<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from. . . . . . . . . . . . to. . . . . . . . . . . .
Commission file number 1-13274
Cali Realty Corporation
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(Exact name of registrant as specified in its charter)
Maryland 22-3305147
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11 Commerce Drive, Cranford, New Jersey 07016-3501
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(Address of principal executive office)
(Zip Code)
(908) 272-8000
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or such shorter period that the
Registrant was required to file such report) YES X NO____ and (2) has
been subject to such filing requirements for the past ninety (90) days YES X
NO____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
There were 49,664,622 shares of $.01 par value common stock outstanding at
October 31, 1997.
<PAGE>
CALI REALTY CORPORATION
Form 10-Q
INDEX
Part I Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996.................................
Consolidated Statements of Operations for the three and
nine month periods ended September 30, 1997 and 1996..
Consolidated Statement of Stockholders' Equity for the
nine months ended September 30, 1997..................
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996..............
Notes to Consolidated Financial Statements..............
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................
Part II Other Information and Signatures
Item 6. Exhibits................................................
Signatures..............................................
2
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CALI REALTY CORPORATION
Part I - Financial Information
Item I: Financial Statements
The accompanying unaudited consolidated balance sheets,
statements of operations, of stockholders' equity, and of
cash flows and related notes, have been prepared in
accordance with generally accepted accounting principles
("GAAP") for interim financial information and in
conjunction with the rules and regulations of the
Securities and Exchange Commission ("SEC"). Accordingly,
they do not include all of the disclosures required by
GAAP for complete financial statements. The financial
statements reflect all adjustments consisting only of
normal, recurring adjustments, which are, in the opinion
of management, necessary for a fair presentation for the
interim periods.
The aforementioned financial statements should be read in
conjunction with the notes to the aforementioned
financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations
and the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
The results of operations for the three and nine month
periods ended September 30, 1997 are not necessarily
indicative of the results to be expected for the entire
fiscal year or any other period.
3
<PAGE>
CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share amounts)
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September 30, December 31,
ASSETS 1997 1996
Rental property ------------- ------------
Land $ 141,604 $ 98,127
Buildings and improvements 1,258,895 718,466
Tenant improvements 41,490 35,626
Furniture, fixtures and equipment 2,101 1,133
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1,444,090 853,352
Less - accumulated depreciation and amortization (92,549) (68,610)
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Total rental property 1,351,541 784,742
Cash and cash equivalents (includes $201,269 in
Overnight Investments at December 31, 1996) 3,409 204,807
Unbilled rents receivable 25,617 19,705
Deferred charges and other assets, net of
accumulated amortization 18,571 11,840
Restricted cash 5,154 3,160
Accounts receivable, net of allowance for doubtful
accounts of $505 and $189 5,637 2,074
Mortgage note receivable 7,250 --
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Total assets $1,417,179 $1,026,328
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LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages and loans payable $ 593,058 $ 268,010
Dividends and distributions payable 20,377 17,554
Accounts payable and accrued expenses 15,578 5,068
Rents received in advance and security deposits 17,088 6,025
Accrued interest payable 2,081 1,328
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Total liabilities 648,182 297,985
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Minority interest of unitholders in Operating
Partnership 70,479 26,964
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Commitments and contingencies
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized, none issued
Common stock, $.01 par value, 190,000,000 shares authorized,
36,662,322 and 36,318,937 shares outstanding 366 363
Additional paid-in capital 723,617 714,052
Distributions in excess of net earnings (15,560) (13,036)
Unamortized stock compensation (9,905) --
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Total stockholders' equity 698,518 701,379
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Total liabilities and stockholders' equity $1,417,179 $1,026,328
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The accompanying notes are an integral part of these consolidated
financial statements.
4
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CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
REVENUES
- --------
<S> <C> <C> <C> <C>
Base rents $ 52,148 $ 18,438 $ 145,328 $ 51,713
Escalations and recoveries from tenants 8,185 3,414 22,464 9,646
Parking and other 1,648 538 5,245 1,453
Interest income 628 128 2,268 282
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Total revenues 62,609 22,518 175,305 63,094
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EXPENSES
- --------
Real estate taxes 6,584 2,188 18,513 6,342
Utilities 5,061 2,222 13,001 5,965
Operating services 7,283 2,625 21,056 7,952
General and administrative 3,675 1,371 10,601 3,427
Depreciation and amortization 9,339 3,469 25,631 9,850
Interest expense 10,694 2,999 28,398 9,093
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Total expenses 42,636 14,874 117,200 42,629
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Income before gain on sale of rental property,
minority interest and extraordinary items 19,973 7,644 58,105 20,465
Gain on sale of rental property -- -- -- 5,658
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Income before minority interest
and extraordinary items 19,973 7,644 58,105 26,123
Minority interest 2,015 1,045 5,663 3,866
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Income before extraordinary items 17,958 6,599 52,442 22,257
Extraordinary items-loss on early retirement of debt
(net of minority interest's share
of $402 in 1997 and $86 in 1996) 3,583 -- 3,583 475
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Net income $ 14,375 $ 6,599 $ 48,859 $ 21,782
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Net income per common share:
- ----------------------------
Income before extraordinary items $ 0.49 $ 0.39 $ 1.44 $ 1.41
Extraordinary items-loss on early retirement of debt (0.10) -- (0.10) (.03)
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Net income $ 0.39 $ 0.39 $ 1.34 $ 1.38
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Dividends declared per common share $ 0.50 $ 0.45 $ 1.40 $ 1.30
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Weighted average common shares outstanding 36,457 17,045 36,469 15,803
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</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (in thousands)
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<TABLE>
<CAPTION>
Retained
Earnings
Additional (Distributions Unamortized Total
Common Stock Paid-in in Excess of Stock Stockholders'
Shares Par Value Capital Net Earnings) Compensation Equity
------ --------- ---------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 36,319 $ 363 $ 714,052 $(13,036) -- $ 701,379
Net income -- -- -- 48,859 -- 48,859
Dividends -- -- -- (51,383) -- (51,383)
Issuance of Stock Award Rights
and Stock Purchase Rights 351 4 11,514 -- $(11,518) --
Amortization of Stock Compensation -- -- -- -- 1,613 1,613
Repurchase of Common Stock (152) (2) (4,678) -- -- (4,680)
Conversion of Units to
shares of Common Stock 1 -- 17 -- -- 17
Proceeds from exercise of
stock options 143 1 2,712 -- -- 2,713
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BALANCE AT SEPTEMBER 30, 1997 36,662 $ 366 $ 723,617 $(15,560) $(9,905) $ 698,518
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</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE>
CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996
- ------------------------------------ -------- ----------
<S> <C> <C>
Net income $ 48,859 $ 21,782
Adjustments to reconcile net income to net cash
flows provided by operating activities:
Depreciation and amortization 25,631 9,850
Minority interest 5,663 3,866
Amortization of Stock Compensation 1,613 --
Gain on sale of rental property -- (5,658)
Extraordinary items-loss on early retirement of debt, net 3,583 475
Changes in operating assets and liabilities:
Increase in unbilled rents receivable (5,912) (233)
Increase in deferred charges and other assets, net (10,491) (2,762)
Increase in accounts receivable, net (3,563) (31)
Increase in accounts payable and
accrued expenses 10,510 247
Increase in rents received in advance and
security deposits 6,306 705
Increase (decrease) in accrued interest payable 753 (280)
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Net cash provided by operating activities $ 82,952 $ 27,961
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CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Additions to rental property $ (357,043) $ (60,836)
Issuance of mortgage note receivable (11,600) --
Proceeds from sale of rental property -- 10,324
Decrease in restricted cash 2,763 579
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Net cash used in investing activities $ (365,880) $ (49,933)
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- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from mortgages and loans payable $ 410,080 $ 125,900
Repayments of mortgages and loans payable (270,693) (148,508)
Debt prepayment premiums and other costs (1,812) (312)
Proceeds from Common Stock offering -- 76,830
Proceeds from exercise of stock options 2,713 260
Repurchase of Common Stock (4,680) --
Payment of dividends and distributions (54,078) (22,814)
- ---------------------------------------------------------------------------------------------
Net cash provided by financing activities $ 81,530 $ 31,356
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- ---------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents $ (201,398) $ 9,384
Cash and cash equivalents, beginning of period 204,807 967
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Cash and cash equivalents, end of period $ 3,409 $ 10,351
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
7
<PAGE>
CALI REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
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1. ORGANIZATION, ACQUISITIONS/TRANSACTIONS AND BASIS OF PRESENTATION
Organization
Cali Realty Corporation and subsidiaries (the "Company"), a Maryland
corporation, is a fully-integrated, self-administered, self-managed real
estate investment trust ("REIT") providing leasing, management,
acquisition, development, construction and tenant-related services for
its properties. As of September 30, 1997, the Company owned and
operated 132 properties (the "Properties") aggregating 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 Properties are
located in New Jersey, New York, Pennsylvania and Connecticut.
The Company was incorporated on May 24, 1994 and commenced operations on
August 31, 1994. On August 31, 1994, the Company completed an initial
public offering ("IPO") and effected a business combination with the
Cali Group (not a legal entity). The Company raised its initial capital
through the IPO issuing 10,500,000 shares of common stock, and used the
proceeds to acquire a majority interest in Cali Realty, L.P. (the
"Operating Partnership") and related entities, which are the successors
to the operations of the Cali Group.
Acquisitions/Transactions
From 1994 through 1996, following the Company's IPO, the Company acquired 44
office and office/flex properties totaling 4.9 million square feet for
approximately $610,000. The acquired properties are all located in New
Jersey, New York and Pennsylvania.
On January 28, 1997, the Company acquired 1345 Campus Parkway ("1345
Campus"), a 76,300 square foot office/flex property, located in Wall
Township, Monmouth County, New Jersey, for approximately $6,800 in cash, made
available from the Company's cash reserves. The property is located in the
same office park in which the Company previously acquired two office
properties and four office/flex properties in November 1995.
On January 31, 1997, the Company acquired 65 properties ("RM Properties") of
Robert Martin Company, LLC and affiliates ("RM") for a total cost of
approximately $450,000. The cost of the transaction (the "RM Transaction")
was financed through the assumption of $185,283 of mortgage indebtedness
("TIAA Mortgage"), approximately $220,000 in cash, substantially all of which
was obtained from the Company's cash reserves, and the issuance of 1,401,225
Units in the Operating Partnership.
The RM Properties consist primarily of 54 office and office/flex properties
aggregating approximately 3.7 million square feet and six
industrial/warehouse properties aggregating approximately 400,000 square
feet. The RM Properties are located primarily in established business parks
in Westchester County, New York and Fairfield County, Connecticut. The
Company has agreed not to sell certain of the RM Properties for a period of
seven years without the consent of the RM principals, except for sales made
under certain circumstances and/or conditions.
In connection with the RM Transaction, the Company was granted a three-year
option to acquire a 115,000 square foot office property and an 84,000 square
foot office/flex property (the "Option Properties") for an aggregate minimum
price of $19,000 and has granted RM the right to put such properties to the
Company between a range of an aggregate purchase price of $11,600 to $21,300,
under certain conditions. The purchase prices, under the agreement, are
subject to adjustment based on different formulas and are payable in cash or
Units.
8
<PAGE>
In connection with the RM Transaction, the Company provided an $11,600 mortgage
loan ("Mortgage Note Receivable") secured by the Option Properties (see Note 5).
As part of the RM Transaction, Brad W. Berger, formerly President and Chief
Executive Officer of RM, and Timothy M. Jones, formerly Chief Operating
Officer of RM, joined the Company as Executive Vice Presidents under
three-year employment agreements. The agreements provided, among other
things, that both Berger and Jones be issued warrants to purchase 170,000
shares of the Company's common stock at a price of $33 per share, which vest
equally over a three-year period and expire on January 31, 2007.
On May 8, 1997, the Company acquired four buildings in the Westlakes Office
Park ("Westlakes"), a suburban office complex located in Berwyn, Chester County,
Pennsylvania, totaling approximately 444,000 square feet. The properties were
acquired for approximately $74,700, which was made available primarily from
drawing on one of the Company's credit facilities.
On July 21, 1997, the Company acquired two vacant office buildings in the
Moorestown Corporate Center, a suburban office complex located in Moorestown,
Burlington County, New Jersey. The properties, each consisting of 74,000 square
feet, were acquired for approximately $10,200, which was made available from
drawing on one of the Company's credit facilities.
On August 1, 1997, the Company acquired 1000 Bridgeport Avenue ("Shelton
Place"), a 133,000 square-foot office building located in Shelton, Fairfield
County, Connecticut. The property was acquired for approximately $15,787,
which was made available from drawing on one of the Company's credit facilities.
On August 15, 1997, the Company acquired one of the Option Properties, 200
Corporate Boulevard South ("200 Corporate"), an 84,000 square-foot
office/flex building located in Yonkers, Westchester County, New York. The
property was acquired for approximately $8,078 through the exercise of a
purchase option obtained in connection with the RM Transaction. The
acquisition cost, net of the mortgage prepayment described below, was
financed from the Company's cash reserves.
In conjunction with the acquisition of 200 Corporate, the sellers of the
property, certain RM principals, prepaid $4,350 of the $11,600 Mortgage
Note Receivable between the Company and such RM principals (See Note 5).
On September 3, 1997, the Company acquired Three Independence Way ("Three
Independence"), a 111,300 square foot suburban office property located in South
Brunswick, Middlesex County, New Jersey, for approximately $13,400. The funds
were made available from drawing on one of the Company's credit facilities.
As of October 31, 1997, the Company's portfolio consists of 132 properties
aggregating approximately 12.2 million square feet, consisting primarily of
office, office/flex and industrial/warehouse buildings, located in New
Jersey, New York, Pennsylvania and Connecticut.
On September 18, 1997, the Company entered into a Contribution and Exchange
Agreement (the "Agreement") with certain contributing partnerships and other
entities affiliated with The Mack Company and Patriot American Office Group
(collectively, "The Mack Group"). The Agreement, as amended, provides for,
among other things, the Company to acquire 54 office properties, aggregating
approximately 9.2 million square feet, (the "Mack Properties") for a total
cost of approximately $1,200,000. According to terms of the Agreement, the
cost of the transaction (the "Mack Transaction") will be financed through:
(i) the assumption of an aggregate of $299,737 in mortgage financing
(the "Mack Assumed Debt"); (ii) approximately $469,000 in cash, (using excess
proceeds from its October 1997 common stock offering, see Note 11, as well as
drawing on the Company's revolving credit facilities); (iii) the issuance of
3,972,318 common units ("Common Units") in the Operating Partnership; (iv)
the issuance of 250,256 preferred units ("Preferred Units") in the Operating
Partnership convertible into Common Units; and (v) the issuance of two
million warrants ("Warrants") to purchase Common Units. A portion of the
Common Units may be contingent, non-participating, Common Units, (the
"Contingent Units"), which will convert, in whole or in part, into ordinary
Common Units upon the satisfaction within two years from the consummation
of the transactions contemplated by the Agreement of certain conditions
relating to the Mack Properties. Until such conversion, such Contingent Units
shall not be entitled to any economic, voting or other rights associated with
the participating Common Units.
9
<PAGE>
Following completion of the Mack Transaction, the Company's portfolio will
consist of 186 properties, primarily office and office/flex buildings,
aggregating approximately 21.5 million square feet, located in ten states.
Pursuant to the Agreement, the Cali Realty Corporation name will be changed,
subject to shareholder approval, to Mack-Cali Realty Corporation, and the
name of the Operating Partnership will be changed from Cali Realty, L.P. to
Mack-Cali Realty, L.P. If shareholder approval is not obtained, the Company
will operate under its new name pursuant to a fictitious name certificate,
and continue to obtain shareholder approval in the future.
With the completion of the Transaction, the composition of the Company's
13-member Board of Directors will also change. The Mack Group will be
permitted to name three designees to the Board, who will be: William Mack,
currently Senior Managing Partner of the Mack Company, Mitchell Hersh,
currently Partner and Chief Operating Officer of the Mack Company, and Earle
Mack, all of whom will be considered "inside" members of the Board because of
their relationship with the Company's management. The other inside members
of the Board will be John J. Cali, who will remain as Chairman of the Board,
Thomas A. Rizk, and Robert Weinberg. The remaining seven independent
directors will include three current independent Board members: Brendan
Byrne, Irvin Reid and Alan Philibosian; with four new independent members to
be selected by Mack and reasonably approved by the Company. It is anticipated
that these four new independent members will be Paul A. Nussbaum, Vincent
Tese, Jeffrey B. Lane and Martin D. Gruss.
In accordance with the Agreement, Thomas A. Rizk will remain Chief Executive
Officer and will resign as President of the Company, with Mitchell Hersh
being appointed President and Chief Operating Officer. The Company's other
existing officers will retain their current positions and responsibilities,
except that Brant Cali will resign as Chief Operating Officer and John R.
Cali will resign as Chief Administrative Officer. Brant Cali and John R.
Cali will remain as officers of the Company as Executive Vice Presidents.
Additionally, the Agreement calls for the Company to enter into
non-competition agreements with each of William, Earle, David and Frederic
Mack, which will restrict the business dealings of such individuals relative
to their involvement in commercial real estate activities to those specified
in the Agreement. The agreements are to have a term of the later of (a)
three years from the completion of the Mack Transaction, or (b) the
occurrence of specified circumstances including, but not limited to, the
removal of William, Earle, David or Frederic Mack, respectively, from the
Company's Board of Directors and a decrease in certain ownership levels.
