Filed Pursuant to Rule 424(b)(2)
Registration No. 333-19101
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 7, 1997)
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132,710 SHARES
MACK-CALL REALTY CORPORATION
COMMON STOCK
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Mack-Cali Realty Corporation, a Maryland corporation, is a fully integrated
real estate investment trust that owns and operates primarily class A office
properties generally located in the northeast and southwest. We manage and
conduct our business through Mack-Cali Realty, L.P., a Delaware limited
partnership. We are offering and selling 132,710 shares of our common stock.
We are selling the 132,710 shares of common stock at a price of $29.6882 per
share to Apollo Real Estate Investment Fund II, L.P. for an aggregate purchase
price of $3,939,914.86 pursuant to a Stock Purchase Agreement dated as of
December 31, 1998, by and between us and Apollo Real Estate Investment Fund II,
L.P.
Our common stock is listed on the New York Stock Exchange and the Pacific
Exchange under the ticker symbol "CLI." The closing price of our common stock on
December 30, 1998, was $30.625 per share.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR HAS DETERMINED IF
THIS PROSPECTUS IS ADEQUATE OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus supplement is December 31, 1998
AVAILABLE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). You
may read and copy any document we file at the Commission's public reference room
located at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the
Commission at 1-800-732-0330 for further information on the operation of such
public reference room. You also can request copies of such documents, upon
payment of a duplicating fee, by writing to the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 or obtain copies of such documents from the
Commission's web site at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information we incorporate by reference is
considered to be part of this prospectus supplement and information that we file
later with the Commission automatically will update and supersede such
information. We incorporate by reference the documents listed below and any
future filings we make with the Commission under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended:
(1) Annual Report on Form 10-K (File No. 1-13274) for the fiscal year ended
December 31, 1997, as amended by Form 10-K/A dated August 5, 1998;
(2) Quarterly Reports on Form 10-Q (File No. 1-13274) for the fiscal quarter
ended March 31, 1998, as amended by Form 10-Q/A dated June 9, 1998, and
for the fiscal quarters ended June 30, 1998 and September 30, 1998;
(3) Current Reports on Form 8-K (File No. 1-13274) dated January 16, 1998;
June 12, 1998, as amended by Form 8-K/A dated June 12, 1998; and December
16, 1998;
(4) Proxy Statement relating to our Annual Meeting of Stockholders held on
May 21, 1998; and
(5) The description of our common stock and the description of certain
provisions of the laws of the State of Maryland and our articles of
incorporation and bylaws, both contained in our Registration Statement on
Form 8-A, dated August 9, 1994.
You may request a copy of these filings (including exhibits to such filings
that we have specifically incorporated by reference in such filings), at no
cost, by writing or telephoning our executive offices at the following address:
Mack-Cali Realty Corporation
Investor Relations Department
11 Commerce Drive
Cranford, New Jersey 07016-3501
(908) 272-8000
You should rely only on the information provided or incorporated by
reference in this prospectus supplement or the accompanying prospectus. We have
not authorized anyone else to provide you with different information. You should
not assume that the information in this prospectus supplement or the
accompanying prospectus is accurate as of any date other than the date on the
cover page of such documents.
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THIS PROSPECTUS SUPPLEMENT CONTAINS SEVERAL REFERENCES TO US AND TO OUR
OPERATING PARTNERSHIP, MACK-CALI REALTY, L.P. ALL REFERENCES TO US IN THIS
PROSPECTUS SUPPLEMENT INCLUDE US AND ANY SUBSIDIARIES AND OTHER ENTITIES WE OWN
OR CONTROL. ALL REFERENCES TO MACK-CALI REALTY, L.P. IN THIS PROSPECTUS
SUPPLEMENT INCLUDE MACK-CALI REALTY, L.P. AND ANY SUBSIDIARIES AND OTHER
ENTITIES THAT IT OWNS OR CONTROLS. ALL REFERENCES IN THIS PROSPECTUS SUPPLEMENT
TO "COMMON STOCK" REFER TO OUR COMMON STOCK, PAR VALUE $.01 PER SHARE.
INFORMATION ABOUT MACK-CALI REALTY CORPORATION
We, Mack-Cali Realty Corporation, a Maryland corporation, are a
fully-integrated, self-administered and self-managed real estate investment
trust, or "REIT." We are one of the largest equity REITs in the United States.
We own predominantly Class A office and office/flex properties primarily located
in the northeast and southwest. Mack-Cali Realty, L.P., a Delaware limited
partnership, conducts substantially all of our operations relating to such
properties.
As of September 30, 1998, we owned and operated, directly or indirectly, 247
properties plus developable land, aggregating approximately 27.6 million square
feet. Our properties include 235 office and office/flex properties totaling
approximately 27.2 million square feet, six industrial/warehouse properties
containing an aggregate of approximately 387,400 square feet, two multi-family
residential properties consisting of 453 units, two stand-alone retail
properties and two land leases. Our 235 office and office/flex properties are
comprised of 156 office properties containing an aggregate of approximately 23.1
million square feet and 79 office/flex properties containing an aggregate of
approximately 4.1 million square feet.
We believe that our properties have excellent locations and access and are
well-maintained and professionally managed. As a result, we believe that our
properties attract high quality tenants and achieve among the highest rental,
occupancy and tenant retention rates within their markets. As of September 30,
1998, over 2,300 tenants leased approximately 96.1 percent of the office,
office/flex and industrial/warehouse properties.
OUR STRATEGY
Our strategy is to acquire, develop and own office properties in markets and
sub-markets where we are, or can become, a significant and preferred owner and
operator. We will continue this strategy by expanding, primarily through
acquisitions, into markets and sub-markets where we have, or can achieve,
similar status. Because rental and occupancy rates in office buildings in such
markets and sub-markets continue to increase, we believe that such markets and
sub-markets present significant opportunities for growth. We also may develop
properties in such markets and sub-markets, particularly with a view towards
potential utilization of certain vacant land recently acquired or on which we
hold options. We believe that our extensive market knowledge gives us a
significant competitive advantage, which is further enhanced by our strong
reputation for and emphasis on delivering highly responsive management services,
including direct and continued access to our senior management.
Consistent with our growth strategy, in December 1997, we acquired 54 class
A office properties, aggregating approximately 9.2 million square feet, from The
Mack Company and Patriot American Office Group. We acquired such properties for
a total cost of approximately $1.1 billion. In connection with such transaction,
(1) we became associated with respected names in the real estate business,
including William L. Mack and Mitchell E. Hersh; (2) we changed our name from
"Cali Realty Corporation" to "Mack-Cali Realty Corporation" and (3) Mack-Cali
Realty, L.P. changed its name from "Cali Realty, L.P." to "Mack-Cali Realty,
L.P." Also, in January 1997, we acquired 65 properties, aggregating
approximately 4.l million square feet, from the Robert Martin Company, LLC and
its affiliates. We acquired all 65 properties for a total cost of approximately
$450.0 million.
In 1994, we succeeded to the business of Cali Associates. John J. Cali,
Angelo R. Cali and Edward Leshowitz, the founders of Cali Associates, have been
involved in the development, leasing,
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management, operation and disposition of commercial and residential properties
in northern and central New Jersey for over 40 years. Our founders primarily
have been focusing on office building development and acquisitions for the past
fifteen years. In addition to our founders, we and our predecessors generally
have employed our current executive officers for an average of approximately
nine years. We and our predecessors have built approximately four million square
feet of office space, more than one million square feet of industrial facilities
and over 5,500 residential units.
RECENT DEVELOPMENTS
The following summarizes certain significant events in which we have been
involved since January 1, 1998:
COMPLETED ACQUISITIONS
APPROXIMATE APPROXIMATE
DATE PROPERTY SQUARE FOOTAGE PURCHASE PRICE
- ---------------------- ------------------------------------------ --------------------------- ----------------
January 23, 1998 650 West Avenue, Developable land $1.3 million
Stamford Executive Park,
Stamford, Fairfield County, Connecticut
January 30, 1998 Moorestown West Corporate Center, 748,660 $47.5 million
Moorestown, Burlington County,
New Jersey;
and
Bromley Commons,
Burlington, Burlington County, New Jersey
February 2, 1998 2115 Linwood Avenue, 68,000 $5.2 million
Fort Lee, Bergen County, New Jersey
February 5, 1998 500 West Putnam Avenue, 121,250 $20.1 million
Greenwich, Fairfield County, Connecticut
February 25, 1998 10 Mountainview Road, 192,000 $24.8 million
Upper Saddle River, Bergen County, New
Jersey
March 12, 1998 1250 Capital of Texas Highway South, 270,703 $37.3 million
Austin, Travis County, Texas
March 27, 1998 Pacifica Holding Company, 620,017 $75.0 million
Suburban Denver and Colorado Springs,
Colorado
March 27, 1998 Prudential Business Campus, 859,946 plus developable $175.9 million
Parsippany and Hanover Township, land
Morris County, New Jersey
March 30, 1998 Morris County Financial Center, 303,940 $52.8 million
Parsippany, Morris County,
New Jersey
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APPROXIMATE APPROXIMATE
DATE PROPERTY SQUARE FOOTAGE PURCHASE PRICE
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May 13, 1998 3600 South Yosemite, 133,743 $13.6 million
Denver, Denver County, Colorado
May 14, 1998 One Ramland Road, 232,000 $7.0 million
Orangeburg, Rockland County,
New York
May 22, 1998 500 College Road East, 158,235 $21.3 million
Princeton, Mercer County,
New Jersey
June 1, 1998 1709 New York Avenue Northwest 325,000 $90.4 million
and 1401 L Street Northwest,
Washington, D.C.
June 3, 1998 400 South Colorado Boulevard, 125,415 $12.1 million
Denver, Arapahoe County, Colorado
June 8, 1998 Pacifica Holding Company (Phase II), 514,427 plus developable $80.8 million
Suburban Denver and Colorado Springs, land
Colorado
July 14, 1998 1510 Lancer Road, 88,000 $3.7 million
Moorestown West Corporate Center,
Moorestown, Burlington County,
New Jersey
July 16, 1998 4200 Parliament Drive, 122,000 plus developable $15.8 million
Lanham, Prince George's County, Maryland land
September 10, 1998 40 Richards Avenue, 145,487 $19.4 million
Norwalk, Fairfield County, Connecticut
September 15, 1998 7 Skyline Drive, 117,000 $13.3 million
Hawthorne, Westchester County,
New York
November 10, 1998 3 Vaughn Drive, Developable land $1.9 million
West Windsor, Mercer County,
New Jersey
December 3, 1998 12 Skyline Drive, Developable land $1.5 million
Hawthorne, Westchester County,
New York
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INVESTMENTS IN PARTIALLY-OWNED ENTITIES
APPROXIMATE
PERCENTAGE SQUARE FOOTAGE /
DATE PROPERTY OWNERSHIP OUR INVESTMENT
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March 27, 1998 Joint Venture (PRUBETA-3): 50% 156,495 square feet/ $18.0
Nine Campus Drive, million
Parsippany, Morris County, New Jersey
April 23, 1998 Joint Venture: 80% Developable land/ $12.8
(HPMC Development Partners, L.P.) million through September
El Segundo, Los Angeles County, California 30, 1998
and San Diego, San Diego County, California
April 30, 1998 Joint Venture (G&G Martco Partnership): 49.9% 305,000 square feet/ $11.8
Convention Plaza, million
San Francisco, San Francisco County, California
May 20, 1998 Joint Venture: 50% Developable land/ $10.4
(American Financial Exchange L.L.C.) million through September
Jersey City, Hudson County, New Jersey 30, 1998
July 21, 1998 Joint Venture: 80% Developable land/ $2.7
(HPMC Lava Ridge Partners, L.P.) million through September
Roseville, Placer County, California 30, 1998
August 20, 1998 Joint Venture: 50% 232,000 square feet and
(Ramland Realty Associates L.L.C.) $3.7 million through
One Ramland Road, September 30, 1998
Orangeburg, Rockland County, New York
September 18, 1998 Joint Venture: 20% 130,000 square feet/ $2.1
(Ashford Loop Associates L.P.) million through September
1001 South Dairy Ashford, 30, 1998
Houston, Harris County, Texas
November 25, 1998 Joint Venture: 20% 168,000 square feet/ $1.6
(Ashford Loop Associates, L.P.) million
2100 West Loop South,
Houston, Harris County, Texas
EQUITY OFFERINGS
DATE SHARES OF COMMON STOCK OFFERED NET PROCEEDS
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February 25, 1998................................................ 2,500,000 $ 92.2 million
March 18, 1998................................................... 2,705,628 $ 99.9 million
March 27, 1998................................................... 650,407 $ 23.7 million
April 29, 1998................................................... 994,228 $ 34.6 million
May 29, 1998..................................................... 984,615 $ 34.1 million
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FINANCING ACTIVITIES
As of September 30, 1998, we had two revolving credit facilities consisting
of an unsecured revolving credit facility and a revolving credit facility, with
an aggregate borrowing capacity of $1.0 billion and an aggregate outstanding
balance of $655.6 million. As of September 30, 1998, we had outstanding an
aggregate of approximately $750.4 million of mortgage indebtedness (in addition
to borrowings under our revolving credit facilities). As of September 30, 1998,
we had 169 unencumbered properties totaling approximately 17.0 million square
feet, representing approximately 61.4 percent of our total portfolio on a square
footage basis.
