UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________________ to _______________________ Commission file number 1-13274 Mack-Cali Realty Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Maryland 22-3305147 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 11 Commerce Drive, Cranford, New Jersey 07016-3501 - -------------------------------------------------------------------------------- (Address of principal executive office) (Zip Code) (908) 272-8000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or such shorter period that the Registrant was required to file such report) YES |X| NO |_| and (2) has been subject to such filing requirements for the past ninety (90) days YES |X| NO |_| APPLICABLE ONLY TO CORPORATE ISSUERS: As of April 30, 1998, there were 56,977,190 shares of $0.01 par value common stock outstanding. Page 1 of 28 MACK-CALI REALTY CORPORATION Form 10-Q INDEX Part I Financial Information Page # ------ Item 1. Financial Statements: Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 ...................................4 Consolidated Statements of Operations for the three months ended March 31, 1998 and 1997 ...........................5 Consolidated Statement of Stockholders' Equity for the three months ended March 31, 1998 .......................6 Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1997 ...........................7 Notes to Consolidated Financial Statements .................8 - 21 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..................................22 - 25 Item 3. Quantitative and Qualitative Disclosures about Market Risk...............................25 Part II Other Information and Signatures Item 1. Legal Proceedings ..........................................25 Item 2. Changes in Securities and Use of Proceeds ..................25 Item 6. Exhibits....................................................26 - 27 Signatures .................................................28 Page 2 of 28 MACK-CALI REALTY CORPORATION Part I - Financial Information Item I: Financial Statements The accompanying unaudited consolidated balance sheets, statements of operations, of stockholders' equity, and of cash flows and related notes, have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. The financial statements reflect all adjustments consisting only of normal, recurring adjustments, which are, in the opinion of management, necessary for a fair presentation for the interim periods. The aforementioned financial statements should be read in conjunction with the notes to the aforementioned financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. The results of operations for the three month period ended March 31, 1998 are not necessarily indicative of the results to be expected for the entire fiscal year or any other period. Page 3 of 28 MACK-CALI REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) ================================================================================ March 31, December 31, ASSETS 1998 1997 - ------------------------------------------------------------------------------ Rental property Land $ 461,368 $ 374,242 Buildings and improvements 2,567,225 2,206,462 Tenant improvements 50,708 44,596 Furniture, fixtures and equipment 4,650 4,316 - ------------------------------------------------------------------------------ 3,083,951 2,629,616 Less - accumulated depreciation and amortization (118,567) (103,133) - ------------------------------------------------------------------------------ Total rental property 2,965,384 2,526,483 Cash and cash equivalents 11,717 2,704 Investment in partially-owned entity 18,034 -- Unbilled rents receivable 30,641 27,438 Deferred charges and other assets, net 21,672 18,989 Restricted cash 6,791 6,844 Accounts receivable, net of allowance for doubtful accounts of $493 and $327 3,826 3,736 Mortgage notes receivable 27,250 7,250 - ------------------------------------------------------------------------------ Total assets $3,085,315 $2,593,444 ============================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------ Mortgages and loans payable $1,207,592 $ 972,650 Dividends and distributions payable 35,139 28,089 Accounts payable and accrued expenses 31,510 31,136 Rents received in advance and security deposits 29,651 21,395 Accrued interest payable 1,935 3,489 - ------------------------------------------------------------------------------ Total liabilities 1,305,827 1,056,759 - ------------------------------------------------------------------------------ Minority interest of unitholders in Operating Partnership 404,830 379,245 - ------------------------------------------------------------------------------ Commitments and contingencies Stockholders' equity: Preferred stock, 5,000,000 shares authorized, none issued Common stock, $0.01 par value, 190,000,000 shares authorized, 55,835,686 and 49,856,289 shares outstanding 558 499 Additional paid-in capital 1,463,460 1,244,883 Dividends in excess of net earnings (89,360) (87,942) - ------------------------------------------------------------------------------ Total stockholders' equity 1,374,658 1,157,440 - ------------------------------------------------------------------------------ Total liabilities and stockholders' equity $3,085,315 $2,593,444 ============================================================================== The accompanying notes are an integral part of these consolidated financial statements. Page 4 of 28 MACK-CALI REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) ================================================================================ Three Months Ended March 31, REVENUES 1998 1997 - -------------------------------------------------------------------------------- Base rents $ 92,916 $42,791 Escalations and recoveries from tenants 10,357 6,612 Parking and other 2,006 1,544 Interest income 544 1,208 - -------------------------------------------------------------------------------- Total revenues 105,823 52,155 - -------------------------------------------------------------------------------- EXPENSES - -------------------------------------------------------------------------------- Real estate taxes 10,073 5,433 Utilities 8,301 3,725 Operating services 12,693 6,416 General and administrative 6,196 3,173 Depreciation and amortization 16,231 7,493 Interest expense 18,480 7,820 - -------------------------------------------------------------------------------- Total expenses 71,974 34,060 - -------------------------------------------------------------------------------- Income before minority interest 33,849 18,095 Minority interest 7,306 1,636 - -------------------------------------------------------------------------------- Net income $ 26,543 $ 16,459 ================================================================================ Basic earnings per share $ 0.52 $ 0.45 Diluted earnings per share $ 0.51 $ 0.44 - -------------------------------------------------------------------------------- Dividends declared per common share $ 0.50 $ 0.45 - -------------------------------------------------------------------------------- Basic weighted average shares outstanding 51,363 36,461 Diluted weighted average shares outstanding 58,682 40,817 - -------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. Page 5 of 28 MACK-CALI REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (in thousands) ================================================================================
Retained Earnings Additional (Dividends in Total Common Stock Paid-In Excess of Stockholders' Shares Par Value Capital Net Earnings) Equity - ------------------------------------------------------------------------------------------------- Balance at January 1, 1998 49,856 $499 $1,244,883 $(87,942) $1,157,440 Net income -- -- -- 26,543 26,543 Dividends -- -- -- (27,961) (27,961) Net proceeds from common stock offerings 5,856 58 215,726 -- 215,784 Conversion of Units to shares of common stock 22 -- 848 -- 848 Proceeds from stock options exercised 102 1 2,003 -- 2,004 - ------------------------------------------------------------------------------------------------- Balance at March 31, 1998 55,836 $558 $1,463,460 $(89,360) $1,374,658 =================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. Page 6 of 28 MACK-CALI REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) ================================================================================
Three Months Ended March 31, CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997 - ----------------------------------------------------------------------------------- Net income $ 26,543 $ 16,459 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 16,231 7,493 Amortization of deferred financing costs 254 271 Minority interest 7,306 1,636 Changes in operating assets and liabilities: Increase in unbilled rents receivable (3,203) (1,606) Increase in deferred charges and other assets, net (3,790) (1,665) Increase in accounts receivable, net (34) (1,508) Increase in accounts payable and accrued expenses 374 6,585 Increase in rents received in advance and security deposits 8,256 4,827 Decrease in accrued interest payable (1,554) (954) - ----------------------------------------------------------------------------------- Net cash provided by operating activities $ 50,383 $ 31,538 =================================================================================== CASH FLOWS FROM INVESTING ACTIVITIES - ----------------------------------------------------------------------------------- Additions to rental property $(406,659) $(230,429) Issuance of mortgage note receivable (20,000) (11,600) Investment in partially-owned entity (18,034) -- Decrease (increase) in restricted cash 53 (170) - ----------------------------------------------------------------------------------- Net cash used in investing activities $(444,640) $(242,199) - ----------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES - ----------------------------------------------------------------------------------- Proceeds from mortgages and loans payable $ 419,851 $ 47,195 Repayments of mortgages and loans payable (205,514) (19,299) Repurchase of common units (766) -- Net proceeds from common stock offerings 215,784 -- Proceeds from stock options exercised 2,004 2,297 Payment of dividends and distributions (28,089) (17,554) - ----------------------------------------------------------------------------------- Net cash provided by financing activities $ 403,270 $ 12,639 =================================================================================== Net increase (decrease) in cash and cash equivalents $ 9,013 $(198,022) Cash and cash equivalents, beginning of period 2,704 204,807 - ----------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 11,717 $ 6,785 ===================================================================================