On or before December 12, 1997, the Company may terminate the Agreement for
any reason. During the period beginning October 28, 1997 through December
12, 1997, the Mack Group may terminate the Agreement under certain situations
and conditions relative to material adverse changes in the activities and
stock price of the Company during that period.
The completion of the Mack Transaction is subject to certain conditions,
including approval by the Company's stockholders. There can be no assurance
that the Mack Transaction will be consummated or that the Agreement will not
be modified or amended. Subject to the foregoing, the Company expects the
Mack Transaction to be completed in or about December 1997.
Basis of Presentation
The accompanying consolidated financial statements include all accounts of
the Company and its majority-owned subsidiaries, which consist principally of
the Operating Partnership. All significant intercompany accounts and
transactions have been eliminated.
The preparation of financial statements in conformity with GAAP 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.
10
<PAGE>
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 and depreciated over their estimated useful lives.
Fully-depreciated assets are removed from the accounts.
Depreciation is computed on a straight-line basis over the
estimated useful lives of the assets as follows:
Buildings and improvements 5 to 40 years
-----------------------------------------------------------------------
Tenant improvements The shorter of the term of the related
lease or useful life
-----------------------------------------------------------------------
Furniture, fixtures and equipment 5 to 10 years
-----------------------------------------------------------------------
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 are impaired.
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 December 31, 1996, cash and cash
equivalents included investments in overnight reverse
repurchase agreements ("Overnight Investments") totaling
$201,269. 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 held by the Company at December 31,
1996 matured on January 2, 1997. The entire balance,
including interest income earned, was realized by the
Company and ultimately used in the funding of the RM
Transaction on January 31, 1997.
Deferred
Financing Costs Costs incurred in obtaining financing are
capitalized and amortized on a straight-line basis,
which approximates the effective interest method,
over the term of the related indebtedness.
Amortization of such costs are recorded in interest
expense and were $171 and $278 for the three month
periods ended September 30, 1997 and 1996,
respectively, and $723 and $805 for the nine month
periods ended September 30, 1997 and 1996,
respectively.
Deferred
Leasing Costs 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.
Revenue
Recognition The Company 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.
Parking revenue includes income from parking spaces
leased to tenants.
Rental income on residential property under operating
leases having terms generally of one year or less is
recognized when earned.
11
<PAGE>
Income and
Other Taxes The Company has elected to be taxed as a REIT under
Sections 856 through 860 of the Internal Revenue Code
(the "Code"). As a REIT, the Company will not be subject
to federal income tax to the extent it distributes at
least 95 percent of its REIT taxable income to its
shareholders. REITs are subject to a number of
organizational and operational requirements. If the
Company fails to qualify as a REIT in any taxable year,
the Company will be subject to federal income tax
(including any applicable alternative minimum tax) on its
taxable income at regular corporate tax rates. The
Company may be subject to certain state and local taxes.
Interest Rate
Swap Agreements The Company enters into interest rate swap
agreements which are designated as a means of
managing interest rate exposure on its variable rate
debt. The differential paid or received under these
agreements is recognized in interest expense.
Earnings
Per Share Net income per common share is computed in accordance with APB
Opinion No.15, "Earnings per Share," and uses the weighted
average common shares outstanding during the period. The
weighted average shares outstanding during the three month
periods ended September 30, 1997 and 1996 were 36,457,234 and
17,045,063, respectively, and for the nine month periods ended
September 30, 1997 and 1996 were 36,468,974 and 15,802,573,
respectively.
Dividends and
Distributions
Payable The dividends and distributions payable at September 30,
1997 represents dividends payable to shareholders of
record on October 3, 1997 (36,664,322 shares) and
distributions payable to minority interest unitholders
(4,090,170 Units) on that same date. The third quarter
dividends and distributions of $0.50 per share and per
Unit were approved by the Board of Directors on September
15, 1997 and were paid on October 17, 1997.
Extraordinary
Items Extraordinary items represent the effect resulting from
the early settlement of certain debt obligations, net of
write-off's of related deferred financing costs,
prepayment penalties, yield maintenance payments and
other related items.
Underwriting
Commissions
and Offering
Costs Underwriting commissions and offering costs incurred in
connection with the Company's stock offerings are
reflected as a reduction of additional paid-in-capital.
Stock Options The Company accounts for stock-based compensation using
the intrinsic value method prescribed in Accounting
Principles Board Opinion (APB) No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations.
Under APB No. 25, compensation cost is measured as the
excess, if any, of the quoted market price of the
Company's stock at the date of grant over the exercise
price of the option granted. Compensation cost for stock
options, if any, is recognized ratably over the vesting
period. The Company's policy is to grant options with an
exercise price equal to the quoted closing market price
of the Company's stock on the business day preceding the
grant date. Accordingly, no compensation cost has been
recognized for the Company's stock option plans. See
Note 11 for discussion of stock compensation.
Reclassifications Certain reclassifications have been made to prior
period balances in order to conform with current
period presentation.
12
<PAGE>
3. DEFERRED CHARGES AND OTHER ASSETS
September 30, December 31,
1997 1996
---- ----
Deferred leasing costs $ 17,611 $ 14,031
Deferred financing costs 3,559 5,390
- --------------------------------------------------------------------------------
21,170 19,421
Accumulated amortization (8,667) (8,994)
- --------------------------------------------------------------------------------
Deferred charges, net 12,503 10,427
Prepaid expenses and other assets 6,068 1,413
- --------------------------------------------------------------------------------
Total deferred charges and other assets, net $18,571 $ 11,840
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. RESTRICTED CASH
Restricted cash includes security deposits for all of the Company's
residential properties and certain commercial properties, and escrow and
reserve funds for debt service, real estate taxes, property insurance,
capital improvements, tenant improvements, and leasing costs established
pursuant to certain mortgage financing arrangements, and is comprised of
the following:
September 30, December 31,
1997 1996
---- ----
Escrow and other reserve funds -- $ 2,814
Security deposits $ 5,154 346
- --------------------------------------------------------------------------------
Total restricted cash $ 5,154 $ 3,160
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. MORTGAGE NOTE RECEIVABLE
In connection with the RM Transaction on January 31, 1997, the Company
provided an $11,600 non-recourse mortgage loan to entities controlled by
the RM principals, bearing interest at an annual rate of 450 basis
points over the one-month London Inter-Bank Offered Rate (LIBOR). The
Mortgage Note Receivable, which is secured by the Option Properties and
guaranteed by certain of the RM principals, matures on February 1, 2000.
In addition, the Company received a three percent origination fee with
the Mortgage Note Receivable.
In conjunction with the acquisition of 200 Corporate, one of the Option
Properties, on August 15, 1997, the sellers of the property, certain RM
principals, prepaid $4,350 of the Mortgage Note Receivable, leaving a
remaining principal balance of $7,250. The Company also received a
prepayment fee of $163.
6. MORTGAGES AND LOANS PAYABLE
September 30, December 31,
1997 1996
---- ----
TIAA Mortgage $ 185,283 --
Harborside Mortgages 150,000 $ 150,000
Mortgage Financing -- 64,508
Fair Lawn Mortgage 18,140 18,445
First Prudential Facility -- 6,000
Bank Facility -- 23,805
Unsecured Facility 230,000 --
Second Prudential Facility 4,005 --
Contingent Obligation 5,630 5,252
- --------------------------------------------------------------------------------
Total mortgages and loans payable $ 593,058 $268,010
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
13
<PAGE>
TIAA Mortgage
In connection with the RM Transaction, on January 31, 1997, the Company
assumed a $185,283 non-recourse mortgage loan with Teachers Insurance
and Annuity Association of America ("TIAA"), with interest only payable
monthly at a fixed annual rate of 7.18 percent (the "TIAA Mortgage").
The TIAA Mortgage is secured and cross-collateralized by 43 of the RM
Properties and matures on December 31, 2003. The Company, at its
option, may convert the TIAA Mortgage to unsecured debt upon
achievement by the Company of an investment credit rating of Baa3/BBB-
or better. The TIAA Mortgage is prepayable in whole or in part subject
to certain provisions, including yield maintenance.
Harborside Mortgages
In connection with the acquisition of Harborside Financial Center
("Harborside"), on November 4, 1996, the Company assumed existing
mortgage debt and was provided seller-financed mortgage debt aggregating
$150,000. The existing financing, with a principal balance of $105,465
at September 30, 1997, bears interest at a fixed rate of 7.32 percent
for a term of approximately nine years. The seller-provided financing,
with a principal balance of $44,535 at September 30, 1997, also has a
term of nine years and initially bears interest at a rate of 6.99
percent. The interest rate on the seller-provided financing will be
reset at the end of the third and sixth loan years based on the yield of
the three-year treasury obligation at that time, with spreads of 110
basis points in years four through six and 130 basis points in years
seven through maturity.
Mortgage Financing
Concurrent with the IPO, the Company's initial operating subsidiaries,
which own the Company's remaining initial 11 office properties and the
initial multi-family residential property, (collectively the "Initial
Properties"), issued five-year mortgage notes with an aggregate
principal balance of $144,500 secured and cross-collateralized by the
Initial Properties to an affiliate ("PSI") of Prudential Securities Inc.
PSI then issued commercial mortgage pay-through bonds ("Bonds")
collateralized by the mortgage notes. Bonds with an aggregate principal
balance of $70,000 were purchased by unrelated third parties. Bonds
with an aggregate principal balance of $74,500 were purchased by the
Company. As a result, the Company's initial mortgage financing was
$70,000 (the "Mortgage Financing"). Approximately $38,000 of the
$70,000 was guaranteed under certain conditions by certain partners of
the Cali Group partnerships which owned the Initial Properties. The
Mortgage Financing required monthly payments of interest only, with all
principal and any accrued but unpaid interest due in August 1999.
$46,000 of the $70,000 Mortgage Financing bore interest at a net cost to
the Company equal to a fixed rate of 8.02 percent per annum and the
remaining $24,000 bore interest at a net cost to the Company equal to a
floating rate of 100 basis points over one-month LIBOR (5.65625 percent
at September 30, 1997) with a lifetime interest rate cap of 11.6
percent. Pursuant to the terms of the Mortgage Financing, the Company
was required to escrow $143 per month for tenant improvements and
leasing commissions and $53 per month for capital improvements. On
March 12, 1996, the Company prepaid $5,492 ($1,687 -- fixed rate debt,
$3,805 -- floating rate debt) of the Mortgage Financing, resulting in
outstanding balances of $44,313 for the 8.02 percent fixed rate debt and
$20,195 for the floating rate debt. On August 12, 1997, the Company
prepaid in full the remaining balance and retired the Mortgage Financing
from funds made available primarily from drawing on the Unsecured
Facility (see below). On account of prepayment fees, loan origination
fees, legal fees and other costs incurred in the retirement of the
Mortgage Financing, an extraordinary loss of $3,583, net of minority
interest's share of the loss ($402) was recorded for the three and nine
months ended September 30, 1997.
Fair Lawn Mortgage
In connection with the acquisition of an office building in Fair Lawn,
New Jersey on March 3, 1995, the Company assumed an $18,764 non-recourse
mortgage loan ("Fair Lawn Mortgage") collateralized by the property,
bearing interest at a fixed rate of 8.25 percent per annum. The loan
required payment of interest only through March 15, 1996 and requires
payment of principal and interest thereafter, on a 20-year amortization
schedule, with the remaining principal balance due October 1, 2003. For
the nine months ended September 30, 1997, the Company paid $305 for
amortization of principal on the Fair Lawn Mortgage.
First Prudential Facility
The Company has a $70,000 revolving credit facility (the "First
Prudential Facility") with Prudential Securities Credit Corp. ("PSC"),
which may be used to fund acquisitions and new development projects and
for general working capital
14
<PAGE>
purposes, including capital expenditures and tenant improvements. In
connection with the Mortgage Financing, the Company obtained a $6,005
letter of credit (the "Letter of Credit"), secured by the First
Prudential Facility, to meet certain tenant improvement and capital
expenditure reserve requirements. The First Prudential Facility bore
interest at a floating rate equal to 150 basis points over one-month
LIBOR for January 1, 1996 through August 31, 1996. Effective September
1, 1996, the interest rate was reduced to a floating rate equal to 125
basis points over one-month LIBOR. The First Prudential Facility was a
recourse liability of the Operating Partnership and was secured by a
pledge of the $74,500 Bonds held by the Company. In conjunction with
obtaining the Unsecured Facility (see below), the Company repaid in full
and terminated the First Prudential Facility on August 7, 1997.
Additionally, the Letter of Credit was canceled in conjunction with
prepayment of the Mortgage Financing on August 12, 1997.
Bank Facility
On February 1, 1996, the Company obtained a credit facility (the "Bank
Facility") secured by certain of its properties in the amount of $75,000
from two participating banks. The Bank Facility had a three-year term
and bore interest at 150 basis points over one-month LIBOR. The terms
of the Bank Facility include certain restrictions and covenants which
limit, among other things, dividend payments and additional indebtedness
and which require compliance with specified financial ratios and other
financial measurements. The Bank Facility also required a fee equal to
one quarter of one percent of the unused balance payable quarterly in
arrears. In conjunction with obtaining the Unsecured Facility (see
below), the Company repaid in full and terminated the Bank Facility on
August 7, 1997.
Second Prudential Facility
On November 4, 1996, the Company obtained a revolving credit facility
("Second Prudential Facility") from PSC totaling $80,000 which bears
interest at 125 basis points over one-month LIBOR, and matures on
January 15, 1998. The Second Prudential Facility is a recourse
liability of the Operating Partnership and is secured by the Company's
equity interest in Harborside. The terms of the Second Prudential
Facility include certain restrictions and covenants that limit, among
other things, dividend payments and additional indebtedness and that
require compliance with specified financial ratios and other financial
measurements. Additionally, on August 12, 1997, the Second Prudential
Facility was amended increasing the total commitment from $80,000 to
$100,000 and extending the maturity date to August 31, 1998. On October
10, 1997, the Company repaid the $4,005 remaining outstanding balance
under the Second Prudential Facility from the Company's cash reserves.
Unsecured Facility
On August 6, 1997, the Company obtained an unsecured revolving credit
facility (the "Unsecured Facility") in the amount of $400,000 from a
group of 13 lender banks. The Unsecured Facility has a three-year term
and currently bears interest at 125 basis points over one-month LIBOR.
Based upon the Company's achievement of an investment grade long-term
unsecured debt rating, the interest rate will be reduced, on a sliding
scale, and a competitive bid option will become available.
The terms of the Unsecured Facility include certain restrictions and
covenants which limit, among other things, dividend payments and
additional indebtedness and which require compliance with specified
financial ratios and other financial measurements. The Unsecured
Facility also requires a fee on the unused balance payable quarterly in
arrears, at a rate ranging from one-eighth of one percent to one-quarter
of one percent of such balance, depending on the level of borrowings
outstanding in relation to the total facility commitment.
The lending group for the Unsecured Facility includes: Fleet National
Bank, The Chase Manhattan Bank, and Bankers Trust Company, as agents;
PNC Bank, N.A., Bank of America National Trust and Savings Association,
Commerzbank, and First National Bank of Chicago, as co-agents; and
Keybank, Summit Bank, Crestar Bank, Mellon Bank, N.A., Signet Bank, and
Kredeitbank NV.
In conjunction with the Company obtaining the Unsecured Facility, the
Company drew funds on the new facility to repay in full and terminate
both the First Prudential Facility and the Bank Facility. On October
15, 1997, the Company repaid $160,000 of the outstanding balance on the
Unsecured Facility in proceeds received from the Company's common stock
offering completed on such date (See Note 11).
15
<PAGE>
Contingent Obligation
As part of the Harborside acquisition, the Company agreed to make payments
(with an estimated net present value of approximately $5,252 at acquisition
date) to the seller for development rights ("Contingent Obligation") if and
when the Company commences construction on the acquired site during the next
several years. However, the agreement provides, among other things, that
even if the Company does not commence construction, the seller may
nevertheless require the Company to acquire these rights during the six-month
period after the end of the sixth year. After such period, the seller's
option lapses, but any development in years 7 through 30 will require a
payment, on an increasing scale, for the development rights. For the nine
months ended September 30, 1997, interest imputed on the Contingent
Obligation was capitalized, thereby increasing the balance of the Contingent
Obligation to $5,630 as of September 30, 1997.
Interest Rate Swap Agreements
On May 24, 1995, the Company entered into an interest rate swap agreement
with a commercial bank. The swap agreement fixes the Company's one-month
LIBOR base to a fixed 6.285 percent per annum on a notional amount of $24,000
through August 1999.
On January 23, 1996, the Company entered into another interest rate swap
agreement with a commercial bank. This swap agreement has a three-year term
and a notional amount of $26,000, which fixes the Company's one-month LIBOR
base to 5.265 percent.
The Company is exposed to credit loss in the event of non-performance by the
other parties to the interest rate swap agreements. However, the Company
does not anticipate non-performance by either counterparty.
Cash Paid for Interest
Cash paid for interest for the nine month periods ended September 30, 1997
and 1996 was $26,922 and $8,665, respectively.
7. MINORITY INTEREST
Certain individuals and entities own Units in the Operating Partnership. A
Unit and a share of common stock of the Company have substantially the same
economic characteristics in as much as they effectively share equally in the
net income or loss of the Operating Partnership. Minority interest in the
accompanying consolidated financial statements relates to Units held by
parties other than the Company.
