-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Oh67hXKeu2Kt3PSLdLukSH0IcoHnk7Qt+57KUUNlPtsOzp0O5nfNga/odl+YgRc8 7u9gpQDy768MDgaLBA0UxA== 0000921112-99-000003.txt : 19990809 0000921112-99-000003.hdr.sgml : 19990809 ACCESSION NUMBER: 0000921112-99-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIBERTY PROPERTY TRUST CENTRAL INDEX KEY: 0000921112 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 237768996 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13130 FILM NUMBER: 99679560 BUSINESS ADDRESS: STREET 1: 65 VALLEY STREAM PKWY STREET 2: STE 100 CITY: MALVERN STATE: PA ZIP: 19355 BUSINESS PHONE: 6106481700 MAIL ADDRESS: STREET 1: 65 VALLEY STREAM PKWY STREET 2: SUITE 100 CITY: MALVERN STATE: PA ZIP: 19355 FORMER COMPANY: FORMER CONFORMED NAME: ROUSE & ASSOCIATES PROPERTY TRUST DATE OF NAME CHANGE: 19940421 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIBERTY PROPERTY LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000921113 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 232766549 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13132 FILM NUMBER: 99679561 BUSINESS ADDRESS: STREET 1: 65 VALLEY STREAM PKWY STREET 2: STE 100 CITY: MALVERN STATE: PA ZIP: 19355 BUSINESS PHONE: 6106481700 MAIL ADDRESS: STREET 1: 65 VALLEY STREAM PKWY STREET 2: SUITE 100 CITY: MALVERN STATE: PA ZIP: 19355 FORMER COMPANY: FORMER CONFORMED NAME: ROUSE & ASSOCIATES LTD PART DATE OF NAME CHANGE: 19940331 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from __________________ to __________________ Commission file number: 1-13130 (Liberty Property Trust) 1-13132 (Liberty Property Limited Partnership) LIBERTY PROPERTY TRUST LIBERTY PROPERTY LIMITED PARTNERSHIP (Exact name of registrants as specified in their governing documents) MARYLAND (Liberty Property Trust) 23-7768996 PENNSYLVANIA (Liberty Property Limited Partnership) 23-2766549 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 65 Valley Stream Parkway, Suite 100, Malvern, Pennsylvania 19355 (Address of Principal Executive Offices) (Zip Code) Registrants' Telephone Number, Including Area Code (610)648-1700 Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrants were required to file such reports) and (2) have been subject to such filing requirements for the past ninety (90) days. YES X NO On August 5, 1999, 66,686,706 Common Shares of Beneficial Interest, par value $.001 per share, of Liberty Property Trust were outstanding. LIBERTY PROPERTY TRUST/LIBERTY PROPERTY LIMITED PARTNERSHIP FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1999 INDEX - ----- Part I. Financial Information - ------------------------------- Item 1. Financial Statements (unaudited) Page ---- Consolidated balance sheets of Liberty Property Trust at June 30, 1999 and December 31, 1998. 4 Consolidated statements of operations of Liberty Property Trust for the three months ended June 30, 1999 and June 30, 1998. 5 Consolidated statements of operations of Liberty Property Trust for the six months ended June 30, 1999 and June 30, 1998. 6 Consolidated statements of cash flows of Liberty Property Trust for the six months ended June 30, 1999 and June 30, 1998. 7 Notes to consolidated financial statements for Liberty Property Trust. 8 Consolidated balance sheets of Liberty Property Limited Partnership at June 30, 1999 and December 31, 1998. 12 Consolidated statements of operations of Liberty Property Limited Partnership for the three months ended June 30, 1999 and June 30, 1998. 13 Consolidated statements of operations of Liberty Property Limited Partnership for the six months ended June 30, 1999 and June 30, 1998. 14 Consolidated statements of cash flows of Liberty Property Limited Partnership for the six months ended June 30, 1999 and June 30, 1998. 15 Notes to consolidated financial statements for Liberty Property Limited Partnership. 16 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 19 Item 3. Quantitative and Qualitative Disclosures About Market Risk 27 Part II. Other Information - --------------------------- Signatures 30 Exhibit Index 31 - -2- - ----------------------------- The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Quarterly Report on Form 10-Q contain statements that are or will be forward-looking, such as statements relating to acquisitions, dispositions and other business development and development activities, future capital expenditures, the costs and risks associated with the Year 2000 issue, financing sources and availability, and the effects of regulation (including environmental regulation) and competition. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by, or on behalf of, Liberty Property Trust and Liberty Property Limited Partnership (together, the "Company"). These risks and uncertainties include, but are not limited to, uncertainties affecting real estate businesses generally (such as entry into new leases, renewals of leases and dependence on tenants' business operations), risks relating to acquisition, construction and development activities, possible environmental liabilities, risks relating to leverage and debt service (including availability of financing terms acceptable to the Company and sensitivity of the Company's operations to fluctuations in interest rates), the potential for the use of borrowings to make distributions necessary to qualify as a REIT, dependence on the primary markets in which the Company's properties are located, the existence of complex regulations relating to status as a REIT and the adverse consequences of the failure to qualify as a REIT, the potential adverse impact of market interest rates on the market price for the Company's securities and risks relating to the Year 2000 issue. - -3- CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, 1999 DECEMBER 31, 1998 ------------------ ----------------- (UNAUDITED) ASSETS Real estate: Land and land improvements $ 394,392 $ 366,853 Buildings and improvements 2,494,110 2,378,272 Less accumulated depreciation (238,883) (209,023) ---------- ---------- Operating real estate 2,649,619 2,536,102 Development in progress 183,716 207,563 Land held for development 87,479 75,454 ---------- ---------- Net real estate 2,920,814 2,819,119 Cash and cash equivalents 33,555 14,391 Accounts receivable 5,780 15,391 Deferred financing and leasing costs, net of accumulated amortization (1999, $54,979; 1998, $49,390) 45,298 39,475 Prepaid expenses and other assets 36,958 44,995 ---------- ---------- Total assets $3,042,405 $2,933,371 ========== ========== LIABILITIES Mortgage loans $ 386,150 $ 413,224 Unsecured notes 1,030,000 645,000 Credit facility - 264,000 Convertible debentures 96,729 101,619 Accounts payable 24,125 20,216 Accrued interest 22,728 18,263 Dividend payable 33,907 33,734 Other liabilities 61,964 69,025 ---------- ---------- Total liabilities 1,655,603 1,565,081 Minority interest 95,967 101,254 SHAREHOLDERS' EQUITY 8.80% Series A cumulative redeemable preferred shares, $.001 par value, 5,000,000 shares authorized, issued and outstanding as of June 30, 1999 and December 31, 1998 120,814 120,814 Common shares of beneficial interest, $.001 par value, 200,000,000 shares authorized, 66,340,165 and 65,645,340 shares issued and outstanding as of June 30, 1999 and December 31, 1998, respectively 66 66 Additional paid-in capital 1,182,433 1,168,663 Unearned compensation (1,026) (562) Dividends in excess of net income (11,452) (21,945) ---------- ----------- Total shareholders' equity 1,290,835 1,267,036 ---------- ----------- Total liabilities and shareholders' equity $3,042,405 $2,933,371 ========== ===========
See accompanying notes. - -4- CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST (UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE THREE MONTHS ENDED MONTHS ENDED JUNE 30, 1999 JUNE 30, 1998 -------------- -------------- REVENUE Rental $ 84,250 $ 68,018 Operating expense reimbursement 29,510 23,124 Management fees 150 150 Gain (loss) on sale 11,942 (1,048) Interest and other 1,290 1,164 --------- --------- Total revenue 127,142 91,408 --------- --------- OPERATING EXPENSES Rental property expenses 20,641 16,723 Real estate taxes 10,048 7,518 General and administrative 3,931 3,697 Depreciation and amortization 20,437 16,520 --------- --------- Total operating expenses 55,057 44,458 --------- --------- Operating income 72,085 46,950 Interest expense 25,822 18,853 --------- --------- Income before minority interest 46,263 28,097 Minority interest 3,011 2,061 --------- --------- Net income 43,252 26,036 Preferred distributions 2,750 2,750 --------- --------- Income available to common shareholders $ 40,502 $ 23,286 ========= ========= Income per common share - basic $ 0.61 $ 0.39 ========= ========= Income per common share - diluted $ 0.60 $ 0.39 ========= ========= Distributions declared per common share $ 0.45 $ 0.42 ========= ========= Weighted average number of common shares outstanding - basic 66,308 59,715 ========= ========= Weighted average number of common shares outstanding - diluted 71,412 60,049 ========= =========
See accompanying notes. - -5- CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST (UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX SIX MONTHS ENDED MONTHS ENDED JUNE 30, 1999 JUNE 30, 1998 -------------- -------------- REVENUE Rental $165,718 $129,033 Operating expense reimbursement 59,033 43,374 Management fees 300 297 Gain (loss) on sale 13,211 (1,048) Interest and other 2,369 2,371 --------- --------- Total revenue 240,631 174,027 --------- --------- OPERATING EXPENSES Rental property expenses 41,834 31,639 Real estate taxes 19,825 14,537 General and administrative 7,916 7,047 Depreciation and amortization 40,580 30,739 --------- --------- Total operating expenses 110,155 83,962 --------- --------- Operating income 130,476 90,065 Interest expense 49,575 35,419 --------- --------- Income before minority interest 80,901 54,646 Minority interest 5,221 3,870 --------- --------- Net income 75,680 50,776 Preferred distributions 5,500 5,500 --------- --------- Income available to common shareholders $ 70,180 $ 45,276 ========= ========= Income per common share - basic $ 1.06 $ 0.79 ========= ========= Income per common share - diluted $ 1.05 $ 0.78 ========= ========= Distributions declared per common share $ 0.90 $ 0.84 ========= ========= Weighted average number of common shares outstanding - basic 66,163 57,509 ========= ========= Weighted average number of common shares outstanding - diluted 71,314 57,870 ========= =========
See accompanying notes. - -6- CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST (UNAUDITED AND IN THOUSANDS)
SIX SIX MONTHS ENDED MONTHS ENDED JUNE 30, 1999 JUNE 30, 1998 -------------- -------------- OPERATING ACTIVITIES Net income $ 75,680 $ 50,776 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 40,580 30,739 Amortization of deferred financing costs 3,126 2,193 Minority interest in net income 5,221 3,870 (Gain) loss on sale (13,211) 1,048 Noncash compensation 1,495 996 Changes in operating assets and liabilities: Accounts receivable 9,611 (1,016) Prepaid expenses and other assets 7,356 (1,682) Accounts payable 3,909 6,656 Accrued interest 4,465 5,700 Other liabilities (7,061) 9,278 ---------- --------- Net cash provided by operating activities 131,171 108,558 ---------- --------- INVESTING ACTIVITIES Investment in properties (41,114) (369,316) Proceeds from disposition of properties 62,976 12,753 Investment in development in progress (119,035) (141,995) Investment in land held for development (23,725) (21,642) Increase in deferred leasing costs (7,464) (6,023) ---------- --------- Net cash used in investing activities (128,362) (526,223) ---------- --------- FINANCING ACTIVITIES Net proceeds from issuance of common shares 1,054 197,616 Proceeds from issuance of unsecured notes 385,000 275,000 Repayments of mortgage loans (30,892) (11,505) Proceeds from credit facility 83,024 421,000 Repayments on credit facility (347,024) (423,000) Increase in deferred financing costs (5,264) (530) Distributions paid on common shares (59,373) (46,008) Distributions paid on preferred shares (5,500) (5,500) Distributions paid on units (4,670) (4,145) ---------- --------- Net cash provided by financing activities 16,355 402,928 Increase (decrease) in cash and cash equivalents 19,164 (14,737) Cash and cash equivalents at beginning of period 14,391 55,079 ---------- --------- Cash and cash equivalents at end of period $ 33,555 $ 40,342 ========== ========= SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS Write-off of fully depreciated property and deferred costs $ 7,666 $ 2,768 Acquisition of properties (3,818) (82,064) Assumption of mortgage loans 3,818 63,918 Issuance of operating partnership units - 18,146 Conversion of convertible debentures 4,779 3,831 ========== =========
See accompanying notes. - -7- LIBERTY PROPERTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1999 NOTE 1 - BASIS OF PRESENTATION - ------------------------------ The accompanying unaudited consolidated financial statements of Liberty Property Trust (the "Trust") and its subsidiaries, including Liberty Property Limited Partnership (the "Operating Partnership") (the Trust, Operating Partnership and their respective subsidiaries referred to collectively as the "Company"), have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of the Trust and the Operating Partnership for the year ended December 31, 1998. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial statements for these interim periods have been included. The results of interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. Certain amounts from prior periods have been restated to conform to current period presentation. The following table sets forth the computation of basic and diluted income per common share for the three and six month periods ended June 30, 1999 and 1998:
FOR THE THREE MONTHS FOR THE THREE MONTHS ENDED JUNE 30, 1999 ENDED JUNE 30, 1998 ------------------------------------- ------------------------------------- INCOME SHARES PER SHARE INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- ----------- ------------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income $ 43,252 $ 26,036 Less: Preferred distributions 2,750 2,750 -------- -------- Basic income per common share Income available to common share- holders 40,502 66,308 $ 0.61 23,286 59,715 $ 0.39 ======= ======= Effect of dilutive securities Options - 265 - 334 Debentures 2,421 4,839 - - -------- ------- -------- ------- Diluted income per common share Income available to common share- holders and assumed conversions $ 42,923 71,412 $ 0.60 $ 23,286 60,049 $ 0.39 ======== ======= ======= ======== ======= =======
- -8-
FOR THE SIX MONTHS FOR THE SIX MONTHS ENDED JUNE 30, 1999 ENDED JUNE 30, 1998 ------------------------------------- ------------------------------------- INCOME SHARES PER SHARE INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- ----------- ------------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income $ 75,680 $ 50,776 Less: Preferred distributions 5,500 5,500 -------- -------- Basic income per common share Income available to common share- holders 70,180 66,163 $ 1.06 45,276 57,509 $ 0.79 ======= ======= Effect of dilutive securities Options - 229 - 361 Debentures 4,859 4,922 - - -------- ------- -------- ------- Diluted income per common share Income available to common share- holders and assumed conversions $ 75,039 71,314 $ 1.05 $ 45,276 57,870 $ 0.78 ======== ======= ======= ======== ======= =======
Diluted income per common share includes the weighted average common shares, the dilutive effect of the outstanding options, and the dilutive effect of the conversion of the Exchangeable Subordinated Debentures due 2001 of the Operating Partnership (the "Convertible Debentures") into common shares. NOTE 2 - ORGANIZATION - --------------------- Liberty Property Trust (the "Trust") is a self-administered and self- managed Maryland real estate investment trust (a "REIT"). Substantially all of the Trust's assets are owned directly or indirectly, and substantially all of the Trust's operations are conducted directly or indirectly, by its subsidiary, Liberty Property Limited Partnership, a Pennsylvania limited partnership (the "Operating Partnership" and, together with the Trust, the "Company"). The Trust is the sole general partner and also a limited partner of the Operating Partnership, with a combined equity interest in the Operating Partnership of 93.1% at June 30, 1999. The Company provides leasing, property management, development, acquisition, construction management and design management for a portfolio of industrial and office properties which are located principally within the Southeastern, Mid-Atlantic and Midwestern United States. In 1998, the Company received $296.3 million in aggregate net proceeds from the issuance of Common Shares and $292.1 million in aggregate net proceeds from the issuance of unsecured notes. The Company used the aggregate net proceeds from the sale of Common Shares and the unsecured notes to fund the Company's activities, including paying down the Credit Facility, which funds acquisition and development activity. On January 15, 1999, the Company closed on a $135 million, two-year unsecured term loan. The interest rate for the loan is 135 basis points over LIBOR. On April 20, 1999, the Company sold $250 million principal amount of 7.75% notes due 2009. The aggregate net proceeds from such issuance was approximately $246.0 million. - -9- On July 28, 1999, the Company completed a private placement of 3.8 million Series B Cumulative Redeemable Preferred Units of the Operating Partnership. The Series B Preferred Units are payable at the rate of 9.25% per annum of the $25 liquidation preference, and are redeemable at the option of the Company at any time on or after July 28, 2004 at $25 per share. NOTE 3 - SEGMENT INFORMATION - ---------------------------- Liberty Property Trust operates its portfolio of properties throughout the Southeastern, Mid-Atlantic and Midwestern United States. The Company reviews performance of the portfolio on a geographical basis, as such, the following regions are considered the Company's reportable segments: Southeastern Pennsylvania; New Jersey; Lehigh Valley, Pennsylvania; Virginia; the Carolinas; Jacksonville, Florida; Detroit, Michigan; and all others, which includes Maryland; Tampa, Florida; South Florida; Minneapolis, Minnesota; and the United Kingdom. The Company's reportable segments are distinct business units which are each managed separately in order to concentrate market knowledge within a geographical area. Within these reportable segments, the Company derives its revenues from its two product types: industrial properties and office properties. The Company evaluates performance of the reportable segments based on property-level net operating income, which is calculated as rental revenue and operating expense reimbursement less rental property expenses and real estate taxes. The accounting policies of the reportable segments are the same as those for the Company on a consolidated basis. The operating information by segment is as follows (in thousands):
FOR THE THREE MONTHS ENDED JUNE 30, 1999 - ------------------------------------------------------------------------------------------------------------------------ SE New Lehigh The Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total -------- -------- -------- -------- --------- ------------ -------- ---------- -------- Real-estate related revenues $29,036 $10,671 $10,883 $ 9,991 $ 9,346 $ 9,941 $12,501 $21,391 $113,760 Rental property expenses and real estate taxes 7,853 3,131 2,248 1,925 2,677 2,202 4,321 6,332 30,689 -------- -------- -------- -------- -------- -------- -------- -------- -------- Property-level net operating income 21,183 7,540 8,635 8,066 6,669 7,739 8,180 15,059 83,071 Other income/ expenses, net 36,808 -------- Income before minority interest 46,263 Minority interest 3,011 Preferred distributions 2,750 -------- Income available to common shareholders $ 40,502 ========
- -10-
FOR THE THREE MONTHS ENDED JUNE 30, 1998 - ------------------------------------------------------------------------------------------------------------------------ SE New Lehigh The Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total -------- -------- -------- -------- --------- ------------ -------- ---------- -------- Real-estate related revenues $23,059 $ 9,811 $ 9,407 $ 8,705 $ 8,212 $ 9,023 $ 8,943 $13,982 $91,142 Rental property expenses and real estate taxes 6,230 2,466 1,802 2,042 2,339 2,053 3,136 4,173 24,241 -------- -------- -------- -------- -------- -------- -------- -------- -------- Property-level net operating income 16,829 7,345 7,605 6,663 5,873 6,970 5,807 9,809 66,901 Other income/ expenses, net 38,804 -------- Income before minority interest 28,097 Minority interest 2,061 Preferred distributions 2,750 -------- Income available to common shareholders $23,286 ======== FOR THE SIX MONTHS ENDED JUNE 30, 1999 - ------------------------------------------------------------------------------------------------------ SE New Lehigh The Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total -------- -------- -------- -------- --------- ------------ -------- ---------- -------- Real-estate related revenues $55,844 $22,326 $21,622 $19,969 $18,856 $19,822 $24,187 $42,125 $224,751 Rental property expenses and real estate taxes 15,703 6,603 4,625 4,189 5,401 4,498 8,058 12,582 61,659 -------- -------- -------- -------- -------- -------- -------- -------- -------- Property-level net operating income 40,141 15,723 16,997 15,780 13,455 15,324 16,129 29,543 163,092 Other income/ expenses, net 82,191 -------- Income before minority interest 80,901 Minority interest 5,221 Preferred distributions 5,500 -------- Income available to common shareholders $ 70,180 ======== FOR THE SIX MONTHS ENDED JUNE 30, 1998 - ------------------------------------------------------------------------------------------------------ SE New Lehigh The Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total -------- -------- -------- -------- --------- ------------ -------- ---------- -------- Real-estate related revenues $45,779 $17,407 $18,258 $16,672 $14,541 $16,950 $16,875 $25,925 $172,407 Rental property expenses and real estate taxes 12,851 4,650 3,545 3,737 4,039 3,797 5,887 7,670 46,176 -------- -------- -------- -------- -------- -------- -------- -------- -------- Property-level net operating income 32,928 12,757 14,713 12,935 10,502 13,153 10,988 18,255 126,231 Other income/ expenses, net 71,585 -------- Income before minority interest 54,646 Minority interest 3,870 Preferred distributions 5,500 -------- Income available to common shareholders $ 45,276 ========
