15.  MACK-CALI REALTY CORPORATION STOCKHOLDERS’ EQUITY

 

To maintain its qualification as a REIT, not more than 50 percent in value of the outstanding shares of the Company may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of any taxable year of the Company, other than its initial taxable year (defined to include certain entities), applying certain constructive ownership rules.  To help ensure that the Company will not fail this test, the Company’s Charter provides, among other things, certain restrictions on the transfer of common stock to prevent further concentration of stock ownership.  Moreover, to evidence compliance with these requirements, the Company must maintain records that disclose the actual ownership of its outstanding common stock and demands written statements each year from the holders of record of designated percentages of its common stock requesting the disclosure of the beneficial owners of such common stock.

 

SHARE REPURCHASE PROGRAM

In September 2012, the Board of Directors renewed and authorized an increase to the Company’s repurchase program (“Repurchase Program”).  The Company has authorization to repurchase up to $150 million of its outstanding common stock under the renewed Repurchase Program, which it may repurchase from time to time in open market transactions at prevailing prices or through privately negotiated transactions.  The Company has purchased and retired 394,625 shares of its outstanding common stock for an aggregate cost of approximately $11 million (all of which occurred in the year ended December 31, 2012), with a remaining authorization under the Repurchase Program of $139 million.

 

DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN

The Company has a Dividend Reinvestment and Stock Purchase Plan (the “DRIP”) which commenced in March 1999 under which approximately 5.5 million shares of the Company’s common stock have been reserved for future issuance.  The DRIP provides for automatic reinvestment of all or a portion of a participant’s dividends from the Company’s shares of common stock.  The DRIP also permits participants to make optional cash investments up to $5,000 a month without restriction and, if the Company waives this limit, for additional amounts subject to certain restrictions and other conditions set forth in the DRIP prospectus filed as part of the Company’s effective registration statement on Form S-3 filed with the SEC for the approximately 5.5 million shares of the Company’s common stock reserved for issuance under the DRIP. 

 

STOCK OPTION PLANS

In May 2013, the Company established the 2013 Incentive Stock Plan (the “2013 Plan”) under which a total of 4,600,000 shares have been reserved for issuance.  In May 2004, the Company established the 2004 Incentive Stock Plan (the “2004 Plan”) under which a total of 2,500,000 shares had been reserved for issuance.  The 2004 Plan was terminated upon establishment of the 2013 Plan.  No options were granted under the 2004 Plan.  In September 2000, the Company established the 2000 Employee Stock Option Plan (“2000 Employee Plan”) and the Amended and Restated 2000 Director Stock Option Plan (“2000 Director Plan” and together with the 2000 Employee Plan, the “2000 Plans”).  In May 2002, shareholders of the Company approved amendments to both of the 2000 Plans to increase the total shares reserved for issuance under both of the 2000 Plans from 2,700,000 to 4,350,000 shares of the Company’s common stock (from 2,500,000 to 4,000,000 shares under the 2000 Employee Plan and from 200,000 to 350,000 shares under the 2000 Director Plan).  As the 2000 Plans expired in 2010, stock options may no longer be issued under those plans.  Stock options granted under the 2000 Employee Plan became exercisable over a five-year period.  All stock options granted under the 2000 Director Plan became exercisable in one year.  All options were granted at the fair market value at the dates of grant and have terms of 10 years.  As of December 31, 2015 and 2014, the stock options outstanding had a weighted average remaining contractual life of approximately 9.4 years and 4.9 years, respectively.

 

On June 5, 2015, in connection with the Executive Employment Agreements, the Company granted options to purchase a total of 800,000 shares of the Company’s common stock, exercisable for a period of ten years with an exercise price equal to the closing price of the Company’s common stock on the grant date of $17.31 per share, with 400,000 of such options vesting in three equal annual installments commencing on the first anniversary of the grant date (“Time Vesting Options”), and 400,000 of such options vesting if the Company’s common stock trades at or above $25.00 per share for 30 consecutive trading days while the executive is employed (“Price Vesting Options”), or on or before June 30, 2019, subject to certain conditions.   

