Document:

EXHIBIT 10.17

          SCHEDULE "E" ATTACHED AN ASSET SALE AGREEMENT DATED FEBRUARY
          23, 2005 MADE BETWEEN RALLY ENERGY CORP., AS VENDOR, AND
          SHANNON INTERNATIONAL RESOURCES INC., AS PURCHASER

                               Registration Rights

     1. Definitions. Unless otherwise defined herein, capitalized terms used in
this Schedule "E" have the meanings assigned to them in the Asset Sale Agreement
to which this Schedule "E" is attached (the "Sale Agreement"). As used in this
Schedule "E," the following terms shall have the following meanings:

     "Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person.

     "Commission" means the United States Securities and Exchange Commission.

     "Common Shares" means common shares in the capital of the Purchaser.

     "Pro Rata" means, with respect to the Common Shares of a Registering
Shareholder or of the Purchaser to be excluded from an underwritten public
offering as provided in this Schedule "E," the number which bears the same
proportion to the total number of Common Shares to be excluded as the aggregate
number of Common Shares sought to be sold by such Registering Shareholder or the
Purchaser, as the case may be, bears to the aggregate number of Common Shares
sought to be sold by the Purchaser and all Registering Shareholders
participating in such offering whose shares are to be excluded.

     "Registering Shareholder" means any Shareholder, including the Vendor,
whose Registrable Securities are being registered for resale by the Purchaser.

     "Registrable Securities" means, collectively, (i) Common Shares of the
Purchaser issued pursuant to the Sale Agreement, (ii) Common Shares or other
securities issued upon exercise of Warrants issued pursuant to the Sale
Agreement, and (iii) Common Shares or other securities issued, issuable,
delivered or deliverable pursuant to a stock dividend, stock split, spin-off or
other distribution or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise
with respect to Registrable Securities including, without limitation, securities
of other corporations or entities. Registrable Securities shall cease to be
Registrable Securities when the Purchaser shall furnish the Vendor with a
written opinion of counsel reasonably satisfactory to the Vendor to the effect
that the offer and sale of such Registrable Securities would be exempt from the
registration and qualification requirements of all applicable federal and state
securities laws and would result in all purchasers who are transferees thereof
obtaining securities that are not "restricted securities" as defined in Rule 144
under the U.S. Securities Act, provided that promptly following receipt of
certificates for such Registrable Securities bearing a legend restricting
transfer thereof the Purchaser shall issue a replacement certificate bearing no
such restrictive legend.

<PAGE>

     "Registration Expenses" means all expenses incident to the Purchaser's
performance of or compliance with this Schedule "E" and the completion of
transactions relating thereto including, without limitation, all registration
and filing fees, all fees and expenses of complying with state and federal
securities or blue sky laws, all printing expenses, the fees and disbursements
of the Purchaser's independent public accountants, including the expenses of any
special audits, reviews, compilations or other reports or information required
by or incident to such performance and compliance, and any fees or expenses of
counsel for the Purchaser and of one special counsel to represent the Vendor,
but excluding (i) any allocation of Purchaser or Vendor personnel or other
general overhead expenses of the Purchaser or the Vendor or other expenses for
the preparation of financial statements or other data normally prepared by the
Purchaser in the ordinary course of its business, which shall be borne by the
party incurring the expense in all cases, and (ii) any underwriting discounts
and commissions with respect to such Registrable Securities, which shall be
borne by the Vendor.

     "Shareholder" means a holder of Common Shares or Warrants.

     "U.S. Exchange Act" means the United States Securities Exchange Act of
1934, as amended.

