Document:

amendres

 

AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT

between

ASSOCIATED ESTATES REALTY CORPORATION

and

NATIONAL CITY BANK,

as Rights Agent

Dated as of December 30, 2008

 

TABLE OF CONTENTS

                                                                                                                                                   Page

Section 1.     Certain Definitions........................................................................................................ 1

Section 2.     Appointment of Rights Agent........................................................................................ 6

Section 3.     Issue of Right Certificates............................................................................................. 6

Section 4.     Form of Right Certificates............................................................................................. 8

Section 5.     Countersignature and Registration................................................................................. 9

Section 6.     Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates....................................................................................................... 10

Section 7.     Exercise of Rights; Exercise Price; Expiration
Date of Rights....................................... 10

Section 8.     Cancellation and Destruction of Right
Certificates........................................................ 13

Section 9.     Reservation and Availability of Preferred
Shares......................................................... 13

Section 10.   Preferred Share Record Date..................................................................................... 14

Section 11.   Adjustment of Exercise Price, Number and Kind of
Shares or Number of Rights......... 14

Section 12.   Certificate of Adjusted Exercise Price or Number
of Shares........................................ 22

Section 13.   Consolidation, Merger or Sale or Transfer of
Assets or Earning Power........................ 22

Section 14.   Fractional Rights and Fractional Shares....................................................................... 25

Section 15.   Rights of Action......................................................................................................... 26

Section 16.   Agreement of Right Holders....................................................................................... 26

Section 17.   Right Certificate Holder Not Considered a
Shareholder.............................................. 27

Section 18.   Concerning the Rights Agent....................................................................................... 27

Section 19.   Merger or Consolidation or Change of Name of
Rights Agent..................................... 28

Section 20.   Duties of Rights Agent................................................................................................ 28

Section 21.   Change of Rights Agent.............................................................................................. 31

Section 22.   Issuance of New Right Certificates............................................................................. 32

Section 23.   Redemption............................................................................................................... 32

Section 24.   Exchange................................................................................................................... 32

Section 25.   Notice of Certain Events............................................................................................ 34

Section 26.   Notices...................................................................................................................... 34

Section 27.   Supplements and Amendments................................................................................... 36

Section 28.   Successors................................................................................................................. 36

Section 29.   Determinations and Actions by the Board of Directors................................................ 36

Section 30.   Benefits of this Agreement.......................................................................................... 36

Section 31.   Severability................................................................................................................ 37

Section 32.   Governing Law.......................................................................................................... 37

Section 33.   Counterparts.............................................................................................................. 37

Section 34.   Descriptive Headings.................................................................................................. 37

Section 35    Interpretation; Absence of Presumption...................................................................... 37

EXHIBITS

Exhibit A          Form of Certificate of Amendment to
the Second Amended and Restated Articles of Incorporation 

Exhibit B          Form of Right Certificate

Exhibit C                     Summary
of Rights to Purchase Preferred Shares

 

AMENDED AND RESTATED
SHAREHOLDER RIGHTS AGREEMENT

THIS
AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT (the “Agreement”), dated as
of December 30, 2008, is made between Associated Estates Realty Corporation, an
Ohio corporation (the “Company”), and National City Bank, a national banking
association (the “Rights Agent”).

RECITALS:

WHEREAS,
the Board of Directors of the Company (the “Board of Directors”) desires to
provide shareholders of the Company with the opportunity to benefit from the
long-term prospects and value of the Company and to ensure that shareholders of
the Company receive fair and equal treatment in the event of any proposed
takeover of the Company; 

WHEREAS,
effective as of January 6, 1999, the Board of Directors (i) authorized and
declared a dividend distribution of one Right (as defined herein) for each
Common Share (as defined herein) of the Company outstanding as of the close of
business on January 29, 1999 (the “Record Date”), and (ii) authorized the
issuance of one Right for each Common Share issued (whether originally issued
or sold from the Company’s treasury) between the Record Date and the earlier of
the Distribution Date or the Expiration Date (as defined herein), with each
Right initially representing the right to purchase one one-thousandth of a
Class B Series I Cumulative Preferred Share, without par value, of the Company
having the rights, powers and preferences set forth in the Company’s Second
Amended and Restated Articles of Incorporation, as amended, and in Exhibit A
hereto, upon the terms and subject to the conditions hereinafter set forth (the
“Rights”); 

WHEREAS,
the Company and the Rights Agent had previously entered into the Shareholders
Rights Agreement, dated January 6, 1999, between the Company and the Rights
Agent (the “Prior Agreement”); 

WHEREAS,
the Board of Directors has determined that it is in the best interests of the
Company and its shareholders to amend and restate the Prior Agreement, and the
Rights Agent has agreed to the amendment and restatement of the Prior
Agreement, as set forth herein; and

WHEREAS,
the Company has determined that, pursuant to Section 27 of the Prior Agreement,
the Prior Agreement may be amended and restated as set forth herein without the
approval of the holders of the Rights.

NOW,
THEREFORE, in consideration of the premises and the agreements herein set
forth, the parties hereby agree as follows:

Section
1.         Certain Definitions. For purposes of this Agreement, the following terms
have the meanings indicated:

                                                                                                                                                                                                    
Page 1

 

(a)        “Acquiring
Person” means any Person (as defined herein) who, together with all Affiliates
(as defined herein) and Associates (as defined herein) of such Person, is the
Beneficial Owner (as defined herein) of 15% or more of the Common Shares then
outstanding, but does not include (i) the Company, (ii) any Subsidiary (as
defined herein) of the Company, (iii) any employee benefit plan or compensation
arrangement of the Company or of any Subsidiary of the Company or (iv) any
Person holding Common Shares organized, appointed or established by the Company
or by any Subsidiary of the Company for or pursuant to the terms of any
employee benefit plan or compensation arrangement described in Section
1(a)(iii) (the Persons described in clauses (i) through (iv) above are referred
to herein as “Exempt Persons”).

Notwithstanding
the foregoing, no Person will become an “Acquiring Person” as a result of an
acquisition by the Company of Common Shares that, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person from below 15% to 15% or more of the Common Shares then
outstanding; however, if a Person becomes a Beneficial Owner of 15% or more of
the Common Shares then outstanding by reason of share purchases by the Company
and, after those share purchases are made, becomes the Beneficial Owner of any
additional Common Shares (other than pursuant to a share split, share dividend
or similar transaction) and immediately thereafter is the Beneficial Owner of
15% or more of the Common Shares then outstanding, then that Person will be an
“Acquiring Person.”

In
addition, notwithstanding the foregoing, a Person is not an “Acquiring Person”
if the Board of Directors determines that a Person who would otherwise be an
“Acquiring Person,” inadvertently acquired the Common Shares that would
otherwise make the Person an “Acquiring Person,” if that Person as promptly as
practicable divests a sufficient number of Common Shares so that that Person is
a Beneficial Owner of less than 15% of the Common Shares.

(b)       “Adjustment
Shares” has the meaning set forth in Section 11(a)(ii).

(c)        “Affiliate”
and “Associate” have the respective meanings ascribed to those terms in Rule
12b-2 of the General Rules and Regulations (the “Rules”) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), as in effect on the date
of this Agreement, but no Person who is a director or officer of the Company
will be considered an Affiliate or an Associate of any other director or
officer of the Company solely as a result of his or her position as a director
or officer of the Company.

(d)       A
Person is the “Beneficial Owner” of, and is considered to “beneficially own,”
any securities:

(i)         which that Person or any of that Person’s
Affiliates or Associates, directly or indirectly, beneficially owns, or is
deemed to beneficially own, as determined pursuant to Rule 13d-3 of the Rules
under the Exchange Act, as in effect on the date of this Agreement;

                                                                                                                                                                                                Page
2

 

(ii)        which that Person or any of that Person’s
Affiliates or Associates, directly or indirectly, has:

(A)       the right to acquire (whether that right is
exercisable immediately or only after the passage of time or upon the
satisfaction of any conditions or both) pursuant to any agreement, arrangement
or understanding (whether or not in writing) (other than customary agreements
with and between underwriters and selling group members with respect to a bona
fide public offering of securities) or upon the exercise of conversion rights,
exchange rights, rights (other than the Rights), warrants, options, or
otherwise; however, a Person will not be considered the “Beneficial Owner” of,
or to “beneficially own,” (1) securities tendered pursuant to a tender or
exchange offer made by or on behalf of that Person or by or on behalf of any of
that Person’s Affiliates or Associates until those tendered securities are
accepted for purchase or exchange; (2) securities issuable upon exercise of
Rights at any time prior to the occurrence of a Triggering Event; or (3)
securities issuable upon exercise of Rights from and after the occurrence of a
Triggering Event, which Rights were acquired by that Person or by any of that
Person’s Affiliates or Associates prior to the Distribution Date or pursuant to
Section 3(a), Section 11(i) or Section 22; or

(B)       the right to vote pursuant to any agreement,
arrangement or understanding (whether or not in writing); provided, however,
that a Person shall not be deemed the “Beneficial Owner” of, or to
“beneficially own,” any security under this clause (B) if the agreement,
arrangement or understanding to vote that security (1) arises solely from a
revocable proxy given in response to a public proxy or consent solicitation
made pursuant to, and in accordance with, the Rules under the Exchange Act, and
(2) is not also then reportable by that Person on Schedule 13D under the Exchange
Act (or any comparable or successor report); or

            (C)       the right to dispose of pursuant
to any agreement, arrangement or understanding (whether or not in writing)
(other than customary arrangements with and between underwriters and selling
group members with respect to a bona fide public offering of securities); 

                                                                                                                                                                                                Page
3

 

(iii)       which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate thereof) with
which that Person or any of that Person’s Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in writing) (other than
customary agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities) for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy as described
in Section 1 (d)(ii)(B)) or disposing of any securities of the Company;
however, (1) no Person engaged in business as an underwriter of securities will
be considered the Beneficial Owner of any securities acquired through that
Person’s participation as an underwriter in good faith in a firm commitment
underwriting until the expiration of 40 days after the date of that
acquisition, and (2) no Person who is a director or an officer of the Company will
be considered, as a result of his or her position as director or officer of the
Company, the Beneficial Owner of any securities of the Company that are
beneficially owned by any Exempt Person or by any other director or officer of
the Company; or

                            (iv)       which are the subject of a
derivative transaction entered into by that Person to which the Company is not
a party, or a derivative security not issued by the Company acquired by that
Person, that:

              (A) gives that Person the economic
equivalent of ownership of Common Shares because the value of the derivative is
explicitly determined by reference to the price or value of Common Shares,
without regard to whether (1) such derivative conveys any voting rights in
Common Shares to such Person, (2) the derivative is required to be, or capable
of being, settled through delivery of Common Shares, or (3) such Person may
have entered into other transactions that hedge the economic effect of such
derivative;  and (B) is reported, or required to be reported, in a filing by
that Person or any of that Person’s Affiliates or Associates with the
Securities and Exchange Commission pursuant to Regulation 13D-G of Regulation
14D under the Exchange Act in respect of which Common Shares are the “subject
security” (as that term is described in those Regulations).  The number of
Common Shares deemed beneficially owned will be the notional or other number of
Common Shares specified in the documentation evidencing the derivative position
as being subject to be acquired upon the exercise or settlement of the
applicable right or as the basis upon which the value or settlement amount of
such right, or the opportunity of the holder of such right to profit or share
in any profit, is to be calculated in whole or in part or, if no such number of
Common Shares is specified in such documentation, as determined by the Board of
Directors in good faith to be the number of Common Shares to which the
derivative position relates.

            Notwithstanding anything in this
definition of Beneficial Ownership to the contrary, the phase “then
outstanding,” when used with reference to a Person’s Beneficial Ownership of
securities of the Company, shall mean the number of such securities then issued
and outstanding together with the number of such securities not then actually
issued and outstanding which such Person would be deemed to own beneficially
hereunder.

(e)        “Business
Day” means any day other than a Saturday, a Sunday, or a day on which banking
institutions in the City of Cleveland, Ohio or the City of New York, New York
are authorized or obligated by law or executive order to close.

(f)         “Close
of Business” on any date means 5:00 P.M., Cleveland, Ohio time, on that date,
but if that date is not a Business Day, it means 5:00 P.M., Cleveland, Ohio
time, on the next succeeding Business Day.

(g)        “Common
Shares” means the Common Shares, without par value, of the Company or any other
shares of capital stock of the Company into which the Common Shares are
reclassified or changed. 

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4

 

(h)        “Common
Stock,” when used with reference to any Person other than the Company organized
in corporate form, means: (i) the capital stock or other equity interest in
that Person with the greatest voting power, (ii) the equity securities or other
equity interest having power to control or direct the management of that
Person, or (iii) if that Person is a Subsidiary of another Person, the capital
stock, equity securities or equity interest described in clauses (i) and (ii)
in the Person or Persons which ultimately control the first-mentioned Person
and which have outstanding any such capital stock, equity securities or equity
interest; “Common Stock,” when used with reference to any Person not organized
in corporate form, means units of beneficial interest that (x) represent the
right to participate generally in the profits and losses of that Person
(including without limitation any flow-through tax benefits resulting from an
ownership interest in that Person) and (y) are entitled to exercise the
greatest voting power of that Person or, in the case of a limited partnership,
have the power to remove or otherwise replace the general partner or partners.

(i)         “Current
Value” has the meaning set forth in Section 1l(a)(iii).

(j)         “Distribution
Date” has the meaning set forth in Section 3(a).

(k)        “Exercise
Price” has the meaning set forth in Section 4(a).

(l)         “Expiration
Date” and “Final Expiration Date” have the respective meanings set forth in
Section 7(a).

(m)       “Fair
Market Value” means the value of any securities or other property determined in
accordance with Section 11(d).

(n)        “Person”
means any individual, corporation, partnership, limited liability company,
joint venture, association, joint stock company, trust, business trust,
government or political subdivision, unincorporated organization, or any other
association or entity, and includes, without limitation, an unincorporated
group of persons who, by formal or informal agreement, have taken any action
with a common purpose, as well as any syndicate or group that may be considered
a single “person” under Section 14(d)(2) of the Exchange Act.

(o)        “Preferred
Shares” means the Class B Series I Cumulative Preferred Shares, without par
value, of the Company having the rights and preferences set forth in the
Exhibit A.

(p)        “Preferred
Share Equivalents” has the meaning set forth in Section 11(b).

(q)        “Principal
Party” has the meaning set forth in Section 13(b).

(r)         “Redemption
Price” has the meaning set forth in Section 23. 

(s)        “Section
11(a)(ii) Event” has the meaning set forth in Section 11(a)(ii).

                                                                                                                                                                                                Page
5

 

            (t)         “Section
11(a)(ii) Trigger Date” has the meaning set forth in Section 11(a)(iii).

(u)        “Section
13 Event” means any event described in clause (x), (y) or (z) of Section 13(a).

(v)        “Share
Acquisition Date” means the date of the first public announcement (which for
purposes of this definition includes, without limitation, the issuance of a
press release or the filing of a publicly-available report or other document
with the Securities and Exchange Commission or any other governmental agency)
that a Person has become an Acquiring Person, whether that public announcement
is made by the Company or otherwise.

(w)      
“Spread” has the meaning set forth in Section 1l(a)(iii).

(x)        “Subsidiary”
of any Person means each entity of which that Person is the direct or indirect general
partner or as to which that Person, directly or through one or more
intermediary entities or Persons, has the right, in the absence of any
contingencies, to elect a majority of the board of directors or other governing
body or as to which that Person has the right to receive 50% or more of the
economic value of any business or other activity in which that entity is
engaged.

(y)        “Substitution
Period” has the meaning set forth in Section 11(a)(iii).

                        (z)        “Triggering
Event” means any Section 11(a)(ii) Event or any Section 13 Event.

Section
2.         Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act
as agent for the Company and the holders of the Rights (who, in accordance with
Section 3 are, prior to the Distribution Date, also the holders of the Common
Shares) in accordance with the terms and conditions set forth herein, and the
Rights Agent hereby accepts such appointment. The Company may from time to time
appoint such Co-Rights Agents as it may deem necessary or desirable. If the
Company appoints one or more Co-Rights Agents, the respective duties of the
Rights Agent and any Co-Rights Agents will be as the Company determines, subject to the
terms of this Agreement.  The Company shall give ten days’ prior written notice
to the Rights Agent of the appointment of one or more Co-Rights Agents and the
respective duties of the Rights Agent and any such Co-Rights Agents.  The
Rights Agent shall have no duty to supervise, and shall in no event be liable
for, the acts or omissions of any such Co-Rights Agent.  

Section
3.         Issue of Right Certificates.

