of such time.Following an ExpirationConversion,thePartnershipshalldeliveranotice(an“*Expiration Conversion *Notice”) in the form attached hereto as Annex VI to the applicable holder of LTIP Units as soon as reasonablypractical(providedthatthefailuretodeliveranExpirationConversionNoticewillnot affecttheExpirationConversionorsubjecttheGeneralPartnerorthePartnershiptoanyliability). Each Expiration Conversion Notice shall be provided in the manner provided in Section 12.01 of the Agreement.
(h) Fortheavoidanceofdoubt,anyClass1LTIPUnitandClass2LTIPUnitresulting from a conversion under this Section 12, (i) is not a Performance LTIP Unit and (ii) is a Vested LTIPUnitthatmaybeconverted(including,ifapplicable,simultaneouslywiththeconversionof theapplicablePerformanceLTIPUnit)intoaPartnershipCommonUnitunder(andsubjecttothe limitationsof)Section11hereof.UponconversionintoClass1LTIPUnitsorClass2LTIPUnits under this Section 12, a Performance LTIP Unit shall cease to be treated as outstanding.
13.Redemption of LTIP Units.Holders of LTIP Units shall not be entitled to the Redemption Right provided for in Section 8.05 of the Agreement unless, until and to the extent such LTIP Units have been converted into Partnership Common Units in accordance with their terms.
14.Voting.LimitedPartnersshallhavethesamevotingrightsinrespectoftheirLTIP UnitsasLimitedPartnersholdingPartnershipCommonUnits,withtheLTIPUnitsvotingtogether as a single class with the Partnership Common Units and having one vote per LTIP Unit and holders of LTIP Units shall not be entitled to approve, vote on or consent to any other matter.
15.Section 83 Safe Harbor.Each Partner authorizes the General Partner to elect to apply the safe harbor (the “Section 83 Safe Harbor”) set forth in proposed Regulations Section 1.83-3(l) and proposed Internal Revenue Service Revenue Procedure published in Notice 2005-43 (together, the “Proposed Section 83 Safe Harbor Regulation”) (under which the fair market valueofaPartnershipInterestthatisTransferredinconnectionwiththeperformanceofservices
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is treated as being equal to the liquidation value of the interest), or in similar Regulations or guidance, if such Proposed Section 83 Safe Harbor Regulation or similar Regulations are promulgated as final or temporary Regulations.If the General Partner determines that the Partnership should make such election, the General Partner is hereby authorized to amend the AgreementwithouttheconsentofanyotherPartnertoprovidethat(i)thePartnershipisauthorized and directed to elect the Section 83 Safe Harbor, (ii) the Partnership and each of its Partners (including any Person to whom a Partnership Interest, including an LTIP Unit, is Transferred in connectionwiththeperformanceofservices)willcomplywithallrequirementsoftheSection83 Safe Harbor with respect to all Partnership Interests Transferred in connection with the performanceofserviceswhilesuchelectionremainsineffectand(iii)thePartnershipandeachof its Partners will take all actions necessary, including providing the Partnership with any required information, to permit the Partnership to comply with the requirements set forth or referred to in the applicable Regulations forsuchelectionto beeffective untilsuchtime(if any) as the General Partnerdetermines,initssolediscretion,thatthePartnershipshouldterminatesuchelection.The General Partner is further authorized to amend the Agreement to modify Section 5.01(a) of the Agreement to the extent the GeneralPartner determines in its discretion that such modification is necessary or desirable as a result of the issuance of any applicable law, Regulations, notice or rulingrelatingtothetaxtreatmentofthetransferofaPartnershipInterestsinconnectionwiththe performanceofservices.NotwithstandinganythingtothecontraryintheAgreement,eachPartner expressly confirms that it will be legally bound by any such amendment.