     2. Registration on Request. (a) Upon the written request of the Vendor,
requesting that the Purchaser effect the registration under the U.S. Securities
Act of all or part of the Registrable Securities held by the Vendor and
specifying the intended method or methods of disposition of such Registrable
Securities, the Purchaser will in the manner contemplated by Section 4 use its
best efforts to effect, at the earliest possible date, the registration, under
the U.S. Securities Act of the Registrable Securities which the Purchaser has
been so requested to register by the Vendor, for disposition as stated in such
request, to the extent required to permit the disposition (in accordance with
the intended methods thereof as aforesaid) of the Registrable Securities to be
so registered, provided that (A) if the Purchaser shall have previously effected
a registration of which notice has been given to the Vendor pursuant to Section
3, in which the Vendor was permitted to sell all Registrable Securities it
desired to sell, the Purchaser shall not be required to effect a registration
pursuant to this Section 2 until a period of 90 days shall have elapsed from the
effective date of the most recent such previous registration, and (B) the
Purchaser shall not be obligated to effect any registration requested by Vendor
pursuant to this Section 2(a) unless such request pertains to the registration
of at least 500,000 Common Shares as currently constituted (or, if less, all of
the Registrable Securities then owned by the Vendor). Each registration
requested pursuant to this Section 2 shall be (i) effected by the filing of a
registration statement on such form as may be appropriate for the proposed
disposition of the Registrable Securities, and (ii) if the Purchaser is
qualified and if agreed to in writing by the Vendor, filed pursuant to Rule 415
under the U.S. Securities Act (or equivalent rule then in effect).

<PAGE>

     (b) The Purchaser will pay all Registration Expenses in connection with
each registration of Registrable Securities effected by the Purchaser pursuant
to this Section 2.

     (c) The Purchaser represents that, except for the registration rights (a
copy of which are attached hereto) contained in the subscription agreements for
the private placement completed by the Purchaser on or about October 31, 2003
and except for the rights granted in this Schedule "E," it has not granted to
any Person the right to request registration of its securities. In addition, the
Purchaser covenants that, subject to the provisions of Section 8, it will not
grant to any Person other than the Vendor the right to request a registration of
securities. The Purchaser may grant incidental rights to participate in
registrations comparable to those granted in Section 3.

     (d) If requested by the underwriters for any underwritten offering of
Registrable Securities on behalf of the Vendor pursuant to a registration
requested under this Section 2, the Purchaser will enter into an underwriting
agreement with such underwriters for such offering, such agreement to contain
such representations and warranties by the Purchaser and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including, without limitation, indemnities and
contribution provisions which shall be in addition to, and not in lieu of, the
indemnities and contribution provisions provided in Section 6.

     (e) If, at any time after requesting registration pursuant to Section 2(a)
and prior to the effective date of the registration statement filed in
connection with such registration request, the Vendor shall determine for any
reason not to register such Registrable Securities, the Vendor may, at its
election, give written notice of such determination to the Purchaser. The
Purchaser shall then be relieved of its obligations to register any Registrable
Securities in connection with such registration request (but not its obligation
to pay the Registration Expenses in connection therewith as provided in Section
2(b)), without prejudice, however, to the right of the Vendor to make a
subsequent request pursuant to Section 2(a) to request that a registration be
effected.

     (f) In no case shall the Purchaser grant to any holder of Registrable
Securities other than the Vendor the right to have such Registrable Securities
registered under the U.S. Securities Act pursuant to a registration statement
filed connection with a request by the Vendor for registration pursuant to
Section 2(a).

<PAGE>

     (g) In connection with any request for registration pursuant to Section
2(a), the Purchaser may, on one occasion only, upon a good-faith determination
by the Purchaser's Board of Directors that such a registration would interfere
with the completion by the Purchaser of a proposed corporate transaction, notify
the Vendor that it intends to defer such registration for up to one hundred
twenty (120) days. In such event the Vendor may rescind its registration
request, and shall again be entitled to request such registration under Section
2(a), but not sooner than the end of the period of deferral determined by the
Purchaser.

     (h) The Purchaser agrees that no Registrable Securities shall be, or shall
be convertible into, securities of a corporation or entity other than the
Purchaser unless the Purchaser first obtains the prior written consent of the
Vendor (which may be unreasonably withheld) and the written acknowledgement and
agreement of such other corporation or entity to provide the Vendor with
registration rights at least as favorable as the registration rights provided
for in this Schedule "E".

