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Filed Pursuant to Rule 424(b)(5)
Registration No. 333-57103-01
PROSPECTUS SUPPLEMENT
(To prospectus dated September 25, 1998)
MACK-CALI REALTY, L.P.
$15,000,000
7.835% NOTES DUE 2010
ISSUE PRICE: 100%
INTEREST PAYABLE DECEMBER 15 AND JUNE 15
We are offering and selling notes that will bear interest at 7.835% per year
and, unless we redeem them earlier, will mature on December 15, 2010. We may
redeem some or all of the notes at any time at the redemption price described on
page S-7. The notes will be issued in minimum denominations of $1,000 and
increased in multiples of $1,000.
We are selling the notes to First Union Securities, Inc. pursuant to an
Underwriting Agreement dated December 21, 2000. We will receive the proceeds
from the sale of the notes.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PROCEEDS TO
PRICE TO DISCOUNTS AND MACK-CALI REALTY,
PUBLIC COMMISSIONS L.P.
<S> <C> <C> <C>
Per note.......................................... $ 1,000 $ 6.25 $ 993.75
Total............................................. $15,000,000 $93,750 $14,906,250
</TABLE>
The notes will not be listed on any national securities exchange. Currently,
there is no public market for the notes.
It is expected that delivery of the notes will be made to First Union
Securities, Inc. through The Depository Trust Company on or about December 21,
2000.
FIRST UNION SECURITIES, INC.
The date of this prospectus supplement is December 21, 2000
<PAGE>
We have not authorized any person to give any information or to make any
representations other than those contained or incorporated by reference in this
prospectus supplement or the prospectus, and, if given or made, you must not
rely upon such information or representations as having been authorized. This
prospectus supplement and the prospectus do not constitute an offer to sell or
the solicitation of an offer to buy any securities other than the securities
described in this prospectus supplement or an offer to sell or the solicitation
of an offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this prospectus supplement or
the prospectus, nor any sale made under this prospectus supplement and the
accompanying prospectus shall, under any circumstances, create any implication
that there has been no change in our affairs since the date of this prospectus
supplement or that the information contained or incorporated by reference in
this prospectus supplement or the accompanying prospectus is correct as of any
time subsequent to the date of such information.
TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUPPLEMENT
Available Information....................................... S-3
Incorporation of Certain Documents By Reference............. S-3
Information About Mack-Cali Realty, L.P..................... S-4
Use of Proceeds............................................. S-5
Ratios of Earnings to Fixed Charges......................... S-5
Description of the Notes.................................... S-6
Certain United States Federal Income Tax Considerations to
Holders of Notes.......................................... S-14
Plan of Distribution........................................ S-19
Experts..................................................... S-19
Legal Matters............................................... S-20
PROSPECTUS
Available Information....................................... 3
Explanatory Note............................................ 3
Incorporation of Certain Documents by Reference............. 3
The Company and the Operating Partnership................... 5
Ratios of Earnings to Fixed Charges......................... 6
Use of Proceeds............................................. 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 9
Policies with Respect to Certain Activities................. 18
Description of Debt Securities.............................. 21
Description of Preferred Stock.............................. 34
Description of Depositary Shares............................ 40
Restrictions on Ownership of Offered Securities............. 43
Material United States Federal Income Tax Considerations to
the Corporation of its REIT Election...................... 45
Plan of Distribution........................................ 58
Experts..................................................... 59
Legal Matters............................................... 59
</TABLE>
S-2
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This prospectus supplement and the accompanying prospectus, including
documents incorporated by reference, contain "forward-looking statements" which
relate to, without limitation, our future economic performance, our plans and
objectives for future operations and projections of revenue and other financial
items. Forward-looking statements can be identified by the use of words such as
"may," "will," "should," "expect," "anticipate," "estimate" or "continue" or
comparable terminology. Forward-looking statements are inherently subject to
risks and uncertainties, many of which we cannot predict with accuracy and some
of which we might not even anticipate. Future events and actual results,
financial and otherwise, may differ materially from the results discussed in the
forward-looking statements. The cautionary statements incorporated by reference
from our periodic reports and other similar statements contained in this
prospectus supplement identify important factors with respect to such
forward-looking statements, including certain risks and uncertainties, that
could cause actual results to differ materially from those presented in the
forward-looking statements.
AVAILABLE INFORMATION
Mack-Cali Realty, L.P. and Mack-Cali Realty Corporation have filed a joint
registration statement with the Securities and Exchange Commission covering the
notes offered by this prospectus supplement. As permitted by the rules and
regulations of the Securities and Exchange Commission, this prospectus
supplement and the accompanying prospectus omit certain information, exhibits
and undertakings contained in the registration statement. For further
information pertaining to the notes offered hereby, reference is made to the
registration statement, including the exhibits filed as a part thereof.
We are required to file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any document we file at the Securities and Exchange
Commission's public reference room located at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the Securities and Exchange 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 Securities and Exchange Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 or obtain copies of such documents
from the Securities and Exchange Commission's website at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange 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 Securities
and Exchange Commission automatically will update and supersede this
information. We incorporate by reference the documents listed below and any
future filings we make with the Securities and Exchange Commission under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended:
(1) Our Annual Report on Form 10-K (File No. 333-57103) for the fiscal year
ended December 31, 1999, as amended by Form 10-K/A dated April 28, 2000;
(2) Our Quarterly Report on Form 10-Q (File No. 333-57103) for the quarters
ended March 31, 2000, June 30, 2000 and September 30, 2000; and
(3) Our Current Reports on Form 8-K (File No. 333-57013) dated March 7,
2000, June 27, 2000, and September 21, 2000.
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, L.P.
Investor Relations Department
11 Commerce Drive
Cranford, New Jersey 07016-3510
(908) 272-8000
S-3
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INFORMATION ABOUT MACK-CALI REALTY, L.P.
We are a majority-owned subsidiary of Mack-Cali Realty Corporation. We hold
or control, directly or indirectly, substantially all of Mack-Cali Realty
Corporation's portfolio and conduct substantially all of its operations. As of
November 30, 2000, Mack-Cali Realty Corporation owned approximately
80.0 percent of our outstanding partnership interests, assuming conversion of
all of our preferred limited partnership units into common limited partnership
units. Mack-Cali Realty Corporation, a self-administered and self-managed real
estate investment trust, or REIT, is our sole general partner and manages our
business. Mack-Cali Realty Corporation is one of the largest equity real estate
investment trusts in the United States.
We own and operate a portfolio comprised predominately of Class A office and
office/flex properties located primarily in the Northeast, as well as commercial
real estate leasing, management, acquisition, development and construction
businesses. As of November 30, 2000, we owned or had interests in 267
properties, aggregating approximately 28.2 million square feet, plus developable
land. Included in our portfolio are 255 wholly-owned or company-controlled
properties, consisting of (1) 155 office buildings and 87 office/flex buildings
(properties whose square footage predominantly consist of office space, a part
of which is utilized as warehouse space), totaling approximately 26.3 million
square feet; (2) six industrial/warehouse properties aggregating approximately
387,400 square feet; (3) two multi-family residential complexes consisting of
451 units; (4) two stand-alone retail properties; and (5) three land leases. In
addition, we also have ownership interests in unconsolidated joint ventures
which own eight office properties and four office/flex properties, aggregating
approximately 1.5 million square feet.
We believe that our properties have excellent locations and access and that
we effectively maintain and professionally manage them. 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, 2000, our properties were approximately 96.7 percent leased to
over 2,400 tenants. Our properties currently are located in 11 states primarily
in the Northeast, and the District of Columbia.
We are a Delaware limited partnership formed in 1994. Mack-Cali Realty
Corporation was incorporated in 1994. The executive offices of both us and
Mack-Cali Realty Corporation are located at 11 Commerce Drive, Cranford, New
Jersey 07016, and our and Mack-Cali Realty Corporation's telephone number is
(908) 272-8000.
FINANCING ACTIVITIES
We currently have two revolving credit facilities consisting of an unsecured
revolving credit facility and a revolving credit facility, with an aggregate
borrowing capacity of $900 million. As of September 30, 2000, we had outstanding
borrowings of $264.5 million under our unsecured $800.0 million credit facility,
with no outstanding borrowings under our $100.0 million credit facility. Our
$100.0 million credit facility is secured by certain of our equity interests in
our Harborside property. Our $800.0 million unsecured revolving credit facility
matures in June 2003 and currently bears interest at 80 basis points over the
London Inter-Bank Offered Rate. Our $100 million revolving credit facility
matures in June 2001 and currently bears interest at 110 basis points over the
one-month London Inter-Bank Offered Rate. We had senior unsecured notes with an
aggregate book value of approximately $783.0 million as of September 30, 2000,
comprised of approximately $185.3 million of 7.18% senior unsecured notes due
December 31, 2003, approximately $299.7 million of 7.00% senior unsecured notes
due March 15, 2004 and approximately $298.0 million of 7.25% senior unsecured
notes due March 15, 2009. As of September 30, 2000, we had outstanding secured
debt with an aggregate principal balance of approximately $486.8 million. As of
September 30, 2000, we had 227 unencumbered properties totaling approximately
20.4 million square feet, representing approximately 76.0 percent of our total
portfolio on a square footage basis.
S-4
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USE OF PROCEEDS
We will receive net proceeds of $14,906,250 from the sale of the notes
offered by this prospectus supplement before deducting expenses. We intend to
use such net proceeds to retire outstanding borrowings under our revolving
credit facilities and for general corporate purposes.
RATIOS OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for the nine months ended
September 30, 2000 was 2.1x and for the years ended December 31, 1999 and
December 31, 1998 were 2.3x and 2.6x respectively.
We computed our ratio of earnings to fixed charges by dividing earnings
before fixed charges by fixed charges. For this purpose, earnings consist of
pre-tax income from continuing operations before extraordinary items, plus fixed
charges excluding capitalized interest. Fixed charges consist of interest costs,
both expensed and capitalized, and the interest portion of ground rents on land
leases.
Our ratio of earnings to combined fixed charges and preferred unit
distribution requirement for the nine months ended September 30, 2000 was 1.9x
and for the years ended December 31, 1999 and December 31, 1998 were 2.0x and
2.2x respectively.
We computed our ratio of earnings to combined fixed charges and preferred
unit distribution requirement by dividing earnings before fixed charges and
preferred unit distributions by fixed charges and preferred unit distributions.
For this purpose, earnings consist of pre-tax income from continuing operations
before extraordinary items and preferred unit distributions plus fixed charges
excluding capitalized interest. Fixed charges consist of interest costs, both
expensed and capitalized, and the interest portion of ground rents on land
leases. Please see the section entitled "Ratios of Earnings to Fixed Charges" in
the accompanying prospectus for our ratios of earnings to fixed charges for
certain prior periods.
S-5
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DESCRIPTION OF THE NOTES
The following description of the terms of the notes offered hereby
supplements, and to the extent inconsistent, replaces the description of the
general terms and provisions of the debt securities set forth in the
accompanying prospectus under the caption "Description of Debt Securities." You
can find the definition of certain terms used in this description under the
subheading "Certain Definitions." In this description, the words "we," "our,"
"ours" and "us" refer only to Mack-Cali Realty, L.P. and not to any of its
subsidiaries.
We will issue the notes under an indenture dated as of March 16, 1999, as
supplemented by supplemental indenture no. 3 dated as of December 21, 2000
(together, the "Indenture") between us and Wilmington Trust Company, as trustee.
The terms of the notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939.
The following description is a summary of selected provisions of the
Indenture. It does not restate the Indenture in its entirety. We urge you to
read the Indenture, because it, and not this description, defines your rights as
holders of the notes. We have filed copies of the Indenture as an exhibit to the
registration statement, which includes the accompanying prospectus, copies of
which are available for inspection at our offices.
BRIEF DESCRIPTION OF THE NOTES
These notes:
- will be our direct, senior unsecured obligations;
- will rank equally with each other and with all of our other unsecured and
unsubordinated indebtedness;
- will be effectively subordinated to our mortgages and our other secured
indebtedness and to indebtedness and other liabilities of our
subsidiaries;
- will entitle you to realize value from encumbered or indirectly held
properties only after satisfaction of secured indebtedness and other
liabilities;
- will not be subject to any sinking fund provision; and
- will be issued in denominations of $1,000 and integral multiples of
$1,000.
As of September 30, 2000, we had approximately $1.5 billion of indebtedness,
of which approximately $486.8 million was indebtedness of our subsidiaries and
was secured by mortgages on 29 of our properties.
Except as described in this prospectus supplement under the heading
"Description of the Notes--Certain Covenants--Limitations on Incurrence of
Indebtedness" or in the accompanying prospectus under the heading "Description
of Debt Securities--Merger, Consolidation or Sale," the Indenture does not
contain any provisions that would limit our ability to incur indebtedness or
that would afford you protection in the event of:
- a highly leveraged or similar transaction involving us or any of our
affiliates;
- a change of control; or
- a reorganization, restructuring, merger or similar transaction involving
us or Mack-Cali Realty Corporation that may adversely affect you.
However, certain restrictions on the ownership and transfer of Mack-Cali
Realty Corporation's shares of common stock designed to preserve its status as a
real estate investment trust may act to
S-6
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prevent or hinder a change of control. We do not presently intend to engage in a
transaction which would result in us being highly leveraged or that would result
in a change of control.
PRINCIPAL, MATURITY AND INTEREST
We will issue the notes with an aggregate principal amount of $15,000,000.
The notes will mature on December 15, 2010. Interest on the notes will accrue at
the rate of 7.835 percent per year and will be payable semi-annually in arrears
on the fifteenth day of June and December, commencing on June 15, 2001. We will
make each interest payment to the holders of record of the notes on the close of
business on June 1 and December 1, whether or not a Business Day. "Business Day"
means any day other than a Saturday or Sunday that is neither a legal holiday
nor a day on which banks in the City of New York or the State of Delaware are
authorized or required to close.
Interest on the notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
We will make all payments on the notes at the office or agency of Wilmington
Trust Company, the paying agent, in the City of Wilmington, Delaware, initially
located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890, PROVIDED that we may pay interest by check mailed to your address or by
wire transfer of funds to you at an account maintained within the United States.
OPTIONAL REDEMPTION
We may redeem on any one or more occasions some or all of the notes before
they mature. The redemption price will equal the sum of (1) an amount equal to
100 percent of the principal amount thereof and (2) a make-whole premium,
together with accrued and unpaid interest up to but not including the redemption
date.
We will calculate the make-whole premium as the amount of:
1. the aggregate present value as of the redemption date of each dollar of
principal of such notes being redeemed and the amount of interest
(exclusive of interest accrued to the redemption date) that would have
been payable in respect of such dollar if such redemption had not been
made, determined by discounting, on a semi-annual basis, such principal
and interest at the Reinvestment Rate (determined on the third Business
Day preceding the date such notice of Redemption is given) from the
respective dates on which such principal and interest would have been
payable if such redemption had not been made, in excess of
2. the aggregate principal amount of such notes being redeemed.
"Reinvestment Rate" means .25 percent (twenty-five one hundredths of one
percent) plus the arithmetic mean of the yields under the respective headings
"This Week" and "Last Week" published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available prior to the
date of determining the make-whole premium (or if such Statistical Release is no
longer published, any such other reasonably comparable index which shall be
designated by us) under the caption "Treasury Constant Maturities" for the
maturity (rounded to the nearest month) corresponding to the then remaining
maturity of such notes. If no maturity exactly corresponds to such maturity, the
Reinvestment Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the yields for the two published maturities
most closely corresponding to such maturity.
We will give you notice of any optional redemption at your address, as shown
in the Security Register, at least 30 but not more than 60 days before the
redemption date. The notice of redemption will specify, among other items, the
redemption price and the principal amount of the notes held by such holder to be
redeemed.
S-7
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If we redeem less than all of the notes at any time, we will notify the
trustee at least 45 days prior to the redemption date (or such shorter period as
is satisfactory to the trustee) of the aggregate principal amount of notes to be
redeemed and their redemption date. The trustee will select the notes to be
redeemed in such manner as it shall deem fair and appropriate.
On and after the redemption date, the notes or portions of them called for
redemption will cease accruing interest unless we fail to give notice as
provided in the Indenture or default in the payment of the redemption price.
CERTAIN COVENANTS
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS. We will not, and will not permit
any of our Subsidiaries to, incur any Indebtedness, other than Intercompany
Indebtedness, if, immediately after giving effect to the incurrence of such
additional Indebtedness and the application of the proceeds thereof, the
aggregate principal amount of all of our outstanding Indebtedness and that of
our Subsidiaries on a consolidated basis determined in accordance with generally
accepted accounting principles is greater than 60 percent of the sum of (without
duplication):
1. the Total Assets of us and our Subsidiaries as of the end of the
calendar quarter covered in our Annual Report on Form 10-K or Quarterly
Report on Form 10-Q, as the case may be, most recently filed with the
Securities and Exchange Commission (or, if such filing is not permitted
under the Securities Exchange Act, with the trustee) prior to the
incurrence of such additional Indebtedness; and
2. the purchase price of any assets included in the definition of Total
Assets acquired, and the amount of any securities offering proceeds
received (to the extent that such proceeds were not used to acquire items
included in the definition of Total Assets or used to reduce
indebtedness), by us or any of our Subsidiaries since the end of such
calendar quarter, including those proceeds obtained in connection with
the incurrence of such additional Indebtedness.
In addition to the preceding limitation on the incurrence of Indebtedness,
we will not, and will not permit any of our Subsidiaries to, incur any
Indebtedness secured by any Encumbrance upon any of our property or any of our
Subsidiaries' property, whether owned at the date of the Indenture or thereafter
acquired, if, immediately after giving effect to the incurrence of such
additional Indebtedness secured by an Encumbrance and the application of the
proceeds thereof, the aggregate principal amount of all of our outstanding
Indebtedness and that of our Subsidiaries on a consolidated basis which is
secured by any Encumbrance on our property or any of our Subsidiaries' property
is greater than 40 percent of the sum of (without duplication):
1. the Total Assets of us and our Subsidiaries as of the end of the
calendar quarter covered in our Annual Report on Form 10-K or Quarterly
Report on Form 10-Q, as the case may be, most recently filed with the
Securities Exchange Commission (or, if such filing is not permitted under
the Securities Exchange Act, with the trustee) prior to the incurrence of
such additional Indebtedness and
2. the purchase price of any assets included in the definition of Total
Assets acquired, and the amount of any securities offering proceeds
received (to the extent that such proceeds were not used to acquire items
included in the definition of Total Assets or used to reduce
Indebtedness), by us or any of our Subsidiaries since the end of such
calendar quarter, including those proceeds obtained in connection with
the incurrence of such additional Indebtedness.
S-8
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We and our Subsidiaries will at all times maintain Total Unencumbered Assets
of not less than 150 percent of the aggregate outstanding principal amount of
our Unsecured Indebtedness and that of our Subsidiaries on a consolidated basis.
In addition to the preceding limitations on the incurrence of Indebtedness,
we will not, and will not permit any Subsidiary to, incur any Indebtedness if
the ratio of Consolidated Income Available for Debt Service to the Annual
Service Charge for the four consecutive fiscal quarters most recently ended
prior to the date on which such additional Indebtedness is to be incurred shall
have been less than 1.5:1 on a pro forma basis after giving effect thereto and
to the application of the proceeds therefrom, and calculated on the assumption
that:
1. such Indebtedness and any other Indebtedness incurred by us and our
Subsidiaries since the first day of such four-quarter period and the
application of the proceeds therefrom, including to refinance other
Indebtedness, had occurred at the beginning of such period;
2. the repayment or retirement of any other Indebtedness by us and our
Subsidiaries since the first day of such four-quarter period had been
repaid or retired at the beginning of such period (except that, in making
such computation, the amount of Indebtedness under any revolving credit
facility shall be computed based upon the average daily balance of such
Indebtedness during such period);
3. in the case of Acquired Indebtedness or Indebtedness incurred in
connection with any acquisition since the first day of such four-quarter
period, the related acquisition had occurred as of the first day of such
period with the appropriate adjustments with respect to such acquisition
being included in such pro forma calculation; and
4. in the case of any acquisition or disposition by us or our Subsidiaries
of any asset or group of assets since the first day of such four-quarter
period, whether by merger, stock purchase or sale, or asset purchase or
sale, such acquisition or disposition or any related repayment of
Indebtedness had occurred as of the first day of such period with the
appropriate adjustments with respect to such acquisition or disposition
being included in such pro forma calculation.
PROVISION OF FINANCIAL INFORMATION. So long as any notes are outstanding
and whether or not required by the Securities and Exchange Commission, we will
furnish to the trustee within 15 days of the time periods specified in the
Securities and Exchange Commission's rules and regulations:
1. all quarterly and annual financial information that would be required to
be contained in a filing with the Securities and Exchange Commission on
Forms 10-Q and 10-K if we were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and, with respect to the annual information only, a report
on the annual financial statements by our certified independent
accountants; and
2. all current reports that would be required to be filed with the
Securities and Exchange Commission on Form 8-K if we were required to
file such reports.
If we are not subject to Sections 13 and 15(d) of the Securities Exchange
Act, we will furnish to the holders of the notes, without cost to such holders,
a copy of the information and reports referred to in clauses (1) and (2) above
within 15 days of the time periods specified in the Securities and Exchange
Commission's rules and regulations.
In addition, whether or not required by the Securities and Exchange
Commission, we will file a copy of the information and reports referred to in
clauses (1) and (2) above with the Securities and Exchange Commission for public
availability within the time periods specified in the Securities and Exchange
Commission's rules and regulations (unless the Securities and Exchange
Commission will not accept such a filing, in which case we will supply copies of
such documents upon written request and payment of the reasonable cost of
duplication and delivery by any prospective holder of the notes).
