8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 8-K

Current Report Pursuant

to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported) February 25, 2005

FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS

(Exact Name of Registrant as Specified in Its Charter)

Ohio
(State or Other Jurisdiction of Incorporation)
001-06249	34-6513657
(Commission File Number)	(I.R.S. Employer Identification No.)
7 Bulfinch Place, Suite 500, P.O. Box 9507, Boston, Massachusetts	02114
(Address of Principal Executive Offices)	(Zip Code)
(617) 570-4600
(Registrant’s Telephone Number, Including Area Code)
n/a
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFT|R 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01.   Entry Into a Material Definitive Agreement.

On February 25, 2005, First Union Real Estate Equity and Mortgage Investments (“First Union”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) providing for the sale of 3,640,000 shares of its newly designated B-1 Cumulative Convertible Redeemable Preference Shares (“Preferred Shares”) to a number of institutional buyers for $91,000,000 in gross proceeds.  The sale of the Preferred Shares was effected pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933, and was consummated on February 28, 2005 (the “Closing Date”).  On the Closing Date, as required by the Purchase Agreement, First Union entered into an Investor Rights Agreement (the “Rights Agreement”) with the purchasers of the Preferred Shares (the “Investors”), which grants such Investors preemptive rights with respect to future issuances of securities by First Union, a co-investment right enabling them to participate in certain future investments by First Union, tag-along rights, drag-along rights in the event of a sale of substantially all the securities of First Union, and certain other rights.  The Rights Agreement is attached hereto as Exhibit 10.3.  On the Closing Date, First Union and the Investors also entered into a Registration Rights Agreement, attached hereto as Exhibit 10.2, which requires First Union to register the resale of the common shares issuable upon conversion of the Preferred Shares within two years of the Closing Date and permits the Investors to participate in certain other registered offerings by the Company.

Bruce Berkowitz, a Trustee of First Union, is affiliated with one of the Investors, Fairholme Ventures II, LLC.  Mr. Berkowitz is the Managing Member of Fairholme Capital Management, LLC, which is the Managing Member of Fairholme Ventures II, LLC, and owns approximately 8% of the interests in Fairholme.  A company owned by Mr. Berkowitz is also entitled to receive a management fee from Fairholme Ventures II, LLC.

Item 3.02.  Unregistered Sales of Equity Securities

As described above under Item 1.01, First Union issued 3,640,000 shares of Preferred Shares on February 28, 2005 for gross proceeds of $91,000,000.  The sale of the Preferred Shares was effected pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933.  The Certificate of Designations for the Preferred Shares is attached hereto as Exhibit 4.1. The net proceeds to First Union, after payment of placement fees but before payment of other expenses, was $86,200,000. The shares will be entitled to cumulative dividends at a minimum rate of 6.5% and will be convertible into common stock at a conversion price of $4.50, subject to anti-dilution adjustments. If fully converted, the shares would represent approximately 38.7% of the outstanding common stock.

Item 5.02.  Election of Directors.

Pursuant to the Purchase Agreement, on February 28, 2005 Steven Mandis, Vice Chairman and Chief Investment Officer of Halcyon Structured Opportunities Fund, L.P. (“Halcyon”), one of the Investors, was appointed to the Board of Trustees of First Union.  Other than the transactions described herein in connection with the Purchase Agreement and Rights Agreement, and the ownership of an aggregate of 880,000 Preferred Shares by Halcyon and its

2

affiliates, Steven Mandis did not engage in any related party transactions with First Union since the beginning of its last fiscal year.

Item 5.03.  Amendment to By-laws.

Pursuant to the Purchase Agreement, on February 28, 2005 First Union amended its by-laws to permit certain of the Investors to own Preferred Shares convertible into more than 9.8% of the common shares.  Such Investors are not permitted to exceed the ownership levels attained as a result of the purchase of the Preferred Shares, except in connection with the exercise of preemptive rights provided for in the Rights Agreement and the purchase of common shares as the result of the exercise of rights provided for in the Certificate of Designations.  A copy of the amendment to the by-laws is attached hereto as Exhibit 3.1.

3

Item 7.01Regulation FD Disclosure

On February 25, 2005 First Union announced the transaction described in Items 1.01 and 3.02 above.  A copy of this release is attached hereto as Exhibit 99.1.

On February 28, 2005 First Union announced that it had entered into entered into a settlement agreement with the State of California relating to its formerly held Peachtree Mall asset pursuant to which First Union will be paid, as previously disclosed, $11 million in exchange for the extinguishment of its claims against the State.  The settlement is subject to both final court approval and legislative funding.  It is not expected that the proceeds will be received until the State of California’s 2005-2006 fiscal year.

Item 9.01.  Financial Statements and Exhibits

(c)Exhibits

3.1	Amendment to By-Laws.
4.1	Certificate of Designations for Series B-1 Cumulative Convertible Redeemable Preferred Shares of Beneficial Interest.
10.1	Securities Purchase Agreement, dated February 25, 2005, between First Union Real Estate Equity and Mortgage Investments, Perrin Holden & Davenport Capital Corp. and the Investors named therein.
10.2	Registration Rights Agreement, dated February 28, 2005, between First Union Real Estate Equity and Mortgage Investments and the Investors named therein.
10.3	Investor Rights Agreement, dated February 28, 2005, between First Union Real Estate Equity and Mortgage Investments and the Investors named therein.
99.1	Corrective Press Release, dated February 28, 2005 correcting Press Release dated February 28, 2005.
99.2	Press Release, dated February 28, 2005

4

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized on this 1st day of March, 2005.

FIRST UNION REAL ESTATE EQUITY AND
MORTGAGE INVESTMENTS
By:	/s/ Carolyn Tiffany
	Carolyn Tiffany
	Chief Operating Officer

5

EX-3.1

Exhibit 3.1

                RESOLVED, that pursuant to Article V Section 1 of the By-Laws of the Trust dated as of December 31, 2003 (the “By-Laws”), Article VI, Section 6 of the By-Laws is hereby amended, effective as of the closing of the Sale, by renumbering current paragraphs (h) and (i) as paragraphs (i) and (j) and by inserting a new paragraph (h) which shall read as follows:

“(h) (I) Notwithstanding any other provision of this Section 6, paragraphs (a) and (b) hereto shall not apply to Halcyon Structured Opportunities Fund, L.P. and Halcyon Fund, L.P. (collectively, “Halcyon”) and any Halcyon Permitted Transferee (as hereinafter defined), as long as and on the condition that (i) no person who or which is a beneficial owner of Halcyon or of such Halcyon Permitted Transferee owns indirectly (based solely on such person’s percentage ownership of Series B-1 Preference Shares through Halcyon or through such Halcyon Permitted Transferee) 9.8% or more of the Series B-1 Preference Shares, and (ii) none of Halcyon, any Halcyon Permitted Transferee or any of their respective affiliates, as defined in Rule 12b-2 under the Securities Exchange Act of 1934 (“Affiliates”), owns or acquires ownership of any Securities other than (A) the shares of Series B-1 Preference Shares initially acquired by Halcyon in February 2005 (the “Halcycon Shares”) and any Shares issued on the conversion thereof in accordance with their terms, (B) any Shares issued in connection with the exercise by Halcyon or a Halcyon Permitted Transferee of rights (other than over-subscription rights) to purchase Shares pursuant to Section 11 of the Certificate of Designations, and (C) any Additional Securities (but not Extra Additional Securities) as such terms are defined in the Investors Rights Agreement (the “Investors’ Rights Agreement”), dated as of February 28, 2004, by and among the Trust, Michael Ashner, Peter Braverman and the investors, issued as a result of the exercise by Halcyon of its Preemptive Rights under the Investors’ Rights Agreement.  A Halcyon Permitted Transferee means any Beneficial Holder or Institutional Investor or Affiliate of Halcyon (as such terms are defined in the Investors’ Rights Agreement), other than HBK and King Street and their respective Affiliates, who acquires the Halcyon Shares.

               (h) (II) Notwithstanding any other provision of this Section 6, paragraphs (a) and (b) hereto shall not apply to HBK Fund, L.P. (“HBK”) and any HBK Permitted Transferee (as hereinafter defined), as long as and on the condition that (i) no person who or which is a beneficial owner of HBK or of such HBK Permitted Transferee owns indirectly (based solely on such person’s percentage ownership of Series B-1 Preference Shares through HBK or through such HBK Permitted Transferee) 9.8% or more of the Series B-1 Preference Shares, and (ii) none of HBK, any HBK Permitted Transferee or any of their respective Affiliates owns or acquires ownership of any Securities other than (A) the shares of Series B-1 Preference Shares initially acquired by HBK in February 2005 (the “HBK Shares”) and any Shares issued on the conversion thereof in accordance with their

terms, (B) any Shares issued in connection with the exercise by HBK or an HBK Permitted Transferee of rights (other than over-subscription rights) to purchase Shares pursuant to Section 11 of the Certificate of Designations, (C) any Additional Securities (but not Extra Additional Securities) issued as a result of the exercise by HBK of its Preemptive Rights under the Investors’ Rights Agreement and (D) 180,000 Shares currently owned by HBK.  An HBK Permitted Transferee means any Beneficial Holder, Institutional Investor or Affiliate of HBK, other than Halcyon and King Street and their respective Affiliates, who acquires the HBK Shares.

               (h) (III) Notwithstanding any other provision of this Section 6, paragraphs (a) and (b) hereto shall not apply to King Street Capital, L.P. (“King Street”) and any King Street Permitted Transferee (as hereinafter defined), as long as and on the condition that (i) no person who or which is a beneficial owner of King Street or of such King Street Permitted Transferee owns indirectly (based solely on such person’s percentage ownership of Series B-1 Preference Shares through King Street or through such King Street Permitted Transferee) 9.8% or more of the Series B-1 Preference Shares, and (ii) none of King Street, any King Street Permitted Transferee, or any of their respective Affiliates owns or acquires ownership of any Securities other than (A) the shares of Series B-1 Preference Shares initially acquired by King Street in February 2005 (the “King Street Shares”) and any Shares issued on the conversion thereof in accordance with their terms, (B) any Shares issued in connection with the exercise by King Street or a King Street Permitted Transferee of rights (other than over-subscription rights) to purchase Shares pursuant to Section 11 of the Certificate of Designations, and (C) any Additional Securities (but not Extra Additional Securities) issued as a result of the exercise by King Street of its Preemptive Rights under the Investors’ Rights Agreement.  A King Street Permitted Transferee means any Beneficial Holder, Institutional Investor or Affiliate of King Street, other than Halcyon and HBK and their respective Affiliates, who acquires the King Street Shares.”

EX-4.1

Exhibit 4.1

SERIES B-1 CUMULATIVE CONVERTIBLE REDEEMABLE

PREFERRED SHARES OF BENEFICIAL INTEREST

CERTIFICATE OF DESIGNATIONS

FIRST UNION REAL ESTATE

EQUITY AND MORTGAGE INVESTMENTS

Designating a Series of Preferred Shares of Beneficial Interest as Series B-1 Cumulative
Convertible Preferred Shares of Beneficial Interest and Fixing Distribution and Other
Preferences and Rights of Such Series

Dated as of February 28, 2005

FIRST UNION REAL ESTATE EQUITY

AND MORTGAGE INVESTMENTS

The undersigned, Michael L. Ashner, Chairman and Chief Executive Officer of First Union Real Estate Equity and Mortgage Investments, an Ohio real estate investment trust (the “Trust”), hereby certifies on behalf of the Trust that:

The Board of Trustees adopted the following resolution creating the Series B-1 Cumulative Convertible Redeemable Preferred Shares of Beneficial Interest, par value $1.00 per share, of the Trust:

RESOLVED, that pursuant to the authority vested in the Board of Trustees in accordance with Section 11.22 of the Declaration of Trust, as amended, a series of preferred shares of the Trust be and hereby is created, and that the designation and amount thereof and the preferences and relative, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows:

Section 1.Number of Shares and Designation.  This class of preferred shares of beneficial interest shall be designated as Series B-1 Cumulative Convertible Redeemable Preferred Shares of Beneficial Interest, par value $1.00 per share (the “Series B-1 Preferred Shares”), and the number of shares which shall constitute such series shall not be more than 3,640,000 shares, which number may be decreased (but not below the number thereof then outstanding) from time to time by the Board of Trustees.

Section 2.Definitions.  For purposes of the Series B-1 Preferred Shares, the following terms shall have the meanings indicated:

“Additional Series B Preferred Shares” shall have the meaning set forth in Section 8.

“Board of Trustees” shall mean the Board of Trustees of the Trust or any committee authorized by such Board of Trustees to perform any of its responsibilities with respect to the Series B-1 Preferred Shares.

“By-Laws” shall have the meaning set forth in Section 9(c).

“Business Day” shall mean any day other than a Saturday, Sunday or a day on which state or federally chartered banking institutions in New York, New York are not required to be open.

“Change of Control” shall have the meaning set forth in Section 5(b).

2

“Common Shares” shall mean the common shares of beneficial interest of the Trust, par value $1.00 per share.

“Company Conversion Date” shall have the meaning set forth in Section 6(r).

“Common Share Equivalents” shall have the meaning set forth in Section 6(g)(v)(B).

“Compliance Failure” shall have the meaning set forth in Section 5(b).

“Compliance Redemption Demand” shall have the meaning set forth in Section 5(b).

“Compliance Redemption Price” shall have the meaning set forth in Section 5(b).

“Constituent Person” shall have the meaning set forth in Section
6 (h).

“Conversion Price” shall mean the conversion price per Common Share for which the Series B-1 Preferred Shares are convertible, as such Conversion Price may be adjusted pursuant to Section 6. The initial conversion price shall be $4.50 (equivalent to a conversion rate of 5.6 Common Shares for each Series B-1 Preferred Share).

“Conversion Notice” shall have the meaning set forth in Section 6(r).

“Current Market Price” of publicly traded common shares or any other class of shares of beneficial interest or other security of the Trust or any other issuer for any day shall mean the last reported sales price, regular way on such day, or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, in either case as reported on the New York Stock Exchange (“NYSE”) or, if such security is not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such security is listed or admitted for trading or, if not listed or admitted for trading on any national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc. Automated Quotations System (“NASDAQ”) or, if such security is not quoted on such National Market System, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for such security on such day shall not have been reported through NASDAQ, the average of the bid and asked prices on such day as furnished by any NYSE member firm regularly making a

3

market in such security selected for such purpose by the Chairman of the Board or the Board of Trustees.

“Declaration of Trust” shall have the meaning set forth in Section 9(c).

“Dividend Payment Date” shall mean the last calendar day of January, April, July and October in each year, commencing on April 30, 2005; provided, however, that if any Dividend Payment Date falls on any day other than a Business Day, the dividend payment due on such Dividend Payment Date shall be paid on the Business Day immediately following such Dividend Payment Date.

“Dividend Periods” shall mean quarterly dividend periods commencing on February 1, May 1, August 1 and November 1 of each year and ending on and including the day preceding the first day of the next succeeding Dividend Period (other than the initial Dividend Period, which shall commence on the Issue Date and end on and include April 30, 2005).

“Expiration Time” shall have the meaning set forth in Section 6(g) (iv).

“Fair Market Value” shall mean the average of the daily Current Market Prices of a Common Share during the five (5) consecutive Trading Days selected by the Trust commencing not more than 20 Trading Days before, and ending not later than, the earlier of the day in question and the day before the “ex date” with respect to the issuance or distribution requiring such computation. The term “ex date,” when used with respect to any issuance or distribution, means the first day on which the Common Shares trade regular way, without the right to receive such issuance or distribution, on the exchange or in the market, as the case may be, used to determine that day’s Current Market Price.

“Fully Junior Shares” shall mean the Common Shares and any other class or series of shares of beneficial interest of the Trust now or hereafter issued and outstanding over which the Series B-1 Preferred Shares have preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust.

“Governance Default” shall have the meaning set forth in Section 9(b).

“Issue Date” shall mean               , 2005.

“Junior Shares” shall mean the Common Shares and any other class or series of shares of beneficial interest of the Trust now or hereafter

4

issued and outstanding over which the Series B-1 Preferred Shares have preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust.

“Mandatory Redemption Price” shall have the meaning set forth in Section 5(a).

“Non-Electing Share” shall have the meaning set forth in Section 6 (h).

“Operating Partnership” means First Union REIT L.P.

“OP Units” shall mean partnership interests issued by the Operating Partnership.

“Parity Shares” shall have the meaning set forth in Section 8(b).

“Person” shall mean any individual, corporation, partnership, firm, limited liability company, joint venture, trust, association, unincorporated organization, group, joint stock company, governmental body or other entity.

“Purchased Shares” shall have the meaning set forth in Section 6(g)(iv).

“Redemption Date” shall have the meaning set forth in Section 5(c).

“Redemption Price” shall have the meaning set forth in Section 5(c).

“Rights Offering” shall have the meaning set forth in Section 11.

“Securities” and “Security” shall have the meanings set forth in Section 6(g)(iii).

“Series A Preferred Shares” shall mean the Trust’s Series A Cumulative Convertible Redeemable Preferred Shares of Beneficial Interest.

“Series B-1 Preferred Shares” shall have the meaning set forth in Section 1.

“set apart for payment” shall be deemed to include, without any action other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of dividends or other distribution by the Board of Trustees, the allocation of funds to be so paid on any series or

5

class of shares of beneficial interest of the Trust; provided, however, that if any funds for any class or series of Junior Shares or any class or series of shares of beneficial interest ranking on a parity with the Series B-1 Preferred Shares as to the payment of dividends are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then “set apart for payment” with respect to the Series B-1 Preferred Shares shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent.

“Trading Day” shall mean any day on which the NYSE is open for trading, or if such securities are not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such securities are listed or admitted, or if not listed or admitted for trading on any national securities exchange, on the National Market System of NASDAQ, or if such securities are not quoted on such National Market System, in the applicable securities market in which the securities are traded.

“Transaction” shall have the meaning set forth in Section 6(h).

“Transfer Agent” means National City Bank, Cleveland, Ohio, or such other agent or agents of the Trust as may be designated by the Board of Trustees or their designee as the transfer agent, registrar and dividend disbursing agent for the Series B-1 Preferred Shares.

Section 3.Dividends.

(a)The holders of Series B-1 Preferred Shares shall be entitled to receive, when, as and if declared by the Board of Trustees, out of funds legally available for the payment of dividends, cumulative preferential dividends payable in cash in an amount per share equal to the greater of (i) $0.40625 per share per Dividend Period (equivalent to 6.5% of the liquidation preference per annum or (ii) the cash dividends (determined on each Dividend Payment Date) on the Common Shares, or portion thereof, into which a Series B-1 Preferred Share is convertible.  Such dividends, in the case of the applicability of the foregoing clause (ii), shall equal the number of Common Shares, or portion thereof, into which a Series B-1 Preferred Share is convertible, multiplied by the most current quarterly cash dividend declared or paid on a Common Share on or before the applicable Dividend Payment Date. Such dividends shall begin to accrue and shall be fully cumulative from the Issue Date, notwithstanding Section 3(e) and whether or not in any Dividend Period or Periods there shall be funds of the Trust legally available for the payment of such dividends, and shall be payable quarterly, when, as and if declared by the Board of Trustees, in arrears on Dividend Payment Dates, commencing on April 30, 2005.  Each such dividend shall be payable in arrears to the holders of record of Series B-1 Preferred Shares as they appear in the records of the Trust at the close of business on such record dates, not less than 10 nor more than 50 days preceding such Dividend Payment Dates, as shall be

6

fixed by the Board of Trustees. Accrued and unpaid dividends for any past Dividend Periods may be declared and paid at any time and for such interim periods, without reference to any regular Dividend Payment Date, to holders of record on such date, not less than 10 nor more than 50 days preceding the payment date thereof, as may be fixed by the Board of Trustees. Any dividend payment made on Series B-1 Preferred Shares shall first be credited against the earliest accrued but unpaid dividend due with respect to Series B-1 Preferred Shares which remains payable.

(b)The initial Dividend Period will include a partial dividend for the period from the Issue Date until April 30, 2005.  The amount of dividends payable for such period, or any other period shorter than a full Dividend Period, on the Series B-1 Preferred Shares shall be computed on the basis of a 360-day year of twelve 30-day months. Holders of Series B-1 Preferred Shares shall not be entitled to any dividends, whether payable in cash, property or shares, in excess of cumulative dividends, as herein provided, on the Series B-1 Preferred Shares. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series B-1 Preferred Shares which may be in arrears.

(c)So long as any Series B-1 Preferred Shares are outstanding, no dividends, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any class or series of Parity Shares for any period unless (i) full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series B-1 Preferred Shares for all Dividend Periods terminating on or prior to the dividend payment date on such class or series of Parity Shares, (ii) no Compliance Failure shall have occurred, and (iii) sufficient funds shall have been or contemporaneously are declared and paid or declared and set apart for the payment of the dividend for the current Dividend Period with respect to the Series B-1 Preferred Shares and the current dividend period with respect to such Parity Shares.  When dividends are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all dividends declared upon Series B-1 Preferred Shares and all dividends declared upon any other class or series of Parity Shares shall be declared ratably in proportion to the respective amounts of dividends accumulated and unpaid on the Series B-1 Preferred Shares and accumulated and unpaid on such Parity Shares.

(d)So long as any Series B-1 Preferred Shares are outstanding, no dividends (other than dividends or distributions paid solely in shares of, or options, warrants or rights to subscribe for or purchase shares of, Fully Junior Shares) shall be declared or paid or set apart for payment or other distribution shall be declared or made or set apart for payment upon Junior Shares, nor shall any Junior Shares be redeemed, purchased or otherwise acquired (or any moneys be paid to or made available for a sinking fund for the redemption of any Junior Shares) by the Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Shares), unless in each case (i) the full cumulative dividends on all outstanding Series B-1 Preferred Shares and any other Parity Shares of the Trust shall have

7

been or contemporaneously are declared and paid or declared and set apart for payment for all past Dividend Periods with respect to the Series B-1 Preferred Shares and all past dividend periods with respect to such Parity Shares, (ii) no Compliance Failure shall have occurred, and (iii) sufficient funds shall have been or contemporaneously are declared and paid or declared and set apart for the payment of the dividend for the current Dividend Period with respect to the Series B-1 Preferred Shares and the current dividend period with respect to such Parity Shares.

(e)No distributions on Series B-1 Preferred Shares shall be declared by the Board of Trustees or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law.

(f)Non-Redemption and Increased Rate.  In the event the Trust (i) pays any dividend to holders of Series A Preferred Shares and fails to pay a concurrent dividend to the holders of the Series B-1 Preferred Shares in accordance with Section 3(c) above, or (ii) the Trust fails to redeem Series B-1 Preferred Shares in accordance with Article V below, or (iii) the Trust fails to pay the dividend payable on the first Dividend Payment Date following the Issue Date, then dividends shall thereafter accrue on Series B-1 Preferred Shares at a rate 250 basis points higher than the rate specified in Section 3(a), until the Trust is again in compliance with Section 3(c), redeems the Series B-1 Preferred Shares in accordance with Article V, and pays the dividend payable on the first Dividend Payment Date, as applicable, at which time the dividend rate shall revert to the rate provided in Section 3(a).

Section 4.Liquidation Preference.

(a)In the event of any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust (whether capital or surplus) shall be made to or set apart for the holders of Junior Shares, the holders of the Series B-1 Preferred Shares shall be entitled to receive Twenty-Five Dollars ($25.00) per Series B-1 Preferred Share plus an amount equal to all dividends (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to such holders (the “Liquidation Preference”), without interest; but such holders shall not be entitled to any further payment. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable among the holders of the Series B-1 Preferred Shares shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other shares of any class or series of Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series B-1 Preferred Shares and any such other Parity Shares ratably in accordance with the respective amounts that would be

8

payable on such Series B-1 Preferred Shares and any such other Parity Shares if all amounts payable thereon were paid in full. For the purposes of this Section 4, (i) a consolidation or merger of the Trust with one or more corporations, real estate investment trusts or other entities, (ii) a sale, lease or conveyance of all or substantially all of the Trust’s property or business or (iii) a statutory share exchange shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Trust.

(b)Subject to the rights of the holders of shares of any series or class or classes of shares of beneficial interest ranking on a parity with or prior to the Series B-1 Preferred Shares upon liquidation, dissolution or winding up, upon any liquidation, dissolution or winding up of the Trust, after payment shall have been made in full to the holders of the Series B-1 Preferred Shares, as provided in this Section 4, any other series or class or classes of Junior Shares shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series B-1 Preferred Shares shall not be entitled to share therein.

Section 5.Redemption of Shares.

(a)Mandatory Redemption.  If any Series B-1 Preferred Shares are outstanding on the seventh anniversary of the Issue Date, the Trust shall redeem all such outstanding Series B-1 Preferred Shares on such date at a price (the “Mandatory Redemption Price”) equal to 100% of their Liquidation Preference, subject to the provisions described below.

(b)Compliance Failures.  The occurrence of any of the following events shall be considered a “Compliance Failure”:

(1) the sale, lease or conveyance to a third party of substantially all the assets of the Trust, a consolidation or merger of the Trust with or into another entity if the holders of the Trust’s voting securities do not hold a majority of the voting securities of the surviving entity or Michael Ashner does not continue to serve as chief executive officer of the Trust or of the surviving entity, or the sale in a single transaction or series of related transactions of a majority of the issued and outstanding Common Shares of the Trust (any such event being referred to herein as a “Change of Control”);

(2) The departure or termination (whether voluntary or involuntary) of Michael Ashner, other than in the event of death or disability, or any breach of that certain Exclusivity Services Agreement, dated December 31, 2003, between the Trust and Michael Ashner (without regard to any amendment thereof after the date hereof).

(3) Any delay in the audit of the Trust’s consolidated annual financial statements for a given fiscal year for more than 180 calendar days after the end of such fiscal year;

9

(4) Any failure by the Trust to file required reports or forms pursuant to the Sarbanes-Oxley Act of 2002 (other than a delay in the filing of a 10-K for the reasons listed in paragraph (3) above);

(5) The termination of the Trust’s election to be or its failure to qualify as a “real estate investment trust” under Section 856 of the Internal Revenue Code; or

(6) The receipt by the Trust of a final notice of delisting from the New York Stock Exchange.

In the event of a Compliance Failure, the Trust shall give written notice of such Compliance Failure to each holder of Series B-1 Preferred Shares within five business days and any holder of Series B-1 Preferred Shares shall have the right, by written notice delivered to the Trust (a “Compliance Redemption Demand”), to require the Trust to redeem, within 30 days of receipt of the Compliance Redemption Demand, all or any portion of the Series B-1 Preferred Shares held by such  holder at a price per share (the “Compliance Redemption Price”) equal to the higher of  (i) the average Current Market Price of the Common Shares issuable upon conversion of such holder’s Series B-1 Preferred Shares over the five Trading Days preceding as of the day immediately before receipt by the Trust of the Compliance Redemption Demand, without regard to minority or illiquidity discounts; and (ii) (A) 150% of the Liquidation Preference of such Series B-1 Preferred Shares if such Compliance Redemption Demand is given prior to the third anniversary of the Issue Date or (B) 110% of the Liquidation Preference of such Series B-1 Preferred Shares, if such Compliance Redemption Demand is given on or after the third anniversary of the Issue Date but prior to the fifth anniversary of the Issue Date, or (C) 100% of the Liquidation Preference of such Series B-1 Preferred Shares if such Compliance Redemption Demand is given on or after the fifth anniversary of the Issue Date.  In addition, in the event of the death or disability of Michael Ashner, and the occurrence within 12 months thereafter of any Change of Control, any holder of Series B-1 Preferred Shares shall have the right, by delivery to the Trust of a Compliance Redemption Demand, to require the Trust to redeem, within 30 days of receipt of the Compliance Redemption Demand, all or any portion of the Series B-1 Preferred Shares held by such  holder at a Compliance Redemption Price equal to 100% of the Liquidation Preference for such Series B-1 Preferred Shares.

