<PAGE>
Filed pursuant to Rule 424(b)(5)
Registration No. 333-9081
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST 2, 1996)
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15,250,000 Shares
CALI REALTY CORPORATION
Common Stock
[LOGO]
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Cali Realty Corporation (the "Company") is a fully integrated, self-administered
and self-managed real estate investment trust ("REIT") that owns and operates a
portfolio comprised predominantly of Class A office and office/ flex buildings
located primarily in New Jersey, as well as commercial real estate leasing,
management, acquisition, development and construction businesses. As of
September 30, 1996, the Company and its subsidiaries owned 100 percent of 44
office and office/flex properties encompassing approximately 4.3 million net
rentable square feet and one multifamily residential property (collectively, the
"Properties"). On November 4, 1996, the Company acquired the 1.9 million square
foot Harborside Financial Center office complex in Jersey City, New Jersey. See
"Recent Developments--Acquisitions."
The 15,250,000 shares of common stock of the Company, par value $.01 per share
(the "Common Stock"), offered hereby (the "Offering") are being sold by the
Company. The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "CLI." The last reported sales price of the Common Stock on the
NYSE on November 18, 1996 was $26.875 per share. See "Price Range of Common
Stock and Distributions."
The shares of Common Stock are subject to certain restrictions on ownership
designed to preserve the Company's status as a REIT for federal income tax
purposes. See "Description of Common Stock" and "Restrictions on Ownership of
Offered Securities" in the accompanying Prospectus.
SEE "RISK FACTORS" ON PAGES S-7 TO S-11 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
COMMON STOCK OFFERED HEREBY.
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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 SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and
Public Commissions(1)
<S> <C> <C>
Per Share............................................................... $26.625 $1.40
Total(3)................................................................ $406,031,250 $21,350,000
<CAPTION>
Proceeds to
Company(2)
<S> <C>
Per Share............................................................... $25.225
Total(3)................................................................ $384,681,250
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $2,000,000.
(3) The Company has granted the several Underwriters a 30-day over-allotment
option to purchase up to 2,287,500 additional shares of Common Stock on the
same terms and conditions as set forth above. If all such shares are
purchased by the Underwriters, the total Price to Public will be
$466,935,938, the total Underwriting Discounts and Commissions will be
$24,552,500 and the total Proceeds to Company will be $442,383,438. See
"Underwriting."
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The shares of Common Stock are offered by the several Underwriters, subject to
delivery by the Company and acceptance by the Underwriters, to prior sale and to
withdrawal, cancellation or modification of the offer without notice. Delivery
of the shares to the Underwriters is expected to be made at the office of
Prudential Securities Incorporated, One New York Plaza, New York, New York, on
or about November 22, 1996.
PRUDENTIAL SECURITIES INCORPORATED
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES
CORPORATION
MORGAN STANLEY & CO.
INCORPORATED
SMITH BARNEY INC.
November 18, 1996
<PAGE>
[INSIDE COVER PAGE]
[MAP/PICTURES TO BE INSERTED]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR INCORPORATED HEREIN OR THEREIN BY
REFERENCE. UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS
PROSPECTUS SUPPLEMENT ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL
NOT BE EXERCISED. ALL REFERENCES TO THE COMPANY IN THIS PROSPECTUS SUPPLEMENT
INCLUDE THE COMPANY, ITS SUBSIDIARIES AND THE OTHER ENTITIES OWNED OR CONTROLLED
BY THE COMPANY, INCLUDING CALI SERVICES, INC., UNLESS THE CONTEXT INDICATES
OTHERWISE. AS USED HEREIN, "UNITS" REFERS TO LIMITED PARTNERSHIP INTERESTS IN
CALI REALTY, L.P., A DELAWARE LIMITED PARTNERSHIP (THE "OPERATING PARTNERSHIP")
THROUGH WHICH THE COMPANY CONDUCTS ITS REAL ESTATE ACTIVITIES.
THE COMPANY
The Company is a fully integrated REIT that owns and operates a portfolio
comprised predominantly of Class A office and office/flex buildings located
primarily in New Jersey, as well as commercial real estate leasing, management,
acquisition, development and construction businesses. As of September 30, 1996,
the Company owned 100 percent of 44 office and office/flex properties
encompassing approximately 4.3 million net rentable square feet and one
multifamily residential property. The 44 office and office/flex properties are
comprised of 27 office buildings containing an aggregate of 3.6 million square
feet (the "Office Properties") and 17 office/flex buildings containing an
aggregate of approximately 700,000 square feet (the "Office/Flex Properties").
The Company believes that its Properties have excellent locations and access and
are well-maintained and professionally managed. As a result, the Company
believes that its Properties attract high quality tenants and achieve among the
highest rent, occupancy and tenant retention rates within their markets. As of
September 30, 1996, the Office Properties and Office/Flex Properties were
approximately 97 percent leased to over 430 tenants. On November 4, 1996, the
Company acquired the 1.9 million square foot Harborside Financial Center office
complex in Jersey City, New Jersey. See "Recent Developments--Acquisitions." The
Company provides substantially all construction, leasing, management and tenant
improvements on an "in-house" basis and is self-administered and self-managed.
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 building development and acquisitions for the past 16 years. In addition
to the Founders, the Company's executive officers have been employed by the
Company and its predecessor for an average of ten years. The Company and its
predecessor have built approximately four million square feet of office space,
more than one million square feet of industrial facilities and over 5,500
residential units.
RECENT DEVELOPMENTS
OPERATING PERFORMANCE
The Company has consistently increased its Funds from Operations since the
closing of its initial public offering in August 1994 (the "IPO"). The Company's
Funds from Operations (after adjustment for the straight-lining of rents) for
the nine months ended September 30, 1996 grew to $30.0 million from $19.3
million for the corresponding 1995 period. As a result of the Company's improved
operating performance, in September 1996, the Company announced a 5.9 percent
increase in its regular quarterly distribution, commencing with the Company's
distribution with respect to the third quarter of 1996, from $.425 per share to
$.450 per share of Common Stock ($1.80 per share on an annualized basis). Since
the IPO, the Company has increased its regular quarterly distribution by 11.4
percent.
S-3
<PAGE>
ACQUISITIONS
Since the IPO, including the Harborside and Five Sentry acquisitions, as
defined below, the Company has invested over $500 million in the purchase of 38
office and office/flex properties, increasing its portfolio by approximately 190
percent (based upon total net rentable square feet).
On November 4, 1996, the Company acquired Harborside Financial Center
("Harborside"), a 1.9 million square foot office complex located in Jersey City,
New Jersey, for an acquisition cost of approximately $287.4 million. The
acquisition of Harborside, which is located on the Hudson River waterfront
directly across from downtown Manhattan, increased the Company's total office
and office/flex portfolio by approximately 44 percent to approximately 6.2
million net rentable square feet. The purchase price included the assumption of
existing and seller-provided financing aggregating approximately $150.0 million.
The existing financing of approximately $107.9 million bears interest at a fixed
rate of 7.32 percent for a term of approximately nine years. The seller-provided
financing of approximately $42.1 million also has a term of nine years and
initially bears interest at a rate of 6.99 percent. The interest rate on the
seller-provided financing will be reset at the end of the third and sixth loan
years based on the yield of the three year treasury obligation at that time,
with spreads of 110 basis points in years four through six and 130 basis points
in years seven through maturity. The balance of the acquisition cost, totaling
approximately $137.4 million, was paid in cash and was primarily drawn from the
Company's credit facilities. See "The Company--Financing Activities." Harborside
is located in the Exchange Place sub-market of Jersey City, adjacent to the
Exchange Place Port Authority Trans-Hudson ("PATH") train station. As of
September 30, 1996, the property was approximately 95 percent leased.
Harborside's largest tenant is Bankers Trust Harborside, Inc., which leases
385,000 square feet of space. Other major tenants include Dow Jones Telerate
Holdings, Inc., the American Institute of Certified Public Accountants (AICPA),
Dean Witter Trust Company and Bank of Tokyo. As part of the purchase, the
Company also acquired 11.3 acres of land fully zoned and permitted for an
additional 4.1 million square feet of development and the water rights
associated with 27.4 acres of land extending into the Hudson immediately east of
Harborside, including two piers with an area of 5.8 acres.
On November 7, 1996, the Company acquired Five Sentry ("Five Sentry"), a
two-building office complex comprised of approximately 131,000 net rentable
square feet located in Plymouth Meeting, Montgomery County, Pennsylvania. The
property was acquired for approximately $12.4 million in cash, which was drawn
from one of the Company's revolving credit facilities. As of September 30, 1996,
the property was 99 percent leased. The property's major tenants include Merck,
Inc. and Selas Fluid Processing Corp.
PROPOSED ACQUISITIONS
The Company also has contracts to acquire two additional office properties
(the "Proposed Acquisitions") for an aggregate purchase price of approximately
$78.2 million. The Proposed Acquisitions are expected to close by December 31,
1996, but there can be no assurance that either or both of them will be acquired
at such time or at any time. The Company is completing its due diligence review,
physical inspection and valuation analysis of each of the Proposed Acquisitions.
Set forth below are brief descriptions of the two Proposed Acquisitions:
- AIRPORT CENTER. A three-building office complex comprised of approximately
370,000 net rentable square feet located in Lester, Delaware County,
Pennsylvania, to be acquired for approximately $43.0 million in cash. As
of September 30, 1996, the property was 100 percent leased. The property's
major tenants include SAP America, Inc., PNC Bank and Mercy Health Plan.
- WHITEWELD CENTRE. A three-story, approximately 230,000 net rentable square
foot office building located in Woodcliff Lake, Bergen County, New Jersey,
to be acquired for approximately $35.2 million in cash. As of September
30, 1996, the property was 99 percent leased. The property's major tenants
include Medco Containment Service, Inc., Xerox Corp., Chase Manhattan
Mortgage Corp. and Comdisco Inc.
S-4
<PAGE>
FINANCING ACTIVITIES
On November 4, 1996, the Company obtained an $80.0 million revolving credit
facility from Prudential Securities Credit Corp. ("PSC"), an affiliate of
Prudential Securities Incorporated (the "New Credit Facility"), in connection
with and concurrently with the closing of the Harborside acquisition. The New
Credit Facility bears interest at a floating rate equal to 125 basis points over
one-month London Inter-Bank Offered Rate (LIBOR). PSC will have full recourse to
the assets of the Company with respect to outstanding borrowings under the New
Credit Facility. In addition, the New Credit Facility is secured by the
Company's equity interest in Harborside. The New Credit Facility matures on
January 15, 1998, unless PSC elects to extend the maturity date to a date not
earlier than June 30, 1998 or the facility is refinanced prior to such date at
the election of PSC or the Company. The terms of the New Credit Facility include
certain restrictions and covenants that limit, among other things, dividend
payments and additional indebtedness and that require compliance with specified
financial ratios and other financial measurements.
In connection with the acquisition of Harborside, the Company assumed
approximately $107.9 million of existing financing and approximately $42.1
million of seller-provided financing.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered Hereby.................. 15,250,000 shares
Common Stock Outstanding after the 34,031,394 shares(1)
Offering...................................
Use of Proceeds.............................. To repay certain outstanding borrowings under
the Company's credit facilities, to acquire
the Proposed Acquisitions and for general
corporate purposes.
NYSE Symbol.................................. CLI
</TABLE>
- ------------------------
(1) Excludes 2,689,945 shares of Common Stock that may be issued upon the
redemption of Units and 1,759,190 shares of Common Stock reserved for
issuance pursuant to the Company's stock option plans, of which options for
1,534,987 shares are currently outstanding.
S-5
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
The following table sets forth selected financial data on a consolidated
basis for the Company. The consolidated summary financial data of the Company as
of and for the period ended December 31, 1995 have been derived from audited
financial statements. The consolidated summary financial data of the Company as
of September 30, 1996 and for the nine months ended September 30, 1996 and 1995
have been derived from unaudited financial statements which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the unaudited
interim periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED
---------------------------- DECEMBER 31,
1996 1995 1995
------------- ------------- ------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
OPERATING DATA:
Revenues................................................................. $ 63,094 $ 44,799 $ 62,335
Operating and other expenses............................................. $ 23,686 $ 17,582 $ 24,417
Depreciation and amortization............................................ $ 10,655 $ 8,936 $ 12,111
Interest expense......................................................... $ 8,288 $ 6,161 $ 8,661
Gain on sale of rental property.......................................... $ 5,658 -- --
Income before minority interest and extraordinary item................... $ 26,123 $ 12,120 $ 17,146
Income before extraordinary item......................................... $ 22,257 $ 9,500 $ 13,638
Extraordinary item-loss on early retirement of debt...................... $ 475 -- --
Net income............................................................... $ 21,782 $ 9,500 $ 13,638
Net income per common share.............................................. $ 1.38 $ .91 $ 1.23
Dividends declared per common share...................................... $ 1.30 $ 1.23 $ 1.66
Weighted average number of common shares................................. 15,803 10,424 11,122
BALANCE SHEET DATA (AT PERIOD END):
Rental property, before accumulated
depreciation and amortization.......................................... $ 440,790 $ 283,848 $ 387,675
Total assets............................................................. $ 421,839 $ 262,924 $ 363,949
Mortgages and loans payable.............................................. $ 112,856 $ 117,764 $ 135,464
Total liabilities........................................................ $ 130,131 $ 130,047 $ 150,058
Stockholders' equity..................................................... $ 264,333 $ 103,398 $ 185,808
OTHER DATA:
Cash flows provided by operating activities.............................. $ 27,961 $ 20,032 $ 28,446
Cash flows used in investing activities.................................. $ (49,933) $ (30,076) $ (133,736)
Cash flows provided by financing activities.............................. $ 31,356 $ 4,321 $ 99,863
Funds from Operations after adjustment for straight-lining of rents
before minority interest of Unitholders(1)............................. $ 30,043 $ 19,307 $ 27,397
</TABLE>
- --------------------------
(1) The Company considers Funds from Operations (after adjustment for
straight-lining of rents) one measure of REIT performance. Funds from
Operations is defined as net income (loss) before minority interest of
unitholders computed in accordance with Generally Accepted Accounting
Principles ("GAAP"), excluding gains (or losses) from debt restructuring and
sales of property, plus real estate-related depreciation and amortization.
Funds from Operations should not be considered as an alternative for net
income as an indication of the Company'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 Company'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,
after the adjustment for straight-lining of rents.
S-6
<PAGE>
RISK FACTORS
An investment in shares of Common Stock involves various risks. Prospective
investors should consider carefully the following risk factors, in addition to
the other information set forth in this Prospectus Supplement, in connection
with an investment in the shares of Common Stock offered hereby.
FORWARD-LOOKING STATEMENTS. This Prospectus Supplement and the accompanying
Prospectus, including documents incorporated by reference, contain
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Forward-looking statements are
inherently subject to risks and uncertainties, many of which cannot be predicted
with accuracy and some of which might not even be anticipated. Future events and
actual results, financial and otherwise, may differ materially from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed below in "Risk
Factors," including changes in economic conditions and the demand for office
space in New Jersey, New York and Pennsylvania.
DEPENDENCE ON NEW JERSEY, NEW YORK AND PENNSYLVANIA OFFICE MARKETS. All of
the Properties including Harborside and Five Sentry are located in New Jersey,
New York and Pennsylvania with approximately 39 percent (based upon net rentable
square feet) located in Jersey City, New Jersey. The Company's performance will
be linked to economic conditions and the demand for office space in these states
and, in particular, in Jersey City, New Jersey. A decline in the economy in
these states generally, or in Jersey City, New Jersey in particular, may result
in a decline in the demand for office space, which may adversely affect the
ability of the Company to make distributions to stockholders. Such declines
could have a greater adverse effect on the Company because its portfolio
consists primarily of office and office/flex buildings (compared to a more
diversified real estate portfolio).
REAL ESTATE INVESTMENT CONSIDERATIONS.
GENERAL. Real estate investments are subject to varying degrees of risk. The
yields available from equity investments in real estate depend on the amount of
income earned and capital appreciation generated by the related properties as
well as the expenses incurred in connection therewith. If the Properties do not
generate income sufficient to meet operating expenses, including debt service
and capital expenditures, the ability to make distributions to the Company's
stockholders could be adversely affected. Income from the Properties may be
adversely affected by the general economic climate, local conditions such as
oversupply of office space or a reduction in demand for office space in the
area, the attractiveness of the Properties to potential tenants, competition
from other office and office/flex buildings, the ability of the Company to
provide adequate maintenance and increased operating costs (including insurance
premiums and real estate taxes). In addition, revenues from properties and real
estate values are also affected by such factors as the cost of compliance with
regulations and the potential for liability under applicable laws, including
changes in tax laws and housing laws, interest rate levels and the availability
of financing. The Company's income would be adversely affected if a significant
number of tenants did not renew expiring leases (and if the Company were unable
to release such space on favorable terms) or were unable to pay rent or if
office space generally could not be rented on favorable terms. Certain
significant expenditures associated with an investment in real estate (such as
mortgage payments, real estate taxes and maintenance costs) generally are not
reduced when circumstances cause a reduction in income from the investment.
FINANCIALLY DISTRESSED TENANTS. In the event of any default by a tenant,
the Company may experience delays in enforcing its rights as landlord and may
incur substantial costs in protecting its investment. At any time, a tenant of
the Properties may seek the protection of the bankruptcy laws, which could
result in the rejection and termination of such tenant's lease and thereby cause
a reduction in the cash flow available for distribution by the Company.
S-7
<PAGE>
ILLIQUIDITY OF REAL ESTATE. Real estate investments are relatively illiquid
and, therefore, the Company has limited ability to vary its portfolio quickly in
response to changes in economic or other conditions. In addition, the
prohibition in the Internal Revenue Code of 1986, as amended (the "Code"), and
related regulations on a REIT holding property for sale may affect the Company's
ability to sell properties without adversely affecting distributions to the
Company's stockholders.
COMPLIANCE WITH LAWS AND REGULATIONS. Many laws and governmental
regulations are applicable to the Properties and changes in these laws and
regulations, or their interpretation by agencies and the courts, occur
frequently. Under the Americans with Disabilities Act of 1990 (the "ADA"), all
places of public accommodation are required to meet certain federal requirements
related to access and use by disabled persons. Compliance with the ADA requires
removal of structural barriers to handicapped access in certain public areas
where such removal is "readily achievable." A number of additional federal,
state and local laws exist which also may require modifications to the
Properties, or restrict certain further renovations thereof, with respect to
access thereto by disabled persons. Noncompliance with the ADA or any of such
other laws could result in the imposition of fines or an award of damages to
private litigants. Although management of the Company believes that the
Properties are substantially in compliance with present requirements, final
regulations under the ADA have not yet been promulgated and the Company is
likely to incur additional costs of complying with the ADA. If required changes
involve a greater amount of expenditures than the Company currently anticipates
or if the changes must be made on a more accelerated schedule than the Company
currently anticipates, the Company's ability to make expected distributions to
stockholders could be adversely affected.
Under various laws and regulations relating to the protection of the
environment, an owner of real estate may be held liable for the costs of removal
or remediation of certain hazardous or toxic substances located on or in the
property. These laws often impose liability without regard to whether the owner
was responsible for, or even knew of, the presence of such substances. The
presence of such substances may adversely affect the owner's ability to rent or
sell the property or to borrow using such property as collateral and may expose
it to liability resulting from any release or exposure of such substances.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances at another location may also be liable for the costs of removal or
remediation of such substances at the disposal or treatment facility, whether or
not such facility is owned or operated by such person. Certain environmental
laws impose liability for release of asbestos-containing materials into the air,
and third parties may also seek recovery from owners or operators of real estate
properties for personal injury associated with asbestos-containing materials and
other hazardous or toxic substances. In connection with the ownership (direct or
indirect), operation, management and development of real properties, the Company
may be considered an owner or operator of such properties or as having arranged
for the disposal or treatment of hazardous or toxic substances and, therefore,
potentially liable for removal or remediation costs, as well as certain other
related costs, including governmental penalties and injuries to persons and
property.
