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Preliminary Proxy Statement

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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

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Definitive Proxy Statement

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Definitive Additional Materials

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Soliciting Material Pursuant to Section 240.14a-12

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No fee required.

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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

1)

Title of each class of securities to which transaction applies: common stock.

2)

Aggregate number of securities to which transaction applies: 31,915,014 shares of common stock.

3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): In accordance with Rule 0-11(c), the fee was calculated to be one-fiftieth of one percent of the proposed cash payment or of the value of the securities and other property to be distributed to the stockholders of Konover Property Trust, Inc. and the holders of unexercised options with exercise prices of less than the consideration per share to be paid to the holders of common stock.

4)

Proposed maximum aggregate value of transaction: $32,806,136 (calculated on the basis of (1) 15,299,092 outstanding shares of common stock that will receive the merger consideration multiplied by the transaction price of $2.10, plus (2) the product of (A) 448,403 shares which are subject to options to purchase shares with an exercise price of less than $2.10 per share and (B) the difference between $2.10 per share and the exercise price of such options).

5)

Total fee paid: $7,560

x

Fee paid previously with preliminary materials.

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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.

1)

Amount Previously Paid:

2)

Form, Schedule or Registration Statement No.:

3)

Filing Party:

4)

Date Filed:

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1.

To consider and vote upon a proposal to approve a merger of PSCO Acquisition Corp. (“PSCO”) and Konover, and the Agreement and Plan of Merger, dated June 23, 2002, as amended on July 26, 2002 between PSCO and Konover. The merger will result in:

•

PSCO merging with and into Konover, with Konover surviving the merger. Prometheus Southeast Retail Trust, which currently owns approximately 66% of our outstanding common stock, and Kimkon Inc., an indirect wholly owned subsidiary of Kimco Realty Corporation (NYSE: KIM), will own all of the outstanding shares of Konover common stock after the merger is completed. Additionally, immediately before the merger, PSCO will issue shares of redeemable preferred stock to approximately 100 individuals in order to ensure that Konover maintains its REIT status after the merger. In the merger, PSCO’s newly issued shares of redeemable preferred stock will be converted into shares of a newly created series of redeemable preferred stock; and

•

Each share of Konover common stock outstanding immediately before the effective time of the merger, other than 16,615,922 shares of Konover common stock that Prometheus will contribute to PSCO immediately before the merger, being converted into the right to receive $2.10 in cash, which may be reduced for persons subject to applicable withholding taxes.

2.

To consider and vote upon a proposal to adopt certain amendments to our charter in the manner contemplated by the merger agreement, which amendments are described in the proxy statement.

3.

To transact such other business as may properly come before such meeting or any postponements or adjournments of the meeting.

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Q:

What am I being asked to vote upon?

A:

We are asking you to consider and vote upon a proposal to approve the merger agreement and the merger. Approval by the holders of a majority of our outstanding shares of common stock is required to approve the merger proposal. We are also asking you to consider and vote upon a proposal to approve certain charter amendments in the manner contemplated by the merger agreement. Most of these charter amendments require approval by the holders of a majority of our outstanding shares of common stock. Certain additional charter amendments, principally relating to stock transfer restrictions and the ability of our board of directors to classify or reclassify unissued stock, require approval by the holders of two-thirds of our outstanding common stock. Thus, if holders of at least two-thirds of the votes entitled to be cast approve proposal two, the charter of the surviving corporation will contain all the proposed charter amendments, including the additional charter amendments. However, completing the merger is not conditioned upon approval of those additional charter amendments. Thus, if a majority of the votes entitled to be cast vote to approve the merger proposal and the charter proposal, the merger will occur and PSCO and Konover will merge, with Konover surviving the merger. Upon completion of the merger, Konover will no longer be a public company, and you will no longer own any Konover common stock.

Q:

How much will I receive for my shares of Konover common stock in the merger?

A:

If the merger is completed, you will receive $2.10 per share in cash (less applicable withholding taxes, if any) for each share of Konover common stock you own at the time of the merger, and you will have no interest in the surviving corporation. See “The Merger and Related Agreements—Conversion of Stock and Options” beginning on page 94.

Q:

What if I have options to purchase shares of Konover common stock?

A:

If you hold options to purchase shares of our common stock at an exercise price of less than $2.10 per share, you will receive a cash payment equal to the difference between $2.10 and the exercise price multiplied by the number of shares subject to your options. If your options’ exercise price is $2.10 or more, your options will be canceled in the merger without any payment or other consideration. See “The Merger and Related Agreements—Conversion of Stock and Options” beginning on page 94.

Q:

Will I have to pay taxes on the consideration I receive in the merger?

A:

If you hold shares of our common stock, the receipt of cash in the merger will generally be a taxable transaction to you in the same way as if you sold your shares for $2.10 per share in cash. See “Special Factors—Material Federal Income Tax Considerations” beginning on page 88. If you receive payment for your options as described above, the payment generally will be treated as ordinary income.

Q:

What will happen to Konover and our stockholders in the merger?

A:

As a result of the merger:

•

Konover, the surviving corporation in the merger, will become owned entirely by Prometheus and Kimkon (with the exception of shares of a newly created series of redeemable preferred stock that will be issued to holders of PSCO’s redeemable preferred stock in connection with maintaining Konover’s REIT status after the merger);

•

Konover common stockholders, except for PSCO, will receive cash in exchange for their shares and will no longer have any interest in the future earnings, losses, growth or decline of Konover. Prometheus will

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contribute 16,615,922 shares of Konover common stock to PSCO before the merger. These 16,615,922 shares will be canceled in the merger;

•

Konover will no longer be a public company; and

•

Konover’s common stock will no longer be listed or traded on the New York Stock Exchange.

Q:

Will I receive any dividends between now and the merger?

A:

In an effort to conserve cash until we determined our ultimate strategy, our board of directors ceased declaring dividends in the second quarter of 2001. The merger agreement does not permit us to declare any dividends before the merger closes, unless we need to do so in order to preserve our REIT status. However, we currently do not expect that will be necessary. Once the merger is completed, you will no longer own any stock of Konover and, therefore, will not receive any dividends for any period following the merger. See “Special Factors—Effects of the Merger” beginning on page 83.

Q:

How does Konover’s board of directors recommend I vote?

A:

Our board of directors, after careful consideration and based on various factors, including the unanimous recommendation of the special committee, has determined that the merger, merger agreement, and charter amendments are advisable and in the best interests of Konover and are fair to Konover and our unaffiliated stockholders. Accordingly, our board of directors unanimously approved the merger, the merger agreement, and the charter amendments. Our board of directors recommends that you vote to approve the merger proposal and the charter proposal. As of the record date, Prometheus owned approximately 66% of our common stock and has entered into a voting agreement obligating it to vote “For” the merger proposal and the charter proposal. Our board of directors, executive officers, and their affiliates, excluding Prometheus and our director Mark S. Ticotin, who is a Managing Principal of Lazard Freres Real Estate Investors L.L.C., the general partner of the investment funds that indirectly own Prometheus, together owned less than 40,000 shares of our common stock (including approximately 31,000 shares of our common stock issuable upon redemption of OP Units in the Operating Partnership held by our director Simon Konover and his affiliate), or less than one percent, as of the record date. Our board of directors, executive officers, and their affiliates, including Mr. Ticotin and Prometheus, owned approximately 66% of our outstanding common stock as of the record date. See “Special Factors—Reasons for the Merger; Factors Considered by the Special Committee and Board of Directors” beginning on page 63.

Q:

Are there any conditions to completing the merger?

A:

In addition to obtaining stockholder approval, which is assured pursuant to the Prometheus voting agreement noted above, the merger is also subject to the following conditions:

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Both Prometheus and Kimkon must have made certain contributions to PSCO in accordance with a co-investment agreement among Prometheus and its affiliates, Kimkon, and Kimco.

•

Our subsidiary, KPT Properties Holding Corp., must have transferred to Konover substantially all of its OP Units in the Operating Partnership.

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The Operating Partnership must have merged with a newly formed limited partnership owned by Konover. In this, the OP Merger, the Operating Partnership will be the surviving entity and the Operating Partnership’s limited partners, other than Konover and our subsidiaries, will receive a cash payment per OP Unit equal to the $2.10 per share payment our common stockholders (other than PSCO) will receive in the merger of PSCO and Konover.

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•

Following the OP Merger, the Operating Partnership must make a $12.0 million distribution to Konover. This OP Distribution will be used in part to pay the merger consideration to you.

•

Konover must deliver to PSCO letters of resignation from each member of our board of directors, other than from Messrs. Ross, Ticotin, and Zobler (the directors who were nominated by Prometheus), for such resignation to be effective as of the closing.

•

Other customary closing conditions.

Q:

What vote is required to approve the merger?

A:

Approval of the merger proposal requires the affirmative vote of the holders of a majority of the outstanding shares of Konover common stock on the record date, or 15,957,508 shares. Also, a condition to completing the merger is the approval of the charter proposal by the holders of a majority of the outstanding shares of Konover common stock on the record date. Abstentions will have the same effect as a vote against the merger proposal and the charter proposal. In connection with the execution of the merger agreement, Prometheus entered into a voting agreement with Konover and Kimkon. The voting agreement obligates Prometheus to vote in favor of approving the merger proposal and the charter proposal. As of the record date, Prometheus owned 21,052,631 shares of Konover common stock, representing approximately 66% of the outstanding voting power of Konover. See “The Special Meeting—Quorum and Vote Required” beginning on page 32.

Q:

What vote is required to approve the amendments to the charter?

A:

The form of the charter of the surviving corporation will depend on whether the holders of at least two-thirds or only a majority of our outstanding shares of common stock vote to approve the charter proposal. Most of the charter amendments must be approved by the affirmative vote of the holders of a majority of our outstanding shares of common stock on the record date, or 15,957,508 shares. Approval of these charter amendments is a condition to completing the merger. Certain additional charter amendments that relate principally to the ability of our board of directors to classify or reclassify unissued stock and to stock transfer restrictions must be approved by the holders of two-thirds of our outstanding shares of common stock on the record date, or 21,276,676. Approval of these additional charter amendments is not a condition to completing the merger. Abstentions will have the same effect as a vote against the charter proposal. As noted above, the voting agreement obligates Prometheus, which owned 21,052,631 shares of Konover common stock on the record date, representing approximately 66% of the outstanding voting power of Konover, to vote its shares in favor of approving the charter proposal and the merger proposal. See “The Special Meeting—Quorum and Vote Required” beginning on page 32, “The Merger and Related Agreements—The Merger—Amendment to Charter” beginning on page 93, and “Proposal Regarding Charter Amendments” beginning on page 111.

Q:

If I will not have a continuing interest in Konover after the merger, why are you asking me to vote on the charter amendments?

A:

We are incorporated in Maryland. Maryland law requires that charter amendments be approved by common stockholders. As of the record date, you are a common stockholder.

Q:

Can the stockholders other than Prometheus defeat the merger proposal?

A:

No. As noted above, Prometheus has entered into a voting agreement obligating it to vote in favor of the merger proposal and the charter proposal. Assuming Prometheus votes in favor of the merger proposal and the charter proposal, the merger and the merger agreement will be approved.

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Q:

Can the stockholders other than Prometheus defeat the charter proposal?

A:

The stockholders other than Prometheus cannot defeat the charter amendments that require only a majority of our outstanding shares of common stock. As noted above, Prometheus has entered into a voting agreement obligating it to vote in favor of the charter proposal and the merger proposal. Assuming Prometheus votes in favor of this proposal and the merger proposal, the charter amendments not requiring a two-thirds vote will be approved. However, Prometheus alone does not hold two-thirds of our outstanding shares of common stock, and therefore, in order to approve the charter amendments requiring a two-thirds vote, at least some of our unaffiliated stockholders also need to vote in favor of the charter proposal.

Q:

Can the charter proposal be approved if the merger proposal is not approved?

A:

No. If the merger proposal is not approved, the charter amendments will not become effective, even if the charter proposal received the affirmative vote of a majority or two-thirds of our outstanding common stock.

Q:

Can the merger proposal be approved if the charter proposal is not approved?

A:

No. If the charter proposal is not approved by at least a majority of the holders of our outstanding common stock, the merger will not become effective, even if the merger proposal received the affirmative vote of a majority of our outstanding common stock. However, the merger proposal can be approved even if the charter proposal does not receive the affirmative vote of two-thirds of our outstanding common stock, provided that the charter proposal receives the affirmative vote of at least a majority of our outstanding common stock.

Q:

What rights do I have if I oppose either the merger proposal or the charter proposal?

A:

You can vote against the merger proposal by indicating a vote against such proposal on your proxy card and signing and mailing your proxy card, or by voting against the proposal in person at the meeting. You can vote against the charter proposal by indicating a vote against such proposal on your proxy card and signing and mailing your proxy card, or by voting against the proposal in person at the meeting. Failure to submit a proxy or vote at the meeting will have the same effect as a vote against the proposals. Under Maryland law, since our common stock is listed on the New York Stock Exchange, our common stockholders do not have the right to receive the appraised value of their shares in connection with the merger. If you do not vote in favor of the proposals and the merger takes place anyway, you will be bound by the terms of the merger agreement and will receive $2.10 per share (less applicable withholding taxes, if any) for each share of Konover common stock you own at the time of the merger.

