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AMENDMENT TO

 

 

AMENDMENT 

TO

ASSOCIATED ESTATES REALTY CORPORATION

2008 EQUITY-BASED AWARD PLAN

            The Associated Estates Realty Corporation
2008 Equity Based-Award Plan as adopted by the Board on March 14, 2008 and
subsequently approved by holders of the Company’s outstanding shares, (the
"Plan") is hereby amended, as of its effective date, for the purpose
of reflecting compliance with Section 409A of the Code, as follows:  

1.         Section 11(A)(4) is
amended and restated to provide as follows:

Subject to Section 3(C) and
unless otherwise determined by the Committee in its sole discretion at or after
grant but prior to any Change in Control or Potential Change in Control, each
outstanding Award (other than a 409A Award), in each case to the extent vested,
shall be cashed out (and such Award terminated) by paying the participant an
amount equal to the excess, if any, of the “Change in Control Price” as defined
in Section 11(E) as of the date such Change in Control or such Potential Change
in Control is determined to have occurred over the exercise price or other
purchase price, if any, payable by the participant with respect to such Award,
except that in the case of Share Appreciation Rights, Fair Market Value shall
be used rather than Change in Control Price for this purpose.  Subject to
Section 3(C), upon any 409A Change in Control, each outstanding 409A Award, in
each case to the extent vested, shall be cashed out (and such 409A Award
terminated) by paying the participant an amount equal to the excess, if any, of
the Change in Control Price as of the date such 409A Change in Control is
determined to have occurred over the exercise price or other purchase price, if
any, payable by the participant with respect to such 409A Award.

ASSOCIATED
ESTATES REALITY  CORPORATION

By: 
/s/Jeffrey I. Friedman______________________

                                                                                           Title: 
President, Chief Executive OfficerAMENDMENT TO

 

 

AMENDMENT 

TO

ASSOCIATED ESTATES REALTY CORPORATION

Amended and Restated Equity-Based Award Plan

            The Associated Estates Realty Corporation
Amended and Restated Equity Based-Award Plan as adopted by the Board on
February 23, 2005, and subsequently approved by holders of the Company’s
outstanding shares, (the "Plan") is hereby further amended, effective
January 1, 2009, for the purpose of reflecting compliance with Section 409A o
the Code, as follows:   

1.         Section 1(n)(iv) is
amended and restated to provide as follows:

(iv)        if
Common Shares are not publicly traded, the fair market value established by the
Committee acting in good faith and in accordance with the applicable
requirements of Code Section 409A and the regulations promulgated thereunder.

2.         New definitions in
Sections 1(cc), (dd), and (ee) are added to provide as follows:

(cc)      “409A
Award” means an Award that provides for a deferral of compensation from the
date of grant, as determined under Code Section 409A and the regulations
promulgated thereunder.

(dd)      “409A
Change in Control” has the meaning set forth in Section 11(d).

(ee)      “Specified
Employee” has the meaning set forth in Section 10(b)(1)(D).

3.         A new sentence is
added to Section 3(c) of the Plan to provide as follows:

Notwithstanding the foregoing,
no substitution or adjustment shall be made which will result in an Award
becoming subject to the terms and conditions of Code Section 409A, unless
agreed upon by the Committee and the participant.

4.         The provisions of
Section 5(b) relating to Exercise and Method of Exercise are
amended and restated to provide as follows:

Exercise.  Stock Options
shall be exercisable at such time or times and shall be subject to such terms
and conditions as shall be determined by the Committee at or after grant; but,
except as provided in Section 5(b)(6) and Section 12, unless otherwise determined by the Committee at or after
grant, no Stock Option shall be exercisable prior to six months and one day
following the date of grant.  If any Stock Option is exercisable only in
installments or only after specified exercise dates, the Committee may waive,
in whole or in part, such installment exercise provisions, and may accelerate
any exercise date or dates, at any time at or after grant, based on such
factors as the Committee shall determine in its sole discretion; provided,
however, the Committee may not waive, without the participant’s consent, such
installment exercise provisions or accelerate any exercise dates with respect
to a 409A Award if doing so would result in any adverse tax consequences for
the optionee under Code Section 409A and the regulations promulgated
thereunder.