- -11- CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY LIMITED PARTNERSHIP (IN THOUSANDS)
JUNE 30, 1999 DECEMBER 31, 1998 ---------------- ----------------- (UNAUDITED) ASSETS Real estate: Land and land improvements $ 394,392 $ 366,853 Buildings and improvements 2,494,110 2,378,272 Less accumulated depreciation (238,883) (209,023) ---------- ---------- Operating real estate 2,649,619 2,536,102 Development in progress 183,716 207,563 Land held for development 87,479 75,454 ---------- ---------- Net real estate 2,920,814 2,819,119 Cash and cash equivalents 33,555 14,391 Accounts receivable 5,780 15,391 Deferred financing and leasing costs, net of accumulated amortization (1999, $54,979; 1998, $49,390) 45,298 39,475 Prepaid expenses and other assets 36,958 44,995 ---------- ---------- Total assets $3,042,405 $2,933,371 ========== ========== LIABILITIES Mortgage loans $ 386,150 $ 413,224 Unsecured notes 1,030,000 645,000 Credit facility - 264,000 Convertible debentures 96,729 101,619 Accounts payable 24,125 20,216 Accrued interest 22,728 18,263 Dividend payable 33,907 33,734 Other liabilities 61,964 69,025 ---------- ---------- Total liabilities 1,655,603 1,565,081 OWNERS' EQUITY General partner's equity-preferred units 120,814 120,814 -common units 1,170,021 1,146,222 Limited partners' equity 95,967 101,254 ---------- ---------- Total owners' equity 1,386,802 1,368,290 ---------- ---------- Total liabilities and owners' equity $3,042,405 $2,933,371 ========== ==========
See accompanying notes. - -12- CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP (UNAUDITED AND IN THOUSANDS)
THREE THREE MONTHS ENDED MONTHS ENDED JUNE 30, 1999 JUNE 30, 1998 --------------- -------------- REVENUE Rental $ 84,250 $ 68,018 Operating expense reimbursement 29,510 23,124 Management fees 150 150 Gain (loss) on sale 11,942 (1,048) Interest and other 1,290 1,164 ----------- --------- Total revenue 127,142 91,408 ----------- --------- OPERATING EXPENSES Rental property expenses 20,641 16,723 Real estate taxes 10,048 7,518 General and administrative 3,931 3,697 Depreciation and amortization 20,437 16,520 ----------- --------- Total operating expenses 55,057 44,458 ----------- --------- Operating income 72,085 46,950 Interest expense 25,822 18,853 ----------- --------- Net income 46,263 28,097 Net income allocated to general partner - preferred units 2,750 2,750 ----------- --------- Net income available to partners - common interest $ 43,513 $ 25,347 =========== ========= Net income allocated to general partner - common units $ 40,502 $ 23,286 =========== ========= Net income allocated to limited partners $ 3,011 $ 2,061 =========== =========
See accompanying notes. - -13- CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP (UNAUDITED AND IN THOUSANDS)
SIX SIX MONTHS ENDED MONTHS ENDED JUNE 30, 1999 JUNE 30, 1998 --------------- ------------- REVENUE Rental $165,718 $129,033 Operating expense reimbursement 59,033 43,374 Management fees 300 297 Gain (loss) on sale 13,211 (1,048) Interest and other 2,369 2,371 ----------- --------- Total revenue 240,631 174,027 ----------- --------- OPERATING EXPENSES Rental property expenses 41,834 31,639 Real estate taxes 19,825 14,537 General and administrative 7,916 7,047 Depreciation and amortization 40,580 30,739 ----------- --------- Total operating expenses 110,155 83,962 ----------- --------- Operating income 130,476 90,065 Interest expense 49,575 35,419 ----------- --------- Net income 80,901 54,646 Net income allocated to general partner - preferred units 5,500 5,500 ----------- --------- Net income available to partners - common interest $ 75,401 $ 49,146 =========== ========= Net income allocated to general partner - common units $ 70,180 $ 45,276 =========== ========= Net income allocated to limited partners $ 5,221 $ 3,870 =========== =========
See accompanying notes. - -14- CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY LIMITED PARTNERSHIP (UNAUDITED AND IN THOUSANDS)
SIX SIX MONTHS ENDED MONTHS ENDED JUNE 30, 1999 JUNE 30, 1998 -------------- -------------- OPERATING ACTIVITIES Net income $ 80,901 $ 54,646 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 40,580 30,739 Amortization of deferred financing costs 3,126 2,193 Gain (loss) on sale (13,211) 1,048 Noncash compensation 1,495 996 Changes in operating assets and liabilities: Accounts receivable 9,611 (1,016) Prepaid expenses and other assets 7,356 (1,682) Accounts payable 3,909 6,656 Accrued interest 4,465 5,700 Other liabilities (7,061) 9,278 ---------- --------- Net cash provided by operating activities 131,171 108,558 ---------- --------- INVESTING ACTIVITIES Investment in properties (41,114) (369,316) Proceeds from disposition of properties 62,976 12,753 Investment in development in progress (119,035) (141,995) Investment in land held for development (23,725) (21,642) Increase in deferred leasing costs (7,464) (6,023) ---------- --------- Net cash used in investing activities (128,362) (526,223) ---------- --------- FINANCING ACTIVITIES Proceeds from issuance of unsecured notes 385,000 275,000 Repayments of mortgage loans (30,892) (11,505) Proceeds from credit facility 83,024 421,000 Repayments on credit facility (347,024) (423,000) Increase in deferred financing costs (5,264) (530) Capital contributions 1,054 197,616 Distributions to partners (69,543) (55,653) ---------- --------- Net cash provided by financing activities 16,355 402,928 Increase (decrease) in cash and cash equivalents 19,164 (14,737) Cash and cash equivalents at beginning of period 14,391 55,079 ---------- --------- Cash and cash equivalents at end of period $ 33,555 $ 40,342 ========== ========= SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS Write-off of fully depreciated property and deferred costs $ 7,666 $ 2,768 Acquisition of properties (3,818) (82,064) Assumption of mortgage loans 3,818 63,918 Issuance of operating partnership units - 18,146 Conversion of convertible debentures 4,779 3,831 ========== =========
See accompanying notes. - -15- LIBERTY PROPERTY LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1999 NOTE 1 - BASIS OF PRESENTATION - ------------------------------ The accompanying unaudited consolidated financial statements of Liberty Property Limited Partnership (the "Operating Partnership") and its direct and indirect subsidiaries have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of the Trust and the Operating Partnership for the year ended December 31, 1998. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial statements for these interim periods have been included. The results of interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. Certain amounts from prior periods have been restated to conform to current period presentations. NOTE 2 - ORGANIZATION - --------------------- Liberty Property Trust (the "Trust") is a self-administered and self- managed Maryland real estate investment trust (a "REIT"). Substantially all of the Trust's assets are owned directly or indirectly, and substantially all of the Trust's operations are conducted directly or indirectly, by its subsidiary, Liberty Property Limited Partnership, a Pennsylvania limited partnership (the "Operating Partnership" and, together with the Trust and its consolidated subsidiaries, the "Company"). The Trust is the sole general partner and also a limited partner of the Operating Partnership, with a combined equity interest in the Operating Partnership of 93.1% at June 30, 1999. The Company provides leasing, property management, acquisition, development, construction management and design management for a portfolio of industrial and office properties which are located principally within the Southeastern, Mid-Atlantic and Midwestern United States. In 1998, the Company received $296.3 million in aggregate net proceeds from the issuance of Common Shares and $292.1 million in aggregate net proceeds from the issuance of unsecured notes. The Company used the aggregate net proceeds from the sale of Common Shares and the unsecured notes to fund the Company's activities, including paying down the Credit Facility, which funds acquisition and development activity. On January 15, 1999, the Company closed on a $135 million, two-year unsecured term loan. The interest rate for the loan is 135 basis points over LIBOR. On April 20, 1999, the Company sold $250 million principal amount of 7.75% notes due 2009. The aggregate net proceeds from such issuance was approximately $246.0 million. - -16- On July 28, 1999, the Company completed a private placement of 3.8 million Series B Cumulative Redeemable Preferred Units of the Operating Partnership. The Series B Preferred Units are payable at the rate of 9.25% per annum of the $25 liquidation preference, and are redeemable at the option of the Company at any time on or after July 28, 2004 at $25 per share. NOTE 3 - SEGMENT INFORMATION - ---------------------------- Liberty Property Limited Partnership operates its portfolio of properties throughout the Southeastern, Mid-Atlantic and Midwestern United States. The Company reviews performance of the portfolio on a geographical basis, as such, the following regions are considered the Company's reportable segments: Southeastern Pennsylvania; New Jersey; Lehigh Valley, Pennsylvania; Virginia; the Carolinas; Jacksonville, Florida; Detroit, Michigan; and all others which includes Maryland; Tampa, Florida; South Florida; Minneapolis, Minnesota; and the United Kingdom. The Company's reportable segments are distinct business units which are each managed separately in order to concentrate market knowledge within a geographical area. Within these reportable segments, the Company derives its revenues from its two product types: industrial and office properties. The Company evaluates performance of the reportable segments based on property-level net operating income, which is calculated as rental revenue and operating expense reimbursement less rental property expenses and real estate taxes. The accounting policies of the reportable segments are the same as those for the Company on a consolidated basis. The operating information by segment is as follows (in thousands):
FOR THE THREE MONTHS ENDED JUNE 30, 1999 - ----------------------------------------------------------------------------------------------------- SE New Lehigh The Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total -------- -------- -------- -------- --------- ------------ -------- ---------- -------- Real-estate related revenues $29,036 $10,671 $10,883 $ 9,991 $ 9,346 $ 9,941 $12,501 $21,391 $113,760 Rental property expenses and real estate taxes 7,853 3,131 2,248 1,925 2,677 2,202 4,321 6,332 30,689 -------- -------- -------- -------- -------- -------- -------- -------- -------- Property-level net operating income 21,183 7,540 8,635 8,066 6,669 7,739 8,180 15,059 83,071 Other income/ expenses, net 36,808 -------- Net income 46,263 Net income allocated to general partner - preferred units 2,750 -------- Net income allocated to partners - common interest $ 43,513 ======== Net income allocated to general partner - common units $ 40,502 ======== Net income allocated to limited partners $ 3,011 ========
- -17-
FOR THE THREE MONTHS ENDED JUNE 30, 1998 - ------------------------------------------------------------------------------------------------------ SE New Lehigh The Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total -------- -------- -------- -------- --------- ------------ -------- ---------- ------- Real-estate related revenues $23,059 $ 9,811 $ 9,407 $ 8,705 $ 8,212 $ 9,023 $ 8,943 $13,982 $91,142 Rental property expenses and real estate taxes 6,230 2,466 1,802 2,042 2,339 2,053 3,136 4,173 24,241 -------- -------- -------- -------- -------- -------- -------- -------- -------- Property-level net operating income 16,829 7,345 7,605 6,663 5,873 6,970 5,807 9,809 66,901 Other income/ expenses, net 38,804 -------- Net income 28,097 Net income allocated to general partner - preferred units 2,750 -------- Net income allocated to partners - common interest $25,347 ======== Net income allocated to general partner - common units $23,286 ======== Net income allocated to limited partners $ 2,061 ======== FOR THE SIX MONTHS ENDED JUNE 30, 1999 - ----------------------------------------------------------------------------------------------------- SE New Lehigh The Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total -------- -------- -------- -------- --------- ------------ -------- ---------- -------- Real-estate related revenues $55,844 $22,326 $21,622 $19,969 $18,856 $19,822 $24,187 $42,125 $224,751 Rental property expenses and real estate taxes 15,703 6,603 4,625 4,189 5,401 4,498 8,058 12,582 61,659 -------- -------- -------- -------- -------- -------- -------- -------- -------- Property-level net operating income 40,141 15,723 16,997 15,780 13,455 15,324 16,129 29,543 163,092 Other income/ expenses, net 82,191 -------- Net income 80,901 Net income allocated to general partner - preferred units 5,500 -------- Net income allocated to partners - common interest $ 75,401 ======== Net income allocated to general partner - common units $ 70,180 ======== Net income allocated to limited partners $ 5,221 ======== FOR THE SIX MONTHS ENDED JUNE 30, 1998 - ----------------------------------------------------------------------------------------------------- SE New Lehigh The Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total -------- -------- -------- -------- --------- ------------ -------- ---------- -------- Real-estate related revenues $45,779 $17,407 $18,258 $16,672 $14,541 $16,950 $16,875 $25,925 $172,407 Rental property expenses and real estate taxes 12,851 4,650 3,545 3,737 4,039 3,797 5,887 7,670 46,176 -------- -------- -------- -------- -------- -------- -------- -------- -------- Property-level net operating income 32,928 12,757 14,713 12,935 10,502 13,153 10,988 18,255 126,231 Other income/ expenses, net 71,585 -------- Net income 54,646 Net income allocated to general partner - preferred units 5,500 -------- Net income allocated to partners - common interest $ 49,146 ======== Net income allocated to general partner - common units $ 45,276 ======== Net income allocated to limited partners $ 3,870 ========
- -18- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ----------------------------------------------------------------------- OVERVIEW The following discussion and analysis is based on a consolidated view of the Company. Geographic segment data for the three and six month periods ended June 30, 1999 and 1998 is included in Note 3 of the Notes to the Liberty Property Trust and Liberty Property Limited Partnership Financial Statements, respectively. In 1999, the Company has continued to pursue development and acquisition opportunities and has continued to focus on increasing the cash flow from its Properties in Operation by increasing property occupancy and increasing rental rates. The composition of the Company's properties in operation as of June 30, 1999 and 1998 is as follows (in thousands):
TOTAL PERCENT OF TOTAL SQUARE FEET SQUARE FEET PERCENT OCCUPIED ----------------- ---------------- ----------------- JUNE 30, JUNE 30, JUNE 30, TYPE 1999 1998 1999 1998 1999 1998 - ------------------------- ------- ------- ------- ------- ------- ------- Industrial - Distribution 19,228 17,556 42.2% 44.5% 94.8% 95.2% Industrial - Flex 13,032 10,934 28.6% 27.7% 94.6% 93.5% Office 13,267 10,990 29.2% 27.8% 93.5% 96.3% ------- ------ ------- ------- ------- ------- Total 45,527 39,480 100.0% 100.0% 94.4% 95.0% ====== ====== ====== ====== ====== ======
The expiring square feet and annual base rent by year for the properties in operation as of June 30, 1999 are as follows (in thousands):
INDUSTRIAL- DISTRIBUTION INDUSTRIAL-FLEX OFFICE TOTAL ------------------ ------------------ ------------------ ------------------ SQUARE ANNUAL SQUARE ANNUAL SQUARE ANNUAL SQUARE ANNUAL YEAR FEET BASE RENT FEET BASE RENT FEET BASE RENT FEET BASE RENT - ---------- ------ --------- ------ --------- ------ --------- ------ --------- 1999 1,575 $ 7,278 1,448 $ 10,528 1,207 $ 12,826 4,230 $ 30,632 2000 1,725 7,893 2,442 18,188 1,908 23,367 6,075 49,448 2001 2,925 13,118 2,086 14,680 1,552 19,835 6,563 47,633 2002 3,398 14,406 1,633 12,779 1,251 15,130 6,282 42,315 2003 1,687 7,861 1,930 17,910 1,240 16,698 4,857 42,469 2004 1,347 6,542 878 8,328 888 12,860 3,113 27,730 Thereafter 5,569 27,982 1,915 20,798 4,363 64,838 11,847 113,618 ------ ------- ------ --------- ------ --------- ------ -------- Total 18,226 $85,080 12,332 $103,211 12,409 $165,554 42,967 $353,845 ====== ======= ====== ========= ====== ========= ====== ========
- -19- The scheduled deliveries of the 2.8 million square feet of properties under development as of June 30, 1999 are as follows (in thousands):
SQUARE FEET ----------------------------- SCHEDULED IND- IND- PERCENT PRE-LEASED IN-SERVICE DATE DIST. FLEX OFFICE TOTAL JUNE 30, 1999 TOTAL INVESTMENT - ---------------- ------ ------ ------- ------ ------------------ ---------------- 3rd Quarter 1999 250 157 187 594 91.3% $ 38,833 4th Quarter 1999 171 - 517 688 78.7% 90,068 1st Quarter 2000 - - 297 297 100.0% 39,775 2nd Quarter 2000 - 99 154 253 21.4% 28,449 Thereafter 522 85 339 946 13.4% 64,780 ------ ------ ------- ------ ------ ---------- Total 943 341 1,494 2,778 56.2% $261,905 ====== ====== ======= ====== ====== ==========
RESULTS OF OPERATIONS - --------------------- The following discussion is based on the consolidated financial statements of the Company. It compares the results of operations of the Company for the three and six months ended June 30, 1999 (unaudited) with the results of operations of the Company for the three and six months ended June 30, 1998 (unaudited). As a result of the significant level of acquisition, disposition and development activities by the Company in 1999 and 1998, the overall operating results of the Company during such periods are not directly comparable. However, certain data, including the "Same Store" comparison, do lend themselves to direct comparison. As used herein, the term "Company" includes the Trust, the Operating Partnership and their subsidiaries. This information should be read in conjunction with the accompanying consolidated financial statements and notes included elsewhere in this report. For the three and six months ended June 30, 1999 compared to the three and six months ended June 30, 1998. - ----------------------------------------------------------------------- Total revenue (principally rental revenue and operating expense reimbursement) increased to $127.1 million from $91.4 million for the three months ended June 30, 1999 compared to 1998, and increased to $240.6 million from $174.0 million for the six months ended June 30, 1999 compared to 1998. These increases are primarily due to the increase in the number of properties in operation during the respective periods. As of June 30, 1998, the Company had 540 properties in operation and, as of June 30, 1999, the Company had 627 properties in operation. From January 1, 1998 through March 31, 1998, and from April 1, 1998 through June 30, 1998, the Company acquired or completed the development on 55 properties and 48 properties, respectively, for Total Investments (as defined below) of approximately $301.6 million and $224.8 million, respectively. From January 1, 1999 through March 31, 1999, and from April 1, 1999 through June 30, 1999, the Company acquired or completed the development on 19 properties and 15 properties, respectively, for Total Investments of approximately $71.2 million and $120.0 million, respectively. Offsetting the increases in the number of properties acquired and developed and the related Total Investments during the periods were property dispositions. From January 1, 1998 through March 31, 1998, the Company did not sell any properties. From April 1, 1998 through June 30, 1998, the Company sold 5 properties for net proceeds of approximately $11.7 million. From January 1, 1999 through March 31, 1999, and from April 1, 1999 through June 30, - -20- 1999, the Company sold 2 and 14 properties, respectively, for net proceeds of approximately $8.7 million and $51.3 million, respectively. The "Total Investment" for a property is defined as the property's purchase price plus closing costs and management's estimate, as determined at the time of acquisition, of the cost of necessary building improvements in the case of acquisitions, or land costs and land and building improvement costs in the case of development projects, and where appropriate, other development costs and carrying costs required to reach rent commencement. Rental property and real estate tax expenses increased to $30.7 million from $24.2 million for the three months ended June 30, 1999 compared to 1998, and to $61.7 million from $46.2 million for the six months ended June 30, 1999 compared to 1998. These increases are due to the increase in the number of properties owned during the respective periods. Property-level operating income for the "Same Store" properties (properties owned as of January 1, 1998) increased to $110.5 million for the six months ended June 30, 1999 from $106.9 million for the six months ended June 30, 1998, with straightlining (which recognizes rental revenue evenly over the life of the lease), and increased to $109.0 million for the six months ended June 30, 1999 from $104.8 million for the six months ended June 30, 1998, without straightlining. These increases of 3.3% and 3.9%, respectively, are due to increases in the rental rates for the properties. Set forth below is a schedule comparing the property-level operating income for the Same Store properties for the six month periods ended June 30, 1999 and 1998 (in thousands).