COMPETITION IN THE COMPANY'S MARKETS. The Company plans to acquire
additional office buildings in New Jersey, New York, Pennsylvania and in the
Northeast generally. There are a number of office building developers and real
estate companies that compete with the Company in seeking properties for
acquisition, prospective tenants and land for development. All of the Properties
are in developed areas where there are other properties of the same type.
Competition from other office properties may affect the Company's ability to
attract and retain tenants, rental rates and expenses of operation (particularly
in light of the higher vacancy rates of many competing properties which may
result in lower-priced space being available in such properties). The Company
may be competing with other entities that have greater resources than the
Company and whose managers have more experience than the Company's directors and
officers.
RISKS OF REAL ESTATE DEVELOPMENT. While the Company's primary focus is on
acquisitions of property, it is a part of the Company's operating strategy,
under certain conditions, to seek selective, attractive
S-8
<PAGE>
opportunities for development. The real estate development business involves
significant risks in addition to those involved in the ownership and operation
of established office, industrial or multifamily residential apartment
buildings, including the risks that financing may not be available on favorable
terms for development projects, construction may not be completed on schedule or
budget resulting in increased debt service expense and construction costs, and
long-term financing may not be available upon completion of construction.
REAL ESTATE FINANCING RISKS.
DEBT FINANCING AND DEBT MATURITIES. The Company is subject to the risks
normally associated with debt financing, including the risk that the Company's
cash flow will be insufficient to meet required payments of principal and
interest, the risk that indebtedness on the Properties will not be able to be
refinanced at maturity or that the terms of such refinancing will not be as
favorable as the terms of such indebtedness.
As of September 30, 1996, the Company had outstanding an aggregate of
approximately $83.1 million of long-term mortgage indebtedness (in addition to
borrowings under the Company's revolving credit facilities). This indebtedness
requires, among other things, a balloon payment of approximately $64.5 million
on August 31, 1999 and, with respect to the remaining approximately $18.5
million thereof, payment of principal and interest on a 20-year amortization
schedule, with the remaining principal balance due October 1, 2003. As of
September 30, 1996, $29.8 million was outstanding under the Company's revolving
credit facilities. Through November 18, 1996, net additional borrowings under
such revolving credit facilities totaled $63.7 million. As of the closing of the
Harborside acquisition on November 4, 1996, an additional $80.0 million was
outstanding under the New Credit Facility. In addition, in connection with the
acquisition of Harborside, the Company assumed approximately $107.9 million of
existing financing, which matures in approximately nine years and approximately
$42.1 million of seller-provided financing, which matures in nine years. See
"Recent Developments--Acquisitions." The Company currently believes it will have
to refinance the principal due on its long-term mortgage indebtedness at
maturity. There can be no assurance, however, that the Company will be able to
refinance any indebtedness the Company may incur.
If the Company were unable to refinance its indebtedness on acceptable
terms, or at all, the Company might be forced to dispose of one or more of the
Properties upon disadvantageous terms, which might result in losses to the
Company and might adversely affect its ability to make distributions. If
prevailing interest rates or other factors at the time of refinancing were to
result in higher interest rates on refinancing, the Company's interest expense
would increase, which would adversely affect the Company's cash flow and its
ability to pay expected distributions to stockholders. Further, if a Property is
mortgaged to secure payment of indebtedness and the Company is unable to meet
mortgage payments, the mortgagee could foreclose upon the Property, appoint a
receiver and receive an assignment of rents and leases or pursue other remedies,
all with a consequent loss of income and asset value to the Company.
Foreclosures could also create taxable income without accompanying cash
proceeds, thereby hindering the Company's ability to meet the REIT distribution
requirements of the Code.
RISK OF RISING INTEREST RATES. Advances under the Company's revolving
credit facilities, as well as certain borrowings under the Company's long-term
mortgage indebtedness, bear interest at variable rates. In addition, the Company
may incur other indebtedness in the future that also bears interest at a
variable rate. Accordingly, increases in interest rates could increase the
Company's interest expense, which could adversely affect the Company's cash flow
and its ability to pay expected distributions to stockholders or cause the
Company to be in default under certain debt covenants.
NO LIMITATION ON DEBT. The Company funds acquisitions and development
partially through short-term borrowings (including the revolving credit
facilities), as well as out of undistributed cash available for distribution and
other available cash. It expects to refinance projects purchased with short-term
debt either
S-9
<PAGE>
with long-term indebtedness or equity financing depending upon the economic
conditions at the time of refinancing. The Board of Directors has a general
policy of limiting its indebtedness to total market capitalization (i.e., the
market value of the issued and outstanding shares of Common Stock, including
interests redeemable therefor, plus any preferred stock that may be outstanding
and total debt), but the organizational documents of the Company do not contain
any limitation on the amount or percentage of indebtedness, funded or otherwise,
that the Company may incur. The Board of Directors could alter or eliminate its
current policy on borrowing at any time at its discretion. If this policy were
changed, the Company could become more highly leveraged, resulting in an
increase in debt service that could adversely affect the Company's cash flow and
its ability to make expected distributions to its stockholders and an increased
risk of default on the Company's obligations.
LIMITS ON OWNERSHIP. In order to maintain its qualification as a REIT, not
more than 50 percent in value of the outstanding stock of the Company may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities). In light of the ownership positions of
certain stockholders of the Company immediately following the closing of its
IPO, the Company has limited ownership of the outstanding shares of Common Stock
by any single stockholder to 9.8 percent of the outstanding shares of Common
Stock (with exceptions for the former principals of the Cali Group who
collectively own Units redeemable for approximately 13 percent of the
outstanding shares of Common Stock after giving effect to the conversion of such
Units). The former principals of the Cali Group are permitted to acquire
additional shares of Common Stock, except to the extent that such acquisition
results in 50 percent or more in value of the outstanding shares of Common Stock
of the Company being owned, directly or indirectly, by five or fewer
individuals. The Board of Directors could waive this restriction if it were
satisfied, based upon the advice of tax counsel or otherwise, that such action
would be in the best interests of the Company. Common Stock acquired or
transferred in breach of the limitation may be redeemed by the Company for the
lesser of the price paid and the average closing price for the 10 trading days
immediately preceding redemption or sold at the direction of the Company. The
Company may elect to redeem such shares of Common Stock for Units, which are
nontransferable except in very limited circumstances. Any transfer of shares of
Common Stock to a person who, as a result of the transfer, violates the
ownership limit will be deemed void. Although the Company currently intends to
continue to operate in a manner designed to qualify as a REIT, it is possible
that future economic, market, legal, tax or other considerations may cause the
Company's Board of Directors to revoke the election for the Company to qualify
as a REIT. Under the Company's Articles of Incorporation, the Board of Directors
can make such revocation without the consent of the Company's stockholders.
In addition, the consent of the holders of at least 85 percent of the Units
is required: (i) to merge (or permit the merger of) the Operating Partnership
with another unrelated person, pursuant to a transaction in which the Operating
Partnership is not the surviving entity; (ii) to dissolve, liquidate or wind-up
the Operating Partnership; or (iii) to convey or otherwise transfer all or
substantially all of the Operating Partnership's assets. The Company as general
partner of the Operating Partnership owns approximately 87.5 percent
(approximately 92.7 percent after giving effect to this Offering) of the
outstanding Units.
DEPENDENCE ON KEY PERSONNEL. The Company is dependent on the efforts of its
Chairman and executive officers, particularly John J. Cali, Thomas A. Rizk, John
R. Cali and Brant Cali, for strategic business direction and real estate
experience. While the Company believes that it could find replacements for these
key personnel, the loss of their services could have an adverse effect on the
operations of the Company. The Company has entered into three-year employment
agreements (including non-competition provisions) terminating in August 1997, if
not otherwise extended, with each of John J. Cali, Thomas A. Rizk, John R. Cali
and Brant Cali. See "Management." The Company does not have, and is not
currently contemplating obtaining, key man life insurance for its executive
officers.
S-10
<PAGE>
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT.
TAX LIABILITIES AS A CONSEQUENCE OF FAILURE TO QUALIFY AS A REIT. The
Company has operated so as to qualify as a REIT under the Code, commencing with
its taxable year ending December 31, 1994. Although the Company believes that it
will continue to operate in such a manner, no assurance can be given that the
Company will be able to operate in a manner so as to remain so qualified.
Qualification as a REIT involves the satisfaction of numerous requirements (some
on an annual and quarterly basis) established under highly technical and complex
Code provisions for which there are only limited judicial or administrative
interpretations, and involve the determination of various factual matters and
circumstances not entirely within the Company's control.
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at corporate rates. Moreover,
unless entitled to relief under certain statutory provisions, the Company also
would be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification is lost. This treatment would
reduce the net earnings of the Company available for investment or distribution
to stockholders because of the additional tax liability to the Company for the
years involved. In addition, distributions to stockholders would no longer be
required to be made.
OTHER TAX LIABILITIES. The Company, notwithstanding its REIT status, is
subject to certain federal, state and local taxes on its income and property. In
addition, the Company's net income, if any, from the third party management and
tenant improvements will be subject to United States federal income tax.
EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK. Since the market
price of shares of a publicly traded REIT, such as the Company, is determined in
part by the attractiveness of the yield on those shares compared to the
prevailing interest rates on fixed-income securities, an increase in interest
rates could lead purchasers of Common Stock to demand a higher yield, which
could adversely affect the market price of the Common Stock.
S-11
<PAGE>
THE COMPANY
The Company is a fully-integrated REIT that owns and operates a portfolio
comprised predominantly of Class A office and office/flex buildings located
primarily in New Jersey, as well as commercial real estate leasing, management,
acquisition, development and construction businesses. As of September 30, 1996,
the Company owned 100 percent of 44 office and office/flex properties
encompassing approximately 4.3 million square feet and one 327 unit multifamily
residential property. The 44 office and office/flex properties are comprised of
27 office buildings containing an aggregate of 3.6 million square feet and 17
office/flex buildings containing an aggregate of approximately 700,000 square
feet. The Company believes that its Properties have excellent locations and
access and are well-maintained and professionally managed. As a result, the
Company believes that its Properties attract high quality tenants and achieve
among the highest rent, occupancy and tenant retention rates within their
markets. As of September 30, 1996, the Office Properties and Office/Flex
Properties were approximately 97 percent leased to over 430 tenants.
The Company's strategy has been to focus its acquisition and development of
properties in sub-markets where it is, or can become, a significant and
preferred owner and operator. Management believes that the recent trend towards
increasing rental and occupancy rates in office buildings in the Company's
sub-markets presents significant opportunities for growth. The Company may also
develop properties in such sub-markets. Management believes that its extensive
market knowledge provides the Company with a significant competitive advantage,
which is further enhanced by its strong reputation for and emphasis on
delivering highly responsive management services, including direct and
continuing 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.
On November 4, 1996, the Company acquired the 1.9 million square foot
Harborside Financial Center office complex located in Jersey City, New Jersey
and on November 7, 1996, the Company acquired Five Sentry, a 131,000 square foot
two-building office complex in Plymouth Meeting, Pennsylvania. See "Recent
Developments--Acquisitions."
The following table sets out a schedule of the Company's ten largest
tenants, for Properties owned as of September 30, 1996, based upon contractual
base rents for the month of September 1996 annualized (prior to completion of
the Harborside and Five Sentry acquisitions):
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE COMPANY'S
TENANT RENT PER TOTAL LEASE
ANNUALIZED BASE SQUARE ANNUALIZED BASE EXPIRATION
RENTAL REVENUE(1) FOOT(2) RENTAL REVENUE DATE
----------------- ------------- ----------------- --------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ")........................... $ 7,812 $ 18.95 10.99% July 2009
NTT Data Communications Systems Corp. ("NTT")... 3,050 22.27 4.29 Sept. 2000
The U.S. Life Insurance Company in New York
City.......................................... 2,332 12.96 3.28 Dec. 2003
Lonza, Inc...................................... 2,227 24.90 3.13 Sept. 2002
Public Service Electric & Gas Co................ 1,452 17.61 2.04 April 2003(3)
Bressler Amery & Ross........................... 1,135 28.34 1.60 Nov. 1998
Berlitz International........................... 1,059 17.00 1.49 March 2011
Arthur Andersen LLP............................. 1,058 13.84 1.49 Sept. 2000(4)
Syncsort, Inc................................... 968 19.00 1.36 Jan. 2001
Allstate Insurance Company...................... 937 19.27 1.32 Nov. 2002(5)
------- -----
Total................................... $ 22,030 30.99%
------- -----
------- -----
</TABLE>
- ------------------------
(1) Annual base rental revenue is based on actual September 1996 billings
annualized and is not derived from historical GAAP results. The historical
results for the 12 months ended December 31, 1996 may differ from those set
forth above.
(2) Represents tenant's annualized base rent divided by the respective tenant's
leased square feet.
(3) 46,191 net rentable square feet expire in April 2003; 5,378 net rentable
square feet expire in July 1999; 9,877 net rentable square feet expire in
March 1999; 21,039 net rentable square feet expire in October 1996, a
portion of which the Company expects will not be renewed.
(4) 56,865 net rentable square feet expire in September 2000; 7,348 net rentable
square feet expire in August 1999; 12,272 net rentable square feet expire in
June 1997.
(5) 26,176 net rentable square feet expire in November 2002; 22,444 net rentable
square feet expire in July 2001.
S-12
<PAGE>
GROWTH STRATEGIES
The Company's objectives are to maximize growth in Funds from Operations and
to enhance the value of its portfolio through effective management, acquisition
and development strategies. The Company believes that opportunities exist to
increase cash flow per share by: (i) implementing operating strategies to
produce increased effective rental and occupancy rates and decreased concession
and tenant installation costs as vacancy rates in the Company's sub-markets
continue to decline; (ii) acquiring properties with attractive returns in
sub-markets where, based on its expertise in leasing, managing and operating
properties, it is, or can become, a significant and preferred owner and
operator; and (iii) developing properties where such development will result in
a favorable risk-adjusted return on investment.
Based on its evaluation of current market conditions, the Company believes
that a number of factors will enable it to achieve its business objectives,
including: (i) the limited availability to competitors of capital for financing
development, acquisitions or capital improvements or for refinancing maturing
mortgages; (ii) the lack of new construction in the Company's markets providing
the Company with the opportunity to maximize occupancy levels at attractive
rental rates; and (iii) the large number of distressed sellers and inadvertent
owners (through foreclosure or otherwise) of office properties in the Company's
markets creating enhanced acquisition opportunities. Management believes that
the Company is well positioned to exploit existing opportunities because of its
extensive experience in its markets and its proven ability to acquire, develop,
lease and efficiently manage office properties.
The Company focuses on enhancing growth in cash flow per share by: (i)
maximizing cash flow from the existing Properties through continued active
leasing and property management; (ii) managing operating expenses through the
use of in-house management, leasing, marketing, financing, accounting, legal,
construction management and data processing functions; (iii) emphasizing
programs of repairs and capital improvements to enhance the Properties'
competitive advantages in their markets; (iv) maintaining and developing
long-term relationships with a diverse tenant group; and (v) attracting and
retaining motivated employees by providing financial and other incentives to
meet the Company's operating and financial goals.
The Company seeks to increase its cash flow per share by acquiring
additional properties that: (i) provide attractive initial yields with
significant potential for growth in cash flow from property operations; (ii) are
well located, of high quality and competitive in their respective sub-markets;
(iii) are located in its existing sub-markets or in sub-markets which lack a
significant owner or operator; and (iv) have been under-managed or are otherwise
capable of improved performance through intensive management and leasing that
will result in increased occupancy and rental revenues.
Consistent with its acquisition strategy, since the IPO, including the
Harborside and Five Sentry acquisitions, the Company has invested over $500
million in the purchase of 38 office and office/flex properties, increasing its
portfolio by approximately 190 percent (based upon total net rentable square
feet). The Company also has the Proposed Acquisitions under contract. See
"Recent Developments." There can be no assurance, however, that the Company will
be able to improve the operating performance of any properties that are acquired
or that either or both of the Proposed Acquisitions will be acquired. The
Company may also develop office space when market conditions support a favorable
risk-adjusted return on such development, primarily in stable sub-markets where
the demand for office space exceeds available supply and where the Company is,
or can become, a significant owner and operator. The Company believes that
opportunities exist for it to acquire properties in its sub-markets at less than
replacement cost. Therefore, the Company currently intends to emphasize
acquisitions over development until market conditions change.
FINANCING ACTIVITIES
The Company utilizes the most appropriate sources of capital for
acquisitions, development, joint ventures and capital improvements, which
sources may include undistributed Funds from Operations,
S-13
<PAGE>
borrowings under its revolving credit facilities, issuances of debt or equity
securities and/or bank and other institutional borrowings. As of September 30,
1996, the Company's total debt constituted approximately 16.3 percent of the
total market capitalization of the Company, 21.4 percent after giving pro forma
effect to the acquisitions of Harborside and Five Sentry, the closing of the
$80.0 million New Credit Facility, this Offering and the use of proceeds
thereof.
After the consummation of the IPO, the Company had available a $70.0 million
revolving credit facility with an affiliate of Prudential Securities
Incorporated (the "Revolving Credit Facility"). From the date of the IPO until
February 1, 1995, the Revolving Credit Facility bore interest at a floating rate
equal to 275 basis points over one-month LIBOR. On February 1, 1995, the
interest rate was reduced to 200 basis points over one-month LIBOR, on October
1, 1995, the interest rate was further reduced to 150 basis points over
one-month LIBOR and on October 1, 1996, the interest rate was further reduced to
125 basis points over one-month LIBOR. In addition, the maturity date of the
Revolving Credit Facility has been extended to August 1997. At September 30,
1996, $6.0 million was outstanding under the Revolving Credit Facility.
Substantially all of the outstanding borrowings under the Revolving Credit
Facility have been used by the Company to fund the purchase of office and
office/flex properties, although the Company has also paid some of the cash
portions of the purchase prices with cash generated by operations.
In May 1995, the Company entered into an interest rate swap agreement with a
commercial bank. Such interest rate swap agreement fixes the Company's one-month
LIBOR base rate to 6.285 percent per annum on a notional amount of $24.0 million
through August 1999. On January 23, 1996, the Company entered into a second
interest rate swap agreement with one of the participating banks in its
Additional Credit Facility, as defined below. Such second interest rate swap
agreement has a three-year term and a notional amount of $26.0 million which
fixes the Company's one-month LIBOR base to 5.265 percent on its floating rate
credit facilities. The Company is exposed to credit loss in the event of
non-performance by the other parties on the interest rate swap agreements.
However, the Company does not anticipate non-performance by either counterparty.
On February 1, 1996, the Company obtained a revolving credit facility
secured by certain of its Properties in the amount of $75.0 million from two
banks (the "Additional Credit Facility"). The Additional Credit Facility has a
three-year term and bears interest at 150 basis points over one-month LIBOR. The
terms of the Additional Credit Facility include certain restrictions and
covenants which limit, among other things, dividend payments and additional
indebtedness and that require compliance with specified financial ratios and
other financial measurements. The Additional Credit Facility also requires a fee
equal to one quarter of one percent of the unused balance payable quarterly in
arrears. At September 30, 1996, $23.8 million was outstanding under the
Additional Credit Facility. Substantially all of the outstanding borrowings
under the Additional Credit Facility have been used by the Company to fund the
purchase of office and office/flex properties.
On November 4, 1996, the Company obtained and fully utilized the $80.0
million New Credit Facility from PSC, in connection with the closing of the
Harborside acquisition. The New Credit Facility bears interest at a floating
rate equal to 125 basis points over one-month LIBOR. PSC has full recourse to
the Company with respect to outstanding borrowings under the New Credit
Facility. In addition, the New Credit Facility is secured by the Company's
equity interest in Harborside. The New Credit Facility matures on January 15,
1998 unless PSC elects to extend the maturity date to a date not earlier than
June 30, 1998 or the facility is refinanced prior to such date at the election
of PSC or the Company. The terms of the New Credit Facility include certain
restrictions and covenants that limit, among other things, dividend payments and
additional indebtedness and that require compliance with specified financial
ratios and other financial measurements. In connection with the acquisitions of
Harborside and Five Sentry, net additional borrowings through November 18, 1996
under the Company's other revolving credit facilities totaled $63.7 million.