(c)Redemption Procedures.   On or prior to the date (a “Redemption Date”) of a redemption pursuant to sections (a) or (b) above, the Trust shall deposit the aggregate Mandatory Redemption Price or Compliance Redemption Price payable for all Series B-1 Preferred Shares to be redeemed (such aggregate amount being referred to as the “Redemption Price”) with a bank or trust corporation having aggregate capital and surplus in excess of $500,000,000 as a trust fund for the benefit of the holders of the shares of Series B-1 Preferred Shares, with irrevocable instructions and authority to the bank or trust corporation to pay the allocable portion of the Redemption Price for such shares to their respective holders on or after the Redemption Date upon receipt of the certificate or certificates of the shares of Series B-1 Preferred Shares to be redeemed.  From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of shares of Series B-1 Preferred

10

Shares as holders of Series B-1 Preferred Shares (except the right to receive the Redemption Price upon surrender of their certificate or certificates) shall cease as to those shares of Series B-1 Preferred Shares redeemed, and such shares shall not thereafter be transferred on the books of the Trust or be deemed to be outstanding for any purpose whatsoever.  If on the Redemption Date the funds of the Trust legally available for redemption of shares of Series B-1 Preferred Shares are insufficient to redeem the total number of shares of Series B-1 Preferred Shares to be redeemed on such date, then the Trust will use those funds which are legally available therefor to redeem the maximum possible number of shares of Series B-1 Preferred Shares ratably among the holders of such shares to be redeemed based upon their holdings of Series B-1 Preferred Shares.  The shares of Series B-1 Preferred Shares not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein.  At any time thereafter when additional funds of the Trust are legally available for the redemption of shares of Series B-1 Preferred Shares such funds will immediately be used to redeem the balance of the shares of Series B-1 Preferred Shares to be redeemed unless, in the case of a redemption pursuant to Section 5(b) above, a holder of such shares elects otherwise.  The Trust shall not redeem any Parity Shares except ratably with the Series B-1 Preferred Shares.  No dividends or other distributions shall be declared or paid on, nor shall the Trust redeem, purchase or acquire any Junior Shares unless the Redemption Price per share of all shares elected to be redeemed shall have been paid in full.  Until the Redemption Price for each share of Series B-1 Preferred Shares elected or required to be redeemed shall have been paid in full, such share of Series B-1 Preferred Shares shall remain outstanding for all purposes and entitle the holder thereof to all the rights and privileges provided herein, including, without limitation, that dividends and interest thereon shall continue to accrue and, if unpaid prior to the date such shares are redeemed, shall be included as part of the Redemption Price as provided in this Section 5(c).

Section 6.Conversion.  Holders of Series B-1 Preferred Shares shall have the right to convert all or a portion of such shares into Common Shares, as follows:

(a)Subject to and upon compliance with the provisions of this Section 6, a holder of Series B-1 Preferred Shares shall have the right, at his or her option, at any time to convert such shares into the number of Common Shares obtained by dividing the aggregate liquidation preference (excluding any accrued and unpaid dividends) of such shares by the Conversion Price (as in effect at the time and on the date provided for in  paragraph (e) of this Section 6) by surrendering such shares to be converted, such surrender to be made in the manner provided in paragraph (b) of this Section 6; provided, however, that the right to convert shares called for redemption pursuant to Section 5 shall terminate at the close of business on the Redemption Date fixed for such redemption, unless the Trust shall default in making payment of the amount payable upon such redemption under Section 5.

(b)In order to exercise the conversion right, the holder of each Series B-1 Preferred Share to be converted shall surrender the certificate representing such share, duly

11

endorsed or assigned to the Trust or in blank, at the office of the Transfer Agent, accompanied by written notice to the Trust that the holder thereof elects to convert such Series B-1 Preferred Shares. Unless the shares issuable on conversion are to be issued in the same name as the name in which such Series B-1 Preferred Share is registered, each share surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Trust, duly executed by the holder or such holder’s duly authorized attorney and an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Trust demonstrating that such taxes have been paid).

(c)Holders of Series B-1 Preferred Shares at the close of business on a dividend payment record date shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the conversion thereof following such dividend payment record date and prior to such Dividend Payment Date. However, Series B-1 Preferred Shares surrendered for conversion during the period between the close of business on any dividend payment record date and the opening of business on the corresponding Dividend Payment Date must be accompanied by payment of an amount equal to the dividend payable on such shares on such Dividend Payment Date. A holder of Series B-1 Preferred Shares on a dividend payment record date who (or whose transferee) tenders any such shares for conversion into Common Shares on the corresponding Dividend Payment Date will receive the dividend payable by the Trust on such Series B-1 Preferred Shares on such date, and the converting holder need not include payment of the amount of such dividend upon surrender of Series B-1 Preferred Shares for conversion. Except as provided above, the Trust shall make no payment or allowance for unpaid dividends, whether or not in arrears, on converted shares or for dividends on the Common Shares issued upon such conversion.

(d)As promptly as practicable after the surrender of certificates for Series B-1 Preferred Shares as aforesaid, the Trust shall issue and shall deliver at such office to such holder, or on his or her written order, a certificate or certificates for the number of full Common Shares issuable upon the conversion of such shares in accordance with provisions of this Section 6, and any fractional interest in respect of a Common Share arising upon such conversion shall be settled as provided in paragraph (f) of this Section 6.

(e)Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the certificates for Series B-1 Preferred Shares shall have been surrendered and such notice shall have been received by the Trust as aforesaid (and, if applicable, payment of an amount equal to the dividend payable on such shares shall have been received by the Trust as described above), and the Person or Persons in whose name or names any certificate or certificates for Common Shares shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby at such time on such date and such conversion shall be at the Conversion Price in effect at such time on such date unless the share

12

transfer books of the Trust shall be closed on that date, in which event such Person or Persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such share transfer books are open, but such conversion shall be at the Conversion Price in effect on the date on which such shares shall have been surrendered and such notice received by the Trust.

(f)No fractional shares or scrip representing fractions of Common Shares shall be issued upon conversion of the Series B-1 Preferred Shares. Instead of any fractional interest in a Common Share that would otherwise be deliverable upon the conversion of a Series B-1 Preferred Share, the Trust shall pay to the holder of such share an amount in cash (computed to the nearest cent with $.005 being rounded upward) based upon the Current Market Price of Common Shares on the Trading Day immediately preceding the date of conversion. If more than one certificate representing Series B-1 Preferred Shares shall be surrendered for conversion at one time by the same holder, the number of full Common Shares issuable upon conversion thereof shall be computed on the basis of the aggregate number of Series B-1 Preferred Shares so surrendered.

(g)The Conversion Price shall be adjusted from time to time as follows:

(i)If the Trust shall after date of execution of that certain Securities Purchase Agreement (the “Purchase Agreement”), dated as of February 25, 2005, by and among the Trust, the Investors named therein, and the Initial Purchaser named therein (A) pay a dividend or make a distribution on its capital shares in Common Shares, (B) subdivide its outstanding Common Shares into a greater number of shares, or (C) combine its outstanding Common Shares into a smaller number of shares, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such dividend or distribution or at the opening of business on the Business Day next following the day on which such subdivision or combination becomes effective, as the case may be, shall be adjusted so that the holder of any Series B-1 Preferred Share thereafter surrendered for conversion shall be entitled to receive the number of Common Shares that such holder would have owned or have been entitled to receive after the happening of any of the events described above as if such Series B-1 Preferred Shares had been converted immediately prior to the record date in the case of a dividend or distribution or the effective date in the case of a subdivision or combination.  An adjustment made pursuant to this subparagraph (i) shall become effective immediately after the opening of business on the Business Day next following the record date (except as provided in paragraph (k) below) in the case of a dividend or distribution and shall become effective immediately after the opening of business on the Business Day next following the effective date in the case of a subdivision or combination.

13

(ii)If the Trust shall issue after the date of execution of the Purchase Agreement rights, options or warrants to all holders of Common Shares entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase Common Shares at a price per share less than 94% (100% if a stand-by underwriter is used and charges the Trust a commission) of the Fair Market Value per Common Share on the record date for the determination of shareholders entitled to receive such rights, options or warrants, then the Conversion Price in effect at the opening of business on the Business Day next following such record date shall be adjusted to equal the price determined by multiplying (A) the Conversion Price in effect immediately prior to the opening of business on the Business Day next following the date fixed for such determination by (B) a fraction, the numerator of which shall be the sum of (x) the number of Common Shares outstanding on the close of business on the date fixed for such determination and (y) the number of shares that the aggregate proceeds to the Trust from the exercise of such rights, options or warrants for Common Shares would purchase at 94% of such Fair Market Value (or 100% in the case of a stand-by underwriting), and the denominator of which shall be the sum of (x) the number of Common Shares outstanding on the close of business on the date fixed for such determination and (y) the number of additional Common Shares offered for subscription or purchase pursuant to such rights, options or warrants. Such adjustment shall become effective immediately after the opening of business on the day next following such record date (except as provided in paragraph (k) below). In determining whether any rights, options or warrants entitle the holders of Common Shares to subscribe for or purchase Common Shares at less than 94% of such Fair Market Value (or 100% in the case of a stand-by underwriting), there shall be taken into account any consideration received by the Trust upon issuance and upon exercise of such rights, options or warrants, the value of such consideration, if other than cash, to be reasonably determined by the Chairman of the Board or the Board of Trustees.

(iii)If after the date of execution of the Purchase Agreement the Trust shall distribute to all holders of its Common Shares any shares of beneficial interest of the Trust (other than Common Shares) or evidence of its indebtedness or assets (excluding cash dividends required in order to satisfy distribution requirements to maintain the Trust’s status as a real estate investment trust under Section 856 of the Internal Revenue Code and avoid entity level taxes), or rights, options or warrants to subscribe for or purchase any of its securities (excluding those rights, options and warrants issued to all holders of Common Shares entitling them for a period expiring within 45 days after the record date referred to in subparagraph (ii) above to subscribe for or purchase Common Shares, which rights and warrants are referred to in and treated under subparagraph (ii) above) (any of the foregoing being hereinafter in this subparagraph (iii) collectively called the “Securities” and individually a

14

“Security”), then in each such case the Conversion Price shall be adjusted so that it shall equal the price determined by multiplying (x) the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of shareholders entitled to receive such distribution by (y) a fraction, the numerator of which shall be the Fair Market Value per Common Share on the record date mentioned below less the then fair market value (as reasonably determined by the Chairman of the Board or the Board of Trustees, whose reasonable determination shall be conclusive), of the portion of the shares of beneficial interest or assets or evidences of indebtedness so distributed or of such rights, options or warrants applicable to one Common Share, and the denominator of which shall be the Fair Market Value per Common Share on the record date mentioned below. Such adjustment shall become effective immediately at the opening of business on the Business Day next following (except as provided in paragraph (k) below) the record date for the determination of shareholders entitled to receive such distribution. For the purposes of this subparagraph (iii), the distribution of a Security, which is distributed not only to the holders of the Common Shares on the date fixed for the determination of shareholders entitled to such distribution of such Security, but also is distributed with each Common Share delivered to a Person converting a Series B-1 Preferred Share after such determination date, shall not require an adjustment of the Conversion Price pursuant to this subparagraph (iii); provided that on the date, if any, on which a Person converting a Series B-1 Preferred Share would no longer be entitled to receive such Security with a Common Share (other than as a result of the termination of all such Securities), a distribution of such Securities shall be deemed to have occurred and the Conversion Price shall be adjusted as provided in this subparagraph (iii) (and such day shall be deemed to be “the date fixed for the determination of the shareholders entitled to receive such distribution” and “the record date” within the meaning of the two preceding sentences).

(iv)In case a tender or exchange offer made by the Trust or any subsidiary of the Trust for all or any portion of the Common Shares shall expire and such tender or exchange offer shall involve the payment by the Trust or such subsidiary of consideration per Common Share having a fair market value (as reasonably determined by the Board of Trustees, whose determination shall be conclusive and described in a resolution of the Board of Trustees), at the last time (the “Expiration Time”) tenders or exchanges may be made pursuant to such tender or exchange offer, that exceeds the Current Market Price per Common Share on the Trading Day next succeeding the Expiration Time, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subparagraph, by a fraction of which the numerator shall be the number of Common Shares outstanding (including any tendered or exchanged shares) at the

15

Expiration Time, multiplied by the Current Market Price per Common Share on the Trading Day next succeeding the Expiration Time, and the denominator shall be the sum of (A) the fair market value determined as aforesaid of the aggregate consideration payable to shareholders based upon the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any maximum, being referred to as the “Purchased Shares”) and (B) the product of the number of Common Shares outstanding (less any Purchased Shares) at the Expiration Time and the Current Market Price per Common Share on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Time.

(v)(A)In case the Company shall after the date of execution of the Purchase Agreement issue or sell any Common Shares (except as provided (i) in subparagraph (6)(g)(vi), (ii) in connection with a firm commitment underwritten public offering of Common Shares registered under applicable securities laws and priced at not less than 94% of their Fair Market Value at the time of the offering or (iii) in a private offering of Common Shares within the 12 month period commencing on the Issue Date) for a consideration per share less than the Current Market Price on the date of such issuance or sale, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date of such issuance or sale by a fraction whose numerator shall be the sum of (i) the number of shares of Common Shares outstanding immediately prior to such issuance or sale (including the number of Common Shares issuable upon conversion of all outstanding Series B-1 Preferred Shares) multiplied by the Current Market Price on the date of such issuance or sale, and (ii) the consideration received by the Trust upon such issuance or sale, and whose denominator shall be the total number of Common Shares outstanding immediately after such issuance or sale (including the number of Common Shares issuable upon conversion of all outstanding Series B-1 Preferred Shares) multiplied by the Current Market Price on the date of such issuance or sale.  Subject to subsection (6)(g)(vi), such adjustment shall be made whenever such Common Shares are issued or sold.

(B)In case the Company shall after the date of execution of the Purchase Agreement issue or sell (other than an issuance to all holders of Common Shares covered by subsection (6)(g)(ii)) any securities directly or indirectly convertible into (or exercisable for) Common Shares (“Common Share Equivalents”) entitling the holders thereof to convert such securities into (or exercise such securities to acquire) Common Shares or Common Share Equivalents (except in a firm commitment underwritten public offering of securities registered under applicable securities laws priced at a conversion or exercise price of not less than

16

94% of their Fair Market Value at the time of the offering or a private offering within the 12 month period commencing on the Issue Date), at a price per share less than the Current Market Price on the date of such issuance or sale, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date of such issuance or sale of such securities by a fraction whose numerator shall be the number of Common Shares outstanding on the date of such issuance or sale of such securities (including the number of Common Shares issuable upon conversion of all outstanding Series B-1 Preferred Shares) plus the number of Common Shares which the aggregate exercise price of the Common Shares issuable upon conversion (or exercise) of all such securities would purchase at such Current Market Price, and whose denominator shall be the number of Common Shares outstanding on the date of issuance or sale of such securities (including the number of Common Shares issuable upon conversion of all outstanding Series B-1 Preferred Shares) plus the number of additional Common Shares issuable upon conversion (or exercise) of all such securities.  Subject to subsection (6)(g)(vi), such adjustment shall be made whenever such securities are issued.  Following adjustment of the Conversion Price upon the issuance or sale of such securities no further adjustments shall be made upon the actual conversion of such securities into, or the exercise of such securities to acquire, Common Shares.

(C)For the purpose of making any adjustment in the Conversion Price or number of shares of Common Shares issuable upon conversion of the Series B-1 Preferred Shares, as provided above, the following provisions shall be applicable:

(1)In case of the issuance of Common Shares or Common Share Equivalents for consideration in whole or in part for cash, the consideration shall be deemed to be the amount of cash paid therefor, plus the value of any property other than cash received by the Trust as determined in accordance with clause (2) below.

(2)In case of the issuance of Common Shares or Common Share Equivalents for consideration in whole or in part in property or consideration other than cash, the value of such property or consideration other than cash shall be deemed to be the fair value thereof as reasonably determined by the Board of Trustees.

(vi)No adjustment in the Conversion Price shall be required unless such adjustment would require a cumulative increase or decrease of at least 1% in such price; provided, however, that any adjustments that by reason of this subparagraph (vi) are not required to be made shall be carried forward and taken into account in any subsequent adjustment until made; and provided, further, that any adjustment shall be required and made in accordance with the provisions of this Section 6 (other than this

17

subparagraph (vi)) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the holders of Common Shares. Notwithstanding any other provisions of this Section 6, the Trust shall not be required to make any adjustment of the Conversion Price for (i) the issuance of any Common Shares pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Trust and the investment of additional optional amounts in Common Shares under such plan, (ii) Common Shares issuable upon the exercise of stock options or other awards made or denominated in Common Shares under any of the Trust’s equity compensation plans including any stock option, stock purchase, restricted stock or similar plan hereafter adopted by the Board of Trustees and approved by the stockholders of the Trust up to a maximum amount of five percent of the then outstanding Common Shares, (iii) Common Shares or OP Units issued in connection with a direct or indirect acquisition by the Trust or the Operating Partnership of real property or assets related thereto, a business (including, without limitation, by way of an acquisition of capital stock) or the assets of a business (which assets do not consist primarily of cash or cash equivalents) approved by the Board of Trustees, (iv) Common Shares issued in redemption of OP Units, (v) Common Shares or OP Units issued upon conversion or exercise of warrants, options, or other securities outstanding on the Issue Date, or (vi) the issuance of Series B-1 Shares or Common Shares issued upon conversion of Series B-1 Shares or (vii) the issuance of Additional Series B Preferred Shares or Common Shares issued upon conversion of Series B-1 Shares.  All calculations under this Section 6 shall be made to the nearest cent (with $.005 being rounded upward) or to the nearest one-tenth of a share (with .05 of a share being rounded upward), as the case may be. Anything in this paragraph (g) to the contrary notwithstanding, the Trust shall be entitled, to the extent permitted by law, to make such reductions in the Conversion Price, in addition to those required by this paragraph (g), as it in its discretion shall determine to be advisable in order that any share dividends, subdivision of shares, reclassification or combination of shares, distribution of rights or warrants to purchase shares or securities, or distribution of other assets (other than cash dividends) hereafter made by the Trust to its shareholders shall not be taxable.

(h)If the Trust shall be a party to any transaction (including without limitation a merger, consolidation, statutory share exchange, self tender offer for all or substantially all Common Shares, sale of all or substantially all of the Trust’s assets or recapitalization of the Common Shares and excluding any transaction as to which subparagraph (g)(i) of this Section 6 applies) (each of the foregoing being referred to herein as a “Transaction”), in each case as a result of which all or substantially all Common Shares are converted into the right to receive shares, securities or other property (including cash or any combination thereof), each Series B-1 Preferred Share which is not redeemed or converted prior to such Transaction shall thereafter be convertible into the kind and amount of shares,

18

securities and other property (including cash or any combination thereof) receivable upon the consummation of such Transaction by a holder of that number of Common Shares into which one Series B-1 Preferred Share was convertible immediately prior to such Transaction, assuming such holder of Common Shares (i) is not a Person with which the Trust consolidated or into which the Trust merged or which merged into the Trust or to which such sale or transfer was made, as the case may be (“Constituent Person”), or an affiliate of a Constituent Person and (ii) failed to exercise his rights of election, if any, as to the kind or amount of shares, securities and other property (including cash) receivable upon such Transaction (provided that if the kind or amount of shares, securities and other property (including cash) receivable upon such Transaction is not the same for each Common Share held immediately prior to such Transaction by other than a Constituent Person or an affiliate thereof and in respect of which such rights of election shall not have been exercised (“Non-Electing Share”), then for the purpose of this paragraph (h) the kind and amount of shares, securities and other property (including cash) receivable upon such Transaction by each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). The Trust shall not be a party to any Transaction unless the terms of such Transaction are consistent with the provisions of this paragraph (h), and it shall not consent or agree to the occurrence of any Transaction until the Trust has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Series B-1 Preferred Shares that will contain provisions enabling the holders of the Series B-1 Preferred Shares that remain outstanding after such Transaction to convert into the consideration received by holders of Common Shares at the Conversion Price in effect immediately prior to such Transaction. The provisions of this paragraph (h) shall similarly apply to successive Transactions.

(i)If (i) the Trust shall declare a dividend (or any other distribution) on the Common Shares (other than cash dividends or distributions paid with respect to the Common Shares required in order to satisfy distribution requirements to maintain the Trust’s status as a real estate investment trust and avoid entity level taxes); or (ii) the Trust shall authorize the granting to the holders of Common Shares of rights, options or warrants to subscribe for or purchase any shares of any class or any other rights, options or warrants; or (iii) there shall be any reclassification of the Common Shares (other than an event to which subparagraph (g)(i) of this Section 6 applies) or any consolidation or merger to which the Trust is a party and for which approval of any shareholders of the Trust is required, or a statutory share exchange, or a self tender offer by the Trust for all or substantially all of its outstanding Common Shares or the sale or transfer of all or substantially all of the assets of the Trust as an entirety; or (iv) there shall occur the voluntary or involuntary liquidation, dissolution or winding up of the Trust; then the Trust shall cause to be filed with the Transfer Agent and shall cause to be mailed to the holders of Series B-1 Preferred Shares at their addresses as shown on the records of the Trust, as promptly as possible, but at least 10 days prior to the applicable date hereinafter specified, a notice stating (A) the date on which a record is to be

19

taken for the purpose of such dividend, distribution or granting of rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Common Shares of record to be entitled to such dividend, distribution or rights, options or warrants are to be determined or (B) the date on which such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up is expected to become effective, and the date as of which it is expected that holders of Common Shares of record shall be entitled to exchange their Common Shares for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up. Failure to give or receive such notice or any defect therein shall not affect the legality or validity of the proceedings described in this Section 6.

(j)Whenever the Conversion Price is adjusted as herein provided, the Trust shall promptly file with the Transfer Agent an officer’s certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring and calculation of such adjustment. Promptly after delivery of such certificate, the Trust shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the effective date of such adjustment and shall mail such notice of such adjustment of the Conversion Price to the holder of each Series B-1 Preferred Share at such holder’s last address as shown on the records of the Trust.

(k)In any case in which paragraph (g) of this Section 6 provides that an adjustment shall become effective on the day next following the record date for an event, the Trust may defer until the occurrence of such event (A) issuing to the holder of any Series B-1 Preferred Share converted after such record date and before the occurrence of such event the additional Common Shares issuable upon such conversion by reason of the adjustment required by such event over and above the Common Shares issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount of cash in lieu of any fraction pursuant to paragraph (f) of this Section 6; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder’s right to receive such additional Common Shares and cash upon the occurrence of the event requiring such adjustment.

(l)There shall be no adjustment of the Conversion Price in case of the issuance of any shares of beneficial interest of the Trust in a reorganization, acquisition or other similar transaction except as specifically set forth in this Section 6. If any action or transaction would require adjustment of the Conversion Price pursuant to more than one paragraph of this Section 6, only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value.

(m)If the Trust shall take any action affecting the Common Shares, other than actions described in this Section 6, that in the reasonable opinion of the Board of Trustees would materially and adversely affect the conversion rights of the holders of the

20

Series B-1 Preferred Shares, the Conversion Price for the Series B-1 Preferred Shares shall be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board of Trustees, in its reasonable discretion, may determine to be equitable in the circumstances.

(n)The Trust covenants that it will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Shares, for the purpose of effecting conversion of the Series B-1 Preferred Shares, the full number of Common Shares deliverable upon the conversion of all outstanding Series B-1 Preferred Shares not theretofore converted. For purposes of this paragraph (n), the number of Common Shares that shall be deliverable upon the conversion of all outstanding Series B-1 Preferred Shares shall be computed as if at the time of computation all such outstanding shares were held by a single holder.

(o)The Trust covenants that any Common Shares issued upon conversion of the Series B-1 Preferred Shares shall be validly issued, fully paid and (subject to customary qualification based upon the nature of a real estate investment trust) non-assessable. Before taking any action that would cause an adjustment reducing the Conversion Price below the then-par value of the Common Shares deliverable upon conversion of the Series B-1 Preferred Shares, the Trust will take any action that, in the opinion of its counsel, may be necessary in order that the Trust may validly and legally issue fully paid and (subject to any customary qualification based upon the nature of a real estate investment trust) non-assessable Common Shares at such adjusted Conversion Price.

(p)The Trust shall endeavor to list the Common Shares required to be delivered upon conversion of the Series B-1 Preferred Shares, prior to such delivery, upon each national securities exchange, if any, upon which the outstanding Common Shares are listed at the time of such delivery.

(q)The Trust will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of Common Shares or other securities or property on conversion of the Series B-1 Preferred Shares pursuant hereto; provided, however, that the Trust shall not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of Common Shares or other securities or property in a name other than that of the holder of the Series B-1 Preferred Shares to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue or delivery has paid to the Trust the amount of any such tax or established, to the reasonable satisfaction of the Trust, that such tax has been paid.

(r)At any time and from time to time after the third anniversary of the Issue Date the Trust may give written notice (a “Conversion Notice”) to the holders of Series B-1 Shares of its intent to effect a mandatory conversion of all outstanding Series B-1 Shares.  Subject to provisions hereinafter set forth, the mandatory conversion shall be effective on the 30^th Trading Day (the “Company Conversion Date”)

21

following the date of mailing of the Conversion Notice.  The mandatory conversion may only be effected if (i) the Current Market Price of the Common Shares for any 20 consecutive Trading Day period beginning with the date of mailing of the Conversion Notice and ending on the 25^th Trading Day following such Conversion Notice equals or exceeds 125% of the Conversion Price in effect on the Company Conversion Date, and (ii) an effective registration statement is on file with the Securities and Exchange Commission covering the resale of the Common Shares issuable upon conversion of the Series B-1 Preferred Shares on the Company Conversion Date, all of the Series B-1 Preferred Shares will convert into that number of the fully paid and nonassessable shares of Common Shares determined in accordance with the provisions of Section 6(b) above, without any action on the part of the holders of the Series B-1 Preferred Shares.  The Company shall give written notice to the holders of Series B-1 Preferred Shares within five business days after the Company Conversion Date.  From and after the Company Conversion Date, if the foregoing conditions are met, (i) the Series B Preferred Shares shall no longer be deemed to be outstanding, and (ii) all rights of the holders thereof as holders of Series B Preferred Shares of the Trust shall cease (except the rights to receive the Common Shares, upon surrender and endorsement of their certificates and to receive any dividends payable thereon), provided, however, that if the Company Conversion Date falls after a dividend payment record date but before the corresponding Dividend Payment Date, then each holder of Series B-1 Preferred Shares at the close of business on such dividend payment record date shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares before such Dividend Payment Date.  At the close of business on the Company Conversion Date, each holder of Series B Preferred Shares shall be deemed to be the record holder of the number of Common Shares into which such Series A Preferred Shares are to be converted, regardless of whether such holder has surrendered the certificates representing the Series B Preferred Shares.

Section 7.Shares To Be Retired.  All Series B-1 Preferred Shares which shall have been issued and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued shares of beneficial interest of the Trust, without designation as to class or series.

