Forest City Enterprises, Inc. 10-K/FYE 1-31-04

FOREST CITY ENTERPRISES, INC.
(Registrant)

March 31, 2004

/s/ Charles A. Ratner

(Charles A. Ratner, President and Chief Executive Officer)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
YES x NO o

The aggregate market value of the outstanding common equity held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter was $1,292,551,000.

The number of shares of registrant’s common stock outstanding on March 19, 2004 was 36,296,461 and 13,715,627 for Class A and Class B common stock, respectively.

Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held June 8, 2004 are incorporated by reference into Part III to the extent described therein.

Founded in 1920 and publicly traded since 1960, Forest City Enterprises, Inc. (with its subsidiaries, the “Company” or “Forest City”) is principally engaged in the ownership, development, management and acquisition of commercial and residential real estate properties in 20 states and the District of Columbia. At January 31, 2004, the Company had $5.9 billion in consolidated assets, of which approximately $5.1 billion was invested in real estate, at cost. The Company’s portfolio of real estate assets is diversified both geographically and among property types.

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Commercial Group, the Company’s largest business unit, owns, develops, acquires and operates regional malls, specialty/urban retail centers, office buildings, hotels and mixed-use projects.

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Residential Group owns, develops, acquires and operates residential rental properties, including upscale and middle-market apartments, adaptive re-use developments and supported-living facilities.

•		Land Development Group acquires and sells both land and developed lots to residential, commercial and industrial customers. It also owns and develops land into master-planned communities and mixed-use projects.

•		Lumber Trading Group, a lumber wholesaler.

The Company has centralized the capital management, financial reporting and administrative functions of its business units. In most other respects the strategic business units operate autonomously, with the Commercial Group and Residential Group each having its own development, acquisition, leasing, property and financial management functions. The Company believes this structure enables its employees to focus their expertise and to exercise the independent leadership, creativity and entrepreneurial skills appropriate for their particular business segment.

The Company has developed retail projects for more than 50 years and office and mixed-use projects for more than 30 years. Currently, the Commercial Group owns a diverse portfolio in both urban and suburban locations in 13 states. The Commercial Group targets densely populated markets where it effectively uses its expertise to develop complex projects, often employing public or private partnerships. As of January 31, 2004, the Commercial Group owned interests in 81 completed projects, including 42 retail properties, 31 office properties and eight hotels. The Commercial Group includes New York City office operations through the Company’s partnership with Forest City Ratner Companies.

The Company opened its first community retail center in 1948, and its first enclosed regional mall in 1962. Since then, it has developed regional malls and specialty retail centers. The specialty retail centers include urban retail centers, entertainment based centers, community centers and power centers (collectively, “Specialty Retail Centers”). As of January 31, 2004, the Commercial Group’s retail portfolio consisted of 13 regional malls with Gross Leasable Area (GLA) of 4.4 million square feet and 29 Specialty Retail Centers with a total GLA of 5.5 million square feet.

Regional malls are developed in collaboration with anchor stores that typically own their facilities as an integral part of the mall structure and environment but do not generate significant direct payments to the Company. In contrast, anchor stores at specialty retail centers generally are tenants under long term leases that contribute significant rental payments to the Company.

While the Company continues to develop regional malls in strong markets, it has also pioneered the concept of bringing specialty retailing to urban locations previously ignored by major retailers primarily in the New York metropolitan area. With high population densities and disposable income levels at or near those of the suburbs, urban development is proving to be economically advantageous for the Company, for the tenants who realize high sales per square foot and for the cities, which benefit from the new jobs and taxes created in the urban locations.

At January 31, 2004, the Company’s operating portfolio of office/mixed-use and hotel projects consists of 31 office buildings containing 8.8 million square feet, including mixed-use projects with approximately 315,000 gross leasable square feet of retail space and eight hotels with 2,937 rooms.

In its office development activities, the Company is primarily a build-to-suit developer that works with tenants to meet their highly specialized requirements. The Company’s office development has focused primarily on mixed-use projects in urban developments, often built in conjunction with hotels and/or retail centers or as part of a major office campus. As a result of this focus on new urban developments, the Company plans to concentrate future office and mixed-use developments largely in the New York City, Boston, Washington, D.C. and Denver metropolitan areas.

The Company’s Residential Group owns, develops, acquires, leases and manages residential rental property in 16 states and the District of Columbia. The Company has been engaged in apartment community development for over 50 years beginning in Northeast Ohio and gradually expanding nationally. Its residential portfolio includes middle-market apartments, upscale urban properties and adaptive re-use developments. The Company also owns a select number of supported-living facilities located primarily in the New York City metropolitan area.

At January 31, 2004, the Residential Group’s operating portfolio consists of 37,063 units in 127 properties in which Forest City has an ownership interest, including 4,868 units of syndicated senior citizen subsidized housing in 30 buildings that the Company manages and in which it owns a residual interest.

The Company has been in the land development business since the 1930’s. The Land Development Group acquires and sells both raw land and developed lots to residential, commercial and industrial customers. The Land Development Group also owns and develops raw land into master-planned communities, mixed-use projects and other residential developments. Currently the Company owns more than 5,500 acres of undeveloped land for these commercial and residential development purposes and has an option to purchase 2,340 acres of developable land at Stapleton, Denver’s former airport. The Company currently has land development projects in nine states.

Historically, the Land Development Group’s activities focused on land development projects in Northeast Ohio. Over time, the Group’s activities expanded to larger, more complex projects. The Group has extended its activities on a national basis, first in Arizona, and more recently in Illinois, North Carolina, Florida, Nevada, Colorado, Texas, New Mexico and South Carolina. Land development activities at the Company’s Stapleton project in Denver, Colorado and Central Station project in downtown Chicago, Illinois are reported in the Land Development Group.

In addition to sales activities of the Land Development Group, the Company also sells land acquired by its Commercial Group and Residential Group adjacent to their respective projects. Proceeds from such land sales are included in the revenues of such Groups.

The Company’s original business was selling lumber to homebuilders. The Company expanded this business in 1969 through its acquisition of Forest City Trading Group, Inc., a lumber wholesaler with customers in all 50 states and all Canadian provinces. Through 12 strategically located offices in the United States and Canada, employing over 260 traders, the Company sold the equivalent of over 8.8 billion board feet of lumber in 2003, with a gross sales volume of $2.8 billion, making the Company one of the largest lumber wholesalers in North America.

The Lumber Trading Group currently has 11 sales and administrative offices and one processing plant in six states and one sales office in Vancouver, British Columbia. The Company opens and closes offices in response to the changing demands of the lumber industry.

The Lumber Trading Group’s core business is supplying lumber for new home construction and to the repair and remodeling markets. Approximately 56% of the Lumber Trading Group’s sales for 2003 involve back-to-back trades in which the Company brings together a buyer and seller for an immediate purchase and sale. The balance of transactions are trades in which the Company takes a short-term ownership position and is at risk for lumber market fluctuations. This risk, however, is reduced by the implementation of a lumber hedging strategy.

The real estate industry is highly competitive in many of the markets in which the Company operates. Competition could over-saturate any market as a result of which the Company may not have sufficient cash to meet the debt service requirements on certain of its properties. Although the Company may attempt to renegotiate a restructuring with the mortgagee, it may not be successful, which could cause a property to be transferred to the mortgagee.

The Company had 4,425 employees as of January 31, 2004, of which 3,497 were full-time and 928 were part-time.

The Company currently has five segments: Commercial Group, Residential Group, Land Development Group, Lumber Trading Group and Corporate Activities. Financial information about industry segments required by this item is included in Item 8. Financial Statements and Supplementary Data, pages 64-66, Note K “Segment Information.”

We have implemented the following corporate governance initiatives to address certain legal requirements promulgated under the Sarbanes-Oxley Act of 2002, as well as the recently adopted New York Stock Exchange corporate governance listing standards:

•		We confirmed the independence of five directors (Messrs. Cowen, Esposito, Jarrett, Stokes and Ross)

•		Our Board of Directors determined that Michael P. Esposito, Jr., the Chairman of our Audit Committee, qualifies as an “audit committee financial expert” as such term is defined under Item 401 of Regulation S-K. Mr. Esposito is “independent” as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act;

•		Our Audit Committee adopted our Audit and Non-Audit Services Pre-Approval Policy, which sets forth the procedures and the conditions pursuant to which permissible services to be performed by our independent public accountants may be pre-approved.

•		Our Audit Committee established “Audit Committee Complaint Procedures” for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, including the anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

•		Our Board of Directors adopted a Code of Legal and Ethical Conduct, as amended, which governs business decisions made and actions taken by our directors, officers (including the CEO, CFO, Controller and persons performing similar functions) and employees. A copy of this code is available on our website at http://www.forestcity.net and we intend to disclose on this website any amendment to, or waiver of, any provision of this Code applicable to our directors and executive officers that would otherwise be required to be disclosed under the rules of the SEC or the New York Stock Exchange. A copy of this Code is also available in print to any stockholder upon written request addressed to Corporate Secretary, Forest City Enterprises, Inc. 50 Public Square, Cleveland, Ohio, 44113.

•		Our Board of Directors have contracted with an external provider to establish an Ethics Hotline that employees may use to anonymously report possible violations of the Amended and Restated Code of Legal and Ethical Conduct, including concerns regarding questionable accounting, internal accounting controls or auditing matters.

•		Our Board of Directors established and adopted amended and restated charters for each of its Audit, Compensation and Corporate Nominating and Governance Committees. The Audit and Corporate Governance and Nominating committees are comprised of three (3) independent directors. The Compensation Committee is comprised of five independent directors. A copy of each of these charters is available on our website at http://www.forestcity.net and is available in print to any stockholder upon written request addressed Corporate Secretary, Forest City Enterprises, Inc. 50 Public Square, Cleveland, Ohio, 44113.

•		Our Board of Directors adopted Amended and Restated, Corporate Governance Guidelines, a copy of which is available on our website at http://www.forestcity.net and is available in print to any stockholder upon written request addressed to Corporate Secretary, Forest City Enterprises, Inc. 50 Public Square, Cleveland, Ohio, 44113.

Forest City Enterprises, Inc. is an Ohio corporation and its executive offices are located at 50 Public Square, Suite 1100 Cleveland, Ohio 44113. The Company makes available, free of charge, on its website at www.forestcity.net, its annual, quarterly and current reports, including amendments to such reports, as soon as practicable after the Company electronically files such material with, or furnishes such material to, the Securities and Exchange Commission (SEC). The Company’s SEC filings can also be obtained from the SEC website at www.sec.gov. The Company’s corporate governance guidelines (including the Company’s code of ethics) and committee charters are also available on the Company’s website. The information found on the Company’s website and the SEC website is not part of this Annual Report on Form 10-K. The Company’s filings are also available by calling the SEC Office of Public Reference at (202) 942-8090 or Investor Information Service toll free at 1-800-SEC-0330, or can be read and copied at the SEC’s Public Reference Room office at 450 Fifth Street N.W., Washington, D.C. 20549.

The value of, and our income from, our properties may decline due to developments that adversely affect real estate generally and those that are specific to our properties. General factors that may adversely affect our real estate portfolios include:

•		increases in interest rates;

•		a general tightening of the availability of credit;

•		a decline in the economic conditions in one or more of our primary markets;

•		an increase in competition for tenants and customers or a decrease in demand by tenants and customers;

•		an increase in supply of our product types in our primary markets;

•		a continuation in terrorist activities or other acts of violence or war in the United States or elsewhere or the occurrence of such activities or acts that impact properties in our real estate portfolios or that may impact the general economy;

•		continuation or escalation of tensions in the Middle East;

•		declines in consumer spending during an economic recession that adversely affect our revenue from our retail centers; and

•		the adoption on the national, state or local level of more restrictive laws and governmental regulations, including more restrictive zoning, land or environmental regulations and increased real estate taxes.

In addition, there are factors that may adversely affect the value of, and our income from, specific properties, including:

•		adverse changes in the perceptions of prospective tenants or purchasers of the attractiveness of the property;

•		opposition from local community or political groups with respect to development or construction at a particular site;

•		our inability to provide adequate management and maintenance or to obtain adequate insurance;

•		our inability to collect rent or other receivables;

•		an increase in operating costs;

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introduction of a competitor’s property in or in close proximity to one of our current markets; and

Our Development Projects May Exceed Budget or Be Prevented From Completion For Many Reasons.

Our development projects may exceed budget or be prevented from completion for many reasons, including:

•		an inability to secure sufficient financing on favorable terms, including an inability to refinance construction loans;

•		construction delays or cost overruns, either of which may increase project development costs;

•		an inability to obtain zoning, occupancy and other required governmental permits and authorizations;

•		an inability to secure tenants or anchors necessary to support the project; and

•		failure to achieve or sustain anticipated occupancy or sales levels.

The occurrence of one or more of the above risks could result in significant delays or unexpected expenses. If any of these occur, we may not achieve our projected returns on properties under development and we could lose some or all of our investments in those properties.

In the past, we have elected not to proceed, or have been prevented from proceeding, with specific development projects and anticipate that this may occur again from time to time in the future. A development project may be delayed or terminated because a project partner or prospective anchor tenant withdraws or a third party challenges our entitlements or public financings.

We periodically serve as either the construction manager or the general contractor for our development projects. The construction of real estate projects entails unique risks, including risks that the project will fail to conform to building plans, specifications and timetables. These failures could be caused by strikes, weather, government regulations and other conditions beyond our control. In addition, we may become liable for injuries and accidents occurring during the construction process that are not insured.

In the construction of new projects, we generally guarantee the lender under the construction loan the lien-free completion of the project. This guaranty is recourse to us and places the risk of construction delays and cost overruns on us. In addition, from time to time, we guarantee the obligations of a major tenant during the construction phase. This type of guaranty is released upon completion of the project. Furthermore, as the general partner of certain limited partnerships, we guarantee the funding of operating deficits of newly-opened apartment projects for an average of five years. We may have to make significant expenditures in the future in order to comply with our lien-free completion obligations and funding of operating deficits.

An Economic Decline in One or More of Our Primary Markets May Adversely Affect Our Operating Results and Financial Condition.

Our core markets are Boston, Denver, California, New York City, Philadelphia and Washington, D.C. We also have a large concentration of real estate assets in Cleveland, Ohio. A downturn in these markets may impair:

•		the ability of our tenants to make lease payments;

•		our ability to market new developments to prospective purchasers and tenants;

•		our rental and lease rates;

•		hotel occupancy and room rates;

•		land sales; and

•		occupancy rates for commercial and residential properties.

Adverse economic conditions may continue to adversely impact our results of operations and cash flows and the impact of these conditions could be more significant than we have experienced to date. In addition, local real estate market conditions have been, and may continue to be significantly impacted by one or more of the following events:

•		business layoffs and downsizing;

•		industry slowdowns;

•		relocations or closings of businesses;

•		changing demographics; and

•		any oversupply of or reduced demand for real estate.

In general, we have been experiencing weakness across almost all of our markets in our Residential Group and in the hotel operations of our Commercial Group. For example, our Residential Group has been experiencing weakness in rental rates and occupancy rates in its portfolio in almost all of its markets. We do not expect these situations to change in the near to medium-term. With respect to particular markets, the Boston, Denver, California, New York City and Cleveland real estate markets have been significantly impacted by recent local economic downturns, which has made it more difficult to maintain occupancy levels at certain of our properties. In the Cleveland market, we have a large concentration of significant office space with significant office vacancies due to weak market conditions. This situation has directly impacted us since we had a relatively low number of long-term office space leases in place. Unless this situation improves, we may have trouble refinancing our Cleveland office space.

Vacancies In Our Properties May Adversely Affect Our Results of Operations and Cash Flows

Our results of operations and cash flows may be adversely affected if we are unable to continue leasing a significant portion of our commercial and residential real estate portfolio. We depend on commercial and residential tenants in order to collect rents and other charges. Our ability to sustain our current and historical occupancy levels depends on many factors that are discussed elsewhere in this section. For example, as discussed above, we have experienced decreased occupancy levels in our residential properties in all our markets and in our commercial office properties in our Cleveland market. Our failure to successfully lease our property on favorable terms will adversely affect our results of operations and cash flows.

Terrorists Attacks and Other Acts of Violence or War Have and May in the Future, Impact Our Operations and Profitability.

We have a high concentration of properties in Washington, D.C. and New York City. As a result, we face a heightened risk of terrorism. We were directly impacted by the September 11, 2001 terrorist attacks at our Battery Park City Hotel and retail properties.

Future terrorist attacks may directly impact physical facilities in our real estate portfolio. In addition, future terrorist attacks, related armed conflicts or prolonged or increased tensions in the Middle East could cause consumer confidence and spending to decrease, and adversely affect mall traffic. Additionally, future terrorist attacks could increase volatility in the U.S. and worldwide financial markets. Any of these occurrences could have a significant impact on our operating results, revenues and costs.

There may be a decrease in demand for space in large metropolitan areas that are considered at risk for future terrorist attacks, and this decrease may reduce our revenues from property rentals.

We have significant investments in large metropolitan areas, including the New York, Boston, California, Washington, D.C. and Denver metropolitan areas. In the aftermath of the terrorist attacks of September 11, 2001 and due to the possibility of future terrorist attacks, some tenants in these areas have chosen to relocate their business to less populated, lower-profile areas of the United States that are not as likely to be targets of future terrorist activity. This has resulted in a decrease in the demand for space in some areas, which could increase vacancies in our properties and force us to lease our properties on less favorable terms. As a result, the value of our property and the level of our revenues could significantly decline.

We May Be Unable To Sell Properties To Avoid Losses or To Reposition Our Portfolio.

Because real estate investments are relatively illiquid, we may be unable to dispose of underperforming properties and may be unable to reposition our portfolio in response to changes in regional or local real estate markets. As a result, we may incur operating losses from some of our properties and may have to write down the value of some of our properties due to impairment.

Our Results of Operations and Cash Flows May Be Adversely Affected By Tenant Defaults or the Closing or Bankruptcy of _Non-Tenant Anchors.

Our results of operations and cash flows may be adversely affected if a significant number of our tenants were unable to meet their obligations or renew their leases, or if we were unable to lease a significant amount of space on economically favorable lease terms. In the event of a default by a tenant, we may experience delays in payments and incur substantial costs in recovering our losses. Our ability to collect rents and other charges will be even more difficult if the tenant is bankrupt or insolvent. Our tenants have from time to time filed for bankruptcy or been involved in insolvency proceedings and others may in the future, which could make it more difficult to enforce our rights as lessor and protect our investment.

Based on square feet as of January 31, 2004, our five largest office tenants were City of New York, Millennium Pharmaceuticals, Inc., U.S. Government, Keyspan Energy and Securities Industry Automation Corp., and our five largest retail tenants were Regal Entertainment Group, The Gap, AMC Entertainment, Inc., TJX Companies and The Limited.

Ames Department Stores, Inc., one of our retail tenants that leased 236,000 square feet at three properties, filed for bankruptcy protection on August 20, 2001. Ames vacated all three properties and rejected the leases, which allowed it to stop paying rent. One property, Hunting Park, was re-leased, however the replacement tenant’s rent, which is tied to sales, was not sufficient to cover debt service. We are negotiating with the lender to enter into a deed in lieu of foreclosure on the property and are currently waiting for the lender to complete its due diligence on the property so that we may complete the asset transfer. While we are working with potential tenants in efforts to achieve rental rates that will assure that debt service will be covered at other locations, we may not be successful and the lender may foreclose on these properties.

The Ames bankruptcy, other current bankruptcies of some of our tenants and the potential bankruptcies of other tenants in the future could make it difficult for us to enforce our rights as lessor and protect our investment.

With respect to our retail centers, we also could be adversely affected if a non-tenant anchor were to close or enter bankruptcy. Although non-tenant anchors generally do not pay us rent, they typically contribute towards common area maintenance and other charges payable by us. The loss of these revenues could adversely affect our results of operations and cash flows. Further, the temporary or permanent loss of an anchor tenant likely would reduce customer traffic in the retail center, which could reduce the percentage of rent paid by retail center tenants, or cause retail center tenants to close or enter bankruptcy. One or more of these factors could cause the retail center to fail to meet its debt service requirements.

We Are Controlled by the Ratner, Miller and Shafran Families, Whose Interest May Differ from Those of Other Shareholders.

Our authorized common stock consists of Class A common stock and Class B common stock. The economic rights of each class of common stock are identical, but the voting rights differ. The Class A common shareholder, voting as a separate class, is entitled to elect 25% of the members of the board of directors, while the Class B common shareholder, voting as a separate class, is entitled to elect the remaining 75% of the board of directors. On all other matters, the Class A common shareholder and Class B common shareholder vote together as a single class, with each share of Class A common stock entitled to one vote per share and each share of Class B common stock entitled to ten votes per share.

At March 1, 2004, members of the Ratner, Miller and Shafran families, which includes members of our current board of directors and executive officers, owned 74.6% of the Class B common stock. RMS, Limited Partnership, which owned 74.3% of the Class B common stock, is a limited partnership, comprised of interests of these families, with eight individual general partners, currently consisting of:

•		Samuel H. Miller, treasurer of Forest City and co-chairman of the board of directors;

•		Charles A. Ratner, president, chief executive officer of Forest City and a director;

•		Ronald A. Ratner, executive vice president of Forest City and a director;

•		Brian J. Ratner, executive vice president of Forest City and a director;

•		Deborah Ratner Salzberg, president of Forest City Washington, Inc., a subsidiary of Forest City, and a director;

Joan K. Shafran is the sister of Joseph Shafran. Charles A. Ratner, James A. Ratner, executive vice president of Forest City and a director, and Ronald A. Ratner are brothers. Albert B. Ratner, co-chairman of the board of directors, is the father of Brian J. Ratner and Deborah Ratner Salzberg and is first cousin to Charles A. Ratner, James A. Ratner, Ronald A. Ratner, Joan K. Shafran and Joseph Shafran. Samuel H. Miller was married to Ruth Ratner Miller (now deceased), a sister of Albert B. Ratner, and is the father of Abraham Miller. General partners holding 60% of the total voting power of RMS, Limited Partnership determine how to vote the Class B common stock held by RMS, Limited Partnership. No person may transfer his or her interest in the Class B common stock held by RMS, Limited Partnership without complying with various rights of first refusal.

In addition, at March 1, 2004, members of these families collectively owned 22.9% of the Class A common stock. As a result of their ownership in Forest City, these family members and RMS, Limited Partnership have the ability to elect a majority of the board of directors and to control the management and policies of Forest City. Generally, they may also determine, without the consent of our other shareholders, the outcome of any corporate transaction or other matters submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets and prevent or cause a change in control of Forest City.

Even if these families or RMS, Limited Partnership reduce their level of ownership of Class B common stock below the level necessary to maintain a majority of voting power, the effect of specific provisions of Ohio law and our Restated Articles of Incorporation may have the effect of discouraging a third party from making a proposal to acquire us or delaying or preventing a change in control or management of Forest City without the approval of these families or RMS, Limited Partnership.

Relationships Exist Between Us and Some of Our Directors and Executive Officers Create Conflicts of Interest.

RMS Investment Corp. provides property management and leasing services to us and is controlled by some of our affiliates.

We paid approximately $215,000 and $205,000 as total compensation during the years ended January 31, 2004 and 2003, respectively, to RMS Investment Corp. for property management and leasing services. RMS Investment Corp. is controlled by members of the Ratner, Miller and Shafran families, including some of whom are our directors and executive officers.

RMS Investment Corp. manages and provides leasing services to two of our Cleveland-area specialty retail centers, Golden Gate, which has 362,000 square feet, and Midtown Plaza, which has 258,000 square feet. The rate of compensation for these management services is 4% of all rental income, plus a leasing fee of 2% to 4% of rental income. Management believes these fees are comparable to those other management companies would charge to non-affiliated third parties.

Our Directors and Executive Officers May Have Interests in Competing Properties, and We Do Not Have Non-Compete Agreements With Our Directors and Executive Officers.

Under our current policy, no director, officer or employee, including any member of the Ratner, Miller and Shafran families, is allowed to invest in a competing real estate opportunity without first obtaining the approval of the audit committee of our board. We do not have non-compete agreements with any director, officer or employee, however, and upon leaving Forest City any director, officer or employee could compete with us. Notwithstanding our policy, we permit our principal shareholders who are officers, directors and employees to own, alone or in conjunction with others, certain commercial, industrial and residential properties that may be developed, expanded, operated and sold independently of our business. As a result of their ownership of these properties, a conflict of interest may arise between them and Forest City. The conflict may involve the development or expansion of properties that may compete with our properties and the solicitation of tenants to lease these properties.

Our High Debt Leverage May Prevent Us from Responding to Changing Business and Economic Conditions.

Our High Degree of Debt Leverage Could Limit Our Ability to Obtain Additional Financing or Adversely Affect Our Liquidity And Financial Condition.

We have a relatively high ratio of debt, consisting primarily of non-recourse mortgage debt, to total market capitalization, which was approximately 60.7% at January 31, 2004 based on the market value of our outstanding Class A common stock and Class B common stock, long-term debt and outstanding mortgage debt at that date. Our high leverage may adversely affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, development or other general corporate purposes and may make us more vulnerable to a downturn in the economy generally.

We do not expect to repay a substantial amount of the outstanding principal of our debt prior to maturity or to have available funds sufficient to repay this debt at maturity. As a result, it will be necessary for us to refinance our debt through new debt financings or through equity offerings. If interest rates are higher at the time of refinancing, our interest expense would increase, which would adversely affect our results of operations and cash flows. In addition, in the event we were unable to secure refinancing on acceptable terms, we might be forced to sell properties on unfavorable terms, which could result in the recognition of losses and could adversely affect our financial position, results of operations and cash flows. If we were unable to make the required payments on any debt secured by a mortgage on one of our properties or to refinance that debt, the mortgage lender could take that property through foreclosure and, as a result, we could lose income and asset value.

Approximately $393 million of principal becomes due in fiscal 2004 and approximately $297 million becomes due in fiscal 2005, which includes anticipated future draws on financing commitments. Additionally, we have obtained credit enhanced mortgage debt for a number of our properties. Generally, the credit enhancement, such as a letter of credit, expires prior to the term of the underlying mortgage debt and must be renewed or replaced to prevent acceleration of the underlying mortgage debt. We treat credit enhanced debt as maturing in the year the credit enhancement expires.

We cannot assure you that we will be able to refinance this debt, obtain renewals or replacement of credit enhancement devices, such as a letter of credit, or otherwise obtain funds by selling assets or by raising equity. Our inability to repay or refinance when the debt becomes due could cause the mortgage lender to foreclose on those properties.

From time to time, a non-recourse mortgage may become past due and if we are unsuccessful in negotiating an extension or refinancing, the lender could commence foreclosure proceedings.

We have guaranteed the obligations of one of our consolidated subsidiaries, Forest City Rental Properties Corporation, or FCRPC, under the FCRPC credit agreement, dated as of March 22, 2004, among FCRPC, the banks named therein, KeyBank National Association, as administrative agent, and National City Bank, as syndication agent. This guaranty imposes a number of restrictive covenants on Forest City, including a prohibition on consolidations and mergers, limitations on the amount of debt, guarantees and property liens that Forest City may incur. The guaranty also requires Forest City to maintain a specified minimum cash flow coverage ratio, consolidated shareholders’ equity and Earnings Before Depreciation and Deferred Taxes (EBDT).

A failure to comply with any of the covenants under the guaranty or failure by FCRPC to comply with any of the covenants under the FCRPC credit agreement could result in an event of default, which would trigger our obligation to repay all amounts outstanding under the FCRPC credit agreement. Our ability and the ability of FCRPC to comply with these covenants will depend upon the future economic performance of Forest City and FCRPC. We cannot assure you that these covenants will not affect our ability to finance our future operations or capital needs or to engage in other business activities that may be desirable or advantageous to us.

An increase in interest rates will increase the interest expenses associated with our floating-rate debt and the refinancing of any fixed-rate debt originally financed at a lower rate. At January 31, 2004, including properties accounted for on the equity method, a 100 basis point increase in taxable variable interest rates would have increased our interest expense, and conversely reduced our pre-tax earnings, by approximately $3.2 million (including both mortgage debt and corporate borrowings). This calculation reflects the interest rate swaps and long-term LIBOR contracts in effect as of January 31, 2004. We are exposed to the risk that our counterparties will fail to perform their obligations to us, thus increasing our exposure to increases in interest rates. Although tax-exempt interest rates generally increase in an amount that is smaller than corresponding changes in taxable interest rates, a 100 basis point increase in tax-exempt variable interest rates would have increased interest expense, and conversely reduced our pre-tax earnings, by approximately $4.9 million.

If We Are Unable to Obtain Tax-Exempt Financings, Our Interest Costs Would Rise.

We regularly utilize tax-exempt financings and tax increment financings, which generally bear interest at rates below prevailing rates available through conventional taxable financing. We cannot assure you that tax-exempt bonds or similar government subsidized financing will continue to be available to us in the future, either for new development or acquisitions, or for the refinancing of outstanding debt. Our inability to obtain these financings or to refinance outstanding debt on favorable terms could significantly affect our ability to develop or acquire properties and could have a material adverse effect on our financial position, results of operations and cash flows.

The real estate industry is highly competitive in many of the markets in which we operate. Competition could over-saturate any market as a result of which we may not have sufficient cash to meet the debt service requirements on certain of our properties. Although we may attempt to renegotiate a restructuring with the mortgagee, we may not be successful, which could cause a property to be transferred to the mortgagee.

There are numerous other developers, managers and owners of commercial and residential real estate that compete with us nationally, regionally and/or locally, some of whom may have greater financial resources than us. They compete with us for management and leasing revenues, land for development, properties for acquisition and disposition and for anchor department stores and tenants for properties. We may not be able to successfully compete in these areas.

Tenants at our retail properties face continual competition in attracting customers from retailers at other shopping centers, catalogue companies, various websites, warehouse stores, large discounters, outlet malls, wholesale clubs and direct mail and telemarketers. Our competitors and those of our tenants could have a material adverse effect on our ability to lease space in our properties and on the rents we can charge or the concessions we can grant. This in turn could materially and adversely affect our results of operations and cash flows, and could affect the realizable value of our assets upon sale.

The lumber wholesaling business is also highly competitive. Competitors in the lumber brokerage business include numerous brokers and in-house sales departments of lumber manufacturers, many of which are larger and have greater resources than us.

Our Business Would Be Adversely Impacted Should an Uninsured Loss Occur or a Loss in Excess of Insurance Limits.

We carry comprehensive general liability, special property, flood, earthquake and rental loss (and environmental insurance on certain locations) with respect to our properties within insured limits and policy specifications that we believe are customary for similar properties. There are, however, specific types of losses, generally of a catastrophic nature, such as wars, terrorism or earthquakes, for which we cannot obtain adequate insurance coverage or, in our judgment, for which we cannot obtain insurance at a reasonable cost. In the event of an uninsured loss or a loss in excess of our insurance limits, we could lose both our invested capital in and anticipated profits from the affected property. Any such loss could materially and adversely affect our results of operations, cash flows and financial position.

Under our current policies, which expire November 1, 2004, our properties are insured against acts of terrorism, subject to various limits, deductibles and exceptions for acts of war and terror acts involving biological, chemical and nuclear damage.

Once this policy expires, we may not be able to obtain adequate terrorism coverage at a reasonable cost. In addition, our insurers may not be able to maintain reinsurance sufficient to cover any losses we may incur as a result of terrorist acts. As a result, our insurers’ ability to pay for any damages that we sustain as a result of a terrorist attack may be reduced.

Additionally, most of our current project mortgages require special all-risk property insurance, and we cannot assure you that we will be able to obtain policies that will satisfy lender requirements.

We are self-insured as to the first $500,000 of liability coverage and self-insured on the first $250,000 of property damage. Our captive insurance company, licensed and regulated by the State of Vermont, is adequately funded per state regulations to cover the first $250,000 of potential property damage claims. While we believe that our self-insurance reserves are adequate, we cannot assure you that we will not incur losses that exceed these self-insurance reserves.

Our Lumber Trading Group May Suffer if Home Building or Remodeling Activities Decline.

The lumber business is highly cyclical. The Lumber Trading Group is exposed to the risk of downturns in new home building and home remodeling activities. While we believe that we have in place adequate controls to effectively manage this risk, we cannot assure you that we will not suffer a loss from a downturn in the new home building and home remodeling markets.

We Have Been Subjected To Volatile Commodity Lumber Prices Which Have Had An Adverse Effect On Our Results Of Operations.

Lumber prices can be highly volatile. Although a majority of the Lumber Trading Group’s sales involve back-to-back trades in which we bring together a buyer and seller for an immediate purchase and sale, the remainder of our transactions are trades in which we take a short-term ownership position in lumber. This short-term ownership position subjects us to market risk associated with fluctuations in lumber prices. Fluctuation in lumber prices can have an adverse effect on the results of operations of our Lumber Trading Group.

Under various federal, state and local environmental laws, an owner or operator of real property may become liable for the costs of the investigation, removal and remediation of hazardous or toxic substances at that property. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of the hazardous or toxic substances. The presence of hazardous or toxic substances, or the failure to remediate these substances when present, may adversely affect the owner’s ability to sell or rent that real property or to borrow funds using that real property as collateral and it may also impose unanticipated costs and delays on projects. Persons who arrange for the disposal or treatment of hazardous or toxic wastes may also be liable for the costs of the investigation, removal and remediations of those wastes at the disposal or treatment facility, regardless of whether that facility is owned or operated by that person. In some instances, federal, state and local laws require abatement or removal of specific asbestos-containing materials in the event of demolition, renovations, remodeling, damage or decay. These laws also impose specific worker protection and notification requirements and govern emissions of and exposure to asbestos fibers in the air.

We could be held liable for the environmental response costs associated with the release of some regulated substances or related claims, whether by us, our tenants, former owners or tenants of the affected property, or others. In addition to remediation actions brought by federal, state and local agencies, the presence of hazardous substances on a property could result in personal injury, contribution or other claims by private parties. These claims could result in costs or liabilities that could exceed the value of the affected property. We are not aware of any notification by any private party or governmental authority of any claim in connection with environmental conditions at any of our properties that we believe will involve any material expenditure. Nor are we aware of any environmental condition on any of our properties that we believe will involve any material expenditure. However, we cannot assure you that any non-compliance, liability, claim or expenditure will not arise in the future. To the extent that we are held liable for the release of regulated substances by tenants or others, we cannot assure you we would be able to recover our costs from those persons.

We Face Potential Liability from Residential Properties Accounted for on the Equity Method and Other Partnership Risks.

As part of our financing strategy, we have financed several real estate projects through limited partnerships with investment partners. The investment partner, typically a large, sophisticated institution or corporate investor, invests cash in exchange for a limited partnership interest and special allocations of expenses and the majority of tax losses and credits associated with the project. These partnerships typically require us to indemnify, on an after-tax or “grossed up” basis, the investment partner against the failure to receive or the loss of allocated tax credits and tax losses.

We believe that all the necessary requirements for qualification for such tax credits have been and will be met and that our investment partners will be able to receive expense allocations associated with these properties. However, we cannot assure you that this will, in fact, be the case or that we will not be required to indemnify our investment partners on an after-tax basis for these amounts. Any indemnification payment could have a material adverse effect on our results of operations and cash flows.

In addition to partnerships, we also use limited liability companies, or LLC’s, to finance some of our projects with third party lenders. Acting through our wholly-owned subsidiaries, we typically are a general partner or managing member in these partnerships or LLC’s. There are, however, instances in which we do not control or even participate in management or day-to-day operations.

The use of a structure where we do not control the management of the entity involves special risks associated with the possibility that:

•		another partner or member may have interests or goals that are inconsistent with ours;

•		a general partner or managing member may take actions contrary to our instructions, requests, policies or objectives with respect to our real estate investments; or

•		a partner or a member could experience financial difficulties that prevent it from fulfilling its financial or other responsibilities to the project or its lender or the other partners or members.

To the extent we are a general partner or managing partner, we may be exposed to unlimited liability, which may exceed our investment or equity in the partnership or LLC, as applicable. If one of our subsidiaries is a general partner or managing member of a particular partnership or LLC, as applicable, it may be exposed to the same kind of unlimited liability.

Compliance or Failure to Comply with the Americans with Disabilities Act and Other Similar Laws Could Result in Substantial Costs.

The Americans with Disabilities Act generally requires that public buildings, including office buildings and hotels, be made accessible to disabled persons. In the event that we are not in compliance with the Americans with Disabilities Act, the federal government could fine us or private parties could be awarded damages against us. If we are required to make substantial alterations and capital expenditures in one or more of our properties, including the removal of access barriers, it could adversely affect our results of operations and cash flows.

We may also incur significant costs complying with other regulations. Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and safety requirements. If we fail to comply with these requirements, we could incur fines or private damage awards. We believe that our properties are currently in material compliance with all of these regulatory requirements. However, existing requirements may change and compliance with future requirements may require significant unanticipated expenditures that could adversely affect our cash flows and results of operations.

The Corporate headquarters of Forest City Enterprises, Inc. is located in Cleveland, Ohio and is owned by the Company. The Company’s core markets include Boston, Denver, California, New York City, Philadelphia and Washington, D. C. Forest City Trading Group, Inc. maintains its headquarters in Portland, Oregon with 11 trading and administrative offices and one processing plant located in six states and one sales office in Canada.

The following table provides summary information concerning the Company’s real estate portfolio as of January 31, 2004.


		Date of
		Opening/								Leasable
		Acquisition/		% of						Square
	Name	Expansion		Ownership			Location		Major Tenants	Feet
Consolidated Office Buildings
	35 Landsdowne Street		2002		100.00	%		Cambridge, MA	Millennium Pharmaceuticals		202,000
†	40 Landsdowne Street		2003		100.00	%		Cambridge, MA	Millennium Pharmaceuticals		215,000
	45/75 Sidney Street		1999		100.00	%		Cambridge, MA	Millennium Pharmaceuticals		277,000
	65/80 Landsdowne Street		2001		100.00	%		Cambridge, MA	Partners HealthCare System		122,000
	88 Sidney Street		2002		100.00	%		Cambridge, MA	Alkermes, Inc.		145,000
*	Atlantic Terminal		2004		70.00	%		Brooklyn, NY	Bank of New York		399,000
	Chase Financial Tower		1991		95.00	%		Cleveland, OH	Chase Manhattan Mortgage Corporation		119,000
	Eleven MetroTech Center		1995		65.00	%		Brooklyn, NY	City of New York — CDCSA; E-911		216,000
†	Fifteen MetroTech Center (formerly Nine MetroTech Center South)		2003		75.00	%		Brooklyn, NY	Empire Blue Cross and Blue Shield; City of New York -HRA		653,000
	Halle Building		1986		75.00	%		Cleveland, OH	Liggett-Stashower; Focal Communications; Climaco & Co., LPA; First American Equity		387,000
†	Harlem Center		2003		52.50	%		Manhattan, NY	OGS-Office of Temporary Disability & Assistance; Office of General Service — State Liquor Authority		146,000
	Jackson Building		1987		100.00	%		Cambridge, MA	Ariad Pharmaceuticals		99,000
	Knight Ridder Building at Fairmont Plaza		1998		85.00	%		San Jose, CA	Knight Ridder; Merrill Lynch; PaineWebber; Calpine		334,000
	Nine MetroTech Center North		1997		65.00	%		Brooklyn, NY	City of New York — Fire Department		317,000
	One MetroTech Center		1991		65.00	%		Brooklyn, NY	Keyspan; Bear Stearns		933,000
	One Pierrepont Plaza		1988		85.00	%		Brooklyn, NY	Morgan Stanley; Goldman Sachs; U.S. Attorney		656,000
	Pavilion		1998		85.00	%		San Jose, CA	Metromedia Fiber Network; Pinnacle Fitness		250,000
	Richards Building		1990		100.00	%		Cambridge, MA	Genzyme Biosurgery; Alkermes, Inc.		126,000
	Skylight Office Tower		1991		92.50	%		Cleveland, OH	Cap Gemini Ernst & Young LLP; Travelers Indemnity		320,000
	Ten MetroTech Center		1992		80.00	%		Brooklyn, NY	Internal Revenue Service		409,000
	Terminal Tower		1983		100.00	%		Cleveland, OH	Forest City Enterprises, Inc.;Weston Hurd; Greater Cleveland Growth Association		577,000
*	Twelve MetroTech Center		2005		80.00	%		Brooklyn, NY	[Leasing in progress]		177,000	⁽³⁾
	Two MetroTech Center		1990		65.00	%		Brooklyn, NY	Securities Industry Automation Corp.; City of New York-BOE		521,000

	Consolidated Office Buildings Subtotal										7,600,000


Unconsolidated Office Buildings
	350 Massachusetts Avenue		1998		50.00	%		Cambridge, MA	Star Market; Tofias		169,000
	Chagrin Plaza I & II		1969		66.67	%		Beachwood, OH	National City Bank; Benihana; H&R Block; Gale Group		114,000
	Clark Building		1989		50.00	%		Cambridge, MA	Acambis		122,000
	Emery-Richmond		1991		50.00	%		Warrensville Hts., OH	Allstate Insurance		5,000
	Enterprise Place		1998		50.00	%		Beachwood, OH	Kemper Insurance; University of Phoenix		132,000
	Liberty Center		1986		50.00	%		Pittsburgh, PA	Federated Investors		527,000
⁽¹⁾	M.K. Ferguson Plaza		1990		1.00	%		Cleveland, OH	Washington Group; Chase Manhattan Mortgage Corporation		492,000
	One International Place		2000		50.00	%		Cleveland, OH	Battelle Memorial; Medical Life Insurance; Transportation Security Administration		88,000
	Signature Square I		1986		50.00	%		Beachwood, OH	Ciuni & Panichi		79,000
	Signature Square II		1989		50.00	%		Beachwood, OH	Allen Telecom, Inc.; Revenue Assistance		82,000

	Unconsolidated Office Buildings Subtotal										1,810,000


	Total Office Buildings at January 31, 2004										9,410,000

	Total Office Buildings at January 31, 2003										9,410,000


		Date of
		Opening/								Total		Gross
		Acquisition/		% of						Square		Leasable
	Name	Expansion		Ownership			Location		Major Tenants	Feet		Area
Consolidated Regional Malls
	Antelope Valley Mall		1990/1999		78.00	%		Palmdale, CA	Sears; JCPenney; Harris Gottschalks; Mervyn’s; Dillard’s		1,001,000		304,000
	Avenue at Tower City Center		1990		100.00	%		Cleveland, OH	Hard Rock Café; Morton’s of Chicago; Cleveland Cinemas		367,000		367,000
	Ballston Common Mall		1986/1999		100.00	%		Arlington, VA	Hecht’s; Sport & Health; Regal Cinemas		578,000		310,000
	Galleria at South Bay		1985/2001		100.00	%		Redondo Beach, CA	Robinsons-May; Mervyn’s; Nordstrom; AMC Theater		955,000		387,000
	Promenade in Temecula		1999/2002		75.00	%		Temecula,CA	JCPenney; Sears; Robinsons-May; Macy’s; Edwards Cinema		1,013,000		425,000
*	Victoria Gardens		2004		80.00	%		Rancho Cucamonga, CA	Robinsons-May; Macy’s; JCPenney; AMC Theater		1,224,000		755,000

	Consolidated Regional Malls Subtotal										5,138,000		2,548,000


Consolidated Specialty Retail Centers
	42nd Street		1999		70.00	%		Manhattan, NY	AMC Theaters; Madame Tussaud’s Wax Museum; Modell’s		306,000		306,000
	Atlantic Center		1996		75.00	%		Brooklyn, NY	Pathmark; OfficeMax; Old Navy; Marshall’s; Sterns; Circuit City; NYC — Dept. of Motor Vehicles		399,000		399,000
	Atlantic Center Site V		1998		70.00	%		Brooklyn, NY	Modell’s		17,000		17,000
*	Atlantic Terminal		2004		70.00	%		Brooklyn, NY	Target; Designer Shoe Warehouse; Red Lobster; Chuck E. Cheese’s; Daffy’s		373,000		373,000
	Battery Park City		2000		70.00	%		Manhattan, NY	United Artists; New York Sports Club		166,000		166,000
*	Brooklyn Commons		2004		70.00	%		Brooklyn, NY	Lowe’s		151,000		151,000
	Bruckner Boulevard		1996		70.00	%		Bronx, NY	Conway; Seaman’s; Old Navy		113,000		113,000
	Columbia Park Center		1999		52.50	%		North Bergen, NJ	Shop Rite; Old Navy; Circuit City; Staples; Bally’s; Shopper’s World		347,000		347,000
	Court Street		2000		70.00	%		Brooklyn, NY	United Artists; Barnes & Noble		103,000		103,000
	Eastchester		2000		70.00	%		Bronx, NY	Pathmark		63,000		63,000
	Flatbush Avenue		1995/1998		80.00	%		Brooklyn, NY	Stop & Shop; Old Navy; Staples; Bally’s		142,000		142,000
	Forest Avenue		2000		70.00	%		Staten Island, NY	United Artists		70,000		70,000
	Grand Avenue		1997		70.00	%		Queens, NY	Stop & Shop		100,000		100,000
	Gun Hill Road		1997		70.00	%		Bronx, NY	Home Depot; Chuck E. Cheese’s		147,000		147,000
	Harlem Center		2002		52.50	%		Manhattan, NY	Marshall’s; CVS/Pharmacy; Staples; H&M		126,000		126,000
	Hunting Park		1996		70.00	%		Philadelphia, PA	National Wholesale Liquidators; A.J. Wright		138,000		138,000
	Kaufman Studios		1999		70.00	%		Queens, NY	United Artists		84,000		84,000
	Market at Tobacco Row		2002		100.00	%		Richmond, VA	Rich Foods; CVS/Pharmacy		43,000		43,000
	Northern Boulevard		1997		70.00	%		Queens, NY	Stop & Shop; Marshall’s; Old Navy		218,000		218,000
*	Quartermaster Plaza		2004		70.00	%		Philadelphia, PA	A. J. Wright; Home Depot; BJ’s Wholesale; Staples; PetSmart; Walgreen’s		459,000		459,000
	Quebec Square		2002		90.00	%		Denver, CO	Wal-Mart; Home Depot; Sam’s Club; Ross Dress for Less; Office Depot		747,000		183,000
	Queens Place		2001		70.00	%		Queens, NY	Target; Best Buy; Macy’s Furniture; Designer Shoe Warehouse		455,000		221,000
	Richmond Avenue		1998		70.00	%		Staten Island, NY	Circuit City; Staples		76,000		76,000
	South Bay Southern Center		1978		100.00	%		Redondo Beach, CA	CompUSA		137,000		137,000
	Station Square		1994/2002		100.00	%		Pittsburgh, PA	Hard Rock Café; Grand Concourse Restaurant; Clear Channel Amphitheater; Buca Di Beppo		275,000		275,000
	Woodbridge Crossing		2002		70.00	%		Woodbridge, NJ	Great Indoors; Linens-N-Things; Circuit City; Modell’s; Thomasville Furniture; Party City		284,000		284,000

	Consolidated Specialty Retail Centers Subtotal										5,539,000		4,741,000

	Consolidated Retail Centers Total										10,677,000		7,289,000


		Date of
		Opening/								Total		Gross
		Acquisition/		% of						Square		Leasable
Name		Expansion		Ownership			Location		Major Tenants	Feet		Area
Unconsolidated Regional Malls
	Boulevard Mall		1962/2000		50.00	%		Amherst, NY	JCPenney; Kaufmann’s; Sears; CompUSA; Michael’s		904,000		327,000
	Chapel Hill Mall		1966		50.00	%		Akron, OH	Kaufmann’s; JCPenney; Sears		860,000		301,000
	Charleston Town Center Mall		1983		50.00	%		Charleston, WV	Kaufmann’s; JCPenney; Sears		897,000		361,000
	Galleria at Sunset		1996/2002		60.00	%		Henderson, NV	Dillard’s; Robinsons-May; Mervyn’s; JCPenney; Galyan’s		1,048,000		330,000
⁽¹⁾	Mall at Robinson		2001		56.67	%		Pittsburgh, PA	Kaufmann’s; Sears; JCPenney; Dick’s Sporting Goods		872,000		318,000
⁽¹⁾	Mall at Stonecrest		2001		66.67	%		Atlanta, GA	Parisian; Sears; Rich’s; JCPenney; Dillard’s; AMC Theatre		1,171,000		397,000
	Manhattan Town Center Mall		1987		49.98	%		Manhattan, KS	Dillard’s; JCPenney; Sears		392,000		197,000
^† ⁽¹⁾	Short Pump Town Center		2003		50.00	%		Richmond, VA	Lord & Taylor; Nordstrom; Hecht’s; Dillard’s; Dick’s Sporting Goods		1,251,000		412,000
*	San Francisco Centre		2006		50.00	%		San Francisco, CA	Bloomingdale’s; Century Theaters		964,000		626,000

	Unconsolidated Regional Malls Subtotal										8,359,000		3,269,000

Unconsolidated Specialty Retail Centers
	Chapel Hill Suburban		1969		50.00	%		Akron, OH	Value City; HH Gregg		117,000		117,000
	Golden Gate		1958		50.00	%		Mayfield Hts., OH	OfficeMax; Old Navy; Michael’s; Linens-N-Things; World Market; Golf Galaxy; Marshall’s		362,000		362,000
	Marketplace at Riverpark		1996		50.00	%		Fresno, CA	JCPenney; Best Buy; Linens-N-Things; Marshall’s; Office Max; Old Navy; Target; Sports Authority		459,000		296,000
	Midtown Plaza		1961		50.00	%		Parma, OH	Office Max; Marc’s		258,000		258,000
	Plaza at Robinson Town Center		1989		50.00	%		Pittsburgh, PA	T.J. Maxx; Marshall’s; CompUSA		489,000		489,000
	Showcase		1996		20.00	%		Las Vegas, NV	Coca-Cola®; M&M’s World/Ethel M. Chocolates; Game Works; United Artists		186,000		186,000

	Unconsolidated Specialty Retail Centers Subtotal										1,871,000		1,708,000

	Unconsolidated Retail Centers Total										10,230,000		4,977,000

	Total Retail Centers at January 31, 2004										20,907,000		12,266,000

	Total Retail Centers at January 31, 2003										18,176,000		10,476,000


COMMERCIAL GROUP HOTELS
		Date of
		Opening/
		Acquisition/		% of
Name		Expansion		Ownership			Location					Rooms
Consolidated Hotels
	Charleston Marriott		1983		95.00	%		Charleston, WV					352
	Embassy Suites Hotel		2000		50.40	%		Manhattan, NY					463
	Hilton Times Square		2000		56.00	%		Manhattan, NY					444
	Ritz-Carlton		1990		95.00	%		Cleveland, OH					206
	Sheraton Station Square		1998/2001		100.00	%		Pittsburgh, PA					396

	Consolidated Hotels Subtotal												1,861

Unconsolidated Hotels
	Courtyard by Marriott		1985		3.97	%		Detroit, MI					250
	University Park Hotel at MIT		1998		50.00	%		Cambridge, MA					210
	Westin Convention Center		1986		50.00	%		Pittsburgh, PA					616

	Unconsolidated Hotels Subtotal												1,076

	Total Hotel Rooms at January 31, 2004												2,937

	Total Hotel Rooms at January 31, 2003												2,941


		Date of
		Opening/
		Acquisition/		% of					Leasable
Name		Expansion		Ownership			Location		Units
Consolidated Apartment Communities
*	100 Landsdowne Street		2005		100.00	%		Cambridge, MA		203
*	23 Sidney Street		2004		100.00	%		Cambridge, MA		51
	Arboretum Place		1998		1.99	%		Newport News, VA		184
*	Ashton Mill		2005		100.00	%		Providence, RI		193
	Autumn Ridge		2002		100.00	%		Sterling Heights, MI		251
	Bowin		1998		1.99	%		Detroit, MI		193
	Bridgewater		1998		1.99	%		Hampton, VA		216
(2)	Burton Place		1999		90.00	%		Burton, MI		200
	Cambridge Towers		2002		100.00	%		Detroit, MI		250
(2)	Carl D. Perkins		2002		100.00	%		Pikeville, KY		150
†	Cherrywood Village		2003		100.00	%		Denver, CO		360
	Colony Woods		1997		99.00	%		Bellevue, WA		396
†	Consolidated-Carolina		2003		100.00	%		Richmond, VA		158
	Coraopolis Towers		2002		80.00	%		Coraopolis, PA		200
	Donora Towers		2002		100.00	%		Donora, PA		103
	Drake		1998		1.99	%		Philadelphia, PA		280
*	East 29th Avenue Town Center		2004		90.00	%		Denver, CO		156
	Emerald Palms		1996/2004		100.00	%		Miami, FL		505
	Enclave		1997-1998		95.00	%		San Jose, CA		637
	Grand		1999		85.50	%		North Bethesda, MD		546
†	Grove		2003		100.00	%		Ontario, CA		101
	Heritage		2002		100.00	%		San Diego, CA		230
†	Independence Place II		2003		100.00	%		Parma Heights OH		201
	Lakeland		1998		1.98	%		Waterford, MI		200
	Landings of Brentwood		2002		100.00	%		Nashville, TN		724
	Lofts at 1835 Arch		2001		1.99	%		Philadelphia, PA		191
	Metropolitan		1989		100.00	%		Los Angeles, CA		270
	Mount Vernon Square		2000		99.00	%		Alexandria, VA		1,387
	Museum Towers		1997		100.00	%		Philadelphia, PA		286
	One Franklintown		1988		100.00	%		Philadelphia, PA		335
(2)	Panorama Towers		1978		99.00	%		Los Angeles, CA		154
	Parmatown Towers and Gardens		1972-1973		100.00	%		Parma, OH		412
†	Plymouth Square		2003		100.00	%		Detroit, MI		280
	Providence at Palm Harbor		1991		99.00	%		Tampa, FL		236
†	Ranchstone		2003		100.00	%		Denver, CO		368
	Regency Towers		1994		100.00	%		Jackson, NJ		372
(2)	Shippan Avenue		1980		100.00	%		Stamford, CT		148
	Silver Hill		1998		1.99	%		Newport News, VA		153
	Southfield		2002		100.00	%		White Marsh, MD		212
*	Subway Terminal		2004		100.00	%		Los Angeles, CA		277
(2)	Tower 43		2002		100.00	%		Kent, OH		101
	Trellis at Lee’s Mill		1998		1.99	%		Newport News, VA		176
	Woodlake		1998		100.00	%		Silver Spring, MD		534

	Consolidated Apartment Communities Subtotal									12,580


Consolidated Supported-Living Apartments
	Forest Trace		2000		100.00	%		Lauderhill, FL		324
	Sterling Glen of Bayshore (formerly Pine Cove)		2001		80.00	%		Bayshore, NY		85
	Sterling Glen of Center City (formerly Chancellor Park)		2002		80.00	%		Philadelphia, PA		135
	Sterling Glen of Darien (formerly Stony Brook Court)		2001		80.00	%		Darien, CT		86
*	Sterling Glen of Lynbrook (formerly Tanglewood Crest)		2005		80.00	%		Lynbrook, NY		100
	Sterling Glen of Plainview (formerly Chestnut Grove)		2000		80.00	%		Plainview, NY		79
	Sterling Glen of Stamford (formerly Westfield Court)		2000		80.00	%		Stamford, CT		167

	Consolidated Supported-Living Apartments Subtotal									976

	Consolidated Apartments Total									13,556


Unconsolidated Apartment Communities
⁽¹⁾	101 San Fernando		2000		66.50	%		San Jose, CA		323
⁽¹⁾	American Cigar Company		2000		0.10	%		Richmond, VA		171
*	Arbor Glen		2001-2007		50.00	%		Twinsburg, OH		288
	Bayside Village		1988-1989		50.00	%		San Francisco, CA		862
	Big Creek		1996-2001		50.00	%		Parma Hts., OH		516
	Boulevard Towers		1969		50.00	%		Amherst, NY		402
	Camelot		1967		50.00	%		Parma, OH		151
	Cherry Tree		1996-2000		50.00	%		Strongsville, OH		442
	Chestnut Lake		1969		50.00	%		Strongsville, OH		789


		Date of
		Opening/
		Acquisition/		% of					Leasable
Name		Expansion		Ownership			Location		Units
Unconsolidated Apartment Communities (continued)
	Clarkwood		1963		50.00	%		Warrensville Hts., OH		568
†	Colonial Grand		2003		50.00	%		Tampa, FL		176
†	Colony Place		2003		50.00	%		Fort Meyers, FL		300
	Coppertree		1998		50.00	%		Mayfield Hts., OH		342
	Deer Run		1987-1989		43.03	%		Twinsburg, OH		562
*	Eaton Ridge		2002-2004		50.00	%		Sagamore Hills, OH		260
	Fenimore Court		1982		7.06	%		Detroit, MI		144
	Fort Lincoln II		1979		45.00	%		Washington, D.C.		176
	Fort Lincoln III & IV		1981		24.90	%		Washington, D.C.		306
	Granada Gardens		1966		50.00	%		Warrensville Hts., OH		940
⁽¹⁾	Grand Lowry Lofts		2000		0.10	%		Denver, CO		261
	Hamptons		1969		50.00	%		Beachwood, OH		649
	Hunter’s Hollow		1990		50.00	%		Strongsville, OH		208
	Independence Place I		1973		50.00	%		Parma Hts., OH		202
⁽¹⁾	Kennedy Biscuit Lofts		1990		2.90	%		Cambridge, MA		142
⁽¹⁾	Knolls		1995		1.00	%		Orange, CA		260
⁽¹⁾	Lenox Club		1991		47.50	%		Arlington, VA		385
⁽¹⁾	Lenox Park		1992		47.50	%		Silver Spring, MD		406
	Liberty Hills		1979-1986		50.00	%		Solon, OH		396
*	Metropolitan Lofts		2005		50.00	%		Los Angeles, CA		264
	Midtown Towers		1969		50.00	%		Parma, OH		635
	Millender Center		1985		3.97	%		Detroit, MI		339
*	Newport Landing		2002-2005		50.00	%		Coventry, OH		336
	Noble Towers		1979		50.00	%		Pittsburgh, PA		133
	Parkwood Village		2001-2002		50.00	%		Brunswick, OH		204
⁽¹⁾	Pavilion		1992		47.50	%		Chicago, IL		1,115
	Pebble Creek		1995-1996		50.00	%		Twinsburg, OH		148
	Pine Ridge Valley		1967-1974		50.00	%		Willoughby, OH		1,147
⁽¹⁾	Queenswood		1990		0.70	%		Corona, NY		296
	Residences at University Park		2002		25.00	%		Cambridge, MA		135
*	Settler’s Landing at Greentree		2001-2004		50.00	%		Streetsboro, OH		408
	St. Mary’s Villa		2002		29.07	%		Newark, NJ		360
	Surfside Towers		1970		50.00	%		Eastlake, OH		246
	Tamarac		1990-2001		50.00	%		Willoughby, OH		642
	Twin Lake Towers		1966		50.00	%		Denver, CO		254
	Village Green		1994-1995		25.00	%		Beachwood, OH		360
	Westwood Reserve		2002		50.00	%		Tampa, FL		340
	White Acres		1966		50.00	%		Richmond Hts., OH		473
†	Worth Street		2003		35.00	%		Manhattan, NY		330

	Unconsolidated Apartment Communities Subtotal									18,792


Unconsolidated Supported-Living Apartments
	Classic Residence by Hyatt		1989		50.00	%		Teaneck, NJ		221
	Classic Residence by Hyatt		1990		50.00	%		Chevy Chase, MD		339
	Classic Residence by Hyatt		2000		50.00	%		Yonkers, NY		310
⁽¹⁾	Sterling Glen of Forest Hills (formerly Willow Court)		2001		56.00	%		Forest Hills, NY		84
	Sterling Glen of Glen Cove (formerly Mayfair at Glen Cove)		2000		40.00	%		Glen Cove, NY		79
	Sterling Glen of Great Neck (formerly Mayfair at Great Neck)		2000		40.00	%		Great Neck, NY		144
*	Sterling Glen of Roslyn (formerly Bryant Landing)		2005		40.00	%		Roslyn, NY		158
^*(1)	Sterling Glen of Rye Brook (formerly Stone Gate at Bellefair)		2004		40.00	%		Rye Brook, NY		166

	Unconsolidated Supported-Living Apartments Subtotal									1,501

	Unconsolidated Apartments Total									20,293

	Combined Apartments Total									33,849


	Federally Subsidized Housing (Total of 30 Buildings)									4,868

	Total Apartments at January 31, 2004									38,717

	Total Apartments at January 31, 2003									37,702

The Company is involved in various claims and lawsuits incidental to its business, and management and legal counsel believe that these claims and lawsuits will not have a material adverse effect on the Company’s financial statements.

No matters were submitted to a vote of security holders during the fourth quarter.

The following list is included in Part I of this Report in lieu of being included in the Proxy Statement for the Annual Meeting of Shareholders to be held on June 8, 2004. The names, ages and positions held by the executive officers of the Company are presented in the following list. Each individual has been appointed to serve for the period which ends with the Annual Meeting of Shareholders scheduled for June 8, 2004.


	Date
Name and Position(s) Held	Appointed	Age

Albert B. Ratner
Co-Chairman of the Board of Directors of the Company since June 1995, Vice Chairman of the Board of the Company from June 1993 to June 1995, Chief Executive Officer prior to July 1995 and President prior to July 1993.	6-13-95		76

Samuel H. Miller
Co-Chairman of the Board of Directors of the Company since June 1995, Chairman of the Board of the Company from June 1993 to June 1995 and Vice Chairman of the Board, Chief Operating Officer of the Company prior to June 1993, Treasurer of the Company since December 1992.	6-13-95		82

Charles A. Ratner
President of the Company since June 1993, Chief Executive Officer of the Company since June 1995, Chief Operating Officer from June 1993 to June 1995 and Executive Vice President prior to June 1993, Director.	6-13-95		62

Brian J. Ratner
Executive Vice President since June 2001, Senior Vice President — East Coast Development from January 1997 to June 2001, Vice President-Urban Entertainment from June 1995 to December 1996, Vice President from May 1994 to June 1995, Director, Officer of various subsidiaries.	6-01-01		46

James A. Ratner
Executive Vice President, Director, Officer of various subsidiary corporations.	3-09-88		59

Ronald A. Ratner
Executive Vice President, Director, Officer of various subsidiary corporations.	3-09-88		57

Thomas G. Smith
Executive Vice President since October 2000, Senior Vice President prior to October 2000, Chief Financial Officer, Secretary, Officer of various subsidiary corporations since 1985.	10-10-00		63

James M. Talton
Executive Vice President-Human Resources since June 2003.	6-02-03		58

Linda M. Kane
Senior Vice President and Corporate Controller since June 2002, Vice President and Corporate Controller from April 1995 to June 2002, Asset Manager - Commercial Group from July 1992 to April 1995 and Financial Manager—Residential Group from October 1990 to July 1992.	6-17-02		46

Geralyn M. Presti
Senior Vice President, General Counsel and Assistant Secretary since July 2002, Deputy General Counsel from January 2000 to June 2002, Associate General Counsel from December 1996 to January 2000, Assistant General Counsel from January 1995 to December 1996 and Corporate Counsel from November 1989 to January 1995.	7-01-02		48

Note: Charles A. Ratner, James A. Ratner and Ronald A. Ratner are brothers. Albert B. Ratner is the father of Brian J. Ratner and first cousin to Charles A. Ratner, James A. Ratner and Ronald A. Ratner.

Item 5. Market for Registrant’s Common Equity and Related Shareholder Matters

Information required by this item is included in Item 8. Financial Statements and Supplementary Data on page 73, “Quarterly Consolidated Financial Data (unaudited).”


	Years Ended January 31,
	2004		2003			2002			2001			2000
	(in thousands, except per share data)
Operating Results:
Total Revenues	$	1,021,588	$	881,737	⁽¹⁾	$	858,244	⁽¹⁾	$	763,796	⁽¹⁾	$	688,233	⁽¹⁾

Earnings from continuing operations	$	38,972	$	43,966		$	104,231		$	91,637		$	40,802
Discontinued operations, net of tax and minority interest		3,697		4,865			—			—			—
Cumulative effect of change in accounting principle, net of tax		—		—			(1,202	)		—			—

Net earnings	$	42,669	$	48,831		$	103,029		$	91,637		$	40,802

Diluted Earnings per Common Share:
Earnings from continuing operations	$	0.77	$	.88	⁽²⁾	$	2.20		$	2.01		$	.90
Discontinued operations, net of tax and minority interest		0.07		.09			—			—			—
Cumulative effect of change in accounting principle, net of tax		—		—			(.03	)		—			—

Net earnings	$	0.84	$	.97		$	2.17		$	2.01		$	.90

Cash Dividends Declared-Class A and Class B	$	0.3300	$	.2300		$	.1867		$	.1533		$	.1267

Weighted Average Diluted Shares Outstanding		50,572,173		50,178,515			47,386,892			45,500,163			45,229,586

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

We principally engage in the ownership, development, management and acquisition of commercial and residential real estate throughout the United States. We operate through four Strategic Business Units. The Commercial Group, the largest business unit, owns, develops, acquires and operates regional malls, specialty/urban retail centers, office buildings, hotels and mixed-use projects. New York City operations through our partnership with Forest City Ratner Companies are part of the Commercial Group. The Residential Group owns, develops, acquires and operates residential rental property, including upscale and middle-market apartments, adaptive re-use developments and supported-living facilities. Real Estate Groups are the combined Commercial and Residential Groups. The Land Development Group acquires and sells both land and developed lots to residential, commercial and industrial customers. It also owns and develops land into master-planned communities and mixed-use projects. The Lumber Trading Group, a wholesaler, sells lumber to customers in all 50 states and Canadian provinces. We have more than $5.9 billion of assets in 20 states and the District of Columbia. Core markets include New York City, Denver, Boston, Washington D.C., Philadelphia and California. Our Corporate headquarters is in Cleveland, Ohio.

Our consolidated financial statements include our accounts and all majority-owned subsidiaries where we have financial or operational control. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes. In preparing these financial statements, we have identified certain critical accounting policies which are subject to judgment and uncertainties. We have used our best judgment to determine estimates of certain amounts included in the financial statements as a result of these policies, giving due consideration to materiality. As a result of uncertainties surrounding these events at the time the estimates are made, actual results could differ from these estimates causing adjustments to be made in subsequent periods to reflect more current information. The accounting policies that we believe contain uncertainties that are considered critical to understanding the consolidated financial statements are discussed below. Our management reviews and discusses the policies below on a regular basis. These policies have also been discussed with our audit committee of the Board of Directors.

Allowance for Doubtful Accounts and Reserves on Notes Receivable - We record allowances for probable uncollectible rent receivables from commercial tenants based on an estimate of the amount of the receivables that will not be realized from cash receipts in subsequent periods. This estimate is calculated based on a three year history of early tenant lease terminations as well as an estimate for expected activity of current tenants in the case of the straight-line rent adjustments. There is a risk that our estimate of the expected activity of current tenants may not accurately reflect future events. If the estimate does not accurately reflect future tenant vacancies, the reserve for straight-line rent receivable may be over or understated by the actual tenant vacancies that occur. We estimate the allowance for notes receivable based on our assessment of the collectibility of the note. Our assessment of collectibility is based largely on expected future cash flows estimated to be paid to our limited partners. If our estimate of expected future cash flows does not accurately reflect actual events, our reserve on notes receivable may be over or understated by the actual cash flows that occur. Our allowance for doubtful accounts at January 31, 2004, 2003 and 2002 was $28,814,000, $30,666,000 and $33,506,000, respectively.

During the years ended January 31, 2004, 2003 and 2002, we reduced reserves previously recorded on certain notes receivable at certain syndicated residential properties. These reserves were reduced due to the occurrence of a series of events (See Note B on page 57). In the course of evaluation of these events and their effect on the collectibility of the notes, we used estimates. These estimates included, but were not limited to, estimated appraisal values as well as future cash flows at these properties. These estimates can be affected by market conditions at the time that will not only affect the appraisal value but operating cash flow projections. Had different estimates been applied, the amount of the reserves reversed might have been different than the amounts actually recorded. For the years ended January 31, 2004, 2003 and 2002, we reduced reserves of $10,418,000, $5,317,000 and $26,335,000, respectively.

Economic Lives - Depreciation and amortization is generally computed on a straight-line method over the estimated useful life of the asset. The estimated useful lives of buildings and first generation tenant allowances are primarily 50 years. Subsequent tenant improvements are amortized over the life of the tenant’s lease. This estimate is based on the length of time the asset is expected to generate positive operating cash flows. Actual events and circumstances can cause the life of the building to be different than the estimates made. Additionally, lease terminations can affect the economic life of the tenant improvements. We believe the estimated useful lives of fixed assets are reasonable and follow industry standards.

Asset Impairment - We review our investment portfolio to determine if its carrying costs will be recovered from future cash flows whenever events or changes indicate that recoverability of long-lived assets may not be assured. In cases where we do not expect to recover our carrying costs, an impairment loss is recorded as a provision for decline in real estate for assets in our real estate portfolio pursuant to the guidance established in FASB No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” As part of the analysis to determine if an impairment loss has occurred we are required to make estimates to determine future operating cash flows. If different estimates are applied in determining future operating cash flows, such as occupancy rates and rent and expense increases, we may not record an impairment loss, or may record a greater impairment loss on a property.

Allowance for Projects Under Development - The Company records an allowance for development project write-offs for its Projects Under Development (included in Real Estate, at Cost on its Consolidated Balance Sheets). Specific projects are written off against this allowance when it is determined by management that the project will not be developed. The allowance is periodically adjusted based on the Company’s actual development project write-off history. These adjustments are recorded to Operating Expenses in the Company’s Consolidated Statements of Earnings.

Variable Interest Entities - Effective February 1, 2004, we plan to adopt FIN No. 46(R) “Consolidation of Variable Interest Entities” (FIN No. 46(R)). Under FIN No. 46(R), we will be required to consolidate a variable interest entity (VIE) if our interest in the VIE is such that we will absorb a majority of the VIE’s expected losses and/or receive a majority of the entity’s expected residual returns, or both. Calculating expected losses and/or expected residual returns involves estimating expected future cash flows. If different estimates are applied in determining future cash flows, such as the probability of the future cash flows and the risk free rate, we may incorrectly conclude on the consolidation method of an entity.

We report our results of operations by each of our four strategic business units as well as our corporate activities as we believe this provides the most meaningful understanding of our financial performance.

We are a fully-integrated real estate company principally engaged in the ownership, development, acquisition and management of commercial and residential real estate throughout the United States. Our portfolio includes interests in retail centers, apartment communities, office buildings and hotels. We believe that our Company benefits from our geographic focus and product diversity. Our products are focused in our core markets, which include New York City, Denver, Boston, Washington, D.C., Philadelphia, and California. These are growing urban markets with high barriers to entry where we have successfully gained access to large, complex commercial, residential and mixed-use projects. As a result of an ongoing effort to increase property concentration in the core markets, these markets now account for 67 percent of our current portfolio. We expect this concentration to increase as 93 percent of the total projects opened or acquired during 2003, and 96 percent of the projects under construction as of the end of 2003 are in these markets.

During 2003, we opened Short Pump Town Center in Richmond, Virginia, our first open-air regional lifestyle center, Worth Street, our first rental apartment building in Manhattan, and began to develop University of Pennsylvania in Philadelphia, our first biotechnology-related development opportunity outside of the Boston market.

•		Completing 13 project openings and acquisitions,

•		Closing $1.2 billion in mortgage financing transactions at attractive interest rates,

•		Being awarded the exclusive right to negotiate for the mixed-use redevelopment of Southeast Federal Center in Washington, D.C.,

•		Announcing plans for Brooklyn Atlantic Yards, a long-term mixed-use urban development project whose main attraction is expected to be a new sports and entertainment arena,

•		Being selected to negotiate for the rights to develop our first military families housing community in Hawaii, and

•		Taking control of The New York Times headquarters site.

In the second quarter of 2003, we completed a $300 million, 7.625% Senior Note offering due in 2015. In February 2004, we completed a $100 million, 7.375% Senior Note offering due in 2034. Both offerings lowered the cost of our fixed-rate corporate debt by approximately 100 basis points and extended the average maturities of our corporate debentures to 16 years.

Additionally, in the first quarter of fiscal 2004, we renegotiated our corporate credit facility. The expansion to $450 million represents a $150 million increase in availability in our credit line. The new facility matures in 2007 with annual renewal options.

All three of these transactions significantly improved our liquidity and long-term financial flexibility.

Even though consumer sentiment improved during 2003, low job growth across our markets continues to affect both our commercial and residential businesses. Furthermore, the record-low interest rates, which are spurring home sales and causing residential rental vacancies and rent rate reductions, continue to have a negative impact on our apartment business. As a result, we believe any meaningful economic recovery is unlikely in the short term.

We are, therefore, cautiously optimistic as we move into 2004. We fully expect that 2004 will be just as challenging as 2003. At the same time, we have a track record of past successes and a strong pipeline of future opportunities which preserves our optimism. We are clearly in a position of strength, with a balanced portfolio concentrated in the product types and geographic markets that offer many exciting, financially rewarding opportunities.

Net Earnings - Net Earnings for the Company for the year ended January 31, 2004 were $42,669,000 versus $48,831,000 and $103,029,000 for the years ended January 31, 2003 and 2002, respectively. The decrease in net earnings in the year ended January 31, 2004 compared to the prior year is primarily the result of a one-time expense of $6,942,000, net of tax, related to our public offering of senior notes completed in May 2003. The decrease in net earnings in the year ended January 31, 2003 compared to the prior year of $54,198,000 is primarily attributable to the gain on disposition of operating properties and other investments, net of tax, of $55,076,000 in the year ended January 31, 2002.