WITH STRAIGHTLINING WITHOUT STRAIGHTLINING ----------------------------- ----------------------------- SIX MONTHS ENDED SIX MONTHS ENDED ----------------------------- ----------------------------- JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998 ------------- ------------- ------------- -------------- Rental Revenue $112,797 $109,361 $111,238 $107,258 Operating expense reimbursement 40,749 36,699 40,749 36,699 -------- -------- -------- -------- 153,546 146,060 151,987 143,957 Rental property expenses 29,755 27,156 29,755 27,156 Real estate taxes 13,274 11,957 13,274 11,957 -------- -------- -------- -------- Property level operating income $110,517 $106,947 $108,958 $104,844 ======== ======== ======== ========
General and administrative expenses increased to $3.9 million for the three months ended June 30, 1999 from $3.7 million for the three months ended June 30, 1998, and to $7.9 million for the six months ended June 30, 1999 from $7.0 million for the six months ended June 30, 1998, due to the increase in personnel and other related overhead costs necessitated by the increase in the number of properties owned during the respective periods. These increases are somewhat mitigated by the benefit of certain economies of scale experienced by the Company in owning and operating the increased number of properties. Depreciation and amortization expense increased to $20.4 million for the three months ended June 30, 1999 from $16.5 million for the three months ended June 30, 1998, and to $40.6 million for the six months ended June 30, 1999 from $30.7 million for the six months ended June 30, 1998. - -21- These increases are due to an increase in the number of properties owned during the respective periods. Interest expense increased to $25.8 million for the three months ended June 30, 1999 from $18.9 million for the three months ended June 30, 1998, and to $49.6 million for the six months ended June 30, 1999 from $35.4 million for the six months ended June 30, 1998. These increases are due to an increase in the average debt outstanding for the respective periods which was $1,497.2 million for the second quarter of 1999 compared to $1,220.3 million for the second quarter of 1998, and $1,472.7 million for the first six months of 1999 compared to $1,133.6 million for the first six months of 1998. These increases are offset by decreases in the weighted average interest rates for the periods, to 7.2% for the second quarter June 30, 1999 from 7.3% for the second quarter June 30, 1998, and to 7.2% for the first six months of 1999 from 7.3% for the first six months of 1998. As a result of the foregoing, the Company's operating income increased to $72.1 million for the three months ended June 30, 1999 from $47.0 million for the three months ended June 30, 1998, and to $130.5 million for the six months ended June 30, 1999 from $90.1 million for the six months ended June 30, 1998. In addition, income before minority interest increased to $46.3 million for the three months ended June 30, 1999 from $28.1 million for the three months ended June 30, 1998, and to $80.9 million for six months ended June 30, 1999 from $54.6 million for the six months ended June 30, 1998. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1999, the Company had cash and cash equivalents of $33.6 million. Net cash flow provided by operating activities increased to $131.2 million for the six months ended June 30, 1999 from $108.6 million for the six months ended June 30, 1998. This $22.6 million increase was primarily due to the cash provided by the additional Operating Properties in service during the latter period. Net cash used in investing activities decreased to $128.4 million for the six months ended June 30, 1999 from $526.2 million for the six months ended June 30, 1998. This decrease primarily resulted from decreased acquisition activity in 1999, and an increase in property dispositions. Net cash provided by financing activities decreased to $16.4 million for the six months ended June 30, 1999 from $402.9 million for the six months ended June 30, 1998. This decrease is due to a decrease in the Company's financing requirements consistent with its decrease in investing activities. The Company believes that its undistributed cash flow from operations is adequate to fund its short-term liquidity requirements. The Company funds its acquisitions and completed development with long- term capital sources. These activities may be funded on a temporary basis through its $325.0 million unsecured line of credit (the "Credit Facility"), which matures May 2000. The interest rate on borrowings under the Credit Facility fluctuates based upon the Company's leverage levels or ratings from Moody's Investor Services, Inc. ("Moody's") and Standard & Poor's Rating's Group - -22- ("Standard & Poor's"). Moody's and Standard & Poor's have assigned senior debt ratings to the Company of Baa3 and BBB-, respectively. At these ratings, the interest rate for borrowings under the Credit Facility is 110 basis points over LIBOR. As of June 30, 1999, $386.2 million in mortgage loans, $895.0 million in unsecured notes and $135.0 million in an unsecured term loan were outstanding. The interest rates on $376.8 million of mortgage loans and unsecured notes are fixed and range from 5.0% to 9.1%. Interest rates on $9.4 million of mortgage loans and the unsecured term loan float with LIBOR or a municipal bond index, $2.8 million of which is subject to a cap. The weighted average remaining term for the mortgage loans, unsecured notes and the unsecured term loan is 7.8 years. The scheduled maturities of principal amortization of the Company's mortgage loans, unsecured notes and the unsecured term loan outstanding and the related weighted average interest rates are as follows (in thousands):
MORTGAGES UNSECURED WEIGHTED -------------------------- NOTES AND AVERAGE AMORTIZATION MATURITIES TERM LOAN TOTAL INTEREST RATE ------------ ---------- ---------- ---------- -------------- 1999 $ 4,751 $ 3,818 $ - $ 8,569 6.9% 2000 9,053 26,377 - 35,430 8.4% 2001 8,724 20,122 135,000 163,846 6.5% 2002 7,584 - 100,000 107,584 6.7% 2003 7,521 26,606 50,000 84,127 7.3% 2004 7,553 15,910 100,000 123,463 7.0% 2005 6,728 99,018 - 105,746 7.6% 2006 5,414 30,078 100,000 135,492 7.2% 2007 4,992 - 100,000 104,992 7.3% 2008 4,714 28,835 - 33,549 7.2% 2009 2,419 42,096 270,000 314,515 7.8% 2010 1,426 - - 1,426 7.7% 2011 1,168 3,303 - 4,471 7.7% 2012 266 17,674 - 17,940 7.7% 2013 - - 75,000 (1) 75,000 6.4% 2018 - - 100,000 100,000 7.5% --------- --------- ---------- ---------- ------- $ 72,313 $313,837 $1,030,000 $1,416,150 7.2% ========= ========= ========== ========== =======
(1) Callable 2003. General The Company believes that its existing sources of capital will provide sufficient funds to finance its continued development and acquisition activities. The Company's need for capital has been somewhat reduced by a decline in acquisition activity throughout the year, resulting from a general marketplace decline in initial returns on acquisitions. The Company's existing sources of capital include the public debt and equity markets, proceeds from property dispositions and net cash provided from its operating activities. Additionally, the Company expects to incur variable rate debt, including borrowings under the Credit Facility, from time to time. In 1998, the Company received $296.3 million in aggregate net proceeds from the issuance of Common Shares and $292.1 million in aggregate net proceeds from the issuance of unsecured notes. The Company used the aggregate net proceeds from the sale of Common Shares and the unsecured notes to fund the Company's activities, including paying down the Credit Facility, which funds acquisition and development activity. - -23- On January 15, 1999, the Company closed a $135 million, two-year unsecured term loan. The interest rate for the loan is 135 basis points over LIBOR. On April 20, 1999, the Company sold $250 million principal amount of 7.75% notes due 2009. The aggregate net proceeds from such issuance was approximately $246.0 million. On July 28, 1999, the Company completed a private placement of 3.8 million 9.25% Series B Cumulative Redeemable Preferred Units of the Operating Partnership at a price of $25 per unit. The Company used the aggregate net proceeds of approximately $93.0 million from the sale of the preferred units to repay outstanding borrowings under the Company's term loan and to fund the Company's activities including paying down the Credit Facility which funds acquisitions and development activity. The Company has an effective S-3 shelf registration statement on file with the Securities and Exchange Commission. As of July 30, 1999, the Company had the capacity pursuant to the Shelf Registration Statement to issue $688.4 million in equity securities and the Operating Partnership has the capacity to issue $108.0 million in debt securities. Calculation of Funds from Operations Management generally considers funds from operations (as defined below) a useful financial performance measure of the operating performance of an equity REIT, because, together with net income and cash flows, funds from operations provides investors with an additional basis to evaluate the ability of a REIT to incur and service debt and to fund acquisitions and capital expenditures. Funds from operations is defined by NAREIT as net income or loss after preferred distributions (computed in accordance with generally accepted accounting principles ("GAAP")), excluding gains (or losses) from debt restructuring and sales of property, plus real estate- related depreciation and amortization and minority interest and excluding significant nonrecurring events that materially distort the comparative measurement of the Company's performance over time. Funds from operations does not represent net income or cash flows from operations as defined by GAAP and does not necessarily indicate that cash flows will be sufficient to fund cash needs. It should not be considered as an alternative to net income as an indicator of the Company's operating performance or to cash flows as a measure of liquidity. Funds from operations also does not represent cash flows generated from operating, investing or financing activities as defined by GAAP. Funds from operations for the three and six months ended June 30, 1999 and June 30, 1998 are as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED (IN THOUSANDS) (IN THOUSANDS) ---------------------- --------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1999 1998 1999 1998 ---------- ---------- ---------- --------- Income available to common shareholders $ 40,502 $ 23,286 $ 70,180 $ 45,276 Addback: Minority interest 3,011 2,061 5,221 3,870 Depreciation and amortization 20,064 16,199 39,898 30,279 (Gain) loss on sale (11,942) 1,048 (13,211) 1,048 ======== ======== ========= ========= Funds from operations $ 51,635 $ 42,594 $102,088 $ 80,473 ======== ======== ========= =========
- -24- YEAR 2000 Background In the past, many computer software programs were written using two digits rather than four to define the applicable year. As a result, date-sensitive computer software may recognize a date using "00" as the year 1900 rather than the year 2000. This is generally referred to as the Year 2000 issue. If this situation occurs, the potential exists for computer system failures or miscalculations by computer programs, which could disrupt operations. Approach The Company has established a group to coordinate the Company's response to the Year 2000 issue. This group, which reports to the President and Chief Operating Officer, includes the Company's MIS Director, a Vice- President-Property Management and its General Counsel, as well as support staff. The Company is in the process of implementing a Year 2000 compliance program at the Company's offices and properties consisting of the following phases: PHASE 1 Compilation of an inventory of information technology (IT) and non-IT systems that may be sensitive to the Year 2000 problem. PHASE 2 Identification and prioritization of the critical systems from the systems inventory compiled in Phase 1 and inquiries of third parties with whom the Company does significant business (i.e., vendors, service providers and certain tenants) as to the state of their Year 2000 readiness. PHASE 3 Analysis of critical systems to determine which systems are not Year 2000 compliant and evaluation of the costs to repair or replace those systems. PHASE 4 Repair or replace noncompliant systems and testing of critical systems, where applicable. Status The Company's property management and accounting system uses four-digit year fields and consequently is believed to be Year 2000 compliant. Phases 1, 2, 3 and 4 are substantially complete but for the process of making inquiries of significant third parties as to their Year 2000 readiness and testing of critical systems, which is ongoing. Based upon the analysis conducted to date, the Company believes the major critical systems at the Company's properties are currently compliant. Costs The total cost to the Company of making its systems Year 2000 compliant is currently estimated to be in the range of $200,000-$300,000. The majority of this cost relates to repairing certain software, testing systems and retrofitting or replacing energy management systems at certain of the properties. The cost for the replacement of the equipment and the software will be capitalized and depreciated over their expected useful life. To the extent existing hardware or software is replaced, the Company will expense the cost as incurred. This - -25- expense is included in the above cost estimate. Furthermore, all costs related to software modification, as well as all costs associated with the Company's administration of its Year 2000 project, are being expensed as incurred and are likewise included in the cost estimate above. Risks Associated with the Year 2000 Problem The Company utilizes computer systems in many aspects of its business. As noted, the Company's property management and accounting systems use four-digit year fields and are believed to be Year 2000 compliant. Additionally, with respect to the hardware and software systems utilized by the Company in its management information systems, the Company's assessment to date indicates that these systems are Year 2000 compliant or can readily be made Year 2000 compliant on a stand-alone basis. Testing of the operation of these systems together is ongoing. The Company's also utilizes microprocessors which are imbedded in systems which are part of the building operations (e.g., microprocessors contained within the buildings' energy management systems or fire and life safety systems). In particular, Year 2000 problems in the HVAC, elevator, security or other such systems at the properties could disrupt operations at the affected properties. The properties generally consist of suburban office and industrial properties. The properties are also principally single-story and low-rise buildings. The Company has reviewed its building operating systems on a building-by-building basis. At this point, based on the status of its assessment, the Company does not believe a material number of these systems will be non-compliant. Additionally, many of these systems, which operate automatically, can be operated manually and consequently in the event these systems experience a failure as a result of the Year 2000 problem, the disruption caused by such failure should not be material to the Company's operations. The Company is also exposed to the risk that one or more of its vendors or service providers could experience Year 2000 problems that impact the ability of such vendor or service provider to provide goods and services. Though this is not considered as significant a risk with respect to the suppliers of goods, due to the availability of alternative suppliers, the disruption of certain services, such as utilities, could, depending upon the extent of the disruption, have a material adverse impact on the Company's operations. To date, the Company is not aware of any vendor or service provider Year 2000 issue that management believes would have a material adverse impact on the Company's operations. However, the Company has no means of ensuring that its vendors or service providers will be Year 2000 ready. The inability of vendors or service providers to complete their Year 2000 resolution process in a timely fashion could have a adverse impact on the Company. The effect of non-compliance by vendors or service providers is not determinable at this time. In addition, the Company is exposed to the risk that one or more of its tenants could experience Year 2000 problems that impact the ability of such tenant to pay its rent to the Company in a timely fashion. The Company does not believe that such a problem is likely to affect enough tenants to pose a material problem for the Company. To date, the Company is not aware of any tenant Year 2000 issue that would have a material adverse impact on the Company's operations. However, the Company has no means of ensuring that its tenants will be Year 2000 ready. The inability of tenants to complete their Year 2000 resolution process in a timely fashion could have an adverse impact on the Company. - -26- The effect of non-compliance by tenants is not determinable at this time. Widespread disruptions in the national or international economy, including disruptions affecting the financial markets, resulting from Year 2000 issues, or in certain industries, such as commercial or investment banks, could also have an adverse impact on the Company. The likelihood and effect of such disruptions is not determinable at this time. Readers are cautioned that forward-looking statements contained in the Year 2000 discussion should be read in conjunction with the Company's disclosures regarding forward-looking statements previously disclosed. INFLATION - --------- Inflation has remained relatively low during the last three years, and as a result, it has not had a significant impact on the Company during this period. The Credit Facility bears interest at a variable rate; therefore, the amount of interest payable under the Credit Facility will be influenced by changes in short-term interest rates, which tend to be sensitive to inflation. To the extent an increase in inflation would result in increased operating costs, such as in insurance, real estate taxes and utilities, substantially all of the tenants' leases require the tenants to absorb these costs as part of their rental obligations. In addition, inflation also may have the effect of increasing market rental rates. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------------------------------------------------------------------- There have been no material changes to the Company's exposure to market risk since its Annual Report on Form 10-K for 1998. - -27- PART II: OTHER INFORMATION - -------------------------- Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds On July 28, 1999, the Operating Partnership issued 3.8 million 9.25% Series B Cumulative Redeemable Preferred Units of Limited Partnership Interest (the "Units"). The aggregate sale price of the Units was $95.0 million. The Units were sold to two institutional investors in a private placement in reliance on the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended. The Units are convertible after ten years (or, under limited circumstances, a shorter period of time), on a one-for-one basis, into the 9.25% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest of the Trust (the "Preferred Shares"), which were authorized for issuance by the Trust in connection with this transaction. The Units have identical rights, preferences and privileges as the Preferred Shares. The Units do not include any mandatory redemption or sinking fund provisions. The holders of the Units have certain rights to cause the Trust to register the Preferred Shares pursuant to the terms of a registration rights agreement entered into in connection with this private placement. The net proceeds of the sale of the units, approximately $93.0 million, was used to repay the Company's term loan and to fund other Company activities, including paying down the outstanding balance under the Credit Facility. In connection with the sale of the Units, the Operating Partnership amended its Second Restated and Amended Agreement of Limited Partnership pursuant to the First Amendment thereto, filed as Exhibit 3.1.1 to this Report. The Articles Supplementary to the Amended and Restated Declaration of Trust of the Trust creating the Preferred Shares are filed as Exhibit 3.1.2 to this Report. The Units are pari passu with the 8.80% Series A Cumulative Redeemable Preferred Units of Limited Partnership of the Operating Partnership, and senior to all other units of limited partnership interest of the Operating Partnership. The Preferred Shares are pari passu with the 8.80% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest of the Trust, and senior to the Common Shares of Beneficial Interest of the Trust. Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders The 1999 Annual Meeting of Shareholders of the Trust was held on May 19, 1999. A. Election of Trustees. At the meeting, management's nominees, Frederick F. Buchholz, Stephen B. Siegel and Thomas C. DeLoach, Jr., were elected to fill the three available positions as Class II trustees. Voting - -28- (expressed in number of shares) was as follows: Mr. Buchholz: 55,773,235 for, 245,855 against or withheld and no abstentions or broker non-votes; Mr. Siegel: 48,506,298 for, 7,512,792 against or withheld and no abstentions or broker non-votes; and Mr. DeLoach: 55,773,449 for, 245,641 against or withheld and no abstentions or broker non-votes. B. Amendment to Share Incentive Plan. At the meeting, the Trust's shareholders also approved an amendment to the Trust's Amended and Restated Share Incentive Plan (the "Plan") which increased the number of the Trust's shares of beneficial interest available for awards pursuant to the Plan from 4,033,535 to 6,500,000. Voting (expressed in number of shares) was as follows: 38,544,228 for; 16,899,517 against; 575,345 abstained; and no broker non- votes. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K a. Exhibits 3.1.l First Amendment to Second Restated and Amended Agreement of Limited Partnership of the Operating Partnership. 3.1.2 Articles Supplementary to the Amended and Restated Declaration of Trust of the Trust relating to the 9.25% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest. 4.1 Third Supplemental Indenture, dated as of April 20, 1999, between the Operating Partnership, as Issuer, and First Chicago, as Trustee, supplementing the Senior Indenture, dated as of October 24, 1997, between the Operating Partnership, as Obligor, and First Chicago, as Trustee. 10.1 Liberty Property Trust Amended and Restated Share Incentive Plan. 27 Financial Data Schedule (EDGAR VERSION ONLY) b. Reports on Form 8-K During the quarter ended June 30, 1999, the Registrants filed one Current Report on Form 8-K: (i) report dated April 19, 1999 reporting Items 5 and 7 and containing as an Exhibit the Underwriting Agreement dated April 15, 1999 among the Registrants and the Underwriters (as defined therein) and the Statement Re: Computation of Earnings to Combined Fixed Charges and Ratio of Earnings to Fixed Charges. - -29- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LIBERTY PROPERTY TRUST /s/ JOSEPH P. DENNY August 6, 1999 - ------------------------------ -------------------------------- Joseph P. Denny Date President /s/ GEORGE J. ALBURGER, JR. August 6, 1999 - ------------------------------ -------------------------------- George J. Alburger, Jr. Date Chief Financial Officer LIBERTY PROPERTY LIMITED PARTNERSHIP By: LIBERTY PROPERTY TRUST, GENERAL PARTNER /s/ JOSEPH P. DENNY August 6, 1999 - ------------------------------ -------------------------------- Joseph P. Denny Date President /s/ GEORGE J. ALBURGER, JR. August 6, 1999 - ------------------------------ -------------------------------- George J. Alburger, Jr. Date Chief Financial Officer - -30- EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ----------- ----------------------------------------------------- 3.1.l First Amendment to Second Restated and Amended Agreement of Limited Partnership of the Operating Partnership. 3.1.2 Articles Supplementary to the Amended and Restated Declaration of Trust of the Trust relating to the 9.25% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest. 4.1 Third Supplemental Indenture, dated as of April 20, 1999, between the Operating Partnership, as Issuer, and First Chicago, as Trustee, supplementing the Senior Indenture, dated as of October 24, 1997, between the Operating Partnership, as Obligor, and First Chicago, as Trustee. 10.1 Liberty Property Trust Amended and Restated Share Incentive Plan. 27 Financial Data Schedule (EDGAR VERSION ONLY) - -31- EX-3 2 Exhibit 3.1.1 FIRST AMENDMENT TO SECOND RESTATED AND AMENDED AGREEMENT OF LIMITED PARTNERSHIP OF LIBERTY PROPERTY LIMITED PARTNERSHIP THIS FIRST AMENDMENT TO THE SECOND RESTATED AND AMENDED AGREEMENT OF LIMITED PARTNERSHIP (this "Amendment") dated as of July 28, 1999, is entered into by LIBERTY PROPERTY TRUST, a Maryland real estate investment trust, as general partner (the "General Partner") of LIBERTY PROPERTY LIMITED PARTNERSHIP (the "Partnership"), for itself and on behalf of the limited partners of the Partnership, and BELAIR REAL ESTATE CORPORATION ("Belair") and BELCREST REALTY CORPORATION ("Belcrest"). WHEREAS, Section 4.2(a) of the Second Restated and Amended Agreement of Limited Partnership of the Partnership (the "Partnership Agreement") authorizes the General Partner to cause the Partnership to issue additional Partnership Units in one or more classes or series, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the General Partner, subject to the provisions of such section; and WHEREAS, pursuant to the authority granted to the General Partner pursuant to Sections 4.2(a) and 14.1(b) of the Partnership Agreement, the General Partner desires to amend the Partnership Agreement (i) to establish a new class of Partnership Units, the Series B Preferred Units (as hereinafter defined), and to set forth the designations, rights, powers, preferences and duties of such Series B Preferred Units, (ii) to issue the Series B Preferred Units to Belair and Belcrest and admit Belair and Belcrest as Additional Limited Partners and (iii) to make certain other changes to the Partnership Agreement. NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the General Partner hereby amends the Partnership Agreement as follows: Section 1. Definitions. For purposes of this Amendment, the term "Parity Preferred Units" shall be used to refer to any class or series of Partnership Interests of the Partnership now or hereafter authorized, issued or outstanding expressly designated by the Partnership to rank on a parity with Series B Preferred Units with respect to distributions and rights upon voluntary or involuntary liquidation, winding-up or dissolution of the Partnership including, without limitation, the "8.80% Series A Cumulative Redeemable Preferred Partnership Interests". The term "Priority Return" shall mean, an amount equal to 9.25% per annum, as the same may be adjusted pursuant to Section 3(a) below, determined on the basis of a 360 day year of twelve 30 day months (and for any period shorter than a full quarterly period for which distributions are computed, the amount of the distribution payable will be computed based on the ratio of the actual number of days elapsed in such period to ninety (90) days), cumulative to the extent not distributed for any given distribution period pursuant to Section 6.2 of the Partnership Agreement, of the stated value of $ 25 per Series B Preferred Unit, commencing on the date of issuance of such Series B Preferred Unit. The term "Subsidiary" shall mean with respect to any person, any corporation, partnership, limited liability company, joint venture or other entity of which a majority of (i) voting power of the voting equity securities or (ii) the outstanding equity interests, is owned, directly or indirectly, by such person. The term "PTP" shall mean a "publicly traded partnership" within the meaning of Section 7704 of the Code. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Partnership Agreement. Section 2. Designation and Number. A series of Partnership Interests in the Partnership designated as the "9.25% Series B Cumulative Redeemable Preferred Partnership Interests" (the "Series B Preferred Units") is hereby established. The maximum number of Series B Preferred Units shall be 3,800,000. Section 3. (a) Payment of Distributions. (i) Subject to the rights of holders of Parity Preferred Units and holders of Partnership Interests ranking senior to the Series B Preferred Units as to payment of distributions, pursuant to Section 6.2 of the Partnership Agreement, holders of Series B Preferred Units will be entitled to receive, when, as and if declared by the Partnership acting through the General Partner, out of Net Operating Cash Flow, cumulative preferential cash distributions at the rate per annum of 9.25% of the original Capital Contribution per Series B Preferred Unit (the "Issuance Rate"). (ii) In the event that on or prior to March 31, 2000 the General Partner's outstanding preferred stock shall have either an unconditional, published (A) rating by Standard and Poor's Rating Group ("Standard and Poor's") of at least "BBB-" or (B) rating by Moody's Investors Service, Inc. ("Moody's") of at least "baa3", then, beginning on the date on which either of such foregoing conditions is met, the rate per annum of the cumulative preferential cash distribution on the Series B Preferred Units shall be 8.95% of the original Capital Contribution per Series B Preferred Unit (the "Revised Rate"), in which case the designation of the Series B Preferred Units will change accordingly to reflect such new distribution rate; provided, that, if neither (A) Standard & Poor's unconditional published rating of at least "BBB-" nor (B) Moody's rating of at least "baa3" shall remain in effect on March 31, 2000, then the Revised Rate herein provided shall be void ab initio and the Partnership shall pay on March 31, 2000, in addition to the distribution then due to the holders of the Series B Preferred Units, the difference between (1) the distribution that would have accrued at the Issuance Rate during the current and any prior quarterly distribution period and (2) the distribution that actually accrued during such distribution periods at the voided Revised Rate and, if applicable the Second Revised Rate (as defined below). (iii) In the event that on or prior to March 31, 2000 the General Partner's outstanding preferred stock shall have both an unconditional, published (A) Standard & Poor's rating of at least "BBB-" and (B) Moody's rating of at least "baa3", then beginning on the date on which each of such foregoing conditions are met, the rate per annum of the cumulative preferential cash distributions on the Series B Preferred Shares shall be 8.75% of the original Capital Contribution per Series B Preferred Unit (the "Second Revised Rate"), in which case the designation of the Series B Preferred Units will change accordingly to reflect such new distribution rate; provided, that, if either (A) Standard & Poor's unconditional published rating of at least "BBB-" or (B) Moody's rating of at least "baa3", shall no longer be in effect on March 31, 2000, then the Second Revised Rate herein provided shall be void ab initio and the Partnership shall pay on March 31, 2000, in addition to the distribution then due to the holders of the Series B Preferred Units, the difference between (1) the distribution that would have accrued at the Issuance Rate (or, if in effect on March 31, 2000 pursuant to Section 3(a)(ii) above, the Revised Rate) during the current and any prior quarterly distribution period and (2) the distribution that actually accrued during such distribution periods at the voided Second Revised Rate. (iv) Promptly after April 1, 2000 the parties hereto shall execute, acknowledge and deliver or cause to be executed acknowledged and delivered all instruments and documents as may be reasonably necessary or desirable to memorialize distribution rate revised in accordance with Sections 3(a)(ii) and 3(a)(iii) above and in effect on the effective date of the change. (v) All distributions shall be cumulative, shall accrue from the original date of issuance and will be payable (i) quarterly in arrears, on or before March 31, June 30, September 30 and December 31 of each year commencing on September 30, 1999 for the quarterly period then ended, and, (ii), in the event of (A) an exchange of Series B Preferred Units into Series B Preferred Shares, or (B) a redemption of Series B Preferred Units, on the exchange date or redemption date, as applicable (each a "Preferred Unit Distribution Payment Date"). The amount of the distribution payable for any period will be computed on the basis of a 360-day year of twelve 30-day months and for any period shorter than a full quarterly period for which distributions are computed, the amount of the distribution payable will be computed based on the ratio of the actual number of days elapsed in such period to ninety (90) days. If any date on which distributions are to be made on the Series B Preferred Units is not a Business Day (as defined herein), then payment of the distribution to be made on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. Distributions on the Series B Preferred Units will be made to the holders of record of the Series B Preferred Units on the relevant record dates to be fixed by the Partnership acting through the General Partner, which record dates shall in no event exceed fifteen (15) Business Days prior to the relevant Preferred Unit Distribution Payment Date (the "Preferred Unit Partnership Record Date"). The term "Business Day" shall mean each day, other than a Saturday or a Sunday, which is not a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to close. (b) Distributions Cumulative. Distributions on the Series B Preferred Units will accrue whether or not the terms and provisions of any agreement of the Partnership, including any agreement relating to its indebtedness at any time prohibit the declaration, setting aside for payment or current payment of distributions, whether or not the Partnership has earnings, whether or not there are funds legally available for the payment of such of such distributions and whether or not such distributions are authorized. Accrued but unpaid distributions on the Series B Preferred Units will accumulate as of the Preferred Unit Distribution Payment Date on which they first become payable. Distributions on account of arrears for any past distribution periods may be declared and paid at any time, without reference to a regular Preferred Unit Distribution Payment Date to holders of record of the Series B Preferred Units on the record date fixed by the Partnership acting through the General Partner, which date shall not exceed fifteen (15) Business Days prior to the payment date. Accumulated and unpaid distributions will not bear interest. (c) Priority as to Distributions. (i) So long as any Series B Preferred Units are outstanding, no distribution of cash or other property shall be authorized, declared, paid or set apart for payment on or with respect to any class or series of Partnership Interest of the Partnership ranking junior as to the payment of distributions or rights upon a voluntary or involuntary liquidation, dissolution or winding-up of the Partnership to the Series B Preferred Units (collectively, "Junior Units"), nor shall any cash or other property be set aside for or applied to the purchase, redemption or other acquisition for consideration of any Series B Preferred Units, any Parity Preferred Units or any Junior Units, unless, in each case, all distributions accumulated on all Series B Preferred Units and all classes and series of outstanding Parity Preferred Units have been paid in full or a sum sufficient for such full payment has been irrevocably deposited in trust for immediate payment. The foregoing sentence will not prohibit (a) distributions payable solely in Junior Units, (b) the conversion of Junior Units or Parity Preferred Units into Partnership Interests of the Partnership ranking junior to the Series B Preferred Units as to distributions and rights upon the voluntary or involuntary liquidation, dissolution or winding up of the Partnership, (c) the redemption of Partnership Interests corresponding to any Series B Preferred Shares, Parity Preferred Shares with respect to distributions or Junior Shares to be purchased by the General Partner pursuant to Article VII of the Amended and Restated Declaration of Trust of the General Partner (as amended and modified through the date hereof, the "Charter") to preserve the General Partner's status as a real estate investment trust, provided that such redemption shall be upon the same terms as the corresponding purchase pursuant to Article VII of the Charter or (d) the foreclosure by the Partnership on the Partnership Interests constituting the Indemnity Collateral and/or the Special Indemnity Collateral (as defined in Section 13.3 of the Partnership Agreement). (ii) So long as distributions have not been paid in full (or a sum sufficient for such full payment is not irrevocably deposited in trust for immediate payment) upon the Series B Preferred Units, all distributions authorized and declared on the Series B Preferred Units and all classes or series of outstanding Parity Preferred Units shall be authorized and declared so that the amount of distributions authorized and declared per Series B Preferred Unit and such other classes or series of Parity Preferred Units shall in all cases bear to each other the same ratio that accrued distributions per Series B Preferred Unit and such other classes or series of Parity Preferred Units (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such class or series of Parity Preferred Units do not have cumulative distribution rights) bear to each other. No interest or any sum of money in lieu of interest shall be payable in respect of any distribution, payment or payments on Series B Preferred Units which may be in arrears. (d) No Further Rights. Holders of Series B Preferred Units shall not be entitled to any distributions, whether payable in cash, other property or otherwise, in excess of the full cumulative distributions described herein. Section 4. Allocations. Section 1 of Exhibit C to the Partnership Agreement is hereby deleted and replaced by the following: (a) Net Income. Except as otherwise provided herein, Net Income for any fiscal year or other applicable period shall be allocated in the following order and priority: (i) first, to the General Partner to the extent of Net Loss previously allocated to the General Partner pursuant to Section 1(b)(iii) below for all prior fiscal years or other applicable periods exceed Net Income previously allocated to the General Partner pursuant to this Section 1(a)(i) for all prior fiscal years or other applicable periods, (ii) second, to Partners holding any Partnership Interests that are entitled to any preference in distribution to the extent that Net Loss previously allocated to such holders pursuant to Section 1(b)(ii) below for all prior fiscal years or other applicable periods exceeds Net Income previously allocated to such Partners pursuant to this Section 1(a)(ii) for all prior fiscal years or other applicable periods, (iii) third, to Partners holding Partnership Interests of a class not entitled to preference in distribution to the extent that Net Loss previously allocated to such holders pursuant to Section 1(b)(i) below for all prior fiscal years or other applicable periods exceeds Net Income previously allocated to such holders pursuant to this Section 1(a)(iii) for all prior fiscal years or other applicable periods, (iv) fourth, to Partners holding any Partnership Interests that are entitled to any preference in distribution in accordance with the rights of any such class of Partnership Interests until each such Partnership Interest has been allocated, Net Income equal to the excess of (x) the cumulative amount of preferred distributions such Partners are entitled to receive to the last day of the current fiscal year or other applicable period or to the date of redemption, to the extent such Partnership Interests are redeemed during such period, over (y) the cumulative Net Income allocated to such Partners, pursuant to this Section 1(a)(iv) for all prior fiscal years or other applicable periods (and, within each such class, pro rata in proportion to the respective share of such Partnership Interests each Partner holds as of the last day of the period for which such allocation is being made), and (v) fifth, with respect to Partnership Interests that are not entitled to any preference in the allocation of Net Income, pro rata to each such class in accordance with the terms of such class (and, within each such class, pro rata in proportion to each Partner's respective share of such Partnership Interests as of the last day of the period for which such allocation is being made). B. Net Loss. Except as otherwise provided herein, Net Loss for any fiscal year or other applicable period shall be allocated in the following order and priority: (i) first, with respect to classes of Partnership Interests that are not entitled to any preference in distribution (including the General Partner Interest), pro rata to each such class in accordance with the terms of such class (and, within such class, pro rata in proportion to each Partner's respective share of such Partnership Interests as of the last day of the period for which such allocation is being made) until the Adjusted Capital Account (ignoring for this purpose any amounts a Partner is obligated to contribute to the capital of the Partnership or is deemed obligated to contribute pursuant to Regulations Section 1.704-1(b)(2)(ii)(c)(2)) of each Partner with respect to such Partnership Interests is reduced to zero, (ii) second, to the Partners holding any Partnership Interests that are entitled to any preference in distribution in accordance with the rights of any such class of Partnership Interests (and, if there is more than one class of such Partnership Interests, then in the reverse order of their preference in distribution), until the Adjusted Capital Account (modified in the same manner as in clause (i)) of each such Partner with respect to such Partnership Interests is reduced to zero, and (iii) third, to the General Partner. To the extent permitted under Section 704 of the Code, solely for purposes of allocating Net Income or Net Loss in any taxable year (or a portion thereof) to Partners holding Series B Preferred Units pursuant to Section 1 hereof, items of Net Income or Net Loss, as the case may be, shall not include Depreciation with respect to properties that are "ceiling limited" in respect of holders of Series B Preferred Units. For purposes of the preceding sentence, Partnership property shall be considered "ceiling limited" in respect of a holder of Series B Preferred Units if Depreciation attributable to such Partnership property which would otherwise be allocable to such Partner, without regard to this paragraph, exceeds depreciation determined for federal income tax purposes attributable to such Partnership property which would otherwise be allocable to such holder by more than 5%. Notwithstanding the foregoing sentences in this paragraph, in applying this paragraph, the General Partner may, in its discretion for administrative ease and convenience, calculate Net Income or Net Loss in any taxable year (or a portion thereof) allocable to the Partners holding Series B Preferred Units by excluding Depreciation with respect to all properties of the Partnership. It is the intention of the parties hereunder that the aggregate Capital Account balance of the holders of Series B Preferred Units at any date shall not exceed the amount of the original Capital Contribution of such holder plus the cumulative Priority Return, whether or not declared, to the extent not previously distributed. Section 5. Liquidation Proceeds. (a) Upon any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Partnership, distributions on the Series B Preferred Units shall be made in accordance with Section 8.2 of the Partnership Agreement, as hereby amended by inserting the following at the end of Section 8.2(c): "Immediately prior to the foregoing distributions, the General Partner shall have made adjustments to Capital Accounts of the Partners to reflect the fair market value of the Partnership assets as of the date of the Partnership's liquidation in a manner consistent with Treasury regulations Section 1.704-1(b)(2)(iv)(f)." (b) Notice. Written notice of any such voluntary or involuntary liquidation, dissolution or winding-up of the Partnership, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by (i) fax and (ii) by first class mail, postage pre-paid, not less than twenty [20] and not more than sixty (60) days prior to the payment date stated therein, to each record holder of the Series B Preferred Units at the respective addresses of such holders as the same shall appear on the transfer records of the Partnership. (c) No Further Rights. After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series B Preferred Units will have no right or claim to any of the remaining assets of the Partnership. (d) Consolidation, Merger or Certain Other Transactions. The consolidation or merger of the Partnership with or into any other corporation, trust, partnership, limited liability company or other entity (or of any other corporation, trust, partnership, limited liability company or other entity with or into the Partnership), or the sale, lease, exchange, transfer or conveyance of all or substantially all of the property or business of the Partnership shall not be deemed to constitute a liquidation, dissolution or winding-up of the Partnership. Section 6. Optional Redemption. (a) Right of Optional Redemption. The Series B Preferred Units may not be redeemed prior to the fifth (5th) anniversary of the issuance date. On or after such date, the Partnership at its sole option shall have the right to redeem the Series B Preferred Units, in whole or in part, at any time or from time to time, upon not less than thirty (30) nor more than sixty (60) days' written notice, at a redemption price, payable in cash, equal to the Capital Account balance of the holders of Series B Preferred Units (the "Series B Redemption Price"); provided, however, that no redemption pursuant to this Section 6 will be permitted if the Redemption Price does not equal or exceed the original Capital Contribution of such holder plus the cumulative Priority Return, whether or not declared, to the redemption date to the extent not previously distributed. If fewer than all of the outstanding Series B Preferred Units are to be redeemed, the Series B Preferred Units to be redeemed shall be selected pro rata (as nearly as practicable without creating fractional units). (b) Limitation on Redemption. (i) The Redemption Price of the Series B Preferred Units (other than the portion thereof consisting of accumulated but unpaid distributions) will be payable solely out of the sale proceeds of capital stock of the General Partner, which will be contributed by the General Partner to the Partnership as additional capital contribution, or out of the sale of limited partner interests in the Partnership and from no other source. For purposes of the preceding sentence, "capital stock" means any equity securities (including Common Shares and Preferred Shares (as such terms are defined in the Charter)), shares, participation or other ownership interests (however designated) and any rights (other than debt securities convertible into or exchangeable for equity securities) or options to purchase any of the foregoing. (ii) The Partnership may not redeem fewer than all of the outstanding Series B Preferred Units unless all accumulated and unpaid distributions have been paid or contemporaneously are authorized and paid (or authorized and a sum sufficient for the full payment thereof is irrevocably deposited in trust for immediate payment) on all Series B Preferred Units for all quarterly distribution periods terminating on or prior to the date of redemption. (c) Procedures for Redemption. (i) Notice of redemption will be (A) faxed, and (B) mailed by the Partnership, by certified mail, postage prepaid, not less than thirty (30) nor more than sixty (60) days prior to the redemption date, addressed to the respective holders of record of the Series B Preferred Units at their respective addresses as they appear on the records of the Partnership. No failure to give or defect in such notice or in the transmission thereof shall affect the validity of the proceedings for the redemption of any Series B Preferred Units except as to the holder to whom such notice was defective or not given or received. In addition to any information required by law, each such notice shall state: (1) the redemption date, (2) the Redemption Price, (3) the aggregate number of Series B Preferred Units to be redeemed and if fewer than all of the outstanding Series B Preferred Units are to be redeemed, the number of Series B Preferred Units to be redeemed held by such holder, which number shall equal such holder's pro rata share (based on the percentage of the aggregate number of outstanding Series B Preferred Units the total number of Series B Preferred Units held by such holder represents) of the aggregate number of Series B Preferred Units to be redeemed, (4) the place or places where the Series B Preferred Units are to be surrendered for payment of the Redemption Price, (5) that distributions on the Series B Preferred Units to be redeemed will cease to accumulate on such redemption date and (6) that payment of the Redemption Price will be made upon presentation and surrender of such Series B Preferred Units. (ii) If the Partnership gives a notice of redemption in respect of Series B Preferred Units (which notice will be irrevocable) then, by 12:00 noon, New York City time, on the redemption date, the Partnership will deposit irrevocably in trust for the benefit of the Series B Preferred Units being redeemed funds sufficient to pay the applicable Redemption Price and will give irrevocable instructions and authority to pay such Redemption Price to the holders of the Series B Preferred Units upon surrender of the Series B Preferred Units by such holders at the place designated in the notice of redemption. If the Series B Preferred Units are evidenced by a certificate and if fewer than all Series B Preferred Units evidenced by any certificate are being redeemed, a new certificate shall be issued upon surrender of the certificate evidencing all Series B Preferred Units, evidencing the unredeemed Series B Preferred Units without cost to the holder thereof. On and after the date of redemption, distributions will cease to accumulate on the Series B Preferred Units or portions thereof called for redemption, unless the Partnership defaults in the payment thereof. If any date fixed for redemption of Series B Preferred Units is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If payment of the Redemption Price is improperly withheld or refused and not paid by the Partnership, distributions on such Series B Preferred Units will continue to accumulate from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the applicable Redemption Price. Section 7. Voting Rights. (a) General. Holders of the Series B Preferred Units will not have any voting rights or right to consent to any matter requiring the consent or approval of the Limited Partners, except as set forth below. (b) Certain Voting Rights. So long as any Series B Preferred Units remain outstanding, the Partnership shall not, without the affirmative vote of the holders of at least two-thirds of the Series B Preferred Units outstanding at the time (i) (A) authorize or create, or increase the authorized or issued amount of, any class or series of Partnership Interests senior to the Series B Preferred Units with respect to payment of distributions or rights upon liquidation, dissolution or winding-up, (B) reclassify any Partnership Interests of the Partnership into any such senior Partnership Interest, or (C) create, authorize or issue any obligations or security convertible into or evidencing the right to purchase any such senior Partnership Interests, (ii) (A) authorize or create, or increase the authorized or issued amount of any Parity Preferred Units, (B) reclassify any Partnership Interest into a Parity Preferred Unit, or (C) create, authorize or issue any obligations or security convertible into or evidencing the right to purchase any Parity Preferred Unit; provided, that restrictions contained in this clause (ii) of this Paragraph (b) shall apply only to Parity Preferred Units that are issued to an Affiliate of the Partnership other than on arm's length terms; and to no other issuance, including, without limitation, an issuance to the General Partner, the purpose of which is to allow the General Partner to issue corresponding preferred Shares to persons who are not Affiliates of the Partnership or (iii) either (A) consolidate or merge into or with any corporation or other entity or (B) amend, alter or repeal the provisions of the Partnership Agreement, whether by merger or consolidation or otherwise, in such a way that would materially and adversely affect the powers, special rights, preferences, privileges or voting power of the Series B Preferred Units or the holders thereof; provided, however, that with respect to the occurrence of a merger or consolidation, so long as (1) the Partnership is the surviving entity and the Series B Preferred Units remain outstanding with the terms thereof unchanged, or (2) the resulting, surviving or transferee entity is a partnership, limited liability company or other pass-through entity organized under the laws of any state, and such entity substitutes for the Series B Preferred Units other interests in such entity having substantially the same terms and rights as the Series B Preferred Units, including with respect to distributions, voting rights and rights upon liquidation, dissolution or winding-up, then the occurrence of any such event shall not be deemed to materially and adversely affect the rights, privileges or voting powers of the holders of the Series B Preferred Units; provided, further, that any increase in the amount of Partnership Interests or the creation or issuance of any other class or series of Partnership Interests, shall not be deemed to materially and adversely affect the rights, preferences, privileges or voting powers of the Series B Preferred Units, if such Partnership Units rank (y) junior to the Series B Preferred Units with respect to payment of distributions or the distribution of assets upon liquidation, dissolution or winding up, or (z) on a parity with the Series B Preferred Units with respect to payment of distributions or the distribution of assets upon liquidation, dissolution or winding-up; provided, that any Preferred Units issued in reliance on the preceding clause (z) shall have been issued to an Affiliate of the Partnership on arm's length terms, or to the General Partner in order to allow the General Partner to issue corresponding preferred Shares to persons who are not Affiliates of the Partnership. In the event of any conflict or inconsistency between this Section 7 and Article XIV of the Partnership Agreement, this Section 7 shall control. Section 8. Transfer Restrictions. The Series B Preferred Units shall be subject to the provisions of Article IX of the Partnership Agreement, provided, however that (a) the General Partner shall act reasonably in exercising its discretion pursuant to the provisions of Sections 9.2(a) and 9.2(c) and shall not withhold its consent to any transfer to any Person, and the admission of such Person as a Substituted Limited Partner, which Person does not violate the requirements of Section 9.3 and such transfers do not cause the total number of holders of Series B Preferred Units which would be considered partners under Treasury Regulation Section 1.7704-1(h)(3), at any time the Partnership is satisfying the private placement safe harbor of Treasury Regulation Section 1.7704-1(h) to exceed the lesser of (i) (A) four (4) through December 31, 1999 and (B) six (6) after December 31, 1999 and (ii) the maximum number that would permit the Partnership to continue to satisfy such safe harbor (but substituting "90" for "100" in assessing the status of such safe harbor) and (b) the term "transfer" when used in Article IX shall not be deemed to include any exchange pursuant to Section 9 below. Section 9. Exchange Rights. (a) Right to Exchange. (i) Series B Preferred Units will be exchangeable in whole or in part at anytime on or after the tenth (10th) anniversary of the date of issuance, at the option of the holders thereof, for authorized but previously unissued shares of 9.25% Series B Cumulative Redeemable Preferred Shares of the General Partner (the "Series B Preferred Shares") at an exchange rate of one Series B Preferred Share for one Series B Preferred Unit, subject to adjustment as described below (the "Exchange Price"), provided that the Series B Preferred Units will become exchangeable at any time, in whole or in part, at the option of the holders of Series B Preferred Units for Series B Preferred Shares if (x) at any time full distributions shall not have been timely made on any Series B Preferred Unit with respect to six (6) prior quarterly distribution periods, whether or not consecutive, provided, however, that a distribution in respect of Series B Preferred Units shall be considered timely made if made within two (2) Business Days after the applicable Preferred Unit Distribution Payment Date if at the time of such late payment there shall not be any prior quarterly distribution periods in respect of which full distributions were not timely made or upon receipt by a holder or holders of Series B Preferred Units of (1) notice from the General Partner that the General Partner or a Subsidiary of the General Partner has taken the position that the Partnership is, or upon the occurrence of a defined event in the immediate future will be, a PTP and (2) an opinion rendered by an outside nationally recognized independent counsel familiar with such matters addressed to a holder or holders of Series B Preferred Units, that the Partnership is or likely is, or upon the occurrence of a defined event in the immediate future will be or likely will be, a PTP. In addition, the Series B Preferred Units may be exchanged for Series B Preferred Shares, in whole or in part, at the option of any holder prior to the tenth (10th) anniversary of the issuance date and after the third (3rd) anniversary thereof if such holder of a Series B Preferred Units shall deliver to the General Partner either (i) a private letter ruling addressed to such holder of Series B Preferred Units or (ii) an opinion of independent counsel reasonably acceptable to the General Partner based on the enactment of temporary or final Treasury Regulations or the publication of a Revenue Ruling, in either case to the effect that an exchange of the Series B Preferred Units at such earlier time would not cause the Series B Preferred Units to be considered "stock