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WAIVER OF CERTAIN COVENANTS. We may omit to comply with any term, provision
or condition of the preceding covenants, and with any other term, provision or
condition with respect to the notes (except any such term, provision or
condition which could not be amended without the consent of all holders of
notes), if before or after the time for such compliance the holders of at least
a majority in principal amount of all the outstanding notes, by Act of such
holders, either waive such compliance in such instance or generally waive
compliance with such covenant or condition. Except to the extent so expressly
waived, and until such waiver shall become effective, our obligations and the
duties of the trustee in respect of any such term, provision or condition shall
remain in full force and effect.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in this prospectus supplement
and the Indenture. We refer you to the Indenture for a full disclosure of all
such terms, as well as any other capitalized terms used in this prospectus
supplement or the accompanying prospectus for which no definition is provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person (1) existing at the
time such Person becomes a Subsidiary or (2) assumed in connection with the
acquisition of assets from such Person, in each case, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary or such acquisition. Acquired Indebtedness shall be deemed to be
incurred on the date of the related acquisition of assets from any Person or the
date the acquired Person becomes a Subsidiary.
"ANNUAL SERVICE CHARGE" for any period means the aggregate interest expense
for such period in respect of, and the amortization during such period of any
original issue discount of, our Indebtedness and that of our Subsidiaries.
"CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE" for any period means
Earnings from Operations of us and our Subsidiaries plus amounts which have been
deducted, and minus amounts which have been added, for the following (without
duplication):
1. interest on our Indebtedness and that of our Subsidiaries;
2. provision for taxes of us and our Subsidiaries based on income;
3. amortization of debt discount and deferred financing costs;
4. provisions for gains and losses on properties and depreciation and
amortization;
5. increases in deferred taxes and other non-cash items;
6. depreciation and amortization with respect to interests in joint venture
and partially owned entity investments;
7. the effect of any charge resulting from a change in accounting
principles in determining Earnings from Operations for such period; and
8. amortization of deferred charges.
"EARNINGS FROM OPERATIONS" for any period means net income excluding:
1. provisions for gains and losses on sales of investments or joint
ventures;
2. extraordinary and non-recurring items; and
3. property valuation losses
as reflected in our consolidated financial statements and those of our
Subsidiaries for such period determined in accordance with generally accepted
accounting principles.
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"ENCUMBRANCE" means any mortgage, lien, charge, pledge or security interest
of any kind.
"INDEBTEDNESS" of us or any Subsidiary means any of our indebtedness or that
of any Subsidiary, whether or not contingent, in respect of:
1. borrowed money or evidenced by bonds, notes, debentures or similar
instruments whether or not such indebtedness is secured by any
Encumbrance existing on property owned by us or any Subsidiary;
2. indebtedness for borrowed money of a Person other than us or a
Subsidiary which is secured by any Encumbrance existing on property owned
by us or any Subsidiary, to the extent of the lesser of:
(a) the amount of indebtedness so secured and
(b) the fair market value of the property subject to such Encumbrance;
3. the reimbursement obligations, contingent or otherwise, in connection
with any letters of credit actually issued or amounts representing the
balance deferred and unpaid of the purchase price of any property or
services, except any such balance that constitutes an accrued expense or
trade payable; or
4. any lease of property by us or any Subsidiary as lessee which is
reflected on our consolidated balance sheet as a capitalized lease in
accordance with generally accepted accounting principles;
and also includes, to the extent not otherwise included, any obligation by us or
any Subsidiary to be liable for, or to pay, as obligor, guarantor or otherwise
(other than for purposes of collection in the ordinary course of business),
Indebtedness of another Person (other than us or any Subsidiary; it being
understood that Indebtedness shall be deemed to be incurred by us or any
Subsidiary whenever we or such Subsidiary shall create, assume, guarantee or
otherwise become liable in respect thereof. Indebtedness of a Subsidiary of ours
existing prior to the time it became a Subsidiary of ours shall be deemed to be
incurred upon such Subsidiary's becoming a Subsidiary of ours; and Indebtedness
of a person existing prior to a merger or consolidation of such person with us
or any Subsidiary of ours in which such person is the successor to our or such
Subsidiary shall be deemed to be incurred upon the consummation of such merger
or consolidation; provided, however, the term Indebtedness shall not include any
such indebtedness that had been the subject of an "in substance" defeasance in
accordance with generally accepted accounting principles).
"INTERCOMPANY INDEBTEDNESS" means indebtedness to which the only parties
are us, Mack-Cali Realty Corporation and any Subsidiary (but only so long as
such indebtedness is held solely by any of us, Mack-Cali Realty Corporation and
any Subsidiary) that is subordinate in right of payment to the notes.
"SUBSIDIARY" means, with respect to any Person, any corporation or other
entity of which a majority of the voting power of the voting equity securities
or the outstanding equity interests of which are owned, directly or indirectly,
by such Person. For the purposes of this definition, "voting equity securities"
means equity securities having voting power for the election of directors,
whether at all times or only so long as no senior class of security has such
voting power by reason of any contingency.
"TOTAL ASSETS" as of any date means the sum of:
1. the Undepreciated Real Estate Assets and
2. all of our other assets and those of our Subsidiaries determined in
accordance with generally accepted accounting principles (but excluding
accounts receivable and intangibles).
S-11
<PAGE>
"TOTAL UNENCUMBERED ASSETS" means the sum of:
1. those Undepreciated Real Estate Assets not subject to an Encumbrance for
borrowed money and
2. all of our other assets and those of our Subsidiaries not subject to an
Encumbrance for borrowed money, determined in accordance with generally
accepted accounting principles (but excluding accounts receivable and
intangibles).
"UNDEPRECIATED REAL ESTATE ASSETS" as of any date means the cost (original
cost plus capital improvements) of our real estate assets and those of our
Subsidiaries on such date, before depreciation and amortization, determined on a
consolidated basis in accordance with generally accepted accounting principles.
"UNSECURED INDEBTEDNESS" means Indebtedness which is not secured by any
Encumbrance upon any of our properties or any Subsidiary's property.
See "Description of Debt Securities--Certain Covenants" in the accompanying
prospectus for a description of additional covenants applicable to us.
EVENTS OF DEFAULT
Each of the following is an Event of Default under the Indenture:
1. our default for 30 days in the payment when due of interest on any of
the notes;
2. our default in payment when due of the principal of or make-whole
premium, if any, on any of the notes;
3. our failure for 60 days after written notice (as provided in the
Indenture) to perform or comply with the provisions described in the
Indenture;
4. our default under any bond, debenture, note, mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness (other than non-recourse
indebtedness) for money borrowed by us (or by any Subsidiary, the
repayment of which we have guaranteed or for which we are directly
responsible or liable as obligor or guarantor), having an aggregate
principal amount outstanding of at least $10 million, whether such
recourse indebtedness or guarantee now exists or is created after the
date of the Indenture, if that default results in the acceleration of
such indebtedness prior to its express maturity without such indebtedness
being discharged or such acceleration being rescinded within a period of
10 days after written notice to us (as provided in the Indenture); and
5. certain events of bankruptcy or insolvency with respect to us or any
Significant Subsidiary. The term "Significant Subsidiary" has the meaning
ascribed to such term in Regulation S-X promulgated under the Securities
Act of 1933, as amended.
If an Event of Default specified in clause (5) above, relating to us or any
Significant Subsidiary, occurs, the principal amount of and the make-whole
premium on all outstanding notes shall become due and payable without any
declaration or other act on the part of the trustee or of the holders.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The provisions of Article 14 of the Indenture relating to defeasance and
covenant defeasance under "Description of Debt Securities--Discharge, Defeasance
and Covenant Defeasance" in the accompanying prospectus, will apply to the
notes. Each of the covenants described under "Description
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<PAGE>
of the Notes--Certain Covenants" in this prospectus supplement and "Description
of Debt Securities--Certain Covenants" in the accompanying prospectus will be
subject to covenant defeasance.
BOOK-ENTRY SYSTEM
The provisions described under "Description of Debt Securities-Book-Entry
System and Global Securities" in the accompanying prospectus will apply to the
notes.
The Depository Trust Company has provided us with the following information:
The Depository Trust Company is a limited-purpose trust company organized under
the New York Banking Law, a "banking organization" within the meaning of the New
York Banking Law, a member of the United States Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code and a "clearing agency" registered under the provisions of Section 17A of
the Securities Exchange Act of 1934, as amended. The Depository Trust Company
holds securities that its participants deposit with The Depository Trust
Company. The Depository Trust Company also records the settlement among its
participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in its
participants' accounts. This procedure eliminates the need to exchange
certificates. Direct participants of The Depository Trust Company include
securities brokers and dealers (including the underwriter), banks, trust
companies, clearing corporations and certain other organizations.
The Depository Trust Company is owned by a number of its direct participants
and by the New York Stock Exchange, the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. The Depository Trust Company's
book-entry system is also used by other organizations such as securities brokers
and dealers, banks and trust companies that work through a direct participant.
The rules that apply to The Depository Trust Company and its participants are on
file with the Securities and Exchange Commission.
GOVERNING LAW
The Indenture will be governed by, and construed in accordance with, the
laws of the State of New York.
NO PERSONAL LIABILITY
No past, present or future stockholder, partner, officer or director of ours
or any successor of us shall have any liability for any of our obligations,
covenants or agreements contained under the notes or the Indenture. By accepting
the notes, you waive and release all such liability. The waiver and release are
part of the consideration for the issue of the notes.
S-13
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS TO HOLDERS OF NOTES
The following discussion summarizes certain federal income tax
considerations relating to the acquisition, ownership and disposition of the
notes. The following summary is for general information only, is not exhaustive
of all possible tax considerations and is not intended to be and should not be
construed as tax advice. For example, this summary addresses only notes held as
capital assets by initial holders purchasing notes at the "issue price"
(generally, the first price at which a substantial amount of notes is sold to
the public (excluding bond houses, brokers or similar persons or organizations
acting as underwriters, placement agents or wholesalers)). This summary does not
purport to deal with all aspects of taxation that may be relevant to a
particular noteholder or persons in special tax situations such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, persons holding the notes as a hedge against currency
risk or as a position in a "straddle" for U.S. tax purposes, persons whose
functional currency is not the U.S. dollar, tax-exempt organizations or foreign
corporations and persons who are not citizens or residents of the United States
(except as described under the heading "--Taxation of Non-U.S. Holders of
Notes"). It does not give a detailed discussion of any state, local or foreign
tax consequences and does not discuss all aspects of federal income taxation
that might be relevant to a specific holder in light of its particular
investment or tax circumstances.
This summary supplements the discussion set forth in the section in the
accompanying prospectus entitled "Material 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 and Mack-Cali Realty Corporation
and its stockholders, and which should be read together with this section.
As used herein, the term "U.S. Holder" means a holder of notes who (for
United States federal income tax purposes) is (i) a citizen or resident of the
United States, (ii) a corporation, partnership, or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate the income of which is subject to United
States federal income taxation regardless of its connection with the conduct of
a trade or business within the United States or (iv) a trust whose
administration is subject to the primary supervision of a United States court
and with respect to which one or more United States persons have the authority
to control all substantial decisions of the trust. The term "Non-U.S. Holder"
means a holder of notes who is not a U.S. Holder.
The information in this section is based on the Internal Revenue Code,
current, temporary and proposed Treasury Regulations thereunder, the legislative
history of the Internal Revenue Code, current administrative interpretations and
practices of the Internal Revenue Service and court decisions, all as of the
date hereof. No assurance can be given that future legislation, Treasury
Regulations, administrative interpretations and court decisions will not
significantly change current law or adversely affect existing interpretations of
current law. Any such change could apply retroactively to transactions preceding
the date of the change. Thus, no assurance can be provided that the statements
set forth herein (which do not bind the Internal Revenue Service or the courts)
will not be challenged by the Internal Revenue Service or will be sustained by a
court if so challenged.
You are advised to consult with your own tax advisor regarding the specific
tax consequences to you of the acquisition, ownership, sale or other disposition
of notes in light of your specific tax and investment situation and the specific
federal, state, local and foreign tax laws applicable to you.
TAXATION OF U.S. HOLDERS OF NOTES
INTEREST ON NOTES. If you are a U.S. Holder, interest on the notes will
constitute "qualified stated interest" and generally will be taxable to you as
ordinary interest income at the time such payments are accrued or received (in
accordance with your regular method of tax accounting). Since the notes are
being issued to you at par value, the notes will not be treated as having
original issue discount.
S-14
<PAGE>
MARKET DISCOUNT. If you are a U.S. Holder that purchases a note for an
amount that is less than its issue price (or, if you are a subsequent purchaser,
its stated redemption price at maturity), you will be treated as having
purchased such note at a "market discount," unless such market discount is less
than a specified DE MINIMIS amount.
Under the market discount rules, you will be required to treat any partial
principal payment on, or any gain realized on the sale, exchange, retirement or
other disposition of, a note as ordinary income to the extent of the lesser of
(i) the amount of such payment or realized gain or (ii) the market discount
which has not previously been included in income and is treated as having
accrued on such note at the time of such payment or disposition. Market discount
will be considered to accrue ratably during the period from the date of
acquisition to the maturity date of the note, unless you elect to accrue market
discount using the "constant interest rate" method.
You may also be required to defer, until the maturity of the note or certain
earlier dispositions, the deduction of all or a portion of the interest paid or
accrued on any indebtedness incurred or maintained by you to purchase or carry a
note with market discount; a current deduction is only allowed to the extent the
interest expense exceeds an allocable portion of market discount. You may elect
to include market discount in income currently as it accrues (on either a
ratable or "constant interest rate" basis), in which case the rules described
above in this paragraph and the first sentence of the immediately preceding
paragraph will not apply. Generally, such currently included market discount is
treated as ordinary interest income for United States income tax purposes
(although if you are a Non-U.S. Holder, such market discount would be treated as
ordinary income, but not as interest). Such an election will apply to all debt
instruments acquired by you on or after the first day of the first taxable year
to which such election applies and may be revoked only with the consent of the
Internal Revenue Service.
PREMIUM. If you are a U.S. Holder that purchases a note for an amount that
is greater than the sum of all amounts payable on the note after the purchase
date other than payments of qualified stated interest, you will be considered to
have purchased the note with "amortizable bond premium" equal in amount to such
excess. You may elect to amortize such premium using a constant yield method
that reflects semiannual compounding over the remaining term of the note and may
offset interest otherwise required to be included by you in respect of the note
during any taxable year by the amortized amount of such excess for the taxable
year. However, if the note may be optionally redeemed after you acquire it at a
price in excess of its stated redemption price at maturity, special rules would
apply which could result in a deferral of the amortization of some bond premium
until later in the term of the note. Any election to amortize bond premium
applies to all taxable debt obligations then owned and thereafter acquired by
you and may be revoked only with the consent of the Internal Revenue Service.
SALE, EXCHANGE OR RETIREMENT OF NOTES. If you are a U.S. Holder, upon your
sale, exchange or retirement of a note, you generally will recognize taxable
gain or loss equal to the difference between the amount realized on the sale,
exchange or retirement (other than amounts representing accrued and unpaid
interest) and your adjusted tax basis in the note. In addition, an unscheduled
partial principal payment on a note will be treated as a payment in retirement
of a portion of the note, which may result in gain or loss to you. Your adjusted
tax basis in a note generally will equal your initial investment in the note
(increased by accrued market discount, if any, if you have included such market
discount in income) and decreased by the amount of any payments, other than
qualified stated interest payments, received and amortizable bond premium
previously deducted from income with respect to such note. Except as described
under "Market Discount," such gain or loss will be capital gain or loss if the
note is held by you as a capital asset. If you are a U.S. Holder who is an
individual, estate or trust, such gain or loss will be long-term capital gain or
loss, subject to a maximum 20 percent tax rate, if the notes have been held by
you for more than one year. If you are a U.S. Holder that is a corporation, such
gain or loss will be long-term capital gain or loss, subject to a maximum
35 percent tax rate, if the notes have been held by you for more than one year.
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<PAGE>
TAXATION OF NON-U.S. HOLDERS OF NOTES
Generally, if you are a Non-U.S. Holder, you will not be subject to federal
income taxes on payments of premium (if any) or interest on a note so long as
(i) you are not a person who is a direct and/or constructive owner of
10 percent or more of the capital or profits interest in us; (ii) you are not a
controlled foreign corporation related (within the meaning of Section 864(d)(4)
of the Internal Revenue Code) to us; (iii) you are not a bank receiving interest
described in Section 881(c)(3)(A) of the Internal Revenue Code; (iv) such
payments are not "effectively connected" with the conduct of a trade or business
within the United States by you; and (v) the beneficial owner of the note, under
penalty of perjury, certifies to us, our payment agent or the withholding agent
(the last United States payor in the chain of payment prior to payment to you)
(the "Withholding Agent") that the owner is not a U.S. person and the
certificate provides the owner's name and address (collectively, the "portfolio
interest exemption"). If the applicable requirements are satisfied, the
certification described above may be provided by a securities clearing
organization, a bank or other financial institution that holds customers
securities in the ordinary course of its trade or business.
If you are a Non-U.S. Holder and cannot satisfy the requirements of the
portfolio interest exemption described above, you will be subject to a 30%
withholding tax on interest received on a note unless you provide the
Withholding Agent with a properly executed (i) IRS Form 1001 (or successor form)
claiming an exemption from withholding or eligibility for a reduced rate under
the benefit of a tax treaty or (ii) IRS Form 4224 (or successor form) stating
that interest paid on the note is not subject to withholding tax because it is
effectively connected with your conduct of a trade or business in the United
States, in which case the interest will be subject to U.S. federal income tax on
a net income basis as applicable to U.S. holders generally, unless an applicable
tax treaty provides otherwise.
If you are a corporate Non-U.S. Holder that receives interest that is
effectively connected with a U.S. trade or business, your interest income from
the notes also may be subject to the branch profits tax, which is generally
imposed on a foreign corporation on the actual or deemed repatriation from the
United States of earnings and profits. The branch profits tax may not apply, or
may apply at a reduced rate, if you are a "qualified resident" of a country with
which the United States has an income tax treaty that reduces or eliminates the
applicable branch profits tax rate.
To claim the benefit of a tax treaty or to claim an exemption from
withholding because interest received is effectively connected with a U.S. trade
or business, you must provide to the Withholding Agent the appropriate, properly
executed Internal Revenue Service form prior to the payment of interest. These
forms must be periodically updated and, under Treasury regulations that take
effect for payments made after December 31, 2000, a new form W-8BEN or W-8ECI,
as applicable, will be required to be filed to claim a reduced rate of
withholding under an applicable treaty. Although a new form W-8BEN or W-8ECI is
not required to be used prior to January 1, 2001, the new forms may be used
prior to that date. Accordingly, you should use the applicable new form with
respect to all interest payments on the notes, as all interest payments made
with respect to the notes, will be made after January 1, 2001. Also, under
recently finalized Treasury regulations, a Non-U.S. holder who is claiming tax
treaty benefits may be required to obtain a U.S. taxpayer identification number
and to provide documentary evidence issued by foreign governmental authorities
to prove residence in the foreign country. Special procedures are provided in
the Treasury regulations for payments through qualified intermediaries.
Generally, if you are a Non-U.S. Holder, and provided that any gain
recognized by you on the notes is not effectively connected with the conduct of
a trade or business in the United States, you will not be subject to federal
income taxes on any amount of such gain which constitutes gain upon retirement,
sale or other disposition of a note. Certain other exceptions may be applicable,
and you should consult your tax advisor in this regard.
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If you are engaged in a trade or business in the United States and interest
or gain on the note is effectively connected with the conduct of such trade or
business, you, although exempt from U.S. federal withholding tax as discussed
above, are subject to U.S. federal income tax on such interest and on any gain
realized by you on the sale, exchange or other disposition of a note in the same
manner as if you were a U.S. Holder. In addition, if you are a foreign
corporation, you may be subject to the branch profits tax referred to above for
that taxable year, unless you qualify for a lower rate under an applicable
income tax treaty.
If you are an individual Non-U.S. Holder, the notes will not be subject to
United States federal estate tax upon your death unless you are a direct and/or
constructive owner of 10 percent or more of the capital or profits interest in
us, or, at the time of your death, payments in respect of the notes would have
been effectively connected with the conduct by you of a trade or business in the
United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING
U.S. HOLDERS
In general, information reporting requirements will apply to payments of
interest on a note and payments of the proceeds of the sale of a note, unless an
exception applies. Further, the payor will be required to withhold backup
withholding tax at the rate of 31% if: (i) the payee fails to furnish a taxpayer
identification number, or TIN, to the payor or to establish an exemption from
backup withholding; (ii) the Internal Revenue Service notifies the payor that
the TIN furnished by the payee is incorrect; (iii) there has been a notified
payee under-reporting with respect to interest, dividends or original issue
discount described in Section 3406(c) of the Internal Revenue Code; or
(iv) there has been a failure of the payee to certify under the penalty of
perjury that the payee is not subject to backup withholding under the Internal
Revenue Code. Some holders, including corporations, will be exempt from backup
withholding. Any amounts withheld under the backup withholding rules from a
payment to a holder will be allowed as a credit against the holder's United
States federal income tax and may entitle the holder to refund, provided that
the required information is furnished to the Internal Revenue Service.
NON-U.S. HOLDERS
Generally, information reporting will apply to payments of interest, if any,
on the notes, and backup withholding at a rate of 31% may apply, unless the
payee certifies that it is not a U.S. person or otherwise establishes an
exemption.
The payment of the proceeds of the disposition of notes to or through the
U.S. office of a U.S. or foreign broker will be subject to information reporting
and, possibly, backup withholding unless the Non-U.S. Holder certifies as to its
Non-U.S. Holder status or otherwise establishes an exemption, provided that the
broker does not have actual knowledge that the holder is a U.S. person or that
the conditions of any other exemption are not, in fact, satisfied. The proceeds
of the disposition by a Non-U.S. Holder of notes to or through a foreign office
or a broker generally will not be subject to information reporting or backup
withholding. However, if the broker is a U.S. person, a controlled foreign
corporation for U.S. tax purposes, or a foreign person 50% or more of whose
gross income from all sources for specified periods is from activities that are
effectively connected with a U.S. trade or business, information reporting
generally will apply unless the broker has documentary evidence as to the
Non-U.S. Holder's foreign status and has no actual knowledge to the contrary.