Summary of Segment Operating Results — The following tables present a summary of revenues, operating expenses and interest expense incurred by each segment for the years ended January 31, 2004, 2003 and 2002, respectively. See discussion of these amounts in Results of Operations by segment in the narratives below.


	Years Ended January 31,
	2004		2003		2002
	(in thousands)
Revenues
Commercial Group	$	638,070	$	585,065	$	551,029
Residential Group		169,547		127,295		145,560
Land Development Group		90,179		71,175		45,421
Lumber Trading Group		123,249		97,060		115,728
Corporate Activities		543		1,142		506

Total Revenues	$	1,021,588	$	881,737	$	858,244

Operating Expenses
Commercial Group	$	345,914	$	314,694	$	321,602
Residential Group		97,190		73,634		80,205
Land Development Group		58,474		42,974		27,672
Lumber Trading Group		110,139		91,121		104,955
Corporate Activities		24,690		17,683		18,083

Total Operating Expenses	$	636,407	$	540,106	$	552,517

Interest Expense
Commercial Group	$	135,851	$	123,087	$	122,443
Residential Group		29,288		21,968		23,483
Land Development Group		3,098		785		1,010
Lumber Trading Group		3,302		2,655		3,131
Corporate Activities		26,583		25,732		28,513

Total Interest Expense	$	198,122	$	174,227	$	178,580

Revenues - Revenues for the Commercial Group increased by $53,005,000 or 9.1% in the year ended January 31, 2004 compared to the year ended January 31, 2003. These increases are primarily the result of:

•		Opening of new properties as noted in the first table below totaling $40,216,000.

•		Increase in commercial land sales of $16,301,000 primarily due to the sale of land in Queens, New York.

•		Increase in our hotel portfolio of $6,241,000 primarily due to the May 2002 re-opening of the Embassy Suites Hotel located in Manhattan, New York.

•		Non-recurring lease termination fee income of $7,540,000 received in 2002 at a retail center in New York City.

•		Disposition of Courtland Center, a 458,000 square-foot retail center located in Flint, Michigan and Bay Street, a 16,000 square-foot retail center located in Staten Island, New York totaling $6,437,000 in the fourth quarter of 2002.

•		Decrease of $1,118,000 which represents a decrease in insurance proceeds from the Embassy Suites Hotel compared to 2002.

The balance of the remaining increase in revenues of approximately $4,200,000 is generally due to fluctuations in mature properties.

Revenues for the Commercial Group increased by $34,036,000 or 6.2% in 2002 compared to 2001. These increases are primarily the result of:

•		The opening of new properties and acquisitions made as noted in the second table below totaling $43,136,000.

•		Increases in revenues of $4,671,000 as a result of the expansion at the Sheraton Station Square located in Pittsburgh, Pennsylvania.

•		Increase of $9,099,000 in our remaining hotel portfolio due to a partial recovery of the travel industry from fiscal 2001.

•		Lease termination fee income of $7,540,000 at a retail center in New York City.

•		Increase in construction fees at Twelve MetroTech Center of $6,391,000. In the second quarter of 2001, we broke ground on Twelve MetroTech Center in Brooklyn, New York and, when complete in 2005, this building will have 32 stories totaling over 1,100,000 square feet owned in condominium by us and the City of New York.

•		Increase of $1,528,000 in garage and warehouse revenue at Station Square primarily due to the impact of the opening of Bessemer Court, both of which are located in Pittsburgh, Pennsylvania.

•		Property dispositions in 2001 of Tucson Mall in Tucson, Arizona and Bowling Green Mall in Bowling Green, Kentucky, reducing comparable revenues by $11,540,000.

•		Non-recurring sale in 2001 totaling $7,950,000 of a non-operating property at Ballston Common Mall in Arlington, Virginia and the sale of a participating interest in a regional mall.

•		Decrease of $6,985,000 as a result of Bay Street and Courtland Center being classified as discontinued operations in 2002.

•		Non-recurring retail lease termination fee in 2001 of $3,500,000.

•		Payment of past due rentals from a former tenant of $918,000 which was received in 2001 at Hunting Park in Philadelphia, Pennsylvania that did not recur in 2002.

•		Decreased commercial land sales of $472,000.

The balance of the remaining decrease in revenue in the Commercial Group of approximately $7,000,000 was generally due to fluctuations in mature properties.

Operating and Interest Expenses - Operating expenses increased $31,220,000 or 9.9% in 2003 compared to 2002. The increase in operating expenses was primarily attributable to:

•		Costs associated with the opening of new properties of $12,787,000 as noted in the first table below.

•		Increase in costs relating to commercial land sales of $15,312,000 primarily due to the sale of Metropolitan.

•		Increase in project write-offs of abandoned development projects of $5,338,000 compared to 2002.

•		Greater operating costs of $5,067,000 in our hotel portfolio primarily due to the re-opening of the Embassy Suites Hotel in May 2002.

These increases in operating expenses were partially offset by the following decreases:

•		Dispositions of Courtland Center and Bay Street in the fourth quarter of 2002 reducing comparable revenues by $3,012,000.

•		A participation payment of $1,693,000 in 2002 associated with the ground lease at the Richards Building located in University Park at MIT in Cambridge, Massachusetts that did not recur in 2003.

The balance of the remaining decrease in operating expenses of approximately $2,600,000 was generally due to fluctuations in mature properties.

Interest expense for the Commercial Group increased by $12,764,000 or 10.4% in 2003 compared to 2002. The increase is primarily attributable to the net increase in interest expense from the opening of new properties which exceeded the decrease in asset dispositions in 2003 and 2002 as previously such costs were capitalized.

Operating expenses decreased $6,908,000 or 2.1% in 2002 compared to 2001. The decrease in operating expenses was primarily attributable to:

•		Decrease in abandoned development project write-offs of $15,858,000 compared to 2001.

•		Dispositions of Tucson Mall and Bowling Green Mall in 2001 reducing comparable expenses by $6,846,000.

•		Decreases in costs totaling $4,300,000 due to a sale in 2001 of a non-operating property and participating interest in a specialty retail center.

•		Decrease of $3,322,000 for Bay Street and Courtland Center which in 2002 are being shown as discontinued operations.

•		Decrease of $1,965,000 for lease buy-out costs in the retail portfolio.

•		Charges totaling $945,000 in 2001 resulting from our newly assumed management of the theater operations at Columbia Park Center, an urban retail center in North Bergen, New Jersey.

These decreases in operating expenses were partially offset by the following increases:

•		The openings of new properties and acquisitions made of $15,053,000 as noted in the second table below.

•		Increased operating costs of $11,485,000 at three hotels due to the impact of the expansion at Sheraton Station Square Hotel and as a result of our take over of the restaurant operations at Hilton Times Square Hotel and Embassy Suites Hotel both located in Manhattan, New York.

•		Increased expenses of $1,835,000 were also noted in the remainder of our hotel portfolio compared to last year due to increased occupancy rates.

•		Accrual of $1,834,000 for a settlement to the prior manager and related obligations of the restaurant operations at our two New York hotels.

•		Increase in costs of $2,425,000 relating to commercial land sales.

•		Increase in participation payment of $2,321,000 associated with the ground lease at the Richards Building compared to 2001.

•		Increase in operating costs of $913,000 at Station Square garage and warehouse operations due to the opening of Bessemer Court.

The balance of the decrease in operating expenses of approximately $9,500,000 was due to fluctuations in operating costs at mature properties.

Interest expense for the Commercial Group increased by $644,000 or .5% in 2002 compared to 2001. The increase is primarily attributable to increased borrowings during 2002.

The following table presents the significant increases in revenues and operating expenses incurred by the Commercial Group for newly opened properties for 2003 compared to 2002 (dollars in thousands):


		Qtr./Year						Operating
Property	Location	Opened		Sq. Ft.		Revenues		Expenses
Retail Centers:
Woodbridge Crossing	Woodbridge, NJ		Q3 - 2002		284,000	$	2,274	$	1,067
Harlem Center	Manhattan, NY		Q3 - 2002		126,000		3,282		631
Promenade in Temecula	Temecula, CA		Q3 - 2002		249,000		2,286		929
Station Square — Bessemer Court	Pittsburgh, PA		Q2 - 2002		52,000		696		389
Quebec Square	Denver, CO		Q2 - 2002		691,000		1,917		766

Office Buildings:
Harlem Center	Manhattan, NY		Q4 - 2003		146,000		734		227
Fifteen MetroTech Center	Brooklyn, NY		Q2 - 2003		653,000		13,493		3,467
40 Landsdowne Street	Cambridge, MA		Q2 - 2003		215,000		6,295		1,729
88 Sidney Street	Cambridge, MA		Q2 - 2002		145,000		3,740		1,644
35 Landsdowne Street	Cambridge, MA		Q2 - 2002		202,000		5,499		1,938

Total						$	40,216	$	12,787

The following table presents the significant increases in revenues and operating expenses incurred by the Commercial Group for newly-opened or acquired properties for 2002 compared to 2001 (dollars in thousands):


		Qtr./Year						Operating
Property	Location	Opened		Sq. Ft.		Revenues		Expenses
Retail Centers:
Woodbridge Crossing	Woodbridge, NJ		Q3 -2002		284,000	$	1,736	$	1,792
Harlem Center	Manhattan, NY		Q3 -2002		126,000		1,426		234
Promenade in Temecula	Temecula, CA		Q3 -2002		249,000		1,269		457
Station Square — Bessemer Court	Pittsburgh, PA		Q2 -2002		52,000		1,008		535
Quebec Square	Denver, CO		Q2 -2002		691,000		664		305
Galleria at South Bay (a)	Redondo Beach, CA		Q3 -2001		955,000		15,140		6,179
Queens Place	Queens, NY		Q3 -2001		455,000		7,179		2,595

Office Buildings:
88 Sidney Street	Cambridge, MA		Q2 -2002		145,000		4,940		723
35 Landsdowne Street	Cambridge, MA		Q2 -2002		202,000		4,662		749
65/80 Landsdowne Street	Cambridge, MA		Q3 -2001		122,000		5,112		1,484

Total						$	43,136	$	15,053

Revenues - Revenues for the Residential Group increased by $42,252,000, or 33.2%, in 2003 compared to 2002. These increases were primarily the result of:

•		Opening and acquisition of new properties as noted in the first table below totaling $17,557,000.

•		Increase of $10,845,000 due to consolidation of several properties that were previously accounted for on the equity method of accounting due to amendments in the partnership agreements.

•		Increase due to the recognition of contingent interest income of $5,300,000 from an unreserved participating note receivable at a syndicated property.

•		Increase of $3,113,000 from the sale of a parcel of land in Long Island, New York.

The balance of the remaining increase of approximately $5,400,000 is generally due to fluctuations in mature properties.

Revenues for the Residential Group decreased by $18,265,000, or 12.5%, in 2002 compared to 2001. These decreases were primarily the result of:

•		Decrease of $21,469,000 related to the reduction of reserves for notes receivable and related accrued interest from syndications (reduction of reserves for 2002 was $4,866,000 compared to $26,335,000 for 2001).

•		Decrease of $13,208,000 related to the disposition of three properties in the current year (see discussion of Discontinued Operations on page 30).

•		Decrease of $4,568,000 due to dispositions of four apartment complexes as noted in the third table below.

•		Decrease of $996,000 from land sales.

•

Opening and acquisition of new properties as noted in the second table below totaling $21,829,000.

Operating and Interest Expenses — Operating expenses for the Residential Group increased by $23,556,000, or 32%, in 2003 compared to 2002. These increases were primarily the result of:

•		Costs associated with the opening and acquisition of new properties as noted in the first table below totaling $6,878,000.

•		Increase in cost of $5,926,000 due to consolidation of several properties that were previously accounted for on the equity method of accounting due to amendments in the partnership agreements.

•		Increase in cost of $3,600,000 related to the sale of a parcel of land in Long Island, New York.

•		Increase in project write-offs of abandoned development projects totalling $2,963,000 compared to 2002.

The balance of the remaining increase in expenses of approximately $4,819,000 is generally due to fluctuations in mature properties.

Interest expense for the Residential Group increased by $7,320,000 or 33.3%, for 2003 compared to 2002. Interest expense increased by $3,319,000 due to the consolidation of several properties which were previously accounted for on the equity method of accounting due to amendments in the partnership agreements. The remaining increase of $4,001,000 is primarily the result of interest expense related to properties opened and acquired in 2003.

Operating expenses for the Residential Group decreased $6,571,000 or 8.2% for 2002 compared to 2001. These decreases were primarily the result of:

•		Decrease in expense of $2,523,000 due to disposition of four apartment complexes as noted in the third table below.

•		Decrease in project write-offs of abandoned development projects totaling $11,149,000 compared to 2001.

•		Decrease of approximately $9,000,000 related to the disposition of three properties in the current year (see discussion of Discontinued Operations on page 30).

•

Costs associated with the opening and acquisition of new properties as noted in the second table below totaling $15,459,000.

The balance of the remaining increase of approximately $643,000 is generally due to fluctuations in mature properties.

Interest expense for the Residential Group decreased by $1,515,000, or 6.5%, for 2002 compared to 2001. The decrease is primarily the result of the lower variable interest rates.

The following table presents the significant increases (decreases) in revenues and operating expenses incurred by the Residential Group for newly opened or acquired properties for 2003 compared to 2002 (dollars in thousands):


		Qtr./Year		No. of				Operating
Property	Location	Opened		Units		Revenues		Expenses
Cherrywood Village ^(a)	Denver, CO		Q3-2003		360	$	706	$	331
Ranchstone ^(a)	Denver, CO		Q3-2003		368		743		382
Consolidated-Carolina	Richmond, VA		Q2-2003		158		490		409
Southfield ^(a)	White Marsh, MD		Q4-2002		212		2,049		764
Landings of Brentwood^(a)	Nashville, TN		Q2-2002		724		2,240		1,054
Heritage	San Diego, CA		Q1-2002		230		2,514		436
Sterling Glen of Center City (formerly Chancellor Park)^(a)	Philadelphia, PA		Q1-2002		135		769		(698	)

Federally Assisted Housing (FAH) Properties
Grove ^(a)	Ontario, CA		Q3-2003		101		477		226
Independent Place II ^(a)	Parma Hts., OH		Q1-2003		201		1,261		784
Plymouth Square ^(a)	Detroit, MI		Q1-2003		280		2,828		1,229
Carl D. Perkins ^(a)	Pikeville, KY		Q3-2002		150		609		512
Autumn Ridge	Sterling Hts., MI		Q2-2002		251		1,181		580
Tower 43 ^(a)	Kent, OH		Q2-2002		101		359		291
Cambridge Towers ^(a)	Detroit, MI		Q2-2002		250		772		268
Coraopolis Towers ^(a)	Coraopolis, PA		Q2-2002		200		351		134
Donora Towers ^(a)	Donora, PA		Q2-2002		103		208		176

Total						$	17,557	$	6,878

The following table presents the significant increases in revenues and operating expenses incurred by the Residential Group for newly opened or acquired properties for 2002 compared to 2001 (dollars in thousands):


		Qtr./Year		No. of				Operating
Property	Location	Opened		Units		Revenues		Expenses
Southfield ^(a)	White Marsh, MD		Q4-2002		212	$	186	$	155
Landings of Brentwood ^(a)	Nashville, TN		Q2-2002		724		4,192		1,946
Heritage	San Diego, CA		Q1-2002		230		1,059		1,208
Sterling Glen of Center City (formerly Chancellor Park) ^(a)	Philadelphia, PA		Q1-2002		135		4,255		4,796
Sterling Glen of Darien (formerly Stony Brook Court) ^(a)	Darien, CT		Q3-2001		86		3,545		2,082
Sterling Glen of Bayshore (formerly Pine Cove) ^(a)	Bayshore, NY		Q3-2001		85		3,155		2,656

FAH Properties
Carl D. Perkins ^(a)	Pikeville, KY		Q3-2002		150		400		168
Autumn Ridge ^(a)	Sterling Hts., MI		Q2-2002		251		1,171		501
Tower 43 ^(a)	Kent, OH		Q2-2002		101		338		268
Cambridge Towers ^(a)	Detroit, MI		Q2-2002		250		1,759		791
Coraopolis Towers ^(a)	Coraopolis, PA		Q2-2002		200		1,191		570
Donora Towers ^(a)	Donora, PA		Q2-2002		103		578		318

Total						$	21,829	$	15,459

The following table presents the significant decreases in revenues and operating expenses incurred by the Residential Group for disposed properties for 2002 compared to 2001 (dollars in thousands):

Revenues - Sales of land and related gross margins vary from period to period depending on market conditions relating to the disposition of significant land holdings. Revenues for the Land Development Group increased by $19,004,000 in 2003 compared to 2002. This increase is primarily the result of the following.

	•		Sale of the entire Hawk’s Haven subdivision in Ft. Myers, Florida for approximately $30,000,000.

	•		Combined revenue increases of $7,959,000 primarily at Stapleton in Denver, Colorado and several smaller sales increases at various land development projects.

•

Combined decreases of $18,955,000 primarily at three major land development projects, Central Station in Chicago, Illinois, Willowbrook in Twinsburg, Ohio, Waterbury in North Ridgeville, Ohio and several smaller sales decreases at various land development projects. These decreases were primarily related to normal declines in sales volume combined with a one time land sale at Willowbrook and a decrease in preferred return earned on partner advances at Central Station.

Revenues for the Land Development Group increased by $25,754,000 in 2002 compared to 2001. These increases are primarily the result of the following.

•

Increases in land sales of approximately $38,400,000 at five major land development projects: Stapleton, Central Station, Willowbrook, New Haven in Barberton, Ohio and Waterbury, combined with several smaller sales increases at various land development projects.

•

Combined decreases of $12,619,000 at four major land development projects: Chestnut Lakes in Elyria, Ohio, Westwood Lakes in Tampa, Florida, The Greens at Birkdale Village in Huntersville, North Carolina and Avalon in North Ridgeville, Ohio and several smaller sales decreases at various land development projects. (Westwood Lakes, The Greens at Birkdale Village and Avalon properties have completely sold out.)

Operating and Interest Expenses - The fluctuation in Land Development Group operating expenses primarily reflects costs associated with land sales volume in each period. Operating expenses increased by $15,500,000 in 2003 compared to 2002. This increase is primarily due to:

	•		Cost of the Hawk’s Haven subdivision sale of approximately $17,000,000.

	•		Combined increases of $7,222,000 at Stapleton and several smaller land development projects.

•

Combined decreases of $8,722,000 primarily at three major land development projects: Central Station, Willowbrook and Waterbury and several smaller sales decreases at various land development projects.

Operating expenses increased by $15,302,000 in 2002 compared to 2001. This increase is primarily due to:

•

Increased combined expenses of $23,052,000 primarily at five land development projects: Stapleton, Central Station, Willowbrook, New Haven and Waterbury and several smaller expense increases at various land development projects.

•

Combined decreases of $7,750,000 primarily at four land development projects: Chestnut Lakes, The Greens at Birkdale, Westwood Lakes and Avalon and several smaller expense decreases at various land development projects.

Interest expense increased by $2,313,000 in 2003 compared to 2002 and decreased by $225,000 in 2002 compared to 2001. Interest expense varies from year to year depending on the level of interest-bearing debt within the Land Development Group.

Revenues - Revenues for the Lumber Trading Group increased by $26,189,000 in 2003 compared to 2002. The increase was primarily due to a significant price increase in panel products but also to some degree in lumber product prices, and the very favorable housing construction market supported by some of the lowest interest rates in over 40 years.

Revenues for the Lumber Trading Group decreased by $18,668,000 in 2002 compared to 2001. The decrease was primarily due to an extreme downward movement of commodity lumber prices. The downward movement was the result of an extreme oversupply situation which was magnified by a very strong U.S. dollar.

Operating and Interest Expenses - Operating expenses for the Lumber Trading Group increased by $19,018,000 in 2003 compared to 2002. This increase is due to higher variable expenses, primarily traders’ commissions resulting from the increased revenue explained above. Interest expense increased $647,000 in 2003 compared to 2002 primarily due to increases in borrowing levels needed to support significantly higher accounts receivable and the higher interest rates associated with our new asset based lending facility.

Operating expenses for the Lumber Trading Group decreased by $13,834,000 in 2002 compared to 2001. These decreases are primarily due to a lower variable expense resulting from the decreased revenue explained above. Interest expense decreased $476,000 in 2002 compared to 2001 primarily due to a reduction in interest rates.

Revenues - Corporate Activities’ revenues decreased $599,000 in 2003 compared to 2002 and increased $636,000 in 2002 compared to 2001. Corporate Activities’ revenues consist primarily of interest income from investments and loans made by us and vary from year to year depending on interest rates and the amount of loans outstanding.

Operating and Interest Expenses - Operating expenses for Corporate Activities increased $7,007,000 in 2003 compared to 2002 and decreased $400,000 in 2002 compared to 2001. Operating expenses for 2003 increased over 2002 primarily as the result of certain expenditures incurred during the current year but not the prior year, including approximately $1,500,000 in consulting fees related to the Company’s compliance with Section 404 of the Sarbanes-Oxley Act of 2002, an additional $1,000,000 in charitable contributions, consulting fees of approximately $500,000 related for tax deferral techniques and technology improvements, approximately $500,000 related to the Company’s long-term strategic plan activities, approximately $2,000,000 in long-term incentive and severance accruals, and an increase in the cost of the Company’s insurance program of approximately $1,000,000. Interest expense increased by $851,000 in 2003 compared to 2002 and decreased by $2,781,000 in 2002 compared to 2001 as a result of changes in levels of borrowings and changes in variable interest rates. Corporate Activities’ interest expense consists primarily of interest expense on the Senior Notes and the long-term credit facilities that have not been allocated to a strategic business unit (see “Financial Condition and Liquidity”).

Early Extinguishment of Debt - On February 1, 2002 we adopted the provisions of SFAS No. 145, “Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13 on Technical Corrections” (SFAS No. 145), which requires gains or losses from early extinguishment of debt to be classified in operating income or loss. We previously recorded gains or losses from early extinguishment of debt as extraordinary items, net of tax, in its Statement of Earnings. For the year ended January 31, 2004, we recorded $190,000 relating to the disposition of Laurels and Vineyards as Loss on Early Extinguishment of Debt in Discontinued Operations. Laurels is a residential property located in Justice, Illinois, and Vineyards is a residential property located in Broadview Heights, Ohio. For the year ended January 31, 2004, we recorded $10,718,000 as Loss on Early Extinguishment of Debt. This amount is primarily the result of the payment in full of our $200,000,000, 8.5% senior notes due in 2008 at a premium of 104.25% for a loss on extinguishment of $8,500,000 for redemption premium and approximately $3,000,000 related to the write-off of unamortized debt issue costs. These changes were offset, in part, by net gains on early extinguishment of debt of approximately $800,000 on several residential properties.

For the year ended January 31, 2003, we reclassified $1,653,000 of early extinguishment of debt from Extraordinary Loss to Loss on Early Extinguishment of Debt to conform to the new guidance. These losses represented the impact of early extinguishment of nonrecourse debt in order to secure more favorable financing terms. We recorded extraordinary losses related to Lofts at 1835 Arch, a residential property located in Philadelphia, Pennsylvania, Autumn Ridge and Cambridge Towers, residential properties located in Michigan, Regency Towers, a residential property located in Jackson, New Jersey, and Mount Vernon Square, a residential property located in Alexandria, Virginia.

For the year ended January 31, 2002, we recorded $386,000 of Loss on Early Extinguishment of Debt. We recorded a gain of $1,054,000 related to Enclave, a residential property located in San Jose, California, and a loss of $1,440,000 related to Mount Vernon Square, a residential property located in Alexandria, Virginia.

Provision for Decline in Real Estate - During the years ended January 31, 2004, 2003 and 2002 we recorded a Provision for Decline in Real Estate totaling $3,238,000, $8,221,000 and $8,783,000. The provision represents the adjustment to fair market value of land held by the Residential group and a write-down to estimated fair value, less cost to sell, of Hunting Park, a retail center in Philadelphia.

Depreciation and Amortization - Depreciation and amortization increased $14,270,000 in 2003 compared to 2002 and $15,519,000 in 2002 compared to 2001. Depreciation and amortization increased for both years primarily as a result of acquisitions made and the opening of new properties offset by property dispositions and properties classified as discontinued operations.

Equity in Earnings of Unconsolidated Entities - Effective January 31, 2004 we have reclassified equity in earnings of unconsolidated entities in the Consolidated Statement of Earnings from revenues to a separate line item below total expenses. Equity in earnings of unconsolidated entities was $31,751,000 for the year ended January 31, 2004 compared to $38,684,000 for the year ended January 31, 2003 representing a decrease of $6,933,000. This decrease is primarily the result of the following:

•

Decrease of $1,441,000 related to a loss at Short Pump Town Center located in Richmond, Virginia which opened in the third quarter of 2003.

	•		Decrease of $4,151,000 occurred from the loss on sale of Waterford Village in Indianapolis, Indiana.

	•		Decrease of $1,374,000 resulting from the loss of revenues during unit rehabilitation at Kennedy Biscuit Lofts in Cambridge, Massachusetts.

	•		Decrease of $2,739,000 resulting from the consolidation of several properties that were reported as equity investments in prior years due to amendments to the partnership agreements.

•

Provision for decline in real estate of $4,621,000 recorded on a land development project in the fourth quarter of 2003. This impairment was the result of changes in our estimate of the project’s net realizable value due to changes in sales projections as well as changes in our estimate of the overall recoverability of the project.

•

Decrease in land sales of $2,603,000 related to several land development projects, primarily Seven Hills in Henderson, Nevada compared to year 2002.

•

Increase of $3,684,000 as a result of outlot sales at three properties in 2003.

•

Increase of $1,011,000 from the lease up of Residences at University Park, a development project located in Cambridge, Massachusetts.

•

Increases in sales at several land development projects totaling $5,876,000, primarily Ethans Green in Twinsburg, Ohio and Thornbury in Solon, Ohio.

Equity in earnings of unconsolidated entities for the year ended January 31, 2003 was $38,684,000 compared to $48,326,000 for the year ended January 31, 2002, a decrease of $9,642,000. This decrease is primarily the result of the following:

•

Decrease of $2,541,000 for outlot sales at Mall at Stonecrest located in Atlanta, Georgia compared to 2001 sales.

•

Decrease of $1,700,000 related to land sales at Chapel Hill Mall located in Akron, Ohio, which did not recur in 2002.

	•		Decrease of $5,032,000 related to the 2001 sale of Chapel Hill Towers in Akron, Ohio.

	•		Decrease of $2,112,000 at the Enclave in San Jose, California resulting from the over supply of rental property in the San Jose market.

	•		Decrease due to loss of $1,674,000 relates to Residences at University Park, a new development project opened in Cambridge, Massachusetts in 2002.

•

Decreases of $4,010,000 related to land sales at Central Station located in Chicago, Illinois, compared to 2001.

	•		Increase in earnings of $1,738,000 at Mall of Robinson located in Pittsburgh, Pennsylvania and Mall at Stonecrest, in Atlanta, Georgia due to full year of operations in 2002.

	•		Increase in earnings of $1,173,000 due to the expansion of Galleria at Sunset, located in Henderson, Nevada in 2002.

	•		Increase of $1,358,000 from the lease up of Classic Residence by Hyatt, a newly constructed apartment community located in Yonkers, New York.

	•		Increase of $1,386,000 from the lease up of the Lofts at 1835 Arch, a newly rehabilitated assisted living community located in Philadelphia, Pennsylvania.

	•		Increase of $793,000 from the lease up of the Drake, a newly constructed apartment community located in Philadelphia, Pennsylvania.

•

Increase of $357,000 related to land sales at several land development projects.

(Loss) Gain on Disposition of Operating Properties – The following table summarizes the (loss) gain on disposition of operating properties and other investments by year.

Years Ended January 31,

2004

2003

2002

(in thousands)

Continuing Operations

Available-for-sale equity securities

(171

)

(295

)

(5,586

)

Tucson Mall*

Tucson, AZ

–

86,096

Palm Villas

Henderson, NV

–

7,259

Bowling Green Mall*

Bowling Green, KY

–

1,892

Peppertree

College Station, TX

–

1,682

Whitehall Terrace*

Kent, OH

–

1,105

The Oaks

Bryan, TX

–

(1,010

)

Other

–

(329

)

(171

)

(295

)

91,109

Discontinued Operations

Laurels*

Justice, IL

4,249

–

Vineyards*

Broadview Hts., OH

2,109

–

Trowbridge

Southfield, MI

538

–

Courtland Center

Flint, MI

–

7,087

–

Bay Street

Staten Island, NY

–

125

–

Other

(127

)

(243

)

–

6,769

6,969

–

Total

6,598

6,674

91,109

* Sold in a tax-deferred exchange. The proceeds were reinvested through an intermediary in the acquisition of a replacement property through an intermediary.

Income Taxes - Income tax expense totaled $28,799,000, $32,048,000 and $63,334,000 in 2003, 2002 and 2001, respectively. At January 31, 2004, we had a net operating loss carryforward for tax purposes of $27,645,000 (generated primarily from the impact of tax depreciation expense from real estate properties on our net earnings) that will expire in the years ending January 31, 2022 through January 31, 2024, General Business Credit carryovers of $8,238,000 that will expire in the years ending January 31, 2005 through 2024 and Alternative Minimum Tax (“AMT”) carryforward of $31,515,000 that is available until used to reduce Federal tax to the AMT amount. Our policy is to consider a variety of tax-deferral strategies, using mostly tax free exchanges, when evaluating our future tax position.

Discontinued Operations - We adopted the provisions of Statement of Financial Accounting Standard (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” effective February 1, 2002. This standard addresses financial accounting and reporting for the impairment or disposal of long-lived assets. It also retains the basic provisions for presenting discontinued operations in the income statement but broadened the scope to include a component of an entity rather than a segment of business. Pursuant to the definition of a component of an entity in SFAS No. 144, assuming no significant continuing involvement, all earnings of properties which have been sold or held for sale are reported as discontinued operations. We consider assets held for sale when the transaction has been approved by the appropriate level of management and there are no contingencies related to the sale that may prevent the transaction from closing. In most transactions, these contingencies are not satisfied until the actual closing of the transaction, and, accordingly, the property is not identified as held for sale until the closing actually occurs. However, each potential transaction is evaluated based on its separate facts and circumstances. Three properties are classified as discontinued operations in the Statement of Earnings for the year ended January 31, 2004. Five properties classified as discontinued operations were reclassified as such in the Statement of Earnings for the year ended January 31, 2003. Due to the immateriality of the operating results for the year ended January 31, 2002, no reclassification was made in the Statement of Earnings for that year.

Included in discontinued operations for the year ended January 31, 2004 are three properties: Trowbridge, Vineyards and Laurels. Trowbridge, located in Southfield, Michigan, has 305 supported living units, and its deed was accepted by its lender in lieu of foreclosure in April 2003. Vineyards, a 336-unit apartment complex in Broadview Heights, Ohio and Laurels, a 520-unit apartment complex in Justice, Illinois, were both sold during the third quarter ended October 31, 2003. Trowbridge, Vineyards and Laurels were previously included in the Residential Group.

Included in discontinued operations for the year ended January 31, 2003 are five properties: Bay Street, Courtland Center, Trowbridge, Vineyards and Laurels. Bay Street, a 16,000 square-foot retail center located in Staten Island, New York, was sold in the fourth quarter ended January 31, 2003. Courtland Center, a 458,000 square-foot retail center located in Flint, Michigan, was also sold during the fourth quarter ended January 31, 2003. Bay Street and Courtland Center were both previously included in the Commercial Group.

(1)		Amounts at January 31, 2002 have not been restated as discontinued operations on the Consolidated Statement of Earnings and have been included here for informational purposes only.

(2)		The Company has elected to restate the amounts at January 31, 2003 for the disposal of Vineyards and Laurels on the Consolidated Statement of Earnings.

We believe that our sources of liquidity and capital are adequate to meet our funding obligations. Our principal sources of funds are cash provided by operations, the long-term credit facility, refinancings of nonrecourse mortgage debt, dispositions of mature properties and proceeds from the issuance of senior notes. Our principal use of funds are the financing of development and acquisitions of real estate projects, capital expenditures for our existing portfolio, payments on nonrecourse mortgage debt on real estate, payments on the long-term credit facility and retirement of senior notes previously issued. The discussion below under Senior Notes and Long-Term Credit Facility outline recent events that have significantly enhanced our liquidity and financial flexibility which will be important in our efforts to continue to develop and acquire quality real estate assets.

Senior Notes - On May 19, 2003, we issued $300,000,000 of our 7.625% senior notes due June 1, 2015 in a public offering under our shelf registration statement. Accrued interest is payable semi-annually on June 1 and on December 1. $208,500,000 of the proceeds from this offering were used to redeem all of the outstanding 8.5% senior notes originally due in 2008 at a redemption price equal to 104.25%. The remainder of the proceeds were used for offering costs of $8,151,000, to repay $73,000,000 outstanding under the revolving portion of the long-term credit facility and for general working capital purposes. These senior notes are unsecured senior obligations and rank equally with all existing and future unsecured indebtedness; however they are subordinated to all of our existing and future secured indebtedness and other liabilities of our subsidiaries, including the long-term credit facility. The indenture contains covenants providing, among other things, limitations on incurring additional debt and payment of dividends. The dividend limitation is not as restrictive as imposed by the Company’s long-term credit facility (see below). These senior notes may be redeemed by us, at any time on or after June 1, 2008 at redemption prices beginning at 103.813% for the year beginning June 1, 2008 and systematically reduced to 100% in years thereafter.

On February 10, 2004, we issued $100,000,000 of 7.375% senior notes due February 1, 2034, in a public offering. Accrued interest is payable quarterly on February 1, May 1, August 1 and November 1. A portion of the net proceeds from this offering were used to pay off the outstanding balance of $56,250,000 under the long-term credit facility (see below). The senior notes are unsecured senior obligations and rank equally with all existing and future unsecured indebtedness; however, they are subordinated to all existing and future secured indebtedness and other liabilities of our subsidiaries, including the long-term credit facility. The indenture contains covenants providing, among other things, limitations on incurring additional debt and payment of dividends. The dividend limitation is not as restrictive as imposed by the Company’s long-term credit facility (see below). These notes may be redeemed, in whole or in part, at any time on or after February 10, 2009 at a redemption price equal to 100% of their principal amount plus accrued interest.

Long-Term Credit Facility - The $350,000,000 long-term credit facility became effective on March 5, 2002 includes a $100,000,000 term loan and a $250,000,000 revolving line of credit. Outstanding balances are as follows:

The January 31, 2004 balance of $56,250,000 was paid in full on February 10, 2004 with a portion of the net proceeds from the $100,000,000 senior note offering (see above). The revolving credit facility was scheduled to mature in March 2006 and allowed for up to a combined amount of $40,000,000 in outstanding letters of credit or surety bonds ($33,939,000 and $26,788,000 in letters of credit and $-0- surety bonds outstanding at January 31, 2004 and 2003, respectively). Quarterly principal payments of $6,250,000 on the term loan commenced July 1, 2002.

Effective March 22, 2004, we increased our long-term credit facility to $450,000,000. The credit facility now includes a $450,000,000 revolving line of credit (with no term loan) that will mature in March 2007. The revolving line of credit allows up to a combined amount of $50,000,000 in outstanding letters of credit or surety bonds and has terms comparable to the previous credit facility.

The long-term credit facility provides, among other things, for: 1) at our election, interest rates of 2.125% over LIBOR or 1/2% over the prime rate (the last $50,000,000 of borrowings under the revolving loans bears interest at 2.75% over LIBOR or 3/4% over the prime rate); 2) maintenance of debt service coverage ratios and specified levels of net worth and cash flow (as defined in the credit facility); and 3) restrictions on dividend payments and stock repurchases. At January 31, 2004, retained earnings of $5,040,000 were available for payment of dividends. On March 5, 2004, the anniversary date of the long-term credit facility, this amount was reset to the $20,000,000. Under the new agreement this limitation will be reset each March 22 to $30,000,000.

In order to mitigate the short-term variable interest rate risk on our long-term credit facility, we have purchased $147,882,000 of 5.00% LIBOR interest rate caps that mature on August 1, 2004.

Lumber Trading Group - The Lumber Trading Group is financed separately from the rest of our strategic business units. The financing obligations of Lumber Trading are without recourse to us. Accordingly, the liquidity of Lumber Trading Group is discussed separately below under “Lumber Trading Group Liquidity.”

Our primary capital strategy seeks to isolate the financial risk at the property level to maximize returns on our equity capital. All of our mortgage debt is nonrecourse including our construction loans. We operate as a C-corporation and retain substantially all of our internally generated cash flow. We recycle this cash flow, together with refinancing and property sale proceeds to fund new development and acquisitions that drive favorable returns for our shareholders. This strategy provides us with the necessary liquidity to take advantage of investment opportunities.

We are actively working to extend the maturities and/or refinance the nonrecourse debt that is coming due in 2004 and 2005, generally pursuing long-term fixed-rate debt for our stabilized properties. During the year ended January 31, 2004, we completed the following financings:

For maturing debt, we continue to seek long-term debt for those project loans which mature within the next 12 months as well as for those projects which will begin operation within the next 12 months, generally pursuing fixed-rate loans. For construction loans, we generally pursue floating-rate financings with maturities ranging from two to five years. Upon opening and achieving stabilized operations, we generally pursue long-term fixed rate financing.

At January 31, 2004, the composition of nonrecourse mortgage debt was as follows:

On January 31, 2004, the composition of nonrecourse mortgage debt (included in the figures above) related to projects under development is as follows:

To mitigate short-term variable interest rate risk, we have purchased London Interbank Offered Rate (“LIBOR”) interest rate hedges for our mortgage debt portfolio as follows:

(1)		Swaps include long-term LIBOR contracts that have an average initial maturity greater than six months.
(2)		These LIBOR-based hedges as of February 1, 2004 protect the debt currently outstanding as well as the anticipated increase in debt outstanding for projects under development or anticipated to be under development during the year ending January 31, 2005.

Outside of lender hedging requirements that require the borrower to protect against significant fluctuations to interest rates, we generally do not hedge tax-exempt debt because, since 1990, the base rate of this type of financing has averaged 3.20% and has never exceeded 7.90%. As of January 31, 2004, we have $117,000,000 of tax-exempt caps at a weighted average strike rate of 6.80% that have maturities through January 2006.

Including properties accounted for under the equity method, a 100 basis point increase in taxable interest rates would increase the annual pre-tax interest cost for the next 12 months of our taxable variable-rate debt by approximately $3,200,000 at January 31, 2004. This increase is net of the protection provided by the interest rate swaps and long-term contracts in place as of January 31, 2004 and contemplates the effects of floors on $163,883,000 of LIBOR-based debt. A portion of our taxable variable rate debt is related to construction loans for which the interest expense is capitalized. Although tax-exempt rates generally increase in an amount that is smaller than corresponding changes in taxable interest rates, a 100 basis point increase in tax-exempt rates would increase the annual pre-tax interest cost for the next 12 months of our tax-exempt variable-rate debt by approximately $4,900,000 at January 31, 2004.

Lumber Trading Group is separately financed with a three year revolving line of credit totaling $120,000,000 (with an ability to expand to $180,000,000) at January 31, 2004, which became effective on October 23, 2003. The outstanding balance of the prior credit facility of $58,931,000 was paid in full with the proceeds of the new revolving line of credit. At January 31, 2004, $64,815,000 was outstanding under this current revolving line of credit.

Borrowings under the bank line of credit are collateralized by all the assets of the Lumber Trading Group, bear interest at the lender’s prime rate or LIBOR plus an applicable margin ranging from 1.75% to 2.25%, and have a fee of 0.25% to 0.5% per year on the unused portion of the available commitment. The LIBOR loan margin and unused commitment fee are based on an average quarterly borrowing base availability. The bank line of credit allows for outstanding letters of credit in the amount of the difference between the collateral balance available or the line limit (whichever is less) less the outstanding loan balance, with a maximum limit of $10,000,000. Outstanding letters of credit were $3,484,000 and $-0- at January 31, 2004 and 2003, respectively.

The Lumber Trading Group previously had a three-year securitization agreement, under which it was selling an undivided interest in a pool of receivables up to a maximum of $88,627,000 to a large financial institution. This securitization facility was repaid in full on October 15, 2003 using borrowing under the credit facility in place prior to October 23, 2003 and was not replaced.

To protect against risks associated with the variable interest rates on current and future borrowings on the revolving line of credit, the Lumber Trading Group entered into an interest rate swap on October 29, 2003 with a notional amount of $20,000,000. The swap fixes the LIBOR interest rate at 1.65% and is effective through January 31, 2005.

Recourse of this credit facility is limited to certain assets of the Lumber Trading Group. We believe that the amount available under this credit facility will be sufficient to meet the Lumber Trading Group’s liquidity needs.

Net cash provided by operating activities was $148,401,000, $203,719,000 and $81,981,000 for the years ended January 31, 2004, 2003 and 2002, respectively. The decrease in net cash provided by operating activities in the year ended January 31, 2004 compared to the prior year of $55,318,000 and the increase in net cash provided by operating activities in the year ended January 31, 2003 compared to the prior year of $121,738,000 are the result of the following:


	Years Ended January 31,
	2004 vs 2003						2003 vs 2002
	(in thousands)
Increase in operating revenue, excluding land sales	$	104,024					$	41,450
(Increase) decrease in accounts receivable, primarily Lumber Trading Group		(74,178	)					73,219
Other		(279	)					(1,032	)

Increase in rents and other revenues received				$	29,567					$	113,637
Increase (decrease) in cash distributions from unconsolidated entities					4,575						(9,388	)
Increase in proceeds from land sales					3,829						28,605
Decrease (increase) in land development expenditures					14,536						(17,335	)
Increase in operating expenses		(54,557	)					(20,493	)
Increase in inventories		(8,110	)					620
Increase in operating escrow funds		(1,376	)					(1,327	)
(Decrease) increase in accounts payable and accrued expenses		(23,393	)					19,647

Increase in operating expenditures					(87,436	)					(1,553	)
(Increase) decrease in interest paid					(20,389	)					7,772

(Decrease) increase in cash provided by operating activities				$	(55,318	)				$	121,738

Net cash used in investing activities totaled $410,422,000, $592,745,000 and $213,286,000 for the years ended January 31, 2004, 2003 and 2002, respectively.


	Years Ended January 31,
	2004			2003			2002
	(in thousands)
Capital expenditures*	$	(438,432	)	$	(552,305	)	$	(425,991	)
Net proceeds from disposition of operating properties and other investments
2003: Primarily, Vineyards, an apartment complex in Broadview Heights, Ohio and Laurels, an apartment complex in Justice, Illinois		2,549			–			–
2002: Primarily, Courtland Center, a retail center located in Flint, Michigan and Bay Street, a retail center located in Staten Island, New York		–			25,913			–
2001: Primarily, Tucson Mall in Tucson, Arizona, and Bowling Green Mall in Bowling Green, Kentucky, and the following residential apartment properties: Chapel Hill Towers in Akron, Ohio, Whitehall Terrace in Kent, Ohio, Peppertree in College Station, Texas, Palm Villas in Henderson, Nevada and the Oaks in Bryan, Texas		–			–			190,011
Change in investments in and advances to real estate affiliates:
Refinancing proceeds, net of investments made on behalf of the Company’s partner in Short Pump Town Center, a lifestyle center in Richmond, Virginia		38,204			(42,285	)		(15,780	)
Refinancing and return on investment of Mall at Stonecrest in Atlanta, Georgia		17,828			2,164			4,718
Various development projects in New York City		(26,702	)		(26,359	)		(22,154	)
Return on investment from Mall at Robinson in Pittsburgh, Pennsylvania		730			9,576			5,674
Return on investment from Galleria at Sunset in Henderson, Nevada		–			–			10,408
Other		(4,599	)		(9,449	)		39,828

Subtotal		25,461			(66,353	)		22,694

Total	$	(410,422	)	$	(592,745	)	$	(213,286	)









*Capital expenditures were financed as follows:
New nonrecourse mortgage indebtedness	$	391,554		$	394,867		$	267,001
Borrowings under the long-term credit facility (see next page)		19,000			157,305			24,500
Portion of proceeds from disposition of operating properties (see above)		2,549			–			134,490
Portion of cash provided by operating proceeds		25,329			–			–

Total	$	438,432		$	552,305		$	425,991

Net cash provided by financing activities totaled $247,156,000, $461,328,000 and $117,094,000 in the years ended January 31, 2004, 2003 and 2002, respectively.


	Years Ended January 31,
	2004			2003			2002
	(in thousands)
Proceeds from issuance of senior notes	$	300,000		$	–		$	–
Sale of common stock through a public offering		–			–			117,663
Increase in nonrecourse mortgage debt		963,583			779,749			482,351
Principal payments on nonrecourse mortgage debt		(572,849	)		(373,517	)		(302,051	)
Borrowings on long-term credit facility		19,000			178,000			24,500
Quarterly repayments of term loan, began in July 2002		(25,000	)		(18,750	)		–
Repayment of borrowings under the long-term credit facility:
2003: from proceeds of the new $300,000,000 senior notes		(73,000	)		–			–
2002: from proceeds of the new $100,000,000 term loan		–			(78,000	)		–
2001: primarily from proceeds of the sale of common stock		–			–			(160,000	)
Retirement of $200,000,000 senior notes and premium		(208,500	)		–			–
Payment of senior notes issuance costs		(8,151	)		–			–
Net increase (decrease) in notes payable:
Lumber Trading Group revolving credit facility		63,893			(861	)		4,617
Other		9,022			3,415			4,545
Repayment of Lumber Trading Group securitization agreement		(55,000	)		–			–
Increase in restricted cash and offsetting withdrawals of escrow deposits associated with tax-exempt nonrecourse mortgage debt borrowings (see above) primarily for residential projects		(101,022	)		(17,317	)		(37,002	)
(Decrease) increase in book overdrafts, representing checks issued but not yet paid		(2,968	)		2,552			5,406
Payment of deferred financing costs		(33,603	)		(10,944	)		(17,080	)
Proceeds from the exercise of stock options		3,635			3,137			4,577
Payment of dividends		(14,960	)		(10,912	)		(8,213	)
(Decrease) increase in minority interest		(16,924	)		4,776			(2,219	)

Total	$	247,156		$	461,328		$	117,094

We have adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN No. 45). We believe the risk of payment under these guarantees as described below is remote and, to date, no payments have been made under these guarantees.

As of January 31, 2004, we have guaranteed loans totaling $3,200,000, relating to a $1,800,000 bank loan for the Sterling Glen of Ryebrook (formerly Stone Gate at Bellefair) supported-living Residential Group project in Ryebrook, New York and our $1,400,000 share of a bond issue made by the Village of Woodridge, relating to a Land Development Group project in suburban Chicago, Illinois. These guarantees were entered into prior to January 31, 2003, and therefore, have not been recorded in our Consolidated Financial Statements at January 31, 2004, pursuant to the provisions of FIN No. 45. The bank loan guaranty is expected to terminate in early 2004. The bond issue guarantee terminates April 30, 2015, unless the bonds are paid sooner, and is limited to $500,000 in any one year. We also had outstanding letters of credit of $37,423,000 as of January 31, 2004. The maximum potential amount of future payments on the guaranteed loans and letters of credit we could be required to make is the total amounts noted above.

As a general partner for certain limited partnerships, we guaranteed the funding of operating deficits of newly-opened apartment projects for an average of five years. These guarantees were entered into prior to January 31, 2003, and therefore, have not been recorded in our Consolidated Financial Statements at January 31, 2004, pursuant to the provisions of FIN No. 45.

At January 31, 2004, the maximum potential amount of future payments on these operating deficit guarantees we could be required to make is approximately $18,000,000. We would seek to recover any amounts paid through refinancing or sales proceeds of the apartment project. These partnerships typically require us to indemnify, on an after-tax or “grossed up” basis, the investment partner against the failure to receive, or the loss of allocated tax credits and tax losses. At January 31, 2004 the maximum potential payment under these tax indemnity guarantees was approximately $64,000,000. We believe that all necessary requirements for qualifications for such tax credits have been and will be met and that our investment partners will be able to receive expense allocations associated with the properties. We have obtained legal opinions from major law firms supporting the validity of the tax credits. We do not expect to make any payments under these guarantees.

Our mortgage loans are all non-recourse, however in some cases lenders carve-out certain items from the non-recourse provisions. These carve-out items enable the lenders to seek recourse if we or the joint venture commit fraud, voluntarily file for bankruptcy, intentionally misapply funds, transfer title without lender consent, or intentionally misrepresent facts. We have also provided certain environmental guarantees. Under these environmental remediation guarantees, we must remediate any hazardous materials brought onto the property in violation of environmental laws. The maximum potential amount of future payments we could be required to make is limited to the actual losses suffered or actual remediation costs incurred. A portion of these carve-outs and guarantees have been made on behalf of joint ventures and while the amount of the potential liability is currently indeterminable, we believe any liability would not exceed our partners’ share of the outstanding principal balance of the loans in which these carve-outs and environmental guarantees have been made. At January 31, 2004 the outstanding balance of the partners’ share of these loans was approximately $605,000,000. We believe the risk of payment on the carve-out guarantees is mitigated in most cases by the fact we manage the property, and in the event our partner did violate one of the carve-out items, we would seek recovery from our partner for any payments we would make. Additionally, we further mitigate our exposure through environmental insurance and insurance coverage for items such as fraud.

We guaranteed the principal and interest on $19,000,000 of municipal bonds issued in May 2003 by an unrelated third party in connection with our investment in the redevelopment of Stapleton, a former airport in Denver, Colorado. We have a 90% ownership interest in Stapleton which is fully consolidated in our financial statements. The bonds bear interest at 7.875%, require semi-annual interest payments and mature on December 1, 2032. In addition, we plan to provide a similar guarantee relating to an additional $10,000,000 in municipal bonds expected to be drawn in the next eighteen months depending upon the status of the development at Stapleton. We have assessed this obligation pursuant to the provisions of FIN No. 45 and have determined the value of the guarantee to be approximately $500,000. This amount has been recorded in the Consolidated Balance Sheet at January 31, 2004.

We customarily guarantee lien-free completion of projects under construction. Upon completion, the guarantees are released. At January 31, 2004, we have guaranteed completion of construction of development projects with a total cost of $1,902,000,000 which are approximately 62% complete in the aggregate. The projects have total loan commitments of $1,658,000,000, of which approximately $594,000,000 was outstanding at January 31, 2004. To date, our subsidiaries have been successful in consistently delivering lien-free completion of construction projects, without calling our guarantees of completion.

We are also involved in certain claims and litigation related to our operations. Based on the facts known at this time, we have consulted with legal counsel and are of the opinion that the ultimate outcome of all such claims and litigation will not have a material adverse effect on our financial condition, results of operations or cash flows.

As of January 31, 2004, we were subject to certain contractual payment obligations as described in the table below.


	Payments Due by Period January 31,
	Total		2005			2006		2007		2008		2009
	(dollars in thousands)
Long-Term Debt:
Non-recourse mortgage debt	$	1,775,056	$	337,191		$	297,068	$	719,456	$	155,178	$	266,163
Notes payable:
Trading Group		64,815		–			–		64,815		–		–
Other		32,716		14,812			3,317		2,798		9,903		1,886
Long-term credit facility		56,250		56,250	⁽²⁾		–		–		–		–
Share of non-recourse mortgage debt of unconsolidated investments		551,312		87,320			132,268		108,740		132,118		90,866
Share of notes payable of unconsolidated investments		3,472		2,671			322		–		479		–
Operating leases		86,719		18,665			17,414		16,848		16,827		16,965
Share of leases of unconsolidated investments		5,060		1,012			1,012		1,012		1,012		1,012
Accounts payable and accrued expenses		612,967		593,783			12,040		2,448		2,348		2,348
Other⁽¹⁾		8,485		6,013			1,237		746		357		132

Total Contractual Obligations	$	3,196,852	$	1,117,717		$	464,678	$	916,863	$	318,222	$	379,372

(1) These amounts represent funds that we are legally obligated to pay under various service contracts, employment contracts and licenses over the next several years. These contracts are typically greater than one year and either do not contain a cancellation clause or cannot be terminated without substantial penalty. We have several service contracts with vendors related to our property management including maintenance, landscaping, security, phone service, etc. In addition, we have other service contacts that we enter into during out normal course of business which extend beyond one year and are based on usage including snow plowing, answering services, copier maintenance and cycle painting. As we are unable to predict the usage variables, these contracts have been excluded from our summary of contractual obligations at January 31, 2004.

We are involved in various claims and lawsuits incidental to our business, and management and legal counsel believe that these claims and lawsuits will not have a material adverse effect on our financial statements.

Along with our wholly-owned subsidiaries Forest City Enterprises Capital Trust I and Forest City Enterprises Capital Trust II, we filed an amended shelf registration statement with the Securities and Exchange Commission (SEC) on May 24, 2002. This shelf registration statement amends the registration statement previously filed with the SEC in December 1997. This registration statement is intended to provide Forest City flexibility to raise funds from the offering of Class A common stock, preferred stock, depositary shares and a variety of debt securities, warrants and other securities. At January 31, 2004 we had $542,180,000 available under our shelf registration statement. On February 10, 2004, we issued $100,000,000 of 7.375% senior notes due February 1, 2034, in a public offering under our shelf registration statement. Currently, we have $442,180,000 available under our shelf registration.

On June 11, 2003, the Board of Directors voted to increase the 2003 quarterly dividend to $.09 per share on both Class A and Class B common stock, representing a 50% annual increase over the previous quarterly dividend.

The first, second, third and fourth 2003 quarterly dividends of $.06, $.09, $.09 and $.09, respectively, per share on shares of both Class A and Class B common stock were paid June 16, 2003, September 15, 2003, December 15, 2003 and March 15, 2004, respectively.

The first 2004 quarterly dividend of $.09 per share on both Class A and Class B common stock was declared on March 11, 2004 and will be paid on June 15, 2004 to shareholders of record at the close of business on June 1, 2004.

In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure” (SFAS No. 148). This statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 “Accounting for Stock-Based Compensation” to require prominent disclosures in both annual and quarterly financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation is effective for us for the fiscal year ended January 31, 2004. The new requirements for quarterly disclosure were effective for the quarter ended April 30, 2003. We will continue to apply APBO No. 25 “Accounting for Stock Issued to Employees” and related interpretations in accounting for our stock-based employee compensation and do not expect SFAS No. 148 to have a material impact on our financial position, results of operations or cash flows.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN No. 46), “Consolidation of Variable Interest Entities.” In December 2003, the FASB published a revision to the interpretation (FIN No. 46(R)) to clarify some of the provisions of FIN No. 46 and to exempt certain entities from its requirements. The objective of this interpretation is to provide guidance on how to identify a variable interest entity (VIE) and determine when the assets, liabilities, non-controlling interests, and results of operations of a VIE are to be included in the consolidated financial statements. A company that holds a variable interest in an entity will consolidate the entity if the company’s interest in the VIE is such that the company will absorb a majority of the VIE’s expected losses and/or receive a majority of the entity’s expected residual returns, if they occur. FIN No. 46 also requires additional disclosures by primary beneficiaries and other significant variable interest holders. The disclosure provisions of this Interpretation became effective upon issuance. The consolidation requirements of this Interpretation apply immediately to VIE’s created after January 31, 2003 and no later than the end of the first fiscal year or interim period ending after March 15, 2004 for public companies with non-special purpose entities that were created prior to February 1, 2003. We will implement FIN No. 46(R) on February 1, 2004. As a result of the implementation of FIN No. 46(R), 16 properties (11 Residential, three Commercial, and two Land) currently accounted for on the equity method of accounting will switch to full consolidation. Seven properties (one Commercial and six Residential) currently accounted for on the cost method will switch to full consolidation. Five Residential properties will be deconsolidated. If FIN No. 46(R) would have been implemented by January 31, 2004, total assets and total liabilities would have increased approximately $700,000,000. Upon adoption we of FIN No. 46(R) expect to record a cumulative effect of change in accounting principle adjustment of approximately $8,000,000 (pre-tax) which will reduce Net Earnings and Shareholders’ Equity. We believe our maximum exposure to loss as a result of our investment with these VIE’s is limited to the value of our investment in these VIE’s.

In April 2003, the FASB issued SFAS No. 149 “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (SFAS No. 149). This statement amends and clarifies financial accounting and reporting for derivative instruments and for hedging activities under FAS 133, “Accounting for Derivative Instruments and Hedging Activities.” This statement is effective for certain contracts entered into or modified after June 30, 2003 and for certain hedging relationships designated after June 30, 2003. This statement did not have a material impact on our financial position, results of operations or cash flows.

In March 2003, the Emerging Issues Task Force (EITF) issued EITF No. 00-21 “Accounting for Revenue Arrangements with Multiple Deliverables” (EITF No. 00-21). This issue addresses certain aspects of accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. This issue is effective for revenue arrangements entered into subsequent to January 31, 2004. We do not expect this statement to have a current material impact on our financial position, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (SFAS No. 150). This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The minority interests associated with certain of our consolidated joint ventures that have finite lives under the terms of the agreements represent mandatorily redeemable interests as defined in SFAS No. 150. On November 7, 2003, the FASB indefinitely deferred the effective date of paragraphs nine and ten of SFAS No. 150 as they apply to mandatorily redeemable noncontrolling interests in order to address a number of interpretation and implementation issues. However, the disclosure provisions of SFAS No. 150 are still required. Although no such obligation exists, if we were to dissolve the entities or sell the underlying real estate assets and satisfy any outstanding obligations, in all of our consolidated finite life entities as of January 31, 2004, the estimated aggregate settlement value of these noncontrolling interests would approximate book value due to our preferred returns upon settlement. Our assessment of the settlement value is based on the estimated liquidation values of the assets and liabilities and the resulting proceeds that we would distribute to our noncontrolling interests, as required under the terms of the respective agreements. While additional guidance from the FASB relating to noncontrolling interests in consolidated finite life partnerships is pending, we do not expect the remainder of this statement to have an immediate material impact on our financial position, results of operations or cash flows.

This Form 10-K, together with other statements and information publicly disseminated by the Company, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements reflect management’s current views with respect to financial results related to future events and are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial or otherwise, may differ from the results discussed in the forward-looking statements. Risk factors discussed on pages 5 - - 12 and other factors that might cause differences, some of which could be material, include, but are not limited to, real estate development and investment risks including lack of satisfactory financing, construction and lease-up delays and cost overruns, the effect of economic and market conditions on a nationwide basis as well as regionally in areas where the Company has a geographic concentration of properties, reliance on major tenants, the impact of terrorist acts, the Company’s substantial leverage and the ability to obtain and service debt, guarantees under the Company’s credit facility, the level and volatility of interest rates, continued availability of tax-exempt government financing, the sustainability of substantial operations at the subsidiary level, illiquidity of real estate investments, dependence on rental income from real property, conflicts of interest, financial stability of tenants within the retail industry, which may be impacted by competition and consumer spending, potential liability from syndicated properties, effects of uninsured loss, environmental liabilities, partnership risks, litigation risks, the rate revenue increases versus the rate of expense increases, the cyclical nature of the lumber wholesaling business, as well as other risks listed from time to time in the Company’s reports filed with the Securities and Exchange Commission. The Company has no obligation to revise or update any forward-looking statements, other than imposed by law, as a result of future events or new information. Readers are cautioned not to place undue reliance on such forward-looking statements.

Our primary market risk exposure is interest rate risk. At January 31, 2004, we had $1,134,546,000 of variable-rate debt outstanding. This is inclusive of the $56,250,000 outstanding under our long-term credit facility which was repaid in full in February 2004 from proceeds of a senior note offering. Upon opening and achieving stabilized operations, we generally pursue long-term fixed-rate non-recourse financing for our rental properties. Additionally, when the properties’ fixed-rate debt matures, the maturing amounts are subject to interest rate risk.

To mitigate short-term variable interest rate risk, we have purchased London Interbank Offered Rate (“LIBOR”) interest rate caps and swaps as follows.

As part of our interest rate risk management, we also intend to convert a significant portion of our committed variable-rate debt to fixed-rate debt.

Outside of lender hedging requirements that require the borrower to protect against significant fluctuations to interest rates, we generally do not hedge tax-exempt debt because, since 1990, the base rate of this type of financing has averaged 3.20% and has never exceeded 7.90%. As of January 31, 2004, we have $117,000,000 of tax exempt caps at a weighted average strike rate of 6.80% that have maturities through January 2006.

We estimate the fair value of our debt instruments by discounting future cash payments at interest rates that approximate the current market. Based on these parameters, the carrying amount of our total fixed-rate debt at January 31, 2004 was $2,876,281,000 compared to an estimated fair value of $2,931,799,000. We estimate that a 100 basis point decrease in market interest rates would change the fair value of this fixed-rate debt to approximately $3,111,613,000 at January 31, 2004.

We estimate the fair value of our hedging instruments based on interest rate market pricing models. At January 31, 2004 and 2003, LIBOR interest rate caps and Treasury options were reported at their fair value of approximately $2,528,000 and $753,000, respectively, in Other Assets in the Consolidated Balance Sheets. The fair value of interest rate swap and floor agreements at January 31, 2004 and 2003 is an unrealized loss of approximately $9,542,000 and $4,340,000, respectively, and is included in Accounts Payable and Accrued Expenses in the Consolidated Balance Sheets.

The following tables provide information about our financial instruments that are sensitive to changes in interest rates.

Item 7(A). Quantitative and Qualitative Disclosure About Market Risk (continued)


																			Total			Fair Market
	Expected Maturity Date																		Outstanding			Value
	2004			2005			2006			2007			2008			Thereafter			1/31/04			1/31/04
Long-Term Debt	(dollars in thousands)
Fixed:
Fixed-rate debt	$	72,851		$	139,041		$	432,608		$	129,704		$	236,206		$	1,469,813		$	2,480,223		$	2,537,636
Weighted average interest rate		7.08	%		7.19	%		6.52	%		7.18	%		7.23	%		6.91	%		6.91	%

UDAG		377			10,929			8,133			588			608			55,023			75,658			51,793
Weighted average interest rate		0.17	%		3.87	%		0.05	%		1.39	%		1.40	%		1.98	%		2.03	%

Senior & Subordinated Debt⁽¹⁾⁽²⁾		—			—			—			—			—			320,400			320,400			342,370
Weighted average interest rate																	7.66	%		7.66	%


Total Fixed-Rate Debt		73,228			149,970			440,741			130,292			236,814			1,845,236			2,876,281			2,931,799

Variable:
Variable-rate debt		211,623			126,098			233,715			24,886			29,349			131,735			757,406			757,406
Weighted average interest rate																				4.18	%

Tax-Exempt		52,340			21,000			45,000			—			—			202,550			320,890			320,890
Weighted average interest rate																				1.95	%

Credit Facility^(1)(2)(3)		56,250			—			—			—			—			—			56,250			56,250
Weighted average interest rate																				3.91	%


Total Variable-Rate Debt		320,213			147,098			278,715			24,886			29,349			334,285			1,134,546			1,134,546

Total Long-Term Debt	$	393,441		$	297,068		$	719,456		$	155,178		$	266,163		$	2,179,521		$	4,010,827		$	4,066,345

(1)		Represents recourse debt.

(2)		The credit facility was repaid in full with the proceeds from a $100,000, 30-year, 7.375% senior note offering in February 2004.

(3)		A new $450,000 credit facility was established on March 22, 2004.

Item 7(A). Quantitative and Qualitative Disclosure About Market Risk (continued)


	Expected Maturity Date
																			Total			Fair Market
																			Outstanding			Value
	2003			2004			2005			2006			2007			Thereafter			1/31/03			1/31/03
Long-Term Debt	(dollars in thousands)
Fixed:
Fixed-rate debt	$	46,618		$	50,998		$	125,576		$	409,949		$	126,063		$	1,270,831		$	2,030,035		$	2,104,645
Weighted average interest rate		7.18	%		7.11	%		7.24	%		6.58	%		7.19	%		7.34	%		7.16	%

UDAG		4,478			415			10,929			8,106			457			51,113			75,498			50,690
Weighted average interest rate		3.69	%		0.61	%		3.87	%		0.03	%		0.64	%		1.79	%		2.00	%

Senior & Subordinated Debt⁽¹⁾		—			—			—			—			—			220,400			220,400			221,866
Weighted average interest rate																	8.48	%		8.48	%


Total Fixed-Rate Debt		51,096			51,413			136,505			418,055			126,520			1,542,344			2,325,933			2,377,201

Variable:
Variable-rate debt		424,100			196,790			20,321			4,965			23,730			135,668			805,574			805,574
Weighted average interest rate																				4.67	%

Tax-Exempt		45,060			7,940			21,000			—			—			31,000			105,000			105,000
Weighted average interest rate																				2.25	%

Credit Facility⁽¹⁾		25,000			25,000			25,000			60,250			—			—			135,250			135,250
Weighted average interest rate																				5.44	%


Total Variable-Rate Debt		494,160			229,730			66,321			65,215			23,730			166,668			1,045,824			1,045,824

Total Long-Term Debt	$	545,256		$	281,143		$	202,826		$	483,270		$	150,250		$	1,709,012		$	3,371,757		$	3,423,025

The management of Forest City Enterprises, Inc. is responsible for the accompanying consolidated financial statements. These statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America and include amounts based on judgments of management. The financial information contained elsewhere in this annual report conforms with that in the consolidated financial statements.

The Company maintains a system of internal accounting control which provides reasonable assurance in all material respects that the assets are safeguarded and transactions are executed in accordance with management’s authorization and accurately recorded in the Company’s books and records. The concept of reasonable assurance recognizes that limitations exist in any system of internal accounting control based upon the premise that the cost of such controls should not exceed the benefits derived.

The Audit Committee, composed of three independent members of the Board of Directors who are not employees of the Company, meets regularly with representatives of management, the independent accountants and the Company’s internal auditor to monitor the functioning of the accounting and control systems and to review the results of the auditing activities. The Audit Committee engages the independent auditors upon ratification by the shareholders. The Committee approves the scope of the audit and the fee arrangements. The independent auditors conduct an objective, independent examination of the consolidated financial statements.

The Audit Committee reviews results of the annual audit with the independent auditors. The Audit Committee also meets with the independent auditors and the internal auditor without management present to ensure that they have open access to the Audit Committee.

In our opinion, the consolidated financial statements listed in the index appearing under Item 15 (a)(1) on page 75, present fairly, in all material respects, the financial position of Forest City Enterprises, Inc. and its Subsidiaries (the “Company”) at January 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 15(a)(2) on page 75 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note P to the consolidated financial statements, the Company, on February 1, 2002, adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. Also, as discussed in Note A, the consolidated financial statements for the year ended January 31, 2003 have been restated.


	January 31,
	2004			2003
	(in thousands)
Assets
Real Estate
Completed rental properties	$	4,523,748		$	3,866,625
Projects under development		544,389			572,476
Land held for development or sale		33,450			35,036

Total Real Estate		5,101,587			4,474,137
Less accumulated depreciation		(730,705	)		(615,653	)

Real Estate, net		4,370,882			3,858,484

Cash and equivalents		107,491			122,356
Restricted cash		257,795			127,046
Notes and accounts receivable, net		422,765			286,652
Inventories		46,140			38,638
Investments in and advances to real estate affiliates		432,584			489,205
Other assets		257,415			170,248

Total Assets	$	5,895,072		$	5,092,629


Liabilities and Shareholders’ Equity
Liabilities
Mortgage debt, nonrecourse	$	3,634,177		$	3,016,107
Notes payable		152,111			79,484
Long-term credit facility		56,250			135,250
Senior and subordinated debt		320,400			220,400
Accounts payable and accrued expenses		639,824			585,042
Deferred income taxes		294,925			261,376

Total Liabilities		5,097,687			4,297,659

Minority Interest		48,474			80,608

Commitments and Contingencies
Company-Obligated Trust Preferred Securities		—			—

Shareholders’ Equity
Preferred stock — without par value 5,000,000 shares authorized; no shares issued		—			—
Common stock — $.33 1/3 par value
Class A, 96,000,000 shares authorized; 36,509,836 and 35,678,086 shares issued, 36,270,496 and 35,525,067 outstanding, respectively		12,170			11,892
Class B, convertible, 36,000,000 shares authorized; 13,715,992 and 14,547,742 shares issued, 13,715,992 and 14,130,592 outstanding, respectively		4,572			4,850

		16,742			16,742
Additional paid-in capital		235,398			232,029
Retained earnings		496,537			470,348

		748,677			719,119
Less treasury stock, at cost; 2004: 239,340 Class A and -0- Class B shares 2003: 153,019 Class A and 417,150 Class B shares		(1,752	)		(4,425	)
Accumulated other comprehensive income (loss)		1,986			(332	)

Total Shareholders’ Equity		748,911			714,362

Total Liabilities and Shareholders’ Equity	$	5,895,072		$	5,092,629

The accompanying notes are an integral part of these consolidated financial statements.

Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Earnings


	Years Ended January 31,
	2004			2003			2002
	(in thousands, except per share data)
Revenues
Rental properties	$	898,339		$	784,677		$	742,516
Lumber trading		123,249			97,060			115,728

		1,021,588			881,737			858,244


Expenses
Operating expenses		636,407			540,106			552,517
Interest expense		198,122			174,227			178,580
Loss on early extinguishment of debt		10,718			1,653			386
Provision for decline in real estate		3,238			8,221			8,783
Depreciation and amortization		127,631			113,361			97,842

		976,116			837,568			838,108


Equity in earnings of unconsolidated real estate entities		31,751			38,684			48,326


(Loss) gain on disposition of operating properties and other investments.		(171	)		(295	)		91,109


Earnings before income taxes		77,052			82,558			159,571


Income tax expense (benefit)
Current		(2,102	)		4,733			502
Deferred		30,901			27,315			62,832

		28,799			32,048			63,334


Earnings before minority interest, discontinued operations and cumulative effect of change in accounting principle		48,253			50,510			96,237
Minority interest		(9,281	)		(6,544	)		7,994


Earnings from continuing operations.		38,972			43,966			104,231
Discontinued operations, net of tax and minority interest
(Loss) earnings from operations		(200	)		685			—
Gain on disposition of operating properties		3,897			4,180			—

		3,697			4,865			—


Cumulative effect of change in accounting principle, net of tax		—			—			(1,202	)

Net earnings	$	42,669		$	48,831		$	103,029


Basic earnings per common share
Earnings from continuing operations	$	0.79		$	0.89		$	2.23
Earnings from discontinued operations, net of tax and minority interest		0.07			0.09			—
Cumulative effect of change in accounting principle, net of tax		—			—			(0.03	)

Net earnings	$	0.86		$	0.98		$	2.20


Diluted earnings per common share
Earnings from continuing operations	$	0.77		$	0.88		$	2.20
Earnings from discontinued operations, net of tax and minority interest		0.07			0.09			0.00
Cumulative effect of change in accounting principle, net of tax		—			—			(0.03	)

Net earnings	$	0.84		$	0.97		$	2.17

The accompanying notes are an integral part of these consolidated financial statements.

Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income


	Years Ended January 31,
	2004			2003 (restated)		2002
	(in thousands)
Net earnings	$	42,669		$	48,831	$	103,029

Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investments in on available-for-sale securities arising during the period:
Unrealized gain (loss) on securities net of minority interest		4,739			7,827		(4,144	)
Reclassification adjustment for loss included in net earnings		—			—		799
Unrealized derivative (losses) gains:
Cumulative effect of change in accounting principle — transition adjustment of interest rate contracts, net of minority interest		—			—		(7,820	)
Change in unrealized gains and losses on interest rate contracts, net of minority interest		(2,421	)		1,132		(1,995	)

Other comprehensive income (loss), net of tax		2,318			8,959		(13,160	)

Comprehensive income	$	44,987		$	57,790	$	89,869


																							Accumulated
	Common Stock										Additional												Other
	Class A				Class B						Paid-In			Retained			Treasury Stock						Comprehensive
	Shares		Amount		Shares			Amount			Capital			Earnings			Shares			Amount			Income (Loss)			Total
	(in thousands)
Balances at January 31, 2001		30,543	$	10,181		15,783		$	5,261		$	108,863		$	338,792			1,230		$	(10,330	)	$	3,869		$	456,636
Net earnings															103,029												103,029
Other comprehensive loss, net of tax																								(13,160	)		(13,160	)
Dividends $.1867 per share															(8,882	)											(8,882	)
Issuance of 3,900,000 Class A common shares in equity offering		3,900		1,300								116,363															117,663
Conversion of Class B to Class A shares.		658		219		(658	)		(219	)																	—
Exercise of stock options												1,396						(355	)		3,181						4,577
Income tax benefit from stock option exercises												2,123															2,123
Restricted stock issued												(1,009	)					(113	)		1,009						—
Amortization of unearned compensation												531															531
Cash in lieu of fractional shares from three-for-two stock split												(4	)														(4	)


Balances at January 31, 2002		35,101		11,700		15,125			5,042			228,263			432,939			762			(6,140	)		(9,291	)		662,513
Net earnings															48,831												48,831
Other comprehensive income, net of tax																								8,959			8,959
Dividends $.23 per share															(11,422	)											(11,422	)
Conversion of Class B to Class A shares		577		192		(577	)		(192	)																	—
Exercise of stock options												1,422						(192	)		1,715						3,137
Income tax benefits from stock option exercises												1,430															1,430
Amortization of unearned compensation												914															914


Balances at January 31, 2003		35,678		11,892		14,548			4,850			232,029			470,348			570			(4,425	)		(332	)		714,362
Net earnings															42,669												42,669
Other comprehensive income, net of tax																								2,318			2,318
Dividends $.33 per share															(16,480	)											(16,480	)
Conversion of Class B to Class A shares		832		278		(832	)		(278	)																	—
Exercise of stock options												1,975						(218	)		1,660						3,635
Income tax benefits from stock option exercises												1,212															1,212
Restricted stock issued												(1,013	)					(113	)		1,013						—
Amortization of unearned compensation												1,195															1,195


Balances at January 31, 2004		36,510	$	12,170		13,716		$	4,572		$	235,398		$	496,537			239		$	(1,752	)	$	1,986		$	748,911

The accompanying notes are an integral part of these consolidated financial statements.

Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Cash Flows


	Years Ended January 31,
	2004			2003			2002
	(in thousands)
Cash Flows from Operating Activities
Rents and other revenues received	$	868,020		$	838,453		$	724,816
Cash distributions from unconsolidated entities		25,126			20,551			29,939
Proceeds from land sales		69,276			65,447			36,842
Land development expenditures		(31,059	)		(45,595	)		(28,260	)
Operating expenditures		(590,255	)		(502,819	)		(501,266	)
Interest paid		(192,707	)		(172,318	)		(180,090	)

Net cash provided by operating activities		148,401			203,719			81,981


Cash Flows from Investing Activities
Capital expenditures		(438,432	)		(552,305	)		(425,991	)
Proceeds from disposition of operating properties and other investments		2,549			25,913			190,011
Changes in investments in and advances to real estate affiliates		25,461			(66,353	)		22,694

Net cash used in investing activities		(410,422	)		(592,745	)		(213,286	)


Cash Flows from Financing Activities
Proceeds from issuance of subordinated debt		300,000			—			—
Retirement of senior notes		(208,500	)		—			—
Payment of senior notes issuance costs		(8,151	)		—			—
Increase in nonrecourse mortgage debt		963,583			779,749			482,351
Increase in long-term credit facility		19,000			178,000			24,500
Principal payments on nonrecourse mortgage debt		(572,849	)		(373,517	)		(302,051	)
Payments on long-term credit facility		(98,000	)		(96,750	)		(160,000	)
Increase in notes payable		95,066			26,760			48,617
Payments on notes payable		(22,151	)		(24,206	)		(39,455	)
Repayment of Lumber Trading Group securitization agreement		(55,000	)		—			—
Change in restricted cash and book overdrafts		(103,990	)		(14,765	)		(31,596	)
Payment of deferred financing costs		(33,603	)		(10,944	)		(17,080	)
Exercise of stock options		3,635			3,137			4,577
Sale of common stock, net		—			—			117,663
Dividends paid to shareholders		(14,960	)		(10,912	)		(8,213	)
(Decrease) increase in minority interest		(16,924	)		4,776			(2,219	)

Net cash provided by financing activities		247,156			461,328			117,094


Net (decrease) increase in cash and equivalents		(14,865	)		72,302			(14,211	)
Cash and equivalents at beginning of year		122,356			50,054			64,265

Cash and equivalents at end of year	$	107,491		$	122,356		$	50,054

The accompanying notes are an integral part of these consolidated financial statements.

Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)


	Years Ended January 31,
	2004			2003			2002
	(in thousands)
Reconciliation of Net Earnings to Cash Provided by Operating Activities
Net Earnings	$	42,669		$	48,831		$	103,029
Discontinued operations:
Minority interest		269			(131	)		—
Depreciation		660			3,472			—
Amortization		121			280			—
Gain on disposition of operating properties		(6,769	)		(6,969	)		—
Loss on early extinguishment of debt		190			—			—
Minority interest		9,281			6,544			(7,994	)
Depreciation		104,456			92,814			79,454
Amortization		23,175			20,547			18,388
Equity in earnings of unconsolidated entities		(31,751	)		(38,684	)		(48,326	)
Cash distributions from unconsolidated entities		25,126			20,551			29,939
Deferred income taxes		32,032			27,533			59,921
Loss (gain) on disposition of operating properties and other investments		171			295			(91,109	)
Loss on early extinguishment of debt		10,718			1,653			386
Provision for decline in real estate		3,238			8,221			8,783
Cumulative effect of change in accounting principle		—			—			1,988
Decrease (increase) in land included in projects under development		29,202			204			(19,192	)
Decrease in land included in completed rental properties		—			341			—
Decrease (increase) in land held for development or sale		1,586			(10,843	)		(1,449	)
(Increase) decrease in notes and accounts receivable		(80,909	)		14,585			(84,033	)
(Increase) decrease in inventories		(7,502	)		609			(13	)
(Increase) decrease in other assets		(39,143	)		(37,841	)		8,731
Increase in accounts payable and accrued expenses		31,581			51,707			23,478

Net cash provided by operating activities.	$	148,401		$	203,719		$	81,981

Supplemental Non-Cash Disclosures:
The schedule below represents the effect of the following non-cash transactions for the years ended January 31:
2004 • Increase in interest in Station Square Freight House, a specialty retail center
Disposition of interest in Trowbridge, a supported-living community
Acquisitions of additional interests in ten syndicated residential properties:
Arboretum Place, Bowin, Bridgewater, Drake, Enclave, Grands
Lakeland, Lofts at 1835 Arch, Silver Hill and Trellis at Lee’s Mill
Acquisition of Grove, an apartment community
Change to equity method of accounting from full consolidation due to admission of a 50% partner in Emporium, a retail project under development
2003 • None
2002 • Property additions included in accounts payable

Operating Activities
Notes and accounts receivable	$	(204	)	$	—		$	—
Other assets		(16,016	)		—			—
Accounts payable and accrued expenses		22,293			—			—

Total effect on operating activities	$	6,073		$	—		$	—


Investing Activities
Investments in and advances to real estate affiliates	$	19,709		$	—		$	—
Acquisition of completed rental properties		(227,902	)		—			—
Property additions included in accounts payable		—			—			(43,941	)
Accounts payable		—			—			43,941

Total effect on investing activities	$	(208,193	)	$	—		$	—


Financing Activities
Decrease in notes and loans payable	$	(286	)	$	—		$	—
Increase in nonrecourse mortgage debt		227,911			—			—
Decrease in minority interest		(25,505	)		—			—

Total effect on financing activities	$	202,120		$	—		$	—

The accompanying notes are an integral part of these consolidated financial statements.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Forest City Enterprises, Inc. principally engages in the ownership, development, acquisition and management of commercial and residential real estate throughout the United States. The Company operates through four Strategic Business Units. The Commercial Group, the Company’s largest business unit, owns, develops, acquires and operates regional malls, specialty/urban retail centers, office buildings, hotels and mixed-use projects. The Residential Group owns, develops, acquires, and operates residential rental property, including upscale and middle-market apartments, adaptive re-use developments and supported-living facilities. Real Estate Groups are the combined Commercial and Residential Groups. The Land Development Group acquires and sells both land and developed lots to residential, commercial and industrial customers. It also owns and develops land into master-planned communities and mixed-use projects. The Lumber Trading Group is a lumber wholesaler.

Forest City Enterprises, Inc. has $5.9 billion in total assets in 20 states and the District of Columbia. The Company’s core markets include Boston, Denver, California, New York City, Philadelphia and Washington, D.C. The Company is headquartered in Cleveland, Ohio, where it has a significant concentration of real estate assets.

The accompanying consolidated financial statements include the accounts of Forest City Enterprises, Inc., its wholly-owned subsidiaries and entities which it controls in accordance with Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” Statement of Financial Accounting Standards No. 94, “Consolidation of All Majority-Owned Subsidiaries” and, for entities created since February 1, 2003, the Financial Accounting Standards Board Interpretation No. 46, “Consolidation of Variable Interest Entities,” as revised.

Variable interest entities (“VIE’s”) are entities in which equity investors do not have a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. In accordance with FIN No. 46, we consolidate VIE’s created after January 31, 2003, of which we have a variable interest (or a combination of variable interests) that will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both, based on an assessment performed at the time we become involved with the entity. We reconsider this assessment only if the entity’s governing documents or the contractual arrangements among the parties involved change in a manner that changes the characteristics or adequacy of the entity’s equity investment at risk, some or all of the equity investment is returned to the investors and other parties become exposed to expected losses of the entity, the entity undertakes additional activities or acquires additional assets beyond those that were anticipated at inception or at the last reconsideration date that increase its expected losses, or the entity receives an additional equity investment that is at risk, or curtails or modifies its activities in a way that decreases its expected losses.

For entities not deemed to be VIE’s and for VIE’s created before February 1, 2003, we consolidate those entities in which we own a majority of the voting securities or interests, except in those instances in which the minority voting interest owner effectively participates through substantive participative rights, as discussed in Emerging Issues Task Force No. 96-16 and Statement of Position No. 78-9. Substantive participatory rights include the ability to select, terminate, and set compensation of the investee’s management, the ability to participate in capital and operating decisions of the investee (including budgets), in the ordinary course of business.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes. Some of the critical estimates made by the Company include, but are not limited to, estimates of useful lives for long-lived assets, reserves for collection on accounts and notes receivable and other investments, and provisions for decline in real estate. Actual results could differ.

Certain prior years’ amounts in the accompanying financial statements have been reclassified to conform to the current year’s presentation.

     Effective February 1, 2003, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 144
     “Accounting for the Impairment or Disposal of Long-Lived Assets”. As such, certain amounts presented have been reclassified for
     properties disposed during the years ended January 31, 2004 and 2003.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

The Company has restated prior period financial statements for the year ended January 31, 2003 resulting from changes in the application of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” for the Company’s retained interests. The restatement had no impact to net earnings or related per share amounts for the year ended January 31, 2003, but decreased accumulated other comprehensive loss and increased shareholders’ equity as of January 31, 2003 by $8,390,000, as follows: (in thousands)

In 2002, Stapleton Land, LLC (a 90% owned subsidiary of the Company) purchased $75,000,000 and $70,000,000 of bonds (for an aggregate of $145,000,000, collectively the “Bonds”) from the Stapleton Metropolitan District (the “District”). The Bonds were acquired by Lehman Brothers, Inc. (“Lehman”) and were subsequently transferred into a qualified special purpose entity (the “Trust”), which in turn issued trust certificates to third parties. The District has a call option related to these bonds through August 2004. In the event these Bonds are not called by the District, the Company has the obligation to redeem the Bonds from the Trust. The Company believes the bonds will be called by the district, however, until this occurs the investment income is at risk. Upon dissolution of the Trust (which is expected to occur in August 2004), Stapleton Land, LLC is entitled to the difference, if any, between the interest rate earned by the Trust from the Bonds, and the interest rate paid to the certificate holders. In accordance with SFAS No. 140, no gain or loss was recognized on the sale to Lehman as the value of the Bonds sold and retained interest approximated the cost to Stapleton Land, LLC.

At January 31, 2004, the total principal outstanding in the securitization structure described above was $145,000,000 which has been de-recognized in our financial statements in accordance with the provisions of SFAS No. 140.

At the time of the transfer, we applied certain key assumptions to determine fair value, as follows:

	•		Estimated weighted average life in years, which was approximately two years

	•		Residual cash flows discount rate, which was 6.50%

The Company measures its retained interest in the Trust at its estimated fair value based on the present value of the expected future cash flows, which are determined based on the expected future cash flows from the underlying Bonds and from expected changes in the rates paid to the certificate holders discounted at a market yield, which considers the related risk. The difference between the amortized cost of the retained interest (which was approximately zero) and the fair value is recorded, net of the related tax and minority interest effect, in shareholders’ equity as a component of accumulated other comprehensive earnings (loss).

The fair value of the retained interest is carried on the Company’s Consolidated Balance Sheet at $22,870,000 ($12,442,000 net of tax and minority interest) and $15,420,000 ($8,390,000 net of tax and minority interest) at January 31, 2004 and 2003, respectively, and is classified as an available-for-sale security. No cash flows were received from or paid to the Trust during the years ended January 31, 2004, 2003 and 2002. The Company has no other material securitization agreements.

The years 2003, 2002 and 2001 refer to the fiscal years ended January 31, 2004, 2003 and 2002, respectively.

Land held for development or sale is stated at the lower of carrying amount or fair market value less cost to sell.

Real Estate Sales - The Company recognizes gains on sales of real estate pursuant to the provisions of SFAS No. 66 “Accounting for Sales of Real Estate.” The specific timing of a sale is measured against various criteria in SFAS No. 66 related to the terms of the transaction and any continuing involvement in the form of management or financial assistance associated with the property. If the sales criteria are not met, the Company defers gain recognition and accounts for the continued operations of the property by applying the finance, installment or cost recovery methods, as appropriate, until the sales criteria are met.

The Company follows the provisions of SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” for the reporting of dispositions of operating properties. Pursuant to the definition of a component of an entity in SFAS No. 144, assuming no significant continuing involvement, all earnings of properties which have been sold or held for sale are reported as discontinued operations. The Company considers assets held for sale when the transaction has been approved by the appropriate level of management and there are no contingencies related to the sale that may prevent the transaction from closing. In most transactions, these contingencies are not satisfied until the actual closing and, accordingly, the property is not identified as held for sale until the closing actually occurs. However, each potential sale is evaluated based on its separate facts and circumstances.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

Leasing Operations - The Company enters into leases with tenants in its rental properties. The lease terms of tenants occupying space in the retail centers and office buildings range from 1 to 25 years, excluding leases with anchor tenants which typically run longer. Minimum rents are recognized on a straight-line basis over the term of the related leases. Overage rents are recognized as revenues when tenants’ sales exceed contractual amounts. Recoveries from tenants for taxes, insurance, and other commercial property operating expenses are recognized as revenues in the period the applicable costs are incurred. See Note L for further information on tenant reimbursements.

Lumber Trading - The Lumber Trading Group sells to a large number of customers across many regions of North America. The Company fills customer orders either through the simultaneous purchase of products from various third parties with delivery directly to the customer, or from relieving its existing short-term inventory position of previously purchased lumber products. Revenue is recorded when title to the goods transfers to the customers. The Company reports the gross margin on these sales as revenues in the accompanying Consolidated Statements of Earnings.

Construction - Revenue and profit on long-term fixed-price contracts are recorded using the percentage-of-completion method. On reimbursable cost-plus fee contracts, revenues are recorded in the amount of the accrued reimbursable costs plus proportionate fees at the time the costs are incurred. The Company currently has one long-term fixed which are charged to operations as incurred price arrangement in its Commercial Group segment to construct an approximate 1,100,000-square-foot office building in Brooklyn, New York.

Operating expenses primarily represent the recognition of operating costs, which are charged to operations as incurred, administrative expenses and taxes other than income taxes. Interest expense and real estate taxes during development and construction are capitalized as a part of the project cost.

The Company provides an allowance for doubtful accounts against the portion of accounts or notes receivable that is estimated to be uncollectible. Such allowances are reviewed and updated quarterly for changes in expected collectibility.

Depreciation is generally computed using the straight-line method over the estimated useful life of the asset. The estimated useful lives of buildings and first generation tenant allowances are primarily 50 years. Subsequent tenant improvements are amortized over the life of the tenant lease.

Major improvements and tenant improvements are capitalized and expensed through depreciation charges. Repairs, maintenance and minor improvements are expensed as incurred. A variety of costs are incurred in the acquisition, development and leasing of properties. After determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. The Company’s capitalization policy on development properties is guided by SFAS No. 34 “Capitalization of Interest Cost” and SFAS No. 67 “Accounting for Costs and the Initial Rental Operations of Real Estate Properties”. The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. The Company considers a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements, but no later than one year from cessation of major construction activity. The Company ceases capitalization on the portion substantially completed and occupied or held available for occupancy, and capitalizes only those costs associated with the portion under construction. Costs and accumulated depreciation applicable to assets retired or sold are eliminated from the respective accounts and any resulting gains or losses are reported in the Consolidated Statements of Earnings.

The Company reviews its properties to determine if its carrying costs will be recovered from future operating cash flows whenever events or changes indicate that recoverability of long-lived assets may not be assured. In cases where the Company does not expect to recover its carrying costs, an impairment loss is recorded as a provision for decline in real estate.

The Company accounts for its investments in unconsolidated entities (included in Investments in and Advances to Real Estate Affiliates on the Consolidated Balance Sheets) using the equity method of accounting whereby the cost of an investment is adjusted for the Company’s share of income or loss from the date of acquisition, and reduced by distributions received. The income or loss for each unconsolidated entity is allocated in accordance with the provisions of the applicable operating agreements, which may differ from the ownership interest held by each investor. Differences between the Company’s carrying value of its investment in the unconsolidated entities and the Company’s underlying equity of such unconsolidated entities are amortized over the respective lives of the underlying assets or liabilities, as applicable. The Company records income or loss in certain unconsolidated entities based on the distribution priorities, which may change upon the achievement of certain return thresholds.

The Company records an allowance for development project write-offs for its Projects Under Development (included in Real Estate, at Cost on its Consolidated Balance Sheets). Specific projects are written off against this allowance when it is determined by management that the project will not be developed. The allowance is periodically adjusted based on the Company’s actual development project write-off history. These adjustments are recorded to Operating Expenses in the Company’s Consolidated Statements of Earnings.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

Upon acquisition of rental property, the Company estimates the fair value of acquired tangible assets, consisting of land, building and improvements, and identified intangible assets and liabilities generally consisting of the fair value of (i) above and below market leases, (ii) in-place leases and (iii) tenant relationships. The Company allocates the purchase price to the assets acquired and liabilities assumed based on their relative fair values. In estimating the fair value of the tangible and intangible assets acquired, the Company considers information obtained about each property as a result of its due diligence and marketing and leasing activities, and utilizes various valuation methods, such as estimated cash flow projections utilizing appropriate discount and capitalization rates, estimates of replacement costs net of depreciation, and available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents are stated at cost, which approximates market value.

The Company maintains operating cash and reserve for replacement balances in financial institutions which, from time to time, may exceed Federally-insured limits. The Company periodically assesses the financial condition of these institutions and believes that the risk of loss is minimal.

Restricted cash represents deposits with mortgage lenders for taxes and insurance, security deposits, capital replacement, improvement and operating reserves, bond funds and development and construction escrows.

As is customary within the real estate industry, the Company invests in certain real estate projects through partnerships. The Company provides funding for certain of its partners’ equity contributions. Such advances are interest-bearing or entitle the Company to a preference on property cash flows and are included in “Investments in and Advances to Real Estate Affiliates” in the accompanying Consolidated Balance Sheets.

The lumber trading inventories are stated at the lower of cost or market. Inventory cost is determined by specific identification and average cost methods.

Included in Other Assets are costs incurred in connection with obtaining financing which are deferred and amortized on a straight-line basis, which approximates the effective interest method, over the life of the related debt. The amortization of these costs was $10,628,000, $8,744,000 and $6,556,000 for the years ended January 31, 2004, 2003 and 2002, respectively, and is included as depreciation and amortization in the consolidated statements of Earnings. Costs incurred in connection with leasing space to tenants are also included in Other Assets and are deferred and amortized using the straight line method over the lives of the related leases.

Investments in securities classified as available-for-sale are reflected in Other Assets at market value with the unrealized gains or losses reflected as Accumulated Other Comprehensive Income (Loss) in Shareholders’ Equity.

Net unrealized gain or loss on securities, net of tax, is included in Other Comprehensive Income and represents the difference between the market value of investments in unaffiliated companies that are available for sale at the balance sheet date and the Company’s cost. Also included in Other Comprehensive Income are unrealized gains and losses, net of tax, on the effective portions of derivative instruments designated and qualified as cash flow hedges.

The Company estimates the fair value of its debt instruments by discounting future cash payments at interest rates that the Company believes approximates the current market. The carrying amount of the Company’s total fixed-rate debt at January 31, 2004 was $2,876,281,000 compared to an estimated fair value of $2,931,799,000.

The Company estimates the fair value of its hedging instruments based on interest rate market pricing models. At January 31, 2004 and 2003, LIBOR interest rate caps and Treasury options were reported at their fair value of approximately $2,528,000 and $753,000, respectively, in Other Assets in the Consolidated Balance Sheets. The fair value of interest rate swap and floor agreements at January 31, 2004 and 2003 is an unrealized loss of approximately $9,542,000 and $4,340,000, respectively, and is included in Accounts Payable and Accrued Expenses in the Consolidated Balance Sheets.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

The Company generally maintains an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned decreases in earnings and cash flow that may be caused by interest rate volatility. Derivative instruments that are used as part of the Company’s strategy include interest rate swaps and option contracts that have indices related to the pricing of specific balance sheet liabilities. The Company enters into interest rate swaps to convert certain floating-rate debt to fixed-rate long-term debt, and vice-versa, depending on market conditions. Option products utilized include interest rate caps, floors and Treasury options. The use of these option products is consistent with the Company’s risk management objective to reduce or eliminate exposure to variability in future cash flows attributable to changes in the Treasury rate relating to forecasted financings, and the variability in cash flows attributable to increases relating to interest payments on its floating-rate debt. The caps and floors have typical durations ranging from one to three years while the Treasury options are for periods of five to 10 years. The Company also enters into interest rate swap agreements for hedging purposes for periods that are generally one to five years.

The principal credit risk to the Company through its interest rate risk management strategy is the potential inability of the financial institution from which the derivative financial instruments were purchased to cover all of its obligations. If a counterparty fails to fulfill its performance obligations under a derivative contract, the Company’s credit risk will equal the fair-value gain in a derivative. To mitigate this exposure, the Company purchases its derivative financial instruments from either the institution that holds the debt or from institutions with a minimum A- credit rating.

Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS Nos. 137 and 138, which requires companies to record derivatives on the balance sheet as assets or liabilities measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company uses derivative instruments to protect against the risk of adverse price or interest rate movements on the value of certain firm commitments and liabilities or on future cash flows. On February 1, 2001, the Company adopted SFAS No. 133, and at that time, designated the derivative instruments in accordance with the requirements of the new standard. On February 1, 2001, the after-tax impact, net of minority interest, of the transition amounts of the derivative instruments resulted in a reduction of net income and other comprehensive income of approximately $1,200,000 and $7,800,000, respectively. The transition adjustments are presented as cumulative effect adjustments, as described in Accounting Principles Board Opinion (APBO) No. 20 “Accounting Changes” in the 2001 consolidated financial statements. The transition amounts were determined based on the interpretive guidance issued by the FASB to date. The FASB continues to issue interpretive guidance that could require changes in the Company’s application of the standard and may increase or decrease reported net income and shareholders’ equity prospectively, depending on future levels of interest rates and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on the Consolidated Statements of Cash Flows.

All derivatives are reported in the Consolidated Balance Sheets at their fair value. On the date that the Company enters into a derivative contract, it designates the derivative as a hedge of a forecasted transaction or the variability of cash flows that are to be paid in connection with a recognized or forecasted liability (a “cash flow hedge”), or to convert certain fixed-rate long-term debt to floating-rate debt (a “fair value hedge”). The effective portion of the change in fair value of a derivative that is designated and qualifies as a cash flow hedge is recorded in other comprehensive income until earnings are affected by the variability of cash flows of the hedged transaction. The ineffective portion of all hedges is recognized in current-period earnings as interest expense in the Consolidated Statements of Earnings.

On August 1, 2001, the Company began assessing hedge effectiveness based on the total changes in cash flows on its interest rate caps and Treasury options as described by the Derivative Implementation Group (DIG) Issue G20, Cash Flow Hedges: Assessing and Measuring the Effectiveness of a Purchased Option Used in a Cash Flow Hedge. Accordingly, the Company has elected to record in Other Comprehensive Income (Loss) all of the subsequent changes in the fair value, including the changes in the option’s time value. Gains or losses on interest rate caps used to hedge interest rate risk on variable-rate debt will be reclassified out of Accumulated Other Comprehensive Income (Loss) into earnings when the forecasted transaction occurs using the “caplet” methodology. Gains or losses on Treasury options used to hedge the interest rate risk associated with the anticipated issuance of fixed-rate debt will be reclassified from Accumulated Other Comprehensive Income (Loss) into earnings over the term of the debt, based on an effective-yield method.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. The Company also formally assesses (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the fair value or cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods.

The Company discontinues hedge accounting prospectively when (1) it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur; or (4) management determines that designating the derivative as a hedging instrument is no longer appropriate.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

When the Company discontinues hedge accounting because it is no longer probable that the forecasted transaction will occur in the originally expected period, the gain or loss on the derivative remains in accumulated other comprehensive income and is reclassified into earnings when the forecasted transaction affects earnings. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were accumulated in other comprehensive income will be recognized immediately in earnings. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will report the derivative at its fair value in the Consolidated Balance Sheets, recognizing changes in the fair value in current-period earnings.

For the years ended January 31, 2004 and 2003, the Company recorded approximately $631,000 and $217,000, respectively, as interest expense in the Consolidated Statements of Earnings, which represented the total ineffectiveness of all cash flow hedges. The amount of hedge ineffectiveness relating to hedges designated and qualifying as fair value hedges was not material. The amount of net derivative losses reclassified into earnings from other comprehensive income as a result of forecasted transactions that did not occur by the end of the originally specified time period or within an additional two-month period of time thereafter was $-0- and $738,000 for the years ended January 31, 2004 and 2003, respectively.

As of January 31, 2004, the Company expects that within the next twelve months it will reclassify amounts recorded in accumulated other comprehensive income into earnings as interest expense of approximately $2,982,000, net of tax.

Deferred tax assets and liabilities reflect the tax consequences on future years of differences between the tax and financial statement basis of assets and liabilities at year end. The Company has recognized the benefits of its tax loss carryforward and general business tax credits which it expects to use as a reduction of the deferred tax expense.

The Company follows APBO No. 25, “Accounting for Stock Issued to Employees,” and related interpretations to account for stock-based compensation. As such, compensation cost for stock options is measured using the intrinsic value method, that is the excess, if any, of the quoted market price of the Company’s stock at the date of grant over the amount the employee is required to pay for the stock.

The Company accounts for stock-based employee compensation under the recognition and measurement principles of APBO No. 25 and related interpretations. All options granted under the Plan had an exercise price equal to the market value of the underlying common stock on the date of grant, therefore, no stock-based employee compensation costs have been reflected in net earnings for stock options. Stock-based compensation costs, net of tax, relating to restricted stock awards were charged to net earnings in the amount of $723,000, $553,000 and $321,000 during the years ended January 31, 2004, 2003 and 2002, respectively. While these amounts were computed under APBO No. 25, they are equal to the fair value based amounts as computed under SFAS No. 123 “Accounting for Stock-Based Compensation.” The following table illustrates the effect on net earnings and earnings per share if the Company had also applied the fair value recognition provisions of SFAS No. 123 to stock options.

The Company paid a three-for-two common stock split of both the Company’s Class A and Class B common stock on November 14, 2001 effected as a stock dividend. The stock split was given retroactive effect to the beginning of the earliest period presented in the accompanying Consolidated Statements of Shareholders’ Equity. All share and per share data included in this annual report, including stock option plan information, have been restated to reflect the stock split.

On September 28, 2001, the Company sold to the public 3,900,000 shares of Class A common stock for $32.23 per share. The offering generated net proceeds of $117,663,000 of which $104,000,000 was used to reduce borrowings under the revolving credit facility.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilutive effect of the Company’s stock option plan by adjusting the denominator using the treasury stock method. The sum of the four quarters’ earnings per share may not equal the annual earnings per share due to the weighting of stock and option activity occurring during the year. All earnings per share disclosures appearing in these financial statements were computed assuming dilution unless otherwise indicated. Further, as discussed above, on November 14, 2001 the Company paid a three-for-two stock split effected as a stock dividend. All share and per share information presented in this report for periods prior to the stock split have been adjusted to reflect that stock split.

In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148 “Accounting for Stock-Based Compensation — Transition and Disclosure” (SFAS No. 148). This statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 “Accounting for Stock-Based Compensation” to require prominent disclosures in both annual and quarterly financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation is effective for the Company for the fiscal year ended January 31, 2004. The new requirements for quarterly disclosure were effective for the quarter ended April 30, 2003. The Company will continue to apply APBO No. 25 “Accounting for Stock Issued to Employees” and related interpretations in accounting for its stock-based employee compensation and does not expect SFAS No. 148 to have a material impact on the Company’s financial position, results of operations or cash flows.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN No. 46), “Consolidation of Variable Interest Entities.” In December 2003, the FASB published a revision to the interpretation (FIN No. 46(R)) to clarify some of the provisions of FIN No. 46 and to exempt certain entities from its requirements. The objective of this interpretation is to provide guidance on how to identify a variable interest entity (VIE) and determine when the assets, liabilities, non-controlling interests, and results of operations of a VIE are to be included in the consolidated financial statements. A company that holds a variable interest in an entity will consolidate the entity if the company’s interest in the VIE is such that the company will absorb a majority of the VIE’s expected losses and/or receive a majority of the entity’s expected residual returns, if they occur. FIN No. 46 also requires additional disclosures by primary beneficiaries and other significant variable interest holders. The disclosure provisions of this Interpretation became effective upon issuance. The consolidation requirements of this Interpretation apply immediately to VIE’s created after January 31, 2003 and no later than the end of the first fiscal year or interim period ending after March 15, 2004 for public companies with non-special purpose entities that were created prior to February 1, 2003. The Company will implement FIN No. 46(R) on February 1, 2004. As a result of the implementation of FIN No. 46(R), 16 properties (11 Residential, three Commercial, and two Land) currently accounted for on the equity method of accounting will switch to full consolidation. Seven properties (one Commercial and six Residential) currently accounted for on the cost method will switch to full consolidation. Five Residential properties will be deconsolidated. If FIN No. 46(R) would have been implemented by January 31, 2004, total assets and total liabilities would have increased approximately $700,000,000. Upon adoption of FIN No. 46(R) the Company expects to record a cumulative effect of change in accounting principle adjustment of approximately $8,000,000 (pre-tax) which will reduce Net Earnings and Shareholders’ Equity. The Company believes its maximum exposure to loss as a result of its involvement with these VIE’s is limited to the value of its investment in these VIE’s.

In April 2003, the FASB issued SFAS No. 149 “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (SFAS No. 149). This statement amends and clarifies financial accounting and reporting for derivative instruments and for hedging activities under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities.” This statement is effective for certain contracts entered into or modified after June 30, 2003 and for certain hedging relationships designated after June 30, 2003. This statement did not have a material impact on the Company’s financial position, results of operations or cash flows.

In March 2003, the Emerging Issues Task Force (EITF) issued EITF No. 00-21 “Accounting for Revenue Arrangements with Multiple Deliverables” (EITF No. 00-21). This issue addresses certain aspects of accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. This issue is effective for revenue arrangements entered into by the Company subsequent to January 31, 2004. The Company does not expect this statement to have a current material impact on the Company’s financial position, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (SFAS 150). This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The minority interests associated with certain of the Company’s consolidated joint ventures that have finite lives under the terms of the agreements represent mandatorily redeemable interests as defined in SFAS 150. On November 7, 2003, the FASB indefinitely deferred the effective date of paragraphs nine and ten of SFAS No. 150 as they apply to mandatorily redeemable noncontrolling interests in order to address a number of interpretation and implementation issues. However, the disclosure provisions of SFAS 150 are still required. Although no such obligation exists, if the Company were to dissolve the entities or sell the underlying real estate assets and satisfy any outstanding obligations, in all of its consolidated finite life entities as of January 31, 2004, the estimated aggregate settlement value of these noncontrolling interests would approximate book value due to the Company’s preferred returns upon settlement. The Company’s assessment of the settlement value is based on the estimated liquidation values of the assets and liabilities and the resulting proceeds that the Company would distribute to its noncontrolling interests, as required under the terms of the respective agreements. While additional guidance from the FASB relating to noncontrolling interests in consolidated finite life partnerships is pending, the Company does not expect the remainder of this statement to have an immediate material impact on the Company’s financial position, results of operations or cash flows.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

Lumber Trading Group previously had a three-year securitization agreement, under which it was selling an undivided interest in a pool of receivables up to a maximum of $88,627,000 to a large financial institution. This securitization facility, which had an outstanding balance of $41,000,000 at January 31, 2003, was repaid in full on October 15, 2003 using borrowing under the credit facility in place prior to October 23, 2003 and was not replaced. At the time of repayment this securitization facility had a balance of $55,000,000.

Reduction of Reserves on Notes Receivable and Recognition of Contingent Interest Income

The Company, through its Residential Group, is the 1% general partner in 22 Federally Subsidized housing projects owned by syndicated partnerships. Upon formation of these partnerships approximately 20 years ago, the Company received interest-bearing notes receivable as consideration for development and other fee services. At their inception, these notes were fully reserved as their collection was doubtful based on the limited cash flows generated by the properties pursuant to their government subsidy contracts. Likewise, a reserve for the related accrued interest was established each year.

During the years ended January 31, 2004 and 2003, 14 of these properties completed a series of events that led to the reduction of a portion of these reserves. The first event was the modification or expiration of the government contracts that now allow for market rate apartment rentals, which provide a significant increase in expected future cash flows. This, in turn, increased the appraised values of these properties and in some instances, resulted in a settlement with the limited partners to obtain their ownership share of these properties in exchange for the balance of the notes and related accrued interest. As a result, the Company determined that the collection of a portion of these notes receivable and related accrued interest is now probable. For the years ended January 31, 2004, 2003 and 2002, reductions of $4,785,000, $4,627,000 and $24,620,000, respectively, are included in revenue in the Consolidated Statements of Earnings. The Company will continue to review the level of reserves against these notes receivable in relation to events that could change expected future cash flows from these properties. At January 31, 2004 and 2003, $11,223,000 and $9,268,000, respectively, were included in reserves for principal and interest on these notes receivable.

In addition, during the year ended January 31, 2004, the Company recognized $5,300,000 in interest income on an unreserved note receivable from one of these 20 properties, representing participation proceeds from the sale of the property.

Millender Center — In addition to the notes receivable discussed above the Company owns a 4% general partnership interest in Millender Center (the “Project”), a mixed-use apartment, retail and hotel project located in downtown Detroit, Michigan, and loaned $14,775,000 to the 99% limited partners in 1985, as evidenced by a note. A full reserve against the note and accrued interest was recorded in 1995 when the Company determined that collection was doubtful due to the operating performance of the Project at that time.

In October 1998, the Project entered into a lease agreement with General Motors (“GM”) whereby the Project, except for the apartments, is leased to GM through 2010, when it is expected that GM will exercise a purchase option. This lease arrangement, coupled with the resurgence of downtown Detroit’s economy as a result of GM’s relocation of its corporate headquarters to a location adjacent to the Project and the entry of gaming, has significantly improved the operating performance of the Project. At the same time, the note was restructured with the limited partners to extend the term from December 31, 2000 to December 31, 2022. The Company believes that the current and anticipated improved performance of the Project supports its assessment that the original principal of the note is now fully collectible.

During the years ended January 31, 2004, 2003 and 2002, the Company reduced $5,633,000, $690,000 and $1,715,000, respectively, of the reserve recorded against interest receivable from Millender Center. The reductions of this reserve were primarily the result of increased cash flow projections due to the extension of the Project’s tax advantaged bonds. The recorded balance of the note was $20,385,000 and $15,284,000 at January 31, 2004 and 2003, respectively. As of January 31, 2004 and 2003, $5,382,000 and $11,015,000, respectively, remained as a reserve for accrued interest.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

Included in Investments in and Advances to Real Estate Affiliates are unconsolidated investments in entities which the Company does not control and which are accounted for on the equity method as well as advances to other partners. Summarized financial information for the equity method investments is as follows.


January 31,	2004			2003
	(in thousands)
Balance Sheet:
Completed rental properties	$	2,375,832		$	2,384,920
Projects under development		263,687			307,566
Land held for development or sale		104,851			85,663
Accumulated depreciation		(499,297	)		(484,845	)
Other assets		246,268			278,024

Total Assets	$	2,491,341		$	2,571,328


Mortgage debt, nonrecourse	$	2,153,443		$	2,226,384
Advances from general partner		1,385			18,355
Other liabilities		166,907			166,286
Partners’ equity		169,606			160,303

Total Liabilities and Partners’ Equity	$	2,491,341		$	2,571,328


Years Ended January 31,	2004			2003			2002
	(in thousands)
Operations:
Revenues	$	566,706		$	544,712		$	519,865
Operating expenses		(305,792	)		(295,142	)		(283,570	)
Interest expense		(132,062	)		(133,231	)		(119,061	)
Depreciation and amortization		(78,615	)		(68,724	)		(72,241	)
Provision for decline in real estate		(4,621	)		—			—
(Loss) gain on disposition of operating properties		(3,573	)		—			12,392
Cumulative effect of change in accounting principle		—			—			(343	)

Net Earnings (pre-tax)	$	42,043		$	47,615		$	57,042

Company’s portion of Net Earnings (pre-tax)	$	31,751		$	38,684		$	48,326


Following is a reconciliation of partners’ equity to the Company’s carrying value in the accompanying Consolidated Balance Sheets:

January 31,	2004			2003
	(in thousands)
Partners’ equity, as above	$	169,606		$	160,303
Equity of other partners		51,567			30,178

Company’s investment in partnerships		118,039			130,125
Advances to partnerships, as above		1,385			18,355
Advances to other real estate affiliates⁽¹⁾		313,160			340,725

Investments in and Advances to Real Estate Affiliates	$	432,584		$	489,205


(1)		As is customary within the real estate industry, the Company invests in certain real estate projects through partnerships. The Company provides funding for certain of its partners’ equity contributions for the development and construction of real estate projects. The most significant partnership for which the Company provides funding relates to Forest City Ratner Companies, representing the Commercial Group’s New York City office operations. The Company consolidates its investments in these projects. The Company’s partner is the President and Chief Executive Officer of Forest City Ratner Companies and is the first cousin to four executive officers of the Company. At January 31, 2004 and 2003, amounts advanced in the normal course of business for development and construction of real estate projects on behalf of this partner collateralized by this partnership interest were $114,164 and $98,264, respectively, of the $313,160 and $340,725 presented above for “Advances to other real estate affiliates.” These advances entitle the Company to a preferred return on and of the outstanding balances, which are payable from cash flows of each respective property.

FIN No. 46(R) Implementation — The Company plans to implement FIN No. 46(R) February 1, 2004. As a result of the implementation of FIN No. 46(R), 16 properties (11 Residential, three Commercial, and two Land) currently accounted for on the equity method of accounting will switch to full consolidation. Seven properties (one Commercial and six Residential) currently accounted for on the cost method will switch to full consolidation. Five Residential properties will be deconsolidated. If FIN No. 46(R) would have been implemented by January 31, 2004, total assets and total liabilities would have increased approximately $700,000,000. Upon adoption of FIN No. 46(R) the Company expects to record a cumulative effect of change in accounting principle adjustment of approximately $8,000,000 (pre-tax) which will reduce Net Earnings and Shareholders’ Equity. The Company believes its maximum exposure to loss as a result of its involvement with these VIE’s is limited to the value of its investment in these VIE’s.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

Included in other assets are costs incurred in connection with obtaining financing which are deferred and amortized over the life of the related debt. Costs incurred in connection with leasing space to tenants are also included in other assets and are deferred and amortized using the straight-line method over the lives of the related leases.

Included in accounts payable and accrued expenses at January 31, 2004 and 2003 are book overdrafts of approximately $58,105,000 and $62,384,000, respectively. The overdrafts are a result of the Company’s cash management program and represent checks issued but not yet presented to a bank for collection.

Notes payable to banks at January 31, 2004 reflects borrowings on the Lumber Trading Group’s three year revolving line of credit with a borrowing capacity $120,000,000 (with an ability to expand to $180,000,000) which became effective on October 23, 2003. The bank line of credit allows for outstanding letters of credit in the amount of the difference between the collateral balance available or the line limit (whichever is less) less the outstanding loan balance, with a maximum limit of $10,000,000. At January 31, 2004, $3,484,000 letters of credit were outstanding. Notes payable to banks at January 31, 2003 reflects borrowings on the Lumber Trading Group’s previous bank line of credit of $80,000,000, which allowed for up to $5,000,000 in outstanding letters of credit of which none were outstanding at January 31, 2003.

Borrowings under the current bank line of credit are collateralized by all the assets of the Lumber Trading Group, bear interest at the lender’s prime rate or London Interbank Offered Rate (LIBOR) plus an applicable margin ranging from 1.75% to 2.25% and have a fee of 0.25% to 0.50% per year on the unused portion of the available commitment. The LIBOR loan margin and unused commitment fee are based on an average quarterly borrowing base availability. Terms of the previous bank line of credit were similar to those described under the current line of credit. The revolving line of credit expires on October 23, 2006.

Other notes payable relate primarily to improvements and construction funded by tenants, property and liability insurance premium financing, software financing and advances from affiliates and partnerships.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

Mortgage debt, which is collateralized by completed rental properties, projects under development and undeveloped land, is as follows.

(1) Reflects weighted average interest rates including both the base index and lender margin.
(2) Taxable variable-rate debt of $757,406 as of January 31, 2004 is protected with LIBOR swaps and caps described below.
These LIBOR-based hedges protect the current debt outstanding as well as the anticipated increase in debt outstanding for projects currently under development or anticipated to be under development during the year ending January 31, 2005.

On January 31, 2004, the composition of nonrecourse mortgage debt (included in the figures above) related to projects under development is as follows (in thousands).

The Company generally borrows funds for development and construction projects with maturities of two to five years utilizing variable-rate financing. Upon opening and achieving stabilized operations, the Company generally pursues long-term fixed-rate financing.

The Company has purchased London Interbank Offered Rate (“LIBOR”) interest rate hedges for its nonrecourse mortgage debt portfolio as follows:

(1) Swaps include long-term LIBOR contracts that have an average maturity greater than six months.
(2) These LIBOR-based hedges as of February 1, 2004 protect the debt currently outstanding as well as the anticipated to be under development during the year ending January 31, 2005.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

The Urban Development Action Grants and other subsidized loans bear interest at rates which are below prevailing historical commercial lending rates and are granted to the Company by government agencies as an inducement to develop real estate in targeted areas. A right to participate by the local government in the future cash flows of the project is generally a condition of these loans. Participation in annual cash flows generated from operations is recognized as an expense in the period earned. Participation in appreciation and cash flows resulting from a sale or refinancing is recorded as an expense at the time of the sale or is capitalized as additional basis and amortized if amounts are paid prior to the disposition of the property.

The Company is engaged in discussions with its current lenders and is actively pursuing new lenders to extend and refinance maturing mortgage debt. As of January 31, 2004, the composition of mortgage debt maturities (including scheduled amortization and balloon payments) along with refinancing commitments and extension options for the next five years is as follows.

The following table summarizes interest incurred and paid on mortgage debt, nonrecourse.

The $350,000,000 long-term credit facility became effective on March 5, 2002, includes a $100,000,000 term loan and a $250,000,000 revolving line of credit. Outstanding balances are as follows:

The January 31, 2004 balance of $56,250,000 was paid in full on February 10, 2004 with a portion of the net proceeds from the $100,000,000 Senior Note offering (Note I). The revolving credit facility was scheduled to mature in March 2006 and allowed for up to a combined amount of $40,000,000 in outstanding letters of credit or surety bonds ($33,939,000 and $26,788,000 in letters of credit and $-0- surety bonds outstanding at January 31, 2004 and 2003, respectively). Quarterly principal payments of $6,250,000 on the term loan commenced July 1, 2002.

Effective March 22, 2004, the Company increased its long-term credit facility to $450,000,000. The credit facility now includes a $450,000,000 revolving line of credit (with no term loan) that will mature in March 2007. The revolving line of credit allows up to a combined amount of $50,000,000 in outstanding letters of credit or surety bonds and has terms comparable to the previous credit facility.

The long-term credit facility provides, among other things, for: 1) at our election, interest rates of 2.125% over LIBOR of 1/2% over the prime rate (the last $50,000,000 of borrowings under the revolving loans bears interest at 2.75% over LIBOR or 3/4% over the prime rate); 2) maintenance of debt service coverage ratios and specified levels of net worth and cash flow (as defined in the credit facility); and 3) restrictions on dividend payments and stock repurchases. At January 31, 2004, retained earnings of $5,040,000 were available for payment of dividends. On March 5, 2004, the anniversary date of the long-term credit facility, this amount was reset to $20,000,000. Under the new agreement this limitation will be reset each March 22, to $30,000,000.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

In order to mitigate the short-term variable interest rate risk on our long-term credit facility, we have purchased $147,882,000 of 5.00% LIBOR interest rate caps that mature on August 1, 2004.

On May 19, 2003, the Company issued $300,000,000 of 7.625% senior notes due June 1, 2015, in a public offering under its shelf registration statement. Accrued interest is payable semi-annually on December 1 and June 1. $208,500,000 of the proceeds from this offering were used to redeem all of the outstanding 8.5% senior notes originally due in 2008 at a redemption price equal to 104.25%. The remainder of the proceeds were used for offering costs of $8,151,000, to repay $73,000,000 outstanding under the revolver portion of the long-term credit facility and for general working capital purposes. These senior notes are unsecured senior obligations of the Company and rank equally with all existing and future unsecured indebtedness; however, they are subordinated to all existing and future secured indebtedness and other liabilities of the Company’s subsidiaries, including the long-term credit facility. The indenture contains covenants providing, among other things, limitations on incurring additional debt and payment of dividends.

These senior notes may be redeemed by the Company, at any time on or after June 1, 2008 at redemption prices beginning at 103.813% for the year beginning June 1, 2008 and systematically reduced to 100% in years thereafter. However, if the Company completes one or more public equity offerings prior to June 1, 2006, up to 35% of the original principal amount of the notes may be redeemed using all or a portion of the net proceeds within 75 days of the completion of the public equity offering at 107.625% of the principal amount of the notes.

In November 2000, the Company issued $20,400,000 of redevelopment bonds in a private placement. The bonds bear interest at 8.25% and are due September 15, 2010. Interest is payable semi-annually on March 15 and September 15. This debt is unsecured and subordinated to the senior notes and the revolving credit facility. Financial covenants associated with this debt are similar to that of the senior notes. The Company may purchase from time to time, our senior notes on the open market.

On May 24, 2002, the Company, along with its wholly-owned subsidiaries Forest City Enterprises Capital Trust I (Trust I) and Forest City Capital Trust II (Trust II), filed an amended shelf registration statement with the Securities and Exchange Commission. This registered an undetermined number of shares of the preferred securities of Trust I and II along with the guarantee by the Company of the preferred securities. No securities have been issued by Trusts I and II to date. These securities, if issued, will be the sole assets of the Trusts.

On February 10, 2004, the Company issued $100,000,000 of 7.375% senior notes due February 1, 2034, in a public offering. Accrued interest is payable quarterly on February 1, May 1, August 1 and November 1. A portion of the net proceeds from this offering were used to pay off the outstanding balance of $56,250,000 under the long-term credit facility (Note H). The senior notes are unsecured senior obligations of the Company and rank equally with all existing and future unsecured indebtedness; however, they are subordinated to all existing and future secured indebtedness and other liabilities of the Company’s subsidiaries, including the long-term credit facility. The indenture contains covenants providing, among other things, limitations on incurring additional debt and payment of dividends. These notes may be redeemed by the Company, in whole or in part, at any time on or after February 10, 2009 at a redemption price equal to 100% of their principal amount plus accrued interest.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

The following table summarizes interest incurred, capitalized and paid on all forms of indebtedness (included in Notes F, G, H and I).

The income tax provision related to continuing operations consists of the following:


	Years Ended January 31,
	2004			2003			2002
	(in thousands)
Current
Federal	$	(3,091	)	$	3,163		$	(1,406	)
Foreign		437			443			499
State		552			1,127			1,409

		(2,102	)		4,733			502

Deferred
Federal		25,227			22,678			50,976
Foreign		291			(313	)		23
State		5,383			4,950			11,833

		30,901			27,315			62,832

Total provision	$	28,799		$	32,048		$	63,334


The effective tax rate for income taxes varies from the federal statutory rate of 35% due to the following items:

Financial statement earnings before income taxes, after minority interest	$	67,771		$	76,014		$	167,565

Income taxes computed at the statutory rate	$	23,720		$	26,605		$	58,648
Increase (decrease) in tax resulting from:
State taxes, net of federal benefit		3,693			4,277			7,770
General Business Credits		(657	)		(971	)		(4,851	)
Valuation allowance		(6	)		(549	)		(482	)
Other items		2,049			2,686			2,249

Total provision	$	28,799		$	32,048		$	63,334

Effective tax rate		42.49	%		42.16	%		37.80	%

The components of the deferred tax provision for continuing operations are as follows:

Excess of tax over financial statement depreciation and amortization	$	11,229		$	11,675		$	11,749
Cancellation of debt		—			—			(570	)
Gains deferred for tax purposes		—	⁽¹⁾		—	⁽¹⁾		33,587
Costs on land and rental properties under development expensed for tax purposes		4,572			4,208			5,721
Revenues and expenses recognized in different periods for tax and financial statement purposes		7,952			2,071			8,737
Difference between tax and financial statements related to unconsolidated entities		7,916			8,984			3,587
Provision for decline in real estate		(426	)		(2,877	)		(802	)
Deferred state taxes, net of federal benefit		3,665			4,491			6,772
(Benefit) utilization of tax loss carryforward excluding effect of stock options		(5,373	)		4,596			(1,945	)
Valuation allowance		(6	)		(549	)		(482	)
General Business Credits		(657	)		(1,148	)		(4,851	)

Alternative Minimum Tax credits		2,029			(4,136	)		1,329


Deferred provision	$	30,901		$	27,315		$	62,832

(1) Gain on dispositions that were structured as tax-deferred exchanges have been reported in Note P – Discontinued Operations in the Consolidated Statement of Earnings for the years ended January 31, 2004 and 2003.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

(1) Additions to capitalized costs during the years ended January 31, 2003 and 2002 include $10,417 and $102,408, respectively, related to replacement property of tax-deferred exchanges.
(2) Includes deferred tax benefit related to stock options exercised during the years ended January 31, 2004, 2003 and 2002.

Income taxes (refunded) paid were $(147,000), $3,001,000 and $11,419,000 for the years ended January 31, 2004, 2003 and 2002, respectively. At January 31, 2004, the Company had a tax loss carryforward of $27,645,000 that will expire in the years ending January 31, 2022 through January 31, 2024, General Business Credit carryovers of $8,238,000 that will expire in the years ending January 31, 2005 through January 31, 2024, and an Alternative Minimum Tax credit carryforward of $31,515,000.

The Company’s net deferred tax liability at January 31, 2004 is comprised of deferred tax liabilities of $580,764,000, deferred tax assets of $286,741,000, and a valuation allowance related to state taxes and general business credits of $902,000.

Strategic Business Units are determined by the type of customers served or the products sold. The Company operates with four Strategic Business Units. The Commercial Group, the Company’s largest unit, owns, develops, acquires and operates regional malls, specialty/urban retail centers, office buildings, hotels and mixed-use projects. New York City operations, through the Company’s partnership with Forest City Ratner Companies are part of the Commercial Group. The Residential Group owns, develops, acquires, and operates residential rental property, including upscale and middle-market apartments in urban locations, adaptive re-use developments and supported-living facilities. Real Estate Groups are the combined Commercial and Residential Groups. The Land Development Group acquires and sells both raw land and developed lots to residential, commercial and industrial customers. It also owns and develops raw land into master-planned communities, mixed-use and other residential developments. The Lumber Trading Group is a lumber wholesaler.

The Company uses an additional measure, along with net earnings, to report its operating results. This measure, referred to as Earnings Before Depreciation, Amortization and Deferred Taxes (“EBDT”) is defined as net earnings excluding the following items: i) gain (loss) on disposition of operating properties and other investments (net of tax); ii) the adjustment to recognize rental revenues and rental expense using the straight-line method; iii) noncash charges from Forest City Rental Properties Corporation, a wholly-owned subsidiary of Forest City Enterprises, Inc., for depreciation, amortization and deferred income taxes; iv) provision for decline in real estate (net of tax); v) extraordinary items (net of tax); and vi) cumulative effect of change in accounting principle (net of tax).

The Company believes that, although its business has many facets such as development, acquisitions, disposals, and property management, the core of its business is the recurring operations of its portfolio of real estate assets. The Company’s Chief Operating Officer, the chief operating decision maker, uses EBDT, as presented, to assess performance of its portfolio of real estate assets by operating segment because it provides information on the financial performance of the core real estate portfolio operations. EBDT tells the chief decision maker how profitable a real estate segment is simply by operating for the sole purpose of collecting rent, paying operating expenses and servicing its debt. In essence what is needed to keep the property’s doors open. In contrast, the Company’s reported GAAP financial statements include numerous accounting items which have been excluded from EBDT and disclosed in its filings that the Company believes are not consistent with its chief operating decision maker’s review of financial performance and allocation of resources amongst our segments.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

EBDT, as presented, excludes gains or losses on sales, provisions for decline, straight-line rent adjustments, cumulative effect of accounting changes, depreciation and amortization and deferred taxes in assessing performance of these segments so the Company’s chief decision maker, along with its entire management team, is able to evaluate what they view to be the core operations of each segment. Although net earnings under GAAP is useful in assessing the overall performance of the Company on a consolidated basis, net earnings doesn’t provide its management team and chief operating decision maker with a clear measure of each segment’s core operating performance.

Early extinguishment of debt, which was formerly reported as an extraordinary item, is now reported in operating earnings. However, early extinguishment of debt was excluded from EBDT through the year ended January 31, 2003. Beginning February 1, 2003, early extinguishment of debt was included in EBDT.

The following tables summarize financial data for the Commercial, Residential, Land Development, Lumber Trading Groups and Corporate activities. All amounts, including footnotes, are presented in thousands.


							January 31,										Years Ended January 31,
							Identifiable Assets										Expenditures for Additions to Real Estate
							2004			2003			2002				2004			2003			2002
Commercial Group							$	3,853,283		$	3,628,251		$	3,214,781			$	288,404		$	383,999		$	391,719
Residential Group								1,457,512			990,192			797,248				141,777			175,892			94,545
Land Development Group								229,791			209,319			174,170				54,172			23,481			32,302
Lumber Trading Group								261,284			149,236			171,353				1,186			1,282			1,902
Corporate Activities								93,202			115,631			74,642				2,795			920			2,508

Total							$	5,895,072		$	5,092,629		$	4,432,194			$	488,334		$	585,574		$	522,976


	Years Ended January 31,
	Revenues						Interest Expense										Depreciation & Amortization Expense
	2004		2003		2002		2004			2003			2002				2004			2003			2002
Commercial Group	$	638,070	$	585,065	$	551,029	$	135,851		$	123,087		$	122,443			$	100,114		$	91,735		$	79,322
Residential Group		169,547		127,295		145,560		29,288			21,968			23,483				23,481			17,413			14,136
Land Development Group		90,179		71,175		45,421		3,098			785			1,010				308			212			554
Lumber Trading Group ⁽¹⁾		123,249		97,060		115,728		3,302			2,655			3,131				1,891			2,153			2,147
Corporate Activities		543		1,142		506		26,583			25,732			28,513				1,837			1,848			1,683

Total	$	1,021,588	$	881,737	$	858,244	$	198,122		$	174,227		$	178,580			$	127,631		$	113,361		$	97,842


							Earnings Before									Earnings Before Depreciation,
							Income Taxes (EBIT)⁽²⁾									Amortization & Deferred Taxes (EBDT)
Commercial Group							$	67,406		$	64,199		$	37,384			$	154,057		$	147,036		$	102,471
Residential Group								30,547			30,953			50,502				72,075			52,390			68,989
Land Development Group								38,631			38,883			31,516				28,601			22,063			21,429
Lumber Trading Group								7,917			1,131			5,494				3,701			174			3,073
Corporate Activities								(64,040	)		(44,092	)		(47,651	)			(46,042	)		(27,264	)		(27,992	)
(Loss) gain on disposition of operating properties and other investments								(171)			(295)			91,109				—			—			—
Provision for decline in real estate								(3,238	)		(8,221	)		(8,783	)			—			—			—

Total							$	77,052		$	82,558		$	159,571				$212,392		$	194,399		$	167,970

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

Reconciliation of Earnings Before Depreciation Amortization and Deferred Taxes (EBDT) to net earnings by Segment:


							Land			Lumber		Corporate
Year Ended January 31, 2004	Commercial			Residential			Development			Trading		Activities			Total
EBDT	$	154,057		$	72,075		$	28,601		$	3,701	$	(46,042	)	$	212,392
Depreciation and amortization — Real Estate Groups		(103,490	)		(36,177	)		(120	)		—		—			(139,787	)
Deferred taxes — Real Estate Groups		(23,766	)		(19,907	)		(14,093	)		—		24,552			(33,214	)
Straight-line rent adjustment		6,534			526			—			—		—			7,060
Provision for decline in real estate, net of tax		(683	)		(982	)		—			—		—			(1,665	)
Provision for decline in real estate recorded on equity method, net of tax		—			—			(2,793	)		—		—			(2,793	)
Gain (loss) on disposition of operating properties and other investments, net of tax		—			280			—			—		(384	)		(104	)
Loss on disposition reported on equity method, net of tax		—			(2,160	)		—			—		—			(2,160	)
Discontinued operations, net of tax and minority interest:⁽⁴⁾
Depreciation and amortization		—			(731	)		—			—		—			(731	)
Deferred taxes		(87	)		(139	)		—			—		—			(226	)
(Loss) gain on disposition of operating properties		(64	)		3,961			—			—		—			3,897

Net earnings	$	32,501		$	16,746		$	11,595		$	3,701	$	(21,874	)	$	42,669


							Land			Lumber		Corporate
Year Ended January 31, 2003	Commercial			Residential			Development			Trading		Activities			Total
EBDT	$	147,036		$	52,390		$	22,063		$	174	$	(27,264	)	$	194,399
Depreciation and amortization — Real Estate Groups		(89,554	)		(27,161	)		(83	)		—		—			(116,798	)
Deferred taxes — Real Estate Groups		(18,665	)		(10,586	)		3,040			—		(1,668	)		(27,879	)
Straight-line rent adjustment		5,565			—			—			—		—			5,565
Early extinguishment of debt, net of tax ⁽³⁾		—			(999	)		—			—		—			(999	)
Provision for decline in real estate, net of tax		(4,391	)		(579	)		—			—		—			(4,970	)
Loss on disposition of operating properties and other investments, net of tax		—			—			—			—		(178	)		(178	)
Discontinued operations, net of tax and minority interest:⁽⁴⁾
Depreciation and amortization		(1,415	)		(1,996	)		—			—		—			(3,411	)
Deferred taxes		(2,989	)		1,992			—			—		—			(997	)
Straight-line rent adjustment		(81	)		—			—			—		—			(81	)
Gain on disposition of operating properties		4,180			—			—			—		—			4,180

Net earnings	$	39,686		$	13,061		$	25,020		$	174	$	(29,110	)	$	48,831


							Land			Lumber		Corporate
Year Ended January 31, 2002	Commercial			Residential			Development			Trading		Activities			Total
EBDT	$	102,471		$	68,989		$	21,429		$	3,073	$	(27,992	)	$	167,970
Depreciation and amortization — Real Estate Groups		(76,276	)		(21,715	)		(377	)		—		—			(98,368	)
Deferred taxes — Real Estate Groups		(4,885	)		(16,619	)		(2,181	)		—		(2,441	)		(26,126	)
Straight-line rent adjustment		6,594			—			—			—		—			6,594
Early extinguishment of debt, net of tax ⁽³⁾		—			(233	)		—			—		—			(233	)
Provision for decline in real estate, net of tax and minority interest		(3,100	)		(1,016	)		—			—		—			(4,116	)
Gain (loss) on disposition of operating properties and other investments, net of tax		52,390			5,264			—			—		(2,578	)		55,076
Gain on disposition reported on equity method, net of tax		407			3,027			—			—		—			3,434
Cumulative effect of change in accounting principle, net of tax		(894	)		(207	)		—			—		(101	)		(1,202	)

Net earnings	$	76,707		$	37,490		$	18,871		$	3,073	$	(33,112	)	$	103,029


(1)		The Company recognizes the gross margin on lumber brokerage sales as revenues. Sales invoiced for the years ended January 31, 2004, 2003 and 2002 were $2,843,000, $2,514,000 and $2,627,000, respectively.
(2)		See Consolidated Statements of Earnings on page 46 for reconciliation of EBIT to net earnings.
(3)		Early extinguishment of debt, which was formerly reported as an extraordinary item, is now reported in operating earnings. However, early extinguishment of debt was excluded from EBDT through the year ended January 31, 2003. Beginning February 1, 2003, early extinguishment of debt was included in EBDT.
(4)		See Note P – Discontinued Operations on page 71 for more information.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

The following table summarizes the minimum future rental income to be received on noncancelable operating leases of commercial properties that generally extend for periods of more than one year.

Most of the commercial leases include provisions for reimbursements of other charges including real estate taxes and operating costs which is included in revenues from rental properties in the Consolidated Statements of Earnings. The following table summarizes total reimbursements.

The Company is a lessee under various operating leasing arrangements for real property and equipment. The most significant of these involve ground leases in Boston and New York City, the majority of which expire between the years 2035 and 2100, excluding optional renewal periods.

Minimum fixed rental payments under long-term leases (over one year) in effect at January 31, 2004 are as follows.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

The Company has adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN No. 45). The Company believes the risk of payment under these guarantees as described below is remote and, to date, no payments have been made under these guarantees.

As of January 31, 2004, the Company has guaranteed loans totaling $3,200,000, relating to a $1,800,000 bank loan for the Sterling Glen of Ryebrook (formerly Stone Gate at Bellefair) supported-living Residential Group project in Ryebrook, New York and the Company’s $1,400,000 share of a bond issue made by the Village of Woodridge, relating to a Land Development Group project in suburban Chicago, Illinois. These guarantees were entered into prior to January 31, 2003, and therefore, have not been recorded in the Company’s Consolidated Financial Statements at January 31, 2004, pursuant to the provisions of FIN No. 45. The bank loan guaranty is expected to terminate in early 2004. The bond issue guarantee terminates April 30, 2015, unless the bonds are paid sooner, and is limited to $500,000 in any one year. The Company also had outstanding letters of credit of $37,423,000 as of January 31, 2004. The maximum potential amount of future payments on the guaranteed loans and letters of credit the Company could be required to make is the total amounts noted above.

The Company, as a general partner for certain limited partnerships, guaranteed the funding of operating deficits of newly-opened apartment projects for an average of five years. These guarantees were entered into prior to January 31, 2003, and therefore, have not been recorded in the Company’s Consolidated Financial Statements at January 31, 2004, pursuant to the provisions of FIN No. 45. At January 31, 2004, the maximum potential amount of future payments on these operating deficit guarantees the Company could be required to make is approximately $18,000,000. The Company would seek to recover any amounts paid through refinancing or sales proceeds of the apartment project. These partnerships typically require the Company to indemnify, on an after-tax or “grossed up” basis, the investment partner against the failure to receive, or the loss of allocated tax credits and tax losses. At January 31, 2004 the maximum potential payment under these tax indemnity guarantees was approximately $64,000,000. The Company believes that all necessary requirements for qualifications for such tax credits have been and will be met and that the Company’s investment partners will be able to receive expense allocations associated with the properties. The Company has obtained legal opinions from major law firms supporting the validity of the tax credits. The Company does not expect to make any payments under these guarantees.

The Company’s mortgage loans are all non-recourse, however in some cases lenders carve-out certain items from the non-recourse provisions. These carve-out items enable the lenders to seek recourse if the Company or the joint venture commit fraud, voluntarily file for bankruptcy, intentionally misapply funds, transfer title without lender consent, or intentionally misrepresent facts. The Company has also provided certain environmental guarantees. Under these environmental remediation guarantees, the Company must remediate any hazardous materials brought onto the property in violation of environmental laws. The maximum potential amount of future payments the Company could be required to make is limited to the actual losses suffered or actual remediation costs incurred. A portion of these carve-outs and guarantees have been made on behalf of joint ventures and while the amount of the potential liability is currently indeterminable, the Company believes any liability would not exceed its partners’ share of the outstanding principal balance of the loans in which these carve-outs and environmental guarantees have been made. At January 31, 2004 the outstanding balance of the partners’ share of these loans was approximately $605,000,000. The Company believes the risk of payment on the carve-out guarantees is mitigated in most cases by the fact the Company manages the property, and in the event the Company’s partner did violate one of the carve-out items, the Company would seek recovery from its partner for any payments the Company would make. Additionally, the Company further mitigates its exposure through environmental insurance and insurance coverage for items such as fraud.

The Company guaranteed the principal and interest on $19,000,000 of municipal bonds issued in May 2003 by an unrelated third party in connection with the Company’s investment in the redevelopment of Stapleton, a former airport in Denver, Colorado. The Company has a 90% ownership interest in Stapleton which is fully consolidated in the Company’s financial statements. The bonds bear interest at 7.875%, require semi-annual interest payments and mature on December 1, 2032. The Company will assess its obligation under this guarantee pursuant to the provisions of FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. In addition, the Company plans to provide a similar guarantee relating to an additional $10,000,000 in municipal bonds expected to be drawn in the next eighteen months depending upon the status of the development at Stapleton. The Company has assessed this obligation pursuant to the provisions of FIN No. 45 and has determined the value of the guarantee to be approximately $500,000. This amount has been recorded in the Consolidated Balance Sheet at January 31, 2004.

The Company customarily guarantees lien-free completion of projects under construction. Upon completion, the guarantees are released. At January 31, 2004, the Company has guaranteed completion of construction of development projects with a total cost of $1,902,000,000 which are approximately 62% complete in the aggregate. The projects have total loan commitments of $1,658,000,000, of which approximately $594,000,000 was outstanding at January 31, 2004. The Company’s subsidiaries have been successful in consistently delivering lien-free completion of construction projects, without calling the Company’s guarantees of completion.

The Company is also involved in certain claims and litigation related to its operations. Based on the facts known at this time, management has consulted with legal counsel and is of the opinion that the ultimate outcome of all such claims and litigation will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

Class A fixed options in the form of either incentive stock options or non-qualified stock options may be awarded under the 1994 Stock Option Plan (“Plan”) to key employees and non-employee members of the Company’s Board of Directors. The maximum number of options that may be awarded under the Plan was increased by 2,500,000 to 5,875,000 by shareholder approval in June 2003. The maximum award to a person during any calendar year is 112,500 and the maximum term of an option is 10 years. The exercise price of all options must equal the fair market value of the stock on the date of grant, except, if incentive stock options are granted to someone who owns more than 10% of the total combined voting power of all classes of stock of the Company, then the exercise price will be 110% of the fair market value of the stock on the date of grant and the term of the option will be five years. The Plan is administered by the Compensation Committee of the Board of Directors. The Company granted 677,300 options in 2003 and 625,795 options in 2001. All options granted under the Plan to date have been for a term of 10 years and vest over four years.

The information required by SFAS No. 148 “Accounting for Stock-Based Compensation — Transition and Disclosure” relating to the pro forma effect on net earnings and earnings per share had the fair value based method under SFAS No. 123 been used for stock options is located in Note A — Summary of Significant Accounting Policies, Stock-Based Compensation.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for the grants in 2003 and 2001, respectively: dividend yield of .7% in both years; expected volatility of 31.9%, and 34.2%; risk-free interest rate of 3.7% and 4.9%; expected life of 8.7 years in both years; and turnover of 2.6% and 3.7%. A summary of stock option activity is presented below.


	Years Ended January 31,
	2004					2003					2002
				Weighted					Weighted					Weighted
				Average					Average					Average
	Options			Exercise Price		Options			Exercise Price		Options			Exercise Price
Outstanding at beginning of year		1,659,008		$	20.30		1,859,251		$	19.87		1,593,587		$	14.94
Granted		677,300		$	31.25		—		$	—		625,795		$	28.53
Exercised		(218,329	)	$	16.65		(192,143	)	$	16.38		(354,731	)	$	12.90
Forfeited		(31,724	)	$	29.58		(8,100	)	$	14.92		(5,400	)	$	28.53

Outstanding at end of year		2,086,255		$	24.09		1,659,008		$	20.30		1,859,251		$	19.87

Options exercisable at end of year		967,582		$	17.11		761,799		$	15.47		568,621		$	14.22
Number of shares available for granting of options at end of year		2,962,230					3,607,806	*				3,599,706	*
Weighted average fair value of options granted during the year	$	13.13				$	—				$	13.40

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

The following table summarizes information about fixed stock options outstanding at January 31, 2004.

The Compensation Committee granted 112,500 shares of restricted Class A common stock to key employees in both 2003 and 2001. The restricted shares were awarded out of treasury stock, having a cost basis of $1,012,500 and $1,009,000 in 2003 and 2001, respectively, with rights to vote the shares and receive dividends while being subject to restrictions on disposition and transferability and risk of forfeiture. The shares become nonforfeitable over a period of four years. In accordance with APBO No. 25, the market value on the date of grant of $3,487,500 and $3,191,000 in 2003 and 2001, respectively, was recorded as unearned compensation to be charged to expense over the respective vesting periods. The unearned compensation of these and prior restricted stock awards is reported as an offset of Additional Paid-In Capital in the accompanying consolidated financial statements. The unamortized unearned compensation relating to all restricted stock amounted to $4,919,000, $2,627,000 and $3,541,000 at January 31, 2004, 2003 and 2002, respectively.

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for “earnings from continuing operations.”

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — continued

The Company adopted the provisions of Statement of Financial Accounting Standard (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” effective February 1, 2002. This standard addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company also retains the basic provisions for presenting discontinued operations in the income statement but broadened the scope to include a component of an entity rather than a segment of business. Pursuant to the definition of a component of an entity in SFAS No. 144, assuming no significant continuing involvement, all earnings of properties which have been sold or held for sale are reported as discontinued operations. The Company considers assets held for sale when the transaction has been approved by the appropriate level of management and there are no contingencies related to the sale that may prevent the transaction from closing. In most transactions, these contingencies are not satisfied until the actual closing of the transaction, and, accordingly, the property is not identified as held for sale until the closing actually occurs. However, each potential transaction is evaluated based on its separate facts and circumstances. Three properties are classified as discontinued operations in the Statement of Earnings for the year ended January 31, 2004. Five properties classified as discontinued operations were reclassified as such in the Statement of Earnings for the year ended January 31, 2003. Due to the immateriality of the operating results for the year ended January 31, 2002, no reclassification was made in the Statement of Earnings for that year.

Included in discontinued operations for the year ended January 31, 2004 are three properties: Trowbridge, Vineyards and Laurels. Trowbridge, located in Southfield, Michigan, has 305 supported living units, and its deed was accepted by its lender in lieu of foreclosure in April 2003. Vineyards, a 336-unit apartment complex in Broadview Heights, Ohio and Laurels, a 520-unit apartment complex in Justice, Illinois, were both sold during the third quarter ended October 31, 2003. Trowbridge, Vineyards and Laurels were previously included in the Residential Group.

Included in discontinued operations for the year ended January 31, 2003 are five properties: Bay Street, Courtland Center, Trowbridge, Vineyards and Laurels. Bay Street, a 16,000 square-foot retail center located in Staten Island, New York, was sold in the fourth quarter ended January 31, 2003. Courtland Center, a 458,000 square-foot retail center located in Flint, Michigan, was also sold during the fourth quarter ended January 31, 2003. Bay Street and Courtland Center were both previously included in the Commercial Group.

Q. (Loss) Gain on Disposition of Operating Properties and Other Investments, Provision for Decline in Real Estate
and Early Extinguishment of Debt

(Loss) Gain on Disposition of Operating Properties - The following table summarizes the (loss) gain on disposition of operating properties and other investments by year.


		Years Ended January 31,
		2004			2003			2002
		(in thousands)
Continuing Operations
Available-for-sale equity securities		$	(171	)	$	(295	)	$	(5,586	)
Tucson Mall*	Tucson, AZ		—			—			86,096
Palm Villas	Henderson, NV		—			—			7,259
Bowling Green Mall*	Bowling Green, KY		—			—			1,892
Peppertree	College Station, TX		—			—			1,682
Whitehall Terrace*	Kent, OH		—			—			1,105
The Oaks	Bryan, TX		—			—			(1,010	)
Other			—			—			(329	)

			(171	)		(295	)		91,109

Discontinued Operations
Laurels*	Justice, IL		4,249			—			—
Vineyards*	Broadview Hts., OH		2,109			—			—
Trowbridge	Southfield, MI		538			—			—
Courtland Center	Flint, MI		—			7,087			—
Bay Street	Staten Island, NY		—			125			—
Other			(127	)		(243	)		—

			6,769			6,969			—

Total		$	6,598		$	6,674		$	91,109

Provision for Decline in Real Estate - During the years ended January 31, 2004, 2003 and 2002 the Company recorded a Provision for Decline in Real Estate totaling $3,238,000, $8,221,000 and $8,783,000, respectively. The provision represents the adjustment to fair market value of land held by the Residential and Commercial Groups, and a write-down to estimated fair value, less cost to sell, of Hunting Park, a retail center in Philadelphia.

Early Extinguishment of Debt - On February 1, 2002 the Company adopted the provisions of SFAS No. 145, “Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13 on Technical Corrections” (SFAS No. 145), which requires gains or losses from early extinguishment of debt to be classified in operating income or loss. The Company previously recorded gains or losses from early extinguishment of debt as extraordinary items, net of tax, in its Statement of Earnings. For the year ended January 31, 2004, the Company has recorded $190,000 relating to the disposition of Laurels and Vineyards as Loss on Early Extinguishment of Debt in Discontinued Operations. Laurels is a residential property located in Justice, Illinois, and Vineyards is a residential property located in Broadview Heights, Ohio. For the year ended January 31, 2004, the Company recorded $10,718,000 as Loss on Early Extinguishment of Debt. This amount is primarily the result of the payment in full of the Company’s $200,000,000, 8.5% senior notes due in 2008 at a premium of 104.25% for a loss on extinguishment of $8,500,000 for redemption premium and approximately $3,000,000 related to the write-off of unamortized debt issue costs. These changes were offset, in part, by net gains on early extinguishment of debt of approximately $800,000 on several residential properties.

