-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WBQnar1pjq8HQaChGamgUa/k1SKUWF11w+s1OhwthzIaem20XhSovPq9gGO+yVXR vr0btDShVIFMaJK4F1hCRw== 0000893220-04-000459.txt : 20040315 0000893220-04-000459.hdr.sgml : 20040315 20040315150545 ACCESSION NUMBER: 0000893220-04-000459 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KRAMONT REALTY TRUST CENTRAL INDEX KEY: 0001111205 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 256703702 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-15923 FILM NUMBER: 04669185 BUSINESS ADDRESS: STREET 1: 580 WEST GERMANTOWN PIKE CITY: PLYMOUTH MEETING STATE: PA ZIP: 19462 BUSINESS PHONE: 6108257100 MAIL ADDRESS: STREET 1: 580 WEST GERMANTOWN PIKE CITY: PLYMOUTH MEETING STATE: PA ZIP: 19462 10-K 1 w95171e10vk.txt FORM 10-K FOR KRAMONT REALTY TRUST SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended December 31, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________________ Commission File Number 1-15923 KRAMONT REALTY TRUST (Exact name of registrant as specified in its charter) MARYLAND 25-6703702 (State of incorporation) (I.R.S. employer identification no.) 580 WEST GERMANTOWN PIKE, SUITE 200, PLYMOUTH MEETING, PA 19462 (Address of principal executive offices) Registrant's telephone number, including area code: 610-825-7100 Securities registered pursuant to Section 12(b) of the Act: Title of Class Name of exchange on which registered - -------------- ------------------------------------ COMMON SHARES OF BENEFICIAL INTEREST, NEW YORK STOCK EXCHANGE $.01 PAR VALUE 9.75% SERIES B-1 CUMULATIVE CONVERTIBLE NEW YORK STOCK EXCHANGE PREFERRED SHARES OF BENEFICIAL INTEREST, $.01 PAR VALUE 8.25% SERIES E CUMULATIVE REDEEMABLE NEW YORK STOCK EXCHANGE PREFERRED SHARES OF BENEFICIAL INTEREST, $.01 PAR VALUE Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [ ] The aggregate market value of the voting common shares held by non-affiliates of the Registrant was approximately $392 million based on the closing price on the New York Stock Exchange for such shares on June 30, 2003. The number of shares of the Registrant's Common Shares of Beneficial Interest outstanding was 24,069,925 as of March 15, 2004. Portions of the Registrant's definitive proxy statement for the 2004 Annual Meeting of Shareholders, to be filed not later than April 29, 2004, are incorporated by reference into Items 10, 11, 12, 13, and 14 of Part III of this Form 10-K. Forward-Looking Statements Certain statements contained in this Annual Report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "intend" or "project", or the negative thereof, or other variations thereon or comparable terminology. Factors which could have a material adverse effect on the operations and future prospects of our company include: - our inability to identify properties to acquire or our inability to successfully integrate acquired properties and operations; - our dependence on the retail industry, including the effect of general or regional economic downturns on demand for leased space at and the amount of rents chargeable by neighborhood and community shopping centers; - changes in tax laws or regulations, especially those relating to REITs and real estate in general; - our failure to continue to qualify as a REIT under U.S. tax laws; - the number, frequency and duration of tenant vacancies that we experience; - the time and cost required to solicit new tenants and to obtain lease renewals from existing tenants on terms that are favorable to us; - tenant bankruptcies and closings; - the general financial condition of, or possible mergers or acquisitions involving, our tenants; - competition from other real estate companies or from competing shopping centers or other commercial developments; - changes in interest rates and national and local economic conditions; - increases in our operating costs; - compliance with regulatory requirements, including the Americans with Disabilities Act; - the continued service of our senior executive officers; - possible environmental liabilities; - the availability, cost and terms of financing; - the time and cost required to identify, acquire, construct or develop additional properties that result in the returns anticipated or sought; - the costs required to re-develop or renovate any of our current or future properties; and - our inability to obtain insurance coverage to cover liabilities arising from terrorist attacks or other causes or to obtain such coverage at commercially reasonable rates. You should also carefully consider any other factors contained in this Annual Report, including the information incorporated by reference into this Annual Report. Unless otherwise indicated, statements herein are made as of the end of the period to which this Annual Report relates, and the Company disclaims any obligation to publicly update or revise any forward-looking statement in this Annual Report which may thereafter appear to be inaccurate for any reason. You should not rely on the information contained in any forward-looking statements, and you should not expect us to update any forward-looking statements. 2 TABLE OF CONTENTS
Form 10-K Item No. Report Page - -------- ----------- PART I 1. Business .................................................................... 4 2. Properties .................................................................. 9 3. Legal Proceedings ........................................................... 13 4. Submission of Matters to a Vote of Security Holders ......................... 13 PART II 5. Market for the Registrant's Common Equity and Related Shareholder Matters and Issuer Purchases of Equity Securities ............... 13 6. Selected Financial Data ..................................................... 15 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ......................................... 16 7A. Quantitative and Qualitative Disclosures About Market Risk .................. 26 8. Financial Statements and Supplementary Data ................................. 26 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures ........................................ 51 9A. Controls and Procedures ..................................................... 51 PART III 10. Trustees and Executive Officers of the Registrant ........................... 51 11. Executive Compensation ...................................................... 51 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters .................................. 51 13. Certain Relationships and Related Transactions .............................. 51 14. Principal Accountant Fees and Services ...................................... 51 PART IV 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K ............. 52
3 PART I BACKGROUND Kramont Realty Trust, a Maryland real estate investment trust ("Kramont") acquired its assets through the merger of Kranzco Realty Trust ("Kranzco") and CV Reit, Inc. ("CV Reit") into Kramont in a merger effective as of June 16, 2000 (the "Merger"). The Agreement and Plan of Reorganization and Merger, dated as of December 10, 1999, was adopted and approved by the shareholders of both companies on June 6, 2000. Terms of the Merger called for holders of common shares of both companies to each receive one common share of beneficial interest of Kramont for each outstanding common share of CV Reit and Kranzco on a tax-free basis, and for holders of Kranzco preferred shares to receive in exchange for such Kranzco preferred shares, Kramont preferred shares with the same rights. The Merger was accounted for as a purchase by CV Reit of Kranzco for accounting purposes. ITEM 1. BUSINESS Kramont is a self-administered, self-managed equity real estate investment trust ("REIT") which is engaged in the ownership, acquisition, development, redevelopment, management and leasing primarily of community and neighborhood shopping centers. Kramont does not directly own any assets other than its interest in Kramont Operating Partnership, L.P. ("Kramont OP") and conducts its business through Kramont OP and its affiliated entities, including Montgomery CV Realty L.P. ("Montgomery OP", together with Kramont OP and their wholly-owned subsidiaries, hereinafter collectively referred to as the "OPs", which together with Kramont are hereinafter referred to as the "Company"). The OPs, directly or indirectly, own all of the Company's assets, including its interests in shopping centers. Accordingly, the Company conducts its operations through an Umbrella Partnership REIT ("UPREIT") structure. As of December 31, 2003, Kramont owned 93.57% of Kramont OP and is its sole general partner. As of December 31, 2003, Kramont OP indirectly owned 99.87% of the limited partnership interest of Montgomery OP and owned 100% of its sole general partner. As of December 31, 2003, the OPs owned and operated eighty-two shopping centers (one of which is held for sale) and two office buildings, and managed four shopping centers for third parties and four shopping centers in connection with a joint venture, located in 15 states aggregating approximately 12.1 million leasable square feet. The owners of the minority interests hold operating partnership units ("OP Units") which are convertible into common shares of beneficial interest on a one to one basis. The Company has the option to issue the common shares of beneficial interest or redeem them for cash equal to the then fair market value of the common shares at the time of the conversion. At December 31, 2003, there were 1,666,152 outstanding OP Units in the OPs. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Company's income-producing properties and other assets represent one reportable segment as each of the income-producing properties have similar economic and environmental conditions, business processes, types of customers (i.e., tenants), and services provided, and because resource allocation and other operating decisions are based on an evaluation of the entire portfolio. In addition, the Company believes the Mortgage Note Receivables are not material and do not represent a separate operating segment. OPERATING STRATEGIES Our primary business objectives are to increase Funds From Operations (See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for a definition of Funds From Operations) and to enhance the value of our properties. It has been our operating strategy to achieve these objectives through: - Efficient operation of our properties, including active leasing and property management, maintenance of high occupancy levels, increasing rental rates and controlling operating and capital costs. - Acquisition of additional properties which satisfy our criteria, at favorable prices, including properties requiring renovation or re-leasing. - Completion of strategic renovations and expansions to further maximize operating cash flows. 4 - Attainment of greater access to capital sources. ACQUISITION STRATEGIES/INVESTMENT STRATEGIES The Company intends to make acquisitions in a manner consistent with the requirements of the Internal Revenue Code of 1986, as amended (the "Code") and regulations promulgated thereunder applicable to REITs with respect to the composition of the Company's portfolio and the derivation of income unless, because of circumstances or changes in the Code (or any related regulation), the board of trustees (the "Trustees") of the Company determine that it is no longer in the best interests of the Company to qualify as a REIT. The Company's acquisition strategy is to opportunistically acquire properties which need replacement anchor tenants or where the Company's management expertise and reputation can enhance value. That strategy includes acquiring and rehabilitating properties in new markets with strong demographic characteristics in order to reduce the Company's sensitivity to regional economic cycles. The Company will seek to utilize its UPREIT structure to acquire interests in properties in exchange for units of limited partner interest in Kramont OP ("OP Units"). Since the Company is an UPREIT, potential transferors of property to the Company may be able to transfer the property on a tax-deferred basis. The Company will generally acquire fee simple or leasehold interests in real property consistent with the Company's acquisition strategies set forth above. However, the Company may make equity investments through joint ventures with developers, owners or other persons which may provide for, among other terms, (i) a cumulative preference as to cash distributions; (ii) a participation in net cash flows from operations; and (iii) a participation in the appreciation of the value of the underlying real property. The Company contemplates that it would manage day-to-day operations of any joint venture's underlying real property. The Company may also acquire investments in real property or real estate oriented companies through issuance of debt or equity securities in exchange for investments or by such other methods as the Trustees deem to be in the best interests of the Company. The Company may acquire all or some of the securities of other REITs or other issuers or purchase or otherwise acquire its own shares. The Company does not anticipate investing in issuers of securities, other than REITs, for the purpose of exercising control or underwriting securities of other issuers or acquiring any investments primarily for sale in the ordinary course of business or to hold any investments with a view to making short-term profits from their sale. Although the Company may make loans to other entities or persons, it has no plans to do so. In the future, the Trustees will consider any transaction involving loans to other entities or persons on a case by case basis. FINANCING STRATEGIES The Company intends to finance acquisitions with the most appropriate sources of capital, as determined by the Trustees, which may include limited partner units in Kramont OP, available cash flows from operations, the issuance of other equity securities, the sale of investments and, within the debt guidelines described below, bank and other institutional borrowings and the issuance of debt securities. Future borrowings by the Company for acquisitions may be either on a secured or unsecured basis. The Company will not have a policy limiting the number or amount of mortgages that may be placed on any particular property, but mortgage financing instruments will usually limit additional indebtedness on specific properties. OPERATING PRACTICES Virtually all operating and administrative functions, such as leasing, data processing, maintenance, finance, accounting, construction, and legal, are centrally managed at the Company's headquarters. In addition, the Company maintains regional offices in Georgia, New York, Virginia, Florida, and Pennsylvania. On-site functions such as security, maintenance, landscaping, sweeping, plumbing, electrical, and other similar activities are either performed by the Company or subcontracted. The costs of those functions are passed through to tenants to the extent permitted by their respective leases. 5 The Company has computer software systems designed to support its operating, leasing, and administrative functions and to optimize management's ability to own, operate and manage additional properties without significant increase in its general and administrative expenses. The Company's systems allow instant access to floor plans, store availability, lease data, tenants' sales history, operating income, cash flows and budgets. ASSETS At December 31, 2003, the book value of the Company's assets amounted to $810.7 million, including $730.9 million in income-producing real estate and properties held for sale, and $31.1 million in real estate mortgage notes receivable. A description of the Company's principal assets follows: PROPERTIES Income-Producing Real Estate and Properties Held for Sale - Please refer to Item 2. Properties. MORTGAGE NOTES RECEIVABLE At December 31, 2003, the Company's mortgage notes receivable amounted to $31.1 million including an aggregate of $8.5 million due from H. Irwin Levy, a Trustee. They are secured by first mortgages on the recreation facilities at the three Century Village adult condominium communities in southeast Florida. As of December 31, 2003, none of the mortgage notes were delinquent. The notes provide for self-amortizing equal monthly principal and interest payments in the aggregate amount of $6.5 million per annum, through January 2012, and bear interest at annual rates ranging from 8.84% to 13.5%. The notes are pledged as collateral for certain borrowings. Two of the notes are prepayable in 2007. Please refer to Item 13. Certain Relationships and Related Transactions regarding related party transactions with Mr. Levy. INVESTMENTS IN UNCONSOLIDATED AFFILIATES Self-Storage Warehouse Partnerships The Company owns 45% - 50% general and limited partnership interests in three partnerships whose principal assets consist of self-storage warehouses located in southeast Florida, with an aggregate of approximately 2,800 units and 320,000 square feet, managed by unaffiliated parties. The Company has no financial obligations with respect to such partnerships except under state law, as general partners. The Company receives monthly distributions from each of the partnerships based on cash flows. Drexel Effective December 31, 1997, the Company acquired a 95% economic interest in Drexel Realty, Inc. ("Drexel"), which for over 30 years has been engaged in the development, construction, leasing, and management of real estate. Until the Merger, Drexel managed the properties owned by Montgomery OP as well as other properties located in Pennsylvania and New Jersey owned by third parties. As of December 31, 2003, Drexel managed four properties in Pennsylvania and New Jersey owned by third parties. At this time, it is not contemplated that Drexel will seek additional third party management contracts. Currently, the Company owns 1% of the voting stock and 100% of the non-voting stock. 99% of the voting stock of Drexel is beneficially owned by Mr. Louis P. Meshon, Sr., a Trustee, and held in a voting trust. Mr. Meshon currently serves as President of Drexel. Please refer to Item 13. Certain Relationships and Related Transactions regarding related party transactions with Mr. Meshon. Shopping Center Venture In July 2003, the Company formed a joint venture with Tower Fund ("Tower"), for the purpose of acquiring real estate assets. Tower is a commingled separate account available through annuity contracts of Metropolitan Life Insurance Company (New York, New York) and managed by SSR Realty Advisors. The Company will administer the day-to-day affairs of the joint venture which is owned 80% by Tower and 20% by the Company. The joint venture owns four shopping centers comprising 553,000 square feet in Vestal, New York. The joint venture 6 properties are all 100% occupied and were purchased by the joint venture for $69.7 million plus transaction costs. The Company's equity contribution to the joint venture is approximately $6 million including transaction costs. The Company accounts for its investments in unconsolidated affiliates using the equity method. INDUSTRY FACTORS Ownership of shopping centers involves risks arising from changes in economic conditions, generally, and in the real estate market specifically, as well as risks which result from property-specific factors such as the failure or inability to make needed capital improvements, competition, reductions in revenue arising from decreased occupancy or reductions in the level of rents obtainable, and factors which increase the cost of operating, financing and refinancing properties such as escalating interest rates and wage rates, increased taxes, fuel costs and other operating expenses and casualties. All of these kinds of risks can result in reduced net operating revenues available for distribution. The Company's ability to manage the properties effectively notwithstanding such risks and economic conditions will affect the funds available for distribution. The results of operations of the Company also depend upon the availability of suitable opportunities for investment and reinvestment of the Company's excess cash and on the yields available from time to time on real estate investments, which in turn depend to a large extent on the type of investment involved, prevailing interest rates, the nature and geographical location of the property, competition, and other factors, none of which can be predicted with certainty. MATERIAL TENANTS The Company relies on major tenants to pay rent, and their inability to pay rent may substantially reduce the Company's net income and cash available for distributions to shareholders. The Company's four largest tenants are Wal-Mart Stores, Inc. ("Wal-Mart"), Ahold USA, Inc. ("Ahold"), TJX Companies, Inc. ("TJX"), and Kmart Corporation ("Kmart"). As of December 31, 2003, Wal-Mart represented approximately 7% of the Company's annualized minimum rents, Ahold represented 5% of the Company's annualized minimum rents, TJX represented 3% of the Company's annualized minimum rents, and Kmart represented 2.7% of the Company's annualized minimum rents. As of December 31, 2003, no other tenant would have represented more than 2.1% of the aggregate annualized minimum rents of the Company's shopping centers. Kmart emerged from bankruptcy on May 6, 2003. As of December 31, 2003, Kmart has not announced the closing of any of the Company's six Kmart stores. However, there is no guarantee that Kmart will not announce any future store closings. BANKRUPT TENANTS The Company's business, results of operations and financial condition would be materially adversely affected if a significant number of tenants at the shopping centers fail to meet their lease obligations, including the obligation, in certain cases to pay a portion of increases in the Company's operating expenses. In the event of a default by a tenant, the Company may experience delays in enforcing its rights as landlord and may incur substantial costs in protecting its investment. If a tenant seeks protection under the bankruptcy laws, the lease may be terminated or rejected in which case the amount of rent the Company is able to collect will be substantially reduced and in some cases the Company may not collect any rent. In addition, it is likely the Company would not be able to recover any unamortized deferred costs related to such tenant. Accordingly, the bankruptcy or insolvency of one or more major tenants or a number of other tenants may materially adversely affect our business, results of operations and financial condition. COMPETITION The Company's competitors for acceptable investments include private investors, insurance companies, pension funds, and other REIT's which may have investment objectives similar to the Company's and some of which have greater financial resources than the Company's. All of the shopping centers are located in areas which have shopping centers and other retail facilities. Generally, there are other retail properties within a five-mile radius of a 7 shopping center. The amount of rentable retail space in the vicinity of the Company's shopping centers could have a material adverse effect on the amount of rent charged by the Company and on the Company's ability to rent vacant space and/or renew leases of such shopping centers. There are numerous commercial developers, real estate companies, and major retailers that compete with the Company in seeking land for development, properties for acquisition and tenants for properties, some of which may have greater financial resources than the Company and more operating or development experience than that of the Company. There are numerous shopping facilities that compete with the Company's shopping centers in attracting retailers to lease space. In addition, retailers at the shopping centers may face increasing competition from the Internet, outlet malls, discount shopping clubs, catalog companies, direct mail, telemarketing, and home shopping TV. The Company is not aware of statistics which would allow the Company to determine its position relative to all of the Company's competitors in the ownership and operation of shopping centers. REAL ESTATE AND OTHER CONSIDERATIONS As an owner and developer of real estate, the Company is subject to risks arising in connection with such activities and with the underlying real estate, including unknown deficiencies of and the ability to successfully develop or manage recently acquired shopping centers, poor economic conditions in those areas where shopping centers are located, defaults on tenant leases or non-renewal of leases, tenant bankruptcies, competition, liquidity of real estate, inability to rent vacant space, failure to generate sufficient income to meet operating expenses, including debt service, capital expenditures and tenant improvements, balloon payments on debt, environmental matters, financing availability, financial and operating restrictions imposed by certain financing arrangements, defaults under and failure to repay borrowings, fluctuations in interest rates, changes in real estate and zoning laws, cost overruns, delays, and other risks of development activities. The success of the Company also depends upon certain key personnel, its ability to maintain its qualification as a REIT and trends in the national and local economy, including income tax laws, governmental regulations and legislation, and population trends. EMPLOYEES As of December 31, 2003, the Company had 147 full and part-time employees. None of the Company's employees are subject to a collective bargaining agreement and the Company has experienced no labor-related work stoppages. The Company considers its relations with its personnel to be good. ENVIRONMENTAL REGULATIONS Various Federal, state, and local laws and regulations subject property owners or operators to liability for the costs of removal or remediation of certain hazardous or toxic substances located on or in the property. These laws often impose liability without regard to whether the owner or operator responsible for or even knew of the presence of such substances. The presence of or failure to properly remediate hazardous or toxic substances (such as toxic mold) may adversely affect our ability to rent, sell, or borrow against contaminated property. Payment of such costs and expenses could adversely affect our ability to make distributions or payments to our investors. TAX STATUS The Company expects to continue to qualify as a REIT. A trust which qualifies as a REIT is required to distribute at least 90% of ordinary taxable income for a taxable year and can deduct distributions paid to shareholders of beneficial interest with respect to such taxable year from taxable income. A REIT is not required to distribute capital gain income but to the extent it does not, it must pay the applicable capital gain income tax unless it has ordinary losses to offset such capital gain income. The Company has historically distributed to the Company's shareholders capital gain income arising from principal repayments on the Company's mortgage notes receivable which are being reported on the installment method for tax purposes. The taxation of the Company and its shareholders could change if relevant Federal, state or local income tax law provisions change. 8 INFORMATION ABOUT KRAMONT ON THE INTERNET The Company's web site address on the Internet is www.kramont.com. By providing a hyperlink on the Company's Internet web site to a third-party SEC filings web site, the Company makes available free of charge through its Internet web site its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to the Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended, as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission. The Company does not maintain or provide such information directly to its Internet web site. The Company makes no representations or warranties with respect to the information contained on the third-party SEC filings web site and takes no responsibility for supplementing, updating, or correcting any such information. The Company also makes available on its web site copies of the charters for the Audit, Compensation and Nominating & Corporate Governance Committees of its Board of Trustees, as well as its Code of Ethics for the Chief Executive Officer and Senior Financial Officers (and any amendments to, or waivers under, such code), and its Whistleblower Policy. Each of these documents is available in print to any shareholder who requests a copy from the Company. ITEM 2. PROPERTIES REAL ESTATE - INCOME-PRODUCING As of December 31, 2003, the Company, directly or indirectly, owned 81 income-producing neighborhood or community shopping centers, 1 property held for sale, and 2 office buildings, located in 15 states comprising 10.8 million square feet. The properties are diverse in size, ranging from 2,650 square feet to 389,000 square feet of gross leasable area with an average of 128,200 square feet of gross leasable area. The shopping centers generally attract local area customers and are typically anchored by a supermarket, drugstore, or discount stores. The centers are smaller than regional malls and do not depend on customers who travel long distances. The tenant base generally concentrates on everyday purchases from local customers. Anchor tenants attract shoppers who also often patronize the smaller shops. At December 31, 2003, 88.9% of the gross leasable area of the Company's income-producing real estate was leased. The Company has pledged 89.2% of the book value of its income-producing real estate as collateral for borrowings. Subsequent Events On February 17, 2004, the Company completed the acquisition of a 203,000 square foot shopping center in Worcester, Massachusetts for a purchase price of $19.8 million plus transaction costs. The purchase was initially made using cash and the property was subsequently pledged as collateral under the Credit Facility (as defined in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations). The shopping center is 99% occupied and is anchored by a 67,000 square foot supermarket. PROPERTIES HELD FOR SALE The property held for sale at December 31, 2003, consists of a shopping center in Capitol Heights, Maryland. This property is carried at the lower of cost or fair value less selling costs (currently cost). Carrying amounts and subsequent declines or gains in fair value are recorded in operations as incurred (see Note 2 to the consolidated financial statements in Item 8. Financial Statements and Supplementary Data). Properties sold and property held for sale in prior periods have been reclassified to Properties Held for Sale on the consolidated balance sheet and Discontinued Operations on the statement of income in all periods presented. 9 The following table sets forth certain pertinent information, as of December 31, 2003, regarding the Company's properties:
YEAR OF LATEST YEAR RENOVATION/ OWNERSHIP PROPERTY LOCATION ACQUIRED EXPANSION INTEREST SHOPPING CENTERS CONNECTICUT Christmas Tree Plaza Orange 2003 N/A Fee Groton Square Groton 2000 2003 Fee Killingly Plaza Killingly 2002 N/A Fee Manchester Plaza Manchester 2000 1998 Fee Milford Milford 2000 N/A Leasehold (2020) Parkway Plaza I & II Hamden 2000 N/A Fee Stratford Square Stratford 2000 N/A Fee FLORIDA Century Plaza Deerfield Beach 1982 2002 Fee Village Oaks Pensacola 2000 2003 Fee GEORGIA Bainbridge Town Center Bainbridge 2000 N/A Fee Douglasville Crossing Douglasville 2000 N/A Fee Holcomb Bridge Roswell 2000 N/A Fee Northpark Macon 2000 1998 Fee Park Plaza Douglasville 2000 N/A Fee Snellville Oaks Snellville 2000 N/A Fee Summerville Summerville 2000 N/A Fee Tifton Corners Tifton 2000 N/A Fee Tower Plaza Carrollton 2000 N/A Fee Vidalia Vidalia 2000 N/A Fee Village at Mableton Mableton 2000 1998 Fee KENTUCKY Harrodsburg Marketplace Harrodsburg 2000 N/A Fee MARYLAND Campus Village College Park 2000 N/A Fee Fox Run Prince Frederick 2000 1997 Fee MICHIGAN Musicland Livonia 2000 N/A Fee NEW JERSEY Collegetown Glassboro 2000 1995 Fee
GROSS LEASABLE LEASE SQUARE OCCUPANCY PRINCIPAL TENANTS AREA RATE (LEASE EXPIRATION/ PROPERTY (SQ. FT.) 12/31/03 OPTION EXPIRATION) SHOPPING CENTERS CONNECTICUT Christmas Tree Plaza 136,016 100.00 Christmas Tree Shops (2016/2066) AC Moore (2007/2027) Groton Square 194,862 99.08 Stop & Shop (2007/2027), Kohl's (2022/2042) Killingly Plaza 75,376 98.51 Stop & Shop (2010/2030) Manchester Plaza 183,377 45.65 Pep Boys (2016/2036) Stop & Shop (2018/2058) Milford 25,200 100.00 Xpect Discount Drug (2004/2009) Parkway Plaza I & II 163,694 10.75 Stratford Square 160,086 96.33 Marshalls (2005/2010), Entertainment Cinema (2009/2039) FLORIDA Century Plaza 90,669 93.30 Broward County Library (2007/2013) Village Oaks 171,653 81.51 Wal Mart (2008/2038) (7) GEORGIA Bainbridge Town Center 143,729 98.43 Kmart (2015/2065), Food Lion (2010/2030) Douglasville Crossing 267,800 88.37 Wal Mart (2010/2040) (1), Rhodes Furniture (2004/2005) Holcomb Bridge 105,420 94.14 Cub Foods (2008/2033) (1) (13), Northpark 195,355 98.62 Kroger (2008/2028), Kmart (2013/2063) Park Plaza 46,495 97.53 Kroger (14) Snellville Oaks 220,885 97.31 Wal Mart (2011/2041) (1), Regal Cinema (2015/2025), Food Lion (2011/2031) (9) Summerville 67,809 100.00 Wal Mart (2004/2034) Tifton Corners 186,629 89.50 Wal Mart (2011/2041) (1), Bruno's (2010/2025) (1) Tower Plaza 89,990 88.48 Bruno's (2007/2027) Vidalia 93,696 100.00 Wal Mart (2005/2035) (1) Village at Mableton 239,474 92.58 Kmart (2014/2064), Cub Foods (2009/2029) (1) (13), Dollar Tree (2009/2024) KENTUCKY Harrodsburg Marketplace 60,048 97.00 Kroger (2007/2027) MARYLAND Campus Village 25,529 100.00 Fox Run 293,423 98.78 Kmart (2016/2066), Giant Foods (2021/2051), Peebles (2012/2032) MICHIGAN Musicland 80,000 100.00 Media Play (2007/2027) NEW JERSEY Collegetown 251,015 99.16 Kmart (2006/2016),
10 Lakewood Plaza Lakewood 1999 N/A Fee Marlton Shopping Center- Evesham 1998 2001 Fee Phase I Marlton Shopping Center- Evesham 1998 2001 Fee Phase II Ocean Heights Somers Point 2003 N/A Fee Rio Grande Plaza Rio Grande 1997 1997 Fee Springfield Shoprite Springfield 2003 N/A Fee Suburban Plaza Hamilton 2000 1999 Fee NEW YORK A & P Mamaroneck Mamaroneck 2000 N/A Fee The Mall at Cross County Yonkers 2000 2000 Fee Campus Plaza Vestal 2003 N/A Fee Highridge Yonkers 2000 N/A Fee North Ridge New Rochelle 2000 N/A Fee Port Washington Port Washington 2000 N/A Leasehold (2067) Village Square Larchmont 2000 N/A Fee NORTH CAROLINA Cary Plaza Cary 2000 N/A Fee Magnolia Plaza Morganton 2000 N/A Fee OHIO Pickaway Crossing Circleville 2000 N/A Fee PENNSYLVANIA 550 W. Germantown Pike Plymouth Meeting 2002 N/A Fee 555 Scott Street Wilkes-Barre 1997 N/A Fee 69th Street Plaza Upper Darby 2000 1994 Fee Barn Plaza Doylestown 2000 2002 Fee Bensalem Square Bensalem 2000 1983 Fee Bethlehem Square Bethlehem 2000 1994 Fee Bradford Mall Bradford 2000 N/A Fee (2) Bristol Commerce Bristol 2000 2003 Fee Chesterbrook Village Wayne 1997 1995 Fee Collegeville Collegeville 1998 1994 Fee Chalfont Village New Britain 1999 N/A Fee Cherry Square Northampton 1999 N/A Fee County Line Plaza Souderton 1997 1998 Fee Danville Plaza Danville 1997 1987 Fee Dickson City Dickson City 1997 1990 Fee Franklin Center Chambersburg 2000 N/A Fee
Acme (2004/2044), Pep Boys (2015/2020) Lakewood Plaza 203,699 99.34 Shop Rite Supermarkets (2010/2030), Consolidated Stores (2007/2012) Marlton Shopping Center- 157,228 100.00 T.J. Maxx (2011/2026) Phase I DSW (2011/2031), Marlton Shopping Center- 154,066 98.71 Burlington Coat Factory (2007/2032), Phase II Home Goods (2006/2021) Ocean Heights 59,000 100.00 Shoprite (2034/2054) (11) Rio Grande Plaza 138,747 97.71 JC Penney (2012/2042), Peebles (2012/2032), Sears (2006/2026) Springfield Shoprite 32,209 100.00 Shoprite Supermarket (2023/2053) Suburban Plaza 244,718 23.26 NEW YORK A & P Mamaroneck 24,978 100.00 Great Atlantic & Pacific (2006/2016) The Mall at Cross County 263,571 100.00 National Wholesale Liquidators (2012/2032), TJ Maxx (2004/2014), Kids R Us (2008/2018) (1), Home Goods (2010/2025), The Sports Authority (2010/2025), Circuit City (2018/2038) Campus Plaza 160,646 92.10 Olum's of Binghamton (2016/2026) Staples (2013/2028) Highridge 88,501 100.00 Pathmark (2013/2028) North Ridge 42,131 92.62 Harmon Cosmetics (2007/2017), NRHMC (2011/2016) Port Washington 19,600 100.00 North Shore Farms (2003/2028) Village Square 17,028 94.71 Trader Joe's (2009/2024) NORTH CAROLINA Cary Plaza 60,702 93.32 Food Lion (2010/2030) (6) Magnolia Plaza 104,539 98.57 Ingles Supermarket (2007/2062) OHIO Pickaway Crossing 127,130 100.00 Wal Mart (2009/2039) PENNSYLVANIA 550 W. Germantown Pike 2,650 0.00 Commerce Bank (2024/2044) (12) 555 Scott Street 8,400 100.00 Pet Supplies Plus (2005) 69th Street Plaza 42,500 36.47 National Wholesale Liquidators (2014/2028) (12) Barn Plaza 237,688 100.00 Marshalls (2009/2024), Regal Cinemas, Inc. (2018/2027), Kohl's (2024/2054) Bensalem Square 72,148 100.00 Pathmark (2009/2039) Bethlehem Square 389,450 100.00 TJ Maxx (2006/2021), Home Depot (2010/2040), Giant Food Store (2010/2030), Wal-Mart (2007/2027) Bradford Mall 290,375 59.60 Kmart (2004/2049) (2), Consolidated Stores (2007/2017), Peebles (2019/2029) (12) Bristol Commerce 278,771 94.29 Superfresh (2008/2038), Wal-Mart (2013/2063) Chesterbrook Village 122,316 90.37 Genuardi Markets (2010/2030) Collegeville 110,696 100.00 Acme (2008/2038), Annie Sez (2007/2017) Chalfont Village 46,051 100.00 Better Bodies of Chalfont (2005/2013) Cherry Square 75,005 100.00 Redners Supermarket (2016/2036) County Line Plaza 175,079 99.43 Woolco, Inc. (2007/2017) (1) (3), Clemens Markets (2007/2027) Danville Plaza 24,052 96.41 CVS Pharmacy (2007/2027) Dickson City 47,224 69.51 Office Max (2007/2017) Franklin Center 175,492 70.24 Food Lion (2010/2030),
11 Gilbertsville Gilbertsville 1998 N/A Fee MacArthur Road Whitehall 2000 N/A Fee New Holland Plaza New Holland 1998 N/A Fee Mount Carmel Plaza Glenside 1997 N/A Fee North Penn Marketplace Upper Gwynedd 1998 N/A Fee Park Hills Plaza Altoona 2000 1996 Fee Pilgrim Gardens Drexel Hill 2000 N/A Fee Street Road Bensalem 2000 1995 Fee The Shoppes at Valley Forge Phoenixville 2000 2002 Fee Valley Fair Tredyffrin 2000 2001 Fee Village at Newtown Newtown 1998 N/A Fee Village West Allentown 2001 N/A Fee Whitehall Square Whitehall 2000 2001 Fee Whitemarsh Conshohocken 1997 2002 Fee Woodbourne Square Langhorne 1997 N/A Fee RHODE ISLAND Wampanoag Plaza East Providence 2000 N/A Fee SOUTH CAROLINA East Main Centre Spartanburg 2000 2000 Fee Park Centre Columbia 2000 2000 Fee TENNESSEE Meeting Square Jefferson City 2000 N/A Fee VIRGINIA Culpeper Town Mall Culpeper 2000 1999 Fee Marumsco-Jefferson Plaza Woodbridge 2000 N/A Fee Statler Crossing Staunton 2000 N/A Fee OFFICE BUILDINGS NEW JERSEY Springfield Office Building Springfield 2003 N/A Fee PENNSYLVANIA Plymouth Plaza Plymouth Meeting 1997 1994 Fee Total income-producing properties PROPERTY HELD FOR SALE Coral Hills Capitol Heights 2000 N/A Fee Totals
Lowe's (2010/2019) (1) Gilbertsville 85,748 100.00 Weis Markets (2009/2019) MacArthur Road 50,856 96.09 Frank's Nursery (2012/2032) New Holland Plaza 65,730 88.74 Amelia's Market (2010/2020), Mount Carmel Plaza 14,504 94.14 Dollarland (2007/2017) North Penn Marketplace 57,898 100.00 Weis Markets (14) Eckerd Drugs (2008/2018) Park Hills Plaza 279,856 99.30 Weis Market (2022/2037), Dunham's Sporting Goods (2005/2015), Toys R Us (2015/2035), Staples (2010/2025), Superpetz (2005/2015) Pilgrim Gardens 83,358 96.94 Loehmann's (2008/2013) (13) Street Road 67,056 62.72 Subzi Mandi Cash and Carry (2011/2016) The Shoppes at Valley Forge 178,326 89.28 French Creek Outfitters (2005/2020), Staples (2011/2026), Redners Supermarket (2023/2030) Valley Fair 110,300 94.96 Oskar Huber Furniture (2011/2026) Chuck E. Cheese (2010/2025) Village at Newtown 177,032 97.74 Genuardi Markets (2008/2028), Zainy Brainy (2005/2015) (13) Village West 133,611 98.50 Giant Supermarket (2019/2039), CVS (2019/2029) Whitehall Square 298,023 80.21 Stop & Shop (2006/2024) (10), The Sports Authority (2006/2036), Kids R Us (2007/2027) Whitemarsh 67,478 100.00 Clemens Markets (2022/2031) Woodbourne Square 29,876 99.90 RHODE ISLAND Wampanoag Plaza 242,162 74.98 Shaw's Drugstores (2006/2016) , Marshalls (2006/2006), Savers/TVI, Inc. (2010/2025) SOUTH CAROLINA East Main Centre 190,686 84.42 Wal Mart (2009/2034) (1), Tractor Supply (2015/2030) Park Centre 226,705 100.00 Wal Mart (2009/2039) (4), Piggly Wiggly (2012/2027), Steinmart (2010/2030) TENNESSEE Meeting Square 92,968 100.00 Wal Mart (2009/2039) (1), Food Lion (2009/2039) VIRGINIA Culpeper Town Mall 137,564 89.87 Tractor Supply (2012/2022), Food Lion (2019/2029) Marumsco-Jefferson Plaza 319,521 73.90 Giant Food Store (2004/2024), Peebles (2004/2010), Consolidated Stores, Inc. (2007/2017) Statler Crossing 166,944 94.49 Wal Mart (2009/2034) (5), Rack `N Sack (2013/2028) (1) OFFICE BUILDINGS NEW JERSEY Springfield Office Building 14,304 100.00 Village Supermarkets, Inc. (2025/2055) PENNSYLVANIA Plymouth Plaza 30,027 99.32 Kramont Realty Trust (2004) ---------- --------- Total income-producing properties 10,685,153 88.86 PROPERTY HELD FOR SALE Shoppers Food Warehouse Coral Hills 82,550 90.01 (2009/2029), CVS (2008/2018) (8) ---------- --------- Totals 10,767,703 88.87% ========== =========
12 Footnotes: (1) Includes space for which rent is being paid but is not presently occupied. (2) 84,695 square feet gross of leasable area is subject to a ground lease which expires in 2004. The Company is the lessee under this ground lease. (3) Lease is with Woolco, Inc. Sublease is with Kimsworth, Inc. (4) Lease is with Wal-Mart Stores, Inc. Sublease is with Resource Bancshares Mortgage Group (5) Lease is with Wal-Mart Stores, Inc. Sublease is with Fisher Auto Parts, Inc. (6) Lease is with Food Lion, Inc. Sublease is with Damaged Freight. (7) Lease is with Wal-Mart Stores, Inc. Sublease is with Bealls, Inc. (8) Lease is with CVS. Sublease is with Fashion Warehouse. (9) Lease is with Food Lion. Sublease is with Carriage House Furniture. (10) Lease is with Stop & Shop. Space is subdivided and there are subleases with Raymour and Flannigan Furniture and Ross Dress for Less. (11) New lease will commence in 2004 as part of development of a new shopping center. (12) Rent will commence in 2004 and is not included in occupancy rates as of December 31, 2003. (13) Operating in bankruptcy. (14) Tenant occupies space not owned by the Company and is not included in the gross leasable area of the shopping center. ITEM 3. LEGAL PROCEEDINGS The Company is not presently involved in any material litigation nor, to its knowledge, is any material litigation threatened against the Company or its properties. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of 2003. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The common shares of beneficial interest (the "Common Shares") are listed for trading on the New York Stock Exchange under the symbol "KRT". The following table sets forth the high and low sales prices per Common Share and the distributions per Common Share which were declared by Kramont for each quarter during the past two years. 13
Kramont Market Price ------------ High Low Distributions Declared ---- --- ---------------------- 2003 First Quarter $ 15.87 $ 14.25 $ .325 Second Quarter 17.20 14.95 .325 Third Quarter 17.82 16.40 .325 Fourth Quarter 18.80 16.76 .325 ---------------------- $ 1.30 ====================== 2002 First Quarter $ 14.26 $ 12.35 $ .325 Second Quarter 16.25 13.24 .325 Third Quarter 15.94 11.10 .325 Fourth Quarter 15.75 12.51 .325 ---------------------- $ 1.30 ======================
The Company has paid regular quarterly cash distributions on its common stock and common shares of beneficial interest since it commenced operations. Future distributions paid by the Company will be at the discretion of the Board of Trustees and will depend on the actual cash flow of the Company, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Board of Trustees deem relevant. As of March 1, 2004, there were 24,069,925 Common Shares outstanding, and the approximate number of holders of record of the Common Shares was 2,200. The Company owns 24,069,925 Common OP Units in Kramont OP representing the sole general partnership interest and 93.57% of the limited partnership interests in Kramont OP. The Company indirectly owns 9,416,754 units of limited partnership (also called "OP Units") in Montgomery OP representing a 99.87% partnership interest in Montgomery OP and owned 100% of its sole general partner. The holders of substantially all of the remaining OP Units have the right to require Kramont OP or Montgomery OP, as the case may be, to redeem their OP Units. However, upon a holder giving notice of the exercise of this right, the Company has the right to acquire such holder's OP Units in exchange for cash or, if certain conditions are satisfied, an equal number of Kramont Common Shares. Securities Authorized For Issuance Under Equity Compensation Plans The following table provides certain information regarding the securities authorized for issuance under the Company's equity compensation plans, as of December 31, 2003.
Number of Securities to Number of Securities be Issued Upon Weighted-Average Remaining Available Exercise of Outstanding Exercise Price of for Future Issuance Options, Warrants and Outstanding Options, Under Equity Rights Warrants and Rights Compensation Plans (3) Plan Category (a) (b) (c) - ------------------------------------------------------------------------------------------------------------------ Equity compensation plans approved by shareholders (1) 389,528 $ 14.35 3,075,750
14
Number of Securities to Number of Securities be Issued Upon Weighted-Average Remaining Available Exercise of Outstanding Exercise Price of for Future Issuance Options, Warrants and Outstanding Options, Under Equity Rights Warrants and Rights Compensation Plans (3) Plan Category (a) (b) (c) - ------------------------------------------------------------------------------------------------------------------ Equity compensation plans not approved by shareholders (2) - - - ------------------------ -------------------- ---------------------- Total 389,528 $ 14.35 3,075,750 ======================== ==================== ======================
(1) The equity compensation plans which were approved by the Company's shareholders are the 1992 Employee Share Plan, the 1992 Trustee Share Option Plan, 1995 Incentive Plan, the Kramont Realty Trust Executive Stock Option Plan, the Kramont Realty Trust 1997 Stock Option Plan, the Kramont Realty Trust Non-Employee Director 1998 Stock Option Plan, and the Kramont Realty Trust 2000 Incentive Plan. (2) There are no equity compensation plans which were not approved by the Company's shareholders. (3) Excludes securities reflected in column (a). ITEM 6. SELECTED FINANCIAL DATA The financial information included in the following table has been selected by the Company and has been derived from the consolidated financial statements for the periods indicated. Under generally accepted accounting principals, the Merger was accounted for as a purchase by CV Reit of Kranzco. Therefore, all of the financial information prior to June 16, 2000, is for CV Reit. All of the financial information included in the following table for periods on and after June 16, 2000 relates to the Company as a combined entity.
Years Ended December 31, (dollars in millions, except share data) 2003 2002 2001 2000 (a) 1999 -------------------------------------------------------------------------------------- Revenues Rent $ 108.5 $ 101.8 $ 98.8 $ 65.1 $ 25.3 Interest and Other 4.4 5.4 6.0 9.5 8.0 -------------- -------------- -------------- -------------- -------------- Total Revenues $ 112.9 $ 107.2 $ 104.8 $ 74.6 $ 33.3 ============== ============== ============== ============== ============== Income from continuing operations $ 18.3 $ 17.0 $ 17.2 $ 12.8 $ 7.2 ============== ============== ============== ============== ============== Income from discontinued operations $ 5.0 $ 1.0 $ 8.6 $ .6 $ - ============== ============== ============== ============== ============== Income before preferred distribution $ 23.3 $ 18.0 $ 25.8 $ 17.6 $ 7.2 ============== ============== ============== ============== ============== Income to common shareholders $ 16.5 $ 11.0 $ 18.3 $ 13.4 $ 7.2 ============== ============== ============== ============== ==============
15 Funds From Operations (FFO) (b) $ 32.5 $ 27.0 $ 28.5 $ 22.7 $ 10.8 ============== ============== ============== ============== ============== Per common share: Income to common shareholders, basic $ .70 $ .54 $ .97 $ .97 $ .91 ============== ============== ============== ============== ============== Income to common shareholders, diluted $ .69 $ .54 $ .97 $ .97 $ .91 ============== ============== ============== ============== ============== Dividends declared $ 1.30 $ 1.30 $ 1.30 $ 1.27 $ 1.16 ============== ============== ============== ============== ============== Weighted average common shares outstanding, basic 23,757,692 20,380,949 18,803,535 13,857,409 7,966,621 ============== ============== ============== ============== ============== Weighted average common shares outstanding, diluted 23,811,799 20,401,095 18,815,657 13,858,427 7,966,621 ============== ============== ============== ============== ============== At Year End: Total assets $ 810.7 $ 779.3 $ 769.2 $ 764.0 $ 257.8 ============== ============== ============== ============== ============== Borrowings $ 451.1 $ 480.5 $ 510.2 $ 500.3 $ 156.3 ============== ============== ============== ============== ============== Beneficiaries equity: Total $ 313.8 $ 253.9 $ 219.0 $ 225.2 $ 77.6 ============== ============== ============== ============== ============== Net cash provided by operating activities $ 38.2 $ 38.3 $ 30.6 $ 21.2 $ 11.8 ============== ============== ============== ============== ============== Net cash provided by (used in) investing activities $ (17.2) $ (14.1) $ 5.7 $ 22.9 $ (1.4) ============== ============== ============== ============== ============== Net cash used in financing activities $ (29.2) $ (16.9) $ (37.5) $ (37.2) $ (10.7) ============== ============== ============== ============== ==============
(a) On June 16, 2000, Kramont acquired its assets through the merger of CV Reit and Kranzco into Kramont. See Item 7. Management's Discussion and Analysis of Results of Operation and Financial Condition and Note 1 to the consolidated financial statements in Item 8. Financial Statements and Supplementary Data. (b) Funds From Operations ("FFO"), as defined by the National Association of Real Estate Investment Trusts (NAREIT), consists of net income (computed in accordance with generally accepted accounting principles) before depreciation and amortization of real property, extraordinary items and gains and losses on sales of real estate. Please refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for the calculation of FFO. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements of the Company and the notes thereto in Item 8. Financial Statements and Supplementary Data (collectively, the "financial statements"). 16 RESULTS OF OPERATIONS NET INCOME 2003 Compared to 2002 For the year ended December 31, 2003, net income to holders of Common Shares was $16.5 million or $.69 per diluted weighted average common share compared to $11 million or $.54 per diluted weighted average common share for the year ended December 31, 2002. The discussion below highlights the major components which caused the increase in net income. For the year ended December 31, 2003, rent and other revenue and operating expenses increased by $6.1 million and $4.4 million, respectively (a net rental income increase of $ 1.7 million). The rent revenue increase is primarily due to increased rentals in the existing portfolio in the amount of $4 million and $3.1 million in rents from the acquisition of six income-producing properties, one on April 26, 2002, three on April 3, 2003, one on July 24, 2003 and one on July 25, 2003, offset by the loss of rent from tenant bankruptcies in the amount of $1 million. Operating expenses increased during the twelve months ended December 31, 2003, primarily due to an increase in snow removal costs in 2003 in the amount of $2.3 million, an increase in general maintenance expense in the amount of $360,000, an increase in insurance expense in the amount of $480,000, an increase in utility expense in the amount of $420,000, an increase in real estate taxes in the amount of $300,000, and additional operating expense of $560,000 as a result of the purchase of the six income-producing properties. Management fees increased by $72,000 in 2003 as a result of the Company entering into an exclusive management and leasing agreement (through its wholly owned management company) with the Tower joint venture on July 25, 2003. Interest income decreased by $425,000 during 2003, $270,000 of which is attributable to a reduction on the balance of the Company's mortgage notes receivable due to scheduled repayments of principal and a decrease in interest income on the Company's cash deposits in the amount of $155,000 due to lower interest rates. The Company's mortgage notes receivables are long term and require self-amortizing payments through 2012. Interest expense decreased by $3 million during 2003, primarily as a result of a decrease in interest paid on the Company's variable rate debt of $1.1 million, a decrease in interest expense in the amount of $1.8 million as a result of the refinancing of the Company's $181.7 million fixed rate real estate mortgage loan that matured on June 20, 2003, and a decrease of $600,000 due to lower debt balances, offset by an increase in interest expense of $500,000 due to the assumption of debt in the acquisition of two income-producing properties on July 24, 2003 and July 25, 2003. Depreciation and amortization increased by $1.8 million, primarily due to additional expense of $1.3 million as a result of capital expenditures in the current year and a full year of depreciation on 2002 capital expenditures, and the additional expense of $525,000 as a result of the acquisition of six income-producing properties. General and administrative expenses increased by $1.4 million, principally due to higher payroll related expenses in the amount of $950,000 as a result of additional personnel, increased salaries, higher performance related bonuses, and higher expense for the amortization of restricted share compensation. In addition, the Company incurred increased expenses of $300,000 due to the implementation of a corporate marketing program, an increase in information technology expense of $90,000, and an increase in legal fees in the amount of $90,000. Income from discontinued operations was $5 million for 2003 compared to $1 million for 2002. The 2003 amount consisted of a gain from the sale of real estate in the amount of $4.3 million and income from the operations of properties sold and properties held for sale of $1.1 million. The 2003 amount includes the income from properties sold in 2003 as well as properties held for sale. The 2002 amount consisted of a loss from the sale of real estate in the amount of $45,000 and income from the operations of properties sold and properties held for sale of $1.1 million. The 2002 amount includes the income from properties sold in 2002 and 2003, as well as the properties held for sale. 17 Preferred share distributions decreased by $272,000 due to the Company's purchase of all 11,155 outstanding Series A-1 Increasing Rate Cumulative Convertible Preferred Shares on May 15, 2002. 2002 Compared to 2001 For the year ended December 31, 2002, net income to holders of Common Shares was $11 million or $.54 per diluted weighted average common share compared to $18.3 million or $.97 per diluted weighted average common share for the year ended December 31, 2001. The discussion below highlights the major components which caused the decrease in net income. For the year ended December 31, 2002, rent and other revenue and operating expenses increased by $2.7 million and $2 million, respectively (a net rental income increase of $700,000). The rent revenue increase is primarily due to increased rentals in the existing portfolio in the amount of $1 million and $3.3 million in rents from the acquisition of two shopping centers on December 27, 2001 and April 26, 2002, offset by the loss of rent from tenant bankruptcies in the amount of $1.6 million. Operating expenses increased during the twelve months ended December 31, 2002, primarily due to the purchase of two shopping centers which amounted to $600,000, an increase in real estate tax expense in the amount of $800,000, and an increase in on-site management expense in the amount of $600,000. Interest income decreased by $430,000 during 2002, of which $240,000 was attributable to a reduction on the balance of the Company's mortgage notes receivable due to scheduled repayments of principal and a decrease in interest income on the Company's cash deposits in the amount of $190,000 due to lower interest rates. The Company's mortgage notes receivables are long term and require self-amortizing payments through 2012. Interest expense decreased by $772,000 during 2002, primarily as a result of a decrease in interest paid on the Company's variable rate debt of $920,000, $1.2 million resulting from the repayment of borrowings, offset by an increase in interest of $960,000 due to the assumption of debt in the acquisition of a shopping center on December 27, 2001 and $335,000 expense due to the write-off of deferred finance costs due to the prepayment of a credit facility in December, 2002. Depreciation and amortization increased by $1.5 million, primarily due to additional expense of $1 million as a result of capital expenditures in 2002 and a full year of depreciation on 2001 capital expenditures, and the additional expense of $500,000 as a result of the acquisition of two shopping centers on December 27, 2001 and April 26, 2002. General and administrative expenses decreased by $353,000, principally due to a decrease in performance related bonuses offset by an increase in the amortization of restricted shares. Income from discontinued operations was $1 million for 2002 compared to of $8.6 million for 2001. The 2002 amount consisted of a loss from the sale of real estate in the amount of $45,000 and income from the operations of properties sold and properties held for sale of $1.1 million. The 2002 amount includes the income from properties sold in 2002 as well as properties held for sale. The 2001 amount consisted of a gain from the sale of real estate in the amount of $5.1 million and income from the operations of properties sold and properties held for sale of $4.1 million. The 2001 amount includes the income from properties sold in 2001 and 2002, as well as the properties held for sale. Preferred share distributions decreased by $444,000 due to the Company's purchase of all 11,155 outstanding Series A-1 Increasing Rate Cumulative Convertible Preferred Shares on May 15, 2002. 18 FUNDS FROM OPERATIONS The following schedule reconciles FFO to net income for the years presented (in thousands):
2003 2002 2001 -------- -------- -------- Income to common shareholders $ 16,538 $ 10,951 $ 18,260 Depreciation and amortization of real property (including unconsolidated affiliates) (1) (2) 17,794 16,036 14,998 (Gain) loss on sale of real estate (3) (1,879) 42 (4,754) -------- -------- -------- FFO $ 32,453 $ 27,029 $ 28,504 ======== ======== ========
(1) Net of minority interests of $1,255, $1,313, and $1,042, respectively. (2) Depreciation related to unconsolidated affiliates of $338, $192, and $170, respectively. (3) Net of amounts attributable to minority interests of ($132), $3 and ($337), respectively. The Company believes that FFO should be considered in conjunction with net income, as presented in the statements of operations. The Company believes that FFO is an appropriate measure of operating performance because real estate depreciation and amortization charges are not meaningful in evaluating the operating results of the Company's properties and extraordinary items and the gain on the sale of real estate would distort the comparative measurement of performance and may not be relevant to ongoing operations. However, FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and should not be considered as an alternative to either net income as a measure of the Company's operating performance or to cash flows from operating activities as an indicator of liquidity or cash available to fund all cash flow needs. Since all companies do not calculate FFO in a similar fashion, the Company's calculation, presented above, may not be comparable to similarly titled measures reported by other companies. Please refer to Item 6, Selected Financial Data, Note b. LIQUIDITY AND CAPITAL RESOURCES Consolidated Statements of Cash Flows Unrestricted cash and cash equivalents were $8.3 million, $16.5 million, and $9.2 million at December 31, 2003, 2002, and 2001, respectively. Net cash provided by operating activities, as reported in the consolidated statements of cash flows decreased to $38.2 million in 2003 from $38.3 million in 2002 and increased from $30.6 million in 2001. The decrease in cash flows from operating activities from 2002 to 2003 is primarily due to an decrease in accounts payable and other liabilities of $500,000 in 2003 compared to a increase in accounts payable and other liabilities of $4.8 million in 2002, offset by an increase in accounts receivable and other assets of $200,000 in 2003 compared to an increase in accounts receivable and other assets of $3.9 million in 2002. Net cash used in investing activities amounted to $17.2 million in 2003, which increased from net cash used in investing activities of $14.1 million in 2002, and net cash provided by investing activities of $5.7 million in 2001. The 2003 amounts reflect $14.1 million used in the acquisitions of a shopping center and an office building in Springfield, New Jersey, a shopping center and sixteen acres of land in Somers Point, New Jersey, a shopping center in Orange, Connecticut, and a shopping center in Vestal, New York. The 2003 amounts also reflect $18.3 million used for capital improvements and $6 million used in the investment in the Tower joint venture offset by $2.3 million of collections on mortgage notes receivable and $17.4 million of proceeds from the sales of an out-parcel in Bensalem, Pennsylvania, twenty-eight acres of unimproved land in Miramar, Florida, nine acres of unimproved land in Dania, Florida, an office building in West Palm Beach, Florida, a shopping center in Phillipsburg, New Jersey, a leasehold interest in a free-standing building in Orange, Connecticut, and a free standing building in Woodbridge, Virginia. The 2002 amounts reflect $9.8 million used for the acquisition of a shopping center in Killingly, Connecticut and a free-standing building in Plymouth Meeting, Pennsylvania, and $9.7 million used for capital improvements, offset by $2 million of collections on mortgage notes receivable and $2.6 million of proceeds from the sale of a free-standing building in Frederick, Maryland and a shopping center in Columbus, Mississippi. The 19 2001 amounts reflect $1.9 million of collections of mortgage notes receivable and $17.3 million of proceeds from the sale of three shopping centers in Baltimore, Maryland, Brookhaven, Mississippi, and Frederick, Maryland, partially offset by $13.9 million of capital improvements and $234,000 used for the purchase of a shopping center in Allentown, Pennsylvania. Net cash used in financing activities amounted to $29.2 million in 2003, $16.9 million in 2002, and $37.5 million in 2001. The 2003 amounts consist of cash distributions of $37.5 million to shareholders, cash distributions of $2.2 million to minority interests, $50.4 million of net repayment of borrowings, and $2.9 million of deferred finance costs, partially offset by $62.4 million of proceeds from the issuance of new common shares of beneficial interest under its Shelf Registration and $1.3 million of proceeds from the issuance of common shares of beneficial interest as a result of the exercising of options. The 2002 amounts consist of cash distributions of $33.4 million to shareholders, cash distributions of $2.1 million to minority interests, $29.7 million of net repayment of borrowings, $6.1 million used for the purchase of 11,155 shares of Preferred Series A-1 shares of beneficial interest, and $3 million of deferred finance costs, partially offset by $56.7 million of proceeds from the issuance of new common shares of beneficial interest under its Shelf Registration and $635,000 of proceeds from the issuance of common shares of beneficial interest as a result of the exercising of options. The 2001 amounts consist of cash distributions of $32 million to shareholders, cash distributions of $1.7 million to minority interests, $4.1 million of net repayment of borrowings, and $561,000 of deferred finance costs, partially offset by $862,000 of proceeds from the issuance of common shares of beneficial interest as a result of the exercising of options. Contractual Obligations and Commitments At December 31, 2003, the Company's contractual obligations and commitments are as follows:
Payments Due by Period (in thousands) Total Less than 1 year 1-3 years 3-5 years More than 5 years Long-Term Debt Obligations $451.1 $58.6 $37.2 $103.9 $251.4 Purchase of Shopping Center Obligation 19.8 19.8 - - - Interest on Long-Term Debt Obligations 176.9 26.7 48.7 40.9 60.6
Borrowings At December 31, 2003, the Company's ability to borrow under lines of credit is as follows:
Commitment expiration per period (in thousands) Total amounts available 1 year 2 to 3 years - ----------------------- -------- ------------ $ 74.9 $ 6.7 $ 68.2
Borrowings consist of $444.7 million of fixed rate indebtedness, with a weighted average interest rate of 6.75% at December 31, 2003, and $6.4 million of variable rate indebtedness with a weighted average interest rate of 3.11% at December 31, 2003. The borrowings are collateralized by a substantial portion of the Company's real estate and the Recreation Notes. The Company expects to refinance certain of these borrowings, at or prior to maturity, through new mortgage loans on real estate. The ability to do so, however, is dependent upon various factors, including the income level of the properties, interest rates and credit conditions within the commercial real estate market. Accordingly, there can be no assurance that such refinancing can be achieved. Effective June 16, 2003, the Company entered into a ten year, fixed rate loan agreement with Metropolitan Life Insurance Company (the "Metlife Loan") for a loan in the amount of $190 million to replace a $181.7 million fixed rate real estate mortgage loan that matured on June 20, 2003. The Metlife Loan is secured by fifteen shopping center properties (the "Mortgaged Properties") and the remaining principal balance of the Metlife Loan is due in June 2013. The Metlife Loan bears a fixed interest rate of 6.12% per annum and requires monthly payments of interest 20 only for the first two years of the ten year term and monthly payments of interest and principal based on a 30-year amortization for the remaining term. Effective December 20, 2002, the Company entered into a loan agreement (the "Loan Agreement") with Fleet National Bank, N.A. on its own behalf and as agent for certain other banks providing for a credit facility (the "Credit Facility"). As of December 30, 2002, the date of the initial funding, the maximum amount of the Credit Facility was then $100 million and the maximum amount the Company could borrow was $68 million based on the current collateral. The maximum amount of the Credit Facility was increased to $125 million on March 19, 2003, under the terms and conditions of the Loan Agreement. The Borrowing Base available to Kramont OP under the Credit Facility is subject to increase or decrease from its current amount pursuant to the terms of the Loan Agreement. The Credit Facility is a revolving line of credit with a term of three years and is secured by guarantees by the Company and those of its subsidiaries who have provided mortgages to the lenders, sixteen first mortgages on shopping centers and a first priority security interest in the membership interests and partnership interests of the subsidiary entities. The Credit Facility contains various financial covenants that must be observed. The Company was in compliance with these covenants at December 31, 2003. Credit Facility borrowings bear interest at the Borrower's election of (a) at the prime rate or the prime rate plus 25 basis points based on the leverage ratio of the Company's and Kramont OP's total debt and liabilities to its total asset value, or (b) London InterBank Offered Rate ("LIBOR") plus 175 to 225 basis points based on such ratio. Interest rates may be set for one, three or six-month periods. Advances under the Credit Facility may be used for general corporate purposes and, among other purposes, to fund acquisitions, repayment of all or part of outstanding indebtedness, expansions, renovations, financing and refinancing of real estate, closing costs and for other lawful purposes. Additional provisions include arrangement and commitment fees of up to $1.1 million, and a fee applicable on the unused portion of the maximum Credit Facility amount. The $68 million received on December 30, 2002 was used to pay outstanding debt, including a portion of the amount outstanding under the Company's credit facility with GMAC Commercial Mortgage which matured in August, 2003. The outstanding balance on the Credit Facility was approximately $2 million as of December 31, 2003. Based on the current collateral the Company can borrow an additional $68.2 million as of December 31, 2003. In 1998, the Company obtained a $65.9 million fixed rate mortgage from Salomon Brothers Realty Corp. This loan is secured by a first mortgage on nine properties acquired by the Company in September 1998. The mortgage loan bears a fixed interest rate of 7% per annum and requires monthly payments of interest and principal based on a 30-year amortization. The loan matures on October 1, 2008. The outstanding balance on the mortgage was approximately $62.3 million as of December 31, 2003. Pursuant to the mortgage loan, the Company is required to make monthly escrow payments for the payment of tenant improvements and repair reserves. In addition, the Company has twenty-six mortgage loans outstanding as of December 31, 2003 which were primarily assumed in connection with various acquisitions of certain shopping centers. These mortgage loans have maturity dates ranging from 2004 through 2028. Twenty-three of the twenty-six mortgage loans have fixed interest rates ranging from 5.15% to 9.38%. The outstanding principal balance on these mortgage loans at December 31, 2003 was approximately $177.7 million. The remaining three mortgage loans, in the aggregate amount of $4.4 million at December 31, 2003, have variable rates ranging from 2.72% to 6.88%. The Company has $14.6 million of borrowings consisting of Collateralized Mortgage Obligations, net of unamortized discount, with a fixed effective interest rate of 8.84% which are collateralized by the Recreation Notes and require self-amortizing principal and interest payments through March 2007. On July 12, 2001, the Company established a secured line of credit in the amount of $3.2 million with Wachovia Bank, N.A. This line is secured by a shopping center and has an interest rate payable at a rate adjusted monthly to the sum of 30 day LIBOR plus 1.8%. The line of credit matures on October 31, 2004. No amounts were outstanding at December 31, 2003 on this line of credit. The Company has a line of credit with Wilmington Trust of Pennsylvania in the amount of $3.5 million secured by two shopping centers with an interest rate payable at a rate adjusted monthly to the sum of 30 day LIBOR plus 1.8%. The line of credit matures on June 30, 2004. At December 31, 2003, there was no outstanding balance on this line of credit. 21 Capital Resources The Company's operating funds are generated from rent revenue net of operating expense from income-producing properties and, to a much lesser extent, interest income on the mortgage notes receivable. The Company believes that the operating funds will be sufficient in the foreseeable future to fund operating and administrative expenses, interest expense, recurring capital expenditures and distributions to shareholders in accordance with REIT requirements. Sources of capital for non-recurring capital expenditures and scheduled principal payments, including balloon payments, on outstanding borrowings are expected to be obtained from property refinancings, scheduled principal repayments on the mortgage notes receivable, sales of non-strategic real estate, the Company's lines of credit and/or potential debt or equity financing in the public or private markets. On April 3, 2002, the Company filed a Shelf Registration Statement on Form S-3 ("Shelf Registration") to register $150 million in common and preferred shares of beneficial interest, depository shares, warrants and debt securities. The Shelf Registration Statement became effective April 17, 2002. On May 15, 2002, the Company purchased all 11,155 outstanding Series A-1 Increasing Rate Cumulative Convertible Preferred Shares for $6.1 million plus costs. On May 16, 2002, under the Shelf Registration, the Company sold 2.3 million of its common shares of beneficial interest to certain investment advisory clients of Cohen & Steers Capital Management, Inc. for net proceeds of $31.3 million. The Company used $6.1 million for the purchase of Series A-1 Preferred Shares, $8.4 million for the purchase of a shopping center in Killingly, Connecticut, $1.1 million for the purchase of a free standing building in Plymouth Meeting, Pennsylvania, and paid down debt in the amount of $8 million. The Company used the balance of the proceeds for acquisitions, debt reductions, and other corporate purposes. On December 31, 2002, under the Shelf Registration, the Company sold 1.8 million of its common shares of beneficial interest to Teachers Insurance and Annuity Association of America and certain investment advisory clients of Kensington Investment Group, Inc. and Teachers Advisors, Inc. for net proceeds of $25.5 million. The Company used $25 million to pay down the Credit Facility. The Company used the balance of the proceeds for general corporate purposes. On January 2, 2003, under the Shelf Registration, the Company sold 280,000 of its common shares of beneficial interest to Teachers Insurance and Annuity Association of America for net proceeds of $4 million. The Company used $4 million to pay down the Credit Facility. On December 30, 2003, under the Shelf Registration, the Company sold 2,400,000 of its 8.25% Series E Cumulative Redeemable Preferred Shares to a number of mutual funds and other purchasers for net proceeds of approximately $58.5 million. The Company used approximately $41.3 million to redeem the Company's 9.5% Series D Cumulative Redeemable Preferred shares of beneficial interest on January 30, 2004 and the balance will be used for general corporate purposes. Subsequent Events On January 30, 2004, the Company redeemed all of its outstanding 9.5% Series D Cumulative Redeemable Preferred Shares of beneficial interest for $25.00 per share plus accrued and unpaid distributions though January 30, 2004 of $0.066 per share. In connection with the redemption of the 9.5% Series D Cumulative Redeemable Preferred Shares of beneficial interest, the Company's first quarter 2004 results will reflect a non-recurring reduction in Income to common shareholders of approximately $17.7 million or $0.69 per common share. This reduction will be taken in accordance with the July 31, 2003 Securities and Exchange Commission interpretation of FASB-EITF Topic D-42 ("The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock"). Under this interpretation, the difference between the carrying amount of the shares and the redemption price must be recorded as a reduction in Net Income Attributable to Common Shareholders and, therefore, will impact Earnings Per Share and Funds From Operations per share 22 On February 27, 2004 under the Shelf Registration, the Company sold 400,000 of its 8.25% Series E Cumulative Redeemable Preferred Shares to certain investment advisory clients of Cohen & Steers Capital Management, Inc. for net proceeds of $10.1 million. The Company will use the $10.1 million for general corporate purposes. Acquisitions On April 3, 2003, the Company completed the acquisition of two shopping centers, an office building and sixteen acres of land for development for approximately $13.2 million including transaction costs. The purchase included a 31,500 square foot Shop Rite Supermarket and a fully occupied 14,000 square foot office building in Springfield, New Jersey, a 54,000 square foot Shop Rite Supermarket, and an adjacent sixteen acres of land approved for development in Somers Point, New Jersey. The sixteen acres of land are currently under development. The properties were purchased using cash and the issuance of 386,153 common shares of beneficial interest. The Company has a future obligation to issue an additional 228,939 common shares of beneficial interest upon the satisfaction of certain conditions. The liability for these shares have been accrued in accounts payable and other liabilities. On July 24, 2003, the Company completed the acquisition of a 136,000 square foot shopping center in Orange, Connecticut for a purchase price of $18.4 million including transaction costs. The center is fully occupied and is anchored by a 50,000 square foot Christmas Tree Shop store. The shopping center was purchased using cash and the assumption of approximately $11 million in non-recourse debt. On July 25, 2003, the Company completed the acquisition of a 161,000 square foot shopping center in Vestal, New York for a purchase price of $13.1 million including transaction costs. The center is 94% occupied and anchored by an 82,500 square foot furniture and appliance store. The shopping center was purchased using a combination of cash, 185,018 common shares of beneficial interest and the assumption of $7.8 million in non-recourse debt. Dispositions The Company has determined that certain properties do not fit the Company's core portfolio. As a result, these properties have been sold, are under contract of sale, or are held for sale. The Company sold one office building, one shopping center, and vacant land in 2003. The Company also assigned its leasehold interest in a shopping center. On January 21, 2003, the Company sold a three acre out-parcel at its Bensalem Square shopping center in Bensalem, Pennsylvania. The Company received net cash proceeds of $670,000 and recognized a gain of approximately $600,000. On March 6, 2003, the Company sold a 28 acre parcel of unimproved land located in Miramar, Florida. The sale price for the land was $3.6 million with net proceeds of approximately $3.5 million and the Company recognized a gain of approximately $1.1 million. On May 2, 2003, the Company sold a nine acre parcel of unimproved land in Dania, Florida. The sale price for the land was $4.1 million with net proceeds of approximately $3.7 million and the Company recognized a gain of approximately $665,000. On September 2, 2003, the Company sold a 22,800 square foot office building in West Palm Beach, Florida. The sale price of the building was $1.5 million with net proceeds of approximately $1.2 million. The Company recognized a gain of approximately $675,000. On September 5, 2003, the Company sold a 221,000 square foot shopping center in Phillipsburg, New Jersey. The sale price of the shopping center was $7.8 million with net proceeds of approximately $7.6 million and the Company recognized a gain of approximately $1.1 million. On October 16, 2003, the Company sold a free standing building located in the Marumsco-Jefferson Plaza in Woodbridge, Virginia. The Company received net cash proceeds of $660,000 and recognized a gain of approximately $336,000. On October 16, 2003, the Company assigned its leasehold interest in a free standing building in Orange, Connecticut for net cash proceeds of $100,000 and recognized a loss of approximately $112,000. Subsequent Events On December 30, 2003, the Company signed a definitive agreement to acquire a shopping center for approximately $19.8 million in cash plus transaction costs. The shopping center is approximately 203,000 square feet and includes a 67,000 square foot Super Stop & Shop Supermarket. The transaction was completed on February 17, 2004. 23 TRANSACTIONS WITH RELATED PARTIES Included in Mortgage Notes Receivable is a note due from Mr. Irwin Levy, in the amount of $8.5 million at December 31, 2003. This note bears interest at 13.25% and $1.2 million in interest income was recognized during 2003. The note was issued prior to the prohibitions on related party loans as stated in the Sarbanes-Oxley Act of 2002. Since 1990, companies owned by Mr. Levy, a Trustee, and/or members of his family have leased, managed and operated the recreation facilities at the Century Villages in West Palm Beach, Deerfield Beach, and Boca Raton, which are collateral for certain notes the Company holds with an outstanding balance of $31.1 million (including the $8.5 million discussed above) at December 31, 2003. During 2003, through and including September 1, 2003, the Company leased approximately 4,600 square feet of office space to those companies and other companies controlled by Mr. Levy on a month-to-month basis and received approximately $35,000 for payment of rent, utilities, and operating expenses. On September 2, 2003, the office building containing the leased space was sold. Mr. Louis P. Meshon, Sr., President, Chief Executive Officer and Trustee, and Patricia Meshon, his wife, in the aggregate, own 99% of the voting stock (a 5% equity interest) in Drexel Realty, Inc. ("Drexel"), the management company in which Montgomery CV Realty L.P. owns a 95% equity interest. Drexel manages three properties in which Mr. Meshon has ownership interests. These properties paid Drexel $259,300 for management and leasing services during 2003. Mr. Milton S. Schneider, a Trustee, is the Chief Executive Officer of The Glenville Group ("Glenville"), a company involved in the development, ownership, and management of commercial and residential properties. The Company leases approximately 2,300 square feet of office space to Glenville in accordance with a five-year lease effective June 1, 1999 and expiring on May 31, 2004. Glenville paid the Company approximately $57,900 for payment of rent, electric and other operating expenses in 2003. Related party transactions are more fully described in Note 6 to the consolidated financial statements in Item 8. Financial Statements and Supplementary Data. CRITICAL ACCOUNTING POLICIES We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America. Preparing our financial statements in accordance with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The following paragraphs include a discussion of critical accounting policies. You should also review Note 1 to the consolidated financial statements (See Item 8. Financial Statements and Supplementary Data) for further discussion of significant accounting policies. Real Estate - Income-Producing Real estate - income-producing ("Real Estate") is stated at cost less accumulated depreciation. Costs directly related to the acquisition, development, and construction of Real Estate are capitalized. Ordinary repairs and maintenance are expensed as incurred, major replacements and betterments, which improve or extend the life of the assets, are capitalized and depreciated over their estimated lives. On a periodic basis, management assesses whether there are any indicators that the value of the Company's Real Estate may be impaired. A property's value may be impaired only if management's estimate of the aggregate future cash flows, on an undiscounted basis to be generated by the property are less than the carrying value of the property. If impairment has occurred, the loss shall be measured as the excess of the carrying amount of the property over the fair value of the property. The Company's estimates of aggregate future cash flows expected to be generated by each property are based on a number of assumptions that are subject to economic and market uncertainties, including, among others, demand for space, competition for tenants, changes in market rental rates, and costs to operate each property. As these factors are difficult to predict and are subject to future events that may alter management's assumptions, the future cash flows estimated by management in their impairment analyses may not be achieved. 24 Properties Held for Sale Effective January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of its carrying amount or fair value less cost to sell. SFAS 144 broadens the presentation of discontinued operations to include a component of a company. Under SFAS 144, an individual income-producing property is considered a component of the company. As a result, when assets are identified by the management and a plan for sale, as defined by SFAS 144, has been adopted, the Company estimates the fair value, net of selling costs, of such assets. Fair value is estimated using estimated selling price of each property based on various factors including discussions with potential buyers. If, in management's opinion, the fair value less costs to sell of the assets, which have been identified for sale, is less than the net carrying amount of the assets, the assets are written down. The Company's estimate of fair value of each property is based on economic and market conditions which are subject to change. Carrying amounts and subsequent declines or gains in fair value are recorded in results of operations in discontinued operations. If circumstances arise that the Company decides not to sell a property previously classified as held for sale, the property is reclassified as held and used. A property that is reclassified shall be measured at the lower of its carrying amount before the asset was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the asset been continuously classified as held and used or fair value at the date of the decision not to sell. Revenue Recognition We recognize revenue from rentals on a straight-line basis over the terms of the leases. Percentage rent is recognized in the period when sales breakpoints are reached. The majority of our leases provide for reimbursement from tenants of their share of common area maintenance costs, insurance and real estate taxes, which are recorded on the accrual basis. Allowance for Doubtful Accounts Management periodically performs a detailed review of amounts due from tenants to determine if accounts receivable balances are impaired based on factors affecting the collectibility of those balances. Management's estimates of the allowance for doubtful accounts requires management to exercise significant judgment about the timing, frequency and severity of collection losses, which affects the allowance and net income. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46"). FIN 46 addresses the consolidation by business enterprises of variable interest entities, as defined in the Interpretation. FIN 46 expands existing accounting guidance regarding when a company should include in its financial statements the assets, liabilities, and activities of another entity. Many variable interest entities have commonly been referred to as special-purpose entities or off-balance sheet structures. In December 2003, the FASB issued Interpretation No. 46R ("FIN 46R"), a revision to FIN 46. FIN 46R clarifies some of the provisions of FIN 46 and exempts certain entities from its requirements. FIN 46R is effective at the end of the first interim period ending after March 15, 2004. The Company believes that the adoption of FIN 46 will not have a material impact on the Company's financial position, results of operations or cash flows. In July 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments With Characteristics of Both Liabilities and Equity ("SFAS 150"). SFAS 150 requires the shares that are mandatorily redeemable for cash or other assets at a specified or determinable date or upon an event certain to occur to be classified as liabilities, not as part of shareholders' equity. This pronouncement does not currently impact the Company's financial position, results of operations or cash flows. INFLATION During recent years, the rate of inflation has remained at a low level and has had minimal impact on the Company's operating results. Most of the tenant leases contain provisions designed to lessen the impact of inflation. These provisions include escalation clauses in certain leases which generally increase rental rates periodically based on 25 stated rental increases which are currently higher than recent cost of living increases, and percentage rentals based on tenant's gross sales, which generally increase as prices rise. Many of the leases are for terms of less than ten years which increases the Company's ability to replace those leases which are below market rates with new leases at higher base and/or percentage rentals. In addition, most of the leases require the tenants to pay their proportionate share of increases in operating expenses, including common area maintenance, real estate taxes and insurance. However, in the event of significant inflation, the Company's operating results could be adversely affected if general and administrative expenses and interest expense increases at a rate higher than rent income or if the increase in inflation exceeds rent increases for certain tenant leases which provide for stated rent increases. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary exposure to market risk is to changes in interest rates. The Company has both fixed and variable rate debt. The Company has $451.1 million of debt outstanding as of December 31, 2003, of which $444.7 million, or 98.6%, has been borrowed at fixed rates ranging from 5.15% to 9.38% with maturities through 2028. As these debt instruments mature, the Company typically refinances such debt at their existing market interest rates which may be more or less than interest rates on the maturing debt. Changes in interest rates have different impacts on the fixed and variable rate portions of the Company's debt portfolio. A change in interest rates impacts the net market value of the Company's fixed rate debt, but has no impact on interest incurred or cash flows on the Company's fixed rate debt. Interest rate changes on variable debt impacts the interest incurred and cash flows but does not impact the net market value of the debt instrument. Based on the variable rate debt of the Company as of December 31, 2003, a 100 basis point increase in interest rates would result in an additional $179,000 in interest incurred per year and a 100 basis point decline would lower interest incurred by $179,000 per year. To ameliorate the risk of interest rate increases, the Company has entered into interest rate swap agreements in the notional amounts of $32.5 million. A 100 basis point increase in interest rates would result in a $28 million decrease in the fair value of the fixed rate debt and a 100 basis point decline would result in a $32.1 million increase in the fair value. The Company also has $31.1 million of fixed rate mortgage notes receivable. Changes in interest rates impacts the market value of the mortgage notes receivable, but has no impact on interest earned or cash flows. A 100 basis point increase in interest rates would result in a $1 million decrease in the fair value of the mortgage notes receivable and a 100 basis point decline would result in a $1 million increase in the fair value. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Certified Public Accountants 27 Consolidated Financial Statements: Balance Sheets - December 31, 2003 and 2002 28 Statements of Income - Years Ended December 31, 2003, 2002, and 2001 29 Statements of Other Comprehensive Income - Years Ended December 31, 2003, 2002, and 2001 29 Statements of Beneficiaries' Equity - Years Ended December 31, 2003, 2002 and 2001 30 Statements of Cash Flows - Years Ended December 31, 2003, 2002 and 2001 31 Notes to Consolidated Financial Statements 32-46 Consolidated Financial Statements Schedules: Schedule III - Real Estate and Accumulated Depreciation 47-49 Schedule IV - Mortgage Loans on Real Estate 50
Schedules, other than those listed above, are omitted because they are not required, or because the information required is included in the consolidated financial statements or the notes thereto. 26 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Trustees of Kramont Realty Trust Plymouth Meeting, PA We have audited the accompanying consolidated balance sheets of Kramont Realty Trust and subsidiaries as of December 31, 2003 and 2002 and the related consolidated statements of income, other comprehensive income, beneficiaries' equity, and cash flows for each of the three years in the period ended December 31, 2003. We have also audited the schedules listed in the accompanying index. These financial statements and the schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedules are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kramont Realty Trust and subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the schedules present fairly, in all material respects, the information set forth therein. As explained in Note 1 to the consolidated financial statements, effective January 1, 2002, Kramont Realty Trust and subsidiaries adopted the provisions of Statement of Financial Accounting Standards No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. Also, as explained in Note 1 to the consolidated financial statements, effective January 1, 2001, Kramont Realty Trust and subsidiaries adopted the provisions of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. BDO SEIDMAN, LLP New York, New York February 13, 2004 27 KRAMONT REALTY TRUST AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data)
December 31, 2003 2002 ------------ --------- ASSETS Real estate - income-producing, net of accumulated depreciation $ 724,668 $ 675,397 Properties held for sale 6,271 20,929 Mortgage notes receivable 31,070 33,340 Investments in unconsolidated affiliates 8,880 2,923 Cash and cash equivalents (includes $903 and $1,687 restricted) 9,196 18,173 Other assets 30,626 28,498 ------------ --------- Total assets $ 810,711 $ 779,260 ============ ========= LIABILITIES AND BENEFICIARIES' EQUITY LIABILITIES: Mortgages and notes payable $ 451,071 $ 480,489 Accounts payable and other liabilities 17,002 15,944 Distributions payable 9,989 9,766 ------------ --------- Total liabilities 478,062 506,199 ------------ --------- Minority interests in Operating Partnerships 18,802 19,171 ------------ --------- BENEFICIARIES' EQUITY: Convertible preferred shares of beneficial interest, Series A-1, $0.01 par value; authorized and issued 11,155 shares as of December 31, 2003 and 2002 1 1 Convertible preferred shares of beneficial interest, Series B-1, $0.01 par value; authorized 1,235,000 shares; issued and outstanding 1,183,240 shares as of December 31, 2003 and 2002 11 11 Redeemable preferred shares of beneficial interest, Series D, $0.01 par value; authorized 2,070,000 shares; issued 1,800,000 shares as of December 31, 2003 and 2002 18 18 Redeemable preferred shares of beneficial interest, Series E, $0.01 par value; authorized and issued 2,400,000 shares as of December 31, 2003 24 - Common shares of beneficial interest, $0.01 par value; authorized 94,283,845 shares; outstanding, 24,054,925 and 23,075,985 as of December 31, 2003 and 2002, respectively 241 231 Additional paid-in capital 308,426 235,409 Retained earnings 14,595 28,988 Accumulated other comprehensive loss (477) (1,613) Treasury stock, cumulative preferred shares of beneficial interest Series A-1 11,155 shares as of December 31, 2003 and 2002, at cost (6,070) (6,070) Treasury stock, Redeemable preferred shares of beneficial interest Series D, 146,800 shares as of December 31, 2003 and 2002, at cost (2,349) (2,349) ------------ --------- 314,420 254,626 Unearned compensation on restricted shares of beneficial interest (573) (736) ------------ --------- Total beneficiaries' equity 313,847 253,890 ------------ --------- Total liabilities and beneficiaries' equity $ 810,711 $ 779,260 ============ =========
See accompanying notes to consolidated financial statements. 28 KRAMONT REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except share and per share data)
Years Ended December 31, ------------------------------------------------ 2003 2002 2001 ------------ ------------ ------------ Revenues: Rent $ 108,527 $ 101,835 $ 98,773 Interest, principally from mortgage notes 4,341 4,766 5,196 Management fees 72 - - Other - 555 877 ------------ ------------ ------------ 112,940 107,156 104,846 ------------ ------------ ------------ Expenses: Interest 33,512 36,512 37,284 Operating 33,897 29,482 27,497 Depreciation and amortization 18,606 16,827 15,335 General and administrative 8,589 7,202 7,555 ------------ ------------ ------------ 94,604 90,023 87,671 ------------ ------------ ------------ 18,336 17,133 17,175 Equity in income of unconsolidated affiliates 785 722 737 Minority interests in income of Operating Partnerships (797) (822) (682) ------------ ------------ ------------ Income from continuing operations 18,324 17,033 17,230 ------------ ------------ ------------ Results from discontinued operations: Income from operations of properties sold or held for sale 1,066 1,129 4,069 Gain (loss) on sale of properties 4,347 (45) 5,091 Minority interests in discontinued operations (388) (83) (603) ------------ ------------ ------------ Income from discontinued operations 5,025 1,001 8,557 ------------ ------------ ------------ Net income 23,349 18,034 25,787 Preferred share distributions (6,811) (7,083) (7,527) ------------ ------------ ------------ Income to common shareholders $ 16,538 $ 10,951 $ 18,260 ============ ============ ============ Per common share: Income from continuing operations, basic $ .48 $ .49 $ .52 Income from discontinued operations, basic $ .22 $ .05 $ .45 ------------ ------------ ------------ Total net income per share, basic $ .70 $ .54 $ .97 ============ ============ ============ Income from continuing operations, diluted $ .48 $ .49 $ .52 Income from discontinued operations, diluted $ .21 $ .05 $ .45 ------------ ------------ ------------ Total net income per share, diluted $ .69 $ .54 $ .97 ============ ============ ============ Dividends declared $ 1.30 $ 1.30 $ 1.30 ============ ============ ============ Average common shares outstanding: Basic 23,757,692 20,380,949 18,803,535 ============ ============ ============ Diluted 23,811,799 20,401,095 18,815,657 ============ ============ ============
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (dollars in thousands)
Years Ended December 31, ------------------------------------------------ 2003 2002 2001 ------------ ------------ ------------ Net income $ 23,349 $ 18,034 $ 25,787 Change in fair value of cash flow hedges (131) (1,519) (1,811) Reclassification adjustment for hedge losses included in net income 1,267 1,120 324 ------------ ------------ ------------ Comprehensive income $ 24,485 $ 17,635 $ 24,300 ============ ============ ============
See accompanying notes to consolidated financial statements. 29 KRAMONT REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF BENEFICIARIES' EQUITY (in thousands)
Preferred Common Preferred Shares of Shares of Shares of Beneficial Additional Beneficial Par Beneficial Interest Paid in Interest Value Interest Par Value Capital -------- ----- -------- --------- ------- BALANCE, JANUARY 1, 2001 18,753 $ 188 2,994 $ 30 $176,227 Net Income -- -- -- -- -- Issuance of Common Shares - options exercised 83 1 -- -- 861 Amortization of unearned compensation -- -- -- -- -- Restricted stock awards 36 -- -- -- 465 Cumulative effect of adoption of SFAS 133 -- -- -- -- -- Net loss in fair value of cash flow hedges -- -- -- -- -- Distributions on Common Shares -- -- -- -- -- Distributions on Preferred Shares -- -- -- -- -- -------- -------- -------- -------- -------- BALANCE, DECEMBER 31, 2001 18,872 189 2,994 30 177,553 -------- -------- -------- -------- -------- Net Income -- -- -- -- -- Issuance of Common Shares 4,110 41 -- -- 56,631 Issuance of Common Shares - options exercised 55 1 -- -- 635 Repurchase of Series A Preferred Shares -- -- -- -- -- Amortization of unearned compensation -- -- -- -- -- Restricted stock awards 39 -- -- -- 590 Net loss in fair value of cash flow hedges -- -- -- -- -- Distributions on Common Shares -- -- -- -- -- Distributions on Preferred Shares -- -- -- -- -- -------- -------- -------- -------- -------- BALANCE, DECEMBER 31, 2002 23,076 231 2,994 30 235,409 -------- -------- -------- -------- -------- Net Income -- -- -- -- -- Issuance of Common Shares 851 9 -- -- 12,719 Issuance of Common Shares - options exercised 96 1 -- -- 1,312 Issuance of Series E Preferred Shares 2,400 24 58,458 Amortization of unearned compensation -- -- -- -- -- Restricted stock awards 32 -- -- -- 528 Net loss in fair value of cash flow hedges -- -- -- -- -- Distributions on Common Shares -- -- -- -- -- Distributions on Preferred Shares -- -- -- -- -- -------- -------- -------- -------- -------- BALANCE, DECEMBER 31, 2003 24,055 $ 241 5,394 $ 54 $308,426 ======== ======== ======== ======== ========
Unearned Compensation Accumulated on Restricted Other Shares of Retained Comprehensive Treasury Beneficial Earnings Income Stock Interest -------- ------ ----- -------- BALANCE, JANUARY 1, 2001 $ 51,785 $ -- $ (2,349) $ (680) Net Income 25,787 -- -- -- Issuance of Common Shares - options exercised -- -- -- -- Amortization of unearned compensation -- -- -- 385 Restricted stock awards -- -- -- (465) Cumulative effect of adoption of SFAS 133 -- 273 -- -- Net loss in fair value of cash flow hedges -- (1,487) -- -- Distributions on Common Shares (24,471) -- -- -- Distributions on Preferred Shares (7,527) -- -- -- -------- -------- -------- -------- BALANCE, DECEMBER 31, 2001 45,574 (1,214) (2,349) (760) -------- -------- -------- -------- Net Income 18,034 -- -- -- Issuance of Common Shares -- -- -- -- Issuance of Common Shares - options exercised -- -- -- -- Repurchase of Series A Preferred Shares -- -- (6,070) Amortization of unearned compensation -- -- -- 614 Restricted stock awards -- -- -- (590) Net loss in fair value of cash flow hedges -- (399) -- -- Distributions on Common Shares (27,537) -- -- -- Distributions on Preferred Shares (7,083) -- -- -- -------- -------- -------- -------- BALANCE, DECEMBER 31, 2002 28,988 (1,613) (8,419) (736) -------- -------- -------- -------- Net Income 23,349 -- -- -- Issuance of Common Shares -- -- -- -- Issuance of Common Shares - options exercised -- -- -- -- Issuance of Series E Preferred Shares -- -- -- -- Amortization of unearned compensation -- -- -- 691 Restricted stock awards -- -- -- (528) Net loss in fair value of cash flow hedges -- 1,136 -- -- Distributions on Common Shares (30,931) -- -- -- Distributions on Preferred Shares (6,811) -- -- -- -------- -------- -------- -------- BALANCE, DECEMBER 31, 2003 $ 14,595 $ (477) $ (8,419) $ (573) ======== ======== ======== ========
See accompanying notes to consolidated financial statements 30 KRAMONT REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, 2003 2002 2001 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 23,349 $ 18,034 $ 25,787 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 18,909 18,548 16,861 Amortization of unearned compensation on restricted shares of beneficial interest 690 614 385 Equity in income of unconsolidated affiliates (785) (722) (737) Minority interests in income of Operating Partnership 1,185 905 1,285 Loss (Gain) on sale of assets (4,347) 45 (5,091) Changes in assets and liabilities: Increase in receivables, accrued income, prepaid expenses and other assets (240) (3,941) (3,251) Increase (decrease) in accounts payable and other liabilities (544) 4,808 (4,659) --------- --------- --------- Net cash provided by operating activities 38,217 38,291 30,580 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Collections on mortgage notes receivable 2,270 2,000 1,900 Acquisition of real estate - income producing (14,115) (9,811) (234) Capital improvements including development costs (18,348) (9,712) (13,936) Net proceeds from sale of real estate 17,397 2,567 17,322 Change in restricted cash 784 31 (144) Distributions from unconsolidated affiliates 826 864 793 Investment in unconsolidated affiliates (5,998) - - Other - 10 - --------- --------- --------- Net cash provided by (used in) investing activities (17,184) (14,051) 5,701 --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings, net of fair market premium 192,466 5,977 12,440 Repayments of borrowings (201,817) (78,689) (16,526) Net proceeds (repayments) from line of credit (41,000) 42,988 - Cash distributions paid on common shares (30,706) (26,091) (24,444) Cash distributions paid on preferred shares (6,811) (7,264) (7,522) Cash received from share issuance 62,414 56,674 - Cash received from stock options exercised 1,313 635 862 Distributions to minority interests (2,164) (2,057) (1,711) Purchase of preferred shares - (6,070) - Deferred financing costs (2,921) (3,043) (561) --------- --------- --------- Net cash used in financing activities (29,226) (16,940) (37,462) --------- --------- --------- Net (decrease) increase in unrestricted cash and cash equivalents (8,193) 7,300 (1,181) Unrestricted cash and cash equivalents at the beginning of the year 16,486 9,186 10,367 --------- --------- --------- Unrestricted cash and cash equivalents at the end of the year $ 8,293 $ 16,486 $ 9,186 ========= ========= ========= Supplemental disclosure of cash flow information: Cash paid for interest $ 34,687 $ 36,996 $ 38,027 ========= ========= ========= Acquisitions: Fair value of assets acquired $ (47,192) $ - $ (19,119) Liabilities assumed 24,282 - 14,005 Operating Partnership units issued - - 4,880 Common shares of beneficial interest issued 8,795 - - --------- --------- --------- Cash (paid) for acquisitions, net of cash acquired $ (14,115) $ - $ (234) ========= ========= ========= Supplemental disclosure of non-cash transactions Restricted shares awarded $ 527 $ 590 $ 465 ========= ========= ========= Common shares issued for acquisitions $ 8,795 $ - $ - ========= ========= =========
See accompanying notes to consolidated financial statements. 31 KRAMONT REALTY TRUST AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Business Kramont Realty Trust, a Maryland real estate investment trust ("Kramont") is a self-administered, self-managed equity real estate investment trust ("REIT") which is engaged in the ownership, acquisition, development, redevelopment, management and leasing of primarily community and neighborhood shopping centers. Kramont does not directly own any assets other than its interest in Kramont Operating Partnership, L.P. ("Kramont OP") and conducts its business through Kramont OP and its affiliated entities, including Montgomery CV Realty, L.P. ("Montgomery OP", together with Kramont OP and their wholly-owned subsidiaries, hereinafter collectively referred to as the "OPs", which together with Kramont are hereinafter referred to as the "Company"). The OPs, directly or indirectly, own all of the Company's assets, including its interests in shopping centers. Accordingly, the Company conducts its operations through an Umbrella Partnership REIT ("UPREIT") structure. As of December 31, 2003, Kramont owned 93.57% of Kramont OP and is its sole general partner. As of December 31, 2003, Kramont OP indirectly owned 99.87% of the limited partnership interest of Montgomery OP and owned 100% of its sole general partner. As of December 31, 2003, the OPs owned and operated eighty-two shopping centers (one of which is held for sale) and two office buildings, managed four shopping centers for third parties and four shopping centers in connection with a joint venture, located in 15 states aggregating approximately 12.1 million leasable square feet. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company. The Company owns an approximately 95% economic interest in Drexel Realty, Inc. ("Drexel"), a real estate management and leasing company, owns 45%-50% interests in certain real estate partnerships, and owns a 20% economic interest in a shopping center venture, which are accounted for on the equity method. Significant inter-company accounts and transactions have been eliminated in consolidation. Interest Rate Risk Management The Company accounts for its interest rate contracts in accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, ("SFAS 133") as amended and interpreted. SFAS 133 requires that all derivative instruments, such as interest rate swap and cap contracts, be recognized in the financial statements and measured at their fair market value. Changes in the fair market value of derivative instruments are recognized each period in current operations or beneficiaries' equity (as a component of accumulated other comprehensive loss). For a derivative designated as part of a hedge transaction, where it is recorded is dependent on whether it is a fair value hedge or a cash flow hedge. For a derivative designated as a fair value hedge, the gain or loss of the derivative in the period of change and the offsetting loss or gain of the hedged item attributed to the hedged risk are recognized in results of operations. For a derivative designated as a cash flow hedge, the effective portion of the derivative's gain or loss is initially reported as a component of other comprehensive income (loss) and subsequently reclassified into results of operations when the hedged exposure affects results of operations. The ineffective portion of the gain or loss of a cash flow hedge is recognized currently in results of operations. For a derivative not designated as a hedging instrument, the gain or loss is recognized currently in results of operations. The adoption of SFAS 133 on January 1, 2001, did not have a material impact on the results of operations, but resulted in a cumulative effect of an accounting charge of $273,000 being recognized in other comprehensive income. In the normal course of business, Kramont is exposed to changes in interest rates. The objective in managing its exposure to interest rates is to decrease the volatility that changes in interest rates might have on operations and cash flows. To achieve this objective, Kramont uses interest rate swaps to hedge a portion of total long-term debt that is subject to variable interest rates and designates these instruments as cash flow hedges. Under these swaps, Kramont agrees to pay fixed rates of interest (see Note 4d). These contracts are considered to be a hedge against changes in 32 the amount of future cash flows associated with the interest payments on variable-rate debt obligations. These interest rate swap agreements are entered into with a major financial institution. Accordingly, the interest rate swaps are reflected at fair value in the consolidated balance sheet and the related gains or losses on these contracts are recorded as a component of accumulated other comprehensive loss. The Company does not enter into such contracts for speculative purposes. The fair value of interest rate swap contracts are determined based on the fair market value as determined by the counterparty. As of January 1, 2003, Kramont had interest rate swap contracts to pay fixed rates of interest (ranging from 6.088% to 6.78%) and receive variable rates of interest based on LIBOR on an aggregate of $32.5 million notional amount of indebtedness with maturity dates ranging from March 2004 through May 2004. These hedges are highly effective and there is no ineffective portion. The aggregate fair market value of all interest rate swap agreements was ($477,000) and ($1,613,000) on December 31, 2003 and 2002, respectively, and is included in accounts payable and other liabilities on the consolidated balance sheet. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported statements of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Real Estate - Income-Producing Real estate - income-producing ("Real Estate") is stated at cost, less accumulated depreciation. Costs directly related to the acquisition, development, and construction of Real Estate are capitalized. Ordinary repairs and maintenance are expensed as incurred, major replacements, and betterments, which improve or extend the life of the assets, are capitalized and depreciated over their estimated useful lives. Depreciation is provided over the estimated useful lives of the assets (7 to 40 years) on the straight-line method. On a periodic basis, management assesses whether there are any indicators that the value of the Company's Real Estate may be impaired. A property's value may be impaired if management's estimate of the aggregate future cash flows, on an undiscounted basis to be generated by the property are less than the carrying value of the property. If impairment has occurred, the loss shall be measured as the excess of the carrying amount of the property over the fair value of the property. The Company's estimates of aggregate future cash flows expected to be generated by each property are based on a number of assumptions that are subject to economic and market uncertainties, including, among others, demand for space, competition for tenants, changes in market rental rates, and costs to operate each property. As these factors are difficult to predict and are subject to future events that may alter management's assumptions, the future cash flows estimated by management in their impairment analyses may not be achieved. Properties Held for Sale Effective January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of its carrying amount or fair value less cost to sell. SFAS 144 broadens the presentation of discontinued operations to include a component of a company. Under SFAS 144, an individual income-producing property is considered a component of the company. As a result, when assets are identified by the management and a plan for sale, as defined by SFAS 144, has been adopted, the Company estimates the fair value, net of selling costs, of such assets. Fair value is estimated using estimated selling price of each property based on various factors including discussions with potential buyers. If, in management's opinion, the fair value less costs to sell of the assets, which have been identified for sale, is less than the net carrying amount of the assets, the assets are written down. The Company's estimate of fair value of each property is based on economic and market conditions which are subject to change. Carrying amounts and subsequent declines or gains in fair value are recorded in results of operations in discontinued operations. If circumstances arise that the Company decides not to sell a property previously classified as held for sale, the property is reclassified as held and used. A property that is reclassified shall be measured at the lower of its carrying amount before the asset was classified as 33 held for sale, adjusted for any depreciation expense that would have been recognized had the asset been continuously classified as held and used or fair value at the date of the decision not to sell. The property held for sale at December 31, 2003 consists of a shopping center in Capitol Heights, Maryland (Note 2). Properties sold and held for sale in prior periods have been reclassified to Properties Held for Sale and Discontinued Operations in all periods presented. Revenue Recognition Rental revenue is recognized on a straight-line basis over the terms of the leases. Percentage rent is recognized in the period when the sales breakpoints are reached. The majority of leases provide for reimbursement to the Company of the tenants' share of common area maintenance costs, insurance, and real estate taxes, which are recorded on the accrual basis. Allowance for Doubtful Accounts Management periodically performs a detailed review of amounts due from tenants to determine if accounts receivable balances are impaired based on factors affecting the collectibility of those balances. Management's estimates of the allowance for doubtful accounts requires management to exercise significant judgment about the timing, frequency and severity of collection losses, which affects the allowance and net income. Mortgage Notes Receivable Mortgage notes receivable are carried at cost. Accrual of interest is discontinued when management believes, after considering economic and business conditions and collection efforts, that timely collection is doubtful. In evaluating possible losses, management takes into consideration appropriate information which may include the borrower's cash flow projections, historical operating results and financial strength, pending sales, adverse conditions that may affect the borrower's ability to repay, appraisals, and current economic conditions. Stock Options The Company applies APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its stock option plans. Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123") requires the Company to provide pro forma information regarding net income and net income per common share as if compensation cost for stock options granted under the plans, if applicable, had been determined in accordance with the fair value based method prescribed in SFAS 123. The Company does not plan to adopt the fair value based method prescribed by SFAS 123. Solely for the purposes of providing the pro forma information required by SFAS 123, the Company estimates the fair value of each stock option grant by using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants: expected lives of ten years; dividend yield of 7.74%, volatility at 24%, risk free interest rate of 3.33% for 2003; dividend yield of 8.70%, volatility at 30%, risk free interest rate of 4.53% for 2002; and dividend yield of 12.00%, volatility at 25%, risk free interest rate of 6.14% for 2001. Under accounting provisions of SFAS 123, the Company's income to common shareholders and net income per common share, would have been reduced to the pro forma amounts indicated below (in thousands, except per share data):
Years Ended December 31, 2003 2002 2001 ---------- ---------- ---------- Income to common shareholders Income, as reported $ 16,538 $ 10,951 $ 18,260 Stock-based employee compensation expense included in reported income 691 614 385 Fair value of stock options and restricted stock awards (762) (784) (466) ---------- ---------- ---------- Pro forma $ 16,467 $ 10,781 $ 18,179 ========== ========== ==========
34 Income per common share, basic: As reported $ .70 $ .54 $ .97 ========== ========== ========== Pro forma $ .69 $ .53 $ .97 ========== ========== ========== Income per common share, diluted: As reported $ .69 $ .54 $ .97 ========== ========== ========== Pro forma $ .69 $ .53 $ .97 ========== ========== ==========
Dividends and Income Taxes The Company expects to continue to qualify as a REIT under the provisions of Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the Company was required to distribute at least 90% of its ordinary taxable income to shareholders and was permitted to deduct such distributions from taxable income. A REIT is not required to distribute capital gain income, but to the extent it does not, it is required pay the applicable capital gain income tax unless it has ordinary losses to offset such capital gain income. The Company does not expect to be subject to Federal income taxes in the future as it intends to distribute ordinary and capital gain income. As of December 31, 2003, the Company has aggregate net operating loss carryforwards for Federal tax purposes of approximately $13.5 million, of which $6.4 million expires in 2006 and $7.1 million expires in 2007. Net Income Per Common Share Basic income per share is computed using income to common shareholders divided by the weighted average number of common shares outstanding. Diluted earnings per share include the dilutive effect of outstanding options computed using the treasury stock method. The convertible preferred shares were not dilutive and were therefore not included in the computation of dilutive earnings per share. Statements of Cash Flows For financial statement purposes, the Company considers all highly liquid investments with initial maturities of three months or less to be cash equivalents. In addition, the Company classifies cash flows from derivatives with the hedged item. Reclassifications Certain items have been reclassified to conform to the current year's presentation. New Pronouncements In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46"). FIN 46 addresses the consolidation by business enterprises of variable interest entities, as defined in the Interpretation. FIN 46 expands existing accounting guidance regarding when a company should include in its financial statements the assets, liabilities, and activities of another entity. Many variable interest entities have commonly been referred to as special-purpose entities or off-balance sheet structures. In December 2003, the FASB issued Interpretation No. 46R ("FIN 46R"), a revision to FIN 46. FIN 46R clarifies some of the provisions of FIN 46 and exempts certain entities from its requirements. FIN 46R is effective at the end of the first interim period ending after March 15, 2004. The Company believes that the adoption of FIN 46 will not have a material impact on the Company's financial position, results of operations or cash flows. In July 2003, the FASB issued Statement of Financial Accounting Standards No. 150 ("SFAS 150"), Accounting for Certain Financial Instruments With Characteristics of Both Liabilities and Equity. SFAS 150 requires the shares that are mandatorily redeemable for cash or other assets at a specified or determinable date or upon an event certain 35 to occur to be classified as liabilities, not as part of shareholders' equity. This pronouncement does not currently impact the Company's financial position, results of operations or cash flows. (2) REAL ESTATE (a) Real Estate is located in 15 states and consists of (in thousands):
December 31, 2003 December 31, 2002 ----------------- ----------------- Income-producing: Land $ 134,928 $ 119,976 Shopping centers 648,183 598,943 Office buildings 6,873 5,086 ----------------- ----------------- Total 789,984 724,005 Less accumulated depreciation (65,316) (48,608) ----------------- ----------------- Real Estate - income-producing, net $ 724,668 $ 675,397 ================= ================= Properties held for sale: Land $ 1,371 $ 3,123 Shopping centers 4,900 12,348 Undeveloped land - 5,458 ----------------- ----------------- Properties held for sale $ 6,271 $ 20,929 ================= =================
(b) Real Estate is leased to tenants under leases expiring at various dates through 2034, some of which contain renewal options of up to 60 years. Most of the leases require base rentals payable monthly in advance; additional rentals based on reimbursements of common area maintenance, insurance and real estate taxes and in some leases, based on a percentage of tenants' sales; and rent increases based on cost-of-living indices. During 2003, 2002, and 2001, the Company recognized income from reimbursements of common area maintenance, insurance, real estate taxes and percentage rent of $25.5 million, $23.5 million, and $22.8 million, respectively. As of December 31, 2003, future minimum rental income under non-cancelable operating leases, excluding rentals from the exercise of renewal options, is as follows: Years ending December 31, (in thousands) 2004 $ 83,790 2005 76,148 2006 69,392 2007 58,431 2008 48,943 Thereafter 199,112 -------------- Total $ 535,816 ==============
(c) Real Estate with a net book value of $651.7 million, at December 31, 2003, is pledged as collateral for borrowings (Note 4). (d) Acquisitions: Acquisitions have been recorded as purchases in accordance with SFAS 141. Assets and liabilities were recorded at fair market value. The acquisitions were not material individually or in the aggregate. 36 - On April 3, 2003, the Company completed the acquisition of two shopping centers, an office building and sixteen acres of land for development for approximately $13.2 million including transaction costs. The purchase included a 31,500 square foot Shop Rite Supermarket and a fully occupied 14,000 square foot office building in Springfield, New Jersey, a 54,000 square foot Shop Rite Supermarket, and an adjacent sixteen acres of land approved for development in Somers Point, New Jersey. The sixteen acres of land are currently under development. The properties were purchased using cash and the issuance of 386,153 common shares of beneficial interest. The Company has a future obligation to issue an additional 228,939 common shares of beneficial interest upon the satisfaction of certain conditions. The liability for these shares have been accrued in accounts payable and other liabilities. - On July 24, 2003, the Company completed the acquisition of a 136,000 square foot shopping center in Orange, Connecticut for a purchase price of $18.4 million including transaction costs. The center is fully occupied and is anchored by a 50,000 square foot Christmas Tree Shop store. The shopping center was purchased using cash and the assumption of approximately $11 million in non-recourse debt. - On July 25, 2003, the Company completed the acquisition of a 161,000 square foot shopping center in Vestal, New York for a purchase price of $13.1 million including transaction costs. The center is 94% occupied and anchored by an 82,500 square foot furniture and appliance store. The shopping center was purchased using a combination of cash, 185,018 common shares of beneficial interest and the assumption of $7.8 million in non-recourse debt. - On April 26, 2002, the Company completed the acquisition of a 75,400 square foot shopping center located in Killingly, Connecticut for a purchase price of $8.4 million, including transaction costs. The purchase was initially made using cash and the property was subsequently pledged as collateral in the new Credit Facility. A 50,000 square foot supermarket anchors the center. - On August 22, 2002, the Company completed the acquisition of a vacant 2,650 square foot free-standing building in Plymouth Meeting, Pennsylvania for a purchase price of $1.1 million including transaction costs. A lease was executed on July 31, 2003, and rent will commence in 2004. (d) Dispositions: - On January 21, 2003, the Company sold a three acre out-parcel at its Bensalem Square shopping center in Bensalem, Pennsylvania for net cash proceeds of $700,000 and recognized a gain of approximately $600,000. - On March 6, 2003, the Company sold a 28 acre parcel of unimproved land located in Miramar, Florida for net cash proceeds of approximately $3.5 million and recognized a gain of approximately $1.1 million. - On May 2, 2003, the Company sold a nine acre parcel of unimproved land in Dania, Florida for net cash proceeds of approximately $3.7 million and a gain of approximately $665,000. - On September 2, 2003, the Company sold a 22,800 square foot office building in West Palm Beach, Florida for net cash proceeds of approximately $1.2 million and recognized a gain of approximately $675,000. - On September 5, 2003, the Company sold a 221,000 square foot shopping center in Phillipsburg, New Jersey for net cash proceeds of approximately $7.6 million and recognized a gain of approximately $1.1 million. - On October 16, 2003, the Company sold a free standing building in the Marumsco-Jefferson Plaza in Woodbridge, Virginia for net cash proceeds of $677,000 and recognized a gain of approximately $336,000. - On October 16, 2003, the Company assigned its leasehold interest in a free standing building in Orange, Connecticut for net cash proceeds of $100,000 and recognized a loss of approximately $112,000. 37 - On March 11, 2002, the Company sold a free-standing building in Frederick, Maryland, for net cash proceeds of $722,000 and recognized a gain of $211,000. - On December 31, 2002, the Company sold a shopping center in Columbus, Mississippi, for net cash proceeds of $1.6 million and recognized a loss of $257,000. - On April 13, 2001, the Company sold a 176,000 square foot shopping center in Baltimore, Maryland for net cash proceeds of $9 million and recognized a gain of $1.6 million. - On August 30, 2001, the Company sold a 48,000 square foot shopping center in Brookhaven, Mississippi for net cash proceeds of $1 million and recognized a loss of $119,000. - On October 12, 2001, the Company sold a 109,000 square foot shopping center in Frederick, Maryland for net cash proceeds of $7 million and recognized gain of $3.6 million. (e) Shopping Center Venture: In July 2003, the Company formed a joint venture with Tower Fund ("Tower"), for the purpose of acquiring real estate assets. Tower is a commingled separate account available through annuity contracts of Metropolitan Life Insurance Company (New York, New York) and managed by SSR Realty Advisors. The Company will administer the day-to-day affairs of the joint venture which is owned 80% by Tower and 20% by the Company. The joint venture owns four shopping centers comprising 553,000 square feet in Vestal, New York. The joint venture properties are all 100% occupied and were purchased by the joint venture for $69.7 million plus transaction costs. The Company's equity contribution to the joint venture is approximately $6 million including transaction costs. Subsequent Events On February 17, 2004, the Company completed the acquisition of a 203,000 square foot shopping center in Worcester, Massachusetts for a purchase price of $19.8 million plus transaction costs. The purchase was initially made using cash and the property was subsequently pledged as collateral under the Credit Facility (as defined in Note 4a). The shopping center is 99% occupied and is anchored by a 67,000 square foot supermarket. (3) MORTGAGE NOTES RECEIVABLE At December 31, 2003, the Company's mortgage notes receivable consisted of $31.1 million collateralized by first mortgages on the recreation facilities at three Century Village adult condominium communities in southeast Florida (collectively, the "Recreation Notes"). The Recreation Notes provide for self-amortizing equal monthly principal and interest payments due through 2012 per annum, bear interest ranging from 8.84% to 13.5% and contain certain prepayment prohibitions. One note matures in 2007 and two notes are prepayable in 2007. The Recreation Notes are pledged as collateral for certain borrowings (see Note 4). The mortgage notes receivable at December 31, 2003, mature as follows (in thousands): One year or less $ 2,576 After one year through five years 17,835 After five years 10,659 ------------- Totals $ 31,070 =============
(4) BORROWINGS Borrowings consist of (in thousands):