and securities" within the meaning of section 351(e) of the Code for purposes of determining whether the holder of such Series B Preferred Units is an "investment company" under section 721(b) of the Code if an exchange were to occur at such time. Furthermore, the Series B Preferred Units may be exchanged in whole but not in part by any holder thereof which is a real estate investment trust within the meaning of Sections 856 through 859 of the Code for Series B Preferred Shares (but only if the exchange in whole may be accomplished consistently with the ownership limitations set forth under Article VII of the Charter (taking into account exceptions thereto and exemptions therefrom)) if at any time, (i) the Partnership reasonably determines that the assets and income of the Partnership for a taxable year after 1999 would not satisfy the income and assets tests of Section 856 of the Code for such taxable year if the Partnership were a real estate investment trust within the meaning of the Code or (ii) any such holder of Series B Preferred Units shall deliver to the Partnership and the General Partner an opinion of independent counsel reasonably acceptable to the General Partner to the effect that, based on the assets and income of the Partnership for a taxable year after 1999, the Partnership would not satisfy the income and assets tests of Section 856 of the Code for such taxable year if the Partnership were a real estate investment trust within the meaning of the Code and that such failure would create a meaningful risk that a holder of the Series B Preferred Units would fail to maintain qualification as a real estate investment trust. (ii) Notwithstanding anything to the contrary set forth in Section 9(a)(i) hereof, if an Exchange Notice (as defined herein) has been delivered to the General Partner, then the General Partner may, at its option, elect to redeem or cause the Partnership to redeem all or a portion of the outstanding Series B Preferred Units for cash in an amount equal to the original Capital Contribution per Series B Preferred Unit plus all accrued and unpaid distributions thereon to the date of redemption. The General Partner may exercise its option to redeem the Series B Preferred Units for cash pursuant to this Section 9(a)(ii) hereof by giving each holder of record of Series B Preferred Units notice of its election to redeem for cash, within ten (10) Business Days after receipt of the Exchange Notice, by (m) fax, and (n) registered mail, postage paid, at the address of each holder as it may appear on the records of the Partnership stating (A) the redemption date, which shall be no later than sixty (60) days following the receipt of the Exchange Notice, (B) the redemption price, (C) the place or places where the Series B Preferred Units are to be surrendered for payment of the redemption price, (D) that distributions on the Series B Preferred Units will cease to accrue on such redemption date; (E) that payment of the redemption price will be made upon presentation and surrender of the Series B Preferred Units and (F) the aggregate number of Series B Preferred Units to be redeemed, and if fewer than all of the outstanding Series B Preferred Units are to be redeemed, the number of Series B Preferred Units to be redeemed held by such holder, which number shall equal such holder's pro-rata share (based on the percentage of the aggregate number of outstanding Series B Preferred Units the total number of Series B Preferred Units held by such holder represents) of the aggregate number of Series B Preferred Units being redeemed. (iii) In the event an exchange of all or a portion of Series B Preferred Units pursuant to Section 9(a)(i) hereof would violate the provisions on ownership limitation of the General Partner set forth in Article VII of the Charter with respect to the Series B Preferred Shares, the General Partner shall give written notice thereof to each holder of record of Series B Preferred Units, within five (5) Business Days following receipt of the Exchange Notice, by (m) fax, and (n) registered mail, postage prepaid, at the address of each such holder set forth in the records of the Partnership. In such event, each holder of Series B Preferred Units shall be entitled to exchange, pursuant to the provision of Section 9(b) a number of Series B Preferred Units which would comply with the provisions on the ownership limitation of the General Partner set forth in Article VII of the Charter and any Series B Preferred Units not so exchanged (the "Excess Units") shall be redeemed by the Partnership for cash in an amount equal to the original Capital Contribution per Excess Unit, plus any accrued and unpaid distributions thereon, whether or not declared, to the date of redemption. The written notice of the General Partner shall state (A) the number of Excess Units held by such holder, (B) the redemption price of the Excess Units, (C) the date on which such Excess Units shall be redeemed, which date shall be no later than sixty (60) days following the receipt of the Exchange Notice, (D) the place or places where such Excess Units are to be surrendered for payment of the Redemption Price, (E) that distributions on the Excess Units will cease to accrue on such redemption date, and (F) that payment of the redemption price will be made upon presentation and surrender of such Excess Units. In the event an exchange would result in Excess Units, as a condition to such exchange, each holder of such units agrees to provide representations and covenants reasonably requested by the General Partner relating to (1) the widely held nature of the interests in such holder, sufficient to assure the General Partner that the holder's ownership of shares of beneficial interest of the General Partner (without regard to the limits described above) will not cause any individual to Beneficially Own in excess of the Ownership Limit (all as defined in the Charter); and (2) to the extent such holder can so represent and covenant without obtaining information from its owners, the holder's ownership of tenants of the Partnership and its affiliates. (iv) The redemption of Series B Preferred Units described in Sections 9(a)(ii) and (iii) hereof shall be subject to the provisions of Sections 6(b)(i) and 6(c)(ii) hereof; provided, however, that the term "Redemption Price" in such Section shall be read to mean the original Capital Contribution per Series B Preferred Unit being redeemed plus all accrued and unpaid distributions to the redemption date. (b) Procedure for Exchange. (i) Any exchange shall be exercised pursuant to a notice of exchange (the "Exchange Notice") delivered to the General Partner by the holder who is exercising such exchange right, by (A) fax and (B) by certified mail postage prepaid. The exchange of Series B Preferred Units, or a specified portion thereof, may be effected after the fifth (5th) Business Day following receipt by the General Partner of the Exchange Notice by delivering certificates, if any, representing such Series B Preferred Units to be exchanged together with, if applicable, written notice of exchange and a proper assignment of such Series B Preferred Units to the office of the General Partner maintained for such purpose. Currently, such office is 65 Valley Stream Parkway, Malvern, Pennsylvania 19355. Each exchange will be deemed to have been effected immediately prior to the close of business on the date on which such Series B Preferred Units to be exchanged (together with all required documentation) shall have been surrendered and notice shall have been received by the General Partner as aforesaid and the Exchange Price shall have been paid. Any Series B Preferred Shares issued pursuant to this Section 9 shall be delivered as shares which are duly authorized, validly issued, fully paid and nonassessable, free of pledge, lien, encumbrance or restriction other than those provided in the Charter, the Bylaws of the General Partner, the Securities Act and relevant state securities or blue sky laws. (ii) In the event of an exchange of Series B Preferred Units for shares of Series B Preferred Shares, an amount equal to the accrued and unpaid distributions, whether or not declared, to the date of exchange on any Series B Preferred Units tendered for exchange shall (A) accrue on the Series B Preferred Shares into which such Series B Preferred Units are exchanged, and (B) continue to accrue on such Series B Preferred Units, which shall remain outstanding following such exchange, with the General Partner as the holder of such Series B Preferred Units. Notwithstanding anything to the contrary set forth herein, in no event shall a holder of a Series B Preferred Unit that was validly exchanged into Series B Preferred Shares pursuant to this Section 9 (other than the General Partner now holding such Series B Preferred Unit), receive a cash distribution out of Available Cash of the Partnership, if such holder, after exchange, is entitled to receive a distribution out of Available Cash with respect to the Series B Preferred Shares for which such Series B Preferred Unit was exchanged or redeemed. (iii) Fractional shares of Series B Preferred Shares are not to be issued upon exchange but, in lieu thereof, the General Partner will pay a cash adjustment based upon the fair market value of the Series B Preferred Shares on the day prior to the exchange date as determined in good faith by the Board of Directors of the General Partner. (c) Adjustment of Exchange Price. (i) The Exchange Price is subject to adjustment upon certain events, including, (A) subdivisions, combinations and reclassification of the Series B Preferred Shares, and (B) distributions to all holders of Series B Preferred Shares of evidence of indebtedness of the General Partner or assets (including securities, but excluding dividends and distributions paid in cash out of equity applicable to Series B Preferred Shares). (ii) In case the General Partner shall be a party to any transaction (including, without limitation, a merger, consolidation, statutory share exchange, tender offer for all or substantially all of the General Partner's capital stock or sale of all or substantially all of the General Partner's assets), in each case as a result of which the Series B Preferred Shares will be converted into the right to receive shares of capital stock, other securities or other property (including cash or any combination thereof), each Series B Preferred Unit will thereafter be exchangeable into the kind and amount of shares of capital stock and other securities and property receivable (including cash or any combination thereof) upon the consummation of such transaction by a holder of that number of Series B Preferred Shares or fraction thereof into which one Series B Preferred Unit was exchangeable immediately prior to such transaction. The General Partner may not become a party to any such transaction unless the terms thereof are consistent with the foregoing. (d) No Rights Under Article XI. Holders of Series B Preferred Units shall not be entitled to any "Rights" provided to Limited Partners pursuant to Article XI of the Partnership Agreement. Section 10. No Conversion Rights. The holders of the Series B Preferred Units shall not have any rights to convert such shares into shares of any other class or series of shares or into any other securities of, or interest in, the Partnership. Section 11. No Sinking Fund. No sinking fund shall be established for the retirement or redemption of Series B Preferred Units. Section 12. Admission of Limited Partners; Exhibits to Partnership. In accordance with Section 4.1 of the Partnership Agreement, Belair and Belcrest are hereby admitted as Additional Partners. Exhibit A to the Partnership Agreement is hereby amended to reflect the issuance of the Series B Preferred Units provided for herein. Section 13. Miscellaneous. The parties hereto agree that the holders of Series B Preferred Units shall not be deemed "Limited Partners" for the purpose of calculating the ownership level of limited partners as contemplated by Section 7.2 of the Partnership Agreement. Section 14. Reaffirmation. Except as modified herein, all terms and conditions of the Partnership Agreement shall remain in full force and effect, which terms and conditions the General Partner hereby ratifies and affirms. IN WITNESS WHEREOF, this Amendment has been executed as of the date first above written. LIBERTY PROPERTY TRUST By: /s/ George J. Alburger, Jr. --------------------------------------- Name: George J. Alburger, Jr. Title: Chief Financial Officer BELCREST REALTY CORPORATION By: /s/ Thomas E. Faust, Jr. -------------------------------------- Name: Thomas E. Faust, Jr. Title: Executive Vice President BELAIR REAL ESTATE CORPORATION By: /s/ Thomas E. Faust, Jr. -------------------------------------- Name: Thomas E. Faust, Jr. Title: Executive Vice President EX-3 3 Exhibit 3.1.2 LIBERTY PROPERTY TRUST ARTICLES SUPPLEMENTARY 3,800,000 SHARES 9.25% SERIES B CUMULATIVE REDEEMABLE PREFERRED SHARES OF BENEFICIAL INTEREST Liberty Property Trust, a Maryland real estate investment trust (the "Company"), hereby certifies to the State Department of Assessments and Taxation of Maryland (the "Department") that: FIRST: Pursuant to the authority expressly vested in the Board of Trustees of the Company by Sections 3.2(e), 6.1 and 6.3 of the Amended and Restated Declaration of Trust of the Company filed with the Department on May 29, 1997, as supplemented by the Articles Supplementary accepted for record by the Department on August 7, 1997 and by the Articles Supplementary accepted for record by the Department on December 23, 1997 (the "Charter") and Section 8-203 of the Corporations and Associations Article of the Annotated Code of Maryland, the Board of Trustees of the Company (the "Board"), by resolutions duly adopted on July 15, 1999, has classified 3,800,000 shares of the 195,000,000 authorized but unissued shares of beneficial interest in the Company as a series designated the 9.25% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest with the following preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, terms and conditions of redemption and other terms and conditions: Section 1. Designation and Number. A series of preferred shares of beneficial interest of the Company, designated the "9.25% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest" (the "Series B Preferred Shares") is hereby established. The number of Series B Preferred Shares shall be 3,800,000. Section 2. Rank. The Series B Preferred Shares will, with respect to distributions and rights upon voluntary or involuntary liquidation, winding-up or dissolution of the Company, rank senior to all classes or series of Common Shares (as defined in the Charter) and to all classes or series of equity securities of the Company now or hereafter authorized, issued or outstanding including, without limitation, the "Series A Junior Participating Preferred Shares," other than any class or series of equity securities of the Company expressly designated as ranking on a parity with or senior to the Series B Preferred Shares as to distributions and rights upon voluntary or involuntary liquidation, winding-up or dissolution of the Company. For purposes of these Articles Supplementary, the term "Parity Preferred Shares" shall be used to refer to any class or series of equity securities of the Company now or hereafter authorized, issued or outstanding expressly designated by the Company to rank on a parity with Series B Preferred Shares with respect to distributions and rights upon voluntary or involuntary liquidation, winding-up or dissolution of the Company including, without limitation, the "8.80% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest". The term "equity securities" does not include debt securities, which will rank senior to the Series B Preferred Shares prior to conversion. Section 3. Distributions. (a) Payment of Distributions. (i) Subject to the rights of holders of Parity Preferred Shares and holders of equity securities ranking senior to the Series B Preferred Shares as to payment of distributions, holders of Series B Preferred Shares will be entitled to receive, when, as and if declared by the Board of Trustees of the Company, out of funds legally available for the payment of distributions, cumulative preferential cash distributions at the rate per annum of 9.25% of the $25 liquidation preference per Series B Preferred Share (the "Issuance Rate"). (ii) In the event that on or prior to March 31, 2000 the Company's outstanding preferred stock shall have either an unconditional, published (A) rating by Standard & Poor's Ratings Group ("Standard & Poor's") of at least "BBB-" or (B) rating by Moody's Investors Service, Inc. ("Moody's") of at least "baa3", then, beginning on the date on which either of such foregoing conditions is met, the rate per annum of the cumulative preferential cash distributions on the Series B Preferred Shares shall be 8.95% of the $25 liquidation preference per Series B Preferred Share (the "Revised Rate"), in which case the designation of the Series B Preferred Shares will change accordingly to reflect such new distribution rate; provided, that, if neither (i) Standard & Poor's unconditional published rating of at least "BBB-" nor (ii) Moody's rating of at least "baa3" shall remain in effect on March 31, 2000, then the Revised Rate herein provided shall be void ab initio and the Company shall pay on March 31, 2000, in addition to the dividend then due to the holders of the Series B Preferred Shares, the difference between (1) the dividend that would have accrued at the Issuance Rate during the current and any prior quarterly distribution period and (2) the dividend that actually accrued during such distribution periods at the voided Revised Rate and, if applicable, the Second Revised Rate (as defined below). (iii) In the event that on or prior to March 31, 2000 the Company's outstanding preferred stock shall have both an unconditional, published (A) Standard & Poor's rating of at least "BBB-" and (B) Moody's rating of at least "baa3", then, beginning on the date on which each of such foregoing conditions are met, the rate per annum of the cumulative preferential cash distribution of the Series B Preferred Shares shall be 8.75% of the $25 liquidation preference per Series B Preferred Share (the "Second Revised Rate"), in which case the designation of the Series B Preferred Shares will change accordingly to reflect such new distribution rate; provided, that, if either (i) Standard & Poor's unconditional published rating of at least "BBB-" or (ii) Moody's rating of at least "baa3" shall no longer be in effect on March 31, 2000, then the Second Revised Rate herein provided shall be void ab initio and the Company shall pay on March 31, 2000, in addition to the dividend then due to the holders of the Series B Preferred Shares, the difference between (1) the dividend that would have accrued at the Issuance Rate (or, if in effect on December 31, 1999 pursuant to Section 3(a)(ii) above, the Revised Rate) during the current and any prior quarterly distribution period and (2) the dividend that actually accrued during such distribution periods at the voided Second Revised Rate. (iv) Promptly after April 1, 2000 the parties hereto shall execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, all instruments and documents as may be reasonably necessary or desirable to memorialize the revision of the distribution rate in accordance with Sections 3(a)(ii) and 3(a)(iii) above and in effect on the effective date of the change. (v) All distributions shall be cumulative, shall accrue from the original date of issuance and will be payable (i) quarterly in arrears, on March 31, June 30, September 30 and December 31 of each year, commencing on the first of such dates to occur after the original date of issuance and, (ii) in the event of a redemption, on the redemption date (each a "Preferred Shares Distribution Payment Date"). The amount of the distribution payable for any period will be computed on the basis of a 360-day year of twelve 30-day months and for any period shorter than a full quarterly period for which distributions are computed, the amount of the distribution payable will be computed based on the ratio of the actual number of days elapsed in such period to ninety (90) days. If any date on which distributions are to be made on the Series B Preferred Shares is not a Business Day (as defined herein), then payment of the distribution to be made on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. Distributions on the Series B Preferred Shares will be made to the holders of record of the Series B Preferred Shares on the relevant record dates, which, unless otherwise provided by the Company with respect to any distribution, will be fifteen (15) Business Days prior to the relevant Preferred Shares Distribution Payment Date (each a "Distribution Record Date"). Notwithstanding anything to the contrary set forth herein, each Series B Preferred Share shall also continue to accrue all accrued and unpaid distributions up to the exchange date on any Series B Preference Unit (as defined in the Second Restated and Amended Agreement of Limited Partnership of Liberty Property Limited Partnership, dated as of October 22, 1997 as amended by First Amendment, dated as of July 28, 1999 (as amended, the "Partnership Agreement")) validly exchanged into such Series B Preferred Share in accordance with the provisions of such Partnership Agreement. (vi) "Business Day" shall mean each day, other than a Saturday or a Sunday, which is not a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to close. (b) Limitation on Distributions. No distributions on the Series B Preferred Shares shall be declared or paid or set apart for payment by the Company at such time as the terms and provisions of any agreement of the Company, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration, payment or setting apart for payment shall be restricted or prohibited by law. (c) Distributions Cumulative. Notwithstanding the foregoing, distributions on the Series B Preferred Shares will accrue whether or not the terms and provisions set forth in Section 3(b) hereof at any time prohibit the current payment of distributions, whether or not the Company has earnings, whether or not there are funds legally available for the payment of such of such distributions and whether or not such distributions are authorized or declared. Accrued but unpaid distributions on the Series B Preferred Shares will accumulate as of the Preferred Shares Distribution Payment Date on which they first become payable. Accumulated and unpaid distributions will not bear interest. (d) Priority as to Distributions. (i) So long as any Series B Preferred Shares are outstanding, no distribution of cash or other property shall be authorized, declared, paid or set apart for payment on or with respect to any class or series of Common Shares or any class or series of other Shares of the Company ranking junior as to the payment of distributions to the Series B Preferred Shares (such Common Shares or other junior shares including, without limitation, Series A Junior Participating Preferred Shares authorized pursuant to Articles Supplementary filed with the Department on December 23, 1997, collectively, "Junior Shares"), nor shall any cash or other property be set aside for or applied to the purchase, redemption or other acquisition for consideration of any Series B Preferred Shares, any Parity Preferred Shares with respect to distributions or any Junior Shares, unless, in each case, all distributions accumulated on all Series B Preferred Shares and all classes and series of outstanding Parity Preferred Shares as to payment of distributions have been paid in full. The foregoing sentence will not prohibit (i) distributions payable solely in Junior Shares, (ii) the conversion of Junior Shares or Parity Preferred Shares into Shares of the Company ranking junior to the Series B Preferred Shares as to distributions and upon liquidation, winding-up or dissolution, and (iii) purchase by the Company of such Series B Preferred Shares, Parity Preferred Shares with respect to distributions or Junior Shares pursuant to Article VII of the Charter to the extent required to preserve the Company's status as a real estate investment trust. (ii) So long as distributions have not been paid in full (or a sum sufficient for such full payment is not irrevocably deposited in trust for immediate payment) upon the Series B Preferred Shares and the Shares of any class or series of outstanding Parity Preferred Shares, all distributions authorized and declared on the Series B Preferred Shares and all classes or series of outstanding Parity Preferred Shares with respect to distributions shall be authorized and declared pro rata so that the amount of distributions authorized and declared per share of Series B Preferred Shares and such other classes or series of Parity Preferred Shares shall in all cases bear to each other the same ratio that accrued distributions per share on the Series B Preferred Shares and such other classes or series of Parity Preferred Shares (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such class or series of Parity Preferred Shares do not have cumulative distribution rights) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on Series B Preferred Shares or any other Parity Preferred Shares which may be in arrears. (e) If, for any taxable year, the Company elects to designate as "capital gain dividends" (as defined in Section 857 of the Internal Revenue Code of 1986, as amended (the "Code")) any portion (the "Capital Gains Amount") of the dividends (within the meaning of the Code) paid or made available for the year to holders of all classes of shares of beneficial interest in the Company (the "Total Dividends"), then the portion of the Capital Gains Amount that will be allocable to the holders of the Series B Preferred Units will be the Capital Gains Amount multiplied by a fraction, the numerator of which will be the total dividends (within the meaning of the Code) paid or made available to the holders of the Series B Preferred Units for the year and the denominator of which shall be the Total Dividends. (f) No Further Rights. Holders of Series B Preferred Shares shall not be entitled to any distributions, whether payable in cash, other property or otherwise, in excess of the full cumulative distributions described herein. Section 4. Liquidation Preference. (a) Payment of Liquidating Distributions. Subject to the rights of holders of Parity Preferred Shares with respect to rights upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company and subject to equity securities ranking senior to the Series B Preferred Shares with respect to rights upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company, the holders of Series B Preferred Shares shall be entitled to receive out of the assets of the Company legally available for distribution or the proceeds thereof, after payment or provision for debts and other liabilities of the Company, but before any payment or distributions of the assets shall be made to holders of Common Shares or any other class or series of shares of the Company that ranks junior to the Series B Preferred Shares as to rights upon liquidation, dissolution or winding- up of the Company, an amount equal to the sum of (i) a liquidation preference of $25 per share of Series B Preferred Shares, and (ii) an amount equal to any accumulated and unpaid distributions thereon, whether or not declared, to the date of payment. In the event that, upon such voluntary or involuntary liquidation, dissolution or winding- up, there are insufficient assets to permit full payment of liquidating distributions to the holders of Series B Preferred Shares and any Parity Preferred Shares as to rights upon liquidation, dissolution or winding-up of the Company, all payments of liquidating distributions on the Series B Preferred Shares and such Parity Preferred Shares shall be made so that the payments on the Series B Preferred Shares and such Parity Preferred Shares shall in all cases bear to each other the same ratio that the respective rights of the Series B Preferred Shares and such other Parity Preferred Shares (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such Parity Preferred Shares do not have cumulative distribution rights) upon liquidation, dissolution or winding-up of the Company bear to each other. (b) Notice. Written notice of any such voluntary or involuntary liquidation, dissolution or winding-up of the Company, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by (i) fax and (ii) by first class mail, postage pre-paid, not less than 30 and not more than sixty (60) days prior to the payment date stated therein, to each record holder of the Series B Preferred Shares at the respective addresses of such holders as the same shall appear on the share transfer records of the Company. (c) No Further Rights. After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series B Preferred Shares will have no right or claim to any of the remaining assets of the Company. (d) Consolidation, Merger or Certain Other Transactions. The voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Company to, or the consolidation or merger or other business combination of the Company with or into any corporation, trust or other entity (or of any corporation, trust or other entity with or into the Company) shall not be deemed to constitute a liquidation, dissolution or winding-up of the Company. Section 5. Optional Redemption. (a) Right of Optional Redemption. The Series B Preferred Shares may not be redeemed prior to July 28, 2004. However, in order to ensure that the Company remains a qualified real estate investment trust ("REIT") for federal income