FILED PURSUANT TO RULE 424(B)(5)
REGISTRATION NO. 333-85424
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 3, 2002)
2,400,000 8.25% SERIES E CUMULATIVE REDEEMABLE PREFERRED SHARES
OF
KRAMONT REALTY TRUST
In this prospectus supplement we are offering 2,400,000 of our 8.25%
Series E cumulative redeemable preferred shares of beneficial interest, par
value $.01 per share, at a price of $25.00 per share, for an aggregate purchase
price of $60,000,000.
We will pay quarterly cumulative distributions, in arrears, on the 8.25%
Series E cumulative redeemable preferred shares. These distributions will be
payable on the 20th day of January, April, July and October of each year, when
and as authorized by our board of trustees and declared by us, beginning on
April 20, 2004, at a yearly rate of 8.25% of the $25.00 liquidation preference,
or $2.0625 per 8.25% Series E cumulative redeemable preferred share, per year.
We may not redeem the 8.25% Series E cumulative redeemable preferred shares
prior to December 30, 2008, except as necessary to preserve our status as a real
estate investment trust. On or after December 30, 2008, we may, at our option,
redeem the 8.25% Series E cumulative redeemable preferred shares, in whole or
from time to time in part, for $25.00 per 8.25% Series E cumulative redeemable
preferred share in cash plus any accrued and unpaid distributions through the
date of redemption. The 8.25% Series E cumulative redeemable preferred shares
have no stated maturity, are not subject to any sinking fund and will remain
outstanding indefinitely unless we redeem them. The 8.25% Series E cumulative
redeemable preferred shares are subject to certain restrictions on ownership and
transfer designed to preserve our qualification as a real estate investment
trust for federal income tax purposes.
We have agreed to engage Cohen & Steers Capital Advisors, LLC, as
placement agent for this offering. Cohen & Steers has no commitment to purchase
securities and will act only as an agent in obtaining indications of interest on
the securities from certain investors. We agreed to pay the placement agent a
fee of two percent of the gross proceeds of this offering, up to $1,200,000, and
we and the placement agent will each pay certain expenses relating to the
offering. After paying this fee to the placement agent and other estimated
expenses, we anticipate receiving approximately $58,500,000 in net proceeds from
this offering.
We expect to deliver 2,400,000 of our Series E cumulative redeemable
preferred shares offered by this prospectus supplement on or about December 30,
2003.
We have applied to list our Series E cumulative redeemable preferred shares
for trading on the New York Stock Exchange under the symbol "KRTPrE". The New
York Stock Exchange has various requirements for listing, including requirements
relating to the distribution of the shares to be listed to no less than 100
beneficial owners. We expect that there will initially be not less than 100
holders of our Series E preferred shares.
-------------------
PER SHARE TOTAL
--------- -----
PUBLIC OFFERING PRICE $25.00 $60,000,000
PLACEMENT AGENT FEES $ .50 $ 1,200,000
PROCEEDS, BEFORE EXPENSES, TO US $24.50 $58,800,000
-------------------
INVESTING IN OUR SERIES E CUMULATIVE REDEEMABLE PREFERRED SHARES INVOLVES
RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE S-5 OF THIS PROSPECTUS SUPPLEMENT.
-------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
Placement Agent
Cohen & Steers Capital Advisors, LLC
-------------------
The date of this Prospectus Supplement is December 29, 2003.
TABLE OF CONTENTS
PAGE
----
Summary of the Offering.............................................. S-1
The Company.......................................................... S-4
Recent Developments.................................................. S-5
Risk Factors......................................................... S-5
Cautionary Language Regarding Forward-Looking Statements............. S-16
Ratio of Earnings to Fixed Charges and Preferred Share Dividends..... S-18
Use of Proceeds...................................................... S-19
Description of Our Shares............................................ S-19
Description of the Series E Preferred Shares......................... S-20
Federal Income Tax Considerations.................................... S-26
Plan of Distribution................................................. S-36
Legal Matters........................................................ S-38
Where You Can Find More Information.................................. S-38
Incorporation of Certain Information By Reference.................... S-38
-------------------
ii
SUMMARY OF THE OFFERING
This summary highlights information contained elsewhere in this prospectus
supplement and the accompanying prospectus. Because it is a summary, it may not
contain all of the information that is important to you. Before making a
decision to invest in our 8.25% Series E cumulative redeemable preferred shares,
which we sometimes refer to as the "Series E preferred shares," you should read
carefully this entire prospectus supplement and the accompanying prospectus, as
well as more detailed information in the documents incorporated by reference in
this prospectus supplement and in the accompanying prospectus, including our
consolidated financial statements and the notes to the consolidated financial
statements.
The Series E preferred shares offered hereby are being sold by us. None of
our shareholders is selling any shares in this offering.
Securities Offered................... 2,400,000 Series E preferred shares
Price per share...................... $25.00
Series E preferred shares expected to
be outstanding after this offering... 2,400,000
Maturity............................. The Series E preferred shares have no
stated maturity and will not be subject
to any sinking fund or mandatory
redemption.
Use of Proceeds...................... We expect that the net proceeds from this
offering will be approximately $58.5
million after deducting placement agent
fees and
S-1
certain other expenses. We intend to use
approximately $41.3 million of the net
proceeds to redeem all of our outstanding
Series D cumulative redeemable preferred
shares and in connection with that
redemption to pay approximately $189,000
of required payments of accrued but
unpaid distributions on our Series D
preferred shares and our Series B-1
cumulative convertible preferred shares.
We currently intend to consummate the
redemption on or about January 30, 2004.
However, if the redemption does not occur
on that date, we will be required to make
additional payments of accrued but unpaid
distributions on our Series D preferred
shares and our Series B-1 preferred
shares. Until we consummate the
redemption, we will apply the amounts
that we intend to pay in connection with
the redemption to reduce our outstanding
indebtedness. We intend to use the
remaining net proceeds for general
corporate purposes, which may include,
among other things, acquisitions, capital
expenditures, repayment of debt and
working capital needs.
Ranking............................. The Series E preferred shares will, with
respect to distribution rights and rights
upon our liquidation, dissolution or
winding up, rank senior to our common
shares and on a parity with our Series
B-1 preferred shares and our Series D
preferred shares.
Distributions....................... Investors will be entitled to receive
cumulative cash distributions from the
date of original issue (excluding such
date), payable quarterly in arrears on
the 20th of January, April, July and
October of each year, commencing on April
20, 2004, at the rate of 8.25% of the
liquidation preference per annum
(equivalent to $2.0625 per annum per
share).
Liquidation Preference.............. If we liquidate, dissolve or wind up,
holders of the Series E preferred shares
will have the right to receive $25.00 per
share, plus accrued and unpaid
distributions to the date of payment,
before any payment is made to holders of
our common shares.
S-2
Optional Redemption................. The Series E preferred shares are not
redeemable prior to December 30, 2008,
except in limited circumstances to
preserve our status as a real estate
investment trust. On and after December
30, 2008, the Series E preferred shares
will be redeemable for cash at our option
in whole or from time to time in part, at
$25.00 per share, plus accrued and unpaid
distributions to the redemption date.
Voting Rights....................... Holders of Series E preferred shares will
generally have no voting rights. However,
if we do not pay distributions on the
Series E preferred shares for six or more
quarterly periods, whether or not
consecutive, holders of the Series E
preferred shares (voting separately as a
class with all other classes or series of
parity preferred shares upon which like
voting rights have been conferred) will
be entitled to vote for the election of
two additional trustees to serve on our
board of trustees until all distribution
arrearages have been paid. In addition,
we may not (x) authorize or issue any
shares of beneficial interest which rank
senior to the Series E preferred shares
as to distribution rights or liquidation
preference, or, (y) subject to certain
exceptions, amend any of the provisions
of our Declaration of Trust to change the
preferences, rights or privileges of the
Series E preferred shares so as to
materially and adversely affect the
Series E preferred shares, without the
consent of at least two-thirds of the
Series E preferred shares.
Conversion.......................... The Series E preferred shares are not
convertible into or exchangeable for any
other property or securities.
Ownership and Transfer Limits....... The Series E preferred shares will be
subject to certain restrictions on
ownership and transfer
S-3
intended to assist us in maintaining our
status as a real estate investment trust
for United States federal income tax
purposes.
Trading............................. We have applied to list the Series E
preferred shares on the New York Stock
Exchange. In addition, the purchase
agreement relating to our sale of the
Series E preferred shares provides that
we will use our reasonable best efforts
to obtain approval of our application
within 30 days after the original
issuance of the Series E preferred
shares, or if not, as soon as practicable
thereafter. Among other things, to
qualify for such listing, the purchasers
in the offering must include sufficient
beneficial ownership holdings to meet the
distribution requirements of the New
York Stock Exchange. However, no
assurance can be given that the
application will be approved or, even if
it is approved, that a market for the
Series E preferred shares will develop
or, if developed, will be maintained.
Risk factors........................ An investment in the Series E preferred
shares involves various risks, and
prospective investors should carefully
consider the matters discussed under
"Risk Factors" beginning on page S-5 of
this prospectus supplement and in the
prospectus attached before making a
decision to invest in the Series E
preferred shares.
THE COMPANY
We are Kramont Realty Trust, a self-administered, self-managed real estate
investment trust, which we sometimes refer to as a "REIT," organized under the
laws of the State of Maryland. We sometimes refer to ourselves as Kramont.
We are engaged in the ownership, acquisition, development, redevelopment,
management and leasing of community and neighborhood shopping centers. All of
our assets are held by two operating partnerships, Kramont Operating
Partnership, L.P. and Montgomery CV Realty L.P, which we sometimes collectively
refer to as the "operating partnerships," under an UPREIT structure. UPREIT
stands for "Umbrella Partnership Real Estate Investment Trust." An UPREIT is a
real estate investment trust that conducts its operations through one or more
umbrella limited partnerships.
We own and operate 83 shopping centers and two office buildings, and
manage four shopping centers for third parties and four shopping centers in
connection with a joint venture. These properties are located in 15 states in
the eastern and southeastern regions of the United States and their aggregate
size is approximately 12.1 million square feet.
We employ approximately 140 full and part-time employees, including
management, accounting, legal, acquisitions, property management, maintenance
and administrative personnel.
S-4
Our principal executive offices are located at Plymouth Plaza, 580 West
Germantown Pike, Suite 200, Plymouth Meeting, Pennsylvania 19462, and our
telephone number is (610) 825-7100. Additional information regarding Kramont is
set forth in our Annual Report on Form 10-K for the fiscal year ended December
31, 2002, and other documents we file with the Securities and Exchange
Commission (which are incorporated by reference in this prospectus supplement).
RECENT DEVELOPMENTS
In July, 2003, Wal-Mart Stores, Inc., our largest tenant, based on our
annualized minimum rents, closed its store located at Spartanburg, South
Carolina. To this date, Wal-Mart has continued to honor all of its obligations
under the Spartanburg lease. The annual minimum rent for the Spartanburg store
is approximately $297,000. In September, 2003, Wal-Mart subleased its store in
Pensacola, Florida, closed since March, 2002, to Bealls Department Store. The
annual minimum rent for the Pensacola store is approximately $579,000.
In April, 2003, Kmart Corporation, our fourth largest tenant, based on our
annualized minimum rents, closed its Manchester, Connecticut store, after
rejecting the lease under bankruptcy proceedings in January, 2003. The annual
minimum rent for this store was $232,000.
On October 31, 2003, the lease for Snyder Drugs/Drug Emporium's Upper
Darby, Pennsylvania store expired, and Drug Emporium, which commenced bankruptcy
proceedings on September 10, 2003, rejected the three other leases it had with
us, in Bensalem and Whitehall, Pennsylvania, and in Hamilton, New Jersey. Annual
minimum rents under these four leases was approximately $697,000.
RISK FACTORS
Investment in our Series E preferred shares involves various risks. In
addition to the other information in this prospectus supplement, the
accompanying prospectus and other documents that are incorporated by reference
into this prospectus supplement, you should consider carefully the following
risk factors before deciding to invest in our Series E preferred shares.
GENERAL REAL ESTATE RISKS.
