AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CALI REALTY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 22-3305147
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
------------------------
11 COMMERCE DRIVE
CRANFORD, NEW JERSEY 07016
(908) 272-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOHN J. CALI
CHAIRMAN OF THE BOARD
11 COMMERCE DRIVE
CRANFORD, NEW JERSEY 07016
(908) 272-8000
(908) 272-6755 (FACSIMILE)
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPIES TO:
JONATHAN A. BERNSTEIN, ESQ.
BLAKE HORNICK, ESQ.
PRYOR, CASHMAN, SHERMAN & FLYNN
410 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 421-4100
(212) 326-0806 (FACSIMILE)
<PAGE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as possible after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
[_]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the Prospectus is expected to be made pursuant to Rule
434, check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Proposed maximum
Title of shares Amount to maximum aggregate Amount of
to be be aggregate price offering registration
registered registered per unit price(1) fee
- --------------- ---------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Preferred Stock (2) $500,000,000 (5) $172,413.79 (6)
Common Stock (3)
Warrants(4)
</TABLE>
- -----------------
(1) Estimated solely for the purpose of calculating the registration fee and
exclusive of accrued interest, if any.
(2) There are being registered hereunder an indeterminate number of shares
of Preferred Stock of the Registrant as may be sold, from time to time,
by the Registrant.
(3) There are being registered hereunder an indeterminate number of shares
of Common Stock of the Registrant as may be sold, from time to time, by
the Registrant. There are also being registered hereunder an
indeterminate number of shares of Common Stock of the Registrant as
shall be issuable upon conversion of or in exchange for convertible
Preferred Stock or Warrants registered hereby. No separate consideration
will be received for the Common Stock issuable upon conversion of or in
exchange for convertible Preferred Stock or Warrants.
<PAGE>
(4) There are being registered hereunder an indeterminate number of Warrants
to purchase either Preferred Stock or Common Stock of the Registrant as
may be sold, from time to time, by the Registrant. Warrants may be sold
separately or with the Preferred Stock or Common Stock.
(5) Or an equivalent amount in another currency or currencies or as
determined by reference to an index or, if the securities are to be
offered at a discount, the approximate proceeds to the Registrant.
(6) Calculated in accordance with Rule 457(o) under the Securities Act of
1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
<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.
<PAGE>
The Offered Securities may be offered directly, through agents
designated from time to time by the Company, or to or through underwriters or
dealers. If any agents or underwriters are involved in the sale of any of the
Offered Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution." No Offered Securities may be sold
without delivery of the applicable Prospectus Supplement describing the method
and terms of the offering of such series of Offered Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
------------------------
The date of this Prospectus is July 29, 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.
<PAGE>
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 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
<PAGE>
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.
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.
<PAGE>
RATIOS OF EARNINGS TO FIXED CHARGES
The following tables set forth the Company's consolidated ratios of
earnings to fixed charges for the periods shown:
For the Three For the Year For the Period
Months Ended Ended August 31, 1994
March 31, 1996 December 31, 1995 to December 31, 1994
-------------- ----------------- --------------------
3.08x 2.69x 3.13x
The following tables set forth the amounts by which the Company's
predecessor's earnings were inadequate to cover fixed charges:
For the Period
January 1, 1994 to For the Years Ended December 31,
August 30, 1994 1993 1992 1991
--------------- ---- ---- ----
$(110) $(1,064) $(2,172) $(1,125)
The ratios of earnings to fixed charges were computed by dividing
earnings before fixed charges by fixed charges. For this purpose, earnings
consist of pre-tax income (loss) before gain on sale of property, minority
interest, and extraordinary item 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.
<PAGE>
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 July 25, 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 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".
<PAGE>
Transfer Agent
The registrar and transfer agent for the Company's Common Stock is
Chase Mellon Shareholder Services, LLC.
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). No shares of Preferred
Stock are outstanding as of the date hereof.