In addition, in connection with the acquisition of Harborside, the Company
assumed approximately $107.9 million of existing financing and approximately
$42.1 million of seller-provided financing. See "Recent
Developments--Acquisitions."
S-14
<PAGE>
RECENT DEVELOPMENTS
OPERATING PERFORMANCE
The Company has consistently increased its Funds from Operations since the
closing of its IPO. The Company's Funds from Operations (after adjustment for
the straight-lining of rents) for the nine months ended September 30, 1996 grew
to $30.0 million from $19.3 million for the corresponding 1995 period. As a
result of the Company's improved operating performance, in September 1996, the
Company announced a 5.9 percent increase in its regular quarterly distribution,
commencing with the Company's distribution with respect to the third quarter of
1996, from $.425 per share to $.450 per share of Common Stock ($1.80 per share
of Common Stock on an annualized basis). Since the IPO, the Company has
increased its regular quarterly distribution by 11.4 percent.
ACQUISITIONS
Since the IPO, including the Harborside and Five Sentry acquisitions, the
Company has invested over $500 million in the purchase of 38 office and
office/flex properties, increasing its portfolio by approximately 190 percent
(based upon total net rentable square feet).
On November 4, 1996, the Company acquired Harborside, a 1.9 million square
foot office complex located in Jersey City, New Jersey for an acquisition cost
of approximately $287.4 million. The acquisition of Harborside, which is located
on the Hudson River waterfront directly across from downtown Manhattan,
increased the Company's total office and office/flex portfolio by approximately
44 percent to approximately 6.2 million net rentable square feet. The purchase
price included the assumption of existing and seller-provided financing
aggregating approximately $150.0 million. The existing financing of
approximately $107.9 million bears interest at a fixed rate of 7.32 percent for
a term of approximately nine years. The seller-provided financing of
approximately $42.1 million also has a term of nine years and initially bears
interest at a rate of 6.99 percent. The interest rate on the seller-provided
financing will be reset at the end of the third and sixth loan years based on
the yield of the three year treasury obligation at that time, with spreads of
110 basis points in years four through six and 130 basis points in years seven
through maturity. The balance of the acquisition cost, totaling approximately
$137.4 million, was paid in cash and was financed substantially through drawings
on the Company's existing credit facilities (including the New Credit Facility).
See "The Company--Financing Activities." Harborside is located in the Exchange
Place/ Newport sub-market of Jersey City, adjacent to the Exchange Place PATH
train station. As of September 30, 1996, the property was approximately 95
percent leased. Harborside's largest tenant is Bankers Trust Harborside, Inc.,
which leases 385,000 square feet of space. Other major tenants include Dow Jones
Telerate Holdings, Inc., the American Institute of Certified Public Accountants
(AICPA), Dean Witter Trust Company and Bank of Tokyo. As part of the purchase,
the Company also acquired 11.3 acres of land fully zoned and permitted for an
additional 4.1 million square feet of development and the water rights
associated with 27.4 acres of land extending into the Hudson immediately east of
Harborside, including two piers with an area of 5.8 acres. The terms of the
acquisition of the vacant parcels at Harborside provide for payments (with an
estimated net present value of approximately $5.3 million) to be made to the
seller for development rights if and when the Company commences construction on
the site during the next several years. However, the agreement provides, among
other things, that even if the Company does not commence construction, the
seller may nevertheless require the Company to acquire these rights during the
six-month period after the end of the sixth year. After such period, the
seller's option lapses, but any development in years 7 through 30 will require a
payment, on an increasing scale, for the development rights.
On November 7, 1996, the Company acquired Five Sentry, a two-building office
complex comprised of approximately 131,000 net rentable square feet located in
Plymouth Meeting, Montgomery County, Pennsylvania. The property was acquired for
approximately $12.4 million in cash, which was drawn from
S-15
<PAGE>
one of the Company's revolving credit facilities. As of September 30, 1996, the
property was 99 percent leased. The property's major tenants include Merck, Inc.
and Selas Fluid Processing Corp.
PROPOSED ACQUISITIONS
The Company also has contracts to acquire the two Proposed Acquisitions for
an aggregate purchase price of approximately $78.2 million. The Proposed
Acquisitions are expected to close on or before December 31, 1996, but there can
be no assurance that either or both of them will be acquired at such time or at
any time. The Company is completing its due diligence review, physical
inspection and valuation analysis of each of the Proposed Acquisitions. Set
forth below are brief descriptions of the two Proposed Acquisitions:
- AIRPORT CENTER. A three-building office complex comprised of approximately
370,000 net rentable square feet located in Lester, Delaware County,
Pennsylvania, to be acquired for approximately $43.0 million in cash. As
of September 30, 1996, the property was 100 percent leased. The property's
major tenants include SAP America Inc., PNC Bank and Mercy Health Plan.
- WHITEWELD CENTRE. A three-story, approximately 230,000 net rentable square
foot office building located in Woodcliff Lake, Bergen County, New Jersey,
to be acquired for approximately $35.2 million in cash. As of September
30, 1996, the property was 99 percent leased. The property's major tenants
include Medco Containment Services, Inc., Xerox Corp., Chase Manhattan
Mortgage Corp. and Comdisco Inc.
S-16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby (at a public offering price per share of $26.625), after deduction of the
underwriting discounts and commissions and estimated offering expenses, is
estimated to be approximately $382.7 million ($440.4 million if the
Underwriters' over-allotment option is exercised in full). The Company presently
intends to use the net proceeds from the Offering to reduce outstanding
borrowings under its revolving credit facilities by approximately $143.7 million
and to expend approximately $78.2 million to acquire the Proposed Acquisitions.
The balance of the net proceeds, approximately $160.8 million, will be used for
general corporate purposes, including acquisitions. The Company continually
examines potential property acquisitions and, at any given time, one or more of
such acquisitions may be under consideration. The Company is examining several
acquisition opportunities at this time in addition to those discussed in "Recent
Developments--Proposed Acquisitions," none of which are currently probable to
occur. There can be no assurance that any such acquisitions will be consummated.
Affiliates of Prudential Securities Incorporated are lenders under certain of
the Company's revolving credit facilities and will be repaid approximately
$131.5 million from the net proceeds of the Offering. See "The
Company--Financing Activities." Pending such use, the Company may invest the net
proceeds of the Offering in short-term income producing investments such as
investments in commercial paper, government securities or money market funds
that invest in government securities.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 and as adjusted to give effect to (i) the acquisitions of
Harborside and Five Sentry, (ii) the closing of the $80.0 million New Credit
Facility, (iii) the Offering and (iv) the anticipated use of the net proceeds
therefrom as described under "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1996
----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
--------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Debt:
Mortgage and other loans....................... $ 83,051 $ 238,303
Borrowings under revolving credit facilities... 29,805 29,805
--------- -----------
Total debt................................... 112,856 268,108
--------- -----------
Minority interest in the Operating
Partnership(1)................................. 27,375 27,375
--------- -----------
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized, none issued or outstanding -- --
Common Stock, $.01 par value, 95,000,000 shares
authorized, 18,661,404 shares issued and
outstanding, 33,911,404 shares as
adjusted(1)(2)............................... 187 339
Additional paid-in capital..................... 263,690 646,219
Retained earnings.............................. 456 456
--------- -----------
Total stockholders' equity................... 264,333 647,014
--------- -----------
Total Capitalization............................. $ 404,564 $ 942,497
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Assumes no redemption of Units. If all of the Units were redeemed,
21,360,406 shares (and 36,610,406 shares as adjusted) of Common Stock would
be outstanding as of September 30, 1996.
(2) Excludes 1,865,123 shares of Common Stock reserved for issuance pursuant to
the Company's stock option plans under which 1,265,920 granted options are
outstanding, including 492,203 exercisable options, as of September 30,
1996.
S-17
<PAGE>
PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS
The Company's Common Stock is listed on the NYSE under the symbol "CLI." The
following sets forth the high and low closing sales prices for the Common Stock
for the fiscal periods indicated as reported by the NYSE and the distributions
per share paid by the Company with respect to each such period.
<TABLE>
<CAPTION>
HIGH LOW DISTRIBUTION
--------- --------- -----------
<S> <C> <C> <C>
1994
August 25 through September 30............................................ $ 17.250 $ 16.125 $ .1346(1)
Fourth Quarter............................................................ $ 16.375 $ 14.875 $ .4038
1995
First Quarter............................................................. $ 17.375 $ 15.50 $ .4038
Second Quarter............................................................ $ 19.375 $ 16.50 $ .4038
Third Quarter............................................................. $ 20.250 $ 18.875 $ .4250
Fourth Quarter............................................................ $ 22.500 $ 19.125 $ .4250
1996
First Quarter............................................................. $ 23.625 $ 20.750 $ .4250
Second Quarter............................................................ $ 24.625 $ 21.500 $ .4250
Third Quarter............................................................. $ 27.125 $ 22.625 $ .4500
Fourth Quarter (through November 18)...................................... $ 27.375 $ 26.125 N/A
</TABLE>
- ------------------------
(1) Represents distributions for the partial quarter subsequent to the IPO.
Future distributions by the Company will be at the discretion of the Board
of Directors and will depend on the actual cash flow of the Company, its
financial condition, capital requirements, the annual distribution requirements
under the REIT provisions of the Code and such other factors as the Board of
Directors deems relevant.
Distributions by the Company to the extent of its current earnings and
profits for federal income tax purposes are taxable to stockholders as ordinary
dividend income (unless such distributions are designated as capital gain
distributions). Distributions in excess of earnings and profits generally are
treated as a non-taxable return of capital to the extent of a stockholder's
basis in the Common Stock. A return of capital distribution has the effect of
deferring taxation until a stockholder's sale of the Common Stock. The Company
has determined that all of the distributions paid during 1994 and 1995
represented ordinary dividend income to its stockholders.
S-18
<PAGE>
PROPERTIES
GENERAL
As of September 30, 1996, the Company owned 100 percent of 44 office and
office/flex properties and one multifamily residential property. All of the
Properties are located in New Jersey, New York and Pennsylvania. The Properties
are easily accessible from major thoroughfares and are in close proximity to
numerous amenities. The 27 Office Properties contain a total of approximately
3.6 million net rentable square feet, with the individual Office Properties
ranging from approximately 9,000 to 622,000 net rentable square feet. The 17
Office/Flex Properties contain a total of approximately 700,000 square feet. The
Office Properties, each managed by on-site employees, generally have
attractively landscaped sites, atriums and covered parking in addition to
quality design and construction. As of September 30, 1996, the Office Properties
and Office/Flex Properties were approximately 97 percent leased to over 430
tenants. The Company's tenants include many service sector employers, as well as
a large number of professional firms and national and international businesses.
The Company believes that all of its Properties are well-maintained and do not
require significant capital improvements. On November 4, 1996, the Company
acquired the 1.9 million square foot Harborside Financial Center office complex
in Jersey City, New Jersey and on November 7, 1996, the Company acquired Five
Sentry, a 131,000 square foot two-building office complex in Plymouth Meeting,
Pennsylvania.
OFFICE MARKETS
The Office Properties and Office/Flex Properties are located throughout New
Jersey and in Rockland County, New York and suburban Philadelphia. The majority
of the Properties are located in Northern and Central New Jersey, specifically
in Bergen, Essex, Hudson, Morris, Passaic, Union, Mercer and Monmouth Counties.
In addition, the Company owns two properties in Atlantic County, New Jersey, two
properties in Media, Pennsylvania, a western suburb of Philadelphia, and one
property in Rockland County, New York. The majority of the Properties are
located within the greater New York metropolitan area and have direct access to
New York City, Newark International Airport and the New York/New Jersey Harbor
by both public transportation and an extensive highway network.
As New Jersey experiences its fifth consecutive year of growth, the positive
economic trends have translated into an improving real estate market with
historically low vacancy rates and steady rental growth. At September 30, 1996,
the Northern and Central New Jersey Class A vacancy rate had reached 12.8
percent, its lowest level since the late 1980's. As a result of declines in
vacant space, asking rental rates in the region rose for the ninth consecutive
quarter to reach $19.40 per square foot, an increase of $0.36 per square foot
over the past year.
Like the Northern and Central New Jersey markets, the suburban Philadelphia
market is also strong. Many service companies have set up suburban offices near
transportation hubs to afford easier access for their client base, resulting in
the suburban Philadelphia market being stronger than the center-city market.
Overall average asking rental rates for Philadelphia suburban office space
continue to be higher than those of comparable center-city properties. At
mid-year 1996, surburban Philadelphia recorded a 10.4 percent vacancy rate.
PROPERTIES
The following table sets forth certain information relating to each of the
Properties owned as of September 30, 1996 (including certain 1995 information
for 15 Essex Road, Paramus, Bergen County which was sold by the Company on March
20, 1996):
S-19
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
OF 1995
TOTAL 1995
PERCENTAGE OFFICE AVERAGE
NET LEASED 1995 1995 AND OFFICE/ BASE RENT
RENTABLE AS OF BASE EFFECTIVE FLEX BASE PER
PROPERTY YEAR AREA 9/30/96 RENT RENT RENT SQ. FT.
LOCATION BUILT (SQ. FT.) (%)(1) ($000)(2) ($000)(3) (%) ($)(4)
- ------------------------------ --------- ---------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE BUILDINGS
95 Christopher................ 1989 621,900 99.9 11,244 10,331 23.33 20.55
Columbus Drive,
Jersey City,
Hudson County, NJ
101 Eisenhower Parkway,....... 1980 237,000 93.1 3,710 3,415 7.70 16.43
Roseland,
Essex County, NJ
325 Columbia Turnpike,........ 1987 168,144 94.3 3,196 2,819 6.63 20.16
Floram Park,
Morris County, NJ
100 Walnut Avenue,............ 1985 182,555 95.7 3,659 3,310 7.59 20.04
Clark,
Union County, NJ
50 Tice Boulevard,............ 1984 235,000 99.0 4,294 3,726 8.91 18.72
Woodcliff Lake,
Bergen County, NJ
103 Eisenhower Parkway,....... 1985 151,545 97.5 3,149 2,799 6.53 20.78
Roseland,
Essex County, NJ
20 Commerce Drive,............ 1990 176,600 100.0 3,495 2,852 7.25 19.79
Cranford,
Union County, NJ
15 Essex Road,................ 1979 (7) (7) 1,461 1,307 3.03 19.22
Paramus,
Bergen County, NJ (7)
777 Passaic Avenue,........... 1983 75,000 67.3 1,004 905 2.08 19.63
Clifton,
Passaic County, NJ
11 Commerce Drive,............ 1981 90,000 99.3 1,180 1,033 2.45 13.60
Cranford,
Union County, NJ (6)
65 Jackson Drive,............. 1984 82,778 82.4 1,644 1,470 3.41 36.24
Cranford,
Union County, NJ
6 Commerce Drive,............. 1973 56,000 100.0 908 809 1.88 16.21
Cranford,
Union County, NJ
600 Parsippany Road,.......... 1978 96,000 99.4 1,390 1,389 2.88 14.90
Parsippany,
Morris County, NJ
17-17 Route 208............... 1987 143,000 98.9 2,845 2,845 5.90 21.10
Fairlawn,
Bergen County, NJ
400 Rella Boulevard,.......... 1988 180,000 99.9 2,192 2,189 4.55 12.70
Suffern,
Rockland County, NY
5 Vaughn Drive,............... 1987 98,500 99.2 883 883 1.83 9.34
Princeton,
Mercer County, NJ
<CAPTION>
1995 TENANTS LEASING
AVERAGE 10% OR MORE
EFFECTIVE OF NET
RENT PER RENTABLE AREA
PROPERTY SQ. FT. PER PROPERTY
LOCATION ($)(5) AS OF 9/30/96(6)
- ------------------------------ ----------- ---------------------------------
<S> <C> <C>
OFFICE BUILDINGS
95 Christopher................ 18.88 DLJ (66%), NTT (22%)
Columbus Drive,
Jersey City,
Hudson County, NJ
101 Eisenhower Parkway,....... 15.12 Arthur Andersen LLP (29%),
Roseland, Brach, Eichler, Rosenberg,
Essex County, NJ Silver, Bernstein & Hammer (13%)
325 Columbia Turnpike,........ 17.78 Bressler, Amery & Ross (24%),
Floram Park, General Motors Acceptance
Morris County, NJ Corporation (14%), Dun &
Bradstreet, Inc. (12%),
Smith Barney Inc. (10%)
100 Walnut Avenue,............ 18.13 BDSI (25%), The Equitable
Clark, Life Assurance Society of the
Union County, NJ United States (15%)
50 Tice Boulevard,............ 16.25 Syncsort, Inc. (22%)
Woodcliff Lake,
Bergen County, NJ
103 Eisenhower Parkway,....... 18.47 Ravin, Sarasohn, Cook,
Roseland, Baumgarten (18%),
Essex County, NJ Lum, Hoenes, Abeles (17%),
Chelsea-GCA (15%)
20 Commerce Drive,............ 16.15 Public Service Electric &
Cranford, Gas Co. (25%), The Procter &
Union County, NJ Gamble Distributing Company
(12%), Paychex, Inc. (12%)
15 Essex Road,................ 17.19 (7)
Paramus,
Bergen County, NJ (7)
777 Passaic Avenue,........... 17.69 Motorola Inc. (19%),
Clifton,
Passaic County, NJ
11 Commerce Drive,............ 11.91 Public Service Electric &
Cranford, Gas Co. (23%), Northeast
Union County, NJ (6) Administrators (10%)
65 Jackson Drive,............. 32.41 Kraft General Foods, Inc.
Cranford, (35%), Allstate Insurance Co.
Union County, NJ (27%), K. Hovnanian Companies of
N.J., Inc. (14%)
6 Commerce Drive,............. 14.45 Public Service Electric & Gas
Cranford, Co. (18%), Excel Scientific
Union County, NJ Protocols, Inc. (18%), Columbia
National, Inc. (13%)
600 Parsippany Road,.......... 14.89 Metropolitan Life Insurance Co.
Parsippany, (36%), International Business
Morris County, NJ Machines (35%)
17-17 Route 208............... 21.10 Lonza, Inc. (63%), Chubb
Fairlawn, Federal Insurance (16%),
Bergen County, NJ Boron-Lepone Assoc., Inc. (10%)
400 Rella Boulevard,.......... 12.68 Prudential Insurance (21%),
Suffern, Provident Savings (20%),
Rockland County, NY Allstate Insurance (16%),
John Alden Life Insurance Co.
(11%)
5 Vaughn Drive,............... 9.34 U.S. Trust of N.J. (19%),
Princeton, Princeton Venture Research Corp.
Mercer County, NJ (14%), Woodrow Wilson (12%),
Villeroy & Boch (11%)
</TABLE>
S-20
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
OF 1995
TOTAL 1995
PERCENTAGE OFFICE AVERAGE
NET LEASED 1995 1995 AND OFFICE/ BASE RENT
RENTABLE AS OF BASE EFFECTIVE FLEX BASE PER
PROPERTY YEAR AREA 9/30/96 RENT RENT RENT SQ. FT.