Your investment in our Series E preferred shares is subject to risks related to
the ownership of real estate securities generally.
Your investment in our Series E preferred shares will be affected by
adverse economic conditions and regulatory changes. In addition, your investment
may be subject to risks generally incident to the ownership of real estate,
including:
- changes in general economic or local conditions;
- changes in supply of or demand for similar or competing properties in an
area;
S-5
- changes in interest rates which may render the sale and/or refinancing
of a property difficult or unattractive;
- changes in consumer spending patterns;
- increases in operating costs and expenses;
- excess supply of retail or commercial space and construction of new
shopping centers, regional malls or other retail or commercial spaces;
- tax, real estate, environmental and zoning laws and changes in such
laws; and
- periods of higher interest rates or tight money supply, which may render
it more expensive to operate.
In addition, some significant operating expenses associated with our
properties, such as debt payments, maintenance, tenant improvement costs and
taxes, generally remain constant when gross income from properties is reduced.
For these and other reasons, we cannot assure you that we will be
profitable or that we will realize growth in the value of our properties.
We are dependent on the retail industry.
The market for retail space and, indirectly, the general economic or local
conditions of the retail sector in which we operate can significantly affect our
performance. Consolidation in the retail sector, the financial distress of some
large retailers, competition from e-commerce companies and the excess amount of
retail space in some markets has adversely affected the market for retail space.
To the extent that these conditions persist, we cannot assure you that we will
have sufficient net income and cash available for distributions to shareholders
and we may not be able to obtain debt or equity financing on reasonable terms
and conditions.
One or more vacancies at a property may make it difficult for us to sell or
re-lease that property.
Our ability to rent or relet unleased space will be affected by many
factors, including the existence of covenants typically found in shopping center
tenant leases, such as covenants restricting the use of other space at the
shopping center to those which are not competitive with another tenant. Our
ability to lease or relet our properties may cause fluctuations in our cash
flow, which, in turn, may affect the cash available for distributions to
shareholders.
We are dependent on the financial stability of our tenants for revenue.
Substantially all of our income is derived from rental payments from
tenants of our properties. Therefore, the success of our investments is
dependent to a large extent on the financial stability of our tenants. Lease
payment defaults by tenants could cause us to reduce the amount of distributions
to shareholders. A default by a tenant on its lease payments to us would cause
us to lose revenue from the property and require us to find an alternative
source of revenue
S-6
to meet our mortgage payment obligations and prevent a foreclosure, if the
property is subject to a mortgage. In the event of a default, we may experience
delays in enforcing our rights as landlord and may incur substantial costs in
protecting our investment and reletting our property. If a lease is terminated,
we cannot assure you that we will be able to lease the property for the rent
previously received or sell the property without incurring a loss. In addition,
if a large number of tenants default under their leases, it would adversely
affect our net income and cash available for distributions to our shareholders.
We rely on major tenants to pay rent, and their inability to pay rent may
substantially reduce our net income and cash available for distributions to
holders of our Series E preferred share.
Our five largest tenants are Wal-Mart Stores, Inc., Ahold, The TJX
Companies, Inc., Kmart Corporation and Shop Rite. As of September 30, 2003,
Wal-Mart Stores, Inc. represented approximately 7.01% of our annualized minimum
rents, Ahold represented approximately 5.03% of our annualized minimum rents,
The TJX Companies, Inc. represented approximately 2.96% of our annualized
minimum rents, Kmart Corporation represented approximately 2.68% of our
annualized minimum rents and Shop Rite represented approximately 2.06% of our
annualized minimum rents. As of September 30, 2003, no other tenant represents
more than 1.86% of the aggregate annualized minimum rents of our properties. If
any of our major tenants were to close stores at our properties as a result of
bankruptcy or for other reasons, such closures could adversely affect other
tenants by causing a decrease in customer traffic at such properties, which in
turn could adversely affect our financial position by causing tenants to default
on lease payment obligations. This could be true even if the tenant continued to
pay rent under the leases for the closed stores. In addition, our financial
position and our ability to make distributions may be adversely affected if any
of our major tenants experiences financial difficulties, including a bankruptcy,
insolvency or general downturn in the business of any of these tenants, if any
of these tenants does not renew its leases as they expire or if our tenants are
acquired or merged with other entities.
Uninsured losses relating to real property may adversely affect your returns.
We carry comprehensive liability, fire, flood, extended coverage and
rental loss insurance for our properties with customary terms carried for
similar properties. We believe we are adequately insured for all material risks
of loss. However, we cannot assure you that similar insurance will be available
in the future or will be available at commercially reasonable rates. In
addition, we cannot assure you that every loss affecting our properties will be
covered by insurance or that any loss that we incur will not exceed the limits
of policies obtained. Our net income and cash available for distributions would
be adversely affected by an uninsured loss. Although we believe that we
currently carry adequate insurance coverage for damage to our properties or
liability which could arise from terrorist attacks on our properties, we cannot
assure you that insurance adequate to cover damage liability arising from
terrorist attacks will be available in the future or will be available at
commercially reasonable rates.
Competition with other properties and other companies may increase costs,
decrease acquisition opportunities and reduce returns.
The leasing of real estate is highly competitive. Most of our properties
are located in developed retail and commercial areas, and there are generally
numerous other neighborhood or
S-7
community shopping centers within a five-mile radius of any given property. In
addition, there are one or more regional malls within a ten-mile radius of some
of our properties.
There are numerous developers and real estate companies which compete with
us in seeking acquisition opportunities and locating tenants to lease vacant
space, some of which may have greater financial resources than us. In addition,
these developers or real estate companies may develop or acquire new shopping
centers or regional malls, or renovate, refurbish or expand existing shopping
centers or regional malls, in the vicinity of one or more of our properties.
Competition from these developers and real estate companies could adversely and
materially affect our acquisition opportunities and ability to locate tenants to
lease vacant space.
Compliance with regulatory requirements, including the Americans with
Disabilities Act, at our properties may cause us to incur additional costs.
Our properties are subject to various federal, state and local regulatory
requirements, including the Americans with Disabilities Act, which requires that
buildings be made accessible to people with disabilities.
Governmental authorities could impose fines and private litigants may be
awarded damages if we fail to comply with these requirements. We believe that
our properties are in substantial compliance with all material federal, state
and local regulatory requirements. We cannot assure you, however, that
regulatory requirements will not be changed or that new regulatory requirements
will not be imposed that would require significant unanticipated expenditures by
us or the tenants. Unexpected expenditures would adversely affect our net income
and cash available for distributions to holders of our Series E preferred
shares.
Illiquidity of real estate investments may make it difficult for us to sell
properties to respond to changing market conditions.
Our ability to vary our portfolio in response to changes in economic and
other conditions will be limited as a result of various factors. First, real
estate investments are relatively illiquid. In addition, REIT requirements may
subject us to confiscatory taxes on gain recognized from the sale of property if
such property is considered to be held primarily for sale to customers in the
ordinary course of our trade or business. We cannot assure you that we will be
able to promptly dispose of one or more of our properties when we want or need
to. Consequently, the sale price for any property may not recoup or exceed the
amount invested in the property.
Costs associated with environmental matters may adversely affect our operating
results.
Under some environmental laws, a current or previous owner or operator of
real property, and parties that generate or transport hazardous substances that
are disposed of at real property, may be liable for the costs of investigating
and remediating these substances on or under the property. The federal
Comprehensive Environmental Response, Compensation & Liability Act, as amended,
and similar state laws, impose liability on a joint and several basis,
regardless of whether the owner, operator or other responsible party was at
fault for the presence of such hazardous substances. The costs of remediating
hazardous or toxic substances can be substantial and can exceed the value of the
subject property. In connection with the ownership or operation of our
properties, we could be liable for such costs in the future. The presence of
hazardous or
S-8
toxic substances on our properties, or our failure to remediate such substances,
also may adversely affect our ability to sell or rent our properties or to
borrow funds using such properties as collateral. In addition, environmental
laws may impose restrictions on the manner in which we use our properties or
operate our business, and these restrictions may require expenditures for
compliance.
We are currently not aware of any material environmental claims pending or
threatened against us in excess of available insurance. However, we cannot
assure you that a material environmental claim or compliance obligation will not
arise or that we will not undertake environmental remediation that either is not
covered by insurance or is in excess of such coverage. The costs of defending
against any claims of liability, of remediating a contaminated property, or of
complying with future environmental requirements could be substantial to us and
affect our operating results.
COMPANY RISKS.
Our properties are subject to risks related to specific geographic areas which
could adversely affect net income.
We own properties located in 15 states, primarily in the eastern and
southeastern regions of the United States. To the extent that general economic
or other relevant conditions decline in the states in which our properties are
located and result in a decrease in consumer demand in these areas, the income
from, and value of, these properties may be adversely affected. The impact of
any general decline would affect us more significantly if it affected states in
which we had a significant concentration of properties, or the eastern and
southeastern regions of the United States as a whole.
Our issuance of additional shares, warrants or debt securities, whether or not
convertible, may reduce the market price for our shares.
We cannot predict the effect, if any, that future sales of our shares,
warrants or debt securities, or the availability of our securities for future
sale, will have on the market price of our shares, including our Series E
preferred shares. Sales of substantial amounts of our common shares or preferred
shares, warrants or debt securities convertible into or exercisable or
exchangeable for common shares in the public market or the perception that such
sales might occur could reduce the market price of our Series E preferred shares
and the terms upon which we may obtain additional equity financing in the
future. In addition, we may issue additional shares in the future to raise
capital or as a result of the following:
- The issuance of common shares under the 2000 Incentive Plan or other
remuneration plans. We may also issue our common shares to our employees
in lieu of cash bonuses or to our trustees in lieu of trustee's fees.
- The exercise of options to purchase our common shares. As of September
30, 2003, we had outstanding options to acquire approximately 450,528 of
our common shares. In addition, we may in the future issue additional
options or other securities convertible into or exercisable for our
common shares under our 2000 Incentive Plan
S-9
or other remuneration plans. We may also issue options or convertible
securities to our employees in lieu of cash bonuses or to our trustees
in lieu of trustee's fees.
- The redemption of partnership units in the operating partnerships. Under
the terms of the operating partnerships, minority limited partners in
each partnership may elect to have their partnership units in the
operating partnerships redeemed for cash. Upon such election, we can
elect to issue our common shares in lieu of the cash payment, currently
on a one-to-one basis. In the event all of the limited partners in both
operating partnerships elect to have their partnership units redeemed
for cash, we may elect to issue an aggregate of 1,666,152 of our common
shares in connection with these redemptions. We may, in the future,
issue additional partnership units in the operating partnerships to
third parties in exchange for real property.
- The issuance of debt securities exchangeable for our common shares.
- The exercise of warrants we may issue in the future.
- Lenders sometimes ask for warrants or other rights to acquire shares in
connection with providing financing. We cannot assure you that our
lenders will not request such rights.
The Series E preferred shares are a new issue of securities and do not have an
established trading market, which may negatively affect their market value and
your ability to transfer or sell your shares.
The Series E preferred shares are a new issue of securities with no
established trading market. We have filed an application to list the Series E
preferred shares on the NYSE. However, we cannot assure you that the Series E
preferred shares will be approved for listing on the NYSE, which would require,
among other things, that the Series E preferred shares comply with certain
distribution requirements. Even if so approved, trading of the Series E
preferred shares on the NYSE may not begin until 30 days after the date of
initial delivery of the Series E preferred shares. In any event, we cannot
assure you that an active trading market for the Series E preferred shares will
develop or, even if one develops, will be maintained. As a result, the ability
to transfer or sell the Series E preferred shares and any trading price of the
Series E preferred shares could be adversely affected.
Our ability to pay distributions on our shares may be limited.
Because we conduct all of our operations through the operating
partnerships, our ability to make distributions on our shares depends almost
entirely on payments and distributions received on our interests in the
operating partnerships. Additionally, the terms of some of the debt for which
Kramont Operating Partnership, L.P. is liable limits its ability to make some
types of payments and other distributions to us. This in turn limits our ability
to make some types of payments, including payment of distributions on our shares
unless we meet certain financial tests or such payments or distributions are
required to maintain our qualification as a REIT. As a result, if we are unable
to meet the applicable financial tests, we may not be able to pay distributions
on our shares in one or more periods.
