<PAGE>
As filed with the Securities and Exchange Commission on September 26, 1997
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
/ / Confidential, for the use of the Commission only (as permitted by Rule
14a-6(e)(2)
------------------------
CALI REALTY CORPORATION
(Name of Registrant as Specified in Its Charter)
(Name of Person Filing Proxy Statement)
------------------------
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, par value $.01 per share, of Cali Realty Corporation
(2) Aggregate number of securities to which transaction applies: 3,931,048
common operating partnership units convertible into 3,931,048 shares of
Common Stock, 249,656 preferred operating partnership units convertible
into 7,205,079 shares of Common Stock, and 2,000,000 warrants convertible
into 2,000,000 shares of Common Stock at an exercise price of $37.80 per
share.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): $38.6875 per
share, plus $476,106,000 in cash and $302,147,000 in assumption of
indebtedness
(4) Proposed maximum aggregate value of transaction: $1,210,856,913.30
(5) Total fee paid: $242,171.38
/ / Fee paid previously with preliminary materials:
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-1l(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
CALI REALTY CORPORATION
11 COMMERCE DRIVE
CRANFORD, NJ 07016
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1997
TO OUR SHAREHOLDERS:
Notice is hereby given that a Special Meeting of shareholders (the "Special
Meeting") of Cali Realty Corporation ("Cali" or the "Company") will be held on
, 1997, at , at a.m. (local time), for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Contribution
and Exchange Agreement, dated as of September 18, 1997, by and among Cali,
Cali Realty, L.P. ("CRLP"), and certain contributing partnerships and other
entities affiliated with The Mack Company and Patriot American Office Group
(collectively, "Mack"), pursuant to which Mack will contribute certain
properties, ground leases and 100 percent of the interests in the entities
owning certain properties (collectively, the "Mack Properties") to CRLP or
its designated subsidiaries in exchange for a combination of cash,
assumption of debt, common and preferred operating partnership units and
warrants to acquire common operating partnership units (the "Mack
Combination");
2. To consider and vote upon a proposal to approve and adopt an amendment (the
"Amendment") to Cali's Articles of Incorporation to change Cali's name from
"Cali Realty Corporation" to "Mack-Cali Realty Corporation."
3. To consider and vote upon a proposal to approve and adopt an amendment to
the Employee Stock Option Plan to increase the number of shares authorized
thereunder by 2,000,000, from 2,780,188 to 4,780,188;
4. To consider and vote upon a proposal to approve and adopt two amendments to
the Director Stock Option Plan (a) to increase the number of shares
authorized thereunder by 200,000, from 200,000 to 400,000 and (b) to provide
for the participation thereunder of non-employee members of the Advisory
Board, including a provision that a member of the Board of Directors who
resigns as a director in order to become a member of the Advisory Board
shall be deemed during his or her period of service as a member of the
Advisory Board to be a continuing member of the Board of Directors for
purposes of determining the exercise period of prior grants under the
Director Stock Option Plan; and
5. To transact such other business as may properly be brought before the
Special Meeting or any adjournment or postponement thereof.
The enclosed Proxy Statement includes information relating to these
proposals.
All shareholders of record as of the close of business on , 1997, are
entitled to notice of and to vote at the Special Meeting and any adjournment
thereof. At least a majority of the outstanding shares of common stock of Cali
present in person or by proxy is entitled to vote.
By Order of the Board of Directors
/s/ Brant Cali
BRANT CALI
SECRETARY
, 1997
Cranford, New Jersey
THE BOARD OF DIRECTORS APPRECIATES AND ENCOURAGES YOUR PARTICIPATION IN
CALI'S SPECIAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED. ACCORDINGLY, PLEASE SIGN, DATE
AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE PROVIDED. IF
YOU ATTEND THE SPECIAL MEETING, YOU MAY WITHDRAW YOUR PROXY, IF YOU WISH, AND
VOTE IN PERSON. YOUR PROXY IS REVOCABLE IN ACCORDANCE WITH THE PROCEDURES SET
FORTH IN THE PROXY STATEMENT.
<PAGE>
CALI REALTY CORPORATION
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1997
PROXY STATEMENT
This Proxy Statement (the "Proxy Statement") is being furnished to holders
(each a "Holder") of shares of Common Stock, par value $0.01 per share, (the
"Common Stock") of Cali Realty Corporation ("Cali" or the "Company"), a Maryland
corporation, in connection with a special meeting of shareholders of Cali (the
"Special Meeting") and the solicitation of proxies in connection therewith, to
approve the proposed exchange of properties by The Mack Company and Patriot
American Office Group (collectively, "Mack") with Cali pursuant to the
Contribution and Exchange Agreement dated as of September 18, 1997 described
herein. This Proxy Statement is required pursuant to the rules of The New York
Stock Exchange, Inc. since it contains a proposal to authorize the issuance of
securities convertible into a number of shares of Common Stock which exceeds 20
percent of the number of shares of Common Stock currently outstanding.
At the Special Meeting, the shareholders of Cali will be asked to consider
and to act upon the following (the "Proposals"): (i) a proposal ("Proposal No.
1") to approve and adopt the Contribution and Exchange Agreement, dated as of
September 18, 1997 (the "Contribution and Exchange Agreement"), by and among
Cali, Cali Realty, L.P. ("CRLP"), and certain contributing partnerships and
other entities affiliated with The Mack Company and Patriot American Office
Group (collectively, "Mack"), pursuant to which Mack will contribute certain
properties, ground leases and 100 percent of the interests in the entities
owning certain properties (collectively, the "Mack Properties") to CRLP or its
designated subsidiaries in exchange for a combination of cash, assumption of
debt, common and preferred operating partnership units and warrants to acquire
common operating partnership units (the "Mack Combination"); (ii) a proposal
("Proposal No. 2") to approve and adopt an amendment (the "Amendment") to Cali's
Articles of Incorporation to change the name of the company from "Cali Realty
Corporation" to "Mack-Cali Realty Corporation"; (iii) a proposal ("Proposal No.
3") to approve and adopt an amendment to the Employee Stock Option Plan to
increase the number of shares authorized thereunder by 2,000,000 from 2,780,188
to 4,780,188; (iv) a proposal ("Proposal No. 4") to approve and adopt two
amendments to the Director Stock Option Plan to (a) increase the number of
shares authorized thereunder by 200,000 from 200,000 to 400,000 and (b) provide
for the participation thereunder of non-employee members of the Advisory Board,
including a provision that a member of the Board of Directors who resigns as a
director in order to become a member of the Advisory Board shall be deemed
during his or her period of service as a member of the Advisory Board to be a
continuing member of the Board of Directors for purposes of determining the
exercise period of prior grants under the Director Stock Option Plan; and (v)
such other business as may properly be brought before the Special Meeting or any
adjournment or postponement thereof.
Approval and adoption of Proposals Nos. 1, 3 and 4 require the affirmative
vote of a majority of the quorum present at the Special Meeting. The affirmative
vote of at least two-thirds of the outstanding shares of Common Stock is
required to approve the Amendment contained in Proposal No. 2.
Shareholders of record at the close of business on , 1997 (the
"Record Date") are entitled to notice of, and to vote at, the Special Meeting
and any adjournments or postponements thereof. As of the Record Date, there were
outstanding shares of Common Stock, each of which will be entitled to one
vote on each of the Proposals at the Special Meeting and all adjournments and
postponements thereof.
All Cali shareholders represented at the Special Meeting by properly
executed proxies received prior to or at the Special Meeting, and not revoked,
will be voted at the Special Meeting in accordance with the instructions
thereon. If no instructions are indicated, proxies will be voted in favor of the
Proposals. Abstentions and broker non-votes will have the effect of a vote
against all Proposals.
Cali does not know of any matters, other than as described in the Notice of
Meeting, which are to come before the Special Meeting. If any other matters are
properly presented at the Special Meeting for
<PAGE>
action, the persons named in the enclosed form of proxy and acting thereunder
will have the discretion to vote on such matters in accordance with their best
judgment.
A proxy given pursuant to this solicitation may be revoked at any time
before it is voted. Proxies may be revoked (i) by filing with the Board of
Directors of Cali at or before the Special Meeting a written notice of
revocation bearing a later date than the proxy, (ii) by duly executing a
subsequent proxy relating to the same shares of Cali Common Stock and delivering
it to the Board of Directors of Cali at or before the Special Meeting or (iii)
by attending the Special Meeting and voting in person (although attendance at
the Special Meeting will not in and of itself constitute revocation of a proxy).
Any written notice revoking a proxy should be delivered to the Board of
Directors, Cali Realty Corporation, 11 Commerce Drive, Cranford, NJ 07016.
No persons have been authorized to give any information or to make any
representation other than those contained in this Proxy Statement in connection
with the solicitation of proxies hereby and, if given or made, such information
or representation must not be relied on as having been authorized by Cali or any
other person.
This Proxy Statement is solicited on behalf of the Board of Directors of
Cali. The date of this Proxy Statement is , 1997.
<PAGE>
SUMMARY
ALL REFERENCES TO "THIS PROXY STATEMENT" SHALL MEAN THE PROXY STATEMENT
BEING FURNISHED TO THE SHAREHOLDERS OF CALI IN CONNECTION WITH THE SOLICITATION
OF PROXIES BY THE BOARD OF DIRECTORS OF CALI. ADDITIONAL CAPITALIZED TERMS NOT
DEFINED HEREIN SHALL HAVE THE MEANINGS SET FORTH IN THE CONTRIBUTION AND
EXCHANGE AGREEMENT.
<TABLE>
<S> <C>
Cali Realty Corporation...................... Cali Realty Corporation is a fully
integrated, self- administered and
self-managed real estate investment trust
("REIT") providing leasing, management,
acquisition, development, construction and
tenant-related services for its portfolio. As
of September 15, 1997, Cali owned and
operated 132 properties, primarily consisting
of Class A office and office/flex buildings,
aggregating approximately 12.2 million square
feet. All of the properties are located in
New Jersey, New York, Pennsylvania and
Connecticut. Cali's principal executive
offices are located at 11 Commerce Drive,
Cranford, NJ 07016 and the telephone number
is (908) 272-8000.
The Mack Company............................. The Mack Company is a New Jersey-based
private real estate company providing
property management, leasing, development,
architectural design, construction and
financing services for its portfolio. The
Mack Company owns or controls office or
industrial properties totaling approximately
20 million square feet, of which 32
properties are Class A office properties
comprising approximately 5.9 million square
feet located in major U.S. markets with a
concentration in Northern New Jersey and the
Phoenix, Arizona area. Other properties are
located in Nassau County, New York, suburban
Philadelphia, Pennsylvania and Tampa,
Florida. See "The Companies--The Mack
Company."
Patriot American Office Group................ Patriot American Office Group is a
Dallas-based private real estate company
providing management and leasing services for
its portfolio. Patriot American Office Group
owns 23 office properties totaling
approximately 3.5 million square feet located
primarily in Texas and Arizona. See "The
Companies--Patriot American Office Group."
</TABLE>
1
<PAGE>
THE SPECIAL MEETING
<TABLE>
<S> <C>
Date, Place & Time........................... The Special Meeting of shareholders of Cali
is scheduled to be held at on ,
1997 at a.m. (local time).
Purpose...................................... To consider and vote upon the Proposals,
pursuant to which (i) certain properties of
Mack and 100 percent of the interests in the
entities owning certain properties will be
contributed to CRLP or its designated
subsidiaries, (ii) Cali's Articles of
Incorporation will be amended, (iii) the
Employee and Director Stock Option Plans will
be amended and (iv) certain related
transactions will occur.
Record Date..................................
Quorum and Vote Required..................... Approval and adoption of Proposals Nos. 1, 3
and 4 require the affirmative vote of a
majority of the quorum present at the Special
Meeting. The affirmative vote of at least
two-thirds of the outstanding shares of
Common Stock is required to approve the
amendment to Cali's Articles of Incorporation
contained in Proposal No. 2. A majority of
the shares of Common Stock outstanding,
represented in person or by proxy, will
constitute a quorum for the transactions of
business at the Special Meeting. See "The
Special Meeting-- Record Date; Voting at the
Meeting."
Solicitation, Revocation and Use of All expenses of the solicitation of the
Proxies.................................... shareholders of Cali in connection with this
Proxy Statement will be borne by Cali. Any
proxy given pursuant to this solicitation may
be revoked at any time prior to its exercise
by the execution of a proxy signed at a later
date or by the giving of written notice of
revocation to the Secretary of Cali at any
time before the taking of the vote at the
Special Meeting. A shareholder may also
revoke a proxy by giving notice revocation,
attending the Special Meeting and voting his
or her shares in person. See "The Special
Meeting--Proxies."
</TABLE>
2
<PAGE>
THE PROPOSALS
<TABLE>
<S> <C>
The Mack Combination; Proposal No. 1......... Upon consummation of the Mack Combination,
pursuant to the Contribution and Exchange
Agreement (i) Mack shall have contributed
certain properties, ground leases and 100
percent of its ownership interests to certain
properties (collectively, the "Mack
Properties") to CRLP, (ii) Mack shall have
caused certain of its executives to become
part of the management of Cali and (iii) Cali
and CRLP shall exchange with Mack a
combination of cash, assumption of debt,
common and preferred operating partnership
units in CRLP and warrants to acquire common
operating partnership units. See "Proposal
One--The Mack Combination."
The Amendment; Proposal No. 2................ The Cali shareholders are asked to approve an
amendment (the "Amendment") to Cali's
Articles of Incorporation providing that the
name of Cali be changed from "Cali Realty
Corporation" to "Mack-Cali Realty
Corporation." If the Amendment is not
approved, Cali will operate under the name
"Mack-Cali Realty Corporation" pursuant to a
fictitious name certificate. The adoption of
the Amendment is conditioned upon the
approval and closing of the Mack Combination.
See "Proposal Two-- Amendment to Cali's
Articles of Incorporation to Change Cali's
Corporate Name."
The Employee Stock Option Plan; Proposal No. The Cali shareholders are asked to approve an
3.......................................... amendment to the Employee Stock Option Plan
to increase the number of shares of Common
Stock authorized for issuance of awards
thereunder by 2,000,000, from 2,780,188 to
4,780,188. See "Proposal Three--Amendment to
the Employee Stock Option Plan to Increase
the Number of Shares Authorized for Issuance
Thereunder."
The Director Stock Option Plan; Proposal No. The Cali shareholders are asked to approve
4.......................................... two amendments to the Director Stock Option
Plan to (i) increase the number of shares of
Common Stock authorized for issuance of
awards thereunder by 200,000, from 200,000 to
400,000 and (ii) provide for the
participation thereunder of non-employee
members of the Advisory Board, including a
provision that a member of the Board of
Directors who resigns as a director in order
to become a member of the Advisory Board
shall be deemed during his or her period of
service as a member of the Advisory Board to
be a continuing member of the Board of
Directors for purposes of determining
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
the exercise period of prior grants under the
Director Stock Option Plan. See "Proposal
Four-- Amendments to the Director Stock
Option Plan to Increase the Number of Shares
Authorized for Issuance Thereunder and to
Provide for Participation Thereunder of
Non-Employee Members of the Advisory Board."
Interests of Certain Persons in the Mack
Combination................................ In considering the recommendation of the
Board of Directors with respect to the
Contribution and Exchange Agreement,
shareholders should be aware that certain
members of the Board of Directors and of
Cali's management may have certain interests
in the Mack Combination that are in addition
to or different from the interests of
shareholders of Cali generally. See "Certain
Relationships and Related Transactions".
Conditions to the Mack Combination........... The Mack Combination is conditioned upon,
among other things, (i) approval of the
Contribution and Exchange Agreement by Cali's
shareholders, (ii) the representations and
warranties of Cali, CRLP and Mack contained
in the Contribution and Exchange Agreement
being true and correct in all material
respects as of the closing of the Mack
Combination, (iii) performance by each of
Cali, CRLP and Mack of their respective
obligations required to be performed under
the Contribution and Exchange Agreement on or
prior to the closing of the Mack Combination,
(iv) receipt by Mack of the requisite
consents and approvals from certain necessary
partners, tenants and other third parties in
order to contribute and convey the Mack
Properties and (v) neither CRLP nor Mack
terminating the Contribution and Exchange
Agreement pursuant to the terms thereof. See
"Description of the Contribution and Exchange
Agreement--Conditions Precedent to Closing
the Mack Combination" and "--Termination".
Certain Federal Income Tax Consequences...... No gain or loss will be recognized by Cali or
the holders of Common Stock upon the
consummation of the Mack Combination.
Subsequent to the Mack Combination, Cali will
continue to operate as a REIT. For a
discussion of the federal income tax
consequences to Cali, see "Federal Income Tax
Consequences."
Recommendation of the Board of Directors..... The Board of Directors has unanimously
approved the Contribution and Exchange
Agreement and the Mack Combination and
recommends that the holders of Common Stock
vote FOR its approval
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
and adoption. The Board of Directors believes
that the terms of the Contribution and
Exchange Agreement and the Mack Combination
are fair to, and in the best interests of
Cali, CRLP and its shareholders. For a
discussion of factors considered by the Board
of Directors in reaching its decision, see
"Proposal One--The Mack Combination." The
Board of Directors also has unanimously
approved the Amendment and recommends that
the holders of Common Stock vote FOR its
approval and adoption. The Board of Directors
further has unanimously approved the
amendments to the Employee and Director Stock
Option Plans and recommends that the holders
of Common Stock vote FOR their approval and
adoption.
</TABLE>
5
<PAGE>
THE SPECIAL MEETING
At the Special Meeting, the Cali shareholders will: (1) consider and vote
upon the approval of the Contribution and Exchange Agreement, dated as of
September 18, 1997, by and among Cali, CRLP, and certain contributing
partnerships and other entities affiliated with Mack, pursuant to which Mack
will contribute certain properties and interests in certain properties, ground
leases and 100 percent of the interests in the entities owning certain
properties (collectively the "Mack Properties") to CRLP or its designated
subsidiaries, and pursuant to which Cali and CRLP will exchange with Mack a
combination of cash, assumption of debt, common and preferred operating
partnership units in CRLP and warrants to acquire common operating partnership
units in CRLP, (2) consider and vote upon an amendment (the "Amendment") to
Cali's Articles of Incorporation to change the name of Cali from "Cali Realty
Corporation" to "Mack-Cali Realty Corporation," (3) consider and vote upon an
amendment to the Employee Stock Option Plan to increase the number of shares
authorized thereunder by 2,000,000, from 2,780,188 to 4,780,188, (4) consider
and vote upon two amendments to the Director Stock Option Plan to (a) increase
the number of shares authorized thereunder by 200,000, from 200,000 to 400,000
and (b) to provide for the participation thereunder of non-employee members of
the Advisory Board, including a provision that a member of the Board of
Directors who resigns as a director in order to become a member of the Advisory
Board shall be deemed during his or her period of service as a member of the
Advisory Board to be a continuing member of the Board of Directors for purposes
of determining the exercise period of prior grants under the Director Stock
Option Plan, and (5) transact such other business relating thereto as may
properly come before the Special Meeting. Approval of the Amendment is
conditioned upon approval of the Mack Combination.
The Board of Directors has determined the Mack Combination, the Amendment
and the amendments to the Employee and Director Stock Option Plans to be fair to
and in the best interests of Cali's shareholders, has unanimously approved the
Mack Combination, the Amendment and the amendments to the Employee and Director
Stock Option Plans and recommends a vote for approval of the Mack Combination,
the Amendment and the amendments to the Employee and Director Stock Option
Plans.
RECORD DATE; VOTING AT THE MEETING
On the Record Date, , 1997, there were shares of Common Stock
outstanding. Each holder of record of Common Stock on the Record Date is
entitled to cast one vote per share of Common Stock, exercisable in person or by
a properly executed proxy, upon each matter properly submitted for the vote of
the shareholders at the Special Meeting. A majority of the shares of Common
Stock outstanding, represented in person or by proxy, will constitute a quorum
for the transaction of business at the Special Meeting. Abstentions and broker
non-votes will be treated as shares that are present and entitled to vote for
the purpose of determining a quorum.
The approval and adoption of Proposals Nos. 1, 3 and 4 require the
affirmative vote of a majority of the quorum present at the Special Meeting. The
affirmative vote of at least two-thirds of the outstanding shares of Common
Stock is required to approve the Amendment contained in Proposal No. 2. For
purposes of satisfying this vote requirement, abstentions from voting and broker
non-votes on any Proposal will have the effect of votes against such Proposal,
but a failure to vote by not returning a proxy will have no effect on any
Proposal except the Amendment contained in Proposal No. 2, as to which it will
have the effect of a vote against such Proposal.
Approval of postponement or adjournment of the Special Meeting requires the
affirmative vote of a majority of the shares of the Common Stock voting at the
Special Meeting. For purposes of satisfying this vote requirement, failure to
vote, an abstention from voting and a broker non-vote will have the effect of
votes against postponement or adjournment. If shareholders approve such an
adjournment or postponement, the Special Meeting could be postponed or adjourned
in order to permit further solicitation of
6
<PAGE>
proxies if there are not sufficient votes at the time of the Special Meeting to
approve the Mack Combination.
PROXIES
Shares of Common Stock represented by properly executed proxies received at
or prior to the Special Meeting that have not been revoked will be voted at the
Special Meeting in accordance with the instructions contained therein. Shares of
Common Stock represented by properly executed proxies for which no instruction
is given will be voted "FOR" approval of the Proposals. Cali's shareholders are
requested to complete, sign, date and promptly return the enclosed proxy card in
the postage prepaid envelope provided for this purpose to ensure that their
shares are voted. A shareholder may revoke a proxy any time before it is voted
by submitting at any time prior to the Special Meeting a later-dated proxy with
respect to the same shares, by delivering a written notice of revocation to the
Secretary of Cali at any time prior to such Special Meeting or by attending the
Special Meeting and voting in person. Mere attendance at the Special Meeting
will not in and of itself revoke a proxy.
If the Special Meeting is postponed or adjourned for any reason, including
further solicitation of proxies, at any subsequent reconvening of the Special
Meeting all proxies will be voted in the same manner as such proxies would have
been voted at the original convening of the Special Meeting (except for any
proxies that have theretofore effectively been revoked or withdrawn).
Cali has retained MacKenzie Partners, Inc. (the "Solicitation Agent") to
solicit proxies. The Solicitation Agent may contact Cali's shareholders. The
Solicitation Agent will receive a fee of approximately $12,000 for such
services, plus reimbursement of out-of-pocket expenses. The directors and
officers of Cali and their affiliates may also solicit proxies by telephone,
telegram or personal contact, and such persons will receive no additional
compensation for such services. Copies of solicitation materials will be
furnished to fiduciaries, custodians and brokerage houses for forwarding to
beneficial owners of Cali shares held in their name. Cali will bear the cost of
preparing and mailing proxy materials in connection with the Special Meeting and
the solicitation of proxies, the cost of commission filing fees and the printing
costs in connection with this Proxy Statement.
7
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Cali as of June 30,
1997 on (1) a historical basis, (2) a pro forma basis assuming certain property
acquisitions by Cali subsequent to June 30, 1997 (the "Pre-Mack Events") had
occurred as of June 30, 1997 and (3) a pro forma basis assuming the Mack
Combination and the issuance of 10 million shares of Common Stock in a public
offering (the "1997 Offering") and the use of proceeds thereof, primarily to
finance the Mack Combination, had occurred as of June 30, 1997. The information
set forth in the following table should be read in conjunction with the
consolidated financial statements of Cali and the notes thereto incorporated by
reference in this Proxy Statement, the combined financial statements of Mack and
the notes thereto and the pro forma financial information of Cali and the notes
thereto which appear elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
----------------------------------------
<S> <C> <C> <C>
MACK
COMBINATION
PRE-MACK AND 1997
EVENTS OFFERING
HISTORICAL PRO FORMA PRO FORMA
------------ ------------ ------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Mortgage and other loans.......................... $ 423,561 $ 423,561 $ 725,708
Borrowings under revolving credit facilities...... 130,400 172,900 335,443
------------ ------------ ------------
Total debt...................................... 553,961 596,461 1,061,151
------------ ------------ ------------
Minority interest in CRLP(1)........................ 70,911 70,911 462,129
------------ ------------ ------------
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued or outstanding -- -- --
Common Stock, $.01 par value, 190,000,000 shares
authorized, 36,651,872, 36,651,872 shares issued
and outstanding, 46,651,872 shares as
adjusted(1)(2).................................. 366 366 466
Other stockholders' equity........................ 701,342 701,342 1,040,864
------------ ------------ ------------
Total stockholders' equity...................... 701,708 701,708 1,041,330
------------ ------------ ------------
Total Capitalization................................ $ 1,326,580 $1,369,080 $2,564,610
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- - ------------------------
(1) Assumes no redemption of Units. If all of the Units were redeemed,
40,742,042 shares of Common Stock on a historical and Pre-Mack Events pro
forma basis and 61,878,169 shares of Common Stock on a Mack Combination and
1997 Offering pro forma basis would be outstanding as of June 30, 1997.
(2) Excludes 2,721,172 shares of Common Stock reserved for issuance pursuant to
the Company's stock option plans under which 1,650,929 granted options are
outstanding, including 451,703 exercisable options, as of June 30, 1997.
8
<PAGE>
PROPOSAL ONE--THE MACK COMBINATION
REASONS FOR THE MACK COMBINATION; RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors has unanimously determined the Mack Combination to be
fair to and in the best interests of the shareholders of Cali and has
recommended that the shareholders approve the Mack Combination. In reaching its
conclusion to recommend approval of the Mack Combination, the Board of Directors
considered, without assigning relative weight to, the following factors:
(i) After the Mack Combination, Cali will become one of the largest
equity REITs in the country, with 187 properties totaling approximately 21.6
million square feet in ten states, serving approximately 2,100 tenants. In
New Jersey alone, Cali will own approximately eight percent of all office
space, with over 11 million square feet. The Board of Directors believes
that the Mack Combination will solidify Cali's position as the dominant
super-regional office REIT in the Northeast, will provide Cali with new
strategic positions in the Southwest for future growth opportunities and
will further enhance Cali's access to capital.
(ii) The Mack Combination will increase Cali's asset and capital base
and diversify its sources of revenue. While the Board of Directors
recognizes that increased profitability does not necessarily result from
increased size, the Board of Directors believes Cali's increased size should
also further enhance its access to capital and reduce its costs of capital.
(iii) The closing of the Mack Combination will provide Cali with
considerable geographic diversity, making Cali a significant player in key
markets in the southwestern United States.
(iv) The Mack Combination is expected to be accretive and, therefore,
economically advantageous to Cali's current shareholders.
(v) The Mack Combination will add over 1,000 tenants to Cali's tenant
base, for a combined total of approximately 2,100 tenants. This adds to the
diversity and stability of Cali's portfolio.
(vi) The Mack Combination will bring together some of the most
well-known and respected names in the real estate business.
(vii) The receipt of a fairness opinion from Cali's financial advisor,
Prudential Securities Incorporated. See "Proposal One--The Mack
Combination--Fairness Opinion."
TERMS OF THE MACK COMBINATION
Subject to the terms and conditions of the Contribution and Exchange
Agreement, Mack will contribute the Mack Properties to CRLP or its designated
subsidiaries and will cause certain of its key executives to become part of the
management of Cali.
In consideration of Mack's contributions set forth in the previous
paragraph, Cali and CRLP collectively have agreed to exchange with Mack the
following consideration:
(i) $476,106,000 in cash to Mack;
(ii) $302,147,000 by CRLP or its designated subsidiaries acquiring
properties subject to mortgage indebtedness in such amount;
(iii) the issuance to Mack or Mack's designees of 3,931,048 common
operating partnership interests (the "Common Units") in CRLP, redeemable,
after one year, for an equal number of shares of Common Stock;
(iv) the issuance to Mack or Mack's designees of 249,656 cumulative
preferred operating partnership interests (the "Preferred Units") in CRLP
composed of (a) approximately 209,656 Preferred Units immediately
convertible at the option of the holder into approximately 6,050,678 Common
Units, which Common Units shall be redeemable for 6,050,678 shares of Common
Stock after three years from the closing of the Mack Combination (the
"Series B Preferred Units") and
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(b) approximately 40,000 Preferred Units immediately convertible at the
option of the holder into approximately 1,154,401 Common Units, which Common
Units shall be redeemable for 1,154,401 shares of Common Stock after one
year from the closing of the Mack Combination (the "Series A Preferred
Units"). Currently, the 249,656 Preferred Units would convert into 7,205,079
Common Units, and such Common Units would currently redeem into 7,205,079
shares of Common Stock. The Common Units and the Preferred Units are
collectively referred to herein as the "Units". The quarterly distribution
on each Preferred Unit will be paid in an amount equal to the greater of (i)
$16.88 or (ii) the quarterly distribution attributable to a Preferred Unit
if such unit had been converted into Common Units, subject to customary
anti-dilution adjustments. Each Preferred Unit shall have a stated value
equal to $1,000.00 (the "Stated Value"). Cali shall have the right to cause
the conversion of any or all of the Preferred Units into Common Units, at
any time after the seven and one-half (7 1/2) year anniversary of the date
of the closing of the Mack Combination at their Stated Value, plus accrued
but unpaid distributions, divided by $34.65 per share (subject to customary
anti-dilution adjustments) (the "Conversion Price"); provided, however, that
Cali may only exercise such mandatory conversion if, for twenty (20) trading
days within the thirty (30) consecutive trading days immediately preceding
such conversion date, the closing price of the Common Stock equals or
exceeds $34.65, subject to customary anti-dilution adjustments. The
Preferred Units will contain anti-dilution protection and have voting rights
on any vote of limited partners as if the Preferred Units were converted to
Common Units; and
(v) the issuance to Mack or Mack's designees of 2,000,000 warrants to
purchase an equal number of Common Units (the "Warrants"). The Warrants
shall be exercisable at any time after the first anniversary of the closing
of the Mack Combination for a period of four (4) years thereafter at a price
of $37.80 per Common Unit, subject to customary anti-dilution adjustments.
Any Common Units received upon exercise of the Warrants shall be immediately
redeemable into Common Stock.
Upon the consummation of the Mack Combination, the composition of the Board
of Directors of Cali will change. Three (3) of the Board of Directors' thirteen
(13) members shall be new members designated by Mack. The Mack designees shall
be William L. Mack, Earle I. Mack and Mitchell E. Hersh, who shall be deemed to
be "inside" members of the Board of Directors because of their relationship with
management. William L. Mack and Earle I. Mack will be classified as Class II
directors whose terms shall expire in the year 1999 and Mitchell E. Hersh will
be classified as a Class III director whose term shall expire in the year 2000.
The parties have agreed that if any inside board member designated by Mack shall
withdraw for any reason, Mack shall have the right to designate such withdrawing
director's replacement. Three (3) members of the Board of Directors shall be
designated by Cali and shall be deemed to be "inside" members of the Board of
Directors because of their relationship with management. The Cali designees
shall be current members of the Board of Directors and shall be John J. Cali,
who shall remain Chairman of the Board of Directors, Thomas A. Rizk and Robert
F. Weinberg. The parties have agreed that if any inside Board member designated
by Cali shall withdraw for any reason, the remaining Cali designated inside
Board members, on behalf of Cali, shall have the right to designate such
withdrawing director's replacement. The remaining seven (7) directors shall be
deemed to be independent outside directors. They shall include three (3)
existing independent members of Cali's Board of Directors: Brendan T. Byrne,
Irvin D. Reid and Alan G. Philibosian, and four (4) new independent members to
be selected by Mack and reasonably approved by Cali. Brendan T. Byrne and three
new independent directors shall be classified as Class I directors, Alan G.
Philibosian and one new independent director shall be classified as Class II
directors and Irvin D. Reid shall remain classified as a Class III director. The
terms of Class I directors will expire in 1998; the terms of Class II directors
will expire in 1999; and the terms of Class III directors will expire in 2000.
Kenneth A. DeGhetto, Alan Turtletaub, James W. Hughes, Brad W. Berger, Angelo R.
Cali and Brant Cali shall resign from the Board of Directors at the closing of
the Mack Combination and become members of the Advisory Board (as described
below).
After the consummation of the Mack Combination, the Board of Directors shall
create an Executive Committee. William L. Mack will serve as Chairman of the
Executive Committee, which will consist of
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William L. Mack, Mitchell E. Hersh, Thomas A. Rizk and John J. Cali. John J.
Cali and Thomas A. Rizk, on the one hand, and William L. Mack, on the other
hand, shall have the right to appoint a replacement for any Executive Committee
member designated by them who shall withdraw from the Executive Committee. See
"Description of the Contribution and Exchange Agreement--Directors and
Officers".
The Board of Directors has created an Advisory Board comprised of certain
former members of the Board of Directors to assist the Board of Directors.
Non-employee members of the Advisory Board shall be entitled to participate in
the Director Stock Option Plan, subject to shareholder approval of the amendment
to the Director Stock Option Plan providing for the same. Upon the consummation
of the Mack Combination and simultaneously with their appointment to the
Advisory Board, Kenneth A. DeGhetto, Alan Turtletaub, James W. Hughes and Angelo
R. Cali shall each be granted an option to purchase 10,000 shares of Common
Stock at its fair market value on the date of grant. Each option shall vest and
become exercisable on the earlier of (i) the first anniversary of the grant
date, provided the Advisory Board member remains in continuous service of the
Advisory Board or the Board of Directors during such period or (ii) upon the
Advisory Board member's termination of service on the Advisory Board or Board of
Directors due to retirement, death or disability. In addition, members of the
Advisory Board shall be compensated for their service on the Advisory Board in
the same amounts they were receiving as members of the Board of Directors until
the expiration date of each of their current terms on the Board of Directors in
the absence of the Mack Combination. Martin Berger and Edward Leshowitz are
current members of the Advisory Board and shall also each be granted an option
to purchase 10,000 shares of Common Stock at its fair market value on the date
of grant. In addition, each non-employee director shall be granted an option to
purchase 10,000 shares of Common Stock at its fair market value on the date of
grant upon the consummation of the Mack Combination.
CONDITIONS TO CONSUMMATION OF THE MACK COMBINATION
The obligations of CRLP, Cali and Mack to close the Mack Combination are
conditioned, among other things, upon (i) approval of the Contribution and
Exchange Agreement by Cali's shareholders, (ii) the representations and
warranties of Cali, CRLP and Mack contained in the Contribution and Exchange
Agreement being true and correct in all material respects as of the closing of
the Mack Combination, (iii) performance by each of Cali, CRLP and Mack of their
respective obligations required to be performed under the Contribution and
Exchange Agreement on or prior to the closing of the Mack Combination, (iv)
receipt by Mack of the requisite consents and approvals from certain necessary
partners and third parties in order to contribute and convey the Mack Properties
and (v) neither CRLP nor Mack terminating the Contribution and Exchange
Agreement pursuant to the terms thereof. See "Description of the Contribution
and Exchange Agreement--Conditions Precedent to Closing the Mack Combination"
and "--Termination."
EFFECT OF THE MACK COMBINATION
The Warrants and the Units issued pursuant to the Mack Combination represent
the equivalent of 13,136,127 shares of Common Stock, which shares may be
purchased by Mack upon the exercise of the Warrants and the conversion and/or
redemption of the Units, such number equaling 35.8 percent of the 36,662,212
shares of Common Stock currently outstanding and 32.2 percent of the shares of
Common Stock currently outstanding, assuming redemption of all outstanding
Units.
Pursuant to the Amended and Restated Agreement of Limited Partnership of
CRLP, Cali shall not, without the prior consent of holders of at least
eighty-five percent (85%) of the ownership interests in CRLP, taken as a single
class, on behalf of CRLP, undertake any of the following actions: (a) cause or
permit the merger of CRLP into any entity pursuant to a transaction in which
CRLP is not the surviving entity, or take any other action which may have the
effect of the foregoing; (b) dissolve, liquidate or wind-up CRLP; or (c) convey
or otherwise transfer all or substantially all of CRLP's assets in one or a
series of transactions.
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At present, Cali owns 90 percent of the ownership interest in CRLP and
certain limited partners of CRLP, in the aggregate, own the remaining 10
percent. Accordingly, Cali can effectuate the above provisions without the
consent of any of the limited partners of CRLP. After the consummation of the
Mack Combination, Cali's percentage ownership interest in CRLP will decrease to
68.0 percent and the aggregate limited partners interest will increase to 32.0
percent. Thus, the consent of the limited partners holding at least a 17 percent
interest in CRLP will be required to effect the aforementioned transactions,
which number shall decrease proportionately as Cali's percentage ownership
increases through subsequent issuances of public stock by Cali. It shall remain
necessary for the limited partners to vote on such transactions until Cali's
percentage ownership interest in CRLP equals or exceeds 85 percent.
ACCOUNTING TREATMENT
The Mack Combination will be accounted for as a purchase. See Cali's pro
forma financial statements included elsewhere in this Proxy Statement.
FAIRNESS OPINION
Cali has retained Prudential Securities Incorporated ("Prudential
Securities") to provide financial advisory services and evaluate from a
financial perspective the fairness to Cali of the consideration to be paid to
Mack in connection with the Mack Combination.
On September 18, 1997, Prudential Securities delivered its written opinion
(the "Prudential Securities Opinion") to the Board of Directors of Cali stating
that, as of such date and subject to certain assumptions, limitations and other
matters as set forth in the Prudential Securities Opinion, the consideration to
be paid by Cali in connection with the Mack Combination is fair, from a
financial point of view, to Cali. At the meeting of the Board of Directors of
Cali held on September 18, 1997, Prudential Securities presented certain
financial analyses accompanied by written materials (which written materials
were delivered prior to the meeting) in connection with the delivery of the
Prudential Securities Opinion. Members of the Board of Directors of Cali were
present (via teleconference) at the meeting and had an opportunity to ask
questions of Prudential Securities. Prudential Securities discussed with the
Board of Directors of Cali the information in the report and the financial data
and other factors considered by Prudential Securities in conducting its
analyses, all of which are summarized herein.
The full text of the Prudential Securities Opinion, which sets forth
assumptions made, matters considered and limits on the review undertaken is
attached hereto as Annex 1 and is incorporated herein by reference. The
description of the Prudential Securities Opinion set forth herein is qualified
in its entirety by reference to the full text of the Prudential Securities
Opinion. Cali's shareholders are urged to read the Prudential Securities Opinion
in its entirety.
THE PRUDENTIAL SECURITIES OPINION IS ADDRESSED TO THE BOARD OF DIRECTORS OF
CALI AND ADDRESSES ONLY THE FAIRNESS, AS OF THE DATE OF SUCH OPINION, FROM A
FINANCIAL POINT OF VIEW, OF THE MACK COMBINATION CONSIDERATION AND DOES NOT
ADDRESS THE MERITS OF THE UNDERLYING DECISION BY CALI TO ENGAGE IN THE MACK
COMBINATION AND DOES NOT CONSTITUTE, NOR SHOULD IT BE CONSTRUED AS, A
RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE
SPECIAL MEETING. THE CONSIDERATION IN CONNECTION WITH THE MACK COMBINATION WAS
DETERMINED ON THE BASIS OF NEGOTIATIONS BETWEEN CALI AND MACK AND WAS APPROVED
BY THE BOARD OF DIRECTORS OF CALI.
In conducting its analysis and arriving at the Prudential Securities
Opinion, Prudential Securities reviewed such information and considered such
financial data and other factors as Prudential Securities deemed relevant under
the circumstances, including:
(i) a draft of the Contribution and Exchange Agreement dated September
12, 1997;
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(ii) a draft of the audited combined financial statements for Mack for
the year ended December 31, 1996 and a draft of the unaudited combined
financial statements for the six months ended June 30, 1997;
(iii) certain publicly available historical financial and operating data
for Cali including, but not limited to, (a) the Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, (b) the Proxy Statement for the
Annual Meeting of Stockholders held on May 15, 1997, (c) the Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1997 and June 30,
1997, (d) the Registration Statement on Form S-3, file No. 333-19101, dated
January 7, 1997 and (e) draft Form 8-K, dated September 18, 1997 relating to
the Mack Combination;
(iv) certain financial forecasts for Cali and the Mack Properties
provided to Prudential Securities by the management of Cali;
(v) historical stock market prices and trading volume for Cali's Common
Stock;
(vi) certain historical results of operations of Mack provided to
Prudential Securities by the management of Mack;
(vii) publicly available information including financial, operating and
stock market data concerning certain companies engaged in businesses
Prudential Securities deemed comparable to Mack or otherwise relevant to
Prudential Securities' inquiry;
(viii) the financial terms of certain recent transactions Prudential
Securities deemed relevant;
(ix) the pro forma financial impact of the Mack Combination on Cali; and
(x) such other financial studies, analyses and investigations as
Prudential Securities deemed appropriate.
Prudential Securities discussed with senior management of Cali and Mack: (i)
the prospects and business plans for Cali and Mack; (ii) their financial
forecasts for Cali and the Mack Properties; and (iii) such other matters as
Prudential Securities deemed relevant. The Prudential Securities Opinion is
necessarily based upon information available to Prudential Securities and upon
economic, financial and market conditions as they existed and can only be
evaluated as of the date of the Prudential Securities Opinion. In connection
with its review and analysis in arriving at the Prudential Securities Opinion,
Prudential Securities assumed and relied upon the accuracy and completeness of
the publicly available information and all information provided or otherwise
made available to Prudential Securities, and did not undertake to verify
independently any such information. Prudential Securities neither made nor
obtained any independent evaluation of such information or any independent
valuation or appraisal of the assets or liabilities of either Cali or Mack. With
respect to the pro forma financial information regarding Cali and the financial
forecasts for the Mack Properties, respectively, Prudential Securities assumed
that such information was reasonably prepared and reflects the best currently
expected future performance of Cali and Mack. Prudential Securities has not
undertaken any independent analysis to verify the reasonableness of the
assumptions underlying such forecasts.
Prudential Securities assumed that the draft Contribution and Exchange
Agreement reviewed by it will conform in all material respects to the document
when in final form, that the disclosure schedules and due diligence contemplated
by that agreement will not identify any adverse condition, and that the Mack
Combination will be consummated substantially as contemplated by the draft
Contribution and Exchange Agreement.
Subject to the foregoing, the following is a summary of the material
financial analyses performed by Prudential Securities in arriving at the
Prudential Securities Opinion.
In the following analyses, Prudential Securities calculated the transaction
offer value (the "Transaction Offer Value") to be $1.17 billion based on
Prudential Securities' valuation of the consideration in connection with the
Mack Combination. Using publicly available share price information for Cali
Common
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Stock, Prudential Securities independently valued the Common Units, Preferred
Units and Warrants; Prudential Securities then added the cash and the value of
the debt to be assumed by Cali to arrive at the Transaction Offer Value.
