15.MACK-CALI REALTY, L.P.’S PARTNERS’ CAPITAL

Partners’ Capital in the accompanying consolidated financial statements relates to (a) General Partners’ capital consisting of common units in the Company held by the General Partner, and (b) Limited Partners’ capital consisting of common units and LTIP Units held by the limited partners.

Any transactions resulting in the issuance of additional common and preferred stock of the Corporation result in a corresponding issuance by the Company of an equivalent amount of common and preferred units to the Corporation.

GENERAL PARTNERS’ CAPITAL

REPURCHASE OF GENERAL PARTNER UNITS

In September 2012, the Corporation’s Board of Directors renewed and authorized an increase to the Corporation’s repurchase program (“Repurchase Program”). The Corporation has authorization to repurchase up to $150 million of its outstanding common stock under the renewed Repurchase Program, which it may repurchase from time to time in open market transactions at prevailing prices or through privately negotiated transactions. The Corporation has purchased and retired 394,625 shares of its outstanding common stock for an aggregate cost of approximately $11 million (all of which occurred in the year ended December 31, 2012), with a remaining authorization under the Repurchase Program of $139 million. Concurrent with these purchases, the Corporation sold to the Company 394,625 common units for approximately $11 million.

DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN

The Corporation has a Dividend Reinvestment and Stock Purchase Plan (the “DRIP”) which commenced in March 1999 under which approximately 5.5 million shares of the Corporation’s common stock have been reserved for future issuance. The DRIP provides for automatic reinvestment of all or a portion of a participant’s dividends from the Corporation’s shares of common stock. The DRIP also permits participants to make optional cash investments up to $5,000 a month without restriction and, if the Corporation waives this limit, for additional amounts subject to certain restrictions and other conditions set forth in the DRIP prospectus filed as part of the Corporation’s effective registration statement on Form S-3 filed with the SEC for the approximately 5.5 million shares of the Corporation’s common stock reserved for issuance under the DRIP.

STOCK OPTION PLANS

In May 2013, the Corporation established the 2013 Incentive Stock Plan (the “2013 Plan”) under which a total of 4,600,000 shares have been reserved for issuance. In September 2000, the Corporation established the 2000 Employee Stock Option Plan (“2000 Employee Plan”) and the Amended and Restated 2000 Director Stock Option Plan (“2000 Director Plan” and together with the 2000 Employee Plan, the “2000 Plans”). In May 2002, shareholders of the Corporation approved amendments to both of the 2000 Plans to increase the total shares reserved for issuance under both of the 2000 Plans from 2,700,000 to 4,350,000 shares of the Corporation’s common stock (from 2,500,000 to 4,000,000 shares under the 2000 Employee Plan and from 200,000 to 350,000 shares under the 2000 Director Plan). As the 2000 Plans expired in 2010, stock options may no longer be issued under those plans. Stock options granted under the 2000 Employee Plan became exercisable over a five-year period. All stock options granted under the 2000 Director Plan became exercisable in one year. All options were granted at the fair market value at the dates of grant and have terms of 10 years. As of March 31, 2016 and December 31, 2015, the stock options outstanding had a weighted average remaining contractual life of approximately 9.2 and 9.4 years, respectively.

On June 5, 2015, in connection with employment agreements entered into with each of Messrs. Rudin and DeMarco (together, the “Executive Employment Agreements”), the Corporation granted options to purchase a total of 800,000 shares of the Corporation’s common stock, exercisable for a period of ten years with an exercise price equal to the closing price of the Corporation’s common stock on the grant date of $17.31 per share, with 400,000 of such options vesting in three equal annual installments commencing on the first anniversary of the grant date (“Time Vesting Options”), and 400,000 of such options vesting if the Corporation’s common stock trades at or above $25.00 per share for 30 consecutive trading days while the executive is employed (“Price Vesting Options”), or on or before June 30, 2019, subject to certain conditions.