                                                                                                                                                                                                Page
6

 

                        (a)        From
the date of this Agreement until the earlier of (i) the Close of Business on
the tenth calendar day after the Share Acquisition Date, or (ii) the Close of
Business on the tenth Business Day after the date a tender or exchange offer by
any Person, other than an Exempt Person, is first “published or sent or given”
within the meaning of Rule 14d-4(a) of the Exchange Act, or any successor rule,
if, upon consummation thereof, that Person would be the Beneficial Owner of 15%
or more of the Common Shares then outstanding (including any date after the
date of this Agreement and prior to the issuance of the Rights) (the earliest
of (i) and (ii), the “Distribution Date”): (x) the Rights will be evidenced
(subject to Section 3(b)) by the certificates for the Common Shares registered
in the names of the holders of the Common Shares (which certificates for Common
Shares will be considered also to be certificates for Rights) and not by
separate certificates, and (y) the Rights will be transferable only in
connection with the transfer of the underlying Common Shares. As soon as
practicable after the Distribution Date, the Rights Agent will, at the
Company’s expense, send by first-class, insured, postage prepaid mail, to each
record holder of the Common Shares as of the Close of Business on the
Distribution Date, at the address of such holder shown on the records of the
Company or the Company’s transfer agent, one or more certificates, in
substantially the form of Exhibit B (the “Right Certificates”), evidencing one
Right for each Common Share of the Company so held, subject to adjustment as
provided herein.  If an adjustment in the number of Rights per Common Share of
the Company has been made pursuant to Section 11(o), the Company may make the
necessary and appropriate rounding adjustments (in accordance with Section
14(a)) at the time of distribution of the Right Certificates, so that Right
Certificates representing only whole numbers of Rights are distributed and cash
is paid in lieu of any fractional Rights. After the Close of Business on the
Distribution Date, the Rights will be evidenced solely by such Right
Certificates.

(b)        With
respect to certificates for the Common Shares issued prior to the Close of
Business on the Record Date, the Rights will be evidenced by those certificates
for the Common Shares on or until the Distribution Date (or the earlier
redemption, expiration or termination of the Rights), and the registered
holders of the Common Shares shall also be the registered holders of the
associated Rights. Until the Distribution Date (or the earlier redemption,
expiration or termination of the Rights), the transfer of any of the
certificates for the Common Shares outstanding prior to the close of business
on the date of this Agreement will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate.

(c)        As
promptly as practicable following the Record Date, the Company will send a copy
of a Summary of Rights to Purchase Preferred Shares in substantially the form
of Exhibit C to each record holder of Common Shares as of the Close of Business
on the Record Date, at the address of such holder shown on the records of the
Company.

(d)        Certificates
for all Common Shares issued after the Record Date, but prior to the earlier of
the Distribution Date or the redemption, expiration or termination of the
Rights, will be considered also to be certificates for Rights, and will bear a
legend (in addition to any other legends required by law or by the Company’s
governing documents), substantially in the form set forth below:

                                                                                                                                                                                                Page
7

 

This
certificate also evidences and entitles the holder hereof to certain Rights as
set forth in an Amended and Restated Shareholder Rights Agreement between
Associated Estates Realty Corporation, an Ohio corporation (the “Company”), and
National City Bank, a national banking association, as rights agent (the
“Rights Agent”), dated as of December 30, 2008 (as amended, supplemented or
otherwise modified from time to time, the
“Rights Agreement”), the terms of which are incorporated by reference herein
and a copy of which is on file at the principal offices of the Company and the
stock transfer administration office of the Rights Agent.  The Company will
mail a copy of the Rights Agreement without charge to the holder of this
certificate within five days after receipt of a written request therefor. 
Under certain circumstances, as set forth in the Rights Agreement, the Rights
will be evidenced by separate certificates and will no longer be evidenced by
this certificate. The Company may redeem the Rights at a redemption price of
$0.01 per Right, subject to adjustment, under the terms of the Rights
Agreement. Under certain circumstances, Rights issued to or held by Acquiring
Persons or by any Affiliates or Associates thereof (as defined in the Rights Agreement),
and any subsequent holder of such Rights, may become null and void. The Rights
are not exercisable, and are void so long as held, by a holder in any
jurisdiction where the requisite qualification to the issuance to such holder,
or the exercise by such holder, of the Rights in such jurisdiction has not been
obtained.

The Rights associated with
the Common Shares represented by certificates containing the foregoing legend
will be evidenced by those certificates alone until the Distribution Date (or the
earlier redemption, expiration or termination of the Rights), and the transfer
of any of those certificates will also constitute the transfer of the Rights
associated with the Common Shares represented by those certificates. If the
Company purchases or acquires any Common Shares after the Record Date but prior
to the Distribution Date, any Rights associated with those Common Shares will
be considered canceled and retired so that the Company is not entitled to
exercise any Rights associated with the Common Shares that are no longer
outstanding. The failure to print the foregoing legend on any certificate
representing Common Shares or any defect therein will not affect in any manner
whatsoever the application or interpretation of Section 7(e).

Section 4.         Form of Right Certificates.

(a)        The Right Certificates (and the forms of
election to purchase shares and of assignment and certificate to be printed on
the reverse of such certificates) will be substantially in the form of Exhibit
B hereto and may have any marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may consider
appropriate and as are not inconsistent with this Agreement, or as may be
required to comply with any applicable law, rule or regulation or with any rule
or regulation of any stock exchange on which the Rights may from time to time
be listed, or to conform to customary usage. The Right Certificates will be in
a machine printable format and in a form reasonably satisfactory to the Rights
Agent. Subject to Sections 11 and 22, the Right Certificates, whenever
distributed, will be dated as of the Record Date, will show the date of
countersignature, and on their face will entitle the holders thereof to
purchase such number of one-thousandths of a Preferred Share as are set forth
therein at the price set forth therein (the “Exercise Price”), but the number
of such shares and the Exercise Price are subject to adjustment as provided herein.

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8

 

(b)        Any
Right Certificate issued pursuant to Section 3(a) or Section 22  that
represents Rights beneficially owned by (i) an Acquiring Person or any
Associate or Affiliate of an Acquiring Person, (ii) a transferee of an
Acquiring Person (or of any Associate or Affiliate of an Acquiring Person) who
becomes a transferee after the Acquiring Person becomes such, or (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person
becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person to holders of
equity interests in such Acquiring Person or to any Person with whom the
Acquiring Person has any continuing agreement, arrangement or understanding
(whether or not in writing) regarding the transferred Rights, the Common Shares
associated with such Rights or the Company or (B) a transfer that the Board of
Directors, in its sole discretion, has determined is part of a plan,
arrangement or understanding that has as a primary purpose or effect the
avoidance of Section 7(e); and any Right Certificate issued pursuant to Section
6, Section 11 or Section 22 upon transfer, exchange, replacement or adjustment
of any other Right Certificate referred to in this sentence, will have deleted
therefrom the second sentence of the existing legend on such Right Certificate
and in substitution therefor will contain the following legend:

The
Rights represented by this Right Certificate are or were beneficially owned by
a Person who was or became an Acquiring Person or an Affiliate or an Associate
of an Acquiring Person (as those terms are defined in the Rights Agreement).
This Right Certificate and the Rights represented hereby may become null and
void under certain circumstances as specified in Section 7(e) of the Rights
Agreement.

The Company shall give notice
to the Rights Agent promptly after it becomes aware of the existence and
identity of any Acquiring Person or any Associate or Affiliate thereof. The
Company shall instruct the Rights Agent in writing of the Rights that should be
so legended. The failure to print the foregoing legend on any such Right
Certificate or any defect therein will not affect in any manner whatsoever the
application or interpretation of the provisions of Section 7(e).

Section
5.         Countersignature and Registration.

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9

 

(a)        The
Right Certificates will be executed on behalf of the Company by its Chairman of
the Board of Directors, or its President or any Vice President and by its
Treasurer or any Assistant Treasurer, or by its Secretary or any Assistant
Secretary, either manually or by facsimile signature.  The Right Certificates
will be manually countersigned by an authorized signatory of the Rights Agent
and will not be valid for any purpose unless so countersigned, and such
countersignature upon any Right Certificate will be conclusive evidence, and
the only evidence, that such Right Certificate has been duly countersigned as
required hereunder. In case any officer of the Company who has signed any of
the Right Certificates ceases to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
those Right Certificates, nevertheless, may be countersigned by an authorized
signatory of the Rights Agent, and issued and delivered by the Company with the
same force and effect as though the person who signed such Right Certificates
had not ceased to be a proper officer of the Company; and any Right
Certificates may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Right Certificate, is a proper officer of
the Company to sign such Right Certificate, although at the date of the
execution of this Agreement was not a proper officer of the Company.

(b)        Following
the Distribution Date, the Rights Agent will keep or cause to be kept, at one
of its offices designated as the appropriate place for surrender of Right
Certificates upon exercise or transfer, books for registration and transfer of
the Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.

Section
6.         Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.

(a)        Subject
to Section 4(b), Section 7(e) and Section 14, at any time after the Close of
Business on the Distribution Date, and at or prior to the Close of Business on
the Expiration Date, any Right Certificate or Certificates may be transferred,
split up, combined or exchanged for another Right Certificate or Certificates,
entitling the registered holder to purchase a like number of one-thousandths of
a Preferred Share (or following a Triggering Event, Preferred Shares, Common
Shares, cash, property, equity securities, debt securities, or any combination
thereof) as the Right Certificate or Certificates surrendered then entitled
such holder to purchase and at the same Exercise Price. Any registered holder
desiring to transfer, split up, combine or exchange any Right Certificate shall
make such request in writing delivered to the Rights Agent, and shall surrender
the Right Certificate or Certificates to be transferred, split up, combined or
exchanged, with the form of assignment and certificate duly executed, at the
office or offices of the Rights Agent designated for that purpose. Neither the
Rights Agent nor the Company is obligated to take any action whatsoever with
respect to the transfer of any such surrendered Right Certificate until the
registered holder has completed and signed the certificate contained in the
form of assignment on the reverse side of that Right Certificate and has
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
reasonably requests. Thereupon the Rights Agent shall, subject to Section 4(b),
Section 7(e) and Section 14, countersign and deliver to the Person entitled
thereto a Right Certificate or Certificates, as the case may be, as so
requested. The Company may require payment by the registered holder of a Right
Certificate of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer, split up, combination or
exchange of Right Certificates.

(b)       Upon
receipt by the Company and the Rights Agent of evidence reasonably satisfactory
to them of the loss, theft, destruction or mutilation of a Right Certificate,
and, in case of loss, theft or destruction, of indemnity or security
satisfactory to them, and reimbursement to the Company and the Rights Agent of
all reasonable expenses incidental thereto, and upon surrender to the Rights
Agent and cancellation of the Right Certificate, if mutilated, the Company will
execute and deliver a new Right Certificate of like tenor to the Rights Agent
for countersignature and delivery to the registered owner in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.

Section
7.         Exercise of Rights; Exercise Price; Expiration Date of Rights.

                                                                                                                                                                                                Page
10

 

(a)        Subject
to Section 7(e), the registered holder of any Right Certificate may exercise
the Rights evidenced thereby (except as otherwise provided herein) in whole or
in part at any time after the Distribution Date upon surrender of the Right
Certificate, with the form of election to purchase and the certificate on the
reverse side thereof duly executed, to the Rights Agent at the office or
offices of the Rights Agent designated for such purpose, together with payment
of the aggregate Exercise Price for the total number of one one-thousandths of
a Preferred Share (or other securities, cash or other assets, as the case may
be) for which the surrendered Rights are then exercised, at or prior to the
earlier of (i) the Close of Business on December 30, 2018 (the “Final Expiration
Date”), (ii) the time at which the Rights are redeemed in accordance with
Section 23, and (iii) the time at which such Rights are exchanged in accordance
with Section 24 (the earlier of (i), (ii) and (iii), the “Expiration Date”).
Except as set forth in Section 7(e)  and notwithstanding any other provision
(except Section 7(e)) of this Agreement, any Person who prior to the
Distribution Date becomes a record holder of Common Shares may exercise all of
the rights of a registered holder of a Right Certificate with respect to the
Rights associated with such Common Shares in accordance with the provisions of
this Agreement, as of the date such Person becomes a record holder of Common
Shares.

(b)       The
Exercise Price for each one one-thousandth of a Preferred Share that can be
purchased upon the exercise of a Right is initially $40.00, is subject to
adjustment from time to time as provided in Section 11 and Section 13, and is
payable in lawful money of the United States of America in accordance with
Section 7(c) below.

                                                                                                                                                                                                Page
11

 

(c)        As
promptly as practicable following the Distribution Date, the Company shall
deposit with a corporation, trust, bank or similar institution in good standing
organized under the laws of the United States of America or any State of the
United States of America, that is authorized under such laws to exercise
corporate trust or stock transfer powers and is subject to supervision or
examination by a federal or state authority (such institution is hereinafter
referred to as the “Depositary Agent”), certificates representing the Preferred
Shares that may be acquired upon exercise of the Rights, and the Company shall
cause such Depositary Agent to enter into an agreement pursuant to which the
Depositary Agent shall issue receipts representing interests in the Preferred
Shares so deposited. Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase and the certificate
on the reverse side thereof duly executed, accompanied by payment of the
Exercise Price for the shares to be purchased and an amount equal to any
applicable transfer tax (as determined by the Rights Agent) in cash, or by
certified check or bank draft payable to the order of the Company, the Rights
Agent shall, subject to Section 20(k), thereupon promptly (i) requisition from
the Depositary Agent (or make available, if the Rights Agent is the Depository
Agent) depository receipts or certificates for the number of one
one-thousandths of a Preferred Share to be purchased and the Company hereby irrevocably
authorizes the Depositary Agent to comply with all such requests, (ii)
requisition from the Company the amount of cash, if any, to be paid in lieu of
issuance of fractional shares in accordance with Section 14, (iii) promptly
after receipt of such certificates or depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder, and (iv) after receipt promptly deliver such cash to or upon the order
of the registered holder of such Right Certificate. If the Company is obligated
to issue other securities (including Common Shares) of the Company, pay cash or
distribute other property pursuant to Section 11(a), the Company will make all
arrangements necessary so that such other securities, cash or other property
are available for distribution by the Rights Agent, if and when appropriate.
The payment of the Exercise Price may be made in cash or by certified or bank
check payable to the order of the Company, or by wire transfer of immediately
available funds to the account of the Company (if notice of such wire transfer
is given to the Rights Agent by the holder of the related Right).

(d)        If
the registered holder of any Right Certificate exercises less than all the
Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent
to the Rights remaining unexercised will be issued by the Rights Agent and
delivered to the registered holder of such Right Certificate or to his duly
authorized assigns, subject to Section 14.

(e)        Notwithstanding
anything in this Agreement to the contrary, from and after the first occurrence
of a Section 11(a)(ii) Event or Section 13 Event, any Rights beneficially owned
by (i) an Acquiring Person or any Associate or Affiliate of an Acquiring
Person, (ii) a transferee of an Acquiring Person (or of any Associate or
Affiliate of an Acquiring Person) who becomes a transferee after the Acquiring
Person becomes such, or (iii) a transferee of an Acquiring Person (or of any
Associate or Affiliate of an Acquiring Person) who becomes a transferee prior
to or concurrently with the Acquiring Person becoming an Acquiring Person and
receives those Rights pursuant to either (A) a transfer (whether or not for consideration)
from the Acquiring Person to holders of equity interests in that Acquiring
Person or to any Person with whom the Acquiring Person has any continuing
agreement, arrangement or understanding regarding the transferred Rights, the
Common Shares associated with such Rights or the Company, or (B) a transfer
that the Board of Directors, in its sole discretion, has determined is part of
a plan, arrangement or understanding which has as a primary purpose or effect
the avoidance of this Section 7(e), will be null and void without any further
action and no holder of such Rights will have any rights whatsoever with
respect to such Rights, whether under any provision of this Agreement or
otherwise. The Company will use all reasonable efforts to ensure that the
provisions of this Section 7(e) and Section 4(b)  are complied with, but will
have no liability to any holder of Right Certificates or other Person as a
result of its failure to make any determination with respect to an Acquiring
Person or any Affiliate or Associate of an Acquiring Person or any transferee
of any of them hereunder.

(f)         Notwithstanding
anything in this Agreement to the contrary, neither the Rights Agent nor the
Company is obligated to undertake any action with respect to a registered holder
of Rights upon the occurrence of any purported exercise as set forth in this
Section 7 unless such registered holder has (i) completed and signed the
certificate contained in the form of election to purchase set forth on the
reverse side of the Right Certificate surrendered for such exercise, and (ii)
provided all additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request.

