Document:

EXHIBIT 4.2

                           MPOWER HOLDING CORPORATION

                              STOCK OPTION PLAN II

     1. Purpose and Effect of the Plan. This Stock Option Plan (the "Plan") is
intended to promote the interests of Mpower Holding Corporation, a Delaware
corporation (the "Company") and its owners by encouraging certain selected key
employees (including officers of the Company), consultants and Board of
Directors members who will be responsible for the future growth and continued
development of the Company to own, and to increase their ownership of, the
Company's Shares thereby giving them, as owners, an increased personal interest
in, and a greater concern for, the Company's success and progress. The Plan is
also intended to aid the Company in competing with other enterprises for the
services of new executives and key employees needed to help insure continued
development.

     2. Name. The Plan shall be known as "Mpower Holding Corporation Stock
Option Plan II."

     3. Definition of Terms. In addition to words and terms that may be defined
elsewhere in the Plan, the following words and terms as used in the Plan shall
have the following meanings unless the context or use fairly indicates another
or different meaning or intent, which definitions shall be equally applicable to
both the singular and plural forms of such words and terms.

          A. "Board" shall mean the Board of Directors of the Company.

          B. "Change of Control" shall mean:

     (a) The consummation of a merger or consolidation of the Company with or
into another entity or any other corporate reorganization, if more than 50% of
the combined voting power of the continuing or surviving entity's securities
outstanding immediately after such merger, consolidation or other reorganization
is owned by persons who were not stockholders of the Company immediately prior
to such merger, consolidation or other reorganization;

     (b) The sale, transfer or other disposition of all or substantially all of
the Company's assets;

     (c) A change in the composition of the Board, as a result of which
one-third or more of the incumbent directors are not directors who either (i)
had been directors of the Company on the date 24 months prior to the date of the
event that may constitute a Change in Control (the "original directors") or (ii)
were elected, or nominated for election, to the Board with the affirmative votes
of at least a majority of the aggregate of the original directors who were still
in office at the time of the election or nomination and the directors whose
election or nomination was previously so approved; or

     (d) Any transaction as a result of which any person is the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing at least 50% of the total
voting power represented by the Company's then

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outstanding voting securities.  For purposes of this Subsection (d), the term
"person" shall have the same meaning as when used in Sections 13(d) and 14(d) of
the Exchange Act but shall exclude (i) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or of a Parent or
Subsidiary and (ii) a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of the common stock of the Company.

A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.

          C. "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.

          D. "Committee" shall have the meaning set forth in Item 5 hereof.

          E. "Common Stock" shall mean the common stock of the Company, $0.001
par value per share.

          F. "Employee" shall mean any employee of the Company, including
officers or directors of the Company who are employees of the Company.

          G. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

          H. "Fair Market Value" shall mean the fair market value of a share of
Common Stock on a particular date determined as follows. In the event the
Company's Common Stock is listed on an established stock exchange, Fair Market
Value shall be deemed to be the closing price of the Company's Common Stock on
such stock exchange on such date or, if no sale of the Company's Common Stock
shall have been made on any stock exchange on that day, the Fair Market Value
shall be determined as such price for the next preceding day upon which a sale
shall have occurred. In the event the Company's Common Stock is not listed upon
an established exchange but is quoted on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"), the Fair Market Value shall be
deemed to be the closing sale price (if included in the national market list) or
the mean between the closing dealer "bid" and "asked" prices for the Company's
Common Stock as quoted on NASDAQ for such date, and if no closing sale price or
"bid" and "asked" prices are quoted for that day, the Fair Market Value shall be
determined by reference to such prices on the next preceding day on which such
prices are quoted. In the event the Company's said Common Stock is neither
listed on an established stock exchange nor quoted on NASDAQ, the Fair Market
Value on such date shall be determined by the Committee.

          I. "Non-Employee Director" shall have the meaning given that term by
Rule 16b-3 promulgated under the Exchange Act.

          J. "Non-Employees" shall mean any consultant of the Company or
director of the Company who is not an employee of the Company.

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          K. "NQSO" shall mean any Option granted under this Plan which is not
intended to qualify as an incentive stock option under Code Section 422.

          L. "Option" shall mean a stock option granted under the Plan.

          M. "Option Price" shall mean the purchase price of a Share of Common
Stock under an Option.

          N. "Participant" shall mean an Employee or Non-Employee to whom an
Option is granted under the Plan.

          O. "Parent" shall mean any corporation which at the time qualifies as
a parent of the Company under the definition of "parent corporation" contained
in Code Section 424(c).

          P. "SEC" shall mean the Securities and Exchange Commission.

          Q. "Shares" shall represent the shares of Common Stock in the Company
that may be acquired by exercise of Options hereunder.

          R. "Subsidiary" shall mean any corporation which at the time qualifies
as a subsidiary of the Company under the definition of "subsidiary corporation"
contained in Code Section 424(f).

     4. Characterization of Options. All Options granted hereunder shall be
nonqualified options as provided in Code Section 83.

     5. Administration. The Plan shall be administered by a Stock Option
Committee (the "Committee") consisting of not less than two members all of whom
shall be Non-Employee Directors.

          A. The Committee shall be appointed by the Board from its membership.
The members of the Committee shall serve at the pleasure of the Board, which
shall have the power, at any time and from time to time, to remove members from
the Committee or to add members thereto. Vacancies on the Committee, however
caused, shall be filled by the Board.

          B. The Committee may interpret the Plan, prescribe, amend and rescind
any rules and regulations necessary or appropriate for the administration of the
Plan and make such other determinations and take such other action as it deems
necessary or desirable for the administration of the Plan and the protection of
the Company except as otherwise reserved to the Board or the stockholders of the
Company. Without limiting the generality of the foregoing, the Committee, in its
discretion, may treat all or any part of any period during which a Participant
is on military duty or on an approved leave of absence from the Company as a
period of employment of such Participant by the Company for purposes of accrual
of his rights under his Option. In addition, the Committee shall have the
specific authority to grant Options with different terms to different
Participants and shall further have the specific authority to require a minimum
holding period between the grant and exercise of any Option, to determine that
the Options granted to a Participant may be exercised only in installments, to
accelerate the vesting of any Option and to specify such conditions precedent to
the exercise of any Option as the

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Committee may deem advisable. The Committee may at any time, with the consent
of the Participant, at its sole discretion, cancel any Option and issue to the
Participant a new Option for any equivalent or lesser number of Shares, and at
a lesser Option Price. Any interpretation, determination or other action made
or taken by the Committee shall be final, binding and conclusive.

          C. No member of the Committee shall be liable for any action taken or
omitted or determination made in good faith with respect to the Plan or any
Option granted under the Plan.

     6. Shares Subject to Plan. Options may be granted by the Company from time
to time to purchase an aggregate of 7,500,000 Shares subject to adjustment as
provided in Item 11 below. The Shares issued upon exercise of Options granted
under the Plan may be authorized and unissued Shares or Shares repurchased by
the Company. If any Option granted under the Plan shall terminate, expire or,
with the consent of the Participant, be canceled as to any Shares, new Options
may thereafter be granted covering any such Shares. The Options granted to a
Participant in any single fiscal year shall not cover more than the total number
of Shares available for grant under the Plan, subject to adjustment as provided
in Item 11 below.

     7. Eligibility. Options may be granted to those Employees and Non-Employees
of the Company selected by the Committee in its sole discretion from time to
time who have and exercise key management functions for the Company or who
discharge other responsibilities important to the success of the Company.
Notwithstanding anything to the contrary in this Plan, Options may be granted to
a director who is a member of the Committee if otherwise exempt from Section
16(b) of the Exchange Act pursuant to Rule 16b-3, SEC interpretations thereof or
any subsequently promulgated rule or regulation. The granting of an Option to
any Participant shall neither entitle such Participant to, nor disqualify such
Participant from participation in any future Option grants.

     8. Grant of Options. The Committee shall have the authority, subject to the
terms of the Plan, to: (a) determine and designate from time to time those key
employees (including officers), consultants and directors to whom Options are to
be granted; (b) determine the number of Shares subject to each Option; (c)
determine the duration of the exercise period for any Option; (d) determine that
the Options granted to a Participant may be exercised only in installments; and
(e) specify such other terms and conditions of each Option as the Committee in
its sole discretion deems advisable. The date of grant of an Option under the
Plan will be the date on which the Option is awarded by the Committee.

     9. Terms and Conditions of Options. Each Option shall be evidenced by an
Option Agreement which shall contain such terms and conditions consistent with
the provisions of the Plan as may be approved by the Committee and shall be
signed by an officer of the Company and the Participant. Each Option granted
under the Plan shall be subject to such terms and conditions as follows and to
such other terms and conditions as the Committee may deem appropriate:

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          A. Option Period. Each NQSO Option Agreement shall specify the period
during which the Option thereunder is exercisable (which shall not exceed ten
years from the date of grant) and shall provide that the NQSO shall expire at
the end of such period.