S-10
The market value of the Series E preferred shares could be substantially
affected by various factors.
Whether or not the Series E preferred shares are publicly traded, the share
price of the Series E preferred shares will depend on many factors, which may
change from time to time, including:
- prevailing interest rates, increases in which may have an adverse effect
on the share price of the Series E preferred shares;
- the market for similar securities issued by REITs;
- the limited number of holders of Series E preferred shares;
- general economic and financial market conditions; and
- our financial condition, performance and prospects.
Our business depends on key personnel.
The success of our business will be dependent on the efforts of our
executive officers and trustees, particularly Louis P. Meshon, Sr. The loss of
his services could adversely affect our business, assets or results of
operations.
Our organizational documents do not place limits on the incurrence of debt.
Our organizational documents do not limit the amount of indebtedness that
we may incur. Although our board attempts to maintain a balance between total
outstanding indebtedness and the value of our portfolio, it could alter this
balance at any time. If we become more highly leveraged, by issuing new debt
securities or otherwise, then the resulting increase in debt service could
diminish our ability to make distributions to shareholders and make payments on
other outstanding indebtedness. If we default on our obligations under any
outstanding indebtedness or new debt securities we issue, we could lose our
interest in any properties or other collateral that secure that indebtedness.
We may need to borrow additional money to qualify as a REIT.
Our ability to make distributions to shareholders could be diminished by
increased debt service obligations if we need to borrow additional money in
order to maintain our REIT qualification. For example, differences in timing
between when we receive income and when we have to pay expenses could require us
to borrow money to meet the requirement that we distribute to shareholders at
least 90% of our net taxable income excluding net capital gain each year. The
incurrence of large capital expenditures also could require us to borrow money
to meet this requirement.
We might need to borrow money for these purposes even if we believe that
market conditions are not favorable for such borrowings. In other words, we may
have to borrow money on unfavorable terms.
S-11
We cannot avoid risks inherent in development and acquisition activities and
property development.
Developing or expanding existing properties in our real estate portfolio
is an integral part of our strategy for maintaining and enhancing the value of
our portfolio. We may also choose to acquire additional properties in the
future. While our existing policies with respect to developing and expanding
properties are intended to limit some of the risks otherwise associated with
property acquisition such as not starting construction on a project prior to
obtaining a commitment from an anchor tenant, we nevertheless will incur risks,
including risks related to costs required to identify and acquire properties,
delays in construction and lease-up, costs of materials, financing availability,
volatility in interest rates and labor availability. In addition, our policies
may change.
In addition, once a property is acquired, the renovation and improvement
costs, if any, we incur in bringing an acquired property up to market standards
may exceed our estimates, and the property may fail to perform as expected. We
also may be unable to identify properties to acquire or successfully integrate
acquired properties and operations. In addition, we may incur costs required to
redevelop or renovate our current properties.
We are subject to risks associated with debt financing and existing debt
maturities.
We are subject to a variety of risks associated with debt financing. These
risks could increase if we issue new debt securities. Examples of these risks
include the following:
- our cash from operating activities may be insufficient to meet required
payments;
- we may be unable to pay or refinance indebtedness on our properties;
- if interest rates or other factors result in higher interest rates on
refinancing, these factors will diminish our returns on development and
redevelopment activities, reduce cash from operating activities and
hamper our ability to make distributions to shareholders;
- if we are unable to secure refinancing of indebtedness on acceptable
terms, we may be forced to dispose of properties upon disadvantageous
terms, which may cause losses and affect our funds from operations;
- if properties are mortgaged to secure payment of indebtedness and we are
unable to meet payments, the mortgagee may foreclose upon the
properties, resulting in a loss of income and a valuable asset to us;
and
- we may not be able to sell properties that currently are mortgaged to
secure payment of indebtedness.
We have substantial debt obligations which could limit our net income and cash
available for distribution.
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We have substantial debt obligations. Our debt at September 30, 2003 was
approximately $513.1 million, of which approximately $432.8 is long-term debt.
Payments of principal and interest made to service our debts may leave us with
insufficient cash to pay the distributions that we are required to pay to
maintain our qualification as a real estate investment trust. In addition, 67 of
our properties are security for our mortgage indebtedness.
It may be difficult for us to meet our balloon payment obligations; balloon
payment obligations may adversely affect our ability to pay distributions to the
holders of our Series E preferred shares.
A number of our outstanding loans require lump sum or "balloon" payments
for the outstanding principal balance at maturity. As of September 30, 2003, we
had $190 million outstanding on a secured first mortgage loan facility with
Metropolitan Life Insurance Company, which is secured by 15 properties and is
due in June 2013, and approximately $62.5 million outstanding on a secured first
mortgage loan facility with Salomon Brothers Realty Corp., which is secured by 9
properties and is due in October, 2008.
The remainder of our mortgages that have balloon indebtedness have due
dates ranging from March 2004 to August 2028. In addition, we may finance future
acquisitions with debt which may require a lump sum or "balloon" payment for the
outstanding principal balance at maturity. Our ability to pay the outstanding
principal balance of our debt at maturity may depend upon our ability to
refinance the debt, or to sell properties. We cannot assure you that we will be
able to refinance our payment obligations on reasonable terms and conditions,
that we will be able to sell any properties or that the amounts we receive from
refinancings or sales will be sufficient to make the required balloon payment on
our debt. If we cannot make a balloon payment when due, our lenders may
foreclose on the properties securing the debt, which foreclosure would have a
material adverse effect on our business, assets and results of operations.
If we fail to make our debt payments, we could lose our investment in a
property.
If we are unable to make our debt payments on loans secured by mortgages
on our properties as required, a lender could foreclose on the property or
properties securing our debt. This could cause us to lose part or all of our
investment, which could cause the value of our Series E preferred shares and the
distributions payable to their holders and holders of our other shares to be
reduced.
Our floating rate debt will be adversely affected by increases in interest
rates.
As of September 30, 2003, we had indebtedness with an aggregate
outstanding principal balance of approximately $71.6 million that bears interest
at rates that are variable. New debt securities could also have floating
interest rates. As a result of variable interest rates on the debt and on other
debt we may incur in the future, an increase in interest rates could have an
adverse effect on our net income and cash available for distributions.
FEDERAL INCOME TAX RISKS.
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Failure to qualify as a real estate investment trust could adversely affect our
operations and our ability to make distributions.
It is expected that we will continue to qualify to be taxed as a REIT
under the Internal Revenue Code of 1986, as amended, which we sometimes refer to
as the Code. However, we cannot assure you that we will be able to operate in a
manner so as to maintain our qualification as a REIT. Qualification as a REIT
involves the application of highly technical and complex tax law provisions for
which there are only limited interpretations. In addition, qualification as a
REIT involves the determination of various factual matters that will not be
entirely in our control. We also cannot assure you that new laws, regulations or
interpretations will not change the applicable REIT qualification rules.
If we fail to qualify as a REIT for any taxable year, our distributions to
our shareholders would cease to qualify for the deductions for dividends paid,
with the effect that we would be subject to federal income tax on our taxable
income at corporate rates. In addition, we could be disqualified from treatment
as a REIT for four taxable years following the year of losing our REIT status.
Losing our REIT status would reduce net earnings available for investment or
distribution to holders of Series E preferred shares because of the additional
tax liability. In addition, we might be required to borrow funds or liquidate
some investments in order to pay the applicable tax.
Real estate investment trust distribution requirements limit the amount of cash
we will have available for other business purposes, including amounts to fund
our future growth.
To maintain our qualification as a REIT under the Code, we will have to
distribute annually to our shareholders at least 90% of our ordinary taxable
income, excluding net capital gains. This requirement will limit our ability to
accumulate capital for use for other business purposes. If we do not have
sufficient cash or other liquid assets to meet the distribution requirements, we
may have to borrow funds or sell properties on adverse terms in order to meet
the distribution requirements. If we fail to make a required distribution, we
would cease to qualify as a REIT.
Our board may determine without shareholder approval that we should no longer
qualify as a REIT.
Our board may determine without shareholder approval that it is in the
best interests of the company to cease to qualify as a REIT for federal income
tax purposes. In the event that our board should make this determination, we and
our shareholders would no longer be entitled to the Federal income tax benefits
that are applicable to a REIT.
Legislative or regulatory action could adversely affect purchasers of our Series
E preferred shares.
In recent years, numerous legislative, judicial and administrative changes
have been made in the provisions of the federal income tax laws applicable to
investments similar to an investment in our Series E preferred shares. Changes
are likely to continue to occur in the future, and we cannot assure you that any
of these changes will not adversely affect your taxation as a holder of Series E
preferred shares. Any of these changes could have an adverse effect on
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an investment in Series E preferred shares or on the market value or the resale
potential of our properties. You are urged to consult with your own tax advisor
with respect to the impact that recent legislation may have on your investment
and the status of legislative, regulatory or administrative developments and
proposals and their potential effect.
Recent changes in taxation of corporate dividends may adversely affect the value
of our Series E preferred shares.
The Jobs and Growth Tax Relief Reconciliation Act of 2003 that was enacted
into law on May 28, 2003, among other things, generally reduces to 15% the
maximum marginal rate of tax payable by individuals on dividends received from a
regular C corporation. This reduced tax rate, however, will not apply to
dividends paid to individuals by a REIT on its shares, except for certain
limited amounts, which we do not expect to pay the holders of Series E preferred
shares. While the earnings of a REIT that are distributed to its shareholders
still generally will be subject to less combined federal income taxation than
earnings of a non-REIT C corporation that are distributed to its shareholders
net of corporate-level income tax, this legislation could cause individual
investors to view the stock of regular C corporations as more attractive
relative to the shares of a REIT than was the case prior to the enactment of the
legislation. Individual investors could hold this view because the dividends
from regular C corporations will generally be taxed at a lower rate while
dividends from REITs will generally be taxed at the same rate as the
individual's other ordinary income. We cannot predict what effect, if any, the
enactment of this legislation may have on the value of the shares of REITs in
general or on the value of our Series E preferred shares in particular, either
in terms of price or relative to other investments.
CERTAIN PROVISIONS OF THE MARYLAND GENERAL CORPORATION LAW AND OUR DECLARATION
OF TRUST, BYLAWS AND THE TERMS OF THE SERIES E PREFERRED SHARES MAY INHIBIT
BUSINESS COMBINATIONS
Provisions of the Maryland General Corporation Law may prevent a business
combination involving us.
Provisions of the Maryland General Corporation Law applicable to us
prohibit business combinations with:
- any person who beneficially owns 10% or more of the voting power of
our outstanding shares or any of our affiliates or associates who,
at any time within the two year period prior to the date in
question, was the beneficial owner of 10% or more of the voting
power of our outstanding shares (an "interested shareholder"); or
- an affiliate of an interested shareholder.
A person is not an interested shareholder if our board approved in advance
the transaction by which that person otherwise would have become an interested
shareholder. However, in approving a transaction, the board may provide that its
approval is subject to compliance, at or after the time of approval, with any
terms and conditions determined by the board.
These prohibitions last for five years after the most recent date on which
the interested shareholder became an interested shareholder. Thereafter,
Maryland law provides that any
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business combination must be recommended by our board and approved by the
affirmative vote of at least 80% of the votes entitled to be cast by holders of
our outstanding shares and two-thirds of the votes entitled to be cast by
holders of our shares other than shares held by the interested shareholder or
its affiliate or associate. These requirements, as well as our ability to
authorize and issue additional authorized but unissued common and preferred
shares and to classify or reclassify any unissued common or preferred shares and
set the preferences, rights and other terms of the classified or reclassified
shares, could inhibit a change in control even if a change in control were in
your best interest. These provisions of Maryland law do not apply, however, to
business combinations with a person that are approved or exempted by our board
prior to the time the person becomes an interested shareholder.
Our declaration of trust and the terms of the Series E preferred shares contain
ownership limitations which may discourage a takeover.