                                                                                                                                                                                                Page
12

 

Section
8.         Cancellation and Destruction of Right Certificates. All Right Certificates surrendered for the purpose
of exercise, transfer, split up, combination or exchange will, if surrendered
to the Company or any of its agents, be delivered to the Rights Agent for
cancellation or in canceled form, or, if surrendered to the Rights Agent, will
be canceled by it, and no Right Certificates will be issued in lieu thereof
except as expressly permitted by any provision of this Agreement. The Company
shall deliver to the Rights Agent for cancellation and retirement, and the
Rights Agent shall so cancel and retire, any other Right Certificate purchased
or acquired by the Company otherwise than upon the exercise thereof. The Rights
Agent shall deliver all canceled Right Certificates to the Company.

Section
9.         Reservation and Availability of Preferred Shares.

(a)        The
Company shall cause to be reserved and kept available out of its authorized and
unissued Preferred Shares or any authorized and issued Preferred Shares held in
its treasury, a number of Preferred Shares that will be sufficient to permit
the exercise in full of all outstanding and exercisable Rights. Upon the
occurrence of any event resulting in an increase in the aggregate number of
Preferred Shares issuable upon exercise of all outstanding Rights in excess of
the number then reserved, the Company shall make appropriate increases in the
number of Preferred Shares so reserved.

(b)        The
Company shall use its best efforts to cause, from and after such time as the
Rights become exercisable, all Preferred Shares issued or reserved for issuance
to be listed, upon official notice of issuance, upon the principal national
securities exchange, if any, upon which the Common Shares are listed or, if the
principal market for the Common Shares is not any national securities exchange,
to be eligible for quotation in a quotation system.

(c)        The
Company shall use its best efforts to (i) file, as soon as practicable
following the earliest date after the occurrence of a Section 11(a)(ii) Event
on which the consideration to be delivered by the Company upon exercise of the
Rights has been determined in accordance with Section 11(a)(iii), or as soon as
required by law following the Distribution Date, as the case may be, a
registration statement under the Securities Act of 1933, as amended (the
“Securities Act”), with respect to the securities purchasable upon exercise of
the Rights on an appropriate form, (ii) cause that registration statement to
become effective as soon as practicable after such filing, and (iii) cause that
registration statement to remain effective (with a prospectus that at all times
meets the requirements of the Securities Act) until the earlier of (A) the date
as of which the Rights are no longer exercisable for such securities, or (B)
the Expiration Date. The Company will also take any action that is appropriate
to ensure compliance with the securities or “blue sky” laws of the various
states in connection with the exercisability of the Rights. The Company may
temporarily suspend, for a period of time not to exceed ninety (90) days after
the date determined in accordance with the first sentence of this Section 9(c),
the exercisability of the Rights in order to prepare and file such registration
statement and permit it to become effective. Upon such suspension, the Company
shall issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended, as well as a public announcement when the
suspension is no longer in effect, in each case with prompt written notice to
the Rights Agent. Notwithstanding any provision of this Agreement to the contrary,
the Rights are not exercisable in any jurisdiction unless the requisite
qualification in that jurisdiction has been obtained.

                                                                                                                                                                                                Page
13

 

(d)        The
Company shall take all actions as may be necessary to ensure that all Preferred
Shares delivered upon the exercise of the Rights are, at the time of delivery
of the certificates or depositary receipts for such shares (subject to payment
of the Exercise Price), duly issued, validly authorized, fully paid and
nonassessable.

(e)        The
Company shall pay when due and payable any and all federal and state transfer
taxes and charges that may be payable in respect of the issuance or delivery of
the Right Certificates or of any certificates for Preferred Shares upon the
exercise of Rights. The Company is not, however, required to pay any transfer
tax that may be payable in respect of any transfer or delivery of Right
Certificates to a person other than, or in respect of the issuance or delivery
of securities in a name other than that of, the registered holder of the Right
Certificates evidencing Rights surrendered for exercise or to issue or deliver
any certificates for securities in a name other than that of the registered
holder upon the exercise of any Rights until such tax has been paid (any such
tax being payable by the holder of such Right Certificate at the time of
surrender) or until it has been established to the Company’s satisfaction that
no such tax is due.

Section
10.       Preferred Share Record Date. Each Person in whose name any certificate for
Preferred Shares is issued upon the exercise of Rights will for all purposes be
considered to have become the holder of record of the Preferred Shares
represented thereby on, and that certificate will be dated, the date upon which
the Right Certificate evidencing those Rights was duly surrendered and payment
of the Exercise Price (and any applicable transfer taxes) was made; however, if
the date of that surrender and payment is a date upon which the Preferred Share
transfer books of the Company are closed, that Person will be considered to
have become the record holder of such shares on, and that certificate will be
dated, the next succeeding Business Day on which the Preferred Share transfer
books of the Company are open, but if delivery of Preferred Shares is delayed
pursuant to Section 9(c), that Person will be considered to have become the
record holder of those Preferred Shares only when those shares first become
deliverable. Prior to the exercise of the Right evidenced thereby, the holder
of a Right Certificate is not entitled to any rights of a shareholder of the
Company with respect to shares for which the Rights are exercisable, including,
without limitation, the right to vote, to receive dividends or other distributions
or to exercise any preemptive rights, and will not be entitled to receive any
notice of any proceedings of the Company, except as provided herein.

Section
11.       Adjustment of Exercise Price, Number and Kind of Shares or Number
of Rights. The Exercise Price, the number and kind of shares
covered by each Right, and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.

                                                                                                                                                                                                Page
14

 

            (a)(i)     If
the Company at any time after the date of this Agreement (A) declares a
dividend on the Preferred Shares payable in Preferred Shares, (B) subdivides
the outstanding Preferred Shares, (C) combines the outstanding Preferred Shares
into a smaller number of shares or (D) issues any shares of its capital stock
in a reclassification of the Preferred Shares (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), except as otherwise
provided in this Section 11(a) and Section 7(e), the Exercise Price in effect
at the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification, and the number and kind of
shares of capital stock issuable on such date, shall be proportionately
adjusted so that the holder of any Right exercised after such time shall be
entitled to receive the aggregate number and kind of shares of capital stock
which, if such Right had been exercised immediately prior to such date and at a
time when the Preferred Share transfer books of the Company were open, such
holder would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification, but in
no event may the consideration to be paid upon the exercise of a Right be less
than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of the Right. If an event occurs that would require an
adjustment under both Section 11(a)(i) and Section 11(a)(ii), the adjustment
provided for in this Section 11(a)(i) will be in addition to, and will be made
prior to, any adjustment required pursuant to Section 11(a)(ii).

            (ii)        Subject
to Section 24, if any Person, alone or together with its Affiliates and
Associates, becomes an Acquiring Person (a “Section 11(a)(ii) Event”), then
promptly following that occurrence, proper provision shall be made so that each
holder of a Right, except as provided in Section 7(e), thereafter has a right
to receive, upon exercise thereof at the then current Exercise Price in
accordance with this Agreement, such number of Preferred Shares of the Company
as equals the result obtained by (x) multiplying the then current Exercise
Price by the number of one one-thousandths of a Preferred Share for which a
Right was exercisable immediately prior to the first occurrence of a Section
11(a)(ii) Event, whether or not such Right was then exercisable, and dividing
that product by (y) 50% of the Fair Market Value (as defined herein) of one
one-thousandth of a Preferred Share  (determined in accordance with Section
11(d)) on the date of the occurrence of that Section 11(a)(ii) Event (such
number of shares being referred to as the “Adjustment Shares”).

                                                                                                                                                                                                Page
15

 

            (iii)       In
lieu of issuing any Preferred Shares in accordance with Section 11(a)(ii), the
Company, acting by resolution of the Board of Directors, may, and if the number
of Preferred Shares which are authorized by the Company’s Second Amended and
Restated Articles of Incorporation, as amended (or other instrument governing
its corporate affairs), but not outstanding or reserved for issuance for
purposes other than upon exercise of the Rights is not sufficient to permit the
exercise in full of the Rights in accordance with the foregoing subparagraph
(ii) of this Section 11(a), the Company, acting by resolution of the Board of
Directors, shall: (A) determine the excess of (X) the value of the Adjustment
Shares issuable upon the exercise of a Right (the “Current Value”) over (Y) the
Exercise Price attributable to each Right (such excess being referred to as the
“Spread”) and (B) with respect to all or a portion of each Right (subject to
Section 7(e)), make adequate provision to substitute for the Adjustment Shares,
upon payment of the applicable Exercise Price, (1) cash, (2) a reduction in the
Exercise Price, (3) Preferred Share Equivalents which the Board of Directors
has deemed to have the same value as Preferred Shares, (4) debt securities of
the Company, (5) other assets of the Company or (6) any combination of the
foregoing which, when added to any Preferred Shares issued upon such exercise,
has an aggregate value equal to Current Value, with such aggregate value
determined by the Board of Directors based upon the advice of a nationally
recognized investment banking firm selected by the Board of Directors; but if
the Company has not made adequate provision to deliver the value determined in
accordance with clause (B) above within 30 days following the later of (x) the
first occurrence of a Section 11(a)(ii) Event and (y) the date on which the
Company’s right of redemption pursuant to Section 23(a) expires (the later of
(x) and (y) being referred to herein as the “Section 11(a)(ii) Trigger Date”),
then the Company shall deliver, upon surrender of a Right for exercise and
without requiring payment of the Exercise Price, Preferred Shares (to the
extent available) and then, if necessary, cash, which shares and cash have an
aggregate value equal to the Spread. If the Board of Directors determines in
good faith that it is likely that sufficient additional Preferred Shares could
be authorized for issuance upon exercise in full of the Rights, the 30-day
period set forth above may be extended to the extent necessary, but not to more
than 90 days after the Section 11(a)(ii) Trigger Date, in order that the
Company may seek shareholder approval for the authorization of such additional
shares (that period, as it may be extended, the “Substitution Period”). To the
extent that the Company determines that some action must be taken pursuant to
the first or second sentence of this Section 11(a)(iii), the Company (x) shall
provide, subject to Section 7(e), that such action will apply uniformly to all
outstanding Rights and (y) may suspend the exercisability of the Rights until
the expiration of the Substitution Period in order to seek any authorization of
additional shares or to decide the appropriate form of distribution to be made
pursuant to that first sentence and to determine the value thereof. On any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended and another public
announcement when the suspension is no longer in effect. For purposes of this
Section 11(a)(iii), the value of a Preferred Share will be the Fair Market
Value (as determined pursuant to Section 11(d)) of a Preferred Share on the
Section 11(a)(ii) Trigger Date and the value of any Preferred Share Equivalent
will be considered to have the same value as a Preferred Share on that date.

                                                                                                                                                                                                Page
16

 

(b)        If
the Company fixes a record date for the issuance of rights, options or warrants
to all holders of Preferred Shares entitling them (for a period expiring within
45 calendar days after that record date) to subscribe for or purchase Preferred
Shares (or securities having the same or more favorable rights, privileges and
preferences as the Preferred Shares (“Preferred Share Equivalents”)) or
securities convertible into Preferred Shares or Preferred Share Equivalents at
a price per Preferred Share or per Preferred Share Equivalent (or having a
conversion price per share, if a security convertible into Preferred Shares or
Preferred Share Equivalents) less than the Fair Market Value (as determined
pursuant to Section 11(d)) per Preferred Share on that record date, the
Exercise Price to be in effect after that record date will be determined by
multiplying the Exercise Price in effect immediately prior to that record date
by a fraction, the numerator of which shall be the number of Preferred Shares
outstanding on that record date, plus the number of Preferred Shares which the
aggregate offering price of the total number of Preferred Shares or Preferred
Share Equivalents to be offered (and the aggregate initial conversion price of
the convertible securities to be so offered) would purchase at that Fair Market
Value and the denominator of which shall be the number of Preferred Shares
outstanding on that record date, plus the number of additional Preferred Shares
and Preferred Share Equivalents to be offered for subscription or purchase (or
into which the convertible securities to be so offered are initially
convertible), but in no event will the consideration to be paid upon the exercise
of a Right be less than the aggregate par value of the shares of capital stock
of the Company issuable upon exercise of the Right. If the subscription price
may be paid in a consideration part or all of which is in a form other than
cash, the value of such consideration will be the Fair Market Value thereof
determined in accordance with Section 11(d). Preferred Shares owned by or held
for the account of the Company will not be considered outstanding for the
purpose of any such computation. Those adjustments will be made successively
whenever any such record date is fixed; and if any such rights or warrants are
not so issued, the Exercise Price will be adjusted to be the Exercise Price
that would then be in effect if the applicable record date had not been fixed.

                        (c)        If
the Company fixes a record date for the making of a distribution to all holders
of Preferred Shares (including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing or surviving corporation)
of evidences of indebtedness, cash (other than a regular periodic cash
dividend), assets (other than a dividend payable in Preferred Shares, but
including any dividend payable in capital stock other than Preferred Shares) or
convertible securities, subscription rights or warrants (excluding those
referred to in Section 11(b)), the Exercise Price to be in effect after that
record date will be determined by multiplying the Exercise Price in effect
immediately prior to that record date by a fraction, the numerator of which
will be the Fair Market Value (as determined pursuant to Section 11(d)) of one
one-thousandth of a Preferred Share on that record date, less the Fair Market
Value (as determined pursuant to Section 11(d)) of the portion of the cash,
assets or evidences of indebtedness to be so distributed or of such convertible
securities, subscription rights or warrants applicable to one one-thousandth of
a Preferred Share and the denominator of which will be the Fair Market Value
(as determined pursuant to Section 11(d)) of one one-thousandth of a Preferred
Share, but in no event will the consideration to be paid upon the exercise of a
Right be less than the aggregate par value of the shares of capital stock of
the Company issuable upon exercise of the Right. Those adjustments will be made
successively whenever any such  record date is fixed, and if any such
distribution is not so made, the Exercise Price will again be adjusted to be
the Exercise Price that would be in effect if the applicable record date had
not been fixed.

(d)        For
the purpose of this Agreement, the “Fair Market Value” of any Preferred Share,
Common Share or any other share or any Right or other security or any other
property will be determined as provided in this Section 11(d).

                                                                                                                                                                                                Page
17

 

(i)         In the case of a publicly-traded stock or
other security, the Fair Market Value on any date will be the average of the
daily closing prices per share of such stock or per unit of such other security
for the 30 consecutive Trading Days (as defined herein) immediately prior to
such date; however, if the Fair Market Value per share of any share of stock is
determined during a period following the announcement by the issuer of such
stock of (x) a dividend or distribution on such stock payable in shares of such
stock or securities convertible into shares of such stock or (y) any
subdivision, combination or reclassification of such stock, and prior to the
expiration of the 30 Trading Day period after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination
or reclassification, then, and in each such case, the Fair Market Value will be
properly adjusted to take into account ex-dividend trading. The closing price
for each day will be the last sale price, regular way, or, if no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the securities are not listed or
admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which such security is
listed or admitted to trading; or, if not listed or admitted to trading on any
national securities exchange, the last quoted price (or, if not so quoted, the
average of the last quoted high bid and low asked prices) in the
over-the-counter market, as reported by such market or other system then in
use; or, if on any such date no bids for such security are quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in such security selected by the
Board of Directors. If on any such date no market maker is making a market in
such security, the Fair Market Value of such security on such date will be
determined reasonably and with utmost good faith to the holders of the Rights
by the Board of Directors, but if at the time of such determination there is an
Acquiring Person, the Fair Market Value of such security on such date will be
determined by a nationally recognized investment banking firm selected by the
Board of Directors, which determination will be described in a statement filed
with the Rights Agent and will be binding on the Rights Agent and the holders
of the Rights. The term “Trading Day” means a day on which the principal national
securities exchange on which such security is listed or admitted to trading is
open for the transaction of business or, if such security is not listed or
admitted to trading on any national securities exchange, a Business Day.

(ii)        If a security is not publicly held or not
so listed or traded, “Fair Market Value” means the fair value per share of
stock or per other unit of such security, determined reasonably and with utmost
good faith to the holders of the Rights by the Board of Directors, but if at the
time of such determination there is an Acquiring Person, the Fair Market Value
of such security on such date will be determined by a nationally recognized
investment banking firm selected by the Board of Directors, which determination
will be described in a statement filed with the Rights Agent and will be
binding on the Rights Agent and the holders of the Rights. 

                                                                                                                                                                                                Page
18

 

(iii)       In the case of property other than
securities, the Fair Market Value thereof will be determined reasonably and
with utmost good faith to the holders of Rights by the Board of Directors, but
if at the time of such determination there is an Acquiring Person, the Fair
Market Value of such property on such date will be determined by a nationally
recognized investment banking firm selected by the Board of Directors, which
determination will be described in a statement filed with the Rights Agent and
will be binding upon the Rights Agent and the holders of the Rights.

