<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 1998
REGISTRATION NO. 333-[ ]
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MACK-CALI REALTY CORPORATION
(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
(908) 272-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE,
OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
MR. THOMAS A. RIZK
CHIEF EXECUTIVE OFFICER
MACK-CALI REALTY CORPORATION
11 COMMERCE DRIVE
CRANFORD, NEW JERSEY 07016
(908) 272-8000
(908) 272-6755 (FACSIMILE)
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPIES TO:
JONATHAN A. BERNSTEIN, ESQ.
BLAKE HORNICK, ESQ.
PRYOR, CASHMAN, SHERMAN & FLYNN
410 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 421-4100
(212) 326-0806 (FACSIMILE)
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as possible after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box. [_]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
<PAGE>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the Prospectus is expected to be made pursuant to Rule
434, check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================
Title of Shares to be Amount to be Proposed Maximum Proposed Maximum Amount of
Registered Registered Aggregate Price Per Aggregate Offering Registration Fee
Unit Price(1)
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<S> <C> <C> <C> <C>
Preferred Stock(2) $2,000,000,000(5) $606,060.60(6)
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Common Stock(3)
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Warrants(4)
====================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee and
exclusive of accrued interest, if any.
(2) There are being registered hereunder an indeterminate number of shares of
Preferred Stock of the Registrant as may be sold, from time to time, by
the Registrant.
(3) There are being registered hereunder an indeterminate number of shares of
Common Stock of the Registrant as may be sold, from time to time, by the
Registrant. There are also being registered hereunder an indeterminate
number of shares of Common Stock of the Registrant as shall be issuable
upon conversion of or in exchange for convertible Preferred Stock or
Warrants registered hereby. No separate consideration will be received
for the Common Stock issuable upon conversion of or in exchange for
convertible Preferred Stock or Warrants.
(4) There are being registered hereunder an indeterminate number of Warrants
to purchase either Preferred Stock or Common Stock of the Registrant as
may be sold, from time to time, by the Registrant. Warrants may be sold
separately or with the Preferred Stock or Common Stock.
(5) Or an equivalent amount in another currency or currencies or as
determined by reference to an index or, if the securities are to be
offered at a discount, the approximate proceeds to the Registrant.
(6) Calculated in accordance with Rule 457(o) under the Securities Act of
1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
<PAGE>
PROSPECTUS
- ----------
MACK-CALI REALTY CORPORATION
$2,000,000,000
Preferred Stock, Common Stock and Warrants
Mack-Cali Realty Corporation (together with its subsidiaries, the
"Company") may from time to time offer in one or more series (i) shares or
fractional shares of its preferred stock, par value $.01 per share (the
"Preferred Stock"), (ii) shares of its common stock, par value $.01 per share
(the "Common Stock"), or (iii) warrants to purchase Common Stock or Preferred
Stock (the "Warrants"), with an aggregate initial public offering price of up to
$2,000,000,000 on terms to be determined at the time of offering. The Preferred
Stock, Common Stock and Warrants (collectively, the "Offered Securities") may be
offered, separately or together, in separate series in amounts, at prices and on
terms to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Preferred
Stock, the specific title and stated value, any dividend, liquidation,
redemption, conversion, voting and other rights and the initial public offering
price; (ii) in the case of Common Stock, the initial public offering price; and
(iii) in the case of Warrants, the securities as to which such Warrants may be
exercised, the duration, offering price, exercise price and detachability. In
addition, such specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Offered Securities, in each case
as may be appropriate to preserve the status of the Company as a real estate
investment trust ("REIT") for United States federal income tax purposes. See
"Restrictions on Ownership of Capital Stock".
The applicable Prospectus Supplement will also contain information,
where applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement.
The Offered Securities may be offered directly, through agents
designated from time to time by the Company, or to or through underwriters or
dealers. If any agents or underwriters are involved in the sale of any of the
Offered Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in the applicable Prospectus
Supplement.
See "Plan of Distribution." No Offered Securities may be sold without
delivery of the applicable Prospectus Supplement describing the method and terms
of the offering of such series of Offered Securities.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT
PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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The date of this Prospectus is January __, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The Registration
Statement, the exhibits and schedules forming a part thereof and the reports,
proxy statements and other information filed by the Company with the Commission
in accordance with the Exchange Act can be inspected and copied at the
Commission's public reference section, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the following regional offices of the Commission:
Seven World Trade Center, 13th Floor, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can also be obtained at prescribed rates by
writing to the public reference section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the Commission's Web site is: http://www.sec.gov. In addition,
the Company's Common Stock is listed on the New York Stock Exchange (the "NYSE")
and the Pacific Exchange, and similar information concerning the Company can be
inspected and copied at the offices of the NYSE, 20 Broad Street, New York, New
York 10005, and the Pacific Exchange, 301 Pine Street, San Francisco, California
94104.
The Company has filed with the Commission a registration statement (the
"Registration Statement") (of which this Prospectus is a part) under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Offered Securities. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain portions of which have been omitted
as permitted by the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Offered Securities, reference is hereby made to
the Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon payment of
the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company (File No.
1-13274) under the Exchange Act with the Commission and are incorporated herein
by reference:
a. The Company's Annual Report on Form 10-K (File No. 1-13274)
for the fiscal year ended December 31, 1996;
b. The Company's Quarterly Reports on Form 10-Q (File No.
1-13274) for the fiscal quarters ended March 31, 1997, June
30, 1997 and September 30, 1997;
c. The Company's Current Reports on Form 8-K and Form 8-K/A (File
No. 1-13274), dated January 31, 1997, September 18, 1997,
September 19, 1997, December 11, 1997 and January 16, 1998;
d. The Company's Proxy Statements relating to the Annual Meeting
of Shareholders held on May 15, 1997 and the Special Meeting
of Shareholders held on December 11, 1997; and
e. The description of the Common Stock and the description of
certain provisions of Maryland Law and the Company's Articles
of Incorporation and Bylaws, both contained in the Company's
Registration Statement on Form 8-A, dated August 9, 1994.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Offered Securities shall be
deemed to be incorporated by reference in this Prospectus and to be part hereof
from the date of filing such
<PAGE>
documents (provided, however, that the information referred to in Item 402(a)(8)
of Regulation S-K of the Commission shall not be deemed specifically
incorporated by reference herein).
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein (or in the applicable Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner of the Offered
Securities, to whom this Prospectus is delivered, upon written or oral request.
Requests should be made to Barry Lefkowitz, Chief Financial Officer of the
Company, 11 Commerce Drive, Cranford, New Jersey 07016-3510 (telephone number:
(908) 272-8000).
THE COMPANY
Mack-Cali Realty Corporation is a fully-integrated real estate
investment trust ("REIT") that owns and operates a portfolio comprised primarily
of Class A office and office/flex buildings, as well as commercial real estate
leasing, management, acquisition, development and construction businesses. As of
January 15, 1998, the Company owned and operated 189 properties, aggregating
approximately 22.0 million square feet (collectively, the "Properties"). The
Properties are comprised of 177 office and office/flex buildings totaling
approximately 21.6 million square feet (the "Office Properties" and "Office/Flex
Properties," respectively), six industrial/warehouse properties containing an
aggregate of approximately 400,000 square feet (the "Industrial/Warehouse
Properties"), two multi-family residential properties, two stand-alone retail
properties and two land leases. The 177 Office and Office/Flex Properties are
comprised of 118 office buildings containing an aggregate of 18.6 million square
feet (the "Office Properties") and 59 office/flex buildings containing an
aggregate of approximately 3.0 million square feet (the "Office/Flex
Properties"). The Company believes that its Properties have excellent locations
and access and are well-maintained and professionally managed. As a result, the
Company believes that its Properties attract high quality tenants and achieve
among the highest rental, occupancy and tenant retention rates within their
markets.
On December 11, 1997, the Company, then named Cali Realty Corporation,
and its subsidiary, then named Cali Realty, L.P., completed its previously
announced transaction (the "Mack Transaction") pursuant to an agreement dated as
of September 18, 1997 with the Mack Company and Patriot American Office Group
(collectively, the "Mack Group"), as amended as of December 11, 1997. The
Company acquired 54 office properties, aggregating approximately 9.2 million
square feet (the "Mack Properties") and each of Cali Realty Corporation and Cali
Realty, L.P. changed its name to Mack-Cali Realty Corporation and Mack-Cali
Realty, L.P., respectively. The Mack Properties are located in nine states,
primarily in the Northeast and Southwest.
The Company's strategy has been to focus its development and ownership
of office properties in sub-markets where it is, or can become, a significant
and preferred owner and operator. The Company will continue this strategy by
expanding, primarily through acquisitions, initially into sub-markets where it
has, or can achieve, similar status. Management believes that the recent trend
towards increasing rental and occupancy rates in office buildings in the
Company's sub-markets continues to present significant opportunities for growth.
The Company may also develop properties in such sub-markets, particularly with a
view towards potential utilization of certain vacant land recently acquired or
on which the Company holds options. Management believes that its extensive
market knowledge provides the Company with a significant competitive advantage
which is further enhanced by its strong reputation for and emphasis on
delivering highly responsive management services, including direct and continued
access to the Company's senior management. The Company performs substantially
all construction, leasing, management and tenant improvements on an "in-house"
basis and is self-administered and self-managed. As of December 31, 1997, the
Company had over 300 employees.
2
<PAGE>
Cali Associates, the entity to whose business the Company succeeded in
1994, was founded by John J. Cali, Angelo R. Cali and Edward Leshowitz (the
"Founders") who have been involved in the development, leasing, management,
operation and disposition of commercial and residential properties in Northern
and Central New Jersey for over 40 years and have been primarily focusing on
office buildings for the past fifteen years. In addition to the Founders, the
Company's executive officers generally have been employed by the Company and its
predecessor for an average of approximately 10 years. The Company and its
predecessor have built approximately four million square feet of office space,
more than one million square feet of industrial facilities and over 5,500
residential units.
The Company has elected to be taxed as a REIT for federal income tax
purposes and expects to continue to elect such status. Although the Company
believes that it was organized and has been operating in conformity with the
requirements for qualification under the Internal Revenue Code of 1986, as
amended (the "Code"), no assurance can be given that the Company will continue
to qualify as a REIT. Qualification as a REIT involves the application of highly
technical and complex Code provisions of which there are only limited judicial
or administrative interpretations. If in any taxable year the Company were to
fail to qualify as a REIT, the Company would not be allowed a deduction for
distributions to stockholders in computing taxable income and would be subject
to federal taxation at regular corporate rates. As a result, such a failure
would adversely affect the Company's ability to make distributions to its
stockholders and could have an adverse affect on the market value and
marketability of the Common Stock.
To ensure that the Company qualifies as a REIT, the transfer of shares
of capital stock of the Company, including the Common Stock, is subject to
certain restrictions, and ownership of capital stock by any single person is
limited to 9.8 percent of the value of such capital stock, subject to certain
exceptions. The Company's Articles of Incorporation provide that any purported
transfer in violation of the above-described ownership limitations shall be void
ab initio.
The shares of Common Stock of the Company are listed on the NYSE under
the symbol "CLI." The Company has paid regular quarterly distributions on its
Common Stock since it commenced operations as a REIT in 1994. The Company
intends to continue making regular quarterly distributions to the holders of its
Common Stock. Distributions depend upon a variety of factors, and there can be
no assurance that distributions will be made.
All of the Company's interests in the Properties are held by, and its
operations are conducted through, Mack-Cali Realty, L.P., a Delaware limited
partnership (the "Operating Partnership"), or by entities controlled by the
Operating Partnership. As of December 31, 1997, the Company was the beneficial
owner of approximately 79.6 percent of the Operating Partnership, without taking
into account contingent, non-participating Common and Preferred Units and
warrants to purchase Common Units issued in the Mack Transaction, and is its
sole general partner. As used herein, the term "Units" refers to limited
partnership interests in the Operating Partnership.
The Company was incorporated under the laws of Maryland on May 24,
1994. Its executive offices are located at 11 Commerce Drive, Cranford, New
Jersey 07016, and its telephone number is (908) 272-8000. The Company has an
internet Web address at "http://www.mack-cali.com."
RATIOS OF EARNINGS TO FIXED CHARGES
The following tables set forth the Company's consolidated ratios of
earnings to fixed charges for the periods shown:
<TABLE>
<CAPTION>
For the Nine For the For the For the Period
Months Ended Year Ended Year Ended August 31, 1994 to
September 30, 1997 December 31, 1996 December 31, 1995 December 31, 1994
------------------ ----------------- ----------------- ------------------
<S> <C> <C> <C>
3.01x 3.26x 2.69x 3.13x
</TABLE>
3
<PAGE>
The following tables set forth the amounts by which the Company's
predecessor's earnings were inadequate to cover fixed charges:
<TABLE>
<CAPTION>
For the Period For the Years Ended December 31,
January 1, 1994 1993 1992
to August 30, 1994 (dollars in thousands)
------------------ ----------------------
<S> <C>
$(110) $(1,064) $(2,172)
</TABLE>
The ratios of earnings to fixed charges were computed by dividing
earnings before fixed charges by fixed charges. For this purpose, earnings
consist of pre-tax income (loss) from continuing operations before minority
interest plus fixed charges excluding capitalized interest. Fixed charges
consist of interest costs, both expensed and capitalized, debt issuance costs
and the interest portion of ground rents on land leases. To date, the Company
has not issued any Preferred Stock, therefore, the ratios of earnings to
combined fixed charges and preferred stock dividend requirements are the same as
the ratios of earnings to fixed charges presented above. For the year ended
December 31, 1996, the calculation of the ratio of earnings to fixed charges
excludes a gain on sale of rental property of $5,658. The ratio of earnings to
fixed charges, including gain on sale of rental property, for the same period
was 3.67x.