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ANNEX** **I
NOTICE** OF ELECTION BY PARTNER TO ****CONVERT **
LTIP UNITS INTO PARTNERSHIP COMMON UNITS
The undersigned holder of LTIP Units hereby irrevocably (i) elects to convert as of the Conversion Date set forth below the number of LTIP Units in United Dominion Realty, L.P. (the “Partnership”) set forth below into Partnership Common Units in accordance with the terms of theSecond AmendedandRestatedAgreementofLimitedPartnershipofthePartnership,asamended;and(ii) directs that any cash in lieu of Partnership Common Units that may be deliverable upon such conversion be delivered to the address specified below.The undersigned hereby represents, warrants, and certifies that the undersigned (a) has title to such LTIP Units, free and clear of the rights or interests of any other person or entity other than the Partnership; (b) has the full right, power, and authority to cause the conversion of such LTIP Units as provided herein; and (c) has obtained the consent or approval of all persons or entities, if any, having the right to consent or approve such conversion.
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Annex I
ANNEX** **II
NOTICE** OF ELECTION BY PARTNERSHIP TO FORCE **CONVERSION OF LTIP UNITS INTO PARTNERSHIP COMMON UNITS
UnitedDominionRealty,L.P.(the“Partnership”)herebyirrevocablyelectstocauseasof the Conversion Date set forth below the number of LTIP Units held by the LTIP Unit holder set forth below to be converted into Partnership Common Units in accordance with the terms of Second Amended and Restated Agreement of Limited Partnership of the Partnership, as amended.
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Annex II
ANNEX** **III
NOTICE** OF AUTOMATIC CONVERSION**
OF** LTIP UNITS INTO PARTNERSHIP COMMON **UNITS
UnitedDominionRealty,L.P.(the“Partnership”)herebygivesyounoticethatthenumber of LTIP Units held by the LTIP Unit holder set forth belowhave been convertedintoPartnership CommonUnitsinaccordancewiththetermsoftheSecond AmendedandRestatedAgreementofLimited Partnership of the Partnership, as amended, effective as of the Conversion Date set forth below.
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Annex III
ANNEX** **IV
PERFORMANCE** LTIP UNIT CONVERSION **NOTICE
TheundersignedholderofPerformanceLTIPUnitsherebyirrevocablyelectstoconvertas oftheConversionDatesetforthbelowthenumberofPerformanceLTIPUnitsinUnitedDominion Realty,L.P.(the“Partnership”)setforthbelowintoClass1LTIPUnitsorClass2LTIPUnits(as applicable) in accordance with the terms of the Second Amended and Restated Agreement of Limited Partnership of the Partnership, as amended.The undersigned hereby represents, warrants, and certifies that the undersigned (a) has title to such Performance LTIP Units, free and clear of the rights or interests of any other person or entity other than the Partnership; (b) has the full right, power,andauthoritytocausetheconversionofsuchPerformanceLTIPUnitsasprovidedherein; and (c) has obtained the consent or approval of all persons or entities, if any, having the right to consent or approve such conversion.
NameofPerformanceLTIPUnitHolder:__________________________________________
PleasePrintNameasRegisteredwithPartnership
Number of Class 1 Performance LTIP Units to be Converted:______
NumberofClass2PerformanceLTIPUnitstobeConverted:______
DateofAwardofClass1PerformanceLTIPUnitstobeConverted:______
DateofAwardofClass2PerformanceLTIPUnitstobeConverted:______
ConversionDate:______
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Annex IV
ANNEX** **V
NOTICE** OF ELECTION BY PARTNERSHIP TO FORCE ****CONVERSION **
OF PERFORMANCE LTIP UNITS
UnitedDominionRealty,L.P.(the“Partnership”)herebyirrevocablyelectstocauseasof theConversionDatesetforthbelowthenumberofPerformanceLTIPUnitsheldbytheLTIPUnit holdersetforthbelowtobeconvertedintoClass1LTIPUnitsorClass2LTIPUnits(asspecified below)inaccordancewiththetermsofSecond AmendedandRestatedAgreementofLimitedPartnership of the Partnership, as amended.