The accompanying notes are an integral part of these consolidated financial statements. Page 7 of 28 MACK-CALI REALTY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) ================================================================================ 1. ORGANIZATION AND BASIS OF PRESENTATION Organization Mack-Cali Realty Corporation, a Maryland corporation, and subsidiaries (the "Company"), is a fully-integrated, self-administered, self-managed real estate investment trust ("REIT") providing leasing, management, acquisition, development, construction and tenant-related services for its properties. As of March 31, 1998, the Company owned and operated 227 properties and had a significant equity interest in another property (the "Properties"). The Properties aggregate approximately 25.2 million square feet, and are comprised of 216 office and office/flex buildings totaling approximately 24.8 million square feet, six industrial/warehouse buildings totaling approximately 387,000 square feet, two multi-family residential complexes consisting of 453 units, two stand-alone retail properties and two land leases. The Properties are located in 11 states, primarily in the Northeast and Southwest. Basis of Presentation The accompanying consolidated financial statements include all accounts of the Company and its majority-owned subsidiaries, which consist principally of Mack-Cali Realty, L.P. (the "Operating Partnership"). See Investment in Partially-owned Entity in Note 2 for the Company's treatment of unconsolidated partnership interests. All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. SIGNIFICANT ACCOUNTING POLICIES Rental Property Rental properties are stated at cost less accumulated depreciation and amortization. Costs directly related to the acquisition and development of rental properties are capitalized. Capitalized development costs include interest, property taxes, insurance and other project costs incurred during the period of construction. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives. Fully-depreciated assets are removed from the accounts. Depreciation and amortization is computed on a straight-line basis over the estimated useful lives of the assets as follows: Buildings and improvements 5 to 40 years --------------------------------------------------------------- Tenant improvements The shorter of the term of the related lease or useful life --------------------------------------------------------------- Furniture, fixtures and equipment 5 to 10 years --------------------------------------------------------------- On a periodic basis, management assesses whether there are any indicators that the value of the real estate properties may be impaired. A property's value is impaired only if management's estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property are less than the carrying value of the property. Management does not believe that the value of any of its rental properties is impaired. Page 8 of 28 Investment in Partially-owned Entity The Company acquired a 50 percent interest in an office property in March 1998. The Company accounts for its investment in a partially-owned entity under the equity method of accounting as the Company exercises significant influence. This investment is recorded initially at cost, as Investment in Partially-Owned Entity, and subsequently adjusted for net equity in income (loss) and cash contributions and distributions. Cash and Cash Equivalents All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. Deferred Financing Costs Costs incurred in obtaining financing are capitalized and amortized on a straight-line basis, which approximates the effective interest method, over the term of the related indebtedness. Amortization of such costs is included in interest expense and was $254 and $271 for the three months ended March 31, 1998 and 1997, respectively. Deferred Leasing Costs Costs incurred in connection with leases are capitalized and amortized on a straight-line basis over the terms of the related leases and included in depreciation and amortization. Unamortized deferred leasing costs are charged to amortization expense upon early termination of the lease. Certain employees of the Operating Partnership provide leasing services to the Properties and receive fees as compensation ranging from 0.667 percent to 2.667 percent of adjusted rents. For the three months ended March 31, 1998 and 1997, such fees, which are capitalized and amortized, approximated $577 and $206, respectively. Revenue Recognition The Company recognizes base rental revenue on a straight-line basis over the terms of the respective leases. Unbilled rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with the lease agreements. Parking revenue includes income from parking spaces leased to tenants. Rental income on residential property under operating leases having terms generally of one year or less is recognized when earned. The Company receives reimbursements from tenants for certain costs as provided in the lease agreements. These costs generally include real estate taxes, utilities, insurance, common area maintenance and other recoverable costs (see Note 11). Income and Other Taxes The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the Company generally will not be subject to federal income tax to the extent it distributes at least 95 percent of its REIT taxable income to its shareholders and satisfies certain other requirements. REITs are subject to a number of organizational and operational requirements. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate tax rates. The Company is subject to certain state and local taxes. Interest Rate Contracts Interest rate contracts are utilized by the Company to reduce interest rate risks. The Company does not hold or issue derivative financial instruments for trading purposes. The differentials to be received or paid under contracts designated as hedges are recognized in income over the life of the contracts as adjustments to interest expense. Gains and losses are deferred and amortized to interest expense over the remaining life of the associated debt to the extent that such debt remains outstanding. Page 9 of 28 Earnings Per Share In accordance with the Statement of Financial Accounting Standards No. 128 ("FASB No. 128") the Company presents both basic and diluted earnings per share ("EPS"). Basic EPS excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, where such exercise or conversion would result in a lower EPS amount. Dividends and Distributions Payable The dividends and distributions payable at March 31, 1998 represents dividends payable to shareholders of record on April 3, 1998 (55,922,025 shares), distributions payable to minority interest common unitholders (6,789,352 common units) on that same date and preferred distributions to preferred unitholders (232,401 preferred units) for the first quarter 1998. The first quarter 1998 dividends and common unit distributions of $0.50 per share and per common unit, as well as the first quarter preferred unit distribution of $16.875 per preferred unit, were approved by the Board of Directors on March 18, 1998 and were paid on April 21, 1998. Underwriting Commissions and Costs Underwriting commissions and costs incurred in connection with the Company's stock offerings are reflected as a reduction of additional paid-in-capital. Stock Options The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations ("APB No. 25"). Under APB No. 25, compensation cost is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the exercise price of the option granted. Compensation cost for stock options, if any, is recognized ratably over the vesting period. The Company's policy is to grant options with an exercise price equal to the quoted closing market price of the Company's stock on the business day preceding the grant date. Accordingly, no compensation cost has been recognized for the Company's stock option plans. The Company provides additional pro forma disclosures as required under Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation" ("FASB No. 123"). See Note 12. Reclassifi- cations Certain reclassifications have been made to prior period balances in order to conform with current period presentation. 3. ACQUISITIONS/TRANSACTIONS On January 31, 1997, the Company acquired 65 properties ("RM Properties") from Robert Martin Company, LLC and affiliates ("RM") for a total cost of approximately $450,000. The cost of the transaction (the "RM Transaction") was financed through the assumption of $185,283 of mortgage indebtedness ("TIAA Mortgage"), the payment of approximately $220,000 in cash, substantially all of which was obtained from the Company's cash reserves, and the issuance of 1,401,225 common units, valued at $43,788. The RM Properties consist primarily of 54 office and office/flex properties, aggregating approximately 3.7 million square feet, and six industrial/warehouse properties, aggregating approximately 387,000 square feet. In connection with the RM Transaction, the Company was granted a three-year option to acquire two properties (the "Option Properties"), under certain conditions, one of which was acquired in 1997 (see below). The purchase price for the remaining Option Property, under the agreement, is subject to adjustment based on different formulas and is payable in cash or common units. The Company holds a $7,250 mortgage loan ("RM Note Receivable") secured by the remaining Option Property (see Note 6). Page 10 of 28 On December 11, 1997, the Company acquired 54 office properties, aggregating approximately 9.2 million square feet, (the "Mack Properties") from the Mack Company and Patriot American Office Group (the "Mack Transaction"), pursuant to a Contribution and Exchange Agreement (the "Agreement"), for a total cost of approximately $1,102,024. The total cost of the Mack Transaction was financed as follows: (i) $498,757 in cash made available from the Company's cash reserves and from the $200,000 Prudential Term Loan (see Note 7), (ii) $291,879 in debt assumed by the Company (the "Mack Mortgages"), (iii) the issuance of 1,965,886 common units valued at $66,373, (iv) the issuance of 15,237 Series A preferred units and 215,325 Series B preferred units, valued at $236,491 (collectively, the "Preferred Units"), (v) warrants to purchase 2,000,000 common units (the "Unit Warrants"), valued at $8,524, and (vi) the issuance of Contingent Units, as described below. In addition, 2,006,432 contingent common units, 11,895 Series A contingent preferred units and 7,799 Series B contingent preferred units (collectively, the "Contingent Units") were issued as contingent non-participating units. Such Contingent Units have no voting, distribution or other rights until such time as they are redeemed into common units, Series A preferred units, and Series B preferred units, respectively. Redemption of such Contingent Units shall occur upon the achievement of certain performance goals relating to certain of