<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-12486
-------
ASSOCIATED ESTATES REALTY CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Ohio 34-1747603 5025 Swetland Court, Richmond Hts., Ohio 44143-1467
- - ------------------------------- ---------------------- ---------------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer (Address of principal executive offices) (Zip Code)
incorporation or organization) Identification Number)
</TABLE>
Registrant's telephone number, including area code (216) 261-5000
--------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS:
-------------------------------------
Indicate the number of shares outstanding of each of the issuer's classes of
common as of the latest practicable date.
13,872,381 shares outstanding as of May 13, 1996.
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ASSOCIATED ESTATES REALTY CORPORATION
INDEX
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION Page
----
ITEM 1 Financial Statements
<S> <C>
Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995........................................................................ 3
Consolidated Statements of Operations for the three
month period ended March 31, 1996 and 1995................................................... 4
Consolidated Statements of Cash Flows for the three month
period ended March 31, 1996 and 1995......................................................... 5
Notes to Financial Statements.................................................................. 6
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................................10
PART II - OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K...............................................................19
SIGNATURES .....................................................................................................20
</TABLE>
Page 2
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ASSOCIATED ESTATES REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------------ -------------------
(Unaudited)
ASSETS
<S> <C> <C>
Real estate assets:
Land $ 46,263,784 $ 43,829,336
Buildings and improvements 397,226,598 373,420,546
Furniture and fixtures 17,354,459 16,714,676
------------------ -------------------
460,844,841 433,964,558
Less: accumulated depreciation (100,701,413) (97,301,859)
------------------ -------------------
Real estate, net 360,143,428 336,662,699
Cash and cash equivalents 1,484,420 2,848,285
Restricted cash and investments 4,875,939 5,078,884
Accounts and notes receivable:
Rents 1,221,959 1,363,587
Affiliates 1,262,720 731,580
Other 38,068 38,068
Deferred charges and prepaid expenses 4,010,621 3,651,537
Other assets 1,378,018 1,335,377
------------------ -------------------
$ 374,415,173 $ 351,710,017
================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Secured debt $ 66,930,112 $ 68,909,238
Unsecured debt 131,791,007 102,325,107
------------------ -------------------
Total indebtedness 198,721,119 171,234,345
Capital lease obligations 333,276 274,319
Accounts payable and accrued expenses 9,751,791 11,794,365
Dividends payable 6,241,571 5,963,834
Resident security deposits 3,853,154 3,668,159
Funds held for non-owned properties 2,952,924 5,399,836
Accrued interest 3,840,360 1,997,181
Accumulated losses and distributions of equity
investees in excess of investment and advances 12,374,089 12,208,299
------------------ -------------------
Total liabilities 238,068,284 212,540,338
Commitments and contingencies - -
Shareholders' equity:
Preferred shares, Class A cumulative, without par value;
3,000,000 shares authorized; 225,000 issued and outstanding 56,250,000 56,250,000
Common shares, without par value, $.10 stated value;
50,000,000 shares authorized; 13,872,381 shares
issued and outstanding 1,387,238 1,387,238
Paid-in capital 102,567,007 102,567,007
Accumulated dividends in excess of net income (23,857,356) (21,034,566)
------------------ -------------------
Total shareholders' equity 136,346,889 139,169,679
------------------ -------------------
$ 374,415,173 $ 351,710,017
================== ===================
</TABLE>
The accompanying notes are an integral part
of these financial statements
Page 3
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ASSOCIATED ESTATES REALTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
<S> <C> <C>
Revenues
Rental $ 20,559,867 $ 15,720,372
Property management fees 92,080 119,942
Property management fees-affiliates 862,114 878,899
Painting service 73,776 30,159
Painting service-affiliates 207,502 136,320
Other 252,797 240,146
----------------- -----------------
22,048,136 17,125,838
Expenses
Property operating and maintenance 8,514,709 6,374,971
Depreciation and amortization 3,549,955 2,762,708
Painting services 258,380 154,285
General and administrative 1,292,325 1,292,216
Interest expense 3,624,086 2,464,138
----------------- -----------------
Total expenses 17,239,455 13,048,318
----------------- -----------------
Income before equity in net income (loss) of
joint ventures 4,808,681 4,077,520
Equity in net income (loss) of joint ventures (17,504) 53,814
----------------- -----------------
Net income $ 4,791,177 $ 4,131,334
================= =================
Net income applicable to common shares $ 3,420,072 $ 4,131,334
================= =================
Per Common Share:
Net income $ .25 $ .30
================= =================
Dividends paid $ .45 $ .43
================= =================
Weighted average number of common shares outstanding
(in thousands) 13,872 13,869
================= =================
</TABLE>
The accompanying notes are an integral part
of these financial statements
Page 4
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ASSOCIATED ESTATES REALTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------------- -------------------
Cash flow from operating activities:
<S> <C> <C>
Net income $ 4,791,177 $ 4,131,334
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,549,955 2,762,708
Equity in net loss (income) of joint ventures 17,504 (53,814)
Earnings distributed from joint ventures 76,785 45,496
Net change in accounts and notes receivable 141,628 180,723
Net change in accounts and notes receivable-affiliates (531,140) (64,074)
Net change in accounts payable and accrued expenses (2,158,922) (281,068)
Net change in other operating assets and liabilities 1,500,957 68,536
Net change in restricted cash 202,945 76,119
Net change in funds held for non-owned properties (2,446,912) (3,114,198)
------------------- ------------------
Total adjustments 352,800 (379,572)
------------------ ------------------
Net cash flow provided by operations 5,143,977 3,751,762
Cash flow from investing activities:
Acquisition of real estate (net of liabilities assumed) (26,248,388) (24,944,256)
Fixed asset additions (179,472) (186,033)
Distributions from joint ventures 71,501 70,790
------------------ -----------------
Net cash flow used for investing activities (26,356,359) (25,059,499)
Cash flow from financing activities:
Increase in unsecured debt 29,314,623 27,003,815
Decrease in secured debt (1,979,126) -
Payments of deferred financing and offering costs (121,299) (722,667)
Payments under capital lease obligations (29,451) (13,412)
Common share dividends paid (5,965,125) (5,547,752)
Preferred share dividends paid (1,371,105) -
------------------ -----------------
Net cash flow provided by financing activities 19,848,517 20,719,984
------------------ -----------------
Decrease in cash and cash equivalents (1,363,865) (587,753)
Cash and cash equivalents, beginning of period 2,848,285 1,870,584
------------------ -----------------
Cash and cash equivalents, end of period $ 1,484,420 $ 1,282,831
================== =================
</TABLE>
The accompanying notes are an integral part
of these financial statements
Page 5
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ASSOCIATED ESTATES REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
The Company is a self-administered and self-managed real estate
investment trust ("REIT") which specializes in acquisition, development,
ownership and management of multifamily properties in the Great Lakes Region. At
March 31, 1996, the Company owned or was a joint venture partner in 80
multifamily properties containing 15,041 suites. Additionally, the Company
manages 40 non-owned properties, 32 of which are multifamily properties
consisting of 7,052 suites and eight of which are commercial properties
containing an aggregate of approximately 825,000 square feet of gross leasable
area. The Company's real estate property management operations, a painting
service company, a computer services company and a mortgage origination and
servicing company have for the most part been assigned to affiliates of the
Company that are collectively referred to as the "Service Companies".
As referred to herein, the "Company" means Associated Estates Realty
Corporation, its wholly owned subsidiaries, which own certain of the real estate
properties, and the Service Companies.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION/COMBINATION
The accompanying consolidated financial statements include the
accounts of the Company, its wholly owned subsidiaries, which own certain of the
real estate properties, and the Service Companies, which provide various
services to both owned and non-owned properties. The Company holds a preferred
share interest in these Service Companies which entitles it to receive 95% of
the economic benefits from operations and which is convertible into a majority
interest in the voting common shares. The outstanding voting common shares of
these Service Companies are held by an executive officer of the Company. The
Service Companies are consolidated because, from a financial reporting
perspective, the Company is entitled to virtually all economic benefits and has
operating control over the companies.
One property included in the financial statements is 33-1/3% owned by
third party investors. As this property has an accumulated deficit, no
recognition of the third party interest is reflected in the financial statements
since it is the Company's policy to recognize minority interests only to the
extent that the third party's investment and accumulated share of income exceeds
distributions and its share of accumulated losses. Investments in joint
ventures, which are 50% or less owned by the Company, are presented using the
equity method of accounting. Since the Company intends to fulfill its
obligations as a partner in the joint ventures, the Company has recognized its
share of losses and distributions in excess of its investment.
The accompanying unaudited financial statements reflect all
adjustments which are, in the opinion of management, necessary to reflect a fair
presentation of the results for the interim periods presented, and all such
adjustments are of a normal recurring nature.
All significant inter-entity balances and transactions have been
eliminated in consolidation.
Certain reclassifications have been made to the 1995 financial
statements to conform to the 1996 presentation.
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<PAGE> 7
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
INCENTIVE COMPENSATION PLANS
During 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation" which establishes financial accounting and reporting standards for
stock-based compensation paid to employees and suppliers of goods or services.
The Company has elected to adopt this standard through annual disclosure only.
3. ACQUISITION AND DEVELOPMENT OF MULTIFAMILY PROPERTIES
During the period January 1, 1996 through March 31, 1996, the Company
acquired, in separate purchase transactions, two multifamily properties
containing an aggregate of 540 suites for an aggregate purchase price of $23.9
million, which were financed with borrowings under the Company's Line of Credit.
Construction in progress for the development of multifamily property
was $10,387,658 and $7,730,937 at March 31, 1996 and December 31, 1995,
respectively. The Company capitalizes interest on funds used in constructing
property from the date of initiation of construction activities through the time
the property is ready for leasing. The Company also capitalizes real estate
taxes and insurance costs during the construction period.
4. SHAREHOLDERS' EQUITY
The following table summarizes the changes in shareholders' equity
since December 31, 1995:
<TABLE>
<CAPTION>
Class A Common Accumulated
Cumulative Shares Dividends
Preferred (at $.10 Paid-In In Excess Of
Shares stated value) Capital Net Income Total
------------ ------------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, Dec. 31, 1995 $56,250,000 $ 1,387,238 $ 102,567,007 $(21,034,566) $139,169,679
Net income - - - 4,791,177 4,791,177
Common share
dividends declared - - - (6,242,862) (6,242,862)
Preferred share
dividends declared - - - (1,371,105) (1,371,105)
-------------- --------------- ---------------- --------------- ---------------
Balance, Mar. 31, 1996 $56,250,000 $ 1,387,238 $ 102,567,007 $(23,857,356) $136,346,889
============== =============== ================ =============== ===============
</TABLE>
5. SECURED DEBT
CONVENTIONAL MORTGAGE DEBT
Conventional mortgages payable are comprised of nonrecourse loans to
the Company which are collateralized by the associated real estate and resident
leases. Mortgages payable are generally due in monthly installments of principal
and/or interest and mature at various dates through August 1, 2018.
FEDERALLY INSURED MORTGAGE DEBT
This mortgage indebtedness is insured by HUD pursuant to certain of the
mortgage insurance programs administered under the National Housing Act of 1934.
These government-insured loans are nonrecourse to the Company. Payments of
principal, interest and HUD mortgage insurance premiums are made in equal
monthly installments and mature at various dates through August 1, 2028.
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<PAGE> 8
Under certain of the mortgage agreements, the Company is required to
make escrow deposits for taxes, insurance and replacement of project assets. One
underlying mortgage is secured by a letter of credit which is renewed annually.
6. UNSECURED DEBT
SENIOR NOTES
The Senior Notes were issued in 1995, and net proceeds of $83.6
million, after underwriting commissions, offering expenses and discounts, were
applied to amounts drawn on the Company's Revolving Credit Facility or Line of
Credit. Notes with a principal balance of $75,000,000 accrue interest at 8.38%
and mature in 2000. The remaining notes, in the principal amount of $10,000,000,
accrue interest at 7.10% and mature in 2002.
LINE OF CREDIT
The Company utilizes a $75 million unsecured revolving credit facility
(the "Line of Credit"). The Line of Credit includes certain restrictive
covenants which, among others, requires the Company to maintain a minimum level
of net worth, to limit dividends to 90% of Distributable Cash Flow, to restrict
the use of its borrowings and to maintain certain debt coverage ratios. The Line
of Credit provides for a scaled reduction in the LIBOR, present prime rate and
commitment fee margins based on the Company's credit ratings. Based on the
Company's present credit ratings and pursuant to a March 1996 interest rate
reduction amendment to the Line of Credit, the LIBOR margin is 1.5% fixed in
increments of 30, 60, 90, 120 or 180 days and Prime Rate borrowings are at the
Prime Rate with no margin. An annual commitment fee of .25% to .375% based on
the average daily unused amount of the facility is paid quarterly in arrears.
The Line of Credit expires in September 1997 and the Company has the option to
extend the facility for an additional one year period. At March 31, 1996, $39.6
million was drawn on the Line of Credit.
MEDIUM TERM NOTES PROGRAM
The Company's $75 million Medium Term Notes Program became effective
on January 3, 1996. The Company issued two notes under the MTN Program
aggregating $7.5 million. The net proceeds of approximately $7.4 million were
applied to amounts borrowed under the Line of Credit.
One note with a principal balance of $5,000,000 accrues interest at
6.83% and is due in 2003. The second note has a principal balance of $2,500,000
and accrues interest at 6.60% and is due in 2026. The holder of the $2,500,000
note has the option to require repayment on March 15, 2003.
7. EARNINGS PER SHARE
Net income per share has been computed by dividing common share
dividends paid or declared for the period by the weighted average number of
common shares outstanding plus the undistributed net income applicable to common
shareholders as appropriate, divided by the weighted average number of common
shares outstanding. Common share equivalents were excluded from the earnings per
share calculation as they were not dilutive. The weighted average number of
shares outstanding utilized in the calculation was 13,872,381 and 13,869,381 for
the periods ended March 31, 1996 and 1995, respectively.
8. PRO FORMA FINANCIAL INFORMATION
The following unaudited supplemental pro forma operating data for the
three months ended March 31, 1996 is presented to reflect the effects of the two
property acquisitions completed through March 31, 1996, as if such transactions
had occurred on January 1, 1996. The unaudited supplemental pro forma operating
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<PAGE> 9
data for the three months ended March 31, 1995 is presented to reflect the
effects of (i) the issuance of the Senior and Medium Term Notes, (ii) the
offering of 2,250,000 Depositary Shares, each representing 1/10 of a share of
the Company's 9 3/4% Class A Cumulative Redeemable Preferred Shares, (iii) the
15 property acquisitions completed in 1995, and (iv) the two property
acquisitions completed in 1996, as if such transactions had occurred on January
1, 1995.
<TABLE>
<CAPTION>
For the three months ended
March 31,
----------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995
---------------- -----------------
<S> <C> <C>
Revenues $ 22,660 $ 21,042
Income before equity in net income or loss of affiliates 5,041 4,544
Net income applicable to common shares 3,652 3,490
Net income applicable to common shares per share .26 .25
Weighted average common shares outstanding 13,872 13,869
</TABLE>
The 1995 pro forma financial information does not include the revenue
and expenses for Colony Bay East Phase I and II, Kensington Grove or the
Residence at Washington for the period January 1 through March 31, 1995. The
revenue and expenses of the aforementioned properties were excluded from the pro
forma financial information for the period as they were under construction for
substantially all of the period prior to their acquisition.
9. SUBSEQUENT EVENTS
On February 21, 1996, the Company declared a dividend of $.45 per share
for the quarter ending March 31, 1996. The dividend will be paid on May 1, 1996
to shareholders of record on April 15, 1996.
Subsequent to March 31, 1996, the Company acquired one multifamily
property containing 248 suites in Kalamazoo, Michigan for an aggregate purchase
price of $12.5 million which was financed using borrowings under the Line of
Credit.
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<PAGE> 10
ASSOCIATED ESTATES REALTY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Associated Estates Realty Corporation (the "Company") is a Real Estate
Investment Trust ("REIT") formed in July of 1993. In November of 1993, the
Company completed its initial public offering (the "IPO") of common stock and
currently owns or is a joint venture partner in 81 multifamily properties
containing 15,281 suites. Subsequent to the IPO and prior to March 31, 1996, the
Company acquired 38 multifamily properties containing 6,165 suites in Ohio,
Michigan and Pittsburgh, Pennsylvania and three land parcels containing 89.7
acres for a aggregate investment of $270.3 million.
The following discussion should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this report.
Historical results and percentage relationships set forth in the Consolidated
Statements of Operations contained in the financial statements, including trends
which might appear, should not be taken as indicative of future operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended, commencing with
its taxable year ending December 31, 1994. REIT's are subject to a number of
organization and operational requirements including a requirement that 95% of
the income that would otherwise be considered as taxable income be distributed
to its shareholders. Providing the Company continues to qualify as a REIT, it
will generally not be subject to a Federal income tax on net income.
The Company expects to meet its short-term liquidity requirements
generally through its net cash provided by operations. The Company believes that
its net cash provided by operations will be sufficient to meet both operating
requirements and the payment of dividends by the Company in accordance with REIT
requirements in both the short and long term.
Acquisitions and dispositions:
The Company intends to continue to finance its multifamily property
acquisitions and development with the most appropriate sources of capital, which
may include undistributed Funds From Operations, the issuance of equity
securities, bank and other institutional borrowings, the issuance of debt
securities, the assumption of mortgage indebtedness or through the exchange of
properties. The Company may also determine to raise additional working capital
through one or more of these sources.
During the three months ended March 31, 1996, the Company acquired two
multifamily properties containing an aggregate of 540 suites for an aggregate
purchase price of $23.9 million. The acquisitions, which are located in Central
Ohio and Pittsburgh, Pennsylvania, were financed with borrowings under the Line
of Credit. The Company has also entered into a contract for the construction of
a 324 suite property that will be known as Bradford at Easton on a 45 acre
Columbus, Ohio land parcel owned by the Company for a total estimated cost of
$17.6 million. The Company anticipates that construction of Bradford at Easton
will be completed in the Fall of 1997. The Company is also planning a 288 suite
development in Northern Ohio for an estimated cost of $20.9 million that will
be constructed in two phases beginning in the Spring of 1996 and scheduled for
completion in the Fall of 1997.
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Subsequent to March 31, 1996, the Company acquired a multifamily property in
Kalamazoo, Michigan containing 248 suites for an aggregate purchase price of
$12.5 million which was financed with borrowings under the Company's Line of
Credit. The Company is currently under contract to purchase a parcel of
undeveloped land in Streetsboro, Ohio consisting of 12.5 acres and two
multifamily properties, one of which is located in Holland, Michigan and the
other in Grand Rapids, Michigan, containing an aggregate of 312 suites, for an
aggregate purchase price of $12.6 million. If acquired, the Company will
commence construction of a 112 suite multifamily property on the Streetsboro
land parcel commencing in the Summer of 1996. The Company expects to finance
the acquisition of the two properties and land parcel using borrowings under
the Line of Credit and the assumption of mortgage indebtedness. There can be no
assurances, however, that the Company will be successful in acquiring the two
properties and the land parcel under contract.
The Company is exploring opportunities to sell several of the
government assisted properties and has received an expression of interest from a
number of different sources. In addition, the Company has determined that a 90
acre parcel of land which was one of the assets acquired by the Company at the
time of the IPO that is presently zoned for office and industrial use will not
be rezoned for multifamily use. The Company intends to sell the property and has
received interest from parties interested in developing office and industrial
buildings on the property.
Financing:
The Company utilizes a $75 million unsecured revolving credit facility
(the "Line of Credit") that includes certain restrictive covenants which, among
others, require the Company to maintain a minimum level of net worth, to limit
dividends to 90% of Distributable Cash Flow, to restrict the use of its
borrowings and to maintain certain debt coverage ratios. The Line of Credit
provides for a scaled reduction in the LIBOR, prime rate and commitment fee
margins based on the Company's credit ratings. Based on the Company's present
credit ratings and pursuant to a March 1996 interest rate reduction amendment,
the LIBOR margin is 1.50%, fixed in increments of 30, 60, 90, 120 or 180 days
and Prime Rate borrowings are at the Prime Rate with no margin. An annual
commitment fee of between 0.25% and 0.375% on the average daily unused amount of
the facility is paid quarterly in arrears based on the amount outstanding on the
facility. The Line of Credit expires in September 1997 and the Company has the
option to extend the facility for an additional one year period. At March 31,
1996, $39.6 million was drawn on the Line of Credit. The weighted average
interest rate for Line of Credit borrowings was 7.56% during the first quarter
of 1996.
Sixty-one of the Company's 73 wholly owned properties were unencumbered
at March 31, 1996 with annualized earnings before interest, depreciation and
amortization of over $38.8 million and an historical cost basis of over $336.0
million. Twelve of the Company's wholly owned properties, having an historical
cost basis of $94.3 million, secured $65.3 million of property specific mortgage
debt at March 31, 1996 which comprised 30.3% of the Company's outstanding debt.
The Company's unsecured debt totaled $131.8 million at March 31, 1996 which
comprised 61.3% of the Company's outstanding debt. The Company's Senior Notes
and Medium Term Notes have been rated BBB- and Baa3 by Standard and Poor's and
Moody's, respectively. The weighted average interest rate on the Company's debt
was 8.10% at March 31, 1996.
The Company has filed shelf registration statements with the Securities
and Exchange Commission for the registration of up to $250 million and $200
million of debt securities, preferred shares, depositary shares, common shares
and common share warrants in January and December of 1995 respectively. The
Company has $233.8 million of securities under these shelf filings available
for issuance.
Cash flow sources and applications:
Net cash provided by operating activities increased $1,392,200 for the
three months ended March 31, 1996 when compared to the three months ended March
31, 1995. This increase was primarilly the result of an increase in earnings
before depreciation and amortization attributable to the increase in the
Company's asset portfolio.
Net cash flows used for investing activities of $26,356,400 for the
three months ended March 31, 1996 were primarily used for the acquisition of
multifamily real estate property.
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<PAGE> 12
Net cash flows provided by financing activities of $19,848,500 for the
three months ended March 31, 1996 were primarily comprised of borrowings on the
Line of Credit. Funds were also used to pay dividends on the Company's
common and perpetual preferred shares.
On February 21, 1996, the Company declared a dividend of $0.45 per
common share for the quarter ending March 31, 1996, which was paid on May 1,
1996 to shareholders of record on April 15, 1996.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1996 TO THE THREE MONTHS ENDED
MARCH 31, 1995.
Overall, total revenue increased $4,922,300, or 28.7%, and total
expenses before the net income of the joint ventures increased $4,191,200, or
32.1%, for the quarter . Net income applicable to common shares decreased
$711,300, or 17.2%, after the Company's interest in the net income of the joint
venture properties and dividends on the Company's perpetual preferred shares.
In the following discussion of the comparison of the three months ended
March 31, 1996 to the three months ended March 31, 1995, the term "Core
Portfolio Properties" refers to the 36 wholly owned multifamily properties
acquired by the Company at the time of the IPO, the 21 properties acquired
during 1994 and the acquisition of the remaining 50% interest in two properties
in which the company was a joint venture partner at the time of the IPO.
"Acquired Properties" refers to the 17 multifamily properties acquired between
January 1, 1995 and March 31, 1996.
During the three months ended March 31, 1996, the Acquired Properties
generated total revenues of $4,727,300 for the quarter while incurring property,
operating and maintenance expenses of $1,870,500.
Rental Revenues:
Rental revenues increased $4,839,600, or 30.8%, for the quarter. Rental
revenues from the Acquired Properties increased $4,144,800 for the same period.
Increases in occupancy and suite rents at the Core Portfolio market rate and
government assisted properties resulted in a $694,800 or 4.6% increase in rental
revenue from these properties. Approximately $75,000, or 0.5%, of the increase
in the Core Portfolio rental revenue relates to a retroactive rent increase at
one of the Company's government assisted properties.
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<PAGE> 13
The following table summarizes the comparative rents per suite and
economic occupancies(1) by property type:
<TABLE>
<CAPTION>
Average Net Collected Average Economic
Rent Per Suite2 Occupancy
------------------------------------ ----------------------
For the three months Percent For the three months
ended March 31, Increase ended March 31,
1996 1995 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Core Portfolio Properties:
Market rate $ 551 $ 532 3.6% 95.0% 94.4%
Market rate - joint venture
properties 476 469 1.5% 91.3% 91.9%
Weighted average -
Market rate properties 542 524 3.4% 94.6% 94.1%
Government Assisted 653 635 2.8% 99.8% 100.0%
Weighted average - Core
Portfolio Properties 561 544 3.1% 95.6% 95.3%
</TABLE>
Table I on page 16 summarizes the rental rates, occupancies and certain
other information for each of the Acquired Properties and Core Portfolio
Properties.
Other Revenues:
Painting service revenue and painting service revenue - affiliates
increased $114,800, or 69.0%, for the quarter and reflects an increase in
revenue generated from suite painting and major renovation projects when
compared to the previous year. The increase in painting service and painting
service revenue - affiliates was partially offset by an increase in painting
service expenses as discussed elsewhere herein.
Property operating and maintenance expenses:
Property operating and maintenance expenses increased $2,139,700, or
33.6%, for the quarter. Operating and maintenance expenses at the Acquired
Properties increased $1,717,700 for the quarter due primarily to the operating
and maintenance expenses incurred at the 13 properties that were acquired
between April 1, 1995 and March 31, 1996. Property operating and maintenance
expenses at the Core Portfolio Properties increased $422,000, or 6.8%, when
compared to the prior three month period primarily due to increases in payroll,
advertising and real estate taxes which were offset by a decline in maintenance
and repair expenses. Payroll expense at the Core Portfolio Properties increased
$252,100, or 17.4%, due to (i) an increase in staff at the properties acquired
during 1994 and (ii) higher levels of overtime for snow removal than were
incurred during the quarter ended March 31, 1995. Real estate taxes for the Core
Portfolio Properties increased $227,400, or 19.3%, due primarily to the increase
in the real estate tax valuations for certain properties as a result of a
reassessment. Total expenditures for building renovations and suite and
- - --------------
1 Economic occupancy is defined as the actual rent revenue divided by
the total rent expected to be earned based on the market rental rate of all
occupied suites.
2 Net collected rent revenue per suite is defined as the rent revenue
recognized on occupied suites at the actual rents in accordance with the
respective leases divided by the total number of suites available to be leased.
Page 13
<PAGE> 14
common area refurbishment (including suite painting) in the Core Portfolio
Properties averaged $555 per suite for the three months ended March 31, 1996 as
compared to $617 per suite for the three months ended March 31, 1995. This
decline in renovation and suite and common area refurbishment expenses is
primarily due to the timing of the occurrence of the expenses in 1996 and it is
expected that the favorableness in maintenance and repair expenses over the
prior quarter will reverse as the year progresses.
Other expenses:
Depreciation and amortization increased $787,200, or 28.5%, for the
quarter primarily due to the increased depreciation and amortization expense
recognized on the Acquired Properties of $819,800.
Painting services expenses increased $104,100, or 67.5%, for the
quarter. These increases were primarily the result of an increase in payroll
related expenses attributable to the increase in the number of suites painted by
the painting company.
Interest expense increased $1,159,900, or 47.1%, for the quarter
primarily due to the interest incurred with respect to the additional borrowings
under the Line of Credit that were used for the acquisition of properties
combined. In addition, the Company incurred interest on the $75 million Senior
Notes at an effective rate of 8.48% during the first quarter of 1996.
Equity in the net income (loss) of the joint ventures:
The combined equity in the net income of the joint ventures decreased
$71,300, or 132.5%,for the quarter The decrease is primarily attributable to a
decline in occupancy at the joint venture properties and higher operating
expenses due to increases in (i) overtime wages incurred for snow removal, (ii)
utility costs and (iii) heating system repairs and maintenance costs.
