PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT, dated as of May 23, 1997, is
made by JEFFREY I. FRIEDMAN (the "Pledgor") to ASSOCIATED ESTATES
REALTY CORPORATION, an Ohio corporation (the "Pledgee").
W I T N E S S E T H :
WHEREAS, the Pledgor has executed and delivered to the
Pledgee on the date hereof a promissory note of the Pledgor in
the original principal amount of $1,671,000 (the "Note"); and
WHEREAS, as a condition precedent to the acceptance of
the Note by the Pledgee, and in order to induce the Pledgee to
make the loan evidenced by the Note, the Pledgor must make the
pledge contemplated by this Agreement;
NOW, THEREFORE, the Pledgor hereby agrees as follows:
SECTION 1. Pledge. The Pledgor hereby pledges and
assigns to the Pledgee, and grants to the Pledgee a security
interest in, the following (the "Pledged Collateral"):
(a) 150,000 common shares, without par value, of the
Pledgee (the "Pledged Shares") and the certificate(s)
representing the Pledged Shares, and all dividends, cash,
instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange
for any or all of the Pledged Shares; and
(b) all proceeds of any and all of the foregoing
(including, without limitation, proceeds that constitute property
of the types described above).
SECTION 2. Security for Obligations. This Agreement
secures (a) the payment of any and all obligations of the
Pledgor, now or hereafter existing under the Note, whether for
principal, interest, fees, expenses or otherwise, and (b) the
performance and observance of all obligations of the Pledgor now
or hereafter existing under this Agreement, including, without
limitation those obligations set forth in Section 14 (all such
obligations of the Pledgor being the "Obligations").
SECTION 3. Delivery of Pledged Collateral. All
certificates or instruments representing or evidencing the
Pledged Collateral shall be delivered to and held by or on behalf
of the Pledgee pursuant hereto and shall be in suitable form for
transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Pledgee. The Pledgee shall have
the right, at any time in its discretion and without notice to
the Pledgor, to transfer to or to register in the name of the
Pledgee or any of its nominees any or all of the Pledged
Collateral, subject only to the revocable rights specified in
Section 6(a). In addition, the Pledgee shall have the right at
any time to exchange certificates or instruments representing or
evidencing the Pledged Collateral for certificates or instruments
of smaller or larger denominations.
SECTION 4. Representations and Warranties. The
Pledgor represents and warrants as follows:
(a) the Pledgor is the legal and beneficial owner of
the Pledged Collateral free and clear of any lien, security
interest, option or other charge or encumbrances, except for the
security interest created by this Agreement and except for
encumbrances created by securities laws;
(b) the pledge of the Pledged Shares pursuant to this
Agreement creates a valid and perfected first priority security
interest in the Pledged Shares, securing the payment of the
Obligations; and
(c) no consent of any other person or entity and no
authorization, approval, or other action by, and no notice to or
filing with, any governmental authority or regulatory body is
required for (i) the pledge by the Pledgor of the Pledged
Collateral pursuant to this Agreement or for the execution,
delivery or performance of this Agreement by the Pledgor, (ii)
the perfection or maintenance of the security interest created
hereby (including the first priority nature of such security
interest) or (iii) the exercise by the Pledgee of the voting or
other rights provided for in this Agreement or the remedies in
respect of the Pledged Collateral pursuant to this Agreement.
SECTION 5. Further Assurances. The Pledgor agrees
that at any time and from time to time, at the expense of the
Pledgor, the Pledgor will promptly execute and deliver all
further instruments and documents, and take all further action,
that may be necessary or desirable, or that the Pledgee may
reasonably request, in order to perfect and protect any security
interest granted or purported to be granted hereby or to enable
the Pledgee to exercise and enforce its rights and remedies
hereunder with respect to any Pledged Collateral.
SECTION 6. Voting Rights; Dividends; Etc. (a) So long
as no Event of Default (as defined in Section 12 hereof) shall
have occurred and be continuing:
(i) the Pledgor shall be entitled to exercise or
refrain from exercising any and all voting and other
consensual rights pertaining to the Pledged Collateral or
any part thereof for any purpose not inconsistent with the
terms of this Agreement or the Note; and
(ii) notwithstanding Section 1(b), the Pledgor shall be
entitled to receive and retain any and all dividends paid
with respect to the Pledged Collateral.
