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 1.1                          Definitions.  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 2.1                          Shelf
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 2.3                          Piggy-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 2.5                          Registration
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 3.1                          In
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 4.1                          Assignment
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 5.1                          Rule
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 5.2                          Holdback
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 5.3                          Termination
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 5.4                          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
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 5.5                          Binding
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 5.6                          Severability.  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 5.7                          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; 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 5.8                          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 5.9                          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 5.10                    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 5.11                    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 5.12                    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


 


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


 


SECTION 5.14                    Jurisdiction.  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