The following table presents the historical statements of operations of
the Company's beneficial interest in the operations of the joint ventures for
the three months ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
For the three months ended
March 31,
------------------------------
1996 1995
-------------- -------------
<S> <C> <C>
Beneficial interests in
joint venture operations
Rental revenue $ 1,642,604 $ 1,625,875
Cost of operations 1,083,045 994,462
-------------- -------------
559,559 631,413
Interest income 3,692 6,658
Interest expense (447,761) (451,951)
Depreciation (120,460) (119,900)
Amortization (12,536) (12,407)
-------------- -------------
Net income $ (17,504) $ 53,813
============== =============
</TABLE>
Net income applicable to common shares:
Net income applicable to common shares is reduced by dividends on the
2,250,000 Depositary Shares, each representing 1/10 of a share of the Company's
9 3/4% Class A Cumulative Redeemable Preferred Shares, of $1,371,000.
INFLATION
Substantially all of the residential leases at the properties allow, at
the time of renewal, for adjustments in the rent payable thereunder, and thus
may enable the Company to seek increases in rents. The substantial majority of
these leases are for one year or less and the remaining leases are for up to two
years. The short-term nature of these leases generally serves to reduce the risk
to the Company of the adverse effect of inflation.
Page 14
<PAGE> 15
CONTINGENCIES
There are no recorded amounts resulting from environmental liabilities
as there are no known contingencies with respect thereto. Future claims for
environmental liabilities are not measurable given the uncertainties surrounding
whether there exists a basis for any such claims to be asserted and, if so,
whether any claims will, in fact, be asserted. Furthermore, no condition is
known to exist that would give rise to a liability for site restoration, post
closure and monitoring commitments, or other costs that may be incurred with
respect to the sale or disposal of a property. The Company has obtained
environmental insurance covering (i) pre-existing contamination, (ii) on-going
third party contamination, (iii) third party bodily injury and (iv) remediation.
The policy is for a five year term and carries a limit of liability of $2.0
million per environmental contamination discovery (with a $50,000 deductible)
and has a $10.0 million policy term aggregate. Management has no plans to
abandon any of the properties and is unaware of any other material loss
contingencies.
Page 15
<PAGE> 16
The following tables present information concerning the Multifamily
Properties owned by Associated Estates Realty Corporation.
<TABLE>
<CAPTION>
For the three months ending
---------------------------
March 31, 1996
------------------------
Year Average Average
Type of Total Built or Unit Size Economic Physical
The Multifamily Properties Location Construction Suites Rehab. Sq. Ft. Occupancy Occupancy
- - ---------------------------- ----------- ------------ ------ ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
MARKET RATE
ACQUISITION PROPERTIES
CENTRAL OHIO PROPERTIES
Arrowhead Station Columbus Townhomes 102 1987 1,344 88.5% 97.1%
Colony Bay East Columbus Garden 156 1994 903 89.9 98.7
Kensington Grove Westerville Garden/Townhm. 76 1995 1,109 96.7 97.4
The Residence at Washington Wash. Ct. Ranch 72 1995 862 N/A 95.8
--- ----- ---- -------
406 1,045 91.4% 97.5%
WESTERN PENNSYLVANIA
Chestnut Ridge Pittsburgh Garden 468 1986 769 N/A 84.6%
MICHIGAN PROPERTIES
Arbor Landings Apartments Ann Arbor Townhomes 168 1990 1,116 97.2% 97.0%
Country Place Apartments Mt. Pleasant Garden 144 1987 859 100.0 98.6
Summer Ridge Apartments Kalamazoo Garden 248 1989-91 960 N/A N/A
The Oaks and Woods at Hampton Rochester Hil Garden/Townhm 544 1986-88 1,050 97.5 98.9
The Landings at the Preserve Battle Creek Garden 190 1990-91 952 86.8 92.1
--- ----- ---- -------
1,294 1,006 95.9% 97.3%
NORTHERN OHIO PROPERTIES
Cloisters Toledo Townhomes 188 1990 1,037 93.7% 94.7%
Kensington Village Toledo Townhomes 190 1985-90 920 97.0 96.3
Mallard's Crossing Medina Townhomes 192 1990 998 97.8 97.4
Treetops Toledo Townhomes 128 1988-89 1,350 95.6 95.3
Vantage Villa Toledo Garden 150 1974 935 95.9 93.3%
--- ----- ---- ----
848 1,031 96.1 95.5
--- ----- ---- ----
Acquisition Properties 3,016 981 95.3% 94.7%
CORE PORTFOLIO PROPERTIES
MICHIGAN PROPERTIES
Central Park Place Grand Rapids Townhomes 216 1988 850 97.0% 93.5%
Georgetown Park Apartments Fenton Townhomes 312 1987-95 1,005 93.4 93.6
--- ----- ---- ----
528 942 94.8% 93.6%
CENTRAL OHIO PROPERTIES
Bedford Commons Columbus Townhome 112 1987 1,157 96.6% 93.8%
Bentley Station Columbus Garden 96 1993 891 93.5 96.9
Bolton Estates Columbus Garden 196 1992 687 88.1 93.9
Heathermoor Worthington Garden/Townhm 280 1989 829 94.0 96.8
Lake Forest Columbus Garden 192 1994 788 87.8 93.8
Muirwood Village at Bennell Columbus Garden 140 1988 807 97.0 98.6
Muirwood Village at Gemstar Columbus Garden 24 1988 769 100.0 100.0
Muirwood Village at London London Garden 112 1989 769 95.2 97.3
Muirwood Village at Mt. Sterling Mt. Sterling Garden 48 1990 769 95.7 87.5
Muirwood Village at Zanesville Zanesville Garden 196 1991 769 100.0 97.4
Pendleton Lakes Columbus Garden 160 1990 903 84.1 98.1
Residence at Christopher Wren Gahanna Townhomes 264 1993 1,062 93.3 94.3
Residence at Turnberry Pickerington Townhomes 216 1991 1,182 92.0 93.1
Sheffield at Sylvan Circleville Garden 136 1989 791 98.0 96.3
Sterling Park Grove City Garden 128 1994 763 96.4 95.3
The Residence at Newark Newark Garden 112 1993 868 99.9 99.1
Wyndermere Franklin Garden 128 1991 768 100.0 97.7
--- ----- ---- ----
2,540 874 94.7% 95.8%
NORTHERN OHIO PROPERTIES
Bay Club Willowick Garden 96 1990 925 95.4% 92.7%
Colonade Elyria Elyria Garden 72 1964 512 94.8 98.6
Colonade West Cleveland Garden 216 1964 502 96.7 96.3
Cultural Gardens Euclid Mid Rise 186 1966 688 98.0 98.9
Edgewater Landing Cleveland High Rise 241 1988 r 585 95.9 99.2
Gates Mills III Mayfield Hts. High Rise 320 1978 874 91.9 98.4
Holly Park Kent Garden 192 1990 875 89.6 92.7
Huntington Hills Stow Garden 85 1982 976 96.6 97.6
Memphis Manor Cleveland Garden 120 1966 554 94.5 98.3
</TABLE>
<TABLE>
<CAPTION>
For the three months ending
---------------------------------------------------------------
March 31, 1996 March 31, 1995
------------------ ---------------------------------------
Average Rent Average Average Rent
Per Economic Physical Per
The Multifamily Properties Suite Sq. Ft. Occupancy Occupancy Suite Sq. Ft.
- - ---------------------------- -------- ------- --------- --------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
MARKET RATE
ACQUISITION PROPERTIES
CENTRAL OHIO PROPERTIES
Arrowhead Station $ 640 $ 0.48 98.9% 93.1% $ 563 $ 0.42
Colony Bay East 482 0.53 98.0 99.0 469 0.52
Kensington Grove 750 0.68 N/A N/A N/A N/A
The Residence at Washington N/A N/A N/A N/A N/A N/A
----- ---- ----- ----- --- ----
$ 591 $ 0.54 98.5% 96.0% $ 518 $ 0.46
WESTERN PENNSYLVANIA
Chestnut Ridge N/A N/A N/A N/A N/A N/A
MICHIGAN PROPERTIES
Arbor Landings Apartments $ 807 $ 0.72 92.9% 96.4% 805 $ 0.72
Country Place Apartments 487 0.57 N/A N/A N/A N/A
Summer Ridge Apartments N/A N/A N/A N/A N/A N/A
The Oaks and Woods at Hampton 752 0.72 N/A N/A N/A N/A
The Landings at the Preserve 646 0.68 N/A N/A N/A N/A
----- ---- ----- ----- --- ----
$ 705 $ 0.69 92.9% 96.4% $ 805 $ 0.72
NORTHERN OHIO PROPERTIES
Cloisters $ 499 $ 0.48 N/A N/A N/A N/A
Kensington Village 430 0.47 N/A N/A N/A N/A
Mallard's Crossing 656 0.66 93.8 94.3 629 0.63
Treetops 704 0.52 N/A N/A N/A N/A
Vantage Villa 561 0.60 N/A N/A N/A N/A
----- ---- ----- ----- --- ----
561 0.54 93.8 94.3 629 0.63
----- ---- ----- ----- --- ----
Acquisition Properties $ 633 $ 0.61 94.8% 95.5% $ 642 $ 0.59
CORE PORTFOLIO PROPERTIES
MICHIGAN PROPERTIES
Central Park Place $ 608 $ 0.72 98.9% 99.5% $ 571 $ 0.67
Georgetown Park Apartments 651 0.65 98.9 99.7 624 0.62
----- ---- ----- ----- --- ----
$ 634 $ 0.67 98.9% 99.6% $ 601 $ 0.64
CENTRAL OHIO PROPERTIES
Bedford Commons $ 710 $ 0.61 100.0% 98.2% $ 687 $ 0.59
Bentley Station 504 0.57 87.9% 90.6% 484 0.54
Bolton Estates 459 0.67 92.5 91.3 444 0.65
Heathermoor 524 0.63 93.4 95.0 508 0.61
Lake Forest 530 0.67 99.7 97.9 511 0.65
Muirwood Village at Bennell 474 0.59 93.1 93.6 466 0.58
Muirwood Village at Gemstar 465 0.61 84.5 83.3 458 0.60
Muirwood Village at London 485 0.63 96.0 96.4 473 0.62
Muirwood Village at Mt. Sterling 479 0.62 94.0 91.7 465 0.61
Muirwood Village at Zanesville 504 0.66 99.0 98.4 483 0.63
Pendleton Lakes 493 0.55 90.5 90.6 474 0.52
Residence at Christopher Wren 702 0.66 92.2 95.5 688 0.65
Residence at Turnberry 710 0.60 93.6 94.4 703 0.59
Sheffield at Sylvan 498 0.63 100.0 98.9 491 0.62
Sterling Park 525 0.69 92.5 90.6 510 0.67
The Residence at Newark 532 0.61 99.3 96.4 518 0.60
Wyndermere 518 0.67 99.3 100.0 502 0.65
----- ---- ----- ----- --- -----
$ 551 $ 0.63 94.7% 94.8% $ 539 $ 0.61
NORTHERN OHIO PROPERTIES
Bay Club $ 604 $ 0.65 99.7% 100.0% $ 570 $ 0.62
Colonade Elyria 358 0.70 98.0 100.0 347 0.68
Colonade West 389 0.77 94.3 96.8 366 0.73
Cultural Gardens 485 0.71 97.5 98.9 472 0.69
Edgewater Landing 409 0.70 86.2 90.9 413 0.71
Gates Mills III 657 0.75 88.9 90.3 644 0.74
Holly Park 721 0.82 91.2 90.1 715 0.82
Huntington Hills 636 0.65 97.1 100.0 608 0.62
Memphis Manor 428 0.77 94.4 96.7 408 0.74
</TABLE>
Page 16
<PAGE> 17
<TABLE>
<CAPTION>
For the three months ending
--------------------------
March 31, 1996
----------------------
Year Average Average
Type of Total Built or Unit Size Economic Physical
The Multifamily Properties Location Construction Suites Rehab. Sq. Ft. Occupancy Occupancy
- - ---------------------------- ------------- ------------- ------ -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Park Place Parma Hts. Mid Rise 164 1966 760 98.6 97.6
Pinecrest Broadview Hts Garden 96 1987 r 598 94.7 94.8
Portage Towers Cuyahoga Falls High Rise 376 1973 869 96.3 96.0
Somerset West (a) North Royalton Garden 197 1982 1,038 93.6 95.9
Timbers I Broadview Hts. Garden 48 1987 920 92.0 93.8
Timbers II Broadview Hts. Garden 48 1989 940 95.2 95.8
The Triangle (b) Cleveland High Rise 273 1989 616 98.4 97.1
Villa Moderne North Olmsted Garden 135 1963 504 97.2 94.8
Washington Manor Elyria Garden 48 1963 584 99.0 100.0
West Park Plaza Cleveland Garden 118 1964 520 95.3 98.3
Westchester Townhouses Westlake Garden 136 1989 1,000 96.8 94.1
Westlake Townhomes Westlake Garden 7 1985 1,000 100.0 100.0
Williamsburg at Greenwood VillagSagamore Hills Townhomes 260 1990 938 95.8 95.4
Winchester Hills I (c) Willoughby Hills High Rise 362 1972 822 92.6 96.1
Winchester Hills II Willoughby Hills High Rise 362 1979 822 95.1 94.5
----- ----- ----- -----
4,158 772 95.1 96.4
----- ----- ----- -----
Core Portfolio Market Rate Properties 7,226 820 95.0% 96.4%
GOVERNMENT ASST.-ELDERLY
Ellet Development Akron High Rise 100 1978 589 100.0% 100.0%
Hillwood I Akron High Rise 100 1976 570 100.0 100.0
Puritas Place (d) Cleveland High Rise 100 1981 518 100.0 100.0
Riverview Massillon High Rise 98 1979 553 100.0 99.0
State Road Apartments Cuyahoga Falls Garden 72 1977 r 750 100.0 100.0
Statesman II Shaker Height Garden 47 1987 r 796 100.0 100.0
Sutliff Apartments II Cuyahoga Falls High Rise 185 1979 577 99.6 100.0
Tallmadge Acres Tallmadge Mid Rise 125 1981 641 100.0 100.0
Twinsburg Apartments Twinsburg Mid Rise 100 1979 554 100.0 100.0
Village Towers Jackson Twp. High Rise 100 1979 557 100.0 99.0
West High Apartments Akron Mid Rise 68 1981 r 702 100.0 100.0
----- ----- ----- -----
1,095 602 100.0% 99.8%
GOVERNMENT ASST.-FAMILY
Jennings Commons Cleveland Garden 50 1981 823 98.8% 100.0%
Rainbow Terrace Cleveland Garden 484 1982 r 768 98.7 97.7
Shaker Park Gardens II Warrensville Garden 151 1964 753 99.0 100.0
----- ----- ----- -----
685 769 98.8 98.4
----- ----- ----- -----
Core Portfolio Government Asst. Properties 1,780 666 99.7% 99.3%
CONGREGATE CARE
Gates Mills Club Mayfield Heigts High Rise 120 1980 721 96.6% 96.7%
The Oaks Westlake Garden 50 1985 672 92.9 94.0
----- ----- ----- -----
170 707 95.3 95.9
----- ----- ----- -----
9,176 734 96.0 % 96.6%
JOINT VENTURE PROPERTIES
NORTHEAST OHIO
MARKET RATE
Americana Euclid High Rise 738 1968 803 90.3% 92.3%
College Towers Kent Mid Rise 380 1969 662 91.7 93.7
Euclid House Euclid Mid Rise 126 1969 654 96.5 92.1
Gates Mills Towers Mayfield Hts. High Rise 760 1969 856 94.2 98.0
Highland House Painesville Garden 36 1964 539 100.0 100.0
Watergate Euclid High Rise 949 1971 831 87.9 91.7
----- ----- ----- -----
2,989 789 91.3% 93.8%
GOVERNMENT ASST.-FAMILY
Lakeshore Village Cleveland Garden 108 1982 786 100.0% 100.0%
----- ----- ----- -----
3,097 789 91.9 94.0
----- ----- ----- -----
15,289 974 95.5% 95.7%
====== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
For the three months ending
--------------------------------------------------------------------
March 31, 1996 March 31, 1995
-------------------- ---------------------------------------------
Average Rent Average Average Rent
Per Economic Physical Per
The Multifamily Properties Suite Sq. Ft. Occupancy Occupancy Suite Sq. Ft.
- - ---------------------------- -------- ------- --------- --------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Park Place 512 0.67 98.2 97.0 489 0.64
Pinecrest 452 0.76 98.2 97.9 434 0.73
Portage Towers 544 0.63 98.2 98.7 523 0.60
Somerset West (a) 678 0.65 96.6 98.0 665 0.64
Timbers I 649 0.71 99.2 100.0 632 0.69
Timbers II 699 0.74 93.3 97.9 661 0.70
The Triangle (b) 848 1.38 93.9 98.5 833 1.35
Villa Moderne 418 0.83 96.3 97.0 405 0.80
Washington Manor 377 0.65 99.2 100.0 364 0.62
West Park Plaza 412 0.79 95.7 95.8 394 0.76
Westchester Townhouses 741 0.74 90.4 96.3 718 0.72
Westlake Townhomes 745 0.75 100.0 100.0 714 0.71
Williamsburg at Greenwood Village 791 0.84 90.5 93.5 765 0.82
Winchester Hills I (c) 556 0.68 93.9 94.8 537 0.65
Winchester Hills II 588 0.72 91.2 94.8 568 0.69
--- ---- ----- ----- --- ----
582 0.75 93.6 95.8 565 0.73
--- ---- ----- ----- --- ----
Core Portfolio Market Rate Properties 575 $ 0.70 94.4% 95.7% $ 559 $ 0.68
GOVERNMENT ASST.-ELDERLY
Ellet Development 590 $1.00 99.9% 100.0% $ 589 $1.00
Hillwood I 599 1.05 100.0 100.0 596 1.05
Puritas Place (d) 782 1.51 100.0 99.9 782 1.51
Riverview 591 1.07 100.0 100.0 590 1.07
State Road Apartments 596 0.79 100.0 100.0 596 0.79
Statesman II 651 0.82 100.0 100.0 650 0.82
Sutliff Apartments II 586 1.02 100.0 100.0 580 1.01
Tallmadge Acres 662 1.03 99.8 100.0 659 1.03
Twinsburg Apartments 603 1.09 100.0 100.0 602 1.09
Village Towers 583 1.05 100.0 100.0 579 1.04
West High Apartments 790 1.13 100.0 100.0 789 1.12
--- ---- ----- ----- --- ----
632 $ 1.05 100.0% 99.9% $ 630 $ 1.05
GOVERNMENT ASST.-FAMILY
Jennings Commons 685 $ 0.83 100.0% 98.0% $ 680 $ 0.83
Rainbow Terrace 738 0.96 99.9 97.7 620 0.81
Shaker Park Gardens II 531 0.71 99.6 100.0 531 0.71
--- ---- ----- ----- --- ----
688 0.89 99.9 98.4 605 0.79
--- ---- ----- ----- --- ----
Core Portfolio Government Asst. Properties 654 $ 0.98 100.0% 99.3% $ 620 $ 0.93
CONGREGATE CARE
Gates Mills Club 749 $ 1.04 96.7% 99.2% $ 684 $ 0.95
The Oaks 953 1.42 92.0 96.0 939 1.40
--- ---- ----- ----- --- ----
809 1.14 95.0 98.2 759 1.07
--- ---- ----- ----- --- ----
595 $ 0.75 95.6% 96.5% $ 577 $ 0.73
JOINT VENTURE PROPERTIES
NORTHEAST OHIO
MARKET RATE
Americana 483 $ 0.60 93.6% 94.2% $ 469 $ 0.58
College Towers 404 0.61 89.5 88.2 380 0.57
Euclid House 430 0.66 91.3 92.9 421 0.64
Gates Mills Towers 655 0.77 93.0 96.4 646 0.75
Highland House 385 0.71 97.1 100.0 371 0.69
Watergate 533 0.64 90.6 92.5 530 0.64
--- ---- ----- ----- --- ----
521 $ 0.66 91.9% 93.5% $ 510 $ 0.65
GOVERNMENT ASST.-FAMILY
Lakeshore Village 669 $ 0.85 99.9% 99.1% $ 726 $ 0.92
--- ---- ----- ----- --- ----
528 0.67 92.5 90.2 520 0.66
--- ---- ----- ----- --- ----
$ 591 $ 0.72 95.3% 95.7% $ 575 $ 0.72
====== ====== ====== ====== ===== ======
</TABLE>
- - --------------
(a) Somerset West has 77 Contract Suites and 120 Conventional Property suites.
(b) The Triangle also contains 63,321 square feet of office/retail space.
(c) The Company acquired a noteholder interest entitling the Company
to substantially all cash flows from operations. The Company has
certain rights under a security agreement to foreclose on the
property to the extent that the unpaid principal and interest on
the underlying notes exceed seven years equivalent principal and
interest payments. Unpaid principal and interest is expected to
exceed seven years of equivalent principal and interest payments
in 1995.
(d) The property was developed by AEG in 1981 subject to a warranty deed
reversion provision. This provision states that the assignment of fee
simple title of the property to AEG (transferred to the Company) shall
expire in 2037.
r = Rehabilitated
Page 17
<PAGE> 18
HISTORICAL FUNDS FROM OPERATIONS AND DISTRIBUTABLE CASH FLOW
Industry analysts generally consider Funds From Operations to be an
appropriate measure of the performance of an equity REIT. Funds From Operations
is defined as net income (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from sales of property,
non-recurring and extraordinary items, plus depreciation on real estate assets
and after adjustments for unconsolidated joint ventures. Adjustments for joint
ventures are calculated to reflect Funds From Operations on the same basis.
Funds From Operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and is
not necessarily indicative of cash available to fund cash needs and should not
be considered an alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flow as a measure of
liquidity. Distributable Cash Flow is defined as Funds From Operations less
capital expenditures funded by operations and loan amortization payments. The
Company believes that in order to facilitate a clear understanding of the
consolidated historical operating results of the Company, Funds From Operations
and Distributable Cash Flow should be presented in conjunction with net income
(loss) as presented in the consolidated financial statements and data included
elsewhere in this report.
Funds From Operations and Funds Available for Distribution
("Distributable Cash Flow") for the three month period ended March 31, 1996 and
1995 are summarized in the following table:
<TABLE>
<CAPTION>
For the three months
ended March 31,
(IN THOUSANDS) 1996 1995
------------- --------
<S> <C> <C>
NET INCOME APPLICABLE TO COMMON SHARES $ 3,420 $ 4,131
Depreciation on real estate assets
Wholly owned properties 3,330 2,574
Joint venture properties 121 120
------------ ------------
FUNDS FROM OPERATIONS 6,871 6,825
Depreciation - other assets 69 60
Amortization of deferred financing fees 163 128
Scheduled mortgage principal amortization (217) (140)
Scheduled mortgage principal amortization-
joint venture properties (47) (43)
Fixed asset additions (115) (186)
Fixed asset additions - joint venture properties - (14)
------------- ------------
DISTRIBUTABLE CASH FLOW $ 6,724 $ 6,630
============= ============
Weighted average shares outstanding 13,872 13,869
============= =============
</TABLE>
Page 18
<PAGE> 19
PART II
OTHER INFORMATION
Except to the extent noted below, the items required in Part II are
inapplicable and have been omitted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
FILED HEREWITH OR
INCORPORATED
HEREIN BY
Number TITLE REFERENCE
------ ------------------------------------------------------------ -----------------
<S> <C> <C>
3.1 Second Amended and Restated Articles of Incorporation of the Exhibit 3.1 filed
Company herewith.
3.2 Code of Regulations of the Company Exhibit 3.2 filed
herewith.
4.1 Fourth Amendment to Revolving Credit Facility dated March 8, Exhibit 4.1 filed
1996, by and among the Company, as Borrower, and National herewith.
City Bank, as Agent, and the banks identified therein.
10.1 Employment Agreement between the Company and Jeffrey I. Exhibit 10.1 filed
Friedman herewith.
27 Financial Data Schedule Exhibit 27 filed
herewith.
(b) Reports on Form 8-K
None
</TABLE>
Page 19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASSOCIATED ESTATES REALTY CORPORATION
May 13, 1996 /s/ Dennis W. Bikun
- - --------------------- ------------------------------------------------------
(Date) Dennis W. Bikun, Chief Financial Officer and Treasurer
Page 20
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF ADOPTION
-----------------------
OF
--
SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION
-----------------------------------------------------
OF
--
ASSOCIATED ESTATES REALTY CORPORATION
-------------------------------------
Jeffrey I. Friedman, President, and Martin A. Fishman,
Secretary, of Associated Estates Realty Corporation, an Ohio corporation (the
"Corporation"), do hereby certify that on November 6, 1993, in a writing
approved and signed as specified in Section 1701.54 of the Ohio Revised Code,
the sole shareholder of the Corporation adopted the following resolutions, and
that said resolutions are valid and binding, have not been amended, modified or
rescinded, and are in full force and effect on the date hereof:
RESOLVED, that the Second Amended and Restated
Articles of Incorporation of the Corporation, in the form
attached as Exhibit A hereto, be, and the same hereby are,
adopted in their entirety; and
FURTHER RESOLVED, that the President ad Secretary of
the Corporation be, and they hereby are, authorized and
directed, for and on behalf of the Corporation, to execute a
certificate setting forth the foregoing resolution adopting
the Second Amended and Restated Articles of Incorporation and
to cause such certificate to be filed in the office of the
Secretary of Sate of Ohio.
IN WITNESS WHEREOF, we have executed this instrument in one or
more counterparts as of the 6th day of November, 1993.
/S/ Jeffrey I. Friedman
--------------------------------
Jeffrey I. Friedman, President
/S/ Martin A. Fishman
--------------------------------
Martin A. Fishman, Secretary
<PAGE> 2
SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
ASSOCIATED ESTATES REALTY CORPORATION
FIRST: The name of the Corporation shall be Associated
Estates Realty Corporation.
SECOND: The place in the State of Ohio where the principal
office of the Corporation is located is Mayfield Village, Cuyahoga County.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be formed under Sections
1701.01 to 1701.98, inclusive, of the Ohio Revised Code.
FOURTH: The total number of shares of all classes that the
Corporation shall have authority to issue is Fifty Million (50,000,000) shares,
all of which shall be Common Shares, without par value (the "Common Shares").
The Common Shares shall have the following express terms:
Section 1. DIVIDEND RIGHTS. The holders of Common Shares shall
be entitled to receive, when, as and if declared by the Board of Directors of
the Corporation, out of the assets of the Corporation which are by law available
therefor, dividends or distributions payable in cash, in property or in
securities of the Corporation.
Section 2. RIGHTS UPON LIQUIDATION. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of, or any
distribution of the assets of, the Corporation, each holder of Common Shares
shall be entitled to receive, ratably with each other holder of Common Shares,
that portion of the assets of the Corporation available for distribution to its
shareholders as the number of Common Shares held by such holder bears to the
total number of Common Shares then outstanding.
Section 3. VOTING RIGHTS. The holders of Common Shares shall
be entitled to vote on all matters at all meetings of the shareholders of the
Corporation, and shall be entitled to one vote for each Common Share entitled to
vote at such meeting.
Section 4. RESTRICTIONS ON TRANSFER TO PRESERVE TAX BENEFIT;
COMMON SHARES SUBJECT TO REDEMPTION.
(a) DEFINITIONS. For the purposes of Section 4 of this Article
FOURTH, the following terms shall have the following meanings:
"Beneficial Ownership" shall mean ownership of Common Shares
by a Person who would be treated as an owner of such Common Shares
either directly or constructively through the application of Section
544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The
terms "Beneficial Owner," "Beneficially Owns" and "Beneficially Owned"
shall have the correlative meanings.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Constructive Ownership" shall mean ownership of Common Shares
by a Person who would be treated as an owner of such Common Shares
either directly or constructively through the application of
<PAGE> 3
Section 318 of the Code, as modified by Section 856(d)(5) of the Code.
The terms "Constructive Owner," "Constructively Owns" and
"Constructively Owned" shall have the correlative meanings.