tax purposes, the Series B Preferred Shares shall be subject to the provisions of Article VII of the Charter pursuant to which Series B Preferred Shares owned by a shareholder in excess of the Ownership Limit (as defined in the Charter) will automatically be exchanged for Excess Shares (as defined in the Charter) and the Company will have the right to purchase Excess Shares from the holder. On or after July 28, 2004, the Company shall have the right to redeem the Series B Preferred Shares, in whole or in part, at any time or from time to time, upon not less than 30 nor more than 60 days' written notice, at a redemption price, payable in cash, equal to $25 per Series B Preferred Share plus accumulated and unpaid distributions, whether or not declared, to the date of redemption. If fewer than all of the outstanding Series B Preferred Shares are to be redeemed, the Series B Preferred Shares to be redeemed shall be selected pro rata (as nearly as practicable without creating fractional units). (b) Limitation on Redemption. (i) The redemption price of the Series B Preferred Shares (other than the portion thereof consisting of accumulated but unpaid distributions) will be payable solely out of the sale proceeds of capital stock of the Company and from no other source. For purposes of the preceding sentence, "capital stock" means any equity securities (including Common Shares and Preferred Shares), shares, participation or other ownership interests (however designated) and any rights (other than debt securities convertible into or exchangeable for equity securities) or options to purchase any of the foregoing. (ii) The Company may not redeem fewer than all of the outstanding Series B Preferred Shares unless all accumulated and unpaid distributions have been paid in full (or a sum sufficient for such payment has been irrevocably deposited in trust for immediate payment) on all outstanding Series B Preferred Shares for all quarterly distribution periods, including the current period, terminating on or prior to the date of redemption provided, however, that the foregoing shall not prevent the purchase by the Company of Excess Shares in order to ensure that the Company remains qualified as a REIT for federal income tax purposes or the purchase or acquisition of Series B Preferred Shares pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series B Preferred Shares. (c) Procedures for Redemption. (i) Notice of redemption will be (i) faxed, and (ii) mailed by the Company, postage prepaid, not less than thirty (30) nor more than sixty (60) days prior to the redemption date, addressed to the respective holders of record of the Series B Preferred Shares to be redeemed at their respective addresses as they appear on the transfer records of the Company. No failure to give or defect in such notice shall affect the validity of the proceedings for the redemption of any Series B Preferred Shares except as to the holder to whom such notice was defective or not given. In addition to any information required by law or by the applicable rules of any exchange upon which the Series B Preferred Shares may be listed or admitted to trading, each such notice shall state: (i) the redemption date, (ii) the redemption price, (iii) the number of Series B Preferred Shares to be redeemed, (iv) the place or places where such Series B Preferred Shares are to be surrendered for payment of the redemption price, (v) that distributions on the Series B Preferred Shares to be redeemed will cease to accumulate on such redemption date and (vi) that payment of the redemption price and any accumulated and unpaid distributions will be made upon presentation and surrender of such Series B Preferred Shares. If fewer than all of the Series B Preferred Shares held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of Series B Preferred Shares held by such holder to be redeemed. (ii) If the Company gives a notice of redemption in respect of Series B Preferred Shares (which notice will be irrevocable) then, by 12:00 noon, New York City time, on the redemption date, the Company will deposit irrevocably in trust for the benefit of the Series B Preferred Shares being redeemed funds sufficient to pay the applicable redemption price, plus any accumulated and unpaid distributions, if any, on such shares to the date fixed for redemption, without interest, and will give irrevocable instructions and authority to pay such redemption price and any accumulated and unpaid distributions, whether or not declared, if any, on such shares to the holders of the Series B Preferred Shares upon surrender of the Series B Preferred Shares by such holders at the place designated in the notice of redemption. If fewer than all Series B Preferred Shares evidenced by any certificate is being redeemed, a new certificate shall be issued upon surrender of the certificate evidencing all Series B Preferred Shares, evidencing the unredeemed Series B Preferred Shares without cost to the holder thereof. On and after the date of redemption, distributions will cease to accumulate on the Series B Preferred Shares or portions thereof called for redemption, unless the Company defaults in the payment thereof. If any date fixed for redemption of Series B Preferred Shares is not a Business Day, then payment of the redemption price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If payment of the redemption price or any accumulated or unpaid distributions in respect of the Series B Preferred Shares is improperly withheld or refused and not paid by the Company, distributions on such Series B Preferred Shares will continue to accumulate from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the applicable redemption price and any accumulated and unpaid distributions. (d) Application of Article VII. The Series B Preferred Shares are subject to the provisions of Article VII of the Charter, including, without limitation, the provision for the redemption of Excess Shares. Notwithstanding the provisions of Article IX of the Charter, Series B Preferred Shares which have been exchanged pursuant to the Charter for Excess Shares may be redeemed, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus all accrued and unpaid distributions thereon to the date of redemption, without interest. If less than all of the outstanding Excess Shares are to be redeemed, the Excess Shares to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares). (e) Status of Redeemed Shares. Any Series B Preferred Shares that shall at any time have been redeemed shall after such redemption, have the status of authorized but unissued Preferred Shares, without designation as to class or series until such shares are once more designated as part of a particular class or series by the Board. Section 6. Voting Rights. (a) General. Holders of the Series B Preferred Shares will not have any voting rights, except as set forth below. (b) Right to Elect Trustees. (i) If at any time full distributions shall not have been timely made on any Series B Preferred Shares with respect to any six (6) prior quarterly distribution periods, whether or not consecutive, (a "Preferred Distribution Default"), the holders such Series B Preferred Shares, voting together as a single class with the holders of each class or series of Parity Preferred Shares upon which like voting rights have been conferred and are exercisable, will have the right to elect two (2) additional trustees to serve on the Company's Board (the "Preferred Shares Trustees") at a special meeting called in accordance with Section 6(b)(ii) (unless such request is received less than ninety (90) days before the date fixed for the next annual meeting) or at the next annual meeting of shareholders, and at each subsequent annual meeting of shareholders or special meeting held in place thereof, until all such distributions in arrears and distributions for the current quarterly period on the Series B Preferred Shares and each such class or series of Parity Preferred Shares have been paid in full or an amount sufficient for such payment has been irrevocably deposited in trust for immediate payment. (ii) At any time when such voting rights shall have vested, a proper officer of the Company shall call or cause to be called, upon written request of holders of record of at least 20% of the outstanding Series B Preferred Shares, a special meeting of the holders of Series B Preferred Shares and all the series of Parity Preferred Shares upon which like voting rights have been conferred and are exercisable (collectively, the "Parity Securities") by mailing or causing to be mailed to such holders a notice of such special meeting to be held not less than ten and not more than 45 days after the date such notice is given. The record date for determining holders of the Parity Securities entitled to notice of and to vote at such special meeting will be the close of business on the third Business Day preceding the day on which such notice is mailed. At any such special meeting, all of the holders of the Parity Securities, by plurality vote, voting together as a single class without regard to series will be entitled to elect two directors on the basis of one vote per $25.00 of liquidation preference to which such Parity Securities are entitled by their terms (excluding amounts in respect of accumulated and unpaid dividends) and not cumulatively. The holder or holders of one-third of the Parity Securities then outstanding, present in person or by proxy, will constitute a quorum for the election of the Preferred Shares Trustees except as otherwise provided by law. Notice of all meetings at which holders of the Series B Preferred Shares shall be entitled to vote will be given to such holders at their addresses as they appear in the transfer records. At any such meeting or adjournment thereof in the absence of a quorum, subject to the provisions of any applicable law, a majority of the holders of the Parity Securities present in person or by proxy shall have the power to adjourn the meeting for the election of the Preferred Shares Trustees, without notice other than an announcement at the meeting, until a quorum is present. If a Preferred Distribution Default shall terminate after the notice of a special meeting has been given but before such special meeting has been held, the Company shall, as soon as practicable after such termination, mail or cause to be mailed notice of such termination to holders of the Series B Preferred Shares that would have been entitled to vote at such special meeting. (iii) If and when all accumulated distributions and the distribution for the current distribution period on the Series B Preferred Shares shall have been paid in full or a sum sufficient for such payment is irrevocably deposited in trust for payment, the holders of the Series B Preferred Shares shall be divested of the voting rights set forth in Section 6(b) herein (subject to revesting in the event of each and every Preferred Distribution Default) and, if all distributions in arrears and the distributions for the current distribution period have been paid in full or set aside for payment in full on all other classes or series of Parity Preferred Shares upon which like voting rights have been conferred and are exercisable, the term and office of each Preferred Shares Trustees so elected shall terminate. Any Preferred Shares Trustees may be removed at any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of record of a majority of the outstanding Series B Preferred Shares when they have the voting rights set forth in Section 6(b) (voting separately as a single class with all other classes or series of Parity Preferred Shares upon which like voting rights have been conferred and are exercisable). So long as a Preferred Distribution Default shall continue, any vacancy in the office of a Preferred Shares Trustees may be filled by written consent of the Preferred Shares Trustees remaining in office, or if none remains in office, by a vote of the holders of record of a majority of the outstanding Series B Preferred Shares when they have the voting rights set forth in Section 6(b) (voting separately as a single class with all other classes or series of Parity Preferred Shares upon which like voting rights have been conferred and are exercisable). The Preferred Shares Director shall each be entitled to one vote per director on any matter. (c) Certain Voting Rights. So long as any Series B Preferred Shares remain outstanding, the Company shall not, without the affirmative vote of the holders of at least two thirds of the Series B Preferred Shares outstanding at the time (i) (A) designate or create, or increase the authorized or issued amount of, any class or series of shares ranking senior to the Series B Preferred Shares with respect to payment of distributions or rights upon liquidation, dissolution or winding-up, (B) reclassify any authorized shares of the Company into any such shares, or (C) create, authorize or issue any obligations or security convertible into or evidencing the right to purchase any such shares, (ii) (A) designate or create, or increase the authorized or issued amount of, any Parity Preferred Shares, (B) reclassify any authorized shares of the Company into a Parity Preferred Shares or (C) create, authorize or issue any obligations or security convertible into or evidencing the right to purchase any Parity Preferred Share; provided, that restrictions contained in the clause (ii) of this Paragraph (c) shall apply only to Parity Preferred Shares that are issued to an Affiliate of the Company other than on arm's length terms, or (iii) either (A) consolidate, or merge into or with, any corporation or other entity, or (B) amend, alter or repeal the provisions of the Company's Charter (including these Articles Supplementary) or By-laws, whether by merger, consolidation or otherwise, in such a way that would materially and adversely affect the powers, special rights, preferences, privileges or voting power of the Series B Preferred Shares or the holders thereof; provided, however, that with respect to the occurrence of a merger or consolidation, so long as (a) the Company is the surviving entity and the Series B Preferred Shares remains outstanding with the terms thereof unchanged, or (b) the resulting, surviving or transferee entity is a corporation organized under the laws of any state and substitutes for the Series B Preferred Shares other Preferred Shares having substantially the same terms and same rights as the Series B Preferred Shares, including with respect to distributions, voting rights and rights upon liquidation, dissolution or winding-up, then the occurrence of any such event shall not be deemed materially and adversely affect the rights, privileges or voting powers of the holders of the Series B Preferred Shares; provided further, that any increase in the amount of authorized Preferred Shares or the creation or issuance of any other class or series of Preferred Shares or any increase in an amount of authorized shares of each class or series, shall not be deemed to materially and adversely affect the rights, preferences, privileges or voting powers of the Series B Preferred Shares, if such Series B Preferred Shares rank (y) junior to the Series B Preferred Shares with respect to payment of distributions or the distribution of assets upon liquidation, dissolution or winding- up, or (z) on a parity with the Series B Preferred Shares with respect to payment of distributions or the distribution of assets upon liquidation, dissolution or winding-up; provided, that any Series B Preferred Shares issued in reliance on the preceding clause (z) shall not have been issued to an Affiliate of the Company or are issued to such Affiliate on arm's length terms. In the event of any conflict or inconsistency between this Section 6 and Sections 8.2, 10.1 and 10.3 of the Charter, this Section 6 shall control. Section 7. Transfer Restrictions. The Series B Preferred Shares shall be subject to the provisions of Article VII of the Charter. Section 8. No Conversion Rights. The holders of the Series B Preferred Shares shall not have any rights to convert such shares into shares of any other class or series of shares or into any other securities of, or interest in, the Company except that the Series B Preferred Shares may be exchanged by the Company for Excess Shares, in accordance with the Charter. Section 9. No Sinking Fund. No sinking fund shall be established for the retirement or redemption of Series B Preferred Shares. Section 10. No Preemptive Rights. No holder of the Series B Preferred Shares of the Company shall, as such holder, have any preemptive rights to purchase or subscribe for additional Shares of the Company or any other security of the Company which it may issue or sell. FOURTH: The Series B Preferred Shares have been classified and designated by the Board under the authority contained in the Charter. FIFTH: These Articles Supplementary have been approved by the Board in the manner and by the vote required by law. SIXTH: These Articles Supplementary shall be effective at the time the State Department of Assessments and Taxation of Maryland accepts these Articles Supplementary for record. SEVENTH: The undersigned Chairman of the Board of Trustees and Chief Executive Officer of the Company acknowledges these Articles Supplementary to be the corporate act of the Company and, as to all matters or facts required to be verified under oath, the undersigned Chairman of the Board of Trustees and Chief Executive Officer acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury. IN WITNESS WHEREOF, the Company has caused these Articles Supplementary to be executed under seal in its name and on its behalf by its President and Chief Operating Officer and attested to by its Assistant Secretary on this 28th day of July, 1999. LIBERTY PROPERTY TRUST By: /s/ Joseph P. Denny ------------------------------------ Name: Joseph P. Denny Title: President and Chief Operating Officer [SEAL] ATTEST: /s/ Christine Babich - ------------------------------------- Name: Christine Babich Title: Assistant Secretary DSB:652182.1 EX-4 4 Exhibit 4.1 LIBERTY PROPERTY LIMITED PARTNERSHIP ISSUER TO THE FIRST NATIONAL BANK OF CHICAGO TRUSTEE THIRD SUPPLEMENTAL INDENTURE DATED AS OF APRIL 20, 1999 7.75% SENIOR NOTES DUE 2009 SUPPLEMENT TO INDENTURE, DATED AS OF OCTOBER 24, 1997, BETWEEN LIBERTY PROPERTY LIMITED PARTNERSHIP AND THE FIRST NATIONAL BANK OF CHICAGO THIRD SUPPLEMENTAL INDENTURE, dated as of April 20, 1999, between LIBERTY PROPERTY LIMITED PARTNERSHIP, a Pennsylvania limited partnership (the "Company"), having its principal offices at 65 Valley Stream Parkway, Malvern, Pennsylvania 19355, and THE FIRST NATIONAL BANK OF CHICAGO, a national banking association organized under the laws of the United States of America, as trustee (the "Trustee"), having its Corporate Trust Office at One First National Plaza, Suite 0126, Chicago, Illinois 60670-0126. RECITALS WHEREAS, the Company executed and delivered its Indenture (the "Original Indenture"), dated as of October 24, 1997, to the Trustee to issue from time to time for its lawful purposes debt securities evidencing its unsecured indebtedness. WHEREAS, the Original Indenture provides that by means of a supplemental indenture, the Company may create one or more series of its debt securities and establish the form and terms and conditions thereof. WHEREAS, the Company intends by this Third Supplemental Indenture to (i) create a series of debt securities to be issued from time to time in an unlimited principal amount entitled "Liberty Property Limited Partnership 7.75% Senior Notes due 2009" (the "Notes"); and (ii) establish the forms and the terms and conditions of such Notes. WHEREAS, the Board of Trustees of Liberty Property Trust (the "Trust"), the general partner of the Company, has approved the creation of the Notes and the form, terms and conditions thereof. WHEREAS, the consent of Holders to the execution and delivery of this Third Supplemental Indenture is not required, and all other actions required to be taken under the Original Indenture with respect to this Third Supplemental Indenture have been taken. NOW, THEREFORE IT IS AGREED: ARTICLE ONE Definitions, Creation, Form and Terms and Conditions of the Debt Securities SECTION 1.01 Definitions. Capitalized terms used in this Third Supplemental Indenture and not otherwise defined shall have the meanings ascribed to them in the Original Indenture. In addition, the following terms shall have the following meanings to be equally applicable to both the singular and the plural forms of the terms defined: "Closing Date" means April 20, 1999. "Global Note" means a single fully-registered global note in book entry form, without coupons, substantially in the form of Exhibit A attached hereto. "Indenture" means the Original Indenture as supplemented by this Third Supplemental Indenture. "Intercompany Debt" means Debt to which the only parties are the Trust, any of its subsidiaries, the Company and any Subsidiary, or Debt owed to the Trust arising from routine cash management practices, but only so long as such Debt is held solely by any of the Trust, any of its subsidiaries, the Company and any Subsidiary. SECTION 1.02 Creation of the Debt Securities. In accordance with Section 301 of the Original Indenture, the Company hereby creates the Notes as a separate series of its debt securities issued pursuant to the Indenture. The Notes shall be issued in an aggregate principal amount initially limited to $250,000,000. The Company may issue, in addition to the Notes originally issued on the Closing Date, additional Notes. The Notes originally issued on the Closing Date and any additional Notes originally issued subsequent to the Closing Date shall be a single series for all purposes under the Indenture. SECTION 1.03 Form of the Debt Securities. The Notes will be represented by one or more fully-registered global notes in book-entry form, without coupons, registered in the name of the nominee of DTC. The Notes shall be in the form of Exhibit A attached hereto. So long as DTC, or its nominee, is the registered owner of a Global Note, DTC or its nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Global Note for all purposes under the Indenture. Ownership of beneficial interests in the Global Note will be shown on, and transfers thereof will be effected only through, records maintained by DTC (with respect to beneficial interests of participants) or by participants or persons that hold interests through participants (with respect to beneficial interests of beneficial owners). SECTION 1.04 Terms and Conditions of the Debt Securities. The Notes shall be governed by all the terms and conditions of the Original Indenture, as supplemented by this Third Supplemental Indenture, and in particular, the following provisions shall be the terms of the Notes: (a) Optional Redemption. The Issuer may redeem the Notes at any time at the option of the Issuer, in whole or from time to time in part, at a redemption price equal to the Redemption Price. If notice of redemption has been given as provided in the Indenture and funds for the redemption of any Notes called for redemption shall have been made available on the Redemption Date referred to in such notice, such Notes will cease to bear interest on the date fixed for such redemption specified in such notice and the only right of the Holders of such Notes from and after the Redemption Date will be to receive payment of the Redemption Price upon surrender of such Notes in accordance with such notice. Notice of any optional redemption of any Notes will be given to Holders at their addresses, as shown in the security register for the Notes, not more than 60 nor less than 30 days prior to the date fixed for redemption. The notice of redemption will specify, among other items, the Redemption Price and the principal amount of the Notes held by such Holder to be redeemed. If all or less than all of the Notes are to be redeemed at the option of the Issuer, the Issuer will notify the Trustee at least 45 days prior to giving notice of redemption (or such shorter period as is satisfactory to the Trustee) of the aggregate principal amount of Notes to be redeemed, if less than all of the Notes are to be redeemed, and their Redemption Date. The Trustee shall select, in such manner as it shall deem fair and appropriate, no less than 60 days prior to the date of redemption, the Notes to be redeemed in whole or in part. (b) Payment of Principal and Interest. Principal and interest payments on interests represented by a Global Note will be made to DTC or its nominee, as the case may be, as the registered owner of such Global Note. All payments of principal and interest in respect of the Notes will be made by the Issuer in immediately available funds. (c) Applicability of Defeasance or Covenant Defeasance. The provisions of Article 14 of the Original Indenture shall apply to the Notes. ARTICLE TWO Additional Covenants The Notes shall be governed by all the covenants contained in the Original Indenture, as supplemented by this Third Supplemental Indenture, and in particular, this Third Supplemental Indenture amends Section 1004 of the Original Indenture to read as follows: "SECTION 1004. Limitations on Incurrence of Debt. (a) The Company will not, and will not permit any Subsidiary to, incur any Debt, other than Intercompany Debt, that is subordinate in right of payment to the Notes, if, immediately after giving effect to the incurrence of such Debt and the application of the proceeds thereof, the aggregate principal amount of all outstanding Debt of the Company and its Subsidiaries on a consolidated basis determined in accordance with GAAP is greater than 60% of the sum of (i) the Company's Adjusted Total Assets as of the end of the most recent fiscal quarter prior to the incurrence of such additional Debt and (ii) the increase in Adjusted Total Assets since the end of such quarter (including any increase resulting from the incurrence of additional Debt). (b) The Company will not, and will not permit any Subsidiary to, incur any Debt if the ratio of Consolidated Income Available for Debt Service to the Annual Service Charge on the date on which such additional Debt is to be incurred, on a pro forma basis, after giving effect to the incurrence of such Debt and to the application of the proceeds thereof would have been less than 1.5 to 1. (c) The Company will not, and will not permit any Subsidiary to, incur any Debt secured by any mortgage, lien, charge, pledge, encumbrance or security interest of any kind upon any of the properties of the Company or any Subsidiary ("Secured Debt"), whether owned at the date hereof or hereafter acquired, if, immediately after giving effect to the incurrence of such Secured Debt and the application of the proceeds thereof, the aggregate principal amount of all outstanding Secured Debt of the Company and its Subsidiaries on a consolidated basis is greater than 40% of the sum of (i) the Company's Adjusted Total Assets as of the end of the most recent fiscal quarter prior to the incurrence of such additional Debt and (ii) the increase in Adjusted Total Assets since the end of such quarter (including any increase resulting from the incurrence of additional Debt). (d) The Company will at all time maintain an Unencumbered Total Asset Value in an amount not less than 150% of the aggregate principal amount of all outstanding unsecured Debt of the Company and its Subsidiaries on a consolidated basis. For purposes of the foregoing provisions regarding the limitation on the incurrence of Debt, Debt shall be deemed to be "incurred" by the Company or a Subsidiary whenever the Company or such Subsidiary shall create, assume, guarantee or otherwise become liable in respect thereof." ARTICLE THREE Trustee SECTION 3.01 Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Third Supplemental Indenture or the due execution thereof by the Company. The recitals of fact contained herein shall be taken as the statements solely of the Company, and the Trustee assumes no responsibility for the correctness thereof. ARTICLE FOUR Miscellaneous Provisions SECTION 4.01 Ratification of Original Indenture. This Third Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Original Indenture, and as supplemented and modified hereby, the Original Indenture is in all respects ratified and confirmed, and the Original Indenture and this Third Supplemental Indenture shall be read, taken and construed as one and the same instrument. SECTION 4.02 Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. SECTION 4.03 Successors and Assigns. All covenants and agreements in this Third Supplemental Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 4.04 Separability Clause. In case any one or more of the provisions contained in this Third Supplemental Indenture shall for any reason be held to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 4.05 Governing Law. This Third Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York. This Third Supplemental Indenture is subject to the provisions of the Trust Indenture Act, that are required to be part of this Third Supplemental Indenture and shall, to the extent applicable, be governed by such provisions. SECTION 4.06 Counterparts. This Third Supplemental Indenture may be executed in any number of counterparts, and each of such counterparts shall for all purposes be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the date first above written. LIBERTY PROPERTY LIMITED PARTNERSHIP By: Liberty Property Trust, as its sole General Partner By: /s/ George J. Alburger, Jr. -------------------------------- Name: George J. Alburger, Jr. Title: Chief Financial Officer Attest: /s/ James J. Bowes - ---------------------------- Name: James J. Bowes Title: General Counsel and Secretary THE FIRST NATIONAL BANK OF CHICAGO, as