December 31, December 31, 2003 2002 ------------ ------------ Mortgage notes payable through June 2013, interest fixed at a rate of 6.12% per annum, collateralized by mortgages on fifteen shopping centers (see Notes 2 and 4a) $ 190,000 $ -
38 Mortgage notes payable through June 2003, interest only fixed payments at an average rate of 7.96% per annum, collateralized by mortgages on twenty-seven shopping centers (see Note 2) - 181,700 Mortgage notes payable through August 2028, interest ranging from 2.72% to 9.38% per annum, collateralized by mortgages on twenty-four shopping centers (see Note 2) 182,107 164,976 Mortgage notes payable through October 2008, interest fixed at 7.00% per annum, collateralized by mortgages on nine shopping centers (see Notes 2 and 4b) 62,338 63,148 Mortgage notes payable through December 2005, interest at borrowers election of prime plus .25% or one month LIBOR plus a minimum of 1.75% to a maximum of 2.25% (3.50% at December 31, 2003), collateralized by mortgages on sixteen shopping centers (see Notes 2 and 4c) 1,988 42,988 Mortgage notes payable through August 2003 under a $155 million credit facility, interest at one month LIBOR plus 2.45%, collateralized by a mortgage on one shopping center (see Note 2) - 9,300 Collateralized Mortgage Obligations, net of unamortized discount of $102,000 and $167,000 based on a fixed effective interest rate of 8.84% per annum, collateralized by certain of the Recreation Notes (see Note 3), with quarterly self-amortizing principal and interest payment required through March 2007 14,638 18,377 ------------ ------------ Totals $ 451,071 $ 480,489 ============ ============
(a) Effective June 16, 2003, the Company entered into a ten year, fixed rate loan agreement with Metropolitan Life Insurance Company (the "Metlife Loan") for a loan in the amount of $190 million to replace a $181.7 million fixed rate real estate mortgage loan that matured on June 20, 2003. The Metlife Loan is secured by fifteen shopping center properties (the "Mortgaged Properties") and the remaining principal balance of the Metlife Loan is due in June 2013. The Metlife Loan bears a fixed interest rate of 6.12% per annum and requires monthly payments of interest only for the first two years of the ten year term and monthly payments of interest and principal based on a 30-year amortization for the remaining term. (b) In 1998, the Company obtained a $65.9 million fixed rate mortgage from Salomon Brothers Realty Corp. This loan is secured by a first mortgage on nine properties acquired by the Company in September 1998. The mortgage loan bears a fixed interest rate of 7% per annum and requires monthly payments of interest and principal based on a 30-year amortization. The loan matures on October 1, 2008. (c) Effective December 20, 2002, the Company entered into a Loan Agreement (the "Loan Agreement") with Fleet National Bank, N.A. on its own behalf and as agent for certain other banks providing for a credit facility (the "Credit Facility"). On March 19, 2003 the Credit Facility was amended to increase the maximum amount of the Credit Facility to $125 million, under the terms and conditions of the Loan Agreement. The Borrowing Base available to Kramont OP under the Credit Facility is subject to increase or decrease from its current amount pursuant to the terms of the Loan Agreement. The Credit Facility is a revolving line of credit with a term of three years and is secured by guarantees by the Company and those of its subsidiaries who have provided mortgages to the lenders, sixteen first mortgages on shopping centers and a first priority security interest in the membership interests and partnership interests of the subsidiary entities. The Credit Facility contains various financial covenants that must be observed. The Company was in compliance with these covenants at December 31, 2003. Credit Facility borrowings bear interest at the Borrower's election of (a) at the prime rate or the prime rate plus 25 basis points based on the leverage ratio of the Company's and Kramont OP's total debt and liabilities to its total asset value, or (b) London InterBank Offered Rate ("LIBOR") plus 175 to 225 basis points based on such ratio. Interest rates may be set for 39 one, three or six-month periods. Advances under the Credit Facility may be used for general corporate purposes and, among other purposes, to fund acquisitions, repayment of all or part of outstanding indebtedness, expansions, renovations, financing and refinancing of real estate, closing costs and for other lawful purposes. Additional provisions include arrangement and commitment fees of up to $1.1 million and a fee applicable to the unused portion of the maximum Credit Facility amount. Based on the current collateral the Company can borrow an additional $68.2 million as of December 31, 2003. (d) Certain loans require the Company to establish a capital and tenant improvement ("TI") reserve account. Funds in the capital and TI reserve accounts may be used to fund capital improvements, repairs, alterations, tenant improvements and leasing commissions at the mortgaged properties. (e) Maturities of borrowings are as follows (in thousands):
Years ending December 31, 2004 $ 58,572 2005 13,370 2006 23,791 2007 13,316 2008 90,641 Thereafter 251,381 ----------- Total $ 451,071 ===========
(f) In March and May 1999, the Company entered into three interest rate swap contracts with an aggregate notional amount of $32.5 million, which expire in 2004. The interest rate swaps have an effective interest rate of 6.19% on $32.5 million of the Company's debt. (5) CONTINGENCIES The Company is subject to various claims and complaints relative to its business activities. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position. (6) RELATED PARTY TRANSACTIONS H. Irwin Levy ("Mr. Levy") In 1981, CV Reit sold the recreation facilities at the Century Village in Boca Raton to Mr. Levy, a Trustee, for $18 million, subject to a lease to a corporation currently owned by Mr. Levy. (The annual net rental to Mr. Levy on that lease is $2.2 million.) At closing, Mr. Levy issued a 30-year non-recourse promissory note to CV Reit in the principal amount of $12.5 million which bears interest at 13.25% per annum. At December 31, 2003, the outstanding balance on this note was $8.5 million. During each of 2003, 2002, and 2001, the Company recognized $1.2 million, $1.2 million, and $1.3 million, respectively, in interest income on this note. Since 1990, companies owned by Mr. Levy and/or certain members of his family have leased, managed and operated the recreation facilities at the Century Villages in West Palm Beach, Deerfield Beach, and Boca Raton, which are collateral for certain notes held by the Company with an outstanding balance of $31.1 million (including the $8.5 million discussed above) at December 31, 2003. During 2003, 2002, and 2001, the Company leased approximately 4,600 square feet of office space to those companies and other companies controlled by Mr. Levy on a month-to-month basis and received approximately $35,000, $55,000, and $60,500, respectively, for payment of rent, utilities and operating expenses. Louis P. Meshon, Sr. ("Mr. Meshon") On June 16, 2000, the Company sold to Mr. Meshon, Sr., President, Chief Executive Officer, and a Trustee, 75,000 restricted Common Shares at the then current market price per Common Share of $10.16 for a total of $762,000, 40 evidenced by a full recourse promissory note that matures on June 15, 2005. The note and its collateral consisting of the restricted Common Shares, and Mr. Meshon's obligations under the note, will terminate on the earlier to occur of: (i) the note's full satisfaction, (ii) the note's fifth anniversary (if Mr. Meshon is still employed by the Company), or (iii) the termination of Mr. Meshon's employment following a change of control, termination of the employment of Mr. Meshon without cause or by Mr. Meshon for good reason, or because of Mr. Meshon's death or disability. The Company will pay to him an amount equal to any taxes payable by him, on a full gross-up basis, at the time his obligations under the note terminate. The note has been reflected as unearned compensation in the statement of beneficiaries' equity and is being amortized over five years to compensation expense. The note was issued prior to the prohibitions on related party loans as stated in the Sarbanes-Oxley Act of 2002. Louis P. Meshon, Sr. and Patricia Meshon, his wife, in the aggregate, own 99% of the voting stock (a 5% equity interest) in Drexel Realty, Inc. ("Drexel"), the management company in which Montgomery CV Realty L.P. owns 1% of the voting stock and 100% of the non-voting stock (a 95% equity interest). In 2003, 2002, and 2001 Drexel did not make any payments to Mr. Meshon. In addition, Drexel manages the following third-party owned properties in which Louis P. Meshon, Sr. has the following partnership interests:
Meshon Partnership Properties Interest Percentage ---------- ------------------- Renaissance Plaza 20.75% Montgomery A.C., Inc. (owns 1% general partnership interest in Renaissance Plaza) 50.00% Laurel Mall (indirect ownership through MTGY Associates) (Louis P. Meshon, Sr., directly and indirectly owns 95.93% of the corporate general partner of Laurel Mall Associates) 29.00%
In 2003, 2002, and 2001, the owners of these properties paid Drexel $259,300, $279,500, and $292,000, respectively, for management and leasing services. Milton S. Schneider ("Mr. Schneider") Mr. Schneider, a Trustee, is the Chief Executive Officer of The Glenville Group, a company involved in the development, ownership, and management of commercial and residential properties. The Company leases approximately 2,300 square feet of office space to The Glenville Group in accordance with a five-year lease effective June 1, 1999 and expiring on May 31, 2004. During 2003, 2002, and 2001 The Glenville Group paid the Company approximately $57,900, $58,100, and $55,200, respectively, for payment of rent, electric and other operating expenses. (7) FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments are as follows (in thousands):
As of December 31, 2003 2002 ------------------------ ------------------------ Carrying Carrying Amount Fair Value Amount Fair Value --------- ---------- --------- ---------- Real estate mortgage notes receivable $ 31,070 $ 39,351 $ 33,340 $ 42,544 Cash and cash equivalents 9,196 9,196 18,173 18,173
41 Borrowings (451,071) (465,220) (480,489) (490,940) Interest rate swaps (477) (477) (1,613) (1,613)
Real estate mortgage notes receivable - The fair value of the fixed rate, Recreation Notes (Note 3) is estimated by discounting the future cash flows using the current rates at which similar loans would be made with similar credit ratings and for the same remaining maturities. Borrowing rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of the Company's borrowings. (8) BENEFICIARIES' EQUITY Shelf Registration On April 3, 2002, the Company filed a Shelf Registration Statement on Form S-3 ("Shelf Registration") to register $150 million in common and preferred shares of beneficial interest, depository shares, warrants and debt securities. The Shelf Registration Statement became effective April 17, 2002. Common Shares of Beneficial Interest On May 16, 2002, under the Shelf Registration, the Company sold 2.3 million of its common shares of beneficial interest to certain investment advisory clients of Cohen & Steers Capital Management, Inc. for net proceeds of $31.3 million. The Company used $6.1 million for the purchase of Series A-1 Preferred Shares, $8.4 million for the purchase of a shopping center in Killingly, Connecticut, $1.1 million for the purchase of a free standing building in Plymouth Meeting, Pennsylvania, and paid down debt in the amount of $8 million. The Company used the balance of the proceeds for acquisitions, debt reductions, and other corporate purposes. On December 31, 2002, under the Shelf Registration, the Company sold 1.8 million of its common shares of beneficial interest to Teachers Insurance and Annuity Association of America and certain investment advisory clients of Kensington Investment Group, Inc. and Teachers Advisors, Inc. for net proceeds of $25.5 million. The Company used $25 million to pay down debt. The Company used the balance of the proceeds for general corporate purposes. On January 2, 2003, under the Shelf Registration, the Company sold 280,000 of its common shares of beneficial interest to Teachers Insurance and Annuity Association of America and certain investment advisory clients of Kensington Investment Group, Inc. and Teachers Advisors, Inc. for net proceeds of $4 million. The Company used the $4 million to pay down debt. On April 3, 2003 the Company issued 386,153 common shares of beneficial interest in conjunction with the purchase of two shopping centers, an office building and sixteen acres of land in New Jersey. The Company has a future obligation to issue an additional 228,939 common shares of beneficial interest upon the satisfaction of certain conditions. On July 25, 2003 the Company issued 185,018 common shares of beneficial interest in conjunction with the purchase of a shopping center in Vestal, New York. Preferred Shares of Beneficial Interest On December 30, 2003, under the Shelf Registration, the Company issued 2,400,000 shares of Series E Cumulative Convertible Preferred Shares of Beneficial Interest ("Preferred E") with a face amount of $25.00 per share. The Preferred E's have a distribution rate of 8.25% of the liquidation preference ($2.0625 per share) per annum, paid quarterly. The net proceeds to the Company, after fees and expenses, were approximately $58.5 million. A portion of the proceeds were used by the Company to redeem the Company's 9.5% Series D Cumulative Redeemable 42 Preferred Shares of Beneficial Interest, and the remainder of the proceeds will be used for general corporate purposes. On May 15, 2002, the Company purchased all 11,155 Series A-1 Increasing Rate Cumulative Convertible Shares of Beneficial Interest ("Preferred A") for $6.1 million, including costs. The purchase was recorded using the cost method. The Preferred A's, with a face amount of $1,000 per share, had a distribution rate of 6.50% of the redemption price during 2001 and thereafter. The Series B-1 Cumulative Convertible Preferred Shares of Beneficial Interest ("Preferred B") with a face amount of $25.00 per share, have a liquidation preference of $25.00 per share and a distribution rate of 9.75% of the liquidation preference ($2.4375 per share) per annum, paid quarterly. The Preferred Bs are convertible into Common Shares at $17.71 per share and are redeemable at the option of the Company after February 27, 2002 at $25.00 per share, if the aggregate liquidation preference of all outstanding Series B's are less than $3 million. The Series D Cumulative Redeemable Preferred Shares of Beneficial Interest ("Preferred D") with a face amount of $25.00 per share, have a $25.00 per share liquidation preference and a distribution rate of 9.50% of the liquidation preference ($2.375 per share) per annum, paid quarterly. The Preferred Ds are redeemable for cash after December 11, 2002 at the option of the Company for a redemption price of $ 25.00 per share. On December 15, 2000, the Company purchased 146,800 shares of Preferred D for $2,348,800 including costs. The purchase was recorded using the cost method. Operating Partnership Units The owners of the minority interests hold operating partnership units ("OP Units") which are convertible into common shares of beneficial interest on a one to one basis. The Company has the option to issue the common shares of beneficial interest or redeem them for cash equal to the then fair market value of the common shares at the time of the conversion. At December 31, 2003, there were 1,666,152 outstanding OP Units in the OPs. Subsequent Events On January 30, 2004, the Company redeemed all 1,653,000 of its outstanding shares of Preferred D's for $25.00 per share plus accrued and unpaid distributions though January 30, 2004 of $0.066 per share. In connection with the redemption of the 9.5% Series D Cumulative Redeemable Preferred Shares of beneficial interest, the Company's first quarter 2004 results will reflect a non-recurring reduction in Income to common shareholders of approximately $17.7 million or $0.69 per common share. This reduction will be taken in accordance with the July 31, 2003 Securities and Exchange Commission interpretation of FASB-EITF Topic D-42 ("The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock"). Under this interpretation, the difference between the carrying amount of the shares and the redemption price must be recorded as a reduction in Net Income Attributable to Common Shareholders and, therefore, will impact Earnings Per Share and Funds From Operations per share. On February 27, 2004, under the Shelf Registration, the Company sold 400,000 of its Preferred E's to certain investment advisory clients of Cohen & Steers Capital Management, Inc for net proceeds of $10.1 million. The Company will use the $10.1 million for general corporate purposes. Stock Options The Company maintains stock option plans for the granting of options to certain executives, employees and non-employee directors. Under these plans, qualified and nonqualified stock options to purchase up to 3,700,000 Common Shares of the Company's common shares may be granted. Options become exercisable as determined by the compensation committee of the Board of Trustees at the date of grant. The maximum term of the options granted under each of the plans is ten years. Changes in options outstanding are summarized as follows: 43
Weighted Weighted Average Average Fair Value Exercise Per Share Price Per Of Options Shares Share Granted ---------- -------- ---------- Stock options outstanding at January 1, 2001 1,164,900 $ 11.04 $ 2.88 2001: Granted - equal to market value 25,000 $ 13.00 $ .51 Exercised: (83,700) $ 10.21 $ .53 Expired: (36,000) $ 15.42 $ 1.75 ---------- 1,070,200 2002: Granted - equal to market value 111,500 $ 14.69 $ 1.51 Exercised: (54,800) $ 11.58 $ 1.21 Expired: (664,150) $ 19.97 $ .06 ---------- 462,750 2003: Granted - equal to market value 25,000 $ 16.80 $ 2.27 Exercised: (96,222) $ 13.64 $ 2.54 Expired: (2,000) $ 14.65 $ .57 ---------- Stock options outstanding at December 31, 2003: 389,528 ==========
Total stock options available for future grants are 3,075,750 as of December 31, 2003. The following table summarizes information about stock options outstanding at December 31, 2003:
Options Outstanding Options Exercisable Number of Weighted Options Average Weighted Number Weighted Range of Exercise Outstanding at Remaining Average Exercisable at Average Prices ($) 12/31/03 Contractual Life Exercise Price ($) 12/31/03 Exercise Price ($) - ----------------- -------------- ---------------- ------------------ -------------- ------------------ $ 10.16 - 10.44 27,800 6.56 years $ 10.21 19,000 $ 10.23 $ 12.50 - 17.13 345,228 5.86 years $ 14.43 328,561 $ 14.48 $ 19.06 - 21.50 16,500 3.53 years $ 19.55 16,500 $ 19.55 -------------- ----------- $ 10.16 - 21.50 389,528 5.81 years $ 14.35 364,061 $ 14.48 ============== ===========
At December 31, 2002 and 2001, 423,050 and 1,004,100 options were exercisable at average exercise prices of $14.23 and $17.68, respectively. Restricted Shares On September 1, 2001, the Company awarded to certain executives and employees 35,683 restricted common shares of beneficial interest at the then current market price per Common Share of $13.06 for a total value of $465,842. One-third of the restricted common shares vested immediately. The remaining two-thirds vested equally on July 1, 2002 and on July 1, 2003 if the executive is an employee of the Company on the respective dates. On April 1, 2002, the Company awarded an executive 10,000 restricted shares of beneficial interest at the then current market price of $13.55 for a total value of $135,500. One-third of the restricted common shares vested immediately. The remaining two-thirds will vest equally on March 31, 2003, and on March 31, 2004, if the executive is an employee of the Company on the respective dates. On July 1, 2002, the Company awarded to certain executives and employees 44 28,890 restricted shares of beneficial interest at the then current market price per Common Share of $15.75 for a total value of $455,018. One-third of the restricted common shares vested immediately. The remaining two-thirds will vest equally on July 1, 2003, and on July 1, 2004, if the executive is an employee of the Company on the respective dates. On July 1, 2003, the Company awarded to certain executives and employees 31,547 restricted shares of beneficial interest at the then current market price per Common Share of $16.72 for a total value of $527,466. One-third of the restricted common shares vested immediately. The remaining two-thirds will vest equally on July 1, 2004, and on July 1, 2005, if the executive is an employee of the Company on the respective dates. The awarded shares entitle the executive to exercise all voting and/or consensual powers pertaining to such shares and to receive any and all dividends or other distributions on such shares. Any unvested shares shall immediately vest in the event of a change in control of the Company, the death or permanent disability of the executive or the termination of the executive without cause. (9) EARNINGS PER SHARE Basic and diluted earnings per share for the years ended December 31, 2003, 2002, and 2001 is calculated as follows (in thousands, except per share data):
Income to Common Weighted Shareholders Average Shares Per Share (Numerator) (Denominator) Amount ------------ -------------- --------- For the year ended December 31, 2003 Basic earnings per share $ 16,538 23,757,692 $ .70 Effect of assumed conversion of employee stock options - 54,107 - ------------ -------------- --------- Diluted earnings per share $ 16,538 23,811,799 $ .69 ============ ============== ========= For the year ended December 31, 2002 Basic earnings per share $ 10,951 20,380,949 $ .54 Effect of assumed conversion of employee stock options - 20,146 - ------------ -------------- --------- Diluted earnings per share $ 10,951 20,401,095 $ .54 ============ ============== ========= For the year ended December 31, 2001 Basic earnings per share $ 18,260 18,803,535 $ .97 Effect of assumed conversion of employee stock options - 12,122 - ------------ -------------- --------- Diluted earnings per share $ 18,260 18,815,657 $ .97 ============ ============== =========
The Preferred B shares, OP Units and 44,500, 197,583, and 1,009,067 stock options have been excluded in 2003, 2002, and 2001, respectively, from above calculation since they are antidilutive. (10) BENEFIT PLAN The Company has a defined contribution plan covering all full time employees qualified under Section 401(k) of the Code in which the Company matches a portion of an employee's salary deferral. The Company had two defined contribution plans through June 30, 2001, which were combined effective July 1, 2001. The Company's contributions to these plans were $163,400, $151,000, and $112,500 for the years ended December 31, 2003, 2002, and 2001, respectively. 45 (11) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data follows (in thousands, except per share data):
Quarters Ended March 31 June 30 September 30 December 31 --------- --------- ------------ ----------- 2003: Revenues $ 28,114 $ 27,064 $ 28,670 $ 29,092 Income from continuing operations 2,258 2,259 3,776 3,301 Income (loss) from discontinued operations 1,627 684 10,100 814 Net income 5,505 4,646 7,380 5,818 Income to common shareholders 3,803 2,943 5,677 4,115 Per common share, basic and diluted .16 .12 .24 .17 2002: Revenues $ 26,074 $ 26,590 $ 26,482 $ 28,000 Income from continuing operations 4,171 4,613 4,175 4,074 Income (loss) from discontinued operations 427 (68) 226 416 Net income 4,598 4,545 4,401 4,490 Income to common shareholders 2,714 2,752 2,698 2,787 Per common share, basic and diluted .14 .14 .13 .13 2001: Revenues $ 27,264 $ 25,627 $ 25,666 $ 26,289 Income from continuing operations 4,722 3,999 4,196 4,313 Income (loss) from discontinued operations 361 4,538 129 3,529 Net income 5,083 8,537 4,325 7,842 Income to common shareholders 3,206 6,655 2,441 5,958 Per common share, basic and diluted .17 .35 .13 .32
46 KRAMONT REALTY TRUST AND SUBSIDIARIES Schedule III - Real Estate and Accumulated Depreciation December 31, 2003 (in thousands)
Costs Gross Amount Initial Capitalized at Which Carried Cost to Subsequent December 31, Accumulated Description Encumbrances Company to Acquisition 2003 Depreciation ----------- ------------ ------- -------------- ---- ------------ SHOPPING CENTERS PENNSYLVANIA 555 Scott Street Center $ -- $ 736 -- $ 736 (99) 550 West Germantown Pike -- 1,079 11 1,090 -- 69th Street Plaza -- 3,620 21 3,641 (257) Barn Plaza 18,200 22,918 7,383 30,301 (1,869) Bensalem Square 4,900 6,282 79 6,361 (483) Bethlehem Square 19,300 28,014 209 28,223 (2,013) Bradford Mall -- 3,825 150 3,975 (322) Bristol Commerce Park 14,800 13,955 2,427 16,382 (1,215) Chalfont Village Shopping Center -- 1,574 135 1,709 (194) Cherry Square Shopping Center (2) -- 6,831 202 7,033 (743) Chesterbrook Village Center 10,458 13,359 767 14,126 (2,044) Collegeville Shopping Center 4,446 7,179 1,008 8,187 (971) County Line Plaza 4,663 5,391 2,548 7,939 (1,246) Danville Plaza 502 1,556 55 1,611 (224) Dickson City -- 4,294 46 4,340 (579) Franklin Center (2) -- 7,534 (2) 7,532 (537) Gilbertsville Shopping Center 2,375 3,827 362 4,189 (582) MacArthur Road -- 3,059 36 3,095 (223) Mount Carmel Plaza 664 2,102 37 2,139 (291) New Holland Plaza 848 1,168 606 1,774 (226) North Penn Marketplace 4,189 4,751 218 4,969 (648) Park Hills Plaza 13,100 15,085 483 15,568 (1,145) Pilgrim Gardens (2) -- 4,501 523 5,024 (349) Shoppes at Valley Forge 6,400 5,254 9,087 14,341 (866) Street Road 4,700 6,165 58 6,223 (454) Valley Fair 10,500 14,355 991 15,346 (1,354) Village at Newtown 20,657 27,657 151 27,808 (3,681) Village West 13,666 18,911 923 19,834 (797) Whitehall Square 17,500 23,239 342 23,581 (1,698) Whitemarsh Shopping Center 6,801 10,771 429 11,200 (1,517) Woodbourne Square -- 4,267 307 4,574 (809) GEORGIA Bainbridge Town Center (2) -- 6,800 164 6,964 (543) Douglasville Crossing 14,347 13,284 20 13,304 (948) Holcomb Bridge -- 7,066 64 7,130 (512) Northpark (2) -- 12,255 132 12,387 (894) Park Plaza (2) -- 3,137 59 3,196 (246) Snellville Oaks 11,703 11,220 16 11,236 (802) Summerville Wal Mart Center 2,180 2,391 -- 2,391 (169) Tifton Corners 8,231 8,923 147 9,070 (668) Tower Plaza (2) -- 4,300 78 4,378 (331) Vidalia Wal Mart Center 4,082 4,452 -- 4,452 (315) Village at Mableton 9,974 12,680 137 12,817 (925) CONNECTICUT Christmas Tree Plaza 12,361 20,166 -- 20,166 (168) Groton Square 14,800 21,708 2,066 23,774 (1,687) Killingly Plaza (2) -- 8,368 -- 8,368 (293) Manchester K Mart Plaza -- 4,529 141 4,670 (343) Milford -- 2,572 7 2,579 (230) Parkway Plaza I -- 3,612 16 3,628 (257) Parkway Plaza II -- 4,033 174 4,207 (283) Stratford Square 5,149 10,500 1,063 11,563 (1,005)
Date Depreciable Constructed Life Description or Acquired (Years) ----------- ----------- ------- SHOPPING CENTERS PENNSYLVANIA 555 Scott Street Center 1997 7 - 40 (1) 550 West Germantown Pike 2002 7 - 40 (1) 69th Street Plaza 2000 7 - 40 (1) Barn Plaza 2000 7 - 40 (1) Bensalem Square 2000 7 - 40 (1) Bethlehem Square 2000 7 - 40 (1) Bradford Mall 2000 7 - 40 (1) Bristol Commerce Park 2000 7 - 40 (1) Chalfont Village Shopping Center 1999 7 - 40 (1) Cherry Square Shopping Center (2) 1999 7 - 40 (1) Chesterbrook Village Center 1997 7 - 40 (1) Collegeville Shopping Center 1998 7 - 40 (1) County Line Plaza 1997 7 - 40 (1) Danville Plaza 1997 7 - 40 (1) Dickson City 1997 7 - 40 (1) Franklin Center (2) 2000 7 - 40 (1) Gilbertsville Shopping Center 1998 7 - 40 (1) MacArthur Road 2000 7 - 40 (1) Mount Carmel Plaza 1997 7 - 40 (1) New Holland Plaza 1998 7 - 40 (1) North Penn Marketplace 1998 7 - 40 (1) Park Hills Plaza 2000 7 - 40 (1) Pilgrim Gardens (2) 2000 7 - 40 (1) Shoppes at Valley Forge 2000 7 - 40 (1) Street Road 2000 7 - 40 (1) Valley Fair 2000 7 - 40 (1) Village at Newtown 1998 7 - 40 (1) Village West 2001 7 - 40 (1) Whitehall Square 2000 7 - 40 (1) Whitemarsh Shopping Center 1997 7 - 40 (1) Woodbourne Square 1997 7 - 40 (1) GEORGIA Bainbridge Town Center (2) 2000 7 - 40 (1) Douglasville Crossing 2000 7 - 40 (1) Holcomb Bridge 2000 7 - 40 (1) Northpark (2) 2000 7 - 40 (1) Park Plaza (2) 2000 7 - 40 (1) Snellville Oaks 2000 7 - 40 (1) Summerville Wal Mart Center 2000 7 - 40 (1) Tifton Corners 2000 7 - 40 (1) Tower Plaza (2) 2000 7 - 40 (1) Vidalia Wal Mart Center 2000 7 - 40 (1) Village at Mableton 2000 7 - 40 (1) CONNECTICUT Christmas Tree Plaza 2003 7 - 40 Groton Square 2000 7 - 40 (1) Killingly Plaza (2) 2002 7 - 40 (1) Manchester K Mart Plaza 2000 7 - 40 (1) Milford 2000 7 - 40 (1) Parkway Plaza I 2000 7 - 40 (1) Parkway Plaza II 2000 7 - 40 (1) Stratford Square 2000 7 - 40 (1)
47 KRAMONT REALTY TRUST AND SUBSIDIARIES Schedule III - Real Estate and Accumulated Depreciation December 31, 2003 (in thousands)
Costs Gross Amount Initial Capitalized at Which Carried Cost to Subsequent December 31, Accumulated Description Encumbrances Company to Acquisition 2003 Depreciation ----------- ------------ ------- -------------- ---- ------------ NEW JERSEY Collegetown 8,500 10,693 1,019 11,712 (956) Lakewood Plaza Shopping Center 20,576 24,593 993 25,586 (2,817) Marlton Shopping Center - Phase II 9,500 12,524 448 12,972 (1,676) Marlton Shopping Center - Phase I 11,578 16,580 3,808 20,388 (2,939) Ocean Heights -- 9,832 -- 9,832 (113) Rio Grande Plaza 7,500 14,417 96 14,513 (1,980) Springfield Supermarket -- 3,483 -- 3,483 (52) Suburban Plaza -- 16,544 39 16,583 (1,176) NEW YORK A&P Mamaroneck -- 1,598 -- 1,598 (113) Campus Plaza-Vestal 8,295 13,718 -- 13,718 (114) The Mall at Cross County 30,500 41,161 1,627 42,788 (3,207) Highridge 8,800 11,746 106 11,852 (861) North Ridge 5,600 6,886 589 7,475 (556) Port Washington -- 495 -- 495 (35) Village Square 2,100 2,935 148 3,083 (249) MARYLAND Campus Village -- 3,377 172 3,549 (262) Coral Hills 5,200 6,087 184 6,271 -- Fox Run 16,700 19,752 673 20,425 (1,502) FLORIDA Century Plaza (2) -- 7,402 1,170 8,572 (1,611) Village Oaks 7,556 9,770 (65) 9,705 (679) KENTUCKY Harrodsburg Marketplace (2) -- 3,650 -- 3,650 (259) MICHIGAN Musicland -- 3,700 -- 3,700 (262) NORTH CAROLINA Cary Plaza 842 3,065 53 3,118 (231) Magnolia Plaza (2) -- 4,900 7 4,907 (347) OHIO Pickaway Crossing 5,924 6,654 14 6,668 (472) RHODE ISLAND Wamapnoag Plaza (2) -- 7,500 -- 7,500 (531) SOUTH CAROLINA East Main Centre (2) -- 5,682 867 6,549 (589) Park Centre (2) -- 9,728 332 10,060 (699) TENNESSEE Meeting Square 2,300 2,467 208 2,675 (200) VIRGINIA Culpepper Town Mall (2) -- 7,200 264 7,464 (561) Marumsco-Jefferson Plaza 13,344 13,000 254 13,254 (1,089) Statler Crossing 6,015 6,054 46 6,100 (462) OFFICE BUILDINGS Springfield Office, New Jersey -- 2,311 -- 2,311 (36) Plymouth Plaza, Pennsylvania 2,118 4,379 189 4,568 (625) --------- --------- --------- --------- --------- Totals $ 434,444(3) $ 749,138 $ 47,117 $ 796,255 $ (65,316) ========= ========= ========= ========= =========
Date Depreciable Constructed Life Description or Acquired (Years) ----------- ----------- ------- NEW JERSEY Collegetown 2000 7 - 40 (1) Lakewood Plaza Shopping Center 1999 7 - 40 (1) Marlton Shopping Center - Phase II 1998 7 - 40 (1) Marlton Shopping Center - Phase I 1998 7 - 40 (1) Ocean Heights 2003 7 - 40 Rio Grande Plaza 1997 7 - 40 (1) Springfield Supermarket 2003 7 - 40 Suburban Plaza 2000 7 - 40 (1) NEW YORK A&P Mamaroneck 2000 7 - 40 (1) Campus Plaza-Vestal 2003 7 - 40 The Mall at Cross County 2000 7 - 40 (1) Highridge 2000 7 - 40 (1) North Ridge 2000 7 - 40 (1) Port Washington 2000 7 - 40 (1) Village Square 2000 7 - 40 (1) MARYLAND Campus Village 2000 7 - 40 (1) Coral Hills 2000 7 - 40 (1) Fox Run 2000 7 - 40 (1) FLORIDA Century Plaza (2) 1976 15 - 39 (1) Village Oaks 2000 7 - 40 (1) KENTUCKY Harrodsburg Marketplace (2) 2000 7 - 40 (1) MICHIGAN Musicland 2000 7 - 40 (1) NORTH CAROLINA Cary Plaza 2000 7 - 40 (1) Magnolia Plaza (2) 2000 7 - 40 (1) OHIO Pickaway Crossing 2000 7 - 40 (1) RHODE ISLAND Wamapnoag Plaza (2) 2000 7 - 40 (1) SOUTH CAROLINA East Main Centre (2) 2000 7 - 40 (1) Park Centre (2) 2000 7 - 40 (1) TENNESSEE Meeting Square 2000 7 - 40 (1) VIRGINIA Culpepper Town Mall (2) 2000 7 - 40 (1) Marumsco-Jefferson Plaza 2000 7 - 40 (1) Statler Crossing 2000 7 - 40 (1) OFFICE BUILDINGS Springfield Office, New Jersey 2003 7 - 40 (1) Plymouth Plaza, Pennsylvania 1997 7 - 40 (1)
(1) - Real Estate is depreciated over the estimated useful lives of the assets (7 to 40 years) on the straight-line method. (2) - Real estate pledged as collateral for the Credit Facility. As of December 31, 2003, the outstanding balance on the Credit Facility was $1,988,000. (3) - Total encumbrances does not include the $1,988,000 balance of the Credit Facility. 49 KRAMONT REALTY TRUST AND SUBSIDIARIES Schedule III - Real Estate and Accumulated Depreciation December 31, 2003 (in thousands) The changes in total real estate for the three years ended December 31, 2003, are as follows:
2003 2002 2001 Balance, beginning of year $ 739,679 $ 723,247 $ 702,447 New property acquisitions 38,397 9,447 15,129 Capital improvements 18,027 9,712 13,681 Reclass for property held for sale (475) -- -- Sale of real estate 627 (2,727) (8,010) --------- --------- --------- Balance, end of period $ 796,255 $ 739,679 $ 723,247 ========= ========= =========
The changes in accumulated depreciation for the three years ended December 31, 2003, are as follows:
2003 2002 2001 Balance, beginning of year $ 48,811 $ 32,349 $ 17,166 Depreciation for the year 17,960 16,579 15,311 Reclass for property held for sale (475) -- -- Sale of real estate (980) (117) (128) -------- -------- -------- Balance, end of period $ 65,316 $ 48,811 $ 32,349 ======== ======== ========
49 KRAMONT REALTY TRUST AND SUBSIDIARIES Schedule IV - Mortgage Loans on Real Estate December 31, 2003 (in thousands)
Final Face Carrying Interest Maturity Amount of Amount of Description Rate Date Periodic Payment Terms Mortgages Mortgages (a) - --------------------------------------- --------- ---------- ---------------------- ----------- ------------- Permanent - Recreation Facilities Century Village at: Boca Raton, FL 13.25% 12/31/2011 Level P&I due monthly $ 12,533 $ 8,480 West Palm Beach, FL 13.25% 1/15/2012 Level P&I due monthly 18,342 12,412 Deerfield Beach, FL (2nd mortgage) 13.50% 1/15/2012 Level P&I due monthly 13,235 9,028 Deerfield Beach, FL 8.84% 3/1/2007 Level P&I due monthly 3,485 1,151 -------- $ 31,070 ========
Note: All loans are first mortgages except where noted, there are no prior liens and no delinquent principal or interest. (a) The changes in the carrying amounts are summarized as follows:
2003 2002 2001 Balance, beginning of period $ 33,340 $ 35,340 $ 37,240 Advances on new mortgage loans -- -- -- Collections of principal (2,270) (2,000) (1,900) -------- -------- -------- Balance, end of period $ 31,070 $ 33,340 $ 35,340 ======== ======== ========
50 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None ITEM 9A. CONTROLS AND PROCEDURES The Company's management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's "disclosure controls and procedures," as that term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of December 31, 2003. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms, and to ensure that such information is accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There were no changes in the Company's internal control over financial reporting during the quarter ended December 31, 2003 identified in connection with the evaluation thereof by the Company's management, including the Chief Executive Officer and Chief Financial Officer, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART III ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated herein by reference to the "Election of Trustees", "Executive Officers", and "Section 16(a) Beneficial Ownership Reporting Compliance" sections of the Company's Proxy Statement in connection with its annual meeting of shareholders to be held on June 10, 2004. ITEM 11. EXECUTIVE COMPENSATION Incorporated herein by reference to the "Executive Compensation" section of the Company's Proxy Statement in connection with its annual meeting of shareholders to be held on June 10, 2004. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS Incorporated herein by reference to the "Security Ownership of Certain Beneficial Owners and Management" section of the Company's Proxy Statement in connection with its annual meeting of shareholders to be held on June 10, 2004, and by reference to the "Securities Authorized for Issuance Under Equity Compensation Plans" section of Item 5. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated herein by reference to the "Certain Relationships and Related Transactions" section of the Company's Proxy Statement in connection with its annual meeting of shareholders to be held on June 10, 2004. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Incorporated herein by reference to the "Principal Accountant Fees and Services" section of the Company's Proxy Statement in connection with its annual meeting of shareholders to be held on June 10, 2004. 51 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) List of Consolidated Financial Statements: Report of Independent Certified Public Accountants Consolidated Balance Sheets - December 31, 2003 and 2002 Consolidated Statements of Income - Years Ended December 31, 2003, 2002, and 2001 Consolidated Statements of Other Comprehensive Income - Years Ended December 31, 2003, 2002, and 2001 Consolidated Statements of Beneficiaries' Equity - Years Ended December 31, 2003, 2002, and 2001 Consolidated Statements of Cash Flows - Years Ended December 31, 2003, 2002, and 2001 Notes to Consolidated Financial Statements (2) List of Consolidated Financial Statements Schedules: Schedule III - Real Estate and Accumulated Depreciation Schedule IV - Mortgage Loans on Real Estate (3) See Exhibit Index at section (c) of this Item 15. (b) Reports on Form 8-K: On November 13, 2003, the Company furnished a Current Report on Form 8-K, reporting under Item 12 - "Results of Operations and Financial Condition" that the Company announced its consolidated financial results for the quarter ended September 30, 2003. On December 29, 2003, the Company filed a Current Report on Form 8-K, reporting under Item 5 - "Other Events" that the Company filed a Supplemental Prospectus pursuant to Rule 424(b) of the Securities Act of 1933. The Supplemental Prospectus describes the issuance and sale to the public of 2,400,000 of the Company's 8.25% Series E Cumulative Preferred Shares of Beneficial Interest in a public offering at $25.00 per share. On December 30, 2003, the Company filed a Current Report on Form 8-K, reporting under Item 5 - "Other Events" that the Company entered into a Purchase Agreement with various Purchasers, Investment Advisers and Broker-Dealers named in the Purchase Agreement, pursuant to which the Company agreed to issue and sell 2,400,000 of the Company's 8.25% Series E Cumulative Preferred Shares of Beneficial Interest in a public offering at $25.00 per share, for an aggregate purchase price of $60,000,000. On December 31, 2003, the Company filed a Current Report on Form 8-K, reporting under Item 5 - "Other Events" that the Company announced the redemption of all of the Company's 9.5% Series D Cumulative Redeemable Preferred Shares of beneficial interest, effective January 30, 2004, for $25.00 per share plus accrued and unpaid distributions through such date of $0.066 per share. Information in any of our Current Reports on Form 8-K furnished under Item 12, "Results of Operations and Financial Condition," shall not be deemed to be "filed" for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference into a filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing. 52 (c) The following exhibits are filed as part of, or incorporated by reference into, this report: Exhibit Number Description 2.1 Agreement and Plan of Reorganization and Merger among Kranzco, KRT Trust, CV Reit, and Kramont, dated as of December 10, 1999. (Incorporated by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-4, filed with the Commission on April 10, 2000 (File No. 333-34482)). 2.2 Amendment No. 1 to the Agreement and Plan of Reorganization and Merger among Kranzco, KRT Trust, CV Reit, and the Company, dated as of December 10, 1999. (Incorporated by reference to Exhibit 2.2 to the Company's Registration Statement on Form S-4, filed with the Commission on April 10, 2000 (File No. 333-34482)). 3.1 Articles of Amendment and Restatement of Kramont Realty Trust. (Incorporated by reference to Appendix D to the Company's Registration Statement on Form S-4, filed with the Commission on April 10, 2002 (File No. 333-34482)) 3.2 Amended and Restated Bylaws of Kramont Realty Trust. (Incorporated by reference to Exhibit B to Appendix A to the Company's Registration Statement on Form S-4, filed with the Commission on April 10, 2002 (File No. 333-34482)) 3.3 Articles Supplementary of Kramont Realty Trust. (Incorporated by reference to Exhibit 3.3 of the Company's Registration Statement on Form 8-A, filed with the Commission on December 29, 2003.) 3.4 Articles Supplementary of Kramont Realty Trust. (Incorporated by reference to Exhibit 99.2 of the Company's Current Report on Form 8-K, filed with the Commission on February 23, 2004.) 4.1 Specimen certificate for Common Shares of Beneficial Interest, par value $0.01 per share. (Incorporated by reference to Exhibit 4.1 of Kranzco's Registration Statement on Form S-1 No. 33-49434.) 4.2 Specimen certificate for 9.75% Series B-1 Cumulative Convertible Preferred Shares of Beneficial Interest, par value $0.01 per share. (Incorporated by reference to Exhibit 3.4 of Kranzco's Registration Statement on Form 8-A, filed with the Commission on March 7, 1997.) 4.3 Specimen certificate for 8.25% Series E Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share. (Incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form 8-A, filed with the Commission on December 29, 2003.) 10.1 Agreement between Cenvill Investors, Inc. and H. Irwin Levy, dated December 31, 1981. (Incorporated by reference to Exhibit (2) (i) to the current report on Form 8-K filed by CV Reit to report event of December 31, 1981.) 10.2 Agreement of Lease between Cenvill Investors, Inc. and B.R.F., Inc., dated December 30, 1981. (Incorporated by reference to Exhibit (2) (ii) to the current report on Form 8-K filed by CV Reit to report event of December 31, 1981.) 10.3 Agreement dated January 15, 1982, between Century Village, Inc. and Benenson Capital Company. (Incorporated by reference to Exhibit (2)(i) to the current report on Form 8-K filed by Cenvill Investors, Inc. (File No. 0-03427) to report event of January 15, 1982.) 53 10.4 Agreement dated January 15, 1982, between Century Village East, Inc. and CVRF Deerfield Limited. (Incorporated by reference to exhibit (2) (ii) to the current report on Form 8-K filed by Cenvill Investors, Inc. (File No. 0-03427) to report event of January 15, 1982.) 10.5 Indenture for Collateralized Mortgage Obligations, dated as of December 30, 1991 between Recreation Mortgages, Inc. (Issuer) and Bankers Trust Company (Trustee). (Incorporated by reference to Exhibit (10)(xvi) to the Annual Report on Form 10-K of CV Reit for the fiscal year ended December 31, 1991.) 10.6 Restated Loan Agreement, dated July 31, 1992, between CV Reit, Inc. and Cenvill Development Corp. and certain subsidiaries and affiliates thereof. (Incorporated by reference to Exhibit (10)(xi) to the Annual Report on Form 10-K of CV Reit for the fiscal year ended December 31, 1992.) 10.7 Proposal for the Acquisition of Certain Assets, dated June 19, 1992, by and among CV Reit Cenvill Development Corp. and certain subsidiaries and affiliates thereof. (Incorporated by reference to Exhibit (10)(xiv) to the Annual Report on Form 10-K of the CV Reit for the fiscal year ended December 31, 1992.) 10.8 Order granting Motion of Debtor's [sic] for Approval of Sale of Assets dated July 17, 1992. (Incorporated by reference to Exhibit (10)(xv) to the Annual Report on Form 10-K of CV Reit for the fiscal year ended December 31, 1992.) 10.9 Consulting and Advisory Agreement, dated July 31, 1992, between CV Reit and Hilcoast Development Corp. (Incorporated by reference to Exhibit (10)(xviii) to the Annual Report on Form 10-K of CV Reit for the fiscal year ended December 31, 1992.) 10.10 Letter Agreements, dated July 11, 1994 and August 3, 1995, between CV Reit and Hilcoast Advisory Services, Inc. extending the Consulting and Advisory Agreement to July 31, 1995 and July 31, 1996, respectively. (Incorporated by reference to Exhibit 10(vi) to the Quarterly Report on Form 10-Q of CV Reit for the quarter ended September 30, 1995.) 10.11 Letter Agreement, dated July 12, 1996, between CV Reit and Hilcoast Advisory Services, Inc. extending the Consulting and Advisory Agreement to July 31, 1997. (Incorporated by reference to Exhibit 10(i) to the Quarterly Report on Form 10-Q of CV Reit for the quarter ended September 30, 1996.) 10.12 Letter agreement, dated June 10, 1997, between CV Reit and Hilcoast Advisory Services, Inc. extending the Consulting and Advisory Agreement to December 31, 1997. (Incorporated by reference to Exhibit 10(i) to the Quarterly Report on Form 10-Q of CV Reit for the quarter ended June 30,1997.) 10.13 Definitive Master Agreement, dated September 19, 1997, among CV Reit, Montgomery CV Realty Trust, and Drexel Realty, Inc., Royce Realty, Inc., Louis P. Meshon, Sr. and certain of the Meshon Parties named therein and the Levy Parties named therein. (Incorporated by reference to Appendix A to CV Reit's proxy statement filed on November 11, 1997.) 10.14 Supplemental Indenture No. 2 for Collateralized Mortgage Obligations, dated as of December 30, 1997 between Recreation Mortgages, L.P., (Issuer) and Bankers Trust Company (Trustee). (Incorporated by reference to the Annual Report on Form 10-K of CV Reit for fiscal year ended December 31, 1997.) 10.15 Real Estate Purchase Agreement dated September 29, 1997 by and between Newtown Village Partnership and RCEK, Inc., or its nominee or assignee. (Incorporated by reference to Exhibit 2.1 to the current report on Form 8-K filed by CV Reit on April 14, 1998.) 54 10.16 Letter Amendment to Real Estate Purchase Agreement dated December 15, 1997 by and between Newtown Village Partnership and RCEK, Inc. (Incorporated by reference to Exhibit 2.2 to the current report on Form 8-K filed by CV Reit on April 14, 1998.) 10.17 Assignment of Real Estate Purchase Agreement dated January 26, 1998 from RCEK, Inc. to Newtown Village Plaza Associates, L.P. (Incorporated by reference to Exhibit 2.3 to the current report on Form 8-K filed by CV Reit on April 14, 1998.) 10.18 Second Amendment to Real Estate Purchase Agreement dated February 5, 1998 by and between Newtown Village Partnership and Newtown Village Plaza Associates, L.P. (Incorporated by reference to Exhibit 2.4 to the current report on Form 8-K filed by CV Reit on April 14, 1998.) 10.19 Third Amendment to Real Estate Purchase Agreement dated March 31, 1998 by and between Newtown Village Partnership and Newtown Village Plaza Associates, L.P. (Incorporated by reference to Exhibit 2.5 to the current report on Form 8-K filed by CV Reit on April 14, 1998.) 10.20 Loan and Credit Facility Agreement dated as of March 31, 1998 by and between Montgomery CV Realty L.P. as Borrower, Century Plaza Associates, L.P. and CV Reit, Inc., as guarantors, and GMAC Commercial Mortgage Corporation, as Lender. (Incorporated by reference to Exhibit 5.1 to the current report on Form 8-K filed by CV Reit on April 15, 1998.) 10.21 $7,650,000 Promissory Note dated as of April 9, 1998 from Montgomery CV Realty L.P. to GMAC Commercial Mortgage Corporation. (Incorporated by reference to Exhibit 5.2 to the current report on Form 8-K filed by CV Reit on April 15, 1998.) 10.22 Mortgage and Security Agreement dated as of April 9, 1998 by Century Plaza Associates, L.P. to GMAC Commercial Mortgage Corporation. (Incorporated by reference to Exhibit 5.3 to the current report on Form 8-K filed by CV Reit on April 15, 1998.) 10.23 Guaranty and Suretyship Agreement dated as of April 9, 1998 by CV Reit to GMAC Commercial Mortgage Corporation. (Incorporated by reference to Exhibit 5.4 to the current report on Form 8-K filed by CV Reit on April 15, 1998.) 10.24 Contribution Agreement dated May 29, 1998 by and between Marlton Crossing Shopping Center Limited Partnership and Montgomery CV Realty L.P. (Incorporated by reference to Exhibit 2.1 to the current report on Form 8-K dated June 24, 1998, filed by CV Reit on July 7, 1998.) 10.25 Assignment and Assumption of Contribution Agreement dated June 22, 1998 by and between Montgomery CV Realty L.P. and Marlton Plaza Associates II, L.P. (Incorporated by reference to Exhibit 2.2 to the current report on Form 8-K dated June 24, 1998 filed by CV Reit on July 7, 1998.) 10.26 Mortgage and Security Agreement dated as of June 24, 1998 by and between Marlton Plaza Associates II, L.P., as Borrower, and GMAC Commercial Mortgage Corporation, as Lender. (Incorporated by reference to Exhibit 2.3 to the current report on Form 8-K dated June 24, 1998, filed by CV Reit on July 7, 1998.) 10.27 $11,650,000 Promissory Note dated as of June 24, 1998 from Marlton Plaza Associates II, L.P. to GMAC Commercial Mortgage Corporation. (Incorporated by reference to Exhibit 2.4 to the current report on Form 8-K dated June 24, 1998, filed by CV Reit on July 7, 1998.) 10.28 Real Estate Purchase Agreement dated January 27, 1998 by and between Seller and Purchaser. (Incorporated by reference to Exhibit 2.1 to the current report on Form 8-K dated June 25, 1998, filed by CV Reit on July 7, 1998.) 55 10.29 Amendment to Real Estate Purchaser Agreement dated February 26, 1998 by and between Seller and Purchaser. (Incorporated by reference to Exhibit 2.2 to the current report on Form 8-K dated June 25, 1998, filed by CV Reit on July 7, 1998.) 10.30 Second Amendment to Real Estate Purchase Agreement dated March 31, 1998 by and between Seller and Purchaser. (Incorporated by reference to Exhibit 2.3 to the current report on Form 8-K dated June 25, 1998, filed by CV Reit on July 7, 1998.) 10.31 Mortgage and Security Agreement dated as of June 25, 1998 by and between Marlton Plaza Associates, L.P., as Borrower, and GMAC Commercial Mortgage Corporation, as Lender. (Incorporated by reference to Exhibit 2.4 to the current report on Form 8-K dated June 25, 1998, filed by CV Reit on July 7, 1998.) 10.32 $9,300,000 Promissory Note dated as of June 25, 1998 from Marlton Plaza Associates, L.P. to GMAC Commercial Mortgage Corporation. (Incorporated by reference to Exhibit 2.5 to the current report on Form 8-K dated June 25, 1998, filed by CV Reit on July 7, 1998.) 10.33 Guaranty and Suretyship Agreement dated as of June 25, 1998 by CV Reit to GMAC Commercial Mortgage Corporation. (Incorporated by reference to Exhibit 2.6 to the current report on Form 8-K dated June 25, 1998, filed by CV Reit on July 7, 1998.) 10.34 Guaranty and Suretyship Agreement dated as of June 25, 1998 by Montgomery CV Realty L.P. to GMAC Commercial Mortgage Corporation. (Incorporated by reference to Exhibit 2.7 to the current report on Form 8-K dated June 25, 1998, filed by CV Reit on July 7, 1998.) 10.35 Second Amendment to Loan and Credit Facility Agreement dated as of March 8, 1999, by and between Montgomery CV Realty, L.P. as Borrower, Century Plaza Associates, L.P. and CV Reit, as Guarantors, and GMAC Commercial Mortgage Corporation as Lender. (Incorporated by reference to Exhibit 10.36 Annual Report on Form 10-K dated December 31, 1998 by CV Reit on March 29, 1999.) 10.36 $18,500,000 Note dated March 8, 1999 between Montgomery CV Realty, L.P. as Borrower and GMAC Commercial Mortgage Corporation as Lender. (Incorporated by reference to Exhibit 10.37 Annual Report on Form 10-K dated December 31, 1998 by CV Reit on March 29, 1999.) 10.37 Collateral, Pledge, Assignment and Security Agreement, dated March 8, 1999 between Montgomery CV Realty, L.P. and GMAC Commercial Mortgage Corporation. (Incorporated by reference to Exhibit 10.38 Annual Report on Form 10-K dated December 31, 1998 by CV Reit on March 29, 1999.) 10.38 Agreement of Sale dated January 21, 1999 by and between Lakewood-9 Investors, L.P. and ARC-Lakewood 9, L.L.C Montgomery CV Realty L.P. (Incorporated by reference to Exhibit 10.38 Annual Report on Form 10-K of CV Reit for the fiscal year ended December 31, 1998.) 10.39 Reinstatement and Amendment Agreement of Sale dated February 5, 1999 by and between Lakewood-9 Investors, L.P. and ARC-Lakewood-9, L.L.C. Montgomery CV Realty L.P. (Incorporated by reference to Exhibit 2.2 to the current report on Form 8-K dated March 31, 1999, filed by CV Reit on April 7, 1999.) 10.40 Assignment of Agreement of Sale dated March 17, 1999 from Montgomery CV Realty L.P. to Lakewood Plaza 9 Associates, L.P. (Incorporated by reference to Exhibit 2.3 to the current report on Form 8-K dated March 31, 1999, filed by CV Reit on April 7, 1999.) 10.41 * Kranzco Realty Trust 1992 Employees Share Option Plan, as amended. (Incorporated by reference to Exhibit 10.10 of Kranzco's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.) 10.42 * Kranzco Realty Trust 1992 Trustees Share Option Plan, as amended. (Incorporated by reference to Exhibit 10.11 of Kranzco's Annual Report on Form 10-K for the fiscal year ended December 31,1992.) 56 10.43 * Kranzco Realty Trust 1995 Incentive Plan. (Incorporated by reference to Exhibit 4.4 of Kranzco's Registration Statement on Form S-8 No. 33-94294.) 10.44 Trust and Servicing Agreement, dated as of June 18, 1996, among KRT Origination Corp., GE Capital Management Corporation and State Street Bank and Trust Company. (Incorporated by reference to Exhibit 10.43 of Kranzco's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 10.45 Cash Collateral Account, Security, Pledge and Assignment Agreement, dated as of June 18, 1996, among the Borrowers, State Street Bank and Trust Company, as Agent, and KRT Origination Corp., as Lender. (Incorporated by reference to Exhibit 10.44 to Kranzco's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 10.46 Cash Collateral Agreement, dated June 18, 1996, among the Borrowers, and State Street Bank and Trust Company, as Agent. (Incorporated by reference to Exhibit 10.45 to Kranzco's Annual Report on Form 10-K for the fiscal year ended December 31, 1996) 10.47 $123,700,000.00 Class A Mortgage Note dated June 18, 1996 made by the Borrowers in favor of KRT Origination Corp., as Lender. (Incorporated by reference to Exhibit 10.46 to Kranzco's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 10.48 $20,600,000.00 Class B Mortgage Note dated June 18, 1996 made by the Borrowers in favor of KRT Origination Corp., as Lender. (Incorporated by reference to Exhibit 10.47 to Kranzco's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 10.49 $28,900,000.00 Class C Mortgage Note dated June 18, 1996 made by the Borrowers in favor of KRT Origination Corp., as Lender. (Incorporated by reference to Exhibit 10.48 to Kranzco's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 10.50 $8,500,000.00 Class D Mortgage Note dated June 18, 1996 made by the Borrowers in favor of KRT Origination Corp., as Lender. (Incorporated by reference to Exhibit 10.49 to Kranzco's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 10.51 Form of Indenture of Mortgage, Deed of Trust, Security Agreement, Financing Statement, Fixture Filing and Assignment of Leases, Rents and Security Deposits made by the Borrowers, as grantor, for the benefit of KRT Origination Corp., as mortgagee, and filed in Connecticut, Maryland, New Jersey, New York and Pennsylvania with respect to Groton Square in Groton, Connecticut, Manchester Kmart in Manchester, Connecticut, Milford in Milford, Connecticut, Orange in Orange, Connecticut, Fox Run in Prince Frederick, Maryland, Hillcrest Plaza in Frederick, Maryland, Anneslie in Baltimore, Maryland, Suburban Plaza in Hamilton, New Jersey, Collegetown in Glassboro, New Jersey, Hillcrest Mall in Phillipsburg, New Jersey, The Mall at Cross County in Yonkers, New York, Highridge Plaza in Yonkers, New York, North Ridge in New Rochelle, New York, Village Square in Larchmont, New York, A&P Mamaroneck in Mamaroneck, New York, Port Washington in Port Washington, New York, Bethlehem in Bethlehem, Pennsylvania, Whitehall Square in Whitehall, , Pennsylvania, Bristol Commerce Park in Bristol, Pennsylvania, Park Hills Plaza in Altoona, Pennsylvania, Barn Plaza in Doylestown, Pennsylvania, Best Plaza in Tredyffrin, Pennsylvania, Bensalem Square in Bensalem, Pennsylvania, Street Road in Bensalem, Pennsylvania, Pilgrim Gardens in Drexel Hill, Pennsylvania, 69th Street Plaza in Upper Darby, Pennsylvania and MacArthur Road in Whitehall, Pennsylvania (the "Properties"). (Incorporated by reference to Exhibit 10.50 to Kranzco's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 10.52 Form of Unrecorded Indenture of Mortgage, Deed of Trust, Security Agreement, Financing Statement, Fixture Filing and Assignment of Leases, Rents and Security Deposits made by the Borrowers, as grantor, for the benefit of KRT Origination Corp., and held in escrow with respect to the Properties located in Maryland and in New York. (Incorporated by reference to Exhibit 10.51 to Kranzco's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 10.53 Escrow Agreement made among KRT Origination Corp., the Borrowers and Robinson Silverman Pearce Aronsohn & Berman LLP, as escrow agent, with respect to the unrecorded second 57 mortgages covering the Properties located in New York and Maryland. (Incorporated by reference to Exhibit 10.52 to Kranzco's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 10.54 Agreement dated October 30, 1997 between Kranzco and GP Development Corporation. (Incorporated by reference to Exhibit 2.1 of Kranzco's current report on Form 8-K dated November 25, 1997.) 10.55 Agreement and Plan of Merger dated October 30, 1997 between Kranzco, GP Development Corporation, the shareholders of GP Development Corporation and KR Atlanta, Inc. (Incorporated by reference to Exhibit 2.2 of Kranzco's current report on Form 8-K dated November 25, 1997.) 10.56 Mortgage Note for $6,700,000.00, dated as of October 5, 1990, from Holcomb Bridge Partners, L.P., a Georgia limited partnership ("Holcomb"), in favor of Allstate Life Insurance Company ("Allstate") (relating to Holcomb Bridge Crossing). (Incorporated by reference to Exhibit 2.3 of Kranzco's current report on Form 8-K dated November 25, 1997.) 10.57 Modification of Mortgage Note, dated as of October 31, 1995, between Holcomb and Harris Trust and Savings Bank ("Harris Trust") (relating to Holcomb Bridge Crossing). (Incorporated by reference to Exhibit 2.4 of Kranzco's current report on Form 8-K dated November 25, 1997.) 10.58 Deed to Secure Debt, Assignment of Leases, Rents and Contracts, Security Agreement and Fixture Filing ("Deed to Secure Debt") from Holcomb to Allstate, dated as of October 5, 1990 (relating to Holcomb Bridge Crossing). (Incorporated by reference to Exhibit 2.5 of Kranzco's current report on Form 8-K dated November 25, 1997.) 10.59 Modification of Deed to Secure Debt between Holcomb and Harris Trust, dated as of October 31, 1995 (relating to Holcomb Bridge Crossing). (Incorporated by reference to Exhibit 2.6 of Kranzco's current report on Form 8-K dated November 25, 1997.) 10.60 Real Estate Note for $3,725,000.00, dated as of August 6, 1987, from West Stewarts Mill Associates, Ltd., a Georgia limited partnership ("West Stewarts"), in favor of Confederation Life Insurance Company, a mutual insurance company incorporated in Canada ("Confederation"), first amendment thereto dated as of November 27, 1987, second amendment thereto dated as of November 1, 1993, third amendment thereto dated as of November 1, 1993 and fourth amendment thereto dated as of February 21, 1995 (relating to Park Plaza). (Incorporated by reference to Exhibit 2.7 of Kranzco's current report on Form 8-K dated November 25, 1997.) 10.61 Deed to Secure Debt and Security Agreement between West Stewarts and Confederation, dated as of August 6, 1987, first amendment thereto dated as of November 27, 1987 and second amendment thereto dated as of November 1, 1993 (relating to Park Plaza). (Incorporated by reference to Exhibit 2.8 of Kranzco's current report on Form 8-K dated November 25, 1997.) 10.62 Escrow Agreement, dated as of November 1, 1993, between Confederation and West Stewarts. (Incorporated by reference to Exhibit 2.9 of Kranzco's current report on Form 8-K dated November 25, 1997.) 10.63 Promissory Note for $10,670,000.00, dated as of July 31, 1996, from Mableton Village Associates, L.L.C., a Georgia limited liability company ("Mableton Village"), in favor of Lehman Brothers Holdings, Inc. d/b/a Lehman Capital ("Lehman") (relating to The Village at Mableton). (Incorporated by reference to Exhibit 2.10 of Kranzco's current report on Form 8-K dated November 25, 1997.) 10.64 Deed to Secure Debt and Security Agreement, dated as of July 31, 1996, between Mableton Village and Lehman (relating to The Village at Mableton). (Incorporated by reference to Exhibit 2.11 of Kranzco's current report on Form 8-K dated November 25, 1997.) 10.65 Sales Contract dated June 26, 1998 by and among Kranzco and Europco Property Investors II, Ltd., a Georgia limited partnership; Europco Property Investors III, Ltd., a Georgia limited partnership; Europco Property Investors IV, Ltd., a Georgia limited partnership; Secured 58 Properties Investors V, L.P., a Georgia limited partnership; Secured Properties Investors VIII, L.P., a Georgia limited partnership; Secured Properties Investors IX, L.P. a Georgia limited partnership; and Tifton Partners, L.P., a Georgia limited partnership. (Incorporated by reference to Exhibit 2.1 of Kranzco's current report on Form 8-K dated June 26, 1998, filed July 16, 1998.) 10.66 Fixed Rate Note, dated September 29, 1998, made by the Borrowers named therein in favor of Salomon Brothers Realty Corp. (Incorporated by reference to Exhibit 10.38 of Kranzco's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.) 10.67 Guaranty, dated as of September 29, 1998, made by Kranzco, for the benefit of Salomon Brothers Realty Corp. (Incorporated by reference to Exhibit 10.39 of Kranzco's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.) 10.68 Form of Mortgage/Deed of Trust/Deed to secure Debt and Security Agreement, dated September 29, 1998, made by the Borrowers named therein for the benefit of Salomon Brothers Realty Corp. and filed in Florida, Georgia, Ohio, Tennessee, and Virginia with respect to Village Oaks, Pensacola, Florida; Vidalia Wal-Mart Center, Vidalia, Georgia; Summerville Wal-Mart Center, Summerville, Georgia; Tifton Corners, Tifton, Georgia; Douglasville Crossing, Douglasville, Georgia; Snellville Oaks, Snellville, Georgia; Pickaway Crossing, Circleville, Ohio; Meeting Square, Jefferson City, Tennessee; and Statler Crossing, Staunton, Virginia. (Incorporated by reference to Exhibit 10.40 of Kranzco's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.) 10.69 Unit Contribution Agreement among Kramont, Montgomery CV Realty L.P., Kramont Operating Partnership, L.P., CV Partner Holdings, L.P. and CV GP LP, dated as of March 28, 2000. (Incorporated by reference to Exhibit 10.3 of the Company's Registration Statement on Form S-4 filed with the Commission on April 10, 2000 (File No. 333-34482)). 10.70 * Kramont Realty Trust 2000 Incentive Plan. (Incorporated by reference from Appendix F to the Joint Proxy Statement/Prospectus contained in the Company's Registration Statement on Form S-4 filed with the Commission on April 10, 2000 (File No. 333-34482)). 10.71 Amended and Restated Agreement of Limited Partnership of Kramont Operating Partnership, L.P., dated as of June 16, 2000. (Incorporated by reference to Exhibit 10.1 of the Company's Registration Statement on Form S-4 filed with the Commission on April 10, 2000 (File No. 333-34482)). 10.72 Second Amended and Restated Agreement of Limited Partnership of Montgomery CV Realty L.P., dated as of June 16, 2000. (Incorporated by reference to Exhibit 10.2 of the Company's Registration Statement on Form S-4 filed with the Commission on April 10, 2000 (File No. 333-34482)). 10.73 * Employment Agreement between the Company and Louis P. Meshon, Sr. dated as of June 16, 2000. (Incorporated by reference from Exhibit M to the Joint Proxy Statement/Prospectus contained in the Company's Registration Statement on Form S-4 filed with the Commission on April 10, 2000 (File No. 333-34482)). 10.74 * Employment Agreement between the Company and Norman M. Kranzdorf dated as of June 16, 2000. (Incorporated by reference from Exhibit L to the Joint Proxy Statement/Prospectus contained in the Company's Registration Statement on Form S-4 filed with the Commission on April 10, 2000 (File No. 333-34482)). 10.74A * Termination Agreement between the Company and Norman M. Kranzdorf dated as of July 14, 2003. (Incorporated by reference to Exhibit 99.1 of the Company's Current Report on Form 8-K, filed with the Commission on July 14, 2003.) 