          B. Option Price. The Option Price per Share shall be determined by the
Committee at the time any NQSO is granted. Such price shall be subject to
adjustments as provided in Item 11.

          C. Period to Exercise Option. Any NQSO granted hereunder may, prior to
its expiration or termination, be exercised from time to time, in whole or in
part, up to the total number of Shares with respect to which it shall have then
become exercisable. An NQSO granted hereunder may become exercisable in
installments as determined by the Committee; provided, however, that if the
Committee grants an Option exercisable in more than one installment, and if the
employment of an Employee-Participant holding such Option is terminated, then
unless the Option Agreement provides otherwise, the Option shall be exercisable
only as to such number of Shares as to which the Participant had the right to
exercise the Option on the date of termination of employment.

          D. Restrictions on Grants to Non-Employee Directors. Any NQSO granted
hereunder to a Non-Employee Director shall provide that the Shares received upon
exercise of the Option may not be disposed of before the first day following the
six month anniversary of the date the Option was granted.

     10. Exercise of Option. The exercise of any Option under the Plan shall be
subject to the provisions of Paragraphs A, B and C below.

          A. Method of Exercising Option. Any Option granted hereunder or any
portion thereof (in whole Shares only) may be exercised by the Participant by
(i) delivering to the Company at its main office (attention its Secretary,
Assistant Secretary or Chief Financial Officer) written notice which shall set
forth the Participant's election to exercise a portion or all of his Option, the
number of Shares with respect to which the Option rights are being exercised,
and such other representations and agreements as may be required by the Company
to comply with applicable securities laws and loan agreements to which the
Company is a party, and (ii) paying in full the Option Price of the Shares
purchased. Upon receipt of such notice and payment, the Company shall issue and
deliver to the Participant a certificate for the number of Shares with respect
to which Options were so exercised. In the Option Agreement, the Committee may
require the exercise of Options by any Participant to comply with the
requirements of the SEC.

          B. Payment of Option Price. The Option Price of the Shares as to which
an Option is exercised shall be paid in full to the Company at the time of
exercise. The payment may be made either in cash or its equivalent or, where
permitted by law and approved by the Committee in its sole discretion: (i) by
delivery of a promissory note on terms and conditions acceptable to the
Committee; (ii) by cancellation of indebtedness of the Company to the
Participant; (iii) by surrender of shares of Common Stock of the Company having
a Fair Market Value equal to the exercise price of the Option; (iv) by
instructing the Company to withhold shares otherwise issuable pursuant to an
exercise of an Option having a Fair Market Value equal to the exercise price of
the Option (including withheld shares); (v) by waiver of compensation

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due or accrued to the Participant for services rendered; or (vi) by any other
means approved by the Committee. Participants who are not Employees shall not be
entitled to purchase Shares with a promissory note unless the note is adequately
secured by collateral other than the Shares so purchased.

          Notwithstanding anything to the contrary above, the Committee, in its
discretion, may suspend or terminate the right of participants to pay in a form
other than cash should the Committee deem such action to be in the best
interests of the Company.

          C. Withholding Taxes. The Company may, in its discretion, require a
Participant to pay to the Company at the time of exercise the amount that the
Company deems necessary to satisfy its obligation to withhold federal, state or
local income or other taxes incurred by reason of the exercise. Where the
exercise of an Option does not give rise to an obligation to withhold federal
income taxes on the date of exercise, the Company may, in its discretion,
require a Participant to place Shares purchased under the Option in escrow for
the benefit of the Company until such time as federal income tax withholding is
required on amounts included in the gross income of the Participant as a result
of the exercise of an Option or the disposition of Shares acquired pursuant
thereto. At such time, the Company, in its discretion, may require the
Participant to pay to the Company the amount that the Company deems necessary to
satisfy its obligation to withhold federal, state or local income or other taxes
incurred by reason of the exercise of the Option or the disposition of Shares,
in which case the Shares will be released from escrow to the Participant.

          D. No Fractional Shares. Notwithstanding anything herein to the
contrary, no fractional Shares may be issued under the Plan.

     11. Capital Adjustments. The number and price of Shares covered by each
Option, the number of Shares that become exercisable at any one time and the
total number of Shares that may be optioned and sold under the Plan shall be
proportionately adjusted to reflect any Share dividend, Share split or Share
combination or any recapitalization of the Company. Except as expressly provided
in this Item 11, the Participant shall have no rights by reason of any change in
the Shares of the Company. The grant of an Option pursuant to this Plan shall
not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or
any part of its business or assets. The Committee shall have the sole discretion
to make all interpretations and terminations required under this Item to the
extent it deems equitable and appropriate.

     12. Effect of Change of Control. Except as otherwise set forth in the
applicable Option Agreement, every Option granted under this Plan shall become
immediately exercisable as to all of the Common Shares subject to such Option
upon the first to occur of: (a) a Change of Control with respect to the Company,
or (b) approval by the stockholders of the Company of a transaction which would
constitute a Change of Control.

     13. Company's Right to Redeem Options. Any provision of this Plan to the
contrary notwithstanding, in the event the Company is a party to an agreement to
sell all or substantially all of its assets, a merger or other reorganization,
all outstanding Options shall be

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subject to the agreement of sale, merger or reorganization which may provide,
without limitation, for the assumption of outstanding Options by the surviving
corporation or its Parent, for their continuation by the Company (if it is the
surviving corporation), for accelerated termination and redemption of Options in
stock or cash, or for other arrangements which provide the Participant with a
per share economic benefit at least equal to the difference between the fair
market value (as reasonably determined by the Board) of the consideration
received for each Share in the transaction and the Option Price.

     14. Reservation of Shares. The Company, during the term of any Options
granted hereunder, will at all times reserve and keep available, and will seek
to obtain from any regulatory body having jurisdiction any requisite authority
in order to issue and sell such number of Shares as shall be sufficient to
satisfy the requirements of the Options granted under the Plan. If, in the
opinion of the Company's counsel, the issuance or sale of any Shares hereunder
shall not be lawful for any reason, including the inability of the Company to
obtain from any regulatory body having jurisdiction authority deemed by such
counsel to be necessary for such issuance or sale, the Company shall not be
obligated to issue or sell any such Shares.

     15. Securities Laws. Upon the exercise of an Option at a time when there is
not in effect under the Securities Act of 1933, as amended (the "Act"), a
current registration statement relating to the Shares to be received upon such
exercise, the Participant shall represent and warrant in writing to the Company
that the Shares purchased are being acquired for investment and not with a view
to the distribution thereof and shall agree to the imposition of a legend on the
certificate or certificates representing said Shares in substantially the
following form and such other restrictive legends as are required or advisable
under the provision of any applicable laws:

     This share certificate and the Shares represented hereby have
     not been registered under the Securities Act of 1933, as
     amended (the "Act"), nor under the securities laws of any
     state and shall not be transferred at any time in the absence
     of (i) an effective registration statement under the Act and
     any other applicable state law with respect to such Shares at
     such time; or (ii) an opinion of counsel satisfactory to the
     Company and its counsel to the effect that such transfer at
     such time will not violate the Act or any applicable state
     securities laws; or (iii) a "no action" letter from the
     Securities and Exchange Commission and a comparable ruling
     from any applicable state agency with respect to such state's
     securities laws.

     No Shares shall be issued or sold upon the exercise of any Option unless
and until (i) the full amount of the purchase price has been paid as provided in
Item 10 hereof and (ii) the then applicable requirements of the Act, the
applicable securities laws of any other jurisdiction, as any of the same may be
amended, the rules and regulations of the SEC and any other regulations of any
securities exchange on which the Shares may be listed shall have been fully
complied with and satisfied.

     16. Transferability and Options. No Option shall be assignable or
transferable by a Participant except by will or by the laws of descent and
distribution. Any distributee by will or

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by the laws of descent and distribution shall be bound by the provisions of the
Plan. During the life of a Participant, the Option shall be exercisable only by
such Participant. Any attempt to assign, pledge, transfer, hypothecate or
otherwise dispose of an Option and any levy, execution, attachment or similar
process on an Option shall be null and void.

     17. No Rights as Stockholders. A Participant shall not have any rights as a
stockholder with respect to any Shares covered by any Option granted hereunder
until the issuance of a certificate for such Shares. No adjustment shall be made
on the issuance of a share certificate to a Participant as to any distributions
or other rights for which the record date occurred prior to the date of issuance
of such certificate.

