-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KUzy1cKOVzjxDpSgWK8ynVZzXRtp8NRaNHJOb2HhZFH0UggZuNpunSVy0Zk11d0h +MSc/YenYfv2QHu0DRJxQA== 0000895345-98-000560.txt : 19980918 0000895345-98-000560.hdr.sgml : 19980918 ACCESSION NUMBER: 0000895345-98-000560 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19980917 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST UNION REAL ESTATE EQUITY & MORTGAGE INVESTMENTS CENTRAL INDEX KEY: 0000037008 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 346513657 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-63547 FILM NUMBER: 98710695 BUSINESS ADDRESS: STREET 1: 55 PUBLIC SQUARE STREET 2: STE 1900 CITY: CLEVELAND STATE: OH ZIP: 44113 BUSINESS PHONE: 2167814030 MAIL ADDRESS: STREET 1: 55 PUBLIC SQUARE SUITE 1910 CITY: CLEVELAND STATE: OH ZIP: 44113 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION REALTY DATE OF NAME CHANGE: 19691012 S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1998 =============================================================================== REGISTRATION NO. 333- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS (Exact name of Registrant as specified in its charter) OHIO 34-6513657 (State of Organization) (I.R.S. Employer Identification Number) 55 PUBLIC SQUARE SUITE 1900 CLEVELAND, OHIO 44113-1937 (216) 781-4030 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) PAUL F. LEVIN 55 PUBLIC SQUARE SUITE 1900 CLEVELAND, OHIO 44113-1937 (216) 781-4030 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPY TO: STEVEN G. SCHEINFELD FRIED, FRANK, HARRIS, SHRIVER & JACOBSON ONE NEW YORK PLAZA NEW YORK, NEW YORK 10004-1980 (212) 859-8000 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the Registration Statement becomes effective. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: |_| If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: |X| If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| ============================================================================ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ============================================================================= (continued from previous page) If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If delivery of a prospectus is expected to be made pursuant to Rule 434, please check the following box: |_|
CALCULATION OF REGISTRATION FEE =========================================== ================= ====================== ====================== =================== PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION OF SECURITIES TO BE REGISTERED REGISTERED UNIT(FN1) PRICE(FN1) FEE - ------------------------------------------- ----------------- ---------------------- ---------------------- ------------------- Rights to purchase Shares of Beneficial Interest, $1.00 par value per share......... -- -- -- --(FN2) - ------------------------------------------- ----------------- ---------------------- ---------------------- ------------------- Shares of Beneficial Interest, $1.00 par value per share(FN3) 31,431,000 $5.00 $157,155,000 $46,361 - ------------------------------------------- ----------------- ---------------------- ---------------------- ------------------- Total.......................... 31,431,000 $5.00 $157,155,000 $46,361 =========================================== ================= ====================== ====================== =================== (1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457. (2) Pursuant to Rule 457(g), no registration fee is payable with respect to the Rights because the Rights are being registered in the same registration statement as the securities being offered pursuant thereto. (3) Includes rights to purchase Shares of Beneficial Interest, $1.00 par value per share, under the Company's existing shareholder rights plan. Prior to the occurrence of certain events, these rights will not be evidenced separately from the Shares of Beneficial Interest, $1.00 par value per share.
[RED HERRING] INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED SEPTEMBER 17, 1998 PROSPECTUS FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS 31,431,000 RIGHTS TO PURCHASE 31,431,000 SHARES OF BENEFICIAL INTEREST ($1.00 PAR VALUE PER SHARE) ------------------ First Union Real Estate Equity and Mortgage Investments ("First Union" or the "Company") is a real estate investment trust (a "REIT") whose primary business has been to acquire, reposition and own retail, apartment, office and parking properties throughout the United States and Canada. First Union Management, Inc. (the "Management Company," and together with First Union, the "First Union Companies"), an affiliate of First Union, manages or leases certain of First Union's assets and owns a controlling interest in a Canadian parking and management services company ("Impark"). The First Union Companies have an organizational structure commonly referred to as "stapled," whereby the shares of beneficial interest, $1.00 par value per share, of First Union (the "Common Shares"), are "stapled to" a proportionately equal interest in the shares of common stock, without par value, of the Management Company (the "Management Company Shares," and together with the Common Shares, the "Stapled Shares"), subject to certain exceptions. The Common Shares may not be issued or transferred without their "stapled" counterparts in the Management Company. The Management Company Shares are held in trust (the "Trust") for the benefit of the holders of the Common Shares. See "Description of Capital Stock -- Common Shares -- Beneficial Ownership of the Management Company." For a discussion of the future status of the Management Company, see "Certain Federal Income Tax Considerations -- Taxation of First Union -- Stapled Stock." This Prospectus relates to (a) 31,431,000 rights (the "Rights") to subscribe for and purchase 31,431,000 Common Shares and (b) up to an aggregate of 31,431,000 Common Shares issuable by First Union upon exercise of the Rights (including purchases pursuant to the Oversubscription Privilege (as defined herein) and the Standby Commitment (as defined herein)). The offering of Common Shares is hereinafter referred to as the "Offering." First Union is distributing, at no cost, to each holder of Common Shares of record as of the close of business on [ ], 1998 (the "Record Date"), one Right for every Common Share held. Each Right entitles the holder thereof to purchase one Common Share (the "Basic Subscription") at a subscription price of $5.00 per Common Share (the "Subscription Price"). To ensure that First Union maintains its status as a REIT, First Union's by-laws (the "By-Laws") restrict beneficial and constructive ownership of Common Shares by any single person or group of persons acting collectively to 9.8% of the outstanding Common Shares (the "Share Ownership Limit"). Accordingly, absent a Waiver (as defined herein) from First Union, the number of Rights a holder will be entitled to exercise may be limited. See "Certain Federal Income Tax Considerations," "The Offering -- Basic Subscription; Limitations on Subscription" and "Description of Capital Stock -- Common Shares -- Restriction on Size of Holdings." No Rights will be issued in respect of fractional Common Shares. All Rights will be evidenced by Rights certificates ("Rights Certificates") and will expire at 5:00 p.m., Eastern Daylight Time, on [ ], 1998, or such later time and date as First Union may determine in its sole discretion (the "Expiration Time"). The Rights are not transferable, except by operation of law. Holders who do not exercise their Rights will relinquish any value inherent in their Rights. See "Risk Factors -- Risk of Dilution in the Offering." An election to exercise any Right is irrevocable. See "The Offering." A holder of Rights who validly exercises in full its Basic Subscription, and who may do so without exceeding the Share Ownership Limit, may also oversubscribe (the "Oversubscription Privilege"), at the Subscription Price, for additional Common Shares that have not been purchased through the exercise of Rights ("Unsubscribed Shares"). However, absent a Waiver from First Union, such holder will be entitled to subscribe for only up to such number of Unsubscribed Shares that would cause such holder to beneficially or constructively own a percentage of Common Shares that reaches but does not exceed the Share Ownership Limit. Only holders of Common Shares on the Record Date will be entitled to the Oversubscription Privilege. If a holder elects to exercise the Oversubscription Privilege, such holder must do so concurrently with its exercise of the Basic Subscription. An election to exercise the Oversubscription Privilege is irrevocable. All amounts received by National City Bank, the subscription agent (the "Subscription Agent"), pursuant to the exercise of the Rights or the Oversubscription Privilege will be held in escrow until the completion of the Offering. See "The Offering -- Escrow Arrangements; Return of Funds." To ensure that the net proceeds from the Offering will be sufficient to repay all amounts due and payable under the Company's $90 million Bridge Loan (as defined herein), including interest and fees (the "Maximum Standby Commitment"), Gotham Partners, L.P. ("Gotham LP"), Gotham Partners III, L.P. ("Gotham III LP," and together with Gotham LP, "Gotham") and Elliott Associates, L.P. ("Elliott Associates"), shareholders of First Union (collectively, the "Standby Purchasers"), have agreed to purchase, at the Subscription Price, those Common Shares (the "Standby Commitment Shares") that are not purchased through the exercise of Rights or the Oversubscription Privilege (the "Standby Commitment"), up to a maximum number of Common Shares (the "Maximum Standby Shares") having an aggregate Subscription Price of up to the Maximum Standby Commitment. Gotham has agreed to acquire 7/9ths of all Standby Commitment Shares, having an aggregate Subscription Price of up to 7/9ths of the Maximum Standby Commitment, and Elliott Associates has agreed to acquire 2/9ths of all Standby Commitment Shares, having an aggregate Subscription Price of up to 2/9ths of the Maximum Standby Commitment. To the extent that holders subscribe for fewer than the Maximum Standby Shares in the aggregate through their Basic Subscription and Oversubscription Privilege, the Standby Purchasers will subscribe for the difference. To the extent that holders subscribe for more than the Maximum Standby Shares in the aggregate, the Standby Purchasers will not be obligated to purchase any Standby Commitment Shares. As of September 14, 1998, Gotham and Elliott Associates beneficially owned 9.70% and 1.35%, respectively, of the outstanding Common Shares. No fractional Common Shares will be issued in respect of the exercise of any Rights or the Oversubscription Privilege or pursuant to the Standby Commitment. The Company intends to apply for listing of the Common Shares to be issued pursuant to the exercise of the Rights and the Oversubscription Privilege and the Standby Commitment on the New York Stock Exchange (the "NYSE"). The Common Shares are listed on the NYSE under the symbol "FUR," and the last reported sale price of the Common Shares on September 16, 1998 was $5.75. See "Price Range of Common Shares and Distributions." ------------------ CURRENT SHAREHOLDERS OF THE COMPANY WHO DO NOT PARTICIPATE IN THE OFFERING MAY SUFFER SIGNIFICANT DILUTION IN THEIR RELATIVE PERCENTAGE OWNERSHIP IN THE COMPANY UPON ISSUANCE OF COMMON SHARES TO HOLDERS EXERCISING RIGHTS AND THE OVERSUBSCRIPTION PRIVILEGE AND TO THE STANDBY PURCHASERS. IF GOTHAM PURCHASES STANDBY COMMITMENT SHARES PURSUANT TO THE STANDBY COMMITMENT, GOTHAM MAY BE ABLE TO CONTROL SIGNIFICANTLY THE OUTCOME OF ALL MATTERS SUBMITTED TO SHAREHOLDERS FOR A VOTE, INCLUDING THE ELECTION OF TRUSTEES AND, CONSEQUENTLY, THE COMPANY'S MANAGEMENT, POLICIES AND OPERATIONS. ------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 10 HEREIN FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF COMMON SHARES BEFORE DECIDING TO EXERCISE THEIR RIGHTS. ------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------ THE DATE OF THIS PROSPECTUS IS , 1998. AVAILABLE INFORMATION First Union is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy material and other information concerning First Union can be inspected and copied at the offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or at its regional offices, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661-2511 and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, the Commission maintains a Web site on the Internet at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including First Union. First Union's outstanding Common Shares and outstanding Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, $1.00 par value per share (the "Series A Preferred Shares"), are listed on the NYSE under the symbols, "FUR" and "FURPrA," respectively, and all such reports, proxy material and other information filed by First Union with the NYSE may be inspected at the offices of the NYSE at 20 Broad Street, New York, New York 10005. First Union has filed with the Commission a registration statement on Form S-3 (together with all amendments and exhibits, the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the securities offered hereby. This prospectus ("Prospectus"), which constitutes a part of the Registration Statement, does not contain all the information set forth in the Registration Statement, certain items of which are contained in exhibits to the Registration Statement as permitted by the rules and regulations of the Commission. Statements made in this Prospectus as to the content of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed or incorporated by reference as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by First Union with the Commission (File No. 1-6249) pursuant to the Exchange Act are incorporated by reference in this Prospectus: (1) First Union's Annual Report on Form 10-K for the fiscal year ended December 31, 1997; (2) First Union's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1998; (3) First Union's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1998; (4) First Union's Current Report on Form 8-K dated May 6, 1998; (5) First Union's Current Report on Form 8-K dated May 18, 1998; (6) First Union's Current Report on Form 8-K dated June 9, 1998; (7) First Union's Current Report on Form 8-K dated June 17, 1998; and (8) Description of First Union's Share Purchase Rights included in First Union's Registration Statement on Form 8-A dated March 30, 1990. All documents filed by First Union pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering made hereby shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of the filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein, or in any other subsequently filed document which is or is deemed to be incorporated by reference herein, modifies or supersedes any such statement. Any such statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. First Union will provide without charge to each person, including any beneficial owner, to whom this Prospectus is delivered, on the oral or written request of such person, a copy of any of the foregoing documents incorporated herein by reference (other than the exhibits to such documents unless such exhibits are specifically incorporated by reference into such documents). Requests should be directed to First Union Real Estate Equity and Mortgage Investments, 55 Public Square, Suite 1900, Cleveland, Ohio 44113-1937, Attention: Steven M. Edelman, telephone (216) 781-4030. PROSPECTUS SUMMARY The information contained in this summary is qualified in its entirety by the more detailed information, including financial information, appearing elsewhere or incorporated by reference in this Prospectus. Except as expressly stated herein or unless the context otherwise requires, references to (i) "First Union" or the "Company" refer to First Union Real Estate Equity and Mortgage Investments and its subsidiaries, (ii) the "Management Company" refer to First Union Management, Inc. and its subsidiaries, and (iii) "Impark" refer to Imperial Parking Limited and its subsidiaries and Impark Services Limited and its subsidiaries. THE COMPANY First Union is a REIT whose primary business has been to acquire, reposition and own retail, apartment, office and parking properties throughout the United States and Canada. The Management Company, an affiliate of First Union, manages or leases certain of First Union's assets and owns a controlling interest in Impark. The First Union Companies have an organizational structure commonly referred to as "stapled," whereby the Common Shares are "stapled to" a proportionately equal interest in the Management Company Shares, subject to certain exceptions. The Common Shares may not be issued or transferred without their "stapled" counterparts in the Management Company. The Management Company Shares are held in trust for the benefit of the holders of the Common Shares. First Union owns regional enclosed shopping malls, apartment complexes, office buildings and parking facilities. First Union's portfolio is diversified by type of property, geographical location, tenant mix and rental market. As of June 30, 1998, First Union owned (in fee or pursuant to long-term ground leases under which First Union is lessee) 21 shopping malls, eight apartment complexes, five office properties, seven parking facilities, and ten parking lots in Canada, as well as land leased to a third party. First Union also owns 50% of another mall in a joint venture with an unrelated party. Recent Developments On May 18, 1998, the Company announced that its Board of Trustees (the "Board" or "Board of Trustees") had terminated the employment of James C. Mastandrea, Chairman of the Board, Chief Executive Officer and President of the Company prior to such termination, and had appointed Steven M. Edelman, Executive Vice President and Chief Financial Officer of the Company, as Interim Chief Executive Officer. The Board of Trustees is currently evaluating candidates for the office of Chief Executive Officer, but there can be no assurance that the Board will be able to fill such position in the near future. At the Company's Special Meeting of Beneficiaries held on May 19, 1998, following a proxy contest successfully waged by Gotham LP (the "Proxy Contest"), nine new trustees were elected to the Board of Trustees, and the Board's size was increased from nine to 15 trustees ("Trustees"). Four of the nine new Trustees are principals or employees of Gotham, including William A. Ackman, Chairman of the Company, and David P. Berkowitz, Vice Chairman of the Company. At the time the new Trustees took office on June 3, 1998, three of the six then incumbent Trustees resigned, resulting in three vacancies. During the quarter ended June 30, 1998, First Union recognized $17.4 million of one-time expenses primarily in connection with the Proxy Contest and change in the Board's composition. These one-time expenses included proxy expenses and related legal fees, cash severance and vesting of restricted stock for First Union's terminated Chairman of the Board, Chief Executive Officer and President, vesting of restricted stock granted to other employees of the First Union Companies, and the potential loss of a deposit to purchase a parking facility. In June 1998, the lenders under the Company's $125 million credit facility (the "FUR Credit Facility") and the lenders under Impark's Cdn.$50 million credit facility (the "Impark Credit Facility," and together with the FUR Credit Facility, the "Credit Facilities"), determined that a default had occurred under their respective Credit Facilities as a result of the change in the Board's composition. However, the lenders under each Credit Facility have granted temporary waivers with respect to such defaults. The waiver for the default under the FUR Credit Facility expires on November 26, 1998, and the waiver for the default under the Impark Credit Facility expires on December 31, 1998. The lenders under each Credit Facility also granted the Company and Impark relief from compliance with certain financial covenants under the Credit Facilities. In July 1998, First Union commenced a tender offer (the "Tender Offer") to purchase all $100 million principal amount of its 8-7/8% Senior Notes due 2003 (the "Senior Notes") for $970 per $1,000 principal amount of Senior Notes, plus accrued and unpaid interest. Concurrently with the Tender Offer, First Union conducted a consent solicitation (the "Consent Solicitation") and offered a consent payment of $30 per $1,000 principal amount of Senior Notes to amend the indenture governing the Senior Notes (the "Senior Note Indenture") and to terminate listing of the Senior Notes on the NYSE. The purpose of the Tender Offer and Consent Solicitation was (i) to prevent the possibility that the Company would be required to purchase the Senior Notes at 101% of their principal amount, an obligation which the Company would not have had the financial resources to satisfy, and (ii) to provide the Company with additional financial and operating flexibility. Prior to its amendment, the Senior Note Indenture required the Company to offer to purchase the Senior Notes at 101% of their principal amount if within 90 days following the date of a "change of control," the rating of the Senior Notes by both Standard & Poor's Corporation ("S&P") and Moody's Investors Services, Inc. ("Moody's") declined by one or more rating gradations. During April 1998, S&P placed the Company on Credit Watch and in June 1998, Moody's placed the Senior Notes under review for possible downgrade. In August 1998, pursuant to the Tender Offer and Consent Solicitation, holders of approximately 88% of the outstanding Senior Notes consented to the indenture amendments and delisting and First Union purchased approximately $88 million principal amount of Senior Notes. The purchase of the Senior Notes was financed with the proceeds of a $90 million loan that has a term of six months (subject to two three-month extension periods) and bears interest at 9-7/8% (the "Bridge Loan"). The lenders under the Bridge Loan are Bankers Trust Company, as agent, and BankBoston, N.A., Blackacre Bridge Capital, Elliott Associates, Gotham and Wellsford Capital, each as an equal participant. First Union intends to repay the Bridge Loan with the net proceeds of the Offering. See "Use of Proceeds." Prior to entering into the Bridge Loan, representatives of the Company initiated discussions with several institutions to determine their interest in providing financing for the Tender Offer. These discussions did not result in any reasonably acceptable offers, except for the offer by the lenders under the Bridge Loan, which required the Company to obtain standby purchase commitments for the Offering to ensure that the net proceeds of the Offering would be sufficient to repay all amounts due and payable under the Bridge Loan, including interest and fees. The Company sought such standby purchase commitments from several major shareholders of the Company. However, it did not obtain any standby commitments other than the Standby Commitment, the terms of which were approved by an independent committee of the Board. When the Bridge Loan was funded, the Company agreed to pay each of Gotham and Elliott Associates a fee equal to 2% of their respective pro rata portions of the Maximum Standby Commitment (the "2% Fee"), whether or not the Offering was consummated. The 2% Fee is payable on the earliest of August 6, 1999, the date the Bridge Loan is repaid, and the date the Offering is consummated. To help stabilize the Company's financial condition, the Board suspended the Company's quarterly dividend on the Common Shares, effective as of the quarter ended June 30, 1998, and instituted an annual dividend policy. The Board intends to make the minimum amount of distributions to shareholders required to maintain the Company's REIT status. See "Certain Federal Income Tax Considerations -- Taxation of First Union -- Annual Distribution Requirements." Because First Union believes it will satisfy the minimum distribution requirements for the current fiscal year without further distributions, it does not expect to make further distributions on its Common Shares in 1998. On July 22, 1998, tax legislation was enacted limiting the "grandfathering" rule applicable to stapled REITs such as the Company (the "Stapled REIT Legislation"). As a result, the income and activities of the Management Company with respect to any real property interests acquired by the First Union Companies after March 26, 1998 will be attributed to First Union for purposes of determining whether First Union qualifies as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). First Union believes that there may be certain advantages, however, to maintaining its stapled REIT status and has begun to consider the advantages of retaining such structure. The Stapled REIT Legislation nevertheless limits the benefits of the stapled REIT structure, and there can be no assurance that the Company will be able to take advantage of or maintain such structure in the future. See "Risk Factors -- Stapled REIT Tax Risks; REIT Tax Risks." Business Strategy In light of the change in the Board's composition, the Stapled REIT Legislation and other strategic and business considerations, the Board is currently re-evaluating the Company's overall business plan. Among other things, the Board is reviewing the Company's capital, operational and management structure, and analyzing the Company's assets to assess their ongoing potential to contribute to shareholder value. Various professionals have been engaged by the Company and are assisting the Board in its reviews and analyses. The Board is also considering certain opportunistic real estate investments where, for example, (i) sellers are seeking liquidity for their private real estate portfolios, and may be interested in maintaining management positions, (ii) management talent is an instrumental part of the overall real estate acquisition, or (iii) legal, tax, financing or other complexities make it difficult for traditional purchasers to pursue the transaction. As part of its new business plan, prior to the completion of the Offering, the Company intends to terminate its management agreements with the Management Company, self-manage its retail, apartment and office portfolios, and enter into third-party management arrangements for the parking facilities it owns. The Company may also in the future transfer its assets to an operating partnership to be controlled by the Company (commonly referred to as an "UPREIT") in exchange for interests in such operating partnership. THE OFFERING Rights...................... First Union is distributing, at no cost, to each holder of Common Shares of record as of the close of business on the Record Date, one Right for every Common Share held. An aggregate of 31,431,000 Rights will be issued. No Rights will be issued in respect of fractional Common Shares. Holders who own Common Shares through the Company's dividend reinvestment plan as of the Record Date will not receive Rights for such Common Shares. See "The Offering-- Holders of Common Shares in Dividend Reinvestment Plan." Record Date................. [ ], 1998. Subscription Price.......... $5.00 per Common Share. Closing Price of the Common Shares on the NYSE on September 16, 1998..... $5.75 per Common Share. Basic Subscription.......... Each Right entitles the holder thereof to purchase one Common Share at the Subscription Price. The number of Rights a holder will be entitled to exercise may be limited by the Share Ownership Limit. Oversubscription Privilege.. A holder of Rights who validly exercises in full its Subscription, and who may do so without exceeding the Share Ownership Limit, may also oversubscribe, at the Subscription Price, for additional Common Shares that have not been purchased through the exercise of Rights. However, absent a Waiver from First Union, such holder will be entitled to subscribe for only up to such number of Unsubscribed Shares that would cause such holder to beneficially or constructively own a percentage of Common Shares that reaches but does not exceed the Share Ownership Limit. If an insufficient number of Unsubscribed Shares is available to satisfy fully all elections to exercise the Oversubscription Privilege, the available Unsubscribed Shares will be allocated pro rata among holders who exercise the Oversubscription Privilege based on the respective numbers of Rights exercised by such holders pursuant to the Basic Subscription. Only holders of Common Shares on the Record Date will be entitled to the Oversubscription Privilege. If a holder elects to exercise the Oversubscription Privilege, such holder must do so concurrently with its exercise of the Basic Subscription. See "The Offering-- Oversubscription Privilege." Standby Commitment.......... The Standby Purchasers have agreed to purchase, at the Subscription Price, those Common Shares that are not purchased through the exercise of Rights or the Oversubscription Privilege, up to the Maximum Standby Shares having an aggregate Subscription Price of up to the Maximum Standby Commitment. Gotham has agreed to acquire 7/9ths of all Standby Commitment Shares, having an aggregate Subscription Price of up to 7/9ths of the Maximum Standby Commitment, and Elliott Associates has agreed to acquire 2/9ths of all Standby Commitment Shares, having an aggregate Subscription Price of up to 2/9ths of the Maximum Standby Commitment. To the extent that holders subscribe for fewer than the Maximum Standby Shares in the aggregate through their Basic Subscription and Oversubscription Privilege, the Standby Purchasers will subscribe for the difference. To the extent that holders subscribe for more than the Maximum Standby Shares in the aggregate, the Standby Purchasers will not be obligated to purchase any Standby Commitment Shares. The Board of Trustees has agreed to waive the Share Ownership Limit to the extent necessary to enable Gotham to satisfy its obligation under the Standby Commitment. The terms and conditions of the Standby Commitment have been approved by an independent committee of the Board of Trustees. See "The Offering -- Standby Commitment." As of September 14, 1998, Gotham and Elliott Associates beneficially owned 9.70% and 1.35%, respectively, of the outstanding Common Shares. Share Ownership Limit; Limitations on Subscription................ To ensure that First Union maintains its status as a REIT, the By-Laws restrict beneficial and constructive ownership of Common Shares by any single person or group of persons acting collectively to 9.8% of the outstanding Common Shares. See "Certain Federal Income Tax Considerations," "The Offering-- Basic Subscription; Limitations on Subscription" and "Description of Capital Stock-- Common Shares-- Restriction on Size of Holdings." A holder will be entitled to exercise only up to such number of Rights that would cause such holder to reach but not exceed the Share Ownership Limit, unless First Union waives the Share Ownership Limit for such holder (a "Waiver"). A holder's percentage beneficial ownership interest in Common Shares ("Beneficial Ownership Interest") will be calculated promptly following the Expiration Time by dividing (i) the sum of (a) the aggregate number of Common Shares beneficially owned by such holder immediately prior to the Expiration Time, (b) the aggregate number of Common Shares for which such holder has exercised Rights, and (c) the aggregate number of Common Shares into which all Series A Preferred Shares beneficially owned by such holder immediately prior to the Expiration Time are convertible, by (ii) the sum of (a) the aggregate number of Common Shares outstanding immediately after consummation of the Offering and (b) the aggregate number of Common Shares into which all Series A Preferred Shares beneficially owned by such holder immediately after consummation of the Offering are convertible. See "The Offering -- Basic Subscription; Limitations on Subscription." Waiver of Share Ownership Limit............. A holder may apply for a Waiver from First Union of the Share Ownership Limit in connection with the exercise of its Basic Subscription, Oversubscription Privilege or both by completing the Request for Waiver of Share Ownership Limit form accompanying this Prospectus. In deciding whether to grant a Waiver, First Union may require the holder to make certain representations and warranties, comply with certain covenants and provide an opinion of counsel with respect to certain REIT tax issues. See "The Offering -- Waiver of Share Ownership Limit" and "Certain Federal Income Tax Considerations -- Taxation of First Union." The anticipated size of a holder's Beneficial Ownership Interest after consummation of the Offering cannot be determined at the time such holder exercises its Rights because the size of such interest will depend in large part on the number of Common Shares subscribed for by other holders. In light of the Standby Commitment, a holder, in calculating such Beneficial Ownership Interest, may assume that at least the Maximum Standby Shares will be issued pursuant to the Offering. See "The Offering -- Standby Commitment." Unless a holder applies for and is granted a Waiver, any Rights exercised by such holder that would cause it to exceed the Share Ownership Limit will be deemed not to have been exercised by such holder. The aggregate Subscription Price paid by a holder for Rights that are deemed not to have been exercised will be returned to such holder, without interest, as soon as practicable following consummation of the Offering. See "The Offering -- Escrow Arrangements; Return of Funds." If, without first obtaining a Waiver, a holder subscribes for and, inadvertently or otherwise, is issued a number of Common Shares that causes such holder to exceed the Share Ownership Limit, such number of Common Shares in excess of the Share Ownership Limit will constitute Excess Shares under the By-Laws and therefore will not carry voting and other rights or be deemed outstanding for quorum, voting and other purposes. See "Description of Capital Stock -- Common Shares -- Restriction on Size of Holdings." Transferability of Rights... The Rights are not transferable, except by operation of law. Subscription Agent.......... National City Bank. Procedure for Exercise...... A holder may exercise its Basic Subscription and Oversubscription Privilege by properly completing and duly executing its Rights Certificate and forwarding such Rights Certificate, together with payment of the Subscription Price for each Common Share subscribed for pursuant to the Basic Subscription and Oversubscription Privilege, to the Subscription Agent on or prior to the Expiration Time. If the mail is used to forward a Rights Certificate, it is recommended that insured, registered mail be used. Alternatively, the Guaranteed Delivery Procedures as described in "The Offering -- Late Delivery of Payments and Rights Certificates" may be used. Once a holder of Rights has exercised its Basic Subscription or Oversubscription Privilege, such exercise may not be revoked. No Fractional Common Shares...................... No fractional Common Shares will be issued in respect of the exercise of any Rights or the Oversubscription Privilege or pursuant to the Standby Commitment. Persons Holding Through Others...................... Persons holding Common Shares and receiving Rights distributable with respect thereto through a broker, dealer, commercial bank, trust company or other nominee, as well as persons holding stock certificates who would prefer to have such institutions effect transactions relating to the Rights on their behalf, should contact the appropriate institution or nominee and request it to effect the transactions for them. See "The Offering -- Method of Exercising Rights and Oversubscription Privilege." Issuance of Certificates... Certificates representing Common Shares purchased pursuant to the Offering will be delivered to subscribers as soon as practicable following the Expiration Time. See "The Offering-- Delivery of Common Shares." Common Shares Outstanding Before the Offering (FN1)... 31,431,000. Series A Preferred Shares Outstanding Before the Offering(FN2)............... 1,349,000. Common Shares Outstanding After the Offering (FN3).... [ ]. Use of Proceeds............. The net proceeds of the Offering will be used to repay borrowings under the FUR Credit Facility and the Bridge Loan. See "Use of Proceeds." Expiration Time............. [ ], 1998 at 5:00 p.m., Eastern Daylight Time, or such later date and time as First Union may determine in its sole discretion. After such time, the Rights will become void and have no value. - ------------------ (1) As of September 16, 1998. (2) As of September 16, 1998. As of such date, each outstanding Series A Preferred Share was convertible into 3.31 Common Shares. See "Description of Capital Stock -- Preferred Shares -- Conversion Rights." (3) Does not include Common Shares issuable upon conversion of Series A Preferred Shares. Assumes all rights are exercised. RISK FACTORS Holders of Common Shares should consider the matters discussed under "Risk Factors" before deciding to exercise their Rights. RISK FACTORS Investors should carefully review the information contained elsewhere or incorporated by reference in this Prospectus and should particularly consider the following matters with respect to the First Union Companies: INEXPERIENCED NEW MANAGEMENT On May 18, 1998, the Company announced that its Board of Trustees had terminated the employment of James C. Mastandrea, Chairman of the Board, Chief Executive Officer and President of the Company prior to such termination, and had appointed Steven M. Edelman, Executive Vice President and Chief Financial Officer of the Company, as Interim Chief Executive Officer. The Board of Trustees is currently evaluating candidates for the office of Chief Executive Officer, but there can be no assurance that the Board will be able to fill such position in the near future. While William A. Ackman, Chairman of First Union, and David P. Berkowitz, Vice Chairman of First Union, have extensive investment management and real estate and real estate related investment experience, neither of them has operated or has been an executive officer, director or trustee of a real estate company, a REIT or a publicly-owned company or has had responsibility for managing a portfolio of real estate assets. Accordingly, there can be no assurance that they will be able to supervise, manage and operate the business of First Union effectively, and such lack of experience may have a material adverse effect on First Union's results of operations, financial condition and prospects. FAILURE TO ACHIEVE BUSINESS OBJECTIVES The Board of Trustees is currently evaluating First Union's assets to assess their ongoing potential to contribute to shareholder value. Although the Board may seek to sell certain assets, there can be no assurance that First Union will be able to sell such assets on advantageous terms or expeditiously. Moreover, to the extent that any such assets are sold, there can be no assurance that First Union will be able to invest the net proceeds from such sales in other assets that will provide greater returns to First Union and its shareholders. RISK OF DILUTION IN THE OFFERING Holders not subscribing for Common Shares pursuant to the Rights will be subject to dilution of their ownership interest in First Union. Such dilution may be significant. Holders who do not exercise their Rights will relinquish any value inherent in the Rights. Purchasers of Common Shares in the Offering will experience immediate and significant dilution in the net tangible book value per share attributable to such Common Shares. CONTROL BY GOTHAM If no Rights are exercised and the Standby Purchasers purchase all the Standby Commitment Shares they are required to purchase pursuant to the Standby Commitment, Gotham will own approximately [ ] % of the issued and outstanding Common Shares following consummation of the Offering. As a result of the magnitude of such share ownership, Gotham will be able to control significantly the outcome of all matters submitted to shareholders for a vote, including the election of Trustees and, consequently, the Company's management, policies and operations. STAPLED REIT TAX RISKS; REIT TAX RISKS Legislation Regarding Stapled REITs. On July 22, 1998, the Stapled REIT Legislation was enacted limiting the "grandfathering" rule applicable to stapled REITs. See "-- Dependence on Qualification as a REIT." Under the Stapled REIT Legislation, the anti-stapling rules provided in the Code apply to real property interests acquired or substantially improved after March 26, 1998 by the First Union Companies, or a subsidiary or partnership in which a ten percent or greater interest is owned by the First Union Companies unless (1) the real property interests are acquired pursuant to a written agreement that was binding on March 26, 1998 and at all times thereafter or (2) the acquisition of such real property interests was described in a public announcement or in a filing with the Commission on or before March 26, 1998. Consequently, the income and activities of the Management Company with respect to any property acquired by the First Union Companies after March 26, 1998, for which there was no binding written agreement, public announcement or filing with the Commission on or before March 26, 1998, will be attributed to First Union for purposes of determining whether First Union qualifies as a REIT under the Code. In addition, the Stapled REIT Legislation also provides that a property held by a stapled REIT but not subject to the anti-stapling rules would become subject to such rules in the event of either (1) an improvement placed in service after December 31, 1999 that changes the use of the property and the cost of which is greater than 200 percent of (A) the undepreciated cost of the property (prior to the improvement) or (B) in the case of property acquired where there is a substituted basis, the fair market value of the property on the date it was acquired by the stapled REIT or (2) an addition or improvement that expands beyond the boundaries of the land included in such property. The Stapled REIT Legislation contains an exception for improvements placed in service before January 1, 2004 pursuant to a binding contract in effect on December 31, 1999 and at all times thereafter. Other legislation (including legislation previously introduced, but not yet passed), as well as regulations, administrative interpretations or court decisions, also could change the tax law with respect to First Union's qualification as a REIT and the federal income tax consequence of such qualification. The adoption of any such legislation, regulations or administrative interpretations or court decisions could have a material adverse effect on the results of operations, financial condition and prospects of First Union and could restrict First Union's ability to grow. First Union believes that there may be certain advantages to maintaining its stapled REIT status and is currently seeking to determine whether in fact those advantages exist, but there can be no assurance that it will be able to take advantage of its stapled REIT status or will maintain such structure. Dependence on Qualification as a REIT. First Union believes that it operates so as to qualify as a REIT for federal income tax purposes. However, there is no assurance that First Union has satisfied the requirements for REIT qualification in the past or will qualify as a REIT in the future. Qualification as a REIT involves the application of highly technical and complex provisions of the Code, for which there are only limited judicial or administrative interpretations. The complexity of these provisions is greater in the case of a stapled REIT such as First Union. Qualification as a REIT also involves the determination of various factual matters and circumstances not entirely within First Union's control. In addition, First Union's ability to qualify as a REIT is dependent upon its continued exemption from the anti-stapling rules of Section 269B(a)(3) of the Code, which, if they were to apply, would prevent First Union from qualifying as a REIT. The "grandfathering" rules governing Section 269B generally provide, however, that Section 269B(a)(3) does not apply to a stapled REIT (except with respect to new real property interests, as described above in "-- Legislation Regarding Stapled REITs") if the REIT and its stapled operating company were stapled on June 30, 1983. On June 30, 1983, First Union was stapled with the Management Company. There are, however, no judicial or administrative authorities interpreting this "grandfathering" rule. Moreover, if for any reason First Union failed to qualify as a REIT in 1983, the benefit of the "grandfathering" rule would not be available to First Union, in which case First Union would not qualify as a REIT for any taxable year from and after 1983. The failure of First Union to qualify as a REIT would have a material adverse effect on First Union's ability to make dividends to its shareholders and to pay amounts due on its indebtedness. See "Certain Federal Income Tax Considerations -- REIT Qualification of First Union." First Union believes that it has operated and will continue to operate in a manner that permits First Union to qualify as a REIT under the Code for each taxable year since its formation. Fried, Frank, Harris, Shriver & Jacobson (a partnership including professional corporations) ("Fried Frank"), counsel to First Union, has rendered an opinion that First Union has been organized in conformity with the requirements for qualification as a REIT under the Code and its proposed method of operation will enable it to satisfy the requirements for qualification and taxation as a REIT for its taxable year ending December 31, 1998. Fried Frank is unable, however, to render an opinion regarding First Union's qualification as a REIT in its taxable years prior to December 31, 1998 because it did not conduct the due diligence necessary to render an opinion for such years. If it is subsequently determined that First Union did not qualify as a REIT in those years, First Union potentially could incur corporate tax with respect to a year that is still open to adjustment by the Internal Revenue Service ("IRS"). See "Certain Federal Income Tax Considerations -- REIT Qualification of First Union." If First Union were to fail to qualify as a REIT, it would be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at corporate rates. In addition, unless entitled to relief under certain statutory provisions and subject to the discussion above regarding the impact if First Union failed to qualify as a REIT in 1983, First Union also would be disqualified from re-electing REIT status for the four taxable years following the year during which qualification is lost. Failure to qualify as a REIT would result in additional tax liability to First Union for the year or years involved. In addition, First Union would no longer be required by the Code to make dividends to its shareholders. To the extent that dividends to shareholders would have been made in anticipation of First Union's qualifying as a REIT, First Union might be required to borrow funds or to liquidate certain of its investments to pay the applicable tax. See "Certain Federal Income Tax Considerations -- REIT Qualification of First Union." The failure to qualify as a REIT would also constitute a default under certain debt obligations of First Union, which would generally allow the holders thereof to demand the immediate repayment of such indebtedness, which could have a material adverse effect on First Union and its ability to make dividends to shareholders and to pay amounts due on its indebtedness. Adverse Effects of REIT Minimum Dividend Requirements. In order to qualify as a REIT, First Union is generally required each year to distribute to its shareholders at least 95% of its taxable income (excluding any net capital gain). In addition, if First Union were to dispose of assets acquired in certain acquisitions during the ten-year period following the acquisitions, First Union would be required to distribute at least 95% of the amount of any "built-in gain" attributable to such assets that First Union recognizes in the disposition, less the amount of any tax paid with respect to such recognized built-in gain. See "Certain Federal Income Tax Considerations -- REIT Qualification of First Union." First Union generally is subject to a 4% nondeductible excise tax on the amount, if any, by which certain distributions paid by it with respect to any calendar year are less than the sum of (i) 85% of its ordinary income for that year, (ii) 95% of its capital gain net income for that year, and (iii) 100% of its undistributed income from prior years. First Union intends to make distributions to its shareholders to comply with the 95% distribution requirement and to avoid the nondeductible excise tax. Differences in timing between the recognition of taxable income and the receipt of cash available for distribution could require First Union to borrow funds on a short-term basis to meet the 95% distribution requirement and to avoid the nondeductible excise tax. Distributions to shareholders by First Union are determined by the Board of Trustees and depend on a number of factors, including, the amount of cash available for distribution, financial condition, results of operations, any decision by the Board of Trustees to reinvest funds rather than to distribute such funds, capital expenditures, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Board of Trustees deems relevant. For federal income tax purposes, distributions paid to shareholders may consist of ordinary income, capital gains, return of capital, or a combination thereof. First Union will provide shareholders with annual statements as to the taxability of distributions. REAL ESTATE INVESTMENT RISKS General Risks. First Union's investments will be subject to the risks inherent in owning real estate. The underlying value of First Union's real estate investments, the results of its operations and its ability to make distributions to its shareholders and to pay amounts due on its indebtedness will depend on its ability to operate First Union's properties in a manner sufficient to maintain or increase revenues and to generate sufficient revenues in excess of its operating and other expenses. Results of operations of First Union's properties may also be adversely affected by, among other things: - changes in national economic conditions, changes in local market conditions due to changes in general or local economic conditions and neighborhood characteristics; - changes in interest rates and in the availability, cost and terms of financing; - the impact of present or future environmental legislation and compliance with environmental laws and other regulatory requirements; - the ongoing need for capital improvements, particularly in older structures; - changes in real estate tax rates and assessments and other operating expenses; - adverse changes in governmental rules and fiscal policies; - adverse changes in zoning and other land use laws; and - earthquakes and other natural disasters (which may result in uninsured losses) and other factors which are beyond its control. Illiquidity of Real Estate. Real estate investments are relatively illiquid. First Union's ability to vary its portfolio in response to changes in economic and other conditions will therefore be limited. If First Union decides to sell an investment, no assurance can be given that First Union will be able to dispose of it in the time period it desires or that the sales price of any investment will recoup or exceed the amount of First Union's investment. Increases in Property Taxes Could Affect Ability to Make Expected Shareholder Distributions. First Union's real estate investments are all subject to real property taxes. The real property taxes on properties in which First Union invests may increase or decrease as property tax rates change and as the value of the properties are assessed or reassessed by taxing authorities. Increases in property taxes may have an adverse effect on First Union and its ability to make distributions to shareholders and to pay amounts due on its indebtedness. Environmental Matters. The obligation to pay for the cost of complying with existing environmental laws, ordinances and regulations, as well as the cost of complying with future legislation, may affect the operating costs of the Company. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on or under the property. Environmental laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances and whether or not such substances originated from the property. In addition, the presence of hazardous or toxic substances, or the failure to remediate such property properly, may adversely affect First Union's ability to borrow by using such real property as collateral. Certain environmental laws and common law principles could be used to impose liability for releases of hazardous materials, including asbestos-containing materials or "ACMs," into the environment. In addition, third parties may seek recovery from owners or operators of real properties for personal injury associated with exposure to released ACMs or other hazardous materials. Environmental laws may also impose restrictions on the use or transfer of property, and these restrictions may require expenditures. In connection with the ownership and operation of any of First Union's properties, First Union, the Management Company and the other lessees of these properties may be liable for any such costs. The cost of defending against claims of liability or remediating contaminated property and the cost of complying with environmental laws could materially adversely affect the First Union Companies and their ability to pay amounts due on their indebtedness and with respect to First Union, to make distributions to its shareholders. Compliance with the ADA May Affect Expected Distributions to First Union's Shareholders. Under the Americans with Disabilities Act of 1990 (the "ADA"), all public accommodations are required to meet certain federal requirements related to access and use by disabled persons. A determination that First Union is not in compliance with the ADA could also result in the imposition of fines and/or an award of damages to private litigants. If First Union were required to make modifications to comply with the ADA, there could be a material adverse effect on its ability to pay amounts due on its indebtedness or to make distributions to its shareholders. Uninsured and Underinsured Losses. Comprehensive insurance is generally required to be maintained on each of the properties of First Union, including liability, fire and extended coverage. However, there are certain types of losses, generally of a catastrophic nature, such as earthquakes and floods, that may be uninsurable or not economically insurable. The Company will use its discretion in determining amounts, coverage limits and deductibility provisions of insurance, with a view to maintaining appropriate insurance coverage on its investments at a reasonable cost and on suitable terms. This may result in insurance coverage that, in the event of a substantial loss, would not be sufficient to pay the full current market value or current replacement cost of the lost investment and also may result in certain losses being totally uninsured. Inflation, changes in building codes, zoning or other land use ordinances, environmental considerations, lender imposed restrictions and other factors also might make it not feasible to use insurance proceeds to replace the property after such property has been damaged or destroyed. Under such circumstances, the insurance proceeds, if any, received by First Union might not be adequate to restore its economic position with respect to such property. REAL ESTATE FINANCING RISKS Financing and Maturities. First Union is subject to the normal risks associated with debt and preferred stock financings, including the risk that First Union's cash flow will be insufficient to meet required payments of principal and interest and distributions, the risk that indebtedness on its properties, or unsecured indebtedness, will not be able to be renewed, repaid or refinanced when due or that the terms of any renewal or refinancing will not be as favorable as the terms of such indebtedness. If First Union were unable to refinance the indebtedness on acceptable terms, or at all, First Union might be forced to dispose of one or more of its properties on disadvantageous terms, which might result in losses to First Union, which losses could have a material adverse effect on First Union and its ability to make distributions to shareholders and to pay amounts due on its indebtedness. Furthermore, if a property is mortgaged to secure payment of indebtedness and First Union is unable to meet mortgage payments, the mortgagee could foreclose upon the property, appoint a receiver and receive an assignment of rents and leases or pursue other remedies, all with a consequent loss of revenues and asset value to First Union. Foreclosures could also create taxable income without accompanying cash proceeds, thereby hindering First Union's ability to meet the REIT distribution requirements of the Code. Risk of Rising Interest Rates. First Union has incurred and expects in the future to incur indebtedness which bears interest at variable rates. Accordingly, increases in interest rates would increase First Union's interest costs (to the extent that the related indebtedness was not protected by interest rate protection arrangements), which could have a material adverse effect on First Union and its ability to make distributions to shareholders and to pay amounts due on its indebtedness or cause First Union to be in default under certain debt instruments. In addition, an increase in market interest rates may cause holders to sell their Common Shares and reinvest the proceeds thereof in higher yielding securities, which could adversely affect the market price for the Common Shares. RISKS RELATING TO RESTRICTIVE DEBT COVENANTS AND COMPLIANCE WITH DEBT INSTRUMENTS Debt instruments (including the Credit Facilities) to which each of the First Union Companies is currently a party, and to which each of the First Union Companies may become a party, contain and may contain a number of significant covenants that, among other things, restrict in varying degrees the First Union Companies from selling assets, incurring additional indebtedness, repaying other indebtedness, paying dividends, creating liens on assets, entering into leases, making investments, loans or advances, making acquisitions, engaging in mergers or consolidations, engaging in certain transactions with affiliates and certain other corporate activities. Each of the First Union Companies' ability to remain in compliance with certain such covenants will depend upon, among other things, its results of operations and may be affected by events beyond its control, including economic, financial and industry conditions. Accordingly, there can be no assurance that each of the First Union Companies will remain in compliance with such agreements and covenants. In the event of a default under such instruments or agreements relating to any indebtedness of the First Union Companies, the holders of such indebtedness generally will be able to declare all such indebtedness, together with accrued interest thereon, to be due and payable immediately and, in the case of collateralized indebtedness, to proceed against their collateral. In addition, default under one debt instrument could in turn permit lenders under other debt instruments to declare borrowings outstanding thereunder to be due and payable pursuant to cross-default clauses. Accordingly, the occurrence of a default under any debt instrument could have a material adverse effect on the First Union Companies. In June 1998, the lenders under the FUR Credit Facility and the lenders under the Impark Credit Facility determined that a default had occurred under their respective Credit Facilities as a result of the change in the Board's composition. However, the lenders under each Credit Facility have granted temporary waivers with respect to such defaults. The waiver for the default under the FUR Credit Facility expires on November 26, 1998 and the waiver for the default under the Impark Credit Facility expires on December 31, 1998. The lenders under each Credit Facility also granted the Company and Impark relief from compliance with certain financial covenants under the Credit Facilities for the second quarter of 1998. The Company believes that Impark may not be able to satisfy certain financial covenants under the Impark Credit Facility for the third quarter of 1998. If First Union or Impark is unable to refinance the indebtedness outstanding under the FUR Credit Facility or the Impark Credit Facility, respectively, or if they are otherwise unable to cure their respective defaults during the terms of the waivers without obtaining further waivers of the defaults, the lenders under the respective Credit Facilities may declare all indebtedness outstanding thereunder, together with any accrued interest thereon, due and payable immediately and by such action trigger cross-defaults under other debt instruments, such as the Bridge Loan. YEAR 2000 ISSUES The First Union Companies are presently identifying computer systems with programs that may not be able to properly recognize dates prior to, on or after January 1, 2000. The inability of systems and programs to properly recognize such dates could result in such system or program failures or miscalculations (the "Year 2000 Issue") that could have a material adverse effect on the First Union Companies. Management has conducted an initial assessment of the First Union Companies' computer systems and believes that while many of its systems are Year 2000 compliant, certain of the First Union Companies' systems will need to be replaced or modified. To date, management has identified (i) the software used in the operation of the Company's apartment complexes; (ii) certain programs relating to parking equipment used by Impark; and (iii) certain financial software used by Impark, as requiring either modification or replacement. The First Union Companies have not determined with certainty the total cost they will incur to reasonably address the Year 2000 Issue. However, the First Union Companies believe that such costs will not result in a material adverse effect on its financial condition or results of operation. Costs related to the Year 2000 Issue are either being expensed as incurred or being capitalized as improvements to the applicable computer systems. The First Union Companies cannot determine the effect of the Year 2000 Issue on vendors and other entities with which the First Union Companies transact business, and there can be no assurance that the effect of the Year 2000 Issue on such entities will not adversely affect the First Union Companies' financial condition or results of operations. The First Union Companies are communicating with financial institutions, software vendors and others with whom they conduct business to help them identify and avoid the Year 2000 Issue. The First Union Companies are also contacting suppliers of certain other date-sensitive operating equipment (such as fire alarm systems and security and access systems) that management believes is critical to the operations of the First Union Companies' properties. The First Union Companies cannot determine the effect of the Year 2000 Issue on its tenants, although all retail tenants of the Company have been notified in writing of the Year 2000 Issue. The Company believes that major department stores and other national retail tenants have technically trained staff to maintain their computer systems and that, on the whole, the effect of the Year 2000 Issue on such tenants will not be material to their financial condition or results of operations. Regional and local retail tenants may have greater exposure to the Year 2000 Issue, but generally rely on less automation than larger tenants. LIMITATIONS ON SUBSCRIPTIONS; SMALLER RELATIVE VOTING EQUITY OWNERSHIP INTEREST Whether a holder may exercise all of such holder's Rights will depend on such holder's total equity interest in First Union following such exercise. A holder will be entitled to exercise only up to such number of Rights as would cause such holder to reach but not exceed the Share Ownership Limit, unless First Union waives the Share Ownership Limit for such holder. Any Rights exercised by such holder that would cause such holder to exceed the Share Ownership Limit will be deemed not to have been exercised. In light of the manner in which the Share Ownership Limit is determined for each shareholder, holders may be required to exercise fewer Rights and thereby acquire fewer Common Shares than they desire. If, without first obtaining a Waiver, a holder subscribes for and, inadvertently or otherwise, is issued a number of Common Shares that causes such holder to exceed the Share Ownership Limit, such number of Common Shares in excess of the Share Ownership Limit would constitute Excess Shares under the By-Laws and therefore would not carry voting and other rights or be deemed outstanding for quorum, voting and other purposes. See "Description of Capital Stock -- Common Shares -- Restriction on Size of Holdings." RISK OF DEFAULT OF STANDBY PURCHASERS To ensure that the net proceeds from the Offering will be sufficient to repay all amounts due and payable under the Bridge Loan, including interest and fees, the Standby Purchasers have agreed to purchase, at the Subscription Price, those Common Shares that are not purchased through the exercise of Rights or the Oversubscription Privilege, up to the Maximum Standby Shares having an aggregate Subscription Price of up to the Maximum Standby Commitment. However, the obligations of the Standby Purchasers are not secured by any collateral. As a result, there can be no assurance that the Standby Purchasers will perform their respective obligations under the Standby Commitment. To the extent any Standby Purchaser fails to perform such obligations, First Union may not receive proceeds sufficient to repay all indebtedness outstanding under the Bridge Loan, and accordingly, a portion of the indebtedness under the Bridge Loan may remain outstanding following consummation of the Offering. Such indebtedness will remain outstanding until First Union is able to secure alternative financing arrangements. In addition, the terms of the Bridge Loan provide that a failure by any Standby Purchaser to comply with its obligations under the Bridge Loan could result in an event of default under the Bridge Loan. An event of default under the Bridge Loan would give the lenders thereunder the right to accelerate all amounts due thereunder and possibly trigger cross-defaults under other indebtedness of First Union, including the FUR Credit Facility. MARKET CONSIDERATIONS There can be no assurance that, following the issuance of the Rights and of the Common Shares upon exercise of the Rights, a subscribing holder will be able to sell Common Shares purchased in the Offering at a price equal to or greater than the Subscription Price. EXCHANGE RATE