Method of Exercise.  Subject to any installment
exercise provisions that apply with respect to any Stock Option, Code Section
409A, and the six month and one day holding period set forth in Section
5(b)(3), a Stock Option may be exercised in whole or in part, at any time
during the Option period, by the holder thereof giving to the Company written
notice of exercise specifying the number of Shares to be purchased.

5.         A new sentence is
added to Section 5(d) to provide as follows:

Further, any such buy out
shall comply with the requirements of Code Section 409A and the regulations
promulgated thereunder, unless otherwise agreed upon in writing by the
Committee and the participant.

6.         The provisions of
Section 6(a) relating to Grant are amended and restated to provide as
follows:

A.        Grant. 
Share Appreciation Rights may be granted in connection with all or any part of
an Option, either concurrently with the grant of the Option or, if the Option
is a Non-Qualified Stock Option, by an amendment to the Option at any time
thereafter during the term of the Option.  Share Appreciation Rights may be
exercised in whole or in part at such times under such conditions as may be
specified by the Committee in the participant’s Option Agreement; provided,
that no Share Appreciation Right granted in connection with all or any part of
an Option shall be exercisable for less than the Fair Market Value of the
underlying Common Shares as of the date of the original grant of the Option
unless such Share Appreciation Right or Option is a 409A Award, as provided for
in the applicable Award Agreement.

7.         The Section 8(b)(8)
is amended and restated to provide as follows:

A participant
may elect to further defer receipt of a Deferred Share Award (or an installment
of an Award) for a specified period or until a specified event (the “Elective
Deferral Period”), subject in each case to the Committee’s approval and the
terms of this Section 8 and such other terms as are determined by the
Committee, all in its sole discretion and in compliance with Code Section 409A
and the regulations promulgated thereunder.  Subject to any exceptions approved
by the Committee, such election must be made at least 12 months prior the date
the Deferral Period is set to expire and the Elective Deferral Period must be
for a period of at least five years from the date the Deferral Period is set to
expire, except to the extent the holder of a Deferred Share becomes entitled to
receive the underlying Shares due to death or Disability.

8.         A new Section
8(b)(10) is added to provide as follows:

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To the
extent a Deferred Share Award is a 409A Award, the Committee will grant the
Award in a manner as to comply with the requirements of Code Section 409A and
the regulations promulgated thereunder and in accordance with Section 10(b).

9.         The Section 9(b)(3)
is amended to provide as follows:

Subject to
the Minimum Holding Period, any Other Share-Based Award and any Shares covered
by any such Award shall vest or be forfeited to the extent, at the times and
subject to the conditions, if any, provided in the Award agreement, as
determined by the Committee in its sole discretion, subject, if applicable, to
the provisions of Code Section 409A and the regulations promulgated thereunder.

10.       The following
sentence is added to Section 9(b)(4):

Notwithstanding
the foregoing, the Committee may not waive limitations imposed with respect to
any Award if such waiver results in an Award’s failure to comply with the
requirements of Code Section 409A and the regulations promulgated thereunder,
unless agreed upon in writing by the Committee and the participant.