     3. Incidental Registrations. (a) If, at any time, the Purchaser proposes to
register any of its securities under the U.S. Securities Act, whether or not for
sale for its own account, on a form and in a manner which would permit
registration of Registrable Securities for sale to the public under the U.S.
Securities Act, it will each such time give prompt written notice to the Vendor
of its intention to do so, describing such securities and specifying the form
and manner and the other relevant facts involved in such proposed registration,
and upon the written request of the Vendor delivered to the Purchaser within
thirty (30) days after the giving of any such notice (which request shall
specify the Registrable Securities intended to be disposed of by the Vendor and
the intended method of disposition thereof), the Purchaser will use its best
efforts to effect the registration under the U.S. Securities Act of all
Registrable Securities which the Purchaser has been so requested to register by
the Vendor, to the extent requisite to permit the disposition (in accordance
with the intended methods thereof as aforesaid) of the Registrable Securities so
to be registered, provided that:

          (i) if, at any time after giving such written notice of its intention
     to register any of its securities and prior to the effective date of the
     registration statement filed in connection with such registration, the
     Purchaser shall determine for any reason not to register such securities,
     the Purchaser may, at its election, give written notice of such
     determination to the Vendor and thereupon shall be relieved of its
     obligation to register any Registrable Securities in connection with such
     registration (but not from its obligation to pay the Registration Expenses
     in connection therewith as provided in Section 3(b)), without prejudice
     however to the rights of the Vendor to request that such registration be
     effected as a registration under Section 2(a);

<PAGE>

          (ii) if the registration so proposed by the Purchaser involves an
     underwritten offering of the securities so being registered, whether or not
     for sale for the account of the Purchaser, to be distributed (on a firm
     commitment basis) by or through one or more underwriters of recognized
     standing under underwriting terms appropriate for such a transaction, and
     the managing underwriter of such underwritten offering shall advise the
     Purchaser in writing that, in its opinion, the distribution of all or a
     specified portion of the Registrable Securities which the Vendor has
     requested the Purchaser to register in accordance with this Section 3(a)
     concurrently with the securities being distributed by such underwriters
     will materially and adversely affect the distribution of such securities by
     such underwriters (such opinion to state the reasons therefor), then the
     Purchaser will promptly furnish the Vendor with a copy of such opinion and
     may deny, by written notice to the Vendor accompanying such opinion, the
     registration of a specified portion of such Registrable Securities (such
     portion to be allocated Pro Rata among all Registering Shareholders and the
     Purchsaser); and

          (iii) the Purchaser shall not be obligated to effect any registration
     of Registrable Securities under this Section 3 incidental to the
     registration of any of its securities in connection with dividend
     reinvestment plans or stock option or other employee benefit plans.

     (b) The Purchaser will pay all Registration Expenses in connection with
each registration of Registrable Securities requested pursuant to this Section
3.

     4. Registration Procedures. (a) If and whenever the Purchaser is required
to use its best efforts to effect the registration of any Registrable Securities
under the U.S. Securities Act as provided in Section 2 or 3, the Purchaser will
as expeditiously as possible:

          (i) prepare and promptly file with the Commission a registration
     statement with respect to such Registrable Securities (in any event, use
     its best efforts to file such registration statement within sixty (60) days
     after the end of the period within which requests for registration may be
     delivered to the Purchaser) and use its best efforts to cause such
     registration statement to become effective as soon as possible;

          (ii) prepare and file with the Commission such amendments and
     supplements to such registration statement and the prospectus used in
     connection therewith as may be necessary to keep such registration
     statement effective and to comply with the provisions of the U.S.
     Securities Act with respect to the disposition of all Registrable
     Securities and other securities covered by such registration statement
     until the earlier of such time as all of such Registrable Securities and
     other securities have been disposed of in accordance with the intended
     methods of disposition by the Vendor set forth in such registration
     statement or the expiration of nine (9) months after such registration
     statement becomes effective;