Units are redeemable by the unitholders at their option, subject to certain
restrictions, on the basis of one Unit for either one share of common stock
or cash equal to the fair market value of a share at the time of the
redemption. The Company has the option to deliver shares of common stock in
exchange for all or any portion of the cash requested. When a unitholder
redeems a Unit, minority interest is reduced and the Company's investment in
the Operating Partnership is increased.
On January 31, 1997, 1,401,225 Units were issued in connection with the RM
Transaction. As of September 30, 1997 and December 31, 1996, the minority
interest unitholders owned 10.0 and 6.9 percent of the Operating Partnership,
respectively.
8. EMPLOYEE BENEFIT PLAN
All employees of the Company who meet certain minimum age and period of
service requirements are eligible to participate in a Section 401(k) plan
(the "Plan") as defined by the Code. The Plan allows eligible employees to
defer up to 15 percent of their annual compensation. The amounts contributed
by employees are immediately vested and non-forfeitable. The Company, at
management's discretion, may match employee contributions. No employer
contributions have been made to date.
16
<PAGE>
9. COMMITMENTS AND CONTINGENCIES
Tax Abatement Agreements
Grove Street Property
Pursuant to an agreement with the City of Jersey City, New Jersey, as
amended, expiring in 2004, the Company is required to make payments in lieu
of property taxes ("PILOT") on its property at 95 Christopher Columbus Drive,
Jersey City, Hudson County, New Jersey. Such PILOT, as defined, is $1,267
per annum through May 31, 1999 and $1,584 per annum through May 31, 2004.
Harborside Financial Center Property
Pursuant to a separate agreement with the City of Jersey City, New Jersey
obtained by the former owner of the Harborside property in 1988 and assumed
by the Company as part of the acquisition of the property on November 4,
1996, the Company is required to make PILOT payments on its Harborside
property. The agreement, which commenced in 1990, are for a term of 15
years. Such PILOT is equal to two percent of Total Project Costs, as
defined, in year one and increases by $75 per annum through year fifteen.
Total Project Costs, as defined, are $148,712.
10. TENANT LEASES
The Properties are leased to tenants under operating leases with various
expiration dates through 2020. 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.
11. STOCKHOLDERS' EQUITY
To maintain its qualification as a REIT, not more than 50 percent in value of
the outstanding shares of the Company may be owned, directly or indirectly,
by five or fewer individuals (defined to include certain entities), applying
certain constructive ownership rules. To help ensure that the Company will
not fail this test, the Company's Articles of Incorporation provide for,
among other things, certain restrictions on the transfer of the common stock
to prevent further concentration of stock ownership. Moreover, to evidence
compliance with these requirements, the Company must maintain records that
disclose the actual ownership of its outstanding common stock and will demand
written statements each year from the holders of record of designated
percentages of its common stock requesting the disclosure of the beneficial
owners of such common stock.
On May 13, 1996, the stockholders approved an increase in the authorized
shares of common stock in the Company from 25,000,000 to 95,000,000.
On July 29, 1996, the Company filed a shelf registration statement with the
SEC for an aggregate amount of $500,000 in equity securities of the Company.
The registration statement was declared effective by the SEC on August 2,
1996.
On August 13, 1996, the Company sold 3,450,000 shares of its common stock
through a public stock offering (the "August 1996 Offering"), which included
an exercise of the underwriters over-allotment option of 450,000 shares. Net
proceeds from the August 1996 Offering (after offering costs) were
approximately $76,830. The offering was conducted using one underwriter and
the shares were issued from the Company's $250,000 shelf registration
statement (File No. 33-96538).
Pursuant to the Company's $500,000 shelf registration statement, on November
22, 1996, the Company completed an underwritten public offer and sale of
17,537,500 shares of its common stock using several different underwriters to
underwrite such public offer and sale (which included an exercise of the
underwriters' over-allotment option of 2,287,500 shares). The Company
received approximately $441,215 in net proceeds (after offering costs) from
the
17
<PAGE>
offering, and used such funds to effect certain of the Company's property
acquisitions in November and December 1996, pay down outstanding borrowings
on its revolving credit facilities, and investing the excess funds in
Overnight Investments.
On December 31, 1996, the Company filed a shelf registration statement with
the SEC for an aggregate amount of $1,000,000 in equity securities of the
Company. The registration statement was declared effective by the SEC on
January 7, 1997.
On May 15, 1997, the stockholders approved an increase in the authorized
shares of common stock in the Company from 95,000,000 to 190,000,000.
Pursuant to the Company's $1,000,000 shelf registration statement, on October
15, 1997, the Company completed an underwritten public offer and sale of
13,000,000 shares of its common stock using several different underwriters to
underwrite such public offer and sale. The Company received approximately
$489,000 in net proceeds (after offering costs) from the offering. The
Company used $160,000 of such proceeds to repay outstanding borrowings on its
Unsecured Facility and anticipates using the remainder of the proceeds to
fund a portion of the purchase price of the Mack Transaction, for other
potential acquisitions, and for general corporate purposes.
Stock Option Plans
In 1994, and as afterwards amended, the Company established the Cali Employee
Stock Option Plan ("Employee Plan") and the Cali Director Stock Option Plan
("Director Plan") under which a total of 2,980,188 (subject to adjustment) of
the Company's shares of common stock have been reserved for issuance
(2,780,188 shares under the Employee Plan and 200,000 shares under the
Director Plan). Stock options granted under the Employee Plan in 1994 and
1995 become exercisable over a three-year period and those options granted
under the Employee Plan in 1996 and 1997 become exercisable over a five-year
period. All stock options granted under the Director Plan become exercisable
in one year. All options were granted at the fair market value at the dates
of grant and have terms of ten years.
18
<PAGE>
Information regarding the Company's stock option plans is summarized below:
Employee Director
Shares under option: Plan Plan
---------------------------------------- -------- --------
Granted on August 31, 1994 at
$15.25-$17.25 per share 600,000 25,000
---------------------------------------------------------------------
Outstanding at December 31, 1994
$15.25 - $17.25 per share 600,000 25,000
Granted at $17.25-$19.875 per share 220,200 10,000
Less - Lapsed or canceled (3,588) --
---------------------------------------------------------------------
Outstanding at December 31, 1995
$15.25 - $19.875 per share 816,612 35,000
Granted at $21.50-$26.25 per share 795,700 14,000
Less - Lapsed or canceled (7,164) --
Exercised at $17.25 per share (116,041) (10,000)
---------------------------------------------------------------------
Outstanding at December 31, 1996
$15.25 - $26.25 per share 1,489,107 39,000
Granted at $33.00 per share -- 5,000
Granted at $33.875 per share -- 5,000
Granted at $30.75 per share 171,460 --
Granted at $30.25 per share 148,000 --
Granted at $37.0625 per share 170,720 --
Less - Lapsed or canceled (27,553) --
Exercised at $17.25 - $25.25 per share (143,315) --
---------------------------------------------------------------------
Outstanding at September 30, 1997
$15.25 - $33.875 per share 1,808,419 49,000
---------------------------------------------------------------------
---------------------------------------------------------------------
Exercisable at September 30, 1997 641,254 39,000
---------------------------------------------------------------------
Available for grant at December 31, 1996 175,040 51,000
Available for grant at September 30, 1997 712,413 141,000
---------------------------------------------------------------------
Stock Compensation
In January 1997, the Company entered into employment contracts with seven of
its key executives which provide for, among other things, compensation in the
form of stock awards (the "Stock Award Rights") and Company-financed stock
purchase rights (the "Stock Purchase Rights"), and associated tax obligation
payments. In connection with the Stock Award Rights, the executives will
receive 199,070 shares of the Company's common stock vesting over a five-year
period contingent on the Company meeting certain performance objectives.
Additionally, pursuant to the terms of the Stock Purchase Rights, the Company
provided fixed rate, non-prepayable loans, aggregating $4,750, to such
executives to finance their purchase of 152,000 shares of the Company's
common stock, which the Company has agreed to forgive ratably over five
years. Such loans were for amounts equal to the fair market value of the
associated shares at the date of grant. Subsequently, from April 18, 1997
through April 24, 1997, the Company purchased, for constructive retirement,
152,000 shares of its outstanding common stock for $4,680. The excess of
the purchase price over par value was recorded as a reduction to additional
paid-in capital. Concurrent with this purchase, the Company sold to the
Operating Partnership 152,000 Units for $4,680.
The value of the Stock Award Rights at September 30, 1997, net of amounts
recognized as compensation expense, is recorded as unamortized stock
compensation and shown as a separate component of stockholders' equity.
Unamortized stock compensation for the Stock Award Rights is amortized to
expense as certain performance objectives are reached.
Additionally, the balance of the loans related to the Stock Purchase Rights
at the grant date, net of amounts recognized as compensation expense, is
recorded as unamortized stock compensation and shown as a separate component
of stockholders' equity. Unamortized stock compensation is amortized to
expense ratably over the five-year vesting period.
19
<PAGE>
Included in general and administrative expense for the three and nine month
periods ended September 30, 1997 is $778 and $2,257, respectively, relating
to the Stock Award Rights and Stock Purchase Rights.
12. IMPACT OF RECENTLY - ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
("FASB No. 128") which will be effective for periods ending after December
15, 1997. Earlier application is not permitted. FASB No. 128 requires a
dual presentation of basic and diluted earnings per share ("EPS") on the face
of the income statement for all companies with complex capital structures
even where the effect of such dilution is not material. Basic EPS excludes
dilution and is computed by dividing net income available to common
stockholders by the weighted average number of shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock. The Company will adopt FASB No. 128 in its
December 31, 1997 financial statements and will restate all prior period EPS
information. The Company will continue to account for EPS under APB No. 15
until that time.
The following pro forma information presents the Company's results for the
periods indicated in accordance with FASB No. 128.
For the three month period ended September 30, 1997:
Pro Forma Pro Forma
Basic EPS Diluted EPS
------------- -----------
Net income (in $000's) $ 14,375 $ 14,375
Add: Net income attributable
to potentially dilutive securities -- 1,613
------------- -----------
$ 14,375 $ 15,988
------------- -----------
------------- -----------
Weighted average shares 36,457,234 41,183,798
------------- -----------
Per Share $ 0.39 $ 0.39
------------- -----------
------------- -----------
The following schedule reconciles the shares used in the pro forma basic EPS
calculation to the shares used in the pro forma diluted EPS calculation.
Pro Forma Basic EPS Shares: 36,457,234
Add: Stock Options 636,394
Add: Operating Partnership Units 4,090,170
----------
Pro Forma Diluted EPS Shares: 41,183,798
----------
----------
20
<PAGE>
For the nine month period ended September 30, 1997:
Pro Forma Pro Forma
Basic EPS Diluted EPS
----------- -----------
Net income (in $000's) $ 48,859 $ 48,859
Add: Net income attributable to potentially
dilutive securities -- 5,261
----------- -----------
$ 48,859 $ 54,120
----------- -----------
----------- -----------
Weighted average shares 36,468,974 41,068,405
----------- -----------
Per Share $ 1.34 $ 1.32
----------- -----------
----------- -----------
The following schedule reconciles the shares used in the pro forma basic EPS
calculation to the shares used in the pro forma diluted EPS calculation.
Pro Forma Basic EPS Shares: 36,468,974
Add: Stock Options 662,722
Add: Operating Partnership Units 3,936,709
----------
Pro Forma Diluted EPS Shares: 41,068,405
----------
----------
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income ("FASB No. 130"), which establishes
standards for reporting and display of comprehensive income and its
components. This statement requires a separate statement to report the
components of comprehensive income for each period reported. The provisions
of this statement are effective for fiscal years beginning after December 15,
1997. Management believes that they currently do not have items that would
require presentation in a separate statement of comprehensive income.
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information, ("FASB No. 131"), which establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and require that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. This statement is effective for financial statements
for periods beginning after December 15, 1997.
13. PRO FORMA FINANCIAL INFORMATION
The following pro forma financial information for the three and nine month
periods ended September 30, 1997 and 1996 are presented as if the
acquisitions and common stock offerings in 1996, the January 1997 RM
Transaction, and the 1997 acquisitions of 1345 Campus, Westlakes, Shelton
Place, 200 Corporate and Three Independence Way had all occurred on January 1,
1996. In management's opinion, all adjustments necessary to reflect the
effects of these transactions have been made.
21
<PAGE>
This pro forma financial information is not necessarily indicative of what
the actual results of operations of the Company would have been assuming such
transactions had been completed as of January 1, 1996, nor do they represent
the results of operations of future periods.
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenues $63,226 $57,234 $187,423 $176,319
Operating and other expenses 19,122 18,536 56,676 55,213
General and administrative 3,687 3,602 11,344 9,596
Depreciation and amortization 9,436 9,054 27,601 26,505
Interest expense 9,772 9,841 29,534 29,508
------- ------- -------- --------
Income before minority interest 21,209 16,201 62,268 55,497
Minority interest 2,140 1,649 6,280 5,661
------- ------- -------- --------
Net income $19,069 $14,552 $ 55,988 $ 49,836
------- ------- -------- --------
------- ------- -------- --------
Net income per common share $ 0.52 $ 0.40 $ 1.54 $ 1.38
------- ------- -------- --------
22
<PAGE>
CALI REALTY CORPORATION AND SUBSIDIARIES
Item 2:
M A N A G E M E N T' S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D
R E S U L T S O F O P E R A T I O N S
The following discussion should be read in conjunction with the Consolidated
Financial Statements of Cali Realty Corporation and the notes thereto.
The following comparisons for the three and nine month periods ended
September 30, 1997 ("1997"), as compared to the three and nine month periods
ended September 30, 1996 ("1996") make reference to the following: (i) the
effect of the "Pre-Acquisition Properties," which represents all properties
owned by the Company at June 30, 1996 (for the three-month period
comparisons), and which represents all properties owned by the Company at
December 31, 1995 (for the nine-month period comparisons), (ii) the effect of
the "Acquired Properties," which represents all properties acquired by the
Company from July 1, 1996 through September 30, 1997, excluding RM (for the
three-month period comparisons), and represents all properties acquired by
the Company from January 1, 1996 through September 30, 1997, excluding RM
(for the nine-month period comparisons), (iii) the effect of the
"Disposition," which refers to the Company's sale of its Essex Road property
on March 20, 1996, and (iv) the effect of the acquisition of the RM
Properties on January 31, 1997.
Three Months Ended September 30, 1997 Compared to
Three Months Ended September 30, 1996
Total revenues increased $40.1 million, or 178.0 percent, for the three
months ended September 30, 1997 over the same period in 1996. Base rents
increased $33.7 million, or 182.8 percent, of which an increase of $17.7
million, or 95.9 percent, was attributable to the Acquired Properties, an
increase of $15.9 million, or 86.6 percent, due to the RM Properties, and an
increase of $0.1 million, or 0.3 percent, due to occupancy changes at the
Pre-Acquisition Properties. Escalations and recoveries increased $4.8
million, or 139.7 percent, of which an increase of $3.2 million, or 92.6
percent, was attributable to the Acquired Properties, an increase of $1.3
million, or 38.0 percent, due to the RM Properties, and an increase of $0.3
million, or 9.1 percent, due to occupancy changes at the Pre-Acquisition
Properties.
Total expenses for the three months ended September 30, 1997 increased $27.8
million, or 186.6 percent, as compared to the same period in 1996. Real
estate taxes increased $4.4 million, or 200.9 percent, for 1997 over 1996, of
which an increase of $1.8 million, or 82.9 percent, was attributable to the
Acquired Properties, an increase of $2.5 million, or 111.7 percent, due to
the RM Properties, and an increase of $0.1 million, or 6.3 percent,
attributable to the Pre-Acquisition Properties. Additionally, operating
services increased $4.7 million, or 177.4 percent, and utilities increased
$2.8 million, or 127.8 percent, for 1997 over 1996. The aggregate increase
in operating services and utilities of $7.5 million, or 154.7 percent,
consists of $4.0 million, or 81.7 percent, attributable to the Acquired
Properties, an increase of $3.6 million, or 75.2 percent, due to the RM
Properties, offset by a decrease of $0.1 million, or 2.2 percent,
attributable to the Pre-Acquisition Properties. General and administrative
expense increased $2.3 million, or 168.1 percent, of which $0.7 million, or
49.5 percent, is attributable to additional costs related to the RM
Properties and $1.6 million, or 118.6 percent, is due primarily to an
increase in payroll and related costs as a result of the Company's expansion
in late 1996 and early 1997. Depreciation and amortization increased $5.9
million, or 169.2 percent, for 1997 over 1996, of which $2.9 million, or 84.2
percent, relates to depreciation on the Acquired Properties, an increase of
$2.8 million, or 79.9 percent, attributable to the RM Properties, and an
increase of $0.2 million, or 5.1 percent, due to the Pre-Acquisition
Properties. Interest expense increased $7.7 million, or 256.6 percent, for
1997 over 1996, of which $3.3 million, or 110.9 percent, was attributable to
the TIAA Mortgage, $2.7 million, or 90.9 percent, due to the Harborside
Mortgages, and an increase of $3.7 million, or 121.5 percent, due to net
additional drawings from the Company's credit facilities as a result of
Company acquisitions, as well as changes in LIBOR, offset by a decrease of
$2.0 million, or 66.7 percent, due to the August 1997 prepayment of the
Mortgage Financing.
