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


 


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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.


 


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“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.]


 


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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


 


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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


 


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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.


 


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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.


 


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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.


 


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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,


 


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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