Under the Company's Articles of Incorporation, shares of Preferred
Stock may be issued from time to time, in one or more series, as authorized by
the Board of Directors. Prior to the issuance of shares of each series, the
Board of Directors is required by the Maryland General Corporation Law (the
"MGCL") and the Company's Articles of Incorporation to adopt resolutions and
file Articles Supplementary (the "Articles Supplementary") with the State
Department of Assessments and Taxation of Maryland, setting for each such series
the designations, powers, preferences and rights of the shares of such series
and the qualifications, limitations or restrictions thereon, including, but not
limited to, dividend rights, dividend rate or rates, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences as are permitted by
Maryland law. Because the Board of Directors has the power to establish the
terms and conditions of each series of Preferred Stock, it may afford the
holders of any series of Preferred Stock power, preferences and rights, voting
or otherwise, senior to the rights of holders of shares of Common Stock. The
issuance of Preferred Stock could have the effect of delaying or preventing a
change in control of the Company.
The following description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock are
in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Articles of Incorporation (including the
applicable Articles Supplementary) and bylaws.
General
Subject to limitations prescribed by Maryland law and the Company's
Articles of Incorporation and bylaws, the Board of Directors is authorized to
fix the number of shares constituting each series of Preferred Stock and the
designations, powers, preferences and relative, participating, optional or other
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.
<PAGE>
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.
<PAGE>
Rank
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Stock of the Company, and to all equity securities ranking
junior to such Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company; (ii) on a parity with all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank on a parity with the Preferred Stock with
respect to dividend rights or rights upon liquidation, dissolution or winding up
of the Company; and (iii) junior to all equity securities issued by the Company
the terms of which specifically provide that such equity securities rank senior
to the Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company. As used in the Company's
Articles of Incorporation for these purposes, the term "equity securities" does
not include convertible debt securities.
Dividends
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will have the rights with respect to payment of dividends set forth below.
Holders of shares of the Preferred Stock of each series shall be
entitled to receive, when, as and if declared and authorized by the Board of
Directors of the Company, out of assets of the Company legally available for
payment, cash dividends at such rates and on such dates as will be set forth in
the applicable Prospectus Supplement. Each such dividend shall be payable to
holders of record as they appear on the stock transfer books of the Company on
such record dates as shall be fixed by the Board of Directors of the Company.
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
<PAGE>
Stock of such series, all dividends declared upon shares of Preferred Stock of
such series and any other series of preferred stock ranking on a parity as to
dividends with such Preferred Stock shall be declared pro rata so that the
amount of dividends declared per share on the Preferred Stock of such series and
such other series of preferred stock shall in all cases bear to each other the
same ratio that accrued and unpaid dividends per share on the shares of
Preferred Stock of such series (which shall not include any accumulation in
respect of unpaid dividends for prior dividend periods if such Preferred Stock
does not have a cumulative dividend) and such other series of preferred stock
bear to each other. Except as may otherwise be set forth in the applicable
Prospectus Supplement, no interest, or sum of money in lieu of interest, shall
be payable in respect of any dividend payment or payments on Preferred Stock of
such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i)
if such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment for all past dividend periods and the then
current dividend period or (ii) if such series of Preferred Stock does not have
a cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof irrevocably set apart for payment for the then current
dividend period, no dividends (other than in Common Stock or other capital stock
ranking junior to the Preferred Stock of such series as to dividends and upon
liquidation, dissolution or winding up of the Company) shall be declared or paid
or set aside for payment or other distribution shall be declared or made upon
the Common Stock or any other capital stock of the Company ranking junior to or
on a parity with the Preferred Stock of such series as to dividends or upon
liquidation, dissolution or winding up of the Company, nor shall any Common
Stock or any other capital stock of the Company ranking junior to or on a parity
with the Preferred Stock of such series as to dividends or upon liquidation,
dissolution or winding up of the Company be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for a
sinking fund for the redemption of any shares of any such stock) by the Company
(except by conversion into or exchange for other capital stock of the Company
ranking junior to the Preferred Stock of such series as to dividends and upon
liquidation, dissolution or, winding up of the Company).
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.