<PAGE>

          (iii) furnish to the Vendor, without charge, such number of conformed
     copies of such registration statement and of each such amendment and
     supplement thereto (in each case including all exhibits), such number of
     copies of the prospectus included in such registration statement (including
     each preliminary prospectus and any summary prospectus), in conformity with
     the requirements of the U.S. Securities Act, such documents incorporated by
     reference in such registration statement or prospectus, and such other
     documents, as the Vendor may reasonably request;

          (iv) use its best efforts to register or qualify all Registrable
     Securities and other securities covered by such registration statement
     under the securities or blue sky laws of such jurisdictions as the Vendor
     (or in an underwritten offering, the managing underwriter) shall reasonably
     request, and do any and all other acts and things which may be necessary or
     advisable to enable the Vendor to consummate the disposition in such
     jurisdictions of its Registrable Securities covered by such registration
     statement, except that the Purchaser shall not for any such purpose be
     required to qualify generally to do business as a foreign corporation in
     any jurisdiction wherein it is not so qualified, or to subject itself to
     taxation in any such jurisdiction, or to consent to general service of
     process in any such jurisdiction;

          (v) furnish to the Vendor a signed counterpart, addressed to the
     Vendor, of (A) an opinion of counsel for the Purchaser, dated the effective
     date of such registration statement (or, if such registration includes an
     underwritten public offering, dated the date of the closing under the
     underwriting agreement speaking both as of the effective date of the
     registration statement and the date of the closing under the underwriting
     agreement) and (B) a "cold comfort" letter dated the effective date of such
     registration statement (and, if such registration statement includes an
     underwritten public offering, dated the date of the closing under the
     underwriting agreement) signed by the independent public accountants who
     have certified the Purchaser's financial statements included in such
     registration statement, covering substantially the same matters with
     respect to such registration statement (and the prospectus included
     therein) and, in the case of such accountants' letter, with respect to
     events subsequent to the date of such financial statements, as are
     customarily covered in opinions of issuer's counsel and in accountants'
     letters delivered to underwriters in underwritten public offerings of
     securities and such other matters as the Vendor may reasonably request;

          (vi) immediately notify the Vendor, at any time when a prospectus
     relating to the sale of Registrable Securities by it is required to be
     delivered under the U.S. Securities Act, of the happening of any event as a
     result of which the prospectus included in such registration statement, as
     then in effect, includes an untrue statement of a material fact or omits to
     state any material fact required to be stated therein or necessary to make
     the statements therein not misleading in the light of the circumstances
     then existing, and at the Vendor's request prepare and furnish to the
     Vendor a reasonable number of copies of a supplement to or an amendment of
     such prospectus as may be necessary so that, as thereafter delivered to the
     purchasers of such Registrable Securities or other securities, such
     prospectus shall not include an untrue statement of a material fact or omit
     to state a material fact required to be stated therein or necessary to make
     the statements therein not misleading in the light of the circumstances
     then existing;

<PAGE>

          (vii) otherwise use its best efforts to comply with all applicable
     rules and regulations of the Commission, and make available to its
     securities holders, as soon as reasonably practicable, an earnings
     statement covering the period of at least twelve (12) months, which shall
     satisfy the provisions of Section 11(a) of the U.S. Securities Act; and

          (viii) use its best efforts to list such securities on the Nasdaq and
     each securities exchange on which the Common Shares of the Purchaser are
     then listed, if such securities are not already so listed and if such
     listing is then permitted under the rules of such exchange, and, if
     necessary, provide a transfer agent and registrar for such Registrable
     Securities not later than the effective date of such registration
     statement.

The Purchaser may require the Vendor to furnish the Purchaser such information
regarding such holder and the distribution of such securities as the Purchaser
may from time to time reasonably request in writing and as shall be required by
law or by the Commission in connection with any registration statement filed in
connection with the registration of Registrable Securities hereunder.