On April 17, 1998, we terminated our original $400 million unsecured
revolving credit facility. At such time, we entered into our current unsecured
facility in the amount of $870 million with a group of 25 lender banks, which
Chase Securities, Inc. and Fleet National Bank arranged. In July 1998, two
additional lender banks joined the unsecured facility, and expanded our current
unsecured facility to $900.0 million.
On April 30, 1998, we retired a $200 million term loan which we obtained
from Prudential Securities Corp. on December 10, 1997. Such loan had a one-year
term and bore interest at 110 basis points over LIBOR.
Also on April 30, 1998, we obtained a loan in the amount of $150 million
from The Prudential Insurance Corporation of America. Such loan has a seven-year
term and bears interest at an effective rate of 7.1 percent.
OPERATING PERFORMANCE
Since our formation in 1994, we have consistently increased our funds from
operations. Such funds (after adjustment for the straight-lining of rents) for
the nine months ended September 30, 1998 grew to $146.2 million from $77.8
million for the nine months ended September 30, 1997.
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PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS
We list our common stock on the New York Stock Exchange under the symbol
"CLI." The following sets forth the high and low closing sales prices for the
common stock for the fiscal periods indicated as reported by the New York Stock
Exchange and the distributions per share that we paid with respect to each such
period.
HIGH LOW DISTRIBUTION
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1996
First Quarter............................................................... $ 23.6250 $ 20.7500 $ .425
Second Quarter.............................................................. $ 24.6250 $ 21.5000 $ .425
Third Quarter............................................................... $ 27.1250 $ 22.6250 $ .450
Fourth Quarter.............................................................. $ 30.8750 $ 26.1250 $ .450
1997
First Quarter............................................................... $ 34.8750 $ 30.0000 $ .450
Second Quarter.............................................................. $ 34.0000 $ 28.7500 $ .450
Third Quarter............................................................... $ 41.6250 $ 32.3750 $ .500
Fourth Quarter.............................................................. $ 42.6875 $ 36.2500 $ .500
1998
First Quarter............................................................... $ 40.9375 $ 37.0625 $ .500
Second Quarter.............................................................. $ 39.0000 $ 31.6250 $ .500
Third Quarter............................................................... $ 35.4375 $ 26.2500 $ .550
Fourth Quarter (through December 30, 1998).................................. $ 31.6875 $ 27.0625 [NA]
As of December 30, 1998, 350 registered holders held shares of our common stock.
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USE OF PROCEEDS
The net proceeds to us from the sale of the common stock offered by this
prospectus supplement are $3,939,914.86. In order to purchase the shares of
common stock offered by this prospectus supplement, Apollo Real Estate
Investment Fund II, L.P. utilized funds acquired from us from a deferred
contingency obligation (which contingency was satisfied) arising out of our
acquisition of the Pacifica portfolio in March and June of 1998 pursuant to a
Contribution and Exchange Agreement, dated as of March 25, 1998, as amended. We
presently intend to use the net proceeds from the sale of the shares for general
corporate purposes.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our articles of incorporation and bylaws contain certain provisions to
indemnify our directors and officers against liability incurred by them as a
result of their services in those capacities. Insofar as indemnification for
liabilities arising under the Securities Act of 1933, as amended, may be
permitted to our directors, officers or controlling persons pursuant to the
above provisions, we have been informed that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act, and is therefore unenforceable.
FEDERAL INCOME TAX CONSIDERATIONS
We have based the following summary of certain United States federal income
tax considerations to holders of common stock on current law. This summary is
for general information only and is not tax advice. The tax treatment of you as
a holder of common stock will vary depending upon your particular situation. We
do not purport to deal with all aspects of taxation that may be relevant to
particular stockholders in light of their personal investment or tax
circumstances, and we do not deal with the taxation of certain types of
stockholders (including insurance companies, financial institutions or
broker-dealers, tax-exempt organizations, foreign entities, and persons who are
not citizens or residents of the United States) subject to special treatment
under the United States federal income tax laws.
This summary supplements the discussion set forth in the section of the
accompanying prospectus entitled "Certain United States Federal Income Tax
Considerations to the Company of its REIT Election," which contains a summary of
certain federal income tax considerations to us. You should read this summary
together with such discussion. You should consult with your own tax advisor,
regarding the tax consequences to you of the acquisition, ownership and sale of
common stock, including the federal, state, local, foreign and other tax
consequences of such acquisition, ownership and sale of potential changes in
applicable laws.
THE TAXPAYER RELIEF ACT OF 1997 AND THE INTERNAL REVENUE SERVICE RESTRUCTURING
AND REFORM ACT OF 1998
The Taxpayer Relief Act of 1997 revises several of the real estate
investment trust-related requirements, and, in general, modifies both the
general requirements for qualification as a real estate investment trust and the
taxation of a real estate investment trust. The amendments in the law resulting
from the Taxpayer Relief Act of 1997 are effective for our taxable years
beginning on and after January 1, 1998. The Internal Revenue Service
Restructuring and Reform Act of 1998 also made certain additional revisions to
the real estate investment trust-related provisions, which revisions are
effective for our taxable-years beginning on and after January 1, 1998. Set
forth below is a brief summary of certain provisions of the Taxpayer Relief Act
of 1997 and the Internal Revenue Service Restructuring and Reform Act of 1998.
In order for us to maintain our qualification as a real estate investment
trust, during the last half of each taxable year, five or fewer individuals (as
defined in the Internal Revenue Code of 1986, as
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amended to include certain entities) may not own, directly or constructively,
more than 50 percent in value of our outstanding stock. (See "Certain United
States Federal Income Tax Considerations to the Company of its REIT
Election-Taxation of the Company as a REIT-Requirements for Qualification" in
the accompanying prospectus). Prior to 1998, our failure to comply with the
Treasury regulations for ascertaining ownership of our stock (the "Stock
Ownership Regulations") could have resulted in our disqualification as a real
estate investment trust for the taxable year of the failure. Pursuant to the
Taxpayer Relief Act of 1997, effective for our taxable years beginning on and
after January 1, 1998, so long as we comply with the Stock Ownership
Regulations, we will not lose our qualification as a real estate investment
trust as a result of a violation of the foregoing requirement if we neither know
nor upon exercising reasonable diligence would have known of such violation. In
addition, effective for our taxable years beginning on and after January 1,
1998, instead of being disqualified as a real estate investment trust, we would
be subject to a financial penalty of $25,000 ($50,000 for intentional
violations) for any year in which we fail to comply with the Stock Ownership
Regulations. Furthermore, if we can establish that our failure to comply was due
to reasonable cause and not to willful neglect, no penalty would be imposed.
We must also satisfy certain gross income tests on an annual basis, our
failure of any one of which would (subject to the potential applicability of
certain relief provisions) result in us losing our real estate investment trust
qualification. First, at least 75 percent of our gross income (excluding gross
income from "prohibited transactions") for each taxable year must be derived
from (A) rents from real property, (B) interest on obligations secured by
mortgages on real property or on interests in real property, (C) gain from the
sale or other disposition of real property (including interests in real property
and interests in mortgages on real property) which is not property described in
Section 1221(1) of the Internal Revenue Code of 1986, as amended, (D) dividends
or other distributions on, and gain (other than gain from prohibited
transactions) from the sale or other disposition of, transferable shares or
certificates of beneficial interest in other real estate investment trusts, (E)
abatements and refunds of taxes on real property, (F) income and gain derived
from foreclosure property (as defined in Section 856(e) of the Internal Revenue
Code of 1986, as amended), (G) amounts (other than amounts the determination of
which depends in whole or in part on the income or profits of any person)
received or accrued as consideration for entering into agreements (i) to make
loans secured by mortgages on real property or on interests in real property or
(ii) to purchase or lease real property (including interests in real property
and interests in mortgages on real property), (H) gain from the sale or other
disposition of a real estate asset which is not a prohibited transaction solely
by reason of Section 857(b)(6) of the Internal Revenue Code of 1986, as amended,
and (I) qualified temporary investment income (as defined in Section
856(c)(5)(D) of the Internal Revenue Code of 1986, as amended) (the "75% Test").
Second, at least 95 percent of our gross income (excluding gross income from
"prohibited transactions") for each taxable year must be derived from one of the
types of income described in (A), (E), (F), (G) and (H) above, as well as
dividends, interest and gain from the sale or other disposition of stock,
securities and real property (including interests in real property and interests
in mortgages on real property) which is not property described in Section
1221(1) of the Internal Revenue Code of 1986, as amended (the "95% Test" and,
together with the 75% Test, the "Gross Income Tests"). Effective for our taxable
years beginning on and after January 1, 1998, except to the extent provided by
Treasury regulations, "qualifying income" for purposes of the 95% Test includes
payments made to us under any interest rate swap, cap agreement, option, futures
contract, forward rate agreement or any similar financial instrument entered
into by us in a transaction to reduce the interest rate risks with respect to
any indebtedness incurred or to be incurred by us to acquire or carry real
estate assets, as well as any gain from the disposition of any such instrument.
(See "Certain United States Federal Income Tax Considerations to the Company of
its REIT Election-Taxation of the Company as a REIT-Income Tests" in the
accompanying prospectus).
Under the law prior to the Taxpayer Relief Act of 1997, for any taxable
year, gain from the sale or other disposition of stock or securities held by us
for less than one year, gain from prohibited
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transactions and gain on the sale or other disposition of real property held by
us for fewer than four years (apart from involuntary conversions and sales of
foreclosure property) must have comprised less than 30 percent of our gross
income (the "30 Percent Test"). Effective for our taxable years beginning on and
after January 1, 1998, we are no longer subject to the 30 Percent Test.
For purposes of the Gross Income Tests, in order for the rents we received
in respect of property to qualify as "rents from real property," we are
generally not permitted to operate or manage the property or furnish or render
services to the tenants of such property, other than through an "independent
contractor" from whom we derive no revenue. However, we may directly perform
certain services that are "usually or customarily rendered" in connection with
the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant" of the property. (See "Certain United States Federal
Income Tax Considerations to the Company of its REIT Election-Taxation of the
Company as a REIT-Income Tests" in the accompanying prospectus). Effective for
our taxable years beginning on and after January 1, 1998, we are permitted to
render a DE MINIMIS amount of impermissible services to tenants, or in
connection with the management of a property (together, "Impermissible
Services"), without having otherwise qualifying rents from the property
disqualified as "rents from real property." In order to qualify for this DE
MINIMIS exception, the amount we receive or accrue, directly or indirectly, for
Impermissible Services with respect to any property for any taxable year may not
exceed one percent of all amounts we receive or accrue during such taxable year,
directly or indirectly, with respect to such property. For purposes of the
foregoing, the amount treated as "received" by us for Impermissible Services
will not be less than 150 percent of our direct cost in rendering such service.
However, the amount of any income that we receive for Impermissible Services
will not be treated as "rents from real property" for purposes of the Gross
Income Tests.
We may receive, directly or indirectly, fees in consideration of the
performance of management and administrative services with respect to properties
that are not directly or indirectly owned entirely by us. Although a portion of
such management and administrative fees generally will not constitute
"qualifying income" for purposes of the Gross Income Tests, we believe that the
aggregate amount of such fees (plus any income from Impermissible Services and
other nonqualifying income for purposes of the Gross Income Tests) in any
taxable year will not cause us to fail the Gross Income Tests.