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Income before gain on sale of rental property, minority interest, and
extraordinary items increased to $20.0 million in 1997 from $7.7 million in
1996. The increase of $12.3 million was due to the factors discussed above.
Net income increased $7.8 million for the three months ended September 30,
1997 from $6.6 million in 1996 to $14.4 million in 1997, as a result of the
increase in income before gain on sale of rental property, minority interest
and extraordinary items of $12.3 million, offset by the recognition in 1997
of an extraordinary loss of $3.6 million (net of minority interest), and an
increase in minority interest of $0.9 million in 1997 from 1996.
Nine Months Ended September 30, 1997 Compared to
Nine Months Ended September 30, 1996
Total revenues increased $112.2 million, or 177.8 percent, for the nine
months ended September 30, 1997 over the same period in 1996. Base rents
increased $93.6 million, or 181.0 percent, of which an increase of $50.5
million, or 97.6 percent, was attributable to the Acquired Properties, an
increase of $42.3 million, or 81.9 percent, due to the RM Properties, and an
increase of $1.1 million, or 2.0 percent, due to occupancy changes at the
Pre-Acquisition Properties, offset by a decrease of $0.3 million or 0.5
percent, as a result of the Disposition. Escalations and recoveries increased
$12.8 million, or 132.9 percent, of which an increase of $9.0 million, or
93.5 percent, was attributable to the Acquired Properties, an increase of
$3.4 million, or 35.2 percent, due to the RM Properties, and an increase of
$0.4 million, or 4.2 percent, due to occupancy changes at the Pre-Acquisition
Properties.
Total expenses for the nine months ended September 30, 1997 increased $74.6
million, or 174.9 percent, as compared to the same period in 1996. Real
estate taxes increased $12.2 million, or 191.9 percent, for 1997 over 1996,
of which an increase of $5.3 million, or 83.8 percent, was attributable to
the Acquired Properties, an increase of $6.6 million, or 103.8 percent, due
to the RM Properties, and an increase of $0.4 million, or 5.1 percent,
attributable to the Pre-Acquisition Properties, offset by a decrease of $0.1
million, or 0.8 percent, as a result of the Disposition. Additionally,
operating services increased $13.1 million, or 164.8 percent, and utilities
increased $7.0 million, or 118.0 percent, for 1997 over 1996. The aggregate
increase in operating services and utilities of $20.1 million, or 144.7
percent, consists of $11.4 million, or 81.9 percent, attributable to the
Acquired Properties, and an increase of $9.4 million, or 67.6 percent, due to
the RM Properties, offset by a decrease of $0.2 million, or 1.2 percent, as a
result of the Disposition, and a decrease of $0.5 million, or 3.6 percent,
attributable to the Pre-Acquisition Properties. General and administrative
expense increased $7.2 million, or 209.3 percent, of which $1.9 million, or
55.0 percent, is attributable to additional costs related to the RM
Properties and $5.3 million, or 154.3 percent, due primarily to an increase
in payroll and related costs as a result of the Company's expansion in late
1996 and early 1997. Depreciation and amortization increased $15.8 million,
or 160.2 percent, for 1997 over 1996, of which $8.2 million, or 83.6 percent,
relates to depreciation on the Acquired Properties, an increase of $7.2
million, or 72.7 percent, attributable to the RM Properties, and an increase
of $0.5 million, or 4.7 percent, due to the Pre-Acquisition Properties,
offset by a decrease of $0.1 million, or 0.8 percent, related to the
Disposition. Interest expense increased $19.3 million, or 212.3 percent, for
1997 over 1996, of which $8.8 million, or 97.5 percent, was attributable to
the TIAA Mortgage, $8.2 million, or 89.7 percent, due to the Harborside
Mortgages, and an increase of $4.5 million, or 48.8 percent, due to net
additional drawings from the Company's credit facilities as a result of
Company acquisitions as well as changes in LIBOR, offset by a decrease of
$0.1 million, or 0.6 percent, related to the March 1996 partial prepayment of
the Mortgage Financing, and a decrease of $2.1 million, or 23.1 percent, due
to the August 1997 prepayment of the Mortgage Financing.
Income before gain on sale of rental property, minority interest, and
extraordinary items increased to $58.1 million in 1997 from $20.5 million in
1996. The increase of $37.6 million was due to the factors discussed above.
Net income increased $27.1 million for the nine months ended September 30,
1997 from $21.8 million in 1996 to $48.9 million in 1997, as a result of the
increase in income before gain on sale of rental property, minority interest
and extraordinary items of $37.6 million and the recognition in 1996 of an
extraordinary loss of $0.5 million (net of minority interest), offset by the
recognition in 1997 of an extraordinary loss of $3.6 million (net of minority
interest), the gain on sale of rental property of $5.7 million recognized in
1996, and an increase in minority interest of $1.7 million in 1997 over 1996.
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Liquidity and Capital Resources
Statement of Cash Flows
During the nine months ended September 30, 1997, the Company generated $82.9
million in cash flows from operating activities, and together with $410.1
million in borrowings from the Company's credit facilities, $2.7 million of
proceeds from stock options exercised, $201.4 million from the Company's cash
reserves, and $2.8 million from restricted cash, used an aggregate of $699.9
million to (i) purchase 75 rental properties and other tenant improvements
and building improvements for $357.0 million, (ii) pay $11.6 million for a
Mortgage Note Receivable, (iii) pay quarterly dividends and distributions of
$54.1 million, (iv) pay the amortization on mortgage principal of $0.3
million, (v) repay outstanding borrowings on its credit facilities by $270.4
million, (vi) repurchase 152,000 shares of the Company's common stock for
$4.7 million, and (vii) pay debt prepayment and other costs of $1.8 million.
Capitalization
On January 23, 1996, the Company entered into an interest rate swap agreement
with a commercial bank. The swap agreement has a three-year term and a
notional amount of $26 million, which fixes the Company's one-month LIBOR
base to 5.265 percent.
On February 1, 1996, the Company obtained a credit facility (the "Bank
Facility") secured by certain of its properties in the amount of $75 million
from two participating banks. The Bank Facility had a three-year term and
bore interest at 150 basis points over one-month LIBOR. The terms of the
Bank Facility included certain restrictions and covenants which limited, among
other things, dividend payments and additional indebtedness and which required
compliance with specified financial ratios and other financial measurements.
The Bank Facility also required a fee equal to one quarter of one percent of
the unused balance payable quarterly in arrears. In conjunction with
obtaining the Unsecured Facility, the Company repaid in full and terminated
the Bank Facility on August 7, 1997.
On July 29, 1996, the Company filed a shelf registration statement (File No.
333-09081) with the Securities and Exchanges Commission ("SEC") for an
aggregate amount of $500 million in equity securities of the Company. The
registration statement was declared effective by the SEC on August 2, 1996.
On August 13, 1996, the Company sold 3,450,000 shares of its common stock
through a public stock offering (the "August 1996 Offering"), which included
an exercise of the underwriters' over-allotment option of 450,000 shares.
Net proceeds from the August 1996 Offering (after offering costs) were
approximately $76.8 million. The offering was conducted using one
underwriter and the shares were issued from the Company's $250 million shelf
registration statement (File No. 33-96538).
On November 4, 1996, the Company obtained a revolving credit facility
("Second Prudential Facility") from PSC totaling $80 million which bears
interest at 125 basis points over one-month LIBOR, and matures on January 15,
1998. The Second Prudential Facility is a recourse liability of the
Operating Partnership and is secured by the Company's equity interest in
Harborside. The terms of the Second Prudential Facility include certain
restrictions and covenants that limit, among other things, dividend payments
and additional indebtedness and that require compliance with specified
financial ratios and other financial measurements. On August 7, 1997, the
Company repaid in full the outstanding balance under the Second Prudential
Facility with funds drawn from the Unsecured Facility. Additionally, on
August 12, 1997, the Second Prudential Facility was amended increasing the
total commitment from $80 million to $100 million and extending the maturity
date to August 31, 1998.
In addition, on November 4, 1996, the Company assumed existing debt and was
provided seller-financed mortgage debt aggregating $150 million (as more
fully described in Note 6).
Pursuant to the Company's $500 million shelf registration statement (File No.
333-09081), on November 22, 1996, the Company completed an underwritten
public offer and sale of 17,537,500 shares of its common stock using several
different underwriters to underwrite such public offer and sale (which
included an exercise of the underwriters' over-allotment option of 2,287,500
shares). The Company received approximately $441.2 million in net proceeds
(after offering costs) from the offering, and used such funds to acquire
certain of the Company's property acquisitions in
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November and December 1996, pay down outstanding borrowings on its revolving
credit facilities, and investing the excess funds in Overnight Investments.
On December 31, 1996, the Company filed a shelf registration statement with
the SEC for an aggregate amount of $1 billion in equity securities of the
Company. The registration statement was declared effective by the SEC on
January 7, 1997.
On May 15, 1997, the stockholders approved an increase in the authorized
shares of common stock in the Company from 95 million to 190 million.
In connection with the RM Transaction on January 31, 1997, the Company
assumed a $185.3 million non-recourse mortgage loan with TIAA (as more fully
described in Note 6).
From April 18, 1997 through April 24, 1997, the Company purchased, for
constructive retirement, 152,000 shares of its outstanding common stock for
$4.7 million. Concurrent with this purchase, the Company sold to the
Operating Partnership 152,000 Units for $4.7 million.
On August 6, 1997, the Company obtained an unsecured revolving credit
facility (the "Unsecured Facility") in the amount of $400 million from a
group of 13 lender banks. The Unsecured Facility has a three-year term and
currently bears interest at 125 basis over one-month LIBOR. Based upon the
Company's achievement of an investment grade long-term unsecured debt rating,
the interest rate will be reduced, on a sliding scale, and a competitive bid
option will become available.
The lending group for the Unsecured Facility includes: Fleet National Bank,
The Chase Manhattan Bank, and Bankers Trust Company, as agents; PNC Bank,
N.A., Bank of America National Trust and Savings Association, Commerzbank,
and First National Bank of Chicago, as co-agents; and Keybank, Summit Bank,
Crestar Bank, Mellon Bank, N.A., Signet Bank, and Kredeitbank NV.
In conjunction with the Company obtaining the Unsecured Facility, the Company
drew funds on the new facility to repay in full and terminate both the First
Prudential Facility and the Bank Facility. The Company drew an additional
$70 million to repay in full the outstanding balance under the Second
Prudential Facility. As of August 12, 1997, the Company's two remaining
revolving credit facilities consist of the Unsecured Facility and the Second
Prudential Facility.
On August 12, 1997, the Company prepaid in full and retired the secured
Mortgage Financing from funds made available primarily from drawing on the
Unsecured Facility.
Following this secured debt prepayment, the Company has four secured mortgage
debt instruments remaining; the $185.3 million TIAA Mortgage, the two
mortgages comprising the $150 million in Harborside Mortgages, and the $18.2
million Fair Lawn Mortgage.
As of October 31, 1997, the Company has 85 unencumbered properties totaling
7.2 million square feet, representing 58 percent of the Company's portfolio.
On September 18, 1997, the Company entered into a Contribution and Exchange
Agreement (the "Agreement") with certain contributing partnerships and other
entities affiliated with The Mack Company and Patriot American Office Group
(collectively, "The Mack Group"). The Agreement provides for, among other
things, the Company to acquire 54 office properties, aggregating
approximately 9.2 million square feet, (the "Mack Properties") for a total
cost of approximately $1.2 billion. According to terms of the Agreement, the
cost of the transaction (the "Mack Transaction") will be financed through:
(i) the assumption of an aggregate of $299.7 million in mortgage financing
(the "Mack Assumed Debt"); (ii) approximately $469.0 million in cash (using
excess proceeds from its October 1997 common stock offering, see Note 11, as
well as drawing on the Company's revolving credit facilities); (iii) the
issuance of 3,972,318 Common Units in the Operating Partnership, a portion of
which may be Contingent Units; (iv)
26
<PAGE>
the issuance of 250,256 Preferred Units in the Operating Partnership
convertible into Common Units; and (v) the issuance of two million Warrants
to purchase Common Units.
Pursuant to the Company's $1 billion shelf registration statement, on October
15, 1997, the Company completed an underwritten public offer and sale of 13
million shares of its common stock using several different underwriters to
underwrite such public offer and sale. The Company received approximately
$489 million in net proceeds (after offering costs) from the offering, the
Company used $160 million of such proceeds to repay outstanding borrowings on
its Unsecured Facility, while the Company anticipates using the remainder of
the proceeds to fund a portion of the purchase price of the Mack Transaction,
for other potential acquisitions, and for general corporate purposes.
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures. Management believes that the Company
will have access to the capital resources necessary to expand and develop its
business. To the extent that the Company's cash flow from operating
activities is insufficient to finance its non-recurring capital expenditures
such as property acquisition costs and other capital expenditures, the
Company expects to finance such activities through borrowings under its
credit facilities and other debt and equity financing.
The Company expects to meet its short-term liquidity requirements generally
through its working capital and net cash provided by operating activities,
along with the Second Prudential Facility and the Unsecured Facility. The
Company is frequently examining potential property acquisitions and, at any
one given time, one or more of such acquisitions may be under consideration.
Accordingly, being able to fund property acquisitions is a major part of the
Company's financing requirements. The Company expects to meet its financing
requirements through funds generated from operating activities, long-term or
short term borrowings (including draws on the Company's credit facilities)
and the issuance of debt securities or additional equity securities. In
addition, the Company anticipates utilizing the Second Prudential Facility
and the Unsecured Facility primarily to fund property acquisition activities.
The Company does not intend to reserve funds to retire the existing TIAA
Mortgage and Harborside Mortgages, indebtedness under the credit facilities
or other mortgages and loans payable upon maturity. Instead, the Company
will seek to refinance such debt at maturity or retire such debt through the
issuance of additional equity securities. The Company anticipates that its
available cash and cash equivalents and cash flows from operating activities,
together with cash available from borrowings and other sources, will be
adequate to meet the Company's capital and liquidity needs both in the short
and long-term. However, if these sources of funds are insufficient or
unavailable, the Company's ability to make the expected distribution
discussed below may be adversely affected.
To maintain its qualification as a REIT, the Company must make annual
distributions to its stockholders of at least 95 percent of its REIT taxable
income, excluding the dividends paid deduction and net capital gains.
Moreover, the Company intends to continue to make regular quarterly
distributions to its stockholders which, based upon current policy, in the
aggregate would equal approximately $99.3 million on an annualized basis.
However, any such distribution, whether for federal income tax purposes or
otherwise, would only be paid out of available cash after meeting both
operating requirements and scheduled debt service on mortgages and loans
payable and required annual capital expenditure reserves pursuant to its
mortgage indenture.
Funds from Operations
The Company considers Funds from Operations, after adjustment for
straight-lining of rents, one measure of REIT performance. Funds from
Operations is defined as net income (loss) before minority interest of
unitholders, computed in accordance with Generally Accepted Accounting
Principles, 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 to net income as an
indication of the Company's performance or to cash flows as a measure of
liquidity.
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Funds from Operations for the three and nine month periods ended September
30, 1997 and 1996, as calculated in accordance with the National Association
of Real Estate Investment Trusts' definition published in March 1995, are
summarized in the following table (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- ------- ------- -------
Income before gain on sale of
rental property, minority
interest, and extraordinary item $19,973 $ 7,644 $58,105 $20,465
Add: Real estate-related
depreciation and amortization 9,327 3,456 25,592 9,811
------- ------- ------- -------
Funds from Operations 29,300 11,100 83,697 30,276
Deduct: Rental income adjustment
for straight-lining of rents (1,969) (29) (5,913) (233)
------- ------- ------- -------
Funds from Operations after
adjustment for straight-lining
of rents $27,331 $11,071 $77,784 $30,043
------- ------- ------- -------
------- ------- ------- -------
Weighted average shares
outstanding(1) 40,547 19,744 40,406 18,519
------- ------- ------- -------
(1) Assumes redemption of all Units, calculated on a weighted average basis,
for shares of Common stock in the Company.
Inflation
The Company's leases with the majority of its tenants provide for recoveries
and escalation charges based upon the tenant's proportionate share of and/or
increases in real estate taxes and certain operating costs, which reduce the
Company's exposure to increases in operating costs resulting from inflation.
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CALI REALTY CORPORATION
Part II -- Other Information
Item 6 - Exhibits
The following exhibit is filed herewith:
Exhibit 10.99 Purchase and Sale Agreement between Shelton Place Limited
Partnership, as Seller, and Cali Realty Acquisition
Corporation, as Purchaser, dated July 23, 1997.
Exhibit 27 Financial Data Schedule
29
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CALI REALTY CORPORATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cali Realty Corporation
(Registrant)
Date: November 7, 1997 /s/ Thomas A. Rizk
-------------------------------
Thomas A. Rizk
President and Chief Executive Officer
(signing on behalf of the Registrant)
Date: November 7, 1997 /s/ Barry Lefkowitz
-------------------------------
Barry Lefkowitz
Chief Financial Officer
30
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Exhibit 10.99
STANDARD FORM
PURCHASE AND SALE AGREEMENT
(hereinafter "Agreement")
As of the 23rd day of July, 1997
1. Parties: Shelton Place Limited Partnership, a Massachusetts limited
partnership, hereinafter called the SELLER, agrees to SELL and Cali Realty
Acquisition Corporation, a Delaware corporation, or nominee, hereinafter called
the BUYER or PURCHASER, agrees to BUY, upon the terms hereinafter set forth, the
following described premises:
2. Description: That certain real estate consisting of land and
improvements known as and numbered 1000 Bridgeport Avenue, Shelton, Fairfield
County, Connecticut, as more particularly described in Exhibit A ("Exhibit A")
(the "Land") hereto together with all other structures (the "Building"),
utilities, driveways, sidewalks, curbs, gutters, curb cuts, landscaping, rights
of way, easements and other improvements and interests appurtenant thereto,
being the same premises conveyed to the SELLER by deed dated May 2, 1996,
recorded with Fairfield County in Vol. 1348, Page 130.