NameofLTIPUnitHolder:___________________________________
NameasRegisteredwithPartnership
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Annex V
ANNEX VI
EXPIRATION** CONVERSION **NOTICE
UnitedDominionRealty,L.P.(the“Partnership”)herebygivesyounoticethatthe numberofPerformanceLTIPUnitsheldbytheLTIPUnitholdersetforthbelowhavebeen converted into Partnership Class 1 LTIP Units or Class 2 LTIP Units, as applicable, in accordancewiththetermsoftheSecond AmendedandRestatedAgreementofLimitedPartnership of the Partnership, as amended, effective as of the Conversion Date set forth below.
NameofPerformanceLTIPUnitHolder:___________________________________
NameasRegisteredwithPartnership
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Annex VI
PARTNERSHIP UNIT DESIGNATIONS**
OF THE
LH UNITS
****OF **
UNITED DOMINION REALTY, L.P.
| 1. | Defined Terms. |
The following defined terms used in this Exhibit Ishall have the meanings specified below. Capitalized terms used, but not otherwise defined herein, shall have the respective meanings ascribed thereto in the Second Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., as amended (the “Agreement”).
“Adjustment Event” has the meaning set forth in Section 10hereof.
“Capital Receipts” means cash receipts of the Partnership or any of its Subsidiaries from the sale, exchange or other disposition of any assets of the Partnership or any Subsidiary thereof, including the issuance of any equity interest by the Partnership or any Subsidiary thereof, or from the incurrence of any Indebtedness by the Partnership or any Subsidiary thereof.
“Current Profit” shall mean, for any fiscal year, the net taxable income of the Partnership for such fiscal year, as determined for federal income tax purposes, as modified by Regulations Section 1.704-1(b)(2)(iv), except that “Current Profit”:
| (a) | shall not include: |
| (i) | Items of income, gain and expense that are specially allocated pursuant to Sections 5.01(b), 5.01(c), and *5.01(d)*of the Agreement; |
| (ii) | Depreciation and amortization; |
| (iii) | Items of loss from the disposition of Partnership assets; and |
| (iv) | Deemed items of gain or loss described in the last sentence of Section 4.04of the Agreement; |
| (b) | shall not exceed the amount necessary to match allocations under *Section 5(a)(i)(A)*with distributions of cash under *Section 5.02(a)*and Section 5.03of the Agreement; and |
| (c) | shall not be less than zero. |
“LH A Partners” means the Partners holding LH A Units in such capacity.
“LH B Partners” means the Partners holding LH B Units in such capacity.
“LH Partners” means the LH B Partners and the LH A Partners.
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“Non-LH Partners” means the Partners holding Partnership Units other than the LH Units in such capacity.
“Partnership Common Unit” means a fractional, undivided share of the Partnership Interests of all Partners issued pursuant to the Agreement, but does not include any Partnership Unit owned by the General Partner or the Company (if the Company is not the General Partner), Class A Partnership Unit, Class I Out-Performance Partnership Share, Class II Out-Performance Partnership Share, Class III Out-Performance Partnership Share, Class IV Out-Performance Partnership Share, Class V Out-Performance Partnership Share, LTIP Unit or any other Partnership Unit, the terms of which provide that such other Partnership Unit is not a Partnership Common Unit. For the avoidance of doubt, although, pursuant to Section 3, LH Units shall be treated as Partnership Common Units for the purposes described therein and herein, references in the Agreement to Partnership Common Units shall not include LH Units except to the extent provided by Section 3and the other provisions herein.
“Residual LH A Percent” means, initially, one percent (1%). Upon a redemption, exchange or other transaction in which an LH A Unit ceases to be outstanding, the Residual LH A Percent shall be reduced to equal the immediately prior Residual LH A Percent multiplied by a fraction, the numerator of which is the number of LH A Units outstanding immediately after such transaction and the denominator of which is the number of LH A Units outstanding immediately prior to such transaction.
“Residual LH B Percent” means, initially, one-tenth of one percent (.1%). Upon a redemption, exchange or other transaction in which an LH B Unit ceases to be outstanding, the Residual LH B Percent shall be reduced to equal the immediately prior Residual LH B Percent multiplied by a fraction, the numerator of which is the number of LH B Units outstanding immediately after such transaction and the denominator of which is the number of LH B Units outstanding immediately prior to such transaction.