(b) Upon the occurrence and during the continuance of
an Event of Default:
(i) all rights of the Pledgor to exercise or refrain
from exercising the voting and other consensual rights which
he would otherwise be entitled to exercise pursuant to
Section 6(a)(i) and to receive the dividends which he would
otherwise be authorized to receive and retain pursuant to
Section 6(a)(ii) shall cease, and all such rights shall
thereupon become vested in the Pledgee who shall thereupon
have the sole right to exercise or refrain from exercising
such voting and other consensual rights and to receive and
hold as Pledged Collateral such dividends; and
(ii) all dividends which are received by the Pledgor
contrary to the provisions of paragraph (i) of this Section
6(b) shall be received in trust for the benefit of the
Pledgee, shall be segregated from other funds of the Pledgor
and shall be forthwith paid over to the Pledgee as Pledged
Collateral in the same form as so received (with any
necessary indorsement) to be held and applied pursuant to
this Agreement.
SECTION 7. Transfers and Other Liens. The Pledgor
agrees that he will not (i) sell, assign (by operation of law or
otherwise) or otherwise dispose of, or grant any option with
respect to, any of the Pledged Collateral, or (ii) create or
permit to exist any lien, security interest, option or other
charge or encumbrance upon or with respect to any of the Pledged
Collateral, except for the security interest under this Agreement
and except for encumbrances created by securities laws.
SECTION 8. Pledgee May Perform. If the Pledgor fails
to perform any agreement contained herein, the Pledgee may itself
perform, or cause performance of, such agreement, and the
expenses of the Pledgee incurred in connection therewith shall be
payable by the Pledgor under Section 14.
SECTION 9. Pledgee's Duties. The powers conferred on
the Pledgee hereunder are solely to protect its interest in the
Pledged Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the safe custody of any
Pledged Collateral in its possession and the accounting for
moneys actually received by it hereunder, the Pledgee shall have
no duty as to any Pledged Collateral, or as to the taking of any
necessary steps to preserve rights against any parties or any
other rights pertaining to any Pledged Collateral.
SECTION 10. Pledgee Appointed Attorney-in-Fact. The
Pledgor hereby appoints the Pledgee as the Pledgor's attorney-in-
fact, with full authority in the place and stead of the Pledgor
and in the name of the Pledgor or otherwise, from time to time
and in the Pledgee's discretion to take any action and to execute
any instrument which the Pledgee may deem necessary or advisable
to accomplish the purposes of this Agreement, including, without
limitation, to receive, endorse and collect all instruments made
payable to the Pledgor representing any dividend or other
distribution in respect of the Pledged Collateral or any part
thereof and to give full discharge for the same.
SECTION 11. Reasonable Care. The Pledgee shall be
deemed to have exercised reasonable care in the custody and
preservation of the Pledged Collateral in its possession if the
Pledged Collateral is accorded treatment substantially equal to
that which the Pledgee accords its own property, it being
understood that the Pledgee shall not have any responsibility for
(i) ascertaining or taking action with respect to calls,
conversions, exchanges, tenders or other matters relative to any
Pledged Collateral, whether or not the Pledgee has or is deemed
to have any knowledge of such matters, or (ii) taking any
necessary steps to preserve rights against any parties with
respect to any Pledged Collateral.
SECTION 12. Events of Default; Remedies upon Default.
(a) The occurrence of any of the following events
shall constitute an Event of Default under this Agreement:
(i) the occurrence of any event described in
Section 3 of the Note that results in the Note becoming
immediately due and payable; or
(ii) any representation or warranty made by the
Pledgor in this Agreement shall prove to have been false or
incorrect in any material respect when made; or
(iii) the Pledgor shall fail to perform or observe
in any material respect any term, covenant or agreement
contained in this Agreement on his part to be performed or
observed, and such failure shall remain unremedied for
fifteen (15) days after written notice thereof shall have
been given to the Pledgor; or
(iv) the validity or enforceability of this
Agreement or the Note shall be contested by the Pledgor, or
the Pledgor shall deny that he has any or further liability
or obligation under this Agreement or the Note.