Rents we receive from a tenant will not qualify as "rents from real
property" for purposes of the Gross Income Tests if we, or an owner of 10
percent or more of our company, directly or constructively owns 10 percent or
more of such tenant (a "Related Tenant") (See "Certain United States Federal
Income Tax Considerations to the Company of its REIT Election-Taxation of the
Company as a REIT-Income Tests" in the accompanying prospectus). Effective for
our taxable years beginning on and after January 1, 1998, the constructive
ownership rules for determining whether a tenant is a Related Tenant have been
modified with respect to partners and partnerships so that attribution between
partners and partnerships occurs only when a partner owns, directly and/or
indirectly, a 25 percent-or-greater interest in the partnership. Thus, a tenant
will not be treated as a Related Tenant with respect to us if a partnership owns
our shares and a partner that owns, directly and indirectly, a less than 25
percent interest in such partnership also owns an interest in such tenant. A
tenant will also not be a Related Tenant with respect to us if our stockholders
and owners of such tenant are partners in a partnership in which neither own,
directly and/or indirectly, a 25 percent-or-greater interest.
Other amendments enacted pursuant to the Taxpayer Relief Act of 1997
include: (1) an earnings and profits sourcing rule which, for purposes of
determining whether we have non-real estate investment trust earnings and
profits as of the close of our taxable year, would treat our distributions of
accumulated earnings and profits as being made out of our earliest accumulated
earnings and profits, (2) an extension of the period for which we may treat
property as "foreclosure property," (3) the exclusion of involuntarily converted
property from the "prohibited transaction" rules, (4) a provision which allows
us to treat any subsidiary wholly-owned by us (whether or not the subsidiary has
always been wholly-owned by us) as a "qualified real estate investment trust
subsidiary" (although certain tax
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consequences may result from such treatment), (5) the expansion of the list of
"excess noncash" items for purposes of the annual 95 percent distribution
requirement, and (6) an election to allow us to retain our net long-term capital
gain (discussed below).
The Internal Revenue Service Restructuring and Reform Act of 1998 made the
following additional revisions to the real estate investment trust-related
provisions: (1) distributions made by us to eliminate non-real estate investment
trust earnings and profits are deemed to come from the earliest earnings and
profits accumulated in a taxable year in which the real estate investment trust
provisions did not apply to us, and (2) the credit for tax deemed paid on our
undistributed capital gains is added to the credits that are allowed to an
electing large partnership (i.e., with respect to any partnership taxable year,
any partnership if (A) the number of partners in the preceding partnership
taxable year equalled or exceeded 100 and (B) such partnership elects the
application of Part IV of Subchapter K of Chapter 1 of Subtitle A of the
Internal Revenue Code of 1986, as amended) and are not separately reported to
partners.
TAXATION OF TAXABLE U.S. STOCKHOLDERS GENERALLY
As used herein, the term "U.S. Stockholder" means a holder of shares of
common stock who (for United States federal income tax purposes) is (1) a
citizen or resident of the United States, (2) a corporation, partnership or
other entity that is treated as a domestic entity for federal income tax
purposes (3) an estate the income of which is subject to United States federal
income taxation regardless of its source, (4) a trust (other than a grantor
trust) which (x) was in existence on August 20, 1996 and was treated as a U.S.
person on August 19, 1996 and (y) has elected, pursuant to regulations (which
have not yet been issued), to continue to be treated as a U.S. person, or (5) a
trust not described in (4) above, if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States fiduciaries have the authority to control all substantial
decisions of the trust.
As long as we qualify as a real estate investment trust, distributions that
we make to our taxable U.S. Stockholders out of our current or accumulated
earnings and profits (and not designated as capital gain dividends) will
constitute dividends taxable to them as ordinary income. Such distributions will
not be eligible for the dividends-received deduction in the case of U.S.
Stockholders that are corporations. Distributions we make that we properly
designate as capital gain dividends will be taxable to taxable U.S. Stockholders
as long-term capital gains (to the extent that they do not exceed our actual net
capital gain for the taxable year) without regard to the period for which the
U.S. Stockholder has held its shares of stock. U.S. Stockholders that are
corporations may, however, be required to treat up to 20 percent of certain
capital gain dividends as ordinary income.
Pursuant to the Taxpayer Relief Act of 1997 and Internal Revenue Service
Restructuring and Reform Act of 1998, the portion of any such capital gain
dividends attributable to gain recognized with respect to capital assets that we
held for more than 12 months on the date of sale will be treated as long-term
capital gain taxable to non-corporate stockholders at a maximum rate of 20
percent (or 25 percent to the extent any such gain arises from the recapture of
straight-line depreciation deductions reflected in the basis of real property
that we have held for more than 12 months as of the date of sale).
Also, pursuant to the Taxpayer Relief Act of 1997, effective for our taxable
years beginning on and after January 1, 1998, we may elect to retain our net
long term capital gains recognized during a taxable year ("Retained Gains") and
pay a corporate-level tax on such Retained Gains. Corporations are currently
subject to a maximum 35 percent tax on recognized capital gains. A U.S.
Stockholder owning shares of our stock on December 31 of a taxable year in which
we have Retained Gains would be required to include in gross income such
stockholder's proportionate share of the Retained Gains (as designated by us in
a notice mailed to stockholders within 60 days following the end of the taxable
S-12
year). The amount of any corporate-level tax that we pay in respect of the
Retained Gains (the "Company Tax") would be treated as having been paid by our
stockholders and each U.S. Stockholder would receive a credit or refund for such
stockholder's share of the Company Tax. A U.S. Stockholder's basis in his shares
of our stock would increase by the excess of such stockholder's proportionate
share of the Retained Gains over the stockholder's share of the Company Tax.
To the extent that we make distributions (not designated as capital gain
dividends) in excess of our current and accumulated earnings and profits, such
distributions will be treated first as a tax-free return of capital to each U.S.
Stockholder, reducing the adjusted basis which such U.S. Stockholder has in his
shares of our stock for tax purposes by the amount of such distribution (but not
below zero), with distributions in excess of the U.S. Stockholder's adjusted
basis in his shares taxable as capital gains (provided that the shares have been
held as a capital asset). Any such distribution in excess of a U.S.
Stockholder's adjusted basis in his shares of our stock will be included in
income as long-term capital gain and, for non-corporate stockholders, will be
subject to a maximum rate of 20 percent if the shares have been held by such
stockholder for more than 12 months at the time of distribution, and short-term
capital gain subject to a maximum rate of up to 39.6 percent if the shares were
held by such stockholder for no more than one year at the time of the
distribution. Distributions that we declare in October, November or December of
any year and payable to a stockholder of record on a specified date in any such
month shall be treated as both paid by us and received by the stockholder on
December 31 of such year, provided that the dividend is actually paid by us on
or before January 31 of the following calendar year. Stockholders may not
include in their own income tax returns any of our net operating losses or
capital losses.
In general, any loss recognized by a U.S. Stockholder upon the sale or other
disposition of shares of our stock that have been held for six or fewer months
(after applying certain holding period rules) will be treated as a long-term
capital loss, to the extent of distributions received by such U.S. Stockholder
from us which were required to be treated by such U.S. Stockholder as a
long-term capital gain.
BACKUP WITHHOLDING
We will report to our U.S. Stockholders and to the Internal Revenue Service
the amount of dividends paid during each calendar year and the amount of tax
withheld, if any. Under the backup withholding rules, a U.S. Stockholder may be
subject to backup withholding at the rate of 31 percent with respect to
dividends paid unless such holder (a) is a corporation or comes within certain
other exempt categories and, when required, demonstrates this fact or (b)
provides a taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. A U.S. Stockholder that does not provide us with
the correct taxpayer identification number may also be subject to penalties
imposed by the Internal Revenue Service. Any amount paid as backup withholding
will be creditable against the stockholder's income tax liability. In addition,
we may be required to withhold a portion of capital gain distributions to any
stockholders who fail to certify their non-foreign status to us.
OTHER TAX CONSEQUENCES
We and you may be subject to foreign, state or local taxation in various
foreign, state or local jurisdictions, including those in which we or you
transact business or reside. Our and your foreign, state and local tax treatment
may not conform to the United States federal income tax consequences discussed
above. Consequently, you should consult your own tax advisors regarding the
effect of foreign, state and local tax laws on an investment in us.
S-13
PLAN OF DISTRIBUTION
Subject to the terms and conditions of the Stock Purchase Agreement dated as
of December 31, 1998, by and between us and Apollo Real Estate Investment Fund,
L.P., we have agreed to issue, and Apollo Real Estate Investment Fund II, L.P.
has agreed to acquire from us, 132,710 shares of common stock at a price of
$29.6882 per share for an aggregate purchase price of $3,939,914.86. We will not
use any placement agent or underwriter in this transaction, and we will not
incur fees relating to any such placement agent or underwriter.
LEGAL MATTERS
Pryor Cashman Sherman & Flynn LLP, New York, New York, will issue an opinion
to us regarding certain legal matters in connection with this offering. Ballard
Spahr Andrews & Ingersoll, LLP, Baltimore, Maryland, also will issue an opinion
to us regarding certain legal matters in connection with this offering,
including the validity of the issuance of the shares of common stock offered by
this prospectus supplement.
EXPERTS
The financial statements incorporated in this prospectus supplement by
reference to our Annual Report on Form 10-K for the year ended December 31,
1997, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting. The financial statements
incorporated in this prospectus supplement by reference to our Current Report on
Form 8-K dated January 16, 1998, has been so incorporated in reliance on the
reports of Schonbraun Safris McCann Bekritsky & Co., LLC, independent
accountants, given on the authority of said firm as experts in auditing and
accounting. The financial statements for Prudential Business Campus and for
Morris County Financial Center incorporated in this prospectus supplement by
reference to our Current Report on Form 8-K dated June 12, 1998, as amended by
Form 8-K/A dated June 12, 1998, have been so incorporated in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting. The financial
statements, except for Prudential Business Campus and Morris County Financial
Center, incorporated in this prospectus supplement by reference to our Current
Report on Form 8-K dated June 12, 1998, as amended by Form 8-K/A dated June 12,
1998, have been so incorporated in reliance on the reports of Schonbraun Safris
McCann Bekritsky & Co., LLC, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
S-14
PROSPECTUS
CALI REALTY CORPORATION
$1,000,000,000
PREFERRED STOCK, COMMON STOCK AND WARRANTS
Cali Realty Corporation (together with its subsidiaries, the "Company") may
from time to time offer in one or more series (i) shares or fractional shares of
its preferred stock, par value $.01 per share (the "Preferred Stock"), (ii)
shares of its common stock, par value $.01 per share (the "Common Stock"), or
(iii) warrants to purchase Common Stock or Preferred Stock (the "Warrants"),
with an aggregate initial public offering price of up to $1,000,000,000 on terms
to be determined at the time of offering. The Preferred Stock, Common Stock and
Warrants (collectively, the "Offered Securities") may be offered, separately or
together, in separate series in amounts, at prices and on terms to be set forth
in a supplement to this Prospectus (a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Preferred
Stock, the specific title and stated value, any dividend, liquidation,
redemption, conversion, voting and other rights and the initial public offering
price; (ii) in the case of Common Stock, the initial public offering price; and
(iii) in the case of Warrants, the securities as to which such Warrants may be
exercised, the duration, offering price, exercise price and detachability. In
addition, such specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Offered Securities, in each case
as may be appropriate to preserve the status of the Company as a real estate
investment trust ("REIT") for United States federal income tax purposes. See
"Restrictions on Ownership of Capital Stock".
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company, or to or through underwriters or dealers. If
any agents or underwriters are involved in the sale of any of the Offered
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them, will be set forth, or will be
calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution." No Offered Securities may be sold
without delivery of the applicable Prospectus Supplement describing the method
and terms of the offering of such series of Offered Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
The date of this Prospectus is January 7, 1997.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Registration
Statement, the exhibits and schedules forming a part thereof and the reports,
proxy statements and other information filed by the Company with the Commission
in accordance with the Exchange Act can be inspected and copied at the
Commission's public reference section, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the following regional offices of the Commission:
Seven World Trade Center, 13th Floor, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can also be obtained at prescribed rates by
writing to the public reference section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the Commission's Web site is: http://www.sec.gov. In addition,
the Company's Common Stock is listed on the New York Stock Exchange (the "NYSE")
and similar information concerning the Company can be inspected and copied at
the offices of the NYSE, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement (the
"Registration Statement") (of which this Prospectus is a part) under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Offered Securities. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain portions of which have been omitted
as permitted by the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Offered Securities, reference is hereby made to
the Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon payment of
the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company (File No. 1-13274)
under the Exchange Act with the Commission and are incorporated herein by
reference:
a. The Company's Current Reports on Form 8-K dated July 16, 1996,
August 12, 1996, October 8, 1996, October 28, 1996, October 29, 1996,
November 18, 1996, November 21, 1996, December 30, 1996 and December 31,
1996;
b. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
c. The Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996;
d. The Company's Proxy Statement relating to the Annual Meeting of
Shareholders held on May 13, 1996;
e. The description of the Common Stock and the description of certain
provisions of Maryland Law and the Company's Articles of Incorporation and
Bylaws, both contained in the Company's Registration Statement on Form 8-A,
dated August 9, 1994.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Offered Securities shall be deemed to be
incorporated by reference in this Prospectus and to be part hereof from
2
the date of filing such documents (provided, however, that the information
referred to in Item 402(a)(8) of Regulation S-K of the Commission shall not be
deemed specifically incorporated by reference herein).