USE OF PROCEEDS
The Company is required by the terms of the Amended and Restated
Agreement of Limited Partnership of the Operating Partnership to invest the net
proceeds of any sale of Common Stock or Preferred Stock in the Operating
Partnership in exchange for additional Units. Unless otherwise described in the
applicable Prospectus Supplement, the Company intends to use the net proceeds
from the sale of the Offered Securities for general corporate purposes,
including the leasing, management, acquisition, development and construction of
office, office/flex, industrial/warehouse, multi-family residential or other
properties as suitable opportunities arise, the expansion and improvement of
certain properties in the Company's portfolio, and the repayment of
indebtedness.
DESCRIPTION OF COMMON STOCK
The Company has the authority to issue up to 190,000,000 shares of
common stock, par value $.01 per share (the "Common Stock"). At December 31,
1997, the Company had outstanding 49,856,289 shares of Common Stock.
The following description of the Common Stock sets forth certain
general terms and provisions of the Common Stock to which any Prospectus
Supplement may relate, including a Prospectus Supplement providing that Common
Stock will be issuable upon conversion of Preferred Stock of the Company or upon
the exercise of Warrants to purchase Common Stock issued by the Company. The
statements below describing the Common Stock are in all respects subject to and
qualified in their entirety by reference to the applicable provisions of the
Company's Articles of Incorporation and bylaws.
Each outstanding share of Common Stock entitles the holder to one vote
on all matters presented to stockholders for a vote, subject to the provisions
of the Company's Articles of Incorporation regarding the ownership of shares of
Common Stock in excess of the Ownership Limit described below under
"Restrictions on Ownership of Offered Securities." Holders of shares of Common
Stock have no preemptive rights or cumulative voting rights. All shares of
Common Stock will, when issued, be duly authorized, fully paid, and
nonassessable. Distributions may be paid to the holders of shares of Common
Stock if and when declared by the Board of Directors of the Company out of funds
legally available therefor.
4
<PAGE>
Under Maryland law, stockholders are generally not liable for the
Company's debts or obligations. If the Company is liquidated, subject to the
right of any holders of Preferred Stock to receive preferential distributions,
each holder of Common Stock will be entitled to participate pro rata in the
assets remaining after payment of, or adequate provision for, all known debts
and liabilities of the Company, including debts and liabilities arising out of
its status of general partner of the Operating Partnership.
Restrictions on Ownership
With certain exceptions, the Company's Articles of Incorporation
provide that no person may own, or be deemed to own by virtue of the attribution
rules of the Code, more than 9.8 percent of the value of the Company's issued
and outstanding shares of capital stock. See "Restrictions on Ownership of
Offered Securities."
Transfer Agent
The registrar and transfer agent for the Company's Common Stock is
ChaseMellon Shareholder Services, LLC.
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). No shares of Preferred
Stock are outstanding as of the date hereof.
Under the Company's Articles of Incorporation, shares of Preferred
Stock may be issued from time to time, in one or more series, as authorized by
the Board of Directors. Prior to the issuance of shares of each series, the
Board of Directors is required by the Maryland General Corporation Law (the
"MGCL") and the Company's Articles of Incorporation to adopt resolutions and
file Articles Supplementary (the "Articles Supplementary") with the State
Department of Assessments and Taxation of Maryland, setting for each such series
the designations, powers, preferences and rights of the shares of such series
and the qualifications, limitations or restrictions thereon, including, but not
limited to, dividend rights, dividend rate or rates, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences as are permitted by
Maryland law. Because the Board of Directors has the power to establish the
terms and conditions of each series of Preferred Stock, it may afford the
holders of any series of Preferred Stock power, preferences and rights, voting
or otherwise, senior to the rights of holders of shares of Common Stock. The
issuance of Preferred Stock could have the effect of delaying or preventing a
change in control of the Company.
The following description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock are
in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Articles of Incorporation (including the
applicable Articles Supplementary) and bylaws.
General
Subject to limitations prescribed by Maryland law and the Company's
Articles of Incorporation and bylaws, the Board of Directors is authorized to
fix the number of shares constituting each series of Preferred Stock and the
designations, powers, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions thereon,
including such provisions as may be desired concerning voting, redemption,
dividends, dissolution or the distribution of assets, conversion or exchange,
and such other subjects or matters as may be fixed by resolution of the Board of
Directors or a duly authorized committee thereof. The Preferred Stock will, when
issued, be fully paid and nonassessable.
Reference is made to the Prospectus Supplement relating to the series
of Preferred Stock offered thereby for specific terms, including:
(1) the title and stated value of such Preferred Stock;
5
<PAGE>
(2) the number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred Stock;
(3) the dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(4) whether dividends shall be cumulative or non-cumulative and,
if cumulative, the date from which dividends on such Preferred Stock shall
accumulate;
(5) the procedures for any auction and remarketing, if any, for
such Preferred Stock;
(6) the provisions for a sinking fund, if any, for such Preferred
Stock;
(7) any voting rights of such Preferred Stock;
(8) the provisions for redemption, if applicable, of such
Preferred Stock;
(9) any listing of such Preferred Stock on any securities
exchange;
(10) the terms and conditions, if applicable, upon which such
Preferred Stock will be convertible into Common Stock of the Company, including
the conversion price (or manner of calculation thereof) and conversion period;
(11) if appropriate, a discussion of United States federal income
tax considerations applicable to such Preferred Stock;
(12) any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve the
status of the Company as a REIT;
(13) the relative ranking and preferences of such Preferred Stock
as to dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company;
(14) any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of the
affairs of the Company; and
(15) any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock.
Rank
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Stock of the Company, and to all equity securities ranking
junior to such Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company; (ii) on a parity with all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank on a parity with the Preferred Stock with
respect to dividend rights or rights upon liquidation, dissolution or winding up
of the Company; and (iii) junior to all equity securities issued by the Company
the terms of which specifically provide that such equity securities rank senior
to the Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company. As used in the Company's
Articles of Incorporation for these purposes, the term "equity securities" does
not include convertible debt securities.
6
<PAGE>
Dividends
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will have the rights with respect to payment of dividends set forth below.
Holders of shares of the Preferred Stock of each series shall be
entitled to receive, when, as and if declared and authorized by the Board of
Directors of the Company, out of assets of the Company legally available for
payment, cash dividends at such rates and on such dates as will be set forth in
the applicable Prospectus Supplement. Each such dividend shall be payable to
holders of record as they appear on the stock transfer books of the Company on
such record dates as shall be fixed by the Board of Directors of the Company.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will accumulate from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are noncumulative, then the holders of such
series of the Preferred Stock will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If any shares of the Preferred Stock of any series are outstanding, no
full dividends shall be declared or paid or set apart for payment on the
Preferred Stock of the Company of any other series ranking, as to dividends, on
a parity with or junior to the Preferred Stock of such series for any period
unless (i) if such series of Preferred Stock has a cumulative dividend, full
cumulative dividends have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof irrevocably set apart for
such payment on the Preferred Stock of such series for all past dividend periods
and the then current dividend period or (ii) if such series of Preferred Stock
does not have a cumulative dividend, full dividends for the then current
dividend period have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof irrevocably set apart for such
payment on the Preferred Stock of such series. When dividends are not paid in
full (or a sum sufficient for such full payment is not so irrevocably set apart)
upon the shares of Preferred Stock of any series and the shares of any other
series of preferred stock ranking on a parity as to dividends with the Preferred
Stock of such series, all dividends declared upon shares of Preferred Stock of
such series and any other series of preferred stock ranking on a parity as to
dividends with such Preferred Stock shall be declared pro rata so that the
amount of dividends declared per share on the Preferred Stock of such series and
such other series of preferred stock shall in all cases bear to each other the
same ratio that accrued and unpaid dividends per share on the shares of
Preferred Stock of such series (which shall not include any accumulation in
respect of unpaid dividends for prior dividend periods if such Preferred Stock
does not have a cumulative dividend) and such other series of preferred stock
bear to each other. Except as may otherwise be set forth in the applicable
Prospectus Supplement, no interest, or sum of money in lieu of interest, shall
be payable in respect of any dividend payment or payments on Preferred Stock of
such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i)
if such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment for all past dividend periods and the then
current dividend period or (ii) if such series of Preferred Stock does not have
a cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof irrevocably set apart for payment for the then current
dividend period, no dividends (other than in Common Stock or other capital stock
ranking junior to the Preferred Stock of such series as to dividends and upon
liquidation, dissolution or winding up of the Company) shall be declared or paid
or set aside for payment or other distribution shall be declared or made upon
the Common Stock or any other capital stock of the Company ranking junior to or
on a parity with the Preferred Stock of such series as to dividends or upon
liquidation, dissolution or winding up of the Company, nor shall any Common
Stock or any other capital stock of the Company ranking junior to or on a parity
with the Preferred Stock of such series as to dividends or upon liquidation,
dissolution or winding up of the Company be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for a
sinking fund for the redemption of any shares of any such stock) by the Company
(except by
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conversion into or exchange for other capital stock of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation, dissolution or, winding up of the Company).
Any dividend payment made on shares of a series of Preferred Stock
shall first be credited against the earliest accrued but unpaid dividend due
with respect to shares of such series which remains payable.
Redemption
If so provided in the applicable Prospectus Supplement, the shares of
Preferred Stock will be subject to mandatory redemption or redemption at the
option of the Company, as a whole or in part, in each case upon the terms, at
the times and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that
is subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in such year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock has
a cumulative dividend, full cumulative dividends on all shares of any series of
Preferred Stock shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof irrevocably set apart for
payment for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment for the then current dividend period, no
shares of any series of Preferred Stock shall be redeemed unless all outstanding
shares of Preferred Stock of such series are simultaneously redeemed; provided,
however, that the foregoing shall not prevent the purchase or acquisition of
shares of Preferred Stock of such series pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding shares of Preferred
Stock of such series. In addition, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all outstanding shares
of any series of Preferred Stock have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof irrevocably set
apart for payment for all past dividend periods and the then current dividend
period and (ii) if such series of Preferred Stock does not have a cumulative
dividend, full dividends on the Preferred Stock of any series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof irrevocably set apart for payment for the then current dividend
period, the Company shall not purchase or otherwise acquire directly or
indirectly any shares of Preferred Stock of such series (except by conversion
into or exchange for capital stock of the Company ranking junior to the
Preferred Stock of such series as to dividends and upon liquidation, dissolution
or winding up of the Company); provided, however, that the foregoing shall not
prevent the purchase or acquisition of shares of Preferred Stock of such series
to preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding shares of Preferred
Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
by such holders (with adjustments to avoid redemption of fractional shares) or
any other equitable method determined by the Company that will not result in
violation of the ownership limitations set forth in the Articles of
Incorporation.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of record of a share of
Preferred Stock of any series to be redeemed at the address shown on the stock
transfer books of the Company. Each notice shall state: (i) the redemption date;
(ii) the number of shares and series of the Preferred Stock to be redeemed;
(iii) the redemption price; (iv) the place or places where certificates for such
Preferred Stock are to be surrendered for payment of the redemption price; (v)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date; and (vi) the date upon which the holder's conversion rights,
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if any, as to such shares shall terminate. If fewer than all the shares of
Preferred Stock of any series are to be redeemed, the notice mailed to each such
holder thereof shall also specify the number of shares of Preferred Stock to be
redeemed from each such holder. If notice of redemption of any shares of
Preferred Stock has been given and if the funds necessary for such redemption
have been irrevocably set apart by the Company in trust for the benefit of the
holders of any shares of Preferred Stock so called for redemption, then from and
after the redemption date dividends will cease to accrue on such shares of
Preferred Stock, such shares of Preferred Stock shall no longer be deemed
outstanding and all rights of the holders of such shares will terminate, except
the right to receive the redemption price.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company, then, before any distribution or payment shall
be made to the holders of any Common Stock or any other class or series of
capital stock of the Company ranking junior to the Preferred Stock in the
distribution of assets upon any liquidation, dissolution or winding up of the
Company, the holders of each series of Preferred Stock shall be entitled to
receive out of assets of the Company legally available for distribution to
stockholders liquidating distributions in the amount of the liquidation
preference per share (set forth in the applicable Prospectus Supplement and
Articles Supplementary), plus an amount equal to all dividends accrued and
unpaid thereon (which shall not include any accumulation in respect of unpaid
dividends for prior dividend periods if such Preferred Stock does not have a
cumulative dividend). Except as may otherwise be set forth in the applicable
Prospectus Supplement, after payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Preferred Stock will
have no right or claim to any of the remaining assets of the Company. In the
event that, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the legally available assets of the Company are insufficient to pay
the amount of the liquidating distributions on all outstanding shares of
Preferred Stock and the corresponding amounts payable on all shares of other
classes or series of capital stock of the Company ranking on a parity with the
Preferred Stock in the distribution of assets upon liquidation, dissolution or
winding up of the Company, then the holders of the Preferred Stock and all other
such classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all
holders of shares of Preferred Stock, the remaining assets of the Company shall
be distributed among the holders of any other classes or series of capital stock
ranking junior to the Preferred Stock upon liquidation, dissolution or winding
up of the Company, according to their respective rights and preferences and in
each case according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation, or
the sale, lease, transfer or conveyance of all or substantially all of the
property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
Voting Rights
Holders of the Preferred Stock will not have any voting rights, except
as set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Except as may otherwise be set forth in the applicable Prospectus
Supplement, whenever dividends on any shares of Preferred Stock shall be in
arrears for the equivalent of six or more quarterly periods, the holders of such
shares of Preferred Stock (voting separately as a class with all other series of
preferred stock upon which like voting rights have been conferred and are
exercisable) will be entitled to vote for the election of two additional
directors of the Company at the next annual meeting of stockholders, and at each
subsequent annual meeting, until (i) if such series of Preferred Stock has a
cumulative dividend, all dividends accumulated on such shares of Preferred Stock
for the past dividend periods and the then current dividend period shall have
been fully paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment or (ii) if such series of Preferred Stock does
not have a cumulative dividend, four consecutive quarterly dividends shall have
been fully paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment. In such case, the entire Board of Directors
of the Company will be increased by two directors.