Information regarding the Corporation’s stock option plans is summarized below:



			Weighted		Aggregate
			Average		Intrinsic
	Shares		Exercise		Value
	Under Options		Price		$(000’s)
Outstanding at January 1, 2016	805,000	$	17.33	$	4,843
Lapsed or Cancelled	-		-
Outstanding at March 31, 2016 ($17.31 – $21.25)	805,000	$	17.33	$	4,963
Options exercisable at March 31, 2016	5,000
Available for grant at March 31, 2016	2,722,338

There were no stock options exercised under all stock option plans for the three months ended March 31, 2016 and 2015, respectively. The Corporation has a policy of issuing new shares to satisfy stock option exercises.

The Company recognized stock options expense of $183,000 and $1,000 for the three months ended March 31, 2016 and 2015, respectively.

RESTRICTED STOCK AWARDS

The Corporation has issued stock awards (“Restricted Stock Awards”) to officers, certain other employees, and non-employee members of the Board of Directors of the Corporation, which allow the holders to each receive a certain amount of shares of the Corporation’s common stock generally over a one to seven-year vesting period, of which 90,090 unvested shares were legally outstanding at March 31, 2016. Vesting of the Restricted Stock Awards issued to executive officers and certain other employees is based on time and service.

On June 5, 2015, in connection with the Executive Employment Agreements, the Corporation granted a total of 37,550.54 Restricted Stock Awards, which were valued in accordance with ASC 718 – Stock Compensation, at their fair value. These awards are scheduled to vest equally over a three-year period on each annual anniversary date of the grant date.

All currently outstanding and unvested Restricted Stock Awards provided to the officers, certain other employees, and members of the Board of Directors of the Corporation were issued under the 2013 Plan.

Information regarding the Restricted Stock Awards grant activity is summarized below:



			Weighted-Average
			Grant – Date
	Shares		Fair Value
Outstanding at January 1, 2016	136,220	$	19.36
Granted	36,870		21.70
Vested	(45,449)		19.16
Outstanding at March 31, 2016	127,641	$	20.11

As of March 31, 2016, the Company had $1.3 million of total unrecognized compensation cost related to unvested Restricted Stock Awards granted under the Corporation’s stock compensation plans. That cost is expected to be recognized over a weighted average period of 0.8 years.

PERFORMANCE SHARE UNITS

On June 5, 2015, in connection with the Executive Employment Agreements, the Corporation granted a total of 112,651.64 performance share units (“PSUs”) which will vest from 0 to 150 percent of the number of PSUs granted based on the Corporation’s total shareholder return relative to a peer group of equity office REITs over a three-year performance period starting from the grant date, each PSU evidencing the right to receive a share of the Corporation’s common stock upon vesting. The PSUs are also entitled to the payment of dividend equivalents in respect of vested PSUs in the form of additional PSUs. The PSUs were valued in accordance with ASC 718, Compensation - Stock Compensation, at their fair value on the grant date, utilizing a Monte-Carlo simulation to estimate the probability of the vesting conditions being satisfied.

The Corporation has reserved shares of common stock under the 2013 Plan for issuance upon vesting of the PSUs in accordance with their terms and conditions.

As of March 31, 2016, the Company had $1.1 million of total unrecognized compensation cost related to unvested PSUs granted under the Corporation’s stock compensation plans. That cost is expected to be recognized over a weighted average period of 2.2 years.

LONG-TERM INCENTIVE PLAN AWARDS

On March 8, 2016, the Company granted Long-Term Incentive Plan (“LTIP”) awards to senior management of the Corporation, including all of the Corporation’s executive officers (the “2016 LTIP Awards”). All of the 2016 LTIP Awards were in the form of units in the Operating Partnership (“LTIP Units”) and constitute awards under the 2013 Plan. For Messrs. Rudin, DeMarco and Tycher, approximately 25 percent of the target 2016 LTIP Award was in the form of a time-based award that will vest after three years on March 8, 2019 (the “2016 TBV LTIP Units”), and the remaining approximately 75 percent of the target 2016 LTIP Award was in the form of a performance-based award under a new Outperformance Plan (the “2016 OPP”) adopted by the Corporation’s Board of Directors consisting of a multi-year, performance-based equity compensation plan and related forms of award agreement (the “2016 PBV LTIP Units”). For all other executive officers, approximately 40 percent of the target 2016 LTIP Award was in the form of 2016 TBV LTIP Units and the remaining approximately 60 percent of the target 2016 LTIP Award was in the form of 2016 PBV LTIP Units.