“Residual Non-LH Percent” means (i) one hundred percent (100%) minus(ii) the sum of (A) the Residual LH A Percent and (B) the Residual LH B Percent.
“Residual****Profit” and “Residual****Loss” shall mean, for any fiscal year, the net taxable income or loss, as the case may be, of the Partnership for such fiscal year, as determined for federal income tax purposes, as modified by Regulations Section 1.704-1(b)(2)(iv), except that Residual Profit and Residual Loss shall not include:
| (a) | Items of income, gain and expense that are specially allocated pursuant to Section 5.01(b), 5.01(c), and *5.01(d)*of the Agreement; and |
| (b) | Any items included within the definition of Current Profit for such fiscal year. |
2.Designation. A general class of Partnership Units in the Partnership designated as the “LH Units” is hereby established. Two sub-classes of LH Units are hereby designated as the “LH A Units” and “LH B Units”. The number of each class of LH Units that may be issued is not limited by the Agreement and shall be determined from time to time by the General Partner.
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3.General. LH Units shall have the terms set forth in this Exhibit I. Except to the extent provided otherwise in this Exhibit I: (i) each LH A Unit shall be treated as, and shall have the same rights, preferences, privileges and obligations as, any other Partnership Unit held by the applicable UDR Partner, and the holder of an LH A Unit shall be treated as, and shall have the same rights, preferences, privileges and obligations as, such UDR Partner with respect to its holding of such a Partnership Unit; and (ii) each LH B Unit, (A) in the case of an LH B Unit held by an Outside Partner, shall be treated as, and shall have the same rights, preferences, privileges and obligations as, a Partnership Common Unit, and each such holder of an LH B Unit in respect of each LH B Unit held by it shall be treated as, and shall have the same rights, preferences, privileges and obligations as, an Outside Partner with respect to its holding of such a Partnership Common Unit, and (B) in the case of an LH B Unit held by a UDR Partner, shall be treated as, and shall have the same rights, preferences, privileges and obligations as, any other Partnership Unit held by such UDR Partner, and each such holder of an LH B Unit in respect of each LH B Unit held by it shall be treated as, and shall have the same rights, preferences, privileges and obligations as, such a UDR Partner with respect to its holding of such a Partnership Unit.
4.Issuances of LH Units; Admission to Partnership.
(a)From time to time, the General Partner is hereby authorized to issue LH Units for such consideration or for no consideration as the General Partner may determine to be appropriate and on such terms and conditions as shall be established by the General Partner, and admit such Persons as Limited Partners. The General Partner shall amend Exhibit Ato the Agreement from time to time to the extent necessary to reflect accurately the issuance of, and subsequent conversion, redemption, or any other event having an effect on the ownership of, LH Units. For the avoidance of doubt, it is expected that LH A Units solely shall be issued to or acquired by UDR Partners, whereas LH B Units may be issued to or acquired by Outside Partners or UDR Partners (for example, in the case of an acquisition by the Company of an LH B Unit pursuant to *Section 8.05(b)*of the Agreement).
(b)Notwithstanding any other provision of the Agreement to the contrary, a Person (other than an existing Partner) who is issued LH Units in accordance with this Exhibit Ishall be admitted to the Partnership as an additional Limited Partner upon the satisfactory completion of such conditions or requirements as the General Partner determines in its sole discretion. For the avoidance of doubt, the requirements of *Section 9.03(a)*of the Agreement shall not apply to the admission of a Person to the Partnership as a Limited Partner with respect to its LH Units unless and to the extent the General Partner determines such requirements shall apply to such admission.