11.       Section 10 is
amended and restated to provide as follows:

A.        Form and Timing
of Payment.  Subject to the terms of the Plan and any applicable Award
Agreement (as may be amended pursuant to Section 12 hereof), payments to be made by the Company, a Subsidiary
or Affiliate upon the exercise of an Option or other Award or settlement of an
Award may be made in such forms as the Committee shall determine, including,
without limitation, cash, Shares, other Awards or other property, and may be
made in a single payment or transfer, in installments, or on a deferred basis;
provided, however that settlement in other than Shares must be authorized by
the applicable Award Agreement.  The settlement of any Award may be accelerated
and cash paid in lieu of Shares in connection with such settlement; provided,
however that settlement in cash must be authorized by the applicable Award
Agreement.  The acceleration of any Award that does not result in a cash
settlement must also be authorized by the applicable Award Agreement. 
Installment or deferred payments may be required by the Committee or permitted
at the election of the participant on terms and conditions approved by the
Committee, including without limitation the ability to defer awards pursuant to
any deferred compensation plan maintained by the Company, a Subsidiary or
Affiliate.  Payments may include, without limitation, provisions for the
payment or crediting of a reasonable interest rate on installment or deferred
payments or the grant or crediting of Dividend Equivalents or other amounts in
respect of installment or deferred payments denominated in Shares.

B.         Certain
Limitations on Awards to Ensure Compliance with Code Section 409A.

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(1)        409A
Awards and Deferrals.  Other provisions of the Plan notwithstanding, the
terms of any 409A Award, including any authority of the Company or the Committee
and rights of the participant with respect to the 409A Award, shall be limited
to those terms permitted under Code Section 409A and the regulations
promulgated thereunder.  The following rules will apply to 409A Awards:

(A)       If
a participant is permitted to elect to defer an Award or any payment under an
Award, such election shall be permitted only at times in compliance with Code
Section 409A and the regulations promulgated thereunder;

(B)       The
Company shall have no authority to accelerate or delay distributions relating
to 409A Awards in excess of the authority permitted under Code Section 409A and
the regulations promulgated thereunder;

(C)       Any
distribution of a 409A Award triggered by a Participant’s termination of
employment shall be made only at the time that the Participant has had a
“Separation from Service” within the meaning of Code Section 409A (or at such
earlier time preceding a termination of employment that there occurs another
event triggering a distribution under the Plan or the applicable Award
Agreement in compliance with Code Section 409A and the regulations promulgated
thereunder);

(D)       Any
distribution of a 409A Award to a “Specified Employee,” as determined under
Code Section 409A, after Separation from Service, shall occur at the expiration
of the six-month period following said Specified Employee’s Separation from
Service.  In the case of installment payments, this six-month delay shall not
affect the timing of any installment otherwise payable after the six-month
delay period; and In the case of any distribution of a 409A Award, the time and
form of payment for such distribution will be specified in the Award Agreement;
provided that, if the time and form of payment for such distribution is not
otherwise specified in the Plan or an Award Agreement or other governing
document, the distribution shall be made in one lump sum amount on March 15 in
the calendar year following the calendar year at which the settlement of the
Award is specified to occur, any applicable restriction lapses, or there is no
longer a substantial risk of forfeiture applicable to such amounts.

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(2)        Distribution
upon Vesting.  In the case of any Award providing for a distribution upon
the lapse of a substantial risk of forfeiture, the time and form of payment for
such distribution will be specified in the Award Agreement; provided that, if
the timing and form of payment of such distribution is not otherwise specified
in the Plan or an Award Agreement or other governing document, the distribution
shall be made in one lump sum amount on March 15 of the calendar year following
the calendar year in which the substantial risk of forfeiture lapses.

(3)        Scope
and Application of this Provision.  For purposes of the Plan, references to
a term or event (including any authority or right of the Company, the Committee
or a participant) being “permitted” under Code Section 409A means that the term
or event will not cause the participant to be deemed to be in constructive
receipt of compensation relating to the 409A Award prior to the distribution of
cash, shares or other property or to be liable for payment of interest or a tax
penalty under Code Section 409A.

(4)         Interpretation.  If and to the extent that any
provision of an Award is required or intended to comply with Code Section 409A,
such provision shall be administered and interpreted in a manner consistent
with the requirements of Code Section 409A.  If and solely to the extent that
any such provision of an Award as currently written would conflict with or
result in adverse consequences to a participant under Code Section 409A, the
Committee shall have the authority, without the consent of the participant, to
administer such provision and to amend the Award with respect to such provision
to the extent the Committee deems necessary for the purposes of avoiding any
portion of the Shares or amounts to be delivered to the participant being
subject to additional income or other taxes under Code Section 409A.