AND CURRENCY RISK At June 30, 1998, the Management Company had approximately $81.6 million of revenues attributable to Impark's Canadian operations, representing approximately 50% of the First Union Companies' total revenues. The Company does not hedge its foreign currency exposure and does not currently intend to do so in the future. First Union recognized a $1.5 million charge during the quarter ended June 30, 1998 related to unrealized exchange rate losses on loans to affiliated Canadian companies. As of June 30, 1998, First Union also has recorded a $1.1 million loss from the translation of the Canadian operations as a separate component of shareholders' equity. There can be no assurance that foreign currency rate fluctuations will not have a material adverse effect on the Company's business, financial condition or results of operations in the future. CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS Any statements in this Prospectus, including any statements in the documents that are incorporated by reference herein that are not strictly historical are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements contained or incorporated by reference herein should not be relied upon as predictions of future events. Certain such forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "seeks," "approximately," "intends," "plans," "pro forma," "estimates" or "anticipates" or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans, intentions or anticipated or projected events, results or conditions. Such forward-looking statements are dependent on assumptions, data or methods that may be incorrect or imprecise and they may be incapable of being realized. Such forward-looking statements include statements with respect to (i) the declaration or payment of distributions by the First Union Companies, (ii) the ownership, management and operation of properties, (iii) potential acquisitions or dispositions of properties, assets or other businesses by the First Union Companies, (iv) the policies of the First Union Companies regarding investments, acquisitions, dispositions, financings and other matters, (v) the qualification of First Union as a REIT under the Code and the "grandfathering" rules under Section 269B of the Code, (vi) the real estate industry and real estate markets in general, (vii) the availability of debt and equity financing, (viii) interest rates, (ix) general economic conditions, (x) supply and customer demand, (xi) trends affecting the First Union Companies, (xii) the effect of acquisitions or dispositions on capitalization and financial flexibility, (xiii) the anticipated performance of the First Union Companies and of acquired properties and businesses, including, without limitation, statements regarding anticipated revenues, cash flows, funds from operations, earnings before interest, depreciation and amortization ("EBIDA"), property net operating income, operating or profit margins and sensitivity to economic downturns or anticipated growth or improvements in any of the foregoing, and (xiv) the ability of the First Union Companies and of acquired properties and businesses to grow. Shareholders are cautioned that, while forward-looking statements reflect the respective companies' good faith beliefs, they are not guarantees of future performance and they involve known and unknown risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained or incorporated by reference in this Prospectus, including, without limitation, the information set forth in "Risk Factors" or in any risk factors in documents that are incorporated by reference in this Prospectus, identifies important factors that could cause such differences. The First Union Companies undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may reflect any future events or circumstances. THE COMPANY First Union is a REIT whose primary business has been to acquire, reposition and own retail, apartment, office and parking properties throughout the United States and Canada. The Management Company, an affiliate of First Union, manages or leases certain of First Union's assets and owns a controlling interest in Impark. The First Union Companies have an organizational structure commonly referred to as "stapled," whereby the Common Shares are "stapled to" a proportionately equal interest in the Management Company Shares. The Common Shares may not be issued or transferred without their "stapled" counterparts in the Management Company. The Management Company Shares are held in trust for the benefit of the holders of the Common Shares. First Union owns regional enclosed shopping malls, apartment complexes, office buildings and parking facilities. First Union's portfolio is diversified by type of property, geographical location, tenant mix and rental market. As of June 30, 1998, First Union owned (in fee or pursuant to long-term ground leases under which First Union is lessee) 21 shopping malls, eight apartment complexes, five office properties, seven parking facilities, and ten parking lots in Canada, as well as land leased to a third party. First Union also owns 50% of another mall in a joint venture with an unrelated party. RECENT DEVELOPMENTS On May 18, 1998, the Company announced that its Board of Trustees had terminated the employment of James C. Mastandrea, Chairman of the Board, Chief Executive Officer and President of the Company prior to such termination, and had appointed Steven M. Edelman, Executive Vice President and Chief Financial Officer of the Company, as Interim Chief Executive Officer. The Board of Trustees is currently evaluating candidates for the office of Chief Executive Officer, but there can be no assurance that the Board will be able to fill such position in the near future. At the Company's Special Meeting of Beneficiaries held on May 19, 1998, following the Proxy Contest, nine new Trustees were elected to the Board of Trustees and the Board's size was increased from nine to 15 Trustees. Four of the nine new Trustees are principals or employees of Gotham, including William A. Ackman, Chairman of the Company, and David P. Berkowitz, Vice Chairman of the Company. At the time the new Trustees took office on June 3, 1998, three of the six then incumbent Trustees resigned, resulting in three vacancies. During the quarter ended June 30, 1998, First Union recognized $17.4 million of one-time expenses primarily in connection with the Proxy Contest and change in the Board's composition. These one-time expenses included proxy expenses and related legal fees, cash severance and vesting of restricted stock for First Union's terminated Chairman of the Board, Chief Executive Officer and President, vesting of restricted stock granted to other employees of the First Union Companies, and the potential loss of a deposit to purchase a parking facility. In June 1998, the lenders under the FUR Credit Facility and the lenders under the Impark Credit Facility determined that a default had occurred under the respective Credit Facilities as a result of the change in the Board's composition. However, the lenders under each Credit Facility have granted temporary waivers with respect to such defaults. The waiver for the default under the FUR Credit Facility will expire on November 26, 1998 and the waiver for the default under the Impark Credit Facility will expire on December 31, 1998. The lenders under each Credit Facility also granted the Company and Impark relief from compliance with certain financial covenants under the Credit Facilities. In July 1998, First Union commenced the Tender Offer to purchase the Senior Notes for $970 per $1,000 principal amount of Senior Notes, plus accrued and unpaid interest. Concurrently with the Tender Offer, First Union conducted the Consent Solicitation, and offered a consent payment of $30 per $1,000 principal amount of Senior Notes, to amend the Senior Note Indenture and to terminate listing of the Senior Notes on the NYSE. The purpose of the Tender Offer and Consent Solicitation was (i) to prevent the possibility that the Company would be required to purchase the Senior Notes at 101% of their principal amount, an obligation which the Company would not have had the financial resources to satisfy, and (ii) to provide the Company with additional financial and operating flexibility. Prior to its amendment, the Senior Note Indenture required the Company to commence an offer to purchase the Senior Notes at 101% of the principal amount of each Senior Note if within 90 days following the date of a "change of control", the rating of the Senior Notes by both S&P and Moody's declined by one or more rating gradations. During April 1998, S&P placed the Company on Credit Watch and in June 1998, Moody's placed the Senior Notes under review for possible downgrade. In August 1998, holders of approximately 88% of the outstanding Senior Notes consented to the indenture amendments and delisting, and First Union purchased approximately $88 million principal amount of Senior Notes. The purchase of the Senior Notes was financed with the proceeds of the Bridge Loan. The lenders under the Bridge Loan are Bankers Trust Company, as agent, and BankBoston, N.A., Blackacre Bridge Capital, Elliott Associates, Gotham and Wellsford Capital, each as an equal participant. First Union intends to repay the Bridge Loan with the net proceeds of the Offering. See "Use of Proceeds." Prior to entering into the Bridge Loan, representatives of the Company initiated discussions with several institutions to determine their interest in providing financing for the Tender Offer and Consent Solicitation. These discussions did not result in any reasonably acceptable offers, except for the offer by the lenders under the Bridge Loan, which required the Company to obtain standby purchase commitments for the Offering to ensure that the net proceeds the Offering would be sufficient to repay all amounts due and payable under the Bridge Loan, including principal, interest and fees. The Company sought such standby purchase commitments from several institutions. However, it did not obtain any standby commitments other than the Standby Commitment, the terms of which were approved by an independent committee of the Board. When the Bridge Loan was funded, the Company agreed to pay each of Gotham and Elliott Associates their respective pro rata portions of the 2% Fee, whether or not the Offering was consummated. The 2% Fee is payable on the earliest of August 6, 1999, the date the Bridge Loan is repaid, and the date the Offering is consummated. To help stabilize the Company's financial condition, the Board suspended the Company's quarterly dividend on the Common Shares, effective as of the quarter ended June 30, 1998, and instituted an annual dividend policy. The Board intends to make the minimum amount of distributions to shareholders required to maintain the Company's REIT status. See "Certain Federal Income Tax Considerations -- Taxation of First Union -- Annual Distribution Requirements." Because First Union believes it will satisfy these minimum distribution requirements for the current fiscal year without further distributions, it does not expect to make further distributions on its Common Shares in 1998. On July 22, 1998, the Stapled REIT Legislation was enacted limiting the "grandfathering" rule applicable to Stapled REITs, such as the Company. As a result, the income and activities of the Management Company with respect to any real property interests acquired by the First Union Companies after March 26, 1998 will be attributed to First Union for purposes of determining whether First Union qualifies as a REIT under the Code. First Union believes that there may be certain advantages, however, to maintaining its stapled REIT status and has begun to consider the advantages of retaining such structure. The Stapled REIT Legislation nevertheless limits the benefits of the stapled REIT structure, and there can be no assurance that the Company will be able to take advantage of its stapled REIT status or maintain such structure in the future. See "Risk Factors -- Stapled REIT Tax Risks; REIT Tax Risks." BUSINESS STRATEGY In light of the change in the Board's composition, the Stapled REIT Legislation and other strategic and business considerations, the Board is currently re-evaluating the Company's overall business plan. Among other things, the Board is reviewing the Company's capital, operational and management structure, and analyzing the Company's assets to assess their ongoing potential to contribute to shareholder value. Various professionals have been engaged by the Company and are assisting the Board in its reviews and analyses. The Board is also considering certain opportunistic real estate investments where, for example, (i) sellers are seeking liquidity for their private real estate portfolios, and may be interested in maintaining management positions, (ii) management talent is an instrumental part of the overall real estate acquisition, or (iii) legal, tax, financing or other complexities make it difficult for traditional purchasers to pursue the transaction. As part of its new business plan, prior to the completion of the Offering, the Company intends to terminate its management agreements with the Management Company, self-manage its retail, apartment and office portfolios, and enter into third-party management arrangements for the parking facilities it owns. The Company may also in the future transfer its assets to an operating partnership to be controlled by the Company (commonly referred to as an "UPREIT") in exchange for interests in such operating partnership. The Company was formed as an Ohio business trust in 1961. The Company's principal offices are located at 55 Public Square, Suite 1900, Cleveland, Ohio 44113-1937, and its telephone number is (216) 781-4030. USE OF PROCEEDS Assuming that all Rights are exercised, the net proceeds to be received by the Company from the sale of the Common Shares offered hereby are estimated to be approximately $[ ] million, after deducting the estimated offering expenses payable by First Union. The net proceeds will be used, first, to repay all outstanding indebtedness under the Bridge Loan and, second, to repay a portion of the indebtedness outstanding under the FUR Credit Facility. As of September 14, 1998, $90 million was outstanding under the Bridge Loan and $76.7 million was outstanding under the FUR Credit Facility. Borrowings under the Bridge Loan accrue interest at a rate of 9.875% per annum and mature on February 11, 1999, subject to two three-month extension periods at the election of First Union. Amounts outstanding under the FUR Credit Facility bear interest at a weighted average rate of 7.7% and mature on December 5, 1999. Assuming that no Rights are exercised and the Standby Purchasers purchase all the Standby Commitment Shares, the net proceeds from the Offering will be used to repay amounts outstanding under the Bridge Loan, but such proceeds will be insufficient to repay any amounts outstanding under the FUR Credit Facility. PRICE RANGE OF COMMON SHARES AND DISTRIBUTIONS The Common Shares are listed on the NYSE under the symbol "FUR." The following table sets forth the high and low sales prices of the Common Shares on the NYSE and the distributions declared, for the periods indicated. HIGH LOW DISTRIBUTION ---- --- ------------ 1996 ---- First Quarter................. $ 8 1/8 $ 6 3/8 $ .11 Second Quarter................ 7 3/8 6 3/8 .11 Third Quarter................. 7 6 3/8 .11 Fourth Quarter................ 12 1/2 6 7/8 .11 1997 ---- First Quarter................. $ 14 1/2 $ 11 5/8 $ .11 Second Quarter................ 14 1/4 12 3/4 .11 Third Quarter................. 14 1/8 12 5/8 .11 Fourth Quarter................ 16 5/16 13 5/16 .11 1998 ---- First Quarter................. $ 16 $ 10 5/8 $ .11 5/16 Second Quarter................ 11 5/16 8 1/2 (1) Third Quarter (through 9 5/8 5 1/2 (1) September 15, 1998) - ------------- (1) On June 15, 1998, the Board of Trustees announced that it was suspending First Union's quarterly distribution and instituting a new annual distribution policy. Because First Union believes it will satisfy the minimum distribution requirements for the current fiscal year without further distributions, it does not expect to make further distributions on its Common Shares in 1998. The closing price of the Common Shares on the NYSE on September 16, 1998 was $5.75 per share. On September 16, 1998, First Union had approximately 31,400,000 Common Shares outstanding, owned by approximately 12,000 beneficial holders. First Union had 1,349,000 Series A Preferred Shares outstanding as of September 16, 1998. The Series A Preferred Shares are listed on the NYSE under the symbol "FURPrA." The closing price of the Series A Preferred Shares on the NYSE on September 16, 1998 was $23.75 per share. To qualify as a REIT, First Union is required to make distributions (other than capital gain distributions) to its shareholders in amounts at least equal to (i) the sum of (A) 95% of its "REIT taxable income" (computed without regard to the dividends-paid deduction and its net capital gain) and (B) 95% of the net income (after tax), if any, from foreclosure property, minus (ii) the sum of certain items of noncash income. Recently, First Union suspended its quarterly distributions on its Common Shares and, in lieu thereof, instituted an annual distribution policy. With this new policy, First Union intends to make only the minimum required distributions to maintain REIT status and to maximize the amount of capital retained for operations or future acquisitions. First Union does not plan to make any further distributions on its Common Shares in 1998. To the extent that First Union does not distribute all of its net capital gain or distributes at least 95%, but less than 100%, of its "REIT taxable income," as adjusted, it will be subject to tax on the undistributed amount at regular capital gains or ordinary corporate tax rates, as the case may be. See "Certain Federal Income Tax Considerations -- Taxation of First Union -- Annual Distribution Requirements" elsewhere in this Prospectus. Furthermore, if First Union fails to distribute for each calendar year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its capital gain net income for such year, and (iii) 100% of its undistributed taxable income from prior calendar years, First Union will be subject to a 4% nondeductible excise tax on the excess of such required distributions over the amounts actually distributed. The declaration and payment of distributions is subject to the discretion of the Board of Trustees and is dependent upon the financial condition and operating results of First Union. For federal income tax purposes, distributions may consist of ordinary income, capital gains, non-taxable return of capital or a combination thereof. For a discussion of the federal income taxation of distributions to holders of Common Shares, see "Certain Federal Income Tax Considerations - -- Taxation of First Union's Shareholders -- Taxation of Taxable U.S. Shareholders," and "Certain Federal Income Tax Considerations --Taxation of Non-U.S. Shareholders -- Distributions from First Union" as applicable, elsewhere in this Prospectus. First Union annually notifies shareholders of the taxability of distributions paid during the preceding year. For federal income tax purposes, approximately 27.9% of the distributions for 1997 were treated as capital gain and approximately 72.1% of such distributions were treated as ordinary income. Under federal income tax rules, First Union's earnings and profits are first allocated to its Series A Preferred Shares, to the extent any Series A Preferred Shares are outstanding, which may increase the portion of the Common Share distribution classified as a return of capital. First Union anticipates that all of the distributions on the Common Shares will be taxable income to its holders for calendar year 1998. CAPITALIZATION The following table shows the capitalization of the First Union Companies on a consolidated basis (i) at June 30, 1998, (ii) as adjusted to give effect to the Bridge Loan and the application of the net proceeds therefrom and (iii) as adjusted to give effect to the Bridge Loan and the Offering (assuming all Rights are exercised) and the application of the net proceeds therefrom:
JUNE 30, 1998 --------------------------------------------- AS ADJUSTED AS ADJUSTED FOR THE BRIDGE FOR THE LOAN AND THE HISTORICAL BRIDGE LOAN OFFERING (FN1) ---------- ----------- -------------- (IN THOUSANDS, EXCEPT SHARE AMOUNTS) SENIOR DEBT: Bank loans.................................................. $ 95,294 $ 95,294 $ Bridge Loan................................................. -- 90,000 -- Mortgage debt, ranging from 6.869% to 12.25% and due 1998 to 2018................................................... 343,207 343,207 343,207 Senior Notes(FN2)........................................... 100,000 12,538 12,538 -------- -------- -------- Total debt.............................................. 538,501 541,039 -------- -------- -------- SHAREHOLDERS' EQUITY: Series A Preferred Shares (liquidation preference $25 per share); 2,300,000 shares authorized and 1,349,000 shares outstanding............................................... 31,737 31,737 31,737 Common Shares; unlimited authorization and 31,431,000 Common Shares outstanding; 61,431,000 Common Shares, as adjusted............................................... 31,431 31,431 61,431 Additional paid-in capital.................................. 190,457 190,457 Deficit from operations..................................... (13,531) (13,531) (13,531) Undistributed capital gains................................. 14,948 14,948 14,948 Foreign currency translation adjustment..................... (1,112) (1,112) (1,112) -------- -------- -------- Total shareholders' equity.............................. 253,930 253,930 -------- -------- -------- Total capitalization.................................... $792,431 $794,969 $ ======== ======== ======== - ------------------- (1) The net proceeds of the Offering will be used, first, to repay all outstanding indebtedness under the Bridge Loan and, second, to repay a portion of the indebtedness outstanding under the FUR Credit Facility. As of September 14, 1998, $90 million was outstanding under the Bridge Loan and $76.7 million was outstanding under the FUR Credit Facility. Assuming that no Rights are exercised and the Standby Purchasers purchase all the Standby Commitment Shares, the net proceeds of the Offering will be used to repay amounts outstanding under the Bridge Loan, but such proceeds will be insufficient to repay any amounts outstanding under the FUR Credit Facility. (2) First Union repaid $87.5 million of the Senior Notes in August 1998 with the proceeds of the Bridge Loan.
SELECTED FINANCIAL DATA Set forth below is selected financial data of the Company for the six months ended June 30, 1998 and 1997 and for the years ended December 31, 1997, 1996, 1995, 1994 and 1993. The selected financial data has been derived from, and should be read in conjunction with, the unaudited combined financial statements and accompanying notes included in the Company's Quarterly Report on Form 10-Q for the six months ended June 30, 1998 and 1997 (the "Quarterly Report") and the audited combined financial statements and accompanying notes included in the Company's Annual Reports on Form 10-K for the years ended December 31, 1997, 1996, 1994 and 1993 and Form 10-K/A for the year ended December 31, 1995 (collectively, the "Annual Reports"). The unaudited financial statements include all adjustments, consisting of normal recurring accruals, which the Company considered necessary for a fair presentation of the Company's financial position and the results of operations for those periods. Operating results for the six months ended June 30, 1998 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 1998. The selected financial data below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's financial statements and notes thereto contained in the Quarterly Report and the Annual Reports.
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, ----------------- -------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- ---- ---- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) OPERATING RESULTS: Revenues (FN1)......................... $162,201 $ 81,068 $235,544 $ 81,867 $ 79,205 $ 76,339 $ 74,339 Property net operating income (FN1) (FN2)..................... 41,612 25,645 64,428 47,349 44,086 41,759 41,414 Interest expense (FN1)................. 25,249 11,158 29,864 23,426 22,397 21,280 18,517 Depreciation and amortization (FN1)(FN3).......................... 12,857 7,448 19,451 13,149 11,901 10,555 9,763 Income (loss) before capital gain or loss, extraordinary loss, cumulative effect of accounting change and minority interest (FN1)(FN4)................. (20,939) 4,112 6,931 4,422 3,256 6,485 10,276 Unrealized loss on carrying value of assets identified for disposition... -- -- -- -- (14,000) -- -- Capital gains, net..................... 8,648 -- 225 -- 29,870 -- 4,948 Extraordinary loss from early extinguishment of debt (FN5)....................... -- -- (226) (286) (910) -- (1,240) Cumulative effect of change in accounting for internal lease costs (FN3)............................... -- -- -- -- (4,325) -- -- Allocation of minority interest........ -- -- 944 -- -- -- -- Net income (loss) before preferred dividend (FN4)...................... (12,291) 4,112 7,874 4,136 13,891 6,485 13,984 Preferred dividend..................... (1,583) (2,415) (4,831) (845) -- -- -- Net income (loss) applicable to shares of beneficial interest (FN4)........ (13,874) 1,697 3,043 3,291 13,891 6,485 13,984 Net income (loss) applicable to shares of beneficial interest per share; basic and diluted (FN4)............. $ (.46) $ .08 $ 0.12 $ 0.19 $ 0.77 $ 0.36 $ 0.77 Supplementary net income (loss) per share (FN6)......................... $ (.26) $ .06 $ 0.11 Basic weighted average shares.......... 30,128 21,504 24,537 17,172 18,059 18,105 18,096 Stock options, treasury method......... 1 471 571 367 -- -- -- Restricted shares, treasury method..... 95 226 307 167 58 15 -- Diluted weighted average shares........ 30,224 22,201 25,415 17,706 18,117 18,120 18,096 OTHER DATA: Net cash provided by (used for) Operations.......................... $ 5,561 $ 13,056 $ 15,740 $ 11,085 $ 12,989 $ 19,053 $ 19,649 Investing........................... (44,028) (20,373) (112,233) (47,002) (28,345) (26,507) (6,911) Financing........................... 45,982 75,325 110,406 35,466 15,783 (28,094) 24,793 EBIDA (FN7)............................ 15,584 20,303 51,415 40,152 37,554 38,320 38,556 Funds from operations after preferred dividends (FN3)(FN8)................ (10,590) 9,185 21,150 16,010 14,291 16,472 19,701 Preferred dividend accrued............. 1,583 2,415 4,831 845 -- -- -- Dividends declared..................... 3,478 5,455 11,651 7,684 7,542 7,273 13,031 Dividends declared per share........... $ 0.11 $ 0.22 $ 0.44 $ 0.44 $ 0.41 $ 0.40 $ 0.72 Dividends payout as a percent of funds from operations (FN3)(FN4)(FN8)..... -- 59% 55% 48% 53% 44% 66% FINANCIAL POSITION AT END OF PERIOD (FN1) Gross investment in real estate assets.............................. $830,522 $458,774 $757,879 $459,563 $449,560 $436,394 $409,060 Total Assets........................ 846,952 561,746 820,021 440,530 400,999 376,189 393,621 Total Debt.......................... 538,501 241,965 483,459 254,868 258,454 238,296 257,355 Shareholders' equity................ 253,930 253,241 265,105 152,553 102,355 102,940 103,766 - ------------------- (1) In September 1997, the Trust acquired the interests of its joint venture partners in eight shopping malls and 50% of another mall and the Company acquired voting control of Impark in April 1997. (2) Property net operating income is property revenue, equity in income of the joint venture, joint venture management fees and mortgage investment income less property operating expenses and real estate taxes, before debt service and depreciation and amortization. (3) In December 1995, First Union changed its method to directly expense internal leasing costs and recorded a $4.3 million noncash charge for the cumulative effect of the accounting change as of the beginning of 1995. Funds from operations and depreciation and amortization for previous years have been restated for the change in accounting method on a basis comparable to 1995. (4) During the quarter ended June 30, 1998, First Union recognized $17.4 million of one-time expenses primarily in connection with the Proxy Contest and change in the Board's composition. These one-time expenses included proxy expenses and related legal fees of $3.3 million incurred by First Union and $3.1 million incurred by Gotham, cash severance and vesting of restricted stock of $3.4 million for First Union's terminated Chairman of the Board, Chief Executive Officer and President, vesting of restricted stock granted to other employees of the First Union Companies of $5.3 million, and the potential loss of a $2.3 million deposit to purchase a parking facility. The one-time expenses also negatively affected net income and funds from operations. In 1995, First Union recognized $1.6 million of litigation and proxy expenses related to a minority-shareholder lawsuit and proxy contest. (5) In 1997 and 1996, the Trust renegotiated its bank credit agreements, resulting in a $226,000 and $286,000 charge, respectively, related to the write-off of unamortized costs. In November 1995, the Trust repaid approximately $36 million of mortgage debt resulting in a $910,000 charge for the write-off of unamortized costs and prepayment premiums. In November 1993, the Trust repaid prior to their maturity dates $45 million of senior notes and $37.6 million of convertible debentures resulting in a $1.2 million charge for the write-off of unamortized issue costs and payment of a redemption premium. (6) Supplementary net income per share is a pro forma calculation which assumes the repayment of debt in 1997 and 1998 from the proceeds of the Company's equity offerings in January 1997 and September 1998. The net proceeds from the Company's January 1997 offering are assumed to repay $25.8 million in bank loans and $11.2 million of mortgage debt outstanding at the beginning of the year. From the September 1998 offering, $45 million in bank loans are assumed to be repaid. The shares from the offerings in January and June 1997 and September 1998 are assumed outstanding at the beginning of each period. (7) EBIDA is calculated as income (loss) before capital gain or loss, extraordinary loss, cumulative effect of accounting change and minority interest plus interest expense and depreciation and amortization and after preferred dividend. (8) The amount of funds from operations is calculated as income (loss) before capital gain or loss, extraordinary loss, cumulative effect of accounting change and minority interest and after preferred dividend, plus noncash charges for depreciation and amortization for both First Union and the joint venture interest and less amortization allocated to the minority interest. However, amortization of intangible assets from the acquisition of Impark has been included in funds from operations. First Union has adopted the new definition of funds from operations as recommended by the National Association of Real Estate Investment Trusts (NAREIT) in 1997. This definition of funds from operations excludes depreciation and amortization of debt issue costs and other corporate assets. Previously, First Union has chosen to add back all expenses included in depreciation and amortization. Accordingly, funds from operations and dividend payout as a percentage of funds from operations for the years 1993 through 1996 have been restated to conform with the NAREIT definition. Although funds from operations does not replace net income (determined in accordance with generally accepted accounting principles) as a measure of performance, or net cash flows as a measure of liquidity, it is often used by real estate investment trusts as a supplemental measure of operating performance.
MANAGEMENT The executive officers and Trustees of First Union, and their ages as of September 16, 1998, are as follows: NAME AGE POSITION ---- --- -------- William A. Ackman...................... 32 Chairman of the Board and Trustee David P. Berkowitz..................... 36 Vice Chairman of the Board and Trustee Steven M. Edelman...................... 43 Interim Chief Executive Officer and Chief Financial Officer John J. Dee............................ 47 Senior Vice President and Chief Accounting Officer Paul F. Levin.......................... 51 Senior Vice President, General Counsel and Secretary Daniel J. Altobello.................... 57 Trustee William E. Conway...................... 70 Trustee Allen H. Ford.......................... 69 Trustee Stephen J. Garchik..................... 44 Trustee Russell R. Gifford..................... 58 Trustee David S. Klafter....................... 43 Trustee Daniel Shuchman........................ 33 Trustee Stephen S. Snider...................... 41 Trustee Mary Ann Tighe......................... 50 Trustee James A. Williams...................... 55 Trustee William A. Ackman. Mr. Ackman has been Chairman of the Board of Trustees of First Union since June 1998. Since January 1, 1993, through a company he owns, Mr. Ackman has acted as co-investment manager of Gotham LP, Gotham II, LP ("Gotham II LP"), Gotham III LP and Gotham International Advisors, L.L.C. ("Gotham International"). Since before January 1, 1993, Mr. Ackman has served as Vice President, Secretary and Treasurer of GPLP Management Corp. ("GPLP"), the Managing Member of Gotham Partners Management Co. LLC, an investment management firm ("GPM"). Mr. Ackman was a general partner of Section H Partners, L.P. ("Section H"), the General Partner of the Gotham LP and Gotham II LP investment funds, from before January 1993 through September 1993. Mr. Ackman has been the President, Secretary and Treasurer of Karenina Corporation, a general partner of Section H, since October 1993. Mr. Ackman is also a member of the Executive Committee of Gotham Golf Partners, L.P. ("Gotham Golf"), a community golf course ownership, operation and development enterprise. David P. Berkowitz. Mr. Berkowitz has been Vice Chairman of the Board of Trustees of First Union since June 1998. Since January 1, 1993, through a company he owns, Mr. Berkowitz has acted as a co-investment manager of Gotham LP, Gotham II LP, Gotham III LP and Gotham International. Since before January 1, 1993, Mr. Berkowitz has served as President of GPLP. Mr. Berkowitz was a general partner of Section H from before January 1993 through September 1993. Mr. Berkowitz has been the President, Secretary and Treasurer of DPB Corporation, a general partner of Section H, since October 1993. Mr. Berkowitz is also a member of the Executive Committee of Gotham Golf. Steven M. Edelman. Mr. Edelman has been Interim Chief Executive Officer of First Union since June 1998 and Chief Financial Officer since February 1997. From January 1996 to January 1997, Mr. Edelman served as Executive Vice President, Chief Investment Officer of First Union. He was Senior Vice President, Chief Investment Officer of First Union from March 1995 to December 1995, Senior Vice President, Asset Management from July 1992 to February 1995, Vice President, Acquisitions from December 1985 to June 1992, Assistant Vice President, Acquisitions from January 1985 to November 1985, Acquisition Analyst from February 1984 to December 1985, Assistant Controller from July 1982 to January 1984 and an internal auditor from June 1980 to June 1982. Mr. Edelman was an auditor with Touche Ross & Co. from 1978 to 1980. John J. Dee. Mr. Dee has been Senior Vice President and Chief Accounting Officer of First Union since February 1996. He served as Senior Vice President and Controller of First Union from July 1992 to February 1996, Vice President and Controller from December 1986 to July 1992, Controller from April 1981 to December 1986, Assistant Controller from December 1979 to April 1981 and Accounting Manager from August 1978 to December 1979. Paul F. Levin. Mr. Levin has been Senior Vice President, General Counsel and Secretary since December 1994. He served as Vice President, General Counsel and Secretary from May 1989 to November 1994. Mr. Levin was a principal of Schwarzwald, Robiner, Rock & Levin, a Legal Professional Association, from 1981 to 1989, an Associate of Gaines, Stern, Schwarzwald & Robiner Co., L.P.A. from 1979 to 1980 and an Assistant Director of Law, City of Cleveland, Ohio, from 1975 to 1978. Daniel J. Altobello. Mr. Altobello has been a Trustee of First Union since June 1998. He has been the Chairman of the Board of ONEX Food Services, Inc., an airline catering company and a partner in Ariston Investment Partners, a consulting firm, since September 1995. Mr. Altobello was the Chairman, President and Chief Executive Officer of Caterair International Corporation, an airline catering company, from before January 1, 1993 until September 1995. Mr. Altobello is a member of the Boards of Directors of American Management Systems, Inc., Colorado Prime Corporation, Care First, Inc., Care First of Maryland, Inc., Mesa Air Group, Inc., World Airways, Inc. and Sodexho Marriott Services, Inc. William E. Conway. Mr. Conway has been a Trustee of First Union since 1985. Mr. Conway has been Chairman of Fairmont Minerals Ltd. ("Fairmont"), a miner and processor of industrial minerals, since 1978, and was Chairman and Chief Executive Officer of Fairmont from 1978 to 1996. Mr. Conway was a Group Vice President of Midland-Ross Corporation, a diversified capital goods manufacturer, from 1974 to 1978, and was Executive Vice President, Administration of Diamond Shamrock Corporation ("Diamond Shamrock"), a producer of chemicals, petroleum and related products, from 1970 to 1974. Mr. Conway is a director of The Huntington National Bank of Ohio and a trustee of The Cleveland Clinic Foundation and University School. Allen H. Ford. Mr. Ford has been a Trustee of First Union since 1983. He is a consultant and was, from 1981 to 1986, Senior Vice President - Finance and Administration of The Standard Oil Company (BP America), an integrated domestic petroleum company. Mr. Ford was Corporate Executive Vice President and Unit President from 1976 to 1980, Vice President, Finance, from 1969 to 1976, and Treasurer during 1969 of Diamond Shamrock. Mr. Ford is a director of Gliatech, Inc. and Parker Hannifin Corporation, and is a trustee and former Chairman of Case Western Reserve University, a trustee of the Musical Arts Association (Cleveland Orchestra), University Hospitals of Cleveland, the Western Reserve Historical Society, and University Circle, Inc. He is also a trustee and former Chairman of the Edison BioTechnology Center. Stephen J. Garchik. Mr. Garchik has been a Trustee of First Union since June 1998. He has served as President of The Evans Company, a commercial real estate development and management firm, since before January 1, 1993. Since July 1996, Mr. Garchik has been the Chairman of Gotham Golf. Russell R. Gifford. Mr. Gifford has been a Trustee of First Union since 1991. He has been Chief Operating Officer of the Cleveland Public School System since June 11, 1998. He was President of CNG Energy Services Corporation ("CNG"), an unregulated energy marketing company providing gas and electric energy services throughout North America, from 1994 to 1997. He was President and Chief Executive Officer of The East Ohio Gas Company ("East Ohio"), Cleveland, Ohio, a distributor of natural gas, from 1988 to 1994. He was also President of West Ohio Gas Company ("West Ohio"), Lima, Ohio, and River Gas Company ("River"), Marietta, Ohio. CNG, East Ohio, West Ohio and River are subsidiaries of Consolidated Natural Gas Co. of Pittsburgh, Pennsylvania. Mr. Gifford was Senior Vice President of East Ohio from 1985 to 1988. Mr. Gifford is a director of Applied Industrial Technologies, Inc., a trustee of Baldwin Wallace College, and a member of the National Board of Governors of the American Red Cross. David S. Klafter. Mr. Klafter has been a Trustee of First Union since June 1998. He has been an in-house counsel and a principal of GPM since April 1996. Mr. Klafter was counsel at White & Case, a law firm, from before January 1, 1993 until December 1993, and a partner at White & Case from January 1994 until April 1996. Mr. Klafter's law practice was in general commercial litigation, with an emphasis on real-estate related matters, including leases, mortgages and loan work-outs. Daniel Shuchman. Mr. Shuchman has been a Trustee of First Union since June 1998. He has been a principal of GPM since October 1994. Mr. Shuchman was an investment banker at Goldman, Sachs & Co., an investment banking firm, from before January 1, 1993 until August 1994. Steven S. Snider. Mr. Snider has been a Trustee of First Union since June 1998. Since before January 1, 1993, Mr. Snider has been a senior partner at Hale and Dorr LLP, a law firm. Mary Ann Tighe. Ms. Tighe has been a Trustee of First Union since June 1998. She has been an Executive Managing Director and a member of the Executive and Strategic Planning Committees of Insignia/ESG, a commercial real estate firm, since before January 1, 1993. She is on the Board of Directors of The New 42nd Street, a New York City-based community revitalization organization. James A. Williams. Mr. Williams has been a Trustee of First Union since June 1998. He has been the President of Williams, Williams, Ruby & Plunkett PC, a law firm, since before January 1, 1993. Mr. Williams has also been the Chairman of Michigan National Bank and Michigan National Corporation since November 1995. Mr. Williams is Chairman of the Henry Ford Hospital in West Bloomfield, Michigan. He is a Trustee of Henry Ford Health System and the Oakland University (Michigan) Foundation and a member of the Board of Governors of the Cranbrook School. THE OFFERING BASIC SUBSCRIPTION; LIMITATIONS ON SUBSCRIPTION First Union is distributing, at no cost, to each holder of Common Shares of record as of the close of business on the Record Date, one Right for every Common Share held. Each Right entitles the holder thereof to purchase one Common Share at the Subscription Price. Holders who own Common Shares through the Company's dividend reinvestment plan as of the Record Date will not receive Rights for such Common Shares. See "-- Holders of Common Shares in Dividend Reinvestment Plan." A holder will be entitled to exercise only up to such number of Rights that would cause such holder to reach but not exceed the Share Ownership Limit, unless First Union waives the Share Ownership Limit for such holder. See "Description of Capital Stock -- Common Shares -- Restriction on Size of Holdings." A holder's Beneficial Ownership Interest will be calculated promptly following the Expiration Time by dividing (i) the sum of (a) the aggregate number of Common Shares beneficially owned by such holder, immediately prior to the Expiration Time, (b) the aggregate number of Common Shares for which such holder has exercised Rights and (c) the aggregate number of Common Shares into which all Series A Preferred Shares beneficially owned by such holder immediately prior to the Expiration Time are convertible, by (ii) the sum of (a) the aggregate number of Common Shares outstanding immediately after consummation of the Offering and (b) the aggregate number of Common Shares into which all Series A Preferred Shares beneficially owned by such holder immediately after consummation of the Offering are convertible. First Union may waive the Share Ownership Limit with respect to the Rights exercised by a holder if such holder applies for a Waiver and satisfies the conditions described in "-- Waiver of Share Ownership Limit." The anticipated size of a holder's Beneficial Ownership Interest after consummation of the Offering cannot be determined at the time such holder exercises its Rights because the size of such interest will depend in large part on the number of Common Shares subscribed for by other holders. In light of the Standby Commitment, a holder, in calculating such Beneficial Ownership Interest, may assume that an aggregate of at least the Maximum Standby Shares will be issued pursuant to the Offering. See "-- Standby Commitment." Unless a holder applies for and is granted a Waiver, any Rights exercised by it that would cause such holder to exceed the Share Ownership Limit will be deemed not to have been exercised by such holder. The aggregate Subscription Price paid by a holder for Rights deemed not to have been exercised will be returned to such holder, without interest, as soon as practicable following consummation of the Offering. See "-- Escrow Arrangements; Return of Funds." If, without first obtaining a Waiver, a holder subscribes for and, inadvertently or otherwise, is issued a number of Common Shares that causes such holder to exceed the Share Ownership Limit, such number of Common Shares in excess of the Share Ownership Limit will constitute Excess Shares under the By-Laws and therefore will not carry voting and other rights or be deemed outstanding for quorum, voting and other purposes. See "Description of Capital Stock -- Common Shares -- Restriction on Size of Holdings." The Rights are evidenced by Rights Certificates which shareholders will receive with the delivery of this Prospectus. A holder of Rights may (a) subscribe for Common Shares through the exercise of all of its Rights (including the exercise of the Oversubscription Privilege, if such holder so elects), (b) subscribe for Common Shares through the exercise of a portion of its Rights or (c) allow all or a portion of its Rights to expire unexercised. No Rights will be issued in respect of fractional Common Shares. No fractional Rights or cash in lieu thereof will be issued or paid by First Union. Promptly after the Expiration Time, First Union will send each holder exercising the Basic Subscription a written confirmation of the number of Common Shares allocated to such holder pursuant to the Basic Subscription. Certificates representing Common Shares purchased pursuant to the Basic Subscription will be delivered to holders as soon as practicable following the Expiration Time. Any amounts paid by holders in respect of Rights deemed not to have been exercised will be refunded as soon as practicable after the Expiration Time without interest. EXPIRATION TIME The Rights will expire at 5:00 p.m., Eastern Daylight Time, on [ ], 1998 or such later date and time as First Union may determine in its sole discretion. After such time, the Rights will become void and have no value. Notice will be given to shareholders of record on the Record Date, by mail or by publication in a newspaper of national circulation, of a new Expiration Time in the event First Union extends the period for the exercise of the Rights. OVERSUBSCRIPTION PRIVILEGE A holder of Rights who validly exercises in full such holder's Basic Subscription, and who may do so without exceeding the Share Ownership Limit, may also oversubscribe, at the Subscription Price, for additional Common Shares that have not been purchased through the exercise of Rights. However, absent a Waiver from First Union, such holder will be entitled to subscribe for only up to such number of Unsubscribed Shares that would cause such holder to beneficially or constructively own a percentage of Common Shares that reaches but does not exceed the Share Ownership Limit. If an insufficient number of Unsubscribed Shares is available to satisfy fully all elections to exercise the Oversubscription Privilege, the available Unsubscribed Shares will be allocated pro rata among holders who exercise the Oversubscription Privilege based on the respective numbers of Rights exercised by such holders pursuant to the Basic Subscription. If that allocation, however, results in any holder being allocated a greater number of Unsubscribed Shares than such holder subscribed for pursuant to the exercise of the Oversubscription Privilege, then that holder will be allocated only such number of Unsubscribed Shares as such holder subscribed for, and the remaining Unsubscribed Shares otherwise allocable to such holder will be allocated among all other holders exercising the Oversubscription Privilege pro rata based upon the number of Rights exercised by each such holder. No fractional Common Shares will be issued in connection with the Oversubscription Privilege. Only holders of Common Shares on the Record Date will be entitled to the Oversubscription Privilege. If a holder elects to exercise the Oversubscription Privilege, such holder must do so concurrently with its exercise of the Basic Subscription. As soon as practicable after the Expiration Time, First Union will send each holder exercising the Oversubscription Privilege a written confirmation of the number of Common Shares allocated to such holder pursuant to the Oversubscription Privilege. Certificates representing the Common Shares purchased pursuant to the Oversubscription Privilege will be delivered to holders as soon as practicable following the Expiration Time and after all prorations have been effected. Any amounts overpaid by holders will be refunded as soon as practicable after the Expiration Time without interest. SUBSCRIPTION PRICE The Subscription Price for one Common Share, which may be purchased upon the exercise of one Right, is $5.00. Common Shares purchased by a holder pursuant to the Oversubscription Privilege or by a Standby Purchaser pursuant to the Standby Commitment shall have the same Subscription Price as Common Shares purchased pursuant to the Basic Subscription. HOLDERS OF COMMON SHARES IN DIVIDEND REINVESTMENT PLAN Certain shareholders may own Common Shares through the First Union Dividend Investment Service, the Company's dividend reinvestment plan (the "Plan"). Such Common Shares are registered in the name of a nominee of the Plan administrator. Shareholders who own Common Shares through the Plan will not receive Rights for such shares. WITHDRAWAL First Union reserves the right to withdraw the Offering at any time prior to or at the Expiration Time and for any reason (including, without limitation, the market price of the Common Shares), in which event all funds received from holders will be refunded promptly without interest. SUBSCRIPTION AGENT The Subscription Agent and escrow agent for the Offering is National City Bank. The address to which Rights Certificates, Notices of Guaranteed Delivery, Request for Waiver of Share Ownership Limit forms and payments should be mailed or delivered is: By Regular Mail: By Facsimile Transmission: By Hand or Overnight Courier: National City Bank, 216-476-8367 National City Bank, Subscription Agent (for Eligible Subscription Agent Corporate Trust Operations Institutions only) Corporate Trust P.O. Box 94720 Operations Cleveland, Ohio Confirm by Telephone 3rd Floor, North Annex 44101-4720 216-476-8936 4100 West 150th Street (for Facsimile Cleveland, Ohio 44135 Confirmation Only) Delivery of Rights Certificates, Notices of Guaranteed Delivery, Requests for Waiver of Share Ownership Limit and payments (other than wire transfers) other than as set forth above will not constitute a valid delivery. ANY QUESTIONS OR REQUESTS FOR ASSISTANCE CONCERNING THE METHOD OF SUBSCRIBING FOR COMMON SHARES OR FOR ADDITIONAL COPIES OF THIS PROSPECTUS SHOULD BE DIRECTED TO NATIONAL CITY BANK, SUBSCRIPTION AGENT, AT 800-622-6757. FRACTIONAL COMMON SHARES No fractional Common Shares will be issued in respect of the exercise of any Rights or Oversubscription Privilege or pursuant to the Standby Commitment. Rights Certificates may not be divided in such a manner as to create fractional Rights. Banks, trust companies, securities dealers and brokers that hold Common Shares as nominees for more than one beneficial owner may have a Rights Certificate divided by the Subscription Agent or may, upon proper showing to the Subscription Agent, exercise their Rights on the same basis as if the beneficial owners were record holders on the Record Date. First Union reserves the right to deny any division of Rights Certificates if in its opinion the result would be inconsistent with the intent of this privilege. WAIVER OF SHARE OWNERSHIP LIMIT A holder may apply for a Waiver of the Share Ownership Limit from First Union in connection with the exercise of its Basic Subscription, its Oversubscription Privilege or both by completing the Request for Waiver of Share Ownership Limit form accompanying this Prospectus. In deciding whether to grant a Waiver, the Board of Trustees will determine whether allowing the holder to exceed the Share Ownership Limit will jeopardize First Union's REIT status. The Board of Trustees will consider, among other things, whether the waiver might (i) cause more than 50% of the value of First Union's stock to be owned directly or constructively by five or fewer individuals (see "Certain Federal Income Tax Considerations -- Taxation of First Union -- Share Ownership Test"), or (ii) cause First Union to be deemed to own an equity interest in an entity from whom the First Union Companies receive rent (see "Certain Federal Income Tax Considerations -- Taxation of First Union -- Gross Income Tests"). In addition, the Board of Trustees may require a holder requesting a Waiver to make certain representations and warranties, comply with certain covenants and provide an opinion of counsel with respect to certain REIT tax issues. See "Certain Federal Income Tax Considerations -- Taxation of First Union." METHOD OF EXERCISING RIGHTS AND OVERSUBSCRIPTION PRIVILEGE A holder may exercise its Basic Subscription and Oversubscription Privilege by properly completing and duly executing the Rights Certificate accompanying this Prospectus and forwarding the Rights Certificate, together with payment of the Subscription Price for each Common Share subscribed for pursuant to the Basic Subscription and the Oversubscription Privilege, to the Subscription Agent at the appropriate address set forth above. Persons holding Common Shares and receiving Rights distributable with respect thereto through a broker, dealer, commercial bank, trust company or other nominee, as well as persons holding stock certificates who would prefer to have such institutions effect transactions relating to the Rights on their behalf, should contact the appropriate institution or nominee and request it to effect the transactions for them. Banks, trust companies, securities dealers and brokers that hold Common Shares as nominee for more than one beneficial owner may, upon proper showing to the Subscription Agent, exercise their Basic Subscription and Oversubscription Privilege on the same basis as if the beneficial owners were record holders on the Record Date. In the case of holders of Rights that are held of record through The Depository Trust Company ("DTC"), such Rights may be exercised by instructing DTC to transfer Rights from such holder's DTC account to the Subscription Agent's DTC account, together with payment of the full Subscription Price. Except as described under "-- Late Delivery of Payments and Rights Certificates," to be accepted, the properly completed and duly executed Rights Certificate and the payment must be received by the Subscription Agent prior to the Expiration Time. Rights Certificates received after such time will not be honored. Payments must be made in full in United States currency by either (a) a check or bank draft drawn upon a U.S. bank or postal, telegraphic or express money order payable to National City Bank, as Subscription Agent, or (b) a wire transfer of funds to the account maintained by the Subscription Agent for such purpose at National City Bank, Cleveland, Ohio, Account No. [ ]. Any wire transfer of funds should clearly indicate the identity of the subscriber who is paying the Subscription Price by the wire transfer. The Subscription Price will be deemed to have been received by the Subscription Agent only upon (i) clearance of any uncertified check, (ii) receipt by the Subscription Agent of any certified check or bank draft drawn upon a U.S. bank or of any postal, telegraphic or express money order, or (iii) receipt of good funds in the Subscription Agent's account designated above. The instruction letter accompanying the Rights Certificate should be read carefully and strictly followed. DO NOT SEND RIGHTS CERTIFICATES OR PAYMENTS TO FIRST UNION. Except as described under the caption "-- Late Delivery of Payments and Rights Certificates," no subscription will be deemed to have been received until the Subscription Agent has received delivery of a properly completed and duly executed Rights Certificate and payment of the full Subscription Price. The risk of delivery of all documents and payments is on holders, not First Union or the Subscription Agent. THE METHOD OF DELIVERY OF RIGHTS CERTIFICATES AND PAYMENT OF THE SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE RISK OF THE RIGHTS HOLDERS, BUT IF SENT BY MAIL, IT IS RECOMMENDED THAT SUCH CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO THE EXPIRATION TIME. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE UP TO FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY OR ARRANGE FOR PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS. LATE DELIVERY OF PAYMENTS AND RIGHTS CERTIFICATES If, prior to the Expiration Time, the Subscription Agent has received a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form accompanying this Prospectus (either by hand, mail, telegram or facsimile transmission) specifying the name of the holder of Rights and the number of Common Shares subscribed for (stating separately the number of Common Shares subscribed for pursuant to the exercise of the Basic Subscription and the Oversubscription Privilege) and guaranteeing that the properly completed and duly executed Rights Certificate and payment of the full Subscription Price for all Common Shares subscribed and oversubscribed for will be delivered to the Subscription Agent within three business days after the Expiration Time, such subscription may be accepted, subject to the Subscription Agent's withholding the certificates for Common Shares until receipt of the properly completed and duly executed Rights Certificate and payment of such amount within such time period. In the case of holders of Rights that are held of record through DTC, such Rights may be exercised by instructing DTC to transfer Rights from such holder's DTC account to the Subscription Agent's DTC account, together with payment of the full Subscription Price. The Notice of Guaranteed Delivery must be guaranteed by a commercial bank, trust company or credit union having an office, branch or agency in the United States or by a member of a Stock Transfer Association approved medallion program such as STAMP, SEMP or MSP. Notices of Guaranteed Delivery and payments should be mailed or delivered to the appropriate addresses set forth under "-- Subscription Agent." TRANSFERABILITY OF RIGHTS The Rights are not transferable, except by operation of law in the event of death or dissolution of the holder thereof. VALIDITY OF SUBSCRIPTIONS All questions with respect to the validity and form of the exercise of the Basic Subscription or the Oversubscription Privilege (including time of receipt and eligibility to participate in the Offering) will be determined solely by First Union, which determination shall be final and binding. Once made, subscriptions and directions are irrevocable, and no alternative, conditional or contingent subscriptions or directions will be accepted. First Union reserves the absolute right to reject any subscriptions or directions not properly submitted or the acceptance of which, in the opinion of First Union's counsel, would be unlawful. See "-- Basic Subscription; Limitations on Subscription." Any irregularities in connection with subscriptions must be cured prior to the Expiration Time unless waived by First Union in its sole discretion. Neither First Union nor the Subscription Agent shall be under any duty to give notification of defects in such subscriptions or incur any liability for failure to give such notification. A subscription will be deemed to have been accepted (subject to First Union's right to withdraw or terminate the Offering or to limit the size of the subscription in accordance with "-- Basic Subscription; Limitations on Subscription.") only when a properly completed and duly executed Rights Certificate, any other required documents and payment of the full Subscription Price with respect to such subscription have been received by the Subscription Agent. First Union's interpretations of the terms and conditions of the Offering shall be final and binding. ESCROW ARRANGEMENTS; RETURN OF FUNDS Funds received in payment of the Subscription Price for Common Shares subscribed for will be held in a segregated account at the Subscription Agent pending completion of the Offering. Monies will be held in escrow until the Offering is completed or is canceled. If the Offering is canceled for any reason, monies will be returned to subscribers without interest or deduction promptly thereafter. If a Rights holder exercising the Basic Subscription or the Oversubscription Privilege is allocated fewer than the number of Common Shares for which such holder wished to subscribe pursuant to the Basic Subscription or the Oversubscription Privilege, as the case may be, the excess funds paid by such holder will be returned without interest as soon as practicable after the Expiration Time. RIGHTS OF SUBSCRIBERS Holders will have no rights as shareholders of First Union with respect to Common Shares subscribed for until certificates representing such Common Shares are issued to them. Holders will have no right to revoke their subscriptions after delivery to the Subscription Agent of a completed Rights Certificate and any other required documents. FOREIGN SHAREHOLDERS Rights Certificates will not be mailed to holders whose addresses are outside the United States or who have an APO or FPO address, but will be held by the Subscription Agent for their account. To exercise Rights, such holders must notify the Subscription Agent by completing an International Holder Subscription Form which will be delivered to such holders in lieu of a Rights Certificate, and sending it by mail or telecopy to the Subscription Agent at the address and telecopy number specified above. NO REVOCATION ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION OR THE OVERSUBSCRIPTION PRIVILEGE THAT EXERCISE MAY NOT BE REVOKED. STANDBY COMMITMENT The Standby Purchasers have agreed to purchase, at the Subscription Price, those Common Shares that are not purchased through the exercise of Rights or the Oversubscription Privilege, up to the Maximum Standby Shares having an aggregate Subscription Price of up to the Maximum Standby Commitment. Gotham has agreed to acquire 7/9ths of all Standby Commitment Shares, having an aggregate Subscription Price of up to 7/9ths of the Maximum Standby Commitment, and Elliott Associates has agreed to acquire 2/9ths of all Standby Commitment Shares, having an aggregate Subscription Price of up to 2/9ths of the Maximum Standby Commitment. To the extent that holders subscribe for fewer than the Maximum Standby Shares through their Basic Subscription and Oversubscription Privilege, the Standby Purchasers will subscribe for the difference. To the extent that holders subscribe for more than the Maximum Standby Shares, the Standby Purchasers will not be obligated to purchase any Standby Commitment Shares. The Board of Trustees has agreed to waive the Share Ownership Limit to the extent necessary to enable Gotham to satisfy its obligation under the Standby Commitment. As of September 14, 1998, Gotham and Elliott Associates beneficially owned 9.70% and 1.35%, respectively, of the outstanding Common Shares. DELIVERY OF COMMON SHARES Certificates representing Common Shares purchased pursuant to the exercise of the Basic Subscription, the Oversubscription Privilege or the Standby Commitment will be delivered as soon as practicable after the Expiration Time, the receipt of all required documents and payment in full of the aggregate Subscription Price due for such Common Shares. In the case of shareholders whose Common Shares are held through DTC and third-party investors who arrange for delivery and payment through DTC, the appropriate participant account will be credited. DESCRIPTION OF CAPITAL STOCK COMMON SHARES General The following description sets forth certain general terms and provisions of the Common Shares. The statements below describing the Common Shares are in all respects subject to and qualified in their entirety by reference to the applicable provisions of First Union's Declaration of Trust (the "Declaration of Trust") and By-Laws. The number of Common Shares which First Union is authorized to issue is unlimited. All Common Shares are entitled to participate equally in any distributions thereon declared by First Union. Subject to the provisions of the By-Laws regarding Excess Shares, each outstanding Common Share entitles the holder thereof to one vote on all matters voted on by shareholders (as described below), including the election of Trustees. Shareholders have no preemptive rights. The outstanding Common Shares are fully paid and non-assessable and have equal liquidation rights. The Common Shares are fully transferable except that their issuance and transfer may be regulated or restricted by First Union in order to assure qualification by First Union for taxation as a REIT. See "-- Restriction on Size of Holdings." The Common Shares are not redeemable at the option of First Union or of any shareholder. The Board of Trustees is generally authorized without shareholder approval to borrow money and issue obligations and equity securities which may or may not be convertible into Common Shares and warrants, rights or options to purchase Common Shares; and to issue other securities of any class or classes which may or may not have preferences or restrictions not applicable to the Common Shares. The issuance of additional Common Shares or such conversion rights, warrants or options may have the effect of diluting the interest of shareholders. Annual meetings of the shareholders are held on the second Tuesday of the fourth month following the close of each fiscal year at such place in the State of Ohio as the Trustees may from time to time determine. Special meetings may be called at any time and place when ordered by a majority of the Trustees, or upon written request of the holders of not less than 25% of the outstanding Common Shares. Shareholder Liability The Declaration of Trust provides that no shareholder shall be personally liable in connection with the property or the affairs of First Union, and that all persons shall look solely to property of First Union for satisfaction of claims of any nature arising in connection with the affairs of First Union. Under present Ohio law, no personal liability will attach to shareholders of First Union, but with respect to tort claims, contract claims where liability of shareholders is not expressly negated, claims for taxes and certain statutory liabilities, the shareholders may in some jurisdictions other than the State of Ohio be held personally liable to the extent that such claims are not satisfied by First Union, in which event the shareholders would, in the absence of negligence or misconduct