<PAGE>
Notwithstanding the foregoing, unless (i) if such series of Preferred
Stock has a cumulative dividend, full cumulative dividends on all shares of any
series of Preferred Stock shall have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof irrevocably set
apart for payment for all past dividend periods and the then current dividend
period or (ii) if such series of Preferred Stock does not have a cumulative
dividend, full dividends on the Preferred Stock of any series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof irrevocably set apart for payment for the then current dividend
period, no shares of any series of Preferred Stock shall be redeemed unless all
outstanding shares of Preferred Stock of such series are simultaneously
redeemed; provided, however, that the foregoing shall not prevent the purchase
or acquisition of shares of Preferred Stock of such series pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
shares of Preferred Stock of such series. In addition, unless (i) if such series
of Preferred Stock has a cumulative dividend, full cumulative dividends on all
outstanding shares of any series of Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof irrevocably set apart for payment for all past dividend periods
and the then current dividend period and (ii) if such series of Preferred Stock
does not have a cumulative dividend, full dividends on the Preferred Stock of
any series have been or contemporaneously are declared and paid or declared and
a sum sufficient for the payment thereof irrevocably set apart for payment for
the then current dividend period, the Company shall not purchase or otherwise
acquire directly or indirectly any shares of Preferred Stock of such series
(except by conversion into or exchange for capital stock of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation, dissolution or winding up of the Company); provided, however, that
the foregoing shall not prevent the purchase or acquisition of shares of
Preferred Stock of such series to preserve the REIT status of the Company or
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding shares of Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
by such holders (with adjustments to avoid redemption of fractional shares) or
any other equitable method determined by the Company that will not result in
violation of the ownership limitations set forth in the Articles of
Incorporation.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of record of a share of
Preferred Stock of any series to be redeemed at the address shown on the stock
transfer books of the Company. Each notice shall state: (i) the redemption date;
(ii) the number of shares and series of the Preferred Stock to be redeemed;
(iii) the redemption price; (iv) the 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
<PAGE>
after the redemption date dividends will cease to accrue on such shares of
Preferred Stock, such shares of Preferred Stock shall no longer be deemed
outstanding and all rights of the holders of such shares will terminate, except
the right to receive the redemption price.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company, then, before any distribution or payment shall
be made to the holders of any Common Stock or any other class or series of
capital stock of the Company ranking junior to the Preferred Stock in the
distribution of assets upon any liquidation, dissolution or winding up of the
Company, the holders of each series of Preferred Stock shall be entitled to
receive out of assets of the Company legally available for distribution to
stockholders liquidating distributions in the amount of the liquidation
preference per share (set forth in the applicable Prospectus Supplement and
Articles Supplementary), plus an amount equal to all dividends accrued and
unpaid thereon (which shall not include any accumulation in respect of unpaid
dividends for prior dividend periods if such Preferred Stock does not have a
cumulative dividend). Except as may otherwise be set forth in the applicable
Prospectus Supplement, after payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Preferred Stock will
have no right or claim to any of the remaining assets of the Company. In the
event that, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the legally available assets of the Company are insufficient to pay
the amount of the liquidating distributions on all outstanding shares of
Preferred Stock and the corresponding amounts payable on all shares of other
classes or series of capital stock of the Company ranking on a parity with the
Preferred Stock in the distribution of assets upon liquidation, dissolution or
winding up of the Company, then the holders of the Preferred Stock and all other
such classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all
holders of shares of Preferred Stock, the remaining assets of the Company shall
be distributed among the holders of any other classes or series of capital stock
ranking junior to the Preferred Stock upon liquidation, dissolution or winding
up of the Company, according to their respective rights and preferences and in
each case according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation, or
the sale, lease, transfer or conveyance of all or substantially all of the
property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
Voting Rights
Holders of the Preferred Stock will not have any voting rights, except
as set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Except as may otherwise be set forth in the applicable Prospectus
Supplement, whenever dividends on any shares of Preferred Stock shall be in
arrears for the equivalent of six or more quarterly periods, the holders of such
shares of Preferred Stock (voting separately as a class with all other series of
preferred stock upon which like voting rights have been conferred and are
exercisable) will be entitled to vote for the election of two additional
directors of the Company at the next annual meeting of stockholders, and at each
subsequent annual meeting, until (i) if such series of Preferred Stock has a
<PAGE>
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.