(e)        Anything
herein to the contrary notwithstanding, no adjustment in the Exercise Price
will be required unless that adjustment would require an increase or decrease
of at least 1% in the Exercise Price, but any adjustment that by reason of this
Section 11(e) is not required to be made will be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
will be made to the nearest cent or to the nearest hundred-thousandth of a
Common Share or ten-millionth of a Preferred Share, as the case may be, or to
such other figure as the Board of Directors considers appropriate.
Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 must be made no later than the earlier of (i) three
(3) years from the date of the transaction that mandates that adjustment or
(ii) the Expiration Date.

(f)        If
as a result of any provision of Section 11(a) or Section 13(a), the holder of
any Right becomes entitled to receive any shares of capital stock of the
Company other than Preferred Shares, thereafter the number of such other shares
so receivable upon exercise of any Right will be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to
the provisions with respect to the Preferred Shares contained in Section 11(a),
(b), (c), (d), (e), (g) through (k) and (m), inclusive, and the provisions of
Sections 7, 9, 10, 13 and 14  with respect to the Preferred Shares will apply
on like terms to any such other shares.

(g)
       All Rights originally issued by the Company subsequent to any adjustment
made to the Exercise Price hereunder will evidence the right to purchase, at
the adjusted Exercise Price, the number of one one-thousandths of a Preferred
Share (or other securities or amount of cash or combination thereof)
purchasable from time to time hereunder upon exercise of the Rights, all
subject to further adjustment as provided herein.

(h)        Unless
the Company has exercised its election as provided in Section 11(i), upon each
adjustment of the Exercise Price as a result of the calculations made in
Section 11(b) and (c), each Right outstanding immediately prior to the making
of such adjustment shall thereafter evidence the right to purchase, at the
adjusted Exercise Price, that number of one one-thousandths of a Preferred
Share (calculated to the nearest one ten-millionth) obtained by (i) multiplying
(x) the number of one one-thousandths of a Preferred Share for which a Right
may be exercisable immediately prior to this adjustment by (y) the Exercise
Price in effect immediately prior to such adjustment of the Exercise Price and
(ii) dividing the product so obtained by the Exercise Price in effect
immediately after such adjustment of the Exercise Price.

                                                                                                                                                                                                Page
19

 

(i)         The
Company may elect on or after the date of any adjustment of the Exercise Price
to adjust the number of Rights, in substitution for any adjustment in the
number of Preferred Shares purchasable upon the exercise of a Right. Each of
the Rights outstanding after the adjustment in the number of Rights will be
exercisable for the number of one one-thousandths of a Preferred Share for
which a Right was exercisable immediately prior to such adjustment. Each Right
held of record prior to such adjustment of the number of Rights shall become
that number of Rights (calculated to the nearest one hundred-thousandth)
obtained by dividing the Exercise Price in effect immediately prior to
adjustment of the Exercise Price by the Exercise Price in effect immediately
after adjustment of the Exercise Price. The Company shall make a public
announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Exercise
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least ten (10) days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to
Section 14, the additional Rights to which such holders shall be entitled as a
result of such adjustment, or, at the option of the Company, shall cause to be
distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders are entitled after such
adjustment. Right Certificates to be so distributed shall be issued, executed
and countersigned in the manner provided for herein (and may bear, at the
option of the Company, the adjusted Exercise Price) and shall be registered in
the names of the holders of record of Right Certificates on the record date
specified in the public announcement.

(j)         Irrespective
of any adjustment or change in the Exercise Price or the number of one
one-thousandths of a Preferred Share issuable upon the exercise of the Rights,
the Right Certificates theretofore and thereafter issued may continue to
express the Exercise Price per share and the number of shares which were
expressed in the initial Right Certificates issued hereunder without prejudice
to any adjustment or change.

(k)        Before
taking any action that would cause an adjustment reducing the Exercise Price
below the then stated value, if any, of the number of one one-thousandths of a
Preferred Share issuable upon exercise of the Rights, the Company shall take
any corporate action that may, in the opinion of its counsel, be reasonably
necessary in order that the Company may validly and legally issue duly authorized,
validly issued, fully paid and nonassessable Preferred Shares at the adjusted
Exercise Price.

                                                                                                                                                                                                Page
20

 

(l)         In
any case in which this Section 11 requires that an adjustment in the Exercise
Price be made effective as of a record date for a specified event, the Company
may elect to defer until the occurrence of such event the issuing to the holder
of any Right exercised after such record date the number of one one-thousandths
of a Preferred Share or other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the number of one
one-thousandths of a Preferred Share and other capital stock or securities of
the Company, if any, issuable upon such exercise on the basis of the Exercise
Price in effect prior to such adjustment; however, the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder’s
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.

(m)       Anything
in this Section 11 to the contrary notwithstanding, the Company shall be
entitled to make such reductions in the Exercise Price, in addition to those
adjustments expressly required by this Section 11, as and to the extent that it
in their good faith judgment a majority of the Board of Directors shall
determine to be advisable in order that any consolidation or subdivision of the
Preferred Shares, issuance wholly for cash of any Preferred Shares at less than
Fair Market Value, issuance wholly for cash of Preferred Shares or securities which
by their terms are convertible into or exchangeable for Preferred Shares, share
dividends or issuance of rights, options or warrants referred to in this
Section 11, hereafter made by the Company to holders of the Preferred Shares,
shall not be taxable to such shareholders.

(n)        The
Company shall not, at any time after the Distribution Date and so long as the
Rights have not been redeemed pursuant to Section 23 or exchanged pursuant to
Section 24, (i) consolidate with (other than with a Subsidiary of the Company
in a transaction which complies with the last sentence of this Section 11(n)),
(ii) merge with or into, or (iii) sell or transfer (or permit any Subsidiary to
sell or transfer), in one transaction or a series of related transactions,
assets or earning power aggregating 50% or more of the assets or earning power
of the Company and its Subsidiaries taken as a whole, to any other Person or
Persons (other than the Company or any of its Subsidiaries in one or more
transactions each of which complies with the last sentence of this Section
11(n)) if (x) at the time of or immediately after such consolidation, merger or
sale there are any rights, warrants or other instruments outstanding or
agreements or arrangements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights, or (y)
prior to, simultaneously with or immediately after such consolidation, merger
or sale the shareholders of a Person who constitutes, or would constitute, the
“Principal Party” for the purposes of Section 13(a) have received a
distribution of Rights previously owned by such Person or any of its Affiliates
and Associates; however, this Section 11(n) shall not affect the ability of any
Subsidiary of the Company to consolidate with, merge with or into, or sell or
transfer assets or earning power to, any other Subsidiary of the Company. The
Company further covenants and agrees that after the Distribution Date it will
not, except as permitted by Section 23 or Section 27, take (or permit any
Subsidiary to take) any action if at the time such action is taken it is
reasonably foreseeable that such action will substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights.

                                                                                                                                                                                                Page
21

 

(o)        Notwithstanding
anything in this Agreement to the contrary, if the Company at any time after
the date of this Agreement and prior to the Distribution Date (i) declares or
pays any dividend on the outstanding Common Shares payable in Common Shares or
(ii) effects a subdivision, combination or consolidation of the outstanding
Common Shares (by reclassification or otherwise than by payment of dividends in
Common Shares) into a greater or lesser number of Common Shares, then in any
such case (A) the number of one one-thousandths of a Preferred Share
purchasable after such event upon proper exercise of each Right will be
determined by multiplying the number of one one-thousandths of a Preferred
Share so purchasable immediately prior to such event by a fraction, the
numerator of which is the number of Common Shares outstanding immediately prior
to such event and the denominator of which is the number of Common Shares
outstanding immediately after such event, and (B) each Common Share of the
Company outstanding immediately after such event will have issued with respect
to it that number of Rights which each Common Share of the Company outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(o) will be made successively whenever any such
dividend is declared or paid or any such subdivision, combination or
consolidation is effected.

(p)        The
exercise of Rights under Section 11(a)(ii) will only result in the loss of
rights under Section 11(a)(ii) to the extent so exercised and will not
otherwise affect the rights of holders of Right Certificates under this Rights
Agreement, including rights to purchase securities of the Principal Party
following a Section 13 Event that has occurred or may thereafter occur, as set
forth in Section 13. Upon exercise of a Right Certificate under Section
11(a)(ii), the Rights Agent shall return such Right Certificate duly marked to
indicate that such exercise has occurred.

Section
12.       Certificate of Adjusted Exercise Price or Number of Shares. Whenever an adjustment is made as provided in
Section 11 or Section 13, the Company shall (a) promptly prepare a certificate
setting forth such adjustment and a brief statement of the facts accounting for
such adjustment, (b) promptly file with the Rights Agent and with each transfer
agent for the Preferred Shares and the Common Shares a copy of such certificate
and (c) mail a brief summary thereof to each holder of a Right Certificate (or,
if prior to the Distribution Date, to each holder of a certificate representing
Common Shares) in accordance with Section 26. The Rights Agent will be fully
protected in relying on any such certificate and on any adjustment contained
therein and will not be considered to have knowledge of any such adjustment
unless and until it has received such certificate.

Section
13.       Consolidation, Merger or Sale or Transfer of Assets or Earning
Power. 

                                                                                                                                                                                                Page
22

 

(a)        If,
following the Share Acquisition Date, directly or indirectly, (x) the Company
consolidates with, or merges with and into, an Acquiring Person (or any
Affiliate or Associate of an Acquiring Person), and the Company is not the
continuing or surviving corporation of such consolidation or merger, (y) an
Acquiring Person (or any Affiliate or Associate of an Acquiring Person)
consolidates with the Company, or merges with and into the Company and the Company
is the continuing or surviving corporation of such merger and, in connection
with such merger, all or part of the Common Shares are changed into or
exchanged for stock or other securities of an Acquiring Person (or of any
Affiliate or Associate of an Acquiring Person) or cash or any other property,
or (z) the Company sells, mortgages or otherwise transfers (or one or more of
its Subsidiaries sells, mortgages or otherwise transfers), in one transaction
or a series of related transactions, assets or earning power aggregating 50% or
more of the assets or earning power of the Company and its Subsidiaries (taken
as a whole) to an Acquiring Person (or to any Affiliate or Associate of an
Acquiring Person), then, and in each such case, the Company shall cause proper
provision to be made so that: (i) each holder of a Right, except as provided in
Section 7(e), has the right to receive, upon the exercise thereof at the then
current Exercise Price in accordance with the terms of this Agreement, such
number of validly authorized and issued, fully paid and nonassessable shares of
freely tradeable Common Stock of the Principal Party (as defined herein), free
and clear of rights of call or first refusal, liens, encumbrances, transfer
restrictions or other adverse claims, as are equal to the result obtained by
(1) multiplying the then current Exercise Price by the number of one
one-thousandths of a Preferred Share for which a Right is exercisable
immediately prior to the first occurrence of a Section 13 Event, and dividing that
product by (2) 50% of the Fair Market Value (determined pursuant to Section
11(d)) per share of the Common Stock of such Principal Party on the date of
consummation of such consolidation, merger, sale or transfer; (ii) such
Principal Party is thereafter liable for, and assumes, by virtue of such
consolidation, merger, sale, mortgage or transfer, all the obligations and
duties of the Company pursuant to this Agreement; (iii) the term “Company”
thereafter refers to such Principal Party, it being specifically intended that
Section 11 apply to such Principal Party; and (iv) such Principal Party takes
such steps (including, but not limited to, the reservation of a sufficient
number of shares of its Common Stock to permit exercise of all outstanding
Rights in accordance with this Section 13(a) and the making of payments in cash
or other securities in accordance with Section 11(a)(iii)) in connection with
such consummation as may be necessary to assure that the provisions hereof are
thereafter applicable, as nearly as reasonably may be, in relation to the
shares its Common Stock thereafter deliverable upon the exercise of the Rights.

(b)       “Principal
Party” means:

(i)         in the case of any transaction described
in clause (x) or (y) of the first sentence of Section 13(a), the Person that is
the issuer of any securities into which Common Shares are converted in such
merger or consolidation, or, if there is more than one such issuer, the issuer
of Common Stock that has the highest aggregate Fair Market Value (determined
pursuant to Section 11(d)), and if no securities are so issued, the Person that
is the other party to the merger or consolidation, or, if there is more than
one such Person, the Person the Common Stock of which has the highest aggregate
Fair Market Value (determined pursuant to Section 11(d)); and

(ii)        in the case of any transaction described
in clause (z) of the first sentence of Section 13(a), the Person that is the
party receiving the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions, or, if each Person that is a
party to such transaction or transactions receives the same portion of the
assets or earning power transferred pursuant to such transaction or
transactions or if the Person receiving the largest portion of the assets or
earning power cannot be determined, that Person the Common Stock of which has
the highest aggregate Fair Market Value (determined pursuant to Section 11(d));

                                                                                                                                                                                                Page
23

 

but in any such case, (1) if
the Common Stock of such Person is not at such time and has not been
continuously over the preceding 12-month period registered under Section 12 of
the Exchange Act (“Registered Common Stock”), or such Person is not a
corporation, and such Person is a direct or indirect Subsidiary or Affiliate of
another Person who has Registered Common Stock outstanding, “Principal Party”
refers to such other Person; (2) if the Common Stock of such Person is not
Registered Common Stock or such Person is not a corporation, and such Person is
a direct or indirect Subsidiary of another Person but is not a direct or
indirect Subsidiary of another Person which has Registered Common Stock
outstanding, “Principal Party” refers to the ultimate parent entity of such
first-mentioned Person; (3) if the Common Stock of such Person is not
Registered Common Stock or such Person is not a corporation, and such Person is
directly or indirectly controlled by more than one Person, and one or more of
such other Persons has Registered Common Stock outstanding, “Principal Party” refers
to whichever of such other Persons is the issuer of the Registered Common Stock
having the highest aggregate Fair Market Value (determined pursuant to Section
11(d)); and (4) if the Common Stock of such Person is not Registered Common
Stock or such Person is not a corporation, and such Person is directly or
indirectly controlled by more than one Person, and none of such other Persons
has Registered Common Stock outstanding, “Principal Party” refers to whichever
ultimate parent entity is the corporation having the greatest stockholders’
equity or, if no such ultimate parent entity is a corporation, “Principal
Party” refers to whichever ultimate parent entity is the entity having the
greatest net assets.

(c)        The
Company shall not consummate any consolidation, merger, sale or transfer
referred to in Section 13(a) unless prior thereto (x) the Principal Party has a
sufficient number of authorized shares of its Common Stock, which have not been
issued or reserved for issuance, to permit the exercise in full of the Rights
in accordance with this Section 13, and (y) the Company and each Principal
Party and each other Person who may become a Principal Party as a result of
such consolidation, merger, sale or transfer shall have executed and delivered
to the Rights Agent a supplemental agreement providing for the terms set forth
in Section 13(a) and (b) and further providing that, as soon as practicable
after the date of any consolidation, merger, sale or transfer of assets
mentioned in Section 13(a), the Principal Party at its own expense will:

(i)         prepare and file a registration statement
under the Securities Act with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, cause such
registration statement to become effective as soon as practicable after such
filing and cause such registration statement to remain effective (with a
prospectus that at all times meets the requirements of the Securities Act)
until the Expiration Date;

(ii)        qualify or register the Rights and the
securities purchasable upon exercise of the Rights under the blue sky laws of
such jurisdictions as may be necessary or appropriate;

(iii)       list (or continue the listing of) the
Rights and the securities purchasable upon exercise of the Rights on a national
securities exchange or to meet the eligibility requirements for quotation on a
market or system then in use; and

(iv)       deliver to holders of the Rights historical
financial statements for the Principal Party and each of its Affiliates which
comply in all respects with the requirements for registration on Form 10 under
the Exchange Act.

                                                                                                                                                                                                Page
24

 

(d)        If
the Principal Party which is to be a party to a transaction referred to in this
Section 13 has a provision in any of its authorized securities or in its Certificate
of Incorporation or By-laws or other instrument governing its corporate
affairs, which provision would have the effect of (i) causing such Principal
Party to issue (other than to holders of Rights pursuant to this Section 13),
in connection with, or as a consequence of, the consummation of a transaction
referred to in this Section 13, Common Stock of such Principal Party at less
than the then current Fair Market Value (determined pursuant to Section 11(d))
or securities exercisable for, or convertible into, Common Stock of such
Principal Party at less than such Fair Market Value, or (ii) providing for any
special payment, tax or similar provisions in connection with the issuance of
the Common Stock of such Principal Party pursuant to the provisions of this
Section 13, then, in such event, the Company shall not consummate any such
transaction unless prior thereto the Company and such Principal Party have
executed and delivered to the Rights Agent a supplemental agreement providing
that that provision of such Principal Party has been canceled, waived or
amended, or that the authorized securities will be redeemed, so that that
provision will have no effect in connection with, or as a consequence of, the
consummation of the proposed transaction.