10.75 Amended and Restated Loan and Credit Facility Agreement dated as of August 1, 2000 by and between the Company, Kramont Operating Partnership, L.P., Montgomery CV Realty L.P., Century Plaza Associates, L.P., Marlton Plaza Associates, L.P., Lakewood Plaza 9 Associates, L.P., Cherry Square MCV Associates, L.P., KR Bainbridge LLC, KR Barn, L.P., KR Bradford 59 Mall, L.P., Lilac DE LLC, Culpeper Shopping Center Joint Venture, KRT Union LLC, KR Harrodsburg LLC, KR Morganton LLC, KR Tower Plaza LLC, KR Development, L.P. and KR Wampanoag, as borrowers, and GMAC Commercial Mortgage Corporation, as lender (incorporated by reference to Exhibit 5.1 to the Company's Current Report on Form 8-K, dated August 10, 2001). 10.76 Form of Guaranty of Recourse Obligations of Borrower by the Company, Kramont Operating Partnership, L.P., Montgomery CV Realty L.P. (incorporated by reference to Exhibit 5.2 to the Company's Current Report on Form 8-K, dated August 10, 2001) 10.77 * Employment Agreement between the Company and George S. Demuth dated as of June 16, 2000. (Incorporated by reference to Exhibit 10.77 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002.) 10.78 * Employment Agreement between the Company and Etta M. Strehle dated as of June 16, 2000. (Incorporated by reference to Exhibit 10.78 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002.) 10.79 * Employment Agreement between the Company and Carl. E. Kraus dated as of March 21, 2002. (Incorporated by reference to Exhibit 10.79 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002.) 10.80 $190,000,000 Mortgage Loan Application dated October 22, 2002 by and between Kramont Operating Partnership, L.P., as applicant, and Metropolitan Life Insurance Company, as lender. (Incorporated by reference to Exhibit 10.80 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002.) 10.81 Loan Agreement dated as of December 20, 2002 by and between Kramont Operating Partnership, L.P., as borrower, Fleet National Bank, Wilmington Trust of Pennsylvania, Wachovia Bank National Association, Compass Bank, Firstrust Bank, as lenders, and Fleet National Bank, as administrative agent (incorporated by reference to Exhibit 5.1 to the Company's Current Report on Form 8-K, dated December 30, 2002). 10.82 $190,000,000 Mortgage Loan Agreement dated June 16, 2003 between the Company and Metropolitan Life Insurance Company. 10.83* Kramont Realty Trust Executive Officer Stock Option Plan (Formerly the Montgomery CV Trust Executive Officer Stock Option Plan). 10.84* Kramont Realty Trust 1997 Stock Option Plan (Formerly the Drexel Realty Inc. 1997 Stock Option Plan). 10.85* Kramont Realty Trust Non-Employee Director 1998 Stock Option Plan (Formerly the CV Reit, Inc. Non-Employee Director 1998 Stock Option Plan). 10.86* Second Amendment to Employment Agreement between the Company and Carl. E. Kraus dated as of July 1, 2003. 10.87* Second Amendment to Employment Agreement between the Company and George S. Demuth dated as of July 1, 2003. 10.88* Third Amendment to Employment Agreement between the Company and Etta M. Strehle dated as of July 1, 2003. 11 Statement regarding computation of per share earnings. Omitted; computation can be clearly determined from material contained in the report. 21 Subsidiaries of the Company. 23.1 Consent of BDO Seidman, LLP. 60 31.1 Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * Management contract or compensatory plan or arrangement. 61 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KRAMONT REALTY TRUST March 15, 2004 /s/ Louis P. Meshon, Sr. By: ________________________________________ Louis P. Meshon, Sr., President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. March 15, 2004 /s/ H. Irwin Levy -------------------------------------------- H. Irwin Levy, Chairman of the Board and Trustee March 15, 2004 /s/ Louis P. Meshon, Sr. -------------------------------------------- Louis P. Meshon, Sr., President, Chief Executive Officer and Trustee (principal executive officer) March 15, 2004 /s/ Carl E. Kraus -------------------------------------------- Carl E. Kraus, Chief Financial Officer, Chief Investment Officer, and Treasurer (principal financial officer) March 15, 2004 /s/ George S. Demuth -------------------------------------------- George S. Demuth, Chief Operating Officer and Executive Vice President March 15, 2004 /s/ Etta M. Strehle -------------------------------------------- Etta M. Strehle, Chief Accounting Officer March 15, 2004 /s/ Bernard J. Korman -------------------------------------------- Bernard J. Korman, Trustee March 15, 2004 /s/ Norman M. Kranzdorf -------------------------------------------- Norman M. Kranzdorf, Trustee March 15, 2004 /s/ Milton S. Schneider -------------------------------------------- Milton S. Schneider, Trustee March 15, 2004 /s/ E. Donald Shapiro -------------------------------------------- E. Donald Shapiro, Trustee 62 March 15, 2004 /s/ Alan L. Shulman -------------------------------------------- Alan L. Shulman, Trustee 63 EX-10.82 3 w95171exv10w82.txt $190,000,000 MORTGAGE LOAN AGREEMENT EXHIBIT 10.82 LOAN AGREEMENT $190,000,000 PORTFOLIO OF MORTGAGE LOANS BY METROPOLITAN LIFE INSURANCE COMPANY LENDER TO KRT PROPERTY HOLDINGS LLC LILAC DE LLC KR COLLEGETOWN LLC FOX RUN, LIMITED PARTNERSHIP KR STREET ASSOCIATES, L.P. KRAMONT OPERATING PARTNERSHIP, L.P. KR BARN, L.P. KR BEST ASSOCIATES, L.P. AND KR DEVELOPMENT, L.P. COLLECTIVELY, BORROWER Dated: As of June 16, 2003 LOAN AGREEMENT THIS LOAN AGREEMENT is made as of this 16 day of June, 2003 by KRT PROPERTY HOLDINGS LLC, a Delaware limited liability company ("KRT"), LILAC DE LLC , a Delaware limited liability company ("LILAC"), KR COLLEGETOWN LLC, a Delaware limited liability company ("COLLEGETOWN"), FOX RUN, LIMITED PARTNERSHIP, a Alabama limited partnership ("FOX RUN"); KR STREET ASSOCIATES, L.P., a Pennsylvania limited partnership ("STREET"); KRAMONT OPERATING PARTNERSHIP, L.P., a Delaware limited partnership ("KRAMONT"), KR BARN, L.P., a Pennsylvania limited partnership ("BARN"), KR BEST ASSOCIATES, L.P., a Pennsylvania limited partnership ("BEST") and KR DEVELOPMENT, L.P., a Pennsylvania limited partnership ("DEVELOPMENT"; and together with KRT, Lilac, Collegetown, Fox Run, Street, Kramont, Barn, Best and Development, individually, a "BORROWER" and collectively the "BORROWER"), as borrower, and METROPOLITAN LIFE INSURANCE COMPANY, a New York corporation (together with its successors and assigns, "LENDER"), as lender. RECITALS Borrowers have requested that Lender make certain loans to Borrowers in the aggregate principal amount of $190,000,000.00. Lender is willing to make such loan to Borrowers on the terms and conditions set forth in this Loan Agreement. NOW, THEREFORE, in consideration of such loan and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, Borrower and Lender agree as follows: ARTICLE 1 DEFINED TERMS 1.01 Defined Terms. For this Agreement, the following terms shall have the meanings hereinafter set forth. "$10.5 MILLION LOAN" means that certain loan in the amount of $10,500,000.00 made by Lender to Best and Development on the date hereof. "$10.5 MILLION LOAN MORTGAGE." means that certain Fee and Leasehold Mortgage, Security Agreement and Fixture Filing dated as of the Execution Date made by Best and Development for the benefit of Lender in the original principal amount of $190,000,000.00, to secure repayment of the Obligations (as defined therein) consisting of the $10.5 Million Note and the performance by Best and Development under the $10.5 Million Payment Guaranty, together with all extensions, renewals, modifications, restatements and amendments thereof, which $10.5 Million Loan Mortgage encumbers Best's fee interest and Development's leasehold interest in the Valley Fair Property. "$10.5 MILLION NOTE" means that certain Promissory Note dated as of the Execution Date in the original principal amount of $10,500,000.00 made by Best and Development to the order of Lender, evidencing the $10.5 Million Loan, "$10.5 MILLION PAYMENT GUARANTY" means that certain Guaranty Agreement dated as of the Execution Date made by Best and Development in connection with the $10.5 Million Loan, pursuant to which Best and Development guarantee to Lender the payment by the other Borrowers of the indebtedness evidenced by the other Notes. "$13.1 MILLION LOAN" means that certain loan in the amount of $13,100,000.00 made by Lender to KRT on the date hereof. "$13.1 MILLION LOAN MORTGAGE" means that certain Mortgage, Security Agreement and Fixture Filing dated as of the Execution Date made by KRT for the benefit of Lender in the original principal amount of $190,000,000.00, to secure repayment of the Obligations (as defined therein) consisting of the $13.1 Million Note and the repayment of the $14.8 Million Note (Commerce Circle), the $14.8 Million Note (Groton Square), the $17.5 Million Note, the $18.2 Million Note, the $19.3 Million Note, $2.1 Million Note, the $30.5 Million Note, the $4.9 Million Note, the $5.6 Million Note and the $8.8 Million Note and the performance by KRT under the $13.1 Million Payment Guaranty, together with all extensions, renewals, modifications, restatements and amendments thereof, which $13.1 Million Loan Mortgage encumbers KRT's fee interest in the Park Hills Plaza Property. "$13.1 MILLION NOTE" means that certain Promissory Note dated as of the Execution Date in the original principal amount of $13,100,000.00 made by KRT to the order of Lender, evidencing the $13.1 Million Loan. "$13.1 MILLION PAYMENT GUARANTY" means that certain Guaranty Agreement dated as of the Execution Date made by KRT in connection with the $13.1 Million Loan, pursuant to which KRT guarantees to Lender the payment by Best, Development, Collegetown, Fox Run and Street of the indebtedness evidenced by their respective Notes. "$14.8 MILLION LOAN (COMMERCE CIRCLE)" means that certain loan in the amount of $14,800,000.00 made by Lender to KRT on the date hereof. "$14.8 MILLION LOAN (COMMERCE CIRCLE) MORTGAGE" means that certain Mortgage, Security Agreement and Fixture Filing dated as of the Execution Date made by KRT for the benefit of Lender in the original principal amount of $190,000,000.00, to secure repayment of the Obligations (as defined therein) consisting of the $14.8 Million Note (Commerce Circle) and the repayment of the $13.1 Million Note, the $14.8 Million Note (Groton Square), the $17.5 Million Note, the $18.2 Million Note, the $19.3 Million Note, $2.1 Million Note, the $30.5 Million Note, the $4.9 Million Note, the $5.6 Million Note and the $8.8 Million Note and the performance by KRT under the $14.8 Million Payment Guaranty (Commerce Circle), together with all extensions, renewals, modifications, restatements and amendments thereof, which $14.8 Million Loan (Commerce Circle) Mortgage encumbers KRT's fee interest in the Bristol Commerce Park Property. -2- "$14.8 MILLION NOTE (COMMERCE CIRCLE)" means that certain Promissory Note dated as of the Execution Date in the original principal amount of $14,800,000.00 made by KRT to the order of Lender, evidencing the $14.8 Million Loan (Commerce Circle). "S14.8 MILLION PAYMENT GUARANTY (COMMERCE CIRCLE)" means that certain Guaranty Agreement dated as of the Execution Date made by KRT in connection with the $14.8 Million Loan (Commerce Circle), pursuant to which KRT guarantees to Lender the payment by Best, Development, Collegetown, Fox Run and Street of the indebtedness evidenced by their respective Notes. "$14.8 MILLION LOAN (GROTON SQUARE)" means that certain loan in the amount of $14,800,000.00 made by Lender to KRT on the date hereof. "$14.8 MILLION LOAN (GROTON SQUARE) MORTGAGE" means that certain Mortgage, Security Agreement and Fixture Filing dated as of the Execution Date made by KRT for the benefit of Lender in the original principal amount of $190,000,000.00, to secure repayment of the Obligations (as defined therein) consisting of the $14.8 Million Note (Groton Square) and the repayment of the $13.1 Million Note, the $14.8 Million Note (Commerce Circle), the $17.5 Million Note, the $18.2 Million Note, the $19.3 Million Note, $2.1 Million Note, the $30.5 Million Note, the $4.9 Million Note, the $5.6 Million Note and the $8.8 Million Note and the performance by KRT under the $14.8 Million Payment Guaranty (Groton Square), together with all extensions, renewals, modifications, restatements and amendments thereof, which $14.8 Million Loan (Groton Square) Mortgage encumbers KRT's fee interest in the Groton Square Property. "$14.8 MILLION NOTE (GROTON SQUARE)" means that certain Promissory Note dated as of the Execution Date in the original principal amount of $14,800,000.00 made by KRT to the order of Lender, evidencing the $14.8 Million Loan (Groton Square). "$14.8 MILLION PAYMENT GUARANTY (GROTON SQUARE)" means that certain Guaranty Agreement dated as of the Execution Date made by KRT in connection with the $14.8 Million Loan (Groton Square), pursuant to which KRT guarantees to Lender the payment by Best, Development, Collegetown, Fox Run and Street of the indebtedness evidenced by their respective Notes. "$16.7 MILLION LOAN" means that certain loan in the amount of $16,700,000,00 made by Lender to Fox Run on the date hereof. "$16.7 MILLION LOAN MORTGAGE" means that certain Consolidation, Amendment and Restatement Deed of Trust, Security Agreement and Fixture Filing dated as of the Execution Date made by Fox Run for the benefit of Lender in the original principal amount of $30,000,000.00, to secure repayment of the Obligations (as defined therein) consisting of the $16.7 Million Note and the performance by Fox Run under the $16.7 Million Payment Guaranty, together with all extensions, renewals, modifications, restatements and amendments thereof, which $16.7 Million Loan Mortgage encumbers Fox Run's fee interest in the Fox Run Property. -3- "$16.7 MILLION NOTE" means that certain Promissory Note dated as of the Execution Date in the original principal amount of $16,700,000.00 made by Fox Run to the order of Lender, evidencing the $16.7 Million Loan. "$16.7 MILLION PAYMENT GUARANTY" means that certain Guaranty Agreement dated as of the Execution Date made by Fox Run in connection with the $16.7 Million Loan, pursuant to which Fox Run guarantees to Lender the payment by the other Borrowers of the indebtedness evidenced by the other Notes. "$17.5 MILLION LOAN" means that certain loan in the amount of $17,500,000.00 made by Lender to KRT on the date hereof. "$17.5 MILLION LOAN MORTGAGE" means that certain Mortgage, Security Agreement and Fixture Filing dated as of the Execution Date made by KRT for the benefit of Lender in the original principal amount of $190,000,000.00, to secure repayment of the Obligations (as defined therein) consisting of the $17.5 Million Note and the repayment of the $13.1 Million Note, the $14.8 Million Note (Commerce Circle), the $14.8 Million Note (Groton Square), the $18.2 Million Note, the $19.3 Million Note, $2.1 Million Note, the $30.5 Million Note, the $4.9 Million Note, the $5.6 Million Note and the $8.8 Million Note and the performance by KRT under the $17.5 Million Payment Guaranty, together with all extensions, renewals, modifications, restatements and amendments thereof, which $17.5 Million Loan Mortgage encumbers KRT's fee interest in the Whitehall Square Property. "$17.5 MILLION NOTE" means that certain Promissory Note dated as of the Execution Date in the original principal amount of $17,500,000.00 made by KRT to the order of Lender, evidencing the $17.5 Million Loan. "$17.5 MILLION PAYMENT GUARANTY" means that certain Guaranty Agreement dated as of the Execution Date made by KRT in connection with the $17.5 Million Loan, pursuant to which KRT guarantees to Lender the payment by Best, Development, Collegetown, Fox Run and Street of the indebtedness evidenced by their respective Notes. "$18.2 MILLION LOAN" means that certain loan in the amount of $18,200,000.00 made by Lender to KRT, Kramont and Bam on the date hereof. "$18.2 MILLION LOAN MORTGAGE" means that certain Fee and Leasehold Mortgage, Security Agreement and Fixture Filing dated as of the Execution Date made by KRT, Kramont and Barn for the benefit of Lender in the original principal amount of $190,000,000.00, to secure repayment of the Obligations (as defined therein) consisting of the $18.2 Million Note and the repayment of the $13.1 Million Note, the $14.8 Million Note (Commerce Circle), the $14.8 Million Note (Groton Square), the $17.5 Million Note, the $19.3 Million Note, $2.1 Million Note, the $30.5 Million Note, the $4.9 Million Note, the $5.6 Million Note and the $8.8 Million Note and the performance by KRT, Kramont and Barn under the $18.2 Million Payment Guaranty, together with all extensions, renewals, modifications, restatements and amendments thereof, which $18.2 Million Loan Mortgage encumbers KRT's and Kramont's fee interest and Barn's leasehold interest in the Barn Plaza Property, -4- "$18.2 MILLION NOTE" means that certain Promissory Note dated as of the Execution Date in the original principal amount of $18,200,000.00 made by KRT, Kramont and Barn to the order of Lender, evidencing the $18.2 Million Loan. "$18.2 MILLION PAYMENT GUARANTY" means that certain Guaranty Agreement dated as of the Execution Date made by KRT, Kramont and Barn in connection with the $18.2 Million Loan, pursuant to which KRT, Kramont and Barn guarantee to Lender the payment by Best, Development, Collegetown, Fox Run and Street of the indebtedness evidenced by their respective Notes. "$19.3 MILLION LOAN" means that certain loan in the amount of $19,300,000.00 made by Lender to KRT on the date hereof. "$19.3 MILLION LOAN MORTGAGE" means that certain Mortgage, Security Agreement and Fixture Filing dated as of the Execution Date made by KRT for the benefit of Lender in the original principal amount of $190,000,000.00, to secure repayment of the Obligations (as defined therein) consisting of the $19.3 Million Note and the repayment of the $13.1 Million Note, the $14.8 Million Note (Commerce Circle), the $14.8 Million Note (Groton Square), the $17.5 Million Note, the $18.2 Million Note, $2.1 Million Note, the $30.5 Million Note, the $4.9 Million Note, the $5.6 Million Note and the $8.8 Million Note and the performance by KRT under the $19,3 Million Payment Guaranty, together with all extensions, renewals, modifications, restatements and amendments thereof, which $19.3 Million Loan Mortgage encumbers KRT's fee interest in the Bethlehem Square Property. "$9.3 MILLION NOTE" means that certain Promissory Note dated as of the Execution Date in the original principal amount of $19,300,000.00 made by KRT to the order of Lender, evidencing the $19.3 Million Loan. "$19.3 MILLION PAYMENT GUARANTY" means that certain Guaranty Agreement dated as of the Execution Date made by KRT in connection with the $19.3 Million Loan, pursuant to which KRT guarantees to Lender the payment by Best, Development, Collegetown, Fox Run and Street of the indebtedness evidenced by their respective Notes. "$2.1 MILLION LOAN" means that certain loan in the amount of $2,100,000.00 made by Lender to KRT on the date hereof. "$2.1 MILLION LOAN MORTGAGE" means collectively, (a) that certain Mortgage, Security Agreement and Fixture Filing dated as of the Execution Date made by KRT for the benefit of Lender in the original principal amount of $47,000,000.00, to secure repayment of the Obligations (as defined therein) consisting of the $2.1 Million Note and the repayment of the $30.5 Million Note, the $5.6 Million Note and the $8.8 Million Note and (b) that certain Mortgage, Security Agreement and Fixture Filing dated as of the Execution Date made by KRT for the benefit of Lender in the original principal amount of $13,000,000.00, to secure repayment of the $13.1 Million Note, the $14.8 Million Note (Commerce Circle), the $14.8 Million Note (Groton Square), the $17.5 Million Note, the $18.2 Million Note, the $19.3 Million Note and the $4.9 Million Note and the performance by KRT under the $2.1 Million Payment Guaranty, together with all extensions, renewals, modifications, restatements and amendments thereof, -5- which $2.1 Million Loan Mortgage encumbers KRT's fee interest in the Village Square Property. "$2.1 MILLION NOTE" means that certain Promissory Note dated as of the Execution Date in the original principal amount of $2,100,000.00 made by KRT to the order of Lender, evidencing the $2.1 Million Loan. "$2.1 MILLION PAYMENT GUARANTY" means that certain Guaranty Agreement dated as of the Execution Date made by KRT in connection with the $2.1 Million Loan, pursuant to which KRT guarantees to Lender the payment by Best, Development, Collegetown, Fox Run and Street of the indebtedness evidenced by their respective Notes. "$30.5 MILLION LOAN" means that certain loan in the amount of $30,500,000.00 made by Lender to KRT and Lilac on the date hereof: "$30.5 MILLION LOAN MORTGAGE" means, collectively (a) that certain Agreement of Spreader, Consolidation and Modification of Fee and Leasehold Mortgage, Security Agreement and Fixture Filing dated as of the Execution Date made by KRT and Lilac for the benefit of Lender in the original principal amount of $47,000,000.00, to secure repayment of the Obligations (as defined therein) consisting of the $30.5 Million Note and the repayment of the $2.1 Million Note, the $5.6 Million Note and the $8.8 Million Note, and (b) that certain Second Fee and Leasehold Mortgage, Security Agreement and Fixture Filing dated as of the Execution Date made by KRT and Lilac for the benefit of Lender in the original principal amount of $13,000,000.00, to secure repayment of the $13.1 Million Note, the $14.8 Million Note (Commerce Circle), the $14.8 Million Note (Groton Square), the $17.5 Million Note, the $18.2 Million Note, the $19.3 Million Note and the $4.9 Million Note and the performance by KRT and Lilac under the $30.5 Million Payment Guaranty, together with all extensions, renewals, modifications, restatements and amendments thereof, which $30.5 Million Loan Mortgage encumbers KRT's fee interest and Lilac's fee and leasehold interest in the Mall at Cross County Property. "$30.5 MILLION NOTE" means that certain Amended, Restated and Consolidated Promissory Note dated as of the Execution Date in the original principal amount of $30,500,000.00 made by KRT and Lilac to the order of Lender, evidencing the $30.5 Million Loan. "$30.5 MILLION PAYMENT GUARANTY" means that certain Guaranty Agreement dated as of the Execution Date made by KRT and Lilac in connection with the $30.5 Million Loan, pursuant to which KRT and Lilac guarantee to Lender the payment by Best, Development, Collegetown, Fox Run and Street of the indebtedness evidenced by their respective Notes. "$4.7 MILLION LOAN" means that certain loan in the amount of $4,700,000.00 made by Lender to Street on the date hereof. "$4.7 MILLION LOAN MORTGAGE" means that certain Mortgage, Security Agreement and Fixture Filing dated as of the Execution Date made by Street for the benefit of Lender in the original principal amount of $190,000,000.00, to secure repayment of the Obligations (as defined -6- therein) consisting of the $4.7 Million Note and the performance by Street under the $4.7 Million Payment Guaranty, together with all extensions, renewals, modifications, restatements and amendments thereof, which $4.7 Million Loan Mortgage encumbers Street's fee interest in the Street Road Plaza Property. "$4.7 MILLION NOTE" means that certain Promissory Note dated as of the Execution Date in the original principal amount of $4.700,000.00 made by Street to the order of Lender, evidencing the $4.7 Million Loan. "$4.7 MILLION PAYMENT GUARANTY" means that certain Guaranty Agreement dated as of the Execution Date made by Street in connection with the $4.7 Million Loan, pursuant to which Street guarantees to Lender the payment by the other Borrowers of the indebtedness evidenced by the other Notes. "$4.9 MILLION LOAN" means that certain loan in the amount of $4,900,000.00 made by Lender to KRT on the date hereof. "$4.9 MILLION LOAN MORTGAGE" means that certain Mortgage, Security Agreement and Fixture Filing dated as of the Execution Date made by KRT for the benefit of Lender in the original principal amount of $190,000,000.00, to secure repayment of the Obligations (as defined therein) consisting of the $4.9 Million Note and the repayment of the $13.1 Million Note, the $14.8 Million Note (Commerce Circle), the $14.8 Million Note (Groton Square), the $17.5 Million Note, the $18.2 Million Note, the $19.3 Million Note, $2.1 Million Note, the $30.5 Million Note, the $5.6 Million Note and the $8.8 Million Note and the performance by KRT under the $4.9 Million Payment Guaranty, together with all extensions, renewals, modifications, restatements and amendments thereof, which $4.9 Million Loan Mortgage encumbers KRT's fee interest in the Bensalem Square Property. "$4.9 MILLION NOTE" means that certain Promissory Note dated as of the Execution Date in the original principal amount of $4,900,000.00 made by KRT to the order of Lender, evidencing the $4.9 Million Loan. "$4.9 MILLION PAYMENT GUARANTY" means that certain Guaranty Agreement dated as of the Execution Date made by KRT in connection with the $4.9 Million Loan, pursuant to which KRT guarantees to Lender the payment by Best, Development, Collegetown, Fox Run and Street of the indebtedness evidenced by their respective Notes. "$5.6 MILLION LOAN" means that certain loan in the amount of $5,600,000.00 made by Lender to KRT on the date hereof. "$5.6 MILLION LOAN MORTGAGE" means, collectively, (a) that certain Mortgage, Security Agreement and Fixture Filing dated as of the Execution Date made by KRT for the benefit of Lender in the original principal amount of $47,000,000.00, to secure repayment of the Obligations (as defined therein) consisting of the $5.6 Million Note and the repayment of the $2.1 Million Note, the $30.5 Million Note and the $8.8 Million Note and (b) that certain Second Mortgage, Security Agreement and Fixture Filing dated as of the Execution Date made by KRT for the benefit of Lender in the original principal amount of $13,000,000.00, to secure repayment -7- of $13.1 Million Note, the $14.8 Million Note (Commerce Circle), the $14.8 Million Note (Groton Square), the $17.5 Million Note, the $18.2 Million Note, the $19.3 Million Note and the $4.9 Million Note and the performance by KRT under the $5.6 Million Payment Guaranty, together with all extensions, renewals, modifications, restatements and amendments thereof, which $5.6 Million Loan Mortgage encumbers KRT's fee interest in the North Ridge Plaza Property. "$5.6 MILLION NOTE" means that certain Amended, Restated and Consolidated Promissory Note dated as of the Execution Date in the original principal amount of $5,600,000.00 made by KRT to the order of Lender, evidencing the $5.6 Million Loan. "$5.6 MILLION PAYMENT GUARANTY" means that certain Guaranty Agreement dated as of the Execution Date made by KRT in connection with the $5.6 Million Loan, pursuant to which KRT guarantees to Lender the payment by Best, Development, Collegetown, Fox Run and Street of the indebtedness evidenced by their respective Notes. "$8.5 MILLION LOAN" means that certain loan in the amount of $8,500,000.00 made by Lender to Collegetown, "$8.5 MILLION LOAN MORTGAGE" means that certain Mortgage, Security Agreement and Fixture Filing dated as of the Execution Date made by Collegetown for the benefit of Lender in the original principal amount of $190,000,000.00, to secure repayment of the Obligations (as defined therein) consisting of the $8.5 Million Note and the performance by Collegetown under the $8.5 Million Payment Guaranty, together with all extensions, renewals, modifications, restatements and amendments thereof, which $8.5 Million Loan Mortgage encumbers Collegetown's fee interest in the Collegetown Shopping Center Property. "$8.5 MILLION NOTE" means that certain Promissory Note dated as of the Execution Date in the original principal amount of $8,500,000.00 made by Collegetown to the order of Lender, evidencing the $8.5 Million Loan. "$8.5 MILLION PAYMENT GUARANTY" means that certain Guaranty Agreement dated as of the Execution Date made by Collegetown in connection with the $8.5 Million Loan, pursuant to which Collegetown guarantees to Lender the payment by the other Borrowers of the indebtedness evidenced by the other Notes. "$8.8 MILLION LOAN" means that certain loan in the amount of $8,800,000.00 made by Lender to KRT. "$8.8 MILLION LOAN MORTGAGE" means (a) that certain Mortgage, Security Agreement and Fixture Filing dated as of the Execution Date made by KRT for the benefit of Lender in the original principal amount of $47,000,000.00, to secure repayment of the Obligations (as defined therein) consisting of the $8.8 Million Note and the repayment of the $2.1 Million Note, the $30.5 Million Note and the $5.6 Million Note and (b) that certain Second Mortgage, Security Agreement and Fixture Filing dated as of the Execution Date made by KRT for the benefit of Lender in the original principal amount of $13,000,000.00, to secure repayment of the $13.1 Million Note, the $14.8 Million Note (Commerce Circle), the $14.8 Million Note (Groton -8- Square), the $17.5 Million Note, the $18.2 Million Note, the $19.3 Million Note and the $4.9 Million Note and the performance by KRT under the $8.8 Million Payment Guaranty, together with all extensions, renewals, modifications, restatements and amendments thereof, which $8.8 Million Loan Mortgage encumbers KRT's fee interest in the High Ridge Plaza Property. "$8.8 MILLION NOTE" means that certain Amended, Restated and Consolidated Promissory Note dated as of the Execution Date in the original principal amount of $8,800,000,00 made by KRT to the order of Lender, evidencing the $8.8 Million Loan. "$8.8 MILLION PAYMENT GUARANTY" means that certain Guaranty Agreement dated as of the Execution Date made by KRT in connection with the $8.8 Million Loan, pursuant to which KRT guarantees to Lender the payment by Best, Development, Collegetown, Fox Run and Street of the indebtedness evidenced by their respective Notes. "ACCELERATED LOAN AMOUNT" has the meaning set forth in Section 2.07. "ADVANCE DATE" means the date on which the Loans are disbursed to Borrowers. "AGGREGATE NOTE INDEBTEDNESS" means, with respect to each Note, the amount defined therein as Aggregate Indebtedness. "AGGREGATE SECURED INDEBTEDNESS" means the aggregate amount of the unpaid principal sum evidenced by all of the Notes, all accrued and unpaid interest, and all other sums evidenced by the Notes or secured by the Mortgages and/or any other Loan Documents as well as any additional advances under the Mortgages that may be made to or on behalf of any Borrower by Lender following the Advance Date. "BARN" has the meaning set forth in the introductory paragraph of this Loan Agreement. "BARN PLAZA PROPERTY" means that certain shopping center located at 1745 South Easton Road, Doylestown, Pennsylvania. "BEST" has the meaning set forth in the introductory paragraph of this Loan Agreement. "BENSALEM SQUARE PROPERTY" means that certain shopping center located at Knights and Dunks Ferry Road, Bensalem, Pennsylvania. "BETHLEHEM SQUARE PROPERTY" means that certain shopping center located at 3926 Linden Street, Bethlehem, Pennsylvania. "BORROWER(s)" has the meaning set forth in the introductory paragraph of this Loan Agreement. "BRISTOL COMMERCE PARK PROPERTY" means that certain shopping center located at the southeast corner of Route 413 and Route 13, Bristol, Pennsylvania. -9- "BUSINESS DAY" or "BUSINESS DAY" means any day other than a Saturday, a Sunday, or days when federal banks located in the State of New York are closed for a legal holiday or by government directive. "COLLEGETOWN" has the meaning set forth in the introductory paragraph of this Loan Agreement. "COLLEGETOWN SHOPPING CENTER PROPERTY" means that certain shopping center located at Delsea Drive and Heston Road, Glassboro, New Jersey. "DEFAULT RATE" means the lesser of (i) an annual rate equal to the highest applicable Interest Rate plus four percent (4%), and (ii) the highest rate permitted under applicable law. "DEVELOPMENT" has the meaning set forth in the introductory paragraph of this Loan Agreement. "EXECUTION DATE" means the date hereof. "FOX RUN" has the meaning set forth in the introductory paragraph of this Loan Agreement. "FOX RUN PROPERTY" means that certain shopping center located at Route 2/4 Solomons Island Road, Prince Frederick, Maryland, "GROTON SQUARE PROPERTY" means that certain shopping center located at 220 Route 12, Groton, Connecticut. "HIGH RIDGE PLAZA PROPERTY" means that certain shopping center located at 1789 Central Park Avenue, Yonkers, New York. "IMPROVEMENTS" has the meaning set forth in the Mortgages. "INDEMNITY AGREEMENTS" means, collectively, (i) that certain Unsecured Indemnity Agreement dated as of the Execution Date and executed by Best, Development and Liable Parties in connection with the $10.5 Million Loan, (ii) that certain Unsecured Indemnity Agreement dated as of the Execution Date and executed by KRT and Liable Parties in connection with the $13.1 Million Loan, (iii) that certain Unsecured Indemnity Agreement dated as of the Execution Date and executed by KRT and Liable Parties in connection with $14.8 Million Loan (Commerce Circle), (iv) that certain Unsecured Indemnity Agreement dated as of the Execution Date and executed by KRT and Liable Parties in connection with the $14.8 Million Loan (Groton Square), (v) that certain Unsecured Indemnity Agreement dated as of the Execution Date and executed by Fox Run and Liable Parties in connection with the $16.7 Million Loan, (vi) that certain Unsecured Indemnity Agreement dated as of the Execution Date and executed by KRT and Liable Parties in connection with the $17.5 Million Loan, (vii) that certain Unsecured Indemnity Agreement dated as of the Execution Date and executed by KRT, Kramont, Barn and Liable Parties in connection with the $18.2 Million Loan, (viii) that certain Unsecured Indemnity Agreement dated as of the Execution Date and executed by KRT and Liable Parties in connection with the $19.3 Million Loan, (ix) that certain Unsecured Indemnity -10- Agreement dated as of the Execution Date and executed by KRT and Liable Parties in connection with $2.1 Million Loan, (x) that certain Unsecured Indemnity Agreement dated as of the Execution Date and executed by KRT, Lilac and Liable Parties in connection with the $30.5 Million Loan, (xi) that certain Unsecured Indemnity Agreement dated as of the Execution Date and executed by Street and Liable Parties in connection with the $4.7 Million Loan, (xii) that certain Unsecured Indemnity Agreement dated as of the Execution Date and executed by KRT and Liable Parties in connection with the $4.9 Million Loan, (xiii) that certain Unsecured Indemnity Agreement dated as of the Execution Date and executed by KRT and Liable Parties in connection with the $5.6 Million Loan, (xiv) that certain Unsecured Indemnity Agreement dated as of the Execution Date and executed by Collegetown and Liable Parties in connection with the $8.5 Million Loan, and (xv) that certain Unsecured Indemnity Agreement dated as of the Execution Date and executed by KRT and Liable Parties in connection with the $8.8 Million Loan "INTEREST RATE" means (i) with respect to the $13.1 Million Loan, the $14.8 Million Loan (Groton Square), the $16.7 Million Loan, the $17.5 Million Loan, the 19.3 Million Loan, $2.1 Million Loan, the $4.7 Million Loan, the $4.9 Million Loan, the $5.6 Million Loan, the $8.5 Million Loan and the $8.8 Million Loan, six and twenty-six hundredths percent (6.26%) per annum, and (ii) with respect to the $10.5 Million Loan, $14.8 Million Loan (Commerce Circle), the $18.2 Million Loan and the $30.5 Million Loan, five and nine-tenths percent (5.9%) per annum. "KRT" has the meaning set forth in the introductory paragraph of this Loan Agreement. "KRAMONT" has the meaning set forth in the introductory paragraph of this Loan Agreement. "LATE CHARGE" means an amount equal to four cents ($.04) for each dollar that is overdue. "LENDER" has the meaning set forth in the introductory paragraph of this Loan Agreement. "LIABLE PARTIES" means Kramont and the Trust. "LIABLE PARTIES GUARANTIES" means, collectively, (i) that certain Guaranty Agreement dated as of the Execution Date and executed by Liable Parties in connection with the $10.5 Million Loan, (ii) that certain Guaranty Agreement dated as of the Execution Date and executed by Liable Parties in connection with the $13.1 Million Loan, (iii) that certain Guaranty Agreement dated as of the Execution Date and executed by Liable Parties in connection with $14.8 Million Loan (Commerce Circle), (iv) that certain Guaranty Agreement dated as of the Execution Date and executed by Liable Parties in connection with the $14.8 Million Loan (Groton Square), (v) that certain Guaranty Agreement dated as of the Execution Date and executed by Liable Parties in connection with the $16.7 Million Loan, (vi) that certain Guaranty Agreement dated as of the Execution Date and executed by Liable Parties in connection with the $17.5 Million Loan, (vii) that certain Guaranty Agreement dated as of the Execution Date and executed by Liable Parties in connection with the $18.2 Million Loan, (viii) that certain Guaranty -11- Agreement dated as of the Execution Date and executed by Liable Parties in connection with the $19.3 Million Loan, (ix) that certain Guaranty Agreement dated as of the Execution Date and executed by Liable Parties in connection with $2.1 Million Loan, (x) that certain Guaranty Agreement dated as of the Execution Date and executed by Liable Parties in connection with the $30.5 Million Loan, (xi) that certain Guaranty Agreement dated as of the Execution Date and executed by Liable Parties in connection with the $4.7 Million Loan, (xii) that certain Guaranty Agreement dated as of the Execution Date and executed by Liable Parties in connection with the $4.9 Million Loan, (xiii) that certain Agreement dated as of the Execution Date and executed by Liable Parties in connection with the $5.6 Million Loan, (xiv) that certain Guaranty Agreement dated as of the Execution Date and executed by Liable Parties in connection with the $8.5 Million Loan, and (xv) that certain Guaranty Agreement dated as of the Execution Date and executed by Liable Parties in connection with the $8.8 Million Loan "LILAC" has the meaning set forth in the introductory paragraph of this Loan Agreement. "LOAN DOCUMENTS" means this Agreement, the Notes, the Mortgages, the Payment Guaranties and all other documents evidencing and/or securing the Loans, other than the Indemnity Agreements and the Liable Parties Guaranties. "LOAN(s)" means, individually any of, and collectively, all of the $10.5 Million Loan, the $13.1 Million Loan, $14.8 Million Loan (Commerce Circle), the $14.8 Million Loan (Groton Square), the $16.7 Million Loan, the $17.5 Million Loan, the $18.2 Million Loan, the $19.3 Million Loan, $2.1 Million Loan, the $30.5 Million Loan, the $4.7 Million Loan, the $4.9 Million Loan, the $5.6 Million Loan, the $8.5 Million Loan and the $8.8 Million Loan. "MALL AT CROSS COUNTY PROPERTY" means that certain shopping center located at 750 Central Park Avenue, Yonkers, New York. "MATURITY DATE" means June 30, 2013. "MONTHLY INTEREST ONLY INSTALLMENT" means, with respect to each Note, the Monthly Interest Only Installment set forth therein. "MONTHLY P&I INSTALLMENT" means, with respect to each Note, the Monthly P&I Installment set forth therein. "MORTGAGE(s)" means, individually any of, and collectively, all of the $10.5 Million Loan Mortgage, the $13.1 Million Loan Mortgage, $14.8 Million (Commerce Circle) Loan Mortgage, the $14.8 Million (Groton Square) Loan Mortgage, the $16.7 Million Loan Mortgage, the $17.5 Million Loan Mortgage, the $18.2 Million Loan Mortgage, the 19,3 Million Loan Mortgage, $2.1 Million Loan Mortgage, the $30.5 Million Loan Mortgage, the $4.7 Million Loan Mortgage, the $4.9 Million Loan Mortgage, the $5.6 Million Loan Mortgage, the $8.5 Million Loan Mortgage and the $8.8 Million Loan Mortgage. "NEW YORK MORTGAGES" means collectively, all of the $2.1 Million Loan Mortgage, the $30.5 Million Loan Mortgage, the $5.6 Million Loan Mortgage and the $8.8 Million Loan Mortgage. -12- "NORTH RIDGE PLAZA PROPERTY" means that certain shopping center located at 77 Quaker Ridge Road, New Rochelle, New York. "NOTE(s)" means, individually any of, and collectively, all of the $10.5 Million Note, the $13.1 Million Note, $14.8 Million Note (Commerce Circle), the $14.8 Million Note (Groton Square), the $16.7 Million Note, the $17.5 Million Note, the $18.2 Million Note, the 19.3 Million Note, $2.1 Million Note, the $30.5 Million Note, the $4.7 Million Note, the $4.9 Million Note, the $5.6 Million Note, the $8.5 Million Note and the $8.8 Million Note. "OFAC LIST" means the list of specially designated nationals and blocked persons subject to financial sanctions that is maintained by the U.S. Treasury Department, Office of Foreign Assets Control and any other similar list maintained by the U.S. Treasury Department, Office of Foreign Assets Control pursuant to any requirements of law, including, without limitation, trade embargo, economic sanctions, or other prohibitions imposed by Executive Order of the President of the United States. The OFAC List is accessible through the internet website www.treas.gov/ofac/tl lsdn.pdf. "PARK HILLS PLAZA PROPERLY" means that certain shopping center located at West Plank Road, Altoona, Pennsylvania. "PAYMENT GUARANTY(GUARANTIES)" means, individually any of, and collectively, all of the $10.5 Million Payment Guaranty, the $13.1 Million Payment Guaranty, $14.8 Million Payment Guaranty (Commerce Circle), the $14.8 Million Payment Guaranty (Groton Square), the $16.7 Million Payment Guaranty, the $17.5 Million Payment Guaranty, the $18.2 Million Payment Guaranty, the 19.3 Million Payment Guaranty, $2.1 Million Payment Guaranty, the $30.5 Million Payment Guaranty, the $4.7 Million Payment Guaranty, the $4.9 Million Payment Guaranty, the $5.6 Million Payment Guaranty, the $8.5 Million Payment Guaranty and the $8.8 Million Payment Guaranty. "PERSON" means an individual, partnership, limited partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature. "PERSONAL PROPERTY" has the meaning, with respect to each Property, set forth in the Mortgage encumbering such Property. "PROCEEDS THRESHOLD" means (i) with respect to the Bensalem Square Property, the Collegetown Shopping Center Property, the High Ridge Plaza Property, the North Ridge Plaza Property, the Street Road Plaza Property and the Village Square Property, the sum of $200,000.00 and (ii) with respect to the Bethlehem Square Property, the Fox Run Property, the Bristol Commerce Park Property, the Groton Square Property, the Park Hills Plaza Property, the Whitehall Square Property, the Mall at Cross County Property, the Barn Plaza Property and the Valley Fair Property, the sum of $400,000,00. "PROPERTY" and "PROPERTIES" means individually, any of, and collectively, all of the Bensalem Square Property, the Collegetown Shopping Center Property, the High Ridge Plaza Property, the North Ridge Plaza Property, the Street Road Plaza Property and the Village Square -13- Property, the Bethlehem Square Property, the Fox Run Property, the Bristol Commerce Park Property, the Groton Square Property, the Park Hills Plaza Property, the Whitehall Square Property, the Mall at Cross County Property, the Barn Plaza Property and the Valley Fair Property. "REAL PROPERTY" has the meaning, with respect to each Property, set forth in the Mortgage encumbering such Property. "STATE" means the State of New York. "STREET" has the meaning set forth in the introductory paragraph of this Loan Agreement. "STREET ROAD PLAZA PROPERTY" means that certain shopping center located at 2610-2630 Street Road, Bensalem, Pennsylvania. "TRUST" means Kramont Realty Trust. "USE" means use as a shopping center. "VALLEY FAIR PROPERTY" means that certain shopping center located at 260 West Swedesford Road, Devon, Pennsylvania. "VILLAGE SQUARE PROPERTY" means that certain shopping center located at 1262 Boston Post Road, Larchmont, New York. "WHITEHALL SQUARE PROPERTY" means that certain shopping center located at 2180 MacArthur Road, Whitehall, Pennsylvania. 1.02 General Construction. Defined terms used in this Loan Agreement may be used interchangeably in singular or plural form, and pronouns are to be construed to cover all genders. All references to this Loan Agreement or any agreement or instrument referred to in this Loan Agreement shall mean such agreement or instrument as originally executed and as hereafter amended, supplemented, extended, consolidated or restated from time to time. The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Loan Agreement as a whole and not to any particular subdivision; and the words "Article" and "section" refer to the entire article or section, as applicable and not to any particular subsection or other subdivision. Reference to days for performance means calendar days unless business days are expressly indicated. The parties hereto acknowledge that the defined term "Borrowers" has been defined to collectively include each Borrower. It is the intent of the parties hereto in determining whether (a) a breach of a representation, warranty or a covenant has occurred, (b) there has occurred an Event of Default, or (c) an event has occurred which would create recourse obligations under Article 10 of this Agreement, that any such breach, occurrence or event with respect to any Borrower shall be deemed to be such a breach, occurrence or event with respect to all Borrowers and that all Borrowers need not have been involved with such breach, occurrence or event in order for the same to be deemed such a breach, occurrence or event with respect to every Individual Borrower. -14- ARTICLE 2 LOANS AND LOAN DOCUMENTS; PAYMENT TERMS 2.01 Conditions to Loan. Borrowers agree that Lender's obligation to close the Loans is conditioned upon Borrowers' delivery, performance and satisfaction, in Lender's sole discretion, of all items set forth in (a) that certain Mortgage Loan Application dated August 5, 2002 and (b) that certain Mortgage Loan Application dated September 18, 2002 (collectively, the "APPLICATION"). 2.02 Loan Documents. Payment of the Loans and performance by the Borrowers of their obligations hereunder shall be secured, inter alia, by the Mortgages for each Property and the Assignment of Leases for each Property. Each Borrower agrees that it will, on or before the Closing Date, execute and deliver or cause to be executed and delivered to Lender this Agreement, the Notes, the Mortgages, the Assignments of Leases and the other Loan Documents to which such Borrower is a party in form and substance acceptable to Lender. In addition, each Borrower shall deliver such other documents, instruments or certificates as Lender and its counsel may reasonably require and shall cause the Liable Parties to executed and deliver the Indemnity Agreements and the Liable Party Guaranties. 2.03 Payments of Principal and Interest. Each Borrower shall make all payments due under its respective Note or Notes. 2.04 Calculation of Interest. Interest shall be calculated on the basis of a thirty (30) day month and a three hundred sixty (360) day year, except that (i) if the Advance Date occurs on a date other than the first day of a calendar month, interest payable for the period commencing on the Advance Date and ending on the last day of the month in which the Advance Date occurs shall be calculated on the basis of the actual number of days elapsed over a 365 day or 366 day year, as applicable, and (ii) if the Maturity Date occurs on a date other than the last day of the month, interest payable for the period commencing on the first day of the month in which the Maturity Date occurs and ending on the Maturity Date shall be calculated on the basis of the actual number of days elapsed over a 365 day or 366 day year, as applicable. 2.05 Application of Payments. All payments shall be applied as set forth in the Notes. 2.06 Late Charge. If any payment of a Monthly Interest Only Installment or any payment of a Monthly P&I Installment under any Note or any payment of a required escrow deposit hereunder is not paid within seven (7) days of the due date, Lender shall have the option to charge the Borrower who failed to timely make such payment the Late Charge. The Late Charge is for the purpose of defraying the expenses incurred in connection with handling and processing delinquent payments and is payable in addition to any other remedy Lender may have. Unpaid Late Charges shall become part of the Aggregate Note Indebtedness under such Borrower's Note and shall be added to any subsequent payments due under the Loan Documents. 2.07 Acceleration Upon Default. At the option of Lender, if Borrowers fail to pay any sum specified in this Agreement or any of the Notes when due after giving effect to any grace periods, or if an Event of Default occurs under this Agreement, the Mortgages and/or any of the other Loan Documents, the Aggregate Secured Indebtedness and all other sums evidenced and/or -15- secured by the Loan Documents, including, without limitation, any applicable prepayment fees (collectively, the "ACCELERATED LOAN AMOUNT") shall become immediately due and payable. 2.08 Interest Upon Default. Upon the occurrence of an Event of Default under this Agreement and/or any of the other Loan Documents, the Accelerated Loan Amount shall bear interest at the Default Rate which shall never exceed the maximum rate of interest permitted to be contracted for under the laws of the State. The Default Rate shall continue until all defaults are cured. 2.09 Limitation on Interest. The agreements made by Borrowers with respect to this Agreement, the Notes and the other Loan Documents are expressly limited so that in no event shall the amount of interest received, charged or contracted for by Lender exceed the highest lawful amount of interest permissible under the laws applicable to the Loan. If at any time performance of any provision of this Agreement, the Notes or the other Loan Documents results in the highest lawful rate of interest permissible under applicable laws being exceeded, then the amount of interest received, charged or contracted for by Lender shall automatically and without further action by any party be deemed to have been reduced to the highest lawful amount of interest then permissible under applicable laws. If Lender shall ever receive, charge or contract for, as interest, an amount which is unlawful, at Lender's election, the amount of unlawful interest shall be refunded to the applicable Borrower (if actually paid) or applied to reduce such Borrower's then unpaid Aggregate Note Indebtedness. To the fullest extent permitted by applicable laws, any amounts contracted for, charged or received under the Loan Documents included for the purpose of determining whether the Interest Rate would exceed the highest lawful rate shall be calculated by allocating and spreading such interest to and over the full stated term of the Loans. 2.10 Prepayment. (a) Borrowers shall not have the right to prepay all or any portion of the Loans at any time during the term hereof except as expressly set forth herein. (b) During the ninety (90) day period prior to the Maturity Date, Borrowers may prepay all of the Loans, in whole, without a Prepayment Fee (as hereinafter defined) on thirty (30) days' prior written notice. In addition, commencing on the first day of the 60th month following the Advance Date, Borrowers may prepay all of the Loan, in whole, with a Prepayment Fee on sixty (60) days' prior written notice. (c) If Borrowers provide notice of their intention to prepay, the Accelerated Loan Amount shall become due and payable on the date specified in the prepayment notice. (d) Notwithstanding the foregoing, prepayments arising from Lender's application of Insurance Proceeds upon the occurrence of a casualty or the application of a Condemnation Proceeds the occurrence of a condemnation shall not be deemed a prohibited prepayment and may be made without payment of the Prepayment Fee. 2.11 Prepayment Fee. -16- (a) Any tender of payment by Borrowers or any other person or entity of the Aggregate Secured Indebtedness, other than as expressly provided in the Loan Documents, shall constitute a prohibited prepayment. If a prepayment of all or any part of the Aggregate Secured Indebtedness is made following (i) an Event of Default and an acceleration of the Maturity Date, or (ii) in connection with a purchase of any of the Properties or a repayment of the Aggregate Secured Indebtedness at any time before, during or after, a judicial or non-judicial foreclosure or sale of any of the Properties, then to compensate Lender for the loss of the investment, Borrower shall pay an amount equal to the Prepayment Fee (as hereinafter defined). (b) The "PREPAYMENT FEE" shall be the greater of (A) an amount equal to (x) the present value of all remaining payments of principal and interest under the Notes including the outstanding principal due on the Maturity Date, discounted at the rate which, when compounded monthly, is equivalent to the Treasury Rate compounded semi-annually, less (y) the amount of the principal being prepaid, or (B) one percent (1%) of the amount of the principal being prepaid. (c) The "TREASURY RATE" shall be the annualized yield on securities issued by the United States Treasury having a maturity equal to the remaining stated term of the Note, as quoted in the Federal Reserve Statistical Release (H.15 (519)) under the heading "U.S. Government Securities - Treasury Constant Maturities" for the date on which prepayment is being made. If this rate is not available as of the date of prepayment, the Treasury Rate shall be determined by interpolating between the yield on securities of the next longer and next shorter maturity. If the Treasury Rate is no longer published, Lender shall select a comparable rate. Lender will, upon request, provide an estimate of the amount of the Prepayment Fee two weeks before the date of the scheduled prepayment. 2.12 Waiver of Right to Prepay Note Without Prepayment Fee. Borrowers acknowledge that Lender has relied upon the anticipated investment return under this Agreement and the Notes in entering into transactions with, and in making commitments to, third parties and that the tender of any prohibited prepayment, shall, to the extent permitted by law, include the Prepayment Fee. Borrowers agree that the Prepayment Fee represents the reasonable estimate of Lender and Borrowers of a fair average compensation for the loss that may be sustained by Lender as a result of a prohibited prepayment of the Loans and it shall be paid without prejudice to the right of Lender to collect any other amounts provided to be paid under the Loan Documents. 2.13 BORROWERS EXPRESSLY (A) WAIVE ANY RIGHTS THEY MAY HAVE UNDER APPLICABLE STATE LAWS TO PREPAY THE LOANS, IN WHOLE OR IN PART, WITHOUT FEE OR PENALTY, UPON ACCELERATION OF THE MATURITY DATE OF THE NOTES, AND (B) AGREE THAT IF, FOR ANY REASON, A PREPAYMENT OF THE NOTES IS MADE, UPON OR FOLLOWING ANY ACCELERATION OF THE MATURITY DATE OF THE NOTES BY LENDER ON ACCOUNT OF ANY DEFAULT BY BORROWERS UNDER ANY LOAN DOCUMENT, INCLUDING BUT NOT LIMITED TO ANY TRANSFER, FURTHER ENCUMBRANCE OR DISPOSITION WHICH IS PROHIBITED OR RESTRICTED BY THIS AGREEMENT AND/OR THE MORTGAGES, THEN BORROWERS SHALL BE OBLIGATED TO PAY CONCURRENTLY THE PREPAYMENT FEE SPECIFIED IN SECTION 2.11. BY EXECUTING THIS AGREEMENT AND THE NOTES, -17- BORROWERS AGREE THAT LENDER'S AGREEMENT TO MAKE THE LOANS AT THE INTEREST RATES AND FOR THE TERM SET FORTH HEREIN CONSTITUTES ADEQUATE CONSIDERATION FOR THIS WAIVER AND AGREEMENT. 2.14 Fees and_Expenses. If Borrowers default under this Agreement, Borrowers shall be liable for and shall pay to Lender, in addition to the sums stated above, the costs and expenses of enforcement and collection, including, without limitation, a reasonable sum as an attorney's fee. This obligation is not limited by Section 10.01 2.15 Invalidated Payments. If any payment received by Lender is deemed by a court of competent jurisdiction to be a voidable preference or fraudulent conveyance under any bankruptcy, insolvency or other debtor relief law, and is required to be returned by Lender, then the obligation to make such payment shall be reinstated, notwithstanding that one ore more the Notes may have been marked satisfied and returned to Borrowers or otherwise canceled, and such payment shall be immediately due and payable upon demand. ARTICLE 3 BORROWERS' COVENANTS 3.01 Due Authorization, Execution and Delivery. (a) Each Borrower represents and warrants that the execution of the Loan Documents and the Indemnity Agreement to which it is a party have been duly authorized and there is no provision in the organizational documents of such Borrower requiring further consent for such action by any other entity or person. (b) Each Borrower represents and warrants that it is duly formed, validly existing limited liability company and is in good standing under the laws of the state of its formation and in the state(s) in which its Properties are located, that it has all necessary licenses, authorizations, registrations, permits and/or approvals to own its Properties and to carry on its business as presently conducted. (c) Each Borrower represents and warrants that the execution, delivery and performance of the Loan Documents to which it is a party will not result in such Borrower's being in default under any provision of its organizational documents or of any deed of trust, mortgage, lease, credit or other agreement to which it is a party or which affects it or its Properties. (d) Each Borrower represents and warrants that the Loan Documents and the Indemnity Agreement to which it is a party have been duly authorized, executed and delivered by such Borrower and constitute valid and binding obligations of such Borrower which are enforceable in accordance with their respective terms. 3.02 Performance by Borrowers. Borrowers shall pay the Aggregate Secured Indebtedness to Lender and shall keep and perform each and every other obligation, covenant and agreement of the Loan Documents. -18- 3.03 Warranty of Title. (a) KRT warrants that it holds marketable and indefeasible fee simple absolute title to its Real Property (other than the Real Property comprising a leasehold estate in the portion of the Cross County Property owned by Lilac, as to which KRT warrants that it holds a good and insurable leasehold estate) and is the owner of its Personal Property. Lilac warrants that it holds marketable and indefeasible fee simple absolute and leasehold title to its Real Property and is the owner of its Personal Property. Collegetown warrants that it holds marketable and indefeasible fee simple absolute title to its Real Property and is the owner of its Personal Property. Fox Run warrants that it holds marketable and indefeasible fee simple absolute title to its Real Property and is the owner of its Personal Property. Street warrants that it holds marketable and indefeasible fee simple absolute title to its Real Property and is the owner of its Personal Property. Kramont warrants that it holds marketable and indefeasible fee simple absolute title to its Real Property and is the owner of its Personal Property. Best warrants that it holds marketable and indefeasible fee simple absolute title to its Real Property and is the owner of its Personal Property. Barn warrants that it holds a good and insurable leasehold estate in its Real Property and is the owner of its Personal Property. Development warrants that it holds a good and insurable leasehold estate in its Real Property and is the owner of its Personal Property. Each Borrower warrants that it has the right and is lawfully authorized to sell, convey or encumber its Properties subject only to those property specific exceptions to title recorded in the real estate records of the county in which each such the Property is located and contained in Schedule B of the title insurance policy or policies which have been approved by Lender and Impositions (as defined below) not yet due and payable (the "PERMITTED EXCEPTIONS"). Each Property is free from all due and unpaid taxes, payments in lieu of taxes, assessments and mechanics' and materialmen's liens. (b) Each Borrower further covenants to warrant and forever defend Lender from and against all persons claiming any interest in any of its Properties (other than tenants of such Properties claiming rights to occupy portions of such Properties, as tenants only). 3.04 Taxes, Liens and Other Charges. (a) Unless otherwise paid to Lender as provided in Section 3.05, each Borrower shall pay all real estate and other taxes or payments in lieu of taxes, assessments, water and sewer charges, vault and other license or permit fees, liens, fines, penalties, interest, and other similar public and private claims which may be payable, assessed, levied, imposed upon or become a lien on or against any portion of a Property and any other costs or charges imposed on such Borrower pursuant to any other easement or agreement which benefits a Property (all of the foregoing items are collectively referred to as the "IMPOSITION(s)"). The Impositions shall be paid not later than twenty (20) days before the dates on which the particular Imposition would become delinquent and the applicable Borrower shall produce to Lender official receipts of the appropriate imposing authority, or other evidence reasonably satisfactory to Lender, evidencing the payment of the Imposition in full, provided, however, that the failure of a Borrower to pay any such Imposition when due shall not constitute an Event of Default as long as the same are being contested in accordance with the requirements of this Section. If any Borrower elects by appropriate legal action to contest any Imposition, such Borrower shall first deposit cash with Lender as a reserve in an amount which Lender determines is sufficient to pay such Imposition -19- plus all fines, interest, penalties and costs which may become due pending the determination of the contest. If a Borrower deposits this sum with Lender, such Borrower shall not be required to pay the Imposition provided that the contest operates to prevent enforcement or collection of the Imposition, or the sale or forfeiture of, the applicable Property, and is prosecuted with due diligence and continuity. Upon termination of any proceeding or contest, the applicable Borrower shall pay the amount of the Imposition as finally determined in the proceeding or contest. Provided that there is not then an Event of Default (as defined in Section 12.01 hereof), the monies which have been deposited with Lender pursuant to this Section shall be applied toward such payment and the excess, if any, shall be returned to the applicable Borrower. (b) In the event of the passage, after the Execution Date, of any law which deducts from the value of a Property, for the purposes of taxation, any lien or security interest encumbering such Property, or changing in any way the existing laws regarding the taxation of mortgages, deeds of trust and/or security agreements or debts secured by these instruments, or changing the manner for the collection of any such taxes, and the law has the effect of imposing payment of any Impositions upon Lender, at Lender's option, the Obligations (as defined in the Mortgage encumbering such Property) shall immediately become due and payable. Notwithstanding the preceding sentence, Lender's election to accelerate the Obligations shall not be effective if (1) the applicable Borrower is permitted by law (including, without limitation, applicable interest rate laws) to, and actually does, pay the Imposition or the increased portion of the Imposition and (2) such Borrower agrees in writing to pay or reimburse Lender in accordance with Section 14.15 hereof for the payment of any such Imposition which becomes payable at any time when the Obligations are outstanding. 