     18. Indemnification and Exculpation. Each person who is or shall have been
a member of the Management Committee or of the Committee shall be indemnified
and held harmless by the Company against and from any and all loss, costs,
liability or expense that may be imposed upon or reasonably incurred by him in
connection with or resulting from any claim, action, suit or proceeding to which
he may be or become involved by reason of any action taken or failure to act
under the Plan and against and from any and all amounts paid by him in
settlement thereof (with the Company's written approval) or paid by him in
satisfaction of a judgment in any such action, suit or proceeding, except a
judgment in favor of the Company based upon a finding of his lack of good faith;
subject, however, to the condition that upon the institution of any claim,
action, suit or proceeding against him, he shall in writing give the Company an
opportunity, at its expense, to handle and defend the same before he undertakes
to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other right to which such person
may be entitled as a matter of law or otherwise, or any power that the Company
may have to indemnify him or hold him harmless. Each member of the Board or of
the Committee and each officer and employee of the Company shall be fully
justified in relying or acting in good faith upon any information furnished in
connection with the administration of the Plan by any appropriate person or
persons other than himself. In no event shall any person who is or shall have
been a member of the Board or of the Committee, or an officer or employee of the
Company, be held liable for any determination made, or other action taken, or
any omission to act in reliance upon any such information as referred to in the
preceding sentence, or for any action (including the furnishing of information)
taken, or any omission to act, when any such determination, action or omission
is made in good faith.

     19. Use of Proceeds. Proceeds from the sale of Shares pursuant to Options
granted under the Plan shall constitute general funds of the Company.

     20. Amendment and Discontinuance. The Board of the Company may terminate or
amend the Plan in any respect at any time, except that no action of the Board
may alter or impair a Participant's rights under any outstanding Option without
his consent.

     21. Term of Plan. The Plan shall be effective as of the date of the
adoption of the Plan by the Board and stockholders of the Company and shall
expire on December 19, 2012, unless sooner terminated as provided in Item 20
hereof.

     22. General. Except as the same may be governed by the Code and any
applicable federal securities laws, the Plan and any Options granted hereunder
shall be governed by and

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construed in accordance with the laws of the State of Delaware. The granting of
an Option shall impose no obligation upon the Participant to exercise such
Option. As herein used, the singular number shall include the plural, the plural
the singular, and the use of any gender shall be applicable to all genders,
unless the context or use shall fairly require a different construction. Section
or paragraph headings are employed herein solely for convenience of reference,
and such headings shall not affect the validity, meaning or enforceability of
any provision of the Plan. All references herein to "Item" or "paragraph" shall
mean the appropriately numbered Item or paragraph of the Plan except where
reference is made to the Code or any other specified law or instrument.

AS APPROVED BY THE BOARD OF DIRECTORS OF THE COMPANY ON DECEMBER 19, 2002.<PAGE>

                                                                   Exhibit 10.20

                              EMPLOYMENT AGREEMENT
                                     BETWEEN
                              NICHOLAS S. SCHORSCH
                                       AND
                            FIRST STATES GROUP, L.P.

          This Employment Agreement (the "Agreement"), dated as of May 15, 2003
("Effective Date"), between First States Group, L.P., a Delaware limited
partnership (the "Company"), and Nicholas S. Schorsch (the "Executive"):

          WHEREAS, American Financial Realty Trust, a Maryland real estate
investment trust (the "REIT"), is a limited partner and the sole owner of the
general partner of the Company;

          WHEREAS, this Agreement amends and restates the Employment Agreement
between the REIT (which assigned that agreement to the Company) and the
Executive, dated September 10, 2002 (the "Original Agreement");

          WHEREAS, the Executive has extensive experience in owning and
operating real estate companies which own commercial real estate and, prior to
entering into the Original Agreement, had been the owner of certain businesses
that, in connection with the formation of the REIT and the private placement of
common shares ("Common Shares") of beneficial ownership, par value $.001 per
share of the REIT (referred to herein as the "144A Offering"), were acquired by
the REIT or the Company; and

          WHEREAS, the Company wishes to continue to employ the Executive in the
capacities and on the terms and conditions set out below, and the Executive has
agreed to continue such employment, in the capacities and on the terms and
conditions set forth below.

          NOW, THEREFORE, the Company and the Executive, in consideration of the
respective covenants set out below, hereby agree as follows:

     1. EMPLOYMENT.

          (a) POSITIONS. The Executive shall be employed by the Company as its
President and Chief Executive Officer. The Executive shall also be an officer of
the REIT as its Vice Chairman of the Board of Trustees ("Board"), President and
Chief Executive Officer.

          (b) DUTIES. The Executive's principal employment duties and
responsibilities shall be those duties and responsibilities customary for the
positions of President and Chief Executive Officer and such other executive
duties and responsibilities as the Board shall from time to time reasonably
assign to the Executive. The Executive shall be responsible for and have
authority over the day-to-day operational management of the Company and the
REIT. The Executive shall report directly to the Board. All other officers of
the Company and the REIT shall report to the Executive or such person(s) as the
Executive may designate from time to time.

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<PAGE>

          (c) EXTENT OF SERVICES. Except for illnesses and vacation periods, the
Executive shall devote a substantial majority of his business time and attention
and his best efforts to the performance of his duties and responsibilities under
this Agreement. Notwithstanding the foregoing, Executive (i) shall be permitted
to continue to manage, operate and devote time and attention to those properties
and businesses he owned, operated or controlled at the time of the 144A Offering
that were not transferred to or purchased by the Company or the REIT in
connection with the 144A Offering or any properties and businesses that were
transferred to the Company and that Executive subsequently reacquires pursuant
to the terms of the Contribution Agreement dated September 4, 2002 (collectively
referred to herein as the "Excluded Businesses"), (ii) may make any passive
investment where he is not obligated or required to, and shall not in fact,
devote any managerial efforts, (iii) may participate in charitable, academic or
community activities, and in trade or professional organizations, or (iv) may
hold directorships in other companies consistent with the Company's conflict of
interest policies and corporate governance guidelines as in effect from time to
time.

     2. TERM. This Agreement shall be effective as of the Effective Date and
shall continue in full force and effect thereafter for a term of five (5) years
following the Effective Date, and shall be automatically extended for an
additional one (1) year period on each one (1) year anniversary of the Effective
Date, including an anniversary that occurs within the initial five (5) year term
(the last day of each such term is referred to herein as a "Term Date"), unless
either party terminates this Agreement not later than sixty (60) days prior to a
Term Date by providing written notice to the other party of such party's intent
not to renew, or it is sooner terminated pursuant to Section 7. For purposes of
this Agreement, "Term" shall mean the actual duration of the Executive's
employment hereunder, taking into account any extensions pursuant to this
Section 2 or early termination of employment pursuant to Section 7.

     3. BASE SALARY. The Company shall pay the Executive a base salary annually
(the "Base Salary"), which shall be payable in periodic installments according
to the Company's normal payroll practices. The initial Base Salary shall be
$400,000. The Board or the Compensation and Human Resources Committee of the
REIT (the "Compensation Committee") shall review the Base Salary at least once a
year to determine whether the Base Salary should be increased effective January
1 of any year during the Term; provided, however, that on January 1, 2004, the
initial Base Salary shall be increased to $424,000, and on each January 1
thereafter during the Term, the Base Salary shall be increased by a minimum
positive amount equal to the Base Salary in effect on January 1 of the prior
year multiplied by the percentage increase in the Consumer Price Index for such
year. The amount of the increase shall be determined before March 31 of each
year and shall be retroactive to January 1. The Base Salary, including any
increases, shall not be decreased during the Term. For purposes of this
Agreement, the term "Base Salary" shall mean the amount established and adjusted
from time to time pursuant to this Section 3.

     4. INCENTIVE AWARDS.

          (a) ANNUAL INCENTIVE BONUS. The Executive shall be entitled to receive
an annual cash incentive bonus for each fiscal year during the Term of this
Agreement consistent with a bonus policy adopted by the Compensation Committee
("Bonus Policy"). If the Executive or the Company, as the case may be, satisfies
the performance criteria contained in

                                      -2-

<PAGE>

such Bonus Policy for a fiscal year, he shall receive an annual incentive bonus
in an amount determined by the Compensation Committee and subject to
ratification by the Board, if required. If the Executive or the Company, as the
case may be, fails to satisfy the performance criteria contained in such Bonus
Policy for a fiscal year, the Compensation Committee may determine whether any
incentive bonus shall be payable to Executive for that year, subject to
ratification by the Board, if required. Beginning January 1, 2004, the Bonus
Policy shall contain both individual and group goals established by the
Compensation Committee. Notwithstanding the foregoing, in no event shall the
annual incentive bonus payable to Executive for any fiscal year during the Term
be less than a guaranteed bonus amount, irrespective of whether the Executive or
the Company satisfy the performance criteria contained in the Bonus Policy as in
effect for such fiscal year (the "Guaranteed Bonus"). The initial Guaranteed
Bonus shall be $31,250 per month. The Board or the Compensation Committee shall
review the Guaranteed Bonus at least once a year to determine whether the
Guaranteed Bonus should be increased effective January 1 of any year during the
Term; provided, however, that on January 1, 2004, the Guaranteed Bonus shall be
increased to $33,125 per month. The Guaranteed Bonus portion of the annual
incentive bonus shall be paid during the fiscal year pursuant to the Company's
normal payroll practices. The balance of the annual incentive bonus (the
incremental portion of the annual incentive bonus in excess of the Guaranteed
Bonus amount, if any) shall be paid to the Executive no later than thirty (30)
days after the date the Compensation Committee determines whether the criteria
in the Bonus Policy for such fiscal year were satisfied. For purposes of this
Agreement, the term "Incentive Bonus" shall mean the amount established pursuant
to this Section 4(a).