     (b) If the Purchaser at any time proposes to register any of its securities
under the U.S. Securities Act (other than pursuant to a request made under
Section 2), whether or not for sale for its own account, and such securities are
to be distributed by or through one or more underwriters, the Purchaser will
make reasonable efforts, if requested by the Vendor in connection with a request
of incidental registration of Registrable Securities in connection therewith
pursuant to Section 3, to arrange for such underwriters to include such
Registrable Securities among those securities to be distributed by or through
such underwriters, provided that, for purposes of this sentence, reasonable
efforts shall not require the Purchaser or any other holder of the securities
proposed to be distributed by or through such underwriters to reduce the amount
or sale price of such securities proposed to be so distributed. In the event
that the Vendor makes a request pursuant to the first sentence of this Section
4(b), the Vendor shall be a party to any such underwriting agreement and the
representations and warranties by, and the other agreements on the part of, the
Purchaser to and for the benefit of such underwriters, shall also be made to and
for the benefit of the Vendor.

     (c) Whenever a registration requested pursuant to Section 2 is for an
underwritten offering, the Vendor shall have the right to select the managing
underwriter to administer the offering. If the Purchaser at any time proposes to
register any of its securities under the U.S. Securities Act for sale for its
own account and such securities are to be distributed by or through one or more
underwriters, the managing underwriter shall be selected by the Purchaser.

     5. Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement registering Registrable
Securities under the U.S. Securities Act, the Purchaser will give the Vendor and
the underwriters, if any, and their respective counsel and accountants, the
opportunity to review and comment upon such registration statement, each
prospectus included therein or filed with the Commission, and each amendment
thereof or supplement thereto, and will give each of them such access to its
books and records and such opportunities to discuss the business of the
Purchaser with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the reasonable
opinion of the Vendor and such underwriters or their respective counsel, to
conduct a reasonable investigation within the meaning of the U.S. Securities
Act.

     6. Indemnification; Contribution. (a) In the event of any registration of
any securities of the Purchaser under the U.S. Securities Act, the Purchaser
will, and hereby does, indemnify and hold harmless in the case of any
registration statement filed pursuant to Section 2 or 3, the Vendor, its
directors and officers, each officer and director of each underwriter, each
other person who participates as an underwriter in the offering or sale of such
securities and each other person, if any, who controls such holder or any such
underwriter within the meaning of the U.S. Securities Act against any losses,
claims, damages, liabilities and expenses, joint or several, to which such
holder or any such director or officer or participating or controlling person
may become subject under the U.S. Securities Act, the U.S. Exchange Act or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions or proceedings or investigations in respect thereof) arise out of or are
based upon (x) any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such securities were
registered under the U.S. Securities Act, any preliminary prospectus (unless,
with respect to the indemnification of the officers and directors of each
underwriter and each other person participating as an underwriter, any such
statement is corrected in a subsequent prospectus and the underwriters are given
the opportunity to circulate the corrected prospectus to all persons receiving
the preliminary prospectus), final prospectus or summary prospectus included
therein, or any amendment or supplement thereto, or any document incorporated by
reference therein, or (y) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (z) any violation by the Purchaser of any securities
laws, and the Purchaser will reimburse the Vendor and each such director,
officer, participating person and controlling person for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided,
however, that the Purchaser shall not be liable to the Vendor or any such
director, officer, participating person or controlling person in any such case
to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Purchaser in an instrument
executed by or under the direction of the Vendor or such director, officer,
participating person or controlling person for use in the preparation thereof,
which information was specifically stated to be for use in the registration
statement, prospectus, offering circular or other document. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Vendor or any such director, officer, participating person or
controlling person and shall survive the transfer of such securities by the
Vendor. The Purchaser shall agree to provide for contribution relating to such
indemnity as shall be reasonably requested by the Vendor or the underwriters.