3.05 Escrow Deposits. (a) Without limiting the effect of Section 3.04 and Section 4.01, Borrowers shall pay to Lender monthly on the same date the monthly installment is payable under the Notes, an amount (the "DEPOSIT") equal to 1/12th of the amounts Lender reasonably estimates are necessary to pay, on an annualized basis, (1) all Impositions and (2) the premiums for the insurance policies required under this Agreement (collectively the "PREMIUMS") until such time as Borrowers have deposited an amount equal to the annual charges for these items and on demand, from time to time, shall pay to Lender any additional amounts necessary to pay the Premiums and Impositions. Borrowers will furnish to Lender bills for Impositions and Premiums thirty (30) days before Impositions become delinquent and such Premiums become due for payment. No amounts paid as Impositions or Premiums shall be deemed to be trust funds and these funds may be commingled with the general funds of Lender without any requirement to pay interest to Borrowers on account of these funds. If an Event of Default occurs, Lender shall have the right, at its election, to apply any amounts held under this Section 3.05 in reduction of the Aggregate Secured Indebtedness, or in payment of the Premiums or Impositions for which the amounts were deposited. (b) Notwithstanding the foregoing, Lender shall not require Borrowers to pay the Deposits for Impositions unless and until the occurrence of the earliest of the following events: (i) an Event of Default under this Agreement, the Loan Documents, the Indemnity Agreements or the Liable Parties Guaranties, (ii) a Transfer (as defined in Section 11.01 (a)) of all or any of the Properties, (iii) a Transfer of an interest in a Borrower or in the general partners, shareholders or -20- members of a Borrower or in the constituent general partners or controlling shareholders or controlling members of any of the entities comprising a Borrower, other than a Permitted Ownership Structure Transfer (as defined in Section 11.01(b)), or (iv) if required by a Rating Agency (as defined in Section 4.01(c)) or an Investor (as defined in Section 13.01(a)) in connection with a sale, assignment or transfer of one or more participations in the Loans or the Securities pursuant to Section 13.01. Upon the occurrence of any of the foregoing, Lender reserves the right to require Deposits for Impositions at any time in its absolute discretion notwithstanding the fact that any such Event of Default may have been cured or that the Transfer may have been approved by Lender. (c) Notwithstanding the foregoing, Lender shall not require Borrowers to pay the Deposits for Premiums unless and until the occurrence of the earliest of the following events: (i) an Event of Default under this Agreement, the Loan Documents, the Indemnity Agreements or the Liable Parties Guaranties, (ii) a Transfer of all or any of the Properties, (iii) a Transfer of an interest in a Borrower or in the general partners, shareholders or members of a Borrower or in the constituent general partners or controlling shareholders or controlling members of any of the entities comprising a Borrower other than a Permitted Ownership Structure Transfer, (iv) if required by a Rating Agency or an Investor in connection with a sale, assignment or transfer of one or more participations in the Loans or the Securities pursuant to Section 13.01, or (v) Borrowers fail to furnish to Lender, not later than thirty (30) days prior to the date on which any Premium would become delinquent, receipts for the payment of such Premium or evidence of issuance of a new policy which continues in force the coverage of the expiring policy. Upon the occurrence of any of the foregoing, Lender reserves the right to require Deposits for Premiums at any time in its absolute discretion notwithstanding the fact that any such Event of Default may have been cured or that the Transfer may have been approved by Lender. 3.06 Care and Use of the Properties. (a) Each Borrower represents and warrants to Lender with respect to its Properties as follows: (i) As of the date hereof, all authorizations, approvals, licenses, including without limitation liquor licenses, if any, and operating permits required to allow the Improvements located on each Property to be operated for the Use by the applicable Borrower and, to such Borrower's knowledge, the tenants of the such Property have been obtained, paid for and are in full force and effect. (ii) As of the date hereof, the Improvements located on each Property and their Use comply with (and no notices of violation have been received in connection with) all Requirements (as defined in this Section). Each Borrower shall at all times comply with all present or future Requirements affecting or relating to each Property and/or the Use. Each Borrower shall furnish Lender, on request, proof of compliance with the Requirements. Each Borrower shall not use or permit the use of any Property, or any part thereof, for any illegal purpose. "Requirements" shall mean all laws, ordinances, orders, covenants, conditions and restrictions and other requirements relating to land and building design and construction, use and maintenance, that may now or hereafter pertain to or affect the applicable Property or any part of such Property or the Use, including, without limitation, planning, zoning, subdivision, -21- environmental, air quality, flood hazard, fire safety, handicapped facilities, building, health, fire, traffic, safety, wetlands, coastal and other governmental or regulatory rules, laws, ordinances, statutes, codes and requirements applicable to such Property, including permits, licenses, certificates of occupancy and/or other certificates that may be necessary from time to time to comply with any of the these requirements. (iii) As of the date hereof, each Borrower has complied with all requirements of all instruments and agreements affecting its Properties, whether or not of record, including without limitation all covenants and agreements by and between Borrower and any governmental or regulatory agency pertaining to the development, use or operation of its Properties. Each Borrower, at its sole cost and expense, shall keep its Properties in good order, condition, and repair, and make all necessary structural and non-structural, ordinary and extraordinary repairs to the Properties and the Improvements. (iv) Each Borrower shall abstain from, and not permit, the commission of waste to its Properties and shall not remove or alter in any substantial manner, the structure or character of any Improvements without the prior written consent of Lender, except removal of fixtures, machinery or equipment in connection with the replacement thereof in the ordinary course of business with fixtures, machinery or equipment of equal greater value and quality which perform a similar function. (v) The zoning approval for each Property is not dependent upon the ownership or use of any property which is not encumbered by the relevant Mortgage. (b) Lender shall have the right, at any time and from time to time during normal business hours, to enter any Property in order to ascertain any Borrower's compliance with the Loan Documents, to examine the condition of such Property, to perform an appraisal, to undertake surveying or engineering work, and to inspect premises occupied by tenants, subject to the tenants' rights under their respective Leases. Each Borrower shall cooperate with Lender performing these inspections. Lender shall not be liable to any Borrower or any person in possession of any Property with respect to any matter arising out of such entry to such Property, except for Lender's willful misconduct or gross negligence. (c) Each Borrower shall use, or cause to be used, each Property continuously for the Use. No Borrower shall use, or permit the use of, any Property for any other use without the prior written consent of Lender. To the extent any Property is used as a residential apartment complex, (i) the Borrower owning such Property shall not file or record a declaration of condominium, master deed of trust or mortgage or any other similar document evidencing the imposition of a so called "condominium regime" whether superior or subordinate to the Mortgage encumbering such Property and (ii) such Borrower shall not permit any part of such Property to be converted to, or operated as, a "cooperative apartment house" whereby the tenants or occupants participate in the ownership, management or control of any part of such Property. (d) Without the prior written consent of Lender, no Borrower shall (i) initiate or acquiesce in a change in the zoning classification of and/or restrictive covenants affecting any Property or seek any variance under existing zoning ordinances, (ii) use or permit the use of any Property in a manner which may result in the Use becoming a nonconforming use under -22- applicable zoning ordinances, or (iii) subject any Property to restrictive covenants. For the purposes of this Section 3.06(d), the granting of exclusive use rights to any tenant of a Property shall not be deemed a restrictive covenant. 3.07 Collateral Security Instruments. Borrowers covenant and agree that if Lender at any time holds additional security for any obligations secured by the Mortgages, it may enforce its rights and remedies with respect to the security, at its option, either before, concurrently or after a sale of any of the Properties is made pursuant to the terms of the Mortgages, Lender may apply the proceeds of the additional security to the Secured Indebtedness without affecting or waiving any right to any other security, including the security under the Mortgages, and without waiving any breach or default of Borrowers under this Agreement, the Mortgages or any other Loan Document. 3.08 Suits and Other Acts to Protect the Properties. (a) Borrowers shall immediately notify Lender of the commencement, or receipt of notice, of any and all material actions or proceedings or other material matter or claim purporting to, or which could, affect any of the Properties, any other security afforded by any of the Loan Documents and/or the interest of Lender thereunder (collectively, "ACTIONS"). Borrowers shall appear in and defend any Actions. (b) Lender shall have the right, at the cost and expense of Borrowers, to institute, maintain and participate in Actions and take such other action, as it may deem appropriate in the good faith exercise of its discretion to preserve or protect any Property, any other security afforded by any of the Loan Documents and/or the interest of Lender thereunder. Any money paid by Lender under this Section shall be reimbursed to Lender in accordance with Section 14.15 hereof. 3.09 Liens And Encumbrances. Without the prior written consent of Lender, to be exercised in Lender's sole and absolute discretion, other than the Permitted Exceptions, Borrowers shall not create, place or allow to remain any lien or encumbrance on any of the Properties, including deeds of trust, mortgages, security interests, conditional sales, mechanics' liens, tax liens or assessment liens regardless of whether or not they are subordinate to the lien created by the Mortgages (collectively, "LIENS AND ENCUMBRANCES"). If any Liens and Encumbrances are recorded against any of the Properties or any part thereof, Borrowers shall obtain a discharge and release of any Liens and Encumbrances within thirty (30) days after receipt of notice of their existence. Notwithstanding the foregoing, it is agreed that any mechanics' or materialmen's Hen or claim need not be paid if (i) the validity or amount thereof shall be contested timely, diligently and in good faith by appropriate proceedings, (ii) Borrowers shall have adequate unencumbered (except in favor of Lender) cash reserves with respect thereto, and (iii) the Hen is discharged, dissolved or bonded, and in the case of any such bonding, is bonded by a surety company reasonably acceptable to Lender, which bond will stay, by proper court order, the enforcement thereof. 3.10 Compliance with Anti-Terroism, Embargo, Sanctions and Anti-Money Laundering Laws]. Borrowers, the Trust, and to the best of Borrower's knowledge, after having made diligent inquiry (a) each Person owning a direct or indirect interest of twenty percent -23- (20%) or more in any Borrower or the Trust and (b) each tenant at the Properties: (i) is not currently identified on OFAC List, and (ii) is not a Person with whom a citizen of the United States is prohibited to engage in transactions by any trade embargo, economic sanction, or other prohibition of United States law, regulation, or Executive Order of the President of the United States, Borrowers have implemented procedures, and will consistently apply those procedures throughout the term of the Loans, to ensure the foregoing representations and warranties remain true and correct during the term of the Loans. 3.11 Personal Property. Borrowers represent, warrant and covenant as follows: (a) Each Borrower owns its Personal Property free from any lien, security interest, encumbrance or adverse claim, except as otherwise expressly approved by Lender in writing. Each Borrower will notify Lender of, and will protect, defend and indemnify Lender against, all claims and demands of all persons at any time claiming any rights or interest in its Personal Property, (b) The Personal Property has not been used and shall not be used or bought for personal, family, or household purposes, but shall be bought and used solely for the purpose of carrying on Borrowers' business. (c) Borrowers will not remove the Personal Property without the prior written consent of Lender, except the items of Personal Property which are consumed or worn out in ordinary usage shall be promptly replaced by Borrowers with other Personal Property of value equal to or greater than the value of the replaced Personal Property. ARTICLE 4 INSURANCE 4.01 Required Insurance and Terms of Insurance Policies. (a) During the term of this Agreement, Borrowers at their sole cost and expense must provide Acord 27 and Acord 25 certificates of insurance and, upon the written request of Lender copies of policies of insurance, reasonably satisfactory to Lender as to amounts, types of coverage and the companies underwriting these coverages. In no event will such policies be terminated or otherwise allowed to lapse, Borrowers shall be responsible for their own deductibles. Borrowers shall also pay for any insurance, or any increase of policy limits, not described in this Agreement which Borrowers require for their own protection or for compliance with government statutes. Borrowers' insurance shall be primary and without contribution from any insurance procured by Lender. Policies of insurance shall comply with the following requirements: (1) All Risk Property insurance on the Improvements and the Personal Property located at each Property, including contingent liability from Operation of Building Laws, Demolition Costs and Increased Cost of Construction endorsements, in each case (i) in an amount equal to 100% of the "Full Replacement Cost" of such Improvements and Personal Property, which for -24- purposes of this Article 4 shall mean actual replacement value (exclusive of costs of excavations, foundations, underground utilities and footings) with a waiver of depreciation and with a Replacement Cost Endorsement; (ii) containing an agreed amount endorsement with respect to such Improvements and Personal Property waiving all co-insurance provisions; (iii) providing for no deductible in excess of $25,000; and (iv) containing an "Ordinance or Law Coverage" or "Enforcement" endorsement if any of the Improvements or the use of the Property shall constitute non-conforming structures or uses. The Full Replacement Cost shall be determined from time to time, but not more than once per year with respect to each Property, by an appraiser or contractor designated and paid by Borrowers and approved in writing by Lender or by an engineer or appraiser in the regular employ of the insurer issuing such policy. (2) Commercial General Liability insurance against claims for personal injury, bodily injury, death or property damage occurring upon, in or about each Property, such insurance (i) to be on the so-called "occurrence" form with a combined single limit of not less than the amounts set forth in Exhibit A hereto, which may include excess liability coverage in umbrella form; (ii) to continue at not less than this limit until required to be changed by Lender in writing by reason of changed economic conditions making such protection inadequate; and (iii) to cover at least the following hazards: (a) premises and operations; (b) products and completed operations on an "if any" basis; (c) independent contractors; (d) contractual liability for all written and oral contracts; and (e) contractual liability covering the indemnities contained in this Agreement and the Mortgages to the extent available. (3) Business Income insurance with respect to each Property in an amount sufficient to prevent the applicable Borrower from becoming a co-insurer within the terms of the applicable policies, and sufficient to recover twelve (12) months of "Business Income" (as hereinafter defined). The amount shown in Exhibit A is the current estimate of one year's "Business Income" with respect to each Property, "Business Income" shall mean, with respect to each Property, the sum of (i) the total anticipated gross income from occupancy of such Property, (ii) the amount of all charges (such as, but not limited to, operating expenses, insurance premiums and taxes) which are the obligation of tenants or occupants to the Borrower owning such Property, (iii) the fair market rental value of any portion of such Property which is occupied by such Borrower, and (iv) any other amounts payable to such Borrower or to any affiliate of such Borrower pursuant to Leases of such Property. (4) If Lender determines at any time that any part of a Property is located in an area identified on a Flood Hazard Boundary Map or Flood Insurance Rate Map issued by the Federal Emergency Management Agency as having special flood hazards and flood insurance has been made available, the Borrower owning such Property will maintain a flood insurance policy meeting the requirements of the current guidelines of the Federal Insurance Administration with a generally acceptable insurance carrier, in an amount not less than the lesser of (i) the outstanding principal balance of the Obligations then secured by the Mortgage -25- encumbering such Property or (ii) the maximum amount of insurance which is available under the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National Flood Insurance Reform Act of 1994, as amended. (5) During the period of any construction or renovation or alteration of the Improvements located at any Property, a so-called "Builder's All Risk" insurance policy in non-reporting form for any Improvements under construction, renovation or alteration including, without limitation, for demolition and increased cost of construction or renovation, in an amount approved by Lender including an Occupancy endorsement and Worker's Compensation Insurance covering all persons engaged in the construction, renovation or alteration in an amount at least equal to the minimum required by statutory limits of the state or commonwealth in which Property is located. (6) Workers' Compensation insurance with respect to each Property, subject to the statutory limits of the state in which such Property is located, and employer's liability insurance with a limit of at least $1,000,000 per accident and per disease per employee, and $1,000,000 for disease in the aggregate in respect of any work or operations on or about such Property, or in connection with such Property or its operations (if applicable). (7) Boiler & Machinery insurance covering the major components of the central heating, air conditioning and ventilating systems, boilers, other pressure vessels, high pressure piping and machinery, elevators and escalators, if any, and other similar equipment installed in the Improvements located at each Property, in an amount equal to one hundred percent (100%) of the full replacement cost of all equipment installed in, on or at such Improvements. These policies shall insure against physical damage to and loss of occupancy and use of such Improvements arising out of an accident or breakdown. (8) Insurance from and against all losses, damages, costs, expenses, claims and liabilities related to or arising from acts of terrorism, of such types, in such amounts, with such deductibles, issued by such companies, and on such forms of insurance policies, as reasonably required by Lender; provided, however, in the event that insurance for acts of terrorism or insurance substantially similar thereto is not available at commercially reasonable rates (as determined by Lender in its reasonable judgment) under the coverages described in this Section 4.01(a) with respect to the Properties, with due regard given to the type of property, its tenancy, location and other relevant characteristics, then with respect to the Secured Indebtedness only, such insurance shall not be required for such coverages, provided that in furtherance and not in limitation of the foregoing, (i) the form of any exclusion of coverages for acts of terrorism or matters substantially similar thereto shall be reasonably acceptable to Lender and (ii) in the event that at any time during the term of the Secured Indebtedness (A) Borrowers or any of the Liable Parties obtains insurance coverage for acts of terrorism or insurance substantially similar thereto (collectively, in this Subsection 4.01(a)(8), "such -26- terrorism coverage") for any Property or (B) Borrowers or any of the Liable Parties or any affiliate of Borrowers or any of the Liable Parties obtains such terrorism coverage with respect to one or more properties owned by any Borrower, a Liable Party or affiliate (other than any of the Properties), or (C) Lender advises Borrowers that Lender has determined that such terrorism coverage is available with respect to the Properties to Borrowers or to Lender at commercially reasonable rates (as determined by Lender in its reasonable judgment), or (D) if required by a Rating Agency or an Investor in connection with a sale, assignment or transfer of one or more participations in the Loans or the Securities pursuant to Section 13.01, then in any such event described in Subsections (A) through (D) of this Section 4.01(a)(8)(ii) (and with respect to Subsection 4.01(a)(8)(ii)(B) only, if Lender, in its reasonable judgment, determines that any such other property owned by a Borrower, a Liable Party or affiliate is substantially similarly situated with the Properties with respect to the availability of such terrorism coverage with due regard given to the property type(s), their tenancies, locations and other relevant characteristics), Borrowers shall be required to maintain such terrorism coverage at Borrowers' sole cost and expense, in such form, for such amounts, with such deductibles and issued by such companies as shall be reasonably acceptable to Lender with respect to the Properties and the Secured Indebtedness for the benefit of Lender. (9) Insurance from and against all losses, damages, costs, expenses, claims and liabilities related to or arising from Hazardous Materials and/or violations of Requirements of Environmental Law, of such types, in such amounts, with such deductibles, issued by such companies, and on such forms of insurance policies, as approved by Lender as of the date hereof. These policies shall be for an initial term of one (1) year and thereafter shall be for successive terms of five (5) years. (10) Such other insurance as may from time to time be reasonably required by Lender against other insurable hazards, including, but not limited to, vandalism, earthquake, sinkhole and mine subsidence. (b) Lender's interest must be clearly stated by endorsement in the insurance policies described in this Section 4.01 as follows: (1) The policies of insurance referenced in Subsections (a)(1), (a)(3), (a)(4), (a)(5) and (a)(7) of this Section 4.01 shall identify Lender under the New York Standard Lender Clause (non-contributory) endorsement. (2) The insurance policies referenced in Sections 4.01(a)(2) and Sections 4.01(a)(9) shall name Lender as an additional insured. (3) All of the policies referred to in Section 4.01 shall provide for at least thirty (30) days' written notice to Lender in the event of policy cancellation and/or material change. -27- (c) All the insurance companies must be authorized to do business in the states in which the Properties are located and be reasonably approved by Lender. The insurance companies must have a general policy rating of A or better and a financial class of VIII or better by A.M. Best Company, Inc. and a claims paying ability of BBB or better according to Standard & Poors. If there are any Securities (as defined in Section 13.01 (a) hereof) issued with respect to the Loans which have been assigned a rating by a credit rating agency approved by Lender (a "RATING AGENCY"), the insurance company shall have a claims paying ability rating by such Rating Agency equal to or greater than the rating of the highest class of the Securities. Borrowers shall deliver evidence satisfactory to Lender of payment of premiums due under the insurance policies. (d) Certified copies of the policies, and any endorsements, shall be made available for inspection by Lender upon request. If any policy is canceled before the Secured Indebtedness is satisfied, and Borrowers fail to immediately procure replacement insurance, Lender reserves the right but shall not have the obligation immediately to procure replacement insurance at Borrowers' cost. (e) Borrowers shall be required during the term of the Secured Indebtedness to continue to provide Lender with original renewal policies or replacements of the insurance policies referenced in Section 4.01 (a). Lender may accept Certificates of Insurance evidencing insurance policies referenced in subsections (a)(2), (a)(4), and (a)(6) of this Section 4.01 instead of requiring the actual policies. Lender shall be provided with renewal Certificates of Insurance not less than fifteen (15) days prior to each expiration. The failure of Borrowers to maintain the insurance required under this Article 4 shall not constitute a waiver of Borrowers' obligation to fulfill these requirements. (f) All binders, policies, endorsements, certificates, and cancellation notices are to be sent to the Lender's address for insurance notification as set forth in Section 14.02(b) until changed by notice from Lender. 4.02 Adjustment of Claims. Subject to Section 8.02, Borrowers hereby authorize and empower Lender to settle, adjust or compromise any claims for damage to, or loss or destruction of, all or a portion of any of the Properties, regardless of whether there are Insurance Proceeds available or whether any such Insurance Proceeds are sufficient in amount to fully compensate for such damage, loss or destruction. 4.03 Assignment To Lender. In the event of the foreclosure of any of the Mortgages or other transfer of the title to any of the Properties in extinguishment of the Secured Indebtedness, all right, title and interest of Borrowers in and to any insurance policy, or premiums or payments in satisfaction of claims or any other rights under these insurance policies and any other insurance policies covering such Properties shall pass to the transferee of such Properties. -28- ARTICLE 5 BOOKS, RECORDS AND ACCOUNTS 5.01 Books and Records. Borrowers shall keep adequate books and records of account in accordance with generally accepted accounting principles ("GAAP"), or in accordance with other methods acceptable to Lender in its sole discretion, consistently applied and furnish to Lender: (a) annual certified rent rolls signed and dated by each Borrower, detailing the names of all tenants of the Improvements located at the Property owned by such Borrower, the portion of such Improvements occupied by each tenant, the base rent and any other charges payable under each Lease (as defined in Section 6.02 hereof) and the term of each Lease, including the expiration date, and any other information as is reasonably required by Lender, within forty-five (45) days after the end of each fiscal year of such Borrower; (b) an annual operating statement of each Property and year to date operating statements detailing the total revenues received, total expenses incurred, total cost of all capital improvements, total debt service and total cash flow, to be prepared and certified by the applicable Borrower in the form previously approved in writing by Lender, and if available, any operating statement prepared by an independent certified public accountant, within sixty (60) days after the close of each fiscal year of such Borrower; (c) an annual ARGUS(C) valuation file in electronic form which includes, without limitation, a then current rent roll and all income and expenses of each Property, within sixty (60) days after the close of each fiscal year of the applicable Borrower; (d) balance sheet and profit and loss statement of each Borrower in the form reasonably required by Lender, prepared and certified by the chief financial officer of the Trust, and if required by Lender, audited financial statements for the Trust prepared by an independent certified public accountant reasonably acceptable to Lender within 120 days after the close of each fiscal year of Borrowers and the Trust, as the case may be; (e) an annual operating budget consistent with the annual operating statement described above for each Property including cash flow projections for the upcoming year and all proposed capital replacements and improvements at least ten (10) days prior to the start of each calendar year; and (f) for so long as the insurance required by Section 4.01(a)(8) is not maintained with respect to the Secured Indebtedness, Borrowers shall provide to Lender twice in each twelve-month period after the closing of the funding of the Secured Indebtedness (at approximate six-month intervals), Borrowers' written statement, certified by Borrowers to Lender, in form, scope and substance reasonably acceptable to Lender, indicating whether and to what extent each of the conditions referred to in Subsections (A) and (B) of Section 4.01(a)(8)(ii) then applies, and which written statement shall include summaries of current insurance company quotes and related information concerning such insurance coverage for the Properties (which quotes Borrowers agree to seek and obtain in a diligent manner) and Borrowers agree to provide -29- such other information to Lender as Lender may reasonably request relating to such conditions and any such written statement of Borrowers. 5.02 Property Reports. Upon request from Lender or its representatives and designees, but not more often than once in any six (6) month period or at any time after the occurrence of an Event of Default, Borrowers shall furnish in a timely manner to Lender: (a) a property management report for each Property, showing deposits received from tenants and any other information reasonably requested by Lender, in reasonable detail and certified by Borrowers (or an officer, general partner, member or principal of Borrowers if Borrowers are not individuals) under penalty of perjury to be true and complete; and (b) an accounting of all security deposits held in connection with any Lease of any part of the Properties, including the name and identification number of the accounts in which such security deposits are held, the name and address of the financial institutions in which such security deposits are held and the name of the person to contact at such financial institution, along with any authority or release necessary for Lender to obtain information regarding such accounts directly from such financial institutions. 5.03 Additional Matters. (a) Borrowers shall furnish Lender with such other additional financial or management information (including, without limitation, State and Federal tax returns and additional rent rolls) as may, from time to time, be reasonably required by Lender or the Rating Agencies in form and substance reasonably satisfactory to Lender or the Rating Agencies. (b) Borrowers shall furnish Lender and its agents convenient facilities for the examination and audit of any such books and records upon at least fifteen (15) days' prior written notice. ARTICLE 6 LEASES AND OTHER AGREEMENTS AFFECTING THE PROPERTY 6.01 BORROWERS' REPRESENTATIONS AND WARRANTIES. Each Borrower represents to Lender with respect to each of its Properties as follows: (a) There are no commercial or retail leases, subleases or occupancy agreements affecting its Property except as set forth in the rent roll dated May 12, 2003 previously delivered to Lender (the "RENT ROLL") and there are no residential leases, subleases or occupancy agreements affecting such Property. Each Borrower has delivered to Lender true, correct and complete copies of all Existing Leases and Existing Guaranties. For the purposes of this Agreement, "EXISTING LEASES" means all leases, subleases and/or other occupancy agreements affecting each Property as of the date hereof, including amendments thereto; -30- "EXISTING GUARANTIES" means all guaranties and amendments of guaranties given in connection with the Existing Leases. (b) There are no defaults by such Borrower under the Existing Leases and, to the best knowledge of such Borrower, except as set forth in the Rent Roll, there are no defaults by any tenants under the Existing Leases or any guarantors under the Existing Guaranties. (c) The Existing Leases and the Existing Guaranties are in full force and effect. (d) To the best knowledge of such Borrower, except as set forth in the Rent Roll, none of the tenants now occupying 10% or more of any Property or having a current lease affecting 10% or more of any Property is the subject of any bankruptcy, reorganization or insolvency proceeding or any other debtor-creditor proceeding. (e) Except only for rent and additional rent for the current month, such Borrower has not accepted under any of the Leases any payment of advance rent or additional rent in an amount that is more than one month's rent and additional rent or security deposits in an amount that is more than that stated in the applicable Lease. (f) Such Borrower has deposited all security deposits delivered in connection with the Existing Leases in accordance with applicable law. (g) Except as set forth in the Rent Roll, no tenant under any Existing Lease has asserted any defense, set-off or counterclaim with respect to its tenancy or its obligations under its lease, and, to such Borrower's knowledge, no such defense, set-off or counterclaim exists. (h) There are no unfulfilled landlord obligations currently due to tenants for tenant improvements, moving expenses or rental concessions or other matters, and all credits required to be paid or contributed by such Borrower under the Existing Leases have been paid or contributed in full. (i) None of the Existing Leases or Rents and Profits have been assigned, pledged, hypothecated or otherwise encumbered or transferred by such Borrower except to the extent provided in the Loan Documents. (j) Except as previously disclosed in writing to Lender, the Existing Leases are on standard forms of leases delivered to and approved by Lender. 6.02 Assignment of Leases. In order to further secure payment of the Aggregate Secured Indebtedness and the performance of Borrowers' obligations under the Loan Documents, each Borrower has absolutely, presently and unconditionally granted, assigned and transferred to Lender all of such Borrower's right, title, interest and estate in, to and under (i) all of the Existing Leases and Guaranties affecting its Properties and (ii) all of the Future Leases (as defined in Section 6.06) and guaranties thereof, and (iii) the Rents and Profits (as defined in the Mortgages encumbering such Borrower's Properties). Unless and until an Event of Default -31- occurs, Borrowers shall have a revocable license to collect their Rents and Profits (except as otherwise provided herein) as and when they become due and payable. Lender shall be liable to account only for the Rents and Profits actually received by Lender pursuant to any provision of any Loan Document. The Existing Leases and Guaranties and all Future Leases and amendments and guaranties thereof are collectively referred to as the "LEASES". 6.03 Performance of Obligations. (a) Borrowers shall perform all obligations under any and all Leases. If any of the acts described in this Section which require the prior written consent of Lender are done without the written consent of Lender, at the option of Lender, they shall be of no force or effect and shall constitute a default under this Mortgage. (b) Borrowers agree to furnish Lender executed copies of all Future Leases. Except as set forth in Section 6.06 below, Borrowers shall not, without the express written consent of Lender, (i) enter into or extend any Lease unless the Lease complies with the provisions of Section 6.06, or (ii) cancel or terminate any Leases (except in the case of a default) unless the applicable Borrower has entered into new Leases covering all of the premises of the Leases being terminated or surrendered, or (iii) modify or amend any Leases in any material way or reduce the rent or additional rent, or (iv) consent to an assignment of the tenant's interest or to a subletting of any Lease unless the tenant remains liable under the Lease following the assignment or subletting, or (v) accept payment of advance rents in an amount in excess of one month's rent, or (vi) enter into any options to sell any of the Properties, or (vii) accept any tenant security deposit in an amount greater than required by the applicable Lease. 6.04 Subordinated Leases. Each of the Future Leases affecting any of the Properties shall be absolutely subordinate to the lien of the Mortgage encumbering such Property and shall also contain provisions, reasonably satisfactory to Lender, to the effect that in the event of the judicial or non-judicial foreclosure of such Property, at the election of the acquiring foreclosure purchaser, the particular Lease shall not be terminated and the tenant shall attorn to the purchaser. Each Future Lease shall provide that, if requested to do so, the tenant shall agree to enter into a new Lease for the balance of the term upon the same terms and conditions as its existing Lease. If Lender requests, Borrowers shall cause the tenant under each or any of such Leases to enter into subordination, non-disturbance and attornment agreements with Lender which are reasonably satisfactory in form, scope and substance to Lender. Upon a Borrower's request, Lender shall enter into a subordination, non-disturbance and attornment agreement reasonably satisfactory in form, scope and substance to Lender with any tenant occupying 5,000 square feet or more at any Property under any Future Lease. 6.05 Leasing Commissions. Borrowers covenant and agree to use reasonable efforts to provide that all contracts and agreements relating to the Properties entered into by Borrowers after the date of this Agreement requiring the payment of leasing commissions, management fees or other similar compensation shall (i) provide that the obligation will not be enforceable against Lender and (ii) be subordinate to the lien of the Mortgages and shall not be payable after an Event of Default under this Agreement. Lender will be provided evidence of Borrowers' compliance with this Section upon request. -32- 6.06 Future Leases. Each Lease executed after the date hereof or any amendment, extension or renewal of any Lease entered into by Borrowers after the date hereof (any such new Lease or amendment, extension or renewal being referred to as a "FUTURE LEASE") shall satisfy the following terms and conditions: (a) Each new Minor Lease shall be on the standard form of lease which has been previously approved in writing by Lender and which may hereafter be modified from time to time with Lender's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. Borrowers may make changes to such standard form for a particular tenant, provided such changes (i) do not materially increase any of the landlord's obligations thereunder or materially decrease any of the landlord's rights thereunder, (ii) do not materially decrease any of the tenant's obligations thereunder, and (iii) do not modify the provisions of the Lease affecting Lender, including, without limitation, subordination, attornment and the rights of a mortgagee to cure defaults of the landlord. Provided such Minor Lease complies with the provisions of this Section 6.06(a) and with the leasing guidelines attached hereto as Exhibit B ("LEASING GUIDELINES"), Borrowers shall not be required to obtain Lender's consent before entering into such Minor Lease. "MINOR LEASE" shall mean a Future Lease which demises 25,000 square feet or less of space within the Improvements. (b) Each Minor Lease which does not comply with the provisions of Section 6.06(a) or with the Leasing Guidelines may only be entered into with the prior written consent of Lender. (c) Each Major Lease may only be entered into with the prior written consent of Lender. "MAJOR LEASE" shall mean a Future Lease which demises more than 25,000 square feet of space within the Improvements. (d) Notwithstanding anything in this Section 6.06 to the contrary, all Future Leases shall be subject to review and approval by Lender if at the time thereof there exists an Event of Default which is continuing. (e) All requests for consent required hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or sent by United States Express Mail or courier service to Lender at the following address (or at such other address as shall be given in writing by Lender to Borrowers): Metropolitan Life Insurance Company 10 Park Avenue Morristown, New Jersey 07960 Attention: Assistant Vice-President Mortgage Portfolio Servicing and Asset Recovery Said request for consent must be accompanied by the proposed lease, a summary or abstract of the lease for which consent is requested (which summary or abstract shall contain the principal financial terms of the lease, the term and the principal provisions of such lease) and supporting financial information. -33- ARTICLE 7 ENVIRONMENTAL HAZARDS 7.01 Representations and Warranties. Borrowers hereby represent, warrant, covenant and agree to and with Lender that: (a) Neither Borrowers nor, to the best of Borrowers' knowledge, after due inquiry, any tenant, subtenant or occupant of the Properties, has at any time placed, suffered or permitted, nor at any time will Borrowers place, suffer or permit the presence of any Hazardous Materials (as defined in Section 7.05 hereof) at, on, under, within or about the Properties except Permitted Materials or as expressly approved by Lender in writing or as set forth in the environmental reports previously delivered to Lender. (b) Neither Borrowers nor any portion of the Properties is subject to any existing, pending or threatened investigation by any governmental authority under any Requirements of Environmental Laws (as defined in Section 7.06 hereof), (c) Borrowers have not and are not required by any Requirements of Environmental Laws to obtain any permits or licenses to use any portion of the Improvements, fixtures, or equipment on the Properties, (d) All operations or activities upon the Properties, and any use or occupancy of the Properties by Borrowers are presently and shall in the future be in compliance with all Requirements of Environmental Laws, (c) Borrowers will use best efforts to assure (i) that any tenant, subtenant or occupant of the Properties shall in the future be in compliance with all Requirements of Environmental Laws and (ii) that no tenant, subtenant or occupant places, suffers or permits any toxic waste or other Hazardous Materials (other than Permitted Materials), or any contaminants, oil or pesticides at, on, under, within or about the Properties, (f) Borrowers will comply with all of the requirements and recommendations set forth in any environmental site assessment performed with respect to the Properties prior to the date hereof as a condition of the funding of the Obligations and will obtain and forward to Lender revised environmental site assessments, if requested in writing by Lender. (g) Borrowers have not in the past, and do not intend in the future, to use the Properties for the purpose of refining, producing, storing, transferring, processing or transporting Hazardous Materials, (h) The Properties are not now being used nor, to Borrowers' knowledge, have the Properties ever been used as a "Facility", as such term is defined under CERCLA (as defined in Section 7.05), and none of the Properties will be used as a "Facility" after completion of any construction, renovation, restoration and other developmental work which Borrowers may undertake thereon after the date hereof. (i) Borrowers have received no summons, citation, directive letter or other communication, written or oral, from the New York Department of Environmental Conservation -34- ("NYDEC"), New Jersey Department of Environmental Protection ("NJDEP"), Maryland Department of the Environment ("MDDE"), Pennsylvania Department of Environmental Protection ("PADEP"), Connecticut Department of Environmental Protection ("CTDEP") or United States Environmental Protection Agency ("EPA") regarding any alleged violation of law relating to action required upon the Properties. To Borrowers' knowledge, no previous or present owner, tenant or subtenant of the Properties has received a summons, citation, directive letter or other communication, written or oral, from any local, state or federal environmental authority regarding any alleged violation or environmental laws or action required on the Properties to rectify any environmental condition. (j) To Borrowers' knowledge, the Properties have not ever been used by previous owners and/or operators to generate, manufacture, refine, transport, treat, or dispose of Hazardous Materials, and Borrowers do not intend to use the Properties for such purposes. (k) Borrowers will use their best efforts to assure that any tenant, subtenant or occupant of the Properties shall in the future be in compliance with all Requirements of Environmental Laws. Borrowers shall not cause or permit, allow or suffer any tenant to cause the "release" (as defined in 42 U.S.C. '9601 et seq.) or "discharge" from any Property of any Hazardous Materials in violation of any Requirements of Environmental Laws. Should Borrowers cause or permit any "discharge" or "release" of Hazardous Materials from any Property in violation of any Requirements of Environmental Laws, Borrowers shall promptly remove or arrange for the removal of said Hazardous Materials. (l) In the event that there shall be filed a lien against any Borrower or any Property by the NYDEC, the NJDEP, the MDDE, the PADEP, the CTDEP, the EPA or any other governmental agency or authority relating to the remediation, removal, clean-up or other disposition of any Hazardous Material or to Requirements of Environmental Laws, then Borrowers shall, within thirty (30) days from the date that any Borrower is given actual notice that the lien has been placed against a Property, either (i) pay the claim and remove the lien from the Property, or (ii) furnish (A) a bond reasonably satisfactory to the title insurance companies and Lender in the amount of the claim out of which the lien arises, or (B) a cash deposit in the amount of the claim out of which the lien arises, and shall promptly remove or arrange for the removal of the lien. (m) Unless required by applicable Requirements of Environmental Laws, in no event shall any Remedial Work (as hereinafter defined) taken at any Property result in any institutional or engineering controls, including, without limitation, capping, or a deed notice or restriction recorded on the record or other use restrictions, including, but not limited to, a classification exception area. Any soil at a Property required under Requirements of Environmental Laws to be remediated shall be remediated to the most stringent currently applicable standards or lesser standards approved in writing by any environmental agency having jurisdiction over such Property. 7.02 Remedial Work. In the event any investigation or monitoring of site conditions or any clean up, containment, restoration, removal or other remedial work (collectively, the "Remedial Work") is reasonably necessary under any Requirements of Environmental Laws, or is required by any judicial order, or by any governmental entity, or in order to comply with the -35- provisions hereof, Borrowers shall within sixty (60) days after written demand by Lender (or such shorter period of time as may be required under Requirements of Environmental Laws or such order) prepare a plan for performing (subject to Lender's approval) and commence the Remedial Work in compliance With such applicable law, regulation, order or agreement. All Remedial Work shall be promptly performed by one or more contractors, selected by Borrowers and reasonably approved in advance in writing by Lender, and under the supervision of a consulting engineer, selected by Borrowers and reasonably approved in advance in writing by Lender. All costs and expenses of such Remedial Work shall be paid by Borrowers including, without limitation, the charges of the contractor(s) and/or the consulting engineer, and Lender's reasonable attorneys', architects' and/or consultants' fees and costs incurred in connection with monitoring or review of such Remedial Work. In the event Borrowers shall fail to timely commence, or cause to be commenced, or fail to diligently prosecute to completion, such Remedial Work, Lender may, but shall not be required to, cause such Remedial Work to be performed, and all costs and expenses thereof, or incurred in connection therewith, shall be reimbursed to Lender in accordance with Section 14.15 hereof. 7.03 Environmental Site Assessment. Lender shall have the right, at any time and from time to time, to undertake, at the expense of Borrowers, an environmental site assessment on any or all of the Properties, including any testing that Lender may determine, in its sole discretion, is necessary to ascertain the environmental condition of such Properties and the compliance of such Properties with Requirements of Environmental Laws. Borrowers shall cooperate fully with Lender and its consultants performing such assessments and tests. 7.04 Unsecured Obligations. No amounts which may become owing by Borrowers to Lender under this Article 7 or under any other provision of this Agreement as a result of a breach of or violation of this Article 7 shall be secured by the Mortgages. The obligations shall continue in full force and effect and any breach of this Article 7 shall constitute an Event of Default. The lien of the Mortgages shall not secure any obligations evidenced by or arising under the Indemnity Agreements ("UNSECURED OBLIGATIONS"). The Unsecured Obligations shall continue in full force, and any breach or default of any such obligations shall constitute a breach or default under this Agreement and the other Loan Documents, including the Mortgages, but the proceeds of any foreclosure sale shall not be applied against Unsecured Obligations. Nothing in this Section shall in any way limit or otherwise affect the right of Lender to obtain a judgment in accordance with applicable law for any deficiency in recovery of all obligations that are secured by the Mortgage following foreclosure, notwithstanding that the deficiency judgment may result from diminution in the value of any of the Properties by reason of any event or occurrence pertaining to Hazardous Materials or any Requirements of Environmental Laws. 7.05 Hazardous Materials. "HAZARDOUS MATERIALS" shall include without limitation: (a) Those substances included within the definitions of "hazardous substances," "hazardous materials," "toxic substances," or "solid waste" in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Sections 9601 et seq., ("CERCLA"), the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Sections 6921 et seq., the Solid Waste Disposal Act, 42 U.S.C. Sections 6901 et seq., and the Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801 et seq., and in the -36- regulations promulgated pursuant to said laws, as each may hereafter be amended from time to time; (b) Those substances described as "hazardous substances", "hazardous wastes," "hazardous materials" or "toxic substances" in the state or local Requirements of Environmental Laws; (c) Those chemicals known or suspected to cause cancer or reproductive toxicity, as published pursuant to the state or local Requirements of Environmental Laws; (d) Those substances listed in the United States Department of Transportation Table (49 CFR 172.101 and amendments thereto) or by the EPA (or any successor agency) as hazardous substances (40 CFR Part 302 and amendments thereto); (e) Any material, waste or substance which is (i) petroleum, (ii) asbestos, (iii) polychlorinated biphenyls, (iv) designated as a "hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. Section 1251 et seq. (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. Section 1317); (v) a chemical substance or mixture regulated under the Toxic Substances Control Act of 1976, 15 U.S.C. Sections 2601 et seq.; (vi) flammable explosives; or (vii) radioactive materials; and (f) Such other substances, materials and wastes which are or become regulated as hazardous or toxic under applicable local, state or federal law, or the United States government, or which are classified as hazardous or toxic under federal, state, or local laws or regulations. 7.06 Requirements of Environmental Laws. "REQUIREMENTS OF ENVIRONMENTAL LAWS" means, with respect to any Property, all applicable requirements, whether now existing or hereafter enacted, of environmental, ecological, health, or industrial hygiene laws or regulations or rules of common law related to such Property, including, without limitation, all requirements imposed by any environmental permit, law, rule, order, or regulation of any federal, state, or local executive, legislative, judicial, regulatory, or administrative agency, which relate to (a) exposure to Hazardous Materials; (b) pollution or protection of the air, surface water, ground water, land; (c) solid, gaseous, or liquid waste generation, treatment, storage, disposal, or transportation; or (d) regulation of the manufacture, processing, distribution and commerce, use, or storage of Hazardous Materials. 7.07 Permitted Materials. "PERMITTED MATERIALS" means cleaning and maintenance materials and office supplies of the types and quantities customarily used and stored at properties similar to the Properties, provided that same are used, stored and maintained in accordance with all Requirements of Environmental Laws, and materials and supplies used in the operating of any existing dry cleaning plant at any Property, provided that same are used, stored and maintained in accordance with all Requirements of Environmental Laws. -37- ARTICLE 8 CASUALTY, CONDEMNATION AND RESTORATION 8.01 Borrowers' Representations. Borrowers represent and warrant as follows: (a) No casualty or damage to any part of any of the Properties has occurred which has not been fully restored or replaced. (b) No part of any of the Properties has been taken in condemnation or other similar proceeding or transferred in lieu of condemnation, nor have Borrowers received notice of any proposed condemnation or other similar proceeding affecting any of the Properties. 8.02 Restoration. (a) Borrowers shall give prompt written notice of any casualty to a Property to Lender whether or not required to be insured against. The notice shall describe the nature and cause of the casualty and the extent of the damage to such Property. (b) In the event of any damage to or destruction of a Property, and regardless of whether Net Insurance Proceeds (defined below) are available therefor, the Borrower that owns such Property shall commence and diligently pursue to completion the Restoration of such Property. Borrowers assign to Lender all Insurance Proceeds which Borrowers are entitled to receive in connection with a casualty whether or not such insurance is required under this Agreement. In the event of any damage to or destruction of any Property, and provided that (1) an Event of Default does not currently exist, and (2) Lender has determined that (i) its security has not been impaired, (ii) the repair, restoration and rebuilding of any portion of such Property that has been partially damaged or destroyed can be accomplished in full compliance with all Requirements to the same condition, character and general utility as nearly as possible to that existing prior to the damage or destruction and at least equal in value as that existing prior to such damage or destruction (the "RESTORATION"), and (iii) the Restoration can be completed not less than six (6) months prior to the Maturity Date, then Lender shall hold and disburse such Insurance Proceeds, less (x) the cost, if any, to Lender of recovering the Insurance Proceeds including, without limitation, attorneys' fees and expenses, adjusters' fees and fees incurred in Lender's performance of its obligations hereunder, and (y) any Business Income Insurance Proceeds received by Lender (the "NET INSURANCE PROCEEDS"), in the manner hereinafter provided to the Restoration. Notwithstanding anything to the contrary contained herein, if the Net Insurance Proceeds with respect to any one Property shall be equal to or less than the Proceeds Threshold and the costs of completing the Restoration of such Property shall be equal to or less than the Proceeds Threshold, the Net Insurance Proceeds will be disbursed by Lender to Borrower that owns such Property upon receipt provided that no Event of Default currently exists and such Borrower delivers to Lender a written undertaking to commence expeditiously and to complete satisfactorily with due diligence the Restoration in accordance with the terms of this Agreement. In the event that the above conditions for Restoration have not been met, Lender may, at its option, apply the Net Insurance Proceeds to the reduction of the Aggregate Secured Indebtedness -38- in such order as Lender may determine and Lender may declare the entire Obligations (as defined in the Mortgage encumbering such Property) immediately due and payable. (c) If the Net Insurance Proceeds are to be used for the Restoration in accordance with this Article, the relevant Borrower shall comply with Lender's Requirements For Restoration as set forth in Section 8.04 below. Upon Lender's receipt of a final certificate of occupancy or other evidence of approval of appropriate governmental authorities for the use and occupancy of the Improvements and other evidence reasonably requested by Lender that the Restoration has been completed and the costs thereof have been paid in full (unless otherwise discharged or bonded pursuant to Section 3.09), and satisfactory evidence that no mechanic's or similar liens for labor or material supplied in connection with the Restoration are outstanding against the restored Property and provided that an Event of Default does not currently exist, Lender shall pay any remaining Restoration Funds (as defined in Section 8.04) then held by Lender to the Borrower who completed such Restoration; provided, however, nothing contained herein shall prevent Lender from applying at any time the whole or any part of the Restoration Funds to the curing of any Event of Default. (d) In the event that Lender applies all or any portion of the Restoration Funds to repay the unpaid Obligations as provided in this Section 8.02, after payment in full of the Obligations, any remaining Restoration Funds may, at Lender's option, be applied to payment of the other Aggregate Secured Indebtedness. After payment in full of the Aggregate Secured Indebtedness, any remaining Restoration Funds shall be paid to Borrowers. (e) Nothing contained herein shall prevent accrual of interest as provided in the applicable Note on any portion of the Obligations to which the Net Insurance Proceeds are to be applied until such time as the Net Insurance Proceeds are actually received by Lender and applied by Lender to reduce the Obligations. 8.03 Condemnation. (a) If any Property or any part thereof is taken by reason of any condemnation or similar eminent domain proceeding, or by a grant or conveyance in lieu of condemnation or eminent domain ("CONDEMNATION"), Lender shall be entitled to all compensation, awards, damages, proceeds and payments or relief for the Condemnation ("CONDEMNATION PROCEEDS") provided, however, if all of the conditions set forth in subparagraphs (1) and (2) of Section 8.03(b) are met, the Borrower that owns the Property subject to such Condemnation delivers to Lender a written undertaking to commence expeditiously and to complete satisfactorily with due diligence the Restoration in accordance with the terms of this Agreement, and the Net Condemnation Proceeds (as defined below) with respect to any one Property shall be equal to or less than the Proceeds Threshold and the costs of completing the Restoration of such Property shall be equal to or less than the Proceeds Threshold, the Borrower owning such Property shall have the right to commence, appear in and prosecute in its own name any such action or proceeding, to make any compromise or settlement in connection with such Condemnation and to collect the Condemnation Proceeds relating thereto. In all other cases, at its option, Lender shall be entitled to commence, appear in and prosecute in its own name any action or proceeding or to make any compromise or settlement in connection with such Condemnation. Borrowers hereby irrevocably constitute and appoint Lender as their attorney in fact, which appointment is coupled -39- with an interest, to commence, appear in and prosecute any action or proceeding or to make any compromise or settlement in connection with any such Condemnation. (b) In the event of any Condemnation of a Property, and regardless of whether Net Condemnation Proceeds are available therefor, the Borrower owning such Property shall commence and diligently pursue to completion the Restoration of the portion of such Property that has not been taken. Borrowers assign to Lender all Condemnation Proceeds which Borrowers are entitled to receive except as provided in Section 8.03(a). In the event of any Condemnation, and provided that (1) an Event of Default does not currently exist, and (2) Lender has determined that (i) its security has not been impaired, (ii) the Restoration of any portion of the Property that has not been taken can be accomplished in full compliance with all Requirements to the same condition, character and general utility as nearly as possible to that existing prior to the taking and at least equal in value as that existing prior to the taking, and (iii) the Restoration can be completed not less than nine (9) months prior to the Maturity Date, then Lender shall hold and disburse the Condemnation Proceeds, less the cost, if any, to Lender of recovering the Condemnation Proceeds including, without limitation, reasonable attorneys' fees and expenses, and adjusters' fees (the "NET CONDEMNATION PROCEEDS"), to the Restoration. (c) In the event the Net Condemnation Proceeds are to be used for the Restoration, the Borrower that owns the Property subject to such Condemnation shall comply with Lender's Requirements For Restoration as set forth in Section 8.04 below. Upon such Borrower's satisfaction and completion of the Requirements For Restoration and upon confirmation that there is no Event of Default then existing under the Loan Documents, Lender shall pay any remaining Restoration Funds (as defined in Section 8.04 below) then held by Lender to such Borrower. (d) After Restoration of the remaining Improvements, or in the event the conditions precedent for such Restoration are not met, Lender shall have the right to apply the Net Condemnation Proceeds first to the Obligations (as defined in the Mortgage encumbering the Property which is subject to such Condemnation) and then to the other Aggregate Secured Indebtedness, in such manner and such order as Lender in its sole discretion shall determine, without adjustment in the dollar amount of the installments due under the Notes. Nothing contained herein shall prevent the accrual of interest as provided in the Notes on any portion of the Aggregate Secured Indebtedness to which the Net Condemnation Proceeds are to be applied until such Net Condemnation Proceeds are actually received by Lender and so applied to reduce the Aggregate Secured Indebtedness. 