To preserve our qualification as a REIT, no more than 50% in value of our
outstanding shares may be owned, directly or indirectly, by five or fewer
individuals. Our declaration of trust and the terms of the Series E preferred
shares authorize our board to take any action that may be required to preserve
our qualification as a REIT and limit any direct or indirect or constructive
ownership by any one person to not more than 9.8% in value or in number of our
common shares or any series of our preferred shares or 9.8% in value of all of
our outstanding shares. These restrictions may discourage a change in control
and may deter individuals or entities from making tender offers for shares,
which offers might be financially attractive to shareholders or which may cause
a change in our management.
Our staggered board may prevent shareholders from making a bid for control.
Our bylaws provide that the number of trustees may be established by the
board. Any vacancy will be filled at any regular meeting or at any special
meeting called for that purpose by a majority of the remaining trustees, except
that a vacancy resulting from an increase in the number of trustees must be
filled by a majority of the entire board.
Our board is divided into three classes of trustees. Each year, one class
of trustees is elected to a three-year term by the shareholders. The staggered
terms prevent the shareholders from voting on the election of more than one
class of trustees at each annual meeting and, thus, may delay, defer or prevent
a change in control or deter a bid for control of us even in a case where the
holders of a majority of our outstanding shares believe a change in control
would be in their interest.
CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS
Certain information both included and incorporated by reference in this
prospectus supplement and the accompanying prospectus 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. These
include statements of forecasts, expectations, estimates, beliefs, intentions,
projections and similar expressions. Forward-looking
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statements are based on certain assumptions and expectations of future events
which may not prove to be accurate and that could be affected by the risks and
uncertainties involved in our business, many of which cannot be predicted with
accuracy and some of which might not even be anticipated. Forward-looking
statements describe our future plans, strategies and expectations and 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. Readers of this
prospectus supplement are cautioned that any such statements are not guarantees
of future performance and that actual results may differ materially from those
projected and implied in the forward-looking statements. Factors which could
have a material adverse effect on the operations and future prospects of our
company, the offering described in this prospectus supplement, and on the value
of the Series E preferred shares, include:
- our inability to identify properties to acquire or our inability to
successfully integrate acquired properties and operations;
- economic factors adversely affecting the retail industry including,
the effect of general 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 or bankruptcies 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;
- 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;
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- the costs required to re-develop or renovate any of our current or
future properties;
- 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;
- liabilities and expenses related to compliance with laws (including
the Americans with Disabilities Act) and liabilities and expenses
arising out of litigation;
- illiquid nature of real estate investments;
- our substantial debt obligations, our ability to incur additional
debt and potential increases in our debt service obligations;
- any inability to consummate the offering with respect to all of the
2,400,000 Series E preferred shares and our decision to sell fewer
shares; and
- our agreement, in connection with closing the offering, to terms in
the purchase agreement to be entered into with purchasers of our
Series E preferred shares, which could modify the rights or
obligations of Kramont.
You should also carefully consider any other factors contained in this
prospectus supplement and the accompanying prospectus, including the information
incorporated by reference into this supplemental prospectus or into the
accompanying prospectus. You should pay particular attention to those factors
discussed in this prospectus supplement and in the accompanying prospectus under
the heading "Risk Factors." 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.
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED SHARE DIVIDENDS
The following table sets forth our ratios of earnings to fixed charges for
the periods indicated. In computing the ratios of earnings to fixed charges,
earnings have been based on consolidated income from continuing operations
before fixed charges (exclusive of capitalized interest). Fixed charges consist
of interest on debt, including amounts capitalized and interest expense related
to the guaranteed debt of the partnerships in which we hold an interest. In
computing the ratios of earnings to combined fixed charges and preferred stock
dividends, preferred stock dividends consist of dividends on our Series B-1
preferred shares and Series D preferred shares.
FOR THE NINE
YEAR ENDED DECEMBER 31, MONTHS ENDED
---------------------------------------------------------------------- SEPTEMBER 30,
1998 1999 2000 2001 2002 2003
---------- --------- -------- --------- ---------- -------------
Ratio of Earnings to
Fixed Charges(1) 2.27 1.75 1.65 1.48 1.50 1.51
------- ------ ------- ------- ------ -------
Ratio of Earnings to
Combined Fixed
Charges and
Preferred Share
Dividends(1) 2.27 1.75 1.43 1.23 1.26 1.26
------- ------ ------- ------- ------ -------
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(1) Our ratio of earnings to fixed charges and ratio of earnings to
combined fixed charges and preferred share dividends have been revised from
those presented in the accompanying prospectus to reflect the impact of the
implementation of the Statement of Financial Accounting Standard No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets."
USE OF PROCEEDS
The net proceeds to us from the offering (after deducting estimated fees
and expenses of $1,500,000 related to this offering, including the placement
agent fee) are estimated to be approximately $58,500,000. We intend to use
approximately $41,300,000 of the net proceeds to redeem all of our outstanding
Series D preferred shares and, in connection with the redemption, to pay
approximately $189,000 of required payments of accrued but unpaid distributions
on our Series D preferred shares and our Series B-1 preferred shares. We
currently intend to consummate the redemption on or about January 30, 2004.
However, if the redemption does not occur on that date, we will be required to
make additional payments of accrued but unpaid distributions on our Series D
preferred shares and our Series B-1 preferred shares. Until we consummate the
redemption, we will apply the amounts that we intend to pay in connection with
the redemption to reduce our outstanding indebtedness. We intend to use the
remaining net proceeds for general corporate purposes, which may include, among
other things, acquisitions, capital expenditures, repayment of debt and working
capital needs.
In connection with the redemption of our outstanding Series D preferred
shares, our results for the first quarter of 2004 will reflect a non-recurring
reduction in net income attributable to common shareholders of approximately
$17.7 million. On July 31, 2003, the SEC issued 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 the SEC's
interpretation relating to the redemption of preferred securities, 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 our earnings per share and funds from
operations per share. We have agreed with Fleet National Bank N.A., on its own
behalf and as agent for certain other banks providing for a credit facility
under a loan agreement we entered into in 2002, that this non-recurring
reduction in net income attributable to common shareholders will not result in
any non-compliance with financial covenants under this loan agreement.
DESCRIPTION OF OUR SHARES
Our authorized shares consist of 94,283,845 common shares of beneficial
interest, $.01 par value per share, and 5,716,155 preferred shares of beneficial
interest, $.01 par value per share. As of November 13, 2003, 23,994,925 common
shares, 1,183,240 Series B-1 preferred shares and 1,653,200 Series D preferred
shares were issued and outstanding. In addition, as of September 30, 2003,
approximately 1,666,152 units of partnership interest were held by limited
partners other than us in our operating partnerships, Kramont Operating
Partnership, L.P. or Montgomery CV Realty L.P. These units of partnership
interest may be redeemed at any time for cash or, at our option, for common
shares on a one-to-one basis (subject to adjustment). Under our Declaration of
Trust the Board may increase or decrease the aggregate number of shares or the
number of shares of any class or series, without any action by the shareholders.
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DESCRIPTION OF THE SERIES E PREFERRED SHARES
The description of the particular terms of the Series E preferred shares
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the preferred shares set forth in the
accompanying prospectus, to which description reference is hereby made. The
following summary of the material terms and provisions of the Series E preferred
shares does not purport to be complete and is qualified in its entirety by
reference to the pertinent sections in the Articles Supplementary creating the
Series E preferred shares, which we sometimes refer to as the articles
supplementary, a copy of which will be made available by us on request, our
Declaration of Trust, our bylaws, as amended, and applicable laws.
Maturity
The Series E preferred shares have no stated maturity and will not be
subject to any sinking fund or mandatory redemption.
Ranking
The Series E preferred shares rank, with regard to rights to receive
distributions and amounts payable upon liquidation, dissolution or winding up of
Kramont, on a parity with the Series B-1 preferred shares and the Series D
preferred shares (as well as any other class or series of shares of beneficial
interest of Kramont issued in the future which is entitled to receive
distributions or assets upon liquidation, dissolution or winding up of the
affairs of the Trust on a parity with the Series E preferred shares). The Series
E preferred shares rank senior to the Kramont common shares.
Distributions
The holders of Series E preferred shares are entitled to receive
cumulative cash distributions, when, as and if authorized by the board of
trustees and declared by Kramont, out of assets legally available for payment of
distributions. Distributions will be payable quarterly by Kramont in cash at a
rate of $2.0625 per Series E preferred share per annum (equivalent to 8.25% of
the liquidation preference per annum). Distributions will accrue and be
cumulative from the day following the date on which the Series E preferred
shares are first issued. Distributions will be payable quarterly in arrears
when, as and if authorized by the board of trustees of Kramont on the 20th day
of January, April, July, and October of each year, commencing on April 20, 2004.
Distributions payable on Series E preferred shares for the initial distribution
period and for any period less than a full quarterly distribution period will be
computed on the basis of a 360-day year consisting of twelve 30-day months.
At any time the accrued distributions have not been paid in full (or
authorized and set apart for payment) on the Series E preferred shares and any
other preferred shares ranking on a parity as to distributions with the Series E
preferred shares, all distributions authorized to be paid to any of such shares,
including Series E preferred shares, must be authorized to be paid pro rata on
all such shares based on their respective accrued and unpaid distributions.
These requirements do not apply to (i) distributions payable in shares which
rank
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junior to Series E preferred shares or (ii) distributions paid on Series B-1
preferred shares and Series D preferred shares in connection with the redemption
of the Series D preferred shares.
Except as set forth above, at any time that accrued distributions on the
Series E preferred shares have not been, or are not contemporaneously,
authorized and paid (or a sum sufficient for their payment authorized and set
apart), no distributions may be authorized or paid or set apart for payment upon
any shares ranking junior to or on a parity with the Series E preferred shares.
Likewise, no shares ranking junior to or on a parity with the Series E preferred
shares may be redeemed (other than the Series D preferred shares), purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by Kramont
(except by conversion into or exchange for other such shares). These
requirements do not apply to (i) distributions payable in shares which rank
junior to Series E preferred shares or (ii) distributions paid on Series B-1
preferred shares and Series D preferred shares in connection with the redemption
of the Series D preferred shares.
No distributions on Series E preferred shares may be authorized or paid by
Kramont at any time when prohibited by any agreement of Kramont, including any
agreement relating to its indebtedness, or when restricted or prohibited by
applicable law. However, distributions on the Series E preferred shares continue
to accrue whether or not any payment is so prohibited, whether or not
authorized, whether or not Kramont has earnings and whether or not Kramont has
assets legally available for their payment.
Distributions Upon Liquidation, Dissolution or Winding Up
Upon any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of Kramont, after payment or provision for payment of the debts
and other liabilities of Kramont, but before any distribution or payment to
holders of shares ranking junior to the Series E preferred shares as to the
distribution of assets upon any such liquidation, dissolution or winding up, the
holders of Series E preferred shares are entitled to receive, out of the assets
of Kramont legally available for distribution to its shareholders, liquidating
distributions in cash or property in the amount of $25.00 per share plus an
amount equal to all distributions accrued and unpaid on each share (whether or
not declared) up to the date of the liquidation, dissolution or winding up.
If the legally available assets of Kramont are insufficient to pay the
full amount due to holders of the Series E preferred shares and the
corresponding amounts due to holders of all shares ranking on a parity with the
Series E preferred shares, all of such holders share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they otherwise would be respectively entitled.
The provisions relating to a liquidation, dissolution or winding up do not
apply to the consolidation or merger of Kramont with or into another entity nor
the dissolution, liquidation, winding up or reorganization of Kramont
immediately followed by incorporation of another corporation to which Kramont's
assets are distributed, nor the sale, lease, transfer or conveyance of all or
substantially all of Kramont's assets to another entity so long as, in each
case, provision is made to provide for the rights of the holders of the Series E
preferred shares to receive distributions and participate in any distribution
upon liquidation, dissolution or winding up of the affairs of the resulting or
surviving entity.
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After payment of the amounts described above, the holders of Series E
preferred shares have no right to any other assets of Kramont nor any other
distribution.