12.       Section 11 is
amended and restated to provide as follows:

A.  (a)  Impact of Event. 
Notwithstanding any other provisions hereof or in any agreement to the
contrary, in the event of:  (1) a “Change in Control” as defined in Section 11(b), (2) a “409A Change in
Control” as defined in Section 11(c) or (3) a “Potential Change in Control” as
defined in Section 11(d), the
following acceleration and valuation provisions shall apply:

Any
Stock Options awarded under the Plan not previously exercisable and vested
shall become fully exercisable and vested;

Any
Share Appreciation Rights shall become immediately exercisable;

The
restrictions applicable to any Restricted Share Awards, Deferred Shares and
Other Share-Based Awards shall lapse and such Shares and Awards shall be deemed
fully vested; and

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Subject to
Section 3(c) and unless otherwise determined by the Committee in its sole
discretion at or after grant but prior to any Change in Control or Potential
Change in Control, each outstanding Award (other than a 409A Award), in each
case to the extent vested, shall be cashed out (and such Award terminated) by
paying the participant an amount equal to the excess, if any, of the “Change in
Control Price” as defined in Section 11(e) as of the date such Change in
Control or such Potential Change in Control is determined to have occurred over
the exercise price or other purchase price, if any, payable by the participant
with respect to such Award, except that n the case of  Share Appreciation
Rights, Fair Market Value shall be used rather than the Change in Control Price
for this purpose.  Subject to Section 3(c), upon any 409A Change in Control,
each outstanding 409A Award, in each case to the extent vested, shall be cashed
out (and such 409A Award terminated) by paying the participant an amount equal
to the excess, if any, of the Change in Control Price as of the date such 409A
Change in Control is determined to have occurred over the exercise price or
other purchase price, if any, payable by the participant with respect to such
409A Award.

B.         Definition of Change
in Control.  For purposes of Section 11(a), a “Change in Control” means the occurrence of any of
the following:  (i) the Board or shareholders of the Company approve a
consolidation or merger in which the Company is not the surviving corporation,
the sale of substantially all of the assets of the Company, or the liquidation
or dissolution of the Company; (ii) any person or other entity (other than the
Company or a Subsidiary or any Company employee benefit plan (including any
trustee of any such plan acting in its capacity as trustee)) purchases any
Shares (or securities convertible into Shares) pursuant to a tender or exchange
offer without the prior consent of the Board of Directors, or becomes the
beneficial owner of securities of the Company representing 20% or more of the
voting power of the Company’s outstanding securities; or (iii) during any
two-year period, individuals who at the beginning of such period constitute the
entire Board of Directors cease to constitute a majority of the Board of
Directors, unless the election or the nomination for election of each new
director is approved by at least two-thirds of the directors then still in
office who were directors at the beginning of that period.

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C.        Definition of 409A
Change in Control.  For purposes of Section 11(a), a “409A Change in Control”
means the date on which any one of the following occurs:  (i) any one person,
or more than one person acting as a group (as determined under Code Section
409A and the regulations promulgated thereunder), acquires (or has acquired
during the twelve (12) month period ending on the date of the most recent
acquisition by such person or persons) ownership of stock of the Company
possessing 30% or more of the total voting power of the stock of the Company;
or (ii) a majority of members of the Board of Directors is replaced during any
12-month period by directors whose appointment or election is not endorsed by a
majority of the members of the Board of Directors before the date of such
appointment or election; or (iii) any one person, or more than one person
acting as a group (as determined under Code Section 409A and the regulations
promulgated thereunder), acquires ownership of stock of the Company that,
together with stock held by such person or group, constitutes more than 50% of
the total fair market value or total voting power of the stock of the Company;
or (iv) any one person, or more than one person acting as a group (as
determined under Code Section 409A and the regulations thereunder), acquires
(or has acquired during the twelve (12) month period ending on the date of the
most recent acquisition by such person or persons) assets from the Company that
have a total gross fair market value equal to or more than 40% of the total
gross fair market value of all of the assets of the Company before such acquisition
or acquisitions.  For this purpose, “gross fair market value” means the value
of the assets of the Company, or the value of the assets being disposed of,
determined without regard to any liabilities associated with such assets.