the Mack Properties, specifically the achievement of certain leasing activity. On account of the achievement of certain of the performance goals during the three months ended March 31, 1998, certain of the Contingent Units were redeemed for a specified amount of common and preferred units (see Note 8). With the completion of the Mack Transaction, the Cali Realty Corporation name was changed to Mack-Cali Realty Corporation, and the name of the Operating Partnership was changed from Cali Realty, L.P. to Mack-Cali Realty, L.P. Additionally in 1997, the Company acquired 13 office and office/flex properties, aggregating 1,495,950 square feet, in nine separate transactions with separate sellers, for an aggregate cost of approximately $204,446. Such acquisitions were funded primarily with drawings on the Company's revolving credit facilities. On January 23, 1998, the Company acquired 10 acres of vacant land in the Stamford Executive Park, located in Stamford, Fairfield County, Connecticut for approximately $1,338, which was funded from the Company's cash reserves. The vacant land, on which the Company plans to develop a 40,000 square-foot office/flex property, was acquired from RMC Development Co., LLC. In conjunction with the acquisition of the developable land, the Company signed a 15- year lease, on a triple-net basis, with a single tenant to occupy the entire property being developed. On January 30, 1998, the Company acquired a 17-building office/flex portfolio, aggregating approximately 748,660 square feet located in the Moorestown West Corporate Center in Moorestown, Burlington County, New Jersey and in Bromley Commons in Burlington, Burlington County, New Jersey. The 17 properties were acquired for a total cost of approximately $47,452. The Company is under contract to acquire an additional four office/flex properties in the same locations. The Company also has an option to purchase a property following completion of construction and required lease-up for approximately $3,700. The purchase contract also provides the Company a right of first refusal to acquire up to six additional office/flex properties totaling 202,000 square feet upon their development and lease-up. The initial transaction was funded primarily from drawing on one of the Company's credit facilities as well as the assumption of mortgage debt with an estimated fair value of $8,354 (the "McGarvey Mortgages"). The McGarvey Mortgages currently have a weighted average annual effective interest rate of 6.24 percent and are secured by five of the office/flex properties acquired. On February 2, 1998, the Company acquired 2115 Linwood Avenue, a 68,000 square-foot vacant office building located in Fort Lee, Bergen County, New Jersey. The building was acquired for approximately $5,164, which was made available from drawing on one of the Company's credit facilities. On February 5, 1998, the Company acquired 500 West Putnam Avenue ("500 West Putnam"), a 121,250 square-foot office building located in Greenwich, Fairfield County, Connecticut. The property was acquired for a total cost of approximately $20,125, funded from drawing on one of the Company's credit facilities as well as the assumption of mortgage debt with an estimated fair value of $12,104 which bears interest at an annual effective interest rate of 6.52 percent. On February 25, 1998, the Company acquired 10 Mountainview Road ("Mountainview"), a 192,000 square-foot office property, located in Upper Saddle River, Bergen County, New Jersey. The property was acquired for approximately $24,725, which was made available from proceeds received from the Company's February 1998 offering of common stock. Page 11 of 28 On March 12, 1998, the Company acquired 1250 Capital of Texas Highway South, a 270,703 square foot Class A office building in Austin, Travis County, Texas. The property was acquired for a total cost of approximately $37,062, which was made available from drawing on one of the Company's credit facilities. On March 27, 1998, the Company acquired four office buildings, a daycare center, plus land parcels, and a 50 percent interest in another office building, all of such properties aggregating 875,000 square feet and located in the Prudential Business Campus office complex in Parsippany and East Hanover, Morris County, New Jersey. The properties were acquired for a total cost of approximately $175,856 million, which funds were made available from the Company's cash reserves (provided in part from the proceeds received in the sale of 2,705,628 shares of the Company's Common Stock pursuant to a Stock Purchase Agreement with The Prudential Insurance Company of America, Strategic Value Investors, LLC and Strategic Value Investors International, LLC) and from drawing on one of the Company's credit facilities. Also, on March 27, 1998, the Company acquired ten office properties (the "Pacifica I Acquisition"), located in suburban Denver and Colorado Springs, Colorado, and 2.5 acres of vacant land, located in the Denver Tech Center, from Pacifica Holding Company ("Pacifica"), a private real estate owner and operator in Denver, Colorado, for a total cost of approximately $74,712. Such funds were made available from drawing on one of the Company's credit facilities and the issuance of common units (see Note 8). The Pacifica I Acquisition was comprised of approximately 620,156 square feet of Pacifica's entire 1.4 million square-foot office portfolio, which consists of 19 office buildings and related operations. The Company currently is a party to a letter of intent to acquire the remaining nine office buildings, encompassing 742,973 square feet, from Pacifica for an aggregate purchase price of approximately $113,000. On March 30, 1998, the Company acquired two office buildings, aggregating 308,215 square feet, in the Morris County Financial Center located in Parsippany, Morris County, New Jersey. The properties were acquired for a total cost of approximately $52,753, which was made available from drawing on one of the Company's credit facilities. 4. DEFERRED CHARGES AND OTHER ASSETS March 31, December 31, 1998 1997 ---- ---- Deferred leasing costs $ 22,662 $ 20,297 Deferred financing costs 3,669 3,640 - ------------------------------------------------------------------------------ 26,331 23,937 Accumulated amortization (10,428) (9,535) - ------------------------------------------------------------------------------ Deferred charges, net 15,903 14,402 Prepaid expenses and other assets 5,769 4,587 - ------------------------------------------------------------------------------ Total deferred charges and other assets, net $ 21,672 $ 18,989 ============================================================================== 5. RESTRICTED CASH Restricted cash includes security deposits for the Company's residential properties and certain commercial properties, and escrow and reserve funds for debt service, real estate taxes, property insurance, capital improvements, tenant improvements, and leasing costs established pursuant to certain mortgage financing arrangements, and is comprised of the following: March 31, December 31, 1998 1997 ---- ---- Escrow and other reserve funds $ 1,552 $ 1,278 Security deposits 5,239 5,566 - ------------------------------------------------------------------------------ Total restricted cash $6,791 $ 6,844 ============================================================================== 6. MORTGAGE NOTES RECEIVABLE In connection with the RM Transaction on January 31, 1997, the Company provided a $11,600 non-recourse mortgage loan (the "RM Note Receivable") to entities controlled by the RM principals, bearing interest at an annual rate of 450 basis points over the one-month LIBOR. The RM Note Receivable, which is secured by the Option Properties and Page 12 of 28 guaranteed by certain of the RM principals, matures on February 1, 2000. In conjunction with the acquisition of one of the Option Properties on August 15, 1997, the sellers of the property, certain RM principals, prepaid $4,350 of the RM Note Receivable, leaving a remaining principal balance of $7,250 secured by the remaining Option Property. On March 6, 1998, prior to the completion of the Pacifica I Acquisition, the Company provided a $20,000 mortgage loan to an entity controlled by certain principals of Pacifica. Such mortgage loan is secured by an office property in California. The mortgage note receivable bears interest at an annual rate of 9.25 percent and has a two-year term. 7. MORTGAGES AND LOANS PAYABLE March 31, December 31, 1998 1997 - ------------------------------------------------------------------------------- TIAA Mortgage $ 185,283 $ 185,283 Harborside Mortgages 150,000 150,000 CIGNA Mortgages 75,910 86,650 Mitsubishi Mortgages 72,204 72,204 Prudential Mortgages 61,669 62,205 Other Mortgages 99,937 88,474 Prudential Term Loan 200,000 200,000 Revolving Credit Facilities 356,751 122,100 Contingent Obligation 5,838 5,734 - ------------------------------------------------------------------------------ Total mortgages and loans payable $1,207,592 $ 972,650 ============================================================================== TIAA MORTGAGE In connection with the RM Transaction, on January 31, 1997, the Company assumed a $185,283 non-recourse mortgage loan with Teachers Insurance and Annuity Association of America ("TIAA"), with interest only payable monthly at a fixed annual rate of 7.18 percent (the "TIAA Mortgage"). The TIAA Mortgage is secured and cross-collateralized by 43 of the RM Properties and matures on December 31, 2003. The Company, at its option, may convert the TIAA Mortgage to unsecured debt upon achievement by the Company of an investment credit rating of Baa3/BBB- or better. The TIAA Mortgage is prepayable in whole or in part subject to certain provisions, including yield maintenance. HARBORSIDE MORTGAGES In connection with the acquisition of Harborside Financial Center ("Harborside"), on November 4, 1996, the Company assumed existing mortgage debt and was provided seller-financed mortgage debt aggregating $150,000. The existing financing, with a principal balance of $104,059 as of March 31, 1998, bears interest at a fixed rate of 7.32 percent for a term of approximately nine years. The seller-provided financing, with a principal balance of $45,941 as of March 31, 1998, also has a term of approximately nine years and initially bears interest at a rate of 6.99 percent. The interest rate on the seller-provided financing will be reset at the end of the third and sixth loan years based on the yield of the three-year treasury obligation at that time, with spreads of 110 basis points in years four through six and 130 basis points in years seven through maturity. CIGNA MORTGAGES In connection with the Mack Transaction, the Company assumed non-recourse mortgage debt (the "CIGNA Mortgages") aggregating $75,910 in principal as of March 31, 1998, with Connecticut General Life