          (b) OUTPERFORMANCE PLAN BONUS. The REIT has established the 2003
Outperformance Plan (the "OPP") as an incentive compensation plan for key
employees with awards determined based on the annual and the three-year total
return to shareholders of the REIT. The Executive shall be eligible to
participate in the OPP in an amount as determined by the Compensation Committee.
The Compensation Committee has established that, during the Term, the Executive
will receive a minimum allocation of at least 40.0% of the aggregate
outperformance reward under the OPP or under any outperformance plan that
replaces the OPP; and the Executive will receive economically consistent results
appropriate in respect of his position as Chief Executive Officer for any
outperformance plan for executives that the Company or the REIT puts into effect
after the OPP. The Executive, as Chief Executive Officer, will have the right to
make recommendations to the Compensation Committee as to which Company employees
are eligible to receive an allocation under the OPP and the amount of that
allocation, subject to Compensation Committee review and approval.

     5. STOCK BASED AWARDS.

          (a) 2002 EQUITY INCENTIVE PLAN OPTION GRANTS. The REIT has established
the 2002 Equity Incentive Plan ("Equity Incentive Plan"). Under the Original
Agreement, on the closing of the 144A Offering, the REIT granted the Executive
an initial grant of options to purchase 1,515,625 Common Shares (the "Initial
Grant Options"). The Initial Grant Options have an exercise price of $10.00 per
share and a term of ten (10) years and will vest and become exercisable with
respect to 25% of the underlying Common Shares on the one-year anniversary of
the date of grant and 6.25% of the underlying Common Shares on the last day of
each fiscal quarter thereafter until fully vested; provided, however, that the
Executive will be 100% vested in the Initial Grant Options upon (i) a Change in
Control (as defined herein), (ii)

                                      -3-

<PAGE>

a termination by the Company without Cause (as defined herein), (iii) a
termination by the Executive for Good Reason (as defined herein), (iv) his
death, (v) his becoming Permanently Disabled (as defined herein), or (vi) the
Company's failure to renew this Agreement. The Executive will forfeit all
unvested Initial Grant Options if he is terminated for Cause or he terminates
his employment hereunder for other than Good Reason. The Executive shall be
eligible to receive future option grants as determined by the Compensation
Committee.

          (b) 2002 EQUITY INCENTIVE PLAN RESTRICTED SHARE AWARDS. The Equity
Incentive Plan provides for the issuance of Common Shares as restricted Common
Shares ("Restricted Share Grants") to the extent that such Common Shares are
available thereunder. The Executive shall be eligible to receive Restricted
Share Grants as approved by the Compensation Committee, and if the Compensation
Committee approves Restricted Share Grants to executives of the Company, then,
as appropriate in the context, the Executive will receive Restricted Share
Grants consistent with, and appropriate in respect of, his position as Chief
Executive Officer. Restricted Share Grants awarded to the Executive shall be
subject to vesting at the rate of 33.33% of the underlying Common Shares on the
one-year anniversary of the effective date of the issuance of Common Shares as
Restricted Share Grants and 8.33% of the underlying Common Shares on the last
day of each fiscal quarter thereafter until fully vested; provided, however,
that the Executive will be 100% vested and all restrictions will lapse upon (i)
a Change in Control (as defined herein), (ii) a termination by the Company
without Cause (as defined herein), (iii) a termination by the Executive for Good
Reason (as defined herein), (iv) his death, (v) his becoming Permanently
Disabled (as defined herein), or (vi) the Company's failure to renew this
Agreement. The Executive will forfeit all unvested Restricted Share Grants if he
is terminated for Cause or he terminates for other than Good Reason. The Common
Shares issued as Restricted Share Grants will have voting and dividend rights,
and, following the restriction period, shall be registered and fully
transferable by the Executive.

     6. BENEFITS.

          (a) VACATION. The Executive shall be entitled to eight (8) weeks of
vacation per full calendar year. The Executive shall be entitled to cash in lieu
of any unused vacation time.

          (b) SICK AND PERSONAL DAYS. The Executive shall be entitled to sick
and personal days on an as needed basis.

          (c) EMPLOYEE BENEFITS.

               (i) PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive and
his spouse and eligible dependents, if any, and their respective designated
beneficiaries where applicable, will be eligible for and entitled to participate
in any Company sponsored employee benefit plans, including but not limited to
benefits such as group health, dental, accident, disability insurance, group
life insurance, and a 401(k) plan, as such benefits may be offered from time to
time, on a basis no less favorable than that applicable to any other executive
of the Company.

                                      -4-

<PAGE>

               (ii) SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Company shall
provide to the Executive a supplemental executive retirement plan ("SERP")
benefit on the terms and conditions set forth in Appendix A to this Agreement.

               (iii) DISABILITY INSURANCE. The Company shall maintain, at its
cost, supplemental renewable long-term disability insurance as agreed to by the
Company and the Executive.

          (d) OTHER BENEFITS.

               (i) ANNUAL PHYSICAL. The Company shall provide, at its cost, a
medical examination for the Executive on an annual basis by a licensed physician
in the Philadelphia, Pennsylvania area selected by the Executive.

               (ii) CAR ALLOWANCE. The Company shall pay Executive a monthly car
allowance of $2,000.

               (iii) TAX PREPARATION AND FINANCIAL PLANNING. The Company shall
pay or promptly reimburse the Executive for costs incurred by him in connection
with tax preparation and financial planning assistance, to be furnished by such
advisors as chosen by the Executive, up to a maximum aggregate of $30,000
annually.

               (iv) DIRECTORS AND OFFICERS INSURANCE. During the Term and the
Severance Period, the Executive shall be entitled to director and officer
insurance coverage for his acts and omissions while an officer and director of
the Company and the REIT on a basis no less favorable to him than the coverage
provided to any other current officers and trustees.

               (v) LIFE INSURANCE. The Company may purchase on the life of the
Executive $15 million of key man life insurance with the Company as the
beneficiary of the death benefit. The Company shall purchase on the life of the
Executive a 30 year vanishing premium, whole life insurance policy with a death
benefit of $15 million with the Executive (or his assignee) as the owner of the
policy and with the right to designate the beneficiary of the death benefit. The
premiums paid on this policy shall be imputed as income to the Executive, and
the Company will pay to the Executive such additional amount as necessary to
have no federal, state or local tax effect on the Executive (the "Executive Life
Insurance Program"). The Executive Life Insurance Program shall be issued by a
AA or better rated (by AM Best) insurer. The Company will obtain bids for this
program and review the final program with the Executive and the Chairman of
Compensation Committee for approval. The program will be structured to comply
with all requirements of the Sarbanes-Oxley Act or similar requirements.

               (vi) EXPENSES, OFFICE AND SECRETARIAL SUPPORT. The Executive
shall be entitled to reimbursement of all reasonable expenses, in accordance
with the Company's policy as in effect from time to time and on a basis no less
favorable than that applicable to any other executive of the Company, including,
without limitation, telephone, reasonable travel and reasonable entertainment
expenses incurred by the Executive in connection with the business of the
Company, promptly upon the presentation by the Executive of appropriate
documentation. The Executive shall also be entitled to appropriate office space,

                                      -5-

<PAGE>

administrative support, and such other facilities and services as are suitable
to the Executive's positions and adequate for the performance of the Executive's
duties.

               (vi) FINANCIAL ASSISTANT. The Company shall pay or promptly
reimburse the Executive for costs incurred by him in connection with the
employment by the Executive of an assistant to manage the Executive's financial
affairs, including the cost of salary and employee benefits, plus such
additional amount as necessary to have no federal, state or local tax effect on
the Executive.

     7. TERMINATION. The employment of the Executive by the Company pursuant to
this Agreement shall terminate upon the occurrence of any of the following:

          (a) DEATH OR PERMANENT DISABILITY. Immediately upon death or Permanent
Disability of the Executive. As used in this Agreement, "Permanent Disability"
shall mean an inability due to a physical or mental impairment to perform the
material services contemplated under this Agreement for a period of six (6)
months, whether or not consecutive, during any 365-day period. A determination
of Permanent Disability shall be made by a physician satisfactory to both the
Executive and the Company, provided that if the Executive and the Company do not
agree on a physician, the Executive and the Company shall each select a
physician and these two together shall select a third physician, whose
determination as to Permanent Disability shall be binding on all parties. The
appointment of one or more individuals to carry out the offices or duties of the
Executive during a period of the Executive's inability to perform such duties
and pending a determination of Permanent Disability shall not be considered a
breach of this Agreement by the Company.