<PAGE>
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.
<PAGE>
RESTRICTIONS ON OWNERSHIP OF OFFERED SECURITIES
For the Company to qualify as a REIT under the Code, not more than 50
percent in value of its outstanding capital stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year, and its capital stock
must be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months or during a proportionate part of a shorter taxable
year.
The Company's Articles of Incorporation provide, subject to certain
exceptions specified therein, that no holder may own, or be deemed to own by
virtue of the attribution rules of the Code, more than 9.8 percent by value (the
"Ownership Limit") of the outstanding capital stock of the Company. Any transfer
of Offered Securities that would create a direct or indirect ownership of shares
of Common Stock and/or Preferred Stock (collectively the "Stock") in excess of
the Ownership Limit or result in the Company being "closely held" within the
meaning of Code Section 856(h) shall be null and void, and the intended
transferee will acquire no rights to the Offered Securities. Any transfer of
Stock that would result in the capital stock of the Company being beneficially
owned by fewer than 100 persons shall be null and void, and the interested
transferee will acquire no rights to such shares of Stock.
The constructive ownership rules are complex and may cause Common Stock
or Preferred Stock owned directly or constructively by a group of related
individuals and/or entities to be deemed constructively owned by one individual
or entity. As a result, the acquisition of less than 9.8 percent of the value of
the capital stock of the Company (or the acquisition of an interest in an entity
which owns such capital stock) by an individual or entity could cause that
individual or entity (or another individual or entity) to own constructively in
excess of 9.8 percent of the value of the capital stock, and thus subject such
capital stock to the Ownership Limit. Moreover, an individual or an entity which
owns Warrants to acquire Stock will be deemed to own such Stock for purposes of
applying the Ownership Limit.
The Board of Directors may, upon receipt of either a certified copy of
a ruling from the Internal Revenue Service or an opinion of counsel satisfactory
to the Board of Directors, but shall in no case be required to, exempt a person
(the "Exempted Holder") from the Ownership Limit if the ruling or opinion
concludes that no person who is an individual as defined in Section 542(a)(2) of
the Code will, as the result of the ownership of shares by the Exempted Holder,
be considered to have Beneficial Ownership of an amount of capital stock that
will violate the Ownership Limit.
The foregoing restrictions on transferability and ownership will not
apply if the Board of Directors determines that it is no longer in the best
interests of the Company to attempt to qualify, or to continue to qualify, as a
REIT.
All certificates representing shares of Common Stock and Preferred
Stock will bear a legend referring to the restrictions described above.
All stockholders of record who own more than a specified percentage of
the outstanding capital stock of the Company must file a written statement with
the Company containing certain information specified in Treasury Regulations,
pertaining to the actual ownership of capital stock of the Company, within 30
days after December 31 of each year. In addition, each holder of capital stock
of the Company and/or Warrants shall, upon demand, be required to disclose to
<PAGE>
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.
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).
<PAGE>
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 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.
<PAGE>
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 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
<PAGE>
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
<PAGE>
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 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 a 30
percent gross income limitation. 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.
<PAGE>
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 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
<PAGE>
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.
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
<PAGE>
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.
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.
<PAGE>
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 also be
subject to 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.
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
<PAGE>
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. 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 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.
<PAGE>
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.
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth estimated expenses (except for
Commission and NASD fees) to be incurred in connection with the issuance and
distribution of the securities being registered.
Commission Registration Fee $172,413.79
NASD Fee 0.00
NYSE Listing Fee
Printing and Engraving Expenses
Legal Fees and Expenses (other than Blue Sky)
Accounting Fees and Expenses
Blue Sky Fees and Expenses (including fees of counsel)
Miscellaneous
Total $
===========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's officers and directors are indemnified under Maryland
law, the Articles of Incorporation and the Amended and Restated Agreement of
Limited Partnership of the Operating Partnership (the "Partnership Agreement of
the Operating Partnership"), against certain liabilities. The Articles of
Incorporation require the Company to indemnify its directors and officers to the
fullest extent permitted from time to time by the laws of the State of Maryland.