Q:

When and where will the special meeting be held?

A:

The special meeting will be held at the Omni Berkshire Place, 21 East 52nd Street at Madison Avenue, New York, New York, on Friday, November 22, 2002, at 9:00 a.m., local time. See “The Special Meeting” beginning on page 32.

Q:

Who can vote?

A:

Only our common stockholders of record as of the close of business on September 23, 2002 may vote at the meeting. See “The Special Meeting—Record Date and Voting Power” beginning on page 32.

Q:

What other matters will be voted on at the special meeting?

A:

Maryland law and our bylaws do not permit any other matters to be presented at the special meeting except related procedural matters, including adjournment of the meeting to a later date.

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Q:

How can I vote shares held in my broker’s name?

A:

If your broker or another nominee holds your shares in its name (or in what is commonly called “street name”), then you should give your broker or nominee instructions on how to vote. Otherwise, your shares will not be voted and will have the same effect as a vote against the merger proposal and the charter proposal. Your broker will provide you directions regarding how to instruct your broker to vote your shares. See “The Special Meeting—Proxies, Voting and Revocation” beginning on page 33.

Q:

Can I change my vote?

A:

You may change your vote at any time before the vote is tabulated at the meeting. For shares held directly in your name, you may do this by sending a new proxy or a written revocation to Konover’s secretary or by attending the meeting and voting there. Attending the meeting alone will not change the vote in the proxy you sent, unless you vote at the meeting. For shares held in “street name,” you may change your vote only by giving new voting instructions to your broker or nominee. See “The Special Meeting—Proxies, Voting and Revocation” beginning on page 33.

Q:

What should I do now?

A:

Please vote. If you mail your completed, signed, and dated proxy card in the enclosed envelope as soon as possible, your shares will be voted at the meeting even if you are unable to attend. No postage is required if the proxy card is returned in the enclosed postage prepaid envelope and mailed in the United States.

Q:

What does it mean if I receive more than one proxy card?

A:

It means your shares are registered differently or are held in more than one account. Please complete, sign, date, and mail each proxy card that you receive.

Q:

Should I send in my stock certificates now?

A:

No. After the merger is completed, we will send you written instructions that will tell you how to exchange your certificates for $2.10 per share in cash, less any applicable withholding taxes. Please do not send in your certificates now or with your proxies. Hold your certificates until you receive further instructions.

Q:

What happens if I sell my shares before the special meeting?

A:

The record date for the meeting is earlier than the expected completion date of the merger. If you held your shares on the record date, but have transferred those shares after the record date and before the meeting, you will retain your right to vote at the meeting, but not the right to receive the merger consideration. The right to receive the merger consideration will pass to the person to whom you transferred your shares.

Q:

Whom should I contact if I have questions about the merger proposal or the charter proposal or need additional copies of the proxy statement?

A:

If you have more questions about the merger proposal or the charter proposal or would like additional copies of this proxy statement, you should contact Daniel J. Kelly, Executive Vice President and Chief Financial Officer, Konover Property Trust, Inc., 3434 Kildaire Farm Road, Raleigh, North Carolina 27606, Telephone (919) 372-3000.

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•

16,615,922 shares of Konover common stock contributed by Prometheus;

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All of Prometheus’s rights and obligations under the contingent value right agreement, dated February 24, 1998, between Prometheus and Konover, also contributed by Prometheus; and

•

Kimkon’s contribution of $35,554,438.50 in cash.

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(1)

delivering to our secretary a written notice, bearing a later date than the previously delivered proxy, revoking the proxy;

(2)

executing, dating and delivering to our secretary a subsequently dated proxy; or

(3)

attending the meeting and voting in person. Attendance at the meeting will not, by itself, constitute revocation of a proxy. See “The Special Meeting—Proxies, Voting and Revocation.”

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•

a majority of our common stockholders approving the merger proposal and the charter proposal (approval of those additional charter amendments requiring a two-thirds vote is not a condition to the merger);

•

the representations and warranties of the other party in the merger agreement being true and correct on the closing date (without giving effect to knowledge, materiality, or material adverse effect qualifiers), subject generally to any inaccuracies, in the aggregate, not having a material adverse effect on the party making the representations and warranties;

•

the material performance of the material obligations to be performed by the other party under the merger agreement;

•

the absence of governmental actions having the effect of making the merger illegal or otherwise prohibiting the merger; and

•

Prometheus completing its contribution to PSCO of Konover common stock and its rights under the contingent value right agreement and Kimkon completing its cash contribution to PSCO. If either Prometheus or Kimkon fail to make their respective required contributions, Konover has the right, under the co-investment agreement, to seek enforcement of those contributions and the guarantees relating to the contributions.

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Konover’s subsidiary, KPT Properties Holding Corp., must have completed the OP Transfer;

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The OP Merger must be completed, which will have the effect of causing the Operating Partnership to be directly and indirectly wholly owned by Konover;

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Following the OP Merger, but before the merger of PSCO and Konover, the OP Distribution must be completed; and

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Konover must deliver to PSCO a letter of resignation from each of William D. Eberle, Carol R. Goldberg, Simon Konover, J. Michael Maloney, L. Glenn Orr, Jr. and Philip A. Schonberger, who are the members of our board of directors that were not nominated by Prometheus, with each such resignation to be effective as of the closing of the merger.

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if there has been a breach of the merger agreement that causes the representations and warranties of the other party not to be true and correct and has a material adverse effect on the party making the

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representations and warranties or causes the failure of a party to materially perform its material obligations;

•

if any final, nonappealable order of any governmental entity or court is in effect that prevents completion of the merger;

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if our stockholders do not approve the merger proposal and charter proposal at the meeting; or

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if the merger is not completed on or before March 31, 2003.

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if our board of directors withdraws or modifies in any adverse manner its approval or recommendation of the merger or approves any alternative acquisition proposal;

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if a third party commences a tender offer and our board of directors or the special committee does not recommend against accepting the offer to our stockholders (including by taking no position or a neutral position); or

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if we violate our obligation not to solicit alternative acquisition proposals.

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by PSCO, as a result of our board of directors withdrawing or modifying in any adverse manner its approval or recommendation of the merger agreement or approving or recommending to our stockholders an alternative acquisition proposal;

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by Konover, as a result of our board of directors determining to approve or recommend a superior proposal to the merger;

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by PSCO, as a result of our breach of our obligation not to solicit alternative acquisition proposals;

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by PSCO, because we breached the merger agreement and within 12 months of termination, we enter into an alternative acquisition transaction that results in the payment to our common stockholders of an amount per share of at least $2.10; or

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by Konover, because the merger was not completed by March 31, 2003, and by June 30, 2003, we enter into an alternative acquisition transaction that results in the payment to our common stockholders of an amount per share of at least $2.10.

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(a)

The following table sets forth the computation of the denominator to be used in calculating the weighted-average shares outstanding based on Statement of Financial Accounting Standard No. 128, “Earnings Per Share”.

(b)

Excludes certain properties under development during the periods.

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(a)

Represents the historical unaudited consolidated balance sheet of Konover as of June 30, 2002.

(b)

On October 10, 2002, Konover entered into a settlement agreement with the Series A convertible preferred stockholders. Pursuant to the settlement agreement, in exchange for an aggregate cash payment by Konover of $9.5 million, the Series A convertible preferred stockholders surrendered for cancellation all of their shares of Series A convertible preferred stock and warrants to purchase shares of Konover common stock, and released all claims relating to the lawsuit described in “Events Relating to the Former Holders of Series A Convertible Preferred Stock” and all claims relating to the merger, their investment in Konover, and/or Konover or our subsidiaries.

(c)

Represents the impact of the merger as described above.

(d)

Adjustments to cash and cash equivalents include (in thousands):

(e)

Represents settlement of all employee equity instruments, including deferred compensation on restricted stock and accrued liabilities under stock purchase and repurchase rights.

(f)

Represents the acquisition in the OP Merger of all OP Units not held directly or indirectly by Konover.

(g)

Represents the recapitalization of Konover.

(h)

Represents the sale by PSCO prior to the merger of 150 shares of redeemable preferred stock for $500 per share, which shares are then converted in the merger into shares of Series B redeemable preferred stock.

(i)

The pro forma consolidated statements of operations presented herein do not reflect estimated non-recurring costs attributable to the merger transaction to be expensed in future periods which consist of:

(j)

The pro forma consolidated statements of operations presented herein do not reflect planned reductions in certain general and administrative expenses arising from the merger. To date, an operating and transition plan has not been completed. In addition, legal fees related to litigation arising from the proposed merger have not been included in the pro forma consolidated statements of operations. We cannot currently estimate these legal fees.

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(k)

Represents the unaudited consolidated statement of operations of Konover for the six months ended June 30, 2002 and the audited consolidated statement of operations for the year ended December 31, 2001.

(l)

Represents the elimination of the historical unaudited statements of operations for the period from January 1, 2002 to May 15, 2002 (the date the property was sold) and the year ended December 31, 2001 of Mount Pleasant Towne Centre.

(m)

Represents the elimination of interest income on the $10.9 million of cash used in the Series A convertible preferred stock redemption described in note (b) above and the merger closing.

(n)

Represents the elimination of the historical unaudited statements of operations for the year ended December 31, 2001 of the 33 properties sold during 2001. The properties include the 31 property outlet portfolio sale in September 2001, the sale of the Shoreside shopping center in September 2001, and the sale of the Nashville outlet shopping center in December 2001.

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(1)

delivering to our secretary a written notice, bearing a later date than the previously delivered proxy, revoking the proxy;

(2)

executing, dating, and delivering to our secretary a subsequently dated proxy; or

(3)

attending the meeting and voting in person. Attendance at the meeting will not, by itself, constitute revocation of a proxy.

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•

16,615,922 shares of Konover common stock contributed by Prometheus;

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all of Prometheus’s rights and obligations under the contingent value right agreement, dated February 24, 1998, with Konover, also contributed by Prometheus; and

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Kimkon’s contribution of $35,554,438.50 in cash.

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•

Certain debt associated with the outlet properties matured in June of 2002, and we likely could not refinance a material portion of this debt on acceptable terms or possibly any terms;

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A sale of the entire company was not likely to maximize value at that time because few buyers would be interested in acquiring both outlet centers and community shopping centers;

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Our long-standing strategy of becoming a community-center company with a reduced reliance on outlet properties;

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The complexity and expense of operating both portfolios, the importance of size in operating competitively in the outlet center business, and each portfolio’s relatively small size, which made economies of scale difficult to realize;

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The oversupply and declining values of outlet properties in general and the risk that, with our outlets located primarily outside of urban areas, oversupply would disproportionately affect our outlet properties;

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The declining net operating income of the Vanity Fair-anchored outlet centers and the uncertainty of Vanity Fair renewing their leases, which expired primarily between 2002 and 2005;

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The difficulty in forecasting cash flow from the outlet properties because of the short-term nature of the leases on those properties;

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The heightened market risks of the outlet portfolio, especially our Nashville and Las Vegas outlets; and

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The financial condition of outlet tenants as being generally less favorable than that of strip center tenants.

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direct all aspects of the engagement of Credit Suisse First Boston or any successor or other financial advisor chosen by the special committee;

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engage its own counsel and other experts as it required;

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direct the performance of our employees and agents with respect to analyzing strategic alternatives; and

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negotiate and execute confidentiality and standstill agreements and other agreements with respect to reimbursing expenses of prospective buyers or strategic partners.

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the need for substantial capital to maintain the competitiveness of our properties;

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the need to refinance significant debt obligations in the short term;

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the amount of anchor-tenant space that was currently economically or physically vacant, which would be difficult to fill in the then-current economic climate;

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the risk of additional tenant bankruptcies; and

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the difficulty of retaining key employees because of our limited growth prospects.

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scale back the representations and warranties to avoid inadvertent breaches;

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relieve the burden on us of preparing the schedule of exceptions to the representations and negative covenants, called the target disclosure memorandum, which could delay completion of the agreement;

•

loosen the operating covenants to preserve our ability to operate our business in our customary manner between signing and closing;

•

revise the conditions to closing so that it would be highly unlikely that the transaction would fail to close;

•

limit proposed restrictions on our board’s of directors ability to respond to what it believed was a superior proposal made after the merger agreement was signed;

•

have Prometheus, our majority stockholder, agree to vote in favor of a superior proposal if the proposal satisfied certain conditions; and

•

limit the amount of and the conditions under which a termination fee and break-up expenses would be paid.