3. Buildings, Structures, Improvements, Fixtures: Included in the sale
as a part of the Land are: (a) the Building, (b) the improvements located on
the Land (together with the Building, the "Improvements"), (c) the fixtures and
personal property belonging to the SELLER and located in and used in connection
therewith, including without limitation the personal property owned by SELLER
and listed on Exhibit A-1 hereto (the "Personal Property"), but excluding
therefrom any fixtures or personal property owned by the tenants of the
Premises, (d) all rights, privileges, grants and easements owned by SELLER and
appurtenant to SELLER'S interest in the Land and Improvements, including without
limitation, all of SELLER'S right, title and interest in and to all land lying
in the bed of any public street, road or alley, all mineral and water rights and
all easements, licenses, covenants and rights-of-way or other appurtenances used
in connection with the beneficial use and enjoyment of the Land and Improvements
(the Land and Improvements and all such rights, privileges, easements, grants
and appurtenances are sometimes referred to herein as the "Real Property"), (e)
all of SELLER'S right, title and interest in and to those contracts and
agreements for the servicing, maintenance and operation of the Real Property
("Service Contracts") (Exhibit B-1) and telephone numbers in use at any of the
Real Property (together with the Permits and Licenses (hereinafter defined) and
the Service Contracts, the "Intangible Property"), (f) all trademarks and
tradenames owned by SELLER and used in connection with the Real Property,
including without limitation any name by which the Real Property is commonly
known, and all goodwill, if any, related to said names, all for which BUYER
shall have the sole and exclusive rights (collectively, the "Tradenames")
provided there shall be no right to use the names Shelton Place Limited
Partnership or The Davis Companies, (g) all permits, licenses, guaranties,
approvals, certificates and warranties held by SELLER and relating to the Real
Property and the Personal Property and which SELLER has a right to transfer
(collectively, the "Permits and Licenses"), (h) all leases and other agreements,
including, but not limited to, subleases, tenancies and occupancy agreements,
with respect to the use and occupancy
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<PAGE>
of the Real Property, together with all amendments and modifications thereto
and any guaranties provided thereunder (individually, a "Lease", and
collectively, the "Leases"), and rents, additional rents, reimbursements,
profits, income, receipts from and after the date of closing and the amount
deposited (the "Security Deposit") under any Lease in the nature of security
for the performance of the obligations of the tenant or user (individually a
"Tenant", and collectively, the "Tenants") under the Leases not returned to
tenants or applied against rent, (i) all promotional material, marketing
materials, brochures, photographs (collectively, "Promotional Materials"),
books, records, tenant data, leasing material and forms, past and current
rent rolls, files, statements, tax returns, market studies, keys, plans,
specifications, reports, tests and other materials of any kind owned by or in
the possession of SELLER which are or may be used by SELLER in the use and
operation of the Real Property or Personal Premises (collectively, and
together with the Promotional Materials, the "Books and Records"), and, (j)
all other rights, privileges and appurtenances owned by SELLER, if any, and
related to the rights and interests described above in this Section and used
solely in connection with the Property. The Real Property, the Personal
Property, the Leases, the Tradenames, the Intangible Property, the Books and
Records and the other Property interests being conveyed hereunder are
hereinafter collectively referred to as the "Premises."
4. Title Deed: Said Premises are to be conveyed by a good and sufficient
special warranty deed running to the BUYER, and said deed shall convey title to
the Premises, free from encumbrances, except
(a) Provisions of existing building and zoning laws and other laws,
ordinance or regulation affecting the Premises;
(b) Such taxes, subject to adjustment, for the then current year as are
not due and payable on the date of the delivery of such deed;
(c) Any liens for municipal betterments assessed after the date of this
Agreement;
(d) Easements, restrictions, agreements, covenants and other matters
listed in Exhibit B or existing of record on June 11, 1997 or first
occurring between and including June 12, 1997 and the Closing Date
(hereinafter defined) if BUYER does not terminate this Agreement in
the manner provided for in this Agreement;
(e) The Service Contracts, but subject to the provisions of Section 30
hereof; and
(f) The rights of Tenants or occupants of the Premises under Leases.
The foregoing shall collectively be referred to as the "Permitted
Exceptions."
The foregoing notwithstanding, the BUYER shall be entitled to the
contingency under Paragraph 8.
5. Purchase Price: The agreed purchase price for the Premises is Fifteen
Million Five Hundred Thousand ($15,500,000.00) Dollars. Three Hundred Thousand
($300,000.00) Dollars (the "Deposit") have been paid to the Escrow Agent
designated in Paragraph 16 of this Agreement as a deposit this day. The Deposit
plus the balance of such purchase price in the amount of Fifteen Million Two
Hundred Thousand ($15,200,000.00) Dollars plus or minus adjustments required
under Paragraph 14 of this Agreement are to be paid at the time of delivery
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<PAGE>
of the deed to the order of the SELLER by wire transfer of immediately
available federal funds to the account of SELLER as designated in written
instructions given by SELLER at least two (2) business days prior to closing.
The Deposit shall be held by Escrow Agent in an interest-bearing money
market account at an FDIC insured Bank with interest to follow the Deposit.
6. Time for Performance; Delivery of Deed: Such deed is to be delivered
at 10:00 A.M. on the 1st day of August, 1997 (the "Closing Date"), at
the offices of SELLER'S attorney, unless otherwise mutually agreed upon by BUYER
and SELLER in writing. If mutually agreed by the parties, the closing will be
by mail or overnight courier.
7. Possession and Condition of Premises: Full possession of said
Premises free of all tenants and occupants, except tenants or occupants of the
Premises as provided in Exhibit C, is to be delivered at the time of the
delivery of the deed, said Premises to be then in the same condition as it is
now, reasonable use, wear and tear excepted.
8. Due Diligence Contingency.
(a) Conditions. Prior to the execution hereof, SELLER has delivered to
BUYER copies of documents, reports, financial information and
materials relating to the Real Property (the "SELLER'S Due Diligence
Materials"). BUYER'S obligation to consummate the transaction
contemplated by this Agreement is subject to the conditions of this
Paragraph 8. For purposes of this Agreement, the term "Inspection
Period" shall mean the period ending on July 25, 1997 (the "Inspection
Period Expiration Date").
(b) Tests, Investigations and Inspections. During the Inspection Period,
BUYER, its agents and representatives, may, subject to the terms of
this Agreement, enter upon the Premises upon reasonable prior notice
to SELLER or SELLER'S designee, as specified in a written notice from
SELLER to BUYER, to perform such investigations, inspections and tests
of the Premises at BUYER'S sole expense, as BUYER deems necessary,
including boundary surveys, Phase I environmental studies,
examinations and tests of all structural and mechanical systems within
the Improvements, and to go to SELLER'S offices to examine the books
and records of SELLER, speak with SELLER'S property managers who
SELLER will make reasonably available to BUYER, to review the Due
Diligence Materials relating to the Premises, to examine title and
compliance of the Premises with all governmental regulation and
control and to determine in any and all other respects BUYER deems
necessary and appropriate whether BUYER is satisfied with all aspects
of the Premises for the purpose of purchasing the same (collectively
the "Due Diligence").
Notwithstanding BUYER's right to receive other of SELLER'S Due
Diligence Materials provided for in this agreement, contemporaneously
with the execution of this agreement and on an on-going basis until
the Closing Date SELLER or SELLER'S representatives shall deliver to
BUYER any Environmental Documents,
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as hereinafter defined, concerning the Premises, which are in
SELLER'S possession, custody or control. "Environmental
Documents" shall mean all environmental documentation in the
possession or under the control of SELLER concerning the
Premises, or its environs, including without limitation, all
sampling plans, cleanup plans, preliminary assessment plans and
reports, site investigation plans and reports, remedial
investigation plans and reports, remedial action plans and
reports, or the equivalent, sampling results, sampling result
reports, data, diagrams, charts, maps, analysis, conclusions,
quality assurance/quality control documentation, correspondence
to or from any Governmental Authority (as defined immediately
below)(such as submissions to any Governmental Authority and
directives, orders, approvals and disapprovals issued by any
Governmental Authority). A "Governmental Authority" is any
agency, board, bureau, commission, department or body of any
municipal, county, state or federal governmental unit, or any
subdivision thereof, having, asserting or acquiring jurisdiction
over all or any part of the Premises or the management,
operation, use or improvement thereof. SELLER makes no
representation as to accuracy, completeness or right to rely on
the Environmental Documents or contents thereof; provided,
however, to the best of SELLER'S knowledge and belief, to the
extent copies of any documents, materials, inspections, or
reports were furnished by SELLER to BUYER, they were true,
accurate and complete representations of the same as contained in
SELLER'S files in all material respects..
Notwithstanding anything herein contained to the contrary, BUYER shall
not perform any "so-called" invasive tests, such as a Phase II, to the
land or improvements comprising the Premises without SELLER'S advance
written approval, which shall not be unreasonably withheld or delayed;
provided that BUYER notifies SELLER of its intent to perform such
tests at least three (3) business days in advance describing in
reasonable detail the tests to be performed and permits SELLER or its
representative to be present for such tests. In addition, in the event
that SELLER or SELLER'S representatives shall have cause to meet with
the Department of Environmental Protection (up to the Closing Date),
SELLER shall immediately notify BUYER, and BUYER and BUYER's
representatives shall have the right, without obligation, to attend
and participate in all such meetings.
(c) In furnishing SELLER'S Due Diligence Materials, to the extent
documents, inspections, copies, reports, materials or information were
furnished by or obtained from third parties, SELLER neither warrants
nor represents the accuracy of the information and data contained
therein, nor the right of BUYER to rely thereon. In the event that
BUYER shall terminate this Agreement, BUYER shall deliver to SELLER,
immediately upon BUYER obtaining same, and SELLER shall be entitled to
retain in any event, complete copies of all studies, investigations,
test results, information and the like obtained by BUYER during the
Due Diligence Period ("BUYER'S Due Diligence Materials"); provided,
however, BUYER shall not be required to deliver to SELLER any such
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BUYER'S Due Diligence Materials not received by BUYER from the parties
performing BUYER'S Due Diligence. Such investigations, studies,
tests, information and the like shall be delivered to SELLER at no
cost or expense to SELLER. By furnishing BUYER'S Due Diligence
Materials to SELLER, BUYER, to the extent such inspections, copies,
reports or information were furnished by or obtained from third
parties, neither warrants nor represents the accuracy of the
information and data contained therein, nor the right of SELLER to
rely thereon. If BUYER terminates this Agreement in accordance with
the provisions of Paragraph 8(c), BUYER shall return the SELLER'S Due
Diligence Materials to SELLER.
Upon request of BUYER at any time after the date hereof, at no expense
to SELLER and in such a way as to not unreasonably burden or disrupt
SELLER'S business, SELLER shall assist BUYER in its preparation of
audited financial statements, statements of income and expense, and
such other documentation as BUYER may reasonably request, covering the
period of SELLER'S ownership of the Premises.
(d) (i) If BUYER in its sole discretion is not satisfied with the results
of its Due Diligence review for any reason, BUYER may terminate
this Agreement by giving written notice (the "Termination
Notice") of such election to SELLER, on or before the Inspection
Period Expiration Date. Upon termination, BUYER shall deliver to
SELLER of all of the SELLER'S Due Diligence Materials delivered
by SELLER or BUYER'S Due Diligence Materials received by BUYER,
and thereafter neither party shall have any further liability or
obligation to the other hereunder and the Deposit and all
interest earned thereon shall be promptly returned to BUYER.
BUYER shall promptly return SELLER'S Due Diligence Materials
following said termination, but it is not a condition to the
return of BUYER'S Deposit and termination of all liabilities
between the parties hereto. Except as provided in Section (e) of
this Paragraph 8, any matter existing as of the date of this
Agreement with respect to the BUYER'S Due Diligence, including,
without limitation, title, survey, zoning and/or governmental
compliance matters, shall, unless BUYER terminates this Agreement
by giving the Termination Notice, be deemed Permitted Exceptions.
If this Agreement is not terminated as set forth in the first
sentence of this subsection (d), all matters covered by the Due
Diligence contingency shall be waived or deemed satisfied.
(ii) It shall be a condition of BUYER'S obligation to purchase the
Premises that there be no material adverse change in any of the
foregoing Due Diligence matters first occurring between the
Inspection Period Expiration Date and the Closing Date. In the
event of any such material change pursuant to the provisions of
Paragraph 9 hereof, unless SELLER elects to cure such material
adverse change, BUYER'S sole right shall be to
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terminate this Agreement in which event BUYER'S Deposit and any
interest thereon shall be returned.
(e) All rights of inspection provided for in this agreement and more
particularly in this Paragraph 8 and the exercise of such rights shall
not constitute a waiver by BUYER of the breach of any representation,
warranty, covenant or agreement of SELLER which might, or should, have
been disclosed by such inspection provided BUYER closes without being
aware of such breach; otherwise, if BUYER discovers that breach prior
to closing, BUYER'S sole right shall be termination of this Agreement,
not damages. In any and all events, any such representation,
warranty, covenant or agreement of SELLER shall be subject to the
limitation in paragraph 20(c). For the purposes of this Section (e),
BUYER shall be "aware" of such breach if Tim Jones, Dean Cingolani,
Riccardo Cardozo or Charles Rich has actual knowledge thereof.
9. Extension to Perfect Title or Make Premises Conform: If the SELLER
shall be unable to give title or to make conveyance, or to deliver possession of
the Premises, all as herein stipulated, or if at the time of the delivery of the
deed the Premises do not conform with the provisions hereof, then the SELLER
shall use reasonable efforts to remove any defects in title, or to deliver
possession free and clear of any matter relating to title or boundary survey, in
which event the SELLER shall give written notice thereof to the BUYER at or
before the time for performance hereunder, and, if SELLER elects to cure or is
required to do so pursuant to the immediately ensuing sentence, the time for
performance hereof shall be extended for a period of up to sixty (60) days as
designated in such written notice from SELLER. The SELLER agrees to spend up to
but no more than $50,000 in using reasonable efforts, which shall include the
posting of funds to bond attachments or satisfy injunctions or court orders and
additionally SELLER agrees to discharge and pay voluntary encumbrances or liens
dischargeable by a sum certain, such as mortgages and mechanic's liens, and
created or caused voluntarily by SELLER and unpaid real estate taxes on the
Premises. BUYER agrees that the matters listed in Exhibit B hereto shall be
deemed Permitted Exceptions.
10. Failure to Perfect Title or Make Premises Conform, etc.: If at the
expiration of the extended time the SELLER shall have failed so to remove any
defects in title, deliver possession, or make the Premises conform, as the case
may be, all as herein agreed, or if at any time during the period of this
agreement or any extension thereof, the holder of a mortgage on said Premises
shall refuse to permit the insurance proceeds, if any, to be used for such
purposes, then, at the BUYER'S option, any payments made under this agreement
shall be forthwith refunded and all other obligations of all parties hereto
shall cease and this agreement shall be void without recourse to the parties
hereto.
11. BUYER'S Election to Accept Title: The BUYER shall have the election,
at either the original or any extended time for performance, to accept such
title as the SELLER can deliver to the said Premises in their then condition and
to pay therefor the purchase price without deduction, in which case the SELLER
shall convey such title, except that in the event of such conveyance in
accordance with the provisions of this clause, if the said Premises shall have
been
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damaged by fire or casualty insured against, then the SELLER shall, unless
the SELLER has previously restored the Premises to their former condition,
either
(a) pay over or assign to the BUYER, on delivery of the deed, all amounts
recovered or recoverable on account of such insurance plus deductible,
less any amounts reasonably expended by the SELLER for any partial
restoration, or
(b) if a holder of a mortgage on said Premises shall not permit the
insurance proceeds or a part thereof to be used to restore the said
Premises to their former condition or to be so paid over or assigned,
give to the BUYER a credit against the purchase price, on delivery of
the deed, equal to said amounts so recovered or recoverable and
retained by the holder of the said mortgage plus deductible less any
amounts reasonably expended by the SELLER for any partial restoration.
Notwithstanding anything contained in this Purchase and Sale Agreement to
the contrary, in the event that the Premises are damaged by fire or other
casualty, the cost of repair of which does not exceed One Hundred Thousand
($100,000.00) Dollars, then BUYER agrees that BUYER shall not be entitled to
terminate this Agreement and notwithstanding such damage, BUYER shall accept the
Premises in their damaged condition and SELLER shall assign the insurance
proceeds to BUYER and pay over the deductible.
12. Acceptance of Deed: The acceptance of a deed by the BUYER or his
nominee, as the case may be, shall be deemed to be a full performance and
discharge of every agreement and obligation of SELLER herein contained or
expressed, unless expressly stated otherwise in this Agreement.
13. Use of Purchase Money to Clear Title: To enable the SELLER to make
conveyance as herein provided, the SELLER may, upon prior notice to BUYER, at
the time of delivery of the deed, use the purchase money or any portion thereof
to clear the title of any or all encumbrances or liens of which BUYER gives
SELLER timely notice, provided that all title clearing instruments are delivered
at closing with payment and in accordance with the reasonable requirements of
BUYER'S title company or consistent with customary local conveyancing practice.