<PAGE>

     (b) The Purchaser may require, as a condition to including any Registrable
Securities in any registration statement filed pursuant to Section 2(a), that
the Purchaser shall have received an undertaking satisfactory to it from the
Vendor and its underwriters, to indemnify and hold harmless the Purchaser, each
director of the Purchaser, each officer of the Purchaser who shall sign such
registration statement and each other person, if any, who controls the Purchaser
within the meaning of the U.S. Securities Act, with respect to any statement in
or omission from such registration statement, any preliminary prospectus, final
prospectus or summary prospectus included therein, or any amendment or
supplement thereto, but only if such statement or omission was made in reliance
upon and in conformity with written information furnished to the Purchaser
through an instrument duly executed by the Vendor or its underwriters
specifically stating that it is for use in the preparation of such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement, provided that the obligations of the Vendor under any
such provision shall be limited to an amount equal to the net proceeds to it
from sales of Registrable Securities sold as contemplated herein. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of the Purchaser or any such director, officer or controlling person
and shall survive the transfer of such securities by the Vendor.

     (c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in the
preceding subdivisions of this Section 6, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 6 except to the extent that the
indemnifying party's liabilities and obligations under this Section 6 are
increased as a result of such failure to give notice. In case any such action is
brought against an indemnified party, the indemnifying party shall be entitled
to participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party for any legal or other expenses subsequently incurred by the indemnified
party in connection with the defense thereof unless (i) the indemnifying party
shall have failed to retain counsel for the indemnified party as aforesaid, (ii)
the indemnifying party and the indemnified party shall have mutually agreed to
the retention of such counsel or (iii) representation of such indemnified party
by the counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and any
other person represented by such counsel in such proceeding or the indemnified
party shall have reasonably concluded that there may be legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to direct the defense of such action on behalf of the indemnified party.
No indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation. The indemnifying party shall
not be liable for any settlement of any proceeding effected without the written
consent of such indemnifying party, but if settled with such consent or if there
be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify each indemnified party from and against any loss or liability by
reason of such settlement or judgment.

<PAGE>

     (d) Indemnification similar to that specified in this Section 6 (with
appropriate modifications) shall be given by the Purchaser and the Vendor with
respect to any required registration or other qualification of such Registrable
Securities under any federal or state law or regulation or governmental
authority other than the U.S. Securities Act.

     7. Information Filing; 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 (but in no way reducing the rights of the Vendor hereunder), the
Purchaser agrees at all times after the date of the Sale Agreement at its cost
and expense to use its best efforts to:

     (a) make and keep available "current public information," as that term is
defined in Rule 144 under the U.S. Securities Act;

     (b) file with the Commission in a timely manner all reports and other
documents required of the Purchaser under the U.S. Securities Act and the U.S.
Exchange Act;

     (c) furnish to the Vendor, or any transferee of all or any portion of its
rights pursuant to Section 8 hereof, promptly upon request a written statement
by the Purchaser as to its compliance with the reporting requirements of the
U.S. Securities Act and the U.S. Exchange Act, a copy of the most recent annual
or quarterly report of the Purchaser, and such other reports and documents so
filed by the Purchaser as such holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing such holder to sell any
Registrable Securities without registration; and

<PAGE>

     (d) comply with the information furnishing provisions of Rule 144A(d)(4)
under the U.S. Securities Act in connection with any proposed sale by the Vendor
of Registrable Securities pursuant to Rule 144A under the U.S. Securities Act.

     8. Transfer of Registration Rights. The registration rights granted to the
Vendor in this Schedule "E" may be transferred and assigned by the Vendor to the
extent that any Registrable Securities are transferred to (a) any Affiliate of
the Vendor, or (b) any transferee who acquires not less than 500,000 Common
Shares (as currently constituted) from the Vendor, and for purposes of these
registration rights any such transferee shall become the "Vendor" with respect
to the Registrable Securities so transferred. To the extent that the Vendor
retains Registrable Securities after any such transfer and assignment, such
Registrable Securities shall continue to be subject to the registration rights
set forth in this Schedule "E."