ANALYSIS OF SELECTED COMPARABLE PUBLICLY TRADED COMPANIES. Using publicly
available information and estimates of future financial results published by
FIRST CALL, an industry service provider of earnings estimates based on an
average of earnings estimates published by various investment banking firms
("First Call") and taken from Prudential Securities Equity Research, Prudential
Securities compared certain financial and operating information and ratios for
Mack with the corresponding financial and operating information for a group of
publicly traded companies engaged primarily in the ownership, management,
operation and acquisition of office properties which Prudential Securities
deemed to be reasonably comparable to Mack. For the purpose of its analyses, the
following companies were used as comparable companies to Mack: Beacon Properties
Corporation, CarrAmerica Realty Corporation, Cousins Properties, Equity Office
Properties Trust, Highwoods Properties, Inc., Prentiss Properties Trust, Reckson
Associates Realty Corporation and Spieker Properties, Inc. (collectively, the
"Mack Comparable Companies").
Prudential Securities' calculations resulted in the following relevant
ranges for the Mack Comparable Companies and for Mack as of September 15, 1997:
a range of equity market value as a multiple of projected 1997 Funds from
Operations of 12.1x to 18.6x, with a mean of 14.5x (as compared to Mack at
11.2x) and a range of equity market value as a multiple of projected 1998 Funds
from Operations of 11.0x to 16.5x with a mean of 13.0x (as compared to Mack at
10.6x).
None of the Mack Comparable Companies is, of course, identical to Mack.
Accordingly, a complete analysis of the results of the foregoing calculations
cannot be limited to a quantitative review of such results and involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the Mack Comparable Companies and other factors that could
affect the public trading volume of the Mack Comparable Companies, as well as
that of Mack. In addition, the multiples of market value to estimated 1997 Funds
from Operations and projected 1998 Funds from Operations for the Mack Comparable
Companies are based on projections prepared by research analysts using only
publicly available information. Accordingly, such estimates may or may not prove
to be accurate.
COMPARABLE TRANSACTIONS ANALYSIS. Prudential Securities also compared
certain financial ratios of the Mack Combination with those of other selected
mergers and strategic transactions involving REITs which Prudential Securities
deemed to be relevant. These transactions were (listed acquiror first and target
second) Highwoods Properties, Inc. and Associated Capital Properties,
Cornerstone Properties, Inc. and Dutch Institutional Holding Co., Inc, Equity
Office Properties Trust and Prudential Properties, Vornado Realty Trust and
Mendik Company, Inc., Cali Realty Corporation and Robert Martin Company, Spieker
Properties, Inc. and Mission West Properties, CarrAmerica Realty Corporation and
the Nelo/Orchard portfolio, CarrAmerica Realty Corporation and the Peterson
portfolio, Highwoods Properties, Inc. and Crocker Realty Trust, Inc., Reckson
Associates Realty Corporation and Halpern Enterprises, Highwoods Properties,
Inc. and Eakin & Smith, Inc., Liberty Property Trust and Lingerfelt Development
Corporation, and Highwoods Properties, Inc. and Forsyth Properties, Inc.
Prudential Securities' calculations resulted in the following relevant
ranges for the Comparable Transactions and for the proposed Mack Combination: a
range of total transaction value (defined as total equity value plus total
indebtedness assumed) as a multiple of last twelve months Funds from Operations
plus interest expense of 9.6x to 14.5x, with a mean of 11.3x (as compared to the
proposed Mack Combination at 12.3x on a last twelve months basis and 11.3x on a
projected 1998 basis).
PRO FORMA CONSEQUENCES
PRO FORMA COMBINATION ANALYSIS. Prudential Securities analyzed the pro
forma effects resulting from the Mack Combination, including the potential
impact on Cali's projected stand-alone Funds from
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Operations per share and the anticipated accretion (i.e., the incremental
increase) to Cali's Funds from Operations per share resulting from the Mack
Combination. Based on projected statements of operations provided by Cali
management for both Cali and Mack, each presented on a stand-alone basis,
Prudential Securities observed that the Mack Combination would be accretive to
Cali's projected Funds from Operations per share in 1998.
CAPITALIZATION. In addition, Prudential Securities compared Cali's market
capitalization as of June 30, 1997 to Cali's pro forma projected market
capitalization as of December 31, 1998 after giving effect to the Mack
Combination based on projections of Cali's management for both Cali stand-alone
operations and Mack stand-alone operations. Cali's pro forma implied market
capitalization as of December 31, 1998 after giving effect to the Mack
Combination was calculated to be $3.47 billion. The projected total debt to
implied market capitalization is calculated to be 32.3 percent, on a pro forma
basis as of December 31, 1998.
RELATIVE CONTRIBUTION ANALYSIS. Prudential Securities examined Cali's and
Mack's relative contributions of projected 1998 revenue, net operating income
and Funds from Operations to the combined entity and compared this to the
percentage of post-combination Cali Common Stock that the respective current
Cali shareholders and Mack principals would hold. In performing such analysis
Prudential Securities relied upon projected stand-alone operating data for both
Cali and Mack, provided by the management of Cali. Existing Cali shareholders
and Mack principals are estimated to hold 60.0 percent and 40.0 percent
(excluding the effects of any new public equity offering) of the
post-combination shares of Cali Common Stock (on a fully-converted basis),
respectively. Cali and Mack were analyzed to have contributed 60.3 percent and
39.7 percent, respectively to the pro forma revenue of the combined entity, 61.0
percent and 39.0 percent, respectively to the pro forma net operating income of
the combined entity, and 57.0 percent and 43.0 percent, respectively to the pro
forma Funds from Operations of the combined entity for the projected year 1998.
The summary set forth above does not purport to be a complete description of
the analyses performed by Prudential Securities in arriving at the Prudential
Securities Opinion. The preparation of a fairness opinion is a complex process
and is not necessarily susceptible to partial or summary description. Prudential
Securities believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all factors and analyses, could create a misleading view of the
process underlying the Prudential Securities Opinion. In its analyses,
Prudential Securities made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond Cali's, Mack's and Prudential Securities' control. Any
estimates contained in Prudential Securities' analyses are not necessarily
indicative of actual values, which may be significantly more or less favorable
than as set forth therein. Estimated values do not purport to be appraisals and
do not necessarily reflect the prices at which businesses or companies may be
sold in the future, and such estimates are inherently subject to uncertainty.
The Board of Directors of Cali selected Prudential Securities to render a
fairness opinion because Prudential Securities is an internationally recognized
investment banking firm with substantial experience in transactions similar to
the Mack Combination and because it is familiar with Cali and its business.
Prudential Securities is continually engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, secondary distributions of listed and unlisted
securities and private placements.
Pursuant to an engagement letter dated August 11, 1997, Cali will pay
Prudential Securities at the closing of the Mack Combination an advisory fee
equal to 0.50 percent of the consideration (calculated pursuant to the
engagement letter) paid in connection with the Mack Combination. Cali will also
indemnify Prudential Securities and certain related persons against certain
liabilities arising out of or in conjunction with its rendering of services
under such engagement, including certain liabilities under the federal
securities law.
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Prudential Securities may provide financial advisory and financing services
to Cali and may receive fees for the rendering of such services. In the ordinary
course of its business, Prudential Securities may actively trade in the
securities of Cali for its own account and the account of its customers and,
accordingly, may at any time hold a long or short position in such securities.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
Assuming a quorum is present, the affirmative vote of a majority of the
quorum present at the Special Meeting, either in person or by proxy, is required
for approval of this proposal. Abstentions and broker non-votes will have the
same effect as a negative vote on this proposal. Failure to vote will have no
effect on the outcome of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE CONTRIBUTION
AND EXCHANGE AGREEMENT AND THE MACK COMBINATION.
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PROPOSAL TWO--AMENDMENT TO CALI'S ARTICLES OF INCORPORATION
TO CHANGE CALI'S CORPORATE NAME
In connection with the Mack Combination, Cali is proposing an amendment to
its Amended and Restated Articles of Incorporation.
The Board of Directors has unanimously approved and recommends the adoption
by Cali's shareholders of an amendment to Cali's Articles of Incorporation which
will, on the Closing Date, change Cali's name to "Mack-Cali Realty Corporation".
It is anticipated that Mack-Cali Realty Corporation will continue to trade under
the New York Stock Exchange Symbol "CLI".
Upon approval of the Amendment, Article I of Cali's Articles of
Incorporation, as amended, shall read as follows:
"The name of the corporation (the "Corporation") is:
Mack-Cali Realty Corporation"
The adoption of the Amendment is conditioned upon the approval of the Mack
Combination. If the Amendment and the Mack Combination are approved by the Cali
shareholders, then the Amendment will become effective on or about the Closing
Date.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
Assuming a quorum is present, the affirmative vote of two-thirds of the
outstanding shares of Common Stock, either in person or by proxy, is required
for approval of this proposal. Abstentions, broker non-votes and a failure to
vote will have the same effect as a negative vote on this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO
CALI'S ARTICLES OF INCORPORATION TO CHANGE CALI'S CORPORATE NAME TO "MACK-CALI
REALTY CORPORATION."
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PROPOSAL THREE--AMENDMENT TO THE EMPLOYEE STOCK OPTION PLAN
TO INCREASE THE NUMBER OF SHARES
AUTHORIZED FOR ISSUANCE THEREUNDER
The Board of Directors and the shareholders of Cali approved the adoption of
the Employee Stock Option Plan on August 23, 1994. An aggregate of 2,780,188
shares of Cali's Common Stock are currently authorized for the issuance of
grants under the Employee Stock Option Plan, of which 712,413 shares remained
available for future grants as of September 15, 1997. The Board of Directors has
amended the Employee Stock Option Plan, subject to shareholder approval, to
increase by 2,000,000 to a total of 4,780,188, the number of shares of Common
Stock authorized for issuance of grants under the Employee Stock Option Plan.
Cali intends to register the 2,000,000 share increase on Form S-8 under the
Securities Act of 1933, as amended, as soon as practicable after receiving
shareholder approval.
The Board of Directors believes that approval of this amendment to the
Employee Stock Option Plan is in the best interests of Cali and its shareholders
because the availability of an adequate number of shares reserved for issuance
under the Employee Stock Option Plan and the ability to grant stock options and
make other stock-based awards under the Employee Stock Option Plan is an
important factor in attracting, motivating and retaining qualified personnel
essential to the success of Cali. The amendment to increase the number of shares
authorized under the Employee Stock Option Plan is designed to maintain the
approximate historical ratio of shares authorized under the Employee Stock
Option Plan to the total number of outstanding shares of Common Stock and Common
Stock equivalents in light of the number of Units and Warrants to be issued in
connection with the Mack Combination.
SUMMARY OF THE PROVISIONS OF THE EMPLOYEE STOCK OPTION PLAN, AS AMENDED
The following summary of the Employee Stock Option Plan, as amended, is
qualified in its entirety by the specific language of the plan, a copy of which
is available to any shareholder upon request.
GENERAL. The purposes of the Employee Stock Option Plan are to attract and
retain the best personnel for positions of substantial responsibility and to
provide additional incentives to key employees, officers, consultants and other
persons whose efforts are deemed worthy of encouragement to promote the growth
and success of Cali. The Employee Stock Option Plan provides for the grant of
incentive stock options, within the meaning of Section 422 of the Code to
employees of Cali and for the grant of nonstatutory stock options, stock
appreciation rights ("SARs") and shares of restricted stock ("Restricted Stock")
to employees, consultants and advisors of Cali. Currently, 1,808,419 of the
authorized but unissued shares of the Common Stock of Cali may be issued upon
the exercise of options granted pursuant to the Employee Stock Option Plan. To
date, no SARs or shares of Restricted Stock have been awarded under the Employee
Stock Option Plan. The Board has amended the Employee Stock Option Plan, subject
to shareholder approval, to increase the number of shares authorized for
issuance thereunder by 2,000,000, from 2,780,188 to 4,780,188 shares. In the
event of any stock dividend, recapitalization, reorganization, merger,
consolidation, split-up, exchange of shares, combination, or like change in the
capital structure of Cali, appropriate adjustments will be made to the shares
subject to the Employee Stock Option Plan and to any outstanding awards. To the
extent any outstanding option under the Employee Stock Option Plan expires or
terminates prior to its exercise in full, or if any shares of Restricted Stock
are forfeited, the shares of Common Stock no longer subject to the option or
restrictions will be returned to the Employee Stock Option Plan and made
available for future grants.
ADMINISTRATION. The Employee Stock Option Plan is administered by the
Option and Executive Compensation Committee ("the Compensation Committee") of
the Board of Directors of Cali. With respect to the participation of individuals
who are subject to Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act"), the Employee Stock Option Plan is administered in compliance
with the requirements of Rule 16b-3 under the Exchange Act. Subject to the
provisions of the Employee Stock Option Plan, the Compensation Committee
determines the persons to whom grants of options, SARs and shares of Restricted
Stock are to be made, the number of shares of Common Stock to be covered by each
grant and all other terms and conditions of the grant. If an option is granted,
the Compensation
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Committee determines whether the option is an incentive stock option or a
nonstatutory stock option, the option's term, vesting and exercisability, the
amount and type of consideration to be paid to Cali upon the option's exercise
and the other terms and conditions of the grant. The terms and conditions of
Restricted Stock awards are also determined by the Compensation Committee. The
Compensation Committee has the responsibility to interpret the Employee Stock
Option Plan and to make determinations with respect to all awards granted under
the Employee Stock Option Plan. All determinations of the Compensation Committee
are final and binding on all persons having an interest in the Employee Stock
Option Plan or in any award made under the Employee Stock Option Plan. The costs
and expenses of administering this Employee Stock Option Plan are borne by Cali.
ELIGIBILITY. All employees, consultants and advisors (including directors
of Cali who are also employees) are eligible to participate in the Employee
Stock Option Plan. As of September 15, 1997, 185 employees, including nine
officers, three of whom are also directors of Cali, were eligible to participate
in the Employee Stock Option Plan. Non-employee directors of Cali may not
participate.
TERMS AND CONDITIONS OF OPTION GRANTS. Each option granted under the
Employee Stock Option Plan is evidenced by a written agreement between Cali and
the optionee specifying the number of shares of Cali's Common Stock subject to
the option and all of the other terms and conditions of the option, consistent
with the requirements of the Employee Stock Option Plan. The per share exercise
price of an incentive stock option may not be less than 100 percent of the fair
market value of a share of Common Stock on the date of the option's grant. In
addition, the per share exercise price of any option granted to a person who at
the time of the grant owns stock possessing more than 10 percent of the total
combined voting power or value of all classes of stock of Cali must be at least
110 percent of the fair market value of a share of Cali's Common Stock on the
date of grant and the term of any such option cannot exceed five years.
Generally, options may be exercised by the payment of the exercise price in
cash, by check, or in cash equivalents, such as through the tender of shares of
Cali's Common Stock owned by the optionee having a fair market value not less
than the exercise price, or by the assignment of the proceeds of a sale of some
or all of the shares of Common Stock being acquired upon the exercise of the
option, or in any combination of these methods consistent with the terms and
conditions of the applicable stock option agreement.
Options granted under the Employee Stock Option Plan will become exercisable
at such times as may be specified by the Compensation Committee, and generally
become exercisable in equal installments subject to the optionee's continued
employment or service with Cali. The maximum term of options granted under the
Employee Stock Option Plan is ten years. Options are nontransferable by the
optionee other than by will or by the laws of descent and distribution and are
exercisable during the optionee's lifetime only by the optionee.
TERMS AND CONDITIONS OF OTHER AWARDS. Each SAR or Restricted Stock award
made under the Employee Stock Option Plan is also evidenced by a written
agreement between Cali and the award holder specifying the number of shares of
Common Stock subject to the award and the other necessary terms and conditions,
consistent with the requirements of the Employee Stock Option Plan. A SAR or
Restricted Stock award may be granted separately or in conjunction with the
grant of an option. The terms included in the written agreements evidencing
these awards are summarized below.
If a SAR is granted, the written agreement will specify if the SAR is being
granted separately or with respect to an outstanding option. In general, if a
SAR is granted with respect to an option, the exercise of the option will cancel
the SAR and the exercise of the SAR will cancel the option. An agreement
evidencing the SAR will also describe when the SAR will become vested and
exercisable, subject to the award holder's continued employment by Cali, and the
per share grant price. Upon settlement of the SAR award, occurring at exercise,
the award holder will receive a cash distribution of the difference between the
grant price of the Common Stock underlying the SAR and its fair market value on
the date of exercise.
If shares of Restricted Stock are awarded, the agreement will specify the
per share grant price of the Common Stock subject to the restrictions, the
conditions that will result in the automatic and complete
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forfeiture of the shares and the time and manner in which the restrictions will
lapse, subject to the award holder's continued employment by Cali. Upon
settlement of the Restricted Stock award, occurring upon the lapse of the
restrictions, the shares of Common Stock subject to the award will be come
immediately distributable to the participant.
CHANGE OF CONTROL PROVISIONS. In general, a "Change of Control" will be
deemed to occur upon any of the following events in which the shareholders of
Cali do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of Cali or its successor: (i) the direct
or indirect sale or exchange by the shareholders of Cali of all or substantially
all of the stock of Cali, (ii) a merger in which Cali is a party, or (iii) the
sale, exchange or transfer of all or substantially all of the assets of Cali. If
a participant terminates employment within six months following a "Change of
Control," all of the options previously granted to him shall automatically
become vested and immediately exercisable; restrictions in Restricted Stock
awards will also automatically lapse upon a termination following a "Change of
Control" and the Common Stock subject to the award will become immediately
distributable to the participant.
TERMINATION OR AMENDMENT OF THE EMPLOYEE STOCK OPTION PLAN. Unless sooner
terminated, no awards may be granted under the Employee Stock Option Plan after
August 31, 2004. The Board of Directors may terminate or amend the Employee
Stock Option Plan at any time, but the Board of Directors may not amend the
Employee Stock Option Plan to increase the total number of shares of Common
Stock reserved for issuance of awards or adopt any amendment that would
materially increase the cost of the Employee Stock Option Plan to Cali without
shareholder approval. No amendment may be adopted that would adversely affect an
outstanding option or award without the participant's consent.
As of September 15, 1997, Cali had outstanding options to purchase an
aggregate of 1,808,419 shares of Common Stock held by 185 persons at a weighted
average exercise price of $24.21 per share. The exercise price of all options
granted under the Employee Stock Option Plan has been no less than 100 percent
of the fair market value of the Common Stock on the date of the grant as
determined in good faith by the Compensation Committee. As of September 15,
1997, options to purchase 259,356 shares of Common Stock granted pursuant to the
Employee Stock Option Plan had been exercised and there were 712,413 shares of
Common Stock available for future grant under the Employee Stock Option Plan. By
amending the Employee Stock Option Plan to increase the share reserve by
2,000,000, there will be 2,712,413 shares of Common Stock available for future
grants under the Employee Stock Option Plan. On September 24, 1997, the closing
sales price per share of Cali's Common Stock, as reported on The New York Stock
Exchange, was $38.875.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE EMPLOYEE STOCK OPTION PLAN
The following summary is intended only as a general guide as to the federal
income tax consequences under current law with respect to participation in the
Employee Stock Option Plan and does not attempt to describe all possible federal
or other tax consequences of such participation. Furthermore, the tax
consequences of awards made under the Employee Stock Option Plan are complex and
subject to change, and a taxpayer's particular situation may be such that some
variation of the described rules is applicable.
INCENTIVE STOCK OPTIONS. Options designated as incentive stock options are
intended to fall within the provisions of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"). An optionee recognizes no taxable income
for regular income tax purposes as the result of the grant or exercise of such
an option. If an optionee does not dispose of his shares for two years following
the date the option was granted or within one year following the transfer of the
shares upon exercise of the option, the gain on the sale of the shares (which is
the difference between the sale price and the purchase price of the shares) will
be taxed as long-term capital gain. If an optionee satisfies such holding
periods, upon a sale of the shares, Cali will not be entitled to any deduction
for federal income tax purposes. If an optionee disposes of the shares within
two years after the date of grant or within one year from the date of exercise
(a "disqualifying disposition"), the difference between the fair market value of
the shares on the date of exercise and the option exercise price (not to exceed
the gain realized on the sale if the disposition is a transaction with respect
to which a loss, if sustained, would be recognized) will be taxed as ordinary
income at the time of
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the disqualifying disposition. Any gain in excess of that amount will be a
capital gain. If a loss is recognized, there will be no ordinary income, and
such loss will be a capital loss. A capital gain or loss will be long-term if
the optionee's holding period is more than 12 months. Any ordinary income
recognized by the optionee upon the disqualifying disposition of the shares
should be deductible by Cali for federal income tax purposes, except to the
extent such deduction is limited by Section 162(m) of the Code. This Section of
the Code disallows a public company's deductions for certain employee
remuneration exceeding $1,000,000 per year.
NONSTATUTORY STOCK OPTIONS. Options that do not qualify as incentive stock
options are nonstatutory stock options and have no special tax status. An
optionee generally recognizes no taxable income as the result of the grant of
such an option.
Upon the exercise of a nonstatutory stock option, the optionee normally
recognizes ordinary income in the amount of the difference between the option
exercise price and the fair market value of the shares on the determination date
(which is generally the date of exercise). If the optionee is an employee, such
ordinary income generally is subject to withholding of income and employment
taxes. The "determination date" is the date on which the option is exercised
unless the shares are not vested and/or the sale of the shares at a profit would
subject the optionee to suit under Section 16(b) of the Exchange Act, in which
case the determination date is the later of (i) the date on which the shares
vest, or (ii) the date the sale of the shares at a profit would no longer
subject the optionee to suit under Section 16(b) of the Exchange Act. (Section
16(b) of the Exchange Act generally is applicable only to officers, directors
and beneficial owners of more than 10 percent of the Common Stock of Cali.) Upon
the sale of stock acquired by the exercise of a nonstatutory stock option, any
gain or loss, based on the difference between the sale price and the fair market
value on the date of recognition of income, will be taxed as capital gain or
loss. A capital gain or loss will be long-term if the optionee's holding period
is more than 12 months. No tax deduction is available to Cali with respect to
the grant of a nonstatutory option or the sale of the stock acquired pursuant to
such grant. Cali should be entitled to a deduction equal to the amount of
ordinary income recognized by the optionee as a result of the exercise of a
nonstatutory option, except to the extent such deduction is limited by Section
162(m) of the Code.
SARS AND RESTRICTED STOCK AWARDS. A participant will not be required to
recognize any income for federal income tax purposes upon the grant of a SAR or
shares of Restricted Stock. However, upon settlement of the SAR award (the date
of its exercise), the participant will be required to recognize as ordinary
income the difference between the grant and exercise price of the shares of
Common Stock on which the SAR award is based. This amount will be taxed at
ordinary federal income tax rates. Upon settlement of the Restricted Stock award
(the date the shares become distributable), the participant will be required to
recognize as ordinary income the fair market value of the shares of Common Stock
on such date. Cali should be entitled to a deduction equal to the amount of the
ordinary income recognized by the participant upon the settlement of the SAR or
Restricted Stock award to the extent permitted by Section 162(m) of the Code.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the quorum present at the Special
Meeting, either in person or by proxy, is required for approval of this
proposal. Abstentions will have the same effect as a negative vote on this
proposal. Broker non-votes will have no effect on the outcome of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE INCREASE IN THE
SHARE RESERVE OF THE EMPLOYEE STOCK OPTION PLAN BY 2,000,000 SHARES.
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PROPOSAL FOUR--AMENDMENTS TO THE DIRECTOR STOCK OPTION PLAN
TO INCREASE THE NUMBER OF SHARES
AUTHORIZED FOR ISSUANCE THEREUNDER AND TO PROVIDE FOR
PARTICIPATION THEREUNDER OF NON-EMPLOYEE MEMBERS
OF THE ADVISORY BOARD
Cali has established and implemented the Director Stock Option Plan for the
benefit of eligible non-employee directors of Cali. The Director Stock Option
Plan was also approved by the Board of Directors and the shareholders of Cali on
August 23, 1994. An aggregate of 200,000 shares of Cali's Common Stock is
currently authorized for the issuance of grants under the Director Stock Option
Plan, of which 141,000 shares remained available for future grants as of
September 15, 1997. The Board of Directors has amended the Director Stock Option
Plan, subject to shareholder approval, to increase by 200,000, to a total of
400,000, the number of shares of Common Stock of Cali authorized for the
issuance of grants under the plan. Cali intends to register the 200,000 share
increase on Form S-8 under the Securities Act of 1933 as soon as practicable
after receiving shareholder approval.
The Board of Directors believes that the 200,000 share reserve increase
under the Director Stock Option Plan is in the best interests of the
shareholders and Cali because the availability of an adequate number of shares
reserved for issuance under the Director Stock Option Plan and the ability to
grant options thereunder is an important factor in attracting, motivating and
retaining distinguished personnel with proven ability and vision to serve on the
Board of Directors and chart Cali's course towards continued growth and
financial success. The amendment to increase the number of shares authorized
under the Director Stock Option Plan is designed to maintain the approximate
historical ratio of shares authorized under the Director Stock Option Plan to
the total number of outstanding shares of Common Stock and Common Stock
equivalents in light of the number of Units and Warrants to be issued in
connection with the Mack Combination.
The Board of Directors has also amended the Director Stock Option Plan,
subject to shareholder approval, to provide for the participation thereunder of
non-employee members of the Advisory Board, including a provision that a member
of the Board of Directors who resigns as a director in order to become a member
of the Advisory Board shall be deemed during his or her period of service as a
member of the Advisory Board to be a continuing member of the Board of Directors
for purposes of determining the exercise period of prior grants under the
Director Stock Option Plan.
The Board of Directors believes that the participation of the non-employee
members of the Advisory Board in the Director Stock Option Plan, including the
provision that a member of the Board of Directors who resigns as a director in
order to become a member of the Advisory Board shall be deemed during his or her
period of service as a member of the Advisory Board to be a continuing member of
the Board of Directors for purposes of determining the exercise period of prior
grants under the Director Stock Option Plan, is in the best interests of the
shareholders and Cali because the ability to grant options thereunder to
non-employee members of the Advisory Board is an important factor in attracting
, motivating and retaining distinguished personnel with proven ability and
vision to assist the Board of Directors by serving on the Advisory Board and
chart Cali's course towards continued growth and financial success.
SUMMARY OF THE PROVISIONS OF THE DIRECTOR STOCK OPTION PLAN, AS AMENDED
The following summary of the Director Stock Option Plan, as amended, is
qualified in its entirety by the specific language of the Director Stock Option
Plan, a copy of which is available to any shareholder upon request.
GENERAL. The Director Stock Option Plan is designed to enable Cali to
attract and retain persons of outstanding competence to serve as members of the
Board of Directors of Cali and to provide a direct link between directors'
compensation and shareholder value. Participation in the Director's Option Plan
is
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currently restricted to non-employee directors and only nonstatutory options to
purchase shares of the Common Stock of Cali are granted. Currently, 49,000 of
the authorized but unissued shares of the Common Stock of Cali may be issued
upon the exercise of options granted under the Director Stock Option Plan. The
Board of Directors has amended this Plan, subject to shareholder approval, to
increase the number of shares authorized for issuance thereunder by 200,000,
from 200,000 to 400,000 shares and to provide for the participation thereunder
of non-employee members of the Advisory Board, including a provision that a
member of the Board of Directors who resigns as a director in order to become a
member of the Advisory Board shall be deemed during his or her period of service
as a member of the Advisory Board to be a continuing member of the Board of
Directors for purposes of determining the exercise period of prior grants under
the Director Stock Option Plan. The Director Stock Option Plan also provides
that in the event of any stock dividend, recapitalization, reorganization,
merger, consolidation, split-up, exchange of shares, combination, or like change
in the capital structure of Cali, appropriate adjustments will be made to the
shares of Common Stock subject to the Director Stock Option Plan and to any
outstanding awards. To the extent any outstanding option expires or terminates
prior to its exercise in full, the shares of Common Stock no longer subject to
the option will be returned to the Director Stock Option Plan and made available
for future grants.
ADMINISTRATION. The Director Stock Option Plan is administered by the
Compensation Committee of the Board of Directors of Cali in compliance with the
requirements of Rule 16b-3 of the Exchange Act. Initial stock option grants,
including all conditions of such grants, that are made to eligible non-employee
directors under the Director Stock Option Plan are non-discretionary and are
dictated by the written terms of the Director Stock Option Plan. Under the
Director Stock Option Plan, upon an eligible director's initial election or
appointment to the Board of Directors of Cali, the director is automatically
granted a non-statutory stock option to purchase 5,000 shares of Common Stock of
Cali at its fair market value on the date of grant. The Compensation Committee
may make additional discretionary options grants to eligible directors,
consistent with the terms of the Director Stock Option Plan. All options granted
under the Director Stock Option Plan are non-statutory stock options. Subject to
certain specific limitations and restrictions set forth in the Director Stock
Option Plan, the Compensation Committee has the authority to interpret the
Director Stock Option Plan, to prescribe, amend and rescind rules and
regulations, if any, relating to the Director Stock Option Plan and to make all
determinations necessary or advisable for the administration of the Director
Stock Option Plan. The costs and expenses of administering the Director Stock
Option Plan are paid by Cali.
ELIGIBILITY. Participation in the Director Stock Option Plan is limited to
persons who serve as members of the Board of Directors of Cali and who, at the
time of the option grant, are not employees of Cali. As of September 15, 1997,
nine directors of Cali were eligible to participate in this plan. The Board of
Directors has amended the Director Stock Option Plan, subject to shareholder
approval, to provide for the participation thereunder of members of the Advisory
Board who, at the time of the option grant, are not employees of Cali, including
a provision that a member of the Board of Directors who resigns as a director in
order to become a member of the Advisory Board shall be deemed during his period
of service as a member of the Advisory Board to be a continuing member of the
Board of Directors for purposes of determining the exercise period of prior
grants under the Director Stock Option Plan.
TERMS AND CONDITIONS OF OPTION GRANTS. The Director Stock Option Plan
provides for each non-employee director automatically to receive, upon election
to office or appointment to the Board of Directors, an option to acquire 5,000
shares of Common Stock of Cali at a price equal to the fair market value at the
date of the grant of the shares of Common Stock subject to such option. Pursuant
to the terms of the Director Stock Option Plan, each automatic option shall
become vested and exercisable on the earlier of (i) the first anniversary of the
grant date, provided the director remains in the continuous service of the Board
of Directors, during such period, or (ii) upon the director's termination of
Board of Directors service due to retirement, death or disability. If a
director's service is terminated for "cause" all awards granted to the director
under the Director Stock Option Plan will automatically be forfeited. In the
event a director's service on the Board of Directors terminates before the
options have vested, any unvested option
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shall be canceled and the director shall have no further right or interest in
the forfeited option. The Director Stock Option Plan does not provide for the
vesting of outstanding options to be accelerated upon a "Change of Control" of
Cali. Each option shall remain outstanding until the tenth anniversary of the
grant date. All of the terms and conditions of option grants are specified in a
written agreement between Cali and the optionee. In addition, the Compensation
Committee may make additional discretionary option grants to eligible directors
the terms of which shall be determined by the Compensation Committee, consistent
with the provisions of the Director Stock Option Plan and specified in a written
agreement. The Board of Directors has amended the Director Stock Option Plan,
subject to shareholder approval, to provide that the Compensation Committee may
make discretionary option grants to eligible members of the Advisory Board.
Neither the existence of the Director Stock Option Plan, nor the granting of an
option thereunder, will be construed to limit, in any way, the right of Cali or
its shareholders to elect a person to serve as a director or the right of the
Board of Directors to appoint a person to serve as a member of the Advisory
Board. In addition, nothing in the Director Stock Option Plan shall be construed
to give any director the right to a grant of an option under the Director Stock
Option Plan unless the express terms and conditions of the Director Stock Option
Plan are satisfied. Options may be exercised by the payment of the exercise
price in cash, by check, or in cash equivalents, such as through the tender of
shares of Cali's Common Stock owned by the optionee having a fair market value
not less than the exercise price, or by the assignment of the proceeds of a sale
of some or all of the shares of Common Stock being acquired upon the exercise of
the option, or in any combination of these methods consistent with the terms and
conditions of the applicable stock option agreement. Options are nontransferable
by the optionee other than by will or by the laws of descent and distribution
and are exercisable during the optionee's lifetime only the optionee.
TERMINATION OR AMENDMENT OF THE DIRECTOR STOCK OPTION PLAN. Unless sooner
terminated, no awards may be granted under the Director Stock Option Plan after
August 31, 2004. The Board of Directors may terminate or amend the Director
Stock Option Plan at any time, but the Board of Directors may not amend the
Director Stock Option Plan to increase the total number of shares of Common
Stock reserved for issuance of awards or adopt any amendment that would
materially increase the cost of the Director Stock Option Plan to Cali without
shareholder approval. No amendment may be adopted that would adversely affect an
outstanding option or award without the participant's consent.
As of September 15, 1997, Cali had outstanding options to purchase an
aggregate of 49,000 shares of Common Stock held by nine persons at an average
exercise price of $21.56 per share. As of September 15, 1997, options to
purchase an aggregate of 10,000 shares of Common Stock granted pursuant to the
Director Stock Option Plan had been exercised and there were 141,000 shares of
Common Stock available for future grants under the Director Stock Option Plan.
By amending the Director Stock Option Plan to increase the share reserve by
200,000, there will be 341,000 shares of Common Stock available for future
grants under the Director Stock Option Plan. On September 24, 1997, the closing
sales price per share of Cali's Common Stock, as reported on the New York Stock
Exchange, was $38.875 .
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE DIRECTOR STOCK OPTION PLAN
In general, no gain or loss is recognized by the option holder at the time
an option is granted under the Director Stock Option Plan. Upon the exercise of
an option, the difference between the fair market value of the Common Stock on
the date of exercise and the option price will be taxable as compensation income
to the option holder and Cali would be entitled to a deduction for federal
income tax purposes for the same amount. Upon a subsequent sale or exchange of
stock acquired pursuant to the exercise of an option, the option holder would
have taxable gain or loss, measured by the difference between the amount
realized on the disposition and the tax basis of such shares.
The foregoing statements are intended to summarize the general principles of
current federal income tax law applicable to options that may be granted under
the Director Stock Option Plan. The tax consequences of awards made under this
Plan are complex, subject to change, and may vary depending on the taxpayer's
particular circumstances.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the quorum present at the Special
Meeting, either in person or by proxy, is required for approval of this
proposal. Abstentions will have the same effect as a negative vote on this
proposal. Broker non-votes will have no effect on the outcome of this vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE INCREASE IN THE
SHARE RESERVE OF THE DIRECTOR STOCK OPTION PLAN BY 200,000 SHARES AND THE
PARTICIPATION THEREUNDER OF NON-EMPLOYEE MEMBERS OF THE ADVISORY BOARD.
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DESCRIPTION OF THE CONTRIBUTION AND EXCHANGE AGREEMENT
The following summary of the material provisions of the Contribution and
Exchange Agreement, including the descriptions of certain provisions set forth
elsewhere in this Proxy Statement, is qualified in its entirety by reference to
the Contribution and Exchange Agreement, a copy of which has been filed with the
Securities and Exchange Commission on a Current Report on Form 8-K dated
September 19, 1997, and is incorporated herein by reference.
GENERAL
The Mack Combination will effect the contribution of the Mack Properties by
Mack to CRLP or its designated partnership subsidiaries in exchange for certain
consideration. See "Proposal One--The Mack Combination".
CONSIDERATION
In consideration of Mack's contribution of the Mack Properties, Cali and
CRLP collectively have agreed to exchange with Mack the following consideration:
(i) approximately $476.1 million in cash to Mack; (ii) approximately $302.1
million in assumption of debt by CRLP or its designated subsidiaries; (iii) the
issuance to Mack or Mack's designees of 3,931,048 common operating partnership
interests (the "Common Units") in CRLP, redeemable after one year, for an equal
number of shares of Common Stock; (iv) the issuance to Mack or Mack's designees
of 249,656 cumulative preferred operating partnership interests in CRLP composed
of (a) approximately 209,656 Series B Preferred Units immediately convertible
into approximately 6,050,678 Common Units, which Common Units shall be
redeemable for 6,050,678 shares of Common Stock after three years and (b)
approximately 40,000 Series A Preferred Units immediately convertible into
approximately 1,154,401 Common Units, which Common Units shall be redeemable for
1,154,401 shares of Common Stock after one year; and (v) the issuance to Mack or
Mack's designees of 2,000,000 Warrants to purchase an equal number of Common
Units.
The Preferred Units will contain anti-dilution protection and have voting
rights on any vote of limited partners as if the Preferred Units were converted
to Common Units. Currently, the 249,956 Preferred Units would convert into
7,205,079 Common Units. The quarterly distribution on each Preferred Unit will
be paid in an amount equal to the greater of (i) $16.88 or (ii) the quarterly
distribution attributable to a Preferred Unit if such unit had been converted
into Common Units, subject to adjustment for customary anti-dilution rights.
Each Preferred Unit shall have a stated value equal to $1,000.00 (the "Stated
Value"). Cali shall have the right to cause the conversion of any or all of the
Preferred Units into Common Units, at any time after the seven and one-half
(7-1/2) year anniversary of the date of the closing of the Mack Combination at
their Stated Value, plus accrued but unpaid distributions, divided by $34.65 per
share (the "Conversion Price"); provided, however, that Cali may only exercise
such mandatory conversion if, for twenty (20) trading days within the thirty
(30) consecutive trading days immediately preceding such conversion date, the
closing price of the Common Stock equals or exceeds $34.65, subject to
adjustment for customary anti-dilution rights. Holders of the Preferred Units
may convert the Preferred Units into Common Units at any time at the Conversion
Price. If, prior to the conversion of all Preferred Units, the number of
outstanding Common Units is increased by a unit split or other similar event,
the Conversion Price shall be proportionately reduced, or if the number of
outstanding Common Units is decreased by a combination or reclassification of
units, or other similar event, the Conversion Price shall be proportionately
increased. In addition, if, prior to the conversion of all Preferred Units,
there shall be any merger, consolidation, exchange of units, recapitalization,
reorganization, or other similar event, as a result of which Common Units of
CRLP shall be changed into the same or a different number of securities of the
same or another class or classes of units or securities of CRLP or another
entity, then the holders of Preferred Units shall thereafter have the right to
purchase and receive upon conversion of units of Preferred Units, such units
and/or securities as may be issued or payable with respect to or in exchange for
the number of Common Units immediately theretofore purchasable and receivable
upon the conversion of
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units of Preferred Units held by such holders had such merger, consolidation,
exchange of shares, recapitalization or reorganization not taken place.
Cali and CRLP shall not, without the affirmative consent of the holders of
at least sixty-six and two-thirds percent (66 2/3%) of the holders of the Series
B Preferred Units (without the need for consent of the holders of the Series A
Preferred Units) (i) subject to certain exceptions, increase or decrease (other
than by conversion) the total number of authorized shares of Series A or Series
B Preferred Units; (ii) in any manner authorize, create or issue any additional
preferred units or any class or series of capital interests, in either case (A)
ranking, either as to payment of distributions or distribution of assets, prior
to the Series A or Series B Preferred Units, or (B) which in any manner
adversely affects the holders of units of Series A or Series B Preferred Units,
or authorize, create or issue any capital interests of any class or series or
any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having optional rights to purchase, any capital interests
having any such preference or priority or so adversely affecting the holders of
Series A or Series B Preferred Units. Notwithstanding the foregoing provisions,
the affirmative consent of the holders of at least sixty-six and two-thirds
percent (66-2/3%) of the holders of the Series B Preferred Units shall not be
required for the issuance of one or more classes of capital stock or units PARI
PASSU to the Preferred Units (such Preferred Units hereinafter referred to as
"Qualifying Preferred Units"), in an aggregate amount not to exceed the greater
of (1) $200 million in stated value or (2) ten percent (10%) of Cali's total
equity market capitalization (calculated by multiplying (x) the average trading
price of Common Stock (as reported daily in THE WALL STREET JOURNAL) for the
five (5) trading days immediately preceding the date of issuance of such
Qualifying Preferred Stock, times (y) the total number of the then issued and
outstanding Common Units and shares of Common Stock, including all shares of
preferred stock and preferred units and convertible debt, which by their
respective terms are convertible into either Common Units or Common Stock; (iii)
in any manner alter or change the designations or the powers, preferences or
rights, or the qualifications, limitations or restrictions of the Series A or
Series B Preferred Units; and (iv) reclassify the Common Units or any other
units of any class or series of capital interests hereafter created junior to
the Series A or Series B Preferred Units into capitalization of any class or
series of capital interests (A) ranking, either as to payment of dividends or
distribution of assets prior to the Series A or Series B Preferred Units, or (B)
which in any manner adversely affects the holders of Series A or Series B
Preferred Units.
The Warrants shall be exercisable at any time after the first anniversary of
the closing of the Mack Combination for a period of four (4) years thereafter at
a purchase price of $37.80 per unit of Common Units, subject to adjustment for
customary anti-dilution rights. The Warrants may be exercised or converted only
(a) under circumstances such that the issue of Common Units upon such exercise
or conversion is exempt from the requirements of registration under the
Securities Act of 1933, as amended (the "1933 Act") and any applicable state
securities law or (b) upon registration of such Common Units in compliance
therewith. The Warrants shall be transferable only (a) in accordance with or as
otherwise specifically permitted by the provisions of the Contribution and
Exchange Agreement and (b) under circumstances such that the transfer is exempt
from the requirements of registration under the 1933 Act and any applicable
state securities law. In the event of any change in Common Units by reason of
any dividend, recapitalization, reorganization, merger, consolidation, split-up,
combination or exchange of units, or of any similar change affecting the Common
Units, the number and kind of units underlying the Warrants and the purchase
price per unit thereof shall be appropriately adjusted consistent with such
change.
The Warrants and the Units to be issued pursuant to the Mack Combination
represent the equivalent of 13,136,127 shares of Common Stock, which shares may
be purchased by Mack upon the exercise of the Warrants and the conversion and/or
redemption of the Units, such number equaling 35.8 percent of the 36,662,212
shares of Common Stock currently outstanding and 32.2 percent, assuming
redemption of all outstanding Units. Commencing one (1) year after the closing
of the Mack Combination, Cali, at its expense, will make a regulatory filing and
will use all reasonable efforts to provide Mack with an effective
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"evergreen" Form S-3 shelf registration statement covering the resale of the
shares of Common Stock underlying the Units and the Warrants.
TERMINATION
On or before December 12, 1997, Cali and CRLP may terminate the Contribution
and Exchange Agreement for any reason upon written notice to Mack. On or before
October 27, 1997, Mack may terminate the Contribution and Exchange Agreement for
any reason upon written notice to Cali. During the period beginning October 28,
1997 and ending December 12, 1997 (unless such date shall have been accelerated
pursuant to the Contribution and Exchange Agreement), Mack may terminate the
Contribution and Exchange Agreement only for the following reasons: (i) there
has occurred a material adverse change to the business, results of operations or
financial condition of Cali, CRLP and its subsidiaries or the Mack Properties or
(ii) the stock price of the Common Stock of Cali, as reported in THE WALL STREET
JOURNAL, has an average closing price below $31.50 for any five consecutive
trading days.