Treasury regulations that are generally effective with respect to payments
made after December 31, 2000 modify the currently effective information
reporting and backup withholding procedures and requirements, and provide
presumptions regarding the status of holders when payments to the holders cannot
be reliably associated with appropriate documentation provided to the payor.
Under these new
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Treasury regulations, some holders will be required to provide new
certifications with respect to payments made after December 31, 2000. Because
the application of these new Treasury regulations will vary depending on the
holder's particular circumstances, you are urged to consult your tax advisor
regarding the information reporting requirements applicable to you.
CHANGES TO REIT QUALIFICATION REQUIREMENTS
The discussion of certain of the federal tax considerations relating to
Mack-Cali Realty Corporation and its stockholders set forth in the accompanying
prospectus entitled "Material United States Federal Income Tax Consequences to
the Company of its REIT Election" has been affected by subsequent legislation.
As a result of the Ticket to Work and Work Incentives Improvement Act, effective
for tax years beginning after December 31, 2000, the 5% and the 10% asset tests
(the "5% Asset Test" and the "10% Asset Test", respectively) described in the
prospectus under the heading "Material United States Federal Income Tax
Consequences to the Company of its REIT Election"--"Taxation of the Company as a
REIT"--"Asset Tests" will be modified in three respects. First, the 10% Asset
Test will be expanded so that REITs also will be prohibited from owning more
than 10% of the value of the outstanding securities of any one issuer. Second,
an exception to these tests will be created so that REITs will be permitted to
own securities of a subsidiary that exceed both the 5% value test and the new
10% vote or value test if the subsidiary, along with the REIT, elects to be a
"taxable REIT subsidiary". Mack-Cali Realty Corporation currently owns more than
10% of the total value of the outstanding securities of Mack-Cali
Services, Inc., the only noncontrolled subsidiary currently owned by Mack-Cali
Realty Corporation. The expanded 10% Asset Test will not apply to a
noncontrolled subsidiary unless it engages in a substantial new line of business
or acquires any substantial asset or, in Mack-Cali Services, Inc.'s case,
Mack-Cali Realty Corporation acquired any additional securities in Mack-Cali
Services, Inc. after July 12, 1999 (neither of which is believed to have
occurred). Mack-Cali Realty Corporation believes that Mack-Cali Services, Inc.
will be able to qualify for this grandfathering rule. Under the third new asset
test, effective for taxable years beginning after December 31, 2000, Mack-Cali
Realty Corporation will not be able to own securities of taxable REIT
subsidiaries that represent in the aggregate more than 20% of the value of
Mack-Cali Realty Corporation's total assets. Mack-Cali Realty Corporation
intends to take all reasonable steps to satisfy the foregoing tests including,
if necessary converting Mack-Cali Services, Inc. into a taxable REIT subsidiary.
Rents received by Mack-Cali Realty Corporation from a taxable REIT
subsidiary will be qualifying rents from real property for purposes of the REIT
income tests, described under the heading "Material United States Federal Income
Tax Consequences to the Company of its REIT Election"--"Taxation of the Company
as a REIT"--"Income Tests" in the accompanying prospectus, and will not be
related party rent, so long as at least 90% of the property is leased to
unrelated tenants and the rent paid by the taxable REIT subsidiary is
substantially comparable to the rent paid by the unrelated tenants for
comparable space. In addition, a taxable REIT subsidiary will be able to perform
some impermissible tenant services without causing Mack-Cali Realty Corporation
to be in receipt of impermissible tenant services income under the REIT income
tests. Several provisions of the new law will ensure that a taxable REIT
subsidiary will be subject to an appropriate level of federal income taxation.
For example, a taxable REIT subsidiary will be limited in its ability to deduct
interest payments made to an affiliated REIT. In addition, the REIT will have to
pay a 100% penalty tax on some payments that it receives if the economic
arrangements between the REIT, the REIT's tenants, and the taxable REIT
subsidiary are not comparable to similar arrangements between unrelated parties.
In addition, the 95% distribution requirement with respect to REIT taxable
income, net income from foreclosure property and certain built-in-gains
described under the heading "Material United States Federal Income Tax
Consequences to the Company of its REIT Election"--"Taxation of the
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Company as a REIT"--"Annual Distribution Requirements" in the accompanying
prospectus has been amended for taxable years beginning after December 31, 2000
to reduce the 95% requirement to 90%.
PLAN OF DISTRIBUTION
Subject to the terms and conditions stated in the underwriting agreement
dated December 21, 2000, the underwriter named below has agreed to purchase, and
we have agreed to sell to the underwriter, the principal amount of the notes set
forth opposite the name of the underwriter.
<TABLE>
<CAPTION>
NAME PRINCIPAL AMOUNT OF NOTES
---- -------------------------
<S> <C>
First Union Securities, Inc................... $15,000,000
</TABLE>
The underwriting agreement provides that the obligations of the underwriter
to purchase the notes included in this offering are subject to the approval of
certain legal matters by counsel and to certain other conditions. The
underwriter is obligated to purchase all the notes if it purchases any of the
notes.
The underwriter proposes to offer the notes directly to the public at the
public offering price set forth on the cover page of this prospectus supplement.
The following table shows the underwriting discounts and commissions to be
paid to the underwriter by us in connection with this offering (expressed as a
percentage of the principal amount of the notes)
<TABLE>
<S> <C>
Per note.................................................... 0.625%
</TABLE>
In connection with the offering, the underwriter may purchase and sell notes
in the open market. These transactions may include over-allotment, covering
transactions and stabilizing transactions. Over-allotment involves the sales of
notes in excess of the principal amount of notes to be purchased by the
underwriter in the offering, which creates a short position. Covering
transactions involve purchases of notes in the open market after the
distribution has been completed in order to cover short positions. Stabilizing
transactions consist of certain bids or purchases of notes made for the purpose
of preventing or retarding a decline in the market price of the notes while the
offering is in progress.
Any of these activities may cause the price of the notes to be higher than
the price that otherwise would exist in the open market in the absence of such
transactions. These transactions may be effected in the over-the-counter market
or otherwise and, if commenced, may be discontinued at any time.
We estimate that our total expenses of this offering will be $150,000.
The notes have no established trading market. We do not intend to apply for
listing of the notes on a national securities exchange. We cannot give you
assurance as to the liquidity of or the trading market for the notes.
We and Mack-Cali Realty Corporation have agreed to indemnify the underwriter
against certain liabilities, including liabilities under the Securities Act of
1933, as amended, or to contribute payments which the underwriter may be
required to make in respect of such liabilities.
EXPERTS
The consolidated financial statements and financial statement schedule
incorporated in this prospectus supplement by reference to our Annual Report on
Form 10-K, as amended by Form 10-K/ A, for the year ended December 31, 1999,
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.
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LEGAL MATTERS
Pryor Cashman Sherman & Flynn LLP, New York, New York, will issue an opinion
to us regarding certain legal matters in connection with the notes offered by
this prospectus supplement. Hunton & Williams, Richmond, Virginia, will issue an
opinion as to certain legal matters for First Union Securities, Inc.
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<PAGE>
PROSPECTUS
$2,000,000,000
MACK-CALI REALTY CORPORATION
PREFERRED STOCK AND DEPOSITARY SHARES
MACK-CALI REALTY, L.P.
DEBT SECURITIES
Mack-Cali Realty Corporation (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") or (ii) shares of Preferred Stock
represented by depositary shares (the "Depositary Shares"). Mack-Cali Realty,
L.P. (the "Operating Partnership") may from time to time offer in one or more
series unsecured non-convertible debt securities (the "Debt Securities"). The
Preferred Stock, Depositary Shares and Debt Securities (collectively, the
"Offered Securities") have an aggregate initial public offering price of up to
$2,000,000,000 (or its equivalent in another currency based on the exchange rate
at the time of sale) in amounts, at prices and on terms to be determined at the
time of the offering and 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 (each a "Prospectus Supplement"). If any Debt Securities issued
by the Operating Partnership are rated below investment grade at the time of
issuance, such Debt Securities will be fully and unconditionally guaranteed by
the Company as to payment of principal, premium, if any, and interest (the
"Guarantees").
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 any initial public offering
price; (ii) in the case of Depositary Shares, the fractional share of Preferred
Stock represented by each such Depositary Share; and (iii) in the case of Debt
Securities, the specific title, aggregate principal amount, currency, form
(which may be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of the holder, terms for
sinking fund payments, covenants, applicability of any Guarantees and any
initial public offering price. 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 September 25, 1998.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION....................................... 3
EXPLANATORY NOTE............................................ 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 3
THE COMPANY AND THE OPERATING PARTNERSHIP................... 5
RATIOS OF EARNINGS TO FIXED CHARGES......................... 6
USE OF PROCEEDS............................................. 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 9
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES................. 18
DESCRIPTION OF DEBT SECURITIES.............................. 21
DESCRIPTION OF PREFERRED STOCK.............................. 34
DESCRIPTION OF DEPOSITARY SHARES............................ 40
RESTRICTIONS ON OWNERSHIP OF OFFERED SECURITIES............. 43
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS TO
THE COMPANY OF ITS REIT ELECTION.......................... 45
PLAN OF DISTRIBUTION........................................ 58
EXPERTS..................................................... 59
LEGAL MATTERS............................................... 59
</TABLE>
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AVAILABLE INFORMATION
The Company is, and upon effectiveness of the registration statement of
which this Prospectus is a part (the "Registration Statement"), the Operating
Partnership will be, subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith the Company files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission") and the Operating
Partnership will file reports with the Commission. The Registration Statement,
the exhibits and schedules forming a part thereof and such reports, proxy
statements and other information 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. 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, par value $.01 per share (the "Common Stock") is listed on the New York
Stock Exchange (the "NYSE"), under the symbol "CLI," and the Pacific Exchange,
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, and the
Pacific Exchange, 301 Pine Street, San Francisco, California 94104.
The Company and the Operating Partnership have filed with the Commission 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.
EXPLANATORY NOTE
The Company conducts substantially all of its operations through, and
substantially all of its properties are held directly or indirectly by, the
Operating Partnership. Accordingly, information incorporated by reference herein
from certain documents filed with the Commission by the Company is applicable to
the Operating Partnership. To the extent that information incorporated by
reference from such documents is inapplicable to the Operating Partnership,
appropriate disclosure is included herein.
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 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;
b. The Company's 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 quarter ended June 30, 1998;
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c. The Company's Current Reports on Form 8-K and Form 8-K/A (File
No. 1-13274), dated September 18, 1997, September 19, 1997, December 11,
1997, January 16, 1998, June 12, 1998 and August 5, 1998;
d. The Company's Proxy Statements relating to the Special Meeting of
Shareholders held on December 11, 1997 and the Annual Meeting of
Shareholders on May 21, 1998; and
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 or the Operating Partnership 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 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, Executive Vice President and Chief
Financial Officer of the Company, 11 Commerce Drive, Cranford, New Jersey
07016-3510 (telephone number: (908) 272-8000).
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THE COMPANY AND THE OPERATING PARTNERSHIP
Mack-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 primarily of Class A office and office/flex
buildings, as well as commercial real estate leasing, management, acquisition,
development and construction businesses. As of June 1, 1998, the Company owned
and operated 234 properties, aggregating approximately 26.3 million square feet
(collectively, the "Properties"). The Properties are comprised of 222 office and
office/flex buildings totaling approximately 25.9 million square feet (the
"Office Properties" and "Office/Flex Properties," respectively), six
industrial/warehouse properties containing an aggregate of approximately 400,000
square feet (the "Industrial/Warehouse Properties"), two multi-family
residential properties, two stand-alone retail properties and two land leases.
The 222 Office and Office/Flex Properties are comprised of 145 office buildings
containing an aggregate of 21.9 million square feet (the "Office Properties")
and 77 office/flex buildings containing an aggregate of approximately
4.0 million 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 rental,
occupancy and tenant retention rates within their markets.
The Properties are located primarily in the Northeast and Southwest,
including a predominant presence in New Jersey, New York, Pennsylvania, Texas
and Colorado. The Company believes that each of these markets has attractive
economic and demographic characteristics. As of June 1, 1998, the Operating
Partnership owned and operated 13.8 million square feet of office and
office/flex space in New Jersey, a state widely regarded as a major center for
corporate and international business and gaming/tourism. The Operating
Partnership owned and operated 1.5 million square feet of office space in
suburban Philadelphia, Pennsylvania as of June 1, 1998; and 4.4 million square
feet of office and office/flex space, 387,000 square feet of
industrial/warehouse space and residential and stand-alone retail properties and
land leases in New York. As of June 1, 1998, the Operating Partnership also
owned and operated 0.4 million square feet of office and office/flex space in
Connecticut, 3.0 million square feet of office space in Texas, 0.8 million
square feet of office space in Colorado and 0.5 million square feet of office
space in Arizona.
The Company's strategy has been to focus its development and ownership of
office 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, initially into sub-markets where it
has, or can achieve, similar status. Management believes that the recent trend
towards increasing rental and occupancy rates in office buildings in the
Company's sub-markets continues to present significant opportunities for growth.
The Company may also develop properties in such sub-markets, particularly with a
view towards potential utilization of certain vacant land recently acquired or
on which the Company holds options. 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. As of June 1, 1998, the Company
had over 300 employees.
Cali Associates, the entity to 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 buildings for the past fifteen years. In addition to the Founders, the
Company's executive officers generally have been employed by the Company and its
predecessor for an average of approximately 10 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.
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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 Common Stock.
To ensure that the Company qualifies as a REIT, the transfer of shares of
capital stock of the Company, including the Preferred Stock, is subject to
certain restrictions, and ownership of capital stock by any single person is
limited to 9.8% 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.
Substantially all of the Company's interests in the Properties are held by,
and its operations are conducted through, the Operating Partnership, or by
entities controlled by the Operating Partnership. As of June 1, 1998, the
Company was the beneficial owner of approximately 89.3% of the Operating
Partnership and is its sole general partner. As used herein, the term "Units"
refers to limited partnership interests in the Operating Partnership.
The Company, a Maryland corporation, was incorporated in 1994. The Operating
Partnership is a Delaware limited partnership formed in 1994. The executive
offices of both the Operating Partnership and the Company are located at
11 Commerce Drive, Cranford, New Jersey 07016, and their telephone number is
(908) 272-8000. The Company has an internet Web address at
"http://www.mack-cali.com."
RATIOS OF EARNINGS TO FIXED CHARGES
The following tables set forth the Company's ratios of earnings to fixed
charges for the periods shown (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE FOR THE FOR THE AUGUST 31, 1994 TO
MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995 1994
--------------------- ------------------ ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
2.28x 1.08x 3.26x 2.69x 3.13x
</TABLE>
The following tables set forth the amounts by which the Company's
predecessor's earnings were inadequate to cover fixed charges:
<TABLE>
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FOR THE PERIOD
JANUARY 1, 1994 FOR THE YEAR ENDED
TO AUGUST 30, 1994 DECEMBER 31, 1993
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$(110) $(1,064)
</TABLE>
The following tables set forth the Operating Partnership's ratios of
earnings to fixed charges for the periods shown (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE FOR THE FOR THE AUGUST 31, 1994 TO
MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995 1994
--------------------- ------------------ ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
2.71x 1.89x 3.26x 2.69x 3.13x
</TABLE>
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The following tables set forth the amounts by which the Operating
Partnership's predecessor's earnings were inadequate to cover fixed charges:
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 1, 1994 FOR THE YEAR ENDED
TO AUGUST 30, 1994 DECEMBER 31, 1993
--------------------- ------------------
<S> <C>
$(110) $(1,064)
</TABLE>
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 gain on sale of
property and minority interest plus fixed charges excluding capitalized
interest, preferred unit distributions and beneficial conversion feature. Fixed
charges consist of interest costs, both expensed and capitalized, debt issuance
costs and the interest portion of ground rents on land leases. Fixed charges for
the Company also include preferred unit distributions and beneficial conversion
feature. 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 year ended December 31, 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 3.67x.
The following tables set forth the Operating Partnership's ratios of
earnings to combined fixed charges and preferred unit distribution requirement
for the periods shown (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE FOR THE FOR THE AUGUST 31, 1994 TO
MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995 1994
--------------------- ------------------ ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
2.28x 1.08x 3.26x 2.69x 3.13x
</TABLE>
The following tables set forth the amounts by which the Operating
Partnership's predecessor's earnings were inadequate to cover fixed charges:
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 1, 1994 FOR THE YEAR ENDED
TO AUGUST 30, 1994 DECEMBER 31, 1993
--------------------- ------------------
<S> <C>
$(110) $(1,064)
</TABLE>
The Operating Partnership's ratios of earnings to combined fixed charges and
preferred unit distribution requirement were computed by dividing earnings
before fixed charges and preferred unit distributions and beneficial conversion
feature by fixed charges and preferred unit distributions and beneficial
conversion feature. For this purpose, earnings consist of pre-tax income (loss)
from continuing operations before gain on sale of property and preferred unit
distributions and beneficial conversion feature 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. For the year ended December 31, 1996, the calculation of the ratio
of earnings to combined fixed charges and preferred unit distribution
requirement excludes a gain on sale of rental property of $5,658. The ratio of
earnings to combined fixed charges and preferred unit distribution requirement,
including gain on sale of rental property, for the same period was 3.67x.
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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. The specific amount and intended use of net
proceeds from the sale of any Offered Securities in a particular transaction
will be set forth in the Prospectus Supplement relating thereto. Unless
otherwise described in the applicable Prospectus Supplement, the Company and the
Operating Partnership intend to use the net proceeds from the sale of any
Offered Securities for general business purposes and for the leasing,
management, acquisition, development and construction of office, office/flex,
industrial/warehouse, 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements of Mack-Cali Realty, L.P. and subsidiaries ("Operating
Partnership") and the Combining Financial Statements of Mack-Cali Realty, L.P.
and Mack-Cali Property Partnerships and the notes thereto.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
The following comparisons for the six months ended June 30, 1998 ("1998"),
as compared to the six months ended June 30, 1997 ("1997") make reference to the
following: (i) the effect of the "Same-Store Properties," which represents all
properties owned by the Operating Partnership at December 31, 1996, (ii) the
effect of the acquisition (the "RM Transaction") of 65 properties (the "RM
Properties") from Robert Martin Company, LLC and affiliates ("RM") on
January 31, 1997, (iii) the effect of the acquisition (the "Mack Transaction")
of 54 office properties (the "Mack Properties") from The Mack Company and
Patriot American Office Group ("Mack") on December 11, 1997, and (iv) the effect
of the "Acquired Properties," which represents all properties acquired by the
Operating Partnership from January 1, 1997 through June 30, 1998, excluding the
RM Properties and the Mack Properties. With the exception of certain properties
which are wholly-owned, the Operating Partnership owns the properties primarily
through individual property partnerships ("Property Partnerships") in which the
Operating Partnership has a 99% interest.
For 1998, the results of operations of the Operating Partnership and the
Property Partnerships are included in the Operating Partnership on a
consolidated basis. Prior to January 1, 1998, such results of operations were
accounted for by the Operating Partnership under the equity method of accounting
and reflected in its consolidated financial statements as Equity in Net Income
of Unconsolidated Majority-Owned Property Partnerships. Accordingly, to present
meaningful comparisons, the following discussion compares such consolidated 1998
results to the 1997 results of the Operating Partnership and Property
Partnerships on a combined basis.
Total revenues increased $115.2 million, or 102.2 percent, for the six
months ended June 30, 1998 over the same period in 1997. Base rents increased
$105.6 million, or 113.3 percent, of which an increase of $27.9 million or 29.9
percent, was attributable to the Acquired Properties, an increase of $5.6
million, or 6.0 percent, due to the RM Properties, and an increase of $72.1
million, or 77.4 percent, due to the Mack Properties. Escalations and recoveries
increased $8.5 million, or 59.1 percent, of which an increase of $3.4 million,
or 23.9 percent, was attributable to the Acquired Properties, an increase of
$0.5 million, or 2.9 percent, due to the RM Properties, and an increase of $4.7
million, or 32.7 percent, due to the Mack Properties, offset by a decrease of
$0.1 million, or 0.4 percent, due to occupancy changes at the Same-Store
Properties. Parking and other income increased $1.3 million, or 36.5 percent, of
which $0.9 million, or 25.7 percent, was due to the Mack Properties, $0.3
million, or 9.0 percent, attributable to the Acquired Properties, and an
increase of $0.3 million or 7.2 percent, due to the Same-Store Properties,
offset by a decrease of $0.2 million, or 5.4 percent, due to the RM Properties.
Interest income decreased $0.2 million, or 11.0 percent, due primarily to the
use of funds held in 1997 to fund the RM Transaction, partially offset by
interest received from the Operating Partnership's $20.0 million mortgage note
receivable provided in 1998.