14. Adjustments and Closing Costs: (a) Taxes for the then current year,
prepaid rents, tenant security deposits held by SELLER, SELLER deposits held by
utility companies, water, sewer use and other municipal or quasi-governmental
charges which are for periods beyond the Closing Date, prepaid permit and
operating charges and the value of any stored fuel serving the Premises shall be
apportioned as of the day of performance of this agreement and the net amount
thereof shall be added to or deducted from, as the case may be, the purchase
price payable by the BUYER at the time of delivery of the deed. Said
apportionments are to be done in compliance with the custom of Shelton,
Connecticut. Uncollected rents shall be adjusted when received. BUYER agrees
to cooperate with SELLER in SELLER'S efforts to collect past due rents and to
use reasonable efforts to attempt to collect unpaid rents due to SELLER. SELLER
agrees not to commence legal action against any then current tenant at the
Building to collect past due rents
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without BUYER'S written approval, which shall not be unreasonably withheld or
delayed. Payments received from tenants from and after the date of Closing
shall be applied first to rents then due for the period current at the time
of such receipt, and then to rents in the reverse order of delinquency (i.e.
most recently past due rents paid first). BUYER shall use reasonable efforts
to collect delinquent rents for the benefit of SELLER, and shall cooperate
with SELLER in the collection of any delinquent amounts. BUYER shall receive
a credit at closing against the Purchase Price in an amount equal to the sum
of all security and other rental deposits and last month or advance rent
payments (including interest thereon) paid by listed on Exhibit C-1. Fees
paid in advance under any service contracts assumed by BUYER shall also be
prorated through the Closing Date. The only Security Deposits held by SELLER
as of the date of this Agreement are listed in Exhibit C-1 to this Agreement.
SELLER shall pay all state or county documentary stamps or transfer taxes.
BUYER shall pay all title insurance premiums and examination fees, survey costs
and the costs of its due diligence investigations, except as may specifically be
provided for herein. Each party shall be responsible for its own attorney's
fees, and one-half (1/2) of all reasonable escrow fees and SELLER shall pay
recording fees and charges necessary or required in order for the Deed to be
recorded in the appropriate county register's or recorder's office. SELLER
shall pay for recording of lien or encumbrance releases which SELLER is required
to deliver. The provisions of this Paragraph 14 shall survive the Closing.
15. Adjustment of Unassessed and Abated Taxes: If the amount of said
taxes is not known at the time of the delivery of the deed, said taxes shall be
apportioned on the basis of the taxes assessed for the preceding fiscal year,
with a reapportionment as soon as the new tax rate and valuation can be
ascertained; and, if the taxes which are to be apportioned shall thereafter be
reduced by abatement, the amount of such abatement, less the reasonable cost of
obtaining the same, shall be apportioned between the parties, provided that
neither party shall be obligated to institute or prosecute proceedings for an
abatement unless herein otherwise agreed.
16. Deposit: All deposits made hereunder shall be held by First American
Title Insurance Company, One Financial Center, Boston, Massachusetts 02111, as
Escrow Agent (the "Escrow Agent") subject to the terms of this Agreement and
shall be duly accounted for at the time for performance of this agreement,
provided however that in the event of any disagreement between BUYER and SELLER
concerning their respective rights to the Deposit, the Escrow Agent shall retain
said deposits pending instructions mutually given by the SELLER and the BUYER or
by a court of competent jurisdiction. However, if BUYER elects to terminate this
agreement on or prior to the Inspection Period Expiration Date or if BUYER
elects to terminate this Agreement due to a material adverse change in the
condition of the Premises first occurring, between the Inspection Period
Expiration Date and the Closing as provided in Paragraph 8(d)(ii), the Escrow
Agent shall return the Deposit upon the sole instruction of the BUYER. The
BUYER and SELLER jointly and severally agree to indemnify and hold the Escrow
Agent harmless from any and all loss, cost, damage or expense, including
attorneys' fees, arising out of its obligations as escrow agent hereunder except
for Escrow Agent's gross negligence or willful misconduct. Escrow Agent's
conduct shall be governed by the provisions of Paragraph 40 hereof.
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17. Default:
(a) BUYER'S Default; Damages: If the BUYER shall fail to fulfill the
BUYER'S agreements herein at closing, all deposits made hereunder by
the BUYER shall be retained by the SELLER as liquidated damages and
shall be SELLER'S sole remedy and damages at law and in equity. Both
parties agree that the aforesaid amount constitutes a reasonable
forecast of damages which would be sustained by SELLER in the event of
BUYER's breach.
(b) SELLER'S Inability to Perform; Liability: If SELLER shall be unable
to perform SELLER'S obligations hereunder, BUYER'S sole remedy
hereunder shall be:
(i) to seek Specific Performance of SELLER'S obligations hereunder;
or
(ii) to cancel this Agreement and receive a return of its Deposit and
any interest earned thereon.
(c) SELLER'S Failure to Perform or Default; Liability: In the event of any
failure to perform or default on the part of SELLER hereunder (except
as set forth in Section (d) of this Paragraph 17), or in the event
SELLER fails to comply with any representation or warranty in this
agreement, BUYER'S only rights and remedies shall be that BUYER shall
be entitled to (i) terminate this Agreement upon notice to SELLER, in
which event neither party shall thereafter have any further
obligations under this Agreement; or (ii) to commence an action
against SELLER seeking specific performance of SELLER'S obligations
under this Agreement.
(d) SELLER'S Willful or Deliberate Failure to Perform. In the event
SELLER willfully or deliberately fails or refuses to perform its
obligation to deliver title to the Premises in accordance with the
terms of this Agreement (i.e. refuses to deliver title or voluntarily
places a lien on the Real Property) and pursuant to "(c)" above, BUYER
elects to terminate this Agreement rather than seek specific
performance, SELLER shall reimburse to BUYER its actual out-of-pocket
costs to third parties in pursuing its due diligence investigation of
the Real Property up to an amount not to exceed Fifty Thousand
($50,000) Dollars based upon actual invoices evidencing such expense
submitted to SELLER by BUYER.
BUYER shall have no right to seek and hereby waives any right to claim
damages, consequential or otherwise, against SELLER for any breach of SELLER'S
obligations hereunder.
18. Liability of Trustee, Shareholder, Beneficiary, etc.: If the SELLER
or BUYER executes this agreement in a representative or fiduciary capacity, only
the estate and entity represented shall be bound, and neither the SELLER nor
BUYER so executing, nor any employee, representative, trustee, partner, officer,
shareholder, director or beneficiary of any
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partnership, corporation or trust, nor any limited partner of any
partnership, shall be personally liable for any obligation, express or
implied, hereunder.
19. Disclaimer of Warranties and Representations: Except for the
provisions of Paragraphs 9 and 20 hereof, the BUYER acknowledges that the BUYER
has not been influenced to enter into this transaction nor has it relied upon
any warranties or representations with respect to the condition of the Premises
or any facts or matters relating thereto. The BUYER hereby further acknowledges
that BUYER is knowledgeable in the acquisition and ownership of commercial real
estate and that BUYER has inspected or will cause to be inspected and/or
examined to its satisfaction the Premises and all matters relating to the
ownership, title, condition (including for the presence of so-called hazardous
materials), zoning and municipal compliance, use and occupancy of and/or to the
Premises by such professionals, including, without limitation, attorneys,
engineers, surveyors and/or agents as BUYER has deemed appropriate during the
Inspection Period referred to in Paragraph 8 hereof; and that, subject only to
the "Due Diligence Contingency" contingency in Paragraph 8 of this Agreement,
which shall be deemed fully satisfied or waived unless BUYER terminates this
Agreement in accordance with the provisions of Paragraph 8, the Premises will be
conveyed to and accepted by BUYER in their "AS IS" condition without warranty or
representation other than as set forth in Paragraph 20. BUYER acknowledges that
the SELLER has made no representations as to the condition of the Premises or
their suitability for BUYER'S purposes and that BUYER has assumed the
responsibility for this determination. To the extent any written
correspondence, offers or other written or oral materials ("Materials") have
been exchanged between BUYER and SELLER prior to the date hereof, such Materials
shall be deemed merged into and shall be fully superseded by this Agreement and
shall be of no further force and effect. The provisions of this Paragraph 19
shall survive the Closing.
20. Entity Warranties and Representations:
(a) SELLER warrants and represents to BUYER as follows:
(i) SELLER is a limited partnership duly organized, validly existing
and in good standing under the laws of the Commonwealth of
Massachusetts and qualified to do business in the State of
Connecticut, and has full right, power and authority to execute
and deliver and to perform its obligations under this Agreement;
(ii) SELLER'S corporate general partner is a corporation duly
organized, validly existing and in good standing under the laws
of the Commonwealth of Massachusetts, and has full right, power
and authority to execute and deliver and to perform its
obligations under this Agreement without the need of any limited
partner consent;
(iii) The execution, delivery and performance of this Agreement have
been duly and validly authorized by all required partnership
action of SELLER
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and corporate action of its general partner and this Agreement
has been duly and validly executed and delivered by SELLER;
(iv) This Agreement and every document to be executed and delivered
by SELLER pursuant to this Agreement, when fully executed and
delivered by all intended signatories thereto, shall constitute
the valid and binding obligations of SELLER, enforceable against
SELLER in accordance with their respective terms;
(v) SELLER has not entered into any Service Contracts except as
listed on Exhibit B-1 and that said Service Contracts are
terminable on not more than thirty (30) days notice, without
penalty or fee;
(vi) SELLER is not a "foreign person" within the meaning of Section
1445(f)(3) and Section 7701(b) of the Internal Revenue Code of
1986, as amended;
(vii) As to Leases of the Premises:
a. Exhibit C (the "Rent Roll") is true and complete and
includes a list of all of the Leases affecting the Premises
as of the date hereof and sets forth the following: the
name of each tenant, date of the Lease and any written
Amendments pertaining thereto;
b. SELLER has delivered to BUYER true and complete copies of
all of the Leases, including without limitation all
amendments, side letters, term commencement agreements,
notices of exercise of options, and all other documents
relating to tenants' rights to occupy the Premises in
SELLER'S possession.
(viii) All of the Service Contracts, listed on Exhibit B-1 attached
hereto, if any, and which BUYER wishes to assume are and will
on the Closing Date be unmodified and in full force and effect
without any default or claim of default by any of the parties
thereto. All sums presently due and payable by SELLER under the
Service Contracts have been fully paid and all sums which become
due and payable between the date hereof and the Closing Date
shall be fully paid on the Closing Date.
(ix) SELLER shall indemnify, defend and hold harmless BUYER from and
against all claims, liabilities, losses, damages, penalties and
costs, including without limitation reasonable counsel fees,
which BUYER may incur, resulting from any misrepresentation or
breach of warranty by SELLER under this Paragraph 20. This
warranty and representation shall survive the Closing subject
to the limitation of Paragraph 20(c).
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(x) To the best of SELLER'S knowledge and belief as of the date
hereof:
a. except as set forth in this subsection (x)a.,(z), there are
no material defaults exist under the Leases, and
(z) Landstar has failed to pay a portion of aged previously
unbilled electrical usage and charges which have
recently been billed to them by SELLER. Subject to the
other terms of this Agreement, SELLER reserves and
retains those arrearages and the right to collect the
same.
b. no condition exists, which with the passage of time or
giving of notice or both, will become a material default
under the Leases.
(xi) Except as disclosed by SELLER to BUYER as a part of the Due
Diligence, there are no actions, suits, labor disputes,
litigation or proceedings currently pending or, to the knowledge
of SELLER, threatened against or related to SELLER or to all or
any part of the Premises, the environmental condition thereof, or
the operation thereof, nor does SELLER know of any basis for any
such action.
(xii) There are no outstanding requirements or recommendations
known to SELLER by (i) the insurance company(s) currently
insuring the Premises; or (ii) any board of fire underwriters or
other body exercising similar functions.
(xiii) SELLER has received no written notice and has no knowledge
of (i) any pending or contemplated annexation or condemnation
proceedings, or private purchase in lieu thereof, affecting or
which may affect the Premises, or any part thereof, (ii) any
proposed or pending proceeding to change or redefine the zoning
classification of all or any part of the Premises, (iii) any
proposed or pending special assessments affecting the Premises or
any portion thereof, (iv) any proposed change(s) in any road or
grades with respect to the roads providing a means of ingress and
egress to the Premises. SELLER agrees to furnish BUYER with a
copy of any such notice received within two (2) business days
after receipt.
(xiv) SELLER has provided BUYER with access at SELLER'S offices to
all reports in SELLER'S possession and of which SELLER has
knowledge related to the physical condition of the Premises and
all Books and Records in SELLER'S possession and of which SELLER
has knowledge.
(xv) SELLER has no knowledge of any notices, suits, or judgments
relating to any violations (including environmental) of any laws,
ordinances or regulations affecting the Premises, or any
violations or conditions that may
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give rise thereto, and has no reason to believe that the
Governmental Authorities contemplate the issuance thereof,
and there are no outstanding orders, judgments, injunctions,
decrees or writ of any Governmental Authorities against or
involving SELLER or the Premises known to SELLER and which
would impede SELLER'S ability to complete this Agreement.
(xvi) There are no full-time employees of the Owner working at or
in connection with the Premises. There are not any union
agreements affecting the Premises as of the date hereof, nor
shall any such agreements affect the Premises as of the Closing
Date.
(xvii) SELLER has not made a general assignment for the benefit of
creditors, filed any voluntary petition in bankruptcy or to
SELLER'S knowledge: (a) suffered the filing of any involuntary
petition by SELLER'S creditors, (b) suffered the appointment of
a receiver to take possession of all, or substantially all, of
such SELLER'S assets, (c) suffered the attachment or other
judicial seizure of all, or substantially all, of such SELLER'S
assets, (d) admitted in writing its inability to pay its debts
as they come due or made an offer of settlement, extension or
composition to its creditors generally.
(xviii) To the best of SELLER'S knowledge and belief, the Premises
are not a so-called "Establishment" as defined in the
regulations of the Connecticut DEP.
(xix) To the best of SELLER'S knowledge and belief, there are no
so-called "Hazardous Materials" as defined under Connecticut
or United States law or regulations at the Real Property in
violation of applicable laws or regulations.
(xx) SELLER has not received any notice that any Permits and
Licenses held by SELLER pertaining to and required for the
ownership or operation of the Premises has been or is about
to be revoked or will not be renewed.
(b) For the purposes of this Paragraph 20 and the other paragraphs of this
Purchase and Sale Agreement, "known to SELLER" or "SELLER'S knowledge"
or similar equivalent qualifiers shall mean actual knowledge of the
following people only: David Mack, Jonathan G. Davis, Paul R. Marcus
and/or David Felner. In no event shall this description result in or
imply any personal liability, representation or responsibility for any
agreements, representations, obligations, liabilities or breaches of
SELLER hereunder or elsewhere. Where materials, documents or other
Due Diligence materials are provided by, for or on behalf of SELLER,
SELLER makes no representations of BUYER'S right to rely upon or the
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accuracy or completeness of materials not prepared by SELLER even
though furnished by, for or on behalf of SELLER.
(c) The foregoing representations and warranties shall be true as of the
Closing Date and shall survive the Closing for a period of nine (9)
months. Except for those items which are disclosed by BUYER to SELLER
by written notice from BUYER to SELLER within the period which ends
nine (9) months from delivery of the deed stating specifically the
manner in which such representation or warranty is untrue, then the
foregoing warranties and representations shall be deemed fully
satisfied and shall be void and without recourse to the parties
hereto. To the extent SELLER delivers Estoppel Certificates from
tenants covering SELLER'S warranties and representations with respect
to the Leases SELLER shall be relieved from such warranties and
representations.
(d) BUYER hereby represents and warrants to SELLER as follows:
(i) BUYER is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware under which
it organized and has full right, power and authority to execute
and deliver and to perform its obligations under this Agreement;
(ii) The execution, delivery and performance of this Agreement has
been duly and validly authorized by all required action of BUYER
and this Agreement has been duly and validly executed and
delivered by BUYER;
(iii) This Agreement and every document to be executed and
delivered by BUYER pursuant to this Agreement, when fully
executed and delivered by all intended signatories thereto,
shall constitute the valid and binding obligations of BUYER,
enforceable against BUYER in accordance with their respective
terms, subject to general equitable principals and applicable
provisions of law related to bankruptcy, insolvency and
creditors' rights generally.
The foregoing representations and warranties are true as of the date hereof
and shall be true as of the Closing Date, applicable to the Closing.
21. Construction of Agreement: This instrument, executed in multiple
counterparts, is to be construed as a Connecticut contract, is to take effect as
a sealed instrument, sets forth the entire contract between the parties, is
binding upon and inures to the benefit of the parties hereto and their
respective successors and assigns, and may be canceled, modified or amended only
by a written instrument executed by both the SELLER and the BUYER. The captions
are used only as a matter of convenience and are not to be considered a part of
this agreement or to be used in determining the intent of the parties to it.