 

Information regarding the Company’s stock option plans is summarized below:

 

The weighted average fair value of options granted during the year ended December 31, 2015 and 2014 was $3.06 and $1.71 per option, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes model for Time Vesting Options granted during the year ended December 31, 2015 and for options granted during the year ended December 31, 2014 and the Monte Carlo method for Price Vesting Options granted during the year ended December 31, 2015.  The following weighted average assumptions are included in the Company’s fair value calculations of stock options granted during the year ended December 31, 2015 and 2014:

 

 

There were no stock options exercised under all stock option plans for the years ended December 31, 2015,  2014 and 2013.  The Company has a policy of issuing new shares to satisfy stock option exercises.

 

The Company recognized stock options expense of $432,000,  $4,000 and zero for the years ended December 31, 2015,  2014 and 2013, respectively.

 

RESTRICTED STOCK AWARDS

The Company has issued stock awards (“Restricted Stock Awards”) to officers, certain other employees, and non-employee members of the Board of Directors of the Company, which allow the holders to each receive a certain amount of shares of the Company’s common stock generally over a one to seven-year vesting period, of which 98,669 unvested shares were legally outstanding at December 31, 2015.  Of the Restricted Stock Awards issued to executive officers and certain other employees,  210,000 were contingent upon the Company meeting certain performance goals to be set by the Committee each year (“Performance Shares”), with the remaining based on time and service.    

 

On September 12, 2012, the Company granted Restricted Stock Awards totaling 319,667 shares for those executive officers in place on such date.  The Restricted Stock Awards were to vest commencing January 1, 2014 and with the number of Restricted Stock Awards scheduled to be vested and earned on each vesting date on an annual basis over a five to seven year vesting schedule, with each annual vesting of each tranche of Restricted Stock Awards being subject to the attainment of annual performance targets to be set by the Committee for each year.  In connection with the departure of two executive officers effective March 31, 2014, the Company agreed to grant and accelerate vesting of 109,667 shares of Restricted Stock Awards on April 1, 2014. In connection with the departure of the Company’s former president and chief executive officer effective June 30, 2015, the Company agreed to vest 84,000 Performance Shares and to grant and accelerate the vesting of 126,000 Performance Shares on the Separation Date.    

 

On June 5, 2015, in connection with the Executive Employment Agreements, the Company granted a total of 37,550.54 Restricted Stock Awards, which were valued in accordance with ASC 718 – Stock Compensation, at their fair value.  These awards are scheduled to vest equally over a three-year period on each annual anniversary date of the grant date.

 

All currently outstanding and unvested Restricted Stock Awards provided to the officers, certain other employees, and members of the Board of Directors of the Company were issued under the 2013 Plan. 

 

Information regarding the Restricted Stock Awards grant activity is summarized below:

 

(a)Included in the 168,841 Restricted Stock Awards granted in 2013 were 106,933 awards granted to the Company’s then four executive officers, Mitchell E. Hersh, Barry Lefkowitz, Roger W. Thomas and Anthony Krug.

(b)Includes 63,933 Performance Shares which were legally granted in 2013 for which the 2013 performance goals were not met, which may be earned if subsequent years’ performance goals are met.

(c)Included in the 376,719 Restricted Stock Awards granted in 2014 were 8,211 awards granted to the Company’s two executive officers, Anthony Krug and Gary Wagner.

(d)Includes 42,000 Performance Shares which were legally granted in 2013 for which the 2014 performance goals were set by the Committee on March 31, 2014.  Also includes 87,734 shares which were additionally considered granted for accounting purposes to two executive officers in connection with their departure effective March 31, 2014, which vested on April 1, 2014.

(e)Includes 126,000 Performance Shares which were legally granted in 2013 for which future performance goals had not yet been set by the Committee.  These awards were not considered granted for accounting purposes until these goals are set.  These were considered granted in 2014 for accounting purposes in connection with the announcement of the departure of Mitchell E. Hersh in the fourth quarter 2014.

(f)Included in the 41,337 Restricted Stock Awards granted in 2015 were 37,551 awards granted to the Company’s two executive officers, Mitchell E. Rudin and Michael J. DeMarco.

 

As of December 31, 2015, the Company had $2.0 million of total unrecognized compensation cost related to unvested Restricted Stock Awards granted under the Company’s stock compensation plans.  That cost is expected to be recognized over a weighted average period of 1.8 years.