Total expenses for the six months ended June 30, 1998 increased $81.3
million, or 109.0 percent, as compared to the same period in 1997. Real estate
taxes increased $10.0 million, or 83.8 percent, for 1998 over 1997, of which an
increase of $3.0 million, or 24.7 percent, was attributable to the Acquired
Properties, an increase of $0.8 million, or 7.0 percent, due to the RM
Properties, an increase of $5.8 million, or 48.6 percent, due to the Mack
Properties, and an increase of $0.4 million, or 3.5 percent, attributable to the
Same-Store Properties. Additionally, operating services increased $14.5 million,
or 105.6 percent, and utilities increased $9.5 million, or 119.4 percent, for
1998 over 1997. The aggregate increase in
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operating services and utilities of $24.0 million, or 110.6 percent, consists of
$0.8 million, or 3.7 percent, attributable to the RM Properties, an increase of
$6.4 million, or 29.5 percent, due to the Acquired Properties, and an increase
of $17.2 million, or 79.1 percent, due to the Mack Properties, offset by a
decrease of $0.4 million, or 1.7 percent, attributable to the Same-Store
Properties. General and administrative expense increased $5.7 million, or 81.8
percent, of which $4.1 million, or 59.6 percent, is due primarily to an increase
in payroll and related costs as a result of the Operating Partnership's
expansion, $1.5 million, or 20.8 percent, due to additional costs related to the
Mack Properties, and $0.1 million, or 1.4 percent, attributable to additional
costs related to the RM Properties. Depreciation and amortization increased
$18.5 million, or 109.7 percent, for 1998 over 1997, of which $5.4 million, or
32.1 percent, related to depreciation on the Acquired Properties, an increase of
$1.4 million, or 8.3 percent, attributable to the RM Properties, an increase of
$11.3 million, or 67.2 percent, due to the Mack Properties, and an increase of
$0.4 million, or 2.1 percent, due to the Same-Store Properties. Interest expense
increased $23.1 million, or 134.8 percent, for 1998 over 1997, of which $1.1
million, or 6.5 percent, was attributable to the TIAA Mortgage, $0.5 million, or
3.1 percent, due to assumed mortgages on Acquired Properties, an increase of
$11.4 million, or 66.1 percent, due to assumed mortgages from the Mack
Properties, and an increase of $10.1 million, or 59.1 percent, due to net
additional drawings from the Operating Partnership's credit facilities as a
result of Operating Partnership acquisitions and the $200 million Prudential
Term Loan obtained in December 1997, as well as changes in LIBOR.
Net income available to common unitholders increased to $61.5 million in
1998 from $38.1 million in 1997. The increase of $23.4 million was due to the
factors discussed above, partially offset by preferred unit distributions of
$7.9 million and an extraordinary item of $2.7 million related to the early
retirement of debt.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 AND YEAR
ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The following comparisons for the year ended December 31, 1997 ("1997"), as
compared to the year ended December 31, 1996 ("1996"), and for 1996, as compared
to the year ended December 31, 1995 ("1995") are based on the Consolidated
Financial Statements of the Operating Partnership for such periods, during which
the results of operations of the Property Partnerships are accounted for under
the equity method and presented as Equity in Net Income of Unconsolidated
Majority-Owned Property Partnerships.
The following comparisons of Equity in Net Income of Unconsolidated
Majority-Owned Property Partnerships make reference to the following: (i) the
effect of the "Same-Store Properties," which represent all properties owned by
the Property Partnerships at December 31, 1995 (for the 1997 versus 1996
comparison), and which represents all properties owned by the Property
Partnerships at December 31, 1994 (for the 1996 versus 1995 comparison), (ii)
the effect of the acquisition of the RM Properties on January 31, 1997, (iii)
the effect of the acquisition of the Mack Properties on December 11, 1997, (iv)
the effect of the "Acquired Properties," which represent all properties acquired
by the Property Partnerships from January 1, 1996 through December 31, 1997,
excluding the RM Properties and the Mack Properties (for the 1997 versus 1996
comparison), and which represent all properties acquired by the Property
Partnerships from January 1, 1995 through December 31, 1996 (for the 1996 versus
1995 comparison), and (v) the effect of the "Disposition," which refers to the
Property Partnerships' sale of the Essex Road property on March 20, 1996.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Total revenues increased $10.0 million, or 75.5 percent, for 1997 over 1996.
This increase is due primarily to four wholly-owned properties acquired in 1997
("OP-Acquired Properties").
10
<PAGE>
Total expenses for 1997 increased $62.8 million, or 591.7 percent, as
compared to 1996. Operating services, utilities, and real estate taxes increased
$1.6 million, or 645.0 percent, in the aggregate, primarily attributable to the
OP-Acquired Properties. General and administrative expense increased $9.5
million, or 167.2 percent, due primarily to an increase in payroll and related
costs. Depreciation and amortization expense increased $0.2 million, or 436.5
percent, due to the OP-Acquired Properties. Interest expense increased $5.0
million, or 107.0 percent, due primarily to net additional drawings from the
credit facilities as a result of acquisitions of the OP-Acquired Properties and
the investments in Property Partnerships' acquisitions. Additionally,
non-recurring merger-related charges of $46.5 million were incurred in 1997, as
a result of the Mack Transaction.
Income before Equity in Net Income of Unconsolidated Majority-Owned Property
Partnerships, gain on sale of rental property and extraordinary item decreased
from income of $2.6 million in 1996 to a loss of $50.2 million in 1997. This
decrease of $52.8 million was due to the factors discussed above.
Equity in Net Income of Unconsolidated Majority-Owned Property Partnerships,
which is more fully discussed below, increased $55.2 million for 1997 over 1996,
due primarily to property acquisitions by the Property Partnerships. Net Income
available to common unitholders decreased $34.5 million for 1997, from $36.6
million in 1996 to $2.1 million in 1997, as a result of the factors discussed
above, recognition in 1997 of an extraordinary loss of $7.2 million, income
allocable to preferred unitholders of $30.3 million in 1997 (which is comprised
of distributions of $0.9 million and the effect of the beneficial conversion
feature of $29.4 million), partially offset by the recognition in 1996 of an
extraordinary loss of $0.6 million. A more detailed discussion of Equity in Net
Income of Unconsolidated Majority-Owned Property Partnerships for 1997 compared
to 1996 follows.
Total revenues of Unconsolidated Majority-Owned Property Partnerships
increased $148.1 million, or 158.4 percent, for 1997 over 1996. Base rents
increased $128.8 million, or 166.9 percent, of which an increase of $60.9
million, or 78.9 percent, was attributable to the Acquired Properties, an
increase of $58.4 million, or 75.6 percent, due to the RM Properties, an
increase of $8.0 million, or 10.3 percent, due to the Mack Properties and an
increase of $1.8 million, or 2.4 percent, due to occupancy and rental rate
changes at the Same-Store Properties, offset by a decrease of $0.3 million, or
0.3 percent, due to the Disposition. Escalations and recoveries increased $16.6
million, or 115.1 percent, of which an increase of $11.1 million, or 76.9
percent, was attributable to the Acquired Properties, an increase of $4.9
million, or 34.1 percent, due to the RM Properties, an increase of $0.5 million,
or 3.7 percent, due to the Mack Properties, and an increase of $0.1 million, or
0.4 percent, due to occupancy changes at the Same-Store Properties. Parking and
other income increased $2.7 million, or 141.9 percent, of which $4.0 million, or
209.5 percent, was attributable to the RM Properties, offset by a decrease of
$0.1 million, or 7.3 percent, due to the Same-Store Properties, and a decrease
of $1.2 million, or 60.3 percent, due to Acquired Properties.
Total expenses of Unconsolidated Majority-Owned Property Partnerships for
1997 increased $87.2 million, or 135.1 percent, as compared to 1996. Real estate
taxes increased $16.5 million, or 175.9 percent, for 1997 over 1996, of which an
increase of $6.5 million, or 68.8 percent, was attributable to the Acquired
Properties, an increase of $9.0 million, or 95.9 percent, due to the RM
Properties, an increase of $0.6 million, or 6.6 percent, due to the Mack
Properties, and an increase of $0.5 million, or 5.1 percent, attributable to the
Same-Store Properties, offset by a decrease of $0.1 million, or 0.5 percent, due
to the Disposition. Additionally, operating services increased $17.2 million, or
145.3 percent, and utilities increased $10.1 million, or 123.7 percent, for 1997
over 1996. The aggregate increase in operating services and utilities of $27.3
million, or 136.5 percent, consists of $14.0 million, or 69.8 percent,
attributable to the Acquired Properties, an increase of $12.9 million, or 64.6
percent, due to the RM Properties, and an increase of $1.7 million, or 8.3
percent, due to the Mack Properties, offset by a decrease of $1.1 million, or
5.4 percent, attributable to the Same-Store Properties and a decrease of $0.2
million, or 0.8 percent, due to the Disposition. General and administrative
expense increased $0.6 million, or 170.1 percent, due primarily to the increased
portfolio. Depreciation and amortization increased $21.9 million, or 149.0
percent, for 1997 over 1996, of which $10.1 million, or 69.2 percent, related to
depreciation on the Acquired Properties,
11
<PAGE>
an increase of $10.0 million, or 67.8 percent, attributable to the RM
Properties, an increase of $1.0 million, or 6.6 percent, due to the Mack
Properties, and an increase of $0.9 million, or 5.9 percent, due to the
Same-Store Properties, offset by a decrease of $0.1 million, or 0.5 percent, due
to the Disposition. Interest expense increased $17.2 million, or 99.8 percent,
for 1997 over 1996, of which $12.2 million, or 70.9 percent, was attributable to
the TIAA Mortgage, $9.1 million, or 66.5 percent, due to the Harborside
Mortgages, and an increase of $1.4 million, or 9.9 percent, due to assumed
mortgages from the Mack Properties, offset by a decrease of $5.5 million, or
47.5 percent, due to the August 1997 prepayment of the Mortgage Financing.
Income before gain on sale of rental property and extraordinary item
increased to $89.8 million in 1997 from $28.9 million in 1996. The increase of
$60.9 million was due to the factors discussed above.
Net income increased $48.8 million for 1997, from $34.3 million in 1996 to
$83.1 million in 1997, primarily as a result of an increase in income before
gain on sale of rental property and extraordinary item of $60.9 million, and the
recognition in 1996 of an extraordinary loss of $0.3 million, partially offset
by a gain on the sale of the Disposition property of $5.7 million in 1996 and
the recognition in 1997 of an extraordinary loss of $6.7 million.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total revenues increased $2.1 million, or 19.2 percent, for 1996 over 1995.
The increase is primarily attributable to increased interest income.
Total expenses for 1996 increased $5.9 million, or 127.1 percent, as
compared to 1995. In the aggregate, operating services and utilities increased
$0.2 million, or 243.8 percent. General and administrative expense increased
$2.3 million, or 68.6 percent, primarily attributable to an increase in payroll
and related costs as a result of expansion. Interest expense increased $3.5
million, or 297.6 percent, primarily due to an increase in the average
outstanding borrowings on the Operating Partnership's credit facilities during
1996 over 1995 in connection with an increase in Property Partnerships'
acquisitions.
Income before Equity in Net Income of Unconsolidated Majority-Owned Property
Partnerships, gain on sale of rental property and extraordinary item decreased
to $2.6 million in 1996 from $6.4 million in 1995. The decrease of $3.8 million
was due to the factors discussed above.
Equity in Net Income of Unconsolidated Majority-Owned Property Partnerships,
which is more fully discussed below, increased $23.9 million for 1996 over 1995,
due primarily to investments in Property Partnerships' acquisitions. Net income
available to common unitholders increased $19.5 million for 1996, from $17.1
million in 1995 to $36.6 million in 1996, as a result of the factors discussed
and an increase in Equity in Net Income of Unconsolidated Majority-Owned
Property Partnerships of $23.9 million primarily due to increased properties
acquired.
A more detailed discussion of the Equity in Net Income of Unconsolidated
Majority-Owned Property Partnerships for 1996 compared to 1995 follows.
Total revenues of Unconsolidated Majority-Owned Property Partnerships
increased $31.5 million, or 50.8 percent, for 1996 over 1995. Base rents
increased $26.2 million, or 51.3 percent, of which an increase of $26.5 million,
or 51.9 percent, was attributable to the Acquired Properties, and an increase of
$0.9 million, or 1.8 percent, as a result of occupancy changes at the Same-Store
Properties, offset by a decrease of $1.2 million, or 2.4 percent, as a result of
the Disposition. Escalations and recoveries increased $4.9 million, or 51.6
percent, of which an increase of $4.6 million, or 48.8 percent, was attributable
to the Acquired Properties, and $0.4 million, or 4.0 percent, as a result of
occupancy changes at the Same-Store Properties, offset by a decrease of $0.1
million, or 1.2 percent, due to the Disposition. Parking and other income
increased $0.4 million, or 29.5 percent, of which $0.3 million, or 20.6 percent,
was attributable to the Same-Store Properties, and $0.2 million, or 13.8
percent, due to the Acquired Properties, offset by a decrease of $0.1 million,
or 4.9 percent, due to the Disposition.
12
<PAGE>
Total expenses of Unconsolidated Majority-Owned Property Partnerships for
1996 increased $13.3 million, or 26.0 percent, as compared to 1995. Real estate
taxes increased $3.5 million, or 60.4 percent, for 1996 over 1995, of which $3.6
million, or 60.9 percent, was a result of the Acquired Properties, and $0.1
million, or 2.6 percent, related to the Same-Store Properties, offset by a
decrease of $0.2 million, or 3.1 percent, due to the Disposition. Additionally,
operating services increased $3.5 million, or 40.6 percent, and utilities
increased $1.8 million, or 28.6 percent. The aggregate increase in operating
services and utilities of $5.3 million, or 35.5 percent, consists of $5.8
million, or 39.1 percent, attributable to the Acquired Properties, offset by a
decrease of $0.4 million, or 3.2 percent, as a result of the Disposition, and
$0.1 million, or 0.4 percent, due to the Same-Store Properties. General and
administrative expense decreased $0.2 million, or 31.8 percent, primarily
attributable to the Disposition. Depreciation and amortization increased $4.1
million, or 38.8 percent, for 1996 over 1995, of which $4.5 million, or 42.3
percent, related to depreciation on the Acquired Properties, offset by decreases
of $0.1 million, or 1.1 percent, for the Same-Store Properties, and $0.3
million, or 2.4 percent, as a result of the Disposition. Interest expense
increased $0.1 million, or 0.7 percent, primarily due to the assumed Harborside
Mortgages by the Property Partnerships.
LIQUIDITY AND CAPITAL RESOURCES
STATEMENT OF CASH FLOWS. During the six months ended June 30, 1998, the
Operating Partnership generated $102.6 million in cash flows from operating
activities, and together with $1.3 billion in borrowings from the Operating
Partnership's credit facilities and additional mortgage financings, $284.5
million in net proceeds from common stock offerings during the period, $20.0
million received from a repayment of a mortgage note receivable, and $5.3
million in proceeds from stock options exercised, $1.4 million from the
Operating Partnership's cash reserves, used an aggregate of $1.7 billion to
acquire 51 properties and pay for other tenant improvements and building
improvements totaling $625.4 million, repay outstanding borrowings on its credit
facilities and other mortgage debt of $949.8 million, pay quarterly
distributions of $63.2 million, invest $38.1 million in partially-owned
entities, provide $20.0 million for a mortgage note receivable, pay financing
costs of $7.5 million and repurchase 20,000 common units for $3.2 million.
During the year ended December 31, 1997, the Operating Partnership generated
$66.7 million in cash flows from operating activities, and together with $489.1
million in net proceeds from a 13 million share stock offering in October 1997,
$469.2 million in borrowings from the Operating Partnership's credit facilities,
$202.5 million from the Operating Partnership's cash reserves, $200.0 million in
proceeds from a short-term mortgage loan, $136.1 million from distributions in
excess of Equity in Net Income of Unconsolidated Majority-Owned Property
Partnerships, $77.8 million from repayment of loans receivable from the Property
Partnerships and $7.2 million of proceeds from stock options exercised, used an
aggregate of $1.6 billion to provide $1.1 billion in contributions to the
Property Partnerships, purchase four properties and pay for other tenant
improvements and building improvements totaling $46.1 million, repay outstanding
borrowings on its credit facilities and other mortgage debt of $376.9 million,
pay quarterly distributions of $74.5 million, provide $11.6 million for a
mortgage note receivable, repurchase 152,000 treasury units for $4.7 million,
and pay financing costs of $3.1 million.
CAPITALIZATION. On February 25, 1998, Mack-Cali Realty Corporation
("Corporation") completed an underwritten public offer and sale of 2,500,000
shares of its common stock and used the net proceeds, which totaled
approximately $92.2 million (after offering costs) to pay down a portion of its
outstanding borrowings under the Operating Partnership's credit facilities and
fund the acquisition of Moutainview.
On March 18, 1998, in connection with the acquisition of Prudential Business
Campus, the Corporation completed an offer and sale of 2,705,628 shares of its
common stock using the net proceeds of approximately $99.9 million (after
offering costs) in the funding of such acquisition.
13
<PAGE>
On March 26, 1998, in connection with the Pacifica I Acquisition, the
Operating Partnership issued 100,175 common units, valued at approximately $3.8
million.
On March 27, 1998, the Corporation completed an underwritten public offer
and sale of 650,407 shares of its common stock and used the net proceeds, which
totaled approximately $23.7 million (after offering costs) to pay down a portion
of its outstanding borrowings under the Operating Partnership's credit
facilities.
On April 29, 1998, the Corporation completed an underwritten offer and sale
of 994,228 shares of its common stock and used the net proceeds, which totaled
approximately $34.6 million (after offering costs) primarily to pay down a
portion of its outstanding borrowings under the Operating Partnership's credit
facilities.
On April 30, 1998, in connection with the acquisition of a 49.9 percent
interest in a joint venture (Convention Plaza), the Operating Partnership issued
218,105 common units, valued at approximately $8.3 million.
On May 29, 1998, the Corporation completed an underwritten public offer and
sale of 984,615 shares of its common stock and used the net proceeds, which
totaled approximately $34.1 million (after offering costs) primarily to pay down
a portion of its outstanding borrowings under the Operating Partnership's credit
facilities.
On June 8, 1998, in connection with the Pacifica II Acquisition, the
Operating Partnership issued 585,263 common units, valued at approximately $20.8
million.
During the six months ended June 30, 1998, the Operating Partnership also
issued 779,241 common units and 17,493 preferred units, valued at approximately
$48.1 million, in connection with the achievement of certain performance goals
at the Mack Properties, with an equivalent number of contingent common units
being redeemed.
The proceeds of the above offerings of common stock were contributed by the
Corporation to the Operating Partnership in exchange for units.
On August 6, 1998, the Board of Directors of the Corporation authorized a
share repurchase program ("Repurchase Program") under which the Corporation was
permitted to purchase up to $100.0 million of the Corporation's common stock.
Purchases could be made from time to time in open market transactions at
prevailing prices or through privately negotiated transactions. Subsequently,
through August 12, 1998, the Corporation purchased, for constructive retirement,
215,200 shares of its outstanding common stock for an aggregate cost of
approximately $6.6 million. Concurrent with this purchase, the Corporation sold
to the Operating Partnership 215,200 common units for approximately $6.6
million.
On April 17, 1998, the Operating Partnership repaid in full and terminated
its $400 million unsecured revolving credit facility, led by Fleet National
Bank, and obtained a new unsecured revolving credit facility (the "1998
Unsecured Facility") in the amount of $870.0 million from a group of 25 lender
banks, led by The Chase Manhattan Bank and Fleet National Bank. In July 1998,
the 1998 Unsecured Facility was expanded to $900.0 million with the addition of
two new lender banks into the facility, bringing the total number of
participants to 27 banking institutions. The 1998 Unsecured Facility has a
three-year term and currently bears interest at 110 basis points over one-month
LIBOR, a reduction of 15 basis points from the retired Original Unsecured
Facility. Based upon the Operating Partnership's achievement of an investment
grade unsecured debt rating, the interest rate will be reduced, on a sliding
scale, and a competitive bid option will become available.
The terms of the 1998 Unsecured Facility include certain restrictions and
covenants which limit, among other things, the payment of dividends (as
discussed below), the incurrence of additional indebtedness, the incurrence of
liens and the disposition of assets, and which require compliance with financial
ratios relating to the maximum leverage ratio, the maximum amount of secured
indebtedness, the
14
<PAGE>
minimum amount of tangible net worth, the minimum amount of debt service
coverage, the minimum amount of fixed charge coverage, the maximum amount of
unsecured indebtedness, the minimum amount of unencumbered property debt service
coverage and certain investment limitations. The dividend restriction referred
to above provides that, except to enable the Corporation to continue to qualify
as a REIT under the Code, the Corporation will not during any four consecutive
fiscal quarters make distributions with respect to common stock or other equity
interests in an aggregate amount in excess of 90 percent of funds from
operations for such period, subject to certain other adjustments. The 1998
Unsecured Facility also requires a 17.5 basis point fee on the unused balance
payable quarterly in arrears.
The lending group for the 1998 Unsecured Facility consists of: The Chase
Manhattan Bank, as administrative agent; Fleet National Bank, as syndication
agent; PNC Bank, N.A., as documentation agent; Bankers Trust, Commerzbank, AG,
The First National Bank of Chicago, First Union National Bank and NationsBank,
as managing agents; Creditanstalt Corporate Finance, Inc., Dresdner Bank, AG,
European American Bank, Hypo Bank, Societe Generale and Summit Bank, as
co-agents; and Kredietbank, N.V., Key Bank, Mellon Bank, N.A., The Bank of New
York, Citizens Bank, Crestar, DG Bank, Tokai Bank, US Trust, Bayerische
Landesbank, Erste Bank, Bank Leumi USA, and Bank One, Arizona, NA.
The new unsecured facility, together with the Operating Partnership's
previously-existing $100.0 million revolving credit facility with Prudential
Securities Credit Corp., provides the Operating Partnership with a total credit
line borrowing capacity of $1.0 billion.
On April 30, 1998, the Operating Partnership obtained a $150.0 million,
interest-only, non-recourse mortgage loan from The Prudential Insurance Company
of America ("$150.0 Million Prudential Mortgage Loan"). The loan, which is
secured by 12 of the Operating Partnership's properties, has an effective annual
interest rate of 7.10 percent and a seven year term. The Operating Partnership,
at its option, may convert the mortgage loan to unsecured debt upon achievement
by the Operating Partnership of a credit rating of Baa3/BBB- or better. The
mortgage loan is prepayable in whole or in part subject to certain provisions,
including yield maintenance. The proceeds of the new loan were used, along with
funds drawn from one of the Operating Partnership's credit facilities, to retire
a $200.0 million term loan with Prudential Securities Credit Corp., as well as
approximately $48.2 million of the Mack Mortgages.