8.04 Requirements for Restoration. Unless otherwise expressly agreed in a writing signed by Lender, the following are the Requirements For Restoration: (a) In the event the Net Insurance Proceeds are to be used for the Restoration, the Borrower owning the damaged Property shall, prior to the commencement of any work or services in connection with the Restoration (the "WORK"), deliver or furnish to Lender (i) complete plans and specifications for the Work which (A) have been approved by all governmental authorities whose approval is required, (B) bear the signed approval of an architect satisfactory to Lender (the "ARCHITECT") and (C) are accompanied by Architect's signed estimate of the total estimated cost of the Work which plans and specifications shall be subject to Lender's -40- prior approval (if and when approved, the "APPROVED PLANS AND SPECIFICATIONS"); (ii) the amount of money which, as determined by Lender, will be sufficient when added to the Net Insurance Proceeds, if any, to pay the entire cost of the Restoration (all such money as held by Lender being herein collectively referred to as the "RESTORATION FUNDS"); (iii) copies of all permits and approvals required by law in connection with the commencement and conduct of the Work; (iv) a contract for construction executed by such Borrower and a contractor reasonably satisfactory to Lender (the "CONTRACTOR") in form, scope and substance reasonably satisfactory to Lender (including a provision for retainage) for performance of the Work; and (v) a surety bond for and/or guarantee of payment for and completion of, the Work, which bond or guarantee shall be (A) in form, scope and substance reasonably satisfactory to Lender, (B) signed by a surety or sureties, or guarantor or guarantors, as the case may be, who are reasonably acceptable to Lender, and (C) in an amount not less than Architect's total estimated cost of completing the Work. (b) Said Borrower shall not commence any portion of the Work, other than temporary work to protect the damaged Property or prevent interference with business, until such Borrower shall have complied with the requirements of subparagraph (a) above. After commencing the Work, such Borrower shall perform or cause Contractor to perform the Work diligently and in good faith in accordance with the Approved Plans and Specifications. So long as there does not currently exist an Event of Default under any of the Loan Documents, Lender shall disburse the Restoration Funds in increments to such Borrower, from time to time as the Work progresses, to pay (or reimburse such Borrower for) the costs of the Work, but subject to the following conditions, any of which Lender may waive in its sole discretion: (i) Architect or a structural engineer satisfactory to Lender (the "ENGINEER"') shall be in charge of the Work; (ii) Lender shall make such payments only upon not less than ten (10) days' prior written notice from Borrower to Lender and such Borrower's delivery to Lender of (A) such Borrower's written request for payment (a "REQUEST FOR PAYMENT") accompanied by a certificate by Architect or Engineer in form, scope and substance satisfactory to Lender which states that all of the Work completed to that date has been done in compliance with the Approved Plans and Specifications and in accordance with all provisions of law, that the amount requested has been paid or is then due and payable and is properly a part of the cost of the Work and that when added to all sums, if any, previously paid out by Lender, the requested amount does not exceed the value of the Work done to the date of such certificate; (B) evidence satisfactory to Lender that there are no mechanic's or similar liens for labor or material supplied in connection with the Work to date or that any such liens have been adequately provided for to Lender's satisfaction; and (C) evidence satisfactory to Lender that the balance of the Restoration Funds remaining after making the payments shall be sufficient to pay the balance of the cost of the Work not completed to date (giving in such reasonable detail as Lender may require an estimate of the cost of such completion). Each Request for Payment shall be accompanied by (x) waivers of liens satisfactory to Lender covering that part of the Work previously paid for, if any, (y) a search prepared by a title company or by other evidence satisfactory to Lender that no mechanic's liens or other liens or instruments for the retention of title in respect of any part of the Work have been filed against the applicable Property and not discharged of record, and (z) an endorsement to Lender's title policy insuring the Lender that no encumbrance exists on or affects the applicable Property other than the Permitted Exceptions; -41- (iii) No Leases affecting ten percent (10%) or more of the damaged Property in the aggregate immediately prior to the damage or destruction shall have been cancelled, nor contain any still exercisable right to cancel, due to such damage or destruction; and (iv) Any Request for Payment after the Restoration has been completed shall also be accompanied by a copy of any certificate or certificates required by law to render occupancy of the Improvements located at the damaged Property legal. (c) If (i) within ninety (90) days after the occurrence of any damage, destruction or condemnation requiring Restoration, the Borrower owning such damaged, destroyed or condemned Property fails to submit to Lender and receive Lender's approval of plans and specifications or fails to deposit with Lender the additional amount necessary to accomplish the Restoration as provided in subparagraph (a) above, or (ii) after such plans and specifications are approved by all such governmental authorities and Lender, such Borrower fails to commence promptly or diligently continue to completion the Restoration, or (iii) such Borrower becomes delinquent in payment to mechanics, materialmen or others for the costs incurred in connection with the Restoration, then, in addition to all of the rights herein set forth and after five (5) days' written notice of the non fulfillment of one or more of the foregoing conditions, Lender may apply the Restoration Funds then or thereafter held by Lender first to reduce the Obligations and then to reduce the other Aggregate Secured Indebtedness in such order as Lender may determine, and at Lender's option and in its sole discretion, Lender may declare the Obligations immediately due and payable together with the Prepayment Fee. ARTICLE 9 REPRESENTATIONS OF BORROWERS 9.01 ERISA. Borrowers hereby represent, warrant and agree that; (a) each Borrower is acting on its own behalf and is not an employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which is subject to Title I of ERISA, nor a plan as defined in Section 4975(e)(l) of the Internal Revenue Code of 1986, as amended (the "CODE"; each of the foregoing hereinafter referred to collectively as a "PLAN"); (b) each Borrower's assets do not constitute "plan assets" of one or more such Plans within the meaning of Department of Labor Regulation Section 2510.3-101; and (c) no Borrower will be reconstituted as a Plan or as an entity whose assets constitute "plan assets". 9.02 Non-Relationship. No partner, member or shareholder of any Borrower is (a) a director or officer of Lender, (b) a parent, son or daughter of a director or officer of Lender, or (c) a spouse of a director or officer of Lender. 9.03 No Adverse Change. Borrowers represent and warrant that. (a) There has been no material adverse change from the conditions shown in the Application or in the materials submitted in connection with the Application in the credit rating or financial condition of Borrowers, the general partners, shareholders or members of Borrowers or any entities which are general partners, shareholders or members of any Borrower, respectively as the case may be (collectively, "BORROWERS' CONSTITUENTS"). -42- (b) Borrowers have delivered to Lender true and correct copies of all Borrowers' organizational documents and except as expressly approved by Lender in writing, there have been no changes in Borrowers' Constituents since the date that the Application was executed by kramont (c) None of Borrowers, nor any of the Borrowers' Constituents, is involved as a debtor in any bankruptcy, reorganization, insolvency, dissolution or liquidation proceeding, and to the best knowledge of Borrowers, no such proceeding is contemplated or threatened. 9.04 FIRPTA. Borrowers certify that neither Borrowers nor any partner, shareholder or member of any Borrower is, and no legal or beneficial interest in a partner member or shareholder of any Borrower is or will be held, directly or indirectly by, a "foreign person" within the meaning of Sections 1445 and 7701 of the Internal Revenue Code of 1986. 9.05 Authority. The parties executing the Loan Documents and the Indemnity Agreements on behalf of Borrowers have the legal capacity and authority to execute said documents. 9.06 Purpose of Loan. The Aggregate Secured Indebtedness was obtained solely for the purpose of carrying on or acquiring a business or for commercial investment. ARTICLE 10 EXCULPATION AND LIABILITY 10.01 Liability of Borrowers. (a) Notwithstanding anything to the contrary contained in this Agreement, the Notes or in any of the other Loan Documents, but without in any manner releasing, impairing or otherwise affecting this Agreement, the Notes or any of the other Loan Documents, or the validity hereof or thereof, or the liens of the Mortgages, except as expressly set forth in this Section 10.01, the liability of Borrowers shall be limited to and satisfied out of the Properties, the Leases, Rents and Profits and all other collateral assigned or pledged to Lender pursuant to any of the Loan Documents, and Lender will not enforce a deficiency judgment against Borrowers. Notwithstanding any of the foregoing, nothing contained in this Section 10.01, shall be deemed to prejudice the rights of Lender to proceed against any entity or person whatsoever, including any Borrower and the general partner, shareholders or members of any Borrower and/or any Liable Party, (i) to enforce any leases entered into by a Borrower or its affiliates as tenant, guarantees, or other agreements entered into by a Borrower in a capacity other than as borrower or any policies of insurance; (ii) to recover damages for fraud, material misrepresentation, material breach of warranty or waste; (iii) to recover any condemnation proceeds or insurance proceeds or other similar funds which have been misapplied by a Borrower or which, under the terms of the Loan Documents, should have been paid to Lender; (iv) to recover any tenant security deposits, tenant letters of credit or other deposits or fees paid to a Borrower that are part of the collateral for the Aggregate Secured Indebtedness or prepaid rents for a period of more than thirty (30) days which have not been delivered to Lender; (v) to recover Rents and Profits received by a Borrower after the first day of the month in which an Event of Default occurs and prior to the date Lender acquires title to the Properties which have not been applied to the -43- Aggregate Secured Indebtedness or in accordance with the Loan Documents to operating and maintenance expenses of the Properties; (vi) to recover damages, costs and expenses arising from, or in connection with the provisions of this Agreement pertaining to Hazardous Materials or the Indemnity Agreements; (vii) to recover all amounts due and payable pursuant to Sections 14.14 and 14.15 and any amounts expended by Lender in connection with the foreclosure of the Mortgages; (viii) to recover damages arising from any Borrower's failure to comply with Section 9.01; and/or (ix) to recover damages arising from any Borrower's failure to pay when due any Imposition or Premium at any time when such Borrower is not required to make escrow deposits pursuant to Section 3.05. Borrowers shall be personally liable for Borrowers' obligations arising in connection with the matters set forth in the foregoing clauses (i) to (ix) inclusive. (b) The limitation of liability set forth in this Section 10.01 shall not apply and the Aggregate Secured Indebtedness shall be fully recourse in the event that (i) a Borrower commences a voluntary bankruptcy or insolvency proceeding or an involuntary bankruptcy or insolvency proceeding is commenced against a Borrower and is not dismissed within 90 days of filing, or (ii) there is a Transfer or a Secondary Financing, except as permitted by the Loan Documents or as otherwise approved by Lender in writing. In addition, this agreement shall not waive any rights which Lender would have under any provisions of the Bankruptcy Code to file a claim for the full amount of the Aggregate Secured Indebtedness or to require that the Property shall continue to secure all of the Aggregate Secured Indebtedness (subject to the limitations set forth in Section 7.06 of the New York Mortgages). 10.02 Liability of Trustees, Officers or Shareholders. This Agreement and all documents, agreements, understanding and arrangements relating to the transactions contemplated hereby have been executed by the undersigned in his capacity as an officer of the managing member or general partner of Borrowers, which are indirect subsidiaries of the Trust which has been formed as a Maryland Real Estate Investment Trust pursuant to a Declaration of Trust of Kramont Realty Trust dated November 12, 1999, or in his capacity as an officer of the Trust, and not individually. None of the trustees, officers or shareholders of the Trust shall be bound or have any personal liability hereunder or thereunder. Under no circumstances shall any party be entitled to seek recourse or commence any action against any of the trustees, officers or shareholders of the Trust or any of their personal assets for the performance or payment of any obligation hereunder. ARTICLE 11 CHANGE IN OWNERSHIP, CONVEYANCE OF PROPERTY 11.01 Conveyance of Property, Change in Ownership and Composition. (a) Other than as set forth in Sections 11.01(b), 11.01(c) and 11.01(d), Borrowers shall not, without the prior written consent of Lender in its sole discretion (i) create, effect, consent to, suffer to exist or permit any direct or indirect conveyance, sale, assignment, transfer, lien, pledge, mortgage, security interest or other encumbrance or alienation of any Property, or any part thereof or interest therein (excepting equipment and incidental personal property which is sold and thereafter replaced with personal property of relatively equal or greater value which performs a similar function); (ii) cause or permit any conveyance, transfer, pledge or encumbrance of any direct or indirect interest in any Borrower or in any entity comprising any -44- Borrower; (iii) cause or permit any change in any of the partners, shareholders, members of beneficiaries of any Borrower or the individuals or entities comprising such partners, shareholders or members from those existing on the date hereof; or (iv) cause or permit any merger, reorganization, dissolution or other change in the ownership structure of any Borrower or any entity comprising any Borrower (collectively "TRANSFERS"); provided, however, Transfer shall not include any Permitted Ownership Structure Transfer or Permitted Property Transfer (collectively "PERMITTED TRANSFERS"). (b) As used herein, "PERMITTED OWNERSHIP STRUCTURE TRANSFER" shall mean any of (i) transfers of direct or indirect interests in a Borrower as a result of the death of a natural person who is a partner, shareholder or member of such Borrower or any entity comprising such Borrower, or in connection with estate planning of a natural person who is a partner, shareholder or member of a Borrower or the constituent entities owning, directly or indirectly, interests in such Borrower, to the spouse, son or daughter of such natural person or descendant of such son or daughter, or to a stepson or stepdaughter of such natural person or descendant of such stepson or stepdaughter; or (ii) transfers of the shares or stock of the Trust or operating partnership units relating to the limited partnership interests of Kramont; provided that (A) the Trust is a publicly-traded company listed on a national stock exchange and (B) at all times the Trust maintains effective management and legal control over the Borrower and the Properties. Any acquisition or merger of, or other change in control involving, the Trust shall be deemed a Permitted Ownership Structure Transfer if (x) following such acquisition, merger or change in control the surviving legal entity has a net worth at least equal to that of the Trust immediately prior to such acquisition, merger or change in control, and (y) Lender is given notice of such acquisition, merger or change in control within five (5) business days after the occurrence thereof. (c) Notwithstanding anything to the contrary contained in this Article 11, Lender shall consent to a one time sale, conveyance or transfer of the Properties in their entirety (hereinafter, "PERMITTED PROPERTY TRANSFER") at any time after July 1, 2005, provided that each of the following terms and conditions are satisfied: (1) No Event of Default is then continuing hereunder or under any of the other Loan Documents, the Indemnity Agreements or the Liable Parties Guaranties; (2) Borrowers shall have given Lender written notice ("PROPERTY TRANSFER NOTICE") of the terms of such prospective Permitted Property Transfer not less than thirty (30) days before the date on which such Permitted Property Transfer is scheduled to close and, concurrently therewith, gives Lender all such information concerning the proposed transferee of the Property (hereinafter, "TRANSFEREE") as Lender would require in evaluating an initial extension of credit to a borrower; (3) Lender shall have the right to approve or disapprove the proposed Transferee, which approval shall not be unreasonably withheld, conditioned or delayed; -45- (4) All of the Properties are simultaneously conveyed to the Transferee or an affiliate of the Transferee reasonably acceptable to Lender; (5) The Transferee shall be able to make the representations set forth in Sections 9.01, 9.02 and 9.04 hereof; (6) The Transferee (or its principals) shall (A) have a total market capitalization of not less than $700,000,000.00, and (B) have experience in the ownership, management and leasing of properties similar to the Properties; (7) The Aggregate Net Cash Flow from the Properties for the twelve (12) month period ending on the last day of the calendar month immediately preceding the date on which the Property Transfer Notice is delivered (the "TRANSFER MEASURING PERIOD"), as determined by Lender, shall be not less than 1.60 times the annual aggregate debt service payments due with respect to the Loans during the Transfer Measuring Period (including, without limitation, principal and interest) and Borrowers shall have delivered to Lender operating statements for the Transfer Measuring Period. For the purposes of this Agreement, "AGGREGATE NET CASH FLOW" shall mean (i) the total gross income from the Properties for the Transfer Measuring Period less (ii) all operating expenses of the Properties during the Transfer Measuring Period (ie., expenses directly attributable to the operation, repair .and/or maintenance of the Properties, including, without limitation, Impositions, Premiums and management fees but excluding debt service payments, capital expenditures, vacancy allowances, income taxes of Borrowers and any non-cash charges or expenses such as depreciation); (8) The ratio of (A) the then outstanding aggregate principal amounts of the Loans to (B) the aggregate fair market values of the Properties is not greater than 70%, and Borrowers shall have delivered to Lender appraisals of the Properties reasonably satisfactory to Lender from an appraiser reasonably satisfactory to Lender confirming such loan to value ratio; (9) Concurrently with the closing of the Permitted Property Transfer, Borrowers or Transferee shall pay to Lender a non-refundable assumption fee in an amount equal to one percent (1%) of the then outstanding principal amount of the Loans; (10) Transferee shall expressly assume in writing the Loan Documents and the Indemnity Agreements in an instrument satisfactory to Lender and one or more additional individuals or entities acceptable to Lender shall execute guaranties in the form of the Liable Parties Guaranties and indemnities in the form of the Indemnity Agreements, each with respect to events arising or occurring from and after the date of the Permitted Property Transfer (whereupon Liable Parties and Borrowers shall be released as to all -46- obligations with respect to events arising or occurring from and after the date of the Permitted Property Transfer); (11) Borrowers or Transferee shall pay all reasonable costs and expenses incurred by Leader in connection with the Permitted Property Transfer, including, without limitation, documentation costs and reasonable attorneys' fees; (12) Borrowers or Transferee shall deliver to Lender, without any cost or expense to Lender, an endorsement to Lender's title insurance policies insuring the liens of the Mortgages, in form and substance reasonably satisfactory to Lender, extending the effective date of such policy to the date of execution and delivery of the assumption agreement referenced above in subparagraph (10) of this Section, with no additional exceptions added to such policy other than the Permitted Exceptions, and insuring that fee simple title to the Properties is vested in Transferee; (13) Borrowers or Transferee shall deliver to Lender, without any cost or expense to Lender, hazard insurance endorsements or certificates and other similar materials as Lender may deem necessary at the time of the Permitted Property Transfer, evidencing compliance by Transferee with the provisions of Article 4; (14) Borrowers shall execute and deliver to Lender, without any cost or expense to Lender, a release of Lender, its officers, directors, employees and agents, from all claims and liability relating to the transactions evidenced by the Loan Documents, through and including the date of the closing of the Permitted Property Transfer, which agreement shall be in form and substance reasonably satisfactory to Lender and shell be binding upon the Transferee; and (15) If there are any Securities issued with respect to the Aggregate Secured Indebtedness which have been assigned a rating by a Rating Agency, Lender shall have received confirmation from such Rating Agency that assumption of the Aggregate Secured Indebtedness by Transferee will not result in an adverse change in the rating of the Securities. No Permitted Property Transfer shall release Borrowers or Liable Parties from their obligations under the Loan Documents, the Indemnity Agreements or the Liable Parties Guaranties for any acts or events occurring or obligations arising prior to or simultaneously with the closing of such Permitted Property Transfer. Upon request, Borrowers and Liable Parties shall execute, without any cost or expense to Lender, such documents and agreements as Lender shall reasonably require to evidence and effectuate the ratification of said obligations. Upon request, Lender shall execute and deliver to Borrowers and Liable Parties, without any cost or expense to Lender, a release of Borrowers and Liable Parties from all claims and liability arising under the Loan Documents, the Indemnity Agreements and the Liable Parties Guaranties after the date of the Permitted Property Transfer -47- (d) Notwithstanding anything to the contrary contained in this Article 11, Borrower may cause the release of up to four (4) of the Properties from the liens of the Mortgages encumbering such Properties and the other Loan Documents upon the substitution of replacement properties (each, a "PERMITTED PROPERTY SUBSTITUTION"), provided that each of the following terms and conditions are satisfied with respect to each Permitted Property Substitution: (1) No Event of Default is then continuing hereunder or under any of the other Loan Documents, the Indemnity Agreements or the Liable Parties Guaranties; (2) The Property to be released (the "RELEASE PROPERTY") and the property to be substituted for such Release Property (any such substituted property, a "REPLACEMENT PROPERTY") are owned by the same Borrower or another subsidiary of the Trust; (3) Such Borrower shall have given Lender written notice ("SUBSTITUTION NOTICE") of the terms of such prospective Permitted Property Substitution not less than sixty (60) days before the date on which such Permitted Property Substitution is scheduled to close and, concurrently therewith, gives Lender all such information concerning the proposed Replacement Property as Lender would require in evaluating an initial extension of a loan secured by such Replacement Property and pays to Lender a processing fee of $15,000.00; (4) The Replacement Property shall be another shopping center of a similar age, similar building construction design and quality, and with similar quality tenants and parking capacity as the Release Property; (5) The fair market value of the Replacement Property (as determined by an appraiser approved by Lender prior to the appraisals of the Replacement Property and the Release Property) is not less than the fair market value of the Release Property at the time of such substitution; (6) The Net Cash Flow from the Replacement Property for the twelve (12) month period ending on the last day of the calendar month immediately preceding the date on which the Substitution Notice is delivered (the "SUBSTITUTION MEASURING PERIOD"), as determined by Lender, shall be not less than 1.60 times the Substitution Measuring Period Debt Service Payments and such Borrower shall have delivered to Lender operating statements for the Substitution Measuring Period. For the purposes of this Agreement, "NET CASH FLOW" shall mean (i) the total gross income from the Replacement Property for the Substitution Measuring Period less (ii) all operating expenses of me Replacement Property during the Substitution Measuring Period (i.e., expenses directly attributable to the operation, repair and/or maintenance of the Replacement Property, including, without limitation, Impositions, Premiums and management fees but excluding Substitution Measuring Period Debt Service Payments, -48- capital expenditures, vacancy allowances, income taxes of Borrower and any non-cash charges or expenses such as depreciation) and "SUBSTITUTION MEASURING PERIOD DEBT SERVICE PAYMENTS" shall mean the annual aggregate debt service payments due during the Substitution Measuring period with respect to the indebtedness evidenced by the Note defined as the Obligations under the Mortgage encumbering the Release Property (including, without limitation, principal and interest); (7) The Replacement Property shall not be a leasehold estate or a condominium property; (8) Such Borrower shall be responsible for payment of all fees, costs, and expenses incurred by Lender and/or Borrower in connection with the substitution of the Replacement Property for the Release Property, including without limitation all survey costs, costs of inspections and reports required in connection therewith, appraisal fees, brokerage commissions, title charges, title insurance premiums, recording charges, architect's, engineer's, environmental consultant's and reasonable attorney's fees and expenses, and reasonable travel expenses of Lender's Architectural and Engineering Services employees; (9) Such Borrower executes and delivers to Lender such amendments to this Agreement, the applicable Mortgage, Loan Documents, Indemnity Agreement and Liable Parties Guaranty and such other documents as Lender deems reasonably necessary to spread the lien of the relevant Mortgage to the Replacement Property; (10) Such Borrower delivers to Lender, without any cost or expense to Lender, an endorsement to Lender's title insurance policy insuring that the lien of the relevant Mortgage encumbers the Replacement Property, in form and substance reasonably satisfactory to Lender, extending the effective date of such policy to the date of Permitted Property Substitution, with no liens, encumbrances or other exceptions affecting title which are not reasonably satisfactory to Lender, and insuring that fee simple title to the Replacement Property is vested in such Borrower; (11) Such Borrower delivers to Lender, without any cost or expense to Lender, hazard and other insurance endorsements or certificates, evidencing compliance with the provisions of Article 4; and (12) All of the conditions of the Application which would have been required to be met with respect to the Replacement Property if the Replacement Property had been one of the original properties constituting the collateral for the Aggregate Secured Indebtedness shall be fulfilled to the satisfaction of Lender with respect to the Replacement Property as of the date of substitution; and -49- 11.02 Prohibition on Subordinate Financing. Borrowers shall not incur or permit the incurring of (a) any financing in addition to the Aggregate Secured Indebtedness that is secured by a lien, security interest or other encumbrance of any part of the Properties or (b) any pledge or encumbrance of a partnership, member or shareholder or beneficial interest in any Borrower (individually or collectively, a "SECONDARY FINANCING"). 11.03 Statements Regarding Ownership. Borrowers agree to submit or cause to be submitted to Lender within forty-five (45) days after December 31st of each calendar year during the term of the Loans and thirty (30) business days after any written request by Lender (but not more than twice during any calendar year), a sworn, notarized certificate, signed by authorized members, partners or officers of Borrowers, as the case may be, stating whether (x) any part of the Properties., or any interest in any of the Properties, has been conveyed, transferred, assigned, encumbered, or sold, and if so, to whom; (y) any conveyance, transfer, pledge or encumbrance of any interest in a Borrower or any entity comprising a Borrower has been made, and if so, to whom; or (z) there has been any change in the shareholders, partners or members of a Borrower or the individuals or entities comprising such shareholders, partners or members of a Borrower from those on the Execution Date, and if so, a description of such change or changes. 11.04 Continuation of Existence. Each Borrower covenants that it shall not; (a) file or consent to a petition pursuant to applicable bankruptcy, insolvency, liquidation or reorganization statutes, or make an assignment for benefit of creditors without the unanimous consent of its partners or members or shareholders, as applicable; (b) dissolve, liquidate, consolidate, merge or sell all or substantially all of its assets except as permitted hereunder; or (c) materially modify, amend or revise its organizational documents without Lender's prior written consent 11.05 Managing Agent The Properties shall at all times be managed on Borrowers' behalf in a competent and professional manner appropriate as first-class shopping centers for the Use by a prominent professional managing agent. Prior to engaging such managing agent or executing a management agreement, such managing agent and management agreement shall be subject to approval by Lender, in its sole and absolute discretion, it being understood that Kramont is hereby approved by Lender as managing agent for the Properties and the management agreement in existence on the date hereof with Kramont, which Borrowers represent they have delivered to Lender a true, correct and complete copy of, is hereby approved by Lender, subject to the terms of the Subordination of Management Agreement of even date herewith between Lender and Kramont; provided that the terms and conditions of any subsequent management agreement between Kramont and Borrowers or any amendment or modification of any management agreement between Kramont and Borrower and any compensation of Kramont with respect to its services performed at or in connection with the Properties (other than an extension of the existing management agreement or the expansion of the existing management agreement to include additional properties owned by Borrowers or affiliates of Borrowers for compensation which is no greater, and on terms and conditions no less favorable to Borrowers, than those contained in the existing management agreement) are subject to approval by Lender in its sole and absolute discretion. As a condition to its retention as managing agent, each managing agent shall be required to execute and deliver to Leader an agreement that all fees due such managing agent are subordinate to all amounts due to Lender -50- ARTICLE 12 DEFAULTS AND REMEDIES 12.01 Events Of Default. Any of the following shall be deemed to be a material breach of Borrowers' covenants in this Agreement and shall constitute an event of default hereunder ("EVENT OF DEFAULT"): (a) The failure of any Borrower to pay (i) any installment of principal, interest or principal and interest or any required escrow deposit within seven (7) days of the due date of such payment or (ii) any other sum. required to be paid under any Loan Document, whether to Lender or otherwise, within seven (7) days after receipt of notice of such failure, provided that Borrowers will not be entitled to such notice more than once during any twelve (12) month period; (b) The filing by any Borrower or any Liable Party of a voluntary petition or application for relief in bankruptcy, the filing against any Borrower of an involuntary petition or application for relief in bankruptcy which is not dismissed within sixty (60) days, or any Borrower's or any Liable Party's adjudication as a bankrupt or insolvent, or the filing by any Borrower or any Liable Party of any petition, application for relief or answer seeking or acquiescing in any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under any present or future federal, state or other statute, law, code or regulation relating to bankruptcy, insolvency or other relief for debtors, or any Borrower's seeking or consenting to or acquiescing in the appointment of any trustee, custodian, conservator, receiver or liquidator of such Borrower or of all or any substantial part of any of the Properties or of any or all of the Rents and Profits, or the making of any general assignment for the benefit of creditors, or the admission in writing of its inability to pay its debts generally as they become due; (c) If any warranty, representation, certification, financial statement or other information made or furnished at any time pursuant to the terms of this Agreement or the other Loan Documents by any Borrower, or by any person or entity otherwise liable under any Loan Document shall be materially false or misleading as of the date made; (d) If any Borrower shall suffer or permit any Property, or any part of any Property, to be used in a manner that might (1) impair such Borrower's title to such Property, (2) create rights of adverse use or possession, or (3) constitute an implied dedication of any part of such Property; (e) If Liable Parties shall default under any of the Liable Parties Guaranties executed by Liable Parties in favor of Lender; (f) There is a Transfer or Secondary Financing, except as permitted by the Loan Documents or as otherwise approved by Lender in writing; or (g) The failure of any Borrower to perform or observe any other non-monetary term, provision, covenant, condition or agreement under this Agreement or any other Loan Document other than Sections 12.01(a)-(f), for a period of more than thirty (30) days after -51- receipt of notice of such failure (unless there is a specific shorter or longer grace period provided in this Agreement or the Loan Documents); provided, however, that if such failure is of a nature that it cannot be cured within thirty (30) days, such Borrower shall have such longer period of time as shall be reasonably necessary for such Borrower to cure such default, not to exceed thirty (30) additional days, provided that such Borrower commences the curing thereof within such thirty (30) day period and thereafter diligently prosecutes such cure to completion, and provided further that Lender determines, in the exercise of its good faith discretion, that there will be no deterioration or impairment of any of the Properties or other security for the Aggregate Secured Indebtedness during such longer period of time. 12.02 Remedies Upon Default. If an Event of Default occurs, Lender may, at its option, and without prior notice or demand, do and hereby is authorized and empowered by Borrowers so to do, any or all of the following: (a) Acceleration. Lender may declare the entire unpaid principal balance of the Loans to be immediately due and payable. (b) Recovery of Unpaid Sums. Lender may, from time to time, take legal action to recover any sums as the same become due, without regard to whether or not the Loans shall be accelerated and without prejudice to Lender's right thereafter to accelerate the Loans or exercise any other remedy, if such sums remain uncollected. (c) Foreclosure. Lender may institute proceedings, judicial or otherwise, for the complete or partial foreclosure of the Mortgages or the complete or partial sale of one or more of the Properties under power of sale or under any applicable provision of law. In connection with any such proceeding, Lender may sell each Property as an entirety or in parcels or units and at such times and place (at one or more sales) and upon such terms as it may deem expedient unless prohibited by law from so acting. (d) Entry. Lender may enter into possession of the Properties, lease the Improvements, collect all Rents and Profits and, after deducting all costs of collection and administration expenses, apply the remaining Rents and Profits in such order and amounts as Lender, in Lender's sole discretion, may elect to the payment of Impositions, operating costs, costs of maintenance, restoration and repairs, Premiums and other charges, including, but not limited to, costs of leasing the Properties and fees and costs of counsel and receivers, and in reduction of the Aggregate Secured Indebtedness. (e) Receivership. Lender may have a receiver appointed to enter into possession of the Properties, lease the Properties, collect the Rents and Profits and apply them as the appropriate court may direct. Lender shall be entitled to the appointment of a receiver without the necessity of proving either the inadequacy of the security or the insolvency of Borrowers or any Liable Parties. Borrowers and Liable Parties shall be deemed to have consented to the appointment of the receiver. The collection or receipt of any of the Rents and Profits by Lender or any receiver shall not affect or cure any Event of Default (f) Apply Funds in Reserve Accounts. Lender may apply any funds then held in escrow or reserve by Lender under the Loan Documents (including without limitation -52- Restoration Funds) as a credit on the Loans, in such priority and proportion as Lender deems appropriate. (g) Insurance Policies. Lender may surrender any or all insurance policies maintained as required by this Agreement, collect the unearned Premiums and apply such sums as a credit on the Loans, in such priority and proportion as Lender deems appropriate. Borrowers hereby appoint Lender their attomey-in-fact with full power of substitution (and which shall be deemed to be coupled with an interest and irrevocable until the Loans are paid and the Mortgages discharged of record, with Borrowers hereby ratifying all that said attorney shall do by virtue thereof) to surrender such insurance policies and collect such Premiums. 12.03 Application of Proceeds of Sale. In the event of a sale of any of the Properties pursuant to Section 12.02, to the extent permitted by law, the Lender shall determine in its sole discretion the order in which the proceeds from the sale shall be applied to the payment of the Aggregate Secured Indebtedness, including without limitation, the expenses of the sale and of all proceedings in connection with the sale, including reasonable attorneys' fees and expenses; Impositions, Premiums, liens, and other charges and expenses; the outstanding principal balance of the Aggregate Secured Indebtedness; any accrued interest; any Prepayment Fee; and any other amounts owed under any of the Loan Documents. 12.4 Cross-Default; Cross-Collateralization; Waiver of Marshalling of Assets. (a) Borrowers acknowledge that Lender has made the Loans to Borrowers upon the security of its collective interest in the Properties and in reliance upon The aggregate of the Properties taken together being of greater value as collateral security than the sum of each Property taken separately. Borrowers agree that the Mortgages are and will be cross-collateralized and cross-defaulted with each other so that (i) an Event of Default under any of the Mortgages shall constitute an Event of Default under each of the other Mortgages; (ii) an Event of Default under any of the Notes or this Agreement shall constitute an Event of Default under each Mortgage; (iii) subject to Section 7.06 of the New York Mortgages, each Mortgage shall constitute security for the Notes as if a single blanket lien were placed on all of the Properties as security for the Notes; and (iv) such cross-collateralization shall in no event be deemed to constitute a fraudulent conveyance, (b) To the fullest extent permitted by law, Borrowers, for themselves and their successors and assigns, waive all rights to a marshalling of the assets of Borrowers, Borrowers' partners and others with interests in Borrowers, and of the Properties, or to a sale in inverse order of alienation in the event of foreclosure of all or any of the Mortgages, and agree not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan Documents to a sale of the Properties for the collection of the Aggregate Secured Indebtedness without any prior or different resort for collection or of the right of Lender to the payment of the Aggregate Secured Indebtedness out of the net proceeds of the Properties in preference to every other claimant whatsoever. In addition, Borrowers, for themselves and their successors and assigns, waive in the event of foreclosure of any or all of the Mortgages, any equitable right otherwise available to Borrowers which would require the separate sale of the Properties or require Lender to exhaust its -53- remedies against any one Property or any combination of the Properties before proceeding against any other Property or combination of the Properties; and further in the event of such foreclosure Borrowers do hereby expressly consent to and authorizes, at the option of Lender, the foreclosure and sale either separately or together of any combination of the Properties. ARTICLE 13 BORROWERS AGREEMENTS AND FURTHER ASSURANCES 13.01 Participation and Sale of Loan. (a) Lender may (at no cost to Borrowers) sell, transfer or assign its entire interest or one or more participation interests in the Aggregate Secured Indebtedness, the Loan Documents, the Indemnity Agreements and the Liable Parties Guaranties, at any time and from time to time, including, without limitation, its rights and obligations as servicer of the Aggregate Secured Indebtedness, and may issue mortgage pass-through certificates or other securities evidencing a beneficial interest in the Aggregate Secured Indebtedness in a rated or unrated public offering or private placement, including depositing the Loan Documents with a trust that may issue securities (the "SECURITIES"). Lender may forward to each purchaser, transferee, assignee, servicer, participant, investor in such Securities (collectively, the "INVESTOR"), any prospective Investor or any Rating Agency rating or assigning value to such Securities, all documents and information which Lender now has or may hereafter acquire relating to the Aggregate Secured Indebtedness and to Borrowers or any Liable Parties and the Properties, whether furnished by Borrowers, any Liable Parties or otherwise, as Lender determines necessary or desirable. (b) Borrowers (at no cost to Borrowers) will cooperate with the Lender and the Rating Agencies in furnishing such information and providing such other assistance, reports and legal opinions as the Lender may reasonably request in connection with any such transaction. In addition, Borrower's acknowledge that Lender may release or disclose to potential purchasers or transferees of the Aggregate Secured Indebtedness, or potential participants in the Aggregate Secured Indebtedness, originals or copies of the Loan Documents, title information, engineering reports, financial statements, operating statements, appraisals, leases, rent rolls, and all other materials, documents and information in Lender's possession or which Lender is entitled to receive under the Loan Documents, with respect to the Aggregate Secured Indebtedness, Borrowers, Liable Parties or the Properties. Borrowers shall also furnish to such Investors or such prospective Investors or such Rating Agency any and all information concerning the Properties, the Leases, the financial condition of Borrowers or any Liable Parties as may be requested by Lender, any Investor or any prospective Investor or any Rating Agency in connection with any sale, transfer or participation interest. Borrowers and Liable Parties (at no cost to themselves) shall provide estoppel certificates and any other documents to such Investor, such prospective Investors and/or such Rating Agency as may reasonably be required by Lender. 13.02 Replacement of Note. Upon notice to any Borrower of the loss, theft, destruction or mutilation of any Note executed by such Borrower and delivery of an affidavit from Lender certifying as to the same, such Borrower will execute and deliver, in lieu of the original Note, a -54- replacement note, identical in form and substance to such Note and dated as of the Execution Date. Upon the execution and delivery of the replacement note, all references in any of the Loan Documents to the original Note shall refer to the replacement note. 13.03 Borrower's Estoppel. Within ten (10) days after a request by Lender (but not more often than twice in any calendar year), each Borrower shall furnish an acknowledged written statement in form reasonably satisfactory to Lender (a) setting forth the amount of each Aggregate Note Indebtedness, (b) stating either that no offsets or defenses exist against such Aggregate Note Indebtedness, or if any offsets or defenses are alleged to exist, their nature and extent, (c) stating whether any default then exists under the Loan Documents or any event has occurred and is continuing, which, with the lapse of time, the giving of notice, or both, would constitute such a default, and (d) any other matters as Lender may reasonably request. If a Borrower does not furnish an estoppel certificate within the 10-day period, such Borrower appoints Lender as its attorney-in-fact to execute and deliver the certificate on its behalf, which power of attorney shall be coupled with an interest and shall be irrevocable. 13.04 Further Assurances. Borrowers shall, without expense to Lender, execute, acknowledge and deliver all further acts, deeds, conveyances, mortgages, deeds of trust, assignments, security agreements, and financing statements as Lender shall from time to time reasonably require, to assure, convey, assign, transfer and confirm unto Lender the Properties and rights conveyed or assigned by this Agreement or which Borrowers may become bound to convey or assign to Lender, or for carrying out the intention of this Agreement or any of the other Loan Documents, or for filing, refiling, registering, reregistering, recording or rerecording the Mortgages. If Borrowers fail to comply with the terms of this Section, Lender may, at Borrowers' expense, perform Borrowers' obligations for and in the name of Borrowers, and Borrowers hereby irrevocably appoint Lender as their attorney in fact to do so. The appointment of Lender as attorney-in-fact is coupled with an interest 13.05 Subrogation. Lender shall be subrogated to the lien of any and all encumbrances against the Properties paid out of the proceeds of the Loans and to all of the rights of the recipient of such payment. ARTICLE 14 MISCELLANEOUS COVENANTS 14.01 No Waiver. No single or partial exercise by Lender, or delay or omission in the exercise by Lender, of any right or remedy under the Loan Documents shall preclude, waive or limit the exercise of any other right or remedy. Lender shall at all times have the right to proceed against any portion of, or interest in, any of the Properties without waiving any other rights or remedies with respect to any other portion of the Properties. No right or remedy under any of the Loan Documents is intended to be exclusive of any other right or remedy but shall be cumulative and may be exercised concurrently with or independently from any other right and remedy under any of the Loan Documents or under applicable law. 14.02 Notices. -55- (a) All notices, demands and requests given or required to be given by, pursuant to, or relating to, this Agreement shall be in writing. (b) All insurance binders, policies, endorsements, certificates, cancellation notices and correspondence relating to insurance are to be sent to: Metropolitan Life Insurance Company One MetLife Plaza 27-01 Queens Plaza North Long Island City, New York 11101 Arttn: Risk Management Unit, Area: 7CX (c) All notices or requests for approval pursuant to Section 6.06(e) shall be given in accordance with Section 6.06(e)). (d) All other notices shall be deemed to have been properly given if mailed by United States registered or certified mail, with return receipt requested, postage prepaid, or by United States Express Mail or other comparable overnight courier service to the parties at the addresses set forth below (or at such other addresses as shall be given in writing by any party to the others) and shall be deemed complete upon receipt or refusal to accept delivery as indicated in the return receipt or in the receipt of such United States Express Mail or courier service: If to Lender: Metropolitan Life Insurance Company, 10 Park Avenue Morristown, New Jersey 07960 Attention: Senior Vice President Real Estate Investments and: Metropolitan Life Insurance Company 10 Park Avenue Morristown, New Jersey 07960 Attention: Chief Counsel Real Estate Investments If to Borrowers: 580 West Germantown Pike, Suite 200 Plymouth Meeting, Pennsylvania 19462 Attention: Chief Financial Officer 14.03 Heirs and Assigns. This Agreement applies to Lender and Borrowers, and their heirs, legatees, devisees, administrators, executors, successors and assigns. The term "Borrower" shall include both the original Borrower and any subsequent owner or owners of any of the Property. -56- 14.04 Severability. If any provision of this Agreement should be held unenforceable or void, then that provision shall be separated from the remaining provisions and shall not affect the validity of this Agreement except that if the unenforceable or void provision relates to the payment of any monetary sum, then, Lender may, at its option, declare the Aggregate Secured Indebtedness immediately due and payable. 14.05 Applicable Law. THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, THE LOANS WERE MADE BY LENDER AND ACCEPTED BY BORROWERS IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THE LOANS DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS AND THE OBLIGATIONS ARISING HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION, AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE IN WHICH THE APPLICABLE PROPERTY IS LOCATED, IT BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION, VALIDITY AND ENFORCEABILITY OF ALL LOAN DOCUMENTS AND ALL OF THE OBLIGATIONS ARISING HEREUNDER OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWERS HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVE ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS, AND THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. 14.06 Captions. The captions are inserted only as a matter of convenience and for reference, and in no way define, limit, or describe the scope or intent of any provisions of this Agreement. 14.07 Time of the Essence. Time shall be of the essence with respect to all of Borrowers' obligations under this Agreement and the other Loan Documents. 14.08 No Modifications. This Agreement may not be changed, amended or modified, except in a writing expressly intended for such purpose and executed by Borrower and Lender. -57- 14.09 Entire Agreement. This Agreement, the Mortgages, the Notes, the other Loan Documents, the Liable Parties Guaranties and the Indemnity Agreements constitute the entire agreement between Borrowers and Lender with respect to the subject matter hereof and all understandings, oral representations and agreements heretofore or simultaneously had among the parties are merged in, and are contained in, such documents and instruments. 14.10 Credits On Account Of The Secured Indebtedness. Borrowers shall not claim or demand or be entitled to any credit on account of the Aggregate Secured Indebtedness for any part of the taxes paid (or payments in lieu of taxes) with respect to the Properties or any part thereof and no deduction shall otherwise be made or claimed from the taxable value of the Properties, or any part thereof, by reason of this Agreement or the Mortgages. 14.11 Consent to Jurisdiction. Borrowers hereby irrevocably consent to the jurisdiction of the State of New York and to the jurisdiction of the .United States District Court for the Southern District of New York, for the purpose of any suit, action or other proceeding arising out of or relating to this Agreement or any other Loan Document, or the subject matter hereof or thereof. Borrowers hereby waive, and agree not to assert, any such suit, action or proceeding any claim that they is not personally subject to such jurisdiction, or any right to remove an action brought in State to Federal Court, or any claim that such suit, action or proceeding is in an inconvenient forum or that the venue thereof is improper. Borrowers agree that service in any such action, whether or not in either such jurisdiction, may be effected by means in accordance with the provisions of Section 14.02 above or by any other means of service allowed by law. 14.12 Waiver, Of Jury Trial. To the fullest extent permitted by law, Borrowers and Lender HEREBY WAIVE THEIR RESPECTIVE RIGHT TO TRIAL BY JURY in any action, proceeding and/or hearing on any matter whatsoever arising out of, or in any way connected with, this Agreement, the Notes, the Mortgages or any of the Loan Documents, or the enforcement of any remedy under any law, statute, or regulation. No party will seek to consolidate any such action in which a jury has been waived, with any other action in which a jury trial cannot or has not been waived. Each party has received the advice of counsel with respect to this waiver. 14.13 Lender's Right to Perform Borrowers' Obligations. Borrowers agree that, if any Borrower fails to perform any act or to pay any money which such Borrower is required to perform or pay under the Loan Documents beyond any applicable notice and cure period set forth in the Loan Documents, Lender may (but shall have no obligation to) make the payment or perform the act at the cost and expense of such Borrower and in such Borrower's name or in its own name. Borrowers hereby constitute Lender (or any officer or agent of Lender) as Borrowers' true and lawful attorney-in-fact to make any such payments or otherwise perform Borrowers' obligations hereunder and Borrowers hereby ratify all that said attorney shall lawfully do or cause to be done by virtue hereof. The power of attorney is coupled with an interest and is irrevocable. Any money paid by Lender under this Section 14.13 shall be reimbursed to Lender in accordance with Section 14.14. 14.14 Lender Reimbursement. All payments made or funds expended or advanced by Lender pursuant to the provisions of any Loan Document (except those which have been reimbursed by Borrowers to Lender), shall (a) become a part of the Aggregate Secured -58- Indebtedness, (b) bear interest at the Interest Rate from the date such payments are made or funds expended or advanced, (c) become due and payable by Borrowers upon demand by Lender, (d) with respect to any protective advances made by Lender or payments made or funds expended or advanced by Lender following any Borrower's failure to take any action or make any payment (other than payments of principal and interest) required herein or under the other Loan Documents, bear interest at the Default Rate from the date of such demand; and (e) with respect to other payments made or funds expended or advanced by Lender, bear interest at the Default Rate from the date which is ten (10) days after the date of such demand. Failure to reimburse Lender upon such demand shall constitute an Event of Default under Section 12.01 (a) hereof. 14.15 Fees and Expenses. If Lender becomes a party (by intervention or otherwise) to any action or proceeding affecting, directly or indirectly, Borrowers, the Properties or the title thereto or Lender's interest under this Agreement or the other Loan Documents, or employs an attorney to collect any of the Aggregate Secured Indebtedness or to enforce performance of the obligations, covenants and agreements of the Loan Documents, Borrowers shall reimburse Lender in accordance with Section 14.14 for all expenses, costs, charges and legal fees incurred by Lender (including, without limitation, the fees and expenses of experts and consultants), whether or not suit is commenced. 14.16 Waiver of Consequential Damages. Borrowers covenant and agree that in no event shall Lender be liable for consequential damages and, to the fullest extent permitted by law, Borrowers expressly waive all existing and future claims that they may have against Lender for consequential damages. 14.17 Waiver of Bankruptcy Stay. Subject to the Bankruptcy Code, Borrowers agree that, in the event that any Borrower shall (i) file with any bankruptcy court of competent jurisdiction or be the subject of any petition under Title 11 of the Bankruptcy Code, (ii) File any petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any present or future federal or state act or law relating to bankruptcy or insolvency, or (iii) have sought or consented to or acquiesced in the appointment of any trustee, receiver, conservator, or liquidator, Lender shall thereupon be entitled and the Borrowers irrevocably consent to immediate and unconditional relief from any automatic stay imposed by Section 362 of the Bankruptcy Code, or otherwise, on or against the exercise of the rights and remedies otherwise available to the Lender as provided for herein, in the Notes, other Loan Documents delivered in connection herewith and as otherwise provided by law, and the Borrowers irrevocably waive any right to object to such relief and will not contest any motion by the Lender seeking relief from the automatic stay and Borrowers will cooperate with the Lender, in any manner requested by the Lender, in its efforts to obtain relief from any such stay or other prohibition. 14.18 No Joint Venture; No Third Party Beneficiaries. Borrowers and Lender intend that the relationships created hereunder and under each of the other Loan Documents are solely those of borrower and lender. Nothing herein or in any of the other Loan Documents is intended to create, nor shall it be construed as creating anything but a debtor-creditor relationship between Borrowers and Lender nor shall they be deemed to confer on anyone other than Lender, and its -59- successors and assigns, any right to insist upon or to enforce the performance or observance of any of the obligations contained herein or therein. 14.19 Joint and Several Obligations. If Borrower consists of more than one party, each shall be jointly and severally liable to perform the obligations of Borrowers under the Loan Documents. 14.20 Duplicate Originals; Counterparts. This Agreement and each of the other Loan Documents may be executed in any number of duplicate originals, and each duplicate original shall be deemed to be an original. This Agreement and each of the other Loan Documents (and each duplicate original) also may be executed in any number of counterparts, each of which shall be deemed an original and all of which together constitute a fully executed agreement even though all signatures do not appear on the same document. -60- IN WITNESS WHEREOF, Lender and Borrowers hereby sign, seal and deliver this Loan Agreement. LENDER BORROWERS METROPOLITAN LIFE KRT PROPERTY HOLDINGS LLC, INSURANCE COMPANY a Delaware limited liability company BY: KRT Property Holdings Manager LLC, its managing member By: /s/ David V. Politano By:_____________________________ ---------------------------- Name: Louis P. Meshon, Sr. Name: DAVID V. POLITANO Title: President Title: DIRECTOR LILAC DE LLC, a Delaware limited liability company By: Lilac DE Manager LLC, is managing member By:____________________________ Name: Louis P. Meshon, Sr. Title: President KR COLLEGETOWN LLC, a Delaware limited liability company By:KR Collegetown Manager LLC, its managing member By: ___________________________ Name: Louis P. Meshon. Rr. IN WITNESS WHEREOF, Lender and Borrowers hereby sign, seal and deliver this Loan Agreement. LENDER BORROWERS METROPOLITAN LIFE KRT PROPERTY HOLDINGS LLC, INSURANCE COMPANY a Delaware limited liability company By: KRT Property Holdings Manager LLC, its managing member By: _________________________ By: /s/ Louis P. Meshon, Sr. Name: --------------------------- Title: Name: Louis P. Meshon, Sr, Title: President LILAC DE LLC, a Delaware limited liability company By: Lilac DE Manager LLC, its managing member By: /s/ Louis P. Meshon, Sr. --------------------------- Name: Louis P. Meshon, Sr. Title: President KR COLLEGETOWN LLC, a Delaware limited liability company By: KR Collegetown Manager LLC, its managing member By: /s/ Louis P. Meshon, Sr. --------------------------- Name: Louis P. Meshon, ST. Title; President [SIGNATURES CONTINUE ON NEXT PAGE] FOX RUN, LIMITED PARTNERSHIP, an Alabama limited partnership By: KR Fox Run GP LLC, its general partner By: /s/ Louis P. Meshon, Sr. ---------------------------------- Name: Louis P. Meshon, Sr. Title: President KR STREET ASSOCIATES, L.P., a Pennsylvania limited partnership By: KR Street Associates GP LLC, its general partner By: /s/ Louis P. Meshon, Sr. ---------------------------------- Name: Louis P. Meshon, Sr. Title: President KRAMONT OPERATING PARTNERSHIP, L.P., a Delaware limited partnership By: Kramont Realty Trust, its general partner By: /s/ Louis P. Meshon, Sr. --------------------------------- Name: Louis P. Meshon, Sr. Title: President KR BARN, L.P., a Pennsylvania limited partnership By: KR Barn GP LLC, its general partner By: /s/ Louis P. Meshon, Sr. ---------------------------------- Name: Louis P. Meshon, Sr. Title: President [SIGNATURES CONTINUE ON NEXT PAGE] -2- KR BEST ASSOCIATES, L.P. a Pennsylvania limited partnership By: KR Best Associates GP LLC, its general partner By: /s/ Louis P. Meshon, Sr. -------------------------------------- Name: Louis P. Meshon, Sr. Title: President KR DEVELOPMENT, L.P., a Pennsylvania limited partnership By: KR Development GP LLC, its general partner By: /s/ Louis P. Meshon, Sr. ---------------------------------- Name: Louis P. Meshon, Sr. Title: President -3- STATE OF NEW JERSEY ) :SS.: COUNTY OF MORRIS ) On the 11th day of June, 2003, before me, the undersigned, a Notary Public in and for said State, personally appeared DAVID V. POLITANO, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument. /s/ Particia Tated ------------------------------------------ Patricia Tated Notary Public Notary Public -New jorsey My Commission Expires August 13, 2007 COMMONWEALTH OF PENNSYLVANIA ) ss: COUNTY OF MONTGOMERY ) On the _______ day of June, 2003, before me, the undersigned, a Notary Public in and for said State, personally appeared Louis P. Meshon, Sr., personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument. __________________________________ Notary Public STATE OF NEW JERSEY ) :ss.: COUNTY OF ) On the_______day of June, 2003, before me, the undersigned, a Notary Public in and for said State, personally appeared ____________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument. ________________________________ Notary Public COMMONWEALTH OF PENNSYLVANIA ) ss: COUNTY OF MONTGOMERY ) On the 30th day of May, 2003, before me, the undersigned, a Notary Public in and for said State, personally appeared Louis P. Meshon, Sr., personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument. /s/ Mary Elizabeth Gannon ---------------------------------------- Notary Public [SEAL] EXHIBIT A INSURANCE AMOUNTS
Commercial Full General Property Replacement Cost Liability Business Income - --------------------------------------------------------------------------------------------------- Bam Plaza Property $13,927,198 $25,000,000 $3,360,265 - --------------------------------------------------------------------------------------------------- Bensalem. Square Property $ 4,196,755 $25,000,000 $1,165,254 - --------------------------------------------------------------------------------------------------- Bethlehem Square Property $18,400,000 $25,000,000 $4,027,014 - --------------------------------------------------------------------------------------------------- Bristol Commerce Park $15,995,601 $25,000,000 $3,624,251 Property - --------------------------------------------------------------------------------------------------- Collegetown Shopping Center $12,920,630 $25,000,000 $2,179,578 Property - --------------------------------------------------------------------------------------------------- Fox Run Property $14,452,940 $25,000,000 $3,255,375 - --------------------------------------------------------------------------------------------------- Groton Square Property $16,400,000 $25,000,000 $2,899,713 - ---------------------------------------------------------------------------------------------------- High Ridge Plaza Property $ 9,200,000 $25,000,000 $2,158,454 - ---------------------------------------------------------------------------------------------------- Mall at Cross County Property $32,100,000 $25,000,000 $6,703,038 - ---------------------------------------------------------------------------------------------------- North Ridge Plaza Property $ 4,600,000 $25,000,000 $1,371,564 - ---------------------------------------------------------------------------------------------------- Park Hills Plaza Property $13,101,200 $25,000,000 $2,462,602 - ---------------------------------------------------------------------------------------------------- Street Road Plaza Property $ 3,894,613 $25,000,000 $ 991,305 - --------------------------------------------------------------------------------------------------- Valley Fair Property $ 6,224,633 $25,000,000 $2,025,589 - ---------------------------------------------------------------------------------------------------- Village Square Property $ 1,800,000 $25,000,000 $ 560,622 - ---------------------------------------------------------------------------------------------------- Whitehall Square Property $14,308,000 $25,000,000 $3,494,827 - ---------------------------------------------------------------------------------------------------