                        This
Section 13 will similarly apply to successive mergers or consolidations or
sales or other transfers.

                        Section
14.       Fractional Rights and Fractional Shares.

(a)        The
Company is not required to issue fractions of Rights, except prior to the
Distribution Date as provided in Section 11(o), or to distribute Right
Certificates which evidence fractional Rights. If the Company elects not to
issue such fractional Rights, the Company shall pay, in lieu of such fractional
Rights, to the registered holders of the Right Certificates with regard to
which such fractional Rights would otherwise be issuable, an amount in cash
equal to the same fraction of the Fair Market Value of a whole Right, as determined
pursuant to Section 11(d).

(b)        The
Company is not required to issue fractions of Preferred Shares (other than
fractions which are integral multiples of one one-thousandth of a Preferred
Share) upon exercise of the Rights or to distribute certificates which evidence
fractional Preferred Shares (other than fractions which are integral multiples
of one one-thousandth of a Preferred Share). In lieu of fractional Preferred
Shares that are not integral multiples of one one-thousandth of a Preferred
Share, the Company may pay to the registered holders of Right Certificates at
the time such Rights are exercised as herein provided an amount in cash equal
to the same fraction of the Fair Market Value of one one-thousandth of a
Preferred Share. For purposes of this Section 14(b), the Fair Market Value of
one one-thousandth of a Preferred Share shall be determined pursuant to Section
11(d)  for the Trading Day immediately prior to the date of such exercise.

(c)        The
holder of a Right by the acceptance of the Rights expressly waives the holder’s
right to receive any fractional Right or any fractional shares upon exercise of
a Right, except as permitted by this Section 14.

                                                                                                                                                                                                Page
25

 

Section
15.       Rights of Action. All rights of action in respect of this Agreement,
other than rights of action vested in the Rights Agent pursuant to Sections 18
and 20, are vested in the respective registered holders of the Right
Certificates (or, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior
to the Distribution Date, of the Common Shares), without the consent of the
Right Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in such registered holder’s own
behalf and for such registered holder’s own benefit, enforce, and may institute
and maintain any suit, action or proceeding against the Company to enforce, or
otherwise act in respect of, his right to exercise the Right evidenced by such
Right Certificate in the manner provided in such Right Certificate and in this
Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
are entitled to specific performance of the obligations hereunder and
injunctive relief against actual or threatened violations of the obligations
hereunder of any Person subject to this Agreement. Holders of Rights are
entitled to recover the reasonable costs and expenses, including attorneys’
fees, incurred by them in any action to enforce this Agreement.

Section
16.       Agreement of Right Holders. Every holder of a Right, by accepting the same,
consents and agrees with the Company and the Rights Agent and with every other
holder of a Right that:

(a)        prior
to the Distribution Date, each Right will be transferable only simultaneously
and together with the transfer of Common Shares;

(b)        after
the Distribution Date, the Right Certificates are transferable only on the
registry books of the Rights Agent if surrendered at the office or offices of
the Rights Agent designated for such purpose, duly endorsed or accompanied by a
proper instrument of transfer;

(c)        subject
to Sections 6(a) and 7(f), the Company and the Rights Agent may deem and treat
the person in whose name a Right Certificate (or, prior to the Distribution
Date, the associated certificate representing Common Shares) is registered as
the absolute owner thereof and of the Rights evidenced thereby (notwithstanding
any notations of ownership or writing on the Right Certificates or the
associated certificate representing Common Shares made by anyone other than the
Company or the Rights Agent) for all purposes whatsoever, and, subject to the
last sentence of Section 7(e), neither the Company nor the Rights Agent shall
be affected by any notice to the contrary; and

                                                                                                                                                                                                Page
26

 

(d)        notwithstanding
anything in this Agreement to the contrary, neither the Company nor the Rights
Agent will have any liability to any holder of a Right or other Person as the
result of its inability to perform any of its obligations under this Agreement
by reason of any preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission, or any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority prohibiting or otherwise restraining performance of such obligations;
however, the Company must use its reasonable best efforts to have any such
order, decree or ruling lifted or otherwise overturned as soon as possible.

Section
17.       Right Certificate Holder Not Considered a Shareholder. No holder, as such, of any Right Certificate is
entitled to vote, receive dividends or be considered for any purpose a holder
of Preferred Shares or any other securities of the Company that may at any time
be issuable on the exercise of the Rights represented thereby, nor will
anything contained herein or in any Right Certificate be construed to confer
upon the holder of any Right Certificate, as such, any of the rights of a
shareholder of the Company or any right to vote for the election of directors
or upon any matter submitted to shareholders at any meeting thereof, or to give
or withhold consent to any corporate action, or to receive notice of meetings
or other actions affecting shareholders (except as provided in Section 25), or
to receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such Right Certificate has been exercised in accordance
with the provisions hereof.

Section
18.       Concerning the Rights Agent.

(a)        The
Company agrees to pay to the Rights Agent such compensation as is agreed to in
writing between the Company and the Rights Agent for all services rendered by
it hereunder and, from time to time, on demand of the Rights Agent, its
reasonable expenses and counsel fees and disbursements and other disbursements
incurred in the administration and execution of this Agreement and the exercise
and performance of its duties hereunder. The Company also agrees to indemnify
the Rights Agent for, and to hold it harmless against, any loss, liability, damage, judgment, fine, penalty, claim, demand, cost
or expense, incurred without gross
negligence, bad faith or willful misconduct on the part of the Rights Agent (which gross negligence, bad faith or willful
misconduct must be determined by a final, non-appealable order, judgment, decree
or ruling of a court of competent jurisdiction), for anything done or omitted by
the Rights Agent in connection with the acceptance and administration of this
Agreement (and the performance of its duties and the exercise of its rights
hereunder), including the costs and expenses of defending against any claim of
liability arising therefrom, directly or indirectly. The Rights Agent’s
reasonable costs and expenses of enforcing this right of indemnification will
also be paid by the Company.  This Section 18(a) will survive the exercise,
exchange, redemption or expiration of the Rights, the termination of this
Agreement and the resignation, replacement or removal of the Rights Agent.

(b)        The
Rights Agent may conclusively rely on, is protected and will incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement (and the performance of its duties
and responsibilities and the exercise of its rights hereunder) in reliance upon
any Right Certificate or certificate representing Common Shares, Preferred
Shares, or other securities of the Company, instrument of assignment or
transfer, power of attorney, endorsement, affidavit, letter, notice, direction,
consent, certificate, statement, or other paper or document believed by it to
be genuine and to be signed and executed by the proper Person or Persons or
otherwise upon the advice or opinion of counsel as set forth in Section 20.

                                                                                                                                                                                                Page
27

 

(c)        The
Rights Agent will not be liable for special, indirect or consequential loss or
damages of any kind whatsoever (including but not limited to lost profits)
under any provision of this Agreement or for any special, indirect or
consequential damages arising out of any act or failure to act hereunder.

Section
19.       Merger or Consolidation or Change of Name of Rights Agent.

(a)        Any
Person into which the Rights Agent or any successor Rights Agent may be merged
or with which it may be consolidated, or any Person resulting from any merger
or consolidation to which the Rights Agent or any successor Rights Agent is a
party, or any Person succeeding to the corporate trust or shareholder services
business of the Rights Agent or any successor Rights Agent, will be the
successor to the Rights Agent under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties
hereto, if such Person would be eligible for appointment as a successor Rights
Agent under Section 21. If at the time such successor Rights Agent succeeds to
the agency created by this Agreement, any of the Right Certificates have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver the Right
Certificates so countersigned; and if at that time any of the Right
Certificates have not been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases those Right
Certificates will have the full force provided in the Right Certificates and in
this Agreement.

(b)        If
at any time the name of the Rights Agent is changed and at such time any of the
Right Certificates have been countersigned but not delivered, the Rights Agent
may adopt the countersignature under its prior name and deliver Right
Certificates so countersigned; and if at that time any of the Right Certificates
have not been countersigned, the Rights Agent may countersign such Right
Certificates either in its prior name or in its changed name; and in all such
cases such Right Certificates will have the full force provided in the Right
Certificates and in this Agreement.

Section
20.       Duties of Rights Agent. The Rights Agent undertakes to perform only the
duties and obligations expressly imposed by this Agreement (and no implied
duties or obligations will be read into this Agreement against the Rights
Agent) upon the following terms and conditions, by which the Company and the
holders of Right Certificates, by their acceptance thereof, are bound:

(a)        Before
the Rights Agent acts or refrains from acting ,the Rights Agent may consult
with legal counsel selected by it (who may be legal counsel for the Company),
and the advice or opinion of that counsel will be full and complete
authorization and protection to the Rights Agent, and the Rights Agent will
incur no liability for or in respect of any action taken or omitted by it in
good faith and in accordance with such advice or opinion.

                                                                                                                                                                                                Page
28

 

(b)        Whenever
in the performance of its duties under this Agreement the Rights Agent
considers it necessary or desirable that any fact or matter (including, without
limitation, the identity of any Acquiring Person and the determination of Fair
Market Value) be proved or established by the Company prior to taking or
suffering any action hereunder, that fact or matter (unless other evidence in
respect thereof is herein specifically prescribed) may be considered to be
conclusively proved and established by a certificate signed by a person
believed by the Rights Agent to be the Chairman of the Board of Directors, the
President, a Vice President, the Treasurer, any Assistant Treasurer, the
Secretary or an Assistant Secretary of the Company and delivered to the Rights
Agent. Any such certificate will be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under this Agreement in
reliance upon such certificate.

(c)        The
Rights Agent will be liable hereunder only for its own gross negligence, bad
faith or willful misconduct (which gross negligence, bad faith or willful
misconduct must be determined by a final, non-appealable order, judgment,
decree or ruling of a court of competent jurisdiction).

(d)        The
Rights Agent is not liable for or by reason of any of the statements of fact or
recitals contained in this Agreement or in the Right Certificates (except its
countersignature thereof) or required to verify the same, but all such
statements and recitals are and will be considered to have been made by the
Company only.

(e)        The
Rights Agent will not have any liability for or be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereon); nor is it responsible for any breach by the Company of any covenant
or condition contained in this Agreement or in any Right Certificate; nor is it
responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 7(e)) or any adjustment required under
Section 11, Section 13 or Section 24(c) or responsible for the manner, method
or amount of any such adjustment or the ascertaining of the existence of facts
that would require any such adjustment (except with respect to the exercise of
Rights evidenced by Right Certificates after receipt of a certificate
describing any such adjustment furnished in accordance with Section 12); nor is
it responsible for any determination by the Board of Directors of the Fair
Market Value of the Rights or Preferred Shares; nor will it by any act
hereunder be considered to make any representation or warranty as to the
authorization or reservation of any Common Shares or Preferred Shares to be
issued pursuant to this Agreement or any Right Certificate or as to whether any
Common Shares or Preferred Shares will, when so issued, be validly authorized
and issued, fully paid and nonassessable.

(f)         The
Company will perform, execute, acknowledge and deliver or cause to be
performed, executed, acknowledged and delivered all such further and other
acts, instruments and assurances as may reasonably be required by the Rights
Agent for the carrying out or performing by the Rights Agent of this Agreement.

                                                                                                                                                                                                Page
29

 

(g)        The
Rights Agent is hereby authorized and directed to accept instructions with
respect to the performance of its duties hereunder and certificates delivered
pursuant to any provision hereof from any person believed by the Rights Agent
to be the Chairman of the Board of Directors, the President, a Vice President,
the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer
of the Company, and is authorized to apply to such officers for advice or
instructions in connection with its duties, and it will not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer. Any application by the Rights Agent for
written instructions from the Company may, at the option of the Rights Agent,
set forth in writing any action proposed to be taken or omitted by the Rights
Agent under this Agreement and the date on or after which that action will be
taken or such omission will be effective. The Rights Agent will not be liable
for any action taken by, or omission of, the Rights Agent in accordance with a
proposal included in such application on or after the date specified in such
application (which date may not be less than five Business Days after the date
any officer of the Company actually receives such application, unless any such
officer has consented in writing to an earlier date) unless, prior to taking
any such action (or the effective date in the case of an omission), the Rights
Agent has received written instructions in response to such application
specifying the action to be taken or omitted.

(h)        The
Rights Agent and any shareholder, director, officer or employee of the Rights
Agent may buy, sell or deal in any of the Rights or other securities of the
Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not the Rights Agent under
this Agreement. Nothing herein precludes the Rights Agent from acting in any
other capacity for the Company or for any other legal entity.

(i)         The
Rights Agent may execute and exercise any of the rights or powers hereby vested
in it or perform any duty hereunder either itself or by or through its
attorneys or agents, and the Rights Agent will not be answerable or accountable
for any act, default, neglect or misconduct of any such attorneys or agents or
for any loss to the Company resulting from any such act, default, neglect or
misconduct, absent gross negligence, bad faith or willful misconduct in the
selection and continued employment thereof (which gross negligence, bad faith
or willful misconduct must be determined by a final, non-appealable order,
judgment, decree or ruling of a court of competent jurisdiction).

(j)         No
provision of this Agreement requires the Rights Agent to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder or in the exercise of its rights if there are reasonable
grounds for believing that repayment of such funds or adequate indemnification
against such risk or liability is not reasonably assured to it.

(k)        If,
with respect to any Right Certificate surrendered to the Rights Agent for
exercise or transfer, the certificate attached to the form of assignment or
form of election to purchase, as the case may be, has either not been completed
or indicates an affirmative response to clause (1) or clause (2) thereof, the
Rights Agent shall not take any further action with respect to such requested
exercise or transfer without first consulting with the Company.

(l)         The
provisions of this Section 20 shall survive the exercise, exchange, redemption
or expiration of the Rights, the termination of this Agreement and the
resignation, replacement or removal of the Rights Agent.  

                                                                                                                                                                                                Page
30

 

Section
21.       Change of Rights Agent. The Rights Agent or any successor Rights Agent may
resign and be discharged from its duties under this Agreement upon thirty (30)
days’ notice in writing mailed to the Company by first class mail. The Company
may remove the Rights Agent or any successor Rights Agent (with or without
cause) upon thirty (30) days’ notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Common Shares and Preferred Shares by registered or certified mail, and to the
holders of the Right Certificates by first-class mail. If the Rights Agent
resigns or is removed or otherwise becomes incapable of acting, the Company
shall appoint a successor to the Rights Agent. If the Company fails to make
such appointment within a period of thirty (30) days after giving notice of
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Right Certificate (who shall, with such notice, submit that holder’s Right
Certificate for inspection by the Company), then the incumbent Rights Agent or
the registered holder of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, must be (a)
a corporation organized and doing business under the laws of the United States
of America or of the State of Ohio (or of any other state of the United States
of America so long as such corporation is authorized to do business as a
banking institution in the State of Ohio), in good standing, which is
authorized under such laws to exercise stock transfer or corporate trust powers
and is subject to supervision or examination by federal or state authority and
which has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50,000,000 or (b) an Affiliate of a corporation described
in clause (a) of this sentence. After appointment, the successor Rights Agent
will be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver
any further assurance, conveyance, act or deed necessary for the purpose. Not
later than the effective date of any such appointment, the Company shall file
notice thereof in writing with the predecessor Rights Agent and each transfer
agent of the Common Shares and the Preferred Shares, and mail a notice thereof
in writing to the registered holders of the Right Certificates. Failure to give
any notice provided for in this Section 21, however, or any defect therein,
will not affect the legality or validity of the resignation or removal of the
Rights Agent or the appointment of the successor Rights Agent, as the case may
be.

                                                                                                                                                                                                Page
31

 

Section
22.       Issuance of New Right Certificates. Notwithstanding any provision of this Agreement or
of the Rights to the contrary, the Company may, at its option, issue new Right
Certificates evidencing Rights in any form as may be approved by its Board of
Directors to reflect any adjustment or change in the Exercise Price per share
and the number or kind or class of shares or other securities or property
purchasable under the Right Certificates made in accordance with this
Agreement. In addition, in connection with the issuance or sale of Common
Shares following the Distribution Date and prior to the redemption or
expiration of the Rights, the Company (a) shall, with respect to Common Shares
so issued or sold pursuant to the exercise of stock options or under any
employee plan or arrangement, or upon the exercise, conversion or exchange of
securities hereafter issued by the Company, and (b) may, in any other case, if
considered necessary or appropriate by the Board of Directors, issue Right
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; however, (i) no such Right Certificate will be issued
if, and to the extent that, the Company will be advised by counsel that such
issuance would create a significant risk of material adverse tax consequences
to the Company or the person to whom such Right Certificate would be issued,
and (ii) no such Right Certificate will be issued if, and to the extent that,
appropriate adjustments otherwise have been made in lieu of the issuance
thereof.