For the year ended January 31, 2003, the Company reclassified $1,653,000 of early extinguishment of debt from Extraordinary Loss to Loss on Early Extinguishment of Debt to conform to the new guidance. These losses represented the impact of early extinguishment of nonrecourse debt in order to secure more favorable financing terms. The Company recorded extraordinary losses related to Lofts at 1835 Arch, a residential property located in Philadelphia, Pennsylvania, Autumn Ridge and Cambridge Towers, residential properties located in Michigan, Regency Towers, a residential property located in Jackson, New Jersey, and Mount Vernon Square, a residential property located in Alexandria, Virginia.

For the year ended January 31, 2002, the Company recorded $386,000 of Loss on Early Extinguishment of Debt. The Company recorded a gain of $1,054,000 related to Enclave, a residential property located in San Jose, California, and a loss of $1,440,000 related to Mount Vernon Square, a residential property located in Alexandria, Virginia.

Forest City Enterprises, Inc. and Subsidiaries
Quarterly Consolidated Financial Data (Unaudited)


	Quarter Ended
	Jan. 31,			Oct. 31,			July 31,			Apr. 30,
	2004			2003			2003			2003
	(in thousands, except per share data)
Revenues, as previously reported				$	293,592		$	252,092		$	243,901
Equity in earnings of unconsolidated real estate entities⁽¹⁾					(11,433	)		(11,827	)		(9,843	)
Discontinued operations⁽⁴⁾					—			(1,778	)		(1,759	)

Revenues	$	268,643		$	282,159		$	238,487		$	232,299
Earnings before income taxes, as previously reported				$	42,180		$	17,067		$	26,927
Discontinued operations⁽⁴⁾					11			5			34

Earnings before income taxes	$	(9,172	)	$	42,191		$	17,072		$	26,961
Net earnings	$	(4,698	)	$	25,972		$	6,603		$	14,792
Basic net earnings per common share⁽²⁾	$	(0.09	)	$	0.52		$	0.13		$	0.30
Diluted net earnings per common share⁽²⁾	$	(0.09	)	$	0.51		$	0.13		$	0.29
Quarterly dividends declared per common share⁽³⁾
Class A and Class B	$	0.09		$	0.09		$	0.09		$	0.06
Market price range of common stock
Class A
High	$	52.50		$	44.60		$	41.00		$	36.78
Low	$	44.31		$	39.82		$	36.50		$	30.84
Class B
High	$	51.85		$	44.50		$	42.40		$	36.70
Low	$	44.80		$	40.65		$	36.60		$	31.25


	Quarter Ended
	Jan. 31,			Oct. 31,			July 31,			Apr. 30,
	2003			2002			2002			2002
	(in thousands, except per share data)
Revenues, as previously reported	$	248,694		$	228,728		$	236,968		$	211,371
Equity in earnings of unconsolidated real estate entities⁽¹⁾		(7,191	)		(10,735	)		(10,564	)		(10,194	)
Discontinued operations⁽⁴⁾		(1,804	)		—			(1,783	)		(1,753	)

Revenues	$	239,699		$	217,993		$	224,621		$	199,424
Earnings before income taxes, as previously reported	$	28,927		$	16,389		$	21,823		$	15,542
Discontinued operations⁽⁴⁾		22			—			(73	)		(72	)

Earnings before income taxes	$	28,949		$	16,389		$	21,750		$	15,470
Net earnings	$	17,071		$	8,941		$	12,683		$	10,136
Basic earnings per common share⁽²⁾	$	0.34		$	0.18		$	0.26		$	0.20
Diluted earnings per common share⁽²⁾	$	0.34		$	0.18		$	0.25		$	0.20
Quarterly dividends declared per common share⁽³⁾ Class A and Class B	$	0.06		$	0.06		$	0.06		$	0.05
Market price range of common stock Class A
High	$	34.10		$	35.60		$	40.18		$	40.27
Low	$	29.00		$	30.32		$	30.98		$	37.37
Class B
High	$	34.25		$	36.60		$	40.00		$	40.30
Low	$	30.75		$	30.87		$	32.75		$	37.11

Both classes of common stock are traded on the New York Stock Exchange under the symbols FCEA and FCEB. As of March 1, 2004, the number of registered holders of Class A and Class B common stock were 772 and 512, respectively.

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. As of the end of the period covered by this annual report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective. In January 2004 the Company filed a Form 10-Q/A to report a footnote disclosure in Item 8 related to a Type II subsequent event. Management has evaluated the impact of this disclosure on the financial statements and has concluded this item is not material.

As a result of work completed in preparation to implement Section 404 of the Sarbanes Oxley Act, the Company has taken steps to remediate gaps in its internal control environment to improve the overall effectiveness of its control environment. During the last quarter, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

(a)		Identification of Directors (including the Company’s assessment of Director independence) is contained in a definitive proxy statement which the registrant anticipates will be filed by April 15, 2004 and is incorporated herein by reference.

(b)		Pursuant to General Instruction G of Form 10-K and Item 401(b) of Regulation S-K, Executive Officers of the registrant are reported in Part I of this Form 10-K.

(c)		The disclosure of delinquent filers, if any, under Section 16(a) of the Securities Exchange Act of 1934 is contained in a definitive proxy statement which the registrant anticipates will be filed by April 15, 2004 and is incorporated herein by reference.

The Company’s assessment of “Financial Expert” is contained in a definitive proxy statement which the registrant anticipates will be filed by April 15, 2004 and is incorporated herein by reference.

The Company’s Code of Legal and Ethical Conduct can be found on the Company’s website at www.forestcity.net.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters; and

Information required under these sections is contained in a definitive proxy statement which the registrant anticipates will be filed by April 15, 2004 and is incorporated herein by reference.

The information required by this item is contained in a definitive proxy statement which the registrant anticipates will be filed by April 15, 2004 and is incorporated herein by reference.

(a)		List of Documents filed as part of this report.

		1. Financial statements and supplementary data included in Part II, Item 8.

		Report of Independent Auditors Consolidated Balance Sheets – January 31, 2004 and 2003 Consolidated Statements of Earnings for the years ended January 31, 2004, 2003 and 2002 Consolidated Statements of Comprehensive Income for the years ended January 31, 2004, 2003 and 2002 Consolidated Statements of Shareholders’ Equity for the years ended January 31, 2004, 2003 and 2002 Consolidated Statements of Cash Flows for the years ended January 31, 2004, 2003 and 2002 Notes to Consolidated Financial Statements Supplementary Data – Quarterly Consolidated Financial Data (Unaudited)

		Individual financial statements of persons accounted for by the equity method have been omitted because such persons considered in the aggregate as a single subsidiary would not constitute a significant subsidiary.

		2. Financial statement schedules required by Part II, Item 8 are included in Part IV, Item 16 (d):

		3. Exhibits – see (c) below.

(b)		Reports on Form 8-K filed or furnished during the three months ended January 31, 2004:

		(1) Furnished a Current Report on Form 8-K on December 12, 2003 under Item 12 to issue a press release announcing financial results for the three and nine months ended October 31, 2003;

		(2) Furnished a Current Report on Form 8-K on January 23, 2004 under Item 9 to issue a press release to announce plans for Brooklyn Atlantic Yards, a mixed-use development in Brooklyn, NY; and

		(3) Furnished Amendment No. 1 to Current Report on Form 8-K (Form 8-K/A) on January 28, 2004 to amend Form 8-K dated as of September 12, 2003 to clarify that the information previously provided under Item 5 should have been furnished under Item 9.

SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION
Forest City Enterprises, Inc. and Subsidiaries


			Initial cost				Cost capitalized				Gross amount at which carried												Range of lives (in years)
	Amount of		to Company				subsequent				at close of January 31, 2004						Accumulated						on which depreciation
	Encumbrance				Buildings		to acquisition						Buildings				depreciation						in latest income
	At January 31,				and				Carrying				and		Total		at January 31,		Date of		Date		statement is computed
Description of Property	2004		Land		Improvements		Improvements		costs		Land		Improvements		(A)(B)		2004 (C)		construction		acquired		Bldg	Improvements
(in thousands)
Apartments:
Miscellaneous investments	$	853,527	$	103,408	$	888,043	$	88,104	$	42,426	$	110,914	$	1,011,067	$	1,121,981	$	119,455	Various			—	Various	Various
Shopping Centers:
Miscellaneous investments		1,009,342		99,039		949,187		247,272		81,627		128,792		1,248,333		1,377,125		193,977	Various			—	Various	Various
Office Buildings:
Miscellaneous investments		1,440,366		36,469		1,619,648		227,446		112,906		93,611		1,902,858		1,996,469		397,554	Various			—	Various	Various
Leasehold improvements and other equipment:
Miscellaneous investments		—		—		28,173		—		—		—		28,173		28,173		19,719		—	Various		Various	Various
Under Construction:
Miscellaneous investments		317,927		90,329		454,060		—		—		90,329		454,060		544,389		—
Developed Land:
Miscellaneous investments		13,015		33,450		—		—		—		33,450		—		33,450		—

Total	$	3,634,177	$	362,695	$	3,939,111	$	562,822	$	236,959	$	457,096	$	4,644,491	$	5,101,587	$	730,705


	Years Ended January 31,
	2004			2003			2002
	(in thousands)
(B) Reconciliations of total real estate carrying value are as follows:

Balance at beginning of period	$	4,474,137		$	3,944,153		$	3,590,219

Additions during period -
Improvements		332,119			412,990			383,993
Other acquisitions		382,472			156,157			75,773

		714,591			569,147			459,766

Deductions during period -
Cost of real estate sold or retired		(87,141	)		(39,163	)		(105,832	)


Balance at end of period	$	5,101,587		$	4,474,137		$	3,944,153


(C) Reconciliations of accumulated depreciation are as follows:


Balance at beginning of period	$	615,563		$	537,325		$	496,050

Additions during period -
Charged to profit or loss		104,455			94,423			79,455

Net other additions (deductions) during period - Acquisitions, retirements and sales		10,687			(16,185	)		(38,180	)


Balance at end of period	$	730,705		$	615,563		$	537,325

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

The Registrant plans to distribute to security holders a copy of the Annual Report and Proxy material by April 15, 2004.

* The undersigned, pursuant to a Power of Attorney executed by each of the Directors and Officers identified above and filed with the Securities and Exchange Commission, by signing his name hereto, does hereby sign and execute this Form 10-K on behalf of each of the persons noted above, in the capacities indicated.

EX-10.40 3 l06556aexv10w40.txt EX-10.40 CREDIT AGREEMENT EXHIBIT 10.40 - -------------------------------------------------------------------------------- CREDIT AGREEMENT by and among FOREST CITY RENTAL PROPERTIES CORPORATION as Borrower and VARIOUS LENDING INSTITUTIONS as Banks and KEYBANK NATIONAL ASSOCIATION as Administrative Agent for the Banks and NATIONAL CITY BANK as Syndication Agent for the Banks Dated as of March 22, 2004 - -------------------------------------------------------------------------------- TABLE OF CONTENTS

(i) ARTICLE VI CONDITIONS PRECEDENT .............................................................................. 24 SECTION 6.01. CORPORATE AND LOAN DOCUMENTS .............................................................. 25 SECTION 6.02. OPINION OF COUNSEL FOR PARENT ............................................................. 26 SECTION 6.03. JUDGMENT, ORDERS .......................................................................... 26 SECTION 6.04. LITIGATION ................................................................................ 26 SECTION 6.05. NOTICE OF BORROWING ....................................................................... 26 SECTION 6.06. OPINION OF COUNSEL FOR BORROWER ........................................................... 26 SECTION 6.07. PAYMENT OF FEES ........................................................................... 26 SECTION 6.08. ADVERSE CHANGE, ETC ....................................................................... 26 SECTION 6.09. TERMINATION OF ORIGINAL CREDIT AGREEMENT .................................................. 26 SECTION 6.10. EVIDENCE OF INSURANCE ..................................................................... 27 ARTICLE VII AFFIRMATIVE COVENANTS ............................................................................ 27 SECTION 7.01. PAYMENT OF AMOUNTS DUE .................................................................... 27 SECTION 7.02. EXISTENCE, BUSINESS, ETC .................................................................. 27 SECTION 7.03. MAINTENANCE OF PROPERTIES ................................................................. 27 SECTION 7.04. PAYMENT OF TAXES, ETC ..................................................................... 27 SECTION 7.05. FINANCIAL STATEMENTS ...................................................................... 27 SECTION 7.06. INSPECTION ................................................................................ 29 SECTION 7.07. ENVIRONMENTAL COMPLIANCE .................................................................. 29 SECTION 7.08. ERISA ..................................................................................... 29 SECTION 7.09. INSURANCE ................................................................................. 30 SECTION 7.10. MONEY OBLIGATIONS ......................................................................... 31 SECTION 7.11. RECORDS ................................................................................... 31 SECTION 7.12. FRANCHISES ................................................................................ 31 SECTION 7.13. NOTICE .................................................................................... 31 SECTION 7.14. POST CLOSING ITEMS ........................................................................ 32 SECTION 7.15. FURTHER ASSURANCES; REPLACEMENT NOTES ..................................................... 32 SECTION 7.16. NOTICE OF DEFAULT OR LITIGATION ........................................................... 32 SECTION 7.17. USE OF PROCEEDS ........................................................................... 32 ARTICLE VIII NEGATIVE COVENANTS .............................................................................. 32 SECTION 8.01. PLAN ...................................................................................... 32 SECTION 8.02. COMBINATIONS .............................................................................. 32 SECTION 8.03. BULK TRANSFERS ............................................................................ 33 SECTION 8.04. BORROWINGS ................................................................................ 33 SECTION 8.05. LIENS ..................................................................................... 34 SECTION 8.06. LOANS RECEIVABLE .......................................................................... 35 SECTION 8.07. GUARANTEES ................................................................................ 35 SECTION 8.08. AMENDMENT OF ARTICLES OF INCORPORATION AND/OR REGULATIONS ................................. 36 SECTION 8.09. FISCAL YEAR ............................................................................... 36 SECTION 8.10. REGULATION U .............................................................................. 36 SECTION 8.11. NO PLEDGE ................................................................................. 36 SECTION 8.12. TRANSACTIONS WITH AFFILIATES .............................................................. 37 SECTION 8.13. DEBT SERVICE COVERAGE RATIO ............................................................... 37

(ii) SECTION 8.14(a). RESTRICTIONS ON DISTRIBUTIONS DURING AN EVENT OF DEFAULT OTHER THAN A PAYMENT DEFAULT .. 37 SECTION 8.14(b). RESTRICTIONS ON DISTRIBUTIONS DURING A PAYMENT DEFAULT ................................. 37 SECTION 8.15. CROSS COLLATERALIZATION AND CROSS DEFAULTS ................................................ 38 SECTION 8.16. SENIOR NOTES .............................................................................. 38 SECTION 8.17 CHANGES IN BUSINESS ........................................................................ 39 ARTICLE IX REPRESENTATIONS AND WARRANTIES .................................................................... 39 SECTION 9.01. EXISTENCE ................................................................................. 39 SECTION 9.02. RIGHT TO ACT .............................................................................. 39 SECTION 9.03. BINDING EFFECT ............................................................................ 39 SECTION 9.04. LITIGATION ................................................................................ 39 SECTION 9.05. EMPLOYEE RETIREMENT INCOME SECURITY ACT ................................................... 40 SECTION 9.06. ENVIRONMENTAL COMPLIANCE .................................................................. 40 SECTION 9.07. SOLVENCY .................................................................................. 40 SECTION 9.08. FINANCIAL STATEMENTS ...................................................................... 40 SECTION 9.09. DEFAULTS .................................................................................. 41 SECTION 9.10. OPERATIONS ................................................................................ 41 SECTION 9.11. TITLE TO PROPERTIES; PATENTS, TRADE MARKS, ETC ............................................ 41 SECTION 9.12. COMPLIANCE WITH OTHER INSTRUMENTS ......................................................... 41 SECTION 9.13. MATERIAL RESTRICTIONS ..................................................................... 41 SECTION 9.14. CORRECTNESS OF DATA FURNISHED ............................................................. 42 SECTION 9.15. TAXES ..................................................................................... 42 SECTION 9.16. COMPLIANCE WITH LAWS ...................................................................... 42 SECTION 9.17. REGULATION U, ETC ......................................................................... 42 SECTION 9.18. HOLDING COMPANY ACT ....................................................................... 43 SECTION 9.19. SECURITIES ACT, ETC ....................................................................... 43 SECTION 9.20. INVESTMENT COMPANY ACT .................................................................... 43 SECTION 9.21. INDEBTEDNESS OF SUBSIDIARIES .............................................................. 43 SECTION 9.22. GUARANTIES ................................................................................ 43 SECTION 9.23. INDEBTEDNESS .............................................................................. 43 ARTICLE X EVENTS OF DEFAULT .................................................................................. 44 SECTION 10.01. PAYMENTS ................................................................................. 44 SECTION 10.02. COVENANTS ................................................................................ 44 SECTION 10.03. REPRESENTATIONS AND WARRANTIES ........................................................... 44 SECTION 10.04. CROSS DEFAULT ............................................................................ 44 SECTION 10.05. TERMINATION OF PLAN ...................................................................... 44 SECTION 10.06. DOMESTIC SUBSIDIARY SOLVENCY ............................................................. 45 SECTION 10.07. BORROWER'S SOLVENCY ...................................................................... 45 SECTION 10.08. CHANGE OF OWNERSHIP; CHANGE OF MANAGEMENT EVENT .......................................... 45

(iii) SECTION 10.09. JUDGMENTS ................................................................................ 46 SECTION 10.10. DEFAULT UNDER GUARANTY OR SENIOR NOTES ................................................... 46 SECTION 10.11. DEFAULT UNDER SUBORDINATION AGREEMENT ................................................... 46 ARTICLE XI REMEDIES UPON DEFAULT ............................................................................. 46 SECTION 11.01. OPTIONAL DEFAULTS ........................................................................ 46 SECTION 11.02. AUTOMATIC DEFAULTS ....................................................................... 46 SECTION 11.03. REMEDIES RELATING TO LETTERS OF CREDIT ................................................... 47 SECTION 11.04. OFFSETS .................................................................................. 47 SECTION 11.05. APPLICATION OF PAYMENTS .................................................................. 47 ARTICLE XII THE AGENT ........................................................................................ 47 SECTION 12.01. APPOINTMENT AND AUTHORIZATION ............................................................ 47 SECTION 12.02. DELEGATION OF DUTIES ..................................................................... 48 SECTION 12.03. LIABILITY OF AGENT ....................................................................... 48 SECTION 12.04. RELIANCE BY AGENT ........................................................................ 49 SECTION 12.05. RESIGNATION OR REMOVAL OF THE AGENT; SUCCESSOR AGENT ..................................... 49 SECTION 12.06. NOTE HOLDERS ............................................................................. 50 SECTION 12.07. CONSULTATION WITH COUNSEL ................................................................ 50 SECTION 12.08. DOCUMENTS ................................................................................ 50 SECTION 12.09. KNOWLEDGE OF DEFAULT ..................................................................... 50 SECTION 12.10. INDEMNIFICATION .......................................................................... 51 SECTION 12.11. AGENTS IN THEIR INDIVIDUAL CAPACITIES .................................................... 51 SECTION 12.13. EQUALIZATION PROVISION ................................................................... 52 ARTICLE XIII MISCELLANEOUS ................................................................................... 52 SECTION 13.01. NO WAIVER; CUMULATIVE REMEDIES ........................................................... 52 SECTION 13.02. AMENDMENTS, CONSENTS ..................................................................... 52 SECTION 13.03. NOTICES .................................................................................. 53 SECTION 13.04. COSTS, EXPENSES AND TAXES ................................................................ 53 SECTION 13.05. SURVIVAL OF REPRESENTATIONS AND WARRANTIES ............................................... 54 SECTION 13.06. OBLIGATIONS SEVERAL; NO FIDUCIARY OBLIGATIONS ............................................ 54 SECTION 13.07. EXECUTION IN COUNTERPARTS ................................................................ 54 SECTION 13.08. BINDING EFFECT; ASSIGNMENT ............................................................... 54 SECTION 13.09. INDEMNIFICATION BY THE BORROWER .......................................................... 56 SECTION 13.10. GOVERNING LAW ............................................................................ 56 SECTION 13.11. SEVERABILITY OF PROVISIONS; CAPTIONS ..................................................... 56 SECTION 13.12. PURPOSE .................................................................................. 56 SECTION 13.13. CONSENT TO JURISDICTION .................................................................. 56 SECTION 13.14. ENTIRE AGREEMENT ......................................................................... 56 SECTION 13.15. JURY TRIAL WAIVER ........................................................................ 57 SECTION 13.16. SURVIVAL ................................................................................. 57

(iv) SECTION 13.17. INDEPENDENCE OF COVENANTS ................................................................ 57 SECTION 13.18. INTERPRETATION ........................................................................... 57