Insurance Company (CIGNA). Such mortgages, which are secured by five of the Mack Properties, bear interest at a weighted average fixed rate of 7.68 percent and require monthly payments of interest and principal on various term amortization schedules. The various mortgages mature between October 1998 and October 2003. In April 1998, simultaneous with the Company obtaining the $150,000 Prudential Mortgage Loan, as described below, the Company retired one of the CIGNA Mortgages with a principal balance of $27,835. MITSUBISHI MORTGAGES In connection with the Mack Transaction, the Company assumed non-recourse variable-rate mortgage debt (the "Mitsubishi Mortgages") aggregating $72,204 in principal as of December 31, 1997 with Mitsubishi Trust and Banking Corporation. Such mortgages, which are secured by two of the Mack Properties, bear interest at a variable rate of 65 basis points over LIBOR (5.6875 percent at March 31, 1998) and mature between January 2008 and January 2009. Page 13 of 28 PRUDENTIAL MORTGAGES The Company has mortgage debt (the "Prudential Mortgages") aggregating $61,669 in principal as of March 31, 1998 with Prudential Insurance Company of America, substantially all of which was assumed in the Mack Transaction. Such mortgages, which are secured by three properties, bear interest at a weighted average fixed rate of 8.43 percent, all of which require monthly payments of interest. Certain of the Prudential Mortgages require monthly payments of principal, in addition to interest, on various term amortization schedules. The Prudential Mortgages mature between October 2003 and July 2004. OTHER MORTGAGES The Company has mortgage debt ("Other Mortgages") aggregating $99,937 in principal as of March 31, 1998 with eight different lenders, which were assumed in the Mack Transaction and the 1998 acquisitions of the McGarvey Properties and 500 West Putnam, and are secured by 14 individual properties. The Other Mortgages are comprised of: (i) fixed rate debt aggregating $80,723, which bears interest at a weighted average effective rate of 6.89 percent, and require monthly payments of principal and interest on various term amortization schedules, and (ii) variable rate debt aggregating $19,214, which bears interest at 115 basis points over LIBOR. The Other Mortgages mature between February 1999 and October 2010. In April 1998, simultaneous with the Company obtaining the $150,000 Prudential Mortgage Loan, as described below, the Company retired $20,338 of the Other Mortgages. PRUDENTIAL TERM LOAN On December 10, 1997, the Company obtained a $200,000 term loan from Prudential Securities Corp. ("PSC") the "Prudential Term Loan." The proceeds of the loan were used to fund a portion of the cash consideration in completion of the Mack Transaction. The loan has a one-year term and interest payments are required monthly at an interest rate of 110 basis points over one-month LIBOR. The loan is a recourse loan secured by 11 properties owned by the Company and located in New Jersey. The Prudential Term Loan was subsequently retired in April 1998, simultaneous with the Company obtaining the $150,000 Prudential Mortgage Loan, as described below. REVOLVING CREDIT FACILITIES Prudential Facility The Company has a revolving credit facility (the "Prudential Facility") from PSC in the amount of $100,000 which currently bears interest at 110 basis points over one-month LIBOR, and matures on March 31, 1999. The Prudential Facility is a recourse liability of the Operating Partnership and is secured by the Company's equity interest in Harborside. The terms of the Prudential Facility include certain restrictions and covenants that limit, among other things, dividend payments and additional indebtedness and that require compliance with specified financial ratios and other financial measurements. The Company had no outstanding borrowings at March 31, 1998 and December 31, 1997 under the Prudential Facility. Original Unsecured Facility On August 6, 1997, the Company obtained an unsecured revolving credit facility (the "Original Unsecured Facility") in the amount of $400,000 from a group of 13 lender banks. The facility carries a three-year term and bears interest at 125 basis points over one-month LIBOR. The terms of the Original Unsecured Facility included certain restrictions and covenants which limit, among other things, dividend payments and additional indebtedness and which required compliance with specified financial ratios and other financial measurements. The facility also required a fee on the unused balance payable quarterly in arrears, at a rate ranging from one-eighth of one percent to one-quarter of one percent of such balance, depending on the level of borrowings outstanding in relation to the total facility commitment. The Company had outstanding borrowings of $356,751 and $122,100 at March 31, 1998 and December 31, 1997, respectively, under the Original Unsecured Facility. The Original Unsecured Facility was subsequently repaid and retired in connection with the Company obtaining the 1998 Unsecured Facility in April 1998, as described below. 1998 Unsecured Facility On April 17, 1998, the Company repaid in full and terminated the Original Unsecured Facility and obtained a new unsecured revolving credit facility (the "1998 Unsecured Facility") in the amount of $870,000 from a group of 25 lender banks, led by The Chase Manhattan Bank and Fleet National Bank. The 1998 Unsecured Facility has a three-year term and currently bears interest at 110 basis points over LIBOR, a reduction of 15 basis points from the retired Page 14 of 28 Original Unsecured Facility. Based upon the Company's achievement of an investment grade long-term unsecured debt rating, the interest rate will be reduced, on a sliding scale, and a competitive bid option will become available. The terms of the 1998 Unsecured Facility include certain restrictions and covenants which limit, among other things, dividend payments and additional indebtedness and which require compliance with specified financial ratios and other financial measurements. The 1998 Unsecured Facility also requires a 17.5 basis point fee on the unused balance payable quarterly in arrears. The lending group for the 1998 Unsecured Facility consists of: The Chase Manhattan Bank, as administrative agent; Fleet National Bank, as syndication agent; PNC Bank, N.A., as documentation agent; Bankers Trust, Commerzbank, AG, The First National Bank of Chicago, First Union National Bank and NationsBank, as managing agents; Creditanstalt Corporate Finance, Inc., Dresdner Bank, AG, European American Bank (EAB), Hypo Bank, Societe Generale and Summit Bank, as co-agents; and Kredietbank, N.V., Key Bank, Mellon Bank, N.A., The Bank of New York, Citizens Bank, Crestar, DG Bank, Tokai Bank, US Trust, Bayerische Landesbank and Erste Bank. $150,000 PRUDENTIAL MORTGAGE LOAN On April 30, 1998, the Company obtained a $150,000, interest-only mortgage loan from The Prudential Insurance Company of America with a seven-year term. The mortgage loan, which is secured by 12 of the Company's Properties, has an effective annual interest rate of 7.1 percent, and includes a conversion feature whereby the Company, upon receiving an investment-grade credit rating, will have the option to convert the loan into senior unsecured debt. The proceeds of the new loan were used, along with funds drawn from one of the Company's credit facilities, to retire the Prudential Term Loan, as well as approximately $48,200 of the Mack Mortgages. CONTINGENT OBLIGATION As part of the Harborside acquisition, the Company agreed to make payments (with an estimated net present value of approximately $5,252 at acquisition date) to the seller for development rights ("Contingent Obligation") if and when the Company commences construction on the acquired site during the next several years. However, the agreement provides, among other things, that even if the Company does not commence construction, the seller may nevertheless require the Company to acquire these rights during the six-month period after the end of the sixth year. After such period, the seller's option lapses, but any development in years 7 through 30 will require a payment, on an increasing scale, for the development rights. For the quarter ended March 31, 1998, interest was imputed on the Contingent Obligation, thereby increasing the balance of the Contingent Obligation to $5,838 as of March 31, 1998. INTEREST RATE CONTRACTS On May 24, 1995, the Company entered into an interest rate swap agreement with a commercial bank. The swap agreement fixes the Company's one-month LIBOR base to a fixed 6.285 percent per annum on a notional amount of $24,000 through August 1999. On January 23, 1996, the Company entered into another interest rate swap agreement with a commercial bank. This swap agreement has a three-year term and a notional amount of $26,000, which fixes the Company's one-month LIBOR base to 5.265 percent per annum. The Company is exposed to credit loss in the event of non-performance by the other parties to the interest rate contracts. However, the Company does not anticipate non-performance by any of its counterparties. CASH PAID FOR INTEREST & INTEREST CAPITALIZED Cash paid for interest for the three ended month ended March 31, 1998 and 1997 was $20,302 and $8,503, respectively. Interest capitalized by the Company for the three month ended March 31, 1998 and 1997 was $201 and none, respectively. 