"Excess Shares" shall mean any Common Shares (i) acquired or
proposed to be acquired by any Person (other than an Existing Holder)
pursuant to a Transfer to the extent that, if effective, such Transfer
would result in the transferee either (A) Beneficially Owning Common
Shares in excess of the Ownership Limit or (B) Constructively Owning
Common Shares in excess of the Related Party Limit, (ii) acquired or
proposed to be acquired by an Existing Holder pursuant to a Transfer to
the extent that, if effective, such Transfer would result in such
Existing Holder Beneficially Owning Common Shares in excess of the
Existing Holder Limit for such Existing Holder, or (iii) which are the
subject of a Transfer which, if effective, would result in (A) the
Common Shares being owned by fewer than 100 Persons (determined without
reference to any rules of attribution), or (B) the Corporation being
"closely held" within the meaning of Section 856(h) of the Code.
"Existing Holder" shall mean (i) Jeffrey I. Friedman, (ii)
Susan Friedman, (iii) Mark L. Milstein, (iv) Robert Milstein, and (v)
any Person to whom an Existing Holder Transfers Beneficial Ownership of
Common Shares causing such transferee to Beneficially Own Common Shares
in excess of the Ownership Limit.
"Existing Holder Limit" (i) for any Existing Holder who is an
Existing Holder by virtue of clause (i), (ii), (iii) or (iv) of the
definition thereof, shall mean, initially, the percentage of the
outstanding Common Shares Beneficially Owned by such Existing Holder
upon the consummation of the Initial Public Offering, and after any
adjustment pursuant to Section (4)(i) of this Article FOURTH, shall
mean such percentage of the outstanding Common Shares as so adjusted;
and (ii) for any Existing Holder who becomes an Existing Holder by
virtue of clause (v) of the definition thereof, shall mean, initially,
the percentage of the outstanding Common Shares Beneficially Owned by
such Existing Holder at the time that such Existing Holder becomes an
Existing Holder, and after any adjustment pursuant to Section 4(i) of
this Article FOURTH, shall mean such percentage of the outstanding
Common Shares as so adjusted. From and after the date of the Initial
Public Offering, the secretary of the Corporation shall maintain and,
upon request, make available to each Existing Holder, a schedule which
sets forth the then current Existing Holder Limits for each Existing
Holder.
"Initial Public Offering" means the sale of Common Shares
pursuant to the Corporation's first effective registration statement
for such Common Shares filed under the Securities Act of 1933, as
amended.
"Market Price" shall mean the last reported sales price of
Common Shares reported on the New York Stock Exchange on the trading
day immediately preceding the relevant date or, if the Common Shares
are not then traded on the New York Stock Exchange, the last reported
sales price of the Common Shares on the trading day immediately
preceding the relevant date as reported on any exchange or quotation
system on which the Common Shares may be traded, or if the Common
Shares are not then traded on any exchange or quotation system, then
the market price of the Common Shares on the relevant date as
determined in good faith by the Board of Directors of the Corporation.
"Ownership Limit" initially shall mean 4.0% of the outstanding
Common Shares of the Corporation and, after any modification as set
forth in Section 4(i) of this Article FOURTH, shall mean such greater
percentage (but not more than 9.9%) of the outstanding Common Shares
determined by the Board of Directors of the Corporation pursuant to
such Section 4(i).
"Person" shall mean an individual, corporation, partnership,
estate, trust (including a trust qualified under Section 401(a) or
501(c)(17) of the Code), a portion of a trust permanently set aside for
or to be used exclusively for the purposes described in Section 642(c)
of the Code, an association, a
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<PAGE> 4
private foundation within the meaning of Section 509(a) of the Code, a
joint stock company, other entity or a group as that term is used for
purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended; provided, however, that a "person" does not mean an
underwriter participating in a public offering of Common Shares, for a
period of 25 days following the purchase by such underwriter of the
Common Shares.
"REIT" shall mean a Real Estate Investment Trust as defined
under Section 856 of the Code.
"Related Party Limit" shall mean 9.8% of the outstanding
Common Shares of the Corporation.
"Transfer" shall mean any sale, transfer, gift, assignment,
devise or other disposition of Common Shares (including, without
limitation, (i) the granting of any option or entering in to any
agreement for the sale, transfer or other disposition of Common Shares
or (ii) the sale, transfer, assignment or other disposition of any
securities or rights convertible into or exchangeable for Common
Shares), whether voluntary or involuntary, whether of record or
beneficially and whether by operation of law or otherwise.
(b) RESTRICTIONS ON TRANSFERS.
--------------------------
(i) Except as provided in Section 4(i) of this
Article FOURTH, from and after the date of the Initial Public
Offering, no Person (other than an Existing Holder) shall
Beneficially Own Common Shares in excess of the Ownership
Limit, no Existing Holder shall Beneficially Own Common Shares
in excess of the Existing Holder Limit for such Existing
Holder and no Person (other than an Existing Holder who
Constructively Owns in excess of 9.8% of the outstanding
Common Shares immediately following the completion of the
Initial Public Offering) shall Constructively Own Common
Shares in excess of 9.8% of the outstanding Common Shares.
(ii) Except as provided in Section 4(i) of this
Article FOURTH, from and after the date of the Initial Public
Offering, any Transfer which, if effective, would result in
any Person (other than an Existing Holder) Beneficially Owning
Common Shares in excess of the Ownership Limit shall be void
AB INITIO as to the Transfer of such Common Shares which would
be otherwise Beneficially Owned by such Person in excess of
the Ownership Limit, and the intended transferee shall acquire
no rights in such Common Shares.
(iii) Except as provided in Section 4(i) of this
Article FOURTH, from and after the date of the Initial Public
Offering, any Transfer which, if effective, would result in
any Existing Holder Beneficially Owning Common Shares in
excess of the applicable Existing Holder Limit shall be void
AB INITIO as to the Transfer of such Common Shares which would
be otherwise Beneficially Owned by such Existing Holder in
excess of the applicable Existing Holder Limit, and such
Existing Holder shall acquire no rights in such Common Shares.
(iv) Except as provided in Section 4(i) of this
Article FOURTH, from and after the date of the Initial Public
Offering, any Transfer which, if effective, would result in
any Person Constructively Owning Common Shares in excess of
the Related Party Limit shall be void AB INITIO as to the
Transfer of such Common Shares which would be otherwise
Constructively Owned by such Person in excess of such amount,
and the intended transferee shall acquire no rights in such
Common Shares.
(v) Except as provided in Section 4(i) of this
Article FOURTH, from and after the date of the Initial Public
Offering, any Transfer which, if effective, would result in
the Common Shares being beneficially owned by fewer than 100
Persons (determined without
3
<PAGE> 5
reference to any rules of attribution) shall be void AB INITIO
as to the Transfer of such Common Shares which would be
otherwise beneficially owned by the transferee, and the
intended transferee shall acquire no rights in such Common
Shares.
(vi) From and after the date of the Initial Public
Offering, any Transfer which, if effective, would result in
the Corporation being "closely held" within the meaning of
Section 856(h) of the Code shall be void AB INITIO as to the
Transfer of the Common Shares which would cause the
Corporation to be "closely held" within the meaning of Section
856(h) of the Code, and the intended transferee shall acquire
no rights in such Common Shares.
(c) REMEDIES FOR BREACH. If the Board of Directors or its
designees shall at any time determine in good faith that a Transfer has
taken place in violation of Section 4(b) of this Article FOURTH or that
a Person intends to acquire or has attempted to acquire beneficial
ownership (determined without reference to any rules of attribution),
Beneficial Ownership or Constructive Ownership of any Common Shares of
the Corporation in violation of Section 4(b) of this Article FOURTH, or
that any such Transfer, intended or attempted acquisition or
acquisition would jeopardize the status of the Company as a REIT under
the Code, the Board of Directors or its designees shall take such
actions as it deems advisable to refuse to give effect or to prevent
such Transfer, including, but not limited to, refusing to give effect
to such Transfer on the books of the Corporation or instituting
proceedings to enjoin such Transfer and, in addition, exercising its
rights under Section 4(d) of this Article FOURTH.
(d) PURCHASE RIGHT IN EXCESS SHARES. Beginning on the date of
the occurrence of a Transfer which, if consummated, in the good faith
judgment of the Board of Directors of the Corporation, could result in
Excess Shares, such Excess Shares shall be deemed to have been offered
for sale to the Corporation, or its designee, at a price per share
equal to the lesser of (i) the price per share in the transaction that
created such Excess Shares (or, in the case of a devise or gift, the
Market Price at the time of such devise or gift) and (ii) the Market
Price on the date the Corporation, or its designee, accepts such offer.
The Corporation shall have the right to accept such offer for a period
of ninety (90) days after the later of (i) the date of the Transfer
which resulted in such Excess Shares and (ii) the date the Board of
Directors determines in good faith that such Transfer has occurred if
the Corporation does not receive a notice of such Transfer pursuant to
Section 4(e) of this Article FOURTH. Prompt payment of the purchase
price shall be made in such reasonable manner as may be determined by
the Corporation. From and after the date fixed for purchase by the
Corporation, and so long as payment of the purchase price for the
Excess Shares to be so purchased shall have been made or duly provided
for, the holder of any Excess Shares so called for purchase shall cease
to be entitled to dividends, distributions, voting rights and other
benefits with respect to such Excess Shares, excepting only the right
to payment of the purchase price fixed as aforesaid. Any dividend or
distribution paid to a proposed transferee of Excess Shares prior to
the discovery by the Corporation that the Excess Shares have been
transferred in violation of Section 4(b) of this Article FOURTH shall
be repaid to the Corporation upon demand. If the foregoing provisions
are determined to be void or invalid by virtue of any legal decision,
statute, rule or regulation, then the intended transferee of such
Excess Shares shall be deemed, at the option of the Corporation, to
have acted as agent on behalf of the Corporation in acquiring such
Excess Shares and to hold such Excess Shares on behalf of the
Corporation.
(e) NOTICE OF RESTRICTED TRANSFER. Any Person who acquires or
intends to acquire Common Shares in violation of Section 4(b) of this
Article FOURTH or any Person who is a transferee of Excess Shares shall
immediately give written notice to the Corporation of such event and
shall provide to the Corporation such other information as the
Corporation may request in order to determine the effect, if any, of
such Transfer or intended Transfer on the Corporation's status as a
REIT.
4
<PAGE> 6
(f) OWNERS REQUIRED TO PROVIDE INFORMATION. From and
after the date of the Initial Public Offering:
(i) every Beneficial Owner of more than 5.0% (or such
other percentage, between 0.5% and 5.0%, as provided in the
regulations promulgated from time to time pursuant to the
Code) of the outstanding Common Shares of the Corporation
shall, within 30 days after January 1 of each year, give
written notice to the Corporation stating the name and address
of such Beneficial Owner, the number of shares Beneficially
Owned, and a description of how such shares are held. Each
such Beneficial Owner shall provide to the Corporation such
additional information as the Corporation may from time to
time request in order to determine the effect, if any, of such
Beneficial Ownership on the Corporation's status as a REIT.
(ii) each Person who is a Beneficial Owner or
Constructive Owner of Common Shares and each Person (including
the shareholder of record) who is holding Common Shares for a
Beneficial Owner or Constructive Owner shall provide to the
Corporation such information as the Corporation may from time
to time request, in good faith, in order to determine the
effect, if any, of such ownership or holding on the
Corporation's status as a REIT.
(g) REMEDIES NOT LIMITED. Subject to the provisions of Section
4(m) of this Article Fourth, nothing contained in this Article FOURTH
shall limit the authority of the Board of Directors to take such other
action as it deems necessary or advisable to protect the Corporation
and the interests of its shareholders by preservation of the
Corporation's status as a REIT.
(h) AMBIGUITY. In the case of an ambiguity in the application
of any of the provisions of Section 4 of this Article FOURTH, including
any definition contained in Section 4(a), the Board of Directors shall
have the power to determine the application of the provisions of this
Section 4 with respect to any situation based on the facts known to it.
(i) MODIFICATION OF EXISTING HOLDER LIMITS. Subject to the
provisions of Section 4(k) of this Article Fourth, the Existing Holder
Limits may be modified as follows:
(i) any Existing Holder may Transfer Common Shares to
a Person who is already an Existing Holder up to the number of
Common Shares Beneficially Owned by such transferor Existing
Holder in excess of the Ownership Limit. Any such Transfer
will decrease the Existing Holder Limit for such transferor
Existing Holder and increase the Existing Holder Limit for
such transferee Existing Holder by the percentage of the
outstanding Common Shares so Transferred. The transferor
Existing Holder shall give the Board of Directors of the
Corporation prior written notice of any such Transfer.
(ii) any grant of a stock option pursuant to a stock
option plan approved by the shareholders of the Corporation
shall increase the Existing Holder Limit for the affected
Existing Holder to the maximum extent possible under Section
4(k) of this Article Fourth to permit the Beneficial Ownership
of the Common Shares issuable upon the exercise of such stock
option.
(iii) the Board of Directors may reduce the Existing
Holder Limit for any Existing Holder, with the written consent
of such Existing Holder, after any Transfer permitted in this
Section 4 by such Existing Holder to a Person other than an
Existing Holder or after the lapse (without exercise) of a
stock option described in Section 4(i)(ii).
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(iv) any Common Shares issued to an Existing Holder
pursuant to a dividend reinvestment plan adopted by the
Corporation shall increase the Existing Holder Limit for the
Existing Holder to the maximum extent possible under Section
4(k) of this Article Fourth to permit the Beneficial Ownership
of such Common Shares.
(v) the Related Party Limit may not be increased to a
percentage which is greater than 9.8%.
(j) MODIFICATION OF OWNERSHIP LIMIT. Subject to the limitations
provided in Section 4(k), the Board of Directors may from time to time
increase the Ownership Limit.
(k) LIMITATIONS ON MODIFICATIONS. Notwithstanding any other
provision of this Article FOURTH:
(i) Neither the Ownership Limit nor any Existing
Holder Limit may be increased (nor may any additional Existing
Holder Limit be created) if, after giving effect to such
increase (or creation), five Beneficial Owners of Common
Shares (including all of the then Existing Holders) could
Beneficially Own, in the aggregate, more than 49.5% of the
outstanding Common Shares.
(ii) Prior to the modification of any Existing Holder
Limit or Ownership Limit pursuant to Section 4(i) or Section
4(j) of this Article FOURTH, the Board of Directors of the
Corporation may require such opinions of counsel, affidavits,
undertakings or agreements as it may deem necessary or
advisable in order to determine or ensure the Corporation's
status as a REIT.
(iii) No Existing Holder Limit shall be reduced to a
percentage that is less than the Ownership Limit.
(iv) The Ownership Limit may not be increased to
a percentage which is greater than 9.9%.
(l) EXCEPTIONS.
-----------
(i) The Board of Directors, with a ruling from the
Internal Revenue Service or an opinion of counsel, may exempt
a Person from the Ownership Limits or the Existing Holder
Limits, as the case may be, if such Person is not an
individual for purposes of Section 542(a)(2) of the Code, if
such Persons make such representations and undertakings to the
Corporation as are, in the judgment of the Board of Directors,
reasonably necessary to ascertain that no individual's
Beneficial Ownership of such Common Shares will violate the
Ownership Limit or the applicable Existing Holder Limit, as
the case may be, and if such Person agrees that any violation
or attempted violation will result in such Common Shares in
excess of 4.0% of the outstanding Common Shares being deemed
to be Excess Shares and subject to repurchase by the
Corporation as set forth in Section 4(d) of this Article
FOURTH.
(ii) The Board of Directors, with a ruling from the
Internal Revenue Service or an opinion of counsel, may exempt
a Person from the limitation on such Person Constructively
Owning Common Shares in excess of the Related Party Limit if
such Person does not own, and represents that it will not own,
directly or constructively (by virtue of the application of
Section 318 of the Code, as modified by Section 856(d)(5) of
the Code), more than a 9.9% interest (as set forth in Section
856(d)(2)(B)) in a tenant of any real property owned or leased
by the Corporation, and the Corporation obtains such
representations and undertakings from such
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<PAGE> 8
Person as are reasonably necessary to ascertain this fact and
agrees that any violation or attempted violation will result
in such Common Shares in excess of 9.9% being deemed to be
Excess Shares and subject to repurchase by the Corporation as
set forth in Section 4(d) of this Article FOURTH.
(m) NEW YORK STOCK EXCHANGE TRANSACTIONS. Notwithstanding any
other provision of Section 4 of this Article FOURTH, nothing in Section
4 of Article FOURTH shall preclude the settlement of any transaction
entered into through the facilities of the New York Stock Exchange.
Section 5. LEGEND. Each certificate for Common Shares shall
bear the following legend:
"The Common Shares represented by this certificate are subject
to restrictions on transfer for the purpose of preserving the Corporation's
status as a Real Estate Investment Trust under the Internal Revenue Code of
1986, as amended. Subject to certain provisions of the Corporation's Amended and
Restated Articles of Incorporation, no Person may Beneficially Own Common Shares
in excess of 4.0% of the outstanding Common Shares of the Corporation (unless
such Person is an Existing Holder) and no Person (other than an Existing Holder
who Constructively Owns in excess of 9.8% of the Common Shares immediately
following the consummation of the Initial Public Offering) may Constructively
Own Common Shares in excess of 9.8% of the outstanding Common Shares of the
Corporation. Any Person who attempts to Beneficially Own or Constructively Own
Common Shares in excess of the above limitations must immediately notify the
Corporation. All capitalized terms in this legend have the meanings defined in
the Corporation's Amended and Restated Articles of Incorporation, a copy of
which, including the restrictions on transfer, will be sent without charge to
each shareholder who so requests. If the restrictions on transfer are violated,
certain of the Common Shares represented may be subject to repurchase by the
Corporation on the terms and conditions set forth in the Corporation's Amended
and Restated Articles of Incorporation."
FIFTH: At all times following the consummation of the Initial
Public Offering (as defined in Article FOURTH), at least a majority of the
members of the Board of Directors shall, except during the period of a vacancy
or vacancies therein, be Independent Directors. An "Independent Director" shall
mean a person who is not (i) employed by the Corporation or (ii) an "affiliate"
(as defined in Rule 405 under the Securities Act of 1933, as amended) of (A) any
entity which now or hereafter is part of the Associated Estates Group,
including, without limitation, Associated Estates Corporation, an Ohio
corporation, Adam Construction Company, an Ohio corporation, and Estates
Insurance Agency, Inc., an Ohio corporation, or (B) any entity which is an
affiliate (as defined above) of any entity listed in clause (ii)(A) of this
Article FIFTH.
SIXTH: No holder of shares of the Corporation of any class
shall be entitled as such, as a matter of right, to subscribe for or purchase
shares of any class, now or hereafter authorized, or to subscribe for or
purchase securities convertible into or exchangeable for shares of the
Corporation or to which shall be attached or appertain any warrants or rights
entitling the holder thereof to subscribe for or purchase shares, except such
rights of subscription or purchase, if any, for such considerations and upon
such terms and conditions as its Board of Directors from time to time may
determine.
SEVENTH: Notwithstanding any provision of Sections 1701.01 to
1701.98, inclusive, of the Ohio Revised Code, or any successor statutes now or
hereafter in force, requiring for the authorization or taking of any action the
vote or consent of the holders of shares entitling them to exercise two-thirds
or any other proportion of the voting power of the Corporation or of any class
or classes of shares thereof, such action, unless otherwise expressly required
by law or these Second Amended and Restated Articles of Incorporation, may be
authorized or taken by the vote or consent of the holders of shares entitling
them to exercise a majority of the voting power of the Corporation or of such
class or classes of shares thereof.
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EIGHTH: To the extent permitted by law, the Corporation, by
action of its Board of Directors, may purchase or otherwise acquire shares of
any class issued by it at such times, for such consideration and upon such terms
and conditions as its Board of Directors may determine.
NINTH: No person who is serving or has served as a director of
the corporation shall be personally liable to the corporation or any of its
shareholders for monetary damages for breach of any fiduciary duty of such
person as a director by reason of any act or omission of such person as a
director; provided, however, that the foregoing provision shall not eliminate or
limit the liability of any person (a) for any breach of such person's duty of
loyalty as a director to the corporation or its shareholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 1701.95 of the Ohio Revised Code, (d) for
any transaction from which such person derived any improper personal benefit, or
(e) to the extent that such liability may not be limited or eliminated by virtue
of the provisions of Section 1701.13 of the Ohio Revised Code or any successor
section or statute. Any repeal or modification of this Article EIGHTH by the
shareholders of the corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director or the
corporation existing at the time of such repeal or modification.
TENTH: The provisions of Chapter 1701.831 of the Ohio Revised
Code shall not apply to the Corporation.
ELEVENTH: The provisions of Chapter 1707.043 of the Ohio
Revised Code shall not apply to the Corporation.
TWELFTH: If any provision (or portion thereof) of these Second
Amended and Restated Articles of Incorporation shall be found to be invalid,
prohibited, or unenforceable for any reason, the remaining provisions (or
portions thereof) of these Second Amended and Restated Articles of Incorporation
shall be deemed to remain in full force and effect, and shall be construed as if
such invalid, prohibited, or unenforceable provision had been stricken herefrom
or otherwise rendered inapplicable, it being the intent of the Corporation and
its shareholders that each such remaining provision (or portion thereof) of
these Second Amended and Restated Articles of Incorporation remain, to the
fullest extent permitted by law, applicable and enforceable as to all
shareholders, notwithstanding any such finding.
THIRTEENTH: No shareholder of the Corporation may cumulate his
voting power in the election of directors.
FOURTEENTH: The Corporation reserves the right to amend,
alter, change or repeal any provision contained in these Second Amended and
Restated Articles of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon shareholders herein are granted subject
to this reservation.
FIFTEENTH: These Second Amended and Restated Articles of
Incorporation shall take the place of and supersede the corporation's existing
Articles of Incorporation.
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CERTIFICATE OF AMENDMENT
------------------------
TO
--
ARTICLES OF INCORPORATION
-------------------------
OF
--
ASSOCIATED ESTATES REALTY CORPORATION
-------------------------------------
Jeffrey I. Friedman, Chairman of the Board, President, and
Chief Executive Officer, and Martin A. Fishman, Vice President-General Counsel
and Secretary, of Associated Estates Realty Corporation, an Ohio corporation
(the "Corporation"), do hereby certify that on May 24, 1994, at the annual
shareholders meeting of the Corporation, the shareholders of the Corporation
adopted the resolutions attached hereto as Exhibit A; and that said resolutions
are valid and binding, have not been amended, modified, or rescinded, and are in
full force and effect on the date hereof.
IN WITNESS WHEREOF, the undersigned have hereunto subscirbed
their names as of the 17th day of June 1994.
/S/ JEFFREY I. FRIEDMAN
------------------------------------
Jeffrey I. Friedman
Chairman of the Board, President,
and Chief Executive Officer
/S/ MARTIN A. FISHMAN
------------------------------------
Martin A. Fishman
Vice President-General Counsel and
Secretary
<PAGE> 11
EXHIBIT A
RESOLVED, that Article FOURTH of the Company's Amended and Restated
Articles of Incorporation be, and the same hereby is, deleted in its entirety
and there is substituted therefor the following:
FOURTH: The authorized number of shares of the Corporation is
50,000,000, consisting of 41,000,000 Common Shares, without par value
(hereinafter called "Common Shares"), and 3,000,000 Class A Cumulative Preferred
Shares, without par value (hereinafter called "Class A Shares"), 3,000,000 Class
B Cumulative Preferred Shares, without par value (hereinafter called "Class B
Shares") and 3,000,000 Noncumulative Preferred Shares, without par value
(hereinafter called "Noncumulative Shares").
DIVISION A
I. THE CLASS A CUMULATIVE PREFERRED SHARES. The Class A Shares shall
have the following express terms:
Section 1. SERIES. The Class A Shares may be issued from time
to time in one or more series. All Class A Shares shall be of equal rank and
shall be identical, except in respect of the matters that may be fixed by the
Board of Directors as hereinafter provided, and each share of a series shall be
identical with all other shares of such series, except as to the dates from
which dividends shall accrue and be cumulative. All Class A Shares shall rank on
a parity with the Class B Shares and the Noncumulative Shares and shall be
identical to all Class B Shares and Noncumulative Shares except (1) in respect
of the matters that may be fixed by the Board of Directors as provided in
clauses (a) through (i), inclusive, of this Section 1 and (2) only dividends on
Class A Shares and Class B Shares shall be cumulative as set forth herein.
Subject to the provisions of Sections 2 through 5, both inclusive, and Item 4 of
this Division, which provisions shall apply to all Class A Shares, the Board of
Directors hereby is authorized to cause such shares to be issued in one or more
series and with respect to each such series to determine and fix prior to the
issuance thereof (and thereafter, to the extent provided in clause (b) of this
Section) the following:
(a) The designation of the series, which may be by
distinguishing number, letter or title;
(b) The authorized number of shares of the series, which
number the Board of Directors may (except where otherwise provided in the
creation of the series) increase or decrease from time to time before or after
the issuance thereof (but not below the number of shares thereof then
outstanding);
(c) The dividend rate or rates of the series, including the
means by which such rates may be established;
(d) The date or dates from which dividends shall accrue and be
cumulative and the dates on which and the period or periods for which dividends,
if declared, shall be payable, including the means by which such dates and
periods may be established;
(e) The redemption rights and price or prices, if any, for
shares of the series;
(f) The terms and amount of the sinking fund, if any, for the
purchase or redemption of shares of the series;
(g) The amounts payable on shares of the series in the event
of any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation;
(h) Whether the shares of the series shall be convertible into
Common Shares or shares of any other class and, if so, the conversion rate or
rates or price or prices, any adjustments thereof and all other terms and
conditions upon which such conversion may be made; and
<PAGE> 12
(i) Restrictions (in addition to those set forth in Subsection
5(d) or 5(e) of this Section I) on the issuance of shares of the same series or
of any other class or series.
The Board of Directors is authorized to adopt from time to time
amendments to the Amended and Restated Articles of Incorporation, as amended,
fixing, with respect to each such series, the matters described in clauses (a)
through (i), both inclusive, of this Section and is authorized to take such
actions with respect thereto as may be required by law in order to effect such
amendments.
Section 2. DIVIDENDS.
(a) The holders of Class A Shares of each series, in
preference to the holders of Common Shares and of any other class of shares
ranking junior to the Class A Shares, shall be entitled to receive out of any
funds legally available therefor, and when and as declared by the Board of
Directors, dividends in cash at the rate or rates for such series fixed in
accordance with the provisions of Section 1 above and no more, payable on the
dates fixed for such series. Such dividends shall accrue and be cumulative, in
the case of shares of each particular series, from and after the date or dates
fixed with respect to such series. No dividends shall be paid upon or declared
or set apart for any series of the Class A Shares for any dividend period unless
at the same time (i) a like proportionate dividend for the dividend periods
terminating on the same or any earlier date, ratably in proportion to the
respective annual dividend rates fixed therefor, shall have been paid upon or
declared or set apart for all Class A Shares of all series then issued and
outstanding and entitled to receive such dividend and (ii) the dividends payable
for the dividend periods terminating on the same or any earlier date (but, with
respect to Noncumulative Shares, only with respect to the then current dividend
period), ratably in proportion to the respective dividend rates fixed therefor,
shall have been paid upon or declared or set apart for all Class B Shares and
Noncumulative Shares then issued and outstanding and entitled to receive such
dividends.
(b) So long as any Class A Shares shall be outstanding no
dividend, except a dividend payable in Common Shares or other shares ranking
junior to the Class A Shares, shall be paid or declared or any distribution be
made, except as aforesaid, in respect of the Common Shares or any other shares
ranking junior to the Class A Shares, nor shall any Common Shares or any other
shares ranking junior to the Class A Shares be purchased, retired or otherwise
acquired by the Corporation, except out of the proceeds of the sale of Common
Shares or other shares of the Corporation ranking junior to the Class A Shares
received by the Corporation subsequent to the date of first issuance of Class A
Shares of any series, unless:
(1) All accrued and unpaid dividends on Class A Shares
and Class B Shares, including the full dividends for all current dividend
periods, shall have been declared and paid or a sum sufficient for payment
thereof set apart;
(2) All unpaid dividends on Noncumulative Shares for the
then current dividend period shall have been declared and paid or a sum
sufficient for payment therefor set apart; and
(3) There shall be no arrearages with respect to the
redemption of Class A Shares, Class B Shares or Noncumulative Shares of any
series from any sinking fund provided for shares of such series in accordance
with the provisions of Section 1 of this Division.
