**ASSOCIATED ESTATES REALTYCORPORATION**

**DIRECTORS’ DEFERRED COMPENSATIONPLAN**

**(as amended December 2009)**

 

 

Associated EstatesRealty Corporation (the “Company”) has established a Directors’ DeferredCompensation Plan (the “Plan”) to assist it in attracting and retaining personsof competence and stature to serve as Independent Directors by giving thosedirectors the option of deferring receipt of the fees payable and awardsgranted to them by the Company for their services as directors and creating anopportunity for appreciation of fees and awards deferred based on appreciationof the Company’s Common Shares.

Therefore, theCompany hereby adopts the Plan as hereinafter set forth:

1.**         EffectiveDate**.  Terms of the Plan, as amended, will be effective for all director’sfees and awards deferred with respect to periods commencing with the Company’sfiscal quarter that begins January 1, 2010 and for all previous deferralelections with a designated Distribution Commencement Date after December 31,2010.

 2.**        Participation**. Each director of the Company who (a) is duly elected to the Company’s Board ofDirectors and (b) receives fees and awards for services as a director (an“Eligible Director”), may elect to defer receipt of fees or awards otherwisepayable to that director, as provided for in the Plan.  Each Eligible Directorwho elects to defer fees or awards will be a Participant in the Plan.

3.**         Administration**. The Company’s Board of Directors appoints Jeffrey I. Friedman, Lou Fatica and Dan Gold, officers of the Company who are not eligible to become Participants, toact as the Administrators of the Plan (the “Administrators”).  TheAdministrators will serve at the pleasure of the Board of Directors and willadminister, construe and interpret the Plan.  The Administrators will not beliable for any act done or determination made in good faith.  The Board ofDirectors has the power to designate additional or replacement Administratorsat its discretion.

4.**         Deferrals**.

 

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                                    (a)**        DeferralElection**.  Prior to January 1 of each year, any Eligible Director mayfile with the Administrators of the Plan, an election in writing to participatein the Plan and to defer all or a portion of the fees or awards, or both,otherwise payable to that director for that year or for that year andsucceeding years (a “Deferral Election”).    A director who first becomeseligible to participate after January 1 of a given year may make a DeferralElection for the portion of the year in which that director first becameeligible with respect to awards granted or fees for services to be renderedafter the date of that election.  When a Deferral Election is filed, an amountequal to all or a portion (as designated in the Deferral Election) of the feesor awards otherwise payable to a Participant for the year (or portion thereof)or for that year and for succeeding years (as designated in the DeferralElection) will be credited to a deferral account maintained on behalf of thatParticipant (a “Deferral Account”).  A Deferral Election must also state the DistributionCommencement Date (defined in paragraph 5) and method of distribution (lump sumor four equal annual installments). 

                                    (b)**        Accounting**. The Deferral Accounts will be maintained by the Company and will list andreflect each Participant’s credits and valuations.  The Company will provideeach Participant an annual statement of the balance in that Participant’sDeferral Account.  The Company will credit to each Participant’s DeferralAccount an amount equivalent to the fees or award that would have been paid tothe Participant if the Participant had not elected to participate in the Plan. The credit will be made on the date on which the fee or award would have beenpaid absent a Deferral Election.  No funds or securities will be segregatedinto the Deferral Account of Participants; the Deferral Accounts represent ageneral unsecured obligation of the Company.

                                    (c)**        Valuation**. Amounts credited to a Deferral Account of that Participant will be assigned anumber of Share Units (including fractions of a Share) determined by dividingthe amount credited to the Deferral Account, whether in lieu of payment of feesfor service as a director, an award to the director or as a dividend or otherdistribution attributable to those Share Units, by the Fair Market Value of theCompany’s Common Shares (as defined below) on the date of credit.  Fair MarketValue of the Company’s Common Shares means:  (i) the closing price of theCompany’s Common Shares on the principal exchange on which the Company’s CommonShares are then trading, if any, on the date of credit, or, if shares were nottraded on the date of credit, then on the next preceding trading day duringwhich a sale occurred; or (ii) if the Common Shares are not traded on anexchange but are quoted on a quotation system, the mean between the closingrepresentative bid and asked prices (in all other cases) for the Common Shareson the date of credit as reported by the quotation system, or (iii) if theCommon Shares are not publicly traded on an exchange and not quoted on aquotation system, the mean between the closing bid and asked prices for theCommon Shares, on the date of credit, as determined in good faith by the ChiefFinancial Officer; or (iv) if the Company’s Common Shares are not publiclytraded, the fair market value established by the Chief Financial Officer actingin good faith.  Each Share Unit will have the value of a Common Share of theCompany.  The number of Share Units will be adjusted to reflect stock splits,stock dividends or other capital adjustments effected without receipt ofconsideration by the Company.