REPRESENTATIONS AND WARRANTIES
The Contribution and Exchange Agreement includes various customary
representations and warranties of the parties thereto. In this regard, Mack,
Cali and CRLP represent and warrant as to, among other things: (i) corporate
organization, standing and power; (ii) capitalization; (iii) pending or
threatened litigation; (iv) the Contribution and Exchange Agreement's
noncontravention of any agreement, law, charter or bylaw provision and the
absence of the need (except as specified) for governmental consents to the Mack
Combination; (v) the terms, existence, operations, liabilities and compliance
with applicable laws of employee plans, and certain other matters relating to
the Employee Retirement Income Security Act of 1974, as amended; (vi) payment of
taxes; (vii) financial statements; (viii) current and accumulated earnings and
profits for tax purposes; (ix) the conduct of business in the ordinary and usual
course and the absence of any material adverse change in financial condition,
business, results of operations, properties, assets, liabilities or prospects;
(x) certain contracts and leases; (xi) certain matters with respect to
compliance with environmental laws and regulations; and (xii) the accuracy of
certain information regarding Mack, CRLP and Cali contained in this Proxy
Statement.
CERTAIN COVENANTS
Mack has agreed that, among other things, prior to the consummation of the
Mack Combination, it will (i) operate and maintain the Mack Properties in the
ordinary course of business and use reasonable efforts to preserve for CRLP or
its designated subsidiaries its relationships with its tenants, suppliers and
others having on-going business relationships with the Mack Properties; (ii)
maintain and keep in full force the insurance policies it currently maintains on
the Mack Properties; (iii) provide to CRLP and its authorized representatives
all information concerning, and reasonable access to, all its books, records,
tenant and leasing data and materials, tax returns, market studies and any other
materials of any kind owned by or in the possession of Mack which are or may be
used in the operation of the Mack Properties at all reasonable times and upon
reasonable notice; (iv) promptly notify CRLP of, and deliver to CRLP, a
certified true and complete copy of any notice it may have received from any
Governmental Authority concerning a violation of any Environmental Laws or a
discharge of contaminants; (v) complete all construction work at the Mack
Properties; (vi) take all commercially reasonable action to obtain the requisite
consents and approvals from its partners to consummate the Mack Combination;
(vii) as soon as practicable after the closing, take all action to ensure that
Cali possesses the sole and exclusive right to use the names "The Mack Company"
and "Mack" (subject to certain exceptions); and (viii) make all required
payments, and comply with all other material conditions under any mortgage
affecting the Mack Properties.
Mack has further agreed that, prior to the consummation of the Mack
Combination, it will not (i) cause or permit the Mack Properties to be
alienated, mortgaged, licensed, encumbered or otherwise
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transferred and (ii) directly or indirectly institute, pursue, enter into or
encourage any discussions, negotiations or agreements contemplating or providing
for any merger, acquisition, purchase or sale of the Mack Properties or any
interest therein or other business combination with any person or entity other
than Cali.
CRLP and Cali have agreed that (i) they will not issue any class of capital
stock or Units senior to the Preferred Units without the consent of 66.67
percent of the holders of the Class B Preferred Units; and (ii) they will grant
Mack access to the books and records of the Mack Properties for inspection and
duplication at reasonable times and upon reasonable notice after the
consummation of the Mack Combination.
CONDITIONS PRECEDENT TO CLOSING THE MACK COMBINATION
The obligations of Mack to consummate the Mack Combination are subject to
the fulfillment of certain conditions (in most cases subject to waiver by Mack)
by Cali or CRLP including, but not limited to, the following: (i) the Mack
Combination shall have been approved by the Cali shareholders; (ii) the
resolutions contemplated by the Contribution and Exchange Agreement shall have
been approved and implemented by the Board of Directors of Cali; (iii) the
representations and warranties of Cali and CRLP contained in the Contribution
and Exchange Agreement will be true and correct in all material respects as of
the closing of the Mack Combination; (iv) each of Cali and CRLP will have
performed all obligations required to be performed by it under the Contribution
and Exchange Agreement on or prior to the closing of the Mack Combination; (v)
Cali shall not have taken any action or have failed to take any action which
would reasonably be expected to result in the loss of its status as a REIT for
federal income tax purposes; and (vi) Cali and CRLP shall have delivered, on or
before the closing of the Mack Combination, certain documents detailed in the
Contribution and Exchange Agreement including, but not limited to, resolutions
of the Board of Directors of Cali, a Registration Rights Agreement and the
assignment and assumptions of leases, rents, security deposits and ground
leases.
The respective obligations of Cali and CRLP to consummate the Mack
Combination are subject to the fulfillment of certain conditions (in most cases
subject to waiver by Cali and CRLP) by Mack including, but not limited to, the
following: (i) the representations and warranties of Mack contained in the
Contribution and Exchange Agreement will be true and correct in all material
respects as of the closing of the Mack Combination; (ii) Mack will have
performed all obligations required to be performed by it under the Contribution
and Exchange Agreement on or prior to the closing of the Mack Combination; (iii)
certain options to purchase and all rights of first refusals and rights of first
offer with respect to the Mack Properties shall have been waived; (iv) Mack
shall have received the requisite consents and approvals from all necessary
partners and third parties in order to contribute and convey the Mack
Properties; and (v) Mack shall have delivered, on or before the closing of the
Mack Combination, certain documents detailed in the Contribution and Exchange
Agreement including, but not limited to, bargain and sale deeds and assignments
of partnership interests, as the case may be, of the Mack Properties, all
original leases and ground leases relating to the Mack Properties, all original
insurance policies relating to the Mack Properties, estoppel certificates and
waivers of rights of first refusal and rights of first offer, if applicable.
CORPORATE NAME CHANGE; STOCK EXCHANGE LISTING
Upon the consummation of the Mack Combination, Cali and CRLP shall change
their respective names to "Mack-Cali Realty Corporation" and "Mack-Cali Realty,
L.P." If the Amendment is not approved by the Cali shareholders, Cali and CRLP
will operate under the names "Mack-Cali Realty Corporation" and "Mack-Cali
Realty, L.P.", respectively, pursuant to a fictitious name certificate. See
"Proposal Two--Amendment to Cali Articles of Incorporation to Change Cali's
Corporate Name." Mack-Cali Realty Corporation shall continue to trade under the
New York Stock Exchange symbol "CLI".
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DIRECTORS AND OFFICERS
Upon the consummation of the Mack Combination, the composition of the Board
of Directors of Cali will change. Three (3) of the Board of Directors' thirteen
members shall be new members designated by Mack. The Mack designees shall be
William L. Mack, Earle I. Mack and Mitchell E. Hersh, who shall be deemed to be
"inside" members of the Board of Directors because of their relationship with
management. William L. Mack and Earle I. Mack will be classified as Class II
directors whose terms shall expire in the year 1999 and Mitchell E. Hersh will
be classified as a Class III director whose term shall expire in the year 2000.
The parties have agreed that if any inside board member designed by Mack shall
withdraw for any reason, Mack shall have the right to designate such withdrawing
director's replacement. Three (3) members of the Board of Directors shall be
designated by Cali and shall be deemed to be "inside" members of the Board of
Directors because of their relationship with management. The Cali designees
shall be current members of the Board of Directors and shall be John J. Cali,
who shall remain Chairman of the Board of Directors, Thomas A. Rizk, who shall
remain Chief Executive Officer, and Robert F. Weinberg. The parties have agreed
that if any inside board member designated by Cali shall withdraw for any
reason, the remaining such Board members, on behalf of Cali, shall have the
right to designate such withdrawing director's replacement. The remaining seven
(7) directors shall be deemed to be independent outside directors. They shall
include three (3) existing independent members of Cali's Board of Directors:
Brendan T. Byrne, Irvin D. Reid and Alan G. Philibosian, and four (4) new
independent members to be selected by Mack and reasonably approved by Cali.
Brendan T. Byrne and three new independent directors shall be classified as
Class I directors, Alan G. Philibosian and one new independent director shall be
classified as Class II directors and Irvin D. Reid shall remain classified as a
Class III director. The terms of Class I directors will expire in 1998; the
terms of Class II directors will expire in 1999; and the terms of Class III
directors will expire in 2000. Kenneth A. DeGhetto, Alan Turtletaub, James W.
Hughes, Brad W. Berger, Angelo R. Cali and Brant Cali shall resign from the
Board of Directors at the closing of the Mack Combination and become members of
the Advisory Board.
Cali shall support the renomination of William L. Mack, Earle I. Mack and
Mitchell E. Hersh (and any successor appointed by Mack) for successive
three-year terms upon the expiration of each three year term at all times during
which Mack retains its Significant Interest (as hereinafter defined). In
addition, as long as Mack retains its Significant Interest, if either William L.
Mack, Earle I. Mack or Mitchell E. Hersh dies, resigns or otherwise become
unable to serve during his term, Cali shall support the nomination of the
individual selected by the survivors of William L. Mack, Earle I. Mack or
Mitchell E. Hersh to the vacancy created by such death, resignation or inability
to serve; and if either John J. Cali, Thomas A. Rizk or Robert F. Weinberg dies,
resigns or otherwise become unable to serve during his term, Mack shall support
the nomination of the individual selected by the survivors of John J. Cali,
Thomas A. Rizk or Robert F. Weinberg to the vacancy created by such death,
resignation or inability to serve.
After the consummation of the Mack Combination, the Board of Directors shall
create an Executive Committee. William L. Mack will serve as Chairman of the
Executive Committee, which will consist of William L. Mack, Mitchell E. Hersh,
Thomas A. Rizk and John J. Cali. John J. Cali and Thomas A. Rizk, on the one
hand, and William L. Mack, on the other hand, shall have the right to appoint a
replacement for any Executive Committee member designated by them who shall
withdraw from the Executive Committee.
Upon consummation of the Mack Combination, Thomas A. Rizk shall remain Chief
Executive Officer of Cali and Mitchell E. Hersh shall be appointed President and
Chief Operating Officer of Cali by the Board of Directors. Cali's existing
executive officers shall retain their current positions and responsibilities,
except that Thomas A. Rizk shall resign as President, Brant Cali shall resign as
Chief Operating Officer and John R. Cali shall resign as Chief Administrative
Officer.
The rights granted to Mack under the Contribution and Exchange Agreement
with respect to the management of Cali are conditioned on the continuation of
Mack's legal and beneficial ownership, in the
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aggregate, of not less than 3,174,603 shares of Common Stock and/or Units (on a
fully converted basis) in the aggregate of Cali and CRLP ("Significant
Interest") held by Earle I. Mack, David E. Mack, Frederic H. Mack and William L.
Mack after applying all reasonable attribution and affiliation rules, subject to
adjustment for stock splits, stock dividends and other customary and similar
stock dilutions and subject to certain exceptions. In the event that Mack's
Significant Interest shall no longer be retained, Mack and/or its designees
shall be entitled only to those rights accorded to every other shareholder of
Cali, and, except as provided below, each of the directors designated by Mack
shall, at the option of the directors designated by Cali, resign from the Board
of Directors of Cali on the three (3) month and six (6) month anniversary
respectively, of the date on which the Mack Significant Interest is no longer
retained. Notwithstanding the provisions of this paragraph, any such
modification to Mack's Significant Interest shall have no effect upon Mitchell
E. Hersh or his management status, and he shall not be required to resign from
the Board of Directors of Cali.
TRANSFER RESTRICTIONS; RIGHT OF FIRST OFFER
The Warrants, the Common Units and the Common Units issuable upon conversion
of the Series A Preferred Units shall not be exercised or redeemed into shares
of Common Stock, as the case may be, prior to the first anniversary of the
closing of the Mack Combination. The Common Units issuable upon conversion of
the Series B Preferred Units shall not be redeemed into shares of Common Stock
prior to the third anniversary of the closing of the Mack Combination.
Mack has agreed that (i) upon expiration of the respective holding period,
the Common Units, the Preferred Units, the Warrants and the Common Units
underlying the Preferred Units and the Warrants may be transferred privately
and, with respect to Preferred Units and Common Units, including the Common
Units underlying the Preferred Units and the Warrants, (after Cali forgoes its
rights to purchase such securities following receipt of a Sale Notice (as
hereinafter defined)) in accordance with the terms of the Contribution and
Exchange Agreement and (ii) upon conversion or exercise of the Units or the
Common Units underlying the Preferred Units and the Warrants to shares of Common
Stock, it will execute an agreement with CRLP providing that the Common Stock
may be transferred publicly (subject to the restrictions of the Securities and
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder) in blocks of not greater than 1,000,000 shares of Common Stock on
any one trading day and no more than 3,000,000 shares of Common Stock per week.
Prior to the sale of any Preferred Units or Common Units by any holder
thereof, such holder shall first deliver a written notice (the "Sale Notice") to
CRLP specifying (i) the nature and class of the securities to be transferred,
(ii) the number of securities owned by such holder, (iii) the number of
securities that such holder desires to sell, (iv) the proposed cash selling
price for the securities to be sold and (v) all other material terms and
conditions of the offer. The Sale Notice shall constitute an irrevocable offer
by the holder of the securities to be sold to sell such securities to CRLP at
the price and on the terms specified in such Sale Notice. CRLP shall have ten
(10) days following receipt of the Sale Notice to notify the selling holder of
its election to purchase the securities to be sold; otherwise CRLP shall forfeit
its right to purchase such securities pursuant to the Sale Notice.
Subject to the Contribution and Exchange Agreement, the restrictions
provided in the two preceding paragraphs shall not apply to: (i) bona-fide
pledges of, or encumbrances on, the Units, the Warrants and their underlying
shares of Common Stock in favor of (A) an institutional lender or financial
institution having gross assets in excess of $3 billion or (B) a "bulge bracket"
investment bank (as that term is generally defined), including, without
limitation, equity swaps and derivative transactions, as security for debt;
provided, however, that in no event may the value of such pledged or encumbered
securities during the applicable holding period equal or exceed fifty (50%)
percent of the total value of the securities held by the individual holder or
group of holders pledging such securities or otherwise encumbering them as of
the closing of the Mack Combination (such fifty (50%) percent determination made
at the date of the pledge or granting of the encumbrance without consideration
for any reduction in value of the securities
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after the borrowing is effected); and (ii) transfers of the Units, the Warrants
and their underlying shares of Common Stock to permitted transferees, as defined
in and pursuant to the Contribution and Exchange Agreement.
REMEDIES
If Mack has satisfied and performed all of the conditions to closing
required to be satisfied or performed by it and if either Cali or CRLP is not
ready, willing and able to perform its obligations under the Contribution and
Exchange Agreement on the closing of the Mack Combination, in the event of a
willful default by Cali or CRLP, then Mack shall be entitled to either (a)
terminate the Contribution and Exchange Agreement upon notice to Cali and CRLP
or (b) pursue all of its available remedies at law.
If both Cali and CRLP have satisfied and performed all of the conditions to
closing required to be satisfied or performed by them and if Mack is not ready,
willing and able to perform its obligations under the Contribution and Exchange
Agreement on the closing of the Mack Combination, in the event of a willful
default by Mack, then Cali and CRLP shall be entitled to either (a) terminate
the Contribution and Exchange Agreement upon notice to Mack or (b) pursue all of
their available remedies at law.
RESTRICTIONS ON SALE OF THE PROPERTY
The Contribution and Exchange Agreement prohibits the sale of any of the
Mack Properties in a taxable transaction prior to a specific date (the
"Restricted Period") with respect to each Property (resulting in an aggregate
average Restricted Period for all of the Mack Properties of approximately seven
and one-half years) without the written consent of William L. Mack, provided,
however, that a Property may be sold during the Restricted Period without such
consent if (i) the sale of such Property would not cause the holders of the
Units to recognize a gain attributable to the excess of the fair market value of
the Property to be sold at the time of such sale over the adjusted tax basis of
the Property at the time of such sale or (ii) the sale does result in a gain,
but CRLP reimburses the holders of the Units for all taxes resulting from the
sale and attributable to the recognition of any such built-in-gain. In addition,
CRLP may dispose of one or more of the Mack Properties during the Restricted
Period without the consent of William L. Mack in connection with (i) the sale of
substantially all of its properties or (ii) under certain circumstances, the
determination of the Board of Directors that a sale is reasonably necessary to
either satisfy a material monetary default on an unsecured debt or liability of
CRLP when it becomes due or to cure or satisfy a material monetary default on a
mortgage secured by such Property or Mack Properties.
After the expiration of the Restricted Period, CRLP may dispose of a
Property at any time. If CRLP intends to sell Mack Properties, it must send an
offering notice to holders of the Units informing them of the terms upon which
it intends to make the sale, and for 30 days from receipt of such notice, the
Unit holders may elect to purchase such Property. If the holders elect to
purchase the Property, they may use the Units as consideration for the sale. If
the holders do not elect to purchase the Property within 30 days, CRLP may sell
the Property on such terms and conditions as it elects, provided that the sale
is consummated for at least 95% of the price specified in the offering notice.
NON-COMPETITION AGREEMENTS
Upon closing the Mack Combination, William L. Mack, Earle I. Mack, David S.
Mack and Frederic H. Mack each will enter into a non-competition agreement with
Cali. Each of David S. Mack and Frederic H. Mack, pursuant to his respective
non-competition agreement, will agree not to compete with Cali within the
continental United States by engaging in, owning, investing in, managing or
controlling any venture or enterprise engaged in development, acquisition or
management activities with respect to office-service, office or flex properties
until the later to occur of (i) three (3) years from the consummation of the
Mack Combination or (ii) the date on which Mack's Significant Interest is no
longer retained. The aforementioned non-competition prohibition shall not apply
to passive investments in real estate entities where
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neither David S. Mack nor Frederic H. Mack, respectively, has any active
participation in the business and such investments do not exceed (i) five (5%)
percent of the outstanding stock of any class of securities that is publicly
traded or (ii) the lesser of a twenty (20%) percent equity interest or
$15,000,000 in any private venture. In addition, certain properties are not
subject to the aforementioned non-competition prohibition, including properties
excluded from the Mack Combination, properties which may be reacquired from Cali
after the Mack Combination and industrial properties which may be converted to
flex properties if it is determined that the most commercially practicable use
for such property is flex. Earle I. Mack's non-competition agreement shall be
similar to David S. Mack's except that it shall continue until the later of (i)
three (3) years from the consummation of the Mack Combination or (ii) the date
which is both (A) one year if Mack's Significant Interest is retained, or six
(6) months if Mack's Significant Interest is not retained, following the date
Earle I. Mack ceases to be a member of the Board of Directors and (B) Mack's
Significant Interest is no longer retained. William L. Mack's non-competition
agreement shall be similar to Earle I. Mack's except that (1) the
non-competition prohibition shall not apply to his participation in the Apollo
Real Estate funds ("Apollo"), its successor and related funds, any funds formed
by Apollo or any funds in which the principals of Apollo own a majority of the
general partnership or similar management or controlling interest (2) the
non-competition agreement shall contain an additional requirement that none of
Earle I. Mack, David S. Mack, Frederic H. Mack nor William L. Mack shall be a
member of the Board of Directors in order to eliminate the non-competition
prohibition and (3) his passive investments in privately held real estate
entities shall be limited to the lesser of a fifteen (15%) percent equity
interest or $15,000,000.
THE COMPANIES
CALI REALTY CORPORATION
Cali is a fully-integrated REIT that owns and operates a portfolio comprised
predominantly of Class A office and office/flex buildings located in New Jersey,
New York, Pennsylvania and Connecticut, as well as commercial real estate
leasing, management, acquisition, development and construction businesses. As of
September 15, 1997, Cali owned and operated 132 properties, aggregating
approximately 12.2 million square feet, consisting of 120 office and office/flex
buildings totaling approximately 11.8 million square feet, six
industrial/warehouse buildings totaling approximately 400,000 square feet, two
multi-family residential complexes consisting of 453 units, two stand-alone
retail properties and two land leases. The 120 office and office/flex properties
are comprised of 61 office buildings containing an aggregate of 8.8 million
square feet and 59 office/flex buildings containing an aggregate of
approximately 3.0 million square feet. Cali believes that its properties have
excellent locations and access and are well-maintained and professionally
managed. As a result, Cali believes that its properties attract high quality
tenants and achieve among the highest rental, occupancy and tenant retention
rates within their markets. As of June 30, 1997, Cali's office, office/flex and
industrial/warehouse properties were 96.5 percent leased to approximately 1,100
tenants.
Cali performs substantially all construction, leasing, management and tenant
improvement services on an "in-house" basis and is self-administered and
self-managed.
Cali was incorporated in Maryland on May 24, 1994. Cali's executive offices
are located at 11 Commerce Drive, Cranford, New Jersey 07016, and its telephone
number is (908) 272-8000. The Company has an internet Web site at
"http://www.calirealty.com".
Additional information concerning Cali is included in the documents
incorporated by reference in this Proxy Statement. See "Incorporation of Certain
Documents by Reference."
THE MACK COMPANY
The Mack family has been an active participant in the real estate related
industry since the turn of the century. Based in Rochelle Park, New Jersey, The
Mack Company has evolved into a leading real estate
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investment, management and development company. Through investment, development
and acquisition The Mack Company has assembled a real estate portfolio of
approximately 20.0 million square feet, consisting of high quality office,
industrial, retail and hotel properties located in prime locations throughout
the United States. The Mack Company believes that its national presence,
prominence in its markets, high quality properties, level of service provided to
its tenants, access to capital and industry reputation enables it to attract and
retain many Fortune 500 tenants.
The Mack Company's office property portfolio consists of 32 Class A office
properties comprising approximately 5.9 million square feet located in major
U.S. markets with a concentration in Northern New Jersey and the Phoenix Arizona
area. Other properties are located in Nassau County, New York, suburban
Philadelphia, Pennsylvania and Tampa, Florida. Major tenants include, among
others, AT&T Corp., AT&T Wireless Services, Toys 'R' Us, Inc., KPMG Peat
Marwick, LLP, American Express Travel Related Services Co., Inc. and Honeywell,
Inc.
The Mack Company's strategy has been to develop or acquire high quality
properties in sub-markets where it is, or can become, a prominent market force,
or in markets where it identifies specific real estate investment opportunities.
Additionally, The Mack Company's operating philosophy focuses on meeting the
specific real estate objectives of specific industries, and to provide for all
aspects of a tenant's real estate and facility needs. This has been made
possible through The Mack Company's full-service organization which includes
in-house expertise in property management, leasing, development, architectural
design, construction and financing.
Management of The Mack Company believes that its market prominence,
extensive knowledge and understanding of its sub-markets, and operating
philosophy and focus provides The Mack Company with a significant competitive
advantage. The Mack Company believes that its properties have excellent
locations and access, and are maintained to the highest standards and
professionally managed. As a result, management of The Mack Company believes
that its properties attract high quality tenants and achieve among the highest
rent, occupancy and tenant retention rates within their markets.
The Mack Company is led by Mack family members William L. Mack, Senior
Managing Partner, Earle I. Mack and David S. Mack, Senior Partners in charge of
finance and management, respectively, all who have been actively involved in the
business since the 1960's, and Frederic H. Mack, Partner. Mitchell E. Hersh,
Partner has been with The Mack Company for 24 years and serves as Chief
Operating Officer. These individuals have been involved in development,
construction, leasing, management, acquisition and disposition of the company
owned properties and are the cornerstone of The Mack Company's success. In
addition to their ownership stake in The Mack Company, the Mack family members
also have voting control of Patriot American Office Group, of which they were
instrumental in its initial formation in 1991. Upon consummation of the Mack
Combination, William L. Mack, Earle I. Mack, David S. Mack and Frederic H. Mack
will own one of the largest blocks of equity interest in Cali.
PATRIOT AMERICAN OFFICE GROUP
Based in Dallas, Texas, Patriot American Office Group was founded in 1991 to
capitalize on the lack of liquidity and capital in the commercial real estate
industry. Since its formation, Patriot American Office Group has implemented its
opportunistic investment strategy by acquiring office buildings at prices that
are below replacement cost and by renovating, repositioning and re-marketing
them to achieve higher occupancies, resulting in revenue growth and favorable
investment returns.
Patriot American Office Group has provided direct property management and
leasing services for each of its properties except in circumstances where it was
economically not feasible to do so, or in circumstances where local real estate
licensing laws prevented the company from providing such services. Patriot
American Office Group employs a seasoned staff of 57 individuals across the
country, In 1996, it acquired its Accredited Management Organization (AMO)
designation from the Institute of Real Estate Management.
33
<PAGE>
The Patriot American Office Group portfolio consists of 23 office properties
totaling approximately 3.5 million square feet. The properties are concentrated
in the Sunbelt region of the United States, including Texas and Arizona, with
additional locations in certain markets throughout the United States. The
properties are leased to a variety of tenants which include Union Pacific
Railroad Company, Club Corporation International, MCI Telecommunications Corp.,
American Express Travel Related Services Co., Inc., Nokia, Inc., Del Webb
Corporation, Allstate Insurance Company and R.H. Macy and Company, Inc.
THE MACK PROPERTIES
GENERAL
The Mack Properties are 55 office properties comprising a total of
approximately 9.4 million rentable square feet, ranging from approximately
40,000 to 475,000 rentable square feet. As of June 30, 1997, the Mack Properties
had a weighted average occupancy rate of approximately 94.8 percent and were
leased to over 1,000 tenants. As of June 30, 1997, only one tenant, occupying
100 percent of two properties aggregating approximately 862,000 net rentable
square feet under two separate lease agreements, represented more than 10
percent of the aggregate contractual annualized base rent of the Mack portfolio.
The Mack Properties are located throughout the continental United States,
primarily in the Northeast and Southwest, with a concentration of properties
located in Northern New Jersey (25 properties comprising approximately 4.8
million square feet), Texas (17 properties comprising approximately 2.5 million
square feet) and Arizona (5 properties comprising 609,000 square feet).
Generally each property has attractively landscaped sites, expansive common
areas (some with atriums), and on-site parking (some covered), in addition to
high quality design and construction. The Mack Properties are generally
professionally managed by on-site employees under the direction of either The
Mack Company or Patriot American Management and Leasing, which provides a high
level of service to tenants, as well as a proactive approach to building
maintenance.
The Mack Properties are leased to a variety of service sector employers, as
well as a large number of professional firms and national and international
firms. Major tenants include, among others, AT&T Corp., AT&T Wireless Services,
Prentice-Hall, Inc., CMP Media, Inc., Toys 'R' Us, Inc., Electronic Data Systems
Corp., KPMG Peat Marwick, LLP, Western Union Financial Services, Inc., Union
Pacific Railroad Company and American Express Travel Related Services Co., Inc.
Leases are typically structured with terms ranging from one to ten years,
however, approximately 2.3 million rentable square feet of the portfolio (26.3
percent of the aggregate net rentable area of the portfolio) are leased under 16
separate long-term leases which expire in 2007 or thereafter. Generally all
leases provide for contractual rent increases each five (5) year period. A
typical gross lease requires (i) payment of base rent, (ii) payment of the
tenant's proportionate share of real estate taxes, utilities and common area and
other operating expense escalations over a base year, and (iii) payment of
overtime HVAC and electrical use. Under these leases, the landlord is typically
responsible for certain structural repairs. Various of the properties are leased
to a single tenant or one or more major tenants on a triple net basis. Under
these Leases, the respective tenants(s) are responsible for paying all or a
proportionate share of all real estate taxes, utilities and operating expenses;
under some leases, the tenant directly contracts and pays for such costs.
Additionally, some of the leases provide renewal options or provisions of
varying durations which extend the original lease terms, typically at either
market rents or negotiated rental rates set forth in the leases.
34
<PAGE>
MACK PROPERTIES
The following tables set forth certain historical information relating to
each of the Mack Properties which were owned by Mack as of June 30, 1997.
<TABLE>
<CAPTION>
NET PERCENTAGE PERCENTAGE 1996 1996
RENTABLE LEASED LEASED BASE EFFECTIVE
YEAR AREA AS OF AS OF RENT RENT
PROPERTY/LOCATION BUILT (SQ. FT.) 12/31/96(%)(1) 6/30/97(%)(2) ($000)(3) ($000)(4)
- - ---------------------------- ------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ROCHELLE PARK, BERGEN
COUNTY, NJ
Mack Centre I -- 365 West
Passaic Street............ 1976 212,578 81.0 86.2 3,297 2,682
120 Passaic Street........ 1972 52,000 100.0 100.0 575 551
PARAMUS, BERGEN COUNTY, NJ
Mack Centre II -- 650 From
Road...................... 1978 348,510 90.0 100.0 6,066 4,993
Mack Centre III -- 140
East Ridgewood Avenue..... 1981 239,680 90.9 99.1 4,806 4,009
Mack Centre IV -- 61 South
Paramus Road.............. 1985 269,191 75.8 78.8 5,177 4,249
Mack Centre VI -- 461 From
Road...................... 1988 253,554 98.3 100.0 5,087 4,762
Mack Centre VII -- 15 East
Midland Avenue............ 1988 259,823 100.0 100.0 4,493 3,758
UPPER SADDLE RIVER, BERGEN
COUNTY, NJ
Mack Saddle River -- One
Lake Street............... 1973/94(8) 474,801 100.0 100.0 7,144 6,234
MONTVALE, BERGEN COUNTY, NJ
Mack Montvale I -- 95
Chestnut Ridge Road....... 1975 47,700 100.0 100.0 507 290
Mack Montvale II -- 135
Chestnut Ridge Road....... 1981 66,150 100.0 100.0 1,217 973
WOODCLIFF LAKE, BERGEN
COUNTY, NJ
400 Chestnut Ridge Road... 1982 89,200 100.0 100.0 1,814 1,813
470 Chestnut Ridge Road... 1987 52,500 100.0 100.0 1,051 1,051
530 Chestnut Ridge Road... 1986 57,204 100.0 100.0 1,083 1,082
<CAPTION>
PERCENTAGE
OF 1996 1996 AVG. TENANTS LEASING
1996 AVERAGE EFFECTIVE 10% OR MORE OF
TOTAL BASE RENT RENT PER. NET RENTABLE AREA
BASE RENT PER SQ. SQ. FT. PER PROPERTY
PROPERTY/LOCATION (%) FT.($)(5) ($)(6) AS OF 6/30/97(7)
- - ---------------------------- --------- -------------- --------- ----------------------------
<S> <C> <C> <C> <C>
ROCHELLE PARK, BERGEN
COUNTY, NJ
Mack Centre I -- 365 West
Passaic Street............ 2.57 19.15 15.58 Sizes Unlimited Inc. (26%)
Financial Telesis Inc. (10%)
Catalina Marketing Corp.
(10%)
120 Passaic Street........ 0.45 11.06 10.60 Electronic Data
Systems Corp. (100%)
PARAMUS, BERGEN COUNTY, NJ
Mack Centre II -- 650 From
Road...................... 4.74 19.34 15.92 Western Union Financial
Services, Inc. (38%)
Mack Centre III -- 140
East Ridgewood Avenue..... 3.75 22.05 18.40 AT&T Wireless
Services (41%), Smith Barney
Inc. (19%)
Mack Centre IV -- 61 South
Paramus Road.............. 4.04 25.37 20.82 Dunn & Bradstreet Software
Services, Inc. (10%)
Mack Centre VI -- 461 From
Road...................... 3.97 20.41 19.11 Toys 'R' Us, Inc. (89%)
Mack Centre VII -- 15 East
Midland Avenue............ 3.51 17.29 14.46 AT&T Wireless Services (98%)
UPPER SADDLE RIVER, BERGEN
COUNTY, NJ
Mack Saddle River -- One
Lake Street............... 5.58 15.05 13.13 Prentice-Hall, Inc. (100%)
MONTVALE, BERGEN COUNTY, NJ
Mack Montvale I -- 95
Chestnut Ridge Road....... 0.40 10.63 6.08 ArgEvo E.H. (100%)
Mack Montvale II -- 135
Chestnut Ridge Road....... 0.95 18.40 14.70 Alliance Funding Company
(100%)
WOODCLIFF LAKE, BERGEN
COUNTY, NJ
400 Chestnut Ridge Road... 1.42 20.34 20.33 Timeplex, Inc. (100%)
470 Chestnut Ridge Road... 0.82 20.02 20.01 Timeplex, Inc. (100%)
530 Chestnut Ridge Road... 0.85 18.93 18.92 KPMG Peat Marwick, LLP
(100%)
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
NET PERCENTAGE PERCENTAGE 1996 1996
RENTABLE LEASED LEASED BASE EFFECTIVE
YEAR AREA AS OF AS OF RENT RENT
PROPERTY/LOCATION BUILT (SQ. FT.) 12/31/96(%)(1) 6/30/97(%)(2) ($000)(3) ($000)(4)
- - ---------------------------- ------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
LITTLE FERRY, BERGEN COUNTY,
NJ
Mack Airport -- 200 Riser
Road...................... 1974 286,628 100.0 100.0 991 896
MORRIS PLAINS, MORRIS
COUNTY, NJ
Mack Lakeview Plaza -- 201
Littleton Road............ 1979 88,369 89.0 89.0 1,414 1,135
Mack Morris Plains -- 250
Johnson Road.............. 1977 75,000 100.0 100.0 1,125 782
MORRIS TOWNSHIP, MORRIS
COUNTY, NJ
Kemble Plaza I -- 340 Mt.
Kemble Ave................ 1985 387,000 100.0 100.0 5,244 5,198
Kemble Plaza II -- 412 Mt.
Kemble Ave................ 1986 475,100 100.0 100.0 7,499 7,311
WAYNE, PASSAIC COUNTY, NJ
Mack Willowbrook -- 201
Willowbrook Boulevard..... 1970 178,329 100.0 100.0 2,214 1,894
BRIDGEWATER, SOMERSET
COUNTY, NJ
Mack Bridgewater I -- 721
Route 202/206............. 1989 192,741 100.0 100.0 3,631 2,558
CRANFORD, UNION COUNTY, NJ
Mack Cranford -- 12
Commerce Drive............ 1967 72,260 87.3 87.3 552 492
NEW PROVIDENCE, UNION
COUNTY, NJ
Mack Murray Hill -- 890
Mountain Road............. 1977 80,000 100.0 59.2 1,538 1,437
<CAPTION>
PERCENTAGE
OF 1996 1996 AVG. TENANTS LEASING
1996 AVERAGE EFFECTIVE 10% OR MORE OF
TOTAL BASE RENT RENT PER. NET RENTABLE AREA
BASE RENT PER SQ. SQ. FT. PER PROPERTY
PROPERTY/LOCATION (%) FT.($)(5) ($)(6) AS OF 6/30/97(7)
- - ---------------------------- --------- -------------- --------- ----------------------------
<S> <C> <C> <C> <C>
LITTLE FERRY, BERGEN COUNTY,
NJ
Mack Airport -- 200 Riser
Road...................... 0.77 3.46 3.13 Ford Motor Co. (34%)
Sanyo Fisher Service Corp.
(33%)
Dassault Falcon Jet Corp.
(33%)
MORRIS PLAINS, MORRIS
COUNTY, NJ
Mack Lakeview Plaza -- 201
Littleton Road............ 1.10 17.98 14.43 Poppe Tyson Inc. (34%) Xerox
Corp. (29%) Willis Corroon
Corp. of New Jersey (20%)
Mack Morris Plains -- 250
Johnson Road.............. 0.88 15.00 10.43 Electronic Data Systems
Corp. (100%)
MORRIS TOWNSHIP, MORRIS
COUNTY, NJ
Kemble Plaza I -- 340 Mt.
Kemble Ave................ 4.09 13.55 13.43 AT&T Corp. (100%)
Kemble Plaza II -- 412 Mt.
Kemble Ave................ 5.86 15.78 15.39 AT&T Corp. (100%)
WAYNE, PASSAIC COUNTY, NJ
Mack Willowbrook -- 201
Willowbrook Boulevard..... 1.73 12.42 10.62 The Grand Union Co. (76%)
Woodward-Clyde Consultants
(24%)
BRIDGEWATER, SOMERSET
COUNTY, NJ
Mack Bridgewater I -- 721
Route 202/206............. 2.84 18.84 13.27 Allstate Insurance Company
(37%) Norris, McLaughlin &
Marcus, PA (30%) Lucent
Technologies, Inc. (20%)
CRANFORD, UNION COUNTY, NJ
Mack Cranford -- 12
Commerce Drive............ 0.43 8.75 7.80 Dames & Moore (42%)
Registrar & Transfer Co.
(23%) Body Connections, Inc.
(20%)
NEW PROVIDENCE, UNION
COUNTY, NJ
Mack Murray Hill -- 890
Mountain Road............. 1.20 19.23 17.97 Allstate Insurance Company
(59%)
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
NET PERCENTAGE PERCENTAGE 1996 1996
RENTABLE LEASED LEASED BASE EFFECTIVE
YEAR AREA AS OF AS OF RENT RENT
PROPERTY/LOCATION BUILT (SQ. FT.) 12/31/96(%)(1) 6/30/97(%)(2) ($000)(3) ($000)(4)
- - ---------------------------- ------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
MILLBURN, ESSEX COUNTY, NJ
Mack Short Hills -- 150
J.F. Kennedy Parkway...... 1980 247,476 100.0 100.0 5,241 4,965
EAST BRUNSWICK, MIDDLESEX
COUNTY, NJ
Mack East Brunswick -- 377
Summerhill Road........... 1977 40,000 100.0 100.0 363 359
WOODBRIDGE, MIDDLESEX
COUNTY, NJ
Mack Woodbridge II -- 581
Main Street............... 1991 200,000 92.3 95.5 3,688 2,916
NORTH HEMPSTEAD, NASSAU
COUNTY, NY
Mack Manhasset -- 111 East
Shore Road................ 1980 55,575 100.0 100.0 1,612 1,591
Mack North Hills -- 600
Community Drive........... 1983 206,274 100.0 100.0 4,379 4,102
FISHKILL, DUTCHESS COUNTY,
NY
Westage Business Center --
300 South Lake Drive.... 1987 118,727 91.2 99.8 1,471 1,228
TAMPA, HILLSBOROUGH COUNTY,
FL
One Mack Centre -- 501
Kennedy Boulevard......... 1982 297,429 88.8 90.5 3,852 3,480
PLYMOUTH MEETING, MONTGOMERY
COUNTY, PA
Mack Plymouth Meeting --
1150 Plymouth Meeting
Mall...................... 1970 167,748 99.7 98.4 2,451 2,317
<CAPTION>
PERCENTAGE
OF 1996 1996 AVG. TENANTS LEASING
1996 AVERAGE EFFECTIVE 10% OR MORE OF
TOTAL BASE RENT RENT PER. NET RENTABLE AREA
BASE RENT PER SQ. SQ. FT. PER PROPERTY
PROPERTY/LOCATION (%) FT.($)(5) ($)(6) AS OF 6/30/97(7)
- - ---------------------------- --------- -------------- --------- ----------------------------
<S> <C> <C> <C> <C>
MILLBURN, ESSEX COUNTY, NJ
Mack Short Hills -- 150
J.F. Kennedy Parkway...... 4.09 21.18 20.06 KPMG Peat Marwick, LLP (44%)
Budd Larner Gross Rosenbaum
Greenberg & Sade, PC (22%)
Coldwell Banker Residential
Real Estate (13%)
EAST BRUNSWICK, MIDDLESEX
COUNTY, NJ
Mack East Brunswick -- 377
Summerhill Road........... 0.28 9.08 8.97 Greater New York Mutual
Insurance Company (100%)
WOODBRIDGE, MIDDLESEX
COUNTY, NJ
Mack Woodbridge II -- 581
Main Street............... 2.88 19.98 15.80 First Investors Management
Company, Inc.(46%) CIBA
Consumer Pharmaceuticals
(39%)
NORTH HEMPSTEAD, NASSAU
COUNTY, NY
Mack Manhasset -- 111 East
Shore Road................ 1.26 29.01 28.63 Administrations for the
Professions, Inc. (100%)
Mack North Hills -- 600
Community Drive........... 3.42 21.23 19.89 CMP Media, Inc. (100%)
FISHKILL, DUTCHESS COUNTY,
NY
Westage Business Center --
300 South Lake Drive.... 1.14 13.59 11.34 Allstate Insurance Company
(15%)
TAMPA, HILLSBOROUGH COUNTY,
FL
One Mack Centre -- 501
Kennedy Boulevard......... 3.01 14.58 13.17 Raytheon Engineers &
Constructors, Inc.(31%)
Fowler, White, Gillen,
Boggs, Villareal & Banker,
PA (30%)
PLYMOUTH MEETING, MONTGOMERY
COUNTY, PA
Mack Plymouth Meeting --
1150 Plymouth Meeting
Mall...................... 1.91 14.66 13.85 Smith Enviromental
Technologies Corp. (42%)
Ken Crest Services (16%)
Computer Learning Centers,
Inc. (12%)
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
NET PERCENTAGE PERCENTAGE 1996 1996
RENTABLE LEASED LEASED BASE EFFECTIVE
YEAR AREA AS OF AS OF RENT RENT
PROPERTY/LOCATION BUILT (SQ. FT.) 12/31/96(%)(1) 6/30/97(%)(2) ($000)(3) ($000)(4)
- - ---------------------------- ------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PHOENIX, MARICOPA COUNTY, AZ
Beardsley Corporate Center
-- 20002 North 19th
Ave..................... 1986 119,301 100.0 100.0 673 389
Patriot Biltmore Plaza --
6001 North 24th
Street.................. 1987 124,690 100.0 100.0 1,604 1,335
Mack Beardsley -- 19640
North 31st Street....... 1990 124,171 100.0 100.0 1,396 1,396
SCOTTSDALE, MARICOPA COUNTY,
AZ
9060 E. Via Linda
Boulevard................. 1984 111,200 100.0 100.0 1,276 1,276
GLENDALE, MARICOPA COUNTY,
AZ
Mack Glendale -- 5551 West
Talavi Boulevard.......... 1991 130,000 100.0 100.0 1,087 1,076
EULESS, TARRANT
COUNTY, TX
Landmark Centre -- 150
West Parkway.............. 1984 74,429 98.8 96.6 856 738
RICHARDSON, DALLAS COUNTY,
TX
Santa Fe Building -- 1122
Alma Road................. 1977 82,576 100.0 100.0 599 446
IRVING, DALLAS COUNTY, TX
Metroport -- 2300 Valley
View...................... 1985 142,634 89.6 100.0 1,688 1,304
DALLAS, DALLAS COUNTY, TX
3100 Monticello........... 1984 173,837 65.7 83.8 1,908 1,746
<CAPTION>
PERCENTAGE
OF 1996 1996 AVG. TENANTS LEASING
1996 AVERAGE EFFECTIVE 10% OR MORE OF
TOTAL BASE RENT RENT PER. NET RENTABLE AREA
BASE RENT PER SQ. SQ. FT. PER PROPERTY
PROPERTY/LOCATION (%) FT.($)(5) ($)(6) AS OF 6/30/97(7)
- - ---------------------------- --------- -------------- --------- ----------------------------
<S> <C> <C> <C> <C>
PHOENIX, MARICOPA COUNTY, AZ
Beardsley Corporate Center
-- 20002 North 19th
Ave..................... 0.53 5.64 3.26 American Express Travel
Related Services Co., Inc.