-2- EXHIBIT B LEASING GUIDELINES "Leasing Guidelines" shall mean the guidelines approved in writing by Lender from time to time with respect to the leasing of the Properties. The following shall be the initial Leasing Guidelines: (a) All Leases shall have an initial term of at least three (3) years but not more than ten (10) years; and (b) All Leases shall have an annual minimum rent payable of the then prevailing market rates. -3- EX-10.83 4 w95171exv10w83.txt EXECUTIVE OFFICER STOCK OPTION PLAN EXHIBIT 10.83 KRAMONT REALTY TRUST EXECUTIVE OFFICER STOCK OPTION PLAN (FORMERLY THE MONTGOMERY CV TRUST EXECUTIVE OFFICER STOCK OPTION PLAN)
TABLE OF CONTENTS PAGE I. PURPOSE.................................................................. 1 II. DEFINITIONS.............................................................. 1 III. ADMINISTRATION........................................................... 3 IV. SHARE AND OTHER LIMITATIONS.............................................. 5 V. ELIGIBILITY.............................................................. 7 VI. STOCK OPTION GRANTS...................................................... 7 VII. NONTRANSFERABILITY OF OPTIONS............................................ 9 VIII. EFFECT OF TERMINATION OF EMPLOYMENT...................................... 9 IX. RIGHTS AS A SHAREHOLDER.................................................. 9 X. TERMINATION, AMENDMENT AND MODIFICATION.................................. 9 XI. UNFUNDED PLAN........................................................... 10 XII. GENERAL PROVISIONS...................................................... 10 XIII. EFFECTIVE DATE OF PLAN.................................................. 13 XIV. TERM OF THIS PLAN....................................................... 13
-i- KRAMONT REALTY TRUST EXECUTIVE OFFICER STOCK OPTION PLAN I. PURPOSE THE PURPOSE OF THIS EXECUTIVE OFFICER STOCK OPTION PLAN (THE "PLAN") IS TO ENHANCE THE PROFITABILITY AND VALUE OF KRAMONT REALTY TRUST (THE "COMPANY") BY ENABLING THE COMPANY TO ATTRACT, RETAIN AND MOTIVATE ITS ELIGIBLE EMPLOYEES (AS DEFINED HEREIN) BY GRANTING TO THE ELIGIBLE EMPLOYEE OPTIONS TO PURCHASE COMMON SHARES (AS DEFINED HEREIN). THE PLAN WAS FORMERLY KNOWN AS THE MONTGOMERY CV TRUST EXECUTIVE OFFICER STOCK OPTION PLAN. AS A RESULT OF THE MERGER OF CV REIT, INC. INTO THE COMPANY PURSUANT TO AN AGREEMENT AND PLAN OF REORGANIZATION AND MERGER AMONG KRANZCO REALTY TRUST, KRT TRUST AND CV REIT, INC., DATED AS OF DECEMBER 10, 1999, AS AMENDED (THE "REORGANIZATION AGREEMENT"), THE COMPANY ASSUMED THE MONTGOMERY CV TRUST EXECUTIVE OFFICER STOCK OPTION PLAN. II. DEFINITIONS FOR PURPOSES OF THIS PLAN, THE FOLLOWING TERMS WILL HAVE THE FOLLOWING MEANINGS: 2.1. "CODE" SHALL MEAN THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (OR ANY SUCCESSOR STATUTE). 2.2. "COMMITTEE" SHALL MEAN A COMMITTEE OF THE BOARD OF TRUSTEES OF KRAMONT REALTY TRUST (THE "BOARD"), APPOINTED FROM TIME TO TIME BY THE BOARD, WHICH COMMITTEE, UNLESS OTHERWISE DETERMINED BY THE BOARD, SHALL BE INTENDED TO CONSIST OF TWO OR MORE DIRECTORS WHO ARE NON-EMPLOYEE DIRECTORS AS DEFINED IN RULE 16b-3 AND OUTSIDE DIRECTORS AS DEFINED UNDER SECTION 162(m) OF THE CODE. IF FOR ANY REASON THE APPOINTED COMMITTEE DOES NOT MEET THE REQUIREMENTS OF RULE 16b-3 OR SECTION 162(m) OF THE CODE, SUCH NONCOMPLIANCE WITH THE REQUIREMENTS OF RULE 16b-3 OR SECTION 162(m) OF THE CODE SHALL NOT AFFECT THE VALIDITY OF THE GRANTS, INTERPRETATIONS OR OTHER ACTIONS OF THE COMMITTEE. IF AND TO THE EXTENT THAT NO COMMITTEE EXISTS WHICH HAS THE AUTHORITY TO ADMINISTER THIS PLAN THE FUNCTIONS OF THE COMMITTEE SHALL BE EXERCISED BY THE BOARD. 2.3. "COMMON SHARES" SHALL MEAN THE COMMON SHARES OF BENEFICIAL INTEREST OF THE COMPANY. 2.4. "COMPANY" SHALL MEAN KRAMONT REALTY TRUST, A MARYLAND REAL ESTATE INVESTMENT TRUST. 2.5. "ELIGIBLE EMPLOYEES" SHALL MEAN THE EMPLOYEES OF THE COMPANY WHO ARE ELIGIBLE TO BE GRANTED OPTIONS PURSUANT TO ARTICLE V HEREIN. 2.6. "EXCHANGE ACT" SHALL MEAN THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 2.7. "FAIR MARKET VALUE" SHALL MEAN, FOR PURPOSES OF THIS PLAN, UNLESS OTHERWISE REQUIRED BY ANY APPLICABLE PROVISION OF THE CODE OR ANY REGULATIONS ISSUED THEREUNDER, AS OF ANY DATE, THE LAST SALES PRICE REPORTED FOR THE COMMON SHARES ON THE APPLICABLE DATE: (i) AS REPORTED BY THE PRINCIPAL NATIONAL SECURITIES EXCHANGE IN THE UNITED STATES ON WHICH IT IS THEN TRADED, OR (ii) IF NOT TRADED ON ANY SUCH NATIONAL SECURITIES EXCHANGE, AS QUOTED ON AN AUTOMATED QUOTATION SYSTEM SPONSORED BY THE NATIONAL ASSOCIATION OF SECURITIES DEALERS. IF THE COMMON SHARES ARE NOT READILY TRADABLE ON A NATIONAL SECURITIES EXCHANGE OR ANY SYSTEM SPONSORED BY THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, ITS FAIR MARKET VALUE SHALL BE SET IN GOOD FAITH BY THE COMMITTEE ON THE ADVICE OF A REGISTERED INVESTMENT ADVISER (AS DEFINED UNDER THE INVESTMENT ADVISERS ACT OF 1940). FOR PURPOSES OF THE GRANT OF ANY STOCK OPTION, THE APPLICABLE DATE SHALL BE THE DATE FOR WHICH THE LAST SALES PRICE IS AVAILABLE AT THE TIME OF GRANT. 2.8."INCENTIVE STOCK OPTION" SHALL MEAN ANY STOCK OPTION AWARDED UNDER THIS PLAN INTENDED TO BE AND DESIGNATED AS AN "INCENTIVE STOCK OPTION" WITHIN THE MEANING OF SECTION 422 OF THE CODE. 2.9. NON-QUALIFIED STOCK OPTION" SHALL MEAN ANY STOCK OPTION AWARDED UNDER THIS PLAN THAT IS NOT AN INCENTIVE STOCK OPTION. 2.10. OPTION" OR "STOCK OPTION" SHALL MEAN THE RIGHT TO PURCHASE THE NUMBER OF COMMON SHARES GRANTED IN THE OPTION AGREEMENT AT A PRESCRIBED PURCHASE PRICE ACCORDING TO THE TERMS SPECIFIED IN THIS PLAN AND THE OPTION AGREEMENT. 2.11. "PARTICIPANT" SHALL MEAN AN ELIGIBLE EMPLOYEE WHO IS GRANTED AN OPTION UNDER THIS PLAN, WHICH OPTION HAS NOT EXPIRED. 2.12. "RULE 16b-3" SHALL MEAN RULE 16b-3 UNDER SECTION 16(b) OF THE EXCHANGE ACT AS THEN IN EFFECT OR ANY SUCCESSOR PROVISIONS. 2.13. "SECTION 162(m) OF THE CODE" SHALL MEAN SECTION 162(m) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. 2.14. "SUBSIDIARY" SHALL MEAN, OTHER THAN THE COMPANY: (i) ANY CORPORATION (OTHER THAN THE COMPANY) IN AN UNBROKEN CHAIN OF CORPORATIONS BEGINNING WITH THE COMPANY WHICH (OTHER THAN THE LAST CORPORATION) OWNS STOCK POSSESSING FIFTY PERCENT (50%) OR MORE OF THE TOTAL COMBINED VOTING POWER OF ALL CLASSES OF STOCK IN ONE OF THE OTHER CORPORATIONS IN SUCH CHAIN, (ii) ANY CORPORATION OR TRADE OR BUSINESS (INCLUDING, WITHOUT LIMITATION, A PARTNERSHIP OR LIMITED LIABILITY COMPANY) WHICH IS CONTROLLED FIFTY (50%) OR MORE (WHETHER BY OWNERSHIP OF STOCK, ASSETS OR AN EQUIVALENT OWNERSHIP INTEREST) BY THE COMPANY OR A SUBSIDIARY, OR (iii) ANY OTHER ENTITY, IN WHICH THE COMPANY OR ANY SUBSIDIARY HAS AN EQUITY OR OTHER OWNERSHIP INTEREST AS DETERMINED BY THE COMMITTEE IN ITS SOLE DISCRETION. 2.15. "TEN PERCENT SHAREHOLDER" SHALL MEAN A PERSON OWNING STOCK POSSESSING MORE THAN 10% OF THE TOTAL COMBINED VOTING POWER OF ALL CLASSES OF STOCK OF THE COMPANY OR ANY "PARENT" OR "SUBSIDIARY" CORPORATION WITHIN THE MEANING OF SECTION 422 OF THE CODE. 2.16. "TERMINATION OF EMPLOYMENT" SHALL MEAN: (i) A TERMINATION OF SERVICE (FOR REASONS OTHER THAN A MILITARY OR PERSONAL LEAVE OF ABSENCE GRANTED BY THE COMPANY OR A SUBSIDIARY) OF A PARTICIPANT FROM THE COMPANY AND ALL SUBSIDIARIES; OR (ii) WHEN AN ENTITY WHICH IS EMPLOYING A PARTICIPANT CEASES TO BE A SUBSIDIARY, UNLESS THE PARTICIPANT THEREUPON BECOMES EMPLOYED BY THE COMPANY OR ANOTHER SUBSIDIARY. 2.17. "TRANSFER" OR "TRANSFERRED" SHALL MEAN TO ANTICIPATE, ALIENATE, ATTACH, SELL, ASSIGN, PLEDGE, ENCUMBER, CHARGE OR OTHERWISE TRANSFER. III. ADMINISTRATION 3.1. THE COMMITTEE. THIS PLAN SHALL BE ADMINISTERED AND INTERPRETED BY THE COMMITTEE. 3.2. STOCK OPTION GRANTS. THE COMMITTEE SHALL HAVE FULL AUTHORITY TO GRANT, PURSUANT TO THE TERMS OF THIS PLAN (INCLUDING ARTICLE VI HEREOF), STOCK OPTIONS TO ELIGIBLE EMPLOYEES. IN PARTICULAR, THE COMMITTEE SHALL HAVE THE AUTHORITY: (a) TO SELECT THE ELIGIBLE EMPLOYEE TO WHOM STOCK OPTIONS MAY FROM TIME TO TIME BE GRANTED HEREUNDER; (b) TO DETERMINE, IN ACCORDANCE WITH THE TERMS OF THIS PLAN, THE NUMBER OF COMMON SHARES TO BE COVERED BY EACH OPTION GRANTED TO AN ELIGIBLE EMPLOYEE HEREUNDER; (c) TO DETERMINE THE TERMS AND CONDITIONS, NOT INCONSISTENT WITH THE TERMS OF THIS PLAN, OF ANY OPTION GRANTED HEREUNDER TO AN ELIGIBLE EMPLOYEE (INCLUDING, BUT NOT LIMITED TO, THE EXERCISE OR PURCHASE PRICE (IF ANY), ANY RESTRICTION OR LIMITATION, ANY VESTING SCHEDULE OR ACCELERATION THEREOF OR ANY FORFEITURE RESTRICTIONS OR WAIVER THEREOF, REGARDING ANY STOCK OPTION, AND THE COMMON SHARES RELATING THERETO, BASED ON SUCH FACTORS, IF ANY, AS THE COMMITTEE SHALL DETERMINE, IN ITS SOLE DISCRETION); 3 (d) TO DETERMINE WHETHER AND UNDER WHAT CIRCUMSTANCES A STOCK OPTION MAY BE SETTLED IN CASH AND/OR COMMON SHARES UNDER SECTION 6.2(c). (e) TO DETERMINE WHETHER, TO WHAT EXTENT AND UNDER WHAT CIRCUMSTANCES TO PROVIDE LOANS (WHICH MAY BE ON A RECOURSE BASIS AND SHALL BEAR INTEREST AT THE RATE THE COMMITTEE SHALL PROVIDE) TO ELIGIBLE EMPLOYEES IN ORDER TO EXERCISE OPTIONS UNDER THIS PLAN; (f) TO DETERMINE WHETHER TO REQUIRE ELIGIBLE EMPLOYEES, AS A CONDITION OF THE GRANTING OF ANY OPTION, TO NOT SELL OR OTHERWISE DISPOSE OF SHARES ACQUIRED PURSUANT TO THE EXERCISE OF THE OPTION FOR A PERIOD OF TIME AS DETERMINED BY THE COMMITTEE, IN ITS SOLE DISCRETION, FOLLOWING THE DATE OF THE ACQUISITION OF SUCH OPTION; AND (g) TO MODIFY, EXTEND OR RENEW AN OPTION, SUBJECT TO SECTION 6.2(g) HEREIN, PROVIDED, HOWEVER, THAT IF AN OPTION IS MODIFIED, EXTENDED OR RENEWED AND THEREBY DEEMED TO BE THE ISSUANCE OF A NEW OPTION UNDER THE CODE OR THE APPLICABLE ACCOUNTING RULES, THE EXERCISE PRICE OF AN OPTION MAY CONTINUE TO BE THE ORIGINAL EXERCISE PRICE EVEN IF LESS THAN THE FAIR MARKET VALUE OF THE COMMON SHARES AT THE TIME OF SUCH MODIFICATION, EXTENSION OR RENEWAL. 3.3. GUIDELINES. SUBJECT TO ARTICLE X HEREOF, THE COMMITTEE SHALL HAVE THE AUTHORITY TO ADOPT, ALTER AND REPEAL SUCH ADMINISTRATIVE RULES, GUIDELINES AND PRACTICES GOVERNING THIS PLAN AND PERFORM ALL ACTS, INCLUDING THE DELEGATION OF ITS ADMINISTRATIVE RESPONSIBILITIES, AS IT SHALL, FROM TIME TO TIME, DEEM ADVISABLE; TO CONSTRUE AND INTERPRET THE TERMS AND PROVISIONS OF THIS PLAN AND ANY OPTION ISSUED UNDER THIS PLAN (AND ANY AGREEMENTS RELATING THERETO); AND TO OTHERWISE SUPERVISE THE ADMINISTRATION OF THIS PLAN. THE COMMITTEE MAY CORRECT ANY DEFECT, SUPPLY ANY OMISSION OR RECONCILE ANY INCONSISTENCY IN THIS PLAN OR IN ANY AGREEMENT RELATING THERETO IN THE MANNER AND TO THE EXTENT IT SHALL DEEM NECESSARY TO CARRY THIS PLAN INTO EFFECT, BUT ONLY TO THE EXTENT ANY SUCH ACTION WOULD BE PERMITTED UNDER THE APPLICABLE PROVISIONS OF BOTH RULE 16B-3 AND SECTION 162(m) OF THE CODE. 3.4. DECISIONS FINAL. ANY DECISION, INTERPRETATION OR OTHER ACTION MADE OR TAKEN IN GOOD FAITH BY OR AT THE DIRECTION OF THE COMPANY, THE BOARD OR THE COMMITTEE (OR ANY OF ITS MEMBERS) ARISING OUT OF OR IN CONNECTION WITH THIS PLAN SHALL BE WITHIN THE ABSOLUTE DISCRETION OF THE COMPANY, THE BOARD OR THE COMMITTEE, AS THE CASE MAY BE, AND SHALL BE FINAL, BINDING AND CONCLUSIVE ON THE COMPANY, SUBSIDIARIES AND ALL EMPLOYEES AND PARTICIPANTS AND THEIR RESPECTIVE HEIRS, EXECUTORS, ADMINISTRATORS, SUCCESSORS AND ASSIGNS. 3.5. RELIANCE ON COUNSEL. THE COMPANY, THE BOARD AND THE COMMITTEE MAY CONSULT WITH LEGAL COUNSEL, WHO MAY BE COUNSEL FOR THE COMPANY OR OTHER COUNSEL, WITH RESPECT TO ITS OBLIGATIONS OR DUTIES HEREUNDER, OR WITH RESPECT TO ANY ACTION OR PROCEEDING OR ANY QUESTION OF LAW, AND SHALL NOT BE LIABLE WITH RESPECT TO ANY ACTION TAKEN OR OMITTED BY IT IN GOOD FAITH PURSUANT TO THE ADVICE OF SUCH COUNSEL. 4 3.6. PROCEDURES. IF THE COMMITTEE IS APPOINTED, THE BOARD SHALL DESIGNATE ONE OF THE MEMBERS OF THE COMMITTEE AS CHAIRMAN AND THE COMMITTEE SHALL HOLD MEETINGS, SUBJECT TO THE BY-LAWS OF THE COMPANY, AT SUCH TIMES AND PLACES AS THE COMMITTEE SHALL DEEM ADVISABLE. A MAJORITY OF THE COMMITTEE MEMBERS SHALL CONSTITUTE A QUORUM. ALL DETERMINATIONS OF THE COMMITTEE SHALL BE MADE BY A MAJORITY OF ITS MEMBERS. ANY DECISION OR DETERMINATION REDUCED TO WRITING AND SIGNED BY ALL THE COMMITTEE MEMBERS IN ACCORDANCE WITH THE BY-LAWS OF THE COMPANY SHALL BE FULLY AS EFFECTIVE AS IF IT HAD BEEN MADE BY A VOTE AT A MEETING DULY CALLED AND HELD. THE COMMITTEE MAY KEEP MINUTES OF ITS MEETINGS AND MAY MAKE SUCH RULES AND REGULATIONS FOR THE CONDUCT OF ITS BUSINESS AS IT SHALL DEEM ADVISABLE. 3.7. DESIGNATION OF CONSULTANTS/LIABILITY. (a) THE COMMITTEE MAY DESIGNATE EMPLOYEES OF THE COMPANY AND PROFESSIONAL ADVISORS TO ASSIST THE COMMITTEE IN THE ADMINISTRATION OF THIS PLAN AND MAY GRANT AUTHORITY TO EMPLOYEES TO EXECUTE AGREEMENTS OR OTHER DOCUMENTS ON BEHALF OF THE COMMITTEE. (b) THE COMMITTEE MAY EMPLOY SUCH LEGAL COUNSEL, CONSULTANTS AND AGENTS AS IT MAY DEEM DESIRABLE FOR THE ADMINISTRATION OF THIS PLAN AND MAY RELY UPON ANY OPINION RECEIVED FROM ANY SUCH COUNSEL OR CONSULTANT AND ANY COMPUTATION RECEIVED FROM ANY SUCH CONSULTANT OR AGENT. EXPENSES INCURRED BY THE COMMITTEE OR THE BOARD IN THE ENGAGEMENT OF ANY SUCH COUNSEL, CONSULTANT OR AGENT SHALL BE PAID BY THE COMPANY. THE COMMITTEE, ITS MEMBERS AND ANY PERSON DESIGNATED PURSUANT TO SECTION 3.7(a) SHALL NOT BE LIABLE FOR ANY ACTION OR DETERMINATION MADE IN GOOD FAITH WITH RESPECT TO THIS PLAN. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, NO OFFICER OR FORMER OFFICER OR TRUSTEE OR FORMER TRUSTEE OR MEMBER OR FORMER MEMBER OF THE COMMITTEE OR OF THE BOARD SHALL BE LIABLE FOR ANY ACTION OR DETERMINATION MADE IN GOOD FAITH WITH RESPECT TO THIS PLAN OR ANY OPTION GRANTED UNDER IT. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW AND TO THE EXTENT NOT COVERED BY INSURANCE, EACH SUCH OFFICER, FORMER OFFICER, TRUSTEE OR FORMER TRUSTEE OR MEMBER OR FORMER MEMBER OF THE COMMITTEE OR OF THE BOARD SHALL BE INDEMNIFIED AND HELD HARMLESS BY THE COMPANY AGAINST ANY COST OR EXPENSE (INCLUDING REASONABLE FEES OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY) OR LIABILITY (INCLUDING ANY SUM PAID IN SETTLEMENT OF A CLAIM WITH THE APPROVAL OF THE COMPANY), AND ADVANCED AMOUNTS NECESSARY TO PAY THE FOREGOING AT THE EARLIEST TIME AND TO THE FULLEST EXTENT PERMITTED, ARISING OUT OF ANY ACT OR OMISSION TO ACT IN CONNECTION WITH THIS PLAN, EXCEPT TO THE EXTENT ARISING OUT OF SUCH OFFICER'S, FORMER OFFICER'S, TRUSTEE'S, FORMER TRUSTEE'S, MEMBER'S OR FORMER MEMBER'S OWN FRAUD OR BAD FAITH. SUCH INDEMNIFICATION SHALL BE IN ADDITION TO ANY RIGHTS OF INDEMNIFICATION THE OFFICERS, TRUSTEES, DIRECTORS OR MEMBERS OR FORMER OFFICERS, TRUSTEES, DIRECTORS OR MEMBERS MAY HAVE UNDER APPLICABLE LAW OR UNDER THE DECLARATION OF TRUST OF THE COMPANY OR BY-LAWS OF THE COMPANY. NOTWITHSTANDING ANYTHING ELSE HEREIN, THIS 5 INDEMNIFICATION WILL NOT APPLY TO THE ACTIONS OR DETERMINATIONS MADE BY AN INDIVIDUAL WITH REGARD TO OPTIONS GRANTED TO HIM OR HER UNDER THIS PLAN. IV. SHARE AND OTHER LIMITATIONS 4.1. GENERAL LIMITATION. THE AGGREGATE NUMBER OF COMMON SHARES WHICH MAY BE ISSUED UNDER THIS PLAN SHALL NOT EXCEED 150,000 SHARES WHICH MAY BE EITHER AUTHORIZED AND UNISSUED COMMON SHARES OR COMMON SHARES HELD IN OR ACQUIRED FOR THE TREASURY OF THE COMPANY OR COMMON SHARES HELD BY THE COMPANY. 4.2. INDIVIDUAL PARTICIPANT LIMITATION. THE MAXIMUM NUMBER OF COMMON SHARES SUBJECT TO ANY OPTION WHICH MAY BE GRANTED UNDER THIS PLAN DURING ANY FISCAL YEAR OF THE COMPANY TO EACH ELIGIBLE EMPLOYEE SHALL BE 150,000 SHARES. 4.3. CHANGES. (a) THE EXISTENCE OF THIS PLAN AND THE OPTIONS GRANTED HEREUNDER SHALL NOT AFFECT IN ANY WAY ANY RIGHTS OR POWERS OF THE COMPANY, THE BOARD OR THE SHAREHOLDERS OF THE COMPANY TO MAKE OR AUTHORIZE ANY ADJUSTMENT, RECAPITALIZATION, REORGANIZATION OR OTHER CHANGE IN THE COMPANY'S, CAPITAL STRUCTURE OR ITS BUSINESS, ANY MERGER OR CONSOLIDATION OF THE COMPANY, OR SUBSIDIARIES, ANY ISSUE OF BONDS, DEBENTURES, PREFERRED OR PRIOR PREFERENCE STOCK AHEAD OF OR AFFECTING COMMON SHARES, THE AUTHORIZATION OR ISSUANCE OF ADDITIONAL COMMON SHARES, THE DISSOLUTION OR LIQUIDATION OF THE COMPANY OR SUBSIDIARIES, ANY SALE OR TRANSFER OF ALL OR PART OF ITS ASSETS OR BUSINESS OR ANY OTHER CORPORATE ACT OR PROCEEDING. (b) IN THE EVENT OF ANY CHANGE IN THE CAPITAL STRUCTURE OR BUSINESS OF THE COMPANY BY REASON OF ANY STOCK DIVIDEND OR EXTRAORDINARY DIVIDEND, STOCK SPLIT OR REVERSE STOCK SPLIT, RECAPITALIZATION, REORGANIZATION, MERGER, CONSOLIDATION, OR EXCHANGE OF SHARES, DISTRIBUTION WITH RESPECT TO ITS OUTSTANDING COMMON SHARES OR CAPITAL STOCK OTHER THAN COMMON SHARES, RECLASSIFICATION OF ITS CAPITAL STOCK, ANY SALE OR TRANSFER OF ALL OR PART OF THE COMPANY'S ASSETS OR BUSINESS, OR ANY SIMILAR CHANGE AFFECTING THE COMPANY'S CAPITAL STRUCTURE OR BUSINESS AND THE COMMITTEE DETERMINES AN ADJUSTMENT IS APPROPRIATE UNDER THIS PLAN, THEN THE NUMBER AND KIND OF SHARES OR OTHER PROPERTY (INCLUDING CASH) TO BE ISSUED UPON EXERCISE OF AN OUTSTANDING OPTION GRANTED UNDER THIS PLAN AND THE PURCHASE OR EXERCISE PRICE THEREOF SHALL BE APPROPRIATELY ADJUSTED CONSISTENT WITH SUCH CHANGE IN SUCH MANNER AS THE COMMITTEE MAY DEEM EQUITABLE TO PREVENT SUBSTANTIAL DILUTION OR ENLARGEMENT OF THE RIGHTS GRANTED TO, OR AVAILABLE FOR, PARTICIPANTS UNDER THIS PLAN OR AS OTHERWISE NECESSARY TO REFLECT THE CHANGE, AND ANY SUCH ADJUSTMENT DETERMINED BY THE COMMITTEE IN GOOD FAITH SHALL BE BINDING AND CONCLUSIVE ON THE COMPANY, SUBSIDIARIES AND ALL PARTICIPANTS AND EMPLOYEES AND THEIR RESPECTIVE HEIRS, EXECUTORS, ADMINISTRATORS, SUCCESSORS AND ASSIGNS. 6 (c) FRACTIONAL COMMON SHARES RESULTING FROM ANY ADJUSTMENT IN OPTIONS PURSUANT TO SECTION 4.3(a) OR (b) SHALL BE AGGREGATED UNTIL, AND ELIMINATED AT, THE TIME OF EXERCISE BY ROUNDING-DOWN FOR FRACTIONS LESS THAN ONE-HALF AND ROUNDING-UP FOR FRACTIONS EQUAL TO OR GREATER THAN ONE-HALF. NO CASH SETTLEMENTS SHALL BE MADE WITH RESPECT TO FRACTIONAL SHARES ELIMINATED BY ROUNDING. NOTICE OF ANY ADJUSTMENT SHALL BE GIVEN BY THE COMMITTEE TO EACH PARTICIPANT WHOSE OPTION HAS BEEN ADJUSTED AND SUCH ADJUSTMENT (WHETHER OR NOT SUCH NOTICE IS GIVEN) SHALL BE EFFECTIVE AND BINDING FOR ALL PURPOSES OF THIS PLAN. (d) IN THE EVENT OF A MERGER OR CONSOLIDATION IN WHICH THE COMPANY IS NOT THE SURVIVING ENTITY OR IN THE EVENT OF ANY TRANSACTION THAT RESULTS IN THE ACQUISITION OF ALL OR SUBSTANTIALLY ALL OF THE COMPANY'S OUTSTANDING COMMON SHARES BY A SINGLE PERSON OR ENTITY OR BY A GROUP OF PERSONS AND/OR ENTITIES ACTING IN CONCERT, OR IN THE EVENT OF THE SALE OR TRANSFER OF ALL OR SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS (ALL OF THE FOREGOING BEING REFERRED TO AS "ACQUISITION EVENTS"), THEN THE COMMITTEE MAY, IN ITS SOLE DISCRETION, TERMINATE ALL OUTSTANDING OPTIONS OF ELIGIBLE EMPLOYEES, EFFECTIVE AS OF THE DATE OF THE ACQUISITION EVENT, BY DELIVERING NOTICE OF TERMINATION TO EACH SUCH PARTICIPANT AT LEAST 30 DAYS PRIOR TO THE DATE OF CONSUMMATION OF THE ACQUISITION EVENT; PROVIDED, THAT DURING THE PERIOD FROM THE DATE ON WHICH SUCH NOTICE OF TERMINATION IS DELIVERED TO THE CONSUMMATION OF THE ACQUISITION EVENT, EACH SUCH PARTICIPANT SHALL HAVE THE RIGHT TO EXERCISE IN FULL ALL OF HIS OR HER OPTIONS THAT ARE THEN OUTSTANDING (WHETHER VESTED OR NOT VESTED) BUT CONTINGENT ON THE OCCURRENCE OF THE ACQUISITION EVENT, AND, PROVIDED THAT, IF THE ACQUISITION EVENT DOES NOT TAKE PLACE WITHIN A SPECIFIED PERIOD AFTER GIVING SUCH NOTICE FOR ANY REASON WHATSOEVER, THE NOTICE AND EXERCISE SHALL BE NULL AND VOID. IF AN ACQUISITION EVENT OCCURS, TO THE EXTENT THE COMMITTEE DOES NOT TERMINATE THE OUTSTANDING OPTIONS PURSUANT TO THIS SECTION 4.3(d), THEN THE PROVISIONS OF SECTION 4.3(b) SHALL APPLY. 4.4. PURCHASE PRICE. NOTWITHSTANDING ANY PROVISION OF THIS PLAN TO THE CONTRARY, IF AUTHORIZED BUT PREVIOUSLY UNISSUED COMMON SHARES ARE ISSUED UNDER THIS PLAN, SUCH SHARES SHALL NOT BE ISSUED FOR A CONSIDERATION WHICH IS LESS THAN AS PERMITTED UNDER APPLICABLE LAW. V. ELIGIBILITY THE CHIEF EXECUTIVE OFFICER OF THE COMPANY AND SUCH OTHER SENIOR EXECUTIVES OF THE COMPANY AS DETERMINED BY THE COMMITTEE ARE ELIGIBLE TO BE GRANTED OPTIONS UNDER THIS PLAN. VI. STOCK OPTION GRANTS 6.1. GRANT. THE COMMITTEE SHALL HAVE THE AUTHORITY TO GRANT TO ANY ELIGIBLE EMPLOYEE ONE OR MORE INCENTIVE STOCK OPTIONS. TO THE EXTENT AN OPTION DOES NOT 7 QUALIFY AS AN INCENTIVE STOCK OPTION (WHETHER BECAUSE OF ITS PROVISIONS OR THE TIME OR MANNER OF ITS EXERCISE OR OTHERWISE), SUCH OPTION OR THE PORTION THEREOF WHICH DOES NOT QUALIFY, SHALL CONSTITUTE A NON-QUALIFIED STOCK OPTION. 6.2. OPTION AGREEMENT. OPTIONS SHALL BE EVIDENCED BY OPTION AGREEMENTS IN SUCH FORM AS THE COMMITTEE SHALL APPROVE FROM TIME TO TIME. (a) EXERCISE PRICE. THE OPTION PRICE PER SHARE PURCHASABLE UNDER AN INCENTIVE STOCK OPTION SHALL BE DETERMINED BY THE COMMITTEE AT THE TIME OF GRANT BUT SHALL NOT BE LESS THAN 100% OF THE FAIR MARKET VALUE OF A COMMON SHARE AT THE TIME OF GRANT; PROVIDED, HOWEVER, IF AN INCENTIVE STOCK OPTION IS GRANTED TO A TEN PERCENT SHAREHOLDER, THE PURCHASE PRICE SHALL BE NO LESS THAN 110% OF THE FAIR MARKET VALUE OF THE COMMON SHARES. (b) PERIOD OF EXERCISABILITY FOR OPTIONS TO PURCHASE SHARES. THE TERM OF EACH STOCK OPTION SHALL BE FIXED BY THE COMMITTEE, BUT NO STOCK OPTION SHALL BE EXERCISABLE MORE THAN TEN (10) YEARS AFTER THE DATE THE OPTION IS GRANTED, PROVIDED, HOWEVER, THE TERM OF AN INCENTIVE STOCK OPTION GRANTED TO A TEN PERCENT SHAREHOLDER MAY NOT EXCEED FIVE (5) YEARS. (c) METHOD OF EXERCISE. THE OPTION IS EXERCISABLE IN INSTALLMENTS AS PROVIDED BELOW, WHICH SHALL BE CUMULATIVE. TO THE EXTENT THAT THE OPTION HAS BECOME EXERCISABLE WITH RESPECT TO A NUMBER OF SHARES GRANTED AS PROVIDED BELOW, THE OPTION MAY THEREAFTER BE EXERCISED, IN WHOLE OR IN PART, AT ANY TIME OR FROM TIME TO TIME PRIOR TO THE EXPIRATION OF THE OPTION AS PROVIDED HEREIN IN ACCORDANCE WITH THIS PLAN, INCLUDING WITHOUT LIMITATION, THE FILING OF SUCH WRITTEN FORM OF EXERCISE NOTICE, IF ANY, AS MAY BE PROMULGATED BY THE COMMITTEE ACCOMPANIED BY THE FULL PAYMENT OF THE EXERCISE PRICE IN SUCH FORM, OR SUCH OTHER ARRANGEMENT FOR THE SATISFACTION OF THE EXERCISE PRICE, AS THE COMMITTEE MAY ACCEPT. IF AND TO THE EXTENT DETERMINED BY THE COMMITTEE IN ITS SOLE DISCRETION AT OR AFTER GRANT, PAYMENT IN FULL OR IN PART MAY BE MADE IN THE FORM OF COMMON SHARES WITHHELD FROM THE SHARES TO BE RECEIVED ON THE EXERCISE OF A STOCK OPTION HEREUNDER OR COMMON SHARES OWNED BY THE PARTICIPANT FOR AT LEAST SIX (6) MONTHS (AND FOR WHICH THE PARTICIPANT HAS GOOD TITLE FREE AND CLEAR OF ANY LIENS AND ENCUMBRANCES AND HAS REPRESENTED THAT HE OR SHE HAS OWNED THE COMMON SHARES FOR AT LEAST SIX (6) MONTHS) BASED ON THE FAIR MARKET VALUE OF THE COMMON SHARES ON THE PAYMENT DATE, AS DETERMINED BY THE COMMITTEE. NO COMMON SHARES WILL BE ISSUED UNTIL PAYMENT THEREFOR, AS PROVIDED HEREIN, HAS BEEN MADE OR PROVIDED FOR. (d) VESTING. SUBJECT TO THE TERMS AND CONDITIONS AND WITHIN THE LIMITATIONS OF THIS PLAN, OPTIONS SHALL BECOME EXERCISABLE AS TO ONE-FIFTH OF THE COMMON SHARES SUBJECT TO THE OPTIONS GRANTED ON EACH OF THE FIRST FIVE (5) ANNIVERSARIES OF THE DATE OF GRANT. 8 (e) INCENTIVE STOCK OPTION LIMITATIONS. TO THE EXTENT THAT THE AGGREGATE FAIR MARKET VALUE (DETERMINED AS OF THE TIME OF GRANT) OF THE COMMON SHARES WITH RESPECT TO WHICH INCENTIVE STOCK OPTIONS ARE EXERCISABLE FOR THE FIRST TIME BY AN ELIGIBLE EMPLOYEE DURING ANY CALENDAR YEAR UNDER THIS PLAN AND/OR ANY OTHER STOCK OPTION PLAN OF THE COMPANY OR ANY "SUBSIDIARY" OR "PARENT" CORPORATION (WITHIN THE MEANING OF SECTION 424 OF THE CODE) EXCEEDS $100,000, SUCH OPTIONS SHALL BE TREATED AS OPTIONS WHICH ARE NOT INCENTIVE STOCK OPTIONS. (f) Buy Out and Settlement Provisions. The Committee may at any time on behalf of the Company offer to buy out an Option previously granted (with no obligation on the Participant to accept the offer), based on such terms and conditions as the Committee shall establish and communicate to the Participant at the time that such offer is made. (g) Form, Modification, Extension and Renewal of Options. Subject to the terms and conditions and within the limitations of this Plan, an Option shall be evidenced by such form of agreement or grant as is approved by the Committee, and the Committee may modify, extend or renew outstanding Options granted under this Plan (provided that the rights of a Participant are not reduced without his or her consent), or accept the surrender of outstanding Options (up to the extent not theretofore exercised) and authorize the granting of new Options in substitution therefor (to the extent not theretofore exercised). (h) Other Terms and Conditions. Options may contain such other provisions, which shall not be inconsistent with any of the foregoing terms of this Plan, as the Committee shall deem appropriate. VII. NONTRANSFERABILITY OF OPTIONS No Stock Option shall be Transferred by the Participant otherwise than by will or by the laws of descent and distribution. All Stock Options shall be exercisable, during the Participant's lifetime, only by the Participant. No Option shall, except as otherwise specifically provided by law or herein, be Transferred in any manner, and any attempt to Transfer any such Option shall be void, and no such Option shall in any manner be used for the payment of, subject to, or otherwise encumbered by or hypothecated for the debts, contracts, liabilities, engagements or torts of any person who shall be entitled to such Option, nor shall it be subject to attachment or legal process for or against such person. VIII. EFFECT OF TERMINATION OF EMPLOYMENT SUBJECT TO THE APPLICABLE PROVISIONS OF THE OPTION AGREEMENT AND THIS PLAN, UPON A PARTICIPANT'S TERMINATION OF EMPLOYMENT FOR ANY REASON THE OPTION IN QUESTION 9 WILL VEST OR BE FORFEITED AND SHALL BE EXERCISABLE IN ACCORDANCE WITH THE TERMS AND CONDITIONS ESTABLISHED BY THE COMMITTEE AT GRANT OR THEREAFTER. IX. RIGHTS AS A SHAREHOLDER A PARTICIPANT (OR A PERMITTED TRANSFEREE OF AN OPTION) SHALL HAVE NO RIGHTS AS A SHAREHOLDER WITH RESPECT TO ANY OF THE COMMON SHARES COVERED BY SUCH PARTICIPANT'S OPTION UNTIL SUCH PARTICIPANT (OR PERMITTED TRANSFEREE) SHALL HAVE BECOME THE HOLDER OF RECORD OF SUCH SHARES, AND NO ADJUSTMENTS SHALL BE MADE FOR DIVIDENDS IN CASH OR OTHER PROPERTY OR DISTRIBUTIONS OR OTHER RIGHTS IN RESPECT TO ANY SUCH SHARES, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THIS PLAN. X. TERMINATION, AMENDMENT AND MODIFICATION Notwithstanding any other provision of this Plan, the Board or the Committee may at any time, and from time to time, amend, in whole or in part, any or all of the provisions of this Plan (including any amendment deemed necessary to ensure that the Company may comply with any regulatory requirement referred to in this Article X), or suspend or terminate it entirely, retroactively or otherwise; provided, however, that, unless otherwise required by law or specifically provided herein, the rights of a Participant with respect to Options granted prior to such amendment, suspension or termination, may not be impaired without the consent of such Participant and, provided further, without the approval of the shareholders of the Company in accordance with the laws of the State of Maryland, if and to the extent required by the applicable provisions of Rule 16b-3 or Section 162(m) of the Code, or with respect to Incentive Stock Options, Section 422 of the Code, no amendment may be made which would (i) increase the aggregate number of Common Shares that may be issued under this Plan; (ii) change the classification of employees eligible to receive Options under this Plan; (iii) decrease the minimum option price of any Stock Option; or (iv) extend the maximum Option term. In no event may this Plan be amended without the approval of the shareholders of the Company in accordance with the applicable laws of the State of Maryland to increase the aggregate number of Common Shares that may be issued under this Plan (subject to Section 4.3), decrease the minimum option price of any Stock Option, or to make any other amendment that would require shareholder approval under the rules of any exchange or system on which the Company's securities are listed or traded at the request of the Company. The Committee may amend the terms of any Option theretofore granted, prospectively or retroactively, but, subject to Article IV or as otherwise specifically provided herein, no such amendment or other action by the Committee shall impair the rights of any Participant without the Participant's consent. 10 XI. UNFUNDED PLAN THIS PLAN IS INTENDED TO CONSTITUTE AN "UNFUNDED" PLAN FOR INCENTIVE COMPENSATION. WITH RESPECT TO ANY PAYMENTS AS TO WHICH A PARTICIPANT HAS A FIXED AND VESTED INTEREST BUT WHICH ARE NOT YET MADE TO A PARTICIPANT BY THE COMPANY, NOTHING CONTAINED HEREIN SHALL GIVE ANY SUCH PARTICIPANT ANY RIGHTS THAT ARE GREATER THAN THOSE OF A GENERAL CREDITOR OF THE COMPANY. XII. GENERAL PROVISIONS 12.1. Legend. The Committee may require each person receiving shares pursuant to the exercise of an Option under this Plan to represent to and agree in writing that the Participant is acquiring the shares without a view to distribution thereof. In addition to any legend required by this Plan, the certificates for such shares may include any legend which the Committee deems appropriate to reflect any restrictions on Transfer. All certificates for Common Shares delivered under this Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Shares are then listed or any national securities association system upon whose system the Common Shares are then quoted, any applicable Federal or state securities law, and any applicable corporate law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. 12.2. Other Plans. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements and such arrangements may be either generally applicable or applicable only in specific cases. 12.3. No Right to Employment. Neither this Plan nor the grant of any Option hereunder shall give any Participant or other employee any right with respect to continuance of employment by the Company or any Subsidiary, nor shall they be a limitation in any way on the right of the Company or any Subsidiary by which an employee is employed or retained to terminate his or her employment at any time. 12.4. Withholding of Taxes. The Company shall have the right to deduct from any payment to be made to a Participant, or to otherwise require, prior to the issuance or delivery of any Common Shares or the payment of any cash hereunder, payment by the Participant of, any Federal, state or local taxes required by law to be withheld. The Committee shall permit any such withholding obligation with regard to any Eligible Employee to be satisfied by reducing the number of Common Shares otherwise deliverable or by delivering Common Shares already owned. Any fraction of a Common Share required to satisfy such tax obligations shall be disregarded and the amount due shall be paid instead in cash by the Participant. 11 12.5. Listing and Other Conditions. (a) As long as the Common Shares are listed on a national securities exchange or system sponsored by a national securities association, the issue of any Common Shares pursuant to an Option shall be conditioned upon such shares being listed on such exchange or system. The Company shall have no obligation to deliver such shares unless and until such shares are so listed; provided, however, that any delay in the delivery of such shares shall be based solely on a reasonable business decision and the right to exercise any Option with respect to such shares shall be suspended until such listing has been effected. (b) If at any time counsel to the Company shall be of the opinion that any sale or delivery of Common Shares pursuant to the exercise of an Option is or may in the circumstances be unlawful or result in the imposition of excise taxes on the Company under the statutes, rules or regulations of any applicable jurisdiction, the Company shall have no obligation to make such sale or delivery, or to make any application or to effect or to maintain any qualification or registration under the Securities Act of 1933, as amended, or otherwise with respect to Common Shares or Options, and the right to exercise any Option shall be suspended until, in the opinion of said counsel, such sale or delivery shall be lawful or will not result in the imposition of excise taxes on the Company. (c) Upon termination of any period of suspension under this Section 12.5, any Option affected by such suspension which shall not then have expired or terminated shall be reinstated as to all shares available before such suspension and as to shares which would otherwise have become available during the period of such suspension, but no such suspension shall extend the term of any Option. 12.6. Governing Law. This Plan shall be governed and construed in accordance with the laws of the State of Maryland (regardless of the law that might otherwise govern under applicable Maryland principles of conflict of laws). 12.7. Construction. Wherever any words are used herein in the singular form, they shall be construed as though they were also used in the plural form in all cases where that would so apply. To the extent applicable, this Plan shall be limited, construed and interpreted in a manner so as to comply with Section 162(m) of the Code and the applicable requirements of Rule 16b-3; however, noncompliance with Section 162(m) of the Code and Rule 16b-3 shall have no impact on the effectiveness of an award under this Plan. 12.8. Other Benefits. No Option payment under this Plan shall be deemed compensation for purposes of computing benefits under any retirement plan of the Company or its subsidiaries nor affect any benefits under any other benefit plan now or subsequently in effect under which the availability or amount of benefits is related to the level of compensation. 12 12.9. Costs. The Company shall bear all expenses included in administering this Plan, including expenses of issuing Common Shares pursuant to any Options hereunder. 12.10. No Right to Same Benefits. The provisions of Options need not be the same with respect to each Participant, and such Options granted to individual Participants need not be the same in subsequent years. 12.11. Death/Disability. The Committee may in its discretion require the transferee of a Participant's Option to supply the Company with written notice of the Participant's death or disability and to supply the Company with a copy of the will (in the case of the Participant's death) or such other evidence as the Committee deems necessary to establish the validity of the Transfer of an Option. The Committee may also require that the transferee agree in writing to be bound by all of the terms and conditions of this Plan. 12.12. Section 16(b) of the Exchange Act. All elections and transactions under this Plan by persons subject to Section 16 of the Exchange Act involving Common Shares are intended to comply with any applicable exemptive condition under Rule 16b-3. The Committee may establish and adopt written administrative guidelines, designed to facilitate compliance with Section 16(b) of the Exchange Act, as it may deem necessary or proper for the administration and operation of this Plan thereunder. 12.13. Severability of Provisions. If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and enforced as if such provisions had not been included. XIII. EFFECTIVE DATE OF PLAN THIS KRAMONT REALTY TRUST EXECUTIVE OFFICER STOCK OPTION PLAN (FORMERLY THE MONTGOMERY CV TRUST EXECUTIVE OFFICER STOCK OPTION PLAN) INITIALLY BECAME EFFECTIVE ON DECEMBER 17, 1997. THIS AMENDED AND RESTATED PLAN IS EFFECTIVE ON JUNE 16, 2000 (DEFINED AS THE EFFECTIVE TIME IN THE REORGANIZATION AGREEMENT). XIV. TERM OF THIS PLAN NO OPTION SHALL BE GRANTED PURSUANT TO THIS PLAN ON OR AFTER THE FIFTH ANNIVERSARY OF DECEMBER 17, 1997, BUT OPTIONS GRANTED PRIOR TO SUCH FIFTH ANNIVERSARY MAY EXTEND BEYOND THAT DATE. 13 EX-10.84 5 w95171exv10w84.txt 1997 STOCK OPTION PLAN EXHIBIT 10.84 KRAMONT REALTY TRUST 1997 STOCK OPTION PLAN (FORMERLY THE DREXEL REALTY INC. 1997 STOCK OPTION PLAN)
TABLE OF CONTENTS Page ---- ARTICLE I. PURPOSE.......................................................... 1 ARTICLE II. DEFINITIONS...................................................... 1 ARTICLE III. ADMINISTRATION................................................... 4 ARTICLE IV. SHARE AND OTHER LIMITATIONS...................................... 6 ARTICLE V. ELIGIBILITY...................................................... 8 ARTICLE VI. STOCK OPTION GRANTS.............................................. 8 ARTICLE VII. NON-TRANSFERABILITY.............................................. 12 ARTICLE VIII. CHANGE IN CONTROL PROVISIONS..................................... 12 ARTICLE IX. TERMINATION OR AMENDMENT OF THE PLAN............................. 14 ARTICLE X. UNFUNDED PLAN.................................................... 15 ARTICLE XI. GENERAL PROVISIONS............................................... 15 ARTICLE XII. EFFECTIVE DATE OF PLAN........................................... 17 ARTICLE XIII. TERM OF PLAN..................................................... 18 ARTICLE XIV. NAME OF PLAN..................................................... 18
i KRAMONT REALTY TRUST 1997 STOCK OPTION PLAN ARTICLE I. PURPOSE The purpose of the Kramont Realty Trust 1997 Stock Option Plan (the "Plan") is to enhance the profitability and value of Kramont Realty Trust (the "Company") by enabling the Company to offer Stock Options (as defined herein) to employees of the Company or a Designated Subsidiary and to non-employee directors of the Company, thereby creating a means to raise the level of stock ownership by the employees and non-employee directors in order to attract, retain and reward such individuals. The Plan was formerly known as the Drexel Realty Inc. 1997 Stock Option Plan. As a result of the merger of CV Reit, Inc. into the Company pursuant to an Agreement and Plan of Reorganization and Merger among Kranzco Realty Trust, KRT Trust and CV Reit, Inc., dated as of December 10, 1999, as amended (the "Reorganization Agreement") the Company assumed the Drexel Realty Inc. 1997 Stock Option Plan. ARTICLE II. DEFINITIONS For purposes of this Plan, the following terms shall have the following meanings: 2.1. "Board" shall mean the Board of Trustees of the Company. 2.2. "Cause" shall mean, with respect to a Participant's Termination of Employment, unless otherwise determined by the Committee at grant, or, if no rights of the Participant are reduced, thereafter, termination due to a Participant's dishonesty, fraud, insubordination, willful misconduct, refusal to perform services (for any reason other than illness or incapacity) or materially unsatisfactory performance of his or her duties for the Company or a Subsidiary, as determined by the Committee in its sole discretion. With respect to a Participant's Termination of Directorship, cause shall mean an act or failure to act that constitutes "cause" for removal of a director under applicable law. 2.3. "Code" shall mean the Internal Revenue Code of 1986, as amended. Any reference to any section of the Code shall also be a reference to any successor provision. 2.4. "Committee" shall mean a committee of the Board appointed from time to time by the Board, which committee shall be intended to consist of two or more non-employee directors. In the event that no Committee exists which has the authority to administer this Plan, the functions of the Committee shall be exercised by the Board. Notwithstanding the foregoing, with respect to grants of Options to non-employee directors and any action hereunder relating to Options held by non-employee directors, the Committee shall mean the Board. 2.5. "Common Shares" shall mean the Common Shares of Beneficial Interest of the Company. 2.6. "Company" shall mean Kramont Realty Trust, a Maryland real estate investment trust. 2.7. "Designated Subsidiary" shall mean Kramont Operating Partnership, L.P. and any other Subsidiary which has been designated from time to time by the Board to participate in the Plan. 2.8. "Disability" shall mean total and permanent disability, as defined in Section 22(e)(3) of the Code. 2.9. "Effective Date" shall have the meaning set forth in Article XII. 2.10. "Eligible Employees" shall mean the employees of the Company or a Designated Subsidiary who are eligible pursuant to Section 5.1 to be granted Options under this Plan, as determined by the Committee in its sole discretion. 2.11. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 2.12. "Fair Market Value" shall mean, for purposes of this Plan, unless otherwise required by any applicable provision of the Code or any regulations issued thereunder, as of any date, the last sales price reported for the Common Shares on the applicable date: (i) as reported by the principal national securities exchange in the United States on which it is then traded, or (ii) if not traded on any such national securities exchange, as quoted on an automated quotation system sponsored by the National Association of Securities Dealers. If the Common Shares are not readily tradable on a national securities exchange or any system sponsored by the National Association of Securities Dealers, its Fair Market Value shall be set in good faith by the Committee on the advice of a registered investment adviser (as defined under the Investment Advisers Act of 1940). For purposes of the grant of any Stock Option, the applicable date shall be the date for which the last sales price is available at the time of grant. 2.13. "Good Reason" shall mean, with respect to a Participant's Termination of Employment, unless otherwise determined by the Committee at grant, or, if no rights of the Participant are reduced, thereafter, a voluntary termination due to "good reason," as the Committee, in its sole discretion decides to treat as a Good Reason termination. 2 2.14. "Participant" shall mean the following persons to whom an Option has been granted pursuant to this Plan: Eligible Employees of the Company or a Designated Subsidiary and non-employee directors of the Company. 2.15. "Retirement" with respect to a Participant's Termination of Employment shall mean a Termination of Employment without Cause or for Good Reason from the Company and/or a Subsidiary by a Participant who has attained (i) at least age 65; or (ii) such earlier date after age 55 as approved by the Committee with regard to such Participant. With respect to a Participant's Termination of Directorship, Retirement shall mean the failure to stand for reelection or the failure to be reelected after a Participant has attained age sixty-five (65). 2.16. "Stock Option" or "Option" shall mean any Option to purchase Common Shares granted to Eligible Employees or non-employee directors pursuant to Article VI. 2.17. "Subsidiary" shall mean, other than the Company, (i) any corporation in an unbroken chain of corporations beginning with the Company which owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain; (ii) any corporation or trade or business (including, without limitation, a partnership or limited liability company) which is controlled fifty percent (50%) or more (whether by ownership of stock, assets or an equivalent ownership interest) by the Company or one of its Subsidiaries; or (iii) any other entity in which the Company or any of its Subsidiaries has a direct or indirect equity or other ownership interest as determined by the Committee in its sole discretion. 2.18. "Termination of Directorship" shall mean, with respect to a non-employee director, that the non-employee director has ceased to be a director of the Company for any reason. 2.19. "Termination of Employment" shall mean: (i) a termination of service (for reasons other than a military or personal leave of absence granted by the Company or a Subsidiary) of a Participant from the Company and its Subsidiaries; or (ii) when an entity which is employing a Participant ceases to be a Subsidiary, unless the Participant thereupon becomes employed by the Company or another Subsidiary. 2.20. "Transfer" or "Transferred" shall mean to anticipate, alienate, attach, sell, assign, pledge, encumber, charge or otherwise transfer. ARTICLE III. ADMINISTRATION 3.1. The Committee. This Plan shall be administered and interpreted by the Committee. 3 3.2. Stock Option Grants. The Committee shall have full authority to grant, pursuant to the terms of this Plan (including Article V hereof), Stock Options to Eligible Employees or non-employee directors. In particular, the Committee shall have the authority: (a) to select the Eligible Employees and non-employee directors to whom Stock Options may from time to time be granted hereunder; (b) to determine whether and to what extent Stock Options are to be granted hereunder to one or more Eligible Employees or non-employee directors; (c) to determine, in accordance with the terms of this Plan, the number of Common Shares to be covered by each Option granted to an Eligible Employee or non-employee director hereunder; (d) to determine the terms and conditions, not inconsistent with the terms of this Plan, of any Option granted hereunder to an Eligible Employee or non-employee director (including, but not limited to, the exercise or purchase price (if any), any restriction or limitation, any vesting schedule or acceleration thereof or any forfeiture restrictions or waiver thereof, regarding any Stock Option, and the Common Shares relating thereto, based on such factors, if any, as the Committee shall determine, in its sole discretion); (e) to determine whether and under what circumstances a Stock Option may be settled in cash and/or Common Shares under Section 6.3(d); (f) to determine whether, to what extent and under what circumstances to provide loans (which may be on a recourse basis and shall bear interest at the rate the Committee shall provide) to Eligible Employees or non-employee directors in order to exercise Options under the Plan; (g) to determine whether to require Eligible Employees or non-employee directors, as a condition of the granting of any Option, to not sell or otherwise dispose of shares acquired pursuant to the exercise of the Option for a period of time as determined by the Committee, in its sole discretion, following the date of the acquisition of such Option; and (h) to modify, extend or renew an Option, subject to Article IX herein, provided, however, that if an Option is modified, extended or renewed and thereby deemed to be the issuance of a new Option under the Code or the applicable accounting rules, the exercise price of an Option may continue to be the original exercise price even if less than the Fair Market Value of the Common Shares at the time of such modification, extension or renewal. 3.3. Guidelines. Subject to Article IX hereof, the Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing this Plan and perform all acts, including the delegation of its administrative responsibilities, as it shall, from 4 time to time, deem advisable; to construe and interpret the terms and provisions of this Plan and any Option issued under this Plan (and any agreements relating thereto); and to otherwise supervise the administration of this Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in this Plan or in any agreement relating thereto in the manner and to the extent it shall deem necessary to carry this Plan into effect. The Committee may adopt special guidelines and provisions for persons who are residing in, or subject to, the taxes of, countries other than the United States to comply with applicable tax and securities laws. 3.4. Decisions Final. Any decision, interpretation or other action made or taken in good faith by or at the direction of the Company, the Board, or the Committee (or any of its members) arising out of or in connection with this Plan shall be within the absolute discretion of the Company, the Board or the Committee, as the case may be, and shall be final, binding and conclusive on the Company, Subsidiaries and all employees and Participants and their respective heirs, executors, administrators, successors and assigns. 3.5. Reliance on Counsel. The Company, the Board or the Committee may consult with legal counsel, who may be counsel for the Company or other counsel, with respect to its obligations or duties hereunder, or with respect to any action or proceeding or any question of law, and shall not be liable with respect to any action taken or omitted by it in good faith pursuant to the advice of such counsel. 3.6. Procedures. If the Committee is appointed, the Board shall designate one of the members of the Committee as chairman and the Committee shall hold meetings, subject to the By-Laws of the Company, at such times and places as the Committee shall deem advisable. A majority of the Committee members shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by all the Committee members in accordance with the By-Laws of the Company shall be fully as effective as if it had been made by a vote at a meeting duly called and held. The Committee may keep minutes of its meetings and may make such rules and regulations for the conduct of its business as it shall deem advisable. 3.7. Designation of Consultants/Liability. (a) The Committee may designate employees of the Company and professional advisors to assist the Committee in the administration of this Plan and may grant authority to employees to execute agreements or other documents on behalf of the Committee. (b) The Committee may employ such legal counsel, consultants and agents as it may deem desirable for the administration of this Plan and may rely upon any opinion received from any such counsel or consultant and any computation received from any such consultant or agent. Expenses incurred by the Committee or the Board in the engagement of any such counsel, consultant or agent shall be paid by the Company. The Committee, its members and any person designated pursuant to Section 3.7(a) shall not be liable for any action or determination made in good faith with respect to this Plan. To 5 the maximum extent permitted by applicable law, no officer or former officer of the Company or member or former member of the Committee or of the Board shall be liable for any action or determination made in good faith with respect to this Plan or any Option granted under it. To the maximum extent permitted by applicable law and the Declaration of Trust and By-Laws of the Company and to the extent not covered by insurance, each officer or former officer and member or former member of the Committee or of the Board shall be indemnified and held harmless by the Company against any cost or expense (including reasonable fees of counsel reasonably acceptable to the Company) or liability (including any sum paid in settlement of a claim with the approval of the Company), and advanced amounts necessary to pay the foregoing at the earliest time and to the fullest extent permitted, arising out of any act or omission to act in connection with this Plan, except to the extent arising out of such officer's or former officer's, member's or former member's own fraud or bad faith. Such indemnification shall be in addition to any rights of indemnification the officers, directors or members or former officers, directors or members may have under applicable law or under the Declaration of Trust or By-Laws of the Company. Notwithstanding anything else herein, this indemnification will not apply to the actions or determinations made by an individual with regard to Options granted to him or her under this Plan. ARTICLE IV. SHARE AND OTHER LIMITATIONS 4.1. Share Limitation. The aggregate number of Common Shares which may be issued under this Plan shall not exceed 400,000 shares (subject to any increase or decrease pursuant to Section 4.2) which may be either authorized and unissued Common Shares or Common Shares held in or acquired for the treasury of the Company or Common Shares held by the Company. If any Option granted under this Plan expires, terminates or is canceled for any reason without having been exercised in full or the Company repurchases any Option pursuant to Section 6.3(e), the number of Common Shares underlying the repurchased Option, and/or the number of Common Shares underlying any unexercised Stock Option shall again be available for the purposes of awards under this Plan. 4.2. Changes. (a) The existence of this Plan and the Options granted hereunder shall not affect in any way the right or power of the Company, the board or the shareholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company or Subsidiaries, any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting Common Shares, the authorization or issuance of 6 additional Common Shares, the dissolution or liquidation of the Company, any sale or transfer of all or part of its assets or business or any other corporate act or proceeding. (b) In the event of any change in the capital structure or business of the Company by reason of any stock dividend or extraordinary dividend, stock split or reverse stock split, recapitalization, reorganization, merger, consolidation, or exchange of shares, distribution with respect to its outstanding Common Shares or capital stock other than Common Shares, reclassification of its capital stock, any sale or transfer of all or part of the Company's assets or business, or any similar change affecting the Company's capital structure or business and the Committee determines an adjustment is appropriate under this Plan, then the aggregate number and kind of shares which thereafter may be issued under this Plan, the number and kind of shares or other property (including cash) to be issued upon exercise of an outstanding Option granted under this Plan and the purchase or exercise price thereof may be appropriately adjusted consistent with such change in such manner as the Committee may deem equitable to prevent substantial dilution or enlargement of the rights granted to, or available for, Participants under this Plan or as otherwise necessary to reflect the change, and any such adjustment determined by the Committee in good faith shall be binding and conclusive on the Company and all Participants and employees and their respective heirs, executors, administrators, successors and assigns. (c) Fractional Common Shares resulting from any adjustment in Options pursuant to Section 4.2(a) or (b) shall be aggregated until, and eliminated at, the time of exercise by rounding-down for fractions less than one-half and rounding-up for fractions equal to or greater than one-half. No cash settlements shall be made with respect to fractional shares eliminated by rounding. Notice of any adjustment shall be given by the Committee to each Participant whose Option has been adjusted and such adjustment (whether or not such notice is given) shall be effective and binding for all purposes of this Plan. (d) In the event of a merger or consolidation in which the Company is not the surviving entity or in the event of any transaction that results in the acquisition of all or substantially all of the Company's outstanding Common Shares by a single person or entity or by a group of persons and/or entities acting in concert, or in the event of the sale or transfer of all or substantially all of the Company's assets (all of the foregoing being referred to as "Acquisition Events"), then the Committee may, in its sole discretion, terminate all outstanding Options of Eligible Employees, effective as of the date of the Acquisition Event, by delivering notice of termination to each such Participant at least 30 days prior to the date of consummation of the Acquisition Event; provided, that during the period from the date on which such notice of termination is delivered to the consummation of the Acquisition Event, each such Participant shall have the right to exercise in full all of his or her Options that are then outstanding (whether vested or not vested) but contingent on the occurrence of the Acquisition Event, and, provided that, if the Acquisition Event does not take place within a specified period after giving such notice for any reason whatsoever, the notice and exercise shall be null and void. If an 7 Acquisition Event occurs, to the extent the Committee does not terminate the outstanding Options pursuant to this Section 4.2(d), then the provisions of Section 4.2(b) shall apply. 4.3. Purchase Price. Notwithstanding any provision of this Plan to the contrary, if authorized but previously unissued Common Shares are issued under this Plan, such shares shall not be issued for a consideration which is less than as permitted under applicable law. ARTICLE V. ELIGIBILITY 5.1. All employees of the Company and its Designated Subsidiaries and all non-employee directors of the Company are eligible to be granted Options under this Plan. Eligibility under this Plan shall be determined by the Committee. ARTICLE VI. STOCK OPTION GRANTS 6.1. Options. Each Stock Option granted hereunder shall be a non-qualified stock option which is not intended to satisfy the requirements of Section 422 of the Code. 6.2. Grants. The Committee shall have the authority to grant to any Eligible Employee or any non-employee director one or more Non-Qualified Stock Options. 6.3. Terms of Options. Options granted under this Plan shall be subject to the following terms and conditions, and shall be in such form and contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem desirable: (a) OPTION PRICE. THE PURCHASE PRICE OF COMMON SHARES SUBJECT TO A STOCK OPTION SHALL BE DETERMINED BY THE COMMITTEE BUT SHALL NOT BE LESS THAN 100% OF THE FAIR MARKET VALUE OF THE COMMON SHARES AT THE TIME OF GRANT. (b) OPTION TERM. THE TERM OF EACH STOCK OPTION SHALL BE FIXED BY THE COMMITTEE, BUT NO STOCK OPTION SHALL BE EXERCISABLE MORE THAN 10 YEARS AFTER THE DATE THE OPTION IS GRANTED. (c) EXERCISABILITY. STOCK OPTIONS SHALL BE EXERCISABLE AT SUCH TIME OR TIMES AND SUBJECT TO SUCH TERMS AND CONDITIONS AS SHALL BE DETERMINED BY THE COMMITTEE AT THE TIME OF GRANT. IF THE COMMITTEE PROVIDES, IN ITS DISCRETION, THAT ANY STOCK OPTION IS EXERCISABLE SUBJECT TO CERTAIN LIMITATIONS (INCLUDING, WITHOUT LIMITATION, THAT IT IS EXERCISABLE ONLY IN INSTALLMENTS OR WITHIN CERTAIN TIME PERIODS), THE COMMITTEE MAY WAIVE SUCH LIMITATIONS ON THE EXERCISABILITY AT ANY TIME AT OR AFTER THE TIME OF GRANT IN WHOLE OR IN PART (INCLUDING, WITHOUT LIMITATION, THAT THE 8 COMMITTEE MAY WAIVE THE INSTALLMENT EXERCISE PROVISIONS OR ACCELERATE THE TIME AT WHICH OPTIONS MAY BE EXERCISED), BASED ON SUCH FACTORS, IF ANY, AS THE COMMITTEE SHALL DETERMINE, IN ITS SOLE DISCRETION. (d) METHOD OF EXERCISE. SUBJECT TO WHATEVER INSTALLMENT EXERCISE AND WAITING PERIOD PROVISIONS APPLY UNDER SECTION 6.3(c), STOCK OPTIONS MAY BE EXERCISED IN WHOLE OR IN PART AT ANY TIME DURING THE OPTION TERM, BY GIVING WRITTEN NOTICE OF EXERCISE TO THE COMPANY SPECIFYING THE NUMBER OF SHARES TO BE PURCHASED. SUCH NOTICE SHALL BE ACCOMPANIED BY PAYMENT IN FULL OF THE EXERCISE PRICE IN SUCH FORM, OR SUCH OTHER ARRANGEMENT FOR THE SATISFACTION OF THE EXERCISE PRICE, AS THE COMMITTEE MAY ACCEPT. IF AND TO THE EXTENT DETERMINED BY THE COMMITTEE IN ITS SOLE DISCRETION AT OR AFTER GRANT, PAYMENT IN FULL OR IN PART MAY ALSO BE MADE IN THE FORM OF COMMON SHARES WITHHELD FROM THE SHARES TO BE RECEIVED ON THE EXERCISE OF A STOCK OPTION HEREUNDER OR COMMON SHARES OWNED BY the Participant for at least 6 months (and for which the Participant has good title free and clear of any liens and encumbrances and has represented that he or she has owned the Common Shares for at least 6 months) based on the Fair Market Value of the Common Shares on the payment date, as determined by the Committee. No Common Shares shall be issued until payment therefor, as provided herein, has been made or provided for. (e) Buy Out and Settlement Provisions. The Committee may at any time on behalf of the Company offer to buy out an Option previously granted, based on such terms and conditions as the Committee shall establish and communicate to the Participant at the time that such offer is made. (f) Form, Modification, Extension and Renewal of Options. Subject to the terms and conditions and within the limitations of this Plan, an Option shall be evidenced by such form of agreement or grant as is approved by the Committee, and the Committee may modify, extend or renew outstanding Options granted under this Plan (provided that the rights of a Participant are not reduced without his or her consent), or accept the surrender of outstanding Options (up to the extent not theretofore exercised) and authorize the granting of new Options in substitution therefor (to the extent not theretofore exercised). (g) Other Terms and Conditions. Options may contain such other provisions, which shall not be inconsistent with any of the foregoing terms of this Plan, as the Committee shall deem appropriate. 6.4. Termination of Employment. The following rules apply with regard to Options upon the Termination of Employment of a Participant: (a) Termination by Reason of Death. If a Participant's Termination of Employment is by reason of death, any Stock Option held by such Participant, unless otherwise determined by the Committee at grant or, if no rights of the Participant's estate are reduced, thereafter, may be exercised, to the extent exercisable at the Participant's 9 death, by the legal representative of the estate, at any time within a period of one year from the date of such death, but in no event beyond the expiration of the stated term of such Stock Option. (b) Termination by Reason of Disability. If a Participant's Termination of Employment is by reason of Disability, any Stock Option held by such Participant, unless otherwise determined by the Committee at grant or, if no rights of the Participant are reduced, thereafter, may be exercised, to the extent exercisable at the Participant's termination, by the Participant (or the legal representative of the Participant's estate if the Participant dies after termination) at any time within a period of one year from the date of such termination, but in no event beyond the expiration of the stated term of such Stock Option. (c) Termination by Reason of Retirement. If a Participant's Termination of Employment is by reason of Retirement, any Stock Option held by such Participant, unless otherwise determined by the Committee at grant, or, if no rights of the Participant are reduced, thereafter, shall be fully vested and may thereafter be exercised by the Participant at any time within a period of one year from the date of such termination, but in no event beyond the expiration of the stated term of such Stock Option; provided, however, that, if the Participant dies within such exercise period, any unexercised Stock Option held by such Participant shall thereafter be exercisable, to the extent to which it was exercisable at the time of death, for a period of 12 months (or such other period as the Committee may specify at grant or, if no rights of the Participant's estate are reduced, thereafter) from the date of such death, but in no event beyond the expiration of the stated term of such Stock Option. (d) Involuntary Termination Without Cause or Termination for Good Reason. If a Participant's Termination of Employment is by involuntary termination without Cause or for Good Reason, any Stock Option held by such Participant, unless otherwise determined by the Committee at grant or, if no rights of the Participant are reduced, thereafter, may be exercised, to the extent exercisable at termination, by the Participant (or the legal representative of the Participant's estate if the Participant dies after termination) at any time within a period of 90 days from the date of such termination, but in no event beyond the expiration of the stated term of such Stock Option. (e) Termination Without Good Reason. If a Participant's Termination of Employment is voluntary but without Good Reason and occurs prior to, or more than ninety (90) days after, the occurrence of an event which would be grounds for Termination of Employment for Cause (without regard to any notice or cure period requirements), any Stock Option held by such Participant, unless otherwise determined by the Committee at grant or, if no rights of the Participant are reduced, thereafter, may be exercised, to the extent exercisable at termination, by the Participant (or the legal representative of the Participant's estate if the Participant dies after termination) at any time within a period of 30 days from the date of such termination, but in no event beyond the expiration of the stated term of such Stock Option. 10 (f) Other Termination. Unless otherwise determined by the Committee at grant or, if no rights of the Participant are reduced, thereafter, if a Participant's Termination of Employment is for any reason other than death, Disability, Retirement, Good Reason, involuntary termination without Cause or voluntary termination as provided in subsection (e) above, any Stock Option held by such Participant shall thereupon terminate and expire as of the date of termination, provided that (unless the Committee determines a different period upon grant or, if, no rights of the Participant are reduced, thereafter) in the event the termination is for Cause or is a voluntary termination without Good Reason within 90 days after occurrence of an event which would be grounds for Termination of Employment for Cause (without regard to any notice or cure period requirement), any Stock Option held by the Participant at the time of occurrence of the event which would be grounds for Termination of Employment for Cause shall be deemed to have terminated and expired upon occurrence of the event which would be grounds for Termination of Employment for Cause. 