LOCATION BUILT (SQ. FT.) (%)(1) ($000)(2) ($000)(3) (%) ($)(4)
- ------------------------------ --------- ---------- ------------- ----------- ----------- ----------- -----------
999 Riverview Drive,.......... 1988 57,000 97.5 148 148 0.31 2.66
Totowa,
Passaic County, NJ
<S> <C> <C> <C> <C> <C> <C> <C>
1350 Campus Parkway,.......... 1990 79,747 80.5 183 183 0.38 2.58
Wall Township,
Monmouth County, NJ
1305 Campus Parkway,.......... 1988 23,350 99.6 46 46 0.10 2.10
Wall Township,
Monmouth County, NJ
3600 Route 66,................ 1989 181,000 100.0 350 350 0.73 1.93
Neptune,
Monmouth County, NJ
100 Decadon Drive,............ 1987 40,422 100.0 112 112 0.23 2.77
Egg Harbor,
Atlantic County, NJ
200 Decadon Drive,............ 1991 39,922 91.4 101 101 0.21 2.60
Egg Harbor,
Atlantic County, NJ
400 Alexander Park,........... 1987 70,500 100.0 -- -- -- --
Princeton,
Mercer County, NJ
103 Carnegie Center........... 1984 96,000 97.4 -- -- -- --
Princeton,
Mercer County, NJ
Rose Tree
Corporate Center I............ 1986 100,000 93.4 -- -- -- --
Media, PA
Rose Tree
Corporate Center II........... 1990 160,000 99.0 -- -- -- --
Media, PA
222 Mt. Airy Road,............ 1986 49,000 100.0 -- -- -- --
Basking Ridge,
Somerset County, NJ
233 Mt. Airy Road,............ 1987 66,000 100.0 -- -- -- --
Basking Ridge,
Somerset County, NJ
---------- ----- ----------- ----------- -----------
Total Office Buildings........ 3,556,963 97.0 $ 47,194 $ 43,022 97.91
---------- ----- ----------- ----------- -----------
---------- ----- ----------- ----------- -----------
OFFICE/FLEX BUILDINGS
11 Commerce Way,.............. 1989 47,025 100.0 63 63 0.13 1.34
Totowa,
Passaic County, NJ
20 Commerce Way,.............. 1992 42,540 100.0 71 71 0.15 1.67
Totowa,
Passaic County, NJ
29 Commerce Way,.............. 1990 48,930 100.0 64 64 0.13 1.31
Totowa,
Passaic County, NJ
40 Commerce Way,.............. 1987 51,000 100.0 65 65 0.13 1.27
Totowa,
Passaic County, NJ
45 Commerce Way,.............. 1992 51,207 100.0 61 61 0.13 1.19
Totowa,
Passaic, County, NJ
<CAPTION>
1995 TENANTS LEASING
AVERAGE 10% OR MORE
EFFECTIVE OF NET
RENT PER RENTABLE AREA
PROPERTY SQ. FT. PER PROPERTY
LOCATION ($)(5) AS OF 9/30/96(6)
- ------------------------------ ----------- ---------------------------------
999 Riverview Drive,.......... 2.66 Bank of New York (55%),
Totowa, Bankers Financial (16%),
Passaic County, NJ Commonwealth Land (11%)
<S> <C> <C>
1350 Campus Parkway,.......... 2.58 New Jersey National Bank (17%),
Wall Township, Stephen E. Gertier (17%),
Monmouth County, NJ Hospital Computer (11%)
1305 Campus Parkway,.......... 2.10 Centennial Cellular (41%),
Wall Township, McLaughlin, Bennett Gelson (23%),
Monmouth County, NJ Premier Dash (12%)
3600 Route 66,................ 1.93 The U.S. Life Insurance Company
Neptune, in New York City (100%)
Monmouth County, NJ
100 Decadon Drive,............ 2.77 Computer Sciences (79%)
Egg Harbor,
Atlantic County, NJ
200 Decadon Drive,............ 2.60 Hughes STX (27%), Reliance
Egg Harbor, Health (19%), International
Atlantic County, NJ Business Machines (14%),
Computer Sciences (11%)
400 Alexander Park,........... -- Berlitz International (88%),
Princeton, Progressive Casualty Insurance
Mercer County, NJ Company (12%)
103 Carnegie Center........... -- Ronin Development Co. (11%)
Princeton,
Mercer County, NJ
Rose Tree
Corporate Center I............ -- General Services
Media, PA Administration (13%), Erie
Insurance Company (11%)
Rose Tree
Corporate Center II........... -- Barnett International (17%)
Media, PA
222 Mt. Airy Road,............ -- Lucent Technologies (100%)
Basking Ridge,
Somerset County, NJ
233 Mt. Airy Road,............ -- AT&T (100%)
Basking Ridge,
Somerset County, NJ
Total Office Buildings........
OFFICE/FLEX BUILDINGS
11 Commerce Way,.............. 1.34 Caremark Homecare (78%),
Totowa, Quantum Health (11%),
Passaic County, NJ Tempo Systems (11%)
20 Commerce Way,.............. 1.67 Motorola Inc. (45%),
Totowa, Siemens Fiber (41%),
Passaic County, NJ John Guest USA (14%)
29 Commerce Way,.............. 1.31 Sandvik Sorting (44%),
Totowa, Paterson Dental Supply (23%),
Passaic County, NJ Fujitec America (22%),
Bell Atlantic Meridian (11%)
40 Commerce Way,.............. 1.27 Thomson Electron (35%),
Totowa, Minolta Business (35%),
Passaic County, NJ Snap-On, Inc. (14%), Inchcape
Testing (14%)
45 Commerce Way,.............. 1.19 Ericsson Radio (52%),
Totowa, Woodward Clyde (27%),
Passaic, County, NJ Oakwood Corporate Housing (10%),
Sensormatic Electronics (10%)
</TABLE>
S-21
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
OF 1995
TOTAL 1995
PERCENTAGE OFFICE AVERAGE
NET LEASED 1995 1995 AND OFFICE/ BASE RENT
RENTABLE AS OF BASE EFFECTIVE FLEX BASE PER
PROPERTY YEAR AREA 9/30/96 RENT RENT RENT SQ. FT.
LOCATION BUILT (SQ. FT.) (%)(1) ($000)(2) ($000)(3) (%) ($)(4)
- ------------------------------ --------- ---------- ------------- ----------- ----------- ----------- -----------
60 Commerce Way,.............. 1988 50,333 100.0 29 29 0.06 1.00
Totowa,
Passaic County, NJ
<S> <C> <C> <C> <C> <C> <C> <C>
120-140 Commerce Way,......... 1994 9,024 100.0 48 48 0.10 5.32
Totowa, 26,881 100.0
Passaic County, NJ
1340 Campus Parkway,.......... 1992 72,502 88.9 98 98 0.20 1.52
Wall Township,
Monmouth County, NJ
1325 Campus Parkway,.......... 1988 35,000 89.2 58 58 0.12 1.70
Wall Township
Monmouth County, NJ
1324 Wykoff Road,............. 1987 21,168 100.0 30 30 0.06 1.42
Wall Township,
Monmouth County, NJ
1320 Wykoff Road,............. 1986 20,336 100.0 29 29 0.06 1.43
Wall Township,
Monmouth County, NJ
1433 Highway 34,.............. 1985 69,020 94.7 95 95 0.20 1.58
Wall Township,
Monmouth County, NJ
100 Horizon Center,........... 1989 13,270 100.0 33 33 0.07 2.49
Hamilton Township,
Mercer County, NJ
200 Horizon Drive,............ 1991 45,770 85.3 63 63 0.13 1.61
Hamilton Township,
Mercer County, NJ
300 Horizon Drive,............ 1989 69,760 100.0 126 126 0.26 1.81
Hamilton Township,
Mercer County, NJ
500 Horizon Drive,............ 1990 41,205 92.8 65 65 0.13 1.61
Hamilton Township,
Mercer County, NJ
---------- ----- ----------- ----------- -----------
Total--Office/Flex Buildings.. 714,971 96.5 998 998 2.06
---------- ----- ----------- ----------- -----------
Total--All Buildings.......... 4,271,934 96.9 $ 48,192(8) $ 44,020(8) 100.00(8)
---------- ----- ----------- ----------- -----------
---------- ----- ----------- ----------- -----------
<CAPTION>
1995 TENANTS LEASING
AVERAGE 10% OR MORE
EFFECTIVE OF NET
RENT PER RENTABLE AREA
PROPERTY SQ. FT. PER PROPERTY
LOCATION ($)(5) AS OF 9/30/96(6)
- ------------------------------ ----------- ---------------------------------
60 Commerce Way,.............. 1.00 Ericsson Inc. (43%),
Totowa, Relectronic Service (43%),
Passaic County, NJ Maxlite-S.K. America (14%)
<S> <C> <C>
120-140 Commerce Way,......... 5.32 Deerfield Healthcare (25%)
Totowa, Advanced Image (15%)
Passaic County, NJ Philips Consumer (14%)
1340 Campus Parkway,.......... 1.52 Groundwater Env. (33%),
Wall Township, Software Shop (22%), Lincare/
Monmouth County, NJ Omni (15%), Association for
Retarded Citizens (11%)
1325 Campus Parkway,.......... 1.70 American Press (71%)
Wall Township
Monmouth County, NJ
1324 Wykoff Road,............. 1.42 AT&T Corporation (53%),
Wall Township, State of New Jersey (25%),
Monmouth County, NJ Supply Saver, Inc. (22%)
1320 Wykoff Road,............. 1.43 Eastern Automation (71%),
Wall Township, AT&T Corporation (29%)
Monmouth County, NJ
1433 Highway 34,.............. 1.58 State Farm Mutual (22%),
Wall Township, New Jersey Natural Gas(14%),
Monmouth County, NJ Beacon Tool (12%)
100 Horizon Center,........... 2.49 H.I.P. of New Jersey (100%)
Hamilton Township,
Mercer County, NJ
200 Horizon Drive,............ 1.61 O.H.M. Remediation (85%)
Hamilton Township,
Mercer County, NJ
300 Horizon Drive,............ 1.81 State of New Jersey/D.E.P.
Hamilton Township, (50%), McFaul & Lyons (26%),
Mercer County, NJ Fluor Daniel GTI (24%)
500 Horizon Drive,............ 1.61 First Financial (30%),
Hamilton Township, Lakeview Child Center (19%),
Mercer County, NJ S.H.L. Systems/MCI (18%),
Consumer N.J. Water (14%),
Diedre Moire Corp. (11%)
Total--Office/Flex Buildings..
Total--All Buildings..........
</TABLE>
- ------------------------
(1) Based on all leases in effect as of September 30, 1996.
(2) Total base rent for 1995, determined in accordance with GAAP. Substantially
all of the leases provide for annual base rents plus recoveries and
escalation charges based upon the tenant's proportionate share of and/or
increases in real estate taxes and certain operating costs, as defined, and
the pass through of charges for electrical usage.
(3) Total base rent for 1995 minus total 1995 amortization of tenant
improvements, leasing commissions and other concessions and costs,
determined in accordance with GAAP.
(4) Base rent for 1995 divided by net rentable square feet leased at December
31, 1995. For those properties acquired by the Company during 1995, amounts
presented reflect only that portion of the year during which the Company
owned the properties.
(5) Effective rent for 1995 divided by net rentable square feet leased at
December 31, 1995. For those properties acquired by the Company during 1995,
amounts presented reflect only that portion of the year during which the
Company owned the properties.
(6) Excludes office space leased by the Company.
(7) 15 Essex Road was sold by the Company on March 20, 1996.
(8) Includes only those Office and Office/Flex Properties owned by the Company
on December 31, 1995.
S-22
<PAGE>
The following table sets out a schedule of the lease expirations for the
Office Properties owned as of September 30, 1996, beginning October 1, 1996,
assuming that none of the tenants exercises renewal options:
<TABLE>
<CAPTION>
PERCENTAGE OF AVG. ANNUAL
NET RENTABLE AREA TOTAL ANNUAL BASE RENT PER NET
NUMBER OF SUBJECT TO LEASED SQ. FT. RENT RENTABLE SQ. FT.
PERIOD OF LEASES EXPIRING REPRESENTED BY UNDER EXPIRING REPRESENTED BY
EXPIRATION EXPIRING (1) LEASES (SQ. FT.) EXPIRING LEASES LEASES ($000) (2) EXPIRING LEASES ($)
----------- --------------- ------------------ ----------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
10/1/96-12/31/96.............. 27 99,253 2.90 1,714 17.27
1997.......................... 74 417,569 12.20 7,759 18.58
1998.......................... 75 386,293 11.29 7,446 19.28
1999.......................... 83 469,857 13.73 8,098 17.24
2000.......................... 62 654,468 19.12 11,757 17.96
2001.......................... 40 340,728 9.96 6,855 20.12
2002.......................... 16 191,520 5.60 4,389 22.92
2003.......................... 6 257,799 7.53 3,939 15.28
2004.......................... 3 37,207 1.09 748 20.10
2006.......................... 2 38,381 1.12 822 21.42
2008.......................... 2 23,175 0.68 510 22.01
2009.......................... 5 443,601 12.96 9,016 20.32
2011.......................... 1 62,275 1.82 1,111 17.84
--- ---------- ------ ------ -----
Total/Weighted Average........ 396 3,422,126 100.00 64,164 18.75
--- ---------- ------ ------
--- ---------- ------ ------
</TABLE>
- ------------------------
(1) Includes office tenants only. Excludes leases for amenity, retail, parking
and month-to-month office tenants. Some tenants have multiple leases.
(2) Based upon aggregate base rent, determined in accordance with GAAP,
including all leases dated on or before September 30, 1996.
S-23
<PAGE>
The following table sets out a schedule of the lease expirations for the
Office/Flex Properties owned as of September 30, 1996, beginning October 1,
1996, assuming that none of the tenants exercises renewal options:
<TABLE>
<CAPTION>
PERCENTAGE OF AVG. ANNUAL
NET RENTABLE AREA TOTAL RENT PER NET
NUMBER OF SUBJECT TO LEASED SQ. FT. ANNUAL BASE RENT RENTABLE SQ. FT.
PERIOD OF LEASES EXPIRING REPRESENTED BY UNDER EXPIRING REPRESENTED BY
EXPIRATION EXPIRING (1) LEASES (SQ. FT.) EXPIRING LEASES LEASES ($000) (2) EXPIRING LEASES ($)
- ------------------------------ ----------------- ------------------ ----------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
10/1/96-12/31/96.............. 4 16,393 2.38 168 10.25
1997.......................... 17 149,866 21.73 1,380 9.21
1998.......................... 8 88,303 12.80 848 9.60
1999.......................... 12 92,307 13.38 954 10.34
2000.......................... 13 176,531 25.59 1,963 11.12
2001.......................... 9 85,987 12.47 854 9.93
2002.......................... 1 11,200 1.62 111 9.91
2003.......................... 1 9,024 1.31 128 14.18
2004.......................... 1 39,060 5.66 445 11.39
2005.......................... 1 7,225 1.05 71 9.83
2008.......................... 1 13,860 2.01 113 8.15
--
------- ------ ----- -----
Total/Weighted Average........ 68 689,756 100.00 7,035 10.20
--
--
------- ------ -----
------- ------ -----
</TABLE>
- ------------------------
(1) Includes office/flex tenants only. Excludes leases for amenity, retail,
parking and month-to-month office tenants. Some tenants have multiple
leases.
(2) Based upon aggregate base rent, determined in accordance with GAAP,
including all leases dated on or before September 30, 1996.
HARBORSIDE FINANCIAL CENTER, JERSEY CITY, NEW JERSEY. Harborside is a
completely redeveloped, three building office complex containing 1.9 million
square feet of net rentable area located in the Exchange Place/Newport Center
sub-market of Jersey City, New Jersey. This sub-market is a satellite office
market of Manhattan and is occupied primarily by the support and technical
operations of New York City-based financial institutions. The buildings, known
as Plazas I, II and III, were developed as a complete reconstruction of existing
buildings in two phases, the first completed in 1983 and the second in 1990. The
buildings are connected via an enclosed 1,000 foot waterfront promenade
featuring restaurants, service retail shops and a food court, as well as an
atrium lobby.
S-24
<PAGE>
The following table sets forth certain information (on a per net rentable
square foot basis unless otherwise indicated) about Harborside since January 1,
1991 (based upon an average of all lease transactions during the respective
periods):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Number of leases signed during the period (1)............. 6 4 3 9 5 3
Rentable square footage leased during period (1).......... 277,394 192,278 12,143 201,933 50,806 63,437
Base rent ($) (1) (2)..................................... 20.62 18.18 20.35 16.04 22.33 20.10
Tenant improvements ($) (3)............................... 36.87 39.82 24.31 17.69 19.21 10.07
Leasing commissions ($) (4)............................... 8.29 14.60 8.68 10.28 4.71 10.11
Other concessions ($) (5)................................. 7.21 0.00 0.00 0.00 0.00 0.00
Effective rent ($) (6).................................... 16.89 14.41 13.86 13.91 19.95 18.12
Expense stop ($) (7)...................................... 1.85 0.98 3.42 3.91 2.52 8.04
Effective equivalent triple net rent ($) (8).............. 15.04 13.43 10.44 10.00 17.43 10.08
Occupancy rate at end of period (%) (1)................... 68.4 78.6 88.1 93.3 96.1 94.9
</TABLE>
- ------------------------
(1) Includes only office tenants with lease terms of 12 months or longer.
Excludes leases for amenity, parking, retail and month-to-month office
tenants.
(2) Equals aggregate base rent received over their respective terms from all
lease transactions during the period, divided by the terms in months for
such leases during the period, multiplied by 12, divided by the total net
rentable square feet leased under all lease transactions during the period.
(3) Equals work letter costs, net of estimated provision for profit and
overhead. Actual tenant improvements may differ from estimated work letter
costs.
(4) Equals an aggregate of leasing commissions payable to employees and third
parties based on standard commission rates and excludes negotiated
commission discounts obtained from time to time.
(5) Includes moving expenses, furniture allowances and other concessions.
(6) Equals aggregate base rent received over their respective terms from all
lease transactions during the period minus all tenant improvements, leasing
commissions and other concessions from all lease transactions during the
period, divided by the terms in months for such leases, multiplied by 12,
divided by the total net rentable square feet under all lease transactions
during the period.
(7) Equals the aggregate of each base year tax and common area maintenance
expense pool multiplied by the respective pro rata share for all lease
transactions during the period, divided by the total net rentable square
feet leased under all lease transactions during the period.
(8) Equals effective rent per square foot minus expense stop per square foot.
S-25
<PAGE>
The following schedule sets forth the average percentage leased and average
annual rental per leased square foot for the years ended December 31, 1991
through 1995 and the nine months ended September 30, 1996 for Harborside:
<TABLE>
<CAPTION>
AVERAGE ANNUAL
AVERAGE RENTAL PER
PERCENTAGE LEASED SQUARE
PERIOD LEASED (%) (1) FOOT ($) (2) (3)
- ---------------------------------------------------------------------------------- --------------- -----------------
<S> <C> <C>
1/1/96 - 9/30/96.................................................................. 95.5 17.09
1995........................................................................ 94.7 15.99
1994........................................................................ 90.7 15.26
1993........................................................................ 83.4 16.36
1992........................................................................ 73.5 14.69
1991........................................................................ 66.4 13.96
</TABLE>
- ------------------------
(1) Average of beginning and end of period aggregate percentage leased.
(2) Total base rents for the year, determined in accordance with GAAP, divided
by the average of beginning and end of year aggregate net rentable square
feet leased.
(3) Average annual rental per leased square foot for the nine months ended
September 30, 1996 is computed on an annualized basis.
Four tenants at Harborside occupied approximately 61 percent and 63 percent
of the net rentable square feet in the aggregate as of December 31, 1995 and
September 30, 1996, respectively, as follows:
Bankers Trust Harborside, Inc., a commercial bank, occupied approximately
385,000 net rentable square feet at December 31, 1995 and September 30, 1996
(approximately 20 percent of the total net rentable square feet) pursuant to a
lease that expires on March 31, 2003, with two five-year renewal options. Total
rental income, including escalations and recoveries, was approximately $2.6
million and $2.0 million in 1995 and the nine months ended September 30, 1996,
respectively. The lease provides for, among other things, annual rental
increases of $770,000 beginning in April 1998.
Dow Jones Telerate Holdings, Inc., a telecommunications firm, occupied
approximately 333,000 and 378,000 total net rentable square feet at December 31,
1995 and September 30, 1996, respectively (approximately 18 percent and 20
percent of the total net rentable square feet), pursuant to various leases
expiring June 30, 1999 through March 31, 2001, with two five-year renewal
options on 188,000 square feet and one five-year renewal option on 45,000 square
feet. Total rental income from Dow Jones Telerate Holdings, Inc., including
escalations and recoveries, was approximately $7.7 million and $6.6 million in
1995 and the nine months ended September 30, 1996, respectively. Certain of
these leases provide for annual rental increases of approximately $181,000
beginning in June 2001.