on their part, be entitled to reimbursement from the general assets of First Union. First Union carries insurance which the Trustees consider adequate to cover any probable tort claims. To the extent the assets and insurance of First Union would be insufficient to reimburse a shareholder who has been required to pay a claim against First Union, the shareholder would suffer a loss. The statements in this paragraph and the previous paragraph also apply to holders of the preferred shares of beneficial interest, $1.00 par value per share ("Preferred Shares"), although any possible liability of such holders would be further reduced by the greater limitations on their voting power. REIT Qualification Under regulations of the IRS, the Trustees must have continuing exclusive authority over the management of First Union and the conduct of its affairs, free from any control by the shareholders, other than the right to elect or remove Trustees, to terminate the Declaration of Trust, to ratify amendments to the Declaration of Trust, and certain other permitted rights, if First Union is to continue to qualify as a REIT under the applicable sections of the Code. Consequently, the only voting power presently granted to the shareholders is the right by a majority vote or a supermajority vote, as the case may be, (i) to elect Trustees, (ii) to approve or disapprove certain transfers of assets or mergers of First Union, (iii) to approve or disapprove amendments to the Declaration of Trust or termination of the Declaration of Trust, and (iv) when removal is proposed by all other Trustees, to approve removal of any Trustee. First Union has no fixed duration and will continue indefinitely, unless terminated as provided in the Declaration of Trust. Transfer Agent and Registrar The transfer agent and registrar for the Common Shares is National City Bank. Restriction on Size of Holdings The By-Laws restrict beneficial or constructive ownership of First Union's outstanding capital stock by a single person, or persons acting as a group, to 9.8% of the Common Shares, which limitation assumes that all securities convertible into Common Shares owned by such person or group of persons have been converted. The purposes of these provisions are to assist in protecting and preserving First Union's REIT status. For First Union to qualify as a REIT under the Code, not more than 50% in value of its outstanding capital stock may be owned by five or fewer individuals at any time during the last half of First Union's taxable year. The provision permits five persons each to acquire up to a maximum of 9.8% of the Common Shares, or an aggregate of 49% of the outstanding Common Shares, and thus, assists the Trustees in protecting and preserving REIT status for tax purposes. Unless a waiver of such restrictions is granted by the Board, Common Shares owned by a person or group of persons in excess of 9.8% of First Union's outstanding Common Shares ("Excess Shares") shall not be entitled to any voting rights; shall not be considered outstanding for quorums or voting purposes; and shall not be entitled to dividends, interest or any other distributions with respect to the securities. The Declaration of Trust provides that the Share Ownership Limit contained in the By-Laws may be amended from time to time with the approval of either (i) 70% of the Trustees then in office or (ii) a majority of the Trustees then in office and the approval of at least 70% of the holders of the outstanding Common Shares. Trustee Liability The Declaration of Trust provides that Trustees shall not be individually liable for any obligation or liability incurred by or on behalf of First Union or by Trustees for the benefit and on behalf of First Union. Under the Declaration of Trust and Ohio law respecting business trusts, Trustees are not liable to First Union or the shareholders for any act or omission except for acts or omissions which constitute bad faith, willful misfeasance, gross negligence or reckless disregard of duties to First Union and its shareholders. Beneficial Ownership of the Management Company All of the shares of the Management Company are owned in trust for the benefit of owners of Common Shares pursuant to an amended and restated declaration of trust dated as of October 1, 1996 (the "Management Company Declaration of Trust"). The Management Company Declaration of Trust provides that the net income of the trust estate shall be paid from time to time to the First Union shareholders in proportion to the number of Common Shares held by them. Upon termination of the trust, each holder of Common Shares is entitled to a proportionate share of the net proceeds received upon the sale of the assets of the trust estate. The trustees of the trust may require, as a condition to the receipt of any payment of the net income or of the net proceeds upon termination, that a shareholder demonstrate that the Common Shares owned by it, together with any Common Shares the ownership of which is attributed to it by the Code, do not exceed 5% of the then outstanding Common Shares. In addition, the Management Company Declaration of Trust provides that any person who owns, directly or by attribution, 5% or more of the outstanding shares of First Union, is deemed to have no beneficial interest in the Trust. The Management Company Declaration of Trust provides that the trust shall terminate upon the termination of First Union. See "Federal Income Tax Considerations - --Taxation of First Union--Stapled Stock." Shareholder Rights Plan In March 1990, the Board of Trustees declared a dividend with respect to each Common Share consisting of one right to purchase one Common Share at an exercise price of $50 per right. Pursuant to the Rights Agreement, dated as of March 7, 1990 between the Company and National City Bank, as Rights Agent (the "Rights Agreement"), which governs the Company's Shareholder Rights Plan, if a person or group, excluding certain affiliated entities of First Union, acquires 15% or more of the outstanding Common Shares (except in a tender offer or exchange offer approved by the Board of Trustees), is declared to be an "adverse person" by the Board of Trustees or engages in certain self-dealing transactions with First Union ("flip-in events"), each right, other than rights owned by a 15% owner or an "adverse person," entitles the holder to purchase one Common Share for its par value (currently $1 per share). If First Union is acquired in a merger or other business combination ("flip-over events"), each right entitles the holder to purchase, for $1, shares of the acquiring company having a market value equal to the market value of one Common Share. The rights may be redeemed by First Union at a price of $0.01 per right at any time prior to the earlier of a "flip-in" or "flip-over" event or the expiration of the rights on March 30, 2000. The Board of Trustees has agreed to exclude from the calculation of beneficial ownership under the Rights Agreement any acquisition of Common Shares by the Standby Purchasers, whether pursuant to the exercise of Rights or pursuant to their respective obligations under the Standby Commitment. Accordingly, any acquisition of Common Shares in connection with the Offering will not be deemed to be a "flip-in" event under Section 11(a)(ii) of the Rights Agreement. PREFERRED SHARES General Subject to limitations as may be prescribed by Ohio law and First Union's By-Laws and Declaration of Trust, the Board of Trustees is authorized to issue without the approval of the shareholders, Preferred Shares in series and to establish from time to time the number of Preferred Shares to be included in such series and to fix the designation and any preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption of the shares of each such series. First Union currently has outstanding a series of Preferred Shares designated "Series A Cumulative Redeemable Preferred Shares of Beneficial Interest." The following description sets forth certain general terms and provisions of the Series A Preferred Shares. The statements below describing the Series A Preferred Shares do not purport to be complete and are in all respects subject to, and qualified in their entirety by reference to, the terms and provisions of the Certificate of Designations authorizing the Series A Preferred Shares (the "Certificate of Designations"), the Declaration of Trust and the By-Laws. The outstanding Series A Preferred Shares have been validly issued, fully paid and, except as set forth under "-- Common Shares -- Shareholder Liability," non-assessable. The holders of the Series A Preferred Shares have no pre-emptive rights with respect to any shares of the capital stock of First Union or any other securities of First Union convertible into or carrying rights or options to purchase any such shares. The Series A Preferred Shares are not subject to any sinking fund or other obligation of First Union to redeem or retire the Series A Preferred Shares. Unless converted into Common Shares or redeemed by First Union, the Series A Preferred Shares have a perpetual term, with no maturity. The Series A Preferred Shares, unlike the Common Shares, are not entitled to the benefit of the Management Company Declaration of Trust. See "-- Common Shares -- Beneficial Ownership of the Management Company." Distributions Holders of the Series A Preferred Shares are entitled to receive, when, as and if declared by the Board of Trustees, out of funds legally available for the payment of distributions, cumulative preferential cash distributions in an amount per share equal to the greater of $2.10 per share (equivalent to 8.4% of the liquidation preference per annum) or the cash distributions on the Common Shares, or portion thereof, into which a Series A Preferred Share is convertible. Distributions on the Series A Preferred Shares accrue whether or not First Union has earnings, whether or not there are funds legally available for the payment of such distributions and whether or not such distributions are declared. Accrued but unpaid distributions on the Series A Preferred Shares do not bear interest. Holders of the Series A Preferred Shares are not entitled to any distributions in excess of full cumulative distributions as described above. Unless full cumulative distributions on the Series A Preferred Shares have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, no distributions (other than in Common Shares or other capital shares ranking junior to the Series A Preferred Shares as to distributions and in the distribution of assets ("Fully Junior Shares")) will be declared or paid or set aside for payment upon the Common Shares or any other Fully Junior Shares, nor will any Common Shares or any other Fully Junior Shares be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by First Union (except by conversion into or exchange for Fully Junior Shares). Liquidation Rights Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of First Union, then, before any distribution or payment is made to the holders of any Common Shares or any other class or series of capital shares of First Union ranking junior to the Series A Preferred Shares in the distribution of assets upon any liquidation, dissolution or winding up of First Union, the holders of Series A Preferred Shares will be entitled to receive out of assets of First Union (excluding the assets of the Management Company) legally available for distribution to shareholders, liquidating distributions in the amount of the liquidation preference ($25.00 per share), plus an amount equal to all distributions accrued and unpaid thereon, if any. After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series A Preferred Shares will have no right or claim to any of the remaining assets of First Union. If liquidating distributions have been made in full to all holders of Series A Preferred Shares and all other classes or series of capital shares of First Union ranking on a parity with the Series A Preferred Shares in the distribution of assets, the remaining assets of First Union will be distributed among the holders of any other classes or series of capital shares ranking junior to the Series A Preferred Shares in the distribution of assets upon any liquidation, dissolution or winding up of First Union, according to their respective rights and preferences and in each case according to their respective number of shares. For such purposes, the consolidation or merger of First Union with or into any other entity, the sale, lease or conveyance of all or substantially all of the property or business of First Union or a statutory share exchange will not be deemed to constitute a liquidation, dissolution or winding up of First Union. Redemption The Series A Preferred Shares are not redeemable by the Company prior to October 29, 2001, and at no time are the Series A Preferred Shares redeemable for cash (except to the extent provided below in lieu of the issuance of fractional Common Shares). On and after October 29, 2001, the Series A Preferred Shares will be redeemable at the option of the Company, in whole or in part, for such number of Common Shares as equals the liquidation preference of the Series A Preferred Shares to be redeemed (without regard to accrued and unpaid distributions) divided by the Conversion Price (as defined herein under "-- Conversion Rights") as of the opening of business on the date set for such redemption (equivalent to a conversion rate of 3.31 Common Shares for each Series A Preferred Share), subject to adjustment in certain circumstances as described below. See "-- Conversion Price Adjustments." The Company may exercise this option only if for 20 trading days, within any period of 30 consecutive trading days, including the last trading day of such period, the closing price of the Common Shares on the NYSE equals or exceeds the Conversion Price per share, subject to adjustments in certain circumstances as described below. See "-- Conversion Price Adjustments." Voting Rights Except as indicated below, or except as otherwise from time to time required by applicable law, the holders of Series A Preferred Shares have no voting rights. If six quarterly distributions (whether or not consecutive) payable on the Series A Preferred Shares or any shares of beneficial interest ranking on a parity with the Series A Preferred Shares with respect to the payment of distributions and amounts upon liquidation, dissolution and winding up ("Parity Shares") are in arrears, whether or not earned or declared, the number of Trustees then constituting the Board of Trustees will be increased by two, and the holders of Series A Preferred Shares, voting together as a class with the holders of any other series of Parity Shares (any such other series, the "Voting Preferred Shares"), will have the right to elect two additional Trustees to serve on the Board of Trustees at any annual meeting of shareholders or a properly called special meeting of the holders of Series A Preferred Shares and such Voting Preferred Shares and at each subsequent annual meeting of shareholders until all such distributions and distributions for the current quarterly period on the Series A Preferred Shares and such other Voting Preferred Shares have been paid or declared and paid or set aside for payment. The term of office of all Trustees so elected will terminate with the termination of such voting rights. The approval of two-thirds of the outstanding Series A Preferred Shares and all other series of Voting Preferred Shares similarly affected, voting as a single class, is required in order to (i) amend the Declaration of Trust, By-Laws or the Certificate of Designations to affect materially and adversely the rights, preferences or voting power of the holders of the Series A Preferred Shares or the Voting Preferred Shares, (ii) enter into a share exchange that affects the Series A Preferred Shares, consolidate with or merge into another entity, or permit another entity to consolidate with or merge into First Union, unless in each such case each Series A Preferred Share remains outstanding without a material adverse change to its terms and rights or is converted into or exchanged for convertible preferred stock of the surviving entity having preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms or conditions of redemption thereof identical to that of a Series A Preferred Share (except for changes that do not materially and adversely affect the holders of the Series A Preferred Shares) or (iii) authorize, reclassify, create or increase the authorized amount of any class of shares of beneficial interest having rights senior to the Series A Preferred Shares as to distributions or in the distribution of assets. However, First Union may create additional classes of Parity Shares and shares ranking junior to the Series A Preferred Shares as to distributions or in the distribution of assets ("Junior Shares"), increase the authorized number of Parity Shares and Junior Shares and issue additional series of Parity Shares and Junior Shares without the consent of any holder of Series A Preferred Shares. Conversion Rights The Series A Preferred Shares are convertible, in whole or in part, at any time, unless previously redeemed, at the option of the holders thereof, into Common Shares at a conversion price of $7.5625 per Common Share (equivalent to a conversion rate of 3.31 Common Shares for each Series A Preferred Share), subject to adjustment as described below (the "Conversion Price"). See "-- Conversion Price Adjustments." The right to convert Series A Preferred Shares called for redemption will terminate at the close of business on the redemption date for such Series A Preferred Shares. Conversion Price Adjustments The Conversion Price is subject to adjustment upon certain events, including without duplication (i) distributions payable in Common Shares, (ii) the issuance to all holders of Common Shares of certain rights, options or warrants entitling them to subscribe for or purchase Common Shares at a price per share less than the fair market value per Common Share (which, as defined, includes an adjustment for underwriting commissions avoided in rights offerings to shareholders), (iii) subdivisions, combinations and reclassifications of Common Shares, (iv) distributions to all holders of Common Shares of any capital stock of First Union (other than Common Shares), evidences of indebtedness of First Union or assets (including securities, but excluding those rights, warrants and distributions referred to above and excluding Permitted Common Share Cash Distributions, as hereinafter defined) and (v) payment in respect of a tender or exchange offer by First Union or any subsidiary of First Union for Common Shares if the cash and value of any other consideration included in such payment per Common Share (as determined by the Board of Trustees) exceeds the current market price (as defined) per Common Share on the trading day next succeeding the last date tenders or exchanges may be made pursuant to such tender or exchange offer. "Permitted Common Share Cash Distributions" are those cumulative cash distributions paid with respect to the Common Shares after December 31, 1995 which are not in excess of the following: the sum of (i) First Union's cumulative undistributed income from operations and capital gains and cumulative depreciation and amortization at December 31, 1995, plus (ii) the cumulative amount of net income before distributions accrued or paid on the Series A Preferred Shares, plus depreciation and amortization, after December 31, 1995, minus (iii) the cumulative amount of distributions accrued or paid on the Series A Preferred Shares or any other class of Preferred Shares after the date of original issue of the Series A Preferred Shares. In addition to the foregoing adjustments, First Union is permitted to make such reductions in the Conversion Price as it considers to be advisable in order that any event treated for federal income tax purposes as a distribution of stock or stock rights will not be taxable to the holders of the Common Shares. Restrictions on Ownership With limited exceptions, no person, or persons acting as a group, may beneficially own more than 25% of the Series A Preferred Shares outstanding at any time, except as a result of First Union's redemption of any Series A Preferred Shares; provided that after any redemption, additional Series A Preferred Shares acquired by such person will be subject to the Preferred Shares Ownership Limit Provision. Series A Preferred Shares owned in excess of the Preferred Shares Ownership Limit Provision are not entitled to dividends, interest or any other distribution with respect to such shares, are not entitled to any conversion rights, are not entitled to any voting rights, and shall not be considered outstanding for quorums or voting purposes. With limited exceptions, no person or persons acting as a group may beneficially own more than 9.8% of the Common Shares, which limitation assumes that all securities convertible into Common Shares owned by such person or group of persons, such as the Series A Preferred Shares, have been converted. In addition, in order for a holder of Common Shares to be entitled to the benefit of the Management Company Declaration of Trust, such shareholder may not own, after taking into consideration all Common Shares owned by such person together with any Common Shares attributed to such person under the Code, which would include the Series A Preferred Shares on an as converted basis, more than 5% of the outstanding Common Shares of First Union. See "-- Common Shares -- Restriction on Size of Holdings" and "-- Common Shares -- Beneficial Ownership of the Management Company." CERTAIN FEDERAL INCOME TAX CONSIDERATIONS REGARDING THE OFFERING The following discussion summarizes all material U.S. federal income tax considerations of the Offering to First Union and its shareholders. The following discussion is based upon the current provisions of the Code, its legislative history, administrative pronouncements, judicial decisions and Treasury regulations, all of which are subject to change, possibly with retroactive effect. The following discussion does not purport to be a complete discussion of all U.S. federal income tax considerations. The following discussion does not address the tax consequences of the Offering under state, local or non-U.S. tax laws. In addition, the following discussion may not apply, in whole or in part, to particular categories of First Union shareholders, such as dealers in securities, insurance companies, foreign persons, tax-exempt organizations, financial institutions and persons who hold Common Shares or Rights as part of a hedging, straddle, integrated or conversion transaction. The discussion of U.S. federal income tax considerations of the Offering set forth below assumes that the Common Shares owned by a shareholder and the Common Shares or Rights issued pursuant to the Offering constitute capital assets in the hands of such shareholder. It should be noted that under current law, net capital gains of individuals are, under certain circumstances, taxed at lower rates than items of ordinary income, and the deductibility of capital losses is subject to limitations. THE FOLLOWING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY. ALL FIRST UNION SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE OFFERING, INCLUDING ANY STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES. TAXATION OF FIRST UNION'S SHAREHOLDERS Receipt of Right. A shareholder (including a foreign shareholder) will not recognize any gain or loss upon such shareholder's receipt of a Right. Tax Basis of Right. A shareholder's tax basis in a Right will depend on whether (i) the shareholder exercises the Right, or alternatively (ii) the shareholder allows the Right to lapse unexercised. If a shareholder exercises a Right, the tax basis of such Right in the hands of the shareholder will be determined by allocating the shareholder's existing tax basis of such holder's Common Shares with respect to which the Right was distributed ("Old Common Shares") between such holder's Old Common Shares and the Right, in proportion to their relative fair market values on the date of distribution. If, however, the fair market value of the Rights distributed to the shareholder (on the date of distribution) is less than 15% of the fair market value of such holder's Old Common Shares, the tax basis of each Right will be deemed to be zero unless the shareholder affirmatively elects, by attaching an election statement to such holder's federal income tax return for the year in which such holder receives such holder's Rights, to compute the tax basis of such holder's Rights in accordance with the preceding sentence. Once made, such an election is irrevocable. A Right will not be treated as having any tax basis if it lapses and, therefore, the holder of an expired Right will not recognize a loss for tax purposes. Exercise of Right. No gain or loss will generally be recognized by a shareholder (including a foreign shareholder) upon the purchase of a Common Share pursuant to the exercise of a Right. The tax basis of a Common Share purchased pursuant to the exercise of a Right shall be equal to the sum of (a) the shareholder's tax basis of the Right exercised and (b) the Subscription Price paid for such Common Share. The holding period of the Common Shares purchased pursuant to the exercise of Rights will commence on the date of exercise. Upon the subsequent sale of Common Shares (other than to First Union pursuant to a redemption), the shareholder will generally recognize capital gain or loss in an amount equal to the difference between the proceeds of the sale and the shareholder's tax basis of such Common Shares. Such gain or loss will be long-term capital gain or loss if the shareholder's holding period for such Common Shares is more than one year on the date of sale. FOREIGN PERSONS Assuming that First Union currently qualifies and has qualified as a domestically controlled REIT (which First Union believes is the case) (see "Certain Federal Income Tax Considerations -- Taxation of First Union's Shareholders -- Taxation of Non-U.S. Shareholders" herein) and continues to so qualify through the time of any sale of Common Shares by a foreign person, any gain from such sale should not be subject to U.S. taxation, unless such gain is effectively connected with such person's U.S. trade or business or, in the case of an individual foreign person, such person is present within the U.S. for 183 days or more in such taxable year. TAXATION OF FIRST UNION First Union will not recognize any gain or loss upon (a) the issuance of Rights, (b) the receipt of cash for Common Shares pursuant to the exercise of Rights or (c) the lapse of Rights. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following is a description of the material federal income tax consequences to First Union and its shareholders of the treatment of First Union as a REIT. The discussion is general in nature and not exhaustive of all possible tax considerations, nor does the discussion give a detailed description of any state, local, or foreign tax considerations. The tax treatment of a shareholder will vary depending upon the holder's particular situation, and this discussion addresses only holders that hold Common Shares as capital assets and does not purport to deal with all aspects of taxation that may be relevant to particular holders in light of their personal investment or tax circumstances, or to certain types of holders (including dealers in securities or currencies, traders in securities that elect to mark-to-market, banks, tax-exempt organizations, life insurance companies, persons that hold Common Shares that are a hedge or that are hedged against currency risks or that are part of a straddle or conversion transaction, or persons whose functional currency is not the U.S. dollar) subject to special treatment under the federal income tax laws. This summary is based on the Code, its legislative history, existing and proposed regulations thereunder, published rulings and court decisions, all as currently in effect and all subject to change at any time, perhaps with retroactive effect. Based upon certain representations of First Union and as described further below, in the opinion of Fried Frank, counsel to First Union, First Union's existing legal organization and its method of operation, as described in this Prospectus and as represented by it, will enable it to satisfy the requirements for qualification as a REIT. This opinion is based on certain assumptions relating to the organization and operation of the Management Company and of any partnerships in which First Union will hold an interest, and is conditioned upon certain representations made by First Union as to certain factual matters relating to First Union's and the Management Company's organization and manner of operation. It is also based on the assumption that for all of its taxable years (or portion thereof) prior to the date of this Prospectus, First Union satisfied all of the requirements necessary for qualification as a REIT under the Code, and the assumption that all organizational documents for First Union and the Management Company are complied with. In addition, this opinion is based on the law existing and in effect on the date hereof. First Union's qualification and taxation as a REIT in the future will depend upon First Union's ability to meet on a continuing basis, through actual operating results, asset composition, distribution levels and diversity of stock ownership, the various qualification tests imposed under the Code discussed below. Fried Frank will not review compliance with these tests on a continuing basis. No assurance can be given that First Union will satisfy such tests on a continuing basis. THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING, AND EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT WITH ITS TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO IT OF THE PURCHASE, OWNERSHIP AND SALE OF COMMON SHARES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS. If certain detailed conditions imposed by the REIT provisions of the Code are met, entities, such as First Union, that invest primarily in real estate and that otherwise would be treated for federal income tax purposes as corporations, are generally not taxed at the corporate level on their "REIT taxable income" that is currently distributed to shareholders. This treatment substantially eliminates the "double taxation" (i.e., at both the corporate and shareholder levels) that generally results from the use of corporations. However, as noted below under "--Taxation of First Union's Shareholders -- Taxation of Taxable U.S. Shareholders," corporate shareholders will not be entitled to a dividends received deduction with respect to dividends paid on their shares. If First Union fails to qualify as a REIT in any year, however, it will be subject to federal income taxation as if it were a domestic corporation, and its shareholders will be taxed in the same manner as shareholders of ordinary corporations. In this event, First Union could be subject to potentially significant tax liabilities, and therefore the amount of cash available for distribution to its shareholders would be reduced or eliminated. First Union believes it properly elected and continued to elect REIT status for all taxable years since its filing of a REIT election, and the Board of Trustees believes that First Union has operated and expects that First Union will continue to operate in a manner that will permit First Union to elect REIT status in each taxable year thereafter. There can be no assurance, however, that this belief or expectation will be fulfilled, since qualification as a REIT depends on First Union continuing to satisfy numerous asset, income and distribution tests described below, which in turn will be dependent in part on First Union's operating results. TAXATION OF FIRST UNION General. In any year in which First Union qualifies as a REIT, in general it will not be subject to federal income tax on that portion of its REIT taxable income or capital gain which is distributed to shareholders. First Union may, however, be subject to tax at normal corporate rates upon any taxable income or capital gain not distributed. Notwithstanding its qualification as a REIT, First Union may also be subject to taxation in certain other circumstances. If First Union should fail to satisfy either the 75% or the 95% gross income test (as discussed below), and nonetheless maintains its qualification as a REIT because certain other requirements are met, it will be subject to a 100% tax on the greater of the amount by which First Union fails to satisfy either the 75% test or the 95% test, multiplied by a fraction intended to reflect First Union's profitability. First Union will also be subject to a tax of 100% on net income from any "prohibited transaction", as described below, and if First Union has (i) net income from the sale or other disposition of "foreclosure property" which is held primarily for sale to customers in the ordinary course of business or (ii) other non-qualifying income from foreclosure property, it will be subject to tax on such income from foreclosure property at the highest corporate rate. In addition, if First Union should fail to distribute during each calendar year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income for such year and (iii) any undistributed taxable income from prior years, First Union would be subject to a 4% excise tax on the excess of such required distribution over the amounts actually distributed. For taxable years beginning after August 5, 1997, the Taxpayer Relief Act of 1997 (the "1997 Act") permits a REIT, with respect to undistributed net long-term capital gains it received during the taxable year, to designate in a notice mailed to shareholders within 60 days of the end of the taxable year (or in a notice mailed with its annual report for the taxable year) such amount of such gains which its shareholders are to include in their taxable income as long-term capital gains. Thus, if First Union made this designation, the shareholders of First Union would include in their income as long-term capital gains their proportionate share of the undistributed net capital gains as designated by First Union and First Union would have to pay the tax on such gains within 30 days of the close of its taxable year. Each shareholder of First Union would be deemed to have paid such shareholder's share of the tax paid by First Union on such gains, which tax would be credited or refunded to the shareholder. A shareholder would increase its tax basis in its First Union stock by the difference between the amount of income to the holder resulting from the designation less the holder's credit or refund for the tax paid by First Union. First Union may also be subject to the corporate "alternative minimum tax", as well as tax in certain situations and on certain transactions not presently contemplated. First Union will use the calendar year both for federal income tax purposes and for financial reporting purposes. Stapled Stock. First Union and the Management Company are "stapled entities" as defined in Section 269B of the Code. Section 269B of the Code defines the term "stapled entities" to mean any group of two or more entities if more than 50% in value of the beneficial ownership in each of such entities consists of interests which, by reason of form of ownership, restrictions on transfers, or other terms or conditions, the transfer of one of such interests requires the transfer of the other of such interests. Section 269B of the Code provides that if the shares of a group of entities that include a REIT are stapled, then such entities shall be treated as one entity for purposes of applying the REIT provisions of the Code. If Section 269B of the Code were to apply to First Union and the Management Company, then First Union might not be able to satisfy the "Gross Income Tests" as described below that are necessary to qualify as a REIT. Prior to the enactment of Section 269B of the Code, First Union received two rulings from the IRS sanctioning the stapling of First Union and the Management Company. These rulings provided that (i) even though First Union and the Management Company were "stapled," such stapling would not preclude First Union from qualifying as a REIT, and (ii) amounts otherwise qualifying as rents from real property under the REIT rules would not fail to meet that definition by reason of the fact that First Union and the Management Company were stapled. The effective date provision for Section 269B provides that Section 269B of the Code does not apply if a group of stapled entities that included a REIT on June 30, 1983 were stapled on that date. First Union believes that because First Union and the Management Company were stapled on June 30, 1983, Section 269B should not apply to First Union and the Management Company. However, as described above in "Risk Factors -- Stapled REIT Tax Risks; REIT Tax Risks -- Legislation Regarding Stapled REITS," newly enacted legislation provides that the income and activities of the Management Company with respect to any real property acquired by the First Union Companies after March 26, 1998, for which there was no binding written agreement, public announcement or filing with the Commission on or before March 26, 1998, will be attributed to First Union for purposes determining whether First Union qualifies as a REIT. Under the Code, rents from real property do not include amounts received or accrued, directly or indirectly, from any person if the REIT owns, directly or indirectly, in the case of a corporation, stock of such corporation possessing 10% or more of the total combined voting power of all classes of stock entitled to vote, or 10% or more of the total number of shares of all classes of stock of such corporation. For purposes of this provision, certain attribution rules are applicable. Under this provision, even though Section 269B of the Code does not apply to First Union and the Management Company, if any person were to acquire, directly or indirectly, a 10% or greater beneficial interest in the Trust (taking into account such attribution rules), then rents received from the Management Company would not qualify as rents from real property under the REIT rules. In such a case, First Union would likely not satisfy the "Gross Income Tests" described below, and accordingly, would not qualify as a REIT. The Management Company Declaration of Trust provides that any person who owns, directly or by attribution, 5% or more of the outstanding shares of First Union, is deemed to have no beneficial interest in the Trust. Assuming this restriction precludes any person from owning 10% or more of the voting power of all classes of stock of the Management Company, First Union believes that amounts otherwise qualifying as rents from real property received from the Management Company will qualify as rents from real property for REIT purposes. Prior to the Offering, First Union intends to terminate its management arrangements with the Management Company, self-manage its retail, apartment and office portfolios, and enter into third-party management arrangements for the parking facilities it owns. Assuming this occurs, First Union will no longer receive any rents from the Management Company. The Code defines a REIT as an electing corporation, trust or association (1) which is managed by one or more trustees or directors, (2) the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest, (3) which would otherwise be taxable as a domestic corporation, but for Section 856 through 859 of the Code, (4) which is neither a financial institution nor an insurance company subject to certain provisions of the Code, and (5) which meets the share ownership, asset and income tests described below. First Union has a number of wholly-owned subsidiaries. Code Section 856(i) provides that a corporation which is a "qualified REIT subsidiary" shall not be treated as a separate corporation, and all assets, liabilities, and items of income, deductions, and credit of a "qualified REIT subsidiary" shall be treated as assets, liabilities and such items (as the case may be) of the REIT. Thus, in applying the requirements described below, the assets, liabilities and items of income, deduction and credit of First Union's qualified REIT subsidiaries will be treated as assets, liabilities and items of First Union. Furthermore, First Union's proportionate share of the assets, liabilities and items of income of any partnership in which First Union is a partner will be treated as assets, liabilities and items of income of First Union for purposes of applying the requirements described below. Share Ownership Test. First Union's shares of stock must be held by a minimum of 100 persons for at least 335 days in each taxable year (or a proportional number of days in any short taxable year). In addition, at all times during the second half of each taxable year, no more than 50% in value of the stock of First Union may be owned, directly or indirectly and by applying certain constructive ownership rules, by five or fewer individuals, which for this purpose includes certain entities. Under the 1997 Act, for taxable years beginning after August 5, 1997, if First Union complies with the Treasury regulations for ascertaining its actual ownership and did not know, or exercising reasonable diligence would not have reason to know, that more than 50% in value of its outstanding shares of stock were held, actually or constructively, by five or fewer individuals, then First Union will be treated as meeting such requirement. In order to ensure compliance with the 50% test, First Union has placed certain restrictions on the transfer of the shares of its stock to prevent additional concentration of ownership. Moreover, to evidence compliance with these requirements under Treasury regulations, First Union must maintain records which disclose the actual ownership of its outstanding shares of stock. In fulfilling its obligations to maintain records, First Union must and will demand written statements each year from the record holders of designated percentages of shares of its stock disclosing the actual owners of such shares (as prescribed by Treasury regulations). A list of those persons failing or refusing to comply with such demand must be maintained as a part of First Union's records. A shareholder failing or refusing to comply with First Union's written demand must submit with such holder's tax returns a similar statement disclosing the actual ownership of shares of First Union's stock and certain other information. In addition, the Bylaws provide restrictions regarding the transfer of shares of First Union's stock that are intended to assist First Union in continuing to satisfy the share ownership requirements. See "Description of Capital Stock -- Common Shares -- Restriction on Size of Holdings." First Union intends to enforce the 9.8% limitation on ownership of shares of its stock to assure that its qualification as a REIT will not be compromised although in appropriate circumstances First Union will consider granting a waiver of the 9.8% limitation. The Board of Trustees has agreed to waive the 9.8% limitation for the Standby Purchasers to enable them to satisfy their obligations under the Standby Commitments and may grant Waivers to other shareholders. In deciding whether to grant a Waiver, the Board of Trustees will determine whether allowing the holder to exceed the Share Ownership Limit will jeopardize First Union's REIT status. See "The Offering -- Waiver of Share Ownership Limit." Asset Tests. At the close of each quarter of First Union's taxable year, First Union must satisfy certain tests relating to the nature of its assets (determined in accordance with generally accepted accounting principles). First, at least 75% of the value of First Union's total assets must be represented by interests in real property, interests in mortgages on real property, shares in other REITs, cash, cash items, and government securities, and certain qualified temporary investments (for a period of one year from the date of First Union's receipt of proceeds of an offering of its shares of beneficial interest or long-term (at least five years) debt, stock or debt instruments purchased with such proceeds). Second, although the remaining 25% of First Union's assets generally may be invested without restriction, securities in this class of a single issuer may not exceed either (i) 5% of the value of First Union's total assets or (ii) 10% of the outstanding voting securities of any one issuer. In connection with the acquisition of equity interests in Impark by the Management Company, First Union made certain subordinated loans to Impark on an unsecured basis. In connection with such loans, First Union has determined that (i) the fair market value of each of such loans, including any accrued interest, fees and any other amounts payable thereon, is not in excess of 5% of the fair market value of the total gross assets of First Union determined in accordance with generally accepted accounting principles and (ii) the fair market value of all such loans and First Union's other assets (other than assets represented by interests in real property, interests in mortgages on real property, shares in other REITs, cash, cash items, government securities and qualified temporary investments) do not have an aggregate fair market value in excess of 25% of the fair market value of the total gross assets of First Union determined in accordance with generally accepted accounting principles. Based on existing facts, First Union believes that it will be able to reaffirm this determination at the applicable times in the future. If, however, First Union were unable to satisfy the foregoing asset tests at the applicable time, First Union would be required to take preventative steps by disposing of certain assets or otherwise risk a loss of REIT status. In addition, as part of the acquisition of Impark, certain lenders of Impark have the right to transfer certain loans of Impark to First Union at certain times. If the transfer rights were exercised at a time when First Union's total assets were not sufficient to satisfy the foregoing asset tests, First Union would be required to take such preventative steps or otherwise risk such REIT status. Gross Income Tests. There are currently two separate percentage tests relating to the sources of First Union's gross income which must be satisfied for each taxable year. Additionally, for its taxable years before 1998, short-term gain from the sale or other disposition of stock or securities, gain from the sale or other disposition of stock or securities, gain from prohibited transactions and gain on the sale or other disposition or real property held for less than four years (apart from involuntary conversions and sales of foreclosure property) must represent less than 30% of First Union's gross income (including gross income from prohibited transactions) for each such taxable year. The two current tests are as follows: 1. The 75% Test. At least 75% of First Union's gross income for each taxable year must be derived directly or indirectly from investments relating to real property or mortgages on real property (including "rents from real property"--which term generally includes expenses of First Union that are paid or reimbursed by tenants) or from certain types of temporary investments. Rents received from a tenant will not, however, qualify as rents from real property in satisfying the 75% test (or the 95% gross income test described below) if First Union, or an owner of 10% or more of First Union, directly or constructively owns 10% or more of such resident. In addition, if rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to such personal property will not qualify as rents from real property. Moreover, an amount received or accrued will not qualify as rents from real property (or as interest income) for purposes of the 75% and 95% gross income tests if it is based in whole or in part on the income or profits of any person, although an amount received or accrued generally will not be excluded from "rents from real property" solely by reason of being based on a fixed percentage or percentages of receipts or sales. Finally, for rents received to qualify as rents from real property, First Union generally must not operate or manage the property or furnish or render services to tenants of such property, other than through an "independent contractor" from whom First Union derives no income, except that the "independent contractor" requirement does not apply to the extent that the services provided by First Union are "usually or customarily rendered" in connection with the rental of space for occupancy only or are not otherwise considered "rendered to the occupant for his convenience". For taxable years beginning after August 5, 1997, a REIT is permitted to render a de minimis amount of impermissible services to tenants, or in connection with the management of property, and still treat amounts received with respect to that property as rent from real property. The amount received or accrued by the REIT during the taxable year for the impermissible services with respect to a property may not exceed one percent of all amounts received or accrued by the REIT directly or indirectly from the property. The amount received for any service (or management operation) for this purpose shall be deemed to be not less than 150% of the direct cost of the REIT in furnishing or rendering the service (or providing the management or operation). 2. The 95% Test. At least 95% of First Union's gross income for each taxable year must be derived from the real property investments included in the 75% test, dividends, interest and gain from the sale or disposition of stock or securities (or from any combination of the foregoing). The term "interest" generally does not include any amount received or accrued (directly or indirectly) if the determination of such amount depends in whole or in part on the income or profits of any person. However, an amount received or accrued generally will not be excluded from the term "interest" solely by reason of being based on a fixed percentage or percentages of receipts or sales. For purposes of determining whether First Union complies with the 75% and 95% income tests, gross income does not include income from prohibited transactions. A "prohibited transaction" is a sale of dealer property (excluding foreclosure property) unless such property is held by First Union for at least four years and certain other requirements are satisfied. See "-- Taxation of First Union -- General." Even if First Union fails to satisfy one or both of the 75% or 95% gross income tests for any taxable year, it may still qualify as a REIT for such year if it is entitled to relief under certain provisions of the Code. These relief provisions will generally be available if: (i) First Union's failure to comply was due to reasonable cause and not to willful neglect; (ii) First Union reports the nature and amount of each item of its income included in the tests on a schedule attached to its tax return; and (iii) any incorrect information on this schedule is not due to fraud with intent to evade tax. If these relief provisions apply, however, First Union will nonetheless be subject to a special tax upon the greater of the amount by which it fails either the 75% or 95% gross income test for that year. Annual Distribution Requirements. In order to qualify as a REIT, First Union is required to make distributions (other than capital gain dividends) to its shareholders each year in an amount at least equal to (i) the sum of (a) 95% of First Union's REIT taxable income (computed without regard to the dividends paid deduction and the REIT's net capital gain) and (b) 95% of the net income (after tax), if any, from foreclosure property, minus (ii) the sum of certain items of non-cash income. Such distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before First Union timely files its tax return for such year with an appropriate election and if paid on or before the first regular dividend payment after such declaration. To the extent that First Union does not distribute all of its net capital gain or distributes at least 95%, but less than 100%, of its REIT taxable income, as adjusted, it will be subject to tax on the undistributed amount at regular capital gains or ordinary corporate tax rates, as the case may be. For taxable years beginning after August 5, 1997, the 1997 Act permits a REIT, with respect to undistributed net long-term capital gains it received during the taxable year, to designate in a notice mailed to shareholders within 60 days of the end of the taxable year (or in a notice mailed with its annual report for the taxable year) such amount of such gains which its shareholders are to include in their taxable income as long- term capital gains. Thus, if First Union made this designation, the shareholders of First Union would include in their income as long-term capital gains their proportionate share of the undistributed net capital gains as designated by First Union and First Union would have to pay the tax on such gains within 30 days of the close of its taxable year. Each shareholder of First Union would be deemed to have paid such shareholder's share of the tax paid by First Union on such gains, which tax would be credited or refunded to the shareholder. A shareholder would increase its tax basis in its First Union stock by the difference between the amount of income to the holder resulting from the designation less the holder's credit or refund for the tax paid by First Union. First Union intends to make timely distributions sufficient to satisfy the annual distribution requirements. It is possible that First Union may not have sufficient cash or other liquid assets to meet the 95% distribution requirement, due to, among other things, timing differences between the actual receipt of income and actual payment of expenses on the one hand, and the inclusion of such income and deduction of such expenses in computing First Union's REIT taxable income on the other hand. To avoid any problem with the 95% distribution requirement, First Union will closely monitor the relationship between its REIT taxable income and cash flow and, if necessary, intends to borrow funds in order to satisfy the distribution requirement. However, there can be no assurance that such borrowing would be available at such time. If First Union fails to meet the 95% distribution requirement as a result of an adjustment to First Union's tax return by the IRS, First Union may retroactively cure the failure by paying a "deficiency dividend" (plus applicable penalties and interest) within a specified period. Failure to Qualify. If First Union fails to qualify for taxation as a REIT in any taxable year and certain relief provisions do not apply, First Union will be subject to tax (including applicable alternative minimum tax) on its taxable income at regular corporate rates. Distributions to shareholders in any year in which First Union fails to qualify as a REIT will not be deductible by First Union, nor generally will they be required to be made under the Code. In such event, to the extent of current and accumulated earnings and profits, all distributions to shareholders will be taxable as ordinary income, and subject to certain limitations in the Code, corporate distributees may be eligible for the dividends-received deduction. Unless entitled to relief under specific statutory provisions, First Union also will be disqualified from reelecting taxation as a REIT for the four taxable years following the year during which qualification was lost. TAXATION OF FIRST UNION'S SHAREHOLDERS Taxation of Taxable U.S. Shareholders. As used herein, the term "U.S. Shareholder" means a holder of Common Shares who (for United States federal income tax purposes) is (i) a citizen or resident of the United States, (ii) a corporation or partnership organized under the laws of the United States, or of any political subdivision thereof, or (iii) an estate the income of which is subject to United States federal income taxation regardless of its source or (iv) a trust subject to the primary supervision of a court within the United States and the control of one or more U.S. persons. A "Non-U.S. Shareholder" is a shareholder other than a U.S. Shareholder. As long as First Union qualifies as a REIT, distributions made to First Union's taxable U.S. Shareholders out of current or accumulated earnings and profits (and not designated as capital gain dividends) will be taken into account by them as ordinary income and will not be eligible for the dividends-received deduction for corporations. Distributions (and for tax years beginning after August 5, 1997, undistributed amounts) that are designated as capital gain dividends will be taxed as long-term capital gains (to the extent they do not exceed First Union's actual net capital gain for the taxable year) without regard to the period for which the shareholder has held its shares. However, corporate U.S. Shareholders may be required to treat up to 20% of certain capital gain dividends as ordinary income. To the extent that First Union makes distributions in excess of current and accumulated earnings and profits, these distributions are treated first as a tax-free return of capital to the U.S. Shareholder, reducing the tax basis of a U.S. Shareholder's shares by the amount of such distribution (but not below zero), with distributions in excess of the U.S. Shareholder's tax basis taxable as capital gains (if the shares are held as a capital asset). In addition, any dividend declared by First Union in October, November or December of any year and payable to a shareholder of record on a specific date in any such month shall be treated as both paid by First Union and received by the U.S. Shareholder on December 31 of such year, provided that the dividend is actually paid by First Union during January of the following calendar year. U.S. Shareholders may not include in their individual income tax returns any net operating losses or capital losses of First Union. Federal income tax rules may also require that certain minimum tax adjustments and preferences be apportioned to First Union shareholders. Distributions made by First Union and gain arising from the sale or exchange by a U.S. Shareholder of Common Shares will not be treated as passive activity income, and, as a result, U.S. Shareholders generally will not be able to apply any "passive losses" against such income or gain. Upon any sale or other disposition of Common Shares, a U.S. Shareholder will recognize gain or loss for federal income tax purposes in an amount equal to the difference between (i) the amount of cash and the fair market value of any property received on such sale or other disposition, and (ii) the holder's adjusted basis in the Common Shares for tax purposes. Such gain or loss will be capital gain or loss if the Common Shares have been held by the U.S. Shareholder as a capital asset and will be long-term gain or loss if such Common Shares have been held for more than one year. Long-term capital gain of an individual U.S. Shareholder is generally subject to a maximum tax rate of 20%. In general, any loss recognized by a U.S. Shareholder upon the sale or other disposition of Common Shares of First Union that have been held for six months or less (after applying certain holding period rules) will be treated as long-term capital loss, to the extent of distributions received by such U.S. Shareholder from First Union which were required to be treated as long-term capital gains. Backup Withholding. First Union will report to its U.S. Shareholders and to the IRS the amount of distributions paid during each calendar year, and the amount of tax withheld, if any, with respect thereto. Under the backup withholding rules, a shareholder may be subject to backup withholding at applicable rates with respect to distributions paid unless such shareholder (i) is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact or (ii) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with applicable requirements of the backup withholding rules. A U.S. Shareholder that does not provide First Union with its correct taxpayer identification number may also be subject to penalties imposed by the IRS. Any amount paid as backup withholding will be credited against the shareholder's income tax liability. In addition, First Union may be required to withhold a portion of capital gain distributions made to any shareholders who fail to certify their non-foreign status to First Union. Taxation of Tax-Exempt Shareholders. The IRS has issued a revenue ruling in which it held that amounts distributed by a REIT to a tax-exempt employees' pension trust do not constitute unrelated business taxable income ("UBTI"). Subject to the discussion below regarding a "pension-held REIT," based upon the ruling, the analysis therein and the statutory framework of the Code, distributions by First Union to a shareholder that is a tax-exempt entity should also not constitute UBTI, provided that the tax-exempt entity has not financed the acquisition of its shares with "acquisition indebtedness" within the meaning of the Code, and that the shares are not otherwise used in an unrelated trade or business of the tax-exempt entity, and that First Union, consistent with its present intent, does not hold a residual interest in a real estate mortgage investment conduit. For tax-exempt shareholders that are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans exempt from federal income taxation under Sections 501(c)(7), (c)(9), (c)(17), and (c)(20) of the Code, respectively, income from an investment in Common Shares will constitute UBTI unless the organization is able to properly deduct amounts set aside or placed in reserve for certain purposes so as to offset the income generated by its Common Shares. Such prospective investors should consult their own tax advisors concerning these "set aside" and reserve requirements. However, if any pension or other retirement trust that qualifies under Section 401(a) of the Code ("qualified pension trust") holds more than 10% by value of the interests in a "pension-held REIT" at any time during a taxable year, a portion of the dividends paid to the qualified pension trust by such REIT may constitute UBTI. For these purposes, a "pension-held REIT" is defined as a REIT if (i) such REIT would not have qualified as a REIT but for the provisions of the Code which look through such a qualified pension trust in determining ownership of stock of the REIT and (ii) at least one qualified pension trust holds more than 25% by value of the interests of such REIT or one or more qualified pension trusts (each owning more than a 10% interest by value in the REIT) hold in the aggregate more than 50% by value of the interests in such REIT. Taxation of Non-U.S. Shareholders. The rules governing United States federal income taxation of Non-U.S. Shareholders are complex, and no attempt will be made to provide herein more than a summary of such rules. PROSPECTIVE NON-U.S. SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE THE IMPACT OF U.S. FEDERAL, STATE AND LOCAL TAX LAWS WITH REGARD TO AN INVESTMENT IN COMMON SHARES, INCLUDING ANY REPORTING REQUIREMENTS. Distributions From First Union ------------------------------ 1. Ordinary Dividends. The portion of dividends received by Non-U.S. Shareholders payable out of First Union's earnings and profits that are not attributable to capital gains of First Union and that are not effectively connected with a U.S. trade or business of the Non-U.S. Shareholder will generally be subject to U.S. withholding tax at the rate of 30% (unless reduced by treaty or the Non-U.S. Shareholder files an IRS Form 4224 (or successor form) with First Union certifying that the investment to which the distribution relates is effectively connected to a United States trade or business of such Non-U.S. Shareholder). Under certain limited circumstances, the amount of tax withheld may be refundable, in whole or in part, because of the tax status of certain partners or beneficiaries of Non-U.S. Shareholders that are either foreign partnerships or foreign estates or trusts. In general, Non-U.S. Shareholders will not be considered engaged in a U.S. trade or business solely as a result of their ownership of Common Shares. In cases where the dividend income from a Non-U.S. Shareholder's investment in Common Shares is (or is treated as) effectively connected with the Non-U.S. Shareholder's conduct of a U.S. trade or business, the Non-U.S. Shareholder generally will be subject to U.S. tax at graduated rates, in the same manner as U.S. shareholders are taxed with respect to such dividends (and may also be subject to the 30% branch profits tax (unless reduced by treaty) in the case of a Non-U.S. Shareholder that is a foreign corporation). 2. Capital Gain Dividends. Under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), any distribution made by First Union to a Non-U.S. Shareholder, to the extent attributable to gains from dispositions of United States Real Property Interests ("USRPIs") by First Union ("USRPI Capital Gains"), will be considered effectively connected with a U.S. trade or business of the Non-U.S. Shareholder and subject to U.S. income tax at the rates applicable to U.S. individuals or corporations, without regard to whether such distribution is designated as a capital gain dividend. In addition, First Union will be required to withhold tax equal to 35% of the amount of any distribution that could be designated by First Union as a capital gain dividend. However, if First Union designates as a capital gain dividend a distribution made prior to the day First Union actually effects such designation, then (although such distribution may be taxable to a Non-U.S. Shareholder) such distribution is not subject to withholding under FIRPTA; rather, First Union must effect the 35% FIRPTA withholding from distributions made on and after the date of such designation, until the distributions so withheld equal the amount of the prior distribution designated as a capital gain dividend. The amount withheld is creditable against the Non-U.S. Shareholder's U.S. tax liability. Such distribution may also be subject to the 30% branch profits tax (unless reduced by treaty) in the case of a Non-U.S. Shareholder that is a foreign corporation. 