The 2016 OPP is designed to align the interests of senior management to relative and absolute performance of the Corporation over a three-year performance period from March 8, 2016 through March 7, 2019. The senior management team that received 2016 LTIP Awards includes the Corporation’s eight executive officers. Participants in the 2016 OPP will only earn the full awards if, over the three-year performance period, the Corporation achieves a 50 percent absolute total stockholder return (“TSR”) and if the Corporation is in the 75th percentile of performance versus the NAREIT Office Index.

LTIP Units will remain subject to forfeiture depending on the extent that the 2016 LTIP Awards vest. The number of LTIP Units to be issued initially to recipients of the 2016 PBV LTIP Awards is the maximum number of LTIP Units that may be earned under the awards. The number of LTIP Units that actually vest for each award recipient will be determined at the end of the performance measurement period. TSR for the Corporation and for the Index over the three-year measurement period and other circumstances will determine how many LTIP Units vest for each recipient; if they are fewer than the number issued initially, the balance will be forfeited as of the performance measurement date.

Prior to vesting, recipients of LTIP Units will be entitled to receive per unit distributions equal to one-tenth (10 percent) of the regular quarterly distributions payable on a common unit of limited partnership interest in the Operating Partnership (a “common unit”), but will not be entitled to receive any special distributions. Distributions with respect to the other nine-tenths (90 percent) of regular quarterly distributions payable on a common unit will accrue but shall only become payable upon vesting of the LTIP Unit. After vesting of the 2016 TBV LTIP Units or the end of the measurement period for the 2016 PBV LTIP Units, the number of LTIP Units, both vested and unvested, will be entitled to receive distributions in an amount per unit equal to distributions, both regular and special, payable on a common unit.

The Company granted a total of 499,756 PBV LTIP Units and 157,617 TBV LTIP Units. The LTIP Units were valued in accordance with ASC 718 – Stock Compensation, at their fair value. The Corporation has reserved shares of common stock under the 2013 Plan for issuance upon vesting and conversion of the LTIP Units in accordance with their terms and conditions.

As of March 31, 2016, the Company had $8.7 million of total unrecognized compensation cost related to unvested 2016 LTIP Awards granted under the Corporation’s stock compensation plans. That cost is expected to be recognized over a weighted average period of 3.4 years.

DEFERRED STOCK COMPENSATION PLAN FOR DIRECTORS

The Amended and Restated Deferred Compensation Plan for Directors, which commenced January 1, 1999, allows non‑employee directors of the Corporation to elect to defer up to 100 percent of their annual retainer fee into deferred stock units. The deferred stock units are convertible into an equal number of shares of common stock upon the directors’ termination of service from the Board of Directors or a change in control of the Corporation, as defined in the plan. Deferred stock units are credited to each director quarterly using the closing price of the Corporation’s common stock on the applicable dividend record date for the respective quarter. Each participating director’s account is also credited for an equivalent amount of deferred stock units based on the dividend rate for each quarter.

During the three months ended March 31, 2016 and 2015, 4,373 and 5,002 deferred stock units were earned, respectively. As of March 31, 2016 and December 31, 2015, there were 182,463 and 178,039 deferred stock units outstanding, respectively.