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner of the Offered
Securities, to whom this Prospectus is delivered, upon written or oral request.
Requests should be made to Barry Lefkowitz, Vice President-Finance and Chief
Financial Officer of the Company, 11 Commerce Drive, Cranford, New Jersey
07016-3510 (telephone number: (908) 272-8000).
3
THE COMPANY
Cali Realty Corporation (together with its subsidiaries, the "Company") is a
fully-integrated real estate investment trust ("REIT") that owns and operates a
portfolio comprised predominantly of Class A office and office/flex buildings
located primarily in New Jersey, as well as commercial real estate leasing,
management, acquisition, development and construction businesses. As of
September 30, 1996, the Company owned 100 percent of 44 office and office/flex
properties encompassing approximately 4.3 million net rentable square feet and
one 327 unit multifamily residential property (collectively, the "Properties").
The 44 office and office/flex properties are comprised of 27 office buildings
containing an aggregate of 3.6 million square feet (the "Office Properties") and
17 office/flex buildings containing an aggregate of approximately 700,000 square
feet (the "Office/Flex Properties"). The Company believes that its Properties
have excellent locations and access and are well-maintained and professionally
managed. As a result, the Company believes that its properties attract high
quality tenants and achieve among the highest rent, occupancy and tenant
retention rates within their markets. As of September 30, 1996, the Office
Properties and Office/Flex Properties were approximately 97 percent leased to
over 430 tenants.
On November 4, 1996, the Company acquired Harborside, a 1.9 million square
foot office complex located in Jersey City, New Jersey for an initial
acquisition cost of approximately $286.7 million. The purchase price included
the assumption of existing and seller-provided financing aggregating
approximately $150.0 million. The balance of the acquisition cost, totaling
approximately $137.4 million, was paid in cash and was financed substantially
through drawings on the Company's existing credit facilities. As part of the
purchase, the Company also acquired 11.3 acres of land fully zoned and permitted
for an additional 4.1 million square feet of development and the water rights
associated with 27.4 acres of land extending into the Hudson immediately east of
Harborside, including two piers with an area of 5.8 acres. The terms of the
acquisition of the vacant parcels at Harborside provide for payments (with an
estimated net present value of approximately $5.3 million) to be made to the
seller for development rights if and when the Company commences construction on
the 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.
In addition, on November 7, 1996, the Company acquired Five Sentry Parkway
East & West ("Five Sentry"), a two-building office complex comprised of
approximately 131,000 net rentable square feet located in Plymouth Meeting,
Montgomery County, Pennsylvania, for approximately $12.4 million in cash, which
was drawn from one of the Company's credit facilities. Such borrowing was
subsequently repaid from the net proceeds received from the Company's public
common stock offering of 17,537,500 shares (the "November Offering") on November
23, 1996. On December 10, 1996, the Company acquired 300 Tice Boulevard
("Whiteweld"), a 230,000 net rentable square foot office building located in
Woodcliff Lake, Bergen County, New Jersey, for approximately $35.0 million in
cash, made available from the net proceeds received from the November Offering.
On December 16, 1996, the Company acquired One Bridge Plaza, a 200,000 net
rentable square foot office building located in Fort Lee, Bergen County, New
Jersey, for approximately $26.8 million in cash, made available from the net
proceeds received from the November Offering. On December 17, 1996, the Company
acquired the International Court at Airport Business Center ("Airport Center"),
a three-building office complex comprised of approximately 370,000 net rentable
square feet located in Lester, Delaware County, Pennsylvania for approximately
$43.0 million in cash, made available from the net proceeds received from the
November Offering.
The Company's strategy has been to focus its development and ownership of
properties in sub-markets where it is, or can become, a significant and
preferred owner and operator. The Company will continue this strategy by
expanding, primarily through acquisitions, into sub-markets where it has, or can
achieve, similar status. Management believes that the recent trend towards
increasing rental and occupancy rates in Class A office buildings in the
Company's sub-markets presents significant opportunities for
4
growth. The Company may also develop properties in such sub-markets. Management
believes that its extensive market knowledge provides the Company with a
significant competitive advantage which is
further enhanced by its strong reputation for and emphasis on delivering highly
responsive management services, including direct and continued access to the
Company's senior management. The Company performs substantially all
construction, leasing, management and tenant improvements on an "in-house" basis
and is self-administered and self-managed.
Cali Associates, the entity whose business the Company succeeded in 1994,
was founded by John J. Cali, Angelo R. Cali and Edward Leshowitz (the
"Founders"), who have been involved in the development, leasing, management,
operation and disposition of commercial and residential properties in Northern
and Central New Jersey for over 40 years and have been primarily focusing on
office building development for the past 17 years. In addition to the Founders,
the Company's executive officers have been employed by the Company and its
predecessor for an average of approximately ten years. The Company and its
predecessor have built approximately four million square feet of office space,
more than one million square feet of industrial facilities and over 5,500
residential units.
The Company has elected to be taxed as a REIT for federal income tax
purposes and expects to continue to elect such status. Although the Company
believes that it was organized and has been operating in conformity with the
requirements for qualification under the Internal Revenue Code of 1986, as
amended (the "Code"), no assurance can be given that the Company will continue
to qualify as a REIT. Qualification as a REIT involves the application of highly
technical and complex Code provisions of which there are only limited judicial
or administrative interpretations. If in any taxable year the Company were to
fail to qualify as a REIT, the Company would not be allowed a deduction for
distributions to stockholders in computing taxable income and would be subject
to federal taxation at regular corporate rates. As a result, such a failure
would adversely affect the Company's ability to make distributions to its
stockholders and could have an adverse affect on the market value and
marketability of the Offered Securities.
To ensure that the Company qualifies as a REIT, the transfer of shares of
Common Stock and Preferred Stock (as defined below) is subject to certain
restrictions, and ownership of capital stock by any single person is limited to
9.8 percent of the value of such capital stock, subject to certain exceptions.
The Company's Articles of Incorporation provide that any purported transfer in
violation of the above-described ownership limitations shall be void ab initio.
The shares of Common Stock of the Company are listed on the NYSE under the
symbol "CLI." The Company has paid regular quarterly distributions on its Common
Stock since it commenced operations as a REIT in 1994. The Company intends to
continue making regular quarterly distributions to its Common Stockholders.
Distributions depend upon a variety of factors, and there can be no assurance
that distributions will be made.
All of the Company's interests in the Properties are held by, and its
operations are conducted through, Cali Realty, L.P., a Delaware limited
partnership (the "Operating Partnership"), or by entities controlled by the
Operating Partnership. The Company owned, as of November 30, 1996, approximately
93.1 percent of the Operating Partnership's outstanding units of partnership
interest ("Units"), and is the sole general partner of the Operating
Partnership.
The Company was incorporated under the laws of Maryland on May 24, 1994. Its
executive offices are located at 11 Commerce Drive, Cranford, New Jersey 07016,
and its telephone number is (908) 272-8000.
5
RATIOS OF EARNINGS TO FIXED CHARGES
The following tables set forth the Company's consolidated ratios of earnings
to fixed charges for the periods shown:
FOR THE NINE FOR THE YEAR FOR THE PERIOD
MONTHS ENDED ENDED AUGUST 31, 1994
SEPTEMBER 30, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
- ------------------- ------------------- ---------------------
3.08x..... 2.69x 3.13x
The following tables set forth the amounts by which the Company's
predecessor's earnings were inadequate to cover fixed charges:
FOR THE PERIOD FOR THE YEARS ENDED DECEMBER
JANUARY 1, 1994 31,
TO -------------------------------
AUGUST 30, 1994 1993 1992 1991
- ----------------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
$(110) $ (1,064) $ (2,172) $ (1,125)
The ratios of earnings to fixed charges were computed by dividing earnings
before fixed charges by fixed charges. For this purpose, earnings consist of
pre-tax income (loss) from continuing operations before minority interest plus
fixed charges excluding capitalized interest. Fixed charges consist of interest
costs, both expensed and capitalized, debt issuance costs and the interest
portion of ground rents on land leases. To date, the Company has not issued any
Preferred Stock, therefore, the ratios of earnings to combined fixed charges and
preferred stock dividend requirements are the same as the ratios of earnings to
fixed charges presented above. For the nine months ended September 30, 1996, the
calculation of the ratio of earnings to fixed charges excludes a gain on sale of
rental property of $5,658. The ratio of earnings to fixed charges, including
gain on sale of rental property, for the same period was 4.64.
USE OF PROCEEDS
The Company is required by the terms of the Amended and Restated Agreement
of Limited Partnership of the Operating Partnership to invest the net proceeds
of any sale of Common Stock or Preferred Stock in the Operating Partnership in
exchange for additional Units. Unless otherwise described in the applicable
Prospectus Supplement, the Company intends to use the net proceeds from the sale
of the Offered Securities for general corporate purposes, including the leasing,
management, acquisition, development and construction of office, office/flex,
industrial, multi-family residential or other properties as suitable
opportunities arise, the expansion and improvement of certain properties in the
Company's portfolio, and the repayment of indebtedness.
DESCRIPTION OF COMMON STOCK
The Company has the authority to issue up to 95,000,000 shares of common
stock, par value $.01 per share (the "Common Stock"). At November 30, 1996, the
Company had outstanding 36,318,894 shares of Common Stock.
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Stock will be
issuable upon conversion of Preferred Stock of the Company or upon the exercise
of Warrants to purchase Common Stock issued by the Company. The statements below
describing the Common Stock are in all respects subject to and qualified in
their entirety by reference to the applicable provisions of the Company's
Articles of Incorporation and bylaws.
Each outstanding share of Common Stock entitles the holder to one vote on
all matters presented to stockholders for a vote, subject to the provisions of
the Company's Articles of Incorporation regarding the
6
ownership of shares of Common Stock in excess of the Ownership Limit described
below under "Restrictions on Ownership of Offered Securities". Holders of shares
of Common Stock have no preemptive rights or cumulative voting rights. All
shares of Common Stock will, when issued, be duly authorized, fully paid, and
nonassessable. Distributions may be paid to the holders of shares of Common
Stock if and when declared by the Board of Directors of the Company out of funds
legally available therefor.
Under Maryland law, stockholders are generally not liable for the Company's
debts or obligations. If the Company is liquidated, subject to the right of any
holders of Preferred Stock to receive preferential distributions, each holder of
Common Stock will be entitled to participate PRO RATA in the assets remaining
after payment of, or adequate provision for, all known debts and liabilities of
the Company, including debts and liabilities arising out of its status of
general partner of the Operating Partnership.
RESTRICTIONS ON OWNERSHIP
With certain exceptions, the Company's Articles of Incorporation provide
that no person may own, or be deemed to own by virtue of the attribution rules
of the Code, more than 9.8 percent of the value of the Company's issued and
outstanding shares of capital stock. See "Restrictions on Ownership of Offered
Securities".
TRANSFER AGENT
The registrar and transfer agent for the Company's Common Stock is Chase
Mellon Shareholder Services, LLC.
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). No shares of Preferred
Stock are outstanding as of the date hereof.
Under the Company's Articles of Incorporation, shares of Preferred Stock may
be issued from time to time, in one or more series, as authorized by the Board
of Directors. Prior to the issuance of shares of each series, the Board of
Directors is required by the Maryland General Corporation Law (the "MGCL") and
the Company's Articles of Incorporation to adopt resolutions and file Articles
Supplementary (the "Articles Supplementary") with the State Department of
Assessments and Taxation of Maryland, setting for each such series the
designations, powers, preferences and rights of the shares of such series and
the qualifications, limitations or restrictions thereon, including, but not
limited to, dividend rights, dividend rate or rates, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences as are permitted by
Maryland law. Because the Board of Directors has the power to establish the
terms and conditions of each series of Preferred Stock, it may afford the
holders of any series of Preferred Stock power, preferences and rights, voting
or otherwise, senior to the rights of holders of shares of Common Stock. The
issuance of Preferred Stock could have the effect of delaying or preventing a
change in control of the Company.