(b) If any Event of Default shall have occurred and be
continuing:
(i) the Pledgee may exercise in respect of the
Pledged Collateral, in addition to other rights and remedies
provided for herein or otherwise available to it, all the
rights and remedies of a secured party under the Uniform
Commercial Code in effect in the State of Ohio at that time
(the "Code") (whether or not the Code applies to the
affected Collateral), and may also, without notice except as
specified below, sell the Pledged Collateral or any part
thereof at public or private sale, at any exchange, broker's
board or at any of the Pledgee's offices or elsewhere, for
cash, on credit or for future delivery, and upon such other
terms as the Pledgee may deem commercially reasonable. The
Pledgor agrees that, to the extent notice of sale shall be
required by law, at least ten (10) days' notice to the
Pledgor of the time and place of any public sale or the time
after which any private sale is to be made shall constitute
reasonable notification. The Pledgee shall not be obligated
to make any sale of Pledged Collateral regardless of notice
of sale having been given. The Pledgee may adjourn any
public or private sale from time to time by announcement at
the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to
which it was so adjourned; and
(ii) any cash held by the Pledgee as Pledged
Collateral and all cash proceeds received by the Pledgee in
respect of any sale of, collection from, or other
realization upon all or any part of the Pledged Collateral
may, in the discretion of the Pledgee, be held by the
Pledgee as collateral for, and/or then or at any time
thereafter be applied (after payment of any amounts payable
to the Pledgee pursuant to Section 14) in whole or in part
by the Pledgee against, all or any part of the Obligations
in such order as the Pledgee, in its sole discretion, shall
elect. Any surplus of such cash or cash proceeds held by
the Pledgee and remaining after payment in full of all the
Obligations shall be paid over to the Pledgor or to
whomsoever may be lawfully entitled to receive such surplus.
SECTION 13. Registration Rights. If the Pledgee shall
determine to exercise its right to sell all or any of the Pledged
Collateral pursuant to Section 12, the Pledgor agrees that, upon
request of the Pledgee, the Pledgor will, at its own expense:
(a) execute and deliver, and cause the Pledgee and the
directors and officers thereof to execute and deliver, all
such instruments and documents, and do or cause to be done
all such other acts and things, as may be necessary or, in
the opinion of the Pledgee, advisable to register such
Pledged Collateral under the provisions of the Securities
Act of 1933, as from time to time amended (the "Securities
Act"), and to cause the registration statement relating
thereto to become effective and to remain effective for such
period as prospectuses are required by law to be furnished,
and to make all amendments and supplements thereto and to
the related prospectus which, in the opinion of the Pledgee,
are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission
applicable thereto;
(b) use his best efforts to qualify the Pledged
Collateral under the state securities or "Blue Sky" laws and
to obtain all necessary governmental approvals for the sale
of the Pledged Collateral, as requested by the Pledgee;
(c) cause the Pledgee to make available to its
security holders, as soon as practicable, an earnings
statement which will satisfy the provisions of Section 11(a)
of the Securities Act; and
(d) do or cause to be done all such other acts and
things as may be necessary to make such sale of the Pledged
Collateral or any part thereof valid and binding and in
compliance with applicable law.
The Pledgor further acknowledges the impossibility of
ascertaining the amount of damages which would be suffered by the
Pledgee by reason of the failure by the Pledgor to perform any of
the covenants contained in this Section and, consequently, agrees
that, if the Pledgor shall fail to perform any of such covenants,
it shall pay, as liquidated damages and not as a penalty, an
amount equal to the value of the Pledged Collateral on the date
the Pledgee shall demand compliance with this Section.
SECTION 14. Expenses. The Pledgor will upon demand
pay to the Pledgee the amount of any and all reasonable expenses,
including the reasonable fees and expenses of its counsel and of
any experts and agents, which the Pledgee may incur in connection
with (i) the administration of this Agreement, (ii) the custody
or preservation of, or the sale of, collection from, or other
realization upon, any of the Pledged Collateral, (iii) the
exercise or enforcement of any of the rights of the Pledgee
hereunder or (iv) the failure by the Pledgor to perform or
observe any of the provisions hereof. These aforementioned
expenses shall be paid only in an Event of Default.