3. Non-Dividend Distributions. Distributions in excess of current and accumulated earnings and profits of First Union, which are not attributable to the gain from disposition by First Union of a USRPI, will not be taxable to a Non-U.S. Shareholder to the extent that they do not exceed the adjusted basis of the Non-U.S. Shareholder's Common Shares, but rather will reduce the adjusted basis of such Common Shares. To the extent that such distributions exceed the adjusted basis of a Non-U.S. Shareholder's Common Shares, they will give rise to tax liability if the Non-U.S. Shareholder otherwise would be subject to tax on any gain from the sale or disposition of its Common Shares, as described below. If it cannot be determined at the time a distribution is made whether such distribution will be in excess of current and accumulated earnings and profits, the distribution will be subject to withholding at the rate applicable to dividends. However, the Non-U.S. Shareholder may seek a refund of such amounts from the IRS if it is subsequently determined that such distribution was, in fact, in excess of current accumulated earnings and profits of First Union. Dispositions of Common Shares ----------------------------- Unless the Common Shares constitute USRPIs, a sale or exchange of Common Shares by a Non-U.S. Shareholder generally will not be subject to U.S. taxation under FIRPTA. The Common Shares will not constitute USRPIs if First Union is a "domestically controlled REIT." A domestically controlled REIT is a REIT in which, at all times during a specified testing period, less than 50% in value of its shares is held directly or indirectly by Non-U.S. Shareholders. First Union believes that it is and will continue to be a domestically controlled REIT and, therefore, that the sale of Common Shares will not be subject to taxation under FIRPTA. However, no assurance can be given that First Union will continue to be a domestically controlled REIT. If First Union does not constitute a domestically controlled REIT, a Non-U.S. Shareholder's sale or exchange of Common Shares generally will still not be subject to tax under FIRPTA as a sale of USRPIs provided that (i) First Union's Common Shares are "regularly traded" (as defined by applicable Treasury regulations) on an established securities market (e.g., the NYSE, on which the Common Shares are listed) and (ii) the selling Non-U.S. Shareholder held 5% or less of First Union's outstanding Common Shares at all times during a specified testing period. If gain on the sale or exchange of Common Shares were subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to U.S. income tax at the rates applicable to U.S. individuals or corporations, and the purchaser of Common Shares could be required to withhold 10% of the purchase price and remit such amount to the IRS. The branch profits tax generally would not apply to such sales or exchanges. Capital gains not subject to FIRPTA will nonetheless be taxable in the United States to a Non-U.S. Shareholder in two cases: (i) if the Non-U.S. Shareholder's investment in Common Shares is effectively connected with a U.S. trade or business conducted by such Non-U.S. Shareholder, the Non-U.S. Shareholder will be subject to the same treatment as U.S. Shareholders with respect to such gain or (ii) if the Non-U.S. Shareholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and certain other conditions apply, in which case the nonresident alien individual will be subject to 30% tax on the individual's capital gain (unless reduced or eliminated by treaty). Treaty Benefits --------------- Pursuant to current Treasury regulations, dividends paid to an address in a country outside the United States are generally presumed to be paid to a resident of such country for purposes of determining the applicability of withholding discussed above and the applicability of a tax treaty rate. Shareholders that are partnerships or entities that are similarly fiscally transparent for federal income tax purposes, and persons holding Common Shares through such entities, may be subject to restrictions on their ability to claim benefits under U.S. tax treaties and should consult a tax advisor. Under recently issued Treasury regulations that are effective for payments made after December 31, 1999 (the "Withholding Regulations"), however, a Non-U.S. Shareholder who wishes to claim the benefit of an applicable treaty rate would be required to satisfy applicable certification requirements. In addition, under the Withholding Regulations, in the case of Common Shares held by a foreign partnership, (x) the certification requirement would generally be applied to the partners in the partnership and (y) the partnership would be required to provide certain information, including a United States taxpayer identification number. The Withholding Regulations provide look-through rules in the case of tiered partnerships. PLAN OF DISTRIBUTION The Common Shares offered hereby are being offered by First Union pursuant to the issuance of Rights to holders of Common Shares on the Record Date. First Union intends to distribute Rights and copies of this Prospectus to shareholders of record on the Record Date promptly following the effective date of the Registration Statement of which this Prospectus forms a part. Holders of Rights who desire to subscribe for the purchase of Common Shares in the Offering are urged to complete, date and sign the Rights Certificate and return it to the Subscription Agent on or before the Expiration Time, together with payment in full of the Subscription Price. See "The Offering." Any questions concerning the procedure for subscribing for the purchase of Common Shares should be directed to the Subscription Agent. THE FINANCIAL ADVISOR The Company has engaged PaineWebber Incorporated ("PaineWebber") to act as financial advisor in connection with the Offering. In this capacity, PaineWebber has provided advice to the Board of Trustees of First Union regarding the terms, structure and timing of the Offering. PaineWebber has not agreed to any standby or other arrangements to purchase any Rights or any Common Shares or to solicit exercises of the Rights. In addition, PaineWebber does not intend to engage in any stabilization activities with respect to any of First Union's securities and PaineWebber will not engage in any bids for or market making activities in First Union's securities subsequent to the date hereof and prior to the Expiration Time. First Union has agreed to pay PaineWebber a fee of [$ ] for its services and has agreed to indemnify PaineWebber against certain liabilities under the Securities Act. Such fee is not dependent on the consummation of the Offering. PaineWebber has been engaged by First Union to explore strategic alternatives for Impark for customary compensation. Other than PaineWebber, First Union has not engaged any financial advisors, brokers or dealers in connection with the Offering. EXPERTS The combined financial statements and schedules as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, incorporated by reference in the Registration Statement of which this Prospectus is a part, have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are incorporated by reference in reliance upon the authority of said firm as experts in giving said reports. LEGAL MATTERS Certain legal matters relating to the validity of the Common Shares offered pursuant to this Prospectus will be passed upon for First Union by Hahn Loeser & Parks LLP. - --------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FIRST UNION. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SHARES OF BENEFICIAL INTEREST IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF FIRST UNION SINCE THE DATE HEREOF. - --------------------------------------------------------------------------- TABLE OF CONTENTS PAGE Available Information............ 2 Incorporation of Certain Documents By Reference................... 2 Prospectus Summary............... 3 Risk Factors..................... 10 The Company...................... 16 Use of Proceeds.................. 19 Price Range of Common Shares and Distributions.................. 19 Capitalization................... 21 Selected Financial Data.......... 22 Management....................... 25 The Offering..................... 27 Description of Capital Stock..... 33 Certain Federal Income Tax Considerations Regarding the 38 Offering....................... Certain Federal Income Tax 40 Considerations................. Plan of Distribution............. 49 The Financial Advisor............ 49 Experts.......................... 49 Legal Matters.................... 49 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS RIGHTS TO PURCHASE 31,431,000 SHARES OF BENEFICIAL INTEREST ($1.00 PAR VALUE PER SHARE) ............ PROSPECTUS ............ , 1998 - ------------------------------------------------------------------------------ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the estimated expenses (other than the SEC registration fee) in connection with the issuance and distribution of the securities registered hereby, all of which will be paid by the Registrant: SEC registration fee........................................ $ 44,250 Printing and duplicating expenses........................... * Legal fees and expenses..................................... * Blue Sky fees and expenses.................................. * Accounting fees and expenses................................ * Miscellaneous expenses...................................... * -------- Total.................................................... $ * ======== - ------------------------------------------ * To be filed by amendment ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS. Pursuant to Article III, Section 3.3 of the Amended Declaration of Trust, each Trustee, officer, employee and agent of the Registrant is entitled to indemnification for any loss, cost, liability or obligation in connection with the Registrant's property or the affairs of the Registrant except for such of his own acts as constitute bad faith, willful misfeasance or willful disregard of his duties. The Registrant has acquired insurance indemnifying Trustees and officers in certain cases and with certain deductible limitations. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. See Exhibit Index included herewith which is incorporated herein by reference. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any Prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; Provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Registration Statement. (b) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to Trustees, officers and controlling persons of the Registrant pursuant to the provisions set forth or described in Item 15 of this Registration Statement, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such Trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective; and (2) for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cleveland, and State of Ohio, on the 17th day of September, 1998. FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS By: /s/ William A. Ackman --------------------------------- William A. Ackman Chairman of the Board of Trustees POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints William A. Ackman, David P. Berkowitz and David S. Klafter, and each of them, his or her true and lawful attorneys-in-fact and agents, with full powers of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign any or all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-3 has been signed by the following persons in the capacities and on the 17th day of September, 1998. SIGNATURE TITLE /s/ William A. Ackman Chairman of the Board of Trustees - ------------------------------ William A. Ackman /s/ David P. Berkowitz Vice Chairman of the Board of Trustees - ------------------------------ David P. Berkowitz /s/ Steven M. Edelman Interim Chief Executive Officer and - ------------------------------ Chief Financial Officer Steven M. Edelman (Principal Executive Officer and Principal Financial Officer) /s/ John J. Dee Senior Vice President and Chief - ------------------------------ Accounting Officer John J. Dee (Principal Accounting Officer) /s/ Daniel J. Altobello Trustee - ------------------------------ Daniel J. Altobello /s/ William E. Conway Trustee - ------------------------------ William E. Conway /s/ Allen H. Ford Trustee - ------------------------------ Allen H. Ford /s/ Stephen J. Garchick Trustee - ------------------------------ Stephen J. Garchick /s/ Russell R. Gifford Trustee - ------------------------------ Russell R. Gifford /s/ David S. Klafter Trustee - ------------------------------ David S. Klafter /s/ Daniel Shuchman Trustee - ------------------------------ Daniel Shuchman /s/ Stephen S. Snider Trustee - ------------------------------ Stephen S. Snider /s/ Mary Ann Tighe Trustee - ------------------------------ Mary Ann Tighe /s/ James A. Williams Trustee - ------------------------------ James A. Williams INDEX TO EXHIBITS 3(a) -- Declaration of Trust of Registrant dated August 1, 1961, as amended through July 25, 1986 (incorporated by reference from Registrant's Registration Statement on Form S-3 (No. 33-4493)). 3(b) -- By-laws of the Registrant, as amended, dated June 3, 1998. 4(a) -- Rights Agreement between the Registrant and National City Bank dated March 7, 1990 (incorporated by reference from Registrant's Form 8-A dated March 30, 1990). 4(b) -- Form of certificate for Shares of Beneficial Interest (incorporated by reference from Registrant's Registration Statement on Form S-3 (No. 33-2818)). 4(c) -- Amended and Restated Declaration of Trust dated October 1, 1996 (incorporated by reference from Registrant's Form 10-Q for the quarter ended September 30, 1996 (File No. 1-6249)). 4(d) -- Certificate of Designations relating to Registrant's Series A Cumulative Redeemable Preferred Shares of Beneficial Interest (incorporated by reference from Registrant's Form 8-K dated October 24, 1996). 4(e) -- Standby Purchase Agreement between Registrant and Gotham Partners, L.P. dated August 11, 1998 (incorporated by reference from Schedule 13D, dated August 11, 1998, of Gotham Partners, L.P. regarding Registrant's Shares of Beneficial Interest). 4(f) -- Standby Purchase Agreement between Registrant and Gotham Partners III, L.P. dated August 11, 1998 (incorporated by reference from Schedule 13D, dated August 11, 1998, of Gotham Partners III, L.P. regarding Registrant's Shares of Beneficial Interest). 4(g)* -- Standby Purchase Agreement between Registrant and Elliott Associates, L.P. dated August 11, 1998. 5* -- Opinion of Hahn Loeser & Parks LLP as to validity of the Shares of Beneficial Interest. 8* -- Opinion of Fried, Frank, Harris, Shriver & Jacobson as to certain tax matters. 10(a) -- Fixed Rate Loan Agreement dated as of August 11, 1998 by and among Registrant, as borrower, Bankers Trust Company, as agent, and Wellsford Capital and BankBoston, N.A., as lenders. 10(b) -- Fixed Rate Loan Agreement dated as of August 11, 1998 by and among Registrant, as borrower, Bankers Trust Company, as agent, and Gotham Partners, L.P., Gotham Partners III, L.P., Elliott Associates, L.P. and Blackacre Bridge Capital, L.L.C., as lenders. 23(a) -- Consent of Arthur Andersen LLP. 23(b) -- Consent of Hahn Loeser & Parks LLP included as part of Exhibit 5. 23(c) -- Consent of Fried, Frank, Harris, Shriver & Jacobson included as part of Exhibit 8. 24(a) -- Powers of Attorney (included on signature pages). 99(a)*-- Form of Rights Certificate. 99(b)*-- Form of Notice of Guaranteed Delivery. 99(c)*-- Form of Request for Waiver of Share Ownership Limit. 99(d)*-- Form of Letter to Holders of Common Shares. 99(e)*-- Form of Letter to Dealers, Banks, Brokers, etc. 99(f)*-- Form of Letter to Clients. 99(g)*-- Form of Affidavit of Lost Certificate. - ------------------------------------------------ * To be filed by amendment. EX-3.(B) 2 FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS BY-LAWS JUNE 3, 1998 INDEX PAGE ARTICLE I - MEETING OF BENEFICIARIES. Section 1. - Annual Meeting 3 Section 2. - Special Meetings 3 Section 3. - Place of Meetings 3 Section 4. - Notice of Meetings 3 Section 5. - Procedure at Meetings 3 Section 6. - Quorum 3 Section 7. - Nominations and Beneficiary Business 3 ARTICLE II - TRUSTEES Section 1. - Regular Meetings 4 Section 2. - Special Meetings 5 Section 3. - Notice of Meetings 5 Section 4. - Quorum 5 Section 5. - Compensation of Trustees 5 Section 6. - Committees of the Board of Trustees 5 Section 7. - Qualifications of Nominees - Age 5 ARTICLE III - OFFICERS Section 1. - Designation of Officers 5 Section 2. - Tenure of Office 6 Section 3. - Delegation of Duties 6 Section 4. - Compensation 6 Section 5. - Signing Checks and Other Instruments 6 Section 6. - Control by Trustees 6 ARTICLE IV - SHARES IN TRUST Section 1. - Issue of Certificate of Beneficial Ownership 6 ARTICLE V - AMENDMENTS Section 1. - Amendment of By-laws 6 ARTICLE VI - MISCELLANEOUS PROVISIONS Section 1. - Fiscal Year 7 Section 2. - Notice and Waiver of Notice 7 Section 3. - Checks for Money 7 Section 4. - Form of Certificate of Beneficial Interest 7 Section 5. - Regulations on Transfer of Shares to Prevent Disqualification of the Trust Under the Internal Revenue Code 8 Section 6. - Restrictions on Issuance and Transfer of Securities 8 ARTICLE I MEETINGS OF BENEFICIARIES. SECTION 1. ANNUAL MEETING. The annual meeting of the Beneficiaries of the Trust for the transacting of such business as shall be specified in the notice of the meeting shall be held as provided in the Declaration of Trust. SECTION 2. SPECIAL MEETINGS. Special meetings may be called at any time as provided in the Declaration of Trust. SECTION 3. PLACE OF MEETING. All meetings of the Beneficiaries shall be held at the office of the Trust in the City of Cleveland in the State of Ohio or at such other place in the State of Ohio as may be designated, in the case of an annual meeting, by the Trustees, or, in the case of a special meeting, by the Trustees calling such meeting or by the person or persons requesting such meeting pursuant to the Declaration of Trust. SECTION 4. NOTICE OF MEETINGS. Written notice of each annual or special meeting of the Beneficiaries, stating the time, place and purpose thereof shall be given in accordance with the Declaration of Trust. SECTION 5. PROCEDURE AT MEETINGS. At each meeting of the Beneficiaries, the Trustees shall appoint one of their number or one of the Beneficiaries to preside thereat. The Trustees shall appoint a Secretary for each such meeting, who shall be duly sworn to the faithful discharge of his duties and to keep the minutes of such meeting, which minutes shall be signed and attested by him and filed with the records of the Trust. SECTION 6. QUORUM. A majority of the outstanding shares of the Trust present in person or by proxy shall constitute a quorum for any annual or special meeting of Beneficiaries. SECTION 7. NOMINATIONS AND BENEFICIARY BUSINESS. (a) With respect to any Annual or Special Meeting of Beneficiaries, (a "Meeting") nominations for election to the Board of Trustees and the proposal of matters to be considered by the Beneficiaries may be made only (i) by or at the direction of the Board of Trustees or (ii) by any Beneficiary who was a Beneficiary of record at the time of the giving of the notice described in this Section 7 and at the record date for the Meeting, as defined in the Declaration of Trust, who is entitled to vote at the Meeting and who complied with the notice procedures set forth in this Section 7. (b) For a nomination or proposal to be properly brought before a Meeting by a Beneficiary, other than a shareholder proposal included in the Trust's proxy statement pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, as amended, the Beneficiary must have given timely notice thereof in writing to the Secretary of the Trust, and such Beneficiary or his representative must be present in person at the Meeting. A Beneficiary's notice shall be timely if delivered to, or mailed and received at, the principal executive offices of the Trust (i) for an Annual Meeting not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding Annual Meeting of Beneficiaries, or Special Meeting held in lieu thereof and (ii) for a Special Meeting, not less than 90 days prior to the date requested for such meeting. (c) A Beneficiary's notice to the Secretary shall set forth as to each nomination or proposal the Beneficiary intends to bring before the Meeting (i) as to any nomination, the name and address of any proposed nominee, the nominee's business affiliation, the information required as to nominees by Item 401 of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934, all as may be amended from time to time, and a certification of the proponent that such nominee meets all the qualifications for Trustees set forth in the Declaration of Trust, including, but not limited to, Section 8.10 thereof, (ii) as to any proposal, a brief description of the proposal desired to be brought before the Meeting, a statement of the reasons for making such proposal at the Meeting and a certification of the proponent that the proposal does not conflict with or violate any provision of the Declaration of Trust, (iii) the name and address, as they appear on the Trust's share transfer books of the Beneficiary offering such nomination or proposal and of the beneficial owners (if any) of the shares registered in such Beneficiary's name and the name and address of any other Beneficiaries (or beneficial owner of shares) known by such Beneficiary to be supporting such nomination or proposal on the date of the Beneficiary's notice, (iv) the class and number of shares of the Trust's capital shares which are beneficially owned by the Beneficiary and such beneficial owners (if any) on the date of such Beneficiary's notice and by any other Beneficiaries known by such Beneficiary to be supporting such nomination or proposal on the date of such Beneficiary's notice, and (v) any financial interest of the Beneficiary or any such beneficial owner in such proposal. Nothing contained in this Subsection (c) shall be deemed to supersede the provisions of Section 7.2 of the Declaration of Trust relating to business that may be transacted at a Special Meeting. (d) If the Board of Trustees, or a designated committee thereof, determines that any Beneficiary nomination or proposal was not timely made in accordance with the provisions of this Section 7, or that any proposed nominee does not meet the qualifications set forth in the Declaration of Trust, or that any proposal conflicts with or violates a provision of the Declaration of Trust, then such nomination or proposal shall not be presented for action at the Meeting in question. If the Board of Trustees, or a designated committee thereof, determines that the information provided in the Beneficiary's notice does not satisfy the informational requirements of this section in any material respect, the Secretary of the Trust shall promptly notify such Beneficiary of the deficiency in the notice. Such Beneficiary shall have the opportunity to cure such deficiency by providing additional information to the Secretary within the period of time, not to exceed five (5) days from the date such deficiency notice is given to such Beneficiary, determined by the Board or such committee. If the deficiency is not cured within such period, or if the Board of Trustees or such committee determines that the additional information provided by the Beneficiary, together with the information previously provided, does not satisfy the requirements of this Section 7 in any material respect, then such nomination or proposal shall not be presented for action at the Meeting in question. (e) Notwithstanding the procedure set forth in the preceding paragraph, if neither the Board of Trustees nor such committee makes a determination as to the compliance of any Beneficiary nomination or proposal with the provisions of this Section 7, as set forth above, the presiding Officer of the Meeting shall determine and declare at the Meeting whether the Beneficiary nomination or proposal was made in compliance with the provisions of this Section 7, and if such presiding Officer determines and declares that such nomination or proposal was not made in compliance with such provisions, such nomination or proposal shall not be acted upon at the Meeting. ARTICLE II SECTION 1. REGULAR MEETINGS. Regular meetings of the Trustees may be held at such times and places within or without the State of Ohio as may be provided for in resolution adopted by the Trustees. SECTION 2. SPECIAL MEETINGS. Special meetings of the Trustees may be held at any time or place within or without the State of Ohio upon call of the Chairman of the Board or any two of the Trustees at the time and place designated in the notice of meeting. SECTION 3. NOTICE OF AND PARTICIPATION IN MEETINGS. Notice of each meeting, regular or special, shall be given by mailing or by sending to each Trustee (addressed to the address last furnished to the Trust by the Trustee) a letter at least 4 days before the meeting, or a facsimile transmittal at least 24 hours before the meeting. Notice of any special or regular meeting, as provided in the Declaration of Trust, may be waived in writing or by facsimile transmittal by any Trustee either before or after such meeting, and such notice shall be deemed to have been waived by the Trustees attending such meeting. Except as provided in Article VI hereof, unless otherwise indicated in the notice thereof, any business may be transacted at any regular or special meeting. Meetings of the Trustees may be held through any communications equipment if all persons participating can hear each other and participation in a meeting pursuant to this sentence shall constitute presence at such meeting. SECTION 4. QUORUM. At any meeting a majority of the Trustees then in office shall constitute a quorum. SECTION 5. COMPENSATION OF TRUSTEES. The Trustees are authorized to fix a reasonable retainer for members of the Board of Trustees and the Chairman and a reasonable fee for attendance at meetings. In addition to such compensation there shall be reimbursement for expenses for traveling to and from such meetings. SECTION 6. COMMITTEES OF THE BOARD OF TRUSTEES. The Trustee may elect from their members committees of the Board and give them any or all powers of the Trustees during intervals between the meetings of the Trustees, except that such committees shall not be empowered to declare dividends or fill vacancies in the Board of Trustees or committees. All actions of such committees shall be reported to the Trustees at their next meeting. SECTION 7. QUALIFICATIONS OF NOMINEES - AGE. No nominee for Trustee shall be more than 72 years of age at the time of his election as Trustee, nor shall any Trustee nominated for a subsequent term be more than 72 years of age at the time of his election for such subsequent term, provided that any Trustee elected prior to attaining age 72 may continue to serve the remainder of his term despite attaining the age of 72 before the expiration of his term. ARTICLE III OFFICERS SECTION 1. DESIGNATION OF OFFICERS. The Trustees shall elect a Chairman of the Board, a President, a Secretary, a Treasurer, and such Vice Presidents and other officers, or assistant officers, as they shall deem advisable. Each officer and assistant officer shall have such functions and duties as the Trustees shall from time to time designate, and, in the absence of such designation, such duties as are usually associated with such office. Except as otherwise determined by the Trustees, any two or more offices may be held by the same person. SECTION 2. TENURE OF OFFICE. The officers of the Trust shall hold office at the pleasure of the Trustees, and until successors are chosen and qualified. A vacancy in any office, however created, may be filled by election by the Trustees. SECTION 3. DELEGATION OF DUTIES. The Trustees may delegate the duties of any officer to any other officer and generally may control the action of the officers and require the performance of duties in addition to those mentioned herein. SECTION 4. COMPENSATION. The Trustees are authorized to determine or to provide the method of determining the compensation of officers. SECTION 5. SIGNING CHECKS AND OTHER INSTRUMENTS. The Trustees shall determine or provide the method of determining how checks, notes, bills of exchange and similar instruments issued by or on behalf of the Trust shall be signed, countersigned, or endorsed. SECTION 6. CONTROL BY TRUSTEES. Nothing contained herein shall be interpreted to relieve the Trustees, in any manner, of their duty to control and manage the Trust property. ARTICLE IV SHARES IN TRUST SECTION 1. ISSUE OF CERTIFICATE OF BENEFICIAL OWNERSHIP. The Chairman shall cause to be issued to each Beneficiary one or more certificates, under the seal of the Trust, signed as provided in Article III, Section 5 hereof, certifying the number of shares owned by such Beneficiary in the Trust. Such certificates shall be countersigned by the Transfer Agent and registered by the Registrar and shall be transferable on the books of the Trust as provided in the Declaration of Trust. ARTICLE V AMENDMENTS. SECTION 1. AMENDMENT OF BY-LAWS. The Trustees, by the affirmative vote of a majority, may at any meeting, provided the substance of the proposed amendment shall have been stated in a notice of the meeting, alter, change, or amend in any respect, or supersede by new By-Laws, in whole or in part, any of these By-Laws. ARTICLE VI MISCELLANEOUS PROVISIONS. SECTION 1. FISCAL YEAR. The fiscal year of the Trust shall be as determined from time to time by the Trustees. SECTION 2. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required by these by-laws to be given, personal notice is not required unless expressly so stated; and any notice so required shall be deemed to be sufficient if given (i) by letter, by depositing the same in a post-office box in a sealed post-paid wrapper, addressed to the person entitled thereto (at his last known post-office address as shown by the register of the Trust) and such notice shall be deemed to have been given on the day of such mailing; or (ii) by facsimile transmittal if transmitted via facsimile with evidence of receipt by the sender, and such notice shall be deemed to have been given on the day of such facsimile transmittal. SECTION 3. CHECKS FOR MONEY. All checks, drafts or orders for the payment of money shall be signed by the Treasurer or Assistant Treasurer or by such other officer, officers, Trustee or Trustees as the Trustees may from time to time designate. SECTION 4. FORM OF CERTIFICATE OF BENEFICIAL INTEREST. The form of certificate of beneficial interest representing shares of $1 par value shall be substantially as follows: No._______________________________ Shares FIRST UNION Real Estate Equity and Mortgage Investments THIS CERTIFIES THAT_________________________ is the registered holder of ______________ Fully Paid and Non-assessable Share of Beneficial Interest, $1 Par Value. in FIRST UNION Real Estate Equity and Mortgage Investments a Trust established in business trust from under the laws of the State of Ohio under a Declaration of Trust dated as of August 1, 1961, as amended from time to time, a copy of which is on file with the Transfer Agents of the Trust by all the terms and provisions of which the holder or transferee hereof by accepting this certificate agrees to be bound. The Trust is not a bank or trust company and does not and will not solicit, receive or accept deposits as a business. The shares represented hereby are transferable on the records of the Trust only by the registered holder hereof or by his agent duly authorized in writing on delivery to a Transfer Agent of the Trust of this certificate properly endorsed or accompanied by duly executed instrument of transfer together with such evidence of the genuineness thereof and such other matters as may reasonably be required. The transferability of the shares represented hereby is subject to such regulation, as may from time to time be adopted by the Trustees of the Trust and set forth in the By-Laws to which reference is hereby made to prevent transfers of shares which would result in disqualification of the Trust for taxation as a real estate investment trust under the Internal Revenue Code an amended. This certificate is not valid unless countersigned by a Transfer Agent and registered by a Registrar of the Trust. IN WITNESS WHEREOF, the Trustees of this Trust have caused this certificate to be signed by facsimile signatures. [ON REVERSE SIDE] The By-Laws of the Trust provide, among other things, that no person may acquire Trust securities (including these securities) if, thereafter, he would beneficially own more than 9.8% of the Trust's shares of beneficial interest. In applying this restriction, convertible securities of the Trust beneficially owned by such person (including convertible securities) are to be treated as if already converted into shares of beneficial interest. A copy of the By-Laws and information about the limitation on ownership may be obtained from the Secretary of the Trust. Section 5. Regulations on Transfer of Shares to Prevent Disqualification of the Trust Under the Internal Revenue Code Notification of the Trust Under the Internal Revenue Code. The Chief Executive Officer of the Trust or an officer designated by him shall: (a) From time to time cause to be prepared a list of holders of record (with their holdings) of shares of the Trust (preferred and common) and shall designate those holders which the officer acting shall have reason to believe are not also the beneficial owners of the holdings of record in their respective names; (b) Review the list with counsel and impose such restrictions on transfer of shares as counsel shall advise should be imposed to prevent disqualification of the Trust as a Real Estate Investment Trust under Section 856 et seq. of the Internal Revenue Code. Section 6. Restrictions on Issuance and Transfer of Securities. (a) No person may own more than 9.8% of the outstanding Shares (the Limit), and no Securities shall be issued or transferred to any person if, following such issuance or transfer, such person's ownership of Shares would exceed the Limit. For purposes of computing the Limit, Convertible Securities owned by such person shall be treated as if the Convertible Securities owned by such person had been converted into Shares. (b) If any Securities in excess of the Limit are issued or transferred to any person in violation of Paragraph (a) hereof (the "Excess Securities"), such issuance or transfer shall be valid only with respect to such amount of Securities as does not result in a violation of Paragraph (a) hereof, and such issuance or transfer shall be null and void with respect to such Excess Securities. If the last clause of the foregoing sentence is determined to be invalid by virtue of any legal decision, statute, rule or regulation, such person shall be conclusively deemed to have acted as an agent on behalf of the Trust in acquiring the Excess Securities and to hold such Excess Securities on behalf of the Trust. As the equivalent of treasury Securities for such purposes, the Excess Securities shall not be entitled to any voting rights; shall not be considered to be outstanding for quorums or voting purposes; and shall not be entitled to receive dividends, interest or any other distribution with respect to the Securities. Any person who receives dividends, interest or any other distribution in respect to Excess Securities shall hold the same as agent for the Trust and (following a permitted transfer) for the transferee thereof. Notwithstanding the foregoing, any holder of Excess Securities may transfer the same (together with any distributions thereon) to any person who, following such transfer, would not own Shares (within the meaning of Paragraph (a)) in excess of the Limit. Upon such permitted transfer, the Trust shall pay or distribute to the transferee any distributions on the Excess Securities not previously paid or distributed. (c) Ownership of Securities is conditional upon the owner or prospective owner having provided to the Trust definitive written information respecting his ownership of Securities. Failure to provide such information, upon reasonable request shall result in the Securities so owned being treated as Excess Securities pursuant to Paragraph (b) for so long as such failure continues. (d) For purposes of this Section 6: (i) Person. includes an individual, corporation, partnership, association, joint stock company, trust, unincorporated association or other entity. (ii) Shares. means Shares of Beneficial Interest, par value $1 per share. (iii) Convertible Securities. means any securities of the Trust that are convertible into Shares. (iv) Securities. means Shares and Convertible Securities. (v) Ownership. means beneficial ownership. Beneficial ownership, for this purpose, may be determined on the basis of the beneficial ownership rules applicable under the Securities Exchange Act of 1934, as amended, or such other basis as management reasonably determines to be appropriate to effectuate the purposes hereof. (e) Nothing herein contained shall limit the ability of the Trust to impose, or to seek judicial or other imposition of additional restrictions if deemed necessary or advisable to protect the Trust and the interests of its security holders by preservation of the Trust's status as a qualified real estate investment trust under the Code. (f) These restrictions on issuance and transfer of Securities shall be applied only on a prospective basis. Accordingly, Paragraphs (a) and (b) hereof shall not apply to Shares in excess of the limit that were owned (within the meaning of Paragraph (a) by any person at the close of business on June 3, 1981, but Paragraph (a) and (b) shall prospectively apply to the transfer of such Shares and to further acquisitions of Securities by any such person. Similarly, Paragraphs (a) and (b) shall not apply to the conversion of Convertible Securities that were owned by any person at the close of business on such date or to the resultant Shares owned by such person, but Paragraph (a) and (b) shall prospectively apply to such Shares and to such person. (g) Notwithstanding any other provision of this Section 6, a lower percentage (the Temporary Limit) shall operate in place of the 9.8% ownership Limit set forth in Paragraph (a) hereof for so long as there are outstanding Securities excepted from the restrictions of this Section 6 pursuant to Paragraph (f) hereof ("Exempt Securities"). The Temporary Limit shall initially be 6%, but upon the transfer of Exempt Securities the Temporary Limit shall be fixed by the Trustees from time to time but shall in no event exceed an amount equal to 25% of the difference between (i) 49% of the Shares outstanding and (ii) the number of Shares owned by any person who owns Exempt Securities. For purposes of this calculation, Convertible Securities owned by such person shall be treated as if the Convertible Securities owned by such person had been converted into Shares. (h) If any provision of this Section 6 or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction over the issue, the validity of the remaining provisions shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court. First Union By-Laws 2nd Version EX-10.(A) 3 - ---------------------------------------------------------------------------- FIXED RATE LOAN AGREEMENT Dated as of August 11, 1998 BY and AMONG FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS, as Borrower BANKERS TRUST COMPANY, as Agent AND THE LENDERS LISTED ON THE SIGNATURE PAGES HERETO, as Lenders $45,000,000 (Bank Group) - ---------------------------------------------------------------------------- TABLE OF CONTENTS Page I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION........................ 1 1.1 Definitions........................................... 1 1.2 Principles of Construction............................ 13 II. GENERAL TERMS.................................................. 14 2.1 Commitments; Advances; Notes; the Register............ 14 2.1.1 Commitments.................................. 14 2.1.2 Borrowing Mechanics. ....................... 14 2.1.3 Disbursement of Funds........................ 15 2.1.4 Notes........................................ 15 2.1.5 The Register................................. 16 2.2 Use of Proceeds....................................... 16 2.3 Loan Repayments and Prepayments....................... 16 2.3.1 Repayments................................... 16 2.3.2 Mandatory Prepayments of the Loans........... 16 2.3.3 Voluntary Prepayments of the Loans........... 17 2.3.4 Not A Revolver............................... 17 2.4 Interest.............................................. 17 2.4.1 Generally.................................... 17 2.4.2 Interest Payments............................ 17 2.4.3 Default Rate; Post-Maturity Interest......... 18 2.5 Payments; Computations................................ 18 2.5.1 Making of Payments........................... 18 2.5.2 Computation of Interest...................... 18 2.5.3 Capital Adequacy Adjustment. ............... 18 2.6 Extension of Loan Term................................ 19 2.6.1 Extension Option............................. 19 2.6.2 Conditions to Extend......................... 19 2.7 Commitment and Other Fees............................. 20 2.8 Agent Reliance; Defaulting Lenders.................... 20 2.8.1 Agent Reliance............................... 20 2.8.2 Defaulting Lenders........................... 20 2.8.3 Subordination of Defaulting Lenders.......... 21 2.9 Lending Installations................................. 21 2.10 Withholding........................................... 21 2.11 Sharing of Payments, Etc.............................. 22 2.12 Pro Rata Treatment.................................... 23 III. SPECIAL PROVISIONS............................................. 23 3.1 Loss Proceeds Account................................. 23 3.2 Casualty and Condemnation............................. 23 3.2.1 Casualty, Condemnation and Application of Proceeds..................................... 23 3.2.2 Conflicts With Mortgage Financing............ 27 IV. CONDITIONS PRECEDENT........................................... 27 4.1 Intentionally Omitted................................. 27 4.2 Conditions Precedent to All Advances.................. 27 4.2.1 Notice of Borrowing; Other Documentation..... 27 4.2.2 Other Conditions............................. 28 V. REPRESENTATIONS AND WARRANTIES................................. 28 5.1 Borrower Representations.............................. 28 5.1.1 Organization; Existence...................... 28 5.1.2 Proceedings.................................. 29 5.1.3 No Conflicts................................. 29 5.1.4 Litigation................................... 29 5.1.5 Agreements................................... 30 5.1.6 No Bankruptcy Filing......................... 30 5.1.7 Full and Accurate Disclosure................. 30 5.1.8 Tax and REIT Status.......................... 30 5.1.9 Use of Proceeds.............................. 30 5.1.10 Financial Information........................ 30 5.1.11 No Default................................... 31 5.1.12 Federal Reserve Regulations.................. 31 5.1.13 Enforceability............................... 31 5.1.14 Incorporation of Representations and Warranties................................... 32 VI. AFFIRMATIVE COVENANTS.......................................... 32 6.1 Borrower Covenants.................................... 32 6.1.1 SEC Filings and Press Releases............... 32 6.1.2 Business and Operations...................... 32 6.1.3 Costs of Enforcement......................... 32 6.1.4 Estoppel Statement........................... 32 6.1.5 Loan Proceeds................................ 33 6.1.6 Name; Principal Place of Business............ 33 6.1.7 Board of Trustees............................ 33 6.1.8 Offering..................................... 33 6.1.9 Incorporation of Affirmative Covenants....... 33 VII. NEGATIVE COVENANTS............................................. 33 7.1 Borrower Negative Covenants........................... 33 7.1.1 Debt......................................... 34 7.1.2 Corporate Structure.......................... 34 7.1.3 Incorporation of Negative Covenants.......... 34 VIII. DEFAULTS....................................................... 34 8.1 Event of Default...................................... 34 8.2 Remedies.............................................. 37 8.3 Remedies Cumulative................................... 37 8.4 Gotham's Cure Rights.................................. 38 IX. MISCELLANEOUS.................................................. 39 9.1 Survival.............................................. 39 9.2 Lenders' or Agent's Discretion........................ 39 9.3 Governing Law......................................... 39 9.4 Modification, Waiver in Writing....................... 40 9.5 Delay Not a Waiver.................................... 41 9.6 Notices............................................... 41 9.7 Trial By Jury......................................... 42 9.8 Headings.............................................. 42 9.9 Severability.......................................... 42 9.10 Preferences........................................... 42 9.11 Waiver of Notice...................................... 43 9.12 Remedies of Borrower.................................. 43 9.13 Non-Exculpation....................................... 43 9.14 Expenses; Indemnity................................... 43 9.15 Exhibits, Schedules Incorporated...................... 45 9.16 Offsets, Counterclaims and Defenses................... 45 9.17 No Joint Venture or Partnership....................... 46 9.18 Publicity............................................. 46 9.19 Waiver of Counterclaim................................ 46 9.20 Conflict; Construction of Documents................... 46 9.21 Brokers and Financial Advisors........................ 46 9.22 Prior Agreements...................................... 47 9.23 Maximum Rate of Interest.............................. 47 9.24 Attorneys' Fees....................................... 47 9.25 Counterparts.......................................... 47 9.26 Application of Payments............................... 48 9.27 Assignments and Participations........................ 48 9.28 Setoff................................................ 51 9.29 Liability of Borrower's Trustees, etc................. 51 9.30 Employee Termination Expenses......................... 51 9.31 Conflicts with Intercreditor Agreement................ 51 X. AGENT; SUCCESSOR AGENT......................................... 52 10.1 Appointment........................................... 52 10.2 Powers and Duties; General Immunity................... 52 10.2.1 Powers; Duties............................... 52 10.2.2 Agent Entitled to Act as Lender.............. 52 10.3 Representations and Warranties; No Responsibility for Appraisal of Creditworthiness..................... 53 10.4 Successor Agent....................................... 53 XI. OFFERING....................................................... 54 11.1 Rights Offering....................................... 54 11.2 Consummation.......................................... 54 11.3 Proceeds of Offering.................................. 54 11.4 Pricing of Rights Offering............................ 54 11.5 Waiver of Ownership Limitations....................... 54 11.6 Indemnification....................................... 55 EXHIBITS Exhibit A Form of Guaranty Exhibit B Form of Notes Exhibit C Form of Notice of Borrowing Exhibit D Form of Assignment and Acceptance SCHEDULES Schedule 1.1 List of Prior Debt Documents Schedule 2.1.1 Commitments; Lenders' Pro Rata Shares Schedule 5.1.4 Pending and Threatened Litigation Schedule 5.1.14 Annexes to Line of Credit Facility FIXED RATE LOAN AGREEMENT THIS FIXED RATE LOAN AGREEMENT, dated as of August 11, 1998 (as amended, restated, replaced, supplemented or otherwise modified from time to time, this ("AGREEMENT"), by and among BANKERS TRUST COMPANY, a New York banking corporation ("BANKERS"), having an address at 130 Liberty Street, New York, New York 10006, BANKBOSTON N.A., a national banking association, having an address at 115 Perimeter Center Place, NE, Suite 500, Atlanta, Georgia 30346, and WELLSFORD CAPITAL, a Maryland real estate investment trust, having an address at 610 Fifth Avenue, New York, New York 10020 (together with their successors and assigns hereunder, each a "LENDER" and collectively, the ("LENDERS"), BANKERS TRUST COMPANY, a New York banking corporation, as agent (in such capacity, together with its successors and assigns hereunder, ("AGENT"), having an address at 130 Liberty Street, New York, New York 10006, Attention: Jeffrey Baevsky, and FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS, an Ohio real estate investment trust ("BORROWER"), having an address at Suite 1900, 55 Public Square, Cleveland, Ohio 44113-1937. All capitalized terms used herein shall have the respective meanings set forth in Section 1.1 hereof. W I T N E S S E T H : WHEREAS, Borrower desires to obtain the Loans from Lenders; and WHEREAS, Lenders are willing to make the Loans to Borrower, subject to and in accordance with the terms of this Agreement. NOW, THEREFORE, in consideration of the making of the Loans by Lenders and the covenants, agreements, representations and warranties set forth in this Agreement, the parties hereto hereby covenant, agree, represent and warrant as follows: I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION 1.1 DEFINITIONS For all purposes of this Agreement, except as otherwise expressly provided herein or unless the context clearly indicates a contrary intent: "ADVANCE" means an advance of a Loan made on or after the Closing Date pursuant to and in accordance with Section 2.1.1 to be used exclusively for the purposes described in Section 2.2. "AFFILIATE" means, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person or is a director, officer or trustee of such Person or of an Affiliate of such Person. For purposes of this definition, Acontrol" of a person means the power, directly or indirectly, (i) to vote ten percent (10%) or more of the securities having ordinary voting power for the election of directors or trustees of such Person, or (ii) to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise; provided that no Lender shall be deemed an Affiliate of Borrower for purposes of this Agreement or any other Loan Document; and that each of the entities included in the definition of Gotham are deemed to be Affiliates of each other. "AGENT" has the meaning specified in the first Paragraph hereof. "ASSIGNMENT AND ACCEPTANCE" shall mean an Assignment and Acceptance in the form of Exhibit D and delivered pursuant to Section 9.27. "BANKRUPTCY" means, with respect to any Person: (i) the commencement by such Person of a proceeding seeking relief under any provision or chapter of the Bankruptcy Code or any other federal or state law relating to insolvency, bankruptcy or reorganization; (ii) an adjudication that such Person is insolvent or bankrupt; (iii) the entry of an order for relief under the Bankruptcy Code with respect to such Person; (iv) the filing of any such petition or the commencement of any such case or proceeding against such Person, unless such petition and the case or proceeding initiated thereby are dismissed within sixty (60) days from the date of such filing; (v) the filing of an answer by such Person admitting the material allegations of any such petition; (vi) the appointment of a trustee, receiver or custodian for all or substantially all of the assets of such Person unless such appointment is vacated or dismissed by the earlier of sixty (60) days from the date of such appointment and five (5) days before the proposed sale of any assets of such Person; (vii) the execution by such Person of a general assignment for the benefit of creditors; (viii) the convening by such Person of a meeting of its creditors, or any class thereof, for purposes of effecting a moratorium upon or composition of its debts or an extension of its debts; (ix) the levy, attachment, execution or other seizure of substantially all of the assets of such Person where such seizure is not discharged within ten (10) days thereafter; or (x) the admission by such Person in writing of its inability to pay its debts as they mature or that it is generally not paying its debts as they become due. "BANKRUPTCY ACTION" means, with respect to any Person: (i) commencing any case, proceeding or other action seeking protection for such Person as a debtor under any existing or future law of any jurisdiction relating to bankruptcy, insolvency, reorganization or relief of debtors; (ii) consenting to the entry of an order for relief in or institution of any case, proceeding or other action brought by any third party against such Person as a debtor under any existing or future law of any jurisdiction relating to bankruptcy, insolvency, reorganization or relief of debtors; (iii) filing an answer in any involuntary case or proceeding described in clause (ii) above admitting the material allegations of the petition therein or otherwise failing to contest any such involuntary case or proceeding; (iv) seeking or consenting to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar official for such Person or for a substantial portion of its properties; (v) making any assignment for the benefit of the creditors of such Person; or (vi) admitting in writing the inability of such Person to generally pay its debts as they mature or that such Person is generally not paying its debts as they become due. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "BORROWER" has the meaning specified in the first Paragraph hereof. "BUSINESS DAY" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York, or which is a day on which banking institutions located in any such jurisdiction are authorized or required by law or other governmental action to close. "CAPITAL EVENT" means: (i) any sale, transfer, disposition, conveyance or refinancing of all or any portion of any Property; (ii) Casualty or Condemnation of all or any portion of any Property; (iii) the acquisition, by purchase or otherwise, of any Property or other assets; (iv) the issuance of any debt (other than the Indebtedness and other than under the Imperial Credit Facility and/or the Line of Credit Facility, as each is in effect on the date hereof) or equity securities by Borrower (including the Offering); (v) the incurrence of any indebtedness (other than the Indebtedness and other than under the Imperial Credit Facility and/or the Line of Credit Facility, as each is in effect on the date hereof) for borrowed money by Borrower (other than purchase-money indebtedness); (vi) any transaction or arrangement with any Person whereby Borrower shall sell or transfer any Property and then or thereafter rent or lease back the same Property which it intends to use for substantially the same purposes as the Property sold or transferred; or (vii) any other event or occurrence which creates Capital Event Proceeds. "CAPITAL EVENT PROCEEDS" means the net proceeds (i.e., the amounts received as a result of a Capital Event exceeds the costs and expenses incurred in such Capital Event) to Borrower from any Capital Event, including but not limited to: (i) net proceeds from the sale, transfer, disposition, conveyance or refinancing of all or any portion of any Property; (ii) Loss Proceeds in respect of a Casualty or Condemnation of all or any portion of the Properties, if such proceeds are not used to rebuild or restore such Properties, or are not governed by another document in accordance with Section 3.2.2; (iii) net proceeds from the issuance of any debt or equity securities by Borrower; (iv) net proceeds from the incurrence of any indebtedness for borrowed money by Borrower; or (v) any net proceeds from a transaction or arrangement with any Person whereby Borrower shall sell or transfer any Property and then or thereafter rent or lease back the same Property which it intends to use for substantially the same purposes as the Property sold or transferred; provided that all such proceeds shall be net of reasonable out-of-pocket transaction costs and income or other taxes payable by Borrower as a result of such Capital Event and, in the case of the sale or other disposition of any Property, net of payment of any debt secured by such Property or Properties. "CASUALTY" means any damage to, or loss or destruction of, all or any part of the Properties, whether or not such damage, loss or destruction is insured or insurable. "CASUALTY INSURANCE PROCEEDS" means insurance or other proceeds or amounts paid or payable to or on behalf of Borrower in respect of a Casualty. "CHANGE IN CONTROL" means, with respect to Borrower, any of the following events: (i) the acquisition, directly or indirectly, by any one "person" (as such term is used in Section 13(d), and 14(d) of the Securities and Exchange Act of 1934, as amended) of more than 10% of the common stock of or other equity interests in Borrower; or (ii) during any period subsequent to the date hereof, individuals who at the beginning of such period constituted the Board of Trustees or Board of Directors of Borrower (together with any new directors or trustees whose election or nomination for election was approved by a vote of a majority of the directors or trustees then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of such Board of Directors or Board of Trustees then in office; provided that neither the execution of the Standby Purchase Agreements nor the purchase by the Standby Purchasers of any stock pursuant to the Offering or the Standby Purchase Agreements shall be deemed to cause a Change in Control and that any increase in the ownership by any Standby Purchaser of any common stock or other equity interests in Borrower shall not constitute a Change in Control. "CLOSING DATE" means the date of this Agreement. "COMMITMENTS" means the commitments of Lenders to make Advances to Borrower pursuant to Section 2.1.1. "COMMITMENT FEES" has the meaning specified in Section 2.7. "CONDEMNATION" means any actual or threatened taking, condemnation, eminent domain or other similar proceeding relating to all or any portion of any Property. "CONDEMNATION PROCEEDS" means any and all award proceeds and other compensation payable in respect of a Condemnation. "CONTROL" of a Person means the power, whether or not exercised, to direct the management of such Person, whether by possession of the power to elect a majority of the Board of Directors or Board of Trustees or otherwise. "CPA" means a certified public accounting firm of recognized national standing. "DEBT" means, with respect to any Person, without duplication, (i) all indebtedness of such Person for borrowed money, (ii) all indebtedness of such Person for the deferred purchase price of property or services (other than indebtedness for property and services purchased in the ordinary course of business that is payable and paid within sixty (60) days after delivery), (iii) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments (other than performance, surety and appeal bonds arising in the ordinary course of business), (iv) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (v) all obligations of such Person under leases which have been or should be, in accordance with GAAP, recorded as capital leases, (vi) all reimbursement, payment or similar obligations of such Person, contingent or otherwise, under acceptance, letter of credit or similar facilities (other than letters of credit in support of trade obligations or in connection with workers' compensation, unemployment insurance, old-age pensions and other social security benefits in the ordinary course of business), (vii) all Debt (as defined in clauses (i) through (vi) above) of another Person guaranteed directly or indirectly by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (A) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (B) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss in respect of such Debt, (C) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (D) otherwise to assure a creditor against loss in respect of such Debt, and (viii) all Debt (as defined in clauses (i) through (vi) above) of another Person secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any lien, security interest or other charge or encumbrance upon or in property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt; excluding, however, the endorsement of negotiable instruments or documents in the ordinary course of business. "DEFAULT" means the existence of a condition or the occurrence of an event which, but for the giving of notice or passage of time, or both, would be an Event of Default. "DEFAULT RATE" means a rate per annum equal to the greater of the Interest Rate plus four percent (4.0%) per annum and the Prime Lending Rate plus four percent (4.0%) per annum. "DEFAULTING LENDER" shall have the meaning assigned to such term in Section 2.8.3. "ELLIOTT" is a reference to Elliott Associates, L.P., a Delaware limited partnership. "EVENT OF DEFAULT" has the meaning specified in Section 8.1. "EXTENSION FEE" has the meaning specified in Section 2.6.2. "FINAL COMMITMENT DATE" means the date that is six (6) months from the date on which the Closing Date occurs; provided that if the Final Commitment Date occurs on a day which is not a Business Day, the Final Commitment Date will fall on the next succeeding Business Day. "FINAL EXTENSION MATURITY DATE" has the meaning specified in Section 2.6.1(b). "FINAL EXTENSION NOTICE" has the meaning specified in Section 2.6.1(b). "FINAL EXTENSION OPTION" has the meaning specified in Section 2.6.1(b). "FISCAL YEAR" means each twelve month period commencing on January 1 and ending on December 31. "FFO" means, for any Person, net income (computed in accordance with GAAP), excluding gains (or losses) from restructuring and sales of property, plus depreciation of real property, and after adjustments for unconsolidated entities in which such Person holds an interest. "FUNDING DATE" means the date of the funding of an Advance. AGAAP" means generally accepted accounting principles in the United States of America as of the date of the applicable financial report. "GOTHAM" is a reference to Gotham Partners, L.P., a New York limited partnership, and Gotham Partners III, L.P., a New York limited partnership, and each reference herein to Gotham, including to Gotham as a Standby Purchaser, shall be deemed to be a reference to all of such entities or to both of such entities, as the context requires. "GOVERNMENTAL AUTHORITY" means any legislative body, court, board, agency, commission, office or authority of any nature whatsoever of or for any governmental unit (federal, state, county, district, municipal, city or otherwise) whether now or hereafter in existence. "GUARANTORS" means any Person which hereafter becomes a Guarantor pursuant to Section 7.20 of the Line of Credit Facility (as incorporated herein). "GUARANTY" means each guaranty, substantially in the form attached hereto as Exhibit A, hereafter executed by a Guarantor in favor of Lenders, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "IMPERIAL CREDIT FACILITY" means the credit facility governed by (i) that certain Amended and Restated Credit Agreement dated as of April 17, 1997 among Imperial Parking Limited, 504463 N.B. Inc., the lenders named therein, and BT Bank of Canada, and (ii) that certain Ancillary Agreement dated April 17, 1997 among BT Bank of Canada, Hongkong Bank of Canada and Borrower; both as amended, restated, replaced, supplemented or otherwise modified, and as more specifically described on Schedule 1.1 hereto. "INDEBTEDNESS" means the indebtedness evidenced by the Notes, together with all other obligations and liabilities of Borrower due or to become due to Lenders pursuant hereto in respect of the Loans, under the Notes or in accordance with any of the other Loan Documents, all amounts, sums and expenses paid by or payable or reimbursable to Lenders hereunder in respect of the Loans or pursuant to the Notes or any of the other Loan Documents, and all other covenants, obligations and liabilities of Borrower hereunder in respect of the Loans or pursuant to the Notes or any of the other Loan Documents, together with all interest thereon (including, if and when applicable, interest at the Default Rate as provided in this Agreement and in the Notes). "INDEMNIFIED LIABILITIES" has the meaning specified in Section 9.14. "INDEMNITEES" means, collectively, Agent, Lenders and their successors and assigns, and its and their respective officers, directors, agents (including any servicer of the Loans), employees, parents, Affiliates and Subsidiaries. "INDEPENDENT" means a Person who (i) is in fact independent, (ii) does not have any direct financial interest or any material indirect financial interest in Borrower or in any Affiliate of Borrower or any constituent partner of Borrower, and (iii) is not connected with Borrower or any Affiliate of Borrower or any constituent partner of Borrower as an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions. Whenever it is herein provided that any Independent Person's opinion or certificate shall be provided, such opinion or certificate shall state that the Person executing the same has read this definition and is Independent within the meaning hereof. "INITIAL EXTENSION MATURITY DATE" has the meaning specified in Section 2.6.1(a). "INITIAL EXTENSION NOTICE" has the meaning specified in Section 2.6.1(a). "INITIAL EXTENSION OPTION" has the meaning specified in Section 2.6.1(a). "INITIAL MATURITY DATE" means the day that is six (6) months from the date on which the Closing Date occurs; provided that if the Initial Maturity Date occurs on a day which is not a Business Day, the Initial Maturity Date will fall on the next succeeding Business Day. "INTERCREDITOR AGREEMENT" shall mean that certain Intercreditor Agreement of even date herewith by and among the parties to this Agreement and the parties to the Other Loan Agreement, as the same may be amended or otherwise modified from time to time. "INTEREST PAYMENT DATE" means, for any Interest Period, the date that is the last day of such Interest Period; provided, however, that if such day is not a Business Day, the Interest Payment Date for such Interest Period shall occur on the next succeeding Business Day. "INTEREST PERIOD" means each calendar month during the term of the Loans; provided that: (a) the initial Interest Period shall commence on (and include) the Closing Date and shall end on (and include) the last day of the calendar month in which the Closing Date occurs; and (b) the final Interest Period shall end on (and include) the last day of the calendar month in which the Initial Maturity Date occurs (or, if applicable, the Initial Extension Maturity Date or Final Extension Maturity Date). "INTEREST RATE" means a rate of interest equal to nine and seven-eighths percent (9.875%) per annum. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended, and as it may be further amended from time to time, any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form. "LEGAL REQUIREMENTS" means all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of any Governmental Authority (including Environmental Laws) affecting Borrower or any Property or any part thereof, whether now or hereafter enacted and in force. "LENDERS" has the meaning specified in the first Paragraph hereof, and shall, as the context may require, include any servicer appointed by Lenders for the purpose of servicing the Loans. "LENDER APPROVAL" means the written approval of the Required Lenders. Lender Approval or approval by the Required Lenders, except as otherwise herein provided, may be granted or withheld in the sole and absolute discretion of such required percentage of Lenders hereunder. "LENDING INSTALLATION" means any office or branch of any Lender. "LIEN" means any mortgage, deed of trust, lien, pledge, hypothecation, assignment, security interest, security title, or any other encumbrance, charge or collateral transfer of, on or affecting the Properties of Borrower or any portion thereof or any interest therein, including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanic's, materialmen's and other similar liens and encumbrances. "LINE OF CREDIT FACILITY" means the $125,000,000.00 credit facility governed by that certain Amended and Restated Credit Agreement dated as of November 1, 1997 among Borrower, Manager, the lenders named therein, Keybank National Association, Bankers Trust Company, and National City Bank, as amended, restated, replaced, supplemented or otherwise modified, and as more specifically described on Schedule 1.1 hereto. "LOAN DOCUMENTS" means collectively, this Agreement, the Notes, the Guaranty, the Standby Purchase Agreements and any other document or instrument executed and delivered by Borrower or any other Person to Agent or any Lender evidencing, governing, securing or otherwise relating to the Loans, in each case, as amended, restated, replaced, supplemented or otherwise modified from time to time. "LOANS" means the fixed rate unsecured loans evidenced by the Notes and governed by the Loan Documents, to be made in Advances by Lenders to Borrower pursuant hereto. "LOSS PROCEEDS" means Casualty Insurance Proceeds and/or Condemnation Proceeds, as the context may require. "LOSS PROCEEDS ACCOUNT" has the meaning specified in Section 3.1. "MANAGER" means First Union Management, Inc., a Delaware corporation. "MATERIAL ADVERSE EFFECT" means any circumstance, act, condition or event of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, or circumstance or circumstances, whether or not related, that does, or could reasonably be expected to, (i) result in a materially adverse change in or have a materially adverse effect upon the business, operations or condition (financial or otherwise) of Borrower or any Standby Purchaser, as the case may be, or (ii) result in the material impairment of the ability of Borrower or any Standby Purchaser to perform, or of Lenders to enforce, the obligations of Borrower or such Standby Purchaser under the Loan Documents to which it is a party, or any of them. "MAXIMUM RATE" has the meaning specified in Section 9.23. "NOTES" means those certain Notes of even date herewith, in each case made by Borrower in favor of a Lender, substantially in the form of Exhibit B, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "NOTICE OF BORROWING" means a notice substantially in the form attached hereto as Exhibit C, delivered by Borrower to Agent pursuant to Section 2.1.2 with respect to a proposed borrowing hereunder. "OFFERING" has the meaning specified in Section 11.1. "OFFICER'S CERTIFICATE" means a certificate delivered to Agent by Borrower which is signed by an authorized officer of Borrower. "ORGANIZATIONAL DOCUMENTS" means, with respect to any Person, (a) if such Person is a limited partnership, the limited partnership agreement of such Person and the certificate of limited partnership of such person, in each case, as amended, restated, supplemented or otherwise modified from time to time, (b) if such Person is a corporation, the certificate or articles of incorporation of such Person and the by-laws of such Person, in each case, as amended, restated, supplemented or otherwise modified from time to time, (c) if such Person is a limited liability company, the certificate of formation (or equivalent document) and the operating agreement of such Person, as amended, restated, supplemented or otherwise modified from time to time, (d) if such person is a trust, the trust agreement of such Person, as amended, restated, supplemented or otherwise modified from time to time, and (e) if such Person is a general partnership, the partnership agreement of such Person, as amended, restated, supplemented or otherwise modified from time to time. If a Person is an individual, there are no Organizational Documents for such Person. "OTHER LOAN AGREEMENT" shall mean that certain Fixed Rate Loan Agreement of even date herewith by and among Borrower, as borrower, Gotham, Blackacre Bridge Capital, L.L.C. and Elliott, as lenders, and Bankers Trust Company, as Agent. "OTHER LOANS" means the "Loans," as defined in the Other Loan Agreement. "PAIRED TRUST" means an Ohio trust created for the benefit of the shareholders of Borrower, which trust holds all of the shares of Manager. "PARTICIPANT" means any participant in any obligations of Borrower hereunder. "PERFORMING LENDERS" shall have the meaning assigned to such term in Section 2.8.2. "PERSON" means any individual, corporation, general partnership, limited partnership, limited liability company, limited liability partnership, joint venture, estate, trust, unincorporated association, or other organization, whether or not a legal entity, any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing. "POLICIES" has the meaning specified in Section 6.1.22(c). "PRE-CLOSING DOCUMENTATION" has the meaning specified in Section 10.3. "PRIME LENDING RATE" shall mean the "Prime Rate" reported by The Wall Street Journal (Eastern Edition) from time to time; provided, however, if at any time more than one Prime Rate is reported by The Wall Street Journal, the Prime Lending Rate shall mean the rate which Agent announces from time to time as its prime lending rate, in effect from time to time. The Prime Lending Rate shall change as of the date of each change in the Prime Rate. If, during any period that any portion of the Loans are outstanding, The Wall Street Journal no longer publishes a "Prime Rate", the Prime Lending Rate shall mean the rate which Agent announces from time to time as its prime lending rate, in effect from time to time. The Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Lenders may make commercial or other loans at rates of interest at, above or below the Prime Lending Rate. "PRIOR DEBT DOCUMENTS" means the documents evidencing, governing, securing or otherwise relating to any outstanding Debt of Borrower as of the Closing Date other than the Indebtedness, including Debt pursuant to the Senior Notes, the Line of Credit Facility and the Imperial Credit Facility. The Prior Debt Documents shall include (but shall not be limited to) the instruments listed on Schedule 1.1 hereto. "PROPERTIES" means, collectively, the parcels of real property from time to time owned or leased by Borrower and all improvements thereon, together with all rights pertaining to such property and improvements. "PRO RATA SHARE" means with respect to each Lender, the percentage obtained by dividing (i) as of any date of determination prior to the termination of the Commitments (a) that Lender's Commitment by (b) the sum of the aggregate Commitments of all Lenders and (ii) as of any date of determination after the termination of the Commitments, (A) the aggregate principal amount of such Lender's outstanding Advances by (B) the sum of the aggregate principal amount of all outstanding Advances. "REGISTER" has the meaning specified in Section 2.1.5(a). "REIT" means a real estate investment trust as defined in Section 856 of the Internal Revenue Code. "REQUIRED LENDERS" shall mean Lenders holding a 66 2/3% or greater share of the outstanding Loans or, if no Loans are outstanding, Lenders holding a 66 2/3% or greater share of the Commitments. "SECURITIES AND EXCHANGE COMMISSION" means the United States Securities and Exchange Commission or any successor thereto. "SENIOR NOTES" means those certain 8 and 7/8% Senior Notes due 2003 issued by Borrower pursuant to that certain Indenture dated as of October 1, 1993 from Borrower to Society National Bank , as amended, restated, replaced, supplemented or otherwise modified, and as more specifically described on Schedule 1.1 hereto. "STANDBY PURCHASE AGREEMENTS" shall mean each of the Standby Stock Purchase Agreements of even date herewith made by and between a Standby Purchaser and Borrower and acknowledged and agreed to by Agent, as the same may be amended or otherwise modified from time to time. "STANDBY PURCHASER" means each of Elliott and Gotham. "SUBSIDIARY" means, with respect to any Person, any corporation, partnership, limited liability company, trust or other entity of which at least a majority of the securities or other ownership interests having by their terms ordinary voting power to elect a majority of the Board of Directors or Board of Trustees or other individuals performing similar functions of such corporation, partnership, limited liability company, trust or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership, limited liability company, trust or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person and/or one or more Subsidiaries of such Person, and any partnership or limited liability company in which such Person or any such Subsidiary is a general partner or managing member. "TAX" means any present or future tax, levy, impost, duty, charge, fee, assessment, imposition, deduction or withholding of any nature and whatever called, by any Governmental Authority, on whomsoever and wherever imposed, levied, collected, withheld or assessed. "WORK" has the meaning specified in Section 3.2.1(d)(i). 1.2 PRINCIPLES OF CONSTRUCTION -------------------------- All references to sections, schedules and exhibits are to sections, schedules and exhibits in or to this Agreement unless otherwise specified. Unless otherwise specified, the words Ahereof," Aherein" and Ahereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The words and phrases "including," "shall include," "inclusive of" and words and phrases of similar import shall be deemed to be followed by "without limitation" or "but not limited to". Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined. All accounting terms not specifically defined herein shall be construed in accordance with GAAP, as modified herein. II. GENERAL TERMS 2.1 COMMITMENTS; ADVANCES; NOTES; THE REGISTER ------------------------------------------ 2.1.1 COMMITMENTS. Subject to and upon the terms and conditions set forth herein, each Lender hereby severally agrees to lend to Borrower from time to time during the period from the Closing Date to and including the Final Commitment Date an aggregate amount not exceeding such Lender's Pro Rata Share of the aggregate amount of the Commitments; provided, however, that notwithstanding anything herein to the contrary, any amount borrowed and repaid hereunder cannot be reborrowed. Borrower agrees that for so long as Advances are available hereunder Borrower will not borrow under the Other Loan Agreement. The original amount of each Lender's Commitment and such Lender's original Pro Rata Share is set forth opposite its name on Schedule 2.1.1 annexed hereto and the aggregate original amount of the Commitments is Forty-five Million Dollars ($45,000,000.00). Borrower shall use the proceeds of all Loans for the purposes identified in Section 2.2. Each Lender's Commitment shall expire on the Final Commitment Date and all Advances and all other amounts owed hereunder with respect to the Loans and the Commitments shall be paid in full no later than the Initial Maturity Date (or, if the term of the Loans is extended pursuant to Section 2.6, the Initial Extension Maturity Date or the Final Extension Maturity Date, as the case may be). 2.1.2 BORROWING MECHANICS. Advances made on any Funding Date shall be in an aggregate minimum amount of Five Million Dollars ($5,000,000.00). Whenever Borrower desires that Lenders make Advances, it shall deliver to Agent a Notice of Borrowing no later than 10:00 A.M. (New York time) at least three Business Days in advance of the proposed Funding Date. Each Notice of Borrowing shall specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the amount of the Advances requested, (iii) the account to which the Advances shall be wired, and (iv) that no other Funding Date shall have occurred within the 30 days immediately preceding the proposed Funding Date. Borrower may give Agent telephonic notice by the required time of any proposed Advances under this Section 2.1.2; provided, however, that such notice shall be promptly confirmed in writing by delivery of a Notice of Borrowing to Agent on or before the applicable Funding Date. Neither Agent nor any Lender shall incur any liability to Borrower in acting upon any telephonic notice referred to above that Agent believes in good faith to have been given by a duly authorized officer or other Person authorized to borrow on behalf of Borrower or for otherwise acting in good faith under this Section 2.1.2, and upon funding of Advances by Lenders in accordance with this Agreement pursuant to any such telephonic notice Borrower shall have effected Advances hereunder. Borrower shall notify Agent (who shall notify Lenders) prior to the funding of any Advances in the event that any of the matters to which Borrower is required to certify in the applicable Notice of Borrowing is no longer true and correct as of the applicable Funding Date, and the acceptance by Borrower of the proceeds of any Advances shall constitute a re-certification by Borrower, as of the applicable Funding Date, as to the matters to which Borrower is required to certify in the applicable Notice of Borrowing. 2.1.3 DISBURSEMENT OF FUNDS. All Advances under this Agreement shall be made by Lenders simultaneously and proportionately to their respective Pro Rata Shares, it being understood that no Lender shall be responsible for any default by any other Lender in that other Lender's obligation to make Advances requested hereunder nor shall the Commitment of any Lender be increased or decreased as a result of a default by any other Lender in that other Lender's obligation to make Advances requested hereunder. Promptly after receipt by Agent of a Notice of Borrowing pursuant to Section 2.1.2 (or telephonic notice in lieu thereof), Agent shall notify each Lender of the proposed Advances. Provided that Lenders have received at least one (1) Business Day notice of the requested Advance, each Lender shall make its Pro Rata Share of the aggregate amount of the Advances requested in such Notice of Borrowing or telephonic notice, as the case may be, available to Agent, in same day funds, at the office of Agent located at 130 Liberty Street, New York, New York, not later than 12:00 Noon (New York time) on the applicable Funding Date. Upon satisfaction of the conditions precedent specified in Section 4.1 and 4.2 (in the case of Advances made on the Closing Date) and Section 4.2 (in the case of all Advances), Agent shall make the proceeds of such Advances available to Borrower on the applicable Funding Date by causing an amount of same day funds equal to the proceeds of all such Advances received by Agent from Lenders to be transferred to the account designated in the Notice of Borrowing or telephonic notice, as the case may be. 2.1.4 NOTES. The Commitments and Loans shall be evidenced by the Notes of Borrower, each in the original principal amount of the respective Loan and having an initial maturity date of Initial Maturity Date. The Notes shall bear interest as provided in Section 2.4 and shall be subject to repayment and prepayment as provided in Section 2.3. The Notes shall be entitled to the benefits of this Agreement. 2.1.5 THE REGISTER. ------------ (a) Agent shall maintain, at its address referred to in this Agreement, a register for the recordation of the names and addresses of Lenders and the Commitment and Advances of each Lender from time to time (the "REGISTER"). For all purposes of this Agreement, Borrower, Agent and Lenders may treat as a Lender hereunder each Person whose name is recorded in the Register as a Lender hereunder. The Register shall be available for inspection by Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice (b) Agent shall record in the Register the Commitment and the Advances from time to time of each Lender, and each repayment or prepayment in respect of the principal amount of the Advances of each Lender. Any such recordation shall be prima facie evidence of such matters as against Borrower and each Lender, absent manifest error; provided, however, that failure to make any such recordation, or any error in such recordation, shall not affect Borrower's obligations in respect of the applicable Loans. (c) Each Lender shall record on its internal records (including the Notes described in Section 2.1.4) the amount of each Advance made by it and each payment in respect thereof. Any such recordation shall be prima facie evidence of such matters as against Borrower absent manifest error; provided, however, that failure to make any such recordation, or any error in such recordation, shall not affect Borrower's obligations in respect of the applicable Loans. 2.2 USE OF PROCEEDS. --------------- Borrower shall use the proceeds of the Loans only for the purposes of repurchasing outstanding Senior Notes and the payment of actual out-of-pocket costs incurred by Borrower in connection therewith, and for no other purpose. 2.3 LOAN REPAYMENTS AND PREPAYMENTS. ------------------------------ 2.3.1. REPAYMENTS. Subject to Section 2.6 hereof, Borrower shall repay the then outstanding principal amount of the Loans in full on the Initial Maturity Date, together with interest thereon through (and including) the last day of the final Interest Period. 2.3.2 MANDATORY PREPAYMENTS OF THE LOANS. Subject to the terms and provisions of the Intercreditor Agreement, the Loans and the Other Loans are subject to mandatory partial or full prepayment (together with interest on the amount prepaid), on a pro-rata basis, with one hundred percent (100%) of all Capital Event Proceeds within two (2) Business Days after the date Borrower receives such Capital Event Proceeds; provided that Loss Proceeds shall be applied to such mandatory prepayment only to the extent such Loss Proceeds are not applied to rebuild or restore Properties that were the subject of the Casualty or Condemnation with respect to which such Loss Proceeds were received. However, to the extent such Loss Proceeds become available for prepayment during the Lock-Out Period (defined below), such prepayment shall be made immediately following the Lock-Out Period. 2.3.3 VOLUNTARY PREPAYMENTS OF THE LOANS. Subject to the terms and provisions of the Intercreditor Agreement, Borrower may, at any time, upon not less than two (2) days' prior written notice to Agent, prepay the Loans, in whole or in part, together with interest on the outstanding principal amount of the Loans being prepaid to (and including) the day in which the prepayment occurs, such amount of interest and principal to be applied to the Loans pro rata in accordance with the respective outstanding principal balances of the Loans; provided, however, that any Loan which is prepaid (including with the proceeds of the Offering) within ninety (90) days (the "LOCK-OUT PERIOD") of being advanced shall be accompanied by a prepayment premium of (i) if the prepayment occurs on or before thirty (30) days after being advanced, three percent (3%) of the amount prepaid; (ii) if the prepayment occurs on or after thirty-one (31) days to and including sixty (60) days of being advanced, two percent (2%) of the amount prepaid; and (iii) if the prepayment occurs on or after sixty-one (61) days to and including ninety (90) days of being advanced, one percent (1%) of the amount prepaid. Each notice of prepayment of the Loans shall be irrevocable and shall specify (i) the prepayment date and (ii) the amount of prepayment. 2.3.4 NOT A REVOLVER. This Agreement does not provide for revolving loans. Accordingly, amounts repaid or prepaid may not be reborrowed. 2.4 INTEREST. -------- 2.4.1 GENERALLY. The outstanding principal amount of the Loans shall bear interest at a rate per annum equal to the Interest Rate. 2.4.2 INTEREST PAYMENTS. Subject to the provisions of Section 2.4.3, interest on the outstanding principal balance of the Loans shall be payable (a) for any Interest Period other than the final Interest Period, on the Interest Payment Date for such Interest Period, (b) upon any prepayment of the Loans (to the extent accrued on the amount being prepaid), in accordance with Section 2.3, and (c) for the final Interest Period, on the Initial Maturity Date (or, if the term of the Loans is extended pursuant to Section 2.6, the Initial Extension Maturity Date or Final Extension Maturity Date, as applicable). 2.4.3 DEFAULT RATE; POST-MATURITY INTEREST. If Borrower shall default in the payment of principal of or interest on the Loans, or any fees or other amounts owed by Borrower under this Agreement or any other Loan Documents shall not be paid when due, then the outstanding principal amount of the Loans and, to the extent permitted by applicable law, any interest payments thereon not paid when due and any fees and other amounts then due and payable under this Agreement or any other Loan Document shall thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or any other now existing or future applicable bankruptcy, insolvency or other similar laws) payable upon demand at the Default Rate. Payment or acceptance of the increased rates provided for in this subsection is not a permitted alternative to timely payment and shall not constitute a waiver of any Default or Event of Default or an amendment to this Agreement or any other Loan Document and shall not otherwise prejudice or limit any rights or remedies of Lenders. 2.5 PAYMENTS; COMPUTATIONS. ---------------------- 2.5.1 MAKING OF PAYMENTS. Each payment by Borrower hereunder or under the Notes shall be made to Agent by deposit to such account as Agent may have last designated by written notice to Borrower. Payments received after 2:00 p.m., New York City time, shall be deemed to have been received on the next Business Day. Whenever any payment hereunder or under the Notes shall be stated to be due on a day that is not a Business Day and an alternative payment date is not otherwise provided for, such payment shall be made on the next Business Day, with interest thereon to the date of payment. Immediately after receipt of payment, Agent will distribute to each Lender its Pro Rata Share of each such payment received by Agent for the account of Lenders. 2.5.2 COMPUTATION OF INTEREST. Interest on the Loans shall be computed on the basis of a 360-day year, based on the actual number of days expired in any given Interest Period. In computing interest on the Loans, the first day of an Interest Period and the last day of such Interest Period shall be included. 2.5.3 CAPITAL ADEQUACY ADJUSTMENT. If any Lender shall have determined that the adoption, effectiveness, phase-in or applicability of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, in any case occurring or arising after the date hereof, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, the Loans or other obligations hereunder to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within five (5) Business Days after receipt by Borrower from Agent on behalf of such Lender of the statement referred to in the next sentence, Borrower shall pay to Agent on behalf of such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Agent on behalf of such Lender shall deliver to Borrower a written statement, setting forth in reasonable detail the basis of the calculation of such additional amounts, which statement shall be conclusive and binding upon all parties hereto absent manifest error. 2.6 EXTENSION OF LOAN TERM. ---------------------- 2.6.1 EXTENSION OPTION. Subject to the satisfaction of each of the conditions set forth in Section 2.6.2: (a) Borrower shall have the option (the "INITIAL EXTENSION OPTION"), exercisable by notice (the "INITIAL EXTENSION NOTICE") to Agent given at least ten (10) Business Days prior to the Initial Maturity Date, time being of the essence, to extend the maturity of the Loans until the date three (3) months following the Initial Maturity Date (the AINITIAL EXTENSION MATURITY DATE"). (b) If Borrower shall have exercised the Initial Extension Option, then Borrower shall have the option (the "FINAL EXTENSION OPTION"), exercisable by notice (the "FINAL EXTENSION NOTICE") to Agent given at least ten (10) Business Days prior to the Initial Extension Maturity Date, time being of the essence, to extend the maturity of the Loans until the date three (3) months following the Initial Extension Maturity Date (the "FINAL EXTENSION MATURITY DATE"). 2.6.2 CONDITIONS TO EXTEND. Borrower's right to extend the term of the Loan shall be conditioned upon the satisfaction of the following conditions precedent as of the date on which the Initial Extension Notice or Final Extension Notice, as applicable, is provided to Agent, and as of the Initial Maturity Date or the Initial Extension Maturity Date, as applicable: (a) no monetary Default, material non-monetary Default or Event of Default shall have occurred and be continuing (and any extension shall not be deemed a waiver of a Default of any type); and (b) Borrower shall pay to Agent (to be distributed pro rata among Lenders in accordance with the outstanding principal balances of the Loans) on each of the dates on which the Initial Extension Notice and Final Extension Notice, as applicable, is provided to Agent a non-refundable extension fee of $225,000 (each, an "EXTENSION FEE"). 2.7 COMMITMENT AND OTHER FEES. ------------------------- Borrower agrees to pay to each Lender on the Closing Date a non-refundable commitment fee (each a "COMMITMENT FEE" and collectively the "COMMITMENT FEES") in an amount equal to one and one-half percent (1.5%) of the principal amount of the Commitment made by such Lender to Borrower pursuant to this Agreement. Pursuant to a separate agreement with Borrower, upon the Closing Date Borrower is paying Agent a non-refundable Agent's fee. 2.8 AGENT RELIANCE; DEFAULTING LENDERS. ---------------------------------- 2.8.1 AGENT RELIANCE. Unless Agent shall have been notified in writing by any Lender prior to the date of an Advance that such Lender does not intend to make available to Agent such Lender's pro rata share of the Advance to be made on such date, Agent may assume that such Lender has made such amount available to Agent on such date, and Agent may make available to Borrower a corresponding amount. If such corresponding amount is not in fact made available to Agent by such Lender on the date of such Advance, Agent shall have no obligation to make such corresponding amount available to the Borrower. If Agent has made such funds available to Borrower and such Lender does not pay such corresponding amount upon Agent's demand therefor, Agent may at any time thereafter so notify Borrower and Borrower shall immediately upon Agent's demand therefor pay to Agent such corresponding amount together with interest thereon, for each day from such Funding Date until the date such amount is paid to Agent, at the Interest Rate. 2.8.2 DEFAULTING LENDERS. To the extent that a Lender fails to make any Advance when required hereunder and one or more of the other Lenders ("Performing Lenders") makes such Advance in such amounts as they may agree upon (although none of Lenders or Agent shall have any obligation to make any such Advance), then, without otherwise limiting any rights and remedies in such situation, Defaulting Lender shall pay to Lenders which performed Defaulting Lender's obligations (x) interest on such amount at a rate equal to such Performing Lender's cost of funds for the related Loan which Performing Lenders made to Borrower as a result of such Defaulting Lender's failure to effect the related Advance and (y) a pro-rata portion of the fees paid to Defaulting Lender by Borrower as set forth in Section 2.7, with such pro-rata portion to be calculated by amortizing such fees on a straight-line basis (over the then scheduled term of the Loan) and allocating to Performing Lenders, with respect to the period they performed on behalf of the Defaulting Lender, the fees allocable to the amount so advanced by Performing Lenders on behalf of Defaulting Lender. Such interest shall accrue and be payable from the date the Performing Lender(s) made a loan to Borrower on behalf of the Defaulting Lender(s) until such payment is made by the Defaulting Lender(s) to the Performing Lender(s). If Defaulting Lender makes the payment which it theretofore failed to make and pays Performing Lender the interest and fees described in this Section, then Defaulting Lender shall be deemed to have made the Advance when the same was originally due. 2.8.3 SUBORDINATION OF DEFAULTING LENDERS. If a Lender fails, when required hereunder, to make any Advance or fails to pay any sum payable to Agent hereunder and such default continues for five (5) days after written notice by Agent to such Lender, then such Lender's (the "Defaulting Lender") share in the Loans and the Loan Documents and proceeds thereof shall be immediately subordinated to the other Lenders' and Agent's share therein and proceeds thereof, and such Defaulting Lender's Commitment and Loans shall be voted by Agent, all without necessity for executing any further documents. Upon such failure, in addition to Agent's other legal and equitable rights and remedies, Agent shall withhold and apply any and all amounts payable to such Defaulting Lender under the Loan Documents in such order of priority as Agent shall determine in its sole discretion to: (i) purchase for the Defaulting Lender its share of any Loan or pay any sum payable hereunder that Defaulting Lender was obligated but failed to pay pursuant to this Agreement; and/or (ii) reimburse Performing Lenders and/or Agent for any other sums, costs, expenses or disbursements payable by Defaulting Lender hereunder. Upon actual payment by Defaulting Lender of its late Commitment percentage of the Loans and any other sums then payable by Defaulting Lender under the Loan Documents, its share in the Loans and in the Loan Documents and proceeds thereof and its Commitment and Loan thereupon shall immediately be restored to equal priority with that of the other Lenders, but these provisions shall not effect a rescission of any exercise by Agent of any vote of Defaulting Lender's Commitment and Loans. 2.9 LENDING INSTALLATIONS. Each Lender may book Loans at one or more Lending Installations selected by it from time to time, and may change its Lending Installations from time to time, but no such selection or change shall affect the liability of the Lender making any such selection or change. All terms of this Agreement and of the other Loan Documents shall apply to any such Lending Installation as if it were a Lender hereunder, and, if a Lender so selects Lending Installation(s), this Agreement shall be deemed held by such Lender for the benefit of its selected Lending Installation(s). 2.10 WITHHOLDING. All payments by Borrower shall be paid in full without setoff or counterclaim and without reduction for and free from any and all Taxes; provided, however, that in the event Borrower shall be required by law to deduct or withhold Taxes from interest, fees or other amounts payable hereunder or under any of the other Loan Documents, Borrower shall be entitled to do so without being in Default hereunder provided that Borrower, together with such payment, shall provide a statement to Agent and Lenders setting forth the amount of Taxes deducted or withheld, the applicable rate, an official receipt or other evidence of payment satisfactory to the applicable Lender and any other information or documentation which may reasonably be requested for the purpose of assisting the Person(s) from whom Taxes were deducted or withheld to obtain any allowable credits or deductions for the Taxes so deducted or withheld in each jurisdiction in which said Person(s) are subject to tax. Notwithstanding the foregoing, however, Borrower shall not deduct or withhold Taxes from amounts payable to or for the benefit of a Person entitled to payments hereunder whose percentage interest in the obligations of Borrower has been disclosed to Borrower (either in writing or by a document to which such Person, any Lender or Borrower is a signatory) (or, in the event that any Taxes are required by law to be deducted or withheld from payments hereunder to any such Person, Borrower shall pay to such Person such additional amount as is necessary to ensure that the net amount actually received by such Person will equal the full amount such Person would have received had no such deduction or withholding been required), (i) if such Person is created or organized under the laws of the United States or any state thereof or (ii) to the extent that Borrower would be permitted to make such payments to such Person free of such deductions or withholdings as of the Closing Date or the date such Person otherwise acquires an interest in the obligations of Borrower hereunder; provided that if at the date a Person becomes a party hereto the applicable transferor or assignor was entitled to additional amounts under this Section 2.10, then to such extent the assignee or transferee shall also be entitled to additional amounts hereunder. A Lender organized in a jurisdiction other than the United States or a political subdivision thereof shall not be entitled to receive additional amounts under this Section 2.10 to the extent that a withholding tax is imposed due to a failure to comply with the provisions of Section 9.27(f) hereof. The percentage interest in the obligations of Borrower hereunder of each such Person shall equal the percentage participation in such obligations of such Person as so disclosed to Borrower from time to time. Borrower shall also pay any present or future stamp or documentary taxes or any other Taxes imposed on Agent or any Lender that arise from any payment hereunder or from the execution, delivery or registration of or otherwise with respect to this Agreement. 2.11 SHARING OF PAYMENTS, ETC. If any Lender shall obtain any payment or reduction (including, without limitation, any amounts received as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code) of any obligation of Borrower hereunder in respect of the Loans or in respect of any other obligations of Borrower under any of the Loan Documents (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its Pro Rata Share of payments or reductions on account of the Loans or such other obligations obtained by all Lenders, such Lender shall forthwith (i) notify each of the other Lenders and Agent of such receipt, and (ii) purchase from the other Lenders, without recourse, such participations in the affected obligations owned by the selling Lenders as shall be necessary to cause such purchasing Lenders to share the excess payment or reduction, net of costs incurred in connection therewith, ratably with each of them, provided that if all or any portion of such excess payment or reduction is thereafter recovered from such purchasing Lenders, or additional costs are incurred, the purchase shall be rescinded and the purchase price restored to the extent of such recovery or such additional costs, but without interest. Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.11 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of Borrower in the amount of such participation. 2.12 PRO RATA TREATMENT. Subject to the provisions of Sections 2.8.2 and 2.8.3, each borrowing by Borrower from Lenders and each payment (including each prepayment) by Borrower on account of principal and/or interest in respect of the Loans shall be made concurrently and pro rata as among all Lenders all in accordance with their Pro Rata Shares appropriately adjusted in the case of any Lender who shall have failed to fund its Pro Rata Share of the Loans. III. SPECIAL PROVISIONS. 3.1 LOSS PROCEEDS ACCOUNT. Borrower shall cause all Casualty Insurance Proceeds or Condemnation Proceeds to be paid directly to an account designated by Agent for such purpose and under the sole dominion and control of Agent for the purposes of receiving and disbursing Loss Proceeds (the "LOSS PROCEEDS ACCOUNT"), on behalf of Lenders. If any Loss Proceeds are received by Borrower, the same shall be received in trust for Lenders, shall be segregated from other funds of Borrower, and shall be paid directly to the Loss Proceeds Account to be applied or disbursed in accordance with this Agreement. Borrower hereby authorizes and directs any affected insurance company to make payment of Loss Proceeds directly to the Loss Proceeds Account and Borrower agrees to execute such additional instruments as any such affected insurance company may request as a condition to making such payment of Loss Proceeds. 3.2 CASUALTY AND CONDEMNATION. 3.2.1 CASUALTY, CONDEMNATION AND APPLICATION OF PROCEEDS. (a) Borrower shall give prompt written notice to Agent of any Casualty at or Condemnation of the Properties or any part thereof and shall deliver to Agent copies of any and all papers served in connection with such proceedings. All Casualty Insurance Proceeds and all Condemnation Proceeds shall be applied and disbursed in accordance with the provisions of this Section and Section 2.3.2, as the case may be. (b) Upon the occurrence of any Casualty at or Condemnation of the Properties or any part thereof, all Loss Proceeds shall only be applied to the Indebtedness or toward the restoration of such Property, as shall be determined by Borrower in its sole and absolute discretion; provided, however, that (i) if an Event of Default shall be continuing at the time of any Casualty or Condemnation, all Loss Proceeds shall only be applied to the Indebtedness, in accordance with Section 2.3.2; but (ii) if such Casualty or Condemnation occurs at a Property which is encumbered by a Lien, the Loss Proceeds shall be applied in accordance with such Lien documents. (c) Upon the occurrence of any Casualty at or Condemnation of the Properties or any part thereof during the existence of an Event of Default, Agent alone shall have the right, in its sole and absolute discretion, to settle, adjust or compromise any claim (i) under any policy of insurance or (ii) in connection with a Condemnation. In all other cases, Borrower may settle, adjust or compromise any such claim which is less than $500,000.00, and with respect to any such claim in excess of $500,000.00, Agent and the Borrower shall consult and cooperate with each other and each shall be entitled to participate in all meetings and negotiations with respect to the settlement of such claim. Any adjustment or settlement by the Borrower of any claim which is in excess of $500,000.00 shall be subject to prior Lender Approval, which approval shall not be unreasonably withheld or delayed; provided that if such Casualty/Condemnation occurs at a Property which is encumbered by a Lien, the any settlement, adjustment or compromise shall be decided in accordance with such Lien documents. (d) In the event that Loss Proceeds from any Casualty at or Condemnation of a Property or any part thereof are to be made available to Borrower for restoration and the reasonably anticipated cost of the restoration is $2,000,000 or more, the following provisions shall apply: (i) Borrower shall, no later than upon receipt of the Loss Proceeds, commence diligently to restore the applicable Property substantially to its value, character and utility immediately prior to such Casualty or Condemnation (it being understood that Borrower's commencement of such restoration prior to receipt of Insurance Proceeds shall not in any way affect Lender's right, if any, to apply Insurance Proceeds to the Loans pursuant to and in accordance with the terms of this Agreement), in which event Borrower shall comply with the following conditions in connection with the performance of all of such restoration (hereinafter "Work"): (A) no Work shall be undertaken until Borrower shall have provided Agent with evidence reasonably satisfactory to Agent that the amounts deposited in the Loss Proceeds Account will be sufficient to cover the entire cost of such Work; (B) no Work shall be undertaken until Borrower shall have procured and paid for, so far as the same may be required from time to time, all permits and consents of all Governmental Authorities having jurisdiction; (C) any Work that is structural in nature, that involves mechanical, electrical, fire safety, HVAC or other building systems or the performance of which in the reasonable judgment of Agent otherwise requires the services of a licensed architect, engineer and/or other professional in accordance with safe and sound construction practices, shall be performed in accordance with plans, specifications, reports and/or drawings prepared by Borrower's architect, engineer and/or other professional and approved by Agent (such approval not to be unreasonably withheld or delayed) and promptly following its receipt of same, Borrower shall deliver to Agent copies of all plans, specifications, reports and/or drawings relating to any such Work for its review and approval (such approval not to be unreasonably withheld or delayed); (D) all Work shall be performed in accordance with cost estimates approved by Agent as provided below and promptly following its receipt of same, Borrower shall deliver to Agent copies of all cost estimates relating to any such Work for Agent's review and approval (such approval not to be unreasonably withheld or delayed); (E) any Work that is structural in nature or that involves mechanical, electrical, fire safety, HVAC or other building systems or the performance of which in the reasonable judgment of Agent otherwise requires the services of a licensed architect, engineer and/or other professional in accordance with safe and sound construction practices, shall be performed under the supervision of a licensed architect, engineer and/or other professional reasonably approved by Agent; (F) all Work shall be prosecuted diligently to completion in a good and workmanlike manner and in compliance with all applicable permits and authorizations and with all other applicable Legal Requirements; (G) all Work shall be completed free and clear of all liens, encumbrances, chattel mortgages, conditional bills of sale and other charges, and substantially in accordance with the plans and specifications therefor; (H) during the performance of any Work, Borrower shall procure and maintain, or cause to be procured and maintained, (x) "All-Risk" builder's risk property insurance, with vandalism and malicious mischief endorsements, completed value form, covering all physical loss (including any loss of or damage to supplies, machinery and equipment) in connection with the performance of such Work and (y) statutory workers' compensation and employers' liability coverage, if applicable to Borrower; and (I) Borrower shall reimburse Agent and Lenders for all reasonable fees and expenses incurred by Agent or Lenders in connection with their review of any Work. (ii) All Loss Proceeds (in excess of $2,000,000 with respect to any Casualty or Condemnation) shall be deposited in the Loss Proceeds Account in accordance with the terms of this Agreement. Agent shall disburse such proceeds (together with any additional sums deposited) to or for the account of the Borrower from time to time to pay the costs and expenses associated with the restoration of the Properties, as set forth below: (A) Each request for payment shall be made on ten (10) Business Days' prior notice to Agent and, if an architect, engineer or other professional was retained to supervise the restoration, shall be accompanied by a certificate to be made by such supervising architect, engineer and/or other professional stating that the sum requested is required to reimburse Borrower for payments by Borrower to, or is due to, the contractor, subcontractors, materialmen, laborers, engineers, architects or other persons rendering services or materials for the Work (giving a brief description of such services and materials); (B) Each request shall be accompanied by waivers of liens satisfactory to Agent covering that part of the Work for which reimbursement is being requested or for which payment was previously requested; and (C) Each request shall be accompanied by evidence reasonably satisfactory to Lender that the amounts deposited in the Loss Proceeds Account will be sufficient to cover the remaining cost of such Work. (e) Notwithstanding anything to the contrary contained in this Agreement, during the continuance of an Event of Default, Lenders shall have the absolute right to apply at any time all or any part of the Loss Proceeds then held by or on behalf of Lenders to the prepayment of the Indebtedness. 3.2.2 CONFLICTS WITH MORTGAGE FINANCING. If any term or provision of Section 3.2.1 shall conflict with the terms of any mortgage financing applicable to a Property as to which a Casualty or Condemnation has occurred, then the terms and provisions of such Prior Debt Documents shall take precedence over Sections 2.3.2 and 3.2.1 hereof. IV. CONDITIONS PRECEDENT 4.1INTENTIONALLY OMITTED. 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligations of Lenders to make Advances on each Funding Date are subject to the satisfaction by Borrower of the following conditions precedent no later than such Funding Date: 4.2.1 NOTICE OF BORROWING; OTHER DOCUMENTATION. Agent shall have received before such Funding Date, in accordance with the provisions of Section 2.1.2, an (i) original executed Notice of Borrowing, in each case signed by an authorized officer of Borrower, and (ii) such other documents, agreements, certificates or instruments as Agent deems appropriate or necessary. 4.2.2 OTHER CONDITIONS. As of such Funding Date: (a) the representations and warranties contained herein and in the other Loan Documents shall be true and correct in all material respects on and as of such Funding Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date (including references to "the Closing Date" or "the date hereof"), in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date; (b) Borrower and each Standby Purchaser shall have performed in all material respects all agreements and satisfied all conditions which this Agreement or any other Loan Document provides shall be performed or satisfied by it on or before such Funding Date; (c) no Material Adverse Effect (in the sole opinion of Agent) shall have occurred; (d) no order, judgment or decree of any arbitrator or Governmental Authority shall purport to enjoin or restrain any Lender from making the Advances to be made by it on that Funding Date; and (e) no event shall have occurred and be continuing or would result from the consummation of the borrowing contemplated by such Notice of Borrowing that would constitute a Default or Event of Default. V. REPRESENTATIONS AND WARRANTIES 5.1 BORROWER REPRESENTATIONS. Borrower represents and warrants (which representations and warranties shall survive Borrower's delivery of the Notes and the making and repayment of the Loans) that the following statements are true, correct and complete as of the Closing Date and on each Funding Date: 5.1.1 ORGANIZATION; EXISTENCE. Borrower has been duly organized and is validly existing and in good standing as a business trust under the laws of the State of Ohio, with requisite trust power and authority to own or hold under lease its Properties and to transact the businesses in which it now engaged, and to execute and deliver the Loan Documents to which it is a party, and is qualified and self-administered as a REIT under Sections 856 through 860 of the Internal Revenue Code. Borrower is duly qualified to do business in each jurisdiction where it is required to be so qualified in connection with its Properties, businesses and operations where the failure so to qualify would have a material adverse effect on Borrower. Borrower possesses all rights, licenses, permits and authorizations, governmental or otherwise, necessary to entitle it to own its Properties and to transact the businesses in which it is now engaged. Borrower's Organizational Documents have been duly executed, delivered and, to the extent required by applicable law, filed, and are in full force and effect in accordance with their respective terms and have not been modified or amended. 5.1.2 PROCEEDINGS. Borrower has taken all necessary corporate, trust, partnership or limited liability company action to authorize the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party, and the performance of all transactions contemplated thereby, including the Offering. This Agreement and such other Loan Documents to which Borrower is a party have been duly executed and delivered by or on behalf of Borrower. 5.1.3 NO CONFLICTS. The execution, delivery and performance by Borrower of the Loan Documents to which it is a party, and the performance of all transactions contemplated thereby, including the Offering, will not conflict with or violate any provisions of its Organizational Documents or conflict with or result in a breach of any of the terms or provisions of, or constitute a Default under, or result in the creation or imposition of any Lien, charge or encumbrance (other than pursuant to the Loan Documents) upon any of the Properties pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which it is a party or by which it is bound or to which the Properties are subject, nor will such action result in any material violation of the provisions of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over Borrower (or any of its Affiliates), or over any of Borrower's Properties (including without limitation Regulations G, T, U or X of the Board of Governors of the Federal Reserve System), and any consent, approval, authorization, order, registration or qualification of or with any court or any such regulatory authority or other governmental agency or body or any other Person required for the execution, delivery and performance by Borrower of the Loan Documents to which it is a party has been obtained and is in full force and effect and no term of condition thereof has been amended or modified. 5.1.4 LITIGATION. Except as set forth on Schedule 5.1.4, there are no actions, suits or proceedings at law or in equity by or before any Governmental Authority or other agency now pending or, to Borrower's knowledge, threatened against or affecting Borrower where such actions, suits or proceedings, if determined against Borrower, could, individually or collectively, reasonably be expected to have a Material Adverse Effect. There are no proceedings pending or, to Borrower's knowledge, threatened against Borrower which call into question the validity or enforceability of any of the Loan Documents. 5.1.5 AGREEMENTS. Borrower is not a party to any agreement or instrument or subject to any restriction which does or could reasonably be expected to result in a Material Adverse Effect. 5.1.6 NO BANKRUPTCY FILING. Borrower has not filed and Borrower is not contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of its assets or property, and Borrower has no knowledge of any Person contemplating the filing of any such petition against it. 5.1.7 FULL AND ACCURATE DISCLOSURE. No statement of fact made by Borrower in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not materially misleading. 5.1.8 TAX AND REIT STATUS. Borrower has timely filed all tax returns that are required to be filed with any Government Entity and has timely paid all Taxes due pursuant to the tax returns or any assessment received by it or otherwise required to be paid, except Taxes being contested in good faith by appropriate proceedings and for which adequate reserves or other provisions are maintained in accordance with GAAP. Borrower has (i) elected to be taxed as a REIT effective for each of the taxable years ending on or after December 31, 1961, (ii) has not revoked such election, (iii) qualified for taxation as a REIT for each such taxable year and is in a position to so qualify for its current taxable year, (iv) operates in a manner so as to qualify as a REIT, and (v) has not sold or otherwise disposed of any assets which could give rise to a material amount of Tax pursuant to any election made by Borrower under Notice 88-19, 1988-1 CB 486 and does not expect to effect any such sale or other disposition. 5.1.9. USE OF PROCEEDS. Borrower's use of the proceeds of the Loans is solely for the purposes described in Section 2.2. 5.1.10 FINANCIAL INFORMATION. Borrower has furnished Lenders with true, correct and complete copies of (a) the combined annual financial statements for Borrower and Manager for the most recent fiscal year of Borrower, including the combined balance sheet of Borrower and Manager and as of the end of such fiscal year and combined statements of income and changes in cash for Borrower and Manager and a statement of shareholder's equity, prepared on a consistent basis in accordance with GAAP (except as specifically disclosed therein) and in the form included with Borrower's Form 10-K as filed with the Securities and Exchange Commission for such fiscal year, certified without qualification by Borrower's CPAs; (b) the combined quarterly financial statements for Borrower and Manager for each fiscal quarter elapsed since the expiration of Borrower's most recent fiscal year, including a combined balance sheet and combined statements of income and change in cash of Borrower and the Manager prepared on a consistent basis with the prior fiscal year's financial statements in accordance with GAAP (except as specifically disclosed therein), and in the form included with Borrower's Form 10-Q, as filed with the Securities and Exchange Commission for any such fiscal quarter; and (c) a certificate of the chief financial officer, principal accounting officer or chief executive officer of Borrower, stating that to his best knowledge after due inquiry the foregoing statements present fairly in all material respects the combined financial position of Borrower and Manager and the results of their combined operations, subject, solely with respect to the materials described in clause (b), to routine year-end audit adjustments. No changes have occurred in the assets, liabilities or financial condition of Borrower or Manager from those reflected in the most recent balance sheets referred to above in this Section which, individually or in the aggregate, have been materially adverse. Since the date of such most recent balance sheet, there has been no material and adverse development in the business or in the operations or prospects of Borrower or Manager. 5.1.11 NO DEFAULT. (a) No event has occurred and is continuing, and no condition exists, which constitutes a Default or Event of Default. (b) No Default by Borrower or any Standby Purchaser and no accrued right of rescission, cancellation or termination on the part of Borrower or any Standby Purchaser exists under this Agreement or any of the other Loan Documents. 5.1.12 FEDERAL RESERVE REGULATIONS. No part of the proceeds of the Loans will be used for the purpose of purchasing or acquiring any "MARGIN STOCK" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulation U or any other Regulations of such Board of Governors, or for any purposes prohibited by Legal Requirements or by the terms and conditions of this Agreement or the other Loan Documents. 5.1.13 ENFORCEABILITY. The Loan Documents constitute legal, valid and binding obligations of Borrower and Standby Purchasers party thereto, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity) and are not subject to any right of rescission, set-off, counterclaim or defense by Borrower or any Standby Purchaser, including the defense of usury, and neither Borrower nor any Standby Purchaser has asserted any right of rescission, set-off, counterclaim or defense with respect thereto. 5.1.14 INCORPORATION OF REPRESENTATIONS AND WARRANTIES. In addition to the foregoing representations and S warranties, each of the representations and warranties set forth in Section 6 of the Line of Credit Facility and any related definitions, as in effect on the date hereof, are hereby incorporated herein by reference and shall apply, mutatis mutandis, to this Agreement. VI. AFFIRMATIVE COVENANTS. 6.1 BORROWER COVENANTS. From the date hereof and until the indefeasible payment and performance in full of all Indebtedness of Borrower, Borrower hereby covenants and agrees with Lenders that: 6.1.1 SEC FILINGS AND PRESS RELEASES. Borrower shall provide to Agent copies promptly after their filing or, if not filed, after they become available, of (a) all financial statements, reports, notices and proxy statements sent or made available generally by Borrower to its security holders, (b) all regular and periodic reports and all registration statements and prospectuses, if any, filed by the Borrower with the New York Stock Exchange, Inc., any other securities exchange or with the Securities and Exchange Commission or any Governmental Authority or private regulatory authority, and (c) all press releases and other statements made available generally by Borrower or any of its Affiliates to the public or to the securityholders of the Borrower; 6.1.2 BUSINESS AND OPERATIONS. Borrower will continue to engage in the businesses presently conducted by it (i.e., acquisition, disposition and ownership of real property); provided that Borrower may cease conducting any business presently conducted by it, with prior written Lender Approval (such Lender Approval not to be unreasonably withheld). Borrower will qualify to do business and will remain in good standing under the laws of each jurisdiction necessary for the conduct of its business. 6.1.3 COSTS OF ENFORCEMENT. In the event of the Bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of Borrower or an assignment by Borrower for the benefit of its creditors, Borrower, its successors or assigns, shall be chargeable with and agrees to pay all costs of collection and defense, including reasonable attorneys' fees in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein, which shall be due and payable together with all required service or use Taxes. 6.1.4 ESTOPPEL STATEMENT. Borrower, within ten (10) days after request from Agent, shall furnish to Agent a statement, duly acknowledged and certified to Lenders and to any other Person designated by Agent, setting forth (a) the amount then owing by Borrower in respect of the Indebtedness, (b) the date through which interest on the Loans has been paid, (c) the nonexistence of any offsets, counterclaims, credits or defenses to the payment of Borrower's obligations under the Loan Documents, and (d) whether any written notice of default from Lenders or Agent to Borrower is then outstanding, and acknowledging that this Agreement and the other Loan Documents have not been modified or, if modified, giving the particulars of such modification. 6.1.5 LOAN PROCEEDS. Borrower shall use the proceeds of the Loans only for the purposes set forth in Section 2.2. 6.1.6 NAME; PRINCIPAL PLACE OF BUSINESS. Borrower shall provide to Agent (a) notification of any change in Borrower's name, identity or corporate, partnership, limited liability company or trust structure within 30 days of such change and (b) 30 days' prior written notice of any change in Borrower's executive office or principal place of business. 6.1.7 BOARD OF TRUSTEES. Borrower shall provide to Agent, with reasonable promptness, written notice of any change in the Board of Trustees of Borrower. 6.1.8 OFFERING. Borrower shall obtain Lender Approval of the registration statement for the Offering, file the approved registration statement for the Offering and use its best efforts to consummate the Offering, all in accordance with Article XI. 6.1.9 INCORPORATION OF AFFIRMATIVE COVENANTS. In addition to the foregoing affirmative covenants, each of the affirmative covenants set forth in Section 7 of the Line of Credit Facility and any related definitions, as in effect on the date hereof, are hereby incorporated herein by reference as if set forth herein in full and shall apply, mutatis mutandis, to this Agreement; provided, however, that the following affirmative covenants of the Line of Credit Facility are not so incorporated: 7.3, 7.4, 7.16(f) and 7.16(g), 7.17, 7.18 and 7.19. VII. NEGATIVE COVENANTS. 7.1 BORROWER NEGATIVE COVENANTS. From the date hereof until payment and performance in full of all Indebtedness of Borrower, Borrower covenants and agrees with Lenders that it will not do, directly or indirectly, any of the following: 7.1.1 DEBT. Without prior Lender Approval and except for Debt existing on the date hereof and reflected in the financial information furnished to Lenders, Borrower shall not create, incur or assume any Debt exceeding in the aggregate Five Million Dollars ($5,000,000.00) other than (a) the Indebtedness; (b) draws under the existing Line of Credit Facility or the Imperial Credit Facility; and (c) non-recourse mortgage Debt for the purpose of financing an acquisition of a Property or refinancing any Property (provided that in the event of a refinancing such Debt may only encumber the Property being refinanced and in the event of an acquisition such Debt may only encumber the asset being acquired); provided that the net proceeds of any such financing or refinancing shall be used to prepay the Indebtedness pursuant to Section 2.3.2 above. 7.1.2 CORPORATE STRUCTURE. Without prior written Lender Approval (such Lender Approval not to be unreasonably withheld), Borrower shall not, and shall not permit any of its Subsidiaries or Affiliates to: (i) except as provided in Article XI, alter the corporate, capital or legal structure of Borrower or any of its Subsidiaries or Affiliates (including by the issuance or distribution of a new or special class of securities), (ii) incorporate or otherwise organize any Subsidiaries, (iii) make or permit any transfer, or acquire by purchase or otherwise, directly or indirectly, all or substantially all the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person, or (iv) engage in any transaction or take any action that would cause Borrower or Paired Trust to cease to qualify as a "stapled entity" entitled to an exemption from the requirements of Section 269B of the Internal Revenue Code. 7.1.3 INCORPORATION OF NEGATIVE COVENANTS. In addition to the foregoing negative covenants, each of the negative covenants set forth in Section 8 of the Line of Credit Facility and any related definitions, as in effect on the date hereof, are hereby incorporated herein by reference as if set forth herein in full and shall apply, mutatis mutandis, to this Agreement. VIII. DEFAULTS. 8.1 EVENT OF DEFAULT. (a) In case of the occurrence of any of the following events (each of which is herein sometimes called an "EVENT OF DEFAULT"): (i) if Borrower fails to make any payment of principal of, or interest on, the Loans on the date on which such payment was due hereunder; (ii) if Borrower fails to pay the Indebtedness in full on the Initial Maturity Date (or, if the term of the Loan is extended pursuant to Section 2.6, the Initial Extension Maturity Date or the Final Extension Maturity Date, as the case may be); (iii) if Borrower or Standby Purchaser fails to pay any other amount payable by Borrower or Standby Purchaser pursuant to this Agreement or any other Loan Document when due and such failure continues for five (5) Business Days after Lender delivers written notice thereof to Borrower; (iv) if any representation or warranty made by Borrower or any Standby Purchaser herein or in any other Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished by Borrower or any Standby Purchaser in connection with this Agreement or any other Loan Document, shall be inaccurate or misleading in any material respect as of the date such representation or warranty was made or deemed made; (v) if Borrower or any Standby Purchaser shall make an assignment for the benefit of creditors; (vi) if a receiver, liquidator or trustee shall be appointed for Borrower or any Standby Purchaser or if Borrower or any Standby Purchaser shall be adjudicated a "Debtor" under the federal bankruptcy law or insolvent, or if any petition for Bankruptcy, reorganization or arrangement pursuant to federal Bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by Borrower or any Standby Purchaser, or if any proceeding for the dissolution or liquidation of Borrower or any Standby Purchaser shall be instituted; provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by Borrower or any Standby Purchaser, the same shall become an Event of Default upon the same not being discharged, stayed or dismissed within sixty (60) days, or if Borrower or any Standby Purchaser shall generally not be paying its debts as they become due; (vii) if Borrower assigns its rights under this Agreement or any of the other Loan Documents or any interest herein or therein; or if any Standby Purchaser assigns its rights under a Standby Purchase Agreement or any interest therein, other than in accordance with the terms of such Standby Purchase Agreement; (viii)if an Event of Default as defined or described in any other Loan Document occurs, or if any other event shall occur or condition shall exist, if the effect of such event or condition is to accelerate the maturity of all or any portion of the Indebtedness or to permit Lenders to accelerate the maturity of all or any portion of the Indebtedness; (ix) except as otherwise provided in this Section 8.1, if Borrower or Standby Purchaser shall continue to be in default under any of the other terms, covenants or conditions of this Agreement or any other Loan Document, for ten (10) days after notice to Borrower or Standby Purchaser from Agent, in the case of any default which can be cured by the payment of a sum of money, or for thirty (30) days after notice from Agent in the case of any other default; provided, however, that if such non-monetary default is susceptible of cure but cannot reasonably be cured within such 30-day period and provided further that Borrower or Standby Purchaser shall have commenced to cure such default within such 30-day period and thereafter diligently and expeditiously proceeds to cure the same, such 30-day period shall be extended for such time as is reasonably necessary for Borrower or Standby Purchaser in the exercise of due diligence to cure such default, such additional period not to exceed thirty (30) days; (x) if Borrower fails to make any payment due to any Indemnitee or such Indemnitee's respective officers, directors, agents, parents or affiliates pursuant to Section 9.14 hereof for a period of fifteen (15) days after receipt by Borrower of written demand therefor; provided that Borrower shall not be deemed to be in Default in respect of any such payment (or portion thereof) which Borrower is contesting in good faith pursuant to appropriate proceedings, provided, further, that (A) Borrower shall post cash or other security reasonably satisfactory to the relevant Indemnitee with an escrowee satisfactory to such Indemnitee in an amount equal to the disputed amount during the pendency of any appeal by Borrower of an adverse determination, and (B) if such contest is finally determined in favor of the Indemnitee (or if Borrower does not appeal an adverse determination), Borrower shall be required to make such payment (or portion thereof) to such Indemnitee within ten (10) days after such determination; (xi) if any money judgment, writ or warrant of attachment or similar process requiring the payment of in excess of $500,000 not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage shall be entered or filed against Borrower or any of its assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days (or in any event later than five days prior to the date of any proposed sale thereunder); (xii) if there shall be a default by Borrower under any of the Prior Debt Documents (as in effect on the date hereof) or if there shall be a default by Borrower under any of the Prior Debt Documents (as from time to time in effect); (xiii)if Borrower shall cease for any reason to maintain its status as a REIT under the Internal Revenue Code; (xiv) a Change in Control shall occur; or (xv) an Event of Default (as defined in the Other Loan Agreement) shall occur under the Other Loan Agreement; then and in every such Event of Default and at any time thereafter during the continuance thereof, Agent may, in addition to any other rights or remedies available to Agent and/or Lender pursuant to this Agreement and the other Loan Documents or at law or in equity, take such action, without notice or demand, that Required Lenders deem advisable to protect and enforce their rights against Borrower and/or any Standby Purchaser, including declaring the Indebtedness or any portion thereof to be immediately due and payable, and may enforce or avail itself of any or all rights or remedies provided in the Loan Documents, including all rights or remedies available at law or in equity. 