(c) The foregoing restrictions on the payment of dividends or
other distributions on, or on the purchase, redemption retirement or other
acquisition of, Common Shares or any other shares ranking on a parity with or
junior to the Class A Shares shall be inapplicable to (i) any payments in lieu
of issuance of fractional shares thereof, whether upon any merger, conversion,
stock dividend or otherwise, (ii) the conversion of Class A Shares, Class B
Shares or Noncumulative Shares into Common Shares or (iii) the exercise by the
Corporation of its rights pursuant to Section V(d) of this Division A, Section
4(d) of Division B or any similar Section hereafter contained in these Amended
and Restated Articles of Incorporation with respect to any other class or series
of capital stock hereafter created or authorized.
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(d) If, for any taxable year, the Corporation elects to
designate as "capital gain dividends" (as defined in Section 857 of the Code),
any portion (the "Capital Gains Amount") of the dividends paid or made available
for the year to holders of all classes of stock (the "Total Dividends"), then
the portion of the Capital Gains Amount that shall be allocable to holders of
the Class A Shares shall be the amount that the total dividends paid or made
available to the holders of the Class A Shares for the year bears to the Total
Dividends.
Section 3. REDEMPTION.
(a) Subject to the express terms of each series, the
Corporation:
(1) May, from time to time at the option of the Board of
Directors, redeem all or any part of any redeemable series of Class A Shares at
the time outstanding at the applicable redemption price for such series fixed in
accordance with the provisions of Section 1 of this Division; and
(2) Shall, from time to time, make such redemptions of
each series of Class A Shares as may be required to fulfill the requirements of
any sinking fund provided for shares of such series at the applicable sinking
fund redemption price fixed in accordance with the provisions of Section 1 of
this Division;
and shall in each case pay all accrued and unpaid dividends to the
redemption date.
(b) (1) Notice of every such redemption shall be mailed,
postage prepaid, to the holders of record of the Class A Shares to be redeemed
at their respective addresses then appearing on the books of the Corporation,
not less than 30 days nor more than 60 days prior to the date fixed for such
redemption, or such other time prior thereto as the Board of Directors shall fix
for any series pursuant to Section 1 of this Division prior to the issuance
thereof. At any time after notice as provided above has been deposited in the
mail, the Corporation may deposit the aggregate redemption price of Class A
Shares to be redeemed, together with accrued and unpaid dividends thereon to the
redemption date, with any bank or trust company in Cleveland, Ohio, or New York,
New York, having capital and surplus of not less than $100,000,000, named in
such notice and direct that there be paid to the respective holders of the Class
A Shares so to be redeemed amounts equal to the redemption price of the Class A
Shares so to be redeemed, together with such accrued and unpaid dividends
thereon, on surrender of the share certificate or certificates held by such
holders; and upon the deposit of such notice in the mail and the making of such
deposit of money with such bank or trust company, such holders shall cease to be
shareholders with respect to such shares; and from and after the time such
notice shall have been so deposited and such deposit of money shall have been so
made, such holders shall have no rights or claim against the Corporation with
respect to such shares, except only the right to receive such money from such
bank or trust company without interest or to exercise before the redemption date
any unexpired privileges of conversion. In the event less than all of the
outstanding Class A Shares are to be redeemed, the Corporation shall select by
lot the shares so to be redeemed in such manner as shall be prescribed by the
Board of Directors.
(2) If the holders of Class A Shares which have been
called for redemption shall not within six years after such deposit claim the
amount deposited for the redemption thereof, any such bank or trust company
shall, upon demand, pay over to the Corporation such unclaimed amounts and
thereupon such bank or trust company and the Corporation shall be relieved of
all responsibility in respect thereof and to such holders.
(c) Any Class A Shares which are (1) redeemed by the
Corporation pursuant to the provisions of this Section, (2) purchased and
delivered in satisfaction of any sinking fund requirements provided for shares
of such series, (3) converted in accordance with the express terms thereof, or
(4) otherwise acquired by the Corporation, shall resume the status of authorized
but unissued Class A Shares without serial designation.
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<PAGE> 14
(d) Except in connection with the exercise of the
Corporation's rights pursuant to Section (d) of Item V of this Division A,
Section 4(d) of Division B or any similar Section hereafter contained in these
Amended and Restated Articles of Incorporation with respect to any other class
or series of capital stock hereafter created or authorized, the Corporation may
not purchase or redeem (for sinking fund purposes or otherwise) less than all of
the Class A Shares then outstanding except in accordance with a stock purchase
offer made to all holders of record of Class A Shares, unless all dividends on
all Class A Shares then outstanding for all previous and current dividend
periods shall have been declared and paid or funds therefor set apart and all
accrued sinking fund obligations applicable thereto shall have been complied
with.
Section 4. LIQUIDATION.
------------
(a) (1) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of Class A Shares of any series shall be entitled to receive in full out
of the assets of the Corporation, including its capital, before any amount shall
be paid or distributed among the holders of the Common Shares or any other
shares ranking junior to the Class A Shares, the amounts fixed with respect to
shares of such series in accordance with Section 1 of this Division, plus an
amount equal to all dividends accrued and unpaid thereon to the date of payment
of the amount due pursuant to such liquidation, dissolution or winding up of the
affairs of the Corporation. In the event the net assets of the Corporation
legally available therefor are insufficient to permit the payment upon all
outstanding Class A Shares, Class B Shares and Noncumulative Shares of the full
preferential amount to which they are respectively entitled, then such net
assets shall be distributed ratably upon all outstanding Class A Shares, Class B
Shares and Noncumulative Shares in proportion to the full preferential amount to
which each such share is entitled.
(2) After payment to the holders of Class A Shares of the
full preferential amounts as aforesaid, the holders of Class A Shares, as such,
shall have no right or claim to any of the remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or
with any other Corporation, the merger of any other Corporation into it, or the
sale, lease or conveyance of all or substantially all the assets of the
Corporation, shall not be deemed to be a dissolution, liquidation or winding up
for the purposes of this Section.
Section 5. VOTING.
-------
(a) The holders of Class A Shares shall have no voting rights,
except as provided in this Section or required by law.
(b) (1) If, and so often as, the Corporation shall be in
default in the payment of dividends on any series of Class A Shares at the time
outstanding, whether or not earned or declared, for a number of consecutive
dividend payment periods which in the aggregate contain at least 540 days, all
holders of such Class A Shares, voting separately as a class, together with all
Class B Shares and Noncumulative Shares upon which like voting rights have been
conferred and are exercisable under the circumstances described in Subsection
5(e), shall be entitled to elect, as herein provided, two members of the Board
of Directors of the Corporation; provided, however, that the holders of such
Class A Shares shall not exercise such special class voting rights except at
meetings of such shareholders for the election of directors at which the holders
of not less than 50% of such Class A Shares are present in person or by proxy;
and provided further, that the special class voting rights provided for in this
paragraph when the same shall have become vested shall remain so vested until
all accrued and unpaid dividends on such Class A Shares then outstanding shall
have been paid or declared and a sum sufficient for the payment thereof set
aside for payment, whereupon the holders of such Class A Shares shall be
divested of their special class voting rights in respect of subsequent elections
of directors, subject to the revesting of such special class voting rights in
the event above specified in this paragraph.
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<PAGE> 15
(2) In the event of default entitling holders of Class A
Shares to elect two directors as specified in paragraph (1) of this Subsection,
a special meeting of such holders for the purpose of electing such directors
shall be called by the Secretary of the Corporation upon written request of, or
may be called by, the holders of record of at least 10% of the Class A Shares
upon which such default in the payment of dividends exists and notice thereof
shall be given in the same manner as that required for the annual meeting of
shareholders; provided, however, that the Corporation shall not be required to
call such special meeting if the annual meeting of shareholders shall be called
to be held within 90 days after the date of receipt of the foregoing written
request from the holders of Class A Shares. At any meeting at which such holders
of Class A Shares shall be entitled to elect directors, holders of 50% of such
Class A Shares, present in person or by proxy, shall be sufficient to constitute
a quorum, and the vote of the holders of a majority of such shares so present at
any such meeting at which there shall be such a quorum shall be sufficient to
elect the members of the Board of Directors which such holders of Class A Shares
are entitled to elect as herein provided. Notwithstanding any provision of these
Articles of Incorporation or the Code of Regulations of the Corporation or any
action taken by the holders of any class of shares fixing the number of
directors of the Corporation, the two directors who may be elected by such
holders of Class A Shares pursuant to this Subsection shall serve in addition to
any other directors then in office or proposed to be elected otherwise than
pursuant to this Subsection. Nothing in this Subsection shall prevent any change
otherwise permitted in the total number of or classifications of directors of
the Corporation nor require the resignation of any director elected otherwise
than pursuant to this Subsection. Notwithstanding any classification of the
other directors of the Corporation, the two directors elected by such holders of
Class A Shares shall be elected annually for terms expiring at the next
succeeding annual meeting of shareholders.
(3) Upon any divesting of the special class voting rights
of the holders of the Class A Shares in respect of elections of directors as
provided in this Subsection, the terms of office of all directors then in office
elected by such holders shall terminate immediately thereupon. If the office of
any director elected by such holders voting as a class becomes vacant by reason
of death, resignation, removal from office or otherwise, the remaining director
elected by such holders voting as a class may elect a successor who shall hold
office for the unexpired term in respect of which such vacancy occurred.
(c) If at any time when the holders of Class A Shares are
entitled to elect directors pursuant to the foregoing provisions of this Section
the holders of any Class B Shares or Noncumulative Shares are entitled to elect
directors pursuant hereto by reason of any default in the payment of dividends
thereon, then the voting rights of the Class A Shares, the Class B Shares and
the Noncumulative Shares then entitled to vote shall be combined (with each
class of shares having a number of votes proportional to the aggregate
liquidation preference of its outstanding shares). In such case, the holders of
Class A Shares and of all such other shares then entitled so to vote, voting as
a class, shall elect such directors. If the holders of any such other shares
have elected such directors prior to the happening of the default or event
permitting the holders of Class A Shares to elect directors, or prior to a
written request for the holding of a special meeting being received by the
Secretary of the Corporation as required above, then a new election shall be
held with all such other shares and the Class A Shares voting together as a
single class for such directors, resulting in the termination of the term of
such previously elected directors upon the election of such new directors.
(d) The affirmative vote of the holders of at least two-thirds
of each series of the Class A Shares at the time outstanding, voting separately
as a class, given in person or by proxy either in writing or at a meeting called
for the purpose, shall be necessary to effect either of the following:
(1) Any amendment, alteration or repeal, whether by
merger, consolidation or otherwise, of any of the provisions of the Amended and
Restated Articles of Incorporation or of the Code of Regulations of the
Corporation which affects adversely and materially the preferences or voting or
other rights of the holders of Class A Shares which are set forth in these
Amended and Restated Articles of Incorporation; provided, however, neither the
amendment of these Amended and Restated Articles of Incorporation so as to
authorize, create or change the authorized or outstanding number of Class A
Shares or of any shares ranking on a
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<PAGE> 16
parity with or junior to the Class A Shares nor the amendment of the provisions
of the Code of Regulations so as to change the number or classification of
directors of the Corporation shall be deemed to affect adversely and materially
preferences or voting or other rights of the holders of Class A Shares; or
(2) The authorization, creation or increase in the
authorized number of any shares, or any security convertible into shares, in
either case ranking prior to such series of Class A Shares.
(e) In the event, and only to the extent, that (1) Class A
Shares are issued in more than one series and (2) Ohio law permits the holders
of a series of a class of capital stock to vote separately as a class, the
affirmative vote of the holders of at least two-thirds of each series of Class A
Shares at the time outstanding, voting separately as a class, given in person or
by proxy either in writing or at a meeting called for the purpose of voting on
such matters, shall be required for any amendment, alteration or repeal, whether
by merger, consolidation or otherwise, of any of the provisions of these Amended
and Restated Articles of Incorporation or of the Code of Regulations of the
Corporation which affects adversely and materially the preferences or voting or
other rights of the holders of such series which are set forth in these Amended
and Restated Articles of Incorporation; provided, however, neither the amendment
of these Amended and Restated Articles of Incorporation, so as to authorize,
create or change the authorized or outstanding number of Class A Shares or of
any shares ranking on a parity with or junior to the Class A Shares nor the
Amendment of the provisions of the Code of Regulations so as to change the
number or classification of directors of the Corporation shall be deemed to
affect adversely and materially the preferences or voting or other rights of the
holders of such series.
II. THE CLASS B CUMULATIVE PREFERRED SHARES. The Class B Cumulative
Preferred Shares shall have the following express terms:
Section 1. SERIES. The Class B Shares may be issued from time
to time in one or more series. All Class B Shares shall be of equal rank and
shall be identical, except in respect of the matters that may be fixed by the
Board of Directors as hereinafter provided, and each share of a series shall be
identical with all other shares of such series, except as to the dates from
which dividends shall accrue and be cumulative. All Class B Shares shall rank on
a parity with the Class A Shares and the Noncumulative Shares and shall be
identical to all Class A Shares and Noncumulative Shares except (1) in respect
of the matters that may be fixed by the Board of Directors as provided in
clauses (a) through (i), inclusive, of this Section 1 and (2) only dividends on
the Class A Shares and the Class B shares are cumulative as set forth herein.
Subject to the provisions of Sections 2 through 5, both inclusive, and Item 4 of
this Division, which provisions shall apply to all Class B Shares, the Board of
Directors hereby is authorized to cause such shares to be issued in one or more
series and with respect to each such series to determine and fix prior to the
issuance thereof (and thereafter, to the extent provided in clause (b) of this
Section) the following:
(a) The designation of the series, which may be by
distinguishing number, letter or title;
(b) The authorized number of shares of the series, which
number the Board of Directors may (except where otherwise provided in the
creation of the series) increase or decrease from time to time before or after
the issuance thereof (but not below the number of shares thereof then
outstanding);
(c) The dividend rate or rates of the series, including
the means by which such rates may be established;
(d) The date or dates from which dividends shall accrue
and be cumulative and the dates on which and the period or periods for which
dividends, if declared, shall be payable, including the means by which such
dates and periods may be established;
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(e) The redemption rights and price or prices, if any,
for shares of the series;
(f) The terms and amount of the sinking fund, if any, for
the purchase or redemption of shares of the series;
(g) The amounts payable on shares of the series in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation;
(h) Whether the shares of the series shall be convertible
into Common Shares or shares of any other class and, if so, the conversion rate
or rates or price or prices, any adjustments thereof and all other terms and
conditions upon which such conversion may be made; and
(i) Restrictions (in addition to those set forth in
Subsection 5(d) or 5(e) of this Section II) on the issuance of shares of the
same series or of any other class or series.
The Board of Directors is authorized to adopt from time to time
amendments to the Amended and Restated Articles of Incorporation, as amended,
fixing, with respect to each such series, the matters described in clauses (a)
through (i), both inclusive, of this Section and is authorized to take such
actions with respect thereto as may be required by law in order to effect such
amendments.
Section 2. DIVIDENDS.
----------
(a) The holders of Class B Shares of each series, in
preference to the holders of Common Shares and of any other class of shares
ranking junior to the Class B Shares, shall be entitled to receive out of any
funds legally available therefor, and when and as declared by the Board of
Directors, dividends in cash at the rate or rates for such series fixed in
accordance with the provisions of Section 1 above and no more, payable on the
dates fixed for such series. Such dividends shall accrue and be cumulative, in
the case of shares of each particular series, from and after the date or dates
fixed with respect to such series. No dividends shall be paid upon or declared
or set apart for any series of the Class B Shares for any dividend period unless
at the same time (i) a like proportionate dividend for the dividend periods
terminating on the same or any earlier date, ratably in proportion to the
respective annual dividend rates fixed therefor, shall have been paid upon or
declared or set apart for all Class B Shares of all series then issued and
outstanding and entitled to receive such dividend and (ii) the dividends payable
for the dividend periods terminating on the same or any earlier date (but, with
respect to the Noncumulative Shares, only with respect to the then current
dividend period), ratably in proportion to the respective dividend rates fixed
therefor, shall have been paid upon or declared or set apart for all Class A
Shares and Noncumulative Shares then issued and outstanding and entitled to
receive such dividends.
(b) So long as any Class B Shares shall be outstanding no
dividend, except a dividend payable in Common Shares or other shares ranking
junior to the Class B Shares, shall be paid or declared or any distribution be
made, except as aforesaid, in respect of the Common Shares or any other shares
ranking junior to the Class B Shares, nor shall any Common Shares or any other
shares ranking junior to the Class B Shares be purchased, retired or otherwise
acquired by the Corporation, except out of the proceeds of the sale of Common
Shares or other shares of the Corporation ranking junior to the Class B Shares
received by the Corporation subsequent to the date of first issuance of Class B
Shares of any series, unless:
(1) All accrued and unpaid dividends on Class A Shares
and Class B Shares, including the full dividends for all current dividend
periods, shall have been declared and paid or a sum sufficient for payment
thereof set apart;
(2) All unpaid dividends on Noncumulative Shares for the
then current dividend period shall have been declared and paid or a sum
sufficient for payment thereof set apart; and
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(3) There shall be no arrearages with respect to the
redemption of Class A Shares, Class B Shares or Noncumulative Shares of any
series from any sinking fund provided for shares of such series in accordance
with the provisions of Section 1 of this Division.
(c) The foregoing restrictions on the payment of dividends or
other distributions on, or on the purchase, redemption, retirement or other
acquisition of, Common Shares or any other shares ranking on a parity with or
junior to the Class B Shares shall be inapplicable to (i) any payments in lieu
of issuance of fractional shares thereof, whether upon any merger, conversion,
stock dividend or otherwise, (ii) the conversion of Class A Shares, Class B
Shares or Noncumulative Shares into Common Shares or (iii) the exercise by the
Corporation of its rights pursuant to Section V(d) of this Division A, Section
4(d) of Division B or any similar Section hereafter contained in these Amended
and Restated Articles of Incorporation with respect to any other class or series
of capital stock hereafter created or authorized.
(d) If, for any taxable year, the Corporation elects to
designate as "capital gain dividends" (as defined in Section 857 of the Code),
any portion (the "Capital Gains Amount") of the dividends paid or made available
for the year to holders of all classes of stock (the "Total Dividends"), then
the portion of the Capital Gains Amount that shall be allocable to holders of
the Class B Shares shall be the amount that the total dividends paid or made
available to the holders of the Class B Shares for the year bears to the Total
Dividends.
Section 3. REDEMPTION.
-----------
(a) Subject to the express terms of each series, the
Corporation:
(1) May, from time to time at the option of the Board of
Directors, redeem all or any part of any redeemable series of Class B Shares at
the time outstanding at the applicable redemption price for such series fixed in
accordance with the provisions of Section 1 of this Division; and
(2) Shall, from time to time, make such redemptions of
each series of Class B Shares as may be required to fulfill the requirements of
any sinking fund provided for shares of such series at the applicable sinking
fund redemption price fixed in accordance with the provisions of Section 1 of
this Division; and
shall in each case pay all accrued and unpaid dividends to the redemption date.
(b) (1) Notice of every such redemption shall be mailed,
postage prepaid, to the holders of record of the Class B Shares to be redeemed
at their respective addresses then appearing on the books of the Corporation,
not less than 30 days nor more than 60 days prior to the date fixed for such
redemption, or such other time prior thereto as the Board of Directors shall fix
for any series pursuant to Section 1 of this Division prior to the issuance
thereof. At any time after notice as provided above has been deposited in the
mail, the Corporation may deposit the aggregate redemption price of Class B
Shares to be redeemed, together with accrued and unpaid dividends thereon to the
redemption date, with any bank or trust company in Cleveland, Ohio, or New York,
New York, having capital and surplus of not less than $100,000,000, named in
such notice and direct that there be paid to the respective holders of the Class
B Shares so to be redeemed amounts equal to the redemption price of the Class B
Shares so to be redeemed, together with such accrued and unpaid dividends
thereon, on surrender of the share certificate or certificates held by such
holders; and upon the deposit of such notice in the mail and the making of such
deposit of money with such bank or trust company, such holders shall cease to be
shareholders with respect to such shares; and from and after the time such
notice shall have been so deposited and such deposit of money shall have been so
made, such holders shall have no rights or claim against the Corporation with
respect to such shares, except only the right to receive such money from such
bank or trust company without interest or to exercise before the redemption date
any unexpired privileges of conversion. In
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the event less than all of the outstanding Class B Shares are to be redeemed,
the Corporation shall select by lot the shares so to be redeemed in such manner
as shall be prescribed by the Board of Directors.
(2) If the holders of Class B Shares which have been
called for redemption shall not within six years after such deposit claim the
amount deposited for the redemption thereof, any such bank or trust company
shall, upon demand, pay over to the Corporation such unclaimed amounts and
thereupon such bank or trust company and the Corporation shall be relieved of
all responsibility in respect thereof and to such holders.
(c) Any Class B Shares which are (1) redeemed by the
Corporation pursuant to the provisions of this Section, (2) purchased and
delivered in satisfaction of any sinking fund requirements provided for shares
of such series, (3) converted in accordance with the express terms thereof, or
(4) otherwise acquired by the Corporation, shall resume the status of authorized
but unissued Class B Shares without serial designation.
(d) Except in connection with the exercise of the
Corporation's rights pursuant to Section (d) of Item V of this Division A,
Section 4(d) of Division B or any similar Section hereafter contained in these
Amended and Restated Articles of Incorporation with respect to any other class
or series of capital stock hereafter created or authorized, the Corporation may
not purchase or redeem (for sinking fund purposes or otherwise) less than all of
the Class B Shares then outstanding except in accordance with a stock purchase
offer made to all holders of record of Class B Shares, unless all dividends on
all Class B Shares then outstanding for all previous and current dividend
periods shall have been declared and paid or funds therefor set apart and all
accrued sinking fund obligations applicable thereto shall have been complied
with.
Section 4. LIQUIDATION.
------------
(a) (1) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of Class B Shares of any series shall be entitled to receive in full out
of the assets of the Corporation, including its capital, before any amount shall
be paid or distributed among the holders of the Common Shares or any other
shares ranking junior to the Class B Shares, the amounts fixed with respect to
shares of such series in accordance with Section 1 of this Division, plus an
amount equal to all dividends accrued and unpaid thereon to the date of payment
of the amount due pursuant to such liquidation, dissolution or winding up of the
affairs of the Corporation. In the event the net assets of the Corporation
legally available therefor are insufficient to permit the payment upon all
outstanding Class A Shares, Class B Shares and Noncumulative Shares of the full
preferential amount to which they are respectively entitled, then such net
assets shall be distributed ratably upon all outstanding Class A Shares, Class B
Shares and Noncumulative Shares in proportion to the full preferential amount to
which each such share is entitled.
(2) After payment to the holders of Class B Shares of the
full preferential amounts as aforesaid, the holders of Class B Shares, as such,
shall have no right or claim to any of the remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or
with any other corporation, the merger of any other corporation into it, or the
sale, lease or conveyance of all or substantially all the assets of the
Corporation, shall not be deemed to be a dissolution, liquidation or winding up
for the purposes of this Section.
Section 5. VOTING.
-------
(a) The holders of Class B Shares shall have no voting rights,
except as provided in this Section or required by law.
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(b) (1) If, and so often as, the Corporation shall be in
default in the payment of dividends on any series of Class B Shares at the time
outstanding, whether or not earned or declared, for a number of consecutive
dividend payment periods which in the aggregate contain at least 540 days, all
holders of Class B Shares, voting separately as a class, together with all Class
A Shares and Noncumulative Shares upon which like voting rights have been
conferred and are exercisable under the circumstances described in Subsection
5(c), shall be entitled to elect, as herein provided, a total of two members of
the Board of Directors of the Corporation; provided, however, that the holders
of such Class B Shares shall not exercise such special class voting rights
except at meetings of such shareholders for the election of directors at which
the holders of not less than 50% of such Class B Shares are present in person or
by proxy; and provided further, that the special class voting rights provided
for in this paragraph when the same shall have become vested shall remain so
vested until all accrued and unpaid dividends on such Class B Shares then
outstanding shall have been paid or declared and a sum sufficient therefor set
aside for payment, whereupon the holders of such Class B Shares shall be
divested of their special class voting rights in respect of subsequent elections
of directors, subject to the revesting of such special class voting rights in
the event above specified in this paragraph.
(2) In the event of default entitling holders of Class B
Shares to elect two directors as specified in paragraph (1) of this Subsection,
a special meeting of such holders for the purpose of electing such directors
shall be called by the Secretary of the Corporation upon written request of, or
may be called by, the holders of record of at least 10% of the Class B Shares
upon which such default in the payment of dividends exists and notice thereof
shall be given in the same manner as that required for the annual meeting of
shareholders; provided, however, that the Corporation shall not be required to
call such special meeting if the annual meeting of shareholders shall be called
to be held within 90 days after the date of receipt of the foregoing written
request from the holders of Class B Shares. At any meeting at which such holders
of Class B Shares shall be entitled to elect directors, holders of 50% of such
Class B Shares, present in person or by proxy, shall be sufficient to constitute
a quorum, and the vote of the holders of a majority of such shares so present at
any such meeting at which there shall be such a quorum shall be sufficient to
elect the members of the Board of Directors which such holders of Class B Shares
are entitled to elect as herein provided. Notwithstanding any provision of these
Articles of Incorporation or the Code of Regulations of the Corporation or any
action taken by the holders of any class of shares fixing the number of
directors of the Corporation, the two directors who may be elected by such
holders of Class B Shares pursuant to this Subsection shall serve in addition to
any other directors then in office or proposed to be elected otherwise than
pursuant to this Subsection. Nothing in this Subsection shall prevent any change
otherwise permitted in the total number of or classifications of directors of
the Corporation nor require the resignation of any director elected otherwise
than pursuant to this Subsection. Notwithstanding any classification of the
other directors of the Corporation, the two directors elected by such holders of
Class B Shares shall be elected annually for terms expiring at the next
succeeding annual meeting of shareholders.
(3) Upon any divesting of the special class voting rights
of the holders of the Class B Shares in respect of elections of directors as
provided in this Subsection, the terms of office of all directors then in office
elected by such holders shall terminate immediately thereupon. If the office of
any director elected by such holders voting as a class becomes vacant by reason
of death, resignation, removal from office or otherwise, the remaining director
elected by such holders voting as a class may elect a successor who shall hold
office for the unexpired term in respect of which such vacancy occurred.
(c) If at any time when the holders of Class B Shares are
entitled to elect directors pursuant to the foregoing provisions of this Section
the holders of any Class A Shares or Noncumulative Shares are entitled to elect
directors pursuant hereto by reason of any default in the payment of dividends
thereon, then the voting rights of the Class A Shares, the Class B Shares and
the Noncumulative Shares then entitled to vote shall be combined (with class of
shares having a number of votes proportional to the aggregate liquidation
preference of its outstanding shares). In such case, the holders of Class B
Shares and of all such other shares then entitled so to vote, voting as a class,
shall elect such directors. If the holders of any such other shares have elected
such directors prior to the happening of the default or event permitting the
holders of Class B Shares to elect directors, or prior to a written request for
the holding of a special meeting being received by the Secretary
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of the Corporation as required above, then a new election shall be held with all
such other shares and the Class B Shares voting together as a single class for
such directors, resulting in the termination of the term of such previously
elected directors upon the election of such new directors.