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the efforts of the special committee, assisted by its financial advisor, commencing in June 2001 and continuing over the subsequent twelve months, to explore and pursue strategic alternatives for us, including continuing to operate as a stand-alone company;

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that during a twelve-month period the special committee (through its financial advisor) had contact with at least 128 parties, entered into confidentiality agreements with 58 parties, received preliminary indications of interest from 21 parties concerning their possible interest in acquiring Konover or its assets, and received preliminary bids or proposals from numerous parties;

•

the $2.10 per share merger consideration is greater than that of the proposal from Kramont, the only other proposal received, and that the merger agreement with Prometheus and Kimco was fully negotiated and not subject to due diligence review, whereas the Kramont proposal was subject to negotiation of a merger agreement and further due diligence review that Kramont was not willing to continue unless it received reimbursement for its expenses if it was not the successful bidder;

•

the $2.10 per share merger consideration is higher than any price at which Konover’s common stock had traded since September 2001 (Konover’s outlet portfolio sale closed on September 25, 2001) and is substantially higher than Konover’s lowest trading price ($1.15 per share in December 2001) during the period between September 2001 and June 23, 2002 (the date the signing of the merger agreement was announced); Konover’s common stock price per share closed at $1.50 on October 1, 2001 and ranged from a low of $1.15 to a high of $1.90 from October 1, 2001 through March 13, 2002 (the last trading day prior to the public announcement of Prometheus’ first bid of $1.75 per share); the price per share ranged from a low of $1.61 to a high of $1.90 from March 14, 2002 through May 17, 2002 (the last trading day prior to the public announcement of Prometheus’ second bid of $1.90 per share); on June 21, 2002, the last trading day prior to the public announcement of the signing of the merger agreement, Konover’s common stock closed at $1.86 per share;

•

the $2.10 per share merger consideration is substantially higher than the special committee’s estimate of the price at which the market would value Konover if it remained an independent publicly-traded company, based on management’s projections of future cash flows and a discounted cash flow analysis performed by Credit Suisse First Boston which the special committee adopted (See “Special Factors—Opinion of the Special Committee’s Financial Advisor—Discounted Cash Flow Analysis”);

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the $2.10 per share merger consideration is substantially higher than the special committee’s estimate of the per share liquidation value of Konover’s assets, based on management’s estimation of fees and expenses to be incurred by Konover in connection with a liquidation and a net asset value liquidation analysis performed by Credit Suisse First Boston which the special committee adopted (See the second paragraph of “Special Factors—Opinion of the Special Committee’s Financial Advisor—Net Asset Valuation Analysis”);

•

the $2.10 per share cash merger consideration that our common stockholders will receive in the merger is above or at the top of the implied per share equity reference ranges for Konover as set forth in the financial analyses of Credit Suisse First Boston which the special committee adopted, which ranges were (i) $1.00 to $1.50 in the case of the Selected Companies Analysis; (ii) $.70 to $1.00 in the case of the Precedent Transaction Analysis; (iii) $1.90 to $2.15 (on a fully diluted basis) and $1.20 to $1.50 (assuming an orderly liquidation of Konover) in the case of the Net Asset Value Analysis; and (iv) $1.00 to $1.50 in the case of the Discounted Cash Flow Analysis (See “Special Factors—Opinion of the Special Committee’s Financial Advisor—Selected Companies Analysis; Precedent Transaction Analysis; Net Asset Value Analysis; and Discounted Cash Flow Analysis”);

•

that the merger agreement, after giving consideration to the requirements and limitations contained therein, allows us a reasonable opportunity to respond to certain third party alternative acquisition proposals, and, if a superior proposal were made, to terminate the merger agreement and accept the superior proposal up until the time of the stockholder vote on the merger, subject to certain limitations including the payment of a termination fee and expense reimbursement (See “The Merger and Related Agreements—Additional Agreements—No Solicitation of Transactions” and “The Merger and Related Agreements—Termination of the Merger Agreement”);

•

that Prometheus’s agreement to vote for a superior proposal (or tender in a tender offer representing a superior proposal) under certain conditions meant that if other strategic partners were willing to pay more for us than Prometheus and Kimco, the other party would have a reasonable chance to acquire us despite competing against an almost two-thirds’ shareholder;

•

that the percentage of the transaction value represented by the termination fee and reimbursement of out-of-pocket expenses payable, as discussed in “The Merger and Related Agreements—Termination of the Merger Agreement—Termination Fee and Expense Reimbursement,” would not unduly discourage superior third-party offers, and that the amount payable for reimbursement of expenses and the termination fee is within the range of fees and expenses in comparable transactions;

•

that Konover’s management lacked permanence and, based on Konover’s relatively small size and limited financial resources, it would have difficulty attracting and retaining qualified individuals to fill long-term management positions;

•

that the special committee was able to negotiate the purchase price up to $2.10 per share from the $1.75 per share initially offered by Prometheus;

•

that there was a publicly announced bid at $1.95 made on May 22, 2002 and that no party, other than Kramont, subsequently came forward with any offer or expression of interest at any price;

•

the financial presentation on June 23, 2002 of the special committee’s financial advisor, Credit Suisse First Boston, including its opinion, addressed to the special committee and dated June 23, 2002, as to the fairness, from a financial point of view and as of the date of the opinion, of the cash consideration to be received in the merger by our common stockholders (other than PSCO and its affiliates) (See “—Opinion of the Special Committee’s Financial Advisor”);

•

that the negotiations with Prometheus and Kimco resulted in the elimination of numerous conditions and contingencies originally proposed by Prometheus and Kimco, including substantial revisions to the representations, warranties, covenants and closing conditions; substantial modifications to the limitations on the ability of our board of directors to consider superior proposals; Prometheus’s

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agreement to vote for a superior proposal if it met certain conditions; and a reduction in the payment of break up fees if the merger agreement is terminated under certain circumstances; and

•

that the consideration to be received by the holders of our Series A convertible preferred stockholders complies with what our charter provides they are entitled to receive in connection with a going private transaction and that these charter provisions were negotiated by Konover and the original purchasers of the Series A convertible preferred stock.

•

our board of directors established the special committee to consider and negotiate the merger agreement and make a recommendation to the board of directors;

•

the special committee, which consists solely of directors who are not officers or employees of us, Prometheus or Kimkon (or any of their affiliates) and who have no financial interest in the proposed merger different from our stockholders generally, was given exclusive authority to, among other things, evaluate, negotiate and recommend the terms of any proposed transactions;

•

members of the special committee will have no continuing interest in Konover after completion of the merger;

•

the special committee had independent legal and financial advisors; and

•

the $2.10 per share cash consideration and the other terms and conditions of the merger agreement resulted from arm’s length bargaining between the special committee and its representatives, on the one hand, and Prometheus and Kimco and their representatives, on the other hand.

•

certain terms and conditions set forth in the merger agreement, required by Prometheus and Kimco as a prerequisite to entering into the merger agreement, prohibit us and our representatives from soliciting third-party bids and from accepting third-party bids except in specified circumstances and upon reimbursement of expenses relating to the merger agreement and related transactions and payment to Prometheus and Kimco of a specified termination fee, and these terms could have the effect of discouraging a third party from making a bid to acquire Konover (See “The Merger and Related

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Agreements—Additional Agreements—No Solicitation of Transactions” and “The Merger and Related Agreements—Termination of the Merger Agreement”);

•

if the merger is not consummated, under circumstances further discussed in “The Merger and Related Agreements—Termination of the Merger Agreement” we may be required to reimburse Prometheus and Kimco for expenses relating to the merger agreement and related transactions and to pay to Prometheus and Kimco the specified termination fee;

•

that Prometheus held more than a majority of our voting stock may have discouraged other parties from becoming bidders;

•

that the supplemental voting and tender agreement, which was meant to assist a bidder with a superior proposal to compete against an almost two-thirds’ stockholder, contains significant conditions to Prometheus’s obligation to support the higher bid, including the condition that the bid enable Prometheus to elect all-cash consideration and that the contingent value rights obligation be extinguished in exchange for a cash payment equal to 4.5 million multiplied by the price per share of common stock in the higher bid even though the obligation does not become due until January 1, 2004 (See “The Merger and Related Agreement— Supplemental Voting and Tender Agreement”);

•

the merger was not structured to require approval by a majority of our unaffiliated stockholders;

•

the potential conflicts of interest created by Messrs. Ross, Ticotin, and Zobler’s affiliation with the Prometheus Parties and the expectation that they will remain directors of the surviving corporation. Messrs. Ross, Ticotin, and Zobler also likely will each hold at least one share of the surviving corporation’s Series B redeemable preferred stock (See “—Interests of Directors and Officers in the Merger— Interests of Prometheus Designated Directors”);

•

following the merger, Konover will be a privately-held company, and our current common stockholders will cease to participate in any future earnings, losses, growth, or decline of Konover;

•

the merger may trigger adverse tax consequences for certain limited partners of the Operating Partnership; and

•

some alternative transactions may have been more favorable to our Series A convertible preferred stockholders, e.g., a sale of assets followed by a liquidation would have likely entitled our Series A convertible preferred stockholders to receive $25 per preferred share and a merger into another unaffiliated company may have entitled them to receive preferred stock in the surviving corporation with similar rights and preferences as they now have, including the possibility that they would eventually receive a $25 per share liquidation preference or that their convertible shares would appreciate significantly in value.

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the efforts of the special committee, assisted by its financial advisor, commencing in June 2001 and continuing over the subsequent twelve months, to explore and pursue strategic alternatives for Konover, including continuing to operate as a stand-alone company;

•

that during a twelve-month period the special committee (through its financial advisor) had contact with at least 128 parties, entered into confidentiality agreements with 58 parties, received preliminary indications of interest from 21 parties concerning their possible interest in acquiring Konover or its assets, and received preliminary bids or proposals from numerous parties;

•

that the $2.10 per share merger consideration is greater than that of the proposal from Kramont, the only other proposal received, and that the merger agreement with Prometheus and Kimco was fully negotiated and not subject to due diligence review, whereas the Kramont proposal was subject to negotiation of a merger agreement and further due diligence review which Kramont was not willing to continue, unless it received reimbursement for its expenses in the event it was not the successful bidder;

•

the $2.10 per share merger consideration is higher than any price at which Konover’s common stock had traded since September 2001 (Konover’s outlet portfolio sale closed on September 25, 2001) and is substantially higher than Konover’s lowest trading price ($1.15 per share in December 2001) during the period between September 2001 and June 23, 2002 (the date the signing of the merger agreement was announced); Konover’s common stock price per share closed at $1.50 on October 1, 2001 and ranged from a low of $1.15 to a high of $1.90 from October 1, 2001 through March 13, 2002 (the last trading day prior to the public announcement of Prometheus’ first bid of $1.75 per share); the price per share ranged from a low of $1.61 to a high of $1.90 from March 14, 2002 through May 17, 2002 (the last

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trading day prior to the public announcement of Prometheus’ second bid of $1.90 per share); on June 21, 2002, the last trading day prior to the public announcement of the signing of the merger agreement, Konover’s common stock closed at $1.86 per share;

•

the special committee’s determination that the $2.10 per share merger consideration is substantially higher than the special committee’s estimate of the price at which the market would value Konover if it remained an independent publicly-traded company, based on management’s projections of future cash flows and a discounted cash flow analysis performed by Credit Suisse First Boston which the special committee adopted (See “Special Factors—Opinion of the Special Committee’s Financial Advisor—Discounted Cash Flow Analysis”);

•

the special committee’s determination that the $2.10 per share merger consideration is substantially higher than the special committee’s estimate of the per share liquidation value of Konover’s assets, based on management’s estimation of fees and expenses to be incurred by Konover in connection with a liquidation and a net asset value liquidation analysis performed by Credit Suisse First Boston which the special committee adopted (See the second paragraph of “Special Factors—Opinion of the Special Committee’s Financial Advisor—Net Asset Valuation Analysis”);

•

the special committee’s conclusion that Prometheus’s agreement to vote for a superior proposal (or tender in a tender offer representing a superior proposal) under certain conditions meant that if other strategic partners were willing to pay more for Konover than Prometheus and Kimco, the other party would have a reasonable chance to acquire Konover despite competing against an almost two-thirds’ shareholder;

•

the special committee’s determination that the $2.10 per share cash merger consideration that our common stockholders will receive in the merger is above or at the top of the implied per share equity reference ranges for Konover as set forth in the financial analyses of Credit Suisse First Boston which the special committee adopted, which ranges were (i) $1.00 to $1.50 in the case of the Selected Companies Analysis; (ii) $.70 to $1.00 in the case of the Precedent Transaction Analysis; (iii) $1.90 to $2.15 (on a fully diluted basis) and $1.20 to $1.50 (assuming an orderly liquidation of Konover) in the case of the Net Asset Value Analysis; and (iv) $1.00 to $1.50 in the case of the Discounted Cash Flow Analysis (See “Special Factors—Opinion of the Special Committee’s Financial Advisor—Selected Companies Analysis; Precedent Transaction Analysis; Net Asset Value Analysis; and Discounted Cash Flow Analysis”);

•

that the special committee was able to negotiate the purchase price up to $2.10 per share from the $1.75 per share initially offered by Prometheus;

•

that there was a publicly announced bid at $1.95 made on May 22, 2002 and that no party, other than Kramont, subsequently came forward with any offer or expression of interest at any price;

•

that Konover’s management lacked permanence and, based on Konover’s relatively small size and limited financial resources, it would have difficulty attracting and retaining qualified individuals to fill long-term management positions;

•

that the $2.10 per share cash consideration and the other terms and conditions of the merger agreement resulted from arm’s-length bargaining between the special committee and its advisors, on the one hand, and Prometheus and Kimco and their advisors, on the other hand;

•

the financial presentation on June 23, 2002 of the special committee’s financial advisor, Credit Suisse First Boston, including its opinion, addressed to the special committee and dated June 23, 2002, as to the fairness, from a financial point of view and as of the date of the opinion, of the cash consideration to be received in the merger by our common stockholders (other than PSCO and its affiliates).