8. MINORITY INTEREST Minority interest in the accompanying consolidated financial statements relates to common units in the Operating Partnership, in addition to certain preferred units issued in the Mack Transaction, held by parties other than the Company. Preferred and common units issued in 1997 and the three months ended March 31, 1998 are described in Note 3. Page 15 of 28 Preferred Units As described in Note 3, in connection with the funding of the Mack Transaction, the Company issued 15,237 Series A Preferred Units and 215,325 Series B Preferred Units, with an aggregate value of $236,490. The Preferred Units have a stated value of $1,000 per unit and are preferred as to assets over any class of common units or other class of preferred units of the Company, based on circumstances per the applicable unit certificates. The quarterly distribution on each Preferred Unit (representing 6.75 percent of the Preferred Unit stated value of $1,000 on an annualized basis) is an amount equal to the greater of (i) $16.875 or (ii) the quarterly distribution attributable to a Preferred Unit determined as if such unit had been converted into common units, subject to adjustment for customary anti-dilution rights. Each of the Series A Preferred Units may be converted at any time into common units at a conversion price of $34.65 per unit, and, after the one year anniversary of the date of the Series A Preferred Units' initial issuance, common units received pursuant to such conversion may be redeemed into common stock. Each of the Series B Preferred Units may be converted at any time into common units at a conversion price of $34.65 per unit, and, after the three year anniversary of the date of the Series B Preferred Units' initial issuance, common units received pursuant to such conversion may be redeemed into common stock. Each of the common units are redeemable after one year for an equal number of shares of common stock. The Preferred Units, issued in the Mack Transaction, are convertible into Common Units at $34.65 per common unit, which is an amount less than the $39.0625 closing stock price on the date of closing of the Mack Transaction. Accordingly, the Company recorded, on December 11, 1997, the financial value ascribed to the beneficial conversion feature inherent in the Preferred Units upon issuance, which totaled $26,801 ($29,361, before allocation to minority common unitholders) and was recorded as beneficial conversion feature in stockholders' equity. The beneficial conversion feature was amortized in full as the Preferred Units were immediately convertible upon issuance; such amortization was included in minority interest for the year ended December 31, 1997. During the three months ended March 31, 1998, the Company issued 1,839 additional Preferred Units (1,111 of Series A and 728 of Series B), valued at approximately $1,886, in connection with the achievement of certain performance goals at the Mack Properties in the redemption of an equivalent number of Contingent Units. Such Preferred Units carry the identical terms as those issued in the Mack Transaction. Common Units Certain individuals and entities own common units in the Operating Partnership. A common unit and a share of common stock of the Company have substantially the same economic characteristics in as much as they effectively share equally in the net income or loss of the Operating Partnership. Common units are redeemable by the common unitholders at their option, subject to certain restrictions, on the basis of one common unit for either one share of common stock or cash equal to the fair market value of a share at the time of the redemption. The Company has the option to deliver shares of common stock in exchange for all or any portion of the cash requested. When a unitholder redeems a common unit, minority interest is reduced and the Company's investment in the Operating Partnership is increased. During the three months ended March 31, 1998, a common unitholder in the operating partnership redeemed 20,000 common units and received $766 in cash from the Company. Additionally, certain other common unitholders redeemed an aggregate of 22,300 common units for an equivalent number of shares of common stock in the Company. As described in Note 3, the Company issued an aggregate of 3,408,532 common units in 1997 in connection with the completion of the RM Transaction, the Mack Transaction and a 1997 single-property acquisition. On March 26, 1998, in connection with the Pacifica I Acquisition, the Company issued 100,175 common units, valued at approximately $3,779. During the three months ended March 31, 1998, the Company also issued 634,000 common units, valued at approximately $21,405, in connection with the achievement of certain performance goals at the Mack Properties in redemption of an equivalent number of contingent common Units. Contingent Common & Preferred Units In conjunction with the completion of the Mack Transaction, 2,006,432 contingent common units, 11,895 Series A contingent Preferred Units and 7,799 Series B contingent Preferred Units were issued as contingent non-participating units. Such Contingent Units have no voting, distribution or other rights until such time as they are redeemed into common units, Series A Preferred Units, and Series B Preferred Units, respectively. Redemption of such Contingent Page 16 of 28 Units shall occur upon the achievement of certain performance goals relating to certain of the Mack Properties, specifically the achievement of certain leasing activity. On account of certain of the performance goals having been achieved during the three months ended March 31, 1998, the Company redeemed 634,000 contingent common units and 1,839 contingent Preferred Units and issued an equivalent number of common and Preferred Units, as indicated above. Unit Warrants As described in Note 3, in connection with the funding of the Mack Transaction, the Company granted warrants to purchase 2,000,000 common units. The Unit Warrants are exercisable at any time after one year from the date of their issuance and prior to the fifth anniversary thereof at an exercise price of $37.80 per common unit. Minority Ownership As of March 31, 1998 and December 31, 1997, the minority interest common unitholders owned 10.8 percent (19.5 percent, including the effect of the conversion of Preferred Units into common units) and 10.9 percent (20.4 percent including the effect of the conversion of Preferred Units into common units) of the Operating Partnership, respectively (excluding any effect for the exercise of Unit Warrants). 9. EMPLOYEE BENEFIT PLAN All employees of the Company who meet certain minimum age and period of service requirements are eligible to participate in a 401(k) defined contribution plan (the "Plan"). The Plan allows eligible employees to defer up to 15 percent of their annual compensation. The amounts contributed by employees are immediately vested and non-forfeitable. The Company, at management's discretion, may match employee contributions. No employer contributions have been made to date. 10. COMMITMENTS AND CONTINGENCIES Tax Abatement Agreements Grove Street Property Pursuant to an agreement with the City of Jersey City, New Jersey, as amended, expiring in 2004, the Company is required to make payments in lieu of property taxes ("PILOT") on its property at 95 Christopher Columbus Drive, Jersey City, Hudson County, New Jersey. Such PILOT, as defined, is $1,267 per annum through May 31, 1999 and $1,584 per annum through May 31, 2004. Harborside Financial Center Property Pursuant to an agreement with the City of Jersey City, New Jersey obtained by the former owner of the Harborside property in 1988 and assumed by the Company as part of the acquisition of the property in November 1996, the Company is required to make PILOT payments on its Harborside property. The agreement, which commenced in 1990, is for a term of 15 years. Such PILOT is equal to two percent of Total Project Costs, as defined, in year one and increases by $75 per annum through year fifteen. Total Project Costs, as defined, are $148,712. Ground Lease Agreements Future minimum rental payments under the terms of all non-cancelable ground leases, under which the Company is the lessee, as of March 31, 1998 are as follows: Period Amount - ------------------------------------------------------------------------------ April 1, 1998 to December 31, 1998 $ 240 1999 320 2000 320 2001 320 2002 320 Thereafter 17,851 - ------------------------------------------------------------------------------ Total $19,371 ============================================================================== Page 17 of 28 Other Contingencies On December 10, 1997, a Shareholder's Derivative Action was filed in Maryland Court on behalf of a shareholder. The complaint questioned certain executive compensation decisions made by the Company's Board of Directors in connection with the Mack Transaction. The Board's compensation decisions were discussed in the proxy materials distributed in connection with the Mack Transaction and were approved by in excess of 99 percent of the voting shareholders. Although the Company believes that this lawsuit was factually and legally baseless, the Company on May 4, 1998 agreed to a settlement pursuant to which it incurred a cost of $554, and agreed to certain changes to employment agreements of certain of its executive officers. The Company expects to incur an additional $196 in costs associated with defending this action. The Company provided for $750 at December 31, 1997 for this matter. The Company is a defendant in other certain litigation arising in the normal course of business activities. Management does not believe that the resolution of these matters will have a materially adverse effect upon the Company. 11. TENANT LEASES The Properties are leased to tenants under operating leases with various expiration dates through 2020. Substantially all of the leases provide for annual base rents plus recoveries and escalation charges based upon the tenant's proportionate share of and/or increases in real estate taxes and certain operating costs, as defined, and the pass through of charges for electrical usage. 12. STOCKHOLDERS' EQUITY To maintain its qualification as a REIT, not more than 50 percent in value of the outstanding shares of the Company may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of any taxable year of the Company, other than its initial taxable year (defined to include certain entities), applying certain constructive ownership rules. To help ensure that the Company will not fail this test, the Company's Articles of Incorporation provide for, among other things, certain restrictions on the transfer of the common stock to prevent further concentration of stock ownership. Moreover, to evidence compliance with these requirements, the Company must maintain records that disclose the actual ownership of its outstanding common stock and will demand written statements each year from the holders of record of designated percentages of its common stock requesting the disclosure of the beneficial owners of such common stock. On May 15, 1997, the stockholders approved an increase in the authorized shares of common stock in the Company to 190,000,000. On October 15, 1997, the Company completed an underwritten public offer and sale of 13,000,000 shares (the "1997 Offering") of its common stock. The Company received approximately $489,116 in net proceeds (after offering costs) from the 1997 Offering. The Company used $160,000 of such proceeds to repay outstanding borrowings on its Original Unsecured Facility and the remainder of the proceeds to fund a portion of the purchase price of the Mack Transaction, for other potential acquisitions, and for general corporate purposes. On February 25, 1998, the Company completed an underwritten public offer and sale of 2,500,000 shares of its common stock and used the net proceeds, which totaled approximately $92,194 (after offering costs) to pay down a portion of its outstanding borrowings under the Company's credit facilities and fund the acquisition of Moutainview (see Note 3). On March 18, 1998, in connection with the acquisition of Prudential Business Campus, the Company completed an offer and sale of 2,705,628 shares of its common stock using the net proceeds of approximately $99,899 (after offering costs) in the funding of such