The bylaws contain provisions which implement the indemnification provisions of
the Articles of Incorporation.
The Maryland General Corporation Law ("MGCL") permits a corporation to
indemnify its directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their service in those capacities unless it is established that the act or
omission of the director or officer was material to the matter giving rise to
the proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty, or the director or officer actually received an improper
personal benefit in money, property or services, or in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful, or the director or officer was adjudged to be liable
to the corporation for the act or omission. No amendment of the Articles of
Incorporation of the Company shall limit or eliminate the right to
indemnification provided with respect to acts or omissions occurring prior to
such amendment or repeal. Maryland law permits the Company to provide
indemnification to an officer to the same extent as a director, although
additional indemnification may be provided if such officer is not also a
director.
<PAGE>
The MGCL permits the articles of incorporation of a Maryland
corporation to include a provision limiting the liability of its directors and
officers to the corporation and its stockholders for money damages, with
specified exceptions. The MGCL does not, however, permit the liability of
directors and officers to the corporation or its stockholders to be limited to
the extent that (1) it is proved that the person actually received an improper
benefit or profit in money, property or services (to the extent such benefit or
profit was received) or (2) a judgment or other final adjudication adverse to
such person is entered in a proceeding based on a finding that the person's
action, or failure to act, was the result of active and deliberate dishonesty
and was material to the cause of action adjudicated in the proceeding. The
Articles of Incorporation of the Company contain a provision consistent with the
MGCL. No amendment of the Articles of Incorporation shall limit or eliminate the
limitation of liability with respect to acts or omissions occurring prior to
such amendment or repeal.
The Partnership Agreement of the Operating Partnership also provides
for indemnification of the Company and its officers and directors to the same
extent indemnification is provided to officers and directors of the Company in
its Articles of Incorporation, and limits the liability of the Company and its
officers and directors to the Operating Partnership and its partners to the same
extent liability of officers and directors of the Company to its stockholders is
limited under the Company's Articles of Incorporation.
The Company has entered into indemnification agreements with each of
its directors and officers. The indemnification agreements require, among other
things, that the Company indemnify its directors and officers to the fullest
extent permitted by law, and advance to the directors and officers all related
expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. The Company also must indemnify and advance
all expenses incurred by directors and officers seeking to enforce their rights
under the indemnification agreements, and cover directors and officers under the
Company's directors' and officers' liability insurance. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by provisions of the Articles of Incorporation and the bylaws and
Partnership Agreement of the Operating Partnership, it provides greater
assurance to directors and officers that indemnification will be available,
because, as a contract, it cannot be modified unilaterally in the future by the
Board of Directors or by the stockholders to eliminate the rights it provides.
<PAGE>
ITEM 16. EXHIBITS.
Exhibit No. Description
- ----------- -----------
1.1 Form of Underwriting Agreement for equity securities (1)
3.1 Amended and Restated Articles of Incorporation of Cali Realty
Corporation, incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-11 (Registration
No. 33-79892)
3.2 Articles of Amendment to the Amended and Restated Articles of
Incorporation of Cali Realty Corporation (1)
3.3 Amended and Restated Bylaws of Cali Realty Corporation,
incorporated by reference to Exhibit 3.4 to the Company's
Registration Statement on Form S-11 (Registration No.