(100%)
Patriot Biltmore Plaza --
6001 North 24th
Street.................. 1.25 12.86 10.71 Del Webb Corporation (68%)
Wrigley Mansion Club, Inc.
(24%)
Mack Beardsley -- 19640
North 31st Street....... 1.09 11.24 11.24 American Express Travel
Related Services Co., Inc.
(100%)
SCOTTSDALE, MARICOPA COUNTY,
AZ
9060 E. Via Linda
Boulevard................. 1.00 11.47 11.47 Sentry Insurance A Mutual
Company (100%)
GLENDALE, MARICOPA COUNTY,
AZ
Mack Glendale -- 5551 West
Talavi Boulevard.......... 0.85 8.36 8.28 Honeywell, Inc. (100%)
EULESS, TARRANT
COUNTY, TX
Landmark Centre -- 150
West Parkway.............. 0.67 11.64 10.04 Warrantech Corporation (34%)
Mike Bowman Realtors/Century
21 (17%)
Landmark Bank-Mid Cities
(16%)
RICHARDSON, DALLAS COUNTY,
TX
Santa Fe Building -- 1122
Alma Road................. 0.47 7.25 5.40 MCI Telecommunications Corp.
(100%)
IRVING, DALLAS COUNTY, TX
Metroport -- 2300 Valley
View...................... 1.32 13.21 10.20 Nokia, Inc. (52%)
Computer Task Group, Inc.
(12%)
Alltell Information
Services, Inc.(12%)
DALLAS, DALLAS COUNTY, TX
3100 Monticello........... 1.49 16.71 15.28 Insignia Financial Group,
Inc.(18%)
Time Marketing Corporation
(11%)
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
NET PERCENTAGE PERCENTAGE 1996 1996
RENTABLE LEASED LEASED BASE EFFECTIVE
YEAR AREA AS OF AS OF RENT RENT
PROPERTY/LOCATION BUILT (SQ. FT.) 12/31/96(%)(1) 6/30/97(%)(2) ($000)(3) ($000)(4)
- - ---------------------------- ------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Preston Centre Plaza --
8214 Westchester.......... 1983 95,509 88.9 89.3 1,096 944
Tri West Plaza -- 3030 LBJ
Freeway................... 1984 367,018 98.9 96.0 4,660 4,059
PLANO, COLLIN COUNTY, TX
555 Republic Place........ 1986 97,889 100.0 97.5 1,039 765
HOUSTON, HARRIS COUNTY, TX
Cornerstone Regency --
14511 Falling Creek....... 1982 70,999 96.4 87.4 584 466
Katy Plaza -- 5225 Katy
Freeway................... 1983 112,213 88.1 92.0 899 646
5300 Memorial............. 1982 155,099 95.1 96.0 1,634 1,321
1717 St. James Place...... 1975 109,574 94.9 96.0 988 796
1770 St. James Place...... 1973 103,689 96.3 95.2 1,082 775
10497 Town & Country
Way....................... 1981 148,434 99.3 99.0 1,564 1,293
SAN ANTONIO, BEXAR COUNTY,
TX
Bexar Plaza -- 1777 N.E.
Loop 410................ 1986 256,137 92.4 94.0 2,754 2,252
Century Building -- 84
N.E. Loop 410........... 1971 187,312 95.1 91.4 2,032 1,470
Riverview -- 111
Soledad................. 1918 248,153 54.7 60.0 1,269 999
<CAPTION>
PERCENTAGE
OF 1996 1996 AVG. TENANTS LEASING
1996 AVERAGE EFFECTIVE 10% OR MORE OF
TOTAL BASE RENT RENT PER. NET RENTABLE AREA
BASE RENT PER SQ. SQ. FT. PER PROPERTY
PROPERTY/LOCATION (%) FT.($)(5) ($)(6) AS OF 6/30/97(7)
- - ---------------------------- --------- -------------- --------- ----------------------------
<S> <C> <C> <C> <C>
Preston Centre Plaza --
8214 Westchester.......... 0.86 12.91 11.12 State Bank & Trust (10%)
Preston Business Center,
Inc. (15%)
Malone Mortgage Company
America, Inc. (11%)
Tri West Plaza -- 3030 LBJ
Freeway................... 3.64 12.84 11.18 Club Corporation
International (29%)
PLANO, COLLIN COUNTY, TX
555 Republic Place........ 0.81 10.61 7.81 William Smith Enterprises
(19%)
Kaiser Foundation Health
Plan of Texas (17%)
Dayton Hudson Corporation
(14%)
HOUSTON, HARRIS COUNTY, TX
Cornerstone Regency --
14511 Falling Creek....... 0.46 8.53 6.81 Nationwide Mutual Insurance
Company (11%)
Katy Plaza -- 5225 Katy
Freeway................... 0.70 9.09 6.53
5300 Memorial............. 1.28 11.08 8.96 Drypers Corporation (20%)
HCI Chemicals USA, Inc.(14%)
Datavox, Inc. (17%)
1717 St. James Place...... 0.77 9.50 7.65 Mississippi Chemical
Express, Inc. (14%)
1770 St. James Place...... 0.84 10.84 7.76 Gateway Homes, Inc. (10%)
10497 Town & Country
Way....................... 1.22 10.61 8.77 Texas Ohio Gas, Inc. (11%)
Vastar Resources, Inc.(22%)
SAN ANTONIO, BEXAR COUNTY,
TX
Bexar Plaza -- 1777 N.E.
Loop 410................ 2.15 11.64 9.52
Century Building -- 84
N.E. Loop 410........... 1.59 11.41 8.25 KBL Cable, Inc. (26%)
Pacificare of Texas, Inc.
(30%)
Kraft General Foods, Inc.
(25%)
Riverview -- 111
Soledad................. 0.99 9.35 7.36
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
NET PERCENTAGE PERCENTAGE 1996 1996
RENTABLE LEASED LEASED BASE EFFECTIVE
YEAR AREA AS OF AS OF RENT RENT
PROPERTY/LOCATION BUILT (SQ. FT.) 12/31/96(%)(1) 6/30/97(%)(2) ($000)(3) ($000)(4)
- - ---------------------------- ------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
AMARILLO, POTTER COUNTY, TX
Atrium at Coulter Ridge --
6900 IH-40 West......... 1986 71,771 82.4 80.0 583 464
SAN FRANCISCO, SAN FRANCISCO
COUNTY, CA
Phelan Building -- 760
Market Street........... 1908 267,446 81.6 83.1 4,078 3,726
OMAHA, DOUGLAS COUNTY, NE
Brandeis Building -- 210
South 16th Street....... 1894 319,535 94.3 94.4 2,326 2,210
WEST DES MOINES, POLK
COUNTY, IA
Century III -- 2600
Westown Parkway......... 1988 72,265 95.3 95.4 809 689
--------- ----- ----- --------- ---------
Total Mack Properties..... 9,357,428 93.7 94.8 128,066 111,689
--------- ----- ----- --------- ---------
--------- --------- ---------
<CAPTION>
PERCENTAGE
OF 1996 1996 AVG. TENANTS LEASING
1996 AVERAGE EFFECTIVE 10% OR MORE OF
TOTAL BASE RENT RENT PER. NET RENTABLE AREA
BASE RENT PER SQ. SQ. FT. PER PROPERTY
PROPERTY/LOCATION (%) FT.($)(5) ($)(6) AS OF 6/30/97(7)
- - ---------------------------- --------- -------------- --------- ----------------------------
<S> <C> <C> <C> <C>
AMARILLO, POTTER COUNTY, TX
Atrium at Coulter Ridge --
6900 IH-40 West......... 0.46 9.86 7.85 Sitel Corporation (16%)
SAN FRANCISCO, SAN FRANCISCO
COUNTY, CA
Phelan Building -- 760
Market Street........... 3.18 18.69 17.07 R.H. Macy & Company, Inc.
(19%)
Comp USA, Inc. (11%)
OMAHA, DOUGLAS COUNTY, NE
Brandeis Building -- 210
South 16th Street....... 1.82 7.72 7.33 Union Pacific Railroad
Company (69%)
WEST DES MOINES, POLK
COUNTY, IA
Century III -- 2600
Westown Parkway......... 0.62 11.75 10.00 MCI Telecommunications Corp.
(14%)
New England Mutual Life
Insurance Company (13%)
St. Paul Fire and Marine
Insurance Company (19%)
American Express Financial
Advisors, Inc. (10%)
--------- ----- ---------
Total Mack Properties..... 100.00 14.61 12.74
--------- ----- ---------
</TABLE>
- - ------------------------
(1) Based on all leases in effect as of December 31, 1996.
(2) Based on all leases in effect as of June 30, 1997.
(3) Total base rent for 1996, determined in accordance with generally accepted
accounting principles ("GAAP"). Substantially all of the leases provide for
annual base rents plus recoveries and escalation charges based upon the
tenant's proportionate share of and/or increases in real estate taxes,
utilities and certain operating costs, as defined.
(4) Total base rent for 1996 minus total 1996 amortization of tenant
improvements, leasing commissions and other concessions and costs,
determined in accordance with GAAP.
(5) Base rent for 1996 divided by net rentable square feet leased at December
31, 1996.
(6) Effective rent for 1996 divided by net rentable square feet leased at
December 31, 1996.
(7) Excludes office space leased subsequent to June 30, 1997.
(8) A 130,000 square foot building addition was completed in 1994.
40
<PAGE>
MACK'S SIGNIFICANT TENANTS
The following table sets forth a schedule of Mack's ten largest tenants as
of June 30, 1997, based upon annualized contractual base rents for the month of
June 1997.
<TABLE>
<CAPTION>
PERCENTAGE
AVERAGE OF MACK'S TOTAL LEASE
RENT PER ANNUALIZED BASE EXPIRATION
TENANT NAME SQUARE FOOT (2) RENTAL REVENUE DATE
- - ----------------------------------------------- TENANT ------------------ ------------------- ----------
ANNUALIZED
BASE RENTAL
REVENUE (000) (1)
-----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AT&T Corp...................................... $13,491 $15.65 10.21% Jan. 2008(3)
AT&T Wireless Services......................... 7,653 21.76 5.79 March 2007(4)
Prentice Hall, Inc............................. 5,795 12.21 4.39 Dec. 2014
CMP Media, Inc................................. 4,823 21.75 3.65 Oct. 2014
Toys 'R' Us, Inc............................... 4,308 19.18 3.26 Dec. 2012
Timeplex, Inc.................................. 2,780 19.62 2.10 June 2004(5)
KPMG Peat Marwick, LLP......................... 2,535 22.46 1.92 Sept. 2002
Western Union Financial Services, Inc.......... 2,434 18.50 1.84 Nov. 2000
Union Pacific Railroad Company................. 2,394 10.79 1.81 May 2002
American Express Company....................... 2,266 8.97 1.72 July 2000(6)
------- -----
Total.................................. $48,479 36.69%
------- -----
------- -----
</TABLE>
- - ------------------------
(1) Annual base rental revenue is based on actual June 1997 billings annualized
and is not derived from historical GAAP results. The historical results for
the 12 months ended December 31, 1997 may differ from those set forth above.
(2) Represents tenant's annualized base rent divided by the respective tenant's
leased square feet as of June 30, 1997.
(3) Represents leases at two office properties. AT&T Corp.'s lease of (i)
475,100 net rentable square feet at Kemble Plaza II, Morris Township, New
Jersey expires in January 2008 and (ii) 387,000 net rentable square feet at
Kemble Plaza I, Morris Township, New Jersey expires in January 2009.
(4) Represents leases at three office properties. AT&T Wireless Services' leases
of (i) 255,536 net rentable square feet at Mack Centre VII, Paramus, New
Jersey expires in March 2007, (ii) 85,976 net rentable square feet in Mack
Centre III, Paramus, New Jersey expires in March 2007, and (iii) 10,113 net
rentable square feet in Mack Centre I, Rochelle Park, New Jersey expires in
May 1998.
(5) Represents leases at two office properties. Timeplex, Inc.'s lease of (i)
89,200 net rentable square feet at 400 Chestnut Ridge Road, Woodcliff Lake,
New Jersey expires in June 2004 and (ii) 52,500 net rentable square feet at
470 Chestnut Ridge Road, Woodcliff Lake, New Jersey expires in December
2005.
(6) Represents leases at three office properties. American Express Travel
Related Services Co., Inc.'s leases of (i) 124,171 net rentable square feet
at 19640 No. 31st St., Phoenix, Arizona expires in July 2000 and (ii)
119,301 net rentable square feet at 20002 No. 19th Ave., Phoenix, Arizona
expires in February 2004. American Express Financial Advisors, Inc.'s lease
of 9,175 net rentable square feet at Mack Centre IV, Paramus, New Jersey
expires in September 1999.
41
<PAGE>
MACK PROPERTIES: SCHEDULE OF LEASE EXPIRATIONS
The following table sets forth a schedule of the lease expirations for the
Mack Properties beginning with the six months ending December 31, 1997 and
annually thereafter, assuming that none of the tenants exercises renewal
options:
<TABLE>
<CAPTION>
NET
RENTABLE AVERAGE ANNUAL
AREA RENT PER NET
SUBJECT TO PERCENTAGE OF TOTAL ANNUAL BASE RENT RENTABLE SQ. FT.
EXPIRING LEASED UNDER EXPIRING REPRESENTED BY
YEAR OF NUMBER OF LEASES SQ. FT. REPRESENTED LEASES EXPIRING LEASES
EXPIRATION LEASES EXPIRING(1) (SQ.FT.) BY EXPIRING LEASES(%) ($000'S)(2) ($)
- - -------------------------------- ------------------- ----------- ----------------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
7/1/97-12/31/97................. 112 243,827 2.75 4,346 17.82
1998............................ 258 710,955 8.01 9,563 13.45
1999............................ 206 808,502 9.11 13,336 16.49
2000............................ 162 1,279,712 14.42 18,190 14.21
2001............................ 104 790,246 8.90 10,807 13.68
2002............................ 86 951,378 10.72 16,247 17.08
2003............................ 25 586,730 6.61 7,277 12.40
2004............................ 20 706,770 7.96 10,908 15.43
2005............................ 13 303,678 3.42 5,631 18.54
2006............................ 7 159,085 1.79 3,052 19.18
2007 & thereafter............... 16 2,335,817 26.31 38,445 16.46
----- ----------- -------- ------- -----
Total/Weighted Average.... 1,009 8,876,700 100.00 137,802 15.52
----- ----------- -------- ------- -----
----- ----------- -------- -------
</TABLE>
- - ------------------------
(1) Includes office tenants only. Excludes leases for amenity, retail, parking
and month-to-month office tenants. Some tenants have multiple leases.
(2) Based upon aggregate base rent, determined in accordance with GAAP, for all
leases dated on or before June 30, 1997.
42
<PAGE>
LEGAL PROCEEDINGS
Neither Mack nor any of the Mack Properties is subject to any material
litigation nor, to Cali's knowledge, is any material litigation threatened
against any of them, other than routine litigation arising in the ordinary
course of business, which is expected to be covered by liability insurance.
ASSUMED INDEBTEDNESS
As of the consummation of the Mack Combination, it is assumed that Mack will
have an aggregate of approximately $302.1 million of indebtedness encumbering
the Mack Properties to be acquired in connection with the Mack Combination,
which debt will be assumed by Cali. Such debt is anticipated to bear interest,
upon the consummation of the Mack Combination, at a weighted average rate of not
more than 7.23 percent per year.
43
<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables set forth certain financial data on a consolidated
historical basis for Cali, on a combined historical basis for Mack and on a pro
forma basis for Cali to effect the transactions described below. The financial
data should be read in conjunction with Cali's financial statements and the
notes thereto incorporated by reference in this Proxy Statement and Mack's
financial statements and the notes thereto included elsewhere in this Proxy
Statement. The consolidated historical financial data of Cali as of December 31,
1996, 1995, 1994, 1993 and 1992 and for the periods ended December 31, 1996,
1995, 1994, 1993, 1992 and August 30, 1994 have been derived from audited
financial statements. The combined historical financial data of Mack as of
December 31, 1996 and 1995 and for the years ended December 31, 1996, 1995 and
1994 have been derived from audited financial statements. The financial data of
Cali and Mack as of and for the six months ended June 30, 1997 and 1996 have
been derived from unaudited financial statements, which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments necessary for a fair statement of the results for the unaudited
interim periods. The financial data of Mack as of December 31, 1994, 1993 and
1992 and for the years ended December 31, 1993 and 1992 have been derived from
unaudited financial statements.
The unaudited pro forma operating data for the six months ended June 30,
1997 and for the year ended December 31, 1996, is presented as if the completion
of the Mack Combination, the 1997 Offering, certain other property acquisitions
completed by Cali subsequent to January 1, 1996, public offerings of Common
Stock in 1996 and certain other events all occurred as of January 1, 1996. The
unaudited pro forma balance sheet as of June 30, 1997 is presented as if the
completion of the Mack Combination, the 1997 Offering and certain other property
acquisitions completed by Cali subsequent to June 30, 1997 all occurred as of
June 30, 1997.
The pro forma information is based upon certain assumptions that are
included in the notes to the pro forma financial statements included elsewhere
in this Proxy Statement. The pro forma information is unaudited and is not
necessarily indicative of what the financial position and results of operations
of Cali would have been as of and for the periods indicated, nor does it purport
to represent the future financial position and results of operations for future
periods.
44
<PAGE>
CALI AND CALI GROUP SELECTED CONSOLIDATED AND COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CALI
-------------------------------------------------------------------------------------
PRO FORMA HISTORICAL HISTORICAL
SIX MONTHS SIX MONTHS ENDED PRO FORMA YEAR ENDED AUGUST 31,
ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1994 TO
JUNE 30, -------------------- DECEMBER 31, -------------------- DECEMBER 31,
1997 1997 1996 1996 1996 1995 1994
----------- --------- --------- ------------- --------- --------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues......................... $ 206,042 $ 112,697 $ 40,584 $ 398,036 $ 95,472 $ 62,335 $ 16,841
Operating and other expenses..... $ 73,317 $ 40,569 $ 15,287 $ 144,617 $ 35,462 $ 24,417 $ 6,319
Depreciation and amortization.... $ 30,773 $ 16,844 $ 6,908 $ 61,077 $ 15,812 $ 12,111 $ 3,764
Interest expense................. $ 35,588 $ 17,152 $ 5,568 $ 70,735 $ 12,677 $ 8,661 $ 1,768
Gain on sale of rental
property....................... -- -- $ 5,658 -- $ 5,658 -- $ --
Income before minority interest
and extraordinary item......... $ 66,364 $ 38,132 $ 18,479 $ 121,607 $ 37,179 $ 17,146 $ 4,990
Income before extraordinary
item........................... $ 49,441 $ 34,484 $ 15,658 $ 89,280 $ 32,419 $ 13,638 $ 3,939
Extraordinary item-loss on early
retirement of debt............. -- -- $ (475) -- $ (475) -- $ 3,939
Net income....................... $ 49,441 $ 34,484 $ 15,183 $ 89,280 $ 31,944 $ 13,638
Income before extraordinary item
per share...................... $ 1.06 $ 0.95 $ 1.03 $ 1.92 $ 1.76 $ 1.23
Net income per common share...... $ 1.06 $ 0.95 $ 1.00 $ 1.92 $ 1.73 $ 1.23 $ 0.38
Dividends declared per common
share.......................... $ 0.90 $ 0.85 $ 1.75 $ 1.66 $ 0.54
Weighted average number of common
shares......................... 46,674 36,475 15,175 46,400 18,461 11,122
BALANCE SHEET DATA (AT PERIOD
END):
Rental property, before
accumulated
depreciation and
amortization................... $2,643,651 $1,391,228 $ 426,275 $ 853,352 $ 387,675
Total assets..................... $2,621,765 $1,373,692 $ 402,266 $1,026,328 $ 363,949
Mortgages and loans payable...... $1,061,151 $ 553,961 $ 169,147 $ 268,010 $ 135,464
Total liabilities................ $1,118,306 $ 601,073 $ 185,500 $ 297,985 $ 150,058
Stockholders' (owner's) equity
(deficiency)................... $1,041,330 $ 701,708 $ 189,221 $ 701,379 $ 185,808
OTHER DATA:
Cash flows provided by operating
activities..................... $ 59,241 $ 19,163 $ 46,823 $ 28,446 $ 6,367
Cash flows used in investing
activities..................... $(320,432) $ (36,553) $(307,752) $(133,736) $ (8,947)
Cash flows provided by financing
activities..................... $ 62,474 $ 18,330 $ 464,769 $ 99,863 $ 8,974
Funds from Operations after
adjustment for straight-lining
of rents before minority
interest of Unitholders(1)..... $ 50,453 $ 18,972 $ 45,220 $ 27,397 $ 8,404
<CAPTION>
THE CALI GROUP
---------------------------------
JANUARY 1, YEAR ENDED
1994 TO DECEMBER 31,
AUGUST 30, --------------------
1994 1993 1992
----------- --------- ---------
<S> <C> <C> <C>
OPERATING DATA:
Revenues......................... $ 33,637 $ 47,900 $ 45,300
Operating and other expenses..... $ 13,443 $ 19,026 $ 17,936
Depreciation and amortization.... $ 5,454 $ 8,231 $ 7,640
Interest expense................. $ 13,608 $ 21,707 $ 21,896
Gain on sale of rental
property....................... $ -- $ -- $ --
Income before minority interest
and extraordinary item......... $ (110) $ (1,064) $ (2,172)
Income before extraordinary
item........................... $ (110) $ (1,064) $ (2,172)
Extraordinary item-loss on early
retirement of debt............. $ (110) $ (1,064) $ (2,172)
Net income.......................
Income before extraordinary item
per share......................
Net income per common share......
Dividends declared per common
share..........................
Weighted average number of common
shares.........................
BALANCE SHEET DATA (AT PERIOD
END):
Rental property, before
accumulated
depreciation and
amortization................... $ 234,470 $ 213,675 $ 210,407
Total assets..................... $ 225,295 $ 208,828 $ 208,863
Mortgages and loans payable...... $ 77,000 $ 231,981 $ 230,385
Total liabilities................ $ 88,081 $ 243,163 $ 241,052
Stockholders' (owner's) equity
(deficiency)................... $ 108,311 $ (34,355) $ (32,189)
OTHER DATA:
Cash flows provided by operating
activities.....................
Cash flows used in investing
activities.....................
Cash flows provided by financing
activities.....................
Funds from Operations after
adjustment for straight-lining
of rents before minority
interest of Unitholders(1).....
</TABLE>
- - ------------------------------
(1) Cali considers Funds from Operations (after adjustment for straight-lining
of rents) one measure of REIT performance. Funds from Operations is defined
as net income (loss) before minority interest of unitholders computed in
accordance with Generally Accepted Accounting Principles ("GAAP"), excluding
gains (or losses) from debt restructuring and sales of property, plus real
estate-related depreciation and amortization. Funds from Operations should
not be considered as an alternative for net income as an indication of
Cali's performance or to cash flows as a measure of liquidity. Funds from
Operations presented herein is not necessarily comparable to Funds from
Operations presented by other real estate companies due to the fact that not
all real estate companies use the same definition. However, Cali's Funds
from Operations is comparable to the Funds from Operations of real estate
companies that use the current definition of the National Association of
Real Estate Investment Trusts, after the adjustment for straight-lining of
rents.
45
<PAGE>
MACK GROUP SELECTED COMBINED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue (1)............................ $ 78,232 $ 73,819 $ 148,752 $ 142,348 $ 132,378 $ 124,067 $ 103,726
Operating and other expenses................. $ 28,106 $ 27,550 $ 56,326 $ 53,933 $ 53,567 $ 53,955 $ 34,369
Depreciation & amortization.................. $ 13,717 $ 13,799 $ 28,069 $ 26,833 $ 25,188 $ 24,059 $ 20,545
Interest expense............................. $ 29,975 $ 30,228 $ 58,621 $ 59,813 $ 56,899 $ 57,881 $ 53,666
Income (loss) before extraordinary item...... $ 6,434 $ 2,242 $ 5,736 $ 1,769 $ (3,276) $ (11,828) $ (4,854)
Extraordinary item........................... -- -- $ (19,285) -- -- -- --
Net income (Loss)............................ $ 6,434 $ 2,242 $ (13,549) $ 1,769 $ (3,276) $ (11,828) $ (4,854)
BALANCE SHEET DATA (AT PERIOD END):
Rental property, before accumulated
depreciation and amortization.............. $ 700,427 $ 685,984 $ 670,728 $ 643,894 $ 595,850 $ 576,487
Total assets................................. $ 552,827 $ 558,600 $ 564,555 $ 555,884 $ 523,880 $ 521,066
Mortgages and bond payable................... $ 654,031 $ 659,339 $ 640,063 $ 636,457 $ 628,329 $ 615,637
Total liabilities............................ $ 685,127 $ 690,928 $ 670,875 $ 670,468 $ 656,818 $ 637,702
Partners' deficit............................ $ (132,300) $ (132,328) $ (106,320) $ (114,584) $ (132,938) $ (116,636)
</TABLE>
- - ------------------------
(1) Includes amounts from related parties. See Note 7 to the combined financial
statements included elsewhere in this Proxy Statement.
46
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR MACK
The following should be read in conjunction with "Mack Selected Combined
Financial Data", and the combined financial statements of Mack and the notes
thereto, appearing elsewhere in this Proxy Statement.
RESULTS OF OPERATIONS
The Mack Properties consist of 55 office properties comprising a total of
approximately 9.4 million net rentable square feet which are held and managed in
two portfolios. The Mack Company's office property portfolio consists of 32
office properties approximating 5.9 million net rentable square feet located in
major U.S. markets, with a concentration in Northern New Jersey and Phoenix,
Arizona. The Patriot American Office Group's office property portfolio consists
of 23 properties, 22 of which were acquired in 1992 from the Resolution Trust
Corporation ("RTC"), approximating 3.5 million square feet located principally
in the Sunbelt Region of the U.S. From 1994 through June 30, 1997, the Mack
Properties experienced significant leasing activity in both portfolios. As a
result, the combined portfolio achieved a weighted average occupancy rate of
94.8 percent as of June 30, 1997, as compared to 93.7 percent, 92.9 percent and
89.1 percent as of December 31, 1996, 1995 and 1994, respectively.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Total revenues for the six months ended June 30, 1997 increased $4.4
million, or 6.0 percent, over the same period in 1996. Base rents increased $1.5
million, or 2.4 percent, as a result of occupancy changes during the period and
lease rollovers throughout 1996 at higher rental rates. Escalations and
recoveries decreased $0.4 million, or 5.6 percent, primarily due to lower
expense recoveries for leases that commenced in 1996 and 1997. Other income
increased $3.2 million, or 137.1 percent, due primarily to an increase in lease
cancellation income. The vacated space associated with the lease cancellations
has been fully re-leased. Interest income increased $0.1 million, or 60.6
percent, primarily due to an increase in short-term investments during the
period ended June 30, 1997.
Total expenses for the six months ended June 30, 1997 increased $0.2
million, or 0.3 percent, over the same period in 1996. Real estate taxes
increased $0.4 million, or 5.4 percent, primarily due to increases in assessed
valuations and tax rates. Additionally, utilities increased $0.1 million, or 0.8
percent, and operating services increased $0.3 million, or 3.6 percent, due
primarily to changes in occupancy. General and administrative expenses decreased
$0.2 million, or 6.5 percent, primarily due to reduced payroll and related
costs. Depreciation and amortization decreased $0.1 million, or 0.6 percent,
primarily due to the 1996 write-off of unamortized tenant improvements and
leasing costs associated with the 1996 lease cancellations, partially offset by
the effect of 1996 building, tenant improvement and leasing costs. Interest
expense decreased $0.3 million, or 0.8 percent, primarily due to lower effective
interest rates on variable rate debt, partially offset by increased debt
balances during the first six months of 1997 as compared to the same period in
1996, largely due to the refinancing of the RTC mortgages and other debt
facilities in December 1996.
Net income increased $4.2 million, or 187.0 percent, to $6.4 million for the
six months ended June 30, 1997, from $2.2 million in 1996, primarily due to the
factors discussed above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total revenues increased $6.4 million, or 4.5 percent, for 1996 as compared
to 1995. Base rents increased $3.6 million, or 2.9 percent, primarily due to
changes in occupancy, and lease rollovers at increased rental rates. Escalations
and recoveries increased $2.2 million, or 14.6 percent, primarily due to
increased operating costs. Other income increased $0.4 million, or 13.9 percent
primarily due to an increase in lease cancellation income. Interest income
increased $0.2 million, or 141.8 percent, primarily due to an increase in
interest earned on short-term investments of cash balances.
47
<PAGE>
Total expenses for 1996 increased $2.4 million, or 1.7 percent, as compared
to 1995. Real estate taxes increased $1.0 million, or 6.7 percent, primarily due
to increases in tax rates and assessed valuations. Utilities expense increased
$0.7 million, or 5.6 percent, primarily due to occupancy changes. Operating
services increased $1.3 million, or 6.9 percent, as a result of occupancy
changes, and an increase in costs associated with the harsh winter of 1996
experienced in the northeastern states. General and administrative expenses
decreased $0.6 million, or 7.3 percent, primarily due to reduced payroll and
related costs. Depreciation and amortization expense increased $1.2 million, or
4.6 percent, primarily due to the write-off of unamortized tenant improvement
and leasing costs associated with the 1996 lease cancellations and the effect of
1995 and 1996 building, tenant improvement and leasing cost additions. Interest
expense decreased $1.2 million, or 2.0 percent, due to decreases in the
effective interest rates on variable rate debt and the restructuring or
refinancing of certain loans to lower interest rates, partially offset by higher
variable rate debt balances.
Income before extraordinary item increased $3.9 million, or 224.3 percent,
to $5.7 million for the year ended December 31, 1996 compared to $1.8 million
for the year ended December 31, 1995 due to the factors discussed above.
A net extraordinary loss of $19.3 million contributed to a net loss of $13.5
million in 1996 as compared to net income of $1.8 million for 1995. The
extraordinary loss resulted from a $33.4 million loss realized on the early
extinguishment of the RTC debt at an amount greater than its carrying value,
partially offset by a $14.1 million gain on the early extinguishment of a $13.6
million second mortgage, plus accrued and unpaid interest, on the One Mack
Centre property located in Tampa, Florida, for a payment of $1.5 million.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total revenues for 1995 increased $10.0 million, or 7.5 percent, as compared
to 1994. Base rents increased $9.7 million, or 8.4 percent, primarily due to
increased occupancy at higher rental rates and full year occupancy for leases
that commenced in 1994, including a 20-year lease on 475,000 net rentable square
feet at the Mack Saddle River property. Escalation and recoveries decreased $0.1
million, or 0.9 percent, primarily due to occupancy changes.
Total expenses for 1995 increased $4.9 million, or 3.6 percent, as compared
to 1994. Utilities expenses increased $0.2 million, or 1.3 percent, and
operating services increased $0.2 million, or 1.2 percent, primarily due to
occupancy changes. Depreciation and amortization increased $1.6 million, or 6.5
percent, primarily due to the effect of 1994 and 1995 building, tenant
improvement and leasing cost additions. Interest expense increased $2.9 million,
or 5.1 percent, primarily due to interest associated with the Mack Saddle River
property which was capitalized in 1994, higher variable rate debt balances and
increases in the effective interest rates on variable rate debt.
Net income increased $5.0 million to $1.8 million for 1995 from a net loss
of $3.3 million for 1994 due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures. To the extent that Mack's cash flow from
operating activities is insufficient to finance its capital expenditures, Mack
has historically financed such activities through loans and partner capital
contributions and financing. Mack expects to meet its short-term liquidity
requirements generally through its working capital and net cash provided by
operating activities.
Mack does not generally reserve funds to retire mortgages and loans payable
upon maturity. Instead, Mack seeks to refinance such debt at maturity. Mack
anticipates that its available cash and cash equivalents and cash flows from
operating activities, together with cash available from borrowings and partner
contributions, will be adequate to meet the Mack's capital and liquidity needs
both in the short and long-term.
48
<PAGE>
Mack's net cash provided by operating activities increased $5.9 million to
$24.8 million for the six months ended June 30, 1997 from $18.9 million in the
same period in 1996, principally as a result of increased net income of $4.2
million resulting from higher rental revenues and the lease cancellation income
discussed above. Additionally, unbilled rents receivable decreased by $2.2
million for the first six months of 1997 due to lease terminations and
modifications of certain leases during the period, and scheduled contractual
rent increases, compared to an increase in the receivable of $0.4 million for
the six months ended June 30, 1996. These increases were partially offset by
higher payments of accrued interest during the first six months of 1997 compared
to the same period in 1996. Mack's net cash from operating activities increased
to $40.5 million in 1996 from $27.8 million for the year ended December 31, 1995
due to an increase in income before extraordinary item of $3.9 million,
scheduled contractual rent increases resulting in a slower rate of increase of
unbilled rents receivable, a decrease in amounts due from the Mack Company and
increases in accounts payable and accrued expenses. These cash flow increases
were partially offset by a slower rate of increase in accrued interest payable
and rents received in advance and security deposits. Mack's net cash provided by
operating activities increased to $27.8 million for the year ended December 31,
1995 from $21.2 million in 1994 primarily as a result of the increase in net
income in 1995 over a net loss in 1994, slower rates of increases in deferred
charges and other assets and amounts due from The Mack Company, increases in
accrued interest payable and rents received in advance and security deposits.
These increases were partially offset by payments of accounts payable and
accrued expenses.
Mack's cash flows used in investing activities, which relate primarily to
tenant improvements and building additions, increased from $4.1 million for the
six months ended June 30, 1996 to $17.7 million for the same period in 1997,
primarily as a result of an increase in additions to rental property of $9.2
million and increased funding of restricted cash in 1997 compared to the release
of the reserve in 1996. Net cash used in investing activities decreased to $11.5
million for the year ended December 31, 1996 from $30.7 million in 1995
primarily due to lower additions to rental property and the release of
restricted cash in 1996 compared to funding of such reserves in 1995. Net cash
used in investing activities decreased to $30.7 million in 1995 from $50.8
million in 1994 due to a reduction in additions to rental property in 1995,
partially offset by increased funding of restricted cash. In 1994, Mack added
130,000 square feet of additional net rentable office space and retrofitted the
existing building at the Mack Saddle River property in connection with the new
twenty year lease discussed above.
Mack's cash flows used in financing activities decreased by $1.4 million to
$12.3 million for the six months ended June 30, 1997 compared to $13.7 million
in the same period in 1996 primarily due to a reduction in net repayments of
mortgages and other notes payable. Mack's cash flows used in financing
activities increased by $24.1 million for the year ended December 31, 1996 as
compared to 1995, as a result of higher net debt repayments of $8.3 million in
1996 compared to $6.1 million in 1995, increased financing costs, and higher net
distributions to partners in 1996 of $12.5 million as compared to net partner
capital contributions of $6.5 million in 1995. The increase in net debt
repayments in 1996 is primarily due to the refinancing of the RTC debt and other
mortgage refinancings and restructurings during 1996. Net cash flows from
financing activities decreased by $27.5 million in 1995 from 1994 primarily as a
result of net debt repayments of $6.1 million in 1995 as compared to net
borrowings of $6.5 million in 1994, along with reduced net cash contributions
from partners of $6.5 million in 1995 compared to $21.6 million in 1994. In
1994, the partner loans and capital contributions were primarily used to fund
the construction and retrofit of the Mack Saddle River property discussed above.
Where performed, the Phase I assessments of the Mack Properties have not
revealed any environmental liability that Mack believes would have a material
adverse effect on Mack's business, assets or results of operations taken as a
whole, nor is Mack aware of any such material environmental liability.
INFLATION
Mack's leases with the majority of its tenants provide for recoveries and
escalation charges based upon the tenant's proportionate share of and/or
increases in real estate taxes and certain operating costs which reduce Mack's
exposure to increases in operating costs resulting from inflation.
49
<PAGE>
MANAGEMENT
Set forth below is certain information as it will exist on the date of
closing of the Mack Combination for (i) the directors of Cali, (ii) the
executive officers of Cali and (iii) the directors and executive officers of
Cali as a group (including, in each case, those officers and directors who will
either resign or be appointed, as the case may be, upon the consummation of the
Mack Combination):
<TABLE>
<CAPTION>
PERCENT OF
SHARES
FIRST TERM NUMBER OF OUTSTANDING
NAME AND POSITION (1) AGE ELECTED EXPIRES SHARES (2) (%)(3)
- - ---------------------------------------------------- --- ----------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
John J. Cali, Chairman of the Board (5)............. 79 1994 2000 455,030(8) 1.2
Thomas A. Rizk, Chief Executive Officer and Director
(5)............................................... 40 1994 2000 484,605(9) 1.3
Mitchell E. Hersh, President, Chief Operating
Officer and Director (5)(28)...................... 46 1997 2000 0 *
John R. Cali, Executive Vice President.............. 50 -- -- 454,506 10) 1.2
Brant Cali, Executive Vice President, Secretary and
Director (27)..................................... 43 1997 1999 530,056 11) 1.4
Brad W. Berger, Executive Vice President and
Director (27)..................................... 42 1997 2000 324,281 12) *
Timothy M. Jones, Executive Vice President.......... 42 -- -- 324,281 13) *
63,022 14)
Barry Lefkowitz, Chief Financial Officer............ 35 -- -- * *
Roger W. Thomas, General Counsel and Assistant
Secretary......................................... 40 -- -- 63,296 15) *
James Nugent, Vice President--Leasing............... 44 -- -- 98,988 16) *
Albert Spring, Vice President--Operations........... 51 -- -- 119,709 17) *
Angelo R. Cali, Director (27)....................... 82 1994 1998 502,949 18) 1.4
Kenneth A. DeGhetto, Director (6)(27)............... 72 1994 1999 9,000 19) *
James W. Hughes, Director (6)(27)................... 52 1994 1998 7,000 20) *
William L. Mack, Director (5)(28)................... 57 1997 1999 0 *
Earle I. Mack, Director (28)........................ 59 1997 1999 0 *
Brendan T. Byrne, Director (7)...................... 72 1994 1998 7,100 21) *
Irvin D. Reid, Director (7)......................... 56 1994 2000 2,000 22) *
Alan Turtletaub, Director (6)(27)................... 82 1994 1999 8,000 23) *
Robert F. Weinberg, Director........................ 68 1997 2000 10,667 24) *
Alan G. Philibosian, Director (7)................... 44 1997 1999 500 25) *
----------
All directors and executive officers as a group..... -- -- -- 3,464,990 26) 8.6
----------
----------
<CAPTION>
PERCENT OF SHARES
OUTSTANDING
(CALCULATED ON A
FULLY-DILUTED
NAME AND POSITION (1) BASIS) (%)(4)
- - ---------------------------------------------------- -----------------
<S> <C>
John J. Cali, Chairman of the Board (5)............. 1.1
Thomas A. Rizk, Chief Executive Officer and Director
(5)............................................... 1.2
Mitchell E. Hersh, President, Chief Operating
Officer and Director (5)(28)...................... *
John R. Cali, Executive Vice President.............. 1.1
Brant Cali, Executive Vice President, Secretary and
Director (27)..................................... 1.3
Brad W. Berger, Executive Vice President and
Director (27)..................................... *
Timothy M. Jones, Executive Vice President.......... *
Barry Lefkowitz, Chief Financial Officer............
Roger W. Thomas, General Counsel and Assistant
Secretary......................................... *
James Nugent, Vice President--Leasing............... *
Albert Spring, Vice President--Operations........... *
Angelo R. Cali, Director (27)....................... 1.2
Kenneth A. DeGhetto, Director (6)(27)............... *
James W. Hughes, Director (6)(27)................... *
William L. Mack, Director (5)(28)................... *
Earle I. Mack, Director (28)........................ *
Brendan T. Byrne, Director (7)...................... *
Irvin D. Reid, Director (7)......................... *
Alan Turtletaub, Director (6)(27)...................
Robert F. Weinberg, Director........................ *
Alan G. Philibosian, Director (7)................... *
All directors and executive officers as a group..... 8.4
</TABLE>
- - ------------------------
* Beneficial Ownership of less than 1 percent is omitted.
(1) Certain executive officers and directors of Cali and various other persons
and entities beneficially own in the aggregate, approximately 10.0 percent
of the limited partnership interests in CRLP in which Cali has a 90.0
percent general partnership interest. After the consummation of the Mack
Combination, Cali's percentage interest in CRLP will decrease to 68.0
percent and the aggregate limited partners' interest will increase to 32.0
percent. The limited partners of CRLP share with Cali, as general partner,
in the net income or loss and any distributions of CRLP. Pursuant to the
partnership agreement of CRLP, limited partnership interests are redeemable
into shares of Common Stock on a one-for-one basis.
50
<PAGE>
(2) Represents the shares of Common Stock that would be owned by or vested in
each individual at December 31, 1997, assuming the consummation of the Mack
Combination. Except as otherwise noted below, all shares of Common Stock are
owned beneficially by the individual listed with sole voting and/or
investment power.
(3) Assumes redemption of only the limited partnership interests in CRLP
beneficially owned by such owner into shares of Common Stock and the
exercise of vested options and warrants held only by such owner. The total
number of shares outstanding used in calculating this percentage assumes
that none of the limited partnership interests held by trusts unrelated to
such owners and persons not in such owner's immediate family are redeemed
into shares of Common Stock, and that none of the options or warrants held
by other individuals are exercised.
(4) Assumes the redemption of all outstanding limited partnership interests in
CRLP into shares of Common Stock and the exercise of all vested options and
warrants.
(5) Member of Executive Committee.
(6) Member of Audit Committee.
(7) Member of Option and Executive Compensation Committee.
(8) Includes 290,561 shares of Common Stock that may be issued upon the
redemption of all of John J. Cali's limited partnership interests in CRLP
and 158,569 shares of Common Stock that may be issued upon the redemption of
all of the limited partnership interests in CRLP held by members of John J.
Cali's immediate family and trusts of which he is a trustee. Also includes
vested options to purchase 5,800 shares of Common Stock.
(9) Includes 141,383 shares of Common Stock that may be issued upon the
redemption of all of Thomas A. Rizk's limited partnership interests in CRLP.
Also includes 55,555 shares of restricted stock and 96,000 shares of Common
Stock purchased with the proceeds of a non-recourse loan from Cali. Also
includes vested options to purchase 191,667 shares of Common Stock.
(10) Includes 83,951 shares of Common Stock that may be issued upon the
redemption of all of John R. Cali's limited partnership interests in CRLP.
Also includes 55,555 shares of restricted stock and vested options to
purchase 315,000 shares of Common Stock.
(11) Includes 149,501 shares of Common Stock that may be issued upon the
redemption of all of Brant Cali's limited partnership interests in CRLP.