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Unless provided otherwise for any series of Preferred Stock, so long as
any shares of Preferred Stock remain outstanding, the Company shall not, without
the affirmative vote or consent of the holders of at least 66 percent of the
shares of each series of Preferred Stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting (each such series voting
separately as a class), (i) authorize or create, or increase the authorized or
issued amount of, any class or series of capital stock ranking senior to such
series of Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up of the
Company or reclassify any authorized capital stock of the Company into any such
shares, or create, authorize or issue any obligation or security convertible
into or evidencing the right to purchase any such shares; or (ii) amend, alter
or repeal the provisions of the Company's Articles of Incorporation (including
the Articles Supplementary for such series of Preferred Stock), whether by
merger, consolidation or otherwise, so as to materially and adversely affect any
right, preference, privilege or voting power of such series of Preferred Stock
or the holders thereof; provided, however, that any increase in the amount of
the authorized preferred stock or the creation or issuance of any other series
of preferred stock, or any increase in the amount of authorized shares of such
series or any other series of Preferred Stock, in each case ranking on a parity
with or junior or to the Preferred Stock of such series with respect to payment
of dividends and the distribution of assets upon liquidation, dissolution or
winding up of the Company, shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of such series of Preferred Stock
shall have been redeemed or called for redemption upon proper notice and
sufficient funds shall have been irrevocably deposited in trust to effect such
redemption.
Conversion Rights
The terms and conditions, if any, upon which shares of any series of
Preferred Stock are convertible into Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the Preferred Stock is convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such Preferred Stock.
Restrictions on Ownership
With certain exceptions, the Company's Articles of Incorporation
provide that no person may own, or be deemed to own by virtue of the attribution
rules of the Code, more than 9.8 percent of the value of the Company's issued
and outstanding shares of capital stock. See "Restrictions on Ownership of
Offered Securities." These ownership limitations could have the effect of
discouraging a takeover or other transaction in which holders of some, or a
majority, of shares of capital stock of the Company might receive a premium for
their shares over the then prevailing market price or which such holders might
believe to be otherwise in their best interest.
DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Preferred Stock or
Common Stock. Warrants may be issued independently or together with any Offered
Securities and may be attached to or separate from such securities. Each series
of Warrants will be issued under a separate warrant agreement (each, a "Warrant
Agreement") to be entered into between the Company and a warrant agent specified
therein ("Warrant Agent"). The Warrant Agent will act solely as an agent of the
Company in connection with the Warrants of such series and will not assume any
obligation or relationship of agency or trust for or with any holders or
beneficial owners of Warrants.
The applicable Prospectus Supplement will describe the following terms,
where applicable, of the Warrants in respect of which this Prospectus is being
delivered: (1) the title of such Warrants; (2) the aggregate number of such
Warrants; (3) the price or prices at which such Warrants will be issued; (4) the
currencies in which the price or
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prices of such Warrants may be payable; (5) the designation, amount and terms of
the Offered Securities purchasable upon exercise of such Warrants; (6) the
designation and terms of the other Offered Securities, if any, with which such
Warrants are issued and the number of such Warrants issued with each such
security; (7) if applicable, the date on and after which such Warrants and the
Offered Securities purchasable upon exercise of such Warrants will be separately
transferable; (8) the price or prices at which and currency or currencies in
which the Offered Securities purchasable upon exercise of such Warrants may be
purchased; (9) the date on which the right to exercise such Warrants shall
commence and the date on which such right shall expire; (10) the minimum or
maximum amount of such Warrants which may be exercised at any one time; (11)
information with respect to book-entry procedures, if any; (12) a discussion of
certain federal income tax considerations; and (13) any other material terms of
such Warrants, including terms, procedures and limitations relating to the
exchange and exercise of such Warrants.
Restrictions on Ownership
With certain exceptions, the Company's Articles of Incorporation
provide that no person may own, or be deemed to own by virtue of the attribution
rules of the Code, more than 9.8 percent of the value of the Company's issued
and outstanding shares of capital stock. See "Restrictions on Ownership of
Offered Securities." These ownership limitations could have the effect of
discouraging a takeover or other transaction in which holders of some, or a
majority, of shares of capital stock of the Company might receive a premium for
their shares over the then prevailing market price or which such holders might
believe to be otherwise in their best interest.
RESTRICTIONS ON OWNERSHIP OF OFFERED SECURITIES
For the Company to qualify as a REIT under the Code, not more than 50
percent in value of its outstanding capital stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year, and its capital stock
must be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months or during a proportionate part of a shorter taxable
year.
The Company's Articles of Incorporation provide, subject to certain
exceptions specified therein, that no holder may own, or be deemed to own by
virtue of the attribution rules of the Code, more than 9.8 percent by value (the
"Ownership Limit") of the outstanding capital stock of the Company. Any transfer
of Offered Securities that would create a direct or indirect ownership of shares
of Common Stock and/or Preferred Stock (collectively the "Stock") in excess of
the Ownership Limit or result in the Company being "closely held" within the
meaning of Code Section 856(h) shall be null and void, and the intended
transferee will acquire no rights to the Offered Securities. Any transfer of
Stock that would result in the capital stock of the Company being beneficially
owned by fewer than 100 persons shall be null and void, and the interested
transferee will acquire no rights to such shares of Stock.
The constructive ownership rules are complex and may cause Common Stock
or Preferred Stock owned directly or constructively by a group of related
individuals and/or entities to be deemed constructively owned by one individual
or entity. As a result, the acquisition of less than 9.8 percent of the value of
the capital stock of the Company (or the acquisition of an interest in an entity
which owns such capital stock) by an individual or entity could cause that
individual or entity (or another individual or entity) to own constructively in
excess of 9.8 percent of the value of the capital stock, and thus subject such
capital stock to the Ownership Limit. Moreover, an individual or an entity which
owns Warrants to acquire Stock will be deemed to own such Stock for purposes of
applying the Ownership Limit.
The Board of Directors may, upon receipt of either a certified copy of
a ruling from the Internal Revenue Service or an opinion of counsel satisfactory
to the Board of Directors, but shall in no case be required to, exempt a person
(the "Exempted Holder") from the Ownership Limit if the ruling or opinion
concludes that no person who is an individual as defined in Section 542(a)(2) of
the Code will, as the result of the ownership of shares by the Exempted Holder,
be considered to have Beneficial Ownership of an amount of capital stock that
will violate the Ownership Limit.
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The foregoing restrictions on transferability and ownership will not
apply if the Board of Directors determines that it is no longer in the best
interests of the Company to attempt to qualify, or to continue to qualify, as a
REIT.
All certificates representing shares of Common Stock and Preferred
Stock will bear a legend referring to the restrictions described above.
All stockholders of record who own more than a specified percentage of
the outstanding capital stock of the Company must file a written statement with
the Company containing certain information specified in Treasury Regulations,
pertaining to the actual ownership of capital stock of the Company, within 30
days after December 31 of each year. In addition, each holder of capital stock
of the Company and/or Warrants shall, upon demand, be required to disclose to
the Company in writing such information with respect to the direct, indirect and
constructive ownership of capital stock of the Company as the Board of Directors
deems necessary to comply with the provisions of the Code applicable to a REIT
or to comply with the requirements of any taxing authority or governmental
agency.
In addition to preserving the Company's status as a REIT, the Ownership
Limit may have the effect of precluding an acquisition of control of the REIT
without the approval of the Board of Directors. These ownership limitations
could have the effect of discouraging a takeover or other transaction in which
holders of some, or a majority, of shares of capital stock of the Company might
receive a premium for their shares over the then prevailing market price or
which such holders might believe to be otherwise in their best interest.
CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS TO THE COMPANY OF ITS REIT ELECTION
Pryor, Cashman, Sherman & Flynn, which has acted as tax counsel to the
Company in connection with the formation of the Company and the Company's
election to be taxed as a REIT, has reviewed the following discussion and is of
the opinion that it fairly summarizes the material federal income tax
considerations relevant to the Company's status as a REIT. The following summary
of certain federal income tax considerations is based on current law, is for
general information only, and is not tax advice. The tax treatment of a holder
of any of the Offered Securities will vary depending upon the terms of the
specific securities acquired by such holder, as well as his particular situation
and this discussion does not purport to deal with all aspects of taxation that
may be relevant to particular holder of Offered Securities in light of their
personal investment or tax circumstances or to certain types of stockholders
(including insurance companies, financial institutions, or broker-dealers, tax-
exempt organizations, foreign corporations, and persons who are not citizens or
residents of the United States) subject to special treatment under the United
States federal income tax laws.
The REIT provisions of the Code are highly technical and complex. The
following sets forth the material aspects of the sections that govern the
federal income tax treatment of a REIT. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change (which change may apply retroactively).
EACH INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS
SUPPLEMENT, AS WELL AS HIS OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES OF
THE ACQUISITION, OWNERSHIP AND SALE OF THE OFFERED SECURITIES, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
Taxation of the Company as a REIT
General. The Company has elected to be taxed as a REIT under Sections
856 through 860 of the Code, commencing with its taxable year ended December 31,
1994. The Company believes that it has been organized and operated in such a
manner as to qualify for taxation as a REIT under the Code for such taxable year
and for all
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subsequent taxable years ending prior to the date of this Prospectus and the
Company intends to continue to operate in such a manner in the future, but no
assurance can be given that it will operate in a manner so as to qualify or
remain qualified.
In the opinion of Pryor, Cashman, Sherman & Flynn, the Company has been
organized in conformity with the requirements for qualification and taxation as
a REIT, commencing with its initial taxable year ended December 31, 1994, and
for all subsequent taxable years to date, and its method of operation will
enable it to continue to meet the requirements for qualification and taxation as
a REIT under the Code. It must be emphasized that this opinion is based on
various assumptions and is conditioned upon such assumptions and certain
representations made by the Company as to factual matters. Pryor, Cashman,
Sherman & Flynn is not aware of any facts or circumstances that are inconsistent
with these representations and assumptions. Moreover, such qualification and
taxation as a REIT depends upon the Company's ability to meet, through actual
annual operating results, distribution levels and diversity of stock ownership,
the various qualification tests imposed under the Code and discussed below, the
results of which will not be reviewed by Pryor, Cashman, Sherman & Flynn.
Accordingly, no assurance can be given that the actual results of the Company's
operation of any particular taxable year will satisfy such requirements. See
"--Failure to Qualify."
If the Company qualifies for taxation as a REIT, it generally will not
be subject to federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a regular corporation. However, the Company will be subject to
federal income tax as follows: First, the Company will be taxed at regular
corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains (although shareholders will receive an
offsetting credit against their own federal income liability for federal income
taxes paid by the Company with respect to any such undistributed net capital
gain). Second, under certain circumstances, the Company may be subject to the
"corporate alternative minimum tax" on its items of tax preference. Third, if
the Company has (i) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in the
ordinary course of business or (ii) other non-qualifying net income from
foreclosure property, it will be subject to tax at the highest corporate rate on
such income. Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business, other than
certain involuntary conversions or foreclosure property), such income will be
subject to a 100 percent tax. Fifth, if the Company should fail to satisfy the
75 percent gross income test or the 95 percent gross income test (as discussed
below), but has nonetheless maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a 100 percent
tax on an amount equal to (a) the gross income attributable to the greater of
the amount by which the Company fails the 75 percent or 95 percent test,
multiplied by (b) a fraction intended to reflect the Company's profitability.
Sixth, if the Company should fail to distribute during each calendar year at
least the sum of (i) 85 percent of its REIT ordinary income for such year, (ii)
95 percent of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior years, the Company would be subject to a
4 percent excise tax on the excess of such required distribution over the
amounts actually distributed. Seventh, with respect to an asset (a "Built-In
Gain Asset") acquired by the Company from a corporation which is or has been a C
corporation (i.e., generally, a corporation subject to full corporate-level tax)
in a transaction in which the basis of the Built-In Gain Asset in the hands of
the Company is determined by reference to the basis of the asset in the hands of
the C corporation, if the Company recognizes gain on the disposition of such
asset during the ten-year period (the "Recognition Period") beginning on the
date on which such asset was acquired by the Company, then, to the extent of the
Built-In Gain (i.e., the excess of (a) the fair market value of such asset over
(b) the Company's adjusted basis in such asset, determined as of the beginning
of the Recognition Period), such gain will be subject to tax at the highest
corporate tax rate pursuant to Internal Revenue Service ("IRS") regulations that
have not yet been promulgated. The results described above with respect to the
recognition of Built-In Gain assume that the Company will make an election
pursuant to IRS Notice 88-19.
Requirements for Qualification. The Code defines a REIT as a
corporation, trust or association (1) which is managed by one or more trustees
or directors, (2) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest, (3) which would
be taxable as a domestic corporation, but for Code Sections 856 through 859, (4)
which is neither a financial institution nor an insurance company subject to
certain provisions of the Code, (5) the beneficial ownership of which is held by
100 or more persons (determined
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without reference to any rules of attribution), (6) during the last half of each
taxable year, not more than 50 percent in value of the outstanding stock of
which is owned, directly or constructively, by five or fewer individuals (as
defined in the Code to include certain entities) and (7) which meets certain
other tests, described below, regarding the matter of its income and assets. The
Code provides that conditions (1) to (4), inclusive, must be met during the
entire taxable year and that condition (5) must be met during at least 335 days
of a taxable year of 12 months, or during a proportionate part of a taxable year
of less than 12 months.