D.        Definition of Potential
Change in Control.  For purposes of Section 11(a), a “Potential Change in Control” means the happening of
any one of the following:

The approval by the shareholders
of the Company of an agreement by the Company, the consummation of which would
result in a Change in Control of the Company as defined in Section 11(b); or

The
acquisition of beneficial ownership, directly or indirectly, by any entity,
person or group (other than the Company or a Subsidiary or any Company employee
benefit plan (including any trustee of any such plan acting in its capacity as
trustee)) of securities of the Company representing 5% or more of the combined
voting power of the Company’s outstanding securities and the adoption by the
Board of a resolution to the effect that a Potential Change in Control of the
Company has occurred for purposes of this Plan.

E.         Change in Control
Price.  For purposes of this Section 11, “Change in Control Price” means the highest price per
share paid in any transaction reported on the New York Stock Exchange Composite
Index (or, if the Shares are not then traded on the New York Stock Exchange,
the highest price paid as reported for any national exchange on which the
Shares are then traded) or paid or offered in any bona fide transaction related
to a Change in Control, 409A Change in Control or Potential Change in Control
of the Company, at any time during the 60-day period immediately preceding the
occurrence of the Change in Control or 409A Change of Control (or, when
applicable, the occurrence of the Potential Change in Control event), in each
case as determined by the Committee.

13.       A new Section 14 is
added to provide as follows:

XIV.    Compliance with
Section 409A of the Code.

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A.        Awards granted
under this Plan shall be designed and administered in such a manner that they
are either exempt from the application of, or comply with, the requirements of
Section 409A of the Code.   To the extent that the Board determines that any
award granted under the Plan is subject to Section 409A of the Code, the
agreement evidencing the Award shall incorporate the terms and conditions
necessary to avoid the imposition of an additional tax under Section 409A of
the Code upon a participant.  Notwithstanding any other provision of the Plan
or any evidence of Award (unless the evidence of Award provides otherwise with
specific reference to this Section), an Award shall not be granted, deferred,
accelerated, extended, paid out, settled, substituted or modified under this
Plan in a manner that would result in the imposition of an additional tax under
Section 409A of the Code upon a participant.  Although the Company intends to
administer the Plan so that awards will be exempt from, or will comply with,
the requirements of Section 409A of the Code, the Company does not warrant that
any award under the Plan will qualify for favorable tax treatment under Section
409A of the Code or any other provision of federal, state, local, or non-United
States law.  Neither the Company, its Subsidiaries, nor their respective
directors, officers, employees or advisers shall be liable to any participant
or any other person for any tax, interest, or penalties the participant might
owe as a result of the grant, holding, vesting, exercise, or payment of any
award under the Plan.  Any reference in this Plan to Section 409A of the Code
will also include the applicable proposed, temporary or final regulations, or
any other guidance, issued with respect to such Section by the U.S. Department
of the Treasury or the Internal Revenue Service.

B.         The provisions of
the Amendment made in December, 2008, are effective as of January 1, 2009,
provided that such provisions shall not apply with respect to amounts earned
and vested under the Plan prior to January 1, 2005, under provisions in effect
on October 3, 2004 (and not subsequently modified), and provided, further, that
for the period prior to January 1, 2009, the Plan shall otherwise operate based
on IRS Notice 2005-1, additional notices published by the Treasury Department
and the Internal Revenue Service providing transition, guidance, and a good
faith, reasonable interpretation of Section 409A.

                                                                        ASSOCIATED
ESTATES REALITY  CORPORATION

                                                                       
By:  /s/Jeffrey I. Friedman________________________

                                                                              
Title:  President, Chief Executive Officer

              8

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