acquisition. (see Note 3). On March 27, 1998, the Company completed an underwritten public offer and sale of 650,407 shares of its common stock and used the net proceeds, which totaled approximately $23,690 (after offering costs) to pay down a portion of its outstanding borrowings under the Company's credit facilities. Finally, on April 29, 1998, the Company completed an underwritten offer and sale of 994,228 shares of its common stock and used the net proceeds, which totaled approximately $34,650 (after offering costs) primarily to pay down a portion of its outstanding borrowings under the Company's credit facilities. Page 18 of 28 Stock Option Plans In 1994, and as subsequently amended, the Company established the Cali Employee Stock Option Plan ("Employee Plan") and the Cali Director Stock Option Plan ("Director Plan") under which a total of 5,380,188 shares (subject to adjustment) of the Company's common stock have been reserved for issuance (4,980,188 shares under the Employee Plan and 400,000 shares under the Director Plan). Stock options granted under the Employee Plan in 1994 and 1995 become exercisable over a three-year period and those options granted under the Employee Plan in 1996 and 1997 become exercisable over a five-year period. All stock options granted under the Director Plan become exercisable in one year. All options were granted at the fair market value at the dates of grant and have terms of ten years. Information regarding the Company's stock option plans is summarized below: Weighted Shares Average Under Exercise Options Price ------------------------------------------------------------------------ Outstanding at January 1, 1995 625,000 $17.23 Granted 230,200 17.69 Exercised -- -- Lapsed or canceled 3,588 17.25 ------------------------------------------------------------------------ Outstanding at December 31, 1995 851,612 17.36 Granted 809,700 23.97 Exercised 126,041 17.25 Lapsed or canceled 7,164 19.52 ------------------------------------------------------------------------ Outstanding at December 31, 1996 1,528,107 20.86 Granted 2,126,538 37.35 Exercised 337,282 21.33 Lapsed or canceled 30,073 22.62 ------------------------------------------------------------------------ Outstanding at December 31, 1997 3,287,290 31.47 Granted 901,150 37.31 Exercised 101,062 19.81 Lapsed or canceled 344 30.40 ------------------------------------------------------------------------ Outstanding at March 31, 1998 4,087,034 $33.04 ======================================================================== Options exercisable at December 31, 1997 1,432,027 $25.22 Options exercisable at March 31, 1998 1,340,965 $25.68 ------------------------------------------------------------------------ Available for grant at December 31, 1997 1,629,575 Available for grant at March 31, 1998 728,769 ------------------------------------------------------------------------ Stock Warrants On January 31, 1997, in conjunction with the completion of the RM Transaction, the Company granted a total of 400,000 warrants to purchase an equal number of shares of common stock ("Stock Warrants") at $33 per share (the market price at date of grant) to Timothy Jones, Brad Berger and certain other Company employees formerly with RM. Such warrants vest equally over a three-year period and have a term of ten years. On December 12, 1997, in conjunction with the completion of the Mack Transaction, the Company granted a total of 491,756 Stock Warrants to purchase an equal number of shares of common stock at $38.75 per share (the market price at date of grant) to Mitchell Hersh, and certain other Company executives formerly with the Patriot American Office Group. Such warrants vest equally over a five-year period and have a term of ten years. Stock Compensation In January 1997, the Company entered into employment contracts with seven of its key executives which provided for, among other things, compensation in the form of stock awards (the "Restricted Stock Awards") and Company-financed stock purchase rights (the "Stock Purchase Rights"), and associated tax obligation payments. In connection with the Restricted Stock Awards, the executives were to receive 199,070 shares of the Company's common stock vesting over a five-year period contingent on the Company meeting certain performance objectives. Additionally, pursuant to the terms of the Stock Purchase Rights, the Company provided fixed rate, non-recourse loans, aggregating $4,750, to such executives to finance their purchase of 152,000 shares of the Company's common stock, which the Company agreed to forgive ratably over five years, subject to continued employment. Such loans were for amounts equal to the fair market value of the associated shares at the date of grant. Subsequently, from April 18, 1997 through April 24, 1997, the Company Page 19 of 28 purchased, for constructive retirement, 152,000 shares of its outstanding common stock for $4,680. The excess of the purchase price over par value was recorded as a reduction to additional paid-in capital. Concurrent with this purchase, the Company sold to the Operating Partnership 152,000 Units for $4,680. The value of the Restricted Stock Awards and the balance of the loans related to the Stock Purchase Rights at the grant date were recorded as unamortized stock compensation in stockholders' equity. As a result of provisions contained in certain of the Company's executive officers' employment agreements, which were triggered by the Mack Transaction on December 11, 1997, the loans provided by the Company under the Stock Purchase Rights were forgiven by the Company, and the vesting and issuance of the restricted stock issued under the Restricted Stock Awards was accelerated, and related tax obligation payments were made. Earnings Per Share FASB No. 128 requires a dual presentation of basic and diluted earnings per share ("EPS") on the face of the income statement for all companies with complex capital structures even where the effect of such dilution is not material. Basic EPS excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The following information presents the Company's results for the three months ended March 31, 1998, and 1997 in accordance with FASB No. 128. For the Three Months Ended March 31, 1998 1997 ---- ---- Basic EPS Diluted EPS Basic EPS Diluted EPS --------- ----------- --------- ----------- Net income $26,543 $26,543 $16,459 $16,459 Add: Net income attributable to potentially dilutive securities -- 3,395 -- 1,636 - -------------------------------------------------------------------------------- Adjusted net income $26,543 $29,938 $16,459 $18,095 ================================================================================ Weighted average shares 51,363 58,682 36,461 40,817 - -------------------------------------------------------------------------------- Per Share $ 0.52 $ 0.51 $ 0.45 $ 0.44 ================================================================================ The following schedule reconciles the shares used in the basic EPS calculation to the shares used in the diluted EPS calculation. 1998 1997 ---- ---- Basic EPS Shares: 51,363 36,461 Add: Stock Options 612 533 Restricted Stock Awards -- 199 Stock Warrants 137 -- Operating Partnership Units 6,570 3,624 - ----------------------------------------------------------------------------- Diluted EPS Shares: 58,682 40,817 ============================================================================= 13. IMPACT OF RECENTLY-ISSUED ACCOUNTING STANDARDS In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("FASB No. 130"), which establishes standards for the reporting and display of comprehensive income and its components. This statement requires a separate statement to report the components of comprehensive income for each period reported. The provisions of this statement are effective for fiscal years beginning after December 15, 1997. Management believes that there are no items that would require presentation in a separate statement of comprehensive income. In June 1997, the FASB also issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, ("FASB No. 131"), which establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and require that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. This Page 20 of 28 statement is effective for financial statements for annual periods beginning after December 15, 1997 and interim periods a year later, and requires that comparative information from earlier years be restated to conform to the requirements of this standard. 14. PRO FORMA FINANCIAL INFORMATION (unaudited) The following proforma financial information for the three month periods ended March 31, 1998 and 1997 are presented as if the RM Transaction, the Mack Transaction and all other acquisitions and common stock offerings completed in 1997, and all acquisitions and common stock offerings completed during the three months ended March 31, 1998 had all occurred on January 1, 1997. In management's opinion, all adjustments necessary to reflect the effects of these transactions have been made. This pro forma financial information is not necessarily indicative of what the actual results of operations of the Company would have been assuming such transactions had been completed as of January 1, 1997, nor do they represent the results of operations of future periods. Three Months Ended March 31, 1998 1997 ---- ---- Total revenues $ 116,530 $ 116,554 Operating and other expenses (34,470) (35,779) General and administrative (6,600) (6,070) Depreciation and amortization (17,982) (16,910) Interest expense (22,753) (24,469) - -------------------------------------------------------------------------------- Income before minority interest and extraordinary item 34,725 33,326 Minority interest (7,181) (6,847) - -------------------------------------------------------------------------------- Income before extraordinary item $ 27,544 $ 26,479 ================================================================================ Basic earnings per common share $ 0.49 $ 0.48 - -------------------------------------------------------------------------------- Page 21 of 28 MACK-CALI REALTY CORPORATION AND SUBSIDIARIES Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements of Mack-Cali Realty Corporation and the notes thereto. The following comparisons for the three months ended March 31, 1998 ("1998"), as compared to the three months ended March 31, 1997 ("1997") make reference to the following: (i) the effect of the "Same-Store Properties," which represents all properties owned by the Company at December 31, 1996, (ii) the effect of the acquisition of the RM Properties on January 31, 1997, (iii) the effect of the acquisition of the Mack Properties on December 11, 1997, and (iv) the effect of the "Acquired Properties," which represents all properties acquired by the Company from January 1, 1997 through March 31, 1998, excluding RM and Mack. Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997 Total revenues increased $53.7 million, or 102.9 percent, for 1998 over 1997. Base rents increased $50.1 million, or 117.1 percent, of which an increase of $8.5 million, or 19.9 percent, was attributable to the Acquired Properties, an increase of $5.5 million, or 12.8 percent, due to the RM Properties, an increase of $35.7 million, or 83.3 percent, due to the Mack Properties and an increase of $0.4 million, or 1.1 percent, due to occupancy and rental rate changes at the Same-Store Properties. Escalations and recoveries increased $3.8 million, or 56.6 percent, of which an increase of $1.1 million, or 16.5 percent, was attributable to the Acquired Properties, an increase of $0.5 million, or 6.5 percent, due to the RM Properties, and an increase of $2.3 million, or 34.9 percent, due to the Mack Properties, offset by a decrease of $0.1 million, or 1.3 percent, due to occupancy changes at the Same-Store Properties. Parking and other income increased $0.5 million, or 29.9 percent, of which $0.1 million, or 7.1 percent, was attributable to the RM Properties, $0.4 million, or 21.4 percent, due to the Mack Properties, and $0.1 million, or 8.7 percent, was attributable to the Acquired Properties, offset by a decrease of $0.1 million, or 7.3 percent, due to the Same-Store Properties. Interest income decreased $0.7 million, or 55.0 percent, due primarily to the use of the funds previously invested to fund the RM Transaction. Total expenses for 1998 increased $37.9 million, or 111.3 percent, as compared to 1997. Real estate taxes increased $4.6 million, or 85.4 percent, for 1998 over 1997, of which an increase of $0.8 million, or 14.8 percent, was attributable to the Acquired Properties, an increase of $0.8 million, or 14.7 percent, due to the RM Properties, an increase of $2.9 million, or 53.2 percent, due to the Mack Properties, and an increase of $0.1 million, or 2.7 percent, attributable to the Same-Store Properties. Additionally, operating services increased $6.3 million, or 97.8 percent, and utilities increased $4.6 million, or 122.8 percent, for 1998 over 1997. The aggregate increase in operating services and utilities of $10.9 million, or 107.0 percent, consists of $1.8 million, or 17.6 percent, attributable to the Acquired Properties, an increase of $1.1 million, or 10.9 percent, due to the RM Properties, and an increase of $8.4 million, or 82.1 percent, due to the Mack Properties, offset by a decrease of $0.4 million, or 3.6 percent, attributable to the Same-Store Properties. General and administrative expense increased $3.0 million, or 95.3 percent, of which $2.0 million, or 64.3 percent, is due primarily to an increase in payroll and related costs as a result of the Company's expansion, $0.8 million, or 23.8 percent, due to additional costs related to the Mack Properties, and $0.2 million, or 7.2 percent, attributable to additional costs related to the RM Properties. Depreciation and amortization increased $8.7 million, or 116.6 percent, for 1998 over 1997, of which $1.5 million, or 20.8 percent, relates to depreciation on the Acquired Properties, an increase of $1.1 million, or 15.0 percent, attributable to the RM Properties, an increase of $5.6 million, or 74.5 percent, due to the Mack Properties, and an increase of $0.5 million, or 6.3 percent, due to the Same-Store Properties. Interest expense increased $10.7 million, or 136.3 percent, for 1998 over 1997, of which $1.1 million, or 14.2 percent, was attributable to the TIAA Mortgage, $0.2 million, or 2.6 percent, due to assumed mortgages on Acquired Properties, an increase of $5.3 million, or 67.5 percent, due to assumed mortgages from the Mack Properties, and an increase of $4.1 million, or 52.0 percent, due to net additional drawings from the Company's credit facilities as a result of Company acquisitions and the $200 million Prudential Term Loan obtained in December 1997, as well as changes in LIBOR. Income before minority interest increased to $33.9 million in 1998 from $18.1 million in 1997. The increase of $15.8 million was due to the factors discussed above. Net income increased $10.0 million for 1998, from $16.5 million in 1997 to $26.5 million in 1998. This increase was a result of an increase in income before minority interest of $15.8 million, offset by an increase of $5.7 million in minority interest, primarily attributable to distributions on preferred units in 1998. Page 22 of 28 Liquidity and Capital Resources Statement of Cash Flows During the three months ended March 31, 1998, the Company generated $50.4 million in cash flows from operating activities, and together with $419.9 million in borrowings from the Company's credit facilities, $215.8 million in net proceeds from the Company's common stock offerings during the period, $2.7 million from the Company's cash reserves, and $2.0 million in proceeds from stock options exercised, used an aggregate of $690.8 million to acquire 39 properties and pay for other tenant improvements and building improvements for $406.7 million, repay outstanding borrowings on its credit facilities and other mortgage debt of $205.5 million, pay quarterly dividends and distributions of $28.1 million, provide $20.0 million for a mortgage note receivable, invest $18.0 million in a partially-owned entity, invest $11.7 of cash reserves in overnight investments, and repurchase 20,000 common units for $0.8 million. Capitalization On February 25, 1998, the Company completed an underwritten public offer and sale of 2,500,000 shares of its common stock and used the net proceeds, which totaled approximately $92.2 million (after offering costs) to pay down a portion of its outstanding borrowings under the Company's credit facilities and fund the acquisition of Moutainview (see Note 3 to the Financial Statements). On March 18, 1998, in connection with the acquisition of Prudential Business Campus, the Company completed an offer and sale of 2,705,628 shares of its common stock using the net proceeds of approximately $99.9 million (after offering costs) in the funding of such acquisition (see Note 3 to the Financial Statements). On March 26, 1998, in connection with the acquisition of certain properties from the Pacifica Holding Company, the Company issued 100,175 common units, valued at approximately $3.8 million. On March 27, 1998, the Company completed an underwritten public offer and sale of 650,407 shares of its common stock and used the net proceeds, which totaled approximately $23.7 million (after offering costs) to pay down a portion of its outstanding borrowings under the Company's credit facilities. During the three months ended March 31, 1998, the Company also issued 634,000 common units and 1,839 preferred units, valued at approximately $23.3 million, in connection with the achievement of certain performance goals at the Mack Properties, with an equivalent number of contingent common units being redeemed. On April 29, 1998, the Company completed an underwritten offer and sale of 994,228 shares of its common stock and used the net proceeds, which totaled approximately $34.7 million (after offering costs) primarily to pay down a portion of its outstanding borrowings under the Company's credit facilities. On April 17, 1998, the Company repaid in full and terminated its $400 million unsecured revolving credit facility, led by Fleet National Bank, and obtained a new unsecured revolving credit facility (the "1998 Unsecured Facility") in the amount of $870.0 million from a group of 25 lender banks, led by The Chase Manhattan Bank and Fleet National Bank. The 1998 Unsecured Facility has a three-year term and currently bears interest at 110 basis points over one-month LIBOR, a reduction of 15 basis points from the retired Original Unsecured Facility. Based upon the Company's achievement of an investment grade long-term unsecured debt rating, the interest rate will be reduced, on a sliding scale, and a competitive bid option will become available. The terms of the 1998 Unsecured Facility include certain restrictions and covenants which limit, among other things, dividend payments and additional indebtedness and which require compliance with specified financial ratios and other financial measurements. The 1998 Unsecured Facility also requires a 17.5 basis point fee on the unused balance payable quarterly in arrears. The lending group for the 1998 Unsecured Facility consists of: The Chase Manhattan Bank, as administrative agent; Fleet National Bank, as syndication agent; PNC Bank, N.A., as documentation agent; Bankers Trust, Commerzbank, AG, The First National Bank of Chicago, First Union National Bank and NationsBank, as managing agents; Creditanstalt Corporate Finance, Inc., Dresdner Bank, AG, European American Bank (EAB), Hypo Bank, Societe Generale and Summit Bank, as co-agents; and Kredietbank, N.V., Key Bank, Mellon Bank, N.A., The Bank of New York, Citizens Bank, Crestar, DG Bank, Tokai Bank, US Trust, Bayerische Landesbank and Erste Bank. The new unsecured facility, together with the Company's previously-existing $100.0 million revolving credit facility with Prudential Securities Corp., provides the Company with a total credit line borrowing capacity of $970.0 million. Page 23 of 28 On April 30, 1998, the Company obtained a $150.0 million, interest-only mortgage loan from The Prudential Insurance Company of America with a seven-year term. The mortgage loan, which is secured by 12 of the Company's Properties, has an effective annual interest rate of 7.1 percent, and includes a conversion feature whereby the Company, upon receiving an investment-grade credit rating, will have the option to convert the loan into senior unsecured debt. The proceeds of the new loan were used, along with funds drawn from one of the Company's credit facilities, to pay off and retire a $200.0 million term loan with Prudential, as well as approximately $48.2 million in property mortgage loans assumed in the December 1997 Mack/Patriot transaction. Following the completion of the $150.0 million secured loan with Prudential, the Company has 151 unencumbered properties, totaling 14.8 million square feet, representing 59.0 percent of the Company's total portfolio on a square footage basis. Historically, rental revenue has been the principal source of funds to pay operating expenses, debt service and capital expenditures, excluding non-recurring capital expenditures. Management believes that the Company will have access to the capital resources necessary to expand and develop its business. To the extent that the Company's cash flow from operating activities is insufficient to finance its non-recurring capital expenditures such as property acquisition costs and other capital expenditures, the Company expects to finance such activities through borrowings under its credit facilities and other debt and equity financing. The Company expects to meet its short-term liquidity requirements generally