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the consideration to be received by the holders of our existing Series A convertible preferred stock was determined based upon our charter, which provides that, in the event of a going-private transaction, the holders of our existing Series A convertible preferred stock have the right to receive, at their election, either a continuing interest in the surviving corporation, or a cash payment in the amount equal to the product of (x) the number of shares of common stock issuable upon conversion of one share of existing Series A convertible preferred stock and (y) 105% of the per share common stock cash consideration offered to the common stockholders in such going-private transaction. The consideration to be received in the merger by our existing Series A convertible preferred stockholders complies with what our charter provides that they are entitled to receive in connection with a going-private transaction. The provisions in our current charter relating to the existing Series A convertible preferred stock were negotiated by Konover and the original purchasers of our Series A convertible preferred stock in arm’s-length bargaining; and

•

the special committee unanimously recommended approval of the merger, the merger agreement and the charter amendments to our board of directors.

•

our board of directors established a special committee that consists of three directors who are not officers or employees of Konover, Prometheus, or Kimkon (or any of their affiliates) and who have no financial interest in the merger different from Konover stockholders generally, and no member will have a continuing interest in Konover after completion of the merger;

•

the special committee was given the exclusive authority to, among other things, evaluate, negotiate and recommend the terms of any proposed transactions;

•

the special committee had independent legal and financial advisors; and

•

the special committee unanimously recommended approval of the merger, the merger agreement and the charter amendments to our board of directors.

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•

the efforts of the special committee, assisted by its financial advisor, commencing in June 2001 and continuing over the subsequent twelve months, to explore and pursue strategic alternatives for Konover, including continuing to operate as a stand-alone company;

•

that during a twelve-month period the special committee (through its financial advisor) had contact with at least 128 parties, entered into confidentiality agreements with 58 parties, received preliminary indications of interest from 21 parties concerning their interest in acquiring Konover or its assets, and received preliminary bids or proposals from numerous parties;

•

that the $2.10 per share merger consideration is greater than that of the proposal from Kramont, the next best proposal received, and that the merger agreement with Prometheus and Kimkon was fully negotiated and not subject to due diligence review, whereas the Kramont proposal was subject to negotiation of a merger agreement and further due diligence review which Kramont was not willing to continue, unless it received reimbursement for its expenses in the event it was not the successful bidder;

•

the $2.10 per share merger consideration is higher than any price at which Konover’s common stock had traded since September 2001 (Konover’s outlet portfolio sale closed on September 25, 2001) and is substantially higher than Konover’s lowest trading price ($1.15 per share in December 2001) during the  period between September 2001 and June 23, 2002 (the date the signing of the merger agreement was announced); Konover’s common stock price per share closed at $1.50 on October 1, 2001 and ranged from a low of $1.15 to a high of $1.90 from October 1, 2001 through March 13, 2002 (the last trading day prior to the public announcement of Prometheus’ first bid of $1.75 per share); the price per share ranged from a low of $1.61 to a high of $1.90 from March 14, 2002 through May 17, 2002 (the last trading day prior to the public announcement of Prometheus’ second bid of $1.90 per share); on June 21, 2002, the last trading day prior to the public announcement of the signing of the merger agreement, Konover’s common stock closed at $1.86 per share;

•

the fact that Prometheus’s agreement to vote for a superior proposal (or tender in a tender offer representing a superior proposal) under certain conditions meant that if other strategic partners were willing to pay more for Konover than Prometheus and Kimco, the other party would have a reasonable chance to acquire Konover despite competing against an almost two-thirds shareholder;

•

that the special committee was able to negotiate the purchase price up to $2.10 per share from the $1.75 per share initially offered by Prometheus;

•

that there was a publicly announced bid at $1.95 made on May 22, 2002, and that no party, other than Kramont, subsequently came forward with any offer or expression of interest at any price; and

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•

that the special committee’s negotiations with Prometheus and Kimco resulted in the elimination of numerous conditions and contingencies originally proposed by Prometheus and Kimco, including substantial revisions to the representations, warranties, covenants, and closing conditions; substantial modifications to the limitations on the ability of the board of directors to consider superior proposals; the agreement of Prometheus to vote for a superior proposal if it met certain conditions; and a reduction in the payment of break up fees if the merger agreement is terminated in certain circumstances.

•

the fact that Prometheus is selling 4,436,709 shares of common stock (or approximately 17% of its investment in Konover assuming the issuance of 4.5 million shares of common stock to Prometheus under the contingent value right agreement) in the transaction at the $2.10 per share merger consideration, reducing its ownership interest in Konover from approximately 64% (on a fully diluted basis assuming issuance of 4.5 million shares under the contingent value right agreement and conversion into common stock of outstanding Series A convertible preferred stock and OP Units and the exercise of in-the-money options) to approximately 55.5% after the transaction; and

•

the $2.10 per share merger consideration is at the top of the range of values implied for Konover based on estimates by PSCO and the Prometheus Parties of the net asset value of Konover’s assets, with net asset value being determined by subtracting out the value of estimated liabilities from the estimated gross value of Konover’s assets.

•

The board of directors formed the special committee, which consists solely of directors who are not officers or employees of Konover, Prometheus, or Kimkon (or any of their affiliates) and who have no financial interest in the proposed merger different from Konover’s unaffiliated stockholders. The special committee retained its own financial and legal advisors. The special committee conducted a vigorous evaluation and negotiation of the merger agreement. Negotiations were considered to be an important element of a fair bargaining process, and the fact that there were effective negotiations in this case indicated that the process leading to the execution of the merger agreement was fair.

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•

The special committee was given exclusive authority to, among other things, consider, negotiate and evaluate the terms of any proposed transaction, including the merger and to make a recommendation to the board of directors.

•

The $2.10 per share cash merger consideration to be received by the common stockholders in the merger and the other terms and conditions of the merger agreement resulted from active arm’s length bargaining between the special committee and its advisors, on the one hand, and the Prometheus Parties and Kimco and their respective advisors, on the other hand.

•

The special committee’s financial and legal advisors reported directly to the special committee and took direction exclusively from the special committee.

•

The special committee unanimously determined that the merger agreement and the merger and charter amendments contemplated by the merger agreement are advisable and in the best interests of Konover and fair to Konover and its unaffiliated stockholders and unanimously recommended to the board of directors that the merger agreement, merger, and charter amendments be approved.

•

Following its receipt of the special committee’s recommendation, the board of directors unanimously determined that the merger agreement and the merger and charter amendments contemplated by the merger agreement are advisable and in the best interests of Konover and fair to Konover and its unaffiliated stockholders and unanimously recommended that the common stockholders of Konover vote to approve the merger proposal and the charter proposal.

•

At all times, the special committee and the board of directors were aware of the potential conflicts of interest created by the affiliation of Messrs. Ross, Ticotin, and Zobler with the Prometheus Parties.

•

At the June 23, 2002 board of directors meeting, the non-Prometheus designated directors had the opportunity to discuss, without the participation of Messrs. Ross, Ticotin, and Zobler, the merger proposal and the charter proposal.

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•

the number of shares of our common stock or OP Units directly owned or owned by entities owned by such person;

•

the number of options with exercise prices below $2.10, whether already vested or that will become vested as a result of the merger; and

•

the aggregate payments that are anticipated to be made in connection with such ownership when the merger is completed (excluding any amounts in respect of tax indemnification payments to which any such person may be entitled).

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Ms. Malphrus’ employment with Konover was terminated effective September 30, 2002.

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•

Each share of our common stock issued and outstanding immediately before the merger (other than 16,615,922 shares of Konover common stock that Prometheus will contribute to PSCO immediately before the merger) will be converted into the right to receive $2.10 in cash, without interest, less any applicable withholding taxes.

•

The 16,615,922 shares of Konover common stock held by PSCO immediately before the merger will be canceled without any payment or other consideration.

•

Options to purchase shares of Konover common stock with an exercise price below $2.10 per share will be entitled to receive a cash payment equal to the amount by which the per share exercise price is less than $2.10 multiplied by the number of shares of common stock for which the option is exercisable. All out-of-the-money options will be canceled at the effective time of the merger without any payment or consideration.

•

Prometheus and Kimkon will own 100% of the common stock of Konover following the merger.

•

Each share of PSCO’s redeemable preferred stock issued and outstanding immediately before the merger will be converted into one share of the surviving corporation’s newly created Series B redeemable preferred stock.

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•

Our common stock will be delisted from the New York Stock Exchange.

•

The registration of the common stock under the Exchange Act will be terminated.

•

We will be relieved of the obligation to comply with the proxy rules of Regulation 14A under the Exchange Act.

•

Our officers, directors, and beneficial owners of more than 10% of the common stock will be relieved of the reporting requirements and restrictions on insider trading under Section 16 of the Exchange Act and will cease filing information with the SEC.

•

We will no longer be subject to the periodic reporting requirements of the Exchange Act and will cease filing information with the SEC.

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1)

3.045244 fully paid and nonassessable shares of a newly created Series A convertible preferred stock of the surviving corporation with rights and preferences as discussed below; or

2)

a cash payment of $6.395, which equals the product of (A) 2.900232 (the number of shares of Konover common stock issuable upon conversion of one share of existing Series A convertible preferred stock) and (B) $2.205 (an amount equal to 105% of the per share common stock consideration payable in the merger, which is the percentage required by the terms of our charter in connection with a going-private transaction such as the merger).

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•

Our organization, qualification and power to carry on our business;

•

Our power and authority to execute, deliver and perform our obligations under the merger agreement;

•

The determination of the fairness and necessary approvals of the merger by the special committee and the board of directors;

•

The taking of certain actions by the special committee and the board of directors necessary to ensure the merger does not violate any laws, our bylaws, our charter, or any agreement to which we are a party;

•

Our and the Operating Partnership’s capital structure and outstanding securities;

•

The conversion price of the existing Series A convertible preferred stock and the exercise price of our outstanding warrants;

•

Consents or approvals necessary to complete the merger;

•

Our subsidiaries and the voting interests we hold in other entities;

•

The accuracy and timeliness of our SEC filings, including the information in this proxy statement;

•

The absence of material adverse changes and undisclosed liabilities;

•

Our compliance with applicable laws;

•

Our REIT status for all taxable years for which the Internal Revenue Service could assert a tax liability through the date of the merger;

•

The property rights in our real properties;

•

Our leases with tenants;

•

The properties’ condition and compliance with laws;

•

Our labor relations and employee benefit matters;

•

Our compliance with environmental laws;

•

The material contracts to which we are a party;

•

The absence of legal proceedings except as disclosed;

•

The solvency of the Operating Partnership, even after the OP Merger and the OP Distribution;

•

Brokers and finders fees;

•

Insurance; and

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Related-party transactions.

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•

PSCO’s organization, qualification, power to carry on its business, and capitalization;

•

PSCO’s power and authority to execute, deliver, and perform its obligations under the merger agreement;

•

The absence of violation of PSCO’s organizational documents, any laws, or any agreements to which PSCO is a party;

•

The approval of the merger as required by law, including by PSCO’s stockholders;

•

The absence of legal proceedings;

•

Brokers and finders fees;

•

The accuracy of the information provided by PSCO for inclusion in this proxy statement; and

•

The commitment of Prometheus and Kimkon pursuant to the co-investment agreement that the funds to pay all consideration due under the merger agreement will be available.

•

conduct our respective businesses in the usual, regular and ordinary course and in substantially the same manner as conducted through the signing of the merger agreement;

•

use reasonable efforts to preserve intact our present lines of business, maintain our rights and preserve our relationships with customers, tenants, suppliers, and others having ongoing business with us;

•

take all action necessary to preserve our status as a REIT;

•

timely file tax returns;

•

not pay dividends on or make distributions with respect to our common stock except for such a distribution (or increase in a distribution) which is necessary for us to maintain our REIT status, to avoid the incurrence of any taxes under Section 857 of the Tax Code, or to avoid the imposition of any excise taxes under Section 4981 of the Tax Code;

•

not issue, sell, pledge, authorize or propose the issuance of any other securities in respect of shares of capital stock, other than under specified previously existing contractual agreements;

•

not adjust, split, combine or reclassify any capital stock or any other equity interests of Konover or our subsidiaries (including the Operating Partnership);

•

not repurchase, redeem or otherwise acquire any shares or any securities convertible into or exercisable for any shares, other than under previously existing contractual agreements or with respect to our employee benefit plans in the ordinary course of business consistent with past practice;

•

not amend our respective organizational and governing documents;

•

not sell, lease, encumber, or otherwise dispose of or encumber any shares of stock or any other equity interests of Konover or our subsidiaries;

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•

not purchase any securities or make any material investment in any person other than in a wholly owned subsidiary, or otherwise acquire direct or indirect control over any person other than in connection with the merger agreement;

•

not create, incur, or assume indebtedness;

•

not make any loans, except loans to our wholly owned subsidiaries;

•

not materially change our method of accounting, except as required by tax laws or generally accepted accounting principles, or make or revoke any tax elections, except as necessary to preserve Konover’s REIT status or the partnership, qualified REIT, or taxable REIT status of our subsidiaries;

•

not amend, enter into, or adopt any employment, severance, or other similar plan or agreement with respect to any employee of Konover or our subsidiaries, nor increase the compensation of directors, officers, or employees of Konover or our subsidiaries except in the ordinary course of business consistent with past practice and subject to certain limits;

•

not enter into, adopt, amend, or terminate any employee benefit arrangement, except as required by law or pursuant to the merger agreement;

•

not enter into material contracts;

•

except as specifically provided, not settle or compromise suits, actions, or claims pending or threatened against Konover or our subsidiaries;

•

not make capital expenditures;

•

not enter into, prepay (or accept prepayment of), or terminate or amend any real estate lease or any material contract (including any loan agreement), or waive, release, compromise, or assign any material rights or claims;

•

not commence any offering period under the 1997 Employee Stock Purchase Plan that was discontinued in 2001;

•

not enter into or amend any agreement with the joint ventures (Atlantic Realty LLC, Park Place KPT, LLC, Falls Pointe KPT, LLC, Brunswick Commercial LLC, and Mercer Mill KPT LLC) or with the joint venture partners or any agreement with any person relating to the joint ventures;

•

not invoke any “buy/sell” right under any agreement relating to the joint ventures or deliver to a joint venture partner any valuation relating to the properties of the joint ventures in connection with such joint venture partner’s exercise of a “buy/sell right” or a “right of first offer”;

•

not sell, lease, mortgage, subject to any material lien, or otherwise dispose of any real property;

•

not sell, lease, mortgage, subject to any material lien, or otherwise dispose of any personal property or intangible property, except for those not material and which are made in the ordinary course of business; and

•

not enter into an agreement to take any of the actions described above.