American Institute of Certified Public Accountants (AICPA), a trade
organization, occupied 250,000 net rentable square feet at December 31, 1995 and
September 30, 1996 (approximately 13 percent of total net rentable square feet)
pursuant to a lease that expires July 31, 2012, with a five-year and a ten-year
renewal option. Total rental income from the AICPA, including escalations and
recoveries, was approximately $6.5 million and $4.8 million in 1995 and the nine
months ended September 30, 1996, respectively. The AICPA lease provides for,
among other things, annual rental increases of approximately $836,000 beginning
in July 2002 and $836,000 beginning in July 2007.
Dean Witter Trust Company, a securities firm, occupied approximately 183,000
net rentable square feet at December 31, 1995 and September 30, 1996
(approximately 10 percent of the total net rentable square feet) pursuant to a
lease that expires in February 2008, with a five-year and a ten-year renewal
option. Total rental income from Dean Witter Trust Company, including
escalations and recoveries, was approximately $4.0 million and $3.4 million in
1995 and the nine months ended September 30, 1996,
S-26
<PAGE>
respectively. The lease provides for, among other things, annual rental
increases of approximately $221,000 beginning in February 1998, $300,000 in
September 2000, $473,000 in February 2003 and $64,000 in September 2005.
The following table sets forth a schedule of the lease expirations for
Harborside, beginning October 1, 1996, assuming that none of the tenants
exercises renewal options:
<TABLE>
<CAPTION>
AVG. ANNUAL
PERCENTAGE OF RENT PER NET
NET RENTABLE AREA TOTAL ANNUAL BASE RENT RENTABLE SQ. FT.
NUMBER OF SUBJECT TO LEASED SQ. FT. UNDER EXPIRING REPRESENTED BY
PERIOD OF LEASES EXPIRING REPRESENTED BY LEASES ($000) EXPIRING LEASES
EXPIRATION EXPIRING (1) LEASES (SQ. FT.) EXPIRING LEASES (2) ($)(2)
- --------------------------- ----------------- ------------------ ----------------- ---------------- ---------------------
<S> <C> <C> <C> <C> <C>
10/1/96-12/31/96........ 2 55,128 3.20 1,049 19.03
1997.................... 2 1,857 0.11 39 21.00
1998.................... 4 30,233 1.75 672 22.23
1999.................... 8 83,509 4.85 1,527 18.29
2000.................... 8 292,257 16.96 4,855 16.61
2001.................... 3 74,696 4.33 1,628 21.80
2003.................... 2 391,299 22.71 2,372 6.06
2004.................... 1 24,729 1.43 551 22.28
2005.................... 3 34,904 2.02 859 24.61
2006.................... 5 85,389 4.96 1,648 19.30
2008.................... 3 182,748 10.61 2,682 14.68
2009.................... 3 137,076 7.96 3,013 21.98
2010.................... 1 79,397 4.61 834 10.50
2012.................... 4 249,768 14.50 5,043 20.19
--
---------- ------ ------- ------
Total/Weighted Average..... 49 1,722,990 100.00 26,772 15.54
--
--
---------- ------ -------
---------- ------ -------
</TABLE>
- ------------------------
(1) Includes office tenants only. Excludes leases for amenity, retail, parking
and month-to-month office tenants. Some tenants have multiple leases.
(2) Determined based on aggregate base rent to be received over the term divided
by the term in months multiplied by 12, including all leases dated on or
before September 30, 1996.
S-27
<PAGE>
MANAGEMENT
The following table sets forth certain information with respect to the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
- -------------------------- --- -----------------------------------------------------------------------------
<S> <C> <C>
John J. Cali.............. 78 Chairman of the Board and a member of the Board of Directors of the Company.
In addition, Mr. Cali was a principal of Cali Associates and a member of its
Executive and Long Range Planning Committees. Mr. Cali co-founded Cali
Associates in 1949 and since such date has been responsible for its and the
Company's overall development strategies and policies.
Thomas A. Rizk............ 39 President, Chief Executive Officer and a member of the Board of Directors of
the Company. In addition, Mr. Rizk was a principal of Cali Associates and
served as its General Counsel and as a member of its Executive Committee from
1989 to 1994 and as its Chief Financial Officer from 1991 to 1994. Mr. Rizk
was responsible for coordinating all financial activities for Cali
Associates, including federal income tax planning, and for developing its
strategic direction and investment strategies. Mr. Rizk has remained
responsible for conducting these activities for the Company. Prior to joining
Cali Associates, Mr. Rizk was vice president and general counsel of Dubnoff &
Koch, a New Jersey-based real estate development firm.
John R. Cali.............. 49 Chief Administrative Officer of the Company. In addition, Mr. Cali was a
principal of Cali Associates and served as a member of its Long Range
Planning Committee from 1981 to 1994 and its Executive Committee from 1987 to
1994. Mr. Cali was responsible for the development of Cali Associates' office
system and the management of its office personnel and he remains responsible
for such duties with the Company. Mr. Cali also developed and organized the
leasing and property management departments of Cali Associates and he is now
responsible for directing the acquisition functions of the Company.
Brant Cali................ 42 Chief Operating Officer and Secretary of the Company. In addition, Mr. Cali
was a principal of Cali Associates and served as a member of its Executive
and Long Range Planning Committees from 1981 to 1994. Mr. Cali is responsible
for directing the leasing and property management departments and providing
overall strategic direction for the Company.
James Nugent.............. 43 Vice President-Leasing of the Company since its formation. In addition, from
1991 to 1994, Mr. Nugent served as the Senior Director of Leasing at Cali
Associates, supervising all leasing activity and analyzing the financial
aspects of all major leases, and he remains responsible for such duties with
the Company. From 1984 to 1991, Mr. Nugent's responsibilities included
negotiating the financial and business terms of leases for the Cali
Associates portfolio of properties, analyzing future projects and formulating
the structure of potential development opportunities.
Albert Spring............. 51 Vice President-Operations of the Company since its formation. In addition,
Mr. Spring was responsible from 1977 to 1994 for construction management at
Cali Associates, including engineering, processing approvals, estimating
costs and supervising contractors.
</TABLE>
S-28
<PAGE>
<TABLE>
<CAPTION>
NAME AGE PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
- -------------------------- --- -----------------------------------------------------------------------------
<S> <C> <C>
Roger W. Thomas........... 39 Vice President, General Counsel and Assistant Secretary of the Company. Mr.
Thomas' responsibilities include supervising outside legal counsel, insuring
legal compliance and preparation of required disclosure documents. Mr. Thomas
also assists the Company in investor relations and in implementing the
Company's investment strategies, financial activities, and acquisitions.
Prior to joining the Company, Mr. Thomas was a partner in Dreyer & Traub, a
New York law firm specializing in real estate and commercial transactions.
Barry Lefkowitz........... 34 Chief Financial Officer of the Company. Mr. Lefkowitz is responsible for all
financial reporting matters, strategic financial planning, budgeting and
management of capital markets activities. Before joining the Company, Mr.
Lefkowitz was a Senior Manager specializing in real estate with the
accounting firm of Deloitte & Touche LLP.
Angelo R. Cali............ 81 Member of the Board of Directors of the Company since its formation. Prior to
the formation of the Company, Mr. Cali was a principal of Cali Associates,
the real estate development company which was the predecessor of the Company,
and a member of its Executive and Long Range Planning Committees. Mr. Cali
co-founded Cali Associates in 1949 and was responsible for its organizational
development from such date until the completion of the Company's initial
public offering in 1994.
Edward Leshowitz.......... 81 Member of the Board of Directors of the Company since its formation. In
addition, Mr. Leshowitz was a principal of Cali Associates and was a member
of its Executive and Long Range Planning Committees. Mr. Leshowitz co-founded
Cali Associates in 1949 and was responsible for the financial and leasing
strategies of Cali Associates' portfolio and was the senior executive
responsible for lease approvals.
Brendan T. Byrne.......... 72 Director of the Company; Former two-term Governor of the State of New Jersey
and a senior partner with Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart &
Olstein, a Roseland, New Jersey law firm.
Kenneth A. DeGhetto....... 72 Director of the Company; Member of the Board of Directors and former
President of Foster Wheeler Corporation and member of the Board of Directors
of Brandon Systems.
James W. Hughes........... 52 Director of the Company; Dean of the Edward J. Bloustein School of Planning
and Public Policy at Rutgers University and Professor of Urban Planning and
Policy Development.
Irvin D. Reid............. 55 Director of the Company; President of Montclair State University (formerly
Montclair State College) in New Jersey and a member of the Board of Directors
of Fleet Bank, N.A.
Alan Turtletaub........... 82 Director of the Company; Founder and Chairman of the Board of The Money
Store. Mr. Turtletaub is also the founder and a board member of the National
Second Mortgage Association and is also on the advisory board of Valley
National Bank.
</TABLE>
S-29
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS TO HOLDERS OF COMMON STOCK
The following summary of certain United States federal income tax
considerations to holders of Common Stock is based on current law, is for
general information only, and is not tax advice. The tax treatment of a holder
of Common Stock will vary depending upon such holder's particular situation, and
this discussion does not purport to deal with all aspects of taxation that may
be relevant to particular stockholders in light of their personal investment or
tax circumstances, 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, except to the extent discussed under the heading "Taxation of
Tax-Exempt Stockholders" and "Taxation of Non-U.S. Stockholders") subject to
special treatment under the United States federal income tax laws.
This discussion does not address any aspects of federal income taxation to
the company relating to its election to be taxed as a REIT. A summary of certain
federal income tax considerations to the Company is provided in the Prospectus.
EACH INVESTOR SHOULD REFER TO THE PROSPECTUS FOR A SUMMARY OF THE FEDERAL
INCOME TAX CONSIDERATIONS TO THE COMPANY OF ITS REIT ELECTION. EACH INVESTOR IS
ADVISED TO CONSULT WITH HIS OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES TO
HIM OF THE ACQUISITION, OWNERSHIP AND SALE OF COMMON STOCK, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF TAXABLE U.S. STOCKHOLDERS GENERALLY
As used herein, the term "U.S. Stockholder" means a holder of shares of
Common Stock who (for United States federal income tax purposes) (i) is a
citizen or resident of the United States, (ii) is a corporation, partnership or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof or (iii) is an estate or trust the income
of which is subject to United States federal income taxation regardless of its
source.
As long as the Company qualifies as a REIT, distributions made by the
Company out of its current or accumulated earnings and profits (and not
designated as capital gain dividends) will constitute dividends taxable to its
taxable U.S. Stockholders as ordinary income. Such distributions will not be
eligible for the dividends-received deduction in the case of U.S. Stockholders
that are corporations. Distributions made by the Company that are properly
designated by the Company as capital gain dividends will be taxable to taxable
U.S. Stockholders as long-term capital gains (to the extent that they do not
exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which a U.S. Stockholder has held his shares of stock.
U.S. Stockholders that are corporations may, however, be required to treat up to
20 percent of certain capital gain dividends as ordinary income.
To the extent that the Company makes distributions (not designated as
capital gain dividends) in excess of its current and accumulated earnings and
profits, such distributions will be treated first as a tax-free return of
capital to each U.S. Stockholder, reducing the adjusted basis which such U.S.
Stockholder has in his shares of stock for tax purposes by the amount of such
distribution (but not below zero), with distributions in excess of the U.S.
Stockholder's adjusted basis in his shares taxable as capital gains (provided
that the shares have been held as a capital asset). Distributions declared by
the Company in October, November or December of any year and payable to a
stockholder of record on a specified date in any such month shall be treated as
both paid by the Company and received by the stockholder on December 31 of such
year, provided that the dividend is actually paid by the Company on or before
January 31 of the following calendar year. Stockholders may not include in their
own income tax returns any net operating losses or capital losses of the
Company.
S-30
<PAGE>
In general, any loss recognized by a U.S. Stockholder upon the sale or other
disposition of shares of the Company that have been held for six or fewer months
(after applying certain holding period rules) will be treated as a long-term
capital loss, to the extent of distributions received by such U.S. Stockholder
from the Company which were required to be treated as a long-term capital loss.
BACKUP WITHHOLDING
The Company will report to its U.S. Stockholders and to the Internal Revenue
Service (the "IRS") the amount of dividends paid during each calendar year, and
the amount of tax withheld, if any. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31 percent with
respect to dividends paid unless such holder (a) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact or (b) provides a taxpayer identification number, certifies as to no loss
of exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. A U.S. Stockholder that does not
provide the Company with the correct taxpayer identification number may also be
subject to penalties imposed by the IRS. Any amount paid as backup withholding
will be creditable against the stockholder's income tax liability. In addition,
the Company may be required to withhold a portion of capital gain distributions
to any stockholders who fail to certify their non-foreign status to the Company.
See "--Taxation of Non-U.S. Stockholders."
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Under the Revenue Reconciliation Act of 1993 (the "1993 Act"), in applying
the REIT stock ownership test under the Code, a pension trust generally is not
treated as a single individual as it would have been under prior law. Rather,
the 1993 Act treats beneficiaries of certain pension trusts as holding the
shares of a REIT in proportion to their actuarial interests in such trust, and
thus permits certain pension trusts to acquire more concentrated ownership of a
REIT.
In addition, under the 1993 Act, a pension fund owning more than 10 percent
of a REIT must treat a percentage of dividends from the REIT as "unrelated
business taxable income" ("UBTI"). The percentage is determined by dividing the
REIT's gross income derived from an unrelated trade or business for the year by
the gross income of the REIT for the year in which the dividends are paid. If
this percentage is less than five percent, however, dividends are not treated as
UBTI. In general, the UBTI rule applies to a REIT where the REIT qualifies as a
REIT by reason of the above modification of the stock ownership test and (i) one
pension trust owns more than 25 percent of the value of the REIT; or (ii) a
group of pension trusts individually holding more than 10 percent of the value
of the REIT collectively owns more than 50 percent of the value of the REIT.
The provisions of the 1993 Act apply to taxable years of a REIT beginning on
or after January 1, 1994.
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing United States federal income taxation of the ownership
and disposition of stock by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foregoing partnerships or
foreign estates or trusts (collectively, "Non-U.S. Stockholders") are complex,
and no attempt is made herein to provide more than a brief summary of such
rules. Accordingly, the discussion does not address all aspects of United States
Federal income tax and does not address state, local or foreign tax consequences
(including treaty benefits, if any, that may be available in certain instances)
that may be relevant to a Non-U.S. Stockholder in light of its particular
circumstances. In addition, this discussion is based on current law, which is
subject to change, and assumes that the Company qualifies for taxation as a
REIT. Prospective Non-U.S. Stockholders should consult with their own tax
advisers to determine the impact of federal, state, local and foreign income tax
laws with regard to an investment in stock, including any reporting
requirements.
S-31
<PAGE>
DISTRIBUTIONS. Distributions by the Company to a Non-U.S. Stockholder that
are neither attributable to gain from sales or exchanges by the Company of
United States real property interests nor designated by the Company as capital
gains 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 ordinarily will be subject to withholding of United
States federal income tax on a gross basis (that is, without allowance of
deductions) at a 30 percent rate unless an applicable treaty lowers the
withholding rate. However, if income from the investment in Common Stock is
treated as effectively connected with the conduct by the Non-U.S. Stockholder of
a United States trade or business, the Non-U.S. Stockholder will be subject to
tax on a net basis (that is, after allowances of deductions) at graduated rates,
in the same manner as U.S. Stockholders are taxed with respect to such
distributions, and are generally not subject to withholding. Any such
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 percent rate or such
lower rate as may be specified by an applicable income tax treaty. The Company
expects to withhold United States federal income tax at the rate of 30 percent
on the gross amount of any distributions 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 or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Stockholder to the extent that
they do not exceed the adjusted basis of the stockholder's stock, but rather
will reduce the adjusted basis of such stock. To the extent that such
distributions exceed the adjusted basis of a Non-U.S. Stockholder's stock, 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 stock, 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 may be subject to withholding at the rate
applicable to dividends. However, amounts thus withheld are generally refundable
if it is subsequently determined that such distribution was, in fact, in excess
of current or accumulated earnings and profits of the Company.
Distributions to a Non-U.S. Stockholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those arising
from the disposition of a United States real property interest) generally will
not be subject to United States federal income taxation, unless (i) investment
in the stock is effectively connected with the Non-U.S. Stockholder's United
States 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 (except
that a stockholder that is a foreign corporation may also be subject to the 30
percent 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 nonresident alien individual will be subject to
a 30 percent tax on the individual capital gains.
Distributions to a Non-U.S. Stockholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests will
cause the Non-U.S. Stockholder to be treated as recognizing such gain as income
effectively connected with a United States trade or business. Non-U.S.
Stockholders would thus generally be taxed at the same 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,
such gain may be subject to a 30 percent branch profits tax in the hands of a
Non-U.S. Stockholder that is a corporation, as discussed above. The Company is
required to withhold 35 percent of any such distribution that could be
designated by the Company as a capital gains dividend. Any such withheld amount
is creditable against the Non-U.S. Stockholder's United States federal income
tax liability.
Under recently proposed Treaty Regulations, withholding procedures would be
revised. Should the proposal be adopted, withholding generally would be at
either 31 percent or 30 percent unless a new Form
S-32
<PAGE>
W-8 is filed with the Company by the beneficial owner to establish entitlement
to treaty benefits or exemption based upon the income being "effectively
connected." In some instances, additional documentation might be required from
the beneficial owner, including an individual taxpayer identification number
from the U.S. Internal Revenue Service and a certification of tax status from
the tax authorities of the beneficial owner's country of residence.
SALE OF STOCK. Gain recognized by a Non-U.S. Stockholder upon the sale or
exchange of shares of stock generally will not be subject to the Foreign
Investment in Real Property Tax Act of 1980 ("FIRPTA") so long as the Company is
a "domestically controlled REIT," defined generally as a REIT in which at all
times during a specified testing period less than 50 percent in value of its
stock is held directly or indirectly by Non-U.S. Stockholders. It is currently
anticipated that the Company will be a "domestically controlled REIT," and
therefore the sale of stock will not be subject to taxation under FIRPTA.
Notwithstanding the foregoing, gain from the sale or exchange of shares of stock
not otherwise subject to FIRPTA will be taxable to a Non-U.S. Stockholder if
either (i) investment in the stock is effectively connected with the Non-U.S.
Stockholder's United States trade or business, in which case the Non-U.S.
Stockholder will be subject to the same treatment as a U.S. Stockholder with
respect to such gain (a Non-U.S. Stockholder that is a foreign corporation may
also be subject to a 30 percent 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 nonresident alien individual will be
subject to a 30 percent United States withholding tax on the amount of such
individual's gain. 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 by a Non-U.S. Stockholder of
shares of stock would be subject to United States taxation under FIRPTA as a
sale of a "United States real property interest" will depend on whether the
shares are "regularly traded" (as defined by applicable Treasury regulations),
on an established securities market (e.g., the New York Stock Exchange) and on
the size of the selling Non-U.S. Stockholder's interest in the Company. 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. The purchaser of the
stock would be required to withhold and remit to the IRS ten percent of the
purchase price.
OTHER TAX CONSEQUENCES
The Company and its stockholder 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 stockholder may not conform to the United States federal income tax
consequences discussed above. Consequently, prospective stockholders should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in the Company.
S-33
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated ("Prudential Securities"), Dean Witter Reynolds Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co.