          (b) FOR CAUSE. At the election of the Company and subject to the
provisions of this Section 7(b), immediately upon written notice by the Company
to the Executive of his termination for Cause. For purposes of this Agreement,
"Cause" for termination shall be deemed to exist solely in the event of (i) the
conviction of the Executive of, or the entry of a plea of guilty or nolo
contendere by the Executive to, a felony (exclusive of any felony relating to
negligent operation of a motor vehicle and not including a conviction, plea of
guilty or nolo contendere arising solely under a statutory provision imposing
criminal liability upon the Executive on a per se basis due to the Company
offices held by the Executive, so long as any act or omission of the Executive
with respect to such matter was not taken or omitted in contravention of any
applicable policy or directive of the Board), (ii) a willful breach of his duty
of loyalty which is materially detrimental to the Company, (iii) a willful
failure to perform or adhere to explicitly stated duties that are consistent
with the terms of this Agreement, or the Company's reasonable and customary
guidelines of employment or reasonable and customary corporate governance
guidelines or policies, including without limitation any business code of ethics
adopted by the Board, or to follow the lawful directives of the Board (provided
such directives are consistent with the terms of this Agreement), which, in any
such case, continues for thirty (30) days after written notice from the Board to
the Executive, or (iv) gross negligence or willful misconduct in the performance
of the Executive's duties. For purposes of this Section 7(b), no act, or failure
to act, on the Executive's part will be deemed "gross negligence" or "willful
misconduct" unless done, or omitted to be done, by the Executive not in good
faith and without a reasonable belief that the Executive's act, or failure to
act, was in the best interest of the Company. The parties agree that in order to
terminate the Executive pursuant to Subsections

                                      -6-

<PAGE>

(ii) and (iv) hereof, the Company shall first be required to prove to the
reasonable satisfaction of the Executive that he engaged in improper conduct
under these Subsections, and if the Executive shall not agree with the Company's
assessment of his conduct, then the Executive shall not be terminated until an
arbitrator, as provided for in Section 13(b), has determined that the
Executive's conduct constituted improper conduct under the applicable
Subsection.

          (c) WITHOUT CAUSE; WITHOUT GOOD REASON. At the election of the
Company, without Cause, and at the election of the Executive, without Good
Reason, in either case upon thirty (30) days prior written notice to the
Executive or the Company, as the case may be.

          (d) FOR GOOD REASON. At the election of the Executive, for Good
Reason. For purposes of this Agreement, "Good Reason" shall mean any of the
following actions or omissions, provided the Executive notifies the Company of
his determination that Good Reason exists within 60 days of the action or
omission on which such determination is based:

               (i) removal from the Board, or the failure to be nominated or
elected to the Board,

               (ii) failure to renew this Agreement on at least comparable terms
at any Term Date,

               (iii) a material reduction of the Executive's duties,
responsibilities or reporting requirements, or the assignment to the Executive
of any duties, responsibilities, or reporting requirements that are inconsistent
with his positions as President, Chief Executive Officer, and Vice Chairman of
the Board, as the case may be,

               (iv) a reduction by the Company in the Executive's annual Base
Salary or Guaranteed Bonus,

               (v) the Company's failure to continue in effect the Equity
Incentive Plan or the OPP, unless comparable alternative compensation
arrangements (embodied in ongoing substitute or alternative plans) have been
provided to the reasonable satisfaction of the Executive,

               (vi) a reduction or loss of employee benefits or material fringe
benefits, both in terms of the amount of the benefit and the level of the
Executive's participation therein, enjoyed by the Executive under the employee
benefit and welfare plans of the Company, including without limitation such
benefits as group health, dental, 401(k), accident, disability insurance, or
group life insurance, that is caused by the Company except as is required by
applicable law,

               (vii) absent the Executive's prior written consent, the
requirement by the Company that the principal place of business at which the
Executive performs his duties be changed to a location that is outside of a 50
mile radius of Jenkintown, Pennsylvania. The parties acknowledge that for these
purposes, Executive's principal place of business will be Jenkintown,
Pennsylvania for approximately 36 to 38 weeks per calendar year, and the
remainder, as the Executive decides, will be in Richmond, Virginia and Avalon,
New Jersey, or

                                      -7-

<PAGE>

               (viii) a breach by the Company of any provision of this Agreement
that continues for a period of thirty (30) days after Executive provides written
notice to the Company of such breach.

     8. EFFECTS OF TERMINATION.

          (a) TERMINATION ON PERMANENT DISABILITY; BY THE COMPANY WITHOUT CAUSE;
BY THE EXECUTIVE FOR GOOD REASON. If the employment of the Executive should
terminate by reason of his becoming Permanently Disabled, a termination by the
Company for any reason other than Cause, or by the Executive for Good Reason,
then the Company shall pay all compensation and benefits for the Executive as
follows:

               (i) any Base Salary, Guaranteed Bonus, Incentive Bonus, expense
reimbursements and all other compensation related payments that are payable as
of his termination of employment date that are related to his period of
employment preceding his termination date, including pay in lieu of accrued, but
unused, vacation, and

               (ii) the prorated amount of the maximum Incentive Bonus for the
year in which the termination of employment occurs, pro rated for the portion of
such year during which the Executive was employed prior to the effective date of
his termination, and

               (iii) the amount equal to his (A) Base Salary, plus (B) his
Guaranteed Bonus, at the rates in effect on the effective date of his
termination of employment, that would have been paid or payable during the five
(5) year period immediately following the effective date of his termination (the
"Severance Period").

          The sum of the amount payable under subsections (ii) and (iii) hereof
is referred to herein as his "Severance Payment".

               (iv) The Severance Payment shall be made in a single, lump sum
cash payment no later than thirty (30) days after the effective date of the
Executive's termination of employment. With respect to any Severance Payment
attributable to a period after the expiration of 18 calendar months after the
termination of the Executive's employment, such payment shall be reduced for
compensation earned from other employment or self-employment after that date,
and the Executive shall refund to the Company any amount due as a result of such
reduction; provided, however, that there shall be no reduction for any amounts
earned or paid to him with respect to the Excluded Businesses.

               (v) The Company shall allow the Executive to continue to
participate during the Severance Period in any and all of the employee benefit
and welfare plans and programs of the Company, excluding any 401(k) plan, in
which the Executive was entitled to participate immediately prior to his
termination, to the same extent and upon the same terms as the Executive
participated in such plans prior to his termination, provided that the
Executive's continued participation is permissible or otherwise practicable
under the general terms and provisions of such benefit plans and programs.
During the Severance Period, the Company shall pay for the Executive's continued
participation in said employee benefit and welfare plans, including but not
limited to premiums for group health, dental, accident, disability insurance,
directors and officers insurance, group life insurance, and his car allowance,
but excluding any

                                      -8-

<PAGE>

401(k) plan. To the extent that continued participation is neither permissible
nor practicable, the Company shall take such actions as may be necessary to
provide the Executive with substantially comparable benefits (without additional
cost to the Executive, including any additional taxes) outside the scope of such
plans including, without limitation, reimbursing the Executive for his costs in
obtaining such coverage, such as COBRA premiums paid by the Executive and/or his
eligible dependents. If the Executive engages in regular employment after his
termination of employment (whether as an executive or as a self-employed person
but excluding his management or operation of the Excluded Businesses), any
employee benefit and welfare benefits received by the Executive in consideration
of such employment which are similar in nature to the employee benefit and
welfare benefits provided by the Company will relieve the Company of its
obligation under this Section 8(a)(v) to provide comparable benefits to the
extent of the benefits so received.

               (vi) The Executive's stock options awarded under the Equity
Incentive Plan (or any other or successor plan) shall immediately become 100%
vested and he shall have a two-year period following the effective date of his
termination of employment in which to exercise his vested stock options,
including those stock options that vested upon his termination of employment.

               (vii) The Executive's restricted Common Shares awarded under the
Equity Incentive Plan (or any other or successor plan) shall immediately become
100% vested and all restrictions shall lapse.

               (viii) The Executive's SERP benefit shall immediately become 100%
vested.

               (ix) The Executive Life Insurance Program would be fully funded
by the Company.

               (x) Prior to January 1, 2004, the Executive shall vest in and
receive 75% of his total OPP allocation for the three-year term of the OPP (the
"OPP Allocation"), and thereafter, the Executive would be entitled to vest in
and receive 100% of his OPP Allocation; provided, however that this subsection
(x) shall not apply for any termination by the Executive for a Good Reason other
than a Good Reason in Section 7(d)(i), Section 7(d)(iii) and in Section
7(d)(iv). This percentage of his OPP Allocation shall be paid to the Executive
(less any cash OPP payments previously received by the Executive) after the OPP
reward is determined at the end of the OPP plan term, and will be reduced by a
minimum amount paid as severance at the time of his termination of employment.
This minimum amount paid at the time of his termination of employment would be
equal to the OPP reward for the Executive determined at the date of his
termination of employment (applying the 75% OPP Allocation for a termination
prior to January 1, 2004, if applicable), and the Compensation Committee would
have the discretion to pay the minimum amount to the Executive in cash or Common
Shares or a combination of cash and Common Shares.