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(1)

is more favorable, from a financial point of view, than the merger of PSCO and Konover;

(2)

is reasonably capable of being completed on a timely basis; and

(3)

is not conditioned on any financing not already committed.

(1)

withdraw, qualify, modify, or amend its approval, adoption, or recommendation of the merger in a manner adverse to PSCO;

(2)

approve or recommend any third party’s alternative acquisition proposal;

(3)

cause Konover to accept such third party’s alternative acquisition proposal or enter into any letter of intent related to such alternative acquisition proposal; or

(4)

resolve to do any of the foregoing.

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(1)

We have not breached our no-shop obligations;

(2)

the alternative acquisition proposal is a superior proposal; and

(3)

all the conditions to our right to terminate the merger agreement have been satisfied, including the payment of the termination fee and reimbursement of expenses (discussed below).

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•

Our common stockholders must approve the merger proposal and the charter proposal by the affirmative vote of at least a majority of the votes entitled to be cast;

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•

All necessary regulatory approvals must be obtained;

•

No governmental authority may have enacted any order or law that would make the merger illegal or otherwise prohibit its closing; and

•

The contributions by Prometheus and Kimkon to PSCO contemplated by the co-investment agreement must have been made. However, under the terms of the co-investment agreement, Prometheus and Kimkon are obligated to make their respective contributions to PSCO after all of the conditions precedent in the merger agreement to PSCO’s obligation to complete the merger are satisfied or waived. If either Prometheus or Kimkon fails to make its respective contribution, Konover has the right, under the co-investment agreement, to seek enforcement of such contribution and the guarantee relating to such contribution.

•

Our representations and warranties must be true as of the date of the closing except for those that speak as of a specified date, which need only be true as of the date specified. For purposes of evaluating the accuracy of our representations and warranties, knowledge and materiality qualifiers are ignored, but generally this closing condition will be satisfied unless the inaccuracies in the aggregate are so great as to result in a material adverse effect on Konover. The only exception to this material adverse effect standard is that PSCO need not close if there are any inaccuracies (other than minor inaccuracies) relating to our representations and warranties regarding our capitalization. “Material adverse effect” with respect to Konover is defined in the merger agreement to exclude liabilities associated with litigation relating to the merger;

•

We must have performed or complied in all material respects each of our material obligations, agreements, and covenants under the merger agreement required to be performed by us at or before the effective time of the merger;

•

Prior to the OP Merger, we must have completed the OP Transfer;

•

After the OP Transfer and immediately before the OP Distribution, the Operating Partnership must have consummated the OP Merger;

•

Immediately following the OP Merger but immediately before the effective time of the merger of PSCO and Konover, the Operating Partnership must have made the OP Distribution; and

•

We must have delivered to PSCO letters of resignation from each member of Konover’s board of directors for such resignation to be effective as of the closing, other than from Messrs. Ross, Ticotin, and Zobler (or each of their successors).

•

PSCO’s representations and warranties must be true as of the date of the closing except for those that speak as of a specified date, which need only be true as of the date specified. For purposes of evaluating the accuracy of PSCO’s representations and warranties, knowledge and materiality qualifiers are ignored, but this closing condition will be satisfied unless the inaccuracies in the aggregate are so great as to result in a material adverse effect on PSCO “Material adverse effect” with respect to PSCO is defined in the merger agreement to only include PSCO’s ability to perform its obligations under the merger agreement or consummate the merger and the other transactions contemplated by the merger agreement; and

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•

PSCO must have performed or complied in all material respects each of its material obligations, agreements, and covenants under the merger agreement required to be performed by PSCO at or before the effective time of the merger.

•

by mutual written consent of us and PSCO;

•

by either PSCO or us if the other party has breached or failed to perform any representation, warranty, covenant, or agreement that would violate the conditions precedent to the merger (described above under “—Conditions to the Merger”) and cannot be cured before the earlier of (1) 30 days following receipt by the breaching party of a notice of breach from the non-breaching party or (2) March 31, 2003.

•

by either PSCO or us if any final, nonappealable order of any governmental entity or court is in effect that prevents completion of the merger;

•

by either PSCO or us if our stockholders do not approve the merger proposal and the charter proposal at the special meeting;

•

by either PSCO or us if the merger is not completed on or before March 31, 2003;

•

by PSCO if we have (A) withdrawn or modified in a manner adverse to PSCO the approval or recommendation of the merger or (B) approved or recommended, or entered into any agreement with respect to, any alternative acquisition proposal or resolved to do either of the foregoing;

•

by PSCO if a tender offer or exchange offer is commenced and our board of directors or the special committee do not recommend against accepting such offer by our stockholders (including by taking no position or a neutral position with respect to the tender offer);

•

by us, if before obtaining stockholder approval, we receive a superior proposal and the special committee and our board of directors, excluding Messrs. Ross, Ticotin, and Zobler (and their respective successors), each reasonably determines in good faith to terminate the merger agreement and enter into an agreement to effect the superior proposal. This ability for us to terminate the agreement is not available if we breached our no-shop obligations (discussed above under “—No Solicitation of Transactions”). Further, we must deliver to PSCO a written notice that we are planning on terminating the merger agreement and then must wait five business days before terminating the merger agreement. During those five business days, PSCO can revise its proposal to make a counterproposal that is at least as favorable as the alternative acquisition proposal. We agreed that during those five business days, we must cooperate with PSCO (including informing PSCO of the terms and conditions of such superior proposal and the identity of the party making the superior proposal) with the intent of enabling us and PSCO to modify the terms and conditions of the merger agreement so that the merger of PSCO and Konover may be completed. At the end of the five business day period, if the alternative acquisition proposal remains superior to PSCO’s counterproposal, and the special committee and our board of directors (acting without the participation of Messrs. Ross, Ticotin, and Zobler (and their respective successors)) each continues to reasonably determine in good faith to terminate the merger agreement and enter into an agreement to effect the superior proposal, then we may terminate the merger agreement. But concurrently with terminating the merger agreement, we must pay the termination fee and reimburse certain costs (described below) by wire transfer in same-day funds and enter into a definitive acquisition, merger, or similar agreement to effect the superior proposal; or

•

by PSCO, if we violate our no-shop obligations.

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•

by PSCO, as a result of our board of directors withdrawing or modifying in any adverse manner to PSCO its approval or recommendation of the merger or approving or recommending to our stockholders a superior proposal;

•

by us, as a result of our board of directors determining to approve or recommend a superior proposal to the merger;

•

by PSCO, as a result of our breach of our no-shop obligations.

•

by PSCO (1) because we breached or failed to perform any representation, warranty, covenant, or agreement that would violate the conditions precedent to the merger (described above) and that cannot be cured before the earlier of 30 days following PSCO’s notice to us of the breach or March 31, 2003, and (2) within 12 months of termination, we enter into another acquisition transaction that results in the payment to our common stockholders of an amount per share equal to or greater than $2.10; or

•

by us (1) because the merger was not completed on or before March 31, 2003, and (2) on or before June 30, 2003, we enter into another acquisition transaction that results in the payment to our common stockholders of an amount per share equal to or greater than $2.10.

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•

soliciting, initiating, facilitating or encouraging any proposal for an alternative acquisition transaction involving Konover;

•

entering into any agreement with respect to such an alternative acquisition transaction; or

•

negotiating with or furnishing information to any third party regarding such an alternative acquisition transaction.

•

any transaction or series of transactions subject to Rule 13e-3 of the Exchange Act involving Konover or

•

any transaction or series of related transactions in which all of the following occur:

Ÿ

Prometheus enters into any joint venture, partnership, stockholders agreement, or similar arrangement with any person (including such person’s affiliates);

Ÿ

such person (including its affiliates) makes a direct or indirect investment of $11,000,000.00 or more in us or any of our subsidiaries;

Ÿ

we or any of our subsidiaries enters into an agreement or arrangement pursuant to which such person (or any of such person’s affiliates) assumes responsibility for operating or managing a majority of our properties or assets; and

Ÿ

consideration is paid to our common stockholders pursuant to a business combination, self-tender offer, distribution, dividend, or otherwise, and such consideration is not paid on a pro rata basis to Prometheus, on the one hand, and the nonaffiliated common stockholders of Konover, on the other hand.

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•

The consideration:

Ÿ

must consist solely of cash, or

Ÿ

may include a combination of cash and capital stock of a third party, but if so, the terms of the superior transaction must provide Prometheus with the right to receive, at Prometheus’s option, (1) the form and amount of consideration per share payable to the other Konover common stockholders and (2) the consideration per share entirely in cash. In either case, the consideration per share must exceed $2.10 (as such amount may be increased by PSCO after it has had the opportunity to match the new bidder’s bid). Any transaction structured in this manner may only be considered a “superior transaction” under the supplemental voting and tender agreement if (A) Prometheus has the right to elect to choose between the forms of consideration described above and (B) any non-cash consideration consists of nothing other than common stock of the third party.

•

In the good faith judgment of Prometheus, the terms and conditions of the agreement in respect of the superior transaction must be at least as favorable (including as to certainty of closing) to Konover and our stockholders as the terms in the PSCO merger agreement and may not include any holdback, escrow, earn-out, survival, indemnification, or other comparable provisions, with the timing of closing being one factor Prometheus can take into account in making its good faith judgment.

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•

The agreement in respect of the superior transaction must expressly provide that Prometheus receives cash consideration for the contingent value right agreement equivalent to what Prometheus would receive for 4.5 million shares of our common stock.

•

Both the offer and the agreement in respect of the superior transaction must not be subject to any diligence or financing contingencies.

•

The agreement in respect of the superior transaction must include a provision, if Prometheus is going to receive stock, requiring that stock to be freely tradeable upon closing of the transaction and requiring the third party to file and keep a registration statement effective with respect to that stock.

•

the termination of the merger agreement between us and PSCO (other than a termination by Konover in connection with entering into an agreement in respect of the superior transaction);

•

the effective time of the merger between PSCO and Konover;

•

any breach of our non-solicitation obligations under the merger agreement;

•

any termination or modification of a merger agreement in respect of a superior transaction which termination or modification adversely affects Prometheus;

•

the termination of the merger agreement by Konover in connection with a “superior proposal” (as defined in the merger agreement), if on the date of such termination, PSCO has increased the merger consideration to an amount equaling or exceeding the cash amount PSCO would have been entitled to receive if the superior proposal was completed; or

•

March 20, 2003.

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*

Through October 18, 2002.

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Through October 18, 2002.

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*

consists of 148 shares purchased by C. Cammack Morton and 297 shares purchased by Robin W. Malphrus.

**

all shares purchased by C. Cammack Morton.

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closing price of our common stock on 8/2/02.

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(1)

Includes shares issuable upon exercise or conversion of other securities within the next 60 days, including options and repurchase rights that will be canceled upon consummation of the merger.

(2)

Includes 32,180 shares issuable upon exercise of vested repurchase rights; excludes 38,929 shares issuable upon exercise of unvested repurchase rights the vesting of which will be accelerated upon closing of the merger. Mr. Kelly will receive in cash the difference between the aggregate exercise price of all such repurchase rights and the aggregate value (at $2.10 per share) of the shares underlying such repurchase rights.

(3)

Includes 47,649 shares issuable upon exercise of vested repurchase rights and 20,000 shares issuable upon exercise of vested stock options. Ms. Swearingen’s employment with Konover terminated in March of 2002. Ms. Swearingen will receive in cash the difference between the aggregate exercise price of her repurchase rights and the aggregate value (at $2.10 per share) of the shares underlying such repurchase rights. The exercise price of Ms. Swearingen’s options all exceed $2.10 per share and will therefore be canceled upon closing of the merger.