Trustee By: /s/ Mark J. Frye ------------------------------------------ Name: Mark J. Frye Title: Asst. Vice President Attest: /s/ Jeffrey L. Kinney - ------------------------------ Name: Jeffrey L. Kinney Title: Vice President STATE OF Pennsylvania ) ) ss: COUNTY OF Chester ) On the 19th day of April 1999, before me personally came George J. Alburger, Jr., to me known, who, being by me duly sworn, did depose and say that he/she resides at 65 Valley Stream Parkway, that he/she is Chief Financial Officer of LIBERTY PROPERTY TRUST, the sole general partner of LIBERTY PROPERTY LIMITED PARTNERSHIP, one of the parties described in and which executed the foregoing instrument, and that he/she signed his/her name thereto by authority of the Board of Trustees. [Notarial Seal] /s/ Christina Kane ---------------------------------- Notary Public COMMISSION EXPIRES STATE OF Illinois ) ) ss: COUNTY OF Cook ) On the 20th day of April 1999, before me personally came Mark J. Frye, to me known, who, being by me duly sworn, did depose and say that he/she resides at 15031 S. Ridgewood Drive, Oak Forest, that he/she is a Asst. Vice President of THE FIRST NATIONAL BANK OF CHICAGO, one of the parties described in and which executed the foregoing instrument, and that he/she signed his/her name thereto by authority of the Board of Directors. [Notarial Seal] /s/ Maria C. Birrueta ------------------------------------- Notary Public COMMISSION EXPIRES Exhibit A [FACE OF NOTE] THIS NOTE IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. UNLESS AND UNTIL THIS CERTIFICATE IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED FORM, THIS CERTIFICATE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY DTC TO A NOMINEE THEREOF OR BY A NOMINEE THEREOF TO DTC OR ANOTHER NOMINEE OF DTC OR BY DTC OR ANY SUCH NOMINEE TO A SUCCESSOR OF DTC OR A NOMINEE OF SUCH SUCCESSOR. REGISTERED REGISTERED NO. ( ) PRINCIPAL AMOUNT CUSIP NO. ( ) $ ( ) LIBERTY PROPERTY LIMITED PARTNERSHIP ( )% Senior Notes due ( ) Liberty Property Limited Partnership, a Pennsylvania limited partnership (the "Issuer," which term includes any successor under the Indenture hereinafter referred to), for value received, hereby promises to pay to Cede & Co. or its registered assigns, the principal sum of ( ) Dollars on ( ) (the "Maturity Date"), and to pay interest thereon from ( )(or from the most recent interest payment date to which interest has been paid or duly provided for), semi-annually in arrears on ( )and ( ) of each year (each, an "Interest Payment Date"), commencing on ( ), and on the Maturity Date, at the rate of ( )% per annum, until payment of said principal sum has been made or duly provided for. The interest so payable and punctually paid or duly provided for on any Interest Payment Date and on the Maturity Date will be paid to the Holder in whose name this Note (or one or more predecessor Notes) is registered at the close of business on the "Record Date" for such payment, which will be 15 days (regardless of whether such day is a Business Day (as defined below)) prior to such payment date or the Maturity Date, as the case may be. Any interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such record date, and shall be paid to the Holder in whose name this Note (or one or more predecessor Notes) is registered at the close of business on a subsequent record date for the payment of such defaulted interest (which shall be not more than 15 days and not less than 10 days prior to the date of the payment of such defaulted interest) established by notice given by mail by or on behalf of the Issuer to the Holders of the Notes not less than 10 days preceding such subsequent record date. Interest on this Note will be computed on the basis of a 360-day year of twelve 30-day months. The principal of this Note payable on the Maturity Date will be paid against presentation and surrender of this Note at the corporate trust office of the Trustee at One First National Plaza, Chicago, Illinois 60670-0126, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public or private debt. Interest payable on this Note on any Interest Payment Date and on the Maturity Date, as the case may be, will be the amount of interest accrued from and including the immediately preceding Interest Payment Date (or from and including ( ), in the case of the initial Interest Payment Date) to but excluding the applicable Interest Payment Date or the Maturity Date, as the case may be. If any Interest Payment Date or the Maturity Date falls on a day that is not a Business Day (as defined below), the required payment of interest or principal or both, as the case may be, will be made on the next Business Day with the same force and effect as if it were made on the date such payment was due and no interest will accrue on the amount so payable for the period from and after such Interest Payment Date or the Maturity Date, as the case may be. "Business Day" means any day, other than a Saturday or a Sunday, that is neither a legal holiday nor a day on which banking institutions in The City of New York or Chicago are authorized or required by law, regulation or executive order to close. Payments of principal and interest in respect of this Note will be made by wire transfer of immediately available funds in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts. Reference is made to the further provisions of this Note set forth on the reverse hereof. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Note shall not be entitled to the benefits of the Indenture referred to on the reverse hereof or be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by the Trustee under such Indenture. IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed manually or by facsimile by its authorized officers. Dated: , 1999 LIBERTY PROPERTY LIMITED PARTNERSHIP, as Issuer By: LIBERTY PROPERTY TRUST, as its sole General Partner By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture. THE FIRST NATIONAL BANK OF CHICAGO, as Trustees By: ------------------------------------ Authorized Officer (REVERSE OF NOTE) LIBERTY PROPERTY LIMITED PARTNERSHIP ( ) % Senior Notes due ( ) This security is one of a duly authorized issue of debentures, notes, bonds, or other evidences of indebtedness of the Issuer (hereinafter called the "Securities") of the series hereinafter specified, all issued or to be issued under and pursuant to an Indenture dated as of ( ) (herein called the "Indenture"), duly executed and delivered by the Issuer to The First National Bank of Chicago, as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture with respect to the series of Securities of which this Note is a part), to which Indenture and all indentures supplemental thereto relating to this security reference is hereby made for a description of the rights, limitations of rights, obligations, duties, and immunities thereunder of the Trustee, the Issuer, and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered. The Securities may be issued in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear interest (if any) at different rates, may be subject to different redemption provisions (if any), and may otherwise vary as provided in the Indenture or any indenture supplemental thereto. This security is one of a series designated as the ( )% Notes due ( ) of the Issuer. In case an Event of Default with respect to this security shall have occurred and be continuing, the principal hereof and Make-Whole Amount, if any, may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect, and subject to the conditions provided in the Indenture. The Issuer may redeem this security at any time at the option of the Issuer, in whole or from time to time in part, at a redemption price equal to the sum of (i) the principal amount of this security being redeemed plus accrued interest thereon to the Redemption Date and (ii) the Make-Whole Amount, if any, with respect to this security. Notice of any optional redemption of any Securities will be given to Holders at their addresses, as shown in the security register for the Securities, not more than 60 nor less than 30 days prior to the date fixed for redemption. The notice of redemption will specify, among other items, the Redemption Price and the principal amount of the Securities held by such Holder to be redeemed. The Indenture contains provisions permitting the Issuer and the Trustee, with the consent of the Holders of not less than a majority of the aggregate principal amount of the Securities at the time Outstanding of all series to be affected (voting as one class), evidenced as provided in the Indenture, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the Holders of the Securities of each series; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Security so affected, (i) change the Stated Maturity of the principal of (or premium or Make- Whole Amount, if any, on) or any installment of interest on, any such Security, (ii) reduce the principal amount of, or the rate or amount of interest on, or any premium payable on redemption of the Notes, or adversely affect any right of repayment of the Holder of any Securities; (iii) change the place of payment, or the coin or currency, for payment of principal or premium, if any, or interest on the Securities; (iv) impair the right to institute suit for the enforcement of any payment on or with respect to the Securities on or after the stated maturity of any such Security; (v) reduce the above-stated percentage in principal amount of outstanding Securities, the extent of whose Holders is necessary to modify or amend the Indenture, for any waiver with respect to the Securities or to waive compliance with certain provisions of the Indenture or certain defaults and consequences thereunder or to reduce the quorum or voting requirements set forth in the Indenture; or (vi) modify any of the foregoing provisions or any of the provisions relating to the waiver of certain past defaults or certain covenants, except to increase the required percentage to effect such action or to provide that certain other provisions of the Indenture may not be modified or waived without the consent of the Holder of each Security. It is also provided in the Indenture that, with respect to certain defaults or Events of Default regarding the Securities of any series, the Holders of a majority in aggregate principal amount outstanding of the Securities of such series (or, in the case of certain defaults or Events of Default, all series of Securities) may on behalf of the Holders of all the Securities of such series (or all of the Securities, as the case may be) waive any such past default or Event of Default and its consequences, prior to any declaration accelerating the maturity of such Securities, or, subject to certain conditions, may rescind a declaration of acceleration and its consequences with respect to such Securities. Any such consent or waiver by the Holder of this Security (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders and owners of this Security and any Securities that may be issued in exchange or substitution herefor, irrespective of whether or not any notation thereof is made upon this security or such other securities. No reference herein to the Indenture and no provision of this security or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and any Make-Whole Amount and interest on this security in the manner, at the respective times, at the rate and in the coin or currency herein prescribed. This security is issuable only in registered form without coupons in denominations of $1,000 and integral multiples thereof. Securities may be exchanged for a like aggregate principal amount of securities of this series of other authorized denominations at the office or agency of the Issuer in The Borough of Manhattan, The City of New York, in the manner and subject to the limitations provided in the Indenture, but without the payment of any service charge except for any tax or other governmental charge imposed in connection therewith. Upon due presentment for registration of transfer of Securities at the office or agency of the Issuer in The Borough of Manhattan, The City of New York, one or more new Securities of the same series of authorized denominations in an equal aggregate principal amount will be issued to the transferee in exchange therefor, subject to the limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith. The Issuer, the Trustee or any authorized agent of the Issuer or the Trustee may deem and treat the Person in whose name this security is registered as the absolute owner of this security (whether or not this security shall be overdue and notwithstanding any notation of ownership or other writing hereon), for the purpose of receiving payment of, or on account of, the principal hereof and Make-Whole Amount, if any, and subject to the provisions on the face hereof, interest hereon, and for all other purposes, and neither the Issuer nor the Trustee nor any authorized agent of the Issuer or the Trustee shall be affected by any notice to the contrary. The Indenture and each Security shall be deemed to be a contract under the laws of the State of New York, and for all purposes shall be construed in accordance with the laws of such state, except as may otherwise be required by mandatory provisions of law. Capitalized terms used herein which are not otherwise defined shall have the respective meanings assigned to them in the Indenture and all indentures supplemental thereto relating to this security. 16 EX-10 5 Exhibit 10.1 LIBERTY PROPERTY TRUST AMENDED AND RESTATED SHARE INCENTIVE PLAN 1. Purpose. Liberty Property Trust (the "Company") hereby amends and restates the Liberty Property Trust Share Incentive Plan (the "Plan") as set forth herein. The Plan is intended to recognize the contributions made to the Company by key employees, consultants and advisors of the Company or an Affiliate (including employees who are members of the Board of Trustees) of the Company or any Affiliate, to provide such persons with additional incentive to devote themselves to the future success of the Company or an Affiliate, and to improve the ability of the Company or an Affiliate to attract, retain, and motivate individuals upon whom the Company's sustained growth and financial success depend, by providing such persons with an opportunity to acquire or increase their proprietary interest in the Company through receipt of rights to acquire common shares of beneficial interest, $.001 par value per share (the "Shares"), in the Company, and through transfers of Shares subject to conditions of forfeiture. In addition, the Plan is intended as an additional incentive to members of the Board of Trustees (the "Trustees") who are not employees of the Company or an Affiliate to serve on the Board of Trustees and to devote themselves to the future success of the Company by providing them with an opportunity to acquire or increase their proprietary interest in the Company through the receipt of Options to acquire Shares. 2. Definitions. Unless the context clearly indicates otherwise, the following terms shall have the following meanings: (a) "Affiliate" means a corporation which is a parent corporation or a subsidiary corporation with respect to the Company within the meaning of Section 424(e) or (f) of the Code. In addition, "Affiliate" means any other entity in which the Company owns an interest which would be an Affiliate as defined in the preceding sentence but for the fact that such entity is not a corporation. Employees of any such non- corporate affiliate shall not be granted ISOs under the Plan. (b) "Award" means a grant of Shares subject to conditions of forfeiture made pursuant to the terms of the Plan. (c) "Award Agreement" means the agreement between the Company and a Grantee with respect to an Award made pursuant to the Plan. (d) "Awardee" means a person to whom an Award has been granted pursuant to the Plan. (e) "Board of Trustees" means the Board of Trustees of the Company. (f) "Change of Control" has the meaning as set forth in Section 10 of the Plan. (g) "Code" means the Internal Revenue Code of 1986, as amended. (h) "Committee" has the meaning set forth in Section 3 of the Plan. (i) "Company" means Liberty Property Trust, a Maryland real estate investment trust. (j) "Disability" has the meaning set forth in Section 22(e)(3) of the Code. (k) "Fair Market Value" has the meaning set forth in Subsection 8(b) of the Plan. (l) "Grantee" means a person to whom an Option or an Award has been granted pursuant to the Plan. (m) "ISO" means an Option granted under the Plan which is intended to qualify as an "incentive stock option" within the meaning of Section 422(b) of the Code. (n) "Non-employee Trustee" means a member of the Board of Trustees who is not an employee of the Company or an Affiliate and who qualifies both as a "non-employee director" as that term is used in Rule 16b-3 and as an "outside director" as that term is used in applicable IRS regulations promulgated under Code Section 162(m). (o) "Non-qualified Stock Option" means an Option granted under the Plan which is not intended to qualify, or otherwise does not qualify, as an incentive stock option" within the meaning of Section 422(b) of the Code. (p) "Option" means either an ISO or a Non-qualified Stock Option granted under the Plan. (q) "Optionee" means a person to whom an Option has been granted under the Plan, which Option has not been exercised and has not expired or terminated. (r) "Option Document" means the document described in Section 8 or Section 9 of the Plan, as applicable, which sets forth the terms and conditions of each grant of Options. (s) "Option Price" means the price at which Shares may be purchased upon exercise of an Option, as calculated pursuant to Subsection 8(b) or Subsection 9(a) of the Plan. (t) "Restricted Share" means a Share subject to conditions of forfeiture and transfer granted to any person pursuant to an Award under the Plan. (u) "Retirement" shall mean a termination of an Optionee's employment or services for the Company or an Affiliate at any time after such Optionee has reached age 65. (v) "Rule 16b-3" means Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, or any successor rule. (w) "Section 16 Officer" means any person who is an "officer" within the meaning of Rule 16a-1(f) promulgated under the Securities Exchange Act of 1934, as amended, or any successor rule. (x) "Shares" means the shares of beneficial interest, $.01 par value per share, of the Company. (y) "Trustee" means a member of the Board of Trustees. 3. Administration of the Plan. The Plan shall be administered by the Board of Trustees of the Company if all members of the Board of Trustees are Non-employee Trustees; provided, however, that the Board of Trustees may designate a committee or committee(s) of the Board of Trustees composed of two or more of its Trustees to administer the Plan in its stead. If any member of the Board of Trustees is not a Non- employee Trustee, the Board of Trustees shall (i) designate a committee composed of two or more Trustees, each of whom is a Non-employee Trustee (the "Non-employee Trustee Committee"), to operate and administer the Plan in its stead, (ii) designate two committees to operate and administer the Plan in its stead, one of such committees composed of two or more of its Non-employee Trustees (the "Non-employee Trustee Committee") to operate and administer the Plan with respect to the Company's Section 16 Officers and the Trustees who are not members of the Non-employee Trustee Committee, and another committee composed of two or more Trustees (which may include Trustees who are not Non- employee Trustees) to operate and administer the Plan with respect to persons other than Section 16 Officers or Trustees or (iii) designate only one committee composed of two or more Non-employee Trustees (the "Non-employee Trustee Committee") to operate and administer the Plan with respect to the Company's Section 16 Officers and Trustees (other than those Trustees serving on the Non-employee Trustee Committee) and itself operate and administer the Plan with respect to persons other than Section 16 Officers or Trustees. Any of such committees designated by the Board of Trustees, and the Board of Trustees itself in its administrative capacity with respect to the Plan, is referred to as the "Committee." With the exception of the timing of grants of Options, the price at which Shares may be purchased, and the number of Shares covered by Options granted to each member of the Non-employee Trustee Committee, all of which shall be as specifically set forth in Section 9, the other provisions set forth herein, as it pertains to members of the Non-employee Trustee Committee, shall be administered by the Board of Trustees. (a) Meetings. The Committee shall hold meetings at such times and places as it may determine. Acts approved at a meeting by a majority of the members of the Committee or acts approved in writing by the unanimous consent of the members of the Committee shall be the valid acts of the Committee. (b) Grants and Awards. Except with respect to Options granted under Subsection 8(j) and to Non-employee Trustee Committee Members pursuant to Section 9, the Committee shall from time to time at its discretion direct the Company to grant Options and Awards pursuant to the terms of the Plan. The Committee shall have plenary authority to (i) determine the persons to whom, and the times at which Options and Awards are to be granted as well as the terms applicable to Options and Awards, (ii) determine the type of Option to be granted and the number of Shares subject thereto, (iii) determine the Awardees to whom, and the times at which, Restricted Shares are granted, the number of Shares awarded, and the purchase price per Share, if any, and (iv) approve the form and terms and conditions of the Option Documents and Award Agreements; all subject, however, to the express provisions of the Plan. In making such determinations, the Committee may take into account the nature of the Grantee's services and responsibilities, the Grantee's present and potential contribution to the Company's success and such other factors as it may deem relevant. Notwithstanding the foregoing, grants of Options to Non-employee Trustee Committee Members shall be made exclusively in accordance with Section 9 and such other provisions of the Plan that specifically apply to such Options. The interpretation and construction by the Committee of any provisions of the Plan or of any Option or Award granted under it shall be final, binding and conclusive. (c) Exculpation. No member of the Committee shall be personally liable for monetary damages as such for any action taken or any failure to take any action in connection with the administration of the Plan or the granting of Options or Awards thereunder unless (i) the member of the Committee has breached or failed to perform the duties of his office under applicable law and (ii) the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness; provided, however, that the provisions of this Subsection 3(c) shall not apply to the responsibility or liability of a member of the Committee pursuant to any criminal statute or to the liability of a member of the Committee for the payment of taxes pursuant to local, state or federal law. (d) Indemnification. Service on the Committee shall constitute service as a member of the Board of Trustees. Each member of the Committee shall be entitled without further act on his part to indemnity from the Company to the fullest extent provided by applicable law and the Company's Declaration of Trust and/or By-laws in connection with or arising out of any action, suit or proceeding with respect to the administration of the Plan or the granting of Options or Awards thereunder in which he or she may be involved by reason of his or her being or having been a member of the Committee, whether or not he or she continues to be such member of the Committee at the time of the action, suit or proceeding. 4. Grants and Awards under the Plan. Options under the Plan may be in the form of a Non-qualified Stock Option, an ISO, or Awards of Restricted Shares, or any combination thereof, at the discretion of the Committee. 5. Eligibility. All key employees, consultants and advisors of the Company or an Affiliate and members of the Board of Trustees shall be eligible to receive Options and Awards hereunder. The Committee, in its sole discretion, shall determine whether an individual qualifies as a key employee. Notwithstanding anything to the contrary contained herein, consultants and advisors shall only be eligible to receive Options or Awards provided bona fide services shall be rendered by such persons, and such services are not in connection with a capital raising transaction. 6. Shares Subject to Plan. The aggregate maximum number of Shares for which Options or Awards may be granted pursuant to the Plan (including Shares for which Options or Awards were granted under the Plan prior to this restatement) is six million five hundred thousand (6,500,000), subject to adjustment as provided in Section 11 of the Plan. The Shares shall be issued from authorized and unissued Shares or Shares held in or hereafter acquired for the treasury of the Company. If an Option terminates or expires without having been fully exercised for any reason, or if Shares granted pursuant to an Award have been conveyed back to the Company pursuant to the terms of an Award Agreement, the Shares for which the Option was not exercised or the Shares that were conveyed back to the Company may again be the subject of one or more Options or Awards granted pursuant to the Plan. 7. Term of the Plan. The amended and restated Plan is effective as of February 26, 1997, the date of its adoption by the Board of Trustees (the "Approval Date"), subject to the approval of the amended and restated Plan within twelve months of the Approval Date by a majority of the votes cast at a duly called meeting of the shareholders at which a quorum representing a majority of all outstanding voting interests of the Company is, either in person or by proxy, present and voting, or by a method and in a degree that would be treated as adequate under applicable state law in the case of an action requiring shareholder approval. No Option or Award may be granted under the Plan ten years after the Approval Date. If the Plan is not approved by shareholder vote as described above, all Options and Awards granted under the Plan as amended and restated that could not have been granted under the Plan as in effect without regard to this Amended and Restated Plan shall be null and void. 8. Option Documents and Terms. Each Option granted under the Plan shall be a Non-qualified Stock Option unless the Option shall be specifically designated at the time of grant to be an ISO for federal income tax purposes. To the extent any Option designated an ISO is determined for any reason not to qualify as an incentive stock option within the meaning of Section 422 of the Code, such Option shall be treated as a Non-qualified Stock Option for all purposes under the provisions of the Plan. Options granted pursuant to the Plan shall be evidenced by the Option Documents in such form as the Committee shall from time to time approve, which Option Documents shall comply with and be subject to the following terms and conditions and such other terms and conditions as the Committee shall from time to time require which are not inconsistent with the terms of the Plan. However, the provisions of this Section 8 shall not be applicable to Options granted to non-employee members of the Board of Trustees, except as otherwise provided in Subsection 9(c). (a) Number of Option Shares. Each Option Document shall state the number of Shares to which it pertains. An Optionee may receive more than one Option, which may include Options which are intended to be ISO's and Options which are not intended to be ISO's, but only on the terms and subject to the conditions and restrictions of the Plan. Notwithstanding anything to the contrary contained herein, no employee shall be granted Options to acquire more than two hundred fifty thousand (250,000) Shares during any calendar year. (b) Option Price. Each Option Document shall state the Option Price which, for a Non-qualified Stock Option, may be less than, equal to, or greater than the Fair Market Value of the Shares on the date the Option is granted and, for an ISO, shall be at least 100% of the Fair Market Value of the Shares on the date the Option is granted as determined by the Committee in accordance with this Subsection 8(b); provided, however, that if an ISO is granted to an Optionee who then owns, directly or by attribution under Section 424(d) of the Code, interests in the Company or any parent or subsidiary corporation possessing more than ten percent of the total combined voting power of all classes of interests of the Company or such parent or subsidiary, then the Option Price shall be at least 110% of the Fair Market Value of the Shares on the date the Option is granted. If the Shares are traded in a public market, then the Fair Market Value per Share shall be, if the Shares are listed on a national securities exchange or included in the NASDAQ National Market System, the last reported sale price thereof on the relevant date, or, if the Shares are not so listed or included (or if there was no reported sale on the relevant date), the mean between the last reported "bid" and "asked" prices thereof on the relevant date, as reported on NASDAQ or by the exchange, as applicable, or, if not so reported, as reported by the National Daily Quotation Bureau, Inc. or as reported in a customary financial reporting service, as applicable, or, in the event such method of determination of fair market value is determined to be inaccurate or such information