LIMITED PARTNERS’ CAPITAL

Common Units

Certain individuals and entities own common units in the Company. A common unit and a share of Common Stock of the Corporation have substantially the same economic characteristics in as much as they effectively share equally in the net income or loss of the Company. Common unitholders (other than the General Partner) have the right to redeem their common units, subject to certain restrictions. The redemption is required to be satisfied in shares of Common Stock of the General Partner, cash, or a combination thereof, calculated as follows: one share of the General Partner’s Common Stock, or cash equal to the fair market value of a share of the General Partner’s Common Stock at the time of redemption, for each common unit. The Company, in its sole discretion, determines the form of redemption of common units (i.e., whether a common unitholder receives Common Stock of the General Partner, cash, or any combination thereof). If the Company elects to satisfy the redemption with shares of Common Stock of the General Partner as opposed to cash, the General Partner is obligated to issue shares of its Common Stock to the redeeming unitholder. Regardless of the rights described above, the common unitholders may not put their units for cash to the Company or the General Partner under any circumstances.

LTIP Units

On March 8, 2016, the Company granted 2016 LTIP awards to senior management of the Corporation, including all of the Corporation’s executive officers. All of the 2016 LTIP Awards will be in the form of units in the Operating Partnership (“LTIP Units”). See description of Long-Term Incentive Plan Awards earlier in this footnote.

LTIP Units are designed to qualify as “profits interests” in the Operating Partnership for federal income tax purposes. As a general matter, the profits interests characteristics of the LTIP Units mean that initially they will not be economically equivalent in value to a common unit. If and when events specified by applicable tax regulations occur, LTIP Units can over time increase in value up to the point where they are equivalent to common units on a one-for-one basis. After LTIP Units are fully vested, and to the extent the special tax rules applicable to profits interests have allowed them to become equivalent in value to common units, LTIP Units may be converted on a one-for-one basis into common units. Common units in turn have a one-for-one relationship in value with shares of the Corporation’s common stock, and are redeemable on a one-for-one basis for cash or, at the election of the Company, shares of the Corporation’s common stock.

EARNINGS PER UNIT

Basic EPU excludes dilution and is computed by dividing net income available to common unitholders by the weighted average number of units outstanding for the period. Diluted EPU reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

The following information presents the Company’s results for the three months ended March 31, 2016 and 2015 in accordance with ASC 260, Earnings Per Share: (dollars in thousands, except per unit amounts)


		Three Months Ended
		March 31,
Computation of Basic EPU		2016		2015
Net income (loss)	$	68,769	$	(3,325)
Add: Noncontrolling interest in consolidated joint ventures		706		490
Net income (loss) available to common unitholders	$	69,475	$	(2,835)

Weighted average common units		100,230		100,266

Basic EPU:
Net income (loss) available to common unitholders	$	0.69	$	(0.03)


		Three Months Ended
		March 31,
Computation of Diluted EPU		2016		2015
Net income (loss) available to common unitholders	$	69,475	$	(2,835)

Weighted average common unit		100,315		100,266

Diluted EPU:
Net income (loss) available to common unitholders	$	0.69	$	(0.03)

The following schedule reconciles the units used in the basic EPU calculation to the units used in the diluted EPU calculation: (in thousands)


	Three Months Ended
	March 31,
	2016	2015
Basic EPU units	100,230	100,266
Add: Restricted Stock Awards	56	-
Stock Options	29	-
Diluted EPU units	100,315	100,266

Contingently issuable shares under the PSUs and Price Vesting Options were excluded from the denominator in 2016 and 2015 because the criteria had not been met for the period ended March 31, 2016. Not included in the computations of diluted EPU were 5,000 and 10,000 stock options as such securities were anti-dilutive during the periods ended March 31, 2016 and 2015, respectively. Also not included in the computations of diluted EPU were all of the LTIP Units as such securities were anti-dilutive during the periods. Unvested restricted stock outstanding as of March 31, 2016 and 2015 were 90,090 and 103,337 shares, respectively.

Distributions declared per common unit for each of the three month periods ended March 31, 2016 and 2015 was $0.15 per unit.