The Company has previously issued sufficient shares to allow it to
satisfy conditions (5) and (6). In addition, the Company's Articles of
Incorporation provide for restrictions regarding ownership and transfer of the
Company's capital stock, which restrictions are intended to assist the Company
in continuing to satisfy the share ownership requirements described in (5) and
(6) above. The ownership and transfer restrictions are described in
"Restrictions on Ownership of Offered Securities." Prior to 1998, the Company's
failure to comply with the Treasury regulations requiring a REIT to maintain
permanent records showing the actual ownership of its stock (the "Stock
Ownership Regulations") could have resulted in the Company's disqualification as
a REIT for the taxable year of the failure. Pursuant to the Taxpayer Relief Act
of 1997 (the "Act"), effective for the Company's taxable years beginning on or
after January 1, 1998, so long as the Company complies with the Stock Ownership
Regulations, the Company will not lose its qualifications as a REIT as a result
of a violation of the foregoing requirement if it neither knows nor upon
exercising reasonable diligence would have known of such violation. Effective
for the Company's taxable years beginning on or after January 1, 1998, instead
of being disqualified as a REIT, the Company would be subject to a financial
penalty of $25,000 ($50,000 for intentional violations) for any year in which
the Company fails to comply with the Stock Ownership Regulations. Furthermore,
if the Company can establish that its failure to comply was due to reasonable
cause and not to willful neglect, no penalty would be imposed.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. From its inception, the Company's taxable has
been the calendar year.
The Company currently owns and operates the majority of the Properties
through partnerships in which the Operating Partnership and direct, wholly-owned
subsidiaries (the "Company Subs") are partners. Code Section 856(i), as amended
by the Act, provides that a corporation, 100% of whose stock is held by a REIT,
is a "qualified REIT subsidiary." A "qualified REIT subsidiary" is not treated
as a separate corporation, and all assets, liabilities, and items of income,
deduction, and credit of a "qualified REIT subsidiary" are treated as assets,
liabilities and such items (as the case may be) of the REIT. Thus, in applying
the requirements described herein, the Company's "qualified REIT subsidiaries"
will be ignored, and all assets, liabilities and items of income, deduction, and
credit of such subsidiaries will be treated as assets, liabilities and items of
the Company. The Company has not, however, sought or received a ruling from the
IRS that any of the Company Subs is a "qualified REIT subsidiary."
In the case of a REIT that is a partner in a partnership, either
directly, or indirectly through a "qualified REIT subsidiary," Treasury
regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership will retain the same character in the
hands of the REIT for purposes of Code Section 856, including satisfying the
gross income tests and the asset tests. Thus, the Company's proportionate share
of the assets, liabilities and items of income of the partnerships in which the
Company is a partner, directly or indirectly, will be treated as the assets,
liabilities and items of income of the Company for purposes of applying the
requirements described herein.
Income Tests. In order to maintain qualification as a REIT, the Company, for
taxable years beginning on or after January 1, 1998, must satisfy two gross
income requirements annually. First, at least 75 percent of the Company's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived directly or indirectly from investments relating to real
property or mortgages on real property (including "rents from real property"
and, in certain circumstances, interest) or from certain types of temporary
investments (the "75% Test"). Second, at least 95 percent of the Company's gross
income (excluding gross income from "prohibited transactions") for each taxable
year must be derived from such real property investments, dividends, interest
and gain from the sale or disposition of stock or securities, or from any
combination of the foregoing (the "95% Test" and, together with the 75% Test,
the "Gross Income Tests"). For taxable years beginning on or after January 1,
1998, "qualifying income" for purposes of the 95% test, except to the extent
provided by regulations, includes payments to the
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Company under any interest rate swap, cap agreement, option, futures contract,
forward rate agreement, or any similar financial instrument entered into by the
Company to hedge its indebtedness as well as any gain from the disposition of
any of the foregoing instruments.
Rents received by the Company will qualify as "rents from real property" in
satisfying the Gross Income Tests only if several conditions are met. First, the
amount of rent must not be based in whole or in part on the income or profits
derived by any person from the property. However, an amount received or accrued
generally will not be excluded from the term "rents from real property" solely
by reason of being based on a fixed percentage or percentages of receipts or
sales. Second, the Code provides that, for taxable years beginning before August
5, 1997, rents received from a tenant will not qualify as "rents from real
property" in satisfying the Gross Income Tests if the REIT, or a direct or
constructive owner of 10 percent or more of the REIT, directly or constructively
owns 10 percent or more of such tenant (a "Related Tenant"). Effective for the
Company's taxable years beginning on or after January 1, 1998, the constructive
ownership rules for determining whether a tenant is a Related Tenant are
modified with respect to partners and partnerships to provide that attribution
between partners and partnerships only occurs when a partner owns, directly
and/or indirectly, a 25 percent-or-greater interest in the partnership. Thus, a
tenant will not be treated as a Related Tenant with respect to the Company if
shares of the Company are owned by a partnership and a partner that owns,
directly and indirectly, a less-than-25 percent interest in such partnership
also owns an interest in the tenant. A tenant will also not be a Related Tenant
with respect to the Company if shareholders of the Company and owners of such
tenant are partners in a partnership in which neither own, directly and/or
indirectly, a 25 percent-or-greater interest in such partnership. Third, if rent
attributable to personal property leased in connection with a lease of real
property is greater than 15 percent of the total rent received under the lease,
then the portion of rent attributable to such personal property will not qualify
as "rents from real property" (the "15% Limitation"). The Company has not and
will not (i) charge rent for any property that is based in whole or in part on
the income or profits of any person (except by reason of being based on a fixed
percentage of receipts or sales, as described above), (ii) rent any property to
a Related Party Tenant, or (iii) derive rental income attributable to personal
property (other than personal property leased in connection with the lease of
real property, the amount of which is less than 15 percent of the total rent
received under the lease). Finally, for rents received to qualify as "rents from
real property," the Company generally must not operate or manage the property or
furnish or render services to tenants, other than through an "independent
contractor" from whom the Company derives no revenue. The "independent
contractor" requirement, however, does not apply to the extent the services
provided by the Company are "usually or customarily rendered" in connection with
the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant." The Operating Partnership will provide certain
services with respect to the Properties that are intended to comply with the
"usually or customarily rendered" requirement. In the case of any services that
are not "usual and customary" under the foregoing rules ("Impermissible
Services"), the Company intends to employ independent contractors to perform
such services.
Pursuant to the Act, the Company for its taxable years beginning on or
after January 1, 1998, may render a de minimis amount of Impermissible Services
to tenants, or in connection with the management of a property, without having
otherwise qualifying rents from the property being disqualified as "rents from
real property". In order to qualify for this de minimis exception, the value of
such Impermissible Services may not exceed 1% of the Company's gross income from
the property, and such Impermissible Services may not be valued at less than
150% of the Company's direct cost of such services. Notwithstanding the
foregoing, the amount of any income that the Company receives in respect of its
performance of impermissible services ("Impermissible Services Income") will not
be treated as "rents from real property" for purposes of the Gross Income Tests.
Finally, for rents received to qualify as "rents from real property," the REIT
generally must not operate or manage the property or furnish or render services
to the tenants of such property, other than through an independent contractor
from whom the REIT derives no revenue; provided, however, that a REIT like the
Company may directly perform certain services that are "usually or customarily
rendered" in connection with the rental of space for occupancy only and are not
otherwise considered "rendered to the occupant" of the property.
The Operating Partnership may receive fees in consideration of the
performance of management and administrative services with respect to Properties
that are not owned entirely by the Operating Partnership. Although a portion of
such management and administrative fees generally will not qualify under the
Gross Income Tests, the Company believes that the aggregate amount of such fees
(and any other non-qualifying income) in any taxable year will not cause the
Company to exceed the limits on non-qualifying income under the Gross Income
Tests.
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If the Company fails to satisfy one or both of the Gross Income Tests
for any taxable year, it may nevertheless qualify as a REIT for such year if it
is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if the Company's failure to meet such
tests is due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its federal income tax
return, and any incorrect information on the schedule is not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. As discussed above under "--General," even if these relief
provisions were to apply, a tax would be imposed with respect to the excess net
income.
Sales or Dispositions of Certain Assets. The Company, as a REIT, is
generally subject to restrictions that limit its ability to sell real property.
The Company is subject to a tax of 100 percent on its gain (i.e., the excess, if
any, of the amount realized over the Company's adjusted basis in the property)
from each sale of property (excluding certain property obtained through
foreclosure and property that is involuntarily converted in a transaction that
is subject to Code Section 1033) in which it is a dealer. In calculating its
gains subject to the 100 percent tax, the Company is not allowed to offset gains
on sales of property against losses on other sales of property in which it is a
dealer.
Under the Code, the Company would be deemed to be a dealer in any
property that the Company holds primarily for sale to customers in the ordinary
course of its business. Such determination is a factual inquiry, and absolute
legal certainty of the Company's status generally cannot be provided. However,
the Company will not be treated as a dealer in real property if (i) it has held
the property for at least four years for the production of rental income, (ii)
capitalized expenditures on the property in the four years preceding sale do not
exceed 30 percent of the net selling price of the property, and (iii) the
Company either (a) has seven or fewer sales of property (excluding involuntarily
converted property subject to Code Section 1033 or certain property obtained
through foreclosure) for the year or (b) the aggregate tax bases (as determined
for purposes of computing earnings and profits) of property sold during the
taxable year is 10 percent or less of the aggregate tax basis of all assets (as
so determined) of the Company as of the beginning of the taxable year and (iv)
if the requirement in clause (iii)(a) is not satisfied, substantially all of the
marketing and development expenditures with respect to the property sold are
made through an independent contractor from whom the Company derives no income.
The sale of more than one property to one buyer as part of one transaction
constitutes one sale. However, the failure of the Company to meet these "safe
harbor" requirements does not necessarily mean that it is a dealer in real
property for purposes of the 100 percent tax.
Asset Tests. The Company, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets. First,
at least 75 percent of the value of the Company's total assets must be
represented by real estate assets (including (i) assets held by the Company or
the Company's qualified REIT subsidiaries, and the Company's allocable share of
real estate assets held by partnerships in which the Company owns an interest
directly and/or indirectly and (ii) stock or debt instruments held for not more
than one year purchased with the proceeds of a stock offering or long-term (at
least five years) debt offering of the Company), cash, cash items and government
securities. Second, not more than 25 percent of the Company's total assets may
be represented by securities other than those in the 75 percent asset class.
Third, of the investments included in the 25 percent asset class, the value of
any one issuer's securities owned by the Company may not exceed (at the end of
the quarter in which such securities are acquired) 5 percent of the value of the
Company's total assets and the Company may not own more than 10 percent of any
one issuer's outstanding voting securities.
A REIT which meets the foregoing asset tests at the close of any
quarter will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter (including as a result of the REIT
increasing its interest in any partnership in which the REIT is a partner), the
failure can be cured by disposition of sufficient nonqualifying assets within 30
days after the close of that quarter. The Company intends to maintain adequate
records of the value of its assets to ensure compliance with the asset tests and
to take such other actions within 30 days after the close of any quarter as may
be required to cure any noncompliance. If the Company failed to cure
noncompliance with the asset tests within such time period, the Company would
cease to qualify as a REIT.
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Annual Distribution Requirements. The Company, in order to qualify as a REIT, is
required to distribute dividends (other than capital gain dividends) to its
stockholders in an amount at least equal to (A) the sum of (i) 95 percent of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (ii) 95 percent of the net
income (after tax), if any, from foreclosure property, minus (B) the sum of
certain items of non-cash income. In addition, if the Company disposes of any
Built-In Gain Asset during its Recognition Period, the Company will be required,
pursuant to Treasury regulations which have not yet been promulgated, to
distribute at least 95 percent of the Built-in Gain (after tax), if any,
recognized on the disposition of such asset. Such distributions must be paid in
the taxable year to which they relate, or in the following taxable year if
declared before the Company timely files its tax return for such prior year and
if paid on or before the first regular dividend payment after such declaration.
To the extent that the Company does not distribute all of its net capital gain
or distributes at least 95 percent, but less than 100 percent, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
ordinary and capital gain corporate tax rates. As discussed below, shareholders
of the Company for taxable years of the Company beginning on or after January 1,
1998, would receive a tax credit for the corporate level taxes paid by the
Company on any undistributed capital gains. See "Taxation of Domestic
Shareholders" below. Furthermore, if the Company should fail to distribute
during each calendar year at least the sum of (i) 85 percent of its REIT
ordinary income for such year, (ii) 95 percent of its REIT capital gain income
for such year, and (iii) any undistributed taxable income from prior periods,
the Company would be subject to a 4 percent excise tax on the excess of such
required distribution over the amounts actually distributed.
As discussed more completely below under "Taxation of Domestic
Shareholders," the Company may elect for its taxable years beginning on or after
January 1, 1998, to retain any long-term capital gain recognized during a
taxable year ("Retained Gains") and pay a corporate level tax on such Retained
Gains. The Retained Gains are then considered to have been distributed to
holders of Common Stock.
The Company intends to make timely distributions sufficient to satisfy
the annual distribution requirements. In this regard, the partnership agreement
of the Operating Partnership authorizes the Company, as general partner, to take
such steps as may be necessary to cause the Operating Partnership to distribute
to its partners an amount sufficient to permit the Company to meet these
distribution requirements. It is possible, however, that the Company, from time
to time, may not have sufficient cash or other liquid assets to meet the 95%
distribution requirement due to timing differences between the actual receipt of
income and actual payment of deductible expenses and the inclusion of such
income and deduction of such expenses in arriving at taxable income of the
Company, or if the amount of nondeductible expenses such as principal
amortization or capital expenditures exceed the amount of non-cash deductions.