(d) The affirmative vote of the holders of at least two-thirds
of the Class B Shares at the time outstanding, voting separately as a class,
given in person or by proxy either in writing or at a meeting called for the
purpose, shall be necessary to effect either of the following:
(1) Any amendment, alteration or repeal, whether by
merger, consolidation or otherwise, of any of the provisions of the Amended and
Restated Articles of Incorporation or of the Code of Regulations of the
Corporation which affects adversely and materially the preferences or voting or
other rights of the holders of Class B Shares which are set forth in these
Amended and Restated Articles of Incorporation; provided, however, neither the
amendment of these Amended and Restated Articles of Incorporation so as to
authorize, create or change the authorized or outstanding number of Class B
Shares or of any shares ranking on a parity with or junior to the Class B Shares
nor the amendment of the provisions of the Code of Regulations so as to change
the number or classification of directors of the Corporation shall be deemed to
affect adversely and materially preferences or voting or other rights of the
holders of Class B Shares; or
(2) The authorization, creation or increase in the
authorized number of any shares, or any security convertible into shares, in
either case ranking prior to such Class B Shares.
(e) In the event, and only to the extent, that (1) Class B
Shares are issued in more than one series and (2) Ohio law permits the holders
of a series of a class of capital stock to vote separately as a class, the
affirmative vote of the holders of at least two-thirds of each series of Class B
Shares at the time outstanding voting separately as a class, given in person or
by proxy either in writing or at a meeting called for the purpose of voting on
such matters, shall be required for any amendment, alteration or repeal, whether
by merger, consolidation or otherwise, of any of the provisions of these Amended
and Restated Articles of Incorporation or of the Code of Regulations of the
Corporation which affects adversely and materially the preferences or voting or
other rights of the holders of such series which are set forth in these Amended
and Restated Articles of Incorporation; provided, however, neither the amendment
of these Amended and Restated Articles of Incorporation, so as to authorize,
create or change the authorized or outstanding number of Class B Shares or of
any shares remaining on a parity with or junior to the Class B Shares nor the
amendment of the provisions of the Code of Regulations so as to change the
number of classification of directors of the Corporation shall be deemed to
affect adversely and materially preferences or voting or other rights of the
holders of such series.
III. THE NONCUMULATIVE PREFERRED SHARES. The Noncumulative Preferred
Shares shall have the following express terms:
Section 1. Series. The Noncumulative Shares may be issued from
time to time in one or more series. All Noncumulative Shares shall be of equal
rank and shall be identical, except in respect of the matters that may be fixed
by the Board of Directors as hereinafter provided, and each share of a series
shall be identical with all other shares of such series, except as to the dates
on which and the periods for which dividends may be payable. All Noncumulative
Shares shall rank on a parity with the Class A Shares and the Class B Shares and
shall be identical to all Class A Shares and Class B Shares except (1) in
respect of the matters that may be fixed by the Board of Directors as provided
in clauses (a) through (i), inclusive, of this Section 1 and (2) only dividends
on the Noncumulative Shares are noncumulative as set forth herein. Subject to
the provisions of Sections 2 through 5, both inclusive, and Item 4 of this
Division, which provisions shall apply to all Noncumulative Shares, the Board of
Directors hereby is authorized to cause such shares to be issued in one or more
series and with respect to each such series to determine and fix prior to the
issuance thereof (and thereafter, to the extent provided in clause (b) of this
Section) the following:
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(a) The designation of the series, which may be by
distinguishing number, letter or title;
(b) The authorized number of shares of the series, which
number the Board of Directors may (except where otherwise provided in the
creation of the series) increase or decrease from time to time before or after
the issuance thereof (but not below the number of shares thereof then
outstanding);
(c) The dividend rate or rates of the series, including the
means by which such rates may be established;
(d) The dates on which and the period or periods for which
dividends, if declared, shall be payable, including the means by which such
dates and periods may be established;
(e) The redemption rights and price or prices, if any, for
shares of the series;
(f) The terms and amount of the sinking fund, if any, for the
purchase or redemption of shares of the series;
(g) The amounts payable on shares of the series in the event
of any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation;
(h) Whether the shares of the series shall be convertible into
Common Shares or shares of any other class and, if so, the conversion rate or
rates or price or prices, any adjustments thereof and all other terms and
conditions upon which such conversion may be made; and
(i) Restrictions (in addition to those set forth in Subsection
5(d) or 5(e) of this Section III) on the issuance of shares of the same series
or of any other class or series.
The Board of Directors is authorized to adopt from time to time
amendments to the Amended and Restated Articles of Incorporation, as amended,
fixing, with respect to each such series, the matters described in clauses (a)
through (i), both inclusive, of this Section and is authorized to take such
actions with respect thereto as may be required by law in order to effect such
amendments.
Section 2. DIVIDENDS.
----------
(a) The holders of Noncumulative Shares of each series, in
preference to the holders of Common Shares and of any other class of shares
ranking junior to the Noncumulative Shares, shall be entitled to receive out of
any funds legally available therefor, if, when and as declared by the Board of
Directors, dividends in cash at the rate or rates for such series fixed in
accordance with the provisions of Section 1 above and no more, payable on the
dates fixed for such series. Such dividends shall accrue, in the case of shares
of each particular series, from and after the date or dates fixed with respect
to such series; provided, however, that if the Board of Directors fails to
declare a dividend payable on a dividend payment date on any Noncumulative
Shares, the holders of the Noncumulative Shares shall have no right to receive a
dividend in respect of the dividend period ending on such dividend payment date,
and the Corporation shall have no obligation to pay the dividend accrued for
such period, whether or not dividends on such Noncumulative Shares are declared
payable on any future dividend payment date. No dividends shall be paid upon or
declared or set apart for any series of the Noncumulative Shares for any
dividend period unless at the same time (i) a like proportionate dividend for
the then current dividend period, ratably in proportion to the respective annual
dividend rates fixed therefor, shall have been paid upon or declared or set
apart for all Noncumulative Shares of all series then issued and outstanding and
entitled to receive such dividend and (ii) the dividends payable for the
dividend periods terminating on the same or any earlier date, ratably in
proportion to the respective dividend rates fixed therefor,
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shall have been paid upon or declared or set apart for all Class A Shares and
Class B Shares then issued and outstanding and entitled to receive such
dividends.
(b) So long as any Noncumulative Shares shall be outstanding
no dividend, except a dividend payable in Common Shares or other shares ranking
junior to the Noncumulative Shares, shall be paid or declared or any
distribution be made, except as aforesaid, in respect of the Common Shares or
any other shares ranking junior to the Noncumulative Shares, nor shall any
Common Shares or any other shares ranking junior to the Noncumulative Shares be
purchased, retired or otherwise acquired by the Corporation, except out of the
proceeds of the sale of Common Shares or other shares of the Corporation ranking
junior to the Noncumulative Shares received by the Corporation subsequent to the
date of first issuance of Noncumulative Shares of any series, unless:
(1) All accrued and unpaid dividends on Class A Shares
and Class B Shares including the full dividends for all current dividend
periods, shall have been declared and paid or a sum sufficient for payment
thereof set apart;
(2) All unpaid dividends on Noncumulative Shares for the
then current dividend period shall have been declared and paid or a sum
sufficient for payment therefor set apart; and
(3) There shall be no arrearages with respect to the
redemption of Class A Shares, Class B Shares or Noncumulative Shares of any
series from any sinking fund provided for shares of such series in accordance
with the provisions of Section 1 of this Division.
(c) The foregoing restrictions on the payment of dividends or
other distributions on, or on the purchase, redemption retirement or other
acquisition of, Common Shares or any other shares ranking on a parity with or
junior to the Noncumulative Shares shall be inapplicable to (i) any payments in
lieu of issuance of fractional shares thereof, whether upon any merger,
conversion, stock dividend or otherwise, (ii) the conversion of Class A Shares,
Class B Shares or Noncumulative Shares into Common Shares or (iii) the exercise
by the Corporation of its rights pursuant to Section V(d) of this Division A,
Section 4(d) of Division B or any similar Section hereafter contained in these
Amended and Restated Articles of Incorporation with respect to any other class
or series of capital stock hereafter created or authorized.
(d) If, for any taxable year, the Corporation elects to
designate as "capital gain dividends" (as defined in Section 857 of the Code),
any portion (the "Capital Gains Amount") of the dividends paid or made available
for the year to holders of all classes of stock (the "Total Dividends"), then
the portion of the Capital Gains Amount that shall be allocable to holders of
the Noncumulative Shares shall be the amount that the total dividends paid or
made available to the holders of the Noncumulative Shares for the year bears to
the Total Dividends.
Section 3. REDEMPTION.
-----------
(a) Subject to the express terms of each series, the
Corporation:
(1) May, from time to time at the option of the Board of
Directors, redeem all or any part of any redeemable series of Noncumulative
Shares at the time outstanding at the applicable redemption price for such
series fixed in accordance with the provisions of Section 1 of this Division;
and
(2) Shall, from time to time, make such redemptions of
each series of Noncumulative Shares as may be required to fulfill the
requirements of any sinking fund provided for shares of such series at the
applicable sinking fund redemption price fixed in accordance with the provisions
of Section 1 of this Division; and
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shall in each case pay all unpaid dividends for the then current dividend period
to the redemption date.
(b) (1) Notice of every such redemption shall be mailed,
postage prepaid, to the holders of record of the Noncumulative Shares to be
redeemed at their respective addresses then appearing on the books of the
Corporation, not less than 30 days nor more than 60 days prior to the date fixed
for such redemption, or such other time prior thereto as the Board of Directors
shall fix for any series pursuant to Section 1 of this Division prior to the
issuance thereof. At any time after notice as provided above has been deposited
in the mail, the Corporation may deposit the aggregate redemption price of
Noncumulative Shares to be redeemed, together with accrued and unpaid dividends
thereon for the then current dividend period to the redemption date, with any
bank or trust company in Cleveland, Ohio, or New York, New York, having capital
and surplus of not less than $100,000,000, named in such notice and direct that
there be paid to the respective holders of the Noncumulative Shares so to be
redeemed amounts equal to the redemption price of the Noncumulative Shares so to
be redeemed together with such accrued and unpaid dividends thereon for the then
current dividend period, on surrender of the share certificate or certificates
held by such holders; and upon the deposit of such notice in the mail and the
making of such deposit of money with such bank or trust company, such holders
shall cease to be shareholders with respect to such shares; and from and after
the time such notice shall have been so deposited and such deposit of money
shall have been so made, such holders shall have no rights or claim against the
Corporation with respect to such shares, except only the right to receive such
money from such bank or trust company without interest or to exercise before the
redemption date any unexpired privileges of conversion. In the event less than
all of the outstanding Noncumulative Shares are to be redeemed, the Corporation
shall select by lot the shares so to be redeemed in such manner as shall be
prescribed by the Board of Directors.
(2) If the holders of Noncumulative Shares which have
been called for redemption shall not within six years after such deposit claim
the amount deposited for the redemption thereof, any such bank or trust company
shall, upon demand, pay over to the Corporation such unclaimed amounts and
thereupon such bank or trust company and the Corporation shall be relieved of
all responsibility in respect thereof and to such holders.
(c) Any Noncumulative Shares which are (1) redeemed by the
Corporation pursuant to the provisions of this Section, (2) purchased and
delivered in satisfaction of any sinking fund requirements provided for shares
of such series, (3) converted in accordance with the express terms thereof, or
(4) otherwise acquired by the Corporation, shall resume the status of authorized
but unissued Noncumulative Shares without serial designation.
(d) Except in connection with the exercise of the
Corporation's rights pursuant to Section (d) of Item V of this Division A,
Section 4(d) of Division B or any similar Section hereafter contained in these
Amended and Restated Articles of Incorporation with respect to any other class
or series of capital stock hereafter created or authorized, the Corporation may
not purchase or redeem (for sinking fund purposes or otherwise) of less than all
of the Noncumulative Shares then outstanding except in accordance with a stock
purchase offer made to all holders of record of Noncumulative Shares, unless all
dividends on all Noncumulative Shares then outstanding for the then current
dividend period shall have been declared and paid or funds therefor set apart
and all accrued sinking fund obligations applicable thereto shall have been
complied with.
Section 4. LIQUIDATION.
------------
(a) (1) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of Noncumulative Shares of any series shall be entitled to receive in
full out of the assets of the Corporation, including its capital, before any
amount shall be paid or distributed among the holders of the Common Shares or
any other shares ranking junior to the Noncumulative Shares, the amounts fixed
with respect to shares of such series in accordance with Section 1 of this
Division, plus an amount equal to all dividends accrued and unpaid thereon for
the then current dividend period to the date of payment of the amount due
pursuant to such liquidation, dissolution or winding up of the affairs of the
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Corporation. In the event the net assets of the Corporation legally available
therefor are insufficient to permit the payment upon all outstanding Class A
Shares, Class B Shares and Noncumulative Shares of the full preferential amount
to which they are respectively entitled, then such net assets shall be
distributed ratably upon all outstanding Noncumulative Shares in proportion to
the full preferential amount to which each such share is entitled.
(2) After payment to the holders of Noncumulative Shares
of the full preferential amounts as aforesaid, the holders of Noncumulative
Shares, as such, shall have no right or claim to any of the remaining assets of
the Corporation.
(b) The merger or consolidation of the Corporation into or
with any other Corporation, the merger of any other Corporation into it, or the
sale, lease or conveyance of all or substantially all the assets of the
Corporation, shall not be deemed to be a dissolution, liquidation or winding up
for the purposes of this Section.
Section 5. VOTING.
------
(a) The holders of Noncumulative Shares shall have no voting
rights, except as provided in this Section or required by law.
(b)(1) If, and so often as, the Corporation shall not have
fully paid, or shall not have declared and set aside a sum sufficient for the
payment of, dividends on any series of Noncumulative Shares at the time
outstanding, for a number of consecutive dividend payment periods which in the
aggregate contain at least 540 days, the holders of such Noncumulative Shares,
voting separately as a class, together with all Class A Shares and Class B
Shares upon which like voting rights have been conferred and are exercisable,
shall be entitled to elect, as herein provided, two members of the Board of
Directors of the Corporation; provided, however, that the holders of such
Noncumulative Shares shall not exercise such special class voting rights except
at meetings of such shareholders for the election of directors at which the
holders of not less than 50% of such Noncumulative Shares are present in person
or by proxy; and provided further, that the special class voting rights provided
for in this paragraph when the same shall have become vested shall remain so
vested until the Corporation shall have fully paid, or shall have set aside a
sum sufficient for the payment of, dividends on such Noncumulative Shares then
outstanding for a number of consecutive dividend payment periods which in the
aggregate contain at least 360 days, whereupon the holders of such Noncumulative
Shares shall be divested of their special class voting rights in respect of
subsequent elections of directors, subject to the revesting of such special
class voting rights in the event above specified in this paragraph.
(2) In the event of default entitling holders of
Noncumulative Shares to elect two directors as specified in paragraph (1) of
this Subsection, a special meeting of such holders for the purpose of electing
such directors shall be called by the Secretary of the Corporation upon written
request of, or may be called by, the holders of record of at least 10% of the
Noncumulative Shares upon which such default in the payment of dividends exists
and notice thereof shall be given in the same manner as that required for the
annual meeting of shareholders; provided, however, that the Corporation shall
not be required to call such special meeting if the annual meeting of
shareholders shall be called to be held within 90 days after the date of receipt
of the foregoing written request from the holders of Noncumulative Shares. At
any meeting at which such holders of Noncumulative Shares shall be entitled to
elect directors, holders of 50% of such Noncumulative Shares, present in person
or by proxy, shall be sufficient to constitute a quorum, and the vote of the
holders of a majority of such shares so present at any such meeting at which
there shall be such a quorum shall be sufficient to elect the members of the
Board of Directors which such holders of Noncumulative Shares are entitled to
elect as herein provided. Notwithstanding any provision of these Amended and
Restated Articles of Incorporation or the Code of Regulations of the Corporation
or any action taken by the holders of any class of shares fixing the number of
directors of the Corporation, the two directors who may be elected by such
holders of Noncumulative Shares pursuant to this Subsection shall serve in
addition to any other directors then in office or proposed to be
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elected otherwise than pursuant to this Subsection. Nothing in this Subsection
shall prevent any change otherwise permitted in the total number of or
classifications of directors of the Corporation nor require the resignation of
any director elected otherwise than pursuant to this Subsection. Notwithstanding
any classification of the other directors of the Corporation, the two directors
elected by such holders of Noncumulative Shares shall be elected annually for
terms expiring at the next succeeding annual meeting of shareholders.
(3) Upon any divesting of the special class voting rights
of the holders of the Noncumulative Shares in respect of elections of directors
as provided in this Subsection, the terms of office of all directors then in
office elected by such holders shall terminate immediately thereupon. If the
office of any director elected by such holders voting as a class becomes vacant
by reason of death, resignation, removal from office or otherwise, the remaining
director elected by such holders voting as a class may elect a successor who
shall hold office for the unexpired term in respect of which such vacancy
occurred.
(c) If at any time when the holders of Noncumulative Shares
are entitled to elect directors pursuant to the foregoing provisions of this
Section the holders of any Class A Shares or Class B Shares are entitled to
elect directors pursuant hereto by reason of any default in the payment of
dividends thereon, then the voting rights of the Class A Shares, Class B Shares
and Noncumulative Shares then entitled to vote shall be combined (with class of
shares having a number of votes proportional to the aggregate liquidation
preference of its outstanding shares). In such case, the holders of
Noncumulative Shares and of all such other shares then entitled so to vote,
voting as a class, shall elect such directors. If the holders of any such other
shares have elected such directors prior to the happening of the default or
event permitting the holders of Noncumulative Shares to elect directors, or
prior to a written request for the holding of a special meeting being received
by the Secretary of the Corporation as required above, then a new election shall
be held with all such other shares and the Noncumulative Shares voting together
as a single class for such directors, resulting in the termination of the term
of such previously elected directors upon the election of such new directors.
(d) The affirmative vote of the holders of at least two-thirds
of the Noncumulative Shares at the time outstanding, voting separately as a
class, given in person or by proxy either in writing or at a meeting called for
the purpose, shall be necessary to effect either of the following:
(1) Any amendment, alteration or repeal, whether by
merger, consolidation or otherwise, of any of the provisions of the Amended and
Restated Articles of Incorporation or of the Code of Regulations of the
Corporation which affects adversely and materially the preferences or voting or
other rights of the holders of Noncumulative Shares which are set forth in these
Amended and Restated Articles of Incorporation; provided, however, neither the
amendment of these Amended and Restated Articles of Incorporation so as to
authorize, create or change the authorized or outstanding number of
Noncumulative Shares or of any shares ranking on a parity with or junior to the
Noncumulative Shares nor the amendment of the provisions of the Code of
Regulations so as to change the number or classification of directors of the
Corporation shall be deemed to affect adversely and materially preferences or
voting or other rights of the holders of Noncumulative Shares; or
(2) The authorization, creation or increase in the
authorized number of any shares, or any security convertible into shares, in
either case ranking prior to such Noncumulative Shares.
(e) In the event, and only to the extent, that (1)
Noncumulative Shares are issued in more than one series and (2) Ohio law permits
the holders of a series of a class of capital stock to vote separately as a
class, the affirmative vote of the holders of at least two-thirds of each series
of the Noncumulative Shares at the time outstanding, voting separately as a
class, given in person or by proxy either in writing or at a meeting called for
the purpose of voting on such matters, shall be required for any amendment,
alteration or repeal, whether by merger, consolidation or otherwise, of any of
the provisions of these Amended and Restated Articles of Incorporation or of the
Code of Regulations of the Corporation which affects adversely and materially
the preferences or voting or other rights of the holders of such series which
are set forth in these
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Amended and Restated Articles of Incorporation; provided, however, neither the
amendment of these Amended and Restated Articles of Incorporation, so as to
authorize, create or change the authorized or outstanding number of
Noncumulative Shares or of any shares remaining on a parity with or junior to
the Noncumulative Shares nor the amendment of the provisions of the Code of
Regulations so as to change the number or classification of directors of the
Corporation shall be deemed to affect adversely and materially preferences or
voting or other rights of the holder of such series.
IV. DEFINITIONS. For the purposes of this Division:
-----------
(a) Whenever reference is made to shares "ranking prior to"
Class A Shares, Class B Shares or Noncumulative Shares, such reference shall
mean and include all shares of the Corporation in respect of which the rights of
the holders thereof as to the payment of dividends or as to distributions in the
event of a voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation are given preference over the rights of the
holders of Class A Shares, Class B Shares or Noncumulative Shares, as the case
may be;
(b) Whenever reference is made to shares "on a parity with"
Class A Shares, Class B Shares or Noncumulative Shares, such reference shall
mean and include all shares of the Corporation in respect of which the rights of
the holders thereof as to the payment of dividends or as to distributions in the
event of a voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation rank equally (except as to the amounts fixed
therefor) with the rights of the holders of Class A Shares, Class B Shares or
Noncumulative Shares, as the case may be; and
(c) Whenever reference is made to shares "ranking junior to"
Class A Shares, Class B Shares or Noncumulative Shares, such reference shall
mean and include all shares of the Corporation other than those defined under
Subsections (a) and (b) of this Section as shares "ranking prior to" or "on a
parity with" Class A Shares, Class B Shares or Noncumulative Shares, as the case
may be.
V. RESTRICTIONS ON TRANSFER TO PRESERVE TAX BENEFIT; SHARES SUBJECT
----------------------------------------------------------------
TO REDEMPTION.
--------------
(a) DEFINITIONS. For the purposes of this Item V of this
Division A of this Article FOURTH, the following terms shall have the
following meanings:
"Beneficial Ownership" shall mean ownership of Preferred
Shares by a Person who would be treated as an owner of such Preferred
Shares either directly or constructively through the application of
Section 544 of the Code, as modified by Section 856(h) of the Code. The
terms "Beneficial Owner," "Beneficially Owns" and "Beneficially Owned"
shall have the correlative meanings.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Constructive Ownership" shall mean ownership of Preferred
Shares by a Person who would be treated as an owner of such Preferred
Shares either directly or constructively through the application of
Section 318 of the Code, as modified by Section 856(d)(5) of the Code.
The terms "Constructive Owner," "Constructively Owns" and
"Constructively Owned" shall have the correlative meanings.
"Excess Preferred Shares" shall mean any Preferred Shares (i)
acquired or proposed to be acquired by any Person pursuant to a
Transfer to the extent that, if effective, such Transfer would result
in the transferee either Beneficially Owning Preferred Shares or
Constructively Owning Preferred Shares in excess of the Ownership
Limit, or (ii) which are the subject of a Transfer that, if effective,
which would result in the Corporation being "closely held" within the
meaning of Section 856(h) of the Code.
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"Market Price" shall mean, with respect to any series of any
class of Preferred Shares, the last reported sales price of such series
reported on the New York Stock Exchange on the trading day immediately
preceding the relevant date or, if shares of such series are not then
traded on the New York Stock Exchange, the last reported sales price of
shares of such series on the trading day immediately preceding the
relevant date as reported on any exchange or quotation system over
which the shares of such series may be traded, or if shares of such
series are not then traded over any exchange or quotation system, then
the market price of shares of such series on the relevant date as
determined in good faith by the Board of Directors of the Corporation.
"Ownership Limit" shall mean, with respect to each series of
each class of Preferred Shares, 9.8% of the outstanding shares of such
series.
"Person" shall mean an individual, corporation, partnership,
estate, trust (including a trust qualified under Section 401(a) or
501(c)(17) of the Code), a portion of a trust permanently set aside for
or to be used exclusively for the purposes described in Section 642(c)
of the Code, an association, a private foundation within the meaning of
Section 509(a) of the Code, a joint stock company, other entity or a
group as that term is used for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended; provided, however, that a
"person" does not mean an underwriter which participates in a public
offering of Preferred Shares, for a period of 35 days following the
purchase by such underwriter of such Preferred Shares.
"Preferred Shares" shall mean, collectively, Class A Shares,
Class B Shares and Noncumulative Shares.
"REIT" shall mean a Real Estate Investment Trust under Section
856 of the Code.
"Transfer" shall mean any sale, transfer, gift, assignment,
devise or other disposition of Preferred Shares (including, without
limitation, (i) the granting of any option or entering in to any
agreement for the sale, transfer or other disposition of Preferred
Shares or (ii) the sale, transfer, assignment or other disposition of
any securities or rights convertible into or exchangeable for Preferred
Shares), whether voluntary or involuntary, whether of record or
beneficially and whether by operation of law or otherwise.
(b) RESTRICTIONS ON TRANSFERS.
(i) Except as provided in Section (h) of Item V of
this Division A of this Article FOURTH, no Person shall
Beneficially Own or Constructively Own shares of any series of
any class of Preferred Shares in excess of the Ownership Limit
applicable to such series.
(ii) Except as provided in Section (h) of Item V of
this Division A of this Article FOURTH, any Transfer that, if
effective, would result in any Person Beneficially Owning
shares of any series of any class of Preferred Shares in
excess of the Ownership Limit applicable to such series shall
be void AB INITIO as to the Transfer of such Preferred Shares
which would be otherwise Beneficially Owned by such Person in
excess of such Ownership Limit, and the intended transferee
shall acquire no rights in such Preferred Shares.
(iii) Except as provided in Section (h) of Item V of
this Division A of this Article FOURTH, any Transfer that, if
effective, would result in any Person Constructively Owning
shares of any series of any class of Preferred Shares in
excess of the Ownership Limit applicable to such series shall
be void AB INITIO as to the Transfer of such Preferred Shares
which would be otherwise Constructively Owned by such Person
in excess of such amount, and the intended transferee shall
acquire no rights in such Preferred Shares.
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<PAGE> 29
(iv) Notwithstanding any other provisions contained
in this Item V, any Transfer (whether or not such Transfer is
the result of a transaction entered into through the
facilities of the New York Stock Exchange) or other event
that, if effective, would result in the Corporation being
"closely held" within the meaning of Section 856(h) of the
Code, or would otherwise result in the Corporation failing to
qualify as a REIT (including, but not limited to, a Transfer
or other event that would result in the Corporation owning
(directly or Constructively) an interest in a tenant that is
described in Section 856(d)(2)(B) of the Code if the income
derived by the Corporation from such tenant would cause the
Corporation to fail to satisfy any of the gross income
requirement of Section 856(c) of the Code) shall be void AB
INITIO as to the Transfer of the Preferred Shares or other
event which would cause the Corporation to be "closely held"
within the meaning of Section 856(h) of the Code or would
otherwise result in the Corporation failing to qualify as a
REIT; and the intended transferee or owner or Constructive or
Beneficial Owner shall acquire or retain no rights in such
Preferred Shares.
(v) For purposes of construing the foregoing
provisions, any attempt to transfer Preferred Shares in
violation of the Ownership Limit applicable to the series of
the class of such Preferred Shares (as such Ownership Limit
may be modified by the Board of Directors pursuant to Section
(h) of Item V) shall be construed as causing such Preferred
Shares to be transferred by operation of law to the
Corporation as trustee of a trust for the exclusive benefit of
the person or persons to whom such Preferred Shares can
ultimately be transferred without violating the Ownership
Limit and any Excess Preferred Shares while held in such trust
shall not have any voting rights, shall not be considered for
purposes of any shareholder vote or for determining a quorum
for such a vote, and shall not be entitled to any dividends or
other distributions.
(c) REMEDIES FOR BREACH. If the Board of Directors or its
designees shall at any time determine in good faith that a Transfer has
taken place in violation of Section (b) of Item V of this Division A of
this Article FOURTH or that a Person intends to acquire or has
attempted to acquire beneficial ownership (determined without reference
to any rules of attribution), Beneficial Ownership or Constructive
Ownership of any Preferred Shares of the Corporation in violation of
Section (b) of Item V of this Division A of this Article FOURTH, or
that any such Transfer, intended or attempted acquisition or
acquisition would jeopardize the status of the Company as a REIT under
the Code, the Board of Directors or its designees shall take such
actions as it deems advisable to refuse to give effect or to prevent
such Transfer, including, but not limited to, refusing to give effect
to such Transfer on the books of the Corporation or instituting
proceedings to enjoin such Transfer and, in addition, exercising its
rights under Section (d) of Item V of this Division A of Article
FOURTH.