Incorporated and Smith Barney Inc. are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
contained in the Underwriting Agreement, to purchase from the Company the number
of shares of Common Stock set forth below opposite their respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------------------------------------------------------------------------------------- -------------
<S> <C>
Prudential Securities Incorporated....................................................... 2,272,250
Dean Witter Reynolds Inc................................................................. 2,272,250
Donaldson, Lufkin & Jenrette Securities Corporation...................................... 2,272,250
Morgan Stanley & Co. Incorporated........................................................ 2,272,250
Smith Barney Inc......................................................................... 2,272,250
Alex. Brown & Sons Incorporated.......................................................... 305,000
CS First Boston Corporation.............................................................. 305,000
A.G. Edwards & Sons, Inc................................................................. 305,000
Everen Securities, Inc................................................................... 305,000
Goldman, Sachs & Co...................................................................... 305,000
Lehman Brothers Inc...................................................................... 305,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated....................................... 305,000
PaineWebber Incorporated................................................................. 305,000
Salomon Brothers Inc..................................................................... 305,000
Janney Montgomery Scott Inc.............................................................. 152,500
Legg Mason Wood Walker, Incorporated..................................................... 152,500
McDonald & Company Securities, Inc....................................................... 152,500
Principal Financial Securities, Inc...................................................... 152,500
Raymond James & Associates, Inc.......................................................... 152,500
Sutro & Co. Incorporated................................................................. 152,500
Tucker Anthony Incorporated.............................................................. 152,500
Pennsylvania Merchant Group Ltd.......................................................... 76,250
-------------
Total.............................................................................. 15,250,000
-------------
-------------
</TABLE>
The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the shares of Common Stock offered hereby if any are purchased.
The Underwriters, through their Representatives, have advised the Company
that they propose to offer the shares of Common Stock initially at the public
offering price set forth on the cover page of this Prospectus Supplement; that
the Underwriters may allow to selected dealers a concession of $0.84 per share,
and that such dealers may reallow a concession of $0.10 per share to certain
other dealers. After the initial public offering, the offering price and the
concessions may be changed by the Representatives.
The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus Supplement, to purchase up to 2,287,500
additional shares of Common Stock at the initial public offering price, less the
underwriting discounts and commissions, as set forth on the cover page of this
Prospectus Supplement. The Underwriters may exercise such option solely for the
purpose of covering over-allotments incurred in the sale of shares of Common
Stock offered hereby. To the extent such option to purchase is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to
15,250,000.
S-34
<PAGE>
The Company has agreed to indemnify the several Underwriters or to
contribute to losses arising out of certain liabilities, including liabilities
under the Securities Act.
The Company and the directors and executive officers of the Company have
agreed that they will not, directly or indirectly, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, pledge,
grant of any option to purchase or other sale or disposition) of any shares of
Common Stock or other capital stock of the Company, or any securities
convertible into, or exchangeable or exercisable for, any shares of Common Stock
or other capital stock of the Company (including Units), for a period of 90 days
from the date of this Prospectus Supplement, without the prior written consent
of Prudential Securities, on behalf of the Underwriters.
In the ordinary course of their businesses, Prudential Securities and its
affiliates have engaged, and may in the future engage, in investment banking or
commercial banking transactions with the Company, including in connection with
the Harborside acquisition. See "The Company--Financing Activities" and "Use of
Proceeds." The Prudential Insurance Company of America ("Prudential") is the
mortgage lender with respect to the Company's office building located at 17-17
Route 208, Fairlawn, New Jersey. In addition, in the ordinary course, certain of
the Underwriters or their affiliates lease space at certain of the Company's
Properties.
EXPERTS
The financial statements incorporated in this Prospectus by reference to the
Annual Report on Form 10-K of the Company for the year ended December 31, 1995
have been so incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting. The financial statements incorporated in this
Prospectus by reference to the Current Reports on Form 8-K of the Company, dated
July 16, 1996 and October 8, 1996, have been so incorporated in reliance on the
report of Schonbraun Safris Sternlieb & Co., L.L.C., 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
Report on Form 8-K of the Company, dated October 29, 1996, with respect
primarily to the Harborside acquisition, have been so incorporated in reliance
on the report of Coopers & Lybrand LLP, independent auditors, 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 Report on
Form 8-K of the Company, dated October 29, 1996, have been so incorporated in
reliance on the reports of Ernst & Young LLP (with respect to Airport Center),
independent auditors, and Schonbraun Safris Sternlieb & Co., L.L.C., (with
respect to Whiteweld Centre and Five Sentry), independent accountants, given on
the authority of said firms as experts in auditing and accounting.
LEGAL MATTERS
Certain legal matters in connection with the shares of Common Stock offered
hereby as well as certain legal matters described under "Certain United States
Federal Income Tax Considerations to Holders of Common Stock" will be passed
upon for the Company by Pryor, Cashman, Sherman & Flynn, New York, New York.
Certain legal matters relating to Maryland law, including the validity of the
issuance of the securities registered hereby, will be passed upon for the
Company by Swidler & Berlin, Chartered. Certain legal matters will be passed
upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York,
New York.
S-35
<PAGE>
PROSPECTUS
CALI REALTY CORPORATION
$500,000,000
PREFERRED STOCK, COMMON STOCK AND WARRANTS
Cali Realty Corporation (together with its subsidiaries, the "Company") may
from time to time offer in one or more series (i) shares or fractional shares of
its preferred stock, par value $.01 per share (the "Preferred Stock"), (ii)
shares of its common stock, par value $.01 per share (the "Common Stock"), or
(iii) warrants to purchase Common Stock or Preferred Stock (the "Warrants"),
with an aggregate initial public offering price of up to $500,000,000 on terms
to be determined at the time of offering. The Preferred Stock, Common Stock and
Warrants (collectively, the "Offered Securities") may be offered, separately or
together, in separate series in amounts, at prices and on terms to be set forth
in a supplement to this Prospectus (a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Preferred
Stock, the specific title and stated value, any dividend, liquidation,
redemption, conversion, voting and other rights and the initial public offering
price; (ii) in the case of Common Stock, the initial public offering price; and
(iii) in the case of Warrants, the securities as to which such Warrants may be
exercised, the duration, offering price, exercise price and detachability. In
addition, such specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Offered Securities, in each case
as may be appropriate to preserve the status of the Company as a real estate
investment trust ("REIT") for United States federal income tax purposes. See
"Restrictions on Ownership of Capital Stock".
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company, or to or through underwriters or dealers. If
any agents or underwriters are involved in the sale of any of the Offered
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them, will be set forth, or will be
calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution." No Offered Securities may be sold
without delivery of the applicable Prospectus Supplement describing the method
and terms of the offering of such series of Offered Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is August 2, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Registration
Statement, the exhibits and schedules forming a part thereof and the reports,
proxy statements and other information filed by the Company with the Commission
in accordance with the Exchange Act can be inspected and copied at the
Commission's public reference section, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the following regional offices of the Commission:
Seven World Trade Center, 13th Floor, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can also be obtained at prescribed rates by
writing to the public reference section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Company's
Common Stock is listed on the New York Stock Exchange (the "NYSE") and similar
information concerning the Company can be inspected and copied at the offices of
the NYSE, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement (the
"Registration Statement") (of which this Prospectus is a part) under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Offered Securities. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain portions of which have been omitted
as permitted by the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Offered Securities, reference is hereby made to
the Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon payment of
the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the Exchange
Act with the Commission and are incorporated herein by reference:
a. The Company's Current Report on Form 8-K dated July 16, 1996;
b. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
c. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996;
d. The Company's Proxy Statement relating to the Annual Meeting of
Shareholders held on May 13, 1996;
e. The description of the Common Stock and the description of certain
provisions of Maryland Law and the Company's Articles of Incorporation and
Bylaws, both contained in the Company's Registration Statement on Form 8-A,
dated August 9, 1994.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Offered Securities shall be deemed to be
incorporated by reference in this Prospectus and to be part hereof from 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
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<PAGE>
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner of the Offered
Securities, to whom this Prospectus is delivered, upon written or oral request.
Requests should be made to Barry Lefkowitz, Vice President-Finance and Chief
Financial Officer of the Company, 11 Commerce Drive, Cranford, New Jersey
07016-3510 (telephone number: (908) 272-8000).
THE COMPANY
Cali Realty Corporation (together with its subsidiaries, the "Company") is a
fully-integrated real estate investment trust ("REIT") that owns and operates a
portfolio comprised primarily of Class A office and office/flex buildings, as
well as commercial real estate leasing, management, acquisition, development and
construction businesses. As of December 31, 1995, the Company owned 100 percent
of 40 properties encompassing approximately 3.9 million square feet and one 327
unit multifamily residential property (collectively, the "Properties"). The 40
properties are comprised of 27 office buildings containing an aggregate of 3.4
million square feet (the "Office Properties") and 13 office/flex buildings
containing an aggregate of approximately 500,000 square feet (the "Office/Flex
Properties"). As of December 31, 1995, the Office Properties and Office/Flex
Properties were approximately 92.5 percent leased to over 400 tenants. 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 December 31, 1995, the Company had 90 employees.
The Company has elected to be taxed as a REIT for federal income tax
purposes and expects to continue to elect such status. Although the Company
believes that it was organized and has been operating in conformity with the
requirements for qualification under the Internal Revenue Code of 1986, as
amended (the "Code"), no assurance can be given that the Company will continue
to qualify as a REIT. Qualification as a REIT involves the application of highly
technical and complex Code provisions of which there are only limited judicial
or administrative interpretations. If in any taxable year the Company were to
fail to qualify as a REIT, the Company would not be allowed a deduction for
distributions to stockholders in computing taxable income and would be subject
to federal taxation at regular corporate rates. As a result, such a failure
would adversely affect the Company's ability to make distributions to its
stockholders and could have an adverse affect on the market value and
marketability of the Offered Securities.
To ensure that the Company qualifies as a REIT, transfer of the shares of
Common Stock and Preferred Stock (as defined below) is subject to certain
restrictions, and ownership of capital stock by any single person is limited to
9.8 percent of the value of such capital stock, subject to certain exceptions.
The Company's Articles of Incorporation provide that any purported transfer in
violation of the above-described ownership limitations shall be void ab initio.
The shares of Common Stock of the Company are listed on the NYSE under the
symbol "CLI." The Company has paid regular quarterly distributions on its Common
Stock since it commenced operations as a REIT in 1994. The Company intends to
continue making regular quarterly distributions to its common stockholders.
Distributions depend upon a variety of factors, and there can be no assurance
that distributions will be made.
All of the Company's interests in the Properties are held by, and its
operations are conducted through, Cali Realty, L.P., a Delaware limited
partnership (the "Operating Partnership"), or by entities controlled by the
Operating Partnership. Cali Realty Corporation owned, as of December 31, 1995,
approximately 84 percent of the Operating Partnership's outstanding units of
partnership interest ("Units"), and is the sole general partner of the Operating
Partnership.
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<PAGE>
The Company was incorporated under the laws of Maryland on May 24, 1994, its
executive offices are located at 11 Commerce Drive, Cranford, New Jersey 07016,
and its telephone number is (908) 272-8000.
RATIOS OF EARNINGS TO FIXED CHARGES
The following tables set forth the Company's consolidated ratios of earnings
to fixed charges for the periods shown:
<TABLE>
<CAPTION>
FOR THE THREE FOR THE YEAR FOR THE PERIOD
MONTHS ENDED ENDED AUGUST 31, 1994
MARCH 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
- -------------- ------------------- ---------------------
<S> <C> <C>
5.02x 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>
<CAPTION>
FOR THE PERIOD FOR THE YEARS ENDED DECEMBER
JANUARY 1, 1994 31,
TO -------------------------------
AUGUST 30, 1994 1993 1992 1991
- ----------------- --------- --------- ---------
<S> <C> <C> <C>
$(110) $ (1,064) $ (2,172) $ (1,125)
</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 minority interest plus
fixed charges excluding capitalized interest. Fixed charges consist of interest
costs both expensed and capitalized, the amortization of principal, debt
issuance costs and the interest portion of ground rents on land leases. To date,
the Company has not issued any Preferred Stock, therefore, the ratios of
earnings to combined fixed charges and preferred stock dividend requirements are
the same as the ratios of earnings to fixed charges presented above.
USE OF PROCEEDS
The Company is required by the terms of the Amended and Restated Agreement
of Limited Partnership of the Operating Partnership to invest the net proceeds
of any sale of Common Stock or Preferred Stock in the Operating Partnership in
exchange for additional Units. Unless otherwise described in the applicable
Prospectus Supplement, the Company intends to use the net proceeds from the sale
of the Offered Securities for general corporate purposes, including the leasing,
management, acquisition, development and construction of office, office/flex,
industrial, multi-family residential or other properties as suitable
opportunities arise, the expansion and improvement of certain properties in the
Company's portfolio, and the repayment of indebtedness.
DESCRIPTION OF COMMON STOCK
The Company has the authority to issue up to 95,000,000 shares of common
stock, par value $.01 per share (the "Common Stock"). At June 30, 1996, the
Company had outstanding 15,206,361 shares of Common Stock.
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Stock will be
issuable upon conversion of Preferred Stock of the Company or upon the exercise
of Warrants to purchase Common Stock issued by the Company. The statements below
describing the Common Stock are in all respects subject to and qualified in
their entirety by reference to the applicable provisions of the Company's
Articles of Incorporation and bylaws.
Each outstanding share of Common Stock entitles the holder to one vote on
all matters presented to stockholders for a vote, subject to the provisions of
the Company's Articles of Incorporation regarding the
4
<PAGE>
ownership of shares of Common Stock in excess of the Ownership Limit described
below under "Restrictions on Ownership of Offered Securities". Holders of shares
of Common Stock have no preemptive rights or cumulative voting rights. All
shares of Common Stock will, when issued, be duly authorized, fully paid, and
nonassessable. Distributions may be paid to the holders of shares of Common
Stock if and when declared by the Board of Directors of the Company out of funds
legally available therefor.
Under Maryland law, stockholders are generally not liable for the Company's
debts or obligations. If the Company is liquidated, subject to the right of any
holders of Preferred Stock to receive preferential distributions, each holder of
Common Stock will be entitled to participate PRO RATA in the assets remaining
after payment of, or adequate provision for, all known debts and liabilities of
the Company, including debts and liabilities arising out of its status of
general partner of the Operating Partnership.
RESTRICTIONS ON OWNERSHIP
With certain exceptions, the Company's Articles of Incorporation provide
that no person may own, or be deemed to own by virtue of the attribution rules
of the Code, more than 9.8 percent of the value of the Company's issued and
outstanding shares of capital stock. See "Restrictions on Ownership of Offered
Securities."
TRANSFER AGENT
The registrar and transfer agent for the Company's Common Stock is
ChaseMellon Shareholder Services, LLC.
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). No shares of Preferred
Stock are outstanding as of the date hereof.
Under the Company's Articles of Incorporation, shares of Preferred Stock may
be issued from time to time, in one or more series, as authorized by the Board
of Directors. Prior to the issuance of shares of each series, the Board of
Directors is required by the Maryland General Corporation Law (the "MGCL") and
the Company's Articles of Incorporation to adopt resolutions and file Articles
Supplementary (the "Articles Supplementary") with the State Department of
Assessments and Taxation of Maryland, setting for each such series the
designations, powers, preferences and rights of the shares of such series and
the qualifications, limitations or restrictions thereon, including, but not
limited to, dividend rights, dividend rate or rates, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences as are permitted by
Maryland law. Because the Board of Directors has the power to establish the
terms and conditions of each series of Preferred Stock, it may afford the
holders of any series of Preferred Stock power, preferences and rights, voting
or otherwise, senior to the rights of holders of shares of Common Stock. The
issuance of Preferred Stock could have the effect of delaying or preventing a
change in control of the Company.
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Articles of Incorporation (including the
applicable Articles Supplementary) and bylaws.
5
<PAGE>
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;
(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.
6
<PAGE>
DIVIDENDS
Unless otherwise specified in the Prospectus Supplement, the Preferred Stock
will have the rights with respect to payment of dividends set forth below.
Holders of shares of the Preferred Stock of each series shall be entitled to
receive, when, as and if declared and authorized by the Board of Directors of
the Company, out of assets of the Company legally available for payment, cash
dividends at such rates and on such dates as will be set forth in the applicable
Prospectus Supplement. Each such dividend shall be payable to holders of record
as they appear on the stock transfer books of the Company on such record dates
as shall be fixed by the Board of Directors of the Company.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will accumulate from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are noncumulative, then the holders of such
series of the Preferred Stock will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If any shares of the Preferred Stock of any series are outstanding, no full
dividends shall be declared or paid or set apart for payment on the Preferred
Stock of the Company of any other series ranking, as to dividends, on a parity
with or junior to the Preferred Stock of such series for any period unless (i)
if such series of Preferred Stock has a cumulative dividend, full cumulative
dividends have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof irrevocably set apart for such payment on
the Preferred Stock of such series for all past dividend periods and the then
current dividend period or (ii if such series of Preferred Stock does not have a
cumulative dividend, full dividends for the then current dividend period have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof irrevocably set apart for such payment on the Preferred
Stock of such series. When dividends are not paid in full (or a sum sufficient
for such full payment is not so irrevocably set apart) upon the shares of
Preferred Stock of any series and the shares of any other series of preferred
stock ranking on a parity as to dividends with the Preferred Stock of such
series, all dividends declared upon shares of Preferred Stock of such series and
any other series of preferred stock ranking on a parity as to dividends with
such Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share on the Preferred Stock of such series and such other series
of preferred stock shall in all cases bear to each other the same ratio that
accrued and unpaid dividends per share on the shares of Preferred Stock of such
series (which shall not include any accumulation in respect of unpaid dividends
for prior dividend periods if such Preferred Stock does not have a cumulative
dividend) and such other series of preferred stock bear to each other. Except as
may otherwise be set forth in the applicable Prospectus Supplement, no interest,
or sum of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment for all past dividend periods and the then
current dividend period or (ii) if such series of Preferred Stock does not have
a cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof irrevocably set apart for payment for the then current
dividend period, 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
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<PAGE>
Common Stock or any other capital stock of the Company ranking junior to or on a
parity with the Preferred Stock of such series as to dividends or upon
liquidation, dissolution or winding up of the Company, nor shall any Common
Stock or any other capital stock of the Company ranking junior to or on a parity
with the Preferred Stock of such series as to dividends or upon liquidation,
dissolution or winding up of the Company be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for a
sinking fund for the redemption of any shares of any such stock) by the Company
(except by conversion into or exchange for other capital stock of the Company
ranking junior to the Preferred Stock of such series as to dividends and upon
liquidation, dissolution or, winding up of the Company).
Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the shares of
Preferred Stock will be subject to mandatory redemption or redemption at the
option of the Company, as a whole or in part, in each case upon the terms, at
the times and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in such year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all shares of any series
of Preferred Stock shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof irrevocably set apart for
payment for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment for the then current dividend period, no
shares of any series of Preferred Stock shall be redeemed unless all outstanding
shares of Preferred Stock of such series are simultaneously redeemed; provided,
however, that the foregoing shall not prevent the purchase or acquisition of
shares of Preferred Stock of such series pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding shares of Preferred
Stock of such series. In addition, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all outstanding shares
of any series of Preferred Stock have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof irrevocably set
apart for payment for all past dividend periods and the then current dividend
period and (ii) if such series of Preferred Stock does not have a cumulative
dividend, full dividends on the Preferred Stock of any series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof irrevocably set apart for payment for the then current dividend
period, the Company shall not purchase or otherwise acquire directly or
indirectly any shares of Preferred Stock of such series (except by conversion
into or exchange for capital stock of the Company ranking junior to the
Preferred Stock of such series as to dividends and upon liquidation, dissolution
or winding up of the Company); provided, however, that the foregoing shall not
prevent the purchase or acquisition of shares of Preferred Stock of such series
to preserve the REIT status of the 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.