 

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5.**         Distribution**. A Participant must elect in writing, at the time each Deferral Election is madeunder subparagraph 4(a), the date on which distribution of the amounts creditedto the Participant’s Deferral Account to which that Deferral Election relateswill commence (the “Distribution Date”) and the method of distribution, aspermitted hereunder.  Payment may be made in one lump sum or four equal annualinstallments based on the number of Share Units attributable to the applicableDeferral Election. One Common Share will be issued for each Share Unit held asof the business day immediately preceding the applicable Distribution Date. The Distribution Date(s) and method of distribution of benefits may vary witheach separate Deferral Election, but each Deferral Election will beirrevocable.  If the Distribution Date is the date the director ceases to serveas a Director, the issuance of Common Shares will be made as soon aspracticable after such date.

6.**         Deathor Disability**.

                                    (a)        Inthe event a Participant’s service is terminated by reason of death ordisability prior to the distribution of any portion of that Participant’sDeferral Account, the Company will, within ninety (90) days of the date ofservice termination, commence distribution of amounts credited to the DeferralAccount to the Participant (or to the beneficiary or beneficiaries in the eventof death).  Distribution will be made in accordance with the method ofdistribution elected by the Participant pursuant to paragraph 5 hereof.  In theevent a Participant’s death or disability occurs after distribution of amountscredited to the Deferral Account hereunder has begun, the Company will continueto make distributions to the Participant (or to the beneficiary orbeneficiaries in the event of death) in accordance with the methods ofdistribution elected by the Participant pursuant to paragraph 5 hereof.

                                    (b)        EachParticipant has the right to designate one or more beneficiaries to receivedistributions in the event of Participant’s death by filing with the Company aBeneficiary Designation Form.  The designated beneficiary or beneficiaries maybe changed by a Participant at any time prior to that Participant’s death bythe delivery to the Company of a new Beneficiary Designation Form.  If nobeneficiary has been designated, or if no designated beneficiary survives theParticipant, distributions pursuant to this provision will be made to theParticipant’s estate.

7.**         Assignmentand Alienation of Benefits**.  The right of each Participant to anyaccount, benefit or payment hereunder will not, to the extent permitted by law,be subject in any manner to attachment or other legal process for the debts ofthat Participant; and no account, benefit or payment will be subject toanticipation, alienation, sale, transfer, assignment or encumbrance.

8.**         Amendmentor Termination**.  The Board of Directors of the Company may amend orterminate this Plan at any time and from time to time.  Any amendment ortermination of this Plan will not affect the rights of a Participant accruedprior thereto without that Participant’s written consent.

9.**         Taxes**. The Company is not responsible for the tax consequences under federal, state orlocal law of any election made by any Participant under the Plan.  All paymentsunder the Plan are subject to withholding and reporting requirements to theextent permitted by applicable law.

10.**        NoRight to Continued Membership on the Board**.  Nothing in this Planconfers upon any director any right to continue as a director of the Company orinterferes with the rights of the Company and its shareholders, which arehereby expressly reserved, to remove any director at any time for any reasonwhatsoever, with or without cause.

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11.        **Investment Representation,Approvals and Listing.**  The Administrators may, if they deemappropriate, condition the issuance of any Common Shares hereunder upon receiptof the following or any substantially similar investment representation fromthe Participant: 

“I agree that any Common Shares ofAssociated Estates Realty Corporation which I may acquire by in connection withthe Directors Deferred Compensation Plan shall be acquired for investmentpurposes only and not with a view to distribution or resale, and may not betransferred, sold, assigned, pledged, hypothecated or otherwise disposed of byme unless (i) a registration statement or post-effective amendment to aregistration statement under the Securities Act of 1933, as amended, withrespect to said Common Shares have become effective so as to permit the sale orother disposition of said Common Shares by me; or (ii) there is presented toAssociated Estates Realty Corporation an opinion of counsel satisfactory toAssociated Estates Realty Corporation to the effect that the sale or otherproposed disposition of said Common Shares by me may lawfully be made otherwisethan pursuant to an effective registration statement or post-effectiveamendment to a registration statement relating to the said shares under theSecurities Act of 1933, as amended.”

TheCompany shall not issue any certificate or certificates for Common Shares under(or pursuant to) this Plan prior to (i) the obtaining of any approval from anygovernmental agency which the Administrator shall, in its sole discretion,determine to be necessary or advisable; (ii) the admission of such shares tolisting on any national securities exchange on which the Common Shares may belisted; (iii) the completion of any registration or other qualifications of theCommon Shares under any state or federal law or ruling or regulations of anygovernmental body which the Administrator shall, in its sole discretion,determine to be necessary or advisable or the determination by theAdministrator, in its sole discretion, that any registration or otherqualification of the Common Shares are not necessary or advisable; or (iv) theobtaining of an investment representation from the Participant in the formstated above or in such other form as the Administrator, in its sole discretion,shall determine to be adequate.

12.**        Applicable Law**.  This Plan isgoverned under the laws of the State of Ohio. 

 

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