Also includes vested options to purchase 325,000 shares of Common Stock, and
55,555 shares of restricted stock.
(12) Includes vested warrants to purchase 170,000 shares of Common Stock and
vested options to purchase 15,000 shares of Common Stock. Also includes
139,281 limited partnership Units in CRLP, which represent Mr. Berger's
approximate proportional share of the limited partnership Units received by
Robert Martin (as defined below) and its affiliates in connection with the
RM Transaction (as defined below) (the "RM Units").
(13) Includes vested warrants to purchase 170,000 shares of Common Stock and
vested options to purchase 15,000 shares of Common Stock. Also includes
139,281 limited partnership Units in CRLP, which represent Mr. Jones'
approximate proportional share of the RM Units.
(14) Includes 9,260 shares of restricted stock and 16,000 shares of Common Stock
purchased with the proceeds of a non-recourse loan from Cali. Also includes
vested options to purchase 37,666 shares of Common Stock.
(15) Includes 9,260 shares of restricted stock and 16,000 shares of Common Stock
purchased with the proceeds of a non-recourse loan from Cali. Also includes
vested options to purchase 37,666 shares of Common Stock.
51
<PAGE>
(16) Includes 14,783 shares of Common Stock that may be issued upon the
redemption of all of Mr. Nugent's limited partnership interests in CRLP.
Also includes 7,405 shares of restricted stock, 12,800 shares of Common
Stock purchased with the proceeds of a non-recourse loan from Cali and
vested options to purchase 64,000 shares of Common Stock.
(17) Includes 42,029 shares of Common Stock that may be issued upon the
redemption of all of Mr. Spring's limited partnership interests in CRLP.
Does not include 2,335 shares of Common Stock owned by Mr. Spring's wife and
brother-in-law as tenants-in-common of which Mr. Spring disclaims beneficial
ownership. Also includes 6,480 shares of restricted stock, 11,200 shares of
Common Stock purchased with the proceeds of a non-recourse loan from Cali
and vested options to purchase 50,667 shares of Common Stock.
(18) Includes 261,090 shares of Common Stock that may be issued upon the
redemption of all of Angelo R. Cali's limited partnership interests in CRLP
and 234,859 shares of Common Stock that may be issued upon the redemption of
all of the limited partnership interests in CRLP held by members of Angelo
R. Cali's immediate family and trusts of which he is a trustee. Also
includes vested options to purchase 7,000 shares of Common Stock.
(19) Includes vested options to purchase 2,000 shares of Common Stock.
(20) Includes vested options to purchase 7,000 shares of Common Stock.
(21) Includes vested options to purchase 7,000 shares of Common Stock.
(22) Includes vested options to purchase 2,000 shares of Common Stock.
(23) Includes vested options to purchase 7,000 shares of Common Stock.
(24) Includes 5,667 limited partnership Units in CRLP, which represent Mr.
Weinberg's approximate proportional share of the RM Units. Also includes
options to purchase 5,000 shares of Common Stock. Does not include 1,000
shares of Common Stock owned by Mr. Weinberg's wife of which Mr. Weinberg
disclaims beneficial ownership.
(25) Includes 250 shares of Common Stock owned by Mr. Philibosian's family of
which Mr. Philibosian disclaims beneficial ownership.
(26) Includes 1,684,642 shares of Common Stock that may be issued upon the
redemption of all of the executive officers' and directors' limited
partnership interests in the Operating Partnership and 648,156 shares of the
Common Stock that may be issued upon the redemption of all of the limited
partnership interests in the Operating Partnership held by members of the
directors' and executive officers' immediate families and trusts of which
they are trustees. Also includes vested options to purchase 1,101,466 shares
of Common Stock.
(27) Will resign from the Board of Directors of Cali upon the consummation of
the Mack Combination.
(28) Does not include Common and Preferred Units and Warrants to be issued
pursuant to the Mack Combination which will not be redeemable or exercisable
for shares of Common Stock for at least one year from the date of the
closing of the Mack Combination, a portion of which will be allocated among
William L. Mack, Earle I. Mack and Mitchell E. Hersh.
Biographical information concerning the directors and executive officers
currently and after the closing of the Mack Combination is set forth below.
JOHN J. CALI serves as Chairman of the Board of Directors and a member of
the Board of Directors of Cali. In addition, Mr. Cali was a principal of Cali
Associates and a member of its Executive and Long Range Planning Committees. Mr.
Cali co-founded Cali Associates in 1949 and since such date has been responsible
for its and Cali's overall development strategies and policies. Mr. Cali
graduated from Indiana University.
52
<PAGE>
THOMAS A. RIZK serves as President, Chief Executive Officer and as a member
of the Board of Directors of the Corporation. In addition, Mr. Rizk was a
principal of Cali Associates and served as its General Counsel and as a member
of its Executive Committee from 1989 to 1994 and as its Chief Financial Officer
from 1991 to 1994. Mr. Rizk was responsible for coordinating all financial
activities for Cali Associates, including federal income tax planning, and for
developing its strategic direction and investment strategies. Mr. Rizk has
remained responsible for conducting these activities for Cali. Prior to joining
Cali Associates, Mr. Rizk was vice president and general counsel of Dubnoff &
Koch, a New Jersey-based real estate development firm. He received his J.D. from
Rutgers School of Law and his L.L.M. in taxation from New York University School
of Law. Mr. Rizk will resign as President of Cali upon the closing of the Mack
Combination.
JOHN R. CALI serves as Chief Administrative Officer of Cali. In addition,
Mr. Cali was a principal of Cali Associates and served as a member of its Long
Range Planning Committee from 1981 to 1994 and its Executive Committee from 1987
to 1994. Mr. Cali was responsible for the development of Cali Associates' office
system and the management of its office personnel and he remains responsible for
such duties with Cali. Mr. Cali also developed and organized the leasing and
property management departments of Cali Associates and he is now responsible for
directing the acquisition functions of Cali. Mr. Cali has a M.Ed. degree in
counseling, organizational development and personnel from the University of
Missouri. Mr. Cali will resign as Chief Administrative Officer of Cali and will
be appointed as Executive Vice President of Cali upon the closing of the Mack
Combination.
BRANT CALI serves as Chief Operating Officer, Secretary and a member of the
Board of Directors of Cali. In addition, Mr. Cali was a principal of Cali
Associates and served as a member of its Executive and Long Range Planning
Committees from 1981 to 1994. Mr. Cali is responsible for directing the leasing
and property management departments and providing overall strategic direction
for Cali. Mr. Cali holds a Ph.D. degree in plant pathology from North Carolina
State University. Mr. Cali will resign as a member of the Board of Directors and
as Chief Operating Officer of Cali and will be appointed as Executive Vice
President of Cali upon the closing of the Mack Combination.
BRAD W. BERGER serves as Executive Vice President and as a member of the
Board of Directors of Cali. Prior to the RM Transaction, Mr. Berger served as
Robert Martin's President and Chief Executive Officer from 1994 to 1996, leading
Robert Martin's strategic, organizational and financial endeavors. Employed with
Robert Martin since 1977, Mr. Berger became Director of Commercial Leasing of
Robert Martin in 1979, was promoted to Vice President in 1982 and appointed to
Executive Vice President in 1986, upon which he assumed the daily operations
responsibilities of the commercial real estate portfolio. He received his B.A.
degree in economics from Yale University. Mr. Berger will resign as a member of
the Board of Directors upon the closing of the Mack Combination.
TIMOTHY M. JONES serves as Executive Vice President of Cali. Prior to the
acquisition by Cali of 65 properties from Robert Martin LLC ("Robert Martin")
and its affiliates in January, 1997 (the "RM Transaction"), Mr. Jones served as
Executive Vice President and Chief Operating Officer of Robert Martin, where he
was responsible for the daily corporate operations and management of the firm's
six-million square foot portfolio in New York and Connecticut. Mr. Jones joined
Robert Martin in 1990 as Vice President of Construction, where he was
responsible for the organization, administration and coordination of all the
properties, both in the construction and planning stages. In 1992, he became
Senior Vice President, continuing to direct all construction activities and was
involved in the coordination of the firm's finance, property management and
construction divisions. Mr. Jones has a B.A. degree in economics from Yale
University and a M.S. degree in business from Columbia University.
BARRY LEFKOWITZ serves as Vice President, Chief Financial Officer of Cali.
Mr. Lefkowitz is responsible for all financial reporting matters, strategic
financial planning, long-term forecasting, investor relations and management of
capital markets activities. Before joining Cali, Mr. Lefkowitz was a Senior
Manager
53
<PAGE>
specializing in real estate with the accounting firm of Deloitte & Touche LLP.
Mr. Lefkowitz is a certified public accountant and a graduate of Brooklyn
College.
ROGER W. THOMAS serves as Vice President, General Counsel and Assistant
Secretary of Cali. Mr. Thomas' responsibilities include structuring and
implementing Cali's acquisitions and mergers, corporate governance, supervising
outside legal counsel, insuring legal compliance and preparation of required
disclosure documents. Mr. Thomas also assists Cali in investor relations and in
implementing Cali's investment strategies, financial activities and
acquisitions. Prior to joining Cali, Mr. Thomas was a partner at the law firm
Dreyer & Traub in New York, specializing in real estate and commercial
transactions. Mr. Thomas holds a BSBA in finance and a J.D. from the University
of Denver.
JAMES NUGENT serves as Vice President-Leasing of Cali since its formation.
In addition, from 1991 to 1994, Mr. Nugent served as the Senior Director of
Leasing at Cali Associates, supervising all leasing activity and analyzing the
financial aspects of all major leases, and he remains responsible for such
duties with Cali. From 1984 to 1991, Mr. Nugent's responsibilities included
negotiating the financial and business terms of leases for the Cali Associates
portfolio of properties, analyzing future projects and formulating the structure
of potential development opportunities. Mr. Nugent is a certified public
accountant and a graduate of Western Illinois University.
ALBERT SPRING serves as Vice President-Operations of Cali since its
formation. In addition, Mr. Spring was responsible from 1977 to 1994 for
construction management at Cali Associates, including engineering, processing
approvals, estimating costs and supervising contractors. Mr. Spring has a B.S.
degree in civil engineering from City College of New York and has a MBA degree
from Bernard Baruch Graduate School of Business.
ANGELO R. CALI serves as a member of the Board of Directors of Cali since
its formation. Prior to the formation of Cali, Mr. Cali was a principal of Cali
Associates, the real estate development company which was the predecessor of
Cali, and a member of its Executive and Long Range Planning Committees. Mr. Cali
co-founded Cali Associates in 1949 and was responsible for its organizational
development from such date until the completion of Cali's initial public
offering in 1994. Mr. Cali will resign as a member of the Board of Directors
upon the closing of the Mack Combination.
BRENDAN T. BYRNE serves as a member of the Board of Directors of Cali. He
served two consecutive terms as Governor of the State of New Jersey prior to
1982 and has been a senior partner with Carella, Byrne, Bain, Gilfillan, Cecchi,
Stewart & Olstein, a Roseland, New Jersey law firm, since 1982. Governor Byrne
graduated from Princeton University's School of Public Affairs and received his
LL.B from Harvard Law School.
IRVIN D. REID serves as a member of the Board of Directors of Cali. He
served as President of Montclair State University (formerly Montclair State
College) in New Jersey since August 1989. Prior to becoming the President of
Montclair State University, Dr. Reid held positions of dean, School of Business
Administration, and John Stagmaier professor of economics and business
administration at the University of Tennessee at Chattanooga. Dr. Reid is also a
member of the board of directors of Fleet Bank, N.A. Dr. Reid received his B.S.
degree and M.S. degree in general and experimental psychology from Howard
University. He earned his M.A. and Ph.D. degrees in business and applied
economics from The Wharton School of the University of Pennsylvania.
ROBERT F. WEINBERG serves as a member of the Board of Directors of Cali.
Prior to the RM Transaction, Mr. Weinberg served as Co-Chairman and General
Partner of Robert Martin since its founding in 1957. Mr. Weinberg is presently
the Chairman of the Outreach Committee on Orderly Growth in Westchester, a
Director of City & Suburban Federal Savings Bank and a Director of the
Westchester County Association. Mr. Weinberg earned a B.S. degree in Mechanical
Engineering from New York
54
<PAGE>
University, an M.S. degree in Building Engineering & Construction from M.I.T.
and a J.D. degree from Brooklyn Law School.
ALAN G. PHILIBOSIAN serves as a member of the Board of Directors of Cali.
Mr. Philibosian is an attorney practicing in Englewood, New Jersey. Mr.
Philibosian is currently a Commissioner on The Port Authority of New York & New
Jersey, and also serves on the Board of Directors of the Armenian Missionary
Association of America, Paramus, New Jersey and John Harms Center for the Arts,
Englewood, New Jersey. Mr. Philibosian graduated from Rutgers College, and
received his J.D. degree from Boston College Law School and his LL.M. (in
Taxation) from New York University.
JAMES W. HUGHES serves as a member of the Board of Directors of Cali. He
currently serves as Dean of the Edward J. Bloustein School of Planning and
Public Policy at Rutgers University and Professor of Urban Planning and Policy
Development. He is also the Director of The Rutgers Regional Report which,
during its six-year existence, has produced 17 major economic/demographic
studies on New Jersey and the region. Dr. Hughes received each of his B.S.
degree in engineering, his M.S. degree in city and regional planning and his
Ph.D. degree in urban planning and policy development from Rutgers University.
Mr. Hughes will resign as a member of the Board of Directors upon the closing of
the Mack Combination.
KENNETH A. DEGHETTO serves as a member of the Board of Directors of Cali.
Mr. DeGhetto currently serves as Chairman Emeritus of the Board of Directors of
Foster Wheeler Corporation. Mr. DeGhetto earned his B.S. degree from the U.S.
Merchant Marine Academy and his B.M.E. degree from Rensselaer Polytechnic
Institute. Mr. DeGhetto will resign as a member of the Board of Directors upon
the closing of the Mack Combination.
ALAN TURTLETAUB serves as a member of the Board of Directors of Cali. Mr.
Turtletaub is the founder and Chairman of the Board of The Money Store. Mr.
Turtletaub is also the founder and a board member of the National Second
Mortgage Association and is also on the advisory board of Valley National Bank.
Mr. Turtletaub attended New York University and Seton Hall University. Mr.
Turtletaub will resign as a member of the Board of Directors upon the closing of
the Mack Combination.
WILLIAM L. MACK will be appointed as Chairman of the Executive Committee of
Cali and as a member of the Board of Directors in connection with the Mack
Combination. Prior to the Mack Combination, Mr. Mack served as Managing Partner
of The Mack Company, where he pioneered the development of large, Class A office
properties and helped to increase The Mack Company's portfolio to approximately
20 million square feet of office, industrial, retail and hotel facilities. Mr.
Mack also served as Chairman of Patriot American Group. In addition, Mr. Mack is
a managing partner of Apollo Real Estate Advisors, L.P. which investment funds
have invested in approximately $5 billion of various diversified real estate
ventures. Mr. Mack attended the Wharton School of Business and Finance at the
University of Pennsylvania and has a B.S. degree in business administration,
finance and real estate from New York University.
EARLE I. MACK will be appointed as a member of the Board of Directors in
connection with the Mack Combination. Prior to the Mack Combination, Mr. Mack
served as Senior Partner and Chief Financial Officer of The Mack Company since
1964. Mr. Mack, together with his three brothers, led The Mack Company in
pioneering the development of large, class A office properties and helped to
grow The Mack Company's portfolio to approximately 20 million square feet of
office, industrial, retail and hotel facilities. Mr. Mack has a B.S. degree in
Business Administration from Drexel University and also attended Fordham Law
School.
MITCHELL E. HERSH will be appointed President and Chief Operating Officer
of Cali and a member of the Board of Directors in connection with the Mack
Combination. Prior to the Mack Combination, Mr. Hersh has served as a Partner of
The Mack Company since 1982 and Chief Operating Officer of The Mack Company
since 1990, where he was responsible for overseeing the development, operations,
leasing and acquisitions of The Mack Company's office and industrial portfolio.
Mr. Hersh has a B.A. degree in architecture from Ohio University.
55
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation of the chief executive officer and the four most highly compensated
executive officers of Cali other than the chief executive officer (collectively,
the "Named Executive Officers") for each of Cali's last three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#)
- - ----------------------------------------- --------- --------- --------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Thomas A. Rizk........................... 1996 300,000 750,000 0 125,000(3)
President and Chief Executive Officer 1995 175,000 225,000 0 0
(2) 1994(1) 53,846 30,000 0 200,000(4)
John R. Cali............................. 1996 175,000 125,000 0 125,000(3)
Chief Administrative Officer 1995 150,000 50,000 0 0
1994(1) 46,154 0 0 200,000(4)
Brant Cali............................... 1996 175,000 125,000 0 125,000(3)
Chief Operating Officer and Secretary 1995 150,000 50,000 0 0
1994(1) 46,154 0 0 200,000(4)
Roger W. Thomas.......................... 1996 165,000 60,000 0 35,000(5)
General Counsel and Assistant Secretary 1995 150,000 30,000 0 29,000(6)
1994(1) 46,154 0 0 0
James Nugent............................. 1996 0 25,000 183,500(7) 35,000(5)
Vice President--Leasing 1995 0 35,000 154,960(7) 29,000(6)
1994 0 0 57,802(7) 0
</TABLE>
- - ------------------------
(1) Represents amounts earned during 1994 by Messrs. Thomas A. Rizk, John R.
Cali, Brant Cali and Roger W. Thomas at annual salaries of $175,000,
$150,000, $150,000 and $150,000, respectively. Their employment by Cali
began on or about August 31, 1994 with the completion of Cali's initial
public offering.
(2) Thomas A. Rizk was elected to be Chief Executive Officer on January 1, 1996,
upon the resignation of John J. Cali. Upon his acceptance of such offer, Mr.
Rizk resigned as Chief Financial Officer and since January 1, 1996 has
served as Chief Executive Officer, President and as a director of Cali.
Barry Lefkowitz succeeded Mr. Rizk as Chief Financial Officer of Cali.
(3) Represents option to acquire shares of Common Stock at an exercise price of
$26.25 per share.
(4) Represents option to acquire shares of Common Stock at an exercise price of
$17.25 per share.
(5) Represents option to acquire shares of Common Stock at an exercise price of
$21.50 per share.
(6) Represents an option to purchase an aggregate of 19,000 shares of Common
Stock at an exercise price of $17.25 per share, and an option to purchase
10,000 shares of Common Stock at an exercise price of $19.875 per share.
(7) Represents amounts earned on a commission basis.
56
<PAGE>
OPTION PLANS
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF PERCENT OF VALUE AT ASSUMED
SECURITIES TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS/SARS PRICE APPRECIATION FOR
OPTIONS/SARS GRANTED TO EXERCISE OF OPTION TERM (4)
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME (#)(2) FISCAL YEAR (%) ($/SH) DATE (3) 5%($) 10%($)
- - ----------------------------------------- ------------- --------------- ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Rizk........................... 125,000 15.7 26.25 10/24/06 2,063,560 5,229,467
President and Chief Executive Officer
John R. Cali............................. 125,000 15.7 26.25 10/24/06 2,063,560 5,229,467
Chief Administrative Officer
Brant Cali............................... 125,000 15.7 26.25 10/24/06 2,063,560 5,229,467
Chief Operating Officer and Secretary
Roger W. Thomas.......................... 35,000 4.5 21.50 03/05/06 473,243 1,199,291
General Counsel and Assistant Secretary
James Nugent............................. 35,000 4.5 21.50 03/05/06 473,243 1,199,291
Vice President--Leasing
</TABLE>
- - ------------------------
(1) Cali has not, to date, granted any stock appreciation rights under the
Employee Stock Option Plan.
(2) Cali has established the Director and Employee Stock Option Plans for the
purpose of attracting and retaining executive officers, directors and
employees. Options granted under the Director and Employee Stock Option
Plans are exercisable for shares of Common Stock.
(3) Each option granted in 1996 has a ten-year term, generally vests one-fifth
each year beginning on the last day of the year in which options were
granted, and generally becomes 100% vested on the fourth anniversary of the
last day of the year in which the options were granted.
(4) The dollar amounts set forth under these columns are the result of
calculations at the 5% and 10% rates set by the SEC and therefore are not
intended to forecast possible further appreciation, if any, in Cali's stock
price.
57
<PAGE>
AGGREGATED OPTION/SAR EXERCISE IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS/SARS AT FISCAL
SHARES YEAR-END (#)
ACQUIRED ON VALUE REALIZED --------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE
- - ----------------------------------------------------- ------------ ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Thomas A. Rizk....................................... 104,600 937,348 53,733 166,667
John R. Cali......................................... 0 0 158,333 166,667
Brant Cali........................................... 0 0 158,333 166,667
Roger W. Thomas...................................... 0 0 26,334 37,666
James Nugent......................................... 0 0 26,334 37,666
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are no interlocking relationships involving Cali's Board of Directors
which require disclosure under the executive compensation rules of the SEC.
BOARD OF DIRECTORS COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF CALI'S PREVIOUS
FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES EXCHANGE
ACT OF 1933, AS AMENDED, THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS
PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORT AND THE PERFORMANCE
GRAPH WHICH FOLLOWS SHALL NOT BE DEEMED TO BE INCORPORATED BY REFERENCE INTO ANY
SUCH FILINGS.
The amount of compensation paid by Cali to Thomas A. Rizk, John R. Cali and
Brant Cali in the year ended December 31, 1996, in the case of base salaries,
was determined prior to the completion of Cali's initial public offering based
on employment agreements entered into at that time. In the case of stock option
grants and bonuses and with respect to the amount of compensation paid by Cali
during 1996 to executive officers who did not have employment agreements with
Cali such determinations were made by the Compensation Committee of the Board
based upon the criteria set forth below. In 1996, executive compensation
consisted solely of base salary, grants of stock options under Cali's Employee
Stock Option Plan that vest over time, and bonuses paid to Thomas A. Rizk, John
R. Cali, Brant Cali, Roger W. Thomas, James Nugent, Albert Spring and Barry
Lefkowitz.
EXECUTIVE COMPENSATION PHILOSOPHY. The Compensation Committee will annually
consider the appropriate combination of cash and option-based compensation and
weigh the competitiveness of Cali's overall compensation arrangements in
relation to comparable real estate investment trusts. From time to time the
Compensation Committee may retain compensation and other management consultants
to assist with, among other things, structuring Cali's various compensation
programs and determining appropriate levels of salary, bonus and other
compensation awards payable to Cali's executive officers and key employees, as
well as to guide Cali in the development of near-term and long-term individual
performance objectives necessary to achieve long-term profitability.
The Compensation Committee believes that a fundamental goal of Cali's
executive compensation program should be to provide incentives to create value
for Cali's shareholders.
BASE SALARIES. The base compensation for Cali's executive officers in 1996
was established in a manner consistent with the provisions of existing
employment agreements between Cali and Thomas A. Rizk, John R. Cali and Brant
Cali, and through negotiations between Cali and the executive officers who did
not have employment agreements with Cali. The base compensation levels were set
to compensate the
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executive officers for the functions they will perform as well as to be
consideration for certain non-competition provisions in the agreements. While no
specific formula was used to determine base compensation levels for Cali's
executive officers, Cali believes that the base salaries are generally in line
with those of other publicly held real estate investment trusts Cali has
reviewed, some of which entities are included in the NAREIT Equity REIT Index.
Base salaries will be reviewed annually and may be increased by the Compensation
Committee in accordance with certain criteria determined primarily on the basis
of growth of revenues and funds from operations per share of Common Stock and on
the basis of certain other factors, which include (i) individual performance,
(ii) the functions performed by the Executive Officer, and (iii) changes in the
compensation peer group in which Cali competes for executive talent. The weight
given such factors by the Compensation Committee may vary from individual to
individual.
ANNUAL BONUS COMPENSATION. Cali's policy of awarding annual cash bonuses is
designed to specifically relate executive pay to company and individual
performance. As a pay-for-performance program, cash bonuses provided financial
rewards for the achievement of substantive company and personal objectives.
Actual awards paid are based primarily on Cali's actual performance. During 1996
cash bonuses were awarded as follows: $750,000 to Thomas A. Rizk, $125,000 to
each of John R. Cali and Brant Cali, $25,000 to James Nugent, $60,000 to each of
Roger W. Thomas and Barry Lefkowitz and $35,000 to Albert Spring.
EMPLOYEE STOCK OPTION PLAN. Awards are granted under the Employee Stock
Option Plan based on a number of factors, including (i) the executive officer's
or key employee's position in Cali, (ii) his or her performance and
responsibilities, (iii) the extent to which he or she already holds an equity
stake in companies in the compensation peer group and (v) individual
contribution to the success of Cali's financial performance. However, the
Employee Stock Option Plan does not provide any formulated method for weighing
these factors, and a decision to grant an award is based primarily upon the
Compensation Committee's evaluation of the past as well as the future
anticipated performances and responsibilities of the individual in question.
During 1996, 125,000 options at an exercise price of $26.25 per share were
granted to each of Thomas A. Rizk, Brant Cali and John R. Cali, 35,000 options
at $21.50 per share were granted to each of Barry Lefkowitz, Roger Thomas and
James Nugent, and 40,000 options at $21.50 per share were granted to Albert
Spring.
Cali's Employee Stock Option Plan related closely to traditional forms of
equity-oriented compensation in the commercial real estate industry. The purpose
of the option grants are to aid Cali in attracting and retaining quality
employees, all advancing the interest of Cali's shareholders, by offering
employees an incentive to maximize their efforts to promote Cali's economic
performance. In addition, to assist Cali in retaining employees and encouraging
them to seek long-term appreciation in the value of Cali's stock, options
generally are not exercisable immediately upon grant, but instead vest over a
period of years. Accordingly, an employee must generally remain with Cali for a
period of years to enjoy the full economic benefit of an option. See, "Proposal
No. 3--Amendment to the Employee Stock Option Plan" for a general description of
the Plan.
401(K) SAVINGS PLAN. Cali also maintains a tax-qualified 401(k) savings
plan for its eligible employees known as the "Cali Realty Corporation 401(k)
Savings and Retirement Plan" ("401(k) Plan"). Employees who have attained age 21
and completed one year of service with Cali are eligible to participate and may
elect to defer up to 15% of their base pay on a pre-tax basis to the 401(k)
Plan. Cali may make discretionary matching contributions to the 401(k) Plan on
behalf of eligible participants in any plan year. Participants are always 100%
vested in their pre-tax contributions and will become vested in any matching
contributions made on their behalf after two years of service with Cali at a
rate of 20% per year becoming 100% vested after a total of six years of service
with Cali. The assets of the 401(k) Plan are held in trust and a separate
account is established for each participant. A participant may receive a
distribution of his vested account balance in the 401(k) Plan in a single sum or
installment payment or in the form of an annuity upon his termination of service
with Cali.
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CHIEF EXECUTIVE OFFICER COMPENSATION. Thomas A. Rizk, the Chief Executive
Officer of Cali since January 1, 1996, received a base salary during 1996 of
$300,000 pursuant to the employment agreement entered into with him at the time
of Cali's initial public offering. Mr. Rizk also received an option to purchase
125,000 shares of Common Stock at an exercise price of $26.25 per share under
the Employee Stock Option Plan during 1996 and fees in the amount of $14,250 for
his service as a Director of Cali. In 1996, Mr. Rizk was also paid a cash bonus
of $750,000. The Compensation Committee recognizes Mr. Rizk's contributions to
Cali's operations and attempts to ensure that the Chief Executive Officer's
compensation is commensurate with the compensation of chief executive officers
of competitive corporations. The Board of Directors deemed such bonus, option
grants and Mr. Rizk's total compensation appropriate in light of Mr. Rizk's
substantial contribution to Cali's growth and success in 1996.
In January 1997, Cali entered into amended employment agreements with three
of its existing executive officers and new employment agreements with four of
its existing executive officers. In addition, on January 31, 1997, in connection
with the RM Transaction, Cali entered into employment agreements with two of the
former principals of Robert Martin. See "Employment Agreements, Termination of
Employment" for a general description of the terms of such agreements.
COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS
Edward Leshowitz
Alan Turtletaub
Angelo R. Cali
Kenneth A. DeGhetto
March 26, 1997
See "Certain Relationships and Related Transactions" for a description of
third party interests in The Mack Combination.
PERFORMANCE GRAPH
Trading of Cali's Common Stock commenced on August 25, 1994, on a when
issued basis. The following graph compares total shareholder returns from August
31, 1994 through December 31, 1996 to the Standard & Poors 500 Stock Index ("S&P
500") and to the National Association of Real Estate Investment Trusts, Inc.'s
Equity REIT (excluding Health Care REITs) Total Return Index ("NAREIT"). The
graph assumed that the value of the investment in Cali's Common Stock and in the
S&P 500 and NAREIT indices was $100 at August 31, 1994 and that all dividends
were reinvested. The Common Stock's price on August 31, 1994 (on which the graph
is based) and the initial public offering price of the Common Stock was $17.25.
The stockholder return shown on the following graph is not necessarily
indicative of future performance. Cali does not believe that the graph is
particularly meaningful in that it covers a short period of time.
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COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG CALI REALTY CORPORATION,
THE S&P 500 INDEX AND THE NAREIT EQUITY REIT INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CALI REALTY CORPORATION S&P NAREIT
<S> <C> <C> <C>
8/31/94 $100 $100 $100
12/31/94 $93.55 $98.30 $97.57
12/31/95 $140.07 $127.01 $113.31
12/31/96 $212.62 $164.91 $153.05
</TABLE>
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain directors and executive officers of Cali (or members of their
immediate families) and persons who will hold more than 5 percent of the
outstanding shares of Common Stock (or interests redeemable therefor) have
direct interests in transactions which have been or will be consummated by Cali,
including the transfer of certain Mack Properties and entities owning Mack
Properties to Cali.
REGISTRATION RIGHTS
Pursuant to the Contribution and Exchange Agreement, as soon as practicable
following the one year anniversary of the closing of the Mack Combination, Cali
shall file or cause to be filed with the Securities and Exchange Commission an
effective "evergreen" Form S-3 shelf registration statement with respect to the
shares of Cali's Common Stock underlying the Units and the Common Units received
upon exercised of the Warrants. Cali shall bear all expenses incident to such
registration requirements, excluding any underwriting discounts, commissions or
transfer taxes, if any, relating to such shares of Common Stock. In addition,
Cali has agreed to provide to Mack unlimited demand registration rights for
underwritten offerings.
NON-COMPETITION AGREEMENTS
On or prior to the closing of the Mack Combination, David S. and Frederic H.
Mack shall each enter into a non-competition agreement with Cali pursuant to
which, among other things, each of them will agree not to compete with Cali
within the continental United States by to engaging in, owning, investing in,
managing or controlling any venture or enterprise engaged in development,
acquisition or management activities with respect to office-service, office or
flex properties until the later to occur of (i) three (3) years from the
consummation of the Mack Combination or (ii) the date on which Mack's
Significant Interest is no longer maintained. The aforementioned non-competition
prohibition shall not apply to passive investments in real estate entities where
neither David S. Mack nor Frederic H. Mack, respectively, has any active
participation in the business and such investments do not exceed (i) five (5%)
percent of the outstanding stock of any class of securities that is publicly
traded or (ii) the lesser of a twenty (20%) percent equity interest or
$15,000,000 in any private venture. In addition, certain properties are not
subject to the aforementioned non-competition prohibition, including properties
excluded from the Mack Combination, properties which may be reacquired from Cali
after the Mack Combination and industrial properties which may be converted to
flex properties if it is determined that the most commercially practicable use
for such property is flex. Upon the consummation of the Mack Combination, Earle
I. Mack shall enter into a non-competition agreement substantially similar to
David S. Mack's. However, as a member of the Board of Directors, Earle I. Mack
shall be further subject to a one year non-competition period if Mack's
Significant Interest is retained, or six (6) month non-competition period if
Mack's Significant Interest is not retained, following the termination of his
service as a member of the Board of Directors.
On or prior to the closing of the Mack Combination, William L. Mack shall
enter into a non-competition agreement substantially similar to the
non-competition agreement entered into by Earle I Mack, provided, however, that
William L. Mack's non-competition agreement shall contain, among other things,
additional provisions which will (1) allow him to continue his participation in
the Apollo Real Estate funds ("Apollo"), its successor and related funds, any
other funds formed by Apollo and any other funds in which the principals of the
Apollo own a majority of the general partnership or similar management or
controlling interest, (2) limit his passive investments in privately held real
estate entities to the lesser of a fifteen (15%) percent equity interest or
$15,000,000 and (3) extend the term of his non-competition period until the date
on which (a) neither Earle I., David S. nor Frederic H. Mack serves as a member
of the Board of Directors and (b) Mack's Significant Interest is no longer
maintained.
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NEW EMPLOYMENT CONTRACTS; TERMINATION OF EMPLOYMENT
MITCHELL E. HERSH EMPLOYMENT AGREEMENT. Upon the consummation of the Mack
Combination, Mitchell E. Hersh shall enter into an employment agreement with
Cali (the "Hersh Employment Agreement") similar to the employment agreement to
be entered into between Cali and Thomas A. Rizk upon the consummation of the
Mack Combination.
EMPLOYMENT AGREEMENTS WITH CURRENT SENIOR EXECUTIVES. Upon consummation of
the Mack Combination, Cali intends to enter into new employment agreements with
Thomas A. Rizk, John R. Cali and Brant Cali containing non-competition
provisions and amended and restated employment agreements with Roger W. Thomas,
Barry Lefkowitz, Albert Spring, James Nugent, Brad Berger and Timothy Jones.
Pursuant to these agreements, the senior executives will receive the following
annual base salaries: Thomas A. Rizk, $1,050,000; John R. Cali, $325,000; Brant
Cali, $325,000; Roger W. Thomas, $300,000; Barry Lefkowitz, $300,000; Albert
Spring, $175,000; James Nugent, $175,000; Brad Berger, $325,000; and Timothy
Jones, $325,000. In addition, each senior executive will receive options from a
pool of 1,135,000 options which will be made available and allocated amongst the
aforementioned senior executives.
ANNUAL SALARY OF JOHN J. CALI. Upon consummation of the Mack Combination,
John J. Cali will receive an annual base salary of $150,000.
BENEFITS OF THE PROPOSALS TO CERTAIN EXECUTIVE OFFICERS
CONSIDERATIONS AND RECOMMENDATIONS OF THE COMPENSATION COMMITTEE AND
RATIFICATION BY BOARD OF DIRECTORS. In connection with the Mack Combination,
the Option and Executive Compensation Committee (the "Compensation Committee")
of the Board of Directors, consisting (since May 1997) of Messrs. Brendan T.
Byrne, Irvin D. Reid and Alan G. Philibosian, recommended that the full Board of
Directors approve payment of the compensation set forth below to certain senior
executives of Cali, upon the consummation of the Mack Combination. The
Compensation Committee carefully considered the impact of the Mack Combination
both on Cali and its existing senior executives in order to determine what
actions would constitute fair and even handed treatment of these senior
executives who were essential to bringing about the Mack Combination.
Included in the many factors considered by the Compensation Committee were
the impending changes in the ownership of Cali, the structure of the Board and
the job titles and functions of Cali's existing senior executives directly
attributable to the Mack Combination. The Committee also considered the
employment agreements that were in place for certain senior executives and the
effects of the Mack Combination on these agreements (details concerning these
agreements are set forth below). In addition, the Committee considered the hard
work and dedication that will be required on the part of the senior executives
to effectuate the Mack Combination. Finally, it was noted that the consummation
of the Mack Combination represents the earlier than anticipated attainment of
Cali's long range plans and goals and results in placement of Cali in a select
group of REITs who excel in their marketplace.
Based upon the overall impact of the Mack Combination, including the factors
cited above, the Compensation Committee, after consultation with Cali's outside
counsel, unanimously took the actions described below and made a recommendation
to the Board of Directors to ratify such actions. Upon further consideration of
the proposals recommended by the Compensation Committee, the full Board of
Directors (with Messrs. Thomas A. Rizk, Brant Cali, John J. Cali and Brad W.
Berger abstaining) then unanimously ratified the recommendations of the
Compensation Committee.
EMPLOYMENT AGREEMENTS, CHANGE IN CONTROL. Each of Messrs. Rizk, John R.
Cali, Brant Cali, Thomas, Lefkowitz, Nugent and Spring entered into employment
agreements with Cali, effective January 21, 1997, pursuant to which each senior
executive was granted restricted shares of Common Stock ("Restricted Stock")
and, with the exception of Messrs. John R. Cali and Brant Cali, a non-recourse
loan to acquire Common Stock ("Stock Acquisition Loan"). Each senior executive's
Restricted Stock would generally vest
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and his Stock Acquisition Loan be forgiven over his initial five year employment
period with partial tax gross up payments to be made at the time of vesting or
forgiveness.
Under these senior executives' employment agreements, upon a change in
control of Cali (as defined in each employment agreement), each of the
aforementioned senior executives would be entitled to acceleration of (i) the
vesting of his Restricted Stock, including tax gross up payments associated
therewith, (ii) the forgiveness of his Stock Acquisition Loan, including tax
gross up payments associated therewith and (iii) the vesting of his outstanding
options. The Board of Directors of Cali, after considering the recommendation of
the Compensation Committee and the factors considered by the Compensation
Committee, has determined that a change in control would occur upon the
consummation of the Mack Combination, thereby resulting in the acceleration of
the vesting of the Restricted Stock and options, and the forgiveness of the
Stock Acquisition Loan, including the payment of all related tax gross up
amounts. The value of accelerated vesting in Restricted Stock, Stock Acquisition
Loan forgiveness, options and the tax gross-up payments determined to be payable
for each executive upon consummation of the Mack Combination, assuming a $38.50
stock price, is as follows: Mr. Rizk, Restricted Stock $2,139,000, Stock
Acquisition Loan forgiveness $3,000,000, options $918,750, tax gross-up
$2,056,000; for each of Brant Cali and John R. Cali, Restricted Stock
$2,139,000, options $918,750, tax gross-up $856,000; for each of Messrs. Thomas
and Lefkowitz, Restricted Stock $357,000, Stock Acquisition Loan forgiveness
$500,000, options $357,000, tax gross-up $343,000; Mr. Nugent, Restricted Stock
$285,000, Stock Acquisition Loan forgiveness $400,000, options $357,000, tax
gross-up $274,000; and Mr. Spring, Restricted Stock $249,000, Stock Acquisition
Loan forgiveness $350,000, options $408,000, tax gross-up $240,000.
EMPLOYMENT AGREEMENTS, TERMINATION FOR GOOD REASON. Under each of Messrs.
Rizk's, Brant Cali's and John R. Cali's employment agreements with Cali, each
executive is entitled under certain circumstances to resign for "good reason"
(as defined in the employment agreements), to receive payment under the
employment agreements of the applicable amounts specified under the "Change in
Control" section outlined above as well as certain severance payments, (totaling
$9,060,000 for Mr. Rizk and $5,660,000 for each of Brant Cali and John R. Cali).
Furthermore, upon a resignation for "good reason," each such executive could
immediately compete directly with Cali. In view of the significant changes in
the overall authority, duties and responsibilities of these individuals
resulting from the Mack Combination, the Compensation Committee determined and
the Board of Directors of Cali concurred that consummation of the Mack
Combination would entitle each of these senior executives to terminate his
employment for good reason, receive such payments and thereafter not be subject
to the non-competition provisions of his employment agreement. However, the
Compensation Committee and the Board of Directors have concluded that the
continued employment of and lack of competition by these senior executives is
essential to the continued success of Cali's business and in the best interests
of Cali and its stockholders. Therefore, the Board, in its discretion, has
authorized Cali to enter into new employment agreements with these senior
executives, effective upon the consummation of the Mack Combination, pursuant to
which among other things, the senior executives would be paid the amounts
referenced above in cancellation of their January 21, 1997 employment agreements
and for the re-affirmation of their agreements not to compete directly with
Cali. Each of these senior executives has agreed to enter into a new employment
agreement with Cali pursuant to which each of the senior executives will waive
any right he may have to sever employment and compete with Cali as a result of
the Mack Combination.
WARRANTS. Messrs. Jones and Berger were each granted 170,000 warrants in
connection with their employment agreements with Cali effective January 31,
1997. Pursuant to the terms of each of Messrs. Jones' and Berger's warrants, the
vesting of these warrants will be accelerated upon a change in control which,
consistent with the Board of Directors' determination, would occur upon
consummation of the Mack Combination. Assuming a $38.50 stock price upon the
consummation of the Mack Combination, the value of each executive's accelerated
warrants is $935,000, and each executive will have accelerated vesting in
options granted to him with a value of $99,000.
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ADDITIONAL GROSS-UP PAYMENTS. In recognition of the performance and valued
service of Messrs. Thomas, Lefkowitz, Nugent and Spring, the Board of Directors
authorized the payment to each of these senior executives, upon the consummation
of the Mack Combination, of an additional discretionary tax gross-up payment in
order to enable these executives to meet their respective full tax obligations
related to the accelerated vesting of their Restricted Stock and forgiveness of
their Stock Acquisition Loans. These additional discretionary tax gross up
payments will enable each of the senior executives to maintain their equity
positions which may have otherwise been liquidated to meet their respective full
tax obligations. The amounts are as follows: Messrs. Thomas and Lefkowitz
$385,000; Mr. Nugent $308,000; Mr. Spring $270,000.
INCENTIVE AND MERIT BONUSES. In connection with the Mack Combination,
Messrs. Jones, Berger, Thomas, Lefkowitz, Nugent and Spring, in recognition of
their contributions and valued service with regard to the successful
origination, structuring and completion of the Mack Combination, each will
receive a discretionary incentive and merit bonus as determined by the Board of
Directors as follows: Messrs. Jones and Berger $1,400,000 each; Mr. Thomas
$625,000; Mr. Lefkowitz $550,000; Mr. Nugent $350,000; and Mr. Spring $400,000.
TAX CONSIDERATIONS. Pursuant to Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code") amounts paid to the Chief Executive Officer and
the next four (4) highest compensated officers in excess of $1,000,000 are not
deductible.
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FEDERAL INCOME TAX CONSIDERATIONS
The following summarizes certain federal income tax considerations that may
be relevant to a holder of Common Stock following the Mack Combination. The
summary is based on current law, is for general information only, and is not to
be considered tax advice. The tax treatment of a holder of Common Stock will
vary depending upon such holder's particular situation, and this discussion does
not purport to deal with all aspects of taxation that may be relevant to
particular stockholders in light of their personal investment or tax
circumstances, or to certain types of stockholders (including insurance
companies, financial institutions or broker-dealers, tax-exempt organizations,
foreign corporations, and persons who are not citizens or residents of the
United States, except to the extent discussed under the heading "Taxation of
Tax-Exempt Stockholders" and "Taxation of Non-U.S. Stockholders," and persons
who acquired their Common Stock pursuant to the exercise of an employee stock
option or otherwise as compensation) subject to special treatment under the
United States federal income tax laws. The summary does not address any of the
tax consequences of the Mack Combination to Mack. Additionally, the discussion
does not address any tax consequences to any holders of Common Stock arising
under the laws of any state, local or foreign jurisdiction.