(4)

Includes 38,899 shares issuable upon exercise of vested repurchase rights; excludes 75,000 shares issuable upon exercise of unvested stock options that were canceled upon the termination of Ms. Malphrus’ employment with Konover, effective September 30, 2002. Ms. Malphrus will receive in cash the difference between the aggregate exercise price of all such repurchase rights and the aggregate value (at $2.10 per share) of the shares underlying such repurchase rights.

(5)

Includes 23,030 shares issuable upon exercise of vested options with exercise prices in excess of $2.10 per share and that will be canceled upon closing of the merger.

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(6)

Represents shares issuable (at Konover’s option) upon redemption of OP Units in the Operating Partnership. Includes 1,015 OP Units owned by Konover Mobile, Inc., a corporation of which Mr. Konover owns 100% of the stock. In the OP Merger, Mr. Konover and Konover Mobile, Inc. will receive in cash $2.10 per OP Unit. See “The Merger and Related Agreements—Additional Agreements—OP Merger.”

(7)

Includes 36,617 shares issuable upon exercise of vested options with exercise prices in excess of $2.10 per share and that will be canceled upon closing of the merger.

(8)

Prometheus is the direct owner of this interest in Konover. PSLLC owns all of the common equity interests in Prometheus. PSLLC has one member, SPV. SPV has three owners of its common shares: LFSRI II owns 86.1592%, LFSRI II-Alternative owns 10.3806% and LFSRI II-CADIM owns 3.4602%. LFREI is the general partner of each of the LFSRI II Funds. LFC is the managing member of LFREI. Mr. Ticotin is a Managing Principal of LFREI. As a consequence of the foregoing, Mr. Ticotin may be deemed to have an indirect beneficial ownership interest in Konover, as well as indirect shared investment power and indirect shared voting power. Mr. Ticotin hereby disclaims beneficial ownership of the shares of Konover held by Prometheus except to the extent of any pecuniary interest he may have therein by virtue of his being an executive officer of LFREI. In connection with the proposed merger, these shares are subject to a voting agreement and a supplemental voting and tender agreement. See “The Merger and Related Agreements—Voting Agreement” and “—Supplemental Voting and Tender Agreement.”

(9)

An asterisk (*) indicates less than one percent. Shares issuable upon exercise of conversion of other securities within the next 60 days are deemed outstanding for the purpose of computing the percentage of outstanding securities owned by the person or group named but are not deemed to be outstanding for the purpose of computing the percentage of the class by any other person.

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—

Annual Report on Form 10-K for the fiscal year ended December 31, 2001;

—

Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2002;

—

Current Report on Form 8-K filed with the SEC on May 29, 2002;

—

Current Report on Form 8-K filed with the SEC on June 25, 2002;

—

Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2002; and

—

Current Report on Form 8-K filed with the SEC on August 1, 2002.

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Target:

Konover Property Trust, Inc.

3434 Kildaire Farm Road, Suite 200

Raleigh, NC 27606

Facsimile Number: (919) 372-3261

Attention: General Counsel

Copy to Counsel:

Alston & Bird LLP

3201 Beechleaf Court, Suite 600

Raleigh, NC 27604

Facsimile Number: (919) 862-2260

Attention: Robert Bergdolt, Esq.

Buyer:

PSRT

c/o Lazard Frères Real Estate Investors L.L.C.

30 Rockefeller Plaza, 50th Floor

New York, NY 10020

Facsimile Number: (212) 332-1793

Attention: General Counsel

and

Kimkon Inc.

c/o Kimco Realty Corporation

3333 New Hyde Park Road

Suite 100

Post Office Box 5020

New Hyde Park, New York 11042-0020

Facsimile Number: (516) 869-7117

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Attention:      David B. Henry

Joseph G. Stevens

Copies to Counsel:

Paul, Weiss, Rifkind, Wharton & Garrison

1285 Avenue of the Americas

New York, New York 10019-6064

Facsimile Number: (212) 757-3990

Attention:       Jeffrey D. Marell, Esq.

Toby S. Myerson, Esq

and

Fried, Frank Harris, Shriver & Jacobson

One New York Plaza

New York, New York 10004-1980

Facsimile Number: (212) 859-4000

Attention: Steven Scheinfeld, Esq.

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1

The Articles of Merger to be filed with the State Department of Assessments and Taxation of the State of Maryland will amend the Charter of Konover Property Trust, Inc., as the surviving corporation in the merger of PSCO Acquisition Corp. with and into Konover Property Trust, Inc., to read as set forth herein.

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2

The names of the post-merger directors need not be included in the amendments to be effected by the Articles of Merger. However, the names of the then-current directors would need to be included when the charter is subsequently restated for ease of reference.

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SECTION

7.  Representations and Warranties of KI.    KI represents and warrants to PSRT and Target as follows:

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[X]

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

[  ]

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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1.

thirty-one community shopping centers in six states aggregating approximately 4,003,000 square feet;

2.

two centers that are held for sale consisting of a 426,000-square-foot operating community shopping center and a 230,000-square-foot non-operating outlet center; and

3.

one mixed-use center under development with 110,000 square feet of retail space and 97,000 square feet of office space in the preliminary phase of lease up.

•

three operating joint-venture community centers with 246,000 square feet and one joint venture community center under development throughout the majority of 2001 with 98,000 square feet;

•

a land-development joint venture consisting of approximately 590 acres; and

•

a third-party management company located in Florida with 6.9 million square feet under management or leasing contracts, which was sold on February 28, 2002 (see “Sale of Florida Property Management Business in 2002”).

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1.

Working with CSFB in evaluating the Company’s strategic alternatives, which may include the sale of the Company, privatization or a merger or other business combination.

2.

Improving property operations of its 37 community shopping center portfolio, including owned and joint venture properties, to enhance overall property NOI and thus the overall value of the Company. In connection with this focus, the Company has increased its budgeted investment in capital improvements and maintenance plans for 2002 to include remodeling/redevelopment of certain shopping centers; and

3.

Continue to market for sale non-core assets: the remaining outlet property and approximately 590 acres of undeveloped land held in a venture. The Company will also continue to market a 426,000-square-foot community shopping center in order to further diversify its capital investment risks.

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(1.)

The Company holds a ground lease on an additional 0.78 acres at Merchants Festival at a monthly rate of $672 ($8,064 annually). The lease provides for a 12% increase in rent every 10 years and expires March 31, 2048.

(2.)

The Company holds a ground lease on 9.1 acres at Smyrna, Georgia at an annual payment of approximately $27,000 and expires in 2026.

(3.)

In addition to the owned 6.75 acres at Braves Village, the Company leases the adjacent tract of 7.91 acres of land under two ground leases at an annual combined cost of $14,242 through May 31, 2005 and December 31, 2004. Each ground lease contains nine 5-year renewal options.

(4.)

Development property with Lowes Foods, which opened in June 2001, as anchor of retail space. For purposes of this table, land acreage is listed with the retail space.

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(5.)

The Company holds a ground lease on an additional 0.53 acres at Millpond Village. The Company paid a one-time consideration of $10 for the ground lease that expires in 2249.

(6.)

The Company holds a ground lease which covers 1.41 acres that requires monthly payments of $6,955 ($83,820 annually) and expires June 10, 2015. This ground lease contains four 5-year options and one 10-year option.

(7.)

Held for sale.

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(1)

Annual Rental Revenue consists of base and percentage rents plus recoveries from tenants.

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(2)

Expirations assume no renewals or re-leasing for tenants in occupancy as of December 31, 2001.

(3)

Total leased GLA is not equal to leasable GLA due to vacancies.

(4)

Annual rental revenue in place at December 31, 2001.

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(1)

Total leased GLA is not equal to leasable GLA due to vacancies.

(2)

Kmart filed for bankruptcy in 2002. To date, the Company has not been notified of any store closings. Kmart has requested a 20% rent reduction on one of its leases. The Company is currently negotiating with Kmart on this lease.

(3)

The Company sold those properties which included VF Factory Outlet, Inc., Phillips-Van Heusen Corporation, The Dress Barn, Inc. and the Brown Group in September 2001.

(4)

Actual total rental revenue and % of total rental revenue is for the year ended December 31, 2001. Based on the Company’s property disposals in 2001, the percentage of total rental revenue from these tenants will change significantly for 2002.

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(1)

Expirations assume no renewals or re-leasing for tenants in occupancy as of December 31, 2001.

(2)

Total leased GLA is not equal to leasable GLA due to vacancies.

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(1)

The debt was paid or assumed by the buyer of the outlet portfolio (see “Business – Significant 2001 Transactions”).

(2)

Simultaneous with the closing of the September 25, 2001 outlet portfolio sale, the Company refinanced its $60,000 term loan with a $58,000 term loan. LIBOR as defined in the loan agreement has a floor of 4.0%. The Company is also party to an interest rate protection agreement that caps the rate on the $58,000 term loan at 9.66%. The Company’s Hollywood, Florida center debt on September 25, 2001 was satisfied, and the property was utilized as collateral on the $58,000 term loan.

(3)

Line of credit expires in May 2002. The Company is in the process of negotiating an extension of the term, adding an additional property as collateral and reducing the principal to $9 million.

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(a)

The following table sets forth the computation of the denominator to be used in calculating the weighted-average shares outstanding based on Statement of Financial Accounting Standard No. 128, “Earnings Per Share”. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Background – Lazard Frères Transaction” for a discussion of the possible issuance of 4.5 million shares for no additional consideration in 2004.

(b)

Excludes certain properties under development during the periods.

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•

three operating joint-venture community centers with 246,000 square feet and one joint venture community center under development with 98,000 square feet;

•

a land-development joint venture consisting of approximately 590 acres; and

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•

a third-party management company located in Florida with 6.9 million square feet under management or leasing contracts which was sold on February 28, 2002 (see “Sale of Florida Property Management Business in 2002”).

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(1)

Sunset KPT Investment, Inc. became a wholly owned subsidiary of the Operating Partnership in January 2002. (See Note 1 to the audited financial statements included in this report.) As discussed above, Sunset KPT Investment sold 2,110 acres of undeveloped land in Brunswick County, North Carolina in December 2001 and sold RMC/Konover Trust LLC in February 2002. Sunset KPT Investment currently owns an interest in 590 acres of undeveloped land in Brunswick County and undeveloped outparcels adjacent to the Millpond Village shopping center in Raleigh, North Carolina.

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•

The Company’s NOI decreased by $9.6 million, or 16%, to $50.1 million from $59.7 million for the same period in 2000. This decrease is primarily related to the following: the sale of the Company’s Kitty Hawk, NC community center on September 13, 2001; the sale of the Company’s outlet portfolio, which consisted of 28 outlet centers and 3 community centers on September 25, 2001; a decline in NOI from the Company’s Nashville outlet center, which was sold in December 2001; and the sale of a community center in Lake Park, Georgia in September 2000. An additional decline in NOI of $1.3 million is related to four community centers for which the Company is planning redevelopment or retenanting efforts.

•

The Company recognized losses from unconsolidated ventures of $6.8 million for the year ended December 31, 2001. The same period in 2000 reported a loss from unconsolidated ventures of $10.4 million, including a $5.5 million loss related to a technology venture. Losses from unconsolidated real estate venture operations for 2001 include $0.3 million of income from four community shopping centers offset by $0.6 million of losses from RMC/Konover Property Trust LLC (“RMC”), a third-party property-management business, and the operations of Sunset KPT Investment, Inc. (“Sunset”), which lost $6.5 million. Sunset’s operating loss includes the write down of its investment in RMC and two land ventures in Brunswick County, North Carolina of $5.2 million and interest expenses of $1.3 million on loans from the Company to fund investments.

•

Net interest expense increased by $0.3 million, or 1.1%, to $28.1 million from $27.8 million for the same period in 2000.

•

Depreciation and amortization decreased by $7.1 million due to the classification of the outlet portfolio as held-for-sale during 2001.

•

General and administrative expenses including stock compensation amortization decreased by $0.7 million.

•

The Company recognized a $0.4 million net gain on the sale of real estate, net of adjustments to carrying value, during the year ended December 31, 2001. The Company incurred losses on the sale of real estate of $1.9 million for the year ended December 31, 2000.

•

During 2001, the Company incurred $6.1 million severance and other related costs primarily related to changes in the Company’s executive management and other reorganizations due to the outlet portfolio sale.

•

The Company recognized $0.1 million in abandoned project costs in 2001 compared to $1.3 million in 2000.

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•

The Company recognized a $114.8 million charge to adjust the carrying value of property and investments to their net realizable value less selling costs during 2001. This charge is primarily related to the outlet portfolio, which was sold on September 25, 2001. The Company reported a $19.3 million adjustment to the carrying value of its Las Vegas and Nashville outlet centers in 2000.

•

a $9.6 million decrease in NOI,

•

an increase in net interest expense of $0.3 million,

•

$6.1 million of severance and other related costs in 2001,

•

an increase in losses from real estate ventures of $1.9 million, and

•

a $2.4 million adjustment to the carrying value of certain non-depreciable investments in 2001.

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•

The Company’s NOI, exclusive of straight-line rent, increased by $2.7 million, or 4.7%, to $59.7 million from $57.0 million for the same period in 2000. Including the effect of straight-line rent adjustment ($1.6 million), NOI increased by $4.3 million. A breakdown of NOI, exclusive of straight-line rent, by segment is detailed below (in thousands):

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(1)

Mt. Pleasant was classified as a development project in 1999 and was moved to Community in 2000.