33-79892)
4.1 Form of Common Stock certificate, incorporated by reference to
Exhibit 5.1 to the Company's Registration Statement on Form
8-A, filed with the Commission on August 9, 1994
4.2 Form of Common Stock Warrant Agreement (1)
4.3 Form of Articles Supplementary for the Preferred Stock (1)
4.4 Form of Preferred Stock Certificate (1)
4.7 Form of Preferred Stock Warrant Agreement (1)
5.1 Opinion of Swidler & Berlin, Chartered regarding the validity
of the securities being registered (1)
8.1 Opinion of Pryor, Cashman, Sherman & Flynn regarding tax
matters (1)
12.1 Calculation of Ratios of Earnings to Fixed Charges
23.1 Consent of Swidler & Berlin, Chartered (included as part of
Exhibit 5.1)
23.2 Consent of Pryor, Cashman, Sherman & Flynn (included as part
of Exhibit 8.1)
23.3 Consent of Price Waterhouse LLP
23.4 Consent of Schonbraun Safris Sternlieb & Co., L.L.C.
- ---------------
(1) To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the Closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt deliver to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
<PAGE>
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned Registrant also hereby undertakes:
(1) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that its incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering hereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted against the Registrant by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York on this 29th day of July,
1996.
CALI REALTY CORPORATION
By: /s/ John J. Cali
----------------
JOHN J. CALI
CHAIRMAN OF THE BOARD
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Dated: July 29, 1996 /s/ Thomas A. Rizk
------------------
Thomas A. Rizk
President, Chief Executive
Officer and Director
Dated: July 29, 1996 /s/ Barry Lefkowitz
-------------------
Barry Lefkowitz
Vice President - Finance and
Chief Financial Officer
Dated: July 29, 1996 /s/ Angelo R. Cali
------------------
Angelo R. Cali
Director
Dated: July 29, 1996 /s/ Edward Leshowitz
--------------------
Edward Leshowitz
Director
Dated: July 29, 1996 /s/ Brendan T. Byrne
--------------------
Brendan T. Byrne
Director
Dated: July 29, 1996 /s/ Kenneth A. DeGhetto
-----------------------
Kenneth A. DeGhetto
Director
Dated: July 29, 1996 /s/ James W. Hughes
-------------------
James W. Hughes
Director
Dated: July 29, 1996 /s/ Irvin D. Reid
-----------------
Irvin D. Reid
Director
Dated: July 29, 1996 /s/ Alan Turtletaub
-------------------
Alan Turtletaub
Director
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
1.1 Form of Underwriting Agreement for equity securities(1)
3.1 Amended and Restated Articles of Incorporation of Cali Realty
Corporation, incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-11 (Registration No.
33-79892)
3.2 Articles of Amendment to the Amended and Restated Articles of
Incorporation of Cali Realty Corporation(1)
3.3 Amended and Restated Bylaws of Cali Realty Corporation,
incorporated by reference to Exhibit 3.4 to the Company's
Registration Statement on Form S-11 (Registration No. 33-79892)
4.1 Form of Common Stock certificate, incorporated by reference to
Exhibit 5.1 to the Company's Registration Statement on Form 8-A,
filed with the Commission on August 9, 1994
4.2 Form of Common Stock Warrant Agreement(1)
4.3 Form of Articles Supplementary for the Preferred Stock(1)
4.4 Form of Preferred Stock Certificate(1)
4.7 Form of Preferred Stock Warrant Agreement(1)
5.1 Opinion of Swidler & Berlin, Chartered regarding the validity of
the securities being registered(1)
8.1 Opinion of Pryor, Cashman, Sherman & Flynn regarding tax
matters(1)
12.1 Calculation of Ratios of Earnings to Fixed Charges
23.1 Consent of Swidler & Berlin, Chartered (included as part of
Exhibit 5.1)
23.2 Consent of Pryor, Cashman, Sherman & Flynn (included as part of
Exhibit 8.1)
23.3 Consent of Price Waterhouse LLP
23.4 Consent of Schonbraun Safris Sternlieb & Co., L.L.C.
- ---------------
(1) To be filed by amendment.