In determining whether a distribution (other than upon voluntary or
involuntary liquidation), by dividend, redemption or other acquisition of shares
of beneficial interest or otherwise, is permitted under Maryland law, amounts
that would be needed if Kramont were to be dissolved at the time of distribution
to satisfy the preferential rights upon dissolution of holders of Series E
preferred shares, will not be added to Kramont's total liabilities.
Conversion
The Series E preferred shares are not convertible into or exchangeable for
any other property or securities of Kramont.
Voting Rights
Holders of the Series E preferred shares have no voting rights, except in
the limited circumstances set forth below. Whenever distributions on any Series
E preferred shares are in arrears for six or more quarterly distribution periods
(whether or not consecutive), the number of trustees of Kramont will be
increased by two and the holders of the Series E preferred shares will be
entitled to vote (separately as a class with the holders of any other series of
preferred shares upon which like voting rights have been conferred and are
exercisable) for the election of two additional trustees which we call the
preferred trustees. Two preferred trustees are to serve until all past and
current accrued and unpaid distributions on the Series E preferred shares have
been authorized and paid or set apart for payment.
In addition, Kramont may not, without the consent or the affirmative vote
of the holders of at least two-thirds of the outstanding Series E preferred
shares:
(i) authorize, create or issue, or increase the authorized or issued
amount of, any class or series of shares of beneficial interest or rights to
subscribe to or acquire any class or series of shares of beneficial interest or
any security convertible into any class or series of shares of beneficial
interest, if those shares of beneficial interest would rank as to distribution
rights or liquidation preference, senior to the Series E preferred shares, or
reclassify any shares of beneficial interest into any such shares; or
(ii) amend, alter or repeal any of the provisions of Kramont's Declaration
of Trust (including the terms of the Series E preferred shares) that would
change the preferences, rights or privileges with respect to the Series E
preferred shares so as to materially and adversely affect the Series E preferred
shares.
However, no consent of the holders of Series E preferred shares will be
required, (i) to increase the number of authorized common shares; (ii) to
authorize or increase the number of any shares of beneficial interest ranking on
a parity with or junior to the Series E preferred shares as to distribution
rights or liquidation preference; (iii) in connection with any corporate action,
including any merger or consolidation involving Kramont or a sale of Kramont's
assets, irrespective of the effect that such merger, consolidation or sale may
have upon the preferences, conversion and other rights, voting powers,
restrictions, dividends or other distributions,
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qualifications and terms and conditions of redemption of the Series E preferred
shares or the holders thereof; or (iv) if the Series E preferred shares have
been called for redemption.
Restrictions on Ownership and Transfer
Among other requirements, in order for us to qualify as a REIT under the
Internal Revenue Code, no more than 50% in value of our outstanding shares may
be owned, actually or constructively, by five or fewer individuals (as defined
in the Code to include certain entities) during the last half of a taxable year.
In addition, if we, or an owner of 10% or more of our shares, actually or
constructively owns 10% or more of one of our tenants (or a tenant of any
partnership or limited liability company in which we are a partner or member),
the rent received by us (either directly or through one or more subsidiaries)
from the tenant will not be qualifying income for purposes of the gross income
tests for REITs contained in the Code. A REIT's stock must also be beneficially
owned by 100 or more persons during at least 335 days of a taxable year of
twelve months or during a proportionate part of a shorter taxable year.
The articles supplementary contain restrictions on the ownership and
transfer of the Series E preferred shares, which are intended to assist us in
complying with these requirements and continuing to qualify as a REIT. In the
event of any proposed transfer or issuance of Series E preferred shares that
would jeopardize Kramont's status as a REIT, our board of trustees has the right
to refuse to permit such transfer or issuance and to take any action necessary
to cause the transfer or issuance not to occur. As discussed below, any shares
that are purported to be transferred in a transfer or issuance of Series E
preferred shares that would (i) result in a direct or indirect ownership of more
than 9.8% of the lesser of the number or the value of the total outstanding
Series E preferred shares (other than by certain persons previously approved by
the board of trustees of Kramont); or (ii) result in Kramont being "closely
held" within the meaning of Section 856(h) of the Code, will be automatically
transferred to a charitable trust for the benefit of a charitable beneficiary
and the shares purportedly so transferred may be purchased by Kramont.
Our board of trustees, in its sole discretion, may exempt a proposed
transferee from the ownership limitations discussed above. However, the board
may not grant an exemption to any person if doing so would result in Kramont
being "closely held" within the meaning of Section 856(h) of the Code or
otherwise would result in Kramont failing to qualify as a REIT. In order to be
considered by the board of trustees for an exemption, a person also must not
own, directly or indirectly, an interest in a tenant of Kramont (or a tenant of
any entity owned or controlled by Kramont) that would cause Kramont to own,
directly or indirectly, more than a 9.8% interest in such a tenant. The person
seeking an exemption must represent to the satisfaction of the board of trustees
that it will not violate the two aforementioned restrictions. The person also
must agree that any violation or attempted violation of any of the foregoing
restrictions will result in the automatic transfer of the shares causing such
violation to the trust discussed below.
The declaration of trust and the articles supplementary of trust further
prohibit (a) any person from beneficially or constructively owning shares of
beneficial interest of Kramont, including Series E preferred shares, that would
result in Kramont being "closely held" under Section 856(h) of the Code or
otherwise cause Kramont to fail to qualify as a REIT and (b) any person from
transferring shares of beneficial interest of Kramont, including Series E
preferred shares, if such transfer would result in the shares of beneficial
interest of Kramont being owned by fewer than 100 persons. Any person who
acquires or attempts or intends to acquire beneficial
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or constructive ownership of shares of beneficial interest of Kramont that will
or may violate any of the foregoing restrictions on transferability and
ownership, or any person who would have owned shares of beneficial interest of
Kramont that resulted in a transfer of shares to the trust, is required to give
notice immediately to Kramont and provide Kramont with such other information as
Kramont may request in order to determine the effect of such transfer on
Kramont's status as a REIT. The foregoing restrictions on transferability and
ownership will not apply if the board of trustees determines that it is no
longer in the best interests of Kramont to attempt to qualify, or to continue to
qualify, as a REIT.
If any transfer of shares of beneficial interest of Kramont, including
Series E preferred shares, occurs, which, if effective, would result in any
person beneficially or constructively owning shares of beneficial interest of
Kramont in excess or in violation of the above transfer or ownership
limitations, then that number of shares of beneficial interest of Kramont the
beneficial or constructive ownership of which otherwise would cause such person
to violate such limitations will be automatically transferred to a trust for the
exclusive benefit of one or more charitable beneficiaries, and the intended
transferee will not acquire any rights in the shares. The intended transferee
will not benefit economically from ownership of any shares of beneficial
interest held in the trust, will have no rights to distributions and will not
possess any rights to vote or other rights attributable to the shares of
beneficial interest held in the trust. The trustee of the trust will have all
voting rights and rights to distributions with respect to shares of beneficial
interest held in the trust, which rights will be exercised for the exclusive
benefit of the charitable beneficiaries of the trust. Any distribution paid
prior to the discovery by Kramont that shares of beneficial interest have been
transferred to the trustee will be paid by the recipient of such distribution to
the trustee upon demand, and any distribution authorized but unpaid will be paid
when due to the trustee. Any distribution so paid to the trustee will be held in
trust for the charitable beneficiaries of the trust.
Within 20 days of receiving notice from Kramont that shares of beneficial
interest of Kramont have been transferred to the trust, the trustee will sell
the shares of beneficial interest held in the trust to a person, designated by
the trustee, whose ownership of the shares will not violate the ownership
limitations set forth in the declaration of trust. Upon such sale, the interest
of the charitable beneficiaries in the shares sold will terminate and the
trustee will distribute the net proceeds of the sale to the intended transferee
and to the charitable beneficiaries of the trust as follows. The intended
transferee will receive the lesser of (i) the price paid by the intended
transferee for the shares or, if the intended transferee did not give value for
the shares in connection with the event causing the shares to be held in the
trust (e.g., a gift, devise or other such transaction), the market price of such
shares on the day of the event causing the shares to be held in the trust and
(ii) the price per share received by the trustee from the sale or other
disposition of the shares held in the trust. Any net sale proceeds in excess of
the amount payable to the intended transferee will be paid immediately to the
charitable beneficiaries of the trust.
All certificates representing shares of Series E preferred shares will
bear a legend referring to the restrictions described above. These ownership
limitations could delay, defer or prevent a transaction or a change in control
of Kramont that might involve a premium price for the common shares or otherwise
be in the best interest of the shareholders.
Redemption
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Except in certain circumstances relating to Kramont's maintenance of its
status as a REIT (see below), the Series E preferred shares are not redeemable
before December 30, 2008. On or after that date, Kramont may redeem the Series E
preferred shares in whole or in part for $25.00 per share, plus all accrued and
unpaid distributions up to the date of redemption. If fewer than all of the
shares are redeemed, those redeemed must be redeemed from all holders, pro rata.
Once a notice of redemption of any Series E preferred shares is given and
the funds necessary for the redemption set aside, distributions will cease to
accrue on the shares called for redemption, those shares will no longer be
outstanding, and all rights of the holders of those shares will terminate,
except the right to receive the amount described above.
Unless all accrued distributions on all Series E preferred shares have
been authorized and paid (or set apart for payment), (i) no Series E preferred
shares may be redeemed unless all Series E preferred shares are redeemed, and
(ii) no Series E preferred shares may be purchased or acquired by Kramont except
on conversion into or exchange for Kramont shares ranking junior to Series E
preferred shares as to distributions and on the liquidation, dissolution or
winding up of Kramont. These requirements do not prevent the purchase,
acquisition or redemption of Series E preferred shares pursuant to a purchase or
exchange offer made to all holders of Series E preferred shares and do not
prevent the purchase, acquisition or redemption of Series E preferred shares at
any time after the issue date from persons owning in the aggregate more shares
than are permitted by the ownership limitations intended to protect Kramont's
qualification as a REIT.
Notice of any redemption must be given by publication, once a week for two
successive weeks beginning 30 to 60 days prior to the date of redemption, in a
newspaper of general circulation in the City of New York. A similar notice must
be mailed by Kramont in the same time period to the holders of the Series E
preferred shares to be redeemed at their respective addressees as they appear on
the share transfer records of Kramont. No failure to give this notice or any
defect in the notice or the mailing thereof will affect the validity of the
proceedings for the redemption of any Series E preferred shares except as to any
holder to whom Kramont failed to give notice or whose notice was defective.
In addition to any information required by law or by the applicable rules
of any exchange upon which the Series E preferred shares may be listed or
admitted to trading, the notice will state:
(i) the date fixed by the board of trustees for the redemption;
(ii) the price to be paid to redeem the shares (including any accrued and
unpaid distributions);
(iii) the number of shares to be redeemed and, if less than all shares
held by the particular holder are to be redeemed, the number of shares to be
redeemed from that particular holder;
(iv) the place or places where certificates evidencing the shares are to
be surrendered for payment of the amount set forth in clause (ii) above; and
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(v) that distributions on the shares to be redeemed will cease to accrue
on the date set forth in clause (i) above.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of material Federal income tax
considerations applicable to us and to the holders of our Series E preferred
shares and our election to be taxed as a REIT. It is not tax advice. The summary
is not intended to represent a detailed description of the Federal income tax
consequences applicable to a particular shareholder in view of any person's
particular circumstances, nor is it intended to represent a detailed description
of the Federal income tax consequences applicable to shareholders subject to
special treatment under the Federal income tax laws, like insurance companies,
tax-exempt organizations, financial institutions, and securities broker-dealers.
The following discussion relating to an investment in our Series E
preferred shares was based on consultations with Roberts & Holland LLP, our
special counsel. In the opinion of Roberts & Holland LLP, the following
discussion, to the extent it constitutes matters of law or legal conclusions
(assuming the facts, representations, and assumptions upon which the discussion
is based are accurate), accurately represents the material U.S. Federal income
tax considerations relevant to purchasers of our Series E preferred shares.