as is needed for such determination as set forth above is not available, as the Committee determines in good faith. (c) Exercise. No Option shall be deemed to have been exercised prior to the receipt by the Company of written notice of such exercise and of payment in full of the Option Price for the Shares to be purchased. Each such notice shall specify the number of Shares to be purchased and shall (unless the Shares are covered by a then current registration statement or qualified Offering Statement under Regulation A under the Securities Act of 1933, as amended (the "Act")), contain the Optionee's acknowledgment in form and substance satisfactory to the Company that (a) such Shares are being purchased for investment and not for distribution or resale (other than a distribution or resale which, in the opinion of counsel satisfactory to the Company, may be made without violating the registration provisions of the Act), (b) the Optionee has been advised and understands that (i) the Shares have not been registered under the Act and are "restricted securities" within the meaning of Rule 144 under the Act and are subject to restrictions on transfer and (ii) the Company is under no obligation to register the Shares under the Act or to take any action which would make available to the Optionee any exemption from such registration, (c) such Shares may not be transferred without compliance with all applicable federal and state securities laws, and (d) an appropriate legend referring to the foregoing restrictions on transfer and any other restrictions imposed under the Option Documents may be endorsed on the certificates. Notwithstanding the foregoing, if the Company determines that issuance of Shares should be delayed pending (A) registration under federal or state securities laws, (B) the receipt of an opinion of counsel satisfactory to the Company that an appropriate exemption from such registration is available, (C) the listing or inclusion of the Shares on any securities exchange or an automated quotation system or (D) the consent or approval of any governmental regulatory body whose consent or approval is deemed necessary in connection with the issuance of such Shares, the Company may defer exercise of any Option granted hereunder until any of the events described in this sentence has occurred. (d) Medium of Payment. An Optionee shall pay for Shares (i) in cash, (ii) by certified or cashier's check payable to the order of the Company, or (iii) by such other mode of payment as the Committee may approve, including payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board. Furthermore, the Committee may provide in an Option Document that payment may be made in whole or in part in Shares held by the Optionee. If payment is made in whole or in part in Shares, then the Optionee shall deliver to the Company certificates registered in the name of such Optionee representing the Shares owned by such Optionee, free of all liens, claims and encumbrances of every kind and having an aggregate Fair Market Value on the date of delivery that is at least as great as the Option Price of the Shares (or relevant portion thereof) with respect to which such Option is to be exercised by the payment in Shares, endorsed in blank or accompanied by stock powers duly endorsed in blank by the Optionee. In the event that certificates for Shares delivered to the Company represent a number of Shares in excess of the number of Shares required to make payment for the Option Price of the Shares (or relevant portion thereof) with respect to which such Option is to be exercised by payment in Shares, the certificate or certificates issued to the Optionee shall represent (i) the Shares in respect of which payment is made, and (ii) such excess number of Shares. Notwithstanding the foregoing, the Committee may impose from time to time such limitations and prohibitions on the use of Shares to exercise an Option as it deems appropriate. (e) Termination of Options. (i) No Option shall be exercisable after the first to occur of the following: (A) Expiration of the Option term specified in the Option Document, which, in the case of an ISO, shall not occur after (1) ten years from the date of grant, or (2) five years from the date of grant of an ISO if the Optionee on the date of grant owns, directly or by attribution under Section 424(d) of the Code, interests in the Company or any parent or subsidiary corporation possessing more than ten percent (10%) of the total combined voting power of all classes of interests of the Company or such parent or subsidiary; (B) The third month anniversary of the date of termination of the Optionee's services or employment with the Company or an Affiliate for any reason other than death, Disability or Retirement. (C) A finding by the Committee, after full consideration of the facts presented on behalf of both the Company and the Optionee, that the Optionee has breached his or her employment or service contract with the Company or an Affiliate, or has been engaged in disloyalty to the Company or an Affiliate, including, without limitation, fraud, embezzlement, theft, commission of a felony or proven dishonesty in the course of his or her employment or service, or has disclosed trade secrets or confidential information of the Company or an Affiliate. In such event, in addition to immediate termination of the Option, the Optionee shall automatically forfeit all Shares for which the Company has not yet delivered the Share certificates upon refund by the Company of the Option Price. Notwithstanding anything herein to the contrary, the Company may withhold delivery of Share certificates pending the resolution of any inquiry that could lead to a finding resulting in a forfeiture; (D) The date, if any, set by the Board of Trustees as an accelerated expiration date in the event of the liquidation or dissolution of the Company; or (E) The occurrence of such other event or events as may be set forth in the Option Document as causing an accelerated expiration of the Option. (ii) Notwithstanding the foregoing, the Committee may extend the period during which all or any portion of an Option may be exercised to a date no later than the Option term specified in the Option Document pursuant to Subsection 8(e)(i)(A), provided that any change pursuant to this Subsection 8(e)(ii) which would cause an ISO to become a Non-qualified Stock Option may be made only with the consent of the Optionee. (iii) The terms of an executive severance agreement or other agreement between the Company and an Optionee, approved by the Committee, whether entered into prior or subsequent to the grant of an Option, which provide for Option exercise dates later than those set forth in Subsection 8(e)(i) but permitted by this Subsection 8(e)(ii) shall be deemed to be Option terms approved by the Committee and consented to by the Optionee. (iv) Unless otherwise expressly permitted in the Option Document, no Option granted pursuant to this Section 8 shall be exercisable following the termination of the Optionee's services as a member of the Board of Trustees or employment with the Company or any Affiliate with respect to any Shares in excess of those which could have been acquired by exercise of the Option on the date of such termination of services or employment. (f) Transfers. No Option granted under the Plan may be transferred, except by will or by the laws of descent and distribution. During the lifetime of the person to whom an Option is granted, such Option may be exercised only by such person. Notwithstanding the foregoing, (1) a Non-qualified Stock Option may be transferred pursuant to the terms of a "qualified domestic relations order," within the meaning of Sections 401(a)(13) and 414(p) of the Code or within the meaning of Title I of the Employee Retirement Income Security Act of 1974, as amended, and (2) the Committee may provide, in an Option Document, that an Optionee may transfer Options to his or her children, grandchildren or spouse or to one or more trusts for the benefit of such family members or to partnerships in which such family members are the only partners (a "Family Transfer"), provided that the Optionee receives no consideration for such Family Transfer and the Option Documents relating to Options transferred in such Family Transfer continue to be subject to the same terms and conditions that were applicable to such Options immediately prior to the Family Transfer. (g) Limitation on ISO Grants. In no event shall the aggregate Fair Market Value of the Shares with respect to which ISOs issued under the Plan and incentive stock options issued under any other incentive stock option plans of the Company or its Affiliates which are exercisable for the first time by the Optionee during any calendar year exceed $100,000. Any ISOs issued in excess of this limitation shall be treated as Non-qualified Stock Options issued under the Plan. For purposes of this subsection 8(g), the Fair Market Value of Shares shall be determined as of the date of grant of the ISO or other incentive stock option. (h) Other Provisions. Subject to the provisions of the Plan, the Option Documents shall contain such other provisions including, without limitation, provisions authorizing the Committee to accelerate the exercisability of all or any portion of an Option granted pursuant to the Plan, additional restrictions upon the exercise of the Option or additional limitations upon the term of the Option, as the Committee shall deem advisable. (i) Amendment. Subject to the provisions of the Plan, the Committee shall have the right to amend Option Documents issued to an Optionee, subject to the Optionee's consent if such amendment is not favorable to the Optionee, except that the consent of the Optionee shall not be required for any amendment made pursuant to Subsection 8(e)(i)(C) or Section 10 of the Plan, as applicable. (j) No Options shall be granted under the Plan if, taking into account the grant of such options, five or fewer individuals would own more than 50% of the outstanding Shares, as computed for purposes of Code Section 856(h). 9. Special Provisions Relating to Grants of Options to Non- employee Members of the Board of Trustees. Options granted pursuant to the Plan to non-employee members of the Board of Trustees shall be granted, without any further action by the Committee, in accordance with the terms and conditions set forth in this Section 9. Options granted pursuant to this Section 9 shall be evidenced by Option Documents in such form as the Committee shall from time to time approve, which Option Documents shall comply with and be subject to the following terms and conditions and such other terms and conditions as the Committee shall from time to time require which are not inconsistent with the terms of the Plan and would not cause a Non- employee Trustee to lose his or her status as a "non-employee director" (as that term is used for purposes of Rule 16b-3) due to the grant of Options to such person pursuant to this Section 9. (a) Timing of Grants; Number of Shares Subject of Options; Exercisability of Options; Option Price. Each non-employee member of the Board of Trustees shall be granted annually, commencing on the date of the initial public offering of Shares, and on each anniversary of such date thereafter, an Option to purchase five thousand (5,000) Shares provided such person is a member of the Board of Trustees on such grant date. Each such Option shall be a Non-qualified Stock Option exercisable with respect to twenty percent (20%) of the Shares subject to such Option after the first anniversary of the date of grant, exercisable with respect to fifty percent (50%) of the Shares after the second anniversary of the date of grant, and fully exercisable after the third anniversary of the date of grant. The Option Price shall be equal to the Fair Market Value of the Shares on the date the Option is granted. (b) Termination of Options Granted Pursuant to Section 9. No Option granted pursuant to this Section 9 shall be exercisable after the first to occur of the following: (i) The tenth anniversary of the date of grant. (ii) The third month anniversary of the date of termination of the Optionee's services as a member of the Board of Trustees for any reason other than death, Disability or Retirement. Notwithstanding anything to the contrary contained herein, no Option granted pursuant to this Section 9 shall be exercisable following the termination of the Optionee's services as a member of the Board of Trustees with respect to any Shares in excess of those which could have been acquired by exercise of the Option on the date of such termination of services. (c) Applicability of Section 8 to Options Granted Pursuant to Section 9. The following provisions of Section 8 shall be applicable to Options granted pursuant to this Section 9: Subsection 8(a) (provided that all Options granted pursuant to this Section 9 shall be Non-qualified Stock Options); the last sentence of Subsection 8(b); Subsection 8(c); Subsection 8(d) (provided that Option Documents relating to Options granted pursuant to this Section 9 shall provide that payment may be made in whole or in part in Shares); and Subsection 8(f) (provided that Option Documents relating to Options granted pursuant to this Section 9 shall not permit Family Transfers). 10. Change of Control. In the event of a Change of Control, the Committee may take whatever action it deems necessary or desirable with respect to the Options and Awards outstanding (other than Options granted pursuant to Subsection 8(j) and Section 9), including, without limitation, accelerating the expiration or termination date in the respective Option Documents to a date no earlier than thirty (30) days after notice of such acceleration is given to the Optionees. In addition to the foregoing, in the event of a Change of Control, Options granted pursuant to the Plan and held by Optionees who are employees of the Company or an Affiliate or members of the Board of Trustees at the time of a Change of Control shall become immediately exercisable in full and the restrictions applicable to Restricted Shares awarded to Awardees who are employees of the Company or an Affiliate or members of the Board of Trustees at the time of a Change of Control shall immediately lapse. Any amendment to this Section 10 which diminishes the rights of Optionees, shall not be effective with respect to Options outstanding at the time of adoption of such amendment, whether or not such outstanding Options are then exercisable. A "Change of Control" shall be deemed to have occurred upon the earliest to occur of the following events: (i) the date the shareholders of the Company (or the Board of Trustees, if shareholder action is not required) approve a plan or other arrangement pursuant to which the Company will be dissolved or liquidated, or (ii) the date the shareholders of the Company (or the Board of Trustees, if shareholder action is not required) approve a definitive agreement to sell or otherwise dispose of substantially all of the assets of the Company, or (iii) the date the shareholders of the Company (or the Board of Trustees, if shareholder action is not required) and the shareholders of the other constituent corporation or entity (or its board of directors or trustees if shareholder action is not required) have approved a definitive agreement to merge or consolidate the Company with or into such other corporation or other entity, other than, in either case, a merger or consolidation of the Company in which holders of Shares immediately prior to the merger or consolidation will have at least a majority of the ownership of interests of the surviving corporation or entity (and, if one class of common stock or other equity interest is not the only class of voting securities entitled to vote on the election of directors or trustees of the surviving entity, a majority of the voting power of the surviving entity's voting securities) immediately after the merger or consolidation, which equity interest (and, if applicable, voting securities) is to be held in the same proportion as such holders' ownership of Shares immediately before the merger or consolidation, or (iv) the first day, after the date this Plan is effective on which there has occurred a change in the majority of the positions on the Board of Trustees or if any person (or any group of associated persons acting in concert) acquires, directly or indirectly, more than a percentage of the voting stock of the Trust in excess of that held by the "Senior Executives" (as defined in the Registration Statement) in the aggregate as of the date of the closing of the initial public offering of the Common Shares, in either case without the advance written consent of the current Board of Trustees. 11. Adjustments on Changes in Capitalization. (a) Corporate Transactions. In the event that the outstanding Shares are changed by reason of a reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, combination or exchange of shares and the like (not including the issuance of Shares on the conversion of other securities of the Company which are outstanding on the date of grant and which are convertible into Shares) or dividends payable in Shares, an equitable adjustment shall be made by the Committee in the aggregate number of Shares available under the Plan and in the number of Shares and price per Share subject to outstanding Options. Unless the Committee makes other provisions for the equitable settlement of outstanding options, if the Company shall be reorganized, consolidated, or merged with another corporation, or if all or substantially all of the assets of the Company shall be sold or exchanged, an Optionee shall at the time of issuance of the Shares under such corporate event be entitled to receive upon the exercise of his or her Option the same number and kind of shares or the same amount of property, cash or securities as he or she would have been entitled to receive upon the occurrence of any such corporate event as if he or she had been, immediately prior to such event, the holder of the number of shares covered by his or her Option. (b) Proportionate Application. Any adjustment under this Section 11 in the number of Shares subject to Options shall apply proportionately to only the unexercised portion of any Option granted hereunder. If fractions of a Share would result from any such adjustment, the adjustment shall be revised to the next lower whole number of Shares. (c) Committee Authority. The Committee shall have authority to determine the adjustments to be made under this Section, and any such determination by the Committee shall be final, binding and conclusive. 12. Terms and Conditions of Awards. Awards granted pursuant to the Plan shall be evidenced by written Award Agreements in such form as the Committee shall from time to time approve, which Award Agreements shall comply with and be subject to the following terms and conditions and such other terms and conditions which the Committee shall from time to time require which are not inconsistent with the terms of the Plan. The Committee may, in its sole discretion, shorten or waive any term or condition with respect to all or any portion of any Award. Notwithstanding the foregoing, all restrictions shall lapse or terminate with respect to Restricted Shares upon the death or Disability of the Awardee. (a) Number of Shares. Each Award Agreement shall state the number of Shares to which it pertains. (b) Purchase Price. Each Award Agreement shall specify the purchase price, if any, which applies to the Award. If the Board of Trustees specifies a purchase price, the Awardee shall be required to make payment on or before the date specified in the Award Agreement. An Awardee shall pay for such Shares (i) in cash, (ii) by certified check payable to the order of the Company, or (iii) by such other mode of payment as the Committee may approve. (c) Restrictions on Transfer and Forfeitures. A share certificate representing the Restricted Shares granted to an Awardee shall be registered in the Awardee's name but shall be held in escrow by the Company or an appropriate officer of the Company, together with an undated share transfer power executed by the Awardee with respect to each share certificate representing Restricted Shares in such Awardee's name. The Awardee shall generally have the rights and privileges of a shareholder as to such Restricted Shares including the right to vote such Restricted Shares and to receive and retain all cash dividends with respect to such Shares, except that the following restrictions shall apply: (i) the Awardee shall not be entitled to delivery of the certificate until the expiration or termination of any period designated by the Committee ("Restricted Period") and the satisfaction of any other conditions prescribed by the Committee; and (ii) all distributions with respect to the Restricted Shares other than cash dividends, such as share dividends, share splits or distributions of property, and any distributions (other than cash dividends) subsequently made with respect to other distributions, shall be delivered to the Company or an appropriate officer of the Company, together with appropriate share transfer powers or other instruments of transfer signed and delivered to the Company or appropriate officer of the Company by the Awardee, to be held by the Company or appropriate officer of the Company and released to either the Awardee or the Company, as the case may be, together with the Shares to which they relate; (iii) the Awardee will have no right to sell, exchange, transfer, pledge, hypothecate or otherwise dispose of any of the Restricted Shares or distributions (other than cash dividends) with respect thereto; and (iv) all of the Restricted Shares shall be forfeited and all rights of the Awardee with respect to such Restricted Shares shall terminate without further obligation on the part of the Company unless the Awardee has remained a regular full-time employee of the Company or an Affiliate, any of its subsidiaries or any parent or any combination thereof until the expiration or termination of the Restricted Period and the satisfaction of any other conditions prescribed by the Committee applicable to such Restricted Share. Upon the forfeiture of any Restricted Share, such forfeited shares shall be transferred to the Company without further action by the Awardee. (d) Lapse of Restrictions. Upon the expiration or termination of the Restricted Period and the satisfaction of any other conditions prescribed by the Committee as provided for in the Plan, the restrictions applicable to the Restricted Share shall lapse and a stock certificate for the number of shares of Common Stock with respect to which the restrictions have lapsed shall be delivered, free of all such restrictions, except any that may be imposed by law, to the Awardee or the beneficiary or estate, as the case may be. The Company shall not be required to deliver any fractional share of Common Stock but will pay, in lieu thereof, the fair market value (determined as of the date the restrictions lapse) of such fractional share to the Awardee or the Awardee's beneficiary or estate, as the case may be. The Award may provide for the lapse of restrictions on transfer and forfeiture conditions in installments. Notwithstanding the foregoing, unless the Shares are covered by a then current registration statement or a Notification under Regulation A under the Act, the Company may require as a condition to the transfer of Share certificates to an Awardee under this Subsection 12(d) that the Awardee provide the Company with an acknowledgment in form and substance satisfactory to the Company that (a) such Shares are being purchased for investment and not for distribution or resale (other than a distribution or resale which, in the opinion of counsel satisfactory to the Company, may be made without violating the registration provisions of the Act), (b) the Optionee has been advised and understands that (i) the Shares have not been registered under the Act and are "restricted securities" within the meaning of Rule 144 under the Act and are subject to restrictions on transfer and (ii) the Company is under no obligation to register the Shares under the Act or to take any action which would make available to the Optionee any exemption from such registration, (c) such Shares may not be transferred without compliance with all applicable federal and state securities laws, and (d) an appropriate legend referring to the foregoing restrictions on transfer may be endorsed on the certificates. Notwithstanding the foregoing, if the Company determines that the transfer of Share certificates should be delayed pending (A) registration under federal or state securities laws, (B) the receipt of an opinion of counsel satisfactory to the Company that an appropriate exemption from such registration is available, (C) the listing or inclusion of the Shares on any securities exchange or an automated quotation system or (D) the consent or approval of any governmental regulatory body whose consent or approval is necessary in connection with the issuance of such Shares, the Company may defer transfer of Share certificates hereunder until any of the events described in this sentence has occurred. (e) Section 83(b) Election. An Awardee who files an election with the Internal Revenue Service to include the fair market value of any Restricted Share in gross income while they are still subject to restrictions shall promptly furnish the Company with a copy of such election together with the amount of any federal, state, local or other taxes required to be withheld to enable the Company to claim an income tax deduction with respect to such election. (f) Rights as Shareholder. Upon payment of the purchase price, if any, for Shares covered by an Award and compliance with the acknowledgment requirement of subsection 12(d), the Grantee shall have all of the rights of a shareholder with respect to the Shares covered thereby, including the right to vote the Shares and receive all dividends and other distributions paid or made with respect thereto, except to the extent otherwise provided by the Committee or in the Award Agreement. (g) Amendment. Subject to the provisions of the Plan, the Committee shall have the right to amend Awards issued to an Awardee, subject to the Awardee's consent if such amendment is not favorable to the Awardee, except that the consent of the Awardee shall not be required for any amendment made pursuant to Section 10 of the Plan. 13. Amendment of the Plan. The Board of Trustees of the Company may amend the Plan from time to time in such manner as it may deem advisable. Nevertheless, the Board of Trustees of the Company may not change the class of individuals eligible to receive an ISO or increase the maximum number of Shares as to which Options or Awards may be granted without obtaining approval, within twelve months before or after such action, by vote of a majority of the votes cast at a duly called meeting of the shareholders at which a quorum representing a majority of all outstanding voting interests of the Company is, either in person or by proxy, present and voting on the matter, or by a method and in a degree that would be treated as adequate under applicable state law in the case of an action requiring shareholder approval. No amendment to the Plan shall adversely affect any outstanding Option or Award, however, without the consent of the Grantee. 14. No Commitment to Retain. The grant of an Option or an Award pursuant to the Plan shall not be construed to imply or to constitute evidence of any agreement, express or implied, on the part of the Company or any Affiliate to retain the Grantee in the employ of the Company or an Affiliate and/or as a member of the Company's Board of Trustees or in any other capacity. 15. Withholding of Taxes. Whenever the Company proposes or is required to deliver or transfer Shares in connection with an Award or the exercise of an Option, the Company shall have the right to (a) require the recipient to remit or otherwise make available to the Company an amount sufficient to satisfy any federal, state and/or local withholding tax requirements prior to the delivery or transfer of any certificate or certificates for such Shares or (b) take whatever other action it deems necessary to protect its interests with respect to its tax liabilities. The Company's obligation to make any delivery or transfer of Shares shall be conditioned on the Grantee's compliance, to the Company's satisfaction, with any withholding requirement. 16. Interpretation. The Plan is intended to enable transactions under the Plan with respect to Trustees and officers (within the meaning of Section 16(a) under the Securities Exchange Act of 1934, as amended) to satisfy the conditions of Rule 16b-3; to the extent that any provision of the Plan would cause a conflict with such conditions or would cause the administration of the Plan as provided in Section 3 to fail to satisfy the conditions of Rule 16b-3, such provision shall be deemed null and void to the extent permitted by applicable law. This section shall not be applicable if no class of the Company's equity securities is then registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended. 2 4 EX-27 6
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet at June 30, 1999 and the Consolidated Statement of Operations for the six months ended June 30, 1999 and is qualified in its entirety by reference to such financial statements. 0000921112 LIBERTY PROPERTY TRUST 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 33,555 0 5,780 2,977 0 39,335 3,167,096 243,685 3,042,405 46,853 1,512,879 0 120,814 66 1,169,955 3,042,405 0 127,482 0 30,689 24,638 0 25,822 46,263 0 46,263 0 0 0 40,502 0.61 0.60
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