As of June 30, 1998, the Operating Partnership owned 164 unencumbered
properties, totaling 16.4 million square feet, representing 60.6 percent of the
Operating Partnership's total portfolio on a square footage basis.
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures. Management believes that the Operating
Partnership will have access to the capital resources necessary to expand and
develop its business. To the extent that the Operating Partnership's cash flow
from operating activities is insufficient to finance its non-recurring capital
expenditures such as property acquisition costs and other capital expenditures,
the Operating Partnership expects to finance such activities through borrowings
under its credit facilities and other debt and equity financing.
The Operating Partnership expects to meet its short-term liquidity
requirements generally through its working capital and net cash provided by
operating activities, along with the Prudential facility and the 1998 Unsecured
Facility. The Operating Partnership is frequently examining potential property
acquisitions and, at any one given time, one or more of such acquisitions may be
under consideration. Accordingly, the ability to fund property acquisitions is a
major part of the Operating Partnership's financing requirements. The Operating
Partnership expects to meet its financing requirements through funds generated
from operating activities, long-term or short term borrowings (including draws
on the Operating Partnership's credit facilities) and the issuance of debt
securities or additional equity securities by the Operating Partnership or the
Company. In addition, the Operating Partnership anticipates utilizing the
Prudential facility and the 1998 Unsecured Facility primarily to fund property
acquisition activities.
15
<PAGE>
The Operating Partnership does not intend to reserve funds to retire the
existing TIAA Mortgage, Harborside Mortgages, $150 Million Prudential Mortgage
Loan, its various other property mortgages, and borrowings under the revolving
credit facilities or other long-term mortgages and loans payable upon maturity.
Instead, the Operating Partnership will seek to refinance such debt at maturity
or retire such debt through the issuance of additional equity or debt securities
by the Operating Partnership or the Corporation. The Operating Partnership
anticipates that its available cash and cash equivalents and cash flows from
operating activities, together with cash available from borrowings and other
sources, will be adequate to meet the Operating Partnership's capital and
liquidity needs both in the short and long-term. However, if these sources of
funds are insufficient or unavailable, the Operating Partnership's ability to
make the expected distribution discussed below may be adversely affected.
In order for the Corporation to maintain its qualification as a REIT, the
Corporation must make annual distributions to its stockholders of at least 95
percent of its REIT taxable income, determined without regard to the dividends
paid deduction and by excluding net capital gains. The Corporation currently
relies on the distributions it receives from the Operating Partnership to make
its distributions to its stockholders. The Operating Partnership intends to
continue to make regular quarterly distributions to its unitholders which, based
upon current policy, in the aggregate would equal approximately $115.9 million
on an annualized basis. However, any such distribution would only be paid out of
available cash after meeting both operating requirements, scheduled debt service
on mortgages and loans payable and preferred unit distributions.
FUNDS FROM OPERATIONS
The Operating Partnership considers funds from operations ("FFO"), after
adjustment for straight-lining of rents, one measure of REIT performance. Funds
from operations is defined as net income (loss) before distribution to preferred
unitholders, computed in accordance with generally accepted accounting
principles ("GAAP"), excluding gains (or losses) from debt restructuring, other
extraordinary and significant non-recurring items, and sales of property, plus
real estate-related depreciation and amortization. Funds from operations should
not be considered as an alternative to net income as an indication of the
Operating Partnership's performance or to cash flows as a measure of liquidity.
Funds from operations presented herein is not necessarily comparable to
funds from operations presented by other real estate companies due to the fact
that not all real estate companies use the same definition. However, the
Operating Partnership's funds from operations is comparable to the funds from
operations of real estate companies that use the current definition of the
National Association of Real Estate Investment Trusts ("NAREIT"), after the
adjustment for straight-lining of rents.
NAREIT's definition of FFO indicates that the calculation should be made
before any extraordinary item (determined in accordance with GAAP), and before
any deduction of significant non-recurring events that materially distort the
comparative measurement of the Operating Partnership's performance.
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<PAGE>
Funds from operations of Mack-Cali Realty, L.P. for the six months ended
June 30, 1998 and 1997 and the years ended December 31, 1997, 1996 and 1995, as
calculated in accordance with the NAREIT'S definition published in March 1995,
are summarized in the following table (IN THOUSANDS):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
Income before non-recurring merger-
related charges, gain on sale of
rental property, distribution to
preferred unitholders, and
extraordinary item.................. $ 72,020 $ 38,132 $ 82,886 $ 31,521 $ 17,146
Add: Real estate-related depreciation
and amortization (1)................ 35,330 16,265 36,599 14,677 10,563
Deduct: Rental income adjustment for
straight-lining of rents (1)........ (6,345) (3,944) (7,733) (978) (312)
--------- --------- --------- --------- ---------
Funds from operations after adjustment
for straight-lining of rents, before
distribution to preferred
unitholders......................... $ 101,005 $ 50,453 $ 111,752 $ 45,220 $ 27,397
Deduct: Distribution to preferred
unitholders......................... (7,896) -- (888) -- --
--------- --------- --------- --------- ---------
Funds from operations after adjustment
for straight-lining of rents........ $ 93,109 $ 50,453 $ 110,864 $ 45,220 $ 27,397
========= ========= ========= ========= =========
Cash flows provided by operating
activities.......................... $ 102,612 $ 42,628 $ 66,661 $ 39,382 $ 21,056
--------- --------- --------- --------- ---------
Cash flows used in investing
activities.......................... $(662,199) $(304,080) $(975,574) $(305,891) $(126,216)
--------- --------- --------- --------- ---------
Cash flows provided by financing
activities.......................... $ 573,478 $ 62,675 $ 706,368 $ 470,893 $ 99,863
--------- --------- --------- --------- ---------
Fully-converted weighted average units
outstanding (2)..................... 67,809 40,334 43,739 21,171 13,986
--------- --------- --------- --------- ---------
Weighted average units outstanding.... 61,055 40,334 43,356 21,171 13,986
--------- --------- --------- --------- ---------
</TABLE>
------------------------
(1) Includes FFO adjustments related to the Operating Partnership's investments
in partially-owned entities in 1998, and Investments in Unconsolidated
Majority-Owned Property Partnerships in 1997, 1996 and 1995.
(2) Assumes conversion of all outstanding preferred units, calculated on a
weighted average basis, for common units in the Operating Partnership.
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<PAGE>
INFLATION
The Operating Partnership's leases with the majority of its tenants provide
for recoveries and escalation charges based upon the tenant's proportionate
share of, and/or increases in, real estate taxes and certain operating costs,
which reduce the Operating Partnership's exposure to increases in operating
costs resulting from inflation.
YEAR 2000
Many computer systems experience problems handling dates beyond the year
1999. Therefore, some computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. The Operating Partnership
is assessing both the internal readiness of its systems as well as the
compliance of its vendors for the handling of the year 2000. The Operating
Partnership expects to implement successfully the systems and programming
changes necessary to address year 2000 issues, and does not believe that the
cost of such actions will have a material effect on the Operating Partnership's
results of operations or financial condition. There can be no assurance,
however, that there will not be a delay in, or increased costs associated with,
the implementation of such changes, and the Operating Partnership's inability to
implement such changes could have an adverse effect on future results of
operations.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The policies of the Corporation and the Operating Partnership with respect
to the following activities have been determined by the Board of Directors of
the Corporation and may be amended or revised from time to time at the
discretion of the Board of Directors, if it determines in the future that such a
change is the best interests of the Corporation and its stockholders. All
references to "the Company" in this section of the Prospectus are deemed to
include both the Corporation and the Operating Partnership.
INVESTMENT POLICIES
INVESTMENT IN REAL ESTATE OR INTERESTS IN REAL ESTATE. The investment
objectives of the Company are to achieve stable cash flow available for
distributions and, over time, to increase cash flow and portfolio value by
actively managing the Properties, developing properties and acquiring additional
properties that, either as acquired or after value-added activities by the
Company (such as improved management and leasing services and renovations), will
produce additional cash flows. The policies of the Company are to develop and
acquire properties primarily for generation of current income and appreciation
of long term value.
The Company expects to pursue its investment objectives primarily through
the direct or indirect ownership of office and office/flex properties, either
through direct complete ownership of the properties or through joint ventures.
The Company currently contemplates acquiring and developing additional
properties in the Northeastern and Southwestern United States, although future
investments could be made outside of these areas. The Company does not have any
limit on the amount or percentage of its assets invested in any single property
or group of related properties.
The Company may purchase or lease income-producing properties or land for
long-term investment and expand, improve or sell the properties, in whole or in
part, when circumstances warrant. The Company may also participate with other
entities in property ownership through joint ventures or other types of co-
ownership. Equity investments by the Company may be subject to existing or
future mortgage financing and other indebtedness which may have priority over
the equity interests of the Company.
INVESTMENTS IN REAL ESTATE MORTGAGES. While the Company emphasizes equity
real estate investments, the Company may invest in mortgages and other real
estate interests consistent with the Company's
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qualification as a REIT. The Company does not currently intend to invest in
mortgages or deeds of trust, but may invest in participating or convertible
mortgages in connection with other property acquisitions if the Company
concludes that it may benefit from the cash flow or any appreciation in the
value of the property. Investments in real estate mortgages run the risk that
one or more borrowers may default under such mortgages and that the collateral
securing such mortgages may not be sufficient to enable the Company to recoup
its full investment.
SECURITIES OR INTERESTS IN PERSONS PRIMARILY ENGAGED IN REAL ESTATE
ACTIVITIES AND OTHER ISSUES. Subject to the percentage of ownership limitations
and gross income tests necessary for the Company to qualify and maintain its
status as a REIT, the Company may invest in securities of other entities engaged
in real estate activities or securities of other issuers. See "Material United
States Federal Income Tax Considerations to the Company of its REIT Election."
The Company does not currently intend to invest in the securities of other
issuers except in connection with acquisitions of indirect interests in
properties (normally general or limited partnership interests in special purpose
partnerships owning properties) and in connection with the acquisition of
substantially all of the economic interest in a real estate-related operating
business.
DISPOSITIONS
The Company does not have a current intention to cause the disposition of
any of the Properties, although it reserves the right to do so if, after taking
into account the tax consequences of any disposition, including the Company's
continued ability to qualify as a REIT, it is determined that such action would
be in its best interests.
FINANCING POLICIES
The Company and the Operating Partnership will utilize the most appropriate
sources of capital for future acquisitions, development and capital
improvements, which may include funds from operating activities, short-term and
long-term borrowings (including draws on the Company's revolving credit
facilities), sales of investments and issuances of debt securities or additional
equity securities. The Company currently intends to maintain a ratio of debt to
total market capitalization (total debt of the Company as a percentage of the
market value of issued and outstanding shares of Common Stock, including
interests redeemable therefor, plus total debt) of approximately 50 percent or
less, although the organizational documents of the Company do not limit the
amount of indebtedness that the Company may incur.
In the future, the Company may seek to extend, expand, reduce or renew its
existing credit facilities or obtain new credit facilities or lines of credit or
may seek to issue unsecured public indebtedness. Future loans, credit
facilities, and lines of credit may be used for the purpose of making
acquisitions or capital improvements, providing working capital or meeting the
distribution requirements for REITs under the Code if the Company has taxable
income without receipt of cash sufficient to enable the Company to meet such
distributions requirements.
EQUITY CAPITAL
The Board of Directors of the Company has the authority, without shareholder
approval, to issue authorized additional shares of Common Stock or Preferred
Stock or otherwise raise capital, including through the issuance of senior
securities, in any manner and on such terms and for such consideration as it
deems appropriate, including in exchange for property. Existing shareholders
will have no preemptive rights to shares of Common Stock or other shares of
capital stock issued in any offering, and any such offering may cause a dilution
of a shareholder's investment in the Company. Although it has no current
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plans to do so, the Company may in the future issue securities in connection
with acquisitions or for other business purposes.
WORKING CAPITAL RESERVES
The Operating Partnership maintains working capital reserves (and when not
sufficient, access to borrowings) in amounts that the Board of Directors of the
Company determines from time to time to be adequate to meet normal contingencies
in connection with the operation of the business and investments of the
Operating Partnership.
ANNUAL REPORTS
The Company will issue annual reports and other reports to stockholders, as
required by United States securities laws, and will include annual financial
statements certified by independent public accountants.
CONFLICT OF INTEREST POLICIES
Directors and officers of the Company may be subject to certain conflicts of
interests in fulfilling their responsibilities to the Company. The Company has
adopted certain policies designed to minimize potential conflicts of interest.
Under the Company's Articles of Incorporation and Maryland law, a contract or
transaction between the Company and any of its directors or officers or between
the Company and any other corporation, firm or other entity in which any of its
directors or officers is a director, officer, stockholder, member or partner or
has a material financial interest is not void or voidable solely because of such
interest if the contract or transaction is approved after disclosure of the
interest by the affirmative vote of a majority of the disinterested directors.
OTHER POLICIES
The Company intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940. The Company has not in the
past and does not presently intend (i) to invest in the securities of other
issuers for the purpose of exercising control over such issuer (except to the
extent described above in "--Investment Policies"), (ii) to underwrite
securities of other issuers or (iii) to trade actively in loans or other
investments. The Company has authority to offer shares of Common Stock or other
securities and to repurchase or otherwise reacquire shares of Common Stock or
any other securities in the open market or otherwise and may engage in such
activities in the future. The Company expects to issue shares of Common Stock to
holders of Units in the Operating Partnership upon exercise of their redemption
rights. The Company may, under certain circumstances, purchase shares of Common
Stock in the open market, if such purchases are approved by the Board of
Directors. The Board of Directors has no present intention of causing the
Company to repurchase any of the shares of Common Stock, and any such action
would be taken only in conformity with applicable federal and state laws and the
requirements for qualifying as a REIT under the Code and the regulations of the
U.S. Department of Treasury under the Code. The Company has not engaged and does
not intend to engage in trading, underwriting or agency distribution or sale of
securities of other issuers.
At all times, the Company intends to make investments in such a manner as to
be consistent with the requirements of the Code for the Company to qualify as a
REIT, unless, because of changing circumstances or changes in the Code (or in
the Treasury Regulations), the Board of Directors of the Company determines that
it is no longer in the best interests of the Company to qualify as a REIT and
such determination is approved by the affirmative vote of holders owning at
least a majority of the shares of the Company's capital stock outstanding and
entitled to vote thereon.
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DESCRIPTION OF DEBT SECURITIES
The following sets forth certain general terms and provisions of the
Indenture under which the Debt Securities are to be issued by the Operating
Partnership. The following terms of the Debt Securities constitute all material
terms of the Debt Securities that may be determined prior to the initiation of a
specific offering of Debt Securities. The particular terms of the Debt
Securities with respect to a specific offering of Debt Securities will be set
forth in a Prospectus Supplement relating thereto.
The Debt Securities are to be issued by the Operating Partnership under an
Indenture, as amended or supplemented from time to time (the "Indenture"),
between the Operating Partnership and a Trustee chosen by the Operating
Partnership and qualified to act as such under the Trust Indenture Act of 1939
as amended (the "TIA") (together with any other trustee(s) appointed in a
supplemental indenture with respect to a particular series, the "Trustee"). The
Indenture has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part and will be available for inspection at the corporate
trust office of the Trustee, or as described above under "Available
Information." The Indenture is subject to, and governed by, the TIA. The
Operating Partnership will execute the Indenture if and when the Operating
Partnership issues the Debt Securities. The statements made hereunder relating
to the Indenture and the Debt Securities to be issued hereunder are summaries of
certain provisions thereof and do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all provisions of the
Indenture and such Debt Securities. The following terms of the Debt Securities
constitute all material terms of the Debt Securities that may be determined
prior to the initiation of a specific offering of Debt Securities. More specific
terms will be set forth in a Prospectus Supplement filed in connection with the
issuance of Debt Securities. All section references appearing herein are to
sections of the Indenture, and capitalized terms used but not defined herein
shall have the respective meanings set forth in the Indenture.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership. Except for any series of Debt Securities which is specifically
subordinated to other indebtedness of the Operating Partnership, the Debt
Securities will rank equally with all other unsecured and unsubordinated
indebtedness of the Operating Partnership. Under the Indenture, the Debt
Securities may be issued without limit as to aggregate principal amount, in one
or more series, in each case as established from time to time in or pursuant to
authority granted by a resolution of the Board of Directors of the Company as
sole general partner of the Operating Partnership or as established in one or
more indentures supplemental to the Indenture. All Debt Securities of one series
need not be issued at the same time and, unless otherwise provided, a series may
be reopened, without the consent of the Holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series
(Section 301).
If any Debt Securities are rated below investment grade at the time of
issuance, such Debt Securities will be fully and unconditionally guaranteed by
the Company as to payment of principal, premium, if any, and interest.
The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with respect to
such series (Section 608). In the event that two or more persons are acting as
Trustee with respect to different series of Debt Securities, each such Trustee
shall be a trustee of a trust under the Indenture separate and apart from the
trust administered by any other Trustee (Section 609), and, except as otherwise
indicated herein, any action described herein to be taken by the Trustee may be
taken by each such Trustee with respect to, and only with respect to, the one or
more series of Debt Securities for which it is Trustee under the Indenture.
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TERMS
Reference is made is to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities;
(2) the aggregate principal amount of such Debt Securities and any limit on
such aggregate principal amount;
(3) the percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof the
portion of the principal amount thereof, payable upon declaration of
acceleration of the maturity thereof;
(4) the date or dates, or the method for determining such date or dates, on
which the principal of such Debt Securities will be payable;
(5) the rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(6) the date or dates, or the method for determining such date or dates,
from which any such interest will accrue, the Interest Payment Dates on
which any such interest will be payable, the Regular Record Dates for
such Interest Payment Dates, or the method by which such Dates shall be
determined, the Person to whom such interest shall be payable, and the
basis upon which interest shall be calculated if other than that of a
360-day year of twelve 30-day months;
(7) the place or places where (i) the principal of (and premium, if any) and
interest, if any, on such Debt Securities will be payable and
(ii) notices or demands to or upon the Operating Partnership in respect
of such Debt Securities and the Indenture may be served;
(8) the period or periods within which, or the date or dates on which, the
price or prices at which and the terms and conditions upon which such
Debt Securities may be redeemed, as a whole or in part, at the option of
the Operating Partnership, if the Operating Partnership is to have such
an option;
(9) the obligation, if any, of the Operating Partnership to redeem, repay or
repurchase such Debt Securities pursuant to any sinking fund or
analogous provisions or at the option of a Holder thereof, and the
period or periods within which, or the date or dates on which, the price
or prices at which and the terms and conditions upon which such Debt
Securities are required to be redeemed, repaid or purchased, in whole or
in part, pursuant to such obligation;
(10) if other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and/or payable, which may be a foreign
currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating thereto;
(11) whether the amount of payments of principal of (and premium, if any) or
interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency
unit or units or composite currency or currencies) and the manner in
which such amounts shall be determined;
(12) any additions to, modifications of or deletions from the terms of such
Debt Securities with respect to the Events of Default or covenants or
other provisions set forth in the Indenture;
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(13) whether such Debt Securities will be issued in certificated and/or
book-entry form;
(14) whether such Debt Securities will be in registered or bearer form and,
if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the
denominations thereof and terms and conditions relating thereto;
(15) with respect to any series of Debt Securities rated below investment
grade at the time of issuance, the Guarantees (the "Guaranteed
Securities");
(16) the applicability, if any, of the defeasance and covenant defeasance
provisions of Article XIV of the Indenture, or any modification thereof;
(17) if such Debt Securities are to be issued upon the exercise of debt
warrants, the time, manner and place for such Debt Securities to be
authenticated and delivered;
(18) the terms and conditions, if any, upon which such Debt Securities may be
subordinated to other indebtedness of the Operating Partnership;
(19) whether and under what circumstances the Operating Partnership will pay
Additional Amounts as contemplated in the Indenture on such Debt
Securities in respect of any tax, assessment or governmental charge and,
if so, whether the Operating Partnership will have the option to redeem
such Debt Securities in lieu of making such payment; and
(20) any other terms of such Debt Securities not inconsistent with the
provisions of the Indenture (Section 301).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special U.S. federal income tax,
accounting and other considerations applicable to the Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
The Indenture does not contain any provisions that would limit the ability
of either the Operating Partnership to incur indebtedness or that would afford
Holders of Debt Securities protection in the event of a highly leveraged or
similar transaction involving the Operating Partnership. However, restrictions
on ownership and transfers of the Company's common stock and preferred stock,
designed to preserve the Company's status as a REIT, may prevent or hinder a
change of control. Reference is made to the applicable Prospectus Supplement for
information with respect to any deletions from, modifications of or additions to
the Events of Default or covenants of the Operating Partnership that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
GUARANTEES
The Company will fully, unconditionally and irrevocably guarantee the due
and punctual payment of principal of, premium, if any, and interest on any Debt
Securities rated below investment grade at the time of issuance by the Operating
Partnership, and the due and punctual payment of any sinking fund payments
thereon, when and as the same shall become due and payable, whether at a
maturity date, by declaration of acceleration, call for redemption or otherwise.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series, which are registered securities, other than registered
securities in global form (which may be of any denomination), shall be issuable
in denominations of $1,000 and integral multiples thereof and the Debt
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Securities which are bearer securities, other than bearer securities issued in
global form (which may be of any denomination), shall be issuable in
denominations of $5,000 and integral multiples of $1,000 thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the corporate trust office of the Trustee, provided that, at
the option of the Operating Partnership, payment of interest may be made by
check mailed to the address of the Person entitled thereto as it appears in the
Security Register or by wire transfer of funds to such Person at an account
maintained within the United States (Sections 301, 305, 307 and 1002).