EACH HOLDER OF COMMON STOCK IS ADVISED TO CONSULT WITH HIS OWN TAX ADVISOR,
REGARDING THE TAX CONSEQUENCES TO HIM AND OF THE MACK COMBINATION AND OF THE
OWNERSHIP AND SALE OF COMMON STOCK IN AN ENTITY THAT HAS ELECTED TO BE TAXED AS
A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL FOREIGN AND
OTHER TAX CONSEQUENCES OF THE CONVEYANCE AND SUCH OWNERSHIP AND SALE, AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
GENERAL
Cali currently has in effect an election to be taxed as a REIT under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"). Cali believes that it has from its inception been organized and
operated in a manner qualifying it for taxation as a REIT under the Code. In the
opinion of Pryor, Cashman Sherman & Flynn, the structure of the Mack Combination
and the proposed method of operation of Cali (including the acquisition and
operation of the Mack Properties), following the Mack Combination will enable
Cali to continue to satisfy the requirements for qualification and taxation as a
REIT under the Code. This opinion is based on certain assumptions and certain
representations made by Cali and Mack regarding certain factual matters relating
to operational practices and Cali's intended or anticipated future manner of
operation. Pryor, Cashman, Sherman & Flynn is not aware of any facts or
circumstances that are inconsistent with these assumptions and representations.
Cali's qualification and taxation as a REIT will continue to depend upon Cali's
ability to meet, on an ongoing basis, through actual annual operating results,
distribution levels and diversity stock ownership, the various qualification
tests imposed under the Code discussed below. Pryor, Cashman, Sherman & Flynn
will not review compliance with these tests on a continuing basis, and thus no
assurance can be given that Cali will satisfy such tests on a continuing basis.
See "Failure to Qualify" below. In addition, the opinion of Pryor, Cashman,
Sherman & Flynn is not binding upon the IRS.
The following is a general summary of the Code sections that govern the
federal income tax treatment of a REIT and its stockholders. These sections of
the Code are highly technical and complex, and this summary is qualified in its
entirety by the applicable Code provisions, the regulations promulgated
thereunder ("Treasury Regulations") and administrative and judicial
interpretations thereof, all of which are subject to change.
If Cali qualifies for taxation as a REIT, it generally will not be subject
to federal corporate income taxes on net income that it distributes currently to
its stockholders. This treatment substantially eliminates the "double taxation"
(at the corporate and stockholder levels) that generally results from investment
in a
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corporation. However, Cali will be subject to federal income tax in the
following circumstances. First, Cali will be taxed at regular corporate rates on
any undistributed REIT taxable income, including undistributed net capital
gains. Second, under certain circumstances, Cali may be subject to the
"alternative minimum tax" on its items of tax preference. Third, if Cali has (i)
net income from the sale or other disposition of "foreclosure property" (which
is, in general, property acquired by Cali by foreclosure or otherwise upon
default on a loan secured by the 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 Cali has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property (other than foreclosure property) held primarily for sale to customers
in the ordinary course of business), such income will be subject to a 100% tax.
Fifth, if Cali should fail to satisfy the 75% gross income test or the 95% gross
income test (as discussed below), and has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on the net income attributable to the greater of
the amount by which Cali fails the 75% or 95% test, multiplied by a fraction
intended to reflect Cali's profitability. Sixth, if Cali should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year (ii) 95% of its REIT capital gain net income for
such year and (iii) any undistributed taxable income from prior years, Cali
would be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed. Seventh, with respect to any asset (a
"Built-In-Gain Asset") acquired by Cali 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 Cali is determined by reference to the basis of the asset in the hands of the
C corporation and such basis is less than the fair market value of such asset at
the time of such acquisition (with the excess of such fair market value over
such basis amount being referred to as the "Built-In-Gain"), if Cali recognizes
any Built-In-Gain on the disposition of such Built-In-Gain Asset during the
ten-year period beginning on the date on which such asset was acquired by Cali
(the "Recognition Period"), then, such Built-In-Gain will be subject to tax at
the highest regular corporate rate applicable pursuant to Treasury Regulations
that have not yet been promulgated. The results described above with respect to
the recognition of Built-In-Gain assume that Cali will make an election pursuant
to IRS Notice 88-19.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association (1) which is
managed by one or more trustees or directors; (2) the beneficial ownership of
which is evidenced by transferable shares or by transferable certificates of
beneficial interest; (3) which would be taxable as a domestic corporation but
for Sections 856 through 859 of the Code; (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; (6) during
the last half of each taxable year not more than 50% in value of the outstanding
stock of which is owned, directly or indirectly. 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 nature 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. Cali has previously issued sufficient
shares of Common Stock in sufficient proportions to allow Cali to satisfy
requirements (5) and (6). In addition, Cali's Articles of Incorporation provide
restrictions regarding ownership and transfer of its shares that are intended to
assist Cali in continuing to satisfy the share ownership requirements described
in (5) and (6) above. Pursuant to the recently enacted Taxpayer Relief Act of
1997 (the "Act"), effective for Cali's taxable years beginning on or after
January 1, 1998, so long as Cali complies with the Treasury regulations (the
"Stock Ownership Regulations") for ascertaining the ownership of its stock, Cali
will not lose its qualification as a REIT as a result of a violation of
condition (6) if it neither knows nor upon exercising reasonable due diligence
would have known of such violation. Under prior law, Cali's failure to
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comply with the Stock Ownership Regulations could have resulted in its
disqualification as a REIT for the taxable year of the failure. For taxable
years beginning on or after January 1, 1998, Cali would be subject to a
financial penalty of $25,000 ($50,000 for intentional violations) for any year
in which it failed to comply with the Stock Ownership Regulations. Furthermore,
if Cali could establish that its failure to comply was due to reasonable cause
and not to willful neglect, no penalty would be imposed.
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. From its inception, Cali's taxable year has been the
calendar year.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of Section 856 of the Code, including the
satisfaction of the gross income and asset tests. Thus. Cali's proportionate
share of the assets, liabilities and items of income of any partnership in which
Cali is a partner including the partnership's share of such assets, liabilities
and items of income of any subsidiary partnerships) will be treated as assets,
liabilities and items of income of Cali for purposes of applying the
requirements described herein.
INCOME TESTS. In order to maintain qualification as a REIT, Cali must
satisfy annually certain gross income requirements. First, at least 75% of
Cali's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments (the "75% Test"). In addition, at least 95% of Cali's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived from such real property investments, and from
dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing (the "95% Test", and
together with the 75% Test, the "Gross Income Tests"). Finally, for the 1997
taxable year of Cali ending on December 31, 1997, 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 less than
four years (apart from involuntary conversions and sales of foreclosure
property) must represent less than 30% of its gross income (including gross
income from prohibited transactions) for each taxable year. However, the 30%
Test was repealed by the Act for taxable years beginning on or after January 1,
1988. In addition, pursuant to the Act, for taxable years beginning on or after
January 1, 1988, except to the extent otherwise provided by regulations,
"qualifying income" for purposes of the Gross Income Tests would include
payments to Cali under an interest rate swap, cap agreement, option, futures
contract, forward rate agreement or any similar financial instrument entered
into by the Cali to hedge its indebtedness, as well as any gain from the
disposition of any of the foregoing investments.
Rents received by Cali will qualify as "rents from real property" in
satisfying the gross income requirements 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 of any person. 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
Cali, or an owner of 10% or more of Cali actually or constructively owns 10% or
more of such tenant (a "Related Party Tenant"). Effective for Cali's taxable
years beginning on or after January 1, 1998, the constructive ownership rules
for determining whether a tenant is a Related Party Tenant are modified with
respect to partners and partnerships to provide that attribution between
partners and partnerships occurs only when a partner owns, directly and/or
indirectly, a 25%-or-greater interest in the partnership. Thus, a tenant will
not be treated as a Related Party Tenant with respect to Cali if shares of Cali
are owned by a partnership and a partner that owns, directly and indirectly, a
less-than-25% interest in such partnership also owns an interest in the tenant.
A tenant will also not be a Related Party Tenant if shareholders of Cali and
owners
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of such tenant are partners in a partnership in which neither owns, directly
and/or directly, a 25%-or-greater interest. 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 (the "15%
Limitation"), then the portion of rent attributable to such personal property
will not qualify as "rents from real property". Cali does not anticipate (i)
charging rent for any portion of' 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
percentage of receipts or sales, which, as described above is permitted); (ii)
receiving rents in excess of a DE MINIMIS amount from Related Party Tenants; and
(iii) deriving rent attributable to personal property leased in connection with
real property in excess of the 15% Limitation. Finally, for rents received to
qualify as "rents from real property," Cali generally must not operate or manage
the property or furnish or render services to tenants, other than through an
"independent contractor" from whom Cali derives no revenue. The "independent
contractor" requirement, however, does not apply to the extent the services
provided by Cali are "usually or customarily rendered" in connection with the
rental of space for occupancy only and are not otherwise considered "rendered to
the occupant." CRLP will provide certain services with respect to the properties
that are intended to comply with the "usually or customarily rendered"
requirement. In the case of any services that are not "usual and customary"
under the foregoing rules ("Impermissible Services"), Cali generally intends to
employ independent contractors to perform such services from whom it will derive
no income.
Pursuant to the Act, effective for its tax years beginning on or after
January 1, 1998, Cali may render a DE MINIMIS amount of Impermissible Services
to tenants, or in connection with the management of property, without having
otherwise qualifying rents from the property being disqualified as "rents from
real property." The receipt of income in respect of such Impermissible Services
("Impermissible Services Income") does not disqualify otherwise qualifying
income from real property as "rents from real property" so long as the
Impermissible Services Income from the property does not exceed 1% of Cali's
gross income from the property for that tax year. To qualify for this 1 percent
exception, the Impermissible Services may not be valued at less than 150 percent
of Cali's direct cost of service. The amount of any Impermissible Services
Income, however, is not treated as "rents from real property" for purposes of
the 75% and 95% Gross Income Tests and, accordingly, must be considered together
with other non-qualifying income for purposes of satisfying the Gross Income
Tests.
CRLP may receive fees in consideration of the performance of management and
administrative services with respect to properties that are not owned entirely
by CRLP. Although a portion of such management and administrative fees generally
will not be "qualifying income" for purposes of the Gross Income Tests, Cali
believes that the aggregate amount of such fees (and any Impermissible Services
Income or other non-qualifying income) in any taxable year will not cause Cali
to fail the Gross Income Tests.
If Cali fails to satisfy one or both of the 75% or 95% 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 generally will be available if Cali's failure to meet such tests was
due to reasonable cause and not due to willful neglect, Cali attaches a schedule
of the sources of its income to its federal income tax return, and any incorrect
information on the schedules was not due to fraud with intent to evade tax. It
is not possible, however, to state whether in all circumstances Cali would be
entitled to the benefit of these relief provisions. If these relief provisions
were inapplicable, Cali would not qualify as a REIT. As discussed above in
"--General," even if these relief provisions apply, a tax would be imposed with
respect to the excess net income.
Effective for taxable years beginning on or after January 1, 1998, property
that was involuntarily converted will be excluded from the "prohibited
transaction" rules.
ASSET TESTS. Cali 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 Cali's total assets (including its allocable
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share of real estate assets held by CRLP and partnerships in which CRLP owns an
interest and assets held by "qualified REIT subsidiaries" of Cali) must be
represented by real estate assets, 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 Cali, cash, cash items and government
securities. Second, not more than 25 percent of Cali's total assets (including
its allocable share of real estate assets held by CRLP and partnerships in which
CRLP owns an interest, and assets held by "qualified REIT subsidiaries" of Cali)
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 Cali may not exceed 5 percent of the value
of Cali's total assets (including its allocable share of real estate assets held
by CRLP and partnerships in which CRLP owns an interest, and assets held by
"qualified REIT subsidiaries" of Cali), and Cali may not own more than 10% of
any one issuer's outstanding voting securities.
A REIT which meets the foregoing asset tests at the close of any quarter
will not lose its status as a REIT for failure to satisfy the asset tests at the
end of a later quarter solely by reason of changes in asset values. If the
failure to satisfy the asset tests results from an acquisition of securities or
other property during a quarter (including as a result of the REIT increasing
its interest in any partnership in which the REIT is a partner), the failure can
be cured by disposition of sufficient nonqualifying assets within 30 days after
the close of that quarter. Cali intends to maintain adequate records of the
value of its assets to ensure compliance with the asset tests and to take such
other actions within 30 days after the close of any quarter as may be required
to cure any noncompliance. If Cali failed to cure noncompliance with the asset
tests within such time period, Cali would cease to qualify as a REIT.
ANNUAL DISTRIBUTION REQUIREMENTS Cali, 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
Cali's "REIT taxable income" (computed without regard to the dividends paid
deduction and its net capital gain) and (ii) 95 percent of Cali's net income
(after tax), if any from foreclosure property minus (B) the sum of certain items
of noncash income. In addition, if Cali disposes of any Bulit-in-Gain Asset
during the Recognition Period, Cali could be required pursuant to Treasury
regulations that have not yet been promulgated to distribute at least 95 percent
of any Built-in-Gain (after tax) 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 Cali 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 Cali 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 on the
undistributed amount at regular ordinary and capital gains tax rates. As
discussed below, stockholders of Cali, for taxable years of Cali beginning on or
after January 1, 1988, would receive a tax credit for the corporate level taxes
paid by Cali on any undistributed capital gains. See "Taxation of Domestic
Shareholders" below. Furthermore, if Cali should fail to distribute during each
calendar year at least the sum of (i) 85 percent of its REIT ordinary income for
such year (ii) 95 percent of its REIT capital gain income for such year, and
(iii) any undistributed taxable income from prior periods, Cali would be subject
to a 4 percent excise tax (the "Excise Tax") on the excess of such required
distribution over the amounts actually distributed. As discussed more completely
under "Taxation of Domestic Stockholders," Cali may elect pursuant to the Act
for its taxable years beginning on or after January 1, 1988, to retain any long
term capital gain recognized during a taxable year ("Retained Gains") and pay a
corporate level tax on such Retained Gains. The Retained Gains are then
considered to have been distributed to holders of Common Stock. It is unclear
whether any Retained Gains would be treated as having been actually distributed
for purposes of the Excise Tax. Absent public guidance from the IRS or the
adoption of corrective statutory provisions, if Retained Gains were not treated
as being actually distributed, any Retained Gains possibly could be subject to
the Excise Tax.
Cali intends to make timely distributions sufficient to satisfy the annual
distribution requirements. In this regard, the partnership agreement of CRLP
authorizes Cali as general partner to take such steps as
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may be necessary to cause CRLP to distribute to its partners an amount
sufficient to permit Cali to meet these distribution requirements. It is
possible, however, that Cali from time to time, may not have sufficient cash or
other liquid assets to meet the 95% distribution requirement due to timing
differences between the actual receipt of income and actual payment of
deductible expenses and the inclusion of such income and deduction of such
expenses in arriving at taxable income of Cali, or if the amount of
nondeductible expenses such as principal amortization or capital expenditures
exceed the amount of noncash deductions. In the event that such timing
differences occur, in order to meet the 95% distribution requirement, Cali may
or may cause CRLP to. arrange for short-term, or possibly long-term, borrowing
to permit the payment of required dividends. If the amount of nondeductible
expenses exceeds noncash deductions, CRLP may refinance its indebtedness to
reduce principal payments and borrow funds for capital expenditures.
Under certain circumstances, Cali 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 that may be included in Cali's deduction for
dividends paid for the earlier year. Thus, Cali may be able to avoid being taxed
on amounts distributed as deficiency dividends; however, Cali will be required
to pay to the IRS interest based upon the amount of any deduction taken for
deficiency dividends.
FAILURE TO QUALIFY AS A REIT
If Cali fails to qualify for taxation as a REIT in any taxable year and the
relief provisions do not apply, Cali will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to stockholders in any year in which Cali fails to qualify
will not be deductible by Cali 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 in the Code, corporate distributees may be eligible for
the dividends received deduction. Unless entitled to relief under specific
statutory provisions, Cali also will 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 Cali would be entitled
to such statutory relief.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
As long as Cali qualifies as a REIT, distributions made to Cali'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. The appropriate characterization and taxation of actual
distributions by Cali that are designated as capital gain dividends (to the
extent they do not exceed Cali's actual net capital gain and/or adjusted net
capital gain for the taxable year) will be determined at the Cali level without
regard to the period for which the stockholder has held its stock. Although the
matter is not entirely free from doubt, it appears that, pursuant to the Act,
the portion of any such distributions designated as capital gain dividends
attributable to gain recognized after July 28, 1997 with respect to capital
assets held by Cali for more than 18 months on the date of sale will be treated
as long-term capital gain taxable as a maximum rate of 20% (or 25% to the extent
any such gain arises from the recapture of straight-line depreciation deductions
reflected in the basis of real property that has been held by Cali for more than
18 months as of the date of sale) and any remaining portion of such capital gain
dividends will be treated as long-term capital gain taxable at a maximum rate of
28%. However, corporate stockholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income. Distributions in excess of
current and accumulated earnings and profits will not be taxable to a
stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's shares of Common Stock, but rather will reduce the adjusted basis
of such shares. Assuming a stockholder holds his shares of Common Stock as a
capital asset, any such distributions in excess of a stockholder's adjusted
basis in his shares of Common Stock will be included in income as long-term
capital gain taxable at a maximum rate of 20% if the gain is recognized after
July 28, 1997 and the
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shares have been held for more than 18 months at the time of sale, long-term
capital gain taxable at a maximum rate of 28 percent if the shares have been
held for more than one year but not more than 18 months and short-term capital
gain taxable at a maximum rate of up to 39.6 percent if the shares been held for
only one year or less. In addition. any dividend declared by Cali 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 Cali and
received by the stockholder on December 31 of such year provided that the
dividend is actually paid by Cali 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 Cali.
As indicated above, pursuant to the Act, Cali may elect for taxable years of
Cali beginning on or after January 1, 1998, to retain any net capital gain
recognized by it and pay a corporate level tax on the undistributed amounts. The
maximum rate of tax applicable to corporate capital gains is 35 percent. To the
extent Cali recognized corporate level long-term capital gains which it retained
rather than distributing, a stockholder owning shares of Common Stock on
December 31 of the year in which such Retained Gains were recognized would be
required to include his proportionate share of the Retained Gains (as designated
by Cali in a notice mailed to the stockholder within the first 60 days of the
next year) in income for that year as long term capital gain. The stockholders
would be deemed to have paid the amount of tax paid by Cali with respect to the
Retained Gains and would be allowed a credit or refund for the tax deemed to be
paid by him. Stockholders receiving any such Retained Gains would increase their
adjusted tax basis in their shares of Common Stock by an amount equal to the
Retained Gains included in their income reduced by the amount of Company level
tax deemed to have been paid by them.
In general, any loss upon a sale or exchange of shares of Common Stock 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 actual or deemed distributions from Cali required to be treated by
such stockholder as long-term capital gain.
BACKUP WITHHOLDING
Cali 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 Cali 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, Cali may be required to
withhold a portion of capital gain distributions made to any stockholders who
fail to certify their non-foreign status to Cali. See "--Taxation of Foreign
Stockholders" below.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
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. Instead, 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, 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
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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% of the value of the
REIT; or (ii) a group of pension trusts individually holding more than 10% of
the value of the REIT collectively own more than 50% of the value of the REIT.
TAXATION OF FOREIGN STOCKHOLDERS
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations. foreign partnerships and other foreign
stockholders (collectively "Non-U.S. Stockholders") are complex. and no attempt
will be made herein to provide more than a limited summary of such rules.
Accordingly, the discussion does not address all aspects of U.S. federal income
tax and does not address state, local or foreign tax consequences (including
treaty benefits, if any, that may be available in certain instances) that may be
relevant to a Non-U.S. Stockholder in light of its particular circumstances. In
addition, this discussion is based on current law, which is subject to change,
and assumes that Cali qualifies for taxation as a REIT. 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 Common
Stock, including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges by
Cali of U.S. real property interests and not designated by Cali 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 Cali. Such
distributions ordinarily will be subject to a withholding tax equal to 30% of
the gross amount of the distribution unless an applicable tax treaty reduces
that tax. However, if income from the investment in the shares of Common Stock
is treated as effectively connected with the Non-U.S. Stockholder's conduct of a
U.S. trade or business, the Non-U.S. Stockholder generally will be subject to a
tax at graduated rates, in the same manner as U.S. stockholders are taxed with
respect to such dividends (and may also be subject to the 30% branch profits tax
if the stockholder is a foreign corporation). Cali expects to withhold U.S.
income tax at the rate of 30% on the gross amount of any dividends paid to a
Non-U.S. Stockholder unless (i) a lower treaty rate applies and the required
form evidencing eligibility for that reduced rate is filed with Cali or (ii) the
Non-U.S. Stockholder files an IRS Form 4224 with Cali claiming that the
distribution is "effectively connected" income.
Distributions in excess of current and accumulated earnings and profits of
Cali will not be taxable to a stockholder to the extent that they do not exceed
the adjusted basis of the stockholder's shares of Common Stock, 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 of Common Stock as
described below. If it cannot be determined at the time a distribution is made
whether or not such distribution will be in excess of current and accumulated
earnings and profits, the distribution 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 Cali.
Under recently proposed Treasury regulations, withholding procedures would
be revised. Should the proposal be adopted, withholding generally would be at
either 31 percent or 30 percent unless a new Form W-8 is filed with Cali by the
beneficial owner to establish entitlement to treaty benefits or exemption based
upon the income being "effectively connected". In some instances, additional
documentation might be required from the beneficial owner, including an
individual taxpayer identification number from the IRS and a certification of
tax status from the tax authorities of the beneficial owner's country of
residence.
For any year in which Cali qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by Cali 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.
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business. Thus, Non-U.S. Stockholders would be taxed at the normal capital gain
rates applicable to U.S. stockholders (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals). Also, distributions subject to FIRPTA may be subject to a 30%
branch profits tax in the hands of a corporate Non-U.S. Stockholder not entitled
to treaty relief or exemption. Cali is required by applicable Treasury
Regulations to withhold 35 percent of any distribution that could be designated
by Cali 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 Common 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 Cali will be a
"domestically controlled REIT," and therefore the sale of Common 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 Common 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 U.S.
withholding tax on the individual's capital gains. If the gain on the sale of
Common 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).
EFFECT ON REIT QUALIFICATION OF TAX STATUS OF CRLP AND OTHER PARTNERSHIPS
Substantially all of Cali's investments have been and will continue to be
through CRLP, which in turn will hold interests in other partnerships. The
ownership of an interest in a partnership involves special tax risks including
the possible challenge by the IRS of (i) allocations of income and expense
items, which could affect the computation of taxable income of Cali and (ii) the
status of the partnerships as partnerships (as opposed to associations taxable
as corporations) for income tax purposes. This partnership status risk should be
substantially diminished by Treasury Regulations issued on December 17, 1996,
permitting election of partnership status effective January 1, 1997 by the
filing of Form 8823 or in certain other ways specified in the new Regulations.
With respect to Cali's existing partnership investments, the new Regulations
provide that (1) previously claimed partnership status, if supported by a
reasonable basis for classification, will generally be respected for all periods
prior to January 1, 1997; and (2) previously claimed partnership status will
generally be retained after January 1, 1997, unless an entity elects to change
its status by filing a formal election. Cali believes that it has a reasonable
basis for the classification of CRLP and its subsidiary partnerships as
partnerships for federal income tax purposes and has neither filed nor does Cali
intend to file an election to have CRLP or any of its subsidiary partnerships
treated otherwise. If any of the partnerships, however, should be treated as an
association, it would be taxable as a corporation. In such a situation, if
Cali's ownership interest 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 Cali's assets, Cali would cease to qualify as a REIT.
Furthermore, in such a situation, distributions from any of the partnerships to
Cali 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 Cali to meet the 75 percent asset test
described above. In addition, in such a situation, the interests in any of the
partnerships held by Cali would not qualify as a "real estate asset," which
could make it more difficult to meet the 75 percent asset test described above.
Finally, in such a situation, Cali would not be able to deduct its share of
losses generated by any of the partnerships in computing its taxable income. See
"-- Failure to Qualify as a REIT" above for a discussion of the effect of Cali's
failure to meet such tests for a taxable year. Cali believes that the
partnerships in which it owns interests have been and will continue to be
74
<PAGE>
treated as partnerships (rather than as associations taxable as corporations)
for federal income tax purposes. However, no assurance can be given that the IRS
may not successfully challenge the status of any partnerships.
TAX ALLOCATIONS WITH RESPECT TO THE MACK PROPERTIES
Pursuant to the Contribution and Exchange Agreement, Cali will acquire the
Mack Properties as a tax-free contribution to the capital of CRLP in exchange
for cash, the assumption of certain liabilities, Units and Warrants having an
aggregate value of approximately $1.2 billion dollars. Pursuant to Section 721
of the Code, no gain or loss will be recognized by CRLP or to any of its
partners (including Cali) as a result of the contribution of the Mack Properties
to CRLP in exchange for Units. Pursuant to Section 723 of the Code, CRLP's basis
of the Mack Properties shall be equal to the basis of such properties at the
time of contribution increased by the amount of any gain recognized by Mack upon
contribution. The aggregate adjusted tax basis of the Mack Properties at the
time of contribution is approximately [$480 million dollars]. Generally, the
difference between the fair market value of the contributed property
(approximately $1.2 billion dollars) at the time of contribution and the
adjusted tax basis of the Mack Properties or at the time of contribution
(approximately $480 million dollars) reflects that built-in-gain associated with
such Properties (the "Book -Tax Difference"). The Book-Tax Difference of the
Mack Properties acquired in the Mack Combination will be approximately [$720]
million dollars. As discussed below, CRLP and Cali will not be entitled to
depreciation deductions attributable to the Book-Tax Difference. As a result,
Cali will be required to distribute more dividends in order to satisfy a 95
percent distribution requirement than it would have had Cali purchased the
assets for cash in a taxable transaction. See "Annual Distribution Requirements"
above for a discussion of Cali's distribution requirements. In addition, the
amount of tax-free return of capital to each U.S. shareholder will be less than
the amount each shareholder would have realized had Cali purchased the assets
for cash in a taxable transaction.
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 partnership agreements of each of CRLP and its subsidiary or affiliated
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, Mack will be allocated disproportionately lower amounts of
depreciation deductions for tax purposes relative to their percentage interests
in CRLP, and disproportionately greater shares relative to their percentage
interests in CRLP of the taxable income and gain on the sale of one or more of
the contributed Mack 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" in
allocating items allocable under Section 704(c) of the Code, unless otherwise
agreed to between Cali and the contributing partner. Pursuant to the
Contribution and Exchange Agreement, Cali has agreed to use the traditional
method for the Mack Properties. 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 Cali to be
allocated less depreciation than would be available for newly purchased
properties.
75
<PAGE>
STATE AND LOCAL TAXES
Cali 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 Cali 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 Common Stock of Cali.
76
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Mack Combination, Cali will have outstanding
36,662,212 shares of Common Stock. In addition, 19,483,716 shares of Common
Stock are reserved for issuance upon the redemption of outstanding Units and the
exercise of outstanding options and Warrants. The shares of Common Stock
acquired by Mack in redemption of Units or the exercise of Warrants will be
"restricted securities" (the "Restricted Shares") within the meaning of Rule 144
("Rule 144") promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available, including
exemptions contained in Rule 144.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the acquisition of Restricted Shares from Cali or any
affiliate of Cali (as defined under the Securities Act), the acquiror or
subsequent holder thereof is entitled to sell within any three-month period a
number of shares that does not exceed the greater of (i) 1 percent of the then
outstanding shares of Common Stock of Cali or (ii) the average weekly trading
volume of the Common Stock during the four calendar weeks immediately preceding
the date on which notice of the sale is filed with the Securities and Exchange
Commission. Sales under Rule 144 are also subject to certain provisions relating
to manner of sale, notice, and the availability of current public information
about Cali. If two years have elapsed since the date of acquisition of
restricted Shares from Cali or from any affiliate of Cali, and the acquiror or
subsequent holder therof is deemed not to have been an affiliate of Cali at any
time during the 90 days immediately preceding a sale, such person is entitled to
sell such shares in the public market under Rule 144(k) without regard to the
volume limitations, manner of sale provisions, public information requirements
or notice requirements.
In connection with the Mack Combination, Cali has agreed to certain demand
and shelf registration rights to Mack with respect to the Common Stock obtained
upon the redemption of Units received in the Mack Combination. See "Description
of the Contribution and Exchange Agreement--Registration Rights".
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Price Waterhouse LLP are expected to be present at the
Special Meeting to respond to questions from shareholders and to make a
statement if they so desire.
SHAREHOLDER PROPOSALS
To be considered for presentation at the annual meeting of Cali's
shareholders to be held in 1998, a shareholder proposal must be received by
Brant Cali, Secretary, Cali Realty Corporation, 11 Commerce Drive, Cranford, New
Jersey 07016, no later than November 26, 1997.
OTHER MATTERS
As of the date of this Proxy Statement, neither the Board of Directors nor
management knows of other matters which will be presented for consideration at
the Special Meeting. However, if any other business should properly come before
the special Meeting, the persons named in the enclosed proxy ( or their
substitutes) will have discretionary authority to take such action as shall be
in accordance with their best judgment.
77
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by Cali with the Commission pursuant to
Section 13 of the Securities Exchange Act of 1934 (the "Exchange Act") (File
No.1-13274), are incorporated herein by reference: (i) the Annual Report on Form
10-K for the year ended December 31, 1996, (ii) the Quarterly Reports on Form
10-Q for the quarters ended March 31, 1997 and June 30, 1997, (iii) the Current
Reports on Form 8-K dated January 31, 1997, September 18, 1997 and September
19,1997 and (iv) the Proxy Statement of Cali dated March 26, 1997.
All documents filed by Cali pursuant to Section 13 (a), 13 (c ), 14 or 15(d)
of the Exchange Act subsequent to the date of this Proxy Statement and prior to
the date of the Special Meeting of the Cali Shareholders shall be deemed to be
incorporated by reference herein from the date of filing such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by a references herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any 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 Proxy Statement.
Also incorporated by reference herein is the Contribution and Exchange
Agreement, a copy of which has been filed with the Securities and Exchange
Commission on a Current Report on Form 8-K dated September 19, 1997.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS, EXCEPT THE EXHIBITS TO
SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
IN SUCH DOCUMENTS), ARE AVAILABLE ON REQUEST. REQUESTS FOR SUCH COPIES SHOULD BE
DIRECTED TO , 11 COMMERCE DRIVE, CRANFORD, NEW JERSEY 07016 OR BY
TELEPHONE AT (908) 272-8000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY .
By order of the Board of Directors
/s/ BRANT CALI
--------------------------------------
BRANT CALI
CHIEF OPERATING OFFICER AND SECRETARY
Date: , 1997
Cranford, New Jersey
78
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
THE MACK GROUP HISTORICAL
Reports of Independent Accountants:
Report of Price Waterhouse LLP.........................................................................
Report of Ernst & Young LLP............................................................................
Combined Balance Sheets as of June 30, 1997 (unaudited), December 31, 1996 and 1995......................
Combined Statements of Operations for the Six Months Ended June 30, 1997 and 1996 (unaudited), and for
the Three Years in the Period Ended December 31, 1996..................................................
Combined Statements of Partners' Deficit for the Period January 1, 1994 through December 31, 1996, and
through June 30, 1997 (unaudited)......................................................................
Combined Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996 (unaudited) and the
Three Years in the Period Ended December 31, 1996......................................................
Notes to Combined Financial Statements...................................................................
Financial Statement Schedule III--Real Estate and Accumulated Depreciation and Amortization............
CALI PRO FORMA STATEMENTS
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1997.......................................
Pro Forma Consolidated Statements of Operations for the Six Months Ended June 30, 1997 and the Year Ended
December 31, 1996......................................................................................
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Cali Realty Corporation
and the Partners and Members of
The Mack Group
In our opinion, based upon our audits and the report of other auditors, the
accompanying combined balance sheets and the related combined statements of
operations, of partners' deficit and of cash flows, including financial
statement Schedule III, present fairly, in all material respects, the financial
position of The Mack Group at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31 1996, in conformity with generally accepted accounting
principles. These financial statements and schedule are the responsibility of
the management of The Mack Group; our responsibility is to express an opinion on
these financial statements and schedule based on our audits. We did not audit
the combined financial statements and schedule of the Patriot American Office
Group, part of the combined Mack Group, which statements reflect total assets of
$136,855,000 and $135,063,000 at December 31, 1996 and 1995, respectively, and
total revenues of $40,118,000, $36,776,000 and $31,583,000 for the years ended
December 31, 1996, 1995 and 1994, respectively. Those statements were audited by
other auditors whose report thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for the Patriot
American Office Group, is based solely on the report of the other auditors. We
conducted our audits of these statements and schedule in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements and
schedule are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
- - --------------------------
PRICE WATERHOUSE LLP
New York, New York
September 15, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners and Owners
Patriot American Office Group:
We have audited the accompanying combined balance sheets of the Patriot
American Office Group, more fully described in Note 1, as of December 31, 1996
and 1995, and the related combined statements of operations, partners' and
owners' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1996 (not presented separately herein). We have also
audited the accompanying financial statement schedule (not presented separately
herein). These financial statements and schedule are the responsibility of the
Patriot American Office Group's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Patriot
American Office Group as of December 31, 1996 and 1995, and the combined results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information
required to be set forth therein.
/s/ ERNST & YOUNG LLP
----------------------------------------------------------------
ERNST & YOUNG LLP
Dallas, Texas
March 19, 1997, except for Note 9,
for which the date is August 4, 1997
F-3
<PAGE>
THE MACK GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
JUNE 30, ----------- -----------
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Rental property
Land..................................................................... $ 67,917 $ 67,917 $ 67,917
Buildings and improvements............................................... 489,755 489,030 488,106
Tenant improvements...................................................... 140,291 126,591 112,307
Furniture, fixtures, and equipment....................................... 2,464 2,446 2,398
----------- ----------- -----------
700,427 685,984 670,728
Less-accumulated depreciation and amortization........................... (208,712) (196,790) (172,622)
----------- ----------- -----------
Total rental property................................................ 491,715 489,194 498,106
Cash and cash equivalents.................................................. 8,291 13,486 8,628
Unbilled rents receivable.................................................. 19,105 21,352 20,839
Deferred charges and other assets, net..................................... 21,846 23,348 20,459
Restricted cash............................................................ 7,685 3,911 7,676
Accounts receivable........................................................ 2,237 2,943 2,678
Due from affiliate......................................................... 1,948 4,366 6,169
----------- ----------- -----------
Total assets......................................................... $ 552,827 $ 558,600 $ 564,555
----------- ----------- -----------
----------- ----------- -----------
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT
<S> <C> <C> <C>
Mortgages and bond payable, net of discount of $2,314, $2,721 and
$39,865.................................................................. $ 654,031 $ 659,339 $ 640,063
Loans payable--partners, includes accrued interest......................... 8,307 8,222 8,603
Accounts payable and accrued expenses...................................... 10,669 11,815 10,538
Rents received in advance and security deposits............................ 10,465 9,269 8,767
Accrued interest payable................................................... 1,655 2,283 2,904
----------- ----------- -----------
Total liabilities...................................................... 685,127 690,928 670,875
Commitments and contingencies
Partners' deficit.......................................................... (132,300) (132,328) (106,320)
----------- ----------- -----------
Total liabilities and partners' deficit................................ $ 552,827 $ 558,600 $ 564,555
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE>
THE MACK GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------
1997 1996 1996 1995 1994
--------- --------- ---------- ------------------ ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
REVENUES
Base rents, including amounts from related
parties of $3,760, $3,832, $7,593, $7,603 and
$7,606....................................... $ 64,521 $ 63,013 $ 128,066 $ 124,493 $ 114,843
Escalation and recoveries from tenants,
including amounts from related parties of
$149, $140, $337, $348 and $603.............. 7,774 8,232 16,984 14,823 14,964
Other income................................... 5,587 2,356 3,233 2,838 2,296
Interest income................................ 350 218 469 194 275
--------- --------- ---------- -------- ----------
Total revenues............................. 78,232 73,819 148,752 142,348 132,378
--------- --------- ---------- -------- ----------
EXPENSES
Real estate taxes.............................. 7,833 7,431 15,367 14,407 14,320
Utilities...................................... 6,782 6,726 14,143 13,387 13,220
Operating services............................. 9,960 9,616 19,507 18,254 18,032
General and administrative..................... 3,531 3,777 7,309 7,885 7,995
Depreciation and amortization.................. 13,717 13,799 28,069 26,833 25,188
Interest expense............................... 29,975 30,228 58,621 59,813 56,899
--------- --------- ---------- -------- ----------
Total expenses............................. 71,798 71,577 143,016 140,579 135,654
--------- --------- ---------- -------- ----------
Income (loss) before extraordinary item........ 6,434 2,242 5,736 1,769 (3,276)
Extraordinary item-
loss on extinguishment of debt, net........ -- -- (19,285) -- --
--------- --------- ---------- -------- ----------
Net income (loss).............................. $ 6,434 $ 2,242 $ (13,549) $ 1,769 $ (3,276)
--------- --------- ---------- -------- ----------
--------- --------- ---------- -------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
THE MACK GROUP
COMBINED STATEMENTS OF PARTNERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<S> <C>
Partners' deficit at January 1, 1994............................................. $(132,938)
Contributions.................................................................. 28,983
Distributions.................................................................. (7,353)
Net loss....................................................................... (3,276)
---------
Partners' deficit at December 31, 1994........................................... (114,584)
Contributions.................................................................. 16,696
Distributions.................................................................. (10,201)
Net income..................................................................... 1,769
---------
Partners' deficit at December 31, 1995........................................... (106,320)
Contributions.................................................................. 6,340
Distributions.................................................................. (18,799)
Net loss....................................................................... (13,549)
---------
Partners' deficit at December 31, 1996........................................... (132,328)
Contributions.................................................................. 2,204
Distributions.................................................................. (8,610)
Net income..................................................................... 6,434
---------
Partners' deficit at June 30, 1997 (unaudited)................................... $(132,300)
---------
---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE>
THE MACK GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................... $ 6,434 $ 2,242 $ (13,549) $ 1,769 $ (3,276)
Adjustments to reconcile net income (loss) to net cash flows
provided by operating activities
Depreciation and amortization............................... 13,717 13,799 28,069 26,833 25,188
Amortization of deferred financing costs.................... 1,232 382 899 828 962
Amortization of interest discount on mortgage loans......... 407 2,735 5,466 5,390 5,163
Amortization of profit participation discount on mortage
loans..................................................... -- 647 1,294 1,029 812
Loss on extinguishment of debt, net......................... -- -- 19,285 -- --
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable................ 706 (251) (265) 29 761
(Increase) decrease in unbilled rents receivable.......... 2,247 (356) (513) (4,112) (2,177)
(Increase) decrease in due from Mack Company.............. 2,418 358 1,803 (2,261) (3,909)
(Increase) decrease in deferred charges and other assets,
net..................................................... (1,469) (943) (5,212) (1,987) (5,123)
Increase (decrease) in accounts payable and accrued
expenses................................................ (1,611) 944 737 (6,362) 2,139
Increase (decrease) in accrued interest payable and
accrued interest on partner loans....................... (469) 1,736 1,989 4,882 1,810
Increase (decrease) in rents received in advance and
security deposits....................................... 1,196 (2,383) 502 1,778 (1,142)
--------- --------- --------- --------- ---------
Cash flows provided by operating activities............... 24,808 18,910 40,505 27,816 21,208
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to rental properties.............................. (13,900) (4,744) (15,301) (27,070) (49,700)
(Increase) decrease in restricted cash...................... (3,774) 628 3,764 (3,611) (1,103)
--------- --------- --------- --------- ---------
Cash flows used in investing activities................... (17,674) (4,116) (11,537) (30,681) (50,803)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgages..................................... -- 3,300 131,700 7,500 10,900
Repayments of mortgages..................................... (5,788) (10,073) (139,997) (13,565) (11,377)
Proceeds from loans payable partners........................ -- -- -- -- 7,000
Payment of financing costs.................................. (135) (547) (3,354) (402) (631)
Cash contributions from partners............................ 2,204 807 6,340 16,696 28,983
Cash distributions to partners.............................. (8,610) (7,152) (18,799) (10,201) (7,353)
--------- --------- --------- --------- ---------
Cash flows (used in) provided by financing activities..... (12,329) (13,665) (24,110) 28 27,522
--------- --------- --------- --------- ---------
Net (decrease) increase in cash and cash equivalents...... (5,195) 1,129 4,858 (2,837) (2,073)
Cash and cash equivalents, beginning of period................ 13,486 8,628 8,628 11,465 13,538
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period...................... $ 8,291 $ 9,757 $ 13,486 $ 8,628 $ 11,465
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental Cash Flow Information
Cash paid for interest expense.............................. $ 28,862 $ 23,304 $ 48,821 $ 49,020 $ 47,710
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Non-Cash Investing Activites
Accruals for property additions............................. $ 942 $ 712 $ 477 $ 521 $ 767
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-7
<PAGE>
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
The Mack Group (not a legal entity) is engaged in the ownership and
operation of commercial office buildings located in the United States (the
"Properties"). The Properties are held through two portfolios: The Mack Company
and Patriot American Office Group ("PAO") portfolios. The Mack Company's office
property portfolio consists of 32 office properties comprising approximately 5.9
million square feet located principally in New Jersey and Arizona. The PAO
portfolio consists of 23 office properties comprising approximately 3.5 million
square feet located principally in Texas and Arizona. The Mack Company and PAO
are collectively hereinafter referred to as The Mack Group. Management, leasing
and construction services with respect to the Properties have been historically
provided by affiliates of The Mack Group.
BASIS OF PRESENTATION
The accompanying combined financial statements of The Mack Group have been
presented on a combined basis, which is considered to be the most meaningful,
due to the common general partners in partnerships or managing members in
limited liability companies and common management. In addition, the entities are
expected to be the subject of a business combination with Cali Realty
Corporation and subsidiaries ("Cali"), a fully integrated, self administered,
self managed real estate investment trust. The business combination involves the
planned acquisition by Cali of 100 percent of the interests of the partners and
members of the partnerships and limited liability companies (hereinafter
referred to as "partnership or partnerships") included in The Mack Group who
will receive cash, limited partnership interests, warrants to acquire limited
partnership interests, or a combination thereof in Cali Realty, LP.
Certain other properties and operations affiliated with The Mack Group have
been excluded from these financial statements as they are not included in the
anticipated business combination described above.
All significant intercompany accounts and transactions have been eliminated
in combination.