(d) PURCHASE RIGHT IN EXCESS PREFERRED SHARES. Beginning on
the date of the occurrence of a Transfer which, if consummated, in the
good faith judgment of the Board of Directors of the Corporation, could
result in Excess Preferred Shares, such Excess Preferred Shares shall
be deemed to have been offered for sale to the Corporation, or its
designee, at a price per share equal to the lesser of (i) the price per
share in the transaction that created such Excess Preferred Shares (or,
in the case of a devise or gift, the Market Price at the time of such
devise or gift) and (ii) the Market Price on the date the Corporation,
or its designee, accepts such offer. The Corporation shall have the
right to accept such offer for a period of 90 days after the later of
(i) the date of such Transfer and (ii) if the Corporation does not
receive a notice of such Transfer pursuant to Section (e) of Item V of
this Division A of this Article FOURTH, the date the Board of Directors
determines in good faith that such Transfer has occurred. Prompt
payment of the purchase price shall be made in such reasonable manner
as may be determined by the Corporation. From and after the date fixed
for purchase by the Corporation, and so long as payment of the purchase
price for the Excess Preferred Shares to be so purchased shall have
been made or duly provided for, the holder of any Excess Preferred
Shares so called for purchase shall cease to be entitled to dividends,
distributions, voting rights and other benefits with respect to such
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<PAGE> 30
Excess Preferred Shares, excepting only the right to payment of the
purchase price fixed as aforesaid. Any dividend or distribution paid to
a proposed transferee of Excess Preferred Shares prior to the discovery
by the Corporation that the Excess Preferred Shares have been
transferred in violation of Section (b) of Item V of this Division A of
this Article FOURTH shall be repaid to the Corporation upon demand. If
the foregoing provisions are determined to be void or invalid by virtue
of any legal decision, statute, rule or regulation, then the intended
transferee of such Excess Preferred Shares shall be deemed, at the
option of the Corporation, to have acted as agent on behalf of the
Corporation in acquiring such Excess Preferred Shares and to hold such
Excess Preferred Shares on behalf of the Corporation.
(e) NOTICE OF RESTRICTED TRANSFER. Any Person who acquires or
attempts to acquire Preferred Shares or other securities in violation
of subparagraph (b) of this Item V, or any Person who owns or will own
Excess Preferred Shares as a result of an event under clause (b) of
this Item V, shall immediately give written notice to the Corporation
of such event and shall provide to the Corporation such other
information as the Corporation may request in order to determine the
effect, if any, of such Transfer or attempted Transfer or other event
on the Corporation's status as a REIT.
(f) REMEDIES NOT LIMITED. Nothing contained in this Division A
of this Article FOURTH shall limit the authority of the Board of
Directors to take such other action as it deems necessary or advisable
to protect the Corporation and the interests of its shareholders by
preservation of the Corporation's status as a REIT.
(g) AMBIGUITY. In the case of an ambiguity in the application
of any of the provisions of Item V of this Division A of this Article
FOURTH, including any definition contained in Section (a) of Item V,
the Board of Directors shall have the power to determine the
application of the provisions of this Item V with respect to any
situation based on the facts known to it.
(h) EXCEPTIONS.
----------
(i) Subject to Section (b)(iv) of Item V of this
Division A, the Board of Directors may exempt a Person from
the Ownership Limit applicable to a series of a class of
Preferred Shares if such Person is not an individual (other
than pension plans described in Section 856(h)(3)) for
purposes of Section 542(a)(2) of the Code if the Board of
Directors obtains such representations and undertakings from
such Person as are reasonably necessary to ascertain that no
individual's Beneficial Ownership of such Preferred Shares
will violate the Ownership Limit, and agrees that any
violation or attempted violation will result in such Preferred
Shares in excess of the Ownership Limit being subject to
repurchase by the Corporation as set forth in Section (d) of
Item V of this Division A of this Article FOURTH.
(ii) The Board of Directors may exempt a Person from
the limitation on such Person Constructively Owning Preferred
Shares in excess of the Ownership Limit applicable to a series
of a class of such Preferred Shares if such Person does not
own and represents that it will not own, directly or
constructively (by virtue of the application of Section 318 of
the Code, as modified by Section 856(d)(5) of the Code), more
than a 9.8% interest (as set forth in Section 856(d)(2)(B)) in
a tenant of any real property owned or leased by the
Corporation, if the Board of Directors obtains such
representations and undertakings from such Person as are
reasonably necessary to ascertain this fact and agrees that
any violation or attempted violation will result in such
Preferred Shares in excess of the Ownership Limit being deemed
to be Excess Preferred Shares and subject to repurchase by the
Corporation as set forth in Section (d) of Item V of this
Division A of this Article FOURTH.
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<PAGE> 31
VI. LEGEND. Each certificate for Preferred Shares shall bear the
following legend:
"The Preferred Shares represented by this certificate are
subject to restrictions on transfer for the purpose of the corporation's
maintenance of its status as a Real Estate Investment Trust under the Internal
Revenue Code of 1986, as amended. Subject to certain provisions of the
Corporation's Articles of Incorporation, no Person may Beneficially Own or
Constructively Own shares of any series of any class of Preferred Shares in
excess of 9.8% of the outstanding Preferred Shares of such series. Any Person
who attempts to Beneficially Own or Constructively Own shares of any series of
any class of Preferred Shares in excess of the above limitations must
immediately notify the Corporation. All capitalized terms in this legend have
the meanings defined in the Corporation's Articles of Incorporation, a copy of
which, including the restrictions on transfer, will be sent without charge to
each shareholder who so requests. If the restrictions on transfer are violated,
certain of the Preferred Shares represented hereby may be subject to repurchase
by the Corporation on the terms and conditions set forth in the Corporation's
Articles of Incorporation.
DIVISION B
Subject to the terms of the Preferred Shares, the Common Shares shall
have the following express terms:
Section 1. DIVIDEND RIGHTS. The holders of Common Shares shall
be entitled to receive, when, as and if declared by the Board of Directors of
the Corporation, out of the assets of the Corporation which are by law available
therefor, dividends or distributions payable in cash, in property or in
securities of the Corporation.
Section 2. RIGHTS UPON LIQUIDATION. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of, or any
distribution of the assets of, the Corporation, each holder of Common Shares
shall be entitled to receive, ratably with each other holder of Common Shares,
that portion of the assets of the Corporation available for distribution to its
shareholders as the number of Common Shares held by such holder bears to the
total number of Common Shares then outstanding.
Section 3. VOTING RIGHTS. The holders of Common Shares shall
be entitled to vote on all matters (for which holders of Common Shares shall be
entitled to vote thereon) at all meetings of the shareholders of the
Corporation, and shall be entitled to one vote for each Common Share entitled to
vote at such meeting.
Section 4. RESTRICTIONS ON TRANSFER TO PRESERVE TAX BENEFIT;
COMMON SHARES SUBJECT TO REDEMPTION.
(a) DEFINITIONS. For the purposes of this Section 4 of this
Division B of this Article FOURTH, the following terms shall have the
following meanings:
"Beneficial Ownership" shall mean ownership of Common Shares
by a Person who would be treated as an owner of such Common Shares
either directly or constructively through the application of Section
544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The
terms "Beneficial Owner," "Beneficially Owns" and "Beneficially Owned"
shall have the correlative meanings.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Constructive Ownership" shall mean ownership of Common Shares
by a Person who would be treated as an owner of such Common Shares
either directly or constructively through the application of
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<PAGE> 32
Section 318 of the Code, as modified by Section 856(d)(5) of the Code.
The terms "Constructive Owner," "Constructively Owns" and
"Constructively Owned" shall have the correlative meanings.
"Excess Shares" shall mean any Common Shares (i) acquired or
proposed to be acquired by any Person (other than an Existing Holder)
pursuant to a Transfer to the extent that, if effective, such Transfer
would result in the transferee either (A) Beneficially Owning Common
Shares in excess of the Ownership Limit or (B) Constructively Owning
Common Shares in excess of the Related Party Limit, (ii) acquired or
proposed to be acquired by an Existing Holder pursuant to a Transfer to
the extent that, if effective, such Transfer would result in such
Existing Holder Beneficially Owning Common Shares in excess of the
Existing Holder Limit for such Existing Holder, or (iii) which are the
subject of a Transfer that, if effective, which would result in (A) the
Common Shares being owned by fewer than 100 Persons (determined without
reference to any rules of attribution), or (B) the Corporation being
"closely held" within the meaning of Section 856(h) of the Code.
"Existing Holder" shall mean (i) Bert L. Wolstein, (ii) Scott
A. Wolstein, (iii) James A. Schoff, and (iv) any Person to whom an
Existing Holder Transfers Beneficial Ownership of Common Shares causing
such transferee to Beneficially Own Common Shares in excess of the
Ownership Limit.
"Existing Holder Limit" (i) for any Existing Holder who is an
Existing Holder by virtue of clause (i), (ii) or (iii) of the
definition thereof, shall mean, initially, the percentage of the
outstanding Common Shares Beneficially Owned by such Existing Holder
upon the consummation of the Initial Public Offering, and after any
adjustment pursuant to paragraph C(4)(i) of this Division B of this
Article FOURTH, shall mean such percentage of the outstanding Common
Shares as so adjusted; and (ii) for any Existing Holder who becomes an
Existing Holder by virtue of clause (iv) of the definition thereof,
shall mean, initially, the percentage of the outstanding Common Shares
Beneficially Owned by such Existing Holder at the time that such
Existing Holder becomes an Existing Holder, and after any adjustment
pursuant to Section 4(i) of this Division B of this Article FOURTH,
shall mean such percentage of the outstanding Common Shares as so
adjusted. From and after the date of the Initial Public Offering, the
secretary of the Corporation shall maintain and, upon request, make
available to each Existing Holder, a schedule which sets forth the then
current Existing Holder Limits for each Existing Holder.
"Initial Public Offering" means the sale of Common Shares
pursuant to the Company's first effective registration statement for
such Common Shares filed under the Securities Act of 1933, as amended.
"Market Price" shall mean the last reported sales price of
Common Shares reported on the New York Stock Exchange on the trading
day immediately preceding the relevant date or, if the Common Shares
are not then traded on the New York Stock Exchange, the last reported
sales price of the Common Shares on the trading day immediately
preceding the relevant date as reported on any exchange or quotation
system over which the Common Shares may be traded, or if the Common
Shares are not then traded over any exchange or quotation system, then
the market price of the Common Shares on the relevant date as
determined in good faith by the Board of Directors of the Corporation.
"Ownership Limit" shall mean 5.0% of the outstanding Common
Shares of the Corporation.
"Person" shall mean an individual, corporation, partnership,
estate, trust (including a trust qualified under Section 401(a) or
501(c)(17) of the Code), a portion of a trust permanently set aside for
or to be used exclusively for the purposes described in Section 642(c)
of the Code, an association, a private foundation within the meaning of
Section 509(a) of the Code, a joint stock company, other entity or a
group as that term is used for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended; provided, however, that a
"person" does not mean an underwriter which participates in a
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<PAGE> 33
public offering of the Common Shares, for a period of 35 days following
the purchase by such underwriter of the Common Shares.
"REIT" shall mean a Real Estate Investment Trust under Section
856 of the Code.
"Related Party Limit" shall mean 9.8% of the outstanding
Common Shares of the Corporation.
"Transfer" shall mean any sale, transfer, gift, assignment,
devise or other disposition of Common Shares (including, without
limitation, (i) the granting of any option or entering in to any
agreement for the sale, transfer or other disposition of Common Shares
or (ii) the sale, transfer, assignment or other disposition of any
securities or rights convertible into or exchangeable for Common
Shares), whether voluntary or involuntary, whether of record or
beneficially and whether by operation of law or otherwise.
(b) RESTRICTIONS ON TRANSFERS.
-------------------------
(i) Except as provided in Section 4(i) of this
Division B of this Article FOURTH, from and after the date of
the Initial Public Offering, no Person (other than an Existing
Holder) shall Beneficially Own Common Shares in excess of the
Ownership Limit and no Existing Holder shall Beneficially Own
Common Shares in excess of the Existing Holder Limit for such
Existing Holder.
(ii) Except as provided in Section 4(i) of this
Division B of this Article FOURTH, from and after the date of
the Initial Public Offering, any Transfer that, if effective,
would result in any Person (other than an Existing Holder)
Beneficially Owning Common Shares in excess of the Ownership
Limit shall be void AB INITIO as to the Transfer of such
Common Shares which would be otherwise Beneficially Owned by
such Person in excess of the Ownership Limit, and the intended
transferee shall acquire no rights in such Common Shares.
(iii) Except as provided in Section 4(i) of this
Division B of this Article FOURTH, from and after the date of
the Initial Public Offering, any Transfer that, if effective,
would result in any Existing Holder Beneficially Owning Common
Shares in excess of the applicable Existing Holder Limit shall
be void AB INITIO as to the Transfer of such Common Shares
which would be otherwise Beneficially Owned by such Existing
Holder in excess of the applicable Existing Holder Limit, and
such Existing Holder shall acquire no rights in such Common
Shares.
(iv) Except as provided in Section 4(i) of this
Division B of this Article FOURTH, from and after the date of
the Initial Public Offering, any Transfer that, if effective,
would result in any Person Constructively Owning Common Shares
in excess of the Related Party Limit shall be void AB INITIO
as to the Transfer of such Common Shares which would be
otherwise Constructively Owned by such Person in excess of
such amount, and the intended transferee shall acquire no
rights in such Common Shares.
(v) Except as provided in Section 4(i) of this
Division B of this Article FOURTH, from and after the date of
the Initial Public Offering, any Transfer that, if effective,
would result in the Common Shares being beneficially owned by
less than 100 Persons (determined without reference to any
rules of attribution) shall be void AB INITIO as to the
Transfer of such Common Shares which would be otherwise
beneficially owned by the transferee, and the intended
transferee shall acquire no rights in such Common Shares.
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<PAGE> 34
(vi) From and after the date of the Initial Public
Offering, any Transfer that, if effective, would result in the
Corporation being "closely held" within the meaning of Section
856(h) of the Code shall be void AB INITIO as to the Transfer
of the Common Shares which would cause the Corporation to be
"closely held" within the meaning of Section 856(h) of the
Code, and the intended transferee shall acquire no rights in
such Common Shares.
(c) REMEDIES FOR BREACH. If the Board of Directors or its
designees shall at any time determine in good faith that a Transfer has
taken place in violation of Section 4(b) of this Division B of this
Article FOURTH or that a Person intends to acquire or has attempted to
acquire beneficial ownership (determined without reference to any rules
of attribution), Beneficial Ownership or Constructive Ownership of any
Common Shares of the Corporation in violation of Section 4(b) of this
Division B of this Article FOURTH, or that any such Transfer, intended
or attempted acquisition or acquisition would jeopardize the status of
the Company as a REIT under the Code, the Board of Directors or its
designees shall take such actions as it deems advisable to refuse to
give effect or to prevent such Transfer, including, but not limited to,
refusing to give effect to such Transfer on the books of the
Corporation or instituting proceedings to enjoin such Transfer and, in
addition, exercising its rights under Section 4(d) of this Division B
of this Article FOURTH.
(d) PURCHASE RIGHT IN EXCESS SHARES. Beginning on the date of
the occurrence of a Transfer which, if consummated, in the good faith
judgment of the Board of Directors of the Corporation, could result in
Excess Shares, such Excess Shares shall be deemed to have been offered
for sale to the Corporation, or its designee, at a price per share
equal to the lesser of (i) the price per share in the transaction that
created such Excess Shares (or, in the case of a devise or gift, the
Market Price at the time of such devise or gift) and (ii) the Market
Price on the date the Corporation, or its designee, accepts such offer.
The Corporation shall have the right to accept such offer for a period
of ninety days after the later of (i) the date of such Transfer and
(ii) if the Corporation does not receive a notice of such Transfer
pursuant to Section 4(e) of this Division B of this Article FOURTH, the
date the Board of Directors determines in good faith that such Transfer
has occurred. Prompt payment of the purchase price shall be made in
such reasonable manner as may be determined by the Corporation. From
and after the date fixed for purchase by the Corporation, and so long
as payment of the purchase price for the Excess Shares to be so
purchased shall have been made or duly provided for, the holder of any
Excess Shares so called for purchase shall cease to be entitled to
dividends, distributions, voting rights and other benefits with respect
to such Excess Shares, excepting only the right to payment of the
purchase price fixed as aforesaid. Any dividend or distribution paid to
a proposed transferee of Excess Shares prior to the discovery by the
Corporation that the Excess Shares have been transferred in violation
of Section 4(b) of this Division B of this Article FOURTH shall be
repaid to the Corporation upon demand. If the foregoing provisions are
determined to be void or invalid by virtue of any legal decision,
statute, rule or regulation, then the intended transferee of such
Excess Shares shall be deemed, at the option of the Corporation, to
have acted as agent on behalf of the Corporation in acquiring such
Excess Shares and to hold such Excess Shares on behalf of the
Corporation.
(e) NOTICE OF RESTRICTED TRANSFER. Any Person who acquires or
intends to acquire shares in violation of Section 4(b) of this Division
B of this Article FOURTH or any Person who is a transferee of Excess
Shares shall immediately give written notice to the Corporation of such
event and shall provide to the Corporation such other information as
the Corporation may request in order to determine the effect, if any,
of such Transfer or intended Transfer on the Corporation's status as a
REIT.
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<PAGE> 35
(f) OWNERS REQUIRED TO PROVIDE INFORMATION. From and
after the date of the Initial Public Offering:
(i) every Beneficial Owner of more than 5.0% (or such
other percentage, between 0.5% and 5.0%, as provided in the
regulations promulgated pursuant to the Code) of the
outstanding Common Shares of the Corporation shall, within 30
days after January 1 of each year, give written notice to the
Corporation stating the name and address of such Beneficial
Owner, the number of shares Beneficially Owned, and
description of how such shares are held. Each such Beneficial
Owner shall provide to the Corporation such additional
information as the Corporation may request in order to
determine the effect, if any, of such Beneficial Ownership on
the Corporation's status as a REIT.
(ii) each Person who is a Beneficial Owner or
Constructive Owner of Common Shares and each Person (including
the shareholder of record) who is holding Common Shares for a
Beneficial Owner or Constructive Owner shall provide to the
Corporation such information that the Corporation may request,
in good faith, in order to determine the Corporation's status
as a REIT.
(g) REMEDIES NOT LIMITED. Nothing contained in this Division B
of this Article FOURTH shall limit the authority of the Board of
Directors to take such other action as it deems necessary or advisable
to protect the Corporation and the interests of its shareholders by
preservation of the Corporation's status as a REIT.
(h) AMBIGUITY. In the case of an ambiguity in the application
of any of the provisions of Section 4 of this Division B of this
Article FOURTH, including any definition contained in Section 4(a), the
Board of Directors shall have the power to determine the application of
the provisions of this Section 4 with respect to any situation based on
the facts known to it.
(i) MODIFICATION OF EXISTING HOLDER LIMITS. Subject to
the provisions of Section 4(k) of this Division B, the Existing Holder
Limits may be modified as follows:
(i) Subject to the limitations provided in Section
4(k), any Existing Holder may Transfer Common Shares to a
Person who is already an Existing Holder up to the number of
Common Shares Beneficially Owned by such transferor Existing
Holder in excess of the Ownership Limit. Any such Transfer
will decrease the Existing Holder Limit for such transferor
Existing Holder and increase the Existing Holder Limit for
such transferee Existing Holder by the percentage of the
outstanding Common Shares so Transferred. The transferor
Existing Holder shall give the Board of Directors of the
Corporation prior written notice of any such Transfer.
(ii) Any grant of a stock option pursuant to a stock
option plan approved by the shareholders of the Corporation
shall increase the Existing Holder Limit for the affected
Existing Holder to the maximum extent possible under Section
4(k) to permit the Beneficial Ownership of the Common Shares
issuable upon the exercise of such stock option.
(iii) The Board of Directors may reduce the
Existing Holder Limit for any Existing Holder, with the
written consent of such Existing Holder, after any Transfer
permitted in this Section 4 by such Existing Holder to a
Person other than an Existing Holder or after the lapse
(without exercise) of a stock option described in Section
4(i)(ii).
(iv) Any Common Shares issued to an Existing Holder
pursuant to a dividend reinvestment plan adopted by the
Corporation shall increase the Existing Holder Limit for the
25
<PAGE> 36
Existing Holder to the maximum extent possible under Section
4(k) to permit the Beneficial Ownership of such Common Shares.
(j) MODIFICATION OF OWNERSHIP LIMIT. Subject to the
limitations provided in Section 4(k) of this Division B, the Board of
Directors may from time to time increase the Ownership Limit.
(k) LIMITATIONS ON MODIFICATIONS. Notwithstanding any
other provision of this Division B of this Article FOURTH:
(i) Neither the Ownership Limit nor any Existing
Holder Limit may be increased (nor may any additional Existing
Holder Limit be created) if, after giving effect to such
increase (or creation), five Beneficial Owners of Common
Shares (including all of the then Existing Holders) could
Beneficially Own, in the aggregate, more than 49.6% of the
outstanding Common Shares.
(ii) Prior to the modification of any Existing Holder
Limit or Ownership Limit pursuant to Section 4(i) or Section
4(j) of this Division B of this Article FOURTH, the Board of
Directors of the Corporation may require such opinions of
counsel, affidavits, undertakings or agreements as it may deem
necessary or advisable in order to determine or ensure the
Corporation's status as a REIT.
(iii) No Existing Holder Limit shall be reduced to
a percentage which is less than the Ownership Limit.
(iv) The Ownership Limit may not be increased to
a percentage which is greater than 9.8%.
(v) The Related Party Limit may not be increased
to a percentage which is greater than 9.8%.
(l) EXCEPTIONS.
(i) The Board of Directors, with a ruling from the
Internal Revenue Service or an opinion of counsel, may exempt
a Person from the Ownership Limits or the Existing Holder
Limits, as the case may be, if such Person is not an
individual for purposes of Section 542(a)(2) of the Code and
the Board of Directors obtains such representations and
undertakings from such Person as are reasonably necessary to
ascertain that no individual's Beneficial Ownership of such
Common Shares will violate the Ownership Limit or the
applicable Existing Holder Limit, as the case may be, and
agrees that any violation or attempted violation will result
in such Common Shares in excess of 5.0% of the outstanding
Common Shares being deemed to be Excess Shares and subject to
repurchase by the Corporation as set forth in Section 4(d) of
this Division B of this Article FOURTH.
(ii) The Board of Directors, with a ruling from the
Internal Revenue Service or an opinion of counsel, may exempt
a Person from the limitation on such Person Constructively
Owning Common Shares in excess of the Related Party Limit if
such Person does not own and represents that it will not own,
directly or constructively (by virtue of the application of
Section 318 of the Code, as modified by Section 856(d)(5) of
the Code), more than a 9.9% interest (as set forth in Section
856(d)(2)(B)) in a tenant of any real property owned or leased
by the Corporation, and the Corporation obtains such
representations and undertakings from such Person as are
reasonably necessary to ascertain this fact and agrees that
any violation or attempted violation will result in such
Common Shares in excess of 9.8% being deemed to be
26
<PAGE> 37
Excess Shares and subject to repurchase by the Corporation as
set forth in Section 4(d) of this Division B of this Article
FOURTH.
Section 5. LEGEND. Each certificate for Common Shares shall
bear the following legend:
"The Common Shares represented by this certificate are subject
to restrictions on transfer for the purpose of the Corporation's maintenance of
its status as a Real Estate Investment Trust under the Internal Revenue Code of
1986, as amended. Subject to certain provisions of the Corporation's Articles of
Incorporation, no Person may Beneficially Own Common Shares in excess of 5.0% of
the outstanding Common Shares of the Corporation (unless such Person is an
Existing Holder) and no Person (other than an Existing Holder who Constructively
Owns in excess of 9.8% of the Common Shares immediately following the
consummation of the Initial Public Offering) may Constructively Own Common
Shares in excess of 9.8% of the outstanding Common Shares of the Corporation.
Any Person who attempts to Beneficially Own or Constructively Own Common Shares
in excess of the above limitations must immediately notify the Corporation. All
capitalized terms in this legend have the meanings defined in the Corporation's
Articles of Incorporation, a copy of which, including the restrictions on
transfer, will be sent without charge to each shareholder who so requests. If
the restrictions on transfer are violated, certain of the Common Shares
represented may be subject to repurchase by the Company on the terms and
conditions set forth in the Corporation's Articles of Incorporation."
27
<PAGE> 38
CERTIFICATE OF AMENDMENT
TO
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 an Action of Directors
Without a Meeting of the Pricing Committee of the Board of Directors of the
Company was duly executed by all members of the Pricing Committee of the Board
of Directors on July 19, 1995 and that the following resolution to amend the
Second Amended and Restated Articles of Incorporation of the Company was adopted
pursuant to said Action of Directors Without a Meeting by the Pricing Committee
of the Board of Directors of the Company pursuant to the authority of Section
1701.70(B)(1) and 1701.73(A) of the Ohio Revised Code:
RESOLVED, that the Second Amended and Restated Articles of
Incorporation of the Company be and they hereby are amended by adding at the end
of Division A-I of Article FOURTH thereof a new Section 6 reading as follows:
SECTION 6. 9 3/4% CLASS A CUMULATIVE REDEEMABLE PREFERRED
SHARES. Of the 3,000,000 authorized Class A Shares, 230,000 shares are
designated as a series entitled "9 3/4% Class A Cumulative Redeemable Preferred
Shares" (hereinafter called "9 3/4% Class A Preferred Shares"). The 9 3/4% Class
A Preferred Shares shall have the express terms set forth in this Division as
being applicable to all Class A Shares as a class and, in addition, the
following express terms applicable to all 9 3/4% Class A Preferred Shares as a
series of Class A Shares:
(a) The annual dividend rate of the 9 3/4% Class A Preferred
Shares shall be 9 3/4% of the liquidation preference of
$250.00 per share.
(b) Dividends on the 9 3/4% Class A Preferred Shares shall be
payable, if declared, quarterly on or about the 15th day of
March, June, September, and December each year, the first
quarterly dividend being payable, if declared, on September
15, 1995. The dividends payable for each full quarterly
dividend period on each 9 3/4% Class A Preferred Shares shall
be $6.0938.
Dividends for the initial dividend period on the 9 3/4% Class
A Preferred Shares, or for any period shorter or longer than a
full dividend period on the 9 3/4% Class A Preferred Shares,
shall be computed on the basis of a 360-day year consisting of
twelve 30-day months. The aggregate dividend payable quarterly
to each holder of 9 3/4% Class A Preferred Shares shall be
rounded to the nearest one one-hundredth of one cent with
$.00005 being rounded upward. Each dividend shall be payable
to the holders of record on such record date, no less than 10
nor more than 30 days preceding the payment date thereof, as
shall be fixed from time to time by the corporation's Board of
Directors.
(c) Dividends on 9 3/4% Class A Preferred Shares shall be
cumulative as follows:
(1) With respect to shares included in the initial issue
of 9 3/4% Class A Preferred Shares and shares issued
any time thereafter up to and including the record
date for the payment of the first dividend on the
initial issue of 9 3/4% Class A Preferred Shares,
dividends shall be cumulative from the date of the
initial issue of 9 3/4% Class A Preferred Shares; and
(2) With respect to shares issued any time after the
aforesaid record date, dividends shall be cumulative
from the dividend payment date next preceding the
date of issue of such
<PAGE> 39
shares, except that if such shares are issued during
the period commencing the day after the record date
for the payment of a dividend on 9 3/4% Class A
Preferred Shares and ending on the payment date of
that dividend, dividends with respect to such shares
shall be cumulative from that dividend payment date.
(d) Except as required to preserve the Company's status as a real
estate investment trust under the Internal Revenue Code of
1986, as amended, the 9 3/4% Class A Preferred Shares may
not be redeemed prior to July 25, 2000. At any time or from
time to time on and after July 25, 2000 the Company, at its
option, may redeem all or any part of the 9 3/4% Class A
Preferred Shares at a redemption price of $250.00 per share
plus, in each case, an amount equal to all dividends accrued
and unpaid thereon to the redemption date. The redemption
price (other than the portion thereof consisting of accrued
and unpaid dividends) is payable solely out of the sale
proceeds of other capital shares of the Company, which may
include common shares, preferred shares, depositary shares,
interests, participations or other ownership interests in
the Company (however designated) and any rights (other than
debt securities convertible into or exchangeable for
corporate shares), warrants or options to purchase any
thereof.