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<PAGE>
If fewer than all of the outstanding shares of Preferred Stock of any series
are to be redeemed, the number of shares to be redeemed will be determined by
the Company and such shares may be redeemed pro rata from the holders of record
of such shares in proportion to the number of such shares held by such holders
(with adjustments to avoid redemption of fractional shares) or any other
equitable method determined by the Company that will not result in violation of
the ownership limitations set forth in the Articles of Incorporation.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of a share of Preferred
Stock of any series to be redeemed at the address shown on the stock transfer
books of the Company. Each notice shall state: (i) the redemption date; (ii) the
number of shares and series of the Preferred Stock to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such Preferred
Stock are to be surrendered for payment of the redemption price; (v) that
dividends on the shares to be redeemed will cease to accrue on such redemption
date; and (vi) the date upon which the holder's conversion rights, if any, as to
such shares shall terminate. If fewer than all the shares of Preferred Stock of
any series are to be redeemed, the notice mailed to each such holder thereof
shall also specify the number of shares of Preferred Stock to be redeemed from
each such holder. If notice of redemption of any shares of Preferred Stock has
been given and if the funds necessary for such redemption have been irrevocably
set apart by the Company in trust for the benefit of the holders of any shares
of Preferred Stock so called for redemption, then from and after the redemption
date dividends will cease to accrue on such shares of Preferred Stock, such
shares of Preferred Stock shall no longer be deemed outstanding and all rights
of the holders of such shares will terminate, except the right to receive the
redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Stock or any other class or series of capital
stock of the Company ranking junior to the Preferred Stock in the distribution
of assets upon any liquidation, dissolution or winding up of the Company, the
holders of each series of Preferred Stock shall be entitled to receive out of
assets of the Company legally available for distribution to stockholders
liquidating distributions in the amount of the liquidation preference per share
(set forth in the applicable Prospectus Supplement and Articles Supplementary),
plus an amount equal to all dividends accrued and unpaid thereon (which shall
not include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend). Except as
may otherwise be set forth in the applicable Prospectus Supplement, after
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of Preferred Stock will have no right or claim to any of
the remaining assets of the Company. In the event that, upon any such voluntary
or involuntary liquidation, dissolution or winding up, the legally available
assets of the Company are insufficient to pay the amount of the liquidating
distributions on all outstanding shares of Preferred Stock and the corresponding
amounts payable on all shares of other classes or series of capital stock of the
Company ranking on a parity with the Preferred Stock in the distribution of
assets upon liquidation, dissolution or winding up of the Company, then the
holders of the Preferred Stock and all other such classes or series of capital
stock shall share ratably in any such distribution of assets in proportion to
the full liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
shares of Preferred Stock, the remaining assets of the Company shall be
distributed among the holders of any other classes or series of capital stock
ranking junior to the Preferred Stock upon liquidation, dissolution or winding
up of the Company, according to their respective rights and preferences and in
each case according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation, or
the sale, lease, transfer or conveyance of all or substantially all of the
property or
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business of the Company, shall not be deemed to constitute a liquidation,
dissolution or winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Except as may otherwise be set forth in the applicable Prospectus
Supplement, whenever dividends on any shares of Preferred Stock shall be in
arrears for the equivalent of six or more quarterly periods, the holders of such
shares of Preferred Stock (voting separately as a class with all other series of
preferred stock upon which like voting rights have been conferred and are
exercisable) will be entitled to vote for the election of two additional
directors of the Company at the next annual meeting of stockholders, and at each
subsequent annual meeting, until (i) if such series of Preferred Stock has a
cumulative dividend, all dividends accumulated on such shares of Preferred Stock
for the past dividend periods and the then current dividend period shall have
been fully paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment or (ii) if such series of Preferred Stock does
not have a cumulative dividend, four consecutive quarterly dividends shall have
been fully paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment. In such case, the entire Board of Directors
of the Company will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, the Company shall not, without the
affirmative vote or consent of the holders of at least 66 percent of the shares
of each series of Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (each such series voting separately as
a class), (i) authorize or create, or increase the authorized or issued amount
of, any class or series of capital stock ranking senior to such series of
Preferred Stock with respect to payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up of the Company or reclassify
any authorized capital stock of the Company into any such shares, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such shares; or (ii) amend, alter or repeal the provisions
of the Company's Articles of Incorporation (including the Articles Supplementary
for such series of Preferred Stock), whether by merger, consolidation or
otherwise, so as to materially and adversely affect any right, preference,
privilege or voting power of such series of Preferred Stock or the holders
thereof; provided, however, that any increase in the amount of the authorized
preferred stock or the creation or issuance of any other series of preferred
stock, or any increase in the amount of authorized shares of such series or any
other series of Preferred Stock, in each case ranking on a parity with or junior
or to the Preferred Stock of such series with respect to payment of dividends
and the distribution of assets upon liquidation, dissolution or winding up of
the Company, shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption upon proper notice and sufficient funds
shall have been irrevocably deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any series of
Preferred Stock are convertible into Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the Preferred Stock is convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such Preferred Stock.
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RESTRICTIONS ON OWNERSHIP
With certain exceptions, the Company's Articles of Incorporation provide
that no person may own, or be deemed to own by virtue of the attribution rules
of the Code, more than 9.8 percent of the value of the Company's issued and
outstanding shares of capital stock. See "Restrictions on Ownership of Offered
Securities". These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of shares
of capital stock of the Company might receive a premium for their shares over
the then prevailing market price or which such holders might believe to be
otherwise in their best interest.
DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Preferred Stock or Common
Stock. Warrants may be issued independently or together with any Offered
Securities and may be attached to or separate from such securities. Each series
of Warrants will be issued under a separate warrant agreement (each, a "Warrant
Agreement") to be entered into between the Company and a warrant agent specified
therein ("Warrant Agent"). The Warrant Agent will act solely as an agent of the
Company in connection with the Warrants of such series and will not assume any
obligation or relationship of agency or trust for or with any holders or
beneficial owners of Warrants.
The applicable Prospectus Supplement will describe the following terms,
where applicable, of the Warrants in respect of which this Prospectus is being
delivered: (1) the title of such Warrants; (2) the aggregate number of such
Warrants; (3) the price or prices at which such Warrants will be issued; (4) the
currencies in which the price or prices of such Warrants may be payable; (5) the
designation, amount and terms of the Offered Securities purchasable upon
exercise of such Warrants; (6) the designation and terms of the other Offered
Securities, if any, with which such Warrants are issued and the number of such
Warrants issued with each such security; (7) if applicable, the date on and
after which such Warrants and the Offered Securities purchasable upon exercise
of such Warrants will be separately transferable; (8) the price or prices at
which and currency or currencies in which the Offered Securities purchasable
upon exercise of such Warrants may be purchased; (9) the date on which the right
to exercise such Warrants shall commence and the date on which such right shall
expire; (10) the minimum or maximum amount of such Warrants which may be
exercised at any one time; (11) information with respect to book-entry
procedures, if any; (12) a discussion of certain federal income tax
considerations; and (13) any other material terms of such Warrants, including
terms, procedures and limitations relating to the exchange and exercise of such
Warrants.
RESTRICTIONS ON OWNERSHIP
With certain exceptions, the Company's Articles of Incorporation provide
that no person may own, or be deemed to own by virtue of the attribution rules
of the Code, more than 9.8 percent of the value of the Company's issued and
outstanding shares of capital stock. See "Restrictions on Ownership of Offered
Securities". These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of shares
of capital stock of the Company might receive a premium for their shares over
the then prevailing market price or which such holders might believe to be
otherwise in their best interest.
RESTRICTIONS ON OWNERSHIP OF OFFERED SECURITIES
For the Company to qualify as a REIT under the Code, not more than 50
percent in value of its outstanding capital stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year, and its capital stock
must be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months or during a proportionate part of a shorter taxable
year.
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The Company's Articles of Incorporation provide, subject to certain
exceptions specified therein, that no holder may own, or be deemed to own by
virtue of the attribution rules of the Code, more than 9.8 percent by value (the
"Ownership Limit") of the outstanding capital stock of the Company. Any transfer
of Offered Securities that would create a direct or indirect ownership of shares
of Common Stock and/or Preferred Stock (collectively the "Stock") in excess of
the Ownership Limit or result in the Company being "closely held" within the
meaning of Code Section 856(h) shall be null and void, and the intended
transferee will acquire no rights to the Offered Securities. Any transfer of
Stock that would result in the capital stock of the Company being beneficially
owned by fewer than 100 persons shall be null and void, and the interested
transferee will acquire no rights to such shares of Stock.
The constructive ownership rules are complex and may cause Common Stock or
Preferred Stock owned directly or constructively by a group of related
individuals and/or entities to be deemed constructively owned by one individual
or entity. As a result, the acquisition of less than 9.8 percent of the value of
the capital stock of the Company (or the acquisition of an interest in an entity
which owns such capital stock) by an individual or entity could cause that
individual or entity (or another individual or entity) to own constructively in
excess of 9.8 percent of the value of the capital stock, and thus subject such
capital stock to the Ownership Limit. Moreover, an individual or an entity which
owns Warrants to acquire Stock will be deemed to own such Stock for purposes of
applying the Ownership Limit.
The Board of Directors may, upon receipt of either a certified copy of a
ruling from the Internal Revenue Service or an opinion of counsel satisfactory
to the Board of Directors, but shall in no case be required to, exempt a person
(the "Exempted Holder") from the Ownership Limit if the ruling or opinion
concludes that no person who is an individual as defined in Section 542(a)(2) of
the Code will, as the result of the ownership of shares by the Exempted Holder,
be considered to have Beneficial Ownership of an amount of capital stock that
will violate the Ownership Limit.
The foregoing restrictions on transferability and ownership will not apply
if the Board of Directors determines that it is no longer in the best interests
of the Company to attempt to qualify, or to continue to qualify, as a REIT.
All certificates representing shares of Common Stock and Preferred Stock
will bear a legend referring to the restrictions described above.
All stockholders of record who own more than a specified percentage of the
outstanding capital stock of the Company must file a written statement with the
Company containing certain information specified in Treasury Regulations,
pertaining to the actual ownership of capital stock of the Company, within 30
days after December 31 of each year. In addition, each holder of capital stock
of the Company and/or Warrants shall, upon demand, be required to disclose to
the Company in writing such information with respect to the direct, indirect and
constructive ownership of capital stock of the Company as the Board of Directors
deems necessary to comply with the provisions of the Code applicable to a REIT
or to comply with the requirements of any taxing authority or governmental
agency.
In addition to preserving the Company's status as a REIT, the Ownership
Limit may have the effect of precluding an acquisition of control of the REIT
without the approval of the Board of Directors. These ownership limitations
could have the effect of discouraging a takeover or other transaction in which
holders of some, or a majority, of shares of capital stock of the Company might
receive a premium for their shares over the then prevailing market price or
which such holders might believe to be otherwise in their best interest.
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CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS TO THE COMPANY OF ITS REIT ELECTION
Pryor, Cashman, Sherman & Flynn, which has acted as tax counsel to the
Company in connection with the formation of the Company and the Company's
election to be taxed as a REIT, has reviewed the following discussion and is of
the opinion that it fairly summarizes the federal income tax considerations
relevant to the Company's status as a REIT. The following summary of certain
federal income tax considerations is based on current law, is for general
information only, and is not tax advice. The tax treatment of a holder of any of
the Offered Securities will vary depending upon the terms of the specific
securities acquired by such holder, as well as his particular situation.
The REIT provisions of the Code are highly technical and complex. The
following sets forth the material aspects of the sections that govern the
federal income tax treatment of a REIT. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change (which change may apply retroactively).
EACH INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS SUPPLEMENT, AS
WELL AS HIS OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES OF THE ACQUISITION,
OWNERSHIP AND SALE OF THE OFFERED SECURITIES, INCLUDING THE FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP AND
SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY AS A REIT
GENERAL. The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Code, commencing with its taxable year ended December 31,
1994. The Company believes that it has been organized and operated in such a
manner as to qualify for taxation as a REIT under the Code for such taxable year
and for the current taxable year and the Company intends to continue to operate
in such a manner in the future, but no assurance can be given that it will
operate in a manner so as to qualify or remain qualified.
In the opinion of Pryor, Cashman, Sherman & Flynn, the Company has been
organized in conformity with the requirements for qualification and taxation as
a REIT, commencing with its taxable year ended December 31, 1994, and for all
subsequent taxable years to date, and its method of operation will enable it to
continue to meet the requirements for qualification and taxation as a REIT under
the Code. It must be emphasized that this opinion is based on various
assumptions and is conditioned upon such assumptions and certain representations
made by the Company as to factual matters. Pryor, Cashman, Sherman & Flynn is
not aware of any facts or circumstances that are inconsistent with these
representations and assumptions. Moreover, such qualification and taxation as a
REIT depends upon the Company's ability to meet, through actual annual operating
results, distribution levels and diversity of stock ownership, the various
qualification tests imposed under the Code and discussed below, the results of
which will not be reviewed by Pryor, Cashman, Sherman & Flynn. Accordingly, no
assurance can be given that the actual results of the Company's operation of any
particular taxable year will satisfy such requirements. See "--Failure to
Qualify."
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a regular corporation. However, the Company will be subject to
federal income tax as follows: First, the Company will be taxed at regular
corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, the
Company may
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be subject to the "corporate alternative minimum tax" on its items of tax
preference. Third, if the Company has (i) net income from the sale or other
disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business or (ii) other non-qualifying net
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income. Fourth, if the Company has net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business, other than foreclosure property), such income will be
subject to a 100 percent tax. Fifth, if the Company should fail to satisfy the
75 percent gross income test or the 95 percent gross income test (as discussed
below), but has nonetheless maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a 100 percent
tax on an amount equal to (a) the gross income attributable to the greater of
the amount by which the Company fails the 75 percent or 95 percent test,
multiplied by (b) a fraction intended to reflect the Company's profitability.
Sixth, if the Company should fail to distribute during each calendar year at
least the sum of (i) 85 percent of its REIT ordinary income for such year, (ii)
95 percent of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior years, the Company would be subject to a
4 percent excise tax on the excess of such required distribution over the
amounts actually distributed. Seventh, with respect to an asset (a "Built-In
Gain Asset") acquired by the Company from a corporation which is or has been a C
corporation (i.e., generally, a corporation subject to full corporate-level tax)
in a transaction in which the basis of the Built-In Gain Asset in the hands of
the Company is determined by reference to the basis of the asset in the hands of
the C corporation, if the Company recognizes gain on the disposition of such
asset during the ten-year period (the "Recognition Period") beginning on the
date on which such asset was acquired by the Company, then, to the extent of the
Built-In Gain (i.e., the excess of (a) the fair market value of such asset over
(b) the Company's adjusted basis in such asset, determined as of the beginning
of the Recognition Period), such gain will be subject to tax at the highest
corporate tax rate pursuant to Internal Revenue Service ("IRS") regulations that
have not yet been promulgated. The results described above with respect to the
recognition of Built-In Gain assume that the Company will make an election
pursuant to IRS Notice 88-19. In addition, Cali Services, Inc. is taxed on its
income at regular corporate rates.
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or directors,
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest, (3) which would be taxable as
a domestic corporation, but for Code Sections 856 through 859, (4) which is
neither a financial institution nor an insurance company subject to certain
provisions of the Code, (5) the beneficial ownership of which is held by 100 or
more persons (determined without reference to any rules of attribution), (6)
during the last half of each taxable year, not more than 50 percent in value of
the outstanding stock of which is owned, directly or constructively, by five or
fewer individuals (as defined in the Code to include certain entities) and (7)
which meets certain other tests, described below, regarding the matter of its
income and assets. The Code provides that conditions (1) to (4), inclusive, must
be met during the entire taxable year and that condition (5) must be met during
at least 335 days of a taxable year of 12 months, or during a proportionate part
of a taxable year of less than 12 months.
The Company has previously issued sufficient shares to allow it to satisfy
conditions (5) and (6). In addition, the Company's Articles of Incorporation
provide for restrictions regarding ownership and transfer of the Company's
capital stock, which restrictions are intended to assist the Company in
continuing to satisfy the share owner-ship requirements described in (5) and (6)
above. The ownership and transfer restrictions are described in "Restrictions on
Ownership of Offered Securities."
The Company owns and operates all of the properties through partnerships in
which the Operating Partnership and six direct, wholly-owned subsidiaries (the
"Cali Subs") are partners. Code Section 856 (i) provides that a corporation,
100% of whose stock is held by a REIT at all times during the corporation's
existence, is a "qualified REIT subsidiary." A "qualified REIT subsidiary" shall
not be treated as a separate corporation, and all assets, liabilities, and items
of income, deduction, and credit of a "qualified
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REIT subsidiary" shall be treated as assets, liabilities and such items (as the
case may be) of the REIT. Thus, in applying the requirements described herein,
the Company's "qualified REIT subsidiaries" will be ignored, and all assets,
liabilities and items of income, deduction, and credit of such subsidiaries will
be treated as assets, liabilities and items of the Company. The Company has not,
however, sought or received a ruling from the IRS that any of the Cali Subs is a
"qualified REIT subsidiary."
In the case of a REIT that is a partner in a partnership, either directly,
or indirectly through a "qualified REIT subsidiary," IRS regulations provide
that the REIT will be deemed to own its proportionate share of the assets of the
partnership and will be deemed to be entitled to the income of the partnership
attributable to such share. In addition, the character of the assets and gross
income of the partnership will retain the same character in the hands of the
REIT for purposes of Code Section 856, including satisfying the gross income
tests and the asset tests. Thus, the Company's proportionate share of the
assets, liabilities and items of income of the partnerships in which the Company
is a partner, directly or indirectly, will be treated as the assets, liabilities
and items of income of the Company for purposes of applying the requirements
described herein.
INCOME TESTS. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75
percent of the Company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments.
Second, at least 95 percent of the Company's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived from
such real property investments, dividends, interest and gain from the sale or
disposition of stock or securities (or from any combination of the foregoing).
Third, short-term gain from the sale or other disposition of stock or
securities, gain from prohibited transactions and gain on the sale or other
disposition of real property held for fewer than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30 percent of the Company's gross income (including gross income from
prohibited transactions) for each taxable year. See "--Sales or Dispositions of
Assets."
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits derived by any person from such property.
However, an amount received or accrued generally will not be excluded from the
term "rents from real property" solely by reason of being based on a fixed
percentage or percentages of receipts or sales. Second, the Code provides that
rents received from a tenant will not qualify as "rents from real property" in
satisfying the gross income tests if the REIT, or a direct or constructive owner
of 10 percent or more of the REIT, directly or constructively owns 10 percent or
more of such tenant (a "Related Party Tenant"). Third, if rent attributable to
personal property leased in connection with a lease of real property is greater
than 15 percent of the total rent received under the lease, then the portion of
rent attributable to such personal property will not qualify as "rents from real
property." Finally, for rents received to qualify as "rents from real property,"
the REIT generally must not operate or manage the property or furnish or render
services to the tenants of such property, other than through an independent
contractor from whom the REIT derives no revenue; provided, however, the Company
may directly perform certain services that are "usually or customarily rendered"
in connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant" of the property. The Company does not and
will not (i) charge rent for any property that is based in whole or in part on
the income or profits of any person (except by reason of being based on a fixed
percentage of receipts or sales, as described above), (ii) rent any property to
a Related Party Tenant, (iii) derive rental income attributable to personal
property (other than personal property leased in connection with the lease of
real property, the amount of which is less
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than 15 percent of the total rent received under the lease), or (iv) perform
services which are not usually or customarily rendered and which are considered
to be rendered to the occupant of the property, other than through an
independent contractor from whom the Company derives no revenue.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
The Operating Partnership may receive fees in consideration of the
performance of management and administrative services with respect to Properties
that are not owned entirely by the Operating Partnership. Although a portion of
such management and administrative fees generally will not qualify under the 75
percent or 95 percent gross income tests, the Company believes that the
aggregate amount of such fees (and any other non-qualifying income) in any
taxable year will not cause the Company to exceed the limits on non-qualifying
income under the 75 percent and 95 percent gross income tests.
In the opinion of Pryor, Cashman, Sherman & Flynn, the Company has satisfied
the 75 percent and 95 percent gross income tests for taxable years ending prior
to the date of this Prospectus. The Company intends to operate in such a manner
as will enable it to satisfy such tests in the future. If the Company fails to
satisfy one or both of the 75 percent or 95 percent gross income tests for any
taxable year, it may nevertheless qualify as a REIT for such year if it is
entitled to relief under certain provisions of the Code. These relief provisions
will generally be available if the Company's failure to meet such tests is due
to reasonable cause and not due to willful neglect, the Company attaches a
schedule of the sources of its income to its federal income tax return, and any
incorrect information on the schedule is not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances the
Company would be entitled to the benefit of these relief provisions. As
discussed above under "--General," even if these relief provisions were to
apply, a tax would be imposed with respect to the excess net income.