SECTION 15. Security Interest Absolute. All rights of
the Pledgee and the security interests hereunder, and all
obligations of the Pledgor hereunder, shall be absolute and
unconditional irrespective of:
(i) any lack of validity or enforceability of the Note
or any other agreement or instrument relating thereto;
(ii) any taking, exchange, release or non-perfection of
any other collateral for all or any of the Obligations;
(iii) any manner of application of collateral, or
proceeds thereof, to all or any of the Obligations, or any
manner of sale or other disposition of any collateral for
all or any of the Obligations; or
(iv) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, the
Pledgor.
SECTION 16. Amendments, Etc. No amendment or waiver
of any provision of this Agreement, and no consent to any
departure by the Pledgor herefrom, shall in any event be
effective unless the same shall be in writing and signed by the
Pledgee, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which
given.
SECTION 17. Addresses for Notices. All notices and
other communications provided for hereunder shall be in writing
(including telecopier, telegraphic, telex or cable communication)
and mailed, telecopied, telegraphed, telexed, cabled or delivered
as follows: if to the Pledgee, at 5025 Swetland Court, Richmond
Heights, Ohio 44143-1467, and if to the Pledgor, at 5025 Swetland
Court, Richmond Heights, Ohio 44143-1467, or, as to either party,
at such other address as shall be designated by such party in a
written notice to the other party. All such notices and other
communications shall, when mailed, telecopied, telegraphed,
telexed or cabled, be effective when deposited in the mails,
telecopied, delivered to the telegraph company, confirmed by
telex answer back or delivered to the cable company,
respectively.
SECTION 18. Continuing Security Interest; Assignments.
This Agreement shall create a continuing security interest in the
Pledged Collateral and shall (i) remain in full force and effect
until the payment in full of the Obligations and all other
amounts payable under this Agreement, (ii) be binding upon the
Pledgor, his heirs, executors, administrators, legal and personal
representatives and assigns, and (iii) inure to the benefit of,
and be enforceable by, the Pledgee and its assigns. Without
limiting the generality of the foregoing clause (iii), the
Pledgee may assign or otherwise transfer all or any portion of
its rights and obligations under the Note to any other person or
entity, and such other person or entity shall thereupon become
vested with all the benefits in respect thereof granted to the
Pledgee herein or otherwise. Upon the payment in full of the
Obligations and all other amounts payable under this Agreement,
the security interest granted hereby shall terminate and all
rights to the Pledged Collateral shall revert to the Pledgor.
Upon any such termination, the Pledgee will, at the Pledgor's
expense, return to the Pledgor such of the Pledged Collateral as
shall be then held and not have been sold or otherwise applied
pursuant to the terms hereof and execute and deliver to the
Pledgor such documents as the Pledgor shall reasonably request to
evidence such termination.
SECTION 19. Release of Shares From Pledge and Security
Interest. Upon payment to Pledgee of all principal and interest
due to it under the Note, the Pledged Shares pledged hereunder
shall be released and discharged from the pledge, and the
security interest therein shall be released by the Pledgee.
SECTION 20. Governing Law; Terms. This Agreement
shall be governed by, and construed in accordance with, the laws
of the State of Ohio without regard to conflict of laws
principals. Unless otherwise defined herein, terms defined in
Article 9 of the Code are used herein as therein defined.
Pronouns used herein and terms such as "himself", "herself"
"itself" and should be read to refer to the masculine, feminine
and neuter genders as the context indicates.
IN WITNESS WHEREOF, the Pledgor has executed and
delivered this Agreement as of the date first above written.
THE PLEDGOR:
/s/ Jeffrey I. Friedman
-----------------------
Jeffrey I. Friedman
THE PLEDGEE:
ASSOCIATED ESTATES REALTY
CORPORATION, an Ohio corporation
By: /s/ Martin A. Fishman
-------------------------
Name: Martin A. Fishman
Its: Vice-President
JCM3614:35295:97001:SKH-04C.PLG
jcm 6/5/97