(2)

Nashville, which was classified as an outlet center in 1999, was moved into Other (held for sale) in 2000.

(3)

Waverly, a redevelopment project in 1999, was moved from Other category to Community in 2000.

•

The Company incurred losses from unconsolidated entities in 2000 consisting of $5.5 million related to the technology venture and $4.9 million related to real estate operations compared to $0.9 million in 1999.

•

Net interest expense increased by $11.0 million or 65.5% to $27.8 million in 2000 from $16.8 million in 1999. The increase is due primarily to a combination of the following factors: (a) increase in borrowings ($37.8 million); (b) the completion of Towne Centre in early 2000 at which time interest capitalization ceased; and (c) the increase in variable rates by 192% to an average of 9.3% in 2000 from 7.8% in 1999.

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•

As a result of 1999 acquisitions and completion of development projects in 2000, depreciation and amortization increased by $2.9 million.

•

General and administrative expenses increased $0.4 million related primarily to $0.3 million in costs associated with the Company’s corporate office move.

•

The Company sold two properties, one in Georgia and one in New Hampshire, which generated a loss of $1.9 million.

•

Abandoned transaction costs decreased to $1.3 million compared to $3.9 million in 1999.

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$10.9 million invested in income-producing properties, primarily in community centers in North and South Carolina; and

•

$0.1 million invested in or advanced to unconsolidated entities offset by;

•

$0.2 million collected on the repayment of notes receivable;

•

$190.3 million of net proceeds from sale of real estate; and

•

$4.7 million reduction in restricted cash-investing escrows.

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•

$9.0 million for dividends paid;

•

$235.5 million for debt repayments;

•

$2.5 million in deferred financing charges offset by

•

$69.6 million of net proceeds from debt on income-producing properties.

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our markets could suffer unexpected increases in development of competitive retail properties;

•

the financial condition of our tenants could deteriorate;

•

the costs of our development projects could exceed our original estimates;

•

we may not be able to complete development or joint venture projects as quickly or on as favorable terms as anticipated;

•

we may not be able to lease or re-lease space quickly or on as favorable terms as old leases;

•

we may have incorrectly assessed the environmental condition of our properties;

•

we may not be able to refinance debt on as favorable terms as anticipated;

•

an increase in interest rates would increase our debt service costs;

•

we could lose key executive officers;

•

our markets may suffer decline in economic growth or increase in unemployment rates;

•

the perception of community shopping centers by investors might deteriorate;

•

general and administrative costs, as a percentage of revenue, may increase as the size of portfolio decreases.

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(1)

Ms. Swearingen’s last day of employment with the Company was March 15, 2002.

(2)

Mr. Morton’s last day of employment with the Company was March 6, 2001.

(3)

Ms. Rice’s last day of employment with the Company was February 28, 2002.

(4)

Mr. Maloney joined the Company in March 2001 as the President and Chief Executive Officer upon the resignation of Mr. Morton.

(5)

Mr. Kelly joined the Company in November 1999.

(6)

Ms. Rice joined the Company in April 1999.

(7)

Except as noted below, bonuses for all of the officers of the Company for 2000 and 1999 were paid in the form of shares of restricted Common Stock (“Restricted Stock”) and are reported under the Restricted Stock Award column of this table. The shares of Restricted Stock paid as bonuses vest all at once (“cliff vesting”) after three years from issuance, except as otherwise noted below. The number of shares awarded is based on the market price of a share of Common Stock on the last day of the applicable calendar year. In consideration of the three- year vesting period, Restricted Stock bonus amounts are set at 150% of an equivalent cash bonus.

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(8)

Mr. Maloney’s cash bonus of $75,000 was paid in March 2002 but, for the purposes of this table, is recorded as bonus earned during 2001.

(9)

For purposes of this table, Ms. Rice’s guaranteed annual cash bonus of $166,667 for the year ended February 28, 2002 is recorded as bonus earned during 2001. See “Employment Agreements.”

(10)

For purposes of this table, Ms. Rice’s guaranteed annual cash bonus of $166,667 for the year ended February 28, 2001 is recorded as bonus earned during 2000. See “Employment Agreements.”

(11)

For purposes of this table, Ms. Rice’s guaranteed annual cash bonus of $166,667 for the year ended February 29, 2000 is recorded as bonus earned during 1999. See “Employment Agreements.”

(12)

Unless otherwise indicated, all Restricted Stock reported here has been exchanged for options to purchase shares of Restricted Stock at a purchase price equal to 10% of the market value of a share on the date of grant (“Repurchase Rights”). The vesting schedule for all Repurchase Rights mirrors that of the exchanged Restricted Stock. A dividend equivalent right is associated with all Repurchase Rights.

(13)

Mr. Kelly received his long-term incentive compensation in the form of Restricted Stock as follows:

(a)

5,676 shares, with a value of $30,012 ($5.875 per share) net of a 10% exercise price, subject to a three-year graded vest, were awarded November 15, 1999;

(b)

9,877 shares, with a value of $50,000 ($5.625 per share) net of a 10% exercise price and immediate vesting, were awarded June 1, 2000; and

(c)

55,556 shares, with a value of $200,000 ($4.00 per share) net of a 10% exercise price, subject to a three-year graded vest, were awarded December 1, 2000.

(14)

Ms. Swearingen received her annual bonus and her long-term incentive compensation in the form of Restricted Stock as follows:

(a)

15,500 shares, with a value of $78,469 ($5.625 per share) net of a 10% exercise price, subject to a three-year cliff vest, were awarded March 1, 1999 as Ms. Swearingen’s 1998 bonus; and

(b)

16,700 shares, with a value of $77,029 ($5.125 per share) net of a 10% exercise price, subject to a three-year cliff vest, were awarded March 1, 2000 as Ms. Swearingen’s 1999 bonus.

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(15)

Ms. Malphrus received her annual bonus and her long-term incentive compensation in the form of Restricted Stock as follows:

(a)

1,000 shares, with a value of $6,750 ($7.50 per share) net of a 10% exercise price, subject to a three-year graded vest, were awarded January 1, 1999 to Ms. Malphrus as long-term incentive compensation ; and

(b)

10,300 shares, with a value of $52,144 ($5.625 per share) net of a 10% exercise price, subject to a three-year cliff vest, were awarded March 1, 1999 as Ms. Malphrus’ 1998 bonus; and

(c)

15,450 shares, with a value of $71,263 ($5.125 per share) net of a 10% exercise price, subject to a three-year cliff vest, were awarded March 1, 2000 as Ms. Malphrus’ 1999 bonus.

(16)

Mr. Morton received a portion of his base annual salary, his periodic increases in base annual salary, his annual bonus and his long-term incentive compensation in the form of Restricted Stock as follows:

(a)

21,800 shares, with a value of $112,815 ($5.75 per share) net of a 10% exercise price, subject to a three-year cliff vest, were awarded March 1, 1999 as an increase in Mr. Morton’s 1999 base annual salary;

(b)

38,650 shares, with a value of $200,014 ($5.75 per share) net of a 10% exercise price, subject to a one-year cliff vest, were awarded March 1, 1999 as part of Mr. Morton’s 1999 base annual salary;

(c)

96,700 shares, with a value of $446,029 ($5.125 per share) net of a 10% exercise price, subject to a three-year cliff vest, were awarded March 1, 2000 as Mr. Morton’s 1999 bonus;

(d)

30,250 shares with a value of $139,528 ($5.125 per share) net at a 10% exercise price, subject to a three-year cliff vest, were awarded March 1, 2000 as an increase in Mr. Morton’s base annual salary; and

(e)

43,400 shares with a value of $200,183 ($5.125 per share) net at a 10% exercise price, subject to a one-year cliff vest, were awarded March 1, 2000 as part of Mr. Morton’s 2000 base annual salary.

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(17)

Amounts shown consist of: (i) bonus amounts earned during 1999 and paid during 2000 in the form of Restricted Stock and (ii) leasing, management and development commissions paid in the form of Restricted Stock during 1999 pursuant to Ms. Rice’s employment contract. Such Restricted Stock was issued as follows:

(a)

27,368 shares with a value of $162,500 ($5.9375 per share) were awarded April 1, 1999 as a partial payment towards leasing, management and development commissions expected to be earned through March 31, 2001 and ;

(b)

12,050 shares, with a value of $55,581 ($5.125 per share) net of a 10% exercise price, subject to a three-year cliff vest, were awarded March 1, 2000 as part of Ms. Rice’s 1999 bonus.

(18)

Mr. Maloney received stock options in lieu of cash for his Board of Directors compensation for each respective year.

(19)

These options vest five years from date of grant or, if earlier, on the following schedule: 33% vest upon the Common Stock price reaching $12, an additional 33% vest upon the Common Stock price reaching $14 and the remaining 34% vest upon the Common Stock price reaching $19, in each case, less dividends paid. The Named Executive Officer is entitled to receive certain dividend equivalent amounts on the shares underlying the options as follows: as of November 11, 1999, an amount equal to the dividends that would have been paid since that date on 20% of the shares underlying such options; each anniversary thereafter (through November 11, 2003), an additional 20% of such shares enjoy dividend equivalent rights as though such shares were outstanding as of November 11th of that year. For each recipient, the unvested portion of these options cancel upon termination or resignation from the Company.

(20)

Pursuant to his separation agreement with the Company, Mr. Morton forfeited his rights with respect to the 350,000 options issued previously for this year. See “—Separation Agreement” below.

(21)

Amounts shown represent matching contributions to the Company’s 401(k) Retirement and Savings Plan, car allowances and life and disability insurance cost.

(22)

Severance payments made to Mr. Morton pursuant to his separation agreement with the Company. See “Separation Agreement” below.

(23)

Amounts shown include leasing, management and development commissions totaling $230,476 in 2001, $34,805 in 2000 and $12,281 in 1999 paid pursuant to Ms. Rice’s employment contract.

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(1)

Excludes Repurchase Rights with a 10% exercise price, which are reported under the “Restricted Stock Awards” column of the Summary Compensation Table.

(2)

Future exercisability is subject to vesting and the optionee remaining employed by the Company.

(3)

Value is calculated by subtracting the exercise price from the fair market value of the securities underlying the option at fiscal year-end and multiplying the results by the number of in-the-money options held. Fair market value was based on the closing price of the Common Stock on the New York Stock Exchange at December 31, 2001 ($1.50).

(4)

Pursuant to his separation agreement with the Company, Mr. Morton forfeited his rights with respect to these options if he did not exercise them by April 2002. See “– Separation Agreement” below.

(5)

These options were issued as Board compensation prior to Mr. Maloney becoming an executive officer and were fully exercisable upon the effective date and expire on May 14, 2005.

(6)

The unexercisable options were forfeited on Ms. Swearingen’s last day of employment.

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(1)

Includes shares issuable upon exercise or conversion of other securities within the next 60 days.

(2)

Includes 300,000 of out-of-the-money options which are outstanding until April 1, 2002. See “Executive Compensation – Separation Agreement” for additional information.

(3)

Includes 32,180 shares issuable upon exercise of vested Repurchase Rights.

(4)

Includes 67,649 shares issuable upon exercise of vested Repurchase Rights.

(5)

Includes 23,449 shares issuable upon exercise of vested Repurchase Rights.

(6)

Includes 23,030 shares issuable upon exercise of vested Repurchase Rights.

(7)

Represents shares issuable (at the Company’s option) upon redemption of partnership interests in KPT Properties, L.P.

(8)

Prometheus Southeast Retail Trust (“Prometheus”) is the direct owner of this interest in the Company. Prometheus Southeast Retail LLC owns all of the common equity interests in Prometheus. Prometheus Southeast Retail LLC has one member, LFSRI II SPV REIT Corp. (“SPV”). SPV has three owners of its common shares: LF Strategic Realty Investors II L.P. (“LFSRI II”) owns 86.1%, LFSRI II Alternative Partnership L.P. (“Alternative”) owns 10.4% and LFSRI II-CADIM Alternative Partnership L.P. (“CADIM”) owns 3.5%. Lazard Frères Real Estate Investors L.L.C. (“LFREI”) is the general partner of each of LFSRI II, Alternative and CADIM. Lazard Frères & Co., LLC is the managing partner of LFREI. Mr. Ticotin is a Managing Principal of LFREI. As a consequence of the foregoing, Mr. Ticotin may be deemed to have an indirect beneficial ownership interest in the Company, as well as indirect shared investment power and indirect shared voting power. Mr. Ticotin hereby disclaims beneficial ownership of the shares of the Company held by Prometheus except to the extent of any pecuniary interest he may have therein by virtue of his being an executive officer of LFREI.

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(9)

An asterisk (*) indicates less than one percent. Shares issuable upon exercise or conversion of other securities within the next 60 days are deemed outstanding for the purpose of computing the percentage of outstanding securities owned by the person or group named but are not deemed to be outstanding for the purpose of computing the percentage of the class by any other person.