All amounts paid by the Operating Partnership to a paying agent or a Trustee
for the payment of the principal of or any premium or interest on any Debt
Security which remain unclaimed at the end of two years after the principal,
premium or interest has become due and payable will be repaid to the Operating
Partnership, and the holder of the Debt Security thereafter may look only to the
Operating Partnership for payment thereof.
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture
(Sections 101 and 307).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series, of a like aggregate principal amount
and tenor, of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the Trustee. In addition, subject to
certain limitations imposed upon Debt Securities issued in book-entry form, the
Debt Securities of any series may be surrendered for conversion or registration
of transfer thereof at the corporate trust office of the Trustee referred to
above. Every Debt Security surrendered for conversion, registration of transfer
or exchange shall be duly endorsed or accompanied by a written instrument of
transfer. No service charge will be made for any registration of transfer or
exchange of any Debt Securities, but the Operating Partnership may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith (Section 305). If the applicable Prospectus
Supplement refers to any transfer agent (in addition to the Trustee) initially
designated by the Operating Partnership with respect to any series of Debt
Securities, the Operating Partnership may at any time rescind the designation of
any such transfer agent or approve a change in the location through which any
such transfer agent acts, except that the Operating Partnership will be required
to maintain a transfer agent in each Place of Payment for such series. The
Operating Partnership may at any time designate additional transfer agents with
respect to any series of Debt Securities (Section 1002).
Neither the Operating Partnership nor the Trustee shall be required to
(i) issue, register the transfer of or exchange Debt Securities of any series
during a period beginning at the opening of business 15 days before any
selection of Debt Securities of that series to be redeemed and ending at the
close of business of the day of mailing of the relevant notice of redemption;
(ii) register the transfer of or exchange any Debt Security, or portion thereof,
called for redemption, except the unredeemed portion of any Debt Security being
redeemed in part; or (iii) issue, register the transfer of or exchange any Debt
Security which has been surrendered for repayment at the option of the Holder,
except that portion, if any, of such Debt Security which is not to be so repaid
(Section 305).
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MERGER, CONSOLIDATION OR SALE
The Operating Partnership may consolidate with, or sell, lease or convey all
or substantially all of its assets to, or merge with or into, any other entity,
provided (a) either the Operating Partnership shall be the continuing entity, or
the successor (if other than the Operating Partnership) formed by or resulting
from any such consolidation or merger or which shall have received the transfer
of such assets shall expressly assume payment of the principal of (and premium,
if any) and interest on all of the Debt Securities and the due and punctual
performance and observance of all of the covenants and conditions contained in
the Indenture; (b) immediately after giving effect to such transaction and
treating any indebtedness which becomes an obligation of the Operating
Partnership or such Subsidiary at the time of such transaction, no Event of
Default under the Indenture, and no event which, after notice or the lapse of
time, or both, would become such an Event of Default, shall have occurred and be
continuing; and (c) an officer's certificate of the Company as general partner
of the Operating Partnership and legal opinion covering such conditions shall be
delivered to the Trustee (Sections 801 and 803).
CERTAIN COVENANTS
EXISTENCE. Except as permitted under "Merger, Consolidation or Sale," the
Indenture requires the Operating Partnership to do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (declaration and statutory) and franchises; PROVIDED, HOWEVER, that the
Operating Partnership shall not be required to preserve any right or franchise
if it determines that the preservation thereof is no longer desirable in the
conduct of its business and that the loss thereof is not disadvantageous in any
material respect to the Holders of the Debt Securities (Section 1004).
MAINTENANCE OF PROPERTIES. The Indenture requires the Operating Partnership
to cause all of its material properties used or useful in the conduct of its
business or the business of any subsidiary to be maintained and kept in good
condition, repair and working order, all as in the judgment of the Operating
Partnership may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; PROVIDED,
HOWEVER, that the Operating Partnership and its subsidiaries shall not he
prevented from selling or otherwise disposing of their properties for value in
the ordinary course of business. (Section 1006).
INSURANCE. The Indenture requires each of the Operating Partnership to
cause each of its and its subsidiaries' insurable properties to be insured in a
commercially reasonable amount against loss of damage with insurers of
recognized responsibility and, if described in the applicable Prospectus
Supplement, in specified amounts and with insurers having a specified rating
from a recognized insurance rating service. (Section 1007).
PAYMENT OF TAXES AND OTHER CLAIMS. The Indenture requires the Operating
Partnership to pay or discharge or cause to be paid or discharged, before the
same shall become delinquent, (i) all taxes, assessments and governmental
charges levied or imposed upon it or any subsidiary or upon its income, profits
or property or that of any subsidiary and (ii) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Operating Partnership or any subsidiary; PROVIDED, HOWEVER, that
the Operating Partnership shall not be required to pay or discharge or cause to
be paid or discharged any tax, assessment, charge or claim whose amount or
applicability is being contested in good faith. (Section 1008).
ADDITIONAL COVENANTS. Reference is made to the applicable Prospectus
Supplement for information with respect to any additional covenants specific to
a particular series of Debt Securities.
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EVENT OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the Prospectus Supplement, the Indenture
provides that the following events are "Events of Default" with respect to any
series of Debt Securities issued thereunder: (a) default for 30 days in the
payment of any interest on any Debt Security of such series; (b) default in the
payment of any principal of (or premium, if any on) any Debt Security of such
series when due; (c) default in making any sinking fund payment as required for
any Debt Security of such series; (d) default in the performance of any other
covenant or warranty of the Operating Partnership contained in the Indenture
with respect to any Debt Security of such series, continued for 60 days after
written notice as provided in the Indenture; (e) default in the payment of an
aggregate principal amount exceeding $10,000,000 of any evidence of indebtedness
of the Operating Partnership or any mortgage, indenture, note, bond, capitalized
lease or other instrument under which such indebtedness is issued or by which
such indebtedness is secured, such default having continued after the expiration
of any applicable grace period and having resulted in the acceleration of the
maturity of such indebtedness, but only if such indebtedness is not discharged
or such acceleration is not rescinded or annulled; (f) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Operating Partnership, or any Significant
Subsidiary or any of their respective property; and (g) any other Event of
Default provided with respect to a particular series of Debt Securities
(Section 501). The term "Significant Subsidiary" means each significant
subsidiary (as defined in Regulation S-X promulgated under the Securities Act)
of the Operating Partnership, as the case may be. (Section 101).
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time Outstanding occurs and is continuing, then in every
such case the Trustee or the Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of that series may declare the
principal amount (or, if the Debt Securities of that series are Original Issue
Discount Securities or Indexed Securities, such portion of the principal amount
as may be specified in the terms thereof) of all of the Debt Securities of that
series to be due and payable immediately by written notice thereof to the
Operating Partnership (and to the Trustee if given by the Holders). However, any
time after such a declaration of acceleration with respect to Debt Securities of
such series has been made, but before a judgment or decree for payment of the
money due has been obtained by the Trustee, the Holders of not less then a
majority in principal amount of Outstanding Debt Securities of such series may
rescind and annul such declaration and its consequences if (a) the Operating
Partnership shall have paid or deposited with the Trustee all required payments
of the principal of (and premium, if any) and interest on the Debt Securities of
such series plus certain fees, expenses, disbursements and advances of the
Trustee and (b) all Events of Default, other than the nonpayment of accelerated
principal or interest with respect to Debt Securities of such series have been
cured or waived as provided in the Indenture (Section 502). The Indenture also
provides that the Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series may waive any past default with
respect to such series and its consequences, except a default (x) in the payment
of the principal of (or premium, if any) or interest on any Debt Security of
such series or (y) in respect of a covenant or provision contained in the
Indenture that cannot be modified or amended without the consent of the Holder
of each Outstanding Debt Security affected thereby (Section 513).
The Trustee is required to give notice to the Holders of Debt Securities
within 90 days of a default under the Indenture; PROVIDED, HOWEVER, that the
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if the Responsible Officers of the Trustee consider
such withholding to be in the interest of such Holders (Section 601).
The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of the Trustee, for
60 days, to act after it has received a written request to institute proceedings
in
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respect of an Event of Default from the Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of that series, as well as
an offer of reasonable indemnity (Section 507). This provision will not prevent,
however, any Holder of Debt Securities from instituting suit for the enforcement
of payment of the principal of (and premium, if any) and interest on such Debt
Securities at the respective due date thereof (Section 508).
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of Debt
Securities of any series then Outstanding under the Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
(Section 602). The Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or of exercising any trust or power conferred upon the Trustee.
However, the Trustee may refuse to follow any direction which is in conflict
with any law or the Indenture, which may involve the Trustee in personal
liability or which may be unduly prejudicial to the Holders of Debt Securities
of such series not joining therein (Section 512).
Within 120 days after the close of each fiscal year, the Operating
Partnership must deliver to the Trustee a certificate, signed by one of several
specified officers of the Company, stating whether or not such officer has
knowledge of any default under the Indenture and, if so, specifying each such
default and the nature and status thereof (Section 1005).
MODIFICATION OF THE INDENTURE
Modifications and amendments of provisions of the Indenture applicable to
any series may be made only with consent of the Holders of not less than a
majority in principal amount of all Outstanding Debt Securities which are
affected by such modification or amendment; provided, however, that no such
modification or amendment may, without the consent of the Holder of each such
Debt Security affected thereby, (a) change the Stated Maturity of the principal
of, or any installment of interest (or premium, if any) on, any such Debt
Security; (b) reduce the principal amount of, or the rate or amount of interest
on, or any premium payable on redemption of, any such Debt Security, or reduce
the amount of principal of an Original Issue Discount Security that would be due
and payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the Holder
of any such Debt Security; (c) change the Place of Payment, or the coin or
currency, for payment of principal of, premium, if any, or interest on any such
Debt Security; (d) impair the right to institute suit for the enforcement of any
payment on or with respect to any such Debt Security on or after the Stated
Maturity thereof; (e) reduce the above stated percentage of Outstanding Debt
Securities of any series necessary to modify or amend the Indenture, to waive
compliance certain provisions thereof or certain defaults and consequences
thereunder or to reduce the quorum or voting requirements set forth in the
Indenture; (f) modify or affect in any manner adverse to the Holders the terms
and conditions of the obligations of the Company in respect of the payment of
principal (and premium, if any) and interest on any Guaranteed Securities; or
(g) modify any of the foregoing provisions or any of the provisions relating to
the waiver of certain past defaults or certain covenants, except to increase the
required percentage to effect such action or to provide that certain other
provisions may not be modified or waived without the consent of the Holder of
such Debt Security (Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities of a particular series have the right to waive compliance by the
Operating Partnership with certain covenants in the Indenture relating to such
series (Section 1010).
Modifications and amendments of the Indenture may be made by the Operating
Partnership and the Trustee without the consent of any Holder of Debt Securities
for any of the following purposes: (i) to
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evidence the succession of another Person to the Operating Partnership as
obligor under the Indenture; (ii) to add to the covenants of the Operating
Partnership for the benefit of the Holders of all or any series of Debt
Securities or to surrender any right or power conferred upon the Operating
Partnership in the Indenture; (iii) to add Events of Default for the benefit of
the Holders of all or any series of Debt Securities; (iv) to add or change any
provisions of the Indenture to facilitate the issuance of Debt Securities in
bearer form, or to permit or facilitate the issuance of Debt Securities in
uncertificated form, provided that such action shall not adversely affect the
Interests of the Holders of the Debt Securities of any series in any material
respect; (v) to change or eliminate any provisions of the Indenture, provided
that any such change or elimination shall become effective only when there are
not Debt Securities Outstanding of any series created prior thereto which are
entitled to the benefit of such provision; (vi) to secure the Debt Securities;
(vii) to establish the form or terms of Debt Securities of any series;
(viii) to provide for the acceptance of appointment by a successor Trustee or
facilitate the administration of the trust under the Indenture by more than one
Trustee; (ix) to cure any ambiguity, defect or inconsistency in the Indenture,
provided that such action shall not adversely affect the interests of Holders of
Debt Securities of any series in any material respect; (x) to supplement any of
the provisions of the Indenture to the extent necessary to permit or facilitate
defeasance and discharge of any series of such Debt Securities, provided that
such action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect (Section 901).
In addition, with respect to Guaranteed Securities, without the consent of
any Holder of Debt Securities the Company, or a subsidiary thereof, may directly
assume the due and punctual payment of the principal of, any premium and
interest on all the Guaranteed Securities and the performance of every covenant
of the Indenture on the part of the Operating Partnership to be performed or
observed. Upon any such assumption, the Company or such subsidiary shall succeed
to, and be substituted for and may exercise every right and power of, the
Operating Partnership under the Indenture with the same effect as if the Company
or such subsidiary had been the issuer of the Guaranteed Securities and the
Operating Partnership shall be released from all obligations and covenants with
respect to the Guaranteed Securities. No such assumption shall be permitted
unless the Company has delivered to the Trustee (i) an officer's certificate and
an opinion of counsel, stating, among other things, that the Guarantee and all
other covenants of the Company in the Indenture remain in full force and effect
and (ii) an opinion of independent counsel that the Holders of Guaranteed
Securities shall have no United States Federal tax consequences as a result of
such assumption, and that, if any Debt Securities are then listed on the New
York Stock Exchange, that such Debt Securities shall not be delisted as a result
of such assumption (Section 805).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of a Debt Security denominated in a Foreign Currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an Indexed Security that shall be deemed outstanding shall
be the principal face amount of such Indexed Security at original issuance,
unless otherwise provided with respect to such Indexed Security pursuant to
Section 301 of the Indenture, and (iv) Debt Securities owned by the Operating
Partnership or any other obligor upon the Debt Securities or any Affiliate of
the Operating Partnership or of such other obligor shall be disregarded
(Section 101).
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The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 1501). A meeting may be called at any time
by the Trustee, and also, upon request, by the Operating Partnership, the
Company (in respect of a series of Guaranteed Securities) or the Holders of at
least 25% in principal amount of the Outstanding Debt Securities of such series,
in any such case upon notice given as provided In the Indenture (Section 1502).
Except for any consent that must be given by the Holder of each Debt Security
affected by certain modifications and amendments of the Indenture any resolution
presented at a meeting or adjourned meeting duly reconvened at which a quorum is
present may be adopted by the affirmative vote of the Holders of a majority in
principal amount of the Outstanding Debt Securities of that series; provided,
however, that, except as referred to above, any resolution with respect to any
request, demand, authorization, direction, notice, consent, waiver or other
action that may be made, given or taken by the Holders of a specified
percentage, which is less than a majority, in principal amount of the
Outstanding Debt Securities of a series may be adopted at a meeting or adjourned
meeting duly reconvened at which a quorum is present by the affirmative vote of
the Holders of such Debt Securities of that series. Any resolution passed or
decision taken at any meeting of Holders of Debt Securities of any series duly
held in accordance with the Indenture will be binding on all Holders of Debt
Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be Persons, holding or
representing a majority in principal amount of the Outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the Holders of
not less than a specified percentage in principal amount of the Outstanding Debt
Securities of a series, the Persons holding or representing such specified
percentage in principal amount of the Outstanding Debt Securities of such series
will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Debt Securities of any series with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action that
the Indenture expressly provides may be made, given or taken by the Holders of a
specified percentage in principal amount of all Outstanding Debt Securities
affected thereby, or of the Holders of such series and one or more additional
series: (i) there shall be no minimum quorum requirement for such meeting and
(ii) the principal amount of the Outstanding Debt Securities of such series that
vote in favor of such request, demand, authorization, direction, notice,
consent, waiver or other action shall be taken into account in determining
whether such request, demand, authorization, direction, notice, consent, waiver
or other action has been made, given or taken under the Indenture
(Section 1504).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise provided in the Prospectus Supplement, the Operating
Partnership may discharge certain obligations to Holders of any series of Debt
Securities that have not already been delivered to the Trustee for cancellation
and that either have become due and payable or will become due and payable
within one year (or are scheduled for redemption within one year) by irrevocably
depositing with the Trustee, in trust, funds in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable in an amount sufficient to pay the entire indebtedness on
such Debt Securities in respect of principal (and premium, if any) and interest
to the date of such deposit (if such Debt Securities have became due and
payable) or to the Stated Maturity or Redemption Date, as the case may be
(Section 401).
The Indenture provides that, unless otherwise provided in the Prospectus
Supplement, if the provisions of Article Fourteen are made applicable to the
Debt Securities of any series pursuant to Section 301 of the Indenture, the
Operating Partnership may elect either (a) to defease and discharge itself and
the Company (if such Debt Securities are Guaranteed Securities) from any and all
obligations with respect to such Debt Securities (except for the obligation to
pay Additional Amounts, if any, upon the occurrence of certain events of tax,
assessment or governmental charge with respect to payments on such Debt
Securities
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and the obligations to register the transfer or exchange of such Debt
Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities, to maintain an office or agency in respect of such Debt Securities
and to hold moneys for payment in trust) ("defeasance") (Section 1402) or
(b) to release itself and the Company (if such Debt Securities are Guaranteed
Securities) from its obligations with respect to such Debt Securities under
Sections 1004 and 1005, inclusive, of the Indenture (being the restrictions
described tinder "Certain Covenants") or, if provided pursuant to Section 301 of
the Indenture, its obligations with respect to any other covenant, and any
omission to comply with such obligations shall not constitute a default or an
Event of Default with respect to such Debt Securities ("covenant defeasance")
(Section 1403), in either case upon the irrevocable deposit by the Operating
Partnership or the Company (if the Debt Securities are Guaranteed Securities)
with the Trustee, in trust, of any amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at Stated Maturity, or Government Obligations (as defined
below), or both applicable to such Debt Securities which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient to pay the principal of (and premium, if any) and
interest on such Debt Securities, and any mandatory sinking fund or analogous
payments thereon, on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the Operating
Partnership or the Company (if the Debt Securities are Guaranteed Securities)
has delivered to the Trustee an Opinion of Counsel (as specified in the
Indenture) to the effect that the Holders of such Debt Securities will not
recognize income, gain or loss for U.S. Federal income tax purposes as a result
of such defeasance or covenant defeasance and will be subject to U.S. Federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance or covenant defeasance had not
occurred, and such Opinion of Counsel, in the case of defeasance, must refer to
and be based upon a ruling of the Internal Revenue Service or a change in
applicable United States Federal income tax law occurring after the date of the
Indenture (Section 1404).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the Foreign
Currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a Person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the Foreign
Currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a Depositary receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a Depositary receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such Depositary receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
Depositary receipt (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Operating Partnership or the Company (if the Debt Securities are Guaranteed
Securities) has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to Section 301 of the Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the
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proceeds yielded by converting the amount so deposited in respect of such Debt
Security into the currency, currency unit or composite currency in which such
Debt Security becomes payable as a result of such election or such cessation of
usage based on the applicable market exchange rate (Section 1405). "Conversion
Event" means the cessation of use of (i) a currency, currency unit or composite
currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions or within the international banking community, (ii) the ECU both
within the European Monetary System and for the settlement of transactions by
public institutions of or within the European Communities or (iii) any currency
unit or composite currency other than the ECU for the purposes for which it was
established. (Section 101). Unless otherwise provided in the applicable
Prospectus Supplement, all payments of principal of (and premium, if any) and
interest on any Debt Security that is payable in a Foreign Currency that ceases
to be used by its government of issuance shall be made in U.S. dollars.
In the event the Operating Partnership effects covenant defeasance with
respect to any Debt Securities and such Debt Securities are declared due and
payable because of the occurrence of any Event of Default other than the Event
of Default described in clause (d) under "Events of Default, Notice and Waiver"
with respect to Section 1004 of the Indenture (which Sections would no longer be
applicable to such Debt Securities) or described in clause (h) under "Events of
Default, Notice and Waiver" with respect to any other covenant as to which there
has been covenant defeasance, the amount in such currency, currency unit or
composite currency in which such Debt Securities are payable, and Government
Obligations on deposit with the Trustee, will be sufficient to pay amounts due
on such Debt Securities at the time of their Stated Maturity but may not be
sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Event of Default. However, the Operating
Partnership and the Company (if such Debt Securities are Guaranteed Securities)
would remain liable to make payment of such amounts due at the time of
acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of a particular series.
SUBORDINATION
The terms and conditions, if any, upon which the Debt Securities are
subordinated to other indebtedness of the Operating Partnership will be set
forth in the applicable Prospectus Supplement relating thereto. Such terms will
include a description of the indebtedness ranking senior to the Debt Securities,
the restrictions on payments to the Holders of such Debt Securities while a
default with respect to such senior indebtedness in continuing, the
restrictions, if any, on payments to the Holders of such Debt Securities
following an Event of Default, and provisions requiring Holders of such Debt
Securities to remit certain payments to holders of senior indebtedness.
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BOOK-ENTRY SYSTEM AND GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Securities in global form ("Global Securities") that will be
deposited with, or on behalf of, a depository (the "Depository") identified in
the Prospectus Supplement relating to such series. Global Securities, if any,
issued in the United States are expected to be deposited with The Depository
Trust Company ("DTC"), as Depository. Global Securities may be issued in either
fully registered or bearer form and in either temporary or permanent form.
Unless the Prospectus Supplement states otherwise, and until it is exchanged in
whole or in part for the individual Debt Securities represented thereby, a
Global Security may not be transferred except as a whole by the Depository for
such Global Security to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository or by such
Depository or any nominee of such Depositor to a successor Depository or any
nominee of such successor.
The specific terms of the depository arrangement with respect to a series of
Debt Securities will be described in the Prospectus Supplement relating to such
series and/or the Global Security. The Company expects that unless otherwise
indicated in the applicable Prospectus Supplement and/or the Global Security,
the following provisions will apply to depository arrangements.