Roberts & Holland LLP has not rendered any opinion regarding any effect of such
issuance on holders of common shares. The sections of the Code relating to the
qualification and operation as a REIT are highly technical and complex. The
following discussion sets forth the material aspects of the Code sections that
govern the Federal income tax treatment of a REIT and its stockholders. The
information in this section is based on the Code; current, temporary, and
proposed Treasury regulations promulgated under the Code; the legislative
history of the Code; current administrative interpretations and practices of the
Internal Revenue Service, or IRS; and court decisions, in each case, as of the
date of this prospectus supplement. In addition, the administrative
interpretations and practices of the IRS include its practices and policies as
expressed in private letter rulings which are not binding on the IRS, except
with respect to the particular taxpayers who requested and received these
rulings.
General
We elected to be taxed as a REIT commencing with our taxable year ending
December 31, 2000. Kramont was organized to enable it to be in conformity with
the Code requirements for qualification and taxation as a REIT.
Provided that Kramont qualifies for taxation as a REIT, it generally will
not be subject to Federal income tax on that portion of its net income which is
distributed currently to its shareholders. This treatment substantially
eliminates the "double taxation" at the corporate and shareholder levels which
generally results from the use of corporate investment vehicles. Kramont may,
however, be subject to tax at normal corporate rates upon any taxable income or
capital gain not distributed.
If Kramont failed to satisfy either the 75% or the 95% gross income test,
each described below, but nonetheless continued to maintain its qualification as
a REIT because certain other requirements were met, it would be subject to a
100% tax on the greater of the amounts, if any,
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by which it failed the 75% or the 95% test, respectively, multiplied by a
fraction intended to reflect Kramont's profitability. In addition, if Kramont
failed to distribute during each calendar year at least the sum of (A) 85% of
its REIT ordinary income for such year, (B) 95% of its REIT capital gain net
income for such year, and (C) any undistributed taxable income from prior years,
it would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Notwithstanding the
foregoing, a REIT may elect to retain, rather than distribute, all or a portion
of its net long term capital gains and pay the tax on the gains at normal
corporate capital gains tax rates. In such a case, a REIT may elect to have its
shareholders include their proportionate share of the undistributed long term
capital gains in income and receive a credit for their share of the tax paid by
the REIT. For purposes of the 4% excise tax described above, any retained
amounts would be treated as having been distributed.
Kramont may also be subject to the corporate "alternative minimum tax."
Additionally, Kramont could be subject to tax on the disposition of certain
assets acquired from a C corporation in a non-taxable exchange during a 10-year
period following their acquisition.
Finally, Kramont will be subject to a 100% tax on net income derived from
any "prohibited transaction." "Prohibited transactions" generally are sales or
other dispositions of property held as inventory or primarily for sale to
customers in the ordinary course of business. Such prohibited transactions,
however, would exclude sales of certain dealer property held by Kramont for at
least four years, as well as "foreclosure property."
Kramont uses the calendar year both for Federal income tax purposes and
for financial reporting purposes.
In order to qualify as a REIT, Kramont must meet, among others, the
following requirements:
Share Ownership Test
Shares of beneficial interest of Kramont must be held by a minimum of 100
persons for at least 335 days of a taxable year that is 12 months, or during a
proportionate part of a taxable year which lasts less than 12 months. In
addition, no more than 50% in value of the shares of beneficial interest of
Kramont may be owned, directly or indirectly by applying certain constructive
ownership rules, by five or fewer individuals (and certain tax exempt
organizations considered to be individuals) during the last half of each taxable
year. Kramont believes it satisfies both of these tests. In order to help comply
with the second of these tests, and prevent greater concentration of share
ownership, Kramont has placed certain restrictions on the transfer of Kramont
preferred and common shares.
To monitor their compliance with the share ownership requirements, REITs
are required to maintain records regarding the actual ownership of their shares.
To do so, REITs must demand written statements each year from specified record
holders of their shares in which the record holders are to disclose the
beneficial owners of the shares, which are the persons required to include in
gross income the REIT dividends. A list of those persons failing or refusing to
comply with this demand is required to be maintained by the REIT. Kramont has
complied with these requirements and expects to continue to comply with them in
the future.
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Asset Tests
At the close of each quarter of its taxable year, Kramont must satisfy
tests relating to the nature of its assets. First, at least 75% of the value of
Kramont's total assets must be represented by any combination of interests in
real property, interests in mortgages on real property, shares in other REITs,
cash, cash items, stock or debt instruments held not more than one year
purchased with the proceeds of a stock offering or long-term debt offering
(lasting at least five years), and certain government securities. Second,
although the remaining 25% of Kramont's assets may be invested without regard to
the restrictions in the preceding sentence, the following rules will apply to
the investment of those remaining assets: (1) not more than 20% of the value of
Kramont's total assets may be represented by securities of one or more "taxable
REIT subsidiaries" (i.e., a corporation in which Kramont owns stock, as to which
Kramont and the corporation have elected for the corporation to be treated as a
taxable REIT subsidiary and which meets certain other requirements under the
Code); (2) not more than 5% of the value of Kramont's total assets may be
represented by securities of any one issuer (other than securities of a
qualified REIT subsidiary or a taxable REIT subsidiary and securities described
in the preceding sentence); (3) Kramont may not hold securities possessing more
than 10% of the total combined voting power of the outstanding securities of
any one issuer (other than securities of a qualified REIT subsidiary or a
taxable REIT subsidiary and securities described in the preceding sentence); and
(4) Kramont may not hold securities having a value of more than 10% of the total
value of the outstanding securities of any one issuer (other than securities of
a qualified REIT subsidiary or a taxable REIT subsidiary, securities described
in the preceding sentence, and certain "straight debt" that meets a safe harbor
test set out in the Code). Qualified REIT subsidiaries (i.e., corporations other
than taxable REIT subsidiaries 100% of the stock of which is owned by one REIT)
are not treated as entities separate from their parent REIT for Federal tax
purposes. Instead, all assets, liabilities, and items of income, deduction, and
credit of each qualified REIT subsidiary will be treated as the assets,
liabilities, and items of Kramont.
By virtue of its partnership interest in Kramont Operating Partnership,
L.P., Kramont will be deemed to own its pro rata share of the assets of Kramont
Operating Partnership, L.P. and of any other partnership, including Montgomery
CV Realty L.P., in which Kramont Operating Partnership, L.P. is directly or
indirectly a partner.
Gross Income Tests
There are two separate percentage tests relating to the sources of
Kramont's gross income which must be satisfied for each taxable year. For the
purposes of these tests, where Kramont invests in a partnership, it will be
treated as receiving its share of the income and loss of the partnership.
Additionally, the gross income of the partnership will retain the same character
in the hands of Kramont as it has in the hands of the partnership.
1. The 75% Test. At least 75% of Kramont's gross income for each taxable
year must be "qualifying income." Qualifying income generally includes (a) rents
from real property (except as modified below); (b) interest on obligations
collateralized by mortgages on, or on interests in, real property; (c) gains
from the sale or other disposition of interests in real property and real estate
mortgages, other than gain from property held primarily for sale to customers in
the ordinary course of Kramont's trade or business ("dealer property"); (d)
distributions on shares in other REITs, as well as gain from the sale of such
shares; (e) abatements and refunds of
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real property taxes; (f) income from the operation, and gain from the sale, of
property acquired at or in lieu of a foreclosure of a mortgage collateralized by
such property ("foreclosure property"); (g) commitment fees received for
agreeing to make loans collateralized by mortgages on real property or to
purchase or lease real property; and (h) certain qualified temporary investment
income attributable to the investment of new capital received by Kramont in
exchange for its shares (including the securities offered pursuant to this
prospectus) or in a public offering of debt obligations having a term of at
least five years, during the one-year period following the receipt of such new
capital.
Rents received by a REIT will qualify as "rents from real property" in
satisfying the gross income requirements for either the 75% test described above
or the 95% test described below, only if the following conditions are met.
First, in order to qualify as rents from real property, the rents received may
not be based in whole or in part on the income or profits of any person. The
rents may, however, qualify if they are based on a fixed percentage or
percentages of receipts or sales. Second, rents received from a tenant of which
Kramont owns at least 10%, either directly or constructively, will not qualify
as rents from real property. Third, if more than 15% of rent in connection with
a lease of real property is attributable to personal property, the amounts
attributable to the lease of personal property do not qualify as rents from real
property. Fourth, for rents received to qualify as rents from real property,
Kramont generally must not operate or manage the property or furnish or render
services to tenants, other than through an "independent contractor" (as defined
in Section 856 of the Code) from whom Kramont derives no revenue (and who, in
certain circumstances, must bear the cost for such services and receive and
retain an adequate separate charge therefor) or a taxable REIT subsidiary. The
"independent contractor" requirements, however, do not apply to the extent the
services provided by Kramont are "usually or customarily rendered" in connection
with the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant." In addition, Kramont (or its affiliate) may provide
non-customary services to tenants of its properties without disqualifying all of
the rent from the property if the amount received for the services does not
exceed 1% of the total gross income from the property. For purposes of this
test, the amount received from any non-customary services is deemed to be at
least 150% of the direct cost of providing the services.
2. The 95% Test. At least 95% of Kramont's gross income for the taxable
year must be derived either from the qualifying income described above, or from
dividends, interest, or gains from the sale or disposition of stock or other
securities that are not dealer property. Income which qualifies for the 95% test
but not for the 75% test includes dividends, interest on any obligations not
collateralized by an interest in real property, and any payments made on
Kramont's behalf by a financial institution pursuant to a rate protection
agreement. Finally, income derived from "prohibited transactions," described
above, does not qualify for either the 75% test or the 95% test.
Income derived from Kramont's investment in its properties through Kramont
Operating Partnership, L.P., will qualify in major part under both the 75% and
95% gross income tests. Furthermore, Kramont's share of gains on sales of the
properties owned, directly or indirectly, by Kramont Operating Partnership, L.P.
or of Kramont's interest in Kramont Operating Partnership, L.P. will generally
qualify under both the 75% and 95% gross income tests. Kramont believes that the
income on its other investments will not cause Kramont to fail the 75% or 95%
gross income test for any year.
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Even if Kramont fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for such year
if it is entitled to relief under the following conditions. Relief generally
will be available if: (a) Kramont's failure to comply was due to reasonable
cause and not to willful neglect; (b) Kramont reports the nature and amount of
each item of its income included in the tests on a schedule attached to its tax
return; and (c) any incorrect information on this schedule is due to reasonable
cause and is not due to fraud with intent to evade tax. Even if these relief
provisions apply, however, Kramont will still be subject to a 100% tax based
upon the greater of the amounts, if any, by which it fails either the 75% or the
95% gross income test, respectively, multiplied by a fraction intended to
reflect Kramont's profitability for that year, less certain adjustments.
Annual Distribution Requirements
In order to qualify as a REIT, Kramont is required to make distributions
of dividends (other than capital gain dividends) to its shareholders each year
in an amount at least equal to (A) the sum of (1) 90% of Kramont's REIT taxable
income (computed without regard to the dividends paid deduction and Kramont's
net capital gain) and (2) 90% of the net income (after tax), if any, from
foreclosure property, minus (B) the sum of certain items of non-cash income.
Such distributions generally must be paid in the taxable year to which they
relate. However, Kramont may make the distributions in the following taxable
year if it declares the dividends before it timely files its tax return for the
prior year, and pays the dividends before the first regular dividend payment
after the declaration is made. To the extent that Kramont does not distribute
all of its net capital gain or distributes at least 90%, but less than 100%, of
its REIT taxable income as adjusted, it will be subject to tax on the
undistributed amount at regular capital gains or ordinary corporate tax rates,
as the case may be.
Kramont intends to make timely distributions sufficient to satisfy the
annual distribution requirements. In this regard, the partnership agreement of
Kramont Operating Partnership, L.P. authorizes Kramont, as general partner, to
take such steps as may be necessary to cause Kramont Operating Partnership, L.P.
to distribute to its partners an amount sufficient to permit Kramont to meet
these distribution requirements. It is possible that Kramont may not have
sufficient cash or other liquid assets to meet the 90% dividend requirement, due
either to the payment of principal on debt or to timing differences between the
actual receipt of income and actual payment of expenses on the one hand, and the
inclusion of such income and deduction of such expenses in computing Kramont's
REIT taxable income on the other hand. To avoid any problem with the 90%
distribution requirement, Kramont must monitor the relationship between its REIT
taxable income and cash flow and, if necessary, must borrow funds (or cause
Kramont Operating Partnership, L.P. or other affiliates to borrow funds) in
order to satisfy the distribution requirement.