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Report

of Independent Public Accountants

Financial

Statements:

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(1)

Incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 (File No. 333-39491)

(2)

Incorporated herein by reference to the Company’s annual report on Form 10-K for the year ended December 31, 1996

(3)

Incorporated herein by reference to the Company’s annual report on Form 10-K for the year ended December 31, 1997

(4)

Incorporated herein by reference to the Company’s Current Report on Form 8-K dated March 23, 1998, as amended on June 3, 1998

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(5)

Incorporated herein by reference to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2001

(6)

Incorporated herein by reference to the Company’s annual report on Form 10-K for the year ended December 31, 1998

(7)

Incorporated herein by reference to the Company’s Current Report on Form 8-K dated March 6, 2001

(8)

Incorporated herein by reference to the Company’s annual report of Form 10-K for the year ended December 31, 2000

(9)

Incorporated herein by reference to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 1998

(10)

Incorporated herein by reference to the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2001

(c)

Reports on Form 8K

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three operating joint-venture community centers with 246,000 square feet and one joint venture community center under development throughout the majority of 2001 with 98,000 square feet;

•

a land-development joint venture consisting of approximately 590 acres (see Note 3); and

•

third-party management company with 6.9 million square feet under management or leasing contracts (see Note 3).

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(a)

Simultaneous with the closing of the September 25, 2001 outlet portfolio sale, the Company refinanced its $60,000 term loan with a $58,000 term loan. The $58,000 term loan matures in November 2003. The Company has an option to extend for an additional one year period, as defined in the agreement.

(b)

The debt was paid or assumed by the buyer of the outlet portfolio (see Note 13). The Company recognized an extraordinary gain of approximately $0.8 million upon closing the outlet portfolio sale due to the early

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extinguishment of certain debt. The gain is related to the recognition of an unamortized debt premium of $6 million offset by $5.2 million of unamortized deferred loan fees and other costs.

(c)

The $10,000 line of credit expires in May 2002. The Company is in the process of renegotiating the line of credit to extend the terms, add an additional property as collateral and reduce the principal to $9,000.

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These shares were issued by the Company in the subsequent year.

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(1)

See Note 2 and 13 for details on properties held-for-sale and disposals.

(2)

Includes investments in and advances to unconsolidated entities, properties under development, cash, restricted cash and other corporate assets.

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(1)

Buildings and improvements are depreciated based on a 15-39 year life. Tenant improvements are depreciated over the estimated terms of the leases, which range from 5 to 10 years.

(2)

Aggregate cost of the real estate property for federal income tax purposes is approximately $364.9 million.

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The

changes in total real estate for the years ended December 31, 2001, 2000 and 1999 are as follows:

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

¨

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

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four operating community shopping center joint-ventures with 344,000 square feet; and

•

a land-development joint venture consisting of approximately 590 acres, which is currently held for sale.

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(1)

See Note 5 on property disposals.

(2)

Mount Pleasant Towne Centre was classified as held-for-sale during the second quarter of 2001.

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(a)

FFO is presented in accordance with National Association of Real Estate Investment Trusts (NAREIT) Best Practices.

(b)

Excludes the Las Vegas non-operating outlet shopping center for 2002 presentation.

(c)

The following table sets forth the computation of the denominator to be used in calculating the weighted-average shares outstanding based on SFAS No. 128, “Earnings Per Share.”

•

The Company’s NOI decreased by $8.1 million, or 52%, to $7.4 million from $15.5 million for the same period in 2001. The decrease in NOI is primarily related to the sale of 33 properties in the second half of 2001. The NOI for these sold properties during the three months ended March 31, 2001 was $7.8 million.

•

Depreciation and amortization expense decreased by $3.4 million due to the sale of 33 properties in the second half of 2001 and the discontinuation of depreciation of the Company's Mount Pleasant Towne Centre which is currently held for sale.

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•

General and administrative expenses including stock compensation amortization decreased $0.4 million.

•

Net interest expense decreased by $3.3 million, or 42%, to $4.5 million from $7.8 million for the same period in 2001 resulting from the decrease in debt outstanding pursuant to the debt payoff/assumption associated with the outlet portfolio sale in September 2001.

•

The Company incurred severance and other related costs of $5.0 million during the three months ended March 31, 2001.

•

$5.0 million in severance and other related costs incurred in 2001,

•

a decrease in net interest expense of $3.3 million,

•

$0.5 million increase in earnings from unconsolidated entities, and

•

a decrease in general and administrative expenses including stock compensation amortization of $0.4 million offset by an $ 8.1 million decrease in NOI.

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•

$1.9 million of net cash provided by the acquisition of the remaining interest in Sunset KPT Investment, Inc. and related consolidation of this entity and its subsidiaries, offset by

•

$0.6 million invested in income-producing properties,

•

$0.3 million invested in or advanced to unconsolidated entities, and

•

$0.4 million of additional restricted escrow deposits.

•

$0.2 million of distributions to a minority member of a consolidated joint venture,

•

$0.5 million for debt repayments, and

•

$0.2 million in deferred financing charges and capital lease obligation payments.

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our markets could suffer unexpected increases in development of competitive retail properties;

•

the financial condition of our tenants could deteriorate;

•

the costs of our development projects could exceed our original estimates;

•

we may not be able to complete development or joint venture projects as quickly or on as favorable terms as anticipated;

•

we may not be able to lease or re-lease space quickly or on as favorable terms as old leases;

•

we may have incorrectly assessed the environmental condition of our properties;

•

we may not be able to refinance debt on as favorable terms as anticipated;

•

an increase in interest rates would increase our debt service costs;

•

we could lose key executive officers and employees and/or the cost to retain such personnel may increase;

•

our markets may suffer decline in economic growth or increase in unemployment rates;

•

the perception of community shopping centers by investors might deteriorate;

•

general and administrative costs, as a percentage of revenue, may increase as the size of portfolio decreases.

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four operating community shopping center joint-ventures with 344,000 square feet; and

•

a land-development joint venture consisting of approximately 590 acres, which is currently held for sale.

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(1)

See Note 6 on property disposals and Note 5 on properties held for sale.

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(a)

FFO is presented in accordance with National Association of Real Estate Investment Trusts (NAREIT) Best Practices.

(b)

Excludes the Las Vegas non-operating outlet shopping center for 2002 presentation.

(c)

The table below sets forth the computation of the denominator to be used in calculating the weighted-average shares outstanding based on SFAS No. 128, “Earnings Per Share.”

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The Company recognized a charge of $105.1 million as an adjustment to the carrying value of certain held-for-sale properties during the three months ended June 30, 2001.

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The Company’s NOI decreased by $8.7 million, or 60%, to $5.9 million from $14.6 million for the same period in 2001. The decrease in NOI is primarily related to the sale of 33 properties in the second half of 2001 and a property sold in May 2002. The NOI for these sold properties during the three months ended June 30, 2002 was $0.5 million as compared to $8.3 million during the same period in 2001.

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Depreciation and amortization expense decreased by $3.7 million due to the sale of 33 properties in the second half of 2001 and the discontinuation of depreciation of the Company’s Mount Pleasant Towne Centre, which was classified as held for sale in June 2001 and ultimately sold in May 2002.

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Net interest expense decreased by $3.7 million, or 47%, to $4.1 million from $7.8 million for the same period in 2001 resulting from the decrease in debt outstanding pursuant to the debt payoff/assumption associated with the outlet portfolio sale in September 2001 and the assumption of debt associated with the sale of Mount Pleasant Towne Centre.

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The Company incurred severance and other related costs of $0.9 million during the three months ended June 30, 2001.

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General and administrative expenses including stock compensation amortization increased $0.8 million.

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Earnings from unconsolidated entities increased to $0.2 million for the three months ended June 30, 2002 as compared to losses from unconsolidated entities of $4.8 million for the same period in 2001. The 2001 losses are primarily due to adjustments to the carrying value of undeveloped land held for sale, operating losses of the Company’s third-party management business, which was sold in February 2002, and operating expenses of Sunset KPT Investment, Inc. including interest expense on its loans from the Company. Sunset KPT Investment, Inc. was accounted for under the equity method of accounting for investments in 2001.

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$0.9 million in severance and other related costs incurred in 2001,

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a decrease in net interest expense of $3.7 million,

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$5.0 million increase in earnings from unconsolidated entities offset by

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an increase in general and administrative expenses including stock compensation amortization of $0.8 million, and

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a $8.7 million decrease in NOI.

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The Company recognized a charge of $105.1 million as an adjustment to the carrying value of certain held-for-sale properties in 2001.

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The Company’s NOI decreased by $16.7 million, or 55%, to $13.4 million from $30.1 million for the same period in 2001. This decrease is primarily related to the 33 properties sold in the second half of 2001 and a property sold in May 2002.

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Depreciation and amortization decreased by $7.1 million due to the sale of properties in the second half of 2001 and discontinuation of depreciation on Mount Pleasant Towne Centre, which was classified as held-for-sale in June 2001 and ultimately sold in May 2002.

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Net interest expense decreased by $7.0 million, or 45%, to $8.6 million from $15.6 million for the same period in 2001.

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The Company incurred severance and other related costs of $5.9 million during the six months ended June 30, 2001.

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Earnings from unconsolidated entities increased to $0.3 million for the three months ended June 30, 2002 as compared to losses from unconsolidated entities of $5.1 million for the same period in 2001. The 2001 losses are primarily due to adjustments to the carrying value of undeveloped land held for sale, operating losses of the Company’s third-party management business, which was sold in February 2002, and operating expenses of Sunset KPT Investment, Inc. including interest expense on its loans from the Company. Sunset KPT Investment, Inc. was accounted for under the equity method of accounting for investments in 2001.

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General and administrative expenses including stock compensation amortization increased $0.4 million.

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$5.9 million in severance and other related costs incurred in 2001,

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an increase in equity in earnings in unconsolidated ventures of $5.4 million, and

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a decrease in net interest expense of $7.0 million offset by

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a $16.7 million decrease in NOI and

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an increase in general and administrative expenses including stock compensation amortization of $0.4 million.

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$55.9 million in net proceeds from the sale of real estate, primarily Mount Pleasant Towne Centre,

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$0.7 million of net restricted cash escrow usage,

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$1.9 million of net cash provided by the acquisition of the remaining interest in Sunset KPT Investment, Inc. and related consolidation of this entity and its subsidiaries, offset by

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$1.9 million invested in income-producing properties, and

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$0.7 million invested in or advanced to unconsolidated entities.

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$48.9 million for debt repayments,

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$0.2 million of distributions to a minority member of a consolidated joint venture,

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$0.1 million in payment of a cumulative catch-up adjustment on preferred dividends, and

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$0.1 million in deferred financing charges and capital lease obligation payments.

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the proposed merger transaction could be delayed or terminated;

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we could lose key executive officers and employees and/or the cost to retain such personnel may increase;

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our markets could suffer unexpected increases in development of competitive retail properties;

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the financial condition of our tenants could deteriorate;

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we may not be able to lease or re-lease space quickly or on as favorable terms as old leases;

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we may have incorrectly assessed the environmental condition of our properties;

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we may not be able to refinance debt on as favorable terms as anticipated;

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an increase in interest rates would increase our debt service costs;

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our markets may suffer decline in economic growth or increase in unemployment rates;

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the perception of community shopping centers by investors might deteriorate;

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general and administrative costs may exceed our estimates on account of unexpected costs related to litigation;

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expenses not controllable by the Company such as real estate taxes and insurance may increase substantially.

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1.	If your shares are registered in your own name, please promptly complete, sign, date and mail the attached proxy card to Konover Property Trust, Inc. in the postage-paid envelope provided.

2.

If your shares are held in the name of a brokerage firm, bank nominee, or other institution, only it can sign a proxy card with respect to your shares and only after receiving your specific instructions. Your broker will provide you with directions regarding how to instruct your broker to vote your shares. Without your instructions, your shares will not be voted, which will have the same effect as a vote against the merger proposal and the charter proposal.

3.	Abstentions will have the same effect as a vote against the merger proposal and the charter proposal.

4.	If you sign and return your proxy card or give your broker instructions on how to vote your shares, you have every right to change your vote at any time before the vote is tabulated at the special meeting.

5.	If your shares are registered in your own name, you may revoke your proxy card at any time before it is voted at the special meeting by:

(a)

delivering to Konover’s secretary a written notice, bearing a later date than the previously delivered proxy card, revoking the proxy card;

(b)

executing, dating, and delivering to Konover’s secretary a subsequently dated proxy card; or

(c)

attending the meeting and voting in person. Attendance at the meeting will not, by itself, constitute revocation of a proxy card.

6.	If you have instructed a broker to vote your shares, you must follow the directions received from your broker in order to change your vote or to vote at the special meeting.

7.	If you have any questions about giving your proxy or if you require assistance, please call: Marcus B. Liles, III, Secretary, Konover Property Trust, Inc., 3434 Kildaire Farm Road, Suite 200, Raleigh, North Carolina 27606, Telephone (919) 372-3000.

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1.	To approve the merger of PSCO Acquisition Corp. with and into Konover Property Trust, Inc.; the Agreement and Plan of Merger, dated as of June 23, 2002, as amended on July 26, 2002, by and between PSCO Acquisition Corp. and Konover Property Trust, Inc.

2.	To approve the amendments to the charter of Konover Property Trust, Inc. contemplated by the Agreement and Plan of Merger.

3.

To vote in their discretion, upon such other business as may properly come before the meeting and any and all adjournments or postponements thereof, including, without limitation, a proposal to adjourn to provide additional time to solicit votes to approve the merger agreement, the merger and the charter amendments.