Section 8.Ranking.  Any class or series of shares of beneficial interest of the Trust shall be deemed to rank:

(a)senior to the Series B-1 Preferred Shares, as to the payment of dividends and as to distribution of assets upon liquidation, dissolution or winding up, if the holders of such class or series shall be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of Series B-1 Preferred Shares;

(b)on a parity with the Series B-1 Preferred Shares, as to the payment of dividends and as to distribution of assets upon liquidation, dissolution or winding up,

22

whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share thereof shall be different from those of the Series B-1 Preferred Shares, if the holders of such class or series and the Series B-1 Preferred Shares shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other (“Parity Shares”).  The Series A Preferred Shares shall be considered Parity Shares as well as up to $34 million in liquidation preference of additional convertible preferred shares designated as Series B-2 Convertible Preferred Shares issued on one occasion on or prior to the first anniversary of the Issue Date for a price not less than their liquidation preference and on terms and conditions no more favorable to the holders thereof than those contained herein. (“Additional Series B Preferred Shares”);

(c)junior to the Series B-1 Preferred Shares, as to the payment of dividends or as to the distribution of assets upon liquidation, dissolution or winding up, if such class or series shall be Junior Shares; and

(d)junior to the Series B-1 Preferred Shares, as to the payment of dividends and as to the distribution of assets upon liquidation, dissolution or winding up, if such class or series shall be Fully Junior Shares.

Section 9.  Voting.  (a)  On or prior to the Issue Date the Board of Trustees shall be increased by one Trustee, and thereafter, so long as at least 910,000 of the Series B-1 Preferred Shares are outstanding, the holders of Series B-1 Preferred Shares shall be entitled to elect one Trustee to serve on the Board of Trustees at any annual meeting of shareholders or special meeting held in place thereof, or at a special meeting of the holders of the Series B-1 Preferred Shares called as hereinafter provided.  Any Trustee proposed to be elected by the Series B-1 Preferred Shares (and any Additional Trustees, as defined below) shall meet the requirements imposed by Section 303 of the New York Stock Exchange Listing Standards for independent directors.  If and when the number of outstanding Series B-1 Preferred Shares shall fall below 910,000, the right of the holders of the Series B-1 Preferred Shares to elect one Trustee shall cease, and the term of office of any such person elected as Trustee by the holders of the Series B-1 Preferred Shares shall forthwith terminate and the number of the Board of Trustees shall be reduced accordingly.

(b)If and whenever (i) following the commencement of the payment of dividends on the Common Shares, the Trust shall fail to declare and pay a quarterly dividend on the Series B-1 Shares at the rate specified in Section 3(a), or (ii) the Trust shall default under its obligations under that certain Investor Rights Agreement, dated the Issue Date, by and among the Trust, the Principal Shareholders and the Investors named therein, or that certain Registration Rights Agreement, dated the Issue Date, by and among the Trust and the Investors named therein, or (iii) if the Fair Market Value of the issued and outstanding Common Shares shall fall below $71,200,000, or (iv) the Trust shall fail to effect any redemption required under Article V above (any event described in clauses (i), (ii), (iii) or (iv) of the preceding sentence being referred to herein as a “Governance Default”), then the

23

number of trustees then constituting the Board of Trustees shall be increased as hereinafter provided and the holders of Series B-1 Preferred Shares and (if such rights are provided in the Certificate of Designations for the Additional Series B Preferred Shares) Additional Series B Preferred Shares voting as a class shall be entitled to elect trustees (the “Additional Trustees”) to fill the positions created by such increase in the Board of Trustees.  The number of Trustees shall be increased by such number so that the Additional Trustees to be so elected by the holders of Series B-1 Preferred Shares and Additional Series B Preferred Shares, together with the Trustees elected by the holders of Series B-1 Preferred Shares pursuant to Section 9(a), shall constitute no less than one-third of the entire Board of Trustees.  The Additional Trustees shall be elected at any annual meeting of shareholders or special meeting held in place thereof, or at a special meeting of the holders of the Series B-1 Preferred Shares and Additional Series B Preferred Shares called as hereinafter provided.  Whenever the applicable Governance Default shall cease to exist, then the right of the holders of the Series B-1 Preferred Shares and Additional Series B Preferred Shares to elect such additional trustees shall cease (but subject always to the same provision for the vesting of such voting rights in the case of any similar future Governance Default), and the terms of office of all persons elected as trustees by the holders of the Series B-1 Preferred Shares and Additional Series B Preferred Shares shall forthwith terminate and the number of the Board of Trustees shall be reduced accordingly.  At any time after the Issue Date, the Secretary of the Trust may, and upon the written request of any holder of Series B-1 Preferred Shares (addressed to the Secretary at the principal office of the Trust) shall, call a special meeting of the holders of the Series B-1 Preferred Shares and Additional Series B Preferred Shares for the election of the trustees to be elected by them as herein under paragraphs 9(a) and (b) provided, such call to be made by notice similar to that provided in the By-Laws of the Trust for a special meeting of the shareholders or as required by law. If any such special meeting required to be called as above provided shall not be called by the Secretary within 20 days after receipt of any such request, then any holder of Series B-1 Preferred Shares may call such meeting, upon the notice above provided, and for that purpose shall have access to the records of the Trust. The trustees elected at any such special meeting shall hold office until the next annual meeting of the shareholders or special meeting held in lieu thereof if such office shall not have previously terminated as above provided. If any vacancy shall occur among the trustees elected by the holders of the Series B-1 Preferred Shares and Additional Series B Preferred Shares, a successor shall be elected by the Board of Trustees, upon the nomination of any then-remaining trustees elected by the holders of the Series B-1 Preferred Shares and Additional Series B Preferred Shares or the successors of such remaining trustees, to serve until the next annual meeting of the shareholders or special meeting held in place thereof if such office shall not have previously terminated as provided above.  If there are no such remaining trustees, a special meeting shall be held for such purpose.

(c)So long as any Series B-1 Preferred Shares are outstanding, in addition to any other vote or consent of shareholders required by law, by the Trust’s Amended

24

Declaration of Trust, as amended and supplemented (the “Declaration of Trust”), or by the Trust’s By-Laws, as amended and supplemented (the “By-Laws”), the affirmative vote of at least 66 2/3% of the votes entitled to be cast by the holders of the Series B-1 Preferred Shares, at the time outstanding, acting as a single class regardless of series, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating (including by way of merger):

(i)Any amendment, alteration or repeal of any of the provisions of the Declaration of Trust, By-Laws or this Certificate of Designations that adversely affects the voting powers, rights or preferences of the holders of the Series B-1 Preferred Shares; provided, however, that the amendment of the provisions of the Declaration of Trust so as to authorize or create or to increase the authorized amount of any Fully Junior Shares, or Junior Shares that are not senior in any respect to or on a parity with (other than the Additional Series B-1 Preferred Shares) the Series B-1 Preferred Shares shall not be deemed to adversely affect the voting powers, rights or preferences of the holders of Series B-1 Preferred Shares otherwise entitled to vote in accordance herewith; or

(ii)A share exchange that affects the Series B-1 Preferred Shares, a consolidation with or merger of the Trust into another entity, or a consolidation with or merger of another entity into the Trust, unless in each such case each Series B-1 Preferred Share (i) shall remain outstanding without any adverse change to its terms and rights or (ii) shall be converted into or exchanged for convertible preferred shares of the surviving entity having preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to that of a Series B-1 Preferred Share (except for changes that do not adversely affect the holders of the Series B-1 Preferred Shares); or

(iii)The authorization, reclassification or creation of, or the increase in the authorized amount of, any shares of any class or any security convertible into shares of any class ranking prior to or pari passu with the Series B-1 Preferred Shares in the distribution of assets on any liquidation, dissolution or winding up of the Trust or in the payment of dividends; provided, however, that no such vote of the holders of Series B-1 Preferred Shares shall be required if, at or prior to the time when such amendment, alteration or repeal is to take effect, or when the issuance of any such prior shares or convertible security is to be made, as the case may be, provision is made (to the extent otherwise permitted hereunder) for the redemption of all Series B-1 Preferred Shares at the time outstanding; and provided further, that no such vote of the holders of Series B-1 Preferred Shares shall be necessary to authorize the Additional Series B Preferred Shares;

25

(iv)Any action that would have the effect of substantially altering the business of the Trust as such business is conducted as of the Issue Date;

(v)Any redemption or purchase of Common Shares, Parity Shares, Junior Shares or Fully Junior Shares, other than (i) the redemption of the Series A Preferred Shares by conversion as provided in the Certificate of Designation for the Series A Preferred as it currently exists, (ii) the purchase of Series A Preferred Shares, (iii) the purchase of Series B-1 Preferred Shares and Additional Series B Preferred Shares; provided, however, that any purchase of Series B-1 Preferred Shares and Additional Series B Preferred Shares shall be made pursuant to an offer made to all holders of such securities if the purchase is made at a time when the resale of the Common Shares issuable on conversion of the Series B-1 Shares and the Additional Series B Preferred Shares is not subject to an effective Registration Statement under the Securities Act of 1933, or (iv) purchases of Common Shares in any Dividend Period at an aggregate purchase price, which when added to the dividends paid on the Common Shares for such Dividend Period, does not exceed the sum of the amount paid to purchase Common Shares and the amount paid as dividends on the Common Shares for the immediately preceding Dividend Period.

(vi)For purposes of the foregoing provisions of this Section 9, each Series B-1 Preferred Share shall have one (1) vote per share.  Except as otherwise required by applicable law or as set forth herein, the Series B-1 Preferred Shares shall not have any relative, participating, optional or other special voting rights and powers other than as set forth herein, and the consent of the holders thereof shall not be required for the taking of any Trust action.

In the event of a Change of Control as defined under Section 5(b) above or in the event of a vote of Common Shares on a matter that relates to the potential dilution of the Series B-1 Shares, or in the event that the Trust proposes to issue, after September 30, 2005, Common Shares, and a vote of the holders of Common Shares is required under applicable law to effect such issuance, the Series B-1 Preferred Shares shall have the right to vote with the Common Shares as a class on all matters on which a vote of Common Shares is taken, with each holder of Series B-1 Preferred Shares entitled to one vote for every Common Share issuable upon conversion of such holder’s Series B-1 Preferred Shares pursuant to Article VI hereunder; provided, however, that the Series B-1 Shares shall not have such right on a shareholder vote taken prior to October 1, 2005 with respect to or the authorization of the sale of additional Common  Shares.

Section 10.Limitations on Ownership and Transfer.

(a)Definitions.For purposes of this Section 10, the following terms shall have the meanings set forth below:

“Beneficial Ownership,” when used with respect to ownership of shares of Equity Stock by any Person, shall mean all shares of Equity Stock which are (i) directly owned by such Person, or (ii) indirectly owned by such Person taking into account the constructive ownership

26

rules of Section 544 of the Code, as modified by Section 856(h) of the Code (except as expressly provided otherwise), provided that (x) in determining the number of shares Beneficially Owned by a Person or group, no share shall be counted more than once although applicable to both clauses (i) and (ii) of this definition.

“Beneficiary” shall mean, with respect to a trust formed pursuant to Section 10(e)(4), one or more organizations described in each of Section 170(b)(1)(A) (other than clauses (vii) and (viii) thereof) and Section 170(c)(2) of the Code that are named as the beneficiary or beneficiaries of such trust, in accordance with the provisions of Section 10(e)(4).

“Closely Held Limit” shall have the meaning ascribed to such term in Section 10(b)(1)(A).

“Code” shall mean the Internal Revenue Code of 1986, as amended.

“Constructive Ownership” shall mean ownership of shares of Equity Stock by a Person who is or would be treated as a direct or indirect owner of such shares of Equity Stock through the application of Section 318 of the Code, as modified by Section 856(d)(5) of the Code. The terms “Constructive Owner,” “constructively owns” and “constructively owned” shall have correlative meanings.

“Equity Stock” shall mean the Common Shares and all outstanding preferred shares of any series, of the Trust.

“Non-Transfer Event” shall mean an event other than a purported Transfer that would cause an increase in the percentage of any Person’s Beneficial Ownership of the outstanding shares of Equity Stock.

“Permitted Transferee” shall mean any Person designated as a Permitted Transferee in accordance with the provisions of Section 10(e)(8).

“Person” shall mean any individual, firm, partnership, corporation, limited liability company or other entity.

“Prohibited Owner” shall mean, with respect to any purported Transfer or Non-Transfer Event, any Person who is prevented from becoming or remaining the owner of record title to shares of Equity Stock by the provisions of Section 10(e)(1).

“REIT” shall mean a real estate investment trust under Sections 856 through 860 of the Code.

“Restriction Termination Date” shall mean the first day on which the Board of Trustees determines that it is no longer in the best interests of the Trust to attempt to, or continue to, qualify under the Code as a REIT.

“Taxable REIT Subsidiary” shall mean a corporation in which the Trust owns stock as to which an election under Section 856(l) of the Code has been validly made (and not revoked).

27

“Transfer” (as a noun) shall mean any sale, transfer, gift, assignment, devise or other disposition of shares (or of Beneficial Ownership of shares) of Equity Stock, whether voluntary or involuntary, whether of record, constructively or beneficially and whether by operation of law or otherwise.  “Transfer” (as a verb) shall have the correlative meaning.

(b)Restriction On Ownership And Transfer.

(1)Until the Restriction Termination Date:

(A)No Person who at any time holds any Series B-1 Preferred Shares shall Beneficially Own shares of Equity Stock to the extent that such ownership by such Person, if effective, would result in the Trust being “closely held” within the meaning of Section 856(h) of the Code or that the Board of Trustees reasonably determines would otherwise materially jeopardize the Trust’s status as a REIT for Federal income tax purposes (the “Closely Held Limit”); and

(B)Any purported Transfer (whether or not the result of a transaction entered into through the facilities of the NYSE or any other national securities exchange or the NASDAQ or any other automated quotation system) that, if effective, would result in any Person Beneficially Owning shares of Equity Stock in excess of the Closely Held Limit shall be void AB INITIO as to the Transfer of that number of shares of Equity Stock which would be otherwise Beneficially Owned by such Person in excess of the Closely Held Limit, and the intended transferee Person shall acquire no rights in such shares of Equity Stock.

(2)Until the Restriction Termination Date, any purported Transfer (whether or not the result of a transaction entered into through the facilities of the NYSE or any other national securities exchange or the NASDAQ or any other automated quotation system) of shares of Equity Stock that, if effective, would cause the Trust to Constructively Own 10% or more of the ownership interests in a tenant of the real property of the Trust or any direct or indirect subsidiary (whether a Trust, partnership, limited liability company or other entity) of the Trust (a “Subsidiary”) (other than a Taxable REIT Subsidiary, if the requirements of 856(d)(8) are satisfied) within the meaning of Section 856(d)(2)(B) of the Code, shall be void AB INITIO as to the Transfer of that number of shares of Equity Stock that would cause the Trust to Constructively Own 10% or more of the ownership interests in a tenant of the real property of the Trust or a Subsidiary (other than a Taxable REIT Subsidiary) within the meaning of Section 856(d)(2)(B) of the Code, and the intended transferee shall acquire no rights in such shares of Equity Stock.

(3)Until the Restriction Termination Date, any purported Transfer (whether or not the result of a transaction entered into through the facilities of the NYSE or any other national securities exchange or the NASDAQ or any other automated quotation system) that, if effective, would result in shares of Equity Stock being beneficially owned by fewer than 100 persons within the meaning of Section 856(a)(5) of the Code shall be void AB INITIO and the intended transferee shall acquire no rights in such shares of Equity Stock.

28

(4)Until the Restriction Termination Date, any purported Transfer (whether or not the result of a transaction entered into through the facilities of the NYSE or any other national securities exchange or the NASDAQ or any other automated quotation system) that, if effective, would result in the Trust being a “pension held REIT” within the meaning of Section 856(h)(3)(D) of the Code shall be void AB INITIO and the intended transferee shall acquire no rights in such shares of Equity Stock.

(5)Until the Restriction Termination Date, any purported Transfer (whether or not the result of a transaction entered into through the facilities of the NYSE or any other national securities exchange or the NASDAQ or any other automated quotation system) that, if effective, would result in the Trust failing to be a “domestically controlled REIT” within the meaning of Section 897(h)(4)(B) of the Code shall be void AB INITIO and the intended transferee shall acquire no rights in such shares of Equity Stock.

(6)Until the Restriction Termination Date, any purported Transfer (whether or not the result of a transaction entered into through the facilities of the NYSE or any other national securities exchange or the NASDAQ or any other automated quotation system) that, if effective, would cause the Trust to fail to qualify as a REIT shall be void AB INITIO and the intended transferee shall acquire no rights in such shares of Equity Stock.

(c)Owners Required To Provide Information.  Until the Restriction Termination Date:

(1)Every Beneficial Owner of more than 5%, or such lower percentages as are then required pursuant to regulations under the Code, of the outstanding shares of any class or series of Equity Stock of the Trust shall, within 30 days after January 1 of each year, provide to the Trust a written statement or affidavit stating the name and address of such Beneficial Owner, the number of shares of Equity Stock Beneficially Owned by such Beneficial Owner, and a description of how such shares are held. Each such Beneficial Owner shall provide to the Trust such additional information as the Trust may reasonably request in order to determine the effect, if any, of such Beneficial Ownership on the Trust’s status as a REIT and to ensure compliance with Section 10(b).

(2)Each Person who is a Beneficial Owner of shares of Equity Stock and each Person (including the stockholder of record) who is holding shares of Equity Stock for a Beneficial Owner shall provide to the Trust a written statement or affidavit stating such information as the Trust may reasonably request in order to determine the Trust’s status as a REIT and to ensure compliance with Section 10(b).

(d)NYSE Transactions.   Notwithstanding any provision contained herein to the contrary, nothing in this Certificate shall preclude the settlement of any transaction entered into through the facilities of the NYSE or any other national securities exchange or the NASDAQ or any other automated quotation system.  In no event shall the existence or application of the preceding sentence have the effect of deterring or preventing the conversion of Equity Stock into Excess Stock as contemplated herein.

29

(e)Excess Stock.

(1)Conversion Into Excess Stock.

(A)If, notwithstanding the other provisions contained in this Section 10, prior to the Restriction Termination Date there is a purported Transfer or Non-Transfer Event that, if effective, would now or in the future (i) violate the Closely Held Limit, (ii) cause the Trust to Constructively Own 10% or more of the ownership interest in a tenant of the Trust’s or a Subsidiary’s real property within the meaning of Section 856(d)(2)(B) of the Code, (iii) result in the shares of Equity Stock being beneficially owned by fewer than 100 persons within the meaning of Section 856(a)(5) of the Code, (iv) cause the Trust to be a “pension held REIT” within the meaning of Section 856(h)(3)(D) of the Code, (v) cause the Trust to fail to be a “domestically controlled REIT” within the meaning of Section 856(h)(4)(B) of the Code, or (vi) cause the Trust to fail to qualify as a REIT, then (x) the purported transferee shall be deemed to be a Prohibited Owner and shall acquire no right or interest (or, in the case of a Non-Transfer Event, the Person holding record title of the shares of Equity Stock with respect to which such Non-Transfer Event occurred shall cease to own any right or interest) in such number of shares of Equity Stock, the ownership of which by such purported transferee or record holder would (A) violate the Closely Held Limit, (B) cause the Trust to Constructively Own 10% or more of the ownership interests in a tenant of the Trust’s or a Subsidiary’s real property within the meaning of Section 856(d)(2)(B) of the Code, (C) result in the shares of Equity Stock being beneficially owned by fewer than 100 persons within the meaning of Section 856(a)(5) of the Code, (D) result in the Trust being a “pension held REIT” within the meaning of Section 856(h)(3)(D) of the Code, (E) cause the Trust to fail to be a “domestically controlled REIT” within the meaning of Section 856(h)(4)(B) of the Code or (F) cause the Trust to fail to qualify as a REIT, (y) such number of shares of Equity Stock (rounded up to the nearest whole share) shall be automatically converted into an equal number of shares of Excess Stock and transferred to a trust in accordance with Section 10(e) and (z) the Prohibited Owner shall submit such number of shares of Equity Stock to the Trust, accompanied by all requisite and duly executed assignments of transfer thereof, for registration in the name of the trustee of the trust as described in Section 10(e)(4).  Such conversion into Excess Stock and transfer to a trust shall be effective as of the close of trading on the Trading Day prior to the date of the purported Transfer or Non-Transfer Event, as the case may be, even though the certificates representing the shares of Equity Stock so converted may be submitted to the Trust at a later date.

(B)Upon the occurrence of such a conversion of shares of Equity Stock into an equal number of shares of Excess Stock, such shares of Equity Stock shall be automatically retired and canceled, without any action required by the Board of Trustees of the Trust, and shall thereupon be restored to the status of authorized but unissued shares of the particular class or series of Equity Stock from which such Excess Stock was converted and may be reissued by the Trust as that particular class or series of Equity Stock, but only as provided in Section 10(e)(8).

30

(2)Remedies For Breach.  If the Trust, or its designees, shall at any time reasonably determine that a Transfer has taken place in violation of Section 10(b) or that a Person intends to acquire or has attempted to acquire Beneficial Ownership or Constructive Ownership of any shares of Equity Stock in violation of Section 10(b), the Trust shall take such action as it deems advisable to refuse to give effect to or to prevent such Transfer or acquisition, including, but not limited to, refusing to give effect to such Transfer on the stock transfer books of the Trust or instituting proceedings to enjoin such Transfer or acquisition, but the failure to take any such action shall not affect the automatic conversion of shares of Equity Stock into Excess Stock and their transfer to a trust in accordance with Section 10(e)

(3)Notice of Restricted Transfer.  Any Person who acquires or attempts to acquire shares of Equity Stock in violation of Section 10(b), or any Person who owns shares of Equity Stock that were converted into shares of Excess Stock and transferred to a trust pursuant to Sections 10(e), shall, if such Person knows or reasonably could be expected to know the foregoing, immediately give written notice to the Trust of such event.  Such Person (whether or not required to notify the Trust pursuant to the preceding sentence) shall provide to the Trust such other information as the Trust may reasonably request in order to determine the effect, if any, of such Transfer or Non-Transfer Event, as the case may be, on the Trust’s status as a REIT.

(4)Ownership In Trust.  Upon any purported Transfer or Non-Transfer Event that results in Excess Stock pursuant to Section 10(e), (i) the Trust shall create, or cause to be created, a trust, and shall designate a trustee and name a Beneficiary thereof and (ii) such Excess Stock shall be automatically transferred to such trust to be held for the exclusive benefit of the Beneficiary.  Any conversion of shares of Equity Stock into shares of Excess Stock and transfer to a trust shall be effective as of the close of trading on the Trading Day prior to the date of the purported Transfer or Non-Transfer Event that results in the conversion. Shares of Excess Stock so held in trust shall remain issued and outstanding shares of stock of the Trust.

(5)Dividend Rights.  Each share of Excess Stock shall be entitled to the same dividends and distributions, if any, (as to both timing and amount) as may be declared by the Board of Trustees with respect to each share of Equity Stock which was converted into such Excess Stock.  The trustee, as record holder of the shares of Excess Stock, shall be entitled to receive all dividends and distributions and shall hold all such dividends or distributions in trust for the benefit of the Beneficiary.  The Prohibited Owner with respect to such shares of Excess Stock shall repay to the trust the amount of any dividends or distributions received by it (i) that are attributable to any shares of Equity Stock that have been converted into shares of Excess Stock and (ii) the record date of which was on or after the date that such shares were converted into shares of Excess Stock. The Trust shall take all measures that it determines reasonably necessary to recover the amount of any such dividend or distribution paid to a Prohibited Owner, including, if necessary, withholding any portion of future dividends or distributions payable on shares of Equity Stock Beneficially Owned by the Person who, but for the provisions of this Section 10, would Constructively Own or Beneficially Own the shares of Equity Stock that were converted into shares of Excess Stock; and, as soon as

31

reasonably practicable following the Trust’s receipt or withholding thereof, shall pay over to the trust for the benefit of the Beneficiary the dividends so received or withheld, as the case may be.

(6)Rights Upon Liquidation.  In the event of any voluntary or involuntary liquidation of, or winding up of, or any distribution of the assets of, the Trust, each holder of shares of Excess Stock shall be entitled to receive, ratably with each other holder of shares of share of the same class and series of Equity Stock which was converted into such Excess Stock, that portion of the assets of the Trust that is available for distribution to the holders of the same class and series of Equity Stock which was converted into such Excess Stock.  The trust shall distribute to the Prohibited Owner the amounts received upon such liquidation, dissolution, or winding up, or distribution; provided, however, that the Prohibited Owner shall not be entitled to receive amounts in excess of, in the case of a purported Transfer in which the Prohibited Owner gave value for shares of Equity Stock and which Transfer resulted in the conversion of the shares into shares of Excess Stock, the product of (x) the price per share, if any, such Prohibited Owner paid for the shares of Equity Stock and (y) the number of shares of Equity Stock which were so converted into Excess Stock, and, in the case of a Non-Transfer Event or purported Transfer in which the Prohibited Owner did not give value for such shares (e.g., if the shares were received through a gift or devise) and which Non-Transfer Event or purported Transfer, as the case may be, resulted in the conversion of the shares into shares of Excess Stock, the product of (x) the price per share equal to the Current Market Price on the date of such Non-Transfer Event or purported Transfer and (y) the number of shares of Equity Stock which were so converted into Excess Stock.  Any remaining amount in such trust shall be distributed to the Beneficiary.

(7)Voting Rights.  Each share of Excess Stock shall entitle the holder to no voting rights other than those voting rights which accompany a class of capital stock under Ohio law.  The trustee, as record holder of the Excess Stock, shall be entitled to vote all shares of Excess Stock.  Any vote by a Prohibited Owner as a purported holder of shares of Equity Stock prior to the discovery by the Trust that such shares of Equity Stock have been converted into shares of Excess Stock shall, subject to applicable law, be rescinded and shall be void AB INITIO with respect to such shares of Excess Stock.

(8)Designation Of Permitted Transferee.

(A)As soon as practicable after the trustee acquires Excess Stock, but in an orderly fashion so as not to materially adversely affect the trading price of the same class and series of Equity Stock from which such Equity Stock was converted, the trustee shall designate one or more Persons as Permitted Transferees and sell to such Permitted Transferees any shares of Excess Stock held by the trustee; provided, however, that (i) any Permitted Transferee so designated purchases for valuable consideration (whether in a public or private sale) the shares of Excess Stock and (ii) any Permitted Transferee so designated may acquire such shares of Excess Stock without violating any of the restrictions set forth in Section 10(b) and without such acquisition resulting in the conversion of the shares of Equity Stock so acquired into shares of Excess Stock and the transfer of such shares to a trust pursuant to Sections 10(e)(1) and (4).  The trustee shall

32

have the exclusive and absolute right to designate Permitted Transferees of any and all shares of Excess Stock. Prior to any transfer by the trustee of shares of Excess Stock to a Permitted Transferee, the trustee shall give not less than five Trading Days prior written notice to the Trust of such intended transfer and the Trust must have waived in writing its purchase rights under Section 10(e)(10).

(B)Upon the designation by the trustee of a Permitted Transferee in accordance with the provisions of this Section 10(e)(8), the Trustee shall cause to be transferred to the Permitted Transferee shares of Excess Stock acquired by the trustee pursuant to Section 10(e)(4).  Upon such transfer of shares of Excess Stock to the Permitted Transferee, such shares of Excess Stock shall be automatically converted into an equal number of shares of Equity Stock of the same class and series from which such Excess Stock was converted. Upon the occurrence of such a conversion of shares of Excess Stock into an equal number of shares of Equity Stock, such shares of Excess Stock shall be automatically retired and canceled, without any action required by the Board of Trustees of the Trust, and shall thereupon be restored to the status of authorized but unissued shares of Excess Stock and may be reissued by the Trust as Excess Stock.  The trustee shall (i) cause to be recorded on the stock transfer books of the Trust that the Permitted Transferee is the holder of record of such number of shares of Equity Stock, and (ii) distribute to the Beneficiary any and all amounts held with respect to such shares of Excess Stock after making payment to the Prohibited Owner pursuant to Section 10(e)(9).