          (b) TERMINATION ON DEATH. Upon a termination of employment due to the
Executive's death, the Executive shall become 100% vested in his stock options
and restricted Common Shares awarded under the Equity Incentive Plan. The
Executive's personal

                                      -9-

<PAGE>

representative shall have a one-year period following the Executive's death in
which to exercise his vested stock options, including those stock options that
vested on death. The Company shall pay to the Executive's personal
representative any Base Salary, Incentive Bonus, OPP reward, expense
reimbursements and all other compensation related payments that are payable as
of his date of death and that are related to his period of employment preceding
his date of death. The Executive's surviving spouse or beneficiary shall receive
his vested SERP benefit, determined on the date of his death, payable pursuant
to the terms of the SERP as in effect on the date of his death, and within 60
days after the Executive's death, shall pay to the Executive's personal
representative the prorated amount of maximum Incentive Bonus for the year in
which the Executive's death occurs, prorated for the portion of the year during
which the Executive was employed prior to his death, and subtracting out all
Guaranteed Bonus payments received by the Executive during such year.

          (c) BY THE COMPANY FOR CAUSE OR BY THE EXECUTIVE WITHOUT GOOD REASON.
In the event that the Executive's employment is terminated by the Company for
Cause or by the Executive without Good Reason, the Company shall pay the
Executive his Base Salary, Incentive Bonus, expense reimbursements and all other
compensation related payments that are payable as of his termination of
employment date and that are related to his period of employment preceding his
termination date. The Executive shall be entitled to exercise his vested stock
options, determined as of his termination date, pursuant to the terms of the
option grant. All unvested options and unvested restricted Common Shares shall
be forfeited on his termination date. The Executive shall also be entitled to
all benefits accrued and vested under any employee benefit plan of the Company.

          (d) TERMINATION OF AUTHORITY. Immediately upon the Executive
terminating or being terminated from his employment with the Company for any
reason, notwithstanding anything else appearing in this Agreement or otherwise,
the Executive will stop serving the functions of his terminated or expired
positions, and shall be without any of the authority or responsibility for such
positions. On request of the Board at any time following his termination of
employment for any reason, the Executive shall resign from the Board if then a
member.

     9. CHANGE OF CONTROL.

          (a) CHANGE OF CONTROL. For purposes of this Agreement, a "Change of
Control" will be deemed to have taken place upon the occurrence of any of the
following events:

               (i) any person, entity or affiliated group, excluding the REIT or
any employee benefit plan of the REIT, acquiring more than 50% of the then
outstanding voting shares of the REIT,

               (ii) the consummation of any merger or consolidation of the REIT
into another company, such that the holders of the voting shares of the REIT
immediately prior to such merger or consolidation is less than 50% of the voting
power of the securities of the surviving company or the parent of such surviving
company,

                                      -10-

<PAGE>

               (iii) the complete liquidation of the REIT or the sale or
disposition of all or substantially all of the REIT's assets, such that after
the transaction, the holders of the voting shares of the REIT immediately prior
to the transaction is less than 50% of the voting securities of the acquiror or
the parent of the acquiror, or

               (iv) a majority of the Board of the REIT votes in favor of a
decision that a Change of Control has occurred.

          (b) CERTAIN BENEFITS UPON A CHANGE OF CONTROL. In the event of a
Change of Control, the Executive shall become 100% vested in the stock options
and restricted Common Shares awarded under the Equity Incentive Plan (or any
other or successor plan) and in his SERP benefit and if the Executive
voluntarily terminates his employment without Good Reason after the Change of
Control, then the Executive shall have a one-year period following the Change of
Control in which to exercise his vested stock options, including those stock
options that vested upon the Change of Control.

          (c) EXCISE TAX.

               (i) In the event that any payment or benefit received or to be
received by the Executive in connection with a change in control or a
termination of the Executive's employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
person whose actions result in a change in control or any person affiliated with
the Company or such person) (all such payments and benefits being hereinafter
called "Total Payments"), such that the Executive will be subject (in whole or
in part) to the excise tax imposed under Code Section 4999 ("Excise Tax") on
such payments and benefits, then the Company shall pay to the Executive an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive, after deduction of the Excise Tax and any federal, state and
local tax on the Gross-Up Payment, will be equal to the Total Payments. For
purposes of determining the amount of the Gross-Up Payment, the Executive shall
be deemed to pay federal income taxes at the highest marginal rate of federal
income taxation in the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the highest marginal rate of taxation in the
state and locality of the Executive's residence on such date, net of the maximum
deduction in federal income taxes which could be obtained from deduction of such
state and local taxes.

               (ii) The Executive or the Company may request, prior to the time
any payments under this Agreement are made, a determination of whether any or
all of the Total Payments will be subject to the Excise Tax and, if so, the
amount of such Excise Tax and the federal, state and local tax imposed on the
Gross-Up Payment. If such a determination is requested, it shall be made
promptly, at the Company's expense, by tax counsel selected by the Executive and
approved by the Company (with such approval not being unreasonably withheld),
and such determination shall be conclusive and binding on both parties. The
Company agrees to provide any information reasonably requested by such tax
counsel. Tax counsel may engage accountants or other experts, at the Company's
expense, to the extent deemed necessary or advisable for them to reach a
determination. For these purposes, the term "tax counsel" shall mean a law firm
with expertise in federal income tax matters.

                                      -11-

<PAGE>

               (iii) In the event that the Excise Tax is subsequently determined
to be less than the amount taken into account hereunder, the Executive will
repay to the Company, at the time that the amount of such reduction in Excise
Tax is finally determined, the portion of the Gross-Up Payment attributable to
such reduction plus that portion of the Gross-Up Payment attributable to the
Excise Tax and federal, state and local income tax imposed on the Gross-Up
Payment, without any interest thereon. In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder, the Company will
make an additional Gross-Up Payment in respect of such excess and in respect of
any portion of the Excise Tax with respect to which the Company had not
previously made a Gross-Up Payment (plus any interest, penalties or additions
payable by the Executive with respect to such excess and such portion) at the
time that the amount of such excess is finally determined, without any interest
thereon.

               (iv) Each party agrees to notify the other party, in writing, of
any claim that, if successful, would require the payment by the Company of a
Gross-Up Payment or might entitle the Company to a refund of all or part of any
previous Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten (10) business days after the Executive or
Company is informed in writing of such claim or otherwise becomes aware of such
claim. If notice of the claim arose as a result of a claim made against the
Executive by a taxing authority, Executive shall not pay such claim prior to the
expiration of the thirty (30) day period following the date on which he gives
notice to the Company. If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall: (A) give the Company any information reasonably requested by
the Company relating to such claim, (B) take such action in connection with
contesting such claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal representation with
respect to such claim by an attorney selected by the Executive and approved by
the Company (with such approval not being unreasonably withheld), (C) cooperate
with the Company in good faith in order to effectively contest such claim, and
(D) permit the Company to reasonably participate in any proceedings relating to
such claim. The Company shall bear and pay directly all costs and expenses
(including legal fees and additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses.

               (v) Notwithstanding the foregoing, the Company shall control all
audits and proceedings taken in connection with any claim, audit or proceeding
involving Excise Taxes or Gross-Up Payments and, at its sole option, may pursue
or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of any such claim, audit or
proceeding and may, at its sole option, either direct the Executive to pay the
tax claimed and sue for a refund or contest the tax in any permissible manner,
and the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay such tax and sue for a refund, the Company
shall advance the amount of such payment to the Executive, (including interest
or penalties with respect thereto) and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income

                                      -12-

<PAGE>

with respect to such advance. The Company shall be required to consult with and
keep the Executive fully apprised of developments and actions being considered
or taken with respect to such claim, audit or proceeding. The Company's control
of the contest shall be limited to issues with respect to which such a Gross-Up
Payment would be payable or refundable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue. Each party
agrees to keep the other party fully apprised of developments concerning such
claim, audit or proceeding and to cooperate with the other in good faith in
order to effectively resolve such claim, audit or proceeding.

               (vi) For purposes of this Subsection (c), a determination of
whether a payment is subject to Excise Taxes, including but not limited to, a
determination of change in control, shall be made pursuant to Code Section 280G.