The following table sets forth the Properties included in The Mack Group:
<TABLE>
<CAPTION>
PROPERTY LOCATION PROPERTY LOCATION
- - --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
NEW JERSEY NEW JERSEY
Mack Centre I Rochelle Park Mack Airport Little Ferry
Mack Centre II Paramus Kemble Plaza I Morris Township
Mack Centre III Paramus 120 Passaic Street Rochelle Park
Mack Centre IV Paramus Kemble Plaza II Morris Township
Mack Centre VI Paramus Mack Montvale I Montvale
Mack Centre VII Paramus Mack Cranford Cranford
Willowbrook Wayne Mack Short Hills Short Hills
Woodbridge II Woodbridge Mack Montvale II Montvale
Bridgewater I Bridgewater Mack Morris Plains Morris Plains
Mack Lakeview Plaza Morris Plains Timeplex HQ Woodcliff Lake
Mack Murray Hill New Providence Timeplex 470 Woodcliff Lake
Mack East Brunswick East Brunswick Timeplex 530 Woodcliff Lake
Mack Saddle River Upper Saddle River
</TABLE>
F-8
<PAGE>
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
<TABLE>
<CAPTION>
PROPERTY LOCATION PROPERTY LOCATION
- - --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
TEXAS TEXAS
Atrium at Coulter Ridge Amarillo St. James I Houston
Monticello Dallas St. James II Houston
Preston Center Dallas Town & Country Houston
TriWest Dallas Metroport Irving
Landmark Euless Republic Place Plano
Cornerstone Houston Santa Fe Richardson
Katy Plaza Houston Bexar San Antonio
Memorial Houston Century San Antonio
Commerce Plaza San Antonio
ARIZONA ARIZONA
Beardsley Phoenix Mack Beardsley Phoenix
Glendale Glendale Biltmore Phoenix
Linda Blvd Scottsdale
NEW YORK NEW YORK
North Hills North Hills Westage Fishkill
Mack Manhasset Manhasset
CALIFORNIA NEBRASKA
Phelan San Francisco Brandeis Omaha
IOWA FLORIDA
Century III. Des Moines One Mack Center Tampa
PENNSYLVANIA
Mack Plymouth Meeting Plymouth Meeting
</TABLE>
All of the Properties have been owned by The Mack Group for the three year
period ended December 31, 1996, with the exception of the 120 Passaic Street,
Rochelle Park, New Jersey property, which was acquired in 1995.
UNAUDITED FINANCIAL STATEMENTS
The combined financial statements including the note disclosures included
herein as of June 30, 1997 and for the six months ended June 30, 1997 and 1996
are unaudited; however, in the opinion of The Mack Groups' management, all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation of the combined financial statements for these interim periods
have been included. The results for the interim periods are not necessarily
indicative of the results to be obtained for the full fiscal year.
F-9
<PAGE>
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES
RENTAL PROPERTY
Rental properties are stated at cost less accumulated depreciation. Costs
include interest, property taxes, insurance and other project costs incurred
during the period of construction. Ordinary repairs and maintenance are expensed
as incurred; major replacements and betterments are capitalized. Depreciation is
computed on a straight-line basis over the estimated useful lives of the assets
as follows:
<TABLE>
<S> <C>
Buildings and improvements................... 40 years
Tenant improvements.......................... The shorter of the term of the related lease
or useful life
Furniture, fixtures and equipment............ 5 to 10 years
</TABLE>
On a periodic basis, management assesses whether there are any indicators
that the value of the real estate properties may be impaired. A property's value
is impaired only if management's estimate of the aggregate future cash flows
(undiscounted and without interest charges) to be generated by the property are
less than the carrying value of the property. Management does not believe that
the value of any of its real estate properties is impaired.
DEFERRED CHARGES AND OTHER ASSETS
DEFERRED FINANCING COSTS
Costs incurred to obtain financing are capitalized and amortized on a
straight-line basis, which approximated the effective interest method, over the
term of the related indebtedness. Amortization of such costs was $1,232, $382,
$899, $828, and $962 for the six months ended June 30, 1997 and 1996 and years
ended December 31, 1996, 1995 and 1994, respectively.
DEFERRED LEASING COSTS
Direct costs, principally commissions and legal costs, incurred in
connection with leases are capitalized and amortized on a straight-line basis
over the terms of the related leases. Unamortized deferred leasing costs are
charged to amortization expense upon early termination of the lease.
DEBT DISCOUNTS
In connection with the initial acquisition and RTC financing of 22 of the
Properties (see Note 5), the carrying amount of the real estate and mortgage
notes payable were initially discounted by $44,082 using an effective interest
rate of 9.0 percent. The discount is amortized to interest expense over the
terms of the mortgage loans using the effective interest method.
As more fully described in Note 5, The Mack Group determines the fair value
of the participation feature of the RTC participating mortgage at the inception
of the loan and records an increase in the mortgage note payable with a
corresponding debt discount. The debt discount is amortized into interest
expense using the effective interest method over the life of the loan. The
liability and debt discount are adjusted for subsequent changes in the fair
value of the participation feature and the revised debt discount is amortized
prospectively over the remaining life of the loan.
F-10
<PAGE>
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Mack Group recognizes base rental revenue on a straight-line basis over
the terms of the respective leases. Unbilled rents receivable represents the
amount by which straight-line rental revenue exceeds rents currently billed in
accordance with the lease agreements.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents. At June 30, 1997 and December
31, 1996, cash and cash equivalents included investments in overnight reverse
repurchase agreements ("Overnight Investments") totaling $4,491 and $2,172,
respectively. Investments in Overnight Investments are subject to the risks that
the counter-party will default and the collateral will decline in market value.
The Overnight Investments matured on July 1, 1997 and on January 2, 1997, and
the entire balance, including interest income earned, was realized by The Mack
Group.
INTEREST RATE SWAP AND CAP AGREEMENTS
The Mack Group has entered into interest rate swap and cap agreements to
reduce the impact of changes in interest rates on its floating rate mortgages.
The effect of these agreements is included in interest expense as incurred.
EXTRAORDINARY ITEM
The extraordinary item represents the net effects resulting from the early
settlement of certain mortgage obligations, including accrued interest, net of
write-offs of related deferred financing costs.
PARTNERS' CAPITAL CONTRIBUTIONS, DISTRIBUTIONS AND PROFIT AND LOSS ALLOCATIONS
The individual partnership agreements specify the required capital
contributions of the partners and the procedures for the allocation of profits,
losses, distributions and the return of capital to the partners. Generally,
these items are allocated in proportion to the respective ownership percentages
of the partners.
INCOME TAXES
The entities included in the combined financial statements are partnerships
which are not subject to federal and state income taxes. The partners are
required to report in their individual federal and state income tax returns
their distributed share of income or loss and other amounts. Accordingly, income
taxes have not been provided for in the accompanying financial statements.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-11
<PAGE>
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. RESTRICTED CASH
Restricted cash includes escrow and reserve funds for debt service, real
estate taxes, property insurance, capital and tenant improvements, and leasing
costs established pursuant to certain mortgage and bond financing arrangements.
At December 31, 1995, restricted cash also included $1,653 of restricted
deposits made by a partner.
4. DEFERRED CHARGES AND OTHER ASSETS
<TABLE>
<CAPTION>
(UNAUDITED) DECEMBER 31,
JUNE 30, --------------------
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Deferred leasing costs......................................................... $ 36,046 $ 34,419 $ 29,246
Deferred financing costs....................................................... 10,621 10,486 8,200
----------- --------- ---------
Total deferred charges....................................................... 46,667 44,905 37,446
Less--accumulated amortization................................................. (25,921) (22,989) (18,719)
Deferred charges, net.......................................................... 20,746 21,916 18,727
Prepaid expenses and other assets.............................................. 1,100 1,432 1,732
----------- --------- ---------
Total deferred charges and other assets........................................ $ 21,846 $ 23,348 $ 20,459
----------- --------- ---------
----------- --------- ---------
</TABLE>
5. MORTGAGES AND BOND PAYABLE
The Mack Group has non-recourse mortgages and bond payable each of which is
collateralized by one or more of the Properties included in these financial
statements. The mortgages and bond are generally due in monthly installments of
interest and in certain cases principal based on amortization periods of 15 to
35 years, and mature at various dates through January 2009. The mortgages and
bond outstanding as of June 30, 1997 and December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
(UNAUDITED) DECEMBER 31,
JUNE 30, ----------------------
MORTGAGES AND BOND 1997 1996 1995
- - ---------------------------------------------------------------------------- ----------- ---------- ----------
<S> <C> <C> <C>
Paine Webber Mortgages...................................................... $ 126,000 $ 126,000 --
RTC Mortgages............................................................... 3,410 3,264 $ 57,628
Fixed Rate Mortgages........................................................ 344,465 347,854 396,317
Variable Rate Mortgages..................................................... 172,156 174,221 178,118
Industrial Development Bond................................................. 8,000 8,000 8,000
----------- ---------- ----------
$ 654,031 $ 659,339 $ 640,063
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
PAINE WEBBER MORTGAGES
In December 1996, The Mack Group, in connection with the PAO portfolio,
entered into a $126,000 mortgage loan agreement with Paine Webber Incorporated
("Paine Webber"). Proceeds from the loan were used to repay the RTC mortgages
and other loans, and accrued interest as discussed below. The loan, which is
collateralized by 21 Properties and a pledge of equity interest in one
partnership, an assignment of leases, and a cash collateral account, bears
interest at 250 basis points over the London Interbank Offer Rate ("LIBOR") for
the first six months, 300 basis points over LIBOR for the following six months
and
F-12
<PAGE>
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. MORTGAGES AND BOND PAYABLE (CONTINUED)
350 basis points over LIBOR thereafter until maturity in June 1998. LIBOR at
June 30, 1997 and December 31, 1996 was 5.53 percent and 5.69 percent,
respectively, and averaged 5.61 percent for the six months ended June 30, 1997.
At maturity, The Mack Group has the option to extend the loan to a seven-year
fixed rate mortgage, which would bear interest at the seven-year Treasury rate
plus 350 basis points. The loan may be prepaid in whole or part without penalty.
Additionally, The Mack Group has the option to borrow an additional $7,000 to
fund renovation costs at one of the Properties, subject to the approval of Paine
Webber.
Under the terms of the loan, The Mack Group is required to deposit
substantially all revenues from the Properties into a cash collateral account
under the sole control of Paine Webber. Funds from the cash collateral account
are to be used to fund reasonable operating expenses, debt service, real estate
taxes, insurance and approved capital improvements. On a monthly basis, 70
percent of the remaining funds in the account are to be used to repay principal
on the Paine Webber mortgage loan and 30 percent are available to the The Mack
Group.
RESOLUTION TRUST CORPORATION (RTC)
In connection with the acquisition of 22 of the PAO Properties in 1992, The
Mack Group obtained seller financing from the RTC in the form of individual
mortgage loans which aggregated $93,543. The mortgage loans matured from August
to December 2004, and were non-interest bearing for the first seven years, after
which time the loans bore interest at 9 percent per annum, payable quarterly. In
addition, the RTC was entitled to receive quarterly principal payments based on
operating income, as defined. Under the terms of the mortgage loans, the RTC was
also entitled to a 30 percent profit participation upon sale or refinancing of
the mortgage loans. The profit participation initially recorded in 1993 of
$6,287, was subsequently adjusted to $8,692 at December 31, 1994, $10,645 at
December 31, 1995 and $12,762 at December 27, 1996. The amortization of the
corresponding discount resulted in additional interest expense related to the
profit participation for the six months ended June 30, 1996 and the years ended
December 31, 1996, 1995 and 1994 of approximately $647, $1,294, $1,029 and $812,
respectively.
In December 1996, 21 of the 22 RTC mortgage loans, along with the unpaid
additional interest, were repaid with the proceeds of the Paine Webber mortgage
loan. As a result, The Mack Group recognized an extraordinary loss from early
extinguishment of debt of $33,390, which consisted primarily of the write-off of
the remaining unamortized debt discount of $23,454, the write-off of the
remaining unamortized discount related to the profit participation of $9,056 and
the write-off of deferred financing costs of $673. At June 30, 1997 and December
31, 1996, one RTC mortgage loan remains with a carrying amount of $3,410 and
$3,264, net of discount of $927 and $1,073, respectively.
FIXED RATE MORTGAGES
Interest rates on fixed rate mortgages aggregating $344,465, $347,854 and
$396,317 at June 30, 1997, and December 31, 1996 and 1995, respectively, range
from 7 percent to 14 percent, excluding the cash flow participation discussed
below. The effective interest rate at June 30, 1997 and December 31, 1996 and
1995 on such fixed rate mortgages was 8.84 percent, 9.05 percent and 10.60
percent, respectively.
In addition to the stated rates of interest, at June 30, 1997 and December
31, 1996 and 1995, a $4,750 mortgage on one Property includes provisions for
additional interest based on 25 percent of cash flows, as
F-13
<PAGE>
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. MORTGAGES AND BOND PAYABLE (CONTINUED)
defined, of the underlying property pledged under the mortgage. Additional
interest for the six months ended June 30, 1997, and 1996 and years ended
December 31, 1996, 1995, and 1994 was $98, $93, $276, $244, and $230,
respectively.
On July 3, 1996, a second mortgage on the One Mack Center, Tampa, FL
property with an outstanding balance of $15,555 including unpaid interest of
$1,955 was canceled for a payment of $1,450 to the lender, which after the
write-off of related deferred financing costs resulted in an extraordinary gain
of $14,105.
VARIABLE RATE MORTGAGES
The interest rate on variable rate mortgage payables of $12,470, $12,750 and
$15,816 at June 30, 1997 and December 31, 1996 and 1995, respectively, is at the
banks' prime rate or at prime plus one percent. The average effective interest
rate at June 30, 1997 and December 31, 1996 and 1995 was 8.50 percent, 8.25
percent and 6.68 percent, respectively.
The interest rate on variable rate mortgage payables of $159,686, $161,471
and $162,302 at June 30, 1997 and December 31, 1996 and 1995, respectively, is
0.55 percent to 2.25 percent above LIBOR. The average effective interest rate at
June 30, 1997 and December 31, 1996 and 1995 was 7.27 percent, 7.24 percent and
8.11 percent, respectively. The average effective interest rate for all variable
rate mortgage payables for the six months ended June 30, 1997 and years ended
December 31, 1996 and 1995 was 7.47 percent, 7.89 percent and 7.82 percent,
respectively.
Substantially all of the loans may not be prepaid until specified dates with
prepayment fees ranging from 1/2 percent to 2 percent of the outstanding
principal balance, or yield maintenance, as defined in the respective mortgage
loan agreement.
INDUSTRIAL DEVELOPMENT BONDS
The Mack Manhasset, NY property is financed through the issuance of $8,000
of Nassau County IDA Bonds bearing interest at a bank's TENR rate (4.1 percent
at June 30, 1997 and 4.0 percent and 5.0 percent at December 31, 1996 and 1995,
respectively) and maturing on December 1, 1999. These bonds are secured by an
$8.4 million letter of credit issued by a bank. Pursuant to the terms of the
letter of credit, the net cash flow of the Property is required to be deposited
into a sinking fund maintained by the bank as additional collateral; such
deposits, including interest totaled $556, $441 and $216 at June 30, 1997, and
December 31, 1996 and 1995, respectively.
INTEREST RATE SWAP AND CAP AGREEMENTS
The Mack Group has entered into interest rate swap and cap agreements to
reduce the impact of changes in interest rates on its floating rate mortgages.
At December 31, 1996, The Mack Group had two outstanding swap agreements with
financial institutions, having an aggregate notional principal amount of
$54,875. Those agreements effectively change The Mack Group's interest rate
exposure on its $11,875 floating rate (LIBOR + 1.15 percent) mortgage due
September 1999 to a fixed 7.08 percent through September 1998, and $43,000 of
its $53,000 floating rate (LIBOR + 0.55 percent) mortgage due January 2009 to a
fixed 8.029 percent through August 1997.
F-14
<PAGE>
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. MORTGAGES AND BOND PAYABLE (CONTINUED)
At December 31, 1996, The Mack Group also has an outstanding interest rate
cap agreement with a financial institution, having a notional amount of $8,500.
This cap agreement effectively changes The Mack Group's interest rate exposure
on its $8,090 floating rate (LIBOR + 1.15 percent) mortgage due September 1999
to a maximum 9.65 percent through September 1998.
The Mack Group is exposed to credit loss in the event of non-performance by
the other parties to the interest rate swap and cap agreements. However, The
Mack Group does not anticipate non- performance by the counter-parties.
REPAYMENT SCHEDULE
Scheduled principal repayments for the above mortgages and bond at December
31, 1996 are as follows:
<TABLE>
<S> <C>
1997.............................................................................. $ 12,527
1998.............................................................................. 218,332
1999.............................................................................. 98,671
2000.............................................................................. 18,739
2001.............................................................................. 82,304
Thereafter........................................................................ 231,487
---------
662,060
Less amount representing interest................................................. (2,721)
---------
Total............................................................................. $ 659,339
---------
---------
</TABLE>
6. LOAN PAYABLE--PARTNERS
In accordance with a partnership agreement, partner loans of $7,000 were
provided to a property. The loan bears interest at 10 percent per annum until
such time as the aggregate outstanding balance has been reduced to $2,500 at
which time the interest rate shall be reduced to 9 percent. Interest is payable
monthly, in arrears, commencing on March 1, 1994. The loan matures on December
1, 1999. Interest on these loans totaled $482 and $480 for the six months ended
June 30, 1997 and 1996, and $949, $854 and $365 for the years ended December 31,
1996, 1995 and 1994, respectively. Unpaid interest at June 30, 1997 and December
31, 1996 and 1995 totaled $1,307, $1,222 and $1,019, respectively.
7. RELATED PARTY TRANSACTIONS
LEASES WITH AFFILIATES
An affiliate of a partner of the Mack North Hills, NY property occupies, as
of December 31, 1996, 100 percent of the space in the North Hills property.
Total rent income, including escalations and recoveries from this affiliate for
the six months ended June 30, 1997 and 1996 and years ended December 31, 1996,
1995 and 1994 approximated $2,364, $2,360, $4,751, $4,728, and $4,734,
respectively.
An affiliate of a partner of the Mack Manhasset, NY property occupies, as of
December 31, 1996, 100 percent of the space in the Mack Manhasset property.
Total rent income, including escalations and
F-15
<PAGE>
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
recoveries from this affiliate for the six months ended June 30, 1997 and 1996
and years ended December 31, 1996, 1995 and 1994, approximated $880, $909,
$1,808, $1,803, and $1,851, respectively.
An affiliate of a partner of the Bridgewater, NJ property occupies, as of
December 31, 1996, 30 percent of the space in the Bridgewater property. Total
rent income, including escalations and recoveries from this affiliate for the
six months ended June 30, 1997 and 1996 and years ended December 31, 1996, 1995
and 1994 approximated $620, $658, $1,280, $1,330 and $1,535, respectively.
A partner with interests in 5 property partnerships occupies as of December
31, 1996, 3 percent of the space in the Mack Center I property. Total rent
income, including escalations and recoveries from this partner for the six
months ended June 30, 1997 and 1996 and years ended December 31, 1996, 1995 and
1994 approximated $45, $46, $90, $90, and $90, respectively.
OPERATING AND ADMINISTRATIVE SERVICES
Certain affiliates of The Mack Group provides operating, leasing and
management services to and charges the Properties for the expenses associated
with such services, comprising principally of employee costs and office
expenses. For the six months ended June 30, 1997 and 1996, and years ended
December 31, 1996, 1995 and 1994, the amount of such charges included in
operating services was $1,753, $1,411, $2,900, $2,735 and $2,755, respectively,
and the amount included in general and administrative expenses for such services
was $2,765, $3,038, $6,325, $6,305 and $5,988, respectively. Included in the
expense charged were contributions made by The Mack Group to employee profit
sharing and 401(k) plans sponsored by the affiliates, which amounted to $73,
$85, $172, $127 and $160 for the six months ended June 30, 1997 and 1996, and
years ended December 31, 1996, 1995 and 1994, respectively.
LEASING COMMISSIONS
Employees of an affiliate provide leasing services to the Properties and, in
certain situations, receive additional compensation based on executed leases.
For the six months ended June 30, 1997 and 1996 and the years ended December
1996, 1995 and 1994, the additional amounts paid to these employees, which are
capitalized and amortized, approximated $178, $108, $275, $280 and $329,
respectively. In 1995, an affiliate of The Mack Group was paid a leasing
commission of $400 relating to the SaddleMack Property which is capitalized and
amortized.
CASH PROCESSING
The Properties' rent receipts are deposited into a centralized receipt
account of an affiliate and the Properties' cash payments are disbursed from a
centralized disbursement account of that affiliate. At June 30, 1997 and
December 31, 1996 and 1995, the net amount due from affiliate was $1,948,
$4,366, and $6,169, respectively.
8. INCOME TAXES
The entities included in the combined financial statements are partnerships
which are not subject to federal and state income taxes. Accordingly, no
recognition has been given to income taxes in the accompanying financial
statements since the income or loss of the entities are to be included in the
tax returns of the individual partners. The tax returns of the entities are
subject to examination by federal and
F-16
<PAGE>
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. INCOME TAXES (CONTINUED)
state taxing authorities. If such examinations result in adjustments to
distributive shares of taxable income or loss, the tax liability of the partners
would be adjusted accordingly.
The tax attributes of the partnerships' net assets flow directly to each
individual partner. Individual partners will have different investment bases
depending upon the timing and prices of their acquisition of partnership units.
Furthermore each partner's tax accounting, which is partially dependent upon
their individual tax position, may differ from the accounting followed in the
financial statements. Accordingly, there could be significant differences
between each individual partner's tax basis and their proportionate share of the
net assets reported in the financial statements.
9. DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value was determined by
management using available market information and appropriate valuation
methodologies. However, considerable judgment is necessary to interpret market
data and develop estimated fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts The Mack Group could
realize on disposition of the financial instruments at December 31, 1996. The
use of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
Cash equivalents, receivables, accounts payable, and accrued expenses and
other liabilities are carried at amounts which reasonably approximate their fair
values.
Mortgages and bond payable have an aggregate carrying value of $659,339 at
December 31, 1996, which approximates their estimated aggregate fair value
(excluding prepayment penalties) based upon then current interest rates for debt
with similar terms and remaining maturities.
Based on the value of The Mack Group's interest rate swap and cap agreements
at December 31, 1996, the cost to The Mack Group to settle such agreements would
have been approximately $620.
Disclosure about fair value financial instruments is based on pertinent
information available to management as of December 31, 1996. Although management
is not aware of any factors that would significantly affect the fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since December 31, 1996 and current estimates of fair
value may differ significantly from the amounts presented herein.
10. COMMITMENTS AND CONTINGENCIES
The Mack Group has outstanding letters of credit issued by various banks
pledged as security for certain mortgages and bond payable. Letters of credit
outstanding as of June 30, 1997, and December 31, 1996 and 1995, aggregated
$15,577, $15,620 and $19,965, respectively, and are not reflected on the
accompanying financial statements.
F-17
<PAGE>
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Mack Group leases certain land under ground leases expiring in various
times through December 2076. The future minimum lease payments under the ground
leases at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................................... $ 288
1998............................................................................... 288
1999............................................................................... 291
2000............................................................................... 291
2001............................................................................... 291
Thereafter......................................................................... 21,220
---------
Total............................................................................ $ 22,669
---------
---------
</TABLE>
One ground lease which expires December 2011 also provides additional rent
based 25 percent of cash flow, as defined, of the Property subject to the ground
lease. Such additional rents were $131, $105, $150, $201 and $169 for the six
months ended June 30, 1997 and 1996 and years ended December 31, 1996, 1995 and
1994, respectively. Another ground lease which expires in February 2076 provides
for additional rent beginning February 1997 based on 11 percent of cash flow, as
defined, of the Property subject to the ground lease. There was no such
additional rent due for the six months ended June 30, 1997.
11. TENANT LEASES
The Properties are leased to tenants under operating leases with various
expiration dates through 2014. Substantially all of the leases provide for
annual base rents plus recoveries and escalation charges based upon the tenant's
proportionate share of and/or increases in real estate taxes and certain
operating costs as defined and the pass through of charges for electrical usage.
Future minimum rentals to be received under non-cancelable operating leases at
December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997.............................................................................. $ 127,708
1998.............................................................................. 122,141
1999.............................................................................. 113,581
2000.............................................................................. 99,937
2001.............................................................................. 84,671
Thereafter........................................................................ 422,544
---------
Total............................................................................. $ 970,582
---------
---------
</TABLE>
F-18
<PAGE>
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
11. TENANT LEASES (CONTINUED)
The geographic concentration of the Properties' base rental income for the
year ended December 31, 1996 and property net book value as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
REGION BASE RENTAL INCOME % PROPERTY NET BOOK VALUE %
- - ----------------------------------------------------------------- ------------------------- -----------------------------
<S> <C> <C>
Northeast........................................................ 66 68
Southwest........................................................ 25 24
Other............................................................ 9 8
--- ---
100% 100%
--- ---
--- ---
</TABLE>
Other income for the six months ended June 30, 1997 and 1996 and years ended
December 31, 1996, 1995 and 1994 included lease cancellation income of $4,462 ,
$1,293, $1,413, $589 and $571, respectively.
Fourteen properties with aggregate rental income (base rent plus escalations
and recoveries) of $17,312 and $34,652 for the six months ended June 30, 1997
and year ended December 31, 1996 are subject to purchase options, rights of
first refusal, or right of first offer, or a combination thereof, granted to
certain tenants.
F-19
<PAGE>
SCHEDULE III
PAGE 1 OF 4
THE MACK GROUP
REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
(IN THOUSANDS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
GROSS
AMOUNT
CARRIED
INITIAL COSTS AT
--------------------------------------- CLOSE OF
COSTS PERIOD
CAPITALIZED (2)
SUBSEQUENT ---------
DATE RELATED BUILDING AND TO
PROPERTY NAME/LOCATION ACQUIRED ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND
- - ---------------------------------------- ----------- ------------- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
ROCHELLE PARK, NJ
Mack Centre I......................... 1976 $ 7,070 $ 1,269 $ -- $ 14,647 $ 1,269
120 Passaic Street.................... 1995 2,710 646 1,788 -- 646
PARAMUS, NJ
Mack Centre II........................ 1978 16,247 2,008 -- 25,515 2,008
Mack Centre III....................... 1981 13,344 1,059 -- 25,007 1,059
Mack Centre IV........................ 1985 27,080 -- -- 35,402 --
Mack Centre VI........................ 1988 30,413 2,391 -- 27,983 2,391
Mack Centre VII....................... 1988 28,512 5,222 -- 32,702 5,222
UPPER SADDLE RIVER, NJ
Mack Saddle River..................... 1973 27,460 6,198 24,765 27,535 6,198
MORRIS PLAINS, NJ
Mack Lakeview Plaza................... 1979 4,091 512 -- 5,453 512
Mack Morris Plains.................... 1977 2,400 442 -- 4,756 442
171 Littleton Road.................... -- 100 -- -- 100
MORRIS TOWNSHIP, NJ
Kemble Plaza I........................ 1985 53,000 1,164 -- 11,060 1,164
Kemble Plaza II....................... 1986 67,000 3,815 -- 44,158 3,815
MONTVALE, NJ
Mack Montvale I....................... 1975 1,203 360 -- 3,774 360
Mack Montvale II...................... 1981 3,256 689 -- 5,916 689
WOODCLIFF LAKE, NJ
400 Chestnut Ridge Road............... 1982 15,490 1,074 6,085 -- 1,074
470 Chestnut Ridge Road............... 1987 6,375 1,189 6,720 -- 1,189
530 Chestnut Ridge Road............... 1986 6,375 1,234 6,976 -- 1,234
WAYNE, NJ
Mack Willowbrook...................... 1970 13,699 513 -- 9,894 513
Willowbrook--Peripheral Land.......... -- 440 -- -- 440
WOODBRIDGE, NJ
Mack Woodbridge II.................... 1991 24,707 1,408 -- 30,632 1,408
BRIDGEWATER, NJ
Mack Bridgewater I.................... 1989 24,458 693 21,806 6,963 693
<CAPTION>
DEPRECIABLE
BUILDING AND ACCUMULATED LIVES
PROPERTY NAME/LOCATION IMPROVEMENT TOTAL DEPRECATION (YEARS)
- - ---------------------------------------- ------------- --------- ------------ ---------------
<S> <C> <C> <C> <C>
ROCHELLE PARK, NJ
Mack Centre I......................... $ 14,647 $ 15,916 $ 9,723 (1)
120 Passaic Street.................... 1,788 2,434 506 (1)
PARAMUS, NJ
Mack Centre II........................ 25,515 27,523 14,364 (1)
Mack Centre III....................... 25,007 26,066 10,515 (1)
Mack Centre IV........................ 35,402 35,402 11,228 (1)
Mack Centre VI........................ 27,983 30,374 9,571 (1)
Mack Centre VII....................... 32,702 37,924 13,036 (1)
UPPER SADDLE RIVER, NJ
Mack Saddle River..................... 52,300 58,498 7,028 (1)
MORRIS PLAINS, NJ
Mack Lakeview Plaza................... 5,453 5,965 1,374 (1)
Mack Morris Plains.................... 4,756 5,198 2,542 (1)
171 Littleton Road.................... -- 100 -- (1)
MORRIS TOWNSHIP, NJ
Kemble Plaza I........................ 11,060 12,224 3,882 (1)
Kemble Plaza II....................... 44,158 47,973 13,986 (1)
MONTVALE, NJ
Mack Montvale I....................... 3,774 4,134 2,038 (1)
Mack Montvale II...................... 5,916 6,605 4,886 (1)
WOODCLIFF LAKE, NJ
400 Chestnut Ridge Road............... 6,085 7,159 1,138 (1)
470 Chestnut Ridge Road............... 6,720 7,909 1,014 (1)
530 Chestnut Ridge Road............... 6,976 8,210 1,053 (1)
WAYNE, NJ
Mack Willowbrook...................... 9,894 10,407 5,065 (1)
Willowbrook--Peripheral Land.......... -- 440 -- (1)
WOODBRIDGE, NJ
Mack Woodbridge II.................... 30,632 32,040 4,974 (1)
BRIDGEWATER, NJ
Mack Bridgewater I.................... 28,769 29,462 8,644 (1)
</TABLE>
F-20
<PAGE>
SCHEDULE III
PAGE 2 OF 4
THE MACK GROUP
REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
(IN THOUSANDS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
GROSS
AMOUNT
CARRIED
INITIAL COSTS AT
--------------------------------------- CLOSE OF
COSTS PERIOD
CAPITALIZED (2)
SUBSEQUENT ---------
DATE RELATED BUILDING AND TO
PROPERTY NAME/LOCATION ACQUIRED ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND
- - ---------------------------------------- ----------- ------------- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
CRANFORD, NJ
Mack Cranford......................... 1967 -- 219 -- 2,722 219
MILLBURN , NJ
Mack Short Hills...................... 1980 29,908 1,943 -- 14,939 1,943
LITTLE FERRY, NJ
Mack Airport.......................... 1974 7,128 -- -- 8,708 --
200 Riser Road........................ -- 800 -- -- 800
NEW PROVIDENCE, NJ
Mack Murray Hill...................... 1977 8,961 595 -- 3,435 595
EAST BRUNSWICK, NJ
Mack East Brunswick................... 1977 944 382 -- 1,487 382
NORTH HEMPSTEAD, NY
Mack Manhasset........................ 1980 8,000 710 -- 7,340 710
Mack North Hills...................... 1983 31,951 4,324 -- 21,694 4,324
TAMPA, FL
One Mack Centre....................... 1982 17,698 1,203 -- 28,908 1,203
PLYMOUTH MEETING, PA
Mack Plymouth Meeting................. 1970 769 -- -- 5,172 --
SCOTTSDALE, AZ
9060 E. Via Linda..................... 1988 10,637 3,814 8,392 -- 3,814
GLENDALE, AZ
Mack Glendale......................... 1991 8,090 1,241 7,540 -- 1,241
DALLAS, TX
3100 Monticello....................... 1992 6,903 698 3,747 1,525 698
Preston Center Plaza.................. 1992 5,213 529 2,117 1,048 529
TriWest Plaza......................... 1992 15,540 5,319 21,274 2,119 5,319
EULESS, TX
Landmark Centre....................... 1992 2,965 294 1,175 520 294
IRVING, TX
Metroport............................. 1992 6,126 626 2,504 1,565 626
<CAPTION>
DEPRECIABLE
BUILDING AND ACCUMULATED LIVES
PROPERTY NAME/LOCATION IMPROVEMENT TOTAL DEPRECATION (YEARS)
- - ---------------------------------------- ------------- --------- ------------ ---------------
<S> <C> <C> <C> <C>
CRANFORD, NJ
Mack Cranford......................... 2,722 2,941 1,897 (1)
MILLBURN , NJ
Mack Short Hills...................... 14,939 16,882 9,004 (1)
LITTLE FERRY, NJ
Mack Airport.......................... 8,708 8,708 2,571 (1)
200 Riser Road........................ -- 800 --
NEW PROVIDENCE, NJ
Mack Murray Hill...................... 3,435 4,030 2,880 (1)
EAST BRUNSWICK, NJ
Mack East Brunswick................... 1,487 1,869 1,186 (1)
NORTH HEMPSTEAD, NY
Mack Manhasset........................ 7,340 8,050 2,646 (1)
Mack North Hills...................... 21,694 26,018 9,000 (1)
TAMPA, FL
One Mack Centre....................... 28,908 30,111 12,859 (1)
PLYMOUTH MEETING, PA
Mack Plymouth Meeting................. 5,172 5,172 3,066 (1)
SCOTTSDALE, AZ
9060 E. Via Linda..................... 8,392 12,206 1,783 (1)
GLENDALE, AZ
Mack Glendale......................... 7,540 8,781 959 (1)
DALLAS, TX
3100 Monticello....................... 5,272 5,970 754 (1)
Preston Center Plaza.................. 3,165 3,694 534 (1)
TriWest Plaza......................... 23,393 28,712 3,542 (1)
EULESS, TX
Landmark Centre....................... 1,695 1,989 313 (1)
IRVING, TX
Metroport............................. 4,069 4,695 929 (1)
</TABLE>
F-21
<PAGE>
SCHEDULE III
PAGE 3 OF 4
THE MACK GROUP
REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
(IN THOUSANDS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
GROSS
AMOUNT
CARRIED
INITIAL COSTS AT
--------------------------------------- CLOSE OF
COSTS PERIOD
CAPITALIZED (2)
SUBSEQUENT ---------
DATE RELATED BUILDING AND TO
PROPERTY NAME/LOCATION ACQUIRED ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND
- - ---------------------------------------- ----------- ------------- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
PLANO, TX
Republic Place........................ 1992 3,969 314 1,257 967 314
RICHARDSON, TX
Santa Fe Building..................... 1992 3,186 130 520 1,460 130
HOUSTON, TX
Cornerstone Regency................... 1992 1,842 124 498 608 124
Katy Plaza............................ 1992 4,649 126 1,673 1,413 126
5300 Memorial......................... 1992 6,764 856 3,424 1,355 856
1717 St. James........................ 1992 4,004 195 782 1,963 195
1770 St. James........................ 1992 2,961 152 609 1,501 152
Town & Country........................ 1992 5,525 584 2,338 1,389 584
PHOENIX, AZ
Beardsley Corporate Ctr............... 1992 8,051 373 1,491 2,401 373
Patriot Biltmore Plaza................ 1992 9,354 829 3,314 2,006 829
Mack Beardsley........................ 11,875 856 -- 13,160 856
SAN ANTONIO, TX
Bexar Plaza........................... 1992 11,590 907 4,689 2,544 907
Century Building...................... 1992 7,818 400 1,605 6,974 400
Commerce Plaza........................ 1992 3,264 383 2,354 1,503 383
SAN FRANCISCO, CA
Phelan Building....................... 1992 17,341 4,710 8,741 1,527 4,710
AMARILLO, TX
Atrium at Coulter Ridge............... 1992 1,063 67 270 578 67
OMAHA, NE
Brandeis Building..................... 1992 5,917 799 3,198 813 799
WEST DES MOINES, IA
Century III........................... 1992 3,823 689 2,760 521 689
FISHKILL, NY
Westage Business Center............... 1992 6,936 300 4,698 1,249 300
Furniture, Fixtures & Equipment......... -- -- -- 2,446 --
------------- --------- ------------- ------------- ---------
TOTALS.............................. $ 655,655 $ 67,917 $ 159,110 $ 458,957 $ 67,917
------------- --------- ------------- ------------- ---------
------------- --------- ------------- ------------- ---------
<CAPTION>
DEPRECIABLE
BUILDING AND ACCUMULATED LIVES
PROPERTY NAME/LOCATION IMPROVEMENT TOTAL DEPRECATION (YEARS)
- - ---------------------------------------- ------------- --------- ------------ ---------------
<S> <C> <C> <C> <C>
PLANO, TX
Republic Place........................ 2,224 2,538 520 (1)
RICHARDSON, TX
Santa Fe Building..................... 1,980 2,110 521 (1)
HOUSTON, TX
Cornerstone Regency................... 1,106 1,230 253 (1)
Katy Plaza............................ 3,086 3,212 669 (1)
5300 Memorial......................... 4,779 5,635 762 (1)
1717 St. James........................ 2,745 2,940 574 (1)
1770 St. James........................ 2,110 2,262 503 (1)
Town & Country........................ 3,727 4,311 724 (1)
PHOENIX, AZ
Beardsley Corporate Ctr............... 3,892 4,265 707 (1)
Patriot Biltmore Plaza................ 5,320 6,149 802 (1)
Mack Beardsley........................ 13,160 14,016 1,988 (1)
SAN ANTONIO, TX
Bexar Plaza........................... 7,233 8,140 1,289 (1)
Century Building...................... 8,579 8,979 1,083 (1)
Commerce Plaza........................ 3,857 4,240 656 (1)
SAN FRANCISCO, CA
Phelan Building....................... 10,268 14,978 1,337 (1)
AMARILLO, TX
Atrium at Coulter Ridge............... 848 915 224 (1)
OMAHA, NE
Brandeis Building..................... 4,011 4,810 547 (1)
WEST DES MOINES, IA
Century III........................... 3,281 3,970 416 (1)
FISHKILL, NY
Westage Business Center............... 5,947 6,247 788 (1)
Furniture, Fixtures & Equipment......... 2,446 2,446 1,937 (1)
------------- --------- ------------
TOTALS.............................. $ 618,067 $ 685,984 $ 196,790
------------- --------- ------------
------------- --------- ------------
</TABLE>
- - ------------------------
(1) Building and Improvements--5 to 40 years
(2) The aggregate cost for federal income tax purpose was approximately $492,809
F-22
<PAGE>
SCHEDULE III
PAGE 4 OF 4
THE MACK GROUP
REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
(IN THOUSANDS)
A summary of activity for real estate and accumulated depreciation and
amortization is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- ----------
REAL ESTATE:
Balance at beginning of year................................................. $ 670,726 $ 643,894 $ 595,850
Improvements................................................................. 15,258 24,398 48,044
Acquisition of real estate................................................... -- 2,436 --
---------- ---------- ----------
Balance at end of year....................................................... $ 685,984 $ 670,728 $ 643,894
---------- ---------- ----------
---------- ---------- ----------
ACCUMULATED DEPRECIATION AND AMORTIZATION:
Balance at beginning of year................................................. $ 172,622 $ 148,155 $ 126,220
Depreciation and amortization expense........................................ 24,168 24,467 21,935
---------- ---------- ----------
Balance at end of year....................................................... $ 196,790 $ 172,622 $ 148,155
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-23
<PAGE>
CALI REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997 (DOLLARS IN THOUSANDS)
(UNAUDITED)
For purposes of the following pro forma financial statements, the Mack
Combination shall be referred to as the "Transaction". The following unaudited
pro forma condensed consolidated balance sheet is presented as if the
acquisition by the Company of the Moorestown Buildings, Shelton Place, 200
Corporate, Three Independence (collectively, the "Pre-Mack Events," which are
discussed more fully in the Company's Current Report on Form 8-K, dated
September 18, 1997), and the Transaction and related 1997 Offering had occurred
on June 30, 1997. This unaudited pro forma condensed consolidated balance sheet
should be read in conjunction with the pro forma condensed consolidated
statement of operations of the Company and the historical financial statements
and notes thereto of the Company included in the Company's Form 10-K for the
year ended December 31, 1996 and the Company's Form 10-Q for the six month
period ended June 30, 1997, respectively.
The pro forma condensed consolidated balance sheet is unaudited and is not
necessarily indicative of what the actual financial position of the Company
would have been had the aforementioned acquisition actually occurred on June 30,
1997, nor does it purport to represent the future financial position of the
Company.
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ADJ. FOR THE
ADJUSTMENTS TRANSACTION
COMPANY FOR PRE-MACK PRE-MACK EVENT AND 1997 COMPANY
ASSETS HISTORICAL EVENTS PRO FORMA OFFERING PRO FORMA (L)
------------ ------------ --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Rental property, net............................. $ 1,307,365 $ 46,850(a) $ 1,354,215 $ 1,205,573(d) $ 2,559,788
Cash and cash equivalents........................ 6,090 -- 6,090 -- (e) 6,090
Unbilled rents receivable........................ 23,648 -- 23,648 -- 23,648
Deferred charges and other assets, net........... 13,224 -- 13,224 -- 13,224
Restricted cash.................................. 8,218 -- 8,218 -- 8,218
Accounts receivable, net......................... 3,547 -- 3,547 -- 3,547
Mortgage note receivable......................... 11,600 (4,350)(b) 7,250 -- 7,250
------------ ------------ --------------- ------------ --------------
Total assets..................................... $ 1,373,692 $ 42,500 $ 1,416,192 1,205,573 $ 2,621,765
------------ ------------ --------------- ------------ --------------
------------ ------------ --------------- ------------ --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages and loans payable...................... $ 553,961 $ 42,500(c) $ 596,461 $ 464,690(f) $ 1,061,151
Dividends and distributions payable.............. 18,334 -- 18,334 -- 18,334
Accounts payable and accrued expenses............ 10,582 -- 10,582 (422 (g) 10,160
Accrued interest payable......................... 1,916 -- 1,916 -- 1,916
Rents received in advance and security
deposits....................................... 16,280 -- 16,280 10,465(h) 26,745
------------ ------------ --------------- ------------ --------------
Total liabilities................................ 601,073 42,500 643,573 474,733 1,118,306
------------ ------------ --------------- ------------ --------------
Minority interest of unitholders in
Operating Partnership.......................... 70,911 -- 70,911 391,218(i) 462,129
------------ ------------ --------------- ------------ --------------
Stockholders' equity
Common stock, $.01 par value................... 366 -- 366 100(j) 466
Other stockholders' equity....................... 701,342 -- 701,342 339,522(k) 1,040,864
------------ ------------ --------------- ------------ --------------
Total stockholders' equity....................... 701,708 -- 701,708 339,622 1,041,330
------------ ------------ --------------- ------------ --------------
Total liabilities and stockholders' equity....... $ 1,373,692 $ 42,500 $ 1,416,192 $ 1,205,573 $ 2,621,765
------------ ------------ --------------- ------------ --------------
------------ ------------ --------------- ------------ --------------
</TABLE>
See accompanying footnotes on subsequent pages.