Section
23.       Redemption.

(a)        The
Board of Directors may, at its option, redeem all but not less than all of the
then outstanding Rights at a redemption price of $0.01 per Right, appropriately
adjusted to reflect any dividend declared or paid on the Common Shares in
Common Shares or any subdivision or combination of the outstanding Common
Shares or similar event occurring after the date of this Agreement (such
redemption price, as adjusted from time to time, being hereinafter referred to
as the “Redemption Price”). The Rights may be redeemed only until the earliest
to occur of (i) 5:00 P.M., Cleveland, Ohio time, on the calendar day after the
Share Acquisition Date or (ii) the Final Expiration Date.

(b)       Immediately
upon the action of the Board of Directors ordering the redemption of the
Rights, and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights will be to receive the Redemption Price for each Right so held.
Promptly after the action of the Board of Directors ordering the redemption of
the Rights, the Company shall give notice of such redemption to the Rights
Agent and the holders of the then outstanding Rights by mailing such notice to
the Rights Agent and to all such holders at their last addresses as they appear
upon the registry books of the Rights Agent or, prior to the Distribution Date,
on the registry books of the Transfer Agent for the Common Shares. Any notice
that is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. The Company promptly shall mail a notice of
any such exchange to all of the holders of such Rights at their last addresses
as they appear upon the registry books of the Rights Agent. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of redemption will state the
method by which the payment of the Redemption Price will be made. Neither the
Company nor any of its Affiliates or Associates may redeem, acquire or purchase
for value any Rights at any time in any manner other than that specifically set
forth in this Section 23 or Section 24  or in connection with the purchase of
Common Shares prior to the Distribution Date.

(c)        The
Company may, at its option, pay the Redemption Price in cash, Common Shares (based
on the Fair Market Value of the Common Shares as of the time of redemption) or
any other form of consideration considered appropriate by the Board of
Directors.

Section
24.       Exchange.

                                                                                                                                                                                                Page
32

 

(a)        The
Board of Directors may, at its option, at any time on or after the occurrence
of a Section 11(a)(ii) Event, exchange all or part of the then outstanding and
exercisable Rights (which will not include Rights that have become void
pursuant to the provisions of Section 7(e)) for Common Shares at an exchange
ratio of one Common Share of the Company per Right, appropriately adjusted to
reflect any share split, share dividend or similar transaction occurring after
the date hereof (that exchange ratio, the “Exchange Ratio”). Notwithstanding
the foregoing, the Board of Directors is not empowered to effect such exchange
at any time after any Person (other than an Exempt Person), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of 50%
or more of the Common Shares.

(b)       Immediately
upon the action of the Board of Directors ordering the exchange of any Rights
pursuant to subsection (a) of this Section 24 and without any further action
and without any notice, the right to exercise such Rights will terminate and
the only right thereafter of a holder of such Rights will be to receive that
number of Common Shares equal to the number of such Rights held by such holder
multiplied by the Exchange Ratio. The Company shall promptly give notice of any
such exchange in accordance with Section 26, but the failure to give, or any
defect in, such notice will not affect the validity of such exchange. The
Company promptly shall mail a notice of any such exchange to all of the holders
of such Rights at their last addresses as they appear upon the registry books
of the Rights Agent. Any notice that is mailed in the manner herein provided
will be considered given, whether or not the holder receives the notice. Each
such notice of exchange will state the method by which the exchange of the
Common Shares for Rights will be effected and, in the event of any partial
exchange, the number of Rights which will be exchanged. Any partial exchange
will be effected pro rata based on the number of Rights (other than Rights
which have become void pursuant to the provisions of Section 7(e)) held by each
holder of Rights.

(c)        In
any exchange pursuant to this Section 24, the Company, at its option, may
substitute Preferred Shares (or Preferred Share Equivalents) for Common Shares
exchangeable for Rights, at the initial rate of one one-thousandth of a
Preferred Share (or Preferred Share Equivalents) for each Common Share, as
appropriately adjusted to reflect adjustments in the economic rights of the
Preferred Shares pursuant to the terms thereof, so that the fraction of a
Preferred Share delivered in lieu of each Common Share will have the same
economic rights as one Common Share.

(d)        If
the Company elects to make any exchange pursuant to this Section 24 and, at the
time of that exchange, there are not sufficient Common Shares or Preferred
Shares (or Preferred Share Equivalents) issued but not outstanding or
authorized but unissued to permit any exchange of Rights as contemplated in
accordance with this Section 24, the Company shall take all actions as may be
necessary to authorize additional Common Shares or Preferred Shares (or
Preferred Share Equivalents) for issuance upon exchange of the Rights.

                                                                                                                                                                                                Page
33

 

(e)        The
Company will not be required to issue fractions of Common Shares or to
distribute certificates which evidence fractional Common Shares. If the Company
elects not to issue those fractional Common Shares, the Company shall pay, in
lieu of those fractional Common Shares, to the registered holders of the Right
Certificates with regard to which those fractional Common Shares would
otherwise be issuable, an amount in cash equal to the same fraction of the Fair
Market Value of a whole Common Share of the Company. For the purposes of this
paragraph (e), the Fair Market Value of a whole Common Share of the Company
shall be the closing price of a Common Share of the Company (as determined
pursuant to the second sentence of Section 11(d)(i)) for the Trading Day
immediately prior to the date of exchange pursuant to this Section 24.

Section 25.       Notice of Certain Events.

(a)        If the Company proposes at any time after
the Distribution Date (i) to pay any dividend payable in shares of any class to
the holders of Preferred Shares or to make any other distribution to the
holders of Preferred Shares (other than a regular periodic cash dividend), or
(ii) to offer to the holders of Preferred Shares rights or warrants to
subscribe for or to purchase any additional Preferred Shares or shares of
capital stock of any class or any other securities, rights or options, or (iii)
to effect any reclassification of its Preferred Shares (other than a
reclassification involving only the subdivision of outstanding Preferred
Shares), or (iv) to effect any consolidation or merger into or with, or to
effect any sale, mortgage or other transfer (or to permit one or more of its
Subsidiaries to effect any sale, mortgage or other transfer), in one
transaction or a series of related transactions, of 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to, any
other Person (other than a Subsidiary of the Company in one or more
transactions each of which is not prohibited by the last sentence of Section
11(n)), or (v) to effect the liquidation, dissolution or winding up of the
Company, or (vi) to declare or pay any dividend on the Common Shares payable in
Common Shares or to effect a subdivision, combination or consolidation of the
Common Shares (by reclassification or otherwise than by payment of dividends in
Common Shares) then in each such case, the Company shall give to each holder of
a Right Certificate and to the Rights Agent, in accordance with Section 26, a
notice of that proposed action, that specifies the record date for the purposes
of that share dividend, distribution of rights or warrants, or the date on
which that reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the Common Shares or Preferred Shares,
if any record date is to be fixed, and that notice shall be so given in the
case of any action covered by clause (i) or (ii) above at least twenty (20)
days prior to the record date for determining holders of the Preferred Shares
for purposes of that action, and in the case of any other similar action, at
least twenty (20) days prior to the date of the taking of that proposed action
or the date of participation therein by the holders of the Common Shares or
Preferred Shares, whichever is earlier; but no notice shall be required
pursuant to this Section 25 if any Subsidiary of the Company effects a
consolidation or merger with or into, or effects a sale or other transfer of
assets or earnings power to, any other Subsidiary of the Company in a manner
not inconsistent with the provisions of this Agreement.

(b)        If
any Section 11(a)(ii) Event occurs, then the Company shall as soon as
practicable thereafter give to each registered holder of a Right Certificate
and to the Rights Agent, in accordance with Section 26, a notice of the
occurrence of that event, which will specify the event and the consequences of
the event to holders of Rights under Section 11(a)(ii).

Section
26.       Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company will be sufficiently given or made if sent by first-class
mail, postage prepaid, facsimile transmission or by nationally recognized
overnight courier addressed (until another address is filed in writing with the
Rights Agent) as follows:

                                                                                                                                                                                                Page
34

 

Associated
Estates Realty Corporation

1
AEC Parkway

Richmond
Heights, Ohio 44143

Attention:
Corporate Secretary

Telephone
No.: (216) 261-5000

Facsimile
No.: (216) 797-8719

Subject to Section 21, any
notice or demand authorized by this Agreement to be given or made by the
Company or by the holder of any Right Certificate to or on the Rights Agent
will be sufficiently given or made if sent by first-class mail, postage
prepaid, facsimile transmission or by nationally-recognized overnight courier
addressed (until another address is filed in writing with the Company) as
follows:

National
City Bank

Shareholder
Services Administration 

629
Euclid Avenue, Suite 635 – LOC 01-3116

Cleveland,
Ohio 44114

Attention: 
Megan Gibson

Telephone
No.: (216) 222-3963

Facsimile
No.: (216) 222-2649

                                    

Notices or demands authorized
by this Agreement to be given or made by the Company or the Rights Agent to the
holder of any Right Certificate (or, prior to the Distribution Date, to the
holder of any certificate representing Common Shares) shall be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed to that
holder at the address of that holder as shown on the registry books of the
Company.

                                                                                                                                                                                                Page
35

 

Section
27.       Supplements and Amendments. Prior to the Distribution Date, the Company and the
Rights Agent will, if the Company so directs, supplement or amend any provision
of this Agreement as the Company may deem necessary or desirable without the
approval of any holders of certificates representing Common Shares. From and
after the Distribution Date, the Company and the Rights Agent will, if the
Company so directs, supplement or amend this Agreement without the approval of
any holder of Right Certificates in order (i) to cure any ambiguity, (ii) to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, (iii) to shorten or lengthen any
time period hereunder, or (iv) to change or supplement the provisions hereof in
any manner which the Company may deem necessary or desirable and which will not
adversely affect the interests of the holders of Right Certificates (other than
an Acquiring Person or any Affiliate or Associate of an Acquiring Person);
however, from and after the Distribution Date this Agreement may not be
supplemented or amended to lengthen, pursuant to clause (iii) of this sentence,
(A) a time period relating to when the Rights may be redeemed at the time the
Rights are not redeemable or (B) any other time period unless that lengthening
is for the purpose of protecting, enhancing or clarifying the rights of, and
the benefits to, the holders of Rights (other than an Acquiring Person or any
Affiliate or Associate of an Acquiring Person). Upon the delivery of a
certificate from an appropriate officer of the Company that states that the
proposed supplement or amendment is in compliance with this Section 27, the
Rights Agent shall execute the proposed supplement or amendment. Prior to the
Distribution Date, the interests of the holders of Rights will be considered
coincident with the interests of the holders of Common Shares. Notwithstanding
any other provision hereof, the Rights Agent’s consent must be obtained
regarding any amendment or supplement pursuant to this Section 27 that alters
the Rights Agent’s rights or duties.

Section
28.       Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Rights Agent will bind and inure to
the benefit of their respective successors and assigns hereunder.

Section
29.       Determinations and Actions by the Board of Directors. For all purposes of this Agreement, any calculation
of the number of Common Shares outstanding at any particular time, including
for purposes of determining the particular percentage of the outstanding Common
Shares of which any Person is the Beneficial Owner, will be made in accordance
with the last sentence of Rule 13d-3(d)(1)(i) of the Rules under the Exchange
Act as in effect on the date hereof. The Board of Directors has the exclusive
power and authority to administer this Agreement and to exercise all rights and
powers specifically granted to the Board of Directors or to the Company, or as
may be necessary or advisable in the administration of this Agreement,
including without limitation, the right and power to (i) interpret the
provisions of this Agreement and (ii) make all determinations deemed necessary
or advisable for the administration of this Agreement (including a determination
to redeem or not redeem the Rights or to amend the Agreement). All such
actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing)
which are done or made by the Board of Directors in good faith will (x) be
final, conclusive and binding on the Company, the Rights Agent, the holders of
the Rights and all other parties, and (y) not subject any member of the Board
of Directors to any liability to the holders of the Rights or to any other
person.

Section
30.       Benefits of this Agreement. Nothing in this Agreement will be construed to give
to any person or corporation other than the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Shares) any legal or equitable right, remedy or claim under
this Agreement; but this Agreement is for the sole and exclusive benefit of the
Company, the Rights Agent and the registered holders of the Right Certificates
(and, prior to the Distribution Date, registered holders of the Common Shares).

                                                                                                                                                                                                Page
36

 

Section
31.       Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement will remain in full force and
effect and will in no way be affected, impaired or invalidated; but
notwithstanding anything in this Agreement to the contrary, if any term,
provision, covenant or restriction is held by such court or authority to be
invalid, void or unenforceable and the Board of Directors determines in its
good faith judgment that severing the invalid language from the Agreement would
adversely affect the purpose or effect of the Agreement, the right of
redemption set forth in Section 23 will be reinstated and will not expire until
the Close of Business on the tenth day following the date of that determination
by the Board of Directors.

Section
32.       Governing Law. This Agreement, each Right and each Right
Certificate issued hereunder will be considered to be a contract made under the
laws of the State of Ohio and for all purposes will be governed by and
construed in accordance with the laws of that State applicable to contracts to
be made and to be performed entirely within Ohio.

Section
33.       Counterparts. This Agreement may be executed in any number of
counterparts and each counterpart will for all purposes be considered to be an
original, and all counterparts will together constitute but one and the same
instrument.

Section
34.       Descriptive Headings. Descriptive headings of the several Sections of this
Agreement are inserted for convenience only and will not control or affect the
meaning or construction of any of the provisions of this Agreement.

Section 35.       Interpretation; Absence of Presumption.  

(a)
For the purposes hereof, (i) words in the singular include the plural and vice
versa and words of one gender shall be held to include the other gender as
the context requires, (ii) the terms “hereof,” “herein,” and “herewith” and
words of similar import, unless otherwise stated, refer to this Agreement as a
whole (including all of the Exhibits hereto) and not to any particular
provision of this Agreement, and Section, paragraph, and Exhibit references are
to the Sections, paragraphs and Exhibits in and to this Agreement unless
otherwise specified, (iii) the word “including” and words of similar import
when used in this Agreement mean “including, without limitation,” unless
otherwise specified, and (iv) the word “or” shall not be exclusive, but means
“and/or.” 

(b)        This
Agreement will be construed without regard to any presumption or rule requiring
construction or interpretation against the party drafting or causing any
instrument to be drafted.

[Remainder of page intentionally left blank]

            

                                                                                                                                                                                                Page
37

 

                        IN WITNESS WHEREOF, this Agreement has been executed
in one or more counterparts by or on behalf of each of the parties hereto as of
the date first above written.

                                                                                    ASSOCIATED
ESTATES REALTY                                                                                       CORPORATION,
an Ohio corporation

                                                                                    By:
      /s/ Jeffrey I. Friedman               

                                                                                    Name:
Jeffrey I. Friedman                                                                                                                     Title: 
President and Chief Executive Officer

                                                                                    NATIONAL
CITY BANK, a national                                                                                                 banking
association, as Rights Agent

                                                                                    By:
      /s/ Megan Gibson                     

                                                                                    Name:  Megan
Gibson                                                                                                                          Title: 
Vice President

                                                                                                                                                                                                Page
38

 

EXHIBIT A

FORM OF 

CERTIFICATE OF AMENDMENT

TO THE

SECOND AMENDED AND RESTATED

ARTICLES OF INCORPORATION

OF 

ASSOCIATED ESTATES REALTY CORPORATION

Jeffrey
I. Friedman, President and Chief Executive Officer, and Martin A. Fishman,
Secretary, of Associated Estates Realty Corporation, an Ohio corporation (the
“Company”), do hereby certify that at a meeting of the Board of Directors of
the Company held on January 6, 1999, the following resolution to amend the
Second Amended and Restated Articles of Incorporation, as amended, of the
Company was adopted pursuant to the authority granted by Section 1701.70(B)(1)
of the Ohio Revised Code:

RESOLVED,
that the Second Amended and Restated Articles of Incorporation, as amended, of
the Company be, and they hereby are, amended by adding at the end of Division
A-2 of Article FOURTH a new Section 6 that reads as follows:

Section
6.         Class B Series I Cumulative Preferred Shares.