 

PERFORMANCE SHARE UNITS/TSR-BASED AWARDS

On September 12, 2012, the Board of Directors of the Company approved the recommendations and ratified the determinations of the Committee with respect to new multi-year TSR based awards (the “TSR-Based Awards”) totaling 5,160 performance shares (the “TSR Performance Shares”) for those executive officers in place on such date, each TSR Performance Share evidencing the right to receive $1,000 in the Company’s common stock upon vesting.  In accordance with the amended and restated TSR-Based Awards agreements entered into between the Company and those executive officers in June 2013, the TSR Performance Shares were to vest commencing December 31, 2014, with the number of TSR Performance Shares scheduled to be granted annually over the next four years.  The Company granted 1,032 TSR Performance Shares in the year ended December 31, 2013, which were valued in accordance with ASC 718, Compensation - Stock Compensation, at their fair value, utilizing a Monte-Carlo simulation to estimate the probability of the vesting conditions being satisfied.  In connection with the departure of two executive officers effective March 31, 2014, the Company agreed to vest 357 TSR Performance Shares and to grant and accelerate the vesting of 528 TSR Performance Shares, for which the Company issued 45,062 shares of common stock on April 2, 2014.  In connection with the departure of the Company’s former president and chief executive officer effective June 30, 2015, the Company agreed to vest 675 TSR Performance Shares on the Separation Date, for which it issued 41,811 shares of common stock. 

 

On June 5, 2015, in connection with the Executive Employment Agreements, the Company granted a total of 112,651.64 performance share units (“PSUs”) which will vest from 0 to 150 percent of the number of PSUs granted based on the Company’s total shareholder return relative to a peer group of equity office REITs over a three-year performance period starting from the grant date, each PSU evidencing the right to receive a share of the Company’s common stock upon vesting.  The PSUs are also entitled to the payment of dividend equivalents in respect of vested PSUs in the form of additional PSUs.  The PSUs were valued in accordance with ASC 718, Compensation - Stock Compensation, at their fair value on the grant date, utilizing a Monte-Carlo simulation to estimate the probability of the vesting conditions being satisfied. 

 

The Company has reserved shares of common stock under the 2004 Plan and 2013 Plan for issuance upon vesting of the TSR Performance Shares and PSUs in accordance with the terms and conditions of the TSR-Based Awards and PSUs. 

 

DEFERRED STOCK COMPENSATION PLAN FOR DIRECTORS

The Amended and Restated Deferred Compensation Plan for Directors, which commenced January 1, 1999, allows non‑employee directors of the Company to elect to defer up to 100 percent of their annual retainer fee into deferred stock units.  The deferred stock units are convertible into an equal number of shares of common stock upon the directors’ termination of service from the Board of Directors or a change in control of the Company, as defined in the plan.  Deferred stock units are credited to each director quarterly using the closing price of the Company’s common stock on the applicable dividend record date for the respective quarter.  Each participating director’s account is also credited for an equivalent amount of deferred stock units based on the dividend rate for each quarter.

 

During the years  ended December 31, 2015,  2014 and 2013,  19,702,  20,261 and 22,392 deferred stock units were earned, respectively.  As of December 31, 2015 and 2014, there were 178,039 and 157,730 deferred stock units outstanding, respectively.

 

EARNINGS PER SHARE

Basic EPS excludes dilution and is computed by dividing net income available to common shareholders by the weighted average number of shares outstanding for the period.  Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

 

The following information presents the Company’s results for the years ended December 31, 2015,  2014 and 2013 in accordance with ASC 260, Earnings Per Share: (dollars in thousands, except per share amounts)

 

 

 

 

 

The following schedule reconciles the shares used in the basic EPS calculation to the shares used in the diluted EPS calculation:

(in thousands)

 

Contingently issuable shares under the PSU awards and Price Vesting Options were excluded from the denominator in 2015 because the criteria had not been met for the period.  Contingently issuable shares under the TSR Performance Shares were excluded from the denominator in 2013 because the criteria had not been met for the period.  Not included in the computations of diluted EPS were 405,000,  10,000 and 15,000 stock options as such securities were anti-dilutive during the years ended December 31, 2015,  2014 and 2013, respectively.  Unvested restricted stock outstanding as of December 31, 2015,  2014 and 2013 were 98,669,  136,946 and 409,294 shares, respectively.

 

Dividends declared per common share for the years ended December 31, 2015,  2014 and 2013 was $0.60,  $0.75 and $1.35 per share, respectively.