Failure to Qualify
If Kramont failed to qualify for taxation as a REIT in any taxable year
and the relief provisions did not apply, Kramont would be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which
Kramont failed to qualify would not be required and, if made, would not be
deductible by Kramont. In such event, to the extent of current and accumulated
earnings and profits, all distributions to shareholders would be taxable as
ordinary income. In addition,
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corporate distributees could be eligible for the dividends received deduction.
Finally, unless Kramont were entitled to relief under specific statutory
provisions, Kramont would be ineligible for qualification as a REIT for the four
taxable years following the year during which qualification was lost.
Tax Aspects of Kramont's Investment in Partnerships
Kramont holds direct interests in Kramont Operating Partnership, L.P.
Kramont Operating Partnership, L.P. is a partnership for Federal income tax
purposes. Further, Montgomery CV Realty L.P. is a partnership for Federal income
tax purposes. If any entity directly or indirectly owned by Kramont were to be
treated as an association, such entity would be taxable as a corporation, and,
therefore, subject to an entity-level tax on its income. In such a situation,
the character of Kramont's assets and items of gross income would change, which
could preclude Kramont from satisfying the asset tests and possibly the income
tests (see above, "--Asset Tests" and "--Gross Income Tests"), and in turn could
prevent Kramont from qualifying as a REIT.
Sale of Properties
Kramont's gain, including Kramont's share of any gain realized by Kramont
Operating Partnership, L.P. on the sale of any dealer property generally will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. (See above, "--General.") Under existing law, whether property is
dealer property is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. Kramont believes that,
in general, the properties it owns, directly and indirectly, should not be
considered dealer property, and that the amount of income from prohibited
transactions, if any, will not be material.
TAXATION OF TAXABLE U.S. SHAREHOLDERS
As long as Kramont qualifies as a REIT, "U.S. Shareholders," defined
below, are required to treat distributions with respect to their shares out of
current or accumulated earnings as ordinary income, to the extent that the
distributions are not designated as capital gain dividends. For purposes of
determining whether distributions on the shares of Kramont are out of current or
accumulated earnings and profits, the earnings and profits of Kramont generally
will be allocated first to the holders of Kramont preferred shares and second to
the holders of Kramont common shares. Corporate shareholders will not be
eligible for the dividend received deduction with respect to dividends received
from Kramont.
Dividends that are designated as capital gain dividends will be taxed as
long-term capital gains to the extent that they do not exceed Kramont's actual
net capital gain for the taxable year, regardless of the period for which the
shareholder has held its shares. However, corporate shareholders may be required
to treat up to 20% of certain capital gain dividends as ordinary income. On
November 10, 1997, the IRS released Notice 97-64 describing forthcoming
temporary regulations that would permit a REIT to designate different classes of
capital gain dividends. In general, under Notice 97-64, if a REIT designates a
dividend as a capital gain dividend, it may be eligible to further designate
such dividend as a 20% rate gain distribution, generally subject to Federal
income tax in the hands of individual shareholders at a rate no greater than 20%
(15% for designated capital gain dividends after May 6, 2003 through
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December 31, 2008, as discussed below, under "-- Recent Tax Legislation"), an
unrecaptured Section 1250 gain distribution, generally subject to Federal income
tax in the hands of individual shareholders at a rate no greater than 25%, or a
28% rate gain distribution, generally subject to Federal income tax in the hands
of individual shareholders at a rate no greater than 28%. Notice 97-64 serves as
guidance until regulations are issued and applies to taxable years ending on or
after May 7, 1997. Corporate shareholders will generally be subject to Federal
income tax at maximum marginal rates of 35% on all dividends paid by Kramont.
For the purposes of this discussion, the term "U.S. Shareholder" means a
holder of Kramont common or preferred shares who (for United States Federal
income tax purposes) is (a) a citizen or resident of the United States; (b) a
corporation, partnership, or other entity created or organized in or under the
laws of the United States or of any political subdivision thereof, except to the
extent otherwise provided in Treasury Regulations with respect to an entity
treated as a partnership for Federal tax purposes; (c) an estate, the income of
which is subject to United States Federal income taxation regardless of its
source; or (d) a trust, if (A) a court within the United States is able to
exercise primary supervision over the administration of the trust and (B) one or
more United States persons have the authority to control all substantial
decisions of the trust.
To the extent that Kramont makes distributions in excess of current and
accumulated earnings and profits, these distributions are treated first as a
tax-free return of capital to the shareholder. Any such distributions reduce the
tax basis of a shareholder's shares by the amount of such distribution (but not
below zero). The excess of any distributions over the shareholder's tax basis is
taxable as capital gain, if the shares are held as a capital asset.
Any dividend declared by Kramont in October, November, or December of any
year and payable to a shareholder of record on a specific date in any such month
will be treated as both paid by Kramont and received by the shareholder on
December 31 of such year, provided that the dividend is actually paid by Kramont
during January of the following calendar year.
In general, a U.S. Shareholder must treat any gain realized upon a taxable
disposition of Series E preferred shares as long-term capital gain or loss if
the U.S. Shareholder has held the shares for more than one year and otherwise as
short-term capital gain or loss. However, any loss upon a sale or exchange of
securities by a shareholder who has held such securities for six months or less
(after applying certain holding period rules) will generally be treated as a
long-term capital loss, to the extent of any actual or deemed distributions from
Kramont received by such shareholder that are required to be treated by such
shareholder as long-term capital gains. All or a portion of any loss that a U.S.
Shareholder realizes upon a taxable disposition of the Series E preferred shares
may be disallowed if the U.S. Shareholder purchases other Series E preferred
shares within 30 days before or after the disposition. Shareholders may not
include in their individual income tax returns any net operating losses or
capital losses of Kramont.
Election to retain net long term capital gain
If Kramont retains and pays income tax on its net long-term capital gain
attributable to a taxable year, its shareholders may be required to include in
their income as long-term capital gain their proportionate share of such amount,
as designated by Kramont. A Kramont shareholder will be treated as having paid
his or her share of the tax paid by Kramont in respect
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of the amount designated by Kramont, for which the Kramont shareholder will be
entitled to a credit or refund. Additionally, each Kramont shareholder's
adjusted basis in Kramont shares will be increased by the excess of the amount
includable in income over the tax deemed paid on that amount. Kramont must pay
tax on its designated long-term capital gain within 30 days of the close of any
taxable year in which it designates long-term capital gain pursuant to this
rule, and it must mail a written notice of its designation to its shareholders
within 60 days of the close of the taxable year.
Taxation of Tax Exempt Shareholders
Most tax-exempt employees' pension trusts are not subject to Federal
income tax except to the extent of their receipt of "unrelated business taxable
income" as defined in Internal Revenue Code Section 512(a). Distributions by
Kramont to a shareholder that is a tax-exempt entity should not constitute
unrelated business taxable income, as long as the securities are not otherwise
used in an unrelated trade or business of the tax-exempt entity, and the
tax-exempt entity has not financed the acquisition of its securities with
"acquisition indebtedness," as defined in the Code. In addition, certain pension
trusts that own more than 10% of a "pension-held REIT" must report a portion of
the distribution that they receive from such a REIT as unrelated business
taxable income. Kramont does not believe it is a pension-held REIT for purposes
of this rule.
Redemption of Series E preferred shares
A redemption of Series E preferred shares will be treated as a
distribution that is taxable at ordinary income tax rates as a dividend (to the
extent of Kramont's current or accumulated earnings and profits), unless the
redemption satisfies certain tests set forth in the Code enabling the redemption
to be treated as a sale of the Series E preferred shares (in which case the
redemption will be treated in the same manner as a sale described above). The
redemption will satisfy such tests if it (i) is "substantially disproportionate"
with respect to the holder's share interest in Kramont, (ii) results in a
"complete termination" of the holder's interest in all classes of shares of
Kramont, or (iii) is "not essentially equivalent to a dividend" with respect to
the holder, all within the meaning of the Code. In determining whether any of
these tests have been met, shares considered to be owned by the holder by reason
of certain constructive ownership rules set forth in the Code, as well as shares
actually owned, generally must be taken into account. Because the determination
as to whether any of the three alternative tests described above will be
satisfied with respect to any particular holder of Series E preferred shares
depends upon the facts and circumstances at the time that the determination must
be made, prospective investors are advised to consult their own tax advisors to
determine such tax treatment.
Information reporting requirements and backup withholding
Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 28% with respect to distributions unless such holder:
- is a corporation or comes with certain other exempt categories and,
when required, demonstrates this fact; or
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- provides a completed form W-9 which contains the holder's taxpayer
identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies the applicable
requirements of the backup withholding rules.
Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability. In addition, we may be required to
withholding a portion of capital gain distributions to any shareholder who fails
to certify its non-foreign status to us. See below, "-- Taxation of Foreign
Shareholders." We will report to our shareholders and to the Internal Revenue
Service the amount of distributions we pay during each calendar year, and the
amount of tax we withhold, if any. A shareholder who does not provide us with
its correct taxpayer identification number also may be subject to penalties
imposed by the Internal Revenue Service.
Taxation of foreign shareholders
A "Non-U.S. Holder" is any person who holds securities and is not (a) a
citizen or resident of the United States; (b) a corporation or partnership
created or organized in the United States or under the laws of the United States
or of any state thereof; (c) an estate whose income is includable in gross
income for U.S. Federal income tax purposes regardless of its source; or (d) a
trust if (A) a court in the United States is able to exercise primary
jurisdiction over its administration and (B) one or more United States persons
have the authority to control all substantial decisions of the trust. This
discussion is based on current law and is for general information only. Non-U.S.
Holders are urged to consult with their own legal and tax advisors regarding the
United States Federal income tax consequences of holding Kramont shares.
1. Ordinary Dividends. The portion of dividends received by Non-U.S.
Holders payable out of Kramont's earnings and profits which are not attributable
to capital gain of Kramont from a disposition of a USRPI, as defined below, and
which are not effectively connected with a U.S. trade or business of the
Non-U.S. Holder will be subject to U.S. withholding tax at the rate of 30%,
unless reduced by an applicable treaty. In general, Non-U.S. Holders will not be
considered engaged in a U.S. trade or business solely as a result of their
ownership of securities. Where the dividend income from a Non-U.S. Holder's
investment in securities is considered effectively connected with the Non-U.S.
Holder's conduct of a U.S. trade or business, the Non-U.S. Holder generally will
be subject to U.S. tax at graduated rates, similar to the manner in which U.S.
shareholders are taxed with respect to such dividends. Additionally, a Non-U.S.
Holder that is a foreign corporation may also be subject to the 30% branch
profits tax on its effectively connected earnings (unless reduced by an
applicable treaty) and may be subject to additional taxes under the branch
profits provisions of the Code.
2. Non-Dividend Distributions. As long as Kramont is a domestically
controlled REIT, as defined below, a distribution from Kramont received by a
non-U.S. Holder, no portion of which is a dividend out of the earnings and
profits of Kramont or attributable to gain recognized by Kramont from the
disposition of a USRPI, as defined below, will not be subject to U.S. income or
withholding tax. If it cannot be determined at the time a distribution is made
whether or not such distribution will be in excess of Kramont's current and
accumulated earnings and profits, the entire distribution will be subject to
withholding at the rate applicable to dividends. However, the Non-U.S. Holder
may seek a refund of such amounts from the IRS if it is subsequently determined
that such distribution was, in fact, in excess of current and accumulated
earnings and profits of Kramont.