| 5. | Allocations. Notwithstanding Section 5.01of the Agreement: |
(a)In lieu of and prior to making any allocations under *Section 5.01(a)*of the Agreement:
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(i)Current and Residual Profits for any fiscal year of the Partnership shall be allocated in the following order of priority:
(A)First, Current Profits shall be allocated to the LH Partners with respect to their LH Units in proportion to the amount of cash distributed to each such LH Partner with respect to such LH Units pursuant to *Section 5.02(a)*of the Agreement, until such LH Partners have received cumulative allocations of Current Profits pursuant to this *Section 5(a)(i)(A)*equal to the cumulative cash distributed to such LH Partners pursuant to *Section 5.02(a)*of the Agreement;
(B)Second, Residual Profits shall be allocated to the Partners in proportion to, and in the reverse order of, allocations of Residual Losses pursuant to Section 5(a)(ii), until the cumulative Residual Profits allocated to such Partners pursuant to this *Section 5(a)(i)(B)*equals the cumulative Residual Losses allocated to such Partners pursuant to Section 5(a)(ii), with the Non-LH Partners treated as a group; and
(C)Thereafter, (i) the Residual LH A Percent of Residual Profits shall be allocated to the LH A Partners in proportion to their respective Percentage Interests (as determined solely with respect to their LH A Units), (ii) the Residual LH B Percent of Residual Profits shall be allocated to the LH B Partners in proportion to their respective Percentage Interests (as determined solely with respect to their LH B Units), and (iii) the Residual Non-LH Percent of Residual Profits shall be allocated to the Non-LH Partners as a group.
(ii)Residual Losses for any fiscal year of the Partnership shall be allocated in the following order of priority:
(A)First, (i) the Residual LH A Percent of Residual Losses shall be allocated to the LH A Partners in proportion to their respective Percentage Interests (as determined solely with respect to their LH A Units), (ii) the Residual LH B Percent of Residual Losses shall be allocated to the LH B Partners in proportion to their respective Percentage Interests (as determined solely with respect to their LH B Units), and (iii) the Residual Non-LH Percent of Residual Losses shall be allocated to the Non-LH Partners as a group, until the aggregate positive Capital Account balances of the Non-LH Partners have been eliminated;
(B)Second, to the LH Partners in proportion to their positive Capital Account balances attributable to their LH Units, until such positive Capital Account balances have
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been eliminated; and
(C)Thereafter, to the General Partner.
(iii)Amounts, and items thereof, allocated to the Non-LH Partners as a group pursuant to the foregoing provisions of this *Section 5(a)*then shall be allocated as Profit, Loss and depreciation and amortization expenses, as applicable, among the Non-LH Partners pursuant to *Section 5.01(a)*of the Agreement.
(b)As applied to the LH Units, references to Profit and Loss (and items thereof) in *Sections 5.01 (b)*through *(f)*of the Agreement shall include references to Current Profit and Residual Profit and Loss (and items thereof), as applicable and as determined by the General Partner.
(c)Notwithstanding the foregoing, allocations of Current Profit and Residual Profit and Loss hereunder may be modified by the General Partner, in its discretion, to take into account any preferential or superseding allocation or distribution entitlements of other classes of Partnership Units, including, without limitation, to take into account the entitlement of LTIP Units to allocations of Liquidating Gains and Losses under Exhibit Hof the Agreement and the entitlements of the Class A Partners.
6.Distributions. For purposes of *Sections 5.02(a)(i)through (iv)*of the Agreement, each LH Partner with respect to each of its LH Units shall be treated (i) in the case of an Outside Partner, in the same manner as an Outside Partner with respect to each of its Partnership Common Units, and (ii) in the case of a UDR Partner, in the same manner as a UDR Partner with respect to each of its Partnership Units (including, in each case, for purposes of determining its Dividend Equivalent entitlements and Percentage Interest). For purposes of *Section 5.02(a)(v)*of the Agreement: (i) with respect to any distribution of Capital Receipts under such subsection, each LH Partner with respect to its LH Units shall receive its Percentage Interest attributable to such LH Units of such distribution; (ii) with respect to any distribution of other than Capital Receipts under such subsection, (A) the LH A Partners with respect to their LH A Units shall receive solely the Residual LH A Percent of such distribution in proportion to their respective Percentage Interests (as determined solely with respect to their LH A Units), and (B) the LH B Partners with respect to their LH B Units shall receive solely the Residual LH B Percent of such distribution in proportion to their respective Percentage Interests (as determined solely with respect to their LH B Units); and (iii) for the avoidance of doubt, any Non-LH Partner with respect to its Partnership Units other than LH Units shall receive its Percentage Interest (as determined solely with respect to such Partnership Units) of the remaining amount of any distribution described in clauses (i) or (ii). The General Partner shall determine, in its sole discretion, the extent to which any distribution is of Capital Receipts.