(C)If the Transfer of shares of Excess Stock to a purported Permitted Transferee would or does violate any of the transfer restrictions set forth in Section 10(b), such Transfer shall be void AB INITIO as to that number of shares of Excess Stock that cause the violation of any such restriction when such shares are converted into shares of Equity Stock (as described in clause (B) above) and the purported Permitted Transferee shall be deemed to be a Prohibited Owner and shall acquire no rights in such shares of Excess Stock or Equity Stock. Such shares of Equity Stock shall be automatically re-converted into Excess Stock and transferred to the trust from which they were originally Transferred. Such conversion and transfer to the trust shall be effective as of the close of trading on the Trading Day prior to the date of the Transfer to the purported Permitted Transferee and the provisions of this Article IV shall apply to such shares, including, without limitation, the provisions of Sections 10(e)(8) through 10(e)(10) with respect to any future Transfer of such shares by the trust.

(9)Compensation to Record Holder of Shares of Equity Stock That Are Converted Into Shares of Excess Stock.  Any Prohibited Owner shall be entitled (following acquisition of the shares of Excess Stock and subsequent designation of and sale of Excess Stock to a Permitted Transferee in accordance with Section 10(e)(8) or following the acceptance of the offer to purchase such shares in accordance with Section 10(e)(10) to receive from the trustee following the sale or other disposition of such shares of Excess Stock the lesser of (i) (a) in the case of a purported Transfer in which the Prohibited Owner gave value for shares of Equity Stock and which Transfer resulted in the conversion of such shares into shares of Excess Stock, the product of (x) the price per share, if any, such Prohibited Owner paid for the shares of Equity Stock and (y) the

33

number of shares of Equity Stock which were so converted into Excess Stock and (b) in the case of a Non-Transfer Event or purported Transfer in which the Prohibited Owner did not give value for such shares (e.g., if the shares were received through a gift or devise) and which Non-Transfer Event or purported Transfer, as the case may be, resulted in the conversion of such shares into shares of Excess Stock, the product of (x) the price per share equal to the Current Market Price on the date of such Non-Transfer Event or purported Transfer and (y) the number of shares of Equity Stock which were so converted into Excess Stock or (ii) the proceeds received by the trustee from the sale or other disposition of such shares of Excess Stock in accordance with Section 10(e)(8) or Section 10(e)(10).  Any amounts received by the trustee in respect of such shares of Excess Stock and in excess of such amounts to be paid to the Prohibited Owner pursuant to this Section 10(e)(9) shall be distributed to the Beneficiary in accordance with the provisions of Section 10(e)(8).  The trustee and the trust shall have no liability for, and each Beneficiary and Prohibited Owner shall be deemed to have irrevocably waived any and all claims that it may have against the trustee and the trust arising out of the disposition of shares of Excess Stock, except for claims arising out of the gross negligence or willful misconduct of, or any failure to make payments in accordance with this Section 10(e) by such trustee.

(10)Purchase Right In Excess Stock.  Shares of Excess Stock shall be deemed to have been offered for sale to the Trust or its designee, at a price per share equal to the lesser of (i) the price per share in the transaction that created such shares of  Excess Stock (or, in the case of a Non-Transfer Event or Transfer in which the Prohibited Owner did not give value for the shares (e.g., if the shares were received through a gift or devise), the Current Market Price on the date of such Non-Transfer Event or Transfer in which the Prohibited Owner did not give value for the shares) or (ii) the Current Market Price on the date the Trust, or its designee, accepts such offer.  The Trust shall have the right to accept such offer for a period of 90 days following the later of (a) the date of the Non-Transfer Event or purported Transfer which results in such shares of Excess Stock or (b) the date the Board of Trustees first determined that a Transfer or Non-Transfer Event resulting in shares of Excess Stock has occurred, if the Trust does not receive a notice of such Transfer or Non-Transfer Event pursuant to Section 10(e)(3).

(11)Remedies Not Limited.  Except as set forth in Section 10(d), nothing contained in this Section 10 shall limit the authority of the Trust to take such other action as it deems necessary or advisable to protect the Trust and the interests of its stockholders by preservation of the Trust’s status as a REIT and to ensure compliance with the Ownership Limit.

Section 11Rights Offerings.  In the event that the Trust shall issue after the Issue Date rights, options or warrants to all holders of Common Shares entitling them to subscribe for or purchase Common Shares (a “Rights Offering”), the holders of the Series B-1 Preferred Shares shall have the right to participate in such Rights Offering as if they had converted their Series B-1 Preferred Shares into Common Shares on the record date for such Rights Offering.

Section 12.Record Holders.  The Trust and the Transfer Agent may deem and treat the record holder of any Series B-1 Preferred Shares as the true and lawful owner thereof for all

34

purposes, and neither the Trust nor the Transfer Agent shall be affected by any notice to the contrary.

Section 13.Sinking Fund. The Series B-1 Preferred Shares shall not be entitled to the benefits of any retirement or sinking fund.

Section 14.Management Company Declaration of Trust.  Notwithstanding any other provisions of this Certificate of Designations, the holders of the Series B-1 Preferred Shares shall not be entitled to the benefit of the Declaration of Trust of First Union Management, Inc.

Section 15.Exclusivity.  Notwithstanding any provision of the Declaration of Trust to the contrary, the holders of the Series B-1 Preferred Shares shall have no voting rights, and shall not be entitled to receive any dividends or distributions on account of their shares, except, in each case, to the extent expressly set forth herein or as otherwise required by applicable law.

35

IN WITNESS WHEREOF, this Certificate of Designations has been duly executed by the undersigned this     day of          , 2005.

FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS
By:
	Michael L. Ashner
	Chairman, President
	and Chief Executive Officer

36

EX-10.1

Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT, dated as of  February 25, 2005 (this “Agreement”), is by and among First Union Real Estate Equity and Mortgage Investments, an unincorporated association in the form of a business trust organized in Ohio (the “Company”), Perrin Holden & Davenport Capital Corp., as initial purchaser (the “Initial Purchaser”) and each investor executing a signature page hereto (each an “Investor” and collectively, the “Investors”).

RECITALS:

A.The Company has authorized a new series of preferred shares designated the “Series B-1 Cumulative Convertible Redeemable Preference Shares of Beneficial Interest” (the “Series B-1 Stock”), which will be convertible into shares of Common Stock in accordance with the terms of the Certificate of Designations governing the Series B-1 Stock, in the form attached hereto as Exhibit A (the “Certificate of Designations”).

B.The Initial Purchaser desires to purchase from the Company, and the Company desires to sell to the Investors, upon the terms and subject to the conditions of this Agreement, the Series B-1 Shares.

C.The Investors have agreed to purchase from the Initial Purchaser, and the Initial Purchaser has agreed to sell to the Investors, subject to the terms and conditions of this Agreement, the Series B-1 Shares.

D.The Company, the Initial Purchaser and the Investors desire to set forth certain agreements herein.

AGREEMENT:

NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and undertakings hereunder and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, intending to be legally bound, the parties hereto do hereby agree as follows:

ARTICLE I
DEFINITIONS

Section 1.01.Definitions.  As used in this Agreement, the following terms have the meanings set forth below.

“Accredited Investor” shall mean any Person that is an “accredited investor” within the definition contained in Rule 501(a) under the Securities Act.

“Affiliate” shall mean (a) with respect to an individual, any member of such individual’s family residing in the same household; (b) with respect to an entity: (i) any executive officer,

director, partner or Person that owns ten percent (10%) or more of the outstanding beneficial  interest of or in such entity, or (ii) any brother, sister, brother-in-law, sister-in-law, lineal descendant or ancestor of any executive officer, director, partner or Person that owns ten percent (10%) or more of the outstanding beneficial  interest of or in such entity; and (c) with respect to a Person, any Person which directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with such Person or entity; provided, however, that for purposes of the definition of “Affiliate,” no Investor shall be deemed an “Affiliate” of the Company.

“Agreement” shall have the meaning set forth in the preamble.

“Audited Financial Statements” shall have the meaning set forth in Section 3.07.

“Board of Trustees” shall mean the Board of Trustees of the Company.

“Business Day” shall mean any day other than (i) a Saturday, (ii) a Sunday or (iii) any other day on which banks in the City of New York are authorized or required to close.

“By-Laws” shall mean, when used with respect to a specified Person, the by-laws of a Person, as the same may be amended from time to time.

“Capital Stock” shall mean, with respect to any Person, any and all shares, shares of beneficial interest, interests, participations, rights in or other equivalents (however designated and whether voting or non-voting) of such Person’s capital stock or any form of membership, ownership or participation  interests, as applicable, including partnership interests, whether now outstanding or hereafter issued and any and all securities, debt instruments, rights, warrants or options exercisable or exchangeable for or convertible into such capital stock.

“Certificate of Designations” shall have the meaning set forth in the recitals.

“Certificate of Incorporation” shall mean, when used with respect to a specified Person, the Declaration of Trust, Articles or Certificate of Incorporation or other applicable organizational document of such Person, as currently in effect.

“Closing” shall have the meaning set forth in Section 2.02(a).

“Closing Date” shall have the meaning set forth in Section 2.02(a).

“Code” shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

“Commission Filings” shall have the meaning set forth in Section 3.08.

“Common Stock” shall mean the common shares of beneficial interest, $1 par value per share, of the Company.

“Company” shall have the meaning set forth in the preamble.

2

“Company Group Member” shall mean each of the Company and its Affiliates and their respective directors, officers, employees, agents and attorneys and their respective successors and assigns.

“Company Subsidiaries” and “Company Subsidiary” shall have the meaning set forth in Section 3.03.

“Consents” shall mean all governmental and third party consents, approvals, filings, authorizations, qualifications and waivers necessary to be received or made by a Person.

“Contemplated Transactions” shall mean the transactions contemplated by each of this Agreement, and the other Transaction Documents.

“Contract” shall mean any legally binding contract, agreement, mortgage, deed of trust, bond, loan, indenture, lease, license, note, option, warrant, right, instrument, commitment or other similar document, arrangement or agreement, whether written or oral.

“Default” shall have the meaning set forth in Section 2.02(d).

“Environment” shall mean soil, surface waters, ground waters, land, stream, sediments, surface or subsurface strata and ambient air.

“Environmental Laws” shall mean all Laws relating to the pollution of or protection of the Environment, from contamination by, or relating to injury to, or the protection of, real or personal property or human health or the Environment, including, without limitation, all valid and lawful requirements and agreements with courts and other Governmental Bodies pertaining to reporting, licensing, permitting, investigation, remediation and removal of, emissions, discharges, releases or threatened releases of Hazardous Materials, chemical substances, pesticides, petroleum or petroleum products, pollutants, contaminants or hazardous or toxic substances, materials or wastes, into the Environment, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, pollutants, contaminants or hazardous or toxic substances, materials or wastes.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.

“GAAP” shall mean generally accepted accounting principles applied on a consistent basis as in effect in the United States of America.

“Governmental Body” shall mean any government or governmental or quasi-governmental authority including, without limitation, any federal, state, territorial, county, municipal or other governmental or quasi-governmental agency, board, branch, bureau, commission, court, arbitral body (public or private), department or other instrumentality or political unit or subdivision, whether located in the United States or abroad, the National Association of Securities Dealers, Inc., the New York Stock Exchange, the Nasdaq National Market, the Nasdaq SmallCap Market or the American Stock Exchange.

3

“Hazardous Materials” shall mean any substance whether solid, liquid or gaseous in nature:  (i) the creation, processing, use, transfer, release or presence of which requires or may hereafter require notification, investigation, or remediation under any Environmental Law; (ii) which is or becomes defined as “toxic”, a “hazardous waste”, “hazardous material” or “hazardous substance” or “pollutant” or “contaminant” under any present or future Environmental Laws; (ii) the presence of which adversely affects or is injurious to human health or safety or the Environment;  (iv) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes regulated by any Governmental Body; (v) which contains gasoline, diesel fuel or other petroleum hydrocarbons or volatile organic compounds; (vi) which contains polychlorinated byphenyls (PCBs) or asbestos or urea formaldehyde foam insulation; or (vii) which contains or emits radioactive particles, waves or materials, including radon gas.

“Indemnitee” shall have the meaning set forth in Section 9.01.

“Indemnitor” shall have the meaning set forth in Section 9.01.

“Initial Purchase Price” shall have the meaning set forth in Section 2.01.

“Initial Purchaser” shall have the meaning set forth in the preamble.

“Initial Purchaser Group Members” shall mean the Initial Purchaser and its Affiliates and their respective directors, officers, employees, agents and attorneys and their respective successors and assigns.

“Investors” shall have the meaning set forth in the preamble.

“Investor Related Party Member” shall mean the Investors and their Affiliates and each of their respective members, directors, partners, officers, employees, agents and attorneys and their respective successors and permitted assigns.

“Investors’ Rights Agreement” shall have the meaning set forth in Section 7.01(g).

“IRS” shall mean the Internal Revenue Service.

“Law” shall mean any treaty, statute, ordinance, code, rule, regulation, Order or other legal requirement enacted, adopted, promulgated, applied or followed by any Governmental Body.

“Legal Proceeding” shall mean any judicial, administrative or arbitral actions, suits, proceedings (public or private) or governmental proceedings.

“Legend” shall mean the Legend set forth in Section 4.02(e).

“Liability” shall mean any debt, liability or obligation, whether known or unknown, asserted or unasserted, accrued, absolute, contingent or otherwise, whether due or to become due.

4

“Lien” shall mean any mortgage, pledge, lien (statutory or otherwise), security interest, hypothecation, conditional sale agreement, encumbrance or similar restriction or agreement.

“Loss” shall have the meaning set forth in Section 9.01.

“Material Adverse Effect” shall mean any event, condition or contingency that has had, or is reasonably likely to have, a material adverse effect on the business, assets, liabilities (including contingent liabilities), results of operations, financial condition or, to the knowledge of the Company, prospects of the Company and the Company Subsidiaries, taken as a whole or the ability of the Company to perform its obligations under the Transaction Documents or the validity or enforceability thereof.

“Notice” shall have the meaning set forth in Section 9.02(a).

“NYSE” shall mean the New York Stock Exchange.

“Order” shall mean any order, injunction, judgment, decree, ruling, writ, assessment or arbitration award.

“Permits” shall mean any approvals, authorizations, licenses, permits or certificates by or of any Governmental Body.

“Permitted Liens” shall mean (a) easements, restrictions, covenants, rights of way or other minor irregularities of title currently of record against any of the Properties, (b) real and personal property leases, (c) Liens for Taxes not yet due and payable, or for Taxes being contested in good faith, provided that in each such case, adequate reserves are maintained in accordance with GAAP on the Balance Sheet, and (d) any Lien created by statute of carriers, warehousemen, vendors, mechanics, laborers or materialmen incurred in the ordinary course of business for sums not yet due and payable.

“Person” shall mean any individual, corporation, partnership, firm, limited liability company, joint venture, trust, association, unincorporated organization, group, joint-stock company, Governmental Body or other entity.

“Properties” shall have the meaning set forth in Section 3.12(a).

“Purchase Price” shall mean $91,000,000 in the aggregate, payable as set forth in Section 2.02.

“Registration Rights Agreement” shall have the meaning set forth in Section 7.01(f).

“SEC” shall mean the U.S. Securities and Exchange Commission.

“Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.

5

“Series A Stock” shall mean the Series A Cumulative Convertible Redeemable Preferred Shares of Beneficial Interest, $25 par value per share, of the Company.

“Series B-1 Designees” shall mean the Trustees elected by the Investors to the Board of Trustees pursuant to the Certificate of Designations.

“Series B-1 Shares” shall have the meaning set forth in Section 2.01.

“Series B-1 Stock” shall have the meaning set forth in the recitals.

“Specified Purchase Price” shall have the meaning set forth in Section 2.01.

“Subsidiary” shall mean, as to any Person, any other Person more than 50% of the shares of the voting stock, voting interests, membership interests or partnership interests of which are owned or controlled, or the ability to select or elect more than 50% of the directors or similar managers is held, directly or indirectly, by such first Person or one or more of its Subsidiaries or by such first Person and one or more of its Subsidiaries; provided, however, that First Union Management, Inc. shall not be deemed to be a Subsidiary of the Company.

“Tax Return” shall have the meaning set forth in Section 3.11(a).

“Taxes” shall mean all U.S. federal, state, local and foreign income, gross income, corporation, advance corporation, gross receipts, estimated, import, customs, duties, transfer, excise, property, sales, use, value-added, license, payroll, pay as you earn, withholding, social security and franchise or other governmental taxes, imposed by any Governmental Body and any interest, penalties or additions to tax with respect thereto.

“Transaction Documents” shall mean this Agreement, the schedules and exhibits hereto, the Certificate of Designations, the Series B-1 Shares, the Registration Rights Agreement, the Investors’ Rights Agreement, and any certificate or other document delivered by or on behalf of the Company or the Investors pursuant to this Agreement or in connection with the transactions contemplated by this Agreement.

“Unaudited Financial Statements” shall have the meaning specified in Section 3.07.

Section 1.02.Rules of Construction.  Unless the context otherwise requires:

(a)an accounting term defined by GAAP that is not otherwise defined herein has the meaning assigned to it in accordance with GAAP;

(b)“or” is not exclusive;

(c)words in the singular include the plural, and words in the plural include the singular;

(d)the words “include” and “including” shall be deemed to mean “include, without limitation,” and “including, without limitation”;

6

(e)“herein,” “hereof,” “hereto,” “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular article, section, paragraph or clause where such terms may appear;

(f)references to sections mean references to such section in this Agreement, unless stated otherwise; and

(g)the use of any gender shall be applicable to all genders.

ARTICLE II
ISSUANCE, SALE AND PURCHASE OF THE SERIES B-1 STOCK

Section 2.01.Sale and Purchase of the Series B-1 Stock.  Upon the terms and subject to the conditions of this Agreement, the Company will sell to the Initial Purchaser, and the Initial Purchaser will purchase from the Company, an aggregate of 3,640,000 shares of the Series B-1 Stock (the “Series B-1 Shares”) for an aggregate purchase price of $90,750,000 (the “Initial Purchase Price”).  The Company will then cause the Initial Purchaser to immediately sell the Shares to the Investors, and the Investors will severally purchase from the Initial Purchaser, an aggregate of 3,640,000 shares of the Series B-1 Shares for an aggregate purchase price of $91,000,000] (the “Purchase Price”).  The number of Series B-1 Shares to be purchased by each Investor at the Closing and the portion of the aggregate purchase price to be paid by each Investor at the Closing in the exchange therefor, shall be as specified in Schedule 2.01 (with respect to each such Investor, such Investor’s “Specified Purchase Price”).

Section 2.02.Closing.

(a)Subject to the satisfaction or waiver of the conditions set forth in this Agreement, the closing of the transactions contemplated by Section 2.01 (the “Closing”) shall take place at 10:00 AM on February 28, 2005, or at such other time as may be mutually agreed upon by the Investors and the Company (the “Closing Date”).  The Closing shall occur on the Closing Date at the offices of Katten Muchin Zavis Rosenman, 575 Madison Avenue, New York, New York.

(b)At the Closing: (i) the Company will deliver to the Initial Purchaser certificates for the Series B-1 Shares to be sold in accordance with the provisions of Section 2.01 registered in the name of the Initial Purchaser; (ii) the Initial Purchaser, in full payment for the Series B-1 Shares, will deliver to the Company immediately available funds, by wire transfer to such account as the Company shall specify, the Initial Purchase Price; and (iii) each party shall take or cause to happen such other actions, and shall execute and deliver such other instruments or documents, as shall be required under Article VII.

(c)At the Closing: (i) the Initial Purchaser will deliver to the Investors certificates for the Series B-1 Shares to be sold in accordance with the provisions of Section 2.01 in such denominations as such Investor shall request registered in the respective names of the Investors and proportions set forth in Schedule 2.01; (ii) each Investor, in full payment for the Series B-1 Shares, will deliver to the Initial Purchaser immediately available funds, by wire

7

transfer to such account as the Initial Purchaser shall specify, before the Closing such Investor’s Specified Purchase Price; and (iii) each party shall take or cause to happen such other actions, and shall execute and deliver such other instruments or documents, as shall be required under Article VII.

(d)If the Company or the Initial Purchaser (i) fails to tender certificates at the Closing or fails to satisfy any condition that is not waived under Article VII of this Agreement (either such event, a “Default”), and (ii) does not cure such Default (or, in the case of a default by the Initial Purchaser, if the Company fails to locate another registered broker dealer who shall agree in writing to be bound by the terms of this Agreement who cures such Default) within ten (10) business days of the Closing Date, then the Investors will be released from their obligations under this Agreement without waiving their rights hereunder.

Section 2.03.Use of Proceeds.  The Company shall use the proceeds from the sale of the Series B-1 Stock for general corporate purposes.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to the Initial Purchaser and to each of the Investors as follows:

Section 3.01.Organization and Good Standing.  The Company is an unincorporated association in the form of a business trust organized, validly existing and in good standing under the Laws of the State of Ohio, and has full trust power and authority to own, lease and operate its properties, and carry on its business as presently conducted.  The Company is duly qualified, registered or licensed as a foreign business entity to do business and is in good standing in each jurisdiction in which the ownership or leasing of its properties or the character of its present operations makes such qualification, registration or licensing necessary, except where the failure to so qualify or be in good standing could not individually or in the aggregate reasonably have a Material Adverse Effect.  The Company has heretofore delivered or made available to the Initial Purchaser and to the Investors complete and correct copies of the Declaration of Trust and all amendments thereto of the Company, as in effect as of the date of this Agreement.

Section 3.02.Authority; Binding Effect.  The Company has full trust power and authority to execute, deliver and perform this Agreement and the other Transaction Documents and to consummate the Contemplated Transactions.  The execution and delivery of this Agreement and the other Transaction Documents and the consummation by the Company of the transactions contemplated hereby and by the other Transaction Documents have been duly and validly approved by all necessary action on the part of the Company.  This Agreement has been duly executed and delivered by the Company

8

and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, except as such enforceability may be subject to the effects of any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar Laws affecting creditors’ rights generally and subject to the effects of general equitable principles.  The other Transaction Documents, when executed and delivered by the Company, will be duly executed and delivered by the Company and constitute legal, valid and binding obligations of the Company, enforceable in accordance with their respective terms, except as such enforceability may be subject to the effects of any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar Laws affecting creditors’ rights generally and subject to the effects of general equitable principles.

Section 3.03.Organization and Good Standing of Company Subsidiaries.  Schedule 3.03 lists all Subsidiaries of the Company and their respective jurisdictions of incorporation (collectively, the “Company Subsidiaries” and each, a “Company Subsidiary”).  Except as set forth in Schedule 3.03, the Company owns, directly or indirectly, all the shares of outstanding Capital Stock of each Company Subsidiary.  There are no outstanding securities or rights convertible into or exchangeable for shares of any Capital Stock of any Company Subsidiary and there are no Contracts by which any Company Subsidiary is bound to issue additional shares of Capital Stock.  All of the shares of Capital Stock of each of the Company Subsidiaries are duly and validly authorized, fully paid and non-assessable and, except for the Liens set forth in Schedule 3.03, are owned by the Company free and clear of any Lien with respect thereto.  Each Company Subsidiary is duly organized, validly existing and in good standing under the Laws of its jurisdiction of organization, and has all requisite corporate power and authority to own, operate and lease its properties and to carry on its business as it is now being conducted, and is duly licensed or qualified to do business in each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, except where the failure to be so licensed or qualified in any such jurisdiction could not individually or in the aggregate reasonably have a Material Adverse Effect.  Except for the limitations relating to the Liens set forth in Schedule 3.03, no Company Subsidiary is subject to any restriction on its ability to make distributions to its owners.

Section 3.04.Capitalization.

(a)Schedule 3.04(a) sets forth (i) the authorized capitalization of the Company, the number of shares of each class issued and outstanding and the number of shares reserved for issuance in connection with the Company’s stock option plans or otherwise, and (ii) all options, warrants, rights to subscribe to, calls, contracts, undertakings, arrangements and commitments to issue which may result in the issuance of stock of the Company.  All of the issued and outstanding shares of the Company’s stock have been and all shares reserved for issuance will on issuance be, duly and validly authorized and issued and are fully paid and non-assessable and are not subject to any preemptive rights.  Except as set forth on Schedule 3.04(a), pursuant to this Agreement, and as provided in the Certificates of Designations of the Series A Stock and Series B-1 Stock, (i) no equity securities of the Company are or may be required to be issued by reason of any options, warrants, rights to subscribe to, calls or commitments of any character whatsoever, (ii) there are outstanding no securities or rights convertible into or exchangeable for shares of any stock of the Company, and (iii) there are no contracts, commitments, understandings or arrangements by which the Company is bound to issue additional shares of its stock or securities or rights convertible into or exchangeable for shares of any stock of the Company, or options, warrants or rights to purchase or acquire any additional shares of its stock.  Neither the Company nor any Company Subsidiary is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any of its Capital

9

Stock.  Except as contemplated by the Registration Rights Agreement or as set forth on Schedule 3.04(a), there are no Contracts between the Company and any Person granting such Person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company owned or to be owned by such Person or to require the Company to include such securities in any other registration statement filed by the Company under the Securities Act.

(b)The Series B-1 Shares will have the voting powers, designations, preferences and rights, and the qualifications, limitations and restrictions thereof, set forth in the Certificate of Designations.  The Company has reserved, or will on or before Closing reserve, for issuance the shares of Common Stock issuable upon conversion of the Series B-1 Shares.  When paid for by, and issued to, the Initial Purchaser, the Series B-1 Shares will be duly authorized, validly issued, fully paid and non-assessable and will be free and clear of any Liens.  When paid for by, and sold to, each of the Investors the Series B-1 Shares will be duly authorized, validly issued, fully paid and non-assessable and will be free and clear of any Liens.  The issuance and sale of the Series B-1 Shares is not subject to any preemptive rights.  Except for the restrictions set forth, or referred to, in the Legend, the Series B-1 Shares when issued and sold will not be subject to any restriction on use, voting or transfer; and the shares of Common Stock issuable to each such Investor upon conversion of the Series B-1 Shares, when issued in accordance with the Company’s Declaration of Trust, will be duly authorized, validly issued, fully paid and non-assessable, and will be free and clear of any Liens and except for the restrictions set forth, or referred to, in the Legend, will not be subject to any restriction on use, voting or transfer or to any preemptive rights.

Section 3.05.No Violations; Consents.  Except as set forth on Schedule 3.05, neither the execution, delivery or performance by the Company of this Agreement or the other Transaction Documents nor the consummation of the Contemplated Transactions, will (a) conflict with, or result in the breach of, any provision of the organizational documents or by-laws of the Company or any Company Subsidiary, (b) conflict with, violate, result in the breach or termination of, or constitute a default or give rise to any right of termination or acceleration or right to increase the obligations or otherwise modify the terms thereof under any Contract, Permit or Order to which the Company or any Company Subsidiary is a party or by which the Company or any Company Subsidiary or any of the properties or assets of the Company or any Company Subsidiary is bound, (c) constitute a violation of any Law applicable to the Company or any Company Subsidiary; or (d) result in the creation of any Lien upon the properties or assets of the Company or any Company Subsidiary other than with respect to the foregoing clauses (b), (c) and (d), such requirements, conflicts, violations, breaches or rights which could not individually or in the aggregate reasonably have a Material Adverse Effect.  Except as set forth on Schedule 3.05, other than those which have been obtained or made or which could not individually or in the aggregate reasonably have a Material Adverse Effect, no Consent is required on the part of the Company or the Company Subsidiaries in connection with the execution and delivery of this Agreement or the Transaction Documents, or the compliance by the Company with any of the provisions hereof or thereof.

Section 3.06.Listing.  The Company is not in violation of the listing requirements of the NYSE in any material respect.  The Company has not received any notice from the NYSE that

10

the Common Stock is to be delisted by the NYSE.  Conditioned upon the approval of a listing application by the NYSE, the transactions contemplated under this Agreement constitute a bona fide private financing under paragraph 312.03 of the NYSE Listed Company Manual and stockholder approval is not required under the rules and regulations of the NYSE in order to authorize the issuance of the Series B-1 Shares pursuant to this Agreement or the listing of the Common Stock into which the Series B-1 Stock is convertible.