The Prospectus Supplement and/or the Global Security will state whether such
Global Securities will be issued in certificated or book-entry form. If such
Global Securities are to be issued in book-entry form, the Company expects that
upon the issuance of a Global Security, the Depository for such Global Security
or its nominee will credit on its book-entry registration and transfer system
the respective principal amounts of the individual Debt Securities represented
by such Global Security to the accounts of persons that have accounts with such
Depository ("Participants"). Such accounts shall be designated by the
underwriters, dealers or agents with respect to such Debt Securities or by the
Company if such Debt Securities are offered directly by the Company. Ownership
of beneficial interests in such Global Security will be limited to Participants
or persons that may hold interests through Participants.
The Company expects that, for the Global Securities deposited with DTC,
pursuant to procedures established by DTC, ownership of beneficial interests in
any Global Security with respect to which DTC is the Depository will be shown
on, and the transfer of that ownership will be effected only through, records
maintained by DTC or its nominee (with respect to beneficial interests of
Participants) and records of Participants (with respect to beneficial interests
of persons who hold through Participants). Neither the Company, any Paying
Agent, the Security Registrar nor the Trustee will have any responsibility or
liability for any aspect of the records of DTC or for maintaining, supervising
or reviewing any records of DTC or any of its Participants relating to
beneficial ownership interests in the Debt Securities. The laws of some states
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and laws may impair the ability to
own, pledge or transfer beneficial interest in a Global Security.
Unless otherwise specified in the Prospectus Supplement or the actual Global
Security, so long as the Depository for a Global Security or its nominee is the
registered owner of such book-entry Global Security, such Depository or such
nominee, as the case may be, will be considered the sole owner or holder of the
Debt Securities represented by such Global Security for all purposes under the
applicable Indenture. Except as described below or in the applicable Prospectus
Supplement or such Global Security, owners of beneficial interest in a Global
Security will not be entitled to have any of the individual Debt Securities
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of any such Debt Securities in
definitive form and will not be considered the owners or holders thereof under
the applicable Indenture. Beneficial owners of Debt Securities evidenced by a
Global Security will not be considered the owners or holders thereof under the
applicable Indenture for any purpose, including with respect to the giving of
any direction, instructions or approvals to the Trustee thereunder. Accordingly,
each person owning a beneficial interest in a Global Security with respect to
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which DTC is the Depository must rely on the procedures of DTC and, if such
person is not a Participant, on the procedures of the Participant through which
such person owns its interests, to exercise any rights of a holder under the
applicable Indenture. The Company understands that, under existing industry
practice, if it requests any action of holders or if an owner of a beneficial
interest in a Global Security desires to give or take any action which a holder
is entitled to give or take under the applicable Indenture, DTC would authorize
the Participants holding the relevant beneficial interest to give or take such
action, and such Participants would authorize beneficial owners through such
Participants to give or take such actions or would otherwise act upon the
instructions of beneficial owners holding through them.
Payments of principal of (and applicable premium, if any) and interest on
individual Debt Securities represented by a Global Security registered in the
name of a Depository or its nominee will be made to or at the direction of the
Depository or its nominee, as the case may be, as the registered owner of the
Global Security under the applicable Indenture. Under the terms of the
applicable Indenture, the Company, any Paying Agent, the Security Registrar and
the Trustee may treat the persons in whose name Debt Securities, including a
Global Security, are registered as the owners thereof for the purpose of
receiving such payments. Consequently, neither the Company, any Paying Agent,
the Security Registrar nor the Trustee has or will have any responsibility or
liability for the payment of such amounts to beneficial owners of Debt
Securities (including principal, premium, if any, and interest). The Company
believes, however, that it is currently the policy of DTC to immediately credit
the accounts of relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant Global Security as shown on the records of DTC or its nominee. The
Company also expects that payments by Participants to owners of beneficial
interests in such Global Security held through such Participants will be
governed by standing instructions and customary practices, as is the case with
securities held for the account of customers in bearer form or registered in
street name, and will be the responsibility of such Participants. Redemption
notices with respect to any Debt Securities represented by a Global Security
will be sent to the Depository or its nominee. If less than all of the Debt
Securities of any series are to be redeemed, the Company expects the Depository
to determine the amount of the interest of each Participant in such Debt
Securities to be redeemed to be determined by lot. None of the Company, the
Trustee, any Paying Agent or the Security Registrar for such Debt Securities
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Security for such Debt Securities or for maintaining any records with respect
thereto.
Neither the Company, any Paying Agent, the Security Registrar nor the
Trustee will be liable for any delay by the holders of a Global Security or the
Depository in identifying the beneficial owners of Debt Securities and the
Company and the Trustee may conclusively rely on, and will be protected in
relying on, instructions from the holder of a Global Security or the Depository
for all purposes. The rules applicable to DTC and its Participants are on file
with the Commission.
If a Depository for any Debt Securities is at any time unwilling, unable or
ineligible to continue as depository and a successor depository is not appointed
by the Company within 90 days, the Company will issue individual Debt Securities
in exchange for the Global Security representing such Debt Securities. In
addition, the Company may at any time and in its sole discretion, subject to any
limitations described in the Prospectus Supplement or the Global Security
relating to such Debt Securities, determine not to have any of such Debt
Securities represented by one or more Global Securities and in such event will
issue individual Debt Securities in exchange for the Global Security or
Securities representing such Debt Securities. Individual Debt Securities so
issued will be issued in denominations of $5,000 and integral multiples of
$1,000.
The Debt Securities of a series may also be issued in whole or in part in
the form of one or more bearer global securities (a "Bearer Global Security")
that will be deposited outside of the United States with a depository, or with a
nominee for such depository, identified in the applicable Prospectus Supplement
and/or Global Security. Any such Bearer Global Securities may be issued in
temporary or
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permanent form. The specific terms and procedures, including the specific terms
of the depository arrangement, with respect to any portion of a series of Debt
Securities to be represented by one or more Bearer Global Securities will be
described in the applicable Prospectus Supplement and/or Global Security.
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 by the Company 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 and constitute all material terms of the Preferred Stock that may be
determined prior to the initiation of a specific offering of Preferred Stock.
The particular terms of the Preferred Stock with respect to a specific offering
of Preferred Stock will be set forth in a Prospectus Supplement relating
thereto. 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
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;
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(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 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.
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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, 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).
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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 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
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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 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
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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% 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
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 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% 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 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.
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DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular class or series of Preferred Stock, as specified in the applicable
Prospectus Supplement. Shares of a class or series of Preferred Stock
represented by Depositary Shares will be deposited under a separate Deposit
Agreement (each, a "Deposit Agreement") among the Company and the depositary
named therein (the "Preferred Stock Depositary"). Subject to the terms of the
Deposit Agreement, each owner of a Depositary Receipt will be entitled, in
proportion to the fractional interest of a share of a particular class or series
of Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipt, to all the rights and preferences of the class or series of
the Preferred Stock represented by such Depositary Shares (including dividend,
voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to a Preferred Stock
Depositary, the Company will cause such Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the statements made hereunder relating to the Deposit Agreement and
the Depositary Receipt to be issued thereunder are summaries of certain
anticipated provisions thereof and do not purport to be complete and are subject
to, and qualified in their entirety by reference to, all of the provisions of
the applicable Deposit Agreement and related Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions received in respect of a class or series of Preferred Stock
to the record holders of Depositary Receipts evidencing the related Depositary
Shares in proportion to the number of the such Depositary Receipts owned by such
holders, subject to certain obligations of holders to file proofs, certificates
and other information and to pay certain charges and expenses to such Preferred
Stock Depositary.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Stock Depositary, unless such Preferred Stock
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Stock Depositary may, with the approval of the Company,
sell such property and distribute the net proceeds from such sale to such
holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any class or series of Preferred Stock that has been
converted or exchanged.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Stock Depositary (unless the related Depositary Shares have
previously been called for redemption or converted), the holders thereof will be
entitled to delivery at such office, to or upon each such holder's order, of the
number of whole or fractional shares of the class or series of Preferred Stock
and any money or other property represented by the Depositary Shares evidenced
by such Depositary Receipts. Holders of Depositary Receipts will be entitled to
receive whole or fractional shares of the related class or series of Preferred
Stock on the basis of the proportion of Preferred Stock represented by each
Depositary Share as specified in the applicable Prospectus Supplement, but
holders of such shares of Preferred Stock will not thereafter be entitled to
receive Depositary shares therefor. If the Depositary Receipts delivered by the
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holder evidence a number of Depositary Shares in excess of the number of
Depositary Shares representing the number of shares of Preferred Stock to be
withdrawn, the Preferred Stock Depositary will deliver to such holder at the
same time a new Depositary Receipt evidencing such excess number of Depositary
Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by the Preferred
Stock Depositary, the Preferred Stock Depositary will redeem as of the same
redemption date the number of the Depositary Shares representing shares of such
class or series of Preferred Stock so redeemed, provided the Company shall have
paid in full to the Preferred Stock Depositary the redemption price of the
Preferred Stock to be redeemed plus an amount equal to any accrued and unpaid
dividends thereon to the date fixed for redemption. The redemption price per
Depositary Share will be equal to the corresponding proportion of the redemption
price and any other amounts per share payable with respect to such class or
series of Preferred Stock. If fewer than all the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by the Depositary.
From and after the date fixed for redemption, all dividends in respect of
the shares of a class or series of Preferred Stock so called for redemption will
cease to accrue, the Depositary Shares so called for redemption will no longer
be deemed to be outstanding and all rights of the holders of the Depositary
Receipts evidencing the Depositary Shares so called for redemption will cease,
except the right to receive any moneys payable upon such redemption and any
money or other property to which the holders of such Depositary Receipts were
entitled upon such redemption upon surrender thereof to the Preferred Stock
Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of a class or
series of Preferred Stock deposited with the Preferred Stock Depositary are
entitled to vote, the Preferred Stock Depositary will mail the information
contained in such notice of meeting to the record holders of the Depositary
Receipts evidencing the Depositary Shares which represent such class or series
of Preferred Stock. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the record
date for such class or series of Preferred Stock) will be entitled to instruct
the Preferred Stock Depositary as to the exercise of the voting rights
pertaining to the amount of Preferred Stock represented by such holder's
Depositary Shares. The Preferred Stock Depositary will vote the amount of such
class or series of Preferred Stock represented by such Depositary Shares in
accordance with such instructions, and the Company will agree to take all
reasonable action which may be deemed necessary by the Preferred Stock
Depositary in order to enable the Preferred Stock Depositary to do so. The
Preferred Stock Depositary will abstain from voting the amount of Preferred
Stock represented by such Depositary Shares to the extent it does not receive
specific instructions from the holder of Depositary Receipts evidencing such
Depositary Shares.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock represented by the Depositary Share evidenced by such Depositary
Receipt as set forth in the applicable Prospectus Supplement.
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CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, will not be convertible into Common Stock or
any other securities or property of the Company, except in connection with
certain conversions in connection with the preservation of the Company's status
as a REIT. See "Restrictions on Ownership of Offered Securities." Nevertheless,
if so specified in the applicable Prospectus Supplement relating to an offering
of Depositary Shares, the Depositary Receipts may be surrendered by holders
thereof to the applicable Preferred Stock Depositary with written instructions
to the Preferred Stock Depositary to instruct the Company to cause conversion of
a class or series of Preferred Stock represented by the Depositary Shares
evidenced by such Depositary Receipts into whole shares of Common Stock, other
shares of a class or series of Preferred Stock of the Company or other shares of
stock, and the Company has agreed that upon receipt of such instructions and any
amounts payable in respect thereof, it will cause the conversion thereof
utilizing the same procedures as those provided for delivery of Preferred Stock
to effect such conversion. If the Depositary Shares evidenced by a Depositary
Receipt are to be converted in part only, a Depositary Receipt or Receipts will
be issued for any Depositary Shares not to be converted. No fractional shares of
Common Stock will be issued upon conversion, and if such conversion will result
in a fractional share being issued, an amount will be paid in cash by the
Company equal to the value of the fractional Interest based upon the closing
price of the Common Stock on the last business day prior to the conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
The form of Depositary Receipt evidenced in Depositary Shares which
represent the Preferred Stock and any provision of the Deposit Agreement may at
any tine be amended by agreement between the Company and the Preferred Stock
Depositary. However, any amendment that materially and adversely alters the
rights of the holders of Depositary Receipts or that would be materially and
adversely inconsistent with the rights granted to the holders of the related
Preferred Stock will not be effective unless such amendment has been approved by
the existing holders of at least two-thirds of the applicable Depositary Shares
evidenced by the applicable Depositary Receipts then outstanding. No amendment
shall impair the right, subject to certain anticipated exceptions in the Deposit
Agreements, of any holder of Depositary Receipts to surrender any Depositary
Receipt with instructions to deliver to the holder the related class or series
of Preferred Stock and all money and other property, if any, represented
thereby, except in order to comply with law. Every holder of an outstanding
Depositary Receipt at the time any such amendment becomes effective shall be
deemed, by continuing to hold such Depositary Receipt, to consent and agree to
such amendment and to be bound by the applicable Deposit Agreement as amended
thereby.
The Deposit Agreement may be terminated by the Company upon not less than 30
days' prior written notice to the Preferred Stock Depositary if such termination
is necessary to preserve the Company's status as a REIT. The Company has agreed
that if the Deposit Agreement is terminated to preserve the Company's status as
a REIT, then the Company will use its best efforts to list each class or series
of Preferred Stock issued upon surrender of the related Depositary Shares. In
addition, the Deposit Agreement will automatically terminate if (i) all
outstanding Depositary Shares shall have been redeemed, (ii) there shall have
been a final distribution in respect of each class or series of Preferred Stock
in connection with any liquidation, dissolution or winding up of the Company and
such distribution shall have been distributed to the holders of the Depositary
Receipts evidencing the Depositary Shares representing such class or series of
Preferred Stock or (iii) each share of the related Preferred Stock shall have
been converted into Common Stock or other Preferred Stock of the Company not so
represented by Depositary Shares or has been exchanged for Debt Securities.
CHARGES OF A PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. In addition,
the Company will pay the fees and expenses of the
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Preferred Stock Depositary in connection with the performance of its duties
under the Deposit Agreement. However, holders of Depositary Receipts will pay
the fees and expenses of the Preferred Stock Depositary for any duties requested
by such holders to be performed which are outside of those expressly provided
for in the Deposit Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Stock Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Stock Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Stock Depositary. A successor
Preferred Stock Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least the amount set forth in the Deposit Agreement.
MISCELLANEOUS
The Preferred Stock Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Stock Depositary with respect to the related Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under the Deposit Agreement. The obligations of the
Company and the Preferred Stock Depositary under the Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of a class or
series of Preferred Stock represented by the Depositary Shares), gross
negligence or willful misconduct, and the Company and the Preferred Stock
Depositary will not be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of a class or
series of Preferred Stock represented thereby unless satisfactory indemnity is
furnished. The Company and the Preferred Stock Depositary may rely on written
advice of counsel or accountants, or information provided by persons presenting
shares of Preferred Stock represented thereby for deposit, holders of Depositary
Receipts or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.
RESTRICTIONS ON OWNERSHIP OF OFFERED SECURITIES
For the Company to qualify as a REIT under the Code, not more than 50% 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% 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.
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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% 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% 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 Common Stock or Preferred Stock ("Warrants") 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 shares over the then prevailing market price or
which such holders might believe to be otherwise in their best interest.
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MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS TO THE COMPANY OF ITS REIT ELECTION
Pryor Cashman Sherman & Flynn LLP, 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 material 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
and this discussion does not purport to deal with all aspects of taxation that
may be relevant to particular holders of Offered Securities in light of their
personal investment or tax circumstances or to certain types of stockholders
(including insurance companies, financial institutions, or broker-dealers,
tax-exempt organizations, foreign corporations, and persons who are not citizens
or residents of the United States) subject to special treatment under the United
States federal income tax laws.
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 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 all subsequent taxable years ending prior to the date of this Prospectus
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 LLP, the Company has been
organized in conformity with the requirements for qualification and taxation as
a REIT, commencing with its initial 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 relating to the authenticity, validity and enforceability of
documents delivered by the Company and is conditioned upon such assumptions and
certain representations made by the Company as to factual matters. Pryor Cashman
Sherman & Flynn LLP 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 LLP. Accordingly, no assurance can be given that the actual
results of the Company's operation for 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
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eliminates the "double taxation" (at both 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 follows: First, the Company
will be taxed at regular corporate rates on any undistributed REIT taxable
income, including undistributed net capital gains (although stockholders will
receive an offsetting credit against their own federal income liability for
federal income taxes paid by the Company with respect to any such undistributed
net capital gain). 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 certain involuntary conversions or foreclosure
property), such income will be subject to a 100% tax. Fifth, if the Company
should fail to satisfy the 75% gross income test or the 95% 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%
tax on an amount equal to (a) the gross income attributable to the greater of
the amount by which the Company fails the 75% or 95% 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%
of its REIT ordinary income for such year, (ii) 95% 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% 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.
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% 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 ownership requirements described in (5) and
(6) above. The ownership and transfer restrictions are described in
"Restrictions on Ownership of Offered Securities." Prior to 1998, the Company's
failure to comply with the Treasury regulations requiring a REIT to maintain
permanent
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records showing the actual ownership of its stock (the "Stock Ownership
Regulations") could have resulted in the Company's disqualification as a REIT
for the taxable year of the failure. Pursuant to the Taxpayer Relief Act of 1997
(the "Act"), effective for the Company's taxable years beginning on or after
January 1, 1998, so long as the Company complies with the Stock Ownership
Regulations, the Company will not lose its qualifications as a REIT as a result
of a violation of the foregoing requirement if it neither knows nor upon
exercising reasonable diligence would have known of such violation. Effective
for the Company's taxable years beginning on or after January 1, 1998, instead
of being disqualified as a REIT, the Company would be subject to a financial
penalty of $25,000 ($50,000 for intentional violations) for any year in which
the Company fails to comply with the Stock Ownership Regulations. Furthermore,
if the Company can establish that its failure to comply was due to reasonable
cause and not to willful neglect, no penalty would be imposed.
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. From its inception, the Company's taxable has been
the calendar year.
The Company currently owns and operates the majority of the Properties
through partnerships in which the Operating Partnership and direct, wholly-owned
subsidiaries (the "Company Subs") are partners. Code Section 856(i), as amended
by the Act, provides that a corporation, 100% of whose stock is held by a REIT,
is a "qualified REIT subsidiary." A "qualified REIT subsidiary" is not treated
as a separate corporation, and all assets, liabilities, and items of income,
deduction, and credit of a "qualified REIT subsidiary" are 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 Company 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," Treasury 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,
for taxable years beginning on or after January 1, 1998, must satisfy two gross
income requirements annually. First, at least 75% 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 (the
"75% Test"). Second, at least 95% 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
(the "95% Test" and, together with the 75% Test, the "Gross Income Tests"). For
taxable years beginning on or after January 1, 1998, "qualifying income" for
purposes of the 95% test, except to the extent provided by regulations, includes
payments to the Company under any interest rate swap, cap agreement, option,
futures contract, forward rate agreement, or any similar financial instrument
entered into by the Company to hedge its indebtedness as well as any gain from
the disposition of any of the foregoing instruments.
Rents received by the Company will qualify as "rents from real property" in
satisfying the Gross Income Tests only if several conditions are met. First, the
amount of rent must not be based in whole or in
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part on the income or profits derived by any person from the 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, for taxable
years beginning before August 5, 1997, 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% or more of the REIT, directly
or constructively owns 10% or more of such tenant (a "Related Tenant").
Effective for the Company's taxable years beginning on or after January 1, 1998,
the constructive ownership rules for determining whether a tenant is a Related
Tenant are modified with respect to partners and partnerships to provide that
attribution between partners and partnerships only occurs when a partner owns,
directly and/or indirectly, a 25%-or-greater interest in the partnership. Thus,
a tenant will not be treated as a Related Tenant with respect to the Company if
shares of the Company are owned by a partnership and a partner that owns,
directly and indirectly, a less-than-25% interest in such partnership also owns
an interest in the tenant. A tenant will also not be a Related Tenant with
respect to the Company if shareholders of the Company and owners of such tenant
are partners in a partnership in which neither own, directly and/or indirectly,
a 25%-or-greater interest in such partnership. Third, if rent attributable to
personal property leased in connection with a lease of real property is greater
than 15% 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." The Company has 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, or
(iii) derive rental income attributable to personal property (other than
personal property leased in connection with the lease of real property, the
amount of which is less than 15% of the total rent received under the lease).
Finally, for rents received to qualify as "rents from real property," the
Company generally must not operate or manage the property or furnish or render
services to tenants, other than through an "independent contractor" from whom
the Company derives no revenue. The "independent contractor" requirement,
however, does not apply to the extent the services provided by the Company are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the occupant." The
Operating Partnership will provide certain services with respect to the
Properties that are intended to comply with the "usually or customarily
rendered" requirement. In the case of any services that are not "usual and
customary" under the foregoing rules ("Impermissible Services"), the Company
intends to employ independent contractors to perform such services.
Pursuant to the Act, the Company for its taxable years beginning on or after
January 1, 1998, may render a DE MINIMIS amount of Impermissible Services to
tenants, or in connection with the management of a property, without having
otherwise qualifying rents from the property being disqualified as "rents from
real property." In order to qualify for this DE MINIMIS exception, the value of
such Impermissible Services may not exceed 1% of the Company's gross income from
the property, and such Impermissible Services may not be valued at less than
150% of the Company's direct cost of such services. Notwithstanding the
foregoing, the amount of any income that the Company receives in respect of its
performance of impermissible services ("Impermissible Services Income") will not
be treated as "rents from real property" for purposes of the Gross Income Tests
and, accordingly, must be considered together with other nonqualifying income
for purposes of satisfying the Gross Income Tests.
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
Gross Income Tests, the Company believes that the aggregate amount of such fees
(and any other nonqualifying income) in any taxable year will not cause the
Company to exceed the limits on non-qualifying income under the Gross Income
Tests.