7.Redemption Rights. Each Outside Partner with respect to each LH Unit held by such Outside Partner shall have the redemption rights set forth in Section 8.05of the
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Agreement as though such LH Unit was a Partnership Common Unit outstanding for more than one year and held by an Outside Partner. Each UDR Partner shall not have such redemption rights with respect to its LH Units.
8.Guaranty Opportunities. The terms of Section 8.07of the Agreement shall not apply to LH Partners with respect to their LH Units, including the consent right set forth in *Section 8.07(c)*of the Agreement.
9.Voting. For the avoidance of doubt, (i) each LH Unit held or acquired by a UDR Partner shall have the same voting, consent or approval rights applicable to a Partnership Unit held by such UDR Partner, and (ii) each LH Unit held or acquired by an Outside Partner shall have the same voting, consent or approval rights applicable to a Partnership Common Unit held by an Outside Partner.
10.Adjustment Events and Other Events; Percentage Interests.
(a)If an Adjustment Event (as defined below) occurs, then the General Partner shall take any action reasonably necessary, including any amendment to this Exhibit Ior the Agreement or update to Exhibit Ato the Agreement, to adjust the number of outstanding LH Units (including within any class thereof), including through subdivision or combination of outstanding LH Units (including within any class thereof), or to adjust the Percentage Interest attributable to an LH Unit (including for specific purposes), to preserve the economic entitlements of the LH Units relative to the Partnership Common Units, and to otherwise preserve the intended economic arrangement, in each case as set forth in this Exhibit Iand the Agreement. The following shall be “Adjustment Events”: (i) the Partnership makes a distribution on all outstanding Partnership Common Units in Partnership Units; (ii) the Partnership subdivides the outstanding Partnership Common Units into a greater number of units or combines the outstanding Partnership Common Units into a smaller number of units; or (iii) the Partnership issues any Partnership Units in exchange for its outstanding Partnership Common Units by way of a reclassification or recapitalization of its Partnership Common Units. If more than one Adjustment Event occurs, any adjustment to the LH Units need be made only once using a single formula that takes into account each and every Adjustment Event as if all Adjustment Events occurred simultaneously. For the avoidance of doubt, the following shall not be Adjustment Events unless and to the extent determined appropriate by the General Partner: (x) the issuance of Partnership Units in a financing, reorganization, acquisition or other similar business transaction; (y) the issuance of Partnership Units pursuant to any employee benefit or compensation plan or distribution reinvestment plan; or (z) the issuance of any Partnership Units to the General Partner or the Company in respect of a Capital Contribution to the Partnership.
(b)If the Partnership takes an action affecting the
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Partnership Common Units or any other action, other than actions specifically described above as “Adjustment Events”, and, in the opinion of the General Partner, such action would require an action to preserve the intended economic arrangement described above, the General Partner shall have the right to take such action, to the extent permitted by law, in such manner and at such time as the General Partner, in its sole discretion, may determine to be reasonably appropriate under the circumstances. If an amendment is made to the Agreement adjusting the number of outstanding LH Units as herein provided, the Partnership shall promptly file in the books and records of the Partnership an officer’s certificate setting forth a brief statement of the facts requiring such adjustment, which certificate shall be conclusive evidence of the correctness of such adjustment absent manifest error. Promptly after filing of such certificate, the Partnership shall notify each holder of LH Units setting forth the adjustment to its LH Units and the effective date of such adjustment. Any adjustment to the number of outstanding LH Units pursuant to this Section 10shall be binding on the Partnership and every Partner.
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