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22. Notice: All notices, demands, requests, consents, approvals and
other communications, and copies thereof, required or permitted to be given
with respect to this agreement shall be in writing and shall be deemed
delivered upon the hand delivery thereof during business hours (9:00 a.m.
through 6:00 p.m., Monday through Friday (excluding holidays) ("Business
Day"), or upon the earlier of receipt or the fifth Business Day after posting
by registered mail or certified mail, return receipt requested, postage
prepaid, or by delivery by electronic facsimile transmission, or on the next
Business Day following delivery to a reliable and recognized overnight
courier, in each case addressed or delivered to the respective parties at
their respective addresses set forth below, or, if to be delivered by
electronic facsimile transmission, then to the respective facsimile telephone
numbers set forth below. Photocopies of any notices delivered hereunder
shall, concurrently with the delivery thereof, be delivered to the additional
parties listed below by the same means of delivery used for delivery of the
notices to the contracting parties (except in the case of personal delivery,
in which case one or more of the alternate means of delivery may be selected
for the delivery of copies):
with respect to deliveries to SELLER:
Shelton Place Limited Partnership
c/o The Davis Companies
One Appleton Street
Boston, MA 02116
Attention: Paul R. Marcus
Jonathan G. Davis
Telephone: (617) 451-1300
Facsimile: (617) 451-3604
with a copy to its attorneys:
Gary P. Lilienthal, Esquire
Bernkopf, Goodman & Baseman
125 Summer Street
Boston, MA 02110
Telephone: (617) 790-3000
Facsimile: (617) 790-3300
with respect to deliveries to BUYER:
Cali Realty Acquisition Corporation
11 Commerce Drive
Cranford, NJ 07816
Attention: Roger Thomas, Esquire
Telephone: (908) 272-8000
Facsimile: (908) 272-6755
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with a copy to:
Timothy Jones
Cali Realty Acquisition Corporation
100 Clearbrook Road
Elmsford, NY 10523
Telephone: (914) 592-4800
Facsimile: (914) 591-4836
with a copy to its attorneys:
Andrew Levine, Esquire
Pryor, Cashman, Sherman & Flynn
410 Park Avenue
New York, NY 10022
Telephone: (212) 421-4100
Facsimile: (212) 326-0806
with a copy to Escrow Agent:
First American Title Insurance Company
One Financial Center
Boston, MA 02111
Telephone: (617) 345-0088
Facsimile: (617) 951-0101
Attention: Donna Meek
23. Broker's Fee: A broker's fee for professional services shall be due
from the SELLER to CB Commercial Real Estate Group, Inc. and Jeffrey R. Dunne
(collectively, the "Brokers"), the Brokers herein, all as provided in a separate
written agreement relating to the Property between SELLER and Brokers but shall
be due and payable only as, if and when title passes to the BUYER and the deed
is recorded. The Brokers warrant and represent that they are duly licensed
brokers in the State of Connecticut.
24. Brokerage Representations:
(a) BUYER warrants and represents to SELLER that except for the Brokers
BUYER was not introduced to the Premises and entered into this
Agreement without the assistance of any real estate broker or person
who would be entitled to a fee or commission in connection with this
Agreement or the sale of the Premises by SELLER to BUYER and that
BUYER dealt with no broker or finder with respect to his purchase of
the Premises or this Agreement except the Brokers. BUYER hereby
agrees to indemnify and hold SELLER harmless from any claim by any
broker or finder except the Brokers that a commission or fee is due to
them as a
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result of having dealt with BUYER in connection with this
Agreement or the sale of the Premises to the BUYER, or its nominee as
may be provided herein.
(b) SELLER warrants and represents to BUYER that SELLER entered into this
Agreement without the assistance of any real estate broker or person
who would be entitled to a fee or commission in connection with this
Agreement or the sale of the Premises by SELLER to BUYER except the
Brokers. SELLER hereby agrees to indemnify and hold BUYER harmless
from any claim by any broker or finder that a commission or fee is due
to them as a result of having dealt with SELLER in connection with
this Agreement or the sale of the Premises to BUYER.
(c) Broker warrants and represents to SELLER and BUYER that Broker has not
entered into any arrangement or agreement with any other party in
connection with this Agreement or the sale of the Premises. Broker
hereby agrees to indemnify and hold SELLER and BUYER harmless from any
claim by any broker or finder except the Brokers that a commission or
fee is due to them as a result of having dealt with BUYER or SELLER in
connection with this Agreement or the sale of the Premises to the
BUYER, or its nominee as may be provided herein.
The provisions of this Paragraph 24 will survive the Closing.
25. Access: BUYER shall have the right of reasonable access to the
Premises for purposes contemplated under the Due Diligence Contingency. SELLER
shall cooperate with BUYER in facilitating its due diligence inquiry and shall
obtain, and use its best reasonable efforts to obtain, any consents that may be
necessary in order for BUYER to perform studies, tests, borings, investigations
and inspections on the Premises if permitted by SELLER. SELLER shall also
notify BUYER of any dangerous conditions known to SELLER on the Premises,
including, without limitation, conditions which due to the nature of the
borings, studies, investigations, inspections or testing to be performed by or
on behalf of BUYER may pose a dangerous condition to BUYER or BUYER's agents and
contractors. Notwithstanding anything herein to the contrary, in no event shall
the BUYER or any of its agents, representatives, employees, contractors or the
like ("Permitted Parties") cause any damage to the Premises which is not
promptly restored by BUYER at its sole cost and expense to as near its condition
prior to such damage or disturbance as reasonably possible, unreasonably disturb
any tenants or occupant thereat or incur any liability for SELLER. To the
extent that any of the Permitted Parties shall in any way disturb or damage the
Premises, unreasonably disturb any tenants or occupants thereat or incur any
liability for SELLER, they shall, as a matter of due course, but in any event
upon being notified by SELLER, promptly restore the Premises at their sole cost
and expense to its condition prior to such disturbance and BUYER shall hold
SELLER harmless and indemnified from all loss, cost, damage and expense,
including reasonable attorneys' fees, as a result of any damage to the Premises
or any claim made against SELLER to the extent of any action or inaction by
BUYER or the Permitted Parties. SELLER agrees to give BUYER prompt notice of
any claim for which SELLER is seeking indemnity and to give BUYER the right to
defend the
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same with counsel reasonably acceptable to SELLER. BUYER shall
notify SELLER of its intention to access the Premises at least twenty-four (24)
hours in advance of each such access and shall, if SELLER so requests, allow
SELLER or its representative to accompany BUYER or the Permitted Parties during
such access and shall reasonably accommodate SELLER by scheduling such access at
reasonable times so that SELLER can accompany BUYER or the Permitted Parties if
SELLER so wishes. BUYER agrees to maintain appropriate property damage and
public liability insurance in amounts reasonably acceptable to SELLER and will
deliver to SELLER certificates of such insurance naming SELLER as an additional
insured prior to any access or entry onto the Premises.
26. Recording. In the event this Agreement or any notice hereof shall be
recorded by BUYER, then, at SELLER'S sole option, this Agreement shall be void
and without recourse to the parties hereto.
27. No Binding Agreement. This Agreement is circulated for discussion and
negotiating purposes and no agreement with respect to the purchase and sale of
the Premises shall be binding upon either of the parties hereto until this
Agreement shall have been executed by both the BUYER and the SELLER.
28. Insurance. The SELLER represents that at the time of execution of
this Agreement, the SELLER maintains insurance with respect to the Premises.
Until the delivery of the deed, the SELLER shall maintain insurance on the
improvements in the amount of One Hundred (100%) percent of their replacement
value and public liability insurance in an amount at least equal to Five Million
($5,000,000) Dollars. The procuring of any supplemental insurance shall be at
the option and sole expense of the BUYER.
29. Operation and Leasing of the Premises. SELLER agrees that between the
date of this Agreement and the date for closing and delivery of the deed, SELLER
shall operate the Premises consistently with their current operation and, except
as provided elsewhere in this Agreement, will not enter into new leases or
modify, alter or amend existing leases for the Premises without BUYER'S consent,
which shall not be unreasonably withheld or delayed. At the closing, SELLER
shall deliver an up-to-date rent roll in the same form as Exhibit C hereto
listing all tenants, payment status of monthly rent and security deposit. SELLER
agrees and covenants not to enter into any new contracts or agreements, whether
Service Contracts or otherwise, which are not immediately cancelable by BUYER
after Closing without penalty or which are not approved by BUYER, which approval
shall not be unreasonably withheld or delayed. SELLER also agrees that it shall
not voluntarily place any liens, encumbrances or the like against the Premises,
and if any such voluntary liens, encumbrances or the like are so placed, that
they shall be satisfied or removed of record at Closing. It is a condition of
BUYER's obligation to close that, except as stated in Paragraphs 35 and 44 of
this agreement, the Rent-Roll delivered at Closing shall be substantially the
same as the Rent-Roll annexed hereto as Exhibit C, or as otherwise consented to
by BUYER.
Except for Leases or agreements approved by BUYER as contemplated above or
in Paragraph 35, SELLER also shall not: (i) enter into any agreement requiring
SELLER to do
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work for any Tenant after the Closing Date without first obtaining
the prior written consent of BUYER; (ii) accept the surrender of any Service
Contract or Lease, or grant any concession, rebate, allowance or free rent;
(iii) renew, extend or modify any of the Service Contracts without the prior
written consent of BUYER; (iv) remove any Personal Property located in or on the
Premises owned by SELLER and used in connection therewith, except as may be
required for repair and replacement, in which event, all replacements shall be
free and clear of liens and encumbrances and shall be of quality at least equal
to the replaced items and shall be deemed included in this sale, without cost or
expense to BUYER. Except as stated specifically in this Agreement, SELLER may
operate the Premises and deal with tenants and contractors in the ordinary
course.
30. Service Contracts and Operating Agreements.
(a) All Service Contracts and other operating agreements pertaining to the
Premises, if any, are listed on Exhibit B-1 attached hereto and made a
part hereof. Unless BUYER, by written notice to SELLER given at least
twenty (20) days prior to the Closing Date, notifies SELLER in writing
that it does not wish to assume the obligations under the operating
agreements, then SELLER shall deliver the Premises with all operating
agreements in place. In no event shall BUYER assume any property
management contracts or any leasing agreement not contemplated in
Paragraph 35 of this agreement.
(b) Seller will make all required payments under any mortgage affecting
the Premises within any applicable grace period, but without
reimbursement by BUYER therefor. Seller shall also comply in all
material respects with all other terms covenants, and conditions of
any mortgage on the Premises.
(c) Up to and including the Closing Date, Seller agrees to maintain and
keep such hazard, liability and casualty insurance policies in full
force and effect in such amounts and coverage currently maintained and
in place.
(d) Seller shall cancel all Service Contracts, at its sole cost and
expense, except for those Service Contracts which BUYER elects to
assume as provided in this Agreement.
31. SELLER'S Closing Documents. On the Closing Date, in addition to any
other documents required to be delivered by SELLER under this Agreement, SELLER
shall execute and deliver or cause to be delivered to BUYER the following:
(a) A special warranty deed in the form of Exhibit D conveying to the
BUYER the Premises in accordance with the terms hereof; the BUYER
shall be entitled to nominate a third party controlled by BUYER to
take title to the Premises provided that BUYER gives SELLER at least
ten (10) days advance notice identifying such nominee and further
provided that such nominee and BUYER execute and deliver to SELLER an
assumption agreement reasonably satisfactory to SELLER by
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which such nominee assumes and agrees to be bound by all warranties,
representations, obligations and liabilities of BUYER contained in
this Agreement in which event the obligations of BUYER and such
nominee shall be jointly and severally liable for the obligations of
BUYER under this Agreement;
(b) A bill of sale in the form of Exhibit E conveying to the assignee or
nominee of BUYER all SELLER'S right, title and interest in the
Personal Property;
(c) An Assignment and Assumption Agreement Concerning Leases substantially
in the form of Exhibit F, and which shall provide that (i) SELLER
assigns all its rights under the Leases to BUYER and (ii) BUYER
assumes all obligations of SELLER as landlord under the Leases;
(d) An Assignment and Assumption Agreement Concerning Permits and
Licenses, and Service Contracts elected to be assumed by BUYER and
Warranties in the form of Exhibit G;
(e) An affidavit of SELLER stating SELLER'S U.S. taxpayer identification
number and that SELLER is a "United States person", as defined in
Section 1445(f)(3) and Section 7701(b) of the Internal Revenue Code of
1986, as amended;
(f) Resolutions of the board of directors of the general partner of SELLER
certified by the Clerk thereof authorizing the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, which certificate shall state that said
resolutions are in full force and effect as of the Closing Date and
have not been amended, modified or rescinded in any manner;
(g) An incumbency certificate regarding SELLER'S corporate general partner
issued by the Secretary of the Commonwealth of Massachusetts;
(h) Certificate of Legal Existence of SELLER'S corporate general partner
issued by the Secretary of the Commonwealth of Massachusetts;
(i) Certificate of Legal Existence of SELLER issued by the Secretary of
State of the Commonwealth of Massachusetts;
(j) Such standard title affidavits regarding parties in possession and
indemnities regarding mechanics' liens as BUYER'S title insurer may
reasonably require in order to delete exceptions regarding such
matters from its title insurance coverage, including but not limited
to standard form survey coverage, parties in possession and mechanic
lien affidavits for any work performed at the Premises during the
period 120 days prior to Closing required by and addressed to the
SELLER'S title insurance company pursuant to local custom;
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(k) A closing and settlement statement in form and substance mutually
satisfactory to both parties;
(l) A letter to each Tenant in form reasonably acceptable to BUYER
advising it of the change in ownership of the Premises and the
assignment of the Leases to BUYER and the transfer of its security
deposit, if any;
(m) Originals, as in the possession of SELLER, of all Leases and, if any,
Service Contracts assumed by BUYER, Promotional Materials, Permits and
Licenses, and Books and Records owned by SELLER for the operation and
maintenance of the Premises;
(n) Certificate of SELLER'S authorization to conduct business in the State
of Connecticut, issued by the Connecticut Secretary of State;
(o) To the extent that any of the Promotional Materials, Books and
Records, Service Contracts, and Leases known to SELLER to exist are
not in the possession of SELLER, and SELLER shall use reasonable
efforts, but without out-of-pocket expense, to cause the holders or
owners of same to deliver such materials to BUYER, without cost or
expense, which obligation shall survive the Closing;
(p) In the event BUYER determines during its Due Diligence that the
Premises are a so-called "Establishment" subject to the Transfer Act
under the laws of the State of Connecticut, SELLER shall, at Closing,
sign any required documents for filing with the Connecticut DEP
provided that no such documents shall result in any liability to the
SELLER which SELLER does not already have, result in any expense or
potential expense to SELLER, or obligate SELLER to take any action
with respect to the Premises for which SELLER is not already
responsible, and in no event shall this agreement (in this subsection
"(p)") by SELLER or the documents to be signed by SELLER obligate
SELLER to take any action with respect to the Premises or the
remediation of any oils or hazardous materials thereat, BUYER'S sole
right with respect to the discovery of so-called hazardous materials
at the Premises during the Due Diligence shall be to timely terminate
this Agreement and receive a return of its deposit and any interest
thereon. Notwithstanding the foregoing, SELLER will proceed under the
provisions and subject to the limitations of Paragraph 9 of this
Agreement.
(q) Any other document reasonably necessary to consummate the transactions
contemplated by this Agreement, provided that such document is
consistent with the parties' intent as expressed in this Agreement and
does not result in any liability, warranty or representation by
SELLER;
(r) On or prior to the date hereof, SELLER agrees to deliver to each
Tenant an estoppel certificate in the form annexed hereto as Exhibit H
for Tenant's execution, completed to reflect the Tenant's particular
Lease status. SELLER
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agrees to use its best efforts to obtain from all Tenants the estoppel
certificates substantially in such form but reflecting the current
status of each Lease; provided, however, that if any Tenant shall
refuse to execute an estoppel letter substantially in such form,
SELLER shall nevertheless be obligated to use its best efforts, not
including judicial action or lease termination, to obtain estoppel
certificates in the form, if any, in which each Tenant is obligated
to deliver as provided in its respective Lease. SELLER agrees to
deliver to BUYER, upon receipt, copies of all estoppel letters received
by Tenants, in the form received by SELLER. The estoppel certificates
required to be obtained pursuant to this Paragraph 31 are collectively
referred to as the "Estoppel Certificates". As a condition to BUYER'S
obligations to proceed with the Closing, SELLER shall deliver (i) an
Estoppel Certificate from each Tenant which leases space at the
Premises in excess of 10,000 square feet or more in the aggregate and
(ii) Estoppel Certificates representing in total occupancy of at least
seventy-five (75%) percent of the total rentable square footage of the
Building. For an Estoppel Certificate to be deemed delivered for
purposes of this Agreement, it must certify that the Tenant's most
recent rental payment under its Lease was made not more than one (1)
month prior to the month in which the Closing occurs. If any Tenant
refuses or neglects to deliver an estoppel certificate necessary to
comply with the foregoing, BUYER'S sole remedy under the Agreement
shall be to (i) terminate the Agreement and receive a refund of its
deposit and any interest earned thereon, or (ii) accept such Estoppel
Certificate, or such missing portion thereof necessary to comply with
the foregoing, signed by SELLER, as SELLER is willing to give, and
waive such non-delivery.
32. BUYER'S Closing Deliveries.
(a) On or prior to the Closing Date, and in addition to any other document
required to be delivered by BUYER under this Agreement, BUYER shall
execute and deliver or cause to be delivered to SELLER, the following:
(i) The balance of the Purchase Price in cash, plus or minus
adjustments contemplated herein, delivered as required under
this Agreement;
(ii) The Assignment and Assumption Agreements referred to herein;
(iii) Such certificates as are reasonably acceptable to SELLER
authorizing the execution, delivery and performance of this
Agreement and the consummation of the transaction contemplated
hereby;
(iv) A closing and settlement statement in form and substance mutually
satisfactory to both parties;
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(v) Any other document reasonably necessary to consummate the
transaction contemplated by this Agreement, provided that such
documents are consistent with the parties' intent as expressed in
this Agreement.