     10. CONFIDENTIAL INFORMATION. The Executive recognizes and acknowledges
that certain assets of the Company constitute Confidential Information. The term
"Confidential Information" as used in this Agreement shall mean all information
which is known only to the Executive or the Company, other employees of the
Company, or others in a confidential relationship with the Company, and relating
to the Company's business including, without limitation, information regarding
clients, customers, pricing policies, methods of operation, proprietary Company
programs, sales products, profits, costs, markets, key personnel, formulae,
product applications, technical processes, and trade secrets, as such
information may exist from time to time, which the Executive acquired or
obtained by virtue of work performed for the Company, or which the Executive may
acquire or may have acquired knowledge of during the performance of said work.
The Executive shall not, during or after the Term, disclose all or any part of
the Confidential Information to any person, firm, corporation, association, or
any other entity for any reason or purpose whatsoever, directly or indirectly,
except as may be required pursuant to his employment hereunder, unless and until
such Confidential Information becomes publicly available other than as a
consequence of the breach by the Executive of his confidentiality obligations
hereunder by law or in any judicial or administrative proceeding (in which case,
the Executive shall provide the Company with notice). In the event of the
termination of his employment, whether voluntary or involuntary and whether by
the Company or the Executive, the Executive shall deliver to the Company all
documents and data pertaining to the Confidential Information and shall not take
with him any documents or data of any kind or any reproductions (in whole or in
part) or extracts of any items relating to the Confidential Information. The
Company acknowledges that prior to his employment with the Company, the
Executive has lawfully acquired extensive knowledge of the industries and
businesses in which the Company engages in business, and that the provisions of
this Section 10 are not intended to restrict the Executive's use of such
previously acquired knowledge.

          In the event that the Executive receives a request or is required (by
deposition, interrogatory, request for documents, subpoena, civil investigative
demand or similar process) to disclose all or any part of the Confidential
Information, the Executive agrees to (a) promptly notify the Company in writing
of the existence, terms and circumstances surrounding such request or
requirement, (b) consult with the Company on the advisability of taking legally
available steps to resist or narrow such request or requirement, and (c) assist
the Company in seeking a protective order or other appropriate remedy. In the
event that such protective order or other remedy is not obtained or that the
Company waives compliance with the provisions hereof,

                                      -13-

<PAGE>

the Executive shall not be liable for such disclosure unless disclosure to any
such tribunal was caused by or resulted from a previous disclosure by the
Executive not permitted by this Agreement.

     11. NON-COMPETITION AND NONSOLICITATION. During the Term and for a period
of 18 calendar months after the termination of the Executive's employment (the
"Noncompete Period"), the Executive shall not, directly or indirectly, either as
a principal, agent, employee, employer, stockholder, partner or in any other
capacity whatsoever: (a) engage or assist others engaged, in whole or in part,
in any business which is engaged in a business or enterprise that is
substantially similar to the business of the Company that the Company was
engaged in during the period of the Executive's employment with the Company, or
(b) without the prior consent of the Board, employ or solicit the employment of,
or assist others in employing or soliciting the employment of, any individual
employed by the Company (other than the Executive's personal assistant or
Executive's secretary) at any time while the Executive was also so employed;
provided, however, that the provisions of this Section 11 shall not apply in the
event the Company materially breaches this Agreement or the Release.

          Nothing in this Section 11 shall impede, restrict or otherwise
interfere with the Executive's management and operation of the Excluded
Businesses. Further, nothing in this Section 11 shall prohibit Executive from
making any passive investment in a public company, or where he is the owner of
five percent (5%) or less of the issued and outstanding voting securities of any
entity, provided such ownership does not result in his being obligated or
required to devote any managerial efforts.

          The Executive agrees that the restraints imposed upon him pursuant to
this Section 11 are necessary for the reasonable and proper protection of the
Company and its subsidiaries and affiliates, and that each and every one of the
restraints is reasonable in respect to subject matter, length of time and
geographic area. The parties further agree that, in the event that any provision
of this Section 11 shall be determined by any court of competent jurisdiction to
be unenforceable by reason of its being extended over too great a time, too
large a geographic area or too great a range of activities, such provision shall
be deemed to be modified to permit its enforcement to the maximum extent
permitted by law.

     12. INTELLECTUAL PROPERTY. During the Term, the Executive shall promptly
disclose to the Company or any successor or assign, and grant to the Company and
its successors and assigns without any separate remuneration or compensation
other than that received by him in the course of his employment, his entire
right, title and interest in and to any and all inventions, developments,
discoveries, models, or any other intellectual property of any type or nature
whatsoever ("Intellectual Property"), whether developed by him during or after
business hours, or alone or in connection with others, that is in any way
related to the business of the Company, its successors or assigns. This
provision shall not apply to books or articles authored by the Executive during
non-work hours, consistent with his obligations under this Agreement, so long as
such books or articles (a) are not funded in whole or in part by the Company,
and (b) do not contain any Confidential Information or Intellectual Property of
the Company. The Executive agrees, at the Company's expense, to take all steps
necessary or proper to vest title to all such Intellectual Property in the
Company, and cooperate fully and assist the Company in any litigation or other
proceedings involving any such Intellectual Property.

                                      -14-

<PAGE>

     13. DISPUTES.

          (a) EQUITABLE RELIEF. The Executive acknowledges and agrees that upon
any breach by the Executive of his obligations under Sections 10, 11, or 12
hereof, the Company will have no adequate remedy at law, and accordingly will be
entitled to specific performance and other appropriate injunctive and equitable
relief.

          (b) ARBITRATION. Excluding only requests for equitable relief by the
Company under Section 13(a), in the event that there is any claim or dispute
arising out of or relating to this Agreement or the breach hereof, and the
parties hereto shall not have resolved such claim or dispute within 60 days
after written notice from one party to the other setting forth the nature of
such claim or dispute, then such claim or dispute shall be settled exclusively
by binding arbitration in Montgomery county, Pennsylvania, in accordance with
the Employment Dispute Resolution Rules of the American Arbitration Association
("Rules"), by an arbitrator mutually agreed upon by the parties hereto or, in
the absence of such agreement, by an arbitrator selected according to such
Rules. Notwithstanding the foregoing, if either the Company or the Executive
shall request, such arbitration shall be conducted by a panel of three (3)
arbitrators, one selected by the Company, one selected by the Executive and the
third selected by agreement of the first two arbitrators, or, in the absence of
such agreement, in accordance with such Rules. Judgment upon the award rendered
by such arbitrator(s) shall be entered in any Court having jurisdiction thereof
upon the application of either party. The parties agree to use their reasonable
best efforts to have such arbitration completed as soon as is reasonably
practicable. Notwithstanding anything herein to the contrary, except as provided
in (c) below the losing party shall pay the reasonable costs and expenses
(including reasonable attorney fees and expenses) of the prevailing party with
respect to such arbitration, except the Executive, if he is the losing party,
shall not be required to pay such expenses and costs if the claim relates to
statutory discrimination claims that he would not otherwise be required to pay
if such claim had been brought in a court of competent jurisdiction.

          (c) LEGAL FEES. The Company shall pay or promptly reimburse the
Executive for the reasonable legal fees and expenses incurred by the Executive
in successfully enforcing or defending any right of the Executive pursuant to
this Agreement even if the Executive does not prevail on each issue.

     14. INDEMNIFICATION. The Company shall indemnify the Executive, to the
maximum extent permitted by applicable law, against all costs, charges and
expenses incurred or sustained by the Executive, including the cost of legal
counsel selected and retained by the Executive in connection with any action,
suit or proceeding to which the Executive may be made a party by reason of the
Executive being or having been an officer, director, or employee of the Company
or the REIT.

     15. COOPERATION IN FUTURE MATTERS. The Executive hereby agrees that for a
period of 18 months following his termination of employment he shall cooperate
with the Company's reasonable requests relating to matters that pertain to the
Executive's employment by the Company, including, without limitation, providing
information or limited consultation as to such matters, participating in legal
proceedings, investigations or audits on behalf of the Company, or otherwise
making himself reasonably available to the Company for other related

                                      -15-

<PAGE>

purposes. Any such cooperation shall be performed at scheduled times taking into
consideration the Executive's other commitments, and the Executive shall be
compensated at a reasonable hourly or per diem rate to be agreed upon by the
parties to the extent such cooperation is required on more than an occasional
and limited basis. The Executive shall not be required to perform such
cooperation to the extent it conflicts with any requirements of exclusivity of
services for another employer or otherwise, nor in any manner that in the good
faith belief of the Executive would conflict with his rights under or ability to
enforce this Agreement.

     16. GENERAL.

          (a) NOTICES. All notices and other communications hereunder shall be
in writing or by written telecommunication, and shall be deemed to have been
duly given if delivered personally or if sent by overnight courier or by
certified mail, return receipt requested, postage prepaid or sent by written
telecommunication or telecopy, to the relevant address set forth below, or to
such other address as the recipient of such notice or communication shall have
specified in writing to the other party hereto, in accordance with this Section
16(a).

     If to the Company, to: First States Group, L.P.
                            1725 The Fairway
                            Jenkintown, PA 19046
                            Attn:  Chairman of the Board of Trustees
                            Facsimile: 215-887-2585

     If to Executive, at his last residence shown on the records of the Company.