EXHIBITS A COMMITMENTS B FORM OF GUARANTY C [RESERVED] D FORM OF REVOLVING LOAN NOTE E FORM OF LETTER OF CREDIT REQUEST F FORM OF NOTICE OF BORROWING G FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT SCHEDULES 2.03 AUTHORIZED FISCAL OFFICERS 3.01 OUTSTANDING LETTERS OF CREDIT 7.05 FORM COVENANT COMPLIANCE WORKSHEET 7.14 POST-CLOSING ITEM 8.15 PERMITTED INDEBTEDNESS 9.00 EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES 9.16 COMPLIANCE WITH LAWS 9.22 OUTSTANDING GUARANTEES 9.23 OUTSTANDING INDEBTEDNESS (v) CREDIT AGREEMENT Credit Agreement, effective as of March 22, 2004, between FOREST CITY RENTAL PROPERTIES CORPORATION, an Ohio corporation (hereinafter sometimes called the "Borrower"), the banking institutions from time to time party hereto (hereinafter sometimes collectively called the "Banks" and individually a "Bank"), KEYBANK NATIONAL ASSOCIATION, Cleveland, Ohio, as Administrative Agent for the Banks under this Agreement (the "Agent") and NATIONAL CITY BANK, Cleveland, Ohio, as Syndication Agent for the Banks under this Agreement (the "Syndication Agent"). W I T N E S S E T H: WHEREAS, the Borrower has requested the Banks to make available to it a revolving loan facility in the original principal amount of $400,000,000, with a possible increase of $50,000,000, subject to the terms and conditions set forth herein, for a total principal amount of $450,000,000; and WHEREAS, the Banks are willing to make such revolving loan facility available to the Borrower upon the terms and subject to the conditions set forth herein. NOW, THEREFORE, it is mutually agreed as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following terms shall have the following meanings: "ADDITIONAL BANK" shall mean a financial institution that shall become a Bank hereunder during the Commitment Increase Period pursuant to Section 5.07(a) hereof. "ADDITIONAL BANK ASSUMPTION AGREEMENT" shall mean an assumption agreement in substantially the form of Exhibit C hereto entered into by any Additional Bank pursuant to Section 5.07(a) hereof, wherein an Additional Bank shall become a Bank hereunder. "ADDITIONAL BANK ASSUMPTION EFFECTIVE DATE" shall have the meaning set forth in Section 5.07(a) hereof. "ADDITIONAL COMMITMENTS" shall have the meaning set forth in Section 5.07(a) hereof. "ADVANTAGE" shall mean any payment (whether made voluntarily or involuntarily, by offset of any deposit or other Indebtedness or otherwise) received by any Bank in respect of Borrower's Debt to the Banks if such payment results in that Bank having a lesser share of Borrower's Debt to the Banks, than was the case immediately before such payment. "AFFILIATE" of any Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For purposes of this -1- definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "AGENT" means KeyBank National Association, in its capacity as administrative agent for the Banks hereunder, and its successors in such capacity. "AGENTS" means collectively, the Agent and the Syndication Agent. "AGREEMENT" means this Credit Agreement as the same may be from time to time amended, supplemented, modified, extended and/or restated. "AUTHORIZED FISCAL OFFICER" shall have the meaning set forth in Section 2.03(b) hereof. "BASE RATE" shall mean a rate per annum equal to the greater of (a) that interest rate established from time to time by the Agent at its principal office as the Agent's prime rate, whether or not such rate is publicly announced or (b) the Federal Funds Effective Rate plus 1/2 of 1% (.50%) per annum. The prime rate may be other than the lowest interest rate charged by the Agent for commercial or other extensions of credit. "BASE RATE OPTION" means interest determined pursuant to Section 4.01(c) and related provisions hereof. "BOARD OF DIRECTORS" shall mean either the board of directors of the Parent or any duly constituted committee thereof. "BORROWER" means Forest City Rental Properties Corporation, an Ohio corporation. "CAPITAL STOCK" of any Person shall mean any and all shares, interests, participations, or other equivalents (however designated) of corporate stock or other equity participations or interests including, without limitation, partnership interests, whether general or limited, and membership interests, whether of managing or non-managing members, of such Person. "CHANGE OF MANAGEMENT EVENT" shall be deemed to have occurred at such time as any two (2) of James A. Ratner, Charles A. Ratner, Ronald A. Ratner and Albert B. Ratner become unable or cease to hold the respective positions held by such persons on the date of this Agreement, with all the responsibilities normally associated with such positions, provided, that, no Change of Management Event shall be deemed to have occurred if within one hundred twenty (120) days the Borrower shall have obtained the reasonable approval of the Required Banks, in their sole discretion, of one or more additional executives, such that the remaining and new management executives as a group, have substantial and sufficient knowledge, experience and capabilities in the management of a company engaged in the operation of a multi-asset real estate business of the type engaged in by the Borrower. "CHANGE OF OWNERSHIP EVENT" shall be deemed to have occurred at such time as either (a) any Person (other than a Permitted Holder) or any Persons acting together that would constitute a "group" (a "Group") for purposes of Section 13(d) of the Exchange Act or any -2- successor provision thereto (other than Permitted Holders), together with any Affiliates or Related Persons thereof, shall beneficially own (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision thereto) at least 30% of the aggregate voting power of all classes of Voting Stock of the Parent; or (b) any Person or Group (other than Permitted Holders), together with any Affiliates or Related Persons thereof, shall succeed in having a sufficient number of its nominees elected to the Board of Directors of the Parent such that such nominees, when added to any existing director remaining on the Board of Directors of the Parent after such election who was a nominee of or is an Affiliate or Related Person of such Person or Group, will constitute a majority of the Board of Directors of the Parent; or (c) the Permitted Holders referenced in clause (i) of the definition of "Permitted Holder" shall cease to own at least 51% of the aggregate issued and outstanding shares of the Voting Stock of the Parent; or (d) the Parent shall cease to own at least one hundred percent (100%) on a fully diluted basis, of the economic and voting interests of the Borrower. "CLEVELAND BANKING DAY" shall mean a day on which the main office of the Agent is open for the transaction of business. "CLOSING DATE" shall have the meaning set forth in Section 13.08 hereof. "CLOSING DATE COMMITMENT AMOUNT" shall mean $400,000,000, or such other amount as may be set forth on Exhibit A attached hereto as of the Closing Date, up to a maximum amount of $450,000,000. "CODE" means the Internal Revenue Code of 1986, as amended, or any successor statute. "COMMITMENT" shall mean the obligation of each Bank, during the applicable Commitment Period, to make Revolving Loans in an aggregate amount not to exceed the amount set forth opposite such Bank's name under the column headed "Maximum Amount" on Exhibit A hereof (as such Exhibit A may be amended or otherwise modified from time to time pursuant to Section 5.07(a) hereof), or such lesser amount as shall be determined pursuant to Section 5.07(b) hereof. "COMMITMENT INCREASE PERIOD" shall mean the period from the Closing Date to the first anniversary date of the Closing Date, or such later date as shall be agreed to in writing by the Agent. "COMMITMENT PERIOD" shall mean (a) with respect to the Banks other than the Additional Banks, the period from the Closing Date until the Termination Date and (b) with respect to each Additional Bank, if any, the period from the Additional Bank Assumption Effective Date applicable to such Additional Bank until the Termination Date. "COMMON STOCK" of any Person shall mean Capital Stock of such Person that does not rank prior, as to the payment of dividends or as to other amounts upon any voluntary or involuntary liquidation, dissolution, or winding up of such Person, to shares of Capital Stock or any other class of stock of such Person. "COMPLETION GUARANTY" shall mean any guarantee of performance by the Borrower or the Parent, as applicable, that construction of a real estate project will be completed in -3- accordance with applicable plans and specifications and that all costs associated with such completion will be paid, provided, that such costs may include an interest reserve only through completion of the project and not through stabilization of such project. "CONTINGENT OBLIGATION" shall mean, with respect to any Person at the time of any determination, without duplication, any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person in any manner, whether directly or otherwise; provided, that the term "Contingent Obligation" shall not include endorsements for collection or deposit, in each case in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the Indebtedness in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonable anticipated liability in respect thereof (assuming such Person is required to perform thereunder). "CONTROLLED GROUP" shall mean a controlled group of corporations as defined in Section 1563 of the Code, of which the Borrower or any Subsidiary is a part. "DEBT" shall mean, collectively, all Indebtedness incurred by the Borrower to the Banks pursuant to this Agreement, including, but not limited to, the principal of and interest on all Notes and each extension, renewal or refinancing thereof in whole or in part, the stated amounts of all letters of credit issued by the Agent or the Banks hereunder, and the fees and any prepayment premium payable hereunder. "DEBT SERVICE COVERAGE RATIO" shall mean, for any Test Period, the ratio of (i) Net Operating Income to (ii) the sum of (W) all scheduled principal payments (excluding balloon payments) on non-recourse mortgage Indebtedness of the Borrower and its Subsidiaries, plus (X) all interest payments on such non-recourse mortgage Indebtedness, minus (Y) non-cash interest expense accrued but not currently payable, up to a maximum of Five Million Dollars ($5,000,000), excluding non-cash interest expense accrued with respect to Indebtedness owing by the Borrower and its Subsidiaries to the government of the United States or any state or municipality thereof or any agencies of any of the foregoing, minus (Z) non-cash interest expense accrued but not currently payable solely with respect to Indebtedness owing by the Borrower and its Subsidiaries to the government of the United States or any state or municipality thereof or any agencies of any of the foregoing. "DISTRIBUTIONS" shall have the meaning set forth in Section 8.14 hereof. "DIVIDENDS" shall mean all dividends (in cash or otherwise) declared and/or paid, capital returned, and other distributions of any kind made on any share of Capital Stock outstanding at any time. "DOMESTIC SUBSIDIARY" shall mean any Subsidiary organized under the laws of any state of the United States of America which conducts the major portion of its business within the United States. "DRAW" shall have the meaning set forth in Section 3.01(b) hereof. -4- "ENVIRONMENTAL LAWS" shall mean all provisions of law, statutes, ordinances, rules, regulations, permits, licenses, judgments, writs, injunctions, decrees, orders, awards and standards promulgated by the government of the United States of America or by any state or municipality thereof or by any court, agency, instrumentality, regulatory authority or commission of any of the foregoing, now or hereafter in effect, and in each case as amended, concerning or relating to health, safety and protection of, or regulation of the discharge of substances into, the environment. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations and rulings issued thereunder. "ERISA AFFILIATE" shall mean each person (as defined in Section 3(9) of ERISA) which together with the Borrower, the Parent or any Subsidiary of the Borrower or any Subsidiary of the Parent would be deemed a "single employer" within the meaning of Sections 414(b), (c), (m) or (o) of the Code. "EVENT OF DEFAULT" shall have the meaning set forth in Article X hereof. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, or any successor provision thereto. "FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of Cleveland, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three federal funds brokers of recognized standing selected by the Agent. "FISCAL QUARTERLY DATE" shall mean each of January 31, April 30, July 31 and October 31. "GAAP" shall mean generally accepted accounting principles in the United States of America, in effect from time to time. "GUARANTY" means the Guaranty of Payment of Debt issued by the Parent to the Agent and the Banks, in substantially the form and substance of Exhibit B attached hereto, as such Guaranty may be from time to time, amended, restated or otherwise modified. "GUARANTY DEFAULT" shall mean any one or more of the events constituting defaults under Section 10 of the Guaranty. "HEDGE AGREEMENT" shall mean any non-fully paid derivative, such as interest rate swaps or collar agreements or other similar agreements or arrangements designed to hedge the position of a Person with respect to interest rates, excluding any such agreements as to which all of the obligations of such Person are paid or payable within twelve (12) months of the date such agreement is entered into by such Person. -5- "INDEBTEDNESS" shall mean, with respect to any Person at the time of any determination, without duplication, all obligations of such Person which in accordance with GAAP should be classified upon the balance sheet of such Person as liabilities, but in any event including: (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid or accrued, (d) all written obligations of such Person to maintain working capital, equity capital or other financial statement condition of another Person so as to enable such other Person to pay its Indebtedness or otherwise to protect the holder of such Indebtedness against loss in respect thereof, (e) all obligations of such Person issued or assumed as the deferred purchase price of property or services, (f) all obligations of others secured by any Lien on property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (g) all capitalized lease obligations of such Person, (h) all obligations of such Person in respect of a Hedge Agreement, (i) all obligations of such Person, actual or contingent, as an account party in respect of letters of credit or bankers' acceptances, and, without duplication, all drafts drawn thereunder, and (j) all obligations of any partnership or joint venture as to which such Person is or may become personally liable, provided, that, Indebtedness shall not include (i) any obligations incurred as a result of fraud, misappropriation, misapplication and environmental indemnities, as are usual and customary in commercial mortgage loan transactions, and (ii) trade payables, deferred revenue, taxes and accrued expenses, in each case arising in the ordinary course of business and that is due and payable less than twelve (12) months after the date such debt was incurred. "INDENTURE" shall mean the indenture dated as of May 19, 2003, between the Parent and The Bank of New York, as indenture trustee and relating to the Senior Notes. "INDEMNITY AGREEMENT" shall mean any indemnity agreement, in form and substance satisfactory to the Agents and the Banks, by and between the Parent and a Surety, and as each such Indemnity Agreement may be amended, restated or otherwise modified. "INDICATED SPREAD" shall have the meaning set forth in Section 4.01(d) hereof. "INTEREST ADJUSTMENT DATE" shall mean the last day of each Interest Period. "INTEREST PERIOD" shall mean a period of one, two, three, six or nine months or one year (as selected by the Borrower) commencing on the applicable borrowing or conversion date of each Loan subject to the LIBOR Rate Option and on the date that is one London Banking Day after each Interest Adjustment Date occurring thereafter with respect thereto; provided, that if any such Interest Period would be affected by a reduction in the Total Revolving Loan Commitments as provided in Section 5.07(b) hereof, prepayment rights as provided in Section 5.05 hereof or the maturity of the Loans as provided in Section 2.06 hereof, such Interest Period shall, without affecting the Borrower's obligations, if any, to pay to the Banks, the prepayment premium set forth in Section 5.05 hereof, be shortened to end on the date of such reduction, prepayment or maturity. Notwithstanding anything to the contrary contained above: (i) if any Interest Period begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last London Banking Day of such calendar month; -6- (ii) if any Interest Period would otherwise expire on a day which is not a London Banking Day, such Interest Period shall expire on the next succeeding London Banking Day, provided, that if any Interest Period would otherwise expire on a day which is not a London Banking Day but is a day of the month after which no further London Banking Day occurs in such month, such Interest Period shall expire on the next preceding London Banking Day; (iii) no Interest Period may be selected at any time that an Event of Default has occurred and is continuing; (iv) no Interest Period may be selected if it would extend beyond the scheduled maturity date or principal repayment date(s) of the Loans to which it would apply; and (v) no Interest Period may be selected if it would extend beyond the Termination Date. "LAST LIBOR" shall have the meaning set forth in Section 5.05(b) hereof. "LC OBLIGATIONS" shall mean the aggregate amount of all possible drawings under all letters of credit issued pursuant to Section 3.01 hereof and all letters of credit identified on Schedule 3.01 hereof (which are letters of credit issued under the Original Credit Agreement that remain outstanding on the date hereof), plus all amounts drawn under any of such letters of credit and not reimbursed. "LIBOR" shall mean the average (rounded upward to the nearest 1/16th of 1%) of the per annum rates at which deposits in immediately available funds in United States dollars for the relevant Interest Period and in the amount of the principal of the Loans to be disbursed or to remain outstanding during such Interest Period, as the case may be, are offered to the Reference Banks by prime banks in any Eurodollar market reasonably selected by the Reference Banks, determined as of 11:00 a.m. London time (or as soon thereafter as practicable), two (2) London Banking Days prior to the beginning of the relevant Interest Period. In the event one or more of the Reference Banks fail to furnish its quote of any rate required herein, such rate shall be determined on the basis of the quote or quotes of the remaining Reference Bank or Banks. "LIBOR RATE OPTION" means interest determined pursuant to Section 4.01(b) and related provisions hereof. "LIEN" shall mean any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the Uniform Commercial Code or any similar notice or recording statute, and any lease having substantially the same effect as any of the foregoing). "LOAN" means a Revolving Loan. "LONDON BANKING DAY" shall mean a day on which banks are open for business in London, England, and quoting deposit rates for dollar deposits. -7- "MATERIAL ADVERSE EFFECT" shall mean (a) a material adverse effect on the business, property, assets, liabilities, or condition (financial or otherwise) of the Borrower or the Parent or (b) a material adverse effect on the rights or remedies of the Banks or the Agents, or on the ability of the Borrower or the Parent to perform its respective obligations to the Banks or the Agents under this Agreement, the Notes, the Guaranty or the Related Writings. "NET OPERATING INCOME" shall mean for any relevant period, the excess of the Borrower's revenues over the Borrower's operating expenses, in each case, as determined in accordance with the Pro Rata Consolidation Method. For purposes of this definition, Net Operating Income (a) shall not include any gains or losses from the sale of income producing real property, other than gains or losses obtained from the sale of net outlot parcels to a total maximum aggregate amount of $20,000,000 for the immediately preceding four consecutive quarters and (b) shall include adjustments for cash flow of properties pursuant to which the Borrower is receiving a preferred return over and above its ownership percentage in such properties. "NON-AFFILIATE CONSTRUCTION PROJECT" shall mean any real property and all improvements to be constructed thereon (collectively, the "Non-Affiliate Property") (a) with respect to which the Borrower or a Subsidiary of the Borrower, as the case may be, (i) may make a Permitted Non-Affiliate Loan, and (ii) is the developer pursuant to an agreement with a Non-Affiliated Entity as owner of the Non-Affiliate Property; and (b) with respect to which the Borrower or an Affiliate of the Borrower, as the case may be, holds an irrevocable option from either the Non-Affiliated Entity or the parent of the Non-Affiliated Entity to acquire, respectively, either (i) the Non-Affiliate Property, or (ii) all of the equity interests owned by the parent of the Non-Affiliated Entity in and to such Non-Affiliated Entity. "NON-AFFILIATED ENTITY" shall mean any Person that is not an Affiliate of the Borrower and that is wholly-owned by another Person. "NOTE" or "NOTES" shall mean a note or notes substantially in the form of Exhibit D attached hereto, executed and delivered by the Borrower pursuant to Section 2.05 or 5.07 hereof, as applicable, and as each such Note may be, from time to time, amended, restated or otherwise modified and all replacements therefor. "NOTICE OF BORROWING" shall have the meaning set forth in Section 5.01(a) hereof. "ORIGINAL CREDIT AGREEMENT" shall mean that certain Credit Agreement dated as of March 5, 2002, as amended by that certain First Amendment to Credit Agreement dated as of May 9, 2003, that certain Second Amendment to Credit Agreement dated as of December 10, 2003 and that certain Third Amendment to Credit Agreement dated as of January 30, 2004, by and among the Borrower, KeyBank National Association, National City Bank, The Huntington National Bank, Comerica Bank, First Merit Bank, Credit Lyonnais, Manufacturers and Traders Trust Company, U.S. Bank National Association, Fifth Third Bank, Fleet National Bank, LaSalle Bank, N.A. and The Provident Bank. "PARENT" means Forest City Enterprises, Inc., an Ohio corporation. -8- "PAYMENT DEFAULT" shall mean any failure by the Borrower or the Parent to make payment of principal, interest, or any other fees or expenses due, whether at maturity or by acceleration, under this Agreement or the Guaranty. "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto. "PERMITTED DEBT" shall have the meaning set forth in Section 8.04 hereof. "PERMITTED DISTRIBUTIONS" shall have the meaning set forth in Section 8.14 hereof. "PERMITTED HOLDER" shall mean (i) any of Samuel H. Miller, Albert B. Ratner, Charles A. Ratner, James A. Ratner, Ronald A. Ratner or any spouse of any of the foregoing, and any trusts for the benefit of any of the foregoing, (ii) RMS Limited Partnership and any general partner or limited partner thereof and any Person (other than a creditor) that upon the dissolution or winding up of RMS Limited Partnership receives a distribution of Capital Stock of the Parent, (iii) any group (as defined in Section 13(d) of the Exchange Act) of two or more Persons or entities that are specified in the immediately preceding clauses (i) and (ii), and (iv) any successive recombination of the Persons or groups that are specified in the immediately preceding clauses (i), (ii) and (iii). "PERMITTED NON-AFFILIATE LOAN" shall mean a loan by the Borrower or any Subsidiary of the Borrower to a Non-Affiliated Entity for the purposes of (a) purchasing or otherwise acquiring a Non-Affiliate Property or (b) paying construction costs, in each case, in connection with a Non-Affiliate Construction Project. "PERMITTED NON-AFFILIATE LOAN RESERVE" shall mean, as of any date of determination, an amount equal to (a) twenty percent (20%) multiplied by (b) the amount, if any, by which the aggregate amount of gain deferred for federal income tax purposes on the consolidated return of the Parent and its Subsidiaries in connection with all Non-Affiliate Construction Projects, for the three year period ending on such determination date, exceeds Seventy-Five Million Dollars ($75,000,000). "PERSON" means an individual, a corporation, a limited liability company, a partnership, an association, a trust or any other entity or organization, including, without limitation, governmental or political subdivision or an agency or instrumentality thereof. "PLAN" shall mean any employee pension benefit plan subject to Title IV of ERISA, established or maintained by the Borrower, any Subsidiary, or any member of the Controlled Group, or any such Plan to which the Borrower, any Subsidiary, or any member of the Controlled Group is required to contribute on behalf of any of its employees. "PLEDGED SUBSIDIARY" shall have the meaning set forth in Section 8.11(a) hereof. "POSSIBLE DEFAULT" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "POST CLOSING ITEMS" shall have the meaning set forth in Section 7.14 hereof. -9- "PREPAYMENT LIBOR" shall have the meaning set forth in Section 5.05(b) hereof. "PREPAYMENT PREMIUM RATE" shall have the meaning set forth in Section 5.05(b) hereof. "PRO RATA" when used with reference to the Banks means (unless the context otherwise clearly indicates) pro rata according to the unpaid principal amounts owing to the respective Banks under the Notes, or, if no principal is then owing to any Bank, according to the Commitment of the respective Bank. "PRO RATA CONSOLIDATION METHOD" shall mean the pro rata method of consolidation as opposed to the full consolidation method of accounting. "REFERENCE BANKS" shall mean KeyBank National Association and National City Bank. "REGULATORY CHANGE" shall mean, as to any Bank, any change in federal, state or foreign laws or regulations or the adoption or making of any interpretations, directives or requests of or under any federal, state or foreign laws or regulations (whether or not having the force of law) by any court or governmental authority charged with the interpretation or administration thereof. "RELATED PERSON" of any Person shall mean any other Person directly or indirectly owning (a) 5% or more of the outstanding Common Stock of any class of such Person (or, in the case of a Person that is not a corporation, 5% or more of the equity interest in such Person), or (b) 5% or more of the combined voting power of the Voting Stock of such Person. "RELATED WRITING" shall mean any Note, assignment, mortgage, security agreement, Subordination Agreement, guaranty agreement, financial statement, audit report, officer's certificate or other writing furnished by the Borrower, the Parent or any of their respective officers to the Agents or the Banks pursuant to or otherwise in connection with this Agreement, including, but not limited to, the Guaranty. "REPORTABLE EVENT" shall mean a reportable event as that term is defined in Title IV of ERISA with respect to a Plan as to which the 30-day notice requirement has not been waived by the PBGC. "REQUIRED BANKS" means at any time Banks having at least 66 2/3% of the Total Revolving Loan Commitments or, if the Total Revolving Loan Commitments shall have been terminated, Banks holding Notes evidencing at least 66 2/3% of the aggregate unpaid principal amount of the Loans. "REVOLVING LOANS" shall have the meaning set forth in Section 2.03(a). "SATISFACTION DATE" shall have the meaning set forth in Section 7.14 hereof. "SENIOR NOTES" shall mean the 2003 Senior Notes and the 2004 Senior Notes. "SENIOR OFFICER" shall mean the chief executive officer, president or chief financial officer of either the Parent or the Borrower, as applicable. -10- "SUBORDINATION AGREEMENT" means any subordination agreement in form and substance satisfactory to the Agents and the Banks entered into by a Surety in favor of the Agent for the benefit of the Banks, and as each such Subordination Agreement may, from time to time, be amended, restated or otherwise modified. "SUBSIDIARY" of any Person shall mean and include (i) any corporation more than fifty percent (50%) of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation is at the time owned by such Person directly or indirectly through Subsidiaries, (ii) any partnership, limited liability company, association (including business trusts) or other entity in which such Person directly or indirectly through Subsidiaries, has more than a fifty percent (50%) voting or equity interest at the time and (iii) any corporation, limited liability company, partnership, association or other entity the accounts of which are consolidated with those of its parent in the parent's consolidated financial statements. "SUPER MAJORITY BANKS" shall have the meaning set forth in Section 13.02 hereof. "SURETY" means any surety or insurance company reasonably acceptable to the Agents. "SURETY BONDS" means the bonds, undertakings and other like obligations executed by a Surety for the Parent subject to an Indemnity Agreement and a Subordination Agreement, in a maximum aggregate principal amount of $30,000,000 for all Sureties. "SYNDICATION AGENT" means National City Bank, in its capacity as syndication agent for the Banks hereunder, and its successors in such capacity. "TERMINATION DATE" means March 22, 2007, unless extended by the Banks pursuant to Section 5.08 of this Agreement, in which case the Termination Date shall be the date of the expiration of any such extension, or, if terminated earlier pursuant to Article XI of this Agreement, the Termination Date shall be the date of such earlier termination. "TEST PERIOD" shall mean each period of four consecutive fiscal quarters of the Parent or the Borrower, as applicable, in each case taken as one accounting period, ended after the Closing Date and commencing April 30, 2004. "TOTAL REVOLVING LOAN COMMITMENTS" shall mean, as of any date of determination, the sum of the Commitments of each of the Banks. "2003 SENIOR NOTES" shall mean the senior notes of the Parent issued on May 19, 2003, pursuant to the Indenture, in an original aggregate principal amount of $300,000,000. "2004 SENIOR NOTES" shall mean the senior notes of the Parent issued on February 10, 2004, pursuant to the Indenture, in an aggregate principal amount of up to $100,000,000. "UNFUNDED CURRENT LIABILITIES" of any Plan shall mean the amount, if any, by which the actuarial present value of the accumulated plan benefits under the Plan as of the close of its most recent plan year, determined in accordance with Statement of Financial Accounting Standards No. 35, based upon the actuarial assumptions used by the Plan's actuary in the most -11- recent annual valuation of the Plan, exceeds the fair market value of the assets allocable thereto, determined in accordance with Section 412 of the Code. "VOTING STOCK" of any Person shall mean Capital Stock of such Person which ordinarily has voting power for the election of directors (or persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. Accounting Principles Any accounting term not specifically defined in this Article I or elsewhere in the Agreement, shall have the meaning ascribed thereto by GAAP not inconsistent with the Borrower's present accounting procedures, provided, that, if the Borrower notifies the Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the Closing Date in GAAP or in the application thereof on the operation of such provision (or if the Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. Notwithstanding the foregoing, the financial statements to be furnished to the Banks pursuant hereto shall be made and prepared in accordance with GAAP consistently applied throughout the periods involved (except as set forth in the notes thereto or otherwise disclosed in writing by the Borrower to the Banks), provided, that (a) all computations determining compliance with Section 8.13, including definitions used therein, shall utilize accounting principles based on the Pro Rata Consolidation Method as opposed to the full consolidation method of accounting, (b) all computations determining compliance with Article VIII, including definitions used therein, shall exclude interest income received by the Borrower or any of its Subsidiaries with respect to loans made by the Borrower or such Subsidiary pursuant to Section 8.06(d) of this Agreement, unless such loans are funded with the proceeds from Revolving Loans or the Senior Notes and (c) such financial statements must also include a report (in the footnotes thereto or otherwise) of the financial results of the Borrower using accounting principles based on the Pro Rata Consolidation Method. The foregoing definitions shall be applicable to the singular and plurals of the foregoing defined terms. ARTICLE II REVOLVING LOANS The Banks hereby establish a revolving loan facility pursuant to which Revolving Loans will be made to the Borrower, on and subject to the terms and conditions set forth in this Agreement. SECTION 2.01. AMOUNT OF THE REVOLVING LOAN FACILITY. The aggregate principal amount of the Revolving Loans plus the LC Obligations outstanding from time to time shall not exceed the Total Revolving Loan Commitments in effect at the time. Notwithstanding anything to the contrary in this Agreement, no Bank shall be obligated to make any Revolving -12- Loans or issue any letter of credit if, after giving effect to such Revolving Loans or LC Obligations, (a) such Bank's Pro rata share of all Revolving Loans and LC Obligations then outstanding would exceed such Bank's Commitment or (b) the aggregate amount of all Revolving Loans and LC Obligations then outstanding plus the Permitted Non-Affiliate Loan Reserve would exceed the Total Revolving Loan Commitments in effect at the time. SECTION 2.02. REVOLVING LOAN COMMITMENTS. All Revolving Loans under this Agreement shall be made by the Banks Pro rata on the basis of their Pro rata share of the Total Revolving Loan Commitments. It is understood that no Bank shall be responsible for any default by any other Bank of its obligation to make Revolving Loans hereunder and that each Bank shall be obligated to make the Revolving Loans to be made by it hereunder, regardless of the failure of any other Bank to fulfill its commitments hereunder. SECTION 2.03. REVOLVING LOANS. (a) Each Bank severally agrees, subject to the fulfillment of the terms and conditions of this Agreement, to make revolving loans (the "Revolving Loans") to the Borrower from time to time during the applicable Commitment Period. Subject to the provisions of this Agreement, Loans may be repaid in whole or in part, and amounts so repaid may be reborrowed, but in no event shall the aggregate principal amount of each Bank's Revolving Loans plus such Bank's Pro rata share of the LC Obligations exceed at any time the then Commitment of such Bank. (b) The requesting of a Loan in and of itself pursuant to a Notice of Borrowing constitutes a representation and warranty by the Borrower to the Banks and the Agents that the conditions specified in Section 5.01 hereof have been satisfied. Each oral request for a Revolving Loan (which request shall be promptly confirmed in writing as specified in Section 5.01 hereof) shall be made by a person authorized by the Borrower to do so and designated on Schedule 2.03, or as that Schedule may be amended from time to time in writing by the Borrower (an "Authorized Fiscal Officer"), and the making of a Revolving Loan as provided herein shall conclusively establish the Borrower's obligation to repay such Revolving Loan. SECTION 2.04. PURPOSE OF THE REVOLVING LOANS. The proceeds of Revolving Loans shall be used by the Borrower to refinance existing Indebtedness, support ongoing projects, purchase real estate and for working capital purposes of the Borrower. SECTION 2.05. REVOLVING LOAN NOTES. (a) On the Closing Date, the Borrower shall execute and deliver to each of the Banks (other than the Additional Banks) a Note with all blanks appropriately completed in conformity herewith. (b) On each applicable Additional Bank Assumption Effective Date, the Borrower shall execute and deliver to such Additional Bank a Note with all blanks appropriately completed in conformity herewith. (c) The Note issued to each Bank shall (i) be executed by the Borrower, (ii) be payable to the order of such Bank and dated as of the Closing Date or the Additional Bank Assumption Effective Date applicable to such Additional Bank, as applicable (iii) be in a stated principal amount equal to the Commitment of such Bank and payable in the principal amount of the Revolving Loans evidenced thereby, (iv) mature on the Termination Date and (v) be entitled -13- to the benefits of this Agreement and the other Related Writings. The Notes shall be subject to the terms of this Agreement. SECTION 2.06. REPAYMENT OF THE NOTES. The principal of the Notes shall be due and payable in full on the Termination Date, unless such principal sums shall become due earlier in whole or in part by reason of the principal amount exceeding the Total Revolving Loan Commitments at any time in effect or pursuant to the provisions of Article XI hereof. ARTICLE III LETTERS OF CREDIT SECTION 3.01. LETTERS OF CREDIT. (a) The Banks agree to make available to the Borrower letters of credit, issued by the Agent, pursuant to their respective Commitments up to an aggregate amount at any one time outstanding of $50,000,000 minus the aggregate principal amount of all then outstanding Surety Bonds issued by a Surety on behalf of the Parent pursuant to an Indemnity Agreement. The availability of letters of credit will be subject to (i) the Agent being satisfied with the terms of the letter of credit, (ii) the Borrower's executing and delivering such letter of credit and reimbursement agreements and related documents as required by the Agent, and (iii) the satisfaction of all conditions to the Borrower obtaining a Loan in the amount of the requested letter of credit. The Borrower shall pay a fee for each letter of credit to the Agent for the Pro rata benefit of the Banks, upon issuance of each letter of credit and, thereafter, upon the annual anniversary of the issuance of each such letter of credit remaining outstanding, in the amount of the Indicated Spread for Revolving Loans under the LIBOR Rate Option on the stated amount of the letter of credit; provided that, the Agent shall be entitled to .125% of such fee prior to the distribution of the balance of such fee Pro rata to the Banks. In addition, the Borrower shall pay to the Agent upon issuance of each letter of credit provided for under this Section 3.01 an issuance fee of $500 for the Agent's services in issuing the letter of credit. No letter of credit shall be issued having an expiration date after the Termination Date. All letters of credit shall be in such form and substance as the Agent, the Banks and the Borrower agree. The Borrower shall not be entitled to obtain letters of credit from the Agent unless the Borrower is then entitled to obtain Loans from the Banks in an amount not less than the stated amount of the letter of credit requested, the other conditions of Section 5.01 of this Agreement have been satisfied as if the Borrower was obtaining a Revolving Loan and the Borrower has executed and delivered such letter of credit, reimbursement agreements and other related documents as may be required by the Agent. (b) In the event the Agent pays any amount under or on account of a letter of credit (the payment by the Agent under or on account of a letter of credit being herein called a "Draw"), a Revolving Loan shall be deemed to be made to the Borrower by each Bank to the extent of its Pro rata share of the Total Revolving Loan Commitments to reimburse immediately the Agent for the amount of the Draw. The Agent shall notify each Bank of the occurrence and payment of a Draw no later than 12:00 p.m. (Cleveland time) on the date of such notice and, not later than 1:00 p.m. (Cleveland time) on the date of such notice, each Bank will make available to the Agent its Pro rata portion of the Draw deemed to be a Revolving Loan. All amounts shall be made available to the Agent in U.S. Dollars and immediately available funds at its office listed on the signature pages hereto. If such corresponding Pro rata amount is not in fact made available to the Agent by such Bank the Agent shall be entitled to recover such corresponding amount from such Bank. If such Bank does not pay such corresponding amount forthwith upon -14- the Agent's demand therefor, the Agent shall promptly notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Agent. The Agent shall also be entitled to recover from the Bank or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Agent to the Borrower to the date such corresponding amount is recovered by the Agent at a rate per annum equal to (i) if paid by such Bank, the overnight Federal Funds Effective Rate or (ii) if paid by the Borrower, the then applicable rate of interest, calculated in accordance with Article IV, for the Revolving Loans. In the event no Revolving Loan or only a partial Revolving Loan is deemed to be made, the Agent is hereby authorized to charge (without prior notice to the Borrower) the amount of each Draw, together with interest thereon, against any account of the Borrower maintained with the Agent. (c) So long as letters of credit are outstanding, the amount of Revolving Loans that the Borrower is entitled to obtain under Article II shall be reduced by the LC Obligations then outstanding and, in addition to otherwise constituting part of the Revolving Loans, except as otherwise expressly stated herein, the stated amount of the letters of credit shall be treated as principal of the Revolving Loans. (d) Whenever the Borrower desires that a letter of credit be issued, the Borrower shall give the Agent written notice (including by way of facsimile transmission) thereof prior to 1:00 p.m. (Cleveland time) at least five Cleveland Banking Days (or such shorter period as may be acceptable to the Agent) prior to the proposed date of issuance (which shall be a Cleveland Banking Day), which written notice shall be in the form of Exhibit E hereto (each, a "Letter of Credit Request"). Each Letter of Credit Request shall include an application for such letter of credit and any other documents that the Agent customarily requires in connection therewith. The Agent shall promptly notify each Bank of each Letter of Credit Request. (e) The delivery of each Letter of Credit Request shall be deemed a representation and warranty by the Borrower that such letter of credit as requested in such Letter of Credit Request may be issued in accordance with and will not violate the requirements of this Section 3.01 and shall include a representation and warranty as to the aggregate principal amount of all then outstanding Surety Bonds. The Agent shall, on the date of each issuance of or amendment or modification to a letter of credit by it, give each Bank and the Borrower written notice of the issuance of or amendment or modification to such letter of credit. (f) In determining whether to pay under any letter of credit, the Agent shall not have any obligation relative to the Banks other than to determine that any documents required to be delivered under such letter of credit have been delivered and that they appear to comply on their face with the requirements of the letter of credit. Any action taken or omitted to be taken by the Agent with respect to a letter of credit issued by it if taken or omitted in the absence of gross negligence or willful misconduct, shall not create any resulting liability for the Agent. ARTICLE IV INTEREST ON THE REVOLVING LOANS SECTION 4.01(a). INTEREST OPTIONS. The Borrower shall pay interest on the Revolving Loans at the rates in effect from time to time pursuant to the Interest Options provided for in Sections 4.01(b) and 4.01(c) as selected by the Borrower or otherwise in effect from time -15- to time in accordance with the terms and conditions of this Agreement. Interest on the Revolving Loans shall accrue from and including the date of borrowing thereof to but excluding the date of repayment thereof. SECTION 4.01(b). LIBOR RATE OPTION. Interest on the principal amount of each Revolving Loan at any time subject to the interest rate option provided for pursuant to this Section 4.01(b) (the "LIBOR Rate Option") shall be at a rate determined by adding the applicable LIBOR rate at the time in effect for each Interest Period for such Revolving Loan and the applicable Indicated Spread for the LIBOR Rate Option set forth in Section 4.01(d) below. The LIBOR Rate Option shall be in effect for all portions of the principal of the Revolving Loans for which the Borrower has selected an Interest Period in accordance with Section 4.02 hereof, unless and until any event or circumstance provided for in Sections 4.09 or 4.10 hereof shall have occurred and continue to be in effect or an Event of Default has occurred and is continuing. SECTION 4.01(c). BASE RATE OPTION. Interest on the principal amount of all Revolving Loans at any time subject to the interest rate option provided for pursuant to this Section 4.01(c) (the "Base Rate Option") shall be at rates determined by adding the Base Rate in effect from time to time and the applicable Indicated Spread for the Base Rate Option set forth in Section 4.01(d) below. The interest rate in effect under the Base Rate Option shall change automatically and immediately with each change in the Base Rate. The Base Rate Option shall be in effect for all portions of the principal of the Revolving Loans for which the LIBOR Rate Option is not in effect at any time. SECTION 4.01(d). INDICATED SPREAD. The Indicated Spread is measured in basis points and shall be determined as follows: Revolving Loans
Period Indicated Spread - ------ ---------------- (Basis Points) Base Rate Option LIBOR Rate Option ---------------- ----------------- From and including the Closing Date to 50 212.5 the Termination Date, on the aggregate outstanding principal amount of the Revolving Loans that is less than or equal to the difference of (A) the Total Revolving Loan Commitments minus (B) the outstanding LC Obligations minus (C) $50,000,000 From and including the Closing Date to 75 275 the Termination Date, on the aggregate outstanding principal amount of the Revolving Loans that is greater than the difference of (A) the Total Revolving Loan Commitments minus (B) the outstanding LC Obligations minus (C) $50,000,000
-16- By the way of example only, and not in limitation (and assuming the Total Revolving Loan Commitments are $450,000,000 (i.e. no reduction has occurred)), if the aggregate outstanding principal amount of Revolving Loans is $400,000,000 and the outstanding LC Obligations are $25,000,000, then $375,000,000 of the outstanding principal amount of the Revolving Loans will bear interest at the rate of the Base Rate plus 50 basis points or LIBOR plus 212.5 basis points, as applicable, and $25,000,000 of the outstanding principal amount of the Revolving Loans will bear interest at the rate of the Base Rate plus 75 basis points or LIBOR plus 275 basis points, as applicable. SECTION 4.02. INTEREST PERIODS. The Borrower shall have the option to select and advise the Agent of the Interest Periods the Borrower has selected for Revolving Loans not less than two (2) Cleveland Banking Days prior to (a) the Closing Date, for the Revolving Loans to be made on the Closing Date, (b) each Interest Adjustment Date, (c) the date any Revolving Loans are to be made subsequent to the Closing Date, and (d) any date on which the Borrower desires to have any portion of the principal of the Revolving Loans not subject to the LIBOR Rate Option become subject to the LIBOR Rate Option, provided, that Revolving Loans subject to the Base Rate Option may not be converted into Revolving Loans subject to the LIBOR Rate Option and Revolving Loans subject to the LIBOR Rate Option may not be continued as Revolving Loans subject to the LIBOR Rate Option if an Event of Default is in existence on the date of such conversion or continuation. Each Interest Period selected shall apply to not less than $500,000 in principal amount of the Revolving Loans; provided, that at no time shall there be more than ten (10) Interest Periods in effect including any Revolving Loans subject to the Base Rate Option. The principal amount subject to each Interest Period shall be deemed distributed Pro rata among the Banks with respect to the respective Revolving Loans to which the Interest Period applies. If the Borrower fails to timely select any Interest Period, the Borrower shall be deemed to have elected to convert such Loan to a Loan subject to the Base Rate Option, effective as of the expiration date of such current Interest Period. SECTION 4.03. INTEREST PAYMENT DATES. (a) Interest on all Revolving Loans subject to the LIBOR Rate Option shall be payable on the earliest of (i) the first Cleveland Banking Day of each month, (ii) any prepayment or conversion (on the amount prepaid or converted), (iii) maturity (whether by acceleration or otherwise) and/or, (iv) after such maturity, on demand. (b) Interest on all Revolving Loans subject to the Base Rate Option shall be payable on the earliest of (i) in arrears on the first Cleveland Banking Day of each month, (ii) any prepayment or conversion (on the amount prepaid or converted), (iii) maturity (whether by acceleration or otherwise) and/or (iv) after such maturity, on demand. SECTION 4.04. INTEREST CALCULATIONS. All interest shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed. Interest shall in all events continue to accrue in accordance with the provisions of this Agreement until the time payment in full is received. SECTION 4.05. POST-DEFAULT RATE. After the occurrence and during the continuation of any Event of Default, the Revolving Loans and any interest on the Revolving -17- Loans not paid when due shall bear interest at a rate equal to the rate applicable to Revolving Loans, subject to the Base Rate Option plus two percent (2%) per annum, and all such interest shall be due on demand. No interest shall accrue on any interest that is being charged with respect to any interest not paid when due. SECTION 4.06. RESERVES OR DEPOSIT REQUIREMENTS, ETC. If at any time any law, treaty, regulation (including, without limitation, Regulation D of the Board of Governors of the Federal Reserve System), governmental rule, guideline, order or request (whether or not having force of law) or the interpretation or administration thereof by any governmental authority charged with the administration thereof or any central bank or other fiscal, monetary or other authority shall impose, modify or deem applicable any reserve and/or special deposit requirement against assets held by, or deposits in or for the amount of any Loans by, any Bank, and the result of the foregoing is to increase the cost (whether by incurring a cost or adding to a cost) to such Bank of making or maintaining Loans hereunder or to reduce the amount of principal or interest received by such Bank with respect to such Loans, then upon demand by such Bank the Borrower shall pay to such Bank from time to time on each interest payment date with respect to such Loans, as additional consideration hereunder, additional amounts sufficient to fully compensate and indemnify such Bank for such increased cost or reduced amount, assuming (which assumption such Bank need not corroborate) such additional cost or reduced amount were allocable to such Loans. A statement as to the increased cost or reduced amount as a result of any event mentioned in this Section 4.06, setting forth the calculations therefor, shall be submitted by such Bank to the Borrower not later than one hundred fifty (150) days after the events giving rise to the same occurred and shall, in the absence of manifest error, be conclusive and binding as to the amount thereof. Notwithstanding any other provision of this Agreement, after any such demand for compensation by any Bank, the Borrower, upon at least one (1) Cleveland Banking Day's prior written notice to such Bank through the Agent, may prepay all Loans in full regardless of the Interest Period of any thereof. Any such prepayment shall be subject to the prepayment premium set forth in Section 5.05 hereof. SECTION 4.07. TAX LAW, ETC. In the event that by reason of any law, regulation or requirement or in the interpretation thereof by an official authority, or the imposition of any requirement of any central bank whether or not having the force of law, any Bank shall, with respect to this Agreement or any transaction under this Agreement, be subjected to any tax, levy, impost, charge, fee, duty, deduction or withholding of any kind whatsoever (other than any tax imposed upon the total net income of such Bank) and if any such measures or any other similar measure shall result in an increase in the cost to such Bank of making or maintaining any Loan or in a reduction in the amount of principal, interest or commitment fee receivable by such Bank in respect thereof, then such Bank shall promptly notify the Borrower stating the reasons therefor. The Borrower shall thereafter pay to such Bank upon demand from time to time on each interest payment date with respect to such Loans, as additional consideration hereunder, such additional amounts as will fully compensate such Bank for such increased cost or reduced amount. A statement as to any such increased cost or reduced amount, setting forth the calculations therefor, shall be submitted by such Bank to the Borrower not later than one hundred fifty (150) days after the events giving rise to the same occurred and shall, in the absence of manifest error, be conclusive and binding as to the amount thereof. -18- If any Bank receives such additional consideration from the Borrower pursuant to this Section 4.07, such Bank shall use its best efforts to obtain the benefits of any refund, deduction or credit for any taxes or other amounts on account of which such additional consideration has been paid and shall reimburse the Borrower to the extent, but only to the extent, that such Bank shall receive a refund of such taxes or other amounts together with any interest thereon or an effective net reduction in taxes or other governmental charges (including any taxes imposed on or measured by the total net income of such Bank) of the United States or any state or subdivision thereof by virtue of any such deduction or credit, after first giving effect to all other deductions and credits otherwise available to such Bank. If, at the time any audit of such Bank's income tax return is completed, such Bank determines, based on such audit, that it was not entitled to the full amount of any refund reimbursed to the Borrower as aforesaid or that its net income taxes are not reduced by a credit or deduction for the full amount of taxes reimbursed to the Borrower as aforesaid, the Borrower, upon demand of such Bank, will promptly pay to such Bank the amount so refunded to which such Bank was not so entitled, or the amount by which the net income taxes of such Bank were not so reduced, as the case may be. Notwithstanding any other provision of this Agreement, after any such demand for compensation by any Bank, the Borrower, upon at least one (1) Cleveland Banking Day's prior written notice to such Bank through the Agent, may prepay all Loans in full regardless of the Interest Period of any thereof. Any such prepayment shall be subject to the prepayment premium set forth in Section 5.05 hereof. SECTION 4.08. INDEMNITY. Without prejudice to any other provisions of this Article IV, the Borrower hereby agrees to indemnify each Bank against any reasonable loss or expense which such Bank may sustain or incur as a consequence of any Event of Default hereunder, including, but not limited to, any loss of profit, premium or penalty incurred by such Bank in respect of funds borrowed by it for the purpose of making or maintaining any Loan subject to the Libor Rate Option, as determined by such Bank in the exercise of its sole but reasonable discretion. A statement as to any such loss or expense shall be promptly submitted by such Bank to the Borrower not later than one hundred fifty (150) days after the events giving rise to the same occurred and shall, in the absence of manifest error, be conclusive and binding as to the amount thereof. SECTION 4.09. EURODOLLAR DEPOSITS UNAVAILABLE OR INTEREST RATE UNASCERTAINABLE. In the event that the Agent shall have determined that dollar deposits of the relevant amount for the relevant Interest Period are not available to the Reference Banks in the applicable Eurodollar market or that, by reason of circumstances affecting such market, adequate and reasonable means do not exist for ascertaining the LIBOR rate applicable to such Interest Period, as the case may be, the Agent shall promptly give notice of such determination to the Borrower. In any such event, all principal of the Loans then subject to the LIBOR Rate Option shall become subject to the Base Rate Option on expiration of any Interest Periods then in effect. In the event that the circumstances causing any such unavailability of deposits or inability to determine the LIBOR rate shall change or terminate so that the LIBOR rate may again be determined, the Agent shall promptly so notify the Borrower. SECTION 4.10. CHANGES IN LAW RENDERING LIBOR LOANS UNLAWFUL. If at any time any new law, treaty, regulation, governmental rule, guideline, order or request or any change in any existing law, treaty, regulation, governmental rule, guideline, order or request or -19- any interpretation thereof by any governmental or other regulatory authority charged with the administration thereof, shall make it unlawful for any Bank to fund any Loans which it is committed to make hereunder subject to the LIBOR Rate Option with moneys obtained in the Eurodollar market, the Commitment of such Bank to fund such Loans shall, upon the happening of such event forthwith be suspended for the duration of such illegality, and such Bank shall by written notice to the Borrower and the Agent declare that its Commitment with respect to such Loans has been so suspended and, if and when such illegality ceases to exist, such suspension shall cease and such Bank shall similarly notify the Borrower and the Agent. If any such change shall make it unlawful for any Bank to continue in effect the funding in the applicable Eurodollar market of any Loan previously made by it hereunder subject to the LIBOR Rate Option, such Bank shall, upon the happening of such event, notify the Borrower, the Agent and the other Banks thereof in writing stating the reasons therefor, and the Borrower shall, on the earlier of (i) the last day of the then current Interest Period or (ii) if required by such law, regulation or interpretation, on such date as shall be specified in such notice, prepay all such Loans to the Banks in full. Any such prepayment or conversion may be made without payment of the prepayment premium provided for in Section 5.05 hereof, but the Borrower shall compensate such Bank(s) for any costs or expenses relating to such Loan incurred in connection with the events provided for in this Section on written request to the Borrower describing such costs or expenses. SECTION 4.11. FUNDING. Each Bank may, but shall not be required to, make Loans hereunder with funds obtained outside the United States. ARTICLE V AGREEMENTS AND CONDITIONS APPLICABLE TO ALL REVOLVING LOANS SECTION 5.01. NOTICE OF BORROWING. (a) Whenever the Borrower desires to incur a Revolving Loan, it shall give the Agent, prior to 12:00 noon (Cleveland time), at least two (2) Cleveland Banking Day's prior written notice (or telephonic notice promptly confirmed in writing) of each Revolving Loan to be subject to the LIBOR Rate Option and at least one (1) Cleveland Banking Days' prior written notice (or telephonic notice promptly confirmed in writing) of each Revolving Loan to be subject to the Base Rate Option. Each such notice (each, a "Notice of Borrowing" a form of which is attached hereto as Exhibit F) shall be appropriately completed to specify (i) the aggregate principal amount of each Revolving Loan to be made, which shall be an amount equal to an integral multiple of $500,000, (ii) the date such Revolving Loan(s) is to be made (which shall be a Cleveland Banking Day and, in the case of a Revolving Loan based on the LIBOR Rate Option, a London Banking Day), and (iii) whether the Revolving Loan(s) shall be subject to the Base Rate Option or the Libor Rate Option and, in the latter case, the Interest Period to be initially applicable thereto. The Agent shall promptly give each Bank written notice (or telephonic notice promptly confirmed in writing) of each proposed Revolving Loan, of such Bank's Pro rata share thereof and of the other matters covered by the Notice of Borrowing. (b) Without in any way limiting the obligation of the Borrower to confirm in writing any telephonic notice permitted to be given hereunder, the Agent may, prior to receipt of written confirmation, act without liability upon the basis of such telephonic notice, believed by the Agent in good faith to be from an Authorized Fiscal Officer of the Borrower. In such case, the -20- Borrower hereby waives the right to dispute the Agent's record of the terms of such telephonic notice. SECTION 5.02. DISBURSEMENT OF FUNDS. (a) No later than 1:00 p.m. (Cleveland time) on the date specified in each Notice of Borrowing, each Bank will make available its Pro rata portion of each Revolving Loan requested to be made on such date in the manner provided below in this Section 5.02(a). All amounts shall be made available to the Agent in U.S. dollars and immediately available funds at its office listed on the signature pages hereto and the Agent promptly will make available to the Borrower by depositing to its account at the Agent's office the aggregate of the amounts so made available in the type of funds received. Unless the Agent shall have been notified by any Bank prior to the date specified in the Notice of Borrowing that such Bank does not intend to make available to the Agent its portion of the Revolving Loan or Revolving Loans to be made on such date, the Agent may assume that such Bank has made such amount available to the Agent on such date of borrowing, and the Agent, in reliance upon such assumption, may (in its sole discretion and without any obligation to do so) make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Agent by such Bank and the Agent has made available same to the Borrower, the Agent shall be entitled to recover such corresponding amount from such Bank. If such Bank does not pay such corresponding amount forthwith upon the Agent's demand therefor, the Agent shall promptly notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Agent. The Agent shall also be entitled to recover from the Bank or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Agent to the Borrower to the date such corresponding amount is recovered by the Agent at a rate per annum equal to (i) if paid by such Bank, the overnight Federal Funds Effective Rate or (ii) if paid by the Borrower, the then applicable rate of interest, calculated in accordance with Article IV, for the Revolving Loans. (b) Nothing herein shall be deemed to relieve any Bank from its obligation to fulfill its commitments hereunder or to prejudice any rights which the Borrower may have against any Bank as a result of any default by such Bank hereunder. SECTION 5.03. CONDITIONS TO LOANS. The obligation of each Bank to make Loans hereunder is conditioned, in the case of each Loan hereunder, upon the following: (a) receipt by the Agent of a Notice of Borrowing or Letter of Credit Request, as applicable; (b) no Event of Default or Possible Default existing then or immediately after giving effect to the Loan; (c) the conditions set forth in Article VI hereof having been satisfied; and (d) the representations and warranties contained in Article IX hereof being true and correct in all material respects with the same force and effect as if made on and as of the date of such Loan except to the extent that any thereof expressly relate to an earlier date. -21- Each request for a Loan by the Borrower hereunder shall be deemed to be a representation and warranty by the Borrower as of the date of such borrowing as to the truth of the matters specified in subsections (b), (c) and (d) above. SECTION 5.04. PAYMENT ON NOTES, ETC. All payments of principal, interest, and any other amounts under this Agreement shall be made to the Agent in immediately available funds and in lawful money of the United States of America for the account of the Banks, not later than 12:00 noon (Cleveland time) on the date when due. Any such payment received by the Agent after 12:00 noon on a Cleveland Banking Day shall be deemed received on the next succeeding Cleveland Banking Day and interest shall accrue to such next Cleveland Banking Day in respect of any principal of the Loans to be paid by such payment. All payments made by the Borrower hereunder, under any Note or any other Related Writing, will be made without setoff, counterclaim or defense. The Agent shall distribute to each Bank its Pro rata share of the amount of principal, interest and other amounts received by it for the account of such Bank on the same day the Agent receives payment thereof from the Borrower in immediately available funds, unless the Agent does not receive such payment from the Borrower until after 12:00 noon, in which case the Agent shall make payment thereof to the Banks on the next Cleveland Banking Day. Each Bank shall endorse each Note held by it with appropriate notations evidencing each payment of principal made thereon or shall record such principal payment by such other method as such Bank may generally employ; provided, that failure to make any such entry shall in no way detract from the Borrower's obligations under each such Note. Whenever any payment to be made hereunder, including without limitation any payment to be made on any Note, shall be stated to be due on a day which is not a Cleveland Banking Day, such payment shall be made on the next succeeding Cleveland Banking Day and such extension of time shall in each case be included in the computation of the interest payable on such Note; provided, that if the next succeeding Cleveland Banking Day falls in the succeeding calendar month, such payment shall be made on the preceding Cleveland Banking Day and the relevant Interest Period shall be adjusted accordingly. To the extent a Bank does not receive its Pro rata share of the amount of principal, interest and other amounts made available by the Borrower to the Agent for the account of such Bank at the applicable time set forth above in this Section 5.04, such Bank shall be entitled to recover from the Agent, interest on all such amounts in respect of each day from the date such amounts were made available to the Agent by the Borrower to the date such amounts are distributed to such Bank at a rate per annum equal to the overnight Federal Funds Effective Rate. SECTION 5.05. PREPAYMENT. (a) The Borrower shall have the right (subject to the payment of a prepayment premium as hereinafter described in this Section 5.05), at any time or from time to time, upon two (2) Cleveland Banking Days' prior written notice (or telephonic notice promptly confirmed in writing) to prepay all or any part of the principal amount of the Loans then outstanding as designated by the Borrower, subject to the provisions of Section 5.05(b) hereof, plus interest accrued on the amount so prepaid to the date of such prepayment, which notice shall promptly be transmitted by the Agent to each of the Banks. (b) The Borrower agrees that if LIBOR as determined as of 11:00 a.m. London time, two (2) London Banking Days' prior to the date of prepayment or acceleration of any Loans (hereinafter, "Prepayment LIBOR") shall be lower than the last LIBOR previously determined for those Loans accruing interest at LIBOR with respect to which prepayment is intended to be -22- made or that are accelerated (hereinafter, "Last LIBOR") prior to the end of the applicable Interest Period, then the Borrower shall, upon written notice by the Agent, promptly pay to the Agent, for the account of each of the Banks, in immediately available funds, a prepayment premium measured by a rate (the "Prepayment Premium Rate") which shall be equal to the difference between the Last LIBOR and the Prepayment LIBOR. In determining the Prepayment LIBOR payable to each Bank, the Agent shall apply a rate for each Bank equal to LIBOR for a deposit approximately equal to each Bank's portion of such prepayment or accelerated balance which would be applicable to an Interest Period commencing on the date of such prepayment or acceleration and having a duration as nearly equal as practicable to the remaining duration of the actual Interest Period during which such acceleration occurs or prepayment is to be made. In addition, the Borrower shall immediately pay directly to each Bank the amount claimed as additional costs or expenses (including, without limitation, cost of telex, wires, or cables) incurred by such Bank in connection with the prepayment or acceleration upon the Borrower's receipt of a written statement from such Bank. The Prepayment Premium Rate shall be applied to all or such part of the principal amounts of the Notes as related to the Loans to be prepaid, or that are accelerated and the prepayment premium shall be computed for the period commencing with the date on which such prepayment is to be made or acceleration occurs to that date which coincides with the last day of the Interest Period previously established when the Loans, which are to be prepaid or are accelerated, were made. Each voluntary prepayment of a Loan shall be in the aggregate principal sum of not less than One Million Dollars ($1,000,000) (except in the case of a Loan initially made in an aggregate amount less than One Million Dollars ($1,000,000)) and, if greater, in an integral multiple of Two Hundred Fifty Thousand Dollars ($250,000). In the event the Borrower cancels a proposed Loan subsequent to the delivery to the Agent of a Notice of Borrowing with respect to such Loan, but prior to the draw down of funds thereunder, such cancellation shall be treated as a prepayment subject to the aforementioned prepayment premium. SECTION 5.06. UNUSED COMMITMENT FEES. The Borrower agrees to pay to the Agent, for the Pro rata benefit of each Bank, as consideration for its Commitment hereunder, an unused commitment fee calculated at the rate of thirty seven and one half (37.5) basis points per annum (based on a year having 360 days and calculated for the actual number of days elapsed) (a) from the Closing Date to the Termination Date, with respect to the Banks party to this Agreement as of the Closing Date and (b) from the date an Additional Bank becomes a party to this Agreement by executing an Additional Bank Assumption Agreement to the Termination Date, with respect to the Additional Banks that become parties to this Agreement after the Closing Date, on the sum of the average daily unborrowed amount of such Bank's Commitment hereunder minus the aggregate amount of all possible drawings under all letters of credit issued pursuant to Section 3.01 hereof, payable on the first Cleveland Banking Day after each Fiscal Quarterly Date. After any permanent reduction of the Total Revolving Loan Commitments pursuant to Section 5.07, the unused commitment fees payable hereunder shall be calculated upon the Total Revolving Loan Commitments of the Banks as so reduced. SECTION 5.07. MODIFICATION OF THE TOTAL REVOLVING LOAN COMMITMENTS. (a) At any time during the Commitment Increase Period, the Borrower may request the Agent to increase the Total Revolving Loan Commitments from the Closing Date Commitment Amount up to an amount that shall not exceed $450,000,000. Each such increase shall be in increments of at least Twenty Three Million Seven Hundred Fifty Thousand Dollars -23- ($23,750,000), by including one or more Additional Banks, each with a new Commitment (collectively the "Additional Commitments"). During the Commitment Increase Period, the Banks agree that the Agent, in its sole discretion, exercised in good faith, may permit one or more Additional Commitments upon satisfaction of the following requirements: (i) each Additional Bank, if any, shall execute an Additional Bank Assumption Agreement, (ii) the Agent shall provide to each Bank a revised Exhibit A to this Agreement at least three Cleveland Banking Days prior to the effectiveness of such Additional Commitments (each, an "Additional Bank Assumption Effective Date"), and (iii) the Borrower shall execute and deliver to the Agent and the Additional Banks a Note as shall be required by such Additional Banks. The Banks hereby authorize the Agent to execute each Additional Bank Assumption Agreement on behalf of the Banks. On each Additional Bank Assumption Effective Date, the Banks shall make adjustments among themselves with respect to the Revolving Loans and LC Obligations then outstanding and amounts of principal, interest, fees and other amounts paid or payable with respect thereto as shall be necessary, in the opinion of the Agent, in order to reallocate among such Banks such outstanding amounts, based on their respective Pro rata shares of the then effective Total Revolving Loan Commitments and to otherwise carry out fully the intent and terms of this Section 5.07(a). The Borrower shall not request any increase in the Total Revolving Loan Commitments pursuant to this Section 5.07(a) if a Possible Default or an Event of Default shall then exist, or immediately after giving effect to any such increase would exist. No Bank party to the Original Credit Agreement may be an Additional Bank or make an Additional Commitment. (b) The Borrower shall have the right at all times to permanently reduce the Total Revolving Loan Commitments in whole or in part by giving written notice of the reduction to the Agent at least one Cleveland Banking Day prior to the reduction, each such reduction to be equal to at least $10,000,000, or the then Total Revolving Loan Commitments if the then Total Revolving Loan Commitments are less than $10,000,000. Each such reduction shall reduce each Bank's Commitment Pro rata. Concurrently with each reduction, the Borrower shall prepay the amount, if any, together with interest thereon by which the aggregate unpaid principal amount of the Loans plus the LC Obligation exceeds the Total Revolving Loan Commitments as so reduced in accordance with Section 5.05 of this Agreement. SECTION 5.08. EXTENSIONS OF THE LOANS. Commencing on May 1, 2005 and on each May 1st thereafter, the Borrower may request the Banks to extend the Termination Date for one additional year in a writing delivered to the Agent not later than 180 days prior to the then applicable Termination Date, in accordance with the terms of this Agreement. The unanimous consent of the Banks shall be required for any such extension and the Banks shall have the right, but not the obligation, to approve such request for an extension. Any approval of the Borrower's request shall be subject to such terms and conditions as the Banks may deem appropriate. ARTICLE VI CONDITIONS PRECEDENT Prior to or concurrently with the execution and delivery of this Agreement, and as conditions precedent to the making of any Loans hereunder, the following actions shall be taken, all in form and substance satisfactory to the Agents and the Banks and their respective counsel: -24- SECTION 6.01. CORPORATE AND LOAN DOCUMENTS. The Borrower shall deliver or cause to be delivered to the Agents and the Banks the following documents, in all cases duly executed, delivered and/or certified, as the case may be: (a) Certified copies of the resolutions of the board of directors of the Borrower evidencing approval of the execution, delivery and performance of this Agreement and the Notes provided for herein; (b) Certified copies of resolutions of the board of directors of the Parent evidencing approval of the execution, delivery and performance of the Guaranty; (c) Copies of the Articles of Incorporation of the Borrower, certified by the Ohio Secretary of State as of a recent date; (d) Copies of the Articles of Incorporation of the Parent, certified by the Ohio Secretary of State as of a recent date; (e) Copies of the Code of Regulations of the Borrower, certified as true and complete as of the Closing Date by the secretary of the Borrower; (f) Copies of the Code of Regulations of the Parent, certified as true and complete as of the Closing Date by the secretary of the Parent; (g) Borrower good standing certificate from the State of Ohio as of a recent date; (h) Parent good standing certificate from the State of Ohio as of a recent date. (i) A certificate of the secretary or assistant secretary of the Borrower certifying the names of the officers of the Borrower authorized to sign this Agreement and the Notes, together with the true signatures of such officers. (j) A certificate of the secretary or assistant secretary of the Parent certifying the names of the officers of the Parent authorized to sign the Guaranty, together with the true signatures of such officers. (k) The Borrower, the Agents, and the Banks shall have executed and delivered counterparts of the Agreement. (l) The Parent shall have executed and delivered the Guaranty to the Agents and the Banks. (m) The Borrower shall have executed and delivered to each Bank (other than the Additional Banks), a Note payable to the account of each respective Bank in the amount of their respective Commitments. (n) A certificate of the secretary or assistant secretary of the Borrower certifying that as of the Closing Date and after giving effect thereto and to the Loans made hereunder (i) there exists no Possible Default or Event of Default and (ii) all representations and warranties contained herein shall be true and correct in all material respects. -25- (o) A certificate of the secretary or assistant secretary of the Parent certifying that as of the Closing Date and after giving effect thereto and to the Loans made hereunder (i) there exists no Possible Default or Event of Default and (ii) all representations and warranties contained herein shall be true and correct in all material respects. SECTION 6.02. OPINION OF COUNSEL FOR PARENT. The Borrower shall deliver or cause to be delivered to the Agents and the Banks a favorable opinion of counsel for the Parent as to the due authorization, execution and delivery, and legality, validity, and enforceability of the Guaranty and such other matters as the Agents and the Banks may request. SECTION 6.03. JUDGMENT, ORDERS. On the Closing Date, there shall not exist any judgment, order, injunction or other restraint issued or filed with respect to the consummation of the transactions contemplated by this Agreement. SECTION 6.04. LITIGATION. On the Closing Date, there shall be no actions, suits or proceedings pending or threatened (a) with respect to this Agreement or the transactions contemplated hereby or (b) which the Agents or the Banks shall determine could (i) have a Material Adverse Effect or (ii) have a material adverse effect on the rights or remedies of the Banks hereunder or under the Notes or the Guaranty or on the ability of either the Borrower or the Parent to perform its respective obligations to the Banks hereunder or under the Notes or the Guaranty. SECTION 6.05. NOTICE OF BORROWING. Prior to the making of each Loan, the Agent shall have received a Notice of Borrowing satisfying the requirements of Section 5.01. SECTION 6.06. OPINION OF COUNSEL FOR BORROWER. The Borrower shall deliver or cause to be delivered to the Agents and the Banks a favorable opinion of counsel for the Borrower as to the due authorization, execution and delivery, and legality, validity and enforceability of this Agreement and the Notes and such other matters as the Agents and the Banks may request. SECTION 6.07. PAYMENT OF FEES. On the Closing Date, the Borrower shall have paid to the Agents and the Banks all costs, fees and expenses, and all other compensation contemplated by this Agreement (including, without limitation, legal fees and expenses) to the extent then due. SECTION 6.08. ADVERSE CHANGE, ETC. From January 31, 2003 to the Closing Date, nothing shall have occurred (and neither the Banks nor the Agents shall have become aware of any facts or conditions not previously known) which the Banks or the Agents shall determine has, or could reasonably be expected to have, a Material Adverse Effect. SECTION 6.09. TERMINATION OF ORIGINAL CREDIT AGREEMENT. The Original Credit Agreement shall have been cancelled and terminated and the Indebtedness and obligations of the Borrower thereunder shall (except in respect of the letters of credit issued thereunder and identified on Schedule 3.01 hereto) have been satisfied and performed in full. -26- SECTION 6.10. EVIDENCE OF INSURANCE. The Borrower shall have delivered to the Agents and the Banks evidence of insurance complying with the provisions of Section 7.09 hereof. ARTICLE VII AFFIRMATIVE COVENANTS Borrower covenants and agrees that on the Closing Date and thereafter, for so long as this Agreement remains in effect and until the Commitments and all letters of credit are terminated, no Notes are outstanding and the Loans, together with interest, fees and all other obligations incurred hereunder, are paid in full, the Borrower will perform and observe all of the following provisions, namely: SECTION 7.01. PAYMENT OF AMOUNTS DUE. The Borrower will make all payments of the principal of and interest on the Loans and the Notes promptly as the same become due. SECTION 7.02. EXISTENCE, BUSINESS, ETC. The Borrower will cause to be done all things necessary to preserve and to keep in full force and effect its existence and rights and those of its Subsidiaries. The Borrower will, and will cause its Subsidiaries to, comply in all material respects with all federal, state and local laws and regulations now in effect or hereafter promulgated by any governmental authority having jurisdiction over it or them, as applicable. SECTION 7.03. MAINTENANCE OF PROPERTIES. The Borrower will, and will cause its Subsidiaries to, at all times maintain, preserve, protect and keep its properties used in the conduct of its business in good repair, working order and condition, ordinary wear and tear excepted, and, from time to time, make all needful and proper repairs, renewals, replacements, betterments, and improvements thereto, so that the business carried on in connection therewith may be properly conducted at all times. SECTION 7.04. PAYMENT OF TAXES, ETC. The Borrower will pay and discharge all lawful taxes, assessments and governmental charges or levies imposed upon it, upon its income or profits or upon its properties, before the same shall become in default or penalties attach thereto, as well as all lawful claims for same which have become due and payable which, if unpaid, might become a Lien or charge upon such properties or any part thereof; provided, that the Borrower shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings and there shall be set aside on its books such reserves with respect thereto as are required by generally accepted accounting principles. Except where the liability for the tax, assessment, charge, levy or claim is limited solely to the property on which assessed and is not subject to enforcement against the Borrower, the Borrower will in all events pay such tax, assessment, charge, levy or claim before the property subject thereto shall be sold to satisfy any Lien which has attached as security therefor. SECTION 7.05. FINANCIAL STATEMENTS. The Borrower will furnish or cause to be furnished to each Bank: -27- (a) within forty-five (45) days (or fifty (50) days so long as the Parent shall not have reported an Event of Default under the Guaranty to the Securities and Exchange Commission during such fiscal period nor on its most recent filing with the Securities and Exchange Commission) after the end of each of the first three (3) quarter-annual fiscal periods of each of the Borrower's fiscal years, a Form 10-Q as filed with the Securities and Exchange Commission, an unaudited consolidated and consolidating balance sheet of the Parent as at the end of that period and an unaudited consolidated and consolidating statement of income of the Parent for the Parent's current fiscal year to date, all prepared in form and detail in accordance with GAAP, consistently applied, or the Pro Rata Consolidation Method, as applicable, and certified by a Senior Officer of the Parent, together with a certificate of a Senior Officer of the Borrower (i) specifying the nature and period of existence of each Event of Default and/or Possible Default, if any, and the action taken, being taken or proposed to be taken by the Borrower in respect thereof, or if none, so stating, (ii) certifying that the representations and warranties of the Borrower set forth in Article IX hereof are true and correct as of the date of such certificate, or, if not, all respects in which they are not and (iii) certifying compliance by the Borrower with the covenants contained in Section 8.13; (b) within ninety (90) days (or ninety-five (95) days so long as the Parent shall not have reported an Event of Default under the Guaranty to the Securities and Exchange Commission during such fiscal period nor on its most recent filing with the Securities and Exchange Commission) after the end of each fiscal year of the Borrower, an annual report on Form 10-K as filed by the Parent with the Securities and Exchange Commission, including the complete audited consolidated balance sheets and statements of income of the Parent for that year, certified by an independent public accountant satisfactory to the Banks, and an unaudited consolidating balance sheet and statement of income of the Parent for the current fiscal year, each in form and detail satisfactory to the Banks, and prepared in accordance with GAAP, consistently applied, or the Pro Rata Consolidation Method, as applicable, together with (i) a report of the independent certified public accountant, with an opinion that is not qualified as to the scope of the audit or as to the status of the Parent or the Borrower as a going concern, (ii) a certificate of a Senior Officer of the Borrower (X) specifying the nature and period of existence of each Event of Default and/or Possible Default, if any, and the action taken, being taken or proposed to be taken by the Borrower in respect thereof or, if none, so stating, and (Y) certifying that the representations and warranties of the Borrower set forth in Article IX hereof are true and correct as of the date of such certificate, or, if not, all respects in which they are not, and (iii) a fully completed covenant compliance worksheet in the form and substance of Schedule 7.05 hereof relating to such fiscal year duly certified by the Borrower's accountants; (c) no more than ninety (90) days after the commencement of each fiscal year of the Borrower, a budget of the Borrower in form and substance substantially the same as the budgets delivered by the Borrower to the Agent on or before the Closing Date; and (d) forthwith upon the Agent's or any Bank's written request, such other information about the financial condition, properties and operations of the Borrower and its Subsidiaries, including, but not limited to, financial statements, management letters of accountants addressed to the Parent or the Borrower, rent rolls and other similar information for each Subsidiary of the Borrower, in each case as the Agent or that Bank may from time to time reasonably request. -28- SECTION 7.06. INSPECTION. The Borrower will and will cause each Subsidiary to permit its properties and records to be examined at all reasonable times by the Agent and each of the Banks. SECTION 7.07. ENVIRONMENTAL COMPLIANCE. The Borrower will comply in all material respects with any and all Environmental Laws including, without limitation, all Environmental Laws in jurisdictions in which the Borrower or any Subsidiary owns property, operates, arranges for disposal or treatment of hazardous substances, solid waste or other wastes, accepts for transport any hazardous substances, solid waste or other wastes or holds any interest in real property or otherwise. The Borrower will furnish to the Banks promptly after receipt thereof a copy of any notice the Borrower or any Subsidiary may receive from any governmental authority, private person or entity or otherwise that any litigation or proceeding pertaining to any environmental, health or safety matter has been filed or is threatened against the Borrower or such Subsidiary, any real property in which the Borrower or such Subsidiary holds any interest or any past or present operation of the Borrower or such Subsidiary. The Borrower will not allow the storage, release or disposal of hazardous waste, solid waste or other wastes on, under or to any real property in which the Borrower holds any interest or performs any of its operations, in violation of any Environmental Law. As used in this subsection "litigation or proceeding" means any demand, claim, notice, suit, suit in equity, action, administrative action, investigation or inquiry whether brought by any governmental authority, private person or entity or otherwise. The Borrower shall defend, indemnify and hold the Banks harmless against all costs, expenses, claims, damages, penalties and liabilities of every kind or nature whatsoever (including attorneys' fees) arising out of or resulting from the noncompliance of the Borrower or any Subsidiary with any Environmental Law provided that, so long as and to the extent that the Banks are not required to make any payment or suffer to exist any unsatisfied judgment, order or assessment against them, the Borrower may pursue rights of appeal to comply with such Environmental Laws. In any case of noncompliance with any Environmental Law by a Subsidiary, the Banks' recourse for indemnity in respect of the matters provided for in this Section 7.07 shall be limited solely to the property of the Subsidiary holding title to the property involved in such noncompliance and such recovery shall not be a Lien, or a basis of a claim of Lien or levy of execution, against either the Borrower's general assets or the general assets of any of its Subsidiaries. SECTION 7.08. ERISA. (a) At the request of any Bank, the Borrower will deliver to such Bank a complete copy of the annual report (Form 5500) of each Plan required to be filed with the Internal Revenue Service. In addition to any certificates or notes delivered to the Banks pursuant to this Section 7.08, copies of any notices received by the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate with respect to any Plan shall be delivered to the Banks no later than ten (10) days after the date such notice has been filed with the Internal Revenue Service or the PBGC or such notice has been received by the Borrower or such Subsidiary or such ERISA Affiliate, as applicable. (b) As soon as possible and, in any event, within ten (10) days after the Borrower, any of its Subsidiaries or any ERISA Affiliate knows or has reason to know of the occurrence of any of the following, the Borrower will deliver to each of the Banks a certificate of an authorized officer of the Borrower setting forth details as to the occurrence and such action, if any, which the Borrower, such Subsidiary or such ERISA Affiliate is required or proposed to take, together -29- with any notices required or proposed to be given to or filed with or by the Borrower, such Subsidiary, such ERISA Affiliate, the PBGC, a Plan participant or the Plan administrator with respect thereto: (i) that a Reportable Event has occurred; (ii) that an accumulated funding deficiency has been incurred or any application may be or has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code with respect to a Plan; (iii) that a contribution required to be made to a Plan has not been timely made; (iv) that a Plan has been or may be terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA; (v) that a Plan has an Unfunded Current Liability giving rise to a Lien under ERISA or the Code; (vi) that proceedings may be or have been instituted to terminate or appoint a trustee to administer a Plan; (vii) that a proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan; (viii) that the Borrower, any of its Subsidiaries or any ERISA Affiliate will or may incur any liability (including any indirect, contingent or secondary liability) to or on account of the termination of or withdrawal from a Plan under Section 4062, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under Section 401(a)(29), 4971, 4975, or 4980 of the Code or Sections 409 or 502(i) or 501(1) of ERISA; or (ix) that the Borrower or any of its Subsidiaries may incur any material liability pursuant to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) that provides benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or any employee pension benefit plan (as defined in Section 3(2) of ERISA). SECTION 7.09. INSURANCE. The Borrower will and will cause each of its Subsidiaries to (a) keep itself and all of its insurable properties insured at all times to such extent, by such insurers, and against such hazards and liabilities as is generally and prudently done by like businesses, it being understood that the Parent, the Borrower and each Subsidiary has obtained a fidelity bond for each of its employees that handle funds, (b) give each Bank prompt written notice of each material change in the Borrower's or any Subsidiary's insurance coverage and the details of the change and (c) forthwith upon any Bank's written request, furnish to each Bank such information about the Borrower's or any Subsidiary's insurance as any Bank may from time to time reasonably request, which information shall be prepared in form and detail -30- satisfactory to each Bank and certified by an officer of the Borrower or such Subsidiary, as applicable. SECTION 7.10. MONEY OBLIGATIONS. The Borrower will and will cause each Subsidiary to pay in full (a) prior in each case to the date when penalties would attach, all taxes, assessments and governmental charges and levies (except only those so long as and to the extent that the same shall be contested in good faith by appropriate and timely proceedings diligently pursued) for which it may be or become liable or to which any or all of its properties may be or become subject, (b) all of its wage obligations to its employees in compliance with the Fair Labor Standards Act (29 U.S.C. Sections 206-207) or any comparable provisions, and (c) all of its other obligations calling for the payment of money (except only those so long as and to the extent that the same shall be contested in good faith by appropriate and timely proceedings diligently pursued) before such payment becomes overdue except where the failure to make such payments, either singly or in the aggregate, would not have a Material Adverse Effect on the Borrower and provided that the Borrower shall promptly give written notice to the Agent of any such non-payments, which written notice the Agent will promptly deliver to each Bank. SECTION 7.11. RECORDS. The Borrower will and will cause each Subsidiary to (a) at all times maintain true and complete records and books of account, and without limiting the generality of the foregoing, maintain appropriate reserves for possible losses and liabilities, all in accordance with GAAP applied on a basis not inconsistent with its present accounting procedures, and (b) at all reasonable times permit any Bank to examine the Borrower's or any Subsidiary's books and records and to make excerpts therefrom and transcripts thereof. SECTION 7.12. FRANCHISES. The Borrower will and will cause each Subsidiary to preserve and maintain at all times its corporate existence, rights and franchises; provided, that this Section 7.12 shall not prohibit any merger, consolidation, dissolution or transfer permitted by Section 8.02. SECTION 7.13. NOTICE. The Borrower will cause its Chief Financial Officer, or in his or her absence another officer designated by the Chief Financial Officer, to promptly notify the Banks whenever: (a) any Event of Default or Possible Default may occur hereunder or any representation or warranty made in Article IX hereof or elsewhere in this Agreement or in any Related Writing may for any reason cease in any material respect to be true and complete; and/or (b) (i) any Subsidiary shall be in default of any material (either with respect to the Subsidiary or the Borrower) Indebtedness or Contingent Obligation or, to the knowledge of the Borrower, any material obligations in respect of taxes and/or Indebtedness for goods or services purchased by, or other contractual obligations of, such Subsidiary and/or (ii) any Subsidiary shall not, to the knowledge of Borrower, be in compliance with any law, order, rule, judgments, ordinance, regulation, license, franchise, lease or other agreement that has or could reasonably be expected to have a material adverse effect on the business, operations, property or financial condition of the Subsidiary, and/or (iii) the Borrower and/or the Subsidiary shall have received or have knowledge of any actual, pending or threatened claim, notice, litigation, citation, proceeding, or demand relating to any matter(s) described in subsections (i) and (ii) of this Section 7.13(b); and/or -31- (c) the Borrower shall be in default of any guarantee permitted by Section 8.07(b). SECTION 7.14. POST CLOSING ITEMS. The Borrower will promptly perform and complete to the satisfaction of the Agent each of the matters, if any, set forth on Schedule 7.14 attached hereto (the "Post Closing Items") on or before the date set forth on Schedule 7.14 for the performance and completion thereof (the "Satisfaction Date"). SECTION 7.15. FURTHER ASSURANCES; REPLACEMENT NOTES. (a) The Borrower agrees to execute and deliver to the Agent and/or the Banks any agreements, documents and instruments, including, without limitation, additional Notes as replacements or substitutions as may reasonably be required by the Agent and/or the Banks, and to take such other actions as reasonably requested by the Agent to effect the transactions contemplated hereby. (b) Upon the receipt by the Borrower of an affidavit of an officer of a Bank as to the loss, theft, destruction or mutilation of its Note or any other security document that is not of public record, upon the cancellation of any such Note or other security document, as applicable, the Borrower shall issue, in lieu thereof, a replacement Note or other security document, as applicable, in the same principal amount thereof and otherwise of like tenor. SECTION 7.16. NOTICE OF DEFAULT OR LITIGATION. Promptly, and in any event within three (3) Cleveland Banking Days after any officer of the Borrower or any of its Subsidiaries obtains knowledge thereof, the Borrower will deliver notice to the Banks of (a) the occurrence of any event which constitutes a Possible Default or Event of Default, which notice shall specify the nature thereof, the period of existence thereof and what action the Borrower proposes to take with respect thereto, and (b) the commencement of, or written threat of, or any significant development in, any litigation or governmental proceeding pending against the Borrower or any of its Subsidiaries which is likely to have a Material Adverse Effect. SECTION 7.17. USE OF PROCEEDS. All proceeds of the Loans shall be used as provided in Section 2.04. ARTICLE VIII NEGATIVE COVENANTS The Borrower covenants and agrees that as of the Closing Date, and thereafter for so long as this Agreement is in effect and until the Commitments and all letters of credit are terminated, no Notes are outstanding and the Loans, together with interest, fees and all other obligations incurred hereunder, are paid in full, the Borrower will observe all of the following provisions, namely: SECTION 8.01. PLAN. Neither the Borrower nor any Subsidiary will suffer or permit any Plan to be amended if, as a result of such amendment, the current liability under the Plan is increased to such an extent that security is required pursuant to Section 307 of the ERISA. As used herein, "current liability" means current liability as defined in Section 307 of ERISA. SECTION 8.02. COMBINATIONS. The Borrower will not dissolve or liquidate, and will not permit any Subsidiary to dissolve or liquidate, except in the ordinary course of business -32- and to the extent that no Material Adverse Effect is thereby suffered by the Borrower. The Borrower will not and will not permit any Subsidiary to be a party to any consolidation or merger; provided, that this Section 8.02 shall not apply to (i) any merger of a Subsidiary into the Borrower (with the Borrower being the surviving corporation) or into another Subsidiary, or (ii) any consolidation of a Subsidiary with another Subsidiary. SECTION 8.03. BULK TRANSFERS. The Borrower will not and will not permit a Subsidiary to be a party to any lease, sale or other transfer involving all or a substantial part of the assets of the Borrower and its Subsidiaries as a whole; provided, that this Section 8.03 shall not apply to (a) any transfer of assets by a Subsidiary to the Borrower or another Subsidiary, (b) the transfer of assets to a trustee (other than a trustee for the benefit of creditors) in connection with a building project involving such assets, or (c) any transfer effected in the normal course of business and on commercially reasonable terms. SECTION 8.04. BORROWINGS. The Borrower will not and will not permit any Subsidiary to create, assume or suffer to exist any unsecured or secured Indebtedness of any kind or any reimbursement obligation or other similar liabilities with respect to letters of credit issued for the Borrower's or any Subsidiary's account (other than non-recourse letters of credit or surety bonds issued as credit enhancement); provided, that this Section 8.04 shall not apply to the following (collectively, "Permitted Debt"): (a) any Loans obtained hereunder; (b) any secured Indebtedness of the Borrower or of any Subsidiary created in the course of purchasing or developing real estate or financing construction or other improvements thereon or purchasing furniture, fixtures or other equipment therefor or any other related Indebtedness of the Borrower or of any Subsidiary or any refinancings thereof, provided, that neither the Borrower nor any Subsidiary (other than a Subsidiary whose sole assets consist of contiguous parcels of land which are being purchased or developed with such financing, the improvements, if any, thereon, furniture, fixtures and other equipment used in connection therewith, receivables arising from tenants in connection therewith and the proceeds of such receivables and other property directly obtained from the ownership of such assets) shall have any personal liability for such Indebtedness (except for Indebtedness permitted in Section 8.07(e)), the creditors' recourse being solely to the property being pledged as collateral for such Indebtedness and the income therefrom; (c) except as provided in Section 8.04(d) hereof, Indebtedness under any Hedge Agreement relating to Indebtedness otherwise permitted under this Section 8.04, provided, that, any Hedge Agreement proposed to be entered into by the Borrower or any Subsidiary (other than Forest City Capital Corporation) that will not be provided by one or more of the Agents or the Banks shall require the prior written consent of the Required Banks (such written consent to be delivered by each consenting Bank to the Agent not more than three (3) Business Days after the request for such consent has been delivered by the Borrower to the Agent, provided, that, each Bank that does not deliver such written consent within such three (3) Business Day period shall be deemed to have denied the request for such Hedge Agreement); (d) Indebtedness of any of the Borrower's Subsidiaries (whose sole assets consist of contiguous parcels of lands, the improvements, if any, thereon, fixtures and other equipment -33- used in connection therewith, receivables arising from tenants in connection therewith and the proceeds of such receivables and other property directly obtained from the ownership of such assets) under Hedge Agreements that are recourse solely to such Subsidiary; or (e) Indebtedness owed by any Subsidiary to the Borrower as permitted by Section 8.06(b) hereof. SECTION 8.05. LIENS. The Borrower will not and will not permit any Subsidiary to (a) acquire any property subject to any inventory consignment, land contract or other title retention contract, (b) other than the periodic sale by the Borrower or any Subsidiary of any mortgages held by the Borrower or such Subsidiary, sell or otherwise transfer any receivables, or (c) suffer or permit any property now owned or hereafter acquired by it to be or become encumbered by any mortgage, security interest, financing statement or Lien of any kind or nature other than: (i) any Lien for a tax, assessment or governmental charge or levy so long as the payment thereof is not at the time required by Section 7.10 hereof; (ii) any Lien securing only its workers' compensation, unemployment insurance and similar obligations; (iii) any mechanic's, carrier's or similar common law or statutory Lien incurred in the normal course of business; (iv) any transfer of a check or other medium of payment for deposit or collection through normal banking channels or any similar transaction in the normal course of business; (v) any mortgage, security interest or other Lien securing only Indebtedness permitted by clause (b) of Section 8.04; (vi) any Lien permitted by Section 8.15 hereunder; (vii) any transfer of receivables without recourse; (viii) any assignment of rents, profits and/or cash flows derived from particular real estate given as additional security to a mortgage or security interest on such real estate permitted by this Section 8.05, provided, that the mortgage or security interest encumbers only the real property in question; (ix) any financing statement perfecting a security interest permitted by this Section 8.05; (x) easements, restrictions, minor title irregularities and similar matters having no adverse effect as a practical matter on the ownership or use of the Borrower's or any Subsidiary's real property; or (xi) any mortgage, security interest and Lien securing any Debt incurred to the Banks under this Agreement. -34- SECTION 8.06. LOANS RECEIVABLE. The Borrower will not and will not permit any Subsidiary to knowingly make or have outstanding at any time to any third party, any advance or loan of any kind other than: (a) any loan secured by mortgages on real estate and not exceeding eighty per cent (80%) of the value of the real estate as appraised by a nationally recognized appraiser; (b) any loan from the Borrower to one of its Subsidiaries or from such a Subsidiary to the Borrower, provided, that any such loan from a Subsidiary to the Borrower shall be subordinated in all respects to the Borrower's Debt to the Banks on such terms and conditions as may be satisfactory to the Banks; (c) any advance or loan made in the normal course of business of acquiring properties for, or developing properties of, the Borrower or any Subsidiary; (d) any Permitted Non-Affiliate Loan, provided, that (i) such Permitted Non-Affiliate Loan is secured either by (A) a pledge of all or substantially all of the equity interests in the Non-Affiliated Entity that owns the Non-Affiliate Construction Project or (B) a first or second priority mortgage lien on the Non-Affiliate Construction Project, and (ii) the aggregate principal amount of all such Permitted Non-Affiliate Loans shall not exceed the amount of $200,000,000 outstanding at any time. SECTION 8.07. GUARANTEES. The Borrower will not and will not permit any Subsidiary to pledge its credit or property in any manner for the payment or other performance of Indebtedness, contract or other obligation of another (including, without limitation, the Indebtedness of the Parent under the Senior Notes), whether as guarantor (whether of payment or of collection), surety, co-maker, endorser or by agreeing conditionally or otherwise to make any purchase, loan or investment in order thereby to enable another to prevent or correct a default of any kind, or otherwise, except for: (a) endorsements of negotiable instruments for deposit or collection or similar transactions in the normal course of business; (b) any guarantee set forth on Schedule 9.22 as of the Closing Date; (c) any indemnity or guarantee of a surety bond for the performance by a customer of the Borrower or any Subsidiary of such customer's obligations under a land development contract; (d) any unsecured guarantee by the Borrower or any of its Subsidiaries of the equity investment or performance of a Subsidiary (other than any Indebtedness of such Subsidiary incurred for borrowed money) in connection with a real estate project solely in favor of a partner or a member, or a partnership or limited liability company in which such Subsidiary is a general partner or a member, as applicable, when the Borrower or such Subsidiary, as the case may be, deems it to be in its best interest not to be a partner, a member or have a direct interest in the partnership or the limited liability company, as applicable; -35- (e) any guarantee or indemnity by the Borrower or any of its Subsidiaries for fraud, misappropriation, misapplication or environmental problems, as are usual and customary in commercial mortgage loan transactions entered into by the Borrower and/or its Subsidiaries, provided, that such a guarantee or indemnity may be given by the Borrower or a Subsidiary, but not both (unless such Subsidiary is also the borrower in the particular commercial mortgage loan transaction), in connection with any particular commercial mortgage loan transaction; and (f) any guarantee by the Borrower of an unsecured Hedge Agreement permitted by Section 8.04 hereof entered into by a Subsidiary and with a maturity date of not more than twelve (12) months following the date of such Hedge Agreement. SECTION 8.08. AMENDMENT OF ARTICLES OF INCORPORATION AND/OR REGULATIONS. The Borrower will not amend, modify or supplement its articles of incorporation or its code of regulations in any material respect that would be detrimental to the performance by the Borrower of its obligations under this Agreement or the Notes or the rights of the Agents or the Banks under this Agreement or the Notes. SECTION 8.09. FISCAL YEAR. Except as required by law, or required in connection with a transaction permitted under Section 8.02 hereof, the Borrower will not change its fiscal year without the consent of the Banks, which consent shall not be unreasonably withheld. SECTION 8.10. REGULATION U. The Borrower will not, and will not permit its Subsidiaries to, directly or indirectly, (a) apply any part of the proceeds of any Loan to the purchasing or carrying of any "margin stock" within the meaning of Regulations T, U or X of the Federal Reserve Board, or any regulations, interpretations or rulings thereunder, (b) extend credit to others for the purpose of purchasing or carrying any such margin stock, or (c) retire Indebtedness which was incurred to purchase or carry any such margin stock. SECTION 8.11. NO PLEDGE. (a) The Borrower will not, and will not permit any of its Subsidiaries to, sell, assign, pledge or otherwise dispose of or encumber any of its or their partnership interests or other equity interests in any of its or their Subsidiaries, except as permitted under Section 8.02, and except that the Borrower and each Subsidiary shall be permitted to pledge its stock or other ownership interests in any of its or their Subsidiaries that is a single asset or special purpose entity (each, a "Pledged Subsidiary") to secure the following: (i) additional or mezzanine Indebtedness incurred with respect to a project encumbered by a first mortgage at the time the additional or mezzanine Indebtedness is incurred, so long as such additional or mezzanine Indebtedness is permitted under Section 8.04 of this Agreement; provided, that the sum of the then existing Indebtedness with respect to such project plus such additional or mezzanine Indebtedness does not exceed eighty percent (80%) of the appraised value of the project at the time such additional or mezzanine Indebtedness is incurred; or (ii) primary Indebtedness (or the re-financing thereof) incurred solely with respect to the acquisition of real property or for construction or redevelopment purposes, provided, that such primary Indebtedness (or the re-financing thereof) does not exceed one hundred percent (100%) of the appraised value of the acquired property at the time of such financing or re-financing, as applicable. -36- (b) In addition to the foregoing, (i) such pledges of stock or other ownership interests in a Pledged Subsidiary may only be made to secure Indebtedness incurred with respect to a project owned or to be acquired by such Pledged Subsidiary and not to secure Indebtedness incurred with respect to a project owned or to be acquired by any other Subsidiary; (ii) such pledges of stock or other ownership interests in a Pledged Subsidiary given to secure Indebtedness described in Section 8.11(a)(i) or Section 8.11(b)(iii)(Y) may be made with respect to no more than fifteen (15) individual properties collectively between the Borrower, all Subsidiaries and all Restricted Companies (as defined in the Guaranty), at any one time, exclusive of the properties set forth on Schedule 9.9A to the Guaranty and (iii) the aggregate of all such (X) additional or mezzanine Indebtedness described in Section 8.11(a)(i) above and (Y) primary Indebtedness described in Section 8.11(a)(ii) above in excess of eighty percent (80%) of the appraised value of the property, in each case for which such a pledge will be provided by the Borrower or a Subsidiary, shall not exceed Two Hundred Million Dollars ($200,000,000) in the aggregate for all pledges provided by the Borrower, its Subsidiaries and all Restricted Companies (as defined in the Guaranty), taken together. (c) The Borrower will deliver to the Agents and the Banks an updated schedule in the form of Schedule 9.9 to the Guaranty listing all of the properties as to which a pledge of stock or other ownership interest has been provided to a lender in accordance with Section 8.11 (b)(ii) and (iii), within forty-five (45) days after each Fiscal Quarterly Date. SECTION 8.12. TRANSACTIONS WITH AFFILIATES. Except for loans permitted by Section 8.06 of this Agreement, the Borrower will not and will not permit any of its Subsidiaries to, enter into any transaction or series of transactions with any Affiliate other than in the ordinary course of business and on terms and conditions substantially as favorable as would be obtainable by the Borrower or such Subsidiary, at the time, in a comparable arm's-length transaction with a Person other than an Affiliate. SECTION 8.13. DEBT SERVICE COVERAGE RATIO. The Borrower will not permit the Debt Service Coverage Ratio in each case for the Test Period ending on each Fiscal Quarterly Date to be less than 1.30:1.00. SECTION 8.14(a). RESTRICTIONS ON DISTRIBUTIONS DURING AN EVENT OF DEFAULT OTHER THAN A PAYMENT DEFAULT. If any Event of Default has occurred and is continuing, or if any Event of Default would occur as a result of a Distribution (as defined below), other than a Payment Default, the Borrower shall not directly or indirectly declare, make, or pay any Dividends in respect of its Capital Stock, or, notwithstanding any other provision of the Agreement to the contrary, make any loans or advances to the Parent (any such Dividends, loans, or advances are referred to hereinafter as "Distributions") in excess of the sum of the amounts sufficient to pay, when due, all interest payments in respect of the Senior Notes and the amounts sufficient to pay, when due, all taxes of the Parent (collectively, "Permitted Distributions"); provided, that any Permitted Distributions shall be applied by the Parent strictly to the permitted uses specified above. SECTION 8.14(b). RESTRICTIONS ON DISTRIBUTIONS DURING A PAYMENT DEFAULT. In the event of and during the continuance of any Payment Default, or if a Payment Default would occur as a result of a Distribution, the Borrower shall not directly or indirectly declare or pay any Distributions to the Parent. -37- SECTION 8.15. CROSS COLLATERALIZATION AND CROSS DEFAULTS (a) Except as permitted in this Section 8.15, the Borrower shall not and shall not permit any Subsidiary to: (i) cross-default or agree to cross-default any Permitted Debt to this Agreement or the Debt incurred hereunder; (ii) agree to any financial covenants based on the performance of the Borrower under any Permitted Debt (other than the Debt); or (iii) cross-collateralize, or agree to cross-collateralize Indebtedness owing to any one lender under one or more different loan agreements or arrangements, provided, that the cross-defaulted and/or cross-collateralized Indebtedness set forth on Schedule 8.15 attached hereto shall be permitted. (b) Notwithstanding Section 8.15(a) above: (i) with respect to construction projects which are constructed in multiple phases and/or stabilized properties, the Borrower and any Subsidiary shall be permitted to cross-default and/or cross-collateralize any Permitted Debt with other Permitted Debt (other than, in each case, the Debt under this Agreement), but only if the phases to be cross-collateralized and/or cross-defaulted consist of a single identifiable project; (ii) under the construction loan agreement or any other relevant documents (other than a Completion Guaranty) relating to any Permitted Debt (other than the Debt), any Subsidiary (but not the Borrower) shall be permitted to cross-default or agree to cross-default such Permitted Debt with this Agreement or the Debt, provided, that, the construction lender shall not be permitted to call a default under its construction loan agreement or other relevant documents due to an Event of Default under this Agreement unless the Banks have provided a written notice of the Event of Default to the Borrower and all applicable cure periods have lapsed without remedy; provided, further, that the construction lender shall not, under any circumstances, be permitted to call upon its Completion Guaranty, if any, due to an Event of Default under this Agreement; and (iii) with respect to Hedge Agreements entered into by Forest City Capital Corporation and permitted by this Agreement or the Guaranty, the related documentation may provide that an Event of Default will constitute an event of default under such Hedge Agreement, provided, that the Hedge Agreement also provides that the counterparty may not terminate or have any remedy under the Hedge Agreement on account of any Event of Default unless (1) the Banks have provided a written notice of the Event of Default to the Borrower, (2) all applicable cure periods have lapsed without the Event of Default being cured and (3) the Banks may accelerate the maturity of the Revolving Loans on the basis of the Event of Default. SECTION 8.16. SENIOR NOTES. The Borrower shall not alter, amend, change or modify the terms of any of the Senior Notes (a) to allow the maturity date of any of the Senior Notes to be less than ten (10) years from the respective date of issue, (b) to provide for payment -38- of interest under any of the Senior Notes more frequently than quarterly, or (c) to modify the redemption provisions contained therein, including adding additional redemption provisions. SECTION 8.17 CHANGES IN BUSINESS. The Borrower will not, and will not permit any of its Subsidiaries to, materially alter the character of the business of the Borrower and its Subsidiaries from that conducted on the Closing Date. ARTICLE IX REPRESENTATIONS AND WARRANTIES Subject only to such exceptions, if any, as may be fully disclosed in an officer's certificate in the form of Schedule 9.00 hereto furnished by the Borrower to each Bank prior to the execution and delivery hereof, the Borrower represents and warrants as follows: SECTION 9.01. EXISTENCE. The Borrower is a corporation duly organized and validly existing in good standing under the laws of the State of Ohio and is duly qualified to transact business and is in good standing as a foreign corporation in all jurisdictions (other than jurisdictions in which the nature of the property owned or business conducted, when considered in relation to the absence of serious penalties, renders qualification as a foreign corporation unnecessary as a practical matter) where the nature of the property owned and business transacted by the Borrower render such qualification necessary. Each of the Borrower's Subsidiaries is duly organized and existing in good standing in the jurisdiction of its incorporation or formation. The Borrower and each of its Subsidiaries has full power, authority, and legal right to own and operate its respective properties and to carry on the business in which it engages and intends to engage. SECTION 9.02. RIGHT TO ACT. No registration with or approval of any governmental agency of any kind is required for the due execution and delivery or for the enforceability of this Agreement and any Note issued pursuant to this Agreement. The Borrower has legal power and right to execute and deliver this Agreement and any Note issued pursuant to this Agreement and to perform and observe the provisions of this Agreement and any Note issued pursuant hereto and all such actions have been duly authorized by all necessary corporate action of the Borrower. By executing and delivering this Agreement and any Note issued pursuant to this Agreement and by performing and observing the provisions of this Agreement and any Note issued pursuant hereto, the Borrower will not violate any existing provision of its Articles of Incorporation, Code of Regulations or any applicable law or violate or otherwise become in default under any existing contract, agreement, indenture or other obligation binding upon the Borrower. The officers executing and delivering this Agreement on behalf of the Borrower have been duly authorized to do so. SECTION 9.03. BINDING EFFECT. This Agreement constitutes a valid and binding agreement of the Borrower, and the Guaranty constitutes a valid and binding agreement of the Parent, in both cases enforceable in accordance with their respective terms, and the Notes, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of the Borrower, enforceable in accordance with their respective terms. SECTION 9.04. LITIGATION. No litigation or proceeding is pending or being threatened against the Borrower, the Parent or any Subsidiary before any court or any -39- administrative agency which might, if successful, be expected to have a Material Adverse Effect on the Borrower or the Parent. The Internal Revenue Service has not alleged any default by the Borrower, the Parent or any Subsidiary in the payment of any tax or threatened to make any assessment in respect thereof. SECTION 9.05. EMPLOYEE RETIREMENT INCOME SECURITY ACT. No material Plan established or maintained by the Borrower or any Domestic Subsidiary, which is subject to Part 3 of Subtitle B of Title I of ERISA, had an accumulated funding deficiency (as such term is defined in Section 302 of ERISA) as of the last day of the most recent fiscal year of such Plan ended prior to the date hereof, or would have had an accumulated funding deficiency (as so defined) on such day if such year were the first year of such Plan to which Part 3 of Subtitle B of Title I of that Act applied, and no material liability to the PBGC, has been, or is expected by the Borrower or any Domestic Subsidiary to be, incurred with respect to any such Plan by the Borrower or any Domestic Subsidiary. SECTION 9.06. ENVIRONMENTAL COMPLIANCE. To the actual knowledge of the Borrower, the Borrower and each Subsidiary are in compliance with any and all Environmental Laws including, without limitation, all Environmental Laws in all jurisdictions in which the Borrower or any Subsidiary owns or operates, or has owned or operated, a facility or site, arranges or has arranged for disposal or treatment of hazardous substances, solid waste or other wastes, accepts or has accepted for transport any hazardous substances, solid waste or other wastes or holds or has held any interest in real property or otherwise, for which failure to comply is likely to result in claims, penalties or fines in excess of $500,000 for any single claim of noncompliance or $5,000,000 in the aggregate for all such claims and occurrences. No litigation or proceeding arising under, relating to or in connection with any Environmental Law is pending or threatened against the Borrower or any Subsidiary, any real property in which the Borrower or any Subsidiary holds or has held an interest or any past or present operation of the Borrower or any Subsidiary. To the actual knowledge of the Borrower, no release, threatened release or disposal of hazardous waste, solid waste or other wastes is occurring, or has occurred, on, under, from, or to any real property in which the Borrower or any Subsidiary holds any interest or performs any of its operations, in violation of any Environmental Law that could reasonably be expected to result in claims of liability against the Borrower or any Subsidiary in excess of $500,000 for any single claim or $5,000,000 in the aggregate for all such claims. As used in this subsection, "litigation or proceeding" means any demand, claim, notice, suit, suit in equity, action, administrative action, investigation or inquiry whether brought by any governmental authority, private person or entity or otherwise. SECTION 9.07. SOLVENCY. The Borrower has received consideration which is the reasonable equivalent value of the obligations and liabilities that the Borrower has incurred to the Banks. The Borrower is not insolvent as defined in any applicable state or federal statute, nor will the Borrower be rendered insolvent by the execution and delivery of this Agreement or any Note to the Banks. The Borrower is not engaged or about to engage in any business or transaction for which the assets retained by it shall be an unreasonably small capital, taking into consideration the obligations to the Banks incurred hereunder. The Borrower does not intend to, nor does it believe that it will, incur debts beyond its ability to pay them as they mature. SECTION 9.08. FINANCIAL STATEMENTS. The annual financial statements of the Borrower prepared as of January 31, 2003, certified by the Borrower's Chief Financial Officer -40- and heretofore furnished to each Bank, are true and complete, have been prepared in accordance with GAAP applied on a basis consistent with those used by the Borrower during its immediately preceding full fiscal year and fairly present its financial condition as of those dates and the results of its operations for the periods set forth therein. Since January 31, 2003, there has been no change in the Borrower's financial condition, properties or business or in the financial condition, properties or business of any Subsidiary, in each case that has had or could reasonably be expected to have a Material Adverse Effect on the Parent or the Borrower and its Subsidiaries taken as a whole. SECTION 9.09. DEFAULTS. No Event of Default or Possible Default exists hereunder, nor will any begin to exist immediately after the execution and delivery hereof. SECTION 9.10. OPERATIONS. The Borrower and its Subsidiaries have obtained and continue to possess all permits, licenses and authorizations the absence of which would materially and adversely affect the Borrower's or a Subsidiary's ability to carry on its business in the ordinary course. SECTION 9.11. TITLE TO PROPERTIES; PATENTS, TRADE MARKS, ETC. The Borrower and its Subsidiaries have good and marketable title to all of their properties and assets, including, without limitation, the properties and assets reflected in the financial statements referred to in Section 9.08 (excepting, however, inventory and other immaterial assets, in each case sold or otherwise disposed of in the ordinary course of business subsequent to the date of such financial statements). There are no Liens of any nature whatsoever on any of the properties or assets of the Borrower and its Subsidiaries other than such as are permitted under Section 8.05. The Borrower and its Subsidiaries owns or possesses all the patents, trademarks, service marks, trade names, copyrights, and licenses and rights with respect to the foregoing necessary for the conduct of their respective businesses as now conducted, without any known conflict with the valid rights of others which would be inconsistent with the conduct of its business substantially as now conducted and as currently proposed to be conducted. SECTION 9.12. COMPLIANCE WITH OTHER INSTRUMENTS. The Borrower and, to the best of the Borrower's knowledge, each Subsidiary is not in default in the performance, observance or fulfillment of any of the material obligations, covenants or conditions contained in any evidence of Indebtedness or Contingent Obligations. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, nor compliance with the terms and provisions hereof will violate the provisions of any applicable law or of any applicable order or regulations of any governmental authority having jurisdiction over the Borrower or its Subsidiaries, or will conflict with any material permit, license or authorization, or will conflict with or result in a breach of any of the terms, conditions or provisions of any restriction or of any agreement or instrument to which the Borrower is now a party, or will constitute a default thereunder, or will result in the creation or imposition of any Lien upon any of the properties or assets of the Borrower or any Subsidiary. SECTION 9.13. MATERIAL RESTRICTIONS. Neither the Borrower, nor the Parent nor any of their respective Subsidiaries are a party to any agreement or other instrument or subject to any other restriction which would have a Materially Adverse Effect on the Parent or the Borrower and its Subsidiaries taken as a whole. -41- SECTION 9.14. CORRECTNESS OF DATA FURNISHED. This Agreement and all schedules and exhibits attached hereto do not contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained herein or therein not misleading; and there is no fact not otherwise disclosed in writing to the Agent which, to the knowledge of the Borrower, would have a Material Adverse Effect on the Borrower and its Subsidiaries. SECTION 9.15. TAXES. The Borrower, the Parent and each of their respective Subsidiaries has (a) timely filed all returns required to be filed by it with respect to all taxes, (b) paid all taxes shown to have become due pursuant to such returns, and (c) paid all other taxes for which a notice of assessment or demand for payment has been received other than taxes that the Borrower, the Parent or such Subsidiary is contesting in good faith with appropriate proceedings. All tax returns have been prepared in accordance with all applicable laws and requirements and accurately reflect in all material respects the taxable income (or other measure of tax) of the Borrower, the Parent or such Subsidiary filing the same. The accruals for taxes contained in the financial statements referred to in Section 9.08 are adequate under GAAP to cover all liabilities for taxes for all periods ending on or before the date of such financial statements and include adequate provision for all deferred taxes (including deferred federal taxes), and nothing has occurred subsequent to that date to make any of such accruals inadequate. All taxes for periods beginning after the date of this Agreement through and including the Closing Date have been paid or are adequately reserved against on the books of the Borrower or the Parent, as applicable. The Borrower, the Parent and each of their respective Subsidiaries has timely filed all information returns or reports which are required to be filed and has accurately reported all information required to be included on such returns or reports. There are no proposed assessments of taxes against the Borrower, the Parent or any of their respective Subsidiaries nor proposed adjustments to any tax return filed that, individually or in the aggregate, would have a Material Adverse Effect on the Borrower or the Parent. SECTION 9.16. COMPLIANCE WITH LAWS. Except as disclosed on Schedule 9.16, the Borrower and, to the best of the Borrower's knowledge, the Parent and each of their respective Subsidiaries is in compliance in all material respects with all material laws, rules, regulations, court orders and decrees, and orders of any governmental agency which are applicable to the Borrower, the Parent or their respective Subsidiaries or to their respective properties. SECTION 9.17. REGULATION U, ETC. The Borrower does not own, nor does it have any present intention of acquiring, any "margin stock" within the meaning of Regulation U (12 CFR Part 221) of the Board of Governors of the Federal Reserve System (herein called "margin stock"). The proceeds of the Loans will not be used, directly or indirectly, by the Borrower for the purpose of purchasing or carrying, or for the purpose of reducing or retiring any Indebtedness or other liability which was originally incurred to purchase or carry, any margin stock or for any other purpose which might cause the transactions contemplated hereby to be considered a "purpose credit" within the meaning of said Regulation U, or which might cause this Agreement to violate Regulation U, Regulation T, Regulation X or any other regulation of the Board of Governors of the Federal Reserve System or the Securities Exchange Act of 1934. Upon request, the Borrower will promptly furnish the Agent with a statement in conformity with the requirements of Federal Reserve Form U-1 referred to in said Regulation U. -42- SECTION 9.18. HOLDING COMPANY ACT. The Borrower is not a "Holding Company" or a "Subsidiary Company" of a "Holding Company", or an "Affiliate" of a "Holding Company" or of a "Subsidiary Company" of a "Holding Company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. SECTION 9.19. SECURITIES ACT, ETC. Neither the registration of any security under the Securities Act of 1933, as amended, or any other federal, state or local securities laws, nor the qualification of the Agreement, the Notes and/or the Guaranty under the Trust Indenture Act of 1939, as amended, is required in connection with the Loans or the issuance and delivery of the Notes pursuant hereto. SECTION 9.20. INVESTMENT COMPANY ACT. The Borrower is not, nor immediately after the application by the Borrower of the proceeds of each Loan will the Borrower be, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 9.21. INDEBTEDNESS OF SUBSIDIARIES. No Subsidiary has any Indebtedness other than (a) on terms that limit recourse for the payment thereof to the real property or other assets of the Subsidiary securing such Indebtedness, provided, that the assets securing such Indebtedness were acquired or developed with the proceeds of such Indebtedness, (b) such Indebtedness owed by a Subsidiary, the sole assets of which consist of contiguous parcels of land, the improvements, if any, thereon, furniture, fixtures and other equipment used in connection therewith, receivables arising from tenants in connection therewith and the proceeds of such receivables and other property directly obtained from the ownership of such assets, or (c) Indebtedness permitted under Section 8.04, 8.06 or 8.07(e) of this Agreement. SECTION 9.22. GUARANTIES. (a) All outstanding guaranties, including, but not limited to Completion Guaranties, issued by the Parent and the maximum amounts guaranteed pursuant to each such guaranty are set forth on Schedule 9.22 attached hereto. (b) With respect to each Completion Guaranty set forth on Schedule 9.22, the Parent has received a budget for the relevant construction project and any interest reserve provided in connection therewith is available to the construction lender only through project completion and not through stabilization of the project. SECTION 9.23. INDEBTEDNESS. Schedule 9.23 attached hereto sets forth a complete and accurate list of all Indebtedness, of each of the Parent and the Borrower (other than the Loans and intercompany Indebtedness), not otherwise disclosed on the most recent financial statements delivered by the Borrower to the Banks or by the Parent to the Banks, as applicable. All intercompany Indebtedness of the Parent and the Borrower is subordinated in all respects to the Borrower's Debt to the Banks. -43- ARTICLE X EVENTS OF DEFAULT Each of the following shall constitute an event of default (each an "Event of Default") hereunder: SECTION 10.01. PAYMENTS. If all or any installment of the principal of, or interest on, any Note, or any fee provided hereunder shall not be paid in full punctually when due and payable. SECTION 10.02. COVENANTS(a). If the Borrower shall fail or omit to perform or observe any agreement or other provision contained or referred to in Sections 7.13(a), 7.15, 7.16(a), 7.17 or Article 8 of this Agreement; or (b) If the Borrower shall fail or omit to perform or observe any agreement or other provision (other than those referred to in Sections 10.01 or 10.02(a) hereof) contained or referred to in this Agreement or any Related Writing that is on the Borrower's part to be complied with, and the Borrower shall not have corrected such failure or omission within thirty (30) days after the giving of written notice thereof to the Borrower by the Agent or any Bank that the specified default is to be remedied. SECTION 10.03. REPRESENTATIONS AND WARRANTIES. If any representation, warranty or statement made in or pursuant to this Agreement or any Related Writing or any other material information furnished by the Borrower to the Agents, the Banks or any thereof or any other holder of any Note, shall be false or erroneous in any material respect. SECTION 10.04. CROSS DEFAULT. If the Borrower and/or any Subsidiary defaults in any payment of principal or interest due and owing upon any Indebtedness (other than the Debt) in excess of $1,000,000, or, in the case of the Borrower, in the payment or performance of any obligation permitted to be outstanding or incurred pursuant to Sections 8.04 or 8.05, 8.06, or 8.07 hereof in excess of $1,000,000, beyond any period of grace provided with respect thereto or in the performance of any other agreement, term or condition contained in any agreement under which any such obligation is created, if the effect of such default is to accelerate the maturity of the related Indebtedness or to permit the holder thereof to cause such Indebtedness to become due prior to its stated maturity or foreclose on any lien on property of the Borrower securing the same, except that defaults in payment or performance of non-recourse obligations of the Borrower or any Subsidiary shall not constitute Events of Default under this Section 10.04 unless such defaults have, individually or in the aggregate, a Material Adverse Effect on the Borrower. SECTION 10.05. TERMINATION OF PLAN. If (a) any Reportable Event occurs and the Banks, in their sole determination, deem such Reportable Event to constitute grounds (i) for the termination of any Plan by the PBGC or (ii) for the appointment by the appropriate United States district court of a trustee to administer any Plan and such Reportable Event shall not have been fully corrected or remedied to the full satisfaction of the Banks within thirty (30) days after the giving of written notice of such determination to the Borrower by the Banks or (b) any Plan shall be terminated within the meaning of Title IV of ERISA or (c) a trustee shall be appointed by the appropriate United States district court to administer any Plan, or (d) the PBGC shall institute proceedings to terminate any Plan or to appoint a trustee to administer any Plan. -44- SECTION 10.06. DOMESTIC SUBSIDIARY SOLVENCY. If (a) any Domestic Subsidiary shall (i) generally not pay its debts as such debts become due, or (ii) make a general assignment for the benefit of creditors, or (iii) apply for or consent to the appointment of a receiver, a custodian, a trustee, an interim trustee or liquidator of itself or all or a substantial part of its assets, or (iv) be adjudicated a debtor or have entered against it an order for relief under Title 11 of the United States Code, as the same may be amended from time to time, or (v) file a voluntary petition in bankruptcy or file a petition or an answer seeking reorganization or an arrangement with creditors or seeking to take advantage of any other law (whether federal or state) relating to relief of debtors, or admit (by answer, by default or otherwise) the material allegations of a petition filed against it in any bankruptcy, reorganization, insolvency or other proceeding (whether federal or state) relating to relief of debtors, or (vi) suffer or permit to continue unstayed and in effect for thirty (30) consecutive days any judgment, decree or order, entered by a court of competent jurisdiction, which approves a petition seeking its reorganization or appoints a receiver, custodian, trustee, interim trustee or liquidator of itself or of all or a substantial part of its assets, or (vii) take or omit to take any other action in order thereby to effect any of the foregoing or (viii) fail to pay and discharge all lawful taxes, assessments and governmental charges or levies imposed upon it or its income, profits, or properties, and/or all lawful claims for labor, materials and supplies, which, if unpaid, might become a lien or charge against such properties, in all cases before the same shall become in default, or (ix) fail to comply with any and all Environmental Laws applicable to such Domestic Subsidiary, its properties or activities, or (x) fail to observe, perform or fulfill any of its obligations, covenants or conditions contained in any evidence of Indebtedness or Contingent Obligations or other contract, decree, order, judgment, or instrument to which such Domestic Subsidiary is a party or by which it or its assets are bound, and (b) any such event or events described in (a) above shall in the reasonable judgment of the Banks have a Material Adverse Effect on the Borrower. SECTION 10.07. BORROWER'S SOLVENCY. If the Borrower shall (a) discontinue business, or (b) generally not pay its debts as such debts become due, or (c) make a general assignment for the benefit of creditors, or (d) apply for or consent to the appointment of a receiver, a custodian, a trustee, an interim trustee or liquidator of all or a substantial part of its assets, or (e) be adjudicated a debtor or have entered against it an order for relief under Title 11 of the United States Code, as the same may be amended from time to time (the "Bankruptcy Code"), or (f) file a voluntary petition under any chapter or provision of the Bankruptcy Code or file a petition or an answer seeking reorganization or an arrangement with creditors or seeking to take advantage of any other law (whether federal or state) relating to relief of debtors, or admit (by answer, by default or otherwise) the material allegations of a petition filed against it in any bankruptcy, reorganization, insolvency or other proceeding (whether federal or state) relating to relief of debtors, or (g) suffer or permit to continue unstayed and in effect for thirty (30) consecutive days any judgment, decree or order entered by a court or governmental commission of competent jurisdiction, which assumes custody or control of the Borrower, approves a petition seeking reorganization of the Borrower or any other judicial modification of the rights of its creditors, or appoints a receiver, custodian, trustee, interim trustee or liquidator for the Borrower or of all or a substantial part of its assets, or (h) take or omit to take any action in order thereby to effect any of the foregoing. SECTION 10.08. CHANGE OF OWNERSHIP; CHANGE OF MANAGEMENT EVENT. If a Change of Ownership Event or a Change of Management Event shall occur. -45- SECTION 10.09. JUDGMENTS. If one or more judgments or decrees shall be entered against the Borrower involving a liability (not paid or fully covered by a reputable and solvent insurance company) in excess of $10,000,000 for all such judgments or decrees and any such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within sixty (60) days from the entry thereof. SECTION 10.10. DEFAULT UNDER GUARANTY OR SENIOR NOTES. If the Parent defaults in the payment or performance of any obligation in the Guaranty or in the performance of any other agreement, covenant, term or condition in the Guaranty, or in the payment or performance of any obligation under any of the Senior Notes or the Indenture (after giving effect to any applicable grace periods), or in the performance of any other agreement, covenant, term or condition in any of the Senior Notes or the Indenture (after giving effect to any applicable grace periods). SECTION 10.11. DEFAULT UNDER SUBORDINATION AGREEMENT. If the Parent defaults in the performance of any obligation in any Subordination Agreement or in the performance of any other agreement, covenant, term or condition in any Subordination Agreement (which default shall only be an Event of Default hereunder when the Agent provides written notice of such default to the Parent and/or the Borrower). ARTICLE XI REMEDIES UPON DEFAULT Notwithstanding any contrary provision or inference herein or elsewhere, the Banks may take any or all of the following actions if any Event of Default occurs and is continuing: SECTION 11.01. OPTIONAL DEFAULTS. If any Event of Default referred to in Sections 10.01, 10.02(a), 10.02(b), 10.03, 10.04, 10.05, 10.06, 10.07 (other than Section 10.07 (e), (f), (g) or (h) (solely as it relates to Section 10.07(a), (b), (c) or (d)) and/or Section 10.08, 10.09, 10.10 (other than an Event of Default (as defined in the Guaranty) under Section 10(g) or 10(h) of the Guaranty) or 10.11 shall occur, the Required Banks shall have the right in their discretion, by directing the Agent, on behalf of the Banks, to give written notice to the Borrower, and to (a) terminate the Commitments and the credits hereby established and any letter of credit which may be terminated in accordance with its terms, in each case, if not theretofore terminated, and forthwith upon such election the obligations of the Banks, and each thereof, to make any further Loan or Loans and/or issue further letters of credit hereunder immediately shall be terminated, and/or (b) accelerate the maturity of all of Borrower's Debt to the Banks (if it is not already due and payable), whereupon all of Borrower's Debt to the Banks shall become and thereafter be immediately due and payable in full without any presentment or demand and without any further or other notice of any kind, all of which are hereby waived by the Borrower. SECTION 11.02. AUTOMATIC DEFAULTS. If any Event of Default referred to in Section 10.07(e), 10.07(f), 10.07(g), 10.07 (h) (solely as it relates to Section 10.07(e), (f) or (g)) -46- or 10.10 (with regard to an Event of Default (as defined in the Guaranty) under Section 10(g) or 10(h) of the Guaranty) hereof shall occur, (a) all of the Commitments and the credits hereby established shall automatically and forthwith terminate, if not theretofore terminated, and no Bank thereafter shall be under any obligation to grant any further Loan or Loans and/or issue further letters of credit hereunder, and (b) the principal of and interest on all Notes then outstanding, and all of Borrower's Debt to the Banks shall thereupon become and thereafter be immediately due and payable in full (if it be not already due and payable), all without any presentment, demand or notice of any kind, all of which are hereby waived by the Borrower. SECTION 11.03. REMEDIES RELATING TO LETTERS OF CREDIT. In the event the Commitments are terminated and/or the Debt is accelerated pursuant to Sections 11.01 or 11.02 above, the Borrower shall immediately deposit with the Agent an amount of cash equal to the then aggregate amount of the stated amounts of all letters of credit outstanding hereunder as security for reimbursement of any drawings made on any such letters of credit and as collateral for repayment of the Debt or any part thereof. SECTION 11.04. OFFSETS. If there shall occur or exist any Possible Default under Section 10.07 hereof or if the maturity of the Notes is accelerated pursuant to Sections 11.01 or 11.02 hereof, each Bank shall have the right at any time to set off against, and to appropriate and apply toward the payment of, any and all Debt then owing by Borrower to that Bank (including, without limitation, any participation purchased or to be purchased pursuant to Section 12.12 hereof), whether or not the same shall then have matured, any and all deposit balances and all other Indebtedness then held or owing by that Bank to or for the credit or account of the Borrower, all without notice to or demand upon the Borrower or any other Person, all such notices and demands being hereby expressly waived by the Borrower. SECTION 11.05. APPLICATION OF PAYMENTS. Notwithstanding any other provision of this Agreement, upon the occurrence and during the continuance of an Event of Default, the Borrower waives any right it may have to direct the application of any and all payments received by the Agent or the Banks on account of the Debt and the Borrower agrees that the Agent and each Bank shall have the right, in its sole and absolute discretion, to apply and re-apply any and all such payments in such manner as the Agent or such Bank may deem advisable, subject to the Pro rata sharing of any such payments among the Banks. ARTICLE XII THE AGENT SECTION 12.01. APPOINTMENT AND AUTHORIZATION. Each Bank hereby irrevocably designates and appoints KeyBank National Association as the Agent of such Bank to act as specified in this Agreement and each such Bank hereby irrevocably authorizes KeyBank National Association to take such action as the Agent on its behalf and to exercise such powers and perform such duties hereunder as are expressly delegated to the Agent by the terms of this Agreement or any Related Writing, together with such other powers as are reasonably incidental thereto. The Agent agrees to act as such upon the express conditions contained in this Article XII. Notwithstanding any provision to the contrary elsewhere in this Agreement, the -47- Agent shall not have any duties or responsibilities, except those expressly set forth in this Agreement, or any fiduciary relationship with any Bank or participant, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into, created by or arise under this Agreement or any Related Writing or otherwise exist against the Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" herein and in the Related Writings with reference to any Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. Subject to the provisions of Sections 12.03 and 12.11, the Agent shall administer the Loans in the same manner as it administers its own loans. The provisions of this Article XII are solely for the benefit of the Agent and the Banks, and neither the Borrower, the Parent nor any of their respective Subsidiaries shall have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement, the Agent shall act solely as agent of the Banks and the Agent does not assume and shall not be deemed to have assumed any obligation or relationship of agency or trust with or for the Borrower, the Parent or their respective Subsidiaries. SECTION 12.02. DELEGATION OF DUTIES. The Agent may execute any of its duties under this Agreement, the Notes or any Related Writing by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel and other consultants or experts concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it in the absence of gross negligence or willful misconduct. SECTION 12.03. LIABILITY OF AGENT. Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by such Person under or in connection with this Agreement, the Notes or the other Related Writings or the transactions contemplated hereby (except for its or such Person's own gross negligence or willful misconduct in connection with its duties expressly set forth herein) or (b) responsible in any manner to any of the Banks or any participant for any recitals, statements, representations or warranties made by the Borrower, the Parent, or any of their respective Subsidiaries or any of their responsible officers, contained in this Agreement or any Related Writing, or for any failure of the Borrower, the Parent or any of their respective Subsidiaries or any of their respective officers, or any other party to this Agreement or any Related Writing to perform its obligations hereunder or thereunder, or for the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any Related Writing. Each Bank by its signature to this Agreement acknowledges and agrees that the Agent has made no representation or warranty, express or implied, with respect to the creditworthiness, financial condition or any other condition of Borrower, the Parent or any Subsidiary, or with respect to the statements contained in any information memorandum furnished in connection herewith or in any other oral or written communication between the Agent and such Bank. Each Bank represents that it has made and shall continue to make its own independent investigation of the creditworthiness, financial condition and affairs of Borrower, the Parent and any Subsidiary in connection with the extension of credit hereunder, and agrees that the Agent has no duty or responsibility, either initially or on a continuing basis, to provide any Bank with any credit or other information with respect thereto (other than such notices as -48- may be expressly required to be given by Agent to the Banks hereunder), whether coming into its possession before the granting of the first Loans or at any time or times thereafter. The Agent shall not be under any obligation to any Bank or participant to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any Related Writing, or to inspect the properties, books or records of the Parent, the Borrower, any of their Subsidiaries or any Affiliate of any of them. SECTION 12.04. RELIANCE BY AGENT. (a) The Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, signature, notice, consent, certificate, affidavit, letter, cablegram, facsimile transmission, telex or teletype message, electronic mail message, statement, order or other document or conversation reasonably believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including counsel to the Borrower or the Parent), independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or the Notes or any Related Writing unless it shall first receive such advice or concurrence of the Required Banks or the Super Majority Banks, as it deems appropriate, and, if it so requests, it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement, the Notes or the other Related Writings in accordance with a request or consent of the Required Banks or the Super Majority Banks, as applicable, and such request and any action or failure to act pursuant thereto shall be binding upon all the Banks. (b) For purposes of determining compliance with the conditions specified in Article VI, each Bank that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Bank unless the Agent shall have received written notice from such Bank prior to the Closing Date or from an Additional Bank prior to the applicable Additional Bank Assumption Effective Date, as applicable, specifying its objection thereto. SECTION 12.05. RESIGNATION OR REMOVAL OF THE AGENT; SUCCESSOR AGENT. The Agent may resign upon twenty (20) days' notice to the Banks or the Agent may be removed by the vote of the Required Banks (excluding the Agent). Upon the resignation or removal of the Agent, the Required Banks shall appoint from among the Banks a successor Agent for the Banks subject to prior approval of the Borrower so long as no Possible Default or Event of Default then exists (such approval not to be unreasonably withheld or delayed), whereupon such successor agent shall succeed to the rights, powers and duties of the Agent, and the term "Agent" shall include such successor agent effective upon its appointment, and the resigning or removed Agent's rights, powers and duties as the Agent shall be terminated, without any other or further act or deed on the part of the former Agent or any of the parties to this Agreement. After the resignation or removal of the Agent hereunder, the provisions of this Article XII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. In the event no successor agent has been appointed by the end of such twenty (20) day period in the case of a resignation or upon the removal of the Agent by the Required Banks (excluding the Agent), the resignation or removal of the Agent shall become -49- effective and the Required Banks shall perform the duties of the Agent until a successor agent is appointed. SECTION 12.06. NOTE HOLDERS. The Agent may deem and treat the payee of any Note as the holder thereof for all purposes unless and until written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Agent. Any request, authority or consent of any Person or entity who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee, assignee or indorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor. SECTION 12.07. CONSULTATION WITH COUNSEL. (a) The Agent may consult with legal counsel reasonably selected by it and shall not be liable for any action taken or suffered in good faith by it in accordance with the opinion of such counsel. (b) Should the Agent (i) employ counsel for advice or other representation (whether or not any suit has been or shall be filed) with respect to this Agreement, the Notes or any of the Related Writings, or (ii) commence any proceeding or in any way seek to enforce its rights or remedies under this Agreement, the Notes or any Related Writing, each Bank, upon demand therefor from time to time, shall contribute its share (based on its Pro rata share) of the reasonable costs and/or expenses of any such advice or other representation, enforcement or acquisition, including, but not limited to, fees of receivers, court costs and fees and expenses of attorneys to the extent not otherwise reimbursed by Borrower; provided, that the Agent shall not be entitled to reimbursement of its attorneys' fees and expenses incurred in connection with the resolution of disputes between the Agent and the other Banks unless the Agent shall be the prevailing party in any such dispute and, provided, further, that the Agent shall only be entitled to such reimbursement from those Banks that were involved in the dispute with the Agent. Any loss of principal and interest resulting from any Event of Default shall be shared by the Banks in accordance with their respective Pro rata shares. SECTION 12.08. DOCUMENTS. The Agent shall not be under a duty to examine into or pass upon the validity, effectiveness, genuineness or value of this Agreement, the Notes or any other Related Writing furnished pursuant hereto or in connection herewith or the value of any collateral obtained hereunder, and the Agent shall be entitled to assume that the same are valid, effective and genuine and what they purport to be. SECTION 12.09. KNOWLEDGE OF DEFAULT. It is expressly understood and agreed that the Agent shall not be deemed to have knowledge or notice of the occurrence of any Possible Default or Event of Default hereunder (other than the failure to make available to the Agent any principal of or interest on the Loans for the account of the Banks as required under this Agreement and the Notes), unless the Agent has actually received written notice from a Bank or the Borrower describing such Possible Default or Event of Default and stating that such notice is a "notice of default." In the event that the Agent receives such a notice, the Agent shall give prompt notice thereof to the Banks. The Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Banks; provided, that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Possible Default or Event of Default as it shall deem advisable or in the best interests of the Banks. -50- SECTION 12.10. INDEMNIFICATION. Whether or not the transactions contemplated hereby are consummated, the Banks agree to indemnify upon demand the Agent in its capacity as such (to the extent not reimbursed by the Borrower and without limiting the Borrower's obligation to do so), Pro rata according to the respective principal amounts of their Commitment from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent in its capacity as agent in any way relating to or arising out of this Agreement, the Notes or any Related Writing, or the transactions contemplated hereby or thereby, or any action taken or omitted to be taken by the Agent under or in connection with the foregoing, provided, that no Bank shall be liable to the Agent for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent determined in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from the Agent's gross negligence, willful misconduct or from any action taken or omitted by the Agent in any capacity other than as agent under this Agreement, provided, that no action taken in accordance with the directions of the Required Lenders or the Super Majority Lenders, as applicable, shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section 12.10. If any indemnity furnished to the Agent for any purpose shall, in the reasonable opinion of the Agent, be insufficient or become impaired, the Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. The agreements in this Section 12.10 shall survive the termination of this Agreement, the payment of the Debt and the resignation of the Agent. Without limitation of the foregoing, each Bank shall reimburse the Agent upon demand for its Pro rata share of any costs or out-of-pocket expenses (including reasonable attorneys' fees) incurred by the Agent in connection with the preparation, negotiation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any Related Writing or any document contemplated by or referred to herein, to the extent that the Agent is not reimbursed for such costs or expenses by or on behalf of the Borrower. SECTION 12.11. AGENTS IN THEIR INDIVIDUAL CAPACITIES. KeyBank National Association, National City Bank and their respective Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with each of the Parent, the Borrower and their respective Subsidiaries as though KeyBank National Association or National City Bank, as applicable, were not an Agent and, without notice to or consent of the Banks. The Banks acknowledge that, pursuant to such activities, KeyBank National Association, National City Bank or their respective Affiliates may receive information regarding the Parent, the Borrower or their Subsidiaries (including information that may be subject to confidentiality obligations in favor of the Parent, the Borrower or their Subsidiaries) and acknowledge that the Agents shall be under no obligation to provide such information to them. With respect to its Loans, each of KeyBank National Association and National City Bank and their respective Affiliates shall have the same rights and powers under this Agreement as any other Bank and may exercise such rights and powers as though it were not the Agent or the Syndication Agent, as the case may be, and the terms "Bank" and "Banks" include KeyBank National Association and National City in their individual capacities. -51- SECTION 12.13. EQUALIZATION PROVISION. Each Bank agrees with the other Banks that if it at any time shall obtain any Advantage over the other Banks or any thereof in respect of Borrower's Debt to the Banks including without limitation in respect of the letters of credit described in Schedule 3.01 hereof (except under Sections 4.06, 4.07, 4.08, 4.09, 4.10 and/or 4.11, hereof), it will purchase from the other Banks, for cash and at par, such additional participation in Borrower's Debt to the Banks as shall be necessary to nullify the Advantage. If any said Advantage resulting in the purchase of an additional participation as aforesaid shall be recovered in whole or in part from the Bank receiving the Advantage each such purchase shall be rescinded, and the purchase price restored (but without interest unless the Bank receiving the Advantage is required to pay interest on the Advantage to the Person recovering the Advantage from such Bank) ratably to the extent of the recovery. Each Bank further agrees with the other Banks that if it at any time shall receive any payment from or on behalf of Borrower on any Indebtedness owing by the Borrower to that Bank by reason of offset of any deposit or other Indebtedness, it will apply such payment first to any and all Debt owing by Borrower to that Bank pursuant to this Agreement (including, without limitation, any participation purchased or to be purchased pursuant to this Section 12.13) until Borrower's Debt has been paid in full. The Borrower agrees that any Bank so purchasing a participation from the other Banks pursuant to this Section may exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Bank were a direct creditor of the Borrower in the amount of such participation. ARTICLE XIII MISCELLANEOUS SECTION 13.01. NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part of the Agent or any Bank in exercising any right, power or privilege hereunder and no omission or course of dealing on the part of Agent, any Bank or the holder of any Note in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The remedies herein provided are cumulative and in addition to any other rights, powers or privileges that the Agent or any Bank would otherwise have. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Agent or the Banks to any other or further action in any circumstances without notice or demand. SECTION 13.02. AMENDMENTS, CONSENTS. No amendment, modification, termination, or waiver of any provision of this Agreement or of the Notes or of the Guaranty, nor consent to any variance therefrom, shall be effective unless the same shall be in writing and signed by the Required Banks, the Super Majority Banks or all of the Banks as appropriate under this Section 13.02, and any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Unanimous consent of the Banks, or, if there is any borrowing hereunder, the holders of one hundred percent (100%) (by outstanding principal amount) of the Notes, shall be required with respect to (i) any increase in any Commitment, the extension of maturity of the Notes or the payment date of interest thereunder, (ii) any reduction in the rate of interest on the Notes, or in any amount of principal or interest due on any Note or in the amount of any fees or other amounts due to the Banks (or any of them) hereunder or under -52- the Related Writings or any change in the manner of Pro rata application of any payments made by the Borrower to the Banks hereunder, or any change in amortization schedules, or in the manner of calculating fees or prepayment penalties, (iii) any change in any percentage voting requirements in this Agreement, or (iv) the release of all of the value of the Guaranty, or any material amendment or modification thereto, or any other guarantee in favor of the Banks, or (v) any amendment to the definitions of Required Banks, Super Majority Banks or Reference Banks set forth herein or to this Section 13.02, or (vi) any material amendment to any representation, warranty, covenant, Possible Default, Event of Default or remedy provided for hereunder or under any Related Writing. The consent of the holders of eighty percent (80%)(by outstanding principal amount) of the Notes (the "Super Majority Banks") shall be required for any amendments, modifications or other changes to Section 8.13 or to Section 9.14 of the Guaranty. Notice of amendments or consents ratified by the Banks hereunder shall immediately be forwarded by the Agent to all Banks. Each Bank or other holder of a Note shall be bound by any amendment, waiver or consent obtained as authorized by this Section 13.02, regardless of its failure to agree thereto. SECTION 13.03. NOTICES. Except as otherwise expressly provided herein, all notices, requests, demands and other communications provided for hereunder shall be in writing (including telegraphic, telex, facsimile, transmission or cable communication) and mailed, telexed, telegraphed, facsimile transmitted, cabled or delivered, if to the Borrower, addressed to it at the address specified on the signature pages of this Agreement, if to a Bank, addressed to the address of such Bank specified on the signature pages of this Agreement and if to the Agents, addressed to them at the address of the Agent or the Syndication Agent, as applicable, specified on the signature pages of this Agreement. All notices, statements, requests, demands and other communications provided for hereunder shall be deemed to be given or made when delivered or forty-eight (48) hours after being deposited in the mails with postage prepaid by registered or certified mail or delivered to a telegraph company, addressed as aforesaid, except that notices from the Borrower to the Agent or the Banks pursuant to any of the provisions hereof shall not be effective until received by the Agent or the Banks. SECTION 13.04. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all costs and expenses of the Banks and the Agents, and any expenses incurred in connection with the preparation of this Agreement, the Notes and any Related Writings, including, without limitation (i) administration and out-of-pocket expenses of the Agent in connection with the administration of this Agreement, the Notes, the collection and disbursement of all funds hereunder and the other instruments and documents to be delivered hereunder, (ii) extraordinary expenses of the Agents or the Banks in connection with the administration of this Agreement, the Notes and the other instruments and documents to be delivered hereunder, (iii) the reasonable fees and out-of-pocket expenses of Thompson Hine LLP, counsel to the Agent, in connection with the negotiation, preparation, execution and delivery of this Agreement and related matters, and (iv) all costs and expenses, including reasonable attorneys' fees and out-of-pocket expenses, in connection with the restructuring or enforcement of this Agreement, the Notes or any Related Writing. In addition, the Borrower shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution and delivery of this Agreement or the Notes, and the other instruments and documents to be delivered hereunder, and agrees to save the Agents and each Bank harmless from and against any and all -53- liabilities with respect to or resulting from any delay in paying or omission to pay such taxes or fees. SECTION 13.05. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties of the Borrower made in or pursuant to this Agreement or in any certificate or other Related Writing in connection herewith shall survive the closing hereof or the making of the Loans or other transactions in connection with which given. SECTION 13.06. OBLIGATIONS SEVERAL; NO FIDUCIARY OBLIGATIONS. The obligations of the Banks hereunder are several and not joint. Nothing contained in this Agreement and no action taken by the Agents or the Banks pursuant hereto shall be deemed to constitute the Banks a partnership, association, joint venture or other entity. No default by any Bank hereunder shall excuse the other Banks from any obligation under this Agreement; but no Bank shall have or acquire any additional obligation of any kind by reason of such default. The relationship among the Borrower and the Banks with respect to this Agreement, any Note and any Related Writing is and shall be solely that of debtor and creditor, respectively, and no Bank has any fiduciary obligation toward the Borrower with respect to any such documents or the transactions contemplated thereby. SECTION 13.07. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. SECTION 13.08. BINDING EFFECT; ASSIGNMENT. (a) This Agreement shall become effective on the date (the "Closing Date") (i) when it shall have been executed by the Borrower, the Agents and by each Bank and shall have been delivered to the Agent and (ii) when the conditions set forth in Article VI are met to the satisfaction of, or waived in writing by, the Agent and the Required Lenders, and thereafter shall be binding upon and inure to the benefit of the Borrower and each of the Banks and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of all of the Banks, which consent may be withheld in their sole discretion. Each Bank may at any time grant participations in any of its rights hereunder or under its Note or Notes to another commercial bank, financial institution, mutual fund or any institutional "accredited investor" (as defined in Regulation D of the Securities Act of 1933, as amended), provided, that in the case of any such participation, the participant shall not have any rights under this Agreement, the Notes or any Related Writing (the participant's rights against such Bank in respect of any such participation to be those set forth in the agreement executed by such Bank in favor of the participant relating thereto) and all amounts payable by such Bank hereunder shall be determined as if such Bank had not sold such participation; and provided further, that no Bank shall transfer, assign or grant any participation under this Agreement under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any Related Writing. (b) Notwithstanding the foregoing, (i) any Bank may assign all or a portion of its Loans and/or Commitments and its rights and obligations hereunder to an affiliate of such Bank and (ii) with the consent of the Agent and the Borrower so long as no Possible Default or Event of Default then exists (which consents shall not be unreasonably withheld or delayed), any Bank -54- may assign all or a portion of its Loans and/or Commitments and its rights and obligations hereunder to one or more commercial banks, financial institutions (including one or more Banks), mutual funds or institutional "accredited investors" (as defined in Regulation D of the Securities Act of 1933, as amended), provided, that (A) any assignment of a Bank's Loans shall include a ratable part of such Bank's Commitment, and (B) the consent of the Agent (which consent shall not be unreasonably withheld or delayed) shall be required for any assignment of a Commitment to the extent any letters of credit are outstanding. No assignment pursuant to subsection (ii) of the immediately preceding sentence shall be in an aggregate amount less than Ten Million Dollars ($10,000,000). If any Bank so sells all or a part of its rights hereunder or under any Note, any reference in this Agreement or such Note to such assigning Bank shall thereafter refer to such Bank and to the respective assignee to the extent of their respective interests and the respective assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights and benefits as it would if it were such assigning Bank. Each assignment pursuant to Section 13.08(b)(ii) shall be effected by the assigning Bank and the assignee Bank executing a Bank Assignment and Assumption Agreement substantially in the form of Exhibit G (appropriately completed). At the time of any such assignment pursuant to Section 13.08(b)(ii), (X) Exhibit A shall be deemed to be amended to reflect the Commitments of the respective assignee (which shall result in a corresponding reduction of the Commitment of the assigning Bank) and of the other Banks (Y) if any such assignment occurs after the Closing Date, the Borrower will issue new Notes to the respective assignee and to the assigning Bank (upon delivery of the existing Note or Notes of such assigning Bank) in conformity with the requirements of this Agreement and (Z) the Agent shall receive at the time of each such assignment, from the assigning or assignee Bank, the payment of a nonrefundable assignment fee of $3,000. (c) Notwithstanding any other provisions of this Section 13.08, no transfer or assignment of the interests or obligations of any Bank hereunder or any grant of participations therein shall be permitted if such transfer, assignment or grant would require the Borrower to file a registration Statement with the Securities and Exchange Commission or to qualify the loans under the "Blue Sky" laws of any State. (d) Notwithstanding any other provisions of this Section 13.08, so long as no Event of Default has occurred and is continuing and the Administrative Agent or the Syndication Agent, as applicable, has not resigned or been removed pursuant to the provisions of this Agreement, each Agent agrees that it will not assign or transfer any of its Loans and/or Commitments to the extent that the amount of the Loans and/or Commitments that such Agent would continue to hold following such assignment or transfer would be less than ten percent (10%) of the aggregate Loans and/or Commitments of all of the Banks. (e) Notwithstanding any other provision set forth in this Agreement, any Bank may at any time pledge or assign all or any portion of its rights under this Agreement, the Guaranty and the other documents executed and delivered in connection therewith (including, without limitation, the Notes held by it) to any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Board without notice to, or the consent of, the Agents, the Borrower or the Parent, provided, that no such pledge or assignment or enforcement thereof shall release a Bank from any of its obligations hereunder or substitute any such pledgee or assignee for such Bank as a party hereto. -55- SECTION 13.09. INDEMNIFICATION BY THE BORROWER. The Borrower shall indemnify and hold harmless the Agents, the Banks and their respective directors, officers, employees and Affiliates from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever including, without limitation, reasonable fees and disbursements of counsel and settlements costs, which may be imposed on, incurred by, or asserted against the Agents, the Banks and their respective directors, officers, employees and Affiliates in connection with any investigative, administrative or judicial proceeding (whether the Agents and the Banks are or are not designated as a party thereto) relating to or arising out of this Agreement, the Notes or the other Related Writings, the transactions contemplated thereby, including, but not limited to, the Permitted Non-Affiliate Loans, or any actual or proposed use of proceeds hereunder or thereunder, except that neither the Agents and the Banks nor any directors, officers, employees and Affiliates thereof shall have the right to be indemnified hereunder for their own gross negligence or willful misconduct. All obligations under this Section 13.09 shall survive any termination of this Agreement. SECTION 13.10. GOVERNING LAW. This Agreement, each of the Notes and any Related Writing shall be governed by and construed in accordance with the laws of the State of Ohio, without regard to the principles of conflict of laws and the respective rights and obligations of the Borrower and the Banks shall be governed by Ohio law. SECTION 13.11. SEVERABILITY OF PROVISIONS; CAPTIONS. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. The several headings to Sections and subsections herein are inserted for convenience only and shall be ignored in interpreting the provisions of this Agreement. SECTION 13.12. PURPOSE. Each of the Banks represents and warrants to the Borrower that it is entering into this Agreement with the present intention of acquiring any Note issued pursuant hereto solely in connection with such Bank's commercial lending activities and not for the purpose of distribution or resale, it being understood, however, that each Bank shall at all times retain full control over the disposition of its assets. SECTION 13.13. CONSENT TO JURISDICTION. The Borrower agrees that any action or proceeding to enforce or arising out of this Agreement may be commenced in the Court of Common Pleas for Cuyahoga County, Ohio or in the District Court of the United States for the Northern District of Ohio, and the Borrower waives personal service of process and agrees that a summons and complaint commencing an action or proceeding in any such court shall be properly served and shall confer personal jurisdiction over the Borrower if served to the Borrower at the address listed opposite the signature of the Borrower at the end of this Agreement or as otherwise provided by the laws of the State of Ohio or the United States. SECTION 13.14. ENTIRE AGREEMENT. This Agreement, the Notes, the Related Writings and any other agreement, document or instrument attached hereto or referred to herein or executed on or as of the date hereof integrate all the terms and conditions mentioned herein or -56- incidental hereto and supersede all oral representations and negotiations and prior writings with respect to the subject matter hereof. SECTION 13.15. JURY TRIAL WAIVER. THE BORROWER AND EACH OF THE BANKS WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG BORROWER AND THE BANKS, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. THIS WAIVER SHALL NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY ANY BANK'S ABILITY TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED IN ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT AMONG THE BORROWER AND THE BANKS, OR ANY THEREOF. SECTION 13.16. SURVIVAL. All indemnities set forth herein shall survive the execution and delivery of this Agreement and the making and repayment of the Loans and the satisfaction of all other obligations under this Agreement. SECTION 13.17. INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Possible Default or an Event of Default if such action is taken or condition exists, and if a particular action or condition is expressly permitted under any covenant, unless expressly limited to such covenant, the fact that it would not be permitted under the general provisions of another covenant shall not constitute a Possible Default or an Event of Default if such action is taken or condition exists. SECTION 13.18. INTERPRETATION. The Borrower, each Agent and each Bank acknowledges that such party, either directly or through such party's representatives, has participated in the drafting of this Agreement, and any applicable rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in connection with the construction or interpretation of this Agreement. -57- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date set forth above, each by an officer thereunto duly authorized. Address: FOREST CITY RENTAL PROPERTIES 1100 Terminal Tower CORPORATION Cleveland, Ohio 44113 By: /s/ THOMAS G. SMITH ----------------------------------- Thomas G. Smith Vice President and Assistant Secretary Address: KEYBANK NATIONAL ASSOCIATION 127 Public Square individually and as Agent Cleveland, Ohio 44114 By: /s/ MICHAEL D. MITRO ----------------------------------- Title: Senior Vice President Address: NATIONAL CITY BANK individually and 1900 East Ninth Street as Syndication Agent Cleveland, Ohio 44114 By: /s/ ANTHONY J. DIMARE ----------------------------------- Title: Senior Vice President Address: THE HUNTINGTON NATIONAL BANK Commercial Real Estate Division 917 Euclid Avenue Cleveland, Ohio 44115 By: /s/ SUZANNE HAMILTON ----------------------------------- Title: Vice President Address: U.S. BANK NATIONAL ASSOCIATION Attn: Jeff Possin, Asst. V.P. Mailcode MW-IL-RY-4Q, Rookery Bldg. 209 South LaSalle Street, Suite 410 Chicago, Illinois 60604 By: /s/ JEFF POSSIN ----------------------------------- Title: Assistant Vice President [Signature page to Credit Agreement] Address: COMERICA BANK 500 Woodward Ave., 7th Floor MC 3256 Detroit, Michigan 48226 By: /s/ CHARLES WEDELL ------------------------------------ Title: Vice President Address: FIRST MERIT BANK 101 West Prospect Avenue Suite 350 Cleveland, Ohio 44115 By: /s/ JOHN F. NEUMANN ------------------------------------ Title: Senior Vice President Address: LASALLE BANK NATIONAL 135 South LaSalle Street, Suite 1225 ASSOCIATION Chicago, Illinois 60603 By: /s/ MARILYN MALONEY ------------------------------------ Title: First Vice President Address: MANUFACTURERS AND TRADERS One Fountain Plaza TRUST COMPANY Buffalo, New York 14203-1495 By: /s/ KEVIN QUINN ------------------------------------ Title: Vice President Address: FIFTH THIRD BANK 1404 East Ninth Street Cleveland, Ohio 44114 By: /s/ ROY C. LANCTOT ------------------------------------ Title: Vice President Address: FLEET NATIONAL BANK One Federal Street Mail Code: MADE 10304X Boston, Massachusetts 02110 By: /s/ JAMES MAGALDI ------------------------------------ Title: Vice President [Signature page to Credit Agreement] Address: CREDIT LYONNAIS 1301 Avenue of the Americas New York, New York 10019 By: /s/ GREGORY NUBER ------------------------------------ Title: Vice President Address: THE PROVIDENT BANK Attn: Thomas G. Stewart, V.P. 1111 Superior Avenue Cleveland, Ohio 44114 By: /s/ TOM STEWART ------------------------------------ Title: Vice President Address: BANK OF MONTREAL Attn: Thomas A. Batterham, Managing Director 111 West Monroe 410 West Chicago, Illinois 60603 By: /s/ THOMAS BATTERHAM ------------------------------------ Title: Managing Director Address: CHARTER ONE BANK, N.A. Attn: Chet A. Shedloski, V.P. 1215 Superior Avenue Cleveland, Ohio 44114 By: /s/ CHET SHEDLOSKI ------------------------------------ Title: Vice President [Signature page to Credit Agreement] EXHIBIT A
Bank Maximum Amount ---- -------------- KeyBank National Association $ 50,000,000 National City Bank $ 50,000,000 The Huntington National Bank $ 45,000,000 U.S. Bank National Association $ 40,000,000 Fleet National Bank $ 30,000,000 Comerica Bank $ 27,500,000 LaSalle Bank National Association $ 30,000,000 Bank of Montreal $ 23,750,000 Charter One Bank $ 23,750,000 Fifth Third Bank $ 30,000,000 First Merit Bank $ 25,000,000 Manufacturers and Traders Trust Company $ 30,000,000 The Provident Bank $ 20,000,000 Credit Lyonnais $ 25,000,000 ------------ TOTAL $450,000,000
EXHIBIT B GUARANTY OF PAYMENT OF DEBT OF FOREST CITY ENTERPRISES, INC. DATED AS OF MARCH 22, 2004 ----------------------------- TABLE OF CONTENTS
Page ---- 1. DEFINITIONS .......................................................... 1 2. ACKNOWLEDGMENTS, CONSIDERATION ....................................... 8 3. GUARANTY ............................................................. 8 4. REINSTATEMENT ........................................................ 9 5. WAIVERS .............................................................. 9 6. ADDITIONAL AGREEMENTS ................................................ 9 7. REPRESENTATIONS AND WARRANTIES ....................................... 10 8. NOTICES .............................................................. 11 9. COVENANTS ............................................................ 11 10. DEFAULT; REMEDIES ................................................... 25 11. MISCELLANEOUS ....................................................... 28 12. JURY TRIAL WAIVER ................................................... 28 13. NOTICES ............................................................. 28 14. CONSENT TO JURISDICTION ............................................. 29 15. ENTIRE AGREEMENT .................................................... 29 16. INDEPENDENCE OF COVENANTS ........................................... 29
(i) GUARANTY OF PAYMENT OF DEBT THIS GUARANTY OF PAYMENT OF DEBT (this "Guaranty") is made and issued by FOREST CITY ENTERPRISES, INC., an Ohio corporation (the "Guarantor"), as of this 19th day of March, 2004, in order to induce the Banks (as hereinafter defined), KEYBANK NATIONAL ASSOCIATION, as agent for the Banks (the "Agent") and NATIONAL CITY BANK, as syndication agent for the Banks (the "Syndication Agent" and together with the Agent, the "Agents"), to enter into, and lend money pursuant to, a certain Credit Agreement of even date herewith (said Credit Agreement as it may be from time to time amended, restated, or modified being herein called the "Agreement"), by and among the Banks, the Agents and FOREST CITY RENTAL PROPERTIES CORPORATION, a subsidiary of the Guarantor (the "Borrower"). 1. DEFINITIONS. As used in this Guaranty, the following terms shall have the following meanings: "Banks" shall mean each of the financing institutions that are party to the Agreement as of the date of this Guaranty, any other bank(s) that may become parties to the Agreement after the date hereof, and all successors and assigns of any such bank; and "Bank" shall mean any one of the foregoing. "Capital Stock" of any Person as used herein shall mean any and all shares, interests, participations, or other equivalents (however designated) of corporate stock or other equity participations or interests including, without limitation, partnership interests, whether general or limited, and membership interests, whether of managing or non-managing members, of such Person. "Cash Flow Coverage Ratio" shall mean, for any Test Period, the ratio of (i) Consolidated Net Operating Cash Flow to (ii) Consolidated Corporate Debt Service. "Collateral" shall mean, collectively, all property, if any, securing the Debt or any part thereof at the time in question. "Company" shall mean the Guarantor and/or a Subsidiary of the Guarantor. "Completion Guaranty" shall mean any performance guarantee by the Guarantor that construction of a real estate project will be completed in accordance with applicable plans and specifications and that all costs associated with such completion will be paid, provided, that such costs may include an interest reserve only through completion of the project and not through stabilization of such project. "Consolidated Corporate Debt Service" shall mean, for any period, the sum of (i) all scheduled payments of principal of (excluding balloon payments) and interest on any Indebtedness owing by the Borrower (excluding any non-recourse mortgage Indebtedness owing by the Borrower or any Subsidiary of the Borrower and Indebtedness relating to the Term Loan), (ii) all scheduled payments of principal of (excluding balloon payments) and interest on any Indebtedness owing by the Guarantor and (iii) Dividends paid by the Guarantor. "Consolidated GAAP Shareholders' Equity" shall mean the consolidated shareholders equity of the Guarantor, as calculated in accordance with GAAP. "Consolidated Net Operating Cash Flow" shall mean, for any Test Period, Net Operating Income (a) less (i) all scheduled payments of principal of non-recourse mortgage Indebtedness owing by the Guarantor and/or its Subsidiaries (excluding any balloon payments), (ii) all interest payments on such non-recourse Indebtedness, (iii) Twelve Million Dollars ($12,000,000) of normal recurring capital expenditures and (b) plus (i) net income (loss) before taxes and corporate interest expense of the Land Group, (ii) net income (loss) before taxes of the Lumber Trading Group, (iii) net income (loss) before taxes and corporate interest expense (including, but not limited to, interest incurred on Debt, subordinated debt or any other third party debt) of the Corporate Activity Group, (iv) actual cash taxes paid on the Net Operating Income and the income set forth in subsections (b)(i), (b)(ii) and (b)(iii) above, (v) non-cash interest expense accrued but not currently payable up to a maximum of Five Million Dollars ($5,000,000) with respect to Indebtedness owing by the Guarantor and its Subsidiaries other than Indebtedness owing by the Guarantor and/or its Subsidiaries to the government of the United States or any state or municipality thereof or any agencies of any of the foregoing and (vi) non-cash interest expense accrued but not currently payable with respect to Indebtedness by the Guarantor and/or its Subsidiaries owing to the government of the United States or any state or municipality thereof or any agencies of any of the foregoing. "Contingent Obligation" shall mean, with respect to any Person at the time of any determination, without duplication, any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person in any manner, whether directly or otherwise; provided, that the term "Contingent Obligation" shall not include endorsements for collection or deposit, in each case in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the Indebtedness in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonable anticipated liability in respect thereof (assuming such Person is required to perform thereunder). "Controlled Group" shall mean a controlled group of corporations as defined in Section 1563 of the Internal Revenue Code of 1986, as may be amended from time to time, of which Guarantor or any Subsidiary is a part. "Debt" shall mean, collectively, (a) all Indebtedness now owing or hereafter incurred by the Borrower to the Agents and/or the Banks arising under or in connection with the Agreement, whether pursuant to commitment or otherwise, and including, without limitation, the principal amount of all Loans made pursuant to the Agreement, all interest thereon determined as provided in the Agreement, all fees provided to be paid by the Borrower to the Banks and/or the Agents pursuant to the Agreement or any Related Writing and all liabilities in respect of letters of credit issued by the Agent and/or any of the Banks for the account of the Borrower (but not including Indebtedness held by any Bank arising and outstanding under any -2- transaction or document referred to in Sections 8.04 (other than that referred to in subclause (a) thereof), and/or 8.07 of the Agreement), (b) each renewal, extension, consolidation or refinancing of any such Indebtedness in whole or in part, and (c) all interest from time to time accruing on any of the foregoing Indebtedness. "Distributions" shall have the meaning set forth in Section 9.13(e) hereof. "Dividends" shall include all dividends (in cash or otherwise) paid, capital returned, and other distributions of any kind made on any share of Capital Stock outstanding at the time. "EBDT" shall mean net earnings from operations before depreciation, amortization and deferred taxes on income and excludes provision for decline in real estate, gain (loss) on disposition of properties and extraordinary gains. "Environmental Laws" means all provisions of law, statutes, ordinances, rules, regulations, permits, licenses, judgments, writs, injunctions, decrees, orders, awards and standards promulgated by the government of the United States of America or by any state or municipality thereof or by any court, agency, instrumentality, regulatory authority or commission of any of the foregoing, now or hereafter in effect, and in each case, as amended, concerning or relating to health, safety and protection of, or regulation of the discharge of substances into, the environment. "ERISA Net Worth" shall mean (a) as to any Subsidiary, the excess of the net book value of such Subsidiary's assets (other than patents, treasury stock, goodwill and similar intangibles but including unamortized mortgage and lease costs) over all of its liabilities (other than liabilities to any other Company), such excess being determined in accordance with GAAP applied on a basis consistent with the Guarantor's present accounting procedures, and (b) as to the Guarantor, the excess of the net book value (after deducting all applicable reserves and deducting any value attributable to the re-appraisal or write-up of any asset) of the Guarantor's assets (other than patents, good will, treasury stock and similar intangibles but including unamortized mortgage and lease costs) over all of its liabilities as determined on an accrued and consolidated and consolidating basis and in accordance with GAAP not inconsistent with the Guarantor's present accounting principles consistently applied. "Event of Default" shall have the meaning set forth in Section 10 hereof. "Fiscal Quarterly Date" shall mean each of January 31, April 30, July 31 and October 31. "GAAP" shall mean generally accepted accounting principles in the United States of America, in effect from time to time. "Hedge Agreement" shall mean any non-fully paid derivative, such as interest rate swaps or collar agreements or other similar agreements or arrangements designed to hedge the position of a Person with respect to interest rates, excluding any such agreements as to which all obligations of such Person are paid or payable within twelve (12) months of the date such agreement is entered into by such Person. -3- "Indebtedness" shall mean, with respect to any Person at the time of any determination, without duplication, all obligations of such Person which in accordance with GAAP should be classified upon the balance sheet of such Person as liabilities, but in any event including: (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid or accrued, (d) all written obligations of such Person to maintain working capital, equity capital or other financial statement condition of another Person so as to enable such other Person to pay its Indebtedness or otherwise to protect the holder of such Indebtedness against loss in respect thereof, (e) all obligations of such Person issued or assumed as the deferred purchase price of property or services, (f) all obligations of others secured by any Lien on property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (g) all capitalized lease obligations of such Person, (h) all obligations of such Person in respect of Hedge Agreements, (i) all obligations of such Person, actual or contingent, as an account party in respect of letters of credit or bankers' acceptances, and, without duplication, all drafts drawn thereunder, and (j) all obligations of any partnership or joint venture as to which such Person is or may become personally liable, provided, that, Indebtedness shall not include (i) any obligations incurred as a result of fraud, misappropriation, misapplication and environmental indemnities, as are usual and customary in commercial loan transactions, or (ii) trade payables, deferred revenue, taxes and accrued expenses, in each case arising in the ordinary course of business and that is due and payable less than twelve (12) months after the date such debt was incurred. "Indemnity Agreement" shall mean any indemnity agreement in form and substance satisfactory to the Agents and the Banks, by and between the Guarantor and a Surety, and as each such Indemnity Agreement may be amended, restated or otherwise modified. "Indenture" shall mean the indenture dated as of May 19, 2003, between the Guarantor and The Bank of New York, as indenture trustee and relating to the Senior Notes. "Measured Credit Risk" shall mean the product of (i) the notional amount of a Hedge Agreement entered into or guaranteed by the Guarantor or entered into by Forest City Capital Corporation, in each case with any Person other than a Bank that has a remaining time to maturity of greater than twelve (12) months, times (ii) the number of years to maturity of such Hedge Agreement, times (iii)1.25%. "Net Earnings" shall mean the Guarantor's net earnings, as determined separately for each fiscal year, after taxes, upon a consolidated basis (after deducting minority interests) and in accordance with GAAP consistently applied. "Net Losses" shall mean the Guarantor's net losses, as determined separately for each fiscal year, after taxes, upon a consolidated basis (after deducting minority interests) in accordance with GAAP consistently applied. "Net Operating Income" shall mean for any relevant period, the excess of the Borrower's revenues over the Borrower's operating expenses, in each case as determined in accordance with the Pro Rata Consolidation Method. For purposes of this definition, Net -4- Operating Income (i) shall not include any gains or losses from the sale of income producing real properties, other than gains or losses obtained from the sale of net outlot parcels to a maximum aggregate amount of Twenty Million Dollars ($20,000,000) for the immediately preceding four consecutive quarters and (ii) shall include adjustments for cash flow of properties pursuant to which the Borrower is receiving a preferred return over and above its ownership percentage in such properties. "Non-Affiliate Construction Project" shall mean any real property and all improvements to be constructed thereon (collectively, the "Non-Affiliate Property") (i) with respect to which the Borrower or a Subsidiary of the Borrower, as the case may be, (a) makes a Permitted Non-Affiliate Loan, and (b) is the developer pursuant to an agreement with a Non-Affiliated Entity as owner of the Non-Affiliate Property; and (ii) with respect to which the Borrower or an Affiliate of the Borrower, as the case may be, holds an irrevocable option from either the Non-Affiliated Entity or the parent of the Non-Affiliated Entity to acquire, respectively, either (a) the Non-Affiliate Property, or (b) all of the equity interests owned by the parent of the Non-Affiliated Entity in and to such Non-Affiliated Entity. "Non-Affiliated Entity" shall mean any Person that is not an Affiliate of the Borrower and that is wholly-owned by another Person. "Obligor" shall mean any Person or entity who, or any of whose property is or shall be, obligated on the Debt or any part thereof in any manner and includes, without limiting the generality of the foregoing, the Borrower, the Guarantor and any co-maker, endorser, other guarantor of payment, subordinating creditor, assignor, grantor of a security interest, pledgor, mortgagor or hypothecator of property, if any. "Payment Default" shall mean any failure by the Borrower or the Guarantor to make payment of principal of, or interest on, any Note (as defined in the Agreement) or this Guaranty, as applicable, or any other fees or expenses provided hereunder or under the Agreement, when due and payable, whether at maturity or by acceleration. "Permitted Debt" shall have the meaning set forth in Section 9.10 hereof. "Permitted Distributions" shall have the meaning set forth in Section 9.13(e) hereof. "Permitted Non-Affiliate Loan" shall mean a loan by the Borrower or any Subsidiary of the Borrower to a Non-Affiliated Entity for the purposes of (a) purchasing or otherwise acquiring a Non-Affiliate Property or (b) paying construction costs, in each case, in connection with a Non-Affiliate Construction Project. "Person" shall mean an individual, a corporation, a limited liability company, a partnership, an association, a trust or any other entity or organization, including, without limitation, a governmental or political subdivision or an agency or instrumentality thereof. "Plan" shall mean any employee pension benefit plan subject to Title IV of the Employee Retirement Income Security Act of 1974, as amended, established or maintained -5- by the Guarantor, any Subsidiary, any member of the Controlled Group, or any such Plan to which the Guarantor, any Subsidiary or any member of the Controlled Group is required to contribute on behalf of its employees. "Possible Default" shall mean an event or condition which, with notice or lapse of time or both, would constitute an Event of Default referred to in Section 10 hereof. "Pro Rata Consolidation Method" shall mean the pro rata method of consolidation as opposed to the full consolidation method of accounting. "Receivable" shall mean a claim for moneys due or to become due, whether classified as a contract right, account, chattel paper, instrument, general intangible or otherwise. "Related Writing" shall mean any Note, assignment, mortgage, security agreement, guaranty agreement, Subordination Agreement, financial statement, audit report, officer's certificate or other writing furnished by the Borrower, the Guarantor or any of their respective officers to the Agents or the Banks. "Reportable Event" shall mean a reportable event as that term is defined in Title IV of the Employee Retirement Income Security Act of 1974, as amended, with respect to a Plan as to which the thirty (30) day notice requirement has not been waived by the Pension Benefit Guaranty Corporation. "Restricted Company" shall mean the Guarantor or a Restricted Subsidiary. "Restricted Subsidiary" shall mean any Subsidiary of the Guarantor other than (a) the Borrower, and (b) any Subsidiary of the Borrower. "Senior Notes" shall mean the 2003 Senior Notes and the 2004 Senior Notes. "Subordination Agreement" shall mean any subordination agreement in form and substance satisfactory to the Agents and the Banks entered into by a Surety in favor of the Agents and the Banks, and as each such Subordination Agreement may, from time to time, be amended, restated or otherwise modified. "Subsidiary" of any Person shall mean and include (a) any corporation more than fifty percent (50%) of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation is at the time owned by such Person directly or indirectly through Subsidiaries, (b) any partnership, limited liability company, association (including business trusts) or other entity in which such Person directly or indirectly through Subsidiaries, has more than a fifty percent (50%) voting or equity interest at the time, and (c) any corporation, limited liability company, partnership, association or other entity the accounts of which are consolidated with those of its parent in the parent's consolidated financial statements. -6- "Surety" means any surety or insurance company reasonably acceptable to the Agents. "Surety Bonds" means the bonds, undertakings and other like obligations executed by a Surety for the Guarantor subject to an Indemnity Agreement and a Subordination Agreement in a maximum aggregate principal amount of $30,000,000 for all Sureties. "Term Loan" means that certain Term Loan made from certain of the Banks to the Borrower pursuant to the Original Credit Agreement. "Test Period" shall mean each period of four consecutive fiscal quarters of the Guarantor or the Borrower, as applicable, in each case taken as one accounting period, ended after the Closing Date and commencing April 30, 2004. "Trading Loans" shall mean any loans that are now or hereafter outstanding from Forest City Trading Group, Inc. (but not from any other lender, whether or not such lender is a Subsidiary of the Guarantor) to the Guarantor. "2003 Senior Notes" shall mean the senior notes of the Guarantor issued on May 19, 2003, pursuant to the Indenture, in an original aggregate principal amount of $300,000,000. "2004 Senior Notes" shall mean the senior notes of the Guarantor issued on February 10, 2004, pursuant to the Indenture, in an original aggregate principal amount of up to $100,000,000. All capitalized terms used herein but not herein defined that are defined in the Agreement shall have the respective meanings ascribed to them in the Agreement. All financial covenants contained in this Guaranty shall be measured on each Fiscal Quarterly Date. Accounting Principles Any accounting term not specifically defined in this Section 1 or elsewhere in this Guaranty, shall have the meaning ascribed thereto by GAAP not inconsistent with the Guarantor's present accounting procedures, provided, that, if the Guarantor notifies the Agent that the Guarantor requests an amendment to any provision hereof to eliminate the effect of any change occurring after the Closing Date in GAAP or in the application thereof on the operation of such provision (or if the Agent notifies the Guarantor that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. Notwithstanding the foregoing, the financial statements furnished to the Banks pursuant hereto shall be made and prepared in accordance with GAAP consistently -7- applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the Guarantor to the Banks), provided, that (a) all computations determining compliance with Sections 9.8 and 9.14, including definitions used therein, shall utilize accounting principles based on the Pro Rata Consolidation Method, (b) all computations determining compliance with Sections 9.8, 9.14 and 9.15, including definitions used therein, shall exclude interest income received by the Borrower or any of its Subsidiaries with respect to loans made by the Borrower or such Subsidiary pursuant to Section 8.06(d) of the Agreement, unless such loans are funded with the proceeds from Revolving Loans or the Senior Notes and (c) such financial statements must also include a report (in the footnotes thereto or otherwise) of the financial results of the Guarantor using accounting principles based on the Pro Rata Consolidation Method. 2. ACKNOWLEDGMENTS, CONSIDERATION. The Guarantor desires that the Agent and the Banks grant the Borrower the loan(s), credit and financial accommodations provided for under the Agreement. The Agreement provides, on and subject to certain conditions therein set forth, for Revolving Loans by the Banks to the Borrower up to an aggregate maximum principal amount of Four Hundred Fifty Million Dollars ($450,000,000). There exists and will hereafter exist economic and business relationships between the Guarantor and the Borrower which will be of benefit to the Guarantor. The Guarantor finds it to be in the direct business and economic interest of the Guarantor that the Borrower obtain the loans, credit and financial accommodations from the Agents and the Banks provided for in the Agreement. The Guarantor understands that the Agents and the Banks are willing to grant the loans, credit and financial accommodations to the Borrower provided for in the Agreement only upon certain terms and conditions, one of which is that the Guarantor unconditionally guarantee the payment of the Debt and this instrument is being executed and delivered by the Guarantor to satisfy that condition and in consideration of the Agents and the Banks entering into the Agreement. 3. GUARANTY. The Guarantor hereby absolutely, irrevocably and unconditionally guarantees (a) the punctual and full payment of all and every portion of the Debt when due, by acceleration or otherwise, whether now owing or hereafter arising, (b) the prompt observance and performance by the Borrower of each and all of the Borrower's covenants, undertakings, obligations and agreements set forth in the Agreement, the Notes and/or any other instruments evidencing or pertaining thereto, and (c) the prompt payment of all expenses and costs, including reasonable attorneys' fees, incurred by or for the account of the Agents and/or the Banks in connection with any action to enforce payment or collection of the Debt from the Borrower and/or the Guarantor or to prepare any amendments, restatements or modifications of the Agreement, the Notes and/or this Guaranty. If the Debt or any part thereof shall not be paid in full punctually when due and payable, the Agents and/or the Banks in each case shall have the right to proceed directly against the Guarantor under this Guaranty regardless of whether or not the Agents and/or the Banks shall have theretofore proceeded or shall then be proceeding against the Borrower or any other Obligor or Collateral, if any, or any of the foregoing, it being understood that the Agents and/or the Banks in their sole discretion may proceed or not proceed against the Borrower, the Obligors and/or any Collateral and may exercise or not exercise each right, power or privilege that the Agents and/or the Banks may at any time have, either simultaneously or separately and, in any event, at such time or times and as often and in such order as the Agents and/or the Banks in their sole discretion, may from time to time deem expedient, all without affecting the obligations of the Guarantor hereunder or the right of the -8- Agents and/or the Banks to demand and/or enforce performance by the Guarantor of the Guarantor's obligations hereunder. 4. REINSTATEMENT. This Guaranty shall continue to be effective or be reinstated, as the case may be, if any amount paid by or on behalf of the Borrower to the Agents or the Banks on or in respect of the Debt is rescinded, restored or returned in connection with the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or any other Obligor, or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any other Obligor or any part of the property of the Borrower or any other Obligor, or otherwise, all as though such payment had not been made. 5. WAIVERS. The Guarantor waives any and all contractual, legal and/or equitable rights of subrogation, contribution, exoneration, indemnity and/or reimbursement from or against the Borrower or any Obligor with respect to the Debt and/or any payments made by the Guarantor on account of this Guaranty. 6. ADDITIONAL AGREEMENTS. Regardless of the duration of time, regardless of whether the Borrower may from time to time cease to be indebted to the Banks and irrespective of any act, omission or course of dealing whatever on the part of the Agents and/or the Banks, the Guarantor's liabilities and other obligations under this Guaranty shall remain in full force and effect until the full and final payment of all of the Debt. Without limiting the generality of the foregoing: 6.1. The obligations of the Guarantor hereunder shall not be released, discharged or in any way affected, nor shall the Guarantor have any rights or recourse against the Agents or the Banks by reason of (a) any action the Agents or the Banks may take or omit to take, or (b) any defense raised or asserted by the Borrower against enforcement of the Agreement or the Notes or any challenge to the sufficiency or enforceability of the Agreement, any of the Notes or this Guaranty, or (c) any act or thing that might otherwise operate as a legal or equitable discharge of a surety, as to which the Guarantor hereby expressly waives any and all defenses available to a surety except irrevocable payment in full of the Debt. 6.2. The obligations of the Guarantor under this Guaranty shall be satisfied strictly in accordance with the terms of this Guaranty, under all circumstances whatsoever, including, without limitation, the existence of any claim, setoff, defense or right which the Guarantor or the Borrower may have at any time against the Agents or the Banks or any other Person or entity, whether in connection with this Guaranty, the Agreement, the Notes or the transactions contemplated hereby or any unrelated transaction. 6.3. The Banks shall at no time be under any duty to the Guarantor to grant any loans, credit or financial accommodation to the Borrower, irrespective of any duty or commitment of the Banks to the Borrower, or to follow or direct the application of the proceeds of any such loans, credit or financial accommodation. 6.4. The Guarantor waives (a) notice of the granting of any loan to the Borrower or the incurring of any other Indebtedness, including, but not limited to the creation of the Debt by the Borrower or the terms and conditions thereof, (b) presentment, notice of -9- nonpayment, demand for payment, protest, notice of protest and notice of dishonor of the Notes or any other Indebtedness incurred by the Borrower to the Banks, (c) notice of any indulgence granted to any Obligor, (d) notice of the Banks' acceptance of this Guaranty, and (e) any other notice to which the Guarantor might, but for the within waiver, be entitled. 6.5. The Agents and/or the Banks in their sole discretion may, without prejudice to their rights under this Guaranty, at any time or times (a) grant the Borrower whatever loans, credit or financial accommodations that the Banks, or any thereof, may from time to time deem advisable, even if the Borrower might be in default and even if those loans, credit or financial accommodations might not constitute Debt the payment of which is guaranteed hereunder, (b) assent to any renewal, extension, consolidation or refinancing of the Debt or any part thereof, (c) forbear from demanding security, if the Agents and/or the Banks shall have the right to do so, (d) release any Obligor or Collateral or assent to any exchange of Collateral, if any, irrespective of the consideration, if any, received therefor, (e) grant any waiver or consent or forbear from exercising any right, power or privilege that the Agents and/or the Banks may have or acquire, (f) assent to any amendment, deletion, addition, supplement or other modification in, to or of any writing evidencing or securing any Debt or pursuant to which any Debt is created, (g) grant any other indulgence to any Obligor, (h) accept any Collateral for or other Obligors upon the Debt or any part thereof, or (i) fail, neglect or omit in any way to realize upon any Collateral or to protect the Debt or any part thereof or any Collateral therefor. 6.6. The Guarantor's liabilities and other obligations under this Guaranty shall survive any merger, consolidation or dissolution of the Guarantor. 6.7. The Guarantor's liabilities and other obligations under this Guaranty shall be absolute and unconditional irrespective of any lack of validity or enforceability of any agreement, instrument or document evidencing the Debt or related thereto, or any other defense available to the Guarantor in respect of this Guaranty. 7. REPRESENTATIONS AND WARRANTIES. The Guarantor represents and warrants that (a) it is a duly organized and validly existing corporation under the laws of the State of Ohio, (b) the execution, delivery and performance of this Guaranty have been duly authorized by all necessary corporate action, (c) there is no prohibition in either its Articles of Incorporation, Code of Regulations or in any agreement, instrument, judgment, decree or order to which it is a party that in any way restricts or prohibits the execution, delivery and performance of this Guaranty in any respect, (d) this Guaranty has been duly executed and delivered by the Guarantor and is a valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, and (e) as of October 31, 2003, there are 36,000,000 shares authorized of Class B Common Stock of the Guarantor of which 13,716,192 shares are issued and outstanding. The Guarantor further represents and warrants that this Guaranty is made in furtherance of the purposes for which the Guarantor was incorporated and is necessary to promote and further the business of the Guarantor and that the assumption by the Guarantor of its obligations hereunder will result in direct financial benefits to the Guarantor. -10- This Guaranty is not made in connection with any consumer loan or consumer transaction. The Guarantor further represents and warrants that (a) the Guarantor has received consideration which is the reasonably equivalent value of the obligations and liabilities that the Guarantor has incurred to the Agents and/or the Banks, (b) the Guarantor is not insolvent as defined in any applicable state or federal statute, nor will the Guarantor be rendered insolvent by the execution and delivery of this Guaranty to the Agents and the Banks, (c) the Guarantor is not engaged or about to engage in any business or transaction for which the assets retained by the Guarantor shall be an unreasonably small capital, taking into consideration the obligations to the Agents and the Banks incurred hereunder, and (d) the Guarantor does not intend to, nor does the Guarantor believe, that the Guarantor will incur debts beyond the Guarantor's ability to pay as they become due. The Guarantor further represents and warrants that the Guarantor has provided to the Agent three copies of all promissory notes or other writings evidencing any Trading Loans outstanding on the date hereof and that the Guarantor has no other Indebtedness outstanding from any Subsidiary to the Guarantor. 8. NOTICES. The Agents and/or the Banks shall be deemed to have knowledge or to have received notice of any event, condition or thing only if the Agents and/or the Banks shall have received written notice thereof as provided in the Agreement. A written notice shall be deemed to have been duly given to the Guarantor whenever a writing to that effect shall have been sent by registered or certified mail to the Guarantor at the address set forth opposite the Guarantor's signature below (or to such other address of the Guarantor as the Guarantor may hereafter furnish to the Banks in writing for such purpose), but no other method of giving notice to or making a request of the Guarantor is hereby precluded. 9. COVENANTS. The Guarantor hereby agrees to perform and observe and to cause each Subsidiary to perform and observe, all of the following covenants and agreements: 9.1. INSURANCE. Each Company will: (a) insure itself and all of its insurable properties to such extent, by such insurers and against such hazards and liabilities as is generally done by businesses similarly situated, it being understood that the Guarantor has obtained a fidelity bond for such of its employees as handle funds belonging to the Borrower or the Guarantor, (b) give the Agent prompt written notice of any material reduction or adverse change in that Company's insurance coverage, and (c) forthwith upon any Bank's or the Agent's written request, furnish to each Bank and the Agent such information in writing about that Company's insurance as any Bank or the Agent, as applicable, may from time to time reasonably request. -11- 9.2. MONEY OBLIGATIONS. Each Company will pay in full: (a) prior in each case to the date when penalties would attach, all taxes, assessments and governmental charges and levies (except only those so long as and, to the extent that, the same shall be contested in good faith by appropriate and timely proceedings diligently pursued and taxes and assessments on inconsequential parcels of vacant land, the nonpayment of which does not materially adversely affect the financial condition of the Guarantor) for which it may be or become liable or to which any or all of its properties may be or become subject, (b) all of its wage obligations to its employees in compliance with the Fair Labor Standards Act (29 U.S.C. Section 206-207) or any comparable provisions, and (c) all of its other obligations calling for the payment of money (except only those so long as and to the extent that the same shall be contested in good faith by appropriate and timely proceedings diligently pursued) before such payment becomes overdue; provided that, notwithstanding the foregoing, the Guarantor shall not make any payment on account of any of the Senior Notes in the event of and during the continuance of any Payment Default under the Agreement or this Guaranty. 9.3. RECORDS. Each Company will: (a) at all times maintain true and complete records and books of account and, without limiting the generality of the foregoing, maintain appropriate reserves for possible losses and liabilities, all in accordance with generally accepted accounting principles applied on a basis not inconsistent with its present accounting procedures, and (b) at all reasonable times permit each Bank to examine that Company's books and records and to make excerpts therefrom and transcripts thereof. 9.4. FRANCHISES. Each Company will preserve and maintain at all times its corporate existence, rights and franchises; provided, that this Section shall not apply to (a) any merger of a Subsidiary into the Guarantor or into another Subsidiary, (b) any consolidation of a Subsidiary with another Subsidiary, or (c) any dissolution of any Subsidiary, except in each case where the Subsidiary is the Borrower. 9.5. NOTICE. The Guarantor will cause its Chief Financial Officer, or in his or her absence another officer designated by the Chief Financial Officer, to promptly notify the Banks whenever (a) any Event of Default or Possible Default may occur hereunder (including, without limitation, any default under any of the Senior Notes, the Indenture or any other document relating thereto (after giving effect to any applicable grace period)) or any representation or warranty made herein may for any reason cease in any material respect to be true and complete, and/or (b) any Restricted Subsidiary shall (i) be in default of any material (either with respect to the Borrower or the Guarantor) obligation for payment of borrowed money, or, to the knowledge of the Guarantor, any material obligations in respect of guarantees, taxes and/or Indebtedness for goods or services purchased by, or other contractual obligations of, such Subsidiary, and/or (ii) not, to the knowledge of the Guarantor, be in compliance with any law, order, rule, judgment, ordinance, regulation, license, franchise, lease or other agreement -12- that has or could reasonably be expected to have a material adverse effect on the business, operations, property or financial condition of the Subsidiary, and/or (c) the Guarantor and/or the Subsidiary shall have received notice, or have knowledge, of any actual, pending or threatened claim, notice, litigation, citation, proceeding or demand relating to any matter(s) described in subclauses (b)(i) and (b)(ii) of this Section 9.5. Further, the Guarantor shall notify the Banks not less than thirty (30) days in advance of entering into any proposed amendment or modification of any of the Senior Notes or the Indenture, whether or not the Guarantor believes that the consent of the Required Banks is needed therefor pursuant to Section 9.10(h)(iii) of this Guaranty. 9.6. ERISA COMPLIANCE. No Company will incur any material accumulated funding deficiency within the meaning of the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations thereunder or any material liability to the Pension Benefit Guaranty Corporation, established thereunder in connection with any Plan. Each Company will furnish (i) as soon as possible and in any event within thirty (30) days after such Company knows or has reason to know that any Reportable Event with respect to any Plan has occurred, a statement of the Chief Financial Officer of such Company setting forth details as to such Reportable Event and the action which such Company proposes to take with respect thereto, together with a copy of the notice of such Reportable Event given to the Pension Benefit Guaranty Corporation if a copy of such notice is available to such Company, (ii) promptly after the filing thereof with the United States Secretary of Labor or the Pension Benefit Guaranty Corporation, copies of each annual report with respect to each Plan established or maintained by such Company for each plan year, including (x) where required by law, a statement of assets and liabilities of such Plan as of the end of such plan year and statements of changes in fund balance and in financial position, or a statement of changes in net assets available for plan benefits, for such plan year, certified by an independent public accountant satisfactory to the Banks, and (y) an actuarial statement of such Plan applicable to such plan year, certified by an enrolled actuary of recognized standing acceptable to the Banks, and (iii) promptly after receipt thereof a copy of any notice such Company, any Subsidiary or any member of the Controlled Group may receive from the Pension Benefit Guaranty Corporation or the Internal Revenue Service with respect to any Plan administered by such Company; provided, that this latter clause shall not apply to notices of general application promulgated by the Pension Benefit Guaranty Corporation or the Internal Revenue Service. As used in this Section 9.6, "material" means the measure of a matter of significance which shall be determined as being an amount equal to five percent (5%) of each Company's ERISA Net Worth. 9.7. FINANCIAL STATEMENTS. The Guarantor will furnish to each Bank: (a) within forty-five (45) days (or fifty (50) days so long as the Guarantor will not be reporting an Event of Default on such Form 10-Q report) after the end of each quarter-annual period of each fiscal year of the Guarantor, a copy of the Guarantor's Form 10-Q quarterly report as filed by the Guarantor with the Securities and Exchange Commission, (b) within forty-five (45) days (or fifty (50) days so long as the Guarantor shall not have reported an Event of Default to the Securities and Exchange Commission during such fiscal period nor on its most recent filing with the Securities and Exchange -13- Commission) after the end of each of the first three (3) quarter-annual fiscal periods of each fiscal year of the Guarantor, an unaudited consolidated and consolidating balance sheet of the Guarantor as at the end of that period and an unaudited consolidated and consolidating statement of income of the Guarantor for the Guarantor's current fiscal year to date, all prepared in form and detail in accordance with GAAP, consistently applied, or the Pro Rata Consolidation Method, as applicable, and certified by a Senior Officer of the Guarantor, subject to changes resulting from quarter-end adjustments, together with a certificate of a Senior Officer of the Guarantor (i) specifying the nature and period of existence of each Event of Default and/or Possible Default, if any, and the action taken, being taken or proposed to be taken by the Guarantor in respect thereof or if none, so stating, and (ii) certifying that the representations and warranties of the Guarantor set forth herein are true and correct as of the date of such certificate, or, if not, all respects in which they are not, and (iii) a covenant compliance worksheet in the form and substance of Schedule 9.7(b) hereof completed as of the end of such fiscal quarterly period, (c) within ninety (90) days (or ninety-five (95) days so long as the Guarantor shall not have reported an Event of Default to the Securities and Exchange Commission during such fiscal period nor on its most recent filing with the Securities and Exchange Commission) after the end of each fiscal year of the Guarantor, an annual report on Form 10-K as filed by the Guarantor with the Securities and Exchange Commission, including the complete audited consolidated balance sheets and statements of income of the Guarantor for that year certified by an independent public accountant satisfactory to the Banks, and an unaudited consolidating balance sheet and statement of income of the Parent for the current fiscal year, each in form and detail satisfactory to the Banks, and prepared in accordance with GAAP, consistently applied, or the Pro Rata Consolidation Method, as applicable, together with (i) a report of the independent certified public accountant with an opinion that is not qualified as to the scope of the audit or as to the status of the Guarantor or the Borrower as a going concern, (ii) a certificate of the Senior Officer of the Guarantor (X) specifying the nature and period of existence of each Event of Default and/or Possible Default, if any, and the action taken, being taken or proposed to be taken by the Guarantor in respect thereof or if none, so stating, and (Y) certifying that the representations and warranties of the Guarantor set forth herein are true and correct as of the date of such certificate, or, if not, all respects in which they are not, and (iii) a fully completed covenant compliance worksheet in the form and substance of Schedule 9.7(b) hereof relating to such fiscal year duly certified by the Guarantor's accountants, (d) concurrently with furnishing any quarterly financial statement or audit report pursuant to this Section 9.7, a certificate by Charles A. Ratner, Albert Ratner, Samuel H. Miller or Thomas G. Smith stating whether any Company has made any guaranty or incurred any Indebtedness referred to in Section 9.10(d) or Section 9.12(g) hereof and, if so, the details thereof, (e) as soon as available, copies of all notices, reports, proxy statements and other similar documents sent by the Guarantor to its shareholders, to the holders of any of its debentures or bonds or the trustee of any indenture securing the same or pursuant to which they have been issued, to any securities exchange or to the Securities -14- Exchange Commission or any similar federal agency having regulatory jurisdiction over the issuance of the Guarantor's securities, (f) within forty-five (45) days after the end of each fiscal quarter of the Guarantor, a schedule setting forth the aggregate Measured Credit Risk as of the last day of such fiscal quarter, along with the remaining available Measured Credit Risk permitted by Section 9.10(j), (g) within one hundred twenty (120) days after the end of each fiscal year of the Guarantor, a calculation of the consolidated leverage of the Guarantor as of the last day of such fiscal year, with such details and explanations as may be reasonably required by the Banks, and (h) forthwith upon any Bank's written request such other information of any Company's financial condition and business, including, but not limited to any management letters of accountants addressed to the Guarantor or the Borrower. 9.8. EBDT. The Guarantor will not suffer or permit its EBDT, as of any Fiscal Quarterly Date falling within the periods set forth below, for the Test Period ending on such Fiscal Quarterly Date, to be less than the amount set forth below for the respective periods set forth below: Period EBDT ------ ---- January 31, 2004 $190,000,000 February 1, 2004 through January 31, 2005 $200,000,000 February 1, 2005 through January 31, 2006 $210,000,000 February 1, 2006 and thereafter $220,000,000 9.9. COMBINATIONS, BULK TRANSFERS. (a) No Restricted Company will be a party to any consolidation or merger or lease, sell or otherwise transfer all or any substantial part of its assets or sell, pledge, hypothecate or transfer its stock or other ownership interests in any Subsidiary; provided, that this Section 9.9 shall not apply to any transfer (as opposed to a pledge) effected in the normal course of business on commercially reasonable terms and provided, further, that a Restricted Company shall only be permitted to pledge its stock or other ownership interests in any of its Subsidiaries that is a single asset or special purpose entity (each, a "Pledged Subsidiary") to secure the following: (i) additional or mezzanine Indebtedness incurred with respect to a project encumbered by a first mortgage at the time such additional or mezzanine Indebtedness is incurred, so long as such additional or mezzanine Indebtedness is permitted under Section 9.10 of this Guaranty provided, that the sum of the then existing Indebtedness with respect to such project plus such additional or mezzanine Indebtedness does not -15- exceed eighty percent (80%) of the appraised value of the project at the time such additional or mezzanine Indebtedness is incurred; or (ii) primary Indebtedness (or the re-financing thereof) incurred solely for the purpose of acquiring real property or for construction or redevelopment purposes; provided, that such primary Indebtedness (or the re-financing thereof) does not exceed one hundred percent (100%) of the appraised value of the acquired property at the time of such financing or re-financing, as applicable. (b) In addition to the foregoing, (i) such pledges of stock or other ownership interests in a Pledged Subsidiary given to secure Indebtedness described in Section 9.9(a)(i) or Section 9.9(b)(ii)(Y) may be made with respect to no more than fifteen (15) individual properties, collectively with the Borrower, all its Subsidiaries and all Restricted Companies at any one time, exclusive of the properties set forth on Schedule 9.9A of this Guaranty, and (ii) the aggregate of all such (X) additional or mezzanine Indebtedness described in Section 9.9(a)(i) above and (Y) primary Indebtedness described in Section 9.9(a)(ii) above in excess of eighty percent (80%) of the appraised value of the property, in each case for which such a pledge may be provided by a Restricted Company, shall not exceed Two Hundred Million Dollars ($200,000,000) in the aggregate for all pledges provided by the Restricted Companies, the Borrower and its Subsidiaries, taken together. (c) The Guarantor will deliver to the Agents and the Banks an updated schedule, in the form of Schedule 9.9 attached hereto, listing all of the properties as to which a pledge of stock or other ownership interests has been provided to a lender in accordance with Section 9.9(b), within forty-five (45) days after each Fiscal Quarterly Date. 9.10. BORROWINGS. No Restricted Company will create, assume or suffer to exist any Indebtedness of any kind including, but not limited to, leases required to be capitalized under Financial Accounting Standards Board Standard No. 13 or any reimbursement obligations or other liabilities with respect to letters of credit issued for any Restricted Company's account; provided, that this Section 9.10 shall not apply to any of the following (collectively, "Permitted Debt"): (a) any loan obtained by Forest City Trading Group, Inc., formerly known as American International Forest Products, Inc. (or any of its wholly-owned Subsidiaries) from any lender other than the Companies, (b) any loan obtained from the Guarantor by any Restricted Subsidiary and, in the ordinary course of business by Forest City Trading Group, Inc. (or any of its wholly-owned Subsidiaries), (c) any real estate loan heretofore or hereafter obtained or guaranteed by the Guarantor for the purpose of financing any building to be used only for the business -16- of Guarantor and its Subsidiaries, provided, that no such loan shall exceed eighty percent (80%) of the lender's appraisal of the real estate being financed, (d) any loan or letter of credit that is obtained or guaranteed by the Guarantor; provided, that the Guarantor's aggregate personal liability in respect of all such loans (other than any loan obtained by the Guarantor and permitted by any other clause of this Section 9.10) and letters of credit and in respect of all guaranteed loans referred to in clause (f) of Section 9.12 hereof, does not then exceed and after incurring such loan or letter of credit or the guarantee thereof in question would not exceed, Ten Million Dollars ($10,000,000), (e) leases required to be capitalized under Financial Accounting Standards Board Standard No. 13 in the aggregate amount for all Restricted Subsidiaries of Three Million Dollars ($3,000,000), (f) any secured Indebtedness of a Restricted Company created in the course of purchasing or developing real estate or financing construction (or any refinancings thereof) or other improvements thereon or purchasing furniture, fixtures or other equipment therefor or any other Indebtedness of any Restricted Company or any refinancings thereof; provided, that no Restricted Company (other than a Restricted Company whose sole assets consist of contiguous parcels of land which are being purchased or developed with such financing, the improvements, if any, thereon, furniture, fixtures and other equipment used in connection therewith, receivables arising from tenants in connection therewith and the proceeds of such receivables and other property directly obtained from the ownership of such assets) shall have any personal liability for such Indebtedness, the creditors' recourse being solely to the property being pledged as collateral for such Indebtedness and the income therefrom, (g) any Trading Loans, provided, that each of the following conditions is satisfied as to each of such Trading Loans: (i) the aggregate principal amount of all the Trading Loans may not exceed Ten Million Dollars ($10,000,000); (ii) no interest shall accrue or be payable with respect to any Trading Loan; (iii) there shall be no scheduled principal payments prior to the maturity date of any Trading Loan, as any promissory notes evidencing such Trading Loans may be extended from time to time; no principal payments shall be made on any Trading Loan at any time that a Possible Default or Event of Default exists under the Guaranty or the Agreement, or at any time that the Agent has determined, in its sole discretion, that there has been a material adverse change in the financial condition of the Guarantor; and the Trading Loans, either individually or in the aggregate, shall not be revolving loans and, if any principal payments are made on any Trading Loan, the Ten Million Dollars ($10,000,000) maximum -17- amount of permissible Trading Loans set forth above shall automatically and irrevocably decline by like amount upon such payment; (iv) each Trading Loan shall be expressly subordinate in right of payment to the prior payment in full of the Indebtedness under the Guaranty and the Agreement, whether such Indebtedness arises due to a Term Loan, a Revolving Loan or otherwise; (v) an event of default as to any Trading Loan(s) will automatically constitute an Event of Default under the Agreement, the Notes and the Guaranty; and (vi) each Trading Loan shall be evidenced by a written promissory note, including the terms set forth above in clauses (i) through (v) and shall otherwise be in form and substance approved in advance by the Agent, executed by the Guarantor and Forest City Trading Group, Inc. and, in the case of any Trading Loan(s) on or after the date of the date hereof, executed by such parties not later than the date of the first disbursement of such Trading Loan, a copy of which note(s) shall be provided within ten (10) days after execution, (h) any Indebtedness or obligations of the Guarantor under the Senior Notes; provided, that, (i) none of the Senior Notes nor the Indenture may provide that an Event of Default under the Agreement or this Guaranty constitutes a default under any of the Senior Notes or the Indenture, except in the case of an Event of Default that constitutes the failure to pay the principal of any Debt when due and payable after the expiration of any applicable grace period with respect thereto and shall have resulted in the acceleration of such Debt or constitutes the failure to pay any portion of the principal of the Debt when due and payable after acceleration or maturity; (ii) the Indebtedness represented by the Senior Notes shall be unsecured, pari passu with the Guarantor's obligations under this Guaranty and structurally subordinate to the Borrower's Obligations to the Banks under the Agreement; (iii) none of the Senior Notes nor the Indenture shall be amended or modified without the prior written consent of the Required Banks, including, without limitation, (A) to allow the maturity of any of the Senior Notes to be less than ten (10) years from the respective date of issue, (B) to provide for payment of interest under any of the Senior Notes more frequently than quarterly, or (C) to modify the redemption provisions contained therein, including adding additional redemption provisions, other than amendments or modifications that do not adversely -18- affect the Agreement or this Guaranty or their relationship to any of the Senior Notes or the Indenture, (iv) the outstanding and unredeemed principal amount of the Senior Notes shall not, at any time, exceed Four Hundred Million Dollars ($400,000,000) in the aggregate; and (v) the terms and conditions of the 2003 Senior Notes, the 2004 Senior Notes and the Indenture shall be satisfactory, in form and substance, to the Agents and the Banks, (i) any Indebtedness or obligations of the Guarantor under the Surety Bonds or the Indemnity Agreement to a maximum aggregate principal amount of $30,000,000.00 minus the aggregate stated amount of all letters of credit then outstanding for the account of the Borrower under the Agreement in excess of $10,000,000; provided, such Indebtedness is fully subordinated to the obligations of the Guarantor under this Guaranty as set forth in the Subordination Agreement, (j) any Indebtedness of the Guarantor or Forest City Capital Corporation under any Hedge Agreement relating to Indebtedness otherwise permitted under this Guaranty, provided, that, any Hedge Agreement proposed to be entered into or guaranteed by the Guarantor or entered into by Forest City Capital Corporation, as applicable, in each case with a Person that is not a Bank that results in an aggregate Measured Credit Risk for all Hedge Agreements entered into with Persons other than a Bank, in excess of $33,500,000, shall require the prior written consent of the Required Banks (such written consent to be delivered by each consenting Bank to the Agent not more than three (3) Business Days after the request for such consent has been delivered by the Guarantor to the Agent, provided, that, each Bank that does not deliver such written consent within such three (3) Business Day period shall be deemed to have denied the request for such Hedge Agreement). (k) any Indebtedness of the Guarantor with respect to deferred taxes that are due and payable in excess of twelve (12) months from the date of the incurrence of such tax liability, (l) any Indebtedness permitted by Section 9.12(g) hereof, or (m) any Indebtedness of the Guarantor permitted by Section 9.13(d) hereof that replaces the Indebtedness evidenced by the Senior Notes. 9.11. LIENS. No Restricted Company will: (a) sell or otherwise transfer any Receivables, including, but not limited to, any mortgages held by the Guarantor or any of its Subsidiaries, other than in the ordinary course of business, (b) acquire any property subject to any land contract, conditional sale contract or other title retention contract, or -19- (c) suffer or permit any property now owned or hereafter acquired by it to be or become encumbered by any mortgage, security interest, financing statement, encumbrance or Lien of any kind or nature; provided, that this Section 9.11 shall not apply to: (i) any Lien for a tax, assessment or other governmental charge or levy so long as the payment thereof is not required by Section 9.2(a) hereof, (ii) any Lien securing only workmen's compensation, unemployment insurance or similar obligations, (iii) any mechanic's, warehousemen's, carrier's or similar common law or statutory Lien incurred in the normal course of business, (iv) any mortgage, security interest or other Lien encumbering property of any Restricted Subsidiary for the purpose of securing any Indebtedness owing by only that Subsidiary, (v) any mortgage, security interest or other Lien encumbering property of the Guarantor and securing any Indebtedness or liability of the Guarantor permitted by clause (c) of Section 9.10 or by Section 9.12 hereof, (vi) any Lien permitted by Section 8.15 of the Agreement, (vii) any transfer made in the ordinary course of business by Forest City Trading Group, Inc. (or any of its wholly-owned Subsidiaries), or (viii) any financing statement perfecting a security interest permitted by this Section 9.11. 9.12. GUARANTEES. No Restricted Company will be or become a guarantor of any kind; provided, that this Section 9.12 shall not apply to: (a) any endorsement of a check or other medium of payment for deposit or collection through normal banking channels or any similar transaction in the normal course of business, (b) any indemnity or guaranty of a surety bond for the performance by a customer of a Restricted Company of the customer's obligations under a land development contract, (c) any guarantee by the Guarantor of a real estate loan permitted by clause (c) of Section 9.10, (d) any Completion Guaranty with respect to a real estate building project, if the Guarantor or any Company is the developer of the project or has a property interest in the project (including, but not limited to, a Non-Affiliate Construction Project), -20- (e) the guarantee by the Guarantor set forth in Section 3 hereof, (f) any other guarantee by the Guarantor, provided, that the Guarantor's aggregate personal liability in respect of all of such other guarantees and all Indebtedness described in subsection (a) of the definition of Indebtedness (other than any loan permitted by clauses (a) through (c), inclusive, of Section 9.10 hereof) does not exceed, and after making the guarantee in question would not exceed, Ten Million Dollars ($10,000,000), (g) any unsecured guarantee by the Guarantor or any Restricted Subsidiary of the equity investment or performance of a Subsidiary (other than any Indebtedness of such Subsidiary incurred for borrowed money) in connection with a real estate project in favor of a partner or member, or a partnership or limited liability company in which such Subsidiary is a general partner or a member, as applicable, when the Guarantor or such Restricted Subsidiary, as the case may be, deems it to be in its best interest not to be a partner, a member, or have a direct interest in the partnership or limited liability company, as applicable, (h) the guarantee by the Guarantor of the obligations of Franklin Town Towers Associates located in Philadelphia, Pennsylvania, with respect to Museum Towers, in the original principal amount of Twenty Million Four Hundred Thousand Dollars ($20,400,000), provided, that such obligations shall not be amended, restated or otherwise modified without the prior written consent of the Banks, (i) any guarantee or indemnity by the Guarantor or any Restricted Subsidiary for fraud, misappropriation, misapplication or environmental problems, as are usual and customary in commercial mortgage loan transactions entered into by the Guarantor and/or such Restricted Subsidiary, provided, that such a guarantee or indemnity may be given by the Guarantor or a Restricted Subsidiary, but not both (unless such Restricted Subsidiary is also the borrower in the particular commercial mortgage loan transaction), in connection with any particular commercial mortgage loan transaction, (j) subject to Section 9.10(j) hereof, any guarantee by the Guarantor of an unsecured Hedge Agreement permitted by Section 8.04 of the Agreement entered into by a Subsidiary (other than the Borrower), (k) subject to the limitations set forth in Section 9.19 of this Guaranty, any Completion Guaranty, or (l) the guarantee in connection with the Park Creek Metropolitan District and Stapleton Land LLC located in Stapleton, Colorado, with respect to the $19,000,000 Park Creek District Subordinate Limited Property Tax Revenue Bonds, Series 2003A and the $10,000,000 Park Creek District Subordinate Limited Property Tax Revenue Bonds, Series 2003-B, provided, that such guarantee obligations shall not be amended, restated or otherwise modified without the prior written consent of the Banks. -21- 9.13. REDEMPTIONS, PREPAYMENTS, AND DIVIDENDS. (a) The Guarantor will not directly or indirectly purchase, acquire, redeem or retire any shares of its capital stock at any time outstanding or set aside funds for any such purpose, except that, from and after the Closing Date, so long as no Event of Default or violation of Section 9.14 of this Guaranty shall have occurred or will result after giving effect to such purchase acquisition, redemption or retirement, the Guarantor may purchase, acquire, redeem or retire shares of its outstanding capital stock in an aggregate amount not to exceed Thirty Million Dollars ($30,000,000) minus any amounts paid as permitted by Section 9.13(c) hereof, in any yearly period measured by the anniversary dates of the Closing Date of the Agreement thereafter, (b) The Guarantor will not directly or indirectly pay any principal of, make sinking fund payments in respect of or purchase any Indebtedness now or hereafter owing by the Guarantor other than any principal payment, sinking fund payment or purchase the omission of which would (or with the giving of notice or the lapse of any applicable grace period or both) accelerate, or give any one the right to accelerate, the maturity of such Indebtedness in accordance with the original terms thereof; provided, that, notwithstanding the foregoing, the Guarantor shall not make any payment on account of the Senior Notes in the event of and during the continuance of any Payment Default under the Agreement or this Guaranty, (c) The Guarantor will not directly or indirectly declare or pay any Dividends, except that, from and after the Closing Date, so long as no Event of Default shall have occurred and be continuing hereunder and no Event of Default shall have occurred and be continuing under the Agreement, the Guarantor may pay Dividends in any aggregate amount not to exceed Thirty Million Dollars ($30,000,000) minus any amounts paid as permitted by Section 9.13(a) hereof, in any yearly period measured by the anniversary dates of the Closing Date of the Agreement thereafter, (d) The Guarantor shall not directly or indirectly exercise its optional redemption rights, under the terms of any of the Senior Notes or the Indenture, to redeem any of the Senior Notes prior to its maturity date, or to deposit monies or other assets with the trustee under the Indenture for the payment of any one or more Senior Notes or the release of restrictive covenants thereunder, by defeasance, without in each case the prior written consent of the Required Banks, except that the Guarantor may take any of the above listed actions in connection with a refinancing of the Indebtedness represented by the Senior Notes without the prior consent of the Banks, in each case only so long as such refinancing does not (i) result in an increase in the aggregate principal amount of Indebtedness of the Guarantor as of the date of such proposed refinancing, (ii) create Indebtedness that has a maturity earlier than the final maturity of the Senior Notes, (iii) create a security interest in any property of the Guarantor or any of its Subsidiaries, or (iv) result in Indebtedness that is senior to the Indebtedness owing to the Banks under this Guaranty or the Agreement. Executed copies of any and all documentation evidencing or relating to such refinancing shall be delivered to the Agent within five (5) Cleveland Banking Days of the execution of such documentation, -22- (e) In the event of and during the continuance of any Event of Default under the Agreement or under this Guaranty other than a Payment Default, the Guarantor shall not cause the Borrower to declare, pay, or make, and shall not accept payment of, any Dividends in respect of Capital Stock of the Borrower, or, notwithstanding any other provision of the Agreement or this Guaranty to the contrary, any loans or advances to the Guarantor, (any such Dividends or loans are referred to herein as "Distributions") in excess of the sum of the amount sufficient to pay, when due, all interest payments in respect of the Senior Notes and the amounts sufficient to pay, when due, all taxes of the Guarantor (collectively, "Permitted Distributions"); provided, that any Permitted Distributions shall be applied by the Guarantor strictly to the permitted uses specified above, and (f) Notwithstanding the provisions of Section 9.13(e) of this Guaranty, in the event and during the continuance of any Payment Default, the Guarantor shall not cause the Borrower to pay or make, and shall not accept payment of, any Distributions. 9.14. CASH FLOW COVERAGE RATIO. The Guarantor will not permit the Cash Flow Coverage Ratio, at any time, to be less than 2.25:1.00. 9.15. CONSOLIDATED GAAP SHAREHOLDERS' EQUITY. The Guarantor will not permit the Consolidated GAAP Shareholders' Equity to be less than (a) on the Closing Date, Six Hundred Twenty-Five Million Dollars ($625,000,000) and (b) at any date of determination thereafter, the sum of (i) Six Hundred Twenty-Five Million Dollars ($625,000,000), plus (ii) one hundred percent (100%) of the cash proceeds from any sale or issuance of equity, plus (iii) fifty percent (50%) of the Guarantor's consolidated GAAP net income, in each case, for the year-to-date period ended on such Fiscal Quarterly Date. 9.16. ENVIRONMENTAL COMPLIANCE. The Guarantor will comply with any and all Environmental Laws including, without limitation, all Environmental Laws in jurisdictions in which the Guarantor or any Restricted Subsidiary owns property, operates, arranges for disposal or treatment of hazardous substances, solid waste or other wastes, accepts for transport any hazardous substances, solid waste or other wastes or holds any interest in real property or otherwise. The Guarantor will furnish to the Banks promptly after receipt thereof a copy of any notice the Guarantor or any Restricted Subsidiary may receive from any governmental authority, private person or entity or otherwise that any litigation or proceeding pertaining to any environmental, health or safety matter has been filed or is threatened against the Guarantor or such Restricted Subsidiary, any real property in which the Guarantor or such Restricted Subsidiary holds any interest or any past or present operation of the Guarantor or such Restricted Subsidiary. The Guarantor will not knowingly allow the storage, release or disposal of hazardous waste, solid waste or other wastes on, under or to any real property in which the Guarantor holds any interest or performs any of its operations, in violation of any Environmental Law. As used in this Section, "litigation or proceeding" means any demand, claim, notice, suit, suit in equity, action, administrative action, investigation or inquiry whether brought by any governmental authority, private person or entity or otherwise. The Guarantor shall defend, indemnify and hold the Banks harmless against all costs, expenses, claims, damages, penalties and liabilities of every kind or nature whatsoever (including attorneys' fees) arising out of or resulting from the noncompliance of the Guarantor or any Restricted Subsidiary with any -23- Environmental Law, provided, that, so long as and to the extent that the Banks are not required to make any payment or suffer to exist any unsatisfied judgment, order, or assessment against them, the Guarantor may pursue rights of appeal to comply with such Environmental Laws. In any case of noncompliance with any Environmental Law by a Restricted Subsidiary, the Banks' recourse for such indemnity herein shall be limited solely to the property of the Restricted Subsidiary holding title to the property involved in such noncompliance and such recovery shall not be a lien, or a basis of a claim of lien or levy of execution, against either the Guarantor's general assets or the general assets of any of its Restricted Subsidiaries. 9.17. PLAN. Neither the Guarantor nor any Restricted Subsidiary will suffer or permit any Plan to be amended if, as a result of such amendment, the current liability under the Plan is increased to such an extent that security is required pursuant to Section 307 of the Employee Retirement Income Security Act of 1974, as amended from time to time. As used herein, "current liability" means current liability as defined in Section 307 of such Act. 9.18. [Reserved.] 9.19. CROSS COLLATERALIZATION AND CROSS DEFAULTS. (a) Except as expressly permitted by this Section 9.19, neither the Guarantor nor any Restricted Company will (i) cross-default or agree to cross-default any Permitted Debt to this Guaranty or the Debt; (ii) agree to any financial covenants based on the performance of the Guarantor under any other Permitted Debt (other than the Debt); or (iii) cross-collateralize, or agree to cross-collateralize Permitted Debt (other than the Debt) owing to any one lender under one or more different loan agreements or arrangements, provided, that the cross-defaulted and/or cross-collateralized Indebtedness set forth on Schedule 9.19 attached hereto shall be permitted, provided, further, that such Schedule 9.19 shall not be amended or otherwise modified after the Closing Date without the prior written consent of the Agent. (b) Notwithstanding Section 9.19(a) above: (i) with respect to construction projects that are constructed in multiple phases and/or stabilized properties, any Restricted Company shall be permitted to cross-default and/or cross-collateralize any Permitted Debt with other Permitted Debt (other than, in each case, the Debt), but only if the phases to be cross-collateralized in and/or cross-defaulted consist of a single identifiable project; (ii) under a Completion Guaranty granted by the Guarantor to a construction lender, the Guarantor shall be permitted to agree to a financial covenant solely with respect to the Guarantor's net worth, but only if (A) the Indebtedness related to such Completion Guaranty is in excess of One Hundred Million Dollars ($100,000,000), (B) the Indebtedness related to such Completion Guaranty has a maturity of two (2) years or greater, not including extensions, (C) any net worth financial covenant is calculated in substantially the same manner as the covenant set forth in Section 9.15 of this Guaranty and requires a net worth for the Guarantor of not more than Two Hundred Seventy Five -24- Million Dollars ($275,000,000) and (D) the aggregate of all Indebtedness subject to such Completion Guaranties shall not exceed Four Hundred Million Dollars ($400,000,000), exclusive of the Indebtedness incurred in connection with the projects set forth on Schedule 9.19 to this Guaranty; (iii) under any Completion Guaranty granted by the Guarantor that contains the net worth financial covenant referred to in Section 9.19(b)(ii) above, (A) the construction lender shall not be permitted to call upon such Completion Guaranty due solely to a violation of such net worth financial covenant and (B) the construction lender shall only be permitted to call upon such Completion Guaranty if the project is not performing (i.e. not on budget and/or schedule); and (iv) with respect to Hedge Agreements permitted by this Guaranty, the related documentation may provide that any Event of Default that occurs and continues after the expiration of any applicable grace period with respect thereto and that permits the Banks to accelerate the maturity of the Debt, constitutes a default under such documentation. 9.20. OWNERSHIP OF LAND. The Guarantor shall not, and shall not permit any Restricted Subsidiary to purchase, lease or otherwise acquire any real property of any kind after the Closing Date, other than any real property to be used only for the business of the Guarantor or any such Restricted Subsidiary, in each case, as such business has been conducted prior to the Closing Date. 9.21. PERMITTED NON-AFFILIATE LOAN REPORTS. Within forty-five (45) days after each Fiscal Quarterly Date, the Guarantor will furnish to each Bank a report setting forth (a) each Permitted Non-Affiliate Loan that is outstanding as of such Fiscal Quarterly Date and (b) for the three year period ending on such Fiscal Quarterly Date, the aggregate amount of gain deferred for federal income tax purposes on the consolidated return of the Guarantor in connection with any Non-Affiliate Construction Projects, and, if requested by the Agents or any Bank, accompanied by all applicable tax forms filed or to be filed in connection with such Non-Affiliate Construction Projects. 10. DEFAULT; REMEDIES. The Guarantor shall be in default hereunder in the event that any of the following (each an "Event of Default") shall occur or exist: (a) Any representation or warranty made by the Guarantor, or any of its officers, herein, or in any written statement or certificate furnished at any time in connection herewith, shall prove untrue in any material respect as of the date it was made, or (b) The Guarantor shall fail to observe, perform, or comply with any obligation, covenant, agreement, or undertaking of the Guarantor set forth in Sections 3, 9.5, 9.8, 9.13, 9.14 and/or 9.15 hereof, or (c) The Guarantor shall fail to observe, perform, or comply with any obligation, covenant, agreement, or undertaking of the Guarantor set forth in any section -25- or provision hereof other than those identified specifically in subsection (b) above and the Guarantor shall not have corrected such failure within thirty (30) days after the giving of written notice thereof to the Guarantor by the Agent or any Bank that the specified failure is to be corrected, or (d) The Guarantor and/or any Restricted Subsidiary defaults in any payment of principal or interest due and owing upon any Indebtedness in excess of $1,000,000, or, in the case of the Guarantor, in the payment or performance of any obligation permitted to be outstanding or incurred pursuant to Sections 9.10 and/or 9.12 hereof in excess of $1,000,000, beyond any period of grace provided with respect thereto or in the performance of any other agreement, term or condition contained in any agreement under which any such obligation is created, if the effect of such default is to accelerate the maturity of the related Indebtedness or to permit the holder thereof to cause such Indebtedness to become due prior to its stated maturity or foreclose on any lien on property of the Guarantor securing the same, except that defaults in payment or performance of non-recourse obligations of the Guarantor or any Restricted Subsidiary shall not constitute Events of Default under this Section 10(d) unless such defaults have, individually or in the aggregate, a material adverse effect on the business or financial condition of the Guarantor; provided, that it shall be an Event of Default hereunder if any default occurs (after giving effect to any applicable grace period) under the Senior Notes permitted by Section 9.10(h) of this Guaranty or under the Indenture, or (e) (i) any Restricted Subsidiary shall (A) generally not pay its debts as such debts become due, or (B) make a general assignment for the benefit of creditors, or (C) apply for or consent to the appointment of a receiver, a custodian, a trustee, an interim trustee or liquidator of itself or all or a substantial part of its assets, or (D) be adjudicated a debtor or have entered against it an order for relief under Title 11 of the United States Code, as the same may be amended from time to time, or (E) file a voluntary petition in bankruptcy or file a petition or an answer seeking reorganization or an arrangement with creditors or seeking to take advantage of any other law (whether federal or state) relating to relief of debtors, or admit (by answer, by default or otherwise) the material allegations of a petition filed against it in any bankruptcy, reorganization, insolvency or other proceeding (whether federal or state) relating to relief of debtors, or (F) suffer or permit to continue unstayed and in effect for thirty (30) consecutive days any judgment, decree or order, entered by a court of competent jurisdiction, which approves a petition seeking its reorganization or appoints a receiver, custodian, trustee, interim trustee or liquidator of itself or of all or a substantial part of its assets, or (G) take or omit to take any other action in order thereby to effect any of the foregoing or (H) fail to pay and discharge all lawful taxes, assessments, and governmental charges or levies imposed upon it or its income, profits, or properties, and/or all lawful claims for labor, materials, and supplies, which, if unpaid, might become a lien or charge against such properties, in all cases before the same shall become in default, or (I) fail to comply with any and all Environmental Laws applicable to such Subsidiary, its properties, or activities, or (J) fail to observe, perform, or fulfill any of its obligations, covenants or conditions contained in any evidence of Indebtedness or other contract, decree, order, judgment, or instrument to which such Subsidiary is a party or by which it or its assets are bound, and (ii) any such event or events described in (i) above shall in the reasonable -26- judgment of the Banks have a material adverse effect on the business or financial condition of the Guarantor, or (f) An Event of Default specified in Article X of the Agreement shall have occurred and be continuing, or (g) The Guarantor shall (i) make a general assignment for the benefit of creditors, (ii) file a voluntary petition under any chapter or provision of Title 11 United States Code (Bankruptcy), as from time to time in effect (the "Bankruptcy Code") or a petition or answer seeking reorganization of the Guarantor or a readjustment of its Indebtedness under the Bankruptcy Code or any other federal or state law providing for relief of debtors, reorganization, liquidation, or arrangements with creditors, (iii) consent to the appointment of a receiver or trustee of its properties, or (iv) cease to be or be unable to pay its debts generally as they become due, or (h) Relief shall be ordered against the Guarantor as debtor in any involuntary case under the Bankruptcy Code, or a petition or proceedings for bankruptcy or for reorganization shall be filed against the Guarantor under the Bankruptcy Code or any other federal or state law providing for relief of debtors, reorganization, liquidation, or arrangements with creditors, and the Guarantor shall admit the material allegations thereof, or an order, judgment or decree entered therein shall not be vacated or stayed within thirty (30) days of its entry, or a receiver or trustee shall be appointed for the Guarantor or its properties or any part thereof and remain in possession thereof for thirty (30) days, or (i) The Guarantor defaults in the performance of any obligation in the Subordination Agreement or in the performance of any other agreement, covenant, term or condition in the Subordination Agreement, then, in any such event (other than an Event of Default referred to in Section 10(g) or 10(h) above), and at any time thereafter, the Agent and/or the Required Banks may at their option, by written notice delivered or mailed to the Guarantor, do any one or more of the following: (a) declare the Debt to be immediately due and payable, and upon any such declaration such Debt shall become and be forthwith due and payable by Guarantor without any further notice, presentment, or demand of any kind, all of which are expressly waived by the Guarantor, or (b) require the Guarantor to purchase the Debt at par value, without recourse, within ten (10) days after such notice, by paying to the Agent, in immediately available U.S. funds, an amount equal to the unpaid principal amount then outstanding on the Notes and any other matured or unmatured Debt owing to the Banks, plus the unpaid accrued interest on the Notes at the rate or rates determined in accordance with the Agreement. If any Event of Default referred to in Section 10.07(e), 10.07(f) or 10.07(g) of the Agreement or any Event of Default referred to in Section 10(g) or 10(h) of this Guaranty shall occur, the Debt shall become and thereafter be immediately due and payable by the Guarantor without any presentment, demand, or notice of any kind, all of which are hereby waived by the Guarantor. The foregoing rights, powers, and remedies of the Agent and the Banks are not exclusive and are in addition to any and all other rights, powers, and remedies provided for hereunder (including, without limitation, under Section 13 hereof), at law, and/or in equity. The exercise by the Agent and/or the Banks of any -27- right, power, or remedy shall not waive or preclude the exercise of any other rights, powers, and/or remedies. 11. MISCELLANEOUS. The foregoing rights, powers, and remedies of the Agent and the Banks are not exclusive and are in addition to any and all other rights, powers, and remedies provided for hereunder, at law, and/or in equity. The exercise by the Agent and/or the Banks of any right, power, or remedy shall not waive or preclude the exercise of any other rights, powers, and/or remedies. This Guaranty shall bind the Guarantor and its successors and assigns and shall inure to the benefit of the Agent and the Banks and their respective successors and assigns including (without limitation) each holder of any Note. The provisions of this Guaranty and the respective rights and duties of the Guarantor and the Agent and/or the Banks hereunder shall be interpreted and determined in accordance with Ohio law, without regard to principles of conflict of laws. If at any time one or more provisions of this Guaranty is or becomes invalid, illegal or unenforceable in whole or in part, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. This Guaranty constitutes a final written expression of all of the terms of this Guaranty, is a complete and exclusive statement of those terms and supersedes all oral representations, negotiations, and prior writings, if any, with respect to the subject matter hereof. The relationship between the Guarantor and the Agent and/or the Banks with respect to this Guaranty is and shall be solely that of debtor and creditor, respectively, and the Agent and/or the Banks have no fiduciary obligation to the Guarantor with respect to this Guaranty or the transactions contemplated thereby. All representations and warranties of the Guarantor shall survive the execution and delivery of this Guaranty and be and remain true and correct until this Guaranty is discharged. Captions herein are for convenient reference only and shall have no effect on the interpretation of any provision hereof. The Guarantor acknowledges that it, either directly or indirectly through its representatives, has participated in the drafting of this Guaranty, and any applicable rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in connection with the construction or interpretation of this Guaranty. 12. JURY TRIAL WAIVER. THE GUARANTOR WAIVES THE RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN OR AMONG THE GUARANTOR AND THE AGENT, THE BANKS, AND/OR THE BORROWER ARISING OUT OF OR IN CONNECTION WITH THE AGREEMENT, THIS GUARANTY, OR ANY OTHER AGREEMENT, INSTRUMENT OR DOCUMENT EXECUTED OR DELIVERED IN CONNECTION THEREWITH OR THE TRANSACTIONS RELATED THERETO. 13. NOTICES. Except as otherwise expressly provided herein, all notices, requests, demands and other communications provided for hereunder shall be in writing (including telegraphic, telex, facsimile, transmission or cable communication) and mailed, telexed, telegraphed, facsimile transmitted, cabled or delivered, if to the Guarantor, addressed to it at the address specified on the signature pages of this Guaranty, if to a Bank, addressed to the address of such Bank specified on the signature pages of the Agreement and if to the Agents, addressed to them at the address of the Agent or the Syndication Agent, as applicable, specified on the signature pages of the Agreement. All notices, statements, requests, demands and other communications provided for hereunder shall be deemed to be given or made when delivered or forty-eight (48) hours after being deposited in the mails with postage prepaid by registered or -28- certified mail or delivered to a telegraph company, addressed as aforesaid, except that notices from the Guarantor to the Agent or the Banks pursuant to any of the provisions hereof shall not be effective until received by the Agent or the Banks. 14. CONSENT TO JURISDICTION. The Guarantor agrees that any action or proceeding to enforce or arising out of this Guaranty may be commenced in the Court of Common Pleas for Cuyahoga County, Ohio or in the District Court of the United States for the Northern District of Ohio, and the Guarantor waives personal service of process and agrees that a summons and complaint commencing an action or proceeding in any such court shall be properly served and shall confer personal jurisdiction over the Guarantor if served to the Guarantor at the address listed opposite the signature of the Guarantor at the end of this Guaranty or as otherwise provided by the laws of the State of Ohio or the United States. 15. ENTIRE AGREEMENT. This Guaranty and any other agreement, document or instrument attached hereto or referred to herein or executed on or as of the date hereof integrate all the terms and conditions mentioned herein or incidental hereto and supersede all oral representations and negotiations and prior writings with respect to the subject matter hereof. 16. INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of an Event of Default if such action is taken or condition exists, and if a particular action or condition is expressly permitted under any covenant, unless expressly limited to such covenant, the fact that it would not be permitted under the general provisions of another covenant shall not constitute an Event of Default if such action is taken or condition exists. [The remainder of this page intentionally left blank.] -29- IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed as of the date set forth above, by an officer thereunto duly authorized. Address: FOREST CITY ENTERPRISES, INC. 1100 Terminal Tower Cleveland, Ohio 44113 By: ____________________________________ Thomas G. Smith Executive Vice President, Chief Financial Officer and Secretary [Signature page of Guaranty] EXHIBIT C [Intentionally Omitted] EXHIBIT D REVOLVING LOAN NOTE (Bank) $____________ Cleveland, Ohio March ___, 2004 FOR VALUE RECEIVED, the undersigned, FOREST CITY RENTAL PROPERTIES CORPORATION, an Ohio corporation (the "Borrower"), hereby promises to pay to the order of _______________________________(the "Holder"), in lawful money of the United States of America, at the main office of KeyBank National Association, Administrative Agent, 127 Public Square, Cleveland, Ohio 44114, the principal sum of ___________________________ DOLLARS ($___________), or, if lesser, the aggregate unpaid principal amount of all Revolving Loans evidenced by this Note made by the Holder to the Borrower pursuant to Section 2.03 of the Credit Agreement (as defined hereinafter). The unpaid principal balance outstanding on this Revolving Loan Note (this "Note") from time to time and interest thereon shall be determined by the ledgers and records of the Holder as accurately maintained. This Note is one of the Revolving Loan Notes defined and referred to in, and is entitled to the benefits of, a certain Credit Agreement, dated as of March ____, 2004, by and among the Borrower, the Banks named therein, KeyBank National Association, as Administrative Agent, and National City Bank, as Syndication Agent (said Credit Agreement, as it may be amended, restated, or otherwise modified from time to time, being herein called the "Credit Agreement"). A statement of the rights of the Holder and the duties and obligations of the Borrower in relation thereto is made by reference to the Credit Agreement, but neither this reference to the Credit Agreement nor any provision thereof shall affect or impair the absolute and unconditional obligation of the Borrower to pay the principal of and interest on this Note when due. Capitalized terms used in this Note but not defined herein shall have the respective meanings ascribed to them in the Credit Agreement. The principal of this Note shall be due and payable on the Termination Date, or earlier as provided in the Credit Agreement. The Borrower also promises to pay interest on the unpaid principal amount of this Note from time to time outstanding from the date of this Note until the payment in full thereof at the rates per annum determined in accordance with the Credit Agreement. Interest shall be payable on each date provided for in or determined in accordance with the provisions of the Credit Agreement; provided, that interest on any principal not paid when due shall be due and payable on demand. Interest on this Note shall be calculated on the basis of a 360 day year for the actual number of days elapsed. -1- Reference is hereby made to the Credit Agreement, which contains provisions for the acceleration of the maturity hereof upon the happening of certain stated events and for voluntary prepayments hereon. The term "Holder" includes the successors and assigns, if any, of the Holder named in the first paragraph hereof. If this Note shall not be paid at maturity, whether such maturity occurs by reason of lapse of time or by operation of any provision for acceleration of maturity contained in the Credit Agreement, the principal hereof and the unpaid interest thereon shall bear interest, until paid, at a rate(s) equal to the rate(s) otherwise in effect pursuant to the Credit Agreement plus two percent (2%) per annum. All payments of principal and interest on this Note shall be made in immediately available funds. The Borrower waives demand, presentment for payment, notice of dishonor, protest, notice of protest, and diligence in collection and bringing suit, and agrees that the Holder may extend the time for payment, accept partial payment, take security therefor or exchange or release any collateral, without discharging or releasing the Borrower. This Note was executed in Cleveland, Cuyahoga County, Ohio. The construction, validity and enforceability of this Note shall be governed by and interpreted according to the laws of the State of Ohio. The Borrower authorizes any attorney at law to appear before any court of record, whether state or Federal, in the county where this Note was executed or where the Borrower resides or may be found, after the unpaid principal balance of this Note becomes due, either by lapse of time or by operation of any provision for acceleration of maturity contained in the Credit Agreement, and waive the issuance and service of process, admit the maturity of this Note, by reason of acceleration or otherwise, and confess judgment against the Borrower in favor of the Holder of this Note for the amount then appearing due on this Note, together with interest thereon and costs of suit, and thereupon to release all errors and waive all rights of appeal and stays of execution. The Borrower expressly authorizes any attorneys or agents for the Holder to receive compensation from the Holder for services rendered in exercising the foregoing warrant of attorney and in the enforcement of any judgment obtained against the Borrower in favor of the Holder on this Note, and the Borrower expressly waives any conflict of interest to which any attorneys for the Holder may be subject that may arise in connection with such attorneys exercising any of the rights and/or powers of the Holder provided for herein or the enforcement of any judgment hereon in favor of the Holder. The foregoing warrant of attorney shall survive any judgment and may be used from time to time without exhausting the right to further use the warrant of attorney and, if any judgment be vacated for any reason, the Holder of this Note nevertheless may use the foregoing warrant of attorney to obtain an additional judgment or judgments against the Borrower. -2- "WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE." FOREST CITY RENTAL PROPERTIES CORPORATION By: ____________________________________ Thomas G. Smith Vice President and Assistant Secretary -3- EXHIBIT E FORM OF LETTER OF CREDIT REQUEST No. ______(1) Dated ____________(2) KeyBank National Association, as Administrative Agent under the Credit Agreement (as amended, modified or supplemented from time to time, the "Credit Agreement"), dated as of March ___, 2004, among Forest City Rental Properties Corporation, the Banks from time to time party thereto, KeyBank National Association, as Administrative Agent, and National City Bank, as Syndication Agent 127 Public Square Cleveland, Ohio 44114 Attention: _______________________ Dear Sirs: We hereby request that KeyBank National Association, in its capacity as Administrative Agent, issue a Letter of Credit for the account of the undersigned on ____________(3) (the "Date of Issuance") in the aggregate stated amount of ____________(4). The requested Letter of Credit shall be denominated in U.S. dollars. For purposes of this Letter of Credit Request, unless otherwise defined herein, all capitalized terms used herein shall have the respective meanings provided in the Credit Agreement. - ---------- (1) Letter of Credit Request Number. (2) Date of Letter of Credit Request. (3) Date of Issuance which shall be at least five Cleveland Banking Days after the date of this Letter of Credit Request (or such shorter period as is acceptable to KeyBank National Association). (4) Aggregate initial stated amount of Letter of Credit. The beneficiary of the requested Letter of Credit will be _________________(1), and such Letter of Credit will be in support of ___________________(2) and will have a stated expiration date of ____________(3). We hereby certify that: (1) the representations and warranties contained in the Credit Agreement and the Related Writings will be true and correct in all material respects on the Date of Issuance, both before and after giving effect to the issuance of the Letter of Credit requested hereby (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date); and (2) no Possible Default or Event of Default has occurred and is continuing nor, after giving effect to the issuance of the Letter of Credit requested hereby, would such a Possible Default or an Event of Default occur. Copies of all relevant documentation with respect to the supported transaction, as required by the Credit Agreement, are attached hereto. FOREST CITY RENTAL PROPERTIES CORPORATION By: ____________________________________ Title: - ---------- (1) Insert name and address of beneficiary. (2) Insert description of the Indebtedness and describe obligation to which it relates or a description of the commercial transaction which is being supported, as applicable. (3) Insert last date upon which drafts may be presented which may not be later than the Termination Date. -2- EXHIBIT F FORM OF NOTICE OF BORROWING ___________ ___, 200_ KeyBank National Association, as Administrative Agent under the Credit Agreement (referred to below), dated as of March ____, 2004 127 Public Square Cleveland, Ohio 44114 Attention: Ladies and Gentlemen: The undersigned, Forest City Rental Properties Corporation (the "Borrower"), hereby gives you notice, irrevocably, pursuant to Section 5.01 of the Credit Agreement, dated as of March ____, 2004 (as amended from time to time, the "Credit Agreement"; the terms defined therein being used herein as so defined), among the Borrower, various Banks from time to time party thereto, National City Bank, as Syndication Agent, and you, as Administrative Agent for such Banks, that the undersigned requests a Loan under the Credit Agreement and for that purpose sets forth below the information relating to such Loan (the "Proposed Loan"): (i) The proposed borrowing is to be a Revolving Loan. (ii) The aggregate principal amount of the Proposed Loan is $_________________. (iii) The Cleveland Banking Day of the Proposed Loan is __________________.(1) (iv) The Proposed Loan shall be initially maintained subject to the [Base Rate Option] [the LIBOR Rate Option]. - ---------- (1) Shall be a Cleveland Banking Day at least one Cleveland Banking Day in the case of Loans subject to the Base Rate Option and two Cleveland Banking Days in the case of Loans subject to the LIBOR Rate Option, in each case, after the date hereof. (v) The initial Interest Period for the Proposed Loan (if subject to the LIBOR Rate Option) is __________ month(s). The undersigned hereby certifies that the following statements are true and correct on the date hereof, and will be true and correct on the date of the Proposed Loan: (A) the representations and warranties contained in the Credit Agreement and the Related Writings are and will be true and correct in all material respects, both before and after giving effect to the Proposed Loan and to the application of the proceeds thereof, as though made on such date (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date); and (B) no Possible Default or Event of Default has occurred and is continuing, or would result from such Proposed Loan or from the application of the proceeds thereof. FOREST CITY RENTAL PROPERTIES CORPORATION By: ____________________________________ Name: Title: -2- EXHIBIT G FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT This Assignment and Assumption Agreement (this "Assignment Agreement") between __________________ (the "Assignor") and _____________ (the "Assignee") is dated as of ___________. W I T N E S S E T H: WHEREAS, the Assignor is a party to a certain Credit Agreement, dated as of March _____, 2004, by and among Forest City Rental Properties Corporation, an Ohio corporation (the "Borrower"), the Banks named therein, KeyBank National Association, as Administrative Agent (hereinafter referred to as the "Agent"), and National City Bank, as Syndication Agent (said Credit Agreement, as it may be amended, restated, or otherwise modified from time to time, being herein called the "Credit Agreement"). Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to them in the Credit Agreement; and WHEREAS, the Assignor is willing to sell and assign to the Assignee, and the Assignee is willing to purchase and assume from the Assignor, all or a portion of the Assignor's Loans and/or Commitments under the Credit Agreement; NOW, THEREFORE, it is mutually agreed as follows: 1. The Assignor hereby sells and assigns (without recourse) to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, as of the date hereof, all or a portion of the Assignor's Revolving Loans, which amount shall not be less than Ten Million Dollars ($10,000,000) to the extent that the Assignee is not an Affiliate of the Assignor, and the pro-rata share of the Assignor's Commitment as each specified on Schedule 1 attached hereto and the Assignor's corresponding rights and obligations under the Credit Agreement. After giving effect to such sale and assignment, the Assignee's Commitment and the amount of the Revolving Loans owing to the Assignee will be as set forth in Item 2(C) and Item 2(F) of Schedule 1 respectively. 2. The effective date of this Assignment Agreement (the "Effective Date") shall be the date specified in Item 3 of Schedule 1. In no event will the Effective Date occur if the assignment fees required to be paid to the Agent under Section 3 hereof are not paid on or prior to the proposed Effective Date, unless otherwise agreed to in writing by the Agent. The Assignor will (i) no later than three (3) Business Days prior to the proposed Effective Date, notify the Agent of the proposed Effective Date; (ii) if the Assignor and the Assignee are not affiliated entities, obtain consents of this assignment from the Agent and the Borrower, if required, prior to the proposed Effective Date, which consent shall not be unreasonably withheld or delayed, and (iii) to the extent any letters of credit are outstanding, obtain consents of this assignment from the Agent prior to the proposed Effective Date, which consent shall not be unreasonably withheld or delayed. Upon such acceptance and recording by the Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment Agreement, have the same rights and obligations thereunder as it -1- would if it were the Assignor; and (ii) the Assignor shall relinquish its rights and be released from its corresponding obligations under the Credit Agreement with respect to the rights and obligations assigned to the Assignee hereunder. 3. The Agent shall be paid a nonrefundable assignment fee by [the Assignor] [the Assignee] in the amount of $3,000 on or prior to the Effective Date. On and after the Effective Date, the Assignee shall be entitled to receive from the Agent all payments of principal, interest and fees with respect to the interest assigned hereby. In consideration for the sale and assignment of Loans hereunder, the Assignee shall pay the Assignor, on or prior to the Effective Date, an amount equal to $____________. The Assignee will promptly remit to the Assignor (i) the portion of any principal payments assigned hereunder and received from the Agent with respect to any such Loan prior to the Effective Date and (ii) any amounts of interest on Loans and fees received from the Agent which relate to the portion of the Loans assigned to the Assignee hereunder for periods prior to the Effective Date and not previously paid by the Assignee to the Assignor. In the event that either party hereto receives any payment to which the other party hereto is entitled under this Assignment Agreement, then the party receiving such amount shall promptly remit it to the other party hereto. 4. Upon such acceptance and recording by the Agent, from and after the Effective Date, the Agent shall make all payments under the Credit Agreement and the Revolving Loan Notes in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and commitment fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement and the Revolving Loan Notes for periods prior to the Effective Date directly between themselves. 5. If any reduction in the Revolving Loans occurs between the date of this Assignment Agreement and the Effective Date, the percentage interest specified in Item 2(B) of Schedule 1 shall remain the same, but the dollar amount purchased shall be recalculated based on the reduced Revolving Loan amount. 6. The Assignor (i) represents and warrants that (A) it is the legal and beneficial owner of the interest being assigned by it hereunder, (B) such interest is free and clear of any adverse claim, and (C) no Possible Default or Event of Default exists; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition or the creditworthiness of the Borrower or the performance or observance by the Borrower of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto; and (iv) attaches the Revolving Loan Note or Revolving Loan Notes held by the Assignor and requests that the Agent exchange such Revolving Loan Note or Revolving Loan Notes for a new Revolving Loan Note or Revolving Loan Notes payable to the order of the Assignee in an amount equal to the Commitment assumed by the Assignee pursuant hereto and the Assignor in an amount equal to the Commitment retained by the Assignor under the Credit Agreement, respectively, as specified on Schedule 1. It is understood and agreed that the -2- assignment and assumption hereunder are made without recourse to the Assignor and that the Assignor makes no other representation or warranty of any kind to the Assignee. 7. The Assignee (i) represents and warrants that it is a commercial bank, financial institution, mutual fund or institutional "accredited investor" (as defined in Regulation D of the Securities Act of 1933, as amended); (ii) confirms that it has received a copy of the Credit Agreement and each of the other Related Writings, together with copies of the financial statements requested by the Assignee and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement; (iii) agrees that it will, independently and without reliance upon any Agent, the Assignor or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iv) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement as are delegated to the Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms of all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Bank; (vi) if the Assignee is organized under the laws of a jurisdiction outside the United States, attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Credit Agreement and the Revolving Loan Notes or such other documents as are necessary to indicate that all such payments are subject to such taxes at a rate reduced by an applicable tax treaty; and (vii) confirms that none of the funds, monies, assets or other consideration being used to make the purchase and assumption hereunder are "plan assets" as defined under ERISA and that its rights, benefits and interests in and under the Credit Agreement and Related Writings will not be "plan assets" under ERISA. 8. The Assignor and the Assignee agree to indemnify and hold the Agent harmless against any and all losses, costs and expenses (including, without limitation, reasonable attorneys' fees) and liabilities incurred by the Agent in connection with or arising in any manner from this assignment. 9. After the Effective Date, the Assignee shall have the right pursuant to Section 13.08 of the Credit Agreement to assign the rights which are assigned to the Assignee hereunder to any qualified entity as provided in Section 13.08 of the Credit Agreement, provided that (i) any such subsequent assignment does not violate any of the terms and conditions of the Credit Agreement or Related Writings or any law, rule, regulation, order, writ, judgment, injunction or decree and that any consent required under the terms of the Credit Agreement or Related Writings has been obtained and (ii) unless the prior written consent of the Assignor is obtained, the Assignee is not thereby released from its obligations to the Assignor hereunder. 10. Each party to this Assignment Agreement agrees to pay its own fees and expenses incurred by it in connection with the negotiation, preparation and execution of this Assignment Agreement. -3- 11. COUNTERPARTS. This Assignment Agreement and any amendments, waivers, consents or supplements may be executed in counterparts, each of which when so executed and delivered shall be deemed an original, but all of which together shall constitute but one and the same instrument. 12. ENTIRE AGREEMENT. This Assignment Agreement together with attached Schedule 1 embody the entire agreement and understanding between the parties hereto and supersede all prior agreements and understandings between the parties hereto relating to the subject matter hereof. 13. GOVERNING LAW. This Assignment Agreement shall be governed by the internal law, and not the law of conflicts, of the State of Ohio. 14. NOTICES. Notices shall be given under this Assignment Agreement in the manner set forth in the Credit Agreement. For the purpose hereof, the addresses of the parties hereto (until notice of a change is delivered) shall be the address set forth in the Credit Agreement or the attached Schedule 1, if a different address is therein provided. IN WITNESS WHEREOF, the parties hereto have executed this Assignment Agreement by their duly authorized officers as of the date first above written. (Assignor Bank) By: ________________________________ Name: __________________________ Title: _________________________ (Assignee Bank) By: ________________________________ Name: __________________________ Title: _________________________ -4- SCHEDULE 1 to Assignment and Assumption Agreement 1. Date of Assignment and Assumption Agreement: 2. Amounts (as of the date of Item 1 above unless indicated otherwise): A. Assignor's Commitment $ B. Percentage of Assignor's Commitment assigned % C. Amount of Assignor's Commitment Assigned to Assignee (A * B) $ D. Amount of Assignor's Commitment retained after Effective Date (A-C) $ E. Assignor's aggregate outstanding principal amount of Revolving Loans $ F. Aggregate outstanding principal amount of Revolving Loans assigned to Assignee $ G. Assignor's aggregate principal amount of Revolving Loans Retained after Effective Date (E-F) $ H. Aggregate outstanding amount of accrued interest and fees assigned $ 3. Effective Date: 4. Address of Assignee:

~~-5-~~ EX-10.41 4 l06556aexv10w41.txt EX-10.41 GUARANTY OF PAYMENT OF DEBT EXHIBIT 10.41 GUARANTY OF PAYMENT OF DEBT OF FOREST CITY ENTERPRISES, INC. DATED AS OF MARCH 22, 2004 -------------------------- TABLE OF CONTENTS
Page ---- 1. DEFINITIONS .......................................................... 1 2. ACKNOWLEDGMENTS, CONSIDERATION ....................................... 8 3. GUARANTY ............................................................. 8 4. REINSTATEMENT ........................................................ 9 5. WAIVERS .............................................................. 9 6. ADDITIONAL AGREEMENTS ................................................ 9 7. REPRESENTATIONS AND WARRANTIES ....................................... 10 8. NOTICES .............................................................. 11 9. COVENANTS ............................................................ 11 10. DEFAULT; REMEDIES ................................................... 25 11. MISCELLANEOUS ....................................................... 28 12. JURY TRIAL WAIVER ................................................... 28 13. NOTICES ............................................................. 28 14. CONSENT TO JURISDICTION ............................................. 29 15. ENTIRE AGREEMENT .................................................... 29 16. INDEPENDENCE OF COVENANTS ........................................... 29
(i) GUARANTY OF PAYMENT OF DEBT THIS GUARANTY OF PAYMENT OF DEBT (this "Guaranty") is made and issued by FOREST CITY ENTERPRISES, INC., an Ohio corporation (the "Guarantor"), as of this 19th day of March, 2004, in order to induce the Banks (as hereinafter defined), KEYBANK NATIONAL ASSOCIATION, as agent for the Banks (the "Agent") and NATIONAL CITY BANK, as syndication agent for the Banks (the "Syndication Agent" and together with the Agent, the "Agents"), to enter into, and lend money pursuant to, a certain Credit Agreement of even date herewith (said Credit Agreement as it may be from time to time amended, restated, or modified being herein called the "Agreement"), by and among the Banks, the Agents and FOREST CITY RENTAL PROPERTIES CORPORATION, a subsidiary of the Guarantor (the "Borrower"). 1. DEFINITIONS. As used in this Guaranty, the following terms shall have the following meanings: "Banks" shall mean each of the financing institutions that are party to the Agreement as of the date of this Guaranty, any other bank(s) that may become parties to the Agreement after the date hereof, and all successors and assigns of any such bank; and "Bank" shall mean any one of the foregoing. "Capital Stock" of any Person as used herein shall mean any and all shares, interests, participations, or other equivalents (however designated) of corporate stock or other equity participations or interests including, without limitation, partnership interests, whether general or limited, and membership interests, whether of managing or non-managing members, of such Person. "Cash Flow Coverage Ratio" shall mean, for any Test Period, the ratio of (i) Consolidated Net Operating Cash Flow to (ii) Consolidated Corporate Debt Service. "Collateral" shall mean, collectively, all property, if any, securing the Debt or any part thereof at the time in question. "Company" shall mean the Guarantor and/or a Subsidiary of the Guarantor. "Completion Guaranty" shall mean any performance guarantee by the Guarantor that construction of a real estate project will be completed in accordance with applicable plans and specifications and that all costs associated with such completion will be paid, provided, that such costs may include an interest reserve only through completion of the project and not through stabilization of such project. "Consolidated Corporate Debt Service" shall mean, for any period, the sum of (i) all scheduled payments of principal of (excluding balloon payments) and interest on any Indebtedness owing by the Borrower (excluding any non-recourse mortgage Indebtedness owing by the Borrower or any Subsidiary of the Borrower and Indebtedness relating to the Term Loan), (ii) all scheduled payments of principal of (excluding balloon payments) and interest on any Indebtedness owing by the Guarantor and (iii) Dividends paid by the Guarantor. "Consolidated GAAP Shareholders' Equity" shall mean the consolidated shareholders equity of the Guarantor, as calculated in accordance with GAAP. "Consolidated Net Operating Cash Flow" shall mean, for any Test Period, Net Operating Income (a) less (i) all scheduled payments of principal of non-recourse mortgage Indebtedness owing by the Guarantor and/or its Subsidiaries (excluding any balloon payments), (ii) all interest payments on such non-recourse Indebtedness, (iii) Twelve Million Dollars ($12,000,000) of normal recurring capital expenditures and (b) plus (i) net income (loss) before taxes and corporate interest expense of the Land Group, (ii) net income (loss) before taxes of the Lumber Trading Group, (iii) net income (loss) before taxes and corporate interest expense (including, but not limited to, interest incurred on Debt, subordinated debt or any other third party debt) of the Corporate Activity Group, (iv) actual cash taxes paid on the Net Operating Income and the income set forth in subsections (b)(i), (b)(ii) and (b)(iii) above, (v) non-cash interest expense accrued but not currently payable up to a maximum of Five Million Dollars ($5,000,000) with respect to Indebtedness owing by the Guarantor and its Subsidiaries other than Indebtedness owing by the Guarantor and/or its Subsidiaries to the government of the United States or any state or municipality thereof or any agencies of any of the foregoing and (vi) non-cash interest expense accrued but not currently payable with respect to Indebtedness by the Guarantor and/or its Subsidiaries owing to the government of the United States or any state or municipality thereof or any agencies of any of the foregoing. "Contingent Obligation" shall mean, with respect to any Person at the time of any determination, without duplication, any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person in any manner, whether directly or otherwise; provided, that the term "Contingent Obligation" shall not include endorsements for collection or deposit, in each case in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the Indebtedness in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonable anticipated liability in respect thereof (assuming such Person is required to perform thereunder). "Controlled Group" shall mean a controlled group of corporations as defined in Section 1563 of the Internal Revenue Code of 1986, as may be amended from time to time, of which Guarantor or any Subsidiary is a part. "Debt" shall mean, collectively, (a) all Indebtedness now owing or hereafter incurred by the Borrower to the Agents and/or the Banks arising under or in connection with the Agreement, whether pursuant to commitment or otherwise, and including, without limitation, the principal amount of all Loans made pursuant to the Agreement, all interest thereon determined as provided in the Agreement, all fees provided to be paid by the Borrower to the Banks and/or the Agents pursuant to the Agreement or any Related Writing and all liabilities in respect of letters of credit issued by the Agent and/or any of the Banks for the account of the Borrower (but not including Indebtedness held by any Bank arising and outstanding under any -2- transaction or document referred to in Sections 8.04 (other than that referred to in subclause (a) thereof), and/or 8.07 of the Agreement), (b) each renewal, extension, consolidation or refinancing of any such Indebtedness in whole or in part, and (c) all interest from time to time accruing on any of the foregoing Indebtedness. "Distributions" shall have the meaning set forth in Section 9.13(e) hereof. "Dividends" shall include all dividends (in cash or otherwise) paid, capital returned, and other distributions of any kind made on any share of Capital Stock outstanding at the time. "EBDT" shall mean net earnings from operations before depreciation, amortization and deferred taxes on income and excludes provision for decline in real estate, gain (loss) on disposition of properties and extraordinary gains. "Environmental Laws" means all provisions of law, statutes, ordinances, rules, regulations, permits, licenses, judgments, writs, injunctions, decrees, orders, awards and standards promulgated by the government of the United States of America or by any state or municipality thereof or by any court, agency, instrumentality, regulatory authority or commission of any of the foregoing, now or hereafter in effect, and in each case, as amended, concerning or relating to health, safety and protection of, or regulation of the discharge of substances into, the environment. "ERISA Net Worth" shall mean (a) as to any Subsidiary, the excess of the net book value of such Subsidiary's assets (other than patents, treasury stock, goodwill and similar intangibles but including unamortized mortgage and lease costs) over all of its liabilities (other than liabilities to any other Company), such excess being determined in accordance with GAAP applied on a basis consistent with the Guarantor's present accounting procedures, and (b) as to the Guarantor, the excess of the net book value (after deducting all applicable reserves and deducting any value attributable to the re-appraisal or write-up of any asset) of the Guarantor's assets (other than patents, good will, treasury stock and similar intangibles but including unamortized mortgage and lease costs) over all of its liabilities as determined on an accrued and consolidated and consolidating basis and in accordance with GAAP not inconsistent with the Guarantor's present accounting principles consistently applied. "Event of Default" shall have the meaning set forth in Section 10 hereof. "Fiscal Quarterly Date" shall mean each of January 31, April 30, July 31 and October 31. "GAAP" shall mean generally accepted accounting principles in the United States of America, in effect from time to time. "Hedge Agreement" shall mean any non-fully paid derivative, such as interest rate swaps or collar agreements or other similar agreements or arrangements designed to hedge the position of a Person with respect to interest rates, excluding any such agreements as to which all obligations of such Person are paid or payable within twelve (12) months of the date such agreement is entered into by such Person. -3- "Indebtedness" shall mean, with respect to any Person at the time of any determination, without duplication, all obligations of such Person which in accordance with GAAP should be classified upon the balance sheet of such Person as liabilities, but in any event including: (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid or accrued, (d) all written obligations of such Person to maintain working capital, equity capital or other financial statement condition of another Person so as to enable such other Person to pay its Indebtedness or otherwise to protect the holder of such Indebtedness against loss in respect thereof, (e) all obligations of such Person issued or assumed as the deferred purchase price of property or services, (f) all obligations of others secured by any Lien on property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (g) all capitalized lease obligations of such Person, (h) all obligations of such Person in respect of Hedge Agreements, (i) all obligations of such Person, actual or contingent, as an account party in respect of letters of credit or bankers' acceptances, and, without duplication, all drafts drawn thereunder, and (j) all obligations of any partnership or joint venture as to which such Person is or may become personally liable, provided, that, Indebtedness shall not include (i) any obligations incurred as a result of fraud, misappropriation, misapplication and environmental indemnities, as are usual and customary in commercial loan transactions, or (ii) trade payables, deferred revenue, taxes and accrued expenses, in each case arising in the ordinary course of business and that is due and payable less than twelve (12) months after the date such debt was incurred. "Indemnity Agreement" shall mean any indemnity agreement in form and substance satisfactory to the Agents and the Banks, by and between the Guarantor and a Surety, and as each such Indemnity Agreement may be amended, restated or otherwise modified. "Indenture" shall mean the indenture dated as of May 19, 2003, between the Guarantor and The Bank of New York, as indenture trustee and relating to the Senior Notes. "Measured Credit Risk" shall mean the product of (i) the notional amount of a Hedge Agreement entered into or guaranteed by the Guarantor or entered into by Forest City Capital Corporation, in each case with any Person other than a Bank that has a remaining time to maturity of greater than twelve (12) months, times (ii) the number of years to maturity of such Hedge Agreement, times (iii)1.25%. "Net Earnings" shall mean the Guarantor's net earnings, as determined separately for each fiscal year, after taxes, upon a consolidated basis (after deducting minority interests) and in accordance with GAAP consistently applied. "Net Losses" shall mean the Guarantor's net losses, as determined separately for each fiscal year, after taxes, upon a consolidated basis (after deducting minority interests) in accordance with GAAP consistently applied. "Net Operating Income" shall mean for any relevant period, the excess of the Borrower's revenues over the Borrower's operating expenses, in each case as determined in accordance with the Pro Rata Consolidation Method. For purposes of this definition, Net -4- Operating Income (i) shall not include any gains or losses from the sale of income producing real properties, other than gains or losses obtained from the sale of net outlot parcels to a maximum aggregate amount of Twenty Million Dollars ($20,000,000) for the immediately preceding four consecutive quarters and (ii) shall include adjustments for cash flow of properties pursuant to which the Borrower is receiving a preferred return over and above its ownership percentage in such properties. "Non-Affiliate Construction Project" shall mean any real property and all improvements to be constructed thereon (collectively, the "Non-Affiliate Property") (i) with respect to which the Borrower or a Subsidiary of the Borrower, as the case may be, (a) may make a Permitted Non-Affiliate Loan, and (b) is the developer pursuant to an agreement with a Non-Affiliated Entity as owner of the Non-Affiliate Property; and (ii) with respect to which the Borrower or an Affiliate of the Borrower, as the case may be, holds an irrevocable option from either the Non-Affiliated Entity or the parent of the Non-Affiliated Entity to acquire, respectively, either (a) the Non-Affiliate Property, or (b) all of the equity interests owned by the parent of the Non-Affiliated Entity in and to such Non-Affiliated Entity. "Non-Affiliated Entity" shall mean any Person that is not an Affiliate of the Borrower and that is wholly-owned by another Person. "Obligor" shall mean any Person or entity who, or any of whose property is or shall be, obligated on the Debt or any part thereof in any manner and includes, without limiting the generality of the foregoing, the Borrower, the Guarantor and any co-maker, endorser, other guarantor of payment, subordinating creditor, assignor, grantor of a security interest, pledgor, mortgagor or hypothecator of property, if any. "Payment Default" shall mean any failure by the Borrower or the Guarantor to make payment of principal of, or interest on, any Note (as defined in the Agreement) or this Guaranty, as applicable, or any other fees or expenses provided hereunder or under the Agreement, when due and payable, whether at maturity or by acceleration. "Permitted Debt" shall have the meaning set forth in Section 9.10 hereof. "Permitted Distributions" shall have the meaning set forth in Section 9.13(e) hereof. "Permitted Non-Affiliate Loan" shall mean a loan by the Borrower or any Subsidiary of the Borrower to a Non-Affiliated Entity for the purposes of (a) purchasing or otherwise acquiring a Non-Affiliate Property or (b) paying construction costs, in each case, in connection with a Non-Affiliate Construction Project. "Person" shall mean an individual, a corporation, a limited liability company, a partnership, an association, a trust or any other entity or organization, including, without limitation, a governmental or political subdivision or an agency or instrumentality thereof. "Plan" shall mean any employee pension benefit plan subject to Title IV of the Employee Retirement Income Security Act of 1974, as amended, established or maintained -5- by the Guarantor, any Subsidiary, any member of the Controlled Group, or any such Plan to which the Guarantor, any Subsidiary or any member of the Controlled Group is required to contribute on behalf of its employees. "Possible Default" shall mean an event or condition which, with notice or lapse of time or both, would constitute an Event of Default referred to in Section 10 hereof. "Pro Rata Consolidation Method" shall mean the pro rata method of consolidation as opposed to the full consolidation method of accounting. "Receivable" shall mean a claim for moneys due or to become due, whether classified as a contract right, account, chattel paper, instrument, general intangible or otherwise. "Related Writing" shall mean any Note, assignment, mortgage, security agreement, guaranty agreement, Subordination Agreement, financial statement, audit report, officer's certificate or other writing furnished by the Borrower, the Guarantor or any of their respective officers to the Agents or the Banks. "Reportable Event" shall mean a reportable event as that term is defined in Title IV of the Employee Retirement Income Security Act of 1974, as amended, with respect to a Plan as to which the thirty (30) day notice requirement has not been waived by the Pension Benefit Guaranty Corporation. "Restricted Company" shall mean the Guarantor or a Restricted Subsidiary. "Restricted Subsidiary" shall mean any Subsidiary of the Guarantor other than (a) the Borrower, and (b) any Subsidiary of the Borrower. "Senior Notes" shall mean the 2003 Senior Notes and the 2004 Senior Notes. "Subordination Agreement" shall mean any subordination agreement in form and substance satisfactory to the Agents and the Banks entered into by a Surety in favor of the Agents and the Banks, and as each such Subordination Agreement may, from time to time, be amended, restated or otherwise modified. "Subsidiary" of any Person shall mean and include (a) any corporation more than fifty percent (50%) of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation is at the time owned by such Person directly or indirectly through Subsidiaries, (b) any partnership, limited liability company, association (including business trusts) or other entity in which such Person directly or indirectly through Subsidiaries, has more than a fifty percent (50%) voting or equity interest at the time, and (c) any corporation, limited liability company, partnership, association or other entity the accounts of which are consolidated with those of its parent in the parent's consolidated financial statements. -6- "Surety" means any surety or insurance company reasonably acceptable to the Agents. "Surety Bonds" means the bonds, undertakings and other like obligations executed by a Surety for the Guarantor subject to an Indemnity Agreement and a Subordination Agreement in a maximum aggregate principal amount of $30,000,000 for all Sureties. "Term Loan" means that certain Term Loan made from certain of the Banks to the Borrower pursuant to the Original Credit Agreement. "Test Period" shall mean each period of four consecutive fiscal quarters of the Guarantor or the Borrower, as applicable, in each case taken as one accounting period, ended after the Closing Date and commencing April 30, 2004. "Trading Loans" shall mean any loans that are now or hereafter outstanding from Forest City Trading Group, Inc. (but not from any other lender, whether or not such lender is a Subsidiary of the Guarantor) to the Guarantor. "2003 Senior Notes" shall mean the senior notes of the Guarantor issued on May 19, 2003, pursuant to the Indenture, in an original aggregate principal amount of $300,000,000. "2004 Senior Notes" shall mean the senior notes of the Guarantor issued on February 10, 2004, pursuant to the Indenture, in an original aggregate principal amount of up to $100,000,000. All capitalized terms used herein but not herein defined that are defined in the Agreement shall have the respective meanings ascribed to them in the Agreement. All financial covenants contained in this Guaranty shall be measured on each Fiscal Quarterly Date. Accounting Principles Any accounting term not specifically defined in this Section 1 or elsewhere in this Guaranty, shall have the meaning ascribed thereto by GAAP not inconsistent with the Guarantor's present accounting procedures, provided, that, if the Guarantor notifies the Agent that the Guarantor requests an amendment to any provision hereof to eliminate the effect of any change occurring after the Closing Date in GAAP or in the application thereof on the operation of such provision (or if the Agent notifies the Guarantor that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. Notwithstanding the foregoing, the financial statements furnished to the Banks pursuant hereto shall be made and prepared in accordance with GAAP consistently -7- applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the Guarantor to the Banks), provided, that (a) all computations determining compliance with Sections 9.8 and 9.14, including definitions used therein, shall utilize accounting principles based on the Pro Rata Consolidation Method, (b) all computations determining compliance with Sections 9.8, 9.14 and 9.15, including definitions used therein, shall exclude interest income received by the Borrower or any of its Subsidiaries with respect to loans made by the Borrower or such Subsidiary pursuant to Section 8.06(d) of the Agreement, unless such loans are funded with the proceeds from Revolving Loans or the Senior Notes and (c) such financial statements must also include a report (in the footnotes thereto or otherwise) of the financial results of the Guarantor using accounting principles based on the Pro Rata Consolidation Method. 2. ACKNOWLEDGMENTS, CONSIDERATION. The Guarantor desires that the Agent and the Banks grant the Borrower the loan(s), credit and financial accommodations provided for under the Agreement. The Agreement provides, on and subject to certain conditions therein set forth, for Revolving Loans by the Banks to the Borrower up to an aggregate maximum principal amount of Four Hundred Fifty Million Dollars ($450,000,000). There exists and will hereafter exist economic and business relationships between the Guarantor and the Borrower which will be of benefit to the Guarantor. The Guarantor finds it to be in the direct business and economic interest of the Guarantor that the Borrower obtain the loans, credit and financial accommodations from the Agents and the Banks provided for in the Agreement. The Guarantor understands that the Agents and the Banks are willing to grant the loans, credit and financial accommodations to the Borrower provided for in the Agreement only upon certain terms and conditions, one of which is that the Guarantor unconditionally guarantee the payment of the Debt and this instrument is being executed and delivered by the Guarantor to satisfy that condition and in consideration of the Agents and the Banks entering into the Agreement. 3. GUARANTY. The Guarantor hereby absolutely, irrevocably and unconditionally guarantees (a) the punctual and full payment of all and every portion of the Debt when due, by acceleration or otherwise, whether now owing or hereafter arising, (b) the prompt observance and performance by the Borrower of each and all of the Borrower's covenants, undertakings, obligations and agreements set forth in the Agreement, the Notes and/or any other instruments evidencing or pertaining thereto, and (c) the prompt payment of all expenses and costs, including reasonable attorneys' fees, incurred by or for the account of the Agents and/or the Banks in connection with any action to enforce payment or collection of the Debt from the Borrower and/or the Guarantor or to prepare any amendments, restatements or modifications of the Agreement, the Notes and/or this Guaranty. If the Debt or any part thereof shall not be paid in full punctually when due and payable, the Agents and/or the Banks in each case shall have the right to proceed directly against the Guarantor under this Guaranty regardless of whether or not the Agents and/or the Banks shall have theretofore proceeded or shall then be proceeding against the Borrower or any other Obligor or Collateral, if any, or any of the foregoing, it being understood that the Agents and/or the Banks in their sole discretion may proceed or not proceed against the Borrower, the Obligors and/or any Collateral and may exercise or not exercise each right, power or privilege that the Agents and/or the Banks may at any time have, either simultaneously or separately and, in any event, at such time or times and as often and in such order as the Agents and/or the Banks in their sole discretion, may from time to time deem expedient, all without affecting the obligations of the Guarantor hereunder or the right of the -8- Agents and/or the Banks to demand and/or enforce performance by the Guarantor of the Guarantor's obligations hereunder. 4. REINSTATEMENT. This Guaranty shall continue to be effective or be reinstated, as the case may be, if any amount paid by or on behalf of the Borrower to the Agents or the Banks on or in respect of the Debt is rescinded, restored or returned in connection with the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or any other Obligor, or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any other Obligor or any part of the property of the Borrower or any other Obligor, or otherwise, all as though such payment had not been made. 5. WAIVERS. The Guarantor waives any and all contractual, legal and/or equitable rights of subrogation, contribution, exoneration, indemnity and/or reimbursement from or against the Borrower or any Obligor with respect to the Debt and/or any payments made by the Guarantor on account of this Guaranty. 6. ADDITIONAL AGREEMENTS. Regardless of the duration of time, regardless of whether the Borrower may from time to time cease to be indebted to the Banks and irrespective of any act, omission or course of dealing whatever on the part of the Agents and/or the Banks, the Guarantor's liabilities and other obligations under this Guaranty shall remain in full force and effect until the full and final payment of all of the Debt. Without limiting the generality of the foregoing: 6.1. The obligations of the Guarantor hereunder shall not be released, discharged or in any way affected, nor shall the Guarantor have any rights or recourse against the Agents or the Banks by reason of (a) any action the Agents or the Banks may take or omit to take, or (b) any defense raised or asserted by the Borrower against enforcement of the Agreement or the Notes or any challenge to the sufficiency or enforceability of the Agreement, any of the Notes or this Guaranty, or (c) any act or thing that might otherwise operate as a legal or equitable discharge of a surety, as to which the Guarantor hereby expressly waives any and all defenses available to a surety except irrevocable payment in full of the Debt. 6.2. The obligations of the Guarantor under this Guaranty shall be satisfied strictly in accordance with the terms of this Guaranty, under all circumstances whatsoever, including, without limitation, the existence of any claim, setoff, defense or right which the Guarantor or the Borrower may have at any time against the Agents or the Banks or any other Person or entity, whether in connection with this Guaranty, the Agreement, the Notes or the transactions contemplated hereby or any unrelated transaction. 6.3. The Banks shall at no time be under any duty to the Guarantor to grant any loans, credit or financial accommodation to the Borrower, irrespective of any duty or commitment of the Banks to the Borrower, or to follow or direct the application of the proceeds of any such loans, credit or financial accommodation. 6.4. The Guarantor waives (a) notice of the granting of any loan to the Borrower or the incurring of any other Indebtedness, including, but not limited to the creation of the Debt by the Borrower or the terms and conditions thereof, (b) presentment, notice of -9- nonpayment, demand for payment, protest, notice of protest and notice of dishonor of the Notes or any other Indebtedness incurred by the Borrower to the Banks, (c) notice of any indulgence granted to any Obligor, (d) notice of the Banks' acceptance of this Guaranty, and (e) any other notice to which the Guarantor might, but for the within waiver, be entitled. 6.5. The Agents and/or the Banks in their sole discretion may, without prejudice to their rights under this Guaranty, at any time or times (a) grant the Borrower whatever loans, credit or financial accommodations that the Banks, or any thereof, may from time to time deem advisable, even if the Borrower might be in default and even if those loans, credit or financial accommodations might not constitute Debt the payment of which is guaranteed hereunder, (b) assent to any renewal, extension, consolidation or refinancing of the Debt or any part thereof, (c) forbear from demanding security, if the Agents and/or the Banks shall have the right to do so, (d) release any Obligor or Collateral or assent to any exchange of Collateral, if any, irrespective of the consideration, if any, received therefor, (e) grant any waiver or consent or forbear from exercising any right, power or privilege that the Agents and/or the Banks may have or acquire, (f) assent to any amendment, deletion, addition, supplement or other modification in, to or of any writing evidencing or securing any Debt or pursuant to which any Debt is created, (g) grant any other indulgence to any Obligor, (h) accept any Collateral for or other Obligors upon the Debt or any part thereof, or (i) fail, neglect or omit in any way to realize upon any Collateral or to protect the Debt or any part thereof or any Collateral therefor. 6.6. The Guarantor's liabilities and other obligations under this Guaranty shall survive any merger, consolidation or dissolution of the Guarantor. 6.7. The Guarantor's liabilities and other obligations under this Guaranty shall be absolute and unconditional irrespective of any lack of validity or enforceability of any agreement, instrument or document evidencing the Debt or related thereto, or any other defense available to the Guarantor in respect of this Guaranty. 7. REPRESENTATIONS AND WARRANTIES. The Guarantor represents and warrants that (a) it is a duly organized and validly existing corporation under the laws of the State of Ohio, (b) the execution, delivery and performance of this Guaranty have been duly authorized by all necessary corporate action, (c) there is no prohibition in either its Articles of Incorporation, Code of Regulations or in any agreement, instrument, judgment, decree or order to which it is a party that in any way restricts or prohibits the execution, delivery and performance of this Guaranty in any respect, (d) this Guaranty has been duly executed and delivered by the Guarantor and is a valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, and (e) as of October 31, 2003, there are 36,000,000 shares authorized of Class B Common Stock of the Guarantor of which 13,716,192 shares are issued and outstanding. The Guarantor further represents and warrants that this Guaranty is made in furtherance of the purposes for which the Guarantor was incorporated and is necessary to promote and further the business of the Guarantor and that the assumption by the Guarantor of its obligations hereunder will result in direct financial benefits to the Guarantor. -10- This Guaranty is not made in connection with any consumer loan or consumer transaction. The Guarantor further represents and warrants that (a) the Guarantor has received consideration which is the reasonably equivalent value of the obligations and liabilities that the Guarantor has incurred to the Agents and/or the Banks, (b) the Guarantor is not insolvent as defined in any applicable state or federal statute, nor will the Guarantor be rendered insolvent by the execution and delivery of this Guaranty to the Agents and the Banks, (c) the Guarantor is not engaged or about to engage in any business or transaction for which the assets retained by the Guarantor shall be an unreasonably small capital, taking into consideration the obligations to the Agents and the Banks incurred hereunder, and (d) the Guarantor does not intend to, nor does the Guarantor believe, that the Guarantor will incur debts beyond the Guarantor's ability to pay as they become due. The Guarantor further represents and warrants that the Guarantor has provided to the Agent three copies of all promissory notes or other writings evidencing any Trading Loans outstanding on the date hereof and that the Guarantor has no other Indebtedness outstanding from any Subsidiary to the Guarantor. 8. NOTICES. The Agents and/or the Banks shall be deemed to have knowledge or to have received notice of any event, condition or thing only if the Agents and/or the Banks shall have received written notice thereof as provided in the Agreement. A written notice shall be deemed to have been duly given to the Guarantor whenever a writing to that effect shall have been sent by registered or certified mail to the Guarantor at the address set forth opposite the Guarantor's signature below (or to such other address of the Guarantor as the Guarantor may hereafter furnish to the Banks in writing for such purpose), but no other method of giving notice to or making a request of the Guarantor is hereby precluded. 9. COVENANTS. The Guarantor hereby agrees to perform and observe and to cause each Subsidiary to perform and observe, all of the following covenants and agreements: 9.1. INSURANCE. Each Company will: (a) insure itself and all of its insurable properties to such extent, by such insurers and against such hazards and liabilities as is generally done by businesses similarly situated, it being understood that the Guarantor has obtained a fidelity bond for such of its employees as handle funds belonging to the Borrower or the Guarantor, (b) give the Agent prompt written notice of any material reduction or adverse change in that Company's insurance coverage, and (c) forthwith upon any Bank's or the Agent's written request, furnish to each Bank and the Agent such information in writing about that Company's insurance as any Bank or the Agent, as applicable, may from time to time reasonably request. -11- 9.2. MONEY OBLIGATIONS. Each Company will pay in full: (a) prior in each case to the date when penalties would attach, all taxes, assessments and governmental charges and levies (except only those so long as and, to the extent that, the same shall be contested in good faith by appropriate and timely proceedings diligently pursued and taxes and assessments on inconsequential parcels of vacant land, the nonpayment of which does not materially adversely affect the financial condition of the Guarantor) for which it may be or become liable or to which any or all of its properties may be or become subject, (b) all of its wage obligations to its employees in compliance with the Fair Labor Standards Act (29 U.S.C. Section 206-207) or any comparable provisions, and (c) all of its other obligations calling for the payment of money (except only those so long as and to the extent that the same shall be contested in good faith by appropriate and timely proceedings diligently pursued) before such payment becomes overdue; provided that, notwithstanding the foregoing, the Guarantor shall not make any payment on account of any of the Senior Notes in the event of and during the continuance of any Payment Default under the Agreement or this Guaranty. 9.3. RECORDS. Each Company will: (a) at all times maintain true and complete records and books of account and, without limiting the generality of the foregoing, maintain appropriate reserves for possible losses and liabilities, all in accordance with generally accepted accounting principles applied on a basis not inconsistent with its present accounting procedures, and (b) at all reasonable times permit each Bank to examine that Company's books and records and to make excerpts therefrom and transcripts thereof. 9.4. FRANCHISES. Each Company will preserve and maintain at all times its corporate existence, rights and franchises; provided, that this Section shall not apply to (a) any merger of a Subsidiary into the Guarantor or into another Subsidiary, (b) any consolidation of a Subsidiary with another Subsidiary, or (c) any dissolution of any Subsidiary, except in each case where the Subsidiary is the Borrower. 9.5. NOTICE. The Guarantor will cause its Chief Financial Officer, or in his or her absence another officer designated by the Chief Financial Officer, to promptly notify the Banks whenever (a) any Event of Default or Possible Default may occur hereunder (including, without limitation, any default under any of the Senior Notes, the Indenture or any other document relating thereto (after giving effect to any applicable grace period)) or any representation or warranty made herein may for any reason cease in any material respect to be true and complete, and/or (b) any Restricted Subsidiary shall (i) be in default of any material (either with respect to the Borrower or the Guarantor) obligation for payment of borrowed money, or, to the knowledge of the Guarantor, any material obligations in respect of guarantees, taxes and/or Indebtedness for goods or services purchased by, or other contractual obligations of, such Subsidiary, and/or (ii) not, to the knowledge of the Guarantor, be in compliance with any law, order, rule, judgment, ordinance, regulation, license, franchise, lease or other agreement that -12- has or could reasonably be expected to have a material adverse effect on the business, operations, property or financial condition of the Subsidiary, and/or (c) the Guarantor and/or the Subsidiary shall have received notice, or have knowledge, of any actual, pending or threatened claim, notice, litigation, citation, proceeding or demand relating to any matter(s) described in subclauses (b)(i) and (b)(ii) of this Section 9.5. Further, the Guarantor shall notify the Banks not less than thirty (30) days in advance of entering into any proposed amendment or modification of any of the Senior Notes or the Indenture, whether or not the Guarantor believes that the consent of the Required Banks is needed therefor pursuant to Section 9.10(h)(iii) of this Guaranty. 9.6. ERISA COMPLIANCE. No Company will incur any material accumulated funding deficiency within the meaning of the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations thereunder or any material liability to the Pension Benefit Guaranty Corporation, established thereunder in connection with any Plan. Each Company will furnish (i) as soon as possible and in any event within thirty (30) days after such Company knows or has reason to know that any Reportable Event with respect to any Plan has occurred, a statement of the Chief Financial Officer of such Company setting forth details as to such Reportable Event and the action which such Company proposes to take with respect thereto, together with a copy of the notice of such Reportable Event given to the Pension Benefit Guaranty Corporation if a copy of such notice is available to such Company, (ii) promptly after the filing thereof with the United States Secretary of Labor or the Pension Benefit Guaranty Corporation, copies of each annual report with respect to each Plan established or maintained by such Company for each plan year, including (x) where required by law, a statement of assets and liabilities of such Plan as of the end of such plan year and statements of changes in fund balance and in financial position, or a statement of changes in net assets available for plan benefits, for such plan year, certified by an independent public accountant satisfactory to the Banks, and (y) an actuarial statement of such Plan applicable to such plan year, certified by an enrolled actuary of recognized standing acceptable to the Banks, and (iii) promptly after receipt thereof a copy of any notice such Company, any Subsidiary or any member of the Controlled Group may receive from the Pension Benefit Guaranty Corporation or the Internal Revenue Service with respect to any Plan administered by such Company; provided, that this latter clause shall not apply to notices of general application promulgated by the Pension Benefit Guaranty Corporation or the Internal Revenue Service. As used in this Section 9.6, "material" means the measure of a matter of significance which shall be determined as being an amount equal to five percent (5%) of each Company's ERISA Net Worth. 9.7. FINANCIAL STATEMENTS. The Guarantor will furnish to each Bank: (a) within forty-five (45) days (or fifty (50) days so long as the Guarantor will not be reporting an Event of Default on such Form 10-Q report) after the end of each quarter-annual period of each fiscal year of the Guarantor, a copy of the Guarantor's Form 10-Q quarterly report as filed by the Guarantor with the Securities and Exchange Commission, (b) within forty-five (45) days (or fifty (50) days so long as the Guarantor shall not have reported an Event of Default to the Securities and Exchange Commission during such fiscal period nor on its most recent filing with the Securities and Exchange -13- Commission) after the end of each of the first three (3) quarter-annual fiscal periods of each fiscal year of the Guarantor, an unaudited consolidated and consolidating balance sheet of the Guarantor as at the end of that period and an unaudited consolidated and consolidating statement of income of the Guarantor for the Guarantor's current fiscal year to date, all prepared in form and detail in accordance with GAAP, consistently applied, or the Pro Rata Consolidation Method, as applicable, and certified by a Senior Officer of the Guarantor, subject to changes resulting from quarter-end adjustments, together with a certificate of a Senior Officer of the Guarantor (i) specifying the nature and period of existence of each Event of Default and/or Possible Default, if any, and the action taken, being taken or proposed to be taken by the Guarantor in respect thereof or if none, so stating, and (ii) certifying that the representations and warranties of the Guarantor set forth herein are true and correct as of the date of such certificate, or, if not, all respects in which they are not, and (iii) a covenant compliance worksheet in the form and substance of Schedule 9.7(b) hereof completed as of the end of such fiscal quarterly period, (c) within ninety (90) days (or ninety-five (95) days so long as the Guarantor shall not have reported an Event of Default to the Securities and Exchange Commission during such fiscal period nor on its most recent filing with the Securities and Exchange Commission) after the end of each fiscal year of the Guarantor, an annual report on Form 10-K as filed by the Guarantor with the Securities and Exchange Commission, including the complete audited consolidated balance sheets and statements of income of the Guarantor for that year certified by an independent public accountant satisfactory to the Banks, and an unaudited consolidating balance sheet and statement of income of the Parent for the current fiscal year, each in form and detail satisfactory to the Banks, and prepared in accordance with GAAP, consistently applied, or the Pro Rata Consolidation Method, as applicable, together with (i) a report of the independent certified public accountant with an opinion that is not qualified as to the scope of the audit or as to the status of the Guarantor or the Borrower as a going concern, (ii) a certificate of the Senior Officer of the Guarantor (X) specifying the nature and period of existence of each Event of Default and/or Possible Default, if any, and the action taken, being taken or proposed to be taken by the Guarantor in respect thereof or if none, so stating, and (Y) certifying that the representations and warranties of the Guarantor set forth herein are true and correct as of the date of such certificate, or, if not, all respects in which they are not, and (iii) a fully completed covenant compliance worksheet in the form and substance of Schedule 9.7(b) hereof relating to such fiscal year duly certified by the Guarantor's accountants, (d) concurrently with furnishing any quarterly financial statement or audit report pursuant to this Section 9.7, a certificate by Charles A. Ratner, Albert Ratner, Samuel H. Miller or Thomas G. Smith stating whether any Company has made any guaranty or incurred any Indebtedness referred to in Section 9.10(d) or Section 9.12(g) hereof and, if so, the details thereof, (e) as soon as available, copies of all notices, reports, proxy statements and other similar documents sent by the Guarantor to its shareholders, to the holders of any of its debentures or bonds or the trustee of any indenture securing the same or pursuant to which they have been issued, to any securities exchange or to the Securities -14- Exchange Commission or any similar federal agency having regulatory jurisdiction over the issuance of the Guarantor's securities, (f) within forty-five (45) days after the end of each fiscal quarter of the Guarantor, a schedule setting forth the aggregate Measured Credit Risk as of the last day of such fiscal quarter, along with the remaining available Measured Credit Risk permitted by Section 9.10(j), (g) within one hundred twenty (120) days after the end of each fiscal year of the Guarantor, a calculation of the consolidated leverage of the Guarantor as of the last day of such fiscal year, with such details and explanations as may be reasonably required by the Banks, and (h) forthwith upon any Bank's written request such other information of any Company's financial condition and business, including, but not limited to any management letters of accountants addressed to the Guarantor or the Borrower. 9.8. EBDT. The Guarantor will not suffer or permit its EBDT, as of any Fiscal Quarterly Date falling within the periods set forth below, for the Test Period ending on such Fiscal Quarterly Date, to be less than the amount set forth below for the respective periods set forth below:
Period EBDT ------ ---- January 31, 2004 $190,000,000 February 1, 2004 through January 31, 2005 $200,000,000 February 1, 2005 through January 31, 2006 $210,000,000 February 1, 2006 and thereafter $220,000,000
9.9. COMBINATIONS, BULK TRANSFERS. (a) No Restricted Company will be a party to any consolidation or merger or lease, sell or otherwise transfer all or any substantial part of its assets or sell, pledge, hypothecate or transfer its stock or other ownership interests in any Subsidiary; provided, that this Section 9.9 shall not apply to any transfer (as opposed to a pledge) effected in the normal course of business on commercially reasonable terms and provided, further, that a Restricted Company shall only be permitted to pledge its stock or other ownership interests in any of its Subsidiaries that is a single asset or special purpose entity (each, a "Pledged Subsidiary") to secure the following: (i) additional or mezzanine Indebtedness incurred with respect to a project encumbered by a first mortgage at the time such additional or mezzanine Indebtedness is incurred, so long as such additional or mezzanine Indebtedness is permitted under Section 9.10 of this Guaranty provided, that the sum of the then existing Indebtedness with respect to such project plus such additional or mezzanine Indebtedness does not -15- exceed eighty percent (80%) of the appraised value of the project at the time such additional or mezzanine Indebtedness is incurred; or (ii) primary Indebtedness (or the re-financing thereof) incurred solely for the purpose of acquiring real property or for construction or redevelopment purposes; provided, that such primary Indebtedness (or the re-financing thereof) does not exceed one hundred percent (100%) of the appraised value of the acquired property at the time of such financing or re-financing, as applicable. (b) In addition to the foregoing, (i) such pledges of stock or other ownership interests in a Pledged Subsidiary given to secure Indebtedness described in Section 9.9(a)(i) or Section 9.9(b)(ii)(Y) may be made with respect to no more than fifteen (15) individual properties, collectively with the Borrower, all its Subsidiaries and all Restricted Companies at any one time, exclusive of the properties set forth on Schedule 9.9A of this Guaranty, and (ii) the aggregate of all such (X) additional or mezzanine Indebtedness described in Section 9.9(a)(i) above and (Y) primary Indebtedness described in Section 9.9(a)(ii) above in excess of eighty percent (80%) of the appraised value of the property, in each case for which such a pledge may be provided by a Restricted Company, shall not exceed Two Hundred Million Dollars ($200,000,000) in the aggregate for all pledges provided by the Restricted Companies, the Borrower and its Subsidiaries, taken together. (c) The Guarantor will deliver to the Agents and the Banks an updated schedule, in the form of Schedule 9.9 attached hereto, listing all of the properties as to which a pledge of stock or other ownership interests has been provided to a lender in accordance with Section 9.9(b), within forty-five (45) days after each Fiscal Quarterly Date. 9.10. BORROWINGS. No Restricted Company will create, assume or suffer to exist any Indebtedness of any kind including, but not limited to, leases required to be capitalized under Financial Accounting Standards Board Standard No. 13 or any reimbursement obligations or other liabilities with respect to letters of credit issued for any Restricted Company's account; provided, that this Section 9.10 shall not apply to any of the following (collectively, "Permitted Debt"): (a) any loan obtained by Forest City Trading Group, Inc., formerly known as American International Forest Products, Inc. (or any of its wholly-owned Subsidiaries) from any lender other than the Companies, (b) any loan obtained from the Guarantor by any Restricted Subsidiary and, in the ordinary course of business by Forest City Trading Group, Inc. (or any of its wholly-owned Subsidiaries), (c) any real estate loan heretofore or hereafter obtained or guaranteed by the Guarantor for the purpose of financing any building to be used only for the business -16- of Guarantor and its Subsidiaries, provided, that no such loan shall exceed eighty percent (80%) of the lender's appraisal of the real estate being financed, (d) any loan or letter of credit that is obtained or guaranteed by the Guarantor; provided, that the Guarantor's aggregate personal liability in respect of all such loans (other than any loan obtained by the Guarantor and permitted by any other clause of this Section 9.10) and letters of credit and in respect of all guaranteed loans referred to in clause (f) of Section 9.12 hereof, does not then exceed and after incurring such loan or letter of credit or the guarantee thereof in question would not exceed, Ten Million Dollars ($10,000,000), (e) leases required to be capitalized under Financial Accounting Standards Board Standard No. 13 in the aggregate amount for all Restricted Subsidiaries of Three Million Dollars ($3,000,000), (f) any secured Indebtedness of a Restricted Company created in the course of purchasing or developing real estate or financing construction (or any refinancings thereof) or other improvements thereon or purchasing furniture, fixtures or other equipment therefor or any other Indebtedness of any Restricted Company or any refinancings thereof; provided, that no Restricted Company (other than a Restricted Company whose sole assets consist of contiguous parcels of land which are being purchased or developed with such financing, the improvements, if any, thereon, furniture, fixtures and other equipment used in connection therewith, receivables arising from tenants in connection therewith and the proceeds of such receivables and other property directly obtained from the ownership of such assets) shall have any personal liability for such Indebtedness, the creditors' recourse being solely to the property being pledged as collateral for such Indebtedness and the income therefrom, (g) any Trading Loans, provided, that each of the following conditions is satisfied as to each of such Trading Loans: (i) the aggregate principal amount of all the Trading Loans may not exceed Ten Million Dollars ($10,000,000); (ii) no interest shall accrue or be payable with respect to any Trading Loan; (iii) there shall be no scheduled principal payments prior to the maturity date of any Trading Loan, as any promissory notes evidencing such Trading Loans may be extended from time to time; no principal payments shall be made on any Trading Loan at any time that a Possible Default or Event of Default exists under the Guaranty or the Agreement, or at any time that the Agent has determined, in its sole discretion, that there has been a material adverse change in the financial condition of the Guarantor; and the Trading Loans, either individually or in the aggregate, shall not be revolving loans and, if any principal payments are made on any Trading Loan, the Ten Million Dollars ($10,000,000) maximum -17- amount of permissible Trading Loans set forth above shall automatically and irrevocably decline by like amount upon such payment; (iv) each Trading Loan shall be expressly subordinate in right of payment to the prior payment in full of the Indebtedness under the Guaranty and the Agreement, whether such Indebtedness arises due to a Term Loan, a Revolving Loan or otherwise; (v) an event of default as to any Trading Loan(s) will automatically constitute an Event of Default under the Agreement, the Notes and the Guaranty; and (vi) each Trading Loan shall be evidenced by a written promissory note, including the terms set forth above in clauses (i) through (v) and shall otherwise be in form and substance approved in advance by the Agent, executed by the Guarantor and Forest City Trading Group, Inc. and, in the case of any Trading Loan(s) on or after the date of the date hereof, executed by such parties not later than the date of the first disbursement of such Trading Loan, a copy of which note(s) shall be provided within ten (10) days after execution, (h) any Indebtedness or obligations of the Guarantor under the Senior Notes; provided, that, (i) none of the Senior Notes nor the Indenture may provide that an Event of Default under the Agreement or this Guaranty constitutes a default under any of the Senior Notes or the Indenture, except in the case of an Event of Default that constitutes the failure to pay the principal of any Debt when due and payable after the expiration of any applicable grace period with respect thereto and shall have resulted in the acceleration of such Debt or constitutes the failure to pay any portion of the principal of the Debt when due and payable after acceleration or maturity; (ii) the Indebtedness represented by the Senior Notes shall be unsecured, pari passu with the Guarantor's obligations under this Guaranty and structurally subordinate to the Borrower's Obligations to the Banks under the Agreement; (iii) none of the Senior Notes nor the Indenture shall be amended or modified without the prior written consent of the Required Banks, including, without limitation, (A) to allow the maturity of any of the Senior Notes to be less than ten (10) years from the respective date of issue, (B) to provide for payment of interest under any of the Senior Notes more frequently than quarterly, or (C) to modify the redemption provisions contained therein, including adding additional redemption provisions, other than amendments or modifications that do not adversely -18- affect the Agreement or this Guaranty or their relationship to any of the Senior Notes or the Indenture, (iv) the outstanding and unredeemed principal amount of the Senior Notes shall not, at any time, exceed Four Hundred Million Dollars ($400,000,000) in the aggregate; and (v) the terms and conditions of the 2003 Senior Notes, the 2004 Senior Notes and the Indenture shall be satisfactory, in form and substance, to the Agents and the Banks, (i) any Indebtedness or obligations of the Guarantor under the Surety Bonds or the Indemnity Agreement to a maximum aggregate principal amount of $30,000,000.00 minus the aggregate stated amount of all letters of credit then outstanding for the account of the Borrower under the Agreement in excess of $10,000,000; provided, such Indebtedness is fully subordinated to the obligations of the Guarantor under this Guaranty as set forth in the Subordination Agreement, (j) any Indebtedness of the Guarantor or Forest City Capital Corporation under any Hedge Agreement relating to Indebtedness otherwise permitted under this Guaranty, provided, that, any Hedge Agreement proposed to be entered into or guaranteed by the Guarantor or entered into by Forest City Capital Corporation, as applicable, in each case with a Person that is not a Bank that results in an aggregate Measured Credit Risk for all Hedge Agreements entered into with Persons other than a Bank, in excess of $33,500,000, shall require the prior written consent of the Required Banks (such written consent to be delivered by each consenting Bank to the Agent not more than three (3) Business Days after the request for such consent has been delivered by the Guarantor to the Agent, provided, that, each Bank that does not deliver such written consent within such three (3) Business Day period shall be deemed to have denied the request for such Hedge Agreement). (k) any Indebtedness of the Guarantor with respect to deferred taxes that are due and payable in excess of twelve (12) months from the date of the incurrence of such tax liability, (l) any Indebtedness permitted by Section 9.12(g) hereof, or (m) any Indebtedness of the Guarantor permitted by Section 9.13(d) hereof that replaces the Indebtedness evidenced by the Senior Notes. 9.11. LIENS. No Restricted Company will: (a) sell or otherwise transfer any Receivables, including, but not limited to, any mortgages held by the Guarantor or any of its Subsidiaries, other than in the ordinary course of business, (b) acquire any property subject to any land contract, conditional sale contract or other title retention contract, or -19- (c) suffer or permit any property now owned or hereafter acquired by it to be or become encumbered by any mortgage, security interest, financing statement, encumbrance or Lien of any kind or nature; provided, that this Section 9.11 shall not apply to: (i) any Lien for a tax, assessment or other governmental charge or levy so long as the payment thereof is not required by Section 9.2(a) hereof, (ii) any Lien securing only workmen's compensation, unemployment insurance or similar obligations, (iii) any mechanic's, warehousemen's, carrier's or similar common law or statutory Lien incurred in the normal course of business, (iv) any mortgage, security interest or other Lien encumbering property of any Restricted Subsidiary for the purpose of securing any Indebtedness owing by only that Subsidiary, (v) any mortgage, security interest or other Lien encumbering property of the Guarantor and securing any Indebtedness or liability of the Guarantor permitted by clause (c) of Section 9.10 or by Section 9.12 hereof, (vi) any Lien permitted by Section 8.15 of the Agreement, (vii) any transfer made in the ordinary course of business by Forest City Trading Group, Inc. (or any of its wholly-owned Subsidiaries), or (viii) any financing statement perfecting a security interest permitted by this Section 9.11. 9.12. GUARANTEES. No Restricted Company will be or become a guarantor of any kind; provided, that this Section 9.12 shall not apply to: (a) any endorsement of a check or other medium of payment for deposit or collection through normal banking channels or any similar transaction in the normal course of business, (b) any indemnity or guaranty of a surety bond for the performance by a customer of a Restricted Company of the customer's obligations under a land development contract, (c) any guarantee by the Guarantor of a real estate loan permitted by clause (c) of Section 9.10, (d) any Completion Guaranty with respect to a real estate building project, if the Guarantor or any Company is the developer of the project or has a property interest in the project (including, but not limited to, a Non-Affiliate Construction Project), -20- (e) the guarantee by the Guarantor set forth in Section 3 hereof, (f) any other guarantee by the Guarantor, provided, that the Guarantor's aggregate personal liability in respect of all of such other guarantees and all Indebtedness described in subsection (a) of the definition of Indebtedness (other than any loan permitted by clauses (a) through (c), inclusive, of Section 9.10 hereof) does not exceed, and after making the guarantee in question would not exceed, Ten Million Dollars ($10,000,000), (g) any unsecured guarantee by the Guarantor or any Restricted Subsidiary of the equity investment or performance of a Subsidiary (other than any Indebtedness of such Subsidiary incurred for borrowed money) in connection with a real estate project in favor of a partner or member, or a partnership or limited liability company in which such Subsidiary is a general partner or a member, as applicable, when the Guarantor or such Restricted Subsidiary, as the case may be, deems it to be in its best interest not to be a partner, a member, or have a direct interest in the partnership or limited liability company, as applicable, (h) the guarantee by the Guarantor of the obligations of Franklin Town Towers Associates located in Philadelphia, Pennsylvania, with respect to Museum Towers, in the original principal amount of Twenty Million Four Hundred Thousand Dollars ($20,400,000), provided, that such obligations shall not be amended, restated or otherwise modified without the prior written consent of the Banks, (i) any guarantee or indemnity by the Guarantor or any Restricted Subsidiary for fraud, misappropriation, misapplication or environmental problems, as are usual and customary in commercial mortgage loan transactions entered into by the Guarantor and/or such Restricted Subsidiary, provided, that such a guarantee or indemnity may be given by the Guarantor or a Restricted Subsidiary, but not both (unless such Restricted Subsidiary is also the borrower in the particular commercial mortgage loan transaction), in connection with any particular commercial mortgage loan transaction, (j) subject to Section 9.10(j) hereof, any guarantee by the Guarantor of an unsecured Hedge Agreement permitted by Section 8.04 of the Agreement entered into by a Subsidiary (other than the Borrower), (k) subject to the limitations set forth in Section 9.19 of this Guaranty, any Completion Guaranty, or (l) the guarantee in connection with the Park Creek Metropolitan District and Stapleton Land LLC located in Stapleton, Colorado, with respect to the $19,000,000 Park Creek District Subordinate Limited Property Tax Revenue Bonds, Series 2003A and the $10,000,000 Park Creek District Subordinate Limited Property Tax Revenue Bonds, Series 2003-B, provided, that such guarantee obligations shall not be amended, restated or otherwise modified without the prior written consent of the Banks. -21- 9.13. REDEMPTIONS, PREPAYMENTS, AND DIVIDENDS. (a) The Guarantor will not directly or indirectly purchase, acquire, redeem or retire any shares of its capital stock at any time outstanding or set aside funds for any such purpose, except that, from and after the Closing Date, so long as no Event of Default or violation of Section 9.14 of this Guaranty shall have occurred or will result after giving effect to such purchase acquisition, redemption or retirement, the Guarantor may purchase, acquire, redeem or retire shares of its outstanding capital stock in an aggregate amount not to exceed Thirty Million Dollars ($30,000,000) minus any amounts paid as permitted by Section 9.13(c) hereof, in any yearly period measured by the anniversary dates of the Closing Date of the Agreement thereafter, (b) The Guarantor will not directly or indirectly pay any principal of, make sinking fund payments in respect of or purchase any Indebtedness now or hereafter owing by the Guarantor other than any principal payment, sinking fund payment or purchase the omission of which would (or with the giving of notice or the lapse of any applicable grace period or both) accelerate, or give any one the right to accelerate, the maturity of such Indebtedness in accordance with the original terms thereof; provided, that, notwithstanding the foregoing, the Guarantor shall not make any payment on account of the Senior Notes in the event of and during the continuance of any Payment Default under the Agreement or this Guaranty, (c) The Guarantor will not directly or indirectly declare or pay any Dividends, except that, from and after the Closing Date, so long as no Event of Default shall have occurred and be continuing hereunder and no Event of Default shall have occurred and be continuing under the Agreement, the Guarantor may pay Dividends in any aggregate amount not to exceed Thirty Million Dollars ($30,000,000) minus any amounts paid as permitted by Section 9.13(a) hereof, in any yearly period measured by the anniversary dates of the Closing Date of the Agreement thereafter, (d) The Guarantor shall not directly or indirectly exercise its optional redemption rights, under the terms of any of the Senior Notes or the Indenture, to redeem any of the Senior Notes prior to its maturity date, or to deposit monies or other assets with the trustee under the Indenture for the payment of any one or more Senior Notes or the release of restrictive covenants thereunder, by defeasance, without in each case the prior written consent of the Required Banks, except that the Guarantor may take any of the above listed actions in connection with a refinancing of the Indebtedness represented by the Senior Notes without the prior consent of the Banks, in each case only so long as such refinancing does not (i) result in an increase in the aggregate principal amount of Indebtedness of the Guarantor as of the date of such proposed refinancing, (ii) create Indebtedness that has a maturity earlier than the final maturity of the Senior Notes, (iii) create a security interest in any property of the Guarantor or any of its Subsidiaries, or (iv) result in Indebtedness that is senior to the Indebtedness owing to the Banks under this Guaranty or the Agreement. Executed copies of any and all documentation evidencing or relating to such refinancing shall be delivered to the Agent within five (5) Cleveland Banking Days of the execution of such documentation, -22- (e) In the event of and during the continuance of any Event of Default under the Agreement or under this Guaranty other than a Payment Default, the Guarantor shall not cause the Borrower to declare, pay, or make, and shall not accept payment of, any Dividends in respect of Capital Stock of the Borrower, or, notwithstanding any other provision of the Agreement or this Guaranty to the contrary, any loans or advances to the Guarantor, (any such Dividends or loans are referred to herein as "Distributions") in excess of the sum of the amount sufficient to pay, when due, all interest payments in respect of the Senior Notes and the amounts sufficient to pay, when due, all taxes of the Guarantor (collectively, "Permitted Distributions"); provided, that any Permitted Distributions shall be applied by the Guarantor strictly to the permitted uses specified above, and (f) Notwithstanding the provisions of Section 9.13(e) of this Guaranty, in the event and during the continuance of any Payment Default, the Guarantor shall not cause the Borrower to pay or make, and shall not accept payment of, any Distributions. 9.14. CASH FLOW COVERAGE RATIO. The Guarantor will not permit the Cash Flow Coverage Ratio, at any time, to be less than 2.25:1.00. 9.15. CONSOLIDATED GAAP SHAREHOLDERS' EQUITY. The Guarantor will not permit the Consolidated GAAP Shareholders' Equity to be less than (a) on the Closing Date, Six Hundred Twenty-Five Million Dollars ($625,000,000) and (b) at any date of determination thereafter, the sum of (i) Six Hundred Twenty-Five Million Dollars ($625,000,000), plus (ii) one hundred percent (100%) of the cash proceeds from any sale or issuance of equity, plus (iii) fifty percent (50%) of the Guarantor's consolidated GAAP net income, in each case, for the year-to-date period ended on such Fiscal Quarterly Date. 9.16. ENVIRONMENTAL COMPLIANCE. The Guarantor will comply with any and all Environmental Laws including, without limitation, all Environmental Laws in jurisdictions in which the Guarantor or any Restricted Subsidiary owns property, operates, arranges for disposal or treatment of hazardous substances, solid waste or other wastes, accepts for transport any hazardous substances, solid waste or other wastes or holds any interest in real property or otherwise. The Guarantor will furnish to the Banks promptly after receipt thereof a copy of any notice the Guarantor or any Restricted Subsidiary may receive from any governmental authority, private person or entity or otherwise that any litigation or proceeding pertaining to any environmental, health or safety matter has been filed or is threatened against the Guarantor or such Restricted Subsidiary, any real property in which the Guarantor or such Restricted Subsidiary holds any interest or any past or present operation of the Guarantor or such Restricted Subsidiary. The Guarantor will not knowingly allow the storage, release or disposal of hazardous waste, solid waste or other wastes on, under or to any real property in which the Guarantor holds any interest or performs any of its operations, in violation of any Environmental Law. As used in this Section, "litigation or proceeding" means any demand, claim, notice, suit, suit in equity, action, administrative action, investigation or inquiry whether brought by any governmental authority, private person or entity or otherwise. The Guarantor shall defend, indemnify and hold the Banks harmless against all costs, expenses, claims, damages, penalties and liabilities of every kind or nature whatsoever (including attorneys' fees) arising out of or resulting from the noncompliance of the Guarantor or any Restricted Subsidiary with any -23- Environmental Law, provided, that, so long as and to the extent that the Banks are not required to make any payment or suffer to exist any unsatisfied judgment, order, or assessment against them, the Guarantor may pursue rights of appeal to comply with such Environmental Laws. In any case of noncompliance with any Environmental Law by a Restricted Subsidiary, the Banks' recourse for such indemnity herein shall be limited solely to the property of the Restricted Subsidiary holding title to the property involved in such noncompliance and such recovery shall not be a lien, or a basis of a claim of lien or levy of execution, against either the Guarantor's general assets or the general assets of any of its Restricted Subsidiaries. 9.17. PLAN. Neither the Guarantor nor any Restricted Subsidiary will suffer or permit any Plan to be amended if, as a result of such amendment, the current liability under the Plan is increased to such an extent that security is required pursuant to Section 307 of the Employee Retirement Income Security Act of 1974, as amended from time to time. As used herein, "current liability" means current liability as defined in Section 307 of such Act. 9.18. [Reserved.] 9.19. CROSS COLLATERALIZATION AND CROSS DEFAULTS. (a) Except as expressly permitted by this Section 9.19, neither the Guarantor nor any Restricted Company will (i) cross-default or agree to cross-default any Permitted Debt to this Guaranty or the Debt; (ii) agree to any financial covenants based on the performance of the Guarantor under any other Permitted Debt (other than the Debt); or (iii) cross-collateralize, or agree to cross-collateralize Permitted Debt (other than the Debt) owing to any one lender under one or more different loan agreements or arrangements, provided, that the cross-defaulted and/or cross-collateralized Indebtedness set forth on Schedule 9.19 attached hereto shall be permitted, provided, further, that such Schedule 9.19 shall not be amended or otherwise modified after the Closing Date without the prior written consent of the Agent. (b) Notwithstanding Section 9.19(a) above: (i) with respect to construction projects that are constructed in multiple phases and/or stabilized properties, any Restricted Company shall be permitted to cross-default and/or cross-collateralize any Permitted Debt with other Permitted Debt (other than, in each case, the Debt), but only if the phases to be cross-collateralized in and/or cross-defaulted consist of a single identifiable project; (ii) under a Completion Guaranty granted by the Guarantor to a construction lender, the Guarantor shall be permitted to agree to a financial covenant solely with respect to the Guarantor's net worth, but only if (A) the Indebtedness related to such Completion Guaranty is in excess of One Hundred Million Dollars ($100,000,000), (B) the Indebtedness related to such Completion Guaranty has a maturity of two (2) years or greater, not including extensions, (C) any net worth financial covenant is calculated in substantially the same manner as the covenant set forth in Section 9.15 of this Guaranty and requires a net worth for the Guarantor of not more than Two Hundred Seventy Five -24- Million Dollars ($275,000,000) and (D) the aggregate of all Indebtedness subject to such Completion Guaranties shall not exceed Four Hundred Million Dollars ($400,000,000), exclusive of the Indebtedness incurred in connection with the projects set forth on Schedule 9.19 to this Guaranty; (iii) under any Completion Guaranty granted by the Guarantor that contains the net worth financial covenant referred to in Section 9.19(b)(ii) above, (A) the construction lender shall not be permitted to call upon such Completion Guaranty due solely to a violation of such net worth financial covenant and (B) the construction lender shall only be permitted to call upon such Completion Guaranty if the project is not performing (i.e. not on budget and/or schedule); and (iv) with respect to Hedge Agreements permitted by this Guaranty, the related documentation may provide that an Event of Default will constitute an event of default under such Hedge Agreement, provided, that the Hedge Agreement also provides that the counterparty may not terminate or have any remedy under the Hedge Agreement on account of any Event of Default unless (A) the Banks have provided a written notice of the Event of Default to the Borrower, (B) all applicable cure periods have lapsed without the Event of Default being cured and (C) the Banks may accelerate the maturity of the Revolving Loans on the basis of the Event of Default. 9.20. OWNERSHIP OF LAND. The Guarantor shall not, and shall not permit any Restricted Subsidiary to purchase, lease or otherwise acquire any real property of any kind after the Closing Date, other than any real property to be used only for the business of the Guarantor or any such Restricted Subsidiary, in each case, as such business has been conducted prior to the Closing Date. 9.21. PERMITTED NON-AFFILIATE LOAN REPORTS. Within forty-five (45) days after each Fiscal Quarterly Date, the Guarantor will furnish to each Bank a report setting forth (a) each Permitted Non-Affiliate Loan that is outstanding as of such Fiscal Quarterly Date and (b) for the three year period ending on such Fiscal Quarterly Date, the aggregate amount of gain deferred for federal income tax purposes on the consolidated return of the Guarantor in connection with any Non-Affiliate Construction Projects, and, if requested by the Agents or any Bank, accompanied by all applicable tax forms filed or to be filed in connection with such Non-Affiliate Construction Projects. 10. DEFAULT; REMEDIES. The Guarantor shall be in default hereunder in the event that any of the following (each an "Event of Default") shall occur or exist: (a) Any representation or warranty made by the Guarantor, or any of its officers, herein, or in any written statement or certificate furnished at any time in connection herewith, shall prove untrue in any material respect as of the date it was made, or -25- (b) The Guarantor shall fail to observe, perform, or comply with any obligation, covenant, agreement, or undertaking of the Guarantor set forth in Sections 3, 9.5, 9.8, 9.13, 9.14 and/or 9.15 hereof, or (c) The Guarantor shall fail to observe, perform, or comply with any obligation, covenant, agreement, or undertaking of the Guarantor set forth in any section or provision hereof other than those identified specifically in subsection (b) above and the Guarantor shall not have corrected such failure within thirty (30) days after the giving of written notice thereof to the Guarantor by the Agent or any Bank that the specified failure is to be corrected, or (d) The Guarantor and/or any Restricted Subsidiary defaults in any payment of principal or interest due and owing upon any Indebtedness in excess of $1,000,000, or, in the case of the Guarantor, in the payment or performance of any obligation permitted to be outstanding or incurred pursuant to Sections 9.10 and/or 9.12 hereof in excess of $1,000,000, beyond any period of grace provided with respect thereto or in the performance of any other agreement, term or condition contained in any agreement under which any such obligation is created, if the effect of such default is to accelerate the maturity of the related Indebtedness or to permit the holder thereof to cause such Indebtedness to become due prior to its stated maturity or foreclose on any lien on property of the Guarantor securing the same, except that defaults in payment or performance of non-recourse obligations of the Guarantor or any Restricted Subsidiary shall not constitute Events of Default under this Section 10(d) unless such defaults have, individually or in the aggregate, a material adverse effect on the business or financial condition of the Guarantor; provided, that it shall be an Event of Default hereunder if any default occurs (after giving effect to any applicable grace period) under the Senior Notes permitted by Section 9.10(h) of this Guaranty or under the Indenture, or (e) (i) any Restricted Subsidiary shall (A) generally not pay its debts as such debts become due, or (B) make a general assignment for the benefit of creditors, or (C) apply for or consent to the appointment of a receiver, a custodian, a trustee, an interim trustee or liquidator of itself or all or a substantial part of its assets, or (D) be adjudicated a debtor or have entered against it an order for relief under Title 11 of the United States Code, as the same may be amended from time to time, or (E) file a voluntary petition in bankruptcy or file a petition or an answer seeking reorganization or an arrangement with creditors or seeking to take advantage of any other law (whether federal or state) relating to relief of debtors, or admit (by answer, by default or otherwise) the material allegations of a petition filed against it in any bankruptcy, reorganization, insolvency or other proceeding (whether federal or state) relating to relief of debtors, or (F) suffer or permit to continue unstayed and in effect for thirty (30) consecutive days any judgment, decree or order, entered by a court of competent jurisdiction, which approves a petition seeking its reorganization or appoints a receiver, custodian, trustee, interim trustee or liquidator of itself or of all or a substantial part of its assets, or (G) take or omit to take any other action in order thereby to effect any of the foregoing or (H) fail to pay and discharge all lawful taxes, assessments, and governmental charges or levies imposed upon it or its income, profits, or properties, and/or all lawful claims for labor, materials, and supplies, which, if unpaid, might become a lien or charge against such -26- properties, in all cases before the same shall become in default, or (I) fail to comply with any and all Environmental Laws applicable to such Subsidiary, its properties, or activities, or (J) fail to observe, perform, or fulfill any of its obligations, covenants or conditions contained in any evidence of Indebtedness or other contract, decree, order, judgment, or instrument to which such Subsidiary is a party or by which it or its assets are bound, and (ii) any such event or events described in (i) above shall in the reasonable judgment of the Banks have a material adverse effect on the business or financial condition of the Guarantor, or (f) An Event of Default specified in Article X of the Agreement shall have occurred and be continuing, or (g) The Guarantor shall (i) make a general assignment for the benefit of creditors, (ii) file a voluntary petition under any chapter or provision of Title 11 United States Code (Bankruptcy), as from time to time in effect (the "Bankruptcy Code") or a petition or answer seeking reorganization of the Guarantor or a readjustment of its Indebtedness under the Bankruptcy Code or any other federal or state law providing for relief of debtors, reorganization, liquidation, or arrangements with creditors, (iii) consent to the appointment of a receiver or trustee of its properties, or (iv) cease to be or be unable to pay its debts generally as they become due, or (h) Relief shall be ordered against the Guarantor as debtor in any involuntary case under the Bankruptcy Code, or a petition or proceedings for bankruptcy or for reorganization shall be filed against the Guarantor under the Bankruptcy Code or any other federal or state law providing for relief of debtors, reorganization, liquidation, or arrangements with creditors, and the Guarantor shall admit the material allegations thereof, or an order, judgment or decree entered therein shall not be vacated or stayed within thirty (30) days of its entry, or a receiver or trustee shall be appointed for the Guarantor or its properties or any part thereof and remain in possession thereof for thirty (30) days, or (i) The Guarantor defaults in the performance of any obligation in the Subordination Agreement or in the performance of any other agreement, covenant, term or condition in the Subordination Agreement, then, in any such event (other than an Event of Default referred to in Section 10(g) or 10(h) above), and at any time thereafter, the Agent and/or the Required Banks may at their option, by written notice delivered or mailed to the Guarantor, do any one or more of the following: (a) declare the Debt to be immediately due and payable, and upon any such declaration such Debt shall become and be forthwith due and payable by Guarantor without any further notice, presentment, or demand of any kind, all of which are expressly waived by the Guarantor, or (b) require the Guarantor to purchase the Debt at par value, without recourse, within ten (10) days after such notice, by paying to the Agent, in immediately available U.S. funds, an amount equal to the unpaid principal amount then outstanding on the Notes and any other matured or unmatured Debt owing to the Banks, plus the unpaid accrued interest on the Notes at the rate or rates determined in accordance with the Agreement. If any Event of Default referred to in Section 10.07(e), 10.07(f) or 10.07(g) of the Agreement or any Event of Default referred to in -27- Section 10(g) or 10(h) of this Guaranty shall occur, the Debt shall become and thereafter be immediately due and payable by the Guarantor without any presentment, demand, or notice of any kind, all of which are hereby waived by the Guarantor. The foregoing rights, powers, and remedies of the Agent and the Banks are not exclusive and are in addition to any and all other rights, powers, and remedies provided for hereunder (including, without limitation, under Section 13 hereof), at law, and/or in equity. The exercise by the Agent and/or the Banks of any right, power, or remedy shall not waive or preclude the exercise of any other rights, powers, and/or remedies. 11. MISCELLANEOUS. The foregoing rights, powers, and remedies of the Agent and the Banks are not exclusive and are in addition to any and all other rights, powers, and remedies provided for hereunder, at law, and/or in equity. The exercise by the Agent and/or the Banks of any right, power, or remedy shall not waive or preclude the exercise of any other rights, powers, and/or remedies. This Guaranty shall bind the Guarantor and its successors and assigns and shall inure to the benefit of the Agent and the Banks and their respective successors and assigns including (without limitation) each holder of any Note. The provisions of this Guaranty and the respective rights and duties of the Guarantor and the Agent and/or the Banks hereunder shall be interpreted and determined in accordance with Ohio law, without regard to principles of conflict of laws. If at any time one or more provisions of this Guaranty is or becomes invalid, illegal or unenforceable in whole or in part, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. This Guaranty constitutes a final written expression of all of the terms of this Guaranty, is a complete and exclusive statement of those terms and supersedes all oral representations, negotiations, and prior writings, if any, with respect to the subject matter hereof. The relationship between the Guarantor and the Agent and/or the Banks with respect to this Guaranty is and shall be solely that of debtor and creditor, respectively, and the Agent and/or the Banks have no fiduciary obligation to the Guarantor with respect to this Guaranty or the transactions contemplated thereby. All representations and warranties of the Guarantor shall survive the execution and delivery of this Guaranty and be and remain true and correct until this Guaranty is discharged. Captions herein are for convenient reference only and shall have no effect on the interpretation of any provision hereof. The Guarantor acknowledges that it, either directly or indirectly through its representatives, has participated in the drafting of this Guaranty, and any applicable rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in connection with the construction or interpretation of this Guaranty. 12. JURY TRIAL WAIVER. THE GUARANTOR WAIVES THE RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN OR AMONG THE GUARANTOR AND THE AGENT, THE BANKS, AND/OR THE BORROWER ARISING OUT OF OR IN CONNECTION WITH THE AGREEMENT, THIS GUARANTY, OR ANY OTHER AGREEMENT, INSTRUMENT OR DOCUMENT EXECUTED OR DELIVERED IN CONNECTION THEREWITH OR THE TRANSACTIONS RELATED THERETO. 13. NOTICES. Except as otherwise expressly provided herein, all notices, requests, demands and other communications provided for hereunder shall be in writing (including telegraphic, telex, facsimile, transmission or cable communication) and mailed, telexed, telegraphed, facsimile transmitted, cabled or delivered, if to the Guarantor, addressed to -28- it at the address specified on the signature pages of this Guaranty, if to a Bank, addressed to the address of such Bank specified on the signature pages of the Agreement and if to the Agents, addressed to them at the address of the Agent or the Syndication Agent, as applicable, specified on the signature pages of the Agreement. All notices, statements, requests, demands and other communications provided for hereunder shall be deemed to be given or made when delivered or forty-eight (48) hours after being deposited in the mails with postage prepaid by registered or certified mail or delivered to a telegraph company, addressed as aforesaid, except that notices from the Guarantor to the Agent or the Banks pursuant to any of the provisions hereof shall not be effective until received by the Agent or the Banks. 14. CONSENT TO JURISDICTION. The Guarantor agrees that any action or proceeding to enforce or arising out of this Guaranty may be commenced in the Court of Common Pleas for Cuyahoga County, Ohio or in the District Court of the United States for the Northern District of Ohio, and the Guarantor waives personal service of process and agrees that a summons and complaint commencing an action or proceeding in any such court shall be properly served and shall confer personal jurisdiction over the Guarantor if served to the Guarantor at the address listed opposite the signature of the Guarantor at the end of this Guaranty or as otherwise provided by the laws of the State of Ohio or the United States. 15. ENTIRE AGREEMENT. This Guaranty and any other agreement, document or instrument attached hereto or referred to herein or executed on or as of the date hereof integrate all the terms and conditions mentioned herein or incidental hereto and supersede all oral representations and negotiations and prior writings with respect to the subject matter hereof. 16. INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of an Event of Default if such action is taken or condition exists, and if a particular action or condition is expressly permitted under any covenant, unless expressly limited to such covenant, the fact that it would not be permitted under the general provisions of another covenant shall not constitute an Event of Default if such action is taken or condition exists. [The remainder of this page intentionally left blank.] -29- IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed as of the date set forth above, by an officer thereunto duly authorized. Address: FOREST CITY ENTERPRISES, INC. 1100 Terminal Tower Cleveland, Ohio 44113 By: /s/ THOMAS G. SMITH -------------------------------- Thomas G. Smith Executive Vice President, Chief Financial Officer and Secretary [Signature page of Guaranty] EX-21 5 l06556aexv21.txt EX-21 SUBSIDIARIES Exhibit 21 EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT The voting securities of the subsidiaries below are in each case owned by Forest City Enterprises, Inc. except where a subsidiary's name is indented, in which case that subsidiary's voting securities are owned by the next preceding subsidiary whose name is not so indented.
Percentage of Voting Securities State of Incorporation / Name of Subsidiary Owned by Immediate Parent Organization - ------------------ ------------------------- ------------------------ Forest City Rental Properties Corporation 100 Ohio Forest City Residential Group, Inc. 100 Ohio Forest City Stapleton, Inc. 100 Colorado Forest City Commercial Group, Inc. 100 Ohio Forest City Commercial Holdings, Inc. 100 New York Forest City Central Station, Inc. 100 Ohio Sunrise Development Co. 100 Ohio Forest City Trading Group, Inc. 100 Oregon
EX-23 6 l06556aexv23.txt EX-23 CONSENT OF PRICEWATERHOUSECOOPERS LLP Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-22695, 333-41437, 333-84282 and 333-87378) and Registration Statements on Form S-8 (Nos. 33-65054, 33-65058, 333-38912, and 333-61925) of Forest City Enterprises, Inc. and Subsidiaries of our report dated March 11, 2004 relating to the financial statements and financial statement schedules, which appears in this Form 10-K. /s/PricewaterhouseCoopers Cleveland, Ohio March 31, 2004 EX-24 7 l06556aexv24.txt EX-24 POWERS OF ATTORNEY EXHIBIT 24A DIRECTOR AND/OR OFFICER OF FOREST CITY ENTERPRISES, INC. FORM 10-K POWER OF ATTORNEY The undersigned Director and/or Officer of Forest City Enterprises, Inc., an Ohio corporation (the "Corporation"), hereby constitutes and appoints Charles A. Ratner, with full power of substitution and resubstitution, as attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for the fiscal year ended January 31, 2004, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pertaining to such filing, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorney and any such substitute. EXECUTED as of March 17, 2004. Signature: /s/ Samuel H. Miller -------------------- Printed Name: Samuel H. Miller Title: Director, Treasurer and Co-Chairman of the Board EXHIBIT 24B DIRECTOR AND/OR OFFICER OF FOREST CITY ENTERPRISES, INC. FORM 10-K POWER OF ATTORNEY The undersigned Director and/or Officer of Forest City Enterprises, Inc., an Ohio corporation (the "Corporation"), hereby constitutes and appoints Charles A. Ratner, with full power of substitution and resubstitution, as attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for the fiscal year ended January 31, 2004, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pertaining to such filing, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorney and any such substitute. EXECUTED as of March 22, 2004. Signature: /s/ Albert B. Ratner -------------------- Printed Name: Albert B. Ratner Title: Director and Co-Chairman of the Board EXHIBIT 24C DIRECTOR AND/OR OFFICER OF FOREST CITY ENTERPRISES, INC. FORM 10-K POWER OF ATTORNEY The undersigned Director and/or Officer of Forest City Enterprises, Inc., an Ohio corporation (the "Corporation"), hereby constitutes and appoints Charles A. Ratner, with full power of substitution and resubstitution, as attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for the fiscal year ended January 31, 2004, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pertaining to such filing, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorney and any such substitute. EXECUTED as of March 16, 2004. Signature: /s/ Brian J. Ratner ------------------- Printed Name: Brian J. Ratner Title: Director and Executive Vice President - Development EXHIBIT 24D DIRECTOR AND/OR OFFICER OF FOREST CITY ENTERPRISES, INC. FORM 10-K POWER OF ATTORNEY The undersigned Director and/or Officer of Forest City Enterprises, Inc., an Ohio corporation (the "Corporation"), hereby constitutes and appoints Charles A. Ratner, with full power of substitution and resubstitution, as attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for the fiscal year ended January 31, 2004, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pertaining to such filing, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorney and any such substitute. EXECUTED as of March 17, 2004. Signature: /s/ James A. Ratner ------------------- Printed Name: James A. Ratner Title: Director and Executive Vice President EXHIBIT 24E DIRECTOR AND/OR OFFICER OF FOREST CITY ENTERPRISES, INC. FORM 10-K POWER OF ATTORNEY The undersigned Director and/or Officer of Forest City Enterprises, Inc., an Ohio corporation (the "Corporation"), hereby constitutes and appoints Charles A. Ratner, with full power of substitution and resubstitution, as attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for the fiscal year ended January 31, 2004, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pertaining to such filing, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorney and any such substitute. EXECUTED as of March 17, 2004. Signature: /s/ Ronald A. Ratner -------------------- Printed Name: Ronald A. Ratner Title: Director and Executive Vice President EXHIBIT 24F DIRECTOR AND/OR OFFICER OF FOREST CITY ENTERPRISES, INC. FORM 10-K POWER OF ATTORNEY The undersigned Director and/or Officer of Forest City Enterprises, Inc., an Ohio corporation (the "Corporation"), hereby constitutes and appoints Charles A. Ratner, with full power of substitution and resubstitution, as attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for the fiscal year ended January 31, 2004, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pertaining to such filing, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorney and any such substitute. EXECUTED as of March 17, 2004. Signature: /s/ Thomas G. Smith ------------------- Printed Name: Thomas G. Smith Title: Executive Vice President, Chief Financial Officer and Secretary EXHIBIT 24G DIRECTOR AND/OR OFFICER OF FOREST CITY ENTERPRISES, INC. FORM 10-K POWER OF ATTORNEY The undersigned Director and/or Officer of Forest City Enterprises, Inc., an Ohio corporation (the "Corporation"), hereby constitutes and appoints Charles A. Ratner, with full power of substitution and resubstitution, as attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for the fiscal year ended January 31, 2004, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pertaining to such filing, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorney and any such substitute. EXECUTED as of March 16, 2004. Signature: /s/ Linda M. Kane ----------------- Printed Name: Linda M. Kane Title: Senior Vice President and Corporate Controller EXHIBIT 24H DIRECTOR AND/OR OFFICER OF FOREST CITY ENTERPRISES, INC. FORM 10-K POWER OF ATTORNEY The undersigned Director and/or Officer of Forest City Enterprises, Inc., an Ohio corporation (the "Corporation"), hereby constitutes and appoints Charles A. Ratner, with full power of substitution and resubstitution, as attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for the fiscal year ended January 31, 2004, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pertaining to such filing, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorney and any such substitute. EXECUTED as of March 16, 2004. Signature: /s/ Deborah Ratner Salzberg --------------------------- Printed Name: Deborah Ratner Salzberg Title: Director EXHIBIT 24I DIRECTOR AND/OR OFFICER OF FOREST CITY ENTERPRISES, INC. FORM 10-K POWER OF ATTORNEY The undersigned Director and/or Officer of Forest City Enterprises, Inc., an Ohio corporation (the "Corporation"), hereby constitutes and appoints Charles A. Ratner, with full power of substitution and resubstitution, as attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for the fiscal year ended January 31, 2004, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pertaining to such filing, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorney and any such substitute. EXECUTED as of March 17, 2004. Signature: /s/ Michael P. Esposito, Jr. ---------------------------- Printed Name: Michael P. Esposito, Jr. Title: Director EXHIBIT 24J DIRECTOR AND/OR OFFICER OF FOREST CITY ENTERPRISES, INC. FORM 10-K POWER OF ATTORNEY The undersigned Director and/or Officer of Forest City Enterprises, Inc., an Ohio corporation (the "Corporation"), hereby constitutes and appoints Charles A. Ratner, with full power of substitution and resubstitution, as attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for the fiscal year ended January 31, 2004, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pertaining to such filing, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorney and any such substitute. EXECUTED as of March 18, 2004. Signature: /s/ Scott S. Cowen ------------------ Printed Name: Scott S. Cowen Title: Director EXHIBIT 24K DIRECTOR AND/OR OFFICER OF FOREST CITY ENTERPRISES, INC. FORM 10-K POWER OF ATTORNEY The undersigned Director and/or Officer of Forest City Enterprises, Inc., an Ohio corporation (the "Corporation"), hereby constitutes and appoints Charles A. Ratner, with full power of substitution and resubstitution, as attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for the fiscal year ended January 31, 2004, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pertaining to such filing, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorney and any such substitute. EXECUTED as of March 18, 2004. Signature: /s/ Jerry V. Jarrett -------------------- Printed Name: Jerry V. Jarrett Title: Director EXHIBIT 24L DIRECTOR AND/OR OFFICER OF FOREST CITY ENTERPRISES, INC. FORM 10-K POWER OF ATTORNEY The undersigned Director and/or Officer of Forest City Enterprises, Inc., an Ohio corporation (the "Corporation"), hereby constitutes and appoints Charles A. Ratner, with full power of substitution and resubstitution, as attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for the fiscal year ended January 31, 2004, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pertaining to such filing, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorney and any such substitute. EXECUTED as of March 17, 2004. Signature: /s/ Joan K. Shafran ------------------- Printed Name: Joan K. Shafran Title: Director EXHIBIT 24M DIRECTOR AND/OR OFFICER OF FOREST CITY ENTERPRISES, INC. FORM 10-K POWER OF ATTORNEY The undersigned Director and/or Officer of Forest City Enterprises, Inc., an Ohio corporation (the "Corporation"), hereby constitutes and appoints Charles A. Ratner, with full power of substitution and resubstitution, as attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for the fiscal year ended January 31, 2004, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pertaining to such filing, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorney and any such substitute. EXECUTED as of March 17, 2004. Signature: /s/ Louis Stokes ---------------- Printed Name: Louis Stokes Title: Director EXHIBIT 24N DIRECTOR AND/OR OFFICER OF FOREST CITY ENTERPRISES, INC. FORM 10-K POWER OF ATTORNEY The undersigned Director and/or Officer of Forest City Enterprises, Inc., an Ohio corporation (the "Corporation"), hereby constitutes and appoints Charles A. Ratner, with full power of substitution and resubstitution, as attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Exchange Act of 1934 an Annual Report on Form 10-K for the fiscal year ended January 31, 2004, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pertaining to such filing, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorney and any such substitute. EXECUTED as of March 16, 2004. Signature: /s/ Stan Ross ------------- Printed Name: Stan Ross Title: Director EX-31.1 8 l06556aexv31w1.txt EX-31.1 SECT. 302 CERT OF PRINCIPAL EXEC. OFFICER Exhibit 31.1 PRINCIPAL EXECUTIVE OFFICER'S CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Charles A. Ratner, certify that: 1. I have reviewed this annual report on Form 10-K of Forest City Enterprises, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 31, 2004 /s/ CHARLES A. RATNER -------------------------------------------- Name: Charles A. Ratner Title: President and Chief Executive Officer EX-31.2 9 l06556aexv31w2.txt EX-31.2 SECT. 302 CERT OF PRINCIPAL FINAN. OFFICER Exhibit 31.2 PRINCIPAL FINANCIAL OFFICER'S CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Thomas G. Smith, certify that: 1. I have reviewed this annual report on Form 10-K of Forest City Enterprises, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 31, 2004 /s/ THOMAS G. SMITH -------------------------------------------- Name: Thomas G. Smith Title: Executive Vice President, Chief Financial Officer and Secretary EX-32.1 10 l06556aexv32w1.txt EX-32.1 SECT. 906 CERTIFICATION Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report of Forest City Enterprises, Inc. (the "Company") on Form 10-K for the years ended January 31, 2004, 2003, and 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report. Date: March 31, 2004 /s/ CHARLES A. RATNER ------------------------------------------------- Name: Charles A. Ratner Title: President and Chief Executive Officer /s/ THOMAS G. SMITH ------------------------------------------------- Name: Thomas G. Smith Title: Executive Vice President, Chief Financial Officer and Secretary The foregoing certification is being furnished solely pursuant to 18 U.S.C. ss. 1350 and is not being filed as part of the Report or as a separate disclosure document. -----END PRIVACY-ENHANCED MESSAGE-----