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Articles of Incorporation (including the
applicable Articles Supplementary) and bylaws.
GENERAL
Subject to limitations prescribed by Maryland law and the Company's Articles
of Incorporation and bylaws, the Board of Directors is authorized to fix the
number of shares constituting each series of Preferred Stock and the
designations, powers, preferences and relative, participating, optional or other
7
special rights and qualifications, limitations or restrictions thereon,
including such provisions as may be desired concerning voting, redemption,
dividends, dissolution or the distribution of assets, conversion or exchange,
and such other subjects or matters as may be fixed by resolution of the Board of
Directors or a duly authorized committee thereof. The Preferred Stock will, when
issued, be fully paid and nonassessable.
Reference is made to the Prospectus Supplement relating to the series of
Preferred Stock offered thereby for specific terms, including:
(1) the title and stated value of such Preferred Stock;
(2) the number of shares of such Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(3) the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Stock;
(4) whether dividends shall be cumulative or non-cumulative and, if
cumulative, the date from which dividends on such Preferred Stock shall
accumulate; (5) the procedures for any auction and remarketing, if any,
for such Preferred Stock;
(6) the provisions for a sinking fund, if any, for such Preferred Stock;
(7) any voting rights of such Preferred Stock;
(8) the provisions for redemption, if applicable, of such Preferred Stock;
(9) any listing of such Preferred Stock on any securities exchange;
(10) the terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock of the Company, including the
conversion price (or manner of calculation thereof) and conversion
period;
(11) if appropriate, a discussion of United States federal income tax
considerations applicable to such Preferred Stock;
(12) any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT;
(13) the relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company;
(14) any limitations on issuance of any series of Preferred Stock ranking
senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(15) any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred Stock
will, with respect to dividend rights and rights upon liquidation, dissolution
or winding up of the Company, rank (i) senior to all classes or series of Common
Stock of the Company, and to all equity securities ranking junior to such
Preferred Stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the Company; (ii) on a parity with all equity
securities issued by the Company the terms of which specifically provide that
such equity securities rank on a parity with the Preferred Stock with respect to
dividend rights or rights upon liquidation, dissolution or winding up of the
Company; and (iii) junior to all equity securities issued by the Company the
terms of which specifically provide that such equity securities rank senior to
the Preferred Stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the
8
Company. As used in the Company's Articles of Incorporation for these purposes,
the term "equity securities" does not include convertible debt securities.
DIVIDENDS
Unless otherwise specified in the Prospectus Supplement, the Preferred Stock
will have the rights with respect to payment of dividends set forth below.
Holders of shares of the Preferred Stock of each series shall be entitled to
receive, when, as and if declared and authorized by the Board of Directors of
the Company, out of assets of the Company legally available for payment, cash
dividends at such rates and on such dates as will be set forth in the applicable
Prospectus Supplement. Each such dividend shall be payable to holders of record
as they appear on the stock transfer books of the Company on such record dates
as shall be fixed by the Board of Directors of the Company.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will accumulate from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are noncumulative, then the holders of such
series of the Preferred Stock will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If any shares of the Preferred Stock of any series are outstanding, no full
dividends shall be declared or paid or set apart for payment on the Preferred
Stock of the Company of any other series ranking, as to dividends, on a parity
with or junior to the Preferred Stock of such series for any period unless (i)
if such series of Preferred Stock has a cumulative dividend, full cumulative
dividends have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof irrevocably set apart for such payment on
the Preferred Stock of such series for all past dividend periods and the then
current dividend period or (ii) if such series of Preferred Stock does not have
a cumulative dividend, full dividends for the then current dividend period have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof irrevocably set apart for such payment on the Preferred
Stock of such series. When dividends are not paid in full (or a sum sufficient
for such full payment is not so irrevocably set apart) upon the shares of
Preferred Stock of any series and the shares of any other series of preferred
stock ranking on a parity as to dividends with the Preferred Stock of such
series, all dividends declared upon shares of Preferred Stock of such series and
any other series of preferred stock ranking on a parity as to dividends with
such Preferred Stock shall be declared PRO RATA so that the amount of dividends
declared per share on the Preferred Stock of such series and such other series
of preferred stock shall in all cases bear to each other the same ratio that
accrued and unpaid dividends per share on the shares of Preferred Stock of such
series (which shall not include any accumulation in respect of unpaid dividends
for prior dividend periods if such Preferred Stock does not have a cumulative
dividend) and such other series of preferred stock bear to each other. Except as
may otherwise be set forth in the applicable Prospectus Supplement, no interest,
or sum of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment for all past dividend periods and the then
current dividend period or (ii) if such series of Preferred Stock does not have
a cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof irrevocably set apart for payment for the then current
dividend period,
9
no dividends (other than in Common Stock or other capital stock ranking junior
to the Preferred Stock of such series as to dividends and upon liquidation,
dissolution or winding up of the Company) shall be declared or paid or set aside
for payment or other distribution shall be declared or made upon the Common
Stock or any other capital stock of the Company ranking junior to or on a parity
with the Preferred Stock of such series as to dividends or upon liquidation,
dissolution or winding up of the Company, nor shall any Common Stock or any
other capital stock of the Company ranking junior to or on a parity with the
Preferred Stock of such series as to dividends or upon liquidation, dissolution
or winding up of the Company be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares of any such stock) by the Company (except by
conversion into or exchange for other capital stock of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation, dissolution or, winding up of the Company).
Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the shares of
Preferred Stock will be subject to mandatory redemption or redemption at the
option of the Company, as a whole or in part, in each case upon the terms, at
the times and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in such year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all shares of any series
of Preferred Stock shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof irrevocably set apart for
payment for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment for the then current dividend period, no
shares of any series of Preferred Stock shall be redeemed unless all outstanding
shares of Preferred Stock of such series are simultaneously redeemed; provided,
however, that the foregoing shall not prevent the purchase or acquisition of
shares of Preferred Stock of such series pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding shares of Preferred
Stock of such series. In addition, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all outstanding shares
of any series of Preferred Stock have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof irrevocably set
apart for payment for all past dividend periods and the then current dividend
period and (ii) if such series of Preferred Stock does not have a cumulative
dividend, full dividends on the Preferred Stock of any series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof irrevocably set apart for payment for the then current dividend
period, the Company shall not purchase or otherwise acquire directly or
indirectly any shares of Preferred Stock of such series (except by conversion
into or exchange for capital stock of the Company ranking junior to the
Preferred Stock of such series as to dividends and upon liquidation, dissolution
or winding up of the Company); provided, however, that the foregoing shall not
prevent the purchase or acquisition of shares of Preferred Stock of such series
to preserve the REIT status of the
10
Company or pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding shares of Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any series
are to be redeemed, the number of shares to be redeemed will be determined by
the Company and such shares may be redeemed PRO RATA from the holders of record
of such shares in proportion to the number of such shares held by such holders
(with adjustments to avoid redemption of fractional shares) or any other
equitable method determined by the Company that will not result in violation of
the ownership limitations set forth in the Articles of Incorporation.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of a share of Preferred
Stock of any series to be redeemed at the address shown on the stock transfer
books of the Company. Each notice shall state: (i) the redemption date; (ii) the
number of shares and series of the Preferred Stock to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such Preferred
Stock are to be surrendered for payment of the redemption price; (v) that
dividends on the shares to be redeemed will cease to accrue on such redemption
date; and (vi) the date upon which the holder's conversion rights, if any, as to
such shares shall terminate. If fewer than all the shares of Preferred Stock of
any series are to be redeemed, the notice mailed to each such holder thereof
shall also specify the number of shares of Preferred Stock to be redeemed from
each such holder. If notice of redemption of any shares of Preferred Stock has
been given and if the funds necessary for such redemption have been irrevocably
set apart by the Company in trust for the benefit of the holders of any shares
of Preferred Stock so called for redemption, then from and after the redemption
date dividends will cease to accrue on such shares of Preferred Stock, such
shares of Preferred Stock shall no longer be deemed outstanding and all rights
of the holders of such shares will terminate, except the right to receive the
redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Stock or any other class or series of capital
stock of the Company ranking junior to the Preferred Stock in the distribution
of assets upon any liquidation, dissolution or winding up of the Company, the
holders of each series of Preferred Stock shall be entitled to receive out of
assets of the Company legally available for distribution to stockholders
liquidating distributions in the amount of the liquidation preference per share
(set forth in the applicable Prospectus Supplement and Articles Supplementary),
plus an amount equal to all dividends accrued and unpaid thereon (which shall
not include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend). Except as
may otherwise be set forth in the applicable Prospectus Supplement, after
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of Preferred Stock will have no right or claim to any of
the remaining assets of the Company. In the event that, upon any such voluntary
or involuntary liquidation, dissolution or winding up, the legally available
assets of the Company are insufficient to pay the amount of the liquidating
distributions on all outstanding shares of Preferred Stock and the corresponding
amounts payable on all shares of other classes or series of capital stock of the
Company ranking on a parity with the Preferred Stock in the distribution of
assets upon liquidation, dissolution or winding up of the Company, then the
holders of the Preferred Stock and all other such classes or series of capital
stock shall share ratably in any such distribution of assets in proportion to
the full liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
shares of Preferred Stock, the remaining assets of the Company shall be
distributed among the holders of any other classes or series of capital stock
ranking junior to the Preferred Stock upon liquidation, dissolution or winding
up of the Company, according to their respective rights and preferences and in
each case according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into
11
any other corporation, or the sale, lease, transfer or conveyance of all or
substantially all of the property or business of the Company, shall not be
deemed to constitute a liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Except as may otherwise be set forth in the applicable Prospectus
Supplement, whenever dividends on any shares of Preferred Stock shall be in
arrears for the equivalent of six or more quarterly periods, the holders of such
shares of Preferred Stock (voting separately as a class with all other series of
preferred stock upon which like voting rights have been conferred and are
exercisable) will be entitled to vote for the election of two additional
directors of the Company at the next annual meeting of stockholders, and at each
subsequent annual meeting, until (i) if such series of Preferred Stock has a
cumulative dividend, all dividends accumulated on such shares of Preferred Stock
for the past dividend periods and the then current dividend period shall have
been fully paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment or (ii) if such series of Preferred Stock does
not have a cumulative dividend, four consecutive quarterly dividends shall have
been fully paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment. In such case, the entire Board of Directors
of the Company will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, the Company shall not, without the
affirmative vote or consent of the holders of at least 66 percent of the shares
of each series of Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (each such series voting separately as
a class), (i) authorize or create, or increase the authorized or issued amount
of, any class or series of capital stock ranking senior to such series of
Preferred Stock with respect to payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up of the Company or reclassify
any authorized capital stock of the Company into any such shares, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such shares; or (ii) amend, alter or repeal the provisions
of the Company's Articles of Incorporation (including the Articles Supplementary
for such series of Preferred Stock), whether by merger, consolidation or
otherwise, so as to materially and adversely affect any right, preference,
privilege or voting power of such series of Preferred Stock or the holders
thereof; provided, however, that any increase in the amount of the authorized
preferred stock or the creation or issuance of any other series of preferred
stock, or any increase in the amount of authorized shares of such series or any
other series of Preferred Stock, in each case ranking on a parity with or junior
or to the Preferred Stock of such series with respect to payment of dividends
and the distribution of assets upon liquidation, dissolution or winding up of
the Company, shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption upon proper notice and sufficient funds
shall have been irrevocably deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any series of
Preferred Stock are convertible into Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the Preferred Stock is convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring
12
an adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of such Preferred Stock.
RESTRICTIONS ON OWNERSHIP
With certain exceptions, the Company's Articles of Incorporation provide
that no person may own, or be deemed to own by virtue of the attribution rules
of the Code, more than 9.8 percent of the value of the Company's issued and
outstanding shares of capital stock. See "Restrictions on Ownership of Offered
Securities". These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of shares
of capital stock of the Company might receive a premium for their shares over
the then prevailing market price or which such holders might believe to be
otherwise in their best interest.
13
DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Preferred Stock or Common
Stock. Warrants may be issued independently or together with any Offered
Securities and may be attached to or separate from such securities. Each series
of Warrants will be issued under a separate warrant agreement (each, a "Warrant
Agreement") to be entered into between the Company and a warrant agent specified
therein ("Warrant Agent"). The Warrant Agent will act solely as an agent of the
Company in connection with the Warrants of such series and will not assume any
obligation or relationship of agency or trust for or with any holders or
beneficial owners of Warrants.