through its working capital and net cash provided by operating activities, along with the Prudential facility and the new unsecured credit facility, led by Chase and Fleet Bank. The Company is frequently examining potential property acquisitions and, at any one given time, one or more of such acquisitions may be under consideration. Accordingly, the ability to fund property acquisitions is a major part of the Company's financing requirements. The Company expects to meet its financing requirements through funds generated from operating activities, long-term or short term borrowings (including draws on the Company's credit facilities) and the issuance of debt securities or additional equity securities. In addition, the Company anticipates utilizing the Second Prudential Facility and the Unsecured Facility primarily to fund property acquisition activities. The Company does not intend to reserve funds to retire the existing TIAA mortgage, Harborside mortgages, $150,000 Prudential mortgage loan, its various other property mortgages, and borrowings under the revolving credit facilities or other long-term mortgages and loans payable upon maturity. Instead, the Company will seek to refinance such debt at maturity or retire such debt through the issuance of additional equity or debt securities. The Company anticipates that its available cash and cash equivalents and cash flows from operating activities, together with cash available from borrowings and other sources, will be adequate to meet the Company's capital and liquidity needs both in the short and long-term. However, if these sources of funds are insufficient or unavailable, the Company's ability to make the expected distribution discussed below may be adversely affected. To maintain its qualification as a REIT, the Company must make annual distributions to its stockholders of at least 95 percent of its REIT taxable income, determined without regard to the dividends paid deduction and by excluding net capital gains. Moreover, the Company intends to continue to make regular quarterly distributions to its stockholders which, based upon current policy, in the aggregate would equal approximately $114.0 million on an annualized basis. However, any such distribution, whether for federal income tax purposes or otherwise, would only be paid out of available cash after meeting both operating requirements and scheduled debt service on mortgages and loans payable. Funds from Operations The Company considers funds from operations, after adjustment for straight-lining of rents, one measure of REIT performance. Funds from operations is defined as net income (loss) before minority interest of unitholders (preferred), computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains (or losses) from debt restructuring, other extraordinary and significant non-recurring items, and sales of property, plus real estate-related depreciation and amortization. Funds from operations should not be considered as an alternative to net income as an indication of the Company's performance or to cash flows as a measure of liquidity. NAREIT's definition of FFO indicates that the calculation should be made before any extraordinary item (determined in accordance with GAAP), and before any deduction of significant non-recurring events that materially distort the comparative measurement of the Company's performance. Page 24 of 28 Funds from operations for the three months ended March 31, 1998 and 1997 as calculated in accordance with the National Association of Real Estate Investment Trusts' definition published in March 1995, are summarized in the following table (in thousands): Three Months Ended March 31, 1998 1997 ---- ---- Income before distribution to preferred unitholders and minority interest $ 33,849 $ 18,095 Add: Real estate-related depreciation and amortization 16,120 7,479 Deduct: Rental income adjustment for straight-lining of rents (3,203) (1,607) - -------------------------------------------------------------------------------- Funds from operations after adjustment for straight-lining of rents, before distributions to preferred unitholders $ 46,766 $ 23,967 Deduct: Distribution to preferred unitholders (3,911) -- - -------------------------------------------------------------------------------- Funds from operations after adjustment for straight-lining of rents $ 42,855 $ 23,967 ================================================================================ Fully-converted weighted average shares outstanding (1) 64,621 40,085 - -------------------------------------------------------------------------------- Weighted average shares outstanding (2) 57,932 40,085 - -------------------------------------------------------------------------------- (1) Assumes redemption/conversion of all outstanding units (both preferred and common), calculated on a weighted average basis, for shares of common stock in the Company. (2) Assumes redemption of all outstanding common units, calculated on a weighted average basis, for shares of common stock in the Company. Inflation The Company's leases with the majority of its tenants provide for recoveries and escalation charges based upon the tenant's proportionate share of, and/or increases in, real estate taxes and certain operating costs, which reduce the Company's exposure to increases in operating costs resulting from inflation. Year 2000 Many computer systems experience problems handling dates beyond the year 1999. Therefore, some computer hardware and software will need to be modified prior to the year 2000 in order to remain functional. The Company is assessing both the internal readiness of its systems as well as the compliance of its vendors for the handling of the year 2000. The Company expects to implement successfully the systems and programming changes necessary to address year 2000 issues, and does not believe that the cost of such actions will have a material effect on the Company's results of operations or financial condition. There can be no assurance, however, that there will not be a delay in, or increased costs associated with, the implementation of such changes, and the Company's inability to implement such changes could have an adverse effect on future results of operations. Disclosure Regarding Forward-Looking Statements The Company considers portions of this information to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of The Securities Exchange Act of 1934. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not Appplicable. PART II - Other Information Item 1. Legal Proceedings Reference is made to Other Contingencies in Footnote 10 (Commitments and Contingencies) to the consolidated financial Statements which is specifically incorporated by reference herein. Item 2. Changes in Securities and Use of Proceeds (c) Reference is made to the first and last paragraphs under Preferred Units, and the fourth, fifth and sixth paragraphs under Common Units in Footnote 8 (Minority Interest) to the Consolidated Financial Statements which are specifically incorporated by reference herein. Also specifically incorporated by reference herein are the first, fourth, fifth and sixth paragraphs in Footnote 3 (Acquisitions/Transactions) to the Consolidated Financial Statements. Page 25 of 28 MACK-CALI REALTY CORPORATION Part II -- Other Information (continued) Item 6 - Exhibits The following exhibits are filed herewith: Exhibit No. Exhibit Title - ----------- ------------- 10.145 Purchase and Sale Agreement by and between Sylvan Way L.L.C., as Seller, and Mack-Cali Realty Acquisition Corp., as Purchaser, dated February 4, 1998 10.146 Purchase and Sale Agreement by and between PRUBETA-3, as Seller, and Mack-Cali Realty Acquisition Corp., as Buyer, dated February 18, 1998 10.147 Second Amendment to Purchase and Sale Agreement by and between PRUBETA-3, as Seller, and Mack-Cali Realty Acquisition Corp., Parsippany Campus Realty Associates, L.P., and Mack-Cali Realty, L.P., as Buyers, dated March 27, 1998 10.148 Assignment and Assumption Agreement, dated March 27, 1998, by Equity Parsippany Venture, as Assignor, to Mack-Cali Realty Acquisition Corp., as Assignee 10.149 Asset Purchase Agreement, dated as of March 25, 1998, between Mack-Cali Realty, L.P., as Acquiror, and Pacifica Holding Company LLC, as Contributor 10.150 Contribution and Exchange Agreement, dated March 25, 1998, by and between Pacifica Progress/Union Limited Liability Company, as Contributor, and Mack-Cali Realty, L.P. and Mack-Cali Realty Corporation 10.151 Contribution and Exchange Agreement, dated March 26, 1998, by and among parties setforth herein, as Contributor, and Mack-Cali Realty, L.P. and Mack-Cali Realty Corporation [Pacifica Development Properties II] 10.152 Contribution and Exchange Agreement, dated March 25, 1998, by and among parties setforth herein, as Contributors, and Mack-Cali Realty, L.P. and Mack-Cali Realty Corporation [Centennial Valley - Park One] 10.153 Contribution and Exchange Agreement, dated March 25, 1998, by and among parties setforth herein, as Contributors, and Mack-Cali Realty, L.P. and Mack-Cali Realty Corporation [67 Inverness] 10.154 Contribution and Exchange Agreement, dated March 25, 1998, by and between Apollo/Pacifica Pyramid, LLC, as Contributor, and Mack-Cali Realty, L.P. and Mack-Cali Realty Corporation 10.155 Contribution and Exchange Agreement, dated March 25, 1998, by and between Pacifica 384 Inverness Partnership, as Contributor, and Mack-Cali Realty, L.P. and Mack-Cali Realty Corporation 10.156 Contribution and Exchange Agreement, dated March 25, 1998, by and between Pacifica Development Properties LLC, as Contributor, and Mack-Cali Realty, L.P. and Mack-Cali Realty Corporation 10.157 Indemnification Agreement, dated March 25, 1998, among Mack-Cali Realty Corporation, Mack-Cali Realty, L.P., Apollo Real Estate Investment Fund II, L.P., Pacifica Holding Company, L.L.C. and Pacifica Holding Company Page 26 of 28 10.158 Indemnification Agreement, dated March 25, 1998, among Mack-Cali Realty Corporation, Mack-Cali Realty, L.P., Pacifica Holding Company, L.L.C. and Pacifica Holding Company. 10.159 Notice of Settlement of Derivative Action and Hearing on Proposed Settlement, dated April 2, 1998. 10.160 Revolving Credit Agreement among Mack-Cali Realty, L.P. and The Chase Manhattan Bank, Fleet National Bank and Other Lenders Which May Become Parties to This Agreement, dated April 16, 1998 10.161 Underwriting Agreement, dated April 23, 1998, between Mack-Cali Realty Corporation and Merrill Lynch, Pierce, Fenner and Smith Incorporated. Page 27 of 28 MACK-CALI REALTY CORPORATION Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Mack-Cali Realty Corporation (Registrant) Date: May 15, 1998 /s/ Thomas A. Rizk ---------------------------- Thomas A. Rizk Chief Executive Officer /s/ Barry Lefkowitz ---------------------------- Date: May 15, 1998 Barry Lefkowitz Executive Vice President & Chief Financial Officer Page 28 of 28