A.        Designation
and Amount. Of the 3,000,000 authorized Class B Shares, 400,000 are
designated as a series designated as “Class B Series I Cumulative Preferred
Shares” (the “Series I Preferred Shares”).  The Series I Preferred Shares have
the express terms set forth in this Division as being applicable to all Class B
Shares as a class and, in addition, the following express terms applicable to
all Series I Preferred Shares as a series of Preferred Shares. The number of
Series I Preferred Shares may be increased or decreased by resolution of the
Board of Directors and by the filing of a certificate of amendment pursuant to
the provisions of the General Corporation Law of the State of Ohio stating that
such increase or reduction has been so authorized; however, no decrease shall
reduce the number of Series I Preferred Shares to a number less than that of
the Series I Preferred Shares then outstanding plus the number of  Series I
Preferred Shares issuable upon exercise of outstanding rights, options or
warrants or upon conversion of outstanding securities issued by the Company.

B.         Dividends
and Distributions.

                                                                                                                                                                                                Page
A-1

SOLICITORS, 035295, 096004,
102644451.1, AEC Amended and Restated Rights Plan-Conformed Copy as filed

 

            (1)(a)   Subject
to the rights of the holders of any series of preferred shares (or any similar
shares) ranking prior to the Series I Preferred Shares with respect to
dividends, the holders of Series I Preferred Shares, in preference to the
holders of Common Shares and of any other junior shares, will be entitled to
receive, when, as and if declared by the Board of Directors out of funds
legally available for the purpose, quarterly dividends payable in cash on the
fifteenth day of March, June, September and December in each year (each such
date being referred to herein as a “Quarterly Dividend Payment Date”),
commencing on the first Quarterly Dividend Payment Date after the first
issuance of a Series I Preferred Share or fraction thereof, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b)
subject to the provisions for adjustment hereinafter set forth, 1,000 times the
aggregate per share amount of all cash dividends, and 1,000 times the aggregate
per share amount (payable in kind) of all noncash dividends or other
distributions other than a dividend payable in Common Shares or a subdivision
of the outstanding Common Shares (by reclassification or otherwise), declared
on the Common Shares after the immediately preceding Quarterly Dividend Payment
Date, or, with respect to the first Quarterly Dividend Payment Date, after the
first issuance of any Series I Preferred Share or fraction thereof. The
multiple of cash and noncash dividends declared on the Common Shares to which
holders of the Series I Preferred Shares are entitled, which is 1,000 initially
but which will be adjusted from time to time as hereinafter provided, is
hereinafter referred to as the “Dividend Multiple.” If the Company at any time
after January 6, 1999 (the “Rights Declaration Date”): (i) declares or pays any
dividend on the Common Shares payable in Common Shares, or (ii) effects a
subdivision or combination or consolidation of the outstanding Common Shares
(by reclassification or otherwise than by payment of a dividend in Common
Shares) into a greater or lesser number of Common Shares, then in each such
case the Dividend Multiple thereafter applicable to the determination of the
amount of dividends that holders of Series I Preferred Shares are entitled to
receive will be the Dividend Multiple applicable immediately prior to that
event multiplied by a fraction, the numerator of which is the number of Common
Shares outstanding immediately after that event and the denominator of which is
the number of Common Shares that were outstanding immediately prior to that
event.

(b)        Notwithstanding anything else contained in
this paragraph (1), the Company shall, out of funds legally available for that
purpose, declare a dividend or distribution on the Series I Preferred Shares as
provided in this paragraph (1) immediately after it declares a dividend or
distribution on the Common Shares (other than a dividend payable in Common
Shares); but if no dividend or distribution has been declared on the Common
Shares during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share
on the Series I Preferred Shares shall nevertheless accrue on such subsequent
Quarterly Dividend Payment Date.

(2)        Dividends
will begin to accrue and be cumulative on outstanding Series I Preferred Shares
from the Quarterly Dividend Payment Date next preceding the date of issue of
such Series I Preferred Shares, unless the date of issue of such shares is
prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares will begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of holders of 
Series I Preferred Shares entitled to receive a quarterly dividend and before
such Quarterly Dividend Payment Date, in either of which events such dividends
will begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends will not bear interest. Dividends paid on
the  Series I Preferred Shares in an amount less than the total amount of such
dividends at the time accrued and payable on such shares will be allocated pro
rata on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix in accordance with applicable law a record date
for the determination of holders of Series I Preferred Shares entitled to
receive payment of a dividend or distribution declared thereon, which record date
will be not more than such number of days prior to the date fixed for the
payment thereof as may be allowed by applicable law.

C.        Reacquired
Shares. Any Series I Preferred Shares purchased or otherwise acquired by
the Company in any manner whatsoever will be retired and canceled promptly
after the acquisition thereof. All such shares will upon their cancellation
become authorized but unissued preferred shares and may be reissued as part of
a new series of Class B Preferred Shares to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.

D.        Liquidation,
Dissolution or Winding Up. Upon any liquidation (voluntary or otherwise),
dissolution or winding up of the Company, no distribution may be made (x) to
the holders of shares ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series I Preferred Shares
unless, prior thereto, the holders of Series I Preferred Shares shall have received
an amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment, plus an amount equal to
the greater of (1) $1,000.00 per share or (2) an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 1,000
times the aggregate amount to be distributed per share to holders of Common
Shares, or (y) to the holders of shares ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series I
Preferred Shares, except distributions made ratably on the Series I Preferred
Shares and all other such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation, dissolution
or winding up. If the Company at any time after the Rights Declaration Date (i)
declares or pays any dividend on Common Shares payable in Common Shares, or
(ii) effects a subdivision or combination or consolidation of the outstanding
Common Shares (by reclassification or otherwise than by payment of a dividend
in Common Shares) into a greater or lesser number of Common Shares, then in
each such case the aggregate amount per share to which holders of Series I
Preferred Shares were entitled immediately prior to such event under clause (x)
of the preceding sentence will be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of Common Shares outstanding
immediately after such event and the denominator of which is the number of
Common Shares that were outstanding immediately prior to such event.

Neither
the consolidation of nor merging of the Company with or into any other
corporation or corporations, nor the sale or other transfer of all or
substantially all of the assets of the Company, will be considered to be a
liquidation, dissolution or winding up of the Company within the meaning of
this paragraph D.

E. Consolidation,
Merger, etc. If the Company shall enter into any consolidation, merger,
combination or other transaction in which the Common Shares are exchanged for
or changed into other shares, stock or securities, cash or any other property,
then in any such case the Series I Preferred Shares will at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount
of shares, stock, securities, or other property, as the case may be, into which
or for which each Common Share is changed or exchanged, plus accrued and unpaid
dividends, if any, payable with respect to the Series I Preferred Shares. If
the Company at any time after the Rights Declaration Date (i) declares or pays
any dividend on                                               Page
A-2

 Common
Shares payable in Common Shares, or (ii) effects a subdivision or combination
or consolidation of the outstanding Common Shares (by reclassification or
otherwise than by payment of a dividend in Common Shares) into a greater or
lesser number of Common Shares, then in each such case the amount set forth in
the preceding sentence with respect to the exchange or change of Series I
Preferred Shares will be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of Common Shares outstanding immediately after
such event and the denominator of which is the number of Common Shares that
were outstanding immediately prior to such event.

F.         Redemption.
The  Series I Preferred Shares are not redeemable, but the foregoing does not
limit the ability of the Company to purchase or otherwise deal in the Series I
Preferred Shares to the extent otherwise permitted hereby and by law.

G.        Amendment.
The Second Amended Articles of Incorporation of the Company, as amended, may
not be amended in any manner that would materially alter or change the powers,
preferences or special rights of the Series I Preferred Shares so as to affect
them adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding  Series I Preferred Shares, voting separately as
a class.

H.        Fractional
Shares. Series I Preferred Shares may be issued in whole shares or in any
fraction of a share that is one one-thousandth (1/1,000th) of a share or any
integral multiple of such fraction, which will entitle the holder, in
proportion to such holder’s fractional shares, to exercise voting rights,
receive dividends, participate in distributions and have the benefit of all
other rights of holders of Series I Preferred Shares. In lieu of fractional
shares, the Company may elect to make a cash payment as provided in that
certain Rights Agreement dated as of January 6, 1999, between the Company and
National City Bank, a national banking association, as rights agent, for
fractions of a share other than one one-thousandth (1/1,000th) of a share or
any integral multiple thereof.

 

IN
WITNESS WHEREOF, we have executed this instrument in one or more counterparts
as of January 19, 1999.

                                                                                    ASSOCIATED
ESTATES REALTY                                                                                       CORPORATION,
an Ohio corporation

                                                                                                                                                            

                                                                                    Jeffrey
I. Friedman,

                                                                                    President
and Chief Executive Officer

                                                                                                                                                            

                                                                                                                                                                                                                          Martin
A. Fishman, Secretary                                                                  Page
A-4

 

EXHIBIT B

Form of Right Certificate

Certificate No. R-                                                                                                                      Rights

NOT EXERCISABLE AFTER
DECEMBER 30, 2018 OR EARLIER IF NOTICE OF REDEMPTION IS GIVEN. THE RIGHTS ARE
SUBJECT TO REDEMPTION, AT THE OPTION OF ASSOCIATED ESTATES REALTY CORPORATION,
AN OHIO CORPORATION (THE “COMPANY”) AT $0.01 PER RIGHT ON THE TERMS SET FORTH
IN THE AMENDED AND RESTATED SHAREHOLDER RIGHTS AGREEMENT BETWEEN THE COMPANY
AND NATIONAL CITY BANK, A NATIONAL BANKING ASSOCIATION, AS RIGHTS AGENT, DATED
AS OF DECEMBER 30, 2008 (THE “RIGHTS AGREEMENT”).  THE COMPANY WILL MAIL A COPY
OF THE RIGHTS AGREEMENT WITHOUT CHARGE TO THE HOLDER OF THIS CERTIFICATE WITHIN
FIVE DAYS AFTER THE RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN
CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS AGREEMENT, RIGHTS
BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN ASSOCIATE OR AFFILIATE OF AN
ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHT AGREEMENT) AND ANY SUBSEQUENT
HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID.

RIGHT CERTIFICATE

 

This
certifies that                                    or registered assigns,
is the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Amended and Restated Shareholder Rights Agreement dated as of December 30,
2008 (the “Rights Agreement”) between Associated Estates Realty Corporation, an
Ohio corporation (the “Company”), and National City Bank, a national banking
association, as rights agent (the “Rights Agent”), to purchase from the Company
at any time after the Distribution Date (as defined in the Rights Agreement)
and prior to the close of business on  December 30, 2018 at the office or
offices of the Rights Agent, or its successor as Rights Agent, designated for
that purpose, one one-thousandth of a fully paid, nonassessable Class B Series
I Cumulative Preferred Share, without par value (the “Preferred Shares”), of
the Company, at a purchase price of $40.00 per one-thousandth of a Preferred
Share (the “Exercise Price”), upon presentation and surrender of this Right
Certificate with the Form of Election to Purchase and the related Certificate
duly executed. The number of Rights evidenced by this Right Certificate (and
the number of shares that may be purchased upon exercise thereof) set forth
above, and the Exercise Price per share set forth above, are the number and
Exercise Price as of December 30, 2008, based on the Preferred Shares as
constituted at that date.

Upon
the occurrence of a Section 11(a)(ii) Event (as defined in the Rights
Agreement), if the Rights evidenced by this Right Certificate are beneficially
owned by (i) an Acquiring Person or an Affiliate or Associate of any such
Person (as those terms are defined in the Rights Agreement), (ii) a transferee
of any such Acquiring Person, Associate or Affiliate, or (iii) under certain
circumstances specified in the Rights Agreement, a transferee of a Person who,
after such transfer, became an Acquiring Person or an Affiliate or Associate of
an Acquiring Person, such Rights will become null and void and no holder hereof
will have any right with respect to such Rights from and after the occurrence
of that Section 11(a)(ii) Event.

As
provided in the Rights Agreement, the Exercise Price and the number of
Preferred Shares or other securities that may be purchased upon the exercise of
the Rights evidenced by this Right Certificate are subject to modification and
adjustment upon the happening of certain events.

This
Right Certificate is subject to all of the terms, provisions and conditions of
the Rights Agreement, which terms, provisions and conditions are incorporated
by reference herein and made a part hereof and to which Rights Agreement
reference is made for a full description of the rights, limitations of rights,
obligations, duties and immunities hereunder of the Rights Agent, the Company
and the holders of the Right Certificates, which limitations of rights include
the temporary suspension of the exercisability of such Rights under the
specific circumstances set forth in the Rights Agreement. Copies of the Rights
Agreement are on file at the principal office of the Company and the designated
office of the Rights Agent.  The Company will mail a copy of the Rights
Agreement without charge to the holder of this certificate within five days
after the receipt of a written request therefor.

This
Right Certificate, with or without other Right Certificates, upon surrender at
the office or offices of the Rights Agent designated for such purpose, may be
exchanged for another Right Certificate or Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Right Certificate or
Certificates surrendered entitled such holder to purchase. If this Right
Certificate is exercised in part, the holder is entitled to receive upon
surrender hereof another Right Certificate or Certificates for the number of
whole Rights not exercised. If this Right Certificate is exercised in whole or
in part pursuant to Section 11(a)(ii) of the Rights Agreement, the holder is
entitled to receive this Right Certificate duly marked to indicate that such
exercise has occurred as set forth in the Rights Agreement.

Under
certain circumstances, subject to the provisions of the Rights Agreement, the
Board of Directors at its option may exchange all or any part of the Rights
evidenced by this Certificate for the Company’s common shares, without par
value (the “Common Shares”), or Preferred Shares at an exchange ratio (subject
to adjustment) of one Common Share for one one-thousandth of a Preferred Share
per Right.

Subject
to the provisions of the Rights Agreement, the Rights evidenced by this
Certificate may be redeemed by the Board of Directors at its option at a
redemption price of $0.01 per Right (payable in cash, Common Shares or other
consideration considered appropriate by the Board of Directors).

The
Company is not obligated to issue fractional shares upon the exercise of any
Right or Rights evidenced hereby (other than fractions that are integral
multiples of one one-thousandth of a Preferred Share, which may, at the
election of the Company, be evidenced by depositary receipts). If the Company elects
not to issue such fractional shares, in lieu thereof a cash payment will be
made, as provided in the Rights Agreement.

No
holder of this Right Certificate, as such, is entitled to vote or receive
dividends or be considered for any purpose the holder of Preferred Shares,
Common Shares or any other securities of the Company that may at any time be
issuable on the exercise hereof, nor will anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a shareholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except as
provided in the Rights Agreement), or to receive dividends or                                                                                                                                                                       Page
B-1

 subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate have been exercised as provided in the Rights Agreement.

This
Right Certificate will not be valid or obligatory for any purpose until it has
been countersigned by an authorized signatory of the Rights Agent.

                        WITNESS
the facsimile signature of the proper officers of the Company.  Dated as of
_________________, ____.

                                                                        ASSOCIATED
ESTATES REALTY 

                                                                        CORPORATION,
an Ohio corporation

                                                                        By:                                                                   

                                                                        Name:                                                              

                                                                        Title:                                                                 

Countersigned:

National City Bank, a
national banking 

association, as Rights Agent

By:                                                                   

Name:                                                              

Title:                                                                 

 

[Form of Reverse Side of Right Certificate]

FORM OF ASSIGNMENT

(To be executed by the registered holder if such

holder desires to transfer the Right Certificate)

                        FOR
VALUE RECEIVED                                hereby sells, assigns and
transfers 

unto                                                                                                                                                       

                                            (Please
print name and address of transferee) 

this Right Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint                                                                                                  as
attorney-in-fact, to transfer the Right Certificate on the books of the
within-named Company, with full power of substitution.

Dated:                          ,                                                                                                                       

                                                                                                                                    Signature

Social Security or other
identifying

taxpayer number of
transferee:

                                                            

Signature Guaranteed:

 Signatures
must be guaranteed by an “Eligible Guarantor Institution” (with membership in
an approved medallion signature guarantee program) as defined in Rule 17Ad-15
promulgated under the Securities Exchange Act of 1934, as amended.                                                                                                                                                  Page
B-3

 

CERTIFICATE

(Applicable to Form of Assignment)

            The
undersigned hereby certifies by checking the appropriate boxes that:

            (1)        the
Rights evidenced by this Right Certificate  [    ] are [    ] are not being
sold, assigned or transferred by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of any such Person (as such terms
are defined in the Rights Agreement); and

                        (2)        after
due inquiry and to the best knowledge of the undersigned, the undersigned [   
]did [    ] did not directly or indirectly acquire the Rights evidenced by this
Right Certificate from any Person who is, was or became an Acquiring Person or
an Affiliate or Associate of any such Person.

Dated:                          ,
                                                                                                                      

                                                                                                                                    Signature

 

Signature Guaranteed:

            Signatures must
be guaranteed by an “Eligible Guarantor Institution” (with membership in an
approved medallion signature guarantee program) as defined in Rule 17Ad-15
promulgated under the Securities Exchange Act of 1934, as amended.