The applicable Prospectus Supplement will describe the following terms,
where applicable, of the Warrants in respect of which this Prospectus is being
delivered: (1) the title of such Warrants; (2) the aggregate number of such
Warrants; (3) the price or prices at which such Warrants will be issued; (4) the
currencies in which the price or prices of such Warrants may be payable; (5) the
designation, amount and terms of the Offered Securities purchasable upon
exercise of such Warrants; (6) the designation and terms of the other Offered
Securities, if any, with which such Warrants are issued and the number of such
Warrants issued with each such security; (7) if applicable, the date on and
after which such Warrants and the Offered Securities purchasable upon exercise
of such Warrants will be separately transferable; (8) the price or prices at
which and currency or currencies in which the Offered Securities purchasable
upon exercise of such Warrants may be purchased; (9) the date on which the right
to exercise such Warrants shall commence and the date on which such right shall
expire; (10) the minimum or maximum amount of such Warrants which may be
exercised at any one time; (11) information with respect to book-entry
procedures, if any; (12) a discussion of certain federal income tax
considerations; and (13) any other material terms of such Warrants, including
terms, procedures and limitations relating to the exchange and exercise of such
Warrants.
RESTRICTIONS ON OWNERSHIP
With certain exceptions, the Company's Articles of Incorporation provide
that no person may own, or be deemed to own by virtue of the attribution rules
of the Code, more than 9.8 percent of the value of the Company's issued and
outstanding shares of capital stock. See "Restrictions on Ownership of Offered
Securities". These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of shares
of capital stock of the Company might receive a premium for their shares over
the then prevailing market price or which such holders might believe to be
otherwise in their best interest.
14
RESTRICTIONS ON OWNERSHIP OF OFFERED SECURITIES
For the Company to qualify as a REIT under the Code, not more than 50
percent in value of its outstanding capital stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year, and its capital stock
must be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months or during a proportionate part of a shorter taxable
year.
The Company's Articles of Incorporation provide, subject to certain
exceptions specified therein, that no holder may own, or be deemed to own by
virtue of the attribution rules of the Code, more than 9.8 percent by value (the
"Ownership Limit") of the outstanding capital stock of the Company. Any transfer
of Offered Securities that would create a direct or indirect ownership of shares
of Common Stock and/or Preferred Stock (collectively the "Stock") in excess of
the Ownership Limit or result in the Company being "closely held" within the
meaning of Code Section 856(h) shall be null and void, and the intended
transferee will acquire no rights to the Offered Securities. Any transfer of
Stock that would result in the capital stock of the Company being beneficially
owned by fewer than 100 persons shall be null and void, and the interested
transferee will acquire no rights to such shares of Stock.
The constructive ownership rules are complex and may cause Common Stock or
Preferred Stock owned directly or constructively by a group of related
individuals and/or entities to be deemed constructively owned by one individual
or entity. As a result, the acquisition of less than 9.8 percent of the value of
the capital stock of the Company (or the acquisition of an interest in an entity
which owns such capital stock) by an individual or entity could cause that
individual or entity (or another individual or entity) to own constructively in
excess of 9.8 percent of the value of the capital stock, and thus subject such
capital stock to the Ownership Limit. Moreover, an individual or an entity which
owns Warrants to acquire Stock will be deemed to own such Stock for purposes of
applying the Ownership Limit.
The Board of Directors may, upon receipt of either a certified copy of a
ruling from the Internal Revenue Service or an opinion of counsel satisfactory
to the Board of Directors, but shall in no case be required to, exempt a person
(the "Exempted Holder") from the Ownership Limit if the ruling or opinion
concludes that no person who is an individual as defined in Section 542(a)(2) of
the Code will, as the result of the ownership of shares by the Exempted Holder,
be considered to have Beneficial Ownership of an amount of capital stock that
will violate the Ownership Limit.
The foregoing restrictions on transferability and ownership will not apply
if the Board of Directors determines that it is no longer in the best interests
of the Company to attempt to qualify, or to continue to qualify, as a REIT.
All certificates representing shares of Common Stock and Preferred Stock
will bear a legend referring to the restrictions described above.
All stockholders of record who own more than a specified percentage of the
outstanding capital stock of the Company must file a written statement with the
Company containing certain information specified in Treasury Regulations,
pertaining to the actual ownership of capital stock of the Company, within 30
days after December 31 of each year. In addition, each holder of capital stock
of the Company and/or Warrants shall, upon demand, be required to disclose to
the Company in writing such information with respect to the direct, indirect and
constructive ownership of capital stock of the Company as the Board of Directors
deems necessary to comply with the provisions of the Code applicable to a REIT
or to comply with the requirements of any taxing authority or governmental
agency.
In addition to preserving the Company's status as a REIT, the Ownership
Limit may have the effect of precluding an acquisition of control of the REIT
without the approval of the Board of Directors. These ownership limitations
could have the effect of discouraging a takeover or other transaction in which
holders of some, or a majority, of shares of capital stock of the Company might
receive a premium for their
15
shares over the then prevailing market price or which such holders might believe
to be otherwise in their best interest.
CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS TO THE COMPANY OF ITS REIT ELECTION
Pryor, Cashman, Sherman & Flynn, which has acted as tax counsel to the
Company in connection with the formation of the Company and the Company's
election to be taxed as a REIT, has reviewed the following discussion and is of
the opinion that it fairly summarizes the federal income tax considerations
relevant to the Company's status as a REIT. The following summary of certain
federal income tax considerations is based on current law, is for general
information only, and is not tax advice. The tax treatment of a holder of any of
the Offered Securities will vary depending upon the terms of the specific
securities acquired by such holder, as well as his particular situation.
THE REIT PROVISIONS OF THE CODE ARE HIGHLY TECHNICAL AND COMPLEX. The
following sets forth the material aspects of the sections that govern the
federal income tax treatment of a REIT. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change (which change may apply retroactively).
EACH INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS SUPPLEMENT, AS
WELL AS HIS OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES OF THE ACQUISITION,
OWNERSHIP AND SALE OF THE OFFERED SECURITIES, INCLUDING THE FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP AND
SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY AS A REIT
GENERAL. The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Code, commencing with its taxable year ended December 31,
1994. The Company believes that it has been organized and operated in such a
manner as to qualify for taxation as a REIT under the Code for such taxable year
and for the current taxable year and the Company intends to continue to operate
in such a manner in the future, but no assurance can be given that it will
operate in a manner so as to qualify or remain qualified.
In the opinion of Pryor, Cashman, Sherman & Flynn, the Company has been
organized in conformity with the requirements for qualification and taxation as
a REIT, commencing with its taxable year ended December 31, 1994, and for all
subsequent taxable years to date, and its method of operation will enable it to
continue to meet the requirements for qualification and taxation as a REIT under
the Code. It must be emphasized that this opinion is based on various
assumptions and is conditioned upon such assumptions and certain representations
made by the Company as to factual matters. Pryor, Cashman, Sherman & Flynn is
not aware of any facts or circumstances that are inconsistent with these
representations and assumptions. Moreover, such qualification and taxation as a
REIT depends upon the Company's ability to meet, through actual annual operating
results, distribution levels and diversity of stock ownership, the various
qualification tests imposed under the Code and discussed below, the results of
which will not be reviewed by Pryor, Cashman, Sherman & Flynn. Accordingly, no
assurance can be given that the actual results of the Company's operation of any
particular taxable year will satisfy such requirements. See "-- Failure to
Qualify."
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a regular corporation. However, the Company will be subject to
federal income tax as
16
follows: First, the Company will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital gains.
Second, under certain circumstances, the Company may be subject to the
"corporate alternative minimum tax" on its items of tax preference. Third, if
the Company has (i) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in the
ordinary course of business or (ii) other non-qualifying net income from
foreclosure property, it will be subject to tax at the highest corporate rate on
such income. Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business, other than
foreclosure property), such income will be subject to a 100 percent tax. Fifth,
if the Company should fail to satisfy the 75 percent gross income test or the 95
percent gross income test (as discussed below), but has nonetheless maintained
its qualification as a REIT because certain other requirements have been met, it
will be subject to a 100 percent tax on an amount equal to (a) the gross income
attributable to the greater of the amount by which the Company fails the 75
percent or 95 percent test, multiplied by (b) a fraction intended to reflect the
Company's profitability. Sixth, if the Company should fail to distribute during
each calendar year at least the sum of (i) 85 percent of its REIT ordinary
income for such year, (ii) 95 percent of its REIT capital gain net income for
such year, and (iii) any undistributed taxable income from prior years, the
Company would be subject to a 4 percent excise tax on the excess of such
required distribution over the amounts actually distributed. Seventh, with
respect to an asset (a "Built-In Gain Asset") acquired by the Company from a
corporation which is or has been a C corporation (i.e., generally, a corporation
subject to full corporate-level tax) in a transaction in which the basis of the
Built-In Gain Asset in the hands of the Company is determined by reference to
the basis of the asset in the hands of the C corporation, if the Company
recognizes gain on the disposition of such asset during the ten-year period (the
"Recognition Period") beginning on the date on which such asset was acquired by
the Company, then, to the extent of the Built-In Gain (i.e., the excess of (a)
the fair market value of such asset over (b) the Company's adjusted basis in
such asset, determined as of the beginning of the Recognition Period), such gain
will be subject to tax at the highest corporate tax rate pursuant to Internal
Revenue Service ("IRS") regulations that have not yet been promulgated. The
results described above with respect to the recognition of Built-In Gain assume
that the Company will make an election pursuant to IRS Notice 88-19. In
addition, Cali Services, Inc. is taxed on its income at regular corporate rates.
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or directors,
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest, (3) which would be taxable as
a domestic corporation, but for Code Sections 856 through 859, (4) which is
neither a financial institution nor an insurance company subject to certain
provisions of the Code, (5) the beneficial ownership of which is held by 100 or
more persons (determined without reference to any rules of attribution), (6)
during the last half of each taxable year, not more than 50 percent in value of
the outstanding stock of which is owned, directly or constructively, by five or
fewer individuals (as defined in the Code to include certain entities) and (7)
which meets certain other tests, described below, regarding the matter of its
income and assets. The Code provides that conditions (1) to (4), inclusive, must
be met during the entire taxable year and that condition (5) must be met during
at least 335 days of a taxable year of 12 months, or during a proportionate part
of a taxable year of less than 12 months.
The Company has previously issued sufficient shares to allow it to satisfy
conditions (5) and (6). In addition, the Company's Articles of Incorporation
provide for restrictions regarding ownership and transfer of the Company's
capital stock, which restrictions are intended to assist the Company in
continuing to satisfy the share owner-ship requirements described in (5) and (6)
above. The ownership and transfer restrictions are described in "Restrictions on
Ownership of Offered Securities."
The Company owns and operates all of the properties through partnerships in
which the Operating Partnership and six direct, wholly-owned subsidiaries (the
"Cali Subs") are partners. Code Section 856 (i) provides that a corporation,
100% of whose stock is held by a REIT at all times during the corporation's
17
existence, is a "qualified REIT subsidiary." A "qualified REIT subsidiary" shall
not be treated as a separate corporation, and all assets, liabilities, and items
of income, deduction, and credit of a "qualified REIT subsidiary" shall be
treated as assets, liabilities and such items (as the case may be) of the REIT.
Thus, in applying the requirements described herein, the Company's "qualified
REIT subsidiaries" will be ignored, and all assets, liabilities and items of
income, deduction, and credit of such subsidiaries will be treated as assets,
liabilities and items of the Company. The Company has not, however, sought or
received a ruling from the IRS that any of the Cali Subs is a "qualified REIT
subsidiary."
In the case of a REIT that is a partner in a partnership, either directly,
or indirectly through a "qualified REIT subsidiary," IRS regulations provide
that the REIT will be deemed to own its proportionate share of the assets of the
partnership and will be deemed to be entitled to the income of the partnership
attributable to such share. In addition, the character of the assets and gross
income of the partnership will retain the same character in the hands of the
REIT for purposes of Code Section 856, including satisfying the gross income
tests and the asset tests. Thus, the Company's proportionate share of the
assets, liabilities and items of income of the partnerships in which the Company
is a partner, directly or indirectly, will be treated as the assets, liabilities
and items of income of the Company for purposes of applying the requirements
described herein.
INCOME TESTS. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75
percent of the Company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments.