Section 3.07.Financial Statements.  The Company has previously delivered to the Initial Purchaser and to the Investors copies of (i) the combined balance sheet of the Company, First Union Management, Inc. and the Company Subsidiaries as of December 31, 2003 and the related combined statements of operations, shareholder’ equity and cash flow for the year ended December 31, 2003 as reported in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed by the Company with the SEC under the Exchange Act, and accompanied by the audit report of KPMG LLP, independent public accountants, (collectively, the “Audited Financial Statements”), and (ii) the unaudited consolidated balance sheet of the Company and the Company Subsidiaries as of September 30, 2004 (the “Balance Sheet”) and the related unaudited consolidated income statements and cash flows for the thirteen weeks and thirty-nine weeks ended September 30, 2004, as reported in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004, filed with the SEC under the Exchange Act (the “Unaudited Financial Statements”). The Audited Financial Statements accurately reflect the books and records of the Company and present fairly, in all material respects, the combined financial position of the Company, First Union Management, Inc. and the Company Subsidiaries and the combined results of their operations and their cash flows for the periods and dates covered thereby, in conformity with GAAP.  The Unaudited Financial Statements accurately reflect the books and records of the Company and present fairly, in all material respects, the combined financial position of the Company and the Company Subsidiaries and the combined results of their operations and their cash flows for the period and date covered thereby, in conformity with GAAP, except for changes resulting from normal year-end adjustments (none of which will be material in amount).

Section 3.08.Commission Filings.  The Company has filed all reports, registration statements, proxy statements and other materials, together with any amendments required to be made with respect thereto, that were required to be filed with the SEC under the Securities Act or the Exchange Act from and after December 31, 2003 (all such reports and statements are collectively referred to herein as the “Commission Filings”).  As of their respective dates, the Commission Filings, including the financial statements contained therein, complied in all material respects with all of the statutes and published rules and regulations enforced or promulgated by the regulatory authority with which the Commission Filings were filed, and, except to the extent the information in any Commission Filing has been revised or superseded by a later filed Commission Filing, did not and do not as of the date hereof contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

11

Section 3.09.Absence of Certain Developments.

(a)Except as set forth on Schedule 3.09(a), or disclosed in the Commission Filings, since December 31, 2003:

(i)no event, condition or contingency has occurred which could reasonably have a Material Adverse Effect;

(ii)neither the Company nor any Company Subsidiary has transferred, issued, sold or disposed of any shares of their Capital Stock or granted any options, warrants, calls or other rights to purchase or otherwise acquire shares of their Capital Stock other than under the Company’s employee stock option plans and the dissolution of former Company Subsidiaries;

(iii)there has not been any damage, destruction or loss, whether or not covered by insurance, with respect to the property of the Company or any Company Subsidiary having a material adverse impact on the business of the Company or the Company Subsidiaries, taken as a whole;

(iv)neither the Company nor any Company Subsidiary has made any change in the accounting principles, methods or practices followed by it (including, without limitation, its method of accounting for stock options) other than a change which was required by reason of a concurrent change in Law or GAAP;

(v)neither the Company nor any Company Subsidiary has amended its organizational documents or By-Laws except as contemplated by this Agreement;

Section 3.10.Litigation.  There are no Legal Proceedings pending or, to the knowledge of the Company, threatened, that question the validity of this Agreement or the Transaction Documents or any action taken or to be taken by the Company or any Company Subsidiary in connection with the consummation of the Contemplated Transactions.  Except as otherwise disclosed herein or in the Commission Filings or on Schedule 3.10, there are no Legal Proceedings pending or, to the knowledge of the Company, threatened, against or affecting the Company or any Company Subsidiary or any of their respective properties or assets, at Law or in equity, involving claims of more than $1,000,000 or that otherwise individually or in the aggregate could reasonably have a Material Adverse Effect if adversely determined.  There is no outstanding or, to the knowledge of the Company, threatened, Order of any Governmental Body against the Company or any Company Subsidiary or any of their respective properties or assets, which Orders could individually or in the aggregate reasonably have a Material Adverse Effect.

Section 3.11.Tax Matters.

(a)For the periods since January 1, 2001, the Company and each Company Subsidiary has timely filed or caused to be timely filed any and all returns, declarations, reports (including any consolidated, combined or unitary returns), claims for refund, information returns, or other documents or statements relating to Taxes, including any schedule or attachment thereto and any amendment or supplement thereof (each, a “Tax Return”) required to be filed by it under applicable federal, state, local or foreign Law, except to the extent that any failure to do so could

12

not individually or in the aggregate reasonably have a Material Adverse Effect. The reserves for Taxes contained in the financial statements of the Company or carried on the books and records of the Company and the Company Subsidiaries, as applicable, are in the aggregate adequate to cover all Tax liabilities and deferred Taxes of the Company and the Company Subsidiaries as of the date of this Agreement, except to the extent that any inadequacy could not individually or in the aggregate reasonably have a Material Adverse Effect.

(b)For the periods since January 1, 2001, all Taxes shown as being due and owing by the Company or any Company Subsidiary on any Tax Return have been paid.

(c)The Company and each Company Subsidiary has timely withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, stockholder, or third party, except to the extent that any failure to do so could not individually or in the aggregate reasonably have a Material Adverse Effect.

(d)None of the Company nor any Company Subsidiary has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency, in each case except as to Taxes that are disclosed on Schedule 3.11(d) or in the financial statements of the Company and the Company Subsidiaries, as applicable, or that, if assessed could not individually or in the aggregate reasonably have a Material Adverse Effect.

(e)The Company has elected under Section 856(c) of the Internal Revenue Code of 1986, as amended (the “Code”), to be taxed as a real estate investment trust (“REIT”), and such election has not been revoked or terminated and remains in full force and effect.  The Company is qualified under the Code as a REIT.

Section 3.12.Real Property.

(a)Each of the Company and the Company Subsidiaries owns interests in the properties listed on Schedule 3.12(a) (the “Properties”), free and clear of all Liens other than Permitted Liens and the Liens set forth on Schedule 3.12(a) or disclosed in the Commission Filings.

(b)Each of the Company and the Company Subsidiaries owns either a fee simple interest or a land estate or interest as a ground lessee in the Properties as set forth in Schedule 3.12(b).

Section 3.13.Material Contracts.  Except as listed on Schedule 3.13, there is no default and the Company has received no written notice of default under any Contract or a Contract listed in the Commission Filings by the Company, the Company Subsidiaries or, to the knowledge of the Company, by any other party thereto, in each case which could individually or in the aggregate reasonably have a Material Adverse Effect, and no event has occurred that, individually or in the aggregate, with the lapse of time or the giving of notice or both would constitute a default thereunder by the Company, the Company Subsidiaries or, to the knowledge

13

of the Company, by any other party thereto, that could individually or in the aggregate reasonably have a Material Adverse Effect.

Section 3.14.Company Employees.  The Company has no employees and is administered by FUR Advisors LLC pursuant to an Advisory Agreement, dated December 31, 2003.  The Company does not presently maintain or contribute to, or have any liability with respect to, any employee benefit plan.

Section 3.15.Compliance with Laws.  (a) The Company and the Company Subsidiaries are in compliance in all material respects with all material Laws and material Orders promulgated by any Governmental Body applicable to the Company and the Company Subsidiaries or to the conduct of the business or operations of the Company and the Company Subsidiaries or the use of their properties (including any leased properties) and assets.  Since January 1, 2004, neither the Company nor any Company Subsidiary has received any written notice of violation or alleged material violation of any such Law or Order by any Governmental Body in any material respect that has not been resolved. Since January 1, 2004, neither the Company nor any Company Subsidiary has received written notice that it is the subject of an investigation by any Governmental Body which could individually or in the aggregate reasonably have a Material Adverse Effect.

(b)To the knowledge of the Company, except as set forth on Schedule 3.15(b), the Company and the Company Subsidiaries have all Permits necessary for the conduct of their business, except where the failure to have such Permits would not individually or in the aggregate reasonably have a Material Adverse Effect.

Section 3.16.Preferred Stock Exemption.

(a)Assuming the representations and warranties of the Investors contained in Article IV are true, the offer and sale of the Series B-1 Shares (and the issuance of the Common Stock to such Investors upon the conversion of such Series B-1 Shares) are exempt from the registration requirements of the Securities Act.  The Company has not taken and will not take any actions which would cause the offers and sales contemplated hereunder to become ineligible for exemption under the Securities Act.

(b)Neither the Company nor any Person acting on its behalf has offered the Series B-1 Stock to any Person by means of general or public solicitation or general or public advertising, such as by newspaper or magazine advertisements, by broadcast media, or at any seminar or meeting whose attendees were solicited by such means.

Section 3.17.Investment Company Act.  The Company and the Company Subsidiaries are not, nor are they directly or indirectly controlled by or acting on behalf of any Person that is, an investment company within the meaning of the Investment Company Act of 1940, as amended.

Section 3.18.Financial Advisors.  Except as set forth on Schedule 3.18, no agent, broker, investment banker, finder, financial advisor or other Person is or will be entitled to any

14

broker’s or finder’s fee or any other commission or similar fee as a result of actions taken by the Company or its Affiliates, directly or indirectly, in connection with the Contemplated Transactions.

Section 3.19.No General Solicitation.  None of the Company or any of its “affiliates” (as defined in Rule 501(b) of Regulation D under the Securities Act (“Regulation D”)), has, directly or through an agent, engaged in any form of general solicitation or general advertising in connection with the offering of the Series B-1 Shares (as those terms are used in Regulation D) under the Securities Act or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act; and the Company has not entered into any contractual arrangement with respect to the distribution of the Series B-1 Shares except for this Agreement and the Registration Rights Agreement, and the Company will not enter into any such arrangement.

Section 3.20.Environmental Laws.  Except as set forth in Schedule 3.20, each of the Company and the Company Subsidiaries is in compliance in all material respects with all limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Environmental Laws, or in any plan, Order, notice or demand letter issued, entered, promulgated or approved thereunder except where the failure to comply would not individually or in the aggregate have a Material Adverse Effect.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE
INITIAL PURCHASER AND THE INVESTORS

Section 4.01.Initial Purchaser Representations.

(a)The Initial Purchaser represents and warrants to and agrees with the Company and each of the Investors that it is a registered broker-dealer and an institutional accredited investor, as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, as the case may be, with such knowledge and experience in financial and business matters as is necessary in order to evaluate the merits and risks of an investment in the Series B-1 Shares, and (ii) it is not acquiring the Series B-1 Shares with any present intention of offering or selling any of the Series B-1 Shares in a transaction that would violate the Securities Act or the securities laws of any state of the United States or any other applicable jurisdiction

(b)The Initial Purchaser hereby represents and warrants to the Company and each of the Investors that it (i) has not solicited offers for, or offered or sold, the Series B-1 Shares by means of any form of general solicitation or general advertising or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act and (ii) has only solicited offers for the Series B-1 Shares from persons whom the Initial Purchaser reasonably believed to be accredited investors.

(c)The Initial Purchaser represents and warrants to the Company and each of the Investors that it has had the opportunity, directly or indirectly or through its representatives,

15

to ask questions of and receive answers from Persons acting on behalf of the Company concerning the transactions contemplated by this Agreement.

Section 4.02.Investors Representations.  Each of the Investors represents and warrants, severally, to the Company as follows:

(a)Authorization.  Such Investor is a corporation, partnership or limited liability company duly organized and validly existing under the Laws of the state or country of its jurisdiction of formation.  Such Investor has the full corporate, partnership or limited liability company power and authority to enter into this Agreement and the other Transaction Documents and to consummate the transactions contemplated hereby and thereby.  The execution and delivery of this Agreement and the other Transaction Documents and the consummation by the Investors of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Investors.  This Agreement and the other Transaction Documents have been and will be, as the case may be, duly executed and delivered by such Investor and constitute legal, valid and binding obligations of such Investor, enforceable in accordance with their respective terms, except as such enforceability may be subject to the effects of any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar Laws affecting creditors’ rights generally and subject to the effects of general equitable principles.

(b)Investment Representations.  Such Investor is an Accredited Investor and is acquiring the Series B-1 Shares allocated to such Investor for such Investor’s own account, for investment, and not with a view to, or for sale in connection with, the distribution thereof or of any interest therein.  Such Investor has adequate net worth and means of providing for its current needs and contingencies and is able to sustain a complete loss of the investment in such Series B-1 Shares, and has no need for liquidity in such investment.  Such Investor, itself or through its officers, employees or agents, has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of an investment such as an investment in the Series B-1 Shares, and such Investor, either alone or through its officers, employees or agents, has evaluated the merits and risks of the investment in such Series B-1 Shares.  Such Investor understands that the Series B-1 Stock has not been registered under the Securities Act by reason of its issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to the exemption provided in Section 4(2) and/or Regulation D promulgated under the Securities Act, and that the Series B-1 Stock may not be sold or otherwise disposed of unless registered under the Securities Act or exempted from such registration.

(c)Investors’ Acknowledgment.  Such Investor has had the opportunity, directly or through its representatives, to ask questions of and receive answers from Persons acting on behalf of the Company concerning the transactions contemplated by this Agreement.

(d)Financial Advisors.  No agent, broker, investment banker, finder, financial advisor or other Person is or will be entitled to any broker’s or finder’s fee or any other commission or similar fee as a result of actions taken by such Investor, directly or indirectly, in connection with any of  the transactions contemplated by this Agreement or any of the

16

Transaction Documents except that Credit Suisse First Boston has acted as the Company’s placement agent for the Transaction as set forth on Schedule 3.18.

(e)Legend.

(i)The certificates evidencing the Series B-1 Stock and the Common Stock issuable upon conversion of the Series B-1 Stock will bear a legend (the “Legend”) substantially similar to the following:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  NO INTEREST IN THESE SECURITIES MAY BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT IS IN EFFECT UNDER SAID ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SAID ACT.  THIS CERTIFICATE IS ISSUED PURSUANT TO AND SUBJECT TO THE RESTRICTIONS ON TRANSFER AND OTHER PROVISIONS OF THE INVESTORS’ RIGHTS AGREEMENT BETWEEN THE COMPANY, AND THE INVESTORS REFERRED TO THEREIN, A COPY OF WHICH IS ON FILE WITH THE COMPANY.  EXCEPT AS PROVIDED IN SUCH AGREEMENT, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE NOT TRANSFERABLE AND ANY PURPORTED TRANSFER IN VIOLATION OF THE PROVISIONS OF SUCH AGREEMENT SHALL BE VOID AND OF NO FORCE AND EFFECT.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON OWNERSHIP AND TRANSFER CONTAINED IN THE BY-LAWS AND THE CERTIFICATE OF DESIGNATIONS FOR THE PURPOSE OF THE COMPANY’S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”).  IF THE RESTRICTIONS ON OWNERSHIP OR TRANSFER ARE VIOLATED THE ISSUANCE OR TRANSFER RESULTING IN SUCH VIOLATION WILL BE VALID ONLY WITH RESPECT TO SUCH AMOUNT OF SECURITIES AS DOES NOT RESULT IN A VIOLATION OF THE COMPANY’S BY-LAWS OR CERTIFICATE OF DESIGNATIONS, AND SUCH ISSUANCE OR TRANSFER SHALL BE NULL AND VOID WITH RESPECT TO ANY EXCESS SECURITIES.  ALL TERMS IN THIS LEGEND NOT

17

OTHERWISE DEFINED HEREIN HAVE THE MEANINGS ASCRIBED THERETO IN THE COMPANY’S BY-LAWS OR CERTIFICATE OF DESIGNATIONS AS THE SAME MAY BE FURTHER AMENDED FROM TIME TO TIME.

(ii)The first paragraph of the legend endorsed on the certificates pursuant to Section 4.02(e) hereof shall be removed and the Company shall issue a certificate without such portion of the legend to the holder thereof at such time as the securities evidenced thereby cease to be restricted securities upon the earliest to occur of (i) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (ii) the securities shall have been sold to the public pursuant to Rule 144 (or any successor provision) under the Securities Act, and (iii) such securities may be sold by the holder without restriction or registration under Rule 144(k) under the Securities Act (or any successor provision).

(f)Ownership and Transfer Limitations.  Such Investor has received a copy of the By-Laws of the Company and the Certificate of Designations for the Series B-1 Stock, and understands the restrictions on transfer and ownership of the Company’s Capital Stock included therein.  As of the Closing, no Person who or which is a beneficial owner of such Investor will own indirectly (based solely on such Person’s percentage ownership of Series B-1 Stock through the Investor) 9.8% or more of the Series B-1 Stock.  The Investors are not acting as a “group” under Section 13(d) of the Exchange Act.

(g)No Other Representation.  Such Investor acknowledges that the Company is not making any representation, warranty, covenant or agreement in connection with the transactions contemplated by this Agreement, other than as set forth in this Agreement and the other Transaction Documents.

(h)NYSE Compliance.  Such Investor acknowledges that it does not beneficially own more than five percent of the Company’s outstanding Common Shares and is not otherwise a substantial stockholder of the Company, as defined under Rule 312.03 of the NYSE Listed Company Manual.

(i)Other than as set forth in Section 4.01, each of the Investors hereby acknowledges and agrees that it has not relied upon any representation by the Initial Purchaser, nor has the Initial Purchaser made any representation to such Investor, in connection with this Agreement and the transactions contemplated hereby.

Section 4.03.Each of the parties hereto acknowledges that Credit Suisse First Boston and its Affiliates are acting solely as financial advisor and/or placement agent to the Company and have not provided advice to any Investor in connection with the transaction contemplated by this Agreement.  Each Investor further acknowledges and agrees that it has not relied upon any representation by Credit Suisse First Boston or any of its Affiliates, nor have Credit Suisse or any of its Affiliates made any representation to such Investor in connection with this Agreement and the transactions contemplated hereby.

18

ARTICLE V
COVENANTS OF THE COMPANY

The Company covenants and agrees that for so long as the Series B-1 Shares are outstanding (and in the case of Section 5.06, as long as the Investor holds shares of Common Stock issued on conversion thereof):

Section 5.01.Accounting System.  The Company will maintain a system of accounting and proper books of record and account, in accordance with GAAP and applicable Laws.

Section 5.02.Corporate Existence.  The Company will preserve and keep in full force and effect its existence as an unincorporated business trust and the corporate existence of each Company Subsidiary (unless merged into the Company) and all rights and franchises of the Company and the Company Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve or keep in full force and effect such existence of a subsidiary, right or franchise could not individually or in the aggregate reasonably have a Material Adverse Effect.

Section 5.03.Compliance with Law.  The Company will, and will cause each Company Subsidiary to, comply, in all material respects, with all Laws which are applicable with respect to the conduct of their respective businesses and the ownership of their respective properties  and will maintain in effect all government authorizations, provided that the Company shall not be deemed to be in violation of this Section 5.04 as a result of any failure to comply with any provisions of such Laws or failure to maintain in effect, the noncompliance with which and the failure to maintain which would not result in enforceable fines, penalties, injunctive relief or other civil or criminal liabilities which, in the aggregate, could reasonably have a Material Adverse Effect.

Section 5.04.Maintain Listing.  The Company will use commercially reasonable efforts to (x) maintain the listing and trading of its Common Stock on the NYSE, for so long as the Company qualifies for such listing under the rules and regulations of the NYSE and (y) comply in all material respects with the Company’s reporting, filing, and other obligations, under the rules and regulations of the NYSE.  In the event that the Common Stock is no longer eligible for listing and trading on the NYSE, the Company will use commercially reasonable efforts to secure the listing or quotation of the Common Stock on the Nasdaq National Market, the Nasdaq SmallCap Market or the American Stock Exchange (if such listing is permitted by the bylaws, rules or regulations of any of the foregoing) and to comply in all material respects with the Company’s reporting, filing and other obligations under the bylaws or rules of such exchanges or the National Association of Securities Dealers, Inc., as applicable.  The Company will promptly provide to the Initial Purchaser and each of the Investors copies of any notices it receives from the NYSE and any other exchange or quotation system on which the Common Stock is then listed regarding the continued eligibility of the Common Stock for listing on such exchanges or quotation systems.

19

Section 5.05.Secure Listing.  The shares of Common Stock issuable upon conversion of the Series B-1 Stock shall be duly listed, pending notice of issuance, on the NYSE prior to the Closing and the Company shall maintain such listing in accordance with Section 5.04.

Section 5.06.Exempt Persons.  The provisions of the Company’s By-Laws annexed hereto as Schedule 5.06 will remain in effect.

ARTICLE VI
ACTIONS PRIOR TO CLOSING

Section 6.01.Access to Information.  Until the Closing Date or the earlier termination of this Agreement, the Company will permit the Initial Purchaser and representatives of the Investors to visit and inspect any of the properties of the Company or any of the Company Subsidiaries, to examine the corporate books, records, agreements and files of the Company and make copies or extracts therefrom and to request information at reasonable times and intervals concerning the general status of the Company’s financial condition and operations, all upon reasonable notice and at such reasonable times and as often as the Initial Purchaser and such Investor may reasonably request.

Section 6.02.Consent.  Until the Closing Date, each of the parties hereto will use its reasonable best efforts and shall fully cooperate with each other party to make promptly all registrations, filings and applications, give all notices and obtain all Consents in connection with the transactions contemplated hereby.

Section 6.03.Publicity.  Until the Closing Date, the parties agree not to issue any announcement, press release, public statement or other information to the press or any third party with respect to this Agreement or the Contemplated Transactions without obtaining the prior written approval of the other parties hereto (which approval shall not be unreasonably withheld); provided, however, that nothing contained herein shall prevent any party hereto, at any time, from furnishing any required information to any Governmental Body or from issuing any announcement, press release, public statement or other information to the press or any third party with respect to this Agreement or the Contemplated Transactions if required by Law, although, the parties agree to consult with each other as to the content of any release so required and consider in good faith the comments of the other thereon.

ARTICLE VII
CONDITIONS TO CLOSING

Section 7.01.Conditions to Obligations of the Initial Purchaser and the Investors.  The obligation of the Initial Purchaser and the Investors to consummate the transactions contemplated hereby shall be subject to the fulfillment on or prior to the Closing Date of the following conditions, any or all of which may be waived by the Initial Purchaser and/or the Investors, as applicable, in whole or in part to the extent permitted by applicable Law:

20

(a)Consents.  The Company shall have obtained the consents set forth in Schedule 3.05, in form and substance reasonably satisfactory to the Initial Purchaser and the Investors.

(b)Material Adverse Effect.  Between the date hereof and the Closing Date, neither the Company nor any Company Subsidiary shall have suffered or experienced a Material Adverse Effect.

(c)No Governmental Order or Other Proceeding or Litigation.  No Order of any Governmental Body shall be in effect that restrains or prohibits the Contemplated Transactions.

(d)Legal Opinion.  The Initial Purchaser and the Investors shall have received, dated the Closing Date and addressed to each of the Initial Purchaser and the Investors, an opinion of Katten Muchin Zavis Rosenman, counsel to the Company, substantially in the form attached hereto as Exhibit B.

(e)Certificate of Designations.  The Certificate of Designations shall have been adopted by the Board of Trustees and shall be in full force and effect.

(f)Registration Rights Agreement.  The Registration Rights Agreement shall have been executed and delivered by the parties thereto and shall be in full force and effect, in substantially the form attached hereto as Exhibit C (the “Registration Rights Agreement”).

(g)Investors’ Rights Agreement.  The Investors Rights Agreement shall have been executed and delivered by the parties thereto and shall be in full force and effect, in substantially the form attached hereto as Exhibit D (the “Investors’ Rights Agreement”).

(h)Stock Certificates.

(i)The Company shall have delivered to the Initial Purchaser a certificate or certificates representing the Series B-1 Shares, duly registered in the name of the Initial Purchaser.

(ii)The Initial Purchaser shall have delivered to the Investors certificates representing the Series B-1 Shares in the amounts specified on Schedule 2.01, duly registered by the Company in the respective names of the Investors as set forth in Schedule 2.01.

(i)Company Certificates.  The Company shall have delivered to the Initial Purchaser and the Investors:

(i)a certificate, dated the Closing Date, executed by the Secretary of the Company which certifies that (A) attached to such certificate is a complete and correct copy of the Declaration of Trust and all amendments thereto of the Company, and (B) attached to such certificate is a complete and correct copy of the By-Laws of the Company (including the amendments referred to in paragraph (j)) and the Certificate of Designations, each as in full force and effect at the Closing Date; and

21

(ii)a certificate, dated the Closing Date, executed by the Secretary of the Company, which certifies as complete and correct resolutions of the Board of Trustees authorizing the execution, delivery and performance of this Agreement and each of the other Transaction Documents, the issuance and sale of the Series B-1 Stock and the issuance of the shares of Common Stock issuable upon conversion of the Series B-1 Stock, the reservation of such shares of Common Stock and the performance of the transactions contemplated by this Agreement and the other Transaction Documents.

(j)By-Law Amendment.  The By-Laws of the Company shall have been amended as provided in Schedule 5.06 hereto.

(k)The representations and warranties contained in this Agreement shall be accurate on the Closing Date as if made on the Closing Date and the Company shall have performed all of its covenants and agreements as set forth in this Agreement on or before the Closing Date.  The Company shall not have taken any action since the date of this Agreement that would have required a vote or waiver of the Investors or the holders of the Series B-1 Shares under any Transaction Document.

(l)The Investors shall have received a certificate executed by the President of the Company stating that the conditions set forth in paragraphs (a), (b), (k) and (o) have been satisfied.

(m)The Investors shall have received from the Company such other certificates and documents as they shall reasonably request, and all proceedings taken by the Company in connection with the Transaction Documents and all documents and papers relating to such Primary Documents shall be satisfactory to the Purchasers.

(n)The consummation of the Transaction shall not be prohibited by applicable Law.

(o)The shares of Common Stock issuable upon conversion of the Series B-1 Stock shall have been listed on the NYSE, pending notice of issuance.

(p)The Company shall have paid the reasonable legal expenses of the Investors incurred in connection with the Transaction pursuant to Article X below.

(q)The Investors shall not be subject as of the Closing Date to any penalties or liabilities under the Code or other Laws as the result of the consummation of the transactions contemplated under this Agreement that were not applicable as of the date of execution of this Agreement.

(r)It shall be a condition to each Investor’s obligations under this Agreement that all other Investors tender payment for the Series B-1 Shares as set forth on Schedule 2.01; provided, however, that the release of any such Investor as the result of such noncompliance by any other Investor shall not affect any remedy the Company may have against such noncomplying Investor.

22

(s)Steve Mandis shall have been appointed a Trustee of the Company.

Section 7.02.Conditions to Obligations of the Company.  The obligation of the Company to consummate the transactions contemplated hereby shall be subject to the fulfillment on or prior to the Closing Date of the following conditions, any or all of which may be waived by the Company:

(a)No Governmental Order or Other Proceeding or Litigation.  No Order of any Governmental Body shall be in effect that restrains or prohibits the Contemplated Transactions.

(b)NYSE Listing.  The shares of Common Stock issuable upon conversion of the Series B-1 Stock shall have been listed on the NYSE, pending notice of issuance.

(c)Registration Rights Agreement.  The Registration Rights Agreement shall have been executed and delivered by the other parties thereto and shall be in full force and effect.

(d)Investors’ Rights Agreement.  The Investors Rights Agreement shall have been executed and delivered by the other parties thereto and shall be in full force and effect.

(e)It shall be a condition to the Company’s obligations under this Agreement that all Investors tender payment for the Series B-1 Shares as set forth on Schedule 2.01.