(b) The obligations of BUYER to accept title to the Premises and to
perform the other covenants and obligations to be performed by BUYER
on the Closing Date shall be subject to the following conditions (all
or any of which may be waived, in whole or in part, by BUYER): (i)
The representations and warranties made by SELLER herein shall be true
and correct in all material respects with the same force and effect as
though such representations and warranties had been made on and as of
the Closing Date; (ii) SELLER shall have performed all covenants and
obligations undertaken by SELLER herein in all respects and complied
with all conditions required by this Agreement to be performed or
complied with by it on or before the Closing Date; (iii) Title to
the Premises is such that the Title Company is able to issue to BUYER
a Title Policy meeting the requirements set forth in Paragraph 33 for
an "Insurable Title"; (iv) SELLER shall have delivered to Escrow
Agent all of the documents necessary for title transfer provided
herein for said delivery and made arrangements reasonably satisfactory
to BUYER for the deliver of the balance of the documents upon payment
of the purchase price to SELLER; (v) There shall have been no change
in the compliance of the Premises with all applicable environmental
laws from that existing on the date of this Agreement. BUYER'S
recordation of the Deed shall be acknowledgment of full satisfaction
of the foregoing provisions.
(c) The obligations of the SELLER to deliver title to and possession of
the Premises to BUYER shall be conditioned upon payment to Escrow
Agent of the purchase price, adjusted as contemplated herein, pending
only continuation of title and recording of the Deed to BUYER in
accordance with local custom.
33. Title Insurance. SELLER'S obligation to deliver title shall be deemed
to have been met if BUYER shall be able to obtain (which shall include SELLER'S
ability to provide), at BUYER'S sole cost and expense, from a nationally
recognized title insurance company, without additional cost above normal premium
rates, a standard form ALTA title insurance policy coverage without exception
other than the Permitted Exceptions ("Insurable Title").
34. Form 1099. SELLER, through its counsel, shall be responsible for
filing Form 1099 in connection with the sale.
35. Leasing, Leasing Commissions and Tenant Improvements. It shall be
SELLER'S responsibility to pay for all tenant improvements required to be
provided and/or paid for by Landlord during the currently unexpired term under
Leases currently in place. BUYER agrees that BUYER shall assume, agree to pay
and be responsible for any and all tenant or leasehold improvements under any
new leases entered into by BUYER or entered into by SELLER with
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the consent of BUYER and as to Leases currently in place for any and all
options to extend, lease amendments, renewals or expansions entered or
effective after the Closing Date.
BUYER shall assume and agree to pay the obligations for leasing
commissions under the agreements listed in Exhibit B-2 and for any and all
leasing commissions required to be paid under Leases currently in place for
renewals, expansions, amendments and options to extend exercised or entered
after the Closing Date.
At the Closing, SELLER shall establish a reserve fund with BUYER in
the following amounts: (i) $78,387.38, representing an allowance of $4.125 per
square foot based upon 19,003 square feet of vacant space for leasing or rental
commissions; (ii) $380,060.00, representing an allowance of $20.00 per square
foot based upon 19,003 square feet of vacant space for tenant improvements and
build out. BUYER may use this reserve fund to pay the foregoing expenses as it
sees fit.
The BUYER acknowledges that the foregoing is an agreed upon adjustment
between SELLER and BUYER and is neither intended to be a representation by
SELLER of actual or prospective costs and/or vacancies for the Premises or the
vacant or to become vacant space thereat. BUYER accepts these adjustments as
fair and reasonable and agrees that BUYER shall have no right to any further
credit or adjustments for future or additional vacant space or on account of
costs for leasing or brokerage commissions or tenant improvements or build out
over and above these credits or adjustments. SELLER'S and BUYER'S obligations
under this Paragraph 35 shall survive Closing.
36. Confidentiality. Prior to closing, BUYER and SELLER agree that the
terms of this transaction are confidential and that neither of them will
disclose nor permit their employees or agents to disclose the terms of this
Purchase and Sale Agreement or the transaction contemplated herein except that
SELLER may disclose the terms of this Agreement to its accountants, attorneys
and limited partners and for tax reporting purposes and BUYER may disclose the
terms of this Agreement to its prospective lenders, investors and consultants,
attorneys, accountants, and environmental consultants, who shall be placed under
the same confidentiality obligation provided there is imposed upon the same the
same agreement of confidentiality as set forth above. Either party may disclose
such information as they may be required to disclose by any court of competent
jurisdiction or any governmental agency having authority to compel such
disclosure. In the event of a conflict between this Paragraph 36 and the
Confidentiality Agreement previously entered into between the parties, the
Confidentiality Agreement shall control. Notwithstanding the foregoing, BUYER
shall have the right to make such public announcements with respect to the
purchase as BUYER, as a publicly traded company, upon advice of counsel may deem
reasonably necessary or required. BUYER agrees to give SELLER advance written
notice of such filings and announcements and to obtain SELLER'S advance written
approval which shall not be unreasonably withheld or delayed by SELLER.
37. Seller's Improvements. BUYER and SELLER acknowledge that SELLER is
currently in the process of installing a tenant directory board in the lobby
and wallcoverings in
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the first and second floor lobbies. BUYER acknowledges that the directory
board has been installed in a satisfactory manner and that the wallcoverings
in the first floor lobby have been installed in a satisfactory manner.
SELLER agrees to complete the wallcovering installation in the second floor
lobby to the same level of quality as the installation of the wallcoverings
in the first floor lobby prior to the Closing of this transaction or, at
SELLER'S option with BUYER'S consent, not to be unreasonably withheld, to
credit against the balance of the Purchase Price due at Closing a sum
reasonably acceptable to BUYER to complete the installation of the
wallcovering in the second floor lobby to the standards set forth herein, in
which event BUYER will install the same. BUYER acknowledges that, except as
set forth specifically in this paragraph and in Paragraphs 29, 30 and 35
above, as well as SELLER'S representations and warranties, SELLER shall have
no obligations with respect to work or improvements at the Premises and that
at Closing all such obligations shall be deemed satisfied and SELLER shall be
released from any obligation with respect thereto.
39. Other Offers and Agreements. Notwithstanding the execution and
effectiveness of this Agreement, SELLER shall have the right to solicit and
enter into "back-up" offers and/or to enter into Purchase and Sale Agreements
for the Premises whether pursuant to such "back-up" offers or otherwise provided
that any such offers and agreements contain a provision that they are expressly
contingent upon the termination of this Purchase and Sale Agreement with BUYER
and that in the event BUYER purchases the Premises from SELLER, the parties
under such back-up offers or Purchase and Sale Agreements shall have no rights
with respect to the Premises.
40. Escrow Agent Conduct Standards.
(a) The duties and obligations of the Escrow Agent shall be determined
solely by the express provisions of this Paragraph 40 and no implied
duties or obligations shall be implied against the Escrow Agent.
Further, the Escrow Agent shall be under no obligation to refer to any
other document between or among the BUYER and the SELLER related in
any way to this Agreement, unless Escrow Agent is provided with a copy
of such document and consents thereto in writing.
(b) The Escrow Agent shall not be liable to anyone by reason of any error
or judgment, or for any act done or step taken or omitted by the
Escrow Agent in good faith, or for any mistake of face or law, or for
anything which the Escrow Agent may do or refrain from doing in
connection herewith, unless caused by or arising out of the Escrow
Agent's actual and intentional misconduct.
(c) The Escrow Agent shall be entitled to rely, and shall be protected in
acting in reliance, upon any writing furnished to the Escrow Agent by
either the BUYER or SELLER and shall be entitled to treat as genuine,
and as the document it purports to be, any letter, paper or other
document furnished to the Escrow Agent in connection with its role as
Escrow Agent. The Escrow Agent may rely on any affidavit of either
the BUYER or the SELLER or any other person as to the existence of any
facts stated therein to be known by the affiant.
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(d) In the event of any disagreement between the BUYER and the SELLER
resulting in adverse claims and demands being made in connection with
or against the funds held in escrow, the Escrow Agent shall be
entitled, at the Escrow Agent's option, to refuse to comply with the
claims or demands of either party until such disagreement is finally
resolved (i) by a court of competent jurisdiction (in proceedings
which the Escrow Agent or any other party may initiate, it being
understood and agreed by the BUYER and the SELLER that the Escrow
Agent has authority (but no obligation) to initiate such proceedings),
or (ii) by an arbitrator in the event that the BUYER and the SELLER
determine to submit the dispute to arbitration pursuant to the rules
of the American Arbitration Association, and in so doing the Escrow
Agent shall not be or become liable to any party, or (iii) by
unambiguous written settlement between the BUYER and the SELLER.
(e) The BUYER and the SELLER each agree to jointly and severally indemnify
and hold harmless the Escrow Agent against any and all losses,
liabilities, costs (including legal fees), and other expenses in any
way incurred by the Escrow Agent in connection with or as a result of
any disagreement between the BUYER and the SELLER under this Agreement
or otherwise incurred by the Escrow Agent in any way on account of its
role as escrow agent.
(f) The BUYER agrees that, in the event that a dispute arises regarding
this Purchase and Sale Agreement and/or any actions by the Escrow
Agent, Bernkopf, Goodman & Baseman ("BGB") may continue to represent
the SELLER in connection with said dispute and the BUYER hereby waives
its rights to object to said representation or any potential conflict
as a result of BGB's role as counsel for Escrow Agent in other
matters.
41. CONDEMNATION. In the event that prior to Closing, SELLER shall obtain
knowledge of the institution or threatened institution of any proceedings,
judicial, administrative or otherwise, by eminent domain or otherwise, which
propose to affect a material portion of the Premises or any portion of the
Building, SELLER shall give notice (a "Condemnation Notice") to BUYER promptly
thereafter. Within fifteen (15) days following receipt of the Condemnation
Notice, BUYER shall have the right and option to terminate ("Condemnation
Termination Notice") this Agreement by giving SELLER written notice thereof.
Any damage to or destruction of the entire or any portion of the Premises as a
result of a taking by eminent domain shall be deemed "material" for purposes of
this Section if the estimate of the damage, which estimate shall be a reasoned
determination performed by an insurance adjuster and BUYER's architect, shall
exceed $500,000. Should BUYER so terminate this Agreement in accordance with
this Section, neither party shall have any further liability or obligations to
the other. In the event BUYER shall not elect to cancel this Agreement, SELLER
shall assign all proceeds of such taking to BUYER, which assignment shall be
BUYER's sole right with respect to such taking of the Premises, and BUYER shall
have the sole right to settle any claim in connection with the Premises. The
Closing Date shall be adjourned if the time periods set forth above so
26
<PAGE>
require until five (5) days (or the next business day thereafter) after the
date for the giving of the Condemnation Termination Notice.
At Closing, SELLER shall execute and deliver all proper instruments as
shall be reasonably required for the conveyance to BUYER of all right, title and
interest, if any, of SELLER in and to any award or payment made, or to be made,
(i) for any taking in condemnation, eminent domain or agreement in lieu thereof
of land adjoining all or any part of the Improvements, (ii) for damage to the
Land or Improvements or any part thereof by reason of change of grade or closing
of any such street, road, highway or avenue, and (iii) for any taking in
condemnation or eminent domain of any part of the Land or Improvements.
42. MISCELLANEOUS PROVISIONS.
(a) If any instrument or deposit is necessary, assuming SELLER is
obligated or elects under this Agreement to deliver the same, in order
to cure a defect in or objection or exception to title, the following
shall apply: (i) any such instrument shall be in such form and shall
contain such terms and conditions as may be reasonably required by the
Title Company to omit any defect, objection or exception to title,
(ii) any such deposit shall be made with the Title Company or
arrangements satisfactory to the Title Company are made in accordance
with local custom for the timely delivery thereof subsequent to
Closing to omit any defect, objection or exception to title, and (iii)
Seller agrees to execute, acknowledge and deliver, to the extent
reasonably required by the Title Company in accordance with local
custom, any such instrument and to make any such deposit.
(b) This agreement (i) constitutes the entire agreement between the
parties and incorporates, (ii) supersedes all prior negotiations and
discussions between the parties, (iii) cannot be amended, waived or
terminated orally, but only by an agreement in writing signed by the
party to be charged, (iv) shall be interpreted and governed by the
laws of the State of Connecticut and (v) shall be binding upon the
parties hereto and their respective successors and assigns.
(c) The caption headings in this agreement are for convenience only and
are not intended to be part of this agreement and shall not be
construed to modify, explain or alter any of the terms, covenants or
conditions herein contained. If any term, covenant or condition of
this Agreement is held to be invalid, illegal or unenforceable in any
respect, this agreement shall be construed without such provision.
(d) Each party shall, from time to time, execute, acknowledge and deliver
such further instruments, and perform such additional acts, as the
other party may reasonably request in order to effectuate the intent
of this agreement. Nothing contained in this agreement shall be
deemed to create any rights or obligations of partnership, joint
venture or similar association between SELLER and BUYER.
27
<PAGE>
(e) This agreement shall not be effective or binding until such time as it
has been executed and delivered by all parties hereto. This agreement
may be executed by the parties hereto in counterparts, all of which
together shall constitute a single agreement.
(f) All references herein to any section, schedule or exhibit shall be to
the sections of this Agreement and to the schedules and exhibits
annexed hereto unless the context clearly dictates otherwise. All of
the schedules and exhibits annexed hereto are, by this reference,
incorporated herein.
(g) In the event of any litigation or alternative dispute resolution
between SELLER and BUYER in connection with this agreement or the
transaction contemplated herein, the non-prevailing party in such
litigation or alternative dispute resolution shall be responsible for
payment of all expenses and reasonable attorneys' fees incurred by the
prevailing party.
43. Roof Condition: BUYER acknowledges that it has raised certain
concerns with respect to the condition of the roof on the Building. At the
Closing, SELLER shall establish a reserve fund with BUYER in the amount of Fifty
Thousand ($50,000.00) Dollars on account of the BUYER'S concerns with the
condition of the roof. BUYER agrees that this reserve fund is in full
satisfaction of any and all obligations of SELLER with respect to existing or
future conditions with respect to the roof. BUYER agrees that this amount is an
agreed upon maximum and full liability of SELLER in connection with the
condition of the roof and its components and is neither intended to be an
acknowledgment by SELLER of or a representation by SELLER of actual or
prospective costs for addressing conditions with respect to the roof, known or
unknown, or a sum which is to be adjusted up or down in the event the roof
conditions turn out to be less or more serious than BUYER has determined. BUYER
agrees that SELLER has made no warranties or representations concerning the roof
or its condition and that, based upon this agreed upon reserve fund, SELLER is
released from any and all claims or liability with respect to the roof or its
condition. BUYER may use the reserve fund as it sees fit for the purposes of
making roof repairs or replacements.
44. Merlin Lease:
A. BUYER acknowledges that there are approximately 19,000 square
feet of the second floor consisting of currently vacant space and space being
vacated by Blue Cross/Blue
[signatures on following page]
28
<PAGE>
Shield, the leasing of an approximately 5,000 square foot portion of which is
integral to the consummation of the transaction contemplated under this
Agreement. SELLER has proposed to deliver the Premises at Closing to BUYER with
a lease for a 5,000 square foot portion of such space with Merlin Realty Corp.,
which lease has been executed between SELLER and Merlin Realty Corp. and has
been delivered to BUYER for its approval. A copy of the entire lease is
attached hereto as Exhibit I. BUYER has refused to approve the lease unless
SELLER agrees to certain conditions and SELLER has refused to agree to those
conditions unless BUYER agrees to certain conditions, all as hereinafter set
forth.
B. In consideration of the BUYER'S approval of the Merlin lease,
SELLER agrees as follows: SELLER agrees to deliver at Closing its guarantee of
the punctual and full payment of the rent to be paid and shall also guarantee
the timely performance of lease obligations of tenant upon occupancy by the
tenant under the Merlin Lease. In addition, to secure its guarantee, SELLER will
at Closing post with Pryor, Cashman, Sherman & Flynn the first eighteen (18)
months' rent (the "Guarantee Security") to be paid under the Merlin lease and
BUYER may draw on the Guarantee Security to pay any monthly non-payment of rent,
which draw will cure such non-payment. The SELLER'S guarantee shall be in the
form of Exhibit J. attached hereto.
C. In consideration of the SELLER accepting the conditions imposed
by the BUYER as a condition of BUYER'S acceptance of the Merlin lease, all as
set forth in Paragraph B above, the BUYER agrees that: (i) the Merlin Lease is
approved; and (ii) the Merlin Lease will provide that the payment of rent by
either Guarantor or Tenant will be acceptable payment of rent and that payment
of the first eighteen (18) months' rent out of the Guarantee Security will be an
acceptable method of payment of rent for the first eighteen (18) months, under
the Merlin Lease.
D. This Paragraph 44 shall survive the Closing.
SELLER: BUYER:
SHELTON PLACE LIMITED CALI REALTY ACQUISITION
PARTNERSHIP CORPORATION
By: Shelton Place Investment Corp.,
its General Partner
By:__________________________________ By:_________________________________
Jonathan G. Davis, President
29
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<PAGE>
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<PERIOD-END> SEP-30-1997
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0
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