Any such notice shall be effective (i) if delivered personally, when received,
(ii) if sent by overnight courier, when receipted for, (iii) if mailed, five (5)
days after being mailed, and (iv) on confirmed receipt if sent by written
telecommunication or telecopy, provided a copy of such communication is sent by
regular mail, as described above.

          (b) SEVERABILITY. If any provision of this Agreement is or becomes
invalid, illegal or unenforceable in any respect under any law, the validity,
legality and enforceability of the remaining provisions hereof shall not in any
way be affected or impaired.

          (c) WAIVERS. No delay or omission by either party hereto in exercising
any right, power or privilege hereunder shall impair such right, power or
privilege, nor shall any single or partial exercise of any such right, power or
privilege preclude any further exercise thereof or the exercise of any other
right, power or privilege.

          (d) COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. In making proof of this
Agreement, it shall not be necessary to produce or account for more than one
such counterpart.

          (e) ASSIGNS. This Agreement shall be binding upon and inure to the
benefit of the Company's successors and the Executive's personal or legal
representatives, executors, administrators, heirs, distributees, devisees and
legatees. This Agreement shall not be assignable

                                      -16-

<PAGE>

by the Executive, it being understood and agreed that this is a contract for the
Executive's personal services. This Agreement shall not be assignable by the
Company except that the Company shall assign it in connection with a transaction
involving the succession by a third party to all or substantially all of the
Company's business and/or assets (whether direct or indirect and whether by
purchase, merger, consolidation, liquidation or otherwise). When assigned to a
successor, the assignee shall assume this Agreement and expressly agree to
perform this Agreement in the same manner and to the same extent as the Company
would be required to perform it in the absence of such an assignment. For all
purposes under this Agreement, the term "Company" shall include any successor to
the Company's business and/or assets that executes and delivers the assumption
agreement described in the immediately preceding sentence or that becomes bound
by this Agreement by operation of law.

          (f) ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties, supersedes all prior agreements and understandings, including
the Original Agreement, whether written or oral, relating to the subject matter
hereof and may not be amended except by a written instrument hereafter signed by
the Executive and a duly authorized representative of the Board (other than the
Executive).

          (g) GOVERNING LAW. This Agreement and the performance hereof shall be
construed and governed in accordance with the laws of the Commonwealth of
Pennsylvania, without giving effect to principles of conflicts of law.

          (h) CONSTRUCTION. The language used in this Agreement shall be deemed
to be the language chosen by the parties to express their mutual intent, and no
rule of strict construction shall be applied against any party. The headings of
sections of this Agreement are for convenience of reference only and shall not
affect its meaning or construction. Whenever any word is used herein in one
gender, it shall be construed to include the other gender, and any word used in
the singular shall be construed to include the plural in any case in which it
would apply and vice versa.

          (i) PAYMENTS AND EXERCISE OF RIGHTS AFTER DEATH. Any amounts payable
hereunder after the Executive's death shall be paid to the Executive's
designated beneficiary or beneficiaries, whether received as a designated
beneficiary or by will or the laws of descent and distribution. The Executive
may designate a beneficiary or beneficiaries for all purposes of this Agreement,
and may change at any time such designation, by notice to the Company making
specific reference to this Agreement. If no designated beneficiary survives the
Executive or the Executive fails to designate a beneficiary for purposes of this
Agreement prior to his death, all amounts thereafter due hereunder shall be
paid, as and when payable, to his spouse, if she survives the Executive, and
otherwise to his estate.

          (j) CONSULTATION WITH COUNSEL. The Executive acknowledges that he has
had a full and complete opportunity to consult with counsel or other advisers of
his own choosing concerning the terms, enforceability and implications of this
Agreement, and that the Company has not made any representations or warranties
to the Executive concerning the terms, enforceability and implications of this
Agreement other than as are reflected in this Agreement.

                                      -17-

<PAGE>

          (k) WITHHOLDING. Any payments provided for in this Agreement shall be
paid net of any applicable income tax withholding required under federal, state
or local law.

          (l) CONSUMER PRICE INDEX. For purposes of this Agreement, the term
"CPI" refers to the Consumer Price Index as published by the Bureau of Labor
Statistics of the United States Department of Labor, U.S. City Average, All
Items for Urban Wage Earners and Clerical Workers (1982-1984=100). If the CPI is
hereafter converted to a different standard reference base or otherwise revised,
the determination of the CPI adjustment shall be made with the use of such
conversion factor, formula or table for converting the CPI, as may be published
by the Bureau of Labor Statistics, or, if the bureau shall no longer publish the
same, then with the use of such conversion factor, formula or table as may be
published by an agency of the United States, or failing such publication, by a
nationally recognized publisher of similar statistical information.

          (m) SURVIVAL. The provisions of Sections 8, 9, 10, 11, 12, 13, 14 and
15 shall survive the termination of this Agreement.

                                      -18-

<PAGE>

     IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused this Agreement to be duly executed as of the date first above
written.

FIRST STATES GROUP, L.P.                               NICHOLAS S. SCHORSCH

By:  First States Group, LLC
     Its general partner

    By:
        ------------------------------------           -------------------------
        Name:  Glenn Blumenthal
        Title: Senior Vice President - Asset
                  Management and Chief
                  Operating Officer

Dated: May 15, 2003                                    Dated: May 15, 2003

GUARANTEE:

For good and valuable consideration, including the Executive's agreement to
serve as an officer of American Financial Realty Trust, the obligations of First
States Group, L.P. under this Employment Agreement, dated May 15, 2003, with
Nicholas S. Schorsch, shall be guaranteed by American Financial Realty Trust.

AMERICAN FINANCIAL REALTY TRUST

By:
    ------------------------------------
    Name:  Glenn Blumenthal
    Title: Senior Vice President - Asset
              Management and Chief
              Operating Officer

Dated: May 15, 2003

                                      -19-

<PAGE>

                                   APPENDIX A

                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

          The Company shall maintain for the benefit of the Executive a
non-qualified supplemental executive retirement plan ("SERP") which shall
provide to the Executive a minimum annual pension, commencing at the Executive's
attaining age 60 and payable as a single life annuity, equal to 50% of the
Executive's average annual compensation (including Base Salary, Incentive Bonus
and payments under the OPP) for the three (3) calendar years of the last ten
(10) years of his employment by the Company which produce the highest average
amount (or the annualized average of such compensation for his actual period of
employment if less than three (3) calendar years) with a maximum annual benefit
of $475,000. The Executive shall vest in his SERP benefit over a 5-year period,
pursuant to the following vesting schedule:

Year 1      22%

Year 2      43%

Year 3      63%

Year 4      82%

Year 5     100%

          A year of vesting service under the SERP is the 12-month period ending
on each anniversary of his commencement of his employment with the Company,
provided he is an employee of the Company on that vesting date. Executive also
shall become 100% vested in his SERP benefit upon (a) the effective date of a
Change of Control, (b) his termination date if the Company terminates him
without Cause, (c) his termination date if he terminates for Good Reason, (d)
the date he dies, or (e) the date he becomes Permanently Disabled.

          The Executive's annual SERP benefit shall be paid to the Executive in
annual payments commencing on the first day of the month immediately following
his 60th birthday, or if later, his termination of employment with the Company
after age 60 (referred to herein as his "Retirement Date") and continuing
annually thereafter until the year in which the Executive dies. The Executive
may elect, at least 30 days prior to the date on which SERP benefit payments are
scheduled to begin, to receive monthly installment payments. The Executive shall
receive his annual SERP benefit for a minimum of ten (10) years. The Executive
may elect, within 30 days of his termination of employment date, that payment of
his vested SERP benefit shall commence at any time selected by the Executive
after he shall have terminated employment from the Company, provided that if
payment begins prior to the Executive's 60th birthday, such payment shall be
actuarially reduced, as reasonably determined by the Board, to account for the
commencement of such payments prior to age 60. Payment of such SERP benefits
shall continue until the date of the Executive's death if he has received at
least ten (10) annual payments. In the event Executive dies prior to receiving
ten (10) annual SERP payments, his surviving spouse (or his designated
beneficiary) shall receive the actuarial equivalence of the balance due him in a
single, lump sum cash payment. If Executive dies prior to the time benefit
payments are scheduled to begin, his surviving spouse (or designated
beneficiary) shall receive the actuarial

                                      A-1

<PAGE>

equivalence of his vested SERP benefit, determined as of the date of his death,
in a single, lump sum cash payment. For purposes of determining actuarial
equivalence, the 1983 GAM Mortality Table and interest at the average rate on
30-year Treasury Securities (or such other rate as in effect under section
417(e)(3)(A)(ii)(II) of the Internal Revenue Code of 1986, as amended) shall be
used.

          The SERP is an unfunded plan and the Executive is an unsecured general
creditor of the Company. The Company shall establish a "rabbi trust" to be used
in connection with the SERP.

                                       A-2

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