In the event that such timing differences occur, in order to meet the 95%
distribution requirement, the Company may, or may cause the Operating
Partnership to, arrange for short-term, or possibly long-term, borrowing to
permit the payment of required dividends. If the amount of nondeductible
expenses exceeds non-cash deductions, the Operating Partnership may refinance
its indebtedness to reduce principal payments and borrow funds for capital
expenditures.
In the opinion of Pryor, Cashman, Sherman & Flynn, the Company has
satisfied the annual distribution requirements for taxable years ended prior to
the date of this Prospectus. The Company intends to continue to make timely
distributions sufficient to satisfy this annual distribution requirement in the
future. It is possible that the Company, from time to time, may not have
sufficient cash or other liquid assets to meet the 95 percent distribution
requirement due to timing differences between (i) the actual receipt of income
and actual payment of deductible expenses and (ii) the inclusion of such income
and deduction of such expenses in arriving at the taxable income of the Company,
or if the amount of nondeductible expenses, such as principal amortization or
capital expenditures exceeds the amount of noncash deductions. In the event that
such timing differences occur, in order to meet the 95 percent distribution
requirement, the Company may find it necessary to arrange for short-term, or
possibly long-term, borrowing or to pay dividends in the form of taxable stock
dividends.
Under certain circumstances, the Company may be able to rectify a
failure to meet the distribution requirement for a year by paying to
stockholders in a later year "deficiency dividends", which may be included in
the Company's deduction for dividends paid for the earlier year. Thus, the
Company may be able to avoid being
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taxed on amounts distributed as deficiency dividends; however, the Company will
be required to pay interest to the IRS based upon the amount of any deduction
taken for deficiency dividends.
Failure to Qualify. If the Company fails to qualify for taxation as a
REIT in any taxable year, and the relief provisions do not apply, the Company
will be subject to tax (including any applicable corporate alternative minimum
tax) on its taxable income at regular corporate rates. Such a failure could have
an adverse effect on the market value and marketability of the Offered
Securities. Distributions to stockholders in any year in which the Company fails
to qualify will not be deductible by the Company nor will they be required to be
made. In such event, to the extent of current and accumulated earnings and
profits, all distributions to stockholders will be taxable as ordinary income
and, subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, the Company will also be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all circumstances
the Company would be entitled to such statutory relief.
Taxation of Stockholders
Taxation of Taxable Domestic Stockholders. As long as the Company
qualifies as a REIT, distributions made to the Company's taxable domestic
stockholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by them as
ordinary income and will not be eligible for the dividends received deduction
for corporations. Distributions that are designated as capital gain dividends
will be taxed as long-term capital gains (to the extent they do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which the stockholder has held its stock. However, corporate
stockholders may be required to treat up to 20 percent of certain capital gain
dividends as ordinary income.
Pursuant to the Act, the portion of any such capital gain dividends
attributable to gain recognized after July 28, 1997 with respect to capital
assets held by the Company for more than 18 months on the date of sale will be
treated as long-term capital gain taxable to the stockholders at a maximum rate
of 20 percent (or 25 percent to the extent any such gain arises from the
recapture of straight-line depreciation deductions reflected in the basis of
real property that has been held by the Company for more than 18 months as of
the date of sale), and the portion of such capital gain dividends attributable
to gain recognized with respect to property that has been held for more than one
year but not more than 18 months will be treated as long-term capital gain
taxable to the stockholders at a maximum rate of 28 percent. However, corporate
stockholders may be required to treat up to 20 percent of certain capital gain
dividends as ordinary income.
Also, pursuant to the Act, effective for its taxable years beginning on
or after January 1, 1998, the Company may elect to retain its net long term
capital gains recognized during a taxable year ("Retained Gains") and pay a
corporate-level tax on such Retained Gains. Corporations are currently subject
to a maximum 35% tax rate on recognized capital gains. A stockholder owning
shares of the Company's stock on December 31st of a taxable year in which the
Company has Retained Gains would be required to include in gross income such
stockholder's proportionate share of the Retained Gains (as designated by the
Company in a notice mailed to stockholders within 60 days following the end of
the taxable year). The amount of any corporate-level tax paid by the Company in
respect of the Retained Gains (the "Company Tax") would be treated as having
been paid by the stockholders of the Company and each stockholder would receive
a credit or refund for such stockholder's share of the Company Tax. A
stockholder's basis in his/her shares of Company stock would increase by the
excess of such stockholder's proportionate share of the Retained Gains over the
stockholder's share of the Company Tax.
Distributions (not designated as capital gain dividends) in excess of
current and accumulated earnings and profits will not be taxable to a domestic
stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's shares, but rather will reduce the adjusted basis of such shares.
To the extent that such distributions exceed the adjusted basis of a domestic
stockholder's shares, they will be included in income as capital gains (provided
that the shares have been held as a capital asset). Any such distribution in
excess of a stockholder's adjusted basis in his shares of Company stock will be
included in income as long-term capital gain subject to a maximum tax rate of 20
percent if the gain is recognized after July 28, 1997, and the shares have been
held for more than 18 months at the time of distribution, long-term capital gain
subject to a maximum tax rate of 28 percent if the shares have been held for
more than one year but not more than 18 months as of the time of distribution
and short-
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term capital gain subject to a maximum rate of up to 39.6 percent if the shares
were held for no more than one year at the time of the distribution. In
addition, any dividend declared by the Company in October, November or December
of any year payable to a stockholder of record on a specific date in any such
month shall be treated as both paid by the Company and received by the
stockholder on December 31 of such year, provided that the dividend is actually
paid by the Company during January of the following calendar year. Stockholders
may not include in their individual income tax returns any net operating losses
or capital losses of the Company.
In general, any loss upon a sale or exchange of shares by a stockholder
who has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such stockholder as
long-term capital gain.
Backup Withholding. The Company will report to its domestic
stockholders and the IRS the amount of dividends paid during each calendar year,
and the amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a stockholder may be subject to backup withholding at the
rate of 31 percent with respect to dividends paid unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact or (b) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding and otherwise
complies with applicable requirements of the backup withholding rules. A
stockholder who does not provide the Company with its correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions made to any stockholders who fail to
certify their non-foreign status to the Company. See "--Taxation of Foreign
Stockholders" below.
Taxation of Tax-Exempt Stockholders. In applying the REIT stock
ownership test under the Code, a pension trust generally is not treated as a
single individual as it would have been under prior law. Rather, beneficiaries
of certain pension trusts are treated as holding the shares of a REIT in
proportion to their actuarial interests in such trust, and thus permitting
certain pension trusts to acquire more concentrated ownership of a REIT.
In addition, a pension fund owning more than 10 percent of a REIT must
treat a percentage of dividends from the REIT as "unrelated business taxable
income" ("UBTI"). The percentage is determined by dividing the REIT's gross
income derived from an unrelated trade or business for the year by the gross
income of the REIT for the year in which the dividends are paid. If this
percentage is less than five percent, however, dividends are not treated as
UBTI. In general, the UBTI rule applies to a REIT where the REIT qualifies as a
REIT by reason of the above modification of the stock ownership test and (i) one
pension trust owns more than 25 percent of the value of the REIT; or (ii) a
group of pension trusts individually holding more than 10 percent of the value
of the REIT collectively own more than 50 percent of the value of the REIT.
Taxation of Foreign Stockholders. The rules governing U.S. federal
income taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. Accordingly, the discussion does not
address all aspects of United States federal income tax and does not address
state, local or foreign tax consequences (including treaty benefits, if any,
that may be available in certain instances) that may be relevant to a Non-U.S.
Stockholder in light of its particular circumstances. Prospective Non-U.S.
Stockholders should consult with their own tax advisors to determine the impact
of U.S. federal, state and local income tax laws with regard to an investment in
the Offered Securities, including any reporting requirements.
Distributions by the Company to a Non-U.S. Stockholder that are neither
attributable to gain from sales or exchanges by the Company of U.S. real
property interests and not designated by the Company as capital gain dividends
will be treated as dividends of ordinary income to the extent that they are made
out of current or accumulated earnings and profits of the Company. Such
distributions will ordinarily be subject to a withholding tax equal to 30
percent of the gross amount of the distribution unless an applicable tax treaty
reduces that tax. However, if income from the investment in the Offered
Securities is treated as effectively connected with the Non-U.S. Stockholder's
conduct of a U.S. trade or business, the Non-U.S. Stockholder generally will be
subject to a tax at graduated rates, in the same manner as U.S. stockholders are
taxed with respect to such and are generally not subject to withholding. Any
such effectively connected distributions received by a Non-U.S. Stockholder that
is a
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corporation may also be subject to an additional branch profits tax at a 30
percent rate or such lower rate as may be specified by an applicable income tax
treaty. The Company expects to withhold U.S. income tax at the rate of 30
percent on the gross amount of any dividends paid to a Non-U.S. Stockholder
unless (i) a lower treaty rate applies and the required form evidencing
eligibility for that reduced rate is filed with the Company or (ii) the Non-U.S.
Stockholder files an IRS Form 4224 with the Company claiming that the
distribution is "effectively connected" income. Distributions in excess of
current and accumulated earnings and profits of the Company will not be taxable
to a stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's shares, but rather will reduce the adjusted basis of such shares.
To the extent that such distributions exceed the adjusted basis of a Non-U.S.
Stockholder's shares, they will give rise to tax liability if the Non-U.S.
Stockholder would otherwise be subject to tax on any gain from the sale or
disposition of his shares, as described below. If it cannot be determined at the
time a distribution is made whether or not such distribution will be in excess
of current and accumulated earnings and profits, the distribution will be
subject to withholding at the rate applicable to dividends. However, the Non-
U.S. Stockholder may seek a refund of such amounts from the IRS if it is
subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company.
Under recently adopted Treasury Regulations, withholding procedures for
distributions made after December 31, 1998 would be revised. Withholding
generally will be at either 31 percent or 30 percent unless a new Form W-8 is
filed with the Company by the beneficial owner to establish entitlement to
treaty benefits or exemption based upon the income being "effectively
connected". In some instances, additional documentation may be required from the
beneficial owner, including an individual taxpayer identification number from
the U.S. Internal Revenue Service and a certification of tax status from the tax
authorities of the beneficial owner's country of residence.
For any year in which the Company qualifies as a REIT, distributions
that are attributable to gain from sales or exchanges by the Company of U.S.
real property interests will be taxed to a Non-U.S. Stockholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Stockholder as if such gain were effectively connected with a U.S. business.
Thus, Non-U.S. Stockholders would be taxed at the normal capital gain rates
applicable to U.S. stockholders (subject to applicable alternative minimum tax
and a special alternative minimum tax in the case of nonresident alien
individuals). Also, distributions subject to FIRPTA may be subject to a 30
percent branch profits tax in the hands of a corporate Non-U.S. Stockholder not
entitled to treaty relief or exemption. The Company is required by applicable
Treasury regulations to withhold 35 percent of any distribution to a Non-U.S.
Stockholder that could be designated by the Company as a capital gain dividend.
This amount is creditable against the Non-U.S. Stockholder's United States
federal income tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of stock
generally will not be taxed under FIRPTA if a REIT is a "domestically controlled
REIT," defined generally as a REIT in which at all times during a specified
testing period less than 50 percent in value of the stock was held directly or
indirectly by foreign persons. It is currently anticipated that the Company will
be a "domestically controlled REIT," and therefore the sale of stock will not be
subject to taxation under FIRPTA. Notwithstanding the foregoing, gain not
subject to FIRPTA will be taxable to a Non-U.S. Stockholder if (i) investment in
the Stock is "effectively connected" with the Non-U.S. Stockholder's U.S. trade
or business, in which case the Non-U.S. Stockholder will be subject to the same
treatment as U.S. stockholders with respect to such gain (a Non-U.S. Stockholder
that is a foreign corporation may also be subject to a 30 percent branch profits
tax, as discussed above), or (ii) the Non-U.S. Stockholder is a nonresident
alien individual who was present in the United States for 183 days or more
during the taxable year and has a "tax home" in the United States, in which case
the nonresident alien individual will be subject to a 30 percent tax on the
individual's capital gains. If the gain on the sale of stock were to be subject
to taxation under FIRPTA, the Non-U.S. Stockholder would be subject to the same
treatment as U.S. stockholders with respect to such gain (subject to applicable
alternative minimum tax, possible withholding tax and a special alternative
minimum tax in the case of nonresident alien individuals).
If the Company is not or ceases to be, a "domestically-controlled
REIT," whether gain arising from the sale or exchange of shares of stock by a
Non-U.S. Stockholder would be subject to United States taxation under FIRPTA as
a sale of a "United States real property interest" will depend on whether the
shares are "regularly traded" (as defined by applicable Treasury regulations) on
an established securities market (e.g., the New York Stock Exchange) and on the
size of the selling Non-U.S. Stockholder's interest in the Company. In the case
where the
20
<PAGE>
Company is not or ceases to be a "domestically-controlled REIT" and the Common
Stock is "regularly traded" on an established securities market at any time
during the calendar year, a sale of shares of Common Stock by a Non-U.S.
Stockholder will only be treated as a sale of a "United States real property
interest" (and thus subject to taxation under FIRPTA) if such selling
shareholder beneficially owns (including by attribution) more than 5 percent of
the total fair market value of the Common Stock at any time during the five-year
period ending either on the date of such sale or other applicable determination
date. If gain on the sale or exchange of shares of stock were subject to
taxation under FIRPTA, the Non U.S. Stockholder would be subject to regular
United States income tax with respect to such gain in the same manner as a U.S.