Ohio		34-0863886

(State of incorporation)		(I.R.S. Employer Identification No.)


Terminal Tower Suite 1100	50 Public Square Cleveland, Ohio	44113

(Address of principal executive offices)		(Zip Code)


		Name of each exchange on
Title of each class		which registered
Class A Common Stock ($.33 1/3 par value)		New York Stock Exchange
Class B Common Stock ($.33 1/3 par value)		New York Stock Exchange


		Page
	PART I

Item 1.	Business		2
Item 2.	Properties		12
Item 3.	Legal Proceedings		18
Item 4.	Submission of Matters to a Vote of Security Holders		18
Item 4A.	Executive Officers of the Registrant		18

	PART II

Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters		19
Item 6.	Selected Financial Data		19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		40
Item 8.	Financial Statements and Supplementary Data		43
Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure		74
Item 9A.	Controls and Procedures		74
	PART III

Item 10.	Directors and Executive Officers of the Registrant		74
Item 11.	Executive Compensation		74
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		74
Item 13.	Certain Relationships and Related Transactions		74
Item 14.	Principal Accountant Fees and Services		74

	PART IV

Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K		75
	Signatures		83
	Certifications		85
EX-10.40 Credit Agreement
EX-10.41 Guaranty of Payment of Debt
EX-21 Subsidiaries
EX-23 Consent of PriceWaterhouseCoopers LLP
EX-24 Powers of Attorney
EX-31.1 Sect. 302 Cert of Principal Exec. Officer
EX-31.2 Sect. 302 Cert of Principal Finan. Officer
EX-32.1 Sect. 906 Certification

*		Property under construction at January 31, 2004.

†		Property opened or acquired in 2003.

(1)		This property will be consolidated in accordance with FIN No. 46(R) effective February 1, 2004.

(2)		This property will be deconsolidated in accordance with FIN No. 46(R) effective February 1, 2004.

(3)		At the completion of this project, the Company will own 177,000 square feet (approximately 16%) of the property’s 1.1 million total square feet.


x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


o		TRANSITION REPORT Pursuant to Section 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Registrant’s telephone number, including area code		216-621-6060

•		Joan K. Shafran, a director;

•		Joseph Shafran; and

•		Abraham Miller.

(1)		Effective January 31, 2004, Equity in Earnings of Unconsolidated Real Estate Entities, which was formerly included in Revenues, is now presented separately on the Company’s Consolidated Statement of Earnings on a separate line item below total expenses. Amounts for the years ended January 31, 2003, 2002, 2001 and 2000 have been reclassified accordingly.

(2)		The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”. Amounts presented have been reclassified for properties disposed of during the year ended January 31, 2004.

(3)		The Company has restated the prior period financial statements for the year ended January 31, 2003 resulting from changes in technical application of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” for retained interest. See Note A on page 50 for further discussion.


	Years Ended January 31,
	2004			2003⁽²⁾		2002⁽¹⁾
	(in thousands)
Revenues	$	6,049		$	18,817	$	12,998

Expenses
Operating expenses		4,535			12,101		6,994
Interest expense		1,033			2,922		3,505
Loss on early extinguishment of debt		190			–		–
Depreciation and amortization		781			3,752		1,753

		6,539			18,775		12,252

Gain on disposition of operating properties		6,769			6,969		–

Earnings before income taxes		6,279			7,011		746


Income tax expense
Current		2,087			1,280		245
Deferred		226			997		115

		2,313			2,277		360


Earnings before minority interest		3,966			4,734		386
Minority interest		(269	)		131		38

Net earnings from discontinued operations	$	3,697		$	4,865	$	424


Purpose of Financing
(in thousands)
Refinancings	$	642,895
Development projects (commitment)		393,675
Acquisition		66,793
Loan extensions/additional fundings		95,895

	$	1,199,258

Reduction of mortgage debt due to property dispositions	$	53,333


	Amount		Rate (1)
		(dollars in thousands)
Fixed	$	2,480,223		6.91	%
Variable
Taxable(2)		757,406		4.18	%
Tax-Exempt		320,890		1.95	%
UDAG		75,658		2.03	%

	$	3,634,177		5.80	%

(1)		Reflects weighted average interest rates including both the base index and lender margin.

(2)		Taxable variable-rate debt of $757,406 as of January 31, 2004 is protected with LIBOR swaps and caps described below. These LIBOR-based hedges protect the current debt outstanding as well as the anticipated increase in debt outstanding for projects currently under development or anticipated to be under development during the year ending January 31, 2005.


	Caps					Swaps⁽¹⁾
			Average					Average
Period Covered	Amount		Rate			Amount		Rate
	(dollars in thousands)
02/01/04 - 02/01/05⁽²⁾	$	785,771		5.18	%	$	523,387		2.63	%
02/01/05 - 02/01/06		592,256		5.83	%		336,136		3.38	%
02/01/06 - 02/01/07		90,953		7.58	%		395,605		3.50	%
02/01/07 - 02/01/08		88,493		7.58	%		142,733		4.09	%


	Caps					Swaps ⁽¹⁾
			Average					Average
Coverage	Amount		Rate			Amount		Rate
	(dollars in thousands)
02/01/04 - 02/01/05 ⁽²⁾	$	933,653		5.15	%	$	523,387		2.63	%
02/01/05 - 02/01/06		592,256		5.83	%		336,134		3.38	%
02/01/06 - 02/01/07		90,953		7.58	%		395,605		3.50	%
02/01/07 - 02/01/08		88,493		7.58	%		142,733		4.09	%


	Page
Financial Reports:
Management’s Report		44
Report of Independent Auditors		44

Consolidated Financial Statements:
Consolidated Balance Sheets		45
Consolidated Statements of Earnings		46
Consolidated Statements of Comprehensive Income		47
Consolidated Statements of Shareholders’ Equity		47
Consolidated Statements of Cash Flows		48
Notes to Consolidated Financial Statements		50

Supplementary Data:
Quarterly Consolidated Financial Data (Unaudited)		73


Financial Statement Schedules:
Schedule II–Valuation and Qualifying Accounts		80
Schedule III–Real Estate and Accumulated Depreciation		81

All other schedules are omitted because they are not applicable or the required information is presented in the consolidated financial statements or the notes thereto.


	Accumulated Other			Total
	Comprehensive Loss			Shareholders’ Equity
As originally reported	$	(8,722	)	$	705,972
As restated	$	(322	)	$	714,362


Years Ended January 31,	Incurred		Paid
	(in thousands)
2004	$	7,710	$	5,092
2003	$	6,866	$	4,504
2002	$	6,165	$	6,045


	Caps					Swaps ⁽¹⁾
			Average					Average
Period Covered	Amount		Rate			Amount		Rate
			(dollars in thousands)
02/01/04-02/01/05⁽²⁾	$	785,771		5.18	%	$	523,387		2.63	%
02/01/05-02/01/06		592,256		5.83	%		336,134		3.38	%
02/01/06-02/01/07		90,953		7.58	%		395,605		3.50	%
02/01/07-02/01/08		88,493		7.58	%		142,733		4.09	%


	Total		Scheduled				Committed		Extension		Net
Years Ending January 31,	Maturities		Amortization		Balloons		Refinancings		Options		Balloons
	(in thousands)
2005	$	337,191	$	74,209	$	262,982	$	34,608	$	110,867	$	117,507
2006	$	297,068	$	73,774	$	223,294	$	–	$	65,387	$	157,907
2007	$	719,456	$	58,870	$	660,586	$	–	$	267,001	$	393,585
2008	$	155,178	$	59,661	$	95,517	$	–	$	–	$	95,517
2009	$	266,163	$	57,640	$	208,523	$	–	$	–	$	208,523


Years Ended January 31,	Incurred		Paid
	(in thousands)
2004	$	194,590	$	188,315
2003	$	171,857	$	169,990
2002	$	174,571	$	176,027


	January 31,
	Temporary Differences						Deferred Tax
	2004			2003			2004			2003
	(in thousands)
Depreciation	$	245,758		$	196,316		$	97,197		$	77,643
Capitalized costs(1)		476,198			490,759			188,336			194,095
Tax loss carryforward		(27,645	)		(12,131	)		(9,676	)⁽²⁾		(3,760	)
Federal tax credits		–			–			(39,753	)		(41,677	)
Other comprehensive income (loss)		3,285			(550	)		1,299			(217	)
Basis in unconsolidated entities		140,502			117,847			55,568			46,608
Other		4,938			(56,901	)		1,954			(11,316	)

	$	843,036		$	735,340		$	294,925		$	261,376


Years Ending January 31,
	(in thousands)
2005	$	293,385
2006		287,328
2007		274,054
2008		264,961
2009		259,361
Later years		1,803,425

	$	3,182,514


	Options Outstanding					Options Exercisable
	Number		Weighted Average	Weighted		Number		Weighted
Range of	Outstanding at		Remaining	Average		Exercisable at		Average
Exercise Prices	January 31, 2004		Contractual Life	Exercise Prices		January 31, 2004		Exercise Prices
$ 8.18-12.27		174,850	2.6 years	$	9.58		174,850	$	9.58
$12.27-16.36		333,410	5.2 years	$	14.92		333,410	$	14.92
$16.36-20.45		328,080	4.2 years	$	18.96		328,080	$	18.96
$20.45-24.54		15,000	6.6 years	$	23.38		11,250	$	23.38
$24.54-28.63		571,115	7.1 years	$	28.53		119,992	$	28.53
$28.63-32.72		645,700	9.1 years	$	31.00		—	$	—
$36.81-40.90		18,100	9.5 years	$	40.39		—	$	—

		2,086,255					967,582


			Weighted
	Earnings from		Average
	Continuing		Common
	Operations		Shares		Per
	(Numerator)		Outstanding		Common
Years Ended January 31,	(in thousands)		(Denominator)		Share
2004
Basic earnings per share	$	38,972		49,875,430	$	.79
Effect of dilutive securities -stock options		—		696,743		(.02	)

Diluted earnings per share	$	38,972		50,572,173	$	.77

2003
Basic earnings per share	$	43,966		49,609,046	$	.89
Effect of dilutive securities -stock options		—		569,469		(.01	)

Diluted earnings per share	$	43,966		50,178,515	$	.88

2002
Basic earnings per share	$	104,231		46,740,561	$	2.23
Effect of dilutive securities -stock options		—		646,331		(.03	)

Diluted earnings per share	$	104,231		47,386,892	$	2.20


	Years Ended January 31,
	2004			2003(2)		2002(1)
	(in thousands)
Revenues	$	6,049		$	18,817	$	12,998

Expenses
Operating expenses		4,535			12,101		6,994
Interest expense		1,033			2,922		3,505
Loss on early extinguishment of debt		190			—		—
Depreciation and amortization		781			3,752		1,753

		6,539			18,775		12,252

Gain on disposition of operating properties		6,769			6,969		—

Earnings before income taxes		6,279			7,011		746

Income tax expense
Current		2,087			1,280		245
Deferred		226			997		115

		2,313			2,277		360

Earnings before minority interest		3,966			4,734		386
Minority interest		(269	)		131		38

Net earnings from discontinued operations	$	3,697		$	4,865	$	424

(1)		Effective January 31, 2004, Equity in Earnings of Unconsolidated Real Estate Entities, which was formerly included in Revenues, is now presented separately on the Company’s Consolidated Statement of Earnings on a separate line item below total expenses. Quarterly data for the periods ended April 30, July 31, and October 31, 2002 and the year ended January 31, 2003 is shown as previously reported and reconciled to the Company’s year end presentation.

(2)		The sum of quarterly earnings per share may not equal annual earnings per share due to the weighting of stock and option activity during the year.

(3)		Future dividends will depend upon such factors as earnings, capital requirements and financial condition of the Company. Retained earnings of $5,040 was available for payment of dividends as of January 31, 2004, under the restrictions contained in the revolving credit agreement with a group of banks. On March 5, 2004, the anniversary date of the long-term credit facility, this amount was restated to the $20,000 level.

(4)		The Company adopted the provisions of Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This item is explained in Note P in the Notes to the Consolidated Financial Statements. Quarterly data for the periods ended April 30, July 31, and October 31, 2003 and year ended January 31, 2003 is shown as reported and reconciled to the Company’s year-end presentation. No adjustment is shown for the Quarter ended January 31, 2004.


	Page No.
Schedule II – Valuation and Qualifying Accounts for the years ended January 31, 2004, 2003 and 2002		80

Schedule III – Real Estate and Accumulated Depreciation at January 31, 2004 with reconciliations for the years ended January 31, 2004, 2003 and 2002		81-82

The report of the independent auditors with respect to the above listed financial statement schedules appears on page 44.

Schedules other than those listed above are omitted for the reason that they are not required or are not applicable, or the required information is shown in the consolidated financial statements or notes thereto. Columns omitted from schedules filed have been omitted because the information is not applicable.


Exhibit
Number		Description of Document

3.1	- -	Amended Articles of Incorporation adopted as of October 11, 1983, incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended October 31, 1983 (File No. 1-4372).




3.2	- -	Code of Regulations as amended June 14, 1994, incorporated by reference to Exhibit 3.2 to the Company’s Form 10-K for the fiscal year ended January 31, 1997 (File No.1-4372).




3.3	- -	Certificate of Amendment by Shareholders to the Articles of Incorporation of Forest City Enterprises, Inc. dated June 24, 1997, incorporated by reference to Exhibit 4.14 to the Company’s Registration Statement on Form S-3 (Registration No. 333-41437).




3.4	- -	Certificate of Amendment by Shareholders to the Articles of Incorporation of Forest City Enterprises, Inc. dated June 16, 1998, incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-8 (Registration No. 333-61925).




4.1	- -	Form of Senior Subordinated Indenture between the Company and National City Bank, as Trustee thereunder, incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-3 (Registration No. 333-22695).




4.2	- -	Form of Junior Subordinated Indenture between the Company and National City Bank, as Trustee thereunder, incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-3 (Registration No. 333-22695).




4.3	- -	Senior Note Indenture, dated as of May 19, 2003, between Forest City Enterprises, Inc., as issuer, and The Bank of New York, as trustee, incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K, filed on May 20, 2003 (File No. 1-4372).




+10.1	- -	Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Deborah Ratner Salzberg and Forest City Enterprises, Inc., insuring the lives of Albert Ratner and Audrey Ratner, dated June 26, 1996, incorporated by reference to Exhibit 10.19 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).




+10.2	- -	Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Brian J. Ratner and Forest City Enterprises, Inc., insuring the lives of Albert Ratner and Audrey Ratner, dated June 26, 1996, incorporated by reference to Exhibit 10.20 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).




+10.3	- -	Letter Supplement to Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Brian J. Ratner and Forest City Enterprises, Inc., insuring the lives of Albert Ratner and Audrey Ratner, effective June 26, 1996, incorporated by reference to Exhibit 10.21 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).




+10.4	- -	Letter Supplement to Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Deborah Ratner Salzberg and Forest City Enterprises, Inc., insuring the lives of Albert Ratner and Audrey Ratner, effective June 26, 1996, incorporated by reference to Exhibit 10.22 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).




+10.5	- -	Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Albert B. Ratner and James Ratner, Trustees under the Charles Ratner 1992 Irrevocable Trust Agreement and Forest City Enterprises, Inc., insuring the lives of Charles Ratner and Ilana Horowitz (Ratner), dated November 2, 1996, incorporated by reference to Exhibit 10.23 to the Company’s Form 10-K for the year ended January 31, 1997 (File No. 1-4372).

+		Management contract or compensatory arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 16(c).




*		Filed herewith.


			Additions
	Balance at		Charged to						Balance at
	Beginning		Costs and						End of
Description	of Period		Expenses			Deductions			Period

			(in thousands)
Allowance for doubtful accounts




January 31, 2004	$	10,383	$	2,627		$	801	^(a)	$	12,209




January 31, 2003	$	10,726	$	2,819		$	3,162	^(a)	$	10,383




January 31, 2002	$	6,999	$	8,086		$	4,359	^(a)	$	10,726




Notes receivable reserve




January 31, 2004	$	20,283	$	6,740		$	10,418	^(c)	$	16,605




January 31, 2003	$	22,780	$	2,820		$	5,317	^(c)	$	20,283




January 31, 2002	$	45,150	$	3,965		$	26,335	^(c)	$	22,780




Reserve for project write-offs




January 31, 2004	$	19,086	$	17,722	^(b)	$	17,722		$	19,086




January 31, 2003	$	15,586	$	7,920	^(b)	$	4,420		$	19,086




January 31, 2002	$	10,573	$	35,166	^(b)	$	30,153		$	15,586




Valuation reserve on other investments




January 31, 2004	$	6,096	$	656		$	—		$	6,752




January 31, 2003	$	5,465	$	631		$	—		$	6,096




January 31, 2002	$	1,200	$	4,265		$	—		$	5,465

(a)		Uncollectible accounts written off.




(b)		Additions charged to costs and expenses were recorded net of abandoned development projects written off of $17,722, $4,420 and $30,153 for the years ended January 31, 2004, 2003 and 2002, respectively.




(c)		Majority represents the reversal of reserves against notes receivable from various Federally Subsidized housing projects. See Note B in the Notes to Consolidated Financial Statements.


Signature	Title	Date


* (Albert B. Ratner)	Co-Chairman of the Board and Director	March 31, 2004

* (Samuel H. Miller)	Co-Chairman of the Board, Treasurer and Director	March 31, 2004

/s/ Charles A. Ratner (Charles A. Ratner)	President, Chief Executive Officer and Director (Principal Executive Officer)	March 31, 2004

/s/ Thomas G. Smith (Thomas G. Smith)	Executive Vice President, Chief Financial Officer and Secretary (Principal Financial Officer)	March 31, 2004

/s/ Linda M. Kane (Linda M. Kane)	Senior Vice President and Corporate Controller (Principal Accounting Officer)	March 31, 2004

* (James A. Ratner)	Executive Vice President and Director	March 31, 2004

* (Ronald A. Ratner)	Executive Vice President and Director	March 31, 2004

* (Brian J. Ratner)	Executive Vice President and Director	March 31, 2004

* (Deborah Ratner Salzberg)	Director	March 31, 2004