8.2 REMEDIES. Upon the occurrence and during the continuance of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Lenders under this Agreement or any of the other Loan Documents or at law or in equity may be exercised, at the direction of the Required Lenders by Agent on behalf of Lenders at any time and from time to time, whether or not all or any of the Indebtedness shall be declared due and payable, and whether or not Agent on behalf of Lenders shall have commenced any action for the enforcement of Lender's rights and remedies under any of the Loan Documents. 8.3 REMEDIES CUMULATIVE. The rights, powers and remedies of Agent and Lenders under this Agreement shall be cumulative and not exclusive of any other right, power or remedy which Agent and Lenders may have against Borrower pursuant to this Agreement or the other Loan Documents, or existing at law or in equity or otherwise. Agent's and Lenders' rights, powers and remedies shall be concurrent and may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Required Lenders may determine, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Agent and Lenders permitted by law, equity or contract or as set forth herein or in the other Loan Documents. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one Default or Event of Default shall not be construed to be a waiver of any subsequent Default or Event of Default or to impair any remedy, right or power consequent thereon. 8.4 GOTHAM'S CURE RIGHTS. Notwithstanding anything contained herein or in any other Loan Document, if there shall be a Default or Event of Default by any Standby Purchaser (other than Gotham) under this Agreement or any other Loan Document, or a Default or Event of Default by Borrower which is due to any breach by any Standby Purchaser (other than Gotham) of any representations, warranties, covenants or any other provision contained in this Agreement or any other Loan Document (each such event, a "STANDBY PURCHASER DEFAULT"), then such Default or Event of Default may be cured in accordance with the following procedures: (a) Agent, promptly following its receipt of notice of such Standby Purchaser Default, shall notify Gotham of the occurrence of such Standby Purchaser Default (the "STANDBY PURCHASER NOTICE"); (b) Gotham shall, within fifteen (15) days of receipt of the Standby Purchaser Notice, elect, in a writing delivered to Agent, to either: (i) assume all rights and obligations of the defaulting Standby Purchaser under its respective Standby Purchase Agreement (the "ALTERNATE STANDBY RIGHTS"), or (ii) decline to so assume the Alternate Standby Rights. Failure by Gotham to respond within 15 days shall be deemed to be a decision to decline to assume the Alternate Standby Rights. (c) If Gotham chooses to assume the Alternate Standby Rights, each Gotham Standby Purchase Agreement shall be deemed to have been amended to reflect Gotham's assumption of the Alternate Standby Rights (with such assumption to be on a pro-rata basis among the entities comprising Gotham, unless Gotham's notice sets forth a different allocation for the assumption of the Alternate Standby Rights), the rights of the defaulting Standby Purchaser so to purchase shall be subject to Gotham's rights so to purchase and the Standby Purchaser Default shall be deemed cured. If Gotham chooses to decline to assume the Alternate Standby Rights, then such Standby Purchaser Default shall constitute a Default or Event of Default as described in Section 8.1 of this Agreement. IX. MISCELLANEOUS. 9.1 SURVIVAL. This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the Closing Date, the making by Lenders of any Loans hereunder and the execution and delivery to Agent of the Notes, and shall continue in full force and effect so long as all or any of the Indebtedness is outstanding and unpaid. All covenants, promises and agreements in this Agreement contained shall inure to the benefit of and be binding upon the respective legal representatives, successors and assigns of the parties hereto, provided that Borrower may not assign or transfer any of its rights or obligations hereunder. 9.2 LENDERS' OR AGENT'S DISCRETION. Whenever pursuant to this Agreement or any other Loan Document, Lenders or Agent exercise any right given to any of them to approve, disapprove, make a determination, exercise discretion or consent, or any arrangement or term is to be satisfactory to Lenders or Agent, the decision of Lenders or Agent to approve, disapprove, make a determination, exercise discretion or consent, or to decide whether arrangements or terms are satisfactory or not satisfactory shall (except as otherwise specifically herein or in any other Loan Document provided) be in the sole discretion of Lenders or Agent and shall be final and conclusive. 9.3 GOVERNING LAW. (a) This Agreement was negotiated in the State of New York, and made by Lenders and Agent and accepted by the Borrower in the State of New York, and the proceeds of the Notes delivered pursuant hereto were disbursed from the State of New York, which State the parties agree has a substantial relationship to the parties and to the underlying transaction embodied hereby, and in all respects, including matters of construction, validity and performance, this Agreement and the obligations arising hereunder shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and performed in such State and any applicable law of the United States of America. To the fullest extent permitted by law, Borrower hereby unconditionally and irrevocably waives any claim to assert that the law of any other jurisdiction governs this Agreement and the Notes. Lenders, Agent and Borrower hereby agree, in accordance with Section 5-1401 of the New York General Obligations Law, that this Agreement and the Notes shall be governed by and construed in accordance with the laws of the State of New York. (b) To the fullest extent permitted by applicable law, any legal suit, action or proceeding against Lenders, Agent or Borrower arising out of or relating to this Agreement shall be instituted in any federal or state court in New York, New York (the "New York Courts"), pursuant to Section 5-1402 of the New York General Obligations Law, and Borrower waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding in the New York Courts, and Borrower hereby irrevocably submits to the jurisdiction of any such New York Court in any suit, action or proceeding. Borrower does hereby designate and appoint Gotham Partners Management Co., LLC, having an address at 110 East 42nd Street, New York, New York 10017, Attention: William A. Ackman or at such other office in New York, New York as it may direct, as its authorized agent to accept and acknowledge on its behalf service of any and all process which may be served in any such suit, action or proceeding in any federal or state court in New York, New York, and agrees that service of process upon said agent at said address and written notice of said service of Borrower mailed or delivered to Borrower in the manner provided herein shall be deemed in every respect effective service of process upon Borrower, in any such suit, action or proceeding in the State of New York. Borrower (i) shall give prompt notice to Agent of any changed address of its authorized agent hereunder, (ii) may, at any time and from time to time designate a substitute authorized agent with an office in New York, New York (which office shall be designated as the address for service of process), and (iii) shall promptly designate such a substitute if its authorized agent ceases to have an office in New York, New York or is dissolved without leaving a successor. 9.4 MODIFICATION, WAIVER IN WRITING. Except as otherwise required by this Section or where Agent is, pursuant to any of the Loan Documents, authorized to act without the consent of the Lenders, no modification, termination or waiver of any provisions of this Agreement or of any of the other Loan Documents, nor consent to any departure therefrom, shall in any event be effective, irrespective of any course of dealing between the parties, unless the same shall be in a writing executed by Required Lenders; provided, however, that, notwithstanding anything to the contrary in any of the Loan Documents, Agent may amend any of the Loan Documents or waive any condition or provision thereof if such amendment or waiver is of a technical nature. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on Borrower, any Guarantor or any Standby Purchaser in any case shall entitle Borrower, any Guarantor or any Standby Purchaser to any other or further notice or demand in the same, similar or other circumstances. In the case and to the extent of any waiver, the parties shall be restored to their former positions and rights hereunder and under the other Loan Documents; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. No disbursement of an Advance or of a portion thereof shall constitute a waiver of any Default, Event of Default or condition to disbursement, nor shall such disbursement preclude Agent on behalf of Required Lenders from declaring an Event of Default and pursuing its and their remedies hereunder in the event such Event of Default is not cured. Any Advance made by Lenders hereunder made prior to or without the fulfillment by Borrower of all of the conditions precedent thereto, whether or not known to Agent and/or Lenders, shall not constitute a waiver by Agent and/or Lenders of the requirement that all conditions, including the non-performed conditions, shall be satisfied with respect to all future advances. This Agreement, together with the other Loan Documents, sets forth the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating hereto, whether oral or written. Except as may be expressly required by the Loan Documents, Required Lenders shall not, without the prior written consent of all Lenders, (i) increase the principal amount of the Loans, (ii) postpone any date fixed for payment of principal or interest on the Loans, (iii) reduce the amount of any principal or interest payable with respect to the Loans, (iv) release Borrower, any Guarantor or Standby Purchaser or forgive or discharge all or any part of the Loans, in each event whether or not with consideration, (v) change the definition of Required Lenders, (vi) change the Commitment of any Lender, (vii) change this sentence or the first sentence of Section 9.4, (viii) reduce the fees payable by Borrower, (ix) permit Borrower to assign any of its rights or obligations under the Loan Documents, (x) consent to any amendment or modification to the Loan Documents which is material and is favorable to Borrower, (xi) waive any Event of Default, or (x) modify Section 11.1. 9.5 DELAY NOT A WAIVER. Neither any failure nor any delay on the part of Agent or any Lender, in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, or under the Notes or under any other Loan Document, or any other instrument given as security therefor, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement, the Notes or any other Loan Document, Lenders and Agent shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement, the Note or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount. 9.6 NOTICES. All notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) certified or registered United States mail, postage prepaid, (b) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, or (c) telecopier (with answer back acknowledged and hard copy sent by hand or one of the methods described in clause (a) or (b) above), addressed if to Lenders at their addresses set forth above, if to Agent at its address set forth on the first page hereof, and if to Borrower at the address of Borrower set forth above (with a copy to Gotham Partners Management Co., LLC, 110 East 42nd Street, New York, New York 10017, Attention: William Ackman), or at such other address as shall be designated from time to time by any party hereto, as the case may be, in a written notice to the other parties hereto in the manner provided for in this Section. A notice shall be deemed to have been given: in the case of hand delivery, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day; or if telecopied, upon receipt. 9.7. TRIAL BY JURY. BORROWER, AGENT AND EACH LENDER EACH HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE LENDER/BORROWER RELATIONSHIP BETWEEN THEM. The scope of this waiver is intended to encompass any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims, and all other common laws and statutory claims. Borrower, Agent and each Lender each acknowledges that this waiver is a material inducement to enter into this Agreement, and that each will continue to rely on the waiver in their related future dealing. Borrower warrants and represents that it has reviewed this waiver with its legal counsel, and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. 9.8. HEADINGS. The Article and/or Section headings and the Table of Contents in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 9.9 SEVERABILITY. If any provision of this Agreement or any of the other Loan Documents or the application thereof to any Person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, then neither the remainder of this Agreement or the other Loan Documents nor the application of such provision to other Persons or circumstances nor the other instruments referred to hereinabove shall be affected thereby, but rather shall be enforced to the greatest extent permitted by applicable Legal Requirements. 9.10 PREFERENCES. To the extent any Person makes a payment or payments to Agent for Borrower's benefit, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the obligations hereunder or under any other Loan Document or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Agent. 9.11 WAIVER OF NOTICE. Borrower shall not be entitled to any notices of any nature whatsoever from Agent or Lenders except with respect to matters for which this Agreement or the other Loan Documents specifically and expressly provide for the giving of notice by Agent or Lenders to Borrower and except with respect to matters for which Borrower is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. Borrower hereby expressly waives the right to receive any notice from Agent or Lenders with respect to any matter for which this Agreement or the other Loan Documents do not specifically and expressly provide for the giving of notice by Agent or Lenders to Borrower. 9.12 REMEDIES OF BORROWER. In the event that a claim or adjudication is made that Agent or Lenders or their agents have acted unreasonably or unreasonably delayed acting in any case where by law or under this Agreement or the other Loan Documents, Agent, Lenders or such agent, as the case may be, have an obligation to act reasonably or promptly, Borrower agrees that neither Agent, Lenders nor their agents shall be liable for any monetary damages, and Borrower's sole remedies shall be limited to commencing an action seeking injunctive relief or declaratory judgment. The parties hereto agree that any action or proceeding to determine whether Agent or any Lender has acted reasonably shall be determined by an action seeking declaratory judgment. In any such action, the prevailing party shall be entitled to recover its reasonable attorneys' fees and disbursements incurred in connection with such action from the other party. 9.13 NON-EXCULPATION. Notwithstanding anything to the contrary in this Agreement or the other Loan Documents, Borrower's obligations to pay the principal of and interest on the Loans, the Notes and any and all other amounts payable by Borrower hereunder and under the other Loan Documents, the performance by Borrower of its respective obligations hereunder and under the other Loan Documents, and Borrower's liability for its representations, warranties and covenants hereunder and under the other Loan Documents, shall be full recourse obligations of Borrower. 9.14 EXPENSES; INDEMNITY. (a) Borrower covenants and agrees to reimburse Indemnitees and each of them upon receipt of written notice from any Indemnitee for all loss, cost, damage, expense or liability of any kind or nature whatsoever (including reasonable attorneys' fees and disbursements) incurred by such Indemnitee in connection with (i) the preparation, negotiation, execution, delivery and administration of this Agreement, the other Loan Documents and the consummation of the transactions contemplated hereby and thereby (ii) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Agreement, the other Loan Documents, and any other documents or matters if requested by Borrower or required by Agent or Lenders; (iii) reasonable fees and expenses of counsel for providing to Agent and Lenders all required legal opinions; (iv) enforcing or preserving any rights in response to third party claims or prosecuting or defending any action or proceeding or other litigation, in each case against, under, affecting or relating to Borrower, any Guarantor, this Agreement or the other Loan Documents; and (v) enforcing any obligations of, or paying or performing any defaulted obligations of, or collecting any payments due from, Borrower or any Guarantor or Standby Purchaser under this Agreement, the other Loan Documents or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement or any of the other Loan Documents in the nature of a "work-out" or of any insolvency or bankruptcy proceedings in respect of Borrower or any Guarantor or Standby Purchaser or any of its successors; provided, however, that Borrower shall not be liable for the payment of any costs and expenses described in clauses (i) through (v) above to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of the Indemnitees, their agents, contractors or employees. (b) In addition to but without duplication of the payment of expenses pursuant to subsection (a) above, whether or not the transactions contemplated hereby shall be consummated, Borrower agrees to indemnify, pay and hold harmless the Indemnitees, and each of them, from and against any and all other losses, costs, damages, expenses or liabilities of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for such Indemnitee in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto), that may be imposed on, incurred by, or asserted against such Indemnitee in any manner relating to or arising out of (i) any breach by Borrower of its obligations under, or any material misrepresentation by Borrower contained in this Agreement or any Loan Document, or (ii) the use or intended use of the proceeds of the Loans (collectively, the "INDEMNIFIED LIABILITIES"); provided, however, that Borrower shall not have any obligation to an Indemnitee hereunder to the extent that such Indemnified Liabilities arise from gross negligence, illegal acts, fraud or willful misconduct of such Indemnitee, its agents, contractors or employees. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it violates any law or public policy, Borrower shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any of them. Borrower shall not, without the prior written consent of the applicable Indemnitee, settle or compromise any claim, or permit a default or consent to the entry of judgment in respect thereof, unless such settlement, compromise or consent includes, as an unconditional term thereof, the giving by the claimant to the Indemnitee of an unconditional release from all liability in respect of such Claim. (c) Nothing herein shall limit the indemnity made by Borrower to and in favor of Agent and Lenders in the Standby Purchase Agreements. (d) Borrower hereby acknowledges and agrees that each Indemnitee (other than each Lender) is an intended third-party beneficiary of this Section 9.14. Promptly after receipt by an Indemnitee of notice of any claim or the commencement of any action for which indemnity may be sought against Borrower under this Agreement or any other Loan Document, such Indemnitee shall notify Borrower in writing of the receipt of such claim. Borrower shall be entitled to assume the defense of any claim with counsel reasonably satisfactory to such Indemnitee, and after notice from Borrower to such Indemnitee of its election so to assume and actual assumption of the defense thereof with counsel reasonably satisfactory to such Indemnitee, Borrower shall not be liable to such Indemnitee under any indemnity agreement set forth herein or in any other Loan Document for any legal or other expense subsequently incurred by such Indemnitee in connection with the defense thereof other than reasonable fees and expenses of separate counsel retained by such Indemnitee unless (a) Borrower and such Indemnitee shall have agreed to the retention of such subsequent counsel or (b) such Indemnitee shall have reasonably concluded that representation of Borrower and such Indemnitee by the same counsel would be inappropriate due to actual or potential conflicting interests between them. Borrower shall have no liability for any settlement of any action or claim effected without its consent, but if settled with such consent or if there be a final judgment for the plaintiff not stayed by appeal, Borrower agrees to indemnify the Indemnitee from and against any loss or liability required to be paid by the Indemnitee by reason of such settlement or judgment if and to the extent required by, and subject to the limitations of, the terms of this Agreement. Borrower agrees to consult in advance with Agent with respect to the terms of any proposed waiver, release or settlement of any claim, liability, proceeding or other action against Borrower to which any Indemnitee may also be subject, and to use reasonable efforts to afford Agent and any such Indemnitee the opportunity to join in such waiver, release or settlement. 9.15 EXHIBITS, SCHEDULES INCORPORATED. The Exhibits and Schedules annexed hereto are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof. 9.16 OFFSETS, COUNTERCLAIMS AND DEFENSES. Any assignee of any Lender's interest in and to this Agreement, the Notes or the other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to such documents which Borrower may otherwise have against any assignor of such documents, and no such unrelated counterclaim or defense shall be interposed or asserted by Borrower in any action or proceeding brought by any such assignee upon such documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrower. 9.17 NO JOINT VENTURE OR PARTNERSHIP. Borrower and Lenders intend that the relationships created hereunder and under the other Loan Documents and be solely that of borrower and lender. Nothing contained herein or therein (i) shall constitute any Lender or any of their Affiliates as members of any partnership, joint venture, association or other separate entity with Borrower, its Affiliates or any other entities, (ii) shall be construed to impose any liability as such on any Lender or any of their Affiliates, or (iii) shall constitute a general or limited agency or be deemed to confer on either party hereto any express, implied or apparent authority to incur any obligation or liability on behalf of the other. 9.18 PUBLICITY. On and after the Closing Date, Lenders and their Affiliates shall be entitled, but not required, to advertise the transactions contemplated hereby from time to time in media selected by Lenders or their Affiliates at their expense. On and after the Closing Date, Borrower shall be entitled, but not required, to advertise the same from time to time in media selected by Borrower at its expense, provided that Borrower's advertisements shall include a disclosure, in each case approved in writing by Agent (not to be unreasonably withheld or delayed), that Lenders originated the Loans. 9.19 WAIVER OF COUNTERCLAIM. Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Agent, any Lender or their agents, but Borrower does not waive its right to assert any such claim in a separate action. 9.20 CONFLICT; CONSTRUCTION OF DOCMENTS. In the event of any conflict between the provisions of this Agreement and any of the other Loan Documents, the provisions of this Agreement shall control. The parties hereto acknowledge that they were represented by counsel in connection with the negotiation and drafting of the Loan Documents and other documents and instruments executed and delivered in connection therewith and that such Loan Documents and other documents and instruments shall not be subject to the principle of construing their meaning against the party which drafted the same. 9.21 BROKERS AND FINANCIAL ADVISORS. Borrower hereby represents that it has dealt with no financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement. Borrower hereby agrees to indemnify and hold harmless Lenders and their Affiliates and their respective agents, representatives and employees from and against any and all claims, liabilities, costs and expenses of any kind in any way relating to or arising from a claim by any Person that such Person acted on behalf of Borrower or its Affiliates in connection with the transactions contemplated herein. The provisions of this Section 9.21 shall survive the expiration and termination of this Agreement and the repayment of the Indebtedness. 9.22 PRIOR AGREEMENTS. This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements among or between such parties, whether oral or written, are superseded by the terms of this Agreement and the other Loan Documents. 9.23 MAXIMUM RATE OF INTEREST. This Agreement, the Notes and the other Loan Documents are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the Loans at a rate that could subject Lenders to either civil or criminal liability as a result of such rate being in excess of the highest lawful rate permitted under applicable usury law to be charged to Borrower (the "MAXIMUM RATE"). If, by the terms of this Agreement, the Notes or any of the other Loan Documents, Borrower is at any time required or obligated to pay interest on the Loans at a rate in excess of such Maximum Rate, the rate of interest applicable to the Loans shall be deemed to be immediately reduced to such Maximum Rate and the interest payable shall be computed at such Maximum Rate and all prior interest payments in excess of such Maximum Rate shall be deemed to have been the result of a mistake on the part of both Borrower and Lenders, and Lenders shall promptly credit such excess (to the extent only of such interest payments in excess of the Maximum Rate) against the unpaid principal amount of the Loans to which such excess may lawfully be credited, and any portion of such excess payments not capable of being so credited shall be refunded to Borrower or otherwise disposed of as directed by the order of a court of competent jurisdiction. 9.24 ATTORNEYS' FEES. In the event of any litigation, arbitration or other dispute resolution proceedings between the parties hereto arising out of or relating to this Agreement or the transactions contemplated hereby, the party prevailing in such litigation, arbitration or proceeding shall be entitled to recover from the other party the reasonable attorney's fees and disbursements incurred by such prevailing party in connection with such litigation, arbitration or proceeding. 9.25 COUNTERPARTS. This Agreement and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. 9.26 APPLICATION OF PAYMENTS. Except as otherwise provided in this Agreement and the other Loan Documents, each and every payment made by Borrower to Agent in accordance with the terms of this Agreement and the other Loan Documents and all other proceeds received by Agent with respect to the Indebtedness shall be applied in the following order of priority: (i) to pay the costs and expenses of Agent and Lenders for which Agent and Lenders are entitled to reimbursement from Borrower under this Agreement or the other Loan Documents, and that have not previously been reimbursed by Borrower, together with accrued interest thereon (if any); then (ii) to ratably pay accrued interest on the Loans, including interest accrued at the Default Rate (if any); and then (iii) to ratably reduce the outstanding principal amount of the Loans. 9.27 ASSIGNMENTS AND PARTICIPATIONS. (a) Each Lender may assign, to one or more banks or other financial institutions regularly engaged in making or acquiring loans, all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided, however, that (i) Agent (in its sole discretion) must give its prior written consent to such assignment, (ii) if no Event of Default and/or monetary Default shall then exist and be continuing, Borrower must give its prior written consent to such assignment, which consent shall not be unreasonably withheld or delayed and if an Event of Default or a monetary Default shall be so continuing, then Borrower's consent shall not be required, (iii) each such assignment shall be of a constant, and not a varying, percentage of all the assigning Lender's rights and obligations under this Agreement as a Lender and the other Loan Documents, (iv) the aggregate amount of the Loans and Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to Agent) shall not be less than $10,000,000 unless such Lender's then outstanding Loans and Commitment is less than $10,000,000 in which event such Lender may assign the aggregate amount of the Loans made by such Lender and its entire Commitment to make Loans, (v) the parties to each such assignment shall execute and deliver to Agent an Assignment and Acceptance, and a processing fee of $5,000 and (vi) if no Default and/or Event of Default shall then be continuing, Bankers agrees to retain at least a 22.2222% interest in the Loans. Upon the later of acceptance pursuant to this Section, and the effective date specified in each Assignment and Acceptance, which effective date shall be at least five (5) Business Days after the execution thereof, (A) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations under this Agreement and the other Loan Documents, and (B) the assigning Lender thereunder shall, to the extent provided in such assignment, be released from its obligations under this Agreement and the other Loan Documents (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement and the other Loan Documents, such assigning Lender shall cease to be a party hereto, but it shall continue to receive the benefit of the indemnifications referred to or provided for in, Section 9.14). Borrower shall execute replacement Notes (in the form of Exhibit B) in connection with any such assignment. (b) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any of the other Loan Documents, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any of the other Loan Documents, or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower or any other Person or the performance or observance by Borrower any other Person of any of its obligations under this Agreement or any of the other Loan Documents, or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement and the other Loan Documents and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will independently and without reliance upon Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee appoints and authorizes Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement and the other Loan Documents are required to be performed by it as a Lender. (c) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and assignee together with the processing fee referred to in Section 9.27(a) above and the written consent of Agent (and of Borrower, if required) to such assignment Agent shall (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register, and (iii) give prompt notice thereof to Borrower and Lenders. (d) Each Lender may without the consent of Borrower, but upon the prior written consent of Agent, sell participations to one or more banks or other financial institutions regularly engaged in making or acquiring loans in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participating banks or other entities shall be entitled to the benefit of the provisions contained in Sections 2.5, 2.9, 2.10 and 9.14 as if such Participant were a Lender, and (iv) Borrower, Agent and other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of Borrower, Guarantors and Standby Purchasers relating to the Loans and to approve any amendment, modification or waiver of any provision of this Agreement or any of the other Loan Documents (but with respect to the matters referred to in the last sentence of Section 9.4 a Lender may allow its participant to have approval rights with respect thereto). (e) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section, disclose to the assignee or participant or proposed assignee or participant any information relating to Borrower any Guarantor or any Standby Purchaser, their respective Affiliates furnished to each such Lender by or on behalf of Borrower, Guarantors and/or Standby Purchasers. (f) Any Lender which is organized under the laws of any jurisdiction other than the United States or any state or other political subdivision thereof shall, and if pursuant to Section 9.27(a), any interest in this Agreement is assigned to any other bank or financial institution, the assigning Lender shall cause the assignee, concurrently with the effectiveness of such assignment to (i) furnish to Borrower either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Form 1001 (or such other forms or certificates wherein such assignee claims entitlement to complete exemption from or reduction of U.S. federal withholding tax on all interest payments hereunder) and (ii) agree (for the benefit of Borrower) to provide Borrower a new form upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such assignee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption. Notwithstanding anything to the contrary herein, nothing in this Section 9.27(f) shall require a Lender to provide a form which it is not legally permitted to provide. 9.28 SETOFF. Upon the occurrence of an Event of Default, Agent and each Lender is hereby authorized, at any time or from time to time, without prior notice to Borrower or any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other indebtedness or property at any time held or owing by Agent or any Lender to or for the credit or the account of Borrower, whether or not related to this Agreement or any transaction or occurrence hereunder, against and on account of the indebtedness and other liabilities of Borrower to Agent or any Lender hereunder, under the Notes and/or under any of the other Loan Documents, whether or not Agent or any Lender shall have made any demand hereunder and although such liabilities, or any of them, shall be contingent or unmatured. The rights and remedies granted to Agent and each Lender under this Section shall be in addition to, and not in substitution for, any rights or remedies, including, without limitation, any right of set-off or banker's lien, to which Agent or any Lender may otherwise be entitled. 9.29 LIABILITY OF BORROWER'S TRUSTEES, ETC. Notwithstanding any provision of this Agreement to the contrary, this Agreement has been executed and delivered by a duly authorized officer of Borrower, for and on behalf of Borrower's trustees. The Agent and each Lender each acknowledges that neither the trustees of Borrower, nor any additional or successor trustees of Borrower, nor any beneficiary, officer, employee or agent of Borrower, shall have any personal, individual liability hereunder or under any of the Loan Documents. 9.30 EMPLOYEE TERMINATION EXPENSES. Notwithstanding anything herein to the contrary, for the purposes of this Agreement and of the Line of Credit Facility (as incorporated herein), including, without limitation, for the purposes of Section 7.20 of the Line of Credit Facility, employee termination expenses of up to $8,500,000 incurred from and after the date hereof shall be disregarded. 9.31 CONFLICTS WITH INTERCREDITOR AGREEMENT. If any term or provision of this Agreement relating to the application of monies conflicts with the provisions of the Intercreditor Agreement, the terms and provisions of the Intercreditor Agreement shall take precedence over such conflicting provisions of this Agreement. X. AGENT; SUCCESSOR AGENT. 10.1 APPOINTMENT. Bankers Trust Company is hereby appointed Agent hereunder and under the other Loan Documents and each Lender hereby authorizes Agent to act as its agent in accordance with the terms of this Agreement and the other Loan Documents. Agent agrees to act upon the express conditions contained in this Agreement and the other Loan Documents, as applicable. The provisions of this Article X are solely for the benefit of Agent and Lenders and Borrower shall not have any right as third-party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement, Agent shall act solely as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for Borrower or any Affiliate of Borrower. 10.2 POWERS AND DUTIES; GENERAL IMMUNITY. 10.2.1 POWERS; DUTIES. Each Lender irrevocably authorizes Agent to deal and communicate with Borrower on such Lender's behalf in all respects under and in connection with the Loan Documents. Borrower shall have no obligation to recognize or deal directly with Lenders nor to comply with any demand or requirement made by any Lender (other than through Agent), and no Lender shall deal directly with Borrower with respect to the rights, benefits and obligations of Borrower under the Loan Documents or any one or more documents or instruments in respect thereof. Borrower shall be entitled to rely conclusively on the actions of Agent as agent to bind Lenders, notwithstanding that the particular action in question may, pursuant to the terms of such agreements as may exist from time to time among the Agent and Lenders, be subject, as among the Agent and Lenders, to the approval or direction of Lenders or any specified percentage of Lenders. Agent may exercise its powers, rights and remedies and perform its duties hereunder by or through its agents or employees. Agent shall not have, by reason of this Agreement or any of the other Loan Documents, a fiduciary relationship in respect of any Lender; and nothing in this Agreement or any of the other Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon Agent any obligations in respect of this Agreement or any of the other Loan Documents except as expressly set forth herein or therein. 10.2.2 AGENT ENTITLED TO ACT AS LENDER. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans, Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not performing the duties and functions delegated to it hereunder, and the term "Lender" or "Lenders" or any similar term shall, unless the context clearly otherwise indicates, include Agent in its individual capacity. Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust, financial advisory or other business with Borrower or any Standby Purchaser or any of their respective Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from Borrower or any Standby Purchaser for services in connection with this Agreement and otherwise without having to account for the same to Lenders. 10.3 REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR APPRAIS Each Lender hereby acknowledges that such Lender has been furnished with copies of such Loan Documents, financial statements, certificates, instruments, documents, affidavits, resolutions, reports, and agreements (collectively, the "PRE-CLOSING DOCUMENTATION") as such Lender has deemed necessary to make its own credit analysis and decision with respect to the Loans. Each Lender acknowledges that it has, independently and without reliance upon Agent and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and to extend credit to the Borrower on the terms set forth in this Agreement and the other Loan Documents. Each Lender also acknowledges to Agent that such Lender will, independently and without reliance upon Agent and based on the Pre-Closing Documentation and such other documents and information as it shall deem appropriate at the time, make and continue to make its own decision in taking or not taking action with respect to the Loans. Lenders hereby acknowledge that Agent (i) shall not be responsible to Lenders for any statements, warranties, or representations (written or otherwise) by any party other than Agent made in or in connection with the Pre-Closing Documentation, the Loans, or the Loan Documents, or the financial condition of Borrower or the Standby Purchasers, any indemnitor or any other person; and (ii) shall not be responsible to Lenders for the due execution, legality, validity, enforceability, genuineness, sufficiency or collectability of any of the Loan Documents or any other instrument or document furnished pursuant thereto or in connection with the Loans. 10.4 SUCCESSOR AGENT. Agent may resign at any time by giving thirty (30) days' prior written notice thereof to Lenders and Borrower, and Agent may be removed for cause by Lenders by written Lender Approval, if such written instrument is delivered to Borrower. Upon any such notice of resignation or any such removal, Lenders shall have the right, by Lender Approval, upon five (5) Business Days' notice to Borrower, to appoint a successor Agent. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, that successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Agent and the retiring or removed Agent shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Agent's resignation or removal hereunder as Agent, the provisions of this Article X shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. XI. OFFERING. 11.1 RIGHTS OFFERING. Borrower shall use its best efforts to file with the Securities and Exchange Commission within forty-five (45) days from the Closing Date either (i) a registration statement or (ii) to the extent that Borrower in good faith concludes that the Offering (as defined below) may be conducted pursuant to a prospectus supplement to Borrower's existing shelf registration statement (file no. 333-31695), a prospectus supplement (in which case the number of days referred to above shall be sixty (60) days) or (iii) a post-effective amendment to such shelf registration statement, in each case in such form such that when the same is declared effective by the Securities and Exchange Commission or, in the case of clause (ii) above, filed with the Securities and Exchange Commission, Borrower will be able to consummate an offering entitling holders of equity securities of Borrower to purchase additional equity interests in Borrower on a pro rata basis (the "OFFERING") which, if fully subscribed, would result in aggregate proceeds to Borrower of an amount at least sufficient to enable Borrower to prepay, upon the consummation of the Offering, the Loans and the Other Loans (and all interest and other fees or other amounts due in connection with the Loans and the Other Loans), and Borrower shall use its best efforts to cause any such registration statement or post-effective amendment referred to in clause (i) or (iii) above to be declared effective within ninety (90) days from the Closing Date. Borrower shall use its best efforts to take, or cause to be taken, any and all further action or actions necessary or advisable to be taken in order to enable the Offering to be consummated as contemplated by this Section 11.1, including but not limited to the distribution of a prospectus or prospectus supplement pursuant to any of the applicable registration statements referred to above. It shall be an Event of Default if the registration statement or post-effective amendment is not declared effective or if the prospectus supplement is not filed with the Securities and Exchange Commission, as the case may be, on or prior to the Initial Maturity Date. 11.2 CONSUMMATION. After the filing of the registration statement, post-effective amendment or prospectus supplement referred to in Section 11.1 above, for the Offering pursuant to Section 11.1, Borrower shall thereafter diligently and continuously use its best efforts to consummate the Offering. 11.3 PROCEEDS OF OFFERING. Upon Borrower's receipt of any proceeds of the Offering, Borrower shall cease to have any right to borrow under this Agreement. 11.4 PRICING OF RIGHTS OFFERING. The pricing of the securities to be offered pursuant to the Offering shall be consistent with the pricing parameters set forth in Section 7(d) of the Standby Purchase Agreements. 11.5 WAIVER OF OWNERSHIP LIMITATIONS. Borrower hereby covenants and agrees to use its best efforts to cause to be issued to Gotham a waiver of the ownership limitations set forth in Article VI, Section 6 of the By-Laws of Borrower, in form and substance reasonably satisfactory to Gotham, to the extent necessary (in light of all other securities of Borrower directly, indirectly, beneficially or constructively owned or controlled by or subject to the power to vote of (in each case, within the meaning of Borrower's Organizational Documents, the Securities Exchange Act of 1934, as amended and the rules and regulations thereunder, and the Internal Revenue Code and the rules and regulations thereunder) Gotham to permit Gotham to acquire the securities it may become obligated to purchase pursuant to the Standby Purchase Agreement to which Gotham is a party; provided, however, that notwithstanding the foregoing or any other provision of this Agreement, (i) Borrower shall not be obligated to take any action hereunder which would prevent Borrower from qualifying or continuing to qualify for taxation under the Internal Revenue Code as a REIT, and (ii) Borrower shall not be prevented or restricted hereunder with respect to taking any action which the Board of Trustees of Borrower shall deem advisable to prevent disqualification of Borrower for taxation under the Internal Revenue Code as a REIT. 11.6 INDEMNIFICATION (a) Borrower agrees to indemnify and hold harmless Agent and each Lender against any and all losses, claims, damages, obligations, penalties, judgments, awards, liabilities, costs, expenses and disbursements (and any and all actions, suits, proceedings and investigations in respect thereof and any and all legal and other costs, expenses and disbursements in giving testimony or furnishing documents in response to a subpoena or otherwise), including, without limitation, the costs, expenses and disbursements, as and when incurred, of investigating, preparing or defending any such action, suit, proceeding or investigation (whether or not in connection with litigation in which any Agent or any Lender is a party), directly or indirectly, caused by, relating to, based upon, arising out of, or in connection with, including, without limitation, any act or omission by Agent or such Lender in connection with the Offering or any registration statement or any prospectus relating to the Offering. (b) These indemnification provisions shall be in addition to any liability which Borrower may otherwise have to Agent or Lenders or the persons indemnified below in this sentence and shall extend to the following: Agent, Lenders, their respective affiliated entities, partners, employees, legal counsel, agents and controlling persons (within the meaning of the federal securities laws), and the officers, directors, employees, legal counsel, partners, agents and controlling persons of any of them. All references to Agent and/or Lender in these indemnification provisions shall be understood to include any and all of the foregoing indemnitees. (c) If any action, suit, proceeding or investigation is commenced, as to which Agent or any Lender proposes to demand indemnification, it shall notify Borrower with reasonable promptness; provided, however, that any failure by Agent or any Lender to notify Borrower shall not relieve Borrower from its obligations hereunder. Agent or any such Lender, as the case may be, shall have the right to retain counsel of its own choice to represent it, and Borrower shall pay the reasonable fees, expenses and disbursements of such counsel; and such counsel shall, to the extent consistent with its professional responsibilities, cooperate with Borrower and any counsel designated by Borrower. Borrower shall not be liable for any settlement of any claim against Agent or any Lender made without Borrower's prior written consent, which consent shall not be unreasonably withheld. Borrower shall not, without the prior written consent of Agent or any such Lender, as the case may be, settle or compromise any claim, or permit a default or consent to the entry of any judgment in respect thereof, unless such settlement, compromise or consent includes, as an unconditional term thereof, the giving by the claimant to Agent or any such Lender, as the case may be, of an unconditional release from all liability in respect of such claim. (d) In order to provide for just and equitable contribution, if a claim for indemnification pursuant to these indemnification provisions is made but it is found in a final judgment by a court of competent jurisdiction (not subject to further appeal) that such indemnification may not be enforced in such case, even though the express provisions hereof provide for indemnification in such case, then Borrower, on the one hand, and Agent or any such Lender, as the case may be, on the other hand, shall contribute to the losses, claims, damages, obligations, penalties, judgments, awards, liabilities, costs, expenses, and disbursements to which the indemnified persons may be subject in accordance with the relative benefits received by Borrower, on the one hand, and Agent or any such Lender, as the case may be, on the other hand, and also the relative fault of Borrower, on the one hand, and Agent or any such Lender, as the case may be, on the other hand, in connection with the statements, acts or omissions which resulted in such losses, claims, damages, obligations, penalties, judgments, awards, liabilities, costs, expenses or disbursements and the relevant equitable considerations shall also be considered. No person found liable for a fraudulent misrepresentation shall be entitled to contribution from any person who is not also found liable for such fraudulent misrepresentation. Notwithstanding the foregoing, neither Agent nor any Lender shall be obligated to contribute any amount hereunder that exceeds the amount of fees previously received by Agent or such Lender, as the case may be, pursuant to this Agreement. (e) These indemnification provisions and the provisions of Section 9.14 shall survive any termination of this Agreement and thereafter shall remain operative and in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written. LENDER AND AGENT: BANKERS TRUST COMPANY By: ---------------------------------------- Name: Title: LENDERS: BANKBOSTON, N.A. By: ---------------------------------------- Name: Title: WELLSFORD REAL PROPERTIES, INC. By: ---------------------------------------- Name: Title: IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written. LENDER AND AGENT: BANKERS TRUST COMPANY By: ---------------------------------------- Name: Title: LENDERS: BANKBOSTON, N.A. By: ---------------------------------------- Name: Title: WELLSFORD REAL PROPERTIES, INC. By: ---------------------------------------- Name: Title: IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written. LENDER AND AGENT: BANKERS TRUST COMPANY By: ---------------------------------------- Name: Title: LENDERS: BANKBOSTON, N.A. By: ---------------------------------------- Name: Title: WELLSFORD CAPITAL By: ---------------------------------------- Name: Title: BORROWER: FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS By: ---------------------------------------- Name: Thomas Kmiecik Title: Senior Vice President - Treasurer EX-10.(B) 4 =========================================================================== FIXED RATE LOAN AGREEMENT Dated as of August 11, 1998 BY and AMONG FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS, as Borrower BANKERS TRUST COMPANY as Agent AND THE LENDERS LISTED ON THE SIGNATURE PAGES HERETO, as Lenders $45,000,000 (GOTHAM GROUP) =========================================================================== TABLE OF CONTENTS Page I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION................................ 1 1.1 Definitions................................................... 1 1.2 Principles of Construction.................................... 13 II. GENERAL TERMS.......................................................... 14 2.1 Commitments; Advances; Notes; the Register.................... 14 2.1.1 Commitments.......................................... 14 2.1.2 Borrowing Mechanics. ............................... 14 2.1.3 Disbursement of Funds................................ 15 2.1.4 Notes................................................ 15 2.1.5 The Register......................................... 16 2.2 Use of Proceeds............................................... 16 2.3 Loan Repayments and Prepayments............................... 16 2.3.1 Repayments........................................... 16 2.3.2 Mandatory Prepayments of the Loans................... 16 2.3.3 Voluntary Prepayments of the Loans................... 17 2.3.4 Not A Revolver....................................... 17 2.4 Interest...................................................... 17 2.4.1 Generally............................................ 17 2.4.2 Interest Payments.................................... 17 2.4.3 Default Rate; Post-Maturity Interest................. 18 2.5 Payments; Computations........................................ 18 2.5.1 Making of Payments................................... 18 2.5.2 Computation of Interest.............................. 18 2.5.3 Capital Adequacy Adjustment. ....................... 18 2.6 Extension of Loan Term........................................ 19 2.6.1 Extension Option..................................... 19 2.6.2 Conditions to Extend................................. 19 2.7 Commitment and Other Fees..................................... 20 2.8 Agent Reliance; Defaulting Lenders............................ 20 2.8.1 Agent Reliance....................................... 20 2.8.2 Defaulting Lenders................................... 20 2.8.3 Subordination of Defaulting Lenders.................. 21 2.9 Lending Installations......................................... 21 2.10 Withholding................................................... 22 2.11 Sharing of Payments, Etc...................................... 22 2.12 Pro Rata Treatment............................................ 23 III. SPECIAL PROVISIONS..................................................... 23 3.1 Loss Proceeds Account......................................... 23 3.2 Casualty and Condemnation..................................... 24 3.2.1 Casualty, Condemnation and Application of Proceeds... 24 3.2.2 Conflicts With Mortgage Financing.................... 27 IV. CONDITIONS PRECEDENT................................................... 27 4.1 Intentionally Omitted......................................... 27 4.2 Conditions Precedent to All Advances.......................... 27 4.2.1 Notice of Borrowing; Other Documentation............. 27 4.2.2 Other Conditions..................................... 28 V. REPRESENTATIONS AND WARRANTIES......................................... 28 5.1 Borrower Representations...................................... 28 5.1.1 Organization; Existence.............................. 29 5.1.2 Proceedings.......................................... 29 5.1.3 No Conflicts......................................... 29 5.1.4 Litigation........................................... 29 5.1.5 Agreements........................................... 30 5.1.6 No Bankruptcy Filing................................. 30 5.1.7 Full and Accurate Disclosure......................... 30 5.1.8 Tax and REIT Status.................................. 30 5.1.9 Use of Proceeds...................................... 30 5.1.10 Financial Information................................ 30 5.1.11 No Default........................................... 31 5.1.12 Federal Reserve Regulations.......................... 31 5.1.13 Enforceability....................................... 31 5.1.14 Incorporation of Representations and Warranties...... 32 VI. AFFIRMATIVE COVENANTS.................................................. 32 6.1 Borrower Covenants............................................ 32 6.1.1 SEC Filings and Press Releases....................... 32 6.1.2 Business and Operations.............................. 32 6.1.3 Costs of Enforcement................................. 32 6.1.4 Estoppel Statement................................... 33 6.1.5 Loan Proceeds........................................ 33 6.1.6 Name; Principal Place of Business.................... 33 6.1.7 Board of Trustees.................................... 33 6.1.8 Offering............................................. 33 6.1.9 Incorporation of Affirmative Covenants............... 33 VII. NEGATIVE COVENANTS..................................................... 34 7.1 Borrower Negative Covenants................................... 34 7.1.1 Debt................................................. 34 7.1.2 Corporate Structure.................................. 34 7.1.3 Incorporation of Negative Covenants.................. 34 VIII. DEFAULTS............................................................... 35 8.1 Event of Default.............................................. 35 8.2 Remedies...................................................... 37 8.3 Remedies Cumulative........................................... 38 8.4 Gotham's Cure Rights.......................................... 38 IX. MISCELLANEOUS.......................................................... 39 9.1 Survival...................................................... 39 9.2 Lenders' or Agent's Discretion................................ 39 9.3 Governing Law................................................. 39 9.4 Modification, Waiver in Writing............................... 40 9.5 Delay Not a Waiver............................................ 41 9.6 Notices....................................................... 41 9.7 Trial By Jury................................................. 42 9.8 Headings...................................................... 42 9.9 Severability.................................................. 42 9.10 Preferences................................................... 43 9.11 Waiver of Notice.............................................. 43 9.12 Remedies of Borrower.......................................... 43 9.13 Non-Exculpation............................................... 43 9.14 Expenses; Indemnity........................................... 44 9.15 Exhibits, Schedules Incorporated.............................. 46 9.16 Offsets, Counterclaims and Defenses........................... 46 9.17 No Joint Venture or Partnership............................... 46 9.18 Publicity..................................................... 46 9.19 Waiver of Counterclaim........................................ 46 9.20 Conflict; Construction of Documents........................... 46 9.21 Brokers and Financial Advisors................................ 47 9.22 Prior Agreements.............................................. 47 9.23 Maximum Rate of Interest...................................... 47 9.24 Attorneys' Fees............................................... 47 9.25 Counterparts.................................................. 48 9.26 Application of Payments....................................... 48 9.27 Assignments and Participations................................ 48 9.28 Setoff........................................................ 51 9.29 Liability of Borrower's Trustees, etc......................... 51 9.30 Employee Termination Expenses................................. 51 9.31 Conflicts with Intercreditor Agreement........................ 52 X. AGENT; SUCCESSOR AGENT................................................. 52 10.1 Appointment................................................... 52 10.2 Powers and Duties; General Immunity........................... 52 10.2.1 Powers; Duties....................................... 52 10.2.2 Agent Entitled to Act as Lender...................... 53 10.3 Representations and Warranties; No Responsibility for Appraisal of Creditworthiness................................. 53 10.4 Successor Agent............................................... 53 XI. OFFERING............................................................... 54 11.1 Rights Offering............................................... 54 11.2 Consummation.................................................. 54 11.3 Proceeds of Offering.......................................... 55 11.4 Pricing of Rights Offering.................................... 55 11.5 Waiver of Ownership Limitations............................... 55 11.6 Indemnification............................................... 55 EXHIBITS Exhibit A Form of Guaranty Exhibit B Form of Notes Exhibit C Form of Notice of Borrowing Exhibit D Form of Assignment and Acceptance SCHEDULES Schedule 1.1 List of Prior Debt Documents Schedule 2.1.1 Commitments; Lenders' Pro Rata Shares Schedule 5.1.4 Pending and Threatened Litigation Schedule 5.1.14 Annexes to Line of Credit Facility FIXED RATE LOAN AGREEMENT THIS FIXED RATE LOAN AGREEMENT, dated as of August 11, 1998 (as amended, restated, replaced, supplemented or otherwise modified from time to time, this "AGREEMENT"), by and among BLACKACRE BRIDGE CAPITAL, L.L.C., a New York limited liability company, having an address at 450 Park Avenue, 28th Floor, New York, New York 10022, GOTHAM PARTNERS, L.P., a New York limited partnership, having an address at 110 East 42nd Street, New York, New York 10017, GOTHAM PARTNERS III, L.P., a New York limited partnership, having an address at 110 East 42nd Street, New York, New York 10017 and ELLIOTT ASSOCIATES, L.P., a Delaware limited partnership, having an address at 712 Fifth Avenue, New York, New York 10020 (together with their successors and assigns hereunder, each a "LENDER" and collectively, the "LENDERS"), BANKERS TRUST COMPANY, a New York banking corporation, as agent (in such capacity, together with its successors and assigns hereunder, "AGENT"), having an address at 130 Liberty Street, New York, New York, 10016, Attention: Jeffrey Baevsky, and FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS, an Ohio real estate investment trust ("BORROWER"), having an address at Suite 1900, 55 Public Square, Cleveland, Ohio 44113-1937. All capitalized terms used herein shall have the respective meanings set forth in Section 1.1 hereof. W I T N E S S E T H : WHEREAS, Borrower desires to obtain the Loans from Lenders; and WHEREAS, Lenders are willing to make the Loans to Borrower, subject to and in accordance with the terms of this Agreement. NOW, THEREFORE, in consideration of the making of the Loans by Lenders and the covenants, agreements, representations and warranties set forth in this Agreement, the parties hereto hereby covenant, agree, represent and warrant as follows: I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION 1.1 DEFINITIONS. For all purposes of this Agreement, except as otherwise expressly provided herein or unless the context clearly indicates a contrary intent: "ADVANCE" means an advance of a Loan made on or after the Closing Date pursuant to and in accordance with Section 2.1.1 to be used exclusively for the purposes described in Section 2.2. "AFFILIATE" means, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person or is a director, officer or trustee of such Person or of an Affiliate of such Person. For purposes of this definition, "control" of a person means the power, directly or indirectly, (i) to vote ten percent (10%) or more of the securities having ordinary voting power for the election of directors or trustees of such Person, or (ii) to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise; provided that no Lender shall be deemed an Affiliate of Borrower for purposes of this Agreement or any other Loan Document; and that each of the entities included in the definition of Gotham are deemed to be Affiliates of each other and of Gotham Partners International, Ltd. and Gotham Partners II, L.P. "AGENT" has the meaning specified in the first Paragraph hereof. "ASSIGNMENT AND ACCEPTANCE" shall mean an Assignment and Acceptance in the form of Exhibit D and delivered pursuant to Section 9.27. "BANKRUPTCY" means, with respect to any Person: (i) the commencement by such Person of a proceeding seeking relief under any provision or chapter of the Bankruptcy Code or any other federal or state law relating to insolvency, bankruptcy or reorganization; (ii) an adjudication that such Person is insolvent or bankrupt; (iii) the entry of an order for relief under the Bankruptcy Code with respect to such Person; (iv) the filing of any such petition or the commencement of any such case or proceeding against such Person, unless such petition and the case or proceeding initiated thereby are dismissed within sixty (60) days from the date of such filing; (v) the filing of an answer by such Person admitting the material allegations of any such petition; (vi) the appointment of a trustee, receiver or custodian for all or substantially all of the assets of such Person unless such appointment is vacated or dismissed by the earlier of sixty (60) days from the date of such appointment and five (5) days before the proposed sale of any assets of such Person; (vii) the execution by such Person of a general assignment for the benefit of creditors; (viii) the convening by such Person of a meeting of its creditors, or any class thereof, for purposes of effecting a moratorium upon or composition of its debts or an extension of its debts; (ix) the levy, attachment, execution or other seizure of substantially all of the assets of such Person where such seizure is not discharged within ten (10) days thereafter; or (x) the admission by such Person in writing of its inability to pay its debts as they mature or that it is generally not paying its debts as they become due. "BANKRUPTCY ACTION" means, with respect to any Person: (i) commencing any case, proceeding or other action seeking protection for such Person as a debtor under any existing or future law of any jurisdiction relating to bankruptcy, insolvency, reorganization or relief of debtors; (ii) consenting to the entry of an order for relief in or institution of any case, proceeding or other action brought by any third party against such Person as a debtor under any existing or future law of any jurisdiction relating to bankruptcy, insolvency, reorganization or relief of debtors; (iii) filing an answer in any involuntary case or proceeding described in clause (ii) above admitting the material allegations of the petition therein or otherwise failing to contest any such involuntary case or proceeding; (iv) seeking or consenting to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar official for such Person or for a substantial portion of its properties; (v) making any assignment for the benefit of the creditors of such Person; or (vi) admitting in writing the inability of such Person to generally pay its debts as they mature or that such Person is generally not paying its debts as they become due. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "BORROWER" has the meaning specified in the first Paragraph hereof. "BUSINESS DAY" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York, or which is a day on which banking institutions located in any such jurisdiction are authorized or required by law or other governmental action to close. "CAPITAL EVENT" means: (i) any sale, transfer, disposition, conveyance or refinancing of all or any portion of any Property; (ii) Casualty or Condemnation of all or any portion of any Property; (iii) the acquisition, by purchase or otherwise, of any Property or other assets; (iv) the issuance of any debt (other than the Indebtedness and other than under the Imperial Credit Facility and/or the Line of Credit Facility, as each is in effect on the date hereof) or equity securities by Borrower (including the Offering); (v) the incurrence of any indebtedness (other than the Indebtedness and other than under the Imperial Credit Facility and/or the Line of Credit Facility, as each is in effect on the date hereof) for borrowed money by Borrower (other than purchase-money indebtedness); (vi) any transaction or arrangement with any Person whereby Borrower shall sell or transfer any Property and then or thereafter rent or lease back the same Property which it intends to use for substantially the same purposes as the Property sold or transferred; or (vii) any other event or occurrence which creates Capital Event Proceeds. "CAPITAL EVENT PROCEEDS" means the net proceeds (i.e., the amounts received as a result of a Capital Event which exceeds the costs and expenses incurred in such Capital Event) to Borrower from any Capital Event, including but not limited to: (i) net proceeds from the sale, transfer, disposition, conveyance or refinancing of all or any portion of any Property; (ii) Loss Proceeds in respect of a Casualty or Condemnation of all or any portion of the Properties, if such proceeds are not used to rebuild or restore such Properties, or are not governed by another document in accordance with Section 3.2.2; (iii) net proceeds from the issuance of any debt or equity securities by Borrower; (iv) net proceeds from the incurrence of any indebtedness for borrowed money by Borrower; or (v) any net proceeds from a transaction or arrangement with any Person whereby Borrower shall sell or transfer any Property and then or thereafter rent or lease back the same Property which it intends to use for substantially the same purposes as the Property sold or transferred; provided that all such proceeds shall be net of reasonable out-of-pocket transaction costs and income or other taxes payable by Borrower as a result of such Capital Event and, in the case of the sale or other disposition of any Property, net of payment of any debt secured by such Property or Properties. "CASUALTY" means any damage to, or loss or destruction of, all or any part of the Properties, whether or not such damage, loss or destruction is insured or insurable. "CASUALTY INSURANCE PROCEEDS" means insurance or other proceeds or amounts paid or payable to or on behalf of Borrower in respect of a Casualty. "CHANGE IN CONTROL" means, with respect to Borrower, any of the following events: (i) the acquisition, directly or indirectly, by any one "person" (as such term is used in Section 13(d), and 14(d) of the Securities and Exchange Act of 1934, as amended) of more than 10% of the common stock of or other equity interests in Borrower; or (ii) during any period subsequent to the date hereof, individuals who at the beginning of such period constituted the Board of Trustees or Board of Directors of Borrower (together with any new directors or trustees whose election or nomination for election was approved by a vote of a majority of the directors or trustees then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of such Board of Directors or Board of Trustees then in office; provided that neither the execution of the Standby Purchase Agreements nor the purchase by the Standby Purchasers of any stock pursuant to the Offering or the Standby Purchase Agreements shall be deemed to cause a Change in Control and that any increase in the ownership by any Standby Purchaser of any common stock or other equity interests in Borrower shall not constitute a Change in Control. "CLOSING DATE" means the date of this Agreement. "COMMITMENTS" means the commitments of Lenders to make Advances to Borrower pursuant to Section 2.1.1. "COMMITMENT FEES" has the meaning specified in Section 2.7. "CONDEMNATION" means any actual or threatened taking, condemnation, eminent domain or other similar proceeding relating to all or any portion of any Property. "CONDEMNATION PROCEEDS" means any and all award proceeds and other compensation payable in respect of a Condemnation. "CONTROL" of a Person means the power, whether or not exercised, to direct the management of such Person, whether by possession of the power to elect a majority of the Board of Directors or Board of Trustees or otherwise. "CPA" means a certified public accounting firm of recognized national standing. "DEBT" means, with respect to any Person, without duplication, (i) all indebtedness of such Person for borrowed money, (ii) all indebtedness of such Person for the deferred purchase price of property or services (other than indebtedness for property and services purchased in the ordinary course of business that is payable and paid within sixty (60) days after delivery), (iii) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments (other than performance, surety and appeal bonds arising in the ordinary course of business), (iv) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (v) all obligations of such Person under leases which have been or should be, in accordance with GAAP, recorded as capital leases, (vi) all reimbursement, payment or similar obligations of such Person, contingent or otherwise, under acceptance, letter of credit or similar facilities (other than letters of credit in support of trade obligations or in connection with workers' compensation, unemployment insurance, old-age pensions and other social security benefits in the ordinary course of business), (vii) all Debt (as defined in clauses (i) through (vi) above) of another Person guaranteed directly or indirectly by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (A) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (B) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss in respect of such Debt, (C) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (D) otherwise to assure a creditor against loss in respect of such Debt, and (viii) all Debt (as defined in clauses (i) through (vi) above) of another Person secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any lien, security interest or other charge or encumbrance upon or in property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt; excluding, however, the endorsement of negotiable instruments or documents in the ordinary course of business. "DEFAULT" means the existence of a condition or the occurrence of an event which, but for the giving of notice or passage of time, or both, would be an Event of Default. "DEFAULT RATE" means a rate per annum equal to the greater of the Interest Rate plus four percent (4.0%) per annum and the Prime Lending Rate plus four percent (4.0%) per annum. "DEFAULTING LENDER" shall have the meaning assigned to such term in Section 2.8.3. "ELLIOTT" is a reference to Elliott Associates, L.P., a Delaware limited partnership. "EVENT OF DEFAULT" has the meaning specified in Section 8.1. "EXTENSION FEE" has the meaning specified in Section 2.6.2. "FINAL COMMITMENT DATE" means the date that is six (6) months from the date on which the Closing Date occurs; provided that if the Final Commitment Date occurs on a day which is not a Business Day, the Final Commitment Date will fall on the next succeeding Business Day. "FINAL EXTENSION MATURITY DATE" has the meaning specified in Section 2.6.1(b). "FINAL EXTENSION NOTICE" has the meaning specified in Section 2.6.1(b). "FINAL EXTENSION OPTION" has the meaning specified in Section 2.6.1(b). "FISCAL YEAR" means each twelve month period commencing on January 1 and ending on December 31. "FFO" means, for any Person, net income (computed in accordance with GAAP), excluding gains (or losses) from restructuring and sales of property, plus depreciation of real property, and after adjustments for unconsolidated entities in which such Person holds an interest. "FUNDING DATE" means the date of the funding of an Advance. "GAAP" means generally accepted accounting principles in the United States of America as of the date of the applicable financial report. "GOTHAM" is a reference to Gotham Partners, L.P., a New York limited partnership, and Gotham Partners III, L.P., a New York limited partnership, and each reference herein to Gotham, including to Gotham as a Standby Purchaser, shall be deemed to be a reference to both of such entities or to each of such entities, as the context requires. "GOVERNMENTAL AUTHORITY" means any legislative body, court, board, agency, commission, office or authority of any nature whatsoever of or for any governmental unit (federal, state, county, district, municipal, city or otherwise) whether now or hereafter in existence. "GUARANTORS" means any Person which hereafter becomes a Guarantor pursuant to Section 7.20 of the Line of Credit Facility (as incorporated herein). "GUARANTY" means each guaranty, substantially in the form attached hereto as Exhibit A, hereafter executed by a Guarantor in favor of Lenders, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "IMPERIAL CREDIT FACILITY" means the credit facility governed by (i) that certain Amended and Restated Credit Agreement dated as of April 17, 1997 among Imperial Parking Limited, 504463 N.B. Inc., the lenders named therein, and BT Bank of Canada, and (ii) that certain Ancillary Agreement dated April 17, 1997 among BT Bank of Canada, Hongkong Bank of Canada and Borrower; both as amended, restated, replaced, supplemented or otherwise modified, and as more specifically described on Schedule 1.1 hereto. "INDEBTEDNESS" means the indebtedness evidenced by the Notes, together with all other obligations and liabilities of Borrower due or to become due to Lenders pursuant hereto in respect of the Loans, under the Notes or in accordance with any of the other Loan Documents, all amounts, sums and expenses paid by or payable or reimbursable to Lenders hereunder in respect of the Loans or pursuant to the Notes or any of the other Loan Documents, and all other covenants, obligations and liabilities of Borrower hereunder in respect of the Loans or pursuant to the Notes or any of the other Loan Documents, together with all interest thereon (including, if and when applicable, interest at the Default Rate as provided in this Agreement and in the Notes). "INDEMNIFIED LIABILITIES" has the meaning specified in Section 9.14. "INDEMNITEES" means, collectively, Agent, Lenders and their successors and assigns, and its and their respective officers, directors, agents (including any servicer of the Loans), employees, parents, Affiliates and Subsidiaries. "INDEPENDENT" means a Person who (i) is in fact independent, (ii) does not have any direct financial interest or any material indirect financial interest in Borrower or in any Affiliate of Borrower or any constituent partner of Borrower, and (iii) is not connected with Borrower or any Affiliate of Borrower or any constituent partner of Borrower as an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions. Whenever it is herein provided that any Independent Person's opinion or certificate shall be provided, such opinion or certificate shall state that the Person executing the same has read this definition and is Independent within the meaning hereof. "INITIAL EXTENSION MATURITY DATE" has the meaning specified in Section 2.6.1(a). "INITIAL EXTENSION NOTICE" has the meaning specified in Section 2.6.1(a). "INITIAL EXTENSION OPTION" has the meaning specified in Section 2.6.1(a). "INITIAL MATURITY DATE" means the day that is six (6) months from the date on which the Closing Date occurs; provided that if the Initial Maturity Date occurs on a day which is not a Business Day, the Initial Maturity Date will fall on the next succeeding Business Day. "INTERCREDITOR AGREEMENT" shall mean that certain Intercreditor Agreement of even date herewith by and among the parties to this Agreement and the parties to the Other Loan Agreement, as the same may be amended or otherwise modified from time to time. "INTEREST PAYMENT DATE" means, for any Interest Period, the date that is the last day of such Interest Period; provided, however, that if such day is not a Business Day, the Interest Payment Date for such Interest Period shall occur on the next succeeding Business Day. "INTEREST PERIOD" means each calendar month during the term of the Loans; provided that: (a) the initial Interest Period shall commence on (and include) the Closing Date and shall end on (and include) the last day of the calendar month in which the Closing Date occurs; and (b) the final Interest Period shall end on (and include) the last day of the calendar month in which the Initial Maturity Date occurs (or, if applicable, the Initial Extension Maturity Date or Final Extension Maturity Date). "INTEREST RATE" means a rate of interest equal to nine and seven-eighths percent (9.875%) per annum. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended, and as it may be further amended from time to time, any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form. "LEGAL REQUIREMENTS" means all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of any Governmental Authority (including Environmental Laws) affecting Borrower or any Property or any part thereof, whether now or hereafter enacted and in force. "LENDERS" has the meaning specified in the first Paragraph hereof, and shall, as the context may require, include any servicer appointed by Lenders for the purpose of servicing the Loans. "LENDER APPROVAL" means the written approval of the Required Lenders. Lender Approval or approval by the Required Lenders, except as otherwise herein provided, may be granted or withheld in the sole and absolute discretion of such required percentage of Lenders hereunder. "LENDING INSTALLATION" means any office or branch of any Lender. "LIEN" means any mortgage, deed of trust, lien, pledge, hypothecation, assignment, security interest, security title, or any other encumbrance, charge or collateral transfer of, on or affecting the Properties of Borrower or any portion thereof or any interest therein, including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanic's, materialmen's and other similar liens and encumbrances. "LINE OF CREDIT FACILITY" means the $125,000,000.00 credit facility governed by that certain Amended and Restated Credit Agreement dated as of November 1, 1997 among Borrower, Manager, the lenders named therein, Keybank National Association, Bankers Trust Company, and National City Bank, as amended, restated, replaced, supplemented or otherwise modified, and as more specifically described on Schedule 1.1 hereto. "LOAN DOCUMENTS" means collectively, this Agreement, the Notes, the Guaranty, the Standby Purchase Agreements and any other document or instrument executed and delivered by Borrower or any other Person to Agent or any Lender evidencing, governing, securing or otherwise relating to the Loans, in each case, as amended, restated, replaced, supplemented or otherwise modified from time to time. "LOANS" means the fixed rate unsecured loans evidenced by the Notes and governed by the Loan Documents, to be made in Advances by Lenders to Borrower pursuant hereto. "LOSS PROCEEDS" means Casualty Insurance Proceeds and/or Condemnation Proceeds, as the context may require. "LOSS PROCEEDS ACCOUNT" has the meaning specified in Section 3.1. "MANAGER" means First Union Management, Inc., a Delaware corporation. "MATERIAL ADVERSE EFFECT" means any circumstance, act, condition or event of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, or circumstance or circumstances, whether or not related, that does, or could reasonably be expected to, (i) result in a materially adverse change in or have a materially adverse effect upon the business, operations or condition (financial or otherwise) of Borrower or any Standby Purchaser, as the case may be, or (ii) result in the material impairment of the ability of Borrower or any Standby Purchaser to perform, or of Lenders to enforce, the obligations of Borrower or such Standby Purchaser under the Loan Documents to which it is a party, or any of them. "MAXIMUM RATE" has the meaning specified in Section 9.23. "NOTES" means those certain Notes of even date herewith, in each case made by Borrower in favor of a Lender, substantially in the form of Exhibit B, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time. "NOTICE OF BORROWING" means a notice substantially in the form attached hereto as Exhibit C, delivered by Borrower to Agent pursuant to Section 2.1.2 with respect to a proposed borrowing hereunder. "OFFERING" has the meaning specified in Section 11.1. "OFFICER'S CERTIFICATE" means a certificate delivered to Agent by Borrower which is signed by an authorized officer of Borrower. "ORGANIZATIONAL DOCUMENTS" means, with respect to any Person, (a) if such Person is a limited partnership, the limited partnership agreement of such Person and the certificate of limited partnership of such person, in each case, as amended, restated, supplemented or otherwise modified from time to time, (b) if such Person is a corporation, the certificate or articles of incorporation of such Person and the by-laws of such Person, in each case, as amended, restated, supplemented or otherwise modified from time to time, (c) if such Person is a limited liability company, the certificate of formation (or equivalent document) and the operating agreement of such Person, as amended, restated, supplemented or otherwise modified from time to time, (d) if such person is a trust, the trust agreement of such Person, as amended, restated, supplemented or otherwise modified from time to time, and (e) if such Person is a general partnership, the partnership agreement of such Person, as amended, restated, supplemented or otherwise modified from time to time. If a Person is an individual, there are no Organizational Documents for such Person. "OTHER LOAN AGREEMENT" shall mean that certain Fixed Rate Loan Agreement of even date herewith by and among Borrower, as borrower, Bankers Trust Company, BankBoston, N.A. and Wellsford Capital, as lenders, and Bankers Trust Company, as Agent. "OTHER LOANS" means the "Loans," as defined in the Other Loan Agreement. "PAIRED TRUST" means an Ohio trust created for the benefit of the shareholders of Borrower, which trust holds all of the shares of Manager. "PARTICIPANT" means any participant in any obligations of Borrower hereunder. "PERFORMING LENDERS" shall have the meaning assigned to such term in Section 2.8.2. "PERSON" means any individual, corporation, general partnership, limited partnership, limited liability company, limited liability partnership, joint venture, estate, trust, unincorporated association, or other organization, whether or not a legal entity, any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing. "POLICIES" has the meaning specified in Section 6.1.22(c). "PRE-CLOSING DOCUMENTATION" has the meaning specified in Section 10.3. "PRIME LENDING RATE" shall mean the "Prime Rate" reported by The Wall Street Journal (Eastern Edition) from time to time; provided, however, if at any time more than one Prime Rate is reported by The Wall Street Journal, the Prime Lending Rate shall mean the rate which Agent announces from time to time as its prime lending rate, in effect from time to time. The Prime Lending Rate shall change as of the date of each change in the Prime Rate. If, during any period that any portion of the Loans are outstanding, The Wall Street Journal no longer publishes a "Prime Rate", the Prime Lending Rate shall mean the rate which Agent announces from time to time as its prime lending rate, in effect from time to time. The Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Lenders may make commercial or other loans at rates of interest at, above or below the Prime Lending Rate. "PRIOR DEBT DOCUMENTS" means the documents evidencing, governing, securing or otherwise relating to any outstanding Debt of Borrower as of the Closing Date other than the Indebtedness, including Debt pursuant to the Senior Notes, the Line of Credit Facility and the Imperial Credit Facility. The Prior Debt Documents shall include (but shall not be limited to) the instruments listed on Schedule 1.1 hereto. "PROPERTIES" means, collectively, the parcels of real property from time to time owned or leased by Borrower and all improvements thereon, together with all rights pertaining to such property and improvements. "PRO RATA SHARE" means with respect to each Lender, the percentage obtained by dividing (i) as of any date of determination prior to the termination of the Commitments (a) that Lender's Commitment by (b) the sum of the aggregate Commitments of all Lenders and (ii) as of any date of determination after the termination of the Commitments, (A) the aggregate principal amount of such Lender's outstanding Advances by (B) the sum of the aggregate principal amount of all outstanding Advances. "REGISTER" has the meaning specified in Section 2.1.5(a). "REIT" means a real estate investment trust as defined in Section 856 of the Internal Revenue Code. "REQUIRED LENDERS" shall mean Lenders holding a 66 2/3% or greater share of the outstanding Loans or, if no Loans are outstanding, Lenders holding a 66 2/3% or greater share of the Commitments. "SECURITIES AND EXCHANGE COMMISSION" means the United States Securities and Exchange Commission or any successor thereto. "SENIOR NOTES" means those certain 8 and 7/8% Senior Notes due 2003 issued by Borrower pursuant to that certain Indenture dated as of October 1, 1993 from Borrower to Society National Bank , as amended, restated, replaced, supplemented or otherwise modified, and as more specifically described on Schedule 1.1 hereto. "STANDBY PURCHASE AGREEMENTS" shall mean each of the Standby Stock Purchase Agreements of even date herewith made by and between a Standby Purchaser and Borrower and acknowledged and agreed to by Agent, as the same may be amended or otherwise modified from time to time. "STANDBY PURCHASER" means each of Elliott and Gotham. "SUBSIDIARY" means, with respect to any Person, any corporation, partnership, limited liability company, trust or other entity of which at least a majority of the securities or other ownership interests having by their terms ordinary voting power to elect a majority of the Board of Directors or Board of Trustees or other individuals performing similar functions of such corporation, partnership, limited liability company, trust or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership, limited liability company, trust or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person and/or one or more Subsidiaries of such Person, and any partnership or limited liability company in which such Person or any such Subsidiary is a general partner or managing member. "TAX" means any present or future tax, levy, impost, duty, charge, fee, assessment, imposition, deduction or withholding of any nature and whatever called, by any Governmental Authority, on whomsoever and wherever imposed, levied, collected, withheld or assessed. "WORK" has the meaning specified in Section 3.2.1(d)(i). 1.2 PRINCIPLES OF CONSTRUCTION. All references to sections, schedules and exhibits are to sections, schedules and exhibits in or to this Agreement unless otherwise specified. Unless otherwise specified, the words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The words and phrases "including," "shall include," "inclusive of" and words and phrases of similar import shall be deemed to be followed by "without limitation" or "but not limited to". Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined. All accounting terms not specifically defined herein shall be construed in accordance with GAAP, as modified herein. II. GENERAL TERMS 2.1 COMMITMENTS; ADVANCES; NOTES; THE REGISTER. 2.1.1 COMMITMENTS. Subject to and upon the terms and conditions set forth herein, each Lender hereby severally agrees to lend to Borrower from time to time during the period from the Closing Date to and including the Final Commitment Date an aggregate amount not exceeding such Lender's Pro Rata Share of the aggregate amount of the Commitments; provided, however, that notwithstanding anything herein to the contrary, any amount borrowed and repaid hereunder cannot be reborrowed. Borrower agrees that for so long as Advances are available under the Other Loan Agreement Borrower will not borrow hereunder. The original amount of each Lender's Commitment and such Lender's original Pro Rata Share is set forth opposite its name on Schedule 2.1.1 annexed hereto and the aggregate original amount of the Commitments is Forty-Five Million Dollars ($45,000,000.00). Borrower shall use the proceeds of all Loans for the purposes identified in Section 2.2. Each Lender's Commitment shall expire on the Final Commitment Date and all Advances and all other amounts owed hereunder with respect to the Loans and the Commitments shall be paid in full no later than the Initial Maturity Date (or, if the term of the Loans is extended pursuant to Section 2.6, the Initial Extension Maturity Date or the Final Extension Maturity Date, as the case may be). 2.1.2 BORROWING MECHANICS. Advances made on any Funding Date shall be in an aggregate minimum amount of Five Million Dollars ($5,000,000.00). Whenever Borrower desires that Lenders make Advances, it shall deliver to Agent a Notice of Borrowing no later than 10:00 A.M. (New York time) at least three Business Days in advance of the proposed Funding Date. Each Notice of Borrowing shall specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the amount of the Advances requested, (iii) the account to which the Advances shall be wired, and (iv) that no other Funding Date shall have occurred within the 30 days immediately preceding the proposed Funding Date. Borrower may give Agent telephonic notice by the required time of any proposed Advances under this Section 2.1.2; provided, however, that such notice shall be promptly confirmed in writing by delivery of a Notice of Borrowing to Agent on or before the applicable Funding Date. Neither Agent nor any Lender shall incur any liability to Borrower in acting upon any telephonic notice referred to above that Agent believes in good faith to have been given by a duly authorized officer or other Person authorized to borrow on behalf of Borrower or for otherwise acting in good faith under this Section 2.1.2, and upon funding of Advances by Lenders in accordance with this Agreement pursuant to any such telephonic notice Borrower shall have effected Advances hereunder. Borrower shall notify Agent (who shall notify Lenders) prior to the funding of any Advances in the event that any of the matters to which Borrower is required to certify in the applicable Notice of Borrowing is no longer true and correct as of the applicable Funding Date, and the acceptance by Borrower of the proceeds of any Advances shall constitute a re-certification by Borrower, as of the applicable Funding Date, as to the matters to which Borrower is required to certify in the applicable Notice of Borrowing. 2.1.3 DISBURSEMENT OF FUNDS. All Advances under this Agreement shall be made by Lenders simultaneously and proportionately to their respective Pro Rata Shares, it being understood that no Lender shall be responsible for any default by any other Lender in that other Lender's obligation to make Advances requested hereunder nor shall the Commitment of any Lender be increased or decreased as a result of a default by any other Lender in that other Lender's obligation to make Advances requested hereunder. Promptly after receipt by Agent of a Notice of Borrowing pursuant to Section 2.1.2 (or telephonic notice in lieu thereof), Agent shall notify each Lender of the proposed Advances. Provided that Lenders have received at least one (1) Business Day notice of the requested Advance, each Lender shall make its Pro Rata Share of the aggregate amount of the Advances requested in such Notice of Borrowing or telephonic notice, as the case may be, available to Agent, in same day funds, at the office of Agent located at 130 Liberty Street, New York, New York, not later than 12:00 Noon (New York time) on the applicable Funding Date. Upon satisfaction of the conditions precedent specified in Section 4.1 and 4.2 (in the case of Advances made on the Closing Date) and Section 4.2 (in the case of all Advances), Agent shall make the proceeds of such Advances available to Borrower on the applicable Funding Date by causing an amount of same day funds equal to the proceeds of all such Advances received by Agent from Lenders to be transferred to the account designated in the Notice of Borrowing or telephonic notice, as the case may be. 2.1.4 NOTES. The Commitments and Loans shall be evidenced by the Notes of Borrower, each in the original principal amount of the respective Loan and having an initial maturity date of Initial Maturity Date. The Notes shall bear interest as provided in Section 2.4 and shall be subject to repayment and prepayment as provided in Section 2.3. The Notes shall be entitled to the benefits of this Agreement. 2.1.5 THE REGISTER. (a) Agent shall maintain, at its address referred to in this Agreement, a register for the recordation of the names and addresses of Lenders and the Commitment and Advances of each Lender from time to time (the "REGISTER"). For all purposes of this Agreement, Borrower, Agent and Lenders may treat as a Lender hereunder each Person whose name is recorded in the Register as a Lender hereunder. The Register shall be available for inspection by Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (b) Agent shall record in the Register the Commitment and the Advances from time to time of each Lender, and each repayment or prepayment in respect of the principal amount of the Advances of each Lender. Any such recordation shall be prima facie evidence of such matters as against Borrower and each Lender, absent manifest error; provided, however, that failure to make any such recordation, or any error in such recordation, shall not affect Borrower's obligations in respect of the applicable Loans. (c) Each Lender shall record on its internal records (including the Notes described in Section 2.1.4) the amount of each Advance made by it and each payment in respect thereof. Any such recordation shall be prima facie evidence of such matters as against Borrower absent manifest error; provided, however, that failure to make any such recordation, or any error in such recordation, shall not affect Borrower's obligations in respect of the applicable Loans. 2.2 USE OF PROCEEDS. Borrower shall use the proceeds of the Loans only for the purposes of repurchasing outstanding Senior Notes and the payment of actual out-of-pocket costs incurred by Borrower in connection therewith, and for no other purpose. 2.3 LOAN REPAYMENTS AND PREPAYMENTS. 2.3.1 REPAYMENTS. Subject to Section 2.6 hereof, Borrower shall repay the then outstanding principal amount of the Loans in full on the Initial Maturity Date, together with interest thereon through (and including) the last day of the final Interest Period. 2.3.2 MANDATORY PREPAYMENTS OF THE LOANS. Subject to the terms and provisions of the Intercreditor Agreement, the Loans and the Other Loans are subject to mandatory partial or full prepayment (together with interest on the amount prepaid), on a pro-rata basis, with one hundred percent (100%) of all Capital Event Proceeds within two (2) Business Days after the date Borrower receives such Capital Event Proceeds; provided that Loss Proceeds shall be applied to such mandatory prepayment only to the extent such Loss Proceeds are not applied to rebuild or restore Properties that were the subject of the Casualty or Condemnation with respect to which such Loss Proceeds were received. However, to the extent such Loss Proceeds become available for prepayment during the Lock-Out Period (defined below), such prepayment shall be made immediately following the Lock-Out Period. 2.3.3 VOLUNTARY PREPAYMENTS OF THE LOANS. Subject to the terms and provisions of the Intercreditor Agreement, Borrower may, at any time, upon not less than two (2) days' prior written notice to Agent, prepay the Loans, in whole or in part, together with interest on the outstanding principal amount of the Loans being prepaid to (and including) the day in which the prepayment occurs, such amount of interest and principal to be applied to the Loans pro rata in accordance with the respective outstanding principal balances of the Loans; provided, however, that any Loan which is prepaid (including with the proceeds of the Offering) within ninety (90) days (the "LOCK-OUT PERIOD") of being advanced shall be accompanied by a prepayment premium of (i) if the prepayment occurs on or before thirty (30) days after being advanced, three percent (3%) of the amount prepaid; (ii) if the prepayment occurs on or after thirty-one (31) days to and including sixty (60) days of being advanced, two percent (2%) of the amount prepaid; and (iii) if the prepayment occurs on or after sixty-one (61) days to and including ninety (90) days of being advanced, one percent (1%) of the amount prepaid. Each notice of prepayment of the Loans shall be irrevocable and shall specify (i) the prepayment date and (ii) the amount of prepayment. 2.3.4 NOT A REVOLVER. This Agreement does not provide for revolving loans. Accordingly, amounts repaid or prepaid may not be reborrowed. 2.4 INTEREST. 2.4.1 GENERALLY. The outstanding principal amount of the Loans shall bear interest at a rate per annum equal to the Interest Rate. 2.4.2 INTEREST PAYMENTS. Subject to the provisions of Section 2.4.3, interest on the outstanding principal balance of the Loans shall be payable (a) for any Interest Period other than the final Interest Period, on the Interest Payment Date for such Interest Period, (b) upon any prepayment of the Loans (to the extent accrued on the amount being prepaid), in accordance with Section 2.3, and (c) for the final Interest Period, on the Initial Maturity Date (or, if the term of the Loans is extended pursuant to Section 2.6, the Initial Extension Maturity Date or Final Extension Maturity Date, as applicable). 2.4.3 DEFAULT RATE; POST-MATURITY INTEREST. If Borrower shall default in the payment of principal of or interest on the Loans, or any fees or other amounts owed by Borrower under this Agreement or any other Loan Documents shall not be paid when due, then the outstanding principal amount of the Loans and, to the extent permitted by applicable law, any interest payments thereon not paid when due and any fees and other amounts then due and payable under this Agreement or any other Loan Document shall thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or any other now existing or future applicable bankruptcy, insolvency or other similar laws) payable upon demand at the Default Rate. Payment or acceptance of the increased rates provided for in this subsection is not a permitted alternative to timely payment and shall not constitute a waiver of any Default or Event of Default or an amendment to this Agreement or any other Loan Document and shall not otherwise prejudice or limit any rights or remedies of Lenders. 2.5 PAYMENTS; COMPUTATIONS. 2.5.1 MAKING OF PAYMENTS. Each payment by Borrower hereunder or under the Notes shall be made to Agent by deposit to such account as Agent may have last designated by written notice to Borrower. Payments received after 2:00 p.m., New York City time, shall be deemed to have been received on the next Business Day. Whenever any payment hereunder or under the Notes shall be stated to be due on a day that is not a Business Day and an alternative payment date is not otherwise provided for, such payment shall be made on the next Business Day, with interest thereon to the date of payment. Immediately after receipt of payment, Agent will distribute to each Lender its Pro Rata Share of each such payment received by Agent for the account of Lenders. 2.5.2 COMPUTATION OF INTEREST. Interest on the Loans shall be computed on the basis of a 360-day year, based on the actual number of days expired in any given Interest Period. In computing interest on the Loans, the first day of an Interest Period and the last day of such Interest Period shall be included. 2.5.3 CAPITAL ADEQUACY ADJUSTMENT. If any Lender shall have determined that the adoption, effectiveness, phase-in or applicability of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, in any case occurring or arising after the date hereof, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, the Loans or other obligations hereunder to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within five (5) Business Days after receipt by Borrower from Agent on behalf of such Lender of the statement referred to in the next sentence, Borrower shall pay to Agent on behalf of such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Agent on behalf of such Lender shall deliver to Borrower a written statement, setting forth in reasonable detail the basis of the calculation of such additional amounts, which statement shall be conclusive and binding upon all parties hereto absent manifest error. 2.6 EXTENSION OF LOAN TERM. 2.6.1 EXTENSION OPTION. Subject to the satisfaction of each of the conditions set forth in Section 2.6.2: (a) Borrower shall have the option (the "INITIAL EXTENSION OPTION"), exercisable by notice (the "INITIAL EXTENSION NOTICE") to Agent given at least ten (10) Business Days prior to the Initial Maturity Date, time being of the essence, to extend the maturity of the Loans until the date three (3) months following the Initial Maturity Date (the "INITIAL EXTENSION MATURITY DATE"). (b) If Borrower shall have exercised the Initial Extension Option, then Borrower shall have the option (the "FINAL EXTENSION OPTION"), exercisable by notice (the "FINAL EXTENSION NOTICE") to Agent given at least ten (10) Business Days prior to the Initial Extension Maturity Date, time being of the essence, to extend the maturity of the Loans until the date three (3) months following the Initial Extension Maturity Date (the "FINAL EXTENSION MATURITY DATE"). 2.6.2 CONDITIONS TO EXTEND. Borrower's right to extend the term of the Loan shall be conditioned upon the satisfaction of the following conditions precedent as of the date on which the Initial Extension Notice or Final Extension Notice, as applicable, is provided to Agent, and as of the Initial Maturity Date or the Initial Extension Maturity Date, as applicable: (a) no monetary Default, material non-monetary Default or Event of Default shall have occurred and be continuing (and any extension shall not be deemed a waiver of a Default of any type); and (b) Borrower shall pay to Agent (to be distributed pro rata among Lenders in accordance with the outstanding principal balances of the Loans) on each of the dates on which the Initial Extension Notice and Final Extension Notice, as applicable, is provided to Agent a non-refundable extension fee of $225,000 (each, an "EXTENSION FEE"). 2.7 COMMITMENT AND OTHER FEES. (a) Borrower agrees to pay to each Lender on the Closing Date a non-refundable commitment fee (each a "COMMITMENT FEE" and collectively the "COMMITMENT FEES") in an amount equal to one and one-half percent (1.5%) of the principal amount of the Commitment made by such Lender to Borrower pursuant to this Agreement. Pursuant to a separate agreement with Borrower, upon the Closing Date Borrower is paying Agent a non-refundable Agent's fee. (b) Notwithstanding anything to the contrary contained herein, any fee otherwise payable to Elliott hereunder, including but not limited to the Extension Fee and the Commitment Fee, may be assigned by Elliott to an affiliate of Elliott. 2.8 AGENT RELIANCE; DEFAULTING LENDERS. 2.8.1 AGENT RELIANCE. Unless Agent shall have been notified in writing by any Lender prior to the date of an Advance that such Lender does not intend to make available to Agent such Lender's pro rata share of the Advance to be made on such date, Agent may assume that such Lender has made such amount available to Agent on such date, and Agent may make available to Borrower a corresponding amount. If such corresponding amount is not in fact made available to Agent by such Lender on the date of such Advance, Agent shall have no obligation to make such corresponding amount available to the Borrower. If Agent has made such funds available to Borrower and such Lender does not pay such corresponding amount upon Agent's demand therefor, Agent may at any time thereafter so notify Borrower and Borrower shall immediately upon Agent's demand therefor pay to Agent such corresponding amount together with interest thereon, for each day from such Funding Date until the date such amount is paid to Agent, at the Interest Rate. 2.8.2 DEFAULTING LENDERS. To the extent that a Lender fails to make any Advance when required hereunder and one or more of the other Lenders ("Performing Lenders") makes such Advance in such amounts as they may agree upon (although none of Lenders or Agent shall have any obligation to make any such Advance), then, without otherwise limiting any rights and remedies in such situation, Defaulting Lender shall pay to Lenders which performed Defaulting Lender's obligations (x) interest on such amount at a rate equal to such Performing Lender's cost of funds for the related Loan which Performing Lenders made to Borrower as a result of such Defaulting Lender's failure to effect the related Advance and (y) a pro-rata portion of the fees paid to Defaulting Lender by Borrower as set forth in Section 2.7, with such pro-rata portion to be calculated by amortizing such fees on a straight-line basis (over the then scheduled term of the Loan) and allocating to Performing Lenders, with respect to the period they performed on behalf of the Defaulting Lender, the fees allocable to the amount so advanced by Performing Lenders on behalf of Defaulting Lender. Such interest shall accrue and be payable from the date the Performing Lender(s) made a loan to Borrower on behalf of the Defaulting Lender(s) until such payment is made by the Defaulting Lender(s) to the Performing Lender(s). If Defaulting Lender makes the payment which it theretofore failed to make and pays Performing Lender the interest and fees described in this Section, then Defaulting Lender shall be deemed to have made the Advance when the same was originally due. 2.8.3 SUBORDINATION OF DEFAULTING LENDERS. If a Lender fails, when required hereunder, to make any Advance or fails to pay any sum payable to Agent hereunder and such default continues for five (5) days after written notice by Agent to such Lender, then such Lender's (the "Defaulting Lender") share in the Loans and the Loan Documents and proceeds thereof shall be immediately subordinated to the other Lenders' and Agent's share therein and proceeds thereof, and such Defaulting Lender's Commitment and Loans shall be voted by Agent, all without necessity for executing any further documents. Upon such failure, in addition to Agent's other legal and equitable rights and remedies, Agent shall withhold and apply any and all amounts payable to such Defaulting Lender under the Loan Documents in such order of priority as Agent shall determine in its sole discretion to: (i) purchase for the Defaulting Lender its share of any Loan or pay any sum payable hereunder that Defaulting Lender was obligated but failed to pay pursuant to this Agreement; and/or (ii) reimburse Performing Lenders and/or Agent for any other sums, costs, expenses or disbursements payable by Defaulting Lender hereunder. Upon actual payment by Defaulting Lender of its late Commitment percentage of the Loans and any other sums then payable by Defaulting Lender under the Loan Documents, its share in the Loans and in the Loan Documents and proceeds thereof and its Commitment and Loan thereupon shall immediately be restored to equal priority with that of the other Lenders, but these provisions shall not effect a rescission of any exercise by Agent of any vote of Defaulting Lender's Commitment and Loans. 2.9 LENDING INSTALLATIONS. Each Lender may book Loans at one or more Lending Installations selected by it from time to time, and may change its Lending Installations from time to time, but no such selection or change shall affect the liability of the Lender making any such selection or change. All terms of this Agreement and of the other Loan Documents shall apply to any such Lending Installation as if it were a Lender hereunder, and, if a Lender so selects Lending Installation(s), this Agreement shall be deemed held by such Lender for the benefit of its selected Lending Installation(s). 2.10 WITHHOLDING. All payments by Borrower shall be paid in full without setoff or counterclaim and without reduction for and free from any and all Taxes; provided, however, that in the event Borrower shall be required by law to deduct or withhold Taxes from interest, fees or other amounts payable hereunder or under any of the other Loan Documents, Borrower shall be entitled to do so without being in Default hereunder provided that Borrower, together with such payment, shall provide a statement to Agent and Lenders setting forth the amount of Taxes deducted or withheld, the applicable rate, an official receipt or other evidence of payment satisfactory to the applicable Lender and any other information or documentation which may reasonably be requested for the purpose of assisting the Person(s) from whom Taxes were deducted or withheld to obtain any allowable credits or deductions for the Taxes so deducted or withheld in each jurisdiction in which said Person(s) are subject to tax. Notwithstanding the foregoing, however, Borrower shall not deduct or withhold Taxes from amounts payable to or for the benefit of a Person entitled to payments hereunder whose percentage interest in the obligations of Borrower has been disclosed to Borrower (either in writing or by a document to which such Person, any Lender or Borrower is a signatory) (or, in the event that any Taxes are required by law to be deducted or withheld from payments hereunder to any such Person, Borrower shall pay to such Person such additional amount as is necessary to ensure that the net amount actually received by such Person will equal the full amount such Person would have received had no such deduction or withholding been required), (i) if such Person is created or organized under the laws of the United States or any state thereof or (ii) to the extent that Borrower would be permitted to make such payments to such Person free of such deductions or withholdings as of the Closing Date or the date such Person otherwise acquires an interest in the obligations of Borrower hereunder; provided that if at the date a Person becomes a party hereto the applicable transferor or assignor was entitled to additional amounts under this Section 2.10, then to such extent the assignee or transferee shall also be entitled to additional amounts hereunder. A Lender organized in a jurisdiction other than the United States or a political subdivision thereof shall not be entitled to receive additional amounts under this Section 2.10 to the extent that a withholding tax is imposed due to a failure to comply with the provisions of Section 9.27(f) hereof. The percentage interest in the obligations of Borrower hereunder of each such Person shall equal the percentage participation in such obligations of such Person as so disclosed to Borrower from time to time. Borrower shall also pay any present or future stamp or documentary taxes or any other Taxes imposed on Agent or any Lender that arise from any payment hereunder or from the execution, delivery or registration of or otherwise with respect to this Agreement. 2.11 SHARING OF PAYMENTS, ETC. If any Lender shall obtain any payment or reduction (including, without limitation, any amounts received as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code) of any obligation of Borrower hereunder in respect of the Loans or in respect of any other obligations of Borrower under any of the Loan Documents (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its Pro Rata Share of payments or reductions on account of the Loans or such other obligations obtained by all Lenders, such Lender shall forthwith (i) notify each of the other Lenders and Agent of such receipt, and (ii) purchase from the other Lenders, without recourse, such participations in the affected obligations owned by the selling Lenders as shall be necessary to cause such purchasing Lenders to share the excess payment or reduction, net of costs incurred in connection therewith, ratably with each of them, provided that if all or any portion of such excess payment or reduction is thereafter recovered from such purchasing Lenders, or additional costs are incurred, the purchase shall be rescinded and the purchase price restored to the extent of such recovery or such additional costs, but without interest. Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.11 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of Borrower in the amount of such participation. 2.12 PRO RATA TREATMENT. Subject to the provisions of Sections 2.8.2 and 2.8.3, each borrowing by Borrower from Lenders and each payment (including each prepayment) by Borrower on account of principal and/or interest in respect of the Loans shall be made concurrently and pro rata as among all Lenders all in accordance with their Pro Rata Shares appropriately adjusted in the case of any Lender who shall have failed to fund its Pro Rata Share of the Loans. III. SPECIAL PROVISIONS 3.1 LOSS PROCEEDS ACCOUNT. Borrower shall cause all Casualty Insurance Proceeds or Condemnation Proceeds to be paid directly to an account designated by Agent for such purpose and under the sole dominion and control of Agent for the purposes of receiving and disbursing Loss Proceeds (the "LOSS PROCEEDS ACCOUNT"), on behalf of Lenders. If any Loss Proceeds are received by Borrower, the same shall be received in trust for Lenders, shall be segregated from other funds of Borrower, and shall be paid directly to the Loss Proceeds Account to be applied or disbursed in accordance with this Agreement. Borrower hereby authorizes and directs any affected insurance company to make payment of Loss Proceeds directly to the Loss Proceeds Account and Borrower agrees to execute such additional instruments as any such affected insurance company may request as a condition to making such payment of Loss Proceeds. 3.2 CASUALTY AND CONDEMNATION. 3.2.1 CASUALTY, CONDEMNATION AND APPLICATION OF PROCEEDS. (a) Borrower shall give prompt written notice to Agent of any Casualty at or Condemnation of the Properties or any part thereof and shall deliver to Agent copies of any and all papers served in connection with such proceedings. All Casualty Insurance Proceeds and all Condemnation Proceeds shall be applied and disbursed in accordance with the provisions of this Section and Section 2.3.2, as the case may be. (b) Upon the occurrence of any Casualty at or Condemnation of the Properties or any part thereof, all Loss Proceeds shall only be applied to the Indebtedness or toward the restoration of such Property, as shall be determined by Borrower in its sole and absolute discretion; provided, however, that (i) if an Event of Default shall be continuing at the time of any Casualty or Condemnation, all Loss Proceeds shall only be applied to the Indebtedness, in accordance with Section 2.3.2; but (ii) if such Casualty or Condemnation occurs at a Property which is encumbered by a Lien, the Loss Proceeds shall be applied in accordance with such Lien documents. (c) Upon the occurrence of any Casualty at or Condemnation of the Properties or any part thereof during the existence of an Event of Default, Agent alone shall have the right, in its sole and absolute discretion, to settle, adjust or compromise any claim (i) under any policy of insurance or (ii) in connection with a Condemnation. In all other cases, Borrower may settle, adjust or compromise any such claim which is less than $500,000.00, and with respect to any such claim in excess of $500,000.00, Agent and the Borrower shall consult and cooperate with each other and each shall be entitled to participate in all meetings and negotiations with respect to the settlement of such claim. Any adjustment or settlement by the Borrower of any claim which is in excess of $500,000.00 shall be subject to prior Lender Approval, which approval shall not be unreasonably withheld or delayed; provided that if such Casualty/Condemnation occurs at a Property which is encumbered by a Lien, the any settlement, adjustment or compromise shall be decided in accordance with such Lien documents. (d) In the event that Loss Proceeds from any Casualty at or Condemnation of a Property or any part thereof are to be made available to Borrower for restoration and the reasonably anticipated cost of the restoration is $2,000,000 or more, the following provisions shall apply: (i) Borrower shall, no later than upon receipt of the Loss Proceeds, commence diligently to restore the applicable Property substantially to its value, character and utility immediately prior to such Casualty or Condemnation (it being understood that Borrower's commencement of such restoration prior to receipt of Insurance Proceeds shall not in any way affect Lender's right, if any, to apply Insurance Proceeds to the Loans pursuant to and in accordance with the terms of this Agreement), in which event Borrower shall comply with the following conditions in connection with the performance of all of such restoration (hereinafter "WORK"): (A) no Work shall be undertaken until Borrower shall have provided Agent with evidence reasonably satisfactory to Agent that the amounts deposited in the Loss Proceeds Account will be sufficient to cover the entire cost of such Work; (B) no Work shall be undertaken until Borrower shall have procured and paid for, so far as the same may be required from time to time, all permits and consents of all Governmental Authorities having jurisdiction; (C) any Work that is structural in nature, that involves mechanical, electrical, fire safety, HVAC or other building systems or the performance of which in the reasonable judgment of Agent otherwise requires the services of a licensed architect, engineer and/or other professional in accordance with safe and sound construction practices, shall be performed in accordance with plans, specifications, reports and/or drawings prepared by Borrower's architect, engineer and/or other professional and approved by Agent (such approval not to be unreasonably withheld or delayed) and promptly following its receipt of same, Borrower shall deliver to Agent copies of all plans, specifications, reports and/or drawings relating to any such Work for its review and approval (such approval not to be unreasonably withheld or delayed); (D) all Work shall be performed in accordance with cost estimates approved by Agent as provided below and promptly following its receipt of same, Borrower shall deliver to Agent copies of all cost estimates relating to any such Work for Agent's review and approval (such approval not to be unreasonably withheld or delayed); (E) any Work that is structural in nature or that involves mechanical, electrical, fire safety, HVAC or other building systems or the performance of which in the reasonable judgment of Agent otherwise requires the services of a licensed architect, engineer and/or other professional in accordance with safe and sound construction practices, shall be performed under the supervision of a licensed architect, engineer and/or other professional reasonably approved by Agent; (F) all Work shall be prosecuted diligently to completion in a good and workmanlike manner and in compliance with all applicable permits and authorizations and with all other applicable Legal Requirements; (G) all Work shall be completed free and clear of all liens, encumbrances, chattel mortgages, conditional bills of sale and other charges, and substantially in accordance with the plans and specifications therefor; (H) during the performance of any Work, Borrower shall procure and maintain, or cause to be procured and maintained, (x) "All-Risk" builder's risk property insurance, with vandalism and malicious mischief endorsements, completed value form, covering all physical loss (including any loss of or damage to supplies, machinery and equipment) in connection with the performance of such Work and (y) statutory workers' compensation and employers' liability coverage, if applicable to Borrower; and (I) Borrower shall reimburse Agent and Lenders for all reasonable fees and expenses incurred by Agent or Lenders in connection with their review of any Work. (ii) All Loss Proceeds (in excess of $2,000,000 with respect to any Casualty or Condemnation) shall be deposited in the Loss Proceeds Account in accordance with the terms of this Agreement. Agent shall disburse such proceeds (together with any additional sums deposited) to or for the account of the Borrower from time to time to pay the costs and expenses associated with the restoration of the Properties, as set forth below: (A) Each request for payment shall be made on ten (10) Business Days' prior notice to Agent and, if an architect, engineer or other professional was retained to supervise the restoration, shall be accompanied by a certificate to be made by such supervising architect, engineer and/or other professional stating that the sum requested is required to reimburse Borrower for payments by Borrower to, or is due to, the contractor, subcontractors, materialmen, laborers, engineers, architects or other persons rendering services or materials for the Work (giving a brief description of such services and materials); (B) Each request shall be accompanied by waivers of liens satisfactory to Agent covering that part of the Work for which reimbursement is being requested or for which payment was previously requested; and (C) Each request shall be accompanied by evidence reasonably satisfactory to Lender that the amounts deposited in the Loss Proceeds Account will be sufficient to cover the remaining cost of such Work. (e) Notwithstanding anything to the contrary contained in this Agreement, during the continuance of an Event of Default, Lenders shall have the absolute right to apply at any time all or any part of the Loss Proceeds then held by or on behalf of Lenders to the prepayment of the Indebtedness. 3.2.2 CONFLICTS WITH MORTGAGE FINANCING. If any term or provision of Section 3.2.1 shall conflict with the terms of any mortgage financing applicable to a Property as to which a Casualty or Condemnation has occurred, then the terms and provisions of such Prior Debt Documents shall take precedence over Sections 2.3.2 and 3.2.1 hereof. IV. CONDITIONS PRECEDENT 4.1 INTENTIONALLY OMITTED. 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligations of Lenders to make Advances on each Funding Date are subject to the satisfaction by Borrower of the following conditions precedent no later than such Funding Date: 4.2.1 NOTICE OF BORROWING; OTHER DOCUMENTATION. Agent shall have received before such Funding Date, in accordance with the provisions of Section 2.1.2, an (i) original executed Notice of Borrowing, in each case signed by an authorized officer of Borrower, and (ii) such other documents, agreements, certificates or instruments as Agent deems appropriate or necessary. 4.2.2 OTHER CONDITIONS. As of such Funding Date: (a) the representations and warranties contained herein and in the other Loan Documents shall be true and correct in all material respects on and as of such Funding Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date (including references to "the Closing Date" or "the date hereof"), in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date; (b) Borrower and each Standby Purchaser shall have performed in all material respects all agreements and satisfied all conditions which this Agreement or any other Loan Document provides shall be performed or satisfied by it on or before such Funding Date; (c) no Material Adverse Effect (in the sole opinion of Agent) shall have occurred; (d) no order, judgment or decree of any arbitrator or Governmental Authority shall purport to enjoin or restrain any Lender from making the Advances to be made by it on that Funding Date; and (e) no event shall have occurred and be continuing or would result from the consummation of the borrowing contemplated by such Notice of Borrowing that would constitute a Default or Event of Default. V. REPRESENTATIONS AND WARRANTIES 5.1 BORROWER REPRESENTATIONS. Borrower represents and warrants (which representations and warranties shall survive Borrower's delivery of the Notes and the making and repayment of the Loans) that the following statements are true, correct and complete as of the Closing Date and on each Funding Date: 5.1.1 ORGANIZATION; EXISTENCE. Borrower has been duly organized and is validly existing and in good standing as a business trust under the laws of the State of Ohio, with requisite trust power and authority to own or hold under lease its Properties and to transact the businesses in which it now engaged, and to execute and deliver the Loan Documents to which it is a party, and is qualified and self-administered as a REIT under Sections 856 through 860 of the Internal Revenue Code. Borrower is duly qualified to do business in each jurisdiction where it is required to be so qualified in connection with its Properties, businesses and operations where the failure so to qualify would have a material adverse effect on Borrower. Borrower possesses all rights, licenses, permits and authorizations, governmental or otherwise, necessary to entitle it to own its Properties and to transact the businesses in which it is now engaged. Borrower's Organizational Documents have been duly executed, delivered and, to the extent required by applicable law, filed, and are in full force and effect in accordance with their respective terms and have not been modified or amended. 5.1.2 PROCEEDINGS. Borrower has taken all necessary corporate, trust, partnership or limited liability company action to authorize the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party, and the performance of all transactions contemplated thereby, including the Offering. This Agreement and such other Loan Documents to which Borrower is a party have been duly executed and delivered by or on behalf of Borrower. 5.1.3 NO CONFLICTS. The execution, delivery and performance by Borrower of the Loan Documents to which it is a party, and the performance of all transactions contemplated thereby, including the Offering, will not conflict with or violate any provisions of its Organizational Documents or conflict with or result in a breach of any of the terms or provisions of, or constitute a Default under, or result in the creation or imposition of any Lien, charge or encumbrance (other than pursuant to the Loan Documents) upon any of the Properties pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which it is a party or by which it is bound or to which the Properties are subject, nor will such action result in any material violation of the provisions of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over Borrower (or any of its Affiliates), or over any of Borrower's Properties (including without limitation Regulations G, T, U or X of the Board of Governors of the Federal Reserve System), and any consent, approval, authorization, order, registration or qualification of or with any court or any such regulatory authority or other governmental agency or body or any other Person required for the execution, delivery and performance by Borrower of the Loan Documents to which it is a party has been obtained and is in full force and effect and no term of condition thereof has been amended or modified. 5.1.4 LITIGATION. Except as set forth on Schedule 5.1.4, there are no actions, suits or proceedings at law or in equity by or before any Governmental Authority or other agency now pending or, to Borrower's knowledge, threatened against or affecting Borrower where such actions, suits or proceedings, if determined against Borrower, could, individually or collectively, reasonably be expected to have a Material Adverse Effect. There are no proceedings pending or, to Borrower's knowledge, threatened against Borrower which call into question the validity or enforceability of any of the Loan Documents. 5.1.5 AGREEMENTS. Borrower is not a party to any agreement or instrument or subject to any restriction which does or could reasonably be expected to result in a Material Adverse Effect. 5.1.6 NO BANKRUPTCY FILING. Borrower has not filed and Borrower is not contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of its assets or property, and Borrower has no knowledge of any Person contemplating the filing of any such petition against it. 5.1.7 FULL AND ACCURATE DISCLOSURE. No statement of fact made by Borrower in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not materially misleading. 5.1.8 TAX AND REIT STATUS. Borrower has timely filed all tax returns that are required to be filed with any Government Entity and has timely paid all Taxes due pursuant to the tax returns or any assessment received by it or otherwise required to be paid, except Taxes being contested in good faith by appropriate proceedings and for which adequate reserves or other provisions are maintained in accordance with GAAP. Borrower has (i) elected to be taxed as a REIT effective for each of the taxable years ending on or after December 31, 1961, (ii) has not revoked such election, (iii) qualified for taxation as a REIT for each such taxable year and is in a position to so qualify for its current taxable year, (iv) operates in a manner so as to qualify as a REIT, and (v) has not sold or otherwise disposed of any assets which could give rise to a material amount of Tax pursuant to any election made by Borrower under Notice 88-19, 1988-1 CB 486 and does not expect to effect any such sale or other disposition. 5.1.9 USE OF PROCEEDS. Borrower's use of the proceeds of the Loans is solely for the purposes described in Section 2.2. 