Stockholder (subject to any applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals); provided,
however, that deductions otherwise allowable will be allowed as deductions only
if the tax returns were filed within the time prescribed by law. In general, the
purchaser of the stock would be required to withhold and remit to the IRS, 10
percent of the amount realized by the seller on the sale of such stock.
New Withholding Regulations. Final regulations pertaining to
withholding tax on income paid to foreign persons and related matters (the "New
Withholding Regulations") were issued by the Treasury Department on October 6,
1997 and published in the Federal Register on October 14, 1997. In general, the
New Withholding Regulations do not significantly alter the substantive
withholding and information reporting requirements, but unify current
certification procedures and forms and clarify reliance standards. For example,
as described above in "Taxation of Foreign Stockholders," the New Withholding
Regulations adopt a certification rule which was in the proposed regulations,
under which a foreign shareholder who wishes to claim the benefit of an
applicable treaty rate with respect to dividends received from a United States
corporation will be required to satisfy certain certification and other
requirements. In addition, the New Withholding Regulations require a corporation
that is a REIT to treat as a dividend the portion of a distribution that is not
designated as a capital gain dividend or return of basis and apply the 30%
withholding tax (subject to any applicable deduction or exemption) to such
portion, and to apply the FIRPTA withholding rules (discussed above) with
respect to the portion of the distribution designated by the REIT as capital
gain dividend. The New Withholding Regulations will generally be effective for
payments made after December 31, 1998, subject to certain transition rules.
EXCEPT AS NOTED, THE DISCUSSION SET FORTH ABOVE IN "TAXATION OF FOREIGN
SHAREHOLDERS" DOES NOT TAKE THE NEW WITHHOLDING REGULATIONS INTO ACCOUNT.
PROSPECTIVE FOREIGN SHAREHOLDERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE NEW WITHHOLDING REGULATIONS.
Other Tax Matters
The majority of the Company's investments have been made through
partnerships. The ownership of an interest in a partnership may involve special
tax risks. Such risks include possible challenge by the IRS of (a) allocations
of income and expense items, which could affect the computation of income of the
Company and (b) the status of the partnerships as partnerships (as opposed to
associations taxable as corporations) for income tax purposes. This partnership
status risk should be substantially diminished by Treasury regulations issued on
December 17, 1996, permitting election of partnership status effective January
1, 1997 by the filing of Form 8823 or in certain other ways specified in the new
regulations. With respect to the Company existing partnership investments, the
new regulations provide that (1) previously claimed partnership status, if
supported by a reasonable basis for classification, will generally be respected
for all periods prior to January 1, 1997; and (2) previously claimed partnership
status will be generally retained after January 1, 1997, without the need to
file a formal election. If any of the partnerships, however, should be treated
as an association, it would be taxable as a corporation. In such a situation, if
the Company's ownership in any of the partnerships exceeded 10 percent of the
partnership's voting interests or the value of such interest exceeded 5 percent
of the value of the Company's assets, the Company would cease to qualify as a
REIT. Furthermore, in such a situation, distributions from any of the
partnerships to the Company would be treated as dividends, which are not taken
into account in satisfying the 75 percent Gross Income Test described above and
which could therefore make it more difficult for the Company to qualify as a
REIT for the taxable year in which such distribution was received. In addition,
in such a situation, the interest in any of the partnerships held by the Company
would not qualify as a "real estate asset," which could make it more difficult
for the Company to meet the 75 percent asset test described above. Finally, in
such a situation, the Company would not be able to deduct its share of losses
generated by the partnerships in computing its taxable income. See "Failure to
Qualify" above for a discussion of the effect of the Company's failure to meet
such tests for a taxable year. The
21
<PAGE>
Company believes that each of the partnerships have been and will continue to be
treated for tax purposes as a partnership (and not as an association taxable as
a corporation). However, no assurance can be given that the IRS may not
successfully challenge the tax status of any of the partnerships.
Tax Allocations with Respect to Contributed Properties. Pursuant to
Section 704(c) of the Code, income, gain, loss, and deduction attributable to
appreciated property that is contributed to a partnership in exchange for an
interest in the partnership must be allocated for Federal income tax purposes in
a manner ensuring that the contributor is charged with the unrealized gain
associated with the property at the time of the contribution. The amount of such
unrealized gain is generally equal to the difference between the fair market
values of the contributed property at the time of contribution and the adjusted
tax basis of such property at the time of contribution (the "Book-Tax
Difference"). In general, the fair market value of certain Properties (or
interests in partnerships holding certain Properties) contributed to the
Operating Partnership are substantially in excess of their adjusted tax bases.
The partnership agreements of the Operating Partnership and other partnerships
controlled by the Operating Partnership and/or the Company require that
allocations attributable to each item of contributed property be made so as to
allocate the tax depreciation available with respect to such property first to
the partners other than the partner that contributed the property, to the extent
of, and in proportion to, their book depreciation, and then, if any tax
depreciation remains, to the partner that contributed the property. Upon the
disposition of any item of contributed property, any gain attributable to an
excess, at such time, of basis for book purposes over basis for tax purposes
would be allocated for tax purposes to the contributing partner. These
allocations are intended to be consistent with the Treasury regulations under
Section 704(c) of the Code.
In general, certain persons who acquired interests in the Operating
Partnership in connection with the contribution of property (including interests
in other partnerships) to the Operating Partnership are allocated
disproportionately lower amounts of depreciation deductions for tax purposes
relative to their percentage interests in the Operating Partnership, and
disproportionately greater shares relative to their percentage interests in the
Operating Partnership of the taxable income and gain on the sale by the
Partnerships of one or more of the contributed properties. These tax allocations
will tend to reduce or eliminate the Book-Tax Difference over the life of the
partnerships. The partnership agreements of the Operating Partnership and other
partnerships that it controls adopt the "traditional method" of making
allocations under Section 704(c) of the Code, unless otherwise agreed to between
the Company and the contributing partner. Under the traditional method the
amounts of the special allocations of depreciation and gain under the special
rules of Section 704(c) of the Code have been and will continue to be limited by
the so-called "ceiling rule" which will not always eliminate the Book-Tax
Difference on an annual basis or with respect to a specific transaction such as
a sale. Thus, the carryover basis of the contributed assets in the hands of the
partnerships will cause the Company to be allocated less depreciation than would
be available for newly purchased properties. As a result, the Company will be
required to distribute more dividends in order to satisfy a 95 percent
distribution requirement than it would have had the Company purchased the assets
for cash in a taxable transaction. See "Annual Distribution Requirements" above
for a discussion of distributions requirements. In addition, the amount of
tax-free return of capital to each domestic stockholder will be less than the
amount such Stockholder would have realized had the Company purchased assets for
cash in a taxable transaction.
State and Local Taxes. The Company and its stockholders may be subject
to state or local taxation in various state or local jurisdictions, including
those in which it or they transact business or reside. The state and local tax
treatment of the Company and its stockholders may not conform to the federal
income tax consequences discussed above. Consequently, prospective stockholders
should consult their own tax advisors regarding the effect of state and local
tax laws on an investment in the Offered Securities.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more underwriters
for public offering and sale by them or may sell the Offered Securities to
investors directly or through agents. Any such underwriter or agent involved in
the offer and sale of the Offered Securities will be named in the applicable
Prospectus Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price
or prices, which may be changed, at prices related to the prevailing market
prices at the time of sale or at negotiated prices. The Company also may,
22
<PAGE>
from time to time, authorize underwriters acting as the Company's agents to
offer and sell the Offered Securities upon the terms and conditions as are set
forth in the applicable Prospectus Supplement. In connection with the sale of
Offered Securities, underwriters may be deemed to have received compensation
from the Company in the form of underwriting discounts or commissions and may
also receive commissions from any entity for whom they may act as agent.
Underwriters may sell Offered Securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agent.
Any underwriting compensation paid by the Company to underwriters or
agents in connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Offered Securities may be
deemed to be underwriters, and any discounts, concessions and commissions
received by them and any profit realized by them on resale of the Offered
Securities may be deemed to be underwriting discounts and commissions, under the
Securities Act. Underwriters, dealers and agents may be entitled, under
agreements entered into with the Company, to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company
will authorize dealers acting as the Company's agents to solicit offers by
certain institutions to purchase Offered Securities from the Company at the
public offering price set forth in such Prospectus Supplement pursuant to
Delayed Delivery Contracts ("Contracts") providing for payment and delivery on
the date or dates stated in such Prospectus Supplement. Each Contract will be
for an amount not less than, and the aggregate principal amount of Offered
Securities sold pursuant to Contracts shall be not less nor more than, the
respective amounts stated in the applicable Prospectus Supplement. Institutions
with whom Contracts, when authorized, may be made include commercial and savings
banks, insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Offered Securities covered by
its Contracts shall not at the time of delivery be prohibited under the laws of
any jurisdiction in the United States to which such institution is subject, and
(ii) if the Offered Securities are being sold to underwriters, the Company shall
have sold to such underwriters the total principal amount of the Offered
Securities less the principal amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and its
subsidiaries in the ordinary course of business.
EXPERTS
The financial statements incorporated in this Prospectus by reference
to the Annual Report on Form 10-K of the Company for the year ended December 31,
1996, have been so incorporated in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting. The combined financial statements of the Robert Martin
Group, for the year ended December 31, 1996, included in the Company's Current
Report on Form 8-K/A, dated January 31, 1997 and filed March 28, 1997, have been
so incorporated in reliance on the report of Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such combined financial statements are incorporated herein
by reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing. The statements incorporated in this
Prospectus by reference to the Current Reports on Form 8-K of the Company, dated
September 18, 1997 and January 16, 1998, respectively, have been so incorporated
in reliance on the reports of Schonbraun Safris Sternlieb & Co., L.L.C.,
independent accountants, given on the authority of said firm as experts in
auditing and accounting. The financial statements of The Mack Group incorporated
in this Prospectus by reference to the Company's Proxy Statement, dated November
10, 1997, except as they relate to the unaudited nine-month periods ended
September 30, 1997 and 1996 and except as they relate to Patriot American Office
Group, have been audited by Price Waterhouse LLP, independent accountants, and,
insofar as they relate to Patriot American Office Group, by Ernst & Young LLP,
independent accountants, whose reports thereon are incorporated by reference in
this Prospectus. Such financial statements have been so included in reliance on
the reports of such independent accountants given on the authority of such firms
as experts in auditing and accounting.
23
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Offered Securities as well
as certain legal matters described under "Certain United States Federal Income
Tax Considerations to the Company of its REIT Election" will be passed upon for
the Company by Pryor, Cashman, Sherman & Flynn, New York, New York. Certain
legal matters relating to Maryland law, including the validity of the issuance
of the securities registered hereby, will be passed upon for the Company by
Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland.
24
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses Of Issuance And Distribution.
The following table sets forth estimated expenses (except for
Commission and NASD fees) to be incurred in connection with the issuance and
distribution of the securities being registered.
<TABLE>
<S> <C>
Commission Registration Fee $606,060.60
NASD Fee 61,000.00
NYSE Listing Fee 44,300.00
Printing and Engraving Expenses 200,000.00
Legal Fees and Expenses (other than Blue Sky) 700,000.00
Accounting Fees and Expenses 450,000.00
Blue Sky Fees and Expenses (including fees of counsel) 20,000.00
Miscellaneous 40,000.00
-----------------
Total $2,121,360.60
</TABLE>
Item 15. Indemnification of Directors and Officers.
The Company's officers and directors are indemnified under Maryland
law, the Articles of Incorporation and the Amended and Restated Agreement of
Limited Partnership of the Operating Partnership (the "Partnership Agreement of
the Operating Partnership"), against certain liabilities. The Articles of
Incorporation require the Company to indemnify its directors and officers to the
fullest extent permitted from time to time by the laws of the State of Maryland.
The bylaws contain provisions which implement the indemnification provisions of
the Articles of Incorporation.
The Maryland General Corporation Law ("MGCL") permits a corporation to
indemnify its directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their service in those capacities unless it is established that the act or
omission of the director or officer was material to the matter giving rise to
the proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty, or the director or officer actually received an improper
personal benefit in money, property or services, or in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful, or the director or officer was adjudged to be liable
to the corporation for the act or omission. No amendment of the Articles of
Incorporation of the Company shall limit or eliminate the right to
indemnification provided with respect to acts or omissions occurring prior to
such amendment or repeal. Maryland law permits the Company to provide
indemnification to an officer to the same extent as a director, although
additional indemnification may be provided if such officer is not also a
director.
The MGCL permits the articles of incorporation of a Maryland
corporation to include a provision limiting the liability of its directors and
officers to the corporation and its stockholders for money damages, with
specified exceptions. The MGCL does not, however, permit the liability of
directors and officers to the corporation or its stockholders to be limited to
the extent that (1) it is proved that the person actually received an improper
benefit or profit in money, property or services (to the extent such benefit or
profit was received) or (2) a judgment or other final adjudication adverse to
such person is entered in a proceeding based on a finding that the person's
action, or failure to act, was the result of active and deliberate dishonesty
and was material to the cause of action adjudicated in the proceeding. The
Articles of Incorporation of the Company contain a provision consistent with the
MGCL. No amendment of the Articles of Incorporation shall limit or eliminate the
limitation of liability with respect to acts or omissions occurring prior to
such amendment or repeal.
II-1
<PAGE>
The Partnership Agreement of the Operating Partnership also
provides for indemnification of the Company and its officers and directors to
the same extent indemnification is provided to officers and directors of the
Company in its Articles of Incorporation, and limits the liability of the
Company and its officers and directors to the Operating Partnership and its
partners to the same extent liability of officers and directors of the Company
to its stockholders is limited under the Company's Articles of Incorporation.