SALES OR DISPOSITIONS OF ASSETS. The Company, as a REIT, is generally
subject to two restrictions that limit its ability to sell real property. First,
as previously discussed, to qualify as a REIT, the Company must satisfy the 30
Percent Limitation, as described above. Second, the Company is subject to a tax
of 100 percent on its gain (i.e., the excess, if any, of the amount realized
over the Company's adjusted basis in the property) from each sale of property
(excluding certain property obtained through foreclosure) in which it is a
dealer. In calculating its gains subject to the 100 percent tax, the Company is
not allowed to offset gains on sales of property against losses on other sales
of property in which it is a dealer.
The Company may be subject to an entity level tax with respect to gain
recognized from the sale of property the Company held either prior to its
electing REIT status or which the Company acquired in a carryover basis
transaction. The tax is triggered if the property sold has a build-in-gain and
is sold within 10 years of the Company's qualification as a REIT.
Under the Code, the Company would be deemed to be a dealer in any property
that the Company holds primarily for sale to customers in the ordinary course of
its business. Such determination is a factual inquiry, and absolute legal
certainty of the Company's status generally cannot be provided. However, the
Company will not be treated as a dealer in real property for the 30 percent
gross income limitation if (i) it has held the property for at least four years
for the production of rental income, (ii) capitalized expenditures on the
property in the four years preceding sale do not exceed 30 percent of the net
selling price of the property, and (iii) the Company either (a) has seven or
fewer sales of property (excluding certain property obtained through
foreclosure) for the year, (b) the aggregate tax basis of property sold during
the taxable year is 10 percent or less of the aggregate tax basis of all assets
of the Company as of the beginning of the taxable year, or (c) substantially all
of the marketing and development expenditures with respect to the property sold
are made through an independent contractor from whom the Company derives no
income. The sale of more than one property to one buyer as part of one
transaction constitutes one
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sale. However, the failure of the Company to meet these "safe harbor"
requirements does not necessarily mean that it is a dealer in real property for
purposes of the 100 percent tax.
ASSET TESTS. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75 percent of the value of the Company's total assets must be represented
by real estate assets (including (i) assets held by the Company's qualified REIT
subsidiaries and the Company's allocable share of real estate assets held by
partnerships in which the Company owns an interest and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Company),
cash, cash items and government securities. Second, not more than 25 percent of
the Company's total assets may be represented by securities other than those in
the 75 percent asset class. Third, of the investments included in the 25 percent
asset class, the value of any one issuer's securities owned by the Company may
not exceed (at the end of the quarter in which such securities are acquired) 5
percent of the value of the Company's total assets and the Company may not own
more than 10 percent of any one issuer's outstanding voting securities.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (A) the sum of (i) 95 percent of
the Company's "REIT taxable income" (computed without regard to the dividends
paid deduction and the Company's net capital gain) and (ii) 95 percent of the
net income (after tax), if any, from foreclosure property, minus (B) the sum of
certain items of non-cash income. In addition, if the Company disposes of any
Built-In Gain Asset during its Recognition Period, the Company will be required,
pursuant to IRS regulations which have not yet been promulgated, to distribute
at least 95 percent of the Built-in Gain (after tax), if any, recognized on the
disposition of such asset. Such distributions must be paid in the taxable year
to which they relate, or in the following taxable year if declared before the
Company timely files its tax return for such prior year and if paid on or before
the first regular dividend payment after such declaration. To the extent that
the Company does not distribute all of its net capital gain or distributes at
least 95 percent, but less than 100 percent, of its "REIT taxable income," as
adjusted, it will be subject to tax thereon at regular ordinary and capital gain
corporate tax rates. Furthermore, if the Company should fail to distribute
during each calendar year at least the sum of (i) 85 percent of its REIT
ordinary income for such year, (ii) 95 percent of its REIT capital gain income
for such year, and (iii) any undistributed taxable income from prior periods,
the Company would be subject to a 4 percent excise tax on the excess of such
required distribution over the amounts actually distributed.
In the opinion of Pryor, Cashman, Sherman & Flynn, the Company has satisfied
the annual distribution requirements for taxable years ended prior to the date
of this Prospectus. The Company intends to continue to make timely distributions
sufficient to satisfy this annual distribution requirement in the future. It is
possible that the Company, from time to time, may not have sufficient cash or
other liquid assets to meet the 95 percent distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at the taxable income of the Company, or if the amount
of nondeductible expenses, such as principal amortization or capital
expenditures exceeds the amount of noncash deductions. In the event that such
timing differences occur, in order to meet the 95 percent distribution
requirement, the Company may find it necessary to arrange for short-term, or
possibly long-term, borrowing or to pay dividends in the form of taxable stock
dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in the Company's deduction
for dividends paid for the earlier year. Thus, the Company may be able to avoid
being taxed on amounts distributed as deficiency dividends; however, the Company
will be required to pay interest to the IRS based upon the amount of any
deduction taken for deficiency dividends.
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FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable corporate alternative minimum tax) on its taxable
income at regular corporate rates. Such a failure could have an adverse effect
on the market value and marketability of the Offered Securities. Distributions
to stockholders in any year in which the Company fails to qualify will not be
deductible by the Company nor will they be required to be made. In such event,
to the extent of current and accumulated earnings and profits, all distributions
to stockholders will be taxable as ordinary income and, subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Company will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances the Company would be
entitled to such statutory relief.
TAXATION OF STOCKHOLDERS
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS. As long as the Company qualifies
as a REIT, distributions made to the Company's taxable domestic stockholders out
of current or accumulated earnings and profits (and not designated as capital
gain dividends) will be taken into account by them as ordinary income and will
not be eligible for the dividends received deduction for corporations.
Distributions that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent they do not exceed the Company's actual
net capital gain for the taxable year) without regard to the period for which
the stockholder has held its stock. However, corporate stockholders may be
required to treat up to 20 percent of certain capital gain dividends as ordinary
income. Distributions in excess of current and accumulated earnings and profits
will not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's shares, but rather will reduce the adjusted
basis of such shares. To the extent that such distributions exceed the adjusted
basis of a stockholder's shares, they will be included in income as long-term
capital gain (or short-term capital gain if the shares have been held for one
year or less), assuming the shares are a capital asset in the hands of the
stockholder. In addition, any dividend declared by the Company in October,
November or December of any year payable to a stockholder of record on a
specific date in any such month shall be treated as both paid by the Company and
received by the stockholder on December 31 of such year, provided that the
dividend is actually paid by the Company during January of the following
calendar year. Stockholders may not include in their individual income tax
returns any net operating losses or capital losses of the Company.
In general, any loss upon a sale or exchange of shares by a stockholder who
has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such stockholder as
long-term capital gain.
BACKUP WITHHOLDING. The Company will report to its domestic stockholders
and the IRS the amount of dividends paid during each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a stockholder may be subject to backup withholding at the
rate of 31 percent with respect to dividends paid unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact or (b) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding and otherwise
complies with applicable requirements of the backup withholding rules. A
stockholder who does not provide the Company with its correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions made to any stockholders who fail to
certify their non-foreign status to the Company. See "--Taxation of Foreign
Stockholders" below.
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TAXATION OF TAX-EXEMPT STOCKHOLDERS. Under the Revenue Reconciliation Act
of 1993 (the "1993 Act"), in applying the REIT stock ownership test under the
Code, a pension trust generally is not treated as a single individual as it
would have been under prior law. Rather, the 1993 Act treats beneficiaries of
certain pension trusts as holding the shares of a REIT in proportion to their
actuarial interests in such trust, and thus permits certain pension trusts to
acquire more concentrated ownership of a REIT.
In addition, under the 1993 Act, a pension fund owning more than 10 percent
of a REIT must treat a percentage of dividends from the REIT as "unrelated
business taxable income" ("UBTI"). The percentage is determined by dividing the
REIT's gross income derived from an unrelated trade or business for the year by
the gross income of the REIT for the year in which the dividends are paid. If
this percentage is less than five percent, however, dividends are not treated as
UBTI. In general, the UBTI rule applies to a REIT where the REIT qualifies as a
REIT by reason of the above modification of the stock ownership test and (i) one
pension trust owns more than 25 percent of the value of the REIT; or (ii) a
group of pension trusts individually holding more than 10 percent of the value
of the REIT collectively own more than 50 percent of the value of the REIT.
The provisions of the 1993 Act apply to taxable years of a REIT beginning on
or after January 1, 1994.
TAXATION OF FOREIGN STOCKHOLDERS. The rules governing U.S. federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. Prospective Non-U.S. Stockholders should
consult with their own tax advisors to determine the impact of U.S. federal,
state and local income tax laws with regard to an investment in the Offered
Securities, including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges by
the Company of U.S. real property interests and not designated by the Company as
capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
the Company. Such distributions will ordinarily be subject to a withholding tax
equal to 30 percent of the gross amount of the distribution unless an applicable
tax treaty reduces that tax. However, if income from the investment in the
Offered Securities is treated as effectively connected with the Non-U.S.
Stockholder's conduct of a U.S. trade or business, the Non-U.S. Stockholder
generally will be subject to a tax at graduated rates, in the same manner as
U.S. stockholders are taxed with respect to such dividends (and may, subject to
possible treaty relief, the 30 percent branch profits tax if the stockholder is
a foreign corporation). The Company expects to withhold U.S. income tax at the
rate of 30 percent on the gross amount of any dividends paid to a Non-U.S.
Stockholder unless (i) a lower treaty rate applies and the required form
evidencing eligibility for that reduced rate is filed with the Company or (ii)
the Non-U.S. Stockholder files an IRS Form 4224 with the Company claiming that
the distribution is "effectively connected" income. Distributions in excess of
current and accumulated earnings and profits of the Company will not be taxable
to a stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's shares, but rather will reduce the adjusted basis of such shares.
To the extent that such distributions exceed the adjusted basis of a Non-U.S.
Stockholder's shares, they will give rise to tax liability if the Non-U.S.
Stockholder would otherwise be subject to tax on any gain from the sale or
disposition of his shares, as described below. If it cannot be determined at the
time a distribution is made whether or not such distribution will be in excess
of current and accumulated earnings and profits, the distribution will be
subject to withholding at the rate applicable to dividends. However, the
Non-U.S. Stockholder may seek a refund of such amounts from the IRS if it is
subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company.
Under recently proposed Treasury Regulations, withholding procedures would
be revised. Should the proposal be adopted, withholding generally would be at
either 31 percent or 30 percent unless a new Form W-8 is filed with the Company
by the beneficial owner to establish entitlement to treaty benefits or
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exemption based upon the income being "effectively connected". In some
instances, additional documentation might be required from the beneficial owner,
including an individual taxpayer identification number from the U.S. Internal
Revenue Service and a certification of tax status from the tax authorities of
the beneficial owner's country of residence.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of U.S. real
property interests will be taxed to a Non-U.S. Stockholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under
FIRPTA, these distributions are taxed to a Non-U.S. Stockholder as if such gain
were effectively connected with a U.S. business. Thus, Non-U.S. Stockholders
would be taxed at the normal capital gain rates applicable to U.S. stockholders
(subject to applicable alternative minimum tax and a special alternative minimum
tax in the case of nonresident alien individuals). Also, distributions subject
to FIRPTA may be subject to a 30 percent branch profits tax in the hands of a
corporate Non-U.S. Stockholder not entitled to treaty relief or exemption. The
Company is required by applicable Treasury Regulations to withhold 35 percent of
any distribution to a Non-U.S. Stockholder that could be designated by the
Company as a capital gain dividend. This amount is creditable against the
Non-U.S. Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of stock generally
will not be taxed under FIRPTA if a REIT is a "domestically controlled REIT,"
defined generally as a REIT in which at all times during a specified testing
period less than 50 percent in value of the stock was held directly or
indirectly by foreign persons. It is currently anticipated that the Company will
be a "domestically controlled REIT," and therefore the sale of stock will not be
subject to taxation under FIRPTA. However, gain not subject to FIRPTA will be
taxable to a Non-U.S. Stockholder if (i) investment in the Stock is "effectively
connected" with the Non-U.S. Stockholder's U.S. trade or business, in which case
the Non-U.S. Stockholder will be subject to the same treatment as U.S.
stockholders with respect to such gain, or (ii) the Non-U.S. Stockholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, in
which case the nonresident alien individual will be subject to a 30 percent tax
on the individual's capital gains. If the gain on the sale of stock were to be
subject to taxation under FIRPTA, the Non-U.S. Stockholder would be subject to
the same treatment as U.S. stockholders with respect to such gain (subject to
applicable alternative minimum tax, possible withholding tax and a special
alternative minimum tax in the case of nonresident alien individuals).
OTHER TAX MATTERS
Certain of the Company's investments are through partnerships which may
involve special tax risks. Such risks include possible challenge by the IRS of
(a) allocations of income and expense items, which could affect the computation
of income of the Company and (b) the status of the partnerships as partnerships
(as opposed to associations taxable as corporations) for income tax purposes.
This partnership status risk may be diminished by recently proposed Treasury
Regulations which would permit election of partnership status by checking a box
on the tax return. If any of the partnerships is treated as an association, it
would be taxable as a corporation. In such a situation, if the Company's
ownership in any of the partnerships exceeded 10 percent of the partnership's
voting interests or the value of such interest exceeded 5 percent of the value
of the Company's assets, the Company would cease to qualify as a REIT.
Furthermore, in such a situation, distributions from any of the partnerships to
the Company would be treated as dividends, which are not taken into account in
satisfying the 75 percent gross income test described above and which could
therefore make it more difficult for the Company to qualify as a REIT for the
taxable year in which such distribution was received. In addition, in such a
situation, the interest in any of the partnerships held by the Company would not
qualify as a "real estate asset," which could make it more difficult for the
Company to meet the 75 percent asset test described above. Finally, in such a
situation, the Company would not be able to deduct its share of loses generated
by the partnerships in computing its taxable income. See "Failure to Qualify"
above for a discussion of the effect of the
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Company's failure to meet such tests for a taxable year. The Company believes
that each of the partnerships will be treated for tax purposes as a partnership
(and not as an association taxable as a corporation). However, no assurance can
be given that the IRS may not successfully challenge the tax status of any of
the partnerships.
TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES. Pursuant to Section
704(c) of the Code, income, gain, loss, and deduction attributable to
appreciated property that is contributed to a partnership in exchange for an
interest in the partnership must be allocated for Federal income tax purposes in
a manner such that the contributor is charged with the unrealized gain
associated with the property at the time of the contribution. The amount of such
unrealized gain is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the adjusted
tax basis of such property at the time of contribution (the "Book-Tax
Difference"). In general, the fair market value of the interests in the various
Partnerships contributed to the Operating Partnership are substantially in
excess of their adjusted tax bases. The Partnership Agreements of each of the
Operating Partnership, the Existing Partnerships and the Holding Partnerships
require that allocations attributable to each item of contributed property be
made so as to allocate the tax depreciation available with respect to such
property first to the partners other than the partner that contributed the
property, to the extent of, and in proportion to, their book depreciation, and
then, if any tax depreciation remains, to the partner that contributed the
property. Upon the disposition of any item of contributed property, any gain
attributable to an excess, at such time, of basis for book purposes over basis
for tax purposes would be allocated for tax purposes to the contributing
partner. These allocations are intended to be consistent with the Treasury
Regulations under Section 704(c) of the Code.
In general, certain persons who acquired interests in the Operating
Partnership in connection with the formation of the Company are allocated
disproportionately lower amounts of depreciation deductions for tax purposes
relative to their percentage interests in the Operating Partnership, and
disproportionately greater shares relative to their percentage interests in the
Operating Partnership of the taxable income and gain on the sale by the
Partnerships of one or more of the contributed properties. These tax allocations
will tend to reduce or eliminate the Book-Tax Difference over the life of the
Partnerships. The Partnership Agreements of the Partnerships adopt the
"traditional method" of making allocations under Section 704(c) of the Code,
unless otherwise agreed to between the Company and the contributing partner.
Under the traditional method the amounts of the special allocations of
depreciation and gain under the special rules of Section 704(c) of the Code will
be limited by the so-called "ceiling rule" and will not always eliminate the
Book-Tax Difference on an annual basis or with respect to a specific transaction
such as a sale. Thus, the carryover basis of the contributed assets in the hands
of the partnerships will cause the Company to be allocated less depreciation
than would be available for newly purchased properties.
STATE AND LOCAL TAXES. The Company and its stockholders may be subject to
state or local taxation in various state or local jurisdictions, including those
in which it or they transact business or reside. The state and local tax
treatment of the Company and its stockholders may not conform to the federal
income tax consequences discussed above. Consequently, prospective stockholders
should consult their own tax advisors regarding the effect of state and local
tax laws on an investment in the Offered Securities.
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<PAGE>
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more underwriters for
public offering and sale by them or may sell the Offered Securities to investors
directly or through agents. Any such underwriter or agent involved in the offer
and sale of the Offered Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, at prices related to the prevailing market prices
at the time of sale or at negotiated prices. The Company also may, from time to
time, authorize underwriters acting as the Company's agents to offer and sell
the Offered Securities upon the terms and conditions as are set forth in the
applicable Prospectus Supplement. In connection with the sale of Offered
Securities, underwriters may be deemed to have received compensation from the
Company in the form of underwriting discounts or commissions and may also
receive commissions from any entity for whom they may act as agent. Underwriters
may sell Offered Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Offered Securities may be
deemed to be underwriters, and any discounts, concessions and commissions
received by them and any profit realized by them on resale of the Offered
Securities may be deemed to be underwriting discounts and commissions, under the
Securities Act. Underwriters, dealers and agents may be entitled, under
agreements entered into with the Company, to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the aggregate principal amount of Offered Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Offered Securities covered by
its Contracts shall not at the time of delivery be prohibited under the laws of
any jurisdiction in the United States to which such institution is subject, and
(ii) if the Offered Securities are being sold to underwriters, the Company shall
have sold to such underwriters the total principal amount of the Offered
Securities less the principal amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for the Company and its subsidiaries
in the ordinary course of business.
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EXPERTS
The financial statements incorporated in this Prospectus by reference to the
Annual Report on Form 10-K of the Company for the year ended December 31, 1995,
has been so incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting. The financial statements incorporated in this
Prospectus by reference to the Current Report on Form 8-K of the Company, dated
July 16, 1996, have been so incorporated in reliance on the report of
Schonbraun, Safris, Sternlieb & 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 "Certain United States Federal Income Tax
Considerations to the Company of its REIT Election" will be passed upon for the
Company by Pryor, Cashman, Sherman & Flynn, New York, New York. Certain legal
matters relating to Maryland law, including the validity of the issuance of the
securities registered hereby, will be passed upon for the Company by Swidler &
Berlin, Chartered, Washington, D.C.
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE
ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DO THEY
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, NOR ANY SALE MADE HEREUNDER OR
THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT ANY
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary............................................. S-3
Risk Factors........................................ S-7
The Company......................................... S-12
Recent Developments................................. S-15
Use of Proceeds..................................... S-17
Capitalization...................................... S-17
Price Range of Common Stock and Distributions....... S-18
Properties.......................................... S-19
Management.......................................... S-28
Certain United States Federal Income Tax
Considerations to Holders of Common Stock......... S-30
Underwriting........................................ S-34
Experts............................................. S-35
Legal Matters....................................... S-35
<CAPTION>
PROSPECTUS
PAGE
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<S> <C>
Available Information............................... 2
Incorporation of Certain Documents by Reference..... 2
The Company......................................... 3
Ratios of Earnings to Fixed Charges................. 4
Use of Proceeds..................................... 4
Description of Common Stock......................... 4
Description of Preferred Stock...................... 5
Description of Warrants............................. 11
Restrictions on Ownership of Offered Securities..... 11
Certain United States Federal Income Tax
Considerations to the Company of its REIT
Election.......................................... 13
Plan of Distribution................................ 22
Experts............................................. 23
Legal Matters....................................... 23
</TABLE>
15,250,000 Shares
[LOGO]
CALI REALTY CORPORATION
Common Stock
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PROSPECTUS SUPPLEMENT
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PRUDENTIAL SECURITIES INCORPORATED
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO.
INCORPORATED
SMITH BARNEY INC.
November 18, 1996
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