ARTICLE VIII
SURVIVAL

Section 8.01.Survival.  The representations, warranties and covenants to be performed at or prior to Closing of the parties set forth in this Agreement shall survive for a period of 24 months following the execution and delivery of this Agreement and thereafter shall be of no further force or effect, provided that the representations and warranties set forth in Sections 3.11 (Taxes) and 4.02(f)(Ownership and Transfer Limitations), shall survive for the applicable period of the statute of limitations and the representations and warranties set forth in Sections 3.01 (Organization), 3.02 (Authorization) and 3.04 (Capitalization) shall survive indefinitely (or if indefinite survival is not permitted by Law, then for the maximum period permitted by applicable Law).  Following the expiration of the periods set forth above with respect to any particular representation or warranty, no party hereto shall have any further liability with respect to such representation or warranty.  Except as set forth herein, all of the covenants, agreements and obligations of the parties hereto shall survive the Closing indefinitely (or if indefinite survival is not permitted by Law, then for the maximum period permitted by applicable Law).  Anything herein to the contrary notwithstanding, any claim for indemnification that is asserted by written notice which notice specifies in reasonable detail the facts upon which such claim is made as provided in this Section 8.01 within the survival period shall survive until resolved pursuant to a final non-appealable judicial determination or otherwise.

23

ARTICLE IX
INDEMNIFICATION

Section 9.01.Generally.  Subject to the limitations and other provisions of this Article IX, the Company covenants and agrees to indemnify, defend and hold harmless the Investor Related Party Members and the Initial Purchaser Group Members from and against (but only to the extent of) any and all Losses resulting from, incurred in connection with or arising out of (but only to the extent of) (a) any breach of any representation, warranty or covenant of the Company contained herein, (b) the failure of the Company to perform any of the agreements, covenants or obligations contained herein (other than if any such claim was caused by a breach by the Investors under this Agreement) and (c) claims by third parties (other than investors in, or securityholders, members, partners or Affiliates of, any Investor, or any party to an agreement with an Investor which agreement is breached or is subject to a claim that it has been breached as a result of the Company’s performance under this Agreement) resulting solely from the purchase of the Series B-1 Shares or the use by the Company of the proceeds thereof.  Subject to the limitations and other provisions of this Article IX, each Investor, severally and not jointly, covenants and agrees to indemnify, defend and hold harmless the Company Group Members from and against (but only to the extent of) any and all Losses resulting from, incurred in connection with or arising out of (but only to the extent of) (a) any breach of any representation, warranty, covenant or agreement of such Investor contained herein or (b) the failure of such Investor to perform any of the agreements, covenants or obligations of such Investor contained herein.  The term “Loss” or any similar term shall mean any and all damages, reduction in value actually realized or incurred of the original investment in the Series B-1 Shares, deficiencies, costs, claims, fines, judgments, amounts paid in settlement, expenses of investigation, interest, penalties, assessments, out-of-pocket expenses (including reasonable attorneys’ and auditors’ fees and disbursements, witness fees and court costs).  The party or parties being indemnified are referred to herein as the “Indemnitee” and the indemnifying party is referred to herein as the “Indemnitor.”

24

Section 9.02.Indemnification Procedure.

(a)Any party who receives notice of a potential claim that may, in the judgment of such party, result in a Loss shall use all reasonable efforts to provide the parties hereto notice thereof, provided that failure or delay or alleged delay in providing such notice shall not adversely affect such party’s right to indemnification hereunder, unless and then only to the extent that such failure or delay or alleged delay has resulted in actual prejudice to the Indemnitor, including, without limitation, by the expiration of a statute of limitations.  In the event that any party shall incur or suffer any Losses in respect of which indemnification may be sought by such party hereunder, the Indemnitee shall assert a claim for indemnification by written notice (a “Notice”) to the Indemnitor stating the nature and basis of such claim.  In the case of Losses arising by reason of any third party claim, the Notice shall be given within thirty (30) days of the filing or other written assertion of any such claim against the Indemnitee, but the failure of the Indemnitee to give the Notice within such time period shall not relieve the Indemnitor of any liability that the Indemnitor may have to the Indemnitee, except to the extent that the Indemnitor demonstrates that the defense of such action has been materially prejudiced by the Indemnitee’s failure to timely give such Notice.

(b)In the case of third party claims for which indemnification is sought, the Indemnitor shall, if necessary, retain counsel reasonably satisfactory to the Indemnitee, and have the option (i) to diligently conduct any proceedings or negotiations in connection therewith, (ii) to take all other steps to settle or defend any such claim (provided that the Indemnitor shall not settle any such claim without the consent of the Indemnitee which consent shall not be unreasonably withheld or delayed, provided, that it shall not be deemed unreasonable to withhold consent if such settlement involves a finding or admission of violation of laws or rights, or relief other than monetary damages that will be paid by the Indemnitor) and (iii) to employ counsel to contest any such claim or liability in the name of the Indemnitee or otherwise.  In any event, the Indemnitee shall be entitled to participate at its own expense and by its own counsel in any proceedings relating to any third party claim.  The Indemnitor shall, within 15 Business Days of receipt of the Notice, notify the Indemnitee of its intention to assume the defense of such claim (in which case the Indemnitor will be deemed to have waived any right to dispute its liability under Section 9.01 with respect to such claim and its outcome).  If (i) the Indemnitor shall decline to assume the defense of any such claim, (ii) the Indemnitor shall fail to notify the Indemnitee within 15 Business Days after receipt of the Notice of the Indemnitor’s election to defend such claim, (iii) the Indemnitee shall have reasonably concluded that there may be defenses available to it which are different from or in addition to those available to the Indemnitor (in which case the Indemnitor shall not have the right to direct the defense of such action on behalf of the Indemnitee), or (iv) a conflict exists between the Indemnitor and the Indemnitee which the Indemnitee has reasonably concluded would prejudice the Indemnitor’s defense of such action, then in each such case the Indemnitor shall not have the right to direct the defense of such action on behalf of the Indemnitee and the Indemnitee shall, at the sole expense of the Indemnitor, defend against such claim and (x) in the event of a circumstance described in clause (i) and (ii), the Indemnitee may settle such claim without the consent of the Indemnitor (and the Indemnitor may not challenge the reasonableness of any such settlement) and (y) in the event of a circumstance described in clause (iii) and (iv), the Indemnitee may not settle such claim without the consent of the Indemnitor (which consent will not be unreasonably withheld or

25

delayed, provided, that it shall not be deemed unreasonable to withhold consent if such settlement involves a finding or admission of violation of laws or rights, or relief other than monetary damages that will be paid by the Indemnitor).  The reasonable expenses of all proceedings, contests or lawsuits in respect of such claims shall be borne and paid by the Indemnitor if the Indemnitee is entitled to indemnification hereunder and the Indemnitor shall pay the Indemnitee, in immediately available funds, the amount of any Losses, promptly after the incurrence of such Losses.  Regardless of which party shall assume the defense or negotiation of the settlement of the claim, the parties agree, without limiting the Indemnitor’s obligations hereunder, to cooperate fully with one another in connection therewith.  In the event that any Losses incurred by the Indemnitee do not involve payment by the Indemnitee of a third party claim, then, the Indemnitor shall, within 20 days after written notice from the Indemnitee specifying the amount of Losses, pay to the Indemnitee, in immediately available funds, the amount of such Losses.  Anything in this Article X to the contrary notwithstanding, the Indemnitor shall not, without the Indemnitee’s prior written consent, settle or compromise any claim or consent to entry of any judgment in respect thereof which imposes any future obligation on the Indemnitee or which does not include, as an unconditional term thereof, the giving by the claimant or plaintiff to the Indemnitee, a release from all liability in respect of such claim.

Section 9.03.Limitations on Indemnification.  Notwithstanding anything to the contrary contained herein, the liability of (i) the Company under this Article IX shall be limited to an amount equal to the Purchase Price; and (ii) each Investor under this Article IX shall be limited to an amount equal to the Purchase Price paid by such Investor.

ARTICLE X
FEES, EXPENSES AND COSTS

Section 10.01.  The Company agrees to pay at the Closing (or in the event the transactions contemplated hereunder are not consummated other than as the result of noncompliance by the Investors) and hold the Investors harmless against liability for the payment of reasonable legal fees and expenses owed by such Investors to their counsel, incurred in connection with this Agreement and other reasonable costs and expenses (including, without limitation, accounting expenses and consultants’ fees) incurred by the Investors in connection with this Agreement, up to a maximum aggregate amount of $100,000.  In the event the Company requests that the Transaction Documents be amended, or if the Company files for bankruptcy or is declared bankrupt, the Company shall pay the reasonable legal fees incurred by the Investors in connection therewith.

ARTICLE XI
TERMINATION

Section 11.01.Termination.  This Agreement may be terminated on or any time prior to the Closing by the mutual written consent of each of the Investors and the Company.

Section 11.02.Effect Of Termination.  In the event of the termination of this Agreement as provided in Section 11.01, all obligations and agreements of the parties set forth in this Agreement shall forthwith become void except for the obligations set forth in:  (i) Section 6.03

26

(Publicity), (ii) Article IX (Indemnification) and (iii) Article X (Fees, Expenses and Costs), and there shall be no liability or obligation on the part of the parties hereto except as otherwise provided in this Agreement.  Notwithstanding the foregoing, the termination of this Agreement under Section 11.01 shall not relieve either party of any liability for breach of this Agreement prior to the date of termination.

ARTICLE XII
MISCELLANEOUS

Section 12.01.Notices and Addresses.  Any notice, demand, request, waiver, or other communication under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service, if personally served or sent by facsimile or electronic mail; on and upon receipt, if delivered to a courier or mailed by express mail, if sent by courier delivery service or express mail for next day delivery, or if mailed to the party to whom notice is to be given, by first class mail, registered, return receipt requested, postage prepaid and addressed as follows:

If to the Company:
	First Union Real Estate Equity and Mortgage Investments
	7 Bulfinch Place, Suite 500,
	P.O. Box 9507,
	Boston, Massachusetts 02114
	Facsimile: (617) 570-4746
	Telephone: (617) 570-4600
	E-mail: ASST@wfajericho.com
with a copy to:
	Katten Muchin Zavis Rosenman
	575 Madison Avenue
	New York, New York 10022
	Attention: Mark I. Fisher
	Facsimile: (212) 940-8776
	Telephone: (212) 940-8800
	E-mail: mark.fisher@kmzr.com
If to the Initial Purchaser:
	Perrin Holden & Davenport Capital Corp.
	5 Hanover Square
	New York, NY 10004
	Attention: Nelson Braff
	Facsimile:
	Telephone: (212) 566-5100
	E-mail: nbraffphd@aol.com

27

If to any Investor, to the address set forth on such Investor’s signature page attached hereto, with a copy to:
	Mark Weissler, Esq.
	Milbank, Tweed, Hadley & McCloy LLP
	1 Chase Manhattan Plaza
	New York, NY 10005
	Facsimile: (212) 822-5446
	Telephone: (212) 530-5446
	E-mail: mweissler@milbank.com

Section 12.02.Captions.  The captions in this Agreement are for convenience of reference only and shall not be given any effect in the interpretation of this Agreement.

Section 12.03.No Waiver.  The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.  Any waiver must be in writing.  Any of the covenants or agreements contained in this Agreement may be waived only by the written consent of the Initial Purchaser and the Investors.

Section 12.04.Severability.  If one or more provisions of this Agreement are held to be unenforceable under applicable Law, such provision(s) shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms so long as the economic or legal substance of the transactions contemplated by this Agreement are not affected in any manner materially adverse to any party.

Section 12.05.Exclusive Agreement; Amendment.  This Agreement supersedes all prior agreements among the parties with respect to its subject matter, is intended (with the documents referred to herein) as a complete and exclusive statement of the terms of the agreement among the parties with respect thereto and cannot be changed or terminated except by a written instrument executed by the party or parties against whom enforcement thereof is sought.

Section 12.06.Limitation on Assignment; Parties in Interest.

(a)No assignment of this Agreement or of any rights or obligations hereunder may be made by the Company or the Investors (by operation of Law or otherwise) without the prior written consent of the other parties hereto and any attempted assignment without the required consents shall be void.

(b)This Agreement shall be binding upon, and shall inure to the benefit of, and be enforceable by, the parties and their respective successors, transferees and assigns.

28

Section 12.07.Obligations of Investors Several.  The obligations of the Investors hereunder shall be several and not joint.  No Investor shall be responsible for the breach of any provision of this Agreement by any other Investor.

Section 12.08.Governing Law.  This Agreement and (unless otherwise provided) all amendments hereof and waivers and consents hereunder shall be governed by the internal Laws of the State of New York, without regard to the conflicts of Law principles thereof which would specify the application of the Law of another jurisdiction.

Section 12.09.Jurisdiction.  Each of the Investors and the Company (a) hereby irrevocably and unconditionally submits to the exclusive jurisdiction of any state or federal court sitting in New York County, New York for the purposes of any suit, action or other proceeding arising out of this Agreement or the subject matter hereof brought by the Company, or any Investor, (b) hereby waives the right to jury trial and (c) hereby waives and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.  If a judgment is obtained, this Section shall not preclude enforcement thereof in any forum.

Section 12.10.No Third Party Beneficiary.  The terms and provisions of this Agreement are intended solely for the benefit of each party hereto and their respective successors or permitted assigns, and it is not the intention of the parties to confer third-party beneficiary rights upon any other Person other than any Person entitled to indemnity under Article IX; provided, however, that Credit Suisse First Boston and its Affiliates shall be entitled to the benefits of, and to rely on, the representation set forth in Section 4.03.

Section 12.11.Injunctive Relief.  In the event that any party threatens to take any action prohibited by this Agreement, the parties agree that there may not be an adequate remedy at law.  Accordingly, in such an event, a party may seek and obtain preliminary and permanent injunctive relief (without the necessity of posting any bond or undertaking).  Such remedies shall, however, be cumulative and not exclusive and shall be in addition to any other remedies which any party may have under this Agreement or otherwise.

Section 12.12.Counterparts.  This Agreement may be executed via facsimile and in any number of counterparts, each of which shall be deemed to be an original instrument and all of which together shall constitute one and the same instrument.

Section 12.13.Actions Simultaneous.  All actions to be taken and all documents to be executed and delivered by all parties at the Closing shall be deemed to have been taken and executed and delivered simultaneously and no actions shall be deemed to have been taken nor shall any documents be deemed to have been executed and delivered until all actions have been taken and all documents have been executed and delivered.

29

Section 12.14.Home Office Payment.  So long as any Investor or its nominee shall be the holder of any Shares, and notwithstanding anything contained in the Certificate of Designations to the contrary, the Company will pay all sums becoming due with respect to such Shares, other than with respect to redemption, by direct deposit of automated clearinghouse funds into such account as the Investor shall provide by written notice to the Company, subject to execution of such documentation as the Company’s transfer agent shall reasonably require.

[Signature Pages Follow]

30

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS

By:
	Name:
	Title:

31

HALCYON STRUCTURED OPPORTUNITIES FUND, L.P.
By:
	Name: Steve Mandis
	Title:
Address: c/o		Halcyon Management Company
		477 Madison Avenue, 8th Floor
		New York, NY 10022
		212-303-9493
		smandis@halcyonllc.com

32

FAIRHOLME VENTURES II LLC
By:
	Name:  Bruce Fairholme
	Title:
Address:  c/o		Fairholme Capital Management, L.L.C.
		51 John F. Kennedy Parkway
		Short Hills, NJ 07078
		973-379-6557
		bruce@fairholme.net

33

HBK FUND L.P.
By: HBK Investments L.P., Investment Advisor
By:
	Name:
	Title:  Authorized Signatory
Address: c/o		HBK Investments
		300 Crescent Court, Suite 700
		Dallas, TX 75201
		214-758-6132
		jestes@hbk.com

34

GOLDMAN SACHS & CO.
By:
	Name:
	Title:
Address: c/o		Goldman Sachs & Co.
		85 Broad St.
		New York, NY 10004
		212-902-2734
		jessica.beattie@gs.com

35

KING STREET CAPITAL, L.P.
By:	King Street Capital Management, L.L.C.
	Its Investment Manager
By:
		Name:
		Title:
Address: c/o			King Street Capital Management
			65 East 55th Street, 30th Floor
			New York, NY 10022
			212-812-3109
			mpaige@kingstreet.com

36

BASSO MULTI-STRATEGY HOLDING FUND LTD.
By:
	Name: Howard Fischer
	Title:
Address: c/o		Basso Capital Management
		1266 East Main Street, 4th Floor
		Stamford, CT 06902
		203-352-6120
		hfischer@bassocap.com

37

KIMCO REALTY CORPORATION
By:
	Name: David Henry
	Title:
Address: c/o		Kimco Realty Corporation
		3333 New Hyde Park Road
		New Hyde Park, NY 11042
		516-869-7166
		dhenry@kimcorealty.com

38

INITIAL PURCHASER:
By:
	Name: Nelson Braff
	Title:

39

EX-10.2

Exhibit 10.2

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT, dated as of February 28, 2005, (this “Agreement”), by and among First Union Real Estate Equity and Mortgage Investments, an unincorporated association in the form of a business trust organized in Ohio (the “Company”), and each of the Investors that signs a signature page annexed hereto (referred to hereinafter collectively as the “Investors” and individually as an “Investor”).

RECITALS:

A.The Investors and the Company have entered into that certain Securities Purchase Agreement, dated as of February 25, 2005 (the “Purchase Agreement”), by and among the Company, Perrin Holden & Davenport Capital Corp., as Initial Purchaser and the Investors pursuant to which the Investors will purchase, contemporaneously with the execution and delivery of this Agreement, 3,640,000 shares of Series B Cumulative Convertible Redeemable Preference Shares of the Company (the “Series B-1 Stock”), which will constitute all of the issued and outstanding shares of Series B-1 Stock; and

B.It is a condition precedent to the purchase of such Series B-1 Stock that the Company grant to the Investors registration rights with respect to Series B-1 Stock and the shares of Common Stock of the Company issuable on the conversion of the Series B-1 Stock.

AGREEMENT:

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, intending to be legally bound, the parties hereto agree as follows:

ARTICLE I
DEFINITIONS

SECTION 1.1Definitions.  The following terms shall have the meanings ascribed to them below:

“Affiliate”  has the meaning set forth in the Investors’ Rights Agreement.

“Agreement” means this Agreement, as amended, modified or supplemented from time to time, in accordance with the terms hereof, together with any exhibits, schedules or other attachments thereto.

“Board” or “Board of Trustees” shall mean the Board of Trustees of the Company.

 “Commission” means the United States Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act.

“Common Stock” means the common shares of beneficial interest, par value $1.00 per share, of the Company or other publicly traded securities into which the Series B-1 Stock is now or hereafter convertible.

“Company” has the meaning set forth in the preamble to this Agreement.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

“Holder” means Investor.

“Holders’ Counsel” has the meaning set forth in Section 2.4.

“Indemnified Party” has the meaning set forth in Section 3.1(c).

“Indemnifying Party” has the meaning set forth in Section 3.1(c).

“Inspectors” has the meaning set forth in Section 2.5(l).

“Institutional Investor” has the meaning set forth in the Investors’ Rights Agreement.

“Investor” has the meaning set forth in the preamble of this Agreement.

“Investors’ Rights Agreement” shall mean that certain Investors’ Rights Agreement, dated as of the date hereof, by and among the Company and the Investors.

“Other Transferee” has the meaning set forth in the Investors’ Rights Agreement.

“Person” means any natural person, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof.

“Piggy-Back Registration” has the meaning set forth in Section 2.3(a).

“Preferred Registration Statement” has the meaning given in Section 2.2.

“Purchase Agreement” has the meaning set forth in the recitals.

“Records” has the meaning set forth in Section 2.5(l).

“Registration Expenses” has the meaning set forth in Section 3.2.

“Registrable Securities” means the Series B-1 Stock, the shares of Common Stock into which the Series B-1 Stock are convertible and any additional shares of Common Stock acquired by a Holder of Series B-1 Stock by way of a dividend, stock split, preemptive rights, recapitalization

2

or other distribution in respect of the Series B-1 Stock.  As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (i) a Registration Statement with respect to the sale of such shares of Common Stock has been declared effective by the Commission and such shares of Common Stock have been disposed of pursuant to such effective Registration Statement, (ii) in the opinion of counsel reasonably satisfactory to the Company and the Holder such shares of Common Stock shall have been or could be sold under Rule 144(k) (or any similar provisions then in force) under the Securities Act, or (iii) such shares of Common Stock shall have ceased to be outstanding.

“Registration Statement” means any registration statement of the Company which covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the prospectus, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect at the time.

“Selling Holder” means a Holder who is selling Registrable Securities pursuant to a Registration Statement under the Securities Act pursuant to a Registration Statement under the Securities Act.

“Series B-1 Stock” has the meaning set forth in the recitals.

“Shelf Effective Period” has the meaning set forth in Section 2.1.

“Shelf Registration Statement” has the meaning set forth in Section 2.1.

“Underwriter” means a securities dealer who purchases any Registrable Securities as principal in an underwritten offering and not as part of such dealer’s market-making activities.

“Violation” has the meaning set forth in Section 3.1(a).

ARTICLE II
REGISTRATION RIGHTS

SECTION 2.1Shelf Registration. 

(a)Shelf Registration.  Prior to the second anniversary of the date of execution of this Agreement, the Company shall prepare and file with the Commission a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission, covering all of the Common Stock issuable upon conversion of the Series B-1 Stock held by each of the Holders (the “Shelf Registration Statement”).  The Shelf Registration Statement shall be on Form S-3 (or any successor form then in effect) under the Securities Act (or another appropriate form reasonably acceptable to the Holders) permitting

3

registration of such Registrable Securities for resale by each of the Holders in the manner or manners designated by them.  The Company shall use its commercially reasonable efforts to effect such registration (including, without limitation, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) by the second anniversary of this Agreement, and shall use its commercially reasonable efforts to keep such Shelf Registration Statement continuously effective under the Securities Act until such time as when all of the Registrable Securities covered by such Shelf Registration Statement have ceased to be Registrable Securities (the “Shelf Effective Period”).

(b)If as determined by Investors holding a majority of the Registrable Securities any offering pursuant to a Registration Statement pursuant to Section 2.1 hereof involves an underwritten offering, the Company shall have the right to select legal counsel and an investment banker or bankers and manager or managers to administer the offering, which investment banker or bankers or manager or managers shall be reasonably satisfactory to the Investors; provided, however, that the Investors shall not be entitled to effect more than two (2) underwritten offerings under the Shelf Registration Statement unless the Investors are unable to sell, through the commercially reasonable efforts of the Company, the managing underwriter and the Investors, at least 2,184,000 shares of Common Stock in the aggregate in both such offerings and any underwritten offerings pursuant to Section 2.3 below, in which case the Investors shall be entitled to one (1) additional underwritten offering pursuant to the Shelf Registration Statement.  In any event, the Investors will not be entitled to effect more than one underwritten public offering per year pursuant to the Shelf Registration Statement. In the event of any underwritten public offering pursuant to this Section 2.1, the Company and the Investors shall use, and the Company shall cause any other securityholder covered by the registration statement to agree to use, commercially reasonable efforts to cooperate with each other and the managing underwriters in such offering, including entering into underwriting agreements and lock-up agreements in customary form for issuers or selling shareholders, as applicable, and the Company furnishing customary opinions of counsel and comfort letters and participating in investor presentations or road shows.  Except for such number of securities as shall, in the reasonable opinion of the managing underwriters for any underwritten offering, not exceed the maximum number of securities practicable to include in such offering, any underwritten offering effected pursuant to this Section 2.1(a) shall include only Registrable Securities.

4

SECTION 2.2  Contingent Registration Rights on Series B-1 Stock.  On or prior to the fifth anniversary of the date of execution of this Agreement, if at least 70% of the originally issued Series B-1 Stock remains outstanding, the Company shall prepare and file with the Commission a Registration Statement registering the resale of such Series B-1 Stock under the Securities Act, covering all of the Series B-1 Stock held by each of the Holders (the “Preferred Registration Statement”).  The Company shall use its commercially reasonable efforts to effect such registration (including, without limitation, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as promptly as possible after the filing thereof.

SECTION 2.3Piggy-Back Registration.

(a)Notice of Registration.  If at any time prior to the second anniversary of the date of execution of this Agreement, the Company proposes to file a registration statement under the Securities Act with respect to an offering by the Company for its own account (other than a registration statement with respect to a rights offering to holders of Common Stock or securities convertible into or exercisable for Common Stock, or on Form S-4 or S-8 (or any substitute form that may be adopted by the Commission)) or for the account of any of its security holders, the Company will give to each Holder written notice of such filing at least 20 days prior to filing such registration statement and such notice shall offer the Holders the opportunity to register the number of Registrable Securities as each such Holder may request in writing.  Upon the written request of such Holder made within ten days after receipt of such notice by the Company (which request shall specify the Registrable Securities intended to be disposed of by such Holder), the Company shall include in such registration all of the Registrable Securities specified in such request or requests in accordance with the provisions of this Section 2.3 (a “Piggy-Back Registration”).

(b)Underwriting.  If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 2.3(a) hereof.  In such event, the right of any Holder to registration pursuant to Section 2.3(a) hereof shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form for selling shareholders (which in any event shall limit any Holder’s indemnification and contribution obligation in the same manner as Section 3.1 hereof) with the managing Underwriter selected for such underwriting by the Company. The Company shall use its commercially reasonable efforts to cause the managing Underwriter to permit the Registrable Securities requested to be included in a Piggy-Back

5

Registration to be included on the same terms and conditions as any similar securities of the Company (whether sold by the Company or a security holder other than a Holder) included therein and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method of distribution thereof.  Notwithstanding anything to the contrary contained herein, if the managing underwriter advises the Company in writing that in its reasonable opinion the number of equity securities requested to be included in such Piggy-Back Registration exceeds the number which can be sold in such offering, the Company will include in such Piggy-Back Registration: (i) first, the number of shares to be offered by the Company;  (ii) second, the number of shares of Common Stock requested to be included by the security holders of the Company exercising their demand registration rights; and (iii) third, that number of other shares of Common Stock proposed to be included in such Piggy-Back Registration, pro rata among all other security holders of the Company  (including the Holders) exercising their respective piggy-back registration rights thereof based upon the aggregate number which such holders (including the Holders) propose to include in such Piggy-Back Registration; and the Company shall so advise all Holders of such limitation (or exclusion, if applicable).

(c)Right to Terminate Registration.

(i)The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.3 prior to the effectiveness of the related Registration Statement and shall have no obligation to register any Registrable Securities in connection with such registration, except to the extent provided herein.  The Registration Expenses of such withdrawn Piggy-Back Registration shall be borne by the Company in accordance with Section 2.4 hereof. 

(ii)Any Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any Piggy-Back Registration by giving written notice to the Company of its request to withdraw prior to the planned effective date of the related Registration Statement.

(d)Failure to Effect.  No registration effected under this Section 2.3, and no failure to effect a registration under this Section 2.3, shall relieve the Company of its obligation to effect and maintain the Shelf Registration pursuant to Section 2.1 hereof, and no failure to effect a registration under this Section 2.3 and to complete the sale of the Registrable Securities in connection therewith, shall relieve the Company of any other obligation under this Agreement (including, without limitation, the Company’s obligations under Sections 2.4  and 3.1).