The Company has entered into indemnification agreements with
each of its directors and officers. The indemnification agreements require,
among other things, that the Company indemnify its directors and officers to the
fullest extent permitted by law, and advance to the directors and officers all
related expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. The Company also must indemnify and advance
all expenses incurred by directors and officers seeking to enforce their rights
under the indemnification agreements, and cover directors and officers under the
Company's directors' and officers' liability insurance. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by provisions of the Articles of Incorporation and the bylaws and the
Partnership Agreement of the Operating Partnership, it provides greater
assurance to directors and officers that indemnification will be available,
because, as a contract, it cannot be modified unilaterally in the future by the
Board of Directors or by the stockholders to eliminate the rights it provides.
Item 16. Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
1.1 Form of Underwriting Agreement for equity securities (1)
4.1 Form of Common Stock Certificate
4.2 Form of Common Stock Warrant Agreement (1)
4.3 Form of Articles Supplementary for the Preferred Stock (1)
4.4 Form of Preferred Stock Certificate (1)
4.7 Form of Preferred Stock Warrant Agreement (1)
5.1 Opinion of Ballard Spahr Andrews & Ingersoll regarding the validity of the securities being registered
8.1 Opinion of Pryor, Cashman, Sherman & Flynn regarding tax matters
12.1 Calculation of Ratios of Earnings to Fixed Charges
23.1 Consent of Ballard Spahr Andrews & Ingersoll (included as part of Exhibit 5.1)
23.2 Consent of Pryor, Cashman, Sherman & Flynn (included as part of Exhibit 8.1)
23.3 Consent of Price Waterhouse LLP
23.4 Consent of Ernst & Young LLP
23.5 Consent of Ernst & Young LLP
23.6 Consent of Schonbraun Safris Sternlieb & Co., L.L.C.
</TABLE>
- -------------
(1) To be filed by amendment.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the Closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt deliver to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of a registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of the registration statement as of
the time it was declared effective.
II-2
<PAGE>
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The undersigned Registrant also hereby undertakes:
(1) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that its incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering hereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted against the Registrant by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York on this 16th day of
January, 1998.
CALI REALTY CORPORATION
By: /s/ Thomas A. Rizk
------------------------------
Thomas A. Rizk
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
Chief Executive Officer
/s/ Thomas A. Rizk and Director January 16, 1998
- -------------------------------
THOMAS A. RIZK
President, Chief Operating
/s/ Mitchell E. Hersh Officer and Director January 16, 1998
- -------------------------------
MITCHELL E. HERSH
Executive Vice President
and Chief Financial
/s/ Barry Lefkowitz Officer January 16, 1998
- -------------------------------
BARRY LEFKOWITZ
/s/ John J. Cali Chairman of the Board January 16, 1998
- -------------------------------
JOHN J. CALI
/s/ William L. Mack Director January 16, 1998
- -------------------------------
WILLIAM L. MACK
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Brendan T. Byrne Director January 16, 1998
- -------------------------------
BRENDAN T. BYRNE
/s/ Martin D. Gruss Director January 16, 1998
- -------------------------------
MARTIN D. GRUSS
/s/ Jeffrey B. Lane Director January 16, 1998
- -------------------------------
JEFFREY B. LANE
/s/ Earle I. Mack Director January 16, 1998
- -------------------------------
EARLE I. MACK
/s/ Paul A. Nussbaum Director January 16, 1998
- -------------------------------
PAUL A. NUSSBAUM
/s/ Alan G. Philibosian Director January 16, 1998
- -------------------------------
ALAN G. PHILIBOSIAN
/s/ Irvin D. Reid Director January 16, 1998
- -------------------------------
IRVIN D. REID
/s/ Vincent Tese Director January 16, 1998
- -------------------------------
VINCENT TESE
/s/ Robert F. Weinberg Director January 16, 1998
- -------------------------------
ROBERT F. WEINBERG
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description numbered page
- ----------- ----------- -------------
<S> <C> <C>
1.1 Form of Underwriting Agreement for equity
securities(1)
4.1 Form of Common Stock Certificate
4.2 Form of Common Stock Warrant Agreement(1)
4.3 Form of Articles Supplementary for the Preferred
Stock(1)
4.4 Form of Preferred Stock Certificate(1)
4.7 Form of Preferred Stock Warrant Agreement(1)
5.1 Opinion of Ballard Spahr Andrews & Ingersoll
regarding the validity of the securities being
registered
8.1 Opinion of Pryor, Cashman, Sherman & Flynn
regarding tax matters
12.1 Calculation of Ratios of Earnings to Fixed Charges
23.1 Consent of Ballard Spahr Andrews & Ingersoll
(included as part of Exhibit 5.1)
23.2 Consent of Pryor, Cashman, Sherman & Flynn
(included as part of Exhibit 8.1)
23.3 Consent of Price Waterhouse LLP
23.4 Consent of Ernst & Young LLP
23.5 Consent of Ernst & Young LLP
23.6 Consent of Schonbraun Safris Sternlieb & Co., L.L.C.
</TABLE>
- ---------------
(1) To be filed by amendment.
<PAGE>
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
$.01 PAR VALUE $.01 PAR VALUE
[GRAPHIC: FOUR PEOPLE IN FRONT OF LANDSCAPE/CITYSCAPE]
NUMBER SHARES
- ------ ------
CUSIP 554489 10 4
SEE REVERSE SIDE FOR DEFINITIONS
MACK-CALI REALTY CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
This Certifies that
Is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
Mack-Cali Realty Corporation (hereinafter called the "Corporation"),
transferable on the books of the Corporation by the registered holder hereof in
person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
In Witness Whereof, the Corporation has caused the facsimile signatures
of its duly authorized officers to be affixed hereto.
Dated:
/s/ Secretary [CORPORATE SEAL] /s/ President
Countersigned and Registered
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
Transfer Agent
By and Registrar
Authorized Signature
<PAGE>
MACK-CALI REALTY CORPORATION
The Corporation will furnish to any stockholder on request and without
charge a full statement of the designations and any preferences, conversion
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the stock of each
class which the Corporation is authorized to issue, of the differences in the
relative rights and preferences between the shares of each series of a preferred
or special class in series which the Corporation is authorized to issue, to the
extent they have been set, and of the authority of the Board of Directors to set
the relative rights and preferences of subsequent series of a preferred or
special class of stock. Such request may be made to the secretary of the
Corporation or to its transfer agent.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
--------------------
(Cust) (Minor)
under Uniform Gifts to Minors Act
TEN ENT - as tenants by the entireties
--------------------
(State)
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not on the above list.
For value received, ____________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY NUMBER OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------------
- --------------------------------------------- -------------------------------
- -----------------------------------------------------------------------------
(Please print or typewrite name and address including postal zip code of
assignee)
- -----------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
represented by the within Certificate, and do hereby irrevocably constitute
and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated:
------------------
Signature(s)
-----------------------------
Signature Guaranteed By:
- ------------------------
NOTICE: The signature(s) to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement or any change whatever.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL]
January 16, 1998
Mack-Cali Realty Corporation
11 Commerce Drive
Cranford, New Jersey 07016
Re: Mack-Cali Realty Corporation (the "Company") - Registration Statement
on Form S-3 pertaining to $2,000,000,000 maximum aggregate initial
offering price of (i) shares of common stock of the Company, par value
$.01 per share ("Common Stock"); (ii) shares of preferred stock of the
Company, par value $.01 per share ("Preferred Stock"); and (iii)
warrants to purchase shares of Common Stock or shares of Preferred
Stock ("Warrants")
---------------------------------------------------------------------
Ladies and Gentlemen:
In connection with the registration of shares of Common Stock, shares of
Preferred Stock, and Warrants (collectively the "Securities") under the
Securities Act of 1933, as amended (the "Act") by the Company on Form S-3, filed
with the Securities and Exchange Commission (the "Commission") on or about
January 16, 1998 (the "Registration Statement"), you have requested our opinion
with respect to the matter set forth below. Capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Registration
Statement.
We have acted as special Maryland corporate counsel to the Company in
connection with the matters described herein. In our capacity as special
Maryland corporate counsel to the Company, we have reviewed and are familiar
with the charter of the Company (the "Charter"), consisting of the Articles of
Incorporation filed with the State Department of Assessments and Taxation of
Maryland (the "Department") on May 24, 1994, Articles of Amendment and
Restatement filed with the Department on July 28, 1994, Articles of Amendment
and Restatement filed with the Department on August 9, 1994, Articles of
Amendment filed with the Department on May 31, 1996, Articles of Amendment filed
with the Department on June 13, 1997 and Articles of Amendment filed with the
Department on December 11, 1997, the Bylaws of the Company duly adopted by the
Board of Directors of the Company on August 9, 1994 (the "Bylaws") and certain
resolutions adopted and actions taken by the Board of
<PAGE>
Mack-Cali Realty Corporation
January 16, 1998
Page 2
Directors of the Company (the "Board of Directors") on or before the date hereof
and in full force and effect on the date hereof including, but not limited to,
those certain resolutions adopted by the Board of Directors on January 14, 1998.
We have also examined other documents, corporate and other records of the
Company and certificates of public officials and officers of the Company
including, without limitation, a status certificate of recent date issued by the
Department to the effect that the Company is duly incorporated and existing
under the laws of the State of Maryland, and a Certificate of Officer of the
Company of recent date to the effect that, among other things, the Charter and
Bylaws of the Company and the resolutions and actions by the Board of Directors
which we have examined are true, correct and complete, have not been rescinded
or modified and are in full force and effect on the date of such certificate. We
have also made such further legal and factual examinations as we have deemed
necessary or appropriate to provide a basis for the opinion set forth below.
In reaching the opinions set forth below, we have assumed the following:
(a) each person executing any instrument, document or agreement on behalf of any
party (other than the Company) is duly authorized to do so; (b) each natural
person executing any instrument, document or agreement is legally competent to
do so; (c) all documents submitted to us as originals are authentic; all
documents submitted to us as certified, facsimile or photostatic copies conform
to the original document; all signatures on all documents submitted to us for
examination are genuine and all public records reviewed are accurate and
complete; (d) the resolutions adopted and to be adopted, and the actions taken
and to be taken by the Board of Directors including, but not limited to, the
adoption of all resolutions and the taking of all action necessary to authorize
the issuance and sale of the Securities in accordance with the procedures set
forth in paragraphs 1, 2 and 3 below, have occurred or will occur at duly called
meetings at which a quorum of the incumbent directors of the Company were or are
present and acting throughout, or by unanimous written consent of all incumbent
directors, all in accordance with the Charter and Bylaws of the Company and
applicable law; (e) the number of shares of Common Stock to be offered and sold
under the Registration Statement, together with the number of shares of
Preferred Stock and the number of shares of Common Stock issuable upon exercise
of the Warrants, will not, in the aggregate, exceed the number of shares of
Preferred Stock, and the number of shares of Preferred Stock and the number of
shares of Common Stock, respectively, authorized in the Charter of the Company,
less the number of shares of Preferred Stock and the number of shares of Common
Stock, respectively, authorized and reserved for issuance and issued and
outstanding on the date on which the Securities are authorized, the date on
which
<PAGE>
Mack-Cali Realty Corporation
January 16, 1998
Page 3
the Securities are issued and delivered, the date on which the Warrants are
exercised and the date on which shares of Preferred Stock and shares of Common
Stock, respectively, are issued pursuant to exercise of Warrants: (f) none of
the terms of any Security to be established subsequent to the date hereof, nor
the issuance and delivery of such Security nor the compliance by the Company
with the terms of such Security will violate any applicable law or will conflict
with, or result in a breach or violation of, the Charter or Bylaws of the
Company, or any instrument or agreement to which the Company is a party or by
which the Company is bound or any order of decree of any court, administrative
or governmental body having jurisdiction over the Company; and (g) none of the
Securities, and none of the shares of Preferred Stock or shares of Common Stock
issuable upon exercise of the Warrants, will be issued in violation of the
provisions of Article VI, Section 2 of the Charter.
Based on the foregoing, and subject to the assumptions and qualifications
set forth herein, it is our opinion that:
1. Upon due authorization by the Board of Directors of a designated
number of shares of Common Stock for issuance at a minimum price or value of
consideration to be set by the Board of Directors, all necessary corporate
action on the part of the Company will have been taken to authorize the issuance
and sale of such shares of Common Stock, and when such shares of Common Stock
are issued and delivered against payment of the consideration therefor as set by
the Board of Directors, such shares of Common Stock will be validly issued,
fully paid and non-assessable.
2. Upon (a) designation by the Board of Directors of one or more classes
of Preferred Stock to distinguish each such class from other then outstanding
classes of Preferred Stock, (b) setting by the Board of Directors of the number
of shares of Preferred Stock to be included in each such class, (c)
establishment by the Board of Directors of the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption of each such class of Preferred Stock,
(d) filing by the Company with the Department of Articles Supplementary setting
forth a description of each such class of Preferred Stock, including the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption as set by the Board of Directors and a statement that the Preferred
Stock has been classified by the Board of Directors under the authority
contained in the Charter, and the acceptance for record by the Department of
such Articles Supplementary and (e) due authorization by the Board of Directors
<PAGE>
Mack-Cali Realty Corporation
January 16, 1998
Page 4
of a designated number of shares of Preferred Stock for issuance at a minimum
price or value of consideration to be set by the Board of Directors, all
necessary corporate action on the part of the Company will have been taken to
authorize the issuance and sale of such shares of Preferred Stock and when such
shares of Preferred Stock are issued and delivered against payment of the
consideration therefor as set by the Board of Directors, such shares of
Preferred Stock will be validly issued, fully paid and non-assessable.