Second, at least 95 percent of the Company's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived from
such real property investments, dividends, interest and gain from the sale or
disposition of stock or securities (or from any combination of the foregoing).
Third, short-term gain from the sale or other disposition of stock or
securities, gain from prohibited transactions and gain on the sale or other
disposition of real property held for fewer than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30 percent of the Company's gross income (including gross income from
prohibited transactions) for each taxable year. See "--Sales or Dispositions of
Assets."
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits derived by any person from such property.
However, an amount received or accrued generally will not be excluded from the
term "rents from real property" solely by reason of being based on a fixed
percentage or percentages of receipts or sales. Second, the Code provides that
rents received from a tenant will not qualify as "rents from real property" in
satisfying the gross income tests if the REIT, or a direct or constructive owner
of 10 percent or more of the REIT, directly or constructively owns 10 percent or
more of such tenant (a "Related Party Tenant"). Third, if rent attributable to
personal property leased in connection with a lease of real property is greater
than 15 percent of the total rent received under the lease, then the portion of
rent attributable to such personal property will not qualify as "rents from real
property." Finally, for rents received to qualify as "rents from real property,"
the REIT generally must not operate or manage the property or furnish or render
services to the tenants of such property, other than through an independent
contractor from whom the REIT derives no revenue; provided, however, the Company
may directly perform certain services that are "usually or customarily rendered"
in connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant" of the property. The Company does not and
will not (i) charge rent for any property that is based in whole or in part on
the income or profits of any person (except by reason of being based on a fixed
percentage of receipts or sales, as described above), (ii) rent any property to
a Related Party Tenant, (iii) derive rental income attributable to personal
property (other
18
than personal property leased in connection with the lease of real property, the
amount of which is less than 15 percent of the total rent received under the
lease), or (iv) perform services which are not usually or customarily rendered
and which are considered to be rendered to the occupant of the property, other
than through an independent contractor from whom the Company derives no revenue.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
The Operating Partnership may receive fees in consideration of the
performance of management and administrative services with respect to Properties
that are not owned entirely by the Operating Partnership. Although a portion of
such management and administrative fees generally will not qualify under the 75
percent or 95 percent gross income tests, the Company believes that the
aggregate amount of such fees (and any other non-qualifying income) in any
taxable year will not cause the Company to exceed the limits on non-qualifying
income under the 75 percent and 95 percent gross income tests.
In the opinion of Pryor, Cashman, Sherman & Flynn, the Company has satisfied
the 75 percent and 95 percent gross income tests for taxable years ending prior
to the date of this Prospectus. The Company intends to operate in such a manner
as will enable it to satisfy such tests in the future. If the Company fails to
satisfy one or both of the 75 percent or 95 percent gross income tests for any
taxable year, it may nevertheless qualify as a REIT for such year if it is
entitled to relief under certain provisions of the Code. These relief provisions
will generally be available if the Company's failure to meet such tests is due
to reasonable cause and not due to willful neglect, the Company attaches a
schedule of the sources of its income to its federal income tax return, and any
incorrect information on the schedule is not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances the
Company would be entitled to the benefit of these relief provisions. As
discussed above under "--General," even if these relief provisions were to
apply, a tax would be imposed with respect to the excess net income.
SALES OR DISPOSITIONS OF ASSETS. The Company, as a REIT, is generally
subject to two restrictions that limit its ability to sell real property. First,
as previously discussed, to qualify as a REIT, the Company must satisfy the 30
Percent Limitation, as described above. Second, the Company is subject to a tax
of 100 percent on its gain (i.e., the excess, if any, of the amount realized
over the Company's adjusted basis in the property) from each sale of property
(excluding certain property obtained through foreclosure) in which it is a
dealer. In calculating its gains subject to the 100 percent tax, the Company is
not allowed to offset gains on sales of property against losses on other sales
of property in which it is a dealer.
The Company may be subject to an entity level tax with respect to gain
recognized from the sale of property the Company held either prior to its
electing REIT status or which the Company acquired in a carryover basis
transaction. The tax is triggered if the property sold has a build-in-gain and
is sold within 10 years of the Company's qualification as a REIT.
Under the Code, the Company would be deemed to be a dealer in any property
that the Company holds primarily for sale to customers in the ordinary course of
its business. Such determination is a factual inquiry, and absolute legal
certainty of the Company's status generally cannot be provided. However, the
Company will not be treated as a dealer in real property for the 30 percent
gross income limitation if (i) it has held the property for at least four years
for the production of rental income, (ii) capitalized expenditures on the
property in the four years preceding sale do not exceed 30 percent of the net
selling price of the property, and (iii) the Company either (a) has seven or
fewer sales of property (excluding certain property obtained through
foreclosure) for the year, (b) the aggregate tax basis of property sold during
the taxable year is 10 percent or less of the aggregate tax basis of all assets
of the Company as of the beginning of the taxable year, or (c) substantially all
of the marketing and development expenditures with respect to the property sold
are made through an independent contractor from whom the Company derives no
income. The sale of more than one property to one buyer as part of one
transaction constitutes one
19
sale. However, the failure of the Company to meet these "safe harbor"
requirements does not necessarily mean that it is a dealer in real property for
purposes of the 100 percent tax.
ASSET TESTS. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75 percent of the value of the Company's total assets must be represented
by real estate assets (including (i) assets held by the Company's qualified REIT
subsidiaries and the Company's allocable share of real estate assets held by
partnerships in which the Company owns an interest and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Company),
cash, cash items and government securities. Second, not more than 25 percent of
the Company's total assets may be represented by securities other than those in
the 75 percent asset class. Third, of the investments included in the 25 percent
asset class, the value of any one issuer's securities owned by the Company may
not exceed (at the end of the quarter in which such securities are acquired) 5
percent of the value of the Company's total assets and the Company may not own
more than 10 percent of any one issuer's outstanding voting securities.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (A) the sum of (i) 95 percent of
the Company's "REIT taxable income" (computed without regard to the dividends
paid deduction and the Company's net capital gain) and (ii) 95 percent of the
net income (after tax), if any, from foreclosure property, minus (B) the sum of
certain items of non-cash income. In addition, if the Company disposes of any
Built-In Gain Asset during its Recognition Period, the Company will be required,
pursuant to IRS regulations which have not yet been promulgated, to distribute
at least 95 percent of the Built-in Gain (after tax), if any, recognized on the
disposition of such asset. Such distributions must be paid in the taxable year
to which they relate, or in the following taxable year if declared before the
Company timely files its tax return for such prior year and if paid on or before
the first regular dividend payment after such declaration. To the extent that
the Company does not distribute all of its net capital gain or distributes at
least 95 percent, but less than 100 percent, of its "REIT taxable income," as
adjusted, it will be subject to tax thereon at regular ordinary and capital gain
corporate tax rates. Furthermore, if the Company should fail to distribute
during each calendar year at least the sum of (i) 85 percent of its REIT
ordinary income for such year, (ii) 95 percent of its REIT capital gain income
for such year, and (iii) any undistributed taxable income from prior periods,
the Company would be subject to a 4 percent excise tax on the excess of such
required distribution over the amounts actually distributed.
In the opinion of Pryor, Cashman, Sherman & Flynn, the Company has satisfied
the annual distribution requirements for taxable years ended prior to the date
of this Prospectus. The Company intends to continue to make timely distributions
sufficient to satisfy this annual distribution requirement in the future. It is
possible that the Company, from time to time, may not have sufficient cash or
other liquid assets to meet the 95 percent distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at the taxable income of the Company, or if the amount
of nondeductible expenses, such as principal amortization or capital
expenditures exceeds the amount of noncash deductions. In the event that such
timing differences occur, in order to meet the 95 percent distribution
requirement, the Company may find it necessary to arrange for short-term, or
possibly long-term, borrowing or to pay dividends in the form of taxable stock
dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in the Company's deduction
for dividends paid for the earlier year. Thus, the Company may be able to avoid
being taxed on amounts distributed as deficiency dividends; however, the Company
will be required to pay interest to the IRS based upon the amount of any
deduction taken for deficiency dividends.
20
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable corporate alternative minimum tax) on its taxable
income at regular corporate rates. Such a failure could have an adverse effect
on the market value and marketability of the Offered Securities. Distributions
to stockholders in any year in which the Company fails to qualify will not be
deductible by the Company nor will they be required to be made. In such event,
to the extent of current and accumulated earnings and profits, all distributions
to stockholders will be taxable as ordinary income and, subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Company will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances the Company would be
entitled to such statutory relief.
TAXATION OF STOCKHOLDERS
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS. As long as the Company qualifies
as a REIT, distributions made to the Company's taxable domestic stockholders out
of current or accumulated earnings and profits (and not designated as capital
gain dividends) will be taken into account by them as ordinary income and will
not be eligible for the dividends received deduction for corporations.
Distributions that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent they do not exceed the Company's actual
net capital gain for the taxable year) without regard to the period for which
the stockholder has held its stock. However, corporate stockholders may be
required to treat up to 20 percent of certain capital gain dividends as ordinary
income. Distributions in excess of current and accumulated earnings and profits
will not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's shares, but rather will reduce the adjusted
basis of such shares. To the extent that such distributions exceed the adjusted
basis of a stockholder's shares, they will be included in income as long-term
capital gain (or short-term capital gain if the shares have been held for one
year or less), assuming the shares are a capital asset in the hands of the
stockholder. In addition, any dividend declared by the Company in October,
November or December of any year payable to a stockholder of record on a
specific date in any such month shall be treated as both paid by the Company and
received by the stockholder on December 31 of such year, provided that the
dividend is actually paid by the Company during January of the following
calendar year. Stockholders may not include in their individual income tax
returns any net operating losses or capital losses of the Company.
In general, any loss upon a sale or exchange of shares by a stockholder who
has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such stockholder as
long-term capital gain.
BACKUP WITHHOLDING. The Company will report to its domestic stockholders
and the IRS the amount of dividends paid during each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a stockholder may be subject to backup withholding at the
rate of 31 percent with respect to dividends paid unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact or (b) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding and otherwise
complies with applicable requirements of the backup withholding rules. A
stockholder who does not provide the Company with its correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions made to any stockholders who fail to
certify their non-foreign status to the Company. See "--Taxation of Foreign
Stockholders" below.
21
Taxation of Tax-Exempt Stockholders. Under the Revenue Reconciliation Act of
1993 (the "1993 Act"), in applying the REIT stock ownership test under the Code,
a pension trust generally is not treated as a single individual as it would have
been under prior law. Rather, the 1993 Act treats beneficiaries of certain
pension trusts as holding the shares of a REIT in proportion to their actuarial
interests in such trust, and thus permits certain pension trusts to acquire more
concentrated ownership of a REIT.
In addition, under the 1993 Act, a pension fund owning more than 10 percent
of a REIT must treat a percentage of dividends from the REIT as "unrelated
business taxable income" ("UBTI"). The percentage is determined by dividing the
REIT's gross income derived from an unrelated trade or business for the year by
the gross income of the REIT for the year in which the dividends are paid. If
this percentage is less than five percent, however, dividends are not treated as
UBTI. In general, the UBTI rule applies to a REIT where the REIT qualifies as a
REIT by reason of the above modification of the stock ownership test and (i) one
pension trust owns more than 25 percent of the value of the REIT; or (ii) a
group of pension trusts individually holding more than 10 percent of the value
of the REIT collectively own more than 50 percent of the value of the REIT.
The provisions of the 1993 Act apply to taxable years of a REIT beginning on
or after January 1, 1994.
TAXATION OF FOREIGN STOCKHOLDERS. The rules governing U.S. federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. Prospective Non-U.S. Stockholders should
consult with their own tax advisors to determine the impact of U.S. federal,
state and local income tax laws with regard to an investment in the Offered
Securities, including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges by
the Company of U.S. real property interests and not designated by the Company as
capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
the Company. Such distributions will ordinarily be subject to a withholding tax
equal to 30 percent of the gross amount of the distribution unless an applicable
tax treaty reduces that tax. However, if income from the investment in the
Offered Securities is treated as effectively connected with the Non-U.S.
Stockholder's conduct of a U.S. trade or business, the Non-U.S. Stockholder
generally will be subject to a tax at graduated rates, in the same manner as
U.S. stockholders are taxed with respect to such dividends (and may, subject to
possible treaty relief, the 30 percent branch profits tax if the stockholder is
a foreign corporation). The Company expects to withhold U.S. income tax at the
rate of 30 percent on the gross amount of any dividends paid to a Non-U.S.