(e) The amount payable per 9 3/4% Class A Preferred Share in the
event of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the corporation shall be
$250.00, plus an amount equal to all dividends accrued and
unpaid thereon to the date of payment.
IN WITNESS WHEREOF, we have executed this instrument in one or
more counterparts as of the 21st day of July, 1995.
/S/ JEFFREY I. FRIEDMAN
------------------------------
Jeffrey I. Friedman
President and Chief Executive
Officer
/S/ MARTIN A. FISHMAN
------------------------------
Martin A. Fishman
Secretary
<PAGE> 1
Exhibit 3.2
AMENDED CODE OF REGULATIONS
---------------------------
OF
--
ASSOCIATED ESTATES REALTY CORPORATION
-------------------------------------
ARTICLE I
---------
MEETINGS OF SHAREHOLDERS
------------------------
Section 1. ANNUAL MEETINGS. The annual meeting of shareholders
shall be held at such time and on such date as may be fixed by the Board of
Directors and stated in the notice of the meeting, for the election of
directors, the consideration of reports to be laid before such meeting and the
transaction of such other business as may properly come before the meeting.
Section 2. SPECIAL MEETINGS. Special meetings of the
shareholders shall be called upon the written request of the president, the
directors by action at a meeting, a majority of the directors acting without a
meeting, or of the holders of shares entitling them to exercise twenty-five
percent (25%) of the voting power of the Corporation entitled to vote thereat.
Calls for such meetings shall specify the purposes thereof. No business other
than that specified in the call shall be considered at any special meeting.
Section 3. NOTICES OF MEETINGS. Unless waived, written notice
of each annual or special meeting stating the time, place, and the purposes
thereof shall be given by personal delivery or by mail to each shareholder of
record entitled to vote at or entitled to notice of the meeting, not more than
sixty (60) days nor less than seven (7) days before any such meeting. If mailed,
such notice shall be directed to the shareholder at his address as the same
appears upon the records of the Corporation. Any shareholder, either before or
after any meeting, may waive any notice required to be given by law or under
these Regulations.
Section 4. PLACE OF MEETINGS. Meetings of shareholders shall
be held at the principal office of the Corporation unless the Board of Directors
determines that a meeting shall be held at some other place within or without
the State of Ohio and causes the notice thereof to so state.
Section 5. QUORUM. The holders of shares entitling
them to exercise a majority of the voting power of the
Corporation entitled to vote at any meeting, present in person or
by proxy, shall constitute a quorum for the transaction of
business to be considered at such meeting; provided, however,
<PAGE> 2
that no action required by law or by the Articles of Incorporation or these
Regulations to be authorized or taken by the holders of a designated proportion
of the shares of any particular class or of each class may be authorized or
taken by a lesser proportion. The holders of a majority of the voting shares
represented at a meeting, whether or not a quorum is present, may adjourn such
meeting from time to time, until a quorum shall be present.
Section 6. RECORD DATE. The Board of Directors may fix a
record date for any lawful purpose, including without limiting the generality of
the foregoing, the determination of shareholders entitled to (i) receive notice
of or to vote at any meeting, (ii) receive payment of any dividend or
distribution, (iii) receive or exercise rights of purchase of or subscription
for, or exchange or conversion of, shares or other securities, subject to any
contract right with respect thereto, or (iv) participate in the execution of
written consents, waivers or releases. Said record date shall not be more than
sixty (60) days preceding the date of such meeting, the date fixed for the
payment of any dividend or distribution or the date fixed for the receipt or the
exercise of rights, as the case may be.
If a record date shall not be fixed, the record date for the
determination of shareholders who are entitled to notice of, or who are entitled
to vote at, a meeting of shareholders, shall be the close of business on the
date next preceding the day on which notice is given, or the close of business
on the date next preceding the day on which the meeting is held, as the case may
be.
Section 7. PROXIES. A person who is entitled to attend a
shareholders' meeting, to vote thereat, or to execute consents, waivers or
releases, may be represented at such meeting or vote thereat, and execute
consents, waivers and releases, and exercise any of his other rights, by proxy
or proxies appointed by a writing signed by such person.
ARTICLE II
DIRECTORS
Section 1. NUMBER OF DIRECTORS. Until changed in accordance
with the provisions of this section, the number of directors of the Corporation,
none of whom need be shareholders, shall be seven (7). The number of directors
may be fixed or changed, but in no case shall the number be fewer than three (3)
or more than fifteen (15), at any annual meeting or at any special meeting
called for that purpose by the affirmative vote
-2-
<PAGE> 3
of the holders of shares entitling them to exercise a majority of the voting
power of the Corporation on such proposal. Notwithstanding the foregoing, the
aggregate number of members of the Board of Directors shall automatically
increase by the number of directors elected pursuant to Section 5(b) of Item I,
Section 5(b) of Item II and/or Section 5(b) of Item III of Division A of Article
FOURTH of the Third Amended and Restated Articles of Incorporation of the
Company, such directors to be elected and hold office in accordance with such
provisions of the Third Amended and Restated Articles of Incorporation of the
Company notwithstanding any other provision of this Code of Regulations.
Section 2. ELECTION OF DIRECTORS. Directors shall be elected
at the annual meeting of shareholders, but when the annual meeting is not held
or directors are not elected thereat, they may be elected at a special meeting
called and held for that purpose. Such election shall be by ballot whenever
requested by any shareholder entitled to vote at such election; but, unless such
request is made, the election may be conducted in any manner approved at such
meeting.
At each meeting of shareholders for the election of directors,
the persons receiving the greatest number of votes shall be directors.
Section 3. TERM OF OFFICE. Each director shall hold office
until the annual meeting next succeeding his election and until his successor is
elected and qualified, or until his earlier resignation, removal from office or
death.
Section 4. REMOVAL. All the directors or any individual
director may be removed from office, without assigning any cause, by the vote of
the holders of a majority of the voting power entitling them to elect directors
in place of those to be removed, provided that unless all the directors are
removed, no individual director shall be removed in case the votes of a
sufficient number of shares are cast against his removal which, if cumulatively
voted at an election of all the directors would be sufficient to elect at least
one director. In case of any such removal, a new director may be elected at the
same meeting for the unexpired term of each director removed.
Section 5. VACANCIES. Vacancies in the Board of Directors may
be filled by a majority vote of the remaining directors until an election to
fill such vacancies is had. Shareholders entitled to elect directors shall have
the right to fill any vacancy in the board (whether the same has been
temporarily filled by the remaining directors or not) at any meeting of the
shareholders called for that purpose, and any directors elected at any such
meeting of shareholders shall serve
-3-
<PAGE> 4
until the next annual election of directors and until their successors are
elected and qualified.
Section 6. QUORUM AND TRANSACTION OF BUSINESS. A majority
of the whole authorized number of directors shall constitute a quorum for the
transaction of business, except that a majority of the directors in office
shall constitute a quorum for filling a vacancy on the board. Whenever less
than a quorum is present at the time and place appointed for any meeting of the
board, a majority of those present may adjourn the meeting from time to time
until a quorum shall be present. The act of a majority of the directors present
at a meeting at which a quorum is present shall be the act of the board.
Section 7. ANNUAL MEETING. Annual meetings of the Board of
Directors shall be held immediately following annual meetings of the
shareholders, or as soon thereafter as is practicable. If no annual meeting of
the shareholders is held, or if directors are not elected thereat, then the
annual meeting of the Board of Directors shall be held immediately following any
special meeting of the shareholders at which directors are elected, or as soon
thereafter as is practicable. If such annual meeting of directors is held
immediately following a meeting of the shareholders, it shall be held at the
same place at which such shareholders' meeting was held.
Section 8. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places, within or without the State of
Ohio, as the Board of Directors may, by resolution or by-law, from time to time,
determine. The secretary shall give notice of each such resolution or by-law to
any director who was not present at the time the same was adopted, but no
further notice of such regular meeting need be given.
Section 9. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the chairman of the board, the president, any vice
president, or any two members of the Board of Directors, and shall be held at
such times and places, within or without the State of Ohio, as may be specified
in such call.
Section 10. NOTICE OF ANNUAL OR SPECIAL MEETINGS. Notice of
the time and place of each annual or special meeting shall be given to each
director by the secretary or by the person or persons calling such meeting. Such
notice need not specify the purpose or purposes of the meeting and may be given
in any manner or method and at such time so that the director receiving it may
have reasonable opportunity to participate in the meeting. Such notice shall, in
all events, be deemed to have been properly
-4-
<PAGE> 5
and duly given if mailed at least forty-eight (48) hours prior to the meeting
and directed to the residence of each director as shown upon the secretary's
records and, in the event of a meeting to be held through the use of
communications equipment, if the notice sets forth the telephone number at which
each director may be reached for purposes of participation in the meeting as
shown upon the secretary's records and states that the secretary must be
notified if a director desires to be reached at a different telephone number.
The giving of notice shall be deemed to have been waived by any director who
shall participate in such meeting and may be waived, in a writing, by any
director either before or after such meeting.
Section 11. COMPENSATION. The directors, as such, shall be
entitled to receive such reasonable compensation for their services as may be
fixed from time to time by resolution of the board, and expenses of attendance,
if any, may be allowed for attendance at each annual, regular or special meeting
of the board. Nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of the executive committee or of any standing or
special committee may by resolution of the board be allowed such compensation
for their services as the board may deem reasonable, and additional compensation
may be allowed to directors for special services rendered.
Section 12. BY-LAWS. For the government of its
actions, the Board of Directors may adopt by-laws consistent with
the Articles of Incorporation and these Regulations.
ARTICLE III
-----------
COMMITTEES
----------
Section 1. EXECUTIVE COMMITTEE. The Board of Directors may
from time to time, by resolution passed by a majority of the whole board, create
an executive committee of three or more directors, the members of which shall be
elected by the Board of Directors to serve during the pleasure of the board. If
the Board of Directors does not designate a chairman of the executive committee,
the executive committee shall elect a chairman from its own number. Except as
otherwise provided herein and in the resolution creating an executive committee,
such committee shall, during the intervals between the meetings of the Board of
Directors, possess and may exercise all of the powers of the Board of Directors
in the management of the business and affairs of the Corporation, other than
that of
-5-
<PAGE> 6
filling vacancies among the directors or in any committee of the directors. The
executive committee shall keep full records and accounts of its proceedings and
transactions. All action by the executive committee shall be reported to the
Board of Directors at its meeting next succeeding such action and shall be
subject to control, revision and alteration by the Board of Directors, provided
that no rights of third persons shall be prejudicially affected thereby.
Vacancies in the executive committee shall be filled by the directors, and the
directors may appoint one or more directors as alternate members of the
committee who may take the place of any absent member or members at any meeting.
Section 2. MEETINGS OF EXECUTIVE COMMITTEE. Subject to the
provisions of these Regulations, the executive committee shall fix its own rules
of procedure and shall meet as provided by such rules or by resolutions of the
Board of Directors, and it shall also meet at the call of the president, the
chairman of the executive committee or any two members of the committee. Unless
otherwise provided by such rules or by such resolutions, the provisions of
Section 10 of Article II relating to the notice required to be given of meetings
of the Board of Directors shall also apply to meetings of the executive
committee. A majority of the executive committee shall be necessary to
constitute a quorum. The executive committee may act in a writing, or by
telephone with written confirmation, without a meeting, but no such action of
the executive committee shall be effective unless concurred in by all members of
the committee.
Section 3. OTHER COMMITTEES. The Board of Directors may by
resolution provide for such other standing or special committees as it deems
desirable, and discontinue the same at pleasure. Each such committee shall have
such powers and perform such duties, not inconsistent with law, as may be
delegated to it by the Board of Directors. The provisions of Section l and
Section 2 of this Article shall govern the appointment and action of such
committees so far as the same are consistent with such appointment and unless
otherwise provided by the Board of Directors. Vacancies in such committees shall
be filled by the Board of Directors or as the Board of Directors may provide.
ARTICLE IV
----------
OFFICERS
--------
Section 1. GENERAL PROVISIONS. The Board of Directors
shall elect a president, such number of vice presidents as the board may from
time to time determine, a secretary and a treasurer and, in its discretion, a
chairman of the Board of
-6-
<PAGE> 7
Directors. The Board of Directors may from time to time create such offices and
appoint such other officers, subordinate officers and assistant officers as it
may determine. The president, any vice president who succeeds to the office of
the president, and the chairman of the board shall be, but the other officers
need not be, chosen from among the members of the Board of Directors. Any two of
such offices, other than that of president and vice president, may be held by
the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity.
Section 2. TERM OF OFFICE. The officers of the Corporation
shall hold office during the pleasure of the Board of Directors, and, unless
sooner removed by the Board of Directors, until the organization meeting of the
Board of Directors following the date of their election and until their
successors are chosen and qualified. The Board of Directors may remove any
officer at any time, with or without cause. A vacancy in any office, however
created, shall be filled by the Board of Directors.
ARTICLE V
---------
DUTIES OF OFFICERS
------------------
Section 1. CHAIRMAN OF THE BOARD. The chairman of the board,
if one be elected, shall preside at all meetings of the Board of Directors and
shall have such other powers and duties as may be prescribed by the Board of
Directors.
Section 2. PRESIDENT. The president shall be the chief
executive officer of the Corporation and shall exercise supervision over the
business of the Corporation and over its several officers, subject, however, to
the control of the Board of Directors. He shall preside at all meetings of
shareholders, and, in the absence of the chairman of the board, or if a chairman
of the board shall not have been elected, shall also preside at meetings of the
Board of Directors. He shall have authority to sign all certificates for shares
and all deeds, mortgages, bonds, agreements, notes, and other instruments
requiring his signature; and shall have all the powers and duties prescribed by
Chapter 1701 of the Revised Code of Ohio and such others as the Board of
Directors may from time to time assign to him.
Section 3. VICE PRESIDENTS. The vice presidents shall
have such powers and duties as may from time to time be assigned
to them by the Board of Directors or the president. At the
-7-
<PAGE> 8
request of the president, or in the case of his absence or disability, the vice
president designated by the president (or in the absence of such designation,
the vice president designated by the board) shall perform all the duties of the
president and, when so acting, shall have all the powers of the president. The
authority of vice presidents to sign in the name of the Corporation certificates
for shares and deeds, mortgages, bonds, agreements, notes and other instruments
shall be coordinate with like authority of the president.
Section 4. SECRETARY. The secretary shall keep minutes of all
the proceedings of the shareholders and Board of Directors and shall make proper
record of the same, which shall be attested by him; shall have authority to
execute and deliver certificates as to any of such proceedings and any other
records of the Corporation; shall have authority to sign all certificates for
shares and all deeds, mortgages, bonds, agreements, notes and other instruments
to be executed by the Corporation which require his signature; shall give notice
of meetings of shareholders and directors; shall produce on request at each
meeting of shareholders a certified list of shareholders arranged in
alphabetical order; shall keep such books and records as may be required by law
or by the Board of Directors; and, in general, shall perform all duties incident
to the office of secretary and such other duties as may from time to time be
assigned to him by the Board of Directors or the president.
Section 5. TREASURER. The treasurer shall have general
supervision of all finances; he shall receive and have in charge all money,
bills, notes, deeds, leases, mortgages and similar property belonging to the
Corporation, and shall do with the same as may from time to time be required by
the Board of Directors. He shall cause to be kept adequate and correct accounts
of the business transactions of the Corporation, including accounts of its
assets, liabilities, receipts, disbursements, gains, losses, stated capital and
shares, together with such other accounts as may be required, and upon the
expiration of his term of office shall turn over to his successor or to the
Board of Directors all property, books, papers and money of the Corporation in
his hands; and shall have such other powers and duties as may from time to time
be assigned to him by the Board of Directors or the president.
Section 6. ASSISTANT AND SUBORDINATE OFFICERS. The Board of
Directors may appoint such assistant and subordinate officers as it may deem
desirable. Each such officer shall hold office during the pleasure of the Board
of Directors, and perform such duties as the Board of Directors or the president
may prescribe.
-8-
<PAGE> 9
The Board of Directors may, from time to time, authorize any
officer to appoint and remove subordinate officers, to prescribe their authority
and duties, and to fix their compensation.
Section 7. DUTIES OF OFFICERS MAY BE DELEGATED. In the absence
of any officer of the Corporation, or for any other reason the Board of
Directors may deem sufficient, the Board of Directors may delegate, for the time
being, the powers or duties, or any of them, of such officers to any other
officer or to any director.
ARTICLE VI
----------
TRANSACTIONS WITH CERTAIN AFFILIATES
------------------------------------
Following the consummation of the sale of Common Shares,
without par value, of the Corporation pursuant to the Corporation's first
effective registration statement for such shares filed under the Securities Act
of 1933, as amended (the "Securities Act"), the Corporation shall not, nor shall
it permit its subsidiaries to, (i) lend money to, or borrow money from, any
employee of the Corporation or any "affiliate" (as defined in Rule 405 under the
Securities Act) of the Associated Estates Group including, without limitation,
Associated Estates Corporation, an Ohio corporation, Adam Construction Company,
an Ohio corporation, and Estates Insurance Agency, Inc., an Ohio corporation, or
(ii) enter into any other transaction or agreement with any such affiliate,
unless such other transeement is approved by a majority of the Directors of the
Corporation who are "Independent Directors" (as defined in the Corporation's
Articles of Incorporation).
ARTICLE VII
-----------
INDEMNIFICATION AND INSURANCE
-----------------------------
Section 1. INDEMNIFICATION IN NON-DERIVATIVE ACTIONS. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party, to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative, other
than an action by or in the right of the Corporation, by reason of the fact that
he is or was a director or officer of the Corporation, or is or was serving at
the request of the Corporation as a director, trustee, officer, employee, or
agent of another corporation,
-9-
<PAGE> 10
domestic or foreign, nonprofit or for profit, partnership, joint venture, trust,
or other enterprise, against expenses, including attorneys' fees, judgments,
fines, and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit, or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation, and with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
Section 2. INDEMNIFICATION IN DERIVATIVE ACTIONS. The
Corporation shall indemnify any person who was or is a party, or is threatened
to be made a party to any threatened, pending, or completed action or suit by or
in the right of the Corporation to procure a judgment in its favor by reason of
the fact that he is or was a director or officer of the Corporation, or is or
was serving at the request of the Corporation as a director, trustee, officer,
employee, or agent of another corporation, domestic or foreign, nonprofit or for
profit, partnership, joint venture, trust, or other enterprise against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the Corporation unless, and only to the extent that the Court of Common
Pleas, or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability, but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the Court of Common Pleas or such court shall
deem proper.
Section 3. INDEMNIFICATION AS MATTER OF RIGHT. To the
extent that a director, trustee, officer, employee, or agent has been successful
on the merits or otherwise in defense of any action, suit, or proceeding
referred to in Sections l and 2 of this Article VII, or in defense of any claim,
issue, or matter therein, he shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred by him in connection
therewith.
-10-
<PAGE> 11
Section 4. DETERMINATION OF CONDUCT. Any indemnification under
Sections 1 and 2 of this Article VII, unless ordered by a court, shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, trustee, officer, employee, or agent is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Sections l and 2 of this Article VII. Such determination
shall be made (a) by a majority vote of a quorum consisting of directors of the
Corporation who were not and are not parties to or threatened with any such
action, suit, or proceeding, or (b) if such a quorum is not obtainable or if a
majority vote of a quorum of disinterested directors so directs, in a written
opinion by independent legal counsel, other than an attorney or a firm having
associated with it an attorney who has been retained by or who has performed
services for the Corporation or any person to be indemnified within the past
five years, or (c) by the shareholders or (d) by the Court of Common Pleas or
the court in which such action, suit, or proceeding was brought. Any
determination made by the disinterested directors under Section 4(a) or by
independent legal counsel under Section 4(b) of this Article VII shall be
promptly communicated to the person who threatened or brought the action or
suit, by or in the right of the Corporation under Section 2 of this Article VII,
and within ten days after receipt of such notification, such person shall have
the right to petition the Court of Common Pleas or the court in which such
action or suit was brought to review the reasonableness of such determination.
Section 5. ADVANCE PAYMENT OF EXPENSES. Expenses, including
attorneys' fees, incurred in defending any action, suit, or proceeding referred
to in Sections l and 2 of this Article VII, may be paid by the Corporation in
advance of the final disposition of such action, suit, or proceeding as
authorized by the directors in the specific case upon receipt of an undertaking
by or on behalf of the director, trustee, officer, employee, or agent to repay
such amount, unless it shall ultimately be determined that he is entitled to be
indemnified by the Corporation as authorized in this Article VII.
Section 6. NONEXCLUSIVITY. The indemnification provided by
this Article VII shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under the Articles of
Incorporation or the Code of Regulations or any agreement, vote of shareholders
or disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office and
shall continue as to a person who has ceased to be a director, trustee, officer,
employee, or agent and
-11-
<PAGE> 12
shall inure to the benefit of the heirs, executors, and administrators of such a
person.
Section 7. LIABILITY INSURANCE. The Corporation may purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee, or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article VII or
of Chapter 1701 of the Ohio Revised Code.
ARTICLE VIII
------------
CERTIFICATES FOR SHARES
-----------------------
Section 1. FORM AND EXECUTION. Certificates for shares,
certifying the number of fully paid shares owned, shall be issued to each
shareholder in such form as shall be approved by the Board of Directors. Such
certificates shall be signed by the president or a vice president and by the
secretary or an assistant secretary or the treasurer or an assistant treasurer;
provided, however, that if such certificates are countersigned by a transfer
agent and/or registrar, the signatures of any of said officers and the seal of
the Corporation upon such certificates may be facsimiles, engraved, stamped or
printed. If any officer or officers, who shall have signed, or whose facsimile
signature shall have been used, printed or stamped on any certificate or
certificates for shares, shall cease to be such officer or officers, because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Corporation, such certificate or certificates, if
authenticated by the endorsement thereon of the signature of a transfer agent or
registrar, shall nevertheless be conclusively deemed to have been adopted by the
Corporation by the use and delivery thereof and shall be as effective in all
respects as though signed by a duly elected, qualified and authorized officer or
officers, and as though the person or persons who signed such certificate or
certificates, or whose facsimile signature or signatures shall have been used
thereon, had not ceased to be an officer or officers of the Corporation.
Section 2. TRANSFER AND REGISTRATION OF CERTIFICATES.
The Board of Directors shall have authority to make such rules
-12-
<PAGE> 13
and regulations, not inconsistent with law, the Articles of Incorporation or
this Code of Regulations, as it deems expedient concerning the issuance,
transfer and registration of certificates for shares and the shares represented
thereby.
Section 3. LOST, DESTROYED OR STOLEN CERTIFICATES. A
new share certificate or certificates may be issued in place of any certificate
theretofore issued by the Corporation which is alleged to have been lost,
destroyed or wrongfully taken upon (i) the execution and delivery to the
Corporation by the person claiming the certificate to have been lost, destroyed
or wrongfully taken of an affidavit of that fact, specifying whether or not, at
the time of such alleged loss, destruction or taking, the certificate was
endorsed, and (ii) the furnishing to the Corporation of indemnity and other
assurances satisfactory to the Corporation and to all transfer agents and
registrars of the class of shares represented by the certificate against any and
all losses, damages, costs, expenses or liabilities to which they or any of them
may be subjected by reason of the issue and delivery of such new certificate or
certificates or in respect of the original certificate.
Section 4. REGISTERED SHAREHOLDERS. A person in whose name
shares are of record on the books of the Corporation shall conclusively be
deemed the unqualified owner and holder thereof for all purposes and to have
capacity to exercise all rights of ownership. Neither the Corporation nor any
transfer agent of the Corporation shall be bound to recognize any equitable
interest in or claim to such shares on the part of any other person, whether
disclosed upon such certificate or otherwise, nor shall they be obliged to see
to the execution of any trust or obligation.
ARTICLE IX
----------
FISCAL YEAR
-----------
The fiscal year of the Corporation shall end on December 31,
of each year, or on such other date as may be fixed from time to time by the
Board of Directors.
-13-
<PAGE> 14
ARTICLE X
---------
SEAL
----
The Board of Directors may provide a suitable seal containing
the name of the Corporation. If deemed advisable by the Board of Directors,
duplicate seals may be provided and kept for the purposes of the Corporation.
ARTICLE XI
----------
AMENDMENTS
----------
This Code of Regulations may be amended, or new regulations
may be adopted, at any meeting of shareholders called for such purpose by the
affirmative vote of, or without a meeting by the written consent of, the holders
of shares entitling them to exercise a majority of the voting power of the
Corporation on such proposal.
-14-
<PAGE> 1
Exhibit 4.1
FOURTH AMENDMENT TO
CREDIT AGREEMENT
----------------
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment")
is made as of March __, 1996, by and among ASSOCIATED ESTATES REALTY
CORPORATION, an Ohio corporation ("Borrower"), the banks and lending
institutions identified on SCHEDULE 1, attached hereto and made a part hereof by
this reference (the "Banks"), and NATIONAL CITY BANK, a national banking
association, in its capacity as agent for the Banks under the Credit Agreement
defined in the recitals below (in such capacity, the "Agent").
R E C I T A L S
---------------
A. Pursuant to that certain Credit Agreement, dated as of
March 30, 1994, by and among Borrower, the Banks identified on Schedule 1.1
thereto and the Agent, such Banks agreed to advance certain Loans to Borrower,
on the terms and subject to the conditions set forth therein, and Borrower
agreed to repay such Loans, with interest thereon, as provided therein.
B. The aforementioned credit agreement has been amended by (1)
a First Amendment to Credit Agreement, dated as of May 17, 1994, by and among
Borrower, such Banks and the Agent; (2) a Second Amendment to Credit Agreement
dated as of February
<PAGE> 2
2
24, 1995, among the Borrower, the Banks and the Agent, and (3) a Third Amendment
to Credit Agreement, dated as of September 26, 1995, among the Borrower, the
Banks and the Agent, pursuant to which the credit agreement was amended and
restated in its entirety (as amended, and amended and restated as aforesaid,
such credit agreement is referred to as the "Credit Agreement").
C. Borrower, the Banks and the Agent have agreed further to
amend the Credit Agreement in order to reflect an addition to the permitted uses
of Loan proceeds and an amendment to the definitions of Applicable Margin and
Commitment Fee all upon and subject to the terms and conditions hereinafter set
forth.
NOW, THEREFORE, for Ten Dollars ($10.00) and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. DEFINED TERMS. Capitalized terms which are
used in this Amendment without being defined herein shall have the meanings
ascribed to them in the Credit Agreement.
2. SPECIFIC AMENDMENTS. The parties hereby amend
the Credit Agreement as follows:
(i) The following shall be added as subparagraph 2.8(a)(v) as an
additional permitted use of Loan proceeds:
<PAGE> 3
3
"(v) for the construction of conventional multi-family
apartment projects which are Assets Under Development; provided,
however, that the aggregate amount of all Loans outstanding at any time
for such purpose shall not exceed Thirty-Five Million Dollars
($35,000,000)."