NOTICE

The
signature to the foregoing Assignment and Certificate must correspond to the
name as written upon the face of this Right Certificate in every particular,
without alteration or enlargement or any change whatsoever.

                                                                                                                                                                                                Page
B-4

 

FORM OF ELECTION TO PURCHASE

 (To be executed if holder desires to

exercise the Right Certificate)

To Associated Estates Realty
Corporation:

            

                        The undersigned hereby irrevocably
elects to exercise ___________ Rights represented by this Right Certificate to
purchase the Preferred Shares issuable upon the exercise of the Rights (or such
other securities of the Company or of any other person which may be issuable
upon the exercise of the Rights) and requests that certificates for such shares
be issued in the name of:

                                                                                                                                                             

                                            (Please
print name and address of transferee) 

Please insert social security 

or other identifying taxpayer number:                                                     

            If such number of Rights
are not all of the Rights evidenced by this Right Certificate or if the Rights
are being exercised pursuant to Section 11(a)(ii) of the Rights Agreement, a
new Right Certificate for the balance of such Rights shall be registered in the
name of and delivered to:

                                                                                                                                                             

                                            (Please
print name and address of transferee) 

Please insert social security 

or other identifying taxpayer number:                                                     

Signature Guaranteed:

            Signatures must
be guaranteed by an “Eligible Guarantor Institution” (with membership in an
approved medallion signature guarantee program) as defined in Rule 17Ad-15
promulgated under the Securities Exchange Act of 1934, as amended.

                                                                                                                                                                                                Page
B-5

 

CERTIFICATE

(Applicable to Form of Election to Purchase)

            The
undersigned hereby certifies by checking the appropriate boxes that:

                        (1)        the
Rights evidenced by this Right Certificate [    ] are [    ] are not being
exercised by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Person (as such terms are defined in the
Rights Agreement); and

                        (2)        after
due inquiry and to the best knowledge of the undersigned, the undersigned [   
]did  [    ] did not directly or indirectly acquire the Rights evidenced by
this Right Certificate from any Person who is, was or became an Acquiring
Person or an Affiliate or Associate of any such Person.

Dated:                          ,
                                                                                                                      

                                                                                                                                    Signature

Signature Guaranteed:

            Signatures must
be guaranteed by an “Eligible Guarantor Institution” (with membership in an
approved medallion signature guarantee program) as defined in Rule 17Ad-15
promulgated under the Securities Exchange Act of 1934, as amended.

NOTICE

            The
signature to the foregoing Election to Purchase and Certificate must correspond
to the name as written upon the face of this Right Certificate in every
particular, without alteration or enlargement or any change whatsoever.

                                                                                                                                                                                                Page
B-6

 

EXHIBIT C

 

SUMMARY OF RIGHTS TO
PURCHASE

PREFERRED SHARES

On December 30, 2008, Associated Estates Realty
Corporation, an Ohio corporation (the “Company”), entered into the Amended and
Restated Shareholder Rights Agreement (the "Rights Agreement").  A
copy of the Rights Agreement has been filed with the Securities and Exchange
Commission as an Exhibit to a Registration Statement on Form 8-A.  A copy of
the Rights Agreement, including Exhibit A thereto, is available free of charge
from the Company.  This summary description of the Rights does not purport to
be complete and is qualified in its entirety by reference to the Rights
Agreement.

 

Summary
of the Rights 

Pursuant to the Rights Agreement, the Board of
Directors declared a dividend distribution of one Preferred Share Purchase
Right (a "Right") for each outstanding common share, without par
value, of the Company (the "Common Shares") to shareholders of record
as of the close of business on January 29, 1999 (the "Record Date"). 
In addition, one Right will automatically attach to each Common Share issued
between the Record Date and the Distribution Date (as hereinafter defined). 
Each Right entitles the registered holder thereof to purchase from the Company
a unit (a "Unit") consisting of one one-thousandth of a Class B
Series I Cumulative Preferred Share, without par value (the "Preferred Shares"),
at a cash exercise price of $40.00 per Unit (the "Exercise Price"),
subject to adjustment.

Initially, the Rights are not exercisable and
are attached to and trade with the Common Shares outstanding as of, and all
Common Shares issued after, the Record Date. The Rights will separate from the
Common Shares and become exercisable upon the earlier of (i) the close of
business on the 10th calendar day following the first public announcement that
a person or a group of affiliated or associated persons has acquired beneficial
ownership of 15% or more of the outstanding Common Shares (an "Acquiring
Person") (the date of that announcement, the "Share Acquisition
Date"), or (ii) the close of business on the 10th business day following
the commencement of a tender offer or exchange offer that would result, upon
its consummation, in a person or group becoming the beneficial owner of 15% or
more of the outstanding Common Shares (the earlier of (i) and (ii), the
"Distribution Date").  The Rights Agreement exempts from the
definition of Acquiring Person any person who the Board of Directors determines
acquired in excess of 15% of the Common Shares inadvertently, if that person
promptly divests itself of enough Common Shares to reduce the number of shares
beneficially owned by that person to below the 15% threshold.

Until the Distribution Date (or the earlier
redemption, exchange or expiration of the Rights): (i) the Rights will be
evidenced by the Common Share certificates and will be transferred with and
only with such Common Share certificates, (ii) new Common Share certificates
issued after the Record Date will include a notation incorporating the Rights
Agreement by reference, and (iii) the surrender for transfer of any
certificates for Common Shares will also constitute the transfer of the Rights
associated with the Common Shares represented by that certificate.

The Rights are not exercisable until the
Distribution Date and will expire at the close of business on December 30,
2018, unless previously redeemed or exchanged by the Company as described
below.

As soon as practicable after the Distribution
Date, Right Certificates will be mailed to holders of record of Common Shares
as of the close of business on the Distribution Date and, thereafter, the
separate Right Certificates alone will represent the Rights.  Except as
otherwise determined by the Board of Directors, only Common Shares issued prior
to the Distribution Date will be issued with Rights.

If a Share Acquisition Date occurs, proper
provision will be made so that each holder of a Right (other than an Acquiring
Person or associates or affiliates thereof, whose Rights will become null and
void) thereafter has the right to receive upon exercise that number of Units
having a market value of two times the exercise price of the Right (that right
being referred to as the "Subscription Right").  If, at any time
following the Share Acquisition Date: (i) the Company consolidates with, or
merges with and into, any Acquiring Person or any associate or affiliate
thereof, and the Company is not the continuing or surviving corporation, (ii)
any Acquiring Person or any associate or affiliate thereof consolidates with
the Company, or merges with and into the Company and the Company is the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Shares are changed into or exchanged for
stock or other securities of any other person or cash or any other property, or
(iii) 50% or more of the Company's assets or earning power is sold, mortgaged
or otherwise transferred, each holder of a Right will thereafter have the right
to receive, upon exercise, common stock of the acquiring company having a
market value equal to two times the exercise price of the Right (such right
being referred to as the "Merger Right").  Each holder of a Right
will continue to have the Merger Right whether or not that holder has exercised
the Subscription Right, but Rights that are or were beneficially owned by an
Acquiring Person may (under certain circumstances specified in the Rights
Agreement) become null and void.  

At any time after a Share Acquisition Date
occurs, the Board of Directors may, at its option, exchange Common Shares or
Units for all or any part of the then outstanding and exercisable Rights at an exchange
ratio of one Common Share or one Unit per Right.  However, the Board of
Directors generally will not be empowered to effect such exchange at any time
after any person becomes the beneficial owner of 50% or more of the Common
Shares.

The Exercise Price payable, and the number of
Units or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a share dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) if holders of the Preferred Shares are granted certain
rights or warrants to subscribe for Preferred Shares or convertible securities
at less than the current market price of the Preferred Shares, or (iii) upon
the distribution to holders of the Preferred Shares of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to in (i) and
(ii)).  

With certain exceptions, no adjustment in the
Exercise Price will be required until cumulative adjustments amount to at least
1% of the Exercise Price.  The Company is not obligated to issue fractional
Units.  If the Company elects not to issue fractional Units, in lieu thereof an
adjustment in cash will be made based on the fair market value of the Preferred
Shares on the last trading date prior to the date of exercise.  

The Rights may be redeemed in whole, but not in part,
at a price of $0.01 per Right (payable in cash, Common Shares or other
consideration considered appropriate by the Board of Directors) by the Board of
Directors only until the earliest of (i) the close of business on the calendar
day after the Share Acquisition Date, or (ii) the expiration date of the Rights
Agreement. 

 

Immediately
upon any action of the Board of Directors ordering redemption of the                                            Page
C-1

 

                                                                                                                                                                                                Page
C-1

 

                                                                                                                                                                                                Page
C-1

 Rights, the Rights will terminate and
thereafter the only right of the holders of Rights will be to receive the
redemption price.

The Rights Agreement may be amended by the Board
of Directors in its sole discretion until the Distribution Date. After the
Distribution Date, the Board of Directors may, subject to certain limitations
set forth in the Rights Agreement, amend the Rights Agreement only to cure any
ambiguity, defect or inconsistency, to shorten or lengthen any time period, or
to make changes that do not adversely affect the interests of Rights holders
(excluding the interests of an Acquiring Person or associates or affiliates
thereof).

Until a Right is exercised, the holder will have
no rights as a shareholder of the Company (beyond those as an existing
shareholder), including the right to vote or to receive dividends.  While the
distribution of the Rights will not be taxable to shareholders or to the
Company, shareholders may, depending upon the circumstances, recognize taxable
income if the Rights become exercisable for Units, other securities of the
Company or other consideration, or for common shares of an acquiring company.

Description
of Preferred Shares

The Preferred Shares that may be acquired upon
exercise of the Rights will not be redeemable and will generally rank on par
with any other outstanding preferred shares of the Company.  Each Unit will
have a preferential quarterly dividend of the greater of (i) $.001 per Unit and
(ii) an amount equal to any higher dividend per share declared on the Common
Shares.

If the Company liquidates, each holder of a Unit
will receive a preferred liquidation payment equal to the greater of (i) $1.00
per Unit and (ii) an amount equal to the amount distributed on each Common
Share.  

The Preferred Shares have the right to vote
together as a class on certain limited matters (such as voting rights that
arise upon the nonpayment of dividends and the right to vote on a merger of the
Company into another entity), but the Preferred Shares do not vote with the
Common Shares on matters presented to the holders of the Common Shares (such as
the election of directors).

On any merger, consolidation or other
transaction in which Common Shares are exchanged, each Unit will be entitled to
receive the per share amount paid in respect of each Common Share.

The rights of holders of the Preferred Shares to
dividends and upon liquidation, and in connection with mergers and
consolidations, are protected by customary anti-dilution provisions.

Because of the nature of the Preferred Shares’
dividend and liquidation rights, the economic value of each Unit issuable upon
the exercise of a Right should approximate the economic value of a Common
Share.

                                                                                                                                                                                                Page
C-2ex101toform8k07358_12292008.htm

    Exhibit
10.1

    
      AMENDMENT NO. 1 TO DEPOSIT
ESCROW AGREEMENT

      

      THIS
AMENDMENT NO. 1 TO DEPOSIT ESCROW AGREEMENT (this “Amendment”) is
dated as of December 29, 2008 by and among THE BANK OF NEW YORK MELLON, a New
York Banking Corporation, as escrow agent (“Escrow Agent”), HEALTH SYSTEMS
SOLUTIONS, INC., a Nevada corporation (“HSS”), and EMAGEON INC., a Delaware
corporation (“Emageon”, and together with HSS the “Depositors”, and each
individually a “Depositor”). All capitalized terms used and not otherwise
defined herein have the meanings ascribed to them in the Escrow Agreement (as
defined below)

      

      RECITALS:

      

      WHEREAS, Escrow Agent and the
Depositors are party to that certain Deposit Escrow Agreement dated as of
October 21, 2008 (the “Escrow Agreement”);

      

      WHEREAS, the parties hereto
desire to increase the amount deposited under the Escrow Agreement from
$5,000,000 to $9,000,000 and to amend the distribution instructions for the
aggregate Escrow Property as provided in this Amendment and as contemplated by
Amendment No. 1 to the Merger Agreement; and

      

      WHEREAS, accordingly, the
parties desire to amend the Escrow Agreement in the manner more particularly
described below.

      

      NOW, THEREFORE, in
consideration of the foregoing and for other good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, the parties have agreed
to amend the Escrow Agreement as follows:

      

      Section
1.             
Amendments to Escrow
Agreement.  The Escrow Agreement is hereby amended as
follows:

      

      (a)           Section
1 of the Escrow Agreement is hereby amended by replacing the reference in such
Section to “$5,000,000” with “$9,000,000”.

       

      (b)           Section
3 of the Escrow Agreement is hereby amended by deleting the text of such Section
in its entirety and replacing it with the following:

       

      “Escrow Agent is directed to hold and
distribute the Escrow Property in the following manner:

       

      HSS and
Emageon hereby agree that Emageon shall be entitled to the entire amount of the
Escrow Property, including any interest or investment proceeds thereof, in the
event that the closing under that certain agreement and plan of merger by and
among HSS, HSS Acquisition Corp. and Emageon, dated as of October 13, 2008, as
amended by Amendment No. 1 thereto dated as of December 29, 2008, a copy of
which is attached hereto as Exhibit A, (the
“Merger Agreement”) does not occur by the close of business on February 11, 2009
for any reason other than as a result of (i) the termination of the Merger
Agreement by either HSS or
Emageon pursuant to Section 7.2(c) thereof or (ii) termination of the Merger
Agreement by HSS pursuant to Section 7.3(a) thereof.  HSS and Emageon
hereby instruct the Escrow Agent to release the entire amount of the Escrow
Property (including interest and investment proceeds) to Emageon (or otherwise
as Emageon shall direct in writing) on February 12, 2009, unless HSS shall have
provided written evidence to Escrow Agent on or before such date that the Merger
Agreement has been terminated under the limited circumstance described in the
immediately preceding sentence (a “Triggering Termination”), in which case the
Default Release Instructions (as defined below) shall apply.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      In the
event the Escrow Agent receives timely written notice of a Triggering
Termination, Escrow Agent shall disburse the Escrow Property only in accordance
with (i) a written instrument delivered to the Escrow Agent that is executed by
both Depositors and that instructs the Escrow Agent as to the disbursement of
the Escrow Property, or (ii) an order of a court of competent jurisdiction, a
copy of which is delivered to the Escrow Agent by either of the Depositors, that
instructs the Escrow Agent as to the disbursement of the Escrow Property (the
actions described in clause (i) and (ii) being, the “Default Release
Instructions”).

       

      Section
2.              Governing
Law.  This Amendment shall be governed by, and construed in
accordance with, the Laws of the State of New York, without giving effect to any
applicable principles of conflict of laws that would cause the Laws of another
State to otherwise govern this Amendment .

      

      Section
3.              No Other
Amendments.  Except as set forth herein, the terms and
provisions of the Escrow Agreement shall remain in full force and
effect.  On or after the date of this Amendment, each reference in the
Escrow Agreement to “this Escrow Agreement,” “hereunder,” “hereof,” “herein” or
words of like import referring to the Escrow Agreement shall mean and be a
reference to the Escrow Agreement as amended by this Amendment, and this
Amendment shall be deemed to be a part of the Escrow Agreement.

      

      Section
4.              Counterparts.  This
Amendment may be executed and delivered (including by facsimile transmission) in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same
agreement.

      

      [Signature Page
Follows]

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      [Signature
Page to Amendment No. 1 to Deposit Escrow Agreement]

       

      IN
WITNESS WHEREOF, each of the parties has caused this Amendment to be executed by
a duly authorized officer as of the day and year first written
above.

       

      
        
          
            	
                    HEALTH
      SYSTEMS SOLUTIONS, INC.

                  	 
      	
                    EMAGEON
      INC.

                  
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                    By:

                  	/s/
      Stan
      Vashovsky	 
      	/s/
      Charles
      A. Jett, Jr.
	 
      	
                    Name:

                  	
                    Stan
      Vashovsky

                  	 
      	Name:	
                    Charles
      A. Jett, Jr.

                  
	 
      	
                    Title:

                  	
                    Chief
      Executive Officer

                  	 
      	Title:	
                    Chief
      Executive Officer

                  

          

        

      

      

      
        
          	 
      	
                  THE
      BANK OF NEW YORK MELLON, as Escrow Agent

                
	 
      	 
      
	 
      	
                  By:

                	/s/
      Thomas
      Hacker
	 
      	 
      	
                  Name:

                	
                  Thomas
      Hacker

                
	 
      	 
      	
                  Title:

                	
                  Vice
      President

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