3. Upon (a) designation and titling by the Board of Directors of the
Warrants, (b) setting by the Board of Directors of the number of Warrants to be
issued, (c) establishment by the Board of Directors of the terms, conditions and
provisions of the Warrants, (d) due authorization by the Board of Directors of
the Warrants for issuance at a minimum price or value of consideration to be set
by the Board of Directors, (e) reservation and due authorization by the Board of
Directors of the shares of Common Stock and the shares of Preferred Stock of the
Company issuable upon exercise of such Warrants in accordance with the
procedures set forth in paragraphs 1 and 2 above, at a minimum price or value of
consideration to be set by the Board of Directors, all necessary corporate
action on the part of the Company will have been taken to authorize the issuance
and sale of the Warrants, and when such Warrants are issued and delivered
against payment of the consideration therefor as set by the Board of Directors,
in accordance with the authorization by the Board of Directors and the terms of
any Warrants Agreement, and authenticated by the Warrant Agent, such Warrants
will constitute valid and binding obligations of the Company, subject to
bankruptcy, insolvency, reorganization and other laws affecting the rights of
creditors generally and the exercise of judicial discretion in accordance with
general principles of equity.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and further consent to the filing of this opinion as an exhibit to
applications to the securities commissioners of the various states of the United
States for registration of the Securities. We also consent to the identification
of our firm as Maryland counsel to the Company in the section of the Prospectus
(which is a part of the Registration Statement) entitled "Legal Matters."
This opinion is limited to the present corporate laws of the State of
Maryland and we express no opinion with respect to the laws of any other
jurisdiction. Furthermore, the opinions presented in this letter are limited to
the matters specifically set forth herein and no other opinion shall be inferred
beyond the
<PAGE>
Mack-Cali Realty Corporation
January 16, 1998
Page 5
matters expressly set forth herein. Without limiting the generality of the
foregoing, we express no opinion with respect to any securities laws.
The opinions set forth in this letter are rendered as of the date hereof
and are necessarily limited to laws now in effect and facts and circumstances
presently existing and brought to our attention. We assume no obligation to
supplement this opinion if any applicable law is changed after the date hereof
or if we become aware of any facts or circumstances which now exist or which
occur or arise in the future and may change the opinions expressed herein after
the date hereof.
The opinions expressed in this letter are for your use and the use of your
securities counsel, Pryor, Cashman, Sherman & Flynn in connection with the
filing of the Registration Statement and the rendering of opinions by Pryor,
Cashman, Sherman & Flynn in connection therewith, and may not be relied upon by
you or Pryor, Cashman, Sherman & Flynn for any other purpose, without our prior
written consent.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll
<PAGE>
EXHIBIT 8.1
January 16, 1998
Mack-Cali Realty Corporation
11 Commerce Drive
Cranford, NJ 07016
Re: Certain Federal Income Tax Matters
----------------------------------
Ladies and Gentlemen:
We have acted as tax counsel to Mack-Cali Realty Corporation (the
"Company") in connection with the Prospectus included as part of that certain
Registration Statement on Form S-3 filed with the Securities and Exchange
Commission and as amended through the date hereof (the "Registration
Statement"). In connection therewith, you have requested our opinion with
respect to the qualification of the Company as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended (the "Code") and
the accuracy of the discussion included in the Registration Statement under the
heading "Certain United States Federal Income Tax Considerations to the Company
of its REIT Election."
We hereby consent to the use of our opinions as an Exhibit to the
Registration Statement and to any and all references to our firm in the
Prospectus that is a part of the Registration Statement, which Prospectus will
be delivered to prospective purchasers of securities of the Company, and we
hereby consent to such use of our opinion. All defined terms used herein shall
have the same meaning as used in the Registration Statement.
FACTS AND ASSUMPTIONS RELIED UPON
---------------------------------
In rendering the opinions expressed herein, we have examined the
Articles of Incorporation and Bylaws of the Company, and such other records,
certificates and documents as we have deemed necessary or appropriate for
purposes of rendering the opinions set forth herein.
In our examination of documents, we have assumed, with your consent,
that all documents submitted to us are authentic originals, or if submitted as
photocopies, that they faithfully reproduce the originals thereof, that all such
documents have been or will be duly executed to the extent required, that all
representations and statements set forth in such documents are true and correct,
and that all obligations imposed by any such on the parties thereto have been or
will be performed or satisfied in accordance with their terms. We have also
assumed, without investigation, that all documents, certificates, warranties and
covenants on which we have relied in rendering the opinions set forth below and
that were given or dated earlier than the date of this letter continue to remain
accurate, insofar as relevant to the opinions set forth herein, from such
earlier date through and including the date of this letter.
We have reviewed the Registration Statement and the descriptions set
forth therein of the Company and its investments and activities. We have relied
upon the representations of the Company and its affiliates regarding the manner
in which the Company has been and will continue to be owned and operated. We
have also relied upon the representations of the accountants for the Company
regarding the type and amount of income received by the Company during its
taxable year ended December 31, 1996 and the character and amount of
distributions made with respect to its taxable year ended December 31, 1996, and
the representations similarly made with respect to prior years of the Company.
We note that for its taxable year ending December 31, 1995 and 1996, the Company
elected to treat consent dividends declared in January 1996 and January 1997,
respectively, as having been paid during its 1995 and 1996 taxable years
pursuant to Section 858 of the Code. We have neither independently investigated
nor verified such representations, and we assume that such representations are
true, correct and complete and that all
<PAGE>
representations made "to the best of the knowledge and belief" of any person(s)
or party(ies) are and will be true, correct and complete as if made without such
qualification. We assume that the Company has been and will be operated in
accordance with applicable laws and the terms and conditions of applicable
documents, and the descriptions of the Company and its investments, and the
proposed investments, activities, operations and governance of the Company set
forth in the Registration Statement continue to be true. In addition, we have
relied on certain additional facts and assumptions described below.
The foregoing representations have all been made to us as of the date
hereof by officers and representatives of the Company. No facts have come to our
attention that are inconsistent with such facts and representations.
OPINIONS
--------
Based upon and subject to the foregoing, we are of the following
opinions:
1. Assuming that a timely election for REIT status has been made, the
Company has been organized in conformity with the requirements for qualification
as a REIT under the Code, and its method of operation as described in the
representations referred to above, will enable it to continue to meet the
requirements for qualification and taxation as a REIT under the Code.
2. The discussion contained in that portion of the Registration
Statement under the caption "Certain United States Federal Income Tax
Considerations to the Company of its REIT Election" fairly summarizes the
federal income tax considerations that are likely to be material to a holder of
common stock.
The opinions expressed herein are based upon the Code, the Treasury
Regulations promulgated thereunder, current administrative positions of the
Internal Revenue Service, and existing judicial decisions, any of which could be
changed at any time, possibly on a retroactive basis. Any such changes could
adversely affect the opinions rendered herein and the tax consequences to the
Company and the investors in the common stock. In addition, as noted above, our
opinions are based solely on the documents that we have examined, the additional
information that we have obtained, and the representations that are being made
to us, and cannot be relied upon if any of the facts contained in such documents
or in such additional information are, or later become, inaccurate or if any of
the representations made to us are, or later become, inaccurate.
We express no opinion with respect to the Registration Statement other
than those expressly set forth herein. Furthermore, the Company's qualification
as a REIT will depend on the Company meeting, in its actual operations, the
applicable asset composition, source of income, shareholder diversification,
distribution, recordkeeping and other requirements of the Code necessary for a
corporation to qualify as a REIT. We will not review these operations, and no
assurance can be given that the actual operations of the Company and its
affiliates will meet these requirements or the representations made to us with
respect thereto.
Finally, our opinion is limited to the tax matters specifically covered
hereby, and we have not been asked to address, nor have we addressed, any other
tax consequences of an investment in the common stock.
Very truly yours,
/s/ Pryor, Cashman, Sherman &
Flynn
<PAGE>
EXHIBIT 12.1
MACK-CALI REALTY CORPORATION
Computation of Ratios of Earnings to Fixed Charges
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Mack-Cali Realty Corporation
----------------------------------
For the Nine For the For the
Mos. Ended Yr. Ended Yr. Ended
9/30/97 12/31/96 12/31/95
------- -------- --------
<S> <C> <C> <C>
Income (Loss) before gain on sale of
property, minority interest and
extraordinary item (A) $58,105 $31,521 $17,146
Add:
Interest expense 28,398 13,758 10,117
Interest portion (33 percent) of ground rents
on land leases - - -
------- -------- --------
Income before gain on sale of property,
minority interest, and extraordinary item,
as adjusted (B) $86,503 $45,279 $27,263
======= ======== =========
Fixed Charges:
Interest expense 28,398 13,758 10,117
Interest portion (33 percent) of ground rents
on land leases - - -
Capitalized interest costs 378 118 27
------- -------- --------
Total fixed charges $28,776 $13,876 $10,144
======= ======== =========
Ratio of earnings to fixed charges 3.01 3.26(E) 2.69
===== ===== =====
Deficiency of earnings to fixed charges(D)
</TABLE>
<TABLE>
<CAPTION>
Mack-Cali
Realty Corporation Cali Group Combined
----------------- ---------------------------------------------------
For the Period For the Period Year Ended December 31,
August 31, 1994 to January 1, 1994 -----------------------
December 31, 1994 to August 30, 1994 1993 1992
----------------- ---------------------- ---- ----
<S> <C> <C> <C> <C>
Income (Loss) before gain on sale of
property, minority interest and
extraordinary item (A) $4,990 $ (110) $(1,064) $(2,172)
Add:
Interest expense 2,342 13,829 21,950 22,126
Interest portion (33 percent) of ground rents
on land leases - 194 326 385
------ ------- ------- -------
Income before gain on sale of property,
minority interest, and extraordinary item,
as adjusted (B) $7,332 $13,913 $21,212 $20,339
====== ======= ======= =======
Fixed Charges:
Interest expense 2,342 13,829 21,950 22,126
Interest portion (33 percent) of ground rents
on land leases - 194 326 385
Capitalized interest costs - - - -
------ ------- ------- -------
Total fixed charges $2,342 $14,023 $22,276 $22,511
====== ======= ======= =======
Ratio of earnings to fixed charges 3.13 (C) (C) (C)
=====
Deficiency of earnings to fixed charges(D) $ (110) $(1,064) $(2,172)
======== ======= ========
</TABLE>
- ---------------
(A) Represents pre-tax income (loss) before gain on sale of property, minority
interest and extraordinary item.
(B) Represents earnings before fixed charges.
(C) The ratio of earnings to fixed charges was less than 1.00 reflecting the
fact that earnings for the period were not adequate to cover fixed
charges.
(D) Represents the amounts by which earnings for the period were not adequate
to cover fixed charges.
(E) Represents the ratio of earnings to fixed charges, excluding gain on sale
of rental property of $5,658. The ratio of earnings to fixed charges,
including gain on sale of rental property, was 3.67.
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
February 18, 1997, appearing in Cali Realty Corporation's Annual Report on Form
10-K for the year ended December 31, 1996. We also consent to the incorporation
by reference in this Registration Statement of our report dated September 15,
1997, except as to Note 12, which is as of October 30, 1997, relating to the
combined financial statements of The Mack Group, for each of the three years in
the period ended December 31, 1996, included in Cali Realty Corporation's Proxy
Statement filed on November 10, 1997. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
January 16, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 dated January 16, 1998 and related Prospectus
of Mack-Cali Realty Corporation for the registration of $2,000,000,000 of its
preferred stock, common stock and warrants and to the incorporation by reference
therein of our report dated February 21, 1997, with respect to the combined
financial statements of Robert Martin Group included in the Current Report on
Form 8-K/A of Cali Realty Corporation dated March 28, 1997, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, New York
January 16, 1998
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference therein of our report dated March 19, 1997, except
for Note 9, for which the date is October 2, 1997, with respect to the Combined
Financial Statements of the Patriot American Office Group included in the Proxy
Statement of Cali Realty Corporation dated November 10, 1997, filed with the
Securities and Exchange Commission incorporated by reference in the Registration
Statement on Form S-3 of Mack-Cali Realty Corporation for the registration of
$2,000,000,000 of Preferred Stock, Common Stock and Warrants.
/s/ Ernst & Young LLP
Ernst & Young LLP
Dallas, Texas
January 15, 1998
<PAGE>
Exhibit 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on form S-3 of our report dated May 20, 1997 on our audited Statement
of Revenue and Certain Expenses for Westlakes Office Park, of our report dated
August 8, 1997 on our audited Statement of Revenue and Certain Expenses for
First Shelton Place, and of our report dated September 3, 1997 on our audited
Statement of Revenue and Certain Expenses for Three Independence Way, appearing
in Cali Realty Corporation's Current Report on Form 8-K, dated September 18,
1997. We also consent to the incorporation by reference in this Registration
Statement of our report dated October 10, 1997 on our audited Statement of
Revenue and Certain Expenses for the McGarvey Portfolio, of our report dated
October 15, 1997 on our audited Statement of Revenue and Certain Expenses for
Princeton Overlook, of our report dated November 18, 1997 on our audited
Statement of Revenue and Certain Expenses for Concord Plaza, of our report dated
November 21, 1997 on our audited Statement of Revenue and Certain Expenses for
The Trooper Building, and of our report dated December 22, 1997 on our audited
Statement of Revenue and Certain Expenses for 500 West Putnam, appearing in
Mack-Cali Realty Corporation's Current Report on Form 8-K, dated January 16,
1998. We also consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ Schonbraun Safris Sternlieb & Co., L.L.C.
Schonbraun Safris Sternlieb & Co., L.L.C.
Roseland, New Jersey
January 16, 1998