(ii) the definition of Applicable Margin shall be amended
to delete therefrom the table of margins in its entirety and replace such table
with the following table:
================================================================================
DEBT RATING
--------------------------- Libor Prime
Level S&P Moody's Rate Margin Rate Margin
- - --------------------------------------------------------------------------------
1 A- to A+ A3 to A1 112.5 -0-
- - --------------------------------------------------------------------------------
2 BBB+ Baa1 125 -0-
- - --------------------------------------------------------------------------------
3 BBB Baa2 140 -0-
- - --------------------------------------------------------------------------------
4 BBB- Baa3 150 -0-
- - --------------------------------------------------------------------------------
5 <BBB- <Baa3 200 25
================================================================================
(iii) the definition of Commitment Fee shall be deleted in
its entirety and replaced by the following:
COMMITMENT FEE. The Borrower agrees to pay to the Agent (for the
account of each of the Banks, in accordance with their respective Pro Rata
Shares) a commitment fee (the "Commitment Fee") calculated at the rate of 0.375%
per annum on the daily unborrowed portion of the Maximum Commitment (which is
equal to the daily average of the difference between the then outstanding
Maximum Commitment and the then outstanding Loans and Letters of Credit during
any calculation period) during the term hereof up to and including the
Termination Date, payable quarterly in
<PAGE> 4
4
arrears on the last day of each calendar quarter and on the Termination Date;
provided, however, that the Commitment Fee shall be calculated at the reduced
rate of 0.25% per annum on the daily unborrowed portion of the Maximum
Commitment for any day on which the principal balance of all outstanding and
unpaid Loans and Letters of Credit issued hereunder exceed fifty percent (50%)
of the Maximum Commitment. Notwithstanding the foregoing, any portion of the
Commitment Fee which is accrued but unpaid shall be payable on the effective
date of any termination of the obligations of the Banks to make Loans hereunder.
3. RATIFICATION. Except as specifically modified and amended
as contemplated by this Amendment, the Credit Agreement is unchanged, and
remains in full force and effect. Borrower, the Banks and the Agent each hereby
ratifies and affirms the Credit Agreement and every term and condition thereof,
as the same are amended and restated as contemplated hereby.
4. BINDING EFFECT. This Amendment shall be binding
upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
5. EFFECTIVE DATE. The amendments contemplated by
this Amendment shall be effective as of the execution of this
instrument by each of Borrower, the Banks and the Agent.
6. COUNTERPARTS. This Amendment may be executed in
multiple counterparts, and signature pages from any counterpart
may be appended to any other counterpart. All such counterparts
shall constitute a single, unified instrument.
<PAGE> 5
5
IN WITNESS WHEREOF, this Amendment has been duly executed and
delivered by or on behalf of each of the parties as of the date first set forth
above.
BORROWER:
ASSOCIATED ESTATES REALTY
CORPORATION
By: _______________________
Jeffrey I. Friedman,
President
AGENT:
NATIONAL CITY BANK
By: _______________________
Gary L. Wimer
Vice President
<PAGE> 6
6
THE BANKS:
NATIONAL CITY BANK
By: ________________________
Gary L. Wimer
Vice President
BANK ONE, CLEVELAND, N.A.
By: ________________________
Name:
Title:
MANUFACTURERS AND TRADERS
TRUST COMPANY
By: _________________________
Name:
Title:
COMERICA BANK
By: _________________________
Name:
Title:
HARRIS TRUST & SAVINGS BANK
By: _________________________
Name:
<PAGE> 7
7
Title:
NBD BANK
By: _________________________
Name:
Title:
HUNTINGTON BANK-CLEVELAND,
N.A.
By: _________________________
Name:
Title:
<PAGE> 8
8
Schedule 1 To Fourth Amendment
------------------------------
The Banks
- - ---------
National City Bank
Bank One, Cleveland, N.A.
Manufacturers and Traders
Trust Company
Comerica Bank
Harris Trust & Savings Bank
NBD Bank
Huntington Bank-Cleveland,
N.A.
<PAGE> 1
Exhibit 10.1
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
BETWEEN
ASSOCIATED ESTATES REALTY CORPORATION
AND
JEFFREY I. FRIEDMAN
<PAGE> 2
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is entered into
as of the 1st day of January, 1996, between ASSOCIATED ESTATES REALTY
CORPORATION, an Ohio corporation (the "Company"), and JEFFREY I. FRIEDMAN (the
"Executive").
W I T N E S S E T H :
WHEREAS, the Company and the Executive entered into an
Employment Agreement dated as of November 10, 1993 (the "Original Agreement");
and
WHEREAS, the Company desires to continue to employ the
Executive, and the Executive desires to continue to be employed by the Company,
on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree that the Original Agreement is hereby amended and
restated in full to read as follows:
1. EMPLOYMENT.
-----------
(a) The Company hereby continues to employ the
Executive as its President and Chief Executive Officer and the Executive hereby
accepts such employment, on the terms and subject to the conditions hereinafter
set forth.
(b) During the term of this Employment Agreement
and any renewal hereof (all references herein to the term of this Employment
Agreement shall include references to the period of renewal hereof, if any), the
Executive shall be and have the title of President and Chief Executive Officer
and shall devote his entire business time and all reasonable efforts to his
employment and perform diligently such duties as are customarily performed by
presidents and chief executive officers of companies similar in size to the
Company, together with such other duties as may be reasonably requested from
time to time by the Board of Directors of the Company (the "Board"), which
duties shall be consistent with his title and position as set forth above and as
provided in Paragraph 2.
2. TERM AND POSITIONS.
-------------------
(a) Subject to the provisions for renewal and
termination hereinafter stated, the term of this Employment Agreement shall
begin on the date hereof and shall continue through the third anniversary of the
date hereof. As of the first and each successive anniversary of the date hereof,
such
-1-
<PAGE> 3
term automatically shall be extended for one (1) additional year, unless: (i)
this Employment Agreement is terminated as provided in Paragraph 5 or (ii)
either the Company or the Executive shall give one year's written notice to the
other, at least thirty (30) days before the first or successive anniversary of
the date hereof, as the case may be, that this Employment Agreement shall not be
so extended but shall terminate upon the expiration of the then existing term
(for example, unless such written notice of non-extension is given on or prior
to December 1, 1996, the term of this Employment Agreement automatically will be
extended, effective December 31, 1996, until December 31, 1999).
(b) The Executive shall be entitled to serve as
the President and Chief Executive Officer of the Company. Without limiting the
generality of any of the foregoing, except as hereafter expressly agreed in
writing by the Executive: (i) the Executive shall not be required to report to
any single individual and shall report only to the Board as an entire body, (ii)
no other individual shall be elected or appointed as President or Chief
Executive Officer of the Company, (iii) the Vice-Presidents and other executive
officers of the Company shall report to no individual other than the Executive,
and (iv) no individual or group of individuals (including a committee
established or other designee appointed by the Board) shall have any authority
over or equal to the authority of the Executive in his role as President or
Chief Executive Officer, and neither the Company, the Board, nor any member of
the Board shall take any action which will or could have the effect of, or
appear to have the effect of, giving such authority to any such individual or
group. For service as a director, officer and employee of the Company, the
Executive shall be entitled to the full protection of the applicable
indemnification provisions of the Amended and Restated Articles of Incorporation
and Code of Regulations of the Company, as the same may be amended from time to
time.
(c) If:
(i) the Company materially changes the
Executive's duties and responsibilities as set forth in
Paragraphs 1(b) and 2(b) without his consent (including,
without limitation, by violating any of the provisions of
clauses (i), (ii), (iii) and (iv) of Paragraph 2(b));
(ii) the Executive's place of employment or the
principal executive offices of the Company are located more
than fifty (50) miles from the geographical center of
Cleveland, Ohio;
(iii) there occurs a material breach by the
Company of any of its obligations under this Employment
Agreement, which breach has not been cured in all material
respects within ten (10) days after the Executive gives notice
thereof to the Company;
-2-
<PAGE> 4
(iv) there occurs a "change in control" (as
hereinafter defined) of the Company; or
(v) the Executive is not elected to the
Board at any annual meeting of the Company's
shareholders;
then in any such event the Executive shall have the right to terminate his
employment with the Company, but such termination shall not be considered a
voluntary resignation or termination of such employment or of this Employment
Agreement by the Executive but rather a discharge of the Executive by the
Company "without cause" (as defined in Paragraph 5(a)(iii)).
(d) The Executive shall be deemed not to have
consented to any written proposal calling for a material change in his duties
and responsibilities unless he shall give written notice of his consent thereto
to the Board within fifteen (15) days after receipt of such written proposal. If
the Executive shall not have given such consent, the Company shall have the
opportunity to withdraw such proposed material change by written notice to the
Executive given within ten (10) days after the end of said fifteen (15) day
period.
(e) The term "change in control" means the first
to occur of the following events:
(i) any person or group of commonly
controlled persons owns or controls, directly or indirectly,
fifty percent (50%) or more of the voting control or value of
the capital stock of the Company following completion of the
initial public offering of the Company's Common Shares,
without par value (the "IPO");
(ii) any person or group of commonly controlled
persons owning less than five percent (5%) of the voting
control or value of the capital stock of the Company within 30
days following the consummation of the IPO owns or controls,
directly or indirectly, more than twenty percent (20%) of the
voting control or value of the capital stock of the Company;
or
(iii) the shareholders of the Company approve an
agreement to merge or consolidate with another corporation or
other entity resulting (whether separately or in connection
with a series of transactions) in a change in ownership of
twenty percent (20%) or more of the voting control or value of
the capital stock of the Company, or an agreement to sell or
otherwise dispose of all or substantially all of the Company's
assets (including, without limitation, a plan of liquidation
or dissolution), or otherwise approve of a fundamental
alteration in the nature of the Company's business.
-3-
<PAGE> 5
Notwithstanding the foregoing provisions of this Paragraph 2, the ownership of
capital stock by the Executive, Jerome Spevack, Martin A. Fishman, Dennis W.
Bikun, Susan Friedman, Mark L. Milstein, Robert Milstein, Paul Dennis and/or
their respective affiliates shall not be deemed to result in a "change in
control" of the Company.
3. COMPENSATION.
-------------
During the term of this Employment Agreement the
Company shall pay or provide, as the case may be, to the Executive the
compensation and other benefits and rights set forth in this paragraph 3.
(a) The Company shall pay to the Executive a
base salary payable in accordance with the Company's usual pay practices (and
in any event no less frequently than monthly) of Four Hundred Forty Thousand
Dollars ($440,000) per annum, to be increased (but not decreased) from time to
time (based upon the performance of the Company and the Executive) in a manner
consistent with the compensation of executives of companies similar in size to
the Company with responsibilities similar to those of the Executive.
(b) The Company shall pay to the Executive bonus
compensation for each calendar year not later than 60 days following the end of
each calendar year or the termination of the Executive's employment, as the case
may be, prorated on a per diem basis for partial calendar years, determined and
calculated in the manner set forth on Exhibit A attached hereto, as the same may
be amended from time to time.
(c) The Company shall provide to the Executive
such life, medical, hospitalization and dental insurance for himself, his spouse
and eligible family members as may be available to other executive officers of
the Company or as may be determined by the Board or the Company's Executive
Compensation Committee from time to time.
(d) The Executive shall participate in all
retirement and other benefit plans of the Company generally available from time
to time to employees of the Company and for which the Executive qualifies under
the terms thereof (and nothing in this Agreement shall or shall be deemed to in
any way effect the Executive's right and benefits thereunder except as expressly
provided herein) or as may be determined by the Board or the Company's Executive
Compensation Committee from time to time.
(e) The Executive shall be entitled to such
periods of vacation and sick leave allowance each year as are determined by him
in his sole discretion consistent with the performance of his duties under this
Agreement.
-4-
<PAGE> 6
(f) The Executive shall be entitled to
participate in any equity or other employee benefit plan that is generally
available to senior executive officers, as distinguished from general
management, of the Company. The Executive's participation in and benefits under
any such plan shall be on the terms and subject to the conditions specified in
the governing document of the particular plan.
(g) The Company shall reimburse the Executive or
provide him with an expense allowance during the term of this Employment
Agreement for travel, entertainment and other expenses reasonably and
necessarily incurred by the Executive in connection with the Company's business.
The Executive shall furnish such documentation with respect to reimbursement to
be paid hereunder as the Company shall reasonably request.
(h) The Company shall provide to the Executive a
suitable new, air-conditioned, full-sized automobile, or other automobile of
equal or lesser value of the Executive's choice, for the exclusive use of the
Executive, together with automobile theft, casualty, and liability insurance,
and payment or reimbursement of the Executive for all maintenance, repair and
gasoline or, in lieu of the foregoing automobile, an automobile allowance as
exists from time to time under Company policy, the dollar amount of which shall
be substantially commensurate with the cost for such automobile, together with
insurance costs, maintenance, repairs and gasoline for Executive's personal
vehicle used in lieu thereof.
(i) The Company shall, on the Executive's
behalf, bear the cost of initiation and regular membership fees and dues,
incurred during the term of this Employment Agreement, for one (1) golf club
and one (1) downtown business club, and shall reimburse the Executive the
amount of any charges actually and reasonably incurred at such clubs in the
conduct of the Company's business.
(j) Beginning on the day after the cessation of
the Executive's employment with the Company, except in the case of termination
of the Executive's employment for cause under Paragraph 5, and continuing until
the earlier of (A) the Executive's death, (B) the date, if ever, on which the
Executive begins full time employment with another employer or (C) the fifth
anniversary of the date of such cessation of employment, the Company shall
provide to the Executive at no cost to the Executive office space at a location
(other than the executive offices of the Company) suitable to the Executive's
status as the former Chief Executive Officer of the Company, a full-time
secretary and other customary office support functions.
(k) The Company shall reimburse the Executive or
provide him with an expense allowance during the term of this Employment
Agreement of up to $10,000 per annum for financial planning, tax return and
financial statement preparation services.
-5-
<PAGE> 7
(l) The Company shall make available to the
Executive the services of a full-time bookkeeper and a full-time assistant
thereto who are acceptable to the Executive for personal matters, including
matters which may be unrelated to the business of the Company and the
performance of the Executive's duties hereunder.
4. PAYMENT IN THE EVENT OF DEATH OR PERMANENT
------------------------------------------
DISABILITY.
- - -----------
(a) In the event of the Executive's death or
"permanent disability" (as hereinafter defined) during the term of this
Employment Agreement, the Company shall pay to the Executive (or his successors
and assigns in the event of his death) an amount equal to two (2) times the
Executive's then effective per annum rate of salary, as determined under
Paragraph 3(a), plus a pro rata portion of the bonus applicable to the calendar
year in which such death or permanent disability occurs, as such bonus is
determined under Paragraph 3(b).
(b) The pro rata portion of the bonus described
in Paragraph 4(a) shall be paid when and as provided in Paragraph 3(b). The
remainder of the benefit to be paid pursuant to Paragraph 4(a) shall be paid
within ninety (90) days after the date of death or permanent disability, as the
case may be.
(c) Except as otherwise provided in Paragraphs
3(d), 3(i) (in the event of permanent disability) and 4(a), in the event of the
Executive's death or permanent disability the Executive's employment hereunder
shall terminate and the Executive shall be entitled to no further compensation
or other benefits under this Employment Agreement, except as to that portion of
any unpaid salary and other benefits accrued and earned by him hereunder up to
and including the date of such death or permanent disability, as the case may
be.
(d) For purposes of this Employment Agreement,
the Executive's "permanent disability" shall be deemed to have occurred after
one hundred twenty (120) days in the aggregate during any consecutive twelve
(12) month period, or after ninety (90) consecutive days, during which one
hundred twenty (120) or ninety (90) days, as the case may be, the Executive, by
reason of his physical or mental disability or illness, shall have been unable
to discharge his duties under this Employment Agreement. The date of permanent
disability shall be such one hundred twentieth (120th) or ninetieth (90th) day,
as the case may be. In the event either the Company or the Executive, after
receipt of notice of the Executive's permanent disability from the other,
disputes that the Executive's permanent disability shall have occurred, the
Executive shall promptly submit to a physical examination by the chief of
medicine of any major accredited hospital in the Cleveland, Ohio area and,
unless such physician shall issue his written statement to the effect that in
his opinion, based on his diagnosis, the Executive is capable of
-6-
<PAGE> 8
resuming his employment and devoting his full time and energy to discharging his
duties within thirty (30) days after the date of such statement, such permanent
disability shall be deemed to have occurred.
5. TERMINATION.
------------
(a) The employment of the Executive under this
Employment Agreement, and the term hereof, may be terminated by the Company:
(i) on the death or permanent disability
(as defined below) of the Executive;
(ii) for "cause" at any time by action of
the Board; or
(iii) "without cause" at any time by action
of the Board.
For purposes hereof, the term "cause" shall
mean:
(A) The Executive's fraud,
commission of a felony or of an act or series of acts
which result in material injury to the business
reputation of the Company, commission of an act or
series of repeated acts of dishonesty which are
materially inimical to the best interests of the
Company, or the Executive's willful and repeated
failure to perform his duties under this Employment
Agreement, which failure has not been cured within
fifteen (15) days after the Company gives notice
thereof to the Executive; or
(B) The Executive's material breach
of any material provision of this Employment
Agreement, which breach has not been cured in all
substantial respects within ten (10) days after the
Company gives notice thereof to the Executive.
For purposes hereof, the term "without
cause" shall mean any reason other than those set
forth in subparagraphs (a)(i) and (a)(ii) of this
Paragraph 5.
The exercise by the Company of its rights of termination under
this Paragraph 5 shall be the Company's sole remedy in the
event of the occurrence of the event as a result of which such
right to terminate arises. Upon any termination of this
Employment Agreement, the Executive shall be deemed to have
resigned from all offices and directorships held by the
Executive in the Company.
-7-
<PAGE> 9
(b) In the event of a termination claimed by the
Company to be for "cause" pursuant to Paragraph 5(a)(ii), the Executive shall
have the right to have the justification for said termination determined by
arbitration in Cleveland, Ohio. In order to exercise such right, the Executive
shall serve on the Company within thirty (30) days after termination a written
request for arbitration. The Company immediately shall request the appointment
of a single arbitrator by the American Arbitration Association and thereafter
the question of "cause" shall be determined under the rules of the American
Arbitration Association, and the decision of the arbitrator shall be final and
binding on both parties. The parties shall use all reasonable efforts to
facilitate and expedite the arbitration and shall act to cause the arbitration
to be completed as promptly as possible. During the pendency of the arbitration,
the Executive shall continue to receive all compensation and benefits to which
he is entitled hereunder, and if at any time during the pendency of such
arbitration the Company fails to pay and provide all compensation and benefits
to the Executive in a timely manner the Company shall be deemed to have
automatically waived whatever rights it then may have had to terminate the
Executive's employment for cause. Expenses of the arbitration shall be borne
equally by the parties.
(c) In the event of termination pursuant to
subparagraph (a)(i) or (a)(ii) of this Paragraph 5, except as otherwise provided
in Paragraphs 3(d), 3(i) (in the event of permanent disability) and 4(a), the
Executive shall be entitled to no further compensation or other benefits under
this Employment Agreement, except as to that portion of any unpaid salary and
other benefits accrued and earned by him hereunder up to and including the
effective date of such termination.
(d) In the event of termination pursuant to
subparagraph (a)(iii) of this Paragraph 5, the Executive shall be entitled to
(i) severance pay in a lump sum equal to the greater of (A) the total amount of
unpaid base salary for the then unexpired portion of the term of this Agreement,
at the then effective per annum rate of salary, as determined under Paragraph
3(a), and (B) the amount of one year's base salary at the then effective annual
rate of salary, (ii) a pro rata portion of the bonus described in Paragraph 4(a)
applicable to the calendar year in which such termination occurs, as such bonus
is determined under Paragraph 3(b), and (iii) other benefits accrued and earned
by him hereunder up to and including the effective date of such termination.
6. COVENANTS AND CONFIDENTIAL INFORMATION.
---------------------------------------
(a) The Executive acknowledges the Company's
reliance and expectation of the Executive's continued commitment to performance
of his duties and responsibilities during the term of this Employment Agreement.
In light of such reliance and expectation on the part of the Company, during the
term of this Employment Agreement and for a period of three (3) years
-8-
<PAGE> 10
thereafter (and, as to clause (ii) of this subparagraph (a), at any time during
and after the term of this Employment Agreement), the Executive shall not,
directly or indirectly, do either of the following:
(i) Own, manage, control or participate in
the ownership, management, or control of, or be employed or
engaged by or otherwise affiliated or associated as a
consultant, independent contractor or otherwise with, any
other corporation, partnership, proprietorship, firm,
association or other business entity engaged in the business
of, or otherwise engage in the business of, acquiring, owning,
developing or managing multifamily properties in any
geographic region in which the Company, at the time of
Executive's termination, operates its business; provided,
however, that the ownership of (A) not more than one percent
(1%) of any class of publicly traded securities of any entity
or (B) any interest disclosed in the Company's Registration
Statement on Form S-11 shall not be deemed a violation of this
covenant; or
(ii) Disclose, divulge, discuss, copy or
otherwise use or suffer to be used in any manner, in
competition with, or contrary to the interests of, the
Company, any confidential information relating to the
Company's operations, properties or otherwise to its
particular business or other trade secrets of the Company, it
being acknowledged by the Executive that all such information
regarding the business of the Company compiled or obtained by,
or furnished to, the Executive while the Executive shall have
been employed by or associated with the Company is
confidential information and the Company's exclusive property;
provided, however, that the foregoing restrictions shall not
apply to the extent that such information (A) is clearly
obtainable in the public domain, (B) becomes obtainable in the
public domain, except by reason of the breach by the Executive
of the terms hereof, (C) was not acquired by the Executive in
connection with his employment or affiliation with the
Company, (D) was not acquired by the Executive from the
Company or its representatives, or (E) is required to be
disclosed by rule of law or by order of a court or
governmental body or agency.
(b) The Executive agrees and understands that
the remedy at law for any breach by him of this Paragraph 6 will be inadequate
and that the damages flowing from such breach are not readily susceptible to
being measured in monetary terms. Accordingly, it is acknowledged that, upon
adequate proof of the Executive's violation of any legally enforceable
provision of this Paragraph 6, the Company shall be entitled to immediate
injunctive relief and may obtain a temporary order restraining any threatened
or further breach. Nothing in this Paragraph 6
-9-
<PAGE> 11
shall be deemed to limit the Company's remedies at law or in equity for any
breach by the Executive of any of the provisions of this Paragraph 6 which may
be pursued or availed of by the Company.
(c) The Executive has carefully considered the
nature and extent of the restrictions upon him and the rights and remedies
conferred upon the Company under this Paragraph 6, and hereby acknowledges and
agrees that the same are reasonable in time and territory, are designed to
eliminate competition which otherwise would be unfair to the Company, do not
stifle the inherent skill and experience of the Executive, would not operate as
a bar to the Executive's sole means of support, are fully required to protect
the legitimate interests of the Company and do not confer a benefit upon the
Company disproportionate to the detriment to the Executive.
7. TAX ADJUSTMENT PAYMENTS. If all or any portion of the
amounts payable to the Executive under this Employment Agreement (together with
all other payments of cash or property, whether pursuant to this Employment
Agreement or otherwise, including, without limitation, the issuance of common
stock of the Company, or the granting, exercise or termination of options
therefor) constitutes "excess parachute payments" within the meaning of Section
280G of the Code that are subject to the excise tax imposed by Section 4999 of
the Code (or any similar tax or assessment), the amounts payable hereunder shall
be increased to the extent necessary to place the Executive in the same
after-tax position as he would have been in had no such tax assessment been
imposed on any such payment paid or payable to the Executive under this
Employment Agreement or any other payment that the Executive may receive in
connection therewith. The determination of the amount of any such tax or
assessment and the incremental payment required hereby in connection therewith
shall be made by the accounting firm employed by the Executive within thirty
(30) calendar days after such payment and said incremental payment shall be made
within five (5) calendar days after determination has been made. If, after the
date upon which the payment required by this Paragraph 7 has been made, it is
determined (pursuant to final regulations or published rulings of the Internal
Revenue Service, final judgment of a court of competent jurisdiction, Internal
Revenue Service audit assessment, or otherwise) that the amount of excise or
other similar taxes or assessments payable by the Executive is greater than the
amount initially so determined, then the Company shall pay the Executive an
amount equal to the sum of: (i) such additional excise or other taxes, PLUS (ii)
any interest, fines and penalties resulting from such underpayment, PLUS (iii)
an amount necessary to reimburse the Executive for any income, excise or other
tax assessment payable by the Executive with respect to the amounts specified in
(i) and (ii) above, and the reimbursement provided by this clause (iii), in the
manner described above in this Paragraph 7. Payment thereof shall be made within
five (5) calendar days after the date upon which such subsequent determination
is made.
-10-
<PAGE> 12
8. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
----------------------------------------------
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Ohio and
has all requisite corporate power and authority to enter into, execute and
deliver this Employment Agreement, fulfill its obligations hereunder and
consummate the transactions contemplated hereby.
(b) The execution and delivery of, performance
of obligations under, and consummation of the transactions contemplated by,
this Employment Agreement have been duly authorized and approved by all
requisite corporate action by or in respect of the Company, and this Employment
Agreement constitutes the legally valid and binding obligation of the Company,
enforceable by the Executive in accordance with its terms.
(c) No provision of the Company's governing
documents or any agreement to which its is a party or by which it is bound or of
any material law or regulation of the kind usually applicable and binding upon
the Company prohibits or limits its ability to enter into, execute and deliver
this Employment Agreement, fulfill its respective obligations hereunder and
consummate the transactions contemplated hereby.
9. MISCELLANEOUS.
--------------
(a) The Executive represents and warrants that
he is not a party to any agreement, contract or understanding, whether
employment or otherwise, which would restrict or prohibit him from undertaking
or performing employment in accordance with the terms and conditions of this
Employment Agreement.
(b) The provisions of this Employment Agreement
are severable and if any one or more provisions may be determined to be illegal
or otherwise unenforceable, in whole or in part, the remaining provisions and
any partially unenforceable provision to the extent enforceable in any
jurisdiction nevertheless shall be binding and enforceable.
(c) The rights and obligations of the Company
under this Employment Agreement shall inure to the benefit of, and shall be
binding on, the Company and its successors and assigns, and the rights and
obligations (other than obligations to perform services) of the Executive under
this Employment Agreement shall inure to the benefit of, and shall be binding
upon, the Executive and his heirs, personal representatives and assigns.
(d) Any controversy or claim arising out of or
relating to this Employment Agreement, or the breach thereof, shall be settled
by arbitration in accordance with the Rules of the American Arbitration
Association then pertaining in the City of Cleveland, Ohio, and judgment upon
the award rendered by the
-11-
<PAGE> 13
arbitrator or arbitrators may be entered in any court having jurisdiction
thereof. The arbitrator or arbitrators shall be deemed to possess the powers to
issue mandatory orders and restraining orders in connection with such
arbitration; provided, however, that nothing in this Paragraph 9(d) shall be
construed so as to deny the Company the right and power to seek and obtain
injunctive relief in a court of equity for any breach or threatened breach by
the Executive of any of his covenants contained in Paragraph 9 hereof.
(e) Any notice to be given under this Employment
Agreement shall be personally delivered in writing or shall have been deemed
duly given when received after it is posted in the United States mail, postage
prepaid, registered or certified, return receipt requested, and if mailed to the
Company, shall be addressed to its principal place of business, attention:
General Counsel, and if mailed to the Executive, shall be addressed to him at
his home address last known on the records of the Company, or at such other
address or addresses as either the Company or the Executive may hereafter
designate in writing to the other.
(f) The failure of either party to enforce any
provision or provisions of this Employment Agreement shall not in any way be
construed as a waiver of any such provision or provisions as to any future
violations thereof, nor prevent that party thereafter from enforcing each and
every other provision of this Employment Agreement. The rights granted the
parties herein are cumulative and the waiver of any single remedy shall not
constitute a waiver of such party's right to assert all other legal remedies
available to it under the circumstances.
(g) This Employment Agreement supersedes all
prior agreements and understandings between the parties and may not be modified
or terminated orally. No modification, termination or attempted waiver shall be
valid unless in writing and signed by the party against whom the same is sought
to be enforced.
(h) This Employment Agreement shall be governed
by and construed according to the laws of the State of Ohio.
(i) Captions and paragraph headings used herein
are for convenience and are not a part of this Employment
Agreement and shall not be used in construing it.
(j) Where necessary or appropriate to the
meaning hereof, the singular and plural shall be deemed to include each other,
and the masculine, feminine and neuter shall be deemed to include each other.
-12-
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement on the day and year first set forth above.
ASSOCIATED ESTATES REALTY
CORPORATION, an Ohio corporation
By: _______________________________
Authorized Officer
-----------------------------------
Jeffrey I. Friedman
-13-
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