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3. Certain Dividends. Under the Foreign Investment in Real Property Tax
Act of 1980, a distribution made by Kramont to a Non-U.S. Holder, to
the extent attributable to gains from dispositions by Kramont of United States
real property interests which we sometimes refer to as USRPIs, such as the
properties beneficially owned by Kramont, will be considered effectively
connected with a U.S. trade or business of the Non-U.S. Holder. As such, these
amounts will generally be subject to U.S. income tax at the rate applicable to
U.S. individuals or corporations, as the case may be, without regard to whether
such distribution is designated as a capital gain dividend. In addition, Kramont
will be required to withhold tax equal to 35% of the amount of these dividends
attributable to gain from a U.S. real property interest. Any such distributions
made to a Non-U.S. Holder that is a corporate shareholder may also be subject to
the 30% branch profits tax on effectively connected earnings, unless the rate is
reduced or eliminated pursuant to a tax treaty. Although the law is not clear on
this matter, Kramont may treat amounts designated by it as undistributed capital
gains in respect of the Series E preferred shares with respect to non-U.S.
Holders in the same manner as actual distributions by Kramont of capital gain
dividends. Under that approach, the non-U.S. Holder would be able to offset as a
credit against its resulting Federal income tax liability an amount equal to its
proportionate share of the tax paid by Kramont on the undistributed capital
gains and to receive from the IRS a refund to the extent its proportionate share
of this tax paid by Kramont were to exceed its actual Federal income tax
liability.
4. Dispositions of Securities. Except as provided below, a sale of
securities by a Non-U.S. Holder generally will not be subject to U.S. taxation
unless the securities constitute a U.S. real property interest. The securities
will not constitute a U.S. real property interest if Kramont is a "domestically
controlled REIT." A domestically controlled REIT is a REIT in which, at all
times during a specified testing period, less than 50% in value of its
securities is held directly or indirectly by Non-U.S. Holders. Kramont believes
it is a domestically controlled REIT and that the sale of securities of Kramont
by a Non-U.S. Holder thus will not be subject to U.S. taxation. Because
Kramont's currently outstanding securities are publicly traded and because
available information may not accurately identify the status of all holders as
foreign or domestic, however, no assurance can be given that Kramont will be a
domestically controlled REIT. Even if Kramont were ultimately determined not to
be a domestically controlled REIT, however, a Non-U.S. Holder's sale of
securities of Kramont generally would still not be subject to tax if (a) the
securities are "regularly traded" (as defined by applicable Treasury
Regulations) on an established securities market and (b) the selling Non-U.S.
Holder held 5% or less of Kramont's outstanding securities at all times during a
specified testing period of up to 5 years. No assurance can be given that the
Series E preferred shares will qualify under this test.
If gain on the sale of securities by a Non-U.S. Holder were subject to
U.S. taxation, the Non-U.S. Holder would generally be subject to the same
treatment as a U.S. shareholder with respect to such gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals). The purchaser of such securities might also be
required to withhold 10% of the purchase price and remit such amount to the IRS.
Capital gains of a Non-U.S. Holder may also be subject to tax in the United
States, even if Kramont is a domestically controlled REIT, if either: (1) the
Non-U.S. Holder's investment in securities were effectively connected with a
U.S. trade or business conducted by such Non-U.S. Holder, or (2) if the Non-U.S.
Holder were a nonresident alien individual who was present in the United States
for 183 days or more during the taxable year and certain other conditions were
satisfied. Distributions in excess of current and accumulated earnings and
profits would be
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applied against and reduce the basis of the shares and, to the extent exceeding
the basis of the shares, would be treated as gain from a sale of the shares.
Such distributions may also be subject to 10% withholding tax.
State and local tax considerations
Kramont and its shareholders may be subject to state or local taxation in
various jurisdictions, including those in which it or they transact business or
reside. The state and local tax treatment of Kramont and its shareholders may
not conform to the Federal income tax consequences discussed above.
Consequently, prospective shareholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in the shares
of beneficial interest of Kramont.
Recent tax legislation
On May 28, 2003, the President signed into law the Jobs and Growth Tax
Relief Reconciliation Act of 2003. This new tax legislation reduces the maximum
individual tax rate for long-term capital gains generally from 20% to 15% (for
sales occurring after May 6, 2003 through December 31, 2008) and for certain
dividends generally from 38.6% to 15% (for tax years from 2003 through 2008).
Without future congressional action, the maximum tax rate on long-term capital
gains will return to 20% in 2009, and the maximum rate on dividends will
increase to 35% in 2009 and 39.6% in 2011. Because we are not generally subject
to Federal income tax on the portion of our REIT taxable income or capital gains
distributed to our shareholders, however, our dividends will generally not be
eligible for the new 15% tax rate on dividends. As a result, our ordinary REIT
dividends will continue to be taxed at the higher tax rates applicable to
ordinary income. In the case of noncorporate shareholders, the 15% rate for
long-term capital gains and dividends will generally apply to:
(1) long-term capital gains, if any, recognized on the disposition of the
Series E preferred shares;
(2) distributions we designate as capital gain dividends (except to the
extent attributable to real estate depreciation, in which case such
distributions would continue to be subject to a 25% tax rate);
(3) dividends attributable to dividends received by us from non-REIT
corporations, such as taxable REIT subsidiaries (although we do not anticipate
receiving a material amount of such dividends); and
(4) dividends to the extent attributable to income upon which we have paid
corporate income tax (e.g., if we distribute less than 100% of our taxable
income).
PLAN OF DISTRIBUTION
We have agreed to engage Cohen & Steers Capital Advisors, LLC, which we
sometimes refer to as "Cohen & Steers", as a placement agent for this offering.
Cohen & Steers (and certain subadvisers it may engage in connection with the
offering) may be an underwriter within the meaning of the Securities Act of
1933, as amended, in connection with its activities in connection with this
offering. Cohen & Steers is an affiliate of Cohen & Steers
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Capital Management, Inc., which is an investment adviser to certain persons
which own our shares of beneficial interest. According to a Schedule 13F filed
by Cohen & Steers Capital Management, Inc. on November 14, 2003, as of September
30, 2003, it beneficially owned 3,198,400, or approximately 13.32%, of our
common shares then outstanding.
Cohen & Steers has no commitment to purchase any of our Series E preferred
shares and will act only as an agent in obtaining indications of interest in our
Series E preferred shares from certain investors. We agreed to pay the placement
agent a fee of two percent of the gross proceeds of this offering, up to
$1,200,000, and we and the placement agent will each pay certain expenses
relating to the offering.
In a placement agent agreement to be entered into with Cohen & Steers
in connection with the offering, we agree to indemnify Cohen & Steers and each
of its partners, directors, officers, associates, affiliates, subsidiaries,
employees, consultants, attorneys and agents, and each person, if any,
controlling Cohen & Steers and any of its affiliates, against liabilities
resulting from this offering and to contribute to payments Cohen & Steers may be
required to make for these liabilities.
In connection with this offering, Cohen & Steers may engage broker-dealers
as sub-placement agents to participate in the placement of the Series E
preferred shares. Such sub-placement agents may receive a portion of the
placement agent fee to be paid to Cohen & Steers as well as other compensation
and fees.
In the ordinary course of business, Cohen & Steers, and/or one or more of
the sub-placement agents referred to above, and their respective affiliates have
or may have engaged, and may in the future engage, in financial advisory,
investment banking and other transactions with us for which customary
compensation has been, and will be paid.
Subject to the terms and conditions of a purchase agreement to be dated
the date this offering is consummated, with respect to which Cohen & Steers
acted as a placement agent, certain institutional investors will agree to
purchase, and we will agree to sell, 2,400,000 Series E preferred shares at a
price of $25.00 per share. Subject to certain conditions and limitations, our
board of trustees has agreed to exempt certain purchasers from the Series E
preferred share ownership limitations set forth in our articles supplementary.
The purchase agreement is to provide that the obligations of the purchasers to
purchase these shares included in this offering are subject to customary closing
conditions. We have applied to list the Series E preferred shares on the NYSE.
The purchase agreement provides that we are to use our reasonable best efforts
to obtain such approval within 30 days of the original issuance of the Series E
preferred shares, or if not, as soon as practicable thereafter. However, no
assurance can be given that the application will be approved.
We have agreed to engage Friedman, Billings, Ramsey & Co., Inc., which we
sometimes refer to as "Friedman, Billings", as a financial advisor in connection
with the offering of the Series E preferred shares. Friedman, Billings will
receive a payment of $150,000 in compensation for its services upon consummation
of the offering. In an agreement to be entered into with Friedman, Billings in
connection with the offering, we agree to indemnify Friedman, Billings and each
of its partners, directors, officers, associates, affiliates, subsidiaries,
employees, consultants, attorneys and agents, and each person, if any,
controlling Friedman, Billings and any of its affiliates, against liabilities
resulting from this offering and to contribute to payments Friedman, Billings
may be required to make for these liabilities.
Jeffries & Company, Inc. is acting as settlement agent in connection with
the sale of our Series E preferred shares under the purchase agreement and will
receive a fee of $24,000.
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After paying this fee, the fee to the placement agent and other estimated
expenses, we anticipate receiving approximately $58,500,000 in net proceeds from
this offering.
LEGAL MATTERS
Venable LLP, Baltimore, Maryland, will pass on the validity of the Series
E preferred shares to be issued in connection with this offering. Roberts &
Holland LLP will provide an opinion as to certain tax matters.
WHERE YOU CAN FIND MORE INFORMATION
We file reports with the Securities and Exchange Commission, or the SEC,
on a regular basis that contain financial information and results of operations.
You may read or copy any document that we file with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information about the Public Reference Room by calling the SEC for more
information at 1-800-SEC-0330. Our SEC filings are also available at the SEC's
web site at http://www.sec.gov.
Our web site address on the Internet is www.kramont.com. By providing a
hyperlink on our Internet web site to a third-party SEC filings web site, we
make available free of charge through our Internet web site our 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 we electronically file such material with, or
furnish it to, the SEC. We do not maintain or provide such information directly
to our Internet web site. We make no representations or warranties with respect
to the information contained on the third-party SEC filings web site and we take
no responsibility for supplementing, updating, or correcting any such
information. The content of our web site is not incorporated by reference into
this prospectus.
Our common shares, our Series B-1 preferred shares, and our Series D
preferred shares, are listed on the New York Stock Exchange and we are required
to file reports, proxy statements and other information with the New York Stock
Exchange. In addition, we intend to seek to list our Series E preferred shares
on the New York Stock Exchange. You may read any document we file with the New
York Stock Exchange at the offices of the New York Stock Exchange which is
located at 20 Broad Street, 17th Floor, New York, New York 10005.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings that
we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934.
1. Our Registration Statement on Form S-3, filed with the SEC on April 3,
2002 (Registration No. 333-85424), as amended;
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2. Our Annual Report on Form 10-K for the fiscal year ended December 31,
2002;
3. Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
2003, June 30, 2003 and September 30, 2003;
4. Our Current Reports on Form 8-K dated March 19, 2003, May 9, 2003, June
10, 2003, July 14, 2003, August 11, 2003, November 13, 2003 and December 29,
2003;
5. Our Definitive Proxy Statement on Schedule 14A filed with the SEC on
April 22, 2003; and
6. The description of our Series E preferred shares included in our
Registration Statement on Form 8-A, filed with the SEC on December 29, 2003,
including the information incorporated therein by reference and including any
amendment or reports filed for the purpose of updating such description.
You may request a copy of these filings, at no cost, by writing or
telephoning our Secretary at the following address:
Kramont Realty Trust
Plymouth Plaza
580 West Germantown Pike
Plymouth Meeting, PA 19462
(610) 825-7100
THIS PROSPECTUS SUPPLEMENTS THE ACCOMPANYING PROSPECTUS AND IS PART OF A
REGISTRATION STATEMENT WE FILED WITH THE SEC. YOU SHOULD RELY ONLY ON THE
INFORMATION OR REPRESENTATIONS PROVIDED IN THIS AND THE ACCOMPANYING PROSPECTUS
AND ANY APPLICABLE SUPPLEMENT. WE HAVE AUTHORIZED NO ONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION INCLUDING THE PLACEMENT AGENT AND ANY SUB-AGENTS. IF
DIFFERENT INFORMATION IS PROVIDED, IT SHOULD NOT BE RELIED ON. WE ARE NOT MAKING
AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE AS OF ANY
DATE OTHER THAN THE DATE ON THE FRONT OF THE DOCUMENT.
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