EXHIBIT 12.1
<TABLE>
<CAPTION>
CALI REALTY CORPORATION
Computation of Ratios of Earnings to Fixed Charges
(Dollar amounts in thousands)
Cali Realty Corporation
---------------------------------------------------------------
For the Three For the Year For the Period
Months Ended Ended August 31, 1994 to
March 31, 1996 December 31 1995 December 31, 1994
-------------- ---------------- -----------------
<S> <C> <C> <C>
Income (Loss) before gain on sale of property, minority
interest and extraordinary item (A).................................. $ 6,128 $17,146 $ 4,990
Add:
Interest expense .................................................... 2,569 8,661 1,768
Amortization of debt issuance costs ................................. 261 1,456 574
Interest portion (33 percent) of ground rents
on land leases ...................................................... -- -- --
------- ------- -------
Income before gain on sale of property, minority
interest and extraordinary item, as adjusted (B) .................... $ 8,958 $27,263 $ 7,332
======= ======= =======
Fixed Charges:
Interest expense ....................................................... 2,569 8,661 1,768
Amortization of debt issuance costs .................................... 261 1,456 574
Interest portion (33 percent) of ground rents
on land leases ...................................................... -- -- --
Capitalized interest costs ............................................. 82 27 --
------- ------- -------
Total fixed charges .................................................... $ 2,912 $10,144 $ 2,342
======= ======= =======
Ratio of earnings to fixed charges ..................................... 3.08 2.69 3.13
======= ======= =======
</TABLE>
- ---------------
(A) Represents pre-tax income (loss) before gain on sale of property, minority
interest and extraordinary item.
(B) Represents earnings before fixed charges.
<PAGE>
EXHIBIT 12.1
(continued)
<TABLE>
<CAPTION>
CALI REALTY CORPORATION
Computation of Ratios of Earnings to Fixed Charges
(Dollar amounts in thousands)
Cali Group Combined
------------------------------------------------------------
For the Period Year Ended December 31,
January 1, 1994 ----------------------------------------
August 30, 1994 1993 1992 1991
--------------- -------- -------- --------
<S> <C> <C> <C> <C>
Income (Loss) before gain on sale of property, minority
interest and extraordinary item (A) ................................ $ (110) $ (1,064) $ (2,172) $ (814)
Add:
Interest expense ................................................ 13,608 21,707 21,896 21,659
Amortization of debt issuance costs ............................. 221 243 230 226
Interest portion (33 percent) of ground rents
on land leases .................................................. 194 326 385 347
-------- -------- -------- --------
Income before gain on sale of property, minority
interest and extraordinary item, as adjusted (B) ................ $ 13,913 $ 21,212 $ 20,339 $ 21,418
======== ======== ======== ========
Fixed Charges:
Interest expense ................................................ 13,608 21,707 21,896 21,659
Amortization of debt issuance costs ............................. 221 243 230 226
Interest portion (33 percent) of ground rents
on land leases .................................................. 194 326 385 347
Capitalized interest costs ......................................... -- -- -- 311
-------- -------- -------- --------
Total fixed charges ................................................ $ 14,023 $ 22,276 $ 22,511 $ 22,543
======== ======== ======== ========
Ratio of earnings to fixed charges ................................. (C) (C) (C) (C)
Deficiency of earnings to fixed charges(D) ......................... $ (110) $ (1,064) $ (2,172) $ (1,125)
======== ======== ======== ========
</TABLE>
- ---------------
(A) Represents pre-tax income (loss) before gain on sale of property, minority
interest and extraordinary item.
(B) Represents earnings before fixed charges.
(C) The ratio of earnings to fixed charges was less than 1.00 reflecting the
fact that earnings for the period were not adequate to cover fixed charges.
(D) Represents the amounts by which earnings for the period were not adequate to
cover fixed charges.
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of Cali Realty
Corporation of our report dated February 15, 1996, except for Note 1, as to
which the date is March 12, 1996 appearing on page 38 on Form 10-K for the year
ended December 31, 1995. We also consent to the reference to us under the
heading "Experts" in such prospectus.
/s/ Price Waterhouse LLP
- -------------------------
Price Waterhouse LLP
New York, New York
July 29, 1996
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of Cali Realty
Corporation of our report dated May 2, 1996, appearing on page 7 on the Form 8-K
dated July 16, 1996. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ Schonbraun Safris Sternlieb & Co., L.L.C.
- ---------------------------------------------
Schonbraun Safris Sternlieb & Co., L.L.C.
West Orange, New Jersey
July 29, 1996