5.1.10 FINANCIAL INFORMATION. Borrower has furnished Lenders with true, correct and complete copies of (a) the combined annual financial statements for Borrower and Manager for the most recent fiscal year of Borrower, including the combined balance sheet of Borrower and Manager and as of the end of such fiscal year and combined statements of income and changes in cash for Borrower and Manager and a statement of shareholder's equity, prepared on a consistent basis in accordance with GAAP (except as specifically disclosed therein) and in the form included with Borrower's Form 10-K as filed with the Securities and Exchange Commission for such fiscal year, certified without qualification by Borrower's CPAs; (b) the combined quarterly financial statements for Borrower and Manager for each fiscal quarter elapsed since the expiration of Borrower's most recent fiscal year, including a combined balance sheet and combined statements of income and change in cash of Borrower and the Manager prepared on a consistent basis with the prior fiscal year's financial statements in accordance with GAAP (except as specifically disclosed therein), and in the form included with Borrower's Form 10-Q, as filed with the Securities and Exchange Commission for any such fiscal quarter; and (c) a certificate of the chief financial officer, principal accounting officer or chief executive officer of Borrower, stating that to his best knowledge after due inquiry the foregoing statements present fairly in all material respects the combined financial position of Borrower and Manager and the results of their combined operations, subject, solely with respect to the materials described in clause (b), to routine year-end audit adjustments. No changes have occurred in the assets, liabilities or financial condition of Borrower or Manager from those reflected in the most recent balance sheets referred to above in this Section which, individually or in the aggregate, have been materially adverse. Since the date of such most recent balance sheet, there has been no material and adverse development in the business or in the operations or prospects of Borrower or Manager. 5.1.11 NO DEFAULT. (a) No event has occurred and is continuing, and no condition exists, which constitutes a Default or Event of Default. (b) No Default by Borrower or any Standby Purchaser and no accrued right of rescission, cancellation or termination on the part of Borrower or any Standby Purchaser exists under this Agreement or any of the other Loan Documents. 5.1.12 FEDERAL RESERVE REGULATIONS. No part of the proceeds of the Loans will be used for the purpose of purchasing or acquiring any "MARGIN STOCK" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulation U or any other Regulations of such Board of Governors, or for any purposes prohibited by Legal Requirements or by the terms and conditions of this Agreement or the other Loan Documents. 5.1.13 ENFORCEABILITY. The Loan Documents constitute legal, valid and binding obligations of Borrower and Standby Purchasers party thereto, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity) and are not subject to any right of rescission, set-off, counterclaim or defense by Borrower or any Standby Purchaser, including the defense of usury, and neither Borrower nor any Standby Purchaser has asserted any right of rescission, set-off, counterclaim or defense with respect thereto. 5.1.14 INCORPORATION OF REPRESENTATIONS AND WARRANTIES. In addition to the foregoing representations and warranties, each of the representations and warranties set forth in Section 6 of the Line of Credit Facility and any related definitions, as in effect on the date hereof, are hereby incorporated herein by reference and shall apply, mutatis mutandis, to this Agreement. VI. AFFIRMATIVE COVENANTS 6.1 BORROWER COVENANTS. From the date hereof and until the indefeasible payment and performance in full of all Indebtedness of Borrower, Borrower hereby covenants and agrees with Lenders that: 6.1.1 SEC FILINGS AND PRESS RELEASES. Borrower shall provide to Agent copies promptly after their filing or, if not filed, after they become available, of (a) all financial statements, reports, notices and proxy statements sent or made available generally by Borrower to its security holders, (b) all regular and periodic reports and all registration statements and prospectuses, if any, filed by the Borrower with the New York Stock Exchange, Inc., any other securities exchange or with the Securities and Exchange Commission or any Governmental Authority or private regulatory authority, and (c) all press releases and other statements made available generally by Borrower or any of its Affiliates to the public or to the securityholders of the Borrower; 6.1.2 BUSINESS AND OPERATIONS. Borrower will continue to engage in the businesses presently conducted by it (i.e., acquisition, disposition and ownership of real property); provided that Borrower may cease conducting any business presently conducted by it, with prior written Lender Approval (such Lender Approval not to be unreasonably withheld). Borrower will qualify to do business and will remain in good standing under the laws of each jurisdiction necessary for the conduct of its business. 6.1.3 COSTS OF ENFORCEMENT. In the event of the Bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of Borrower or an assignment by Borrower for the benefit of its creditors, Borrower, its successors or assigns, shall be chargeable with and agrees to pay all costs of collection and defense, including reasonable attorneys' fees in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein, which shall be due and payable together with all required service or use Taxes. 6.1.4 ESTOPPEL STATEMENT. Borrower, within ten (10) days after request from Agent, shall furnish to Agent a statement, duly acknowledged and certified to Lenders and to any other Person designated by Agent, setting forth (a) the amount then owing by Borrower in respect of the Indebtedness, (b) the date through which interest on the Loans has been paid, (c) the nonexistence of any offsets, counterclaims, credits or defenses to the payment of Borrower's obligations under the Loan Documents, and (d) whether any written notice of default from Lenders or Agent to Borrower is then outstanding, and acknowledging that this Agreement and the other Loan Documents have not been modified or, if modified, giving the particulars of such modification. 6.1.5 LOAN PROCEEDS. Borrower shall use the proceeds of the Loans only for the purposes set forth in Section 2.2. 6.1.6 NAME; PRINCIPAL PLACE OF BUSINESS. Borrower shall provide to Agent (a) notification of any change in Borrower's name, identity or corporate, partnership, limited liability company or trust structure within 30 days of such change and (b) 30 days' prior written notice of any change in Borrower's executive office or principal place of business. 6.1.7 BOARD OF TRUSTEES. Borrower shall provide to Agent, with reasonable promptness, written notice of any change in the Board of Trustees of Borrower. 6.1.8 OFFERING. Borrower shall obtain Lender Approval of the registration statement for the Offering, file the approved registration statement for the Offering and use its best efforts to consummate the Offering, all in accordance with Article XI. 6.1.9 INCORPORATION OF AFFIRMATIVE COVENANTS. In addition to the foregoing affirmative covenants, each of the affirmative covenants set forth in Section 7 of the Line of Credit Facility and any related definitions, as in effect on the date hereof, are hereby incorporated herein by reference as if set forth herein in full and shall apply, mutatis mutandis, to this Agreement; provided, however, that the following affirmative covenants of the Line of Credit Facility are not so incorporated: 7.3, 7.4, 7.16(f) and 7.16(g), 7.17, 7.18 and 7.19. VII. NEGATIVE COVENANTS 7.1 BORROWER NEGATIVE COVENANTS. From the date hereof until payment and performance in full of all Indebtedness of Borrower, Borrower covenants and agrees with Lenders that it will not do, directly or indirectly, any of the following: 7.1.1 DEBT. Without prior Lender Approval and except for Debt existing on the date hereof and reflected in the financial information furnished to Lenders, Borrower shall not create, incur or assume any Debt exceeding in the aggregate Five Million Dollars ($5,000,000.00) other than (a) the Indebtedness; (b) draws under the existing Line of Credit Facility or the Imperial Credi Facility; and (c) non-recourse mortgage Debt for the purpose of financing an acquisition of a Property or refinancing any Property (provided that in the event of a refinancing such Debt may only encumber the Property being refinanced and in the event of an acquisition such Debt may only encumber the asset being acquired); provided that the net proceeds of any such financing or refinancing shall be used to prepay the Indebtedness pursuant to Section 2.3.2 above. 7.1.2 CORPORATE STRUCTURE. Without prior written Lender Approval (such Lender Approval not to be unreasonably withheld), Borrower shall not, and shall not permit any of its Subsidiaries or Affiliates to: (i) except as provided in Article XI, alter the corporate, capital or legal structure of Borrower or any of its Subsidiaries or Affiliates (including by the issuance or distribution of a new or special class of securities), (ii) incorporate or otherwise organize any Subsidiaries, (iii) make or permit any transfer, or acquire by purchase or otherwise, directly or indirectly, all or substantially all the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person, or (iv) engage in any transaction or take any action that would cause Borrower or Paired Trust to cease to qualify as a "stapled entity" entitled to an exemption from the requirements of Section 269B of the Internal Revenue Code. 7.1.3 INCORPORATION OF NEGATIVE COVENANTS. In addition to the foregoing negative covenants, each of the negative covenants set forth in Section 8 of the Line of Credit Facility and any related definitions, as in effect on the date hereof, are hereby incorporated herein by reference as if set forth herein in full and shall apply, mutatis mutandis, to this Agreement. VIII. DEFAULTS 8.1 EVENT OF DEFAULT. (a) In case of the occurrence of any of the following events (each of which is herein sometimes called an "EVENT OF DEFAULT"): (i) if Borrower fails to make any payment of principal of, or interest on, the Loans on the date on which such payment was due hereunder; (ii) if Borrower fails to pay the Indebtedness in full on the Initial Maturity Date (or, if the term of the Loan is extended pursuant to Section 2.6, the Initial Extension Maturity Date or the Final Extension Maturity Date, as the case may be); (iii) if Borrower or Standby Purchaser fails to pay any other amount payable by Borrower or Standby Purchaser pursuant to this Agreement or any other Loan Document when due and such failure continues for five (5) Business Days after Lender delivers written notice thereof to Borrower; (iv) if any representation or warranty made by Borrower or any Standby Purchaser herein or in any other Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished by Borrower or any Standby Purchaser in connection with this Agreement or any other Loan Document, shall be inaccurate or misleading in any material respect as of the date such representation or warranty was made or deemed made; (v) if Borrower or any Standby Purchaser shall make an assignment for the benefit of creditors; (vi) if a receiver, liquidator or trustee shall be appointed for Borrower or any Standby Purchaser or if Borrower or any Standby Purchaser shall be adjudicated a "Debtor" under the federal bankruptcy law or insolvent, or if any petition for Bankruptcy, reorganization or arrangement pursuant to federal Bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by Borrower or any Standby Purchaser, or if any proceeding for the dissolution or liquidation of Borrower or any Standby Purchaser shall be instituted; provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by Borrower or any Standby Purchaser, the same shall become an Event of Default upon the same not being discharged, stayed or dismissed within sixty (60) days, or if Borrower or any Standby Purchaser shall generally not be paying its debts as they become due; (vii) if Borrower assigns its rights under this Agreement or any of the other Loan Documents or any interest herein or therein; or if any Standby Purchaser assigns its rights under a Standby Purchase Agreement or any interest therein, other than in accordance with the terms of such Standby Purchase Agreement; (viii) if an Event of Default as defined or described in any other Loan Document occurs, or if any other event shall occur or condition shall exist, if the effect of such event or condition is to accelerate the maturity of all or any portion of the Indebtedness or to permit Lenders to accelerate the maturity of all or any portion of the Indebtedness; (ix) except as otherwise provided in this Section 8.1, if Borrower or Standby Purchaser shall continue to be in default under any of the other terms, covenants or conditions of this Agreement or any other Loan Document, for ten (10) days after notice to Borrower or Standby Purchaser from Agent, in the case of any default which can be cured by the payment of a sum of money, or for thirty (30) days after notice from Agent in the case of any other default; provided, however, that if such non-monetary default is susceptible of cure but cannot reasonably be cured within such 30-day period and provided further that Borrower or Standby Purchaser shall have commenced to cure such default within such 30-day period and thereafter diligently and expeditiously proceeds to cure the same, such 30-day period shall be extended for such time as is reasonably necessary for Borrower or Standby Purchaser in the exercise of due diligence to cure such default, such additional period not to exceed thirty (30) days; (x) if Borrower fails to make any payment due to any Indemnitee or such Indemnitee's respective officers, directors, agents, parents or affiliates pursuant to Section 9.14 hereof for a period of fifteen (15) days after receipt by Borrower of written demand therefor; provided that Borrower shall not be deemed to be in Default in respect of any such payment (or portion thereof) which Borrower is contesting in good faith pursuant to appropriate proceedings, provided, further, that (A) Borrower shall post cash or other security reasonably satisfactory to the relevant Indemnitee with an escrowee satisfactory to such Indemnitee in an amount equal to the disputed amount during the pendency of any appeal by Borrower of an adverse determination, and (B) if such contest is finally determined in favor of the Indemnitee (or if Borrower does not appeal an adverse determination), Borrower shall be required to make such payment (or portion thereof) to such Indemnitee within ten (10) days after such determination; (xi) if any money judgment, writ or warrant of attachment or similar process requiring the payment of in excess of $500,000 not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage shall be entered or filed against Borrower or any of its assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days (or in any event later than five days prior to the date of any proposed sale thereunder); (xii) if there shall be a default by Borrower under any of the Prior Debt Documents (as in effect on the date hereof) or if there shall be a default by Borrower under any of the Prior Debt Documents (as from time to time in effect); (xiii) if Borrower shall cease for any reason to maintain its status as a REIT under the Internal Revenue Code; (xiv) a Change in Control shall occur; or (xv) an Event of Default (as defined in the Other Loan Agreement) shall occur under the Other Loan Agreement; then and in every such Event of Default and at any time thereafter during the continuance thereof, Agent may, in addition to any other rights or remedies available to Agent and/or Lender pursuant to this Agreement and the other Loan Documents or at law or in equity, take such action, without notice or demand, that Required Lenders deem advisable to protect and enforce their rights against Borrower and/or any Standby Purchaser, including declaring the Indebtedness or any portion thereof to be immediately due and payable, and may enforce or avail itself of any or all rights or remedies provided in the Loan Documents, including all rights or remedies available at law or in equity. 8.2 REMEDIES. Upon the occurrence and during the continuance of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Lenders under this Agreement or any of the other Loan Documents or at law or in equity may be exercised, at the direction of the Required Lenders by Agent on behalf of Lenders at any time and from time to time, whether or not all or any of the Indebtedness shall be declared due and payable, and whether or not Agent on behalf of Lenders shall have commenced any action for the enforcement of Lender's rights and remedies under any of the Loan Documents. 8.3 REMEDIES CUMULATIVE. The rights, powers and remedies of Agent and Lenders under this Agreement shall be cumulative and not exclusive of any other right, power or remedy which Agent and Lenders may have against Borrower pursuant to this Agreement or the other Loan Documents, or existing at law or in equity or otherwise. Agent's and Lenders' rights, powers and remedies shall be concurrent and may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Required Lenders may determine, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Agent and Lenders permitted by law, equity or contract or as set forth herein or in the other Loan Documents. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one Default or Event of Default shall not be construed to be a waiver of any subsequent Default or Event of Default or to impair any remedy, right or power consequent thereon. 8.4 GOTHAM'S CURE RIGHTS. Notwithstanding anything contained herein or in any other Loan Document, if there shall be a Default or Event of Default by any Standby Purchaser (other than Gotham) under this Agreement or any other Loan Document, or a Default or Event of Default by Borrower which is due to any breach by any Standby Purchaser (other than Gotham) of any representations, warranties, covenants or any other provision contained in this Agreement or any other Loan Document (each such event, a "STANDBY PURCHASER DEFAULT"), then such Default or Event of Default may be cured in accordance with the following procedures: (a) Agent, promptly following its receipt of notice of such Standby Purchaser Default, shall notify Gotham of the occurrence of such Standby Purchaser Default (the "STANDBY PURCHASER NOTICE"); (b) Gotham shall, within fifteen (15) days of receipt of the Standby Purchaser Notice, elect, in a writing delivered to Agent, to either: (i) assume all rights and obligations of the defaulting Standby Purchaser under its respective Standby Purchase Agreement (the "ALTERNATE STANDBY RIGHTS"), or (ii) decline to so assume the Alternate Standby Rights. Failure by Gotham to respond within 15 days shall be deemed to be a decision to decline to assume the Alternate Standby Rights. (c) If Gotham chooses to assume the Alternate Standby Rights, each Gotham Standby Purchase Agreement shall be deemed to have been amended to reflect Gotham's assumption of the Alternate Standby Rights (with such assumption to be on a pro-rata basis among the entities comprising Gotham, unless Gotham's notice sets forth a different allocation for the assumption of the Alternate Standby Rights), the rights of the defaulting Standby Purchaser so to purchase shall be subject to Gotham's right so to purchase and the Standby Purchaser Default shall be deemed cured. If Gotham chooses to decline to assume the Alternate Standby Rights, then such Standby Purchaser Default shall constitute a Default or Event of Default as described in Section 8.1 of this Agreement. IX. MISCELLANEOUS 9.1 SURVIVAL. This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the Closing Date, the making by Lenders of any Loans hereunder and the execution and delivery to Agent of the Notes, and shall continue in full force and effect so long as all or any of the Indebtedness is outstanding and unpaid. All covenants, promises and agreements in this Agreement contained shall inure to the benefit of and be binding upon the respective legal representatives, successors and assigns of the parties hereto, provided that Borrower may not assign or transfer any of its rights or obligations hereunder. 9.2 LENDERS' OR AGENT'S DISCRETION. Whenever pursuant to this Agreement or any other Loan Document, Lenders or Agent exercise any right given to any of them to approve, disapprove, make a determination, exercise discretion or consent, or any arrangement or term is to be satisfactory to Lenders or Agent, the decision of Lenders or Agent to approve, disapprove, make a determination, exercise discretion or consent, or to decide whether arrangements or terms are satisfactory or not satisfactory shall (except as otherwise specifically herein or in any other Loan Document provided) be in the sole discretion of Lenders or Agent and shall be final and conclusive. 9.3 GOVERNING LAW. (a) This Agreement was negotiated in the State of New York, and made by Lenders and Agent and accepted by the Borrower in the State of New York, and the proceeds of the Notes delivered pursuant hereto were disbursed from the State of New York, which State the parties agree has a substantial relationship to the parties and to the underlying transaction embodied hereby, and in all respects, including matters of construction, validity and performance, this Agreement and the obligations arising hereunder shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and performed in such State and any applicable law of the United States of America. To the fullest extent permitted by law, Borrower hereby unconditionally and irrevocably waives any claim to assert that the law of any other jurisdiction governs this Agreement and the Notes. Lenders, Agent and Borrower hereby agree, in accordance with ss. 5-1401 of the New York General Obligations Law, that this Agreement and the Notes shall be governed by and construed in accordance with the laws of the State of New York. (b) To the fullest extent permitted by applicable law, any legal suit, action or proceeding against Lenders, Agent or Borrower arising out of or relating to this Agreement shall be instituted in any federal or state court in New York, New York (the "New York Courts"), pursuant to ss. 5-1402 of the New York General Obligations Law, and Borrower waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding in the New York Courts, and Borrower hereby irrevocably submits to the jurisdiction of any such New York Court in any suit, action or proceeding. Borrower does hereby designate and appoint Gotham Partners Management Co., LLC, having an address at 110 East 42nd Street, New York, New York 10017, Attention: William A. Ackman or at such other office in New York, New York as it may direct, as its authorized agent to accept and acknowledge on its behalf service of any and all process which may be served in any such suit, action or proceeding in any federal or state court in New York, New York, and agrees that service of process upon said agent at said address and written notice of said service of Borrower mailed or delivered to Borrower in the manner provided herein shall be deemed in every respect effective service of process upon Borrower, in any such suit, action or proceeding in the State of New York. Borrower (i) shall give prompt notice to Agent of any changed address of its authorized agent hereunder, (ii) may, at any time and from time to time designate a substitute authorized agent with an office in New York, New York (which office shall be designated as the address for service of process), and (iii) shall promptly designate such a substitute if its authorized agent ceases to have an office in New York, New York or is dissolved without leaving a successor. 9.4 MODIFICATION, WAIVER IN WRITING. Except as otherwise required by this Section or where Agent is, pursuant to any of the Loan Documents, authorized to act without the consent of the Lenders, no modification, termination or waiver of any provisions of this Agreement or of any of the other Loan Documents, nor consent to any departure therefrom, shall in any event be effective, irrespective of any course of dealing between the parties, unless the same shall be in a writing executed by Required Lenders; provided, however, that, notwithstanding anything to the contrary in any of the Loan Documents, Agent may amend any of the Loan Documents or waive any condition or provision thereof if such amendment or waiver is of a technical nature. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on Borrower, any Guarantor or any Standby Purchaser in any case shall entitle Borrower, any Guarantor or any Standby Purchaser to any other or further notice or demand in the same, similar or other circumstances. In the case and to the extent of any waiver, the parties shall be restored to their former positions and rights hereunder and under the other Loan Documents; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. No disbursement of an Advance or of a portion thereof shall constitute a waiver of any Default, Event of Default or condition to disbursement, nor shall such disbursement preclude Agent on behalf of Required Lenders from declaring an Event of Default and pursuing its and their remedies hereunder in the event such Event of Default is not cured. Any Advance made by Lenders hereunder made prior to or without the fulfillment by Borrower of all of the conditions precedent thereto, whether or not known to Agent and/or Lenders, shall not constitute a waiver by Agent and/or Lenders of the requirement that all conditions, including the non-performed conditions, shall be satisfied with respect to all future advances. This Agreement, together with the other Loan Documents, sets forth the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating hereto, whether oral or written. Except as may be expressly provided for in the Loan Documents, Required Lenders shall not, without the prior written consent of all Lenders, (i) increase the principal amount of the Loans, (ii) postpone any date fixed for payment of principal or interest on the Loans, (iii) reduce the amount of any principal or interest payable with respect to the Loans, (iv) release Borrower, any Guarantor or Standby Purchaser or forgive or discharge all or any part of the Loans, in each event whether or not with consideration, (v) change the definition of Required Lenders, (vi) change the Commitment of any Lender, (vii) change this sentence or the first sentence of Section 9.4, (viii) reduce the fees payable by Borrower or (ix) permit Borrower to assign any of its rights or obligations under the Loan Documents. 9.5 DELAY NOT A WAIVER. Neither any failure nor any delay on the part of Agent or any Lender, in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, or under the Notes or under any other Loan Document, or any other instrument given as security therefor, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement, the Notes or any other Loan Document, Lenders and Agent shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement, the Note or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount. 9.6 NOTICES. All notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) certified or registered United States mail, postage prepaid, (b) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, or (c) telecopier (with answer back acknowledged and hard copy sent by hand or one of the methods described in clause (a) or (b) above), addressed if to Lenders at their addresses set forth above, if to Agent at its address set forth on the first page hereof, and if to Borrower at the address of Borrower set forth above (with a copy to Gotham Partners Management Co., LLC, 110 East 42nd Street, New York, New York 10017, Attention: William Ackman), or at such other address as shall be designated from time to time by any party hereto, as the case may be, in a written notice to the other parties hereto in the manner provided for in this Section. A notice shall be deemed to have been given: in the case of hand delivery, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day; or if telecopied, upon receipt. 9.7 TRIAL BY JURY. BORROWER, AGENT AND EACH LENDER EACH HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE LENDER/BORROWER RELATIONSHIP BETWEEN THEM. The scope of this waiver is intended to encompass any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims, and all other common laws and statutory claims. Borrower, Agent and each Lender each acknowledges that this waiver is a material inducement to enter into this Agreement, and that each will continue to rely on the waiver in their related future dealing. Borrower warrants and represents that it has reviewed this waiver with its legal counsel, and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. 9.8 HEADINGS. The Article and/or Section headings and the Table of Contents in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 9.9 SEVERABILITY. If any provision of this Agreement or any of the other Loan Documents or the application thereof to any Person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, then neither the remainder of this Agreement or the other Loan Documents nor the application of such provision to other Persons or circumstances nor the other instruments referred to hereinabove shall be affected thereby, but rather shall be enforced to the greatest extent permitted by applicable Legal Requirements. 9.10 PREFERENCES. To the extent any Person makes a payment or payments to Agent for Borrower's benefit, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the obligations hereunder or under any other Loan Document or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Agent. 9.11 WAIVER OF NOTICE. Borrower shall not be entitled to any notices of any nature whatsoever from Agent or Lenders except with respect to matters for which this Agreement or the other Loan Documents specifically and expressly provide for the giving of notice by Agent or Lenders to Borrower and except with respect to matters for which Borrower is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. Borrower hereby expressly waives the right to receive any notice from Agent or Lenders with respect to any matter for which this Agreement or the other Loan Documents do not specifically and expressly provide for the giving of notice by Agent or Lenders to Borrower. 9.12 REMEDIES OF BORROWER. In the event that a claim or adjudication is made that Agent or Lenders or their agents have acted unreasonably or unreasonably delayed acting in any case where by law or under this Agreement or the other Loan Documents, Agent, Lenders or such agent, as the case may be, have an obligation to act reasonably or promptly, Borrower agrees that neither Agent, Lenders nor their agents shall be liable for any monetary damages, and Borrower's sole remedies shall be limited to commencing an action seeking injunctive relief or declaratory judgment. The parties hereto agree that any action or proceeding to determine whether Agent or any Lender has acted reasonably shall be determined by an action seeking declaratory judgment. In any such action, the prevailing party shall be entitled to recover its reasonable attorneys' fees and disbursements incurred in connection with such action from the other party. 9.13 NON-EXCULPATION. Notwithstanding anything to the contrary in this Agreement or the other Loan Documents, Borrower's obligations to pay the principal of and interest on the Loans, the Notes and any and all other amounts payable by Borrower hereunder and under the other Loan Documents, the performance by Borrower of its respective obligations hereunder and under the other Loan Documents, and Borrower's liability for its representations, warranties and covenants hereunder and under the other Loan Documents, shall be full recourse obligations of Borrower. 9.14 EXPENSES; INDEMNITY. (a) Borrower covenants and agrees to reimburse Indemnitees and each of them upon receipt of written notice from any Indemnitee for all loss, cost, damage, expense or liability of any kind or nature whatsoever (including reasonable attorneys' fees and disbursements) incurred by such Indemnitee in connection with (i) the preparation, negotiation, execution, delivery and administration of this Agreement, the other Loan Documents and the consummation of the transactions contemplated hereby and thereby (ii) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Agreement, the other Loan Documents, and any other documents or matters if requested by Borrower or required by Agent or Lenders; (iii) reasonable fees and expenses of counsel for providing to Agent and Lenders all required legal opinions; (iv) enforcing or preserving any rights in response to third party claims or prosecuting or defending any action or proceeding or other litigation, in each case against, under, affecting or relating to Borrower, any Guarantor, this Agreement or the other Loan Documents; and (v) enforcing any obligations of, or paying or performing any defaulted obligations of, or collecting any payments due from, Borrower or any Guarantor or Standby Purchaser under this Agreement, the other Loan Documents or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement or any of the other Loan Documents in the nature of a "work-out" or of any insolvency or bankruptcy proceedings in respect of Borrower or any Guarantor or Standby Purchaser or any of its successors; provided, however, that Borrower shall not be liable for the payment of any costs and expenses described in clauses (i) through (v) above to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of the Indemnitees, their agents, contractors or employees. (b) In addition to but without duplication of the payment of expenses pursuant to subsection (a) above, whether or not the transactions contemplated hereby shall be consummated, Borrower agrees to indemnify, pay and hold harmless the Indemnitees, and each of them, from and against any and all other losses, costs, damages, expenses or liabilities of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for such Indemnitee in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto), that may be imposed on, incurred by, or asserted against such Indemnitee in any manner relating to or arising out of (i) any breach by Borrower of its obligations under, or any material misrepresentation by Borrower contained in this Agreement or any Loan Document, or (ii) the use or intended use of the proceeds of the Loans (collectively, the "INDEMNIFIED LIABILITIES"); provided, however, that Borrower shall not have any obligation to an Indemnitee hereunder to the extent that such Indemnified Liabilities arise from gross negligence, illegal acts, fraud or willful misconduct of such Indemnitee, its agents, contractors or employees. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it violates any law or public policy, Borrower shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any of them. Borrower shall not, without the prior written consent of the applicable Indemnitee, settle or compromise any claim, or permit a default or consent to the entry of judgment in respect thereof, unless such settlement, compromise or consent includes, as an unconditional term thereof, the giving by the claimant to the Indemnitee of an unconditional release from all liability in respect of such Claim. (c) Nothing herein shall limit the indemnity made by Borrower to and in favor of Agent and Lenders in the Standby Purchase Agreements. (d) Borrower hereby acknowledges and agrees that each Indemnitee (other than each Lender) is an intended third-party beneficiary of this Section 9.14. Promptly after receipt by an Indemnitee of notice of any claim or the commencement of any action for which indemnity may be sought against Borrower under this Agreement or any other Loan Document, such Indemnitee shall notify Borrower in writing of the receipt of such claim. Borrower shall be entitled to assume the defense of any claim with counsel reasonably satisfactory to such Indemnitee, and after notice from Borrower to such Indemnitee of its election so to assume and actual assumption of the defense thereof with counsel reasonably satisfactory to such Indemnitee, Borrower shall not be liable to such Indemnitee under any indemnity agreement set forth herein or in any other Loan Document for any legal or other expense subsequently incurred by such Indemnitee in connection with the defense thereof other than reasonable fees and expenses of separate counsel retained by such Indemnitee unless (a) Borrower and such Indemnitee shall have agreed to the retention of such subsequent counsel or (b) such Indemnitee shall have reasonably concluded that representation of Borrower and such Indemnitee by the same counsel would be inappropriate due to actual or potential conflicting interests between them. Borrower shall have no liability for any settlement of any action or claim effected without its consent, but if settled with such consent or if there be a final judgment for the plaintiff not stayed by appeal, Borrower agrees to indemnify the Indemnitee from and against any loss or liability required to be paid by the Indemnitee by reason of such settlement or judgment if and to the extent required by, and subject to the limitations of, the terms of this Agreement. Borrower agrees to consult in advance with Agent with respect to the terms of any proposed waiver, release or settlement of any claim, liability, proceeding or other action against Borrower to which any Indemnitee may also be subject, and to use reasonable efforts to afford Agent and any such Indemnitee the opportunity to join in such waiver, release or settlement. 9.15 EXHIBITS, SCHEDULES INCORPORATED. The Exhibits and Schedules annexed hereto are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof. 9.16 OFFSETS, COUNTERCLAIMS AND DEFENSES. Any assignee of any Lender's interest in and to this Agreement, the Notes or the other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to such documents which Borrower may otherwise have against any assignor of such documents, and no such unrelated counterclaim or defense shall be interposed or asserted by Borrower in any action or proceeding brought by any such assignee upon such documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrower. 9.17 NO JOINT VENTURE OR PARTNERSHIP. Borrower and Lenders intend that the relationships created hereunder and under the other Loan Documents and be solely that of borrower and lender. Nothing contained herein or therein (i) shall constitute any Lender or any of their Affiliates as members of any partnership, joint venture, association or other separate entity with Borrower, its Affiliates or any other entities, (ii) shall be construed to impose any liability as such on any Lender or any of their Affiliates, or (iii) shall constitute a general or limited agency or be deemed to confer on either party hereto any express, implied or apparent authority to incur any obligation or liability on behalf of the other. 9.18 PUBLICITY. On and after the Closing Date, Lenders and their Affiliates shall be entitled, but not required, to advertise the transactions contemplated hereby from time to time in media selected by Lenders or their Affiliates at their expense. On and after the Closing Date, Borrower shall be entitled, but not required, to advertise the same from time to time in media selected by Borrower at its expense, provided that Borrower's advertisements shall include a disclosure, in each case approved in writing by Agent (not to be unreasonably withheld or delayed), that Lenders originated the Loans. 9.19 WAIVER OF COUNTERCLAIM. Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Agent, any Lender or their agents, but Borrower does not waive its right to assert any such claim in a separate action. 9.20 CONFLICT; CONSTRUCTION OF DOCUMENTS. In the event of any conflict between the provisions of this Agreement and any of the other Loan Documents, the provisions of this Agreement shall control. The parties hereto acknowledge that they were represented by counsel in connection with the negotiation and drafting of the Loan Documents and other documents and instruments executed and delivered in connection therewith and that such Loan Documents and other documents and instruments shall not be subject to the principle of construing their meaning against the party which drafted the same. 9.21 BROKERS AND FINANCIAL ADVISORS. Borrower hereby represents that it has dealt with no financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement. Borrower hereby agrees to indemnify and hold harmless Lenders and their Affiliates and their respective agents, representatives and employees from and against any and all claims, liabilities, costs and expenses of any kind in any way relating to or arising from a claim by any Person that such Person acted on behalf of Borrower or its Affiliates in connection with the transactions contemplated herein. The provisions of this Section 9.21 shall survive the expiration and termination of this Agreement and the repayment of the Indebtedness. 9.22 PRIOR AGREEMENTS. This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements among or between such parties, whether oral or written, are superseded by the terms of this Agreement and the other Loan Documents. 9.23 MAXIMUM RATE OF INTEREST. This Agreement, the Notes and the other Loan Documents are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the Loans at a rate that could subject Lenders to either civil or criminal liability as a result of such rate being in excess of the highest lawful rate permitted under applicable usury law to be charged to Borrower (the "MAXIMUM RATE"). If, by the terms of this Agreement, the Notes or any of the other Loan Documents, Borrower is at any time required or obligated to pay interest on the Loans at a rate in excess of such Maximum Rate, the rate of interest applicable to the Loans shall be deemed to be immediately reduced to such Maximum Rate and the interest payable shall be computed at such Maximum Rate and all prior interest payments in excess of such Maximum Rate shall be deemed to have been the result of a mistake on the part of both Borrower and Lenders, and Lenders shall promptly credit such excess (to the extent only of such interest payments in excess of the Maximum Rate) against the unpaid principal amount of the Loans to which such excess may lawfully be credited, and any portion of such excess payments not capable of being so credited shall be refunded to Borrower or otherwise disposed of as directed by the order of a court of competent jurisdiction. 9.24 ATTORNEYS' FEES. In the event of any litigation, arbitration or other dispute resolution proceedings between the parties hereto arising out of or relating to this Agreement or the transactions contemplated hereby, the party prevailing in such litigation, arbitration or proceeding shall be entitled to recover from the other party the reasonable attorney's fees and disbursements incurred by such prevailing party in connection with such litigation, arbitration or proceeding. 9.25 COUNTERPARTS. This Agreement and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. 9.26 APPLICATION OF PAYMENTS. Except as otherwise provided in this Agreement and the other Loan Documents, each and every payment made by Borrower to Agent in accordance with the terms of this Agreement and the other Loan Documents and all other proceeds received by Agent with respect to the Indebtedness shall be applied in the following order of priority: (i) to pay the costs and expenses of Agent and Lenders for which Agent and Lenders are entitled to reimbursement from Borrower under this Agreement or the other Loan Documents, and that have not previously been reimbursed by Borrower, together with accrued interest thereon (if any); then (ii) to ratably pay accrued interest on the Loans, including interest accrued at the Default Rate (if any); and then (iii) to ratably reduce the outstanding principal amount of the Loans. 9.27 ASSIGNMENTS AND PARTICIPATIONS. (a) Each Lender may assign, to one or more banks or other financial institutions regularly engaged in making or acquiring loans, all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided, however, that (i) Agent (in its sole discretion) must give its prior written consent to such assignment, (ii) if no Event of Default and/or monetary Default shall then exist and be continuing, Borrower must give its prior written consent to such assignment, which consent shall not be unreasonably withheld or delayed and if an Event of Default or a monetary Default shall be so continuing, then Borrower's consent shall not be required, (iii) each such assignment shall be of a constant, and not a varying, percentage of all the assigning Lender's rights and obligations under this Agreement as a Lender and the other Loan Documents, (iv) the aggregate amount of the Loans and Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to Agent) shall not be less than $10,000,000 unless such Lender's then outstanding Loans and Commitment is less than $10,000,000 in which event such Lender may assign the aggregate amount of the Loans made by such Lender and its entire Commitment to make Loans, and (v) the parties to each such assignment shall execute and deliver to Agent an Assignment and Acceptance, and a processing fee of $5,000. Upon the later of acceptance pursuant to this Section, and the effective date specified in each Assignment and Acceptance, which effective date shall be at least five (5) Business Days after the execution thereof, (A) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations under this Agreement and the other Loan Documents, and (B) the assigning Lender thereunder shall, to the extent provided in such assignment, be released from its obligations under this Agreement and the other Loan Documents (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement and the other Loan Documents, such assigning Lender shall cease to be a party hereto, but it shall continue to receive the benefit of the indemnifications referred to or provided for in, Section 9.14). Borrower shall execute replacement Notes (in the form of Exhibit B) in connection with any such assignment. (b) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any of the other Loan Documents, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any of the other Loan Documents, or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower or any other Person or the performance or observance by Borrower any other Person of any of its obligations under this Agreement or any of the other Loan Documents, or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement and the other Loan Documents and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will independently and without reliance upon Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee appoints and authorizes Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement and the other Loan Documents are required to be performed by it as a Lender. (c) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and assignee together with the processing fee referred to in Section 9.27(a) above and the written consent of Agent (and of Borrower, if required) to such assignment Agent shall (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register, and (iii) give prompt notice thereof to Borrower and Lenders. (d) Each Lender may without the consent of Borrower, but upon the prior written consent of Agent, sell participations to one or more banks or other financial institutions regularly engaged in making or acquiring loans in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participating banks or other entities shall be entitled to the benefit of the provisions contained in Sections 2.5, 2.9, 2.10 and 9.14 as if such Participant were a Lender, and (iv) Borrower, Agent and other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of Borrower, Guarantors and Standby Purchasers relating to the Loans and to approve any amendment, modification or waiver of any provision of this Agreement or any of the other Loan Documents (but with respect to the matters referred to in the last sentence of Section 9.4 a Lender may allow its participant to have approval rights with respect thereto). (e) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section, disclose to the assignee or participant or proposed assignee or participant any information relating to Borrower any Guarantor or any Standby Purchaser, their respective Affiliates furnished to each such Lender by or on behalf of Borrower, Guarantors and/or Standby Purchasers. (f) Any Lender which is organized under the laws of any jurisdiction other than the United States or any state or other political subdivision thereof shall, and if pursuant to Section 9.27(a), any interest in this Agreement is assigned to any other bank or financial institution, the assigning Lender shall cause the assignee, concurrently with the effectiveness of such assignment to (i) furnish to Borrower either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Form 1001 (or such other forms or certificates wherein such assignee claims entitlement to complete exemption from or reduction of U.S. federal withholding tax on all interest payments hereunder) and (ii) agree (for the benefit of Borrower) to provide Borrower a new form upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such assignee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption. Notwithstanding anything to the contrary herein, nothing in this Section 9.27(f) shall require a Lender to provide a form which it is not legally permitted to provide. (g) Notwithstanding anything to the contrary contained in this Section 9.27, each Lender, upon prior written notice to, but without the consent of, Agent and Borrower, may assign or sell participations in any or all of its respective Loan to an Affiliate of such Lender. 9.28 SETOFF. Upon the occurrence of an Event of Default, Agent and each Lender is hereby authorized, at any time or from time to time, without prior notice to Borrower or any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other indebtedness or property at any time held or owing by Agent or any Lender to or for the credit or the account of Borrower, whether or not related to this Agreement or any transaction or occurrence hereunder, against and on account of the indebtedness and other liabilities of Borrower to Agent or any Lender hereunder, under the Notes and/or under any of the other Loan Documents, whether or not Agent or any Lender shall have made any demand hereunder and although such liabilities, or any of them, shall be contingent or unmatured. The rights and remedies granted to Agent and each Lender under this Section shall be in addition to, and not in substitution for, any rights or remedies, including, without limitation, any right of set-off or banker's lien, to which Agent or any Lender may otherwise be entitled. 9.29 LIABILITY OF BORROWER'S TRUSTEES, ETC. Notwithstanding any provision of this Agreement to the contrary, this Agreement has been executed and delivered by a duly authorized officer of Borrower, for and on behalf of Borrower's trustees. The Agent and each Lender each acknowledges that neither the trustees of Borrower, nor any additional or successor trustees of Borrower, nor any beneficiary, officer, employee or agent of Borrower, shall have any personal, individual liability hereunder or under any of the Loan Documents. 9.30 EMPLOYEE TERMINATION EXPENSES. Notwithstanding anything herein to the contrary, for the purposes of this Agreement and of the Line of Credit Facility (as incorporated herein), including, without limitation, for the purposes of Section 7.20 of the Line of Credit Facility, employee termination expenses of up to $8,500,000 incurred from and after the date hereof shall be disregarded. 9.31 CONFLICTS WITH INTERCREDITOR AGREEMENT. If any term or provision of this Agreement relating to the application of monies conflicts with the provisions of the Intercreditor Agreement, the terms and provisions of the Intercreditor Agreement shall take precedence over such conflicting provisions of this Agreement. X. AGENT; SUCCESSOR AGENT 10.1 APPOINTMENT. Bankers Trust Company is hereby appointed Agent hereunder and under the other Loan Documents and each Lender hereby authorizes Agent to act as its agent in accordance with the terms of this Agreement and the other Loan Documents. Agent agrees to act upon the express conditions contained in this Agreement and the other Loan Documents, as applicable. The provisions of this Article X are solely for the benefit of Agent and Lenders and Borrower shall not have any right as third-party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement, Agent shall act solely as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for Borrower or any Affiliate of Borrower. 10.2 POWERS AND DUTIES; GENERAL IMMUNITY. 10.2.1 POWERS; DUTIES. Each Lender irrevocably authorizes Agent to deal and communicate with Borrower on such Lender's behalf in all respects under and in connection with the Loan Documents. Borrower shall have no obligation to recognize or deal directly with Lenders nor to comply with any demand or requirement made by any Lender (other than through Agent), and no Lender shall deal directly with Borrower with respect to the rights, benefits and obligations of Borrower under the Loan Documents or any one or more documents or instruments in respect thereof. Borrower shall be entitled to rely conclusively on the actions of Agent as agent to bind Lenders, notwithstanding that the particular action in question may, pursuant to the terms of such agreements as may exist from time to time among the Agent and Lenders, be subject, as among the Agent and Lenders, to the approval or direction of Lenders or any specified percentage of Lenders. Agent may exercise its powers, rights and remedies and perform its duties hereunder by or through its agents or employees. Agent shall not have, by reason of this Agreement or any of the other Loan Documents, a fiduciary relationship in respect of any Lender; and nothing in this Agreement or any of the other Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon Agent any obligations in respect of this Agreement or any of the other Loan Documents except as expressly set forth herein or therein. 10.2.2 AGENT ENTITLED TO ACT AS LENDER. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans, Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not performing the duties and functions delegated to it hereunder, and the term "Lender" or "Lenders" or any similar term shall, unless the context clearly otherwise indicates, include Agent in its individual capacity. Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust, financial advisory or other business with Borrower or any Standby Purchaser or any of their respective Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from Borrower or any Standby Purchaser for services in connection with this Agreement and otherwise without having to account for the same to Lenders. 10.3 REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR APPRAISAL OF CREDITWORTHINESS. Each Lender hereby acknowledges that such Lender has been furnished with copies of such Loan Documents, financial statements, certificates, instruments, documents, affidavits, resolutions, reports, and agreements (collectively, the "PRE-CLOSING DOCUMENTATION") as such Lender has deemed necessary to make its own credit analysis and decision with respect to the Loans. Each Lender acknowledges that it has, independently and without reliance upon Agent and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and to extend credit to the Borrower on the terms set forth in this Agreement and the other Loan Documents. Each Lender also acknowledges to Agent that such Lender will, independently and without reliance upon Agent and based on the Pre-Closing Documentation and such other documents and information as it shall deem appropriate at the time, make and continue to make its own decision in taking or not taking action with respect to the Loans. Lenders hereby acknowledge that Agent (i) shall not be responsible to Lenders for any statements, warranties, or representations (written or otherwise) by any party other than Agent made in or in connection with the Pre-Closing Documentation, the Loans, or the Loan Documents, or the financial condition of Borrower or the Standby Purchasers, any indemnitor or any other person; and (ii) shall not be responsible to Lenders for the due execution, legality, validity, enforceability, genuineness, sufficiency or collectability of any of the Loan Documents or any other instrument or document furnished pursuant thereto or in connection with the Loans. 10.4 SUCCESSOR AGENT. Agent may resign at any time by giving thirty (30) days' prior written notice thereof to Lenders and Borrower, and Agent may be removed for cause by Lenders by written Lender Approval, if such written instrument is delivered to Borrower. Upon any such notice of resignation or any such removal, Lenders shall have the right, by Lender Approval, upon five (5) Business Days' notice to Borrower, to appoint a successor Agent. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, that successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Agent and the retiring or removed Agent shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Agent's resignation or removal hereunder as Agent, the provisions of this Article X shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. XI. OFFERING 11.1 RIGHTS OFFERING. Borrower shall use its best efforts to file with the Securities and Exchange Commission within forty-five (45) days from the Closing Date either (i) a registration statement or (ii) to the extent that Borrower in good faith concludes that the Offering (as defined below) may be conducted pursuant to a prospectus supplement to Borrower's existing shelf registration statement (file no. 333-31695), a prospectus supplement (in which case the number of days referred to above shall be sixty (60) days) or (iii) a post-effective amendment to such shelf registration statement, in each case in such form such that when the same is declared effective by the Securities and Exchange Commission or, in the case of clause (ii) above, filed with the Securitie and Exchange Commission, Borrower will be able to consummate an offering entitling holders of equity securities of Borrower to purchase additional equity interests in Borrower on a pro rata basis (the "OFFERING") which, if fully subscribed, would result in aggregate proceeds to Borrower of an amount at least sufficient to enable Borrower to prepay, upon the consummation of the Offering, the Loans and the Other Loans (and all interest and other fees or other amounts due in connection with the Loans and the Other Loans), and Borrower shall use its best efforts to cause any such registration statement or post-effective amendment referred to in clause (i) or (iii) above to be declared effective within ninety (90) days from the Closing Date. Borrower shall use its best efforts to take, or cause to be taken, any and all further action or actions necessary or advisable to be taken in order to enable the Offering to be consummated as contemplated by this Section 11.1, including but not limited to the distribution of a prospectus or prospectus supplement pursuant to any of the applicable registration statements referred to above. It shall be an Event of Default if the registration statement or post-effective amendment is not declared effective or if the prospectus supplement is not filed with the Securities and Exchange Commission, as the case may be, on or prior to the Initial Maturity Date. 11.2 CONSUMMATION. After the filing of the registration statement, post-effective amendment or prospectus supplement referred to in Section 11.1 above, for the Offering pursuant to Section 11.1, Borrower shall thereafter diligently and continuously use its best efforts to consummate the Offering. 11.3 PROCEEDS OF OFFERING. Upon Borrower's receipt of any proceeds of the Offering, Borrower shall cease to have any right to borrow under this Agreement. 11.4 PRICING OF RIGHTS OFFERING. The pricing of the securities to be offered pursuant to the Offering shall be consistent with the pricing parameters set forth in Section 7(d) of the Standby Purchase Agreements. 11.5 WAIVER OF OWNERSHIP LIMITATIONS. Borrower hereby covenants and agrees to use its best efforts to cause to be issued to Gotham a waiver of the ownership limitations set forth in Article VI, Section 6 of the By-Laws of Borrower, in form and substance reasonably satisfactory to Gotham, to the extent necessary (in light of all other securities of Borrower directly, indirectly, beneficially or constructively owned or controlled by or subject to the power to vote of (in each case, within the meaning of the Borrower's Organizational Documents, the Securities Exchange Act of 1934, as amended and the rules and regulations thereunder, and the Internal Revenue Code and the rules and regulations thereunder) Gotham to permit Gotham to acquire the securities it may become obligated to purchase pursuant to the Standby Purchase Agreement to which Gotham is a party; provided, however, that notwithstanding the foregoing or any other provision of this Agreement, (i) Borrower shall not be obligated to take any action hereunder which would prevent Borrower from qualifying or continuing to qualify for taxation under the Internal Revenue Code as a REIT or result in Borrower becoming disqualified for taxation under the Internal Revenue Code as a REIT, and (ii) Borrower shall not be prevented or restricted hereunder with respect to taking any action which the Board of Trustees of Borrower shall deem advisable to prevent disqualification of Borrower for taxation under the Internal Revenue Code as a REIT. 11.6 INDEMNIFICATION. (a) Borrower agrees to indemnify and hold harmless Agent and each Lender, as lender, against any and all losses, claims, damages, obligations, penalties, judgments, awards, liabilities, costs, expenses and disbursements (and any and all actions, suits, proceedings and investigations in respect thereof and any and all legal and other costs, expenses and disbursements in giving testimony or furnishing documents in response to a subpoena or otherwise), including, without limitation, the costs, expenses and disbursements, as and when incurred, of investigating, preparing or defending any such action, suit, proceeding or investigation (whether or not in connection with litigation in which any Agent or any Lender, as lender, is a party), directly or indirectly, caused by, relating to, based upon, arising out of, or in connection with, including, without limitation, any act or omission by Agent or such Lender, as lender, in connection with, the Offering or any registration statement or any prospectus relating to the Offering. (b) These indemnification provisions shall be in addition to any liability which Borrower may otherwise have to Agent or Lenders or the persons indemnified below in this sentence and shall extend to the following: Agent, Lenders, their respective affiliated entities, partners, employees, legal counsel, agents and controlling persons (within the meaning of the federal securities laws), and the officers, directors, employees, legal counsel, partners, agents and controlling persons of any of them. All references to Agent and/or Lender in these indemnification provisions shall be understood to include any and all of the foregoing indemnitees. (c) If any action, suit, proceeding or investigation is commenced, as to which Agent or any Lender, as lender, proposes to demand indemnification, it shall notify Borrower with reasonable promptness; provided, however, that any failure by Agent or any Lender to notify Borrower shall not relieve Borrower from its obligations hereunder. Agent or any such Lender, as the case may be, shall have the right to retain counsel of its own choice to represent it, and Borrower shall pay the reasonable fees, expenses and disbursements of such counsel; and such counsel shall, to the extent consistent with its professional responsibilities, cooperate with Borrower and any counsel designated by Borrower. Borrower shall not be liable for any settlement of any claim against Agent or any Lender made without Borrower's prior written consent, which consent shall not be unreasonably withheld. Borrower shall not, without the prior written consent of Agent or any such Lender, as the case may be, settle or compromise any claim, or permit a default or consent to the entry of any judgment in respect thereof, unless such settlement, compromise or consent includes, as an unconditional term thereof, the giving by the claimant to Agent or any such Lender, as the case may be, of an unconditional release from all liability in respect of such claim. (d) In order to provide for just and equitable contribution, if a claim for indemnification pursuant to these indemnification provisions is made but it is found in a final judgment by a court of competent jurisdiction (not subject to further appeal) that such indemnification may not be enforced in such case, even though the express provisions hereof provide for indemnification in such case, then Borrower, on the one hand, and Agent or any such Lender, as the case may be, on the other hand, shall contribute to the losses, claims, damages, obligations, penalties, judgments, awards, liabilities, costs, expenses, and disbursements to which the indemnified persons may be subject in accordance with the relative benefits received by Borrower, on the one hand, and Agent or any such Lender, as the case may be, on the other hand, and also the relative fault of Borrower, on the one hand, and Agent or any such Lender, as the case may be, on the other hand, in connection with the statements, acts or omissions which resulted in such losses, claims, damages, obligations, penalties, judgments, awards, liabilities, costs, expenses or disbursements and the relevant equitable considerations shall also be considered. No person found liable for a fraudulent misrepresentation shall be entitled to contribution from any person who is not also found liable for such fraudulent misrepresentation. Notwithstanding the foregoing, neither Agent nor any Lender shall be obligated to contribute any amount hereunder that exceeds the amount of fees previously received by Agent or such Lender, as the case may be, pursuant to this Agreement. (e) These indemnification provisions and the provisions of Section 9.14 shall survive any termination of this Agreement and thereafter shall remain operative and in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written. AGENT: BANKERS TRUST COMPANY By: ----------------------------------- Name: Title: LENDERS: BLACKACRE BRIDGE CAPITAL, L.L.C. By: Blackacre Capital Management Corp., a Connecticut corporation, as managing member By: ----------------------------- Name: Title: GOTHAM PARTNERS, L.P. and GOTHAM PARTNERS III, L.P. By: Section H Partners, L.P. By: Karenina Corp. By: ----------------------------- Name: Title: ELLIOTT ASSOCIATES, L.P. By: ----------------------------------- Name: Title: General Partner BORROWER: FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS By: ----------------------------------- Name: Title: EX-23.(A) 5 Exhibit 23(a) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this registration statement of our report dated February 4, 1998 included in the Company's Form 10-K for the year ended December 31, 1997 and to all references to our Firm included in this registration statement. Cleveland, Ohio September 17, 1998. Arthur Andersen LLP -----END PRIVACY-ENHANCED MESSAGE-----