Stockholder unless (i) a lower treaty rate applies and the required form
evidencing eligibility for that reduced rate is filed with the Company or (ii)
the Non-U.S. Stockholder files an IRS Form 4224 with the Company claiming that
the distribution is "effectively connected" income. Distributions in excess of
current and accumulated earnings and profits of the Company will not be taxable
to a stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's shares, but rather will reduce the adjusted basis of such shares.
To the extent that such distributions exceed the adjusted basis of a Non-U.S.
Stockholder's shares, they will give rise to tax liability if the Non-U.S.
Stockholder would otherwise be subject to tax on any gain from the sale or
disposition of his shares, as described below. If it cannot be determined at the
time a distribution is made whether or not such distribution will be in excess
of current and accumulated earnings and profits, the distribution will be
subject to withholding at the rate applicable to dividends. However, the
Non-U.S. Stockholder may seek a refund of such amounts from the IRS if it is
subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company.
Under recently proposed Treasury Regulations, withholding procedures would
be revised. Should the proposal be adopted, withholding generally would be at
either 31 percent or 30 percent unless a new Form W-8 is filed with the Company
by the beneficial owner to establish entitlement to treaty benefits or
22
exemption based upon the income being "effectively connected". In some
instances, additional documentation might be required from the beneficial owner,
including an individual taxpayer identification number from the U.S. Internal
Revenue Service and a certification of tax status from the tax authorities of
the beneficial owner's country of residence.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of U.S. real
property interests will be taxed to a Non-U.S. Stockholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under
FIRPTA, these distributions are taxed to a Non-U.S. Stockholder as if such gain
were effectively connected with a U.S. business. Thus, Non-U.S. Stockholders
would be taxed at the normal capital gain rates applicable to U.S. stockholders
(subject to applicable alternative minimum tax and a special alternative minimum
tax in the case of nonresident alien individuals). Also, distributions subject
to FIRPTA may be subject to a 30 percent branch profits tax in the hands of a
corporate Non-U.S. Stockholder not entitled to treaty relief or exemption. The
Company is required by applicable Treasury Regulations to withhold 35 percent of
any distribution to a Non-U.S. Stockholder that could be designated by the
Company as a capital gain dividend. This amount is creditable against the
Non-U.S. Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of stock generally
will not be taxed under FIRPTA if a REIT is a "domestically controlled REIT,"
defined generally as a REIT in which at all times during a specified testing
period less than 50 percent in value of the stock was held directly or
indirectly by foreign persons. It is currently anticipated that the Company will
be a "domestically controlled REIT," and therefore the sale of stock will not be
subject to taxation under FIRPTA. However, gain not subject to FIRPTA will be
taxable to a Non-U.S. Stockholder if (i) investment in the Stock is "effectively
connected" with the Non-U.S. Stockholder's U.S. trade or business, in which case
the Non-U.S. Stockholder will be subject to the same treatment as U.S.
stockholders with respect to such gain, or (ii) the Non-U.S. Stockholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, in
which case the nonresident alien individual will be subject to a 30 percent tax
on the individual's capital gains. If the gain on the sale of stock were to be
subject to taxation under FIRPTA, the Non-U.S. Stockholder would be subject to
the same treatment as U.S. stockholders with respect to such gain (subject to
applicable alternative minimum tax, possible withholding tax and a special
alternative minimum tax in the case of nonresident alien individuals).
OTHER TAX MATTERS
Certain of the Company's investments are through partnerships which may
involve special tax risks. Such risks include possible challenge by the IRS of
(a) allocations of income and expense items, which could affect the computation
of income of the Company and (b) the status of the partnerships as partnerships
(as opposed to associations taxable as corporations) for income tax purposes.
This partnership status risk should be substantially diminished by Treasury
Regulations issued on December 17, 1996, permitting election of partnership
status effective January 1, 1997 by the filing of Form 8823 or in certain other
ways specified in the new Regulations. With respect to the Company existing
partnership investments, the new Regulations provide that (1) previously claimed
partnership status, if supported by a reasonable basis for classification, will
generally be respected for all periods prior to January 1, 1997; and (2)
previously claimed partnership status will be generally retained after January
1, 1997, without the need to file a formal election. If any of the partnerships,
however, should be treated as an association, it would be taxable as a
corporation. In such a situation, if the Company's ownership in any of the
partnerships exceeded 10 percent of the partnership's voting interests or the
value of such interest exceeded 5 percent of the value of the Company's assets,
the Company would cease to qualify as a REIT. Furthermore, in such a situation,
distributions from any of the partnerships to the Company would be treated as
dividends, which are not taken into account in satisfying the 75 percent gross
income test described above and which could therefore make it more difficult for
the Company to qualify as a REIT for the taxable year in which
23
such distribution was received. In addition, in such a situation, the interest
in any of the partnerships held by the Company would not qualify as a "real
estate asset," which could make it more difficult for the Company to meet the 75
percent asset test described above. Finally, in such a situation, the Company
would not be able to deduct its share of losses generated by the partnerships in
computing its taxable income. See "Failure to Qualify" above for a discussion of
the effect of the Company's failure to meet such tests for a taxable year. The
Company believes that each of the partnerships will be treated for tax purposes
as a partnership (and not as an association taxable as a corporation). However,
no assurance can be given that the IRS may not successfully challenge the tax
status of any of the partnerships.
TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES. Pursuant to Section
704(c) of the Code, income, gain, loss, and deduction attributable to
appreciated property that is contributed to a partnership in exchange for an
interest in the partnership must be allocated for Federal income tax purposes in
a manner such that the contributor is charged with the unrealized gain
associated with the property at the time of the contribution. The amount of such
unrealized gain is generally equal to the difference between the fair market
values of the contributed property at the time of contribution and the adjusted
tax basis of such property at the time of contribution (the "Book-Tax
Difference"). In general, the fair market value of the interests in the various
Partnerships contributed to the Operating Partnership are substantially in
excess of their adjusted tax bases. The Partnership Agreements of each of the
Operating Partnership, the Existing Partnerships and the Holding Partnerships
require that allocations attributable to each item of contributed property be
made so as to allocate the tax depreciation available with respect to such
property first to the partners other than the partner that contributed the
property, to the extent of, and in proportion to, their book depreciation, and
then, if any tax depreciation remains, to the partner that contributed the
property. Upon the disposition of any item of contributed property, any gain
attributable to an excess, at such time, of basis for book purposes over basis
for tax purposes would be allocated for tax purposes to the contributing
partner. These allocations are intended to be consistent with the Treasury
Regulations under Section 704(c) of the Code.
In general, certain persons who acquired interests in the Operating
Partnership in connection with the formation of the Company are allocated
disproportionately lower amounts of depreciation deductions for tax purposes
relative to their percentage interests in the Operating Partnership, and
disproportionately greater shares relative to their percentage interests in the
Operating Partnership of the taxable income and gain on the sale by the
Partnerships of one or more of the contributed properties. These tax allocations
will tend to reduce or eliminate the Book-Tax Difference over the life of the
Partnerships. The Partnership Agreements of the Partnerships adopt the
"traditional method" of making allocations under Section 704(c) of the Code,
unless otherwise agreed to between the Company and the contributing partner.
Under the traditional method the amounts of the special allocations of
depreciation and gain under the special rules of Section 704(c) of the Code will
be limited by the so-called "ceiling rule" and will not always eliminate the
Book-Tax Difference on an annual basis or with respect to a specific transaction
such as a sale. Thus, the carryover basis of the contributed assets in the hands
of the partnerships will cause the Company to be allocated less depreciation
than would be available for newly purchased properties.
STATE AND LOCAL TAXES. The Company and its stockholders may be subject to
state or local taxation in various state or local jurisdictions, including those
in which it or they transact business or reside. The state and local tax
treatment of the Company and its stockholders may not conform to the federal
income tax consequences discussed above. Consequently, prospective stockholders
should consult their own tax advisors regarding the effect of state and local
tax laws on an investment in the Offered Securities.
24
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more underwriters for
public offering and sale by them or may sell the Offered Securities to investors
directly or through agents. Any such underwriter or agent involved in the offer
and sale of the Offered Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, at prices related to the prevailing market prices
at the time of sale or at negotiated prices. The Company also may, from time to
time, authorize underwriters acting as the Company's agents to offer and sell
the Offered Securities upon the terms and conditions as are set forth in the
applicable Prospectus Supplement. In connection with the sale of Offered
Securities, underwriters may be deemed to have received compensation from the
Company in the form of underwriting discounts or commissions and may also
receive commissions from any entity for whom they may act as agent. Underwriters
may sell Offered Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Offered Securities may be
deemed to be underwriters, and any discounts, concessions and commissions
received by them and any profit realized by them on resale of the Offered
Securities may be deemed to be underwriting discounts and commissions, under the
Securities Act. Underwriters, dealers and agents may be entitled, under
agreements entered into with the Company, to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the aggregate principal amount of Offered Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Offered Securities covered by
its Contracts shall not at the time of delivery be prohibited under the laws of
any jurisdiction in the United States to which such institution is subject, and
(ii) if the Offered Securities are being sold to underwriters, the Company shall
have sold to such underwriters the total principal amount of the Offered
Securities less the principal amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for the Company and its subsidiaries
in the ordinary course of business.
EXPERTS
The financial statements incorporated in this Prospectus by reference to the
Annual Report on Form 10-K of the Company for the year ended December 31, 1995
have been so incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting. The financial statements incorporated in this
Prospectus by reference to the Current Reports on Form 8-K of the Company, dated
July 16, 1996, October 8, 1996, October 29, 1996
25
(two reports) and December 31, 1996, have been so incorporated in reliance on
the reports of Schonbraun Safris Sternlieb & Co., L.L.C., independent
accountants, given on the authority of said firm as experts in auditing and
accounting. The Statements of Revenues and Certain Operating Expenses of the
property known as Harborside Financial Center for each of the three years in the
period ended December 31, 1995, incorporated by reference in this Prospectus to
the Current Report on Form 8-K of the Company, dated October 29, 1996, have been
incorporated herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent auditors, given on the authority of said firm as experts in auditing
and accounting. The combined statement of revenue and certain expenses of the
International Court at Airport Business Center for the year ended December 31,
1995 included in the Company's Current Report on Form 8-K, dated October 29,
1996 has been audited by Ernst & Young, LLP, independent auditors, as set forth
in their report thereon included therein and incorporated herein by reference.
Such financial statement is incorporated herein by reference in reliance on such
report given upon the authority of such firm as experts in accounting and
auditing.
LEGAL MATTERS
Certain legal matters in connection with the Offered Securities as well as
certain legal matters described under "Certain United States Federal Income Tax
Considerations to the Company of its REIT Election" will be passed upon for the
Company by Pryor, Cashman, Sherman & Flynn, New York, New York. Certain legal
matters relating to Maryland law, including the validity of the issuance of the
securities registered hereby, will be passed upon for the Company by Swidler &
Berlin, Chartered, Washington, D.C.
26
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WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR ANY OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT. YOU SHOULD NOT RELY ON SUCH INFORMATION OR
REPRESENTATIONS AS IF WE OR THE SELLING SHAREHOLDERS HAVE AUTHORIZED THEM. THIS
PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE OR TO
ANY PERSON WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT ANY INFORMATION CONTAINED THEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
PAGE
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PROSPECTUS SUPPLEMENT
Available Information............................ S-2
Incorporation of Certain Documents By
Reference...................................... S-2
Information About Mack-Cali Realty Corporation... S-3
Recent Developments.............................. S-4
Price Range of Common Stock and Distributions.... S-8
Use of Proceeds.................................. S-9
Indemnification for Securities Act Liabilities... S-9
Federal Income Tax Considerations................ S-9
Plan of Distribution............................. S-14
Legal Matters.................................... S-14
Experts.......................................... S-14
PROSPECTUS
Available Information............................ 2
Incorporation of Certain Documents By
Reference...................................... 2
The Company...................................... 4
Ratios of Earnings to Fixed Charges.............. 6
Use of Proceeds.................................. 6
Description of Common Stock...................... 6
Description of Preferred Stock................... 7
Description of Warrants.......................... 14
Restrictions on Ownership of Offered
Securities..................................... 15
Certain United States Federal Income Tax
Considerations to the Company of its
REIT Election.................................. 16
Plan of Distribution............................. 25
Experts.......................................... 25
Legal Matters.................................... 26
132,710 SHARES
MACK-CALI REALTY CORPORATION
COMMON STOCK
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PROSPECTUS SUPPLEMENT
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DECEMBER 31, 1998
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