F-24
<PAGE>
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997 (IN THOUSANDS)
(UNAUDITED)
(a) Represents the approximate aggregate cost of the acquisitions completed
subsequent to June 30, 1997, consisting of the Moorestown Buildings on July
21, 1997 for $10,200; Shelton Place on August 1, 1997 for $15,500; 200
Corporate on August 15, 1997 for $8,000; and Three Independence on September
3, 1997 for $13,150. (See the Company's Current Report on Form 8-K, dated
September 18, 1997 for additional information.)
(b) Represents the partial prepayment of the RM Mortgage Note Receivable
received from the sellers of 200 Corporate, certain RM principals, in
conjunction with the Company's acquisition of such property. (See the
Company's Current Report on Form 8-K, dated September 18, 1997 for
additional information.)
(c) Represents the approximate aggregate pro forma drawings on the Company's
credit facilities, which were used as the primary means in funding the
acquisitions subsequent to June 30, 1997, as listed in note (a) above. (See
the Company's Current Report on Form 8-K, dated September 18, 1997 for
additional information.)
(d) Represents the estimated aggregate acquisition cost to be incurred by the
Company to acquire the Mack Properties based upon the estimated market price
of the consideration to be paid as of the time the Transaction was agreed to
and announced. The total costs approximate the fair value of the rental
property to be acquired and include the following:
<TABLE>
<S> <C>
Cash............................................................ $ 476,106
Mack Assumed Debt............................................... 302,147
Common Units.................................................... 132,721
Preferred Units................................................. 256,075
Warrants........................................................ 8,524
Estimated Transaction-related costs............................. 30,000
---------
$1,205,573
---------
---------
</TABLE>
(e) The following schedule summarizes the pro forma sources and uses of funds in
connection with the Transaction:
<TABLE>
<S> <C>
Net proceeds to be received from the 1997 Offering after estimated
underwriting discount and issuance costs of $21,811............. $ 365,064
Pro forma drawing on the Company's credit facilities.............. 162,543
Cash consideration paid (including estimated Transaction-related
costs of $30,000)............................................... (506,106)
Cash paid for executive compensation, bonuses and related tax
obligation payments............................................. (31,966)
Net cash from estimated closing adjustments at completion of
Transaction..................................................... 10,465
---------
$ 0
---------
---------
</TABLE>
F-25
<PAGE>
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF JUNE 30, 1997 (IN THOUSANDS)
(UNAUDITED)
(f) Represents the Mack Assumed Debt expected to be assumed by the Company and
additional drawings on the Company's credit facilities in connection with
the consummation of the Transaction, as follows:
<TABLE>
<S> <C>
Expected assumed debt with an estimated weighted average interest
rate of 7.23 percent............................................ $ 302,147
Additional drawings on the Company's credit facilities............ 162,543
---------
$ 464,690
---------
---------
</TABLE>
(g) Represents amounts that were accrued in the Company's historical accounts as
of June 30, 1997 for tax obligation payments in connection with the
Company's executive compensation agreements, which are to be paid in
connection with completion of the Transaction (see Note (1) below).
(h) Represents adjustments for rents received in advance ($7,278) and security
deposits ($3,187) to be received by the Company at the closing of the
Transaction.
(i) Reflects the adjustment to minority interest of the unitholders in the
Operating Partnership computed as follows:
<TABLE>
<S> <C>
Common Units...................................................... $ 132,721
Preferred Units................................................... 256,075
Warrants.......................................................... 8,524
Minority interest share of non-recurring charges [see Note (k)
below].......................................................... (6,102)
---------
$ 391,218
---------
---------
</TABLE>
(j) Reflects the issuance of 10 million shares of the Company's Common Stock
with a par value of $.01 per share.
F-26
<PAGE>
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF JUNE 30, 1997 (IN THOUSANDS)
(UNAUDITED)
(k) Reflects the issuance of 10 million shares of the Company's Common Stock
with a par value of $.01 per share, at the assumed offering price of
$38.6875 per share. The following table sets forth the adjustments to Other
stockholders' equity:
<TABLE>
<S> <C>
Net proceeds to be received from the 1997 Offering after estimated
underwriting discount and issuance costs of $21,811, (net of
$100 for par value)............................................. $ 364,964
Recording of the financial accounting value ascribed to the
beneficial conversion feature inherent in the Preferred Units
upon issuance. The Preferred Units are immediately convertible
into Common Units at $34.65 per Common Unit, which is an amount
that is expected to be less than the market price of the Common
Stock (assumed to be $38.6875 per share for purposes of this pro
forma information) as of the date the Preferred Units are
issued.......................................................... 29,091
Recording of amortization for the beneficial conversion feature
inherent in the Preferred Units as they are immediately
convertible into Common Units upon consummation of the
Transaction (1)................................................. (29,091)
Expensing of previously unamortized stock compensation recorded in
connection with the Company's executive compensation agreements,
which will fully vest on an accelerated basis as a result of the
consummation of the Transaction (1)............................. (10,063)
Tax obligation payments related to stock compensation (net of $422
previously accrued) (1)......................................... (4,559)
Elimination of unamortized stock compensation previously recorded
in equity....................................................... 10,063
Additional executive compensation and bonuses to be paid only upon
consummation of the Transaction (1)............................. (26,985)
Allocation to minority interest based upon post-Transaction
ownership....................................................... 6,102
---------
$ 339,522
---------
---------
</TABLE>
(l) See following Estimated Pro Forma Results for Permitted Transaction
Alternatives.
- - ------------------------
(1) Reflects the adjustments to historical net earnings for non-recurring
charges, which will be incurred in connection with the Transaction and will
be recorded in the Company's statement of operations for the period in which
they are incurred.
F-27
<PAGE>
CALI REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
The unaudited pro forma condensed consolidated statements of operations for
the six months ended June 30, 1997 and for the year ended December 31, 1996 are
presented as if each of the following had occurred on January 1, 1996: (i) the
partial prepayment by the Company of its Mortgage Financing ("Partial
Prepayment") in 1996, (ii) the disposition by the Company of its property at 15
Essex Road in Paramus, New Jersey ("Essex Road") in 1996, (iii) the acquisition
by the Company of the properties known as 103 Carnegie, Rose Tree, the Mount
Airy Road Buildings , Five Sentry Parkway, Harborside, Whiteweld Centre, One
Bridge Plaza and Airport Center in 1996, (iv) the net proceeds received by the
Company as a result of its common stock offering of 3,450,000 shares on August
13, 1996 (the "August Offering"), (v) the net proceeds received by the Company
as a result of the Company common stock offering of 17,537,500 shares on
November 22, 1996 (the "November Offering"), (vi) completion by the Company of
the Pre-Mack Events, (which are more fully discussed in the Company's Current
Report on Form 8-K, dated September 18, 1997), and (vii) completion by the
Company of the Transaction and related 1997 Offering. Items (i) through (v)
above are to be collectively referred to as the "1996 Events."
Such pro forma information is based upon the historical consolidated results
of operations of the Company for the six months ended June 30, 1997 and for the
year ended December 31, 1996, after giving effect to the transactions described
above. The pro forma condensed consolidated statements of operations should be
read in conjunction with the pro forma condensed consolidated balance sheet of
the Company and the historical financial statements and notes thereto of the
Company included in the Company's Form 10-Q for the six months ended June 30,
1997 and in the Company's Form 10-K for the year ended December 31, 1996.
The unaudited pro forma condensed consolidated statements of operations are
not necessarily indicative of what the actual results of operations of the
Company would have been assuming the transactions had been completed as set
forth above, nor does it purport to represent the Company's results of
operations for future periods.
F-28
<PAGE>
CALI REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJ. FOR
THE TRANS-
ACTION AND
PRO FORMA ADJ. PRE-MACK HISTORICAL 1997
COMPANY FOR PRE-MACK EVENTS THE MACK OFFERING COMPANY
REVENUES HISTORICAL EVENTS PRO FORMA GROUP (G) PRO FORMA(M)
----------- -------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Base rents....................... $ 93,180 $ 10,734(a) $ 103,914 $ 64,521 $ 3,963(e) $ 172,398
Escalations and recoveries from
tenants........................ 14,279 1,198(a) 15,477 7,774 -- 23,251
Parking and other................ 3,598 524(a) 4,122 5,587 -- 9,709
(956) (350)
Interest income.................. 1,640 (b) 684 350 (f) 684
----------- ------- ----------- ----------- ----------- -------------
Total revenues................... 112,697 11,500 124,197 78,232 3,613 206,042
----------- ------- ----------- ----------- ----------- -------------
EXPENSES
Real estate taxes................ 11,929 1,339(a) 13,268 7,833 -- 21,101
Utilities........................ 7,940 939(a) 8,879 6,782 -- 15,661
Operating services............... 13,773 1,634(a) 15,407 9,960 -- 25,367
General and administrative....... 6,927 730(a) 7,657 3,531 -- 11,188
(1,661)
Depreciation and amortization.... 16,844 1,873(a) 18,717 13,717 (h) 30,773
(13,597)
Interest expense................. 17,152 2,058(c) 19,210(c) 29,975 (i) 35,588
----------- ------- ----------- ----------- ----------- -------------
Total expenses................... 74,565 8,573 83,138 71,798 (15,258) 139,678
----------- ------- ----------- ----------- ----------- -------------
Income before minority
interest....................... 38,132 2,927 41,059 6,434 18,871 66,364
Minority interest................ 3,648 491(d) 4,139 -- 12,784(j) 16,923
----------- ------- ----------- ----------- ----------- -------------
Net income....................... $ 34,484 $ 2,436 $ 36,920 $ 6,434 $ 6,087 $ 49,441
----------- ------- ----------- ----------- ----------- -------------
----------- ------- ----------- ----------- ----------- -------------
Weighted average common shares
outstanding (k)................ 36,475 46,674
----------- -------------
Net income per common share
(l)............................ $ 0.95 $ 1.06
----------- -------------
</TABLE>
F-29
<PAGE>
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
(a) Reflects:
Revenues and expenses for the properties acquired in 1997 by the Company (as
reported by the Company on previously-filed Current Reports on Form 8-K and
8-K/A) for the period January 1, 1997 through the earlier of the date of
acquisition/completion or June 30, 1997, as follows:
<TABLE>
<CAPTION>
REAL
ACQUISITION/ BASE ESCALATIONS/ OTHER ESTATE OPERATING
PROPERTY/TRANSACTION (1) COMPLETION DATE RENTS (2) RECOVERIES INCOME TAXES UTILITIES SERVICES
- - ---------------------------- ----------------- ----------- ------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1345 Campus Parkway......... January 28, 1997 $ 58 $ 19 -- $ 7 $ 1 $ 4
RM Transaction.............. January 31, 1997 5,209 195 $ 524 817 379 858
Westlakes................... May 8, 1997 3,126 866 -- 258 362 449
Shelton Place (4)........... July 31, 1997 982 105 -- 80 138 141
200 Corporate............... August 15, 1997 386 12 -- 55 5 73
Three Independence.......... September 3, 1997 973 1 -- 122 54 109
----------- ------ ----- --------- ----- -----------
Total Pro Forma Adj. for
1997 Events............... $ 10,734 $ 1,198 $ 524 $ 1,339 $ 939 $ 1,634
----------- ------ ----- --------- ----- -----------
----------- ------ ----- --------- ----- -----------
<CAPTION>
GENERAL AND
PROPERTY/TRANSACTION (1) ADMINISTRATIVE DEPRECIATION (3)
- - ---------------------------- ----------------- -----------------
<S> <C> <C>
1345 Campus Parkway......... $ 1 $ 12
RM Transaction.............. 410 864
Westlakes................... 246 607
Shelton Place (4)........... 51 165
200 Corporate............... 1 85
Three Independence.......... 21 140
----- ------
Total Pro Forma Adj. for
1997 Events............... $ 730 $ 1,873
----- ------
----- ------
</TABLE>
- - ------------------------
(1) The Moorestown Buildings were vacant during 1996 and for the six months
ended June 30, 1997.
(2) Pro forma base rents are presented on a straight-line basis calculated from
January 1, 1996 forward.
(3) Depreciation is based on the building-related portion of the purchase price
and associated costs depreciated using the straight-line method over a
40-year life.
(4) Total revenues of $444 and Revenue in excess of certain expenses of $234 for
the three months ended March 31, 1997 have been included in both the Pro
Forma Condensed Consolidated Statements of Operations for the six months
ended June 30, 1997 and year ended December 31, 1996.
F-30
<PAGE>
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
(b) Represents reduction for (i) interest income earned on investments of
proceeds from the November 1996 offering ($835) and (ii) interest income
earned on the RM Mortgage Receivable as a result of the prepayment in
connection with the 200 Corporate acquisition ($121).
(c) The Pre-Mack Events pro forma adjustment to interest expense for the six
months ended June 30, 1997 reflects interest on mortgage debt assumed with
certain acquisitions and additional borrowings from the Company's credit
facilities to fund certain acquisitions. Pre-Mack Events pro forma interest
expense for the six months ended June 30, 1997 is computed as follows:
<TABLE>
<S> <C>
Interest expense on the Initial Mortgage Financing, after the
Partial Prepayment (fixed interest rate of 8.02 percent on $44,313;
and variable rate of 30-day LIBOR plus 100 basis points on
$20,195--weighted average interest rate used is 6.60 percent)...... $ 2,443
Interest expense on loan assumed with Fair Lawn acquisition on
March 3, 1995 (fixed interest rate of 8.25 percent on average
outstanding principal balance of approximately $18,605)............ 767
Interest expense on mortgages in connection with the Harborside
acquisition in 1996 (fixed interest rate of 7.32 percent on
$107,912 and initial rate of 6.99 percent on $42,088).............. 5,421
Interest expense on outstanding borrowings on the Company's credit
lines (a variable rate of 30-day LIBOR plus 125 basis points during
the period on $114,655; weighted average interest rate used is 6.85
percent)........................................................... 3,927
Interest expense on the Teachers Mortgage assumed with the RM
Transaction on January 31, 1997 (fixed interest rate of 7.18
percent on $185,283)............................................... 6,652
---------
Total Pre-Mack Events pro forma interest expense for the six months
ended June 30, 1997:............................................... $ 19,210
---------
---------
</TABLE>
(d) Represents Pre-Mack Events pro forma income allocated to the pro forma
weighted average minority interest (Units) in Cali Realty L.P. (the
Operating Partnership) for the period of 10.08 percent.
(e) Represents adjustment necessary to reflect rental income for the Mack
Properties on a straight lined basis assuming that the Transaction was
consummated as of January 1, 1996.
(f) Represents reduction of interest income, which was recorded in the Mack
Group Historical Financial Statements.
(g) In connection with the consummation of the Transaction, the Company
estimates that it will also recognize the following non-recurring charges,
before minority interest, in the Company's Statements
F-31
<PAGE>
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
of Operations for the period in which the Transaction is completed, which
have been excluded from the Company's pro forma operating results:
<TABLE>
<S> <C>
Expensing of previously unamortized stock compensation recorded in
connection with the Company's executive compensation plans which
will vest on an accelerated basis as a result of the consummation
of the Transaction................................................. $ 10,063
Related tax obligation payments (net of $422 previously accrued)... 4,559
Additional executive compensation and bonuses to be paid only upon
consummation of the Transaction.................................... 26,985
Amortization of the beneficial conversion feature inherent in the
Preferred Units (as an allocation to minority interest) as they are
immediately convertible into Common Units upon consummation of the
Transaction........................................................ 29,091
---------
$ 70,698
---------
---------
</TABLE>
(h) Represents adjustment to reflect depreciation expense related to the Mack
Properties to be acquired by the Company based on estimated relative fair
value of buildings and improvements ($964,458) as of the date of
acquisition, as follows:
<TABLE>
<CAPTION>
<S> <C>
Pro forma depreciation expense..................................................... $ 12,056
Mack Group Historical.............................................................. 13,717
---------
$ 1,661
---------
---------
</TABLE>
(i) Reflects reduction of interest expense relating to the Transaction. Proforma
interest expense is computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Interest on expected assumed debt ($302,147) with a weighted average interest rate
of 7.23 percent.................................................................... $ 10,923
Interest on drawings on the Company's credit facilities of $162,543 at a weighted
average interest rate of 6.71 percent.............................................. 5,455
---------
$ 16,378
Mack Group Historical.............................................................. $ 29,975
---------
$ 13,597
---------
---------
</TABLE>
F-32
<PAGE>
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
(j) Represents minority interest computed as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Income before extraordinary item and minority interest.................. $ 66,364
Dividend yield of 6.75 percent on the Preferred Units with a par value
of $249,656............................................................. $ 8,426
Income allocable to common stockholders in the Company and unitholders
in the Operating Partnership............................................ $ 57,938
---------
Allocation to minority interest based upon weighted average percentage
of Common Units outstanding of 14.67 percent............................ 8,497
---------
Total minority interest................................................. 16,923
---------
Pre-Mack Events pro forma............................................... 4,139
---------
$ 12,784
---------
---------
</TABLE>
(k) The following is a reconciliation of the historical weighted average shares
outstanding to the pro forma primary weighted average shares outstanding
(shares in thousands):
<TABLE>
<CAPTION>
<S> <C>
Historical weighted average shares outstanding....................................... 36,475
Shares to be issued in connection with the 1997 Offering............................. 10,000
Vesting of 199 shares on an accelerated basis as a result of the Transaction......... 199
---------
Pro forma weighted average shares outstanding........................................ 46,674
---------
---------
</TABLE>
(l) Fully-diluted pro forma net income per share is not presented since common
stock equivalents and the Preferred Units are not dilutive.
(m) See following Estimated Pro Forma Results for Permitted Transaction
Alternatives.
F-33
<PAGE>
CALI REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA THE MACK ADJ. FOR THE
ADJ. FOR ADJ. FOR PRE-MACK GROUP TRANSACTION AND COMPANY
COMPANY 1996 PRE-MACK EVENTS HISTORICAL 1997 OFFERING PRO FORMA
HISTORICAL EVENTS (A) EVENTS (B) PRO FORMA (C) (H) (N)
----------- ----------- ----------- ----------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Base rents..................... $ 76,922 $ 49,087 $ 76,655 $ 202,664 $ 128,066 $ 7,559(f) $ 338,289
Escalations and recoveries from
tenants...................... 14,429 8,870 8,230 31,529 16,984 -- 48,513
Parking and other.............. 2,204 190 4,428 6,822 3,233 -- 10,055
Interest income................ 1,917 -- (738)(c) 1,179 469 (469)(g) 1,179
----------- ----------- ----------- ----------- ------------ --------------- -----------
Total revenues................. 95,472 58,147 88,575 242,194 148,752 7,090 398,036
----------- ----------- ----------- ----------- ------------ --------------- -----------
EXPENSES
Real estate taxes.............. 9,395 5,144 11,039 25,578 15,367 -- 40,945
Utilities...................... 8,138 3,313 6,619 18,070 14,143 -- 32,213
Operating Services............. 12,129 6,452 12,277 30,858 19,507 -- 50,365
General and administrative..... 5,800 3,020 4,965 13,785 7,309 -- 21,094
Depreciation and
amortization................. 15,812 8,133 13,021 36,966 28,069 (3,958)(i) 61,077
Interest expense............... 12,677 -- 25,608(d) 38,285(d) 58,621 (26,171)(j) 70,735
----------- ----------- ----------- ----------- ------------ --------------- -----------
Total expenses........... 63,951 26,062 73,529 163,542 143,016 (30,129) 276,429
----------- ----------- ----------- ----------- ------------ --------------- -----------
Income before gain on sale of
rental property, minority
interest and extraordinary
item......................... 31,521 32,085 15,046 78,652 5,736 37,219 121,607
Gain on sale of rental
property..................... 5,658 (5,658) -- -- -- -- --
----------- ----------- ----------- ----------- ------------ --------------- -----------
Income before minority interest
and extraordinary item....... 37,179 26,427 15,046 78,652 5,736 37,219 121,607
Minority interest.............. 4,760 -- 3,263(e) 8,023(e) -- 24,304(k) 32,327
----------- ----------- ----------- ----------- ------------ --------------- -----------
Income before extraordinary
item......................... $ 32,419 $ 26,427 $ 11,783 $ 70,629 $ 5,736 $ 12,915 $ 89,280
----------- ----------- ----------- ----------- ------------ --------------- -----------
----------- ----------- ----------- ----------- ------------ --------------- -----------
Weighted average common shares
outstanding (l).............. 18,461 46,400
----------- -----------
Income before extraordinary
item per common share (m).... $ 1.76 $ 1.92
----------- -----------
</TABLE>
F-34
<PAGE>
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
(a) Reflects:
Revenues and expenses of the properties acquired in 1996 for the period
January 1, 1996 through the date of acquisition, (as reported by the Company on
previously-filed Current Reports on Form 8-K) as follows:
<TABLE>
<CAPTION>
REAL
ACQUIS./COMPLETION BASE ESCALATIONS/ OTHER ESTATE
PROPERTY/TRANSACTION DATE RENTS (2) RECOVERIES INCOME TAXES
- - -------------------------------------------------- ----------------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Carnegie.......................................... March 20, 1996 $ 386 $ 31 -- $ 54
Rose Tree......................................... May 2, 1996 1,312 115 -- 165
Mt. Airy Bldgs. .................................. July 23, 1996 665 101 -- 101
Harborside........................................ November 4, 1996 30,884 7,037 $ 166 3,096
Five Sentry....................................... November 7, 1996 1,663 -- -- 148
December 10,
Whiteweld......................................... 1996 3,890 326 -- 430
December 16,
One Bridge Plaza.................................. 1996 3,597 293 -- 420
December 17,
Airport Center.................................... 1996 6,953 1,004 24 780
----------- ------ ----- ---------
Total Pro Forma Adj. for 1996 acquisitions........ $ 49,350 $ 8,907 $ 190 $ 5,194
----------- ------ ----- ---------
Revenues and expenses of the property disposed of in 1996 for the period January 1, 1996 through the date of disposition,
as follows:
Essex Road........................................ March 20, 1996 (263) (37) -- (50)
----------- ------ ----- ---------
Reduction of expense as a result of the Partial Prepayment in 1996, for the period January 1, 1996 through the Partial
Payment date, as follows:
Partial Prepayment................................ March 12, 1996 -- -- -- --
----------- ------ ----- ---------
Total Pro Forma Adj. for 1996 Events.............. $ 49,087 $ 8,870 $ 190 $ 5,144
----------- ------ ----- ---------
----------- ------ ----- ---------
<CAPTION>
OPERATING GENERAL AND
PROPERTY/TRANSACTION UTILITIES SERVICES ADMINISTRATIVE DEPRECIATION (3)
- - -------------------------------------------------- ----------- ----------- --------------- -----------------
<S> <C> <C> <C> <C>
Carnegie.......................................... $ 56 $ 58 $ 11 $ 49
Rose Tree......................................... 180 179 43 215
Mt. Airy Bldgs. .................................. -- 4 51 107
Harborside........................................ 906 3,633 2,048 5,332
Five Sentry....................................... 32 325 88 246
Whiteweld......................................... 748 543 158 733
One Bridge Plaza.................................. 412 659 237 585
Airport Center.................................... 1,035 1,129 395 953
----------- ----------- ------ ------
Total Pro Forma Adj. for 1996 acquisitions........ $ 3,369 $ 6,530 $ 3,031 $ 8,220
----------- ----------- ------ ------
Revenues and expenses of the property disposed of
as follows:
Essex Road........................................ (56) (78) (11) (81)
----------- ----------- ------ ------
Reduction of expense as a result of the Partial Pr
Payment date, as follows:
Partial Prepayment................................ -- -- -- (6)
----------- ----------- ------ ------
Total Pro Forma Adj. for 1996 Events.............. $ 3,313 $ 6,452 $ 3,020 $ 8,133
----------- ----------- ------ ------
----------- ----------- ------ ------
</TABLE>
F-35
<PAGE>
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
(b) Reflects:
Revenues and expenses for the properties acquired in 1997 by the Company (as
reported by the Company on previously-filed Current Reports on Form 8-K and
8-K/A), for the year ended December 31, 1996, as follows:
<TABLE>
<CAPTION>
REAL
AQUIS./COMPLETION BASE ESCALATIONS/ OTHER ESTATE
PROPERTY/TRANSACTION (1) DATE RENTS (2) RECOVERIES INCOME TAXES
- - ----------------------------------- -------------------------------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1345 Campus Parkway................ January 28, 1997 $ 698 $ 165 -- $ 90
RM Transaction..................... January 31, 1997 63,083 5,483 $ 4,393 9,870
Westlakes.......................... May 8, 1997 8,659 2,347 -- 610
Shelton Place (4).................. July 31, 1997 2,180 193 -- 161
200 Corporate...................... August 15, 1997 850 38 35 85
Three Independence................. September 3, 1997 1,185 4 -- 223
----------- ------ ----------- ---------
Total Pro Forma Adj. for Pre-Mack
Events........................... $ 76,655 $ 8,230 $ 4,428 $ 11,039
----------- ------ ----------- ---------
----------- ------ ----------- ---------
<CAPTION>
OPERATING GENERAL AND DEPRECIATION
PROPERTY/TRANSACTION (1) UTILITIES SERVICES ADMINISTRATIVE (3)
- - ----------------------------------- ----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
1345 Campus Parkway................ $ 25 $ 103 $ 20 $ 143
RM Transaction..................... 4,944 9,876 3,997 10,364
Westlakes.......................... 1,216 1,627 772 1,734
Shelton Place (4).................. 320 292 93 329
200 Corporate...................... -- 146 36 170
Three Independence................. 114 233 47 281
----------- ----------- ------ -------
Total Pro Forma Adj. for Pre-Mack
Events........................... $ 6,619 $ 12,277 $ 4,965 $ 13,021
----------- ----------- ------ -------
----------- ----------- ------ -------
</TABLE>
- - ------------------------
(1) The Moorestown Buildings were vacant during 1996.
(2) Pro Forma base rents are presented on a straight-line basis calculated from
January 1, 1996 forward.
(3) Depreciation is based on the building-related portion of the purchase price
and associated costs depreciated using the straight-line method over a
40-year life.
(4) Revenues and certain expenses for Shelton Place reasonably reflect the
operations of the property for the period April 1, 1996 through March 31,
1997. Total revenues of $444 and Revenue in excess of certain expenses of
$234 for the three months ended March 31, 1997 have been included in both
the Pro Forma Condensed Consolidated Statements of Operations for the six
months ended June 30, 1997 and year ended December 31, 1996.
F-36
<PAGE>
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(c) Represents reduction for interest income earned on investments of proceeds
from the November 1996 Offering ($1,463), net of additional interest income
earned on the RM Mortgage Receivable ($725).
(d) The pro forma adjustment to interest expense for the year ended December 31,
1996 (for the Pre-Mack Events) reflects interest on mortgage debt assumed
with certain acquisitions and additional borrowings from the Company's
credit facilities to fund acquisitions. Pro forma interest expense for the
year ended December 31, 1996 is computed as follows:
<TABLE>
<S> <C>
Interest expense on the Initial Mortgage Financing, after the
Partial Prepayment (fixed interest rate of 8.02 percent on
$44,313 and variable rate of 30-day LIBOR plus 100 basis points
on $20,195; weighted average interest rate used is 6.46
percent)......................................................... $ 4,867
Interest expense on loan assumed with Fair Lawn acquisition on
March 3, 1995 (fixed interest rate of 8.25 percent on average
outstanding principal balance of approximately $18,605).......... 1,535
Interest expense on mortgages in connection with the Harborside
acquisition on November 4, 1996 (fixed interest rate of 7.32
percent on $107,912 and initial rate of 6.99 percent on
$42,088)......................................................... 10,841
Interest expense on outstanding borrowings on the Company's credit
lines (a variable rate of 30-day LIBOR plus 125 basis points
during the period on $114,655; weighted average interest rate
used is 6.75 percent)............................................ 7,739
Interest expense on Teachers Mortgage assumed with the RM
Transaction on January 31, 1997 (fixed interest rate of 7.18
percent on $185,283)............................................. 13,303
---------
Pre-Mack Events pro forma interest expense for the year ended
December 31, 1996................................................ $ 38,285
---------
---------
</TABLE>
(e) Represents pro forma income for 1996 Events and Pre-Mack Events allocated to
the pro forma weighted average minority interest (Units) in Cali Realty L.P.
(the Operating Partnership) of 10.20 percent.
(f) Represents adjustment necessary to reflect rental income on a straight line
basis assuming that the Transaction was consummated as of January 1, 1996.
(g) Represents reduction of interest income, which was recorded in the Mack
Group Historical Financial Statements.
(h) In connection with the consummation of the Transaction, the Company
estimates that it will also recognize the following non-recurring charges
before minority interest in the Company's Statement of
F-37
<PAGE>
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Operations for the period in which the Transaction is completed, which have
been excluded from the Company's pro forma operating results:
<TABLE>
<S> <C>
Expensing of previously unamortized stock compensation recorded in
connection with the Company's executive compensation plans which
will vest on an accelerated basis as a result of the consummation
of the Transaction............................................... $ 10,063
Related tax obligation payments (net of $422 previously accrued)... 4,559
Additional executive compensation and bonuses to be paid only upon
consummation of the Transaction.................................. 26,985
Amortization of the beneficial conversion feature inherent in the
Preferred Units (as an allocation to minority interest) as they
are immediately convertible into Common Units upon consummation
of the Transaction............................................... 29,091
---------
$ 70,698
---------
---------
</TABLE>
(i) Represents adjustment to reflect depreciation expense related to the Mack
Properties to be acquired by the Company based on estimated relative fair
value of buildings and improvements ($964,458) as of the date of acquisition
as follows:
<TABLE>
<CAPTION>
<S> <C>
Pro forma depreciation expense..................................................... $ 24,111
Mack Group Historical.............................................................. 28,069
---------
$ 3,958
---------
---------
</TABLE>
(j) Reflects reduction of interest expense relating to the Transaction. Proforma
interest expense is computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Interest on expected assumed debt ($302,147) with an estimated weighted average
interest rate of 7.23 percent.................................................... $ 21,845
Interest on drawings on the Company's credit facilities of $162,543 at a weighted
average interest rate of 6.52 percent............................................ 10,605
---------
32,450
Mack Group Historical.............................................................. 58,621
---------
$ 26,171
---------
---------
</TABLE>
F-38
<PAGE>
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(k) Represents minority interest computed as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Income before extraordinary item and minority interest................. $ 121,607
Dividend yield of 6.75 percent on the preferred units with a par value
of $249,656............................................................ $ 16,852
Income allocable to common stockholders in the Company and unitholders
in the Operating Partnership........................................... $ 104,755
----------
Allocation to minority interest based upon weighted average percentage
of Common Units outstanding of 14.77 percent, respectively............. 15,475
---------
Minority interest...................................................... 32,327
Pre-Mack Events pro forma.............................................. 8,023
---------
$ 24,304
---------
---------
</TABLE>
(l) The following is a reconciliation of the historical primary weighted average
shares outstanding to the pro forma weighted average shares outstanding
(shares in thousands):
<TABLE>
<CAPTION>
<S> <C>
Historical weighted average shares outstanding..................................... 18,461
Shares issued in connection with the the November 1996 offering.................... 17,538
Issued in connection with the August 1996 offering................................. 3,450
Adjustment for period of year during which shares issued with the 1996 offerings
were outstanding................................................................... (3,248)
Shares to be issued in connection with the 1997 Offering........................... 10,000
Vesting of 199 shares on an accelerated basis as a result of the Transaction....... 199
---------
Pro forma weighted average shares outstanding...................................... 46,400
---------
---------
</TABLE>
(m) Fully-diluted pro forma income before extraordinary item per share is not
presented since common stock equivalents and the Preferred Units are not
dilutive.
(n) See following Estimated Pro Forma Results for Permited Transaction
Alternatives.
F-39
<PAGE>
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ESTIMATED PRO FORMA RESULTS FOR PERMITTED TRANSACTION ALTERNATIVES
Consummation of the transaction is conditioned upon, among other things, the
receipt by Mack of certain partner, tenant and third party consents. To the
extent Mack cannot obtain such consents, Mack may eliminate certain properties
from the Transaction. Such eliminated properties are not to exceed 20 percent of
the aggregate value of the Mack properties.
If the maximum amount of such properties (20 percent) were excluded from the
Transaction, estimated pro forma total assets, total liabilities, minority
interest and stockholders' equity as of June 30, 1997 may approximate
$2,387,937, $930,793, $416,122 and $1,041,022, respectively. Under the
Agreement, a reduction in the purchase price due to exclusion of properties is
allocated to (1) reduce debt assumed by the greater of 26 percent of the
allocated purchase price for such property or the outstanding debt on such
property to be assumed (assumed to be 26 percent for this pro forma), (2) reduce
cash paid up to $79,904, subject to certain elections by Mack to lower the cash
reduction and take fewer Preferred and Common Units ($79,904 cash reduction
assumed for this pro forma) and (3) reduce cash paid, Preferred and Common Units
by 51.5 percent, 32.3 percent and 16.2 percent of the remaining price reduction.
In this situation, estimated total revenues, income before minority interest,
net income and net income per common share may be $189,673, $64,465, $49,097 and
$1.05, respectively for the six months ended June 30, 1997 and $366,867,
$119,255, $89,758 and $1.93, respectively for the year ended December 31, 1996.
Also, as described in the Agreement, Mack may elect to further reduce the
amount of cash consideration, in exchange for additional debt assumption, up to
$60,429. Such a situation would result in lower borrowings under the Company's
credit facility.
F-40
<PAGE>
ANNEX I
September 18, 1997
Board of Directors
Cali Realty Corporation
11 Commerce Drive
Cranford, NJ 07016
Members of the Board:
We understand that Cali Realty, L.P. ("CRLP") and Cali Realty Corporation
(collectively "Cali") and The Mack Company and Patriot American Office Group
(collectively "Mack") propose to enter into a transaction (the "Transaction")
pursuant to a Contribution and Exchange Agreement (the "Agreement") whereby Mack
will contribute certain properties (the "Mack Properties") to Cali in exchange
for $476,106,000 in cash (the "Cash"), 3,931,048 regular operating partnership
interests of CRLP (the "Common Units"), 249,656 cumulative preferred operating
partnership interests in CRLP (the "Preferred Units") and 2,000,000 warrants
(the "Warrants") to purchase shares of Cali's common stock (the "Common Stock")
and Cali will assume $302,147,000 in debt (the "Debt", and together with the
Cash, the Common Units, the Preferred Units and the Warrants, the
"Consideration").
In connection with the Transaction, you have requested our opinion as to the
fairness to Cali from a financial point of view of the Consideration to paid in
the Transaction.
In conducting our analysis and arriving at the opinion set forth below, we
have reviewed such materials and considered such financial and other factors as
we deemed relevant under the circumstances, including, among others, the
following:
1. draft of the Agreement dated September 12, 1997;
2. draft of the audited combined financial statements for Mack for the
year ended December 31, 1996 and a draft of the unaudited combined financial
statements for the six months ended June 30, 1997;
3. certain publicly available historical financial and operating data
for Cali including, but not limited to, (a) the Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, (b) the Proxy Statement for the
Annual Meeting of Stockholders held on May 15, 1997, (c) the Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1997 and June 30,
1997, (d) the Registration Statement on Form S-3, file No. 333-19101, dated
January 7, 1997 and (e) a draft Form 8-K, dated September 18, 1997 relating
to the Transaction.
4. certain financial forecasts for Cali and the Mack Properties
provided to us by the management of Cali;
5. historical stock market prices and trading volume for Cali's common
stock;
6. certain historical results of operations of Mack provided to us by
the management of Mack;
7. publicly available information including financial, operating and
stock market data concerning certain companies engaged in businesses we
deemed comparable to Mack or otherwise relevant to our inquiry;
8. the financial terms of other transactions we deemed relevant;
9. the pro forma financial impact of the Transaction on Cali; and
10. such other financial studies, analyses and investigations as we
deemed appropriate.
<PAGE>
We have met with the senior management of Cali and of Mack regarding (i) the
prospects and business plans for Cali and Mack, (ii) their financial forecasts
for Cali and the Mack Properties, and (iii) such other matters we deemed
relevant.
We have assumed, with your consent, that the draft of the Agreement which we
reviewed will conform, in all material respects, to the Agreement when in final
form.
In connection with our review and analysis and in arriving at our opinion,
we have, with your consent, also assumed and relied upon the accuracy and
completeness of publicly available information and all information supplied or
otherwise made available to us by Cali and Mack, and we have not independently
verified such information. We have neither made nor obtained any independent
evaluation of such information or any independent valuation or appraisal of the
assets or liabilities of either Cali or Mack.
With respect to the pro forma financial information regarding Cali provided
to us by Cali and the financial forecasts for the Mack Properties provided to us
by Cali, we have assumed that they have been reasonably prepared and reflect the
best currently available estimates and judgment of Cali's and Mack's management
as to the expected future financial performance of Cali and Mack and we have not
undertaken any independent analysis to verify the reasonableness of the
assumptions underlying such forecasts. Further, our opinion is necessarily based
upon information available to us and on economic, financial, market and other
conditions as they exist and can only be evaluated as of the date hereof.
No limitations were imposed on, or instructions given by either Cali or
Mack, with respect to our investigation or the procedures we followed in
rendering our opinion, and the management of Cali and Mack cooperated fully in
connection with our investigation.
As you know, we have been retained by Cali to render this opinion and other
financial advisory services in connection with the Transaction and will receive
a fee for such services, which fee is contingent upon consummation of the
Transaction. In the past, we have provided financing and advisory services for
Cali and received compensation for such services. In addition, we make a market
in the Common Stock and in the ordinary course of business may actively trade
the Common Stock for our own account or for the accounts of customers and,
accordingly, may at any time hold a long or short position in the Common Stock.
Prudential Securities also provides equity research coverage for Cali.
Our advisory services and the opinion expressed herein are provided for the
use of the Board of Directors of Cali in its evaluation of the Transaction, and
our opinion is not intended to be, and does not constitute a recommendation to
any shareholder of Cali as to how such shareholder should vote in connection
with the Transaction. This opinion may not be disclosed publicly, referred to or
communicated by you in any manner without our prior written approval and this
opinion must be treated as confidential; except that Cali may include this
opinion in its entirety in any proxy statement or information statement relating
to the Transaction sent to Cali's shareholders.
On the basis of, and subject to, the foregoing, we are of the opinion that,
as of the date hereof, the Consideration to be paid by Cali pursuant to the
Transaction is fair, from a financial point of view, to Cali.
Very truly yours,
Prudential Securities Incorporated
2
<PAGE>
CALI REALTY CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (1) acknowledges receipt of the Notice of Special
Meeting of Shareholders (the "Special Meeting") of Cali Realty Corporation, a
Maryland corporation ("Cali"), to be held at , on , 1997, at
a.m., local time, and the Proxy Statement in connection therewith and (2)
appoints John J. Cali, Thomas A. Rizk, Roger W. Thomas and Barry Lefkowitz, and
each of them, lawful attorneys and proxies of the undersigned, with full power
of substitution for and in the name, place, and stead of the undersigned, to
vote upon and act with respect to all of the shares of beneficial interest, $.01
par value (the "Common Stock"), of Cali standing in the name of the undersigned,
or with respect to which the undersigned is entitled to vote and act, at the
Special Meeting and at any adjournments or postponements thereof.
The Board of Directors recommends a vote FOR items (1) through (4) (the
"Proposals") listed below.
The undersigned directs that this proxy be voted as follows:
<TABLE>
<S> <C> <C> <C>
To consider and vote upon a proposal to approve and adopt the Contribution and Exchange Agreement, dated as of
(1) September 18, 1997, by and among Cali, CRLP, and certain contributing partnerships or other entities
affiliated with The Mack Company and Patriot American Office Group (collectively, "Mack"), pursuant to which
Mack will contribute certain properties, ground leases and 100% of the interests in the entities owning
certain properties to CRLP or its designated subsidiaries in exchange for a combination of cash, assumption of
debt, common and preferred operating partnership units and warrants to acquire common operating partnership
units.
/ / FOR / / AGAINST / / ABSTAIN
(2) To consider and vote upon a proposal to approve and adopt an amendment to Cali's Articles of Incorporation to
change the name of the company from "Cali Realty Corporation" to "Mack-Cali Realty Corporation."
/ / FOR / / AGAINST / / ABSTAIN
(3) To consider and vote upon a proposal to approve and adopt an amendment to the Employee Stock Option Plan to
increase the number of shares authorized thereunder by 2,000,000, from 2,780,188 to 4,780,188.
/ / FOR / / AGAINST / / ABSTAIN
To consider and act upon a proposal to approve and adopt two amendments to the Director Stock Option Plan to
(4) (a) increase the number of shares authorized thereunder by 200,000, from 200,000 to 400,000 and (b) to provide
for the participation thereunder of non-employee members of the Advisory Board, including a provision that a
member of the Board of Directors who resigns as a director in order to become a member of the Advisory Board
shall be deemed during his or her period of service as a member of the Advisory Board to be continuing member
of the Board of Directors for purposes of determining the exercise period of prior grants under the Director
Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
(PLEASE SEE REVERSE SIDE)
<PAGE>
(CONTINUED FROM THE OTHER SIDE)
In accordance with their discretion, said attorneys and proxies are
authorized to vote upon any other matters or proposals not known at the time of
solicitation of this proxy which may properly come before the Special Meeting or
any adjournments or postponements thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE, IF NO SPECIFICATION IS MADE,
THIS PROXY WILL BE VOTED FOR THE PROPOSALS.
The undersigned hereby revokes any proxy heretofore given to vote or act
with respect to the Common Stock and hereby ratifies and confirms all that the
proxies, their substitutes, or any of them may lawfully do by virtue hereof.
If one or more of the proxies named shall be present in person or by
substitute at the Special Meeting or at any adjournments or postponements
thereof, the proxies so present and voting, either in person or by substitute,
shall exercise all of the powers hereby given.
Please date, sign, and mail this proxy in the enclosed envelope. No postage
is required.
Dated -------------------------------------------, 1997
- - ------------------------------------------------------
Please Print Name Here
- - ------------------------------------------------------
Signature of Stockholder
- - ------------------------------------------------------
Signature if held jointly
PLEASE DATE THIS PROXY AND SIGN YOUR NAME EXACTLY AS IT APPEARS HEREON.
WHERE THERE IS MORE THAN ONE OWNER, EACH SHOULD SIGN. WHEN SIGNING AS AN
ATTORNEY, ADMINISTRATOR, EXECUTOR, GUARDIAN, OR TRUSTEE, PLEASE ADD YOUR TITLE
AS SUCH. IF EXECUTED BY A CORPORATION, THE PROXY SHOULD BE SIGNED BY A DULY
AUTHORIZED OFFICER.