6.5. Termination of Directorship. The following rules apply with regard to Options upon the Termination of Directorship: (a) Death, Disability or Otherwise Ceasing to be a Director Other than for Cause. Except as otherwise determined by the Committee at grant or, if no rights of the Participant are reduced, thereafter, upon the Termination of Directorship, on account of Disability, death, Retirement, resignation, failure to stand for reelection or failure to be reelected or otherwise other than as set forth in (b) below, all outstanding Options then exercisable and not exercised by the Participant prior to such Termination of Directorship shall remain exercisable, to the extent exercisable at the Termination of Directorship, by the Participant or, in the case of death, by the Participant's estate or by the person given authority to exercise such Options by his or her will or by operation of law, for a one year period commencing on the date of the Termination of Directorship, provided that such one year period shall not extend beyond the stated time of such Options. (b) Cause. Upon removal, failure to stand for reelection or failure to be renominated for Cause, or if the Company obtains or discovers information after Termination of Directorship that such Participant had engaged in conduct that would have justified a removal for Cause during such directorship, all outstanding Options of such Participant shall immediately terminate and shall be null and void. (c) Cancellation of Options. No Options that were not exercisable during the period such person serves as a director shall thereafter become exercisable upon a Termination of Directorship for any reason or no reason whatsoever, and such Options shall terminate and become null and void upon a Termination of Directorship. 11 ARTICLE VII. NON-TRANSFERABILITY No Stock Option shall be Transferred by the Participant otherwise than by will or by the laws of descent and distribution. All Stock Options shall be exercisable, during the Participant's lifetime, only by the Participant. No Option shall, except as otherwise specifically provided by law or herein, be Transferred in any manner, and any attempt to Transfer any such Option shall be void, and no such Option shall in any manner be used for the payment of, subject to, or otherwise encumbered by or hypothecated for the debts, contracts, liabilities, engagements or torts of any person who shall be entitled to such Option, nor shall it be subject to attachment or legal process for or against such person. Notwithstanding the foregoing, the Committee may determine at the time of grant or thereafter, that a Stock Option that is otherwise not transferable pursuant to this Article VII is transferable in whole or part and in such circumstances, and under such conditions, as specified by the Committee. ARTICLE VIII. CHANGE IN CONTROL PROVISIONS 8.1. Benefits. In the event of a Change in Control of the Company (as defined below), except as otherwise provided by the Committee upon the grant of an Option, the Participant shall be entitled to the following benefits: (a) Subject to paragraph (b) below, all outstanding Options of Participants granted prior to the Change in Control shall be fully vested and immediately exercisable in their entirety. The Committee, in its sole discretion, may provide for the purchase of any such Stock Options by the Company for an amount of cash equal to the excess of the Change in Control price (as defined below) of the Common Shares covered by such Stock Options, over the aggregate exercise price of such Stock Options. For purposes of this Section 8.1, Change in Control price shall mean the higher of: (i) the highest price per Common Share paid in any transaction related to a Change in Control, or (ii) the highest Fair Market Value per Common Share at any time during the 60 day period preceding a Change in Control. (b) Notwithstanding anything to the contrary herein, unless the Committee provides otherwise at the time an Option is granted to an Eligible Employee hereunder or thereafter, no acceleration of exercisability shall occur with respect to such Option if the Committee reasonably determines in good faith, prior to the occurrence of the Change in Control, that the Options shall be honored or assumed, or new rights substituted therefor (each such honored, assumed or substituted option hereinafter called an "Alternative Option"), by such Participant's employer (or the parent or a subsidiary of such employer), immediately following the Change in Control, provided that any such Alternative Option must meet the following criteria: 12 (i) the Alternative Option must be based on stock which is traded on an established securities market, or which will be so traded within 30 days of the Change in Control; (ii) the Alternative Option must provide such Participant with rights and entitlements substantially equivalent to or better than the rights, terms and conditions applicable under such Option, including, but not limited to, an identical or better exercise schedule; and (iii) the Alternative Option must have economic value substantially equivalent to the value of such Option (determined at the time of the Change in Control). 8.2. Change in Control. A "Change in Control" shall be deemed to have occurred: (a) upon any "person" as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any company owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of Common Shares of the Company), becoming the owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities (including, without limitation, securities owned at the time of any increase in ownership); (b) during any period of 2 consecutive years, a change in the composition of the Board such that the individuals who, as of the Effective Time (as defined in the Reorganization Agreement), comprise the Board (the "Incumbent Company Board") cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this subsection that any individual who becomes a member of an Incumbent Company Board subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved in advance or contemporaneously with such election by a vote of at least a majority of those individuals who are members of the Incumbent Company Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of the Incumbent Company Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a "person" other than the Board or actual or threatened tender offer for shares of the Company or similar transaction or other contest for corporate control (other than a tender offer by the Company) shall not be so considered as a member of the Incumbent Company Board; (c) upon the merger or consolidation of the Company with any other corporation (other than a parent or subsidiary corporation), other than a merger or consolidation 13 which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (d) upon the approval of the shareholders of the Company of a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets other than the sale of all or substantially all of the assets of the Company to a person or persons who beneficially own, directly or indirectly, at least 50% or more of the combined voting power of the outstanding voting securities of the Company at the time of the sale. ARTICLE IX. TERMINATION OR AMENDMENT OF THE PLAN Notwithstanding any other provision of this Plan, the Board or the Committee may at any time, and from time to time, amend, in whole or in part, any or all of the provisions of this Plan (including any amendment deemed necessary to ensure that the Company may comply with any regulatory requirement referred to in this Article IX), or suspend or terminate it entirely, retroactively or otherwise; provided, however, that, unless otherwise required by law or specifically provided herein, the rights of a Participant with respect to Options granted prior to such amendment, suspension or termination, may not be impaired without the consent of such Participant and, provided further, without the approval of shareholders of the Company in accordance with the laws of the State of Maryland, no amendment may be made which would (i) increase the aggregate number of Common Shares that may be issued under this Plan; (ii) decrease the minimum option price of any Stock Option; or (iii) extend the maximum option term. The Committee may amend the terms of any Option theretofore granted, prospectively or retroactively, but, subject to Article IV or as otherwise specifically provided herein, no such amendment or other action by the Committee shall impair the rights of any Participant without the Participant's consent. ARTICLE X. UNFUNDED PLAN This Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments as to which a Participant has a fixed and vested interest but which are not yet made to a Participant by the Company, nothing contained herein 14 shall give any such Participant any rights that are greater than those of a general creditor of the Company. ARTICLE XI. GENERAL PROVISIONS 11.1. Legend. The Committee may require each person receiving shares pursuant to an the exercise of an Option under this Plan to represent to and agree in writing that the Participant is acquiring the shares without a view to distribution thereof. In addition to any legend required by this Plan, the certificates for such shares may include any legend which the Committee deems appropriate to reflect any restrictions on Transfer. All certificates for Common Shares delivered under this Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Shares are then listed or any national securities association system upon whose system the Common Shares are then quoted, any applicable Federal or state securities law, and any applicable corporate law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. 11.2. Other Plans. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required, and such arrangements may be either generally applicable or applicable only in specific cases. 11.3. No Right to Employment/Directorship. Neither this Plan nor the grant of any Option hereunder shall give any Participant or other employee any right with respect to continuance of employment by the Company or any Subsidiary, nor shall they be a limitation in any way on the right of the Company or any Subsidiary by which an employee is employed or retained to terminate his or her employment at any time. Neither this Plan nor the grant of any Option hereunder shall impose any obligation on the Company to retain any Participant as a director of the Company. 11.4. Withholding of Taxes. The Company shall have the right to deduct from any payment to be made to a Participant, or to otherwise require, prior to the issuance or delivery of any Common Shares or the payment of any cash hereunder, payment by the Participant of, any Federal, state or local taxes required by law to be withheld. The Committee shall permit any such withholding obligation with regard to any Eligible Employee to be satisfied by reducing the number of Common Shares otherwise deliverable or by delivering Common Shares already owned. Any fraction of a Common Share required to satisfy such tax obligations shall be disregarded and the amount due shall be paid instead in cash by the Participant. 15 11.5. Listing and Other Conditions. (a) As long as the Common Shares are listed on a national securities exchange or system sponsored by a national securities association, the issue of any Common Shares pursuant to an Option shall be conditioned upon such shares being listed on such exchange or system. The Company shall have no obligation to deliver such shares unless and until such shares are so listed; provided, however, that any delay in the delivery of such shares shall be based solely on a reasonable business decision and the right to exercise any Option with respect to such shares shall be suspended until such listing has been effected. (b) If at any time counsel to the Company shall be of the opinion that any sale or delivery of Common Shares pursuant to the exercise of an Option is or may in the circumstances be unlawful or result in the imposition of excise taxes on the Company under the statutes, rules or regulations of any applicable jurisdiction, the Company shall have no obligation to make such sale or delivery, or to make any application or to effect or to maintain any qualification or registration under the Securities Act of 1933, as amended, or otherwise with respect to Common Shares or Options, and the right to exercise any Option shall be suspended until, in the opinion of said counsel, such sale or delivery shall be lawful or will not result in the imposition of excise taxes on the Company. (c) Upon termination of any period of suspension under this Section 11.5, any Option affected by such suspension which shall not then have expired or terminated shall be reinstated as to all shares available before such suspension and as to shares which would otherwise have become available during the period of such suspension, but no such suspension shall extend the term of any Option. 11.6. Governing Law. This Plan shall be governed and construed in accordance with the laws of the State of Maryland (regardless of the law that might otherwise govern under applicable Maryland principles of conflict of laws). 11.7. Construction. Wherever any words are used herein in the singular form, they shall be construed as though they were also used in the plural form in all cases where they would so apply. 11.8. Other Benefits. No Option payment under this Plan shall be deemed compensation for purposes of computing benefits under any retirement plan of the Company or their subsidiaries nor affect any benefits under any other benefit plan now or subsequently in effect under which the availability or amount of benefits is related to the level of compensation. 11.9. Costs. The Company shall bear all expenses included in administering this Plan, including expenses of issuing Common Shares pursuant to any Options hereunder. 16 11.10. No Right to Same Benefits. The provisions of Options need not be the same with respect to each Participant, and such Options granted to individual Participants need not be the same in subsequent years. 11.11. Death/Disability. The Committee may in its discretion require the transferee of a Participant's Option to supply the Company with written notice of the Participant's death or Disability and to supply the Company with a copy of the will (in the case of the Participant's death) or such other evidence as the Committee deems necessary to establish the validity of the Transfer of an Option. The Committee may also require that the transferee agree in writing to be bound by all of the terms and conditions of this Plan. 11.12. Severability of Provisions. If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provisions had not been included. 11.13. Headings and Captions. The headings and captions herein are provided for reference and convenience only, shall not be considered part of this Plan, and shall not be employed in the construction of this Plan. ARTICLE XII. EFFECTIVE DATE OF PLAN This Kramont Realty Trust 1997 Stock Option Plan (formerly the Drexel Realty, Inc. 1997 Stock Option Plan) initially became effective upon the adoption by the board of directors of Drexel Realty, Inc. (the "Effective Date"). This amended and restated Plan is effective on June 16, 2000 (defined as the Effective Time in the Reorganization Agreement). ARTICLE XIII. TERM OF PLAN No Option shall be granted pursuant to this Plan on or after the tenth anniversary of the Effective Date, but Options granted prior to such tenth anniversary may extend beyond that date. ARTICLE XIV. NAME OF PLAN This Plan shall be known as the Kramont Realty Trust 1997 Stock Option Plan. 17 EX-10.85 6 w95171exv10w85.txt NON-EMPLOYEE DIRECTOR 1998 STOCK OPTION PLAN EXHIBIT 10.85 KRAMONT REALTY TRUST NON-EMPLOYEE DIRECTOR 1998 STOCK OPTION PLAN (FORMERLY THE CV REIT, INC. NON-EMPLOYEE DIRECTOR 1998 STOCK OPTION PLAN)
TABLE OF CONTENTS PAGE ---- ARTICLE I. PURPOSE........................................................ 1 ARTICLE II. DEFINITIONS.................................................... 1 ARTICLE III. ADMINISTRATION................................................. 3 ARTICLE IV. SHARES AND OTHER LIMITATIONS................................... 4 ARTICLE V. ELIGIBILITY.................................................... 6 ARTICLE VI. STOCK OPTIONS.................................................. 7 ARTICLE VII. TERMINATION PROVISIONS......................................... 8 ARTICLE VIII. NON-TRANSFERABILITY............................................ 9 ARTICLE IX. CHANGE IN CONTROL.............................................. 9 ARTICLE X. TERMINATION OR AMENDMENT OF PLAN............................... 10 ARTICLE XI. UNFUNDED PLAN.................................................. 11 ARTICLE XII. GENERAL PROVISIONS............................................. 11 ARTICLE XIII. EFFECTIVE DATE OF PLAN......................................... 13 ARTICLE XIV. TERM OF PLAN................................................... 14 ARTICLE XV. NAME OF PLAN................................................... 14
i KRAMONT REALTY TRUST NON-EMPLOYEE DIRECTOR 1998 STOCK OPTION PLAN ARTICLE I. PURPOSE The purpose of the Kramont Realty Trust Non-Employee Director 1998 Stock Option Plan (the "Plan") is to enhance the profitability and value of Kramont Realty Trust (the "Company") for the benefit of its shareholders by enabling the Company to make discretionary grants of Stock Options to induce certain individuals to commence service as Non-Employee Directors, thereby attracting, retaining and rewarding such Non-Employee Directors and strengthening the mutuality of interests between such Non-Employee Directors and the Company's shareholders. THE PLAN WAS FORMERLY KNOWN AS THE CV REIT, INC. NON-EMPLOYEE DIRECTOR 1998 STOCK OPTION PLAN. AS A RESULT OF THE MERGER OF CV REIT, INC. INTO THE COMPANY PURSUANT TO AN AGREEMENT AND PLAN OF REORGANIZATION AND MERGER AMONG KRANZCO REALTY TRUST, KRT TRUST AND CV REIT, INC., DATED AS OF DECEMBER 10, 1999, AS AMENDED (THE "REORGANIZATION AGREEMENT") THE COMPANY ASSUMED THE CV REIT, INC. NON-EMPLOYEE DIRECTOR 1998 STOCK OPTION PLAN. ARTICLE II. DEFINITIONS FOR PURPOSES OF THE PLAN, THE FOLLOWING TERMS SHALL HAVE THE FOLLOWING MEANINGS: 2.1. "BOARD" SHALL MEAN THE BOARD OF TRUSTEES OF THE COMPANY. 2.2. "CAUSE" SHALL MEAN, WITH RESPECT TO A PARTICIPANT'S TERMINATION OF DIRECTORSHIP, AN ACT OR FAILURE TO ACT THAT CONSTITUTES "CAUSE" FOR REMOVAL OF A DIRECTOR UNDER APPLICABLE DELAWARE LAW. 2.3. "CHANGE IN CONTROL" SHALL HAVE THE MEANING SET FORTH IN ARTICLE IX. 2.4. "CODE" SHALL MEAN THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. ANY REFERENCE TO ANY SECTION OF THE CODE SHALL ALSO BE A REFERENCE TO ANY SUCCESSOR PROVISION. 2.5. "COMMON SHARES" SHALL MEAN THE COMMON SHARES OF BENEFICIAL INTEREST OF THE COMPANY. 2.6. "COMPANY" SHALL MEAN KRAMONT REALTY TRUST, A MARYLAND REAL ESTATE INVESTMENT TRUST. 2.7. "EFFECTIVE DATE" SHALL MEAN THE EFFECTIVE DATE OF THE PLAN AS DEFINED IN ARTICLE XIII. 2.8. "EXCHANGE ACT" SHALL MEAN THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 2.9. "FAIR MARKET VALUE" FOR PURPOSES OF THE PLAN, UNLESS OTHERWISE REQUIRED BY ANY APPLICABLE PROVISION OF THE CODE OR ANY REGULATIONS ISSUED THEREUNDER, SHALL MEAN, AS OF ANY DATE, THE LAST SALES PRICE REPORTED FOR THE COMMON SHARES ON THE APPLICABLE DATE: (I) AS REPORTED ON THE PRINCIPAL NATIONAL SECURITIES EXCHANGE ON WHICH IT IS THEN TRADED OR THE NASDAQ STOCK MARKET, INC., OR (II) IF NOT TRADED ON ANY SUCH NATIONAL SECURITIES EXCHANGE OR THE NASDAQ STOCK MARKET, INC., AS QUOTED ON AN AUTOMATED QUOTATION SYSTEM SPONSORED BY THE NATIONAL ASSOCIATION OF SECURITIES DEALERS. IF THE COMMON SHARES ARE NOT READILY TRADABLE ON A NATIONAL SECURITIES EXCHANGE, THE NASDAQ STOCK MARKET, INC., OR ANY AUTOMATED QUOTATION SYSTEM SPONSORED BY THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, ITS FAIR MARKET VALUE SHALL BE SET IN GOOD FAITH BY THE BOARD. FOR PURPOSES OF THE GRANT OF ANY STOCK OPTION, THE APPLICABLE DATE SHALL BE THE DATE ON WHICH THE OPTION IS GRANTED OR, IF THE SALE OF THE COMMON SHARES SHALL NOT HAVE BEEN REPORTED OR QUOTED ON SUCH DATE, ON THE FIRST DAY PRIOR THERETO ON WHICH THE SALE OF THE COMMON SHARES WERE REPORTED OR QUOTED. 2.10. "NON-EMPLOYEE DIRECTOR" SHALL MEAN ANY DIRECTOR OF THE COMPANY (OTHER THAN H. IRWIN LEVY) WHO IS NOT AN EMPLOYEE OF THE COMPANY OR ANY ENTITY AFFILIATED WITH THE COMPANY. 2.11. "PARTICIPANT" SHALL MEAN ANY NON-EMPLOYEE DIRECTOR TO WHOM A GRANT OF AN OPTION HAS BEEN MADE UNDER THE PLAN. 2.12. "RULE 16B-3" SHALL MEAN RULE 16B-3 UNDER SECTION 16(B) OF THE EXCHANGE ACT AS THEN IN EFFECT OR ANY SUCCESSOR PROVISIONS. 2.13. "STOCK OPTION" OR "OPTION" SHALL MEAN ANY OPTION TO PURCHASE COMMON SHARES GRANTED TO ANY NON-EMPLOYEE DIRECTOR UNDER THE PLAN. 2.14. "TERMINATION OF DIRECTORSHIP" SHALL MEAN, WITH RESPECT TO A NON-EMPLOYEE DIRECTOR, THAT THE NON-EMPLOYEE DIRECTOR HAS CEASED TO BE A DIRECTOR OF THE COMPANY AND, WITH RESPECT TO A FORMER NON-EMPLOYEE DIRECTOR OF CV REIT, INC., THAT THE NON-EMPLOYEE DIRECTOR HAS CEASED TO BE A DIRECTOR OF CV REIT, INC. 2.15. "TRANSFER" OR "TRANSFERRED" SHALL MEAN ANTICIPATE, ALIENATE, ATTACH, SELL, ASSIGN, PLEDGE, HYPOTHECATE, ENCUMBER, CHARGE OR OTHERWISE TRANSFER. ARTICLE III. 2 ADMINISTRATION 3.1. THE BOARD. THE PLAN SHALL BE ADMINISTERED AND INTERPRETED BY THE BOARD. 3.2. PLAN AWARDS. THE BOARD SHALL HAVE FULL AUTHORITY TO INTERPRET THE PLAN AND TO DECIDE ANY QUESTIONS AND SETTLE ALL CONTROVERSIES AND DISPUTES THAT MAY ARISE IN CONNECTION WITH THE PLAN; TO SELECT THE INDIVIDUALS TO WHOM STOCK OPTIONS MAY BE GRANTED UNDER SECTION 6.3; TO DETERMINE THE NUMBER OF STOCK OPTIONS TO BE GRANTED TO AN INDIVIDUAL UNDER SECTION 6.3; TO PRESCRIBE THE FORM OR FORMS OF INSTRUMENTS EVIDENCING OPTIONS AND ANY OTHER INSTRUMENTS REQUIRED UNDER THE PLAN AND TO CHANGE SUCH FORMS FROM TIME TO TIME; AND TO MAKE ALL OTHER DETERMINATIONS AND TO TAKE ALL SUCH STEPS IN CONNECTION WITH THE PLAN AND THE OPTIONS AS THE BOARD, IN ITS SOLE DISCRETION, DEEMS NECESSARY OR DESIRABLE. 3.3. GUIDELINES. SUBJECT TO ARTICLE X HEREOF, THE BOARD SHALL HAVE THE AUTHORITY TO ADOPT, ALTER AND REPEAL SUCH ADMINISTRATIVE RULES, GUIDELINES AND PRACTICES GOVERNING THE PLAN AND PERFORM ALL ACTS, INCLUDING THE DELEGATION OF ITS ADMINISTRATIVE RESPONSIBILITIES, AS IT SHALL, FROM TIME TO TIME, DEEM ADVISABLE; TO CONSTRUE AND INTERPRET THE TERMS AND PROVISIONS OF THE PLAN AND ANY STOCK OPTION ISSUED UNDER THE PLAN (AND ANY AGREEMENTS RELATING THERETO); AND TO OTHERWISE SUPERVISE THE ADMINISTRATION OF THE PLAN. THE BOARD MAY CORRECT ANY DEFECT, SUPPLY ANY OMISSION OR RECONCILE ANY INCONSISTENCY IN THE PLAN OR IN ANY AGREEMENT RELATING THERETO IN THE MANNER AND TO THE EXTENT IT SHALL DEEM NECESSARY TO CARRY THE PLAN INTO EFFECT, BUT ONLY TO THE EXTENT ANY SUCH ACTION WOULD BE PERMITTED UNDER THE APPLICABLE PROVISIONS OF RULE 16B-3. TO THE EXTENT APPLICABLE, THE PLAN IS INTENDED TO COMPLY WITH THE APPLICABLE REQUIREMENTS OF RULE 16B-3 AND SHALL BE LIMITED, CONSTRUED AND INTERPRETED IN A MANNER SO AS TO COMPLY THEREWITH, HOWEVER NONCOMPLIANCE WITH RULE 16B-3 SHALL HAVE NO IMPACT ON THE EFFECTIVENESS OF AN OPTION GRANTED UNDER THE PLAN. 3.4. DECISIONS FINAL. ANY DECISION, INTERPRETATION OR OTHER ACTION MADE OR TAKEN IN GOOD FAITH BY OR AT THE DIRECTION OF THE COMPANY OR THE BOARD (OR ANY OF ITS MEMBERS) ARISING OUT OF OR IN CONNECTION WITH THE PLAN SHALL BE WITHIN THE ABSOLUTE DISCRETION OF THE COMPANY OR THE BOARD, AS THE CASE MAY BE, AND SHALL BE FINAL, BINDING AND CONCLUSIVE ON THE COMPANY AND ALL EMPLOYEES AND PARTICIPANTS AND THEIR RESPECTIVE HEIRS, EXECUTORS, ADMINISTRATORS, SUCCESSORS AND ASSIGNS. 3.5. RELIANCE ON COUNSEL. THE COMPANY OR THE BOARD MAY CONSULT WITH LEGAL COUNSEL, WHO MAY BE COUNSEL FOR THE COMPANY OR OTHER COUNSEL, WITH RESPECT TO ITS OBLIGATIONS OR DUTIES HEREUNDER, OR WITH RESPECT TO ANY ACTION OR PROCEEDING OR ANY QUESTION OF LAW, AND SHALL NOT BE LIABLE WITH RESPECT TO ANY ACTION TAKEN OR OMITTED BY IT IN GOOD FAITH PURSUANT TO THE ADVICE OF SUCH COUNSEL. 3.6. DESIGNATION OF CONSULTANTS/LIABILITY. (a) THE BOARD MAY DESIGNATE EMPLOYEES OF THE COMPANY AND PROFESSIONAL ADVISORS TO ASSIST THE BOARD IN THE ADMINISTRATION OF THE PLAN AND MAY GRANT 3 AUTHORITY TO EMPLOYEES TO EXECUTE AGREEMENTS OR OTHER DOCUMENTS ON BEHALF OF THE BOARD. (b) THE BOARD MAY EMPLOY SUCH LEGAL COUNSEL, CONSULTANTS AND AGENTS AS IT MAY DEEM DESIRABLE FOR THE ADMINISTRATION OF THE PLAN AND MAY RELY UPON ANY OPINION RECEIVED FROM ANY SUCH COUNSEL OR CONSULTANT AND ANY COMPUTATION RECEIVED FROM ANY SUCH CONSULTANT OR AGENT. EXPENSES INCURRED BY THE BOARD IN THE ENGAGEMENT OF ANY SUCH COUNSEL, CONSULTANT OR AGENT SHALL BE PAID BY THE COMPANY. THE BOARD, ITS MEMBERS AND ANY PERSON DESIGNATED PURSUANT TO PARAGRAPH (A) ABOVE SHALL NOT BE LIABLE FOR ANY ACTION OR DETERMINATION MADE IN GOOD FAITH WITH RESPECT TO THE PLAN. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, NO OFFICER OR FORMER OFFICER OF THE COMPANY OR MEMBER OR FORMER MEMBER OF THE BOARD SHALL BE LIABLE FOR ANY ACTION OR DETERMINATION MADE IN GOOD FAITH WITH RESPECT TO THE PLAN OR ANY STOCK OPTIONS GRANTED UNDER IT. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW AND THE DECLARATION OF TRUST AND BY-LAWS OF THE COMPANY AND TO THE EXTENT NOT COVERED BY INSURANCE, EACH OFFICER OR FORMER OFFICER AND MEMBER OR FORMER MEMBER OF THE BOARD SHALL BE INDEMNIFIED AND HELD HARMLESS BY THE COMPANY AGAINST ANY COST OR EXPENSE (INCLUDING REASONABLE FEES OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY) OR LIABILITY (INCLUDING ANY SUM PAID IN SETTLEMENT OF A CLAIM WITH THE APPROVAL OF THE COMPANY), AND ADVANCED AMOUNTS NECESSARY TO PAY THE FOREGOING AT THE EARLIEST TIME AND TO THE FULLEST EXTENT PERMITTED, ARISING OUT OF ANY ACT OR OMISSION TO ACT IN CONNECTION WITH THE PLAN, EXCEPT TO THE EXTENT ARISING OUT OF SUCH OFFICER'S OR FORMER OFFICER'S, MEMBER'S OR FORMER MEMBER'S OWN FRAUD OR BAD FAITH. SUCH INDEMNIFICATION SHALL BE IN ADDITION TO ANY RIGHTS OF INDEMNIFICATION THE OFFICERS, DIRECTORS OR MEMBERS OR FORMER OFFICERS, DIRECTORS OR MEMBERS MAY HAVE UNDER APPLICABLE LAW OR UNDER THE DECLARATION OF TRUST OR THE BY-LAWS OF THE COMPANY. NOTWITHSTANDING ANYTHING ELSE HEREIN, THIS INDEMNIFICATION WILL NOT APPLY TO THE ACTIONS OR DETERMINATIONS MADE BY AN INDIVIDUAL WITH REGARD TO STOCK OPTIONS GRANTED TO HIM OR HER UNDER THE PLAN. ARTICLE IV. SHARES AND OTHER LIMITATIONS 4.1. SHARES. THE AGGREGATE NUMBER OF COMMON SHARES WHICH MAY BE ISSUED UNDER THE PLAN SHALL NOT EXCEED 150,000 SHARES (SUBJECT TO ANY INCREASE OR DECREASE PURSUANT TO SECTION 4.2), WHICH MAY BE EITHER AUTHORIZED AND UNISSUED COMMON SHARES OR COMMON SHARES HELD IN OR ACQUIRED FOR THE TREASURY OF THE COMPANY OR BOTH. IF ANY STOCK OPTION GRANTED UNDER THE PLAN EXPIRES, TERMINATES OR IS CANCELLED FOR ANY REASON WITHOUT HAVING BEEN EXERCISED IN FULL, THE NUMBER OF COMMON SHARES UNDERLYING THE UNEXERCISED STOCK OPTION SHALL AGAIN BE AVAILABLE FOR ISSUANCE 4 UNDER THE PLAN. IN DETERMINING THE NUMBER OF COMMON SHARES AVAILABLE FOR ISSUANCE UNDER THE PLAN, IF COMMON SHARES HAVE BEEN EXCHANGED BY A PARTICIPANT AS FULL OR PARTIAL PAYMENT TO THE COMPANY IN CONNECTION WITH THE EXERCISE OF A STOCK OPTION, THE NUMBER OF COMMON SHARES EXCHANGED AS PAYMENT IN CONNECTION WITH THE EXERCISE SHALL AGAIN BE AVAILABLE FOR ISSUANCE UNDER THE PLAN. 4.2. CHANGES. (a) THE EXISTENCE OF THE PLAN AND THE STOCK OPTIONS GRANTED HEREUNDER SHALL NOT AFFECT IN ANY WAY THE RIGHT OR POWER OF THE BOARD OR THE SHAREHOLDERS OF THE COMPANY TO MAKE OR AUTHORIZE ANY ADJUSTMENT, RECAPITALIZATION, REORGANIZATION OR OTHER CHANGE IN THE COMPANY'S CAPITAL STRUCTURE OR ITS BUSINESS, ANY MERGER OR CONSOLIDATION OF THE COMPANY, ANY ISSUE OF BONDS, DEBENTURES, PREFERRED OR PRIOR PREFERENCE STOCK AHEAD OF OR AFFECTING COMMON SHARES, THE AUTHORIZATION OR ISSUANCE OF ADDITIONAL COMMON SHARES, THE DISSOLUTION OR LIQUIDATION OF THE COMPANY, ANY SALE OR TRANSFER OF ALL OR PART OF ITS ASSETS OR BUSINESS OR ANY OTHER CORPORATE ACT OR PROCEEDING. (b) IN THE EVENT THERE IS ANY CHANGE IN THE CAPITAL STRUCTURE OR BUSINESS OF THE COMPANY BY REASON OF ANY STOCK DIVIDEND OR EXTRAORDINARY DIVIDEND, STOCK SPLIT OR REVERSE STOCK SPLIT, RECAPITALIZATION, REORGANIZATION, MERGER, CONSOLIDATION, SPLIT-UP, COMBINATION OR EXCHANGE OF SHARES, NON-CASH DISTRIBUTIONS WITH RESPECT TO ITS OUTSTANDING COMMON SHARES OR CAPITAL STOCK OTHER THAN COMMON SHARES, RECLASSIFICATION OF ITS CAPITAL STOCK, ANY SALE OR TRANSFER OF ALL OR PART OF THE COMPANY'S ASSETS OR BUSINESS, OR ANY SIMILAR CHANGE AFFECTING THE COMPANY'S CAPITAL STRUCTURE OR BUSINESS, AND THE BOARD DETERMINES IN GOOD FAITH THAT AN ADJUSTMENT IS NECESSARY OR APPROPRIATE UNDER THE PLAN TO PREVENT SUBSTANTIAL DILUTION OR ENLARGEMENT OF THE RIGHTS GRANTED TO, OR AVAILABLE FOR, PARTICIPANTS UNDER THE PLAN OR AS OTHERWISE NECESSARY TO REFLECT THE CHANGE IN ORDER TO PROVIDE A SUBSTANTIALLY EQUIVALENT BENEFIT TO THE PARTICIPANTS, THEN THE AGGREGATE NUMBER AND KIND OF SHARES OR SECURITIES OR OTHER PROPERTY WHICH THEREAFTER MAY BE SUBJECT TO OPTIONS GRANTED UNDER THE PLAN, THE NUMBER AND KIND OF SHARES OR OTHER SECURITIES OR OTHER PROPERTY (INCLUDING CASH) TO BE ISSUED UPON EXERCISE OF AN OUTSTANDING STOCK OPTION GRANTED UNDER THE PLAN THAT IS NOT CANCELLED OR TERMINATED PURSUANT TO ANOTHER PROVISION OF THE PLAN AND THE PURCHASE OR EXERCISE PRICE OF SUCH AN OPTION SHALL BE APPROPRIATELY ADJUSTED CONSISTENT WITH SUCH CHANGE IN SUCH MANNER AS THE BOARD MAY DEEM EQUITABLE TO PREVENT SUBSTANTIAL DILUTION OR ENLARGEMENT OF THE RIGHTS GRANTED TO, OR AVAILABLE FOR, PARTICIPANTS UNDER THE PLAN OR AS OTHERWISE NECESSARY TO REFLECT THE CHANGE, AND ANY SUCH ADJUSTMENT DETERMINED BY THE BOARD IN GOOD FAITH SHALL BE BINDING AND CONCLUSIVE ON THE COMPANY AND ALL PARTICIPANTS AND THEIR RESPECTIVE HEIRS, EXECUTORS, ADMINISTRATORS, SUCCESSORS AND ASSIGNS. (c) FRACTIONAL COMMON SHARES RESULTING FROM ANY ADJUSTMENT TO A STOCK OPTION PURSUANT TO SECTION 4.2(A) OR (B) SHALL BE AGGREGATED UNTIL, AND ELIMINATED AT, THE TIME OF EXERCISE. NO FRACTIONAL COMMON SHARES SHALL BE ISSUED UNDER THE PLAN. THE BOARD MAY REDUCE THE NUMBER OF SHARES TO A WHOLE NUMBER OF SHARES OR MAY, IN 9 ITS SOLE DISCRETION, PAY CASH IN LIEU OF ANY FRACTIONAL COMMON SHARES IN SETTLEMENT OF AWARDS UNDER THE PLAN. NOTICE OF ANY ADJUSTMENT SHALL BE GIVEN BY THE BOARD TO EACH PARTICIPANT WHOSE STOCK OPTION HAS BEEN ADJUSTED AND SUCH ADJUSTMENT (WHETHER OR NOT SUCH NOTICE IS GIVEN) SHALL BE EFFECTIVE AND BINDING FOR ALL PURPOSES OF THE PLAN. (d) IN THE EVENT OF A MERGER OR CONSOLIDATION IN WHICH THE COMPANY IS NOT THE SURVIVING ENTITY OR IN THE EVENT OF ANY TRANSACTION THAT RESULTS IN THE ACQUISITION OF ALL OR SUBSTANTIALLY ALL OF THE COMPANY'S OUTSTANDING COMMON SHARES BY A SINGLE PERSON OR ENTITY OR BY A GROUP OF PERSONS AND/OR ENTITIES ACTING IN CONCERT, OR IN THE EVENT OF THE SALE OR TRANSFER OF ALL OR SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS (ALL OF THE FOREGOING BEING REFERRED TO AS "ACQUISITION EVENTS"), THEN THE BOARD MAY, IN ITS SOLE DISCRETION, TERMINATE ALL OUTSTANDING STOCK OPTIONS, EFFECTIVE AS OF THE DATE OF THE ACQUISITION EVENT, BY DELIVERING NOTICE OF TERMINATION TO EACH SUCH PARTICIPANT AT LEAST THIRTY (30) DAYS PRIOR TO THE DATE OF CONSUMMATION OF THE ACQUISITION EVENT; PROVIDED, THAT DURING THE PERIOD FROM THE DATE ON WHICH SUCH NOTICE OF TERMINATION IS DELIVERED TO THE CONSUMMATION OF THE ACQUISITION EVENT, EACH SUCH PARTICIPANT SHALL HAVE THE RIGHT TO EXERCISE IN FULL ALL OF HIS OR HER STOCK OPTIONS THAT ARE THEN OUTSTANDING (WHETHER VESTED OR NOT VESTED AND WITHOUT REGARD TO ANY LIMITATIONS ON EXERCISABILITY OTHERWISE CONTAINED IN THE STOCK OPTION) BUT CONTINGENT ON THE OCCURRENCE OF THE ACQUISITION EVENT, AND, PROVIDED THAT, IF THE ACQUISITION EVENT DOES NOT TAKE PLACE WITHIN A SPECIFIED PERIOD AFTER GIVING SUCH NOTICE FOR ANY REASON WHATSOEVER, THE NOTICE AND EXERCISE SHALL BE NULL AND VOID. IF AN ACQUISITION EVENT OCCURS, TO THE EXTENT THE BOARD DOES NOT TERMINATE THE OUTSTANDING STOCK OPTIONS PURSUANT TO THIS SECTION 4.2(d), THEN THE PROVISIONS OF SECTION 4.2(b) SHALL APPLY. 4.3. PURCHASE PRICE. NOTWITHSTANDING ANY PROVISION OF THE PLAN TO THE CONTRARY, IF AUTHORIZED BUT PREVIOUSLY UNISSUED COMMON SHARES ARE ISSUED UNDER THE PLAN, SUCH SHARES SHALL NOT BE ISSUED FOR A CONSIDERATION WHICH IS LESS THAN AS PERMITTED UNDER APPLICABLE LAW. ARTICLE V. ELIGIBILITY 5.1. ELIGIBILITY. NON-EMPLOYEE DIRECTORS ARE ELIGIBLE TO RECEIVE GRANTS OF STOCK OPTIONS UNDER SECTION 6.3 IN ACCORDANCE WITH THE TERMS OF THE PLAN. ELIGIBILITY TO RECEIVE GRANTS OF STOCK OPTIONS UNDER SECTION 6.3 OF THE PLAN WILL BE DETERMINED BY THE BOARD IN ITS SOLE DISCRETION. 6 ARTICLE VI. STOCK OPTIONS 6.1. NON-QUALIFIED STOCK OPTIONS. STOCK OPTIONS GRANTED HEREUNDER SHALL BE NON-QUALIFIED STOCK OPTIONS. 6.2. AUTOMATIC AWARDS. NOTWITHSTANDING, ANYTHING ELSE HEREIN, AUTOMATIC AWARDS SHALL NOT BE MADE UNDER THIS PLAN AFTER THE EFFECTIVE TIME (AS DEFINED IN THE REORGANIZATION AGREEMENT). 6.3. INITIAL AWARDS. THE BOARD SHALL HAVE THE AUTHORITY, IN ITS SOLE DISCRETION, TO GRANT TO AN INDIVIDUAL A STOCK OPTION TO PURCHASE UP TO 20,000 COMMON SHARES ON THE DATE ANY INDIVIDUAL FIRST COMMENCES SERVICE AS A NON-EMPLOYEE DIRECTOR TO INDUCE SUCH INDIVIDUAL TO COMMENCE SERVICE AS A NON-EMPLOYEE DIRECTOR. 6.4. TERMS OF OPTIONS. STOCK OPTIONS GRANTED UNDER THIS ARTICLE VI SHALL BE SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS AND SHALL BE IN SUCH FORM, NOT INCONSISTENT WITH TERMS OF THE PLAN, AS THE BOARD SHALL DEEM DESIRABLE: (a) EXERCISE PRICE. THE EXERCISE PRICE PER COMMON SHARE SUBJECT TO A STOCK OPTION SHALL BE EQUAL TO THE FAIR MARKET VALUE OF THE COMMON SHARES AT THE TIME OF GRANT. (b) EXERCISABILITY. EXCEPT AS OTHERWISE PROVIDED HEREIN, THE INITIAL OPTION SHALL FULLY VEST AND BECOME EXERCISABLE ONE HUNDRED EIGHTY (180) DAYS AFTER THE DATE OF GRANT, PROVIDED THAT THE PARTICIPANT HAS NOT INCURRED A TERMINATION OF DIRECTORSHIP PRIOR THERETO AND ALL OTHER OPTIONS SHALL BE FULLY VESTED ON THE DATE OF GRANT. (c) METHOD OF EXERCISE. SUBJECT TO THE VESTING AND WAITING PERIOD PROVISIONS OF SECTION 6(B) ABOVE, STOCK OPTIONS MAY BE EXERCISED IN WHOLE OR IN PART AT ANY TIME DURING THE OPTION TERM, BY GIVING WRITTEN NOTICE OF EXERCISE TO THE COMPANY SPECIFYING THE NUMBER OF SHARES TO BE PURCHASED, ACCOMPANIED BY PAYMENT IN FULL OF THE EXERCISE PRICE. COMMON SHARES PURCHASED PURSUANT TO THE EXERCISE OF A STOCK OPTION SHALL BE PAID FOR AT THE TIME OF EXERCISE AS FOLLOWS: (i) IN CASH OR BY CHECK, BANK DRAFT OR MONEY ORDER PAYABLE TO THE ORDER OF COMPANY; (ii) IF THE COMMON SHARES ARE TRADED ON A NATIONAL SECURITIES EXCHANGE OR QUOTED ON A NATIONAL QUOTATION SYSTEM THROUGH THE DELIVERY OF IRREVOCABLE INSTRUCTIONS TO A BROKER TO DELIVER PROMPTLY TO THE COMPANY AN AMOUNT EQUAL TO THE PURCHASE PRICE; (iii) BY DELIVERY OF COMMON SHARES OWNED BY THE PARTICIPANT FOR A PERIOD OF AT LEAST SIX (6) MONTHS (AND FOR WHICH THE PARTICIPANT HAS GOOD TITLE FREE AND CLEAR OF ANY LIENS AND ENCUMBRANCES) BASED ON THE FAIR MARKET VALUE OF THE COMMON SHARES ON THE PAYMENT DATE; OR (iv) BY SUCH OTHER METHOD APPROVED BY THE BOARD. NO COMMON 7 SHARES SHALL BE ISSUED UNTIL PAYMENT THEREOF, AS PROVIDED HEREIN, HAS BEEN MADE OR PROVIDED FOR. (d) OPTION AGREEMENT. OPTIONS SHALL BE EVIDENCED BY OPTION AGREEMENTS IN SUCH FORM AS THE BOARD SHALL APPROVE FROM TIME TO TIME. (e) OPTION TERM. IF NOT PREVIOUSLY EXERCISED, CANCELED OR TERMINATED, EACH STOCK OPTION SHALL EXPIRE TEN (10) YEARS AFTER THE DATE THE STOCK OPTION IS GRANTED. ARTICLE VII. TERMINATION PROVISIONS 7.1. TERMINATION OF DIRECTORSHIP. THE FOLLOWING RULES APPLY WITH REGARD TO STOCK OPTIONS UPON THE TERMINATION OF DIRECTORSHIP OF A PARTICIPANT: (a) TERMINATION OF DIRECTORSHIP BY REASON OF DEATH. UPON A PARTICIPANT'S TERMINATION OF DIRECTORSHIP BY REASON OF DEATH, ALL THEN OUTSTANDING STOCK OPTIONS SHALL FULLY VEST AND BECOME EXERCISABLE (TO THE EXTENT UNVESTED ON THE DATE OF DEATH) AND ALL THEN OUTSTANDING STOCK OPTIONS SHALL REMAIN EXERCISABLE BY THE LEGAL REPRESENTATIVE OF THE ESTATE AT ANY TIME WITHIN A PERIOD OF TWO (2) YEARS FROM THE DATE OF DEATH, BUT IN NO EVENT BEYOND THE EXPIRATION OF THE STATED TERM OF SUCH STOCK OPTIONS. (b) TERMINATION OF DIRECTORSHIP OTHER THAN FOR CAUSE OR DEATH. UPON A PARTICIPANT'S TERMINATION OF DIRECTORSHIP ON ACCOUNT OF RESIGNATION, FAILURE TO STAND FOR REELECTION OR FAILURE TO BE REELECTED OR OTHERWISE OTHER THAN AS SET FORTH IN SECTION 7.1(A) OR (C), ALL THEN OUTSTANDING STOCK OPTIONS HELD BY THE PARTICIPANT MAY BE EXERCISED, TO THE EXTENT EXERCISABLE ON THE DATE OF SUCH TERMINATION OF DIRECTORSHIP, AT ANY TIME WITHIN A PERIOD OF TWO (2) YEARS FROM THE DATE OF SUCH TERMINATION OF DIRECTORSHIP, BUT IN NO EVENT BEYOND THE EXPIRATION OF THE STATED TERM OF SUCH STOCK OPTIONS. (c) TERMINATION OF DIRECTORSHIP FOR CAUSE. UPON REMOVAL FOR CAUSE, OR FAILURE TO BE RENOMINATED FOR CAUSE, OR IF THE COMPANY OBTAINS OR DISCOVERS INFORMATION AFTER TERMINATION OF DIRECTORSHIP THAT SUCH PARTICIPANT HAD ENGAGED IN CONDUCT THAT WOULD HAVE JUSTIFIED A REMOVAL FOR CAUSE DURING SUCH DIRECTORSHIP, ALL THEN OUTSTANDING STOCK OPTIONS OF SUCH PARTICIPANT SHALL IMMEDIATELY TERMINATE AND SHALL BE NULL AND VOID. (d) TERMINATION OF STOCK OPTIONS. EXCEPT AS PROVIDED IN SECTION 7.1(A), STOCK OPTIONS THAT WERE NOT EXERCISABLE DURING THE PERIOD THAT AN INDIVIDUAL SERVES AS A NON-EMPLOYEE DIRECTOR SHALL NOT THEREAFTER BECOME EXERCISABLE UPON A TERMINATION 8 OF DIRECTORSHIP FOR ANY REASON OR NO REASON WHATSOEVER, AND SUCH STOCK OPTIONS SHALL TERMINATE AND BECOME NULL AND VOID UPON A TERMINATION OF DIRECTORSHIP. ARTICLE VIII. NON-TRANSFERABILITY 8.1. NON-TRANSFERABILITY. EXCEPT AS PROVIDED IN THE LAST SENTENCE OF THIS ARTICLE VIII, NO STOCK OPTION SHALL BE TRANSFERRED BY A PARTICIPANT OTHERWISE THAN BY WILL OR BY THE LAWS OF DESCENT AND DISTRIBUTION. ALL STOCK OPTIONS SHALL BE EXERCISABLE, DURING THE PARTICIPANT'S LIFETIME, ONLY BY THE PARTICIPANT. NO STOCK OPTION SHALL, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED BY LAW OR HEREIN, BE TRANSFERRED IN ANY MANNER, AND ANY ATTEMPT TO TRANSFER ANY STOCK OPTION SHALL BE VOID, AND NO SUCH STOCK OPTION SHALL IN ANY MANNER BE USED FOR THE PAYMENT OF SUBJECT TO, OR OTHERWISE ENCUMBERED BY OR HYPOTHECATED FOR THE DEBTS, CONTRACTS, LIABILITIES, ENGAGEMENTS OR TORTS OF ANY PERSON WHO SHALL BE ENTITLED TO SUCH STOCK OPTION, NOR SHALL IT BE SUBJECT TO ATTACHMENT OR LEGAL PROCESS FOR OR AGAINST SUCH PERSON. NOTWITHSTANDING THE FOREGOING, THE BOARD MAY DETERMINE AT THE TIME OF GRANT OR THEREAFTER, THAT A STOCK OPTION THAT IS OTHERWISE NOT TRANSFERABLE PURSUANT TO THIS ARTICLE VIII IS TRANSFERABLE IN WHOLE OR PART AND IN SUCH CIRCUMSTANCES, AND UNDER SUCH CONDITIONS, AS SPECIFIED BY THE BOARD. ARTICLE IX. CHANGE IN CONTROL 9.1. BENEFITS. IN THE EVENT OF A CHANGE IN CONTROL OF THE COMPANY (AS DEFINED BELOW), ALL OUTSTANDING STOCK OPTIONS GRANTED PRIOR TO THE CHANGE IN CONTROL SHALL BE FULLY VESTED AND, SUBJECT TO THE SECOND SENTENCE OF SECTION 6.4(B) ABOVE, IMMEDIATELY EXERCISABLE IN THEIR ENTIRETY, PROVIDED THAT THE PARTICIPANT HAS NOT INCURRED A TERMINATION OF DIRECTORSHIP PRIOR THERETO. 9.2. CHANGE IN CONTROL. FOR PURPOSES OF THE PLAN, A "CHANGE IN CONTROL" SHALL BE DEEMED TO HAVE OCCURRED: (a) UPON ANY PERSON (AS DEFINED IN SECTION 3(A)(9) OF THE EXCHANGE ACT AND AS USED IN SECTIONS 13(D) AND 14(D) THEREOF) (EXCLUDING THE COMPANY OR ANY EMPLOYEE BENEFIT PLAN SPONSORED OR MAINTAINED BY THE COMPANY (INCLUDING ANY TRUSTEE OF ANY SUCH PLAN ACTING IN HIS OR HER CAPACITY AS TRUSTEE), BECOMING THE BENEFICIAL OWNER (AS DEFINED IN RULE 13(D)-3 UNDER THE EXCHANGE ACT), DIRECTLY OR INDIRECTLY, OF SECURITIES OF THE COMPANY HAVING AT LEAST TWENTY-FIVE PERCENT (25%) OF THE TOTAL NUMBER OF VOTES THAT MAY BE CAST FOR THE ELECTION OF DIRECTORS OF THE COMPANY; 9 (b) IF DURING ANY PERIOD OF TWO (2) CONSECUTIVE YEARS, INDIVIDUALS WHO AT THE BEGINNING OF SUCH PERIOD CONSTITUTE THE BOARD, AND ANY NEW DIRECTOR (OTHER THAN A DIRECTOR DESIGNATED BY A PERSON WHO HAS ENTERED INTO AN AGREEMENT WITH THE COMPANY TO EFFECT A TRANSACTION DESCRIBED IN PARAGRAPH (A), (C), OR (D) OF THIS SECTION OR A DIRECTOR WHOSE INITIAL ASSUMPTION OF OFFICE OCCURS AS A RESULT OF EITHER AN ACTUAL OR THREATENED ELECTION CONTEST (AS SUCH TERMS ARE USED IN RULE 14A-11 OF REGULATION 14A PROMULGATED UNDER THE EXCHANGE ACT) OR OTHER ACTUAL OR THREATENED SOLICITATION OF PROXIES OR CONSENTS BY OR ON BEHALF OF A PERSON OTHER THAN THE BOARD) WHOSE ELECTION BY THE BOARD OR NOMINATION FOR ELECTION BY THE COMPANY'S SHAREHOLDERS WAS APPROVED BY A VOTE OF AT LEAST TWO-THIRDS (2/3) OF THE DIRECTORS THEN STILL IN OFFICE WHO EITHER WERE DIRECTORS AT THE BEGINNING OF THE TWO (2) YEAR PERIOD OR WHOSE ELECTION OR NOMINATION FOR ELECTION WAS PREVIOUSLY SO APPROVED, CEASE FOR ANY REASON TO CONSTITUTE AT LEAST A MAJORITY OF THE BOARD; (c) UPON THE MERGER OR CONSOLIDATION OF THE COMPANY WITH ANY OTHER CORPORATION OR ENTITY, OTHER THAN A MERGER OR CONSOLIDATION WHICH WOULD RESULT IN THE VOTING SECURITIES OF THE COMPANY OUTSTANDING IMMEDIATELY PRIOR THERETO CONTINUING TO REPRESENT (EITHER BY REMAINING OUTSTANDING OR BY BEING CONVERTED INTO VOTING SECURITIES OF THE SURVIVING ENTITY) MORE THAN FIFTY PERCENT (50%) OF THE COMBINED VOTING POWER OF THE VOTING SECURITIES OF THE COMPANY OR SUCH SURVIVING ENTITY OUTSTANDING IMMEDIATELY AFTER SUCH MERGER OR CONSOLIDATION; OR (d) UPON APPROVAL BY THE SHAREHOLDERS OF THE COMPANY OF A PLAN OF COMPLETE LIQUIDATION OF THE COMPANY OR AN AGREEMENT FOR THE SALE OR DISPOSITION BY THE COMPANY OF ALL OR SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS OTHER THAN THE SALE OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE COMPANY TO A PERSON OR PERSONS WHO BENEFICIALLY OWN, DIRECTLY OR INDIRECTLY, AT LEAST FIFTY PERCENT (50%) OR MORE OF THE COMBINED VOTING POWER OF THE OUTSTANDING VOTING SECURITIES OF THE COMPANY AT THE TIME OF THE SALE. ARTICLE X. TERMINATION OR AMENDMENT OF PLAN 10.1. TERMINATION OR AMENDMENT. NOTWITHSTANDING ANY OTHER PROVISION OF THE PLAN, THE BOARD MAY AT ANY TIME, AND FROM TIME TO TIME, AMEND, IN WHOLE OR IN PART, ANY OR ALL OF THE PROVISIONS OF THE PLAN (INCLUDING ANY AMENDMENT DEEMED NECESSARY TO ENSURE THAT THE COMPANY MAY COMPLY WITH ANY REGULATORY REQUIREMENT REFERRED TO IN THIS ARTICLE X), OR SUSPEND OR TERMINATE IT ENTIRELY, RETROACTIVELY OR OTHERWISE; PROVIDED, HOWEVER, THAT, UNLESS OTHERWISE REQUIRED BY LAW OR SPECIFICALLY PROVIDED HEREIN, THE RIGHTS OF A PARTICIPANT WITH RESPECT TO STOCK OPTIONS GRANTED PRIOR TO SUCH AMENDMENT, SUSPENSION OR TERMINATION, MAY NOT BE IMPAIRED WITHOUT THE CONSENT OF SUCH PARTICIPANT. A NON-EMPLOYEE DIRECTOR SHALL HAVE NO RIGHTS WITH RESPECT TO A STOCK OPTION UNTIL SUCH OPTION IS GRANTED PURSUANT TO THE TERMS OF THE PLAN. 10 NOTWITHSTANDING THE FIRST SENTENCE OF THIS SECTION 10.1, THE BOARD MAY NOT EFFECT ANY AMENDMENT THAT WOULD REQUIRE THE APPROVAL OF SHAREHOLDERS UNDER APPLICABLE LAW OR UNDER ANY REGULATION OF A NATIONAL SECURITIES EXCHANGE OR AUTOMATED QUOTATION SYSTEM UNLESS SUCH APPROVAL IS OBTAINED. ARTICLE XI. UNFUNDED PLAN 11.1. UNFUNDED STATUS OF PLAN. THE PLAN IS INTENDED TO CONSTITUTE AN "UNFUNDED" PLAN FOR INCENTIVE AND DEFERRED COMPENSATION. WITH RESPECT TO ANY PAYMENTS AND THE VALUE OF ANY SECURITIES OR OTHER PROPERTY AS TO WHICH A PARTICIPANT HAS A FIXED AND VESTED INTEREST BUT WHICH ARE NOT YET MADE OR ISSUED TO A PARTICIPANT BY THE COMPANY, NOTHING CONTAINED HEREIN SHALL GIVE ANY SUCH PARTICIPANT ANY RIGHTS THAT ARE GREATER THAN THOSE OF A GENERAL CREDITOR OF THE COMPANY. ARTICLE XII. GENERAL PROVISIONS 12.1. LEGEND. THE BOARD MAY REQUIRE EACH PERSON RECEIVING COMMON SHARES PURSUANT TO THE EXERCISE OF A STOCK OPTION UNDER THE PLAN TO REPRESENT TO AND AGREE WITH THE COMPANY IN WRITING THAT SUCH PERSON IS AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501 OF REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933 AND IS ACQUIRING THE COMMON SHARES WITHOUT A VIEW TO DISTRIBUTION THEREOF. IN ADDITION TO ANY LEGEND REQUIRED PURSUANT TO THE PLAN, THE CERTIFICATES FOR SUCH COMMON SHARES MAY INCLUDE ANY LEGEND WHICH THE BOARD DEEMS APPROPRIATE TO REFLECT ANY RESTRICTIONS ON TRANSFER. ALL CERTIFICATES FOR COMMON SHARES DELIVERED UNDER THE PLAN SHALL BE SUBJECT TO SUCH STOCK TRANSFER ORDERS AND OTHER RESTRICTIONS AS THE BOARD MAY DEEM ADVISABLE UNDER THE RULES, REGULATIONS AND OTHER REQUIREMENTS OF THE SECURITIES AND EXCHANGE COMMISSION, ANY STOCK EXCHANGE UPON WHICH THE COMMON SHARES ARE THEN LISTED OR ANY NATIONAL SECURITIES ASSOCIATION SYSTEM UPON WHOSE SYSTEM THE COMMON SHARES ARE THEN QUOTED, ANY APPLICABLE FEDERAL OR STATE SECURITIES LAW, AND ANY APPLICABLE CORPORATE LAW, AND THE BOARD MAY CAUSE A LEGEND OR LEGENDS TO BE PUT ON ANY SUCH CERTIFICATES TO MAKE APPROPRIATE REFERENCE TO SUCH RESTRICTIONS. 12.2. OTHER PLANS. NOTHING CONTAINED IN THE PLAN SHALL PREVENT THE BOARD FROM ADOPTING OTHER OR ADDITIONAL COMPENSATION ARRANGEMENTS, SUBJECT TO SHAREHOLDER APPROVAL IF SUCH APPROVAL IS REQUIRED; AND SUCH ARRANGEMENTS MAY BE EITHER GENERALLY APPLICABLE OR APPLICABLE ONLY IN SPECIFIC CASES. 11 12.3. NO RIGHT TO SERVE AS A NON-EMPLOYEE DIRECTOR. NEITHER THE PLAN NOR THE GRANT OR EXERCISE OF ANY STOCK OPTIONS HEREUNDER SHALL IMPOSE ANY OBLIGATIONS ON THE COMPANY TO RETAIN ANY PARTICIPANT AS A NON-EMPLOYEE DIRECTOR NOR SHALL IT IMPOSE ON THE PART OF ANY PARTICIPANT ANY OBLIGATION TO CONTINUE TO SERVE AS A NON-EMPLOYEE DIRECTOR. 12.4. WITHHOLDING OF TAXES. THE COMPANY SHALL HAVE THE RIGHT TO DEDUCT FROM ANY PAYMENT TO BE MADE TO A PARTICIPANT, OR TO OTHERWISE REQUIRE, PRIOR TO THE ISSUANCE OR DELIVERY OF ANY COMMON SHARES OR THE PAYMENT OF ANY CASH HEREUNDER, PAYMENT BY THE PARTICIPANT OF, ANY FEDERAL, STATE OR LOCAL TAXES REQUIRED BY LAW TO BE WITHHELD. 12.5. LISTING AND OTHER CONDITIONS. (a) UNLESS OTHERWISE DETERMINED BY THE BOARD, AS LONG AS THE COMMON SHARES ARE LISTED ON A NATIONAL SECURITIES EXCHANGE OR SYSTEM SPONSORED BY A NATIONAL SECURITIES ASSOCIATION, THE ISSUE OF ANY COMMON SHARES PURSUANT TO THE EXERCISE OF AN OPTION SHALL BE CONDITIONED UPON SUCH SHARES BEING LISTED ON SUCH EXCHANGE OR SYSTEM. THE COMPANY SHALL HAVE NO OBLIGATION TO ISSUE SUCH SHARES UNLESS AND UNTIL SUCH SHARES ARE SO LISTED; PROVIDED, HOWEVER, THAT ANY DELAY IN THE ISSUANCE OF SUCH SHARES SHALL BE BASED SOLELY ON A REASONABLE BUSINESS DECISION AND THE RIGHT TO EXERCISE ANY OPTION WITH RESPECT TO SUCH SHARES SHALL BE SUSPENDED UNTIL SUCH LISTING HAS BEEN EFFECTED. (b) IF AT ANY TIME COUNSEL TO THE COMPANY SHALL BE OF THE OPINION THAT ANY SALE OR DELIVERY OF COMMON SHARES PURSUANT TO THE EXERCISE OF AN OPTION IS OR MAY IN THE CIRCUMSTANCES BE UNLAWFUL OR RESULT IN THE IMPOSITION OF EXCISE TAXES ON THE COMPANY UNDER THE STATUTES, RULES OR REGULATIONS OF ANY APPLICABLE JURISDICTION, THE COMPANY SHALL HAVE NO OBLIGATION TO MAKE SUCH SALE OR DELIVERY, OR TO MAKE ANY APPLICATION OR TO EFFECT OR TO MAINTAIN ANY QUALIFICATION OR REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR OTHERWISE WITH RESPECT TO COMMON SHARES OR OPTIONS, AND THE RIGHT TO EXERCISE ANY OPTION SHALL BE SUSPENDED UNTIL, IN THE OPINION OF SAID COUNSEL, SUCH SALE OR DELIVERY SHALL BE LAWFUL OR WILL NOT RESULT IN THE IMPOSITION OF EXCISE TAXES ON THE COMPANY. (c) UPON TERMINATION OF ANY PERIOD OF SUSPENSION UNDER THIS SECTION 12.5, ANY OPTION AFFECTED BY SUCH SUSPENSION WHICH SHALL NOT THEN HAVE EXPIRED OR TERMINATED SHALL BE REINSTATED AS TO ALL SHARES AVAILABLE BEFORE SUCH SUSPENSION AND AS TO SHARES WHICH WOULD OTHERWISE HAVE BECOME AVAILABLE DURING THE PERIOD OF SUCH SUSPENSION, BUT NO SUCH SUSPENSION SHALL EXTEND THE TERM OF ANY OPTIONS. (d) A PARTICIPANT SHALL BE REQUIRED TO SUPPLY THE COMPANY WITH ANY CERTIFICATES, REPRESENTATIONS AND INFORMATION THAT THE COMPANY REQUESTS AND OTHERWISE COOPERATE WITH THE COMPANY IN OBTAINING ANY LISTING, REGISTRATION, QUALIFICATION, EXEMPTION, CONSENT OR APPROVAL THE COMPANY DEEMS NECESSARY OR APPROPRIATE. 12 (e) IF THE GRANT OF ANY OPTION OR ANY SALE OR DELIVERY OF COMMON SHARES PURSUANT TO EXERCISE OF AN OPTION ADVERSELY AFFECTS THE COMPANY'S QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST WITHIN THE MEANING OF SECTIONS 856 THROUGH 860 OF THE CODE, THE COMPANY SHALL HAVE NO OBLIGATION TO MAKE SUCH GRANT, SALE OR DELIVERY UNTIL SUCH GRANT, SALE OR DELIVERY WILL NO LONGER ADVERSELY AFFECT SUCH QUALIFICATION. 12.6. GOVERNING LAW. THE PLAN SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND (REGARDLESS OF THE LAW THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE MARYLAND PRINCIPLES OF CONFLICT OF LAWS). 12.7. CONSTRUCTION. WHEREVER ANY WORDS ARE USED HEREIN IN THE SINGULAR FORM THEY SHALL BE CONSTRUED AS THOUGH THEY WERE ALSO USED IN THE PLURAL FORM IN ALL CASES WHERE THEY WOULD SO APPLY. 12.8. OTHER BENEFITS. NO OPTION GRANTED OR EXERCISED UNDER THE PLAN SHALL BE DEEMED COMPENSATION FOR PURPOSES OF COMPUTING BENEFITS UNDER ANY RETIREMENT PLAN OF THE COMPANY NOR AFFECT ANY BENEFITS UNDER ANY OTHER BENEFIT PLAN NOW OR SUBSEQUENTLY IN EFFECT UNDER WHICH THE AVAILABILITY OR AMOUNT OF BENEFITS IS RELATED TO THE LEVEL OF COMPENSATION. 12.9. COSTS. THE COMPANY SHALL BEAR ALL EXPENSES INCLUDED IN ADMINISTERING THE PLAN, INCLUDING EXPENSES OF ISSUING COMMON SHARES PURSUANT TO THE EXERCISE OF ANY OPTIONS HEREUNDER. 12.10. DEATH/DISABILITY. THE BOARD MAY IN ITS DISCRETION REQUIRE THE TRANSFEREE OF A PARTICIPANT'S OPTIONS TO SUPPLY IT WITH WRITTEN NOTICE OF THE PARTICIPANT'S DEATH OR DISABILITY AND TO SUPPLY IT WITH A COPY OF THE WILL (IN THE CASE OF THE PARTICIPANT'S DEATH) OR SUCH OTHER EVIDENCE AS THE BOARD DEEMS NECESSARY TO ESTABLISH THE VALIDITY OF THE TRANSFER OF AN OPTION. THE BOARD MAY ALSO REQUIRE THE AGREEMENT OF THE TRANSFEREE TO BE BOUND BY ALL OF THE TERMS AND CONDITIONS OF THE PLAN. 12.11. SEVERABILITY OF PROVISIONS. IF ANY PROVISION OF THE PLAN SHALL BE HELD INVALID OR UNENFORCEABLE, SUCH INVALIDITY OR UNENFORCEABILITY SHALL NOT AFFECT ANY OTHER PROVISIONS HEREOF, AND THE PLAN SHALL BE CONSTRUED AND ENFORCED AS IF SUCH PROVISIONS HAD NOT BEEN INCLUDED. 12.12. HEADINGS AND CAPTIONS. THE HEADINGS AND CAPTIONS HEREIN ARE PROVIDED FOR REFERENCE AND CONVENIENCE ONLY, SHALL NOT BE CONSIDERED PART OF THE PLAN, AND SHALL NOT BE EMPLOYED IN THE CONSTRUCTION OF THE PLAN. 13 ARTICLE XIII. EFFECTIVE DATE OF PLAN THE PLAN (FORMERLY THE CV REIT, INC. NON-EMPLOYEE DIRECTOR 1998 STOCK OPTION PLAN) INITIALLY BECAME EFFECTIVE AS OF JANUARY 15, 1998. GRANTS OF OPTIONS UNDER THE PLAN WILL BE MADE ON OR AFTER THE EFFECTIVE DATE OF THE PLAN; PROVIDED THAT, IF THE PLAN IS NOT APPROVED BY THE REQUISITE VOTE OF SHAREHOLDERS, ALL OPTIONS WHICH HAVE BEEN GRANTED PURSUANT TO THE TERMS OF THE PLAN SHALL BE NULL AND VOID. THIS AMENDED AND RESTATED PLAN IS EFFECTIVE ON JUNE 16, 2000 (DEFINED AS THE EFFECTIVE TIME IN THE REORGANIZATION AGREEMENT). ARTICLE XIV. TERM OF PLAN NO STOCK OPTIONS SHALL BE GRANTED PURSUANT TO THE PLAN ON OR AFTER THE TENTH ANNIVERSARY OF JANUARY 15, 1998, BUT STOCK OPTIONS GRANTED PRIOR TO SUCH DATE MAY EXTEND BEYOND THAT DATE. ARTICLE XV. NAME OF PLAN THE PLAN SHALL BE KNOWN AS THE "KRAMONT REALTY TRUST NON-EMPLOYEE DIRECTOR 1998 STOCK OPTION PLAN." 14 EX-10.86 7 w95171exv10w86.txt SECOND AMENDMENT TO EMPLOYEE AGREEMENT EXHIBIT 10.86 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT This Second Amendment (this "Second Amendment") is dated effective July 1, 2003 by and among Kramont Operating Partnership, L.P., a Delaware limited partnership (the "Company"), Kramont Realty Trust, a Maryland real estate investment trust ("Kramont") and Carl E. Kraus ("Executive"). BACKGROUND WHEREAS, the parties hereto entered into an Employment Agreement effective as of March 21, 2002, as amended by First Amendment dated July 1, 2002, (herein referred to as "Employment Agreement"), wherein the parties agreed to the terms and conditions of Executive's employment with the Company; and WHEREAS, the parties hereto desire to further amend certain of the terms and conditions of the Employment Agreement. NOW THEREFORE, in consideration of the mutual promises and covenants herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. All capitalized terms used herein, but not otherwise defined, shall have the meanings ascribed in the Employment Agreement. 2. Subject to the provisions contained in Paragraph 3 of the Employment Agreement, the Term of Employment is hereby extended to June 30, 2004 (the "Extended Term of Employment"). 3. During the Extended Term of Employment, Executive's Base Salary shall be $210,000.00 payable in equal bi-weekly installments in accordance with the Company's normal payroll practices. 4. Subject to the provisions contained in Paragraph 5 of the Employment Agreement, it is agreed and understood that that Executive shall be entitled to four (4) weeks of vacation. 5. In accordance with the Kramont 2000 Incentive Plan, the Company hereby grants the Executive 5,981 restricted shares of common stock under the terms and conditions contained in a share grant letter agreement (the "Share Grant Agreement"), the form of which is attached hereto and made a part hereof as Exhibit "A". Simultaneous with the execution of this Third Amendment, Executive agrees to execute and deliver to the Company the Share Grant Agreement. 6. This Second Amendment and the Employment Agreement represent the entire understanding between the parties and supercede all other oral or written agreements between the parties. The Employment Agreement, as amended by this Second Amendment, is hereby ratified and confirmed and remains in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Second Amendment as of the date and year first above written. KRAMONT OPERATING PARTNERSHIP, L.P. By: ________________________________________ Louis P. Meshon, Sr. President KRAMONT REALTY TRUST By: ________________________________________ Louis P. Meshon, Sr. President Executive By: ________________________________________ Carl E. Kraus EX-10.87 8 w95171exv10w87.txt SECOND AMENDMENT TO EMPLOYEE AGREEMENT EXHIBIT 10.87 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT This Second Amendment (this "First Amendment") is dated effective July 1, 2003 by and among Kramont Operating Partnership, L.P., a Delaware limited partnership (the "Company"), Kramont Realty Trust, a Maryland real estate investment trust ("Kramont") and George S. Demuth ("Executive"). BACKGROUND WHEREAS, the parties hereto entered into an Employment Agreement effective as of July 1, 2001, as amended by First Amendment dated July 1, 2002, (herein referred to as "Employment Agreement"), wherein the parties agreed to the terms and conditions of Executive's employment with the Company; and WHEREAS, the parties hereto desire to further amend certain of the terms and conditions of the Employment Agreement. NOW THEREFORE, in consideration of the mutual promises and covenants herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. All capitalized terms used herein, but not otherwise defined, shall have the meanings ascribed in the Employment Agreement. 2. Paragraph 4 (a) of the Employment Agreement is hereby amended to show that the Base Salary of Executive is increased to $206,000.00, effective July 1, 2003. 3. Paragraph 5 (c) of the Employment Agreement is hereby amended to show that in accordance with the Kramont 2000 Incentive Plan, the Company hereby grants the Executive 5,981 restricted shares of common stock under the terms and conditions contained in a share grant letter agreement (the "Share Grant Agreement"), the form of which is attached hereto and made a part hereof as Exhibit "A". Simultaneous with the execution of this Second Amendment, Executive agrees to execute and deliver to the Company the Share Grant Agreement. 4. This Second Amendment and the Employment Agreement represent the entire understanding between the parties and supercede all other oral or written agreements between the parties. The Employment Agreement, as amended by this Second Amendment, is hereby ratified and confirmed and remains in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Second Amendment as of the date and year first above written. KRAMONT OPERATING PARTNERSHIP, L.P. By: ________________________________________ Louis P. Meshon, Sr. President KRAMONT REALTY TRUST By: ________________________________________ Louis P. Meshon, Sr. President Executive By: ________________________________________ George S. Demuth EX-10.88 9 w95171exv10w88.txt THIRD AMENDMENT TO EMPLOYMENT AGREEMENT EXHIBIT 10.88 THIRD AMENDMENT TO EMPLOYMENT AGREEMENT This Third Amendment (this "Third Amendment") is dated effective July 1, 2003 by and among Kramont Operating Partnership, L.P., a Delaware limited partnership (the "Company"), Kramont Realty Trust, a Maryland real estate investment trust ("Kramont") and Etta M. Strehle ("Executive"). BACKGROUND WHEREAS, the parties hereto entered into an Employment Agreement the dated June 28, 2000, as amended by First Amendment dated July 1, 2001 and Second Amendment dated July 1, 2002 (herein referred to as "Employment Agreement") wherein the parties agreed to the terms and conditions of Executive's employment with the Company; and WHEREAS, the parties hereto desire to further amend certain of the terms and conditions of the Employment Agreement. NOW THEREFORE, in consideration of the mutual promises and covenants herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. All capitalized terms used herein, but not otherwise defined, shall have the meanings ascribed in the Employment Agreement. 2. Subject to the provisions contained in Paragraph 3 of the Employment Agreement, the Term of Employment is hereby extended to June 30, 2004 (the "Extended Term of Employment"). 3. During the Extended Term of Employment, Executive's Base Salary shall be $159,650.00 payable in equal bi-weekly installments in accordance with the Company's normal payroll practices. 4. Subject to the provisions contained in Paragraph 5 of the Employment Agreement, it is agreed and understood that that Executive shall be entitled to three (3) weeks of vacation. 5. In accordance with the Kramont 2000 Incentive Plan, the Company hereby grants the Executive 1,794 restricted shares of common stock under the terms and conditions contained in a share grant letter agreement (the "Share Grant Agreement"), the form of which is attached hereto and made a part hereof as Exhibit "A". Simultaneous with the execution of this Third Amendment, Executive agrees to execute and deliver to the Company the Share Grant Agreement. 6. This Third Amendment and the Employment Agreement represent the entire understanding between the parties and supercede all other oral or written agreements between the parties. The Employment Agreement, as amended by this Third Amendment, is hereby ratified and confirmed and remains in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Third Amendment as of the date and year first above written. KRAMONT OPERATING PARTNERSHIP, L.P. By: ________________________________________ Louis P. Meshon, Sr. President KRAMONT REALTY TRUST By: ________________________________________ Louis P. Meshon, Sr. President Executive By: ________________________________________ Etta M. Strehle EX-21 10 w95171exv21.txt SUBSIDIARIES OF THE COMPANY EXHIBIT 21 SUBSIDIARIES OF THE COMPANY 550 West Germantown Pike LLC 550 West Germantown Pike Manager LLC 555 Scott Street Associates, L.P. 555 Scott Street LLC Campus Village Shopping Center Joint Venture Cedar Crest Associates, L.P. Cedar Crest GP LLC Century Plaza Associates, L.P. Cherry Square MCV Associates, L.P. Chesterbrook Village Center Associates, L.P. Chesterbrook Village Center LLC Collegeville Plaza Associates, L.P. Collegeville Plaza LLC Coral Hills Associates GP LLC Coral Hills Associates Limited Partnership County Line Plaza Realty Associates, L.P. County Line Plaza Realty LLC CP General Partner LLC Culpeper Shopping Center Joint Venture CV GP LLC CV GP LP CV OP Holdings, LLC CV Partner Holdings, L.P. CV Warehouse 75 L.P. CV Warehouse 75 LLC CV Warehouse 76 L.P. CV Warehouse 76 LLC CV Warehouse 78 L.P. CV Warehouse 78 LLC Danville Plaza Associates, L.P. Danville Plaza LLC Dickson City Center Associates, L.P. Dickson City Center LLC Drexel Realty, Inc. DX Property L.P. DX Property LLC Fox Run Limited Partnership Gilbertsville Plaza Associates L.P. Gilbertsville Plaza LLC Glenmont Associates L.P. Glenmont LLC GRX Realty LLC GRX Realty, L.P. Hillcrest Plaza GP LLC Hillcrest Plaza Limited Partnership Hillcrest Plaza II LLC Hillcrest Plaza II Manager, LLC Killingly Plaza LLC Killingly Plaza Manager LLC KOP Perkins Farm Marketplace LLC KOP Perkins Farm Marketplace Manager LLC KOP Vestal Venture LLC KR 69th Street GP LLC KR 69th Street, L.P. KR Bainbridge LLC KR Bainbridge Manager LLC KR Barn GP LLC KR Barn, L.P. KR Best Associates GP LLC KR Best Associates, L.P. KR Bradford Mall GP LLC KR Bradford Mall, L.P. KR Brookhaven LLC KR Campus GP LLC KR Campus II GP LLC KR Cary LLC KR Circleville LLC KR Collegetown LLC KR Columbia, LLC KR Columbia Manager LLC KR Columbia II LLC KR Columbia II Manager LLC KR Columbus LLC KR Culpeper GP LLC KR Culpeper II GP LLC KR Development GP LLC KR Development, L.P. KR Douglasville LLC KR Flint LLC KR Fox Run GP LLC KR Harrodsburg LLC KR Harrodsburg Manager LLC KR Hillcrest Mall, LLC KR Holcomb LLC KR Jefferson City LP LLC KR Jefferson City GP LLC KR Jefferson City, L.P. KR Livonia LLC KR Mableton LLC KR MacArthur Associates GP LLC KR MacArthur Associates, L.P. KR Manchester LLC KR Marumsco GP LLC KR Marumsco II GP LLC KR Morganton LLC KR Morganton Manager LLC KR Northpark Associates GP LLC KR Orange LLC KR Park Plaza LLC KR Park Plaza Manager LLC KR Parkway Plaza LLC KR Pensacola II LLC KR Pensacola LLC KR Pilgrim GP LLC KR Pilgrim, L.P. KR Snellville LLC KR Spartanburg LLC KR Spartanburg Manager LLC KR Staunton LLC KR Street Associates GP LLC KR Street Associates, L.P. KR Suburban GP LLC KR Suburban, L.P. KR Summerville LLC KR Tifton LLC KR Tower Plaza LLC KR Tower Plaza Manager LLC KR Trust One LLC KR Trust One Manager, LLC KR Valley Forge GP LLC KR Valley Forge, L.P. KR Vidalia LLC KR Wampanoag LLC KR Wampanoag Manager LLC Kramont Enterprises, Inc. Kramont Operating Partnership L.P. Kramont Realty Trust Kramont Vestal Management LLC KRT Property Holdings LLC KRT Union LLC KRT Union Manager LLC Lakewood Plaza 9 Associates, L.P. Lilac DE LLC Lilac DE Manager LLC MGA Payroll Company, Inc. MCV Realty L.P. MCV Realty Trust Marlton Plaza Associates II, L.P. Marlton Plaza Associates II, L.P. Marlton Plaza Associates, L.P. Marlton Plaza II LLC Marlton Plaza LLC Marumsco Jefferson Joint Venture Mount Carmel Plaza Associates, L.P. Mount Carmel Plaza LLC MX Realty, L.P. MX Realty, LLC New Holland Plaza Associates, L.P. New Holland Plaza LLC Newtown Village Plaza L.P. Newtown Village Plaza LLC North Penn Marketplace Associates, L.P. North Penn Marketplace LLC Northpark Associates, L.P. Orange Plaza LLC Orange Plaza Manager LLC Parkway Plaza II LLC Plymouth Plaza Associates, L.P. Plymouth Plaza LLC Recreation Mortgages, L.P. Recreation Mortgages, LLC Rio Grande Associates, L.P. Rio Grande LLC Royce Realty, Inc. Springfield Office LLC Springfield Office Manager LLC Springfield Supermarket LLC Springfield Supermarket Manager LLC Suvill Realty, LLC Vestal Campus Plaza LLC Vestal Campus Plaza Manager LLC Vestal Parkway Plaza LLC Vestal Retail Holdings LLC Vestal Shoppes LLC Vestal Town Square LLC Village Plaza LLC Village Plaza Manager LLC Wellington Ridge LLC Wellington Ridge One, L.P. Woodbourne Square LLC Woodbourne Square, L.P. WX Realty, L.P. WX Realty, LLC EX-23.1 11 w95171exv23w1.txt CONSENT OF BDO SEIDMAN, LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Kramont Realty Trust Plymouth Meeting, Pennsylvania We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-85424) and Form S-8 (No. 333-39734) of Kramont Realty Trust of our report dated February 13, 2004, relating to the consolidated financial statements, which appears in the Annual Report to Shareholders, which is included in this Annual Report on Form 10-K. BDO Seidman, LLP New York, New York March 15, 2004 EX-31.1 12 w95171exv31w1.txt SECTION 302 CERTIFICATION BY CEO Exhibit 31.1 CERTIFICATIONS I, Louis P. Meshon, Sr., certify that: 1. I have reviewed this annual report on Form 10-K of Kramont Realty Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of trustees (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 15, 2004 By: /s/ Louis P. Meshon, Sr. ---------------------------------------- Name: Louis P. Meshon, Sr. Title: President and Chief Executive Officer (principal executive officer) 64 EX-31.2 13 w95171exv31w2.txt SECTION 302 CERTIFICATION BY CFO Exhibit 31.2 CERTIFICATIONS I, Carl E. Kraus, certify that: 1. I have reviewed this annual report on Form 10-K of Kramont Realty Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of trustees (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 15, 2004 By: /s/ Carl E. Kraus ---------------------------------------- Name: Carl E. Kraus Title: Chief Financial Officer, Chief Investment Officer and Treasurer (principal financial officer) 65 EX-32.1 14 w95171exv32w1.txt SECTION 906 CERTIFICATION BY CEO Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report of Kramont Realty Trust (the "Company") on Form 10-K for the period ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Louis P. Meshon, Sr., Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Louis P. Meshon, Sr. -------------------------------------------- Louis P. Meshon, Sr. Chief Executive Officer Kramont Realty Trust March 15, 2004 66 EX-32.2 15 w95171exv32w2.txt SECTION 906 CERTIFICATION BY CFO Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report of Kramont Realty Trust (the "Company") on Form 10-K for the period ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Carl E. Kraus, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Carl E. Kraus -------------------------------------------- Carl E. Kraus Chief Financial Officer Kramont Realty Trust March 15, 2004 67 -----END PRIVACY-ENHANCED MESSAGE-----