                               RALLY ENERGY CORP.

                               Per:  /s/ Kenneth A. Morrison
                                     -------------------------------
                                     Kenneth A. Morrison
                                     Vice President, Negotiations &
                                     Contracts

                               Per:  /s/ Doug Urch
                                     --------------------------------
                                     Doug Urch
                                     Vice President, Finance and
                                     Chief Financial Officer

                               SHANNON INTERNATIONAL RESOURCES INC.

                               Per:  /s/ Blair Coady
                                     -------------------------------------
                                     Blair Coady
                                     President & Chief Executive Officer

<PAGE>Exhibit
4.1

 

SERIES B-1 CUMULATIVE CONVERTIBLE REDEEMABLE

 

PREFERRED SHARES OF BENEFICIAL INTEREST

 

CERTIFICATE OF DESIGNATIONS

 

 

FIRST UNION REAL ESTATE

 

EQUITY AND MORTGAGE INVESTMENTS

 

 

 

 

Designating a Series of Preferred Shares of
Beneficial Interest as Series B-1 Cumulative

Convertible Preferred Shares of Beneficial Interest and Fixing Distribution and
Other

Preferences and Rights of Such Series

 

 

 

 

Dated as of February 28, 2005

 

 

 

 

FIRST UNION REAL ESTATE EQUITY

 

AND MORTGAGE INVESTMENTS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2

 

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

 

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

 

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

 

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

 

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

 

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

 

“Constituent Person” shall have the meaning set forth
in Section 

6 (h).

 

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

 

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

 

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

 

3

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Issue Date” shall mean               ,
2005.

 

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

 

4

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

5

 

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

 

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

 

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

 

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

 

Section 3.                                            Dividends.

 

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

 

6

 

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

 

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

 

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

 

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

 

7

 

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

 

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

 

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

 

Section 4.                                            Liquidation Preference.

 

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

 

8

 

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

 

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

 

Section 5.                                            Redemption of Shares.

 

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

 

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

 

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

 

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

 

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

 

9

 

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

 

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

 

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

 

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

 

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

 

10

 

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

 

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

 

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

 

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

 

11

 

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

 

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

 

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

 

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

 

12

 

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

 

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

 

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

 

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

 

13

 

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

 

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

 

14

 

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

 

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

 

15

 

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

 

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

 

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

 

16

 

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

 

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

 

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

 

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

 

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

 

17

 

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

 

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

 

18

 

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

 

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

 

19

 

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

 

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

 

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

 

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

 

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

 

20

 

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

 

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

 

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

 

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

 

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

 

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

 

21

 

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

 

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

 

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

 

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

 

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

 

22

 

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

 

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

 

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

 

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

 

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

 

23

 

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

 

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

 

24

 

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

 

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

 

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

 

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

 

25

 

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

 

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

 

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

 

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

 

Section
10.                                      Limitations on Ownership and
Transfer.

 

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

 

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

 

26

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

27

 

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

 

(b)                                 Restriction On Ownership And
Transfer.

 

(1)                                  Until the Restriction
Termination Date:

 

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

 

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

 

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

 

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

 

28

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

29

 

(e)                                  Excess Stock.

 

(1)                                  Conversion Into Excess Stock.

 

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

 

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

 

30

 

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

 

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

 

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

 

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

 

31

 

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

 

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

 

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

 

(8)                                  Designation Of Permitted
Transferee.

 

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

 

32

 

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

 

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

 

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

 

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

 

33

 

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

 

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

 

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

 

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

 

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

 

34

 

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

 

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

 

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

 

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

 

35

 

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

 

 

	
  FIRST UNION REAL ESTATE
  EQUITY

  
	
  AND MORTGAGE
  INVESTMENTS

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Michael L. Ashner

  
	
   

  	
  Chairman, President

  
	
   

  	
  and Chief Executive
  Officer

  
				

 

36

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