SECTION 2.4  Registration Expenses.  In connection with registrations pursuant to Sections 2.1, 2.2 and 2.3 hereof, the Company shall pay all of the registration expenses incurred in connection with the registration thereunder (the “Registration Expenses”), including, without limitation, all: (i) reasonable registration and filing fees, (ii) reasonable fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities), (iii) reasonable processing, duplicating and printing expenses, (iv) of the Company’s internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (v) fees and expenses incurred in connection with the listing of the Registrable Securities or Series B-1 Stock, (vi) fees and disbursements of counsel for the Company and fees and expenses for independent certified public accountants retained by the Company (including the expenses of any comfort letters or costs associated with the delivery by independent certified public accountants of a comfort letter or comfort letters requested but not the cost of any audit other than a year end audit), (vii) fees and expenses of any special experts retained by the Company in connection with such

6

registration, and (viii) reasonable fees and expenses of one firm of counsel for the Holders to be selected by the Holders of a majority of the Registrable Securities to be included in such registration (“Holders’ Counsel”).  Notwithstanding the foregoing, each Selling Holder shall be responsible for any  underwriting fees, discounts or commissions attributable to the sale of Registrable Securities or Series B-1 Stock of such Selling Holder and, in the case of any underwritten public offering pursuant to Section 2.1, the Selling Holders whose Registrable Securities are included in such underwriting and the Company shall each be responsible for their respective ratable portions of 50% of the Registration Expenses (other than expenses pursuant to clause (iv), which shall be paid solely by the Company, and other than underwriting fees, discounts, commissions of each Selling Holder, which shall be paid solely by each Selling Holder) until the aggregate Registration Expenses incurred for such offering exceed $250,000, and thereafter such Selling Holders shall be solely responsible for all Registration Expenses other than expenses pursuant to clause (iv).

SECTION 2.5Registration Procedures.  In the case of each registration effected by the Company pursuant to this Agreement, the Company will keep each Holder who is entitled to registration rights hereunder advised in writing as to the initiation of each registration and as to the completion thereof.  In connection with any such registration:

(a)The Company will promptly prepare and file with the Commission a Registration Statement on Form S-3 (or any successor form then in effect) under the Securities Act (or another appropriate form reasonably acceptable to the Holders), will include in such Registration Statement such information as the Holders shall reasonably request, and use its commercially reasonable efforts to cause such Registration Statement to become and remain effective until the completion of the distribution contemplated thereby; provided, however, the Company shall not be required to keep such Registration Statement effective for more than (i)  180 days in the case of registrations effected pursuant to Section 2.2 or 2.3 hereof (or such shorter period which will terminate when all Registrable Securities covered by such Registration Statement have been sold), or (ii) the Shelf Effective Period in the case of a Shelf Registration Statement.

(b)The Company will promptly prepare and file with the Commission such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement effective for as long as such registration is required to remain effective pursuant to the terms hereof; cause the prospectus to be supplemented by any required prospectus supplement, and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and comply with the provisions of the Securities Act applicable to it with respect to the disposition of all Registrable Securities covered by such Registration Statement during the applicable period in accordance with the intended methods of disposition by the Selling Holders set forth in such Registration Statement or supplement to the prospectus.

(c)The Company, at least 10 days prior to filing a Registration Statement or at least five days prior to filing a prospectus or any amendment or supplement to such Registration Statement or prospectus, will furnish to (i) each Selling Holder, (ii) Holders’ Counsel and (iii) each Underwriter, if any, of the Registrable Securities covered by such Registration Statement copies of such Registration Statement and each amendment or supplement as proposed to be filed, together

7

with exhibits thereto, which documents will be subject to reasonable review and approval (which approval may not be unreasonably withheld) by each of the foregoing within five days after delivery (except that such review and approval of any prospectus or any amendment or supplement to such Registration Statement or prospectus must be within three days), and thereafter, furnish to such Selling Holders, Holders’ Counsel and Underwriters, if any, such number of copies of such Registration Statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such Registration Statement (including each preliminary prospectus) and such other documents or information as such Selling Holders, Holders’ Counsel or Underwriters may reasonably request in order to facilitate the disposition of the Registrable Securities; provided, however, that notwithstanding the foregoing, if the Company intends to file any prospectus, prospectus supplement or prospectus sticker which does not make any material changes in the documents already filed (including, without limitation, any prospectus under Rule 430A or 424(b)), then Holders’ Counsel will be afforded such opportunity to review such documents prior to filing consistent with the time constraints involved in filing such document, but in any event no less than one day.

(d)The Company will promptly notify each Selling Holder of any stop order issued or threatened by the Commission and take all reasonable actions required to prevent the entry of such stop order or to remove it at the earliest possible moment if entered.

(e)On or prior to the date on which the Registration Statement is declared effective by the Commission, the Company will use all commercially reasonable efforts to (i) register or qualify the Registrable Securities under such other securities or blue sky laws of such jurisdictions in the United States as any Selling Holder reasonably (in light of such Selling Holder’s intended plan of distribution) requests, and (ii) file all of the documents required to register such Registrable Securities with or approved by such other governmental agencies or authorities in the United States as may be necessary by virtue of the business and operations of the Company and do any and all other acts and things that may be reasonably necessary or advisable to enable such Selling Holder to consummate the disposition of the Registrable Securities owned by such Selling Holder; provided that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (e), (B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction.

(f)The Company will notify each Selling Holder, Holders’ Counsel and any Underwriter promptly and (if requested by any such Person) confirm such notice in writing, (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or prospectus or for additional information to be included in any Registration Statement or prospectus or otherwise, (iii) of the issuance by any state securities commission or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registrable Securities under state securities or “blue sky” laws or the initiation of any proceedings for that purpose, and (iv) of the happening of any event which makes any statement made in a Registration Statement or related

8

prospectus or any document incorporated or deemed to be incorporated by reference therein untrue or which requires the making of any changes in such Registration Statement, prospectus or documents so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements in the Registration Statement and prospectus not misleading in light of the circumstances in which they were made; and, as promptly as practicable thereafter, prepare and file with the Commission and furnish a supplement or amendment to such prospectus so that, as thereafter deliverable to the purchasers of such Registrable Securities, such prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 

(g)The Company, during the period when the prospectus is required to be delivered under the Securities Act, promptly will file all documents required to be filed with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act.

(h)The Company shall cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities of the same class issued by the Company are then listed.

(i)The Company shall otherwise comply with all applicable rules and regulations of the Commission.

(j)The Company may require each Selling Holder to promptly furnish in writing to the Company such information regarding the distribution of such Person’s Registrable Securities as the Company may from time to time reasonably request and such other information as may be legally required in connection with such registration including, without limitation, all such information as may be requested by the Commission.  The Company may exclude from such Registration Statement any Selling Holder who fails to provide such information.

(k)Each Selling Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.5(f) hereof, such Selling Holder will forthwith discontinue the disposition of such Person’s Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Selling Holder’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 2.5(f) hereof, and, if so directed by the Company, such Selling Holder will deliver to the Company all copies, other than permanent file copies then in such Selling Holder’s possession, of the most recent prospectus covering such Person’s Registrable Securities at the time of receipt of such notice.  In the event the Company shall give such notice, the Company shall extend the period during which such Registration Statement shall be maintained effective (including the period referred to in Section 2.5(a) hereof) by the number of days during the period from and including the date of the giving of notice pursuant to Section 2.5(f) hereof to the date when the Company shall make available to the Selling Holders covered by such Registration Statement a prospectus supplemented or amended to conform with the requirements of Section 2.5(f) hereof.

9

(l)The Company will make available for inspection, during normal business hours and upon reasonable notice, by (i) any Investor or its representatives (collectively, the “Inspectors”) such information or documentation (the “Records”), as shall be reasonably deemed necessary by each Inspector to enable each Inspector to perform its due diligence, and cause the Company’s officers, directors and employees to supply all information which any Inspector may reasonably request for purposes of such due diligence; provided, however, that each Inspector shall hold in confidence and shall not make any disclosure (except to the Inspectors) of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a material misstatement or omission in any Registration Statement, (b) the release of such Records is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement.  The Company shall not be required to disclose any confidential information in such Records to any Inspector until and unless such Inspector shall have entered into confidentiality agreements (in form and substance satisfactory to the Company) with the Company with respect thereto, substantially in the form of this Section 2.5(l).  Each Investor agrees that upon learning that the release of such Records is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction, it shall give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential.  Nothing herein shall be deemed to limit the Investors’ ability to sell Registrable Securities in a manner which is otherwise consistent with applicable laws and regulations.

(m)The Company shall not grant registration rights to any third party that would result in a violation of its obligations under this Agreement.

ARTICLE III
INDEMNIFICATION

SECTION 3.1In the event any Registrable Securities are included in a Registration Statement under Article II:

(a)The Company will indemnify and hold harmless each Selling Holder, each of its officers, directors, partners and trustees, and each person controlling such Selling Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to Article II, and each Underwriter, if any, and each Person who controls such Underwriter within the meaning of Section 15 of the Securities Act, against all expenses (including reasonable costs of investigation), claims, losses, damages or liabilities, or actions in respect thereof, including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any Registration Statement, prospectus, or any amendment or supplement thereto, or based on any omission (or alleged omission) to state therein a

10

material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with any such registration, qualification or compliance (“Violation”), and the Company will reimburse each such Selling Holder, each of its officers, directors, and partners and each Person controlling such Selling Holder, each such Underwriter and each Person who controls any such Underwriter, for any legal and any other expenses (as such legal or other expenses are incurred) reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Selling Holder, controlling Person or Underwriter and stated to be specifically for use therein and provided further that the Company will not be liable for the failure of any Selling Holder to send a copy of a final prospectus, amendment or supplement to the claimant if copies of such final prospectus, amendment or supplement were made available to the Selling Holder by the Company and the claim would not have arisen if the final prospectus, amendment or supplement had been delivered to the claimant.

(b)Each Selling Holder will, if such Person’s Registrable Securities are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each Underwriter, if any, of the Company’s securities covered by such a Registration Statement, each Person who controls the Company or such Underwriter within the meaning of Section 15 of the Securities Act, and each other Selling Holder, each of its officers, directors and partners and each Person controlling such Selling Holder within the meaning of Section 15 of the Securities Act, against all expenses (including reasonable costs of investigation), claims, losses, damages or liabilities, or actions in respect thereof, arising out of or based on any Violation, and will reimburse the Company, such other Selling Holders, such directors, officers, Persons, Underwriters or control Persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such Violation is made in such Registration Statement, prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Selling Holder and stated to be specifically for use therein.  A Selling Holder will not be required to enter into any agreement or undertaking in connection with any registration under Article II providing for any indemnification or contribution on the part of such Selling Holder greater than the Selling Holder’s obligations under this Section 3.1(b). Notwithstanding anything in this Section 3.1(b), the aggregate amount which may be recovered from any Selling Holder pursuant to the indemnification provided for in this Section 3.1(b) shall be limited to the total proceeds received by such Selling Holder from the sale of such Selling Holder’s Registrable Securities or Series B-1 Stock or Series B-1 Stock (net of underwriting discounts and commissions) and the obligations of each Selling Holder pursuant to this Section 3.1 shall be individual and not several or joint and several.

11

(c)Each party entitled to indemnification under this Article III (the “Indemnified Party”) shall give notice to the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has actual knowledge of any claims as to which indemnity may be sought and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to a majority of the Selling Holders and payment of all fees and expenses.  The failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 3.1, except to the extent that the Indemnifying Party is actually prejudiced by such failure to give notice.   Such Indemnified Party shall have the right to retain separate counsel with respect to the defense of a claim, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Indemnifying Party has agreed in writing to pay such fees and expenses, (ii) the Indemnifying Party has failed to assume the defense and retain counsel within a reasonable time after notice of such claim, or (iii) the Indemnified Party shall have reasonably concluded that a conflict of interest between such Indemnified Party and Indemnifying Party may exist in respect of such claim.  After the occurrence of an event specified in clause (ii) or (iii) of the preceding sentence, the Indemnifying Party may not assume the defense for such claim.  It is understood, however, that the Company shall, in connection with any one such claim, be liable for the fees and expenses of only one separate firm of attorneys (in addition to local counsel) at any time for all such Selling Holders not having actual or potential differing interests, which firm shall be designated in writing by a majority of the Selling Holders, and all such fees and expenses shall be reimbursed within 30 days after such fees and expenses are incurred.  The Indemnifying Party will not, without the prior written consent of each Indemnified Party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder (whether or not such Indemnified Party or any Person who controls such Indemnified Party is a party to such claim, action, suit or proceeding), if such settlement, compromise or consent (i) does not include an unconditional release of such Indemnified Party from all liability and no finding of liability arising out of such claim, action, suit or proceeding or (ii) requires anything from the Indemnified Party other than the payment of money damages which the Indemnifying Party has agreed to pay in full.

(d)If the indemnification provided for in this Section 3.1 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any losses, claims, damages or liabilities referred to herein, the Indemnifying Party, in lieu of indemnifying such Indemnified Party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage or liability, fees and expenses in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.  Notwithstanding anything in this Section 3.1(d), the aggregate amount which may be recovered from

12

any Selling Holder pursuant to the contribution provided for in this Section 3.1(d) shall be limited to the total proceeds received by such Selling Holder from the sale of such Selling Holder’s Registrable Securities (net of underwriting discounts and commissions), less any amounts recovered from such Selling Holder under Section 3.1(b).

ARTICLE IV
ASSIGNMENT OF REGISTRATION RIGHTS

SECTION 4.1Assignment of Registration Rights.  Each Investor may assign its rights, interests and obligations under this Agreement to any: (i) direct or indirect partner, investor or participant of such Investor;  (ii) other Investor or Person who becomes a holder of Registrable Securities; or (iii) Affiliate of such Investor, in connection with a transfer of shares of Series B-1 Stock and/or Common Stock to such Person in accordance with the Investors’ Rights Agreement; provided, that in the event of such assignment, the assignee shall sign a signature page to this Agreement and shall thereby become an Investor and shall have the rights and be bound by the provisions of this Agreement.

ARTICLE V
MISCELLANEOUS

SECTION 5.1Rule 144 Reporting.  With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Registrable Securities to the public without registration, the Company agrees, so long as there are outstanding Registrable Securities, to use its commercially reasonable efforts to:

(a)to file with the Commission in a timely manner all reports and other documents as the Commission may prescribe under Section 13(a) or 15(d) of the Exchange Act at any time while the Company is subject to such reporting requirements of the Exchange Act; and

(b)furnish to the Holders forthwith upon a reasonable request a written statement by the Company as to its compliance with the reporting requirements of Rule 144(c) under the Securities Act.

SECTION 5.2Holdback Agreement.  Subject to the provisions hereof, in the event the Company or the Holders propose to enter into an underwritten public offering, each Holder or the Company, as the case may be, entering into such underwritten offering agrees to enter into a customary agreement (including customary carve-outs) with the managing Underwriters not to effect any sale or distribution of equity securities of the Company, or any securities convertible, exchangeable or exercisable for or into such securities, during the period beginning on the date of such offering and extending for up to 180 days if so requested by the Company or the Holders and the Underwriters, provided that (i) no Holder shall be required to enter into such agreement to the extent that none of such Holder’s Registrable Securities are sold in such underwritten offering and (ii) any such agreement shall only be enforceable against a Holder to the extent that such Holder’s Registrable Securities were actually sold in such underwritten offering.

13

SECTION 5.3Termination of Registration Rights.  The rights granted under this Agreement shall terminate, as to any Selling Holder, on the date on which such Selling Holder no longer owns Registrable Securities, except that the rights granted by Section 2.3 shall terminate on the second anniversary of the date of execution of this Agreement.

SECTION 5.4Amendment and Modification.  This Agreement may be amended, modified and supplemented, and any of the provisions contained herein may be waived, only by a written instrument signed by the Company and the Holders holding a majority of the Registrable Securities, including securities convertible into Registrable Securities.  No course of dealing between or among any Persons having any interest in this Agreement will be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any Person under or by reason of this Agreement.

SECTION 5.5Binding Effect; Entire Agreement.  This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and executors, administrators and heirs to the extent provided, and subject to the provisions of, Section 4.1.  This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of any and every nature among them.

SECTION 5.6Severability.  In the event that any provision of this Agreement or the application of any provision hereof is declared to be illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall not be affected except to the extent necessary to delete such illegal, invalid or unenforceable provision unless that provision held invalid shall substantially impair the benefits of the remaining portions of this Agreement.

SECTION 5.7Notices and Addresses.  Any notice, demand, request, waiver, or other communication under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service, if personally served or sent by facsimile; on the business day after notice is delivered to a courier or mailed by express mail, if sent by courier delivery service or express mail for next day delivery; and on the third day after mailing, if mailed to the party to whom notice is to be given, by first class mail, registered, return receipt requested, postage prepaid and addressed as follows:

If to the Company:

First Union Real Estate Equity and Mortgage Investments

7 Bulfinch Place, Suite 500,

P.O. Box 9507,

Boston, Massachusetts 02114

Facsimile: (617) 570-4746

Telephone: (617) 570-4600

E-mail: asst@wfajericho.com

14

with a copy (which shall not constitute notice) to:

Katten Muchin Zavis Rosenman

575 Madison Avenue

New York, New York 10022

Attention: Mark I. Fisher, Esq.

Facsimile: (212) 940-8776

Telephone: (212) 940-8800

E-mail: mark.fisher@kmzr.com

If to any Holder, at the most current address, and with a copy to be sent to each additional address, given by such Holder to the Company in writing, and copies (which shall not constitute notice) sent to:

Mark Weissler, Esq.

Milbank, Tweed, Hadley & McCloy LLP

1 Chase Manhattan Plaza

New York, NY 10005

Facsimile: (212) 822-5446

Telephone: 212-530-5446

E-mail: mweissler@milbank.com

SECTION 5.8Governing Law.  This Agreement and (unless otherwise provided) all amendments hereof and waivers and consents hereunder shall be governed by the internal Laws of the State of New York, without regard to the conflicts of Law principles thereof which would specify the application of the Law of another jurisdiction.

SECTION 5.9Headings.  The headings in this Agreement are for convenience of reference only and shall not constitute a part of this Agreement, nor shall they affect their meaning, construction or effect.

SECTION 5.10Counterparts.  This Agreement may be executed via facsimile and in any number of counterparts, each of which shall be deemed to be an original instrument and all of which together shall constitute one and the same instrument.

SECTION 5.11Further Assurances.  Each party shall cooperate and take such action as may be reasonably requested by another party in order to carry out the provisions and purposes of this Agreement and the transactions contemplated hereby.

SECTION 5.12Remedies.  In the event of a breach or a threatened breach by any party to this Agreement of its obligations under this Agreement, any party injured or to be injured by such breach will be entitled to specific performance of its rights under this Agreement or to injunctive relief, in addition to being entitled to exercise all rights provided in this Agreement and granted by law, it being agreed by the parties that the remedy at law, inducing monetary damages, for breach of

15

any such provision will be inadequate compensation for any loss and that any defense or objection in any action for specific performance or injunctive relief that a remedy at law would be adequate is waived.

SECTION 5.13Pronouns.  Whenever the context may require, any pronouns used herein shall be deemed also to include the corresponding neuter, masculine or feminine forms.

SECTION 5.14Jurisdiction.  Each of the Holders and the Company (a) hereby irrevocably and unconditionally submits to the exclusive jurisdiction of any state or federal court sitting in New York County, New York for the purposes of any suit, action or other proceeding arising out of this Agreement or the subject matter hereof brought by the Company, or any Holder and (b) hereby waives and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.  If a judgment is obtained, this Section shall not preclude enforcement thereof in any forum.  Each of the parties hereto hereby waives all right to trial by jury in any action or proceeding under, arising out of or related to this Agreement.

[Signature Pages Follow]

16

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS

By:
	Name:
	Title:

Signature Page to the Registration Rights Agreement

HALCYON STRUCTURED OPPORTUNITIES FUND, L.P.
By:
	Name: Steve Mandis
	Title:
Address: c/o		Halcyon Management Company
		477 Madison Avenue, 8th Floor
		New York, NY 10022
		212-303-9493
		smandis@halcyonllc.com

FAIRHOLME VENTURES II LLC
By:
	Name:  Bruce Fairholme
	Title:
Address:  c/o		Fairholme Capital Management, L.L.C.
		51 John F. Kennedy Parkway
		Short Hills, NJ 07078
		973-379-6557
		bruce@fairholme.net

HBK FUND L.P.
By: HBK Investments L.P., Investment Advisor
By:
	Name:
	Title:  Authorized Signatory
Address: c/o		HBK Investments
300 Crescent Court, Suite 700
Dallas, TX 75201
214-758-6132
jestes@hbk.com

GOLDMAN SACHS & CO.
By:
	Name:
	Title:
Address: c/o		Goldman Sachs & Co.
		85 Broad St.
		New York, NY 10004
		212-902-2734
		jessica.beattie@gs.com

KING STREET CAPITAL, L.P.
By:	King Street Capital Management, L.L.C.
	Its Investment Manager
By:
		Name:
		Title:
Address: c/o			King Street Capital Management
			65 East 55th Street, 30th Floor
			New York, NY 10022
			212-812-3109
			mpaige@kingstreet.com

BASSO MULTI-STRATEGY HOLDING FUND LTD.
By:
	Name: Howard Fischer
	Title:
Address: c/o		Basso Capital Management
		1266 East Main Street, 4th Floor
		Stamford, CT 06902
		203-352-6120
		hfischer@bassocap.com

KIMCO REALTY CORPORATION
By:
	Name: David Henry
	Title:
Address: c/o		Kimco Realty Corporation
		3333 New Hyde Park Road
		New Hyde Park, NY 11042
		516-869-7166
		dhenry@kimcorealty.com

EX-10.3

Exhibit 10.3

INVESTORS’ RIGHTS AGREEMENT

THIS INVESTORS’ RIGHTS AGREEMENT, dated as of February 28, 2005 (this “Agreement”), by and among First Union Real Estate Equity and Mortgage Investments, an unincorporated association in the form of a business trust organized in Ohio (the “Company”), Michael Ashner, Peter Braverman, and each of the Investors that signs a signature page annexed hereto (referred to hereinafter collectively as the “Investors” and individually as an “Investor”).

RECITALS:

A.The Investors and the Company have entered into that certain Securities Purchase Agreement, dated as of the date hereof (the “Purchase Agreement”), by and among the Company and the Investors pursuant to which the Investors will purchase, contemporaneously with the execution and delivery of this Agreement, 3,640,000 shares of Series B-1 Cumulative Convertible Preference Shares of the Company (the “Series B-1 Stock”), which will constitute all of the issued and outstanding shares of Series B-1 Stock.

B.It is a condition precedent to the purchase of such Series B-1 Stock that the Company, Michael Ashner and Peter Braverman enter into this Agreement with the Investors to provide for certain agreements and obligations of the parties following the Closing.

AGREEMENT:

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, intending to be legally bound, the parties hereto agree as follows:

ARTICLE I
DEFINITIONS

SECTION 1.1      Definitions.  The following terms shall have the meanings ascribed to them below:

“Additional Securities” shall have the meaning set forth in Section 3.2(a).

“Additional Series B Preferred Shares” shall have the meaning provided in the Certificate of Designations.

“Affiliate” of a Person shall have the meaning set forth in Rule 12b-2 under the Exchange Act.  Notwithstanding anything to the contrary set forth in this Agreement, no limited partner or similar participant of an Investor shall be deemed an Affiliate of such Investor.

“Agreement” shall mean this Agreement, as amended, modified or supplemented from time to time, in accordance with the terms hereof, together with any exhibits, schedules or other attachments thereto.

“Board” or “Board of Trustees” shall mean the Board of Trustees of the Company.

“Beneficial Holder” shall have the meaning set forth in Section 2.3.

“Certificate of Designations” shall mean the Company’s Certificate of Designations governing the Series B-1 Stock.

“Co-Investment Right” shall have the meaning set forth in Section 3.3.

“Commission” shall mean the United States Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act.

“Common Stock” shall mean the common shares of beneficial interest, $1.00 par value per share, of the Company.

“Company” shall have the meaning set forth in the preamble of this Agreement.

“Declining Preemptive Purchaser” shall have the meaning set forth in Section 3.2(c).

“Derivative Securities” shall mean any subscriptions, options, conversion rights, warrants or other agreements, securities or commitments of any kind obligating the Company or any of its Subsidiaries to issue, grant, deliver or sell, or cause to be issued, granted, delivered or sold (i) any Equity Securities of the Company, or (ii) any securities convertible into, exercisable for or exchangeable for any Equity Securities of the Company.

“Disposition” shall have the meaning set forth in Section 2.3.

“Equity Securities” shall mean Common Stock, Series B-1 Stock and any other equity securities of the Company.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

“Excluded Shares” shall mean (i) shares of Common Stock issuable upon conversion of, or distributions with respect to, any shares of Series B-1 Stock or Additional Series B Preferred Shares; (ii) shares of Common Stock issuable upon the exercise of stock options or other awards made or denominated in shares of Common Stock under any of the Company’s stock plans including any stock option, stock purchase, restricted stock or similar plan hereafter adopted by the Board of Trustees and, if required by applicable Law or stock exchange requirement, approved by the stockholders of the Company; (iii) shares of Common Stock issued pursuant to an acquisition of a direct or indirect interest in real property or assets related thereto, a business (including, without

2

limitation, by way of an acquisition of capital stock) or the assets of a business (which assets do not consist primarily of cash or cash equivalents) approved by the Board of Trustees; and (iv) Shares of Common Stock issuable upon exercise or conversion of Derivative Securities issued and outstanding on the date hereof.

“Governmental Body” shall mean any government or governmental or quasi-governmental authority including, without limitation, any federal, state, territorial, county, municipal or other governmental or quasi-governmental agency, board, branch, bureau, commission, court, arbitral body (public or private), department or other instrumentality or political unit or subdivision, whether located in the United States or abroad, the National Association of Securities Dealers, Inc., the New York Stock Exchange, the Nasdaq National Market, the Nasdaq SmallCap Market or the American Stock Exchange.

“Holder” shall mean (i) any Investor holding shares of Series B-1 Stock (or shares of Common Stock issued on conversion thereof) and (ii) any Person to whom an Investor has transferred shares of Series B-1 Stock during the term of this Agreement pursuant to Section 2.3(a), Section 2.3(b)(ii) or Section 2.3(c) who is holding such Series B-1 Stock or Common Stock issued on conversion thereof.

“Institutional Investor” shall mean any of the following Persons: (i) a bank, trust company, savings and loan or other financial institution, pension plan, broker-dealer or similar entity, (ii) an insurance company, (iii) a pension fund, (iv) a hedge fund, (v) a venture capital fund, (vi) a mutual fund, (vii) a leveraged buyout fund, (viii) an investment bank, (ix) a savings association, (x) an investment fund whose principal investors are Institutional Investors, (xi) any Investor, or (xii) any Person that is an Affiliate of any Person named in clauses (i) through (xi).

“Investors” shall have the meaning set forth in the preamble of this Agreement.

“Law” shall mean any treaty, statute, ordinance, code, rule, regulation, Order or other legal requirement enacted, adopted, promulgated, applied or followed by any Governmental Body.

“NYSE”  shall mean the New York Stock Exchange.

“Order” shall mean any order, injunction, judgment, decree, ruling, writ, assessment or arbitration award.

“Overallotment Right” shall have the meaning set forth in Section 3.3(a).

“Other Transferee”  shall have the meaning set forth in Section 2.3(b).

“Participation” shall have the meaning set forth in Section 3.3.

“Permitted Disposition” shall have the meaning set forth in Section 2.3.

“Person” shall mean any natural person, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof.

3

“Preemptive Acceptance Notice” shall have the meaning set forth in Section 3.2(b).

“Principal Holder” shall mean each of Michael Ashner and Peter Braverman.

“Preemptive Acceptance Period” shall have the meaning set forth in Section 3.2(b).

“Preemptive Notice” shall have the meaning set forth in Section 3.2(b).

“Preemptive Right” shall have the meaning set forth in Section 3.2(a).

“Purchase Agreement” shall have the meaning ascribed thereto in the recitals.

“Redemption Date” shall have the meaning set forth in the Certificate of Designations.

“Registration Rights Agreement” shall mean that certain Registration Rights Agreement, dated as of the date hereof, by and among the Company and the Investors.

“Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect at the time.

“Series B-1 Designees” shall mean the Trustees elected by the Holders pursuant to the Certificate of Designations.

“Series B-1 Stock” shall have the meaning ascribed thereto in the recitals.

“Trustee” shall mean a Trustee of the Company.

“Voting Securities” shall mean the shares of Common Stock, Additional Series B Preferred Shares, preferred shares and any other securities of the Company entitled to vote generally for the election of Trustees, and any securities which are convertible into, or exercisable or exchangeable for, Voting Securities.

SECTION 1.2      General Interpretive Principles.  Whenever used in this Agreement, except as otherwise expressly provided or unless the context otherwise requires, any noun or pronoun shall be deemed to include the plural as well as the singular and to cover all genders. The name assigned this Agreement and the section captions used herein are for convenience of reference only and shall not be construed to affect the meaning, construction or effect hereof.  Unless otherwise specified, the terms “hereof,” “herein” and similar terms refer  to this Agreement as a whole (including the exhibits hereto), and references herein to Sections refer to Sections of this Agreement.

ARTICLE II
ADDITIONAL AGREEMENTS

SECTION 2.1      [Intentionally omitted.]

4

SECTION 2.2      No Shorting.  No Holder, or any of its Affiliates under its control, will engage in, or will cause any person or entity, directly or indirectly, to engage in “short sales” of the Company’s Common Stock unless: (i) such Holder has converted all of the Series B-1 Stock held by such Holder into Common Stock; or (ii) the Company fails to pay a dividend on the Series B-1 Stock after it first declares and pays a regular dividend on the Common Stock; or (iii) the fair market value of the Company’s issued and outstanding Common Stock (determined by multiplying the number of shares of Common Stock issued and outstanding by the average closing price of the Common Stock on the NYSE over the five most recent trading days) shall at any time be less than $71,200,000.

SECTION 2.3      Dispositions.  During the term of this Agreement, no Investor shall directly or indirectly (including, without limitation, through the disposition or transfer of any equity interest in another Person), sell, assign, transfer, pledge, hypothecate, grant any option with respect to or otherwise dispose of any interest in (or enter into an agreement or understanding with respect to the foregoing) any Series B-1 Stock (a “Disposition”), except as set forth below in this Section 2.3 (each such exception being hereinafter referred to as a “Permitted Disposition”):

(a)Pro rata Dispositions of Series B-1 Stock may be made to any direct or indirect partner, investor or participant (a “Beneficial Holder”) of any Investor pursuant to the terms of the limited partnership agreement, operating agreement or similar agreement of such Investor, provided, that no such Disposition shall be made unless the Beneficial Holder agrees in writing to be bound by the terms of this Agreement.

(b)Dispositions of Series B-1 Stock may be made to any Person pursuant to (i) a public offering effected in accordance with the Registration Rights Agreement, (ii) in privately-negotiated transactions to (A) an Institutional Investor or (B) if such Disposition is approved by the Board (“Other Transferee”) any other Person or (iii) pursuant to Rule 144 promulgated under the Securities Act; provided, that no Disposition shall be made pursuant to clause (ii) of this Section 2.3(b) unless such Institutional Investor or Other Transferee agrees in writing to become a Holder under the terms of this Agreement.

(c)Dispositions of Series B-1 Stock may be made to any Affiliate of an Investor, provided that such Affiliate agrees in writing to be bound by the terms of this Agreement.

ARTICLE III
ADDITIONAL COVENANTS

SECTION 3.1      Affiliate Transactions.  So long as at least 910,000 shares of Series B-1 Stock are outstanding, except for (i) transactions between the Company and any wholly-owned subsidiary and (ii) pursuant to compensatory or contractual arrangements existing on the date hereof, neither the Company nor any subsidiary shall enter into any transaction with, any Affiliate without the consent of a majority of those Trustees who are considered independent under Section 303 of the NYSE listing standards (including at least one Series B-1 Designee).  Without regard to the number of shares of Series B-1 Stock outstanding, all such transactions shall be on fair and reasonable terms

5

no less favorable to the Company than would be obtainable in a comparable arm’s length transaction with a person not an Affiliate.

SECTION 3.2      Preemptive Rights.

(a)Until the earlier of (i) the termination of this Agreement pursuant to Article IV hereunder or (ii) January 2, 2010, if the Company proposes to sell any subordinated debt, Equity Securities or Derivative Securities (other than Excluded Shares) (all such securities, other than Excluded Shares, are referred to collectively herein as “Additional Securities”), the Company shall first give to each Investor (and, only with respect to preferred shares, to any Holders) holding shares of Series B-1 Stock the opportunity (such opportunity being herein referred to as the “Preemptive Right”) to purchase (on the same terms as such Additional Securities are proposed to be sold) the same percentage of such Additional Securities proposed to be sold by the Company as equals the percentage equal to the quotient of (i)  the number of shares of Common Stock into which the shares held by such Investor of Series B-1 Stock could be converted, divided by (ii) the sum of  (A)  all the outstanding shares of Common Stock of the Company and (B) the number of shares of Common Stock into which all the shares of Series B-1 Stock held by all Investors (and Holders, if applicable) could be converted; provided, however, that no Preemptive Rights shall apply (i) to any issuance of Additional Securities pursuant to a registration statement filed under the Securities Act; or (ii) any issuance of rights to all holders of Common Stock (or of all Voting Securities) of the Company.

(b)At least 20 days prior to the issuance by the Company of any Additional Securities, the Company shall give written notice thereof (the “Preemptive Notice”) to each Investor and Holders (if applicable).  The Preemptive Notice shall specify (i) the name and address of the bona fide investor (if known) to whom the Company proposes to issue or sell Additional Securities, (ii) the total amount of capital to be raised by the Company pursuant to the issuance or sale of Additional Securities, (iii) the number of such Additional Securities proposed to be issued or sold, (iv) the price and other terms of the Additional Securities and of their proposed issuance or sale, (v) the number of such Additional Securities which such Investor is entitled to purchase (determined as provided in Section 3.2(a)), and (vi) the period during which such Investor may elect to purchase such Additional Securities, which period shall extend for at least 20 days following the receipt by such Investor or Holder, as applicable, of the Preemptive Notice (the “Preemptive Acceptance Period”).  Each Investor who desires to purchase Additional Securities shall notify the Company within the Preemptive Acceptance Period of the number of Additional Securities he wishes to purchase, as well as the number, if any, of extra Additional Securities (“Extra Additional Securities”) he would be willing to purchase in the event that all of the Additional Securities subject to the Preemptive Right are not subscribed for by the other Investors and Holders (the “Preemptive Acceptance Notice”).

(c)In the event an Investor or Holder, as applicable, declines to subscribe for all or any part of its pro rata portion of any Additional Securities which are subject to the Preemptive Right (the “Declining Preemptive Purchaser”) during the Preemptive Acceptance Period, then the other Investors or Holders, as applicable, shall have the right to subscribe for

6

all (or any declined part) of such Declining Preemptive Purchaser’s pro rata portion of such Additional Securities (to be divided among the other Investors desiring to exercise such right on a ratable basis) (the “Overallotment Right”).  Each Investor’s Overallotment Right, if any, shall be deemed to be exercised on the date the Preemptive Acceptance Notice is given.

(d)After the conclusion of the Preemptive Acceptance Period, Additional Securities, less any Additional Securities for which Preemptive Rights or Overallotment Rights are exercised, may be sold by the Company, within a period of 4 months after the expiration of the Preemptive Acceptance Period, to any other Person or Persons at not less than the price and upon other terms and conditions not less favorable to the Company than those set forth in the Preemptive Notice.

SECTION 3.3      Co-Investment Rights.  If the Company offers to any third party the right to participate in an investment made by the Company, then the Company shall offer to the Investors the opportunity (a “Co-Investment Right”), on a pro rata basis, to contribute to such investment on the same terms offered by contributing up to twenty-five percent (25%) of the aggregate dollar amount of such investment (the “Participation”).  The Company shall send written notice to all Investors as soon as practicable of any Co-Investment Right, and all Investors shall promptly notify the Company of any election to exercise their Co-Investment Right.  If any Investor elects not to exercise its Co-Investment Right with respect to any particular investment, the amount subject to such holder’s Co-Investment Right shall be offered to the remaining Investors on a pro rata basis.  Notwithstanding the foregoing, (i) the Company shall not be obligated to offer Co-Investment Rights on any investment made by the Company (A) with a third party who initiated the investment opportunity or brought the investment opportunity to the attention of the Company or (B) with a third party who was a bidder for the investment opportunity, (ii) the Company shall not be obligated to offer Co-Investment Rights in any joint venture, investment vehicle or special purpose entity formed by the Company provided that Co-Investment Rights are offered with respect to investments made by such joint venture, investment vehicle or entity, and (iii) the Company shall offer Co-Investment Rights to the Investors in the event that the Company makes a tender offer for limited partnership interests of an unaffiliated entity, provided, however, that any such Co-Investment Right shall be made on terms which provide for the Company to receive a 20% promotional interest after Investors who exercise Co-Investment Rights have received their initial investment plus a 7% per annum return.  If an Investor elects not to exercise Co-Investment Rights with respect to any investment, and the other Investors elect not to participate in the investment in which such investor elects not to participate, the Company may offer the right to participate in such investment to such parties as the Company shall determine in its sole discretion.  In the event the Company grants rights substantially similar to the Co-Investment Right to any purchaser of Additional Series B Preferred Shares, the Participation shall be increased to such percentage as shall equitably maintain the Co-Investment Rights of the Investors (which, in the event of $34 million in Liquidation Preference (as defined in the Certificate of Designations) of Additional Series B Preferred, shall mean 34.34%).  In the event that an Investor’s Co-Investment Rights terminate as a result of the disposition of 50% of such Investor’s Series B-1 Stock, the remaining Investors shall retain in the aggregate the same Co-Investment Rights that all Investors held on the date hereof.

7

SECTION 3.4      Drag-Along Rights.

(a)Scope of Rights.   As long as the Principal Holders and their Affiliates in the aggregate own at least 10% of the outstanding Common Stock of the Company, if both Principal Holders propose to make a Disposition of all of the Voting Securities held by the Principal Holders to an unaffiliated third party or parties (other than sales of Common Stock on the principal market on which the Common Stock is listed or traded or a pledge of Common Stock in connection with a financing) in a transaction pursuant to which the third party or parties would obtain all or substantially all of the outstanding Common Stock, such Principal Holder shall have the right to require each Holder who does not exercise its redemption rights under Section 5(b) of the Certificate of Designation to sell all of its Common Stock and to convert its Series B-1 Stock then held by it and sell the Common Stock issuable on converting to such third party on the same terms as the Principal Holders (subject to paragraph (b) below) and each Holder agrees to vote all of the Voting Securities owned by it in favor of such transaction (a transaction described in this paragraph, a “Drag-Along Sale,” and rights described in such clauses, the “Drag-Along Rights”).

(b)Procedures.  In order to exercise a Drag-Along Right, the Principal Holder shall notify each Holder, no later than thirty (30) days prior to the closing of such Drag-Along Sale, such notice to set forth the timing, proposed amount and form of consideration, terms and conditions of such proposed sale.  Each Holder will take all actions reasonably requested by the Principal Holder or the Company as are required to be taken by the holders of all outstanding shares, in connection with the consummation of such sale, and shall cause all of its Common Stock to be sold to the designated purchaser at the same time on the same terms and conditions and for the same type and amount of consideration as the Common Stock being sold by the Principal Holders in such proposed sale (subject to the provisions of this paragraph).  In furtherance of the foregoing, in connection with a Drag-Along Sale each Investor will (i) waive any appraisal or dissenters rights or similar rights under the law of Ohio, and (ii) execute all documents containing such terms and conditions as those executed by all other stockholders as reasonably directed by the Principal Holder (subject to the provisions of this Section 3.4(b)).  Notwithstanding any other provisions hereof, with respect to the terms and conditions of any Drag-Along Sale, such terms and conditions will provide that the maximum liability for any Holder in respect of all representations, warranties and indemnities given to the purchaser in any Drag-Along Sale shall not exceed the value of the net proceeds received by such Holder with respect to the Drag-Along Shares in such Drag-Along Sale.

(c)Closing.  The closing of the Drag-Along Sale shall be held at such time and place as the Principal Holder exercising such rights shall specify and at least five (5) days notice of the time and place of the Closing shall be given to each Holder.  At such closing, each Investor shall deliver certificates representing the Common Stock to be transferred, duly endorsed for transfer and accompanied by all requisite stock transfer taxes, if any, and the Common Stock to be transferred shall be free and clear of any liens, claims or encumbrances (other than restrictions imposed pursuant to applicable federal and state securities laws or by the Principal Holder thereof) and each Investor shall so represent and warrant.

8

SECTION 3.5      Tag-Along Rights.

(a)Applicable Dispositions; Tag-Along Rights.  The term “Co-Sale Transaction” means a Disposition by either Principal Holder of the Common Stock beneficially owned under Rule 13d-3 under the Exchange Act by such Principal Holder; provided that the following transactions shall not constitute a Co-Sale Transaction: (i) a Disposition in connection with a Drag-Along Sale in which Drag-Along Rights are exercised; (ii) a pledge of Common Stock to a financial institution or other lender in connection with a financing; (iii) a sale of Common Stock on the principal market on which Common Stock is listed or traded, and (iv) a Disposition to an Affiliate of the Principal Holder or to its members so long as such Affiliate (or members) becomes a party to this Agreement and agrees to be bound by the terms and conditions hereof to the same extent and in the same manner as the Principal Holder.  In the event the Principal Holder proposes to make a Disposition of Common Stock in a Co-Sale Transaction it shall provide notice thereof to each Holder at least thirty (30) days prior to the date of such Disposition (the “Tag-Along Notice”).

(b)Election to Participate.  The Tag-Along Notice shall describe the terms and conditions of such Disposition, including without limitation the form and amount of all consideration payable to the Principal Holder and any other party in connection therewith, the proposed closing date, any conditions to closing and all other material terms and conditions.  Upon receipt of the Tag-Along Notice, each Holder may elect to participate by converting Series B-1 Stock and  transferring the Common Stock issued upon such conversion, on a pro rata (based upon its percentage ownership of Common Stock, on an as-converted basis, relative to the combined ownership of the Principal Holder and all Holders with rights under this Section 3.5) basis in such Disposition by giving written notice of its election to participate to the Principal Holder not later than twenty (20) days following such receipt.  Such transfer shall be made on the same terms and conditions of the Disposition described in the Tag-Along Notice.  The number of shares of Common Stock to be transferred by the Principal Holder in connection with such transfer shall be reduced by the number of shares of Common Stock transferred by each Holder pursuant to this Section 3.5, unless the proposed Transferee is willing to purchase all of the Common Stock owned by each Holder, and the Tag-Along Notice so indicates.

(c)Closings.  The closing of the Co-Sale Transaction shall be held at such time and place as the Principal Holder shall specify in the Tag-Along Notice.  At such closing, each Holder shall deliver certificates representing the Common Stock to be transferred by each Holder in the Co-Sale Transaction, duly endorsed for transfer and accompanied by all requisite stock transfer taxes, if any, and  the Common Stock to be transferred shall be free and clear of any liens, claims or encumbrances (other than restrictions imposed pursuant to applicable federal and state securities), and each Holder shall so represent and warrant.  Each Holder will bear its pro rata share of the costs and expenses incurred in connection with the Co-Sale Transaction in which its participates to the extent such costs are incurred for the benefit of all stockholders Transferring securities in such transaction.  Costs incurred by each Holder on its own behalf will not be reimbursed.

9

ARTICLE IV
TERMINATION

SECTION 4.1      Termination.  Without limiting any liability of the Company or the Holders for any breach of its obligations hereunder, this Agreement will be terminated: (i) if the Company, the Investors and the Holders holding a majority of the Series B-1 Stock or the Common Stock issued upon conversion thereof mutually agree in writing; (ii) on any Redemption Date under Section 5(a) of the Certificate of Designations if no Series B-1 Stock remains outstanding; and (iii) with respect to any Investor or Holder when such Investor makes a Disposition of all of the Series B-1 Stock and all of the Common Stock issued on conversion thereof held by such Investor.  Notwithstanding the foregoing, the following rights and obligations will terminate prior to termination of the Agreement as follows, if (i) the rights and obligations provided in Section 3.2 and 3.3 shall terminate (x) for all Holders upon the redemption of all Series B-1 Stock pursuant to Section 5(a) of the Certificate of Designations, (y) in the case of any specific Investor shall terminate with respect to such Investor (but not remaining Investors) upon the Disposition by such Investor of 50% or more of the Common Stock issuable upon conversion of the Series B-1 Stock purchased by such Investor, (ii) the provisions of Section 3.4 and 3.5 shall terminate upon the commencement of the Shelf Effective Period pursuant to the Registration Rights Agreement, and (iii) no person who acquires Series B-1 Stock in connection with a Permitted Disposition under Section 2.3(b)(i) or (iii) or Common Stock issued upon conversion thereof shall succeed to any rights or obligations under Article III.

ARTICLE V
MISCELLANEOUS

SECTION 5.1      Amendment and Modification.  This Agreement may be amended, modified and supplemented, and any of the provisions contained herein may be waived, only by a written instrument signed by the Company and by the Investors and the Holders owning at least a majority of the outstanding Series B-1 Stock and Common Stock issued upon conversion thereof owned by all Holders or Investors as the case may be.  No course of dealing between or among any Persons having any interest in this Agreement will be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any Person under or by reason of this Agreement.

SECTION 5.2      Assignment; No Third Party Beneficiaries. Neither this Agreement, nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of Law or otherwise) without the prior written consent of the other parties, provided, however, that (i) the obligations contained in Sections 2.2 and 2.3 shall be binding upon Beneficial Holders, Institutional Investors, Other Transferees and Affiliates of Investors to whom a Permitted Disposition is made and the rights provided in Section 3.5 shall be assignable in the event of such a Permitted Disposition, and (ii) any Affiliate of an Investor may share in the Co-Investment Rights held by such Investor under Section 3.3.  Notwithstanding anything to the contrary in this Agreement and except as provided in clause (ii) of the preceding sentence, the rights and obligations provided in Sections 3.2 and 3.3 are personal to each Investor and shall inure solely to the benefit of,

10

and be binding upon, the Investors and may not be assigned except to another Investor and except that the rights provided in Section 3.2 with respect to offerings of preferred shares shall inure to the benefit of any Beneficial Holder, Institutional Investor, Other Transferee or Affiliate of an Investor, in any Permitted Disposition to such party.

SECTION 5.3      Binding Effect; Entire Agreement.  Except as otherwise provided herein, this Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and executors, administrators and heirs.  This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of any and every nature among them.

SECTION 5.4      Severability.  If one or more provisions of this Agreement are held to be unenforceable under applicable Law, such provision(s) shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms so long as the economic or legal substance of the transactions contemplated by this Agreement are not affected in any manner materially adverse to any party.

SECTION 5.5      Notices and Addresses.  Any notice, demand, request, waiver, or other communication under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service, if personally served or sent by facsimile or electronic mail; on and upon receipt, if delivered to a courier or mailed by express mail, if sent by courier delivery service or express mail for next day delivery, or if mailed to the party to whom notice is to be given, by first class mail, registered, return receipt requested, postage prepaid and addressed as follows:

If to the Company:

First Union Real Estate Equity and Mortgage Investments

7 Bulfinch Place, Suite 500,

P.O. Box 9507,

Boston, Massachusetts 02114

Facsimile: (617) 570-4746

Telephone: (617) 570-4600

E-mail: asst@wfajericho.com

If to Michael Ashner or Peter Braverman:

Two Jericho Plaza

Wing A

Jericho, New York 11753

Facsimile: (516) 433-2777

Telephone: (516) 822-0022

E-mail: asst@wfajericho.com

11

with a copy to:

Katten Muchin Zavis Rosenman

575 Madison Avenue

New York, New York 10022

Attention: Mark I. Fisher

Facsimile: (212) 940-8776

Telephone: (212) 940-8800

E-mail: mark.fisher@kmzr.com

If to the Initial Purchaser:

Perrin Holden & Davenport Capital Corp.

5 Hanover Square

New York, NY 10004

Attention: Nelson Braff

Facsimile:

Telephone: (212) 566-5100

E-mail: nbraffphd@aol.com

with a copy to:

[insert address]

If to any Holder, to the address set forth on such Holder’s signature page attached hereto, with a copy to:

Mark Weissler, Esq.

Milbank, Tweed, Hadley & McCloy LLP

1 Chase Manhattan Plaza

New York, NY 10005

Facsimile: (212) 822-5446

Telephone: (212) 530-5446

E-mail: mweissler@milbank.com

SECTION 5.6      Governing Law.  This Agreement and (unless otherwise provided) all amendments hereof and waivers and consents hereunder shall be governed by the internal Laws of the State of New York, without regard to the conflicts of Law principles thereof which would specify the application of the Law of another jurisdiction.

SECTION 5.7      Headings.  The headings in this Agreement are for convenience of reference only and shall not constitute a part of this Agreement, nor shall they affect their meaning, construction or effect.

SECTION 5.8      Counterparts.  This Agreement may be executed via facsimile and in any number of counterparts, each of which shall be deemed to be an original instrument and all of which together shall constitute one and the same instrument.

12

SECTION 5.9      Further Assurances.  Each party shall cooperate and take such action as may be reasonably requested by another party in order to carry out the provisions and purposes of this Agreement and the transactions contemplated hereby.

SECTION 5.10      Remedies.  In the event of a breach or a threatened breach by any party to this Agreement of its obligations under this Agreement, any party injured or to be injured by such breach will be entitled to specific performance of its rights under this Agreement or to injunctive relief, in addition to being entitled to exercise all rights provided in this Agreement and granted by Law, it being agreed by the parties that the remedy at Law, inducing monetary damages, for breach of any such provision will be inadequate compensation for any loss and that any defense or objection in any action for specific performance or injunctive relief that a remedy at Law would be adequate is waived.

SECTION 5.11      Jurisdiction.  Each of the Investors and the Company (a) hereby irrevocably and unconditionally submits to the exclusive jurisdiction of any state or federal court sitting in New York County, New York for the purposes of any suit, action or other proceeding arising out of this Agreement or the subject matter hereof brought by the Company, or any Investor and (b) hereby waives and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.  If a judgment is obtained, this Section shall not preclude enforcement thereof in any forum.

SECTION 5.12      Waiver of Jury Trial.  Each of the parties hereto hereby waives all right to trial by jury in any action or proceeding under, arising out of or related to this forbearance agreement.

[Signature Page Follows.]

13

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS

By:
	Name:
	Title:

14

HALCYON STRUCTURED OPPORTUNITIES FUND, L.P.
By:
	Name: Steve Mandis
	Title:
Address: c/o		Halcyon Management Company
		477 Madison Avenue, 8th Floor
		New York, NY 10022
		212-303-9493
		smandis@halcyonllc.com

15

FAIRHOLME VENTURES II LLC
By:
	Name:  Bruce Fairholme
	Title:
Address:  c/o		Fairholme Capital Management, L.L.C.
		51 John F. Kennedy Parkway
		Short Hills, NJ 07078
		973-379-6557
		bruce@fairholme.net

16

HBK FUND L.P.
By: HBK Investments L.P., Investment Advisor
By:
	Name:
	Title:  Authorized Signatory
Address: c/o		HBK Investments
		300 Crescent Court, Suite 700
		Dallas, TX 75201
		214-758-6132
		jestes@hbk.com

17

GOLDMAN SACHS & CO.
By:
	Name:
	Title:
Address: c/o		Goldman Sachs & Co.
		85 Broad St.
		New York, NY 10004
		212-902-2734
		jessica.beattie@gs.com

18

KING STREET CAPITAL, L.P.
By:	King Street Capital Management, L.L.C.
	Its Investment Manager
By:
		Name:
		Title:
Address: c/o			King Street Capital Management
			65 East 55th Street, 30th Floor
			New York, NY 10022
			212-812-3109
			mpaige@kingstreet.com

19

BASSO MULTI-STRATEGY HOLDING FUND LTD.
By:
	Name: Howard Fischer
	Title:
Address: c/o		Basso Capital Management
		1266 East Main Street, 4th Floor
		Stamford, CT 06902
		203-352-6120
		hfischer@bassocap.com

20

KIMCO REALTY CORPORATION
By:
	Name: David Henry
	Title:
Address: c/o		Kimco Realty Corporation
		3333 New Hyde Park Road
		New Hyde Park, NY 11042
		516-869-7166
		dhenry@kimcorealty.com

21

Peter Braverman

22

Michael Ashner

23

EX-99.1

Exhibit 99.1

TO BUSINESS EDITOR:

/C O R R E C T I O N — First Union Real Estate Equity and Mortgage Investments/

                 In the news release, First Union Real Estate Equity and Mortgage Investments Announces It Has Agreed to Sell 3,460,000 Series B-1 Cumulative Convertible Redeemable Preference Shares for $91 Million, issued Friday, Feb. 25, by First Union Real Estate Equity and Mortgage Investments over PR Newswire, we are advised by the company that the number of shares in the headline, and first paragraph, first sentence, should read “3,640,000” rather than “3,460,000” as originally issued inadvertently.

                Complete, corrected release follows:

First Union Real Estate Equity and Mortgage Investments Announces It Has
Agreed to Sell 3,640,000 Series B-1 Cumulative Convertible Redeemable
Preference Shares for $91 Million

                BOSTON, Feb. 25 /PRNewswire-FirstCall/ — First Union Real Estate Equity and Mortgage Investments (NYSE: FUR) announced today that it has agreed to sell through a private offering 3,640,000 shares of its newly designated B-1 Cumulative Convertible Redeemable Preference Shares for $91,000,000.  The shares will be entitled to cumulative dividends at a minimum rate of 6.5% and will be convertible into common stock at a conversion price of $4.50, subject to anti-dilution adjustments.  If fully converted, the shares would represent approximately 38.7% of the outstanding common stock.  The shares will be acquired by a small group of institutional investors.  The sale is subject to New York Stock Exchange listing approval.

                 First Union Real Estate Equity and Mortgage Investments is a NYSE-listed real estate investment trust (REIT) headquartered in Boston, Massachusetts.

                The securities offered have not been registered under the Securities Act of 1933, as amended or state securities laws, and may not be offered or sold in the United States absent registration with the Securities and Exchange Commission under the Securities Act of 1933, or an applicable exception therefrom.

SOURCE  First Union Real Estate Equity and Mortgage Investments

    —0—                             02/25/2005 C NYF048

    /CONTACT:  Carolyn Tiffany, Chief Operating Officer of First Union Real Estate Equity and Mortgage Investments, +1-617-570-4614/

    /Web site:  http://www.firstunion-reit.net /

    (FUR)

EX-99.2

Exhibit 99.2

FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS

AT THE COMPANY

Carolyn Tiffany

Chief Operating Officer

(617) 570-4614

FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS ANNOUNCES TENTATIVE SETTLEMENT OF ITS PEACHTREE MALL LITIGATION

FOR IMMEDIATE RELEASE — Boston, Massachusetts— February 28, 2005—First Union Real Estate Equity and Mortgage Investments (NYSE:FUR) announced today that it has entered into a settlement agreement with the State of California relating to its formerly held Peachtree Mall asset pursuant to which First Union will be paid $11 million in exchange for the extinguishment of its claims against the State.  The settlement is subject to both final court approval and legislative funding.  It is not expected that the proceeds will be received until the State of California’s 2005-2006 fiscal year.

               Certain statements contained in this press release that are forward-looking are based on current expectations that are subject to a number of uncertainties and risks, and actual results may differ materially.  Further information about these matters and the risks generally with respect to First Union can be found in First Union’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission.

First Union Real Estate Equity and Mortgage Investments is a NYSE-listed real estate investment trust (REIT) headquartered in Boston, Massachusetts.