If the Company fails to satisfy one or both of the 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.
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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 CERTAIN ASSETS. The Company, as a REIT, is
generally subject to restrictions that limit its ability to sell real property.
The Company is subject to a tax of 100% 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
and property that is involuntarily converted in a transaction that is subject to
Code Section 1033) in which it is a dealer. In calculating its gains subject to
the 100% 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.
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 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% of the net selling price of the property, and (iii) the
Company either (a) has seven or fewer sales of property (excluding involuntarily
converted property subject to Code Section 1033 or certain property obtained
through foreclosure) for the year or (b) the aggregate tax bases (as determined
for purposes of computing earnings and profits) of property sold during the
taxable year is 10% or less of the aggregate tax basis of all assets (as so
determined) of the Company as of the beginning of the taxable year and (iv) if
the requirement in clause (iii)(a) is not satisfied, 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 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% 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% of the value of the Company's total assets must be represented by real
estate assets (including (i) assets held by the Company or 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 directly
and/or indirectly 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% of the Company's total assets may be
represented by securities other than those in the 75% asset class. Third, of the
investments included in the 25% 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% of the value of the Company's total
assets and the Company may not own more than 10% of any one issuer's outstanding
voting securities.
A REIT which meets the foregoing asset tests at the close of any quarter
will not lose its status as a REIT for failure to satisfy the asset tests at the
end of a later quarter solely by reason of changes in asset values. If the
failure to satisfy the asset tests results from an acquisition of securities or
other property during a quarter (including as a result of the REIT increasing
its interest in any partnership in which the REIT is a partner), the failure can
be cured by disposition of sufficient nonqualifying assets within 30 days after
the close of that quarter. The Company intends to maintain adequate records of
the value of its assets to ensure compliance with the asset tests and to take
such other actions within 30 days after the close of
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any quarter as may be required to cure any noncompliance. If the Company failed
to cure noncompliance within such time period, the Company would cease to
qualify as a REIT.
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% 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% 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 Treasury regulations which have not yet been promulgated, to distribute at
least 95% 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%, but less than 100%, of its "REIT taxable income," as adjusted, it
will be subject to tax thereon at regular ordinary and capital gain corporate
tax rates. As discussed below, shareholders of the Company for taxable years of
the Company beginning on or after January 1, 1998, would receive a tax credit
for the corporate level taxes paid by the Company on any undistributed capital
gains. See "Taxation of Domestic Shareholders" below. Furthermore, if the
Company should fail to distribute during each calendar year at least the sum of
(i) 85% of its REIT ordinary income for such year, (ii) 95% 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% excise tax on the excess of such
required distribution over the amounts actually distributed.
As discussed more completely below under "Taxation of Domestic
Shareholders," the Company may elect for its taxable years beginning on or after
January 1, 1998, to retain any long-term capital gain recognized during a
taxable year ("Retained Gains") and pay a corporate level tax on such Retained
Gains. The Retained Gains are then considered to have been distributed to
holders of Common Stock.
In the opinion of Pryor Cashman Sherman & Flynn LLP, 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. In this regard, the partnership agreement of the Operating Partnership
authorizes the Company, as general partner, to take such steps as may be
necessary to cause the Operating Partnership to distribute to its partners an
amount sufficient to permit the Company to meet these distribution requirements.
It is possible, however, that the Company, from time to time, may not have
sufficient cash or other liquid assets to meet the 95% distribution requirement
due to timing differences between the actual receipt of income and actual
payment of deductible expenses and the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company, or if the amount of
nondeductible expenses such as principal amortization or capital expenditures
exceed the amount of non-cash deductions. In the event that such timing
differences occur, in order to meet the 95% distribution requirement, the
Company may, or may cause the Operating Partnership to, arrange for short-term,
or possibly long-term, borrowing to permit the payment of required dividends. If
the amount of nondeductible expenses exceeds non-cash deductions, the Operating
Partnership may refinance its indebtedness to reduce principal payments and
borrow funds for capital expenditures.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying to stockholders in a
later year "deficiency dividends," 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.
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
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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. Pursuant to the Act, the portion of any such
capital gain dividends attributable to gain recognized after July 28, 1997 with
respect to capital assets held by the Company for more than 18 months on the
date of sale will be treated as long-term capital gain taxable to the
stockholders at a maximum rate of 20% (or 25% to the extent any such gain arises
from the recapture of straight-line depreciation deductions reflected in the
basis of real property that has been held by the Company for more than 18 months
as of the date of sale), and the portion of such capital gain dividends
attributable to gain recognized with respect to property that has been held for
more than one year but not more than 18 months will be treated as long-term
capital gain taxable to the stockholders at a maximum rate of 28%. However,
corporate stockholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income.
As indicated above, pursuant to the Act, effective for its taxable years
beginning on or after January 1, 1998, the Company may elect to retain its 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% tax rate on recognized capital gains. A stockholder
owning shares of the Company's stock on December 31st of a taxable year in which
the Company has Retained Gains would be required to include in gross income such
stockholder's proportionate share of the Retained Gains (as designated by the
Company in a notice mailed to stockholders within the first 60 days of the next
year). Each stockholder would be deemed to have paid a proportional share of the
amount of tax paid by the Company with respect to the Retained Gains and would
be allowed a credit or refund for the tax deemed to be paid by him. Stockholders
receiving any such Retained Gains would increase their adjusted basis in their
shares of Company stock by an amount equal to the Retained Gains included in
their income reduced by the amount of Company tax deemed to have been paid by
them.
Distributions (not designated as capital gain dividends) in excess of
current and accumulated earnings and profits will not be taxable to a domestic
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 domestic
stockholder's shares, they will be included in income as capital gains (provided
that the shares have been held as a capital asset). Any such distribution in
excess of a stockholder's adjusted basis in his shares of Company stock will be
included in income as long-term capital gain subject to a maximum tax rate of
20% if the gain is recognized after July 28, 1997, and the shares have been held
for more than 18 months at the time of distribution, long-term capital gain
subject to a maximum tax rate of 28% if the shares have been held for more than
one year but not more than 18 months as of the time of distribution and
short-term capital gain subject to a maximum rate of up to 39.6% if the shares
were held for only one year or less. In addition, any dividend declared by the
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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.
Distributions made by the Company and gain arising from the sale or exchange
by a shareholder of shares of stock will not be treated as passive activity
income, and, as a result, shareholders generally will not be able to apply any
"passive losses" against such income or gain. Distributions made by the Company
(to the extent they do not constitute a return of capital) generally will be
treated as investment income for purposes of computing the investment interest
limitation. Gain arising from the sale or other disposition of stock, however,
will not be treated as investment income unless the stockholder elects to reduce
the amount of his total net capital gain eligible for the 28% maximum rate by
the amount of the gain with respect to the stock.
Upon any sale or other disposition of stock, a stockholder will recognize
gain or loss for federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition and (ii) the holder's
adjusted basis in such shares of stock for tax purposes. Such gain or loss will
be long-term capital gain or loss if the shares have been held for more than one
year. In general, any loss upon a sale or exchange of shares of stock by a
stockholder who has held such shares for six months or less (after applying
certain holding period rules) will be treated a long-term capital loss to the
extent that distributions from the Company were 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% 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 generally 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.
TAXATION OF TAX-EXEMPT STOCKHOLDERS. Based upon published rulings by the
IRS, distributions by the Company to a stockholder that is a tax exempt entity
will not constitute "unrelated business taxable income" (UBTI"), provided that
the tax-exempt entity has not financed the acquisition of its shares with
"acquisition indebtedness" within the meaning of the Code and the shares are not
otherwise used in an unrelated trade or business of the tax-exempt entity.
Similarly, income from the sale of shares of stock will not constitute UBTI,
provided that the tax-exempt entity has not financed the acquisition of its
shares with "acquisition indebtedness" within the meaning of the Code and the
shares are not otherwise used in an unrelated trade or business of the
tax-exempt entity.
For tax-exempt stockholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans, exempt from federal income taxation under Code
Sections 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective investors should consult their own tax advisors concerning these
"set-aside" and reserve requirements.
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Notwithstanding the above, however, a portion of the dividends paid by a
"pension-held REIT" shall be treated as UBTI as to any trust which (i) is
described in Code Section 4011(a), (ii) is tax-exempt under Code Section 501(a)
and (iii) holds more than 10% (by value) of the interests in the REIT.
Tax-exempt pension funds that are described in Code section 401(a) and exempt
from tax under Code section 501(a) are referred to below as "qualified trusts."
A REIT is a "pension-held REIT" if (i) it would not have qualified as a REIT
but for the fact that Code Section 856(h)(3) provides that stock owned by
qualified trusts shall be treated, for purposes of the "not closely held"
requirement, as owned by the beneficiaries of the trust (rather than by the
trust itself), and (ii) either (a) at least one such qualified trust holds more
than 25% (by value) of the interests in the REIT or (b) one or more such
qualified trusts, each of whom owns more than 10% (by value) of the interests in
the REIT, hold in the aggregate more than 50% (by value) of the interests in the
REIT. The percentage of any REIT dividend treated as UBTI is equal to the ration
of (i) the UBTI earned by the REIT (treating the REIT as if it were a qualified
trust and therefore subject to tax on UBTI) to (ii) the total gross income of
the REIT. A DE MINIMIS exception applies where the percentage is less than 5%
for any year. The provisions requiring qualified trusts to treat a portion of
REIT distributions as UBTI will not apply if the REIT is able to satisfy the
"not closely held" requirement without relying upon the "look-through" exception
with respect to qualified trusts. The Company does not expect to be classified
as a "pension-held REIT."
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-US. Stockholders should
consult with their tax advisors to determine the impact of U.S. federal, state
and local income tax laws with regard to an investment in stock of the Company,
including any reporting requirements.
Distributions by the Company to a Non-U.S. Stockholder that are neither
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% of
the gross amount of the distribution unless an applicable tax treaty reduces
that tax. Under certain treaties, lower withholding rates generally applicable
to dividends do not apply to dividends from a REIT. However, if income from the
investment in the stock 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 and are generally not subject
to withholding. Any such effectively connected distributions received by a
Non-U.S. Stockholder that is a corporation may also be subject to an additional
branch profits tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. The Company expects to withhold U.S. income tax at
the rate of 30% 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. For FIRPTA withholding purposes (discussed
below) such distribution will be treated as consideration for the sale or
exchange shares of stock. 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.
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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.
Distributions to a Non-U.S. stockholder that are designed by the Company at
the time of distribution as capital gain dividends (other than those arising
from the dispositions a U.S. real property interest) generally will not be
subject to U.S. federal income taxation unless (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. stockholder with respect to such gain (except that a stockholder that is a
foreign corporation may also be subject to the 30% branch profits tax, as
discussed above), or (ii) the Non-U.S. stockholder is a nonresident alien
individual who is 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
non-resident alien individual will be subject to a 30% tax on the individual's
capital gains.
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% 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% 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
United States federal income tax liability. The Company or any nominee (e.g.,
broker holding shares in street name) may rely on a certificate of Non-U.S.
Stockholder status on Form W-8 to determine whether withholding is required on
gains realized from the disposition of U.S. real property interests. A U.S.
stockholder who holds shares of stock on behalf of a Non-U.S. Stockholder will
bear the burden of withholding, provided that the Company has properly
designated the appropriate portion of a distribution as a capital gain dividend.
Gain recognized by a Non-U.S. Stockholder upon a sale of stock of a REIT
generally will not be taxed under FIRPTA if the REIT is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% 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 of the
Company will not be subject to taxation under FIRPTA. However, because the
Common Stock is publicly traded, no assurance can be given that the Company will
continue to be a domestically-controlled REIT. Notwithstanding the foregoing,
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 (a Non-U.S. Stockholder that is a foreign corporation may also be subject
to a 30% branch profits tax, as discussed above), 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% 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).
If the Company is not or ceases to be, a "domestically-controlled REIT,"
whether gain arising from the sale or exchange of shares of stock by a Non-U.S.
Stockholder would be subject to United States taxation under FIRPTA as a sale of
a "United States real property interest" will depend on whether any class of
stock of the Company is "regularly traded" (as defined by applicable Treasury
regulations) on an established securities market (e.g., the New York Stock
Exchange), as is the case with the Common Stock,
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and on the size of the selling Non-U.S. Stockholder's interest in the Company.
In the case where the Company is not or ceases to be a "domestically-controlled
REIT" and any class of stock of the stockholder the Company is "regularly
traded" on an established securities market at any time during the calendar
year, a sale of shares of that class of stock of the Company by a Non-U.S.
Stockholder will only be treated as a sale of a "United States real property
interest" (and thus subject to taxation under FIRPTA) if such selling
stockholder beneficially owns (including by attribution) more than 5% of the
total fair market value of all of the shares of such "regularly traded" class of
stock at any time during the five-year period ending either on the date of such
sale or other applicable determination date. To the extent the Company had one
or more classes of stock outstanding that were "regularly traded," but the
Non-U.S. Stockholder sold shares of a class of stock of the Company that was not
"regularly traded," the sale of shares of such letter class would be treated as
a sale of a "United States real property interest under the foregoing rule only
if the shares of such latter class acquired by the Non-U.S. Stockholder had a
total net market value on the date they were acquired that was greater than 5%
of the total fair market value of the "regularly traded" class of Company stock
having the lowest fair market value (or with respect to a nontraded class of
Company stock convertible into a "regularly traded" market value on the date of
acquisition of the total fair market value of the "regularly traded' class into
which it is convertible. If gain on the sale or exchange of shares of stock were
subject to taxation under FIRPTA, the Non U.S. Stockholder would be subject to
regular United States income tax with respect to such gain in the same manner as
a U.S. Stockholder (subject to any applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals);
provided, however, that deductions otherwise allowable will be allowed as
deductions only if the tax returns were filed within the time prescribed by law.
In general, the purchaser of the stock would be required to withhold and remit
to the IRS, 10% of the amount realized by the seller on the sale of such stock.
NEW WITHHOLDING REGULATIONS. Final regulations pertaining to withholding
tax on income paid to foreign persons and related matters (the "New Withholding
Regulations") were issued by the Treasury Department on October 6, 1997 and
published in the Federal Register on October 14, 1997. In general, the New
Withholding Regulations do not significantly alter the substantive withholding
and information reporting requirements, but unify current certification
procedures and forms and clarify reliance standards. For example, the New
Withholding Regulations adopt a certification rule which was in the proposed
regulations, under which a foreign shareholder who wishes to claim the benefit
of an applicable treaty rate with respect to dividends received from a United
States corporation will be required to satisfy certain certification and other
requirements. In addition, the New Withholding Regulations require a corporation
that is a REIT to treat as a dividend the portion of a distribution that is not
designated as a capital gain dividend or return of basis and apply the 30%
withholding tax (subject to any applicable deduction or exemption) to such
portion, and to apply the FIRPTA withholding rules (discussed above) with
respect to the portion of the distribution deemed to have been designated by the
REIT as capital gain dividend. The New Withholding Regulations will generally be
effective for payments made after December 31, 1999, subject to certain
transition rules. EXCEPT AS NOTED, THE DISCUSSION SET FORTH ABOVE IN "TAXATION
OF FOREIGN SHAREHOLDERS" DOES NOT TAKE THE NEW WITHHOLDING REGULATIONS INTO
ACCOUNT. PROSPECTIVE FOREIGN SHAREHOLDERS ARE STRONGLY URGED TO CONSULT THEIR
TAX ADVISORS WITH RESPECT TO THE NEW WITHHOLDING REGULATIONS.
OTHER TAX MATTERS
EFFECT ON REIT QUALIFICATION OF TAX STATUS OF OPERATING PARTNERSHIP AND
OTHER PARTNERSHIPS. Substantially, all of the Company's investments will be
made through the Operating Partnership, which in turn will hold interests in
other property partnerships. In general, partnerships are "pass-through"
entities which are not subject to federal income tax. Rather, partners are
allocated their proportionate shares of the items of income, gain, loss,
deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. The Company will
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include in its income its proportionate share of the foregoing partnership items
for purposes of the Gross income Tests in the computation of its REIT taxable
income. Moreover, for purposes of the REIT asset tests, the Company will include
its proportionate share of assets held by the Operating Partnership. See
"--Taxation of the Company as a REIT."
The ownership of an interest in a partnership 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's 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 generally be retained after January 1, 1997, unless an
entity elects to change its status by filing formal election. The Company
believes that it has a reasonable basis for the classification of the Operating
Partnership and the property partnerships as partnerships for federal income tax
purposes and has neither filed does the Company intend to file an election to be
treated otherwise. If any of the partnerships, elected to be treated as an
association, they would be taxable as a corporations. In such a situation, if
the Company's ownership in any of the partnerships exceeded 10% of the
partnership's voting interests or the value of such interest exceeded 5% 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% Gross Income Test described above and which could make it
more difficult for the Company to meet the 75% 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
"Taxation of the Company as a REIT--"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 have been and will continue
to be treated for tax purposes as a partnership (and not as an association
taxable as a corporation). No assurance can be given that the IRS may not
successfully challenge the tax status of any of the partnerships.
PARTNERSHIP ALLOCATIONS. Although a partnership agreement will generally
determine the allocation of income and loss among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Code Section 704(b) and the Treasury regulations promulgated thereunder.
Generally, Code Section 704(b) and the Treasury regulations promulgated
thereunder require that partnership allocations respect the economic arrangement
of the partners.
If an allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the
partners with respect to such item. The Operating Partnership's allocations of
taxable income and loss are intended to comply with the requirements of Code
Section 704b) and the Treasury regulations promulgated thereunder.
The Partnership Agreement provides that net income or net loss of the
Operating Partnership will generally be allocated to the Company and the limited
partners in accordance with their respective percentage interests in the
Operating Partnership. In addition, allocations of net income or net loss will
be subject to compliance with provisions of Code Sections 704(b) and 704(c) and
the Treasury regulations promulgated thereunder.
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
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manner ensuring 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 certain Properties (or
interests in partnerships holding certain Properties) contributed to the
Operating Partnership are substantially in excess of their adjusted tax bases.
The partnership agreements of the Operating Partnership and other partnerships
controlled by the Operating Partnership and/or the Company 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 contribution of property (including interests
in other partnerships) to the Operating Partnership 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 Operating Partnership and other
partnerships that it controls 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 have been and will continue to be limited by
the so-called "ceiling rule" which 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. As a result, the Company will be
required to distribute more dividends in order to satisfy a 95% distribution
requirement than it would have had the Company purchased the assets for cash in
a taxable transaction. See "Annual Distribution Requirements" above for a
discussion of distributions requirements. In addition, the amount of tax-free
return of capital to each domestic stockholder will be less than the amount such
Stockholder would have realized had the Company purchased assets for cash in a
taxable transaction.
BASIS IN OPERATING PARTNERSHIP INTEREST. The Company's adjusted tax basis
in its interest in the operating Partnership generally (i) will be equal to the
amount of cash and the basis of any other property contributed to the Operating
Partnership by the Company, (ii) will be increased by (a) its allocable share of
the Operating Partnership's income and (b) its allocable share of indebtedness
of the Operating Partnership and (iii) will be reduced, but not below zero, by
the Company's allocable share of (a) losses suffered by the Operating
Partnership, (b) the amount of cash distributed to the Company and (c) by
constructive distributions resulting from a reduction in the Company's share of
indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the company's partnership
interest in the Operating Partnership, the recognition of such excess loss will
be deferred until such time and to the extent that the Company has adjusted tax
basis in its interest in the Operating Partnership. To the extent that the
Operating Partnership's distributions, or any decrease in the Company's share of
the indebtedness of the Operating partnership (such decreases being considered a
constructive cash distribution to the partners), exceeds the Company's adjusted
tax basis, such excess distributions (including such constructive distributions)
will constitute taxable income to
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the Company. Such taxable income will normally be characterized as a capital
gain, and if the Company's interest in the Operating Partnership has been held
for longer than the long-term capital gain holding period (currently one year),
such distributions and constructive distributions) will constitute taxable
income to the Company.
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 investors
should consult their own tax advisors regarding the effect of state and local
tax laws on an investment in the Offered Securities.
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
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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 of Mack-Cali Realty, L.P., Mack-Cali Property
Partnerships and Combined Mack-Cali Realty, L.P. and Property Partnerships as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997 included in this Prospectus have been so included 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 by reference to the Annual Report on
Form 10-K of the Company 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 by reference to the Current Reports on Form 8-K of the Company, dated
September 18, 1997 and January 16, 1998, respectively, have been so incorporated
in reliance on the reports of Schonbraun Safris McCann Bekritsky & Co., L.L.C.,
independent accountants, given on the authority of said firm as experts in
auditing and accounting. The financial statements of The Mack Group incorporated
in this Prospectus by reference to the Company's Proxy Statement, dated
November 10, 1997, except as they relate to the unaudited nine-month periods
ended September 30, 1997 and 1996 and except as they relate to Patriot American
Office Group, have been audited by PricewaterhouseCoopers LLP, independent
accountants, and, insofar as they relate to Patriot American Office Group, by
Ernst & Young LLP, independent auditors. Such financial statements have been so
incorporated in reliance on the reports of such independent accountants given on
the authority of such firms as experts in auditing and accounting. The financial
statements for Prudential Business Campus and for Morris County Financial Center
incorporated in this Prospectus by reference to the Current Report on Form 8-K
of the Company, 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 by reference to the Current Reports on
Form 8-K of the Company, dated June 12, 1998 have been so incorporated in
reliance on the reports of Schonbraun Safris McCann Bekritsky & Co., L.L.C.,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
Certain legal matters in connection with the Offered Securities as well as
certain legal matters described under "Material 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 LLP, New York, New York. Certain legal
matters relating to Maryland law, including the validity of the issuance of
certain of the securities registered hereby, will be passed upon for the Company
by Ballard Spahr Andrews & Ingersoll, LLP, Baltimore, Maryland.
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